<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted
[X] Definitive Proxy Statement by Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Thermo Cardiosystems Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Thermo Cardiosystems Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
[LOGO OF THERMO CARDIOSYSTEMS APPEARS HERE]
470 Wildwood Street
P.O. Box 2697
Woburn, Massachusetts 01888-2697
April 20, 1999
Dear Stockholder:
The enclosed Notice calls the 1999 Annual Meeting of the Stockholders of
Thermo Cardiosystems Inc. I respectfully request that all Stockholders attend
this meeting, if possible.
Our Annual Report for the year ended January 2, 1999 is enclosed. I hope
you will read it carefully. Feel free to forward any questions you may have if
you are unable to be present at the meeting.
Enclosed with this letter is a proxy authorizing three officers of the
Corporation to vote your shares for you if you do not attend the meeting.
Whether or not you are able to attend the meeting, I urge you to complete your
proxy and return it to our transfer agent, American Stock Transfer & Trust
Company, in the enclosed addressed, postage-paid envelope, as a quorum of the
Stockholders must be present at the meeting, either in person or by proxy.
I would appreciate your immediate attention to the mailing of this proxy.
Yours very truly,
R. MICHAEL KLEINE
Chief Executive Officer
<PAGE>
[LOGO OF THERMO CARDIOSYSTEMS APPEARS HERE]
470 Wildwood Street
P.O. Box 2697
Woburn, Massachusetts 01888-2697
April 20, 1999
To the Holders of the Common Stock of
THERMO CARDIOSYSTEMS INC.
NOTICE OF ANNUAL MEETING
The 1999 Annual Meeting of the Stockholders of Thermo Cardiosystems Inc.
(the "Corporation") will be held on Thursday, May 27, 1999 at 1:30 p.m. at The
Westin Hotel, 70 Third Avenue, Waltham, Massachusetts. The purpose of the
meeting is to consider and take action upon the following matters:
1. Election of seven directors.
2. A proposal recommended by the Board of Directors to amend the
Corporation's equity incentive plan to increase the shares available
for issuance under the plan by 1,000,000 shares and to modify the
limitation on the size of awards to any recipient in a year.
3. Such other business as may properly be brought before the meeting
and any adjournment thereof.
The transfer books of the Corporation will not be closed prior to the
meeting, but, pursuant to appropriate action by the board of directors, the
record date for the determination of the Stockholders entitled to receive notice
of and to vote at the meeting is March 30, 1999.
The By-laws require that the holders of a majority of the stock issued and
outstanding and entitled to vote be present or represented by proxy at the
meeting in order to constitute a quorum for the transaction of business. It is
important that your shares be represented at the meeting regardless of the
number of shares you may hold. Whether or not you are able to be present in
person, please sign and return promptly the enclosed proxy in the accompanying
envelope, which requires no postage if mailed in the United States.
This Notice, the proxy and proxy statement enclosed herewith are sent to
you by order of the board of directors.
SANDRA L. LAMBERT
Clerk
<PAGE>
PROXY STATEMENT
The enclosed proxy is solicited by the board of directors of Thermo
Cardiosystems Inc. (the "Corporation") for use at the 1999 Annual Meeting of the
Stockholders to be held on Thursday, May 27, 1999, at 1:30 pm. at The Westin
Hotel, 70 Third Avenue, Waltham, Massachusetts, and any adjournment thereof. The
mailing address of the executive office of the Corporation is 470 Wildwood
Street, P.O. Box 2697, Woburn, Massachusetts 01888-2697. This proxy statement
and the enclosed proxy were first furnished to Stockholders of the Corporation
on or about April 22, 1999.
VOTING PROCEDURES
The board of directors intends to present to the meeting the election of
seven directors, constituting the entire board of directors, and a proposal to
increase the number of shares available for issuance under the Corporation's
equity incentive plan by 1,000,000 shares and to modify the limitation on the
potential size of awards to any recipient in a year.
The representation in person or by proxy of a majority of the outstanding
shares of the common stock of the Corporation, $.10 par value (the "Common
Stock"), entitled to vote at the meeting is necessary to provide a quorum for
the transaction of business at the meeting. Shares can be voted only if the
Stockholder is present in person or is represented by returning a properly
signed proxy. Each Stockholder's vote is very important. Whether or not you plan
to attend the meeting in person, please sign and promptly return the enclosed
proxy card, which requires no postage if mailed in the United States. Votes of
Stockholders of record who are present at the meeting in person or by proxy,
abstentions, and broker non-votes (as defined below) are counted as present or
represented at the meeting for purposes of determining whether a quorum exists.
Shares represented by proxy will be voted in accordance with your
instructions. You may specify your choice by marking the appropriate box on the
proxy card. If your proxy card is signed and returned without specifying
choices, your shares will be voted for the management nominees for directors,
for the management proposal, and as the individuals named as proxy holders on
the proxy deem advisable on all other matters as may properly come before the
meeting.
In order to be elected a director, a nominee must receive the affirmative
vote of a majority of the shares of Common Stock present or represented by proxy
and entitled to vote on the election. For the management proposal, the
affirmative vote of a majority of shares of Common Stock present or represented
by proxy and entitled to vote on the matter is necessary for approval.
Withholding authority to vote for a nominee for director or any instruction to
abstain from voting on the management proposal will be treated as shares present
and entitled to vote and, for purposes of determining the outcome of the vote,
will have the same effect as a vote against the nominee or the management
proposal. If you hold your shares of Common Stock through a broker, bank or
other nominee, generally the nominee may only vote the Common Stock that it
holds for you in accordance with your instructions. However, if it has not
timely received your instructions, the nominee may vote on certain matters for
which it has discretionary voting authority. If a nominee cannot vote on a
particular matter because it does not have discretionary voting authority, this
is a "broker non-vote" on that matter. With regard to the election of directors
and the management proposal, broker non-votes will have no effect on the outcome
of either vote.
A Stockholder who returns a proxy may revoke it at any time before the
Stockholder's shares are voted at the meeting by written notice to the Clerk of
the Corporation received prior to the meeting, by executing and returning a
later dated proxy or by voting by ballot at the meeting.
The outstanding stock of the Corporation entitled to vote (excluding shares
held in treasury by the Corporation) as of March 30, 1999 consisted of
38,384,326 shares of Common Stock. Only Stockholders of record at the close of
business on March 30, 1999, are entitled to vote at the meeting. Each share is
entitled to one vote.
1
<PAGE>
- PROPOSAL 1 -
ELECTION OF DIRECTORS
Seven directors are to be elected at the meeting, constituting the entire
board of directors, each to hold office until his successor is elected and
qualified or until his earlier resignation, death or removal.
Nominees For Directors
Set forth below are the names of the persons nominated as directors, their
ages, their offices in the Corporation, if any, their principal occupation or
employment for the past five years, the length of their tenure as directors and
the names of other public companies in which such persons hold directorships.
Information regarding their beneficial ownership of the Corporation's Common
Stock and of the common stock of its parent company, Thermedics Inc.
("Thermedics"), a manufacturer of biomedical products, product quality-assurance
systems and security devices, and Thermedics' parent company, Thermo Electron
Corporation ("Thermo Electron"), a provider of products and services in
measurement instrumentation, biomedical devices, energy, resource recovery, and
emerging technologies is reported under the caption "Stock Ownership." All of
the nominees are currently directors of the Corporation.
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
Walter J. Bornhorst Dr. Bornhorst, 58, has been a director of the
Corporation since 1988. Since 1994, Dr. Bornhorst has
been the chairman of Z Corporation, a developer of
rapid prototyping equipment. He is also a director of
Thermo Fibertek Inc.
- -------------------------------------------------------------------------------
Elias P. Gyftopoulos Dr. Gyftopoulos, 71, has been a director of the
Corporation since September 1994. He is Professor
Emeritus of The Massachusetts Institute of Technology,
where he was the Ford Professor of Mechanical
Engineering and of Nuclear Engineering for more than
20 years prior to his retirement in 1996. Dr.
Gyftopoulos is also a director of Thermo BioAnalysis
Corporation, Thermo Electron, ThermoLase Corporation,
ThermoRetec Corporation, ThermoSpectra Corporation,
Thermo Vision Corporation and Trex Medical
Corporation.
- -------------------------------------------------------------------------------
John T. Keiser Mr. Keiser, 63, has been a director of the
Corporation since April 1997 and chairman of the board
since December 1998. He has been the chief operating
officer, biomedical and emerging technologies, of
Thermo Electron since September 1998, and a vice
president from April 1997 until his promotion. Mr.
Keiser has been the president and chief executive
officer of Thermedics since March 1998 and December
1998, respectively, and was a senior vice president of
Thermedics from 1994 until his promotion to president.
He has also been the president of Thermo Electron's
wholly owned biomedical group, a manufacturer of
medical equipment and instruments, since 1994. Mr.
Keiser was president of the Eberline Instrument
division of Thermo Instrument Systems Inc., a
manufacturer of measurement and detection instruments
and a majority-owned subsidiary of Thermo Electron,
from 1985 to July 1994. The Eberline Instrument
division manufactures radiation detection and counting
instrumentation and radiation monitoring systems. Mr.
Keiser is a director of Metrika Systems Corporation,
Thermedics Detection Inc., Thermedics, ThermoLase
Corporation, Thermo Sentron Inc., ThermoTrex
Corporation and Trex Medical Corporation.
- -------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
R. Michael Kleine Mr. Kleine, 45, has been a director and chief
executive officer of the Corporation since March 1999
and November 1998, respectively. Mr. Kleine served as
the president and chief executive officer of Sorin
Biomedical, a manufacturer and distributor of
cardiopulmonary equipment, from October 1997 to
November 1998. From 1994 to 1997, Mr. Kleine held a
number of management positions at, and most recently
had served as president of, Bird Medical Technologies
Inc., a wholly-owned subsidiary of Thermo Electron.
From 1993 to 1994, Mr. Kleine served as vice president
of sales, North America at Baxter International,
Bentley Division, a manufacturer of healthcare
products.
- -------------------------------------------------------------------------------
Leonard Laster Dr. Laster, 70, has been a director of the
Corporation since 1988. Dr. Laster has been the
Distinguished University Professor of Medicine and
Health Policy and Chancellor Emeritus of the
University of Massachusetts Medical Center since 1990.
Dr. Laster has also been a consultant to the
Biomedical Research Foundation of Northwest Louisiana.
- -------------------------------------------------------------------------------
Victor L. Poirier Mr. Poirier, 57, has been a director of the
Corporation since 1991. Mr. Poirier has been president
of the Corporation since 1990 and was the chief
executive officer of the Corporation from 1991 to
November 1998. Mr. Poirier has been a senior vice
president of Thermedics since 1985.
