SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
-------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
THERMO ELECTRON CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[THERMO LOGO]
81 Wyman Street
P.O. Box 9046
Waltham, MA 02454-9046
April 9, 2003
Dear Stockholder:
You are cordially invited to attend the 2003 Annual Meeting of Stockholders
of Thermo Electron Corporation, which will be held on Wednesday, May 14, 2003,
at 2:00 p.m. at the InterContinental The Barclay New York, 111 East 48th Street,
New York, New York.
The notice of meeting, proxy statement and proxy card enclosed with this
letter describe the specific business to be acted upon at the meeting. The
Company's 2002 Annual Report to Stockholders is also enclosed with this letter.
It is important that your shares of the Company's common stock be
represented and voted at the meeting regardless of the number of shares you may
hold. Whether or not you plan to attend the meeting in person, you can ensure
your shares of the Company's common stock are voted at the meeting by submitting
your instructions by telephone, the Internet, or in writing by returning the
enclosed proxy card. Please review the instructions in the enclosed proxy
statement and proxy card regarding each of these voting options.
Thank you for your continued support of the Company.
Yours very truly,
/s/ Marijn E. Dekkers
MARIJN E. DEKKERS
President and Chief Executive Officer
[THERMO LOGO]
81 Wyman Street
P.O. Box 9046
Waltham, MA 02454-9046
NOTICE OF ANNUAL MEETING
TO BE HELD MAY 14, 2003
April 9, 2003
To the Holders of the Common Stock of
THERMO ELECTRON CORPORATION
Notice is hereby given that the 2003 Annual Meeting of the Stockholders of
Thermo Electron Corporation ("Thermo Electron" or the "Company") will be held on
Wednesday, May 14, 2003, at 2:00 p.m. at the InterContinental The Barclay New
York, 111 East 48th Street, New York, New York. The purpose of the meeting is to
consider and take action upon the following matters:
1. Election of two directors, constituting the class of directors to be
elected for a three-year term expiring in the year 2006.
2. Approval of the Company's annual incentive award plan.
3. A stockholder proposal, if presented by its proponent at the meeting.
4. Such other business as may properly be brought before the meeting and
any adjournment thereof.
Stockholders of record at the close of business on March 28, 2003 are the
only stockholders entitled to notice of and to vote at the 2003 Annual Meeting
of Stockholders.
This notice, the proxy statement and proxy card enclosed herewith are sent
to you by order of the Board of Directors of the Company.
By Order of the Board of Directors,
/s/ Seth H. Hoogasian
SETH H. HOOGASIAN
Vice President, General Counsel and
Secretary
IMPORTANT
Whether you intend to attend the meeting in person, please ensure that your
shares of the Company's common stock are present and voted at the meeting by
submitting your instructions by telephone, the Internet, or in writing by
completing, signing, dating and returning the enclosed proxy card to our
transfer agent in the enclosed self-addressed envelope, which requires no
postage if mailed in the United States.
[THERMO LOGO]
81 Wyman Street
P.O. Box 9046
Waltham, MA 02454-9046
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of
proxies by Thermo Electron Corporation ("Thermo Electron" or the "Company") on
behalf of the Board of Directors of the Company (the "Board of Directors") for
use at the 2003 Annual Meeting of the Stockholders to be held on Wednesday, May
14, 2003, at 2:00 p.m. at the InterContinental The Barclay New York, 111 East
48th Street, New York, New York and any adjournments thereof. The mailing
address of the principal executive office of the Company is 81 Wyman Street,
P.O. Box 9046, Waltham, Massachusetts 02454-9046. This proxy statement and
enclosed proxy card are being first furnished to stockholders of the Company on
or about April 9, 2003.
VOTING PROCEDURES
Purpose of Annual Meeting
At the 2003 Annual Meeting of Stockholders, stockholders entitled to vote
at the meeting will consider and act upon the matters outlined in the notice of
meeting accompanying this proxy statement, including the election of two
directors constituting the class of directors to be elected for a three-year
term expiring in 2006, approval of the Company's annual incentive award plan,
and one stockholder proposal, if presented by its proponent at the meeting.
Voting Securities and Record Date
Only stockholders of record at the close of business on March 28, 2003, the
record date for the meeting, are entitled to vote at the meeting or any
adjournments thereof. On March 28, 2003, the outstanding voting securities of
the Company consisted of 162,053,959 shares of the Company's common stock, par
value $1.00 per share ("Common Stock"). Each share of Common Stock outstanding
on the record date is entitled to one vote.
Quorum
The presence at the meeting, in person or by proxy, of a majority of the
outstanding shares of the Common Stock entitled to vote at the meeting will
constitute a quorum for the transaction of business at the meeting. Votes of
stockholders of record present at the meeting in person or by proxy,
abstentions, and broker non-votes (as defined below) are counted as present or
represented at the meeting for purpose of determining whether a quorum exists.
Manner of Voting
Stockholders of Record
Shares entitled to be voted at the meeting can only be voted if the
stockholder of record of such shares either: is present at the meeting; returns
a signed proxy card; or authorizes proxies to vote his or her shares by
telephone or over the Internet. Shares represented by valid proxy will be voted
in accordance with your instructions. If you choose to vote your shares by
telephone or over the Internet, you should follow the instructions provided on
the proxy card. The voting instructions for telephone and Internet voting are
designed to verify stockholders through the use of a specific Control Number
that is printed on each proxy card. In voting by telephone or over the Internet,
you will be allowed to confirm that your instructions have been properly
recorded.
Participants in the Thermo Electron Choice Plan
If you hold your shares through the Thermo Electron Choice Plan (the
"Plan"), your proxy represents the number of shares in your Plan account. For
those shares in your Plan account, the proxy card will serve as a voting
instruction for the trustee of the Plan. If you do not provide voting
instructions to the trustee, your shares will not be voted by the trustee on
your behalf.
Beneficial Stockholders
If you hold your shares through a broker, bank or other representative
("broker or representative"), you can only vote your shares in the manner
prescribed by the broker or representative. Detailed instructions of a broker or
representative will generally be included with your proxy material. These
instructions may also include information on whether your shares can be voted by
telephone or over the Internet. If you choose to vote your shares by telephone
or over the Internet, you should follow the instructions provided by the broker
or representative.
Voting and Revocability of Proxies
If you sign and return your proxy card or vote by telephone or over the
Internet without indicating specific choices, your shares will be voted FOR the
nominees for directors, FOR approval of the annual incentive award plan, and
AGAINST the stockholder proposal. Should any other matter be properly presented
at the meeting, the persons named in the proxy card will vote on such matter in
accordance with their judgment.
If you sign and return your proxy card marked "abstain" or "withhold" on
any proposal or choose the same options when voting by telephone or over the
Internet, your shares will not be voted on that proposal and will not be counted
as votes cast in the final tally of votes with regard to that proposal. However,
your shares will be counted for purposes of determining whether a quorum is
present.
If you hold your shares as a beneficial owner rather than a stockholder of
record, your broker or representative may only vote the shares that it holds for
you in accordance with your instructions. However, if it has not timely received
your instructions, that broker or representative may only vote on certain
matters for which it has discretionary voting authority. If that broker or
representative cannot vote on a particular matter because it does not have
discretionary voting authority, this is called a "broker non-vote" on that
matter.
If there is a broker non-vote on any proposal, your shares will not be
voted on that proposal and will not be counted as votes cast in the final tally
of votes with regard to that proposal. However, your shares will be counted for
purposes of determining whether a quorum is present.
A stockholder who votes his or her shares by telephone or Internet, or who
returns a proxy card, may revoke the proxy at any time before the stockholder's
shares are voted at the meeting by entering new votes by telephone or over the
Internet, by written notice to the Secretary of the Company received prior to
the meeting, by executing and returning a later dated proxy card prior to the
meeting, or by voting by ballot at the meeting.
Vote Required for Approval
The nominees for directors will be elected by a plurality of the votes of
shares cast in person or by proxy and entitled to vote at the meeting.
Withholding a vote for nominees and broker non-votes will not have an effect on
the election of nominees for directors.
The proposal to approve the Company's annual incentive award plan requires
an affirmative majority of the votes cast at the meeting for approval.
Abstentions and broker non-votes will not be counted as votes cast with respect
to this proposal and therefore will not have an effect on the determination of
whether stockholder approval of the matter has been obtained.
The stockholder proposal requires the affirmative vote of a majority of the
shares present or represented and entitled to vote at the meeting to be
approved. Abstentions will have the same effect as a vote against the proposal,
and broker non-votes will not have an effect on the determination of whether
stockholder approval of the matter has been obtained.
2
- PROPOSAL 1-
ELECTION OF DIRECTORS
Effective at the 2003 Annual Meeting of Stockholders, the number of
directors constituting the full Board of Directors of the Company (the "Board of
Directors") is fixed at eight, divided into three classes, one of which consists
of two directors and the other two consist of three directors each. Each class
is elected for a three-year term at successive Annual Meetings of Stockholders.
In all cases, directors hold office until their successors have been elected and
qualified, or until their earlier resignation, death or removal. Mr. Jim P.
Manzi and Ms. Elaine S. Ullian are listed below as nominees for the three-year
term expiring at the 2006 Annual Meeting of Stockholders. Each of the nominees
is currently a director of the Company. If any of the nominees is unavailable to
serve as director, an event that is not anticipated, the persons named as
proxies have full discretion to vote for any other persons who may be nominated.
In 2001, the Board of Directors adopted a mandatory retirement policy for
members of the Board of Directors. The policy states that no director will be
renominated for election after reaching the age of 70. Directors who are already
over 70 years of age will serve out their term of office, but will not be
nominated for election when their term of office expires. In accordance with
this policy, Mr. Peter O. Crisp, who has served as a director of the Company
since 1974, is retiring from the Board of Directors at the 2003 Annual Meeting
of Stockholders. The Company recognizes with gratitude and appreciation the
leadership, service and dedication of Mr. Crisp.
Nominees and Incumbent Directors
Set forth below are the names of the persons nominated as directors and
directors whose terms do not expire this year, their ages, their offices in the
Company, if any, their principal occupations or employment for the past five
years, the length of their tenure as directors and the names of other public
companies in which they hold directorships. Information regarding their
beneficial ownership of Common Stock is reported under the caption "Stock
Ownership".
Nominees for Directors Whose Term of Office Will Expire in 2006
Jim P. Manzi Mr. Manzi, 51, has been a director of the Company since May
2000. He has served as the chairman of Stonegate Capital, a firm he formed to
manage his personal investment activities in technology startup ventures,
primarily related to the Internet, since 1995. From 1984 until 1995, he was the
chairman, president and chief executive officer of Lotus Development
Corporation, a software manufacturer that was acquired by IBM Corporation in
1995.
Elaine S. Ullian Ms. Ullian, 55, has been a director of Thermo Electron
since July 2001. Ms. Ullian has been president and chief executive officer of
Boston Medical Center, a 550-bed academic medical center affiliated with Boston
University, since July 1996. Ms. Ullian is also a director of Hologic, Inc. and
Vertex Pharmaceuticals, Inc.
Incumbent Directors Whose Term of Office Will Expire in 2005
John L. LaMattina Dr. LaMattina, 53, has been a director of the Company
since January 2002. He has served since April 2000 as vice president of Pfizer
Inc., a pharmaceutical company, executive vice president, Pfizer Global Research
and Development, and president, Pfizer Worldwide Research and Technology
Alliances. From September 1998 until April 2000, Dr. LaMattina was the senior
vice president of Worldwide Discovery, Pfizer Central Research. Previously, he
served as vice president of Pfizer's U.S. Discovery unit.
Michael E. Porter Dr. Porter, 55, has been a director of Thermo Electron
since July 2001. Dr. Porter is the Bishop William Lawrence University Professor
at the Harvard Business School, and a leading authority on competitive strategy
and international competitiveness. Dr. Porter is also a director of Inforte
Corp. and Parametric Technology Corporation.
Richard F. Syron Mr. Syron, 59, has been a director of the Company since
1997 and chairman of the Board of Directors since January 2000. He was appointed
executive chairman of the Company in November 2002. From June 1999 to November
2002, Mr. Syron served as chief executive officer of the Company. He also served
as president of the Company from June 1999 to July 2000. From April 1994 to May
1999, Mr. Syron served as the chairman and chief executive officer of the
American Stock Exchange, Inc. Mr. Syron is also a director of John Hancock
Financial Services, Inc., McKesson Corporation and Nabors Industries Ltd.
3
Incumbent Directors Whose Term of Office Will Expire in 2004
Marijn E. Dekkers Mr. Dekkers, 45, has been a director and the president of
the Company since July 2000. In November 2002 he was appointed chief executive
officer of the Company. From July 2000 to November 2002, he also served as the
chief operating officer of the Company. From June 1999 to July 2000, he served
as the president of Honeywell International Inc.'s (formerly AlliedSignal Inc.)
electronic materials division; from August 1997 to May 1999, he served as vice
president and general manager of its fluorine products division; and from July
1995 to July 1997, he served as vice president and general manager of its
specialty films division.
Robert A. McCabe Mr. McCabe, 68, has been a director of the Company since
1962. He has been the chairman of Pilot Capital Corporation, which is engaged in
private investments, since 1998, and also served as the president of Pilot
Capital Corporation from 1987 to 1998. Mr. McCabe is also a director of Church &
Dwight Co., Inc.
Robert W. O'Leary Mr. O'Leary, 59, has been a director of the Company since
June 1998. He has served as the chief executive officer and chairman of the
board of ICN Pharmaceuticals, Inc., a research-based global pharmaceutical
company, since June 2002. From January 2001 to June 2002, he served the chairman
and chief executive officer of The Sagamore Group, a firm specializing in change
management situations with a focus on the service sector. He was the president
and chief executive officer of PacificCare Health Systems Inc., a managed health
services company, from July 2000 to October 2000. From January 1996 until June
2000, Mr. O'Leary was the chairman of Premier Inc., a strategic alliance of
not-for-profit health care and hospital systems. From January 1996 until
September 1998 he also served as chief executive officer of Premier Inc. Mr.
O'Leary is also a director of Smiths Group PLC and Viasys Healthcare Inc.
Committees of the Board of Directors and Meetings
The Board of Directors has established an audit committee ("Audit
Committee"), a human resources committee ("Human Resources Committee") and a
nominating and corporate governance committee ("Nominating and Corporate
Governance Committee"). The Board of Directors met 8 times, the Audit Committee
met 12 times, the Human Resources Committee met 5 times and the Nominating and
Corporate Governance Committee met 5 times during fiscal year 2002. Each
director attended at least 75% of the aggregate of all meetings of the Board of
Directors and all meetings of the committees on which he or she served that were
held during fiscal year 2002.
Audit Committee
The Audit Committee consists solely of directors who meet the independence
guidelines set forth in the listing requirements of the New York Stock Exchange
("NYSE") and its present members are Mr. McCabe (Chairman), Mr. Manzi and Ms.
Ullian. The Audit Committee, among other things, reviews the scope of the audit
with the Company's independent accountants and meets with them for the purpose
of reviewing the results of the audit subsequent to its completion. The Audit
Committee acts pursuant to the charter attached as Appendix A to this proxy
statement.
