<PAGE>
===============================================================================
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 [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
THERMEDICS DETECTION, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
THERMEDICS DETECTION, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
THERMEDICS
DETECTION
220 Mill Road
Chelmsford, Massachusetts 01824-4178
April 12, 1999
Dear Stockholder:
The enclosed Notice calls the 1999 Annual Meeting of the Stockholders of
Thermedics Detection Inc. 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/ James Barbookles
JAMES BARBOOKLES
President and Chief Executive Officer
<PAGE>
THERMEDICS
DETECTION
220 Mill Road
Chelmsford, Massachusetts 01824-4178
April 12, 1999
To the Holders of the Common Stock of
THERMEDICS DETECTION INC.
NOTICE OF ANNUAL MEETING
The 1999 Annual Meeting of the Stockholders of Thermedics Detection Inc.
(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 four 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
Clerk
<PAGE>
PROXY STATEMENT
The enclosed proxy is solicited by the board of directors of Thermedics
Detection Inc. (the "Corporation") for use at the 1999 Annual Meeting of the
Stockholders 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 220 Mill Road,
Chelmsford, Massachusetts 01824-4178. This proxy statement and the enclosed
proxy were first furnished to Stockholders of the Corporation on or about
April 15, 1999.
VOTING PROCEDURES
The board of directors intends to present to the meeting the election of
four directors, constituting the entire board of directors.
The representation in person or by proxy of a majority of the outstanding
shares of common stock, $.10 par value, of the Corporation (the "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,
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.
In order to be elected a director, a nominee must receive the affirmative
vote of the holders of a majority of the shares of Common Stock voting, 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 regard to the election of directors, broker non-votes and withholdings of
authority to vote 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 Clerk 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
13,355,459 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.
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- PROPOSAL 1 -
ELECTION OF DIRECTORS
Four 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.
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, Thermedics Inc.
("Thermedics"), a manufacturer of biomedical products, product quality-assurance
systems, and security devices, and Thermedics' 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.
<TABLE>
<C> <S>
James Barbookles Mr. Barbookles, 50, has been a director of the
Corporation, as well as its president and chief executive
officer, since November 1997. He has been the president
and chief executive officer of Orion Research, Inc., a
manufacturer of electrochemical analysis instrumentation,
since March 1993 and 1995, respectively. Orion was a
wholly owned subsidiary of Thermedics until its
acquisition by the Corporation in May 1998.
- --------------------------------------------------------------------------------
Morton Collins Mr. Collins, 63, has been a director of the Corporation
since February 1997. Mr. Collins has been a general
partner of DSV Partners III, a venture capital limited
partnership, since 1981, a general partner of DSV
Management, Ltd. since 1983 and a general partner in DSV
Partners IV since 1985. Since 1985, DSV Management, Ltd.
has been a general partner of DSV Partners IV, a venture
capital limited partnership. Mr. Collins is also a
director of Kopin Corporation, The Liposome Company and
ThermoTrex Corporation.
- --------------------------------------------------------------------------------
John T. Keiser Mr. Keiser, 63, has been a director of the Corporation
since April 1997. He has been the chief operating
officer, biomedical and emerging technologies, of Thermo
Electron since September 1998, and was a vice president
from April 1997 until his promotion. Mr. Keiser has been
the president and chief executive officer of Thermedics
since March 1998 and December 1998, respectively, and was
a senior vice president of Thermedics from 1994 until his
promotion as president. He has also been the president of
Thermo Electron's wholly owned biomedical group, a
manufacturer of medical equipment and instruments, since
1994. Mr. Keiser was president of Eberline Instrument, a
division of Thermo Instrument Systems Inc., a majority-
owned subsidiary of Thermo Electron, from 1985 to July
1994. The Eberline Instrument division manufactures
radiation detection and counting instrumentation and
radiation monitoring systems. Mr. Keiser is a director of
Metrika Systems Corporation, Thermedics, Thermo
Cardiosystems Inc., ThermoLase Corporation, Thermo
Sentron Inc., ThermoTrex Corporation and Trex Medical
Corporation.
