<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________________________________________
AMENDMENT NO. 2 ON FORM 10-K/A
TO FORM 10-K
(mark one)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
---------
Exchange Act of 1934
__________ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 1-10791
THERMOTREX CORPORATION
(Exact name of Registrant as specified in its character)
Massachusetts 52-1711436
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10455 Pacific Center Court
San Diego, California 92121-4339
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (781) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
Common Stock, $.10 par value American Stock Exchange
3 1/4% Subordinated Convertible Debentures American Stock Exchange
due 2007
Securities registered pursuant to section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to the filing requirements for
at least the past 90 days. Yes X No__
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of October 3, 1998, was approximately $91,824,000.
As of October 3, 1998, the Registrant had 18,661,346 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended October 3, 1998 are incorporated by reference into Parts I and II.
<PAGE>
Part III, Item 10. Directors and Executive Officers of the Registrant.
Part III, Item 11. Executive Compensation.
Part III, Item 12. Security Ownership of Certain
Beneficial Owners and Management.
Part III, Item 13. Certain Relationships and Transactions.
Items 10, 11, 12 & 13 of Part III of the Registrant's Annual Report on Form 10-K
for the fiscal year ended October 3, 1998 are hereby amended and restated in
their entirety as contained in the following Attachment A, which is included
herein and made a part of this Annual Report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Amendment No. 2 on form 10-K/A
to be signed by the undersigned, duly authorized.
THERMOTREX CORPORATION
By: /s/ Sandra L. Lambert
------------------------
Sandra L. Lambert
Secretary
<PAGE>
Attachment A
Directors
Set forth below are the names of the persons serving as directors, their
ages, their offices in the Corporation, if any, their principal occupation or
employment for the past five years, the length of their tenure as directors and
the names of other public companies in which such persons hold directorships.
Information regarding their beneficial ownership of the Corporation's Common
Stock and of the common stock of its parent company, Thermo Electron Corporation
("Thermo Electron"), a provider of diversified products and services for the
biomedical, instrument and environmental markets, is reported under the caption
"Stock Ownership."
<TABLE>
<S> <C>
Morton Collins.......... Mr. Collins, 63, has been a director of the Corporation since
1991. Mr. Collins has been a general partner of DSV Partners
III, a venture capital limited partnership, since 1981 and a
general partner of DSV Management, Ltd. since 1982. Since
1985, DSV Management, Ltd. has been a general partner of DSV
Partners IV, a venture capital limited partnership. Mr.
Collins is also a director of Kopin Corporation, The Liposome
Company and Thermedics Detection Inc.
Peter O. Crisp.......... Mr. Crisp, 66, has been a director of the Corporation since
1991. Mr. Crisp was a general partner of Venrock Associates, a
venture capital investment firm, for over five years until his
retirement in September 1997. Mr. Crisp is also a director of
American Superconductor Corporation, Evans & Sutherland
Computer Corporation, NovaCare Inc., Thermedics Inc., Thermo
Electron, Thermo Power Corporation and United States Trust
Corporation.
Paul F. Ferrari......... Mr. Ferrari, 68, has been a director of the Corporation since
1990. Mr. Ferrari was a vice president of Thermo Electron from
1988 until his retirement at the end of 1990; its secretary
from 1981 to 1990; and its treasurer from 1967 to 1988. Mr.
Ferrari is also a director of General Scanning Inc. and
Thermedics Inc.
George N. Hatsopoulos... Dr. Hatsopoulos, 72, has been a director of the Corporation
since 1988. Dr. Hatsopoulos has been the chairman of the board
and chief executive officer of Thermo Electron since 1956 and
its president from 1956 until January 1997. Dr. Hatsopoulos is
also a director of Photoelectron Corporation, Thermedics Inc.,
Thermo Ecotek Corporation, Thermo Electron, Thermo Fibertek
Inc., Thermo Instrument Systems Inc., Thermo Optek Corporation
and ThermoQuest Corporation.
Robert C. Howard........ Mr. Howard, 68, has been a director of the Corporation since
1988 and was chairman of the board from 1988 to February 1996.
Mr. Howard was an executive vice president of Thermo Electron
from 1986 until his retirement in January 1997. Mr. Howard
currently serves as a consultant to Thermo Electron.
John T. Keiser.......... Mr. Keiser, 63, has been a director of the Corporation since
September 1998. He has been the chief operating officer,
biomedical and advanced technology, 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 Inc., a majority-owned
subsidiary of Thermo Electron, since March 1998 and December
1998, respectively, and was a senior vice president of
Thermedics Inc. 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 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 Inc., Thermedics
Detection Inc., Thermo Cardiosystems Inc., ThermoLase
Corporation, Thermo Sentron Inc. and Trex Medical Corporation.
</TABLE>
3
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<TABLE>
<S> <C>
Gary S. Weinstein....... Mr. Weinstein, 41, has been chairman of the board, chief
executive officer and a director of the Corporation, as well
as a vice president of Thermo Electron, since February 1996.
Mr. Weinstein was a managing director of Lehman Brothers Inc.
from 1992 until February 1996, serving from March 1995 until
leaving the firm as managing director and head of global
syndicate and equity capital markets. Mr. Weinstein joined
Lehman Brothers in 1988 and served in various positions,
including head of equities in Europe, head of equity new
issues in North and South America and head of global
convertible securities. Mr. Weinstein is also a director of
ThermoLase Corporation and Trex Medical Corporation.
Nicholas T. Zervas...... Dr. Zervas, 69, has been a director of the Corporation since
1992. Dr. Zervas has been Chief of Neurological Service at
Massachusetts General Hospital since 1977. Dr. Zervas is also
a director of Thermedics Inc., Thermo Cardiosystems Inc. and
ThermoLase 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 outside directors. The present
members of the audit committee are Mr. Morton Collins (Chairman), Mr. Peter O.
Crisp and Mr. Paul F. Ferrari. 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.
Nicholas T. Zervas (Chairman), Mr. Mortin Collins and Mr. Peter O. Crisp. The
human resources committee reviews the performance of senior members of
management, recommends executive compensation and administers the
Corporation's stock option and other stock-based compensation plans. The
Corporation does not have a nominating committee of the board of directors.
The board of directors met eleven times, the audit committee met twice and the
human resources committee met six times during fiscal 1998. Each director
attended at least 75% of all meetings of the board of directors and committees
on which he served during fiscal 1998.
