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
Filed
by
the Registrant x
|
Filed
by a Party other than the Registrant
|
o
|
Check
the
appropriate box:
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o
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Preliminary
Proxy Statement
|
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o
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Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)
(2))
|
|
x
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Definitive
Proxy Statement
|
|
o
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Definitive
Additional Materials
|
|
o
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Soliciting
Material Pursuant to § 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):
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fee required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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of
each class of securities to which transaction applies:
(2) Aggregate
number of securities to which transaction applies:
(3) Per
unit
price or other underlying value of transaction computed pursuant to Exchange
Act
Rule 0-11 (set forth the amount on which the filing fee is calculated and
state
how it was determined):
(4) Proposed
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box if any part of the fee is offset as provided by Exchange Act
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0-11(a)(2) and identify the filing for which the offsetting fee
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previously. Identify the previous filing by registration statement
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Filed:
81
Wyman
Street
Waltham,
MA 02451
April
11,
2006
Dear
Stockholder:
You
are
cordially invited to attend the 2006 Annual Meeting of Stockholders of Thermo
Electron Corporation, which will be held on Wednesday, May 24, 2006, 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
2005 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
81
Wyman
Street
Waltham,
MA 02451
NOTICE
OF 2006 ANNUAL MEETING OF STOCKHOLDERS
To
be held on May 24, 2006
April
11,
2006
To
the
Holders of the Common Stock of
THERMO
ELECTRON CORPORATION
Notice
is
hereby given that the 2006 Annual Meeting of Stockholders of Thermo Electron
Corporation ("Thermo Electron" or the "Company") will be held on Wednesday,
May
24, 2006, at 2:00 p.m. (Eastern time) at the InterContinental The Barclay New
York, 111 East 48th
Street,
New York, New York. The purpose of the meeting is to consider and take action
upon the following matters:
| 1. |
Election
of three directors, constituting the class of directors to be elected
for
a three-year term expiring in 2009.
|
| 2. |
Ratification
of the Audit Committee's
selection of PricewaterhouseCoopers LLP as the Company's
independent auditors for 2006.
|
| 3. |
A
stockholder proposal regarding the vote standard for director elections,
if presented by its proponent at the
meeting.
|
| 4. |
Such
other business as may properly be brought before the meeting and
any
adjournment thereof.
|
Stockholders
of record at the close of business on March 29, 2006, are the only stockholders
entitled to notice of and to vote at the 2006 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.
81
Wyman
Street
Waltham,
MA 02451
PROXY
STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
May
24, 2006
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 2006 Annual Meeting
of
Stockholders to be held on Wednesday, May 24, 2006, 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 11,
2006.
Purpose
of Annual Meeting
At
the 2006
Annual Meeting of Stockholders, stockholders entitled to vote at the meeting
will consider and act upon the matters outlined in the notice of meeting
accompanying this proxy statement, including the election of three directors
constituting the class of directors to be elected for a three-year term expiring
in 2009, the ratification of the selection of PricewaterhouseCoopers LLP as
the
Company's independent auditors for 2006, 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 29, 2006, the record
date for the meeting, are entitled to vote at the meeting or any adjournments
thereof. At the close of business on March 29, 2006, the outstanding voting
securities of the Company consisted of 163,507,723 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 the 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 Tuesday, May 23,
2006, 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 23, 2006,
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 Friday, May 19, 2006, or
by
telephone or over the Internet by
11:59
p.m. Eastern time
on Friday, May 19, 2006,
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 19, 2006, 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 19, 2006.
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
2006, 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 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 2006 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.
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. Messrs. Manning
and Manzi and Ms. Ullian are listed below as nominees for the three-year term
expiring at the 2009 Annual Meeting of Stockholders. Each nominee is currently
a
director of the Company. If any of the nominees is unavailable to serve as
director, an event that is not anticipated, the persons named as proxies have
full discretion to vote for any other persons who may be nominated.
Nominees
and Incumbent Directors
Set
forth
below are the names of the persons nominated as directors and directors whose
terms do not expire this year, their ages, their offices in the Company, if
any,
their principal occupations or employment for the past five years, the length
of
their tenure as directors and the names of other public companies in which
they
hold directorships. Information regarding their beneficial ownership of Common
Stock is reported under the heading "STOCK
OWNERSHIP."
Nominees
for Director Whose Term of Office Will Expire in 2009
|
[PHOTO]
|
Peter
J. Manning
|
|
Mr.
Manning, age 67, 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 54, 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.
|
|
[PHOTO]
|
Elaine
S. Ullian
|
|
Ullian,
age 58, 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.
|
Incumbent
Directors Whose Term of Office Will Expire in 2008
|
[PHOTO]
|
John
L. LaMattina
|
|
Dr.
LaMattina,
age 56, 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.
|
Page
4
|
[PHOTO]
|
Michael
E. Porter
|
|
Dr.
Porter, age 58, 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 Parametric Technology Corporation and a supervisor
of Taiwan
Semiconductor Manufacturing Company
Limited.
|
Incumbent
Directors Whose Term of Office Will Expire in 2007
|
[PHOTO]
|
Marijn
E. Dekkers
|
|
Mr.
