Thermo TerraTech Inc.
81 Wyman Street
Waltham, Massachusetts 02254-9046
August 13, 1997
Dear Stockholder:
The enclosed Notice calls the 1997 Annual Meeting of the Stockholders
of Thermo TerraTech Inc. I respectfully request all Stockholders to attend
this meeting, if possible.
Our Annual Report for the fiscal year ended March 29, 1997, 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,
JOHN P. APPLETON
President and Chief
Executive Officer
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Thermo TerraTech Inc.
81 Wyman Street
Waltham, Massachusetts 02254-9046
August 13, 1997
To the Holders of the Common Stock of
THERMO TERRATECH INC.
NOTICE OF ANNUAL MEETING
The 1997 Annual Meeting of the Stockholders of Thermo TerraTech Inc.
(the "Corporation") will be held on Wednesday, September 24, 1997, at 11:00
a.m. at the offices of Thermo Electron Corporation, 81 Wyman Street,
Waltham, Massachusetts. The purpose of the meeting is to consider and take
action upon the following matters:
1. Election of six directors.
2. A proposal recommended by the Board of Directors to extend the
term of the Corporation's employees stock purchase plan to
November 2, 2005.
3. 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 August 8, 1997.
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 stock 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
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PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of Thermo
TerraTech Inc. (the "Corporation") for use at the 1997 Annual Meeting of
the Stockholders (the "Meeting") to be held on Wednesday, September 24,
1997, at 11:00 a.m. at the offices of Thermo Electron Corporation, 81 Wyman
Street, Waltham, Massachusetts, and any adjournment thereof. The mailing
address of the executive office of the Corporation is 81 Wyman Street,
Waltham, Massachusetts 02254. This proxy statement and the enclosed proxy
were first furnished to Stockholders of the Corporation on or about August
15, 1997.
VOTING PROCEDURES
The Board of Directors intends to present to the Meeting the election
of six directors, constituting the entire Board of Directors, as well as
one other matter: a proposal to extend the term of the Corporation's
employees' stock purchase plan to November 2, 2005.
The representation in person or by proxy of a majority of the
outstanding shares of common stock of the Corporation, $.10 par value (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. All signed and returned proxies will be
counted towards establishing a quorum for the Meeting, regardless of how
the shares are voted.
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, for the management proposal 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 a majority of the shares of Common Stock present and
entitled to vote on the election. For the management proposal to extend
the term of the Corporation's employees' stock purchase plan, the
affirmative vote of a majority of the shares present in person or
represented by proxy and entitled to vote on the matter is necessary for
approval. Withholding authority to vote for a nominee for director or an
instruction to abstain from voting on a proposal will be treated as shares
present and entitled to vote and, for purposes of determining the outcome
of the vote, will have the same effect as a vote against the nominee or the
proposal. With respect to the election of directors and the management
proposal, broker "non-votes" will not be treated as shares present and
entitled to vote on a voting matter and will have no effect on the outcome
of the vote. A broker "non-vote" occurs when a nominee holding shares for
a beneficial holder does not have discretionary voting power and does not
receive voting instructions from the beneficial owner.
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 August 8, 1997, consisted
of 18,873,210 shares of Common Stock. Only Stockholders of record at the
close of business on August 8, 1997, are entitled to vote at the Meeting.
Each share is entitled to one vote.
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--PROPOSAL 1--
ELECTION OF DIRECTORS
Six directors are to be elected at the Meeting, each to hold office
until his successor is chosen and qualified or until his earlier
resignation, death or removal.
Nominees for Directors
Set forth below are the names of the persons nominated as directors,
their ages, their offices in the Corporation, if any, their principal
occupation or employment for the past five years, the length of their
tenure as directors and the names of other public companies in which such
persons hold directorships. Information regarding their beneficial
ownership of the Corporation's Common Stock and of the common stock of its
parent corporation, Thermo Electron Corporation ("Thermo Electron"), and of
its subsidiary, Thermo Remediation Inc. ("Thermo Remediation"), is reported
under the caption "Stock Ownership." All of the nominees are currently
directors of the Corporation.
John P. Appleton Dr. Appleton, 62, has been president, chief
executive officer and a director of the
Corporation since September 1993. Dr. Appleton
has been chairman, chief executive officer and a
director of Thermo Remediation since September
1993 and has served as a vice president of Thermo
Electron since 1975 in various managerial
capacities.
John N. Hatsopoulos Mr. Hatsopoulos, 63, has been a director of the
Corporation since 1986 and its vice president and
chief financial officer since 1988. Mr.
Hatsopoulos has been the president of Thermo
Electron since January 1997 and its chief
financial officer since 1988. Prior to becoming
president, he was an executive vice president of
Thermo Electron from 1986 to January 1997. Mr.
Hatsopoulos is also a director of LOIS/USA Inc.,
Metrika Systems Corporation, Thermedics Inc.,
Thermedics Detection Inc., Thermo Ecotek
Corporation, Thermo Fibergen Inc. Thermo Fibertek
Inc., Thermo Instrument Systems Inc., Thermo
Power Corporation and ThermoTrex Corporation.
Brian D. Holt Mr. Holt, 48, became a director of the
Corporation in February, 1997. Mr. Holt has been
the president and chief executive officer of
Thermo Ecotek Corporation, a majority-owned
subsidiary of Thermo Electron involved in clean
combustion and engineered clean fuels, naturally
derived biopesticides and other environmentally
sound technologies, since February 1994 and a
director of that company since January 1995. For
more than five years prior to his appointment as
an officer of the Thermo Ecotek Corporation, he
was president and chief executive officer of
Pacific Generation Company, a financier, builder,
owner and operator of independent power
facilities. Mr. Holt is also a director of KFx,
Inc.
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Donald E. Noble Mr. Noble, 82, has been a director of the
Corporation since 1986 and served as chairman of
the board from 1992 to November 1994. For more
than 20 years, from 1959 to 1980, Mr. Noble
served as the chief executive officer of
Rubbermaid Incorporated, first with the title of
president and then as chairman of the board. Mr.
Noble is also a director of Thermo Electron,
Thermo Fibertek Inc., Thermo Power Corporation
and Thermo Sentron Inc.
