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
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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
Waltham, MA 02451
April 8, 2004
Dear Stockholder:
You are cordially invited to attend the 2004 Annual Meeting of
Stockholders of Thermo Electron Corporation, which will be held on Tuesday, May
18, 2004, at 2:00 p.m. (Eastern time) 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 2003 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
Waltham, MA 02451
NOTICE OF 2004 ANNUAL MEETING OF STOCKHOLDERS
To be held on May 18, 2004
April 8, 2004
To the Holders of the Common Stock of
THERMO ELECTRON CORPORATION
Notice is hereby given that the 2004 Annual Meeting of the Stockholders
of Thermo Electron Corporation ("Thermo Electron" or the "Company") will be held
on Tuesday, May 18, 2004, at 2:00 p.m. (Eastern time) 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 three directors, constituting the class of directors
to be elected for a three-year term expiring in 2007.
2. Ratification of the Audit Committee's selection of
PricewaterhouseCoopers LLP as the Company's independent auditors
for 2004.
3. A stockholder proposal regarding performance and time-based
restricted stock, 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 26, 2004 are
the only stockholders entitled to notice of and to vote at the 2004 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 or not 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
Waltham, MA 02451
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
May 18, 2004
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 2004 Annual Meeting of Stockholders to be held on Tuesday, May
18, 2004, at 2:00 p.m. (Eastern time) 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, Waltham, Massachusetts 02451. This proxy statement and enclosed proxy
card are being first furnished to stockholders of the Company on or about April
8, 2004.
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING PROCEDURES
Purpose of Annual Meeting
At the 2004 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
three directors constituting the class of directors to be elected for a
three-year term expiring in 2007, the ratification of the selection of
PricewaterhouseCoopers LLP as the Company's independent auditors for 2004, 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 26, 2004,
the record date for the meeting, are entitled to vote at the meeting or any
adjournments thereof. At the close of business on March 26, 2004, the
outstanding voting securities of the Company consisted of 165,302,014 shares of
the Company's common stock, par value $1.00 per share ("Common Stock"). Each
share of Common Stock outstanding at the close of business on the record date is
entitled to one vote on each matter that is voted.
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 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. In
voting by telephone or over the Internet, you will be allowed to confirm that
your instructions have been properly recorded.
Page 2
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 the ratification of the selection of independent
auditors for 2004, 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 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.
For each other item, the affirmative vote of a majority of the shares
present or represented and entitled to vote at the meeting will be required for
approval. Abstentions will have the same effect as a vote against the matter,
and broker non-votes will not have an effect on the determination of whether
stockholder approval of the matter has been obtained.
Page 3
- PROPOSAL 1 -
ELECTION OF DIRECTORS
The number of directors constituting the full Board of Directors of the
Company (the "Board of Directors") is fixed at eight. The Board of Directors is
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. Marijn E. Dekkers, Mr. Robert A.
McCabe, and Mr. Robert W. O'Leary are listed below as nominees for the
three-year term expiring at the 2007 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.
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 heading "Stock
Ownership".
Nominees for Directors Whose Term of Office Will Expire in 2007
[PHOTO] Marijn E. Dekkers
Mr. Dekkers, age 46, has been a director since
July 2000 and the Company's president and chief
executive officer since November 2002. He served
as the Company's president and chief operating
officer from July 2000 to November 2002. From
June 1999 to July 2000, he served as the
president of Honeywell International Inc.'s
(formerly AlliedSignal Inc.) electronic materials
division; and from August 1997 to May 1999, he
served as vice president and general manager of
its fluorine products division.
[PHOTO] Robert A. McCabe
Mr. McCabe, age 69, has been a director of the
Company since 1962. He has been the chairman of
Pilot Capital Corporation, an entity engaged in
private investments, since 1998 and he served as
its president from 1987 to 1998. Mr. McCabe is
also a director of Church & Dwight Co., Inc.
[PHOTO] Robert W. O'Leary
Mr. O'Leary, age 60, has been a director of the
Company since June 1998. He has been the chief
executive officer and chairman of the board of
directors of Valeant Pharmaceuticals
International, a research-based global
pharmaceutical company, since June 2002. From
January 2001 to June 2002, he served as the
chairman and chief executive officer of The
Sagamore Group, a firm specializing in change
management situations. Mr. O'Leary served as 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, he served as
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.
Page 4
Incumbent Directors Whose Term of Office Will Expire in 2005
[PHOTO] John L. LaMattina
Dr. LaMattina, age 54, has been a director of the
Company since January 2002. He has been senior
vice president, Pfizer Inc., a pharmaceutical
company, and president, Pfizer Global Research
and Development, since October 2003. From April
2001 to October 2003, he served as vice
president, Pfizer Inc.; executive vice president,
Pfizer Global Research and Development; and
president, Pfizer Worldwide Research and
Technology Alliances. From August 1999 to April
2001, Dr. LaMattina served as senior vice
president, Worldwide Discovery, Pfizer Central
Research. From 1977 until August 1999, he held
various positions of increasing responsibility in
research and development at Pfizer Inc.
[PHOTO] Michael E. Porter
Dr. Porter, age 56, has been a director of the
Company since July 2001. He has been the Bishop
William Lawrence University Professor at the
Harvard Business School since December 2000 and
C. Roland Christensen Professor of Business
Administration since 1990. Dr. Porter is a
leading authority on competitive strategy and
international competitiveness. Dr. Porter is also
a director of Inforte Corp. and Parametric
Technology Corporation.
Incumbent Directors Whose Term of Office Will Expire in 2006
[PHOTO] Peter J. Manning
Mr. Manning, age 65, has been a director of the
Company since May 2003. He served as vice
chairman, Strategic Business Development of
FleetBoston Financial Corporation from October
1999 to February 2003 when he retired. From
January 1993 to October 1999, Mr. Manning served
as executive director, Mergers & Acquisitions of
BankBoston Corporation, prior to its acquisition
by FleetBoston Financial. From 1990 to 1993, he
served as executive vice president and chief
financial officer of BankBoston Corporation. Mr.
Manning is also a director of Safety Insurance
Group Inc.
[PHOTO] Jim P. Manzi
Mr. Manzi, age 52, has been a director of the
Company since May 2000 and Chairman of the Board
of Directors since January 2004. He has been the
chairman of Stonegate Capital, a firm he formed
to manage private equity investment activities in
technology startup ventures, primarily related to
the Internet, since 1995. From 1984 until 1995,
he served as the chairman, president and chief
executive officer of Lotus Development
Corporation, a software manufacturer that was
acquired by IBM Corporation in 1995.
[PHOTO] Elaine S. Ullian
Ms. Ullian, age 56, has been a director of the
Company since July 2001. She has been the
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 Vertex
Pharmaceuticals, Inc.
Page 5
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
The Board of Directors has adopted governance principles and guidelines
of the Company ("Corporate Governance Guidelines") to assist the Board of
Directors in exercising its duties and to best serve the interests of the
Company and its stockholders. The Company's Corporate Governance Guidelines are
available on the Company's website at www.thermo.com.
Director Nomination Process
The Nominating and Corporate Governance Committee of the Board of
Directors considers recommendations for director nominees suggested by its
members, other directors, management and other interested parties. It will
consider stockholder recommendations for director nominees that are sent to the
Nominating and Corporate Governance Committee to the attention of the Company's
Secretary at the principal offices of the Company. In addition, the By-laws of
the Company set forth the process for stockholders to nominate directors for
election at an annual meeting of stockholders.
The process for evaluating prospective nominees for director, including
candidates recommended by stockholders, includes meetings from time to time to
evaluate biographical information and background material relating to
prospective nominees, interviews of selected candidates by members of the
Nominating and Corporate Governance Committee and other members of the Board of
Directors, and application of the Company's general criteria for director
nominees set forth in the Company's Corporate Governance Guidelines. These
criteria include the prospective nominee's integrity, business acumen, age,
experience, commitment, and diligence. The Nominating and Corporate Governance
Committee does not assign specific weights to particular criteria and no
particular criterion is necessarily applicable to all prospective nominees. The
committee believes that the backgrounds and qualifications of the directors
considered as a group should provide a significant breadth of experience,
knowledge and abilities to assist the Board of Directors in fulfilling its
responsibilities. As such, the Nominating and Corporate Governance Committee
also considers such other relevant factors as it deems appropriate, including
the current composition of the Board of Directors, the balance of management and
independent directors, and with respect to members of the Audit Committee,
financial expertise.
After completing its evaluation, the Committee makes a recommendation
to the full Board of Directors as to the persons who should be nominated by the
Board of Directors, and the Board of Directors determines the nominees after
considering the recommendation and report of the Nominating and Corporate
Governance Committee.
Each director nominee approved by the Nominating and Corporate
Governance Committee for inclusion on the Company's proxy card for the 2004
Annual Stockholders Meeting is a current director standing for re-election.
Director Independence
The Company's Corporate Governance Guidelines require a majority of our
Board of Directors to be "independent" within the meaning of the listing
requirements of the New York Stock Exchange ("NYSE") including, in the judgment
of the Board of Directors, the requirement that such directors have no material
relationship with the Company (either directly or as a partner, shareholder or
officer of an organization that has a relationship with the Company). The Board
of Directors has adopted the following standards to assist it in determining
whether a director has a material relationship with the Company. Under these
standards, a director will not be considered to have a material relationship
with the Company if he or she:
- is an executive officer of another company that does business
with the Company, unless the annual sales to, or purchases from, the Company
account for more than two percent or $1,000,000, whichever is greater, of the
annual consolidated gross revenues of the company he or she serves as an
executive officer;
- is an executive officer of another company which is indebted to
the Company, or to which the Company is indebted, unless the total amount of
either company's indebtedness to the other is more than one percent of the total
consolidated assets of the company he or she serves as an executive officer; or
- serves as an officer, director or trustee of a charitable
organization, unless the Company's discretionary charitable contributions to the
organization are more than one percent of that organization's total annual
charitable receipts.
