<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
__________________________________________
AMENDMENT NO. 2 ON FORM 10-K/A
TO FORM 10-K
(mark one)
X
___ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended September 28, 1996
___ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-11827
THERMO POWER CORPORATION
(Exact name of Registrant as specified in its charter)
Massachusetts 04-2891371
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02554-9046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Exchange on which registered
---------------------------- ------------------------------------
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to the filing requirements for
at least the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of January 30, 1997, was approximately $32,359,110.
As of January 30, 1997, the Registrant had 12,490,647 shares of Common Stock
outstanding.
<PAGE>
Thermo Power Corporation Amendment No. 2
on Form 10K/A to Annual Report on Form 10-K
for the fiscal year ended September 28, 1996
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Fiscal 1996 Annual Report to Shareholders for the
year ended September 28, 1996, are incorporated by reference into Parts I and
II.
Part III, Item 10. Directors and Executive
Officers of the Registrant.
--------------------------
Part III, Item 11. Executive Compensation.
----------------------
Part III, Item 12. Security Ownership of Certain
Beneficial Owners and Management.
--------------------------------
Part III, Item 13. Certain Relationships and Transactions.
--------------------------------------
Items 10, 11, 12 and 13 of Part III of the Registrant's Annual Report on
Form 10-K for the fiscal year ended September 28, 1996 are hereby amended and
restated in their entirety as contained in the following Attachment A, which is
included herein and made a part of this Annual Report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 2 on
Form 10-K/A to be signed by the undersigned, duly authorized.
THERMO POWER CORPORATION
By: /s/ Jonathan W. Painter
-------------------------
Jonathan W. Painter
Treasurer
<PAGE>
ATTACHMENT A
DIRECTORS AND DIRECTOR COMPENSATION
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 majority owned subsidiary, ThermoLyte
Corporation, and of its parent corporation, Thermo Electron, is reported under
the caption "Stock Ownership." All of the nominees are currently Directors of
the Corporation. Until his death on January 18, 1997, Mr. Paul E. Tsongas also
served as a Director of the Corporation.
- --------------------------------------------------------------------------------
MARSHALL J. ARMSTRONG Mr. Armstrong, 61, has been a Director of the
Corporation since December 1990. He also served
as the Corporation's Chairman from December 1990
to December 1996, its Chief Executive Officer
from April 1991 to October 1996, and its President
from November 1992 to April 1995. He has been a
Vice President of Thermo Electron since 1986. He
is also a Director of SatCon Technology
Corporation and Thermo Sentron Inc.
- --------------------------------------------------------------------------------
J. TIMOTHY CORCORAN Mr. Corcoran, 50, has been a Director of the
Corporation since October 1996, when he was also
named the Corporation's Chief Executive Officer.
He also serves as the Corporation's President, a
position he has held since April 1995. From
November 1992 to April 1995, Mr. Corcoran was a
vice president of the Corporation, and he has been
president of the Corporation's FES Division since
June 1990. Mr. Corcoran also serves as the
Chairman and Chief Executive Officer of the
Corporation's majority owned subsidiary,
ThermoLyte Corporation, since December 1996 and
February 1995, respectively.
- --------------------------------------------------------------------------------
PETER O. CRISP Mr. Crisp, 64, has been a Director of the
Corporation since 1985. Mr. Crisp has been a
General Partner of Venrock Associates, a venture
capital investment firm, for more than five years.
Mr. Crisp is also a Director of American
Superconductor Corporation, Evans & Sutherland
Computer Corporation, Long Island Lighting
Company, Thermedics Inc., Thermo Electron,
ThermoTrex Corporation and United States Trust
Corporation.
- --------------------------------------------------------------------------------
JOHN N. HATSOPOULOS Mr. Hatsopoulos, 62, has been a Director of the
Corporation since 1990 and its Vice President and
Chief Financial Officer since 1988. Mr.
Hatsopoulos has been the President of Thermo
Electron since January 1, 1997, and its Chief
Financial Officer since 1988. Prior to being
named President of Thermo Electron, Mr.
Hatsopoulos served as an Executive Vice President,
a position he had held since 1986. Mr.
Hatsopoulos is also a director of Thermedics Inc.,
Thermo Ecotek Corporation, Thermo Fibergen Inc.,
Thermo Fibertek Inc., Thermo Instrument Systems
Inc., Thermo TerraTech Inc. and ThermoTrex
Corporation.
