UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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
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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 ss. 240.14a-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):
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[ ] 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:
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[THERMO LOGO]
81 Wyman Street
Waltham, MA 02451
April 7, 2005
Dear Stockholder:
You are cordially invited to attend the 2005 Annual Meeting of
Stockholders of Thermo Electron Corporation, which will be held on Tuesday, May
17, 2005, 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 2004 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 2005 ANNUAL MEETING OF STOCKHOLDERS
To be held on May 17, 2005
April 7, 2005
To the Holders of the Common Stock of
THERMO ELECTRON CORPORATION
Notice is hereby given that the 2005 Annual Meeting of the Stockholders
of Thermo Electron Corporation ("Thermo Electron" or the "Company") will be
held on Tuesday, May 17, 2005, 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 two directors, constituting the class of directors
to be elected for a three-year term expiring in 2008.
2. Ratification of the Audit Committee's selection of
PricewaterhouseCoopers LLP as the Company's independent
auditors for 2005.
3. Approval of the Company's 2005 stock incentive plan.
4. A stockholder proposal regarding the vote standard for
director elections, if presented by its proponent at the
meeting.
5. 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 21, 2005 are
the only stockholders entitled to notice of and to vote at the 2005 Annual
Meeting of Stockholders.
This notice, the proxy statement and the 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 17, 2005
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") for use at the
2005 Annual Meeting of Stockholders to be held on Tuesday, May 17, 2005, 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 7, 2005.
Purpose of Annual Meeting
At the 2005 Annual Meeting of Stockholders, stockholders entitled to
vote at the meeting will consider and act upon the matters outlined in the
notice of meeting accompanying this proxy statement, including the election of
two directors constituting the class of directors to be elected for a three-year
term expiring in 2008, the ratification of the selection of
PricewaterhouseCoopers LLP as the Company's independent auditors for 2005, the
approval of the Company's 2005 stock incentive plan, and a stockholder proposal
regarding the vote standard for director elections, if presented by its
proponent at the meeting.
Voting Securities and Record Date
Only stockholders of record at the close of business on March 21, 2005,
the record date for the meeting, are entitled to vote at the meeting or any
adjournments thereof. At the close of business on March 21, 2005, the
outstanding voting securities of the Company consisted of 161,088,051 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 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, votes withheld, and "broker non-votes" (as defined below) are
counted as present or represented at the meeting for purpose of determining
whether a quorum exists. A "broker non-vote" occurs when a broker or
representative does not vote on a particular matter because it either does not
have discretionary voting authority on that matter or it does not exercise its
discretionary voting authority on that matter.
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, which you may do until 11:59 p.m. Eastern time on Monday, May 16,
2005, 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
A stockholder of record 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 11:59 p.m. Eastern time on May 16, 2005, 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.
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 as of
the record date. For those shares in your Plan account, your proxy will serve as
voting instructions for the trustee of the Plan. You may submit your voting
instructions by returning a signed and dated proxy card to the Company's
transfer agent in the enclosed self-addressed envelope for its receipt by 11:59
p.m. Eastern time on Thursday, May 12, 2005 or by telephone or over the Internet
by 11:59 p.m. Eastern time on Thursday, May 12, 2005 in accordance with the
instructions provided on the proxy card.
You may revoke your instructions by entering new instructions by
telephone or over the Internet by 11:59 p.m. Eastern time on May 12, 2005 or by
executing and returning a later dated proxy card to the Company's transfer agent
for its receipt by 11:59 p.m. Eastern time on May 12, 2005.
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 or the manner in which you may revoke your votes.
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 of Proxies
Shares represented by proxy will be voted in accordance with your
specific choices. 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 2005, FOR approval of the Company's 2005 stock
incentive plan, and AGAINST the stockholder proposal regarding the vote standard
for director elections. 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 affirmatively or negatively on that
proposal and, except with respect to the New York Stock Exchange ("NYSE")
listing requirements described below for approval of the Company's 2005 stock
incentive plan, will not be counted as votes cast with regard to that proposal.
If you hold your shares as a beneficial owner rather than a stockholder
of record, your broker or representative will vote the shares that it holds for
you in accordance with your instructions (if timely received) or, in the absence
of such instructions, your broker or representative may vote on certain matters
for which it has discretionary voting authority.
If you hold your shares through the Plan, the trustee will vote the
shares in your Plan account in accordance with your instructions (if timely
received) or, in the absence of such instructions, the trustee will vote your
shares in the same manner, proportionally, as it votes the other shares for
which proper and timely voting instructions of other Plan participants have been
received by it.
Vote Required for Approval
Under the Company's by-laws, the nominees for directors will be elected
by a plurality of the votes cast in person or by proxy and entitled to vote at
the annual meeting. Withholding a vote for nominees and broker non-votes will
not have an effect on the election of nominees for directors.
Under the Company's by-laws, approval of the proposal to ratify the
selection of independent auditors for 2005 will require the affirmative vote of
a majority of the shares present or represented and entitled to vote at the
annual meeting and voting affirmatively or negatively on the matter. Abstentions
and broker non-votes will not have an effect on the determination of whether
stockholder approval of the matter has been obtained.
Page 3
Under the Company's by-laws, approval of the proposal to approve the
Company's 2005 stock incentive plan will require the affirmative vote of a
majority of the shares present or represented and entitled to vote at the annual
meeting and voting affirmatively or negatively on the matter. Abstentions and
broker non-votes will not have an effect on the determination of whether
stockholder approval on the matter is obtained under the Company's by-laws.
However, under the listing requirements of the NYSE, the proposal to approve the
Company's 2005 stock incentive plan will also require (a) that a majority of the
shares entitled to vote at the annual meeting are voted on the matter (with
abstentions counting as votes and broker non-votes not counting as votes) and
(b) a majority of the votes cast on the matter are voted in favor of the matter
(with abstentions counting as votes cast and broker non-votes not counting as
votes cast).
Under the Company's by-laws, for the stockholder proposal regarding the
vote standard for director elections to be approved, the affirmative vote of a
majority of the shares present or represented and entitled to vote at the annual
meeting and voting affirmatively or negatively on the matter will be required.
Abstentions and broker non-votes will not have an effect on the determination of
whether stockholder approval of the matter has been obtained.
- PROPOSAL 1 -
ELECTION OF DIRECTORS
The number of directors constituting the full Board of Directors of the
Company (the "Board") is fixed at eight. The Board is divided into three
classes, one consisting of two directors and the other two consisting 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. Drs. John L. LaMattina and Michael E. Porter are listed below
as nominees for the three-year term expiring at the 2008 Annual Meeting of
Stockholders. Each nominee is currently a director of the Company. If either 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 Director Whose Term of Office Will Expire in 2008
[PHOTO] John L. LaMattina
Dr. LaMattina, age 55, 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 57, 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.
Page 4
Incumbent Directors Whose Term of Office Will Expire in 2007
[PHOTO] Marijn E. Dekkers
Mr. Dekkers, age 47, 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 70, 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 61, has been a director of the
Company since June 1998. He has been the chairman
of the board of directors of Valeant
Pharmaceuticals International, a research-based
global pharmaceutical company, since June 2002.
From June 2002 to January 2005, Mr. O'Leary also
served as the chief executive officer of Valeant.
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.
Incumbent Directors Whose Term of Office Will Expire in 2006
[PHOTO] Peter J. Manning
Mr. Manning, age 66, 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 53, has been a director of the
Company since May 2000 and Chairman of the Board
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.
Page 5
[PHOTO] Elaine S. Ullian
Ms. Ullian, age 57, 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. and Valeant Pharmaceuticals
International.
The Board of Directors recommends a vote FOR the nominees for director.
Proxies solicited by the Board of Directors will be voted FOR the nominees
unless stockholders specify to the contrary on their proxy.
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
The Board has adopted governance principles and guidelines of the
Company ("Corporate Governance Guidelines") to assist the Board in exercising
its duties and to best serve the interests of the Company and its stockholders.
In addition, the Company has adopted a code of business conduct and ethics
("Code of Business Conduct and Ethics") that encompasses the requirements of the
rules and regulations of the Securities and Exchange Commission ("SEC") for a
"code of ethics" applicable to principal executive officers, principal financial
officers, principal accounting officers or controllers, or persons performing
similar functions. The Code of Business Conduct and Ethics applies to all of the
Company's officers, directors and employees, including its principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. The Company intends to
satisfy the SEC's disclosure requirements regarding certain amendments to, or
waivers of, the Code of Business Conduct and Ethics by posting such information
on the Company's website. The Company's Corporate Governance Guidelines and Code
of Business Conduct and Ethics are available on its website at www.thermo.com
and a copy of each such document may also be obtained free of charge by writing
to the Company care of its Investor Relations Department at the Company's
principal executive office located at 81 Wyman Street, Waltham, MA 02451.
Director Nomination Process
The Nominating and Corporate Governance Committee of the Board
("Nominating and Corporate Governance Committee") 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,
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 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,
the balance of management and independent directors, and with respect to members
of the Audit Committee, financial expertise.
After completing its evaluation, the Nominating and Corporate
Governance Committee makes a recommendation to the full Board as to the persons
who should be nominated by the Board, and the Board 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 2005
Annual Stockholders Meeting is a current director standing for re-election.
Page 6
Director Independence
The Company's Corporate Governance Guidelines require a majority of our
Board to be "independent" within the meaning of the NYSE listing requirements
including, in the judgment of the Board, 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 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 not:
- A director who is a current employee, or whose immediate
family member is a current executive officer, of a company that has made
payments to, or received payments from, the Company for property or services in
an amount which, in any of the last three fiscal years, exceeds the greater of
$1 million, or 2% of such other company's consolidated gross revenues;
- A director who is (or was within the last three years) an
employee, or whose immediate family member is (or was within the last three
years) an executive officer, of the Company;
- A director who has received, or whose immediate family
member has received, during any twelve-month period within the last three years,
more than $100,000 in direct compensation from the Company, other than director
and committee fees and pension or other forms of deferred compensation for prior
service (provided such compensation is not contingent in any way on continued
service);
- (A) A director who is, or whose immediate family member is,
a current partner of a firm that is the Company's internal or external auditor;
(B) a director who is a current employee of a firm that is the Company's
internal or external auditor; (C) a director whose immediate family member is a
current employee of a firm that is the Company's internal or external auditor
and participates in the firm's audit, assurance or tax compliance (but not tax
planning) practice; or (D) a director who was, or whose immediate family member
was, within the last three years (but is no longer) a partner or employee of a
firm that is the Company's internal or external auditor and personally worked on
the Company's audit within that time;
- A director who is (or was within the last three years), or
whose immediate family member is (or was within the last three years), an
executive officer of another company where any of the Company's current
executive officers at the same time serve or served on the other company's
compensation committee;
- A director who is (or was within the last three years) an
executive officer of another company that is indebted to the Company, or to
which the Company is indebted, in an amount that exceeds one percent (1%) of the
total consolidated assets of the other company; and
- A director who is a current executive officer of a tax
exempt organization that, within the last three years, received discretionary
contributions from the Company in an amount that, in any single fiscal year,
exceeded the greater of $1 million or 2% of such tax exempt organization's
consolidated gross revenues. (Any automatic matching by the Company of employee
charitable contributions will not be included in the amount of the Company's
contributions for this purpose.)
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 who are independent (as defined
above).
The Board has determined that each of Ms. Ullian, Messrs. Manning,
McCabe and O'Leary, and Drs. LaMattina and Porter is "independent" in accordance
with the Company's Corporate Governance Guidelines and Section 303A.02 of the
listing standards of the NYSE.
Board of Directors Meetings and Committees
The Board met seven times during 2004. During 2004, each of our
directors attended at least 75% of the total number of meetings of the Board and
the committees of which such director was a member, except Dr. Porter who
attended nine of the 13 meetings of the Board and committees of which he was a
member. The Board has a standing audit committee ("Audit Committee"), a standing
compensation committee ("Compensation Committee"), and a standing Nominating and
Corporate Governance Committee. The Company encourages, but does not require,
the members of its
Page 7
Board to attend the annual meeting of stockholders. Last year, six of our
directors attended the 2004 Annual Meeting of Stockholders.
Audit Committee
The Audit Committee is responsible for assisting the Board 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 2004 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. A copy of the charter may also be obtained
free of charge by writing to the Company care of its Investor Relations
Department at the Company's principal executive office located at 81 Wyman
Street, Waltham, MA 02451.
The current members of our Audit Committee are Messrs. Manning
(Chairman) and McCabe and Ms. Ullian. The Board has determined that each of the
members of the Audit Committee are "independent" within the meaning of 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 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 18 times during 2004.
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 management
succession plans, and adopting and administering equity-based plans. Certain
responsibilities of our Compensation Committee and its activities during 2004
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. A copy of the charter may also be obtained
free of charge by writing to the Company care of its Investor Relations
Department at the Company's principal executive office located at 81 Wyman
Street, Waltham, MA 02451.
The current members of our Compensation Committee are Ms. Ullian
(Chairperson), and Messrs. LaMattina and Manning. The Board 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 six times during 2004.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is responsible for
identifying persons qualified to serve as members of the Board, recommending to
the Board persons to be nominated by the Board for election as directors at the
annual meeting of stockholders and persons to be elected by the Board to fill
any vacancies, and recommending to the Board 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 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 the annual self-evaluation of the Board. The
charter of the Nominating and Corporate Governance Committee is available on the
Company's website at www.thermo.com. A copy of the charter may also be obtained
free of charge by writing to the Company care of its Investor Relations
Department at the Company's principal executive office located at 81 Wyman
Street, Waltham, MA 02451.
The current members of our Nominating and Corporate Governance
Committee are Messrs. O'Leary (Chairman), LaMattina and Porter. The Board 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 2004.
Executive Sessions and Presiding Director
In accordance with the listing standards of the NYSE and the Company's
Corporate Governance Guidelines, (a) non-management directors of the Board meet
at regularly scheduled executive sessions without management and at such other
times as may be requested by a non-management director and (b) independent
directors meet at least once a year in
Page 8
an executive session without management and at such other times as may be
requested by an independent director. In accordance with the Company's Corporate
Governance Guidelines, Ms. Ullian has been appointed to preside (the "Presiding
Director") at the meetings of the Company's non-management and independent
directors held in executive session without management.