- --------------------------------------------------------------------------------
Matthew C. Weisman Mr. Weisman, 57, has been a director of the Corporation
since May 1997. Mr. Weisman has been president and chief
executive officer of Cobey Corporation, a consulting and
private investment company, since 1983. For the past five
years, he has served as an adviser to several venture
capital firms and their portfolio companies. He is also a
director of Serologicals Corp.
- --------------------------------------------------------------------------------
</TABLE>
2
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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 (also referred to as "outside directors"). The present members
of the audit committee are Mr. Weisman (Chairman) and Mr. Collins. 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. Collins (Chairman) and Mr. Weisman. 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 six
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 $2,000 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. Messrs. Barbookles and Keiser are both 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 Thermedics 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
the Common Stock or the common stock of Thermedics or 25% or more of the
outstanding common stock of 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 the Corporation's Common Stock. When payable,
amounts deferred may be disbursed solely in shares of Common Stock accumulated
under the Deferred Compensation Plan. A total of 25,000 shares of Common Stock
has been reserved for issuance under the Deferred Compensation Plan. As of
January 2, 1999, deferred units equal to approximately 3,416 shares of Common
Stock were accumulated under the Deferred Compensation Plan.
Stock-Based Compensation
Directors of the Corporation are also eligible for the grant of stock
options under the Corporation's stock-based compensation plans. These plans are
administered by the human resources committee of the board of directors, which
determines the form and terms of stock-based awards to be granted. To date,
only nonqualified stock options have been granted to directors under these
plans. At the time of the Corporation's initial public offering, directors
received a grant of options to purchase 20,000 shares of Common Stock, at an
exercise price of $11.99 per share. These options may be exercised at any time
prior to the expiration of the option on the seventh anniversary of the grant
date. Shares acquired upon exercise of the options are subject to restrictions
on transfer and the right of the Corporation to repurchase such shares at the
exercise price if 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
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<PAGE>
deemed to have lapsed 20% 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.
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 and
Retention 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 and Retention Policies."
STOCK OWNERSHIP
The following table sets forth the beneficial ownership of Common Stock, as
well as the common stock of Thermedics, the Corporation's parent company, and of
Thermo Electron, Thermedics' parent company, as of January 31, 1999, with
respect to (i) each director, (ii) each executive officer named in the summary
compensation table under the heading "Executive Compensation" (the "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 owned by Thermo Electron.
<TABLE>
<CAPTION>
Thermedics Thermo Electron
Name (1) Detection Inc. (2) Thermedics Inc. (3) Corporation (4)
- --------- ------------------ ------------------- ---------------
<S> <C> <C> <C>
Thermo Electron
Corporation (5).... 17,091,821 N/A N/A
James Barbookles.... 244,800 75,000 20,400
Morton Collins...... 26,684 0 0
David H. Fine....... 109,967 103,687 71,190
John T. Keiser...... 17,000 193,993 296,608
Matthew C. Weisman.. 21,732 0 1,000
All directors and
current executive
officers as a
group (7 persons).. 427,283 434,303 920,948
</TABLE>
(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 the Common Stock beneficially owned by Mr. Barbookles,
Mr. Collins, Dr. Fine, Mr. Keiser, Mr. Weisman and all directors and
current executive officers as a group include 226,800, 20,000, 99,967,
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<PAGE>
17,000, 20,000 and 390,767 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 beneficially owned by
Mr. Collins, Mr. Weisman and all directors and current executive officers
as a group include 1,684, 1,732 and 3,416 shares, respectively, allocated
to their respective accounts through January 2, 1999, maintained under 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 other than Mr. Barbookles, who beneficially owned 1.25% of
such Common Stock; all directors and current executive officers as a group
beneficially owned 2.19% of the Common Stock outstanding as of such date.