Page 6
Ownership of a significant amount of the Company's stock, by itself,
does not constitute a material relationship. For relationships not covered by
these standards, the determination of whether a material relationship exists
shall be made by the other members of the Board of Directors who are independent
(as defined above).
Board of Directors Meetings and Committees
The Board of Directors met seven times during fiscal 2003. During
fiscal 2003, each of our directors attended at least 75% of the total number of
meetings of the Board of Directors and the committees of which such director was
a member, except Mr. Dekkers who attended five of the seven meetings of the
Board of Directors. The two meetings that Mr. Dekkers did not attend were
executive sessions of the independent directors to decide matters pertaining to
the appointment of Mr. Manzi as Chairman of the Board of Directors. The Board of
Directors has a standing audit committee ("Audit Committee"), a standing
compensation committee ("Compensation Committee"), and a standing nominating and
corporate governance committee ("Nominating and Corporate Governance
Committee"). The Company encourages, but does not require, the members of its
Board of Directors to attend the annual meeting of stockholders. Last year,
three of our directors attended the 2003 Annual Meeting of Stockholders.
Audit Committee
The Audit Committee is responsible for assisting the Board of Directors
in its oversight of the integrity of the Company's financial statements, the
Company's compliance with legal and regulatory requirements, the independent
auditor's qualifications and independence, and the performance of the Company's
internal audit function and independent auditors. Certain responsibilities of
our Audit Committee and its activities during fiscal 2003 are described with
more specificity in the Report of the Audit Committee in this proxy statement
under the heading "REPORT OF THE AUDIT COMMITTEE". The charter of the Audit
Committee is attached as Appendix A to this proxy statement and is available on
the Company's website at www.thermo.com.
The current members of our Audit Committee are Messrs. Manning
(Chairman) and McCabe and Ms. Ullian. The Board of Directors has determined that
each of the members of the Audit Committee are "independent" within the meaning
of Securities and Exchange Commission ("SEC") rules and regulations, the listing
standards of the NYSE, and the Company's Corporate Governance Guidelines, and
that each are "financially literate" as is required by the listing standards of
the NYSE. The Board of Directors has also determined that Mr. Manning qualifies
as an "audit committee financial expert" within the meaning of SEC rules and
regulations, and that he has accounting and related financial management
expertise as is required by the listing standards of the NYSE. The Audit
Committee met 13 times during fiscal 2003.
Compensation Committee
The Compensation Committee is responsible for reviewing and approving
compensation matters with respect to the company's Chief Executive Officer and
its other officers, reviewing and recommending to the Board of Directors
management succession plans, and adopting and administering equity-based plans.
Certain responsibilities of our Compensation Committee and its activities during
fiscal 2003 are described in the Report of the Compensation Committee in this
proxy statement under the heading "COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION". The charter of the Compensation Committee is available on the
Company's website at www.thermo.com.
The current members of our Compensation Committee are Ms. Ullian
(Chairperson), and Messrs. LaMattina and Manning. The Board of Directors has
determined that each of the members of the Compensation Committee is
"independent" within the meaning of the listing standards of the NYSE and the
Company's Corporate Governance Guidelines. The Compensation Committee met five
times during fiscal 2003.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is responsible for
identifying persons qualified to serve as members of the Board of Directors,
recommending to the Board of Directors persons to be nominated by the Board of
Directors for election as directors at the annual meeting of stockholders and
persons to be elected by the Board of Directors to fill any vacancies, and
recommending to the Board of Directors the directors to be appointed to each of
its committees. In addition, the Nominating and Corporate Governance Committee
is responsible for developing and recommending to the Board of Directors a set
of Corporate Governance Guidelines applicable to the Company (as well as
reviewing and reassessing the adequacy of such guidelines as it deems
appropriate from time to time) and overseeing
Page 7
the annual self-evaluation of the Board of Directors. The charter of the
Nominating and Corporate Governance Committee is available on the Company's
website at www.thermo.com.
The current members of our Nominating and Corporate Governance
Committee are Messrs. O'Leary (Chairman), LaMattina, and Porter. The Board of
Directors has determined that each of the members of the Nominating and
Corporate Governance Committee are "independent" within the meaning of the
listing standards of the NYSE and the Company's Corporate Governance Guidelines.
The Nominating and Corporate Governance Committee met six times during fiscal
2003.
Executive Sessions and Presiding Director
In accordance with the listing standards of the NYSE and the Company's
Corporate Governance Guidelines, non-management directors of the Board of
Directors meet at regularly scheduled executive sessions without management and
at such other times as may be requested by a non-management director. In
accordance with the Company's Corporate Governance Guidelines, Ms. Ullian has
been appointed to preside (the "Presiding Director") at the meetings of our
non-management directors held in executive session without management.
Communications from Stockholders and Other Interested Parties
The Board of Directors has established a process for stockholders and
other interested parties to send communications to the Board of Directors or any
individual director, including the Presiding Director. Stockholders and other
interested parties who desire to send communications to the Board of Directors
or any individual director should write to the Board of Directors or such
individual director care of the Company's Corporate Secretary, Thermo Electron
Corporation, 81 Wyman Street, Waltham, Massachusetts 02451. The Corporate
Secretary will relay all such communications to the Board of Directors, or
individual director, as the case may be.
Compensation of Directors
Cash Compensation
Each non-management director (except Mr. Manzi) receives an annual
retainer of $35,000, a fee of $1,500 per Board of Directors meeting attended in
person; $1,500 per committee meeting attended in person that occurs on a day
other than a day on which there is a Board of Directors meeting ($1,000 per
committee meeting attended in person that occurs on the same day as a Board of
Directors meeting), and a fee of $750 per Board of Director and committee
meeting attended by means of conference telephone. In addition, the chairmen and
other members of the Audit, Compensation, and Nominating and Corporate
Governance Committees receive additional compensation for their services in
those positions. The chairman of the Audit Committee receives an additional
annual retainer of $10,000 and each of the other members of the Audit Committee
receives an additional annual retainer of $5,000. The chairman of each of the
Compensation Committee and the Nominating and Corporate Governance Committee
receives an additional annual retainer of $5,000 and each other member of those
committees receives an additional annual retainer of $3,000. In addition, the
Presiding Director receives an annual retainer of $3,000. In December 2003, Mr.
Manzi was appointed Chairman of the Board of Directors. As Chairman of the Board
of Directors, Mr. Manzi receives an annual retainer of $250,000 (in lieu of the
annual retainer and fees described above). Mr. Dekkers, as an employee of the
Company, receives no additional compensation from the Company for service as a
director. Payment of the annual retainers and fees are made quarterly. Directors
are reimbursed for out-of-pocket expenses incurred in attending Board of
Directors and committee meetings. In addition, non-management directors resident
on the west coast receive an additional $1,000 per meeting attended in person
for travel time incurred in attending such meeting.
Deferred Compensation Plan for Directors
Under the Company's deferred compensation plan for directors (the
"Directors Deferred Compensation Plan"), each non-management director may elect,
on an annual basis, to defer all or part of his or her retainers and meeting
fees until he or she ceases to serve as a director or retires from his or her
principal occupation. In the event of a "change in control" or proposed "change
in control" of the Company (as defined below) that is not approved by the Board
of Directors, deferred amounts become payable immediately. 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. Any of the following are deemed to be a "change in
control" under the plan: (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
Page 8
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. As of
December 31, 2003, a total of 448,325 shares of Common Stock were available for
issuance under the Directors Deferred Compensation Plan, of which deferred units
equal to 154,697 shares of Common Stock were accumulated.
Stock-Based Compensation
Upon his or her appointment as a director, each non-management director
of the Company is granted an option to purchase 15,000 shares of Common Stock.
These options vest in three equal annual installments, assuming continued
service as a director, 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 connection with his appointment as Chairman of the Board of
Directors, on December 12, 2003 Mr. Manzi was granted options to purchase
240,000 shares of Common Stock. These options vest in three equal annual
installments commencing on December 31, 2004, assuming continued service as
Chairman of the Board of Directors, 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. On December 12, 2003, Mr.
Manzi was also awarded 15,000 shares of restricted Common Stock that vest in
three equal annual installments commencing on December 31, 2004, assuming
continued service as Chairman of the Board of Directors.
In addition, at the close of business on the date of each Annual
Meeting of Stockholders of the Company, each non-management director receives an
automatic grant of options to purchase 7,500 shares of Common Stock pursuant to
the Company's directors stock option plan (the "Directors Stock Option Plan").
The options vest in three equal annual installments, assuming continued service
as a director, 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.
As of February 27, 2004, options to purchase 55,648 shares of Common
Stock were outstanding under the Directors Stock Option Plan, options to
purchase 115,921 shares of Common Stock had been exercised since inception of
the Directors Stock Option Plan, and options to purchase 613,425 shares of
Common Stock were available for future grant.
Stock Ownership Policy for Directors
The Compensation 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 required to
achieve this ownership level within three-years of their appointment. For the
purpose of this policy, a director's election to receive shares of Common Stock
in lieu of director fees will be counted towards this target. The chief
executive officer of the Company is required to comply with a separate stock
holding policy established by the Compensation Committee, which is described
under the sub-heading "Stock Ownership Policy" under the heading "COMPENSATION
COMMITTEE REPORT ON EXECUTIVE COMPENSATION".
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 2003, Mr. Manzi was appointed Chairman of the Board of
Directors. Mr. Manzi's compensation arrangement with the Company for serving as
Chairman of the Board of Directors is described under the sub-heading
"Compensation of Directors" under the heading "CORPORATE GOVERNANCE PRINCIPLES
AND BOARD MATTERS".