Human Resources Committee
The Human Resources Committee consists solely of directors who are not
employees of the Company ("outside directors") and its present members are Mr.
Manzi (Chairman), Mr. Crisp and Mr. O'Leary. The Human Resources Committee,
among other things, reviews the performance of senior management, approves
senior management compensation, and administers the Company's stock-based
compensation plans.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee consists solely of
outside directors and its present members are Mr. O'Leary (Chairman), Dr. Porter
and Dr. LaMattina. The Nominating and Corporate Governance Committee, among
other things, reviews the credentials of proposed nominees for directors,
recommends to the Board of Directors nominees to fill vacancies or nominees for
election at the Annual Meeting of Stockholders, and reviews Board of Director
and committee organization and structure. The Nominating and Corporate
Governance Committee will consider stockholder recommendations for nominees sent
to the committee to the attention of the secretary of the Company at the
principal executive office of the Company. In addition, the Nominating and
Corporate Governance Committee reviews and monitors the Company's principles and
policies of corporate governance, business code of conduct and ethical
responsibilities.
4
Compensation of Directors
Cash Compensation
Outside directors receive an annual retainer of $28,000 and a fee of $1,000
per meeting for attending in person meetings of the Board of Directors and its
committees and $500 per meeting for participating in meetings of the Board of
Directors and its committees held by means of conference telephone. Outside
directors resident on the west coast receive an additional $1,000 per meeting
attended in person for travel time incurred in attending such meeting. Payment
of directors' fees is made quarterly. Messrs. Dekkers and Syron are full-time
employees of the Company and do not receive any cash compensation from the
Company for their service as a director or committee member. Directors are also
reimbursed for out-of-pocket expenses incurred in attending these meetings.
Deferred Compensation Plan for Directors
Under the Company's deferred compensation plan for directors (the
"Directors Deferred Compensation Plan"), a director has the right to defer
receipt of his or her cash fees until he or she ceases to serve as a director,
dies or retires from his or her principal occupation. In the event of a change
in control or proposed change in control of the Company that is not approved by
the Board of Directors, deferred amounts become payable immediately. Any of the
following are deemed to be a change of control: (i) the acquisition by any
person of 40% or more of the outstanding common stock or voting securities of
the Company; (ii) the failure of the Board of Directors to include a majority of
directors who are "continuing directors", which term is defined to include
directors who were members of the Board of Directors on July 1, 1999 or who
subsequent to that date were nominated or elected by a majority of directors who
were "continuing directors" at the time of such nomination or election; (iii)
the consummation of a merger, consolidation, reorganization, recapitalization or
statutory share exchange involving the Company or the sale or other disposition
of all or substantially all of the assets of the Company unless immediately
after such transaction (a) all holders of the Common Stock immediately prior to
such transaction own more than 60% of the outstanding voting securities of the
resulting or acquiring corporation in substantially the same proportions as
their ownership immediately prior to such transaction and (b) no person after
the transaction owns 40% or more of the outstanding voting securities of the
resulting or acquiring corporation; or (iv) approval by stockholders of a
complete liquidation or dissolution of the Company. Amounts deferred pursuant to
the Directors Deferred Compensation Plan are valued at the end of each quarter
as units of Common Stock. When payable, amounts deferred may be disbursed solely
in shares of Common Stock accumulated under the Directors Deferred Compensation
Plan. As of December 28, 2002, a total of 582,663 shares of Common Stock were
reserved for issuance under the Directors Deferred Compensation Plan and
deferred units equal to approximately 281,575 shares of Common Stock were
accumulated under the Directors Deferred Compensation Plan.
Stock-Based Compensation
Outside directors of the Company are eligible for the discretionary grant
of stock options under the Company's equity incentive plan, which is
administered by the Human Resources Committee. In June 2002 the Company granted
each outside director of the Company an option to purchase 10,000 shares of
Common Stock. The Company's current policy is to also award options to purchase
15,000 shares to any new director of the Company upon his or her appointment as
a director. These options vest in three equal annual installments and expire on
the seventh anniversary of the grant date. The exercise price for these options
is the average of the closing prices of the Common Stock as reported on the NYSE
for the five trading days immediately preceding and including the grant date.
In addition, the Company's directors stock option plan (the "Directors
Stock Option Plan") provides for the automatic grant of stock options to
purchase shares of Common Stock to outside directors as additional compensation
for their service as directors. Pursuant to the Directors Stock Option Plan,
outside directors receive an annual grant of options to purchase 1,000 shares of
Common Stock at the close of business on the date of each Annual Meeting of
Stockholders of the Company. Options evidencing annual grants are immediately
exercisable at any time from and after the grant date and expire on the seventh
anniversary of the grant date, except that options granted prior to February
2002 expire on the third anniversary of the grant date. The exercise price for
options granted under the Directors Stock Option Plan is the average of the
closing prices of the Common Stock as reported on the NYSE for the five trading
days immediately preceding and including the grant date. As of February 7, 2003,
options to purchase 19,782 shares of Common Stock were outstanding under the
Directors Stock Option Plan, options to purchase 106,787 shares of Common Stock
had been exercised since inception of the Directors Stock Option Plan, and
options to purchase 658,425 shares of Common Stock were available for future
grant.
5
Stock Ownership Policy for Directors
The Human Resources Committee has established a stock holding policy for
directors of the Company. The stock holding policy requires each director to
hold a minimum of 1,000 shares of Common Stock. Directors are requested to
achieve this ownership level within a three-year period. The chief executive
officer of the Company is required to comply with a separate stock holding
policy established by the Human Resources Committee, which is described in
"Committee Report on Executive Compensation--Stock Ownership Policy".
STOCK OWNERSHIP
The following table sets forth, as of February 7, 2003, the beneficial
ownership of Common Stock by (a) each director and nominee for director, (b)
each of the Company's executive officers named in the summary compensation table
set forth below under the heading "Executive Compensation" (the "named executive
officers"), and (c) all directors and current executive officers as a group. In
addition, the following table sets forth the beneficial ownership of Common
Stock, as of February 7, 2003, with respect to each person who was known by the
Company to own beneficially more than 5% of the outstanding shares of Common
Stock. Directors of the Company also have interests in stock-based units under
the Directors Deferred Compensation Plan. While these units may not be voted or
transferred, they are listed in the table below as they represent the total
economic interest of the directors in the Common Stock.
Options Percent of
Exercisable Shares Deferred
Name(1) Shares (2) within 60 Days(3) Total Beneficially Owned Stock Units
------- ---------- ----------------- ----- ------------------ -----------
Dodge & Cox(4)................................. 18,665,624 - 18,665,624 11.44% -
FMR Corp.(5)................................... 15,828,191 - 15,828,191 9.70% -
Wellington Management Company, LLP(6).......... 11,046,767 - 11,046,767 6.77% -
Iridian Asset Management LLC(7)................ 9,640,457 - 9,640,457 5.91% -
Guy Broadbent.................................. 4,850 150,208 155,058 * -
Marc N. Casper................................. 4,247 91,666 95,913 * -
Peter O. Crisp................................. 88,257 4,205 92,462 * 57,306
Marijn E. Dekkers.............................. 56,448 930,182 986,630 * -
Seth H. Hoogasian.............................. 16,465 265,926 282,391 * -
Barry S. Howe.................................. 40,166 467,766 507,932 * -
John L. LaMattina.............................. 2,000 6,000 8,000 * -
Jim P. Manzi................................... - 19,606 19,606 * 5,562
Robert A. McCabe............................... 48,840 4,036 52,876 * 40,384
Theo Melas-Kyriazi............................. 80,900 740,728 821,628 * -
Robert W. O'Leary.............................. 31,606 15,833 47,439 * 10,201
Michael E. Porter.............................. 4,585 6,814 11,399 * -
Richard F. Syron............................... 87,768 1,811,714 1,899,482 1.15% 2,914
Elaine S. Ullian............................... - 6,814 6,814 * 3,544
All directors and current executive officers as
a group (15 persons)........................... 478,544 4,604,775 5,083,319 3.03% 119,911
* Less than one percent.
(1) Except as reflected in the footnotes to this table, shares of Common Stock
beneficially owned consist of shares owned by the indicated person or by that
person for the benefit of minor children, and all share ownership includes sole
voting and investment power.
(2) Shares of Common Stock beneficially owned by Mr. Broadbent, Mr. Dekkers, and
Mr. Syron, and all directors and current executive officers as a group, include:
2,000, 20,000, 37,177, and 59,177 shares, respectively, of restricted Common
Stock that may not be sold or transferred until future vesting dates. Shares of
Common Stock beneficially owned by Mr. Hoogasian, Mr. Howe, and Mr.
Melas-Kyriazi, and all directors and current executive officers as a group,
include: 429, 2,769, 1,740, and 5,500 shares, respectively, held in the
Company's 401(k) Plan. Shares of Common Stock beneficially owned by Mr.
Melas-Kyriazi include 1,621 shares issuable upon conversion of $100,000 in
principal amount of the Company's 0% convertible subordinated debentures due
2003. Shares of Common Stock beneficially owned by
6
Mr. O'Leary include 13,000 shares held in a family trust of which Mr. O'Leary
and his spouse are the trustees, each of whom as trustee has sole voting and
dispositive power.
(3) Options exercisable within 60 days include options to purchase 54,056,
197,531, 150,715, 6,977, and 5,814 shares of Common Stock granted prior to July
2000 for Messrs. Hoogasian, Howe, Melas-Kyriazi, O'Leary and Syron,
respectively, which are currently exercisable but subject to certain transfer
restrictions, including the right of the Company to repurchase, at the exercise
price, the shares issued upon exercise of the options, upon certain events,
primarily cessation of employment with the Company. These restrictions lapse
over time, assuming continued service.
(4) This information was obtained from the Schedule 13G filed with the
Securities and Exchange Commission on February 13, 2003 by Dodge & Cox, One
Sansome Street, 35th Floor, San Francisco, CA 94104, which reported such
ownership as of December 31, 2002. These shares are owned by clients of Dodge &
Cox, an investment advisor. Dodge & Cox has sole voting power with respect to
17,329,224 shares, shared voting power with respect to 341,800 shares, and sole
dispositive power with respect to all shares.
(5) This information was obtained from the Schedule 13G filed with the
Securities and Exchange Commission on February 14, 2003 by FMR Corp., Edward C.
Johnson 3rd, Abigail P. Johnson, and Fidelity Management & Research Company,
which reported such ownership as of December 31, 2002. The address of these
persons is 82 Devonshire Street, Boston, Massachusetts 02109. The shares are
beneficially owned as follows: by Fidelity Management & Research Company
("FM&RC"), a wholly-owned subsidiary of FMR Corp. and registered investment
advisor to various investment companies ("Fidelity Funds"), 14,503,270 shares;
Fidelity Management Trust Company ("FMTC"), a wholly-owned subsidiary of FMR
Corp., 950,170 shares as a result of its serving as investment manager of
various institutional accounts; Strategic Advisers, Inc., a wholly-owned
subsidiary of FMR Corp., 225 shares; Geode Capital Management, LLC ("Geode"), an
entity indirectly owned by certain employees and shareholders of FMR Corp., 625
shares; and Fidelity International Limited ("FIL"), an entity of which
approximately 40% of the voting power is owned by a partnership controlled by
Mr. Johnson and members of his family, 373,901 shares. Mr. Johnson, FMR Corp.,
and the Fidelity Funds each has sole dispositive power with respect to
14,503,270 shares owned by the Fidelity Funds. Neither Mr. Johnson nor FMR Corp.
has sole voting power with respect to the shares owned by the Fidelity Funds,
which power rests with the Boards of Trustees of the Fidelity Funds. Of the
950,170 shares owned by institutional accounts managed by FMTC, Mr. Johnson and
FMR Corp. each has sole dispositive power with respect to 950,170 shares, sole
voting power with respect to 887,450 shares, and no voting power with respect to
62,720 shares. FIL has sole voting and dispositive power with respect to 373,901
shares. Members of Mr. Johnson's family may be deemed to form a controlling
group with respect to FMR Corp.
(6) This information was obtained from the Schedule 13G filed with the
Securities and Exchange Commission on February 12, 2003 by Wellington Management
Company, LLP ("Wellington"), 75 State Street, Boston, Massachusetts 02109, which
reported such ownership as of December 31, 2002. These shares are held of record
by clients of Wellington, an investment advisor. Wellington has shared voting
power with respect to 6,585,067 shares and no voting power with respect to the
balance of the shares, and shared dispositive power with respect to all of the
shares.
(7) This information was obtained from the Schedule 13G filed with the
Securities and Exchange Commission on February 11, 2003 by The Governor and
Company of the Bank of Ireland ("Bank of Ireland"), IBI Interfunding ("IBI"),
BancIreland/First Financial, Inc. ("BancIreland"), BIAM (US) Inc., Iridian Asset
Management LLC ("Iridian"), COLE Partners LLC ("COLE"), Iridian Partners Fund,
L.P. ("Iridian Partners"), Iridian Investors, L.P. ("Iridian Investors"),
Iridian Private Business Value Equity Fund, L.P. ("Iridian Private Business"),
David L. Cohen and Harold J. Levy, which reported such ownership as of December
31, 2002. The address of Bank of Ireland and IBI is Lower Baggot Street, Dublin
2, Ireland. The address of BancIreland is Junction Marketplace #27, 1011 N. Main
Street, White River Junction, Vermont 05501. The address of BIAM (US) Inc. is
Liberty Park #15, 282 Route 101, Amherst, New Hampshire 03110. The address of
Iridian, COLE, Iridian Partners, Iridian Investors, Iridian Private Business,
Mr. Cohen and Mr. Levy is c/o Iridian Asset Management LLC, 276 Post Road West,
Westport, Connecticut 06880-4704. Iridian has direct beneficial ownership of the
8,937,057 shares of Common Stock in the accounts that it manages, including the
power to vote or dispose of such shares. Messrs. Cohen and Levy may be deemed to
share such power with Iridian. In addition, Iridian is the investment adviser
for Iridian Partners (which owns 31,800 shares), Iridian Investors (which owns
26,800 shares) and Iridian Private Business (which owns 242,800 shares). In such
capacity, Iridian has the right to vote and direct the disposition of shares
held by such entities and, consequently, has beneficial ownership of such
shares. COLE (in addition to Messrs. Cohen and Levy) may be deemed to share such
power with Iridian. BIAM (US) Inc., as the controlling member of Iridian, may be
deemed to possess beneficial ownership of the shares of Common Stock
beneficially owned by Iridian. BancIreland, as the sole shareholder of BIAM (US)
Inc., may be deemed to possess
7
beneficial ownership of the shares of Common Stock beneficially owned by BIAM
(US) Inc. IBI, as the sole shareholder of BancIreland, may be deemed to possess
beneficial ownership of the shares of Common Stock beneficially owned by
BancIreland. Bank of Ireland, as the sole shareholder of IBI, may be deemed to
possess beneficial ownership of the shares of Common Stock beneficially owned by
IBI. Messrs. Cohen and Levy may be deemed to possess beneficial ownership of the
shares of Common Stock beneficially owned by Iridian by virtue of having the
power to vote and direct the disposition of shares of Common Stock as joint
chief investment officers of Iridian. Messrs. Cohen and Levy disclaim beneficial
ownership of such shares. COLE, as the sole general partner of Iridian Partners,
Iridian Investors and Iridian Private Business, may be deemed to own
beneficially shares of Common Stock for which Iridian Partners, Iridian
Investors and Iridian Private Business may be deemed to possess direct
beneficial ownership. Iridian, as the sole member of COLE, may be deemed to
possess beneficial ownership of the shares of Common Stock that are beneficially
owned by COLE. Messrs. Cohen and Levy, by virtue of their ability to exercise
shared voting and dispositive power over the shares of Common Stock beneficially
owned by First Eagle Fund of America (which owns 402,000 shares) pursuant to
their employment arrangements with Arnold & S. Bleichroeder Advisers, Inc.
