-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DjXwfcHM0+u70kQCrFDrElEdwq1SxLBrYniUsLJbXr8J7IXVlda6pxjZNtJxb0T8 3qhUFO2jy4SjQyPV4hRs+Q== 0000796038-97-000011.txt : 19970729 0000796038-97-000011.hdr.sgml : 19970729 ACCESSION NUMBER: 0000796038-97-000011 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970329 FILED AS OF DATE: 19970725 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO TERRATECH INC CENTRAL INDEX KEY: 0000796038 STANDARD INDUSTRIAL CLASSIFICATION: 8734 IRS NUMBER: 042925807 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-09549 FILM NUMBER: 97645681 BUSINESS ADDRESS: STREET 1: 81 WYMAN ST STREET 2: P O BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02154-9046 BUSINESS PHONE: 6176221000 MAIL ADDRESS: STREET 1: 81 WYMAN STREET STREET 2: P O BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02154-9046 FORMER COMPANY: FORMER CONFORMED NAME: THERMO PROCESS SYSTEMS INC DATE OF NAME CHANGE: 19920703 10-K/A 1 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 corporation, Thermo Electron Corporation ("Thermo Electron"), and of its subsidiary, Thermo Remediation Inc. ("Thermo Remediation") is reported under the caption "Stock Ownership." John P. Appleton Dr. Appleton, 62, has been President, Chief Executive Officer and a Director of the Corporation since September 1993. Dr. Appleton has been Chairman, Chief Executive Officer and a Director of Thermo Remediation since September 1993 and has served as a Vice President of Thermo Electron since 1975 in various managerial capacities. John N. Mr. Hatsopoulos, 63, has been a Director of the Corporation since 1986 and its Vice Hatsopoulos President and Chief Financial Officer since 1988. Mr. Hatsopoulos has been the President of Thermo Electron since January 1997 and its Chief Financial Officer since 1988. Prior to becoming President, he was an Executive Vice President of Thermo Electron from 1986 to January 1997. Mr. Hatsopoulos is also a director of LOIS/USA Inc., Metrika Systems Corporation, Thermedics Inc., Thermedics Detection Inc., Thermo Ecotek Corporation, Thermo Fibertek Inc., Thermo Instrument Systems Inc., Thermo Power Corporation and ThermoTrex Corporation. Brian D. Holt Mr. Holt, 48, became a Director of the Corporation in February, 1997. Mr. Holt has been the President and Chief Executive Officer of Thermo Ecotek Corporation since February 1994 and a Director of that company since January 1995. For more than five years prior to his appointment as an officer of the Thermo Ecotek Corporation, he was President and Chief Executive Officer of Pacific Generation Company, a financier, builder, owner and operator of independent power facilities. Mr. Holt is also a director of KFX, Inc. PAGE Donald E. Noble Mr. Noble, 82, has been a Director of the Corporation since 1986 and served as Chairman of the Board from 1992 to November 1994. For more than 20 years, from 1959 to 1980, Mr. Noble served as the chief executive officer of Rubbermaid Incorporated, first with the title of President and then as Chairman of the Board. Mr. Noble is also a director of Thermo Electron, Thermo Fibertek Inc., Thermo Power Corporation and Thermo Sentron Inc. William A. Mr. Rainville, 55, has been a Director of the Corporation since February 1993 and Chairman Rainville of the Board since November 1994. Mr. Rainville has been President and Chief Executive Officer of Thermo Fibertek Inc., a majority owned subsidiary of Thermo Electron that develops and manufactures equipment and products for the paper making and paper recycling industries, since its inception in 1991, and a Senior Vice President of Thermo Electron since March 1993 and a Vice President of Thermo Electron from 1986 to 1993. From 1984 until January 1993, Mr. Rainville was the President and Chief Executive Officer of Thermo Electron Web Systems Inc., a subsidiary of Thermo Fibertek Inc.. Mr. Rainville is also a director of Thermo Ecotek Corporation, Thermo Fibergen Inc., Thermo Fibertek Inc. and Thermo Remediation. Polyvios C. Mr. Vintiadis, 61 has been a Director of the Vintiadis Corporation since September 1992. Mr. Vintiadis has been the Chairman and Chief Executive Officer of Towermarc Corporation, a real estate development company, since 1984. Prior to joining Towermarc Corporation, Mr. Vintiadis was a principal of Morgens, Waterfall & Vintiadis, Inc., a financial services firm, with whom he remains associated. For more than 20 years prior to that time, Mr. Vintiadis was employed by Arthur D. Little & Company, Inc. Mr. Vintiadis is also a director of Thermo Instrument Systems Inc. 