<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 1-13104
THERMOLASE CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 06-1360302
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2055-C Luna Road
Carrolton, Texas 75006
(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
Units (each unit consisting of one American Stock Exchange
share of common stock and on redemption right)
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 $47,302,000.
As of October 3, 1998, the Registrant had 39,319,296 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.
THERMOLASE 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,
ThermoTrex Corporation ("ThermoTrex"), a provider of medical products,
personal-care products and services, and advanced technology research, and
ThermoTrex's 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>
Carliss Y. Baldwin...... Dr. Baldwin, 48, has been a director of the Corporation since
June 1994. Dr. Baldwin has been the William L. White Professor
of Business Administration, Harvard Business School, since 1988.
Gerald Feldman.......... Mr. Feldman, 48, has been a director of the Corporation since
September 1998. He has also served as the president and chief
executive officer of the Corporation since August 1998. Mr.
Feldman has been the president of International Technidyne
Corporation, a wholly owned subsidiary of Thermo CardioSystems
Inc., an indirect majority-owned subsidiary of Thermo Electron,
since October 1987 and a director since September 1991.
International Technidyne Corporation develops, manufactures and
markets hemostasis management products.
Elias P. Gyftopoulos.... Dr. Gyftopoulos, 71, has been a director of the Corporation
since September 1994. Dr. Gyftopoulos 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 until his retirement in 1996.
Dr. Gyftopoulos is also a director of Thermo BioAnalysis
Corporation, Thermo Cardiosystems Inc., Thermo Electron
Corporation, ThermoRetec Corporation, ThermoSpectra Corporation,
Thermo Vision Corporation, Thermo Voltek Corp., and Trex Medical
Corporation.
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., Thermo
Sentron Inc., ThermoTrex Corporation and Trex Medical
Corporation.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Paul F. Kelleher........ Mr. Kelleher, 56, has been chief accounting officer of the
Corporation since its inception in December 1992 and a director
since March 1994. Mr. Kelleher has been senior vice president,
finance and administration, of Thermo Electron since June 1997
and served as its vice president, finance, from 1987 to 1997 and
as its controller from 1982 to January 1996.
Melissa F. Riordan...... Ms. Riordan, 42, has been a director of the Corporation since
September 1998. She served as the treasurer of Thermo Electron
Corporation from 1997 until 1998. From 1988 to 1997, Ms. Riordan
was a stockbroker at NatWest Securities Corp. Ms. Riordan is
also a director of Thermo Vision Corporation.
Gary S. Weinstein....... Mr. Weinstein, 41, has been a director and the chairman of the
board of the Corporation since February 1996. Since February
1996, Mr. Weinstein has also been chairman and chief executive
officer of ThermoTrex and a vice president of Thermo Electron.
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 ThermoTrex and
Trex Medical Corporation.
Dr. Nicholas T. Zervas.. Dr. Zervas, 69, has been a director of the Corporation since its
inception in December 1992, and 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 ThermoTrex.
</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 Dr. Baldwin (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. Zervas (Chairman), Dr.
Baldwin and Dr. Gyftopoulos. 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 eight times, the audit
committee met twice, and the human resources committee met nine times during
fiscal 1998. Each director attended at least 75% of all meetings of the board
of directors and committees on which he or she served held during fiscal 1998.
