<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
THERMO CARDIOSYSTEMS INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
THERMO CARDIOSYSTEMS INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
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.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
470 Wildwood Street
P.O. Box 2697
Woburn, Massachusetts 01888-2697
April 12, 2000
Dear Stockholder:
The enclosed Notice calls the 2000 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 1, 2000, is enclosed. I hope
you will read it carefully. Feel free to forward any questions you may have if
you are unable to be present at the meeting.
Enclosed with this letter is a proxy authorizing three officers of the
Corporation to vote your shares for you if you do not attend the meeting.
Whether or not you are able to attend the meeting, I urge you to complete your
proxy and return it to our transfer agent, American Stock Transfer & Trust
Company, in the enclosed addressed, postage-paid envelope, as a quorum of the
Stockholders must be present at the meeting, either in person or by proxy.
I would appreciate your immediate attention to the mailing of this proxy.
Yours very truly,
/s/ R. Michael Kleine
R. MICHAEL KLEINE
Chief Executive Officer
<PAGE>
[LOGO]
470 Wildwood Street
P.O. Box 2697
Woburn, Massachusetts 01888-2697
April 12, 2000
To the Holders of the Common Stock of
THERMO CARDIOSYSTEMS INC.
NOTICE OF ANNUAL MEETING
The 2000 Annual Meeting of the Stockholders of Thermo Cardiosystems Inc.
(the "Corporation") will be held on Thursday, May 25, 2000, at 10:00 a.m. at the
offices of Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts.
The purpose of the meeting is to consider and take action upon the following
matters:
1. Election of seven directors.
2. Such other business as may properly be brought before the meeting and
any adjournment thereof.
The transfer books of the Corporation will not be closed prior to the
meeting, but, pursuant to appropriate action by the board of directors, the
record date for the determination of the Stockholders entitled to receive notice
of and to vote at the meeting is March 31, 2000.
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 promptly sign and return 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 2000 Annual Meeting of the
Stockholders to be held on Thursday, May 25, 2000, at 10:00 a.m. at the offices
of Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts, and any
adjournment thereof. The mailing address of the executive office of the
Corporation is 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 17, 2000.
VOTING PROCEDURES
The board of directors intends to present to the meeting the election
of seven directors, constituting the entire board of directors.
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 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 plurality of the shares of Common Stock present or
represented by proxy and entitled to vote on the election. Withholding authority
to vote for a nominee for director will have no effect on the outcome of the
vote. If you hold your shares of Common Stock through a broker, bank or other
representative, generally the broker or your representative 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 broker or your
representative may vote on certain matters for which it has discretionary voting
authority. If a broker or your representative cannot vote on a particular matter
because it does not have discretionary voting authority, this is a "broker
non-vote" on that matter. With regard to the election of directors, broker
non-votes will have no effect on the outcome of the vote.
A Stockholder who returns a proxy may revoke it at any time before the
Stockholder's shares are voted at the meeting by written notice to the Clerk of
the Corporation received prior to the meeting, by executing and returning a
later dated proxy or by voting by ballot at the meeting.
The outstanding stock of the Corporation entitled to vote (excluding
shares held in treasury by the Corporation) as of March 31, 2000, consisted of
38,569,081 shares of Common Stock. Only Stockholders of record at the close of
business on March 31, 2000, are entitled to vote at the meeting. Each share is
entitled to one vote.
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, medical devices, power generation and
resource recovery, is reported under the caption "Stock Ownership." All of the
nominees are currently directors of the Corporation.
<PAGE>
- --------------------------------------------------------------------------------
Walter J. Bornhorst Dr. Bornhorst, 59, 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.
- --------------------------------------------------------------------------------
Elias P. Gyftopoulos Dr. Gyftopoulos, 72, 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 and Trex
Medical Corporation.
- --------------------------------------------------------------------------------
John T. Keiser Mr. Keiser, 64, 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, 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 is a director of Metrika
Systems Corporation, Thermedics Inc., ThermoLase
Corporation, ThermoTrex Corporation and Trex Medical
Corporation.
- --------------------------------------------------------------------------------
R. Michael Kleine Mr. Kleine, 46, 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, 71, 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.
