-----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, MohKV6EGPhR5abIqv6oWVwu/Tp+38TaXrfzbOsqURtSWTNPU5unsI0u89IX5qbBg +JJ44aODh01DsjJo8E1O8g== 0000097745-00-000027.txt : 20000323 0000097745-00-000027.hdr.sgml : 20000323 ACCESSION NUMBER: 0000097745-00-000027 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20000101 FILED AS OF DATE: 20000322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO ELECTRON CORP CENTRAL INDEX KEY: 0000097745 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 042209186 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08002 FILM NUMBER: 575823 BUSINESS ADDRESS: STREET 1: 81 WYMAN ST STREET 2: P O BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02454 BUSINESS PHONE: 7816221000 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------------------------------------------- FORM 10-K (mark one) [ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended January 1, 2000 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-8002 THERMO ELECTRON CORPORATION (Exact name of Registrant as specified in its charter) Delaware 04-2209186 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 81 Wyman Street, P.O. Box 9046 Waltham, Massachusetts 02454-9046 (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: Title of each class Name of each exchange on which registered Common Stock, $1.00 par value New York Stock Exchange Preferred Stock Purchase Rights 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 January 28, 2000, was approximately $2,493,791,000. As of January 28, 2000, the Registrant had 156,800,687 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Shareholders for the year ended January 1, 2000, are incorporated by reference into Parts I and II. Portions of the Registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 18, 2000, are incorporated by reference into Part III. PART I Item 1. Business (a) General Development of Business Thermo Electron Corporation (also referred to in this document as the Company or the Registrant) is a global leader in the development, manufacture, and sale of measurement and detection instruments used in virtually every industry to monitor, collect, and analyze data that provides knowledge for the user. For example, the Company's powerful analysis technologies help researchers sift through data to make the discoveries that will fight disease or prolong life; allow manufacturers to fabricate ever-smaller components required to increase the speed and quality of communications; or monitor and control industrial processes on-line to ensure that critical quality standards are met efficiently and safely. In the late eighties, Thermo Electron had adopted a strategy of spinning out certain of its businesses into separate public subsidiaries in which it held the majority ownership. By offering employees a stake in their own ventures, Thermo Electron's objective was to maintain the entrepreneurial culture it believed was essential to its continued growth and development. By 1997, the Company had spun out 22 public entities serving many diverse markets. In 1998, the Company began to reorganize and simplify its structure to increase business focus. During 1999, three of its subsidiaries were taken private, and a fourth in early 2000. Also in 1999, the Company's Thermo Instrument Systems Inc. subsidiary completed the acquisition of Spectra-Physics AB, a Stockholm Stock Exchange-listed company. As part of the acquisition of Spectra-Physics, Thermo Instrument acquired Spectra-Physics' majority-owned public subsidiary, Spectra-Physics Lasers, Inc. (SPLI). In January 2000, Thermo Electron announced a major reorganization that would allow it to focus solely on its measurement and detection instrument business. The Company will offer as a dividend to its shareholders two businesses that will be spun off completely: one serving the healthcare industry with a range of medical products for diagnosis and monitoring, and the other supplying systems to the paper making and recycling industry as well as fiber-based consumer products. In addition, the Company plans to sell other non-core businesses with aggregate revenues of more than $1 billion. The businesses to be spun off and sold have been accounted for as discontinued operations (see "Description of Business - Principal Products and Services"). As part of this plan, the Company intends to take private all of its remaining public subsidiaries, except for SPLI. Except where indicated, the information presented in this Form 10-K pertains to the Company's continuing operations. Each component of the reorganization is subject to numerous conditions, as outlined in Note 17 to Consolidated Financial Statements in the Registrant's 1999* Annual Report to Shareholders, which is incorporated into this document by reference. The Company believes that this reorganization will offer a number of long-term benefits. It will vastly simplify Thermo Electron's corporate structure and allow it to channel all resources toward a single business - instrumentation. It will create added value for shareholders by offering a stake in the two spinoff companies. In addition, it will generate substantial cash from the sale of businesses that can be reinvested in the future growth of the Company. The Company's strategy going forward is to emphasize internal growth by continuing to actively fund research and development, particularly in its high-growth segments serving the life sciences and telecommunications industries, and to augment that growth with complementary acquisitions. Thermo Electron is a Delaware corporation and was incorporated in 1956. The Company completed its initial public offering in 1967 and was listed on the New York Stock Exchange in 1980. - -------------------- * References to 1999, 1998, and 1997 herein are for the fiscal years ended January 1, 2000, January 2, 1999, and January 3, 1998, respectively. 2 Forward-looking Statements Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Annual Report on Form 10-K. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed under the heading "Forward-looking Statements" in the Registrant's 1999 Annual Report to Shareholders, which statements are incorporated herein by reference. (b) Financial Information About Segments Financial information concerning the Company's segments is summarized in Note 14 to Consolidated Financial Statements in the Registrant's 1999 Annual Report to Shareholders, which information is incorporated herein by reference. (c) Description of Business (i) Principal Products and Services Thermo Electron has elected to focus on its instruments business, and, as stated previously, has initiated a significant reorganization plan to accomplish that objective. Although no longer considered a core business under the plan, its Thermo Ecotek Corporation subsidiary will remain with the Company after it is taken private as Thermo Electron continues to evaluate how to best exit that business while creating maximum value for shareholders. As a result, Thermo Electron currently reports its business in four segments: Life Sciences, Optical Technologies, Measurement and Control, and Power Generation. This represents a change in the composition of its segments from prior periods, and the Company has restated the information contained herein regarding segments for earlier periods. Life Sciences The Company addresses the biotechnology and pharmaceutical markets, as well as the clinical laboratory and healthcare industries, through its Life Sciences segment. The segment is organized into five groups: biosciences instruments and consumables, advanced instrumentation and consumables, scientific equipment, clinical equipment and supplies, and information management systems. Biosciences instruments and consumables encompass a broad range of instruments, such as microplate-based handling and reading equipment, optical biosensors, polymerase chain reaction (PCR) thermal cyclers for deoxyribonucleic acid (DNA) amplification, and capillary electrophoresis (CE). Consumables - disposable, one-time use, or limited life span products - include reagents, microtiter plates, liquid-handling pipettes, and pipette tips. Biosciences instruments are used primarily by pharmaceutical companies for drug discovery and development, testing, and quality control, and by biotechnology companies for research leading to knowledge about diseases and possible treatments. These products are typically used on the "front end" of multi-instrument systems, as the instruments prepare and handle samples prior to being loaded into other, advanced instruments. Advanced instrumentation and consumables includes the Company's offerings of mass spectrometers, liquid chromatographs, gas chromatographs, and multi-instrument combinations of these products, along with the vials, syringes, and columns necessary for chromatography. As with biomolecular instruments, these products are used by the pharmaceutical industry for drug development, testing, and quality control; and by the biotechnology industry for research leading to knowledge about disease and possible treatments. A significant, and growing, application for these instruments is proteomics, which is the study of proteins. Most drugs - about 90 percent - interact with proteins, so 3 multi-instrument systems that rapidly identify and quantify proteins are of increasing value to pharmaceutical and biotechnology customers. In 2000, the Company introduced an integrated, high-throughput system for the quantitative analysis of proteins, employing the Company's new Surveyor high performance liquid chromatograph, LCQ Deca mass spectrometer, and new TurboSEQUEST software. Scientific equipment is used for the preparation and preservation of chemical samples, principally in research settings for pharmaceutical, academic, and government customers. Products in this group include ultralow-temperature freezers, high-speed centrifuges, centrifugal vacuum concentrators, and laboratory freeze dryers. The Company also designs, manufactures, and markets electrochemistry and other technologies for quality assurance and regulatory compliance, primarily in the environmental, food, beverage, chemical, pharmaceutical, and biomedical research industries. These products determine the quality of various substances, from food and pharmaceuticals to water and wastewater, by measuring their pH, specific ion concentration, dissolved oxygen, and conductivity. Clinical equipment and supplies are used by such healthcare facilities as reference laboratories, physician-office laboratories, and hospital laboratories to detect and diagnose disease. Products in this group include sample preparation instruments and materials to highlight abnormal cells, blood gas and ion-selective electrolyte (ISE) consumables, chemistry reagents, clinical biochemistry instruments and automation equipment, and rapid diagnostic tests for use in physicians' offices. The Company received U.S. Food and Drug Administration (FDA) clearance in December 1998 for its FLU OIA 15-minute diagnostic test, which detects influenza A and B in patient samples. The Company also received FDA clearance in 1999 to market a rapid diagnostic test for Clostridium difficile, an intestinal disease. Information management systems provided by the Company facilitate the monitoring and analysis of samples, as well as storage and organization of information in laboratories, industrial settings, and clinical testing sites. The Company is a leading supplier of laboratory information management systems (LIMS) and provides chromatography data systems (CDS) to analyze chromatographic data obtained via gas or liquid chromatography and CE. Optical Technologies The Company is a leader in optical and energy-based systems and technologies that control and apply light throughout the electromagnetic spectrum for many different uses. Products within the Optical Technologies segment are used in multiple markets, particularly the scientific instrument, semiconductor, and telecommunications industries, to fabricate, analyze, and implement advanced materials. These products are grouped into four categories: spectroscopy, semiconductor, physical properties, and photonics. In addition, the Company's majority-owned SPLI subsidiary, a leader in the design, development, manufacture, and distribution of lasers and laser systems for a broad range of markets, is also part of the Optical Technologies segment. Spectroscopy instrumentation is used for molecular and elemental analysis based upon energy and light measurements. These precision instruments use optics to determine, in a nondestructive manner, the composition of a wide range of complex liquids and solids. Customers include pharmaceutical, specialty chemical, and basic material producers, who use these instruments either in a laboratory or integrated into the production line. Semiconductor products are used in the manufacture of capital equipment that produces and tests semiconductors. In particular, the Company is the leading supplier of molecular beam epitaxy (MBE) reactors for the manufacture of gallium arsenide and other compound semiconductor devices. The largest application is for microwave devices used in cellular telephones and other high-speed wireless communications devices. In 1999, the Company introduced the V150 MBE, a successor to its market-leading V100 MBE system. The V150 MBE helps customers keep up with the rapidly growing demand for high-speed telecommunications devices by significantly increasing semiconductor production capacity. 4 Physical properties products analyze materials for viscosity, surface tension, and thermal properties. Significant customers include the food and beverage industries, which use high-precision viscometers to maintain quality and consistency of their products. In addition, the Company manufactures products for precision temperature control necessary for analytical, laboratory, industrial, research and development, laser, and semiconductor applications. Photonics businesses manufacture optical components that are used in a variety of industries, including scientific and medical instruments, telecommunications, and semiconductor applications. Also a part of this segment, SPLI offers technologies of high-power semiconductor-based laser and semiconductor laser pumped solid state laser technologies, as well as conventional lasers and laser-related products. Conventional lasers have unique performance characteristics that make them the only current solution for certain demanding technical applications. SPLI also manufactures high-power semiconductor-based lasers, which are generally more efficient, reliable, cost-effective, and compact than conventional lasers. SPLI's customers are in the materials processing, life sciences, research and development, printing, and telecommunications markets. Research and development emphasis will be on creating components for the next generation of high-speed fiber-optic telecommunications. In 1999, SPLI introduced a new line of thin-film filters, which are used to separate data (light) within fiber-optic cable, allowing more wavelengths of light to travel down the cable to increase what is known as the "bandwidth" or capacity of the fiber. Measurement and Control The Company provides a range of real-time, on-line sensors, monitors, and control systems through its Measurement and Control segment that not only help manufacturers ensure their processes and industrial practices meet their own and government standards for quality, reliability, and safety, but also reduce costs, save materials, and increase productivity. These products are organized into five groups: environmental, weighing and inspection, quality control, field instruments and sensors, and oil and gas. Environmental products include a complete line of instruments and systems for monitoring environmental pollutants generated by industrial and mobile sources. These include continuous gaseous and aerosol monitors, and water quality instruments for assessing ambient air quality and emissions from stationary sources. Specific compounds measured include oxides of nitrogen, sulfur dioxide, ozone, carbon monoxide, carbon dioxide, volatile organic compounds, fine particulates, total organic carbon, and total organic halogens. The Company also provides a comprehensive line of radiation and gas detectors for controlling and detecting the presence of harmful radiation and combustible and toxic gases for worker and plant safety. These products range from the simplest handheld general-purpose portable equipment to more sophisticated stationary installed systems. Weighing and inspection systems include a comprehensive family of on-line weighing, force measurement, and inspection equipment for consumer products, packaged goods, and bulk materials. Products for the packaged and consumer goods sector provide customers with a quality and productivity solution by ensuring that each package contains the proper quantity or a specific item, whether it be a food product or a book ordered over the Internet. In addition, the Company employs in its systems various technologies including X-ray imaging and ultratrace chemical detection to inspect food, beverage, and pharmaceutical packages to see that they are free of physical contaminants and contain no missing or broken parts. In bulk materials, the Company's product line includes solids flow monitoring, level measurement, and force and tension measurements for a wide variety of process industries including food, chemicals, plastics, and pharmaceuticals. 5 Quality control systems are manufactured by the Company for on-line process optimization, taking ultrahigh-speed noninvasive measurements and analyzing the physical and chemical properties of streams of raw materials in real time. These systems are used primarily to analyze the composition of raw materials for certain basic industries, such as coal, cement, and minerals production. This technology allows the entire stream of material to be analyzed and eliminates the need for off-line sampling, which adds production time and cost. Process optimization systems are also provided by the Company for the continuous production of certain web-type finished materials, such as metal strip, plastics, foil, rubber, glass, and paper. The Company's instruments measure the total thickness, basis weight, and coating thickness of such materials, and are also capable of detecting defects the size of a pinhole in these webs. They can measure a single point on the material, several points, or generate a web profile. Measurements are gathered without contacting the material or interfering with the production process, and are highly accurate and extremely reliable - even in hostile environments such as steel mills. These systems provide tangible economic benefits for customers, while reducing materials waste and energy consumption. Field instruments and sensors are provided by the Company for use in the process control industry. These instruments measure level, density, flow, and composition, acquiring data for use in controlling industrial and chemical processes. Level and density instruments include point-level, continuous-level, and density sensors that use a variety of technologies, including commercial radiation, radar, ultrasonic, and vibrational measurement principles. Flow instrumentation includes ultrasonic flowmeters, in-line turbine meters, pitostatic air flow monitors, and electronic flow metering instruments used for natural gas custody transfer. The Company's on-line composition analysis instruments are used to measure chemical compounds in a variety of liquids, gases, and solids using gas chromatographic, mass spectrographic, and X-ray fluorescent technologies. The Company also offers strip chart and video graphic recorders along with instrumentation for measuring and recording AC power in industrial facilities. Oil and gas products cover specifically designed and installed sensor systems that are used to provide real-time measurement, data communication, and local control of process functions, primarily for customers in the production segment of the oil and gas industry. These special-purpose instruments and sensors include rod pump controllers, remote terminal units, gas-injection systems, and both topside and subsea wellhead safety and control systems. These systems and the aftermarket services provided are required by oil and gas companies throughout the world, particularly those operating offshore platforms. The Company's electrical generators, switchgear, and motor control units are used in a wide variety of industrial and commercial applications. Power Generation Through its Thermo Ecotek business, the Company develops, owns, and operates independent (nonutility) electric power-generation facilities in this country and overseas, as well as a natural gas gathering, storage, and marketing business in the U.S. Thermo Ecotek currently operates six power plants fueled by agricultural and wood wastes, known as biomass. Its facilities are typically developed and operated through joint ventures or limited partnerships in which it has a majority interest, or through wholly owned subsidiaries. Thermo Ecotek believes that utility deregulation may present opportunities for updating, or repowering, existing plants and is pursuing the development of additional power projects both in the U.S. and overseas. In November 1997, Thermo Ecotek purchased two deregulated plants in southern California for repowering, and acquired the rights to develop a similar site in Florida in January 1999. Overseas, the Company indirectly acquired a majority interest in two energy centers in the Czech Republic in early 1998, and in September 1999 acquired an electricity generating facility in Germany. Thermo Ecotek also established a Texas-based natural gas gathering, storage, and marketing business in 1998. Called Star Natural Gas, this business provides midstream services to the natural gas industry by offering natural gas gathering capabilities from the wellhead to the transmission pipeline; gas processing, which involves the extraction of natural gas liquids; gas treatment for removal of impurities; and underground storage facilities. These services provide a means by which gas producers move and market their products. 6 The Company believes that global energy deregulation presents future opportunities for independent power generation. However, since Thermo Ecotek has been deemed a non-core business according to Thermo Electron's reorganization plan, any future investment will be funded solely by Thermo Ecotek. In August 1995, Thermo Ecotek entered into a Limited Partnership Agreement with KFx Wyoming, Inc., a subsidiary of KFx, Inc., to develop, construct, and operate a coal-beneficiation plant in Gillette, Wyoming. The facility employed patented "clean coal" technology to remove excess moisture and increase energy from low-grade regional coal. Although Thermo Ecotek believes the technology employed at the plant was viable, and a high-quality coal product was produced, various operational problems were encountered that would require a significant investment to yield production volumes that would meet the Company's objectives. As a result, in May 1999, Thermo Ecotek decided to cease operation of the plant and hold for sale its investment in the facility. Discontinued Operations As a result of its reorganization plan announced January 31, 2000, in which Thermo Electron will take private, spin off, and sell a number of companies to focus on the instrumentation marketplace, a number of businesses have been accounted for as discontinued operations. The major businesses included in this category are as follows: Businesses to be spun off: Thermo Fibertek companies Thermo Fibertek: papermaking and recycling equipment and water-management systems Thermo Fibergen: fiber-based composite products and water-clarification and fiber recovery systems New Medical Products company Thermo Biomedical: neurodiagnostic monitoring, vascular, and audiology systems; respiratory-care products; and portable patient-monitors Thermedics Medical: biocompatible polymers; cardiac and respiratory diagnostic and monitoring equipment; and enteral feeding systems Businesses to be sold include the following: Thermo Cardiosystems: heart-assist devices Trex Medical: medical imaging systems Thermo TerraTech: environmental management and infrastructure engineering services Thermo Coleman: systems engineering and analytical services Peek: intelligent traffic control systems NuTemp: industrial refrigeration systems Thermo Trilogy: biopesticide products Peter Brotherhood: industrial turbines and compressors (ii) and (xi) New Products; Research and Development The Company's business includes the development and introduction of new products and may include entry into new business segments. The Company has made no commitments to new products that require the investment of a material amount of the Company's assets, nor does it have any definitive plans to enter new business segments that would require such an investment. During 1999, 1998, and 1997, the Company expended $171.1 million, $128.0 million, and $123.9 million, respectively, on research and development. 7 (iii) Raw Materials Continuing Operations In the opinion of management, the Company has a readily available supply of raw materials for all of its significant products from various sources and does not anticipate any difficulties in obtaining the raw materials essential to its business. Discontinued Operations Certain raw materials used in the manufacture of Thermo Cardiosystems' left ventricular-assist systems (LVAS) are available from only one or two suppliers. Thermo Cardiosystems is making efforts to minimize the risks associated with sole sources and ensure long-term availability, including qualifying alternative materials and components or developing alternative sources for materials and components supplied by a single source. Although Thermo Cardiosystems believes that it has adequate supplies of materials and components to meet demand for the LVAS for the foreseeable future, no assurance can be given that Thermo Cardiosystems will not experience shortages of certain materials or components in the future that could delay shipments of the LVAS. The cost to Thermo Cardiosystems to evaluate and test alternative materials and components and the time necessary to obtain FDA approval for these materials and components are inherently difficult to determine because both time and cost are dependent on at least two factors: the similarity of alternative materials or components to the original materials or components, and the amount of third-party testing that may have already been completed on alternative materials or components. There can be no assurance that the substitution of alternative materials or components will not cause delays in Thermo Cardiosystems' LVAS development program or adversely affect Thermo Cardiosystems' ability to manufacture and ship LVAS to meet demand. (iv) Patents, Licenses, and Trademarks Continuing Operations The Company considers patents to be important in the present operation of its business; however, the Company does not consider any patent, or related group of patents, to be of such importance that its expiration or termination would materially affect the Company's business taken as a whole. The Company seeks patent protection for inventions and developments made by its personnel and incorporated into its products or otherwise falling within its fields of interest. Patent rights resulting from work sponsored by outside parties do not always accrue exclusively to the Company and may be limited by agreements or contracts. The Company protects some of its technology as trade secrets and, where appropriate, uses trademarks or registers its products. It also enters into license agreements with others to grant and/or receive rights to patents and know-how. Discontinued Operations Thermo Cardiosystems has received correspondence from a third party alleging that the textured surface of the LVAS housing infringes certain patent rights of such third party. In general, an owner of intellectual property can prevent others from using such property without a license and is entitled to damages for unauthorized usage. Thermo Cardiosystems has investigated the bases of the allegation and, based on the opinion of its counsel and the Company's assessment of the proceedings in the United States Patent and Trademark Office to date, it believes that if it were sued on these bases, it would have meritorious defenses. Given the inherent uncertainties in dispute resolution, however, if Thermo Cardiosystems were sued and the outcome were unfavorable, Thermo Cardiosystems' results of operations or financial condition could be materially adversely affected in amounts Thermo Cardiosystems cannot reasonably estimate. 8 (v) Seasonal Influences Thermo Ecotek, which represents the Power Generation segment, historically has earned a disproportionately high share of its income from May through October due to the rate structures under the power-sales agreements relating to its California power plants, which provided strong incentives to operate during this period of high demand. Conversely, Thermo Ecotek historically has operated at a marginal profit during the first calendar quarter due to the rate structure under these agreements. Due to the expiration of the fixed price contracts at Thermo Ecotek's California plants, the seasonality of this business is expected to be reduced in the future. There are no other material seasonal influences on the Company's sales of products. (vi) Working Capital Requirements There are no special inventory requirements or credit terms extended to customers that would have a material adverse effect on the Company's working capital. (vii) Dependency on a Single Customer No single customer accounted for more than 10% of the Company's total revenues in any of the past three years. The Power Generation segment derived 10% or more of its revenues during the past three years from its three most significant electric utility customers. Revenues from Southern California Edison as a percentage of the Power Generation segment's revenues were approximately 34%, 35%, and 34% in 1999, 1998, and 1997, respectively. Revenues from Pacific Gas & Electric as a percentage of the Power Generation segment's revenues were approximately 26%, 34%, and 35% in 1999, 1998, and 1997, respectively. Revenues from Public Service of New Hampshire as a percentage of the Power Generation segment's revenues were approximately 19%, 19%, and 20% in 1999, 1998, and 1997, respectively. (viii) Backlog The Company's backlog of firm orders at year-end 1999 and 1998 was as follows:
(In thousands) 1999 1998 - ------------------------------------------------------------------------------------- -------- -------- Life Sciences $110,224 $ 91,250 Optical Technologies 200,421 122,361 Measurement and Control 114,138 96,036 Power Generation 47,245 98,733 -------- -------- $472,028 $408,380 ======== ======== The Company believes substantially all of the year-end 1999 backlog will be filled during 2000. The decrease in backlog at the Power Generation segment primarily results from the expiration of fixed price contracts at Thermo Ecotek. (ix) Government Contracts Not applicable. 9 (x) Competition The markets for the Company's products are highly competitive. The Company generally competes on the basis of technical advances that result in new products and improved price/performance ratios, reputation among customers as a quality leader for products and services, and active research and application-development programs. To a lesser extent, the Company competes on the basis of price. In many markets, the Company competes with large analytical instrument companies such as Agilent Technologies; PerkinElmer, Inc.; Varian Associates, Inc.; Waters Corporation; and Hitachi, Ltd. Certain products manufactured by the Company also compete with products sold by numerous smaller, specialized firms. Life Sciences Biosciences instruments and consumables. The Company competes with PerkinElmer; Molecular Devices Corporation; Beckman Coulter, Inc.; Bio-Rad Laboratories, Inc.; Agilent; MJ Research Technology; Qiagen Corporation; Biacore International, Inc.; Nalge Nunc Inc.; Corning-Costar Corporation; Rainin Instruments; Greiner GmbH; and Eppendorf GmbH. The Company competes primarily on the basis of technical performance, user convenience, and, to a lesser extent, price. Advanced instrumentation and consumables. The Company's principal competitors include Agilent, Waters, Shimadzu Corporation, and PerkinElmer. The Company competes primarily on the basis of technical performance, customer service and support, and price. Scientific equipment. The Company's principal competitors in this market are Jouan S.A., NuAire Inc., Sanyo Electric Co. Ltd., Labconco Corporation, Corning, Fisher Scientific International Inc., Mettler-Toledo International Inc., Beckman Coulter, Metrohm Ltd., Radiometer, Kyoto, ManTech, and Denver Instruments. In this market, the Company competes primarily on the basis of technical performance, customer service and support, and price. Clinical equipment and supplies. The Company competes with Leica Microsystems; Sakura Finetek U.S.A., Inc.; Ventana Corporation; Cytyc Corporation; Wescor Inc.; Jewett Inc.; and Mopec Inc. The Company competes primarily on the basis of quality, price, and service. In the clinical chemistry reagent market, the Company's competitors include Abbott Laboratories; BioChem Pharma; Chiron Corporation; and Sigma Diagnostics, a division of Sigma-Aldrich Co. The Company competes in this market primarily on the basis of product quality and price. Competitors in the market for rapid diagnostic test kits are Abbott Laboratories; Becton, Dickinson and Company; Roche-Boeringher Manheim; and Quidel Corporation. The Company competes primarily on the basis of its innovative technology as well as price. Information management systems. The Company's competitors include PerkinElmer, PE Biosystems, Beckman Coulter, Agilent, LabVantage Solutions, LIMS U.S., Scientific Software Inc., and Waters. The Company competes primarily on the basis of product performance and price. Optical Technologies Spectroscopy. In the spectroscopy market, the Company competes primarily with the Analytical Instrument division of PerkinElmer, Varian, Agilent, and Bio-Rad. The Company competes primarily on the basis of quality, performance, technology, and price. 10 Semiconductor. The Company competes primarily with Riber Instruments S.A. and Oxford Instruments plc. In this market, the Company competes primarily on the basis of quality, performance, technology, and price. Physical properties. The Company competes with TA Instruments, Inc., a subsidiary of Waters; and Rheometrics Scientific Inc. The Company offers mid-level products in this market, with instruments that operate on a personal-computer platform. The Company competes in this market primarily on the basis of quality, performance, and price. Photonics. The Company competes primarily on the basis of technical suitability, product performance, reliability, and price. Principal competitors include Optical Coating Laboratory, Inc. and Newport Corporation. Measurement and Control Environmental. The Company's principal competitors include Monitor Labs Incorporated; Advanced Pollution Instruments; Rupprecht & Pataschnick Co., Inc.; and Mine Safety Appliances Co. The Company competes in this market primarily on the basis of technical performance, price, reliability, and customer service. Weighing and inspection. Major competitors in the packaged-goods and bulk-materials markets are Ishida Scales Mfg. Co., Ltd.; Mettler-Toledo AG; Carl Schenck AG; and Milltronics Corporation. Competitive pressures affecting the market for precision-weighing and inspection equipment include customer service and support, quality and reliability, price, accuracy, ease of use, distribution channels, technical features, compatibility with customers' manufacturing processes, and regulatory approvals. Quality control. The Company's principal competitors include Scantech Limited, Integrated Measurement Systems, Inc., Toshiba Corporation, Yokogawa Electric Corporation, and Infrared Engineering Limited. The Company competes primarily on the basis of technical performance, customer service, and, to a lesser extent, price. Field instruments and sensors. In the field measurement instruments and sensors market the Company competes primarily on quality and reliability, technical features, accuracy, ease of use, price, and reputation for aftermarket service. The Company competes with a few large competitors in each product area and with many companies within specific industries. Major competitors include Fisher-Rosemount, a division of Emerson Electric Co., Inc.; Asea Brown Boveri (Holding) Ltd.; and Yokogawa. Oil and gas. The Company has a relatively small presence within the large and varied process-control marketplace, which is extremely fragmented and consists of several large companies, including Fisher-Rosemount, Elsag Bailey, and Honeywell Process Control, as well as numerous smaller companies. The Company competes in this market primarily on the basis of technical performance, customer service, price, and reliability. Power Generation The worldwide independent power market consists of numerous companies, ranging from small startups to multinational firms. In addition, a number of regulated utilities have created subsidiaries that compete as nonutility generators. Nonutility generators often specialize in market niches, such as a specific technology or fuel (for example, gas-fired cogeneration, refuse-to-energy, hydropower, geothermal, wind, solar, wood, or coal) or a specific region of the country where they believe they have a market advantage. However, many nonutility generators seek to develop projects powered by the best fuel available. Many companies in this market have substantially greater financial, technical, and operational resources than the Company. The Company competes primarily on the basis of project experience, technical expertise, capital resources, and power pricing. 11 (xii) Environmental Protection Regulations The Company believes that compliance with federal, state, and local environmental protection regulations will not have a material adverse effect on its capital expenditures, earnings, or competitive position. (xiii) Number of Employees At January 1, 2000, the Company employed approximately 25,400 persons, of which 14,160 were employed by the Company's continuing operations and 11,240 by the Company's discontinued operations. (d) Financial Information About Geographic Areas Financial information about geographic areas is summarized in Note 14 to Consolidated Financial Statements in the Registrant's 1999 Annual Report to Shareholders, which information is incorporated herein by reference.
(e) Executive Officers of the Registrant
Name Age Present Title (Fiscal Year First Became Executive Officer) -------------------- --- ---------------------------------------------------------- Richard F. Syron 56 Chief Executive Officer and President (1999) Brian D. Holt 50 Chief Operating Officer, Energy and Environment (1998) John T. Keiser 64 Chief Operating Officer, Biomedical (1998) Earl R. Lewis 56 Chief Operating Officer, Measurement and Detection (1998) William A. Rainville 58 Chief Operating Officer, Recycling and Resource Recovery (1993) Theo Melas-Kyriazi 40 Chief Financial Officer and Vice President (1998) Paul F. Kelleher 57 Senior Vice President, Finance and Administration (1982) Each executive officer serves until his successor is chosen or appointed and qualified or until earlier resignation, death, or removal. Mr. Syron was appointed President and Chief Executive Officer in June 1999 and Chairman of the Board in January 2000. From April 1994 until May 1999, Mr. Syron was the Chairman and Chief Executive officer of the American Stock Exchange Inc. Mr. Holt was appointed Chief Operating Officer, Energy and Environment, in September 1998. From March 1996 to September 1998 he was a Vice President of the Company. Mr. Holt has been President and Chief Executive Officer of Thermo Ecotek since February 1994. Mr. Keiser was appointed Chief Operating Officer, Biomedical, in September 1998. From 1985 until 1994, Mr. Keiser was President of the Eberline Instrument division of Thermo Instrument. In 1994 he was appointed Senior Vice President of Thermedics and President of Thermo Biomedical. In March 1998, he was named President of Thermedics. Mr. Lewis was appointed Chief Operating Officer, Instrumentation, in September 1998, and his title was changed to Chief Operating Officer, Measurement and Detection, in March 1999. Mr. Lewis was a Vice President of the Company from March 1996 to June 1998 and a Senior Vice President of the Company from June 1998 to September 1998. Since 1990 Mr. Lewis has held various positions with Thermo Instrument, and effective March 1997, was named President and in January 1998 was named Chief Executive Officer of Thermo Instrument. Mr. Rainville was appointed Chief Operating Officer, Recycling and Resource Recovery, in September 1998. He was a Senior Vice President of the Company from 1993 until 1998 and was a Vice President of the Company from 1986 to 1993. Mr. Melas-Kyriazi was appointed Chief Financial Officer on January 1, 1999. He joined the Company in 1986 as Assistant Treasurer, and became Treasurer in 1998. He was named President and Chief Executive Officer of ThermoSpectra in 1994, a position he held until becoming Vice President of Corporate Strategy of the Company in 1998. Mr. Kelleher has held comparable positions with the Company for at least the last five years. 12 Item 2. Properties The location and general character of the Company's principal properties by segment as of January 1, 2000, are as follows: Life Sciences The Company owns approximately 1,080,000 square feet of office, engineering, laboratory, and production space, principally in Ohio, California, Pennsylvania, Massachusetts, Italy, Germany, and England, and leases approximately 1,130,000 square feet of office, engineering, laboratory, and production space, principally in Massachusetts, Virginia, Texas, Colorado, New York, Finland, England, and France, under leases expiring from 2000 to 2016. Optical Technologies The Company owns approximately 860,000 square feet of office, engineering, laboratory, and production space, principally in Wisconsin, California, New York, Arizona, Germany, Switzerland, and England, and leases approximately 1,330,000 square feet of office, engineering, laboratory, and production space, principally in Massachusetts, California, Connecticut, New Hampshire, and England, under leases expiring from 2000 to 2017. Measurement and Control The Company owns approximately 400,000 square feet of office, engineering, laboratory, and production space, principally in New Mexico, California, Texas, Indiana, Arkansas, Louisiana, Germany, and England, and leases approximately 2,110,000 square feet of office, engineering, laboratory, and production space, principally in Ohio, Texas, Massachusetts, California, Minnesota, Maryland, Georgia, Sweden, Germany, England, Australia, and the Netherlands, under leases expiring from 2000 to 2068. Power Generation The Company leases approximately 50,000 square feet of office space, principally in Massachusetts and Texas, under leases expiring from 2000 to 2004. The Company operates three independent power plants in California and New Hampshire, under leases expiring from 2000 to 2010. The Company owns three independent power plants in New Hampshire and California and a coal-beneficiation plant in Wyoming. The Company believes that its facilities are in good condition and are suitable and adequate to meet its current needs, and that suitable replacements are available on commercially reasonable terms for any leases that expire in the near term in the event that the Company is unable to renew such leases on reasonable terms. Item 3. Legal Proceedings Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. 13 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Information concerning the market and market price for the Registrant's common stock, $1.00 par value, and dividend policy, is included under the sections labeled "Common Stock Market Information" and "Dividend Policy" in the Registrant's 1999 Annual Report to Shareholders and is incorporated herein by reference. During 1998 and 1999, in a series of transactions with an institutional counterparty, the Registrant sold put options on an aggregate of 5,701,000 shares of its common stock and purchased call options on an aggregate of 2,850,500 shares of its common stock. No cash was exchanged as a result of these transactions. The Registrant has a remaining maximum potential obligation under the put options to buy back 2,367,000 shares at a weighted average exercise price of $14.06 for an aggregate of $33.3 million. These put and call options are exercisable only at maturity and expire between April and May 2000. The Registrant has the right to settle the put options by physical settlement of the options or by net share settlement using shares of the Registrant's common stock. Under the remaining call options, the Registrant has the right, but not the obligation, to purchase from the counterparty 1,183,500 shares of its common stock at an average price per share of $14.76 in 2000. The Registrant may, from time to time, enter into additional put and call option arrangements. During 1999, the Registrant purchased 1,536,000 shares of its common stock under the put options for $24.6 million. During 1999 and January 2000, put options for 1,798,000 shares expired. Each of these transactions was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. Item 6. Selected Financial Data The information required under this item is included under the sections labeled "Selected Financial Information" and "Dividend Policy" in the Registrant's 1999 Annual Report to Shareholders and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required under this item is included under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrant's 1999 Annual Report to Shareholders and is incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The information required under this item is included under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrant's 1999 Annual Report to Shareholders and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The Registrant's Consolidated Financial Statements as of January 1, 2000, and Supplementary Data are included in the Registrant's 1999 Annual Report to Shareholders and are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Not Applicable. 14 PART III Item 10. Directors and Executive Officers of the Registrant The information concerning directors required under this item is incorporated herein by reference from the material contained under the caption "Election of Directors" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. The information concerning delinquent filers pursuant to Item 405 of Regulation S-K is incorporated herein by reference from the material contained under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" under the caption "Stock Ownership" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. Item 11. Executive Compensation The information required under this item is incorporated herein by reference from the material contained under the caption "Executive Compensation" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required under this item is incorporated herein by reference from the material contained under the caption "Stock Ownership" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. Item 13. Certain Relationships and Related Transactions The information required under this item is incorporated herein by reference from the material contained under the caption "Relationship with Affiliates" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. 15 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a,d) Financial Statements and Schedules (1)The financial statements set forth in the list below are filed as part of this Report. (2)The financial statement schedule set forth in the list below is filed as part of this Report. (3)Exhibits filed herewith or incorporated herein by reference are set forth in Item 14(c) below. List of Financial Statements and Schedules Referenced in this Item 14 Information incorporated by reference from Exhibit 13 filed herewith: Consolidated Statement of Operations Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Comprehensive Income and Shareholders' Investment Notes to Consolidated Financial Statements Report of Independent Public Accountants Financial Schedule included herewith: Schedule II: Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or not required, or because the required information is shown either in the financial statements or in the notes thereto. (b) Reports on Form 8-K On December 23, 1999, the Company filed a Current Report on Form 8-K for events occurring December 21, 1999, with respect to the election of Richard F. Syron, the Registrant's president and chief executive officer, to the position of chairman of the board of directors. (c) Exhibits See Exhibit Index on the page immediately preceding exhibits. 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 22, 2000 THERMO ELECTRON CORPORATION By: /s/ Richard F. Syron Richard F. Syron Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, as of March 22, 2000. Signature Title By: /s/ Richard F. Syron Chairman of the Board, Chief Executive Richard F. Syron Officer, President, and Director By: /s/ Theo Melas-Kyriazi Chief Financial Officer and Vice Theo Melas-Kyriazi President By: /s/ Paul F. Kelleher Senior Vice President, Finance and Administration Paul F. Kelleher (Chief Accounting Officer) By: /s/ Samuel W. Bodman Director Samuel W. Bodman By: /s/ Peter O. Crisp Director Peter O. Crisp By: /s/ Elias P. Gyftopoulos Director Elias P. Gyftopoulos By: /s/ George N. Hatsopoulos Director George N. Hatsopoulos By: /s/ Frank Jungers Director Frank Jungers By: /s/ Robert A. McCabe Director Robert A. McCabe By: /s/ Hutham S. Olayan Director Hutham S. Olayan By: /s/ Robert W. O'Leary Director Robert W. O'Leary By: /s/ Roger D. Wellington Director Roger D. Wellington 17 Report of Independent Public Accountants To the Shareholders and Board of Directors of Thermo Electron Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Thermo Electron Corporation's Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 17, 2000 (except with respect to the matters discussed in Note 17, as to which the date is March 7, 2000). Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14 on page 16 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Arthur Andersen LLP Boston, Massachusetts February 17, 2000
18 SCHEDULE II THERMO ELECTRON CORPORATION Valuation and Qualifying Accounts (In thousands)
Provision Accounts Balance at Charged to Written Balance Beginning Expense Accounts Off at End Description of Year Recovered Other (a) of Year - ------------------------------- ---------- ---------- --------- -------- --------- -------- Allowance for Doubtful Accounts Year Ended January 1, 2000 $ 26,938 $ 8,626 $ 253 $ (8,908) $ 6,790 $ 33,699 Year Ended January 2, 1999 $ 25,796 $ 5,002 $ 492 $ (8,754) $ 4,402 $ 26,938 Year Ended January 3, 1998 $ 20,835 $ 4,981 $ 304 $ (5,674) $ 5,350 $ 25,796
Balance at Established Activity Balance Beginning as Cost of Charged at End Description of Year Acquisitions to Reserve Other (c) of Year - ------------------------------------------ ---------- ------------ ---------- --------- ------- Accrued Acquisition Expenses (b) Year Ended January 1, 2000 $ 16,284 $ 18,144 $(11,539) $ (2,552) $ 20,337 Year Ended January 2, 1999 $ 20,683 $ 8,387 $(10,036) $ (2,750) $ 16,284 Year Ended January 3, 1998 $ 20,412 $ 24,579 $(19,367) $ (4,941) $ 20,683 Balance at Provision Activity Balance Beginning Charged to Charged Other (f) at End Description of Year Expense (e) to Reserve of Year - ------------------------------- ---------- ------------- ---------- --------- ------- Accrued Restructuring Costs (d) Year Ended January 1, 2000 $ 11,320 $ 13,404 $(12,491) $ (649) $11,584 Year Ended January 2, 1999 $ 244 $ 18,776 $(7,962) $ 262 $11,320 Year Ended January 3, 1998 $ - $ 953 $ (709) $ - $ 244 (a) Includes allowance of businesses acquired during the year as described in Note 3 to Consolidated Financial Statements in the Registrant's 1999 Annual Report to Shareholders and the effect of foreign currency translation. (b) The nature of activity in this account is described in Note 3 to Consolidated Financial Statements in the Registrant's 1999 Annual Report to Shareholders. (c) Represents reversal of accrued acquisition expenses and corresponding reduction of cost in excess of net assets of acquired companies resulting from finalization of restructuring plans and the effect of foreign currency translation. (d) The nature of activity in this account is described in Note 11 to Consolidated Financial Statements in the Registrant's 1999 Annual Report to Shareholders. (e) In 1999, includes the reversal of $2.3 million of previously recorded restructuring costs, and excludes provision of $136.2 million in 1999 and $4.8 million in 1998, primarily for asset write-downs. (f) Represents the effect of foreign currency translation. 19 EXHIBIT INDEX Exhibit Number Description of Exhibit 3.1 Amended and Restated Certificate of Incorporation of the Registrant, (filed as Exhibit 1 to the Registrant's Amendment No. 3 to Registration Statement on Form 8-A/A [File No. 1-8002] and incorporated herein by reference). 3.2 By-laws of the Registrant, as amended (filed as Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 4.1 Fiscal Agency Agreement dated as of January 3, 1996, between the Registrant and Chemical Bank pertaining to the Registrant's 4 1/4% Subordinated Convertible Debentures due 2003 (filed as Exhibit 4.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 30, 1995 [File No. 1-8002] and incorporated herein by reference). The Registrant agrees, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, to furnish to the Commission upon request, a copy of each instrument with respect to other long-term debt of the Registrant or its consolidated subsidiaries. 4.2 Rights Agreement dated as of January 19, 1996, between the Registrant and The First National Bank of Boston, which includes as Exhibit A the Form of Certificate of Designations, as Exhibit B the Form of Rights Certificate, and as Exhibit C the Summary of Rights to Purchase Preferred Stock (filed as Exhibit 1 to the Registrant's Registration Statement on Form 8-A, declared effective by the Commission on January 31, 1996 [File No. 1-8002] as amended by Amendment No. 1 to the Registrant's Registration Statement on Form 8-A/A filed with the Commission on May 30, 1997, and incorporated herein by reference). 4.3 Amendment No. 1 to Rights Agreement dated as of June 11, 1999, between the Registrant and BankBoston, N.A. (formerly, The First National Bank of Boston), which includes as Exhibit B the amended and restated form of Rights Certificate and as Exhibit C the amended and restated Summary of Rights to Purchase Preferred Stock (filed as Amendment No. 2 to the Registrant's Registration Statement on Form 8-A/A [File No. 1-8002] filed with the Commission on June 21, 1999, and incorporated herein by reference). 4.4 Indenture dated as of October 29, 1998, by and between the Registrant and Bankers Trust Company, as Trustee, relating to the issuance of senior debt securities by the Registrant (filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated October 29, 1998, filed with the Securities and Exchange Commission on October 30, 1998, and incorporated herein by reference). 4.5 First Supplemental Indenture dated as of October 29, 1998, by and between the Registrant and Bankers Trust Company, as Trustee, relating to the issuance by the Registrant of $150,000,000 aggregate principal amount of its 7.625% Notes due 2008 (filed as Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated October 29, 1998, filed with the Securities and Exchange Commission on October 30, 1998, incorporated herein by reference). 10.1 Thermo Electron Corporate Charter as amended and restated effective January 3, 1993 (filed as Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 [File No. 1-8002] and incorporated herein by reference). 20 Exhibit Number Description of Exhibit 10.2 Thermo Electron Corporation 1998 Executive Retention Plan/Form of Executive Retention Agreement (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended October 3, 1998 [File No. 1-8002] and incorporated herein by reference). (Each executive officer has a two- year agreement except Mr. Richard F. Syron, who has a three-year agreement.) 10.3 - 10.4 Reserved. 10.5 Amended and Restated Reimbursement Agreement dated as of December 31, 1993, among Chemical Trust Company of California as Owner Trustee; Delano Energy Company Inc.; ABN AMRO Bank N.V., Boston Branch, for itself and as Agent; The First National Bank of Boston, as Co-agent; Barclays Bank PLC, as Co-agent; Societe Generale, as Co-agent; and BayBank, as Lead Manager (filed as Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 [File No. 1-8002] and incorporated herein by reference). 10.6 Amended and Restated Participation Agreement dated as of December 31, 1991, among Delano Energy Company Inc.; Thermo Ecotek Corporation (formerly Thermo Energy Systems Corporation); Chemical Trust Company of California, as Owner Trustee; ABN AMRO Bank N.V., Boston Branch, as Co-agent; Bank of Montreal, as Co-agent; Barclays Bank PLC, as Co-agent; Society Generale, as Co-agent; BayBank, as Lead Manager; and ABN AMRO Bank N.V., Cayman Island Branch, and joined in by the Registrant (filed as Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 [File No. 1-8002] and incorporated herein by reference). 10.7 Revolving Credit Facility Letters from Barclays Bank PLC in favor of the Registrant and its subsidiaries (filed as Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the year ended January 3, 1998 [File No. 1-8002] and incorporated herein by reference). 10.8 Stock Holdings Assistance Plan and Form of Promissory Note (filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the year ended January 3, 1998 [File No. 1-8002] and incorporated herein by reference). 10.9 - 10.20 Reserved. 10.21 Amended and Restated Deferred Compensation Plan for Directors of the Registrant (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable is 679,218 shares, after adjustment to reflect share increases approved in 1986 and 1992 and 3-for-2 stock splits effected in October 1986, October 1993, May 1995, and June 1996.) 10.22 Amended and Restated Directors' Stock Option Plan of the Registrant (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 10.23 Incentive Stock Option Plan of the Registrant (filed as Exhibit 4(d) to the Registrant's Registration Statement on Form S-8 [Reg. No. 33-8993] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Registrant's Nonqualified Stock Option Plan is 13,552,734 shares, after adjustment to reflect share increases approved in 1984 and 1986, share decrease approved in 1989, and 3-for-2 stock splits effected in October 1986, October 1993, May 1995, and June 1996.) 21 Exhibit Number Description of Exhibit 10.24 Amended and Restated Nonqualified Stock Option Plan of the Registrant (filed as Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). (Plan amended in 1984 to extend expiration date to December 14, 1994; maximum number of shares issuable in the aggregate under this plan and the Registrant's Incentive Stock Option Plan is 13,552,734 shares, after adjustment to reflect share increases approved in 1984 and 1986, share decrease approved in 1989, and 3-for-2 stock splits effected in October 1986, October 1993, May 1995, and June 1996.) 10.25 Amended and Restated Equity Incentive Plan (filed as Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 10.26 Amended and Restated Thermo Electron Corporation - Thermedics Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable is 450,000 shares, after adjustment to reflect share increase approved in 1988, 5-for-4 stock split effected in January 1985, 4-for-3 stock split effected in September 1985, and 3-for-2 stock splits effected in October 1986 and November 1993.) 10.27 Amended and Restated Thermo Electron Corporation - Thermo Instrument Systems Inc. (formerly Thermo Environmental Corporation) Nonqualified Stock Option Plan (filed as Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable is 527,343 shares, after adjustment to reflect 3-for-2 stock splits effected in July 1993 and April 1995, 5-for-4 stock splits effected in December 1995 and October 1997.) 10.28 Thermo Electron Corporation - Thermo Instrument Systems Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 3, 1987 [File No. 1-8002] and incorporated herein by reference). (Maximum number of shares issuable is 750,356 shares, after adjustment to reflect share increase approved in 1988, 3-for-2 stock splits effected in January 1988, July 1993, and April 1995, and 5-for-4 stock splits effected in December 1995 and October 1997.) 10.29 Amended and Restated Thermo Electron Corporation - Thermo TerraTech Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.7 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 10.30 Amended and Restated Thermo Electron Corporation - Thermo Power Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.8 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). (On October 28, 1999, Thermo Power merged with Thermo Electron. All outstanding options granted under this plan were assumed by Thermo Electron and converted into options to purchase 25,219 shares of Thermo Electron.) 10.31 Amended and Restated Thermo Electron Corporation - Thermo Cardiosystems Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.9 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 22 Exhibit Number Description of Exhibit 10.32 Amended and Restated Thermo Electron Corporation - Thermo Ecotek Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.10 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 10.33 Amended and Restated Thermo Electron Corporation - ThermoTrex Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.11 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 10.34 Amended and Restated Thermo Electron Corporation - Thermo Fibertek Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.12 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 10.35 Amended and Restated Thermo Electron Corporation - Thermo Voltek Corp. Nonqualified Stock Option Plan (filed as Exhibit 10.13 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). (On March 26, 1999, Thermo Voltek merged with Thermedics. All outstanding options granted under this plan were converted into options to purchase 24,462 shares of Thermedics.) 10.36 Amended and Restated Thermo Electron Corporation - Thermo BioAnalysis Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.14 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 10.37 Amended and Restated Thermo Electron Corporation - ThermoLyte Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.15 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 10.38 Amended and Restated Thermo Electron Corporation - ThermoRetec Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.16 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 10.39 Amended and Restated Thermo Electron Corporation - ThermoSpectra Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.17 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). (On December 6, 1999, ThermoSpectra merged with Thermo Instrument. All outstanding options granted under this plan were converted into options to purchase 22,646 shares of Thermo Instrument.) 10.40 Amended and Restated Thermo Electron Corporation - ThermoLase Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.18 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 10.41 Amended and Restated Thermo Electron Corporation - ThermoQuest Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.19 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 10.42 Amended and Restated Thermo Electron Corporation - Thermo Optek Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.20 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 23 Exhibit Number Description of Exhibit 10.43 Amended and Restated Thermo Electron Corporation - Thermo Sentron Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.21 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 10.44 Amended and Restated Thermo Electron Corporation - Trex Medical Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.22 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 10.45 Amended and Restated Thermo Electron Corporation - Thermo Fibergen Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.23 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 10.46 Amended and Restated Thermo Electron Corporation - Thermedics Detection Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.24 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 10.47 Amended and Restated Thermo Electron Corporation - Metrika Systems Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.25 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 10.48 Amended and Restated Thermo Electron - Thermo Vision Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.26 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). (On January 6, 2000, Thermo Vision merged with Thermo Instrument. All outstanding options granted under this plan were converted into options to purchase 39,870 shares of Thermo Instrument.) 10.49 Amended and Restated Thermo Electron Corporation - ONIX Systems Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.27 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 10.50 Amended and Restated Thermo Electron Corporation - The Randers Killam Group Inc. Nonqualified Stock Option Plan (filed as Exhibit 10.28 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 10.51 Amended and Restated Thermo Electron Corporation - Trex Communications Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.29 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). (On November 8, 1999, Trex Communications merged with ThermoTrex. All outstanding options granted under this plan were converted into options to purchase 57,121 shares of ThermoTrex.) 10.52 Amended and Restated Thermo Electron Corporation - Thermo Trilogy Corporation Nonqualified Stock Option Plan (filed as Exhibit 10.30 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-8002] and incorporated herein by reference). 24 Exhibit Number Description of Exhibit 10.53 Letter Agreement dated as of February 21, 2000, between the Registrant and Mr. John N. Hatsopoulos regarding termination of the Letter Agreement dated September 15, 1998, between the Registrant and Mr. John N. Hatsopoulos. 10.54 Employment Agreement dated January 10, 2000, between the Registrant and Mr. Paul F. Kelleher. 10.55 Subordinated Indenture, dated January 15, 1998, among the Registrant, Thermo Instrument Systems Inc., and Bankers Trust Company as trustee, relating to $250,000,000 principal amount of 4% Convertible Subordinated Debentures due 2005 issued by Thermo Instrument Systems Inc. (filed as Exhibit 4.1 to Thermo Instrument Systems' Current Report on Form 8-K filed with the Commission on January 16, 1998 [File No. 1-9786] and incorporated herein by reference). 10.56 Employment Agreement dated as of March 12, 1999, between the Registrant and Mr. Richard F. Syron. 10.57 1997 Spectra-Physics Lasers, Inc. Stock Option Plan (filed as Exhibit 10.6 of Amendment No. 1 to Spectra-Physics Lasers, Inc.'s Registration Statement on Form S-1 [File No. 333-38329] and is incorporated herein by reference). 10.58 Form of Indemnification Agreement between the Registrant and the directors and officers of its majority-owned subsidiaries (filed as Exhibit 10.1 to the Registrant's Registration Statement on Form S-4 [Reg. No. 333-90661] and incorporated herein by reference). 10.59 Form of Amended and Restated Indemnification Agreement between the Registrant and its directors and officers (filed as Exhibit 10.2 to the Registrant's Registration Statement on Form S-4 [Reg. No. 333-90661] and incorporated herein by reference). 10.60 Description of severance arrangements for certain officers of Thermo Electron. 13 Annual Report to Shareholders for the year ended January 1, 2000 (only those portions incorporated herein by reference). 21 Subsidiaries of the Registrant. 23 Consent of Arthur Andersen LLP. 27.1 Financial Data Schedule for the year ended January 1, 2000 (restated for discontinued operations). 27.2 Financial Data Schedule for the year ended January 2, 1999 (restated for discontinued operations). 27.3 Financial Data Schedule for the year ended January 3, 1998 (restated for discontinued operations).