Compensation of Directors
Cash Compensation
Directors who are not employees of the Corporation, of Thermo Electron or of
any other companies affiliated with Thermo Electron (also referred to as
"outside directors") receive an annual retainer of $4,000 and a fee of $1,000
per day for attending regular meetings of the board of directors and $500 per
day for participating in meetings of the board of directors held by means of
conference telephone and for participating in certain meetings of committees
of the board of directors. Payment of outside directors' fees is made
quarterly. Dr. G. Hatsopoulos, Mr. Keiser and Mr. Weinstein are both employees
of Thermo Electron and do not receive any cash compensation from the
Corporation for their services as directors. Directors are also reimbursed for
out-of-pocket expenses incurred in attending meetings.
Deferred Compensation Plan for Directors
Under the Deferred Compensation Plan for directors (the "Deferred
Compensation Plan"), a director has the right to defer receipt of his cash
fees until he ceases to serve as a director, dies or retires from his
principal occupation. In the event of a change in control or proposed change
in control of the Corporation that is not approved by the board of directors,
deferred amounts become payable immediately. Either of the following is deemed
to be a change of control: (a) the acquisition, without the prior approval of
the board of directors, directly or indirectly, by any person of 50% or more
of the outstanding Common Stock or 25% or more of the outstanding common stock
of Thermo Electron; or (b) the failure of the persons serving on the board of
directors immediately prior to any contested election of directors or any
exchange offer or tender offer for the Common Stock or the common stock of
Thermo Electron to constitute a majority of the board of directors at any time
within two years following any such event. Amounts deferred pursuant to the
Deferred Compensation Plan are valued at the end
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of each quarter as units of the Corporation's Common Stock. When payable,
amounts deferred may be disbursed solely in shares of Common Stock accumulated
under the Deferred Compensation Plan. A total of 22,500 shares of Common Stock
have been reserved for issuance under the Deferred Compensation Plan. As of
November 28, 1998, deferred units equal to 7,188.48 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 the common stock
of the Corporation and its majority-owned subsidiaries to outside directors as
additional compensation for their service as directors. Under the Directors
Plan, outside Directors are automatically granted options to purchase 1,000
shares of Common Stock annually. In addition, the Directors Plan provides for
the automatic grant every five years of options to purchase 1,500 shares of
the common stock of a majority-owned subsidiary of the Corporation that is
"spun out" to outside investors.
Prior to January 1, 1996, the Directors Plan provided for the grant of stock
options upon a director's initial appointment. Outside directors appointed
before the amendment of the Plan received an option to purchase 21,600 shares
of Common Stock upon their initial appointment or election. Options granted
prior to 1996 are currently exercisable, subject to restrictions upon transfer
and the right of the Corporation to repurchase such shares at the exercise
price in the event the director ceases to serve as a director of the
Corporation or another Thermo Electron company. Such repurchase rights lapse
ratably over a five-year period, commencing with the first anniversary of the
grant date. These options expire on the seventh anniversary of the grant date,
unless the director dies or otherwise ceases to serve as a director of the
Corporation or any other Thermo Electron company prior to that date. The grant
of options upon a director's appointment was discontinued on December 31,
1995.
Outside directors also receive an annual grant of options to purchase 1,000
shares of Common Stock at the close of business on the date of each Annual
Meeting of the Stockholders of the Corporation. Options evidencing annual
grants may be exercised at any time from and after the six-month anniversary
of the grant date of the option and prior to the expiration of the option on
the third anniversary of the grant date. Shares acquired upon exercise of the
options are subject to repurchase by the Corporation at the exercise price if
the recipient ceases to serve as a director of the Corporation or another
Thermo Electron company prior to the first anniversary of the grant date.
In addition, under the Directors Plan, outside directors are automatically
granted options to purchase 1,500 shares of common stock of each majority-
owned subsidiary that is "spun out" to outside investors. The grant occurs at
the close of business on the date of the first Annual Meeting of the
Stockholders next following the subsidiary's spinout, which is the first to
occur of either an initial public offering of the subsidiary's common stock or
a sale of such stock to third parties in an arms-length transaction. The
options granted vest and become exercisable on the fourth anniversary of the
date of grant, unless prior to such date the subsidiary's common stock is
registered under Section 12 of the Securities Exchange Act of 1934, as amended
("Section 12 Registration"). In the event that the effective date of Section
12 Registration occurs before the fourth anniversary of the grant date, the
options will become exercisable 90 days after the effective date and the
shares acquired upon exercise will be subject to restrictions on transfer and
the right of the Corporation to repurchase such shares at the exercise price
in the event the director ceases to serve as a director of the Corporation or
another Thermo Electron company. In the event of Section 12 Registration, the
restrictions and repurchase rights shall lapse or be deemed to lapse at the
rate of 25% per year, starting with the first anniversary of the grant date.
These options expire after five years. Under this provision of the Directors
Plan, the outside directors were each granted options to purchase 1,500 shares
of the common stock of Trex Communications Corporation on the date of the 1998
Annual Meeting of the Stockholders, as a consequence of the spinout of this
subsidiary in September 1997.
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
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shares are not then traded, at the last price paid per share by third parties
in an arms-length transaction prior to the option grant. As of November 28,
1998, options to purchase 120,650 shares of Common Stock had been granted, and
54,200 shares of Common Stock were outstanding under the Directors Plan, no
options had lapsed, options to purchase 66,450 shares of Common Stock had been
exercised, and options to purchase 104,350 shares of Common Stock were
reserved and available for grant.
Stock Ownership Policies for Directors
During fiscal 1996, the human resources committee of the board of directors
(the "Committee") established a stock holding policy for directors. The stock
holding policy requires each director to hold a minimum of 1,000 shares of
Common Stock. Directors were requested to achieve this ownership level within
three years of their appointment. Directors who are also executive officers of
the Corporation are required to comply with a separate stock holding policy
established by the Committee in fiscal 1996, which is described in the
Committee Report on Executive Compensation--Stock Ownership Policies.
In addition, the Committee adopted a policy requiring directors to hold a
certain number of shares of the Corporation's Common Stock acquired upon the
exercise of stock options. Under this policy, directors are required to hold
shares of Common Stock equal to one-half of their net option exercises over a
period of five years. The net option exercise is determined by calculating the
number of shares acquired upon exercise of a stock option, after deducting the
number of shares that could have been traded to exercise the option and the
number of shares that could have been surrendered to satisfy tax withholding
obligations attributable to the exercise of the option. This policy is also
applicable to executive officers and is described in the Committee Report on
Executive Compensation--Stock Ownership Policies.
STOCK OWNERSHIP
The following table sets forth the beneficial ownership of Common Stock, as
well as the common stock of Thermo Electron, and ThermoLase Corporation
("ThermoLase"), Trex Medical Corporation ("Trex Medical") and Trex
Communications Corporation ("Trex Communications"), each a majority-owned
subsidiary of the Corporation, as of November 28, 1998, with respect to (i)
each person who was known by the Corporation to own beneficially more than 5%
of the outstanding shares of Common Stock, (ii) each director and nominee for
director, (iii) each executive officer named in the summary compensation table
under the heading "Executive Compensation" and (iv) all directors and current
executive officers as a group.