- --------------------------------------------------------------------------------
Victor L. Poirier Mr. Poirier, 58, has been a director of the
Corporation since 1991. Mr. Poirier has been
president and chief technical officer of the
Corporation since 1990 and 1999, respectively, 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, 71, 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.
- --------------------------------------------------------------------------------
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
2
<PAGE>
fiscal 1999. 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 1999.
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. Any of the following are deemed to
be a change of control: (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 July 1, 1999 or who
subsequent to that date 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.
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. As of January 1, 2000 a total of 140,625 shares of Common
Stock were reserved for issuance under the Deferred Compensation Plan and
deferred units equal to approximately 13,823 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 are immediately exercisable at any time from and after
the grant date of the option and expire on the third 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, 2000, options to purchase 45,550 shares of Common Stock had
been granted under the Directors Plan, options to purchase 18,600 shares of
Common Stock were outstanding, options to purchase 13,300 shares of Common Stock
had lapsed, options to purchase 13,650 shares of Common Stock had been
exercised, and options to purchase 42,750 shares of Common Stock were available
for future grant.
Stock Ownership Policy 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
3
<PAGE>
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 Policy."
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,
2000, 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 ownership of Common Stock, as of January 31, 2000, 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
Name (1) Cardiosystems Inc. (2) Thermedics Inc. (3) Corporation (4)
-------- ---------------------- ------------------- ---------------
<S> <C> <C> <C>
Thermo Electron Corporation (5) 23,129,293 N/A N/A
Putnam Investments, Inc. (6)........ 2,279,179 N/A N/A
Walter J. Bornhorst................. 6,400 0 9,415
Elias P. Gyftopoulos................ 16,565 8,298 91,399
John T. Keiser...................... 57,473 194,693 331,636
R. Michael Kleine................... 121,025 40,000 15,700
Timothy J. Krauskopf................ 84,696 0 1,446
Leonard Laster...................... 17,584 0 0
Victor L. Poirier................... 283,772 54,455 53,880
Betty Silverstein Russell........... 57,854 1,455 8,911
Nicholas T. Zervas.................. 44,924 30,664 0
All directors and current
executive officers as a group
(11 persons)...................... 715,828 361,786 1,184,449
</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, 3,750, 50,200,
110,000, 75,800, 3,000, 211,450, 20,520, 6,600 and 506,570 shares,
respectively, that such person or group had the right to acquire within
60 days of January 31, 2000, 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
565, 4,184, 9,074 and 13,823 shares, respectively, that had been
allocated through January 1, 2000, 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. 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, 2000; all directors and current executive officers as a
group beneficially owned 1.85% 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 2,750,
187,900, 40,000, 10,000, 8,600 and 259,250 shares, respectively, that
such person or group had the right to acquire within 60 days of January
31, 2000, 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, 2000, to certain group members' accounts maintained
pursuant to Thermo Electron's employee stock ownership plan (the
"ESOP"). Shares beneficially owned by Dr.
4
<PAGE>
Zervas and all directors and current executive officers as a group
include 10,364 shares allocated through January 1, 2000, to Dr. Zervas'
account maintained pursuant to Thermedics' deferred 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, 2000; all directors and current executive officers as a
group beneficially did not beneficially own more than 1% of the
Thermedics 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 27,442, 263,230, 15,200, 500, 46,123, 6,300 and 922,515
shares, respectively, that such person or group had the right to
acquire within 60 days of January 31, 2000, through the exercise of
stock options. Shares beneficially owned by Dr. Gyftopoulos and all
directors and current executive officers as a group include 1,378
shares that had been allocated through January 1, 2000, 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, 2000 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, 2000; 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, 2000, Thermo Electron, directly and through its
majority-owned subsidiary Thermedics, beneficially owned approximately
60.1% of the outstanding Common Stock. Thermo Electron's address is 81
Wyman Street, Waltham, Massachusetts 02454-9046. As of January 31,
2000, 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, 1999. 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 5.9% of the Common Stock outstanding as of
December 31, 1999.
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 1999, except
in the following instances. Mr. Kleine, a director and officer of the
Corporation, filed his Form 5 late, reporting one late transaction consisting of
the exempt grant of stock options. Thermo Electron filed one Form 4 late,
reporting a total of ten transactions associated with the cancellation and grant
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.