- --------------------------------------------------------------------------------
ROBERT C. HOWARD Mr. Howard, 66, has been a Director of the
Corporation since its inception. Mr. Howard was
an Executive Vice President of Thermo Electron
from 1986 until his retirement in January 1997. He
is currently a consultant to Thermo Electron. He
is also a Director of Thermedics Inc., Thermo
Cardiosystems Inc., ThermoLase Corporation,
ThermoTrex Corporation and Trex Medical
Corporation.
- --------------------------------------------------------------------------------
A-1
<PAGE>
- --------------------------------------------------------------------------------
DONALD E. NOBLE Mr. Noble, 82, has been a Director of the
Corporation since 1990. 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 Sentron Inc. and Thermo TerraTech Inc.
- --------------------------------------------------------------------------------
ARVIN H. SMITH Mr. Smith, 66, has been a Director and Chairman of
the Board of the Corporation since December 1996.
Mr. Smith has been an Executive Vice President of
Thermo Electron since 1991 and a senior vice
president of that company from 1986 to 1991. He
is also the president and the chief executive
officer of Thermo Instrument Systems Inc., a
majority owned subsidiary of Thermo Electron,
positions he has held since 1986. Mr. Smith is
also a Director of Thermedics Inc., Thermo
BioAnalysis Corporation, Thermo Instrument Systems
Inc., Thermo Optek Corporation, ThermoQuest
Corporation and ThermoSpectra Corporation.
- --------------------------------------------------------------------------------
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. Noble (Chairman) and Mr. Crisp. 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. Crisp (Chairman) and Mr. Noble. 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 plans. The Corporation does not have a nominating committee of
the Board of Directors. The Board of Directors met four times, the Audit
Committee met twice and the Human Resources Committee met four times during
fiscal 1996. Each Director attended at least 75% of all meetings of the Board of
Directors and Committees on which he served held during the fiscal year, except
Mr. J. Hatsopoulos. Mr. Hatsopoulos also serves as the Chief Financial Officer
of Thermo Electron and its majority owned subsidiaries, including the
Corporation, and his duties 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 companies 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. Payment of outside Directors' fees is made quarterly.
Mr. Armstrong, Mr. Corcoran, Mr. J. Hatsopoulos and Mr. Smith are all employees
of Thermo Electron 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 meetings.
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. Amounts so deferred 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 50,000 shares of Common Stock have been
reserved for issuance under the Deferred Compensation Plan. As of December 28,
1996,
A-2
<PAGE>
deferred units equal to 23,898.68 shares of Common Stock were accumulated
under the Deferred Compensation Plan.
DIRECTORS STOCK OPTION PLAN
In 1991, the Corporation adopted a directors stock option plan (the
"Directors Plan"), which was amended in 1995. The Directors Plan provides for
the grant of stock options to purchase shares of Common Stock to outside
Directors as additional compensation for their service as Directors. Under the
Directors Plan, outside Directors are automatically granted options to purchase
1,000 shares of the Common Stock annually. In addition, the Directors Plan
provides for the automatic grant every five years of 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 at the close of business on
the date of each Annual Meeting of 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 on the third anniversary of the grant date. Shares acquired upon
exercise of the options would be subject to repurchase by the Corporation at the
exercise price if the recipient ceased to serve as a Director of the Corporation
or any other Thermo Electron company prior to the first anniversary of the grant
date.
In addition, under the Directors Plan, outside Directors are automatically
granted 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
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. 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 stock is registered
under Section 12 of the Securities Exchange Act 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 another 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. An aggregate
of 25,000 shares of Common Stock has been reserved for issuance under the
Directors Plan.
STOCK OWNERSHIP POLICIES FOR DIRECTORS
During fiscal 1996, 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 1996. 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 calendar year.
For all other executive 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 addition, the Committee adopted a policy requiring Directors to hold a
certain number of shares of the Corporation's Common Stock acquired upon the
exercise of stock options. Under this policy, Directors are required 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. This
A-3
<PAGE>
policy is also applicable to executive officers.