Communications from Stockholders and Other Interested Parties
The Board has established a process for stockholders and other
interested parties to send communications to the Board or any individual
director or groups of directors, including the Presiding Director and the
non-management and independent directors. Stockholders and other interested
parties who desire to send communications to the Board or any individual
director or groups of directors should write to the Board or such individual
director or group of directors 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, or
individual director or group of directors, 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 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 meeting ($1,000 per committee meeting attended
in person that occurs on the same day as a Board meeting); and a fee of $750 per
Board 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 as well as the independent
directors on the Strategy Committee of the Board (the "Strategy Committee"),
which committee consists of Dr. Porter (Chairman) and Messrs. Manzi and Dekkers,
receive additional compensation for their services in those positions. The
chairman of the Audit Committee receives an additional annual retainer of
$20,000 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 as well as the
chairman of the Strategy Committee receives an additional annual retainer of
$5,000 and each other member of the Compensation Committee and Nominating and
Corporate Governance Committee 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. As Chairman of the
Board, 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 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
The Company maintains a deferred compensation plan for its
non-management directors (the "Directors Deferred Compensation Plan"). Under the
plan, a participant may elect to defer receipt of his or her annual retainers
and meeting fees. Amounts deferred under the Directors Deferred Compensation
Plan are valued at the end of each quarter as units of Common Stock and, when
payable under the plan, may only be paid in shares of Common Stock. The
participant does not have any actual ownership of the Common Stock until the
deferred amounts are finally paid to the participant pursuant to the Directors
Deferred Compensation Plan, provided that additional credits are made to a
participant's account for cash and stock dividends that he or she would have
received had the participant been the owner of such Common Stock on the record
dates for payment of such dividends. As of December 31, 2004, a total of 420,288
shares of Common Stock were available for issuance under the Directors Deferred
Compensation Plan, of which deferred units equal to 129,353 shares of Common
Stock were accumulated. The American Jobs Creation Act of 2004 applies to
non-qualified deferred compensation plans, including the Directors Deferred
Compensation Plan, for amounts deferred after December 31, 2004. The Company has
"frozen" the terms of the Directors Deferred Compensation Plan in existence as
of December 31, 2004 for account balances resulting from amounts deferred
through such date. The Company is currently operating the Directors Deferred
Compensation Plan for amounts deferred after December 31, 2004 in good faith
compliance with the new law and intends to amend the plan with respect to such
deferred amounts to the extent necessary to comply with such law when all
relevant United States Department of Treasury guidance has been issued, but in
any event no later than December 31, 2005 as is required.
Page 9
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 opening and closing
prices of the Common Stock as reported on the NYSE on the grant date.
In connection with his appointment as Chairman of the Board, 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, 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. On February 25, 2005, Mr. Manzi was awarded 2,500 shares
of Common Stock.
In addition, at the close of business on the date of each Annual
Meeting of Stockholders of the Company, each non-management director (other than
Mr. Manzi) 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 opening and closing prices of the Common Stock as reported on
the NYSE on the grant date. As of February 25, 2005, options to purchase 121,569
shares of Common Stock were outstanding under the Directors Stock Option Plan,
options to purchase 95,000 shares of Common Stock had been exercised since
inception of the Directors Stock Option Plan, and options to purchase 568,425
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 shares of Common Stock equal in value to at least three times the annual
cash retainer for directors. Current directors have a period of five years from
February 25, 2005 to achieve this ownership level. New directors would have a
period of five years from the date of initial election to achieve this ownership
level. For the purpose of this policy, a director's election to receive shares
of Common Stock in lieu of director retainers and fees will be counted towards
this target. Executive officers of the Company are 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.
Mr. Manzi's compensation arrangement with the Company for serving as Chairman
of the Board is described under the sub-heading "Compensation of Directors"
under the heading "CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS".
Page 10
STOCK OWNERSHIP
The following table sets forth, as of February 25, 2005, 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 25, 2005, with respect to each person who was known by the
Company to own beneficially more than 5% of the outstanding shares of Common
Stock.
Percent of
Options Shares
Exercisable Deferred Beneficially
Name(1) Shares(2) within 60 Days(3) Stock Units(4) Total Owned
------- --------- ----------------- -------------- ------ -------------
Dodge & Cox(5).................. 18,076,734 - - - - 18,076,734 11.23%
Guy Broadbent .................. 5 287,813 - - 287,818 *
Marc N. Casper ................. 30,993 225,000 10,000 265,993 *
Marijn E. Dekkers............... 114,534 1,497,246 66,666 1,678,446 1.03%
Seth H. Hoogasian............... 28,557 204,137 - - 232,694 *
John L. LaMattina............... 3,000 24,166 - - 27,166 *
Peter J. Manning................ 1,000 5,000 - - 6,000 *
Jim P. Manzi.................... 18,662 107,610 8,279 134,551 *
Robert A. McCabe................ 32,558 10,166 40,384 83,108 *
Robert W. O'Leary............... 1,000 17,461 12,285 30,746 *
Michael E. Porter............... 3,203 27,610 - - 30,813 *
Elaine S. Ullian................ 500 27,610 8,898 37,008 *
Peter M. Wilver................. 14,539 111,406 - - 125,945 *
All directors and current
executive officers as a group
(14 persons).................... 264,221 2,720,688 146,512 3,131,421 1.91%
* Less than one percent.
(1) The address of each of the Company's executive officers and directors is c/o
Thermo Electron Corporation, 81 Wyman Street, Waltham, MA 02451. 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,
Hoogasian, Manzi, Wilver and all directors and current executive officers as a
group include 10,000, 108,334, 10,000, 10,000, 5,000, and 145,834 shares,
respectively, of restricted Common Stock that may not be sold or transferred
until future vesting dates. Shares of Common Stock beneficially owned by Mr.
Hoogasian and all directors and current executive officers as a group include
420 and 971 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 3,565, 4,652
and 8,357 shares of Common Stock granted prior to July 2000 to Messrs.
Hoogasian, O'Leary and all current directors and executive officers as a group,
respectively, that 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.
(4) Represents (a) stock-based units accrued under the Directors Deferred
Compensation Plan that are payable in Common Stock at the time of distribution
(See "CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS -Deferred Compensation
Plan for Directors") and (b) restricted Common Stock units owned by Messrs.
Dekkers and Casper that have otherwise vested but do not become shares of Common
Stock until such officers cease to be employed by the Company. None of these
units may be voted or transferred until they become shares of Common Stock.
(5) This information was obtained from the Schedule 13G filed with the
Securities and Exchange Commission on February 10, 2005 by Dodge & Cox, 555
California Street, 40th Floor, San Francisco, CA 94104, which reported such
ownership as of December 31, 2004. The percentage of shares beneficially owned
was calculated using the number of
Page 11
shares of Common Stock outstanding as of February 25, 2005. These shares are
beneficially owned by clients of Dodge & Cox, an investment advisor. Dodge &
Cox has sole voting power with respect to 16,728,084 shares, shared voting
power with respect to 327,400 shares, and sole dispositive power with respect
to 18,076,734 shares.
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 2004.
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 and the four other most highly compensated executive officers of the
Company during 2004. 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 Compensation(1)(2)
------------------ ----- ------ ----- --------- ---------- ------------------
Marijn E. Dekkers 2004 $997,692 $1,107,000 $128,050(3) -- $209,211
President and Chief Executive 2003 $794,872 $820,800 -- -- $335,455
Officer 2002 $533,333(4) 430,000(4) $2,008,000(5) 980,000 $31,985
------------------------------- ----------- ---------------------------- -------------------------------- ---------------------
Guy Broadbent 2004 $316,868 $191,580 -- -- $250,619(6)
President, Bioscience 2003 $305,513 $212,040 -- -- $74,605
Technologies 2002 $300,000 $154,500 -- 100,000 $27,630
------------------------------- ----------- ---------------------------- -------------------------------- ---------------------
Marc N. Casper 2004 $425,000 $359,550 -- -- $56,824
Senior Vice President 2003 $359,039 $287,500 $1,211,700(7) -- $67,622
2002 $300,000 $225,000 -- 100,000 $17,500
------------------------------- ----------- ---------------------------- -------------------------------- ---------------------
Seth H. Hoogasian 2004 $354,369 $223,245 $304,900(8) -- $37,846
General Counsel 2003 $324,435 $188,100 -- -- $118,623
2002 $316,200 $162,850 -- 142,500 $31,295
------------------------------- ----------- ---------------------------- -------------------------------- ---------------------
Peter M. Wilver 2004 $316,853(9) $196,890(9) $277,000(10) 125,000 $29,735
Chief Financial Officer 2003 $266,237(11) $148,200(11) -- -- $31,712
------------------------------- ----------- ---------------------------- -------------------------------- ---------------------
*The Company's year end for fiscal years 2002, 2003 and 2004 was December 28,
2002, December 31, 2003 and December 31, 2004, respectively.
(1) The amounts presented in this column include (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. Casper in 2002 and (b) the entire amount
of earnings (if any) for the year under investment alternatives on deferred
compensation balances, except for Mr. Wilver (See "EXECUTIVE COMPENSATION -
Deferred Compensation Plan"). For 2004, the dollar value of each such benefit
was (1) $9,225 each for matching 401(k) contributions and (2) $177,004, $21,406,
$27,855, $6,331 and $0 for Messrs. Dekkers, Broadbent, Casper, Hoogasian and
Wilver, respectively, for amounts related to earnings under investment
alternatives on deferred compensation balances. In addition, the 2003 amounts in
this column include a one-time payment in fiscal year 2003 of $32,231, $6,193,
$2,050, $78,451, and $1,910 for Messrs. Dekkers, Broadbent, Casper, Hoogasian
and Wilver, respectively, for cumulative unused vacation accrued over their
respective tenure with the Company; starting in fiscal 2003, employees at the
Company's principal executive office no longer carry forward unused vacation
time from one year to the next.
Page 12
(2) Under SEC rules and regulations, perquisites and other personal benefits
that in the aggregate constitute less than the lesser of $50,000 or 10% of the
total annual salary and bonus for each named executive officer are permitted to
be excluded from the table. The Company has included the major perquisites and
personal benefits provided to its named executive officers in this table even
though such perquisites and benefits are below this disclosure threshold. As
such, in addition to the items referred to in footnote (1) above, the amounts
presented under this column also include (a) a car allowance, (b) an allowance
for medical related expenses, (c) 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 (d) with respect to Mr. Dekkers only,
premiums paid by the Company for a term life insurance policy for the benefit of
Mr. Dekkers. For 2004, the dollar value of each such benefit was (1) $12,500
each for the car allowance, (2) $5,000 each for the medical expense allowance,
(3) $3,182, $2,488, $2,244, $4,790 and $3,010 for Messrs. Dekkers, Broadbent,
Casper, Hoogasian and Wilver, respectively, for long-term disability insurance
premiums, and (d) $2,300 for term life insurance premium for Mr. Dekkers.
(3) In January 2004, Mr. Dekkers was awarded 5,000 shares of restricted Common
Stock valued at $128,050 on the grant date, pursuant to the terms of his
employment agreement, that vest in equal installments over the three-year period
commencing on the grant date assuming continued employment on each such date.
Mr. Dekkers is entitled to vote the shares of restricted Common Stock and to
retain any cash dividends paid with respect to the shares of restricted Common
Stock. Any other property distributed with respect to the shares of restricted
Common Stock will be subject to the same rights and restrictions as the shares
of restricted Common Stock in the same manner and for so long as the shares of
restricted Common Stock remain subject to such rights and restrictions. At the
end of fiscal year 2004, Mr. Dekkers held 5,000 shares of restricted Common
Stock with an aggregate value of $150,950.
(4) The salary and bonus reported for 2002 represents the amount paid to Mr.
Dekkers for the full year, reflecting the portion of the year during which he
performed services as chief executive officer of the Company and the portion of
the year in which he performed services as president and chief operating officer
of the Company. See "EXECUTIVE COMPENSATION - Employment Agreement".
(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 2004, Mr. Dekkers held (a) 33,334 shares of
unvested restricted Common Stock units with an aggregate value of $1,006,353 and
(b) 66,666 shares of vested restricted Common Stock units with an aggregate
value of $2,012,647.
(6) This amount includes a payment of $200,000 to Mr. Broadbent in July 2004 for
his role in successfully completing the sale of the Company's optical
technologies segment (of which he was president).
(7) 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). Mr. Casper is entitled to vote the shares of restricted Common
Stock and to retain any cash dividends paid with respect to the shares of
restricted Common Stock. Any other property distributed with respect to the
shares of restricted Common Stock will be subject to the same rights and
restrictions as the shares of restricted Common Stock in the same manner and for
so long as the shares of restricted Common Stock remain subject to such rights
and restrictions. 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 2004, Mr. Casper
held (a) 20,000 shares of restricted Common Stock with an aggregate value of
$603,800, (b) 20,000 shares of unvested restricted Common Stock units with an
aggregate value of $603,800, and (c) 10,000 shares of vested restricted Common
Stock units with an aggregate value of $301,900.
(8) In June 2004, Mr. Hoogasian was awarded 10,000 shares of restricted Common
Stock valued at $304,900 on the grant date, that vest in equal installments over
a two-year period commencing on the grant date (assuming continued employment).
Mr. Hoogasian is entitled to vote the shares of restricted Common Stock and to
retain any cash dividends paid with respect to the shares of restricted Common
Stock. Any other property distributed with respect to the shares of restricted
Common Stock will be subject to the same rights and restrictions as the shares
of restricted Common Stock in the same manner and for so long as the shares of
restricted Common Stock remain subject to such rights and restrictions. At the
end of fiscal year 2004, Mr. Hoogasian held 10,000 shares of restricted Common
Stock with an aggregate value of $301,900.
Page 13
(9) Mr. Wilver was promoted to chief financial officer of the Company in October
2004. The salary and bonus reported for 2004 represent the amount paid to Mr.
Wilver for the full year, reflecting the portion of the year in which he
performed services as chief financial officer of the Company and the portion of
the year in which Mr. Wilver performed services as vice president of financial
operations of the Company.
(10) In February 2004, Mr. Wilver was awarded 10,000 shares of restricted Common
Stock valued at $277,000 on the grant date that vest in equal installments over
a two-year period commencing on the grant date (assuming continued employment).