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. Vintiadis (Chairman) and Mr. Noble. The Audit Committee 2 PAGE reviews the scope of the audit with the Corporation's independent public accountants and meets with them for the purpose of reviewing the results of the audit subsequent to its completion. The present members of the Human Resources Committee are Mr. Noble (Chairman) and Mr. Vintiadis. The Human Resources Committee reviews the performance of senior members of management, recommends executive compensation and administers the Corporation's stock option and other stock-based compensation plans. The Corporation does not have a nominating committee of the Board of Directors. The Board of Directors met six times, the Audit Committee met twice and the Human Resources Committee met six times during fiscal 1997. Each director attended at least 75% of all meetings of the Board of Directors and Committees on which he served held during fiscal 1997, except Dr. Appleton and Mr. Hatsopoulos, who each attended 67% of such meetings. Dr. Appleton attended all of the meetings of the Board of Directors held in person, but did not participate in two meetings held by means of conference telephone due to scheduling difficulties while he was traveling overseas on company business. Mr. Hatsopoulos is the chief financial officer of Thermo Electron and each of its publicly held subsidiaries, and his responsibilities require him to travel extensively on company business. Compensation of Directors Cash Compensation Directors who are not employees of the Corporation, of Thermo Electron or of any other company 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. Dr. Appleton, Mr. Hatsopoulos and Mr. Rainville are all employees of Thermo Electron and do not receive any cash compensation from the Corporation for their services as directors. Directors are also reimbursed for out-of-pocket expenses incurred in attending 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 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 3 PAGE 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 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 41,416 shares of Common Stock have been reserved for issuance under the Deferred Compensation Plan. As of June 28, 1997, deferred units equal to 24,447 full shares of Common Stock were accumulated for current directors under the Deferred Compensation Plan. Directors Stock Option Plan The Corporation's Directors Stock Option Plan (the "Directors Plan") provides for the grant of stock options to purchase shares of Common Stock 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 and are also automatically granted every five years options to purchase 1,500 shares of the common stock of a majority-owned subsidiary of the Corporation that is "spun out" to outside investors. Pursuant to the Directors Plan, outside directors receive an annual grant of options to purchase 1,000 shares of Common Stock pursuant to the Directors Plan 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. Options granted under this provision before 1995 expire after seven years; commencing in 1995, the option term was shortened to three years. Shares acquired upon exercise of the options are subject to repurchase by the Corporation at the exercise price if the recipient ceases to serve as a director of the Corporation or any other Thermo Electron company prior to the first anniversary of the grant date. In addition, under the Directors Plan, outside directors are automatically granted every five years options to purchase 1,500 4 PAGE shares of common stock of each majority-owned subsidiary of the Corporation that is "spun out" to outside investors. The grant occurs on 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, and also as of the close of business on the date of every fifth Annual Meeting of the Stockholders of the Corporation that occurs thereafter during the duration of the Plan. 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 option will become immediately exercisable and the shares acquired upon exercise will be subject to restrictions on transfer and the right of the Corporation to repurchase such shares at the exercise price in the event the director ceases to serve as a director of the Corporation or any other Thermo Electron company. In the event of Section 12 Registration, the restrictions and repurchase rights shall lapse or be deemed to lapse at the rate of 25% per year, starting with the first anniversary of the grant date. These options expire after five years. The 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 preceding and including the date of grant, or, if the shares are not then traded, at the last price per share paid by third parties in an arms-length transaction prior to the option grant. As of June 28, 1997, options to purchase 22,700 shares of Common Stock had been granted under the Director's Plan, of which 15,500 were outstanding, 1,400 had lapsed, and 5,800 had been exercised; and options to purchase 53,700 shares of Common Stock were reserved and available for grant under the Director's Plan as of June 28, 1997. 