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Exhibit 11
Item 11 - EXECUTIVE COMPENSATION (Selected Portions)
EXECUTIVE RETENTION AGREEMENTS
Thermo Electron has entered into agreements with certain executive officers and
key employees of Thermo Electron and its subsidiaries that provide severance
benefits if there is a change in control of Thermo Electron and their employment
is terminated by Thermo Electron "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 Thermo Electron
board of directors to include a majority of directors who are "continuing
directors", which term is defined to include directors who were members of
Thermo Electron's board on the date of the agreement or who subsequent to the
date of the agreement were nominated or elected by a majority of directors who
were "continuing directors" at the time of such nomination or election; (iii)
the consummation of a merger, consolidation, reorganization, recapitalization or
statutory share exchange involving Thermo Electron or the sale or other
disposition of all or substantially all of the assets of Thermo Electron unless
immediately after such transaction (a) all holders of Thermo Electron common
stock immediately prior to such transaction own more than 60% of the outstanding
voting securities of the resulting or acquiring corporation in substantially the
same proportions as their ownership immediately prior to such transaction and
(b) no person after the transaction owns 40% or more of the outstanding voting
securities of the resulting or acquiring corporation; or (iv) approval by
stockholders of a complete liquidation or dissolution of Thermo Electron.
In 1998, Thermo Electron authorized an executive retention agreement with each
of Xx. Xxxx X. Xxxxxx and Xx. Xxxxxx X. Xxxxxxx. These agreements provide that
in the event the individual's employment is terminated under circumstances
described above, the individual would be entitled to a lump sum payment equal to
the sum of (a) in the case of Xx. Xxxxxx two times, and in the case of Xx.
Xxxxxxx, one times, the individual's highest annual base salary in any 12 month
period during the prior five-year period, plus (b) in the case of Xx. Xxxxxx,
two times, and in the case of Xx. Xxxxxxx, one 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 benefits for a period of, in the case
of Xx. Xxxxxx, two years, and in the case of Xx. Xxxxxxx, one year, after such
termination substantially equivalent to the benefits package the individual
would have been otherwise entitled to receive if the individual was not
terminated. Further, all repurchase rights of Thermo Electron and its
subsidiaries shall lapse in their entirety with respect to all options and
restricted stock that the individual holds in Thermo Electron and its
subsidiaries, including the Corporation, as of the date of the change in
control. Finally, the individual would be entitled to a cash payment equal to,
in the case of Xx. Xxxxxx, $20,000, and in the case of Xx. Xxxxxxx, $15,000, to
be used toward outplacement services. These executive retention agreements
supercede and replace any and all prior severance arrangements which these
individuals had with Thermo Electron.
Assuming that the severance benefits would have been payable as of January 1,
2000, the lump sum salary and bonus payment under such agreement to Messrs.
Xxxxxx and Xxxxxxx would have been approximately $920,000 and $364,500,
respectively. 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 such gross-up payment.
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Selected Portions)
The Charter, the Corporation and Thermo Electron have entered into a Corporate
Services Agreement (the "Services Agreement") under which Thermo Electron's
corporate staff provides certain administrative services, including certain
legal advice and services, risk management, employee benefit administration, tax
advice and preparation of tax returns, centralized cash management and financial
and other services to the Corporation. The Corporation was assessed an annual
fee equal to 0.8% of the Corporation's revenues for these services for fiscal
1999. The annual fee will remain at 0.8% of the Corporation's total revenues for
fiscal 2000. The fee is reviewed annually and may be changed by mutual agreement
of the Corporation and Thermo Electron. During fiscal 1999, Thermo Electron
assessed the Corporation $1,788,000 in fees under the Services Agreement.
