<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------------------------------------
AMENDMENT NO. 1 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
_____ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-10573
THERMO POWER CORPORATION
(Exact name of Registrant as specified in its character)
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 02454-9046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
Common Stock, $.10 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 October 30, 1998, was approximately $18,451,000.
As of October 30, 1998, the Registrant had 11,830,163 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended October 3, 1998 are incorporated by reference into Parts I and II.
<PAGE>
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.
The information required under Items 10, 11, 12 & 13 of Part III, originally to
be incorporated by reference from the Registrant's definitive proxy statement to
be filed with the Commission pursuant to Regulation 14A, not later than 120
days after the close of the fiscal year, is 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. 1 on form 10-K/A
to be signed by the undersigned, duly authorized.
THERMO POWER CORPORATION
By: /s/ Sandra L. Lambert
----------------------------
Sandra L. Lambert
Clerk
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Attachment A
Directors
Set forth below are the names of the persons serving 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 Corporation ("Thermo
Electron"), a provider of diversified products and services for the biomedical,
instrument and environmental markets, is reported under the caption "Stock
Ownership.
<TABLE>
<S> <C>
Marshall J. Armstrong.. Mr. Armstrong, 63, 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. Mr. Armstrong has been senior vice
president, government affairs, of Thermo Electron
since March 1997 and was a vice president of Thermo
Electron from 1986 until his promotion. He is also a
director of SatCon Technology Corporation and Thermo
Sentron Inc.
Frank Borman........... Col. Borman, 70, has been a director of the
Corporation since December 1998. Col. Borman has been
president and chief executive officer of Patlex
Corporation, a patent licensing company, and a trustee
of the National Geographic Society, for over five
years. Col. Borman is also a director of American
Superconductor Corporation, Database Online
Corporation, The Home Depot and Thermo Instrument
Systems Inc.
J. Timothy Corcoran.... Mr. Corcoran, 52, 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.
Peter O. Crisp......... Mr. Crisp, 66, has been a director of the Corporation
since 1985. Mr. Crisp was a general partner of Venrock
Associates, a venture capital investment firm, for
over five years until his retirement in September
1997. Mr. Crisp is also a director of American
Superconductor Corporation, Evans & Sutherland
Computer Corporation, Thermedics Inc., Thermo
Electron, ThermoTrex Corporation, United States Trust
Corporation and NovaCare Inc.
John N. Hatsopoulos.... Mr. Hatsopoulos, 64, has been a director of the
Corporation since 1990. He served as the financial
officer of the Corporation from 1989 until 1998, a
senior vice president from 1997 until his retirement
at the end of 1998, and as a vice president from 1989
until 1997. Mr. Hatsopoulos was the president of
Thermo Electron from 1997 to 1998 and its chief
financial officer from 1988 to 1998. Mr. Hatsopoulos
is also a director of LOIS/USA Inc., US Liquids Inc.,
Thermo Electron, Thermedics Inc., Thermo Fibertek
Inc., Thermo Instrument Systems Inc., Thermo Power
Corporation and Thermo TerraTech Inc.
Brian D. Holt.......... Mr. Holt, 50, has been a director and the chairman of
the Corporation since September 1998. He has been the
president and chief executive officer of Thermo Ecotek
Corporation since February 1994. He has been the chief
operating officer, environmental and energy of Thermo
Electron since September 1998. From March 1996 to
September 1998, he was a vice president of Thermo
Electron. For more than five years, prior to his
appointment as an officer of Thermo Ecotek
Corporation, he was president and chief executive
officer of
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Pacific Generation Company, a financier, builder, owner and
operator of independent power facilities. Mr. Holt is also
a director of KFX, Inc., The Randers Group Incorporated,
Thermo Ecotek Corporation, ThermoRetec Corporation and
Thermo TerraTech Inc.
Donald E. Noble... Mr. Noble, 83, 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.
John J. Setnicka.. Mr. Setnicka, 65, has been a director of the Corporation
since December 1998. He has been the president of Excel
International Advisors, Inc., an export management company
since June 1994. He was the chairman of Eveready Battery
Co.--Pan America from 1987 to 1992.
</TABLE>
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. Crisp (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.
Crisp. 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 five times during fiscal 1998. Each director
attended at least 75% of all meetings of the board of directors and committees
on which he served held during the fiscal year.