While certain directors and executive officers of the Corporation are also
directors and executive officers of Thermo Electron or its subsidiaries other
than the Corporation, all such persons disclaim beneficial ownership of the
shares of Common Stock beneficially owned by Thermo Electron.
<TABLE>
<CAPTION>
Thermo Trex Thermo Electron Trex Trex
Name (1) Corporation (2) Corporation (3) ThermoLase (4) Medical (5) Comm. (6)
-------- --------------- --------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Thermo Electron
Corporation (7)........ 11,865,278 N/A N/A N/A N/A
Morton Collins.......... 27,622 0 13,504 2,164 0
Peter O. Crisp.......... 39,632 102,652 22,508 4,500 0
Paul F. Ferrari......... 29,050 16,595 22,508 3,075 5,000
George N. Hatsopoulos... 44,889 3,564,256 31,125 41,188 0
Robert C. Howard........ 42,543 158,303 0 43,174 0
John T. Keiser.......... 0 292,508 0 20,000 0
Hal Kirshner (8)........ 83,321 42,048 92,086 276,750 0
Barry M. Lyons.......... 55,000 5,000 10,000 10,000 0
Kenneth Y. Tang......... 91,662 10,430 354,318 51,706 37,500
Gary S. Weinstein....... 110,000 210,612 198,044 315,000 0
Nicholas T. Zervas...... 31,207 0 88,027 1,500 5,000
All directors and
current executive
officers as a group (13
persons)............... 568,842 4,836,529 942,037 782,057 47,500
</TABLE>
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(1) Except as reflected in the footnotes to this table, shares of Common Stock
of the Corporation and of the common stock of Thermo Electron, ThermoLase,
Trex Medical and Trex Communications 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 each director and named
executive officer and by all directors and current executive officers as a
group exclude 11,865,278 shares beneficially owned by Thermo Electron.
Shares of the Common Stock beneficially owned by Mr. Collins, Mr. Crisp,
Mr. Ferrari, Dr. Hatsopoulos, Mr. Howard, Mr. Kirshner, Mr. Lyons, Dr.
Tang, Mr. Weinstein, Dr. Zervas and all directors and current executive
officers as a group include 6,750, 7,600, 7,450, 30,000, 28,000, 73,000,
55,000, 75,000, 100,000, 28,200 and 421,000 shares, respectively, that
such person or group has the right to acquire within 60 days of November
28, 1998, through the exercise of stock options. Shares beneficially owned
by Mr. Collins, Mr. Crisp, Dr. Zervas and all directors and current
executive officers as a group include 1,273, 2,908, 3,007 and 7,188 full
shares, respectively, that had been allocated through November 28, 1998,
to their respective accounts maintained under the Corporation's Deferred
Compensation Plan for Directors. Shares beneficially owned by Dr.
Hatsopoulos include 160 shares held by Dr. Hatsopoulos' spouse. Shares
beneficially owned by Dr. Tang include 2,025 shares held by Dr. Tang's
daughter. As of November 28, 1998, no director or current executive
officer beneficially owned more than 1.0% of the Common Stock outstanding
as of November 28, 1998, all directors and current executive officers as a
group beneficially owned 3.04% of the Common Stock outstanding as of such
date.
(3) Shares of the common stock of Thermo Electron beneficially owned by Mr.
Crisp, Dr. Hatsopoulos, Mr. Howard, Mr. Keiser, Mr. Kirshner, Mr. Lyons,
Dr. Tang, Mr. Weinstein and all directors and current executive officers
as a group include 9,125, 1,849,500, 14,287, 251,622, 39,550, 5,000,
9,000, 210,275 and 2,761,131 shares, respectively, that such person or
group has the right to acquire within 60 days of November 28, 1998,
through the exercise of stock options. Shares beneficially owned by Dr.
Hatsopoulos and all directors and current executive officers as a group
include 2,266 and 4,763 full shares, respectively, allocated to their
respective accounts maintained pursuant to Thermo Electron's employee
stock ownership plan, of which the trustees, who have investment power
over its assets were, as of November 28, 1998, executive officers of
Thermo Electron. Shares beneficially owned by Mr. Crisp and all directors
and current executive officers as a group include 46,663 full shares,
allocated through November 28, 1998, to Mr. Crisp's account maintained
pursuant to Thermo Electron's deferred compensation plan for directors.
Shares beneficially owned by Mr. Ferrari include 10,062 shares held in a
trust for the benefit of Mr. Ferrari's spouse. Shares beneficially owned
by Dr. Hatsopoulos include 158,351 shares held by Dr. Hatsopoulos' spouse,
408,664 shares held by a family trust of which Dr. G. Hatsopoulos' spouse
is trustee, 500,000 shares held by a trust of which Dr. Hatsopoulos is the
trustee; and 153 shares allocated to the account of Dr. Hatsopoulos'
spouse maintained pursuant to Thermo Electron's employee stock ownership
plan. Shares beneficially owned by Dr. Hatsopoulos also include 50,000
shares that a family trust, of which Dr. Hatsopoulos' spouse is the
trustee, has the right to acquire within 60 days of November 28, 1998
through the exercise of stock options. As of November 28, 1998, no
director or current executive officer beneficially owned more than 1% of
the outstanding Thermo Electron common stock, other than Dr. Hatsopoulos,
who beneficially owned 2.22% of such common stock; all directors and
current executive officers as a group beneficially owned approximately
3.02% of the Thermo Electron common stock outstanding as of November 28,
1998.
(4) Shares of the common stock of ThermoLase beneficially owned by Mr.
Collins, Mr. Crisp, Mr. Ferrari, Dr. Hatsopoulos, Mr. Kirshner, Mr. Lyons,
Dr. Tang, Mr. Weinstein, Dr. Zervas and all directors and current
executive officers as a group include 13,504, 22,508, 22,508, 28,800,
66,400, 10,000, 304,000, 130,000, 67,068 and 768,188 shares, respectively,
that such person or group has the right to acquire within 60 days of
November 28, 1998, through the exercise of stock options. Shares
beneficially owned by Dr. Zervas and all directors and current executive
officers as a group include 1,803 full shares, allocated through November
28, 1998, to Dr. Zervas's account maintained pursuant to ThermoLase's
deferred compensation plan for directors. Shares beneficially owned by Dr.
Hatsopoulos include 32 shares held by his spouse. Shares beneficially
owned by Dr. Tang include 3,878 shares held by Dr. Tang's daughter. As of
November 28, 1998, no director or current executive officer beneficially
owned more than 1% of the
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common stock outstanding of ThermoLase; all directors and current executive
officers as a group beneficially owned approximately 2.39% of the
ThermoLase common stock outstanding as of such date.