Compensation of Directors
Cash Compensation
Directors who are not employees of the Corporation, of Thermo Electron or
any other companies affiliated with Thermo Electron (also referred to as
"outside directors") receive an annual retainer of $2,000 and a fee of $1,000
per day for attending regular meetings of the board of directors and $500 per
day for participating in meetings of the board of directors held by means of
conference telephone and for participating in certain meetings of committees
of the board of directors. Payment of outside directors' fees is made
quarterly. Mr. Feldman, Mr. Keiser, Mr. Kelleher and Mr. Weinstein are
employees of Thermo Electron and its subsidiaries 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 for Directors
Under the Deferred Compensation Plan for Directors (the "Deferred
Compensation Plan"), a director has the right to defer receipt of his or her
cash fees until he or she ceases to serve as a director, dies or retires from
4
<PAGE>
his or her 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 the outstanding
common stock of ThermoTrex 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
ThermoTrex or Thermo Electron to constitute a majority of the board of
directors at any time within two years following any such event. Amounts
deferred pursuant to the Deferred Compensation Plan are valued at the end of
each quarter as units of the Corporation's Common Stock. When payable, amounts
deferred may be disbursed solely in shares of Common Stock accumulated under
the Deferred Compensation Plan. A total of 100,000 shares of Common Stock have
been reserved for issuance under the Deferred Compensation Plan. As of
November 28, 1998, deferred units equal to 1803.14 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
to outside directors as additional compensation for their service as
directors. The Directors Plan provides for the grant of stock options upon a
director's initial appointment and, beginning in 1999, awards options to
purchase 1,000 shares annually to outside directors.
Under the Directors Plan, outside directors appointed prior to 1995 were
awarded an option to purchase 30,000 shares of Common Stock upon the
director's appointment or election. The size of the award to new directors
initially joining the board of directors after 1995 is reduced by 6,000 shares
in each subsequent year. Directors initially joining the board of directors
after 1999 will not receive an option grant upon their appointment or election
to the board of directors, but will be eligible to participate in the annual
option awards described below. All options evidencing initial grants are
exercisable six months after the grant, 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 any other Thermo Electron company. In such event, the
restrictions and repurchase rights lapse in equal annual installments of 6,000
shares per year, starting with the first anniversary of the grant date,
provided the director has continuously served as a director of the Corporation
or any other Thermo Electron company since the grant date. These options
expire on the seventh anniversary of the grant date if granted before the end
of 1995 and on the fifth anniversary of the grant date if granted after 1995,
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.
In addition, under the Directors Plan, outside directors will also receive
an annual grant of options to purchase 1,000 shares of Common Stock,
commencing with this meeting. The annual grant is made at the close of
business on the date of the Annual Meeting of the Stockholders to each outside
director then holding office. 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
will be subject to repurchase by the Corporation at the exercise price if the
recipient ceases to serve as a director of the Corporation or any other Thermo
Electron company prior to the first anniversary of the grant date.
The exercise price for options granted under the Directors Plan is the
average of the closing prices of the Common Stock as reported on the American
Stock Exchange (or other principal market on which the Common Stock is then
traded) for the five trading days immediately preceding and including the date
of grant or, if the shares are not then traded, at the last price paid per
share by third parties in an arms-length transaction prior to the option
grant. As of November 28, 1998, options to purchase 123,400 shares of Common
Stock had been granted and were outstanding under the Directors Plan, no
options had lapsed or been exercised, and options to purchase 276,600 shares
of Common Stock were reserved and available for grant.
5
<PAGE>
Stock Ownership Policies for Directors
During fiscal 1996, the human resources committee of the board of directors
(the "Committee") established a stock holding policy for directors. The stock
holding policy requires each director to hold a minimum of 1,000 shares of
Common Stock. Directors are requested to achieve this ownership level within
three years of their appointment. 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 ThermoTrex and Thermo Electron, 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>
ThermoLase ThermoTrex Thermo Electron
Name (1) Corporation (2) Corporatio (3) Corporation (4)
-------- --------------- -------------- ---------------
<S> <C> <C> <C>
Thermo Electron Corporation
(5)............................ 31,342,547 -- --
Carliss Y. Baldwin.............. 61,400 0 1,000
Silvia Carnini-Pulino........... 25,000 0 15,000
Gerald Feldman.................. 225,000 45,000 150,811
Gina M. Goodrich................ 43,400 0 0
Elias P. Gyftopoulos............ 62,400 6,000 71,704
John C. Hansen (6).............. 0 0 699
John T. Keiser.................. 0 0 292,508
Paul F. Kelleher................ 83,300 8,916 129,655
Melissa F. Riordan.............. 10,200 0 30,000
Gary S. Weinstein............... 198,044 110,000 210,612
Mark H. Wurth (7)............... 0 120 280
Nicholas T. Zervas.............. 88,027 31,207 0
All directors and current
executive officers as a group
(15 persons)................... 873,388 206,243 1,206,739
</TABLE>
- --------
(1) Except as reflected in the footnotes to this table, shares of Common
Stock of the Corporation and of the common stock of ThermoTrex and Thermo
Electron 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
executive officer and by all directors and current executive officers as
a group exclude 31,342,547 shares beneficially owned by Thermo Electron.