- -------------------------------------------------------------------------------
Nicholas T. Zervas Dr. Zervas, 70, has been a director of the
Corporation since 1989. Dr. Zervas has been Chief of
Neurological Service, Massachusetts General Hospital,
since 1977. Dr. Zervas is also a director of
Thermedics, ThermoLase Corporation and ThermoTrex
Corporation.
- -------------------------------------------------------------------------------
</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 directors who are not employees
of the Corporation, of Thermo Electron or any other companies affiliated with
Thermo Electron ("outside directors"). The present members of the audit
committee are Dr. Laster (Chairman) and Dr. Zervas. 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 Dr.
Gyftopoulos, (Chairman), Dr. Laster and Dr. Zervas. The human resources
committee reviews the performance of senior members of management, approves
executive compensation and administers the Corporation's stock option and other
stock-based compensation plans. The Corporation does not have a nominating
committee of the board of directors. The board of directors met six times, the
audit committee met twice and the human resources committee met four times
during fiscal 1998. Each director attended at least 75% of all meetings of the
board of directors and committees on which he served that were held during
fiscal 1998.
Compensation of Directors
Cash Compensation
Outside directors receive an annual retainer of $2,000 and a fee of $1,000
per meeting for attending regular meetings of the board of directors and $500
per meeting for participating in meetings of the board of directors held by
means of conference telephone and for participating in certain meetings of
committees of the board of directors. Payment of directors' fees is made
quarterly. Mr. Keiser, Mr. Kleine and Mr. Poirier are all employees of Thermo
Electron companies and do not receive any cash compensation from the Corporation
for their services as directors. Directors are also reimbursed for out-of-
pocket expenses incurred in attending such meetings.
Deferred Compensation Plan
Under the Corporation's deferred compensation plan for directors (the
"Deferred Compensation Plan"), a director has the right to defer receipt of his
cash fees until he ceases to serve as a director, dies or retires from his
principal occupation. In the event of a change of control or proposed change of
control of the Corporation that is not approved by the board of directors,
deferred amounts become payable immediately. Either of the following is
3
<PAGE>
deemed to be a change of control: (a) the acquisition, without the prior
approval of the board of directors, directly or indirectly, by any person of 50%
or more of the outstanding Common Stock or the outstanding common stock of
Thermedics or 25% or more of the outstanding common stock of Thermo Electron; or
(b) the failure of the persons serving on the board of directors immediately
prior to any contested election of directors or any exchange offer or tender
offer for the Common Stock or the common stock of Thermedics or 25% or more of
the outstanding common stock of Thermo Electron to constitute a majority of the
board of directors at any time within two years following any such event.
Amounts deferred pursuant to the Deferred Compensation Plan are valued at the
end of each quarter as units of Common Stock. When payable, amounts deferred may
be disbursed solely in shares of Common Stock accumulated under the Deferred
Compensation Plan. A total of 140,625 shares of Common Stock has been reserved
for issuance under the Deferred Compensation Plan. As of January 2, 1999,
deferred units equal to approximately 10,827 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, each outside director is automatically granted options
to purchase 1,000 shares of Common Stock annually 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 are subject to repurchase by the Corporation at the
exercise price if the recipient ceases to serve as a director of the Corporation
or any other Thermo Electron company prior to the first anniversary of the grant
date.
The exercise price for options granted under the Directors Plan is the
average of the closing prices of the Common Stock as reported on the American
Stock Exchange (or other principal market on which the Common Stock is then
traded) for the five trading days immediately preceding and including the date
of grant, or, if the shares are not then traded, at the last price per share
paid by third parties in an arms-length transaction prior to the option grant.
As of January 31, 1999, options to purchase 41,500 shares of Common Stock had
been granted under the Directors Plan, 23,400 options were outstanding, 4,500
options had lapsed, 13,650 options had been exercised, and options to purchase
37,950 shares of Common Stock were available for future grant.
Stock Ownership Policies for Directors
The human resources committee of the board of directors (the "Committee")
has established a stock holding policy for directors. The stock holding policy
requires each director to hold a minimum of 1,000 shares of Common Stock.
Directors are requested to achieve this ownership level within a three year
period. The chief executive officer of the Corporation is required to comply
with a separate stock holding policy established by the Committee, which is
described in "Committee Report on Executive Compensation - Stock Ownership and
Retention Policies."
In addition, the Committee has a policy requiring directors 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 "Committee Report on Executive
Compensation - Stock Ownership and Retention Policies."
STOCK OWNERSHIP
The following table sets forth the beneficial ownership of Common Stock, as
well as the common stock of Thermedics, the Corporation's parent company, and of
Thermo Electron, Thermedics' parent company, as of January 31, 1999, with
respect to (i) each director, (ii) each executive officer named in the summary
compensation table under the heading "Executive Compensation" (collectively, the
"named executive officers") and (iii) all directors and current executive
officers as a group. In addition, the following table sets forth the beneficial
4
<PAGE>
ownership of Common Stock, as of January 31, 1999, with respect to each person
who was known by the Corporation to own beneficially more than 5% of the
outstanding shares of Common Stock.
While certain directors and executive officers of the Corporation are also
directors and executive officers of Thermo Electron or its subsidiaries other
than the Corporation, all such persons disclaim beneficial ownership of the
shares of Common Stock beneficially owned by Thermo Electron.
<TABLE>
<CAPTION>
Thermo Thermo Electron
Cardiosystems Inc. (2) Thermedics Inc. (3) Corporation (4)
---------------------- ------------------- ----------------
<S> <C> <C> <C>
Thermo Electron Corporation (5) 23,195,220 N/A N/A
Putnam Investments, Inc. (6)... 3,354,271 N/A N/A
Walter J. Bornhorst............ 6,400 0 9,415
Elias P. Gyftopoulos........... 16,023 10,048 71,855
John T. Keiser................. 56,773 193,993 296,608
R. Michael Kleine.............. 110,000 40,000 15,000
Timothy J. Krauskopf........... 74,696 0 1,246
Leonard Laster................. 16,357 0 0
Victor L. Poirier.............. 291,127 66,155 52,982
Betty A. Silverstein Russell... 116,024 1,455 21,022
Nicholas T. Zervas.............. 48,497 28,937 0
All directors and current
executive officers as a group
(11 persons).................. 741,824 402,211 999,878
</TABLE>
(1) Except as reflected in the footnotes to this table, shares beneficially
owned consist of shares owned by the indicated person or by that person for
the benefit of minor children, and all share ownership includes sole voting
and investment power.
(2) Shares of the Common Stock beneficially owned by Dr. Bornhorst, Dr.
Gyftopoulos, Mr. Keiser, Mr. Kleine, Mr. Krauskopf, Dr. Laster, Mr.
Poirier, Ms. Silverstein Russell, Dr. Zervas and all directors and current
executive officers as a group include 5,250, 15,000, 49,500, 110,000,
71,800, 3,000, 248,750, 85,890, 11,400 and 604,490 shares, respectively,
that such person or group had the right to acquire within 60 days of
January 31, 1999, through the exercise of stock options. Shares
beneficially owned by Dr. Gyftopoulos, Dr. Laster, Dr. Zervas and all
directors and current executive officers as a group include 23, 2,957,
7,847 and 10,827 shares, respectively, that had been allocated through
January 2, 1999, to their respective accounts maintained under the Deferred
Compensation Plan. Shares beneficially owned by Dr. Laster include 750
shares held by his spouse. Shares beneficially owned by Ms. Silverstein
Russell include 157 shares owned by her spouse and 20,650 shares her spouse
has the right to acquire within 60 days of January 31, 1999, through the
exercise of stock options. Shares beneficially owned by Dr. Zervas include
19,000 shares held by his spouse. No director or named executive officer
beneficially owned more than 1% of the Common Stock outstanding as of
January 31, 1999; all directors and current executive officers as a group
beneficially owned 1.92% of the Common Stock outstanding as of such date.
(3) Shares of the common stock of Thermedics beneficially owned by Dr.
Gyftopoulos, Mr. Keiser, Mr. Kleine, Mr. Poirier, Dr. Zervas and all
directors and current executive officers as a group include 4,500, 187,200,
40,000, 21,700, 8,450 and 320,850 shares, respectively, that such person or
group had the right to acquire within 60 days after January 31, 1999,
through the exercise of stock options. Shares of the common stock of
Thermedics beneficially owned by all directors and current executive
officers as a group include 2,413 shares, allocated through January 31,
1999, to certain group members' accounts maintained pursuant to Thermo
Electron's employee stock ownership plan (the "ESOP"), of which the
trustees, who have investment power over its assets, are current executive
officers of Thermo Electron. Shares beneficially owned by Dr. Zervas and
all directors and current executive officers as a group include 8,787
shares allocated through January 2, 1999, to Dr. Zervas' account maintained
pursuant to Thermedics' deferred
5
<PAGE>
compensation plan for directors. No director or named executive officer
beneficially owned more that 1% of the common stock of Thermedics
outstanding as of January 31, 1999; all directors and current executive
officers as a group beneficially owned 1.09% of such common stock
outstanding as of such date.
(4) Shares of the common stock of Thermo Electron beneficially owned by Dr.
Gyftopoulos, Mr. Keiser, Mr. Kleine, Mr. Krauskopf, Mr. Poirier, Ms.
Silverstein Russell and all directors and current executive officers as a
group include 9,125, 251,622, 15,000, 300, 45,225, 17,700 and 801,744
shares, respectively, that such person or group had the right to acquire
within 60 days of January 31, 1999, through the exercise of stock options.
Shares beneficially owned by Dr. Gyftopoulos and all directors and current
executive officers as a group include 151 shares that had been allocated
through January 2, 1999, to their respective accounts maintained under
Thermo Electron's deferred compensation plan for directors. Shares
beneficially owned by Mr. Krauskopf include 557 shares held by his spouse.
Shares of the common stock of Thermo Electron beneficially owned by all
directors and current executive officers as a group include 2,497 shares,
respectively, allocated through January 31, 1999 to certain group members'
accounts maintained pursuant to the ESOP. No director or named executive
officer beneficially owned more than 1% of the Thermo Electron common stock
outstanding as of January 31, 1999; all directors and current executive
officers as a group did not beneficially own more than 1% of the Thermo
Electron common stock outstanding as of such date.
(5) As of January 31, 1999, Thermo Electron, directly and through its majority-
owned subsidiary Thermedics, beneficially owned approximately 60.4% of the
outstanding Common Stock. Thermo Electron's address is 81 Wyman Street,
Waltham, Massachusetts 02454-9046. As of January 31, 1999, Thermo Electron
had the power to elect all of the members of the Corporation's board of
directors.