5 PAGE Stock Ownership Policies for Directors During fiscal 1997, 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 by the 1998 Annual Meeting of Stockholders. 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 1997. In addition, the Committee adopted a policy requiring directors to hold shares of the Corporation's 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. STOCK OWNERSHIP The following table sets forth the beneficial ownership of Common Stock, as well as the common stock of Thermo Electron and Thermo Remediation, as of June 28, 1997, with respect to (i) each person who was known by the Corporation to own beneficially more than 5% of the outstanding shares of Common Stock, (ii) each director, (iii) each executive officer named in the summary compensation table under the heading "Executive Compensation" and (iv) all directors and executive officers as a group. While certain directors or executive officers of the Corporation are also directors and executive officers of Thermo Remediation or Thermo Electron, all such persons disclaim beneficial ownership of the shares of Common Stock owned by Thermo Electron and the shares of the common stock of Thermo Remediation owned by the Corporation. Thermo Thermo Thermo TerraTech Electron Name (1) Inc. (2) Corporation Remediation -------- -------- ----------- ----------- (3) Inc. (4) --- -------- Thermo Electron 15,491,635 N/A N/A Corporation (5) John P. Appleton 216,989 144,749 63,000 John N. Hatsopoulos 62,306 632,768 42,182 Emil C. Herkert 250,000 39,600 2,000 Brian D. Holt 0 164,493 0 Donald E. Noble 49,934 55,198 10,500 Jeffrey L. Powell 82,835 41,287 111,000 William A. Rainville 60,000 249,292 24,000 Polyvios C. Vintiadis 11,030 2,500 1,500 All directors and current executive officers as a group (9 persons) 744,240 1,465,381 269,182 6 PAGE (1) Except as reflected in the footnotes to this table, shares beneficially owned consist of shares owned by the indicated person or by that person for the benefit of minor children and all share ownership includes sole voting and investment power. (2) Shares of Common Stock beneficially owned by Dr. Appleton, Mr. Hatsopoulos, Mr. Herkert, Mr. Noble, Mr. Powell, Mr. Rainville, Mr. Vintiadis and all directors and executive officers as a group include 215,000, 40,000, 187,500, 8,200, 63,000, 60,000, 6,300 and 585,000 shares, respectively, that such person or group has the right to acquire within 60 days of June 28, 1997, through the exercise of stock options. Shares beneficially owned by Dr. Appleton, Mr. Hatsopoulos and all directors and executive officers as a group include 255, 265 and 771 full shares, respectively, allocated through June 28, 1997, to 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 June 28, 1997, executive officers of Thermo Electron ("ESOP"). Shares beneficially owned by Mr. Noble, Mr. Vintiadis and all directors and executive officers as a group include 18,694, 4,730 and 23,424 full shares, respectively, allocated through June 28, 1997, to their respective accounts maintained under the Corporation's Deferred Compensation Plan for directors. Shares beneficially owned by Mr. Hatsopoulos and all directors and executive officers as a group include 12,500 shares that Mr. Hatsopoulos has the right to acquire within 60 days after June 28, 1996, through the exercise of a stock purchase warrant. Except for Dr. Appleton, who beneficially owned approximately 1.2% of the Common Stock outstanding as of June 28, 1997, no director or executive officer beneficially owned more than 1% of the Common Stock outstanding as of June 28, 1997; all directors and executive officers as a group beneficially owned 4.1% of the Common Stock outstanding as of such date. (3) Shares of the common stock of Thermo Electron beneficially owned by Dr. Appleton, Mr. Hatsopoulos, Mr. Herkert, Mr. Holt, Mr. Noble, Mr. Powell, Mr. Rainville and all directors and executive officers as a group include 107,257, 535,685, 38,100, 164,000, 9,375, 35,012, 197,236 and 1,181,802 shares, respectively, that such person or members of the group have the right to acquire within 60 days of June 28, 1997, through the exercise of stock options. Shares beneficially owned by Mr. Hatsopoulos and all directors and executive officers as a group include 1,934 and 3,258 full shares, respectively, allocated through June 28, 1997, to accounts maintained pursuant to the ESOP. Shares beneficially owned by Mr. Noble and all directors and executive officers as a group each include 42,408 shares allocated through June 28, 1997, to Mr. Noble's account maintained pursuant to Thermo Electron's Deferred Compensation Plan for directors. No director or executive 7 PAGE beneficially owned more than 1% of such common stock outstanding as of such date; all directors and executive officers as a group beneficially owned 1% of the Thermo