6
<PAGE>
Shares of Common Stock beneficially owned by Dr. Baldwin, Ms. Carnini-
Pulino, Mr. Feldman, Ms. Goodrich, Dr. Gyftopoulos, Mr. Kelleher, Ms.
Riordan, Mr. Weinstein, Dr. Zervas and all directors and current executive
officers as a group include 61,400, 25,000, 225,000, 42,400, 61,400,
77,000, 10,000, 130,000, 67,068 and 775,668 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' account maintained pursuant to the Corporation's Deferred
Compensation Plan for Directors. Shares beneficially owned by Ms. Goodrich
include 1,000 shares held by her deceased spouse's estate of which Ms.
Goodrich is the administrator. As of November 28, 1998, no director or
current executive officer beneficially owned more than 1% of the Common
Stock, all directors and current executive officers as a group beneficially
owned 2.21% of the Common Stock outstanding as of such date.
(3) Shares of ThermoTrex common stock beneficially owned by Mr. Feldman, Dr.
Gyftopoulos, Mr. Kelleher, Mr. Weinstein, Dr. Zervas and all directors
and current executive officers as a group include 45,000, 6,000, 5,000,
100,000, 28,200 and 189,200 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 3,007 full shares allocated through November 28, 1998, to Dr.
Zervas's account maintained pursuant to ThermoTrex's Deferred
Compensation Plan for Directors. As of November 28, 1998, no director or
current executive officer beneficially owned more than 1% of the
ThermoTrex common stock outstanding as of such date; all directors and
current executive officers as a group beneficially owned 1.10% of the
ThermoTrex common stock outstanding as of November 28, 1998.
(4) Shares of Thermo Electron common stock beneficially owned by Ms. Carnini-
Pulino, Mr. Feldman, Dr. Gyftopoulos, Mr. Keiser, Mr. Kelleher, Ms.
Riordan, Mr. Weinstein, and all directors and current executive officers
as a group include 15,000, 123,570, 9,125, 251,622, 97,937, 25,000,
210,275 and 1,007,364 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. Kelleher and
all directors and current executive officers as a group include 1,426 and
2,497 full shares, respectively, allocated through November 28, 1998, 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. No director or current executive officer beneficially
owned more than 1% of Thermo Electron's common stock outstanding as of
such date; all directors and current executive officers as a group
beneficially owned less than 1% of the common stock of Thermo Electron
outstanding as of such date.
(5) Thermo Electron beneficially owned 79.19% of the Common Stock outstanding
as of November 28, 1998, of which 71.11 % is owned through ThermoTrex,
which is a majority-owned subsidiary of Thermo Electron. Thermo
Electron's address is 81 Wyman Street, Waltham, Massachusetts 02454-9046.
As of November 28, 1998, Thermo Electron, through ThermoTrex, had the
power to elect all of the members of the Corporation's board of
directors.
(6) Mr. Hansen resigned as the chief executive officer and president of the
Corporation on February 1, 1998.
(7) Mr. Wurth resigned as vice president of the Corporation on June 1, 1998.