(6) Information regarding the number of shares of the Common Stock beneficially
owned by Putnam Investments, Inc. is based on the most recent Schedule 13G
of Putnam Investments, Inc. received by the Corporation, which reported
such ownership as of December 31, 1998. The address of Putnam Investments,
Inc. is One Post Office Square, Boston, Massachusetts 02109. Shares
reported as beneficially owned by Putnam Investments, Inc. consist of
shares beneficially owned by subsidiaries of Putnam Investments, Inc. that
are registered investment advisers, which in turn include shares
beneficially owned by clients of such investment advisers. Based on such
information, Putnam Investments, Inc. beneficially owned 9% of the Common
Stock outstanding as of December 31, 1998.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Corporation's directors and executive officers, and
beneficial owners of more than 10% of the Common Stock, such as Thermo Electron,
to file with the Securities and Exchange Commission initial reports of ownership
and periodic reports of changes in ownership of the Corporation's securities.
Based upon a review of such filings, all Section 16(a) filing requirements
applicable to such persons were complied with during 1998, except in the
following instances. Dr. Nicholas T. Zervas, a director of the Corporation,
filed two Form 4s late, reporting two gifts of Common Stock. Ms. Betty
Silverstein Russell, an officer of the Corporation, filed two Form 4s late,
reporting an exempt grant of stock options and an exempt purchase of Common
Stock pursuant to the Corporation's Employee Stock Purchase Plan. Thermo
Electron filed three Forms 4 late, reporting a total of three transactions
associated with the grant and exercise of options to purchase Common Stock
granted to employees under its stock option program.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes compensation during the last three fiscal
years for services to the Corporation in all capacities awarded to, earned by or
paid to the Corporation's chief executive officer and its three other most
highly compensated executive officers. These executive officers are
collectively referred to herein as the "named executive officers." No other
executive officer of the Corporation met the definition of "highly compensated"
within the meaning of the Securities and Exchange Commission's executive
compensation disclosure rules.
6
<PAGE>
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 a corporate services agreement between the
Corporation and Thermo Electron. See "Relationship with Affiliates."
Accordingly, the compensation for these individuals is not reported in the
following table.
<TABLE>
<CAPTION>
Summary Compensation Table
- --------------------------------------------------------------------------------------------------------------
Long Term Compensation
----------------------
Annual Compensation Securities Underlying
Name and Fiscal ---------------------- Options (No. of Shares All Other
Principal Position Year Salary Bonus and Company) (1) Compensation (2)
------------------ ----- -------- ------- ---------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
R. Michael Kleine (3) 1998 $ 17,500 $ 0 110,000 (TCA) $100,000 (4)
Chief Executive Officer 15,000 (TMO)
40,000 (TMD)
- --------------------------------------------------------------------------------------------------------------
Victor L. Poirier 1998 $170,000 $100,000 93,200 (TCA) $ 7,200
President and Former 3,100 (TMO)
Chief Executive Officer (5) 2,000 (MKA)
2,000 (ONX)
4,000 (RGI)
3,100 (TMD)
1,000 (TISI)
2,000 (TRIL)
1,500 (VIZ)
2,000 (TRCC)
1997 $160,000 $108,000 34,500 (TCA) $ 7,125
800 (TMO)
3,600 (TMD)
1996 $150,000 $164,500 4,500 (TCA) $ 6,750
900 (TMO)
4,000 (TMD)
2,000 (TBA)
2,000 (TFG)
2,000 (TLT)
6,000 (TOC)
6,000 (TMQ)
7,500 (TSR)
4,000 (TXM)
- --------------------------------------------------------------------------------------------------------------
Betty A. Silverstein Russell 1998 $132,000 $ 28,000 12,300 (TCA) $ 5,625
Senior Vice President 600 (TMO)
1997 $120,000 $ 35,000 23,700 (TCA) $ 5,344
600 (TMO)
1996 $110,000 $ 55,250 5,300 (TCA) $ 5,344
8,100 (TMO)
4,000 (TXM)
- --------------------------------------------------------------------------------------------------------------
Timothy J. Krauskopf 1998 $115,000 $ 15,000 9,800 (TCA) $ 6,932
Vice President, 200 (TMO)
Regulatory Affairs 1997 $110,000 $ 20,000 20,000 (TCA) $ 5,344
100 (TMO)
1996 $ 85,000 $ 22,500 -- $ 4,320
- --------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
(1) Options to purchase Common Stock awarded to the named executive officers
are followed by the designation "TCA." In addition, the named executive
officers have also been granted options to purchase the common stock of
Thermo Electron (designated in the table as TMO) and the following Thermo
Electron companies during the last three fiscal years as part of Thermo
Electron's stock option program: Metrika Systems Corporation (designated in
the table as MKA), ONIX Systems Inc. (designated in the table as ONX), The
Randers Killam Group Inc. (designated in the table as RGI), Thermedics
(designated in the table as TMD), Thermo BioAnalysis Corporation
(designated in the table as TBA), Thermo Fibergen Inc. (designated in the
table as TFG), Thermo Information Solutions Inc. (designated in the table
as TISI), ThermoLyte Corporation (designated in the table as TLT), Thermo
Optek Corporation (designated in the table as TOC), ThermoQuest Corporation
(designated in the table as TMQ), Thermo Sentron Inc. (designated in the
table as TSR), Thermo Trilogy Corporation (designated in the table as
TRIL), Thermo Vision Corporation (designated in the table as VIZ), Trex
Communications Corporation (designated in the table as TRCC) and Trex
Medical Corporation (designated in the table as TXM).
(2) Represents the amount of matching contributions made by the individual's
employer on behalf of the named executive officers participating in the
Thermo Electron 401(k) plan.
(3) Mr. Kleine was appointed chief executive officer of the Corporation on
November 30, 1998. The salary reported for fiscal year 1998 represents the
amount paid from the commencement of his employment through January 2,
1999.
(4) Represents a signing bonus paid to Mr. Kleine in connection with his
appointment as the Corporation's chief executive officer.
(5) Mr. Poirier resigned as the Corporation's chief executive officer in
November 1998 and was succeeded by Mr. Kleine.
Stock Options Granted During Fiscal 1998
The following table sets forth information concerning individual grants of
stock options made during fiscal 1998 to the named executive officers. It has
not been the Corporation's policy in the past to grant stock appreciation
rights, and no such rights were granted during fiscal 1998.
<TABLE>
<CAPTION>
Option Grants in Fiscal 1998
- ----------------------------------------------------------------------------------------------------------------------------
Potential Realizable
Number of Securities Value at Assumed Annual
Underlying Options Rates of Stock Price
Number of Securities Percent of Total Appreciation for
Underlying Options Options Granted Exercise Option Term (2)
Granted and to Employees in Price Per Expiration ------------------------
Name Company (1) Fiscal Year Share Date 5% 10%
---- -------------------- ---------------- ---------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
R. Michael Kleine 110,000 (TCA) 14.56% $10.55 12/10/03 $320,100 $708,400
15,000 (TMO) 0.45% (3) $17.06 12/02/03 $ 70,650 $156,300
40,000 (TMD) 8.86% (3) $10.43 12/17/03 $115,200 $254,800
- ----------------------------------------------------------------------------------------------------------------------------
Victor L. Poirier 3,200 (TCA) 0.42% $24.98 02/24/01 $ 12,608 $ 26,464
90,000 (TCA) 11.91% $10.55 12/10/03 $261,900 $579,600
900 (TMO) 0.03% (3) $34.50 06/02/03 $ 8,577 $ 18,954
2,200 (TMO) 0.07% (3) $16.20 09/23/03 $ 9,856 $ 21,758
2,000 (MKA) 0.70% (3) $14.23 01/21/05 $ 11,580 $ 27,000
2,000 (ONX) 0.20% (3) $14.25 01/21/08 $ 17,920 $ 45,420
4,000 (RGI) 0.75% (3) $ 4.00 01/21/05 $ 6,520 $ 15,160
3,100 (TMD) 0.69% (3) $16.05 03/05/01 $ 7,843 $ 16,461
1,000 (TISI) 1.67% (3) $10.00 01/21/08 $ 6,290 $ 15,940
2,000 (TRIL) 1.11% (3) $ 8.25 01/21/08 $ 10,380 $ 26,300
1,500 (VIZ) 0.37% (3) $ 7.25 01/21/05 $ 4,425 $ 10,320
2,000 (TRCC) 0.16% (3) $ 4.00 01/21/08 $ 5,040 $ 12,740
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Option Grants in Fiscal 1998
- --------------------------------------------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Number of Annual Rates of
Securities Percent of Exercise Stock Price
Underlying Total Options Price Per Expiration Appreciation for
Options Granted to Share Date Option Term (2)
Granted and Employees in Price Per Expiration ---------------
Name Company (1) Fiscal Year Share Date 5% 10%
---- ------------ ------------- --------- ---------- -- ----
<S> <C> <C> <C> <C> <C> <C>
Betty A. Silverstein 2,500 (TCA) 0.33% $24.98 02/24/01 $ 9,850 $20,675
Russell 9,800 (TCA) 1.30% $15.18 09/10/03 $41,062 $90,846
600 (TMO) 0.02% (3) $34.50 06/02/03 $ 5,718 $12,636
- --------------------------------------------------------------------------------------------------------------
Timothy J. Krauskopf 9,800 (TCA) 1.30% $15.18 09/10/03 $41,062 $90,846
200 (TMO) 0.01% (3) $34.50 06/02/03 $ 1,906 $ 4,212
- --------------------------------------------------------------------------------------------------------------
</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
the common stock of Thermo Information Solutions Inc., Thermo Trilogy
Corporation and Trex Communications Corporation, which are not exercisable
until the earlier of (i) 90 days after the effective date of the
registration of the company's common stock under Section 12 of the Exchange
Act or (ii) nine years after the grant date. In all cases, the shares
acquired upon exercise are subject to repurchase by the granting company at
the exercise price if the optionee ceases to be employed by, or serve as a
director of, such company or any other Thermo Electron company. The
granting company may exercise its repurchase rights within six months after
the termination of the optionee's employment or the cessation of
directorship, as the case may be. For publicly-traded companies, the
repurchase rights lapse ratably over a one- to ten-year period, depending
on the option term, which may vary from five to twelve years, provided that
the optionee continues to be employed by or serve as director of the
granting company or another Thermo Electron company. For companies that
are not publicly-traded, the repurchase rights lapse in their entirety on
the ninth anniversary of the grant date. Certain options have three-year
terms, and the repurchase rights lapse in their entirety on the second
anniversary of the grant date. The granting company may permit the holders
of options to exercise options and to satisfy tax withholding obligations
by surrendering shares equal in fair market value to the exercise price or
withholding obligation. Please see footnote 1 on page 8 for the company
abbreviations used in this table.
(2) The amounts shown in this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10% compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the common stock of the
granting company, the optionee's continued employment or service as a
director through the option period and the date on which the options are
exercised.
(3) These options were granted under stock option plans maintained by Thermo
Electron companies other than the Corporation and, accordingly, are
reported as a percentage of total options granted to employees of those
companies.