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<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
----------------------
Restricted Securities
Name and Fiscal Annual Compensation Stock Underlying All Other
---------------------
Principal Position Year Salary Bonus Award (1) Options (2) Compensation (3)
- ------------------ ---- ----------------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
R. Michael Kleine (4) 1999 $210,000 $115,000 $195,000 (TCA) 200 (TMO) $130,437 (5)
Chief Executive Officer 1998 $17,500 $0 -- 110,000 (TCA) $100,000 (5)
15,000 (TMO)
40,000 (TMD)
- -------------------------------------------------------------------------------------------------------------------
Victor L. Poirier (6) 1999 $200,000 $110,000 $185,625 (TCA) 3,200 (TCA) $7,200
President and Chief 1,100 (TMO)
Technology Officer 3,300 (TMD)
1998 $170,000 $100,000 -- 93,200 (TCA) $7,200
3,798 (TMO)
2,000 (MKA)
2,000 (ONX)
4,000 (RGI)
3,100 (TMD)
999 (THI)
1,023 (TKN)
2,000 (TRIL)
1997 $160,000 $108,000 -- 34,500 (TCA) $7,125
800 (TMO)
3,600 (TMD)
- -------------------------------------------------------------------------------------------------------------------
Timothy J. Krauskopf 1999 $120,000 $40,000 $56,250 (TCA) 4,000 (TCA) $6,023
Vice President, 200 (TMO)
Regulatory Affairs and 1998 $115,000 $15,000 -- 9,800 (TCA) $6,932
Quality Assurance 200 (TMO)
1997 $110,000 $20,000 -- 20,000 (TCA) $5,344
100 (TMO)
- -------------------------------------------------------------------------------------------------------------------
Betty A. Silverstein 1999 $145,000 $67,500 $67,500 (TCA) 7,000 (TCA) $5,391
Russell (7) 600 (TMO)
Former Senior Vice 1998 $132,000 $28,000 -- 12,300 (TCA) $5,625
President 600 (TMO)
1997 $120,000 $35,000 -- 23,700 (TCA) $5,344
600 (TMO)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In fiscal 1999, Mr. Kleine, Mr. Poirier, Ms. Silverstein Russell and
Mr. Krauskopf were awarded 20,800, 19,800, 7,200 and 6,000 shares,
respectively, of restricted Common Stock of the Corporation with a
value of $195,000, $185,625, $67,500 and $56,250, respectively, on the
grant date. The restricted stock awards vest 33% per year beginning on
the first anniversary of the grant date. Any cash dividends paid on
restricted shares are entitled to be retained by the recipient without
regard to vesting. Any stock dividends paid on restricted shares are
entitled to be retained by the recipient subject to the same vesting
restrictions as the underlying shares. At the end of fiscal 1999, Mr.
Kleine, Mr. Poirier, Ms. Silverstein Russell and Mr. Krauskopf held
20,800, 19,800, 7,200 and 6,000 restricted shares, respectively, with
an aggregate value of $136,510, $129,947, $47,254 and $39,378
respectively.
6
<PAGE>
(2) 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 Instrument Systems Inc.
(designated in the table as THI), ThermoTrex Corporation (designated in the
table as TKN) and Thermo Trilogy Corporation (designated in the table as
TRIL). Certain options reported in the proxy statement for prior years have
been assumed by parent companies in connection with mergers effected as
part of Thermo electron's reorganization and have been restated in the
table as options in the parent companies.
(3) 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.
(4) 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.
(5) Represents reimbursement by the Corporation of expenses associated with Mr.
Kleine's relocation to Woburn, Massachusetts, in fiscal 1999 and a signing
bonus paid to Mr. Kleine in connection with his appointment as the
Corporation's chief executive officer in fiscal 1998.
(6) Mr. Poirier resigned as the Corporation's chief executive officer in
November 1998 and was succeeded by Mr. Kleine.
(7) Ms. Silverstein Russell resigned as senior vice president of the
Corporation effective March 17, 2000.
Stock Options Granted During Fiscal 1999
The following table sets forth information concerning individual grants of
stock options made during fiscal 1999 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 1999.