(3) Shares of the common stock of Thermedics beneficially owned by
Mr. Barbookles, Dr. Fine, Mr. Keiser, and all directors and current
executive officers as a group include 75,000, 87,300, 187,200 and 408,500
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 beneficially owned by all directors and current executive officers
as a group include 2,413 shares 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").
No director or named executive officer beneficially owned more than 1% of
the common stock of Thermedics outstanding as of January 31, 1999; all
directors and current executive officers as a group beneficially owned
1.18% of such common stock outstanding as of such date.
(4) Shares of the common stock of Thermo Electron beneficially owned by
Mr. Barbookles, Dr. Fine, Mr. Keiser and all directors and current
executive officers as a group include 20,400, 54,912, 251,622 and 789,706
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 beneficially owned by all directors and current executive officers
as a group include 2,497 shares allocated through January 31, 1999 to their
respective accounts maintained pursuant to the ESOP. No director or named
executive officer beneficially owned more than 1% of the common stock of
Thermo Electron outstanding as of January 31, 1999; all directors and
current executive officers as a group did not beneficially own more than 1%
of the common stock of Thermo Electron as of such date.
(5) As of January 31, 1999, Thermo Electron beneficially owned approximately
88.48% of the outstanding Common Stock, primarily through its majority-
owned subsidiary Thermedics. 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 Thermedics
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 118 transactions, including 104
open market purchases of shares of Common Stock and 14 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 for services to the Corporation
received during the last three fiscal years by the Corporation's chief executive
officer and its other most highly compensated executive officers. These
executive officers are collectively referred to herein 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
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Exchange Commission's executive compensation disclosure rules. Mr. Barbookles
became president and chief executive officer of the Corporation on November 4,
1997.
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
<TABLE>
<CAPTION>
Long Term
Compensation
Securities
Name and Underlying Options
Principal Fiscal Annual Compensation (No. of Shares and All Other
Position Year Salary Bonus Company) (1) Compensation (2)
-------- ----- ------ ----- -------------- ----------------
<S> <C> <C> <C> <C> <C>
James Barbookles (3) 1998 $175,000 $110,000 121,800 (TDX) $17,351 (4)
President and 2,900 (TMO)
Chief Executive 2,000 (MKA)
Officer 2,000 (ONX)
4,000 (RGI)
1,000 (TISI)
2,000 (TRIL)
1,500 (VIZ)
2,000 (TRCC)
1997 $ 21,251 $ 0 100,000 (TDX) $ 7,125
- -------------------------------------------------------------------------------------------
David H. Fine (5) 1998 $140,000 $ 41,000 8,300 (TDX) $ 7,200
Senior Vice President 1,900 (TMO)
2,200 (TMD)
1997 $134,000 $ 78,800 30,000 (TDX) $ 7,200
1,900 (TMO)
3,500 (TMD)
15,000 (TLZ)
1996 $128,000 $ 45,000 20,000 (TDX) $ 6,603
1,950 (TMO)
3,000 (TMD)
30,000 (TLZ)
7,500 (TSR)
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Options granted by the Corporation are designated as "TDX." In addition,
the named executive officers have also been granted options to purchase the
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 Inc. (designated in the table as TMD), Thermo
Information Solutions Inc. (designated in the table as TISI), ThermoLase
Corporation (designated in the table as TLZ), 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) 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 executive officers participating in the Thermo
Electron 401(k) plan.