STOCK OWNERSHIP
The following table sets forth the beneficial ownership of Common Stock, as
well as the common stock of Thermo Electron and ThermoLyte Corporation, a
majority-owned subsidiary of the Corporation, as of December 28, 1996, 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.
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>
THERMO POWER Thermo Electron THERMOLYTE
NAME (1) CORPORATION (2) Corporation (3) Corporation (4)
--------- --------------- ---------------- ---------------
<S> <C> <C> <C>
Thermo Electron Corporation (5).......... 8,026,606 N/A N/A
Marshall J. Armstrong.................... 168,540 166,524 2,500
J. Timothy Corcoran...................... 139,434 67,460 0
Peter O. Crisp (6)....................... 34,161 98,904 100,000
John N. Hatsopoulos...................... 40,753 556,768 0
Robert C. Howard......................... 68,281 194,493 2,500
Chester G. Janssens...................... 89,324 61,732 0
Donald E. Noble.......................... 20,472 54,701 1,000
Arvin H. Smith........................... 7,969 513,038 0
All Directors and current executive
officers as a group (8 persons).......... 494,980 1,796,886 106,000
</TABLE>
(1) Except as reflected in the footnotes to this table, shares of Common
Stock of the Corporation and of the common stock of Thermo Electron and
ThermoLyte Corporation beneficially owned consist of shares owned by the
indicated person, and all share ownership includes sole voting and
investment power.
(2) Shares of the Common Stock beneficially owned by each Director and
executive officer and by all Directors and executive officers as a group
exclude 8,026,606 shares beneficially owned by Thermo Electron, as to which
shares each Director and executive officer and all members of such group
disclaim beneficial ownership. Shares beneficially owned by Mr. Armstrong,
Mr. Corcoran, Mr. Crisp, Mr. J. Hatsopoulos, Mr. Howard, Mr. Janssens, Mr.
Noble and all Directors and executive officers as a group include 165,000,
135,500, 6,600, 40,000, 40,000, 81,650, 7,200 and 403,300 shares,
respectively, that such person or group has the right to acquire within 60
days of December 28, 1996 through the exercise of stock options. Shares
beneficially owned by Mr. Crisp, Mr. Noble and all Directors and executive
officers as a group include 9,468, 5,847 and 15,315 full shares,
respectively, that had been allocated through December 28, 1996, to their
respective accounts maintained under the Corporation's Deferred
Compensation Plan for Directors. Shares beneficially owned by Mr. Armstrong
include 1,120 shares held by Mr. Armstrong's spouse. No Director or
executive officer beneficially owned more than 1% of the Common Stock
outstanding as of December 28, 1996, other than Mr. Armstrong, who
beneficially owned 1.3%, and Mr. Corcoran, who beneficially owned 1.1%, of
the Common Stock outstanding as of such date; all Directors and executive
officers as a group beneficially owned 3.8% of the Common Stock outstanding
as of such date.
A-4
<PAGE>
(3) The shares of common stock of Thermo Electron shown in the table reflect a
three-for-two split of such stock distributed in June 1996 in the form of a
50% stock dividend. Shares beneficially owned by Mr. Armstrong, Mr.
Corcoran, Mr. Crisp, Mr. J. Hatsopoulos, Mr. Howard, Mr. Janssens, Mr.
Noble, Mr. Smith and all Directors and executive officers as a group
include 111,374, 62,174, 9,375, 429,685, 47,361, 26,359, 9,375, 222,411 and
989,329 shares, respectively, that such person or group has the right to
acquire within 60 days of December 28, 1996 through the exercise of stock
options. Shares of the common stock of Thermo Electron beneficially owned
by Mr. Armstrong, Mr. J. Hatsopoulos, Mr. Howard, Mr. Smith and all
Directors and executive officers as a group include 2,496, 1,934, 3,040,
1,717 and 10,511 full shares, respectively, allocated 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,
were, as of December 28, 1996, executive officers of Thermo Electron.
Shares of the common stock of Thermo Electron beneficially owned by Mr.
Crisp, Mr. Noble and all Directors and executive officers as a group
include 44,885, 41,911 and 86,796 full shares, respectively, allocated
through December 28, 1996 to their respective accounts maintained pursuant
to Thermo Electron's deferred compensation plan for directors. As of
December 28, 1996, no director or executive officer beneficially owned more
than 1% of Thermo Electron common stock outstanding as of such date; all
directors and executive officers as a group beneficially owned
approximately 1.2% of the Thermo Electron common stock outstanding as of
December 28, 1996.