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 change in ownership of the Corporation's securities. Based upon a
review of such filings, all Section 16(a) filing requirements applicable to
such persons were complied with during fiscal 1998, except in the following
instances. The Form 3 for Ms. Riordan was filed late. Dr. Zervas filed one
transaction late, consisting of the exempt acquisition of stock units to his
account pursuant to the Corporation's deferred compensation plan for
Directors. Thermo Electron filed seven Forms 4 late, reporting a total of 105
transactions, including 100 open market purchases of shares of Common Stock
and five transactions associated with the grant and lapse of options to
purchase Common Stock granted to employees under its stock option program.
7
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes compensation for services to the Corporation
in all capacities awarded to, earned by or paid to the Corporation's chief
executive officer and its four other most highly compensated executive
officers two of whom disclosure would have been required but for the fact that
such individuals were not serving as executive officers at October 3, 1998
(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 effort devoted by these individuals to the Corporation's affairs
is provided to the Corporation under the Corporate Services Agreement between
the Corporation and Thermo Electron. Accordingly, the compensation for these
individuals is not reported in the following table.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
(1) Securities Underlying
Name and Principal Fiscal ------------------- (Options No. of Shares All Other
Position Year Salary Bonus and Company) (3) Compensation (4)
------------------ ------ --------- --------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gerry Feldman (5)....... 1998 $ 35,000 n/a(2) 225,000 (TLZ) $ 5,625
Chief Executive Officer 55,000 (TMO)
and President 45,000 (TKN)
Gina M. Goodrich (6).... 1998 $ 97,958 n/a(2) 27,400 (TLZ) $ 4,874
Vice President,
Licensees
Silvia Carnini-Pulino
(7).................... 1998 $ 70,000 n/a(2) 25,000 (TLZ) $ 0
Vice President,
International
John C. Hansen (8)...... 1998 $ 75,000 $ 0 $213,626(10)
Former Chief Executive 1997 $ 225,000 $ 100,000 -- -- $ 9,926
Officer and President 1996 $ 225,000 $ 115,000 22,500 (TMO) $ 2,674
2,000 (TBA)
2,000 (TFG)
2,000 (TLT)
6,000 (TOC)
6,000 (TMQ)
2,000 (TSR)
4,000 (TXM)
Mark H. Wurth (9)....... 1998 $ 118,766 $ 40,000 29,000 (TLZ) $403,014(11)
Former Vice President, 1997 $ 169,000 $ 55,000 -- -- $ 15,935(12)
Operations 1996 $ 160,000 $ 60,000 7,500 (TMO) $ 2,519(12)
</TABLE>
- --------
(1) Annual compensation for the named executive officers is reviewed and
determined on a calendar year basis, even though the Corporation's fiscal
year ends in September.
(2) Bonuses are generally determined and paid following the end of the
calendar year based on performance during the calendar year in which the
Corporation's fiscal year-end occurred. 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
for calendar 1998 have not yet been determined. The Committee expects to
determine bonuses in March 1999 when audited financial statements of the
Corporation's parent company will be available.
8
<PAGE>
(3) In addition to receiving options to purchase Common Stock (designated in
the table as TLZ), the named executive officers of the Corporation have
been granted options to purchase common stock of Thermo Electron and
certain of its other subsidiaries as part of Thermo Electron's stock
option program in 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: the
Corporation (designated in the table as TLZ), Thermo Electron (designated
in the table as TMO), Thermo BioAnalysis Corporation (designated in the
table as TBA), Thermo Fibergen Inc. (designated in the table as TFG),
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), ThermoTrex Corporation (designated in the table as TKN)
and Trex Medical Corporation (designated in the table as TXM).
(4) Represents the amount of matching contributions made on behalf of the
named executive officer participating in the Thermo Electron 401(k) Plan.
(5) Mr. Feldman was appointed president and chief executive officer of the
Corporation on August 3, 1998. The salary reported for fiscal year 1998
represents the amount paid from the commencement of his employment through
October 3, 1998.
(6) Ms. Goodrich was elected vice president, licensees of the Corporation on
August 3, 1998. The salary reported for fiscal year 1998 represents
compensation for the entire fiscal year.