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(3) Mr. Barbookles has provided services in different capacities to the
Corporation and its parent company, Thermedics. Mr. Barbookles was
appointed president and chief executive officer of the Corporation on
November 14, 1997. Prior to his appointment to this position,
Mr. Barbookles was the president and chief executive officer of Orion
Research, Inc., a wholly owned subsidiary of the Corporation and a wholly
owned subsidiary of Thermedics until its acquisition by the Corporation in
May 1998. The annual cash compensation (salary and bonus) reported in the
table for Mr. Barbookles represents the amount paid by the Corporation and
all other sources for his services to the Corporation as president and
chief executive officer since November 14, 1997. Mr. Barbookles also holds
other unexercised options to purchase the common stock of Thermo Electron
and its subsidiaries, which were granted prior to his appointment as the
Corporation's president and chief executive officer. These options are not
reported here as they were granted as compensation for his services to
other Thermo Electron companies in capacities other than in his capacity as
chief executive officer of the Corporation.
(4) In addition to a $7,200 matching contribution referred to in footnote (2),
this amount includes $10,151, which represents the amount of compensation
attributable in 1998 to an interest free loan provided to Mr. Barbookles
pursuant to the Corporation's stock holding assistance plan.
(5) In addition to his services to the Corporation, Dr. Fine also served as
interim director of research for ThermoLase Corporation, an indirect,
majority-owned subsidiary of Thermo Electron, for portions of fiscal 1997
and 1996. For 1998, 1997 and 1996, 18%, 60% and 11%, respectively, of
Dr. Fine's annual salary and 0%, 60% and 0%, respectively, of Dr. Fine's
annual bonus was allocated to ThermoLase Corporation. Salary and bonus
reported in the table for Dr. Fine for fiscal 1998, 1997 and 1996 include
salary in the amounts of $25,200, $80,400 and $14,080, respectively, and
bonus in the amounts of $ 0, $47,280 and $0, respectively, paid to Dr. Fine
by ThermoLase Corporation for his services to that company. Options to
purchase shares of the common stock of ThermoLase granted to Dr. Fine in
fiscal 1997 and 1996 were awarded for his services to ThermoLase. Dr. Fine
resigned as a senior vice president of the Corporation on March 1, 1999.
Stock Options Granted During Fiscal 1998
The following table sets forth information concerning individual grants of
stock options made during fiscal 1998 to the 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.
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Option Grants in Fiscal 1998
<TABLE>
<CAPTION>
Potential Realizable Value
Number of at Assumed Annual Rates of
Securities Percent of Total Stock Price Appreciation
Underlying Options Options Granted Exercise for Option Term (2)
Granted and to Employees in Price Expiration --------------------------
Name Company (1) Fiscal Year Per Share Date 5% 10%
- ---- ----------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
James Barbookles 106,000 (TDX) 12.99% $ 7.56 12/18/03 $221,540 $489,720
15,000 (TDX) 1.84% $ 7.81 9/17/03 $ 32,400 $ 71,550
800 (TDX) 0.10% $11.41 3/23/01 $ 1,440 $ 3,024
2,900 (TMO) 0.09%(3) $16.20 9/23/03 $ 12,992 $ 28,681
2,000 (MKA) 0.70%(3) $14.23 1/21/05 $ 11,580 $ 27,000
2,000 (ONX) 0.20%(3) $14.25 1/21/08 $ 17,920 $ 45,420
4,000 (RGI) 0.75%(3) $ 4.00 1/21/05 $ 6,520 $ 15,160
1,000 (TISI) 1.67%(3) $10.00 1/21/08 $ 6,290 $ 15,940
2,000 (TRIL) 1.11%(3) $ 8.25 1/21/08 $ 10,380 $ 26,300
1,500 (VIZ) 0.37%(3) $ 7.25 1/21/05 $ 4,425 $ 10,320
2,000 (TRCC) 0.16%(3) $ 4.00 1/21/08 $ 5,040 $ 12,740
- -------------------------------------------------------------------------------------------------------------------
David H. Fine 7,000 (TDX) 0.86% $ 7.81 9/17/03 $ 15,120 $ 33,390
1,300 (TDX) 0.16% $11.41 3/23/01 $ 2,340 $ 4,914
1,900 (TMO) 0.06%(3) $34.50 6/2/03 $ 18,107 $ 40,014
2,200 (TMD) 0.49%(3) $16.05 3/5/01 $ 5,566 $ 11,682
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The options granted during the fiscal year are immediately exercisable as
of the end of the fiscal year, 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 ceases to 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 the cessation of directorship, as the case may
be. For publicly-traded companies, the repurchase rights generally lapse
ratably over a one- to five-year period, depending on the option term,
which may vary from five to ten 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 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 6 for the company
abbreviations used in this table.
