SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended July 3, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-10791
THERMOTREX CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 52-1711436
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10455 Pacific Center Court
San Diego, California 92121-4339
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at July 30, 1999
Common Stock, $.01 par value 22,369,077
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<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMOTREX CORPORATION
Consolidated Balance Sheet
(Unaudited)
<S> <C> <C>
Assets
July 3, October 3,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ---------- ----------
Current Assets:
Cash and cash equivalents (includes $146,534 under repurchase $ 33,065 $157,107
agreement with parent company in fiscal 1998)
Advance to affiliate (Note 7) 64,130 -
Available-for-sale investments, at quoted market value (amortized 29,467 8,076
cost of $29,454 and $8,086)
Accounts receivable, less allowances of $5,757 and $3,671 (Notes 5 and 6) 75,967 85,790
Unbilled contract costs and fees 15,605 7,409
Inventories:
Raw materials and supplies 33,700 38,788
Work in process 27,844 20,134
Finished goods 20,466 27,301
Prepaid expenses and other assets 3,087 5,890
Prepaid and refundable income taxes 24,857 13,988
-------- --------
328,188 364,483
-------- --------
Property, Plant, and Equipment, at Cost (Note 5) 37,952 82,506
Less: Accumulated depreciation and amortization 15,925 21,995
-------- -------
22,027 60,511
-------- --------
Prepaid Income Taxes and Other Assets (Notes 5 and 6) 11,928 15,867
-------- --------
Cost in Excess of Net Assets of Acquired Companies (Notes 4 and 5) 143,216 154,845
-------- --------
$505,359 $595,706
======== ========
2
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THERMOTREX CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
July 3, October 3,
(In thousands except share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ---------- ----------
Current Liabilities:
Current maturities of long-term obligations $ 56 $ 435
Accounts payable 28,735 30,871
Accrued payroll and employee benefits 11,407 12,147
Accrued warranty costs 8,362 9,233
Customer deposits 2,759 5,476
Accrued commissions 5,202 7,629
Accrued restructuring costs (Note 5) 27,374 5,153
Other accrued expenses (Note 4) 37,081 26,610
Due to parent company and affiliated companies 2,101 5,252
-------- --------
123,077 102,806
-------- --------
Deferred Income Taxes 6,418 6,418
-------- --------
Deferred Lease Liability 195 1,172
-------- --------
Long-term Obligations:
Subordinated convertible debentures (includes $18,225 and $14,500 of 203,948 203,948
related-party debt)
Other 488 697
-------- --------
204,436 204,645
-------- --------
Common Stock of Subsidiary Subject to Redemption 40,500 40,500
-------- --------
Minority Interest 67,656 90,578
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000 shares authorized; 233 196
23,302,518 and 19,590,466 shares issued (Note 9)
Capital in excess of par value 108,673 73,293
Retained earnings (accumulated deficit) (21,706) 94,984
Treasury stock at cost, 936,814 and 929,100 shares (20,953) (20,944)
Deferred compensation (615) -
Accumulated other comprehensive items (Note 2) (2,555) 2,058
-------- --------
63,077 149,587
-------- --------
$505,359 $595,706
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
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THERMOTREX CORPORATION
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
July 3, July 4,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues:
Product revenues $ 80,788 $77,795
Other revenues 11,080 11,094
-------- -------
91,868 88,889
-------- -------
Costs and Operating Expenses:
Cost of product revenues (Note 5) 65,282 43,572
Cost of other revenues 14,266 10,527
Selling, general, and administrative expenses (Note 5) 27,955 22,882
Research and development expenses 9,905 9,864
Restructuring and nonrecurring costs (Note 5) 72,266 1,917
-------- -------
189,674 88,762
-------- -------
Operating Income (Loss) (97,806) 127
Interest Income 1,163 3,297
Interest Expense (includes $171 and $228 to related party) (2,181) (2,423)
Equity in Loss of Joint Ventures - (85)
Other Expense (Note 5) (5,666) -
-------- -------
Income (Loss) Before Income Taxes and Minority Interest (104,490) 916
Income Tax (Provision) Benefit 5,350 (4,035)
Minority Interest (Expense) Income 4,029 (1,724)
-------- -------
Net Loss $(95,111) $(4,843)
======== =======
Basic and Diluted Loss per Share (Note 3) $ (4.82) $ (.26)
======== =======
Basic and Diluted Weighted Average Shares (Note 3) 19,714 18,608
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
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THERMOTREX CORPORATION
Consolidated Statement of Operations
(Unaudited)
Nine Months Ended
July 3, July 4,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues:
Product revenues $ 235,308 $221,545
Other revenues 30,092 35,462
--------- --------
265,400 257,007
--------- --------
Costs and Operating Expenses:
Cost of product revenues (Note 5) 163,433 126,571
Cost of other revenues 38,162 32,300
Selling, general, and administrative expenses (Note 5) 82,571 64,043
Research and development expenses 30,573 28,770
Restructuring and nonrecurring costs (Note 5) 73,381 1,917
--------- --------
388,120 253,601
--------- --------
Operating Income (Loss) (122,720) 3,406
Interest Income 4,244 10,222
Interest Expense (includes $433 and $785 to related party) (6,406) (7,178)
Gain on Issuance of Stock by Subsidiary - 23,798
Equity in Loss of Joint Ventures (200) (905)
Other Expense (Note 5) (5,666) -
--------- --------
Income (Loss) Before Income Taxes and Minority Interest (130,748) 29,343
Income Tax (Provision) Benefit 8,233 (10,057)
Minority Interest (Expense) Income 5,825 (3,913)
--------- --------
Net Income (Loss) $(116,690) $ 15,373
========= ========
Earnings (Loss) per Share (Note 3):
Basic $ (6.14) $ .82
========= ========
Diluted $ (6.14) $ .73
========= ========
Weighted Average Shares (Note 3):
Basic 19,012 18,717
========= ========
Diluted 19,012 23,039