The board of directors has established a special committee consisting solely
of outside directors, for the purpose of evaluating the merits of any proposed
transaction with Thermo Electron and considering such alternatives as the
special committee deems appropriate and making a recommendation to the full
board of directors on whether to approve any such transaction. The present
members of the special committee are Mr. Borman and Mr. Setnicka.
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 the audit
and human resources committees of the board of directors. Payment of outside
directors' fees is made quarterly. Mr. Armstrong, Mr. Corcoran, Mr. J.
Hatsopoulos and Mr. Holt 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. Members of the special committee receive a one time
retainer of $20,000 and a fee of $1,000 per day for attending regular meetings
of the special committee and $500 per day for participating in meetings of the
special committee held by means of conference telephone.
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
<PAGE>
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, director 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 50,000 shares of Common Stock have been reserved
for issuance under the Deferred Compensation Plan. As of November 28, 1998,
deferred units equal to 27,888.21 shares of Common Stock were accumulated
under the Deferred Compensation Plan.
DIRECTORS STOCK OPTION PLAN
The Corporation's directors stock option plan (the "Directors Plan")
provides for the grant of stock options to purchase shares of Common Stock to
outside directors as additional compensation for their service as directors.
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 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 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 at 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. 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 options 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 outside directors were each granted
options to purchase 1,500 shares of the common stock of ThermoLyte Corporation
in connection with the spinout of that entity in March 1995.
The exercise price for options granted under the Directors Plan is the
average of the closing prices of the common stock as reported on the American
Stock Exchange (or other principal market on which the common stock is then
traded) for the five trading days immediately preceding and including the date
of grant, or, if the shares are not then traded, at the last price per share
paid by third parties in an arms-length transaction prior to the option grant.
As of November 28, 1998, options to purchase 15,400 shares of Common Stock had
been granted and were outstanding under the Directors Plan, options to
purchase 6,800 shares of Common Stock had
<PAGE>
lapsed, 2,400 options had been exercised, and options to purchase 7,200 shares
of Common Stock were reserved and available for grant.
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 within
three years of their appointment All Directors are in compliance with this
policy. 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, which is described in the Committee Report on
Executive Compensation--Stock Ownership Policies.
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 policy is also
applicable to executive officers and is described in the 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 ThermoLyte Corporation
("ThermoLyte"), a majority-owned subsidiary of the Corporation, as of November
28, 1998, 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
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 beneficially owned by Thermo Electron.
<TABLE>
<CAPTION>
Thermo
Thermo Power Electron ThermoLyte
Name(1) Corporation(2) Corporation(3) Corporation(4)
------- -------------- -------------- --------------
<S> <C> <C> <C>
Thermo Eletron Corporation (5).... 9,299,876 N/A N/A
Marshall J. Armstrong............. 168,548 135,580 2,500
Frank Borman...................... 0 0 0
J. Timothy Corcoran............... 161,031 72,824 0
Peter O. Crisp.................... 37,127 102,652 0
John N. Hatsopoulos............... 46,753 873,854 0
Brian D. Holt..................... 0 284,793 0
Donald E. Noble................... 23,894 59,234 1,000
John J. Setnicka.................. 1,000 0 0
Smallcap World Fund, Inc.......... 620,000 0 0
All directors and current
executive officers as a group
(10 persons)..................... 465,703 1,963,092 3,500
</TABLE>
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(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 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.
<PAGE>
(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 9,299,876 shares beneficially owned by Thermo Electron. Shares
beneficially owned by Mr. Armstrong, Mr. Corcoran, Mr. Crisp, Mr. J.
Hatsopoulos, Mr. Noble and all directors and executive officers as a group
include 165,000, 135,500, 6,600, 40,000, 7,200 and 374,300 shares,
respectively, that such person or group has the right to acquire within 60
days of November 28, 1998, through the exercise of stock options. Shares
beneficially owned by Mr. Crisp, Mr. Noble and all directors and executive
officers as a group include 11,434, 7,869 and 19,303 full shares,
respectively, that had been allocated through November 28, 1998, 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. Shares
beneficially owned by Mr. Hatsopoulos include 1,000 shares owned by Mr.
Hatsopoulos' spouse. No director or executive officer beneficially owned
more than 1% of the Common Stock outstanding as of November 28, 1998,
other than Mr. Armstrong, who beneficially owned 1.41% and Mr. Corcoran,
who beneficially owned 1.35% of the Common Stock outstanding as of such
date; all directors and executive officers as a group beneficially owned
3.90% of the Common Stock outstanding as of such date.