(5) Shares of the common stock of Trex Medical beneficially owned by Mr.
Collins, Mr. Crisp, Mr. Ferrari, Dr. Hatsopoulos, Mr. Howard, Mr. Keiser,
Mr. Kirshner, Mr. Lyons, Dr. Tang, Mr. Weinstein, Dr. Zervas and all
directors and current executive officers as a group include 1,500, 1,500,
1,500, 40,000, 40,000, 20,000, 158,250, 10,000, 40,000, 300,000, 1,500 and
624,250 shares, respectively, that such person or group has the right to
acquire within 60 days of November 28, 1998, through the exercise of stock
options. Shares beneficially owned by Dr. Hatsopoulos include 16 shares
held by his spouse. As of November 28, 1998, no director or current
executive officer beneficially owned more than 1% of the outstanding
common stock of Trex Medical, all directors and current executive officers
as a group beneficially owned 2.37% of such outstanding common stock as of
such date.
(6) As of November 28, 1998, no director or current executive officer owned
more than 1% of the outstanding common stock of Trex Communications; all
directors and current executive officers as a group beneficially owned
less than 1% of the Trex Communications common stock outstanding of such
date.
(7) Thermo Electron beneficially owned 62.34% of the Common Stock as of
November 28, 1998. Shares beneficially owned by Thermo Electron include
370,370 shares issuable upon conversion of a 3 1/4% convertible debenture
due in 2007. Thermo Electron's address is 81 Wyman Street, Waltham,
Massachusetts 02454-9046. As of November 28, 1998, Thermo Electron had the
power to elect all of the members of the Corporation's board of directors.
(8) As of November 28, 1998, Mr. Kirshner beneficially owned 11,678 redemption
rights issued by ThermoLase. Each of these rights, issued as part of an
exchange offer in April 1997, permits the holder to sell one share of
ThermoLase common stock back to ThermoLase during the period of April 3,
2001 through April 30, 2001 at a price of $20.25 per share. Mr. Kirshner
resigned as president and chief executive officer of Trex Medical
Corporation effective December 13, 1998. He continues to serve as a
director and consultant to Trex Medical. See Executive Compensation--
Severance Agreement.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors and executive officers, and beneficial owners of more
than 10% of the Common Stock, such as Thermo Electron, to file with the
Securities and Exchange Commission initial reports of ownership and periodic
reports of changes in ownership of the Corporation's securities. Based upon a
review of such filings, all Section 16(a) filing requirements applicable to
such persons were complied with during fiscal 1997, except in the following
instances. Mr. Collins filed two transactions late, consisting of the exempt
acquisition of stock units to his account pursuant to the Corporation's
deferred compensation plan for Directors. Mr. Ferrari filed a Form 4 late,
reporting one sale of shares of Common Stock. Thermo Electron filed six Forms
4 late, reporting a total of 43 transactions, including 15 open market
purchases of shares of Common Stock and 28 transactions associated with the
grant, exercise and lapse of options to purchase Common Stock granted to
employees under its stock option program.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes compensation for services to the Corporation
in all capacities awarded to, earned by or paid to the Corporation's chief
executive officer, and its four other most highly compensated executive
officers as well as one other executive who would have been among the four
most highly compensated executive officers except for the fact that he was not
serving as an executive officer at fiscal year-end (the "named executive
officers") for the last three fiscal years. The Corporation has a fiscal year
that is the 52- or 53- week period ending on the Saturday nearest September
30.
The Corporation is required to appoint certain executive officers and full-
time employees of Thermo Electron as executive officers of the Corporation, in
accordance with the Thermo Electron Corporate Charter. The compensation for
these executive officers is determined and paid entirely by Thermo Electron.
The time and
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effort devoted by these individuals to the Corporation's affairs is provided
to the Corporation under the Corporate Services Agreement between the
Corporation and Thermo Electron. Accordingly, the compensation for these
individuals is not reported in the following table.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation (1) Securities Underlying
Name and Fiscal ----------------------- Options (No. of Shares All Other
Principal Position Year Salary Bonus (2) and Company) (3) Compensation (4)
------------------ ------ ----------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gary S. Weinstein (5)... 1998 $ 137,375 n/a 42,000 (TRCC) $ 24,146(6)
Chief Executive Officer 1997 $ 117,604 $ 150,000 30,000 (TLZ) $163,329(6)
1996 $ 72,916 $ 150,000 100,000 (TKN) $ 4,736(7)
100,000 (TLZ)
300,000 (TXM)
Kenneth Y. Tang......... 1998 $ 172,750 n/a 20,000 (TKN) $ 7,200
Senior Vice President 20,000 (TRCC)
1997 $ 164,000 $ 53,000 -- -- $ 7,125
1996 $ 156,500 $ 50,000 40,000 (TXM) $ 6,975
Barry M. Lyons (8)...... 1998 $ 54,167 n/a 15,000 (TKN) $ 0
Vice President, Finance 5,000 (TMO)
10,000 (TLZ)
10,000 (TRCC)
10,000 (TXM)
Hal Kirshner (9)........ 1998 $ 218,750 $100,000 7,600 (TMO) $ 5,625
Former President and 2,000 (MKA)
Cheif Executive
Officer, 2,000 (ONX)
Trex Medical
Corporation 20,000 (RGI)
2,000 (TDX)
1,000 (TISI)
30,000 (TLZ)
2,000 (TRIL)
1,500 (VIZ)
2,000 (TRCC)
8,250 (TXM)
1997 $ 197,500 $ 200,000 300 (TMO) $ 5,344
1996 $ 192,500 $ 200,000 150,000 (TXM) $ 9,958(10)
150 (TMO)
2,000 (TBA)
2,000 (TFG)
2,000 (TLT)
6,000 (TOC)
6,000 (TMQ)
2,000 (TSR)
</TABLE>
- --------
(1) Annual compensation for executive officers is reviewed and determined on a
calendar-year basis, even though the Corporation's fiscal year ends in
September.
(2) The bonus amount represents the bonus paid for performance during the
calendar year in which the Corporation's fiscal year-end occurred. As of
the date hereof, bonuses have not yet been determined for calendar 1998.
The Committee expects to determine bonuses in March 1999, when the audited
financial statements of the Corporation's parent company will be
available.