EX-10.53 2 (..continued) -4- Mr. John N. Hatsopoulos 3 Woodcock Lane Lincoln, MA 01733 Dear John: This letter (the "Agreement") confirms our agreement regarding termination of your consulting services with Thermo Electron Corporation (the "Company"). This Agreement shall be effective as of February 21, 2000 (the "Effective Date"). This Agreement replaces and supersedes any and all prior agreements between you and the Company regarding the engagement of you for your services by the Company, whether written or oral, formal or informal, including without limitation that certain letter agreement by and between you and the Company dated September 15, 1998 relating to your retirement and engagement as a consultant (the "Consulting Agreement"), which such Consulting Agreement shall be, as of the Effective Date terminated and of no further force or effect. In exchange for the mutual covenants set forth in this Agreement, including without limitation, your execution of the General Release of all Claims attached and incorporated herein as Exhibit 1, the Company agrees to the following: 1. Termination of Consulting Agreement. By mutual agreement the Consulting Agreement will terminate as of the Effective Date. As of that date you shall have no further obligation or right to render any services to the Company of any kind, including but not limited to consulting services, investment management services or any other type of services. 2. Lump Sum Payment and Stock Options. (a) As of the Effective Date, the Company shall deem the amount of compensation owed to you from the Effective Date through December 31, 2003 under the Consulting Agreement as fully earned and payable to you in a single lump sum payment of $1,958,333.40 (minus any applicable federal, state and local taxes and other withholdings) as soon as reasonably practicable following the Effective Date. (b) If an option is (i) Vested (i.e., the underlying shares are not subject to repurchase by the Company or its subsidiaries, as applicable) and (ii) in the money, it shall be exercisable from the Effective Date until May 21, 2000 or February 21, 2002, as indicated on Exhibit 2 (attached and incorporated herein). (c) Notwithstanding the terms of any stock option plan or agreement pursuant to which such options were granted and regardless of the fact that you are no longer a director of the Company or any of its subsidiaries, the following terms and conditions shall apply to the stock options previously granted to you that are, as of the Effective Date, either not Vested (i.e., the underlying shares are subject to repurchase rights by the Company or its subsidiaries, as applicable) or not "in the money:" (i) The resale restrictions and the Company's or it subsidiaries' repurchase rights with respect to such options shall continue to ratably lapse in accordance with their original terms through the earlier of (A) the original expiration date of such option or (B) December 31, 2003; provided that, the Company shall waive the resale restrictions to the extent necessary to allow you to realize sufficient proceeds from such sale to pay state and federal income taxes resulting from such sale and from exercise of the option by which the stock was acquired. (ii) Any option that is, under its original terms, exercisable on December 31, 2003 shall thereafter remain exercisable until April 1, 2004. (iii) Any option or portion of an option that is, under its original terms, scheduled to Vest after December 31, 2003 is hereby forfeited, unless there occurs on or before that date a change of control (as defined by the terms of the original option) that would have accelerated the Vesting under its original terms, in which event the option shall be exercisable on or before April 1, 2004 to the extent its Vesting has been so accelerated. The options described in this subparagraph (c) are identified on Exhibit 3 (attached and incorporated herein). 3. Resignation from the Board. Effective as of the Effective Date, you hereby resign as a member of the Company's Board of Directors, and the Boards of Directors of its subsidiaries, as the case may be. 4. Health Insurance. At its cost, the Company will continue to provide, or use its best efforts to obtain for you, through December 31, 2003, group health and dental insurance coverage for you and your eligible dependents substantially the same as group health and dental coverage currently provided to you by the Company. If the provision of such insurance coverage provides taxable income to you, the Company will pay you such additional amount as will, net of tax on such amount, equal taxes on the taxable income so created. 5. Return of Company Property; Support Services and Reimbursement. On or about March 5, 2000, you will return to the Company any and all documents, materials and information related to the Company, or its subsidiaries, affiliates or businesses, and all other property of the Company, including, without limitation, Company credit cards and files. The Company shall, until December 31, 2003, continue to provide you with (i) an office situated in an office building that is located in a suburb west of Boston with occupancy rates similar to your current office space; (ii) communications and office equipment and services similar to those it now provides to you; provided that, your personal computer will not be linked to any Thermo Electron computer network; (iii) fully operational Bloomberg terminal and service; (iv) full-time services of your present secretary or, if she is unable or unwilling to continue as such, the Company shall use its best efforts to secure for you a full-time secretary of substantially similar experience; (v) the newspapers and periodicals that you now receive; and (vi) a non-accountable allowance for your travel and other expenses of $100,000 per year payable $25,000 quarterly in arrears (prorated for any fraction of a quarter). 6. Taxes. All payments by the Company under this Agreement will be reduced by all taxes and other amounts that the Company is required to withhold under applicable law and all other deductions authorized by you. 7. Restriction on Purchase or Sale of Common Stock. You understand that you will continue to be a "Reporting Person" for purposes of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder for a period of six months following the Effective Date and that you are required to preclear transactions in the Company and its subsidiaries' securities with the Company's Stock Transaction Coordinator, Ms. Pauline I. Northern. You are also reminded that you will remain subject to insider trading regulations under federal securities law. You are urged to contact the Corporate Secretary of the Company, Ms. Sandra L. Lambert, should you have any questions regarding compliance with the insider trading regulations under the federal securities laws. 8. Confidentiality of this Agreement. You agree that all information relating in any way to the subject matter of this Agreement, including the terms of this Agreement, shall be held confidential by you and shall not be publicized or disclosed by you to any person (other than an immediate family member, legal counsel or financial advisor, provided that any such individual to whom disclosure is made agrees to be bound by these confidentiality obligations), business entity or government agency, except as mandated by state or federal law. 9. Company Information and Invention Agreement. You agree to abide by and comply with the terms of the Thermo Electron Corporation Information and Invention Agreement executed by you, a copy of which is attached and incorporated herein as Exhibit 4. 10. Non-Disparagement. You agree that you will be supportive in your public statements about the Company and its subsidiaries and affiliates and that you will not disparage the Company or its subsidiaries or affiliates, or any of the people or organizations connected with them, or do or say anything that could disrupt the good morale of the employees of the Company or otherwise harm the reputation of the Company and its subsidiaries and affiliates and any of the organizations or people connected with them. The Company agrees that it will cause the officers of the Company and its subsidiaries not to disparage you or otherwise do or say anything that harms your reputation and that the Company shall be solely responsible for any breach of the provisions contained in this Section 10 by any such officers. Should any party violate the requirements of this provision, any non-breaching party shall be relieved of the requirements of this provision to the extent necessary to respond to statements made by the breaching party. Nothing in this provision shall prevent the parties from (i) complying with compulsory legal process or otherwise making disclosures in connection with litigation or administrative proceedings, (ii) making such disclosures as are necessary to obtain legal advice, (iii) making disclosures as are required by federal, state or local regulatory authorities, and (iv) making disclosures which by law are required or cannot be prohibited. 11. Company's Relief on Breach. You agree that your knowing and material breach of the terms of this Agreement, including but not limited to a knowing and material breach of either Paragraph 8, 9 or 10, shall, notwithstanding anything contained herein to the contrary, (i) cause all Vested options listed on Exhibits 2 and 3 hereof to terminate and be immediately canceled 90 days after the date the Company notifies you of the breach and you will have no further rights with respect to such options if you do not exercise such options within such 90 day period, (ii) cause all options which are not Vested listed on Exhibit 3 to be canceled and forfeited as of such date and (iii) immediately terminate the Company's obligations set forth in the last sentence of Paragraph 5. It is understood that the foregoing relief will be in addition to any other legal or equitable remedy available to the Company, including without limitation the right to specific performance and injunctive relief. 12. Indemnification Agreement. Notwithstanding anything contained herein to the contrary, the Thermo Electron Corporation Amended and Restated Indemnification Agreement, effective as of October 13, 1999 (the "Indemnification Agreement"), by and between the Company and you and attached and incorporated herein as Exhibit 5 shall remain in full force and effect, and in accordance with its terms. 13. Cooperation. You agree to reasonably cooperate with the Company with respect to all matters arising during or related to your past employment or consulting engagement, including but not limited to cooperation in connection with any governmental investigation, litigation or regulatory or other proceeding which may have arisen or which may arise following the signing of this Agreement, subject to applicable privileges. 14. Choice of Law. This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the laws of the Commonwealth of Massachusetts, without giving effect to the conflict of law principles thereof. 15. Entire Agreement. This Agreement contains the entire agreement between you and the Company and replaces all prior and contemporaneous agreements, communications and understandings, whether written or oral, with respect to your relationship with the Company, including but not limited to the Consulting Agreement. 16. Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and replaced with a provision which is enforceable and comes closest to the intent of the parties underlying the unenforceable provision. 17. Successors and Assigns. No party hereto may assign any of its rights under this Agreement without the prior written consent of the other party. This Agreement is binding on each of the parties' permitted assigns, successors in interest, heirs, administrators and executors. 18. Voluntary Agreement. In signing this Agreement, you give the Company assurance that you have signed it voluntarily and with a full understanding of its terms and that you have sufficient opportunity to consider this Agreement and to consult with anyone of your choosing before signing it. If the terms of this Agreement are acceptable to you, please sign and return it to the undersigned. Upon the execution of this Agreement, it will take effect as a legally-binding agreement between you and the Company on the basis set forth above, as of the Effective Date. 19. Document Under Seal. This Agreement is intended to be signed as an instrument under seal as of the Effective Date. THERMO ELECTRON CORPORATION ----------------------------------- By: Richard Syron Title: CEO and President Accepted and Agreed to: - -------------------------------- John N. Hatsopoulos EX-10.54 3 4 EMPLOYMENT AGREEMENT This Employment Agreement (the "Agreement"), dated as of January 10, 2000, is entered into between Thermo Electron Corporation, a Delaware corporation with its principal place of business at 81 Wyman Street, Waltham, Massachusetts 02454 (the "Company"), and Paul F. Kelleher, residing at 61 Davis Road, Carlisle, Massachusetts 01741 (the "Employee"). The Company desires to retain the services of the Employee through March 31, 2004, and the Employee desires to be employed by the Company on the terms set forth herein. In consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties agree as follows: 1. Term of Employment. The Company hereby agrees to employ the Employee, and the Employee hereby accepts employment with the Company, upon the terms set forth in this Agreement, for the period commencing on the date hereof, and continuing until the earlier of March 31, 2004 or termination in accordance with the provisions of Section 4 (such period, the "Employment Period"). 2. Capacity. The Employee shall provide services to the Company relating primarily to finance and accounting. The Employee shall be based at the Company's headquarters in Waltham, Massachusetts or at such place or places as may be reasonably designated by the Company's Chief Financial Officer or such officer or officers of the Company designated by the Chief Financial Officer. The Employee shall be subject to the supervision of, and shall have such authority as is reasonably delegated to him by, the Chief Financial Officer or his designee. Further, subject to the fiduciary duties of the Company's Board of Directors and the fiduciary duties of the board of directors of ThermoLase Corporation ("ThermoLase"), the Company shall use its best efforts to cause the Employee to be a director of ThermoLase during the Employment Period while ThermoLase is a public company. The Employee will not be entitled to receive any cash or other compensation for his services as a director of ThermoLase so long as he is employed by the Company. The Employee hereby accepts such employment and agrees to undertake the duties and responsibilities inherent in such position and such other duties and responsibilities as the Chief Financial Officer or his designee shall from time to time reasonably assign to him. Further, commencing April 1, 2000 through the end of the Employment Period, the Employee's employment status will be reduced from full-time to part-time. In his capacity as a part-time employee, the Employee will be available to devote, on average, approximately twenty hours per week to fulfilling such duties and responsibilities. The Employee agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein that may be adopted from time to time by the Company. 3. Compensation and Benefits. 3.1 Base Salary. The Company shall pay to the Employee, at such times as the Company pays its employees in general, a base salary at the following annualized rates: a. From January 1, 2000 through March 31, 2000 (subject to any applicable year-end salary increase):$205,000 b. From April 1, 2000 through March 31, 2004:$125,000 3.2 Bonuses. The Employee will be eligible to receive a bonus for the period from January 1, 1999 through December 31, 1999 in accordance with the past practices of the Company, payable at such time as such bonuses are normally paid. In addition, the Employee shall be eligible to receive a discretionary bonus for the period from January 1, 2000 through March 31, 2000. The amount of such bonuses will, as always, be subject to the discretion of the Board of Directors of the Company. The Employee will not be eligible for any bonus for the period from April 1, 2000 through the end of the Employment Period. 3.3 Fringe Benefits. The Employee shall be entitled to participate in all benefit programs that the Company establishes and makes available to its employees to the extent that the Employee's position, tenure, salary, age, part-time status, health and other qualifications make him eligible to participate. Further, from April 1, 2004 through July 31, 2007, the Company shall continue to provide at its expense family medical and dental benefits to the Employee on terms substantially equivalent to the medical and dental benefits provided to him as of the last day of the Employment Period; provided, however, the Company's obligation to provide such benefits during such time period shall cease in the event of the Employee's death. 3.4 Reimbursement of Expenses. The Company shall reimburse the Employee for all reasonable travel, entertainment and other expenses incurred or paid by the Employee in connection with, or related to, the performance of his duties, responsibilities or services under this Agreement, upon presentation by the Employee of documentation, expense statements, vouchers and/or such other supporting information as the Company may request; provided, however, that the amount available for such travel, entertainment and other expenses may reasonably be fixed in advance by the Chief Financial Officer. 4. Employment Termination. The employment of the Employee by the Company pursuant to this Agreement shall terminate upon the occurrence of any of the following: 4.1 At the election of the Company without Cause (as defined below), at any time, immediately upon written notice to the Employee; 4.2 At the election of the Company, for Cause, immediately upon written notice by the Company to the Employee. For the purposes of this Section 4, "Cause" for termination shall mean the Employee's (a) conviction of a felony, or a misdemeanor involving material fraud or material dishonesty, (b) material fraud or material dishonesty in the course of his employment with the Company, (c) misconduct that is materially injurious to the Company or its subsidiaries and affiliates, (d) gross neglect of his duties and responsibilities under the terms of this Agreement (other than as a result of disability) and (e) insubordination; 4.3 Upon the death of the Employee; 4.4 At the election of the Employee, upon not less than 30 days prior written notice of termination. 5. Effect of Termination. 5.1 Termination by the Company or at the Election of the Employee. In the event the Employee's employment is terminated by the Company pursuant to Section 4.1 or Section 4.2 or at the election of the Employee pursuant to Section 4.4, the Company shall pay to the Employee the compensation and benefits which would otherwise be payable to him through the last day of his actual employment by the Company; provided, however, that if the Employee's employment is terminated by the Company pursuant to Section 4.1, the Company shall pay to the Employee a severance payment in an amount equal to the balance of the base salary amounts otherwise payable to the Employee for the period from the date of termination to March 31, 2004 as set forth in Section 3.1 above, will continue to provide benefits to the Employee, on a substantially equivalent basis to the benefits otherwise payable to him under Section 3.3, through March 31, 2004, and from April 1, 2004 through July 31, 2007, will continue to provide such medical and dental benefits payable to him during such time period under Section 3.3. 5.2 Termination for Death. If the Employee's employment is terminated by death pursuant to Section 4.3, the Company shall pay to the estate of the Employee a lump sum in an amount equal to the balance of the base salary amounts otherwise payable to the Employee for the period from the date of termination to March 31, 2004 as set forth in Section 3.1 and will continue to provide at its expense through March 31, 2004, family medical and dental benefits on terms substantially equivalent to the medical and dental benefits provided to him immediately prior to his death. 5.3. Survival. Notwithstanding anything herein to the contrary, Sections 8 through 17 of this Agreement shall survive the termination of this Agreement. 6. Options and Restricted Stock. 6.1 Upon the later of December 15, 1999 and the date of this Agreement, all stock options in the Company and any of its subsidiaries that are "underwater" as of such date (i.e., the exercise price of such option is greater than the closing price of the common stock underlying such option on such date) shall become fully vested and immediately exercisable on such date and all of the Company's and its subsidiaries' repurchase rights with respect thereto shall lapse; provided, however, that such options shall otherwise remain subject to all of the terms and conditions thereof. Further, during the Employment Period, the Employee shall be entitled to retain his stock options in the Company and any of its subsidiaries, subject to the terms and conditions of such options. Upon the termination of the Employment Period, or upon the earlier termination of this Agreement other than pursuant to Section 4.1, such stock options will no longer vest and no further lapsing of the Company's and its subsidiaries' repurchase rights will occur. In the event that this Agreement is terminated pursuant to Section 4.1, then such stock options will continue to vest and the Company's and its subsidiaries' repurchase rights will continue to lapse until March 31, 2004. In either such case, the Employee will then have until the earlier of (i) 90 days or two years after such termination, depending on the term of the option as specified by the Company's Stock Option Manager or (ii) the expiration of the exercise period, to exercise the Employee's vested options. If the Employee does not exercise his vested options by the applicable deadline, such options will be cancelled, and the Employee will have no further rights with respect to such options. 6.2 Upon the later of December 15, 1999 and the date of this Agreement, all stock of the Company granted to the Employee subject to restrictions shall become fully vested on such date and all of the Company's repurchase rights with respect thereto shall lapse. 7. Retirement. Except as specifically set forth in this Agreement, the Employee hereby resigns effective as of March 31, 2000 any and all of his positions as an officer of the Company and as an officer, director and employee of all of the Company's subsidiaries and affiliates other than his position as a director of ThermoLase. The Employee further agrees that on March 31, 2004, the Employee will retire, effective as of such date, as an employee of the Company and, unless ThermoLase is then a public company, resign as a director of ThermoLase. 8. Cooperation. The Employee agrees to reasonably cooperate with the Company with respect to all matters arising during or related to his employment, including but not limited to cooperation in connection with any governmental investigation, litigation or regulatory or other proceeding which may have arisen or which may arise following the signing of this Agreement. 9. Amendment to Executive Retention Agreement. You and the Company agree that, effective April 1, 2000, that certain Executive Retention Agreement between you and the Company is hereby amended by deleting Sections 3.2 and 4.2 thereof in their entirety. Except as amended hereby, however, such agreement shall remain in full force and effect. 10. Waiver of Jury Trial. Each of the parties hereby expressly, knowingly and voluntarily waives all benefit and advantage of any right to a trial by jury, and each agrees that he or it will not at any time insist upon, or plead or in any manner whatsoever claim or take the benefit or advantage of, a trial by jury in any action arising in connection with this Agreement. 11. Restriction on Purchase or Sale of Common Stock. The Employee understands that he will continue to be a "Reporting Person" for purposes of Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act"), and the rules and regulations promulgated thereunder, for the period ending the earlier of (i) the date that the shares of ThermoLase are no longer registered under Section 12 of the Exchange Act and (ii) six months following his termination as a director of ThermoLase, and that during that period he is required to preclear transactions in the Company and its affiliates' securities with the Company's Stock Transaction Coordinator, Ms. Pauline I. Northern. The Employee is also urged to contact the Corporate Secretary of the Company, Ms. Sandra L. Lambert, should he have any questions regarding compliance with the insider trading regulations under the federal securities laws. 12. Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to the other party at the address shown above, or at such other address or addresses as either party shall designate to the other in accordance with this Section 12. 13. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. 14. Amendment. This Agreement may be amended or modified only by a written instrument executed by all of the parties hereto. 15. Governing Law. This Agreement and all issues relating to this Agreement and the transactions contemplated hereby shall be governed by, enforced under and construed in accordance with the laws of the Commonwealth of Massachusetts without giving effect to any choice or conflict of law provision or rule that would cause the application of laws of any jurisdiction other than those of the Commonwealth of Massachusetts. 16. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of all of the parties hereto and their respective successors and assigns, including any corporation with which, or into which, the Company may be merged or which may succeed to its respective assets or business; provided, however, that the obligations of the Employee are personal and shall not be assigned by him. 17. Miscellaneous. 17.1 No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. 17.2 The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. 17.3 In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. THERMO ELECTRON CORPORATION By: ________________________________ Name: Name: Anne Pol Title: Senior Vice President EMPLOYEE ----------------------------------- Paul F. Kelleher EX-10.56 4 Exhibit 10.56 EMPLOYMENT AGREEMENT AGREEMENT, made and entered into as of the 12th day of March, 1999 by and between Thermo Electron Corporation, a Delaware corporation (together with its successors and assigns permitted under this Agreement, the "Company"), and Mr. Richard F. Syron (the "Executive"). W I T N E S S E T H : WHEREAS, the Company desires to employ the Executive and to enter into an agreement embodying the terms of such employment (the "Agreement") and the Executive desires to enter into the Agreement and to accept such employment, subject to the terms and provisions of the Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is mutually acknowledged, the Company and the Executive (individually a "Party" and together the "Parties") agree as follows: 1. Definitions. (a) "Affiliate" of a person or other entity shall mean a person or other entity that directly or indirectly controls, is controlled by, or is under common control with the person or other entity specified. (b) "Base Salary" shall mean the salary provided for in Section 4 below or any increased salary granted to the Executive pursuant to Section 4. (c) "Board" shall mean the Board of Directors of the Company. (d) "Cause" shall mean: (i) the Executive commits a felony or any crime involving moral turpitude; or (ii) in carrying out his duties, the Executive engages in conduct that constitutes willful gross neglect or willful gross misconduct resulting in material economic harm to the Company. (e) A "Change in Control" shall mean an event or occurrence set forth in Section 1.1 of the Executive Retention Agreement attached hereto as Exhibit A. (f) "Constructive Termination Without Cause" shall mean termination by the Executive of his employment after written notice to the Company within 30 days following the occurrence of any of the following events without his consent: (i) a reduction in the Executive's then current Base Salary or reference bonus opportunity; the failure to elect or reelect the Executive to any of the positions described in Section 3(a) or the removal of him from any such position; (ii) a material diminution in the Executive's duties or responsibilities; (iii) a change in the reporting structure so that the Executive reports to someone other than the Board; or (iv) the failure of the Company to obtain the assumption in writing of its obligation to perform this Agreement by any successor to all or substantially all of the assets of the Company within 15 days after a merger, consolidation, sale or similar transaction. Following written notice from the Executive, as described above, the Company shall have 15 days in which to cure. If the Company fails to cure, the Executive's termination shall become effective on the 16th day following the written notice. (g) "Disability" shall mean the Executive's inability, due to physical or mental incapacity, to substantially perform his duties and responsibilities under this Agreement as determined by a medical doctor selected by the Company and the Executive. If the Parties cannot agree on a medical doctor, each Party shall select a medical doctor and the two doctors shall select a third who shall be the approved medical doctor for this purpose. (h) "Effective Date" shall mean June 1, 1999. (i) "Stock" shall mean the Common Stock of the Company. (j) "Transfer Restrictions" shall mean the transfer restrictions on the Stock covered by the Initial Stock Option described in Section 6(b) below. 2. Term of Employment. The Term of Employment shall begin on the Effective Date, and shall extend until the third anniversary of the Effective Date; provided, 2 however, that the Term of Employment shall automatically extend for additional one year periods after the third anniversary of the Effective Date unless either Party shall give the other Party at least 12 months prior written notice that he/it is electing not to so extend the Term of Employment. Notwithstanding the foregoing, the Term of Employment may be earlier terminated by either Party in accordance with the provisions of Section 10. 3. Position, Duties and Responsibilities. (a) Commencing on the Effective Date and continuing for the remainder of the Term of Employment, the Executive shall be employed as the President and Chief Executive Officer and be responsible for the general management of the affairs of the Company. The Executive, in carrying out his duties under this Agreement, shall report to the Board. (b) The Board will nominate the Executive for election as a Director at the Annual Meeting of Stockholders to be held on May 27, 1999, to serve a three-year term expiring on the date of the Annual Meeting of Stockholders to be held in the year 2002. In the event of a termination of employment of the Executive for any reason (other than death), the Executive shall immediately resign as a Director of the Company and each of its subsidiaries. (c) Nothing herein shall preclude the Executive from (i) serving on the boards of directors of a reasonable number of other corporations subject to the approval of the Board in each case (which approval has been given as to the boards listed in Exhibit B attached), (ii) serving on the boards of a reasonable number of trade associations and/or charitable organizations, (iii) engaging in charitable activities and community affairs, and (iv) managing his personal investments and affairs, provided that such activities set forth in this Section 3(c) do not materially interfere with the proper performance of his duties and responsibilities under Section 3(a). 4. Base Salary. The Executive shall be paid an annualized Base Salary, payable in accordance with the regular payroll practices of the Company, of $800,000. The Base Salary shall be reviewed annually for increase in the discretion of the Board. 5. Annual Incentive Award. During the Term of Employment, the Executive shall participate in the annual incentive program of the Company. Under such program, the Executive shall have a reference bonus each calendar year equal to $500,000, prorated for partial years. The actual bonus paid will be a multiple of the reference bonus (from zero to two times the reference bonus). The actual multiple will reflect a variety of subjective and objective factors, as determined by the Board. The Executive shall be paid his annual incentive award no later than other senior executives are paid their annual incentive awards. For the years 1999, 2000 and 2001, the Executive shall have a minimum guaranteed bonus of $145,833.32 for calendar 1999, $250,000 for calendar 2000, and $104,166.68 for the first five months of 2001 (the "Minimum Guaranteed Bonus" amounts). 3 6. Restricted Stock and Stock Option Awards. (a) Restricted Stock Awards. On the Effective Date, and on the first and second anniversaries of the Effective Date, the Company shall grant the Executive an award of a number of shares of Stock (the "Restricted Stock") having a market value equal to $200,000 based on the average of the closing prices per share of Stock on the New York Stock Exchange for the five business days preceding and including the corresponding grant date, substantially in accordance with the terms set forth in Exhibit C to this Agreement, except that vesting will occur on the third anniversary of each grant date. (b) Initial Stock Option Award. On the Effective Date, the Company shall grant the Executive a 7-year non-qualified stock option award, substantially in the form attached to this Agreement as Exhibit D, as modified by the terms of this Agreement, to purchase 1,000,000 shares of Stock,(the "Initial Stock Option") with Transfer Restrictions lapsing on the first three anniversaries of the date of grant (333,333 on June 1, 2000 and 2001 and 333,334 on June 1, 2002). The exercise price of the Initial Stock Option shall be the average of the closing prices of the Stock on the New York Stock Exchange for the five business days preceding and including June 1, 1999. 7. Employee Benefit Programs. During the Term of Employment, the Executive shall be entitled to participate in all employee pension and welfare benefit plans and programs made available to the Company's senior level executives or to its employees generally, as such plans or programs may be in effect from time to time, including, without limitation, pension, profit sharing, savings and other retirement plans or programs, medical, dental, hospitalization, short-term and long-term disability and life insurance plans, accidental death and dismemberment protection, travel accident insurance, and any other pension or retirement plans or programs and any other employee welfare benefit plans or programs that may be sponsored by the Company from time to time, including any plans that supplement the above-listed types of plans or programs, whether funded or unfunded. The Executive shall be entitled to four weeks paid vacation per year of employment. 8. Perquisites. During the Term of Employment, the Executive shall be entitled to participate in all of the Company's executive perquisites in accordance with the terms and conditions of such arrangements as are in effect from time to time for the Company's senior-level executives. 9. Reimbursement of Business and Other Expenses. (a) The Executive is authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Agreement including, without limitation, legal fees incurred in the negotiation and preparation of this Agreement, and the Company shall promptly reimburse him for such expenses, subject to documentation in accordance with the Company's policy. 4 (b) In connection with establishing a new principal residence in the Boston area, the Company agrees to purchase the Executive's Bronxville house for $1,500,000, and at the closing of the sale, the Executive shall deliver to the Company a customary deed, together with related documents, conveying good and marketable title to the property, free and clear of all material easements and encumbrances. Following the purchase of the house, the Company will use its reasonable best efforts to resell the house at a price subject to the prior approval of the Executive, which approval shall not be unreasonably withheld. Upon the sale of the house by the Company, either (a) the Company will pay the Executive the excess, if any, of the gross sales price over $1,500,000, or (b) the Executive will pay the Company the excess, if any, of $1,500,000 over the gross sales price. The Company agrees to pay all closing costs, including brokerage fees, incurred in connection with the purchase and subsequent sale of the house. In addition, the Executive shall be entitled to reimbursement of his relocation expenses including all reasonable out-of-pocket expenses of moving his family and personal belongings to a new home in the Boston area. For a period of up to six months, he shall also be entitled to reimbursement for temporary living expenses in the Boston area while locating a permanent residence. To the extent that certain relocation expenses are considered taxable income to the Executive, the Company will relieve the Executive of the additional tax burden (federal, FICA, and state income taxes) from such costs as well as the tax impact of the tax reimbursement itself. 10. Termination of Employment. (a) Termination Due to Death. In the event that the Executive's employment is terminated due to his death, his estate or his beneficiaries, as the case may be, shall be entitled to the following benefits: (i) Base Salary through the end of the month in which death occurs; (ii) a pro-rata annual incentive award for the year in which the Executive's death occurs, based on the reference bonus for such year, but in no event less than the Minimum Guaranteed Bonus for the year of death, payable when annual incentive awards are normally paid to other senior executives; (iii) Transfer Restrictions shall lapse on all Initial Stock Options, including previously exercised Initial Stock Options; all outstanding Initial Stock Options shall remain exercisable until the later of June 1, 2002 or two years from the date of death (but in no event beyond the option expiration date of June 1, 2006); and (iv) the restrictions on the Restricted Stock granted pursuant to Section 6 shall lapse. (b) Termination Due to Disability. In the event that the Executive's employment is terminated by either party due to his Disability, he shall be entitled to the following benefits: (i) disability benefits in accordance with the long-term disability ("LTD") program then in effect for senior executives of the Company; 5 (ii) Base Salary through the end of the LTD elimination period; (iii) a pro-rata annual incentive award for the year in which the Executive's termination occurs, based on the reference bonus for such year, but in no event less than the Minimum Guaranteed Bonus for the year of termination, payable when annual incentive awards are normally paid to other senior executives; (iv) Transfer Restrictions shall lapse on all Initial Stock Options, including previously exercised Initial Stock Options; all outstanding Initial Stock Options shall remain exercisable until the later of June 1, 2002 or two years from the employment termination date (but in no event beyond the option expiration date of June 1, 2006); and (v) the restrictions on the Restricted Stock granted pursuant to Section 6 shall lapse. (vi) the Executive shall be entitled to continued participation at Company expense in all medical and dental insurance coverage in which he was participating on the date of his termination until the earlier of (x) 18 months following the date of termination and (y) the date, or dates, he receives equivalent coverage and benefits under the plans and programs of a subsequent employer. In no event shall a termination of the Executive's employment for Disability occur until the Party terminating his employment gives written notice to the other Party in accordance with Section 24 below. (c) Termination by the Company for Cause. In the event the Company terminates the Executive's employment for Cause: (i) he shall be entitled to Base Salary through the date of the termination; (ii) no further lapsing of Transfer Restrictions shall occur; Executive shall have 90 days to exercise all outstanding Initial Stock Options as to which Transfer Restrictions have previously lapsed; and (iii) all Restricted Stock granted under Section 6 as to which restrictions have not lapsed shall be forfeited. (d) Termination without Cause or Constructive Termination without Cause. In the event the Executive's employment is terminated by the Company without Cause, other than due to Disability, death or the failure of the Company to extend this Agreement in accordance with Section 2 hereof, or in the event there is a Constructive Termination without Cause, the Executive shall be entitled to the following benefits: 6 (i) Base Salary through the date of termination; (ii) Base Salary, at the annualized rate in effect on the date of termination, for the greater of (x) 12 months and (y) the remaining Term of Employment following such termination (the "Salary Continuation Period"); (iii) a pro-rata annual incentive award for the year in which termination occurs, based on his reference bonus for such year, but in no event less than the Minimum Guaranteed Bonus for the year of termination, payable when annual incentive awards are normally paid to other senior executives; (iv) an annual incentive award for the Salary Continuation Period, based on his reference bonus for the year in which termination occurs and payable on a pro-rata basis in equal installments over the Salary Continuation Period; (v) Transfer Restrictions shall lapse on all Initial Stock Options, including previously exercised Initial Stock Options; the Initial Stock Options shall continue to be exercisable until the later of June 1, 2002 or two years from the employment termination date (but in no event beyond the option expiration date of June 1, 2006); (vi) the restrictions on the Restricted Stock granted pursuant to Section 6 shall lapse; and (vii) the Executive shall be entitled to continued participation at Company expense in all medical and dental insurance coverage in which he was participating on the date of his termination until the earlier of (x) 18 months following the date of termination and (y) the date, or dates, he receives equivalent coverage and benefits under the plans and programs of a subsequent employer. (e) Voluntary Termination. A termination of employment by the Executive on his own initiative, other than a termination due to death or Disability or a Constructive Termination without Cause, shall have the same consequences as provided in Section 10(c) for a termination for Cause. A voluntary termination under this Section 10(e) shall be effective upon 30 days prior written notice to the Company. (f) Other Termination Benefits. In the case of any of the foregoing terminations, the Executive or his estate shall also be entitled to: (i) the balance of any incentive awards due but not yet paid, including awards due for performance periods which have been completed, but which have not yet been paid; (ii) any expense reimbursements due the Executive; (iii) payment of all amounts when due as a result of the termination; 7 (iv) payment of any amounts due under Section 15(c); and (v) other benefits, if any, in accordance with applicable plans and programs of the Company. (g) Termination Following a Change in Control. Notwithstanding anything to the contrary in this Agreement or in the Executive Retention Agreement between the Executive and the Company, the form of which is attached hereto as Exhibit A, in the event the Executive's employment with the Company is terminated within 18 months following a Change in Control, the Executive shall be entitled to benefits equal to the greater of (a) the benefits due and payable to him under Section 4 of the Executive Retention Agreement as a result of such termination, or (b) the benefits due and payable to him under Section 10 of this Employment Agreement as a result of such termination. In furtherance thereof, it is the Parties' understanding that in the event of a termination under such circumstances, the Executive shall only be entitled to receive benefits payable under one or the other of the foregoing agreements (but not both) determined on a benefit by benefit basis by the Executive and that the term "Other Benefits" as defined in the Executive Retention Agreement shall not include benefits payable under this Employment Agreement. (h) Nature of Payments. Any amounts due under this Section 10 are in the nature of severance payments considered to be reasonable by the Company and are not in the nature of a penalty. (i) No Mitigation; No Offset. The Executive shall not be required to mitigate the amount of any payment or benefit provided in this Section 10 by seeking other employment otherwise. Further, except as provided in Sections 10(b)(vi) and 10(d)(vii), the amount of any payment or benefits provided for in this Section 10 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer or be offset by any amount claimed to be owed by the Executive to the Company. 11. Confidentiality. (a) During the Term of Employment and thereafter, the Executive shall not disclose to anyone or make use of any trade secret or proprietary or confidential information of the Company, including such trade secret or proprietary or confidential information of any customer or other entity to which the Company owes an obligation not to disclose such information, which he acquires during the Term of Employment, including but not limited to records kept in the ordinary course of business, except (i) as such disclosure or use may be required or appropriate in connection with his work as an employee of the Company or (ii) when required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order him to divulge, disclose or make accessible such information. 8 (b) Upon the termination of the Executive's employment, the Executive (or in the event of his death, the Executive's personal representative) shall promptly surrender to the Company the original and all copies of any materials containing confidential information of the Company which are then in the Executive's possession or control, provided, however, the Executive shall not be required to surrender his rolodexes, personal diaries and other items of a personal nature. 12. Noncompetition; Nonsolicitation. (a) The Executive acknowledges (i) that in the course of his employment with the Company he will become familiar with trade secrets and customer lists of, and other confidential information concerning, the Company and its Affiliates, customers, and clients and (ii) that his services will be of special, unique and extraordinary value to the Company. (b) The Executive agrees that during the Term of Employment and for a period of one year following his termination of employment (the "Noncompetition Period") he shall not in any manner, directly or indirectly, through any person, firm, corporation or enterprise, alone or as a member of a partnership or as an officer, director, stockholder, investor or employee of or advisor or consultant to any person, firm, corporation or enterprise or otherwise, engage or be engaged, or assist any other person, firm, corporation or enterprise in engaging or being engaged, in any Competitive Activity. A Competitive Activity shall mean a business that (i)is being conducted by the Company or any Affiliate at the time in question and (ii) was being conducted, or was under active consideration to be conducted, by the Company or any Affiliate, at the date of the termination of the Executive's employment, provided that Competitive Activity shall not include a business of the Company contributing less than 5% of the Company's revenues for the year in question and provided further that an activity shall not be deemed to be a Competitive Activity if the activity contributes less than 5% of the revenues for the year in question of the business by which the Executive is employed or with which he is otherwise associated. (c) The Executive further agrees that during the Noncompetition Period he shall not (i) in any manner, directly or indirectly, induce or attempt to induce any employee of or advisor or consultant to the Company or any of its Affiliates to terminate or abandon his or her or its employment or relationship with the Company or any of its Affiliates for any purpose whatsoever, or (ii) in connection with any business to which Section 12(b) applies, call on, service, solicit or otherwise do business with any customer of the Company or any of its Affiliates; provided, however, that the restriction contained in clause (i) of this Section 12(c) shall not apply to, or interfere with, the proper performance by the Executive of his duties and responsibilities under Section 3 of this Agreement. 9 (d) Nothing in this Section 12 shall prohibit the Executive from being a passive owner of not more than one percent of the outstanding common stock, capital stock and equity of any firm, corporation or enterprise so long as the Executive has no active participation in the management of business of such firm, corporation or enterprise. (e) If the restrictions stated herein are found by a court to be unreasonable, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area and that the court shall revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. 13. Resolution of Disputes. Any disputes arising under or in connection with this Agreement shall be resolved by third party mediation of the dispute and, failing that, by binding arbitration, to be held in Boston, Massachusetts, in accordance with the rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Costs of the mediation, arbitration or litigation including, without limitation, reasonable attorneys' fees of both parties, shall be borne by the Company. Pending the resolution of the dispute, the Company shall continue payment of all amounts due and provisions of all benefits to which Executive is entitled, which amounts shall be subject to repayment to the Company if the Company prevails. 14. Remedies. The Parties acknowledge that in the event of a breach or threatened breach of Section 11 or 12 the Company shall not have an adequate remedy at law. Accordingly, in the event of any breach or threatened breach of Section 11 or 12, the Company shall be entitled to seek such equitable and injunctive relief as may be available to restrain the Executive and any business, firm, partnership, individual, corporation or entity participating in the breach or threatened breach from the violation of the provisions of Section 11 or 12. 15. Indemnification. (a) The Executive shall continue to be indemnified under the Indemnification Agreement signed as of September 25, 1997, a copy of which is attached as Exhibit E. (b) The Company agrees to continue and maintain a directors' and officers' liability insurance policy covering the Executive to the extent the Company provides such coverage for its other senior executives. (c) The Company acknowledges the possibility that the Executive may lose significant benefits at his current employer because of his entering into this Agreement. In the event his current employer refuses to pay any such benefit, the Executive agrees to use his best efforts to obtain the benefit, including possible arbitration proceedings, if necessary. The Company will fully indemnify the Executive for all his expenses, including legal fees, incurred in attempting to obtain such benefits. If the Executive is not able to obtain the benefit before June 1, 2000, the Company will indemnify the Executive by paying an amount equal to the value of the benefit forfeited, but in no event more than $1.5 million. 10 16. Assignability; Binding Nature. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs (in the case of the Executive) and assigns. Rights or obligations of the Company under this Agreement may be assigned or transferred by the Company pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. The Company further agrees that, in the event of a sale of assets or liquidation as described in the preceding sentence, it shall take whatever action it reasonably can in order to cause such assignee or transferee to expressly assume the liabilities, obligations and duties of the Company hereunder. No rights or obligations of the Executive under this Agreement may be assigned or transferred by the Executive other than his rights to compensation and benefits, which may be transferred only by will or operation of law. 17. Representations. The Company represents and warrants that it is fully authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization. The Executive represents that he knows of no agreement between him and any other person, firm or organization that would be violated by the performance of his obligations under this Agreement. 18. Entire Agreement. This Agreement contains the entire understanding and agreement between the Parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the Parties with respect thereto. 19. Amendment or Waiver. No provision in this Agreement may be amended unless such amendment is agreed to in writing and signed by the Executive and an authorized officer of the Company. No waiver by either Party of any breach by the other Party of any condition or provision contained in this Agreement to be performed by such other Party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by the Executive or an authorized officer of the Company, as the case may be. 20. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law so as to achieve the purposes of this Agreement. 21. Survivorship. Except as otherwise expressly set forth in this Agreement, the respective rights and obligations of the Parties hereunder shall survive any termination of the Executive's employment. This Agreement itself (as distinguished from the Executive's employment) may not be terminated by either Party without the written consent of the other Party. 11 22. References. In the event of the Executive's death or a judicial determination of his incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative. 23. Governing Law/Jurisdiction. This Agreement shall be governed in accordance with the laws of Massachusetts without reference to principles of conflict of laws. 24. Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed given when (a) delivered personally, (b) sent by certified or registered mail, postage prepaid, return receipt requested or (c) delivered by overnight courier (provided that a written acknowledgment of receipt is obtained by the overnight courier) to the Party concerned at the address indicated below or to such changed address as such Party may subsequently give such notice of: If to the Company: Thermo Electron Corporation 81 Wyman Street Waltham, MA 02254 Attention: Vice President and General Counsel Copy: Chairman, Human Resources Committee of the Board of Directors If to the Executive: Richard F. Syron c/o Thermo Electron Corporation 81 Wyman Street Waltham, MA 02254 . 25. Headings. The headings of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement. 26. Counterparts. This Agreement may be executed in two or more counterparts. 12 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. THERMO ELECTRON CORPORATION By: /s/ George N. Hatsopoulos ---------------------------------- George N. Hatsopoulos Chairman /s/ Richard F. Syron ---------------------------------- Richard F. Syron 13 EXHIBIT A Executive Retention Agreement THIS AGREEMENT by and between THERMO ELECTRON CORPORATION, a Delaware corporation (the "Company"), and _________________ (the "Executive") is made as of __________, 1999 (the "Effective Date"). WHEREAS, the Company recognizes that, as is the case with many publicly-held corporations, the possibility of a change in control of the Company exists and that such possibility, and the uncertainty and questions which it may raise among key personnel, may result in the departure or distraction of key personnel to the detriment of the Company and its stockholders; WHEREAS, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued employment and dedication of the Company's key personnel without distraction from the possibility of a change in control of the Company and related events and circumstances; and NOW, THEREFORE, as an inducement for and in consideration of the Executive remaining in its employ, the Company agrees that the Executive shall receive the severance benefits set forth in this Agreement in the event the Executive's employment with the Company is terminated under the circumstances described below subsequent to a Change in Control (as defined in Section 1.1). 