(3) Shares beneficially owned by Mr. Armstrong, Mr. Corcoran, Mr. Crisp, Mr.
J. Hatsopoulos, Mr. Holt, Mr. Noble, and all directors and executive
officers as a group include 76,650, 67,674, 9,125, 812,735, 284,100, 9,125
and 1,632,181 shares, respectively, that such person or group has the right
to acquire within 60 days of November 28, 1998, through the exercise of
stock options. Shares of the common stock of Thermo Electron beneficially
owned by Mr. Armstrong, Mr. J. Hatsopoulos and all directors and executive
officers as a group include 2,598, 2,036 and 7,131 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 November 28, 1998,
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 46,663, 44,444 and 91,107 full shares,
respectively, allocated through November 28, 1998 to their respective
accounts maintained pursuant to Thermo Electron's deferred compensation plan
for directors. As of November 28, 1998, 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 1.23% of the Thermo Electron common stock
outstanding as of November 28, 1998.
(4) No director or executive officer beneficially owned more than 1% of the
common stock of ThermoLyte outstanding as of November 28, 1998; all
directors and executive officers as a group beneficially owned less than
1% of the common stock outstanding as of such date.
(5) Thermo Electron owned 78.61% of the Common Stock outstanding as of
November 28, 1998. Thermo Electron's address is 81 Wyman Street, Waltham,
Massachusetts 02454-9046. As of November 28, 1998, 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 1998, except in the following instances. Mr.
Crisp and Mr. Noble, each filed one transaction late consisting of the exempt
acquisition of stock units to their accounts pursuant to the Corporation's
deferred compensation plan for directors. Thermo Electron filed eight Forms 4
late, reporting a total of 85 transactions, including 80 open market purchases
of shares of common stock and five transactions associated with the grant,
exercise and lapse of options to purchase common stock granted to employees
under its stock option program.
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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 (the "named executive officer") for the last three fiscal
years. 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 has a
fiscal year that is the 52-or 53-week period ending on the Saturday nearest
September 30.
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.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation (1)
-----------------------
Long Term Compensation
Securities Underlying
Name and Principal Fiscal Options (No. of Shares All Other
Position Year Salary Bonus and Company (3) Compensation(4)
------------------ ------ ------------ ----------- ----------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
J. Timothy Corcoran(5).. 1998 $ 176,374 n/a(2) 5,300 (TMO) $13,908(6)
President and Chief
Executive Officer
2,000 (MKA)
2,000 (ONX)
20,000 (RGI)
2,000 (TDX)
1,000 (TISI)
2,000 (TRIL)
1,500 (VIZ)
2,000 (TRCC)
1997 $ 168,003 $ 70,000 800 (TMO) $10,720(6)
1996 $ 159,010 $ 52,000 600 (TMO)
2,000 (TBA)
2,000 (TFG)
40,000 (TLT)
6,000 (TOC)
6,000 (TMQ)
2,000 (TSR)
4,000 (TXM)
</TABLE>
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(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.
(2) The bonus amount represents the bonus paid for performance during the
calendar year in which the Corporation's fiscal year-end occurred. As of
the date hereof, bonuses have not yet been determined for calendar 1998.
(3) In addition to receiving options to purchase Common Stock of the
Corporation (designated in the table as THP), and the Corporation's
majority owned subsidiary ThermoLyte Corporation (designated in the table
<PAGE>
as TLT), the named executive officer has 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 in his capacity as an
officer of the Corporation. Options have been granted during the last three
fiscal years to the named executive officer 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),
Trex Medical Corporation (designated in the table as TXM), Metrika Systems
Inc. (designated in the table as MKA), ONIX Systems Inc. (designated in the
table as ONX), The Randers Group Incorporated (designated in the table as
RGI), Thermedics Detection Inc. (designated in the table as TDX), Thermo
Information Solutions Inc. (designated in the table as TISI), Thermo
Trilogy Corporation (designated in the table as TRIL), Thermo Vision
Corporation (designated in the table as VIZ), and Trex Communications
Corporation (designated in the table as TRCC).
(4) Represents the amount of matching contributions made by the individual's
employer on behalf of the named executive officer participating in the
Thermo Electron 401(k) plan.
(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) In addition to a $7,125 and $7,200 which represent the amount of matching
contributions referred to in footnote (4), this amount includes $3,595 for
fiscal 1997 and $6,708 for fiscal 1998, of compensation attributable to an
interest-free loan provided to Mr. Corcoran pursuant to the Corporation's
Stock Holding Assistance Plan. See "Relationship with Affiliates--Stock
Holding Assistance Plan."