("A&SB Advisers"), may be deemed to possess beneficial ownership of such shares.
Messrs. Cohen and Levy disclaim beneficial ownership of such shares for all
other purposes. Effective January 1, 2003, the employment relationship between
each of Messrs. Cohen and Levy terminated, and Iridian became a sub-advisor to
A&SB Advisors for the provision of investment management services to First Eagle
Fund of America.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's directors and executive officers, and
beneficial owners of more than 10% of the Common Stock, to file with the
Securities and Exchange Commission initial reports of ownership and periodic
reports of changes in ownership of the Company's securities. Based upon a review
of such filings, all Section 16(a) filing requirements applicable to such
persons were complied with during 2002 except that Mr. Guy Broadbent, an
executive officer of the Company, filed a late Form 4 with respect to the
withholding for taxes of shares of Common Stock in connection with the vesting
of a restricted stock award.
8
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes compensation for services to the Company
received during the last three fiscal years by the two persons who served as the
Company's chief executive officer during fiscal year 2002 and the five other
most highly compensated executive officers who were employed by the Company as
of the end of fiscal year 2002. On November 21, 2002, Mr. Dekkers, previously
president and chief operating officer, was appointed chief executive officer and
Mr. Syron, formerly chief executive officer, was appointed executive chairman.
The executive officers listed below are collectively referred to in this proxy
statement as the "named executive officers".
Summary Compensation Table
------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
Restricted Securities
Name and Fiscal Annual Compensation Stock Underlying All Other
Principal Position Year Salary Bonus Award Options (1) Compensation (2)
----------------- ------ ------ ----- ---------- ----------- ----------------
Marijn E. Dekkers 2002 $533,333 (3) $430,000 (3) $2,008,000 (4) 980,000 $31,985 (5)
President and Chief 2001 $500,000 $425,000 -- 237,090 (6) $28,619 (5)
Executive Officer 2000 $238,095 (7) $500,000 (7) $1,410,000 (8) 1,060,156 (6) $290,633 (5)(9)
------------------------------------------------------------------------------------------------------------------------
Richard F. Syron 2002 $800,000 $741,600 $4,445,219 (10)(11) 780,000 $1,841,213 (12)
Executive Chairman 2001 $800,000 $800,000 $199,716 (10) 302,368 $38,942 (13)
2000 $800,000 $1,120,000 $1,558,805 (10) 348,886 $152,277 (14)
------------------------------------------------------------------------------------------------------------------------
Marc N. Casper (15) 2002 $300,000 $225,000 -- 100,000 $17,500
President, Life and 2001 $26,136 $0 -- 275,000 $201,458 (16)
Laboratory Sciences
------------------------------------------------------------------------------------------------------------------------
Seth H. Hoogasian (17) 2002 $316,200 $162,850 -- 142,500 $31,295
General Counsel 2001 $307,000 $185,000 -- (18) 44,191 $29,959
------------------------------------------------------------------------------------------------------------------------
Theo Melas-Kyriazi 2002 $305,900 $157,540 -- 150,000 $29,380
Chief Financial Officer 2001 $297,000 $185,000 -- 34,306 $28,038
2000 $280,000 $240,000 $577,500 (19) -- $25,150
------------------------------------------------------------------------------------------------------------------------
Guy Broadbent (20) 2002 $300,000 $154,500 -- 100,000 $27,630
President, Optical 2001 $270,000 $150,000 -- (21) 171,518 $18,161
Technologies
------------------------------------------------------------------------------------------------------------------------
Barry S. Howe (22) 2002 $300,000 $154,500 -- 150,000 $29,491
President, Measurement 2001 $270,000 $150,000 -- 46,518 $28,226
and Control
------------------------------------------------------------------------------------------------------------------------
(1) As part of the Company's spinout strategy, certain subsidiaries of the
Company sold minority interests to investors resulting in several
majority-owned, private and publicly-held subsidiaries and granted options to
purchase shares of these subsidiaries to employees and directors of Thermo
Electron companies as part of its compensation program. During 1999 and 2000,
the Company effected a major reorganization that, among other things, resulted
in the acquisition of the minority interest of substantially all of its
subsidiaries that had minority investors and the assumption by the Company of
the outstanding options to purchase shares of the subsidiaries. In 2001, the
Company spun off to its shareholders all of the shares of Kadant Inc. (formerly
known as Thermo Fibertek Inc.) and, as a result, all of the options held by
employees of the Company in Kadant Inc. and its publicly-owned subsidiary,
Thermo Fibergen Inc., were converted into options to purchase shares of the
Company. In addition, in 2002, the Company took private its last publicly owned
subsidiary Spectra-Physics, Inc. and, as a result, all of the options to
purchase shares of Spectra-Physics became options to purchase shares of the
Company. Options granted in fiscal years 2000 and 2001 in the table above have
also been restated to reflect adjustments made to the number and exercise prices
of the options as a result of the spin-off to shareholders by the Company of its
Kadant Inc. and Viasys Healthcare Inc. subsidiaries in August 2001 and November
2001, respectively.
9
(2) This amount includes (a) matching contributions made on behalf of the named
executive officers by the Company pursuant to the Company's 401(k) plan, except
for Mr. Dekkers in 2000, Mr. Broadbent in 2001, and Mr. Casper in 2001 and 2002,
(b) a car allowance, (c) an allowance for medical related expenses, and (d) with
respect to fiscal years 2001 and 2002 only, premiums paid by the Company with
respect to long-term disability insurance for the benefit of the named executive
officers, except for Mr. Casper in 2001 and 2002. For 2002, the dollar value of
each such benefit was $12,500 each for the car allowance, $9,000 each, except
for $8,500 for Mr. Howe, for matching 401(k) contributions, $5,000 each for the
medical expense allowance, and $3,185, $4,822, $4,795, $2,880, $1,130, and
$3,491 for Messrs. Dekkers, Syron, Hoogasian, Melas-Kyriazi, Broadbent and Howe,
respectively, for long-term disability insurance premiums.
(3) The salary and bonus reported for 2002 represents the amount paid for the
portion of the year during which Mr. Dekkers performed services as chief
executive officer and for the portion of the year in which Mr. Dekkers performed
services for the Company in his capacity as president and chief operating
officer. See "Executive Compensation - Employment Agreements with Messrs.
Dekkers and Syron".
(4) In November 2002, Mr. Dekkers was awarded 100,000 restricted Common Stock
units valued at $2,008,000 on the grant date, pursuant to the terms of his
employment agreement, that vest in equal annual installments over the three-year
period commencing on the grant date and, provided further, the units do not
become shares of Common Stock nor do the restrictions on transfer lapse until
Mr. Dekkers ceases to be an employee of the Company.
(5) In addition to the items referred to in footnote (2), this amount includes
$2,300 paid in each of fiscal years 2002, 2001, and 2000 by the Company as
premiums for a term life insurance policy for the benefit of Mr. Dekkers.
(6) Options granted in 2000 and 2001 to Mr. Dekkers include options to purchase
13,496 and 4,499 shares of Common Stock, respectively, which had been converted
from options to purchase shares of a subsidiary of the Company. See footnote (1)
above.
(7) Mr. Dekkers was appointed president and chief operating officer of the
Company on July 11, 2000. The salary reported for fiscal 2000 represents the
amount paid for the portion of the year during which Mr. Dekkers performed
services for the Company. Mr. Dekkers' employment agreement provided that his
bonus for fiscal 2000 was not subject to proration.
(8) Upon Mr. Dekkers' appointment as president and chief operating officer in
July 2000, he was awarded 60,000 shares of restricted Common Stock with a value
of $1,410,000 on the grant date that vest in equal annual installments over the
three-year period commencing on the grant date. Any cash dividends paid on the
restricted shares are entitled to be retained by Mr. Dekkers without regard to
vesting, however, any non-cash dividends are subject to the same vesting
restrictions as the original restricted shares. At the end of fiscal 2002, Mr.
Dekkers held 120,000 shares of restricted Common Stock and restricted Common
Stock units with an aggregate value of $2,461,924 (including the value
attributable to restricted shares of Kadant and Viasys received in connection
with the spin-off of such companies in August and November 2001, respectively).
(9) This amount includes the payment by the Company of a $280,000 signing bonus
in fiscal 2000 in lieu of the reimbursement of expenses associated with Mr.
Dekkers' relocation to Massachusetts.
(10) In June 2002, Mr. Syron was awarded 10,923 shares of restricted Common
Stock valued at $191,371 on the grant date, pursuant to the terms of his
employment agreement, that vest 100% on the third anniversary of the grant date.
In June 2001, Mr. Syron was awarded 7,120 shares of restricted Common Stock
valued at $199,716 on the grant date, pursuant to the terms of his employment
agreement, that vest 100% on the third anniversary of the grant date. In January
2000, in connection with the adoption of the Company's reorganization plan, the
Human Resources Committee approved a retention arrangement for Mr. Syron that
awarded him 50,000 shares of restricted Common Stock valued at $825,000 on the
grant date. The restricted shares vest in equal annual installments over the
three-year period commencing on the grant date. In June 2000, Mr. Syron was
awarded 10,800 shares of restricted Common Stock valued at $207,230 on the grant
date, pursuant to the terms of his employment agreement, that vest 100% on the
third anniversary of the grant date. Upon the appointment of the Company's chief
operating officer in June 2000, Mr. Syron was awarded 25,000 shares of
restricted Common Stock, valued at $526,575 on the grant date, that vest in
equal annual installments over the three-year period commencing on the grant
date. Any cash dividends paid on the restricted shares are retained by the
recipient without regard to vesting, however, any non-cash dividends paid on
restricted shares are subject to the same vesting restrictions as the underlying
shares.
10
(11) In November 2002, Mr. Syron was awarded 111,845 restricted Common Stock
units valued at $2,245,848 on the grant date, pursuant to the terms of his
employment agreement, provided, however, the units do not become shares of
Common Stock until Mr. Syron ceases to be an employee of the Company for any
reason. In November 2002, Mr. Syron was also awarded 100,000 restricted Common
Stock units valued at $2,008,000 on the grant date, pursuant to the terms of his
employment agreement, that vest in equal annual installments over the three-year
period commencing on the grant date and, provided further, the units do not
become shares of Common Stock nor do the restrictions on transfer lapse until
Mr. Syron ceases to be an employee of the Company. At the end of fiscal 2002,
Mr. Syron held 265,689 shares of restricted Common Stock and restricted Common
Stock units with an aggregate value of $5,446,679 (including the value
attributable to restricted shares of Kadant and Viasys received in connection
with the spin-off of such companies in August and November 2001, respectively).
(12) In addition to the items referred to in footnote (2), this amount includes
(a) a retention payment in the amount of $1,800,000 awarded to Mr. Syron in
November 2002 in connection with the transition from chief executive officer to
executive chairman of the Company, and (b) $9,891 paid by the Company as
premiums for a term life insurance policy for the benefit of Mr. Syron.
(13) In addition to the items referred to in footnote (2), this amount includes
$8,970 paid by the Company as premiums for a term life insurance policy for the
benefit of Mr. Syron.
(14) In addition to the items referred to in footnote (2), this amount includes
the reimbursement by the Company of $127,127 in fiscal 2000 for expenses
associated with Mr. Syron's relocation to Massachusetts.
(15) Mr. Casper was appointed vice president of the Company and president, Life
and Laboratory Sciences sector on November 30, 2001. The salary reported for
fiscal year 2001 represents the amount paid for the portion of the year during
which Mr. Casper performed services for the Company.
(16) In addition to the items referred to in footnote (2), this amount includes
a sign-on bonus of $200,000 awarded to Mr. Casper in November 2001 in connection
with his commencement of employment with the Company.
(17) Mr. Hoogasian became an executive officer of the Company on January 18,
2001. The salary and bonus reported for fiscal 2001 represent amounts paid to
Mr. Hoogasian for the entire year.
(18) At the end of fiscal 2002, Mr. Hoogasian held 11,667 shares of restricted
Common Stock with an aggregate value of $269,485 (including the value
attributable to restricted shares of Kadant and Viasys received in connection
with the spin-off of such companies in August and November 2001, respectively).
These restricted shares were awarded to Mr. Hoogasian before he became an
executive officer.
(19) In January 2000, in connection with the adoption of the Company's
reorganization plan, the Human Resources Committee approved a retention
arrangement for Mr. Melas-Kyriazi that awarded him 35,000 shares restricted
Common Stock valued at $577,500 on the grant date. The restricted shares vest in
equal annual installments over the three-year period commencing on the grant
date. Any cash dividends paid on the restricted shares are entitled to be
retained by Mr. Melas-Kyriazi without regard to vesting, however, any non-cash
dividends are subject to the same vesting restrictions as the original
restricted shares. At the end of fiscal 2002, Mr. Melas-Kyriazi held 11,667
shares of restricted Common Stock with an aggregate value of $269,470 (including
the value attributable to restricted shares of Kadant and Viasys received in
connection with the spin-off of such companies in August and November 2001,
respectively).
(20) Mr. Broadbent became an executive officer of the Company on January 18,
2001. The salary and bonus reported for fiscal 2001 represent amounts paid to
Mr. Broadbent for the entire year.
(21) At the end of fiscal 2002, Mr. Broadbent held 2,000 shares of restricted
Common Stock with an aggregate value of $46,184 (including the value
attributable to restricted shares of Kadant and Viasys received in connection
with the spin-off of such companies in August and November 2001, respectively).
These restricted shares were awarded to Mr. Broadbent before he became an
executive officer.
(22) Mr. Howe became an executive officer of the Company on January 18, 2001.
The salary and bonus reported for fiscal 2001 represent amounts paid to Mr. Howe
for the entire year.
11
Stock Options Granted During Fiscal 2002
The following table sets forth information concerning individual grants of
stock options made during fiscal year 2002 to the Company's named executive
officers. It has not been the Company's policy in the past to grant stock
appreciation rights, and no such rights were granted during fiscal year 2002.