(4) As to Mr. Crisp, represents shares held by entities affiliated with Venrock
Associates. Mr. Crisp is a general and limited partner of Venrock
Associates and, therefore, may be deemed to beneficially own the shares
owned by such entities. Mr. Crisp disclaims beneficial ownership of such
shares, except to the extent of his pecuniary interest therein arising from
his general and limited partnership interests in Venrock Associates. No
Director or executive officer beneficially owned more than 1% of the Common
Stock outstanding of ThermoLyte as of December 28, 1996; all Directors and
executive officers as a group beneficially owned less than 1% of the
outstanding common stock as of such date.
(5) Thermo Electron owned 64.3% of the Common Stock outstanding as of December
28, 1996. Thermo Electron's address is 81 Wyman Street, Waltham,
Massachusetts 02254-9046. As of December 28, 1996, 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 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 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 1996, except in the following instances. Mr.
Corcoran amended his Form 5 for fiscal 1996 to report a gift of shares. Thermo
Electron filed two Forms 4 late, reporting two transactions.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
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 two other most highly compensated executive officers for
the last three fiscal years (the "named executive officers"). No other
executive officer of the Corporation met the definition of "highly compensated"
within the meaning of the Securities and Exchange Commission's executive
compensation disclosure rules.
The Corporation is required to appoint certain executive officers and full-
time employees of Thermo Electron as executive officers of the Corporation, in
accordance with the Thermo Electron Corporate Charter. The 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
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Agreement between the Corporation and Thermo Electron. Accordingly, the
compensation for these individuals is not reported in the following table.
<TABLE>
<CAPTION>
Summary Compensation Table
- -------------------------------------------------------------------------------------------------------------------
LONG TERM
COMPENSATION
ANNUAL COMPENSATION -----------------------------
(1) SECURITIES
--------------------- UNDERLYING OPTIONS
NAME AND PRINCIPAL FISCAL (NO. OF SHARES AND ALL OTHER
POSITION YEAR SALARY BONUS COMPANY) (2) COMPENSATION (3)
- ---------------------------------------- ------ ---------- --------- ----------------------------- ----------------
<S> <C> <C> <C> <C> <C>
Marshall J. Armstrong (4) 1996 $ 70,162 $27,300 $ 30,000 (TLT) $ 6,750
Former Chief Executive Officer
1995 $ 97,800 $60,000 -- $ 7,931
1994 $ 85,350 $75,600 125,000 (THP) $10,557
- ------------------------------------------------------------------------------------------------------------------------
J. Timothy Corcoran (5) 1996 $159,010 $52,000 40,000 (TLT) $ 6,750
President and Chief Executive Officer 600 (TMO)
2,000 (TBA)
2,000 (TFG)
6,000 (TOC)
6,000 (TMQ)
2,000 (TSR)
4,000 (TXM)
1995 $145,507 $85,000 15,000 (THP) $ 6,750
45,600 (TMO)
1994 $129,000 $75,000 80,500 (THP) $ 6,643
5,850 (TMO)
- -----------------------------------------------------------------------------------------------------------------------
Chester G. Janssens (6) 1996 $130,373 $ 0 3,000 (TLT) $ 5,551
Vice President; President, Crusader
Engines Division
3,750 (TMO)
1995 $145,125 $15,000 12,000 (THP) $ 7,365
3,600 (TMO)
1994 $140,000 $35,000 29,650 (THP) $ 6,722
6,187 (TMO)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annual compensation for executive officers generally is reviewed and
determined on a calendar year basis, even though the Corporation's fiscal
year ends in September. The salary data presented here has been adjusted to
reflect salary paid during the Corporation's fiscal year, while the bonus
represents the bonus paid for performance during the calendar year in which
the Corporation's fiscal year-end occurred. Bonuses have not yet been
determined for calendar 1996; therefore, the bonus amounts shown for fiscal
1996 are estimates.