STOCK OPTIONS GRANTED DURING FISCAL 1998
The following table sets forth information concerning individual grants of
stock options made by the Corporation and the other Thermo Electron companies
during fiscal 1998 to the named executive officer in his capacity as an
officer 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 1998.
Option Grants in Fiscal 1998
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Percent of Annual Rates of Stock
Total Options Exercise Price Appreciation for
Number of Securities Granted to Price Option Term(2)
Underlying Options Employees in Per Expiration -----------------------
Name Granted (1) Fiscal Year Share Date 5% 10%
---- --------------------- ------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Timothy Corcoran..... 1,000 (TMO) 0.05%(3) $34.50 6/2/03 $ 9,530 $ 21,060
4,300 (TMO) 0.22%(3) $16.20 9/23/03 $ 19,264 $ 42,527
2,000 (MKA) 0.88%(3) $14.23 1/21/05 $ 11,580 $ 27,000
2,000 (ONX) 0.23%(3) $14.25 1/21/05 $ 11,600 $ 27,040
20,000 (RGI) 0.23%(3) $ 0.80 1/21/05 $ 6,600 $ 15,200
2,000 (TDX) 0.21%(3) $ 9.56 1/21/05 $ 7,780 $ 18,140
1,000 (TISI) 1.62%(3) $10.00 1/21/05 $ 4,070 $ 9,940
2,000 (TRIL) 1.43%(3) $ 8.25 1/21/05 $ 4,425 $ 15,660
1,500 (VIZ) 0.35%(3) $ 7.25 1/21/05 $ 7.25 $ 10,320
2,000 (TRCC) 0.16%(3) $ 4.00 1/21/05 $ 3,260 $ 7,580
</TABLE>
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(1) As part of Thermo Electron's stock option program, options have been
granted during fiscal 1998 to the named executive officer to purchase the
common stock of Thermo Electron (designated in the table as TMO), Metrika
Systems Inc. (designated in the table as MKA), ONIX Systems Inc.
(designated in the table as ONX), The Randers Group Incorporated
(designated in the table as RGI), Thermedics Detection Inc.
<PAGE>
(designated in the table as TDX), Thermo Information Solutions Inc.
(designated in the table as TISI), Thermo Trilogy Corporation (designated
in the table as TRIL), Thermo Vision Corporation (designated in the table
as VIZ) and Trex Communications Corporation (designated in the table as
TRCC). The options granted during the fiscal year are immediately
exercisable as of the end of the fiscal year except for Thermo Information
Solutions Inc., Thermo Trilogy Corporation and Trex Communications
Corporation which are not exercisable until the earlier of (i) 90 days
after the effective date of the registration of that company's common stock
under Section 12 of the Securities Exchange Act of 1934 and (ii) nine years
after the grant date. 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. For publicly traded companies, the repurchase rights
generally lapse ratably over a four- to five- year period, depending on the
option term, which may vary from five to seven years, provided that the
optionee continues 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. The granting corporation may permit the holder of the option to
exercise the option 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 in this table represent hypothetical gains that could be
achieved for the 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 option was granted to its 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.
(3) These options were granted under a stock option plan maintained by Thermo
Electron and, accordingly, are reported as a percentage of total options
granted to employees of Thermo Electron and its subsidiaries.
<PAGE>
Stock Options Exercised During Fiscal 1998 and Fiscal Year-End Values
The following table reports certain information regarding stock option
exercises during fiscal 1998 and outstanding stock options to purchase shares
of the Thermo Electron companies held at the end of fiscal 1998 by the named
officer. No stock appreciation rights were exercised or were outstanding
during fiscal 1998.