<TABLE>
<CAPTION>
Option Grants in Fiscal 1999
- ------------------------------------------------------------------------------------------------------------------
Potential Realizable
Number of Value at Assumed
Securities Percent of Annual Rates of
Underlying Total Options Stock Price
Options Granted to Exercise Appreciation for
Granted and Employees in Price Per Expiration Option Term (2)
---------------
Name Company (1) Fiscal Year Share Date 5% 10%
---- ----------- ----------- ----- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C>
R. Michael Kleine 200 (TMO) 0.01% (3) $14.81 09/22/04 $ 820 $ 1,808
- ------------------------------------------------------------------------------------------------------------------
Victor L. Poirier 3,200 (TCA) 2.12% $ 9.39 03/04/02 $ 4,740 $ 9,946
1,100 (TMO) 0.04% (3) $14.81 09/22/04 $ 4,500 $ 9,946
3,300 (TMD) 2.06% (3) $ 7.14 03/30/02 $ 3,710 $ 7,799
- ------------------------------------------------------------------------------------------------------------------
Timothy J. Krauskopf 4,000 (TCA) 2.65% $ 9.65 06/22/04 $10,660 $23,566
200 (TMO) 0.01% (3) $14.81 09/22/04 $ 820 $ 1,808
- ------------------------------------------------------------------------------------------------------------------
Betty Silverstein Russell 2,600 (TCA) 1.72% $ 9.39 03/04/02 $ 3,850 $ 8,081
4,400 (TCA) 2.92% $ 9.65 06/22/04 $11,730 $25,922
600 (TMO) 0.02% (3) $14.81 09/22/04 $ 2,460 $ 5,425
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All of the options granted during the fiscal year are immediately
exercisable as of the end of the fiscal year. Generally, 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 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. The repurchase rights lapse ratably over a one- to two-year
period, depending on the option term, which may vary from three to five
years, provided that the optionee continues to be employed by the granting
company or another Thermo Electron company. The granting
7
<PAGE>
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 2 under the Summary Compensation Table on page 6 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 1999
The following table reports certain information regarding stock option
exercises during fiscal 1999 and outstanding stock options held at the end of
fiscal 1999 by the named executive officers. No stock appreciation rights were
exercised or were outstanding during fiscal 1999.
<TABLE>
<CAPTION>
Aggregated Option Exercises In Fiscal 1999 And Fiscal 1999 Year-End Option Values
- -----------------------------------------------------------------------------------------------------------------------
Number of Value of
Securities Underlying Unexercised In-
Unexercised Options at the-Money Options
Shares Fiscal Year-End at Fiscal Year-End
Acquired Value (Exercisable/ (Exercisable/
Name Company (1) on Exercise Realized (1) Unexercisable) (2) Unexercisable)
---- ----------- ----------- ------------ ------------------ --------------
<S> <C> <C> <C> <C> <C>
R. Michael Kleine TCA -- -- 110,000 /0 $ 0 /--
TMO -- -- 15,200 /0 $ 38 /--
TMD -- -- 40,000 /0 $ 0 /--
- -----------------------------------------------------------------------------------------------------------------------
Victor L. Poirier TCA 36,000 $125,640 211,450 /0 (3) $ 0 /--
TMO -- -- 46,123 /0 (4) $ 684 /--
MKA -- -- 2,000 /0 $ 0 /--
ONX -- -- 2,000 /0 $ 0 /--
RGI -- -- 4,000 /0 $ 1,000 /--
TMD -- -- 25,000 /0 $ 0 /--
TBA -- -- 2,000 /0 $16,750 /--
TFG -- -- 2,000 /0 $ 4,376 /--
TFT 4,500 $ 20,250 -- /0 $ 0 /--
THI -- -- 1,702 /0 $ 3,067 /--
TLZ -- -- 5,000 /0 $ 0 /--
TLT -- -- 0 /2,000 -- /$0(5)
TKN -- -- 1,023 /0 $ 56 /--
TOC -- -- 6,000 /0 $ 5,430 /--
TMQ -- -- 6,000 /0 $ 0 /--
TSR -- -- 7,500 /0 $ 3,750 /--
TRIL -- -- 0 /2,000 -- /$0(5)
TXM -- -- 4,000 /0 $ 0 /--
- -----------------------------------------------------------------------------------------------------------------------
Timothy J. Krauskopf TCA -- -- 75,800 /0 $ 9,636 /--
TMO -- -- 500 /0 $ 38 /--
- -----------------------------------------------------------------------------------------------------------------------
Betty Silverstein TCA -- -- 68,490 /0 (3) $ 0 /--
Russell TMO -- -- 17,700 /0 $ 114 /--
TXM -- -- 4,000 /0 $ 0 /--
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
(1) Amounts shown in this column do not necessarily represent actual value
realized from the sale of the shares acquired upon exercise of the option
because in many cases the shares are not sold on exercise but continue to
be held by the executive officer exercising the option. The amounts shown
represent the difference between the option exercise price and the market
price on the date of exercise, which is the amount that would have been
realized if the shares had been sold immediately upon exercise.