Stock Options Exercised During Fiscal 1998
The following table reports certain information regarding stock option
exercises during fiscal 1998 and outstanding stock options held at the end of
fiscal 1998 by the named executive officers. No stock appreciation rights were
exercised or were outstanding during fiscal 1998.
9
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercises In Fiscal 1998 And Fiscal 1998 Year-End Option Values
- ----------------------------------------------------------------------------------------------------------------
Number of
Securities
Underlying
Unexercised
Options at Value of Unexercised
Fiscal In-the-Money Options
Shares Year-End at Fiscal Year-End
Acquired Value (Exercisable/ (Exercisable/
Name Company (1) on Exercise Realized (2) Unexercisable) (1) Unexercisable)
---- ----------- ----------- ------------ ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R. Michael Kleine TCA -- -- 110,000 /0 $ 8,250 /--
TMO -- -- 15,000 /0 $ 0 /--
TMD -- -- 40,000 /0 $ 27,800 /--
- ----------------------------------------------------------------------------------------------------------------
Victor L. Poirier TCA -- -- 248,750 /0 (3) $226,890 /--
TMO 4,125 $ 92,956 45,225 /0 (4) $ 1,074 /--
MKA -- -- 2,000 /0 $ 0 /--
ONX -- -- 2,000 /0 $ 0 /--
RGI -- -- 4,000 /0 $ 0 /--
TMD 7,500 $ 84,848 21,700 /0 $ 39,825 /--
TDX 3,333 $ 21,041 -- /-- -- /--
TBA -- -- 2,000 /0 $ 5,376 /--
TFG -- -- 2,000 /0 $ 0 /--
TFT -- -- 4,500 /0 $ 18,284 /--
TISI -- -- 0 /1,000 -- /$0(5)
TLZ -- -- 5,000 /0 $ 0 /--
TLT -- -- 0 /2,000 -- /$0(5)
TOC -- -- 6,000 /0 $ 0 /--
TMQ -- -- 6,000 /0 $ 1,878 /--
TSR -- -- 7,500 /0 $ 0 /--
THS -- -- 500 /0 $ 688 /--
TRIL -- -- 0 /2,000 -- /$0(5)
VIZ -- -- 1,500 /0 $ 0 /--
TRCC -- -- 0 /2,000 -- /$0(5)
TXM -- -- 4,000 /0 $ 0 /--
- ----------------------------------------------------------------------------------------------------------------
Betty A. Silverstein
Russell TCA 59,235 $1,116,087 65,240 /0 (3) $ 0 /--
TMO 3,787 $ 51,375 17,700 /0 $ 0 /--
TMD 12,000 $ 90,231 -- /-- -- /--
TXM -- -- 4,000 /0 $ 0 /--
- ----------------------------------------------------------------------------------------------------------------
Timothy J. Krauskopf TCA -- -- 71,800 /0 $ 58,380 /--
TMO -- -- 300 /0 $ 0 /--
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All of the options reported outstanding at the end of the fiscal year were
immediately exercisable as of the end of the fiscal year, except options to
purchase the common stock of Thermo Information Solutions Inc., Thermo
Trilogy Corporation, Trex Communications Corporation and ThermoLyte
Corporation, which are not exercisable until the earlier of (i) 90 days
after the effective date of the registration of the company's common stock
under Section 12 of the Exchange Act or (ii) nine years after the grant
date. In all cases, the shares acquired upon exercise are subject to
repurchase by the granting company at the exercise price if the optionee
ceases to be employed by, or to serve as a director of, such company or any
other Thermo Electron company. The granting company may exercise its
repurchase rights within six months after the termination of the optionee's
employment or the cessation of directorship, as the case may be. For
publicly-traded companies, the repurchase rights generally lapse ratably
over a one- to ten-year period, depending on the option term, which may
vary from five to twelve years, provided that the optionee continues to be
employed by, or serve as a director of the granting company or another
Thermo Electron company. For companies whose shares are not publicly-
traded, the repurchase rights lapse in their entirety on the ninth
10
<PAGE>
anniversary of the grant date. Certain options have three-year terms and
the repurchase rights lapse in their entirety on the second anniversary of
the grant date. Please see footnote 1 on page 8 for company abbreviation
used in this table as well as the following company abbreviations:
Thermedics Detection Inc. (designated in the table as TDX), Thermo
BioAnalysis Corporation (designated in the table as TBA), Thermo Fibertek
Inc. (designated in the table as TFT), ThermoLase Corporation (designated
in the table as TLZ) and ThermoSpectra Corporation (designated in the table
as THS).
(2) 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.
(1) Options to purchase 30,000 and 20,000 shares of the Common Stock granted to
Mr. Poirier and Ms. Silverstein Russell, respectively, are subject to the
same terms as described in footnote (2), except that the repurchase rights
are deemed to lapse 20% per year commencing on the sixth anniversary of the
grant date.
(2) Options to purchase 22,500 shares of the common stock of Thermo Electron
granted to Mr. Poirier and Ms. Silverstein Russell, respectively, are
subject to the same terms as described in footnote (2), except that the
repurchase rights of the granting company generally do not lapse until the
tenth anniversary of the grant date. In the event of the employee's death
or involuntary termination prior to the tenth anniversary of the grant
date, the repurchase rights of the granting company shall be deemed to have
lapsed ratably over a five-year period, commencing with the fifth
anniversary of the grant date.
(3) No public market existed for the shares underlying these options as of
January 2, 1999. Accordingly, no value in excess of exercise price has been
attributed to these options.
EXECUTIVE RETENTION AGREEMENTS
Thermo Electron has entered into agreements with certain executive officers
and key employees of Thermo Electron and its subsidiaries that provide severance
benefits if there is a change in control of Thermo Electron and their employment
is terminated by Thermo Electron "without cause" or by the individual for "good
reason", as those terms are defined therein, within 18 months thereafter. For
purposes of these agreements, a change in control exists upon (i) the
acquisition by any person of 40% or more of the outstanding common stock or
voting securities of Thermo Electron; (ii) the failure of the Thermo Electron
board of directors to include a majority of directors who are "continuing
directors", which term is defined to include directors who were members of
Thermo Electron's board on the date of the agreement or who subsequent to the
date of the agreement were nominated or elected by a majority of directors who
were "continuing directors" at the time of such nomination or election; (iii)
the consummation of a merger, consolidation, reorganization, recapitalization or
statutory share exchange involving Thermo Electron or the sale or other
disposition of all or substantially all of the assets of Thermo Electron unless
immediately after such transaction (a) all holders of Thermo Electron common
stock immediately prior to such transaction own more than 60% of the outstanding
voting securities of the resulting or acquiring corporation in substantially the
same proportions as their ownership immediately prior to such transaction and
(b) no person after the transaction owns 40% or more of the outstanding voting
securities of the resulting or acquiring corporation; or (iv) approval by
stockholders of a complete liquidation or dissolution of Thermo Electron.
In 1998 and 1999, Thermo Electron authorized executive retention agreements
with Mr. Poirier and Mr. Kleine, respectively. These agreements provide that in
the event the individual's employment is terminated under the circumstances
described above, the individual would be entitled to a lump sum payment equal to
the sum of (a) one times his highest annual base salary in any 12 month period
during the prior five-year period, plus (b) one times his highest annual bonus
in any 12 month period during the prior five-year period. In addition, 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. Further, all repurchase rights of Thermo Electron and its
subsidiaries shall lapse in their entirety with respect to all options that the
individual holds in Thermo Electron and its subsidiaries, including the
Corporation, 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.
11
<PAGE>
Assuming that the severance benefits would have been payable as of January
1, 1999, the lump sum salary and bonus payment under such agreements to Mr.
Poirier and Mr. Kleine would have been approximately $364,500 and $210,000,
respectively. In the event that payments under these agreements are deemed to
be so called "excess parachute payments" under the applicable provisions of the
Internal Revenue Code, the individual would be entitled to receive a gross-up
payment equal to the amount of any excise tax payable by him with respect to
such payment, plus the amount of all other additional taxes imposed on him
attributable to the receipt of such gross-up payment.
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Philosophy
Decisions on compensation for the Corporation's executive officers are made
by the human resources committee of the board of directors (the "Committee").
The Committee follows guidelines established by the human resources committee of
the board of directors of its ultimate parent company, Thermo Electron. The
compensation policies followed by the Committee are designed to reward and
motivate executives in achieving long-term value for Stockholders and other
business objectives, to attract and retain dedicated, talented individuals to
accomplish the Corporation's objectives, to recognize individual contributions
as well as the performance of the Corporation and its subsidiaries, and to
encourage stock ownership by executives through stock-based compensation and
stock retention programs in order to link executive and Stockholder interests.
The Committee evaluates the competitiveness of its compensation practices
through the use of market surveys and competitive analyses prepared by its
outside compensation consultants and by participating in annual compensation
surveys, primarily "Project 777", an executive compensation survey prepared by
Management Compensation Services, a division of Hewitt Associates. The majority
of firms represented in the Project 777 survey are included in the Standard &
Poor's 500 Index but do not necessarily correspond to the companies included in
the Corporation's peer group index set forth on page 16. Internal fairness of
compensation within the organization is also an important element of the
Committee's compensation philosophy. Compensation of executives is evaluated by
comparing it to the compensation of other executives within the Thermo Electron
organization who have responsibility to manage businesses of comparable size and
complexity.
The compensation program of the Corporation consists of annual cash
compensation and long-term incentive compensation. Annual cash compensation is
composed of base salary and performance-based incentive compensation, which is
reviewed and determined annually. Long-term incentive compensation is in the
form of stock-based compensation such as stock options and restricted stock
awards. The process for determining the components of executive compensation
for the executive officers is described below.
Components of Executive Compensation
Annual Cash Compensation
Annual cash compensation consists of base salary and performance-based
incentive compensation. The cash incentive compensation paid to an executive
varies from year to year based on the performance of the Corporation and the
executive.
The Committee assesses the competitiveness of annual cash compensation by
establishing for each executive position at the beginning of each fiscal year a
salary and reference incentive compensation for the position that together are
intended to approximate the mid-point of competitive total annual cash
compensation for organizations that are of comparable size and complexity as the
Corporation.
Base Salary. Generally, executive salaries are adjusted gradually over
time to reflect competitive salary levels or other considerations, such as
geographic or regional market data, industry trends or internal fairness within
the Corporation. The Committee may also adjust individual salaries to reflect
the assumption of increased
12
<PAGE>
responsibilities. The salary increases in fiscal 1998 for the named executive
officers generally reflect this practice of gradual adjustment and moderation.