Mr. Wilver is entitled to vote the shares of restricted Common Stock and to
retain any cash dividends paid with respect to the shares of restricted Common
Stock. Any other property distributed with respect to shares of restricted
Common Stock will be subject to the same rights and restrictions as the shares
of restricted Common Stock in the same manner and for so long as the shares of
restricted Common Stock remain subject to such rights and restrictions. At the
end of fiscal year 2004, Mr. Wilver held 10,000 shares of restricted Common
Stock with an aggregate value of $301,900.
(11) Mr. Wilver became an executive officer of the Company on May 15, 2003. The
salary and bonus reported for 2003 represent amounts paid to Mr. Wilver for the
entire year.
Stock Options Granted During Fiscal 2004
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 2004, other than Mr. Wilver in connection with his appointment as
chief financial officer of the Company, 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. The following
table sets forth information concerning individual grants of stock options made
during fiscal year 2004 to the Company's named executive officers. It has not
been the Company's policy in the past to grant stock appreciation rights, and no
such rights were granted to the named executive officers during fiscal year
2004.
Option Grants 2004
------------------
Individual Grants
------------------
Percent of
Number of Total Options Potential Realizable Value at
Securities Granted to Assumed Annual Rates of Stock
Underlying Employees in Exercise Price Expiration Price Appreciation for Option
Name Options (1) Fiscal Year Per Share Date Term (2)
---- ----------- ----------- --------- ---- --------
5% 10%
-- ---
Marijn E. Dekkers - - - - - -
-------------------------------------------------------------------------------------------------------------------------
Guy Broadbent - - - - - -
-------------------------------------------------------------------------------------------------------------------------
Marc N. Casper - - - - - -
-------------------------------------------------------------------------------------------------------------------------
Seth H. Hoogasian - - - - - -
-------------------------------------------------------------------------------------------------------------------------
Peter M. Wilver 125,000 7.69% $30.59 06/02/11 $1,556,650 $3,627,662
-------------------------------------------------------------------------------------------------------------------------
(1) All of the options reported vest in three equal annual installments over a
three-year period from the date of grant, provided that the optionee continues
to be employed by the Company. Upon a change in control of the Company, all
options become immediately exercisable.
(2) The amounts shown in this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option term.
These gains are based on assumed rates of stock appreciation of 5% and 10%
compounded annually from the date the respective options were granted to the
expiration date. The gains shown are net of the option exercise price, but do
not include deductions for taxes or other expenses associated with the exercise.
Actual gains, if any, on stock option exercises will depend on the future
performance of the common stock of the granting company, the optionee's
continued employment through the option period and the date on which the options
are exercised.
Page 14
Stock Options Exercised During Fiscal 2004 and Fiscal Year-End Option Values
The following table reports information regarding stock option
exercises during fiscal year 2004 and outstanding stock options held at the end
of fiscal year 2004 by the Company's named executive officers. No stock
appreciation rights were exercised or were outstanding during fiscal year 2004.
Aggregated Option Exercises In Fiscal 2004 and Fiscal 2004 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 - - 1,430,017/ 847,229 $14,337,088/ $8,871,223
-------------------------------------------------------------------------------------------------------------------------
Guy Broadbent - - 287,813/ 100,000 $2,217,756/ $1,052,000
-------------------------------------------------------------------------------------------------------------------------
Marc N. Casper 50,000 $389,385 225,000/ 100,000 $1,802,250/ $1,052,000
-------------------------------------------------------------------------------------------------------------------------
Seth H. Hoogasian 51,895 $799,337 190,913/ 114,167 $2,296,603/ $1,192,537
-------------------------------------------------------------------------------------------------------------------------
Peter M. Wilver - - 101,406/ 235,000 $859,417/ $1,151,200
-------------------------------------------------------------------------------------------------------------------------
(1) The amounts shown in this column represent the difference between the option
exercise price and the market price on the date of exercise.
(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 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 amount reported for Mr. Hoogasian for the number of securities underlying
exercisable options at fiscal year end include options to purchase 4,818 shares
of Common Stock granted prior to July 2000 to Mr. Hoogasian that are subject to
these transfer restrictions. The amount reported for the value of securities
underlying exercisable options at fiscal year end for Mr. Hoogasian includes
$71,298 for options to purchase Common Stock granted prior to July 2000 that are
subject to these restrictions. Options outstanding at the end of the fiscal year
that were granted in and after July 2000 generally vest ratably over three years
after the grant date, provided that the optionee continues 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
Agreement". Upon a change in control of the Company, all options, regardless of
the grant date, become immediately exercisable and cease to be subject to
transfer restrictions and the Company's repurchase rights.
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 to include a
majority of directors who are "continuing directors", which term is defined to
include directors who were members of the Board on the date of the agreement or
who subsequent to the date of the agreement were nominated or elected by a
majority of directors who were "continuing directors" at the time of such
nomination or election; (iii) the consummation of a merger, consolidation,
reorganization, recapitalization or statutory share exchange involving Thermo
Electron or the sale or other disposition of all or substantially all of the
assets of Thermo Electron unless immediately after such transaction (a) all
holders of 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.
Page 15
The executive change in control retention agreements with each of
Messrs. Dekkers, Broadbent, Casper, Hoogasian, and Wilver 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, and Wilver, 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, and Wilver, 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, and Wilver, 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, and Wilver, $20,000, to be used toward
outplacement services.
In the event that payments under these agreements are deemed to be
so-called "excess parachute payments" under the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), the
individuals would be entitled to receive a gross-up payment equal to the amount
of any excise tax payable by such individual with respect to such payment plus
the amount of all other additional taxes imposed on such individual 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 Wilver 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 to 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 Agreement".
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 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. The American Jobs Creation Act of 2004
applies to non-qualified deferred compensation plans, including the Deferred
Compensation Plan, for amounts deferred after December 31, 2004. The Company has
"frozen" the terms of the Deferred Compensation Plan in existence as of December
31, 2004 for account balances resulting from amounts deferred through such date.
The Company is currently operating the Deferred Compensation Plan for amounts
deferred after December 31, 2004 in good faith compliance with the new law and
intends to amend the plan with respect to such deferred amounts to the extent
necessary to comply with such law when all relevant United States Department of
Treasury guidance has been issued, but in any event no later than December 31,
2005 as is required.
Page 16
Employment Agreement
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
and amended February 11, 2004 and February 25, 2005 ("the Employment
Agreement"), is for a five-year term ending December 31, 2007. The Employment
Agreement provides for a minimum annual base salary of $1,000,000 and a minimum
annual incentive-bonus of $900,000 (90% of base salary). On February 25, 2005,
the Compensation Committee increased Mr. Dekkers' annual incentive bonus target
for 2005 to $950,000 (95% of base salary). The actual amount paid as a bonus in
any given year is a multiple of zero to two times the target amount.
Pursuant to the Employment Agreement, on November 21, 2002 the Company
awarded Mr. Dekkers (i) 100,000 restricted Common Stock units that vest in equal
annual installments over the three-year period commencing on the grant date so
long as Mr. Dekkers is employed with the Company on each such date and, provided
further, that such units shall not become shares of Common Stock until Mr.
Dekkers ceases to be an employee of the Company for any reason; and (ii) options
to purchase 780,000 shares of Common Stock expiring November 21, 2012 that vest
in equal annual installments over the three-year period commencing on the third
anniversary of the grant date, so long as Mr. Dekkers is employed with the
Company on each such date, at an exercise price equal to the average of the
closing prices of the Common Stock as reported on the NYSE for the five business
days preceding and including the grant date. In addition, the Employment
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 options to purchase 260,000 shares of Common Stock
expiring seven to 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 opening and closing prices of the Common Stock as
reported on the NYSE on 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 Employment Agreement, in January 2004 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 Employment
Agreement provides that each year Mr. Dekkers serves as the Company's chief
executive officer he will receive a similar award of restricted stock, which he
received in January 2005.
If Mr. Dekkers' employment is terminated (i) by the Company without
"cause" or by Mr. Dekkers with "good reason", he will be entitled to: (A) an
amount equal to: (1) his then current base salary for the 36-month period
following the termination date, (2) a pro-rata bonus for the year in which the
termination date occurs, and (3) $2,160,000 (in lieu of his annual incentive
bonus for the 36-month period); 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) $1,440,000 (in lieu of his annual incentive bonus for the 24-month
period); 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", (A) no further vesting of stock options shall occur and he shall have
90 days (except for the options granted to Mr. Dekkers in 2005, which shall
cease to be exercisable immediately) 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
Page 17
shall be forfeited. If Mr. Dekkers' employment is terminated by Mr. Dekkers
without "good reason", (X) 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 (Y) 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 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.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2004 with
respect to the Common Stock that may be issued under the Company's 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))(1)
------------- ------------------- ------------------- ---------------------------
------------------------------- --------------------------- ------------------------- -----------------------------------
Equity Compensation Plans
Approved By Security 7,111,700 $21.33 4,417,462
Holders(2)(3)
------------------------------- --------------------------- ------------------------- -----------------------------------
Equity Compensation Plans Not
Approved By Security 2,611,377 $20.98 247,178
Holders(4)(5)(6)
------------------------------- --------------------------- ------------------------- -----------------------------------
Total 9,723,077 $21.24 4,664,640
------------------------------- --------------------------- ------------------------- -----------------------------------
(1) 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.
(2) Column (a) includes (i) an aggregate of 130,000 restricted Common Stock
units granted to Messrs. Dekkers 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 (ii) an
aggregate of 129,353 Common Stock-based units accrued under the Directors
Deferred Compensation Plan for deferred directors fees and retainers accrued
through December 31, 2004. Column (c) includes an additional 290,935 shares that
are available under the Directors Deferred Compensation Plan. See "CORPORATE
GOVERNANCE PRINCIPLES AND BOARD MATTERS -- Deferred Compensation Plan for
Directors" for additional information regarding this plan. The weighted average
exercise price set forth in column (b) does not take into account the restricted
Common Stock units and Common Stock-based units included in column (a).
(3) 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 480,440 shares. Under the ESPP, each eligible
employee may purchase a limited number of shares of the Common Stock on the
first trading day of each year at a purchase price equal to 85% of the lower of
the fair market value of the Common Stock as of either the first trading day of
the previous calendar year or the last trading day of the previous calendar
year. The remaining shareholder approved reserve is included in column (c).
Page 18
(4) Column (a) does not include shares issuable under the Thermo Electron
Corporation Save as You Earn Plan (the "SAYE Plan"), which has a remaining
reserve of 86,871 shares. Under the SAYE Plan, each eligible employee in the
United Kingdom may purchase a limited number of shares of the Common Stock at
the end of the savings contract period in April of 2005 at a purchase price
equal to 85% of the fair market value of the Common Stock as of the trading day
immediately preceding the invitation date in January 2002. The remaining reserve
is included in column (c).
(5) Equity compensation plans not approved by the Company's stockholders are:
(i) the Thermo Electron Corporation Employees Equity Incentive Plan under which
160,307 shares are available for future issuance; (ii) the 2000 Employees Equity
Incentive Plan under which no shares are available for future issuance, and
(iii) the Thermo Electron Corporation Save as You Earn Plan under which 86,871
shares are available for future issuance. The material terms of these plans are
described below.
(6) 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 outside interests in those subsidiaries were
repurchased by the Company during 1999 through 2002. 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 1,428,878 shares at a weighted
average exercise price of $14.70 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 (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.
Thermo Electron Corporation 2000 Employees Equity Incentive Plan
The Thermo Electron Corporation Employees Equity Incentive Plan (the
"2000 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 2000 Employees Equity Incentive Plan is
administered by the Company's Board (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 2000 Employees Equity Incentive Plan, 1,106,660
shares were originally reserved for issuance; as of December 31, 2004, no shares
are available for future issuance under the plan. Under the 2000 Employees
Equity Incentive Plan, 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 under the plan 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.
Thermo Electron Corporation SAYE Plan
The Thermo Electron Corporation Save As You Earn Plan (the "SAYE Plan")
was adopted to provide the benefits arising from capital stock ownership by
employees of the Company. In January 2002 qualifying employees in the United
Kingdom were eligible to participate in the SAYE Plan. Under the SAYE Plan
participating employees may have up to (pound) 250 per month contributed to a
share-save account through payroll deductions during the three-year savings
period. At the end of the savings period (April 2005), the Company will
contribute a tax-free bonus to each participant's savings accounts in an amount
equal to two monthly payments by the participant, at which time the participants
can elect to either purchase shares of Common Stock at 85% of the fair market
value of the shares as of the beginning of the plan period in January 2002 using
all or a portion of the amount
Page 19
contributed by them (and the Company) to their savings accounts, or to withdraw
such amounts. As of December 31, 2004, 86,871 shares were reserved for issuance
under the SAYE 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 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 meet
the following objectives: (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.
In order to achieve such objectives, the major elements of the
Company's compensation program for its officers are annual cash and long-term
incentive compensation. Annual cash compensation is composed of base salary and
annual, performance-based cash incentive awards. Long-term incentive
compensation consists of stock-based awards such as stock options and restricted
stock or restricted stock units.
The Compensation Committee considers all elements of the Company's
compensation program for a given year with respect to each of its officers,
including their base salary, annual cash incentive awards, long-term incentive
compensation (stock-based awards), and perquisites for such year. It 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 Compensation
Committee evaluates individual executive compensation through the use of
compensation comparisons with other officers of the Company who have similar
levels of responsibility. 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.
Cash Compensation
Base Salary
Each year, the Compensation Committee reviews and establishes the base
salary of the Company's officers. Generally, officer base salaries are adjusted
based on market parity (to reflect competitive salary levels in the competitive
market), internal parity (fairness within the Company), and other
considerations, such as promotions (to reflect increases in responsibility). To
gauge market conditions, the Compensation Committee evaluates the market surveys
and peer group analyses prepared by outside consulting firms retained by the
committee. Base salary is then generally targeted at the competitive median for
similar positions at such peer group companies.
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 "162(m)
Plan"), which was approved by the stockholders of the Company at its 2003 Annual
Meeting of Stockholders. The 162(m) 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 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 chief executive officer and
four other most highly paid executive officers unless the payments are made
under qualifying "performance-based" compensation plans.