Dekkers, age 48, 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. Prior to joining the Company, Mr. Dekkers held various
positions of increasing responsibility at Honeywell International
Inc.
(formerly AlliedSignal Inc.) and General Electric
Company.
|
|
[PHOTO]
|
Robert
A. McCabe
|
|
Mr.
McCabe, age 71, 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 62, 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.
|
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.
Page
5
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.
Majority
Voting for Directors
As
part of
our continuing efforts to enhance corporate governance procedures, the Company’s
Board of Directors has implemented a new policy in its Corporate
Governance Guidelines
regarding director elections. Under the policy, in an uncontested election,
any
incumbent nominee for director who receives a greater number of votes "withheld"
from his or her election than votes "for" such election shall promptly tender
his or her resignation following certification of the stockholder vote. The
Nominating and Corporate Governance Committee of the Board ("Nominating and
Corporate Governance Committee") will
consider the resignation offer and recommend to the Board whether to accept
it.
The Board will act on the Nominating and Corporate Governance Committee's
recommendation within 90 days following certification of the stockholder
vote. Thereafter, the Company will promptly publicly disclose the Board’s
decision whether to accept the director's resignation offer (and the reasons
for
rejecting the resignation offer, if applicable).
Director
Nomination Process
The
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 executive
office 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.
The
Nominating and Corporate Governance Committee has recently engaged Egon Zehnder
International, a search firm, to facilitate the identification, screening and
evaluation of qualified, independent candidates for director to serve on the
Board. The committee, in conjunction with the Company’s Chairman of the Board
and the Company’s Chief Executive Officer, interviews candidates that meet the
criteria, and the committee selects candidates that best suit the Board's needs.
Page
6
Each
director nominee approved by the Nominating and Corporate Governance Committee
for inclusion on the Company's proxy card for the 2006 Annual Meeting of
Stockholders is a current director standing for re-election.
Director
Independence
The
Company's
Corporate
Governance Guidelines
require
a majority of our Board to be "independent" within the meaning of the New York
Stock Exchange (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. Each of these directors
has no relationship with the Company, other than any relationship that is
categorically not material under the guidelines shown above and other than
as
disclosed in this proxy statement under “Compensation of
Directors.”
Page
7
Board
of Directors Meetings and Committees
The
Board met
seven times during 2005. During 2005, 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. 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 Board to attend the annual meeting
of
stockholders. Last year, five of our directors attended the 2005 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 2005 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
is "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 19 times
during 2005.
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 2005 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 five times during 2005.
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 is "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 five times during 2005.
Page
8
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 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
During
2005,
each non-management director (except Mr. Manzi) received 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 occurred on a day other than a day
on
which there was a Board meeting ($1,000 per committee meeting attended in person
that occurred on the same day as a Board meeting); and a fee of $750 per Board
and committee meeting attended by means of conference telephone. Effective
April
1, 2006, the annual retainer fee was increased to $70,000, and Board members
will no longer receive an additional fee for attending Board meetings. After
April 1, 2006, if a Board committee meets more than six times during a calendar
year, then the members thereof will receive the additional per committee meeting
fees they received during 2005, as described above, for meetings attended in
excess of six. Through April 1, 2006, non-management directors resident on
the
west coast received an additional $1,000 per meeting attended in person for
travel time incurred in attending such meeting.
The
chairmen
of each of the Audit, Compensation, and Nominating and Corporate Governance
Committees as well as the chairman of 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 the chairmen of each of the Compensation,
Nominating and Corporate Governance and Strategy Committees receive an
additional annual retainer of $5,000. In addition, the Presiding Director
receives an additional annual retainer of $3,000.
During
2005,
each of the other members of the Audit, Compensation and Nominating and
Corporate Governance Committees received additional compensation for their
services on those committees. Each of the other members of the Audit Committee
received an additional annual retainer of $5,000, and each of the other members
of the Compensation Committee and Nominating and Corporate Governance Committee
received an additional annual retainer of $3,000. Effective April 1, 2006,
the
other members of the Audit Committee, Compensation Committee and Nominating
and
Corporate Governance Committee will no longer receive an additional annual
retainer.
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.
Page
9
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, although
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, 2005, a total of 395,166 shares
of
Common Stock were available for issuance under the Directors Deferred
Compensation Plan, of which deferred units equal to 106,931 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, 2006,
as is
required.
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, and on February 27, 2006,
Mr. Manzi was awarded 2,500 shares of Common Stock.
In
addition,
through 2005, 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)
received an automatic grant of options to purchase 7,500 shares
of
Common Stock. Effective April 1, 2006, the annual grant was increased to options
to purchase 10,500 shares of Common Stock. 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.