Option Grants in Fiscal 2002
----------------------------------------------------------------------------------------------------------------------
Potential Realizable
Percent of Value at Assumed
Total Options Annual Rates of Stock
Number of Securities Granted to Exercise Price Appreciation for
Underlying Options Employees in Price Per Expiration Option Term (1)
Name Granted Fiscal Year Share Date 5% 10%
---- ------- ----------- ----- ---- -- ---
Marijn E. Dekkers 200,000 (2) 3.8% $20.27 3/15/09 $1,650,380 $3,846,100
780,000 (3) 14.7% $19.67 11/21/12 $9,648,910 $24,452,142
-------------------------------------------------------------------------------------------------------------------------
Richard F. Syron 260,000 (2) 4.9% $20.27 3/15/09 $2,145,490 $4,999,930
520,000 (3) 9.8% $19.67 11/21/12 $6,432,610 $16,301,428
-------------------------------------------------------------------------------------------------------------------------
Seth H. Hoogasian 42,500 (2) 0.8% $20.27 3/15/09 $350,710 $817,296
100,000 (3) 1.9% $19.67 11/21/12 $1,237,040 $3,134,890
-------------------------------------------------------------------------------------------------------------------------
Theo Melas-Kyriazi 50,000 (2) 0.9% $20.27 3/15/09 $412,600 $961,525
100,000 (3) 1.9% $19.67 11/21/12 $1,237,040 $3,134,890
-------------------------------------------------------------------------------------------------------------------------
Marc N. Casper 100,000 (3) 1.9% $19.67 11/21/12 $1,237,040 $3,134,890
-------------------------------------------------------------------------------------------------------------------------
Guy Broadbent 100,000 (3) 1.9% $19.67 11/21/12 $1,237,040 $3,134,890
-------------------------------------------------------------------------------------------------------------------------
Barry S. Howe 50,000 (2) 0.9% $20.27 3/15/09 $412,600 $961,525
100,000 (3) 1.9% $19.67 11/21/12 $1,237,040 $3,134,890
-------------------------------------------------------------------------------------------------------------------------
(1) The amounts shown in this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option term.
These gains are based on assumed rates of stock appreciation of 5% and 10%
compounded annually from the date the respective options were granted to their
expiration date. The gains shown are net of the option exercise price, but do
not include deductions for taxes or other expenses associated with the exercise.
Actual gains, if any, on stock option exercises will depend on the future
performance of the Common Stock, the optionee's continued employment through the
option period and the date on which the options are exercised.
(2) All of the options reported vest in three equal annual installments over a
three-year period from the date of grant, provided that the optionee continues
to be employed by the Company, except that Messrs. Dekkers and Syron are
entitled to accelerated vesting in certain circumstances in connection with the
termination of their employment with the Company. See "Executive Compensation -
Employment Agreements with Messrs. Dekkers and Syron". Upon a change of control
of the Company, all options become immediately exercisable.
(3) All of the options reported vest in three equal annual installments over a
three-year period commencing on the third anniversary of the date of grant,
provided that the optionee continues to be employed by the Company, except that
Messrs. Dekkers and Syron are entitled to accelerated vesting in certain
circumstances in connection with the termination of their employment with the
Company. See "Executive Compensation - Employment Agreements with Messrs.
Dekkers and Syron". Upon a change of control of the Company, all options become
immediately exercisable.
12
Stock Options Exercised During Fiscal 2002 and Fiscal Year-End Option Values
The following table reports information regarding stock option exercises
during fiscal 2002 and outstanding stock options held at the end of fiscal year
2002 by the Company's named executive officers. No stock appreciation rights
were exercised or were outstanding during fiscal year 2002.
Aggregated Option Exercises In Fiscal 2002 and Fiscal 2002 Year-End Option Values
----------------------------------------------------------------------------------
Value of
Number of Unexercised
Securities Underlying In-the-Money
Unexercised Options at Fiscal
Shares Options at Fiscal Year-End
Acquired on Value Year-End (Exercisable/ (Exercisable/
Name Exercise Realized (1) Unexercisable) (2)(3) Unexercisable)(3)
---- -------- ------------ --------------------- -----------------
Marijn E. Dekkers - - 784,864/ 1,492,382 $348,887/ $431,843
-------------------------------------------------------------------------------------------------------------------------
Richard F. Syron - - 1,624,258/ 981,579 $4,755,322/ $171,600
-------------------------------------------------------------------------------------------------------------------------
Seth H. Hoogasian 1,195 $3,262 237,029/ 171,961 $1,044,136/ $33,000
-------------------------------------------------------------------------------------------------------------------------
Theo Melas-Kyriazi 36,729 $199,476 720,475/ 172,871 $5,184,285/ $33,000
-------------------------------------------------------------------------------------------------------------------------
Marc N. Casper - - 91,666/ 283,334 $0/ $33,000
-------------------------------------------------------------------------------------------------------------------------
Guy Broadbent - - 134,702/ 253,111 $0/ $33,000
-------------------------------------------------------------------------------------------------------------------------
Barry S. Howe - - 435,593/ 181,012 $3,572,898/ $33,000
-------------------------------------------------------------------------------------------------------------------------
(1) The amounts shown in this column represent the difference between the option
exercise price and the market price on the date of exercise, which is the amount
that would have been realized if the shares had been sold immediately upon
exercise. Amounts shown in this column do not represent actual sales
transactions.
(2) As part of the Company's spinout strategy, certain subsidiaries of the
Company sold minority interests to investors resulting in several
majority-owned, private and publicly-held subsidiaries and granted options to
purchase shares of these subsidiaries to employees and directors of Thermo
Electron companies as part of its compensation program. During 1999 and 2000,
the Company effected a major reorganization that, among other things, resulted
in the acquisition of the minority interest of substantially all of its
subsidiaries that had minority investors and the assumption by the Company of
the outstanding options to purchase shares of the subsidiaries. In addition, in
2001, the Company spun off to its shareholders all of the shares of Kadant Inc.
(formerly known as Thermo Fibertek Inc.) and, as a result, all of the options in
Kadant Inc. and its publicly-owned subsidiary, Thermo Fibergen Inc., were
converted into options to purchase shares of the Company. In addition, in 2002,
the Company took private its last publicly owned subsidiary Spectra-Physics,
Inc. and, as a result, all of the options to purchase shares of Spectra-Physics
became options to purchase shares of the Company. Outstanding options at
year-end granted by these subsidiaries which were assumed by the Company have
been restated in the table as options to purchase shares of the Company.
(3) Generally, options outstanding at the end of the fiscal year that were
granted prior to July 2000 are exercisable immediately. However, these options
are subject to certain transfer restrictions and the right of the Company to
repurchase, at the exercise price, the shares issued upon exercise of the
options, upon certain events, primarily cessation of employment with the
Company. The restrictions and repurchase rights lapse over periods ranging from
0 to 10 years, depending on the term of the option, which may range from 3 to 12
years. The amounts reported for the number of securities underlying exercisable
options at fiscal year end include options to purchase 5,814, 92,338, 215,239,
and 199,895 shares of Common Stock granted prior to July 2000 for Messrs. Syron,
Hoogasian, Howe, and Melas-Kyriazi, respectively, which are subject to these
transfer restrictions. The amounts reported for the value of securities
underlying exercisable options at fiscal year end include $0, $503,696,
$2,210,409 and $1,405,929 for options to purchase Common Stock granted prior to
July 2000, for Messrs. Syron, Hoogasian, Howe, and Melas-Kyriazi, respectively,
which are subject to these restrictions. Options outstanding at the end of the
fiscal year that were granted on or after July 2000 generally vest ratably over
three years after the grant date, provided that the optionee continues
employment with the Company, except (i) for the options described in footnote 3
to the table entitled "Option Grants in Fiscal 2002" above and (ii) that Messrs.
Dekkers and Syron are entitled to accelerated vesting in certain circumstances
in connection with the termination of their employment with the Company. See
"Executive Compensation - Employment Agreements with Messrs. Dekkers and Syron".
Upon a change of control of the Company, all options, regardless of the grant
date, become immediately exercisable and cease to be subject to transfer
restrictions and the Company's repurchase rights.
13
Change in Control and Severance Agreements
Thermo Electron has entered into executive retention agreements with its
executive officers and certain key employees of the Company that provide
severance benefits if there is a change in control of Thermo Electron and their
employment is terminated by the Company without cause or by the individual for
good reason, as those terms are defined therein, within 18 months thereafter.
For purposes of these agreements, a change in control exists upon (i) the
acquisition by any person of 40% or more of the outstanding Common Stock or
voting securities of Thermo Electron; (ii) the failure of the Board of Directors
to include a majority of directors who are "continuing directors", which term is
defined to include directors who were members of Thermo Electron's board on the
date of the agreement or who subsequent to the date of the agreement were
nominated or elected by a majority of directors who were "continuing directors"
at the time of such nomination or election; (iii) the consummation of a merger,
consolidation, reorganization, recapitalization or statutory share exchange
involving Thermo Electron or the sale or other disposition of all or
substantially all of the assets of Thermo Electron unless immediately after such
transaction (a) all holders of Thermo Electron Common Stock immediately prior to
such transaction own more than 60% of the outstanding voting securities of the
resulting or acquiring corporation in substantially the same proportions as
their ownership immediately prior to such transaction and (b) no person after
the transaction owns 40% or more of the outstanding voting securities of the
resulting or acquiring corporation; or (iv) approval by stockholders of a
complete liquidation or dissolution of Thermo Electron.
Thermo Electron has entered into these executive retention agreements with
each of Messrs. Dekkers, Syron, Hoogasian, Melas-Kyriazi, Casper, Broadbent, and
Howe. These agreements provide that, upon a change in control, all options to
purchase Common Stock held by the individual as of the date of the change in
control shall become fully vested and immediately exercisable, and shares of
Common Stock issued upon exercise of such stock options and all shares of
restricted Common Stock held by the individual as of the date of the change in
control will no longer be subject to the right of repurchase by the Company.
These agreements also provide that, in the event the individual's
employment is terminated in connection with a change in control, the individual
would be entitled to a lump sum payment equal to the sum of (a) in the case of
Messrs. Dekkers and Syron, three times, in the case of Messrs. Hoogasian,
Melas-Kyriazi, Broadbent, and Howe, two times, and in the case of Mr. Casper,
one times, the individual's highest annual base salary in any 12-month period
during the prior five-year period, plus (b) in the case of Messrs. Dekkers and
Syron, three times, in the case of Messrs. Hoogasian, Melas-Kyriazi, Broadbent,
and Howe, two times, and in the case of Mr. Casper, one times, the individual's
highest annual bonus in any 12-month period during the prior five-year period.
Assuming that the severance benefits would have been payable as of December 28,
2002, the lump sum salary and bonus payment under such agreements to Messrs.
Dekkers, Syron, Hoogasian, Melas-Kyriazi, Casper, Broadbent, and Howe would have
been approximately $3,099,999, $5,760,000, $1,212,400, $1,091,800, $525,000,
$908,000, and $908,000, respectively. In addition, the individual would be
provided employee benefits substantially equivalent to the benefits package the
individual would have otherwise been entitled to receive if the individual was
not terminated for a period of, in the case of Messrs. Dekkers and Syron, three
years, in the case of Messrs. Hoogasian, Melas-Kyriazi, Broadbent, and Howe, two
years, and in the case of Mr. Casper, one year, after such termination. Finally,
the individual would be entitled to a cash payment equal to, in the case of
Messrs. Dekkers and Syron, $25,000, in the case of Messrs. Hoogasian,
Melas-Kyriazi, Broadbent, and Howe, $20,000, and in the case of Mr. Casper,
$15,000, to be used toward outplacement services.
In the event that payments under these agreements are deemed to be
so-called "excess parachute payments" under the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), the
individuals would be entitled to receive a gross-up payment equal to the amount
of any excise tax payable by such individual with respect to such payment plus
the amount of all other additional taxes imposed on such individual.
Mr. Casper has an agreement with the Company that if his employment is
terminated by the Company without "cause" or by Mr. Casper with "good reason",
he will be entitled to a lump sum severance payment equal to 18 months salary,
except that if the termination entitles him to greater benefits under the
executive retention agreement described above, he will be entitled to the
benefits under the executive retention agreement, but not both. Mr. Broadbent
has an agreement with the Company that if his employment is terminated by the
Company for other than "cause", he will be entitled to be paid one year's salary
and bonus as severance pay, and the transfer restrictions on his shares of
restricted Common Stock will lapse, except that if the termination also entitles
him to benefits under the executive retention agreement described above, he will
be entitled to the benefits under the executive retention agreement only.
Messrs. Dekkers and Syron also have severance provisions in their employment
agreements. See "Executive Compensation -- Employment Agreements with Messrs.
Dekkers and Syron".
14
Deferred Compensation Plan
The Company maintains a deferred compensation plan for a select group of
management and highly compensated employees (the "Deferred Compensation Plan"),
including executive officers of the Company. Under the Deferred Compensation
Plan, a participant has the right to defer, on a pre-tax basis, receipt of his
or her annual base salary (up to 90%) and/or bonus (up to 100%) until he or she
ceases to serve as an employee of the Company as a result of death, disability,
retirement or termination of employment for any other reason. In addition, a
participant may defer payment of his or her compensation until a future date
even while the participant continues to be an employee of the Company. Amounts
that are deferred are credited with investment gains or losses based on the
performance of one or more of three funds selected by the participant: an equity
index fund, a bond index fund and a money market fund. The participant does not
have any actual ownership in these funds. Any gains or losses on amounts
deferred are not taxable until deferred amounts are paid to the participant. All
amounts in the participant's deferred account represent unsecured obligations of
the Company.
Employment Agreements with Messrs. Dekkers and Syron
On November 21, 2002, Mr. Dekkers, previously president and chief operating
officer, was appointed chief executive officer, and Mr. Syron, previously chief
executive officer, was appointed executive chairman. At that time, the
employment agreements in effect for Messrs. Dekkers and Syron were amended and
restated to reflect their new responsibilities and compensation. Each amended
and restated employment agreement is for a five-year term ending December 31,
2007. The agreements provide that each executive will have the duties assigned
to him from time to time by the Board of Directors. Initially, Mr. Syron's
duties include responsibility for the review and approval of the Company's
financing and acquisition strategies, supervision of the internal audit and
investor relations functions, supervision of disclosure policies and practices
and related filings, compliance with the NYSE and Securities Exchange and
Commission rules, and the Company's Business Conduct Policy. Mr. Dekker's duties
include responsibility for all aspects of the Company's business and operations,
including formulating, implementing and monitoring the Company's strategic plan
together with Mr. Syron and the Board of Directors.
Employment Agreement with Mr. Dekkers
The amended and restated employment agreement with Mr. Dekkers increased
his annual base salary to $800,000 and his annual incentive bonus target to
$720,000. The actual amount paid as a bonus in any given year will be a multiple
of zero to two times the target amount.
Pursuant to the amended and restated employment agreement, on November 21,
2002 the Company awarded Mr. Dekkers (i) 100,000 restricted Common Stock units
that vest in equal annual installments over the three-year period commencing on
the grant date so long as Mr. Dekkers is employed with the Company on each such
date and, provided further, that such units shall not become shares of Common
Stock until Mr. Dekkers ceases to be an employee of the Company for any reason;
and (ii) options to purchase 780,000 shares of Common Stock expiring November
21, 2012 that vest in equal annual installments over the three-year period
commencing on the third anniversary of the grant date so long as Mr. Dekkers is
employed with the Company on each such date, at an exercise price equal to the
average of the closing prices of the Common Stock as reported on the NYSE for
the five business days preceding and including the grant date. In addition, the
agreement provides that in each of the years 2005, 2006 and 2007, subject to Mr.