(2) The amounts shown on 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.
8
<PAGE>
(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 Option 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 named executive officers. No stock
appreciation rights were exercised or were outstanding during fiscal 1998.
<TABLE>
<CAPTION>
Aggregated Option Exercises In Fiscal 1998 And Fiscal 1998 Year-End Option Values
Number of Securities
Underlying Value of
Unexercised Unexercised
Shares Options at Fiscal In-the-Money
Acquired Year-End Options at Fiscal
on Value (Exercisable/ Year-End (Exercisable/
Name Company Exercise Realized (1) Unexercisable) (2) Unexercisable)
---- ------- -------- ------------ ------------------ -----------------------
<S> <C> <C> <C> <C> <C>
James C. Barbookles (3) (TDX) -- -- 226,800/0 $ 20,140/--
(TMO) -- -- 2,900/0 $ 14,651
(MKA) -- -- 2,000/0 $ 0/--
(ONX) -- -- 2,000/0 $ 0/--
(RGI) -- -- 4,000/0 $ 0/--
(TISI) -- -- 0/1,000 -- /$0(4)
(TRIL) -- -- 0/2,000 -- /$0(4)
(VIZ) -- -- 1,500/0 $ 0 /--
(TRCC) -- -- 0/2,000 -- /$0(4)
- --------------------------------------------------------------------------------------------------------------
David H. Fine (TDX) -- -- 99,967/0 (5) $197,918/--
(TMO) 3,525 $72,094 54,912/0 (6) $ 10,294/--
(TMD) 3,000 $24,090 87,300/0 $145,501/--
(TFT) -- -- 4,500/0 $ 18,284/--
(TLZ) -- -- 45,000/0 (5) $ 0/--
(TSR) -- -- 7,500/0 $ 0/--
(THS) -- -- 1,000/0 $ 1,375/--
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(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 the fiscal year are
immediately exercisable as of the end of the fiscal year, 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 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 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
9
<PAGE>
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 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.
(3) Mr. Barbookles also holds other unexercised options to purchase the common
stock of Thermo Electron and its subsidiaries, which were granted prior to
his appointment as the Corporation's president and chief executive officer.
These options are not reported here as they were granted as compensation
for his services to other Thermo Electron companies in capacities other
than in his capacity as chief executive officer of the Corporation.
(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.
(5) The options to purchase shares of the common stock of the Corporation and
ThermoLase Corporation granted to Dr. Fine are subject to the same terms
described in footnote (2), except that the repurchase rights are deemed to
lapse 20% per year commencing on the sixth anniversary of the grant date.
The options to purchase shares of the common stock of ThermoLase
Corporation were granted to Dr. Fine as compensation for his services to
ThermoLase Corporation as that company's interim director of research.
(6) Options to purchase 45,000 shares of the common stock of Thermo Electron
granted to Dr. Fine are subject to the same terms described in footnote
(2), except that the repurchase rights of the granting company generally do
not lapse until the tenth anniversary of the grant date. In the event of
the employee's death or involuntary termination prior to the tenth
anniversary of the grant date, the repurchase rights of the granting
company shall be deemed to have lapsed ratably over a five-year period
commencing with the fifth anniversary of the grant date.