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 March 1, 2006, 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 March 1, 2006,
with respect to each person who was known by the Company to own beneficially
more than 5% of the outstanding shares of Common Stock.
|
Name(1)
|
Shares
(2)
|
Options
Exercisable
within
60 Days (3)
|
Deferred
Stock
Units
(4)
|
Total
|
Percent
of
Shares
Beneficially
Owned
|
|||||||||||
|
Dodge
& Cox(5) . . . . . . . . . . . . . . . .
|
19,582,357
|
|
-
-
|
-
-
|
19,582,357
|
12.00
|
%
|
|||||||||
|
FMR
Corp.(6) . . . . . . . . . . . . . . . . . .
|
12,475,722
|
-
-
|
-
-
|
12,475,722
|
7.64
|
%
|
||||||||||
|
Guy
Broadbent . . . . . . . . . . . . . . . .
|
20,005
|
337,479
|
-
-
|
357,484
|
*
|
|||||||||||
|
Marc
N. Casper . . . . . . . . . . . . . . . .
|
27,207
|
346,333
|
20,000
|
393,540
|
*
|
|||||||||||
|
Marijn
E. Dekkers . . . . . . . . . . . . . .
|
118,418
|
1,900,646
|
100,000
|
2,119,064
|
1.28
|
%
|
||||||||||
|
Seth
H. Hoogasian . . . . . . . . . . . . . .
|
30,685
|
170,147
|
-
-
|
200,832
|
*
|
|||||||||||
|
John
L. LaMattina . . . . . . . . . . . . . .
|
3,000
|
32,500
|
-
-
|
35,500
|
*
|
|||||||||||
|
Peter
J. Manning . . . . . . . . . . . . . . .
|
3,000
|
12,500
|
-
-
|
15,500
|
*
|
|||||||||||
|
Jim
P. Manzi . . . . . . . . . . . . . . . . . .
|
26,946
|
176,000
|
8,279
|
211,225
|
*
|
|||||||||||
|
Robert
A. McCabe . . . . . . . . . . . . . .
|
32,558
|
18,500
|
40,384
|
91,442
|
*
|
|||||||||||
|
Robert
W. O’Leary . . . . . . . . . . . . . .
|
1,000
|
25,795
|
12,285
|
39,080
|
*
|
|||||||||||
|
Michael
E. Porter. . . . . . . . . . . . . . .
|
4,500
|
35,944
|
-
-
|
40,444
|
*
|
|||||||||||
|
Elaine
S. Ullian. . . . . . . . . . . . . . . . .
|
500
|
35,944
|
11,597
|
48,041
|
*
|
|||||||||||
|
Peter
M. Wilver . . . . . . . . . . . . . . . . .
|
13,279
|
227,738
|
-
-
|
241,017
|
*
|
|||||||||||
|
All
directors and current executive officers as a group
(14 persons) . . . .
|
297,151
|
3,524,617
|
192,545
|
4,014,313
|
2.40
|
%
|
||||||||||
*
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. Broadbent, Dekkers,
Hoogasian, Manzi,
and all directors and current executive officers as a group include 20,000,
110,001, 5,000, 5,000, and
140,001 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 415 and 959 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 1,441, 3,489 and 5,000
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 3, 2006, by Dodge & Cox, 555 California
Street, 40th
Floor,
San Francisco, CA 94104, which reported such ownership as of December 31, 2005.
The percentage of shares beneficially owned was calculated using the number
of
shares of Common Stock outstanding as of March 1, 2006. These shares are
beneficially owned by clients of Dodge & Cox, an investment advisor. Dodge
& Cox has sole voting power with respect to 18,192,107 shares, shared voting
power with respect to 195,700 shares, and sole dispositive power with respect
to
19,582,357 shares.
Page
11
(6) This
information was
obtained from the Schedule 13G filed with the Securities and Exchange Commission
on February 14, 2006, by FMR Corp., Edward C. Johnson 3rd, Chairman
of FMR Corp., and Fidelity Management & Research Company (“Fidelity”), a
wholly-owned subsidiary of FMR Corp. and a registered investment adviser to
various investment companies (“Fidelity Funds”), which reported such ownership
as of December 31, 2005. The address of each of these persons is 82 Devonshire
Street, Boston, MA 02109. The percentage of shares beneficially owned was
calculated using the number of shares of Common Stock outstanding as of March
1,
2006. These shares are beneficially owned as follows: (a) by Fidelity,
11,857,980; (b) by Fidelity Management Trust Company (“FMTC”), a wholly-owned
subsidiary of FMR Corp., 608,942 shares as a result of its serving as investment
manager of various institutional accounts; and (c) by Fidelity International
Limited (“FIL”), an entity of which approximately 38% of the voting power is
owned by a partnership controlled by Mr. Johnson and members of his family,
8,800 shares. Mr. Johnson, FMR Corp. and the Fidelity Funds each has sole
dispositive power with respect to all of the shares owned by the Fidelity Funds.
Neither FMR Corp. nor Mr. Johnson has sole voting power with respect to the
shares owned by the Fidelity Funds, which power rests with the Boards of
Trustees of the Fidelity Funds. Of the 608,942 shares owned by institutional
accounts managed by FMTC, each of Mr. Johnson and FMR Corp. has sole dispositive
power with respect to all of the shares, sole voting power with respect to
501,922 shares, and no voting power with respect to 107,020 shares. Members
of
Mr. Johnson’s family may be deemed to form a controlling group with respect to
FMR Corp.