(2) All of the options reported outstanding at the end of the fiscal year were
immediately exercisable as of the end of the fiscal year, except options to
purchase the common stock of Thermo Trilogy 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. Generally, 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
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 2 under the Summary Compensation Table
on page 6 for company abbreviations used in this table in addition to the
following company abbreviations: Thermo BioAnalysis Corporation (designated
in the table as TBA), Thermo Fibergen Inc. (designated in the table as
TFG), Thermo Fibertek Inc. (designated in the table as TFT), ThermoLase
Corporation (designated in the table as TLZ), ThermoLyte Corporation
(designated in the table as TLT), Thermo Optek Corporation (designated in
the table as TOC), ThermoQuest Corporation (designated in the table as
TMQ), Thermo Sentron Inc. (designated in the table as TSR) and Trex Medical
Corporation (designated in the table as TXM).
(3) 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.
(4) Options to purchase 22,500 shares of the common stock of Thermo Electron
granted to Mr. Poirier 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.
(5) No public market existed for the shares underlying these options as of
January 1, 2000. 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
9
<PAGE>
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.
Assuming that the severance benefits would have been payable as of January
1, 2000, the lump sum salary and bonus payment under such agreements to Mr.
Poirier and Mr. Kleine would have been approximately $364,500 and $310,000,
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.
Transition Agreements
On January 31, 2000, Thermo Electron announced that the Corporation is to
be sold as part of a comprehensive corporate reorganization of Thermo Electron
and its subsidiaries. On February 18, 2000, Mr. Kleine entered into a transition
agreement with Thermo Electron providing that he will be entitled to receive a
transaction bonus of $200,000 if the Corporation is sold for $400 million. If
the sale price exceeds $400 million, Mr. Kleine would also receive 40% of the
amount equal to 0.5% of the difference between the sale price and $400 million.
Also, if the buyer of the Corporation does not offer Mr. Kleine continued
employment in a comparable position, Thermo Electron will pay him severance
equal to two times his annual base salary. Mr. Poirier also entered into a
transition agreement with Thermo Electron providing that he will be entitled to
receive a transaction bonus of $300,000 if the Corporation is sold for $400
million. If the sale price exceeds $400 million, he would receive 60% of the
amount equal to 0.5% of the difference between the sale price and $400 million.
Also, if the buyer of the Corporation does not offer Mr. Poirier continued
employment in a comparable position, Thermo Electron will pay him severance
equal to two times his annual base salary. If the Corporation terminates Mr.
Kleine's or Mr. Poirier's employment without cause within 180 days prior to the
closing of the sale of the Corporation, Mr. Kleine and Mr. Poirier would be
entitled to receive the severance and transaction bonuses at the time of the
sale. However, these bonuses would not be paid if they voluntarily leave their
employment with the Corporation or are terminated for "cause" as such term is
defined in the agreement.
Mr. Krauskopf has a retention agreement with Thermo Electron under which he
will receive a payment of 100% of his base salary upon the earlier of the sale
of the Corporation or January 1, 2002. This bonus will not be paid if he
voluntarily leaves his employment with the Corporation or is terminated for
"cause", as such term is defined in the agreement, prior to the earlier to occur
of the sale of the Corporation or January 1, 2002.
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.