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
Mr. Barbookles. This agreement provides that in the event Mr. Barbookles's
employment is terminated under the circumstances described above, he would be
entitled to a lump sum payment equal to the sum of (a) one times his 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, Mr. Barbookles would be provided benefits
for a period of one year after such termination substantially equivalent to the
benefits package he would have been otherwise entitled to receive if he was not
terminated. Further, all repurchase rights of Thermo Electron and its
subsidiaries
10
<PAGE>
shall lapse in their entirety with respect to all options that Mr. Barbookles
holds in Thermo Electron and its subsidiaries, including the Corporation, as of
the date of the change in control. Finally, Mr. Barbookles would be entitled to
a cash payment equal to $15,000 to be used toward outplacement services.
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
Mr. Barbookles would have been approximately $312,000. In the event that
payments under these agreements 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"), Mr. Barbookles 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.
11
<PAGE>
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 for
fiscal 1998 (other than the chief executive officer which is described below
under the caption "1998 CEO Compensation") was substantially lower than the
incentive compensation awarded the previous year and reflected the Corporation's
financial performance in fiscal 1998.
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 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
Thermedics, and the other majority-owned subsidiaries of Thermo Electron and
Thermedics, 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
12
<PAGE>
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 and Retention 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.
There are several elements to the Corporation's stock retention program.
For example, the Committee annually awards stock options based upon an
executive's ownership of Common Stock during the prior year. These option
awards are independent of the award of stock options as an incentive for
management performance. In 1998, the Committee granted options to purchase
Common Stock to the named executive officers under this program. These options
have three-year terms and vest 100% on the second anniversary of the date of
grant. Certain awards to the named executive officers in 1998 to purchase
shares of the common stock of Thermo Electron and Thermedics were made by those
companies under similar programs that award options to certain eligible
employees annually based on the number of shares of the common stock of Thermo
Electron or Thermedics held by such employees as an incentive to buy and hold
such companies' shares.
The Committee 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 the Corporation's Common Stock. For the chief
executive officer, the multiple is one times his base salary and reference 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 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 executive officers in complying with the policy, the
Committee also adopted a stock holding assistance plan under which the
Corporation was authorized to make interest-free loans to executive officers to
enable them to purchase shares of Common Stock in the open market. This plan
has also been 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
grant date, unless otherwise determined by the Committee. During 1997,
Mr. Barbookles, the Corporation's president and chief executive officer,
received loans in the principal amount of $160,721 under this plan, the entire
amount of which was outstanding as of January 31, 1999. In 1998, Mr. Barbookles
received a loan in the principal amount of $21,476 under this plan, the entire
amount of which 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).
13
<PAGE>
1998 CEO Compensation
The compensation of Mr. Barbookles is established using the same criteria
as described above for all executive officers. The Committee approved a salary
increase for Mr. Barbookles 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 Mr. Barbookles' performance-based incentive compensation for
fiscal 1998, the Committee considered the financial performance of the
Corporation and, to a lesser extent, its parent company, Thermedics, using the
measures described above for all executive officers under the caption
"Components of Executive Compensation Annual Cash Compensation Performance-
based Incentive Compensation." The Committee's subjective evaluation of
Mr. Barbookles' performance considered, among other things, his effectiveness in
furthering the Corporation's business and financial objectives.
Awards to Mr. Barbookles of options to purchase shares of 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 options to purchase 121,000 shares of the Common Stock was made by the
Committee to Mr. Barbookles in fiscal 1998 based on the Committee's assessment
of Mr. Barbookles' total compensation. In addition, the Committee annually
considers an award of stock options to executive officers of the Corporation,
generally based upon the number of shares of Common Stock held by the executive
during the year, as an incentive to buy and hold shares of Common Stock. The
award of stock options to purchase 800 shares of Common Stock to Mr. Barbookles
in 1998 was made under this program. The award to Mr. Barbookles in fiscal 1998
of options to purchase 2,900 shares of the common stock of Thermo Electron was
made by the human resources committee of the board of directors of Thermo
Electron using a methodology similar to that described for the Corporation.