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 2005.
Page
12
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 2005.
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
|
|
|
|
||||||||||
|
Name
and
Principal
Position
|
|
Fiscal
Year
|
|
Salary
|
|
Bonus
|
|
Restricted
Stock
Awards
|
Securities
Underlying
Options
|
|
All
Other
Compensation
(1)(2)
|
|
|||||||
|
Marijn
E. Dekkers
|
|
|
2005
|
|
|
$1,000,000
|
|
|
$1,339,500
|
|
|
$2,884,100
|
(3)
|
|
438,000
|
|
|
$133,939
|
|
|
President
and Chief
|
|
|
2004
|
|
|
$997,692
|
|
|
$1,107,000
|
|
|
$128,050
|
(4)
|
|
--
|
|
|
$209,211
|
|
|
Executive
Officer
|
|
|
2003
|
|
|
$794,872
|
|
|
$820,800
|
|
|
--
|
|
|
--
|
|
|
$335,455
|
|
|
Marc
N. Casper
|
|
|
2005
|
|
|
$553,558
|
|
|
$634,500
|
|
|
--
|
|
|
265,000
|
|
|
$45,397
|
|
|
Senior
Vice President
|
|
|
2004
|
|
|
$425,000
|
|
|
$359,550
|
|
|
--
|
|
|
--
|
|
|
$56,824
|
|
|
|
|
|
2003
|
|
|
$359,039
|
|
|
$287,500
|
|
|
$1,211,700
|
(5)
|
|
--
|
|
|
$67,622
|
|
|
Guy
Broadbent
|
|
|
2005
|
|
|
$335,004
|
|
|
$420,000
|
|
|
--
|
|
|
125,000
|
|
|
$42,653
|
|
|
President,
Laboratory
|
|
|
2004
|
|
|
$316,868
|
|
|
$191,580
|
|
|
--
|
|
|
--
|
|
|
$250,619
|
(6)
|
|
Equipment
|
|
|
2003
|
|
|
$305,513
|
|
|
$212,040
|
|
|
--
|
|
|
--
|
|
|
$74,605
|
|
|
Seth
H. Hoogasian
|
|
|
2005
|
|
|
$363,000
|
|
|
$307,098
|
|
|
--
|
|
|
125,000
|
|
|
$38,473
|
|
|
General
Counsel
|
|
|
2004
|
|
|
$354,369
|
|
|
$223,245
|
|
|
$304,900
|
(7)
|
|
--
|
|
|
$37,846
|
|
|
|
|
|
2003
|
|
|
$324,435
|
|
|
$188,100
|
|
|
--
|
|
|
--
|
|
|
$118,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter
M. Wilver
|
|
|
2005
|
|
|
$359,227
|
|
|
$307,796
|
|
|
--
|
|
|
125,000
|
|
|
$29,960
|
|
|
Chief
Financial Officer
|
|
|
2004
|
|
|
$316,853
|
(8)
|
|
$196,890
|
(8)
|
|
$277,000
|
(9)
|
|
125,000
|
|
|
$29,735
|
|
|
|
|
|
2003
|
|
|
$266,237
|
(10)
|
|
$148,200
|
(10)
|
|
--
|
|
|
--
|
|
|
$31,712
|
|
(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 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 2005, the dollar value of each such benefit was (1) $9,450 each for matching 401(k) contributions and (2) $100,547, $13,215, $16,203, $6,733 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.
(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, 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 2005, 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) $3,260 for term life insurance
premium for Mr. Dekkers.
Page
13
(3) In
January 2005, Mr. Dekkers was awarded 5,000 shares of restricted Common Stock
valued at $144,100 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. In February
2005, Mr. Dekkers was awarded 100,000 shares of restricted Common Stock valued
at $2,740,000 on the grant date, that vest in equal installments over a
three-year period commencing on November 21, 2006, assuming continued employment
on each 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 2005, Mr. Dekkers held (a) 108,334 shares of restricted
Common Stock with an aggregate value of $3,264,103; and (b) 100,000
restricted Common Stock units with an aggregate value of $3,013,000, that,
although vested, do not become shares of Common Stock, nor do they become
transferable, until Mr. Dekkers ceases to be an employee of the
Company.
(4) 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.
(5) 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 2005, Mr. Casper held (a) 10,000 shares of
restricted Common Stock with an aggregate value of $301,300, (b) 10,000 shares
of unvested restricted Common Stock units with an aggregate value of $301,300,
and (c) 20,000 shares of vested restricted Common Stock units with an aggregate
value of $602,600.
(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
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 2005, Mr. Hoogasian held 5,000 shares
of
restricted Common Stock with an aggregate value of $150,650.
(8) 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.
(9) 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 2005, Mr. Wilver held 5,000 shares
of
restricted Common Stock with an aggregate value of $150,650.