Aggregated Option Exercises In Fiscal 1998 And Fiscal 1998 Year-End Option
Values
<TABLE>
<CAPTION>
Number of
Unexercised
Options at Fiscal Value of
Shares Year-End Unexercised
Acquired on Value (Exercisable/ In-the-Money
Name Company Exercise Realized(1) Unexercisable)(2) Options
---- ---------------------------- ----------- ----------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Timothy Corcoran..... Thermo Power -- -- 135,500 /0 $40,750 /--
Thermo Electron (3) 600 $9,765 67,674 /0 $ 2,759 /--
Metrika Systems -- -- 2,000 /0 $ 0 /--
Onix Systems -- -- 2,000 /0 $ 0 /--
Randers Group -- -- 20,000 /0 $ 0 /--
Thermedics Detection -- -- 2,000 /0 $ 0 /--
Thermo BioAnalysis -- -- 2,000 /0 $ 1,250 /--
Thermo Fibergen -- -- 2,000 /0 $ 0 /--
Thermo Information Solutions -- -- 0 /1,000 -- /$0 (4)
ThermoLyte -- -- 0 /40,000 -- /$0 (4)
Thermo Optek -- -- 6,000 /0 $ 0 /--
ThermoQuest -- -- 6,000 /0 $ 0 /--
Thermo Sentron -- -- 2,000 /0 $ 0 /--
Thermo Trilogy -- -- 0 /2,000 -- $0 (4)
Thermo Vision -- -- 1,500 /0 $ 0 /--
Trex Communications -- -- 0 /2,000 -- /$0 (4)
Trex Medical -- -- 4,000 /0 $ 0 /0
</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 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, as well as Thermo Information
Solutions Inc., Thermo Trilogy Corporation, and Trex Communications
Corporation, which are not exercisable until the earlier of (i) 90 days
after the effective date of the registration of that company's common
stock under Section 12 of the Securities Exchange Act of 1934 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 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. 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.
(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 November 28, 1998.
Accordingly, no value in excess of the exercise price has been attributed
to those options.
Executive Retention Agreements
Thermo Electron has entered into agreements with certain executive officers
and key employees of the Corporation that provide severance benefits if there is
a change in control of Thermo Electron and their employment is terminated for
any reason, other than for cause, within 18 months thereafter. For purposes of
these agreements, a change in control exists upon (i) the acquisition by any
person of 40% or more of the outstanding common stock or voting securities of
Thermo Electron; (ii) the failure of the Thermo Electron board of directors to
be constituted of a majority of directors who are "continuing directors", which
term is defined to include directors who were members of Thermo Electron's board
on the date of the agreement or who subsequent to the date of the agreement were
nominated or elected by a majority of directors who were "continuing directors"
at the time of such nomination or election; (iii) the consummation of a merger,
consolidation, reorganization, recapitalization or statutory share exchange
involving Thermo Electron or the sale or other disposition of all or
substantially all of the assets of Thermo Electron unless immediately after such
transaction (a) all holders of Thermo Electron common stock immediately prior to
such transaction own more than 60% of the outstanding voting securities of the
resulting or acquiring corporation in substantially the same proportions as
their ownership immediately prior to such transaction and (b) no person after
the transaction owns 40% or more of the outstanding voting securities of the
resulting or acquiring corporation; or (iv) approval by stockholders of a
complete liquidation or dissolution of Thermo Election.
In 1998, Thermo Electron authorized an executive retention agreement with
J. Timothy Corcoran. This agreement provides that in the event the individual's
employment is terminated within 18 months after a change in control, the
individual would be entitled to a lump sum payment equal to the sum of one
times, the individual's highest annual base salary in any 12 month period during
the prior 5 year period, plus one times the individual's highest annual bonus in
any 12 month period during the prior 5 year period. In addition, the individual
would be provided benefits for a period of one year, after such termination
substantially equivalent to the benefits package the individual would have been
otherwise entitled to receive if the individual was not terminated. The
individual would also be entitled to all other compensation due to the
individual from the Corporation through the date of termination. Further, all
options that the individual holds in Thermo Electron and its subsidiaries,
including the Corporation, would become fully vested as of the date of the
change in control. Finally, the individual would be entitled to a cash payment
equal to $15,000, to be used toward outplacement services. This executive
retention agreement supercedes and replaces any and all prior severance
arrangements which this individual had with Thermo Electron.
Assuming that the severance benefits would have been payable as of January
1, 1999, the lump sum salary and bonus payment under such agreement to Mr.
Corcoran would have been approximately $269,000. In the event that payments
under this agreement are deemed to be so called "excess parachute payments"
under the applicable provisions of the Internal Revenue Code of 1986, as
amended, the individual would be entitled to receive a gross-up payment equal to
the amount of any excise tax payable by such individual with respect to such
payment plus the amount of all other additional taxes imposed on such individual
attributable to the receipt of such gross-up payment.
11
<PAGE>
RELATIONSHIP WITH AFFILIATES
The Thermo Electron Corporate Charter
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. In addition, a withdrawing company is required to continue to
comply with all policies and procedures applicable to the Thermo Group and to
provide certain administrative functions mandated by Thermo Electron so long
as the withdrawing company is controlled by or affiliated with Thermo
Electron.