William A. Rainville Mr. Rainville, 55, has been a director of the
Corporation since February 1993 and chairman of
the Board since November 1994. Mr. Rainville has
been president and chief executive officer of
Thermo Fibertek Inc., a majority owned subsidiary
of Thermo Electron that develops and manufactures
equipment and products for the paper making and
paper recycling industries, since its inception
in 1991, a senior vice president of Thermo
Electron since March 1993 and a vice president of
Thermo Electron from 1986 to 1993. From 1984
until January 1993, Mr. Rainville was the
president and chief executive officer of Thermo
Electron Web Systems Inc., a subsidiary of Thermo
Fibertek Inc. Mr. Rainville is also a director
of Thermo Ecotek Corporation, Thermo Fibergen
Inc., Thermo Fibertek Inc. and Thermo
Remediation.
Polyvios C. Vintiadis Mr. Vintiadis, 61 has been a director of the
Corporation since September 1992. Mr. Vintiadis
has been the chairman and chief executive officer
of Towermarc Corporation, a real estate
development company, since 1984. Prior to
joining Towermarc Corporation, Mr. Vintiadis was
a principal of Morgens, Waterfall & Vintiadis,
Inc., a financial services firm, with whom he
remains associated. For more than 20 years prior
to that time, Mr. Vintiadis was employed by
Arthur D. Little & Company, Inc. Mr. Vintiadis
is also a director of Thermo Instrument Systems
Inc.
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 outside directors. The
present members of the Audit Committee are Mr. Vintiadis (Chairman) and Mr.
Noble. 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. Noble
(Chairman) and Mr. Vintiadis. The Human Resources Committee reviews the
performance of senior members of management, recommends 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 six
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times during fiscal 1997. Each director attended at least 75% of all
meetings of the Board of Directors and Committees on which he served held
during fiscal 1997, except Dr. Appleton and Mr. Hatsopoulos, who each
attended 67% of such meetings. Dr. Appleton attended all of the meetings
of the Board of Directors held in person, but did not participate in two
meetings held by means of conference telephone due to scheduling
difficulties while he was traveling overseas on company business. Mr.
Hatsopoulos is the chief financial officer of Thermo Electron and each of
its publicly held subsidiaries, and his responsibilities require him to
travel extensively on company business.
Compensation of Directors
Cash Compensation
Directors who are not employees of the Corporation, of Thermo Electron
or of any other company affiliated with Thermo Electron (also referred to
as "outside directors"), receive an annual retainer of $4,000 and a fee of
$1,000 per day for attending regular meetings of the Board of Directors and
$500 per day 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. Dr. Appleton, Mr. Hatsopoulos, Mr.
Holt and Mr. Rainville are all employees of Thermo Electron or its
subsidiaries and do not receive any cash compensation from the Corporation
for their services as directors. Directors are also reimbursed for
out-of-pocket expenses incurred in attending such meetings.
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Deferred Compensation Plan for Directors
Under the 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 in control or proposed
change in 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
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 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 41,416 shares of Common Stock have been
reserved for issuance under the Deferred Compensation Plan. As of June 28,
1997, deferred units equal to 24,447 full shares of Common Stock were
accumulated for current directors under the Deferred Compensation Plan.
Directors Stock Option Plan
The Corporation's Directors Stock Option Plan (then "Directors Plan")
provides for the grant of stock options to purchase shares of Common Stock
of the Corporation and its majority owned subsidiaries to outside directors
as additional compensation for their service as directors. Under the
Directors Plan, outside directors are automatically granted options to
purchase 1,000 shares of Common Stock annually and are also automatically
granted every five years options to purchase 1,500 shares of the common
stock of a majority-owned subsidiary of the Corporation that is "spun out"
to outside investors.
Pursuant to the Directors Plan, outside directors receive an annual
grant of options to purchase 1,000 shares of Common Stock pursuant to the
Directors Plan at the close of business on the date of each Annual Meeting
of the Stockholders of the Corporation. 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.
Options granted under this provision before 1995 expire after seven years;
commencing in 1995, the option term was shortened to three years. Shares
acquired upon exercise of the options are subject to repurchase by the
Corporation at the exercise price if the recipient ceases to serve as a
director of the Corporation or any other Thermo Electron company prior to
the first anniversary of the grant date.
In addition, under the Directors Plan, outside directors are
automatically granted every five years options to purchase 1,500 shares of
common stock of each majority-owned subsidiary of the Corporation that is
"spun out" to outside investors. The grant occurs on the close of business
on the date of the first Annual Meeting of the Stockholders next following
the subsidiary's spinout, which is the first to occur of either an initial
public offering of the subsidiary's common stock or a sale of such stock to
third parties in an arms-length transaction, and also as of the close of
business on the date of every fifth Annual Meeting of the Stockholders of
the Corporation that occurs thereafter during the duration of the Plan.
The options granted vest and become exercisable on the fourth anniversary
of the date of grant, unless prior to such date the subsidiary's common
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stock is registered under Section 12 of the Securities Exchange Act of
1934, as amended (''Section 12 Registration"). In the event that the
effective date of Section 12 Registration occurs before the fourth
anniversary of the grant date, the option will become immediately
exercisable and the shares acquired upon exercise will be 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. In
the event of Section 12 Registration, the restrictions and repurchase
rights shall lapse or be deemed to lapse at the rate of 25% per year,
starting with the first anniversary of the grant date. These options
expire after five years.
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 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 June 28, 1997, options to purchase 22,700 shares of
Common Stock had been granted under the Director's Plan, of which 15,500
were outstanding, 1,400 had lapsed, and 5,800 had been exercised; and
options to purchase 53,700 shares of Common Stock were reserved and
available for grant under the Director's Plan as of June 28, 1997.
Stock Ownership Policies for Directors
During fiscal 1997, the Human Resources Committee of the Board of
Directors (the "Committee") 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 by the 1998 Annual Meeting of Stockholders.
Directors who are also executive officers of the Corporation are required
to comply with a separate stock holding policy established by the Committee
in fiscal 1997, which is described in "Committee Report on Executive
Compensation - Stock Ownership Policies."
In addition, the Committee adopted 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 Electron and Thermo
Remediation, as of June 28, 1997, with respect to (i) each person who was
known by the Corporation to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director, (iii) each
executive officer named in the summary compensation table under the heading
"Executive Compensation" and (iv) all directors and current executive
officers as a group.