1. Key Definitions. As used herein, the following terms shall have the following respective meanings: 1.1 "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 40% or more of either (i) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition by the Company, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 1.1; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 40% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors; or (d) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 2 1.2 "Change in Control Date" means the first date during the Term (as defined in Section 2) on which a Change in Control occurs. Anything in this Agreement to the contrary notwithstanding, if (a) a Change in Control occurs, (b) the Executive's employment with the Company is terminated prior to the date on which the Change in Control occurs, and (c) it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with or in anticipation of a Change in Control, then for all purposes of this Agreement the "Change in Control Date" shall mean the date immediately prior to the date of such termination of employment. 1.3 "Cause" means the Executive's willful engagement in illegal conduct or gross misconduct after the Change in Control Date which is materially and demonstrably injurious to the Company. For purposes of this Section 1.3, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company. 1.4 "Good Reason" means the occurrence, without the Executive's written consent, of any of the events or circumstances set forth in clauses (a) through (g) below. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Termination specified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executive in respect thereof, such event or circumstance has been fully corrected and the Executive has been reasonably compensated for any losses or damages resulting therefrom (provided that such right of correction by the Company shall only apply to the first Notice of Termination for Good Reason given by the Executive). (a) the assignment to the Executive of duties inconsistent in any material respect with the Executive's position (including status, offices, titles and reporting requirements), authority or responsibilities in effect immediately prior to the earliest to occur of (i) the Change in Control Date, (ii) the date of the execution by the Company of the initial written agreement or instrument providing for the Change in Control or (iii) the date of the adoption by the Board of Directors of a resolution providing for the Change in Control (with the earliest to occur of such dates referred to herein as the "Measurement Date") or a material diminution in such position, authority or responsibilities; (b) a reduction in the Executive's annual base salary as in effect on the Measurement Date or as the same was or may be increased thereafter from time to time; 3 (c) the failure by the Company to (i) continue in effect any material compensation or benefit plan or program (including without limitation any life insurance, medical, health and accident or disability plan and any vacation or automobile program or policy) (a "Benefit Plan") in which the Executive participates or which is applicable to the Executive immediately prior to the Measurement Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan or program, (ii) continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable than the basis existing immediately prior to the Measurement Date (iii) award cash bonuses to the Executive in amounts and in a manner substantially consistent with past practice in light of the Company's financial performance or (iv) continue to provide any material fringe benefit enjoyed by Executive immediately prior to the Measurement Date; (d) a change by the Company in the location at which the Executive performs his principal duties for the Company to a new location that is both (i) outside a radius of 50 miles from the Executive's principal residence immediately prior to the Measurement Date and (ii) more than 30 miles from the location at which the Executive performed his principal duties for the Company immediately prior to the Measurement Date; or a requirement by the Company that the Executive travel on Company business to a substantially greater extent than required immediately prior to the Measurement Date; (e) the failure of the Company to obtain the agreement from any successor to the Company to assume and agree to perform this Agreement, as required by Section 6.1; (f) a purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.2(a); or (g) any failure of the Company to pay or provide to the Executive any portion of the Executive's compensation or benefits due under any Benefit Plan within seven days of the date such compensation or benefits are due, or any material breach by the Company of this Agreement or any employment agreement with the Executive. The Executive's right to terminate his employment for Good Reason shall not be affected by his incapacity due to physical or mental illness. 1.5 "Disability" means the Executive's absence from the full-time performance of the Executive's duties with the Company for 180 consecutive calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. 4 2. Term of Agreement. This Agreement, and all rights and obligations of the parties hereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of (a) the expiration of the Term (as defined below) if a Change in Control has not occurred during the Term, (b) the date 18 months after the Change in Control Date, if the Executive is still employed by the Company as of such later date, or (c) the fulfillment by the Company of all of its obligations under Sections 4 and 5.2 if the Executive's employment with the Company terminates within 18 months following the Change in Control Date. "Term" shall mean the period commencing as of the Effective Date and continuing in effect through December 31, 2003; provided, however, that commencing on January 1, 2003 and each January 1, thereafter, the Term shall be automatically extended for one additional year unless, not later than 90 days prior to the scheduled expiration of the Term (or any extension thereof), the Company shall have given the Executive written notice that the Term will not be extended. 3. Employment Status; Termination Following Change in Control. 3.1 Not an Employment Contract. The Executive acknowledges that this Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee and that this Agreement does not prevent the Executive from terminating employment at any time. If the Executive's employment with the Company terminates for any reason and subsequently a Change in Control shall occur, the Executive shall not be entitled to any benefits hereunder except as otherwise provided pursuant to Section 1.2. 3.2 Termination of Employment. (a) If the Change in Control Date occurs during the Term, any termination of the Executive's employment by the Company or by the Executive within 18 months following the Change in Control Date (other than due to the death of the Executive) shall be communicated by a written notice to the other party hereto (the "Notice of Termination"), given in accordance with Section 7. Any Notice of Termination shall: (i) indicate the specific termination provision (if any) of this Agreement relied upon by the party giving such notice, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specify the Date of Termination (as defined below). The effective date of an employment termination (the "Date of Termination") shall be the close of business on the date specified in the Notice of Termination (which date may not be less than 15 days or more than 120 days after the date of delivery of such Notice of Termination), in the case of a termination other than one due to the Executive's death, or the date of the Executive's death, as the case may be. In the event the Company fails to satisfy the requirements of Section 3.2(a) regarding a Notice of Termination, the purported termination of the Executive's employment pursuant to such Notice of Termination shall not be effective for purposes of this Agreement. (b) The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting any such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. 5 (c) Any Notice of Termination for Cause given by the Company must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination for Cause being given (and prior to any termination for Cause being effective), the Executive shall be entitled to a hearing before the Board of Directors of the Company at which he may, at his election, be represented by counsel and at which he shall have a reasonable opportunity to be heard. Such hearing shall be held on not less than 15 days prior written notice to the Executive stating the Board of Directors' intention to terminate the Executive for Cause and stating in detail the particular event(s) or circumstance(s) which the Board of Directors believes constitutes Cause for termination. (d) Any Notice of Termination for Good Reason given by the Executive must be given within 90 days of the occurrence of the event(s) or circumstance(s) which constitute(s) Good Reason. 4. Benefits to Executive. 4.1 Stock Acceleration. If the Change in Control Date occurs during the Term, then, effective upon the Change in Control Date, (a) each outstanding option to purchase shares of Common Stock of the Company held by the Executive shall become immediately exercisable in full and will no longer be subject to a right of repurchase by the Company and (b) each outstanding restricted stock award shall be deemed to be fully vested and will no longer be subject to a right of repurchase by the Company. 4.2 Compensation. If the Change in Control Date occurs during the Term and the Executive's employment with the Company terminates within 18 months following the Change in Control Date, the Executive shall be entitled to the following benefits: (a) Termination Without Cause or for Good Reason. If the Executive's employment with the Company is terminated by the Company (other than for Cause, Disability or Death) or by the Executive for Good Reason within 18 months following the Change in Control Date, then the Executive shall be entitled to the following benefits: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (1) the sum of (A) the Executive's base salary through the Date of Termination, (B) the product of (x) the annual bonus paid or payable (including any bonus or portion thereof which has been earned but deferred) for the most recently completed fiscal year and (y) a 6 fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (C) the amount of any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not previously paid (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the "Accrued Obligations"); and (2) the amount equal to (A) three multiplied by (B) the sum of (x) the Executive's highest annual base salary in any twelve- month period (on a rolling basis) during the five-year period prior to the Change in Control Date and (y) the Executive's highest annual bonus in any twelve-month period (on a rolling basis) during the five-year period prior to the Change in Control Date. (ii) for three years after the Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue to provide benefits to the Executive and the Executive's family at least equal to those which would have been provided to them if the Executive's employment had not been terminated in accordance with the applicable Benefit Plans in effect on the Measurement Date or, if more favorable to the Executive and his family, in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive a particular type of benefits (e.g., health insurance benefits) from such employer on terms at least as favorable to the Executive and his family as those being provided by the Company, then the Company shall no longer be required to provide those particular benefits to the Executive and his family; (iii) to the extent not previously paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive following the Executive's termination of employment under any plan, program, policy, practice, contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"); and (iv) for purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits to which the Executive is entitled, the Executive shall be considered to have remained employed by the Company until three years after the Date of Termination. (b) Resignation without Good Reason; Termination for Death or Disability. If the Executive voluntarily terminates his employment with the Company within 18 months following the Change in Control Date, excluding a termination for Good Reason, or if the Executive's employment with the Company is terminated by reason of the Executive's death or Disability within 18 months following the Change in Control Date, then the Company shall (i) pay the Executive (or his estate, if applicable), in a lump sum in cash within 30 days after the Date of Termination, the Accrued Obligations and (ii) timely pay or provide to the Executive the Other Benefits. 7 (c) Termination for Cause. If the Company terminates the Executive's employment with the Company for Cause within 18 months following the Change in Control Date, then the Company shall (i) pay the Executive, in a lump sum in cash within 30 days after the Date of Termination, the sum of (A) the Executive's annual base salary through the Date of Termination and (B) the amount of any compensation previously deferred by the Executive, in each case to the extent not previously paid, and (ii) timely pay or provide to the Executive the Other Benefits. 4.3 Taxes. (a) In the event that the Company undergoes a "Change in Ownership or Control" (as defined below), and thereafter, the Executive becomes eligible to receive "Contingent Compensation Payments" (as defined below) the Company shall, as soon as administratively feasible after the Executive becomes so eligible determine and notify the Executive (with reasonable detail regarding the basis for its determinations) (i) which of the payments or benefits due to the Executive following such Change in Ownership or Control constitute Contingent Compensation Payments, (ii) the amount, if any, of the excise tax (the "Excise Tax") payable pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), by the Executive with respect to such Contingent Compensation Payment and (iii) the amount of the "Gross-Up Payment" (as defined below) due to the Executive with respect to such Contingent Compensation Payment. Within 30 days after delivery of such notice to the Executive, the Executive shall deliver a response to the Company (the "Executive Response") stating either (A) that he agrees with the Company's determination pursuant to the preceding sentence or (B) that he disagrees with such determination, in which case he shall indicate which payment and/or benefits should be characterized as a Contingent Compensation Payment, the amount of the Excise Tax with respect to such Contingent Compensation Payment and the amount of the Gross-Up Payment due to the Executive with respect to such Contingent Compensation Payment. If the Executive states in the Executive Response that he agrees with the Company's determination, the Company shall make the Gross-Up Payment to the Executive within three business days following delivery to the Company of the Executive Response. If the Executive states in the Executive Response that he disagrees with the Company's determination, then, for a period of 15 days following delivery of the Executive Response, the Executive and the Company shall use good faith efforts to resolve such dispute. If such dispute is not resolved within such 15-day period, such dispute shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. The Company shall, within three business days following delivery to the Company of the Executive Response, make to the Executive those Gross-Up Payments as to which there is no dispute between the Company and the Executive regarding whether they should be made. The balance of the Gross-Up Payments shall be made within three business days following the resolution of such dispute. The amount of any payments to be made to the Executive following the resolution of such dispute shall be increased by the amount of the accrued interest thereon computed at the prime rate announced from time to time by The Wall Street Journal compounded monthly from the date that such payments originally were due. In the event that the Executive fails to deliver an Executive Response on or before the required date, the Company's initial determination shall be final. 8 (b) For purposes of this Section 4.3, the following terms shall have the following respective meanings: (i) "Change in Ownership or Control" shall mean a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company determined in accordance with Section 280G(b)(2) of the Code. (ii) "Contingent Compensation Payment" shall mean any payment (or benefit) in the nature of compensation that is made or supplied to a "disqualified individual" (as defined in Section 280G(c) of the Code) and that is contingent (within the meaning of Section 280G(b)(2)(A)(i) of the Code) on a Change in Ownership or Control of the Company. (iii) "Gross-Up Payment" shall mean an amount equal to the sum of (i) the amount of the Excise Tax payable with respect to a Contingent Compensation Payment and (ii) the amount necessary to pay all additional taxes imposed on (or economically borne by) the Executive (including the Excise Taxes, state and federal income taxes and all applicable withholding taxes) attributable to the receipt of such Gross-Up Payment. For purposes of the preceding sentence, all taxes attributable to the receipt of the Gross-Up Payment shall be computed assuming the application of the maximum tax rates provided by law. 4.4 Outplacement Services. In the event the Executive is terminated by the Company (other than for Cause, Disability or Death), or the Executive terminates employment for Good Reason, within 18 months following the Change in Control Date, the Company shall provide outplacement services through one or more outside firms of the Executive's choosing up to an aggregate of $25,000, with such services to extend until the earlier of (i) 12 months following the termination of Executive's employment or (ii) the date the Executive secures full time employment. 4.5 Mitigation. The Executive shall not be required to mitigate the amount of any payment or benefits provided for in this Section 4 by seeking other employment or otherwise. Further, except as provided in Section 4.2(a)(ii), the amount of any payment or benefits provided for in this Section 4 shall not be reduced by any compensation earned by the Executive as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise. 9 5. Disputes. 5.1 Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board of Directors of the Company and shall be in writing. Any denial by the Board of Directors of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board of Directors shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 5.2 Expenses. The Company agrees to pay as incurred, to the full extent permitted by law, all legal, accounting and other fees and expenses which the Executive may reasonably incur as a result of any claim or contest (regardless of the outcome thereof) by the Company, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive regarding the amount of any payment or benefits pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code. 6. Successors. 6.1 Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a breach of this Agreement and shall constitute Good Reason if the Executive elects to terminate employment, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as defined above and any successor to its business or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. 10 6.2 Successor to Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive or his family hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 7. Notice. All notices, instructions and other communications given hereunder or in connection herewith shall be in writing. Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) prepaid via a reputable nationwide overnight courier service, in each case addressed to the Company, at 81 Wyman Street, Waltham, Massachusetts and to the Executive at the Executive's principal residence as currently reflected on the Company's records (or to such other address as either the Company or the Executive may have furnished to the other in writing in accordance herewith). Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one business day after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended. 8. Miscellaneous. 8.1 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 8.2 Injunctive Relief. The Company and the Executive agree that any breach of this Agreement by the Company is likely to cause the Executive substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Executive shall have the right to specific performance and injunctive relief. 8.3 Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the internal laws of the Commonwealth of Massachusetts, without regard to conflicts of law principles. 8.4 Waivers. No waiver by the Executive at any time of any breach of, or compliance with, any provision of this Agreement to be performed by the Company shall be deemed a waiver of that or any other provision at any subsequent time. 11 8.5 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together shall constitute one and the same instrument. 8.6 Tax Withholding. Any payments provided for hereunder shall be paid net of any applicable tax withholding required under federal, state or local law. 8.7 Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of the subject matter contained herein; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. 8.8 Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. THERMO ELECTRON CORPORATION -------------------------------- By: Anne Pol Title: Senior Vice President, Human Resources EXECUTIVE ----------------------------------- [Name] Exhibit B Boards of Directors 1. Dreyfus Corporation 2. John Hancock Mutual Life Insurance Company EXHIBIT C ================================================================================ SUMMARY OF TERMS* RESTRICTED STOCK - -------------------------------------------------------------------------------- Date of Award: Date approved by the Human Resources Committee of the Board of Directors Restrictions: Restricted shares may not be transferred or sold to parties other than the Company until vested and restrictions lapse A stock certificate representing the award will be held in "Escrow" until the restrictions have lapsed Length of Restriction: January 2, 2002 (approximately three years from the date of award) Vesting Schedule: 100% on January 2, 2002 Purchase Price of Par Value (deemed satisfied by past services) Restricted Shares: Tax Treatment: Ordinary income is recognized on the value of the shares either: (see separate when they vest and restrictions lapse memorandum regarding OR tax consequences) on the date of grant (if a Section 83(b) election is made within 30 days of date of grant) Payment of Taxes: Check payable to employer Company, or "Stock Witholding" from Restricted Shares awarded: If tax collected when shares vest, amount withheld will be limited to minimum statutory federal (28%) and state rates, and statutory FICA rates up to specified limits. If tax collected upon Section 83(b) election, amoun will be withheld at maximum federal (39.6%) and state rates, and statutory FIC rates up to specified limits. Rights on Termination: Voluntary or Discharge (for cause).. Non-vested shares will be transferred back to the Company and the recipient will have no further rights to the shares Death, Release, or Shares fully vest and are released from "Escrow" Disability... net of shares required to satisfy tax withholding requirements) Change of Control ... Shares fully vest upon change of control as defined in the Company's Equity Incentive Plan and are released from "Escrow" (net of shares required to satisfy tax withholding requirements) *This summary is qualified in its entirety by the terms and conditions of a written and signed restricted stock agreement between the employee and the Company. ================================================================================ 2 EXHIBIT D Grant ID # 21-0XXX [A/7] THERMO ELECTRON CORPORATION EQUITY INCENTIVE PLAN STOCK OPTION AGREEMENT Optionee #### $$$$ Number of Shares of Exercise Price Common Stock Subject Per Share to the Option Grant Date We are pleased to inform you that, pursuant to the Thermo Electron Corporation Equity Incentive Plan (the "Plan"), you have been granted the option to acquire the number of shares of common stock, par value $1.00 per share (the "Common Stock"), of Thermo Electron Corporation (the "Company"), specified above, subject to the provisions of the Plan and the terms, conditions and restrictions hereinafter set forth (the "Option"), to be exercisable any time after the Grant Date specified above (the "Grant Date") and prior to the Option Termination Date (as defined herein). Attached is a copy of the Plan which is incorporated in this Stock Option Agreement (the "Agreement") by reference and made a part hereof. The Option granted hereunder is intended to be a non-statutory stock option and not a "qualified", "incentive", or "employee stock purchase plan" stock option as those terms are defined in Sections 422, 422A and 423, respectively, of the Internal Revenue Code of 1954, as amended. 1. Termination of Option. The Option shall terminate on the date which is the earliest of (a) seven years after the Grant Date, (b) three months after the date on which you cease to be a director or employee of the Company or a subsidiary of the Company (the "Employment Termination Date"), or six months after the Employment Termination Date if such cessation is a result of your death, provided that immediately on the Employment Termination Date, the Option shall terminate with respect to any Optioned Shares (as defined herein) as to which the Transfer Restrictions (as defined herein) shall not have lapsed, or (c) the date of the dissolution or liquidation of the Company. The date on which the Option shall terminate in whole or in part as provided in this Section 1 is hereinafter referred to as the "Option Termination Date." 2. Transfer Restrictions and Company Repurchase Option. (a) Shares of Common Stock subject to the Option ("Optioned Shares") and purchased upon exercise of the Option may not, without the prior written consent of the Company, be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, except by will or by the applicable laws of descent and distribution or to the Company pursuant to the provisions of ARTICLE NINTH, Section (9) of the Company's Restated Certificate of Incorporation, as amended from time to time (the "Transfer Restrictions") unless and until the Transfer Restrictions with respect to such Optioned Shares shall have lapsed as provided herein. The Transfer Restrictions shall lapse in their entirety with respect to one-fifth of the number of Optioned Shares specified on the first page of this Agreement at the close of business on each of the first, second, third, fourth and fifth anniversaries of the Grant Date which occurs prior to the Employment Termination Date, provided you shall have remained continuously a director or employee of the Company or a subsidiary of the Company since the Grant Date. From and after the Employment Termination Date, no further lapsing of the Transfer Restrictions shall occur, and thereupon the Company shall have the right, exercisable in accordance with Section 2(b) hereof, to repurchase all or any portion of the Optioned Shares purchased by you upon exercise of the Option with respect to which the Transfer Restrictions shall not have lapsed, at a price per share equal to the Exercise Price specified on the first page of this Agreement (the "Exercise Price"). The right of the Company to repurchase Optioned Shares at the Exercise Price as provided in this Section 2(a) is hereinafter referred to as the "Company Repurchase Option". (b) The Company may exercise the Company Repurchase Option by mailing to you at your last address listed in the records of the Company or the relevant subsidiary of the Company, or by delivering to you, a notice that it has exercised the Company Repurchase Option and the number of Optioned Shares with respect to which it has exercised the Company Repurchase Option, within six (6) months after the date that the Company shall first have been entitled to exercise the Company Repurchase Option (the "Repurchase Option Period"). Such notice shall be accompanied by a check payable to you in the amount of the Exercise Price times the number of Optioned Shares with respect to which the Company has exercised the Company Repurchase Option. Upon exercise by the Company of the Company Repurchase Option as provided herein, the certificate or certificates representing the Optioned Shares, and representing shares of Common 2 Stock or other shares (or other property) received in any Non-Cash Distribution (as defined herein) in respect of such Optioned Shares, which have been repurchased shall forthwith be released from the escrow arrangement provided for in Section 4 hereof and transferred of record to the Company. The Company Repurchase Option shall lapse and be of no further force or effect if it shall not have been exercised prior to the expiration of the Repurchase Option Period. 3. No Assignment of Rights. Except for assignments or transfers by will or the applicable laws of descent and distribution, your rights and interests under this Agreement and the Plan may not be assigned or transferred in whole or in part either directly or by operation of law or otherwise, including without limitation by way of execution, levy, garnishment, attachment, pledge or bankruptcy, and no such rights or interests shall be subject to any of your obligations or liabilities. 4. Exercise of Option; Delivery and Deposit of Certificate(s). You (or in the case of your death, your legal representative) may exercise the Option in whole or in part by giving written notice to the Company on the form attached hereto as Exhibit A (the "Exercise Notice") prior to the Option Termination Date, accompanied by full payment for the Optioned Shares being purchased (a) in cash or by certified or bank cashier's check payable to the order of the Company, in an amount equal to the number of Optioned Shares being purchased multiplied by the Exercise Price (the "Aggregate Exercise Price"), (b) in shares of the Company's Common Stock (the "Tendered Shares") with a market value equal to the Aggregate Exercise Price or (c) any combination of cash, certified or bank cashier's check or Tendered Shares having a total value equal to the Aggregate Exercise Price (such cash, check or Tendered Shares with such value being referred to as the "Exercise Consideration"). However, Tendered Shares may be surrendered as all or part of the Exercise Consideration only if you shall have acquired such Tendered Shares more than six months prior to the date of exercise and, if such Tendered Shares are then subject to Transfer Restrictions, only with the prior written consent of the Company as provided in Section 2(a) hereof. As a condition to such consent, the Company may require that a number of Optioned Shares acquired by you upon your exercise of the Option equal to the number of Tendered Shares surrendered upon such exercise shall be subject to the Transfer Restrictions and the Company Repurchase Option to the same extent that such Tendered Shares surrendered upon such exercise were so subject immediately prior to such surrender. Receipt by the Company of the Exercise Notice and the Exercise Consideration shall constitute the exercise of the Option or a part thereof. As soon as reasonably practicable thereafter, the Company shall deliver or cause to be delivered to you a certificate or certificates representing the number of Optioned Shares purchased, registered in your name. If such certificate(s) represent(s) Optioned Shares with respect to which the Transfer Restrictions shall not have lapsed, such certificate(s) shall, immediately upon your receipt thereof, be deposited by you, together with a stock power endorsed in blank, in escrow with the Company. In addition, any certificate(s) representing shares of Common Stock, or other property other than cash, distributed (including pursuant to any stock split) in respect of Optioned Shares purchased by you (a "Non-Cash Distribution") with respect to which the Transfer Restrictions shall not have lapsed shall, immediately upon your receipt 3 thereof, be deposited by you, together with a stock power endorsed in blank (if applicable), in escrow with the Company, and shall be subject to the Transfer Restrictions and the Company Repurchase Option to the same extent as the Optioned Shares in respect of which such Non-Cash Distribution was made. All such deposited certificate(s) may have set forth thereon a legend or legends (in addition to the legend referred to in Section 7 hereof) indicating that the shares of Common Stock (or other property) represented by such certificate(s) are subject to the Transfer Restrictions and, to the extent applicable, to the Company Repurchase Option, as provided herein. All shares of Common Stock delivered upon the exercise of the Option as provided herein shall be fully paid and non-assessable. 5. Rights With Respect to Optioned Shares. Prior to the date the Option is exercised, you shall not be deemed for any purpose to be a stockholder of the Company with respect to any of the Optioned Shares. Upon initial issuance to you of a certificate or certificates representing Optioned Shares or shares (or other property) received in any Non-Cash Distribution in respect of Optioned Shares purchased by you, you shall have ownership of such shares (or other property), including the right to vote and receive dividends, subject, however, in the case of any such shares (or other property) with respect to which the Transfer Restrictions shall not have lapsed, to the Transfer Restrictions and the Company Repurchase Option, to the extent applicable, and to the other restrictions and limitations imposed thereon pursuant to the Plan and this Agreement and which may be now or hereafter imposed by the Restated Certificate of Incorporation or the By-Laws of the Company. 6. Release of Optioned Shares. As soon as reasonably practicable after the Transfer Restrictions shall have lapsed with respect to any Optioned Shares purchased by you upon exercise of the Option, the Company shall deliver to you, or your legal representative in the case of your death, the certificate or certificates representing such shares and any shares (or other property) received in any Non-Cash Distribution in respect of such shares, previously deposited in escrow with the Company pursuant to Section 4 hereof, without any legend referring to the Transfer Restrictions or the Company Repurchase Option. 7. Securities Laws. You hereby represent and warrant that you will not transfer, sell or otherwise dispose of any Optioned Shares purchased by you except in compliance with the Securities Act of 1933, as amended (the "Act"), the rules and regulations thereunder and all applicable state securities laws and the rules and regulations thereunder. You hereby acknowledge and agree that any routine sales of the Optioned Shares purchased by you upon exercise of the Option made in reliance upon Rule 144 under the Act may be made only in limited amounts in accordance with the terms and conditions of that Rule. You also acknowledge and agree that the certificate(s) representing Optioned Shares delivered to you pursuant to Section 4 hereof may have set forth thereon a legend indicating that such shares may be transferred, sold or otherwise disposed of only after receipt by the Company of an opinion of counsel reasonably satisfactory to it that the transfer, sale or other disposition will not violate the Act or the regulations thereunder or any applicable state securities laws or the regulations thereunder. 4 8. Dilution and Other Adjustments. In the event of any stock dividend payable in Common Stock or any split-up or contraction in the number of shares of Common Stock occurring after the date of this Agreement and prior to the exercise in full of the Option, the number of shares for which the Option may thereafter be exercised and the Exercise Price shall be proportionately adjusted. In the case of any reclassification or change of outstanding shares of the Common Stock or in case of any consolidation or merger of the Company with or into another company or in case of any sale or conveyance to another company or entity of the property of the Company as a whole or substantially as a whole, you shall, upon exercise of the Option, be entitled to receive shares of stock or other securities in its place equivalent in kind and value to those shares which you would have received if you had exercised the Option in full immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and had continued to hold the Optioned Shares (together with all other shares, stock and securities thereafter issued in respect thereof) to the time of the exercise of the Option; provided, that if any recapitalization is to be effected through an increase in the par value of the Common Stock without an increase in the number of authorized shares and such new par value will exceed the Exercise Price hereunder, the Company shall notify you of such proposed recapitalization, and you shall then have the right, exercisable at any time prior to such recapitalization becoming effective, to purchase all of the Optioned Shares not theretofore purchased by you (anything in Section 1 hereof to the contrary notwithstanding), but if you fail to exercise such right before such recapitalization becomes effective, the Exercise Price hereunder shall be appropriately adjusted. Upon dissolution or liquidation of the Company, the Option shall terminate, but you (if at the time you are a director or employee of the Company or a subsidiary of the Company) shall have the right, immediately prior to such dissolution or liquidation, to purchase all or any portion of the Optioned Shares not theretofore purchased by you. No adjustment provided for in this Section 8 shall apply to any Optioned Shares purchased prior to the effective date of such adjustment. No fraction of a share or fractional shares shall be purchasable or deliverable under this Agreement, but in the event any adjustment hereunder of the number of Optioned Shares shall cause such number to include a fraction of a share, such fraction shall be adjusted to the nearest smaller whole number of shares. 9. Reservation of Shares. The Company shall at all times during the term of this Agreement reserve and keep available such number of shares of the Common Stock as will be sufficient to satisfy the requirements of this Agreement and shall pay all fees and expenses necessarily incurred by the Company in connection with this Agreement and the issuance of Optioned Shares. 10. Taxes. If the Company, in its sole discretion, determines that the Company or any subsidiary of the Company or any other person has incurred or will incur any liability to withhold any federal, state or local income or other taxes by reason of the grant of the Option, the issuance of Optioned Shares to you upon the exercise thereof or the lapse of the Transfer Restrictions or the Company Repurchase Option or any other restrictions upon the Optioned Shares, 5 you will, promptly upon demand therefor by the Company or any such subsidiary of the Company, pay to the Company or such subsidiary any amount requested by it for the purpose of satisfying such liability. If the amount so requested is not paid promptly, the Company may refuse to permit the issuance to you of Optioned Shares and may, without further consent by you, cancel the Optioned Shares issued to you. You may satisfy the minimum statutory withholding tax requirement (the "Obligation") arising from exercise of all or a part of the Option by making an election (an "Election") to have the Company withhold from the number of shares to be issued upon exercise of the Option, or to otherwise tender to the Company, that number of shares of Common Stock having a value equal to the amount of the Obligation. The value of the shares to be withheld or tendered shall be based upon the closing price of the Common Stock on the New York Stock Exchange on the date that the amount of the Obligation shall be determined (the "Tax Date"). Each Election must be made at the time the Option is exercised or the Tax Date, whichever is later. The Committee may disapprove of any Election or may suspend or terminate the right to make Elections. An Election is irrevocable. If you are a Section 16(a) reporting person of the Company, the Election will be subject to the following additional requirements: (1) No Election shall be effective for a Tax Date that occurs within six months of the date the Option is granted. (2) An Election must be made six months prior to the Tax Date or must be made during a period beginning on the third business day following the date of release of publication of the Company's quarterly or annual summary statements of sales and earnings and ending on the 12th business day following such date. 11. Determination of Rights. You hereby represent and warrant for yourself, your personal representatives and beneficiaries, that as a condition of the granting of the Option, any dispute or disagreement which may arise under or as a result of or pursuant to the Plan or this Agreement shall be determined by the Company's Board of Directors, in its sole discretion, and that any decision made by it in good faith shall be conclusive on all parties. The interpretation and construction by the Company's Board of Directors of any provision of, and the determination of any question arising under, this Agreement, the Plan, or any rule or regulation adopted pursuant to the Plan, shall be final and conclusive. 12. Limitation of Employment Rights. The Option confers upon you no right to continue in the employ of the Company and its subsidiaries or interferes in any way with the right of the Company and its subsidiaries to terminate your employment at any time. 6 13. Communications. Any communication or notice required or permitted to be given under this Agreement shall be in writing, and mailed by registered or certified mail or delivered in hand, if to the Company to its Stock Option Manager at 81 Wyman Street, Post Office Box 9046, Waltham, Massachusetts 02454-9046, and if to the Optionee, to the address set forth below, or such other address, in each case, as the addressee shall last have furnished to the communicating party. Please confirm your acceptance of the Option, your receipt of a copy of the Plan and your acceptance of and agreement to the terms of the Plan and this Agreement, by executing the enclosed copy of this letter and returning such copy promptly under confidential cover to the Stock Option Manager of the Company, 81 Wyman Street, Post Office Box 9046, Waltham, Massachusetts 02454-9046. THERMO ELECTRON CORPORATION By Name: Anne Pol Title: Senior Vice President, Human Resources Accepted and agreed: - ------------------------- Optionee - ------------------------- - ------------------------- - ------------------------- - ------------------------- Home Address 7 EXHIBIT E THERMO ELECTRON CORPORATION INDEMNIFICATION AGREEMENT This Agreement, made and entered into this 25th day of September, 1997 ("Agreement"), by and between Thermo Electron Corporation, a Delaware corporation (the "Company"), and Dr. Richard F. Syron ("Indemnitee"): WHEREAS, highly competent persons are becoming more reluctant to serve publicly-held corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to, and activities on behalf of, the corporation; and WHEREAS, uncertainties relating to the contained availability of adequate directors and officers liability insurance ("D&O Insurance") and relating to indemnification have increased the difficulty of attracting and retaining such persons; WHEREAS, the Board of Directors of the Company (the "Board") has determined that the difficulty in attracting and retaining such persons is detrimental to the best interests of the Company's stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future; WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify such persons so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified; WHEREAS, Indemnitee is willing to serve, continue to serve and/or take on additional service for or on behalf of the Company on the condition that he be so indemnified and that such indemnification be so guaranteed; NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows: 1. Services by Indemnitee. Indemnitee agrees to serve or continue to service as a Director of the Company. This Agreement shall not impose any obligation on the Indemnitee or the Company to continue the Indemnitee's position with the Company beyond any period otherwise applicable. 2. Indemnity. The Company shall indemnify, and shall advance Expenses (as hereinafter defined) to, Indemnitee as provided in this Agreement and to the fullest extent permitted by law. 3. General. Indemnitee shall be entitled to the rights of indemnification provided in this Section 3 if, by reason of his Corporate Status (as hereinafter defined), he is, or is threatened to be made, a party to any threatened, pending, or completed action, suit, arbitration, alternative dispute resolution mechanism, investigation, administrative hearing or other proceeding whether civil, criminal, administrative or investigative. Pursuant to this Section 3, Indemnitee shall be indemnified against Expenses, judgments, penalties, fines and amounts paid in settlement incurred by him or on his behalf in connection with such action, suit, arbitration, alternative dispute resolution mechanism, investigation, administrative hearing or other proceeding whether civil, criminal, administrative or investigative or any claim, issue or matter therein, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. 4. Proceedings by or in the Right of the Company. In the case of any action or suit by or in the right of the Company, indemnification shall be made only (i) for Expenses or (ii) in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company is such indemnification is permitted by Delaware law; provided, however, that indemnification against Expenses shall nevertheless be made by the Company in such event to the extent that the Court of Chancery of the State of Delaware, or the court in which such action or suit shall have been brought or is pending, shall determine to be proper despite the adjudication of liability but in view of all the circumstances of the case. 5. Indemnification for Expenses of a Party who is Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporation Status, a party to and is successful, on the merits or otherwise, in any action, suit, arbitration, alternative dispute resolution mechanism, investigation, administrative hearing or other proceeding whether civil, criminal, administrative or investigative, he shall be indemnified against all Expenses incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such action, suit, arbitration, alternative dispute resolution mechanism, investigation, administrative hearing or other proceeding whether civil, criminal, administrative or investigative, the Company shall indemnify Indemnitee against all Expenses incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter by dismissal, or withdrawal with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. 2 6. Advance of Expenses. The Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any action, suit, arbitration, alternative dispute resolution mechanism, investigation, administrative hearing or other proceeding whether civil, criminal, administrative or investigative within twenty (20) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such action, suit, arbitration, alternative dispute resolution mechanism, investigation, administrative hearing or other proceeding whether civil, criminal, administrative or investigative. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses, which undertaking shall be accepted by or on behalf of the Company without reference to the financial ability of Indemnitee to make repayment. 7. Procedure for Determination of Entitlement to Indemnification. (a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification. (b) Upon written request by Indemnitee for indemnification pursuant to Section 7(a) hereof, a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall be made in the specific case: (i) if a Change in Control (as hereinafter defined) shall have occurred, by Independent Counsel (as hereinafter defined) in a written opinion to the Board, a copy of which shall be delivered to Indemnitee (unless Indemnitee shall request that such determination be made by the Board or the stockholders, in which case the determination shall be made in the manner provided below in clauses (ii) or (iii)); (ii) if a Change of Control shall not have occurred, (A) by the Board by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined), or (B) if a quorum of the Board consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterest Directors so directs, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee or (C) by the stockholders of the Company; or (iii) as provided in Section 8(b) of this Agreement; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall cooperate with the person, persons or 3 entity making such determination with respect to Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorney's fees and disbursements) incurred by Indemnitee in so cooperating shall be borne by the Company (irrespective of the determination as to Indemnitee's entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom. (c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 7(b) of this Agreement, the Independent Counsel shall be selected as provided in this Section 7(c). If a Change of Control shall not have occurred, the Independent Counsel shall be selected by the Board, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change of Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within 7 days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection. Such objection may be asserted only on the ground that the Indepedent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Section 14 of this Agreement, and the objection shall set forth with particularly the factual basis of such assertion. If such written objection is made, the Independent Counsel so selected may not serve as Independent Counsel unless and until a court has determined that such objection is without merit. If, within twenty (20) days after submission by Indemnitee of a written request for indemnification pursuant to Section 7(a) hereof, no Independent Counsel shall have been selected or if selected, shall have been objected to, in accordance with this Section 7(c), whether the Company or Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the other's selection by the Court or by such other person as the Court shall designate, and the person with respect to whom an objection is favorably resolved or the person so appointed shall act as Independent Counsel in connection with acting pursuant to Section 7(b) hereof. The Company shall pay any and all reasonable fees and expenses incident to the procedures of this Section 7(c), regardless of the manner in which such Independent Counsel was selected or appointed. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 9(a)(iii) of this Agreement, Independent Counsel shall be discharged and relieve of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing). 4 8. Presumptions and Effect of Certain Proceedings. (a) If a Change of Control shall have occurred, in making a determination with respect to entitlement to indemnification hereunder, the person, persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 7(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. (b) If the person, persons or entity empowered or selected under Section 7 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made such determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 8(b) shall not apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 7(b) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination the Board has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 7(b) of this Agreement. (c) The termination of any action, suit, arbitration, alternative dispute resolution mechanism, investigation, administrative hearing or other proceeding whether civil, criminal, administrative or investigative or of any claim, issue or matter therein by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful. 5 9. Remedies of Indemnitee. (a) In the event that (i) a determination is made pursuant to Section 7 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 6 of this Agreement, (iii) the determination of entitlement to indemnification is to be by Independent Counsel pursuant to Section 7(b) of this Agreement and such determination shall not have been made and delivered in a written opinion within ninety (90) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5 of this Agreement within ten (10) days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 8 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within one hundred eighty (180) days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 9(a). The Company shall not oppose Indemnitee's right to seek any such adjudication or award in arbitration. (b) In the event that a determination shall have been made pursuant to Section 7 of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 9 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change of Control shall have occurred, in any judicial proceeding or arbitration commenced pursuant to this Section 9 the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. (c) If a determination shall have been made or deemed to have been made pursuant to Section 7 or 8 of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 9, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law. (d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 9 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. 6 (e) In the event that Indemnitee, pursuant to this Section 9, seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indentified by the Company against, any and all expenses (of the types described in the definition of Expenses in Section 14 of this Agreement) actually and reasonably incurred by him in such judicial adjudication or arbitration, but only if he prevails therein. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advancement of expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated. 10. Security. To the extent requested by the Indemnitee and approved by the Board, the Company may at any time and from time to time provide security to the Indemnitee for the Company's obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to the Indemnitee, may not be revoked or released without the prior written consent of Indemnitee. 11. Non-Exclusivity; Duration of Agreement; Insurance; Subrogation. (a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Company's certificate of incorporation or by-laws, any other agreement, a vote of stockholders or a resolution of directors, or otherwise. This Agreement shall continue until and terminate upon the later of (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director or executive officer of the Company or fiduciary of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee served at the request of the Company; or (b) the final termination of all pending actions, suits, arbitrations, alternative dispute resolution mechanisms, investigations, administrative hearings or other proceedings whether civil, criminal, administrative or investigative in respect of which Indemnitee is granted rights of indemnification or advancement of expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 9 of this Agreement relating thereto. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his heirs, executors and administrators. (b) To the extent that the Company maintains D&O Insurance, Indemnitee shall be covered by such D&O Insurance in accordance with its terms to the maximum extent of the coverage available for any Director under such policy or policies. (c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights. (d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. 7 12. Severability; Reformation. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 13. Exception to Right of Indemnification or Advancement of Expenses. Notwithstanding any other provision of this Agreement, Indemnitee shall not be entitled to indemnification or advancement of Expenses under this Agreement with respect to any action, suit or proceeding, or any claim therein, initiated, brought or made by him (i) against the Company, unless a Change in Control shall have occurred, or (ii) against any person other than the Company, unless approved in advance by the Board. 14. Definitions. For purposes of this Agreement: (a) "Change in Control" means a change in control of the Company of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if (i) any "person" (as such term is used in Section 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities without the prior approval of at least two-thirds of the members of the Board in office immediately prior to such person attaining such percentage interest; (ii) the Company is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board in office immediately prior to such transaction or event constitute less than a majority of the Board thereafter; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board (including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board. 8 (b) "Corporate Status" describes the status of a person who is or was or has agreed to become a director of the Company, or is or was an officer or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company. (c) "Disinterested Director" means a director of the Company who is not and was not a party to the action, suit, arbitration, alternative dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative in respect of which indemnification is sought by Indemnitee. (d) "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, deliver service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend or investigating an action, suit, arbitration, alternative dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative. (e) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither currently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party or (ii) any other party to the action, suit, arbitration, alternative dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's Rights under this Agreement. 15. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. 16. Modification and Waiver. This Agreement may be amended from time to time to reflect changes in Delaware law or for other reasons. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 9 17. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any matter which may be subject to indemnification or advancement of Expenses covered hereunder; provided, however, that the failure to give any such notice shall not disqualify the indemnitee from indemnification hereunder. 18. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: (a) If to Indemnitee, to: The address shown beneath his or her signature on the last page hereof (b) If to the Company to: Thermo Electron Corporation 81 Wyman Street P.O. Box 9046 Waltham, MA 02254-9046 Attn: Corporate Secretary or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be. 19. Governing Law. The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware. 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. Attest: THERMO ELECTRON CORPORATION By: By: ----------------------------------- ----------------------------------- Sandra L. Lambert George N. Hatsopoulos Secretary Chief Executive Officer INDEMNITEE --------------------------------------- Richard F. Syron Address: EX-10.60 5 Exhibit 10.60 Description of Severance Arrangements for Certain Officers of Thermo Electron The Human Resources Committee of the Board of Directors of Thermo Electron has approved severance arrangements for certain of its officers. Mr. Brian Holt, Chief Operating Officer, Energy and Environment, and Mr. Theo Melas-Kyriazi, Chief Financial Officer and Vice President, will each receive a severance payment of two times his base salary upon termination of his employment with Thermo Electron, unless his employment is terminated for cause or he terminates his employment voluntarily. EX-13 6 Exhibit 13 Thermo Electron Corporation Consolidated Financial Statements 1999