9
<PAGE>
(3) In addition to receiving options to purchase Common Stock of the
Corporation (designated in the table as TKN) and its subsidiaries,
ThermoLase (designated in the table as TLZ), Trex Medical (designated in
the table as TXM) and Trex Communications Corporation (designated in the
table as TRCC), the named executive officers have been granted options to
purchase common stock of Thermo Electron and certain of its other
subsidiaries from time to time by Thermo Electron or such other
subsidiaries as part of Thermo Electron's stock option program in their
capacities as officers of the Corporation. Options have been granted
during the period covered by the table to the named executive officers in
the following Thermo Electron companies: Thermo Electron (designated in
the table as TMO), 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 Detection
Inc. (designated in the table as TDX), 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) and Thermo Vision Corporation (designated in the
table as VIZ). Mr. Weinstein has been granted certain options to purchase
common stock of Thermo Electron and certain of its subsidiaries, other
than the Corporation and its subsidiaries, from time to time as
compensation for service to other Thermo Electron companies in capacities
other than in his capacity as the chief executive officer of the
Corporation. These options are not reported in the table.
(4) Represents the amount of matching contributions made by the individual's
employer on behalf of executive officers participating in the Thermo
Electron 401(k) plan.
(5) Mr. Weinstein was appointed the Corporation's chief executive officer
effective as of February 26, 1996. He was also appointed a vice president
of Thermo Electron effective as of February 26, 1996, and a portion of his
annual cash compensation (salary and bonus) has been allocated to and paid
by Thermo Electron since the commencement of his employment for the time
he devoted to his responsibilities in that capacity. The annual cash
compensation (salary and bonus) reported in the table for Mr. Weinstein
represents the amount paid by the Corporation for Mr. Weinstein's services
as its chief executive officer. For each of fiscal 1997 and 1996,
approximately 50% of Mr. Weinstein's aggregate salary and bonus earned in
all capacities throughout the Thermo Electron organization was paid by the
Corporation for his services as chief executive officer.
(6) In addition to a $5,344 and $7,200 matching contribution referred to in
footnote (4) in fiscal 1997 and 1998, respectively, this amount includes
$18,533 for fiscal 1997 and $16,946 for fiscal 1998 attributable to an
interest-free loan provided to Mr. Weinstein pursuant to the Corporation's
Stock Holding Assistance Plan (see "Relationship with Affiliates--Stock
Holding Assistance Plan"). Fiscal 1997 also includes the reimbursement by
the Corporation of $96,407 in expenses associated with Mr. Weinstein's
relocation to Waltham, Massachusetts, and an additional $43,045 paid by
the Corporation to Mr. Weinstein as an adjustment to such reimbursement to
account for taxes.
(7) Represents the amount attributable during fiscal 1996 to an interest-free
loan provided to Mr. Weinstein pursuant to the Corporation's Stock Holding
Assistance Plan. See "Relationship with Affiliates--Stock Holding
Assistance Plan."
(8) Mr. Lyons was appointed a vice president of the Corporation on April 21,
1998. The salary reported for fiscal 1998 represents the amount paid for
the fiscal year from the commencement of his employment through October 3,
1998.
(9) Mr. Kirshner was first appointed an executive officer of the Corporation
in November 1992 in connection with the acquisition of LORAD Corporation
by the Corporation. Mr. Kirshner ceased to be an executive officer of the
Corporation upon his resignation as president and chief executive officer
of Trex Medical Corporation on December 13, 1998. See Executive
Compensation--Severance Agreement.
(10) In addition to a $5,344 matching contribution referred to in footnote
(4), this amount includes $4,614, representing the then market value of
115 shares of Thermo Electron common stock received by Mr. Kirshner in
May 1996 at Thermo Electron's Annual Management Conference in recognition
of his managerial achievements.
10
<PAGE>
Stock Options Granted During Fiscal 1998
The following table sets forth information concerning individual grants of
stock options by the Corporation and other Thermo Electron companies made
during fiscal 1998 to the Corporation's chief executive officer and the other
named executive officers in their capacities as executive officers of the
Corporation. It has not been the Corporation's policy in the past to grant
stock appreciation rights, and no such rights were granted during fiscal 1998.
Mr. Weinstein has been granted options to purchase common stock of Thermo
Electron and certain of its subsidiaries from time to time as compensation for
service to other Thermo Electron companies in capacities other than in his
capacity as the chief executive officer of the Corporation. Accordingly,
options granted by Thermo Electron companies other than the Corporation and
its subsidiaries have not been reported here.
Options Grants in Fiscal 1998
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Percent of Annual Rates of Stock
Total Options Price Appreciation for
Number of Securities Granted to Exercise Option Term (2)
Underlying Options Employees in Price Per Expiration -----------------------
Name Granted (1) (A) Fiscal Year Share Date 5% 10%
---- -------------------- ------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary S. Weinstein....... 2,000 (TRCC) 2.23% $ 4.00 01/21/05 $ 3,260 $ 7,580
40,000 (TRCC) 44.69% $ 4.00 10/01/09 $ 127,200 $ 342,000
Kenneth Y. Tang......... 20,000 (TKN) 8.40% $19.88 05/28/05 $ 161,800 $ 377,200
20,000 (TRCC) 22.35% $ 4.00 10/01/09 $ 63,600 $ 171,000
Barry M. Lyons.......... 15,000 (TKN) 6.30% $20.43 04/21/05 $ 124,800 $ 290,700
5,000 (TMO) 0.25%(3) $22.46 08/11/05 $ 45,700 $ 106,550
10,000 (TLZ) 1.16% $ 5.73 04/21/05 $ 23,300 $ 54,400
10,000 (TRCC) 11.17% $ 4.00 04/21/08 $ 25,200 $ 63,700
10,000 (TXM) 2.28% $17.19 04/21/05 $ 70,000 $ 163,100
Hal Kirshner............ 400 (TMO) 0.02%(3) $34.50 06/02/03 $ 3,812 $ 8,424
7,200 (TMO) 0.36%(3) $16.20 09/23/03 $ 32,256 $ 71,208
2,000 (MKA) 0.88%(3) $14.23 01/21/05 $ 11,580 $ 27,000
2,000 (ONX) 0.23%(3) $14.25 01/21/05 $ 11,600 $ 27,040
20,000 (RGI) 0.23%(3) $ 0.80 01/21/05 $ 6,600 $ 15,200
2,000 (TDX) 0.21%(3) $ 9.56 01/21/05 $ 7,780 $ 18,140
1,000 (TISI) 1.62%(3) $10.00 01/21/05 $ 4,070 $ 9,490
30,000 (TLZ) 3.49% $ 7.69 03/05/03 $ 63,600 $ 140,700
2,000 (TRIL) 1.43%(3) $ 8.25 01/21/05 $ 6,720 $ 15,660
1,500 (VIZ) 0.35%(3) $ 7.25 01/21/05 $ 4,425 $ 10,320
2,000 (TRCC) 2.23% $ 4.00 01/21/05 $ 3,260 $ 7,580
8,250 (TXM) 1.88% $14.20 12/12/04 $ 47,685 $ 111,128
</TABLE>
- --------
(1) As part of Thermo Electron's stock option program, options have been
granted during fiscal 1998 to the named executive officers to purchase the