Under the 162(m) Plan, in the first quarter of a calendar year the
Compensation Committee selects a performance goal for the year. For 2004, 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 2005, the Compensation Committee elected to lower the 2004 bonuses payable
under the 162(m) Plan to the amounts computed in accordance with the process
described below for the Company's
Page 20
annual incentive program for the year based on the Compensation Committee's
determinations as to the level of achievement of the supplemental performance
measures under the Company's annual incentive program for 2004.
In the first quarter of a calendar year, the Compensation Committee
establishes a target incentive cash award amount under the Company's annual
incentive program for each officer of the Company, including executive officers.
This amount, which is a percentage of base salary, is determined by the
Compensation 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 specified business
objectives of the Company.
For 2004, the financial measures established by the Compensation
Committee under the Company's annual incentive program 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. A range of performance for each financial measure
corresponds with a multiplier of 0 to 2, and a range of performance for each
qualitative measure corresponds with a multiplier of 0 to 1.5. For each of the
financial measures, the Company's actual performance was measured relative to
the Company's internal operating plan for 2004. The weighting of the financial
and qualitative measures for 2004 was as follows: 35% for revenue growth, 35%
for growth in earnings as a percentage of revenue, and 30% for the qualitative
measures. After giving effect to the weighting of the measures, a composite
final multiplier was applied to the target cash bonus amounts for all of the
Company's officers, including its executive officers. The sum of these amounts
was added together to form a bonus pool for all of the Company's officers,
including its executive officers, and was allocated by the Compensation
Committee among such officers. For 2004, the chief executive officer and four of
the other six executive officers of the Company were allocated the same
percentage of their target bonuses (123%).
Other Cash Incentive Awards
In addition to the annual cash incentive awards awarded by the
Compensation Committee to the Company's officers, the Compensation Committee may
periodically award additional cash incentive awards to an officer of the Company
as deemed appropriate by the Compensation Committee to achieve the varying
objectives of the compensation program described above, such as recognizing
individual performance, as well as other considerations.
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.
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 described above, such as
executive retention, as well as other considerations, such as in the event of a
promotion (to reflect an increase in responsibility). In November 2002, the
Compensation Committee granted stock option awards to the Company's officers
that 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 annual 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 that
the chief executive officer hold shares of Common Stock equal in value to at
least four times his annual base salary and that each other executive officer
hold shares of Common Stock equal in value to at least two times his or her
annual base salary. The current chief executive officer and other current
executive officers have a period of five years from February 25, 2005 to achieve
this ownership level. New executive officers would have a period of five years
from the date of initial appointment as an executive officer to achieve this
ownership level. For purposes of this policy, shares of restricted Common Stock
and restricted Common Stock units are counted towards the target.
Page 21
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 qualifies 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 are intended to qualify for the deduction.
2004 CEO Compensation
In determining the chief executive officer's compensation for 2004, the
Compensation Committee reviewed all elements of Mr. Dekkers' total compensation,
as it did for each of the other officers of the Company, including his base
salary, annual cash incentive award, long-term incentive compensation
(stock-based awards), and executive perquisites. Mr. Dekkers' Employment
Agreement provides minimum requirements with respect to certain components of
his compensation. In connection with the departure of the former executive
chairman of the Company and the corresponding assumption by Mr. Dekkers of
certain additional responsibilities, the Compensation Committee amended Mr.
Dekkers' Employment Agreement in February 2004 to (a) increase his annual base
salary for 2004 to $1,000,000, (b) increase his annual incentive award target
for 2004 to $900,000 (90% of his salary), and (c) provide for an annual award of
5,000 shares of restricted Common Stock to Mr. Dekkers that vest in equal
installments over the three-year period commencing on the grant date, assuming
he is employed with the Company on each such date. See "EXECUTIVE COMPENSATION
-Employment Agreement". Mr. Dekkers' actual incentive cash award for fiscal 2004
of $1,107,000, which was above target, was determined by the Compensation
Committee based on the same factors and criteria described above for determining
the cash incentive awards for 2004 paid to the other officers of the Company
(including the Compensation Committee's assessment of the Company's above-target
performance).
Ms. Elaine S. Ullian (Chairperson)
Dr. John L. LaMattina
Mr. Peter J. Manning
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 Health Care Equipment Index. In the past,
the Company compared its performance with the Standard & Poor's 500 Index and
the Standard and Poor's 500 Electronic Equipment & Instruments Index. However,
in 2004 Standard & Poor's moved the Company and certain of its peer companies
from the Standard & Poor's 500 Electronic Equipment & Instruments Index to its
Health Care Equipment Index. As such, the Company believes that the Standard &
Poor's 500 Health Care Equipment Index is a more appropriate comparison of its
performance to its peer companies and in future years will discontinue the
comparison to the Standard & Poor's 500 Electronic Equipment & Instruments
Index.
As of December 31, 2003, the Standard & Poor's 500 Electronic Equipment
& Instruments Index consisted of Agilent Technologies Inc., Jabil Circuit, Inc.,
Molex, Inc., PerkinElmer, Inc., Sanmina-SCI Corporation, Solectron Corporation,
Symbol Technologies, Inc., Tektronix, Inc., Thermo Electron Corporation, and
Waters Corporation. As of December 31, 2004, such index consisted of Tektronix,
Inc., Symbol Technologies, Inc., and Agilent Technologies Inc.
As of December 31, 2004, the Standard and Poor's 500 Health Care
Equipment Index consisted of Bard (C.R.) Inc., Baxter International Inc.,
Becton Dickinson & Company, Biomet, Inc., Boston Scientific Corporation,
PerkinElmer, Inc., Guidant Corp., Medtronic Inc., St. Jude Medical, Inc.,
Thermo Electron Corporation, Stryker Corp., Waters Corporation, Zimmer
Holdings, Hospira Inc., and Fisher Scientific International.
Page 22
Comparison of Total Return Among
Thermo Electron Corporation (Thermo Electron Corp.),
the Standard & Poor's 500 Index (S&P 500 Index),
the Standard & Poor's 500 Health Care Equipment Index (S&P 500 Health Care Equipment), and
the Standard & Poor's 500 Electronic Equipment & Instruments Index (S&P Electronic Equipment & Instruments).
[GRAPH]
------------------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
12/31/99 12/29/00 12/28/01 12/28/02 12/31/03 12/31/04
------------------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
THERMO ELECTRON CORP 100 198.33 182.69 154.36 194.50 233.01
------------------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
S&P 500 INDEX 100 90.90 81.68 62.61 80.97 89.78
------------------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
S&P 500 HEALTH CARE EQUIPMENT 100 146.80 139.68 120.71 160.71 181.00
------------------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
S&P 500 ELECTRONIC EQUIPMENT & INSTRUMENTS 100 82.84 42.90 20.14 34.78 31.87
------------------------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
The total return for the Common Stock, the Standard & Poor's 500, the
Standard & Poor's 500 Health Care Equipment, and the Standard and 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.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee is responsible for assisting the Board 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.
Page 23
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, 2004 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, the
Audit Committee recommended to the Board that the audited financial statements
be included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2004 filed with the SEC.
Mr. Peter J. Manning (Chairman)
Mr. Robert A. McCabe
Ms. Elaine S. Ullian
INDEPENDENT PUBLIC ACCOUNTANTS
Independent Auditor Fees
The following table presents the aggregate fees billed for professional
services rendered by PwC for the fiscal years ended December 31, 2004 and
December 31, 2003:
Fiscal 2004 Fiscal 2003
----------- -----------
Audit Fees $9,193,000(1) $4,496,000
Audit-Related Fees 149,000 119,400
Tax Fees 52,000 506,066
All Other Fees -- --
Total Fees $9,394,000 $5,121,466
(1) Reflects aggregate audit fees billed/estimated to be billed for
professional services rendered by PwC for 2004.
Audit Fees
Consists of fees billed/estimated to be 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. For 2004, such amount includes an aggregate
of $4,540,000 fees billed/estimated to be billed in connection with PwC's
assessment of the Company's internal control over financial reporting, which
assessment was a new requirement for 2004.
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, accounting
consultations relating to divestitures and financial accounting and reporting
matters and, in 2003, acquisition due diligence.
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 2004 and
2003.
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 years 2004
and 2003, all audit services and all 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 and no services were provided pursuant
to the de minimis exception.
-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, 2005.
During the 2004 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 2005 Annual Meeting of Stockholders, the
Audit Committee will reconsider the selection of PwC. Even if the selection of
PwC is ratified, the Audit Committee in its discretion may select a different
firm of independent auditors at any time during the year if it determines that
such a change would be in the best interest of the Company and its stockholders.
Representatives of PwC are expected to be present at the 2005 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 2005. Proxies solicited by the Board of Directors will be voted
FOR the proposal unless stockholders specify to the contrary on their proxy.
-PROPOSAL 3-
PROPOSAL TO APPROVE THE 2005 STOCK INCENTIVE PLAN
In February 2005, the Compensation Committee and the Board adopted the
2005 stock incentive plan (the "Plan"), subject to stockholder approval. Under
the Plan, 11,000,000 shares of Common Stock are available for issuance, subject
to adjustment in the event of changes in capitalization, reorganization and
other similar events. The Compensation Committee and the Board believe that the
future success of the Company depends, in large part, upon the ability of the
Company to maintain a competitive position in attracting, retaining and
motivating key personnel, and do not believe that the 232,552 shares available
as of March 31, 2005 under its stock-based incentive plans for issuance to
employees of the Company are sufficient to meet this need.
The closing price per share of the Common Stock on the NYSE on March
31, 2005 was $25.29.
Page 25
Summary of the Plan
The following summary of the material features of the Plan is qualified
in its entirety by reference to the Plan, a copy of which is attached hereto as
Appendix B.
Purpose. The purpose of the Plan is to advance the interests of the
Company's stockholders by enhancing the Company's ability to attract, retain and
motivate persons who are expected to make important contributions to the Company
and by providing such persons with equity ownership opportunities and
performance-based incentives that are intended to align their interests with
those of the Company's stockholders.
Eligibility and Types of Awards. Employees, officers, directors,
consultants and advisors of the Company and its subsidiaries are eligible to
receive stock options, stock appreciation rights (SARs), restricted stock and
other stock-based awards (each, an "Award") under the Plan.
Administration and Delegation. The Plan is administered by the Board,
which has the authority to grant Awards and to adopt, amend and repeal such
administrative rules, guidelines and practices relating to the Plan as it deems
advisable. The Board may delegate its powers under the Plan to one or more
committees or subcommittees of the Board. In addition, the Board may delegate to
one or more officers of the Company the power to grant Awards to employees of
the Company and to exercise such other powers under the Plan as the Board may
determine, subject to the limitations set forth in the Plan. The Board has
authorized the Compensation Committee to administer the Plan. The Compensation
Committee is currently comprised of three directors who are (a) "independent
directors" for the purposes of the Company's Corporate Governance Guidelines,
the Compensation Committee's charter and the NYSE listing requirements, (b)
"non-employee directors" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, and (c) "outside directors" within the meaning
of Section 162(m) of the Internal Revenue Code. All references in this summary
to the "Board" shall mean the Board or the Compensation Committee to the extent
that the Board's powers and authority under the Plan have been delegated to such
committee.
Shares Available for Award. Awards for up to 11,000,000 shares of
Common Stock may be made under the Plan, subject to adjustment in the event of
changes in capitalization, reorganization and change in control events. Shares
issued under the Plan may consist in whole or in part of authorized but unissued
shares or treasury shares. For purposes of counting shares available for the
grant of Awards under the Plan, (i) shares of Common Stock covered by
independent SARs (as defined below) will be counted against the number of shares
available under the Plan; provided, however, that independent SARs that may be
settled in cash only will not be so counted; (ii) if any Award (A) expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or (B) results in any Common Stock not being
issued, the unused Common Stock covered by such Award will again be available
under the Plan; and (iii) shares of Common Stock tendered to the Company by a
participant to (A) purchase shares of Common Stock upon the exercise of an Award
or (B) satisfy tax withholding obligations will not be added back to the number
of shares available under the Plan.
Sub-limits. Subject to adjustment in the event of changes in
capitalization, reorganization and change in control events, the maximum number
of shares of Common Stock with respect to which (a) Awards other than options
and SARs may be granted is 3,000,000, (b) Awards may be granted to non-employee
directors is 500,000, and (c) Awards may be granted to any participant under the
Plan is 1,500,000 per calendar year.
Stock Options. The Board may grant either "incentive" stock options
within the meaning of Section 422 of the Internal Revenue Code or
"non-qualified" stock options (options not intended to qualify as incentive
stock options). The Board determines the terms of each option at the time of
grant, including the number of shares of Common Stock to be covered by, the
exercise price of, and the conditions and limitations applicable to the exercise
of each option; provided that the exercise price of an option may not be less
than 100% of the fair market value per share of Common Stock as of the date of
grant and the term of an option may not exceed 10 years. The Plan permits the
following forms of payment of the exercise price of options: (i) payment by
cash, check or, except as the Board may otherwise provide in an option agreement
by an undertaking of a broker in connection with a "cashless exercise", (ii)
subject to certain conditions, surrender to the Company of shares of Common
Stock, (iii) subject to certain conditions, delivery to the Company of a
promissory note, (iv) any other lawful means, or (v) any combination of these
forms of payment.
Page 26
Repricing. Unless approved by the Company's stockholders (a) no
outstanding option granted under the Plan may be amended to provide an exercise
price lower than the then-current exercise price of such option (other than
adjustments for changes in capitalization, reorganization and change in control
events) and (b) the Board may not cancel any outstanding option and grant in
substitution therefor new Awards under the Plan covering the same or a different
number of shares of Common Stock and having an exercise price lower than the
then-current exercise price of the cancelled option.
Substitute Options. In connection with a merger or consolidation of an
entity with the Company or the acquisition by the Company of property or stock
of an entity, the Board may grant options in substitution for any options or
other stock or stock-based awards granted by such other entity or an affiliate
thereof. Substitute options may be granted on such terms as the Board deems
appropriate in the circumstances, notwithstanding any limitations on options
contained in the Plan. Substitute options will not count against the overall
share limit, except as may be required by Section 422 and related provisions of
the Internal Revenue Code.