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While certain directors or executive officers of the Corporation are
also directors and executive officers of Thermo Remediation or Thermo
Electron, all such persons disclaim beneficial ownership of the shares of
Common Stock owned by Thermo Electron and the shares of the common stock of
Thermo Remediation owned by the Corporation.
Thermo Thermo Thermo
TerraTech Electron
Name (1) Inc. (2) Corporation Remediation
-------- -------- ----------- -----------
(3) Inc. (4)
--- --------
Thermo Electron 15,491,635 N/A N/A
Corporation (5)
John P. Appleton 216,989 144,749 63,000
John N. Hatsopoulos 62,306 632,768 42,182
Emil C. Herkert 250,000 39,600 2,000
Brian D. Holt 0 164,493 0
Donald E. Noble 49,934 55,198 10,500
Jeffrey L. Powell 82,835 41,287 111,000
William A. Rainville 60,000 249,292 24,000
Polyvios C. Vintiadis 11,030 2,500 1,500
All directors and
current executive
officers as a group
(9 persons) 744,240 1,465,381 269,182
(1) Except as reflected in the footnotes to this table, shares
beneficially owned consist of shares owned by the indicated person or
by that person for the benefit of minor children and all share
ownership includes sole voting and investment power.
(2) Shares of Common Stock beneficially owned by Dr. Appleton, Mr.
Hatsopoulos, Mr. Herkert, Mr. Noble, Mr. Powell, Mr. Rainville, Mr.
Vintiadis and all directors and current executive officers as a group
include 215,000, 40,000, 187,500, 8,200, 63,000, 60,000, 6,300 and
585,000 shares, respectively, that such person or group has the right
to acquire within 60 days of June 28, 1997, through the exercise of
stock options. Shares beneficially owned by Dr. Appleton, Mr.
Hatsopoulos and all directors and current executive officers as a
group include 255, 265 and 771 full shares, respectively, allocated
through June 28, 1997, to accounts maintained pursuant to Thermo
Electron's Employee Stock Ownership Plan, of which the trustees, who
have investment power over its assets, were as of June 28, 1997,
executive officers of Thermo Electron ("ESOP"). Shares beneficially
owned by Mr. Noble, Mr. Vintiadis and all directors and current
executive officers as a group include 18,694, 4,730 and 23,424 full
shares, respectively, allocated through June 28, 1997, to their
respective accounts maintained under the Corporation's Deferred
Compensation Plan for Directors. Shares beneficially owned by Mr.
Hatsopoulos and all directors and current executive officers as a
group include 12,500 shares that Mr. Hatsopoulos has the right to
acquire within 60 days after June 28, 1997, through the exercise of a
stock purchase warrant. Except for Dr. Appleton, who beneficially
owned approximately 1.2% of the Common Stock outstanding as of June
28, 1997, no director or executive officer beneficially owned more
than 1% of the Common Stock outstanding as of June 28, 1997; all
directors and current executive officers as a group beneficially owned
4.1% of the Common Stock outstanding as of such date.
(3) Shares of the common stock of Thermo Electron beneficially owned by
Dr. Appleton, Mr. Hatsopoulos, Mr. Herkert, Mr. Holt, Mr. Noble, Mr.
Powell, Mr. Rainville and all directors and current executive officers
as a group include 107,257, 535,685, 38,100, 164,000, 9,375, 35,012,
197,236 and 1,181,802 shares, respectively, that such person or
members of the group have the right to acquire within 60 days of June
28, 1997, to accounts maintained pursuant to the ESOP. Shares
beneficially owned by Mr. Hatsopoulos and all directors and current
executive officers as a group include 1,934 and 3,258 full shares,
respectively, allocated through June 28, 1997, to accounts maintained
pursuant to the ESOP. Shares beneficially owned by Mr. Noble and all
directors and current executive officers as a group each include
42,408 shares allocated through June 28, 1997, to Mr. Noble's account
maintained pursuant to Thermo Electron's Deferred Compensation Plan
for directors. No director or executive officer beneficially owned
more than 1% of such common stock outstanding as of such date; all
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directors and current executive officers as a group beneficially owned
1% of the Thermo Electron common stock outstanding as of June 28,
1997.
(4) Shares of the common stock of Thermo Remediation beneficially owned by
Dr. Appleton, Mr. Hatsopoulos, Mr. Noble, Mr. Powell, Mr. Rainville,
Mr. Vintiadis and all directors and current executive officers as a
group include 63,000, 22,500, 6,000, 111,000, 22,500, 1,500 and
241,500 shares, respectively, that such person or group has the right
to acquire within 60 days after June 28, 1997, through the exercise of
stock options. No director or executive officer beneficially owned
more than 1% of the common stock of Thermo Remediation outstanding as
of June 28, 1997; all directors and current executive officers as a
group beneficially owned 2.1% of such common stock outstanding as of
such date.
(5) Shares of Common Stock beneficially owned by Thermo Electron include
459,677 shares that Thermo Electron and two of its majority owned
subsidiaries have the right to acquire within 60 days of June 28,
1997, through the conversion of certain convertible notes of the
Corporation held by Thermo Electron and such subsidiaries. As of June
28, 1997, Thermo Electron beneficially owned approximately 85.9% of
the outstanding Common Stock. Thermo Electron's address is 81 Wyman
Street, Waltham, Massachusetts 02254-9046.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors and executive officers, and beneficial owners of
more than 10% of the Common Stock, such as Thermo Electron, to file with
the Securities and Exchange Commission initial reports of ownership and
periodic reports of changes in ownership of the Corporation's securities.
Based upon a review of such filings, all Section 16(a) filing requirements
applicable to such persons were complied with during fiscal 1997, except in
the following instances. The Form 3 of Mr. Brian D. Holt, a director of
the Corporation, was filed late. Thermo Electron filed eight Forms 4 late,
reporting a total of 34 transactions consisting of 28 open market purchases
of Common Stock and six transactions associated with the grant and lapse of
options to purchase Common Stock granted to employees under its stock
option program.
EXECUTIVE COMPENSATION
The following table summarizes compensation 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 for the last three fiscal years. No other
executive officers of the Corporation who held office during fiscal 1997
met the definition of "highly compensated" within the meaning of the
Securities and Exchange Commission's executive compensation disclosure
rules for such period.
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.
Accordingly, the compensation for these individuals is not reported in the
following table.