common stock of the Corporation (designated in the table as TKN), Thermo
Electron (TMO), ThermoLase Corporation (TLZ), Trex Communications (TRCC),
Trex Medical Corporation (TXM), Metrika Systems Corporation (MKA), ONIX
Systems Inc. (ONX), The Randers Group Incorporated (RGI), Thermedics
Detection Inc. (TDX), Thermo Information Solutions Inc. (TISI), Thermo
Trilogy Corporation (TRIL) and Thermo Vision Corporation (VIZ). All of the
options granted during the fiscal year are immediately exercisable, except
options to purchase the common stock of Trex Communications, Thermo
Information Solutions Inc. and Thermo Trilogy Corporation, which are not
exercisable until the earlier of (i) 90 days after the effective date of
the registration of that company's common stock under Section 12 of the
Securities Exchange Act of 1934 (the "Exchange Act") and
11
<PAGE>
(ii) nine years after the grant date. In all cases, the shares acquired
upon exercise are subject to repurchase by the granting corporation at the
exercise price if the optionee ceases to be employed by the Corporation or
another Thermo Electron company. The granting corporation may exercise its
repurchase rights within six months after the termination of the optionee's
employment. For publicly traded companies, the repurchase rights generally
lapse ratably over a one- to five-year period, depending on the option
term, which may vary from five to seven years, provided that the optionee
continues to be employed by the Corporation or another Thermo Electron
company. For companies that are not publicly traded, the repurchase rights
lapse in their entirety on the ninth anniversary of the grant date. Certain
options granted as part of Thermo Electron's stock option program have
three-year terms, and the repurchase rights lapse in their entirety on the
second anniversary of the grant date. The granting corporation may permit
the holders of such options to exercise options and to satisfy tax
withholding obligations by surrendering shares equal in fair market value
to the exercise price or withholding obligation.
(2) The amounts shown 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 corporation, the optionee's continued employment through the
option period and the date on which the options are exercised.
(3) These options were granted under stock option plans maintained by Thermo
Electron and, accordingly, are reported as a percentage of total options
granted to employees of Thermo Electron and its subsidiaries.
Stock Options Exercised During Fiscal 1998 and Fiscal Year-End Values
The following table reports certain information regarding stock option
exercises during fiscal 1998 and outstanding stock options to purchase shares
of Thermo Electron companies held at the end of fiscal 1998 by the
Corporation's chief executive officer and the other named executive officers.
No stock appreciation rights were exercised or were outstanding during fiscal
1998.
12
<PAGE>
Aggregated Options Exercises In Fiscal 1998 And Fiscal 1998 Year-End Options
Values
<TABLE>
<CAPTION>
Number of
Unexercised
Options at
Fiscal
Shares Year-End Value of
Acquired Value (Exercisable/ Unexercised
on Realized Unexercisable) In-the-Money
Name Company Exercise (1) (2) Option
---- ---------------------------- -------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Gary S. Weinstein (3)... ThermoTrex -- -- 100,000 /0 $ 0 /--
ThermoLase -- -- 130,000 /0 $ 0 /--
Trex Communications -- -- 0 /42,000 $ -- /0 (5)
Trex Medical -- -- 300,000 /0 $ 0 /--
Kenneth Y. Tang......... ThermoTrex 48,318 $896,299 35,000 /0 $ 0 /--
Thermo Electron 1,350 $31,668 9,000 /0 $ 0 /--
ThermoLase -- -- 304,000 /0 $1,018,000 /--
Trex Communications -- -- 0 /20,000 -- /$0 (5)
Trex Medical -- -- 40,000 /0 $ 0 /--
Barry M. Lyons.......... ThermoTrex -- -- 15,000 /0 $ 0 /--
Thermo Electron -- -- 5,000 /0 $ 0 /--
ThermoLase -- -- 10,000 /0 $ 0 /--
Trex Communications -- -- 0 /10,000 -- /$0 (5)
Trex Medical -- -- 10,000 /0 $ 0 /--
Hal Kirshner............ ThermoTrex -- -- 73,000 /0 $ 114,393 /--
Thermo Electron 84,375 $2,366,550 39,550 /0 (4) $ 0 /--
Metrika Systems -- -- 2,000 /0 $ 0 /--
Onix Systems -- -- 2,000 /0 $ 0 /--
Randers Group -- -- 20,000 /0 $ 0 /--
Thermedics Detection -- -- 2,000 /0 $ 0 /--
Thermo BioAnalysis -- -- 2,000 /0 $ 1,250 /--
Thermo Fibergen -- -- 2,000 /0 $ 0 /--
Thermo Information Solutions -- -- 0 /1,000 -- /0 (5)
ThermoLase -- -- 66,400 /0 $ 131,950 /--
ThermoLyte -- -- 0 /2,000 -- /$0 (5)
Thermo Optek -- -- 6,000 /0 $ 0 /--
Thermo Quest -- -- 6,000 /0 $ 0 /--
Thermo Sentron -- -- 2,000 /0 -- /$0 (5)
Thermo Trilogy -- -- 0 /2,000 -- /$0 (5)
Thermo Vision -- -- 1,500 /0 $ 0 /--
Trex Communications -- -- 0 /2,000 -- /$0 (5)
Trex Medical -- -- 158,250 /0 $ 0 /--
</TABLE>
- --------
(1) Amounts shown in this column do not necessarily represent actual value
realized from the sale of the shares acquired upon exercise of the option
because in many cases the shares are not sold on exercise but continue to
be held by the executive officer exercising the option. The amounts shown
represent the difference between the option exercise price and the market
price on the date of exercise, which is the amount that would have been
realized if the shares had been sold immediately upon exercise.
(2) All of the options reported outstanding at the end of the fiscal year are
immediately exercisable as of fiscal year-end, except options to purchase
the common stock of ThermoLyte Corporation, Trex Communications
13
<PAGE>
Corporation, Thermo Information Solutions Inc. and Thermo Trilogy
Corporation which are not exercisable until the earlier of (i) 90 days
after the effective date of the registration of that company's common stock
under Section 12 of the Exchange Act and (ii) nine years after the grant
date. In all cases, the shares acquired upon exercise of the options
reported in the table are subject to repurchase by the granting corporation
at the exercise price if the optionee ceases to be employed by such
corporation or another Thermo Electron company. The granting corporation
may exercise its repurchase rights within six months after the termination
of the optionee's employment. For publicly traded companies, the repurchase
rights generally lapse ratably over a two- to ten-year period, depending on
the option term, which may vary from three to twelve years, provided that
the optionee continues to be employed by the Corporation or another Thermo
Electron company. For companies that are not publicly traded, the
repurchase rights lapse in their entirety on the ninth anniversary of the
grant date. As to the options to purchase shares of the common stock of
Trex Medical granted to Dr. Tang, the repurchase rights are deemed to lapse
20% per year commencing on the sixth anniversary of the grant date. As to
options to purchase 150,000 shares of the common stock of Trex Medical
Corporation granted to Mr. Kirshner, the repurchase rights are deemed to
lapse 10% per year on each of the first two anniversaries of the grant date
and 20% per year commencing on the seventh anniversary of the grant date.