Stock Appreciation Rights. The Board may grant stock appreciation
rights in tandem with, or independently of, stock options granted under the
Plan. A stock appreciation right not expressly granted in tandem with an option,
or independent SAR, will become exercisable at such time or times, and on such
conditions, as the Board may specify in the SAR Award. A stock appreciation
right may be based solely on appreciation in the fair market value of Common
Stock or on a comparison of such appreciation with some other measure of market
growth. The date as of which such appreciation or other measure is determined
will be the exercise date unless another date is specified by the Board in the
SAR Award. The Company has not issued SARs under any of its currently effective
equity incentive plans, and does not currently have any SARs outstanding.
Restricted Stock. The Board may grant shares of restricted stock
subject to forfeiture or the right of the Company to repurchase such shares in
the event conditions specified by the Board. The Board determines the terms of a
restricted stock Award at the time of grant, including the conditions for
repurchase or forfeiture and the issue price, if any; provided, that except as
described in the following paragraph, for restricted stock Awards that vest (a)
solely upon the passage of time, no vesting will occur prior to the first
anniversary of the date of grant, no more than 33-1/3% may vest prior to the
second anniversary of the date of grant, and no more than 66-2/3% may vest prior
to the third anniversary of the date of grant and (b) upon the passage of time
and provide for accelerated vesting based on performance, the restricted stock
Award may not vest prior to the first anniversary of the date of grant.
The limitations on vesting described in the immediately preceding
paragraph will not apply to (i) Awards granted in accordance with the
requirements provided in the Plan to comply with Section 162(m) of the Internal
Revenue Code or (ii) to a maximum of 500,000 shares of Common Stock with respect
to which restricted stock Awards may be granted. With respect to restricted
stock Awards that are subject to the limitations on vesting described in the
immediately preceding paragraph, the Board may waive its rights to repurchase
shares of Common Stock (or waive forfeiture thereof) or remove or modify any
part or all of the restrictions (or vesting thereof) applicable to the
restricted stock Award (x) at the time a restricted stock Award is granted, in
exercise of the authority granted to the Board to determine the effect on an
Award of the death, disability, retirement or other change in the employment or
other status of the Participant, and (y) as described herein in the event of
changes in capitalization, reorganization, and change in control events or in
such other extraordinary circumstances (as determined by the Board) affecting
the Company, a participant or the Plan after the restricted stock Award has been
granted.
Other Stock-Based Awards. The Board may grant other Awards of shares of
Common Stock, and other Awards that are valued in whole or in part by reference
to, or are otherwise based on, shares of Common Stock or other property. Subject
to the provisions of the Plan, the Board will determine the conditions of each
such Awards, including any purchase price applicable thereto.
Certain Performance Conditions. If a restricted stock Award or other
applicable stock-based Award is intended to meet the requirements of 162(m) of
the Internal Revenue Code, then the lapsing of restrictions thereon and the
distribution of shares pursuant thereto, as applicable, will be subject to the
achievement of one or more objective performance goals established by a
committee of the Board, the members of which are "outside directors" within the
meaning of the Internal Revenue Code (the "Section 162(m) Committee"), which
shall be based on the relative or absolute attainment of specified levels of one
or any combination of the following: (a) earnings per share, (b) return on
average equity or average assets in relation to a peer group of companies
designated by the Company, (c) earnings, (d) earnings growth, (e) earnings
before interest, taxes and amortization (EBITA), (f)
Page 27
operating income, (g) operating margins, (h) revenues, (i) expenses, (j) stock
price, (k) market share, (l) chargeoffs, (m) reductions in non-performing
assets, (n) return on sales, assets, equity or investment, (o) regulatory
compliance, (p) satisfactory internal or external audits, (q) improvement of
financial ratings, (r) achievement of balance sheet or income statement
objectives, (s) net cash provided from continuing operations, (t) stock price
appreciation, (u) total shareholder return, (v) cost control, (w) strategic
initiatives, (x) net operating profit after tax, (y) pre-tax or after-tax
income, (z) cash flow, or (aa) such other objective goals established by the
Section 162(m) Committee, and may be absolute in their terms or measured
against or in relationship to other companies comparably, similarly or
otherwise situated. Such performance goals may be adjusted to exclude any one
or more of (i) extraordinary items and other unusual or non-recurring items,
(ii) discontinued operations, (iii) gains or losses on the dispositions of
discontinued operations, (iv) the cumulative effects of changes in accounting
principles, (v) the writedown of any asset, and (vi) charges for restructuring
and rationalization programs. Such performance goals may vary by Participant
and may be different for different Awards. Such performance goals may be
particular to a Participant or the department, branch, line of business,
subsidiary or other unit in which the Participant works and may cover such
period as may be specified by the Section 162(m) Committee. Such performance
goals will be set by the Section 162(m) Committee within the time period
prescribed by, and will otherwise comply with the requirements of, Section
162(m). Notwithstanding any provision of the Plan, with respect to any
restricted stock Award or other applicable stock-based Award that is intended to
meet the requirements of Section 162(m) of the Internal Revenue Code, the
Section 162(m) Committee may adjust downwards, but not upwards, the number of
shares payable pursuant to such Award, and the Section 162(m) Committee may not
waive the achievement of the applicable performance goals except in the case of
the death or disability of the participant.
Changes in Capitalization. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than an ordinary
cash dividend, (i) the number and class of securities available under the Plan,
(ii) the sub-limits set forth in the Plan, (iii) the number and class of
securities and exercise price per share of each outstanding option, (iv) the
share- and per-share provisions of each SAR, (v) the repurchase price per share
subject to each outstanding restricted stock Award and (vi) the share- and
per-share-related provisions of each outstanding other applicable stock-based
Award, will be appropriately adjusted by the Company (or substituted Awards may
be made, if applicable) to the extent determined by the Board.
Reorganization Event - Effect on Options. Upon the occurrence of a
Reorganization Event (as defined in the Plan) (regardless of whether such event
also constitutes a Change in Control Event (as defined in the Plan)), all
outstanding options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof); provided that if the Reorganization Event also constitutes a Change in
Control Event, such assumed or substituted options shall be immediately
exercisable in full. Notwithstanding the foregoing, if the acquiring or
succeeding corporation (or an affiliate thereof) does not agree to assume, or
substitute for, such options, or in the event of a liquidation or dissolution of
the Company, the Board will provide that all then unexercised options will
become exercisable in full as of a specified time prior to the Reorganization
Event and will terminate immediately prior to the consummation of such
Reorganization Event, except as otherwise provided in the Plan.
Change in Control Event that is not a Reorganization Event - Effect on
Options. Upon the occurrence of a Change in Control Event that does not also
constitute a Reorganization Event, all Options then-outstanding shall
automatically become immediately exercisable in full.
Reorganization Event that is not a Change in Control Event -- Effect on
Restricted Stock Awards. Upon the occurrence of a Reorganization Event that is
not a Change in Control Event, the repurchase and other rights of the Company
under each outstanding restricted stock Award shall inure to the benefit of the
Company's successor and shall apply to the cash, securities or other property
which the Common Stock was converted into or exchanged for pursuant to such
Reorganization Event in the same manner and to the same extent as they applied
to the Common Stock subject to such restricted stock Award.
Change in Control Event -- Effect on Restricted Stock Awards. Upon the
occurrence of a Change in Control Event (regardless of whether such event also
constitutes a Reorganization Event), all restrictions and conditions on all
restricted stock Awards then-outstanding shall automatically be deemed
terminated or satisfied.
Page 28
Transferability of Awards. Awards are non-transferable, except by will
or the laws of descent and distribution or, other than in the case of an
incentive stock option, pursuant to a qualified domestic relations order; except
that the Board may permit or provide in an Award for the gratuitous transfer of
the Award by the Participant to or for the benefit of any immediate family
member, family trust or family partnership established solely for the benefit of
the Participant and/or an immediate family member thereof if, with respect to
such proposed transferee, the Company would be eligible to use a Form S-8 for
the registration of the sale of the Common Stock subject to such option under
the Securities Act of 1933, as amended; provided that the Company shall not be
required to recognize any such transfer until such time as the Participant and
such permitted transferee shall, as a condition to such transfer, deliver to the
Company a written instrument in form and substance satisfactory to the Company
confirming that such transferee shall be bound by all of the terms and
conditions of the Award.
Amendment of Award. Except with respect to limitations on repricing
stock options and vesting of restricted stock described herein, the Board may
amend, modify or terminate any outstanding Award, including but not limited to,
substituting therefor another Award of the same or a different type, changing
the date of exercise or realization, accelerating the vesting and converting an
incentive stock option to a non-qualified stock option, provided that the
Participant's consent to such action shall be required unless the Board
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
Effective Date and Term of Plan. The Plan became effective on February
25, 2005 (the date on which the Plan was adopted by the Board), but no Award may
be granted unless and until the Plan is approved by the Company's stockholders.
No Awards may be granted under the Plan after the completion of 10 years from
the date on which the Plan was adopted by the Board.
Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time; provided that (i) to the extent required by
Section 162(m), no Award granted to a participant intended to comply with
Section 162(m) after the date of such amendment shall become exercisable,
realizable or vested, as applicable to such Award, unless and until such
amendment has been approved by the Company's stockholders if required by Section
162(m); (ii) no amendment that would require stockholder approval under the
rules of the NYSE may be made effective unless and until such amendment has been
approved by the Company's stockholders, and (iii) if the NYSE amends its
corporate governance rules so that such rules no longer require stockholder
approval of "material revisions" to equity compensation plans, then, from and
after the effective date of such amendment to the NYSE rules, no amendment to
the Plan (A) materially increasing the number of shares authorized under the
Plan, (B) expanding the types of Awards that may be granted under the Plan, (C)
materially expanding the class of participants eligible to participate in the
Plan, or (D) deleting or limiting any provisions prohibiting repricing of
options shall be effective unless stockholder approval is obtained. In addition,
if at any time the approval of the Company's stockholders is required as to any
other modification or amendment under Section 422 of the Internal Revenue Code
or any successor provision with respect to incentive stock options, the Board
may not effect such modification or amendment without such approval.
New Plan Benefits
As of December 31, 2004, the Company had approximately 10,000 employees
world-wide, including 10 officers and 8 directors, all of whom are eligible to
participate in the Plan. The granting of awards under the Plan is discretionary
(other than the grants described in Mr. Dekkers' Employment Agreement for 2006
and 2007) and, therefore, the Company cannot now determine the number or type of
awards to be granted in the future to any particular person or group (other than
the aforementioned grants for Mr. Dekkers). See "EXECUTIVE COMPENSATION --
Employment Agreement".
Page 29
The following table indicates the benefits that will be received by
each named executive officer and the indicated groups under the Plan, to the
extent such amounts are known as of the date hereof.
---------------------------------------------------------------------------------------------------------------------
2005 Equity Incentive Plan
------------------------------------------------------------ -------------------------- -----------------------------
Name and Position Dollar Value Number of Units
------------------------------------------------------------ -------------------------- -----------------------------
Marijn E. Dekkers, President and Chief Executive Officer (1) 520,000(2)
------------------------------------------------------------ -------------------------- -----------------------------
Guy Broadbent, President, Bioscience Technologies -- 0
------------------------------------------------------------ -------------------------- -----------------------------
Marc N. Casper, Senior Vice President -- 0
------------------------------------------------------------ -------------------------- -----------------------------
Seth H. Hoogasian, General Counsel -- 0
------------------------------------------------------------ -------------------------- -----------------------------
Peter M. Wilver, Chief Financial Officer -- 0
------------------------------------------------------------ -------------------------- -----------------------------
Executive Group (1) 520,000(2)
------------------------------------------------------------ -------------------------- -----------------------------
Non-Executive Director Group -- 0
------------------------------------------------------------ -------------------------- -----------------------------
Non-Executive Officer Employee Group -- 0
------------------------------------------------------------ -------------------------- -----------------------------
(1) The dollar value of the stock options to purchase an aggregate of 520,000
shares of Common Stock included in the Number of Units column is not
determinable at this time because the exercise price of such stock options will
be the fair market value of the Common Stock on the date of grant as determined
in accordance with the Plan.
(2) Pursuant to Mr. Dekkers' Employment Agreement, in each of 2006 and 2007
(subject to stockholder approval of the Plan) Mr. Dekkers is entitled to receive
a grant of non-qualified options to purchase 260,000 shares of Common Stock
expiring seven to 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 opening and closing prices of the Common Stock as
reported on the NYSE on the grant date. The Company expects to fulfill its
obligations under the Employment Agreement through grants made under the Plan.
See "EXECUTIVE COMPENSATION -- Employment Agreement".
Federal Income Tax Consequences
The following is a summary of the principal United States federal
income tax consequences of transactions under the Plan. It does not describe all
federal tax consequences under the Plan, nor does it describe any state, local
or foreign tax consequences. This summary is based on the federal tax laws in
effect as of the date of this Proxy Statement. In addition, this summary assumes
that all Awards are exempt from, or comply with, the rules under Section 409A of
the Internal Revenue Code related to non-qualified deferred compensation.
Incentive Stock Options. No taxable income is recognized by the
optionee upon the grant or exercise of an incentive stock option. However, the
exercise of an incentive stock option may result in alternative minimum tax
liability for the optionee. If no disposition of shares issued to an optionee
pursuant to the exercise of an incentive stock option is made by the optionee
within the later of two years from the date of grant or one year after the
transfer of such shares to the optionee, then upon the later sale of such
shares, for federal income tax purposes, any amount realized in excess of the
exercise price will be taxed to the optionee as a long-term capital gain and any
loss sustained will be a long-term capital loss, and no deduction will be
allowed to the Company.
If the shares of Common Stock acquired upon the exercise of an
incentive stock option are disposed of prior to the expiration of the two- and
one-year holding periods described above, generally the optionee will recognize
ordinary compensation income in the year of disposition in an amount equal to
the excess (if any) of the fair market value of the shares at exercise (or, if
less, the amount realized on an arms-length sale of such shares) over the
exercise price thereof, and the Company will be entitled to deduct such amount,
subject to the limitations of Section 162(m) of the Internal Revenue Code. Any
further gain recognized will be taxed as short- or long-term
Page 30
capital gain and will not result in any deduction by the Company. Special rules
will apply where all or a portion of the exercise price of the incentive stock
option is paid by tendering shares of Common Stock.