Thermo Electron Corporation 1999 Financial Statements Consolidated Statement of Operations (In thousands except per share amounts) 1999 1998 1997 - -------------------------------------------------------------------- ------------ ------------ ----------- Revenues (Note 14) $2,471,193 $2,055,805 $1,979,602 ---------- ---------- ---------- Costs and Operating Expenses: Cost of revenues 1,378,494 1,127,253 1,058,331 Selling, general, and administrative expenses 673,004 543,226 511,910 Research and development expenses 171,100 128,021 123,890 Restructuring and other unusual costs (income), net (Note 11) 149,589 23,583 (10,957) ---------- ---------- ---------- 2,372,187 1,822,083 1,683,174 ---------- ---------- ---------- Operating Income 99,006 233,722 296,428 Gain on Issuance of Stock by Subsidiaries (Note 9) - 18,583 63,479 Other Income (Expense), Net (Note 10) (61,520) 2,188 (6,786) ---------- ---------- ---------- Income from Continuing Operations Before Income Taxes, Minority 37,486 254,493 353,121 Interest, and Extraordinary Items Income Tax Provision (Note 8) 33,073 104,571 131,970 Minority Interest Expense 18,993 35,246 46,486 ---------- ---------- ---------- Income (Loss) from Continuing Operations Before Extraordinary Items (14,580) 114,676 174,665 Income (Loss) from Discontinued Operations (net of income tax (111,462) 66,785 64,663 provision (benefit) and minority interest of $(71,679), $74,885, and $70,683; Note 17) Provision for Loss on Disposal of Discontinued Operations (50,000) - - (including income tax provision of $174,000; Note 17) ---------- ---------- ---------- Income (Loss) Before Extraordinary Items (176,042) 181,461 239,328 Extraordinary Items (net of provision for income taxes and minority 1,469 440 - interest of $900 and $470; Note 5) ---------- ---------- ---------- Net Income (Loss) $ (174,573) $ 181,901 $ 239,328 ========== ========== ========== Earnings (Loss) per Share from Continuing Operations Before Extraordinary Items (Note 15) Basic $ (.09) $ .71 $ 1.15 ========= ========== ========== Diluted $ (.11) $ .67 $ 1.05 ========= ========== ========== Earnings (Loss) per Share (Note 15) Basic $ (1.10) $ 1.12 $ 1.57 ========= ========== ========== Diluted $ (1.13) $ 1.08 $ 1.41 ========= ========== ========== Weighted Average Shares (Note 15) Basic 157,987 161,866 152,489 ========== ========== ========== Diluted 157,987 162,973 176,082 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 2 Thermo Electron Corporation 1999 Financial Statements Consolidated Balance Sheet (In thousands) 1999 1998 - --------------------------------------------------------------------------------- ------------ ----------- Assets Current Assets: Cash and cash equivalents $ 281,760 $ 268,340 Short-term available-for-sale investments, at quoted market value 555,501 1,059,069 (amortized cost of $545,639 and $1,053,419; Note 2) Accounts receivable, less allowances of $33,699 and $26,938 574,126 486,966 Unbilled contract costs and fees 18,575 14,831 Inventories (Note 11) 373,141 330,507 Deferred tax asset (Note 8) 160,959 86,835 Other current assets 35,795 27,833 Net assets of discontinued operations (Note 17) 517,350 652,002 ---------- ---------- 2,517,207 2,926,383 ---------- ---------- Property, Plant, and Equipment, at Cost, Net (Note 11) 510,647 534,249 ---------- ---------- Long-term Available-for-sale Investments, at Quoted Market Value 40,165 48,155 (amortized cost of $38,064 and $51,907; Note 2) ---------- ---------- Other Assets (Note 3) 207,732 125,262 ---------- ---------- Cost in Excess of Net Assets of Acquired Companies (Notes 3, 8, and 11) 1,227,335 1,123,294 ---------- ---------- Long-term Net Assets of Discontinued Operations (Note 17) 678,756 663,717 ---------- ---------- $5,181,842 $5,421,060 ========== ========== 3 Thermo Electron Corporation 1999 Financial Statements Consolidated Balance Sheet (continued) (In thousands except share amounts) 1999 1998 - --------------------------------------------------------------------------------- ------------ ----------- Liabilities and Shareholders' Investment Current Liabilities: Short-term obligations and current maturities of long-term obligations $ 302,962 $ 100,433 (Note 5) Advance payable to affiliates (Note 5) 115,009 105,475 Accounts payable 156,573 123,956 Accrued payroll and employee benefits 89,184 76,717 Accrued income taxes 85,407 83,406 Accrued installation and warranty costs 44,198 43,231 Deferred revenue 47,440 47,441 Other accrued expenses (Notes 3 and 11) 225,576 182,714 ---------- ---------- 1,066,349 763,373 ---------- ---------- Deferred Income Taxes (Note 8) 81,759 85,859 ---------- ---------- Other Deferred Items 81,304 68,432 ---------- ---------- Long-term Obligations (Note 5): Senior convertible obligations 172,500 187,042 Senior notes 150,000 150,000 Subordinated convertible obligations 1,209,305 1,416,052 Nonrecourse tax-exempt obligations - 15,500 Other (includes $10,000 due to affiliated company in 1998) 34,169 39,988 ---------- ---------- 1,565,974 1,808,582 ---------- ---------- Minority Interest 364,278 399,512 ---------- ---------- Commitments and Contingencies (Note 6) Common Stock of Subsidiary Subject to Redemption (at redemption value; Note 1) 7,692 40,500 ---------- ---------- Shareholders' Investment (Notes 4 and 7): Preferred stock, $100 par value, 50,000 shares authorized; none issued Common stock, $1 par value, 350,000,000 shares authorized; 167,432,776 167,433 166,971 and 166,970,806 shares issued Capital in excess of par value 1,052,837 1,033,799 Retained earnings 1,041,968 1,216,541 Treasury stock at cost, 10,955,798 and 8,477,707 shares (189,646) (151,643) Deferred compensation (3,190) - Accumulated other comprehensive items (Note 16) (54,916) (10,866) ---------- ---------- 2,014,486 2,254,802 ---------- ---------- $5,181,842 $5,421,060 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 4 Thermo Electron Corporation 1999 Financial Statements Consolidated Statement of Cash Flows (In thousands) 1999 1998 1997 - ------------------------------------------------------------------ ------------- ------------ ----------- Operating Activities Net income (loss) $ (174,573) $ 181,901 $ 239,328 Adjustments to reconcile net income (loss) to income (loss) from continuing operations: (Income) loss from discontinued operations (Note 17) 111,462 (66,785) (64,663) Provision for loss on disposal of discontinued operations 50,000 - - ----------- ---------- ---------- Income (loss) from continuing operations (13,111) 115,116 174,665 Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities: Depreciation and amortization 113,641 96,147 86,093 Noncash restructuring and other unusual costs (income), 148,565 3,226 (9,700) net (Note 11) Provision for losses on accounts receivable 8,626 5,002 4,981 Minority interest expense 18,993 35,246 46,486 Equity in (earnings) loss of unconsolidated subsidiaries 7,274 (150) 341 Change in deferred income taxes (61,285) (13,525) 29,628 Gain on issuance of stock by subsidiaries (Note 9) - (18,583) (63,479) Gain on sale of businesses and termination of (13,462) - (2,210) operating contract (Note 11) Gain on investments, net (1,537) (12,812) (5,015) Extraordinary items, net of income taxes and (1,469) (440) - minority interest (Note 5) Other noncash items, net 18,902 20,715 (758) Changes in current accounts, excluding the effects of acquisitions and dispositions: Accounts receivable (27,311) (1,112) (19,842) Inventories 15,182 10,490 10,829 Other current assets (7,714) 9,122 42,175 Accounts payable 14,153 (9,320) (9,099) Other current liabilities (2,526) 38,655 (78,902) ----------- ---------- ---------- Net cash provided by continuing operations 216,921 277,777 206,193 Net cash provided by discontinued operations 120,200 50,685 62,826 ----------- ---------- ---------- Net cash provided by operating activities 337,121 328,462 269,019 ----------- ---------- ---------- Investing Activities Acquisitions, net of cash acquired (Note 3) (357,563) (173,685) (494,103) Acquisition of minority interests of subsidiaries (Note 17) (43,176) - - Payment to affiliated company for prior year acquisition - (19,117) - Refund of acquisition purchase price (Note 3) 8,969 - 36,132 Proceeds from sale of businesses and termination of 15,714 750 7,035 operating contract (Note 11) Purchases of available-for-sale investments (551,368) (1,905,224) (830,337) Proceeds from sale of available-for-sale investments 281,451 134,472 43,145 Proceeds from maturities of available-for-sale investments 794,288 1,505,494 1,353,983 5 Thermo Electron Corporation 1999 Financial Statements Consolidated Statement of Cash Flows (continued) (In thousands) 1999 1998 1997 - ------------------------------------------------------------------ ------------- ------------ ----------- Investing Activities (continued) Purchases of property, plant, and equipment $ (87,217) $ (86,528) $ (55,035) Proceeds from sale of property, plant, and equipment 6,798 12,058 8,656 Advance (to) from affiliates 9,539 (50,912) 19,049 Increase in other assets (8,357) (7,031) (4,009) Other 14,437 14,600 7,288 ----------- ---------- ---------- Net cash provided by (used in) continuing operations 83,515 (575,123) 91,804 Net cash used in discontinued operations (157,083) (57,193) (411,632) ----------- ---------- ---------- Net cash used in investing activities (73,568) (632,316) (319,828) ----------- ---------- ---------- Financing Activities Net proceeds from issuance of long-term obligations (Note 5) 16,813 393,196 272,982 Repayment of long-term obligations (69,267) (58,237) (57,371) Net proceeds from issuance of Company and subsidiary 14,929 384,686 129,729 common stock (Notes 7 and 9) Purchases of Company and subsidiary common stock and (190,412) (470,639) (121,555) subordinated convertible debentures (Note 5) Increase (decrease) in short-term notes payable 25,043 (8,948) (23,346) Other (7,429) (23,200) 12,683 ----------- ---------- ---------- Net cash provided by (used in) continuing operations (210,323) 216,858 213,122 Net cash provided by (used in) discontinued operations (76,560) (114,680) 24,628 ----------- ---------- ---------- Net cash provided by (used in) financing activities (286,883) 102,178 237,750 ----------- ---------- ---------- Exchange Rate Effect on Cash in Continuing Operations (14,419) 6,138 (4,094) Exchange Rate Effect on Cash in Discontinued Operations (1,706) (1,372) (3,671) ----------- ---------- ---------- Increase (Decrease) in Cash and Cash Equivalents (39,455) (196,910) 179,176 Cash and Cash Equivalents at Beginning of Year 396,670 593,580 414,404 ----------- ---------- ---------- 357,215 396,670 593,580 Cash of Discontinued Operations at End of Year (75,455) (128,330) (87,968) ----------- ---------- ---------- Cash and Cash Equivalents at End of Year $ 281,760 $ 268,340 $ 505,612 =========== ========== ========== See Note 12 for supplemental cash flow information. The accompanying notes are an integral part of these consolidated financial statements. 6 Thermo Electron Corporation 1999 Financial Statements Consolidated Statement of Comprehensive Income and Shareholders' Investment (In thousands) 1999 1998 1997 - -------------------------------------------------------------------- ------------ ------------ ----------- Comprehensive Income Net Income (Loss) $ (174,573) $ 181,901 $ 239,328 ---------- ---------- ---------- Other Comprehensive Items (Note 16): Foreign currency translation adjustment (50,484) 24,117 (36,887) Unrealized gains (losses) on available-for-sale 6,434 (9,129) 1,932 investments, net of reclassification adjustment ---------- ---------- ---------- (44,050) 14,988 (34,955) Minority interest 9,295 (5,851) 10,356 ---------- ---------- ---------- (34,755) 9,137 (24,599) ---------- ---------- ---------- $ (209,328) $ 191,038 $ 214,729 ========== ========== ========== Shareholders' Investment Common Stock, $1 Par Value: Balance at beginning of year $ 166,971 $ 159,206 $ 149,997 Public offering of Company common stock (Note 7) - 7,475 - Issuance of stock under employees' and directors' stock plans 462 290 866 Conversions of convertible obligations - - 8,343 ---------- ---------- ---------- Balance at end of year 167,433 166,971 159,206 ---------- ---------- ---------- Capital in Excess of Par Value: Balance at beginning of year 1,033,799 843,709 801,793 Public offering of Company common stock (Note 7) - 282,655 - Activity under employees' and directors' stock plans 4,093 (3,285) 13,185 Tax benefit related to employees' and directors' stock plans 1,645 10,938 5,456 Conversions of convertible obligations - - 164,537 Effect of majority-owned subsidiaries' equity transactions 13,300 (100,218) (141,262) ---------- ---------- ---------- Balance at end of year 1,052,837 1,033,799 843,709 ---------- ---------- ---------- Retained Earnings: Balance at beginning of year 1,216,541 1,034,640 795,312 Net income (loss) (174,573) 181,901 239,328 ---------- ---------- ---------- Balance at end of year 1,041,968 1,216,541 1,034,640 ---------- ---------- ---------- Treasury Stock: Balance at beginning of year (151,643) (3,839) (570) Purchases of Company common stock (44,758) (148,132) - Activity under employees' and directors' stock plans 6,755 328 (3,269) ---------- ---------- ---------- Balance at end of year $ (189,646) $ (151,643) $ (3,839) ---------- ---------- ---------- 7 Thermo Electron Corporation 1999 Financial Statements Consolidated Statement of Comprehensive Income and Shareholders' Investment (continued) (In thousands) 1999 1998 1997 - -------------------------------------------------------------------- ------------ ------------ ----------- Deferred Compensation: Balance at beginning of year $ - $ - $ (58) Activity under employees' stock plans (Note 4) (4,120) - - Amortization of deferred compensation 930 - 58 ---------- ---------- ---------- Balance at end of year (3,190) - - ---------- ---------- ---------- Accumulated Other Comprehensive Items (Note 16): Balance at beginning of year (10,866) (25,854) 9,101 Other comprehensive items (44,050) 14,988 (34,955) ---------- ---------- ---------- Balance at end of year (54,916) (10,866) (25,854) ---------- ---------- ---------- $2,014,486 $2,254,802 $2,007,862 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 8 Thermo Electron Corporation 1999 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Thermo Electron Corporation and its subsidiaries (the Company or the Registrant) is a global leader in the development, manufacture, and sale of measurement and detection instruments used in virtually every industry to monitor, collect, and analyze data that provide knowledge for the user. For example, the Company's powerful analysis technologies help researchers sift through data to make the discoveries that will fight disease or prolong life; allow manufacturers to fabricate ever-smaller components required to increase the speed and quality of communications; or monitor and control industrial processes on-line to ensure that critical quality standards are met efficiently and safely. The Company also operates nonutility power generation facilities using clean combustion technologies. Principles of Consolidation The accompanying financial statements include the accounts of Thermo Electron and its majority- and wholly owned subsidiaries. The Company's majority-owned public and privately held subsidiaries are listed in Note 9. All material intercompany accounts and transactions have been eliminated. The Company accounts for investments in businesses in which it owns between 20% and 50% using the equity method. Presentation In January 2000, the Company modified its proposed reorganization involving the Company and certain of its subsidiaries. As part of this reorganization, the Company plans to spin-off or sell several of its businesses and to take private all of its remaining majority-owned subsidiaries except for Spectra-Physics Lasers, Inc. The results of operations of the businesses to be spun-off and the majority of the businesses to be sold have been classified as discontinued operations in the accompanying financial statements (Note 17). In addition, certain amounts in 1998 and 1997 have been reclassified to conform to the presentation in the 1999 financial statements. Fiscal Year The Company has adopted a fiscal year ending the Saturday nearest December 31. References to 1999, 1998, and 1997 are for the fiscal years ended January 1, 2000, January 2, 1999, and January 3, 1998, respectively. Fiscal years 1999 and 1998 each included 52 weeks; fiscal year 1997 included 53 weeks. Revenue Recognition The Company generally recognizes revenues upon shipment of its products and recognizes services contract revenues ratably over the term of the contract. The Company provides a reserve for its estimate of warranty and installation costs at the time of shipment. Deferred revenue in the accompanying balance sheet consists primarily of unearned revenue on service contracts. Substantially all of the deferred revenue in the accompanying 1999 balance sheet will be recognized within one year. Gain on Issuance of Stock by Subsidiaries At the time a subsidiary sells its stock to unrelated parties at a price in excess of its book value, the Company's net investment in that subsidiary increases. If at that time the subsidiary is an operating entity and not engaged principally in research and development, the Company records the increase as a gain. If gains have been recognized on issuances of a subsidiary's stock and shares of the subsidiary are subsequently repurchased by the subsidiary, by the subsidiary's parent, or by the Company, gain recognition does not occur on issuances subsequent to the date of a repurchase until such time as shares have been issued in an amount equivalent to the number of repurchased shares. Such transactions are reflected as equity transactions, and the net effect of these transactions is reflected in the accompanying statement of comprehensive income and shareholders' investment as "Effect of majority-owned subsidiaries' equity transactions." 9 1. Nature of Operations and Summary of Significant Accounting Policies (continued) Stock-based Compensation Plans The Company applies Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock-based compensation plans (Note 4). Accordingly, no accounting recognition is given to stock options granted at fair market value until they are exercised. Upon exercise, net proceeds, including tax benefits realized, are credited to shareholders' investment. Income Taxes In accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. Earnings (Loss) per Share Basic earnings (loss) per share have been computed by dividing net income (loss) by the weighted average number of shares outstanding during the year. Except where the result would be antidilutive, diluted earnings (loss) per share have been computed assuming the conversion of convertible obligations and the elimination of the related interest expense, and the exercise of stock options, as well as their related income tax effects (Note 15). Cash and Cash Equivalents Cash equivalents consists principally of corporate notes, U.S. government-agency securities, commercial paper, money market funds, and other marketable securities purchased with an original maturity of three months or less. These investments are carried at cost, which approximates market value. Inventories Inventories are stated at the lower of cost (on a first-in, first-out or weighted average basis) or net realizable value and include materials, labor, and manufacturing overhead. The components of inventories are as follows: (In thousands) 1999 1998 - ---------------------------------------------------------------------------------- ------------ ---------- Raw Materials and Supplies $177,153 $149,445 Work in Progress 66,746 62,307 Finished Goods 129,242 118,755 -------- -------- $373,141 $330,507 ======== ======== The Company periodically reviews its quantities of inventories on hand and compares these amounts to expected usage of each particular product or product line. The Company records as a charge to cost of revenues any amounts required to reduce the carrying value of inventories to net realizable value. 10 1. Nature of Operations and Summary of Significant Accounting Policies (continued) Property, Plant, and Equipment The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. The Company provides for depreciation and amortization using the straight-line method over the estimated useful lives of the property as follows: buildings and improvements, 3 to 40 years; electricity generating facilities, 25 years; machinery and equipment, 1 to 20 years; and leasehold improvements, the shorter of the term of the lease or the life of the asset. Property, plant, and equipment consists of the following: (In thousands) 1999 1998 - ---------------------------------------------------------------------------------- ------------ ---------- Land $ 51,293 $ 43,352 Buildings 168,487 137,285 Electricity Generating Facilities and, in 1998, 236,500 331,319 Coal-beneficiation Facility (Note 11) Machinery, Equipment, and Leasehold Improvements 300,163 259,137 -------- -------- 756,443 771,093 Less: Accumulated Depreciation and Amortization 245,796 236,844 -------- -------- $510,647 $534,249 ======== ======== Other Assets Other assets in the accompanying balance sheet include intangible assets, notes receivable, deferred debt expense, prepaid pension costs, and other assets, including in 1999, an investment in FLIR Systems, Inc. common stock (Note 3). Intangible assets include the costs of acquired trademarks, patents, product technology, and other specifically identifiable intangible assets and are being amortized using the straight-line method over their estimated useful lives, which range from 3 to 20 years. Intangible assets were $52.1 million and $39.7 million, net of accumulated amortization of $37.4 million and $31.8 million, at year-end 1999 and 1998, respectively. Cost in Excess of Net Assets of Acquired Companies The excess of cost over the fair value of net assets of acquired companies is amortized using the straight-line method principally over 40 years. Accumulated amortization was $152.2 million and $118.0 million at year-end 1999 and 1998, respectively. The Company assesses the future useful life of this asset whenever events or changes in circumstances indicate that the current useful life has diminished. Such events or circumstances generally include the occurrence of operating losses or a significant decline in earnings associated with the acquired business or asset. The Company considers the future undiscounted cash flows of the acquired companies in assessing the recoverability of this asset. The Company assesses cash flows before interest charges and when impairment is indicated, writes the asset down to fair value. If quoted market values are not available, the Company estimates fair value by calculating the present value of future cash flows. If impairment has occurred, any excess of carrying value over fair value is recorded as a loss. 11 1. Nature of Operations and Summary of Significant Accounting Policies (continued) Common Stock of Subsidiary Subject to Redemption In April 1997, ThermoLase completed an exchange offer whereby its shareholders had the opportunity to exchange one share of existing ThermoLase common stock and $3.00 (in cash or ThermoLase common stock) for a new unit consisting of one share of ThermoLase common stock and one redemption right. The redemption right entitles the holder to sell the related share of common stock to ThermoLase for $20.25 during the period from April 3, 2001, through April 30, 2001. The redemption right will expire if the closing price of ThermoLase common stock is at least $26.00 for 20 of any 30 consecutive trading days. In connection with this offer, ThermoLase issued in April 1997, 2,000,000 units in exchange for 2,261,706 shares of its common stock and $0.5 million in cash, net of expenses. As a result of these transactions, $40.5 million was reclassified in 1997 from "Shareholders' investment" and "Minority interest" to "Common stock of subsidiary subject to redemption," based on the issuance of the 2,000,000 redemption rights, each carrying a maximum liability of $20.25. During 1999, the Company purchased 1,620,127 of ThermoLase's redemption rights. The remaining 379,873 redemption rights outstanding have a redemption value of $7.7 million at January 1, 2000. As a result of the Company entering into a definitive agreement and plan of merger with ThermoLase (Note 17), the ThermoLase units will be modified at the effective date of the merger to consist of a fractional share of Company common stock, which would be redeemable in April 2001 for $20.25. These redemption rights are guaranteed on a subordinated basis by the Company through the date of the merger. Foreign Currency All assets and liabilities of the Company's foreign subsidiaries are translated at year-end exchange rates, and revenues and expenses are translated at average exchange rates for the year in accordance with SFAS No. 52, "Foreign Currency Translation." Resulting translation adjustments are reflected in the "Accumulated other comprehensive items" component of shareholders' investment. Foreign currency transaction gains and losses are included in the accompanying statement of operations and are not material for the three years presented. Forward Contracts and Interest Rate Swap Agreements The Company uses short-term forward foreign exchange contracts to manage certain exposures to foreign currencies. The Company enters into forward foreign exchange contracts to hedge firm purchase and sale commitments denominated in currencies other than its subsidiaries' local currencies. These contracts principally hedge transactions denominated in U.S. dollars, British pounds sterling, Japanese yen, French francs, Swiss francs, German marks, Swedish krona, and Netherlands guilders. The purpose of the Company's foreign currency hedging activities is to protect the Company's local currency cash flows related to these commitments from fluctuations in foreign exchange rates. Gains and losses arising from forward foreign exchange contracts are recognized as offsets to gains and losses resulting from the transactions being hedged. Thermo Ecotek has interest rate swap agreements that convert its variable rate obligations to fixed rate obligations (Note 5). Interest rate swap agreements are accounted for under the accrual method. Amounts to be received from or paid to the counterparties of the agreements are accrued during the period to which the amounts relate and are reflected as interest expense. The related amounts payable to the counterparties are included in other accrued expenses in the accompanying balance sheet. The fair value of the swap agreements is not recognized in the accompanying financial statements since the agreements are accounted for as hedges. The Company does not generally enter into speculative foreign currency or interest swap agreements. See Note 11 for the effect of a majority-owned subsidiary's early adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." Recent Accounting Pronouncement In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements." SAB 101 includes requirements for when shipments may be recorded as revenue when the terms of the sale include customer acceptance provisions or an obligation of the seller to install the product. In such instances, SAB 101 generally requires that revenue recognition occur at completion of 12 1. Nature of Operations and Summary of Significant Accounting Policies (continued) installation and/or upon customer acceptance. SAB 101 requires that companies conform their revenue recognition practices to the requirements therein during the first quarter of calendar 2000 through recording a cumulative net of tax effect of the change in accounting. The Company has not completed the analysis to determine the effect that SAB 101 will have on its financial statements. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. In addition, significant estimates were made in determining the loss on disposition of the Company's discontinued operations (Note 17). Actual results could differ from those estimates. 2. Available-for-sale Investments The Company's debt and marketable equity securities are considered available-for-sale investments in the accompanying balance sheet and are carried at market value, with the difference between cost and market value, net of related tax effects, recorded in the "Accumulated other comprehensive items" component of shareholders' investment. The aggregate market value, cost basis, and gross unrealized gains and losses of short- and long-term available-for-sale investments by major security type are as follows: (In thousands) Gross Gross Market Cost Unrealized Unrealized Value Basis Gains Losses - -------------------------------------------------- ------------- ------------- ------------- ------------- 1999 Corporate Bonds $ 319,065 $ 320,058 $ 183 $ (1,176) Government-agency Securities 187,722 188,162 21 (461) Other 88,879 75,483 14,750 (1,354) ---------- ---------- ---------- ---------- $ 595,666 $ 583,703 $ 14,954 $ (2,991) ========== ========== ========== ========== 1998 Corporate Bonds $ 698,607 $ 696,501 $ 2,252 $ (146) Government-agency Securities 285,001 284,506 499 (4) Other 123,616 124,319 6,238 (6,941) ---------- ---------- ---------- ---------- $1,107,224 $1,105,326 $ 8,989 $ (7,091) ========== ========== ========== ========== Short- and long-term available-for-sale investments in the accompanying 1999 balance sheet include equity securities of $47.2 million and debt securities of $447.6 million with contractual maturities of one year or less, $94.3 million with contractual maturities of more than one year through five years, and $6.6 million with contractual maturities of more than five years. Actual maturities may differ from contractual maturities as a result of the Company's intent to sell these securities prior to maturity and as a result of put and call features of the securities that enable either the Company, the issuer, or both to redeem these securities at an earlier date. The cost of available-for-sale investments that were sold was based on specific identification in determining realized gains and losses recorded in the accompanying statement of operations. The net gain on the sale of available-for-sale investments resulted from gross realized gains of $7.6 million, $13.6 million, and $5.1 million and gross realized losses of $6.1 million, $0.8 million, and $0.1 million in 1999, 1998, and 1997, respectively. 13 3. Acquisitions In February 1999, Thermo Instrument Systems Inc. acquired 17,494,684 shares (or approximately 99%) of Spectra-Physics AB, a Stockholm Stock Exchange-listed company, for approximately 160 Swedish krona per share (approximately $20 per share) in completion of Thermo Instrument's cash tender offer to acquire all of the outstanding shares of Spectra-Physics. In March 2000, Thermo Instrument completed the acquisition of the remaining Spectra-Physics shares outstanding pursuant to the compulsory acquisition rules applicable to Swedish companies. As part of the acquisition of Spectra-Physics, Thermo Instrument acquired Spectra-Physics' majority-owned public subsidiary, Spectra-Physics Lasers, Inc. (SPLI). The aggregate purchase price was approximately $351.5 million, including related expenses. On the date of acquisition, Spectra-Physics had $39.1 million of cash, which included $30.5 million held by SPLI. The accompanying balance sheet as of January 1, 2000, includes $1.9 million accrued for the purchase of the remaining Spectra-Physics shares outstanding that were purchased in March 2000. Spectra-Physics manufactures a wide range of laser-based instrumentation systems, primarily for the process-control, industrial measurement, construction, research, commercial, and government markets. Spectra-Physics had revenues of approximately $442 million in 1998, with operations throughout North America and Europe, and a presence in the Pacific Rim. In connection with the acquisition of Spectra-Physics, Thermo Instrument acquired 4,162,000 shares of FLIR common stock. FLIR designs, manufactures, and markets thermal imaging and broadcast camera systems that detect infrared radiation or heat emitted directly by all objects and materials. Thermo Instrument accounts for its investment in FLIR using the equity method with a one quarter lag to ensure the availability of FLIR's operating results in time to enable Thermo Instrument to include its pro rata share of FLIR's results with its own. During FLIR's first calendar quarter of 1999, FLIR recorded a loss in connection with a pooling-of-interests transaction and certain restructuring actions. Thermo Instrument has recorded its pro rata share of this loss, $5.1 million, in equity in earnings (loss) of unconsolidated subsidiaries, a component of other income (expense), net in the accompanying 1999 statement of operations. In addition, as a result of the pooling consummated by FLIR and related issuance of FLIR shares in March 1999, Thermo Instrument's pro rata share of FLIR's equity decreased to 29.4% from 34.6% prior to the transaction. This decrease totaled $6.0 million and has been recorded as a loss in equity in earnings (loss) of unconsolidated subsidiaries in the accompanying 1999 statement of operations, pursuant to Securities and Exchange Commission SAB 51. The investment in FLIR is included in other assets in the accompanying balance sheet. In 1999, in addition to the acquisition of Spectra-Physics, the Company and its majority-owned subsidiaries made several other acquisitions for $45.2 million in cash, net of cash acquired, subject to certain post-closing adjustments. To date, no information has been gathered that would cause the Company to believe that the post-closing adjustments will be material. In 1998, the Company's majority-owned subsidiaries made several acquisitions for $173.7 million in cash, net of cash acquired. In March 1997, Thermo Instrument acquired Life Sciences International PLC, a London Stock Exchange-listed company. The aggregate purchase price for Life Sciences was $442.8 million, net of $55.8 million of cash acquired. The purchase price includes the repayment of $105.0 million of Life Sciences' bank debt. Life Sciences manufactures laboratory science equipment, appliances, instruments, consumables, and reagents for the research, clinical, and industrial markets. In 1997, in addition to the acquisition of Life Sciences, the Company's majority-owned subsidiaries made several other acquisitions for an aggregate of $51.3 million in cash, net of cash acquired, the issuance of subsidiary stock options valued at $1.7 million, and $19.1 million, which was paid in the first quarter of 1998. These acquisitions have been accounted for using the purchase method of accounting, and the acquired companies' results have been included in the accompanying financial statements from their respective dates of acquisition. The aggregate cost of these acquisitions exceeded the estimated fair value of the acquired net assets by $688.0 million, which is being amortized principally over 40 years. Allocation of the purchase price for these acquisitions was based on estimates of the fair value of the net assets acquired and, for acquisitions completed in 1999, 14 3. Acquisitions (continued) is subject to adjustment upon finalization of the purchase price allocation. The Company has gathered no information that indicates the final purchase price allocations will differ materially from the preliminary estimates. Pro forma data is not presented since the acquisitions were not material to the Company's results of operations. In connection with these acquisitions, the Company has undertaken restructuring activities at the acquired businesses. The Company's restructuring activities, which were accounted for in accordance with Emerging Issues Task Force Pronouncement (EITF) 95-3, primarily have included reductions in staffing levels and the abandonment of excess facilities. In connection with these restructuring activities, as part of the cost of the acquisitions, the Company established reserves as detailed below, primarily for severance and excess facilities. In accordance with EITF 95-3, the Company finalizes its restructuring plans no later than one year from the respective dates of the acquisitions. Accrued acquisition expenses are included in other accrued expenses in the accompanying balance sheet. A summary of the changes in accrued acquisition expenses for acquisitions completed before and during 1997 is as follows: 1997 Acquisitions -------------------------------------- Abandonment of Excess Pre-1997 (In thousands) Severance Facilities Other Acquisitions Total - --------------------------------- -------------- -------------- ------------- -------------- ------------- Balance at December 28, 1996 $ - $ - $ - $ 20,412 $ 20,412 Reserves established 9,258 2,910 2,401 - 14,569 Increases in reserves - - - 10,010 10,010 related to 1996 acquisitions Usage (5,005) (309) (337) (13,716) (19,367) Decrease due to finalization of (8) - - (4,869) (4,877) restructuring plans, recorded as a decrease in cost in excess of net assets of acquired companies Currency translation 20 3 69 (156) (64) -------- -------- ------- -------- -------- Balance at January 3, 1998 4,265 2,604 2,133 11,681 20,683 Reserves established 1,078 791 30 - 1,899 Usage (3,919) (1,030) (577) (2,257) (7,783) Decrease due to finalization (608) (63) (1,346) (1,004) (3,021) of restructuring plans, recorded as a decrease in cost in excess of net assets of acquired companies Currency translation (22) 54 49 191 272 -------- -------- ------- -------- -------- Balance at January 2, 1999 794 2,356 289 8,611 12,050 Usage (716) (871) - (855) (2,442) Currency translation (55) (65) (41) (319) (480) -------- -------- ------- -------- -------- Balance at January 1, 2000 $ 23 $ 1,420 $ 248 $ 7,437 $ 9,128 ======== ======== ======= ======== ======== 15 3. Acquisitions (continued) The principal accrued acquisition expenses for pre-1997 acquisitions were for severance and abandoned facilities, primarily from the 1996 acquisition of the Scientific Instruments Division of Fisons plc (Fisons). In 1996 and 1997, Thermo Instrument established reserves for severance for 542 employees of Fisons and for lease obligations for Fisons' former headquarters in Uxbridge, England, and a Fisons operating facility in Hayworth, England, with obligations through 2007. The Company finalized its restructuring plans for the 1996 acquisitions in 1997. The principal acquisition expenses for 1997 acquisitions were severance for 385 employees across all functions and for abandoned facilities, primarily at the Life Sciences acquisition. The facilities primarily include an operating location in Runcorn, England, with an obligation through 2014. The amounts captioned as "other" in 1997 primarily represent costs to exit certain joint venture arrangements of Life Sciences. The Company finalized its restructuring plans for the 1997 acquisitions in 1998. A summary of accrued acquisition expenses for acquisitions completed during 1998 is as follows: Abandonment of Excess (In thousands) Severance Facilities Other Total - ----------------------------------------------- -------------- -------------- -------------- ------------- Reserves established $ 3,937 $ 2,083 $ 468 $ 6,488 Usage (1,588) (418) (247) (2,253) Currency translation 9 (33) 23 (1) -------- -------- -------- -------- Balance at January 2, 1999 2,358 1,632 244 4,234 Reserves established 989 1,464 616 3,069 Usage (1,939) (1,479) (752) (4,170) Decrease due to finalization of (1,055) (466) - (1,521) restructuring plans, recorded as a decrease in cost in excess of net assets of acquired companies Currency translation (72) 34 (25) (63) -------- -------- -------- -------- Balance at January 1, 2000 $ 281 $ 1,185 $ 83 $ 1,549 ======== ======== ======== ======== The principal acquisition expenses for 1998 acquisitions were for severance for 216 employees across all functions and for abandoned facilities, primarily at Thermo Sentron's acquisition of the product monitoring businesses of Graseby Limited. The abandoned facilities at the product monitoring businesses include two operating facilities in North America with leases expiring in 2001. The amounts captioned as "other" in 1998 primarily represent relocation costs. The Company finalized its restructuring plans for the 1998 acquisitions in 1999. 16 3. Acquisitions (continued) A summary of accrued acquisition expenses for acquisitions completed during 1999 is as follows: Abandonment of Excess (In thousands) Severance Facilities Other Total - ----------------------------------------------- -------------- -------------- -------------- ------------- Reserves established $ 9,186 $ 2,247 $ 3,642 $ 15,075 Usage (3,899) (71) (957) (4,927) Currency translation (303) (111) (74) (488) -------- -------- -------- -------- Balance at January 1, 2000 $ 4,984 $ 2,065 $ 2,611 $ 9,660 ======== ======== ======== ======== The principal acquisition expenses for 1999 acquisitions are severance for approximately 175 employees across all functions and for abandoned facilities, primarily at Spectra-Physics. The abandoned facilities at Spectra-Physics include operating facilities in Sweden, Germany, and France with obligations through 2000. The amounts captioned as "other" primarily represent relocation, contract termination, and other exit costs. The Company expects to pay amounts accrued for severance and other primarily in 2000 and amounts accrued for abandoned facilities over the respective lease terms. The Company finalized its restructuring plans for Spectra-Physics in 1999. Unresolved matters at year-end 1999 include completion of planned severances and abandonment of excess facilities for other acquisitions completed in 1999. Such matters will be resolved no later than one year from the respective acquisition dates. 4. Employee Benefit Plans Stock-based Compensation Plans Stock Option Plans The Company has stock-based compensation plans for its key employees, directors, and others. These plans permit the grant of a variety of stock and stock-based awards as determined by the human resources committee of the Company's Board of Directors (the Board Committee), including restricted stock, stock options, stock bonus shares, or performance-based shares. The option recipients and the terms of options granted under these plans are determined by the Board Committee. Generally, options outstanding under these plans are exercisable immediately, but are subject to certain transfer restrictions and the right of the Company to repurchase shares issued upon exercise of the options at the exercise price, upon certain events. The restrictions and repurchase rights may lapse over periods ranging from zero to ten years, depending on the term of the option, which may range from three to twelve years. Nonqualified options are generally granted at fair market value, although the Board Committee has discretion to grant options at a price at or above 85% of the fair market value on the date of grant. Incentive stock options must be granted at not less than the fair market value of the Company's stock on the date of grant. Generally, stock options have been granted at fair market value. The Company also has a directors' stock option plan that provides for the annual grant of stock options of the Company to outside directors pursuant to a formula approved by the Company's shareholders. Options awarded under this plan are immediately exercisable and expire three to seven years after the date of grant. In addition to the Company's stock-based compensation plans, certain officers and key employees may also participate in stock-based compensation plans of the Company's majority-owned subsidiaries. In November 1998, the Company's employees, excluding its officers and directors, were offered the opportunity to exchange previously granted options to purchase shares of Company common stock for an amount of options equal to half of the number of options previously held, exercisable at a price equal to the fair market value at the time of the 17 4. Employee Benefit Plans (continued) exchange offer. Holders of options to acquire 1,513,000 shares at a weighted average exercise price of $36.15 per share elected to participate in this exchange and, as a result, received options to purchase 756,000 shares of Company common stock at $18.08 per share, which are included in the 1998 grants in the table below. The other terms of the new options are the same as the exchanged options except that the holders could not sell shares purchased pursuant to such new options for six months from the exchange date. The options exchanged were canceled by the Company. In 1999, the Company awarded 193,000 shares of restricted Company common stock to certain key employees. The shares had an aggregate value of $3.5 million and generally vest over three years, assuming continued employment, with certain exceptions. Also in 1999, certain of the Company's majority-owned subsidiaries awarded shares of restricted common stock of their respective companies. The shares of subsidiary common stock have the same terms as the Company's restricted common stock and had an aggregate value of $0.6 million. The Company has recorded the fair value of the restricted stock as deferred compensation in the accompanying balance sheet and is amortizing such amount over the vesting period. A summary of the Company's stock option activity is as follows: 1999 1998 1997 ------------------ ------------------ ------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Price Price Price Number Number Number of of of (Shares in thousands) Shares Shares Shares - ---------------------------------------------- -------- ---------- -------- ---------- --------- --------- Options Outstanding, Beginning of Year 9,913 $22.38 8,831 $24.19 8,421 $21.24 Granted 3,406 16.83 3,554 23.64 1,401 37.06 Assumed in mergers with subsidiaries 1,612 11.61 - - - - (Note 17) Exercised (382) 12.57 (625) 15.96 (744) 13.37 Forfeited (921) 27.99 (334) 33.38 (247) 29.45 Canceled due to exchange - - (1,513) 36.15 - - ------ ------ ------ Options Outstanding, End of Year 13,628 $19.61 9,913 $22.38 8,831 $24.19 ====== ====== ====== ====== ====== ====== Options Exercisable 13,628 $19.61 9,909 $22.38 8,821 $24.18 ====== ====== ====== ====== ====== ====== Options Available for Grant 4,756 3,417 5,132 ====== ====== ====== A summary of the status of the Company's stock options at January 1, 2000, is as follows: Options Outstanding and Exercisable ---------------------------------------------------- Range of Exercise Prices Number Weighted Weighted of Average Average Shares Remaining Exercise (In thousands) Contractual Life Price - -------------------------------------------------- --------------- ------------------- ------------------- $ 6.65 - $15.85 3,419 5.8 years $11.29 15.86 - 25.06 8,295 5.6 years 19.01 25.07 - 34.27 545 6.0 years 32.80 34.28 - 43.48 1,369 8.8 years 38.78 ------ $ 6.65 - $43.48 13,628 6.0 years $19.61 ====== 18 4. Employee Benefit Plans (continued) Employee Stock Purchase Plan Substantially all of the Company's full-time U.S. employees are eligible to participate in an employee stock purchase plan sponsored by the Company. Under this program, shares of the Company's common stock may be purchased at 85% of the lower of the fair market value at the beginning or end of the period, and the shares purchased are subject to a one-year resale restriction. Prior to the 1998 plan year, shares of the Company's common stock could be purchased at the end of a 12-month period at 95% of the fair market value at the beginning of the period, and the shares purchased were subject to a six-month resale restriction. Shares are purchased through payroll deductions of up to 10% of each participating employee's gross wages. Participants of employee stock purchase programs sponsored by the Company's majority-owned public subsidiaries may also elect to purchase shares of the common stock of the subsidiary at which they are employed under the same general terms described above. During 1999 and 1997, the Company issued 415,000 shares and 243,000 shares, respectively, of its common stock under this plan. No shares of Company common stock were issued under this plan during 1998. Pro Forma Stock-based Compensation Expense In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-based Compensation," which sets forth a fair-value based method of recognizing stock-based compensation expense. As permitted by SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account for its stock-based compensation plans. Had compensation cost for awards granted after 1994 under the Company's stock-based compensation plans been determined based on the fair value at the grant dates consistent with the method set forth under SFAS No. 123, the effect on certain financial information of the Company would have been as follows: (In thousands except per share amounts) 1999 1998 1997 - ------------------------------------------------------------------------ ---------- ----------- ---------- Income (Loss) from Continuing Operations Before Extraordinary Items: As reported $ (14,580) $ 114,676 $ 174,665 Pro forma (27,279) 105,203 168,331 Basic Earnings (Loss) per Share from Continuing Operations Before Extraordinary Items: As reported (.09) .71 1.15 Pro forma (.17) .65 1.10 Diluted Earnings (Loss) per Share from Continuing Operations Before Extraordinary Items: As reported (.11) .67 1.05 Pro forma (.19) .62 1.01 Net Income (Loss): As reported $(174,573) $ 181,901 $ 239,328 Pro forma (201,186) 158,602 224,337 Basic Earnings (Loss) per Share: As reported (1.10) 1.12 1.57 Pro forma (1.27) .98 1.47 Diluted Earnings (Loss) per Share: As reported (1.13) 1.08 1.41 Pro forma (1.29) .94 1.32 19 4. Employee Benefit Plans (continued) Because the method prescribed by SFAS No. 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation expense may not be representative of the amount to be expected in future years. Pro forma compensation expense for options granted is reflected over the vesting period; therefore, future pro forma compensation expense may be greater as additional options are granted. The weighted average fair value per share of options granted was $5.61, $8.13, and $15.14 in 1999, 1998, and 1997, respectively. The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions: 1999 1998 1997 - -------------------------------------------------------------------------- ---------- ---------- --------- Volatility 32% 29% 26% Risk-free Interest Rate 5.6% 4.8% 6.2% Expected Life of Options 3.9 years 4.7 years 6.5 years The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 401(k) Savings Plan The Company's 401(k) savings plan covers the majority of the Company's eligible full-time U.S. employees. Contributions to the plan are made by both the employee and the Company. Company contributions are based on the level of employee contributions. For this plan, the Company contributed and charged to expense $7.1 million, $5.6 million, and $7.7 million in 1999, 1998, and 1997, respectively. Defined Benefit Pension Plans Two of the Company's German subsidiaries and one of its U.K. subsidiaries have defined benefit pension plans covering substantially all full-time employees at the respective subsidiaries. One of the German subsidiaries' plans is unfunded. Net periodic benefit costs for the plans in aggregate included the following components: (In thousands) 1999 1998 1997 - -------------------------------------------------------------------------- ---------- ---------- ---------- Service Cost $ 2,639 $ 2,859 $ 3,104 Interest Cost on Benefit Obligation 3,899 4,414 4,188 Expected Return on Plan Assets (5,264) (6,616) (6,406) Recognized Net Actuarial Gain (34) (39) (45) Amortization of Unrecognized Gain (23) (50) (67) Amortization of Unrecognized Initial Obligation 41 43 44 ------- ------- ------- $ 1,258 $ 611 $ 818 ======= ======= ======= 20 4. Employee Benefit Plans (continued) The activity under the Company's defined benefit plans is as follows: (In thousands) 1999 1998 - ----------------------------------------------------------------------------------- ----------- ---------- Change in Benefit Obligation: Benefit obligation, beginning of year $ 77,013 $ 62,584 Service cost 2,639 2,859 Interest cost 3,899 4,414 Benefits paid (1,876) (1,794) Actuarial (gain) loss (5,288) 6,957 Currency translation (4,625) 1,993 -------- -------- Benefit obligation, end of year 71,762 77,013 -------- -------- Change in Plan Assets: Fair value of plan assets, beginning of year 79,893 68,676 Company contributions 186 186 Benefits paid (1,482) (1,391) Actual return on plan assets 13,981 11,144 Currency translation (3,185) 1,278 ------- ------- Fair value of plan assets, end of year 89,393 79,893 ------- ------- Funded Status 17,631 2,880 Unrecognized Net Actuarial Gain (14,595) (967) Unrecognized Initial Obligation 155 226 -------- -------- Prepaid Pension Costs $ 3,191 $ 2,139 ======== ======== The aggregate projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $17.7 million, $14.6 million, and $5.2 million, respectively, at year-end 1999 and $19.1 million, $16.4 million, and $5.7 million, respectively, at year-end 1998. The weighted average rates used to determine the net periodic pension costs were as follows: 1999 1998 1997 - -------------------------------------------------------------------- -------------- ----------- ---------- Discount Rate 5.1% 7.0% 8.2% Rate of Increase in Salary Levels 4.4% 6.3% 7.7% Expected Long-term Rate of Return on Assets 6.9% 9.7% 9.7% Other Retirement Plans Certain of the Company's subsidiaries offer retirement plans in lieu of participation in the Company's principal 401(k) savings plan. Company contributions to these plans are based on formulas determined by the Company. For these plans, the Company contributed and charged to expense $7.6 million, $6.8 million, and $5.5 million in 1999, 1998, and 1997, respectively. 