Management believes that the charges under the Services Agreement are reasonable
and that the terms of the Services Agreement are fair to the Corporation. In
fiscal 1999, the Corporation was billed an additional $56,318 by Thermo Electron
for certain administrative services required by the Corporation that were not
covered by the Services Agreement. The Services Agreement automatically renews
for successive one-year terms, unless canceled by the Corporation upon 30 days'
prior notice. In addition, the Services Agreement terminates automatically in
the event the Corporation ceases to be a Thermo subsidiary or ceases to be a
participant in the Thermo Electron Charter. In the event of a termination of the
Services Agreement, the Corporation will be required to pay a termination fee
equal to the fee that was paid by the Corporation for services under the
Services Agreement for the nine-month period prior to termination. Following
termination, Thermo Electron may provide certain administrative services on an
as-requested basis by the Corporation or as required in order to meet the
Corporation's obligations under Thermo Electron's policies and procedures.
Thermo Electron will charge the Corporation a fee equal to the market rate for
comparable services if such services are provided to the Corporation following
termination.
As of January 1, 2000, the Corporation owed Thermo Electron and its other
subsidiaries an aggregate of $3,121,000 for amounts due under the Services
Agreement and related administrative charges, for other products and services
and for miscellaneous items, net of amounts owed to the Corporation by Thermo
Electron and its other subsidiaries for products, services and for miscellaneous
items. The largest amount of such net indebtedness owed by the Corporation to
Thermo Electron and its other subsidiaries since January 2, 1999 was $7,138,000.
These amounts do not bear interest and are expected to be paid in the normal
course of business.
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Thermedics Detection purchases an X-ray source that is used as a component in
its InScan systems from Trex Medical Corporation, a publicly traded,
majority-owned subsidiary of ThermoTrex Corporation ("ThermoTrex"), which is
itself a publicly traded, majority-owned subsidiary of Thermo Electron.
Thermedics Detection paid Trex Medical Corporation $81,000 for these products in
fiscal 1999.
Pursuant to an international distributorship agreement, Thermedics Detection
appointed Arabian Business Machines Co. ("ABM") as its exclusive distributor of
Thermedics Detection's security instruments in certain Middle Eastern countries.
ABM is a member of the Olayan Group. Xx. Xxxxxx X. Xxxxxx, a director of Thermo
Electron, is the president and a director of Olayan America Corporation, a
member of The Olayan Group, which is indirectly controlled by Xxxxxxx X. Xxxxxx,
Xx. Xxxxxx'x father. Revenues recorded under this agreement totaled $147,000 in
fiscal 1999.
In June 1998, Thermo Sentron borrowed $21 million from Thermo Electron pursuant
to a promissory note due December 1998, bearing interest at the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the beginning of
each quarter. Thermo Sentron entered into this note in order to partially
finance its acquisition of the three businesses that constituted the
product-monitoring group of Graseby Limited, a subsidiary of Smiths Industries
plc ("Graseby"), for $44 million in cash, net of cash acquired, and the
assumption of certain liabilities. In December 1998, Thermo Sentron repaid $2
million of this amount and issued Thermo Electron a new promissory note for $19
million in exchange for the initial note. This note is due June 1999 and bears
interest under the same terms as the initial note. Subsequently, in June 1999,
Thermo Sentron repaid $6million of this amount and issued a new note for $13
million. Thermo Sentron repaid an additional $1 million under the note in each
of the third and fourth quarters of 1999. In March 2000, Thermo Sentron
refinanced the note under the Thermo Electron Cash Management arrangement which
bears interest at a rate equal to the 30-day Dealer Commercial Paper Rate plus
150 basis points set at the beginning of each month and was 7.55% at April 1,
2000.
In January 2000, Thermo Sentron entered into a fifteen year lease arrangement
with Thermo Electron with respect to Thermo Sentron's principal executive
offices in Minneapolis, Minnesota. The rent payable by Thermo Sentron to Thermo
Electron under the lease is $50,000 per month for the first five years of the
lease, $55,000 per month for the second five years of the lease and $60,000 per
month for the final fives years of the lease.
Thermo Sentron acts as a distributor in Europe for process measurement
instruments manufactured by another Thermo Subsidiary. In 1999, Thermo Sentron
purchased such products from this Thermo Subsidiary for $326,000.
Thermo Electron's Tecomet division provides metal fabrication services in
connection with the manufacture of the heart assist devices sold by Thermo
Cardiosystems. During 1999, Thermo Cardiosystems paid Tecomet $3,651,000 for
these services.