Performance-based Incentive Compensation. The amount of incentive
compensation actually earned by an executive from year to year varies with the
performance of the Corporation and the executive. The Committee evaluates
performance (1) by formulae using financial measures of profitability and
contribution to Stockholder value and (2) by subjectively evaluating the
executive's contribution to the achievement of the Corporation's long-term
objectives. In fiscal 1998, the formulae used by the Committee measured return
on net assets, return on sales, earnings improvement over a three-year period
for the Corporation and, to a lesser extent, the Corporation's parent companies,
and three-year growth in earnings per share for the same companies. The
financial measures are not financial targets that are met, not met or exceeded,
but assess the financial performance relative to the financial performance of
comparable companies and are designed to penalize below-average performance and
reward above-average performance. The relative weighting of the financial
measures and subjective evaluation varies depending on the executive's role and
responsibilities within the organization.
The incentive compensation awarded to the named executive officers (other
than the chief executive officer, which is discussed below under the caption
"1998 CEO Compensation") for fiscal 1998 was substantially lower in each case
than the incentive compensation awarded the previous year and reflected the
Corporation's financial performance in fiscal 1998.
Long-term Incentive Compensation
The primary goal of the Corporation and its parent companies is to excel in
the creation of long-term value for the Stockholders. The principal incentive
tool used to achieve this goal is the periodic award to key employees of stock-
based compensation in shares of Common Stock and the common stock of other
Thermo Electron companies.
The Committee and management believe that awards of stock-based
compensation in both the Corporation and other companies within the Thermo
Electron group of companies accomplish many objectives. The grant of stock-based
compensation to key employees encourages equity ownership in the Corporation,
and closely aligns management's interests to the interests of all the
Stockholders. The emphasis on stock-based compensation also results in
management's compensation being closely linked to stock performance. In
addition, because the employee's rights in stock-based compensation vest over
periods of varying durations and are subject to forfeiture if the employee
leaves the Corporation prematurely, stock-based compensation is an incentive for
key employees to remain with the Corporation long-term. The Committee believes
stock-based compensation awards in its parent companies, Thermo Electron and
Thermedics, and the other majority-owned subsidiaries of Thermo Electron and
Thermedics, are an important tool in providing incentives for performance within
the entire organization.
In determining awards, the Committee considers for each executive officer
the annual value of stock-based compensation in the Corporation and other
companies within the Thermo Electron organization that vest in the next year and
compares the individual's total compensation using this value to competitive
data. The Committee uses a modified Black-Scholes option pricing model to
determine the value of an award. In addition, the Committee considers the
aggregate amount of outstanding awards granted to all employees to monitor the
number of outstanding awards under the Corporation's stock-based compensation
programs. In determining the appropriate number of outstanding awards, the
Committee considers such factors as the size of the company, its stage of
development, and its growth strategy, as well as the aggregate awards and
compensation practices of comparable companies.
The Committee periodically awards stock-based compensation in the form of
stock options or restricted stock based on an assessment of the total
compensation of the executive, the actual and anticipated contributions of the
executive (which includes a subjective assessment by the Committee of the
executive's future potential within the organization), as well as the value of
previously awarded stock-based compensation, as described above. Such stock-
based compensation awards were made to the named executive officers in 1998.
13
<PAGE>
Stock Ownership and Retention Policies
The Corporation's compensation program is also designed to encourage
executives to own shares of the Corporation's Common Stock. The Committee
believes that encouraging executives to own and retain stock acquired through
its stock-based compensation program or otherwise provides additional incentive
for executive officers to follow strategies designed to maximize long-term value
to Stockholders.
There are several elements to the Corporation's stock retention program.
For example, the Committee annually awards stock options based upon an
executive's ownership of Common Stock during the prior year. These option
awards are independent of the award of stock options as an incentive for
management performance. In 1998, the Committee granted options to purchase
Common Stock to the named executive officers under this program. These options
have three-year terms and vest 100% on the second anniversary of the date of
grant. Certain awards to the named executive officers in 1998 to purchase
shares of the common stock of Thermo Electron and Thermedics were made by those
companies under similar programs that award options to certain eligible
employees annually based on the number of shares of the common stock of Thermo
Electron or Thermedics held by such employees as an incentive to buy and hold
such companies' shares.
The Committee established a stock holding policy for executive officers of
the Corporation that required executive officers to own a multiple of their
compensation in shares of the Corporation's Common Stock. For the chief
executive officer, the multiple is one times his base salary and reference for
the fiscal year. For all other officers, the multiple was one times the
officer's base salary. The Committee deemed it appropriate to permit officers
to achieve these ownership levels over a three-year period. The policy has been
amended to apply only to the chief executive officer.
In order to assist executive officers in complying with the policy, the
Committee also adopted a stock holding assistance plan under which the
Corporation was authorized to make interest-free loans to executive officers to
enable them to purchase shares of Common Stock in the open market. This plan
has also been amended to apply only to the chief executive officer. The loans
are required to be repaid upon the earlier of demand or the fifth anniversary of
the grant date, unless otherwise determined by the Committee. No loans were
outstanding under this program in fiscal 1998. See "Relationship with
Affiliates - Stock Holding Assistance Plan."
The Committee also has established a policy requiring its executive
officers to hold shares of Common Stock equal to one-half of their net option
exercises over a period of five years. The net option exercise is determined by
calculating the number of shares acquired upon exercise of a stock option, after
deducting the number of shares that could have been traded to exercise the
option and the number of shares that could have been surrendered to satisfy tax
withholding obligations attributable to the exercise of the option.
Policy on Deductibility of Compensation
Section 162(m) of the Internal Revenue Code limits the tax deduction
available to public companies for annual compensation paid to executive officers
in excess of $1 million unless the compensation qualifies as "performance-based"
or is otherwise exempt under Section 162(m). The Committee considers the
potential effect of Section 162(m) in designing its compensation program, but
reserves the right to use its independent judgment to approve nondeductible
compensation, while taking into account the financial effects such action may
have on the Corporation. From time to time, the Committee reexamines the
Corporation's compensation practices and the potential effect of Section 162(m).
1998 CEO Compensation
Mr. Kleine was appointed the Corporation's chief executive officer in
November 1998. The annual cash compensation of Mr. Kleine was established in
arms-length negotiations with Mr. Kleine and reflects competitive compensation
for CEO positions in comparable companies. The Committee also awarded to Mr.
Kleine stock options to purchase 110,000 shares of Common Stock in connection
with his appointment as chief executive officer.
14
<PAGE>
Mr. Poirier served as the Corporation's chief executive officer until
November 1998. He continues to serve as the Corporation's president. The
Committee, in December 1997, approved a salary increase for Mr. Poirier for
fiscal 1998 consistent with its practice of gradual adjustment, taking into
account the factors described above under "Components of Executive Compensation
- - Annual Cash Compensation - Base Salary." In determining Mr. Poirier's
performance-based incentive compensation for fiscal 1998, the Committee
considered the financial performance of the Corporation and, to a lesser extent,
its parent companies, using the measures described above for all executive
officers under "Components of Executive Compensation Annual Cash Compensation
Performance-based Incentive Compensation." The Committee's subjective
evaluation of Mr. Poirier's performance considered, among other things, his
effectiveness in furthering the Corporation's business and financial objectives.
Awards to Mr. Poirier of stock-based compensation in Common Stock are
reviewed and determined periodically by the Committee using the criteria
described above under the caption "Components of Executive Compensation - Long-
term Incentive Compensation." An award of stock options to purchase 90,000
shares of Common Stock was made by the Committee to Mr. Poirier in fiscal 1998,
based on the Committee's assessment of Mr. Poirier's total compensation. The
award to Mr. Poirier in fiscal 1998 of options to purchase 2,200 shares of the
common stock of Thermo Electron was made by the human resources committees of
the board of directors of Thermo Electron using a methodology similar to that
described for the Corporation.
The Committee also annually considers an award of stock options to
executive officers of the Corporation, which is generally based upon the number
of shares of Common Stock held by the executive during the year, as an incentive
to buy and hold shares of Common Stock. The award of stock options to purchase
3,200 shares of Common Stock to Mr. Poirier in fiscal 1998 was made under this
program. The awards of stock options to purchase 900 shares of the common stock
of Thermo Electron and 3,100 shares of the common stock of Thermedics were made
under similar programs maintained by those companies.
Due to Mr. Poirier's position as a chief executive officer of a majority-
owned subsidiary of Thermo Electron, from time to time he also received awards
to purchase shares of the common stock of majority-owned subsidiaries of Thermo
Electron as part of Thermo Electron's stock option program. Awards of stock
options to purchase 2,000 shares of common stock of Metrika Systems Corporation,
2,000 shares of common stock of ONIX Systems Inc., 4,000 shares of common stock
of The Randers Killam Group Inc., 1,000 shares of common stock of Thermo
Information Solutions Inc., 2,000 shares of common stock of Thermo Trilogy
Corporation, 1,500 shares of common stock of Thermo Vision Corporation and 2,000
shares of common stock of Trex Communications Corporation were made to Mr.
Poirier under this program in fiscal 1998.
Dr. Elias P. Gyftopoulos (Chairman)
Dr. Nicholas T. Zervas
Dr. Leonard Laster
15
<PAGE>
COMPARATIVE PERFORMANCE GRAPH
The Securities and Exchange Commission requires that the Corporation
include in this proxy statement a line-graph presentation comparing cumulative,
five-year shareholder returns for the Corporation's Common Stock with a broad-
based market index and either a nationally recognized industry standard or an
index of peer companies selected by the Corporation. The Corporation has
compared its performance with the American Stock Exchange Market Value Index and
a peer group of companies consisting of Abiomed Inc., Datascope Corp., Boston
Scientific Corp., Thoratec Labs Corp., Baxter International, Inc., Medtronic,
Inc. and St. Jude Medical, Inc. as of the last trading day of the Corporation's
fiscal year.
Comparison of Total Return Among Thermo Cardiosystems Inc.,
the American Stock Exchange Market Value Index and Peer Group
from December 31, 1993 to December 31, 1998
[GRAPH APPEARS HERE]
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ------------------------------------------------------------------------------------------------
TCA 100 89 429 240 220 87
- ------------------------------------------------------------------------------------------------
AMEX 100 91 115 122 148 151
- ------------------------------------------------------------------------------------------------
PEER GRP 100 130 238 277 323 433
- ------------------------------------------------------------------------------------------------
</TABLE>
The total return for the Corporation's Common Stock (TCA), the American
Stock Exchange Market Value Index (AMEX) and the Peer Group (PEER GROUP) assumes
the reinvestment of dividends, although dividends have not been declared on the
Corporation's Common Stock. The American Stock Exchange Market Value Index
tracks the aggregate performance of equity securities of companies listed on the
American Stock Exchange. The Corporation's Common Stock is traded on the
American Stock Exchange under the ticker symbol "TCA."