21 5. Long-term Obligations and Other Financing Arrangements (In thousands except per share amounts) 1999 1998 - ---------------------------------------------------------------------------------- ------------ ---------- 4 1/2% Senior Convertible Debentures, Due 2003, Convertible Into Shares $ 172,500 $ 172,500 of Thermo Instrument at $34.46 per Share 3 3/4% Senior Convertible Debentures, Due 2000, Convertible Into Shares - 14,542 of Thermo Instrument at $13.55 per Share 7 5/8% Senior Notes, Due 2008 150,000 150,000 4 1/4% Subordinated Convertible Debentures, Due 2003, Convertible at $37.80 per Share 568,837 585,000 4% Subordinated Convertible Debentures, Due 2005, Convertible Into 247,000 250,000 Shares of Thermo Instrument at $35.65 per Share 5% Subordinated Convertible Debentures, Due 2000, Convertible Into 60,731 67,631 Shares of ThermoQuest at $16.50 per Share 5% Subordinated Convertible Debentures, Due 2000, Convertible Into 60,530 71,155 Shares of Thermo Optek at $13.94 per Share Noninterest-bearing Subordinated Convertible Debentures, Due 2003, 31,565 31,565 Convertible Into Shares of Thermedics at $32.68 per Share 2 7/8% Subordinated Convertible Debentures, Due 2003, Convertible Into 15,859 15,859 Shares of Thermedics at $14.93 3 3/4% Subordinated Convertible Debentures, Due 2000, Convertible Into - 5,250 Shares of Thermo Voltek at $7.83 per Share 4 5/8% Subordinated Convertible Debentures, Due 2003, Convertible Into 111,335 111,850 Shares of Thermo TerraTech at $15.90 per Share 4 7/8% Subordinated Convertible Debentures, Due 2000, Convertible Into 33,650 34,525 Shares of ThermoRetec at $17.92 per Share 2 1/2% Subordinated Convertible Debentures, Due 2001, Convertible Into 5,042 6,999 Shares of Thermo EuroTech at $5.25 per Share 3 1/4% Senior Convertible Debentures, Due 2007, Convertible Into Shares 78,948 78,948 of ThermoTrex at $27.00 per Share 4 3/8% Subordinated Convertible Debentures, Due 2004, Convertible Into 106,775 110,500 Shares of ThermoLase at $17.39 per Share Noninterest-bearing Subordinated Convertible Debentures, Due 2001, 1,820 1,820 Convertible Into Shares of Thermo Ecotek at $13.56 per Share 4 7/8% Subordinated Convertible Debentures, Due 2004, Convertible Into 42,124 44,950 Shares of Thermo Ecotek at $16.50 per Share 8.3% Tax-exempt Obligation, Payable in Semiannual Installments, with 18,700 27,200 Final Payment in 2000 6.0% Tax-exempt Obligation, Payable in Semiannual Installments, with 1,000 10,400 Final Payment in 2000 Other 49,319 55,714 ---------- ---------- 1,755,735 1,846,408 Less: Current Maturities 189,761 37,826 ---------- ---------- $1,565,974 $1,808,582 ========== ========== 22 5. Long-term Obligations and Other Financing Arrangements (continued) The debentures that are convertible into subsidiary common stock have been issued by the respective subsidiaries and are guaranteed by the Company, on a subordinated basis in most cases. Outstanding debentures issued by the subsidiaries that will be taken private in transactions in which the consideration to be paid to stockholders of the subsidiary is Company common stock will remain outstanding and will continue to be guaranteed by the Company. These debentures will become convertible into the Company's common stock. Outstanding debentures issued by the subsidiaries that will be taken private in transactions in which the consideration to be paid to stockholders of the subsidiary is cash will become convertible into the same cash consideration as is payable in the merger transaction. Holders of such debentures will have the right to cause the debentures to be redeemed 90 days following the effective date of the merger (Note 17). All such debentures have been classified as obligations of the Company's continuing operations in the accompanying balance sheet. Debentures that the holders will have the right to redeem following the respective mergers have been classified as current. The interest cost of this debt has been included as interest expense of continuing operations in the accompanying statement of operations. No allocation of interest expense of debt of the Company's continuing operations has been made to discontinued operations. In the event of a change in control of the Company (as defined in the related fiscal agency agreement) that has not been approved by the continuing members of the Company's Board of Directors, each holder of the 4 1/4% subordinated convertible debentures issued by the Company will have the right to require the Company to buy all or part of the holder's debentures, at par value plus accrued interest, within 50 calendar days after the date of expiration of a specified approval period. In October 1998, the Company issued and sold $150.0 million principal amount of 7 5/8% senior notes due 2008. Proceeds of $138.0 million were net of $10.4 million incurred on treasury rate lock agreements entered into by the Company to hedge the interest rate on the notes and other associated costs. As a result of the rate lock agreements and associated costs, the effective interest rate on the senior notes is 8.87%. Tax-exempt obligations represent obligations issued by the California Pollution Control Financing Authority, the proceeds of which were used to finance two alternative-energy facilities (Delano I and Delano II) located in Delano, California. The obligations are credit-enhanced by a letter of credit issued by a bank group. As required by the financing bank group, Thermo Ecotek entered into interest rate swap agreements that effectively convert these obligations from floating rates to the fixed rates shown in the table above. These swaps have terms expiring in 2000, commensurate with the final maturity of the debt. During 1999 and 1998, the average variable rate received under the interest rate swap agreements was 3.0% and 3.5%, respectively. The notional amount of the swap agreements was $21.2 million and $41.5 million at year-end 1999 and 1998, respectively. The interest rate swap agreements are with a different counterparty than the holders of the underlying debt. Management believes that any credit risk associated with these swaps is remote. The annual requirements for long-term obligations are as follows: (In thousands) - ----------------------------------------------------------------------------------------------- ---------- 2000 $ 189,761 2001 14,120 2002 7,806 2003 907,433 2004 149,644 2005 and thereafter 486,971 ---------- $1,755,735 ========== See Note 13 for fair value information pertaining to the Company's long-term obligations. 23 5. Long-term Obligations and Other Financing Arrangements (continued) Short-term obligations and current maturities of long-term obligations in the accompanying balance sheet includes $113.2 million and $62.6 million in 1999 and 1998, respectively, of short-term bank borrowings and borrowings under lines of credit of certain of the Company's subsidiaries. The weighted average interest rate for these borrowings was 3.4% and 3.7% at year-end 1999 and 1998, respectively. Unused lines of credit were $162 million as of year-end 1999. During 1999, the Company repurchased $16.2 million principal amount of its 4 1/4% subordinated convertible debentures for $13.6 million in cash, resulting in an extraordinary gain of $1.5 million, net of taxes of $0.9 million. During 1998, certain majority-owned subsidiaries of Thermo Instrument repurchased $14.3 million principal amount of their subordinated convertible debentures for $13.3 million in cash, resulting in an extraordinary gain of $0.4 million, net of taxes and minority interest of $0.5 million. The Company has a cash management arrangement in which its subsidiaries participate, including certain operating units of discontinued operations. Amounts invested in this arrangement that will be retained by the discontinued operations at disposal have been classified as "advance payable to affiliates" in the accompanying balance sheet. Long-term net assets of discontinued operations in 1999 and 1998 include $153.0 million principal amount of 4 1/2% subordinated debentures convertible into shares of Thermo Fibertek at $12.10 per share due in 2004. The net assets of discontinued operations at year-end 1999 and 1998 also reflect $49.2 million and $53.8 million, respectively, of redeemable stock obligations of Thermo Fibergen, redeemable in September 2000 or 2001. The Company will remain a guarantor of these obligations following the spin off of Thermo Fibertek and its Thermo Fibergen subsidiary (Note 17). In addition, long-term net assets of discontinued operations reflect $58.0 million and $70.0 million principal amount of 4 3/4% subordinated convertible debentures of Thermo Cardiosystems at year-end 1999 and 1998, respectively. These obligations, which are convertible into shares of Thermo Cardiosystems common stock at $31.415 per share and are due in 2004, will either remain outstanding if the debentures become convertible into another publicly traded stock or will be redeemable at the option of the debenture holder following a merger of Thermo Cardiosystems with another entity, if the business is sold for other consideration (Note 17). 6. Commitments and Contingencies Operating Leases The Company leases portions of its office and operating facilities under various operating lease arrangements. The accompanying statement of operations includes expenses from operating leases of $58.1 million, $53.3 million, and $47.2 million in 1999, 1998, and 1997, respectively. Future minimum payments due under noncancelable operating leases at January 1, 2000, are $41.6 million in 2000, $36.5 million in 2001, $31.8 million in 2002, $28.4 million in 2003, $22.8 million in 2004, and $84.3 million in 2005 and thereafter. Total future minimum lease payments are $245.4 million. Letters of Credit Outstanding letters of credit, principally relating to performance bonds, totaled $89 million at January 1, 2000. Litigation and Related Contingencies Continuing Operations ThermoQuest's Finnigan Corporation subsidiary has filed complaints against Bruker-Franzen Analytik GmbH and its U.S. affiliate, and Hewlett-Packard Company, for alleged violation of two U.S. patents owned by Finnigan. The patents pertain to methods used in ion-trap mass spectrometers. The complaint was filed in the U.S. District Court for the District of Massachusetts. Finnigan has asked for damages to compensate for the infringement, and for injunctions against further infringement. 24 6. Commitments and Contingencies (continued) The District Court action was stayed pending completion of a parallel investigation by the United States International Trade Commission (ITC). In April 1998, the ITC determined that the defendants did not engage in unfair practices in U.S. import trade with respect to the Finnigan patents, and that the Finnigan patents are invalid and/or not infringed. Finnigan appealed the ITC's determination with respect to one of its patents to the United States Court of Appeals for the Federal Circuit (CAFC). The CAFC issued its decision in June 1999 affirming the ITC's determination of noninfringement but reversing the ITC's determination of invalidity. Bruker presented counterclaims in the ITC investigation. The counterclaims were removed to the District Court in Massachusetts and also stayed. These claims allege that the Finnigan patents are invalid and unenforceable and are not infringed by the mass spectrometers manufactured by Bruker. They also allege that Finnigan has violated U.S. and Massachusetts antitrust laws and engaged in unfair competition by attempting to maintain a monopoly position and restrain trade through enforcement of allegedly fraudulently obtained patents. Bruker has asked for judgment consistent with its counterclaims, and for three times the antitrust damages (including attorneys' fees) it has sustained. The stays on both cases in the District Court in Massachusetts have been lifted and the cases are proceeding in the District Court. In February 1999, Finnigan filed complaints against Bruker-Franzen Analytik GmbH and Hewlett-Packard GmbH, in District Court in Dusseldorf, Germany, for violation of four German patents owned by Finnigan. The patents pertain to methods used in ion-trap mass spectrometers. Bruker and Hewlett-Packard have challenged the validity of these patents in Federal Patent Court in Munich. Bruker has filed a complaint against Finnigan in District Court in Dusseldorf for alleged violation of two German patents owned by Bruker. Discontinued Operations Trex Medical is a defendant in a lawsuit brought by Fischer Imaging Corporation, which alleges that the prone breast-biopsy systems of the Lorad division of Trex Medical infringe Fischer's patents on a precision mammographic needle-biopsy system and a motorized mammographic biopsy apparatus. Lorad's cumulative revenues from these products totaled approximately $160 million through January 1, 2000. Thermo Coleman has been named as a defendant in a lawsuit initiated by certain former employees. This suit was filed under the "qui tam" provisions of the Federal False Claims Act (the Act), which permit an individual to bring suit in the name of the United States and, if the United States obtains a judgment against the defendant, to share in any recovery. The suit alleges, among other things, that Thermo Coleman violated the Act as a result of its performance of certain support-service functions under a subcontract from a third party, which, in turn, contracted directly with the U.S. government. The complaint seeks an order requiring Thermo Coleman to cease and desist from such allegedly improper practices, the award of treble damages in an unspecified amount, plus other penalties. The amount of billings under the contract activities in question were approximately $7.6 million. The U.S. government has decided not to intervene in the lawsuit. The Company intends to vigorously defend these matters. In the opinion of management, the ultimate liability for all such matters will not be material to the Company's financial position, but an unfavorable outcome in one or more of the matters described above could materially affect the results of operations or cash flows for a particular quarter or annual period. 25 7. Common Stock In April 1998, the Company sold 7,475,000 shares of its common stock at $40.625 per share for net proceeds of $290.1 million. During 1998 and 1999, in a series of transactions with an institutional counterparty, the Company sold put options and purchased call options. No cash was exchanged as a result of these transactions. The Company has a remaining maximum potential obligation under the put options to purchase 2,367,000 shares of its common stock at a weighted average exercise price of $14.06 for an aggregate of $33.3 million. These put and call options are exercisable only at maturity and expire between April and May 2000. The Company has the right to settle the put options by physical settlement of the options or by net share settlement using shares of the Company's common stock. Under the remaining call options, the Company has the right, but not the obligation, to purchase from the counterparty 1,183,500 shares of its common stock at an average price per share of $14.76 in 2000. The Company may, from time to time, enter into additional put and call option arrangements. During 1999, the Company purchased 1,536,000 shares of its common stock under the put options for $24.6 million. During 1999 and January 2000, put options for 1,798,000 shares expired. At January 1, 2000, the Company had reserved 33,470,602 unissued shares of its common stock for possible issuance under stock-based compensation plans, for possible conversion of the Company's convertible debentures, and for possible exchange of certain subsidiaries' convertible obligations into common stock of the Company. The Company has distributed rights under a shareholder rights plan adopted by the Company's Board of Directors to holders of outstanding shares of the Company's common stock. Each right entitles the holder to purchase one ten-thousandth of a share (a Unit) of Series B Junior Participating Preferred Stock, $100 par value, at a purchase price of $250 per Unit, subject to adjustment. The rights will not be exercisable until the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an Acquiring Person) has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of common stock (the Stock Acquisition Date), or (ii) 10 business days following the commencement of a tender offer or exchange offer for 15% or more of the outstanding shares of common stock. In the event that a person becomes the beneficial owner of 15% or more of the outstanding shares of common stock, except pursuant to an offer for all outstanding shares of common stock approved by at least a majority of the members of the Board of Directors, each holder of a right (except for the Acquiring Person) will thereafter have the right to receive, upon exercise, that number of shares of common stock that equals the exercise price of the right divided by one half of the current market price of the common stock. In the event that, at any time after any person has become an Acquiring Person, (i) the Company is acquired in a merger or other business combination transaction in which the Company is not the surviving corporation or its common stock is changed or exchanged (other than a merger that follows an offer approved by the Board of Directors), or (ii) 50% or more of the Company's assets or earning power is sold or transferred, each holder of a right (except for the Acquiring Person) shall thereafter have the right to receive, upon exercise, the number of shares of common stock of the acquiring company that equals the exercise price of the right divided by one half of the current market price of such common stock. At any time until 10 days following the Stock Acquisition Date, the Company may redeem the rights in whole, but not in part, at a price of $.01 per right (payable in cash or stock). The rights expire on January 29, 2006, unless earlier redeemed or exchanged. 26 8. Income Taxes The components of income from continuing operations before income taxes, minority interest, and extraordinary items are as follows: (In thousands) 1999 1998 1997 - ------------------------------------------------------------------------- ----------- ---------- --------- Domestic $ (47,512) $168,764 $283,200 Foreign 84,998 85,729 69,921 --------- -------- -------- $ 37,486 $254,493 $353,121 ========= ======== ======== The components of the income tax provision for continuing operations are as follows: (In thousands) 1999 1998 1997 - ------------------------------------------------------------------------- ----------- ---------- --------- Currently Payable: Federal $ 22,705 $ 49,747 $72,703 Foreign 40,417 34,309 26,965 State 7,589 11,026 12,878 --------- -------- ------- 70,711 95,082 112,546 --------- -------- ------- Net Deferred (Prepaid): Federal (33,636) 9,448 13,092 Foreign 520 (770) 4,114 State (4,522) 811 2,218 --------- -------- ------- (37,638) 9,489 19,424 --------- -------- ------- $ 33,073 $104,571 $131,970 ========= ======== ======== The income tax provision included in the accompanying statement of operations was as follows: (In thousands) 1999 1998 1997 - ------------------------------------------------------------------------- ----------- ---------- ---------- Continuing Operations $ 33,073 $104,571 $131,970 Discontinued Operations (23,452) 66,109 42,743 Loss on Disposal of Discontinued Operations 174,000 - - --------- -------- -------- $ 183,621 $170,680 $174,713 ========= ======== ======== The Company and its majority-owned subsidiaries receive a tax deduction upon the exercise of nonqualified stock options by employees for the difference between the exercise price and the market price of the underlying common stock on the date of exercise. The provision for income taxes that is currently payable does not reflect $2.7 million, $12.9 million, and $7.5 million of such benefits of the Company and its majority-owned subsidiaries that have been allocated to capital in excess of par value, directly or through the effect of majority-owned subsidiaries' equity transactions, in 1999, 1998, and 1997, respectively. In addition, the provision for income taxes that is currently payable does not reflect $3.5 million, $4.4 million, and $2.4 million of tax benefits used to reduce cost in excess of net assets of acquired companies in 1999, 1998, and 1997, respectively. 27 8. Income Taxes (continued) The income tax provision in the accompanying statement of operations differs from the provision calculated by applying the statutory federal income tax rate of 35% to income from continuing operations before income taxes, minority interest, and extraordinary items due to the following: (In thousands) 1999 1998 1997 - ---------------------------------------------------------------------- ----------- ------------ ---------- Income Tax Provision at Statutory Rate $ 13,120 $ 89,073 $123,592 Increases (Decreases) Resulting From: Foreign sales corporation (3,558) (2,981) (3,065) Federal tax credits (3,697) - - Gain on issuance of stock by subsidiaries - (6,504) (13,104) State income taxes, net of federal tax 1,996 7,720 9,844 Amortization and write-off of cost in excess of net assets 16,648 8,713 5,476 of acquired companies Foreign tax rate and tax law differential 6,771 1,017 6,210 Nondeductible expenses 2,264 4,930 1,264 Losses not benefited 1,235 - - Other, net (1,706) 2,603 1,753 -------- ----------- -------- $ 33,073 $ 104,571 $131,970 ======== ========= ======== Deferred tax asset in the accompanying balance sheet consists of the following: (In thousands) 1999 1998 - ---------------------------------------------------------------------------------- ------------ ---------- Deferred Tax Asset (Liability): Net operating loss and credit carryforwards $ 84,100 $ 57,131 Reserves and accruals 75,190 44,715 Depreciation (66,795) (74,501) Inventory basis difference 28,613 25,221 Accrued compensation 13,922 12,043 Intangible assets 2,263 (10,049) Other, net (14,969) 2,474 -------- -------- 122,324 57,034 Less: Valuation allowance 43,124 56,058 -------- -------- $ 79,200 $ 976 ======== ======== The valuation allowance primarily relates to the uncertainty surrounding the realization of tax loss and credit carryforwards. During 1999, the valuation allowance decreased primarily due to the expiration of acquired foreign net operating loss carryforwards. Any tax benefit resulting from the use of acquired loss carryforwards is used to reduce cost in excess of net assets of acquired companies. 28 8. Income Taxes (continued) At year-end 1999, the Company had federal, state, and foreign net operating loss carryforwards of $8 million, $143 million, and $116 million, respectively. Use of the carryforwards is limited based on the future income of certain subsidiaries. The federal and state net operating loss carryforwards expire in the years 2000 through 2014. Of the foreign net operating loss carryforwards, $60 million expire in the years 2000 through 2009, and the remainder do not expire. Substantially all of the foreign capital loss carryforwards do not expire. The Company has not recognized a deferred tax liability for the difference between the book basis and tax basis of its investment in the common stock of its domestic subsidiaries (such difference relates primarily to unremitted earnings and gains on issuance of stock by subsidiaries) because the Company does not expect this basis difference to become subject to tax at the parent level. The Company believes it can implement certain tax strategies to recover its investment in its domestic subsidiaries tax-free. A provision has not been made for U.S. or additional foreign taxes on $400 million of undistributed earnings of foreign subsidiaries that could be subject to taxation if remitted to the U.S. because the Company plans to keep these amounts permanently reinvested overseas. 9. Transactions in Stock of Subsidiaries Gain on issuance of stock by subsidiaries in the accompanying statement of operations results primarily from the following transactions: 1998 Initial public offering of 3,300,000 shares of ONIX Systems common stock at $14.50 per share for net proceeds of $43.7 million resulted in a gain of $10.0 million that was recorded by Thermo Instrument. Public offering of 2,450,000 shares of Thermo BioAnalysis common stock at $18.125 per share for net proceeds of $41.5 million resulted in a gain of $5.9 million that was recorded by Thermo Instrument. Conversion of $1.8 million of Thermo Optek 5% subordinated convertible debentures, convertible at $13.94 per share, into 127,646 shares of Thermo Optek common stock resulted in a gain of $0.9 million that was recorded by Thermo Instrument. Conversion of $4.0 million of ThermoQuest 5% subordinated convertible debentures, convertible at $16.50 per share, into 239,393 shares of ThermoQuest common stock resulted in a gain of $1.8 million that was recorded by Thermo Instrument. 1997 Initial public offering of 2,671,292 shares of Thermedics Detection common stock at $11.50 per share for net proceeds of $28.1 million resulted in a gain of $17.1 million that was recorded by Thermedics. Sale of 1,768,500 shares of ThermoQuest common stock at $15.00 per share for net proceeds of $24.8 million and conversion of $15.7 million of ThermoQuest 5% subordinated convertible debentures, convertible at $16.50 per share, into 949,027 shares of ThermoQuest common stock, resulted in gains of $12.0 million and $7.8 million, respectively, that were recorded by Thermo Instrument. Initial public offering of 2,300,000 shares of Metrika Systems common stock at $15.50 per share for net proceeds of $32.5 million resulted in a gain of $13.2 million that was recorded by Thermo Instrument. Private placements of 1,639,640 shares of ONIX Systems common stock at $14.25 per share for net proceeds of $22.0 million resulted in a gain of $7.9 million that was recorded by Thermo Instrument. Initial public offering of 1,139,491 shares of Thermo Vision common stock at $7.50 per share for net proceeds of $7.0 million resulted in a gain of $2.3 million that was recorded by Thermo Instrument. Conversion of $13.1 million and $3.2 million of Thermo Optek 5% subordinated convertible debentures, convertible at $14.85 per share and $13.94 per share, respectively, into 1,111,316 shares of Thermo Optek common stock resulted in a gain of $3.2 million that was recorded by Thermo Instrument. 29 9. Transactions in Stock of Subsidiaries (continued) The Company's ownership percentage in these subsidiaries changed primarily as a result of the transactions listed above, purchases of shares of certain majority-owned subsidiaries' stock by the Company or its direct subsidiaries, certain subsidiaries' purchases of their own stock, the issuance of subsidiaries' stock by the Company or by the subsidiaries under stock-based compensation plans or in other transactions, the conversion of convertible obligations held by the Company, its subsidiaries, or by third parties, and the issuance of subsidiaries' stock in connection with acquisitions. The Company's ownership percentages at year end were as follows: 1999 1998 1997 ----------------------------------------------------------------------- ---------- ---------- --------- Thermedics Inc. 76% 74% 58% Thermedics Detection Inc. (a) 89% 88% 76% Thermo Cardiosystems Inc. (a) 60% 60% 59% Thermo Sentron Inc. (a) 87% 86% 78% Thermo Voltek Corp. (a) 100% 69% 68% Thermo Ecotek Corporation 94% 94% 88% Thermo Trilogy Corporation (b) 80% 80% 87% Thermo Fibertek Inc. 91% 91% 90% Thermo Fibergen Inc. (a) 74% 73% 71% Thermo Instrument Systems Inc. 88% 85% 82% Metrika Systems Corporation (a) 79% 76% 60% ONIX Systems Inc. (a) 82% 81% 87% Thermo BioAnalysis Corporation (a) 88% 84% 78% Thermo Optek Corporation (a) 95% 95% 92% ThermoQuest Corporation (a) 91% 90% 88% ThermoSpectra Corporation (a) 100% 92% 83% Thermo Vision Corporation (a) 81% 80% 80% Spectra-Physics Lasers, Inc. (c) 80% - - Thermo Power Corporation 100% 79% 69% ThermoLyte Corporation (b) 100% 98% 78% Thermo TerraTech Inc. 87% 86% 82% The Randers Killam Group Inc. (a) 96% 96% 96% ThermoRetec Corporation (a) 72% 71% 70% Thermo EuroTech N.V. (a)(b) 89% 89% 56% ThermoTrex Corporation 80% 64% 55% ThermoLase Corporation (a) 85% 80% 70% Trex Medical Corporation (a) 79% 77% 79% Trex Communications Corporation (b) 100% 69% 78% Thermo Coleman Corporation (b) 100% 87% 100% Thermo Information Solutions Inc. (a)(b) 100% 79% 79% (a) Reflects combined ownership by direct parent company and Thermo Electron. (b) Majority-owned privately held subsidiary. (c) Acquired indirectly as part of Thermo Instrument's acquisition of Spectra-Physics (Note 3). 30 10. Other Income (Expense), Net The components of other income (expense), net, in the accompanying statement of operations are as follows: (In thousands) 1999 1998 1997 - ------------------------------------------------------------------------- ---------- ---------- ---------- Interest Income $ 43,915 $78,313 $ 72,704 Interest Expense (96,992) (90,329) (84,214) Equity in Earnings (Loss) of Unconsolidated Subsidiaries (7,274) 150 (341) Gain on Investments, Net 1,537 12,812 5,015 Other Income (Expense), Net (2,706) 1,242 50 -------- ------- -------- $(61,520) $ 2,188 $ (6,786) ======== ======= ======== 11. Restructuring and Other Unusual Costs, Net 1999 Continuing Operations During 1999, the Company's continuing operations recorded restructuring and related costs of $161.9 million and other nonoperating charges of $20.5 million in connection with broad scale restructuring actions affecting a number of business units. Restructuring and other unusual costs, net include $162.8 million of restructuring costs, $13.2 million of other unusual income, net, $9.4 million of inventory provisions, and a revenue reversal of $2.8 million resulting from a dispute with a utility customer. The inventory provisions are included in cost of revenues. Other nonoperating charges include $19.1 million of other expense, net and $1.4 million of income tax expense. The Company's continuing operations recorded charges by segment for 1999 as follows: (In thousands) Life Sciences Optical Measurement Power Corporate Total Technologies and Control Generation - --------------------- -------------- ------------- ------------- ------------- -------------- ------------ Revenues $ - $ - $ - $ 2,832 $ - $ 2,832 Cost of Revenues - 3,156 6,270 - - 9,426 Restructuring and (326) 1,717 30,210 112,243 5,745 149,589 Other Unusual Costs, Net Other Expense, Net - 13,382 - 2,125 3,609 19,116 Income Tax Expense - - 1,409 - - 1,409 --------- -------- -------- -------- --------- -------- $ (326) $ 18,255 $ 37,889 $117,200 $ 9,354 $182,372 ========= ======== ======== ======== ========= ======== 31 11. Restructuring and Other Unusual Costs, Net (continued) The components of restructuring and related costs by segment are as follows: Life Sciences During 1999, the Life Sciences segment settled certain severance matters for less than had been previously accrued and, as a result, reversed $0.3 million of previously established reserves. Optical Technologies The Optical Technologies segment recorded $18.3 million of restructuring and related costs in 1999. The Optical Technologies segment recorded an adjustment to cost of revenues of $3.2 million relating to the sale of inventories that were revalued at the date of the acquisition of SPLI. Restructuring costs of $1.7 million were primarily for abandoned lease costs for manufacturing facilities in the United Kingdom with lease obligations through 2000, and other facility costs. Prior to its acquisition by Thermo Instrument, SPLI elected early adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Company has not elected early adoption of SFAS No. 133, although it must adopt the statement no later than the first quarter of 2001. Under SFAS No. 133, SPLI is permitted under certain conditions to enter foreign exchange contracts to hedge anticipated transactions without recording gains and losses on such contracts in income. Such contracts are deemed speculative hedges under SFAS No. 52, "Foreign Currency Translation," and must be marked to market with the resulting gain or loss reported as a component of the Company's results of operations. During 1999, Thermo Instrument recorded a loss on foreign exchange contracts entered into by SPLI of $2.3 million, which is included in other expense in the accompanying statement of operations. The Company's results may continue to be affected by such transactions during 2000. The Company recorded other unusual charges of $11.1 million relating to Thermo Instrument's equity investment in FLIR (Note 3). This charge was recorded to equity in loss of unconsolidated subsidiaries, a component of other expense in the accompanying statement of operations. Measurement and Control During 1999, the Measurement and Control segment recorded restructuring and related costs of $37.9 million as a result of the actions detailed below. The Company recorded restructuring and related costs of $32.4 million, including restructuring costs of $30.1 million, a tax asset write-off of $1.4 million, and inventory provisions of $0.9 million, related to a decision to sell its power electronics and test equipment business. The planned sale of the power electronics and test equipment businesses followed a period of declining sales and profitability in these units. These businesses are dependent on the cyclical nature of the semiconductor industry and have lower growth prospects than other businesses held by the Company. As a result, the Company decided to sell these units. Restructuring costs include $28.5 million to write off related cost in excess of net assets of acquired companies to reduce the carrying value of the business to the estimated proceeds from its sale. In addition, restructuring costs include a charge of $1.6 million recorded to write off the Company's remaining net investment in a subsidiary of the power electronics and test equipment business, which the Company transferred to a buyer in consideration for a release from certain contractual obligations, primarily ongoing lease obligations. The tax write-off represents a deferred tax asset that will not be realized as a result of exiting this business. The inventory provisions result from exiting and reengineering certain product lines. Unaudited revenues and operating losses, excluding restructuring and related costs, of the power electronics and test equipment business were $28.2 million and $0.5 million, respectively, for 1999, and net assets totaled $17.5 million at year-end 1999. The Company also recorded other unusual nonoperating costs of $0.3 million in 1999 at the power electronics and test equipment segment. The Measurement and Control segment's unusual charges also include a charge to cost of revenues of $3.5 million relating to the sale of inventories at certain Spectra-Physics units that were revalued at the date of its acquisition, and $1.9 million for inventories deemed excessive based on recent low demand at its quality assurance and security products business. 32 11. Restructuring and Other Unusual Costs, Net (continued) The Measurement and Control segment also recorded $0.1 million of restructuring income in 1999, primarily reversals of previously established severance accruals. Power Generation During 1999, Thermo Ecotek recorded $125.8 million of restructuring costs, $13.5 million of unusual income, a reversal of revenue of $2.8 million, and other charges of $2.1 million, as a result of the actions detailed below. Following significant investments of resources in attempts to correct operational problems, in May 1999, Thermo Ecotek made a decision to cease further efforts and hold for sale or disposal its Gillette, Wyoming, coal-beneficiation facility. As a result, Thermo Ecotek recorded a restructuring charge of $68.0 million, including $63.3 million to write down the plant and related equipment to a nominal salvage value, $4.4 million for estimated land reclamation costs and demolition, and $0.3 million of other exit costs, primarily abandoned-facility payments. Thermo Ecotek recorded $1.5 million of minority interest income, representing a minority partner's share of these charges. Revenues of this facility were nominal during the period it operated. The facility had unaudited operating losses, excluding restructuring costs, of $7.6 million in 1999. Thermo Ecotek expects to dispose of the plant or undertake salvage and reclamation activities in 2000. The power-sales agreement for Thermo Ecotek's Delano facilities called for fixed contract rates through September 2000. In anticipation of a decline in rates, in May 1999, Thermo Ecotek entered into an agreement to terminate the power-sales agreement for its Delano facilities, effective December 31, 1999. The terms of the agreement call for Thermo Ecotek to receive payments in lieu of operating under its current agreement. Thermo Ecotek recorded a restructuring charge of $51.0 million as a result of entering into the new agreement, including $47.5 million to write down the plant and related assets to the present value of its estimated future cash flows, $2.4 million related to a loss on the cancelation of the facility's primary fuel contract, and $1.1 million to write off cost in excess of net assets of acquired companies. Pacific Gas & Electric (PG&E), the customer under a long-term power-sales agreement at Thermo Ecotek's Woodland, California, plant, has interpreted the terms of such agreement to permit PG&E to cease payment of fixed contract rates effective July 1, 1999, and to thereafter purchase power at avoided cost rates. Although Thermo Ecotek contests this interpretation and is considering its alternatives concerning this dispute, Thermo Ecotek recorded a restructuring charge of $3.8 million during 1999, representing impairment of its net investment in the Woodland facility as a result of PG&E's decision to cease making payments of fixed contract rates. Thermo Ecotek also recorded other restructuring costs of $3.0 million during 1999. These costs included $1.5 million to write off a power plant that is held for sale, $0.7 million for abandoned assets, $0.4 million for unrecouped development costs associated with a project sold to a joint venture partner, $0.2 million for severance for three employees, and $0.2 million of other costs. Thermo Ecotek believes that the salvage value of the power plant held for sale, if any, is nominal. Unusual income of $13.5 million resulted from the termination of the power-sales agreement for its Gorbell facility in Athens, Maine. The income represents the proceeds from the termination agreement, net of facility closure costs including lease and fuel cancellation payments. The Gorbell facility's revenues and operating income before the effect of the contract termination were $7.7 million and $1.3 million, respectively, in 1999. A dispute arose during 1999 between Thermo Ecotek and Southern California Edison (SCE), the utility that purchases the output of Thermo Ecotek's Delano plants. SCE interpreted the terms of its contract with the Delano facilities to permit it to pay a reduced rate in 1999 for power output during nonpeak periods, as defined. Although Thermo Ecotek contests this interpretation, SCE has adjusted its recent payments to reflect the lower rates for all of 1999. As a result, Thermo Ecotek has established a reserve through a reduction in revenues totaling $2.8 million for amounts in dispute with SCE and is considering its alternatives with respect to this claim. 33 11. Restructuring and Other Unusual Costs, Net (continued) In 1999, Thermo Ecotek also recorded a nonoperating charge of $2.1 million representing the write-down of available-for-sale investments representing an equity interest of its minority partner in the Gillette, Wyoming, facility due to impairment that Thermo Ecotek deemed permanent based on stock prices at that time. This amount is included in gain on investments, net, a component of other expense in the accompanying statement of operations. Corporate During 1999, the Company recorded $9.4 million of restructuring and related costs. Restructuring costs of $5.8 million consist of $4.9 million for severance costs for seven senior-level employees and $0.9 million of legal and advisory costs related to the Company's reorganization. The Company also recorded $3.6 million of other nonoperating charges to write down available-for-sale investments due to impairment that the Company deemed permanent based upon market prices. These charges are included in gain on investments, net, a component of other expense in the accompanying statement of operations. General During 1998, the Company's continuing operations announced restructuring actions that included plans for the termination of 729 employees. As of January 2, 1999, the continuing operations had terminated 500 employees. The restructuring actions in 1999 included plans for the termination of an additional 41 employees. During 1999, 225 employees were terminated in connection with the restructuring plans announced in 1998 and 1999. Discontinued Operations The 1999 charges for restructuring and related actions undertaken by the Company's discontinued operations totaled $273.7 million and are included in loss from discontinued operations, net of income taxes and minority interest, in the accompanying statement of operations. ThermoTrex During 1999, ThermoTrex announced restructuring actions at its Trex Medical and ThermoLase subsidiaries. In connection with these actions, ThermoTrex recorded restructuring and related costs of $97.9 million in 1999, including restructuring costs of $71.9 million, inventory and warranty provisions of $18.7 million, provisions for uncollectible accounts receivable of $1.6 million, and other nonoperating charges of $5.7 million. During 1999, Trex Medical recorded $27.3 million of restructuring and related costs, including restructuring costs of $10.9 million and inventory and warranty provisions of $16.3 million. The restructuring costs incurred primarily related to the consolidation of certain facilities in an effort to reduce costs and, to a lesser extent, actions in other operations. Trex Medical consolidated its four domestic manufacturing facilities into two facilities. Restructuring costs include $3.7 million for facility-closing costs, net of assumed sublease income; $3.6 million of severance for 348 employees across all functions; $2.0 million to write off leasehold improvements at facilities to be closed and to write down fixed assets to their estimated disposal value; and $1.6 million for employee retention incentives for employees in facilities being closed that are being accrued ratably through the date on which their services will no longer be required. In August 1999, Trex Medical received notification from the Food and Drug Administration (FDA) denying its 510(k) filing for its digital mammography system. In September, Trex Medical received a letter from the FDA indicating that the FDA believes that a pre-market approval (PMA) application, followed up by significant post-approval screening trials, may be the more viable option for obtaining market clearance for digital mammography systems. A PMA is generally more burdensome than a 510(k), because it applies to devices considered to be of higher risk. In light of the FDA's guidance, Trex Medical may incorporate the data that formed the basis of its 510(k) application into a PMA application for submission to the FDA. Trex Medical expects to implement various design and 34 11. Restructuring and Other Unusual Costs, Net (continued) engineering changes that may require additional preapproval clinical trials. There can be no assurance regarding the timing or results of the submission of a new filing to the FDA or such clinical trials. Trex Medical recorded costs of $13.7 million to establish inventory provisions and to terminate purchase commitments for products that have become obsolete due to planned product changes or excess as a result of a recent decline in demand. The largest component of the inventory charge was recorded as a result of the decision by the FDA to deny Trex Medical's application to market its digital mammography system and resulting design changes expected to be made to the system. Provisions resulting from other planned product and technology changes and decreased demand for certain other products are also principal components of the inventory charge. Warranty provisions of $2.6 million were recorded for estimated costs to address certain product warranty issues, including costs associated with corrective actions to be taken with respect to certain previously sold mammography products. During 1998, ThermoLase initiated certain restructuring activities, including the announced closure of three domestic spas and the termination of a joint venture that operated its spa in France following unsuccessful efforts to reduce operating costs. Two of the domestic spas were closed during the fourth quarter of 1998. In 1999, ThermoLase closed the third spa, as well as two additional spas. Also during 1999, ThermoLase sold its remaining nine day spas, as well as the stock in its destination spa, The Greenhouse Spa, Inc. ThermoLase made the decision to sell The Greenhouse Spa due to a high cost structure and demand that did not meet expectations. In connection with the sale and closures announced in 1999, as well as other actions, ThermoLase recorded restructuring and related costs of $67.9 million, including restructuring costs of $60.6 million, inventory provisions of $2.3 million, provisions for uncollectible accounts receivable of $1.6 million, and an investment write-down of $3.4 million. Restructuring costs include a $19.9 million loss on the sale of its spa businesses; $17.4 million for the write-off of leasehold improvements and equipment pertaining to the hair-removal business; $11.7 million for ongoing lease obligations, net of assumed sublease income; $10.4 million of estimated costs to terminate certain other obligations related to the ThermoLase hair-removal business (primarily payments to licensees and joint venture partners to sever relationships and terminate agreements); $0.4 million for losses on laser purchase commitments; $0.3 million to write down investments in international joint ventures; and $0.5 million for other related costs. The inventory provisions were for certain branded product lines at ThermoLase's Creative Beauty Innovations, Inc. subsidiary that have been discontinued, and the investment write-down was to reduce the carrying value of ThermoLase's investment in a privately held company to its estimated disposal value. ThermoTrex and the Company recorded aggregate restructuring costs of $62.7 million during 1999, representing a write-off of cost in excess of net assets of acquired companies. Of the total write-off, $59.3 million was to write off cost in excess of net assets of acquired companies that arose from repurchases of ThermoLase common stock. This asset has become impaired as a result of continuing losses at ThermoLase and a decision to exit its principal business. The balance of the write off was recorded by ThermoTrex as a result of a decision to hold for sale its Trex Communications subsidiary, and represents a reduction in the carrying value of Trex Communications to the amount of expected proceeds from its sale. Trex Communications designs and markets interactive information, voice-response, and call automation systems and manufactures ground-based satellite communication systems. Trex Communications' Computer Communications Specialists, Inc. subsidiary was sold in December 1999, and Trex Communications was sold in February 2000 primarily because these businesses would have required levels of investment in order to expand that exceeded amounts that ThermoTrex was willing to make available. In addition, ThermoTrex provided a reserve of $2.3 million for impairment of a note receivable from an unaffiliated company and $0.4 million of other restructuring costs. 35 11. Restructuring and Other Unusual Costs, Net (continued) Thermo TerraTech In May 1999, Thermo TerraTech announced that its majority-owned subsidiaries plan to sell several businesses. The businesses proposed to be sold include the used-oil processing operation of Thermo EuroTech, N.V.; three soil-recycling facilities of ThermoRetec, in addition to the sites previously announced; and the Randers division, BAC Killam Inc., and E3-Killam Inc. businesses of The Randers Killam Group Inc., which provide engineering and construction services. Thermo TerraTech decided to sell these businesses because of low growth or profitability. In connection with these actions, Thermo TerraTech recorded $58.3 million of restructuring and related costs, including restructuring costs of $56.5 million, a tax asset write-off of $1.1 million, and an inventory provision of $0.7 million. Restructuring costs include $22.2 million to write down cost in excess of net assets of acquired companies to reduce the carrying value of the businesses proposed to be sold to the estimated proceeds from their sale; $20.3 million to write down fixed assets to their estimated disposal value; $4.6 million for ongoing lease costs for facilities that will be exited in connection with the sale of certain businesses; $2.5 million for estimated land reclamation costs; $1.9 million to write off the cumulative foreign translation adjustment related to Thermo EuroTech's used-oil processing business; $1.8 million to write off intangible assets related to license acquisition costs at the used-oil processing business; $0.6 million for severance costs for 42 employees across all functions; and $0.4 million to write off other current assets associated with the businesses. The tax asset write-off represents a deferred tax asset that will not be realized as a result of selling Thermo EuroTech's used-oil processing business. The inventory provision also relates to exiting this business. The write-down of fixed assets principally relates to special purpose equipment in the used-oil processing and soil-recycling businesses. In connection with the actions discussed above, the Company also recorded $1.7 million to write down cost in excess of net assets of acquired companies that arose in connection with the Company's prior repurchases of Thermo EuroTech common stock. The write off is a result of continuing losses and a decision to exit Thermo EuroTech's principal business. During January 2000, Thermo TerraTech sold the Randers division for an aggregate sales price of $0.5 million, resulting in a loss of $2.2 million, which was recorded in 1999. Thermo Power Thermo Power undertook certain restructuring actions during 1999, which included a decision to divest of its ThermoLyte subsidiary, as well as a decision to outsource certain manufacturing and warranty functions and reduce staffing levels at certain other subsidiaries. ThermoLyte distributes specialty lighting products for the automotive, sporting goods, and marine markets. Thermo Power made the decision to divest ThermoLyte in response to a lower than expected market for gas-fueled lighting products. In addition, Thermo Power wrote down certain assets at its Peek plc sales and service subsidiaries located in Malaysia and Croatia that have become impaired due to business conditions in those regions. In connection with these actions, Thermo Power recorded restructuring and related costs of $13.8 million, including $10.1 million of restructuring costs, inventory provisions of $3.0 million, costs for outsourcing certain warranty repairs of $0.5 million, and a provision for uncollectible accounts receivable of $0.2 million. Restructuring costs include $4.1 million for the write-off of cost in excess of net assets of acquired companies, of which $2.9 million was to reduce the carrying value of ThermoLyte to the estimated proceeds from its sale and $1.2 million was to reduce the carrying value of Thermo Power's investment in its Peek subsidiaries located in Malaysia and Croatia due to projected undiscounted cash flows from their operations being insufficient to recover its investment. In addition, restructuring costs include $2.3 million of severance costs for 133 employees across all functions; $1.9 million for the write-down of certain fixed assets, principally at operations being exited; $1.6 million for lease costs at facilities being abandoned, and $0.2 million of other costs. Inventory provisions represent a write-down of inventories to estimated salvage value and consist of $1.9 million for raw materials for product lines being outsourced, $1.0 million for a discontinued product line, and $0.1 million for inventories at Peek's subsidiaries located in Malaysia and Croatia. 36 11. Restructuring and Other Unusual Costs, Net (continued) Thermo Fibertek During 1999, Thermo Fibertek recorded $2.3 million of restructuring costs and $7.3 million of unusual income, net. Restructuring costs consist of $1.3 million of severance costs for 24 employees across all functions and $1.0 million to terminate distributor agreements. Thermo Fibertek recorded unusual income of $11.0 million from a gain on the sale of its Thermo Wisconsin, Inc. subsidiary. Thermo Fibertek decided to sell Thermo Wisconsin to divest of a non-strategic, cyclical operating unit that serves the graphics arts industry. In addition, Thermo Fibertek recorded $2.8 million of unusual costs relating to impairment of a note receivable secured by a tissue mill. In the second quarter of 1999, Thermo Fibertek entered into a nonbinding letter of intent with a third party to dispose of this asset for an amount in excess of the carrying value. Subsequently, however, the third party elected not to proceed with the transaction and Thermo Fibertek has written the asset down to its estimated recoverable value. Thermo Fibertek also recorded other unusual costs of $0.9 million, consisting of $0.5 million for the expected settlement of a legal dispute, $0.3 million for the impairment of a building held for disposal, and $0.1 million of other unusual costs. Thermo Coleman During 1999, Thermo Coleman recorded $17.3 million of restructuring and related costs and $7.1 million of unusual income. Restructuring and related costs were recorded as a result of a decision to exit certain businesses through sale or closure. The businesses being exited include a unit that develops and markets information technology products and services and a business that develops and manufactures coherent laser radar equipment. These businesses will require significant investment to expand. Restructuring costs include $10.5 million to write off cost in excess of net assets of acquired companies, $2.3 million for the write down of fixed assets, $3.8 million of inventory provisions, a $0.4 million provision for a note receivable, and $0.3 million related to a loss on disposal of a business unit at its Thermo Information Solutions subsidiary. The charges reduce the carrying values of the businesses to the estimated proceeds from their sale. The unusual income of $7.1 million represents a gain on the sale of its LiveOnTheNet.com subsidiary. This business performs Webcasting and Web page development, hosting and advertising. Other In May 1999, a jury in the superior court of the state of Rhode Island rendered a verdict against the Company in connection with an installation in 1985 of a wastewater treatment system by a subsidiary of the Company. The plaintiff has submitted a brief to the court that sets forth a computation of prejudgment interest on the damages that, if approved by the court, would bring the total amount of the award to approximately $21 million, subject to additional interest accruals from May 1999. The Company believes that both the verdict and the interest computation are in error and has opposed the plaintiff's motion. The Company recorded a charge of $21 million for this matter in the second quarter of 1999. During 1999, the Company also decided to hold for sale its Peter Brotherhood, Ltd. subsidiary, which manufactures steam turbines and compressors. The Company recorded an $8.4 million write-down of fixed assets to reduce the carrying value of the business unit to the estimated proceeds from its sale. Thermo Trilogy recorded $4.0 million of restructuring and related costs, including $3.5 million of inventory provisions for product deemed excess based on recent demand, following a downturn in its sales of biopesticides, $0.4 million for severance for 14 employees, and $0.1 million of other costs. Thermedics recorded unusual costs of $0.8 million, primarily investment banking fees. 37 11. Restructuring and Other Unusual Costs, Net (continued) 1998 Continuing Operations During 1998, the Company's continuing operations recorded restructuring and related costs of $32.5 million as described below, including restructuring and other unusual costs of $23.6 million, inventory write-downs of $8.6 million, and other costs of $0.3 million. The inventory write-downs are included in cost of revenues in the accompanying statement of operations. The charges occurred as a result of an economic crisis in Asia; a related downturn in the semiconductor industry; and depressed prices in the oil, petrochemical, and natural resources industries. Life Sciences During 1998, the Life Sciences segment recorded restructuring and related costs of $9.0 million. Restructuring costs consist of $4.6 million related to severance costs for 190 employees across all functions and $1.3 million of facility-closing costs including $1.2 million of asset write-downs and $0.1 million of lease costs for facilities in the United Kingdom with obligations through 1999. In addition, the Company recorded a write-down of inventories totaling $2.8 million related to discontinuing several low-margin product lines and the disposal of inventories at a manufacturing facility being closed. The Company also recorded a charge of $0.3 million for its share of restructuring costs at a joint venture as a reduction in the Company's equity in earnings of unconsolidated subsidiaries, which is included in other expense in the accompanying statement of operations. Optical Technologies The Optical Technologies segment recorded restructuring and related costs of $17.7 million in 1998. Restructuring costs of $12.4 million consist of $9.2 million related to severance costs for 419 employees across all functions, $2.2 million for facility-closing costs for facilities in the United Kingdom, a loss of $0.4 million related to the sale of a division, and $0.6 million of other costs. The $2.2 million of facility-closing costs include $1.4 million for lease payments on abandoned facilities with lease obligations through 2000 and $0.8 million to write down related fixed assets. The Company also recorded inventory write-downs of $5.3 million related to discontinuing certain product lines and increased excess and obsolescence reserves associated with lower product demand. Measurement and Control The Measurement and Control segment recorded restructuring and related costs of $5.4 million in 1998. Restructuring costs of $3.3 million consist of $2.3 million related to severance costs for 171 employees across all functions, $0.8 million for the write off of cost in excess of net assets of acquired businesses for an operating unit that was closed, and $0.2 million of facility-closing costs, primarily write-downs of fixed assets at abandoned facilities. The Company also recorded $0.5 million of inventory write-downs, primarily for products deemed excess based on recent demand. In addition, five former employees of Thermo Instrument's Epsilon Industrial, Inc. subsidiary had sought damages in an arbitration proceeding for alleged breaches of agreements entered into with such employees prior to Epsilon's acquisition by Thermo Instrument. The arbitrators rendered a decision with respect to such claims during 1998, and the Company recorded $1.6 million of unusual costs related to the resolution of this matter in 1998. Corporate During 1998 the Company recorded $0.4 million of other restructuring and unusual costs. 