10
<PAGE>
The Committee evaluates the competitiveness of its compensation practices
through the use of market surveys and competitive analyses prepared by its
outside compensation consultants. Internal fairness of compensation within the
organization is also an important element of the Committee's compensation
philosophy. Compensation of executives is also 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 ("bonus"). Annual cash
compensation is composed of base salary and performance-based incentive
compensation, which is reviewed and determined annually. Long-term incentive
compensation can be 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 (`bonus"). The cash bonus 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
base salary and reference bonus 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 to reflect
competitive salary levels or other considerations, such as geographic or
regional market data, industry trends or internal fairness within the
Corporation. The Committee may also adjust individual salaries to reflect the
assumption of increased responsibilities. The salary increases in fiscal 1999
for the named executive officers generally reflect this practice of adjustment
and recognition of increased responsibilities.
Performance-based Incentive Compensation ("Bonus"). 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 1999, 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.
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
"1999 CEO Compensation") for fiscal 1999 reflected the financial performance of
the businesses of the Corporation for which they were responsible, as well as
the Corporation as a whole.
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
11
<PAGE>
remain with the Corporation long-term. The Committee believes stock-based
compensation awards in its parent companies, 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 this value to competitive data. Awards are reviewed annually in
conjunction with the annual review of cash compensation and additional awards
are made periodically as deemed appropriate by the Committee. The Committee uses
a modified Black-Scholes option pricing model to determine the value of an
award. In determining the appropriate number of outstanding awards, the
Committee considers such factors as 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), size of the company, its stage of development, and its
growth strategy, as well as the aggregate awards and compensation practices of
comparable companies. 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.
The options awarded in fiscal 1999 to the named executive officers to
purchase shares of Common Stock were made pursuant to a program that awarded
options to certain eligible employees annually based on the number of shares of
the Common Stock held by such employees as an incentive to buy and hold the
Corporation's shares. These option awards were independent of the award of stock
options as an incentive for management performance. Certain awards to the named
executive officers in 1999 to purchase shares of the common stock of Thermo
Electron and Thermedics were made by those companies under similar programs.
These programs have been discontinued for future periods.
Stock Ownership Policy
The Committee established a stock holding policy for the chief executive
officer of the Corporation that requires him to own a multiple of his
compensation in shares of the Corporation's Common Stock. The multiple is one
times his base salary and reference bonus for the fiscal year in which
compliance is achieved. The chief executive officer has three years from the
adoption of the policy to achieve this ownership level.
In order to assist the chief executive officer in complying with the
policy, the Committee also adopted a stock holding assistance plan under which
the Corporation is authorized to make interest-free loans to the chief executive
officer to enable him to purchase shares of Common Stock in the open market. Any
loans are required to be repaid upon the earlier of demand or the tenth
anniversary of the date of the loan, unless otherwise determined by the
Committee. No loans were outstanding under this program in fiscal 1999. See
"Relationship with Affiliates - Stock Holding Assistance Plan."
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).
1999 CEO Compensation
Mr. Kleine was appointed the Corporation's chief executive officer in
November 1998. At that time, Mr. Kleine's salary was established in arms-length
negotiations and reflected competitive compensation for CEO positions in
comparable companies. The Committee did not adjust Mr. Kleine's salary for
fiscal 1999. In determining Mr. Kleine's bonus for fiscal 1999, the Committee
considered the financial performance of the Corporation, using the measures
described above for all executive officers under the caption "Components of
Executive Compensation -Annual Cash Compensation - Performance-based Incentive
Compensation." The Committee's subjective evaluation of Mr. Kleine's performance
considered, among other things, his effectiveness in furthering the
Corporation's business and financial objectives.
12
<PAGE>
Awards to Mr. Kleine 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." No awards of stock options to purchase shares of
Common Stock were made by the Committee to Mr. Kleine in fiscal 1999. The award
to purchase 200 shares of common stock of Thermo Electron granted to Mr. Kleine
in fiscal 1999 was made by the Thermo Electron human resources committee under a
program which awards options to certain eligible employees annually based on the
number of shares of the common stock of Thermo Electron held by the employee, as
an incentive to buy and hold shares of Thermo Electron common stock. These
programs have been discontinued for future periods.