(7) Ms. Carnini-Pulino was elected vice president, international of the
Corporation on August 3, 1998. The salary reported for fiscal year 1998
represents the amount paid from the commencement of her employment with
the Corporation through October 3, 1998.
(8) Mr. Hansen resigned as the chief executive officer and president of the
Corporation on February 1, 1998.
(9) Mr. Wurth resigned as vice president of the Corporation on June 1, 1998.
(10) In addition to $7,200, which represents the amount of matching
contributions made on behalf of the named executive officer
participating in the Thermo Electron 401(k) Plan in fiscal 1998, this
amount includes a $206,426 payment made to Mr. Hansen as part of a
severance agreement. See Executive Compensation--Severance Agreements.
(11) In addition to $7,200, which represents the amount of matching
contributions made on behalf of the named executive officer
participating in the Thermo Electron 401(k) Plan in fiscal 1998, this
amount includes a $269,862 payment and $133,152 loan forgiveness made to
Mr. Wurth as part of a severance agreement. See Executive Compensation--
Severance Agreements.
(12) In addition to $1,661 and $9,063, which represent the amount of matching
contributions made on behalf of the named executive officer
participating in the Thermo Electron 401(k) Plan in fiscal 1996 and
1997, respectively, this amount includes $858 for fiscal 1996 and $6,872
for fiscal 1997, which represents the amount of compensation in the
period attributable to an interest-free loan provided to Mr. Wurth in
connection with his relocation to San Diego, California. See
Relationship with Affiliates.
9
<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 named executive officers in their capacities as
officers of the Corporation. It has not been the Corporation's policy in the
past to grant stock appreciation rights, and no such rights were granted
during fiscal 1998.
Option Grants in Fiscal 1998
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Percent of Annual Rates of Stock
Number of Total Options Price Appreciation for
Securities Granted to Exercise Option Term (2)
Underlying Options Employees in Price Per Expiration -----------------------
Name Granted (1) Fiscal Year Share Date 5% 10%
---- --------------------------------- --------- ---------- -- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gerald Feldman.......... 225,000 (TLZ) 29.4% $ 4.99 08/03/05 $ 456,750 $ 1,064,250
55,000 (TMO) 2.8%(3) $22.46 08/11/05 $ 502,700 $ 1,172,050
45,000 (TKN) 12.3%(3) $16.70 08/03/05 $ 306,000 $ 712,800
Gina M. Goodrich........ 15,000 (TLZ) 2.0% $ 6.16 04/02/03 $ 25,500 $ 56,400
7,400 (TLZ) 1.0% $ 5.48 09/16/03 $ 11,174 $ 24,790
5,000 (TLZ) 0.7% $12.43 12/12/04 $ 25,300 $ 58,950
Silvia Carnini-Pulino... 25,000 (TLZ) 3.3% $ 6.16 04/02/03 $ 42,500 $ 94,000
John C. Hansen.......... -- -- -- -- -- -- --
Mark H. Wurth........... 24,000 (TLZ) 3.1% $ 6.16 (4) (4) (4)
5,000 (TLZ) 0.7% $ 9.18 (4) (4) (4)
</TABLE>
- --------
(1) 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 TLZ), ThermoTrex Corporation (designated in the table as
TKN) and Thermo Electron Corporation (designated in the table as TMO).
All of the options granted during the fiscal year are immediately
exercisable at the date of grant. 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 four- to five-year period,
depending on the option term, which may vary from five to seven years,
provided that the optionee continues to be employed by the Corporation or
another Thermo Electron company. The granting corporation may 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.
(4) Mr. Wurth resigned as a vice president of the Corporation on June 1,
1998. Therefore, options granted in fiscal 1998 have lapsed and do not
have a potential realizable value.
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<PAGE>
Stock Options Exercised During Fiscal 1998
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.