Page
14
(10) 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 2005
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. The following table sets forth information concerning individual
grants of stock options made during fiscal year 2005 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 2005.
|
Option
Grants 2005
|
|||||||
|
Individual
Grants
|
|||||||
|
Name
|
Number
of Securities Underlying Options (1)
|
Percent
of Total Options Granted to Employees in Fiscal
Year
|
Exercise
Price Per
Share
|
Expiration
Date
|
Potential
Realizable Value at Assumed Annual Rates of Stock Price Appreciation
for
Option Term (2)
|
||
|
5%
|
10%
|
||||||
|
Marijn
E. Dekkers
|
438,000
|
12.67%
|
$27.40
|
2/25/2012
|
$4,885,710
|
$11,385,722
|
|
|
Marc
N. Casper
|
265,000
|
7.66%
|
$27.40
|
2/25/2012
|
$2,955,970
|
$6,888,622
|
|
|
Guy
Broadbent
|
125,000
|
3.62%
|
$27.40
|
2/25/2012
|
$1,394,320
|
$3,249,350
|
|
|
Seth
H. Hoogasian
|
125,000
|
3.62%
|
$27.40
|
2/25/2012
|
$1,394,320
|
$3,249,350
|
|
|
Peter
M. Wilver
|
125,000
|
3.62%
|
$27.40
|
2/25/2012
|
$1,394,320
|
$3,249,350
|
|
(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 Company, the optionee's continued employment through the option
period and the date on which the options are exercised.
Page
15
Stock
Options Exercised During Fiscal 2005 and Fiscal Year-End Option Values
The
following
table reports information regarding stock option exercises during fiscal year
2005 and outstanding stock options held at the end of fiscal year 2005 by the
Company's named executive officers. No stock appreciation rights were exercised
or were outstanding during fiscal year 2005.
|
Aggregated
Option Exercises In Fiscal 2005 and Fiscal 2005 Year-End Option
Values
|
|||||||
|
Name
|
Shares
Acquired
on
Exercise
|
Value
Realized
(1)
|
Number
of
Securities
Underlying
Unexercised
Options
at Fiscal
Year-End
(Exercisable/
Unexercisable) (2)
|
Value
of
Unexercised
In-the-Money
Options
at Fiscal
Year-End
(Exercisable/
Unexercisable)
(2)
|
|||
|
Marijn
E. Dekkers
|
-
|
-
|
1,754,646/
|
960,600
|
$17,606,090/
|
$6,662,136
|
|
|
Marc
N. Casper
|
-
|
-
|
258,000/
|
332,000
|
$2,133,930/
|
$1,424,270
|
|
|
Guy
Broadbent
|
10,000
|
$78,600
|
310,813/
|
192,000
|
$2,471,467/
|
$1,042,070
|
|
|
Seth
H. Hoogasian
|
105,556
|
$1,406,200
|
128,481/
|
192,000
|
$1,215,345/
|
$1,042,070
|
|
|
Peter
M. Wilver
|
-
|
-
|
186,072/
|
275,334
|
$1,297,112/
|
$1,042,070
|
|
(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 2,256 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 $30,429 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
16
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, 2006,
as is
required.
Page
17
Employment
Agreement
Employment
Agreement with Mr. Dekkers
The
amended and restated employment agreement with Mr. Dekkers, pursuant to which
he
serves as president and chief executive officer of the Company (the “Employment
Agreement”), is for a five-year term ending December 31, 2007. The Employment
Agreement currently provides for an annual base salary of $1,050,000 and a
target annual incentive bonus of 100% 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, 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 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 and January
2006.
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) three times his target bonus (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) two times his target bonus (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 after 2004, which 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 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.
Page
18
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, 2005, with respect
to
the Common Stock that may be issued under the Company's existing equity
compensation plans.
|
Plan
Category
|
(a)
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
(b)
Weighted
average exercise price of outstanding options, warrants
and rights
|
(c)
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities
reflected
in column (a))(1)
|
|
Equity
Compensation Plans Approved By Security Holders(2)(3)
|
9,203,178
|
$22.96
|
11,670,782
|
|
Equity
Compensation Plans Not Approved By Security Holders(4)(5)
|
2,380,707
|
$21.56
|
41,774
|
|
Total
|
11,583,885
|
$22.67
|
11,712,556
|
(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 106,931 Common Stock-based units accrued under the Directors
Deferred Compensation Plan for deferred directors fees and retainers accrued
through December 31, 2005. Column (c) includes an additional 288,235 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 344,455 shares. Under the ESPP, each
eligible employee may purchase a limited number of shares of the Common Stock
on
the last trading day of each year at a purchase price equal to 95% of the fair
market value of the Common Stock on that date. The remaining shareholder
approved reserve is included in column (c).
(4) Equity
compensation plans not approved by the Company's stockholders are: (i) the
Thermo Electron Corporation Employees Equity Incentive Plan under which 41,774
shares are available for future issuance; and (ii) the 2000 Employees Equity
Incentive Plan under which no shares are available for future issuance. The
material terms of these plans are described below.
(5) The
information relating to equity compensation plans not approved by the Company's
stockholders does not include options to purchase shares of the Company's
formerly majority-owned subsidiaries which became options to purchase shares
of
the Company when the 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 732,264 shares at a weighted average
exercise price of $15.03 per share are outstanding under these
plans.