RELATIONSHIP WITH AFFILIATES
Thermo Electron has, from time to time, caused certain subsidiaries to sell
minority interests to investors resulting in several majority-owned, private and
publicly-held subsidiaries. Thermedics has created the Corporation as a
majority-owned, publicly-held subsidiary. The Corporation and such other
majority-owned Thermo Electron subsidiaries are hereinafter referred to as the
"Thermo Subsidiaries."
16
<PAGE>
Thermo Electron and each of the Thermo Subsidiaries recognize that the
benefits and support that derive from their affiliation are essential elements
of their individual performance. Accordingly, Thermo Electron and each of the
Thermo Subsidiaries, including the Corporation, have adopted the Thermo Electron
Corporate Charter (the "Charter") to define the relationships and delineate the
nature of such cooperation among themselves. The purpose of the Charter is to
ensure that (1) all of the companies and their stockholders are treated
consistently and fairly, (2) the scope and nature of the cooperation among the
companies, and each company's responsibilities, are adequately defined, (3) each
company has access to the combined resources and financial, managerial and
technological strengths of the others, and (4) Thermo Electron and the Thermo
Subsidiaries, in the aggregate, are able to obtain the most favorable terms from
outside parties.
To achieve these ends, the Charter identifies the general principles to be
followed by the companies, addresses the role and responsibilities of the
management of each company, provides for the sharing of group resources by the
companies and provides for centralized administrative, banking and credit
services to be performed by Thermo Electron. The services provided by Thermo
Electron include collecting and managing cash generated by members, coordinating
the access of Thermo Electron and the Thermo Subsidiaries (the "Thermo Group")
to external financing sources, ensuring compliance with external financial
covenants and internal financial policies, assisting in the formulation of long-
range planning and providing other banking and credit services. Pursuant to the
Charter, Thermo Electron may also provide guarantees of debt or other
obligations of the Thermo Subsidiaries or may obtain external financing at the
parent level for the benefit of the Thermo Subsidiaries. In certain instances,
the Thermo Subsidiaries may provide credit support to, or on behalf of, the
consolidated entity or may obtain financing directly from external financing
sources. Under the Charter, Thermo Electron is responsible for determining that
the Thermo Group remains in compliance with all covenants imposed by external
financing sources, including covenants related to borrowings of Thermo Electron
or other members of the Thermo Group, and for apportioning such constraints
within the Thermo Group. In addition, Thermo Electron establishes certain
internal policies and procedures applicable to members of the Thermo Group. The
cost of the services provided by Thermo Electron to the Thermo Subsidiaries is
covered under existing corporate services agreements between Thermo Electron and
the Thermo Subsidiaries.
The Charter currently provides that it shall continue in effect so long as
Thermo Electron and at least one Thermo Subsidiary participate. The Charter may
be amended at any time by agreement of the participants. Any Thermo Subsidiary,
including the Corporation, can withdraw from participation in the Charter upon
30 days' prior notice. In addition, Thermo Electron may terminate a subsidiary's
participation in the Charter in the event the subsidiary ceases to be controlled
by Thermo Electron or ceases to comply with the Charter or the policies and
procedures applicable to the Thermo Group. A withdrawal from the Charter
automatically terminates the corporate services agreement and tax allocation
agreement (if any) in effect between the withdrawing company and Thermo
Electron. The withdrawal from participation does not terminate outstanding
commitments to third parties made by the withdrawing company, or by Thermo
Electron or other members of the Thermo Group, prior to the withdrawal. In
addition, a withdrawing company is required to continue to comply with all
policies and procedures applicable to the Thermo Group and to provide certain
administrative functions mandated by Thermo Electron so long as the withdrawing
company is controlled by or affiliated with Thermo Electron.
As provided in the Charter, the Corporation and Thermo Electron have
entered into a Corporate Services Agreement (the "Services Agreement") under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, employee
benefit administration, tax advice and preparation of tax returns, centralized
cash management and financial and other services to the Corporation. The
Corporation was assessed an annual fee equal to 0.8% of the Corporation's
revenues for these services in fiscal 1998. The annual fee will remain at 0.8%
of the Corporation's revenues for fiscal 1999. The fee is reviewed annually and
may be changed by mutual agreement of the Corporation and Thermo Electron.
During fiscal 1998, Thermo Electron assessed the Corporation $768,000 in fees
under the Services Agreement. Management believes that the charges under the
Services Agreement are reasonable and that the terms of the Services Agreement
are fair to the Corporation. In fiscal 1998, the Corporation was billed an
additional $78,000 by Thermo Electron for certain administrative services
required by the Corporation that were not covered by the Services Agreement. The
Services Agreement automatically renews for successive one-year terms, unless
canceled by the Corporation upon 30 days' prior notice. In addition, the
Services Agreement terminates automatically in the event the Corporation ceases
to be a member of the Thermo Group or ceases to be a participant in the Charter.
In the event of a termination of the Services Agreement, the Corporation will be
required to pay a
17
<PAGE>
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.
The Corporation subleases office and research facilities from Thermedics
and pays to Thermedics a pro rata amount based on the actual square footage
occupied by the Corporation, at a rate approximately equal to Thermedics' rent
per square foot under its prime lease. The sublease expires in February 2004.
The Corporation paid approximately $151,000 to Thermedics in sublease payments
during 1998. The Corporation also pays Thermedics for the Corporation's portion
of certain expenses shared with Thermedics at the subleased facilities. In
1998, the Corporation paid Thermedics $228,000 for such expenses.
As of January 2, 1999, $20,717,000 of the Corporation's cash equivalents
were invested pursuant to a repurchase agreement with Thermo Electron. Under
this agreement, the Corporation in effect lends excess cash to Thermo Electron,
which Thermo Electron collateralizes with investments principally consisting of
corporate notes, U.S. government agency securities, money market funds,
commercial paper and other marketable securities, in the amount of at least 103%
of such obligation. The Corporation's funds subject to the repurchase agreement
are readily convertible into cash by the Corporation and have a maturity of
three months or less. The repurchase agreement earns a rate based on the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the beginning of
each quarter.
Thermo Electron's Tecomet division provides metal fabrication services in
connection with the manufacture of the heart assist devices sold by the
Corporation. During 1998, the Corporation paid Tecomet $1,717,000 for these
services.
In 1998, the Corporation subleased approximately 8,000 square feet of
office and research facilities from Thermedics Detection Inc., a majority-owned
public subsidiary of Thermedics, under a sublease expiring in December 1999. In
1998, the Corporation paid base rent of $50,000 and its pro rata allocation of
the facility's aggregate operating costs, real estate taxes and utilities which
amount equaled $44,000.
At January 2, 1999, the Corporation owed Thermo Electron and its other
subsidiaries an aggregate of $335,000 for amounts due under the Services
Agreement and related administrative charges, for other products and services,
and for miscellaneous items. The largest amount of such net indebtedness owed
by the Corporation to Thermo Electron and its other subsidiaries since January
3, 1998 was $703,000. These amounts do not bear interest and are expected to be
paid in the normal course of business.
Stock Holding Assistance Plan
The human resources committee of the Corporation (the "Committee")
established a stock holding policy that required executive officers of the
Corporation to acquire and hold a minimum number of shares of Common Stock. In
order to assist the executive officers in complying with the policy, the
Committee also established a stock holding assistance plan under which the
Corporation may make interest-free loans to executive officers to enable them to
purchase Common Stock in the open market. No such loans are currently
outstanding under the plan. This policy and plan were subsequently amended to
apply only to the chief executive officer of the Corporation.
18
<PAGE>
- PROPOSAL 2-
PROPOSAL TO AMEND THE CORPORATION'S EQUITY INCENTIVE PLAN TO INCREASE
THE SHARES AVAILABLE FOR ISSUANCE AND MODIFY THE LIMITATION ON THE SIZE OF
POTENTIAL AWARDS
The Board of Directors has approved two amendments to the Corporation's
equity incentive plan (the "Equity Incentive Plan") and is recommending the
amendments to the Stockholders for their approval. The first amendment would
increase the number of shares of Common Stock available for issuance under the
Equity Incentive Plan by 1,000,000 shares. The second Amendment would modify
the limitation on the size of awards to a recipient in any calendar year to
300,000 shares.
Reasons for the Amendments
The Equity Incentive Plan was first approved by the Stockholders in 1994.
As of January 2, 1999, options to purchase 811,915 shares of Common Stock were
outstanding under the Equity Incentive Plan, options to purchase 36,660 shares
of Common Stock had been exercised, options to purchase 802,050 shares had
lapsed or been cancelled and options to purchase 901,425 shares were available
for future grant (after giving effect to the proposed increase).
In reviewing the Corporation's stock-based incentive program, the Board of
Directors concluded that an increase in the number of shares available for
future grant under the Equity Incentive Plan was necessary in anticipation of
future growth of the Corporation. The number of shares reserved for future
grant has been increased by 1,000,000 shares, subject to Stockholder approval.
After giving effect to the increase, the options outstanding and the shares
remaining available for future grant under all option plans of the Corporation
represent approximately 6.5% of the outstanding Common Stock as of January 2,
1999. The Board of Directors believes that it is in the Corporation's best
interests to be able to continue to grant stock-based incentives to its key
employees, executive officers and directors.
The Equity Incentive Plan has contained a limitation on the potential size
of awards to a recipient in any calendar year since its adoption in order for
awards under the plan to qualify as "performance-based" under Section 162(m) of
the Internal Revenue Code. Section 162(m) limits the tax deduction available to
public companies for annual compensation paid to certain executive officers in
excess of $1 million unless the compensation qualifies as "performance-based" or
is otherwise exempt from Section 162(m). The Board of Directors has approved an
amendment to the Equity Incentive Plan to limit the size of an award or any
combination of awards to a recipient in a calendar year to 300,000 shares of
Common Stock. The limitation was previously 1% of the outstanding shares of
Common Stock, calculated as of the beginning of the fiscal year.
Summary of the Equity Incentive Plan
The following summary of the terms of the Equity Incentive Plan is
qualified in its entirety by reference to the plan.
Administration; Eligible Participants
The Equity Incentive Plan is administered by the Board of Directors of the
Corporation (the "Board"). The Board has full power to select, from among the
persons eligible for awards, the individuals to whom awards will be granted, to
make any combination of awards to any participant, and to determine the specific
terms of each award, including terms and conditions relating to events of
merger, consolidation, dissolution and liquidation, change of control,
acceleration of vesting or lapse of restrictions, vesting, forfeiture, other
restrictions, dividends and interest on deferred amounts. The Board also has
the power to waive compliance by participants with the terms and conditions of
awards, to cancel awards with the consent of participants and to accelerate the
vesting or lapse of any restrictions of any award. The Board may delegate any
or all of its responsibilities under the Equity Incentive Plan to a committee
appointed by the Board consisting of two or more "non-employee" directors within
the meaning of Rule 16b-3 (or any successor rule) under the Exchange Act or
"outside directors" within the meaning of Section 162(m) of the Internal Revenue
Code.