(2) Mr. Armstrong has served as a vice president of Thermo Electron since 1986
and has been granted options to purchase common stock of Thermo Electron
and its subsidiaries other than the Corporation from time to time by Thermo
Electron or its 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 his capacity as the chief executive
officer of the Corporation. In addition to receiving options to purchase
Common Stock (designated in the table as THP), and the Corporation's
majority owned subsidiary ThermoLyte Corporation (designated in the table
as TLT), the named executive officers have been granted options to
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<PAGE>
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 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), 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). The shares of common stock of Thermo
Electron shown in the table reflect a three-for-two stock split distributed
in June 1996 in the form of a 50% stock dividend.
(3) 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.
(4) Mr. Armstrong served as the Corporation's chief executive officer until
October 1, 1996. He is also a vice president and full-time employee of
Thermo Electron, but during his tenure as the Corporation's Chief Executive
Officer he devoted such time to the affairs of the Corporation as the
Corporation's needs reasonably required. The annual cash compensation
(salary and bonus) reported in the table for Mr. Armstrong represents the
amount allocated and paid by the Corporation for Mr. Armstrong's services
as its chief executive officer. For calendar 1996, 1995 and 1994, the
Corporation was allocated approximately 35%, 60% and 60%, respectively, of
Mr. Armstrong's annual cash compensation.
(5) Mr. Corcoran was appointed president of the Corporation effective April 1,
1995 and its chief executive officer effective as of October 1, 1996.
Prior to April 1995, he served as a vice president of the Corporation.
(6) On July 1, 1996, Mr. Janssens resigned his responsibilities as a vice
president and executive officer of the Corporation. He continues to be
employed on a part-time basis by the Corporation and its parent company,
Thermo Electron. Mr. Janssens will be paid approximately $75,000 per year
under this arrangement.
STOCK OPTIONS GRANTED DURING FISCAL 1996
The following table sets forth information concerning individual grants of
stock options made by the Corporation and the other Thermo Electron companies
during fiscal 1996 to the named executive officers in their capacities as
officers of the Corporation. It has not been the Corporation's policy in the
past to grant stock appreciation rights, and no such rights were granted during
fiscal 1996.
Mr. Armstrong has been granted options to purchase common stock of Thermo
Electron and certain of its subsidiaries from time to time as compensation for
service to other Thermo Electron companies in capacities other than in his
capacity as chief executive officer of the Corporation. Accordingly, options
granted by Thermo Electron companies other than the Corporation and its
subsidiaries have not been reported in the table.
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<PAGE>
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
OPTIONS POTENTIAL REALIZABLE
NUMBER OF GRANTED TO EXERCISE VALUE AT ASSUMED
SECURITIES EMPLOYEES PRICE ANNUAL RATES OF STOCK
UNDERLYING OPTIONS IN FISCAL PER EXPIRATION PRICE APPRECIATION FOR
NAME GRANTED (1) YEAR SHARE DATE OPTION TERM (2)
- ----------------------- ------------------- ----------- -------- ---------- ------------------------
5% 10%
-------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Marshall J. Armstrong 30,000 (TLT) 23.6% $10.00 2/9/08 $238,800 $641,400
- -------------------------------------------------------------------------------------------------------------
J. Timothy Corcoran 40,000 (TLT) 31.5% $10.00 2/9/08 $318,400 $855,200
600 (TMO) 0.04% (3) $42.79 5/22/99 $ 4,044 $ 8,496
2,000 (TBA) 0.2% (3) $10.00 3/11/08 $ 15,920 $ 42,760
2,000 (TFG) 0.4% (3) $10.00 9/12/08 $ 15,920 $ 42,760
6,000 (TOC) 0.2% (3) $12.00 4/9/08 $ 57,300 $153,960
6,000 (TMQ) 0.2% (3) $13.00 3/11/08 $ 62,100 $166,800
2,000 (TSR) 0.4% (3) $14.00 3/11/08 $ 22,280 $ 59,880
4,000 (TXM) 0.2% (3) $11.00 3/11/08 $ 35,000 $ 94,080
- -------------------------------------------------------------------------------------------------------------
Chester G. Janssens 3,000 (TLT) 0.9% (3) $10.00 2/9/99 $ 4,740 $ 9,300
3,750 (TMO) 0.2% (3) $42.79 5/22/99 $ 25,275 $ 53,100
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All of the options granted during the fiscal year are immediately
exercisable as of the end of the fiscal year except options to purchase
shares of the Corporation's majority owned subsidiary, ThermoLyte
Corporation (designated in the table as TLT), 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 (the "Exchange Act") and (ii) nine years
after 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 the Corporation or another 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 that are not publicly traded, the repurchase rights
lapse in their entirety on the ninth anniversary of the grant date. The
options to purchase shares of the common stock of ThermoLyte Corporation
granted to Mr. Janssens have three-year terms, and the repurchase rights
lapse in their entirety on the second anniversary of the grant date.