Dekkers' continued employment with the Company and shareholder approval of a new
stock option plan if the then existing plans have been depleted at such time,
Mr. Dekkers will be granted an option to purchase 260,000 shares of Common Stock
expiring ten years from the grant date that vest in equal annual installments
over the three-year period commencing on the grant date, so long as Mr. Dekkers
is employed with the Company on each such date, at an exercise price equal to
the average of the closing prices of the Common Stock as reported on the NYSE
for the five business days preceding and including the grant date. Pursuant to
his original employment agreement, in March 2002, Mr. Dekkers received an option
to purchase 200,000 shares of Common Stock expiring seven years from the grant
date at an exercise price equal to the average of the closing prices of the
Common Stock as reported on the NYSE for the five business days preceding and
including the grant date.
If Mr. Dekkers' employment is terminated (i) by the Company without "cause"
or by Mr. Dekkers with "good reason", he will be entitled to: (A) an amount
equal to: (1) his then current base salary for the 36-month period following the
termination date, (2) a pro-rata bonus for the year in which the termination
date occurs, and (3) $2,160,000 (representing three times his annual incentive
bonus target); and (B) medical and dental insurance benefits for a period of
three years after the termination date; (ii) due to his disability, he will be
entitled to: (A) disability benefits in accordance with the long-term disability
("LTD") program then in effect for senior executives of the Company; (B) his
then current
15
base salary through the end of the LTD elimination period; (C) a pro-rata bonus
for the year in which the termination date occurs; and (D) medical and dental
insurance benefits for a period of 24 months after the termination date; (iii)
due to his death, his estate or his beneficiaries will be entitled to a pro-rata
bonus for the year in which the termination date occurs; and (iv) due to the
expiration of the then-current term of the agreement, he will be entitled to:
(A) an amount equal to the sum of (1) his then current base salary for the
24-month period following the termination date, and (2) $1,440,000 (representing
two times his annual incentive bonus target); and (B) medical and dental
insurance benefits for a period of 24 months after the termination date.
In addition, if Mr. Dekkers' employment is terminated due to his death or
disability, by the Company without "cause", by Mr. Dekkers with "good reason",
or due to the expiration of the then-current term of the agreement, (i) all
stock options will become fully vested and all stock options granted prior to
November 21, 2002 will remain exercisable until two years from the termination
date (but in no event beyond the expiration date of the options) and all stock
options granted on or after November 21, 2002 shall remain exercisable until
three years from the termination date (but in no event beyond the expiration
date of the options); and (ii) the transfer restrictions on all shares of
restricted Common Stock and/or restricted Common Stock units granted to him will
lapse. If Mr. Dekkers' employment is terminated by the Company for "cause" or by
Mr. Dekkers without "good reason", (A) no further vesting of stock options shall
occur and he shall have 90 days to exercise all vested and outstanding stock
options (but in no event beyond the expiration date of the options); and (B) all
shares of restricted Common Stock and/or restricted Common Stock units granted
to him as to which transfer restrictions have not lapsed shall be forfeited.
The amended and restated employment agreement provides that immediately
prior to the consummation of a change in control, all options to purchase Common
Stock held by Mr. Dekkers as of the date of the change in control will become
fully vested and immediately exercisable, and shares of Common Stock issued upon
exercise of such stock options and all shares of restricted Common Stock held by
Mr. Dekkers as of the date of the change in control will no longer be subject to
the right of repurchase by the Company. In the event his employment is
terminated after a change in control, he will be entitled to receive benefits
under either the employment agreement or the executive retention agreement
described above under the caption "Change in Control and Severance Agreements",
but not both.
Employment Agreement with Mr. Syron
The amended and restated employment agreement with Mr. Syron provides for a
continued annual base salary of $800,000 and annual incentive bonus target of
$720,000. The actual amount paid as a bonus in any given year will be a multiple
of zero to two times the target amount.
Pursuant to the amended and restated employment agreement, on November 21,
2002 the Company awarded Mr. Syron (i) 111,845 restricted Common Stock units,
provided, however, that the units do not become shares of Common Stock until he
ceases to be an employee of the Company for any reason, (ii) 100,000 restricted
Common Stock units that vest in equal annual installments over the three-year
period commencing on the grant date so long as Mr. Syron is employed with the
Company on each such date and, provided further, that such units shall not
become shares of Common Stock until Mr. Syron ceases to be an employee of the
Company for any reason; and (iii) options to purchase 520,000 shares of Common
Stock expiring November 21, 2012 that vest in equal annual installments over the
three-year period commencing on the third anniversary of the grant date so long
as Mr. Syron is employed with the Company on each such date, at an exercise
price equal to the average of the closing prices of the Common Stock as reported
on the NYSE for the five business days preceding and including the grant date.
In addition, pursuant to the agreement, Mr. Syron was also entitled to a
$1,800,000 retention bonus, which was paid in January 2003. The agreement also
provides that in each of the years 2005, 2006 and 2007, subject to Mr. Syron's
continued employment with the Company and shareholder approval of a new stock
option plan if the then existing plans have been depleted at such time, Mr.
Syron will be granted an option to purchase 260,000 shares of Common Stock
expiring ten years from the grant date that vest in equal annual installments
over the three-year period commencing on the grant date, so long as Mr. Syron is
employed with the Company on each such date, at an exercise price equal to the
average of the closing prices of the Common Stock as reported on the NYSE for
the five business days preceding and including the grant date. Pursuant to his
original employment agreement, in June 2002 Mr. Syron received an award of
10,923 shares of restricted Common Stock that vest 100% on the third anniversary
of the grant date and in March 2002 he received an option to purchase 260,000
shares of Common Stock expiring seven years from the grant date at an exercise
price equal to the average of the closing prices of the Common Stock as reported
on the NYSE for the five business days preceding and including the grant date.
If Mr. Syron's employment is terminated (i) by the Company without "cause"
or by Mr. Syron with "good reason", he will be entitled to: (A) an amount equal
to: (1) his then current base salary for the remaining term of the agreement
following the termination date, (2) a pro-rata bonus for the year in which the
termination date occurs, and (3)
16
$720,000 (his annual incentive bonus target) for each year remaining in the term
of the agreement following the termination date; and (B) medical and dental
insurance benefits for a period of three years after the termination date; (ii)
due to his disability, he will be entitled to: (A) disability benefits in
accordance with the long-term disability ("LTD") program then in effect for
senior executives of the Company; (B) his then current base salary through the
end of the LTD elimination period; (C) a pro-rata bonus for the year in which
the termination date occurs; and (D) medical and dental insurance benefits for a
period of 24 months after the termination date; (iii) due to his death, his
estate or his beneficiaries will be entitled to a pro-rata bonus for the year in
which the termination date occurs; and (iv) due to the expiration of the
then-current term, he will be entitled to medical and dental insurance benefits
for a period of 12 months after the termination date.
In addition, if Mr. Syron's employment is terminated due to his death or
disability, by the Company without "cause", by Mr. Syron with "good reason", or
due to the expiration of the then-current term of this agreement, (i) all stock
options will become fully vested and all stock options granted prior to November
21, 2002 will remain exercisable until two years from the termination date (but
in no event beyond the expiration date of the options) and all stock options
granted on or after November 21, 2002 shall remain exercisable until three years
from the termination date (but in no event beyond the expiration date of the
options); and (ii) the transfer restrictions on all shares of restricted Common
Stock and/or restricted Common Stock units granted to him will lapse. If Mr.
Syron's employment is terminated by the Company for "cause" or by Mr. Syron
without "good reason", (A) no further vesting of stock options shall occur and
he shall have 90 days to exercise all vested and outstanding stock options (but
in no event beyond the expiration date of the options); and (B) all shares of
restricted Common Stock and/or restricted Common Stock units granted to him as
to which transfer restrictions have not lapsed shall be forfeited.
Under the following conditions, additional vesting rules apply to stock
options and restricted stock awards granted by the Company to Mr. Syron. If Mr.
Syron's employment continues after July 10, 2003, but is terminated by him
without good reason prior to July 10, 2004, then the outstanding unvested stock
options held by Mr. Syron that were granted after March 14, 2001 and before
November 21, 2002 shall be 50% vested and the transfer restrictions with respect
to 50% of the restricted Common Stock held by Mr. Syron shall lapse. Further, if
Mr. Syron's employment continues to July 10, 2004, then the outstanding unvested
stock options held by Mr. Syron that were granted after March 14, 2001 and
before November 21, 2002 shall be fully vested and the transfer restrictions on
restricted Common Stock held by Mr. Syron shall lapse.
The amended and restated employment agreement provides that immediately
prior to the consummation of a change in control, all options to purchase Common
Stock held by Mr. Syron as of the date of the change in control shall become
fully vested and immediately exercisable, and shares of Common Stock issued upon
exercise of such stock options and all shares of restricted Common Stock held by
Mr. Syron as of the date of the change in control will no longer be subject to
the right of repurchase by the Company. In the event his employment is
terminated after a change in control, he will be entitled to receive benefits
under either the employment agreement or the executive retention agreement
described above under the caption "Change in Control and Severance Agreements",
but not both.
17
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 28, 2002 with
respect to the Common Stock that may be issued under its existing equity
compensation plans. Reference is made to the footnotes to the table for
additional detail with respect to the compensation plans.
------------------------------- --------------------------- ------------------------- -----------------------------------
(a) (b) (c)
Number of securities remaining
Number of securities to Weighted average available for future issuance
be issued upon exercise exercise price of under equity compensation plans
of outstanding options, outstanding options, (excluding securities
Plan Category warrants and rights warrants and rights reflected in column (a))
------------- ------------------- ------------------- ------------------------
------------------------------- --------------------------- ------------------------- -----------------------------------
Equity Compensation Plans
Approved By Security Holders
11,778,860(1)(2) $19.42 4,747,429(3)
------------------------------- --------------------------- ------------------------- -----------------------------------
Equity Compensation Plans Not
Approved By Security
Holders(4)(5) 3,281,627 $19.82 297,000(3)
------------------------------- --------------------------- ------------------------- -----------------------------------
Total 15,060,487 5,044,429(3)
------------------------------- --------------------------- ------------------------- -----------------------------------
(1) Includes 311,845 restricted stock units granted to Messrs. Dekkers and
Syron, the terms of which are described in "Employment Agreements with Messrs.
Dekkers and Syron." Also includes 281,575 shares issuable under the Directors
Deferred Compensation Plan for deferred directors fees accrued through December
28, 2002. An additional 582,663 shares are reserved under the Directors Deferred
Compensation Plan and are included in column (c). Please see "Deferred
Compensation Plan for Directors" for additional information regarding this plan.
(2) Column (a) does not include shares issuable under the Thermo Electron
Corporation Employees Stock Purchase Plan (the "ESPP"), which has a remaining
shareholder approved reserve of 816,542 shares. Under the ESPP, each eligible
employee may purchase a limited number of shares of the Common Stock on the
first trading day of each year at a purchase price equal to 85% of the lower of
the fair market value of the Common Stock as of either the first trading day of
the previous calendar year or the last trading day of the previous calendar
year. The remaining shareholder approved reserve is included in column (c).
(3) These securities may be issued as restricted stock as well as being
available for issuance upon the exercise of options, restricted stock units or
other rights.
(4) Equity compensation plans not approved by the Company's stockholders are:
(i) the Thermo Electron Corporation Employees Equity Incentive Plan under which
297,000 shares are available for future issuance; and (ii) the 2000 Employees
Equity Incentive Plan under which no shares are available for future issuance.
The material terms of the Thermo Electron Corporation Employees Equity Incentive
Plan are described below.
(5) The information relating to equity compensation plans not approved by the
Company's stockholders does not include options to purchase shares of the
Company's formerly majority-owned subsidiaries which became options to purchase
shares of the Company when the minority interests in those subsidiaries were
repurchased by the Company during 1999 and 2000. All of the plans pursuant to
which these options were granted have been frozen and no additional grants will
be made. Options to purchase an aggregate of 7,812,448 shares at a weighted
average exercise price of $19.52 per share are outstanding under these plans.
18
Thermo Electron Corporation Employees Equity Incentive Plan
The Thermo Electron Corporation Employees Equity Incentive Plan (the
"Employees Equity Plan") was adopted to secure for the Company and its
stockholders the benefits arising from capital stock ownership by employees of
and consultants to the Company. The Employees Equity Incentive Plan is
administered by the Company's Board of Directors or a committee thereof, which
has the full authority, among other things, to (i) select the persons to whom
awards will be granted, (ii) determine the terms and conditions of the awards,
and (iii) amend or terminate the plan. Under the Employees Equity Plan,
3,488,867 shares were originally reserved for issuance. Participants may receive
non-statutory stock options, restricted stock awards, deferred stock awards
(also known as restricted stock units) and performance awards (which may consist
of stock and/or cash). The exercise price of stock options granted may not be
less than 85% of the fair market value of the Company's shares on the date of
the grant. The plan also provides for acceleration of the vesting provisions of
an award in the event of a "Change in Control" as the term is defined in the
plan.
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Philosophy
The Human Resources Committee, which is composed entirely of outside
directors, has overall responsibility for establishing and administering the
Company's policies and programs that govern annual cash, long-term incentive and
other executive compensation. The compensation program established by the Human
Resources Committee for its officers, including its executive officers, is
designed to reward and motivate officers in achieving long-term value for the
Company's stockholders and other business objectives, to attract, motivate and
retain dedicated, talented individuals to accomplish the Company's objectives,
to recognize individual, business unit and Company performance, to reward
behavior consistent with the Company's values, and to encourage stock ownership
by officers in order to link financial interests of the Company's officers with
its stockholders.
The Committee evaluates the competitiveness of its compensation policies
and programs through the use of market surveys and competitive analyses prepared
by its outside compensation consultants. Internal fairness of compensation
within the Company is also an important element of the Human Resources
Committee's compensation philosophy. As such, the Committee evaluates individual
executive compensation through the use of compensation comparisons with other
officers of the Company who have similar levels of responsibility.
Components of Executive Compensation
The compensation program of the Company for its officers consists of annual
cash and long-term incentive compensation. Annual cash compensation is composed
of base salary and annual, performance-based incentive awards. Long-term
incentive compensation consists of stock-based awards such as stock options and
restricted stock. The process for determining the components of officer
compensation is described below. After considering the applicable factors for
each component of officer compensation with respect to each officer (other than
himself and the executive chairman), the chief executive officer makes
recommendations to the Human Resources Committee regarding such officer's
compensation package. The Human Resources Committee then evaluates such
recommendations and makes a determination of each component of such officer's
compensation.
Annual Cash Compensation
Base Salary
Generally, officer base salaries are adjusted to reflect competitive salary
levels or other considerations, such as industry trends or internal fairness
within the Company. The base salary is intended to be competitive with that of
similar positions at organizations that are of comparable size and complexity as
the Company.
Annual, Performance-Based, Incentive Cash Awards
The target incentive cash award amount, which is a percentage of the base
salary, is determined by the Committee based on the salary level and position of
the officer within the Company. The amount of annual, performance-based,
incentive cash compensation actually awarded to an officer from year-to-year
varies with the performance of the officer and the Company as a whole. Officer
performance is evaluated by using (1) financial measures of corporate
performance and (2) a subjective evaluation of the officer's qualitative
contribution to the achievement of the Company's objectives and values as well
as the officer's achievement of individual objectives and leadership
performance.