Page 9
STOCK OWNERSHIP
The following table sets forth, as of February 27, 2004, 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 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 27, 2004, 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 own stock-based units under the Directors
Deferred Compensation Plan and Mr. Dekkers owns restricted Common Stock units
that have otherwise vested but do not become shares of Common Stock until Mr.
Dekkers ceases to be an employee of the Company. While none of these units may
be voted or transferred, they are listed in the table below as they represent
the total economic interest of the directors, including Mr. Dekkers, 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)............................. 19,300,584 -- 19,300,584 11.69% --
FMR Corp.(5)............................... 16,475,958 -- 16,475,958 9.98% --
Massachusetts Financial Services Company(6) 11,078,280 -- 11,078,280 6.71% --
Guy Broadbent.............................. 5 246,146 246,151 * --
Marc N. Casper............................. 32,261 183,333 215,594 * --
Marijn E. Dekkers.......................... 9,700 1,428,043 1,437,743 * 33,333
Seth H. Hoogasian.......................... 17,516 242,809 260,325 * --
Barry S. Howe.............................. 25,197 202,112 227,309 * --
John L. LaMattina.......................... 2,000 14,333 16,333 * --
Jim P. Manzi............................... 15,000 22,939 37,939 * 8,279
Peter J. Manning........................... 500 -- 500 * --
Robert A. McCabe........................... 31,396 5,495 36,891 * 40,384
Theo Melas-Kyriazi......................... 88,404 645,971 734,375 * --
Robert W. O'Leary.......................... 1,000 11,628 12,628 * 12,285
Michael E. Porter.......................... 4,585 15,962 20,547 * --
Richard F. Syron(7)........................ 80,320 23,643 103,963 * 2,914
Elaine S. Ullian........................... -- 15,962 15,962 * 6,203
All directors and current executive
officers as a group (15 persons)........... 237,224 3,105,242 3,342,466 1.99% 100,484
* 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. Generally, stock options granted to the Company's
officers and directors may be transferred by them to an immediate family member,
a family trust or family partnership.
(2) Shares of Common Stock beneficially owned by Messrs. Casper, Dekkers, and
Manzi, and all directors and current executive officers as a group, include
20,000, 5,000, 15,000, and 51,722 shares, respectively, of restricted Common
Stock that may not be sold or transferred until future vesting dates. Shares of
Common Stock beneficially owned by Messrs. Hoogasian, Howe, and Melas-Kyriazi,
and all directors and current executive officers as a group, include: 419,
1,434, 1,701, and 2,670 shares, respectively, held in the Company's 401(k) Plan.
Shares of Common Stock beneficially owned by Mr. O'Leary include 1,000 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 6,081,
99,830, 37,712, and 5,814 shares of Common Stock granted prior to July 2000 for
Messrs. Hoogasian, Howe, Melas-Kyriazi, and O'Leary, 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
service with the Company. These restrictions lapse over time, assuming continued
service.
Page 10
(4) This information was obtained from the Schedule 13G filed with the
Securities and Exchange Commission on February 17, 2004 by Dodge & Cox, One
Sansome Street, 35th Floor, San Francisco, CA 94104, which reported such
ownership as of December 31, 2003. These shares are beneficially owned by
clients of Dodge & Cox, an investment advisor. Dodge & Cox has sole voting power
with respect to 17,971,534 shares, shared voting power with respect to 222,400
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 17, 2004 by FMR Corp., Edward C.
Johnson 3rd, Abigail P. Johnson, and Fidelity Management & Research Company,
which reported such ownership as of December 31, 2003. The address of each of
these persons is 82 Devonshire Street, Boston, Massachusetts 02109. These shares
are beneficially owned as follows: (a) by Fidelity Management & Research
Company, a wholly-owned subsidiary of FMR Corp. and registered investment
advisor to various investment companies ("Fidelity Funds"), 13,940,680 shares;
(b) Fidelity Management Trust Company ("FMTC"), a wholly-owned subsidiary of FMR
Corp., 1,660,438 shares as a result of its serving as investment manager of
various institutional accounts; (c) Strategic Advisers, Inc., a wholly-owned
subsidiary of FMR Corp., 225 shares; and (d) 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, 874,615 shares.
Mr. Johnson, FMR Corp., and the Fidelity Funds each has sole dispositive power
with respect to all of the 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 1,660,438 shares owned by institutional accounts managed
by FMTC, Mr. Johnson and FMR Corp. each has sole dispositive power with respect
to all of the shares, sole voting power with respect to 1,622,918 shares, and no
voting power with respect to 37,520 shares. FIL has sole voting and dispositive
power with respect to 874,615 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 Schedu1e 13G filed with the
Securities and Exchange Commission on February 13, 2004 by Massachusetts
Financial Services Company ("MFS"), 500 Boylston Street, Boston, Massachusetts
02116, which reported ownership as of December 31, 2003. These shares are
beneficially owned by MFS and certain other non-reporting persons. MFS has sole
voting power with respect to 9,655,380 shares and sole dispositive power with
respect to all shares.
(7) Mr. Syron resigned from his position as executive chairman of the Company
and Chairman of the Board of Directors effective as of January 1, 2004. See
"EXECUTIVE COMPENSATION - Employment Agreements".
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 2003.
Page 11
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes compensation for services to the Company
received during the last three fiscal years by the Company's chief executive
officer, the four other most highly compensated executive officers who were
employed by the Company as of the end of fiscal year 2003 and two former
executive officers of the Company. The executive officers listed below are
collectively referred to in this proxy statement as the "named executive
officers".
Summary Compensation Table
------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
Restricted Securities
Name and Fiscal Stock Underlying All Other
Principal Position Year Salary Bonus Awards Options (1) Compensation(2)
------ ------ ------ ---------- ----------- ---------------
Marijn E. Dekkers 2003 $794,872 $820,800 -- -- $335,455(3)
President and Chief Executive 2002 $533,333(4) $430,000(4) $2,008,000(5) 980,000 $31,985(3)
Officer 2001 $500,000 $425,000 -- 237,090(6) $28,619(3)
------------------------------------------------------------------------------------------------------------------------------------
Guy Broadbent(7) 2003 $305,513 $212,040 -- -- $74,605
President, Spectra-Physics 2002 $300,000 $154,500 -- 100,000 $27,630
Division 2001 $270,000 $150,000 -- 171,518 $18,161
------------------------------------------------------------------------------------------------------------------------------------
Marc N. Casper(8) 2003 $359,039 $287,500 $1,211,700(9) -- $67,622
President, Life and Laboratory 2002 $300,000 $225,000 -- 100,000 $17,500
Sciences Group 2001 $26,136 $0 -- 275,000 $201,459(10)
------------------------------------------------------------------------------------------------------------------------------------
Seth H. Hoogasian(11) 2003 $324,435 $188,100 -- -- $118,623
General Counsel 2002 $316,200 $162,850 -- 142,500 $31,295
2001 $307,000 $185,000 -- 44,191 $29,959
------------------------------------------------------------------------------------------------------------------------------------
Theo Melas-Kyriazi 2003 $310,707 $179,550 -- -- $51,463
Chief Financial Officer 2002 $305,900 $157,540 -- 150,000 $29,380
2001 $297,000 $185,000 -- 34,306 $28,038
------------------------------------------------------------------------------------------------------------------------------------
Richard F. Syron(12) 2003 $804,103 $820,800 -- -- $74,376(13)
Former Executive Chairman 2002 $800,000 $741,600 $4,445,219(14)(15) 780,000 $1,902,591(13)(16)
2001 $800,000 $800,000 $199,716(14) 302,368 $38,942(13)
------------------------------------------------------------------------------------------------------------------------------------
Barry S. Howe(17) 2003 $316,667 $195,000 -- -- $47,836
Former President, 2002 $300,000 $154,500 -- 150,000 $29,491
Measurement and Control 2001 $270,000 $150,000 -- 46,518 $28,226
------------------------------------------------------------------------------------------------------------------------------------
(1) Options granted in fiscal year 2001 in the table above have been restated
to reflect adjustments made to the number and exercise prices of the options as
a result of the spin-off to stockholders by the Company of its Kadant Inc. and
Viasys Healthcare Inc. subsidiaries in 2001.
(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. Broadbent in 2001, and Mr. Casper in 2002 and 2001, (b) a car allowance,
(c) an allowance for medical related expenses, (d) 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 2002 and 2001, and (e) commencing
in 2002, amounts related to earnings (if any) under investment options on
deferred compensation balances (See "EXECUTIVE COMPENSATION - Deferred
Compensation Plan"). For 2003, the dollar value of each such benefit was $9,000
each, except $8,500 for Mr. Howe, for matching 401(k) contributions; $12,500
each for the car allowance; $5,000 each for the medical expense allowance; and
$3,182, $3,507, $2,294, $4,790, $2,877, $3,487, and $4,822 for Messrs. Dekkers,
Broadbent, Casper, Hoogasian, Melas-Kyriazi, Howe, and Syron, respectively, for
long-term disability insurance premiums; and $271,242, $38,405, $36,778, $8,882,
$16,774, $2,195, and $29,680 for Messrs. Dekkers, Broadbent, Casper, Hoogasian,
Melas-Kyriazi, Howe, and Syron, respectively, for amounts related to earnings
under investment options on deferred compensation balances. In addition, the
amount in this column includes a one-time payment in fiscal year 2003 of
$32,231, $6,193, $2,050, $78,451, $5,312, $16,154, and $0 for Messrs. Dekkers,
Page 12
Broadbent, Casper, Hoogasian, Melas-Kyriazi, Howe and Syron, respectively, for
cumulative unused vacation accrued over their respective tenure with the
Company; starting in fiscal 2003, employees at the Company's principal executive
offices no longer carry forward unused vacation time from one year to the next.