Electron common stock outstanding as of June 28, 1997. (4) Shares of Common Stock beneficially owned by Dr. Appleton, Mr. Hatsopoulos, Mr. Noble, Mr. Powell, Mr. Rainville, Mr. Vintiadis and all directors and executive officers as a group include 63,000, 22,500, 6,000, 111,000, 22,500, 1,500 and 241,500 shares, respectively, that such person or group has the right to acquire within 60 days after June 28, 1997, through the exercise of stock options. No director or executive officer beneficially owned more than 1% of the common stock of Thermo Remediation outstanding as of June 28, 1997; all directors and executive officers as a group beneficially owned 2.1% of such common stock outstanding as of such date. (5) Shares of Common Stock beneficially owned by Thermo Electron include 459,677 shares that Thermo Electron and two of its majority owned subsidiaries have the right to acquire within 60 days of June 28, 1997, through the conversion of certain convertible notes of the Corporation held by Thermo Electron and such subsidiaries. As of June 28, 1997, Thermo Electron beneficially owned approximately 85.9% of the outstanding Common Stock. Thermo Electron's address is 81 Wyman Street, Waltham, Massachusetts 02254-9046. 8 PAGE 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. The Form 3 of Mr. Brian D. Holt, a Director of the Corporation, was filed late. Thermo Electron filed eight Forms 4 late, reporting a total of 34 transactions consisting of 28 open market purchases of Common Stock and six transactions associated with the grant and lapse of options to purchase Common Stock granted to employees under its stock option program. EXECUTIVE COMPENSATION 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 two other most highly compensated executive officers for the last three fiscal years. No other executive officers of the Corporation who held office during fiscal 1997 met the definition of "highly compensated" within the meaning of the Securities and Exchange Commission's executive compensation disclosure rules for such period. 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 Long Term Compensation ------------ Securities Fiscal Annual Compensation Underlying Options Name and ------------------- (No. of Shares All Other Principal Position Year Salary Bonus and Company) (1) Compensation (2) - - ------------------ ---- ------ ----- ------------------- ------------ John P. Appleton 1997 $128,625 $70,000 -- $6,919 (3) President and 1996 $118,125 $70,000 -- $6,919 Chief Executive Officer 1995 $124,313 $85,000 30,000 (TTT) $11,171 Jeffrey L. Powell 1997 $122,000 $40,000 600 (TMO) $7,023 Vice President 2,000 (TFG) 6,000 (TOC) 1996 $116,000 $60,000 300 (TMO) $6,646 2,000 (TBA) 5,000 (TLZ) 2,000 (TLT) 6,000 (TMQ) 2,000 (TSR) 4,000 (TXM) 1995 $108,000 $63,500 10,000 (TTT) $6,828 15,000 (THN) 22,725 (TMO) Emil C. Herkert 1997 $200,000 $100,000 300 (TMO) $4,189 (4)
(1) In addition to grants of options to purchase Common Stock of the Corporation (designated in the table as TTT), the named 9 PAGE 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. Options have been granted during the last three fiscal years to the named executive officers in the following Thermo Electron companies: Thermo Remediation (designated in the table as THN), 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), ThermoLase Corporation (designated in the table as TLZ), ThermoLyte Corporation (designated in the table as TLT), Thermo Optek Corporation (designated in the table as TOC), ThermoQuest Corporation (designated in the table as TMQ), Thermo Sentron Inc. (designated in the table as TSR), and Trex Medical Corporation (designated in the table as TXM). (2) Represents the amount of matching contributions made by the individual's employer on behalf of the named executive officers participating in Thermo Electron's 401(k) plan. (3) Dr. Appleton was appointed president and chief executive officer of the Corporation effective September 1, 1993. Dr. Appleton is also a vice president of Thermo Electron. A portion of Dr. Appleton's annual cash compensation (salary and bonus) has been allocated to and paid by each of the Corporation, Thermo Remediation and Thermo Electron over each of the past three fiscal years as compensation for the services provided to these companies based on the time he devoted to his responsibilities to these companies. The annual cash compensation reported in the table for Dr. Appleton represents the amount paid from all sources, including the Corporation, solely for Dr. Appleton's services as the president and chief executive officer of the Corporation. For fiscal 1997, 1996 and 1995, approximately 70%, 70% and 85%, respectively, of Dr. Appleton's annual cash compensation was paid by the Corporation for his services as its president and chief executive officer. These percentages include the