Corporate Services Agreement
As provided in the Charter, the Corporation and Thermo Electron have entered
into a Corporate Services Agreement (the "Services Agreement") under which
Thermo Electron's corporate staff provides certain administrative services,
including certain legal advice and services, risk management, employee benefit
administration, tax advice and preparation of tax returns, centralized cash
management and financial and other services to the Corporation. The
Corporation was assessed an annual fee equal to 1% of the Corporation's total
revenues for these services in calendar 1997 and 0.8% of the Corporation's
total revenues in calendar 1998. The annual fee will be 0.8% of the
Corporation's total revenues in calendar 1999. The fee is reviewed annually
and may be changed by mutual agreement of the Corporation and Thermo Electron.
During fiscal 1998, Thermo Electron assessed the Corporation $ 2,277,000 in
fees under the Services Agreement. Management believes that
<PAGE>
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.
Miscellaneous
From time to time, the Corporation may transact business with other
companies in the Thermo Group. During fiscal 1998 these transactions included
the following.
In November 1997, the Corporation borrowed $160 million from Thermo Electron
pursuant to a promissory note due in November 1999 in order to finance a
portion of its acquisition of Peek plc ("Peek") for $166.7 million, including
related expenses. Such note bears interest at a rate equal to the 90-day
Commercial Paper Composite Rate as reported by Merrill Lynch Capital Markets,
plus 25 basis points and is adjusted quarterly. During fiscal 1998, the
Corporation recorded $8.1 million of interest expense relating to this
obligation.
Subsequent to the Corporation's acquisition of Peek, the Corporation sold
Peek's Measurement business to ONIX Systems Inc. ("ONIX Systems"), a majority
owned subsidiary of Thermo Instrument Systems Inc., effective November 6,
1997, for $19.1 million. Thermo Instrument Systems Inc. is a majority owned
subsidiary of Thermo Electron. The components of the sales price for the
Measurement business consist of the net tangible book value of the Measurement
business, cost in excess of net assets of acquired company, and the estimated
tax liability relating to the sale. The cost in excess of net assets of
acquired company was determined based upon a percentage of the Corporation's
total cost in excess of net assets of acquired company associated with its
acquisition of Peek, based on the 1997 revenues of the Measurement business
relative to Peek's total 1997 consolidated revenues. During the second quarter
of fiscal 1998, ONIX Systems paid the Corporation $19.1 million for the
Measurement business. In addition, the Corporation received $257,000 in
interest from ONIX Systems in connection with this receivable.
During fiscal 1998, the Corporation sublet office and manufacturing space in
the United Kingdom to ONIX Systems pursuant to an arrangement whereby the
Company charges ONIX Systems its allocated share of occupancy expenses. ONIX
Systems has indicated its intention to relocate its operations to a new
facility during fiscal 1999. Pursuant to this arrangement, the Corporation
recorded $166,000 in fiscal 1998 as a reduction in selling, general, and
administrative expenses.
At fiscal year-end 1998, $11,459,000 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, commercial paper, money
market funds 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. 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 an office and laboratory facility from Thermo
Electron under an agreement expiring in 2002. Rental expense for fiscal 1998
relating to this lease with Thermo Electron was $326,000.
<PAGE>
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 $127,000 in fiscal 1998 to such companies.
During fiscal 1998, the Corporation sold products totaling $66,000 in the
ordinary course of business to certain companies affiliated with Thermo
Electron.
At October 3, 1998, the Corporation owed Thermo Electron and its other
subsidiaries an aggregate of $159,268,000 for borrowings relating to the Peek
acquisition, discussed above, for amounts due under the Corporate Services
Agreement and related administrative charges, for other products and services,
and for miscellaneous items, net of amounts owed to the Corporation by Thermo
Electron and its other subsidiaries for miscellaneous items. The largest
amount of net indebtedness owed by the Corporation to Thermo Electron and its
other subsidiaries since September 27, 1997, was $163,045,000. With the
exception of the Peek borrowing described above, these amounts do not bear
interest and are expected to be paid in the normal course of business.
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. During 1997, Mr. Corcoran received loans in the aggregate principal
amount of $118,756.25 under this plan to purchase 18,000 shares. The loans to
Mr. Corcoran are to 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. As of the date hereof, the
entire loan amount remained outstanding. The policy and plan were amended in
1998 to apply only to the chief executive officer of the Corporation in the
future.