(3) In addition to the items referred to in footnote (2), this amount includes
$2,300 paid in each of fiscal years 2003, 2002, and 2001 by the Company as
premiums for a term life insurance policy for the benefit of Mr. Dekkers.
(4) 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".
(5) 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 (assuming continued employment) 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. At the end of fiscal 2003, Mr. Dekkers held 100,000 shares of
restricted Common Stock units with an aggregate value of $2,520,000.
(6) Options granted in 2001 to Mr. Dekkers include options to purchase 4,499
shares of Common Stock that had been converted from options to purchase shares
of a majority-owned, publicly-traded subsidiary of the Company, which was taken
private by the Company in 2002.
(7) 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.
(8) Mr. Casper was appointed vice president of the Company and president, Life
and Laboratory Sciences Group 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.
(9) In February 2003, Mr. Casper was awarded 30,000 shares of restricted Common
Stock valued at $517,200 on the grant date that vest in equal installments over
a three-year period commencing on the grant date (assuming continued
employment). In November 2003, Mr. Casper was awarded 30,000 restricted Common
Stock units valued at $694,500 on the grant date that vest in equal installments
over a three-year period commencing on the grant date (assuming continued
employment) and, provided further, the units do not become shares of Common
Stock nor do the restrictions on transfer lapse until Mr. Casper ceases to be an
employee of the Company. At the end of fiscal year 2003, Mr. Casper held 60,000
shares of restricted Common Stock and restricted Common Stock units with an
aggregate value of $1,512,000.
(10) 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.
(11) 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.
(12) Mr. Syron resigned from his position as executive chairman of the Company
and Chairman of the Board of Directors effective as of January 1, 2004. See
"EXECUTIVE COMPENSATION - Employment Agreements".
(13) In addition to the items referred to in footnote (2), this amount includes
$13,374, $9,891, and $8,970 paid by the Company as premiums for a term life
insurance policy for the benefit of Mr. Syron in fiscal years 2003, 2002 and
2001, respectively.
(14) 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
(assuming continued employment). 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 (assuming continued employment).
(15) 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
Page 13
his employment agreement, that vest in equal annual installments over the three
-year period commencing on the grant date (assuming continued employment) 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 2003, Mr. Syron held 229,888 shares of restricted
Common Stock and restricted Common Stock units with an aggregate value of
$5,824,041 (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). In connection with his resignation, as of January
1, 2004 Mr. Syron forfeited 75,688 shares of restricted Common Stock and
restricted Common Stock units. See "EXECUTIVE COMPENSATION - Employment
Agreements".
(16) In addition to the items referred to in footnotes (2) and (13), this amount
includes 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.
(17) Effective November 20, 2003, Mr. Howe, former president, measurement and
control sector, was appointed vice president, new business development (a
non-executive officer position). His employment with the Company will cease as
of May 31, 2004. See "EXECUTIVE COMPENSATION - Severance Agreement with Mr.
Howe". 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.
Stock Options Granted During Fiscal 2003
Generally, stock options are granted in February of each year in
connection with the Compensation Committee's establishment of officer
compensation levels for each such year, but additional grants may be made
periodically as deemed appropriate by the Compensation Committee. However, the
Company did not grant any stock options to its named executive officers in
fiscal year 2003 because the stock options granted to them in November 2002 were
intended to be made in lieu of such annual grants of stock options to such
officers for fiscal years 2003 and 2004. It has not been the Company's policy in
the past to grant stock appreciation rights, and no such rights were granted to
the named executive officers during fiscal year 2003.
Stock Options Exercised During Fiscal 2003 and Fiscal Year-End Option Values
The following table reports information regarding stock option
exercises during fiscal 2003 and outstanding stock options held at the end of
fiscal year 2003 by the Company's named executive officers. No stock
appreciation rights were exercised or were outstanding during fiscal year 2003.
Aggregated Option Exercises In Fiscal 2003 and Fiscal 2003 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) Unexercisable)(2)
---- -------- ------------ ------------------ -----------------
Marijn E. Dekkers - - 1,282,447/ 994,799 $6,725,354/ $5,186,845
-------------------------------------------------------------------------------------------------------------------------
Guy Broadbent - - 230,640/ 157,173 $617,570/ $716,999
-------------------------------------------------------------------------------------------------------------------------
Marc N. Casper - - 183,333/ 191,667 $553,666/ $829,834
-------------------------------------------------------------------------------------------------------------------------
Seth H. Hoogasian 51,608 $364,370 213,912/ 143,063 $1,789,255/ $732,895
-------------------------------------------------------------------------------------------------------------------------
Theo Melas-Kyriazi 124,556 $1,180,053 620,648/ 144,770 $7,005,320/ $748,557
-------------------------------------------------------------------------------------------------------------------------
Barry S. Howe 90,900 $948,226 185,445/ 133,334 $2,064,383/ $799,500
-------------------------------------------------------------------------------------------------------------------------
Richard F. Syron(3) 1,800,085 $11,406,671 11,628/ 794,124 $0/ $4,005,293
-------------------------------------------------------------------------------------------------------------------------
(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) 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
Page 14
of employment with the Company. The restrictions and repurchase rights lapse
over periods of up 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
47,355, 86,868, 109,525, and 4,652 shares of Common Stock granted prior to July
2000 for Messrs. Hoogasian, Melas-Kyriazi, Howe, and Syron, respectively, which
are subject to these transfer restrictions. The amounts reported for the value
of securities underlying exercisable options at fiscal year end include
$499,352, $833,047, $1,696,657, and $0 for options to purchase Common Stock
granted prior to July 2000 for Messrs. Hoogasian, Melas-Kyriazi, Howe and Syron,
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 c
ontinues employment with the Company, except (i) that options granted in
November 2002 vest ratably over three years commencing on the third anniversary
of the grant date, and (ii) that, pursuant to Mr. Dekkers' employment agreement,
he is entitled to accelerated vesting in certain circumstances in connection
with the termination of his employment with the Company. See
"EXECUTIVE COMPENSATION - Employment Agreements". Upon a change in control of
the Company, all options, regardless of the grant date, become immediately e
xercisable and cease to be subject to transfer restrictions and the Company's
repurchase rights.
(3) Mr. Syron resigned from his position as executive chairman of the Company
and Chairman of the Board of Directors effective as of January 1, 2004. Under
Mr. Syron's employment agreement, following his resignation (i) he forfeited
unvested options to purchase 712,109 shares of Common Stock, and (ii) the
vesting on options to purchase 86,667 shares of Common Stock accelerated. See
"EXECUTIVE COMPENSATION - Employment Agreements".
Change in Control Retention and Severance Agreements
Executive Change in Control Retention Agreements
Thermo Electron has entered into executive retention agreements with
its executive officers and certain other key employees 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 the Board of Directors 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 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.
The executive change in control retention agreements with each of
Messrs. Dekkers, Broadbent, Casper, Hoogasian, Melas-Kyriazi, and Howe 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
Mr. Dekkers, three times, and in the case of Messrs. Broadbent, Casper,
Hoogasian, Melas-Kyriazi, and Howe, two 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 Mr. Dekkers, three times, and in the case of Messrs. Broadbent,
Casper, Hoogasian, Melas-Kyriazi, and Howe, two times, the individual's highest
annual bonus in any 12-month period during the prior five-year period. In
addition, the individual would be provided 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 Mr. Dekkers, three years, and in the case of Messrs. Broadbent, Casper,
Hoogasian, Melas-Kyriazi, and Howe, two years, after such termination. Finally,
the individual would be entitled to a cash payment equal to, in the case of Mr.
Dekkers, $25,000, and in the case of Messrs. Broadbent, Casper, Hoogasian,
Melas-Kyriazi, and Howe, $20,000, to be used toward outplacement services.
Page 15
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 attributable
to the receipt of the gross-up payment.
Executive Severance Agreements
The Company has entered into executive severance agreements with its
executive officers and certain other key employees that provide severance
benefits in the event their employment is terminated by the Company without
"cause" (as such term is defined therein). The severance agreements with each of
Messrs. Broadbent, Casper, Hoogasian, and Melas-Kyriazi provide that, in the
event such individual's employment is terminated by the Company without cause,
he will be entitled to a lump sum severance payment equal to 1.5 times his
annual base salary then in effect, except that if the individual receives
benefits under the executive change in control retention agreement described
above, he will not be entitled to receive benefits under the executive severance
agreement. In addition, for 18 months after the date of termination, the
individual would be provided medical, dental and life insurance benefits at
least equal to those he would have received had his employment not been
terminated, or if more favorable, to those in effect generally during such
period with respect to peer executives of the Company. Finally, the individual
would be entitled up to $20,000 of outplacement services until the earlier of 12
months following his termination or the date he secures full-time employment.
Mr. Dekkers also has severance provisions in his employment agreement. See
"EXECUTIVE COMPENSATION -- Employment Agreements".
Severance Agreement with Mr. Howe
Effective November 26, 2003, the Company entered into a severance
agreement with Mr. Howe regarding the termination of his employment with the
Company as of May 31, 2004. Pursuant to the severance agreement, Mr. Howe
continues to receive salary payments based on his then-current annual base
salary through May 31, 2004. In addition, Mr. Howe received his annual cash
incentive bonus for fiscal year 2003 of $195,000, but will not be eligible for
any bonus in fiscal 2004. On or before May 31, 2004, Mr. Howe will receive a
lump sum severance payment of $487,500. Stock options previously granted to Mr.
Howe that are not vested as of his employment termination date will be
cancelled. All options that are vested as of that date will continue to be
exercisable by Mr. Howe for a period of three months in accordance with their
terms. In addition, Mr. Howe will be entitled to utilize up to $20,000 for
outplacement services until the first anniversary of his employment termination
date.