If any incentive stock option is exercised at a time when it no longer
qualifies for the tax treatment described above, the option is treated as a
non-qualified stock option. Generally, an incentive stock option will not be
eligible for the tax treatment described above if it is exercised more than
three months following termination of employment (one year following termination
of employment by reason of permanent and total disability), except in certain
cases where the incentive stock option is exercised after the death of an
optionee.
Non-Qualified Options. With respect to non-qualified stock options
granted under the Plan, no income is recognized by the optionee at the time the
option is granted. Generally, at exercise, ordinary compensation income is
recognized by the optionee in an amount equal to the difference between the
exercise price and the fair market value of the shares on the date of exercise,
and the Company receives a tax deduction for the same amount, subject to the
limitations of Section 162(m) of the Internal Revenue Code. At disposition of
the shares, appreciation or depreciation after the date of exercise is treated
as either short- or long-term capital gain or loss depending on how long the
shares have been held.
Restricted Stock. A recipient of restricted stock that is subject to a
risk of forfeiture generally will be subject to tax at ordinary income rates on
the fair market value of the stock at the time the stock is either transferable
or is no longer subject to forfeiture, less any amount paid for such stock.
However, a recipient who so elects under Section 83(b) of the Internal Revenue
Code within 30 days of the date of issuance of the restricted stock will
recognize ordinary compensation income on the date of issuance equal to the fair
market value of the shares of restricted stock at that time (measured as if the
shares were unrestricted and could be sold immediately), minus any amount paid
for such stock. The Company generally will be entitled to a deduction equal to
the amount that is taxable as ordinary income to the recipient, subject to the
limitations of Section 162(m) of the Internal Revenue Code.
Upon sale of the shares after the forfeiture period has expired, the
appreciation or depreciation after the shares become transferable or free from
risk of forfeiture (or, if a Section 83(b) election was made, since the shares
were issued) will be treated as long- or short-term capital gain or loss. The
holding period to determine whether the recipient has long- or short-term
capital gain or loss begins just after the forfeiture period expires (or just
after the earlier issuance of the shares, if the recipient elected immediate
recognition of income under Section 83(b) of the Internal Revenue Code).
Stock Appreciation Rights. A participant will not be taxed upon the
grant of a stock appreciation right. A participant generally will recognize
compensation income upon the exercise of a SAR equal to the amount of the cash
and the fair market value of any stock received. Upon the sale of any such
stock, the participant will have capital gain or loss equal to the difference
between the sales proceeds and the value of the stock on the day the SAR was
exercised. This capital gain or loss will be long-term if the participant held
the stock for more than one year and otherwise will be short-term.
Performance Awards. The recipient of unrestricted Common Stock as a
performance award will generally be subject to tax at ordinary income rates and
the fair market value of any Common Stock issued under the award, and the
Company will generally be entitled to a deduction equal to the amount of
ordinary income recognized by the recipient. Any cash received under a
performance award will be included in income at the time of receipt. The fair
market value of any Common Stock received will also generally be included in
income (and a corresponding deduction will generally be available to the
Company) at the time of receipt. The capital gain or loss holding period for any
Common Stock distributed under a performance award will begin when the recipient
recognizes ordinary income in respect of that distribution.
Recommendation
The Board believes that the Plan is an important tool for the Company
to attract and retain key employees and to be able to continue to offer them the
opportunity to participate in the ownership and growth of the Company.
The Board of Directors believes that the Plan is in the best interests
of the Company and its stockholders and recommends a vote FOR approval of the
Plan. Proxies solicited by the Board of Directors will be voted FOR the proposal
unless stockholders otherwise specify to the contrary on their proxy.
Page 31
-PROPOSAL 4-
STOCKHOLDER PROPOSAL
Director Election Majority Vote Standard Proposal
The United Brotherhood of Carpenters Pension Fund, 101 Constitution
Avenue, N.W., Washington, D.C. 20001, a holder of 2,700 shares of Common Stock,
has submitted the following resolution for adoption at the 2005 Annual Meeting
of Stockholders:
Resolved: That the shareholders of Thermo Electron Corporation
("Company") hereby request that the Board of Directors initiate the appropriate
process to amend the Company's governance documents (certificate of
incorporation or bylaws) to provide that director nominees shall be elected by
the affirmative vote of the majority of votes cast at an annual meeting of
shareholders.
Supporting Statement of Stockholder
Our Company is incorporated in Delaware. Among other issues, Delaware
corporate law addresses the issue of the level of voting support necessary for a
specific action, such as the election of corporate directors. Delaware law
provides that a company's certificate of incorporation or bylaws may specify the
number of votes that shall be necessary for the transaction of any business,
including the election of directors. (DGCL, Title 8, Chapter 1, Subchapter VII,
Section 216). Further, the law provides that if the level of voting support
necessary for a specific action is not specified in the certificate of
incorporation or bylaws of the corporation, directors "shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors."
Our Company presently uses the plurality vote standard for the election
of directors. We feel that it is appropriate and timely for the Board to
initiate a change in the Company's director election vote standard.
Specifically, this shareholder proposal urges that the Board of Directors
initiate a change to the director election vote standard to provide that in
director elections a majority vote standard will be used in lieu of the
Company's current plurality vote standard. Specifically, the new standard should
provide that nominees for the board of directors must receive a majority of the
vote cast in order to be elected or re-elected to the Board.
Under the Company's current plurality vote standard, a director nominee
in a director election can be elected or re-elected with as little as a single
affirmative vote, even while a substantial majority of the votes cast are
"withheld" from that director nominee. So even if 99.99% of the shares
"withhold" authority to vote for a candidate or all the candidates, a 0.01%
"for" vote results in the candidate's election or re-election to the board. The
proposed majority vote standard would require that a director receive a majority
of the vote cast in order to be elected to the Board.
It is our contention that the proposed majority vote standard for
corporate board elections is a fair standard that will strengthen the Company's
governance and the Board. Our proposal is not intended to limit the judgment of
the Board in crafting the requested governance change. For instance, the Board
should address the status of incumbent directors who fail to receive a majority
vote when standing for re-election under a majority vote standard or whether a
plurality director election standard is appropriate in contested elections.
We urge your support of this important director election 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.
The Company believes that the proposed majority vote standard, while
sounding simple, presents complex issues that are not contemplated by or
addressed in the proposal and is not in the best interests of the Company or its
stockholders.
The rules governing plurality voting are longstanding and well
understood. The Company's stockholders, like the stockholders of many companies,
elect their directors by plurality vote--the voting standard for the election of
directors set by Delaware law in the absence of a provision in a company's
certificate of incorporation or by-laws to the contrary.
Page 32
Using a majority vote standard could result in one or more
director-nominees failing to receive a majority of votes cast, thereby leaving
one or more positions on the Board open and unable to be filled with an
"elected" director. In such event, the incumbent director for each open position
would continue to serve "unelected" for the position as a "holdover" director
or, if there were no incumbent director for the position, a vacancy in the Board
would be created. Either result could carry with it unintended consequences. For
example, a vacancy in the Board, however occurring, is filled by a majority of
the directors then in office and not by the stockholders (majority or
otherwise). In addition, a vacancy could put the Board in the position of having
an insufficient number or composition of members to carry out its
responsibilities or meet NYSE and SEC corporate governance requirements. The
size of the Board is fixed each year based upon the Nominating and Corporate
Governance Committee's and the Board's determinations as to the appropriate
number and composition of the Board (including the balance of management and
independent directors and, in the case of the Audit Committee, financial
expertise) necessary to staff the Board's committees in accordance with such
corporate governance requirements and to enable the Board to meet its
responsibilities generally.
The Company also believes that adopting a majority vote standard at
this time would be premature. The SEC has proposed rules that would provide
stockholders with greater participation in the annual election of directors. The
proposed rules were drafted assuming that in most cases plurality voting would
apply to the election of directors and raised the question as to what specific
issues would arise where another standard were used. As such, the Company
believes that, without further analysis and consideration of what effects a
change in voting standard could have on the Company and in light of the SEC's
proposed rules, which if adopted would more directly and uniformly provide new
avenues for stockholder participation in the director election process, it would
be premature to adopt a majority voting standard.
Furthermore, the Company believes that the illustration in the
Proponent's Supporting Statement that, under a plurality voting standard like
the Company's, a director-nominee could hypothetically receive only .01% of the
votes "for" his or her election and still be elected to the Board suggests that
some of the Company's directors have been elected by minimal affirmative votes.
This is clearly not the case. To the contrary, over the last three years, our
director nominees were elected by at least 92%.
While the Company believes that active stockholder participation in the
election of directors is important, it is equally important, however, to ensure
that the mechanisms through which they participate are those that best serve the
interests of the Company and its stockholders. The Company's directors, like
those of many Delaware companies, are elected by plurality vote. The unintended
consequences of adopting a majority vote standard for the election of directors
could be disruptive to the Company and the Board in carrying out its
responsibilities and meeting NYSE and SEC corporate governance standards, reduce
stockholders' ability to choose who will serve as a director, unnecessarily
complicate the election of directors, and potentially present administrative
burdens on the Company. Given the complex issues raised by the adoption of a
majority vote standard to the election of directors, the Company believes that
the proposal is not in the best interest of the Company or its stockholders.
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 2005 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 2006 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 8, 2005. 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
Page 33
delivered to the Secretary at the principal executive offices of the Company
not less than 60, nor more than 75, days prior to the first anniversary of the
date on which the Company mailed its proxy materials for the preceding year's
annual meeting of stockholders. Accordingly, a stockholder who intends to
present a proposal at the 2006 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 22, 2006 and no later
than February 6, 2006. 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 $12,500 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.
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
Some banks, brokers and other nominee record holders may be participating
in the practice of "householding" proxy statements and annual reports. This
means that only one copy of our proxy statement and annual report to
stockholders may have been sent to multiple stockholders in your household. The
Company will promptly deliver a separate copy of either document to you if you
contact us at the following address or telephone number: Investor Relations
Department, Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts
02451, telephone: 781-622-1000. If you want to receive separate copies of the
proxy statement or annual report to stockholders in the future, or if you are
receiving multiple copies and would like to receive only one copy per household,
you should contact your bank, broker, or other nominee record holder, or you may
contact the Company at the above address or telephone number.
Waltham, Massachusetts
April 7, 2005
APPENDIX A
Effective as of February 25, 2005
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 Board of Directors may remove members of the Audit
Committee from such committee, with or without cause.
A-2
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,
however, that any approvals granted under such delegation of
authority shall be presented to the Audit Committee at the next
regularly scheduled meeting thereof.
A-3
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 meet to review
and discuss with the Company's management and independent auditor
the Company's audited financial statements, including reviewing
the Company's specific disclosures under "Management's Discussion
and Analysis of Financial Condition and 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.
A-4
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 meet to
review and discuss with the Company's management and independent
auditor the Company's quarterly financial statements, including
reviewing the Company's specific 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.
APPENDIX B
THERMO ELECTRON CORPORATION
2005 STOCK INCENTIVE PLAN
1. Purpose
The purpose of this 2005 Stock Incentive Plan (the "Plan") of Thermo
Electron Corporation, a Delaware corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's and its
Subsidiaries' (as defined below) ability to attract, retain and motivate persons
who are expected to make important contributions to the Company or a Subsidiary
and by providing such persons with equity ownership opportunities and
performance-based incentives that are intended to align their interests with
those of the Company's stockholders. "Subsidiaries" means the present or future
subsidiary corporations of the Company as defined in Sections 424(f) of the
Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder (the "Code") and any other business ventures (including, without
limitation, joint venture or limited liability company) in which the Company has
a controlling interest.
2. Eligibility
All of the employees, officers, directors, consultants and advisors of
the Company and its Subsidiaries are eligible to receive options, stock
appreciation rights, restricted stock and other stock-based awards (each, an
"Award") under the Plan. Each person who receives an Award under the Plan is
deemed a "Participant".
3. Administration and Delegation
(a) Administration by Board of Directors. The Plan will be administered
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) Appointment of Committees. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). All references in
the Plan to the "Board" shall mean the Board or a Committee of the Board or the
officers referred to in Section 3(c) to the extent that the Board's powers or
authority under the Plan have been delegated to such Committee or officers.
(c) Delegation to Officers. To the extent permitted by applicable law,
the Board may delegate to one or more officers of the Company the power to grant
Awards to employees or officers of the Company or any of its Subsidiaries and to
exercise such other powers under the Plan as the Board may determine, provided
that the Board shall fix the terms of the Awards to be granted by such officers
(including the exercise price of such Awards, which may include a formula by
which the exercise price will be determined) and the maximum number of shares
subject to Awards that the officers may grant; provided further, however, that
no officer shall be authorized to grant Awards to any "executive officer" of the
Company (as defined by Rule 3b-7 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) or to any "officer" of the Company (as defined by
Rule 16a-1 under the Exchange Act).
4. Stock Available for Awards
(a) Number of Shares. Subject to adjustment under Section 9, Awards may
be made under the Plan for up to 11,000,000 shares of common stock, $1.00 par
value per share, of the Company (the "Common Stock"). Shares issued under the
Plan may consist in whole or in part of authorized but unissued shares or
treasury shares. For purposes of counting the number of shares available for the
grant of Awards under the Plan, (i) shares of Common
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Stock covered by Independent SARs (as defined in Section 6(b)(2)) shall be
counted against the number of shares available for the grant of Awards under
the Plan; provided, however, that Independent SARs which may be settled in
cash only shall not be so counted; (ii) if any Award (A) expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part (including as the result of shares of Common
Stock subject to such Award being repurchased by the Company at the original
issuance price pursuant to a contractual repurchase right) or (B) results in
any Common Stock not being issued (including as a result of an Independent SAR
that was settleable either in cash or in stock actually being settled in cash),
the unused Common Stock covered by such Award shall again be available for the
grant of Awards under the Plan; provided, however, in the case of Incentive
Stock Options (as hereinafter defined), the foregoing sentence shall be subject
to any limitations under the Code; and (iii) shares of Common Stock tendered to
the Company by a Participant to (A) purchase shares of Common Stock upon the
exercise of an Award or (B) satisfy tax withholding obligations (including
shares retained from the Award creating the tax obligation) shall not be added
back to the number of shares available for the future grant of Awards under
the Plan.