19
<PAGE>
Employees and directors of, and consultants to, the Corporation and its
subsidiaries, or other persons who are expected to make significant
contributions to the growth and success of the Corporation and its subsidiaries,
selected by the Board, are eligible to participate in the Equity Incentive Plan.
Approximately 471 persons are eligible to participate in the existing Equity
Incentive Plan.
Shares Subject to the Equity Incentive Plan; Use of Proceeds
The number of shares of the Common Stock currently reserved for future
grants under the Equity Incentive Plan, after giving effect to the proposed
increase, is 901,425 shares. The number of shares reserved under the Equity
Incentive Plan is subject to adjustment for stock splits and similar events.
Awards and shares that are forfeited, reacquired by the Corporation, satisfied
by a cash payment by the Corporation or otherwise satisfied without the issuance
of Common Stock are not counted against the maximum number of reserved shares
under the plan.
The proceeds received by the Corporation from transactions under the Equity
Incentive Plan will be used for the general purposes of the Corporation. Shares
issued under the Equity Incentive Plan may be authorized but unissued shares, or
shares reacquired by the Corporation and held in its treasury.
Types of Awards; Limitations on Awards
The Equity Incentive Plan permits the Board to grant a variety of stock and
stock-based awards in such form or in such combinations as may be approved by
the Board. Without limiting the foregoing, the types of awards may include
stock options, restricted and unrestricted shares, rights to receive cash or
shares on a deferred basis or based on performance, cash payments sufficient to
offset the federal, state and local ordinary income taxes of participants
resulting from transactions under the Equity Incentive Plan, and loans to
participants in connection with awards. In addition, if approved by the
Stockholders at this meeting, the Board may not award more than 300,000 shares
of Common Stock to a recipient in a calendar year under any award or combination
of awards. The Equity Incentive Plan previously provided that the Board may not
grant in excess of 1% of the outstanding shares of Common Stock (calculated as
of the beginning of a calendar year) to any recipient under any award or
combination of awards granted during a calendar year.
Stock Options
Awards under the Equity Incentive Plan may be in the form of stock options,
which entitle the recipient, on exercise, to purchase shares of Common Stock at
a specified exercise price. Stock options granted under the plan may be either
stock options that qualify as incentive stock options ("incentive stock
options") under Section 422 of the Internal Revenue Code, or stock options that
are not intended to meet such requirements ("non-statutory options"). The
exercise price of each option is determined by the Board, but may not be less
than 85% of the fair market value per share of Common Stock on the date of
grant.
The term of each option will be fixed by the Board. The Board will also
determine at what time each option may be exercised. Options may be made
exercisable in installments, and the exercisability of options may be
accelerated by the Board. The Board may, in its discretion, provide that upon
exercise of any option, instead of receiving shares free from restrictions under
the Equity Incentive Plan, the option holder will receive shares of restricted
stock or deferred stock awards.
The exercise price of options granted under the Equity Incentive Plan must
be paid in full by check or other instrument acceptable to the Board or, if the
Board so determines, by delivery of shares of Common Stock held by the option
holder for at least six months (unless the Board expressly approves a shorter
period) and that have a fair market value on the exercise date equal to the
exercise price of the option, by delivery of a promissory note from the option
holder to the Corporation payable on terms acceptable to the Board, by delivery
of an unconditional and irrevocable undertaking by a broker to deliver
sufficient funds to the Corporation to pay the exercise price, or some
combination of these methods.
20
<PAGE>
Incentive stock options must meet certain additional requirements in order
to qualify as incentive stock options under the Internal Revenue Code.
Incentive stock options may be granted only to employees of the Corporation and
its subsidiaries. The exercise price of an incentive stock option or any option
intended to qualify as performance-based compensation under Section 162(m) of
the Internal Revenue Code may not be less than 100% of the fair market value of
the shares on the date of grant. An incentive stock option may not be granted
under the Equity Incentive Plan after the tenth anniversary of the date the
Board adopted the Equity Incentive Plan and the latest date on which an
incentive stock option may be exercisable is ten years from the date of its
grant. In addition, the Internal Revenue Code limits the value of shares
subject to incentive stock options that may become exercisable annually by any
option holder in a given year, and requires a shorter exercise period and a
higher minimum exercise price in the case of Stockholders owning more than ten
percent (10%) of the Corporation's Common Stock.
Restricted Stock and Unrestricted Stock
The Board may also award shares of Common Stock subject to such conditions
and restrictions as it may determine ("restricted stock"). The purchase price
of shares of restricted stock shall be determined by the Board, but may not be
less than the par value of those shares.
Generally, if a participant who holds shares of restricted stock fails to
satisfy certain restrictions or other conditions as may be determined by the
Board (such as continuing employment for a given period) prior to the lapse or
waiver of the restrictions, the Corporation will have the right to require the
forfeiture or repurchase of the shares in exchange for an amount, if any,
determined by the Board as specifically set forth in the instrument evidencing
the award. The Board may at any time waive such restrictions or accelerate the
date or dates on which the restrictions will lapse. Prior to the lapse of
restrictions on shares of restricted stock, the recipient will have all the
rights of a Stockholder with respect to the shares, including voting and
dividend rights, subject only to the conditions and restrictions generally
applicable to restricted stock or specifically set forth in the instrument
evidencing the award.
The Board may also grant shares that are free from any restrictions under
the Equity Incentive Plan ("unrestricted stock"). Unrestricted stock may be
issued in recognition of services or in such other circumstances that the Board
deems to be in the best interests of the Corporation.
Deferred Stock
The Board may also make deferred stock awards under the Equity Incentive
Plan which entitle the recipient to receive shares of Common Stock in the
future. Delivery of Common Stock will take place on such date or dates and on
such conditions as the Board specifies. The Board may at any time accelerate
the date on which delivery of all or any part of the Common Stock will take
place or otherwise waive any restrictions on the award.
Performance Awards
The Board may also grant performance awards entitling the recipient to
receive shares of Common Stock or cash in such combinations as it may determine
following the achievement of specified performance goals. Payment of the
performance award may be conditioned on achievement of individual or Corporation
performance goals over a fixed or determinable period or on such other
conditions as the Board shall determine.
Loans and Supplemental Grants
The Board may authorize a loan from the Corporation to a participant either
on or after the grant of an award to the participant. Loans, including
extensions, may be for any term specified by the Board, may be either secured or
unsecured, and may be with or without recourse against the participant in the
event of default. Each loan shall be subject to such terms and conditions and
shall bear such rate of interest, if any, as the Board shall determine. In
connection with any award, the Board may, at the time such award is made or at a
later date, provide for and make a cash payment to the participant in an amount
equal to (a) the amount of any federal, state and local income tax on ordinary
income for which the participant will be liable with respect to the award, plus
(b) an additional amount on a grossed-up basis necessary to make him or her
whole after payment of the amount described in (a).
21
<PAGE>
Payment of Purchase Price
Except as otherwise provided in the Equity Incentive Plan, the purchase
price of Common Stock or other rights acquired or granted pursuant to such plan
shall be determined by the Board, provided that the purchase price of Common
Stock shall not be less than its par value. The Board may determine the method
of payment for Common Stock acquired pursuant to the Equity Incentive Plan and
may determine that all or any part of the purchase price has been satisfied by
past service rendered by the recipient of an award. The Board may, upon the
request of a participant, defer the date on which payment under any award will
be made.
Change in Control Provisions
Unless otherwise provided in the agreement evidencing an award, if there is
a "Change in Control" of the Corporation as defined in the Equity Incentive
Plan, any stock options that are not then exercisable and fully vested will
become fully exercisable and vested; the restrictions applicable to restricted
stock awards will lapse and shares issued pursuant to such awards will be free
of restrictions and fully vested; and deferral and other limitations and
conditions that related solely to the passage of time or continued employment or
other affiliation will be waived and removed but other conditions will continue
to apply unless otherwise provided in the instrument evidencing the awards or by
agreement between the participant and the Corporation. Generally, a "Change in
Control" occurs if (1) any person other than Thermo Electron or Thermedics
becomes the beneficial owner of 50% or more of the outstanding Common Stock, or
any person becomes the beneficial owner of 25% or more of the outstanding common
stock of Thermo Electron or Thermedics, without the prior approval of the Board,
or the board of directors of Thermo Electron or Thermedics, as the case may be,
(2) during any two-year period the individuals who constituted the Board or the
board of directors of Thermo Electron at the beginning of such period no longer
represent a majority of such board or (3) the Board or the board of directors of
Thermo Electron determines that any other event constitutes an effective change
of control of the Corporation.
Nature of Rights as Stockholder Under the Equity Incentive Plan
Except as specifically provided by the Equity Incentive Plan, the receipt
of an award will not give a participant rights as a Stockholder. The
participant will obtain such rights, subject to any limitations imposed by the
plan or the instrument evidencing the award, upon actual receipt of Common
Stock.
Adjustments for Stock Dividends, etc.
The Board will make appropriate adjustments to the maximum number of shares
of Common Stock that may be delivered under the Equity Incentive Plan, and under
outstanding awards, to reflect stock dividends, stock splits and similar events.
The Board may also make appropriate adjustments to avoid distortions in the
operation of the Equity Incentive Plan.
Amendment and Termination
The Equity Incentive Plan shall remain in full force and effect until
terminated by the Board. The Board may at any time or times amend or review the
Equity Incentive Plan or any outstanding award for any purpose which may at the
time be permitted by law, or may at any time terminate the plan as to any
further grants of awards. No amendment of the Equity Incentive Plan or any
outstanding award may adversely affect the rights of a participant as to any
previously granted award without his or her consent. Stockholder approval of
amendments shall be required only as is necessary to satisfy the then-applicable
requirements of Rule 16b-3 (or any successor rule), of stock exchanges, of
Section 162(m) of the Internal Revenue Code, or of any federal tax law or
regulation relating to stock options or awards.
22
<PAGE>
Stock Withholding
In the case of an award under which Common Stock may be delivered, the
Board may permit the participant or other appropriate person to elect to have
the Corporation hold back from the shares to be delivered, or to deliver to the
Corporation, shares of Common Stock having a value sufficient to satisfy any
federal, state and local withholding tax requirements.
Federal Income Tax Consequences
The following is a summary of the principal United States federal income
tax consequences of transactions under the Equity Incentive Plan. It does not
describe all federal tax consequences under the Equity Incentive Plan, nor does
it describe any state, local or foreign tax consequences.
Incentive Stock Options
No taxable income is recognized by the optionee upon the grant or exercise
of an incentive stock option. However, the exercise of an incentive stock
option may result in alternative minimum tax liability for the optionee. If no
disposition of shares issued to an optionee pursuant to the exercise of an
incentive stock option is made by the optionee within the later of two years
from the date of grant or one year after the transfer of such shares to the
optionee, then upon the later sale of such shares, for federal income tax
purposes, any amount realized in excess of the exercise price will be taxed to
the optionee as a long-term capital gain and any loss sustained will be a long-
term capital loss, and no deduction will be allowed to the Corporation.