Certain options granted as a part of Thermo Electron's stock option program
have three-year terms, and the repurchase rights lapse in their entirety on
the second anniversary of the grant date. The granting corporation may
permit the holders of such 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
granting corporation, the optionee's' continued employment through the
option period and the date on which the options are exercised.
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(3) These options were granted under stock option plans maintained by Thermo
Electron and accordingly are reported as a percentage of total options
granted to employees of Thermo Electron and its public subsidiaries.
STOCK OPTIONS EXERCISED DURING FISCAL 1996 AND FISCAL YEAR-END VALUES
The following table reports certain information regarding stock option
exercises during fiscal 1996 and outstanding stock options of the Thermo
Electron companies held at the end of fiscal 1996 by the named executive
officers. No stock appreciation rights were exercised or were outstanding during
fiscal 1996.
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND FISCAL 1996 YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
NO. OF UNEXERCISED
SHARES OPTIONS AT FISCAL VALUE OF
ACQUIRED YEAR-END UNEXERCISED
ON VALUE (EXERCISABLE/ IN-THE-MONEY
NAME COMPANY EXERCISE REALIZED UNEXERCISABLE) (1) OPTIONS
- --------------------------- ------------------- -------- -------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Marshall J. Thermo Power -- -- 165,000 /0 $50,000 /--
Armstrong............ ThermoLyte -- -- 0 /30,000 00 / $0 (4)
- ---------------------------------------------------------------------------------------------------------------
J. Timothy Corcoran...... Thermo Power -- -- 135,000 /0 $100,450 /--
ThermoLyte -- -- 0 /40,000 -- / $0 (4)
Thermo Electron (3) 6,748 $159,644 62,174 /0 $1,292,716 /--
Thermo BioAnalysis -- -- 2,000 /0 $7,750 /--
Thermo Fibergen -- -- 2,000 /0 $5,250 /--
Thermo Optek -- -- 6,000 /0 $18,000 /--
ThermoQuest -- -- 6,000 /0 $3,000 /--
Thermo Sentron -- -- 2,000 /0 $0 /--
Trex Medical -- -- 4,000 /0 $37,000 /--
- ---------------------------------------------------------------------------------------------------------------
Chester G. Janssens...... Thermo Power -- -- 81,650 /0 $18,460 /--
ThermoLyte -- -- 0 /3,000 -- / $0 (4)
Thermo Electron 3,037 $81,361 26,359 /0 $559,113 /--
Thermo Ecotek -- -- 4,500 /0 $50,252 /--
Thermo Fibertek -- -- 4,500 /0 $45,563 /--
ThermoTrex -- -- 900 /0 $28,508 /--
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The shares of common stock shown in the table have been adjusted to reflect
three-for-two stock splits, each in the form of a 50% stock dividend,
distributed by Thermo Electron in June 1996, by Thermo Ecotek in October
1996 and by Thermo Fibertek in June 1996. All of the options reported
outstanding at the end of the fiscal year were immediately exercisable as
of fiscal year-end, except the options to purchase shares of the common
stock of the Corporation's majority owned subsidiary, 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 Exchange Act and (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 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 companies whose shares are not publicly
traded, the repurchase rights lapse in their entirety on the ninth
anniversary of the grant date. For publicly
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<PAGE>
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 options to
purchase common stock of ThermoLyte Corporation granted to Mr. Janssens
have a three-year term, and the repurchase rights lapse in their entirety
on the second anniversary of the grant date. Certain options granted as a
part of Thermo Electron's stock option program have three-year terms, and
the repurchase rights lapse in their entirety on the second anniversary of
the grant date.
(2) As an executive officer of Thermo Electron, Mr. Armstrong also holds
unexercised options to purchase common stock of Thermo Electron and its
subsidiaries other than the Corporation and ThermoLyte. These options are
not reported here as they were granted as compensation for services to
other Thermo Electron companies in capacities other than his capacity as
the chief executive officer of the Corporation.