(b) Sub-limits. Subject to adjustment under Section 9, the following
sub-limits on the number of shares subject to Awards shall apply:
(1) Section 162(m) Per-Participant Limit. The maximum number
of shares of Common Stock with respect to which Awards may be granted to any
Participant under the Plan shall be 1,500,000 per calendar year. For purposes of
the foregoing limit, the combination of an Option in tandem with a SAR (as each
is hereafter defined) shall be treated as a single Award. The per-Participant
limit described in this Section 4(b)(1) shall be construed and applied
consistently with Section 162(m) of the Code or any successor provision thereto,
and the regulations thereunder ("Section 162(m)").
(2) Limit on Awards other than Options and SARS. The maximum
number of shares with respect to which Awards other than Options and SARs may be
granted shall be 3,000,000.
(3) Limit on Awards to Directors. The maximum number of shares
with respect to which Awards may be granted to directors who are not employees
of the Company or Subsidiary at the time of grant shall be 500,000.
5. Stock Options
(a) General. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to be
covered by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company, any of the
Company's present or future subsidiary corporations as defined in Sections
424(f) of the Code, and any other entities the employees of which are eligible
to receive Incentive Stock Options under the Code, and shall be subject to and
shall be construed consistently with the requirements of Section 422 of the
Code. The Company shall have no liability to a Participant, or any other party,
if an Option (or any part thereof) that is intended to be an Incentive Stock
Option is not an Incentive Stock Option or for any action taken by the Board
pursuant to Section 10(f), including without limitation the conversion of an
Incentive Stock Option to a Nonstatutory Stock Option.
(c) Exercise Price.
(1) Establishment of Exercise Price. The Board shall
establish the exercise price of each Option and specify such exercise price in
the applicable option agreement; provided, however, that the exercise price
shall be not less than 100% of the fair market value per share of Common Stock
as determined by (or in a manner approved by) the Board ("Fair Market Value") as
of the date the Option is granted.
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(2) Limitation on Repricing. Unless such action is approved by
the Company's stockholders: (A) no outstanding Option granted under the Plan may
be amended to provide an exercise price per share that is lower than the
then-current exercise price per share of such outstanding Option (other than
adjustments pursuant to Section 9) and (B) the Board may not cancel any
outstanding Option and grant in substitution therefor new Awards under the Plan
covering the same or a different number of shares of Common Stock and having an
exercise price per share lower than the then-current exercise price per share of
the cancelled Option.
(d) Duration of Options. Each Option shall be exercisable at such time
or times and subject to such terms and conditions as the Board may specify in
the applicable option agreement; provided, however, that no Option will be
granted for a term in excess of 10 years.
(e) Exercise of Option. Options may be exercised by delivery to the
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Company
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised. Shares of Common Stock subject to the
Option will be delivered by the Company following exercise either as soon as
practicable or, subject to such conditions as the Board shall specify, on a
deferred basis (with the Company's obligation to be evidenced by an instrument
providing for future delivery of the deferred shares at the time or times
specified by the Board).
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may otherwise provide in an option
agreement, by (i) delivery of an irrevocable and unconditional undertaking by a
creditworthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price and any required tax withholding or (ii) delivery by the
Participant to the Company of a copy of irrevocable and unconditional
instructions to a creditworthy broker to deliver promptly to the Company cash or
a check sufficient to pay the exercise price and any required tax withholding;
(3) when the Common Stock is registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), by delivery of shares of Common Stock
owned by the Participant valued at their Fair Market Value as of the date the
shares of Common Stock are so delivered, provided (i) such method of payment is
then permitted under applicable law, (ii) such Common Stock, if acquired
directly from the Company, was owned by the Participant for such minimum period
of time, if any, as may be established by the Board in its discretion and (iii)
such Common Stock is not subject to any repurchase, forfeiture, unfulfilled
vesting or other similar requirements;
(4) to the extent permitted by applicable law and by the
Board, by (i) delivery of a promissory note of the Participant to the Company on
terms determined by the Board, or (ii) payment of such other lawful
consideration as the Board may determine; or
(5) by any combination of the above permitted forms of
payment.
(g) Substitute Options. In connection with a merger or consolidation of
an entity with the Company or the acquisition by the Company of property or
stock of an entity, the Board may grant Options in substitution for any options
or other stock or stock-based awards granted by such entity or an affiliate
thereof. Substitute Options may be granted on such terms as the Board deems
appropriate in the circumstances, notwithstanding any limitations on Options
contained in the other sections of this Section 5 or in Section 2. Substitute
Options shall not count against the overall share limit set forth in Section
4(a), except as may be required by reason of Section 422 and related provisions
of the Code.
6. Stock Appreciation Rights.
(a) General. A Stock Appreciation Right, or SAR, is an Award entitling
the holder, upon exercise, to receive an amount in cash or Common Stock or a
combination thereof (such form to be determined by the Board) determined in
whole or in part by reference to appreciation, from and after the date of grant,
in the fair market value of a share of Common Stock. SARs may be based solely on
appreciation in the fair market value of Common Stock or on a comparison of such
appreciation with some other measure of market growth such as (but not limited
to)
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appreciation in a recognized market index. The date as of which such
appreciation or other measure is determined shall be the exercise date unless
another date is specified by the Board in the SAR Award.
(b) Grants. Stock Appreciation Rights may be granted in tandem with, or
independently of, Options granted under the Plan.
(1) Tandem Awards. When Stock Appreciation Rights are
expressly granted in tandem with Options, (i) the Stock Appreciation Right will
be exercisable only at such time or times, and to the extent, that the related
Option is exercisable (except to the extent designated by the Board in
connection with a Reorganization Event or a Change in Control Event) and will be
exercisable in accordance with the procedure required for exercise of the
related Option; (ii) the Stock Appreciation Right will terminate and no longer
be exercisable upon the termination or exercise of the related Option, except to
the extent designated by the Board in connection with a Reorganization Event or
a Change in Control Event and except that a Stock Appreciation Right granted
with respect to less than the full number of shares covered by an Option will
not be reduced until the number of shares as to which the related Option has
been exercised or has terminated exceeds the number of shares not covered by the
Stock Appreciation Right; (iii) the Option will terminate and no longer be
exercisable upon the exercise of the related Stock Appreciation Right; and (iv)
the Stock Appreciation Right will be transferable only with the related Option.
(2) Independent SARs. A Stock Appreciation Right not expressly
granted in tandem with an Option ("Independent SAR") will become exercisable at
such time or times, and on such conditions, as the Board may specify in the SAR
Award.
(c) Exercise. Stock Appreciation Rights may be exercised by delivery to
the Company (or its designee) of a written notice of exercise signed by the
proper person or by any other form of notice (including electronic notice)
approved by the Company, together with any other documents required by the
Company.
7. Restricted Stock.
(a) General. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
conditions of a Restricted Stock Award, including the conditions for repurchase
(or forfeiture) and the issue price, if any.
(c) Limitations on Vesting.
(1) Except as set forth in subsection (c)(2) below, Restricted
Stock Awards that vest based on the passage of time alone shall be zero percent
vested prior to the first anniversary of the date of grant, no more than 33-1/3%
vested prior to the second anniversary of the date of grant, and no more than
66-2/3% vested prior to the third anniversary of the date of grant. Restricted
Stock Awards that vest upon the passage of time and provide for accelerated
vesting based on performance shall not vest prior to the first anniversary of
the date of grant.
(2) Subsection (c)(1) above shall not apply to (i) Awards
granted pursuant to Section 10(i) or (ii) to a maximum of 500,000 shares of
Common Stock with respect to which Restricted Stock Awards may be granted. With
respect to Restricted Stock Awards that are subject to subsection (c)(1) above,
the Board may waive its rights to repurchase shares of Common Stock (or waive
forfeiture thereof) or remove or modify any part or all of the restrictions (or
vesting thereof) applicable to the Restricted Stock Award (x) in exercise of the
authority granted to the Board in Section 10(d), at the time a Restricted Stock
Award is granted and (y) pursuant to Section 9 or in such other extraordinary
circumstances (as determined by the Board) affecting the Company, a Participant
or the Plan after the Restricted Stock Award has been granted.
(d) Stock Certificates. Any stock certificates issued in respect of a
Restricted Stock Award shall be registered in the name of the Participant and,
unless otherwise determined by the Board, deposited by the Participant, together
with a stock power endorsed in blank, with the Company (or its designee). At the
expiration of
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the applicable restriction periods, the Company (or such designee)shall deliver
the certificates no longer subject to such restrictions to the Participant or
if the Participant has died, to the beneficiary designated, in a manner
determined by the Company, by a Participant to receive amounts due or exercise
rights of the Participant in the event of the Participant's death (the
"Designated Beneficiary"). In the absence of an effective designation by a
Participant, "Designated Beneficiary" shall mean the Participant's estate.
(e) Deferred Delivery of Shares. The Board may, at the time any
Restricted Stock Award is granted, provide that, at the time Common Stock would
otherwise be delivered pursuant to the Award, the Participant shall instead
receive an instrument evidencing the right to future delivery of Common Stock at
such time or times, and on such conditions, as the Board shall specify. The
Board may at any time accelerate the time at which delivery of all or any part
of the Common Stock shall take place. The Board may also permit an exchange of
unvested shares of Common Stock that have already been delivered to a
Participant for an instrument evidencing the right to future delivery of Common
Stock at such time or times, and on such conditions, as the Board shall specify.
8. Other Stock-Based Awards.
Other Awards of shares of Common Stock, and other Awards that are
valued in whole or in part by reference to, or are otherwise based on, shares of
Common Stock or other property, may be granted hereunder to Participants ("Other
Stock Unit Awards"), including without limitation Awards entitling recipients to
receive shares of Common Stock to be delivered in the future. Such Other Stock
Unit Awards shall also be available as a form of payment in the settlement of
other Awards granted under the Plan or as payment in lieu of compensation to
which a Participant is otherwise entitled. Other Stock Unit Awards may be paid
in shares of Common Stock or cash, as the Board shall determine. Subject to the
provisions of the Plan, the Board shall determine the conditions of each Other
Stock Unit Awards, including any purchase price applicable thereto. At the time
any Award is granted, the Board may provide that, at the time Common Stock would
otherwise be delivered pursuant to the Award, the Participant will instead
receive an instrument evidencing the Participant's right to future delivery of
the Common Stock.
9. Adjustments for Changes in Common Stock and Certain Other Events.
(a) Changes in Capitalization. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than an ordinary
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the sub-limits set forth in Sections 4(b) and 7(c)(2), (iii) the number and
class of securities and exercise price per share of each outstanding Option,
(iv) the share- and per-share provisions of each Stock Appreciation Right, (v)
the repurchase price per share subject to each outstanding Restricted Stock
Award and (vi) the share- and per-share-related provisions of each outstanding
Other Stock Unit Award, shall be appropriately adjusted by the Company (or
substituted Awards may be made, if applicable) to the extent determined by the
Board.
(b) Reorganization and Change in Control Events
(1) Definitions
(A) A "Reorganization Event" shall mean:
(i) any merger or consolidation of the
Company with or into another entity as a result of which all of the Common
Stock of the Company is converted into or exchanged for the right to receive
cash, securities or other property or is cancelled;
(ii) any exchange of all of the Common Stock
of the Company for cash, securities or other
property pursuant to a share exchange transaction; or
(iii) any complete liquidation or
dissolution of the Company.
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(B) A "Change in Control Event" shall mean:
(i) the acquisition by an individual, entity
or group (within the meaning of Section 13(d)(3)or 14(d)(2) of the Exchange
Act) (a "Person") of beneficial ownership of any capital stock of the Company
if, after such acquisition, such Person beneficially owns (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) 40% or more of either (x) the
then-outstanding shares of common stock of the Company (the "Outstanding C
ompany Common Stock") or (y) the combined voting power of the then-outstanding
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however,
that for purposes of this subsection (i), the following acquisitions shall not
constitute a Change in Control Event: (A) any acquisition directly by the C
ompany, (B) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company, or (C) any acquisition by any corporation pursuant to a Business
Combination (as defined below) which complies with clauses (x) and (y) of
subsection (iii) of this definition; or
(ii) such time as the Continuing Directors
(as defined below) do not constitute a majority of the Board (or, if applicable,
the Board of Directors of a successor corporation to the Company), where the
term "Continuing Director" means at any date a member of the Board (x) who was
a member of the Board on the date of the initial adoption of this Plan by the
Board or (y) who was nominated or elected subsequent to such date by at least
a majority of the directors who were Continuing Directors at the time of such
nomination or election or whose election to the Board was recommended or
endorsed by at least a majority of the directors who were Continuing Directors
at the time of such nomination or election; provided, however, that there shall
be excluded from this clause (y) any individual whose initial assumption of
office occurred as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents, by or on behalf of a person other than the
Board; or
(iii) the consummation of a merger,
consolidation, reorganization, recapitalization or share exchange involving the
Company or a sale or other disposition of all or substantially all of the assets
of the Company in one or a series of transactions (a "Business Combination"),
unless, immediately following such Business Combination, each of the following
two conditions is satisfied: (x) all or substantially all of the individuals
and entities who were the beneficial owners of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 60% of
the then-outstanding shares of common stock and the combined voting power of the
then-outstanding securities entitled to vote generally in the election of
directors, respectively, of the resulting or acquiring corporation in such
Business Combination (which shall include, without limitation, a corporation
which as a result of such transaction owns the Company or substantially all of
the Company's assets either directly or through one or more subsidiaries) (such
resulting or acquiring corporation is referred to herein as the "Acquiring
Corporation") in substantially the same proportions as their ownership of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
respectively, immediately prior to such Business Combination and (y) no Person
(excluding any employee benefit plan (or related trust) maintained or sponsored
by the Company or by the Acquiring Corporation) beneficially owns, directly or
indirectly, 40% or more of the then-outstanding shares of common stock of the
Acquiring Corporation, or of the combined voting power of the then-outstanding s
ecurities of such corporation entitled to vote generally in the election of
directors; or
(iv) the approval by the stockholders of the
Company of the complete liquidation or dissolution of the Company.