19
For fiscal 2002, the financial measures established by the Human Resources
Committee were revenues, earnings before interest, taxes and amortization
("EBITA"), free cash flow and productivity. The financial measures assess
financial performance of the Company relative to the internal operating plan of
the Company for the fiscal year. For each of the financial measures, a range of
amounts set forth in the operating plan corresponds with a multiplier ranging
from 0 to 2. The actual incentive cash award amount attributable to that
financial measure is a designated portion of the target amount multiplied by the
multiplier corresponding to the actual financial performance. The sum of these
actual amounts for all officers is pooled with an amount representing a
subjective evaluation of the officer group as a whole. This bonus pool is then
allocated by the Human Resources Committee among the officers.
The Company paid annual incentive awards to each officer (including its
chief executive officer, whose annual performance-based incentive award is
discussed below under the caption "2002 CEO Compensation"), for fiscal 2002. The
Human Resources Committee considered the following with respect to fiscal 2002
financial performance: (1) the improvement in earnings per share in 2002, (2)
the Company's stock price outperformed many of its peers in 2002, and (3) the
impact the weakened economy had on the financial performance of the Company,
which contributed to its falling short of the financial measures for reaching
the target amount of incentive cash awards. In light of the foregoing, the Human
Resources Committee gave an approximately equal weight to the financial measures
and its subjective evaluation of the officer's contribution to the achievement
of the Company's objectives and values as well as the officer's achievement of
individual annual objectives and leadership performance for fiscal 2002.
Long-Term Incentive Compensation
The Human Resources Committee and management believe that the inclusion of
long-term incentive compensation, which consists of stock-based awards such as
stock options and restricted stock, in the Company's compensation program
accomplishes many objectives. The award of stock-based compensation to its
executives and other key employees encourages equity ownership in the Company,
which aligns their interests to the interests of all the stockholders and
results in executive compensation being closely linked to the Company's stock
performance.
In determining the appropriate award of stock compensation, the prevailing
compensation practices of competitive companies and competitive market data for
the position and salary level of each officer are considered. Awards are
reviewed annually and additional awards may be made periodically as deemed
appropriate by the Human Resources Committee. The Human Resources Committee uses
a modified Black-Scholes option pricing model to determine the value of an
option award.
Stock options granted to officers in November 2002 include a vesting
schedule that does not commence until the third anniversary of the grant date.
This vesting schedule was selected as a long-term retention measure. These
grants were intended to be made in lieu of annual grants to such officers in
fiscal years 2003 and 2004.
Stock Ownership Policy
The Human Resources Committee has established a stock holding policy for
the chief executive officer of the Company that requires him to own a multiple
of his compensation in shares of the Company's Common Stock. The multiple is one
times his annual base salary and target annual incentive compensation for the
fiscal year in which he achieves compliance. The chief executive officer has
three years from the date of his appointment to achieve this ownership level.
Policy on Deductibility of Compensation
The Human Resources Committee has also considered the application of
Section 162(m) of the U.S. Internal Revenue Code (the "Code") to the Company's
compensation practices. Section 162(m) limits the tax deduction available to
public companies for annual compensation that is paid to named executive
officers in excess of $1,000,000, unless the compensation qualified as
"performance-based" or is otherwise exempt from Section 162(m).
The Human Resources Committee considers the potential effect of Section
162(m) in designing its compensation program, but reserves the right to use its
independent judgment to approve nondeductible compensation, while taking into
account the financial effects such action may have on the Company. The Company's
compensation plans in which its named executive officers may receive stock
options qualify for the deduction. The Human Resources Committee has recently
adopted modifications to its cash compensation program that would avail the
Company of the deduction for annual bonuses, if these changes are approved by
the stockholders at this meeting. See "Proposal 2. Proposal to Approve the
Company's Annual Incentive Award Plan".
20
2002 CEO Compensation
The Human Resources Committee determines the compensation for the Company's
chief executive officer based on the same considerations described above for
other officers. The determinations of the Human Resources Committee as to the
compensation of the chief executive officer are subject to review by the entire
Board of Directors. The Board of Directors concurred in the decisions of the
Human Resources Committee with respect to 2002 chief executive officer
compensation.
On November 21, 2002, Marijn E. Dekkers, previously president and chief
operating officer, was appointed chief executive officer, and Richard F. Syron,
previously chief executive officer, was appointed executive chairman. Both
individuals had employment agreements prior to this transition that provided for
minimum cash compensation and the annual award of stock options and, in Mr.
Syron's case, restricted stock. Such employment agreements were amended and
restated as of November 21, 2002. Pursuant to the terms of the original
employment agreements and the amended and restated employment agreements, as
applicable, in fiscal 2002 (i) Mr. Dekkers was awarded 100,000 restricted Common
Stock units and options to purchase 980,000 shares of Common Stock; and (ii) Mr.
Syron was awarded 222,768 shares of restricted Common Stock and restricted
Common Stock units and options to purchase 780,000 shares of Common Stock. See
"Executive Compensation - Employment Agreements with Messrs. Dekkers and Syron"
for descriptions of those agreements.
The annual, performance-based, incentive cash bonuses of Messrs. Dekkers
and Syron for fiscal 2002 were determined by the Human Resources Committee based
on the same considerations described above for other officers. A portion of Mr.
Dekkers' bonus was based on his service as chief operating officer and the
balance on his role as the new chief executive officer.
Mr. Jim P. Manzi (Chairman)
Mr. Peter O. Crisp
Mr. Robert W. O'Leary
AUDIT COMMITTEE REPORT
The role of the Audit Committee is to assist the Board of Directors in its
oversight of the Company's financial reporting process.
As set forth in the Audit Committee's charter, attached as Appendix A to
this proxy statement, management of the Company is responsible for the
preparation, presentation and integrity of the Company's financial statements,
the Company's accounting and financial reporting principles and internal
controls and procedures designed to assure compliance with accounting standards
and applicable laws and regulations. The independent accountants are responsible
for auditing the Company's financial statements and expressing an opinion as to
their conformity with generally accepted accounting principles. The members of
the Audit Committee are not professionally engaged in the practice of auditing
or accounting and the responsibilities of the Audit Committee are not designed
to supersede or alter those responsibilities of management or the independent
accountants.
The Audit Committee's oversight does not provide an independent basis to
determine that management has maintained appropriate accounting and financial
reporting principles or appropriate internal control and procedures designed to
assure compliance with accounting standards and applicable laws and regulations.
Furthermore, the Audit Committee's considerations and discussions referred to
above do not assure that the audit of the Company's financial statements has
been carried out in accordance with generally accepted auditing standards, that
the financial statements are presented in accordance with generally accepted
accounting principles or that the Company's auditors are in fact "independent".
In the performance of its oversight function, the Audit Committee has
reviewed and discussed the audited financial statements of the Company for the
fiscal year ended December 28, 2002, with management and the Company's
independent accountants, PricewaterhouseCoopers LLP ("PwC"). The Audit Committee
has also discussed with PwC the matters required to be discussed by Statement on
Auditing Standards No. 61, Communication with Audit Committees, as currently in
effect. The Audit Committee has received from PwC the letter and written
disclosures required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, as currently in effect, and has
discussed with PwC the auditors' independence. The Audit Committee has
considered whether the provision of tax and other non-audit services by PwC is
compatible with maintaining the auditors' independence.
21
Based upon the review and discussions described in this report, and subject
to the limitations on the role and responsibilities of the Audit Committee
referred to above and in the Audit Committee's charter, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the year ended December
28, 2002 filed with the Securities and Exchange Commission.
Mr. Robert A. McCabe (Chairman)
Mr. Jim P. Manzi
Ms. Elaine S. Ullian
COMPARATIVE PERFORMANCE GRAPH
The Securities and Exchange Commission requires that the Company include in
this proxy statement a line-graph presentation comparing cumulative, five-year
stockholder returns for the Company's Common Stock with a broad-based market
index and either a nationally recognized industry standard or an index of peer
companies selected by the Company. The Company has compared its performance with
the Standard & Poor's 500 Index and the Standard & Poor's 500 Electronic
Equipment & Instruments Index.
Standard & Poor's discontinued its High Technology Index that the Company
used for a comparison index in its proxy statement for fiscal year 2001. That
index consisted of ADC Telecommunications, Inc., Adobe Systems Incorporated,
Advanced Micro Devices, Inc., Agilent Technologies Inc., Altera Corporation,
Analog Devices, Inc., Andrew Corporation, Apple Computer, Inc., Applied
Materials, Inc., Applied Micro Circuits Corporation, Autodesk, Inc., Automatic
Data Processing Inc., Avaya Inc., BMC Software, Inc., Broadcom Corporation,
CIENA Corporation, Cisco Systems, Inc., Citrix Systems, Inc., Compaq Computer
Corporation, Computer Associates International, Inc., Computer Sciences
Corporation, Compuware Corporation, Comverse Technology, Inc., Concord EFS,
Inc., Conexant Systems, Inc., Corning Incorporated, Dell Computer Corporation,
Eastman Kodak Company, Electronic Data Systems Corporation, EMC Corporation,
Equifax Incorporated, First Data Corporation, Fiserv, Inc., Gateway, Inc.,
Hewlett-Packard Company, Intel Corporation, International Business Machines
Corporation, Intuit Inc., JDS Uniphase Corporation, KLA-Tencor Corporation,
Lexmark International, Inc., Linear Technology Corporation, LSI Logic
Corporation, Lucent Technologies Inc., Maxim Integrated Products, Inc., Mercury
Interactive Corporation, Micron Technology, Inc., Microsoft Corporation,
Motorola, Inc., National Semiconductor Corporation, NCR Corporation, Network
Appliance, Inc., Nortel Networks Corporation, Novell, Inc., Novellus Systems,
Inc., NVIDIA Corporation, Oracle Corporation, Palm, Inc., Parametric Technology
Corporation, Paychex, Inc., PeopleSoft, Inc., PerkinElmer, Inc., PMC-Sierra,
Inc., QLogic Corporation, QUALCOMM, Inc., Raytheon Company, Sabre Holdings
Corp., Sapient Corporation, Scientific-Atlanta, Inc., Siebel Systems, Inc., Sun
Microsystems, Inc., Tektronix, Inc., Tellabs, Inc., Teradyne, Inc., Texas
Instruments Inc., Unisys Corporation, Veritas Software Corporation, Vitesse
Semiconductor Corporation, W.W. Grainger, Inc., Xerox Corporation, Xilinx, Inc.,
and Yahoo! Inc.
The Standard & Poor's 500 Electronic Equipment & Instruments Index consists
of Agilent Technologies Inc., Jabil Circuit, Inc., Millipore Corporation, Molex,
Inc., PerkinElmer, Inc., Sanmina-SCI Corporation, Solectron Corporation, Symbol
Technologies, Inc., Tektronix, Inc., Thermo Electron Corporation, and Waters
Corporation.
22
Comparison of Total Return Among Thermo Electron Corporation (TMO),
the Standard & Poor's 500 Index (S&P 500) and
the Standard & Poor's 500 Electronic Equipment & Instruments Index
(S&P 500 Electronic Equipment & Instruments)
[GRAPH]
----------------------------------------------------------------------------------------------------------------------
01/02/98 12/31/98 12/31/99 12/29/00 12/28/01 12/28/02
----------------------------------------------------------------------------------------------------------------------
TMO 100 39.22 34.73 68.89 63.48 53.64
----------------------------------------------------------------------------------------------------------------------
S&P 500 100 127.97 154.90 140.79 126.52 96.97
----------------------------------------------------------------------------------------------------------------------
S&P 500 Electronic Equipment & 100 115.82 239.39 198.32 102.71 48.21
Instruments
----------------------------------------------------------------------------------------------------------------------
The total return for the Company's Common Stock, the Standard & Poor's 500
and the Standard & Poor's 500 Electronic Equipment & Instruments assumes the
reinvestment of dividends. The Company's Common Stock is traded on the NYSE
under the ticker symbol "TMO". In August and November 2001, the Company spun off
to its shareholders its Kadant Inc. and Viasys Healthcare Inc. subsidiaries,
respectively. For purposes of the above table, the Kadant and Viasys shares
distributed to the Company's stockholders are treated as nontaxable cash
dividends that would have been reinvested in additional shares of Common Stock
of the Company in August and November 2001, respectively.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company retained PricewaterhouseCoopers LLP ("PwC") as its independent
accountants for the audit of the Company's financial statements for the fiscal
year ended December 28, 2002 and intends to retain PwC for the fiscal year
ending December 31, 2003. Representatives of PwC are expected to be present at
the meeting, will have the opportunity to make a statement if they desire to do
so and will be available to respond to questions.
Change in Independent Public Accountants
On June 21, 2002, the Audit Committee decided to no longer engage Arthur
Andersen LLP ("Arthur Andersen") as the Company's independent accountants and
engaged PricewaterhouseCoopers LLP to serve as the Company's independent
accountants for the audit of the fiscal year ended December 28, 2002.
Arthur Andersen's reports on the Company's consolidated financial
statements for fiscal years 2000 and 2001 did not contain an adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles, except for an explanatory paragraph
concerning the adoption of Staff Accounting
23
Bulletin No. 101, "Revenue Recognition in Financial Statements", and Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". During fiscal years 2000 and 2001 and
through June 21, 2002, there were no disagreements with Arthur Andersen on any
matter of accounting principle or practice, financial statement disclosure, or
auditing scope or procedure which, if not resolved to Arthur Anderson's
satisfaction, would have caused them to make reference to the subject matter in
connection with their report on the Company's consolidated financial statements
for such years; and there were no reportable events as defined in Item
304(a)(1)(v) of Regulation S-K.
During fiscal years 2000 and 2001 and through June 21 2002, the Company did
not consult PwC with respect to the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Company's consolidated financial
statements, or any other matters or reportable events as set forth in Items
304(a)(2)(i) and (ii) of Regulation S-K.
Audit and Other Fees
During fiscal 2002, the Company retained PwC to provide services in the
following categories and amounts:
Audit Fees
PwC billed the Company an aggregate of $1,574,180 in fees for professional
services rendered in connection with the audit of the financial statements of
the Company for the most recent fiscal year and reviews of the financial
statements included in each of the Quarterly Reports on Form 10-Q of the Company
during the fiscal year ended December 28, 2002.
Financial Information Systems Design and Implementation Fees
PwC did not provide any professional services to the Company for the fiscal
year ended December 28, 2002 in connection with the design and implementation of
financial information systems.
All Other Fees
PwC billed the Company an aggregate of $354,764 in fees for other services
rendered to the Company for the fiscal year ended December 28, 2002, primarily
in connection with tax consulting related to the reorganization of international
subsidiaries, advice on technical accounting matters and statutory audits.