Certain options granted as part of Thermo Electron's stock option program
have three-year terms, and the repurchase rights lapse in their entirety on
the second anniversary of the grant date.
(3) As an officer of Thermo Electron, Mr. Weinstein also holds unexercised
options to purchase common stock of Thermo Electron and its subsidiaries
other than the Corporation. These options are not reported in the table as
they were granted as compensation for service to other Thermo Electron
companies in capacities other than in his capacity as the chief executive
officer of the Corporation.
(4) Options to purchase 22,500 shares of the common stock of Thermo Electron
granted to Mr. Kirshner are subject to the same terms described in
footnote (2), except that the repurchase rights of the granting
corporation generally do not lapse until the tenth anniversary of the
grant date. In the event of the employee's death or involuntary
termination prior to the tenth anniversary of the grant date, the
repurchase rights of the granting corporation shall be deemed to 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 as of October 3, 1998.
Accordingly, no value in excess of the 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 the Corporation that provide severance benefits if there
is a change in control of Thermo Electron and their employment is terminated
for any reason, other than for cause, within 18 months thereafter. For
purposes of these agreements, a change in control exists upon (i) the
acquisition by any person of 40% or more of the outstanding common stock or
voting securities of Thermo Electron; (ii) the failure of the Thermo Electron
board of directors to be constituted of a majority of directors who are
"continuing directors", which term is defined to include directors who were
members of Thermo Electron's board on the date of the agreement or who
subsequent to the date of the agreement were nominated or elected by a
majority of directors who were "continuing directors" at the time of such
nomination or election; (iii) the consummation of a merger, consolidation,
reorganization, recapitalization or statutory share exchange involving Thermo
Electron or the sale or other disposition of all or substantially all of the
assets of Thermo Electron unless immediately after such transaction (a) all
holders of Thermo Electron common stock immediately prior to such transaction
own more than 60% of the outstanding voting securities of the resulting or
acquiring corporation in substantially the same proportions as their ownership
immediately prior to such transactions 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, Thermo authorized an executive retention agreement with Gary S.
Weinstein. This agreement provides that in the event the individual's
employment is terminated within 18 months after a change in control,
14
<PAGE>
the individual would be entitled to a lump sum payment equal to the sum of one
times, the individual's highest annual base salary in any 12 month period
during the prior five year period, plus one times the individual's highest
annual bonus in the 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. The individual would also be entitled to all other
compensation due to the individual from the Corporation through the date of
termination. Further, all options that the individual holds in Thermo Electron
and its subsidiaries, including the Corporation, would become fully vested as
of the date of the change in control. Finally, the individual would be
entitled to a cash payment equal to $15,000, to be used toward outplacement
services. this executive retention agreement supercedes and replaces any and
all prior severance arrangements which this individual has with Thermo
Electron.
Assuming that the severance benefits would have been payable as of January
1, 1999, the lump sum salary and bonus payment under such agreement to Mr.
Weinstein, would have been approximately $585,000. In the event that payments
under this agreement are deemed to be so called "excess parachute payments"
under the applicable provisions of the Internal Revenue Code of 1986, as
amended, the individual would be entitled to receive a gross-up payment equal
to the amount of any excise tax payable by such individual with respect to
such payment plus the amount of all other additional taxes imposed on such
individual attributable to the receipt of such gross-up payment.
Severance Agreement
Mr. Hal Kirshner resigned as president and chief executive officer of the
Corporation effective as of December 13, 1998 and his employment with the
Corporation was terminated effective December 31, 1998 (the "Employment
Termination Date"). In connection with his resignation, the Corporation
entered into an agreement with Mr. Kirshner providing that in addition to
receiving his regular salary through the Employment Termination Date, Mr.
Kirshner will be paid a bonus for the 1998 calendar year in an amount equal to
$100,000. The agreement also provides for an ongoing consulting relationship
between Mr. Kirshner and the Corporation for the two year period from January
1, 1999 to December 31, 2000. For his consulting services, Mr. Kirshner would
be paid a fee at a rate of $225,000 per year, payable monthly in arrears. Mr.
Kirshner will continue to serve as a director of the Corporation.
15
<PAGE>
RELATIONSHIP WITH AFFILIATES
Thermo Electron has adopted a strategy of selling a minority interest in
subsidiary companies to outside investors as an important tool in its future
development. As part of this strategy, Thermo Electron and certain of its
subsidiaries have created several privately and publicly held majority-owned
subsidiaries. The Corporation has created ThermoLase Corporation
("ThermoLase") and Trex Medical Corporation ("Trex Medical") as publicly held,
majority-owned subsidiaries. From time to time, Thermo Electron and its
subsidiaries may create other majority-owned subsidiaries as part of its
spinout strategy. (The Corporation and the other Thermo Electron subsidiaries
are hereinafter referred to as the "Thermo Subsidiaries.")
Thermo Electron and each of the Thermo Subsidiaries recognize that the
benefits and support that derive from their affiliation are essential elements
of their individual performance. Accordingly, Thermo Electron and each of the
Thermo Subsidiaries, 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 each of the Thermo
Subsidiaries.
The Charter presently provides that it shall continue in effect so long as
Thermo Electron and at least one Thermo Subsidiary participate. The Charter
may be amended at any time by agreement of the participants. Any Thermo
Subsidiary, including the Corporation, can withdraw from participation in the
Charter upon 30 days' prior notice. In addition, Thermo Electron may terminate
a subsidiary's participation in the Charter in the event the subsidiary ceases
to be controlled by Thermo Electron or ceases to comply with the Charter or
the policies and procedures applicable to the Thermo Group. A withdrawal from
the Charter automatically terminates the corporate services agreement and tax
allocation agreement (if any) in effect between the withdrawing company and
Thermo Electron. The withdrawal from participation does not terminate
outstanding commitments to third parties made by the withdrawing company, or
by Thermo Electron or other members of the Thermo Group, prior to the
withdrawal. In addition, a withdrawing company is required to continue to
comply with all policies and procedures applicable to the Thermo Group and to
provide certain administrative functions mandated by Thermo Electron so long
as the withdrawing company is controlled by or affiliated with Thermo
Electron.