38 11. Restructuring and Other Unusual Costs, Net (continued) Discontinued Operations The 1998 charges for restructuring and related actions undertaken by the Company's discontinued operations totaled $27.8 million and are included in income from discontinued operations, net of income taxes and minority interest, in the accompanying statement of operations. ThermoTrex ThermoLase recorded restructuring and related costs of $17.0 million during 1998, including $6.9 million for the write-off of a tax asset. Restructuring costs of $8.2 million recorded during 1998 consist of $4.6 million related to the closure of three Spa Thira locations and $3.6 million in connection with the closure of another spa that was operated under a joint venture agreement, primarily to liquidate the joint venture and to write-off ThermoLase's remaining investment. The decision to close the spas followed unsuccessful efforts to reduce operating losses in these facilities. The $4.6 million of restructuring costs included $2.4 million for the write-off of leasehold improvements and related spa assets and $2.2 million primarily for abandoned-facility payments. ThermoLase also recorded restructuring costs of $1.9 million related to certain actions, including the relocation of its headquarters from California to Texas, where it maintains another facility. The relocation of ThermoLase's headquarters occurred in an effort to reduce costs. This amount included $1.1 million for severance for 40 terminated employees and $0.8 million for the write-off of fixed assets no longer of use. In addition, ThermoLase also recorded a charge of $6.9 million to write off certain tax assets, primarily loss carryforwards due to uncertainty concerning their realization as a result of ThermoLase's recent operating results. Thermo TerraTech Thermo TerraTech recorded restructuring costs of $10.2 million during 1998. Of these restructuring costs, $9.2 million was recorded by ThermoRetec, in connection with the closure of two soil-recycling facilities. The decision to close these facilities resulted from a downturn in operating results that Thermo TerraTech believes was due in part to relaxed enforcement of state rules concerning disposal of contaminated soil and an increase in disposal alternatives. The costs included a $6.3 million write-down of fixed assets to their estimated disposal value of $0.9 million and a $1.9 million write-off of intangible assets, including $0.7 million of cost in excess of net assets of acquired companies, $1.0 million for ongoing lease costs and severance for 13 employees, 6 of whom were terminated in 1998, as well as other closure costs. In addition, Thermo TerraTech recorded $1.0 million of restructuring costs for abandoned-facility payments relating to the consolidation of the facilities of another business. The consolidation of facilities occurred in an effort to reduce costs. Other During 1998, Thermo Power recorded restructuring and other unusual costs of $1.0 million relating to a loss on discontinuance and subsequent sale of its engines business. The Company's wholly owned SensorMedics subsidiary recorded restructuring costs of $0.8 million, primarily for severance, in connection with the reorganization of a subsidiary in the Netherlands. The 1998 amount also included a gain of $1.4 million from the sale of a business at Thermo Information Solutions and restructuring and other unusual costs of $0.2 million. 39 11. Restructuring and Other Unusual Costs, Net (continued) 1997 Continuing Operations During 1997, the Company's continuing operations recorded restructuring and other unusual income, net, of $11.0 million and inventory provisions of $4.4 million, as described below. Life Sciences In connection with Thermo Instrument's acquisition of Life Sciences, the Life Sciences segment recorded an adjustment to cost of revenues of $2.9 million relating to the sale of inventories that were revalued at the date of its acquisition. Optical Technologies In December 1997, ThermoSpectra sold its Linac business for $5.0 million in cash and $2.1 million in equity securities, resulting in a gain of $2.3 million. ThermoSpectra also recorded $1.0 million of restructuring costs, representing severance costs for 40 employees, and $0.8 million of inventory provisions related to a decision to discontinue an underperforming product line. In addition, in connection with Thermo Instrument's acquisition of Life Sciences, this segment recorded an adjustment to cost of revenues of $0.7 million relating to the sale of inventories that were revalued at the date of its acquisition. Power Generation During 1997, the Company settled two legal cases in which it was a defendant concerning development of a proposed waste-to-energy facility and development and construction of an alternative-energy facility. These matters were settled for amounts less than the damages that had been sought by the plaintiffs and less than the amounts that had been reserved by the Company. As a result, the Company reversed $9.7 million of reserves previously established for these matters, which is included in restructuring and other unusual costs in 1997. Discontinued Operations The 1997 charges for restructuring and related actions undertaken by the Company's discontinued operations totaled $12.3 million and are included in income from discontinued operations, net of income taxes and minority interest, in the accompanying statement of operations. Thermo TerraTech Thermo TerraTech recorded restructuring costs of $7.8 million in 1997 to write down certain capital equipment and intangible assets, including cost in excess of net assets of acquired companies, in response to a severe downturn in ThermoRetec's soil-remediation business that resulted in the disposal of two soil-remediation sites in Virginia and Florida during 1997 and reduced cash flows at sites in Maryland and New York, such that analysis indicated that the investment in these assets would not be recovered. The charge included the write-off of $2.2 million of cost in excess of net assets of acquired companies and $0.2 million of fixed assets at facilities being closed, as well as the write-off of $2.6 million of other intangibles and $2.5 million of fixed assets at facilities remaining open. In addition, Thermo TerraTech incurred $0.3 million of other costs. The fair value of assets held for sale or disposal was determined based on estimated disposal value. The fair value of assets held for use was determined based on a cash flow analysis. 40 11. Restructuring and Other Unusual Costs, Net (continued) Other In 1997, the Company's discontinued operations also recorded $3.1 million of restructuring and other unusual costs, primarily severance, at several businesses and $1.4 million at Trex Communications for the write-off of in-process technology relating to an acquisition. This amount represents the portion of the purchase price allocated to technology in development at the acquired business. The following tables summarize the cash components of the Company's restructuring plans. The noncash components and other amounts reported as restructuring and unusual costs (income), net in the accompanying statement of operations have been summarized in the notes to the tables. Continuing Operations Abandonment of Excess (In thousands) Severance Facilities Other Total - ----------------------------------------------- -------------- -------------- -------------- ------------- 1997 Restructuring Plans Costs incurred in 1997 (a) $ 953 $ - $ - $ 953 1997 usage (709) - - (709) Currency translation - - - - --------- --------- --------- --------- Balance at January 3, 1998 (b) 244 - - 244 1998 usage (244) - - (244) Currency translation - - - - --------- --------- --------- --------- Balance at January 2, 1999, and $ - $ - $ - $ - January 1, 2000 ========= ========= ========= ========= 1998 Restructuring Plans Costs incurred in 1998 (c) $ 15,700 $ 1,656 $ 1,420 $ 18,776 1998 usage (6,630) (418) (670) (7,718) Currency translation 211 25 26 262 --------- --------- --------- --------- Balance at January 2, 1999 (d) 9,281 1,263 776 11,320 Costs incurred in 1999 (e) 1,486 1,280 652 3,418 1999 usage (7,205) (2,046) (838) (10,089) Reversal of reserves (f) (2,101) (217) - (2,318) Currency translation (568) (55) (26) (649) --------- --------- --------- --------- Balance at January 1, 2000 $ 893 $ 225 $ 564 $ 1,682 ========= ========= ========= ========= 1999 Restructuring Plans Costs incurred in 1999 (g) $ 4,127 $ 324 $ 7,853 $ 12,304 1999 Usage (287) - (2,115) (2,402) --------- --------- --------- --------- Balance at January 1, 2000 (h) $ 3,840 $ 324 $ 5,738 $ 9,902 ========= ========= ========= ========= 41 11. Restructuring and Other Unusual Costs, Net (continued) (a) Reflects restructuring costs of $1.0 million in the Optical Technologies segment. Excludes a $9.7 million reversal of litigation reserves at the Power Generation segment and a $2.3 million gain on sale of business in the Optical Technologies segment. (b) The balance of accrued severance at year-end 1997 represents amounts for planned severances in the Optical Technologies segment, which occurred in 1998. (c) Reflects restructuring costs of $5.9 million, $12.4 million, $4.9 million, and $0.4 million in the Life Sciences, Optical Technologies, and Measurement and Control segments; and the corporate headquarters, respectively. Excludes noncash charges of $1.1 million, $1.1 million, and $1.0 million in the Life Sciences, Optical Technologies, and Measurement and Control segments, respectively, and $1.6 million of cash costs in the Measurement and Control segment related to an arbitration matter, which was paid in 1998. (d) The balance of accrued severance at year-end 1998 represents amounts for planned severances principally in the Life Sciences and Optical Technologies segments, substantially all of which occurred in 1999. The balance of accrued abandoned-facility costs represents lease costs that will be paid through 2000. The balance of accrued other costs represents exit costs at the Optical Technologies segment for costs that will be paid through 2000. (e) Reflects restructuring costs of $3.1 million and $0.3 million in the Optical Technologies and Measurement and Control segments, respectively. Excludes a noncash charge of $0.1 million in the Measurement and Control segment. (f) Reflects reversals of previously recorded restructuring costs of $0.3 million, $1.4 million, and $0.6 million in the Life Sciences, Optical Technologies, and Measurement and Control segments, respectively. (g) Reflects restructuring costs, net, of $1.7 million, $29.9 million, $125.7 million, and $5.7 million in the Optical Technologies, Measurement and Control, and Power Generation segments; and the corporate headquarters, respectively, and a $0.3 million reversal of restructuring charges in the Life Sciences segment. Excludes noncash charges, net, of $30.2 million, $118.2 million, and $0.9 million in the Measurement and Control and Power Generation segments and the corporate headquarters, respectively. Also excludes an unusual gain of $13.5 million at the Power Generation segment and unusual costs of $0.3 million at the Measurement and Control segment. (h) The balance of accrued severance at year-end 1999 represents severance obligations, principally at the Company's corporate headquarters. These payments will occur primarily through the first half of 2000. The balance of accrued abandoned-facility costs represents lease costs that will be paid during 2000. The balance of accrued other costs primarily represents land reclamation and fuel contract cancellation costs at the Power Generation segment, which are expected to be paid in 2000. 42 11. Restructuring and Other Unusual Costs, Net (continued) Discontinued Operations Abandonment of Excess (In thousands) Severance Facilities Other Total - ----------------------------------------------- -------------- -------------- -------------- ------------- 1997 Restructuring Plans Costs incurred in 1997 (a) $ 2,107 $ 485 $ 795 $ 3,387 1997 usage (1,737) (444) (386) (2,567) Currency translation - - 6 6 --------- --------- --------- --------- Balance at January 3, 1998 (b) 370 41 415 826 1998 usage (370) (41) (376) (787) Currency translation - - (5) (5) --------- --------- --------- --------- Balance at January 2, 1999 - - 34 34 1999 usage - - (34) (34) --------- --------- --------- --------- Balance at January 1, 2000 $ - $ - $ - $ - ========= ========= ========= ========= 1998 Restructuring Plans Costs incurred in 1998 (c) $ 2,170 $ 4,279 $ 2,552 $ 9,001 1998 usage (1,020) (121) (2,100) (3,241) --------- --------- --------- --------- Balance at January 2, 1999 (d) 1,150 4,158 452 5,760 1999 usage (550) (1,550) (376) (2,476) Transfers to 1999 plans (e) - (1,141) (76) (1,217) Reversal of reserves (f) (300) - - (300) Currency translation (102) - - (102) --------- --------- --------- --------- Balance at January 1, 2000 $ 198 $ 1,467 $ - $ 1,665 ========= ========= ========= ========= 1999 Restructuring Plans Costs incurred in 1999 (g) $ 8,934 $ 20,328 $ 18,343 $ 47,605 Transfers from 1998 plans (e) - 1,141 76 1,217 1999 Usage (5,472) (2,374) (8,438) (16,284) Reversal of reserves (h) (438) - - (438) Currency translation (342) (95) (238) (675) --------- --------- --------- --------- Balance at January 1, 2000 (i) $ 2,682 $ 19,000 $ 9,743 $ 31,425 ========= ========= ========= ========= 43 11. Restructuring and Other Unusual Costs, Net (continued) (a) Excludes noncash charges of $8.9 million. (b) The balance of accrued severance at year-end 1997 represents amounts for planned severances at SensorMedics, which occurred in 1998. The balance of accrued other costs at year-end 1997 represents exit costs at Thermo Fibertek and Peter Brotherhood, which were substantially expended in 1998. (c) Excludes noncash charges of $13.3 million and $1.4 million of gain on sale of business. (d) The balance of accrued severance at year-end 1998 represents amounts for planned severances principally at SensorMedics, which were substantially paid in 1999. The balance of accrued abandoned-facility costs represents lease costs that will be paid through 2008. The balance of accrued other costs represents exit costs primarily at ThermoLase, which were paid in 1999. (e) A favorable resolution in 1999 of lease obligations at facilities exited by ThermoLase under its 1998 plan reduced the cost of ThermoLase's 1999 plan to exit certain other facilities. (f) Reflects a reversal of previously accrued severance costs at SensorMedics. (g) Excludes noncash charges of $181.2 million, principally at ThermoTrex and Thermo TerraTech. (h) Reflects a reversal of previously accrued severance costs at Thermo Power. (i) The balance of accrued severance at year-end 1999 represents amounts for planned severances, principally at Thermo Power and Trex Medical. These payments will occur primarily through the first half of 2000. The balance of accrued abandoned-facility costs represents lease costs that will be paid through 2014. 12. Supplemental Cash Flow Information (In thousands) 1999 1998 1997 - ----------------------------------------------------------------------- ----------- ----------- ---------- Cash Paid For Interest $ 65,653 $ 54,135 $ 84,637 Income taxes 71,637 88,726 109,517 Noncash Activities Conversions of Company and subsidiary convertible obligations $ 9,277 $ 11,911 $ 242,313 ========== ========== ========== Issuance of subsidiary subordinated convertible debentures in $ - $ 15,859 $ - connection with exchange offer ========== ========== ========== Exchange of subsidiary common stock for common stock of $ - $ 40,500 $ - ========== ========== ========== subsidiary subject to redemption Fair value of assets of acquired companies $ 622,955 $ 235,902 $ 694,675 Cash paid for acquired companies (398,372) (182,406) (551,075) Issuance of short- and long-term obligations for acquired company (14,852) - - Issuance of subsidiary stock options for acquired company - - (1,693) Amount payable for acquired company - - (19,117) ---------- ---------- ---------- Liabilities assumed of acquired companies $ 209,731 $ 53,496 $ 122,790 ========== ========== ========== 44 13. Fair Value of Financial Instruments The Company's financial instruments consist mainly of cash and cash equivalents, available-for-sale investments, accounts receivable, short-term obligations and current maturities of long-term obligations, advance payable to affiliates, accounts payable, long-term obligations, common stock of subsidiary subject to redemption, forward foreign exchange contracts, and interest rate swaps. The carrying amounts of cash and cash equivalents, accounts receivable, short-term obligations and current maturities of long-term obligations (excluding convertible obligations), advance payable to affiliates, and accounts payable approximate fair value due to their short-term nature. Available-for-sale investments are carried at fair value in the accompanying balance sheet. The fair values were determined based on quoted market prices (Note 2). The carrying amount and fair value of the Company's long-term obligations, common stock of subsidiary subject to redemption, and off-balance-sheet financial instruments are as follows: 1999 1998 ------------------------ -------------------- Carrying Fair Carrying Fair (In thousands) Amount Value Amount Value - -------------------------------------------------------- ------------ ------------ ----------- ----------- Current Maturities of Convertible Obligations $ 155,081 $ 152,103 $ - $ - =========== =========== ========== =========== Long-term Obligations: Convertible obligations $ 1,381,805 $ 1,110,626 $1,603,094 $ 1,387,049 Other 184,169 183,217 205,488 213,452 ----------- ----------- ---------- ----------- $ 1,565,974 $ 1,293,843 $1,808,582 $ 1,600,501 =========== =========== ========== =========== Common Stock of Subsidiary Subject to Redemption $ 7,692 $ 6,553 $ 40,500 $ 32,250 =========== =========== ========== =========== Off-balance-sheet Financial Instruments: Forward foreign exchange contracts payable $ 400 $ 883 Interest rate swaps receivable $ 171 $ 989 The fair value of long-term obligations was determined based on quoted market prices and on borrowing rates available to the Company at the respective year ends. The fair value of common stock of subsidiary subject to redemption was determined based upon quoted market prices. The notional amounts of forward foreign exchange contracts outstanding, excluding the contracts at SPLI discussed below, totaled $76.2 million and $31.6 million at year-end 1999 and 1998, respectively. Additionally, the notional amount of the Company's interest rate swap agreements was $21.2 million and $41.5 million at year-end 1999 and 1998, respectively (Note 5). The fair value of such contracts and swap agreements is the estimated amount that the Company would pay or receive upon termination of the contract, taking into account the change in foreign exchange rates on forward foreign exchange contracts, and market interest rates and the creditworthiness of the counterparties on interest rate swap agreements. The forward foreign exchange contracts of SPLI that are not hedges of firm commitments are recorded in the accompanying balance sheet at fair value. The fair value of these contracts was $2.0 million at year-end 1999 and is included in other deferred items in the accompanying balance sheet (Note 11). 45 14. Business Segment and Geographical Information The Company's businesses are managed in four segments: - Life Sciences: systems for drug discovery and medical diagnosis and for chemical analysis at ultratrace levels; - Optical Technologies: optical and energy-based analytical systems; high-power laser systems; and industrial imaging, inspection, and measurement instruments; - Measurement and Control: on-line systems for industrial process and quality control, field-measurement instruments, and real-time sensors; and - Power Generation: independent electric power generation. (In thousands) 1999 1998 1997 - ----------------------------------------------------------------------- ----------- ----------- ---------- Business Segment Information Revenues: Life Sciences $ 762,843 $ 703,523 $ 665,065 Optical Technologies 802,008 677,079 715,296 Measurement and Control 747,336 518,616 457,228 Power Generation 176,573 174,899 168,112 Intersegment (a) (17,567) (18,312) (26,099) ---------- ---------- ---------- $2,471,193 $2,055,805 $1,979,602 ========== ========== ========== Income from Continuing Operations Before Income Taxes, Minority Interest, and Extraordinary Items: Life Sciences (b) $ 117,147 $ 101,065 $ 107,919 Optical Technologies (c) 83,546 74,859 98,804 Measurement and Control (d) 18,542 45,992 59,897 Power Generation (e) (82,902) 42,401 60,945 ---------- ---------- ---------- Total Segment Income (f) 136,333 264,317 327,565 Corporate and Other (g) (98,847) (9,824) 25,556 ---------- ---------- ---------- $ 37,486 $ 254,493 $ 353,121 ========== ========== ========== Total Assets: Life Sciences $1,152,372 $1,224,230 $1,068,014 Optical Technologies 1,072,465 943,881 953,933 Measurement and Control 951,833 729,300 654,016 Power Generation 373,785 445,097 432,880 Corporate (h) 1,631,387 2,078,552 1,852,203 ---------- ---------- ---------- $5,181,842 $5,421,060 $4,961,046 ========== ========== ========== Depreciation and Amortization: Life Sciences $ 30,573 $ 28,816 $ 25,856 Optical Technologies 32,798 26,442 26,334 Measurement and Control 25,960 18,179 13,285 Power Generation 22,147 20,962 19,201 Corporate 2,163 1,748 1,417 ---------- ---------- ---------- $ 113,641 $ 96,147 $ 86,093 ========== ========== ========== 46 14. Business Segment and Geographical Information (continued) (In thousands) 1999 1998 1997 - ---------------------------------------------------------------- ------------- -------------- ------------ Capital Expenditures: Life Sciences $ 14,490 $ 15,815 $ 10,645 Optical Technologies 28,223 12,722 11,066 Measurement and Control 12,705 7,173 11,018 Power Generation 25,979 48,197 20,973 Corporate 5,820 2,621 1,333 ---------- ----------- ---------- $ 87,217 $ 86,528 $ 55,035 ========== =========== ========== Geographical Information Revenues (i): United States $1,699,183 $ 1,402,254 $1,341,488 England 339,151 316,326 311,391 Other 779,396 608,188 593,263 Transfers among geographical areas (a) (346,537) (270,963) (266,540) ---------- ----------- ---------- $2,471,193 $ 2,055,805 $1,979,602 ========== =========== ========== Long-lived Assets (j): United States $ 439,998 $ 481,884 $ 463,025 Sweden 66,339 93 754 Other 88,044 65,941 64,552 ---------- ----------- ---------- $ 594,381 $ 547,918 $ 528,331 ========== =========== ========== Export Sales Included in United States Revenues Above (k) $ 435,558 $ 402,104 $ 400,524 ========== =========== ========== (a) Intersegment sales and transfers among geographical areas are accounted for at prices that are representative of transactions with unaffiliated parties. (b) Includes restructuring and other unusual income of $0.3 million in 1999 and restructuring and other unusual costs of $5.9 million in 1998. Includes charges of $2.8 million and $2.9 million in 1998 and 1997, respectively, primarily for the sale of inventories revalued in connection with acquisitions and other inventory provisions. (c) Includes restructuring and other unusual costs of $1.7 million and $12.4 million in 1999 and 1998, respectively, and restructuring costs and other unusual income, net, of $1.3 million in 1997. Includes charges of $3.2 million, $5.3 million, and $1.5 million in 1999, 1998, and 1997, respectively, primarily for the sale of inventories revalued in connection with acquisitions and other inventory provisions. (d) Includes restructuring and other unusual costs of $30.2 million and $4.9 million in 1999 and 1998, respectively. Includes charges of $6.3 million and $0.5 million in 1999 and 1998, respectively, primarily for the sale of inventories revalued in connection with acquisitions and other inventory provisions. (e) Includes restructuring and other unusual costs, net, of $112.2 million and a revenue reversal of $2.8 million in 1999 and restructuring and other unusual income of $9.7 million in 1997. (f) Segment income is income before corporate general and administrative expenses, other income and expense, minority interest expense, income taxes, and extraordinary items. (g) Includes corporate general and administrative expenses, other income and expense (Note 10), and gain on issuance of stock by subsidiaries. Includes restructuring and unusual costs of $5.7 million at the Company's headquarters and other expense of $3.6 million for impairment of investments in 1999. (h) Primarily cash and cash equivalents, short- and long-term investments, and property and equipment at the Company's headquarters. (i) Revenues are attributed to countries based on selling location. (j) Includes property, plant, and equipment, net and other long-term tangible assets. (k) In general, export revenues are denominated in U.S. dollars. 47 15. Earnings (Loss) per Share (In thousands except per share amounts) 1999 1998 1997 - -------------------------------------------------------------------- ------------ ------------ ----------- Basic Income (Loss) from Continuing Operations Before Extraordinary Items $ (14,580) $ 114,676 $ 174,665 Income (Loss) from Discontinued Operations (111,462) 66,785 64,663 Provision for Loss on Disposal of Discontinued Operations (50,000) - - Extraordinary Items 1,469 440 - --------- --------- --------- Net Income (Loss) $(174,573) $ 181,901 $ 239,328 --------- --------- --------- Weighted Average Shares 157,987 161,866 152,489 --------- --------- --------- Basic Earnings (Loss) per Share: Continuing operations before extraordinary items $ (.09) $ .71 $ 1.15 Discontinued operations (1.02) .41 .42 Extraordinary items .01 - - --------- --------- --------- $ (1.10) $ 1.12 $ 1.57 ======== ========= ========= Diluted Income (Loss) from Continuing Operations Before Extraordinary Items $ (14,580) $ 114,676 $ 174,665 Income (Loss) from Discontinued Operations (111,462) 66,785 64,663 Provision for Loss on Disposal of Discontinued Operations (50,000) - - Extraordinary Items 1,469 440 - --------- --------- --------- Net Income (Loss) (174,573) 181,901 239,328 Effect of: Convertible obligations - - 18,814 Majority-owned subsidiaries' dilutive securities - continuing (3,071) (4,871) (8,853) operations Majority-owned subsidiaries' dilutive securities - discontinued (145) (235) (1,072) operations --------- --------- --------- Income (Loss) Available to Common Shareholders, as Adjusted $(177,789) $ 176,795 $ 248,217 --------- --------- --------- Weighted Average Shares 157,987 161,866 152,489 Effect of: Convertible obligations - - 21,596 Stock options - 1,107 1,997 --------- --------- --------- Weighted Average Shares, as Adjusted 157,987 162,973 176,082 --------- --------- --------- Diluted Earnings (Loss) per Share: Continuing operations before extraordinary items $ (.11) $ .67 $ 1.05 Discontinued operations (1.02) .41 .36 Extraordinary items .01 - - --------- --------- --------- $ (1.13) $ 1.08 $ 1.41 ========= ========= ========= 48 15. Earnings (Loss) per Share (continued) Options to purchase 12,200,000, 3,845,000, and 1,160,000 shares of common stock were not included in the computation of diluted earnings (loss) per share for 1999, 1998, and 1997, respectively, because the options' exercise prices were greater than the average market price for the common stock and their effect would have been antidilutive. The computation of diluted earnings (loss) per share for 1999 and 1998 excludes the effect of assuming the conversion of the Company's $568.8 million principal amount 4 1/4% subordinated convertible debentures, convertible at $37.80 per share, because the effect would be antidilutive. In addition, the computation of diluted earnings (loss) per share for 1999 excludes the effect of assuming the repurchase of 2,367,000 shares of Company common stock at a weighted average exercise price of $14.06 per share in connection with put options (Note 7), because the effect would be antidilutive. 16. Comprehensive Income Comprehensive income combines net income (loss) and "other comprehensive items," which represents certain amounts that are reported as components of shareholders' investment in the accompanying balance sheet, including foreign currency translation adjustments and unrealized net of tax gains and losses on available-for-sale investments. Accumulated other comprehensive items in the accompanying balance sheet consists of the following: (In thousands) 1999 1998 - ------------------------------------------------------------------------------------- ---------- --------- Cumulative Translation Adjustment $(62,604) $(12,120) Net Unrealized Gains on Available-for-sale Investments 7,688 1,254 -------- -------- $(54,916) $(10,866) ======== ======== Unrealized gains (losses) on available-for-sale investments, a component of other comprehensive items in the accompanying statement of comprehensive income and shareholders' investment, includes the following: (In thousands) 1999 1998 1997 - -------------------------------------------------------------------------- ---------- ---------- --------- Unrealized Holding Gains (Losses) Arising During the Year (net $7,356 $ (1,442) $ 4,941 of income tax provision (benefit) of $4,246, $(603), and $3,124) Reclassification Adjustment for Gains Included in Net Income (922) (7,687) (3,009) (Loss) (net of income tax provision of $615, $5,125, and $2,006) ------ -------- -------- Net Unrealized Gains (Losses) (net of income tax provision $6,434 $ (9,129) $ 1,932 (benefit) of $3,631, $(5,728), and $1,118) ====== ======== ======== 17. Proposed Reorganization and Discontinued Operations Proposed Reorganization In January 2000, the Company announced a proposed reorganization involving the Company and certain of its subsidiaries. The reorganization would split the Company into three independent public entities. The continuing Thermo Electron will focus on its core business of measurement and detection instruments. This business consists of Thermo Instrument and its subsidiaries, Thermedics Detection, and Thermo Sentron. The Company's plans also include spinning off as a dividend to Company shareholders Thermo Fibertek and a newly created medical products company that will focus on patient monitoring and respiratory equipment. 49 17. Proposed Reorganization and Discontinued Operations (continued) In addition to the majority-owned subsidiaries the Company had previously announced its intention to repurchase, the Company intends to repurchase the publicly-traded shares it does not already own in Thermo Optek, ThermoQuest, Thermo BioAnalysis, Metrika Systems, ONIX Systems, Thermo Instrument, and Thermedics. The Company also announced the terms of its previously announced repurchases of Thermo Sentron, Thermedics Detection, and Thermo Ecotek. Because Thermo Instrument owns more than 90% of the outstanding shares of Thermo Optek and ThermoQuest common stock, each of these companies is expected to be repurchased through a short-form merger at $15.00 and $17.00 per share, respectively. Also, Thermo Instrument intends to conduct tender offers of $28.00 per share for Thermo BioAnalysis, $9.00 per share for Metrika Systems, and $9.00 per share for ONIX Systems in order to bring its and the Company's collective ownership of these businesses to at least 90%. If the tender offers are successful, each of these companies would then be spun into Thermo Instrument through a short-form merger at the same prices as the tender offers. Thermedics has commenced cash tender offers of $8.00 and $15.50 per share for Thermedics Detection and Thermo Sentron, respectively, in order to bring its and the Company's collective ownership of these companies to at least 90%. If the tender offers are successful, each of these companies would then be spun into Thermedics through a short-form merger at the same prices as the tender offers. The Company also plans to conduct exchange offers for Thermo Instrument and Thermedics in which shares of Company common stock would be offered to Thermo Instrument and Thermedics shareholders in exchange for their shares in order to bring the Company's ownership in each of them to at least 90%. The exchange ratio for Thermo Instrument has been set at 0.85 shares of Company common stock for each share of Thermo Instrument, and the exchange ratio for Thermedics has been set at 0.45 shares of Company common stock for each share of Thermedics. If the exchange offers are successful, Thermo Instrument and Thermedics would then be spun into the Company through short-form mergers at the same exchange ratios that are being offered in the exchange offers. Because the Company owns more than 90% of the outstanding shares of Thermo Ecotek, the Company expects to repurchase Thermo Ecotek through a short-form merger. Thermo Ecotek shareholders will receive 0.431 shares of Company common stock for each share of Thermo Ecotek held. Although it is no longer a core business under the reorganization plan, Thermo Ecotek will be taken private and remain within Thermo Electron while the company continues to evaluate how to best exit the business while maximizing shareholder value. The spinoffs of Thermo Fibertek and the medical products company will require a favorable ruling by the Internal Revenue Service regarding the tax treatment of the spinoffs, review by the SEC of necessary filings related to the medical products company, final Company Board of Directors approvals, and other customary conditions. In addition, the spinoff of the medical products company will be conditioned on the successful completion of the proposed repurchases of Thermo Instrument and Thermedics. The repurchase of Thermo Optek, ThermoQuest, and Thermo Ecotek will require review by the SEC of necessary filings. The tender offers for Thermo BioAnalysis, Metrika Systems, ONIX Systems, Thermedics Detection, and Thermo Sentron, as well as the proposed exchange offers for Thermo Instrument and Thermedics, will require: review by the SEC of necessary filings; the receipt of enough acceptances from minority shareholders so that Thermo Instrument's, Thermedics', and/or the Company's (as applicable) equity ownership of each of the companies to be repurchased reaches at least 90%; and other customary conditions. The short-form mergers for Thermo Optek, ThermoQuest, and Thermo Ecotek are expected to be completed by the end of the second quarter of 2000. Thermo Instrument and Thermedics expect to conduct their respective tender offers during the second quarter of 2000. The Company expects to conduct the exchange offers for Thermo Instrument and Thermedics during the second quarter of 2000. In March 1999, Thermedics acquired, through a merger, all of the outstanding shares of Thermo Voltek common stock that Thermedics and the Company did not already own. Subsequent to this transaction, Thermedics and the Company owned approximately 97% and 3%, respectively, of the outstanding common stock of Thermo Voltek, which ceased to be publicly traded. 50 17. Proposed Reorganization and Discontinued Operations (continued) In May 1999, Thermo Power entered into a definitive agreement and plan of merger with the Company pursuant to which the Company would acquire, for $12.00 per share in cash, all of the outstanding shares of common stock of Thermo Power not already owned by the Company. This merger was completed in October 1999 and the common stock of Thermo Power has ceased to be publicly traded. In May 1999, ThermoSpectra entered into a definitive agreement and plan of merger with Thermo Instrument pursuant to which Thermo Instrument would acquire, for $16.00 per share in cash, all of the outstanding shares of common stock of ThermoSpectra not already owned by Thermo Instrument or the Company. This merger was completed in December 1999. In July 1999, Thermo Vision entered into a definitive agreement and plan of merger with Thermo Instrument pursuant to which Thermo Instrument would acquire, for $7.00 per share in cash, all of the outstanding shares of common stock of Thermo Vision not already owned by Thermo Instrument or the Company. This merger was completed in January 2000. ThermoSpectra's and Thermo Vision's common stock have ceased to be publicly traded. In October 1999, Thermo TerraTech entered into a definitive agreement and plan of merger with the Company pursuant to which the Company would acquire all of Thermo TerraTech's outstanding shares of common stock not already owned by the Company in exchange for a number of shares of the Company's common stock to be determined based upon the average closing price of the Company's common stock during the 20 trading days ending five days prior to the effective date of the merger. Under the agreement, Thermo TerraTech shareholders would receive Company common stock valued between $7.25 and $9.25 per share of Thermo TerraTech common stock. However, the Company may elect to terminate the agreement if it is required to issue more than 1.8 million shares of its common stock in this transaction. Also in October 1999, ThermoRetec and Randers Killam entered into definitive agreements and plans of merger with the Company pursuant to which the Company would acquire, for $7.00 and $4.50 per share in cash, respectively, all of the outstanding shares of common stock of ThermoRetec and Randers Killam not already owned by Thermo TerraTech or the Company. Following the mergers, the common stock of Thermo TerraTech, ThermoRetec, and Randers Killam would cease to be publicly traded. These mergers are expected to be completed in the second quarter of 2000. In December 1999, ThermoLase entered into a definitive agreement and plan of merger with the Company pursuant to which the Company would acquire all of ThermoLase's outstanding shares of common stock not already owned by ThermoTrex or the Company in exchange for a number of shares of the Company's common stock to be determined based on the average closing price of the Company's common stock for the 20 trading days prior to the effective date of the merger, to be not less than 0.132 shares or more than 0.198 shares of the Company's common stock. Following the merger, the common stock of ThermoLase would cease to be publicly traded. In addition, under the agreement, units of ThermoLase (Note 1) would be modified so that, following the merger, each unit would consist of a fractional share of Company common stock, which would be redeemable in April 2001 for $20.25. The merger of ThermoLase is expected to be completed in the second quarter of 2000. In December 1999, ThermoTrex entered into a definitive agreement and plan of merger pursuant to which the Company would acquire all of ThermoTrex's outstanding shares of common stock not already owned by the Company in exchange for Company common stock at a ratio of one share of ThermoTrex common stock for .5503 shares of Company common stock. Following the merger, the common stock of ThermoTrex would cease to be publicly traded. The merger of ThermoTrex is expected to be completed in the second quarter of 2000. 51 17. Proposed Reorganization and Discontinued Operations (continued) Discontinued Operations The Company has also announced its intention to sell several of its businesses. These businesses, together with the businesses to be spun off, constitute the Company's former Biomedical and Emerging Technologies and Resource Recovery segments as well as the Company's environmental businesses and Thermo Power. In accordance with the provisions of APB No. 30 concerning reporting the effects of disposal of a segment of a business, the Company has classified the results of these businesses, as well as the results of the businesses being spun off as dividends (collectively, "the discontinued businesses"), as discontinued in the accompanying statement of operations. In addition, the net assets of the discontinued businesses were classified as net assets of discontinued operations in the accompanying balance sheet. Current net assets of discontinued operations primarily consisted of cash, inventories, and accounts receivable net of certain liabilities, primarily accrued expenses and accounts payable. Long-term net assets of discontinued operations primarily consisted of machinery and equipment and cost in excess of net assets of acquired companies. In addition, long-term net assets of discontinued operations include subordinated convertible debentures of Thermo Cardiosystems and Thermo Fibertek (Note 5). Summary operating results of the discontinued businesses were as follows: (In thousands) 1999 1998 1997 - ----------------------------------------------------------------------- ----------- ----------- ---------- Revenues $1,832,557 $1,811,791 $1,578,718 Costs and Expenses 2,016,346 1,674,775 1,443,372 ---------- ---------- ---------- Income (Loss) from Discontinued Operations Before Income (183,789) 137,016 135,346 Taxes, Minority Interest, and Extraordinary Items Income Tax (Provision) Benefit 23,452 (66,109) (42,743) Minority Interest (Expense) Income 48,227 (8,776) (27,940) ---------- ---------- ---------- Income (Loss) from Discontinued Operations Before (112,110) 62,131 64,663 Extraordinary Items Extraordinary Items, Net of Income Taxes and Minority Interest 648 4,654 - ---------- ---------- ---------- Income (Loss) from Discontinued Operations $ (111,462) $ 66,785 $ 64,663 ========== ========== ========== The Company expects proceeds in 2000 from the sale of businesses of approximately $1 billion. In 1999, the Company recorded a charge of $50 million, including a provision for income taxes of $174 million, for the estimated loss on disposal of the discontinued businesses. The charge was net of $42 million of income, representing the estimated net of tax operating results of the discontinued businesses through the expected dates of disposition. The charge was determined using management's best estimate of the selling prices of the businesses and their estimated results through the dates of sale. It is reasonably possible that such amounts could differ materially in the near term from the amounts estimated in the accompanying statement of operations. Any difference from the amounts recorded would be reported as an adjustment to the loss on disposal of discontinued operations. While there can be no assurance as to the timing of the sale of any particular business, the Company expects to complete the sale of these businesses by the end of 2000. The Company expects to complete the spinoffs of Thermo Fibertek and the medical products company by that time or shortly thereafter. 52 18. Unaudited Quarterly Information (In thousands except per share amounts) 1999 First (a) Second (b) Third (c) Fourth (d) - ---------------------------------------------------------- ----------- ----------- ----------- ----------- Revenues $555,750 $632,166 $624,292 $ 658,985 Gross Profit 243,638 281,183 276,832 291,046 Income (Loss) from Continuing Operations Before 18,069 (86,351) 31,412 22,290 Extraordinary Items Income (Loss) Before Extraordinary Items 28,299 (235,188) 36,329 (5,482) Net Income (Loss) (e) 28,299 (235,188) 36,329 (4,013) Earnings (Loss) per Share from Continuing Operations: Basic .11 (.55) .20 .14 Diluted .11 (.55) .19 .13 Earnings (Loss) per Share (e): Basic .18 (1.49) .23 (.03) Diluted .17 (1.49) .22 (.04) 1998 First Second Third (f) Fourth - ---------------------------------------------------------- ----------- ----------- ----------- ----------- Revenues $499,870 $493,060 $518,658 $ 544,217 Gross Profit 229,273 229,637 227,000 242,642 Income from Continuing Operations Before Extraordinary 35,135 40,933 13,774 24,834 Items Income Before Extraordinary Items 65,493 61,785 17,418 36,765 Net Income (g) 65,493 61,785 17,582 37,041 Earnings per Share from Continuing Operations (g): Basic .22 .25 .08 .16 Diluted .20 .23 .08 .15 Earnings per Share: Basic .41 .37 .11 .23 Diluted .37 .34 .10 .23 (a) Reflects restructuring and related costs, net, of $6.2 million from continuing operations and restructuring and related income, net, of $2.1 million from discontinued operations. (b) Reflects restructuring and related costs, net, of $176.1 million and $267.7 million from continuing operations and discontinued operations, respectively. (c) Reflects restructuring and related income, net, of $4.6 million from continuing operations and restructuring and related costs, net, of $12.5 million from discontinued operations. (d) Reflects restructuring and related costs, net, of $4.7 million from continuing operations and restructuring and related income, net, of $4.4 million from discontinued operations. (e) Reflects extraordinary items, net of taxes, of $1.5 million in the fourth quarter. (f) Reflects restructuring and related costs, net, of $30.8 million and $26.3 million from continuing operations and discontinued operations, respectively. (g) Reflects extraordinary items, net of taxes and minority interest, of $0.1 million and $0.3 million in the third and fourth quarters, respectively. 53 To the Shareholders and Board of Directors of Thermo Electron Corporation: We have audited the accompanying consolidated balance sheet of Thermo Electron Corporation (a Delaware corporation) and subsidiaries as of January 1, 2000, and January 2, 1999, and the related consolidated statements of operations, cash flows, and comprehensive income and shareholders' investment for each of the three years in the period ended January 1, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Thermo Electron Corporation and subsidiaries as of January 1, 2000, and January 2, 1999, and the results of their operations and their cash flows for each of the three years in the period ended January 1, 2000, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts February 17, 2000 (except with respect to the matters discussed in Note 17, as to which the date is March 7, 2000) 54 Thermo Electron Corporation 1999 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed immediately after this Management's Discussion and Analysis of Financial Condition and Results of Operations under the heading "Forward-looking Statements." Overview The Company develops and manufactures a broad range of products that are sold worldwide. The Company expands the product lines and services it offers by developing and commercializing its own core technologies and by making strategic acquisitions of complementary businesses. In January 2000, the Company announced a major reorganization plan under which it will focus on its core measurement and detection instrument businesses. The Company will also retain its Thermo Ecotek subsidiary for the near term as it explores the best way to exit this business while maximizing shareholder value (Note 17). As part of this reorganization, the Company plans to spin off in the form of a dividend its Thermo Fibertek paper recycling subsidiary and a medical products company that develops, manufactures, and markets cardio-respiratory and neurologic monitoring and diagnostic equipment. In addition, the Company plans to divest the remaining businesses in the former Biomedical and Emerging Technologies and Resource Recovery segments, as well as the Company's Thermo TerraTech environmental services businesses and its Thermo Power subsidiary, both from the former Energy and Environment segment. The results of these businesses, including the units that will be spun off, have been presented as discontinued operations in the accompanying financial statements. The Company's continuing operations fall into four business segments: Life Sciences, Optical Technologies, Measurement and Control, and Power Generation. An important component of the Company's strategy is to establish leading positions in its markets through the application of proprietary technology, whether developed internally or acquired. Another component that has historically contributed to the growth of the Company's segment income (as defined in the results of operations below), has been the ability to identify attractive acquisition opportunities, complete those acquisitions, and derive a growing income contribution from the newly acquired businesses as they are integrated into the Company's business segments and their profitability improves. Although the Company's four segments are diversified in terms of technology, product offerings, and geographic markets served, the future financial performance of the Company as a whole will be largely affected by the strength of worldwide economies and the continued adoption and diligent enforcement of health, safety, and environmental regulations and standards, among other factors. Results of Operations 1999 Compared With 1998 Continuing Operations Sales in 1999 were $2.47 billion, an increase of $415.4 million, or 20%, over 1998. Segment income decreased to $292.4 million in 1999 from $296.1 million in 1998, excluding restructuring and other unusual costs, net, of $143.8 million and $23.2 million in 1999 and 1998, respectively, described below, and inventory and other provisions of $12.3 million and $8.6 million in 1999 and 1998, respectively. Operating income, including these items, was $99.0 million in 1999, compared with $233.7 million in 1998. Restructuring actions at the Company's continuing operations in 1999 occurred principally as a result of exiting certain operations with low current or expected profitability and did 55 1999 Compared With 1998 (continued) not include significant cost reduction measures. Restructuring actions undertaken in 1998 were substantially completed in 1999 and resulted in annualized cost savings of approximately $29 million, including $8 million in the Life Sciences segment, $16 million in the Optical Technologies segment, and $5 million in the Measurement and Control segment, beginning primarily in the second half of 1999. The Company's discontinued operations also undertook significant restructuring actions during 1999 (Note 11). Life Sciences Sales from the Life Sciences segment increased 8% to $762.8 million in 1999. Sales increased by $59.6 million due to acquisitions. The unfavorable effects of currency translation, due to the strengthening of the U.S. dollar relative to foreign currencies in countries in which businesses within the Life Sciences segment operate, decreased revenues by $9.9 million in 1999. Excluding the effect of acquisitions and currency translation, revenues increased $9.6 million. Revenues at Thermo BioAnalysis' existing operations increased $17.3 million due to higher demand in Asia and the expansion of its sales and distribution channels. This increase was offset in part by lower revenues at ThermoQuest, primarily due to a $5.8 million decline in revenues in Asia as a result of lower shipments to Japan, and $3.2 million of lower demand for its Fourier-transform mass spectrometers, offset in part by increased demand for other mass spectrometers. Segment income margin (segment income divided by revenues), excluding unusual income of $0.3 million in 1999 and restructuring costs of $5.9 million in 1998, was relatively unchanged at 15.3% in 1999 and 15.2% in 1998. In 1998, segment income was reduced by inventory provisions of $2.8 million. Excluding the inventory provisions in 1998, segment income margin was 15.6%. The decrease in segment income margin in 1999 resulted from higher selling costs including the expansion of selling efforts in China and India. Unusual income of $0.3 million in 1999 was the reversal of previously recorded restructuring costs, and the restructuring costs recorded in 1998 were primarily for severance and abandoned-facility payments (Note 11). Optical Technologies Sales from the Optical Technologies segment increased 18% to $802.0 million in 1999. Sales increased by $147.7 million due to acquisitions, primarily Spectra-Physics Lasers, Inc. (SPLI), in which Thermo Instrument acquired a majority interest in February 1999. The unfavorable effects of currency translation, due to the strengthening of the U.S. dollar relative to foreign currencies in countries in which the segment operates, decreased revenues by $8.2 million in 1999. Excluding the effect of acquisitions and currency translation, revenues decreased $14.6 million. The decrease in revenues was primarily due to a $21.3 million decline in revenues at ThermoSpectra's existing businesses as a result of a continued downturn in the semiconductor industry in the first half of 1999. ThermoSpectra's existing businesses had modest revenue growth in the last half of 1999. Revenues from Thermo Optek's existing operations increased $7.2 million, primarily due to increased demand from the semiconductor industry and higher sales of its V150 molecular-beam epitaxy (MBE) systems. Segment income margin, excluding restructuring costs of $1.7 million and $12.4 million in 1999 and 1998, respectively, decreased to 10.6% in 1999 from 12.9% in 1998. Excluding a charge for the sale of inventories revalued at the date of acquisition of $3.2 million in 1999 and inventory provisions of $5.3 million in 1998, segment income margin was 11.0% and 13.7% in 1999 and 1998, respectively. Segment income margin decreased due to the inclusion of SPLI. The segment income margin for SPLI was 4.9% in 1999, excluding a charge for the sale of inventories revalued at the date of acquisition. SPLI experienced a decline in sales from its prior-year preacquisition results and undertook restructuring actions in 1999. In addition, segment income margin decreased due to higher research and development expenses for new products including Thermo Optek's V150 MBE system. The restructuring costs in both years in this segment were employee-related costs including severance, pension, and relocation costs, as well as abandoned-facility payments. 