Page
19
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; as of December 31, 2005, 41,774 shares are available
for
future issuance under the 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 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, 1,116,437 shares
were
originally reserved for issuance; as of December 31, 2005, 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.
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. The Compensation Committee
also reviews, with respect to each executive officer, the current value of
prior
equity grants, the balances in deferred compensation accounts, and the amount
of
compensation the executive officer would receive if he left the Company under
a
variety of circumstances. The committee uses market surveys and analyses
prepared by outside consulting firms 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. The committee directly engages an outside compensation
consulting firm to assist the committee in its review and evaluation of the
compensation for the executive officers. 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,
and by comparing the chief executive officer’s compensation to that of other
executive officers. The Compensation Committee also considers the tax and
accounting consequences of various compensation arrangements in establishing
an
appropriate compensation program for the Company's officers.
Page
20
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
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.
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 2005, 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
Operating Income").
The
Company selected this financial measure, as opposed to an income measure
computed under generally accepted accounting principles (GAAP), because this
measure is consistent with how management measures and forecasts the Company’s
performance, especially when comparing such results to previous periods or
forecasts. Each executive officer was awarded a percentage of Adjusted Operating
Income for the year, subject to the right of the committee to lower, but not
raise, the actual bonuses paid. In early 2006, the Compensation Committee
elected to lower the 2005 bonuses payable under the 162(m) Plan to the amounts
computed in accordance with the process described below for the Company’s 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 2005.
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
2005,
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 the financial and qualitative measures corresponds
with a multiplier of 0 to 2. For each of the financial measures, the Company's
actual performance was measured relative to the Company's internal operating
plan for 2005. The weighting of the financial and qualitative measures for
2005
was as follows: 35% for revenue growth (excluding the impact of acquisitions,
divestitures and currency translation), 35% for growth in adjusted 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 2005,
the
chief executive officer and five of the other six executive officers of the
Company were allocated the same percentage of their target bonuses
(141%).
Page
21
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 executive 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).
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.
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.
2005
CEO Compensation
In
determining the chief executive officer's compensation for 2005, 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. The
Compensation Committee amended Mr. Dekkers' Employment Agreement in February
2005 to increase
his annual incentive award target for 2005 to $950,000 (95% of his
salary).
(The
Compensation Committee subsequently amended Mr. Dekkers' Employment Agreement
in
February 2006 to increase
his annual incentive award target for 2006 to $1,050,000 (100% of his
salary).
See
"EXECUTIVE COMPENSATION - Employment Agreement.") Mr. Dekkers' actual incentive
cash award for fiscal 2005 of $1,339,500, 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 2005 paid to the other
officers of the Company (including the Compensation Committee's assessment
of
the Company's above-target performance). In January 2005, pursuant to his
Employment Agreement, the Compensation Committee awarded Mr. Dekkers 5,000
shares of restricted stock. In February 2005, the Compensation Committee awarded
Mr. Dekkers options to purchase 438,000 shares of Common Stock and 100,000
shares of restricted stock.
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.
As
of
December 31, 2005, 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.
Comparison
of Total Return Among
Thermo
Electron Corporation,
the
Standard & Poor's 500 Index (S&P 500), and
the
Standard & Poor's 500 Health Care Equipment Index (S&P 500 Health Care
Equipment)
|
|
12/29/00
|
12/28/01
|
12/27/02
|
12/31/03
|
12/31/04
|
12/31/05
|
|
THERMO
ELECTRON CORPORATION
|
100.00
|
105.80
|
89.39
|
112.64
|
134.94
|
134.67
|
|
S&P
500
|
100.00
|
88.12
|
68.64
|
88.33
|
97.94
|
102.75
|
|
S&P
500 HEALTH CARE EQUIPMENT
|
100.00
|
94.93
|
82.91
|
109.49
|
123.31
|
123.38
|
Page
23
The
total
return for the Common Stock, the Standard & Poor's 500, and the Standard
& Poor's 500 Health Care Equipment assumes $100 was invested on December 29,
2000 (prior to 2003, the Company’s fiscal year ended on the Saturday closest to
December 31st), and 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.
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, 2005, with management and the Company's independent auditors,
PricewaterhouseCoopers LLP ("PwC"), management’s assessment of the effectiveness
of the Company’s internal control over financial reporting and PwC’s evaluation
of the Company’s internal control over financial reporting.
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, 2005,
filed with the SEC.
Mr.
Peter
J. Manning (Chairman)
Mr.
Robert A. McCabe
Ms.
Elaine S. Ullian
Page
24
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Independent
Auditor Fees
The
following table presents the aggregate fees billed for professional services
rendered by PwC for the fiscal years ended December 31, 2005, and December
31,
2004:
|
Fiscal
2005
|
Fiscal
2004
|
||
|
Audit
Fees
|
$7,509,000
|
(1)
|
$9,182,000
|
|
Audit-Related
Fees
|
115,000
|
149,000
|
|
|
Tax
Fees
|
3,000
|
52,000
|
|
|
All
Other Fees
|
--
|
--
|
|
|
Total
Fees
|
$7,627,000
|
$9,383,000
|
(1) Reflects aggregate audit fees billed/estimated to be billed for professional services rendered by PwC for 2005.