Corporate Services Agreement
As provided in the Charter, the Corporation and Thermo Electron have entered
into a Corporate Services Agreement (the "Services Agreement") under which
Thermo Electron's corporate staff provides certain administrative services,
including certain legal advice and services, risk management, certain employee
benefit administration, tax advice and preparation of tax returns, centralized
cash management and certain financial and other services to the Corporation.
The Corporation was assessed an annual fee equal to 1% of the Corporation's
total revenues for these services in calendar 1997 and 0.8% of the
Corporation's total revenues in calendar 1998. The annual fee will be 0.8% of
the Corporation's total revenues in calendar 1999. The fee is reviewed
annually and may be changed by mutual agreement of the Corporation and Thermo
Electron. During fiscal 1998, Thermo Electron assessed the Corporation
$2,906,000 in fees under the Services Agreement. Management believes that
16
<PAGE>
the charges under the Services Agreement are reasonable and that such fees are
representative of the expense the Corporation would have incurred on a stand-
alone basis. For additional items such as employee benefit plans, insurance
coverage and other identifiable costs, Thermo Electron charges the Corporation
based on costs attributable to the Corporation. The Services Agreement
automatically renews for successive one-year terms, unless canceled by the
Corporation upon 30 days' prior notice. In addition, the Services Agreement
terminates automatically in the event the Corporation ceases to be a member of
the Thermo Group or ceases to be a participant in the Charter. In the event of
a termination of the Services Agreement, the Corporation will be required to
pay a termination fee equal to the fee that was paid by the Corporation for
services under the Services Agreement for the nine-month period prior to
termination. Following termination, Thermo Electron may provide certain
administrative services on an as-requested basis by the Corporation or as
required in order to meet the Corporation's obligations under Thermo
Electron's policies and procedures. Thermo Electron will charge the
Corporation a fee equal to the market rate for comparable services if such
services are provided to the Corporation following termination.
Miscellaneous
From time to time, the Corporation may transact business with other
companies in the Thermo Group. In fiscal 1998, such transactions included the
following:
Trex Medical has an arrangement with the Tecomet division of Thermo Electron
for the manufacture of the Trex Medical 's proprietary HTC grid. Under this
arrangement Tecomet manufactures the grid for Trex Medical pursuant to written
purchase orders. Trex Medical owns the intellectual property rights to the
grid. During fiscal 1998, Trex Medical purchased grids for an aggregate
purchase price of $486,000 under this arrangement. During fiscal 1998, Trex
Medical purchased additional grids from Tecomet for $311,000, under other
arrangements.
Under an arrangement with Thermedics Detection Inc., a majority-owned
subsidiary of Thermedics Inc., a majority-owned subsidiary of Thermo Electron,
Trex Medical manufactures an X-ray source that is used as a component in a
fill-measuring device produced by Thermedics Detection. Trex Medical
manufactures these X-ray sources for Thermedics Detection pursuant to written
purchase orders. During fiscal 1998, Thermedics Detection purchased X-ray
source units from Trex Medical for an aggregate purchase price of $406,000
under this arrangement.
During fiscal 1998, ThermoLase purchased products totaling $241,000 from
Bird Products Corporation, a wholly owned subsidiary of Thermo Electron.
As of October 3, 1998, the Corporation owed Thermo Electron $10,000,000
principal amount pursuant to 3 1/4% Convertible Subordinated Debentures due
2007, convertible into shares of the Corporation's common stock at $27.00 per
share.
As of October 3, 1998, ThermoLase owed Thermo Electron $4,500,000 principal
amount pursuant to 4 3/8% Convertible Subordinated Debentures due 2004,
convertible into shares of Thermolase common stock at $17.385 per share.
The Corporation, along with certain other Thermo Subsidiaries, participates
in a notional pool arrangement with Barclays Bank, which includes a $150
million credit facility. Only UK-based Thermo Subsidiaries participate in this
arrangement. Under this arrangement the Bank notionally combines the positive
and negative cash balances held by the participants to calculate the net
interest yield/expense for the group. The benefit derived from this
arrangement is then allocated based on balances attributable to the respective
participants. Thermo Electron guarantees all of the obligations of each
participant in this arrangement. In addition, funds on deposit under this
arrangement provide credit support for overdraft obligations of other
participants. As of October 3, 1998, the Corporation had a negative cash
balance of approximately $80,000, based on an exchange rate of
$1.70/(Pounds)1.00 as of October 3, 1998. For 1998, the average interest rate
earned on GBP deposits by participants in this credit arrangement was
approximately 7.56% and the average annual interest rate paid on overdrafts
was approximately 7.79%.
17
<PAGE>
As of October 3, 1998, the Corporation owed Thermo Electron and its other
subsidiaries an aggregate of $5,252,000 for amounts due under the Corporate
Services Agreement and related administrative charges, for other products and
services, and for miscellaneous items excluding loans described above, net of
amounts owed to the Corporation by Thermo Electron and its other subsidiaries
for products and services and miscellaneous items. The largest amount of net
indebtedness owed by the Corporation to Thermo Electron and its other
subsidiaries since September 27, 1997 was $12,927,000. These amounts do not
bear interest (other than an $11,000,000 loan which bore interest at a rate
equal to the 90-day Commercial Paper Corporate Rate plus 25 basis points) and
are expected to be paid in the normal course of business.
As of October 3, 1998, $146,534,000 of the Corporation's cash equivalents
were invested in a repurchase agreement with Thermo Electron. Under this
agreement, the Corporation in effect lends excess cash to Thermo Electron,
which Thermo Electron collateralizes with investments principally consisting
of corporate notes, U.S. government agency securities, money market funds,
commercial paper and other marketable securities, in the amount of at least
103% of such obligation. The Corporation's funds subject to the repurchase
agreement are readily convertible into cash by the Corporation. 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.
Stock Holding Assistance Plan
In 1996, the Corporation adopted a stock holding policy which requires its
executive officers to acquire and hold a minimum number of shares of Common
Stock. In order to assist the executive officers in complying with the policy,
the Corporation also adopted a Stock Holding Assistance Plan under which it
may make interest-free loans to certain key employees, including its executive
officers, to enable such employees to purchase the Common Stock in the open
market. During 1996, Mr. Weinstein received a loan in the principal amount of
$375,003.85 under this plan to purchase 10,000 shares. The loan to Mr.
Weinstein is to be repaid upon the earlier of demand or the fifth anniversary
of the date of the loan, unless otherwise authorized by the human resources
committee of the board of directors of the Corporation. As of the date hereof,
$300,003.08 of the loan remained outstanding.
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