Aggregated Option Exercises In Fiscal 1998 And Fiscal 1998 Year-End Option
Values
<TABLE>
<CAPTION>
Number of
Unexercised
Options at Fiscal Value of
Shares Year-End Unexercised
Acquired on Value Exercisable/ In-the-Money
Name Company Exercise Realised (1) Unexercisable) (2) Options
---- ------------------ ----------- ------------ -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gerald Feldman.......... ThermoLase -- -- 225,000 /-- $86,625 /--
Thermo Electron 55,000 /-- $ 0 /--
ThermoTrex -- -- 45,000 /-- $ 0 /--
Gina M. Goodrich........ ThermoLase -- -- 42,000 /-- $ 0 /--
Silvia Carnini-Pulino... ThermoLase -- -- 25,000 /-- $ 0 /--
John C. Hansen.......... Thermo Electron 4,500 $34,709 -- /-- -- /--
Thermo BioAnalysis 200 $ 2,525 -- /-- -- /--
Thermo Optek 600 $ 4,068 -- /-- -- /--
ThermoQuest 600 $ 3,375 -- /-- -- /--
Trex Medical 400 $ 2,550 -- /-- -- /--
Mark H. Wurth........... -- -- -- -- /-- -- /--
</TABLE>
- --------
(1) Amounts shown in this column do not necessarily represent actual value
realized from the sale of the shares acquired upon exercise of the option
because in many cases the shares are not sold on exercise but continue to
be held by the executive officer exercising the option. The amounts shown
represent the difference between the option exercise price and the market
price on the date of exercise, which is the amount that would have been
realized if the shares had been sold immediately upon exercise.
(2) All of the options reported outstanding at the end of the fiscal year
were immediately exercisable as of fiscal year-end. 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 the granting corporation or
another Thermo Electron company. The granting corporation may exercise
its repurchase rights within six months after the termination of the
optionee's employment. For publicly traded companies, the repurchase
rights generally lapse ratably over a five- to ten-year period, depending
on the option term, which may vary from seven to twelve years, provided
that the optionee continues to be employed by the Corporation or another
Thermo Electron company.
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,
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<PAGE>
recapitalization or statutory share exchange involving Thermo Electron or the
sale or other disposition of all or substantially all of the assets of Thermo
Electron unless immediately after such transaction (a) all holders of Thermo
Electron common stock immediately prior to such transaction own more than 60%
of the outstanding voting securities of the resulting or acquiring corporation
in substantially the same proportions as their ownership immediately prior to
such transaction and (b) no person after the transaction owns 40% or more of
the outstanding voting securities of the resulting or acquiring corporation;
or (iv) approval by stockholders of a complete liquidation or dissolution of
Thermo Electron.
In 1998, Thermo Electron authorized an executive retention agreement with
Gerald Feldman. This agreement provides that in the event the individual's
employment is terminated within 18 months after a change in control, the
individual would be entitled to a lump sum payment equal to the sum of one
times, the individual's highest annual base salary in any 12 month period
during the prior five year period, plus one times the individual's 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. The individual would also be entitled to all other
compensation due to the individual from the Corporation through the date of
termination. Further, all options that the individual holds in Thermo Electron
and its subsidiaries, including the Corporation, would become fully vested as
of the date of the change in control. Finally, the individual would be
entitled to a cash payment equal to $15,000, to be used toward outplacement
services. This executive retention agreement supercedes and replaces any and
all prior severance arrangements which this individual had with Thermo
Electron.
Assuming that the severance benefits would have been payable as of January
1, 1999, the lump sum salary and bonus payment under such agreement to Mr.
Feldman would have been approximately $313,000. 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 Arrangements
Mr. John C. Hansen resigned as the president and chief executive officer of
the Corporation and as a director effective as of February 1, 1998 (the
"Hansen Employment Termination Date"). In connection with his resignation, the
Corporation entered into an agreement with Mr. Hansen providing for the
payment of severance and other fees to Mr. Hansen. The agreement provides that
in addition to receiving his regular salary through the Hansen Employment
Termination Date, Mr. Hansen has been paid a bonus of $100,000 for the 1997
calendar year as well as a lump sum severance payment of $150,000. Mr. Hansen
also received a lump sum payment of $50,000 to compensate him for his travel
and relocation expenses associated with his relocation to the San Francisco,
California area. The agreement also provides for an ongoing consulting
relationship between Mr. Hansen and the Corporation for the two-year period
from February 1, 1998 through January 31, 2000. For his consulting services,
Mr. Hansen is paid a retainer fee of $150,000 per year, payable in arrears in
quarterly installments of $37,500 and a per diem consulting fee of $2,000 per
day for each day that he provides consulting services to the Corporation
pursuant to its request.