If the shares of Common Stock acquired upon the exercise of an incentive
stock option are disposed of prior to the expiration of the two- and one-year
holding periods described above, generally the optionee will recognize ordinary
compensation income in the year of disposition in an amount equal to the excess
(if any) of the fair market value of the shares at exercise (or, if less, the
amount realized on an arms-length sale of such shares) over the exercise price
thereof, and the Corporation will be entitled to deduct such amount, subject to
the limitations of Section 162(m) of the Internal Revenue Code. Any further
gain recognized will be taxed as short- or long-term capital gain and will not
result in any deduction by the Corporation. Special rules will apply where all
or a portion of the exercise price of the incentive stock option is paid by
tendering shares of Common Stock.
If any incentive stock option is exercised at a time when it no longer
qualifies for the tax treatment described above, the option is treated as a non-
statutory stock option. Generally, an incentive stock option will not be
eligible for the tax treatment described above if it is exercised more than
three months following termination of employment (one year following termination
of employment by reason of permanent and total disability), except in certain
cases where the incentive stock option is exercised after the death of an
optionee.
Non-statutory Options
With respect to non-statutory stock options granted under the Equity
Incentive Plan, no income is recognized by the optionee at the time the option
is granted. Generally, at exercise, ordinary compensation income is recognized
by the optionee in an amount equal to the difference between the exercise price
and the fair market value of the shares on the date of exercise, and the
Corporation receives a tax deduction for the same amount, subject to the
limitations of Section 162(m) of the Internal Revenue Code. At disposition of
the shares, appreciation or depreciation after the date of exercise is treated
as either short- or long-term capital gain or loss depending on how long the
shares have been held.
Restricted Stock
A recipient of restricted stock that is subject to a risk of forfeiture
generally will be subject to tax at ordinary income rates on the fair market
value of the stock at the time the stock is either transferable or is no longer
subject to forfeiture, less any amount paid for such stock. However, a
recipient who so elects under Section 83(b) of the Internal Revenue Code
("Section 83(b)") within 30 days of the date of issuance of the restricted stock
will recognize ordinary compensation income on the date of issuance equal to the
fair market value of the shares of
23
<PAGE>
restricted stock at that time (measured as if the shares were unrestricted and
could be sold immediately), minus any amount paid for such stock. The
Corporation generally will be entitled to a deduction equal to the amount that
is taxable as ordinary income to the recipient, subject to the limitations of
Section 162(m) of the Internal Revenue Code.
Upon sale of the shares after the forfeiture period has expired, the
appreciation or depreciation after the shares become transferable or free from
risk of forfeiture (or, if a Section 83(b) election was made, since the shares
were issued) will be treated as long- or short-term capital gain or loss. The
holding period to determine whether the recipient has long- or short-term
capital gain or loss begins just after the forfeiture period expires (or just
after the earlier issuance of the shares, if the recipient elected immediate
recognition of income under Section 83(b)). If restricted stock is received in
connection with another award under the Equity Incentive Plan (for example, upon
exercise of an option), the income and the deduction, if any, associated with
such award may be deferred in accordance with the rules described above for
restricted stock.
Deferred Stock
The recipient of a deferred stock award will generally be subject to tax at
ordinary income rates on the fair market value of the stock on the date that the
stock is distributed to the participant. The capital gain or loss holding
period for such stock will also commence on such date. The Corporation
generally will be entitled to a deduction equal to the amount that is taxable as
ordinary income to the employee. If a right to deferred stock is received under
another award (for example, upon exercise of an option), the income and
deduction, if any, associated with such award may be deferred in accordance with
the rules described above for deferred stock.
Performance Awards
The recipient of a performance award will generally be subject to tax at
ordinary income rates on any cash received and the fair market value of any
Common Stock issued under the award, and the Corporation will generally be
entitled to a deduction equal to the amount of ordinary income recognized by the
recipient. Any cash received under a performance award will be included in
income at the time of receipt. The fair market value of any Common Stock
received will also generally be included in income (and a corresponding
deduction will generally be available to the Corporation) at the time of
receipt. The capital gain or loss holding period for any Common Stock
distributed under a performance award will begin when the recipient recognizes
ordinary income in respect of that distribution.
Loans and Supplemental Grants
Generally speaking, bona fide loans made under the Equity Incentive Plan
will not result in taxable income to the recipient or in a deduction to the
Corporation. However, any such loan made at a rate of interest lower than
certain rates specified under the Internal Revenue Code may result in an amount
(measured, in general, by reference to the difference between the actual rate
and the specified rate) being included in the borrower's income and deductible
by the Corporation. Forgiveness of all or a portion of a loan may also result
in income to the borrower and a deduction for the Corporation. If outright cash
grants are given in order to facilitate the payment of award-related taxes, the
grants will be includable as ordinary income by the recipient at the time of
receipt and will in general be deductible by the Corporation.
24
<PAGE>
New Plan Benefits
The following table sets forth the number of shares of the Common Stock
that have been authorized to be granted as part of the proposed increase in the
number of shares under the Equity Incentive Plan to the current chief executive
officer, the other named executive officers, all current executive officers as a
group, all current directors who are not executive officers as a group and all
employees, including all current officers who are not executive officers as a
group.
<TABLE>
<CAPTION>
Dollar Number
Name and Position Value ($) of Shares
----------------- ----------- -----------
<S> <C> <C>
R. Michael Kleine, Chief Executive Officer............................ $1,160,500 110,000
Victor L. Poirier, President and Former Chief Executive Officer....... $ 949,500 90,000
Betty A. Silverstein Russell, Senior Vice President................... -- --
Timothy J. Krauskopf, Vice President, Regulatory Affairs.............. -- --
Executive Group....................................................... $2,110,000 200,000
Non-Executive Director Group.......................................... -- --
Non-Executive Officer Employee Group.................................. -- --
</TABLE>
Recommendation
The Board of Directors believes that the amendments to the Equity Incentive
Plan will provide the Corporation with the ability to continue to provide
incentive compensation for employees and others who are expected to make
significant contributions to the future growth and success of the Corporation,
to reward such individuals for such contributions and to encourage such
individuals to take into account the long-term interests of the Corporation and
its Stockholders through ownership of the Corporation's Common Stock.
Accordingly, the Board of Directors believes that the proposal is in the best
interests of the Corporation and its Stockholders and recommends that the
Stockholders vote FOR the approval of the amendments to the Equity Incentive
Plan. If not otherwise specified, Proxies will be voted FOR approval of the
amendments to the Equity Incentive Plan.
Thermo Electron, through its majority-owned subsidiary Thermedics, which
beneficially owned of record approximately 60.4% of the outstanding voting stock
of the Corporation on January 31, 1999 has indicated its intention to vote for
the proposal.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The board of directors has appointed Arthur Andersen LLP as independent
public accountants for fiscal 1999. Arthur Andersen LLP has acted as independent
public accountants for the Corporation since its inception in 1988.
Representatives of that firm are expected to be present at the meeting, will
have the opportunity to make a statement if they desire to do so and will be
available to respond to questions.
OTHER ACTION
Management is not aware at this time of any other matters that will be
presented for action at the meeting. Should any such matters be presented, the
proxies grant power to the proxy holders to vote shares represented by the
proxies in the discretion of such proxy holders.
STOCKHOLDER PROPOSALS
Proposals of Stockholders intended to be included in the proxy statement
and form of proxy relating to the 2000 Annual Meeting of the Stockholders of the
Corporation and to be presented at such meeting must be received by the
Corporation for inclusion in the proxy statement and form of proxy no later than
December 21, 1999. Notices of Stockholder proposals submitted outside the
processes of Rule 14a-8 of the Exchange Act (relating to proposals to be
presented at the meeting but not included in the Corporation's proxy statement
and form of proxy), will be considered untimely, and thus the Corporation's
proxy may confer discretionary voting authority on the persons named in the
proxy with regard to such proposals, if received after March 8, 2000.
25
<PAGE>
SOLICITATION STATEMENT
The cost of solicitation of proxies will be borne by the Corporation.
Solicitation will be made primarily by mail, but regular employees of the
Corporation may solicit proxies personally or by telephone or telegram. Brokers,
nominees, custodians and fiduciaries are requested to forward solicitation
materials to obtain voting instructions from beneficial owners of stock
registered in their names, and the Corporation will reimburse such parties for
their reasonable charges and expenses in connection therewith.
Woburn, Massachusetts
April 20, 1999
26
<PAGE>
FORM OF PROXY
THERMO CARDIOSYSTEMS INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 27, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints John T. Keiser, R. Michael Kleine and Theo
Melas-Kyriazi or any one of them in the absence of the others, as attorneys and
proxies of the undersigned, with full power of substitution, for and in the name
of the undersigned, to represent the undersigned at the Annual Meeting of the
Stockholders of Thermo Cardiosystems Inc., a Massachusetts corporation (the
"Company"), to be held on Thursday, May 27, 1999 at 1:30 p.m. at The Westin
Hotel, 70 Third Avenue, Waltham, Massachusetts, and at any adjournment or
postponement thereof, and to vote all shares of common stock of the Company
standing in the name of the undersigned on March 30, 1999, with all of the
powers the undersigned would possess if personally present at such meeting:
(IMPORTANT - TO BE SIGNED AND DATED ON THE REVERSE SIDE.)
<PAGE>
Please mark your
[ X ] votes as in this
example.
1. ELECTION OF DIRECTORS OF THE COMPANY (see reverse).
FOR [ ] WITHHELD [ ]
______________________________________
FOR all nominees listed at right, except authority to vote withheld for the
following nominees (if any)
Nominees: Walter J. Bornhorst, Elias P. Gyftopoulos, John T. Keiser, R. Michael
Kleine, Leonard Laster, Victor L. Poirier and Nicholas T. Zervas.
2. Approve a management proposal to amend the Corporation's equity incentive
plan to increase the shares available for issuance under the plan by
1,000,000 shares and to modify the limitation on the potential size of
awards to any recipient in a year in compliance with Section 162 (m) of the
Internal Revenue Code, as amended.
3. In their discretion on such other matters as may properly come before the
Meeting.
The shares represented by this Proxy will be voted "FOR" the proposals set forth
above if no instruction to the contrary is indicated or if no instruction is
given.
Copies of the Notice of Meeting and of the Proxy Statement have been received
by the undersigned.
SIGNATURE(S) DATE
----------------------------------------- -------------------
Note: This proxy should be dated, signed by the shareholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate.
If shares are held by joint tenants or as community property, both
should sign.
AA971290039