(2) Effect on Options
(A) Reorganization Event. Upon the occurrence of a
Reorganization Event (regardless of whether such event also constitutes a Change
in Control Event), or the execution by the Company of any agreement with respect
to a Reorganization Event (regardless of whether such event will result in a
Change in Control Event), the Board shall provide that all outstanding Options
shall be assumed, or equivalent options shall be substituted, by the acquiring
or succeeding corporation (or an affiliate thereof); provided that if such
Reorganization Event also constitutes a Change in Control Event, except to the
extent specifically provided to the contrary in the instrument evidencing any
Option or any other agreement between a Participant and the Company, such
assumed or substituted options shall be immediately exercisable in full upon
the occurrence of such Reorganization Event. For purposes hereof, an Option
shall be considered to be assumed if, following consummation of the
Reorganization
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Event, the Option confers the right to purchase, for each share of Common Stock
subject to the Option immediately prior to the consummation of the
Reorganization Event, the consideration (whether cash, securities or other
property) received as a result of the Reorganization Event by holders of Common
Stock for each share of Common Stock held immediately prior to the consummation
of the Reorganization Event (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); provided, however, that if the
consideration received as a result of the Reorganization Event is not solely
common stock of the acquiring or succeeding corporation (or an affiliate
thereof), the Company may, with the consent of the acquiring or succeeding
corporation, provide for the consideration to be received upon the exercise of
Options to consist solely of common stock of the acquiring or succeeding
corporation (or an affiliate thereof) equivalent in value (as determined by the
Board) to the per share consideration received by holders of outstanding shares
of Common Stock as a result of the Reorganization Event.
Notwithstanding the foregoing, if the acquiring or succeeding corporation
(or an affiliate thereof) does not agree to assume, or substitute for, such
Options, or in the event of a liquidation or dissolution of the Company, the
Board shall, upon written notice to the Participants, provide that all then
unexercised Options will become exercisable in full as of a specified time prior
to the Reorganization Event and will terminate immediately prior to the
consummation of such Reorganization Event, except to the extent exercised by the
Participants before the consummation of such Reorganization Event; provided,
however, in the event of a Reorganization Event under the terms of which holders
of Common Stock will receive upon consummation thereof a cash payment for each
share of Common Stock surrendered pursuant to such Reorganization Event (the
"Acquisition Price"), then the Board may instead provide that all outstanding
Options shall terminate upon consummation of such Reorganization Event and that
each Participant shall receive, in exchange therefor, a cash payment equal to
the amount (if any) by which (A) the Acquisition Price multiplied by the number
of shares of Common Stock subject to such outstanding Options (whether or not
then exercisable), exceeds (B) the aggregate exercise price of such Options. In
the event of a Reorganization Event that does not also constitute a Change in
Control Event, then to the extent all or any portion of an Option becomes
exercisable solely as a result of the first sentence of this paragraph, upon
exercise of such Option the Participant shall receive shares subject to a right
of repurchase by the Company or its successor at the Option exercise price. Such
repurchase right (1) shall lapse at the same rate as the Option would have
become exercisable under its terms and (2) shall not apply to any shares subject
to the Option that were exercisable under its terms without regard to the first
sentence of this paragraph.
(B) Change in Control Event that is not a
Reorganization Event. Upon the occurrence of a Change in Control Event that
does not also constitute a Reorganization Event, except to the extent
specifically provided to the contrary in the instrument evidencing any Option
or any other agreement between a Participant and the Company, all Options
then-outstanding shall automatically become immediately exercisable in full.
(3) Effect on Restricted Stock Awards
(A) Reorganization Event that is not a Change in
Control Event. Upon the occurrence of a Reorganization Event that is not a
Change in Control Event, the repurchase and other rights of the Company under
each outstanding Restricted Stock Award shall inure to the benefit of the
Company's successor and shall apply to the cash, securities or other property
which the Common Stock was converted into or exchanged for pursuant to such
Reorganization Event in the same manner and to the same extent as they applied
to the Common Stock subject to such Restricted Stock Award.
(B) Change in Control Event. Upon the occurrence of a
Change in Control Event (regardless of whether such event also constitutes a
Reorganization Event), except to the extent specifically provided to the
contrary in the instrument evidencing any Restricted Stock Award or any other
agreement between a Participant and the Company, all restrictions and
conditions on all Restricted Stock Awards then-outstanding shall automatically
be deemed terminated or satisfied.
(4) Effect on Stock Appreciation Rights and Other Stock Unit
Awards. The Board may specify in an Award at the time of the grant the effect of
a Reorganization Event and Change in Control Event on any SAR and Other Stock
Unit Award.
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10. General Provisions Applicable to Awards
(a) Transferability of Awards. Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution or, other than in the case of an Incentive Stock
Option, pursuant to a qualified domestic relations order, and, during the life
of the Participant, shall be exercisable only by the Participant; except that
the Board may permit or provide in an Award for the gratuitous transfer of the
Award by the Participant to or for the benefit of any immediate family member,
family trust or family partnership established solely for the benefit of the
Participant and/or an immediate family member thereof if, with respect to such
proposed transferee, the Company would be eligible to use a Form S-8 for the
registration of the sale of the Common Stock subject to such option under the
Securities Act of 1933, as amended; provided that the Company shall not be
required to recognize any such transfer until such time as the Participant and
such permitted transferee shall, as a condition to such transfer, deliver to the
Company a written instrument in form and substance satisfactory to the Company
confirming that such transferee shall be bound by all of the terms and
conditions of the Award. References to a Participant, to the extent relevant in
the context, shall include references to authorized transferees.
(b) Documentation. Each Award shall be evidenced in such form (written,
electronic or otherwise) as the Board shall determine. Each Award may contain
terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each
Award may be made alone or in addition or in relation to any other Award. The
terms of each Award need not be identical, and the Board need not treat
Participants uniformly.
(d) Termination of Status. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, or the Participant's legal
representative, conservator, guardian or Designated Beneficiary, may exercise
rights under the Award.
(e) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Company for payment of, any taxes required by law
to be withheld in connection with an Award to such Participant. If provided for
in an Award or approved by the Company, in its sole discretion, a Participant
may satisfy such tax obligations in whole or in part by delivery of shares of
Common Stock, including shares retained from the Award creating the tax
obligation, valued at their Fair Market Value; provided, however, except as
otherwise provided by the Board, that the total tax withholding where stock is
being used to satisfy such tax obligations cannot exceed the Company's minimum
statutory withholding obligations (based on minimum statutory withholding rates
for federal and state tax purposes, including payroll taxes, that are applicable
to such supplemental taxable income). Shares surrendered to satisfy tax
withholding requirements cannot be subject to any repurchase, forfeiture,
unfulfilled vesting or other similar requirements. The Company may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to a Participant.
(f) Amendment of Award. Except as set forth in Section 5(c)(2) and
7(c), the Board may amend, modify or terminate any outstanding Award, including
but not limited to, substituting therefor another Award of the same or a
different type, changing the date of exercise or realization, and converting an
Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Board
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
(g) Conditions on Delivery of Stock. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(h) Acceleration. Except as otherwise provided in Section 7(c), the
Board may at any time provide that any Award shall become immediately
exercisable in full or in part, free of some or all restrictions or conditions,
or otherwise realizable in full or in part, as the case may be.
B-9
(i) Performance Conditions.
(1) This Section 10(i) shall be administered by a Committee
approved by the Board, all of the members of which are "outside directors" as
defined by Section 162(m) (the "Section 162(m) Committee").
(2) Notwithstanding any other provision of the Plan, if the
Section 162(m) Committee determines, at the time a Restricted Stock Award or
Other Stock Unit Award is granted to a Participant, that such Participant is, or
is likely to be as of the end of the tax year in which the Company would claim a
tax deduction in connection with such Award, a Covered Employee (as defined in
Section 162(m)), then the Section 162(m) Committee may provide that this Section
10(i) is applicable to such Award.
(3) If a Restricted Stock Award or Other Stock Unit Award is
subject to this Section 10(i), then the lapsing of restrictions thereon and the
distribution of cash or Shares pursuant thereto, as applicable, shall be subject
to the achievement of one or more objective performance goals established by the
Section 162(m) Committee, which shall be based on the relative or absolute
attainment of specified levels of one or any combination of the following: (a)
earnings per share, (b) return on average equity or average assets in relation
to a peer group of companies designated by the Company, (c) earnings, (d)
earnings growth, (e) earnings before interest, taxes and amortization (EBITA),
(f) operating income, (g) operating margins, (h) revenues, (i) expenses, (j)
stock price, (k) market share, (l) chargeoffs, (m) reductions in non-performing
assets, (n) return on sales, assets, equity or investment, (o) regulatory
compliance, (p) satisfactory internal or external audits, (q) improvement of
financial ratings, (r) achievement of balance sheet or income statement
objectives, (s) net cash provided from continuing operations, (t) stock price
appreciation, (u) total shareholder return, (v) cost control, (w) strategic
initiatives, (x) net operating profit after tax, (y) pre-tax or after-tax
income, (z) cash flow, or (aa) such other objective goals established by the
162(m) Committee, and may be absolute in their terms or measured against or in
relationship to other companies comparably, similarly or otherwise situated.
Such performance goals may be adjusted to exclude any one or more of (i)
extraordinary items and other unusual or non-recurring items, (ii) discontinued
operations, (iii) gains or losses on the dispositions of discontinued
operations, (iv) the cumulative effects of changes in accounting principles, (v)
the writedown of any asset, and (vi) charges for restructuring and
rationalization programs. Such performance goals may vary by Participant and may
be different for different Awards. Such performance goals may be particular to a
Participant or the department, branch, line of business, subsidiary or other
unit in which the Participant works and may cover such period as may be
specified by the Section 162(m) Committee. Such performance goals shall be set
by the Section 162(m) Committee within the time period prescribed by, and shall
otherwise comply with the requirements of, Section 162(m).
(4) Notwithstanding any provision of the Plan, with respect to
any Restricted Stock Award or Other Stock Unit Award that is subject to this
Section 10(i), the Section 162(m) Committee may adjust downwards, but not
upwards, the cash or number of Shares payable pursuant to such Award, and the
Section 162(m) Committee may not waive the achievement of the applicable
performance goals except in the case of the death or disability of the
Participant.
(5) The Section 162(m) Committee shall have the power to
impose such other restrictions on Awards subject to this Section 10(i) as it may
deem necessary or appropriate to ensure that such Awards satisfy all
requirements for "performance-based compensation" within the meaning of Section
162(m)(4)(C) of the Code, or any successor provision thereto.
11. Miscellaneous
(a) No Right To Employment or Other Status. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the
B-10
exercise price of and the number of shares subject to such Option are adjusted
as of the date of the distribution of the dividend (rather than as of the
record date for such dividend), then an optionee who exercises an Option
between the record date and the distribution date for such stock dividend shall
be entitled to receive, on the distribution date, the stock dividend with
respect to the shares of Common Stock acquired upon such Option exercise,
notwithstanding the fact that such shares were not outstanding as of the close
of business on the record date for such stock dividend.
(c) Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board, but no Award may be granted unless
and until the Plan has been approved by the Company's stockholders. No Awards
shall be granted under the Plan after the completion of 10 years from the
earlier of (i) the date on which the Plan was adopted by the Board or (ii) the
date the Plan was approved by the Company's stockholders, but Awards previously
granted may extend beyond that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time; provided that (i) to the extent
required by Section 162(m), no Award granted to a Participant that is intended
to comply with Section 162(m) after the date of such amendment shall become
exercisable, realizable or vested, as applicable to such Award, unless and until
such amendment shall have been approved by the Company's stockholders if
required by Section 162(m) (including the vote required under Section 162(m));
(ii) no amendment that would require stockholder approval under the rules of the
New York Stock Exchange ("NYSE") may be made effective unless and until such
amendment shall have been approved by the Company's stockholders, and (iii) if
the NYSE amends its corporate governance rules so that such rules no longer
require stockholder approval of "material revisions" to equity compensation
plans, then, from and after the effective date of such amendment to the NYSE
rules, no amendment to the Plan (A) materially increasing the number of shares
authorized under the Plan, (B) expanding the types of Awards that may be granted
under the Plan, (C) materially expanding the class of participants eligible to
participate in the Plan, or (D) deleting or limiting any provisions prohibiting
repricing of options shall be effective unless stockholder approval is obtained.
In addition, if at any time the approval of the Company's stockholders is
required as to any other modification or amendment under Section 422 of the Code
or any successor provision with respect to Incentive Stock Options, the Board
may not effect such modification or amendment without such approval.
(e) Provisions for Foreign Participants. The Board may modify Awards
granted to Participants who are foreign nationals or employed outside the United
States or establish subplans or procedures under the Plan to recognize
differences in laws, rules, regulations or customs of such foreign jurisdictions
with respect to tax, securities, currency, employee benefit or other matters.
(f) Compliance With Code Section 409A. No Award shall provide for
deferral of compensation that does not comply with Section 409A of the Code,
unless the Board, at the time of grant, specifically provides that the Award is
not intended to comply with Section 409A of the Code.
(g) Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
FORM OF PROXY
THERMO ELECTRON CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 17, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Marijn E. Dekkers, Jim P. Manzi, and
Peter M. Wilver, 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 21, 2005, at the
Annual Meeting of the Stockholders to be held at the InterContinental The
Barclay New York, 111 East 48th Street, New York, New York, on Tuesday, May 17,
2005, 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, "FOR"
proposal 3, "AGAINST" proposal 4, 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 1-800-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 - Follow the recorded
on your 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.
1-800-PROXIES
CALL TOLL-FREE TO VOTE
www.voteproxy.com
----------------------------------
INTERNET AND TELEPHONE VOTING ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK
UNTIL 11:59 P.M. EASTERN TIME ON MAY 16, 2005
(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) John L. LaMattina
( ) (02) Michael E. Porter
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.
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The Board of Directors recommends a vote "FOR" Proposals 2 and 3.
2. Ratification of Selection of Independent Auditors.
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
3. Approval of the Company's 2005 Stock Incentive Plan.
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
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The Board of Directors recommends a vote "AGAINST" Proposal 4.
4. Stockholder Proposal Regarding the Vote Standard for Director Elections.
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
5. In their discretion on such other matters as may properly come before the
meeting.
The shares represented by this Proxy will be voted "FOR" all nominees,
"FOR" Proposals 2 and 3 set forth above and "AGAINST" Proposal 4 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.)