<SEGEMENT>
TTT2
[/SEGMENTS]
(1) In addition to grants of options to purchase Common Stock of the
Corporation (designated in the table as TTT), the named executive
officers of the Corporation have been granted options to purchase
common stock of Thermo Electron and certain of its other subsidiaries
as part of Thermo Electron's stock option program. Options have been
granted during the last three fiscal years to the named executive
officers in the following Thermo Electron companies: Thermo
Remediation (designated in the table as THN), Thermo Electron
(designated in the table as TMO), Thermo BioAnalysis Corporation
(designated in the table as TBA), Thermo Fibergen Inc. (designated in
the table as TFG), ThermoLase Corporation (designated in the table as
TLZ), ThermoLyte Corporation (designated in the table as TLT), Thermo
Optek Corporation (designated in the table as TOC), ThermoQuest
Corporation (designated in the table as TMQ), Thermo Sentron Inc.
(designated in the table as TSR), and Trex Medical Corporation
(designated in the table as TXM).
(2) Represents the amount of matching contributions made by the
individual's employer on behalf of the named executive officers
participating in Thermo Electron's 401(k) plan or, in the case of Mr.
Herkert, the Elson T. Killam Savings and Investment Plan.
(3) Dr. Appleton was appointed president and chief executive officer of
the Corporation effective September 1, 1993. Dr. Appleton is also a
vice president of Thermo Electron and, until 1997, served as the chief
executive officer of Thermo Remediation. A portion of Dr. Appleton's
annual cash compensation (salary and bonus) has been allocated to and
paid by each of the Corporation, Thermo Remediation and Thermo
Electron over each of the past three fiscal years as compensation for
the services provided to these companies based on the time he devoted
to his responsibilities to these companies. The annual cash
compensation reported in the table for Dr. Appleton represents the
amount paid from all sources, including the Corporation, solely for
Dr. Appleton's services as the president and chief executive officer
of the Corporation. For fiscal 1997, 1996 and 1995, approximately
70%, 70% and 85%, respectively, of Dr. Appleton's annual cash
compensation was paid by the Corporation for his services as its
president and chief executive officer. These percentages include the
allocation of a portion of Dr. Appleton's annual cash compensation to
the management of the Thermo Terra Tech joint venture, which was
acquired by the Corporation in April 1995 in a transaction accounted
for in a manner similar to pooling of interests accounting. For
fiscal 1997, 1996 and 1995, an additional 20%, 20% and 5%,
respectively, of Dr. Appleton's annual cash compensation was allocated
to Thermo Remediation for Dr. Appleton's service as its chief
executive officer, and such amount is not included in the table.
Bonuses paid to Dr. Appleton reflect compensation decisions based on
calendar year performance, in accordance with Thermo Electron's
compensation practices for its officers. Dr. Appleton has served as
an officer of Thermo Electron since 1975 and has been granted options
to purchase shares of the common stock of Thermo Electron and certain
of its subsidiaries other than the Corporation from time to time by
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Thermo Electron or such other subsidiaries. These options are not
reported here as they were granted as compensation for service to
Thermo Electron companies in capacities other than in his capacity as
the president and chief executive officer of the Corporation.
(4) Mr. Herkert was appointed an executive officer of the Corporation on
May 8, 1996.
Stock Options Granted During Fiscal 1997
The following table sets forth information concerning individual
grants of stock options made during fiscal 1997 to the Corporation's 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 1997.
Dr. Appleton has served as a vice president of Thermo Electron since
1975 and from time to time has been granted options to purchase common
stock of Thermo Electron and certain of its subsidiaries other than the
Corporation and Thermo Remediation. These options are not reported in this
table as they were granted as compensation for service to other Thermo
Electron companies in capacities other than in his capacity as the chief
executive officer of the Corporation. No options were granted to Dr.
Appleton during fiscal 1997 in his capacity as president and chief
executive officer of the Corporation.
<TABLE>
Option Grants in Fiscal 1997
Potential Realizable
Number of Value at Assumed
Securities Percent of Annual Rates of Stock
Total Options Price Appreciation for
Underlying Granted to Exercise
Options Employees in Price Option Term
Per Expiration -----------
Name Granted (1) Fiscal Year (2) Share Date 5% 10%
---- ------- ---------------- ----- ---------- -- ---
<S> <C> <C> <C> <C>
Jeffrey L. Powell 600 (TMO) 0.06% (3) $42.79 05/22/99 $4,044 $8,496
2,000 (TFG) 0.4% (3) $10.00 09/12/08 $15,920 $42,760
6,000 (TOC) 0.2% (3) $12.00 04/09/08 $57,300 $153,960
Emil C. Herkert 300 (TMO) 0.03% (3) $42.79 05/22/99 $2,022 $4,248
</TABLE>
(1) As part of Thermo Electron's stock option program, options have been
granted during fiscal 1997 to the named executive officers to purchase
the common stock of Thermo Electron (designated in the table as TMO),
Thermo Fibergen Inc. (designated in the table as TFG) and Thermo Optek
Corporation (designated in the table as TOC). All of the options
granted during the fiscal year are immediately exercisable at the date
of grant. In all cases, the shares acquired upon exercise are subject
to repurchase by the granting corporation at the exercise price if the
optionee ceases to be employed by such corporation or any other Thermo
Electron company. The granting corporation may exercise its repurchase
rights within six months after the termination of the optionee's
employment. For publicly traded companies, the repurchase rights
generally lapse ratably over a five- to ten-year period, depending on
the option term, which may vary from seven to twelve years, provided
that the optionee continues to be employed by the Corporation or
another Thermo Electron company. The granting corporation may permit
the holders 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.
(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 applicable corporation,
PAGE
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the optionee's continued employment through the option period and the
date on which the options are exercised.
(3) All of the options reported in the table were granted under stock
option plans maintained by Thermo Electron or its subsidiaries as part
of Thermo Electron's compensation program and accordingly are reported
as a percentage of total options granted to employees of Thermo
Electron and its subsidiaries.
Stock Options Exercised During Fiscal 1997 and Fiscal Year-End Option
Values
The following table reports certain information regarding stock option
exercises during fiscal 1997 and outstanding stock options held at the end
of fiscal 1997 by the Corporation's chief executive officer and the other
named executive officers. No stock appreciation rights were exercised or
were outstanding during fiscal 1997.