Deferred Compensation Plan
The Company maintains a deferred compensation plan for its executive
officers and certain other highly compensated employees (the "Deferred
Compensation Plan"). 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 or until a future date while the participant continues to be an
employee of the Company. Under the Deferred Compensation Plan, the Company
credits (or debits) a participant's account with the amount that would have been
earned (or lost) had the deferred amounts been invested in one or more of three
different funds that are available under the Deferred Compensation Plan (an
equity index fund, a bond index fund, and a money market fund) as selected by
the participant. 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
Employment Agreement with Mr. Dekkers
The amended and restated employment agreement with Mr. Dekkers,
president and chief executive officer of the Company, dated November 21, 2002 is
for a five-year term ending December 21, 2007. The amended and restated
employment agreement provides for an annual base salary of $800,000 and an
annual incentive-bonus target of $720,000 (90% of his salary). Pursuant to a
letter agreement between the Company and Mr. Dekkers dated February 11, 2004,
Mr. Dekkers' annual base salary was increased to $1,000,000 and his annual
incentive-bonus target was accordingly increased to $900,000 (90% of his
salary), each effective as of January 1, 2004. 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
Page 16
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. Pursuant to the February 11, 2004
letter agreement, the Company awarded Mr. Dekkers 5,000 shares of restricted
Common Stock that vest in equal installments over the three-year period
commencing on the grant date assuming Mr. Dekkers is employed with the Company
on each such date. In addition, the letter agreement provides that each year Mr.
Dekkers serves as the Company's chief executive officer he will receive a
similar award of restricted stock.
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) $2,700,000 (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 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) $1,800,000 (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 sub-heading "Change in Control and Severance
Agreements", but not both.
Page 17
Employment Agreement with Mr. Syron
Pursuant to a letter agreement between the Company and Mr. Syron dated
December 12, 2003, Mr. Syron resigned from his positions as executive chairman
of the Company and member of the Board of Directors; he ceased to serve in such
positions effective as of January 1, 2004. Pursuant to the letter agreement, the
Company agreed to pay Mr. Syron's annual cash incentive-bonus for fiscal 2003 at
the same time that other senior executives of the Company are paid their annual
cash incentive-bonus. Mr. Syron's existing employment agreement provided for an
annual base salary of $800,000 and an annual incentive bonus target of $720,000
(90% of his salary). Under the terms of his existing employment agreement,
following his resignation (i) Mr. Syron's unvested stock options ceased to vest
and he had 90 days to exercise all of his vested stock options, except that the
vesting of 50% of the unvested stock options that were granted to Mr. Syron
after March 14, 2001 and before November 21, 2002 was accelerated (which
resulted in the vesting of options to purchase 86,667 shares of Common Stock and
the forfeiture of options to purchase 712,109 shares of Common Stock), (ii) all
of Mr. Syron's vested restricted Common Stock units (which totaled 145,178
units) became shares of Common Stock and all of his unvested restricted Common
Stock units (which totaled 66,667 units) were forfeited, and (iii) 50% of Mr.
Syron's unvested shares of restricted Common Stock vested (which resulted in the
vesting of 9,022 shares and the forfeiture of 9,021 shares).
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2003 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
9,684,391 (1)(2) $19.68 3,648,870(3)
------------------------------- --------------------------- ------------------------- -----------------------------------
Equity Compensation Plans Not
Approved By Security
Holders(4)(5) 2,950,889 $20.05 377,746(3)
------------------------------- --------------------------- ------------------------- -----------------------------------
Total 12,635,280 $19.77 4,026,616(3)
------------------------------- --------------------------- ------------------------- -----------------------------------
(1) Includes (a) 230,000 restricted Common Stock units granted to Messrs.
Dekkers, Syron, and Casper that vest in equal installments over the three-year
period commencing on the date of grant (assuming continued employment), provided
that such units do not become shares of Common Stock until such named executive
officers cease to be employees of the Company, and (b) 111,845 restricted Common
Stock units granted to Mr. Syron that do not become shares of Common Stock until
Mr. Syron ceases to be an employee of the Company. Mr. Syron resigned from his
position as executive chairman of the Company effective as of January 1, 2004.
See "EXECUTIVE COMPENSATION - Employment Agreements". Also includes 154,697
shares issuable under the Directors Deferred Compensation Plan for deferred
directors fees accrued through December 31, 2003. An additional 293,628 shares
are available under the Directors Deferred Compensation Plan and are included in
column (c). See "CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS -- 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 668,439 shares. Under the ESPP,
Page 18
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
377,746 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 4,520,472 shares at a weighted
average exercise price of $21.28 per share are outstanding under these plans.
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.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Philosophy
The Compensation Committee has overall responsibility for establishing
compensation for the Company's Chief Executive Officer and its other officers.
It also adopts and administers the Company's equity based plans. The full text
of the Compensation Committee's charter is available on the Company's website at
www.thermo.com.
The compensation program established by the Compensation Committee for
the Company's officers, including its executive officers, is designed to (a)
motivate the Company's officers in achieving long-term value for the Company's
stockholders and other business objectives of the Company, (b) attract and
retain highly qualified individuals, (c) recognize individual, business unit and
Company performance and behavior consistent with the Company's values, and (d)
to encourage stock ownership by the Company's officers in order to align their
financial interests with the long-term interests of the Company's stockholders.
The Compensation Committee uses market surveys and analyses prepared by
outside consulting firms retained by the committee to stay informed of
developments in the design of compensation packages generally and to benchmark
its officer compensation program against those of companies with whom we compete
for executive talent to ensure our compensation program is in line with current
marketplace standards. Internal fairness of compensation within the Company is
also an important element of the Compensation 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. In addition, the Compensation
Committee also considers the tax and accounting consequences of various
compensation arrangements in establishing an appropriate compensation program
for the Company's officers.
Page 19
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 or restricted stock units.
Annual Cash Compensation
Base Salary
Generally, officer base salaries are adjusted to reflect competitive
salary levels and 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 of comparable size and complexity to
the Company, including competitors of the Company.
Annual Cash Incentive Awards for Officers
Annual cash incentive awards for the Company's executive officers are
granted under the Company's 2003 Annual Incentive Award Plan (the "Plan"), which
was approved by the stockholders of the Company at its 2003 Annual Meeting of
Stockholders. The Plan was adopted to ensure the tax deductibility of the annual
bonus that may be earned by executive officers of the Company. Section 162(m) of
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 the
payments are made under qualifying "performance-based" compensation plans.
Under the Plan, in the first quarter of a calendar year the
Compensation Committee selects a performance goal for the year. For 2003, the
Company selected the financial measure of earnings before interest, taxes and
amortization, excluding the impact of charges for restructuring, discontinued
operations, extraordinary items, other unusual or non-recurring items and
cumulative effects of accounting changes ("Adjusted EBITA"). Each executive
officer was awarded a percentage of Adjusted EBITA for the year, subject to the
right of the Committee to lower, but not raise, the actual bonuses paid. In
early 2004, the Committee elected to lower the 2003 bonuses to the amounts
computed in accordance with the process described below.
The Compensation Committee establishes a target incentive cash award
amount for each officer of the Company, including executive officers. This
amount, which is a percentage of base salary, is determined by the Committee
based on the salary level and position of the officer within the Company. The
amount actually awarded to an officer varies with the performance of the officer
and the Company as a whole. Performance is evaluated by using financial measures
of corporate performance and an evaluation of the officers' qualitative
contributions to the achievement of the Company's business objectives and values
as well as their achievement of individual objectives and leadership
performance.
For 2003, the financial measures established by the Compensation
Committee for the officers of the Company, including executive officers, were
growth in revenue (adjusted for the impact of acquisitions and divestitures, and
for foreign currency changes) and earnings (adjusted for restructuring charges
and certain other items of income or expense) before interest, taxes and
amortization as a percentage of revenue. For each of these financial measures,
the Company's actual performance is measured relative to the internal operating
plan of the Company for the year; a range of performance (including the
qualitative component) corresponds with a multiplier of 0 to 2. The weighting of
the factors for 2003 was: 25% for revenue growth; 45% for growth in earnings as
a percentage of revenue; and 30% for the qualitative component. After giving
effect to the weighting, a composite final multiplier is applied to the target
bonus amounts for all officers. The sum of these amounts for all officers is
added together, and this bonus pool is then allocated by the Committee among the
officers.
Long-Term Incentive Compensation
The Compensation Committee believes that the inclusion of long-term
incentive compensation, which consists of stock-based awards such as stock
options and shares of restricted stock or restricted stock units, in the
Company's compensation program accomplishes many objectives, including officer
retention and the encouragement of stock ownership by the Company's executive
officers and other key employees in order to align their financial interests
with the long-term interests of the Company's stockholders and closely linking
officer compensation to the Company's stock performance.
Page 20
In determining the appropriate award of stock compensation, the
prevailing compensation practices of companies of comparable size and complexity
to the Company, including competitors of the Company, for similar positions are
considered.
Generally, awards of stock options are reviewed annually but additional
awards of stock options and/or restricted stock may be made periodically as
deemed appropriate by the Compensation Committee to achieve the varying
objectives of the compensation program. The Compensation Committee's November
2002 stock option awards to the Company's officers were intended to be made in
lieu of annual awards of stock options to such officers in fiscal years 2003 and
2004 and vest in three equal installments commencing on the third anniversary of
the grant date (assuming continued employment). This vesting schedule was
selected as a long-term retention measure.
Stock Ownership Policy
The Compensation 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 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. For purposes
of this policy, shares of restricted Common Stock and restricted Common Stock
units are counted towards this target.
Policy on Deductibility of Compensation
The Compensation Committee also considers the potential effect of
Section 162(m) of the Internal Revenue Code 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. Section 162(m) limits the tax deduction
available to public companies for annual compensation that is paid to the
Company's 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 Company's equity compensation plans under which its
executive officers may receive stock options and its 2003 Annual Incentive Award
Plan under which the Company's executive officers may receive annual cash
incentive awards qualify for the deduction.