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
(including PwC’s assessment of the Company’s internal control over financial
reporting) and review of the Company's interim financial statements included
in
the Company's quarterly reports on Form 10-Q and services that are normally
provided by PwC in connection with statutory and regulatory filings or
engagements for those fiscal years.
Audit-Related
Fees
Consists
of fees billed for assurance and related services by PwC that are reasonably
related to the performance of the audit or review of the Company's consolidated
financial statements and are not reported under "Audit Fees" above. These
services include employee benefit plan audits, accounting consultations relating
to divestitures, financial accounting and reporting matters, and SEC
registration statement related matters.
Tax
Fees
Consists
of fees billed for professional services rendered by PwC for tax compliance,
tax
advice, and tax planning. These services include professional services related
to the Company's international legal entity restructuring and international
and
domestic tax planning.
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 2005 and 2004.
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 2005 and 2004,
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.
Page
25
-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, 2006. During the 2005 fiscal
year, PwC served as the Company's independent auditors. See "INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM." 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 2006 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 2006 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 2006. Proxies
solicited by the Board of Directors will be voted FOR the proposal unless
stockholders specify to the contrary on their proxy.
-PROPOSAL
3-
STOCKHOLDER
PROPOSAL
Director
Election Majority Vote Standard Proposal
The
United Brotherhood of Carpenters (“UBC”) 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 2006 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. 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). The
law
provides that if the level of voting support necessary for a specific action
is
not specified in a corporation’s certificate or bylaws, 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 to elect directors. This
proposal requests that the Board initiate a change in the Company’s director
election vote standard to 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.
We
believe that a majority vote standard in director elections would give
shareholders a meaningful role in the director election process. Under the
Company's current standard, a nominee in a director election can be elected
with
as little as a single affirmative vote, even if a substantial majority of the
votes cast are "withheld" from that nominee. The majority vote standard would
require that a director receive a majority of the vote cast in order to be
elected to the Board.
The
majority vote proposal received high levels of support last year, winning
majority support at Advanced Micro Devices, Freeport McMoRan, Marathon Oil,
Marsh & McLennan, Office Depot, Raytheon, and others. Leading proxy advisory
firms recommended voting in favor of the proposal.
Page
26
Some
companies have adopted board governance policies requiring director nominees
that fail to receive majority support from shareholders to tender their
resignations to the board. We believe that these policies are inadequate for
they are based on continued use of the plurality standard and would allow
director nominees to be elected despite only minimal shareholder support. We
contend that changing the legal standard to a majority vote is a superior
solution that merits shareholder support.
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 director nominees who fail to receive a majority vote under a
majority vote standard and whether a plurality vote standard may be appropriate
in director elections when the number of director nominees exceeds the available
board seats.
We
urge
your support for this important director election reform.
Thermo
Electron Statement in Opposition
to Stockholder Proposal
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.
The
Board
concurs that the Company should carefully review any situation where a specific
nominee may not have the support of stockholders. After careful consideration,
the Board recommends a vote against this proposal because the Company has
already implemented a policy that it believes gives stockholders a more
meaningful role in the election of directors. In February 2006, the Company
adopted a policy in its Corporate
Governance Guidelines
(available on the Company’s website), whereby any director who receives a
greater number of votes “withheld” from his or her election than votes “for”
such election will tender his or her resignation for consideration by the
Nominating and Corporate Governance Committee. The Nominating and Corporate
Governance Committee will consider all factors it deems relevant and then make
a
recommendation to the full Board as to whether or not to accept the director’s
resignation. The
Board
will act on the Nominating
and Corporate Governance
Committee's recommendation no later than 90 days following the date of the
stockholders’ meeting during which the election occurred. The Company will
promptly publicly disclose the Board’s decision in a Form 8-K to be filed with
the Securities and Exchange Commission. By
contrast, the majority voting standard requested by the stockholder proposal
will not result in the removal of incumbent directors who have not received
a
majority vote, because under Delaware law an incumbent director who is not
re-elected “holds over” and continues to serve with the same voting rights and
powers until his or her successor is elected and qualified.
Moreover,
on January 17, 2006, the American Bar Association’s Committee on Corporate Laws
(the “Committee”), chaired by E. Norman Veasey, a former chief justice of the
Delaware Supreme Court, released its Preliminary Report on Voting By
Shareholders for the Election of Directors (the “Report”). In its Report, the
Committee wrote that "the potential negative consequences of failed elections,
combined with the uncertainty of applying an untested voting standard as the
default rule for public corporations, warrants the retention of the plurality
voting rule." The Report explains that the “real effect of a majority voting
default rule would depend on whether its adoption would be accompanied by either
the retention or elimination of the holdover rule.” The Report asserts that a
majority default rule would only be a “symbolic change” since holdover directors
would remain in office until a successor is elected.