<TABLE>
Aggregated Option Exercises In Fiscal 1997 And Fiscal 1997 Year-End Option Values
Number of
Unexercised
Options at Fiscal Value of
Shares Year-End Unexercised
Acquired Value (Exercisable/ In-the-Money
on
Name Company Exercise Realized(1) Unexercisable) (2) Options
- ---- ------- -------- -------- ------------------ -------
<S> <C> <C> <C> <C> <C>
John P. Thermo -- -- 215,000 /-- (4) $34,075 /--
Appleton (3) TerraTech
Thermo -- -- 63,000 /-- $12,285 /--
Remediation
Jeffrey L. Thermo -- -- 63,000 /-- (5) $74,785 /--
Powell TerraTech
Thermo -- -- 111,000 /-- $18,720 /--
Remediation
Thermo
Electron 5,062 $126,955 34,312 /-- (6) $470,330 /--
Thermo -- -- 2,000 /-- $0 /--
BioAnalysis
Thermo -- -- 2,000 /-- $0 /--
Fibergen
Thermo -- -- 4,500 /-- $32,625 /--
Fibertek
ThermoLase -- -- 5,000 /-- $0 /--
ThermoLyte -- -- -- /2,000 -- /$0 (7)
Thermo Optek -- -- 6,000 /-- $3,000 /--
PAGE
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ThermoQuest -- -- 6,000 /-- $9,000 /--
Thermo -- -- 2,000 /-- $0 /--
Sentron
Trex Medical -- -- 4,000 /-- $2,500 /--
Emil C.
Herkert Thermo 62,500 $697,975 187,500 /-- $1,695,938 /--
TerraTech
Thermo -- -- 37,800 /-- (8) $286,763 /--
Electron
</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 fiscal year-end, except options to
purchase the common stock of ThermoLyte 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 Securities Exchange Act of 1934 and (ii) nine years from the
grant date. In all cases, the shares acquired upon exercise are
subject to repurchase by the granting corporation at the exercise
price if the optionee ceases to be employed by such corporation or any
other Thermo Electron company. The granting corporation may exercise
its repurchase rights within six months after the termination of the
optionee's employment. For publicly traded companies, the repurchase
rights generally lapse ratably over a five- to ten-year period,
depending on the option term, which may vary from seven to twelve
years, provided that the optionee continues to be employed by the
Corporation or another Thermo Electron company. For companies whose
shares are not publicly traded, the repurchase rights lapse in their
entiety on the ninth anniversary of the grant date.
(3) Dr. Appleton has served as a vice president of Thermo Electron since
1975 and has been granted options to purchase shares of the common
stock of Thermo Electron and certain of its subsidiaries other than
the Corporation from time to time by Thermo Electron or such other
subsidiaries. These options are not reported here as they were granted
as compensation for service to other Thermo Electron companies in
capacities other than in his capacity as the chief executive officer
of the Corporation.
PAGE
<PAGE>
(4) In addition to the terms described in footnote (1) above, 60,000 of
the shares acquired upon exercise of these options are restricted from
resale until Dr. Appleton's retirement.
(5) Of these options awarded to Mr. Powell, options to purchase 15,000
shares are subject to the following terms in addition to those
described in footnote (1): in the event of the optionee's voluntary
resignation or discharge for cause prior to February 8, 1998, all of
the shares acquired upon exercise of these options are subject to
repurchase by the Corporation at the exercise price. In addition, all
shares acquired upon the exercise of these options are subject to
restrictions on resale until February 8, 1998.
(6) Options to purchase 22,500 shares of the common stock of Thermo
Electron granted to Mr. Powell are subject to the same terms as
described in footnote (1), except that the repurchase rights of the
granting corporation 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 corporation shall be
deemed to lapse ratably over a five-year period commencing with the
fifth anniversary of the grant date.
(7) No public market existed for the shares underlying these options as of
March 28, 1997. Accordingly, no value in excess of exercise price has
been attributed to these options.
(8) Options to purchase 22,500 shares of the common stock of Thermo
Electron granted to Mr. Herkert are subject to the same terms as
described in footnote (1), except that the repurchase rights of the
granting corporation generally do not lapse until the tenth
anniversary of the grant date. In fiscal 1997, the Human Resources
Committee of the Board of Directors accelerated the vesting of 1,800
shares.
Severance Agreements
Thermo Electron has entered into severance agreements with several key
employees, including Dr. Appleton. These agreements provide severance
benefits if there is a change in control of Thermo Electron that is not
approved by the Board of Directors of Thermo Electron and the employee's
employment with Thermo Electron or one of its majority-owned subsidiaries
is terminated, for whatever reason, within one year thereafter. For
purposes of the severance agreements, a change of control exists upon (i)
the acquisition of 50% or more of the outstanding common stock of Thermo
Electron by any person without the prior approval of the board of directors
of Thermo Electron, (ii) the failure of the board of directors of Thermo
Electron, within two years after any contested election of directors or
tender or exchange offer not approved by the board of directors, to be
constituted of a majority of directors holding office prior to such event
or (iii) any other event that the board of directors of Thermo Electron
determines constitutes an effective change in control of Thermo Electron.
The benefit under these agreements is stated as an initial percentage which
was established by the Board of Directors of Thermo Electron in 1983 and is
generally based upon the employee's age and length of service with Thermo
Electron at the time of severance. Benefits are to be paid over a
five-year period. The benefit to be paid in the first year is determined
by applying this percentage to the employee's highest annual total
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<PAGE>
remuneration in any 12-month period during the preceding three years. This
benefit is reduced by 10% in each of the succeeding four years in which
benefits are paid. The initial percentage to be so applied to Dr. Appleton
is 40.1%. Assuming severance benefits would have been payable under such
agreements as of March 29, 1997, Dr. Appleton would have received
approximately $119,906 in the first year thereof from Thermo Electron.
PAGE
<PAGE>
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Executive Compensation
All decisions on compensation for the Corporation's executive officers
are made by the Human Resources Committee of the Board of Directors (the
"Committee"). In reviewing and establishing total cash compensation and
stock-based compensation for executives, the Committee follows guidelines
established by the human resources committee of the board of directors of
its parent corporation, Thermo Electron. The executive compensation program
presently consists of annual base salary ("salary"), short-term incentives
in the form of annual cash bonuses, and long-term incentives in the form of
stock options.