Due to Mr. Barbookles' 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 the majority-owned subsidiaries of Thermo
Electron as part of Thermo Electron's stock option program. Awards of stock
options to purchase 2,000 shares of the common stock of Metrika Systems
Corporation, 2,000 shares of the common stock of ONIX Systems Inc., 4,000 shares
of the common stock of The Randers Killam Group Inc., 1,000 shares of the common
stock of Thermo Information Solutions Inc., 2,000 shares of the common stock of
Thermo Trilogy Corporation, 1,500 shares of the common stock of Thermo Vision
Corporation, and 2,000 shares of the common stock of Trex Communications
Corporation, were made to Mr. Barbookles under this program in fiscal 1998.
Morton Collins (Chairman)
Matthew C. Weisman
14
<PAGE>
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 since February 21, 1997 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 Thermedics Detection Inc.,
the American Stock Exchange Market Value Index
and the Dow Jones Total Return Index
for the Diversified Technology Industry Group
from February 21, 1997 to December 31, 1998
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
--------------------------------------------------
02/21/97 01/02/98 12/31/98
--------------------------------------------------
<S> <C> <C> <C>
TDX 100 89 67
--------------------------------------------------
AMEX 100 116 118
--------------------------------------------------
DJDTC 100 108 109
--------------------------------------------------
</TABLE>
The total return for the Corporation's Common Stock (TDX), 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 "TDX."
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. Thermedics has created the Corporation as a
publicly-held, majority-owned subsidiary. The Corporation and such other
majority-owned Thermo Electron subsidiaries are hereinafter referred to as the
"Thermo Subsidiaries."
15
<PAGE>
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
the 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 for fiscal 1998. The annual fee will remain at 0.8%
of the Corporation's total 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 $733,000
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. In 1998, the Corporation was billed an
additional $66,831 by Thermo Electron for certain administrative services
required by the Corporation that were not covered by the Services Agreement. In
addition, the Corporation uses data processing and contract administration
services of two majority-owned subsidiaries of Thermo Electron and is charged
based on actual usage. The Services
16
<PAGE>
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
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 that 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 Thermedics
and Thermedics and Thermo Electron collectively own 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 Thermedics' and Thermo Electron's equity ownership of the
Corporation were to drop below 80%, the Corporation would file its own tax
returns. In 1999, because Thermedics' and Thermo Electron's combined equity
ownership of the Corporation now exceeds 80%, the Corporation will be included
in Thermo Electron's consolidated tax returns and will be assessed for amounts
due to Thermo Electron in accordance with the Tax Allocation Agreement.
From time to time the Corporation may transact business with other
companies in the Thermo Group.
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Corporation. As part of this
reorganization, Thermedics' majority interest in the Corporation would be
transferred to Thermo Electron. The Corporation would then be taken private and
become a wholly owned subsidiary of Thermo Electron. It is currently
contemplated that the Corporation's shareholders would receive cash in exchange
for their shares of common stock of the Corporation. The completion of these
transaction is subject to numerous conditions, including the establishment of
prices and exchange ratios; confirmation of anticipated tax consequences;
approval by the Boards of Directors of the Corporation, Thermedics and Thermo
Electron (including the independent directors of the Corporation and
Thermedics); negotiation and execution of definitive agreements; clearance by
the Securities and Exchange Commission of any necessary documents in connection
with the proposed transactions; and the receipt of fairness opinions from
investment banking firms on certain financial aspects of the transactions.
In April 1998, the Corporation announced its intention to acquire Orion
Research, Inc. ("Orion Research"), a wholly owned subsidiary of Thermedics, in
exchange for 5,961,225 shares of the Corporation's Common Stock. On May 6, 1998,
the Corporation and Thermedics entered into a definitive agreement regarding the
Corporation's acquisition of Orion Research, subject to shareholder approval of
the issuance of the shares of the Corporation's Common Stock in the transaction.