2003 CEO Compensation
The Company's employment agreement with Mr. Dekkers provides minimum
requirements with respect to certain components of his compensation. For fiscal
2003, his employment agreement provided for an annual base salary of $800,000
and an annual incentive award target of $720,000 (90% of his salary). See
"EXECUTIVE COMPENSATION - Employment Agreements". Mr. Dekkers' actual annual
incentive award for fiscal 2003 was determined by the Compensation Committee
based on the same factors and criteria described above for the other officers of
the Company. In recognition of the collective effort of the officers of the
Company in achieving the Company's objectives for fiscal 2003, the Compensation
Committee used, with respect to four of the five current named executive
officers, including Mr. Dekkers, the same percentage of their respective target
bonus amounts to determine their actual bonus amounts.
Ms. Elaine S. Ullian (Chairperson)
Dr. John L. LaMattina
Mr. Peter J. Manning
Page 21
REPORT OF THE AUDIT COMMITTEE
The Audit Committee is responsible for assisting the Board of Directors
in its oversight of the integrity of the Company's financial statements, the
Company's compliance with legal and regulatory requirements, the independent
auditor's qualifications and independence, and the performance of the Company's
internal audit function and independent auditors. The full text of the Audit
Committee's charter is attached at Appendix A to this proxy statement and is
available on the Company's website at www.thermo.com.
As specified in the charter, management of the Company is responsible
for the preparation, presentation, and integrity of the Company's financial
statements and for the appropriateness of the accounting principles and
reporting policies that are used by the Company. The independent auditors are
responsible for auditing the Company's financial statements and for reviewing
the Company's unaudited interim financial statements. The authority and
responsibilities of the Audit Committee set forth in its charter do not reflect
or create any duty or obligation of the Audit Committee to plan or conduct any
audit, to determine or certify that the Company's financial statements are
complete, accurate, fairly presented, or in accordance with generally accepted
accounting principles or applicable law, or to guarantee the independent
auditor's report.
In fulfilling its oversight responsibilities, the Audit Committee has
reviewed and discussed the audited financial statements of the Company for the
fiscal year ended December 31, 2003 with management and the Company's
independent auditors, 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 auditor's 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.
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 31, 2003 filed with the SEC.
Mr. Peter J. Manning (Chairman)
Mr. Robert A. McCabe
Ms. Elaine S. Ullian
Page 22
COMPARATIVE PERFORMANCE GRAPH
The SEC requires that the Company include in this proxy statement a
line-graph presentation comparing cumulative, five-year stockholder returns for
the 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.
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]
-----------------------------------------------------------------------------------------------------------------------
12/31/98 12/31/99 12/29/00 12/28/01 12/28/02 12/31/03
-----------------------------------------------------------------------------------------------------------------------
TMO 100 88.56 175.65 161.85 136.75 172.31
-----------------------------------------------------------------------------------------------------------------------
S&P 500 100 121.04 110.02 98.87 75.78 98.01
-----------------------------------------------------------------------------------------------------------------------
S&P 500 Electronic Equipment & 100 206.68 171.23 88.68 41.62 71.88
Instruments
-----------------------------------------------------------------------------------------------------------------------
The total return for the Common Stock, the Standard & Poor's 500 and
the Standard & Poor's 500 Electronic Equipment & Instruments assumes the
reinvestment of dividends. The Common Stock is traded on the NYSE under the
ticker symbol "TMO". In August and November 2001, the Company spun off to its
stockholders 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 the Common
Stock in August and November 2001, respectively.
Page 23
INDEPENDENT PUBLIC ACCOUNTANTS
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 Company's financial statements for the fiscal
year ended December 28, 2002.
Arthur Andersen's report on the Company's consolidated financial
statement for fiscal year 2001 did not contain an adverse opinion or disclaimer
of opinion, nor was it qualified or modified as to uncertainty, audit scope or
accounting principles, except for an explanatory paragraph concerning the
adoption of Staff Accounting 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
year 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
Andersen's satisfaction, would have caused them to make reference to the subject
matter in connection with their report on the Company's consolidated financial
statement for such year; and there were no reportable events as defined in Item
304(a)(1)(v) of Regulation S-K.
During fiscal year 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.
Independent Auditor Fees
The following table presents the aggregate fees billed for professional
services rendered by PwC for the fiscal years ended December 31, 2003 and
December 28, 2002. Certain of the amounts for fiscal year 2002 have been
reclassified to conform to the 2003 presentation:
Fiscal 2003 Fiscal 2002
----------- -----------
Audit Fees $3,027,305 $2,516,819
Audit-Related Fees 119,400 71,226
Tax Fees 506,066 206,525
All Other Fees -- --
Total Fees $3,652,771 $2,794,570
Audit Fees
Consists of fees billed for professional services rendered by PwC for
the audit of the Company's annual consolidated financial statements and review
of the Company's interim financial statements included in the Company's
quarterly reports on Form 10-Q and services that are normally provided by PwC in
connection with statutory and regulatory filings or engagements for those fiscal
years.
Audit-Related Fees
Consists of fees billed for assurance and related services by PwC that
are reasonably related to the performance of the audit or review of the
Company's consolidated financial statements and are not reported under "Audit
Fees" above. These services include employee benefit plan audits, acquisition
due diligence, and accounting consultations relating to divestitures and
financial accounting and reporting matters.
Tax Fees
Consists of fees billed for professional services rendered by PwC for
tax compliance, tax advice, and tax planning. These services include
professional services related to the Company's international legal entity
restructuring and international and domestic tax planning.
Page 24
All Other Fees
Consists of fees billed for all other services provided by PwC other
than those reported above, of which there were none in fiscal years 2003 and
2002.
Audit Committee's Pre-Approval Policies and Procedures
The Audit Committee's charter provides that the Audit Committee must
pre-approve all audit services and non-audit services to be provided to the
Company by its independent auditor as well as all audit services to be provided
to the Company by other accounting firms. However, the charter permits de
minimis non-audit services to be provided to the Company by its independent
auditors to instead be approved in accordance with the listing standards of the
NYSE and SEC rules and regulations. In addition, the charter provides that the
Audit Committee may delegate to one or more members of the Audit Committee the
authority to grant pre-approvals of permitted non-audit services that would
otherwise be required to be pre-approved by the Audit Committee. Any
pre-approvals granted under such delegation of authority must be presented to
the Audit Committee at the next regularly scheduled meeting. The Audit Committee
has delegated authority to the chairman of the Audit Committee to pre-approve up
to an additional $100,000 of permitted non-audit services to be provided to the
Company by its independent auditors per calendar year. During fiscal year 2003,
all audit and non-audit services provided to the Company by PwC were
pre-approved in accordance with the Audit Committee's pre-approval policies and
procedures described above.
-PROPOSAL 2-
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Audit Committee has selected PricewaterhouseCoopers LLP as the
Company's independent auditors for the fiscal year ending December 31, 2004.
During the 2003 fiscal year, PwC served as the Company's independent auditors.
See "INDEPENDENT PUBLIC ACCOUNTANTS". Although the Company is not required to
seek stockholder ratification of this selection, the Company has decided to
provide its stockholders with the opportunity to do so. If this proposal is not
approved by our stockholders at the 2004 Annual Meeting of Stockholders, the
Audit Committee will reconsider the selection of PwC.
Representatives of PwC are expected to be present at the 2004 Annual
Meeting of Stockholders. They will have the opportunity to make a statement if
they desire to do so and will be available to respond to appropriate questions
from the stockholders.
The Board of Directors recommends a vote FOR the ratification of the
selection of PricewaterhouseCoopers LLP as the Company's independent auditors
for fiscal year 2004.
-PROPOSAL 3-
STOCKHOLDER PROPOSAL
The Sheet Metal Workers' National Pension Fund, Edward F. Carlough
Plaza, 601 North Fairfax Street, Suite 500, Alexandria, VA 22314, a holder of
4,900 shares of Common Stock, has submitted the following resolution for
adoption at the 2004 Annual Meeting of Stockholders:
Performance and Time-Based Restricted Shares Proposal
Resolved, that the shareholders of Thermo Electron ("Company") hereby
request that the Board of Directors' Compensation Committee, in developing
future senior executive equity compensation plans, utilize performance and
time-based restricted share programs in lieu of stock options. Restricted shares
issued by the Company should include the following features:
(1) Operational Performance Measures - The restricted share program
should utilize justifiable operational performance criteria combined with
challenging performance benchmarks for each criteria utilized. The
Page 25
performance criteria and associated performance benchmarks selected by the
Compensation Committee should be clearly disclosed to shareholders.
(2) Time-Based Vesting - A time-based vesting requirement of at least
three years should also be a feature of the restricted shares program. That is,
in addition to the operational performance criteria, no restricted shares should
vest in less than three years from the date of grant.
(3) Dividend Limitation - No dividend or proxy voting rights should be
granted or exercised prior to the vesting of the restricted shares.
(4) Share Retention - In order to link shareholder and management
interests, a retention feature should also be included; that is, all shares
granted pursuant to the restricted share program should be retained by the
senior executives for the duration of their tenure with the Company.
The Board and Compensation Committee should implement this restricted
share program in a manner that does not violate any existing employment
agreement or equity compensation plan.
Supporting Statement of Stockholder
As long-term shareholders of the Company, we support executive
compensation policies and practices that provide challenging performance
objectives and serve to motivate executives to achieve long-term corporate value
creation goals. The Company's executive compensation program should include a
long-term equity compensation component with clearly defined operational
performance criteria and challenging performance benchmarks.
We believe that performance and time-based restricted shares are a
preferred mechanism for providing senior executives long-term equity
compensation. We believe that stock option plans, as generally constituted, all
too often provide extraordinary pay for ordinary performance. In our opinion,
performance and time-based restricted shares provide a better means to tie the
levels of equity compensation to meaningful financial performance beyond stock
price performance and to condition equity compensation on performance above that
of peer companies.