The Committee believes that the compensation of executive officers
should reflect the scope of their responsibilities, the success of the
Corporation, and the contributions of each executive to that success. In
addition, the Committee believes that base salaries should approximate the
mid-point of competitive salaries derived from market surveys and that
short-term and long-term incentive compensation should reflect the
performance of the Corporation and the contributions of each executive.
External competitiveness is an important element of the Committee's
compensation policy. The competitiveness of the Corporation's compensation
for its executives is assessed by comparing it to market data provided by
its compensation consultant and by participating in annual executive
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.
Principles of internal equity are also central to the Committee's
compensation policies. Compensation considered for the Corporation's
officers, whether cash or stock-based incentives, is also evaluated by
comparing it to compensation of other executives within the Thermo Electron
organ ization with comparable levels of responsibility for comparably
sized business units.
The process for determining each of these elements for the
Corporation's executive officers is outlined below.
Base Salary
Base salaries are set to approximate the mid-point of competitive
salaries for similar organizations of comparable size and complexity to the
Corporation. Executive salaries are adjusted gradually over time and only
as necessary to meet this objective. Increases in base salary may be
moderated by other considerations, such as geographic or regional market
data, industry trends or internal fairness within the Corporation and
Thermo Electron. It is the Committee's intention that over time the base
salaries for the chief executive officer and the Corporation's other named
executive officers will approach the mid-point of competitive data. The
salary increases in fiscal 1997 for the chief executive officer and the
other named executive officers generally reflect this practice of gradual
increases and moderation.
Cash Bonus
The Committee establishes a median potential bonus for each executive
by using the market data on total cash compensation from the same executive
compensation surveys as used to determine salaries. Specifically, the
median potential bonus plus the salary of an executive officer is
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<PAGE>
approximately equal to the mid-point of competitive total cash compensation
for a similar position and level of responsibility in businesses having
comparable sales and complexity to the Corporation. The actual bonus
awarded to an executive officer may range from zero to three times the
median potential bonus. The value within the range (the bonus multiplier)
is determined at the end of each year by the Committee in its discretion.
The Committee exercises its discretion by evaluating each executive's
performance using a methodology developed by its parent corporation, Thermo
Electron, and applied throughout the Thermo Electron organization. The
methodology incorporates measures of operating returns which are designed
to measure profitability and contributions to shareholder value, and are
measures of corporate and divisional performance that are evaluated using
graphs developed by Thermo Electron intended to reward performance that is
perceived as above average and to penalize performance that is perceived as
below average. The measures of operating returns used in the Committee's
determinations in fiscal 1997 measured return on net assets, growth in
income, and return on sales, and the Committee's determinations also
included a subjective evaluation of the contributions of each executive
thatare not captured by operating measures but are considered important to
the creation of long-term value for the Stockholders. These measures of
achievements are not financial targets that are met, not met or exceeded.
The relative weighting of the operating measures and subjective evaluation
varies among the executives, depending on their roles and responsibilities
with the organization.
The bonuses for named executive officers approved by the Committee
with respect to fiscal 1997 performance in each instance exceeded the
median potential bonus, except in the case of one executive officer.
Stock Option Program
The primary goal of the Corporation 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 options to
purchase common stock of the Corporation and other Thermo Electron
companies.
The Committee and management believe that awards of stock options to
purchase the shares of both the Corporation and other companies within the
Thermo Electron group of companies accomplish many objectives. The grant of
options 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 options also results in management's
compensation being closely linked to stock performance. In addition,
because they are subject to vesting periods of varying durations and to
forfeiture if the employee leaves the Corporation prematurely, stock
options are an incentive for key employees to remain with the Corporation
long-term. The Committee believes stock option awards in its subsidiary,
Thermo Remediation, and its parent corporation, Thermo Electron, and the
other majority-owned subsidiaries of Thermo Electron, are important tools
in providing incentives for performance within the entire organization.
In determining awards, the Committee considers the average annual
value of all options to purchase shares of the Corporation and other
companies within the Thermo Electron organization that vest in the next
five years. (Values are established using a modified Black-Scholes option
pricing model.) As a guideline, the Committee strives to maintain the
aggregate amount of net awards to purchase shares of Common Stock to all
employees over a five-year period below 12% of the Corporation's
outstanding Common Stock, although other factors such as unusual
PAGE
<PAGE>
transactions, acquisitions and standards for awards of comparably situated
companies may affect the number of awards granted.
Awards are not made annually in conjunction with the annual review of
cash compensation, but are made periodically. The Committee considers
total compensation of executives, actual and anticipated contributions of
each executive (which includes a subjective assessment by the Committee of
the value of the executive's future potential within the organization), as
well as the value of previously awarded options as described above, in
determining option awards. The option awards made to named executives
officers in fiscal 1997 with respect to the common stock of the
Corporation's parent company, Thermo Electron, and its subsidiaries, were
made as part of Thermo Electron's overall stock option program and were
determined by the human resources committee of the board of directors of
the granting company using a similar analysis.
Stock Ownership Policies
During fiscal 1997, the Committee established a stock holding policy
for executive officers of the Corporation. The stock holding policy
specifies an appropriate level of ownership of the Corporation's Common
Stock as a multiple of the officer's compensation. For the chief executive
officer, the multiple is one times his base salary and reference bonus for
the fiscal year. For all other officers, the multiple is 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.
In order to assist officers in complying with the policy, the
Committee also adopted a stock holding assistance plan under which the
Corporation is authorized to make interest-free loans to officers to enable
them to purchase shares of the Common Stock in the open market. The loans
are required to be repaid upon the earlier of demand or the fifth
anniversary of the date of the loan, unless otherwise authorized by the
Committee. No loans were outstanding under this program in fiscal 1997.
See "Relationship with Affiliates - Stock Holding Assistance Plan."
The Committee also adopted a policy requiring its executive officers
to hold shares of the Corporation's Common Stock acquired upon the exercise
of stock options granted by the Corporation. Under this policy, executive
officers are required to hold 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 exercise
of the option.