Dr. Elias P. Gyftopoulos (Chairman)
Dr. Nicholas T. Zervas
Dr. Leonard Laster
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, 1994 to December 31, 1999
[GRAPH APPEARS HERE]
--------------------------------------------------------------------------
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
--------------------------------------------------------------------------
TCA 100 483 269 247 98 61
--------------------------------------------------------------------------
AMEX 100 126 134 163 166 214
--------------------------------------------------------------------------
PEER GRP 100 183 213 248 332 324
--------------------------------------------------------------------------
The total return for the Corporation's Common Stock (TCA), the American
Stock Exchange Market Value Index (AMEX) and the Peer Group (PEER GRP) 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."
13
<PAGE>
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."
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 1999. The annual fee will remain at 0.8%
of the Corporation's revenues for fiscal 2000. The fee is reviewed annually and
may be changed by mutual agreement of the Corporation and Thermo Electron.
During fiscal 1999, Thermo Electron assessed the Corporation $633,000 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 1999, the Corporation was billed an
additional
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$204,000 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
termination fee equal to the fee that was paid by the Corporation for services
under the Services Agreement for the nine-month period prior to termination.
Following termination, Thermo Electron may provide certain administrative
services on an as-requested basis by the Corporation or as required in order to
meet the Corporation's obligations under Thermo Electron's policies and
procedures. Thermo Electron will charge the Corporation a fee equal to the
market rate for comparable services if such services are provided to the
Corporation following termination.
The Corporation 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 $171,000 to Thermedics in sublease payments
during 1999. The Corporation also pays Thermedics for the Corporation's portion
of certain expenses shared with Thermedics at the subleased facilities. In 1999,
the Corporation paid Thermedics $196,000 for such expenses.
At year-end 1998, $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 lent excess cash to Thermo Electron, which
Thermo Electron collateralized 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
were readily convertible into cash by the Corporation. The repurchase agreement
earned a rate based on the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter.
Effective June 1999, the Corporation and Thermo Electron commenced use of a
new domestic cash management arrangement. Under the new arrangement, amounts
advanced to Thermo Electron by the Corporation for domestic cash management
purposes bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis
points, set at the beginning of each month. Thermo Electron is contractually
required to maintain cash, cash equivalents, and/or immediately available bank
lines of credit equal to at least 50% of all funds invested under this cash
management arrangement by all Thermo Electron subsidiaries other than wholly
owned subsidiaries. The Corporation has the contractual right to withdraw its
funds in the cash management arrangement upon 30 days' prior notice. At year-end
1999, the Corporation had invested $13,961,000 under this arrangement.
Thermo Electron's Tecomet division provides metal fabrication services in
connection with the manufacture of the heart assist devices sold by the
Corporation. During 1999, the Corporation paid Tecomet $3,651,000 for these
services.
In 1999, the Corporation subleased approximately 12,000 square feet of
office and research facilities from Thermedics Detection Inc., a majority-owned
public subsidiary of Thermedics, under a sublease expiring in December 2000. In
1999, the Corporation paid base rent of $65,000 and its pro rata allocation of
the facility's aggregate operating costs, real estate taxes and utilities which
amount equaled $49,800.
At January 1, 2000, the Corporation owed Thermo Electron and its other
subsidiaries an aggregate of $713,000 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 2,
1999 was $713,000. These amounts do not bear interest and are expected to be
paid in the normal course of business.
On January 31, 2000, Thermo Electron announced a reorganization plan
involving itself and certain of its subsidiaries, including the Corporation.
Under the plan, Thermo Electron intends to sell the Corporation.
Stock Holding Assistance Plan
The human resources committee of the Corporation (the "Committee")
established a stock holding policy that requires the chief executive officer of
the Corporation to acquire and hold a minimum number of shares of Common Stock.
In order to assist the chief executive officer in complying with the policy, the
Committee also established a stock holding assistance plan under which the
Corporation may make interest-free loans to the chief
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executive officer to enable him to purchase Common Stock in the open market. No
such loans are currently outstanding under the plan.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The board of directors has appointed Arthur Andersen LLP as independent
public accountants for fiscal 2000. 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 2001 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 23, 2000. 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 6, 2001.
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 12, 2000
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FORM OF PROXY
THERMO CARDIOSYSTEMS INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 25, 2000
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 25, 2000 at 10:00 a.m. at the offices of
Thermo Electron Corporation, 81 Wyman Street, 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 31, 2000, 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. 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.