56 1999 Compared With 1998 (continued) Measurement and Control Sales increased 44% to $747.3 million in the Measurement and Control segment in 1999. Sales increased by $299.8 million due to acquisitions, primarily that of Spectra-Physics AB's wholly owned businesses, acquired in February 1999. The unfavorable effects of currency translation, due to the strengthening of the U.S. dollar relative to foreign currencies in countries in which the segment operates, caused revenues to decrease by $5.8 million in 1999. Excluding the effect of acquisitions and currency translation, revenues decreased $65.3 million. Revenues from ONIX Systems' existing operations decreased $19.2 million, primarily as a result of reduced discretionary capital spending by companies in the process control industry and by the oil and gas production sector. Energy prices declined precipitously in 1998 and, while prices have rebounded in 1999, capital equipment spending has not returned to prior levels. In addition, lower prices for natural resources in the first half of 1999 reduced spending in that industry during all of 1999. Revenues from Metrika Systems' existing operations decreased $11.9 million, primarily due to a reduction in spending by raw-material producers, particularly in the cement sector due to depressed pricing. Revenues from this segment's quality assurance and safety products business decreased $13.9 million, and revenues at its power electronics and test equipment business decreased $9.7 million due to lower demand and the sale of a business unit which had revenues of $4.7 million in 1998. The decline in sales of quality assurance and security products resulted from lower demand for near-infrared analyzers and ultratrace chemical detectors and, to a lesser extent, explosives detection devices following completion in early 1998 of a contract with the Federal Aviation Administration (FAA). The demand for ultratrace chemical detectors was adversely affected by recycling practices in Europe which now involve melting and reforming plastic returnables instead of sanitizing and reusing containers. The decline in demand for power electronics and test equipment resulted from softness in the semiconductor industry in the first half of 1999. This segment is holding the power electronics and test equipment business for sale as a cyclical, noncore unit, and expects the divestiture to be completed during the first half of 2000. The balance of the decrease in revenues from existing operations resulted from lower sales of precision weighing and inspection equipment in markets outside of North America and lower demand for nuclear-sensing products. Segment income margin, excluding restructuring and unusual costs of $30.2 million and $4.9 million in 1999 and 1998, respectively, decreased to 6.5% in 1999 from 9.8% in 1998. Excluding a $3.5 million charge for the sale of inventories revalued at the date of acquisition in 1999 and provisions for inventory of $2.8 million and $0.5 million in 1999 and 1998, respectively, segment income margin was 7.4% and 9.9% in 1999 and 1998, respectively. Segment income margin decreased due primarily to the decline in revenues at certain businesses described above. In addition, the businesses of Spectra-Physics that are reported in this segment had an operating income margin of 8.5%, excluding a charge for the sale of inventories revalued at the date of acquisition. In 1999, this segment incurred a restructuring charge of $30.4 million in connection with the planned sale of its power electronics and test equipment business. The charge primarily represents a reduction in the carrying value of this business to the expected proceeds from its sale. The restructuring costs in 1998 include severance and abandoned-facility payments, $1.6 million related to the resolution of an arbitration proceeding, and $0.8 million of a write-off of cost in excess of net assets of acquired companies for an operating unit that was closed (Note 11). Power Generation Sales from the Power Generation segment, which represents the Company's Thermo Ecotek subsidiary, were $176.6 million in 1999, compared with $174.9 million in 1998. Revenues increased $6.5 million from the acquisition of a power facility in Germany in September 1999, $4.8 million from the acquisition of a gas gathering system and two gas processing facilities in May 1999, $4.7 million from peak period operation of new California facilities, and $3.5 million from the expansion of the Czech Republic plant. These increases were offset in part by a reduction in revenues of $15.1 million at Thermo Ecotek's Mendota and Woodland plants due to the conclusion of their fixed price contract periods and by a $2.3 million decline in revenues as a result of an agreement to terminate a power-sales agreement for 57 1999 Compared With 1998 (continued) a plant in Maine. The 1999 and 1998 periods included revenues of $1.1 million and $1.9 million, respectively, of developer fees for the transfer to third parties of rights to two power-sales agreements. During 1999, a dispute arose between Thermo Ecotek and Southern California Edison (SCE), the utility that purchases the output of Thermo Ecotek's Delano, California, plants. SCE interpreted that the terms of its contract with the Delano facilities permit it to pay a reduced rate in 1999 for power output during nonpeak periods, as defined. Although Thermo Ecotek contests this interpretation, SCE has adjusted its recent payments to reflect the lower rates for all of 1999. As a result, Thermo Ecotek's revenues in 1999 were lowered by $2.8 million. Thermo Ecotek is considering its alternatives with respect to this claim. As noted below, the periods during which Thermo Ecotek received fixed rates for power at its four principal California facilities ended in 1999. The change from fixed rates to avoided cost rates under the terms of the contracts, as discussed below, will have a significant adverse effect on Thermo Ecotek's revenues and profitability. Segment income margin, excluding restructuring and unusual costs, net, of $112.2 million in 1999, was 16.6% in 1999 and 24.2% in 1998. Had the dispute with SCE described above not occurred, Thermo Ecotek's segment income margin in 1999 would have been 18.2%. The decrease in segment income margin resulted in part from $8.8 million of lower profits at Thermo Ecotek's Mendota plant due to the facility reaching the end of its fixed price contract period. In addition, Thermo Ecotek had $0.8 million lower income from fees in 1999, as described above in the discussion of revenues. Restructuring and unusual costs, net at Thermo Ecotek of $112.2 million resulted principally from a decision to close its coal-beneficiation facility and from impairment of its Delano facilities following an agreement to terminate their power-sales agreements. The net expense includes $13.5 million of unusual income associated with terminating the power-sales agreement for Thermo Ecotek's Gorbell facility in Maine (Note 11). The Gorbell facility's revenues and operating income in 1999, before the effect of the contract termination, were $7.7 million and $1.3 million, respectively. The power-sales agreements for Thermo Ecotek's Mendota, Woodland, and Delano plants in California are so-called standard offer #4 (SO#4) contracts, which require Pacific Gas & Electric (PG&E), in the case of Mendota and Woodland, and SCE, in the case of the Delano facilities, to purchase the power output of the projects at fixed rates through specified periods. Thereafter, the utility will pay a rate based upon the costs that would have otherwise been incurred by the purchasing utilities in generating their own electricity or in purchasing it from other sources (avoided cost). Avoided cost rates are currently substantially lower than the rates Thermo Ecotek has received under the fixed-rate portions of its contracts and are expected to remain so for the foreseeable future. PG&E commenced paying for power purchased from the Mendota and Woodland facilities at avoided cost rates effective in July and August 1999, respectively, although Thermo Ecotek believes that this change to avoided cost rates occurred six months earlier than the power-sales agreements provided. Thermo Ecotek is considering its alternatives concerning this dispute. Based on current avoided cost rates, Thermo Ecotek expects that the Woodland plant will operate at breakeven or nominal operating losses through 2010, primarily as a result of nonrecourse lease obligations that have been partially funded from the Woodland plant's past cash flows. Absent sufficient reductions in fuel prices and other operating costs, Thermo Ecotek will draw down power reserve funds to cover operating cash shortfalls and then, if such funds are depleted, either renegotiate its nonrecourse lease for the Woodland plant or forfeit its interest in the plant. Revenues from the Woodland plant were $24.1 million in 1999 and $30.1 million in 1998. The results of the Woodland facility were approximately breakeven in both periods, as a result of recording as an expense the funding of reserves required under Woodland's nonrecourse lease agreement to cover expected shortfalls in lease payments. The Mendota facility's 1999 revenues and operating income were affected by the transition to avoided cost rates. The plant's revenues and operating income were $21.0 million and $0.5 million, respectively in 1999, and $30.0 million and $9.3 million, respectively in 1998. The power-sales agreement with SCE for the Delano facilities called for fixed contract rates through September 2000. In anticipation of a decline in rates at its Delano facilities, Thermo Ecotek reached an agreement in May 1999 to terminate its power-sales agreement, effective December 31, 1999. As a result of reaching this agreement, Thermo Ecotek expects that the results of the Delano facilities will be reduced to breakeven or a nominal loss in 2000. The Delano facilities' aggregate revenues and operating income in 1999 were $60.5 million and $29.9 million, respectively. If Thermo Ecotek had been paid avoided cost rates for all of 1999 at its 58 1999 Compared With 1998 (continued) four principal California plants, revenues would have been approximately $64 million lower. In anticipation of these expected declines in revenues and operating income, Thermo Ecotek may continue to explore other options for its biomass facilities, including disposal or repowering. Gain on Issuance of Stock by Subsidiaries and Minority Interest Expense As a result of the sale of stock by subsidiaries and the issuance of stock upon conversion of convertible debentures, the Company recorded gains of $18.6 million in 1998. See Notes 1 and 9 of Notes to Consolidated Financial Statements for a more complete description of these transactions. The Company recorded minority interest expense of $19.0 million and $35.2 million in 1999 and 1998, respectively. Minority interest expense decreased in 1999 primarily as a result of restructuring and other unusual costs at the Company's majority-owned subsidiaries. Minority interest expense in 1998 includes $3.3 million related to gains recorded by a majority-owned subsidiary of the Company as a result of the sale of stock by its subsidiaries and the issuance of stock by its subsidiaries upon conversion of convertible debentures. Other Income (Expense), Net The Company reported other expense, net, of $61.5 million in 1999, and other income, net, of $2.2 million in 1998. Other income (expense), net includes interest income, interest expense, equity in earnings (losses) of unconsolidated subsidiaries, gains on investments, net, and other income (expense), net (Note 10). Interest income decreased to $43.9 million in 1999 from $78.3 million in 1998. The decrease resulted primarily from the use of cash for acquisitions, principally Spectra-Physics, and the purchases of securities of the Company and its majority-owned subsidiaries. Interest expense increased to $97.0 million in 1999 from $90.3 million in 1998, as a result of the October 1998 issuance of $150.0 million principal amount of senior notes (Note 5), offset in part by the repayment of $69.3 million of long-term obligations in 1999. The Company incurred a loss of $7.3 million in 1999 from its equity in the results of unconsolidated subsidiaries, including $11.1 million of unusual charges related to Thermo Instrument's investment in FLIR (Note 3). Excluding the unusual charges, equity in earnings of unconsolidated subsidiaries increased to $3.8 million in 1999 from $0.2 million in 1998, principally as a result of earnings from FLIR. During 1999, gain on investments, net decreased to $1.5 million from $12.8 million in 1998, due to the sale in 1998 of certain equity securities that resulted in a gain. In 1999, other expense, net also includes $2.3 million of losses on foreign exchange contracts (Note 11). Income Taxes The Company's effective tax rate was 88% and 41% in 1999 and 1998, respectively. Excluding nontaxable gains from issuance of subsidiary stock in 1998, the Company's effective tax rate was 44%. The effective tax rates vary from the statutory federal income tax rate primarily due to state income taxes and nondeductible expenses, including in 1999, the write-off of cost in excess of net assets of acquired companies. Excluding the write-off of cost in excess of net assets of acquired companies, the Company's tax rate was 60% in 1999. The effective tax rate increased due to the larger relative effect of nondeductible expenses and foreign losses not benefited due to lower income levels as a result of restructuring actions in 1999. Contingent Liabilities At year-end 1999, the Company was contingently liable with respect to certain lawsuits (Note 6). In the opinion of management, the ultimate liability for all such matters will not be material to the Company's financial position, but an unfavorable outcome in one or more of the matters described above could materially affect the results of operations or cash flows for a particular quarter or annual period. 59 1999 Compared With 1998 (continued) Discontinued Operations The Company's discontinued operations incurred a loss of $111.5 million in 1999 and had income of $66.8 million in 1998. The amounts in both periods are net of taxes and minority interest. Excluding restructuring and unusual charges (Note 11), the discontinued operations had income of $54.2 million and $81.8 million in 1999 and 1998, respectively, net of income taxes and minority interest. The decrease resulted primarily from a decrease in gain on issuance of stock by subsidiaries in 1999. In addition, Trex Medical and Thermo Coleman incurred losses in 1999, compared with profitable operations in 1998. Trex Medical lost a significant customer in the fourth quarter of 1998 and had lower demand for general purpose X-ray and radiographic/fluoroscopic systems. Thermo Coleman had losses at two business units in its Thermo Information Solutions' subsidiary that were sold prior to year end. These decreases in income were offset in part by higher income at the Company's biomedical units other than Trex Medical. The Company recorded a provision in 1999 of $50 million for the estimated loss on the disposal of discontinued operations. This amount includes a tax provision of $174 million. The provision for loss on disposal is reduced by an estimate of the earnings of the discontinued operations of $42 million, net of tax and minority interest, through the expected dates of disposal. The charge was determined using management's best estimate of the selling prices of the businesses and their estimated results through the dates of disposal. While the Company is not currently aware of any known trends, events, or uncertainties involving discontinued operations, it is reasonably possible that such amounts could differ materially from the amounts estimated in the accompanying statement of operations. Any difference from the amounts recorded would be reported as an adjustment to the loss on disposal of discontinued operations. 1998 Compared With 1997 Continuing Operations Sales in 1998 were $2.06 billion, an increase of $76.2 million, or 4%, over 1997. Segment income, excluding inventory provisions of $8.6 million and restructuring and other unusual costs, net, of $23.2 million in 1998 and a charge for the sale of inventories revalued at the date of acquisition of $3.6 million, inventory provisions of $0.8 million, and restructuring costs and other unusual income, net, of $11.0 million in 1997, described below, decreased to $296.1 million in 1998 from $321.0 million in 1997. Operating income, including inventory provisions and restructuring and other unusual costs, net, was $233.7 million in 1998, compared with $296.4 million in 1997. The restructuring actions commenced in 1998 included consolidation of facilities and reductions in head count and were substantially completed by mid-1999. These actions resulted in annualized cost savings of approximately $29 million, including $8 million in the Life Sciences segment, $16 million in the Optical Technologies segment, and $5 million in the Measurement and Control segment, beginning primarily in the second half of 1999. Life Sciences Sales from the Life Sciences segment increased 6% to $703.5 million in 1998. Sales increased by $59.0 million due to acquisitions. The unfavorable effects of currency translation, due to the strengthening of the U.S. dollar relative to foreign currencies in countries in which the Life Sciences segment operates, decreased revenues by $4.6 million in 1998. Excluding the effect of acquisitions and currency translation, revenues decreased $15.9 million. Revenues from ThermoQuest's existing operations decreased $15.5 million, primarily as a result of a decline in sales to customers in Asia of $7.8 million due to unstable economic conditions in that region and heightened competition in two of its product lines. 60 1998 Compared With 1997 (continued) Segment income margin, excluding restructuring costs of $5.9 million in 1998, decreased to 15.2% in 1998 from 16.2% in 1997. Excluding inventory provisions of $2.8 million in 1998 and charges for the sale of inventories revalued at the date of acquisition of $2.9 million in 1997, segment income margin was 15.6% and 16.7% in 1998 and 1997, respectively. Segment income margin decreased due to increased selling costs including the opening of eight sales and service offices in 1998 and the last half of 1997 at Thermo BioAnalysis. The restructuring costs in 1998 were primarily severance and abandoned-facility payments (Note 11). Optical Technologies Sales from the Optical Technologies segment decreased 5% to $677.1 million in 1998. Sales increased by $33.7 million due to acquisitions. The unfavorable effects of currency translation, due to the strengthening of the U.S. dollar relative to foreign currencies in countries in which the segment operates, decreased revenues by $7.1 million in 1998. Excluding the effects of acquisitions and currency translation, revenues decreased $64.8 million. Revenues decreased at Thermo Optek by $34.3 million primarily due to lower sales to Asia and, to a lesser extent, the semiconductor industry. Revenues from ThermoSpectra's existing operations decreased $21.4 million, primarily due to a downturn in the semiconductor industry. In addition, revenues from Thermo Vision decreased due to the slowdown in the semiconductor industry and the economic crisis in Asia. Segment income margin, excluding restructuring costs of $12.4 million in 1998 and restructuring costs and unusual income, net, of $1.3 million in 1997, decreased to 12.9% in 1998 from 13.6% in 1997. Excluding inventory provisions of $5.3 million and $0.8 million in 1998 and 1997, respectively, and charges for the sale of inventories revalued at the date of acquisition of $0.7 million in 1997, segment income margin was 13.7% in 1998 and 13.8% in 1997. The restructuring costs in 1998 were primarily severance and abandoned-facility payments. The restructuring costs and unusual income, net in 1997 included a gain on the sale of a business of $2.2 million and $0.9 million of severance costs (Note 11). Measurement and Control Sales increased 13% in the Measurement and Control segment in 1998 to $518.6 million. Sales increased by $88.5 million due to acquisitions. The unfavorable effects of currency translation, due to the strengthening of the U.S. dollar relative to foreign currencies in countries in which the segment operates, decreased revenues by $3.2 million in 1998. Excluding the effect of acquisitions and currency translation, revenues decreased $23.9 million. Sales of quality assurance and safety products decreased $11.0 million, due in part to $6.6 million of shipments of quality assurance systems in 1997 for the fulfillment of a mandated product-line upgrade from The Coca-Cola Company to its existing installed base. In addition, sales of explosives-detection systems decreased by $2.1 million in 1998, following completion of a contract to provide security systems to the FAA. Sales of power electronics and test equipment decreased $6.7 million due to lower demand from the semiconductor industry. In addition, revenues decreased at other businesses primarily due to lower demand in international markets. Segment income margin, excluding restructuring and unusual costs of $4.9 million in 1998, decreased to 9.8% in 1998 from 13.1% in 1997. Excluding inventory provisions of $0.5 million in 1998, segment income was 9.9% in 1998. The decrease resulted from lower sales in certain existing businesses and lower operating margins at acquired businesses. The restructuring and unusual costs in 1998 were primarily severance and abandoned-facility payments as well as a charge of $1.6 million for the resolution of an arbitration proceeding and $0.8 million for the write-off of cost in excess of net assets of acquired businesses relating to an operating unit that was closed (Note 11). Power Generation Sales from the Power Generation segment increased to $174.9 million in 1998 from $168.1 million in 1997, primarily due to the inclusion of $8.4 million of revenues from newly acquired power operations in the Czech Republic and higher contractual energy rates at certain facilities. In addition, the 1998 period included $1.9 million of 61 1998 Compared With 1997 (continued) developer fees received for the transfer of Thermo Ecotek's rights to certain power-generating equipment, while the 1997 period included $8.2 million of revenue from a contractual settlement with a utility, relating to a cogeneration facility Thermo Ecotek had planned to develop and construct on Staten Island, New York. Segment income margin, excluding unusual income of $9.7 million in 1997 described below, was 24.2% in 1998 and 30.5% in 1997. The decrease resulted primarily from the inclusion in 1997 of $8.2 million of segment income from the contractual settlement with a utility. In addition, Thermo Ecotek's coal-beneficiation facility in Gillette, Wyoming, began operations in April 1998 and ceased operations in May 1999. In 1998, the facility's losses totaled $7.6 million due to operational issues that led to its closure. The decrease in segment income at Thermo Ecotek was offset in part by higher contractual energy rates at certain facilities and fee income of $1.9 million described above. During 1997, the Company settled two legal cases in which it was a defendant, concerning development of a proposed waste-to-energy facility and development and construction of an alternative-energy facility. These matters were settled for amounts less than the damages that had been sought by the plaintiffs and less than the amounts that had been reserved by the Company. As a result, in 1997, the Company reversed $9.7 million of reserves previously established for these matters (Note 11). Gain on Issuance of Stock by Subsidiaries and Minority Interest Expense As a result of the sale of stock by subsidiaries and the issuance of stock by subsidiaries upon conversion of convertible debentures, the Company recorded gains of $18.6 million in 1998 and $63.5 million in 1997. Minority interest expense decreased to $35.2 million in 1998 from $46.5 million in 1997. Minority interest expense includes $3.3 million in 1998 and $15.7 million in 1997 related to gains recorded by the Company's majority-owned subsidiaries as a result of the sale of stock and the issuance of stock upon conversion of convertible debentures, by their subsidiaries. Minority interest expense decreased primarily as a result of lower income at the Company's majority-owned subsidiaries. Other Income (Expense), Net The Company reported other income, net, of $2.2 million in 1998, and other expense, net, of $6.8 million in 1997 (Note 10). Interest income increased to $78.3 million in 1998 from $72.7 million in 1997 due to the investment of the net proceeds of $290.1 million from an equity offering in April 1998, offset in part by cash expended for the purchase of subsidiary securities and, to a lesser extent, acquisitions. Interest expense increased to $90.3 million in 1998 from $84.2 million in 1997, primarily due to the October 1998 issuance of $150.0 million principal amount of senior notes (Note 5) and the January 1998 issuance by Thermo Instrument of $250.0 million principal amount of 4% subordinated convertible debentures. These factors were offset in part by the repayment of $58.2 million of long-term obligations in 1998. Gain on investments increased to $12.8 million in 1998 from $5.0 million in 1997, due to the sale in 1998 of certain equity securities. Income Taxes Excluding nontaxable gains from issuance of subsidiary stock, the Company's effective tax rates were 44% and 46% in 1998 and 1997, respectively. The effective tax rates exceeded the statutory federal income tax rate primarily due to nondeductible expenses and state income taxes. Discontinued Operations The Company's discontinued operations had income of $66.8 million and $64.7 million in 1998 and 1997, respectively, net of taxes and minority interest. Excluding restructuring and unusual charges, the discontinued operations had income of $81.8 million and $70.1 million in 1998 and 1997, respectively, net of income taxes and minority interest. 62 Liquidity and Capital Resources Consolidated working capital was $1.45 billion at January 1, 2000, compared with $2.16 billion at January 2, 1999. Included in working capital were cash, cash equivalents, and short-term available-for-sale investments of $837.3 million at January 1, 2000, compared with $1.33 billion at January 2, 1999. In addition, the Company had $40.2 million of long-term available-for-sale investments at January 1, 2000, compared with $48.2 million at January 2, 1999. Of the total $877.4 million of cash, cash equivalents, and short- and long-term available-for-sale investments at January 1, 2000, $852.7 million was held by the Company's majority-owned subsidiaries, and the balance was held by the Company and its wholly owned subsidiaries. Cash provided by operating activities was $337.1 million during 1999, including $216.9 million from continuing operations. Accounts payable increased by $14.2 million in 1999, primarily at the Power Generation segment. Cash of $27.3 million was used to fund an increase in accounts receivable, primarily due to increases in the Life Sciences and Power Generation segments. The increase in accounts receivable in the Life Sciences segment resulted from a concentration of fourth quarter 1999 shipments occurring in December due to delays from the implementation of a new management information system in one business unit and higher revenues compared with the fourth quarter of the prior year in another business unit. The increase in accounts payable and accounts receivable at the Power Generation segment resulted from increased business activity in a gas gathering and processing business that commenced operations in 1999. Cash of $15.2 million was provided by a decrease in inventories, primarily due to a reduction in inventories at Spectra-Physics from its date of acquisition. In connection with certain restructuring actions undertaken by the Company's continuing operations during 1999, the Company had accrued $11.6 million for restructuring costs at year-end 1999. The Company expects to pay this amount, which primarily represents land reclamation costs and severance, during 2000. In addition, at year-end 1999, the Company had accrued $20.3 million for acquisition expenses. The Company expects to pay $5.3 million, representing severance obligations, primarily over the next three to six months. The balance, which primarily represents abandoned-facility payments, will be paid over the remaining terms of the leases through 2014. During 1999, the Company's primary investing activities, excluding available-for-sale investments activity, included acquisitions and the purchase of property, plant, and equipment. The Company's continuing operations expended $357.6 million, net of cash acquired, for acquisitions and expended $87.2 million for purchases of property, plant, and equipment. Two of the Company's majority-owned subsidiaries acquired all of the outstanding shares of Thermo Voltek and ThermoSpectra for aggregate cash expenditures of $43.2 million. In January 2000, Thermo Instrument acquired all of the outstanding stock of Thermo Vision that it did not already own for approximately $11 million. The Company expects to expend cash of approximately $325 million in 2000 for the planned repurchases of the public shares that it does not already own of certain majority-owned subsidiaries (Note 17). During 1999, investing activities of the Company's discontinued operations used $157.1 million of cash, primarily including $69.2 million for the acquisition of shares held by minority interests in Thermo Power as well as two privately held subsidiaries, $53.9 million for property, plant, and equipment, and $44.9 million for acquisitions. The Company's financing activities used $286.9 million of cash during 1999, including $210.3 million for continuing operations. During 1999, the Company expended $58.4 million to purchase shares of its common stock and debentures. In addition, the Company and certain of its majority-owned subsidiaries included in continuing operations expended $132.0 million to purchase shares of common stock and debentures of certain of the Company's majority-owned subsidiaries. These purchases were made pursuant to authorizations by the Company's and certain majority-owned subsidiaries' Boards of Directors. As of January 1, 2000, $73.5 million remained under the Company's authorization, $37.6 million remained under authorizations of the Company's majority-owned subsidiaries included in continuing operations, and $25.1 million remained under the authorizations of the Company's majority-owned subsidiaries included in discontinued operations. The Company's majority-owned subsidiaries do not expect to purchase additional amounts of their securities as a result of the announced plans to take them private or, in two instances, sell them. The financing activities of discontinued operations primarily included $68.7 million for repurchases of their stock and debentures and redemption of subsidiary shares. 63 Liquidity and Capital Resources (continued) As discussed above, a substantial percentage of the Company's consolidated cash and investments is held by subsidiaries that are not wholly owned by the Company. This percentage may vary significantly over time. Pursuant to the Thermo Electron Corporate Charter (the Charter), to which each of the majority-owned subsidiaries of the Company is a party, the combined financial resources of Thermo Electron and its subsidiaries allow the Company to provide banking, credit, and other financial services to its subsidiaries so that each member of the Thermo Electron group of companies may benefit from the financial strength of the entire organization. Toward that end, the Charter states that each member of the group may be required to provide certain credit support to the consolidated entity. This credit may rank junior, pari passu with, or senior in priority to payment of the other indebtedness of these members. Nonetheless, the Company's ability to access assets held by its majority-owned subsidiaries through dividends, loans, or other transactions is subject in each instance to a fiduciary duty owed to the minority shareholders of the relevant subsidiary. In addition, dividends received by Thermo Electron from a subsidiary that does not consolidate with Thermo Electron for tax purposes are subject to tax. Therefore, under certain circumstances, a portion of the Company's consolidated cash and short-term investments may not be readily available to Thermo Electron or certain of its subsidiaries. The Company has, from time to time, sold put options for shares of its common stock to an institutional counterparty. As of March 22, 2000, the Company had a maximum potential obligation under such arrangements to purchase 2,367,000 shares of its common stock for an aggregate of $33.3 million. The put options are exercisable only at maturity, expire between April and May 2000, and have a weighted average exercise price per share of $14.06. The Company has the right to settle the put options by physical settlement of the options or by net share settlement using shares of the Company's common stock. The Company expects cash proceeds of approximately $1 billion from the sale of businesses in 2000, including $104 million for businesses sold through March 22, 2000. The Company has no material commitments for purchases of property, plant, and equipment and expects that for 2000 such expenditures will approximate the current level of expenditures. Market Risk The Company is exposed to market risk from changes in interest rates, foreign currency exchange rates, and equity prices, which could affect its future results of operations and financial condition. The Company manages its exposure to these risks through its regular operating and financing activities. Additionally, the Company uses short-term forward contracts to manage certain exposures to foreign currencies. The Company enters into forward foreign exchange contracts to hedge firm purchase and sale commitments denominated in currencies other than its subsidiaries' local currencies. The Company does not engage in extensive foreign currency hedging activities; however, the purpose of the Company's foreign currency hedging activities is to protect the Company's local currency cash flows related to these commitments from fluctuations in foreign exchange rates. The Company's forward foreign exchange contracts principally hedge transactions denominated in U.S. dollars, British pounds sterling, Japanese yen, French francs, Swiss francs, German marks, Swedish krona, and Netherlands guilders. Gains and losses arising from forward contracts are recognized as offsets to gains and losses resulting from the transactions being hedged. The Company generally does not enter into speculative foreign currency agreements. See Note 11 for the effect of a majority-owned subsidiary's early adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." 64 Thermo Electron Corporation 1999 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Market Risk (continued) Interest Rates Certain of the Company's short- and long-term available-for-sale investments, long-term obligations, and interest rate swap agreements are sensitive to changes in interest rates. Interest rate changes would result in a change in the fair value of these financial instruments due to the difference between the market interest rate and the rate at the date of purchase or issuance of the financial instrument. A 10% decrease in year-end 1999 and 1998 market interest rates would result in a negative impact to the Company of $35 million and $131 million, respectively, on the net fair value of its interest-sensitive financial instruments. Foreign Currency Exchange Rates The Company generally views its investment in foreign subsidiaries with a functional currency other than the Company's reporting currency as long-term. The Company's investment in foreign subsidiaries is sensitive to fluctuations in foreign currency exchange rates. The functional currencies of the Company's foreign subsidiaries are principally denominated in British pounds sterling, Netherlands guilders, Swedish krona, French francs, and German marks. The effect of a change in foreign exchange rates on the Company's net investment in foreign subsidiaries is reflected in the "Accumulated other comprehensive items" component of shareholders' investment. A 10% depreciation in year-end 1999 and 1998 functional currencies, relative to the U.S. dollar, would result in a reduction of shareholders' investment of $41 million and $66 million, respectively. The fair value of forward foreign exchange contracts is sensitive to changes in foreign currency exchange rates. The fair value of forward foreign exchange contracts is the estimated amount that the Company would pay or receive upon termination of the contract, taking into account the change in foreign currency exchange rates. A 10% depreciation in year-end 1999 and 1998 foreign currency exchange rates related to the Company's contracts would result in an increase in the unrealized loss on forward foreign exchange contracts of $10.5 million and $1.6 million, respectively. Since the Company uses forward foreign exchange contracts as hedges of firm purchase and sale commitments, the unrealized gain or loss on forward foreign currency exchange contracts resulting from changes in foreign currency exchange rates would be offset by a corresponding change in the fair value of the hedged item. Certain of the Company's cash and cash equivalents are denominated in currencies other than the functional currency of the depositor and are sensitive to changes in foreign currency exchange rates. A 10% depreciation in the related year-end 1999 and 1998 foreign currency exchange rates would result in a negative impact of $1.1 million and $1.6 million, respectively, on the Company's net income. Equity Prices The Company's available-for-sale investment portfolio includes equity securities that are sensitive to fluctuations in price. In addition, the Company's and its subsidiaries' convertible obligations are sensitive to fluctuations in the price of Company or subsidiary common stock into which the obligations are convertible. Changes in equity prices would result in changes in the fair value of the Company's available-for-sale investments and convertible obligations due to the difference between the current market price and the market price at the date of purchase or issuance of the financial instrument. A 10% increase in the year-end 1999 and 1998 market equity prices would result in a negative impact to the Company of $20 million and $40 million, respectively, on the net fair value of its price-sensitive equity financial instruments, principally its convertible obligations. The Company's common stock of subsidiary subject to redemption is sensitive to fluctuations in the price of the underlying ThermoLase redeemable common stock. The holder of a redemption right may require the Company to redeem one share of ThermoLase common stock at $20.25 per share during the period from April 3, 2001, through April 30, 2001. If the underlying common stock is trading on the open market at a price that is less than the redemption price on the redemption date, then the holders of redemption rights would more likely than not exercise their redemption rights. In the event all redemption rights are exercised, the Company would use $7.7 million in cash to settle redemption obligations (Note 1). 65 Market Risk (continued) In addition, changes in equity prices would result in changes in the fair value of common stock of subsidiary subject to redemption due to the difference between the current market price and the price at the date of issuance of the underlying financial instruments, subsidiary common stock and redemption rights. Since the market price of redemption rights generally fluctuates in the opposite direction of fluctuations in the market price of the redeemable common stock, the effect of a 10% increase in the market price of the redeemable common stock on the fair value of common stock of subsidiary subject to redemption would be negated in part by a decrease in the market price of redemption rights. Year 2000 The Company has completed its year 2000 initiatives, which included: (i) testing and upgrading significant information technology systems and facilities; (ii) testing and developing upgrades, where necessary, for the Company's current products and certain discontinued products; (iii) assessing the year 2000 readiness of its key suppliers, vendors, and customers; and (iv) developing contingency plans. As a result of completing these initiatives, the Company believes that all of its material information technology systems and critical non-information technology systems are year 2000 compliant. The Company believes that all of the material products that it currently manufactures and sells are year 2000 compliant or are not date sensitive. In addition, the Company is not aware of any significant supplier or vendor that has experienced material disruption due to year 2000 issues. The Company has also developed a contingency plan to allow its primary business operations to continue despite disruptions due to year 2000 problems, if any, that might yet arise in the future. The Company's total external costs relating to year 2000 remediation were approximately $7 million. While the Company to date has been successful in minimizing negative consequences arising from year 2000 issues, there can be no assurance that in the future the Company's business operations or financial condition may not be impacted by year 2000 problems, such as increased warranty claims, vendor and supplier disruptions, or litigation relating to year 2000 issues. 66 Thermo Electron Corporation 1999 Financial Statements Forward-looking Statements In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, Thermo Electron wishes to caution readers that the following important factors, among others, in some cases have affected, and in the future could affect, Thermo Electron's actual results and could cause its actual results in 2000 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, Thermo Electron. Thermo Electron is in the midst of a corporate reorganization that is very complex. On January 31, 2000, Thermo Electron announced that its Board of Directors had authorized its management to proceed with a major reorganization of the operations of Thermo Electron and its subsidiaries. As part of this reorganization, Thermo Electron plans to: - acquire the public minority interest in all but one of its subsidiaries that have minority investors, - spin off its separation technologies and fiber-based products business and its medical products business, and - sell a variety of non-core businesses. The primary goal of the reorganization is for Thermo Electron and each of its spun-off subsidiaries to focus on their respective core businesses. This reorganization process is time-consuming and expensive, and consumes management resources. The successful completion of the reorganization depends on many factors that are not in Thermo Electron's control. For example, completion of some of the transactions requires the approvals of various boards of directors, and in some instances, special committees of such boards of directors and/or the stockholders of the target companies, as well as completion of review by the Securities and Exchange Commission and receipt of fairness opinions, in some instances, from one or more investment banking firms. Completion of the transactions involving tender offers and subsequent short-form mergers requires receipt of acceptances from enough minority shareholders so that the applicable parent companies' ownership in the subsidiary reaches at least 90 percent, SEC clearance of necessary filings, and other customary conditions. Completion of the spinoffs requires receipt of a favorable ruling from the Internal Revenue Service regarding the tax treatment of the spinoffs, SEC clearance of necessary filings, final Thermo Electron board action, and other customary conditions. Completion of the proposed sales of businesses is time-consuming and will consume management resources. This could adversely affect performance of the businesses to be sold or could result in the loss of key employees, which in turn could adversely affect expected proceeds from the sales. The failure to complete these transactions in a timely manner would have an adverse effect on Thermo Electron. Thermo Electron may not be able to complete pending or future acquisitions, and it may not be able to integrate any acquired businesses into its existing business or make the acquired businesses profitable. One of Thermo Electron's strategies is to supplement its internal growth by acquiring businesses and technologies that complement or augment Thermo Electron's existing product lines. Some of the businesses acquired by Thermo Electron have had low levels of profitability. In addition, businesses Thermo Electron may seek to acquire may also be marginally profitable or unprofitable. For these acquired businesses to achieve acceptable levels of profitability, Thermo Electron must change operations and improve market penetration. Thermo Electron may not be successful in this regard. Promising acquisitions are difficult to identify and complete for many reasons, including competition among buyers, the need for regulatory approvals, including antitrust approvals, and the high valuations of businesses resulting from historically high stock prices. Additionally, Thermo Electron may have to pay, and has paid, substantial premiums over the fair value of the net assets of the companies it acquires. Thermo Electron has acquired significant intangible assets, including approximately $1.2 billion of cost in excess of net assets of acquired companies, or goodwill, currently recorded on its balance sheet. Additional goodwill will be recorded in 2000 as a result of Thermo Electron's plans to acquire the minority interests in certain of its publicly traded subsidiaries. The realization of this asset will depend on the future cash flows of the acquired businesses, which in turn depends on, among other factors, how well Thermo Electron has identified these acquired businesses as desirable acquisition candidates and how well Thermo Electron can integrate these acquired businesses. In order to finance its acquisitions, Thermo Electron may have to raise additional funds, either through public or private financings. Any financing, if available at all, may be on unfavorable terms. 67 Uncertainty of Growth. Some of the markets in which Thermo Electron competes have been flat or declining over the past several years. Thermo Electron has pursued a number of potential growth strategies, including acquiring complementary businesses; developing new applications for its technologies; and strengthening its presence in selected geographic markets. Thermo Electron may not be able to successfully implement these strategies, and these strategies may not result in growth of Thermo Electron's business. Thermo Electron's significant international operations involve many risks. International revenues account for a substantial portion of Thermo Electron's revenues, and Thermo Electron plans to continue expanding its presence in international markets. In 1999, Thermo Electron's international revenues from continuing operations (including export revenues from the U.S.) accounted for approximately 63% of its total revenues. International revenues are subject to many risks, including the following: - changes in exchange rates may adversely affect product demand and the profitability in U.S. dollars of products and services provided by Thermo Electron in foreign markets, where payment for Thermo Electron's products and services is made in the local currency; - Thermo Electron may find it hard to enforce agreements and collect receivables using a foreign country's legal system; - foreign customers may have longer payment cycles; - foreign countries may impose additional withholding taxes or otherwise tax Thermo Electron's foreign income, impose tariffs, or adopt other restrictions on foreign trade; - U.S. export licenses may be difficult to obtain; - intellectual property rights may be harder to enforce in foreign countries; - foreign countries may have unexpected changes in regulatory requirements; - Thermo Electron may have difficulty managing and staffing its foreign operations due to, among other factors, language and cultural differences; - foreign countries in which Thermo Electron operates may be characterized by unpredictable political instability; and - Thermo Electron's revenues could be affected by seasonal reductions in business activity in some foreign countries. Of these factors, the exchange rate fluctuations, in particular, have had and may in the future have an adverse impact on Thermo Electron's business and results of operations. The effects of foreign currency translation are disclosed under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." A portion of Thermo Electron's revenues comes from exports to Asia. Some Asian countries experienced a severe economic crisis in the late 1990s, involving sharply reduced economic activity and liquidity, volatile foreign-currency-exchange and interest rates, and unstable stock markets. Thermo Electron's export sales to Asia were adversely affected by these unstable economic conditions in Asia in 1998 and early 1999 and future export sales to Asia and other parts of the world may be adversely affected by unstable economic conditions in those regions. 68 Thermo Electron must develop new products, adapt to rapid technological change, and respond to introductions of new products in order to remain competitive. Thermo Electron's growth strategy includes significant investment in product development, and it intends to increase spending in the area of research and development. In addition, the markets for Thermo Electron's products are characterized by rapid and significant technological change, evolving industry standards, and frequent new product introductions and enhancements. Many of Thermo Electron's products and products under development are technologically innovative and require significant planning, design, development and testing at the technological, product, and manufacturing-process levels. These activities require significant investment by Thermo Electron. In addition, products in Thermo Electron's markets undergo rapid and significant technological change due to quickly changing industry standards and the introduction of new products and technologies that make existing products and technologies uncompetitive or obsolete. Some competitors may adapt more quickly to new technologies and changes in customer requirements than Thermo Electron can. The products currently being developed by Thermo Electron, or those to be developed in the future, may not be technologically feasible or accepted by the marketplace, and Thermo Electron's products or technologies could become uncompetitive or obsolete. Failure of Thermo Electron to successfully develop new products could have an adverse effect on its business and results of operations. Changes in governmental regulations may adversely affect demand for Thermo Electron's products. Thermo Electron competes in many markets in which its customers must comply with federal, state, local, and foreign regulations, such as environmental, health and safety, and food and drug regulations. Thermo Electron develops, configures, and markets its products to meet customer needs created by those regulations. These regulations may change in response to new scientific evidence or political or economic considerations. Any significant change in regulations could adversely affect demand for Thermo Electron's products. For example, demand for Thermo Electron's Thermo Voltek Corp. subsidiary's electromagnetic compatibility test products was adversely affected in 1997 and thereafter as a result of the declining influence of IEC 801, the European Union directive on electromagnetic compatibility that took effect on January 1, 1996. Demand for some Thermo Electron products depends on the capital spending policies of its customers and on government funding policies. Thermo Electron's customers include manufacturers of semiconductors and of products incorporating semiconductors, pharmaceutical and chemical companies, laboratories, universities, healthcare providers, government agencies, and public and private research institutions. The capital spending policies of these entities are based on many factors, including public policy spending priorities, available resources, and economic cycles, and can have a significant effect on the demand for Thermo Electron's products. For example, a reduction in discretionary capital spending by petrochemical, oil and gas, and mining companies, due to difficult market conditions, has adversely affected Thermo Electron's businesses operating in the process control industry. Similarly, softness in the semiconductor industry has resulted in lower revenues at some Thermo Electron businesses. Also, Thermo Electron's Thermedics Detection Inc. subsidiary has experienced lower demand for its detection instruments as a result a shift in the process of recycling plastic containers in Europe, from sanitizing and reusing recyclables to melting and re-forming plastic containers. Obtaining and enforcing patent protection for Thermo Electron's proprietary products, processes and technologies can be difficult and expensive. Patent and trade secret protection is crucial to Thermo Electron because developing and marketing new technologies and products is time-consuming and expensive. Thermo Electron owns many U.S. and foreign patents, and intends to apply for additional patents as appropriate to cover its products. Patents may not be issued from any pending or future patent applications owned by or licensed to Thermo Electron. The claims allowed under any issued patents may not be broad enough to protect Thermo Electron's technology. 69 Any legal proceedings brought by Thermo Electron to protect its proprietary rights could be very expensive. In addition, any issued patents owned by or licensed to Thermo Electron may be challenged, invalidated, or circumvented, and the rights granted under those patents may not provide competitive advantages to Thermo Electron. Defending infringement and/or invalidity claims would be expensive and divert management's attention. In addition, those claims could result in awards of substantial damages, which could have a significant adverse impact on Thermo Electron's results of operations, and/or injunctive or other equitable relief, which could effectively block Thermo Electron's ability to make, use, or sell its products and services in the United States or abroad. 70 Thermo Electron Corporation 1999 Financial Statements Selected Financial Information (In millions except per share amounts) 1999 (a) 1998 (b) 1997 1996 (c) 1995 - ------------------------------------------------- ----------- ---------- ----------- ---------- ---------- Statement of Operations Data Revenues $2,471.2 $2,055.8 $1,979.6 $1,573.0 $1,059.1 Gross Profit 1,092.7 928.6 921.3 710.5 489.3 Operating Income 99.0 233.7 296.4 183.2 136.1 Income (Loss) from Continuing Operations Before (14.6) 114.7 174.7 164.2 76.2 Extraordinary Items Income (Loss) Before Extraordinary Items (176.0) 181.5 239.3 190.8 139.6 Net Income (Loss) (174.6) 181.9 239.3 190.8 139.6 Earnings (Loss) per Share From Continuing Operations: Basic (.09) .71 1.15 1.16 .60 Diluted (.11) .67 1.05 1.03 .55 Earnings (Loss) per Share: Basic (1.10) 1.12 1.57 1.35 1.10 Diluted (1.13) 1.08 1.41 1.17 .95 Balance Sheet Data Working Capital $1,450.9 $2,163.0 $2,002.0 $2,218.6 $1,317.1 Total Assets 5,181.8 5,421.1 4,961.0 4,546.9 3,248.0 Long-term Obligations 1,566.0 1,808.6 1,518.7 1,531.7 1,079.8 Minority Interest 364.3 399.5 464.2 364.2 200.9 Common Stock of Subsidiaries Subject to 7.7 40.5 40.5 2.6 - Redemption Shareholders' Investment 2,014.5 2,254.8 2,007.9 1,755.6 1,311.3 (a) Reflects a $182.4 million pretax charge for restructuring and related costs, consisting of restructuring and unusual costs, net, of $168.7 million, inventory provisions of $9.4 million, and other expenses of $4.3 million. (b) Reflects the issuance of $150.0 million principal amount of the Company's notes and the Company's public offering of common stock for net proceeds of $290.1 million. (c) Reflects the issuance of $585.0 million principal amount of the Company's convertible debentures. 71 Thermo Electron Corporation 1999 Financial Statements Common Stock Market Information The Company's common stock is traded on the New York Stock Exchange under the symbol TMO. The following table sets forth the high and low sale prices of the Company's common stock for 1999 and 1998, as reported in the consolidated transaction reporting system. 1999 1998 -------------------- -------------------- Quarter High Low High Low - -------------------------------------------------------------- ---------- ---------- ---------- ---------- First $18 3/16 $13 3/8 $44 1/4 $36 5/8 Second 20 1/16 12 11/16 41 15/16 30 3/4 Third 19 11/16 15 3/4 35 3/16 14 3/16 Fourth 15 7/8 13 20 1/16 13 9/16 As of January 28, 2000, the Company had 8,258 holders of record of its common stock. This does not include holdings in street or nominee names. The closing market price on the New York Stock Exchange for the Company's common stock on January 28, 2000, was $16 1/4 per share. Common stock of the Company's following majority-owned public subsidiaries is traded on the American Stock Exchange: Thermedics Inc. (TMD), Thermedics Detection Inc. (TDX), Thermo Cardiosystems Inc. (TCA), Thermo Sentron Inc. (TSR), Thermo Ecotek Corporation (TCK), Thermo Fibertek Inc. (TFT), Thermo Fibergen Inc. (TFG), Thermo Instrument Systems Inc. (THI), Metrika Systems Corporation (MKA), ONIX Systems Inc. (ONX), Thermo BioAnalysis Corporation (TBA), Thermo Optek Corporation (TOC), ThermoQuest Corporation (TMQ), Thermo TerraTech Inc. (TTT), The Randers Killam Group Inc. (RGI), ThermoRetec Corporation (THN), ThermoTrex Corporation (TKN), ThermoLase Corporation (TLZ), and Trex Medical Corporation (TXM). Common stock of the Company's majority-owned Spectra-Physics Lasers, Inc. (SPLI) subsidiary is traded on the NASDAQ National Market System. Shareholder Services Shareholders of Thermo Electron Corporation who desire information about the Company are invited to contact the Investor Relations Department, Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046, (781) 622-1111. A mailing list is maintained to enable shareholders whose stock is held in street name, and other interested individuals, to receive Company information as quickly as possible. Company information is available from Thermo Electron's Internet site (http://www.thermo.com). Stock Transfer Agent BankBoston N.A. is the stock transfer agent and maintains shareholder activity records. The agent will respond to questions on issuance of stock certificates, change of ownership, lost stock certificates, and change of address. For these and similar matters, please direct inquiries to: BankBoston N.A., c/o Boston EquiServe Limited Partnership, P.O. Box 8040, Boston, Massachusetts 02266-8040, (781) 575-3120. Dividend Policy The Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future because its policy has been to use earnings to finance expansion and growth. Payment of dividends will rest within the discretion of the Company's Board of Directors and will depend upon, among other factors, the Company's earnings, capital requirements, and financial condition. Form 10-K Report A copy of the Annual Report on Form 10-K for the fiscal year ended January 1, 2000, as filed with the Securities and Exchange Commission, may be obtained at no charge by writing to the Investor Relations Department, Thermo Electron Corporation, 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02454-9046.