Policy on Deductibility of Compensation
The Committee has also considered the executives application of
Section 162(m) of the Internal Revenue Code to the Corporation's
compensation practices. Section 162(m) limits the tax deduction available
to public companies for annual compensation paid to senior executives in
excess of $1 million, unless the compensation qualifies as "performance
based" or is otherwise exempt from Section 162(m). The annual cash
compensation paid to individual executives does not approach the $1 million
threshold, and it is believed that the stock incentive plans of the
Corporation qualify as "performance based." Therefore, the Committee does
not believe any further action is necessary in order to comply with Section
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<PAGE>
162(m). From time to time, the Committee will reexamine the Corporation's
compensation practices and the effect of Section 162(m).
CEO Compensation
Cash compensation for Dr. Appleton is reviewed by both the Committee
and the human resources committee of the board of directors of Thermo
Electron, due to his responsibilities as both the Corporation's chief
executive officer and as a vice president of Thermo Electron, the
Corporation's parent company. Each committee evaluates Dr. Appleton's
performance and proposed compensation using a process similar to that used
for the other executive officers of the Corporation. At the Thermo
Electron level, Dr. Appleton is evaluated on his performance related to the
Corporation as well as other operating units of Thermo Electron for which
he is responsible, weighted in accordance with the amount of time and
effort devoted to each operation. The Corporation's Committee then reviews
the analysis and determinations of the Thermo Electron committee, makes an
independent assessment of Dr. Appleton's performance as it relates to the
Corporation using criteria similar to those used for the other executive
officers of the Corporation, and then agrees to an appropriate allocation
of Dr. Appleton's compensation to be paid by the Corporation.
In December 1996, the Committee conducted its review of Dr. Appleton's
proposed salary for calendar 1997 and bonus for calendar 1996 performance.
The Committee concurred in the recommendations made by the Thermo Electron
committee and agreed to an allocation of 70% of Dr. Appleton's total cash
compensation for calendar year 1996 to the Corporation, based on his
relative responsibilities at the Corporation and Thermo Electron. An
additional 20% of Dr. Appleton's total cash compensation for 1996 was
allocated to the Corporation's majority-owned subsidiary, Thermo
Remediation Inc., for his services as its chief executive officer.
Mr. Donald E. Noble (Chairman)
Mr. Polyvios C. Vintiadis
PAGE
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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 has compared its performance with the
American Stock Exchange Market Value Index and a peer group of companies
consisting of Ecology & Environmental Inc., Fluor Daniel GTI, Inc.
(formerly Groundwater Technology Inc.), International Technology Inc.,
Safety Kleen Corp. and Roy F. Weston Inc.
Comparison of 1992-1997 Total Return Among Thermo TerraTech Inc.,
the American Stock Exchange Market Value Index
and the Corporation's Peer Group
[GRAPH APPEARS HERE]
03/27/92 04/01/93 03/31/94 03/31/95 03/29/96 03/27/97
TTT 100 112 103 106 162 108
AMEX 100 107 112 118 145 147
PEER GROUP100 92 63 73 63 74
The total return for the Corporation's Common Stock (TTT), the
American Stock Exchange Market Value Index (AMEX) and the Corporation's
Peer Group (PEER GROUP) 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
("AMEX"). The Corporation's Common Stock is traded on the AMEX under the
ticker symbol "TTT."
PAGE
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RELATIONSHIP WITH AFFILIATES
Thermo Electron has adopted a strategy of selling a minority interest
in subsidiary companies to outside investors as an important tool in its
future development. As part of this strategy, the Corporation has created
Thermo Remediation as a majority-owned publicly held subsidiary. From time
to time, Thermo Electron and its subsidiaries will create other
majority-owned subsidiaries as part of its spinout strategy. (The
Corporation and the 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 mutual affiliation are
essential elements of their individual performance. Accordingly, Thermo
Electron and each of the Thermo Subsidiaries 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 each of the Thermo
Subsidiaries.
The Charter presently 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
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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. However, 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, certain 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 1.0% of the Corporation's revenues for these services for
fiscal 1997. The fee is reviewed annually and may be changed by mutual
agreement of the Corporation and Thermo Electron. During fiscal 1997,
Thermo Electron assessed the Corporation $2,785,000 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. For items such as employee benefit
plans, insurance coverage and other identifiable costs, Thermo Electron
charges the Corporation based on charges attributable to the Corporation.
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
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.
As of March 29, 1997, $59,781,000 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. The Corporation's funds subject
to the repurchase agreement are readily convertible into cash by the
Corporation and have a 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.
The Corporation leases or subleases three office and manufacturing
facilities from Thermo Electron. The total rental payments made to Thermo
Electron during fiscal year 1997 under these agreements was $553,000.
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The Corporation and Thermo Electron entered into a development
agreement under which Thermo Electron agreed to fund up to $4,000,000 of
the direct and indirect costs of the Corporation's development of
soil-remediation centers. In exchange for this funding, the Corporation
granted Thermo Electron a royalty equal to approximately 3% of net revenues
from soil-remediation services performed at the centers developed under
this agreement. The royalty payments may cease if the amounts paid by the
Corporation yield a certain internal rate of return to Thermo Electron on
the funds advanced to the Corporation under this agreement. The
Corporation paid Thermo Electron royalties of $186,000 in fiscal 1997.
From time to time, the Corporation may transact business with the
other companies in the Thermo Group. In fiscal 1997, these transactions
included the Corporation's October 1996 acquisition of Metal Treating Inc.,
a provider of heat-treating services, from Thermo Electron in exchange for
$1,600,000 in cash.
As of March 29, 1997, the Corporation owed Thermo Electron an
aggregate of $40,926,000.
Thermo Electron owned approximately 85.9% of the Corporation's
outstanding Common Stock on June 28, 1997.
Stock Holding Assistance Plan
In fiscal 1997, the Corporation adopted a stock holding policy which
requires its 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 Corporation also adopted a stock holding
assistance plan under which it may make interest-free loans to certain key
employees, including its executive officers, to enable such employees to
purchase the Common Stock in the open market. Loans will be repaid upon
the earlier of demand or the fifth anniversary of the date of the loan,
unless otherwise authorized by the Human Resources Committee of the Board
of Directors. No such loans were outstanding in fiscal 1997.