Our proposal recognizes that the Compensation Committee is in the best
position to determine the appropriate performance measures and benchmarks. It is
requested that detailed disclosure of the criteria be made so that shareholders
may assess whether, in their opinion, the equity compensation system provides
challenging targets for senior executives to meet. In addition, the restricted
share program prohibits the receipt of dividends and the exercise of voting
rights until shares vest.
We believe that a performance and time-based restricted share program
with the features described above offers senior executives the opportunity to
acquire significant levels of equity commensurate with their long-term
contributions. We believe such a system best advances the long-term interests of
our Company, its shareholders, employees and other important constituents. We
urge shareholders to support this reform.
Thermo Electron Statement in Opposition to Stockholder Proposal
The Company does not believe that this proposal would enhance
stockholder value or otherwise be in the best interests of the Company or its
stockholders.
At Thermo Electron, the overall responsibility for executive
compensation resides with a committee of our Board that is comprised exclusively
of independent directors (the Compensation Committee). The responsibilities of
our Compensation Committee and its activities during fiscal 2003 are described
in the Committee Report on Executive Compensation contained in this proxy
statement.
The Committee believes that its existing executive compensation program
encourages our executives to achieve results that are aimed at ensuring the
Company's current and future success. To do so, the program includes both annual
and long-term incentive compensation through a measured combination of cash,
stock options and/or restricted stock awards. The Compensation Committee
believes that stock options are a valuable component of its existing executive
compensation program. Stock options having an exercise price equal to the fair
market value of the stock on the date of
Page 26
grant (which has always been the Company's practice) are inherently
performance-based because holders of such options only realize value from them
when the Company's stock performance improves, which benefits all stockholders.
The Compensation Committee has constructed an executive compensation
program that is designed to attract and retain highly qualified executives and
motivate those executives to achieve the business objectives of the Company--all
ultimately to maximize stockholder value. In choosing the type of incentives to
use for executives of the Company the Compensation Committee must consider a
variety of factors, such as any goals the Board or management has established
for the executives or the Company, tax and accounting consequences of various
arrangements, and prevailing competitive practice. The rigid constraints
recommended by the proposal would severely limit the Compensation Committee's
flexibility to meet the varied objectives of the executive compensation program
by eliminating its ability to grant stock options in any form to the Company's
executives and diminishing the committee's ability to structure the terms of its
restricted stock awards. As such, the Company believes that the proposal's
recommendations would unduly impede the ability of the Compensation Committee to
effectively perform its responsibilities.
The Compensation Committee uses market surveys and analyses prepared by
outside consulting firms retained by the committee to stay informed of
developments in the design of compensation packages generally and to benchmark
its executive compensation program against those of companies with whom we
compete for executive talent to ensure our total executive compensation package
is in line with current marketplace standards. Adoption of the proposal could
render the Company unable to effectively compete for and retain highly qualified
executives, which would place the Company at a disadvantage in relation to our
competitors.
The proposal's recommended requirement that executive officers be
prohibited from disposing of any shares of restricted stock that have otherwise
vested during their employment with the Company, even to pay tax obligations
that occur upon vesting, could have a punitive effect on our executive officers
and actually motivate executives to leave the Company prematurely. Loss of
highly qualified executives would be detrimental to the Company and undermine
the long-term interests of its stockholders.
In sum, the Compensation Committee believes that its current executive
compensation package appropriately aligns executive incentive compensation with
the long-term interests of the Company's stockholders. The committee believes
that the proposal would actually undermine those long-term interests by
adversely affecting the Company's ability to attract and retain highly qualified
executives. It is important for the Compensation Committee to retain its
flexibility to construct an effective executive compensation program without the
imposition of rigid constraints like the ones recommended by the proposal. For
these reasons, the Board of Directors does not believe that this proposal would
enhance stockholder value or otherwise be in the best interests of the Company
or its stockholders and urges you to vote against it.
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 2004 Annual Meeting of Stockholders. Should any such
matters be properly 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 2005 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 9, 2004. In addition, the Company's By-laws 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
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
Page 27
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 2005 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 23, 2005 and no later
than February 7, 2005. 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 SEC.
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. In addition, the Company has engaged D.F. King & Co., Inc. for an
approximate fee of $11,000 plus reimbursement of out of pocket expenses in order
to assist in the solicitation of proxies. 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 8, 2004
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APPENDIX A
Effective as of November 20, 2003
THERMO ELECTRON CORPORATION
AUDIT COMMITTEE CHARTER
A. PURPOSE
The purpose of the Audit Committee is to assist the Board of Directors'
oversight of:
o the integrity of the Company's financial statements;
o the Company's compliance with legal and regulatory requirements;
o the independent auditor's qualifications and independence; and
o the performance of the Company's internal audit function and
independent auditors;
and to prepare the audit committee report required by the Securities and
Exchange Commission's ("SEC") proxy rules to be included in the Company's
annual proxy statement.
B. STRUCTURE AND MEMBERSHIP
1. Number. The Audit Committee shall consist of at least three members of
the Board of Directors.
2. Independence. Except as otherwise permitted by the applicable rules of
the New York Stock Exchange ("NYSE") and/or the SEC, each member of
the Audit Committee shall be independent as defined by such rules.
3. Financial Literacy. Each member of the Audit Committee must be
financially literate, as such qualification is interpreted by the
Board of Directors in its business judgment, or must become
financially literate within a reasonable period of time after his or
her appointment to the Audit Committee. At least one member of the
Audit Committee must have accounting or related financial management
expertise, as the Board of Directors interprets such qualification in
its business judgment. Unless otherwise determined by the Board of
Directors (in which case disclosure of such determination shall be
made in the Company's annual report filed with the SEC), at least one
member of the Audit Committee shall be an "audit committee financial
expert" (as defined by applicable SEC rules).
4. Chair. Unless the Board of Directors elects a Chair of the Audit
Committee, the Audit Committee shall elect a Chair by majority vote.
5. Compensation. The compensation of Audit Committee members shall be as
determined by the Board of Directors. No member of the Audit Committee
may receive, directly or indirectly, any consulting, advisory or other
compensatory fee from the Company or any of its subsidiaries, other
than fees paid in his or her capacity as a member of the Board of
Directors or a committee of the Board of Directors.
6. Selection and Removal. Members of the Audit Committee shall be
appointed by the Board of Directors, upon the recommendation of the
Nominating and Corporate Governance Committee. Unless otherwise
determined by the Board of Directors (in which case disclosure of such
determination shall be made in the Company's annual proxy statement),
no member of the Audit Committee may serve on the audit committee of
more than two other public companies. The
A-2
Board of Directors may remove members of the Audit Committee from such
committee, with or without cause.
C. AUTHORITY AND RESPONSIBILITIES
General
The Audit Committee shall discharge its responsibilities, and shall assess
the information provided by the Company's management and the independent
auditor, in accordance with its business judgment. Management is
responsible for the preparation, presentation, and integrity of the
Company's financial statements and for the appropriateness of the
accounting principles and reporting policies that are used by the Company.
The independent auditors are responsible for auditing the Company's
financial statements and for reviewing the Company's unaudited interim
financial statements. The authority and responsibilities set forth in this
Charter do not reflect or create any duty or obligation of the Audit
Committee to plan or conduct any audit, to determine or certify that the
Company's financial statements are complete, accurate, fairly presented, or
in accordance with generally accepted accounting principles or applicable
law, or to guarantee the independent auditor's report.
Oversight of Independent Auditors
1. Selection. The Audit Committee shall be directly responsible for
appointing, evaluating, retaining and, when necessary, terminating the
engagement of the independent auditor.
2. Independence. At least annually, the Audit Committee shall assess the
independent auditor's independence. In connection with this
assessment, the Audit Committee shall obtain and review a report by
the independent auditor describing all relationships between the
independent auditor and the Company, including the disclosures
required by Independence Standards Board Standard No. 1. The Audit
Committee shall engage in an active dialogue with the independent
auditor concerning any disclosed relationships or services that might
impact the objectivity and independence of the auditor.
3. Quality-Control Report. At least annually, the Audit Committee shall
obtain and review a report by the independent auditor describing:
o the firm's internal quality-control procedures;
o any material issues raised by the most recent internal
quality-control review, or peer review, of the firm, or by any
inquiry or investigation by governmental or professional
authorities, within the preceding five years, respecting one or
more independent audits carried out by the firm, and any steps
taken to deal with any such issues.
4. Compensation. The Audit Committee shall be directly responsible for
setting the compensation of the independent auditor. The Audit
Committee is empowered, without further action by the Board of
Directors, to cause the Company to pay the compensation of the
independent auditor established by the Audit Committee.
5. Preapproval of Services. The Audit Committee shall preapprove all
audit services to be provided to the Company, whether provided by the
principal auditor or other firms, and all other services (review,
attest and non-audit) to be provided to the Company by the independent
auditor; provided, however, that de minimis non-audit services may
instead be approved in accordance with applicable NYSE and SEC rules.
To the extent permitted by applicable NYSE and SEC rules and
consistent with the requirements of such rules, the Audit Committee
may delegate to one or more members of the Audit Committee the
authority to grant approvals of permitted non-audit services required
to be approved by the Audit Committee under NYSE and SEC rules;
provided,
A-3
however, that any approvals granted under such delegation of authority
shall be presented to the Audit Committee at the next regularly
scheduled meeting thereof.