EX-21 7 Exhibit 21 THERMO ELECTRON CORPORATION Subsidiaries of the Registrant As of February 23, 2000, Thermo Electron Corporation owned the following companies:
NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Thermo Coleman Corporation Delaware 100 Coleman Research Corporation Florida 100 Coleman Services Incorporated Delaware 100 MetricVision Inc. Delaware 90 Thermo Information Solutions Inc. Delaware 100 Tera Systemes S.AR.L. France 100 Thermo Info France S.A. France 100 Thermo Info UK Limited England 100 Open Connections Holdings Limited England 100 TIS Holdings, Inc. New Hampshire 100 Peter Brotherhood Holdings Ltd. England 100 Aircogen Ltd. England 80 Peter Brotherhood Limited England 100 LastStep Ltd. England 100 Link Control Technology Ltd. England 100 Peter Brotherhood Pension Fund Trustees Ltd. England 100 Thermo Electron Realty Limited England 100 Thermo Holdings Limited England 100 Thermo Electron, S.A. de C.V. Mexico 100 Thermo Biomedical Inc. Delaware 100 SensorMedics Corporation Delaware 100 SensorMedics B.V. Netherlands 100 SensorMedics (Deutschland) GmbH Germany 100 Nicolet Biomedical Inc. California 100 Eden Medical Electronics, Inc. Delaware 100 Grason-Stadler, Inc. Massachusetts 100 Neuroscience Limited England 100 Nicolet Biomedical Japan Inc. Japan 100 Nicolet Biomedical Ltd. England 100 Nicolet Biomedical S.A.R.L. France 100 Nicolet - EME GmbH Germany 100 Nicolet Vascular Inc. Delaware 100 ILS, Inc. Delaware 100 IMEX International, Inc. Colorado 100 Bear Medical Systems Inc. Delaware 100 Bird Medical Technologies, Inc. California 100 Bird Products Corporation California 100 Bird Life Design Corporation California 100 Stackhouse, Inc. California 100 Medical Data Electronics, Inc. Delaware 100 NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Gulf Precision, Inc. Arizona 100 Seeley Enterprises, Inc. New Mexico 100 ITC Holdings Inc. Delaware 100 Loftus Furnace Company Pennsylvania 100 Met-Therm, Inc. Ohio 100 NAPCO, Inc. Connecticut 100 Nicolet Biomedical of California Inc. California 100 North East Surgical Tool Corp. Massachusetts 100 North Carbondale Minerals, Inc. California 100 Thermo WI, Inc. Wisconsin 100 Perfection Heat Treating Company Michigan 100 San Marcos Resource Recovery, Inc. California 100 Southern Ocean County Resource Recovery, Inc. New Jersey 100 Staten Island Cogeneration Corporation New York 100 TE Great Lakes Inc. Michigan 100 TEC Cogeneration Inc. Florida 100 South Florida Cogeneration Associates Florida 50* TEC Energy Corporation California 100 North County Resource Recovery Associates California 100* (50% of which is owned directly by San Marcos Resource Recovery, Inc.) Tecomet Inc. Massachusetts 100 Thermo Digital Technologies Corporation Delaware 100 Thermo Digital Technologies L.L.C. Delaware 100 Thermo Electron Export Inc. Barbados 100 (equally owned among TMO, TMD, TCA, TCK, TFT, THI, THP, TTT, TVL, TLZ, THS, TBA, TOC, TMQ and TXM ) Thermo Electron (London) Ltd. England 50* Thermo Finance (UK) Limited England 100 Thermo Foundation, Inc. Massachusetts 100 TMO THI Holdings Inc. Delaware 100 Thermo Leasing Corporation Delaware 100 Thermo Capital Company LLC Delaware 50 ThermoTrex Acquisition Corporation Delaware 100 ThermoLase Acquisition Corporation Delaware 100 TMO, Inc. Massachusetts 100 TMOI Inc. Delaware 100 TMOTFG Holdings Corp. Delaware 100 TTT Acquisition Corporation Delaware 100 Retec Acquisition Corporation Delaware 100 RK Acquisition Corporation Delaware 100 NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Thermedics Inc. Massachusetts 75.72 MWW Dreiundzwanzigste Vermogensverwaltungs GmbH Germany 100 Erich Jaeger GmbH Germany 100 HMS Health Management Systems GmbH Germany 100 Erich Jaeger Gesellschaft m.b.H. Austria 100 Erich Jaeger (U.K.) Ltd. England 100 Erich Jaeger S.A.R.L. France 100 Erich Jaeger B.V. Netherlands 100 Erich Jaeger Benelux B.V. Netherlands 100 Erich Jaeger, Inc. Delaware 100 TMO TCA Holdings, Inc. Delaware 100 Corpak Inc. Massachusetts 100 Walpak Company Illinois 100 Thermedics Detection Inc. Massachusetts 83.61 (additionally, 5.33% of the shares are owned directly by Thermo Electron Corporation) Detection Securities Corporation Massachusetts 100 Orion Research, Inc. Massachusetts 100 Advanced Sensor Technology Massachusetts 100 Orion Research Limited England 100 Orion Research Puerto Rico, Inc. Delaware 100 Russell pH Limited Scotland 100 Rutter & Co. Netherlands 100 Rutter Instrumentation S.A.R.L. France 90 Systech B.V. Netherlands 50 ThermedeTec Corporation Delaware 100 Thermedics Detection de Argentina S.A. Argentina 100 (1% of which shares are owned directly by Thermedics Detection Inc.) Thermedics Detection de Mexico, S.A. de C.V. Mexico 100 (1% of which shares are owned directly by Thermedics Detection Inc.) Thermedics Detection GmbH Germany 100 Thermedics Detection Limited England 100 Thermedics Detection Scandinavia AS Norway 100 NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Thermo Sentron Inc. Delaware 74.15 (additionally, 12.42% of the shares are owned directly by Thermo Electron Corporation) Allen Coding Systems Limited England 100 Allen Coding Corporation Delaware 100 Goring Kerr Limited England 100 Best Checkweighers Limited England 100 Intertest (UK) Limited England 100 Goring Kerr Detection Limited England 100 Goring Kerr (NZ) Limited New Zealand 100 Graseby Product Monitoring GmbH Germany 100 Goring Kerr Inc. New York 100 Ramsey France S.A.R.L. France 100 Ramsey Ingenieros S.A. Spain 100 Ramsey Italia S.R.L. Italy 100 Tecno Europa Elettromeccanica S.R.L. Italy 100 Ramsey Technology Inc. Massachusetts 100 Xuzhou Ramsey Technology Development Co., Limited China 50* Thermo Sentron Australia Pty. Ltd.. Australia 100 Thermo Sentron B.V. Netherlands 100 Thermo Sentron Canada Inc. Canada 100 Thermo Sentron GmbH Germany 100 Thermo Sentron Limited England 100 Hitech Electrocontrols Limited England 100 Hitech Licenses Ltd. England 100 Hitech Metal Detectors Ltd. England 100 Westerland Engineering Ltd. England 100 Thermo Sentron SEC Corporation Massachusetts 100 Thermo Sentron (South Africa) Pty. Ltd. South Africa 100 Thermo Voltek Corp. Delaware 97.00 (additionally, 3% of the shares are owned directly by Thermo Electron Corporation) Thermo Voltek Europe B.V. Netherlands 100 Comtest Instrumentation, B.V. Netherlands 100 Comtest Italia S.R.L. Italy 95 (additionally 5% of the shares are owned directly by Thermo Voltek Corp.) Comtest Limited England 100 Milmega Limited England 100 TVL Securities Corporation Delaware 100 UVC Realty Corp. New York 100 NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Thermo Cardiosystems Inc. Massachusetts 60.07 (additionally, 0.04% of the shares are owned directly by Thermo Electron Corporation) International Technidyne Corporation Delaware 100 International Technidyne Corporation Limited England 100 Nimbus Inc. Massachusetts 100 TCA Securities Corporation Massachusetts 100 Thermo Administrative Services Corporation Delaware 100 Thermo Amex Management Company Inc. Delaware 100 Thermo Amex Finance, L.P. Delaware 99* Thermo Amex Convertible Growth Fund I., L.P. Delaware 99* Thermo Ecotek Corporation Delaware 93.66 Central Valley Fuels Management Inc. Delaware 100 Delano Energy Company Inc. Delaware 100 Eco Fuels Inc. Wyoming 100 Independent Power Services Corporation Nevada 100 KFP Operating Company, Inc. Delaware 100 Lake Worth Generation Corporation Delaware 100 Lake Worth Generation LLC Delaware 100 Mountainview Power Company Delaware 100 Mountainview Power Company LLC Delaware 100 Riverside Canal Power Company California 100 SFS Corporation New Hampshire 100 TCK Fuels Inc. Delaware 100 KFx Fuel Partners, L.P. Delaware 95* (2% of which is owned directly by Eco Fuels Inc.) TES Securities Corporation Delaware 100 Thermendota, Inc. California 100 Mendota Biomass Power, Ltd. California 60 (additionally 40% of the shares are owned directly by Thermo Ecotek Corporation) MBPL Agriwaste Corporation California 100 Thermo Ecotek International Holdings Inc. Cayman Islands 100 Thermo Ecotek Europe Holdings B.V. Netherlands 100 Gouripore Power Company Pvt. Ltd. India 83% EMD Ventures B.V. Netherlands 65* Kraftwerk, Premnitz GmbH & Co KG Germany 100 EMD Pribram sro Czech Republic 50* Magnicon B.V. Netherlands 50 (additionally 50 of the shares are owned directly by Thermo Ecotek Europe Holdings B.V.) ECS sro Czech Republic 50* EuroEnergy Group B.V. Netherlands 50* Thermo EuroVentures sro Czech Republic 100 NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Thermo Ecotek International Inc. Cayman Islands 100 TCK Cogeneration Dominicana Inc. Cayman Islands 100 (1% of which shares are owned directly by Thermo Ecotek International Holdings Inc.) TCK Dominicana Holdings Inc. Cayman Islands 100 (1% of which shares are owned directly by Thermo Ecotek International Holdings Inc.) Thermo Electron of Maine, Inc. Maine 100 Gorbell/Thermo Electron Power Company Maine 80* Thermo Electron of New Hampshire, Inc. New Hampshire 100 Hemphill Power and Light Company New Hampshire 66* Thermo Electron of Whitefield, Inc. New Hampshire 100 Whitefield Power and Light Company New Hampshire 100* (39% of which is owned directly by SFS Corporation) Star Natural Gas Company Delaware 95 Star/RESC LLC Texas 75 Star Field Services Company Delaware 100 Totem Gas Storage Company LLC Colorado 90 Thermo Fuels Company, Inc. California 100 Thermo Trilogy Corporation Delaware 80.03 Thermo Trilogy International Holdings, Inc. Cayman Islands 100 AgriSense-BCS, Ltd. England 100 P J Margo Pvt. Ltd. India 50* AgriDyne Technologies S.A. de C.V. Mexico 100 Ulna Incorporated California 100 Woodland Biomass Power, Inc. California 100 Woodland Biomass Power, Ltd. California 100* (.1% of which is owned directly by Thermo Ecotek Corporation) Thermo Electron Foundation, Inc. Massachusetts 100 Thermo Electron Metallurgical Services, Inc. Texas 100 Thermo Finance Company B.V. Netherlands 100 Thermo Fibertek Inc. Delaware 90.98 AES Equipos y Sistemas S.A. de C.V. Mexico 100 ArcLine Products, Inc. New York 100 Fibertek Construction Company, Inc. Maine 100 Thermo AES Canada Inc. Canada 100 Thermo Black Clawson Inc. Delaware 100 Thermo Black Clawson (China) China 100 Thermo Black Clawson S.A. France 100 NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Thermo Fibertek Holdings Limited England 100 Thermo Black Clawson Limited England 100 Thermo Fibertek U.K. Limited England 100 D.S.T. Pattern Engineering Company Limited England 100 Vickerys Limited England 100 Winterburn Limited England 100 Thermo Web Systems, Inc. Massachusetts 100 Fiberprep Inc. Delaware 95 (31.05% of which shares are owned directly by E. & M. Lamort, S.A.) Fiberprep Securities Corporation Delaware 100 TMO Lamort Holdings Inc. Delaware 100 E. & M. Lamort, S.A. France 100 Lamort Equipementos Industrials Ltda. Brazil 60* Lamort GmbH Germany 100 Lamort Iberica S.A. Spain 100 Lamort Italia S.R.L. Italy 100 Lamort Paper Services Ltd. England 100 Nordiska Lamort Lodding A.B. Sweden 100 Thermo Fibergen Inc. Delaware 73.58 (additionally 0.11% of the shares are owned directly by Thermo Electron Corporation) Fibergen Securities Corporation Massachusetts 100 GranTek Inc. Wisconsin 100 Next Fiber Products Inc. Delaware 51* Thermo Instrument Systems Inc. Delaware 87.74 Analytical Instrument Development, Inc. Pennsylvania 100 Eberline Instrument Company Limited England 100 Eberline Instrument Corporation New Mexico 100 Epsilon Industrial Inc. Texas 100 Gas Tech Inc. California 100 Gas Tech Partnership California 50* Gastech Instruments Canada Ltd. Canada 100 Life Sciences International Limited England 100 Comdata Services Limited England 100 Lipshaw Limited England 100 Luckham Limited England 100 Phicom Limited England 100 Southions Investments Limited England 100 Sungei Puntar Rubber Estate Limited England 100 Westions Limited England 100 Whale Scientific Limited England 100 NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Helmet Securities Limited England 100 Life Sciences International Kft Hungary 100 Life Sciences International, Inc. Pennsylvania 100 LSI (US) Inc. Delaware 100 LSI North America Service Inc. Delaware 100 Life Sciences International Holdings BV Netherlands 100 Life Sciences International (Poland) SP z O.O Poland 100 Britlowes Limited England 100 Commendstar Limited England 100 Consumer & Video Holdings Limited England 100 Video Communications Limited England 100 Greensecure Projects Limited England 100 Labsystems Europe SA Spain 100 Labsystems Ges mbH Austria 100 Omnigene Limited England 58.50 Shenbridge Limited England 100 Southern Instruments Holdings Limited England 100 Metrika Systems Corporation Delaware 70.46 (additionally 8.47% of the shares are owned directly by Thermo Electron Corporation) Gamma-Metrics Minerals Pty Ltd. South Australia 100 Radiometrie RM GmbH Germany 100 Radiometrie S.A. France 100 Gamma-Metrics California 100 MF Physics Corporation Delaware 100 Radiometrie Corporation Delaware 100 DMC Mess & Regeltechnik GmbH Germany 100 Radiometrie U.S.A., Inc. California 100 Radiometrie Limited England 100 National Nuclear Corporation California 100 Thermo Nucleonics LLC Delaware 51 (additionally, 49% of the shares are owned directly by TBA Nucleonics Holding Corporation) ESM Eberline Instruments Strahlen - und Umweltmesstechnik Germany 100 GmbH NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ ONIX Systems Inc. Delaware 80.27 (additionally, 2.05% of the shares are owned directly by Thermo Electron Corporation) Brandt Instruments, Inc. Delaware 100 CAC Inc. Delaware 100 Flow Automation Inc. Texas 100 Lots 82 and 83, Inc. Louisiana 100 Mid-South Power Systems, Inc. Louisiana 100 Mid-South Controls & Services, Inc. Louisiana 100 Thermo Instrument Controls de Mexico, S.A. de C.V. Mexico 100 (1% of which shares are owned directly by ONIX Systems Inc.) ONIX Process Analysis Inc. Texas 100 OnIX Holdings Limited England 100 CAC UK Limited England 100 ONIX Measurement Limited England 100 ONIX Process Analysis Limited England 100 Polysonics, Inc. Texas 100 TN Spectrace Europe B.V. Netherlands 100 TN Technologies Inc. Texas 100 Kay-Ray/Sensall, Inc. Delaware 100 TN Technologies Canada Inc. Canada 100 Westronics Inc. Texas 100 Optek-Nicolet Holdings Inc. Wisconsin 100 Thermo Optek Corporation Delaware 93.15 (additionally, 2.05% of the shares are owned directly by Thermo Electron Corporation) Diametrix Detectors, Inc. Delaware 100 FI Instruments Inc. Delaware 100 Gebruder Haake GmbH Germany 100 RHEO S.A. France 100 SWO Polymertechnik GmbH Germany 100 HAAKE Instruments Inc. Delaware 100 Scintag, Inc. California 100 Spectronic Instruments, Inc. Delaware 100 SLM International Inc. Illinois 100 Thermo Jarrell Ash Corporation Massachusetts 100 A.R.L. Applied Research Laboratories S.A. Switzerland 100 Fisons Instruments (Proprietary) Limited South Africa 100 Thermo Optek Wissenschaftliche Gerate GesmbH Austria 100 Baird Do Brazil Representacoes Ltda. Brazil 100 Beijing Baird Analytical Instrument Technology Co. China 100 Limited NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Cahn Instrument Corporation Wisconsin 100 Mattson Instruments Limited England 100 Thermo Optek Limited England 100 Norlab Instruments Ltd. England 100 Thermo Elemental Limited England 100 Unicam Limited England 100 Unicam Export Limited England 100 Unicam Italia SpA Italy 100 Unicam S.A. Belgium 100 Thermo Instruments Nordic AB Sweden 100 Thermo Instruments Nordic AS Norway 100 Nicolet Instrument Corporation Wisconsin 100 Nicolet Japan K.K. Japan 100 Spectra-Tech, Inc. Wisconsin 100 Nicolet Instrument GmbH Germany 100 Optek Securities Corporation Massachusetts 100 Planweld Holding Limited England 100 Nicolet Instrument Limited England 100 Hilger Analytical Limited England 100 Thermo Electron Limited England 100 Thermo Instrument Systems Japan Holdings, Inc. Delaware 100 Nippon Jarrell-Ash Company, Ltd. Japan 100 Thermo Instruments (Canada) Inc. Canada 100 Fisons Instruments Inc. Canada 100 Unicam Analytical Inc. Canada 100 Thermo Optek S.A.R.L. France 100 Thermo Optek Holding B.V. Netherlands 100 Baird Europe B.V. Netherlands 100 Baird France S.A.R.L. France 100 VG Systems Limited England 100 VG Elemental Limited England 100 Tein Benelux B.V. Netherlands 100 Thermo Optek Materials Analysis (S.E.A.) Pte Limited Singapore 100 ThermoSpectra Corporation Delaware 90.35 (additionally, 9.65% of the shares are owned directly by Thermo Electron Corporation) Gould Instrument Systems, Inc. Ohio 100 Gould & Nicolet S.A. France 95 (additionally, 5% of the shares are owned directly by ThermoSpectra Corporation) Kevex X-Ray Inc. Delaware 100 Neslab Instruments Europa BV Netherlands 100 Neslab Instruments, Inc. New Hampshire 100 Neslab Instruments Limited England 100 Nicolet Instrument Technologies Inc. Wisconsin 100 20 NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ NORAN Instruments Inc. Wisconsin 100 ThermoMicroscopes Corp. California 100 ThermoMicroscopes S.A. Switzerland 100 PSI Virgin Islands Incorporated U.S. Virgin Islands 100 Sierra Research and Technology, Inc. Delaware 100 ThermoSpectra B.V. Netherlands 100 Nicolet Technologies B.V. Netherlands 100 Bakker Electronics Limited England 100 NORAN Instruments B.V. Netherlands 100 ThermoSpectra GmbH Germany 100 Gould Nicolet Messtechnik GmbH Germany 100 NORAN Instruments GmbH Germany 100 ThermoMicroscopes GmbH Germany 100 ThermoSpectra Limited England 100 Nicolet Technologies Ltd. England 100 Spectrace Instruments Inc. California 100 TMO THI Acquisition Corp. Delaware 100 Thermo Electron Sweden Forvaltning AB Sweden 100 Spectra-Physics AB Sweden 99 Spectra-Physics Holdings USA, Inc. Delaware 100 Spectra Precision, Inc. Delaware 100 Spectra Precision USA, Inc. Delaware 100 Spectra Precision Software, Inc. Georgia 100 Spectra Precision B.V.B.A. Belgium 100 Spectra Precision K.K. Japan 100 Spectra Precision Ltd. England 100 Spectra Precision Pty. Ltd. Australia 100 SPHM, Inc. Delaware 100 Spectra Precision de Mexico S.A. De C.V. Mexico 100 SPSE Inc. Delaware 100 Pharos Holdings, Inc. Delaware 100 BLH Electronics, Inc. Delaware 100 Pharos de Costa Rica S.A. Costa Rica 100 Automatic Power, Inc. Delaware 100 Spectra-Physics VisionTech, Inc. Delaware 100 Pharos Tech, Inc. Delaware 100 Spectra-Physics Lasers, Inc. Delaware 80.4 Opto Power Corporation Delaware 100 Spectra-Physics Laser Data Systems, Inc. Delaware 100 Spectra-Physics France S.A. France 100 Spectra-Physics GmbH Germany 100 Spectra-Physics K.K. Japan 100 Spectra-Physics Lasers B.V. Netherlands 100 Spectra-Physics Lasers Ltd. England 100 NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Spectra-Physics Foreign Sales Corp. Barbados 100 Spectra-Physics Credit Corporation Delaware 100 Spectra-Physics Canada Ltd. Canada 100 Spectra-Physics Holdings Plc England 100 AB Pharos Marine Ltd. England 100 Pharos Marine Pte Ltd. Singapore 100 Automatic Power Ltd. England 100 Continental Satellite TV Ltd. England 100 Spectra-Physics Holdings S.A. France 100 Spectra Precision S.A. France 90 (additionally, 10% owned by Spectra Precision AB) Nobel Electronique S.A.R.L. France 100 Spectra Precision Europe Holdings B.V. Netherlands 100 Spectra Precision B.V. Netherlands 100 Spectra-Physics Holdings GmbH Germany 100 ZSP Geodatische Systeme GmbH Germany 25 (25% of total outstanding stock represents 100% of the voting stock) Spectra Precision GmbH Germany 100 BLH SR-4 Sensoren GmbH Germany 100 Spectra Precision Kaiserslautern GmbH Germany 100 Spectra-Physics S.R.L. Italy 100 Spectra Precision AB Sweden 100 Spectra Precision Scandinavia AB Sweden 100 Spectra Precision of Canada Ltd. Canada 100 Spectra Precision Handelsges, mbH Austria 100 Geotronics S.A. Spain 100 Spectra Precision S.A. France 100 Nobel Elektronik AB Sweden 100 Nobel Elektroniikka Oy AB Finland 100 Nobel Elektronikk A/S Norway 100 AB Givareteknik Sweden 100 Nobel Systems Ltd. England 100 AB Pharos Marine Sweden 100 Pharos AB Sweden 100 Spectra-Physics Industri AB Sweden 100 Permanova Lasersystem AB Sweden 100 Chemtronics AB Sweden 100 Spectra-Physics Vision Tech Oy Finland 100 Spectra-Physics Vision Tech KK Japan 100 Spectra Precision (Asia) Pte. Ltd. Singapore 100 Quest-Finnigan Holdings Inc. Virginia 100 Quest-TSP Holdings Inc. Delaware 100 NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ ThermoQuest Corporation Delaware 90.32 (43.9% of which shares are owned directly by Quest-Finnigan Holdings Inc.) (additionally, 0.32% of the shares are owned directly by Thermo Electron Corporation) Denley Instruments Limited England 100 E-C Apparatus Limited England 100 Finnigan FT/MS Inc. Delaware 100 Finnigan Corporation Delaware 100 Finnigan Instruments, Inc. New York 100 Finnigan International Sales, Inc. California 100 Finnigan MAT China, Inc. California 100 Finnigan MAT (Delaware), Inc. Delaware 100 Finnigan MAT Instruments, Inc. Nevada 100 Finnigan MAT International Sales, Inc. California 100 Finnigan MAT (Nevada), Inc. Nevada 100 Finnigan MAT GmbH Germany 100 ThermoQuest Analytische Systeme GmbH Germany 100 Finnigan MAT S.R.L. Italy 100 Thermo Separation Products S.R.L. Italy 100 Masslab Limited England 100 H.D. Technologies Limited England 100 Thermo Instruments Australia Pty. Limited Australia 100 ThermoQuest Ltd. England 100 Finnigan Properties, Inc. California 100 Forma Scientific, Inc. Delaware 100 International Equipment Company Delaware 100 International Equipment Company Limited England 100 Savant Instruments, Inc. New York 100 Forma Scientific Limited England 100 Hypersil Inc. Delaware 100 Hypersil Limited England 100 Hypersil S.A. France 100 Life Sciences International (Hong Kong) Limited Hong Kong 100 Life Sciences (Europe) Limited England 100 Life Sciences International (UK) Limited England 100 Kenbury Limited England 100 Savant Instruments Limited England 100 TMQ SEG (Hong Kong) Limited Hong Kong 100 ThermoQuest B.V. Netherlands 100 Thermo Separation Products B.V. B.A. Belgium 100 ThermoQuest France S.A. France 100 Finnigan Automass S.A. France 100 Thermo Separation Products S.A. France 100 NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ ThermoQuest Italia S.p.A. Italy 100 ThermoQuest Spain S.A. Spain 100 ThermoQuest Wissenschaftliche Gerate GmbH Austria 100 Thermo Separation Products AG Switzerland 100 Thermo Separation Products Inc. Delaware 100 ThermoQuest K.K. Japan 100 Thru-Put Systems, Inc. Florida 100 RealFlex Systems Inc. Texas 100 SID Instruments Inc. Delaware 100 FI S.A. France 100 Fisons Instruments BV Netherlands 100 Fisons Instruments NV Belgium 100 Fisons Instruments K.K. Japan 100 NK Instruments Inc. Delaware 100 Thermo Capillary Electrophoresis Inc. Delaware 100 Thermo Haake Ltd. England 100 Thermo Haake (U.K.) Limited England 100 Thermo Instrumentos Cientificos S.A. Spain 100 Thermo BioAnalysis Corporation Delaware 67.22 (4.1% of which shares are owned directly by Quest-TSP Holdings Inc. and 1.8% of which shares are owned directly by Quest-Finnigan Holdings Inc. Additionally, 20.80% of the shares are owned directly by Thermo Electron Corporation) BioStar, Inc. Delaware 100 Data Medical Associates, Inc. Texas 100 DMA Latinoamericana S.A. de C.V. Mexico 50* Labsystems (SEA) Pte. Ltd. Singapore 100 Fastighets AB Skrubba Sweden 100 Dynex Technologies spol. s.r.o. Czech Republic 100 DYNEX Technologies (Asia) Inc. Delaware 100 DYNEX Technologies Inc. Virginia 100 DYNEX Technologies GmbH Germany 100 Hybaid Limited England 100 Hybaid BV Netherlands 100 Thermo Labsystems B.V. Netherlands 100 Labsystems Inc. Delaware 100 Thermo BioAnalysis Japan K.K. Japan 100 Labsystems OY Finland 100 Biosystems OY Finland 100 Konelab OY Finland 100 AO Analytical Systems Russia 100 Konelab S.A. France 100 Konelab GmbH Germany 100 Labsystems (Hong Kong) Limited Hong Kong 99 Labsystems BTD China 67 NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Labsystems LHD China 90 Labsystems Lenpipette Russia 95 Labsystems Pakistan (Private) Ltd Pakistan 33.50 Labsystems Sweden AB Sweden 100 Labsystems (UK) Limited England 100 Life Sciences International SNC France 100 Shandon France SA France 100 Shandon Scientific Limited England 100 Anglia Scientific Instruments Limited England 100 Shandon Southern Instruments Limited England 100 Life Sciences International (Benelux) B.V. Netherlands 100 Shandon Inc. Pennsylvania 100 E-C Apparatus Corporation Florida 100 Whale Scientific Corporation Colorado 100 ALKO Diagnostic Corporation Massachusetts 100 TBA Nucleonics Holding Corporation Delaware 100 TBA Securities Corporation Massachusetts 100 Shandon GmbH Germany 100 Thermo BioAnalysis GmbH Germany 100 Hybaid GmbH Germany 100 Angewandte Gentechnologie Systems GmbH Germany 100 Interactiva Biotechnologie GmbH Germany 100 Labsystems GmbH Germany 100 Thermo LabSystems Vertriebs GmbH Germany 100 Thermo BioAnalysis (Guernsey) Ltd. Channel Islands 100 Thermo BioAnalysis Holdings, Limited England 100 Thermo Fast U.K. Limited England 100 Dynex Technologies Limited England 100 Thermo BioAnalysis Limited England 100 Thermo LabSystems Limited England 100 Thermo BioAnalysis S.A. France 100 Thermo LabSystems S.A.R.L. France 100 Labsystems S.A.R.L. France 100 Thermo LabSystems (Australia) Pty Limited Australia 100 Thermo LabSystems Inc. Massachusetts 100 BioAnalysis Labsystems, S.A. Spain 100 Trace Scientific Limited Australia 100 Trace BioSciences Pty. Ltd. Australia 100 Trace BioSciences NZ Limited New Zealand 99 Trace America, Inc. Florida 100 Herbos Dijaganosticka Croatia 50 Shanghai Long March Chiron Trace Medical Science Co. China 22* Ltd. NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Thermo Environmental Instruments Inc. California 100 Andersen Instruments Inc. Delaware 100 Andersen Instruments Limited England 100 ESM Andersen Instruments GmbH Germany 100 MIE Corporation Massachusetts 100 Thermo Instruments do Brasil Ltda. Brazil 100 (1% of which shares are owned directly by Thermo Jarrell Ash Corporation) Van Hengel Holding B.V. Netherlands 100 Thermo Instrument Systems B.V. Netherlands 100 Euroglas B.V. Netherlands 100 Mesure de Traces S.A. Netherlands 100 ThIS Automation B.V. Netherlands 100 This Analytical B.V. Netherlands 100 This Gas Analysis B.V. Netherlands This Lab Systems B.V. Netherlands 100 This Scientific B.V. Netherlands 100 Thermo Instruments GmbH Germany 100 Thermo Jarrell Ash, S.A. Spain 100 Thermo Vision Corporation Delaware 97.10 (additionally, 2.90% of the shares are owned directly by Thermo Electron Corporation) CID Technologies Inc. New York 100 Centro Vision Inc. Delaware 100 Hilger Crystals Limited England 100 Laser Science, Inc. Delaware 100 Oriel Instruments Corporation Delaware 100 Thermo Vision Opticon Corporation Delaware 100 Thermo Power Corporation Massachusetts 100 NuTemp, Inc. Illinois 100 Peek Limited Scotland 100 Peek Data Limited England 100 Peek Group Services Limited England 100 Dubilier Warminster Limited England 100 International Resistance Co Limited England 100 Minicircuits Limited England 100 Peek International Limited England 100 Peek Corporation Delaware 100 Peek Traffic Inc. Delaware 100 Peek Traffic Systems Inc. Florida 100 Saratec Measurement Inc. Florida 100 Signal Control Company Delaware 100 Signal Maintenance, Inc. Delaware 100 StreeterAmet Inc. Delaware 100 NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Peek Traffic USA Inc. Florida 100 Peek Traffic GmbH Germany 100 Peek International B.V. Netherlands 100 Peek Projects BV Netherlands 100 Peek Promet doo Croatia 100 Peek Traffic A.B. Sweden 100 Linne Trafiksystems AB Sweden 100 Peek Trafikk AS Norway 100 Peek Parking Systems AB Sweden 100 Peek Trafik a-s Denmark 100 Peek Traffic B.V. Netherlands 100 Peek Limited Hong Kong 100 Peek Trafikk Sendirian Bermad Malaysia 100 Peek Traffic (Thailand) Limited Thailand 100 Sichuan Modern Control System Engineering China 41* Company Limited Peek Traffic OY Finland 100 Peek Investments, Limited England 100 Dubilier America, Inc. Delaware 100 Automatic Connector Inc. New York 100 Peek Systems Limited England 100 Sotwell Limited England 100 Peek Technology Limited England 100 Peek Traffic Limited England 100 GK Instruments Limited England 100 Sarasota Traffic Limited England 100 Streeteramet Limited England 100 Weighwrite Limited England 100 Radley Services Limited England 100 Atest Electronics Limited England 100 Bartsign Limited England 100 Greenpar Holdings Limited England 100 Helvetia Automatic Products Limited England 100 Peek Field Services Limited England 100 Peek Traffic Systems B.V. Netherlands 100 Radley (1) Limited England 100 Smartways Limited England 100 Tollstar Limited England 100 Tecogen Securities Corporation Massachusetts 100 T-Lyte Corporation Delaware 98 Optronics, Inc. Oklahoma 100 NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Thermo TerraTech Inc. Delaware 87.86 Holcroft (Canada) Limited Canada 100 Holcroft Corporation Delaware 100 Holcroft GmbH Germany 100 Metallurgical, Inc. Minnesota 100 Cal-Doran Metallurgical Services, Inc. California 100 Metal Treating Inc. Wisconsin 100 Normandeau Associates, Inc. New Hampshire 100 TMA/Hanford, Inc. Washington 100 The Randers Killam Group Inc. Delaware 94.78 (additionally, 0.99% of the shares are owned directly by Thermo Electron Corporation) Clark-Trombley Consulting Engineers, Inc. Michigan 100 Randers Engineering, Inc. Michigan 100 Randers Engineering of Massachusetts, Inc. Michigan 100 Randers Group Property Corporation Michigan 100 Redeco Incorporated Michigan 100 Viridian Technology Incorporated Michigan 100 The Killam Group, Inc. Delaware 100 CarlanKillam Consulting Group, Inc. Florida 100 CarlanKillam Consulting Group of Alabama, Inc. Alabama 100 Thermo Consulting & Design Inc. Delaware 100 Engineering Technology and Knowledge Corporation Delaware 100 Elson T. Killam Associates, Inc. New Jersey 100 BAC Killam Inc. New York 100 N.H. Bettigole Co., Inc. Delaware 100 CarlanKillam Construction Services, Inc. Florida 100 Duncan, Lagnese and Associates, Incorporated Pennsylvania 100 E3-Killam, Inc. New York 100 Killam Associates, Inc. Ohio 100 Killam Management and Operational Services, New Jersey 100 Inc. Fellows, Read & Associates, Inc. New Jersey 100 Killam Associates, New England Inc. Delaware 100 George A. Schock & Associates, Inc. New Jersey 100 Jennison Engineering, Inc. Vermont 100 Thermo Analytical Inc. Delaware 100 Skinner & Sherman, Inc. Massachusetts 100 NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ Thermo EuroTech (Delaware) Inc. Delaware 83.9 (additionally, 16.1% of the shares are owned directly by Thermo Electron Corporation) Thermo EuroTech N.V. Netherlands 91 Thermo EuroTech Ireland Ltd. Ireland 100 Green Sunrise Holdings Ltd. Ireland 70 AutoRod Ltd. Ireland 100 Green Sunrise Industries Ltd. Ireland 100 GreenStar Recycling Ltd. Ireland 100 Pipe & Drain Services Ltd. Ireland 100 Dempsey Drums Ltd. Ireland 100 GreenStar Products Ltd. Ireland 70 Grond- & Watersaneringstechniek Nederland B.V. Netherlands 100 Refining & Trading Holland B.V. Netherlands 100 ThermoRetec Corporation Delaware 69.69 (additionally, 1.95% of the shares are owned directly by Thermo Electron Corporation) Benchmark Environmental Corporation New Mexico 100 Eberline Holdings Inc. Delaware 100 Eberline Analytical Corporation New Mexico 100 Thermo Hanford Inc. Delaware 100 TMA/NORCAL Inc. California 100 ThermoRetec Construction Corporation Virginia 100 ThermoRetec Resource Planning & Management Systems Connecticut 100 Corporation ThermoRetec Consulting Corporation Delaware 100 GeoWest Golden Inc. Colorado 100 GeoWest TriTechnics of Ohio, LLC Colorado 100 Retec North Carolina, Inc. North Carolina 100 Retec Engineering P.C. New York 100 RETEC Thermal, Inc. Delaware 100 Thermo Fluids Inc. Delaware 100 TPS Technologies Inc. Florida 100 TPST Soil Recyclers of California Inc. California 100 California Hydrocarbon, Inc. Nevada 100 TPST Soil Recyclers of Maryland Inc. Maryland 100 Todds Lane Limited Partnership Maryland 100* (1% of which is owned directly by TPS Technologies Inc.) TPST Soil Recyclers of New York Inc. New York 100 TPST Soil Recyclers of Oregon Inc. Oregon 100 TPST Soil Recyclers of South Carolina Inc. Delaware 100 TPST Soil Recyclers of Virginia Inc. Delaware 100 TPST Soil Recyclers of Washington Inc. Washington 100 NAME STATE OR REGISTRANT'S JURISDICTION OF PERCENT OF INCORPORATION OWNERSHIP - ------------------------------------------------------------------------------------------------------------ TRI Oak Ridge Inc. Delaware 100 TRI Oak Ridge LLC Delaware 50 (additionally, 50% of the shares are owned directly by Coleman Services Incorporated) TRUtech L.L.C. Delaware 47.5* Thermo Securities Corporation Delaware 100 Thermo Technology Ventures Inc. Idaho 100 Plasma Quench Investment Limited Partnership Delaware 60* ThermoTrex Corporation Delaware 80.13 ThermoLase Corporation Delaware 70.57 (additionally, 13.82% of the shares are owned directly by Thermo Electron Corporation) Creative Beauty Innovations, Inc. Texas 100 ThermoLase England L.L.C. Delaware 46* ThermoLase (Scotland) Ltd. Scotland 100 ThermoLase (Ireland) Ltd. Ireland 100 ThermoLase UK Limited England 100 ThermoLase Iberica, S.A. Spain 100 ThermoLase (South Africa) Ltd. South Africa 100 ThermoLase International L.L.C. Delaware 100 ThermoLase Japan L.L.C. Wyoming 50* ThermoTrex East Inc. Massachusetts 100 Trex Medical Corporation Delaware 71.55 (additionally, 7.01% of the shares are owned directly by Thermo Electron Corporation) Trex Medical Systems Corporation Delaware 100 Trex Trophy Dental Inc. Virginia 100 Trex Medical France S.A. France 100 Trophy Radiologie S.A. France 100 Stephan'X S.A. France 100 SCI Boucher Debard Baudry Guillot France 100 Trophy Benelux S.A. Belgium 100 Trophy Radiologie Italia S.R.L. Italy 100 Trophy Radiologie Japan KK Japan 100 Trophy Radiologie GmbH Germany 100 P.T. Trophy Rajawali Indonesia Indonesia 51 Trophy Radiologia Espana SA Spain 100 Trophy Rontgen SAS Turkey 77 Trophy Radiologie U.K. Ltd. England 100 *Joint Venture/Partnership
EX-23 8 Exhibit 23 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation by reference of our reports dated February 17, 2000 (except with respect to the matters discussed in Note 17, as to which the date is March 7, 2000), included in or incorporated by reference into Thermo Electron Corporation's Annual Report on Form 10-K for the year ended January 1, 2000, into the Company's previously filed Registration Statement No. 33-00182 on Form S-8, Registration Statement No. 33-8993 on Form S-8, Registration Statement No. 33-8973 on Form S-8, Registration Statement No. 33-16460 on Form S-8, Registration Statement No. 33-16466 on Form S-8, Registration Statement No. 33-25052 on Form S-8, Registration Statement No. 33-37865 on Form S-8, Registration Statement No. 33-37867 on Form S-8, Registration Statement No. 33-36223 on Form S-8, Registration Statement No. 33-52826 on Form S-8, Registration Statement No. 33-52804 on Form S-8, Registration Statement No. 33-52806 on Form S-8, Registration Statement No. 33-52800 on Form S-8, Registration Statement No. 33-37868 on Form S-8, Registration Statement No. 33-43706 on Form S-3, Registration Statement No. 33-45603 on Form S-3, Registration Statement No. 33-51187 on Form S-8, Registration Statement No. 33-51189 on Form S-8, Registration Statement No. 33-54347 on Form S-8, Registration Statement No. 33-54453 on Form S-8, Registration Statement No. 333-00197 on Form S-3, Registration Statement No. 033-65237 on Form S-8, Registration Statement No. 033-61561 on Form S-8, Registration Statement No. 033-58487 on Form S-8, Registration Statement No. 333-01277 on Form S-3, Registration Statement No. 333-01809 on Form S-3, Registration Statement No. 333-01893 on Form S-3, Registration Statement No. 333-19549 on Form S-3, Registration Statement No. 333-19535 on Form S-8, Registration Statement No. 333-19633-01 on Form S-3, Registration Statement No. 333-34909-01 on Form S-3, Registration Statement No. 333-14265 on Form S-8, Registration Statement No. 333-62957 on Form S-3, Registration Statement No. 333-90761 on Form S-8, Registration Statement No. 333-90823 on Form S-8, Registration Statement No. 333-94627 on Form S-8, and Registration Statement No. 333-32035-01 on Form S-3. Arthur Andersen LLP Boston, Massachusetts March 21, 2000 EX-27.1 9 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO ELECTRON CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED JANUARY 1,2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-01-2000 JAN-01-2000 281,760 555,501 607,825 33,699 373,141 2,517,207 756,443 245,796 5,181,842 1,066,349 1,565,974 0 0 167,433 1,847,053 5,181,842 2,471,193 2,471,193 1,378,494 1,378,494 328,689 8,626 96,992 37,486 33,073 (14,580) (161,462) 1,469 0 (174,573) (1.10) (1.13)
EX-27.2 10 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO ELECTRON CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED JANUARY 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-01-2000 JAN-01-2000 268,340 1,059,069 513,904 26,938 330,507 2,926,383 771,093 236,844 5,421,060 763,373 1,798,582 0 0 166,971 2,087,831 5,421,060 2,055,805 2,055,805 1,127,253 1,127,253 151,604 5,002 90,329 254,493 104,571 114,676 66,785 440 0 181,901 1.12 1.08
EX-27.3 11
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO ELECTRON CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED JANUARY 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-01-2000 JAN-01-2000 505,612 790,343 465,643 25,796 313,114 2,796,096 697,786 187,719 4,961,046 794,134 1,508,687 0 0 159,206 1,848,656 4,961,046 1,979,602 1,979,602 1,058,331 1,058,331 112,933 4,981 84,214 353,121 131,970 174,665 64,663 0 0 239,328 1.57 1.41
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