-- PROPOSAL 2 --
PROPOSAL TO EXTEND THE TERM OF THE EMPLOYEES' STOCK PURCHASE PLAN
The Board of Directors has recommended that the Stockholders approved
an amendment to the Corporation's employees' stock purchase plan (the
"Stock Purchase Plan") that would extend the term of the plan for an
additional ten years to November 2, 2005. The material features of the
Stock Purchase Plan are described below. If the plan amendment is not
approved by the Stockholders at this meeting, the Stock Purchase Plan will
be discontinued effective as of November 1, 1997. The Board of Directors
believes that the Stock Purchase Plan is an important incentive in
attracting and retaining key personnel, in motivating individuals to
contribute significantly to the Corporation's future growth and success,
and in aligning the long-term interest of these individuals with that of
the Corporation's Stockholders. For these reasons, the Board of Directors
has acted to continue the plan and is recommending the extension to the
Stockholders for approval. The following is a summary of the terms of the
Stock Purchase Plan.
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Summary of the Stock Purchase Plan
Participation; Administration
All full-time employees and part-time employees working at least 20
hours per week and who have been employed for at least six months by the
Corporation are eligible to participate in the Stock Purchase Plan, unless
they own more than 5% of the Common Stock of the Corporation. For purposes
of determining the term of employment, employees are credited with years of
continued employment with Thermo Electron or its other subsidiaries
immediately prior to joining the Corporation. Options to purchase shares
of Common Stock of the Corporation may be granted from time to time at the
discretion of the Board of Directors, which also determines the date upon
which such options are exercisable. At the present time, only employees
based in the United States are eligible to participate in the Stock
Purchase Plan. The number of employees potentially eligible to participate
in the Stock Purchase Plan is approximately 2,367 persons.
Contributions
A participating employee may purchase stock only through payroll
deductions, which may not exceed 10% of the employee's gross salary or
wages during the year. Employees are allowed to decrease, but not increase
the percentage of wages contributed once during the plan year. An employee
may suspend his or her contributions, but then is not permitted to
contribute again for the remainder of the plan year.
Terms of Options
The exercise price is fixed on the grant date at the start of the plan
year and is 95% of the fair market value for such stock on such date. On
the exercise date, participants may elect to use their accumulated payroll
deductions to purchase shares at the exercise price. Participants must
agree not to resell the shares so purchased for a period of six months
following the exercise date. The options are nontransferable, and except
in the case of death of the employee, may not be exercised if the employee
is not still employed by the Corporation at the exercise date. If an
employee dies, his or her beneficiary may withdraw the accumulated payroll
deduction or use such deductions to purchase shares on the exercise date.
A participant may elect to discontinue participation at any time prior to
the exercise date and to have his or her accumulated payroll deduction
refunded together with interest on such amount as fixed by the Board of
Directors from time to time.
Shares Subject to the Stock Purchase Plan
The number of shares that are currently available for issuance under
the Stock Purchase Plan is 56,166 shares of the Corporation's Common Stock,
subject to adjustment for stock splits and similar events. The proceeds
received by the Corporation from the exercise of options granted under the
Stock Purchase Plan will be used for the general purposes of the
Corporation. Shares issued under the Stock Purchase Plan may be authorized
but unissued or shares reacquired by the Corporation and held in its
treasury.
Amendment and Termination
The Stock Purchase Plan shall remain in full force and effect until
suspended or discontinued by the Board of Directors. The Board of
Directors may at any time or times amend or review the Stock Purchase Plan
for any purpose which may be permitted by law, or may at any time terminate
the Stock Purchase Plan, provided that no amendment that is not approved by
the Stockholders shall be effective if it would cause the Stock Purchase
Plan to fail to satisfy the requirements of Rule 16b-3 (or any successor
rule) of the Securities Exchange Act of 1934, as amended. No amendment of
the Stock Purchase Plan may adversely affect the rights of any recipient of
any option previously granted without such recipient's consent.
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Term of the Stock Purchase Plan
The Stock Purchase Plan will expire on November 2, 2005, provided that
the extension of the term of the Stock Purchase Plan is approved by the
Stockholders at this Meeting.
Federal Income Tax Aspects
Federal income tax is not imposed upon an employee in the year an
option is granted or the year the shares are purchased pursuant to the
exercise of the option granted under the Stock Purchase Plan. Federal
income tax generally is imposed upon an employee when he or she sells or
otherwise disposes of the shares acquired pursuant to the Stock Purchase
Plan. When an employee sells or disposes of the shares, if such sale or
disposition occurs more than two years from the grant date and more than
one year from the exercise date, then Federal income tax assessed at
ordinary rates will be imposed upon the amount by which the fair market
value of the shares on the date of grant or disposition, whichever is less,
exceeds the amount paid for the shares. In addition, the difference
between the amount received by the employee at the time of sale and the
employee's tax basis in the shares, which is equal to the amount paid on
exercise of the option plus the amount recognized as ordinary income, will
be recognized as a capital gain or loss. The Corporation will not be
allowed a deduction under these circumstances for Federal income tax
purposes. If the employee sells or disposes of the shares sooner than two
years from the grant date or one year from the exercise date, then the
employee's entire gain (the difference between the fair market value at
disposition and the amount paid for the shares) will be taxed as ordinary
income, and the Corporation would be entitled to a deduction equal to that
amount.
The closing price per share on the American Stock Exchange of the
Common Stock on June 27, 1997 was $10.938.
Recommendation
The Board of Directors believes that the extension of the term of the
Stock Purchase Plan is important for the Corporation to attract and retain
key employees and to be able to continue to offer them the opportunity to
participate in the ownership and growth of the Corporation through an
employees stock purchase plan. In addition, the Board of Directors
believes the Stock Purchase Plan is in the best interest of the Corporation
and its Stockholders and recommends that the Stockholders vote FOR the
approval of the extension of the term of the Stock Purchase Plan. Thermo
Electron, which owned of record approximately 85.9% of the outstanding
voting stock of the Corporation on June 28, 1997 has indicated its
intention to vote for the proposal.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Arthur Andersen LLP as
independent public accountants for fiscal 1998. Arthur Andersen LLP has
acted as independent public accountants for the Corporation since its
inception in 1986. Representatives of that firm are expected to be present
at the Meeting, will have the opportunity to make a statement if they
desire to do so and will be available to respond to questions. The Board of
Directors has established an Audit Committee, presently consisting of two
outside directors, the purpose of which is to review the scope and results
of the audit.
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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 presented at the 1998 Annual
Meeting of the Stockholders of the Corporation must be received by the
Corporation for inclusion in the proxy statement and form of proxy relating
to that meeting no later than April 24, 1998.
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, by telephone
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.
Waltham, Massachusetts