6. Oversight. The independent auditor shall report directly to the Audit
Committee, and the Audit Committee shall be directly responsible for
oversight of the work of the independent auditor, including resolution
of disagreements between Company management and the independent
auditor regarding financial reporting, for the purpose of preparing or
issuing an audit report or performing other audit, review or attest
services for the Company. In connection with its oversight role, the
Audit Committee shall, from time to time as appropriate:
o receive and consider the reports required to be made by the
independent auditor regarding:
- critical accounting policies and practices;
- alternative treatments within generally accepted accounting
principles for policies and practices related to material
items that have been discussed with Company management,
including ramifications of the use of such alternative
disclosures and treatments, and the treatment preferred by
the independent auditor; and
- other material written communications between the
independent auditor and Company management.
o review with the independent auditor:
- any audit problems or difficulties the independent auditor
encountered in the course of the audit work and management's
response, including any restrictions on the scope of the
independent auditor's activities or on access to requested
information and any significant disagreements with
management;
- any (i) significant matters regarding internal controls over
financial reporting that have come to the independent
auditor's attention during the conduct of its audit, review,
or attest services and any special audit steps adopted in
light thereof and (ii) major issues as to the adequacy of
the Company's internal controls over financial reporting
that have come to the Audit Committee's attention;
- analyses prepared by management and/or the independent
auditor setting forth significant financial reporting issues
and judgments made in connection with the preparation of the
financial statements, including analyses of the effects of
alternative GAAP methods on the financial statements;
- the effect of regulatory and accounting initiatives, as well
as off-balance sheet structures, on the financial statements
of the Company; and
- any accounting adjustments that were noted or proposed by
the auditor but were "passed" as immaterial or otherwise.
Audited Financial Statements
7. Review and Discussion. The Audit Committee shall review and discuss
with the Company's management and independent auditor the Company's
audited financial statements, including the Company's disclosures
under "Management's Discussion and Analysis of Financial Condition and
A-4
Results of Operations," and the matters about which Statement on
Auditing Standards No. 61 (Codification of Statements on Auditing
Standards, AU ss.380) requires discussion.
8. Recommendation to Board Regarding Financial Statements. The Audit
Committee shall consider whether it will recommend to the Board of
Directors that the Company's audited financial statements be included
in the Company's Annual Report on Form 10-K.
9. Audit Committee Report. The Audit Committee shall prepare an annual
committee report for inclusion where necessary in the proxy statement
of the Company relating to its annual meeting of security holders.
Review of Other Financial Disclosures
10. Independent Auditor Review of Interim Financial Statements. The Audit
Committee shall direct the independent auditor to use its best efforts
to perform all reviews of interim financial information prior to
disclosure by the Company of such information and to discuss promptly
with the Audit Committee and the Chief Financial Officer any matters
identified in connection with the auditor's review of interim
financial information which are required to be discussed by applicable
auditing standards. The Audit Committee shall direct management to
advise the Audit Committee in the event that the Company proposes to
disclose interim financial information prior to completion of the
independent auditor's review of interim financial information.
11. Earnings Release and Other Financial Information. The Audit Committee
shall discuss generally the types of information to be disclosed in
the Company's earnings press releases, as well as in financial
information and earnings guidance provided to analysts and rating
agencies.
12. Quarterly Financial Statements. The Audit Committee shall discuss with
the Company's management and independent auditor the Company's
quarterly financial statements, including the Company's disclosures
under "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Controls and Procedures
13. Oversight. The Audit Committee shall coordinate the Board of
Directors' oversight of the Company's internal controls over financial
reporting, the Company's disclosure controls and procedures and the
Company's code of business conduct and ethics. The Audit Committee
shall receive and review the reports of the CEO and CFO required by
Section 302 of the Sarbanes-Oxley Act of 2002 (and the applicable
rules thereunder) and Rule 13a-14 of the Exchange Act.
14. Internal Audit Function. The Audit Committee shall coordinate the
Board of Directors' oversight of the Company's internal audit
function, including its performance. The Audit Committee shall (i)
discuss with the independent auditor and management the internal audit
function's responsibilities, budget and staffing and any recommended
changes in the planned internal audits; and (ii) discuss with
management (including the Company's internal auditor) management's
assessments of the Company's system of internal controls.
15. Risk Management. The Audit Committee shall discuss with management
(including the Company's internal auditor) the Company's policies with
respect to risk assessment and risk management, including insurance,
and other guidelines and policies to govern the process by which the
Company's exposure to risk is handled. The Audit Committee shall
discuss with management the Company's major financial risk exposures
and the steps management has taken to monitor and control such
exposures.
16. Hiring Policies. The Audit Committee shall establish policies
regarding the hiring of employees or former employees of the Company's
independent auditors.
A-5
17. Procedures for Complaints. The Audit Committee shall establish
procedures for (i) the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting
controls or auditing matters; and (ii) the confidential, anonymous
submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.
18. Additional Powers. The Audit Committee shall have such other duties as
may be delegated from time to time by the Board of Directors.
D. PROCEDURES AND ADMINISTRATION
1. Meetings. The Audit Committee shall meet as often as it deems
necessary in order to perform its responsibilities. The Audit
Committee may also act by unanimous written consent in lieu of a
meeting. The Audit Committee shall periodically meet separately with:
(i) the independent auditor; (ii) Company management and (iii) the
Company's internal auditors. The Audit Committee shall keep such
records of its meetings as it shall deem appropriate.
2. Subcommittees. The Audit Committee may form and delegate authority to
one or more subcommittees (including a subcommittee consisting of a
single member), as it deems appropriate from time to time under the
circumstances. Any decision of a subcommittee to pre-approve audit,
review, attest or non-audit services shall be presented to the full
Audit Committee at its next scheduled meeting.
3. Reports to Board. The Audit Committee shall report regularly to the
Board of Directors.
4. Charter. At least annually, the Audit Committee shall review and
reassess the adequacy of this Charter and recommend any proposed
changes to the Board of Directors for approval.
5. Written Affirmation to NYSE. On an annual basis, no later than one
month after the Annual Meeting of Stockholders, and after each change
in the composition of the Audit Committee, the Audit Committee shall
direct the Company to prepare and provide to the NYSE such written
confirmations regarding the membership and operation of the Audit
Committee as the NYSE rules require.
6. Independent Advisors. The Audit Committee is authorized, without
further action by the Board of Directors, to engage such independent
legal, accounting and other advisors as it deems necessary or
appropriate to carry out its responsibilities. Such independent
advisors may be the regular advisors to the Company. The Audit
Committee is empowered, without further action by the Board of
Directors, to cause the Company to pay the compensation of such
advisors as established by the Audit Committee.
7. Investigations. The Audit Committee shall have the authority to
conduct or authorize investigations into any matters within the scope
of its responsibilities as it shall deem appropriate, including the
authority to request any officer, employee or advisor of the Company
to meet with the Audit Committee or any advisors engaged by the Audit
Committee.
8. Funding. The Audit Committee is empowered, without further action by
the Board of Directors, to cause the Company to pay the ordinary
administrative expenses of the Audit Committee that are necessary or
appropriate in carrying out its duties.
9. Annual Self-Evaluation. At least annually, the Audit Committee shall
evaluate its own performance.
FORM OF PROXY
THERMO ELECTRON CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 18, 2004
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Marijn E. Dekkers, Jim P. Manzi, 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 26, 2004,
at the Annual Meeting of the Stockholders to be held at the Inter-Continental
Inc., The Barclay New York, 111 East 48th Street, New York, New York, on
Tuesday, May 18, 2004, 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 all 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.
VOTE BY INTERNET OR TELEPHONE
(Instructions)
--------------------------------------------------------------------------------
Internet Telephone
https:// www.voteproxy.com 1-888-PROXIES
--------------------------------------------------------------------------------
- Go to the website address listed above. - Use any touch-tone telephone.
--------------------------------------------------------------------------------
- Have your proxy card ready. - Have your proxy card ready.
--------------------------------------------------------------------------------
- Follow the instructions that appear on your - Follow the recorded
computer screen. instructions.
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Your Internet or telephone vote
authorizes the named proxies to
vote your shares in the same
manner as if you marked, signed
and returned your proxy card.
You need not mail back your
proxy card if you have voted by
Internet or telephone.
1-888-PROXIES
CALL TOLL-FREE TO VOTE
www.voteproxy.com
-------------------------------------
INTERNET AND TELEPHONE VOTING ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK UNTIL
5:00 P.M. NEW YORK TIME ON MAY 17, 2004
(IMPORTANT - TO BE SIGNED AND DATED ON THE REVERSE SIDE)
Please mark your votes as shown here: [ x ]
The Board of Directors recommends a vote "FOR ALL NOMINEES".
1. Election of Directors.
Nominees: ( ) (01) Marijn E. Dekkers
( ) (02) Robert A. McCabe
( ) (03) Robert W. O'Leary
FOR ALL NOMINEES [ ]
WITHHELD FROM ALL NOMINEES [ ]
FOR ALL EXCEPT (See instructions below) [ ]
INSTRUCTIONS: To withhold authority for an individual
nominee(s), mark "FOR ALL EXCEPT" and fill in the
circle next to each nominee you wish to withhold
authority for.
The Board of Directors recommends a vote "FOR" Proposal 2.
2. Ratification of Selection of Independent Auditors.
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
The Board of Directors recommends a vote "AGAINST" Proposal 3.
3. Stockholder Proposal regarding Performance and Time-Based Restricted Stock.
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
4. In their discretion on such other matters as may properly come before the
meeting.
The shares represented by this Proxy will be voted "FOR" Proposals 1 and 2
set forth above and "AGAINST" Proposal 3 set forth above if no instruction to
the contrary is indicated or if no instruction is given.
Copies of the Notice of Meeting and of the Proxy Statement have been
received by the undersigned.
PLEASE DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
SIGNATURE(S)_______________________________________ DATE_________________
(This proxy should be dated, signed by the shareholder(s) exactly as his or her
name appears hereon, and returned promptly in the enclosed envelope. Persons
signing in a fiduciary capacity should so indicate. If shares are held by joint
tenants or as community property, both should sign.)