allocation of a portion of Dr. Appleton's annual cash compensation to the management of the Thermo Terra Tech joint venture, which was acquired by the Corporation in April 1995 in a transaction accounted for in a manner similar to pooling of interests accounting. Bonuses paid to Dr. Appleton reflect compensation decisions based on calendar year performance, in accordance with Thermo Electron's compensation practices for its officers. Dr. Appleton has served as an officer of Thermo Electron since 1975 and has been granted options to purchase shares of the common stock of Thermo Electron and certain of its subsidiaries other than the Corporation from time to time by Thermo Electron or such other subsidiaries. These options are not reported here as they were granted as compensation for service to Thermo Electron companies in capacities other than in 10 PAGE his capacity as the president and chief executive officer of the Corporation. (4) Mr. Herkert was appointed an executive officer of the Corporation on May 8, 1996. Stock Options Granted During Fiscal 1997 The following table sets forth information concerning individual grants of stock options made during fiscal 1997 to the Corporation's chief executive officer and the other named executive officers. It has not been the Corporation's policy in the past to grant stock appreciation rights, and no such rights were granted during fiscal 1997. Dr. Appleton has served as a vice president of Thermo Electron since 1975 and from time to time has been granted options to purchase common stock of Thermo Electron and certain of its subsidiaries other than the Corporation and Thermo Remediation. These options are not reported in this 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. No options were granted to Dr. Appleton during fiscal 1997 in his capacity as president and chief executive officer of the Corporation. Option Grants in Fiscal 1997 Potential Realizable Number of Value at Assumed Securities Percent of Annual Rates of Stock Total Options Price Appreciation for Underlying Granted to Exercise Options Employees in Price Option Term Per Expiration ----------- Name Granted (1) Fiscal Year (2) Share Date 5% 10% ---- ------- ---------------- ----- ---------- -- --- Jeffrey L. Powell 600 (TMO) 0.06% (3) $42.79 05/22/99 $4,044 $8,496 2,000 (TFG) 0.4% (3) $10.00 09/12/08 $15,920 $42,760 6,000 (TOC) 0.2% (3) $12.00 04/09/08 $57,300 $153,960 Emil C. Herkert 300 (TMO) 0.03% (3) $42.79 05/22/99 $2,022 $4,248
(1) As part of Thermo Electron's stock option program, options have been granted during fiscal 1997 to the named executive officers to purchase the common stock of Thermo Electron (designated in the table as TMO), Thermo Fibergen Inc. (designated in the table as TFG) and Thermo Optek Corporation (designated in the table as TOC). 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 such corporation or any other Thermo Electron company. The granting corporation may exercise its repurchase rights within six months after the termination of the optionee's employment. For 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. The granting corporation may permit the 11 PAGE holders of options to exercise options and to satisfy tax withholding obligations by surrendering shares equal in fair market value to the exercise price or withholding obligation. (2) The amounts shown on 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 applicable corporation, the optionee's continued employment through the option period and the date on which the options are exercised. (3) All of the options reported in the table were granted under stock option plans maintained by Thermo Electron or its subsidiaries as part of Thermo Electron's compensation program and accordingly are reported as a percentage of total options granted to employees of Thermo Electron and its subsidiaries. Stock Options Exercised During Fiscal 1997 and Fiscal Year-End Option Values The following table reports certain information regarding stock option exercises during fiscal 1997 and outstanding stock options held at the end of fiscal 1997 by the Corporation's chief executive officer and the other named executive officers. No stock appreciation rights were exercised or were outstanding during fiscal 1997. Aggregated Option Exercises In Fiscal 1997 And Fiscal 1997 Year-End Option Values Number of Unexercised Options at Fiscal Value of Shares Year-End Unexercised Acquired Value (Exercisable/ In-the-Money on Name Company Exercise Realized Unexercisable) (1) Options - - ---- ------- -------- -------- ------------------ ------- John P. Thermo -- -- 215,000 /-- (3) $34,075 /-- Appleton (2) TerraTech Thermo -- -- 63,000 /-- $12,285 /-- Remediation Jeffrey L. Thermo -- -- 63,000 /-- (4) $74,785 /-- Powell TerraTech Thermo 5,062 $126,955 34,312 /-- (5) $470,330 /-- Electron Thermo -- -- 111,000 /-- $18,720 /-- Remediation Thermo -- -- 2,000 /-- $0 /-- BioAnalysis Thermo -- -- 2,000 /-- $0 /-- Fibergen Thermo -- -- 4,500 /-- $32,625 /-- Fibertek ThermoLase -- -- 5,000 /-- $0 /-- ThermoLyte -- -- -- /2,000 -- /$0 (6) Thermo Optek -- -- 6,000 /-- $3,000 /-- PAGE ThermoQuest -- -- 6,000 /-- $9,000 /-- Thermo -- -- 2,000 /-- $0 /-- Sentron Trex Medical -- -- 4,000 /-- $2,500 /-- Emil C. Herkert Thermo 62,500 $697,975 187,500 /-- $1,695,938 /-- TerraTech Thermo -- -- 37,800 /-- (7) $286,763 /-- Electron