-PROPOSAL 2-
PROPOSAL TO APPROVE THE COMPANY'S ANNUAL INCENTIVE AWARD PLAN
Effective January 1, 2003, the Human Resources Committee of the Board of
Directors has established, subject to stockholder approval, the Thermo Electron
Corporation 2003 Annual Incentive Award Plan (the "Plan"). Under the Plan,
executive officers designated by the Human Resources Committee may receive
annual cash incentive compensation determined by pre-established performance
goals. The Plan was adopted to ensure the tax deductibility of the annual bonus
that may be earned by executive officers of the Company. The U.S. Internal
Revenue Code generally does not allow publicly-held companies to obtain tax
deductions for compensation of more than $1,000,000 paid in any year to any of
their five most highly paid executive officers unless such payments are made
under qualifying "performance-based" compensation plans as defined in the tax
laws. One of the requirements for compensation to be performance-based within
the meaning of those laws is that the Company must obtain stockholder approval
every five years of the material terms of performance goals for such
compensation. The material terms that the stockholders approve constitute the
framework within which the Human Resources Committee would set actual
performance goals. The Company believes that, if the Plan is approved by the
stockholders, compensation paid in accordance with the Plan will qualify as
performance-based compensation under the Internal Revenue Code.
The following is a summary of the proposed features of the Plan, which is
qualified in its entirety by reference to the Plan, a copy of which is annexed
to this proxy statement as Appendix B.
General Description of the Plan
The Human Resources Committee shall no later than the 90th day of each
year: (i) select executive officers eligible to participate in the Plan for that
year ("Eligible Employees"); (ii) determine the Performance Goals (defined
below) that must be achieved in order for awards to be paid under the Plan; and
(iii) determine the total amount which may be available for payout to Eligible
Employees based upon the relative level of attainment of the selected
24
Performance Goals. Following the close of each year, the Human Resources
Committee will determine whether the Performance Goals were achieved and, based
on the level of achievement, the total amount available for payout. In its sole
discretion, the Human Resources Committee may reduce the size or eliminate the
total amount available for payment and determine the share, if any, of the
available amount to be paid to each Eligible Employee. The maximum payment to
any Eligible Employee under the Plan for any year will in no event exceed
$3,000,000.
For purposes of the Plan, "Performance Goals" means one or more of the
following: (i) earnings per share, (ii) return on average equity in relation to
a peer group of companies designated by the Company (the "Peer Group"), (iii)
return on average assets in relation to the Peer Group, or (iv) such other
performance goals as may be established by the Human Resources Committee which
may be based on earnings, earnings growth, earnings before interest, taxes and
amortization (EBITA), operating income, operating margins, revenues, expenses,
stock price, market share, charge-offs, reductions in non-performing assets,
return on assets, equity or investment, regulatory compliance, satisfactory
internal or external audits, improvement of financial ratings, achievement of
balance sheet or income statement objectives, net cash provided from continuing
operations, stock price appreciation, total stockholder return, cost control,
strategic initiatives, market share, pre- or after-tax income, or any other
objective goals established by the Human Resources Committee, and may be
absolute in their terms or measured against or in relationship to other
companies comparably, similarly or otherwise situated. Such Performance Goals
may be (i) particular to a line of business, division or other unit or may be
based on the performance of the Company generally or (ii) applied by excluding
the impact of charges for restructuring, discontinued operations, extraordinary
items, and other unusual or non-recurring items, and the cumulative effects of
accounting changes, each as defined by generally accepted accounting principles.
The group of employees whose bonus compensation would be subject to the
Performance Goals selected by the Human Resources Committee would consist of all
of the Company's executive officers, as defined in Securities Exchange and
Commission ("SEC") rules. Currently, the Company has eight executive officers.
The executive officers are listed annually in the Company's Form 10-K filed with
the SEC. Although the Internal Revenue Code only limits deductibility for
compensation paid to the five most highly paid executive officers, the selected
Performance Goals may be applied to all executive officers in the event that one
or more of them should become one of the five most highly compensated during the
five-year period covered by this proposal.
The amounts of any awards that may be payable to Eligible Employees under
the Plan in future years cannot currently be determined. In addition, since
awards are based upon Performance Goals, which are tied to a specific year, the
amounts that the Eligible Employees would have received for 2002 if the Plan had
been in effect are also not determinable. If approved by the stockholders, this
proposal would not limit the Company's right to award or pay other forms of
compensation (including, but not limited to, salary or stock-based awards) to
the Company's executive officers, regardless of whether or not the Performance
Goals for annual bonuses are achieved in any year, and whether or not payment of
such other forms of compensation would be tax deductible.
Amendment and Termination
The Human Resources Committee may at any time terminate, in whole or in
part, or from time to time amend, the Plan; provided, however, that neither
termination nor amendment of the Plan after the end of a year may adversely
affect the rights of Eligible Employees with respect to their bonus awards for
that year. Any amendment to the Plan shall be approved by the Company's
stockholders if required by Section 162(m) of the Internal Revenue Code.
Administration
The Plan shall be administered by a committee designated by the Board of
Directors consisting solely of two or more members of the Board of Directors
each of whom is an "outside director" within the meaning of Section 162(m) of
the Code. The Human Resources Committee has been designated by the Board for
this purpose. The Human Resources Committee shall have authority to interpret
the Plan, to prescribe, amend and rescind rules and regulations relating to it
and to make all other determinations deemed necessary or advisable for the
administration of the Plan. The determinations of the Human Resources Committee
pursuant to its authority under the Plan shall be conclusive and binding.
Certain Federal Income Tax Consequences
The following summarizes the operation of Section 162(m) of the Internal
Revenue Code but does not purport to describe all tax consequences of the Plan.
Section 162(m) of the Internal Revenue Code denies a federal income tax
deduction for certain compensation in excess of $1,000,000 per year paid to the
chief executive officer and the four other most highly paid executive officers
of a publicly traded corporation. Certain types of compensation, including
compensation based on performance goals, are excluded from this deduction limit.
In order for compensation to qualify
25
for this exception: (i) it must be paid solely on account of the attainment of
one or more performance goals; (ii) the performance goals must be established by
a committee consisting solely of two or more outside directors; (iii) the
material terms under which the compensation is to be paid, including the
performance goals, must be disclosed to and approved by stockholders in a
separate vote prior to payment; and (iv) prior to payment, the committee must
certify that the performance goals and any other material terms were in fact
satisfied. The Company believes that, if the Plan is approved by the
stockholders, any compensation paid in accordance with the Plan will qualify as
performance-based compensation under the Internal Revenue Code.
The Board of Directors recommends a vote FOR approval of the Plan.
-PROPOSAL 3-
STOCKHOLDER PROPOSAL
The Sheet Metal Workers' National Pension Fund, Edward F. Carlough Plaza,
601 North Fairfax Street, Suite 500, Alexandria, VA 22314-2705, a holder of
3,600 shares of Common Stock, has submitted the following resolution for
adoption at the 2003 Annual Meeting of Stockholders:
"RESOLVED, that the shareholders of Thermo Electron ("Company") hereby
request that the Company's Board of Directors establish a policy of expensing in
the Company's annual income statement the costs of all future stock options
issued by the Company."
Supporting Statement for Stockholder Proposal
Current accounting rules give companies the choice of reporting stock
option expenses annually in the company income statement or as a footnote in the
annual report (See: Financial Accounting Standards Board Statement 123). Most
companies, including ours, report the cost of stock options as a footnote in the
annual report, rather than include the option costs in determining operating
income. We believe that expensing stock options would more accurately reflect a
company's operational earnings.
Stock options are an important component of our Company's executive
compensation program. Options have replaced salary and bonuses as the most
significant element of executive pay packages at numerous companies. The lack of
options expensing can promote excessive use of options in a company's
compensation plans, obscure and understate the cost of executive compensation
and promote the pursuit of corporate strategies designed to promote short-term
stock price rather than long-term corporate value.
A recent report issued by Standard & Poor's indicated that the expensing of
stock option grant costs would have lowered operational earnings at companies by
as much as 10%. "The failure to expense stock option grants has introduced a
significant distortion in reported earnings," stated Federal Reserve Board
Chairman Alan Greenspan. "Reporting stock options as expenses is a sensible and
positive step toward a clearer and more precise accounting of a company's
worth." Globe and Mail, "Expensing Options Is a Bandwagon Worth Joining," Aug.
16, 2002.
Warren Buffett wrote in a New York Times Op-Ed piece on July 24, 2002:
There is a crisis of confidence today about corporate earnings reports
and the credibility of chief executives. And it's justified.
For many years, I've had little confidence in the earnings numbers
reported by most corporations. I'm not talking about Enron and
WorldCom - examples of outright crookedness. Rather, I am referring to
the legal, but improper, accounting methods used by chief executives
to inflate reported earnings . . .
Options are a huge cost for many corporations and a huge benefit to
executives. No wonder, then, that they have fought ferociously to
avoid making a charge against their earnings. Without blushing, almost
all C.E.O.'s have told their shareholders that options are cost-free .
. .
When a company gives something of value to its employees in return for
their services, it is clearly a compensation expense. And if expenses
don't belong in the earnings statement, where in the world do they
belong?
Many companies have responded to investors' concerns about their failure to
expense stock options. In recent months, more than 100 companies, including such
prominent ones as Coca Cola, Washington Post, and General Electric,
26
have decided to expense stock options to provide their shareholders more
accurate financial statements. Our Company has yet to act. We urge your support.
Statement in Opposition to Stockholder Proposal
Thermo Electron views the use of stock options as a valuable tool for
recruiting and retaining top management talent, and we believe that we have used
this tool with prudence and moderation. We acknowledge the view of some
shareholders that financial statements should reflect a cost associated with the
issuance of stock options. While we understand this view, we believe that such
an important accounting principle should be applied consistently among all
companies to ensure equitable comparability. Currently, we disclose in the Notes
to the Company's Consolidated Financial Statements contained in our Form 10-K
our results on a pro forma basis as if we had recorded the cost of stock options
as an expense. Such disclosure is required by Statement of Financial Accounting
Standard No. 123 ("SFAS No. 123"). This cost, calculated in accordance with the
fair value method prescribed by SFAS No. 123, is determined based on the fair
value of the option at the date of grant.
Although the issue of expensing stock options has attracted significant
interest from accounting and investment communities, there is no rule requiring
all companies to expense stock options, no standard applicable to all companies
by which stock options are required to be valued, and no consensus has emerged
on the appropriate method for measuring the true cost of stock options to the
Company. Our experience using the Black-Scholes option valuation formula
suggests that it is an imprecise tool for these purposes.
At this time, we believe the Company may be placed at a relative
disadvantage if we were required to expense the cost of stock options while this
accounting treatment has not been standardized, widely adopted, and required of
our peers. Thermo Electron does and will continue to comply with all SEC and
Financial Accounting Standards Board (FASB) requirements and apply appropriate
option valuation methods consistent with sound accounting and industry
practices. While several major U.S. companies have announced plans to change
their method of accounting for employee stock options to the fair value method
and reflect an estimated value of such stock options as an expense on their
income statements, it is still unclear if this practice will become standard and
whether it will become widely adopted, including by our peers. We believe that
bearing the cost of options in our financial statements today would depress our
earnings relative to those of our peer group companies who have not expensed the
cost of stock options and result in Thermo Electron indirectly being penalized
for continuing to use stock options as part of our compensation package.
Alternatively, it could cause the Company to reduce our use of stock options due
to such potential inequitable comparisons, which would likely make it more
difficult to attract and retain key employees. Ultimately, either result could
make the Company a less attractive investment and harm our shareholders.
Thermo Electron believes the proper method for accounting for options is a
matter best left to the SEC and FASB, and those organizations should adopt
standards applicable to all companies. We do not believe our shareholders would
benefit by having the Company adopt a practice that is not standardized and may
not become widely used, that will depress our earnings relative to those of our
peer group companies, and that will place us at a disadvantage in recruiting and
retaining key executives.
The Board of Directors recommends a vote AGAINST the stockholder proposal.
Proxies solicited by the Board of Directors will be voted AGAINST the proposal
unless stockholders otherwise specify to the contrary on their proxy.
OTHER ACTION
Management is not aware at this time of any other matters that will be
presented for action at the meeting. Should any such matters be presented, the
proxies grant power to the proxy holders to vote shares represented by the
proxies in the discretion of such proxy holders.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be included in the proxy statement
and proxy card relating to the 2004 Annual Meeting of the Stockholders of the
Company and to be presented at such meeting must be received by the Company for
inclusion in the proxy statement and proxy card no later than December 11, 2003.
In addition, the Company's Bylaws include an advance notice provision that
requires stockholders desiring to bring proposals before an annual meeting
(which proposals are not to be included in the Company's proxy statement and
thus are submitted outside the processes of Rule 14a-8 under the Exchange Act)
to do so in accordance with the terms of such advance notice
27
provision. The advance notice provision requires that, among other things,
stockholders give timely written notice to the Secretary of the Company
regarding their proposals. To be timely, notices must be delivered to the
Secretary at the principal executive offices of the Company not less than 60,
nor more than 75, days prior to the first anniversary of the date on which the
Company mailed its proxy materials for the preceding year's annual meeting of
stockholders. Accordingly, a stockholder who intends to present a proposal at
the 2004 Annual Meeting of Stockholders without inclusion of the proposal in the
Company's proxy materials must provide written notice of such proposal to the
Secretary no earlier than January 26, 2004 and no later than February 9, 2004.
Proposals received at any other time will not be voted on at the meeting. If a
stockholder makes a timely notification, the proxies that management solicits
for the meeting may still exercise discretionary voting authority with respect
to the stockholder's proposal under circumstances consistent with the proxy
rules of the Securities and Exchange Commission.
SOLICITATION STATEMENT
The cost of this solicitation of proxies will be borne by the Company.
Solicitation will be made primarily by mail, but regular employees of the
Company may solicit proxies personally or by telephone, facsimile transmission
or telegram. Brokers, nominees, custodians and fiduciaries are requested to
forward solicitation materials to obtain voting instructions from beneficial
owners of stock registered in their names, and the Company will reimburse such
parties for their reasonable charges and expenses in connection therewith.
Waltham, Massachusetts
April 9, 2003
28
APPENDIX A
Thermo Electron Corporation
Audit Committee Charter
Organization
The Committee shall consist of only independent Directors as defined by the
relevant stock exchange listing authority for the Company's equity securities.
The Chairman of the Committee shall be chosen from among the members. Each
member of the Committee shall be financially literate or must become financially
literate within a reasonable period of time after his or her appointment to the
Committee, and at least one member of the Committee must have accounting or
related financial management expertise as the foregoing qualifications are
interpreted by the Board of Directors ("Board") in its business judgment. The
number of Directors serving on the Committee shall be determined by the Board of
Directors, and from and after June 14, 2001, the Committee shall consist of at
least three Directors.
Statement of Policy
The Committee shall, through regular or special meetings with management, the
Company's internal auditor and the Company's independent auditor, provide
oversight on matters relating to accounting, financial reporting, internal
control, auditing and other matters as the Board or the Committee Chairman deems
appropriate.
Responsibilities
The Company's management is responsible for preparing the Company's financial
statements and the independent auditors are responsible for auditing those
financial statements. The Committee is responsible for overseeing the conduct of
these activities by the Company's management and the independent auditors. The
financial management and the independent auditors of the Company have more time,
knowledge and more detailed information on the Company than do Committee
members. Consequently, in carrying out its oversight responsibilities, the
Committee is not providing any expert or special assurance as to the Company's
financial statements or any professional certification as to the independent
auditor's work.