In determining the purchase price for Orion Research, the Corporation used
methodologies, to the extent possible, similar to those applied by an
independent investment bank engaged by Thermedics in October 1995 prior to its
acquisition of Orion Research from a third party, as well as an analysis based
upon current and trailing ratios applied to both revenue and operating income of
Orion Research. The board of directors (including directors not affiliated with
Thermedics) approved the acquisition of Orion Research. In January 1999, the
Corporation's shareholders approved the issuance of the shares to Thermedics.
The Corporation purchases an X-ray source that is used as a component in
its InScan systems from Trex Medical Corporation, a publicly traded, majority-
owned subsidiary of ThermoTrex Corporation ("ThermoTrex"), which is itself a
publicly traded, majority-owned subsidiary of Thermo Electron. The Corporation
paid Trex Medical Corporation $406,000 for these products in fiscal 1998.
The Corporation entered into a funded research and development arrangement
with ThermoLase Corporation ("ThermoLase"), a publicly traded, majority-owned
subsidiary of ThermoTrex, in December 1997 to
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develop a cryogenic cooling device for ThermoLase. ThermoLase agreed to purchase
five prototype devices for an aggregate purchase price of $303,000. The
Corporation shipped these devices in the third quarter of 1998.
The Corporation has subleased approximately 12,000 square feet of space in
its Chelmsford, Massachusetts, facility to Thermo Cardiosystems Inc., a publicly
traded, majority-owned subsidiary of Thermedics ("Thermo Cardiosystems"), under
a sublease agreement expiring in December 1999. Under this sublease, Thermo
Cardiosystems paid the Corporation base rent of $50,000 during fiscal 1998,
together with an amount equal to approximately $44,000, representing Thermo
Cardiosystems' pro rata allocations of the facility's aggregate operating costs,
real estate taxes and utilities for that period.
Pursuant to an international distributorship agreement, the Corporation
appointed Arabian Business Machines Co. ("ABM") as its exclusive distributor of
the Corporation's security instruments in certain Middle Eastern countries. ABM
is a member of The Olayan Group. Ms. Hutham S. Olayan, a director of Thermo
Electron, is the president and a director of Olayan America Corporation and
Competrol Real Estate Limited, two other members of The Olayan Group, which is
indirectly controlled by Suliman S. Olayan, Ms. Olayan's father. Revenues
recorded under this agreement totaled $248,000 in fiscal 1998.
As of January 2, 1999, the Corporation owed Thermo Electron and its other
subsidiaries an aggregate of $336,000 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 for miscellaneous
items. The largest amount of net indebtedness owed by the Corporation to Thermo
Electron and its other subsidiaries since January 4, 1998 was $1,235,960. These
amounts do not bear interest and are expected to be paid in the normal course of
business.
As of January 2, 1999, $24,682,000 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 will be 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 the policy,
the Committee also adopted a stock holding assistance plan under which the
Corporation could make interest-free loans to executive officers to enable them
to purchase Common Stock in the open market. This policy and plan have been
subsequently amended to apply only to the chief executive officer of the
Corporation in the future. During 1997, Mr. James Barbookles, the Corporation's
president and chief executive officer, received loans in the principal amount of
$160,721 under the stock holding assistance plan to purchase 15,900 shares, of
which the entire amount was outstanding as of January 31, 1999. In 1998,
Mr. Barbookles received a loan in the principal amount of $21,476 under this
plan to purchase 2,100 shares, the entire amount of which 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
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1990. 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 11, 1999. Notices of Stockholder proposals submitted outside the
processes of Rule 14a-8 of the Exchange Act (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 1, 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.
Chelmsford, Massachusetts
April 12, 1999
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FORM OF PROXY
THERMEDICS DETECTION INC.
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 James Barbookles, John T. Keiser 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 Thermedics Detection Inc., a Massachusetts 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, 1998, 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.)
<PAGE>
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: James Barbookles, Morton Collins, John T. Keiser and
Matthew C. Weisman.
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.
PLEASE DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
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.