(1) All of the options granted during the fiscal year are immediately exercisable at the date of grant, except options to purchase the common stock of ThermoLyte 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 (ii) nine years from 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 such corporation or any other Thermo Electron company. The granting corporation may 12 PAGE 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. For companies whose shares are not publicly traded, the repurchase rights lapse in their entirety on the ninth anniversary of the grant date. (2) Dr. Appleton has served as a vice president of Thermo Electron since 1975 and has been granted options to purchase shares of the common stock of Thermo Electron and certain of its subsidiaries other than the Corporation from time to time by Thermo Electron or such other subsidiaries. These options are not reported here 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. (3) In addition to the terms described in footnote (1) above, 60,000 of the shares acquired upon exercise of these options are restricted from resale until Dr. Appleton's retirement. (4) Of these options awarded to Mr. Powell, options to purchase 15,000 shares are subject to the following terms in addition to those described in footnote (1): in the event of the optionee's voluntary resignation or discharge for cause prior to February 8, 1998, all of the shares acquired upon exercise of these options are subject to repurchase by the Corporation at the exercise price. In addition, all shares acquired upon the exercise of these options are subject to restrictions on resale until February 8, 1998. (5) Options to purchase 22,500 shares of the common stock of Thermo Electron granted to Mr. Powell are subject to the same terms as described in footnote (1), 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 lapse ratably over a five-year period commencing with the fifth anniversary of the grant date. (6) No public market existed for the shares underlying these options as of March 28, 1997. Accordingly, no value in excess of exercise price has been attributed to these options. 13 PAGE (7) Options to purchase 22,500 shares of the common stock of Thermo Electron granted to Mr. Herkert are subject to the same terms as described in footnote (1), except that the repurchase rights of the granting corporation generally do not lapse until the tenth anniversary of the grant date. In fiscal 1997, the Human Resources Committee of the Board of Directors accelerated the vesting of 1,800 shares. Severance Agreements Thermo Electron has entered into severance agreements with several key employees, including Dr. Appleton. These agreements provide severance benefits if there is a change in control of Thermo Electron that is not approved by the Board of Directors of Thermo Electron and the employee's employment with Thermo Electron or one of its majority-owned subsidiaries is terminated, for whatever reason, within one year thereafter. For purposes of the severance agreements, a change of control exists upon (i) the acquisition of 50% or more of the outstanding common stock of Thermo Electron by any person without the prior approval of the board of directors of Thermo Electron, (ii) the failure of the board of directors of Thermo Electron, within two years after any contested election of directors or tender or exchange offer not approved by the board of directors, to be constituted of a majority of directors holding office prior to such event or (iii) any other event that the board of directors of Thermo Electron determines constitutes an effective change in control of Thermo Electron. The benefit under these agreements is stated as an initial percentage which was established by the Board of Directors of Thermo Electron in 1983 and is generally based upon the employee's age and length of service with Thermo Electron at the time of severance. Benefits are to be paid over a five-year period. The benefit to be paid in the first year is determined by applying this percentage to the employee's highest annual total remuneration in any 12-month period during the preceding three years. This benefit is reduced by 10% in each of the succeeding four years in which benefits are paid. The initial percentage to be so applied to Dr. Appleton is 40.1%. Assuming severance benefits would have been payable under such agreements as of March 29, 1997, Dr. Appleton would have received approximately $119,906 in the first year thereof from Thermo Electron. 