In carrying out its oversight responsibilities, the Committee shall perform the
following functions:
Oversight of Independent Auditors.
In the course of its oversight of the independent auditors as provided under
this Charter, the Committee will be guided by the premise that the independent
auditor is ultimately accountable to the Board and the Committee.
1. The Committee, subject to any action that may be taken by the full Board,
shall have the ultimate authority and responsibility to select, evaluate
and, where appropriate, replace the independent auditor.
2. The Committee shall:
(i) receive from the independent auditors annually, a formal written
statement delineating the relationships between the auditors and the
Company consistent with Independence Standards Board Standard Number
1;
(ii) discuss with the independent auditors the scope of any such disclosed
relationships and their impact or potential impact on the independent
auditor's independence and objectivity; and
(iii)recommend that the Board take appropriate action in response to the
independent auditor's report to satisfy itself of the auditor's
independence.
3. The Committee shall review the original proposed scope of the annual
independent audit of the Company's financial statements and the associated
fees, as well as any significant variations in the actual scope of the
independent audit and the associated fees.
4. The Committee shall review the independent auditors' report relating to
reportable conditions in the internal control structure and financial
reporting practices.
A-1
Oversight of Internal Auditors.
The Committee shall review and discuss with management and the independent
auditors:
1. The quality and adequacy of the Company's internal accounting
controls.
2. Organization of the internal audit department, the adequacy of its
resources and the competence of the internal audit staff.
3. The audit risk assessment process and the proposed scope of the
internal audit department for the upcoming year and the coordination
of that scope with independent auditors.
4. Results of the internal auditors examination of internal controls
including summaries of inadequate reports issued and/or management
improprieties together with management's response thereto.
Oversight of Management's Conduct of the Company's Financial Reporting Process.
1. Audited Financial Statements. The Committee shall review and discuss
with management and the independent auditors the audited financial
statements to be included in the Company's Annual Report on Form 10-K
(or the Annual Report to Shareowners if distributed prior to the
filing of Form 10-K) and review and consider with the independent
auditors the matters required to be discussed by the applicable
Statement of Auditing Standards ("SAS"). Based on these discussions,
the Committee will advise the board of directors whether it recommends
that the audited financial statements be included in the Annual Report
on Form 10-K (or the Annual Report to Shareholders).
2. Interim Financial Statements. The Committee, through its Chairman or
the Committee as a whole, will review with management and the
independent auditors, prior to the filing thereof, the Company's
interim financial results to be included in the Company's quarterly
reports on Form 10-Q and the matters required to be discussed by the
applicable SAS.
3. Financial Reporting Practices. The Committee shall review:
(i) Significant changes in the Company's accounting policies and
practices and significant judgments that may affect the financial
results.
(ii) The nature of any unusual or significant commitments or
contingent liabilities together with the underlying assumptions
and estimates of management.
(iii)The effect of changes on accounting standards that may
materially affect the Company's financial reporting practices.
(iv) Litigation or other legal matters that could have a significant
impact on the Company's financial results.
Oversight and Review of Charter.
The Committee shall review and monitor, as appropriate, the adequacy of this
Charter, which shall be reviewed by the Committee on an annual basis. The
Committee will recommend to the Board any modifications to this Charter, which
the Committee deems appropriate, for approval by the Board.
A-2
APPENDIX B
THERMO ELECTRON CORPORATION
2003 ANNUAL INCENTIVE AWARD PLAN
I. General Purpose of Plan
The Thermo Electron Corporation 2003 Annual Incentive Award Plan is designed to
assist the Corporation and its Subsidiaries in attracting, retaining and
providing incentives to Eligible Employees and to promote the identification of
their interests with those of the Corporation's shareholders by providing for
the payment of Incentive Awards subject to the achievement of specified
Performance Goals.
II. Definitions
Terms not otherwise defined herein shall have the following meanings:
A. "Award Period" means the calendar year, except to the extent the
Committee determines otherwise.
B. "Board" means the Board of Directors of the Corporation.
C. "Code" means the Internal Revenue Code of 1986, as amended.
D. "Committee" means the Human Resources Committee of the Board, or any
other committee appointed by the Board to administer the Plan.
E. "Corporation" means Thermo Electron Corporation, a Delaware corporation.
and its successors and assigns and any corporation which shall acquire
substantially all of its assets.
F. "Covered Employee" means a "covered employee" within the meaning of
Section 162(m) of the Code.
G. "Eligible Employee" means an employee described in Section IV hereof.
H. "Incentive Award" means a contingent award made to a Participant that,
subject to Section V hereof, entitles the Participant to cash payment to reflect
the relative level of attainment of Performance Goals established by the
Committee for an Award Period and such other factors as the Committee may
determine.
I. "Participant" means any Eligible Employee who receives an Incentive
Award under the Plan for an Award Period.
J. "Performance Goals" means (a) earnings per share, (b) return on average
equity in relation to a peer group of companies designated by the Corporation
(the "Peer Group"), (c) return on average assets in relation to the Peer Group,
or (d) such other performance goals as may be established by the Committee which
may be based on earnings, earnings growth, earnings before interest, taxes, and
amortization (EBITA), operating income, operating margins, revenues, expenses,
stock price, market share, charge-offs, reductions in non-performing assets,
return on assets, equity or investment, regulatory compliance, satisfactory
internal or external audits, improvement of financial ratings, achievement of
balance sheet or income statement objectives, net cash provided from continuing
operations, stock price appreciation, total shareholder return, cost control,
strategic initiatives, market share, pre- or after-tax income, or any other
objective goals established by the Committee, and may be absolute in their terms
or measured against or in relationship to other companies comparably, similarly
or otherwise situated. Such performance goals may be particular to a Participant
or the division, department, branch, line of business, Subsidiary or other unit
in which the Participant works, or may be based on the performance of the
Corporation generally, and
B-1
may cover such period as may be specified by the Committee. Such Performance
Goals may be applied by excluding the impact of charges for restructurings,
discontinued operations, extraordinary items, and other unusual or non-recurring
items, and the cumulative effects of accounting changes, each as defined by
generally accepted accounting principles.
K. "Plan" means the Thermo Electron Corporation 2003 Annual Incentive Award
Plan.
L. "Subsidiary" means a corporation of which at least 50% of the total
combined voting power of all classes of stock is owned by the Corporation,
either directly or through one or more other Subsidiaries.
III. Administration
The Plan shall be administered by the Committee. The Committee shall have
plenary authority, in its discretion, to determine the terms of all Incentive
Awards, including, without limitation, the Eligible Employees to whom, and the
time or times at which, Incentive Awards are made, the Award Period to which
each Incentive Award shall relate, the actual dollar amount to be paid pursuant
to an Incentive Award, the Performance Goals to which payment of Incentive
Awards will be subject, and when payments pursuant to Incentive Awards shall be
made (which payments may, without limitation, be made during or after an Award
Period on a deferred basis or in installments). In making such determinations,
the Committee may take into account the nature of the services rendered by the
respective Eligible Employees, their present and potential contributions to the
success of the Corporation and its Subsidiaries, and such other factors as the
Committee in its discretion shall deem relevant. Subject to the express
provisions of the Plan, the Committee shall have plenary authority to interpret
the Plan, to prescribe, amend and rescind rules and regulations relating to it
and to make all other determinations deemed necessary or advisable for the
administration of the Plan. The determinations of the Committee pursuant to its
authority under the Plan shall be conclusive and binding.
IV. Eligibility
Incentive Awards may be granted only to executive officers of the Corporation or
a Subsidiary.
V. Incentive Awards; Terms of Awards; Payment
A. The Committee shall, in its sole discretion, determine which Eligible
Employees shall receive Incentive Awards. For each Award Period with respect to
which the Committee determines to make Incentive Awards, the Committee shall by
resolution establish one or more Performance Goals applicable to such Incentive
Awards and the other terms and conditions of the Incentive Awards. Such
Performance Goals and other terms and conditions shall be established by the
Committee in its sole discretion as it shall deem appropriate and in the best
interests of the Corporation and shall be established (1) within 90 days after
the first day of the Award Period and (2) before 25% of the Award Period has
elapsed.
B. After the end of each Award Period for which the Committee has granted
Incentive Awards, the Committee shall determine the extent to which the
Performance Goals established by the Committee for the Award Period have been
achieved and shall authorize the Corporation to make Incentive Award payments to
Participants in accordance with the terms of the Incentive Awards. In no event
shall the amount paid to a Participant in accordance with the terms of an
Incentive Award by reason of Performance Goal achievement exceed $3,000,000 in
any calendar year. Unless otherwise determined by the Committee, no Incentive
Award payments shall be made to a Participant unless the Participant is employed
by the Corporation or a Subsidiary as of the date of payment.
C. The Committee may at any time, in its sole discretion, cancel an
Incentive Award or eliminate or reduce (but not increase) the amount payable
pursuant to the terms of an Incentive Award without the consent of a
Participant.
B-2
D. Incentive Award payments shall be subject to applicable federal, state
and local withholding taxes and other applicable withholding in accordance with
the Corporation's payroll practices as from time-to-time in effect.
E. The Committee shall have the power to impose such other restrictions on
Incentive Awards as it may deem necessary or appropriate to ensure that such
Incentive Awards satisfy all requirements for "performance-based compensation"
within the meaning of Section 162(m)(4)(C) of the Code, or any successor
provision thereto.
VI. Transferability
Incentive Awards shall not be subject to the claims of creditors and may not be
assigned, alienated, transferred or encumbered in any way other than by will or
pursuant to the laws of descent and distribution.
VII. Termination or Amendment
The Committee may amend, modify or terminate the Plan in any respect at any time
without the consent of Participants, provided that (a) no amendment or
termination of the Plan after the end of an Award Period may adversely affect
the rights of Participants with respect to their Incentive Awards for that Award
Period, and (b) no amendment which would require shareholder approval under
Section 162(m) of the Code may be effected without such shareholder approval.
VIII. Effectiveness of Plan and Awards
The Plan and Incentive Awards granted hereunder shall be void ab initio unless
the Plan is approved by a vote of the Corporation's shareholders at the first
shareholders' meeting of the Corporation following adoption of the Plan by the
Committee.
IX. Effective Date; Term of the Plan
The Plan shall be effective as of January 1, 2003. Unless sooner terminated by
the Committee pursuant to Section 7, to the extent necessary to ensure that
Incentive Award payments made to Covered Employees may be deductible for federal
income tax purposes, the Plan shall terminate as of the date of the first
meeting of the Corporation's shareholders occurring during 2008, unless the term
of the Plan is extended and reapproved at such shareholders' meeting. No
Incentive Awards may be awarded under the Plan after its termination.
Termination of the Plan shall not affect any Incentive Awards outstanding on the
date of termination and such awards shall continue to be subject to the terms of
the Plan notwithstanding its termination.
X. General Provisions
A. The establishment of the Plan shall not confer upon any Eligible
Employee any legal or equitable right against the Corporation or any Subsidiary,
except as expressly provided in the Plan.
B. The Plan does not constitute an inducement or consideration for the
employment of any Eligible Employee, nor is it a contract between the
Corporation, or any Subsidiary and any Eligible Employee. Participation in the
Plan shall not give an Eligible Employee any right to be retained in the employ
of the Corporation or any Subsidiary.
C. Nothing contained in this Plan shall prevent the Committee from adopting
other or additional compensation arrangements, subject to shareholder approval
if such approval is required, and such arrangements may be either generally
applicable or applicable only in specific cases.
D. The Plan shall be governed, construed and administered in accordance
with the laws of the State of Delaware.
B-3
THERMO ELECTRON CORPORATION
PROXY FOR ANNUAL MEETNG OF STOCKHOLDERS TO BE HELD MAY 14,2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Marijn E. Dekkers, Richard F. Syron, and
Theo Melas-Kyriazi, and each of them, proxies of the undersigned, each with
power to appoint his substitute, and hereby authorizes them to represent and to
vote, as designated on the reverse side, all the shares of common stock of
Thermo Electron Corporation held of record by the undersigned on March 28, 2003,
at the Annual Meeting of the Stockholders to be held at the InterContinental The
Barclay New York, 111 East 48th Street, New York, New York, on Wednesday, May
14, 2003, at 2:00 p.m., and at any adjournments thereof, as set forth on the
reverse side hereof, and in their discretion upon any other business that may
properly come before the meeting.
The Proxy will be voted as specified, or if no choice is specified, FOR the
election of the nominees for director, FOR proposal 2, AGAINST proposal 3, if
presented at the meeting, and as said proxies deem advisable on such other
matters as may properly come before the meeting.
(IMPORTANT - TO BE SIGNED AND DATED ON THE REVERSE SIDE)
ANNUAL MEETING OF STOCKHOLDERS OF
THERMO ELECTRON CORPORATION
May 14, 2003
PROXY VOTING INSTRUCTIONS
MAIL - Date, sign and mail your proxy card in the
envelope provided as soon as possible.
-OR-
TELEPHONE - Call toll-free 1-800-PROXIES from COMPANY NUMBER
any touch-tone telephone and follow the instruc- ----------------- -----------
tions. Have your control number and proxy card ACCOUNT NUMBER
available when you call. ----------------- -----------
-OR- CONTROL NUMBER
INTERNET - Access "www.voteproxy.com" and ----------------- -----------
follow the on-screen instructions. Have your control
number available when you access the web page.
INTERNET AND TELEPHONE VOTING ARE AVAILABLE 24 HOURS A DAY,
7 DAYS A WEEK UNTIL 5:00 P.M. NEW YORK TIME ON MAY 13, 2003
Please detach and mail in the envelope provided If you are not voting
via telephone or the Internet.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2, AND
RECOMMENDS A VOTE "AGAINST" PROPOSAL 3.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
1. ELECTION OF DIRECTORS OF THE COMPANY.
NOMINEES
[ ] FOR ALL NOMINEES [ ] (01) Jim P. Manzi
[ ] (02) Elaine S. Ullian
[ ] WITHHOLD AUTHORITY
FOR ALL NOMINEES
[ ] FOR ALL EXCEPT (See Instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here: [X]
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FOR AGAINST ABSTAIN
2. Approve a management proposal to approve the Company's [ ] [ ] [ ]
Annual Incentive Award Plan.
3. Approve a stockholder proposal to request the Board of [ ] [ ] [ ]
Directors to establish a policy of expensing in the Company's
annual income statement the costs of all future stock options
issued by the Company.
4. In their discretion on such other matters as may properly come before
the meeting.
If no instruction to the contrary is indicated or if no instruction is given,
the shares represented by this Proxy will be voted "FOR" Proposals 1 and 2 and
"AGAINST" Proposal 3, if presented at the meeting.
Copies of the Notice of Meeting and of the Proxy Statement have been received by
the undersigned.
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To change the address on your account, please check the box at right
and indicate your new address in the address space above. Please note
that changes to the registered name(s) on the account may not be submitted
via this method. [ ]
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PLEASE, DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
Signature of Stockholder __________________________Date:__________________
Signature of Stockholder __________________________Date:__________________
Note:This proxy must be signed exactly as the name appears hereon. When shares
are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full tile as
such. If the signer is a corporation, please sign full corporate name by
duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.