Mr. Wurth resigned as a vice president of the Corporation effective as of
June 1, 1998 (the "Wurth Employment Termination Date"). In connection with
this resignation, the Corporation entered into an agreement with Mr. Wurth
providing for the payment of severance and other fees to Mr. Wurth. The
agreement provided that in addition to receiving his regular salary for a
period of six months after the Wurth Employment Termination Date, Mr. Wurth
would be paid a lump sum severance payment of $119,592. Mr. Wurth also
received a lump sum payment of $50,000 to compensate him for travel and
relocation expenses. A loan in the amount of $125,000 provided in connection
with Mr. Wurth's relocation to San Diego, California was also forgiven as part
of this severance agreement.
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<PAGE>
RELATIONSHIP WITH AFFILIATES
Thermo Electron has adopted a strategy of selling a minority interest in
subsidiary companies to outside investors as an important tool in its future
development. As part of this strategy, Thermo Electron and certain of its
subsidiaries have created several privately and publicly held, majority-owned
subsidiaries, including the Corporation which was created by ThermoTrex. From
time to time, Thermo Electron and its subsidiaries will create other majority-
owned subsidiaries as part of its spinout strategy. (The Corporation and the
other Thermo Electron subsidiaries are referred to hereinafter 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
$348,000 in fees under the Services Agreement. Management believes that
13
<PAGE>
these charges are reasonable and that the terms of the Services Agreement are
representative of the expenses 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
Ms. Silvia Carnini-Pulino, vice president, international of the Corporation,
was the president of Gammatel, Inc., a Delaware communications corporation
until May 1, 1997. Gammatel filed a petition under the federal bankruptcy laws
on August 8, 1997.
From time to time, the Corporation may transact business with other
companies in the Thermo Group. In fiscal 1998, such transactions included the
following:
In fiscal 1998, the Corporation subleased office and research facilities
from ThermoTrex and was charged for the actual square footage occupied at
approximately the same cost-per-square-foot paid by ThermoTrex under its prime
lease. The accompanying statement of operations includes expenses from this
sublease of $306,000 in fiscal 1998. During fiscal 1998, the Corporation
relocated its operations and is no longer paying for this space.
During fiscal 1998, the Corporation purchased laser systems and components
at an aggregate cost of $2,902,000 from Trex Medical, a majority-owned
subsidiary of ThermoTrex.
As of October 3, 1998, the Corporation owed Thermo Electron $4,500,000
principal amount, pursuant to a 4 3/8% subordinated convertible debenture due
2004, convertible into shares of the Corporation's common stock at $17.385 per
share.
During fiscal 1998, the Corporation purchased vacuum equipment totaling
$241,000 from Bird Products Corporation, a wholly owned subsidiary of Thermo
Electron.
As of October 3, 1998, the Corporation owed Thermo Electron and its other
subsidiaries an aggregate of $3,200,000 for amounts due under the Corporate
Services Agreement and related administrative charges, for other products and
services, and for miscellaneous items excluding the debentures 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 such net indebtedness owed by the Corporation to Thermo Electron and
its other subsidiaries since September 27, 1997 was $3,240,000. These amounts
do not bear interest and are expected to be paid in the normal course of
business.
As of October 3, 1998, $51,246,000 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. As of the date hereof, no loans to executive officers remain
outstanding. This policy and plan were amended in 1998 to apply only to the
chief executive officers of the Corporation in the future.
14