On February 5, 1998, the Corporation's board of directors voted to issue
4,880,533 shares of Common Stock to Thermo Electron in exchange for 100% of the
stock of TMO TCA Holdings, Inc., which is the beneficial owner of 3,355,705
shares of Thermo Cardiosystems' common stock. Thermo Electron had acquired such
shares of Thermo Cardiosystems common stock as consideration for the acquisition
by Thermo Cardiosystems of International Technidyne Corporation ("ITC") from
Thermo Electron in May 1997. The Thermo Cardiosystems shares were valued at
$75,000,000 at the time of the acquisition by Thermo Cardiosystems of ITC. The
issuance of the 3,355,705 shares of Thermo Cardiosystems' common stock was
subject to the approval of Thermo Cardiosystems' stockholders of the listing of
such shares for trading on the American Stock Exchange, which was obtained at a
special meeting of the stockholders of Thermo Cardiosystems held on April 13,
1998. The Corporation's issuance of the 4,880,533 shares of Common Stock to
Thermo Electron was subject to approval by the Corporation's stockholders, which
was obtained at a special meeting of the Stockholders held on March 31, 1999.
The number of shares of Common Stock was determined based on the respective fair
market values of the Common Stock and the Thermo Cardiosystems common stock as
of February 5, 1998. The fair market values of the 4,880,553 shares of Common
Stock and the 3,355,705 shares of Thermo Cardiosystems common stock as of
February 5, 1998 were each $75,587,000.
The Corporation, along with other U.K.-based Thermo Electron companies,
participates in a notional pool arrangement in the U.K. with Barclays Bank,
which includes a $114,943,000 credit facility. The Corporation has access to
$6,065,000 under this credit facility. Under this arrangement, Barclays
notionally combines the positive and negative cash balances held by the
participants to calculate the net interest yield/expense for the group. The
benefit derived from this arrangement is then allocated based on balances
attributable to the respective participants. Thermo Electron guarantees all of
the obligations of each participant in this arrangement. As of January 1, 2000,
the Corporation had a positive cash balance of approximately and a $1,441,000
and a negative cash balance of approximately $2,640,000 based on an exchange
rate of $1.6171/GBP 1.00. For 1999, the average annual interest rate earned on
GBP deposits by participants in this credit arrangement was approximately 5.44%
and the average annual interest rate paid on overdrafts was approximately
5.8025%.
At year-end 1998, $35,256,000 of the Corporation's cash equivalents were
invested in a repurchase agreement with Thermo Electron. Under this agreement,
the Corporation in effect lent excess cash to Thermo Electron, which Thermo
Electron collateralized with investments principally consisting of corporate
notes, U.S. government agency securities, commercial paper, money market funds
and other marketable securities, in the amount of at least 103% of such
obligation. The Corporation's funds subject to the repurchase agreement were
readily convertible into cash by the Corporation. The repurchase agreement
earned a rate based on the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter.
Effective June 1999, the Corporation and Thermo Electron commenced use of a new
domestic cash management arrangement. Under the new arrangement, amounts
advanced to Thermo Electron by the Corporation for domestic cash management
purposes bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis
points, set at the beginning of each month. Thermo Electron is contractually
required to maintain cash, cash equivalents, and/or immediately available bank
lines of credit equal to at least 50% of all funds invested under this cash
management arrangement by all Thermo Electron subsidiaries other than wholly
owned subsidiaries. The Corporation has the contractual right to withdraw its
funds invested in the cash management arrangement upon 30 days' prior notice. At
year-end 1999, the Corporation had invested $46,285,000 under this arrangement.
In addition, certain of the Corporation's European-based subsidiaries
participate in a new cash management arrangement with a wholly owned subsidiary
of Thermo Electron on terms similar to the domestic cash management arrangement.
The Corporation has access to a $36,473,000 line of
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credit under this arrangement, of which the Corporation had invested $411,000
and had borrowed $34,600,000 at year-end 1999. Interest under this arrangement
is calculated based on Euro market rates and was 3.95% on the negative balance
at year-end 1999.