We
believe that adoption of the UBC Pension Fund’s proposal would be inappropriate
at this time, particularly in light of the Company’s director resignation
policy, the absence of any change to the holdover rule under Delaware law,
the
Report, and because the proposal does not address the legal and practical
implications of changing long-standing, successful voting procedures. We do
not
believe that stockholders should be asked to approve a proposal without
understanding the full ramifications of its adoption.
Page
27
We
are
monitoring, and will continue to monitor, these reports and other developments
on this topic, and will take appropriate action to maintain our commitment
to
the highest standards of corporate governance. If the holdover rule is abolished
and a consensus emerges that reflects that majority voting for directors as
implemented through amendments to the charter or bylaws is the best corporate
governance practice in this area, we will revisit our director election
procedures. We do not believe that the Company, nor our stockholders would
be
best served by prematurely adopting such a change.
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 2006 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 2007 Annual Meeting of 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 12, 2006.
In
addition, the Company's by-laws include an advance notice provision that
requires stockholders desiring to bring proposals before an annual meeting
(which proposals are not to be included in the Company's proxy statement and
thus are submitted outside the processes of Rule 14a-8 under the Exchange Act)
to do so in accordance with the terms of such advance notice provision. The
advance notice provision requires that, among other things, stockholders give
timely written notice to the Secretary of the Company regarding their proposals.
To be timely, notices must be delivered to the Secretary at the principal
executive office 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 2007 Annual Meeting
of
Stockholders without inclusion of the proposal in the Company's proxy materials
must provide written notice of such proposal to the Secretary no earlier than
January 26, 2007, and no later than February 10, 2007. 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 $13,000, plus an additional fee based on the number of telephone calls
made to stockholders, 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.
Page
28
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
11,
2006
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:
| · |
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;
|
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:
|
| · |
the
firm’s internal quality-control
procedures;
|
| · |
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.
|
Page
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:
|
| · |
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.
|
| · |
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
§380) requires discussion.
|
Page
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.
|
Page
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
FORM
OF PROXY
THERMO
ELECTRON CORPORATION
PROXY
FOR
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 24, 2006
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 29, 2006,
at the
Annual Meeting of the Stockholders to be held at the InterContinental The
Barclay New York, 111 East 48th Street, New York, New York, on Wednesday,
May
24, 2006, at 2:00 p.m., and at any adjournments thereof, as set forth on
the
reverse side hereof, and in their discretion upon any other business that
may
properly come before the meeting.
The
Proxy will be voted as specified, or if no choice is specified, "FOR" the
election of all nominees for director, "FOR" proposal 2, "AGAINST" proposal
3,
if presented at the meeting, and as said proxies deem advisable on such other
matters as may properly come before the meeting.
VOTE
BY INTERNET OR TELEPHONE
(Instructions)
|
Internet
https://
www.voteproxy.com
|
Telephone
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 on your computer
screen.
|
-
Follow the recorded instructions.
|
|
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 23, 2006
(IMPORTANT
- TO BE SIGNED AND DATED ON THE REVERSE SIDE)
Page
B-2
Please
mark your votes as shown here: x
The
Board of Directors recommends a vote "FOR ALL NOMINEES."
|
1.
|
Election
of Directors.
|
|
Nominees:
|
o
|
(01)
Peter J. Manning
|
|
o
|
(02)
Jim P. Manzi
|
|
|
|
o
|
(03)
Elaine S. Ullian
|
|
FOR
ALL NOMINEES
|
o
|
|
WITHHELD
FROM ALL NOMINEES
|
o
|
|
FOR
ALL EXCEPT (See
instructions below)
|
o
|
|
INSTRUCTIONS:
|
To
withhold authority for an individual nominee(s), mark “FOR ALL EXCEPT” and
fill in the circle next to each nominee you wish to withhold authority
for.
|
The
Board of Directors recommends a vote "FOR" Proposal 2.
|
2.
|
Ratification
of Selection of Independent
Auditors.
|
|
FOR
|
o
|
|
AGAINST
|
o
|
|
ABSTAIN
|
o
|
The
Board of
Directors recommends a vote "AGAINST" Proposal 3.
|
3.
|
Stockholder
Proposal Regarding the Vote Standard for Director
Elections.
|
|
FOR
|
o
|
|
AGAINST
|
o
|
|
ABSTAIN
|
o
|
|
4.
|
In
their discretion on such other matters as may properly come before
the
meeting.
|
Page
B-3
The
shares represented by this Proxy will be voted "FOR" all nominees, "FOR"
Proposal 2 set forth above and "AGAINST" Proposal 3 set forth above if no
instruction to the contrary is indicated or if no instruction is
given.
Copies
of
the Notice of Meeting and of the Proxy Statement have been received by the
undersigned.
PLEASE
DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
|
SIGNATURE(S)
________________________________
|
DATE
__________________________________
|
(This
proxy should be dated, signed by the shareholder(s) exactly as his or her name
appears hereon, and returned promptly in the enclosed envelope. Persons signing
in a fiduciary capacity should so indicate. If shares are held by joint tenants
or as community property, both should sign.)