(3) Options to purchase 45,000 shares of the common stock of Thermo Electron
granted to Mr. Corcoran are subject to the same terms described in footnote
(1), except that the repurchase rights of Thermo Electron 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 Thermo Electron shall be deemed
to have lapsed ratably over a five-year period commencing with the fifth
anniversary of the grant date.
(4) No public market existed for the shares as of December 28, 1996.
Accordingly, no value in excess of the exercise price has been attributed
to those options.
SEVERANCE AGREEMENTS
In 1988, Thermo Electron entered into severance agreements with several of
its key employees, including key employees of the Corporation and other
majority-owned subsidiaries. These agreements provide severance benefits if
there is a change of 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 the majority-owned subsidiary is terminated, for whatever reason,
within one year thereafter. For purposes of the agreement, 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 of control of Thermo Electron. Each of the
recipients of these agreements would receive a lump-sum benefit at the time of a
qualifying severance (as defined below) equal to the highest total cash
compensation paid to the employee by Thermo Electron or the majority-owned
subsidiary in any 12-month period during the three years preceding the
qualifying severance. A qualifying severance exists (i) if the employment of the
executive officer is terminated for any reason within one year after a change in
control of Thermo Electron or (ii) a group of directors of Thermo Electron
consisting of directors of Thermo Electron on the date of the severance
agreement or, if an election contest or tender or exchange offer for Thermo
Electron's common stock has occurred, the directors of Thermo Electron
immediately prior to such election contest or tender or exchange offer, and any
future directors who are nominated or elected by such directors, determines that
any other termination of the executive officer's employment should be treated as
a qualifying severance. The benefits to be provided are limited so that the
payments would not constitute so-called "excess parachute payments" under
applicable provisions of the Internal Revenue Code of 1986. Assuming that
severance benefits would have been payable under these agreements as of
September 28, 1996, Mr. Armstrong would have received approximately $290,000.
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<PAGE>
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, Thermo Electron and certain of its
subsidiaries have created several privately and publicly held subsidiaries. The
Corporation has created ThermoLyte Corporation ("ThermoLyte") as a majority-
owned 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 Thermo Electron subsidiaries are hereinafter referred
to as the "Thermo Subsidiaries.")
Thermo Electron and each of the Thermo Subsidiaries recognize that the
benefits and support that derive from their affiliation are essential elements
of their individual performance. Accordingly, Thermo Electron and each of the
Thermo Subsidiaries has 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 financial 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 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 "S ervices 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
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<PAGE>
services to the Corporation. The Corporation was assessed an annual fee equal
to 1.2% of the Corporation's revenues for these services in calendar 1995.
Beginning January 1, 1996, the fee was reduced to 1% of the Corporation's
revenues. The fee is reviewed annually and may be changed by mutual agreement of
the Corporation and Thermo Electron. During fiscal 1996, Thermo Electron
assessed the Corporation $1,262,000 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.
From time to time, the Corporation may transact business with other
companies in the Thermo Group. During fiscal 1996 these transactions included
the following:
During fiscal 1996, FES International Limited, a wholly owned subsidiary of
Thermo Electron, purchased a total of $104,000 of refrigeration systems from
FES, a division of the Corporation.
As of September 28, 1996, $28,399,000 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, government and agency securities, money market funds,
certificates of deposit 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 Commercial Paper Composite Rate plus 25 basis points, set at the beginning
of each quarter.
The Corporation leases an office and laboratory facility from Thermo
Electron under an agreement expiring in September 1997. The rental payments
made to Thermo Electron, net of sublease income, during fiscal 1996 were
$170,000.
The Corporation, through its ThermoLyte Corporation subsidiary, acquired
the thermoelectric cooling module business of ThermoTrex Corporation, a majority
owned subsidiary of Thermo Electron, for $860,000 which was the net book value
of the business acquired.
The Corporation provides contract administration and other services and
data processing services to certain companies affiliated with Thermo Electron,
which are charged based on actual usage. For these services, the Corporation
charged $167,000 in fiscal 1996 to such companies.
STOCK HOLDING ASSISTANCE PLAN
In 1996, 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. No such loans are currently outstanding under the plan.
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