The Corporation, along with certain other Thermo subsidiaries, has entered into
a cash management arrangement with ABN AMRO. Only European-based Thermo
Subsidiaries participate in this arrangement. The new arrangement with ABN AMRO
consists of a zero balance arrangement, which includes a $25,417,000 credit
facility. The Corporation has access to $2,280,000 under this credit facility.
Funds borrowed by the Corporation under this arrangement pay interest at a rate
set by Thermo Finance B.V., a wholly-owned subsidiary of Thermo Electron, at the
beginning of each month, based on Netherlands market rates. Funds invested by
the Corporation under the arrangement earn a rate set by Thermo Finance B.V. at
the beginning of each month, based on Netherlands market rates. Such invested
funds are collateralized with investments principally consisting of corporate
notes, U.S. government-agency securities, commercial paper, money market funds,
and other marketable securities, in the amount of at least 103% of such
obligation. Thermo Electron guarantees all of the obligations of each
participant in this arrangement. As of January 2, 1999, the Corporation had a
negative cash balance of approximately $698,000, based on an exchange rate of
$0.4599/NLG 1.00. As of January 1, 2000, the average annual interest rate earned
on NLG deposits by participants in this credit arrangement was approximately
3.19% and the average annual interest rate paid on overdrafts was approximately
3.74%.
THERMO ELECTRON CORPORATE REORGANIZATION
Thermo Electron has adopted a major reorganization plan under which, among other
things, it is acquiring the minority interest in most of its subsidiaries that
have minority investors. In furtherance of this plan, Thermo Electron intends to
commence an exchange offer for any and all of the outstanding shares of common
stock of the Corporation that it does not own. The consideration being offered
in the exchange offer is .45 shares of Thermo Electron common stock for each
share of the Corporation's common stock. The goal of the exchange offer is to
bring Thermo Electron's equity ownership in the Corporation to at least 90%. If
Thermo Electron achieves this 90%-ownership level, the Corporation would then be
taken private through a "short-form" merger at the same exchange ratio as the
exchange offer. In addition, as part of this reorganization plan, the
Corporation completed the acquisition of the minority interest in each of its
Thermo Voltek, Thermo Sentron and Thermedics Detection subsidiaries. The
consideration paid in each of these transactions was $7.00, $15.50 and $8.00 per
share in cash, respectively, without interest.
Executive officers and directors of the Corporation who held shares of common
stock in the Corporation's subsidiaries described above that were taken private
received the same cash consideration per share of subsidiary stock as all other
stockholders of such subsidiaries. In addition, the executive officers' and
directors' options to acquire shares of such subsidiaries' common stock, for
which the granting corporation's repurchase rights had not lapsed ("unvested
options"), were automatically assumed by either the Corporation or Thermo
Electron, as applicable, and converted into options to purchase shares of the
Corporation's common stock or Thermo Electron's common stock on the same terms
as were applicable to all the other holders of such subsidiary's options, as
described below. In the case of options to acquire shares of such subsidiaries'
common stock, for which the granting corporation's repurchase rights had lapsed
("vested options"), the holders were given the opportunity to elect either to
convert the options into vested options to acquire shares of the Corporation's
common stock or Thermo Electron's common stock, as applicable, or to receive
cash at the applicable cash transaction price less the applicable exercise
price, on the same terms as were applicable to all the other holders of such
subsidiary's options.
Vested and unvested options that were assumed by the Corporation or Thermo
Electron in these completed transactions generally were converted as follows:
The number of shares of the Corporation's common stock or Thermo Electron's
common stock underlying each assumed option equaled the number of shares of
subsidiary common stock underlying the option before the transaction, multiplied
by the applicable "cash exchange ratio" described below, rounded down to the
nearest whole number of shares of the Corporation's common stock or Thermo
Electron's common stock. The exercise price for each assumed option was
calculated by dividing the exercise price of the subsidiary stock option before
the transaction by the applicable "cash exchange ratio" described below, rounded
up to the nearest whole cent. The applicable "cash exchange ratio" for each
transaction was a fraction, the numerator of which was the applicable cash price
described above and the denominator of which was the closing price of the
Corporation's common stock or Thermo Electron's common stock, as applicable, on
the day preceding the effective date of the transaction.