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, the Corporation has created Thermo Remediation as a majority-owned publicly held subsidiary. F rom time to time, 14 PAGE Thermo Electron and its subsidiaries will create other majority-owned subsidiaries as part of its spinout strategy. (The Corporation and the other majority-owned Thermo Electron subsidiaries are hereinafter referred to as the "Thermo Subsidiaries".) Thermo Electron and each of the Thermo Subsidiaries recognize that the benefits and support that derive from their mutual affiliation are essential elements of their individual performance. Accordingly, Thermo Electron and each of the Thermo Subsidiaries 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 15 PAGE 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. However, a withdrawing company is required to continue to comply with all policies and procedures applicable to the Thermo Group and to provide certain administrative functions mandated by Thermo Electron so long as the withdrawing company is controlled by or affiliated with Thermo Electron. As provided in the Charter, the Corporation and Thermo Electron have entered into a Corporate Services Agreement (the "Services Agreement") under which Thermo Electron's corporate staff provides certain administrative services, including certain legal advice and services, risk management, certain employee benefit administration, tax advice and preparation of tax returns, centralized cash management and financial and other services to the Corporation. The Corporation was assessed an annual fee equal to 1.0% of the Corporation's revenues for these services for fiscal 1997. The fee is reviewed annually and may be changed by mutual agreement of the Corporation and Thermo Electron. During fiscal 1997, Thermo Electron assessed the Corporation $2,785,000 in fees under the Services Agreement. Management believes that the charges under the Services Agreement are reasonable and that the terms of the Services Agreement are fair to the Corporation. For items such as employee benefit plans, insurance coverage and other identifiable costs, Thermo Electron charges the Corporation based on charges attributable to the Corporation. The Services Agreement automatically renews for successive one-year terms, unless canceled by the Corporation upon 30 days' prior notice. In addition, the Services Agreement terminates automatically in the event the Corporation ceases to be a member of the Thermo Group or ceases to be a participant in the Charter. In the event of a termination of the Services Agreement, the Corporation will be required to pay a termination fee equal to the fee that was paid by the Corporation for 16 PAGE 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. As of March 29 , 1997, $59,781,000 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 and have a maturity of three months or less. The repurchase agreement earns a rate based on the Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. The Corporation leases or subleases three office and manufacturing facilities from Thermo Electron. The total rental payments made to Thermo Electron during fiscal year 1997 under these agreements was $553,000. The Corporation and Thermo Electron entered into a development agreement under which Thermo Electron agreed to fund up to $4,000,000 of the direct and indirect costs of the Corporation's development of soil-remediation centers. In exchange for this funding, the Corporation granted Thermo Electron a royalty equal to approximately 3% of net revenues from soil-remediation services performed at the centers developed under this agreement. The royalty payments may cease if the amounts paid by the Corporation yield a certain internal rate of return to Thermo Electron on the funds advanced to the Corporation under this agreement. The Corporation paid Thermo Electron royalties of $186,000 in fiscal 1997. From time to time, the Corporation may transact business with the other companies in the Thermo Group. In fiscal 1997, these transactions included the Corporation's October 1996 acquisition of Metal Treating Inc., a provider of heat treating services, from Thermo Electron in exchange for $1,600,000 in cash. 17 PAGE As of March 29, 1997, the Corporation owed Thermo Electron an aggregate of $40,926,000. Thermo Electron owned approximately 85.9% Corporation's outstanding Common Stock on June 28, 1997. Stock Holding Assistance Plan In fiscal 1997, 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. Loans will 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. No such loans were outstanding in fiscal 1997. AA972050013 -----END PRIVACY-ENHANCED MESSAGE-----