Additionally, certain directors participated in the deferred compensation plans
of the various subsidiaries. On the effective date of each of the completed cash
transactions listed above, each of the affected subsidiaries' deferred
compensation plans terminated and the participants received cash in an amount
equal to the balance of such participant's stock units credited to his or her
account under the respective deferred compensation plan, multiplied by the
applicable cash price described above. Any such stock units held by directors
are included in their stock ownership information described below.
In the Thermo Voltek Corp. transaction, Xx. Xxxxx-Xxxxxxx (who is not a named
executive officer of the Corporation for purposes of Securities and Exchange
Commission regulations, and whose ownership information therefore does not
appear in such stock ownership table)and Xx. Xxxx received a cash payment of
$7.00 per share for 5,581 and 14,621 shares of common stock of Thermo Voltek
Corp. held by such individuals, respectively. Additionally, Xx. Xxxxx, Xx.
Xxxxxxx, Xx. Xxxx and Xx. Xxxxxx held options to acquire 2,250, 2,250, 82,350
and 2,250 shares of Thermo Voltek Corp. common stock, respectively, that were
converted into options to acquire shares of common stock of the Corporation, as
described above.
In the Thermedics Detection Inc. transaction, Xx. Xxxxxxx and Xx. Xxxx received
a cash payment of $8.00 per share for 599 and 17,251 shares of common stock of
Thermedics Detection Inc. held by such individuals, respectively. Additionally,
Xx. Xxxxxx and Xx. Xxxx held options to acquire 17,000 and 20,000 shares of
Thermedics Detection Inc. common stock, respectively, that were converted into
options to acquire shares of Thermo Electron common stock, as described above.
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In the Thermo Sentron Inc. transaction, Xx. Xxxx received a cash payment of
$15.50 per share for 4,000 shares of common stock of Thermo Sentron Inc. held by
Xx. Xxxx. Additionally, Xx. Xxxxxx, Xx. Xxxxxxx and Xx. Xxxx held options to
acquire 19,500, 7,500 and 31,000 shares of Thermo Sentron Inc. common stock,
respectively, that were converted into options to acquire shares of Thermo
Electron common stock, as described above.
Executive officers and directors of the Corporation who hold shares of the
Corporation's common stock will receive the same consideration per share for
such stock as all other stockholders of the Corporation. See Item 12 "Security
Ownership of Certain Beneficial Owners and Management."
In addition, certain executive officers and directors of the Corporation hold
options to acquire shares of common stock of the Corporation (See Item 12 -
"Security Ownership of Certain Beneficial Owners and Management"), which options
will be treated in the same manner as options held by other employees. All
options held by such persons will be assumed by Thermo Electron and converted
into options to acquire shares of Thermo Electron's common stock on the same
terms as are applicable to all the other holders of the Corporation's options.
Specifically, vested and unvested options that are being assumed by Thermo
Electron in the proposed transaction will be converted as follows: The number of
shares of Thermo Electron common stock underlying each assumed option will equal
the number of shares of the Corporation common stock underlying the option
before the transaction, multiplied by the exchange ratio, rounded down to the
nearest whole number of shares of Thermo Electron common stock. The exercise
price for each assumed option will be calculated by dividing the exercise price
of the Corporation stock option before the transaction by the exchange ratio,
rounded up to the nearest whole cent.
In addition to the ownership information that appears in the Item 12 - "Security
Ownership of Certain Beneficial Owners and Management" table, Xx. Xxxxx-Xxxxxxx
holds 11,861 shares of common stock of the Corporation.
On the effective date of the proposed transaction, the Corporation's deferred
compensation plan will be assumed by Thermo Electron, and the stock units
credited to each participant's account under the deferred compensation plan will
be converted into stock units for Thermo Electron common stock at the exchange
ratio.