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THERMOTREX CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
July 3, July 4,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Operating Activities:
Net income (loss) $(116,690) $ 15,373
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 14,216 10,901
Provision for losses on accounts receivable (Note 5) 3,160 818
Gain on issuance of stock by subsidiary - (23,798)
Minority interest expense (income) (5,825) 3,913
Increase in deferred income taxes - (1,085)
Noncash restructuring costs (Note 5) 45,059 -
Other noncash items (Note 5) 18,350 2,292
Changes in current accounts, excluding the effects of acquisitions and
dispositions:
Accounts receivable 11,371 (17,729)
Inventories and unbilled contract costs and fees (8,900) (7,881)
Other current assets (9,506) 171
Accounts payable (955) (7,355)
Other current liabilities 18,812 (5,389)
--------- --------
Net cash used in operating activities (30,908) (29,769)
--------- --------
Investing Activities:
Advances to affiliate, net (Note 7) (64,130) -
Acquisitions, net of cash acquired (Note 4) (18,759) (44,461)
Purchases of available-for-sale investments (30,000) (4,000)
Proceeds from sale and maturities of available-for-sale investments 8,000 8,400
Purchases of property, plant, and equipment (9,625) (7,532)
Proceeds from sale of property, plant, and equipment 1,595 -
Advance pursuant to notes receivable from related parties - (1,667)
Other 619 (1,072)
--------- --------
Net cash used in investing activities (112,300) (50,332)
--------- --------
Financing Activities:
Net proceeds from issuance of subordinated convertible debentures - 121,814
Net proceeds from issuance of Company and subsidiary common stock and sale 41,884 70,579
of subsidiary put options (Note 9)
Purchases of Company and subsidiary common stock (24,112) (38,810)
Repayment of note receivable from related party 1,300 -
Repayment of note payable to parent company - (11,000)
Payment of withholding taxes related to stock option exercises (25) (3,058)
Other (118) -
--------- --------
Net cash provided by financing activities $ 18,929 $139,525
--------- --------
6
<PAGE>
THERMOTREX CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
July 3, July 4,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Exchange Rate Effect on Cash $ 237 $ (491)
--------- --------
Increase (Decrease) in Cash and Cash Equivalents (124,042) 58,933
Cash and Cash Equivalents at Beginning of Period 157,107 135,720
--------- --------
Cash and Cash Equivalents at End of Period $ 33,065 $194,653
========= ========
Noncash Activities:
Fair value of assets of acquired companies $ 35,877 $ 98,908
Cash paid for acquired companies (27,273) (47,216)
Amount payable for acquired company (5,358) (11,175)
--------- --------
Liabilities assumed of acquired companies $ 3,246 $ 40,517
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by ThermoTrex Corporation (the Company) without audit and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of the financial position at July 3, 1999, the results of
operations for the three- and nine-month periods ended July 3, 1999, and July 4,
1998, and the cash flows for the nine-month periods ended July 3, 1999, and July
4, 1998. The Company's results of operations for the nine-month periods ended
July 3, 1999, and July 4, 1998, include 39 weeks and 40 weeks, respectively.
Interim results are not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of October 3, 1998, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are presented as permitted by Form 10-Q and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K, as amended, for the fiscal year ended
October 3, 1998, filed with the Securities and Exchange Commission.
2. Comprehensive Income
During the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
pronouncement sets forth requirements for disclosure of the Company's
comprehensive income and accumulated other comprehensive items. In general,
comprehensive income combines net income and "other comprehensive items," which
represents certain amounts that are reported as components of shareholders'
investment in the accompanying balance sheet, including foreign currency
translation adjustments and unrealized net-of-tax gains and losses on
available-for-sale investments. During the third quarter of fiscal 1999 and
1998, the Company had comprehensive losses of $95.6 million and $5.4 million,
respectively. During the first nine months of fiscal 1999 and 1998, the Company
had a comprehensive loss of $119.9 million and comprehensive income of $14.9
million, respectively.
</TABLE>
3. Earnings (Loss) per Share
<TABLE>
<CAPTION>
Basic and diluted earnings (loss) per share were calculated as follows:
Three Months Ended Nine Months Ended
July 3, July 4, July 3, July 4,
(In thousands except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Basic
<S> <C> <C> <C> <C>
Net Income (Loss) $(95,111) $ (4,843) $(116,690) $ 15,373
-------- --------- --------- ---------
Weighted Average Shares 19,714 18,608 19,012 18,717
-------- --------- --------- ---------
Basic Earnings (Loss) per Share $ (4.82) $ (.26) $ (6.14) $ .82
======== ========= ========= =========
8
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<CAPTION>
2. Earnings (Loss) per Share (continued)
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
July 3, July 4, July 3, July 4,
(In thousands except per share amounts) 1999 1998 1999 1998
- ----------------------------------------------------------- ----------- ----------- ----------- ----------
Diluted
Net Income (Loss) $ (95,111) $ (4,843) $ (116,690) $ 15,373
Effect of:
Convertible debentures - - - 1,634
Majority-owned subsidiary's dilutive securities - (34) - (82)
---------- ---------- ---------- ---------
Income (Loss) Available to Common $ (95,111) $ (4,877) $ (116,690) $ 16,925
---------- ---------- ---------- ---------
Shareholders, as Adjusted
Weighted Average Shares 19,714 18,608 19,012 18,717
Effect of:
Convertible debentures - - - 4,138
Stock options - - - 184
---------- ---------- ---------- ---------
Weighted Average Shares, as Adjusted 19,714 18,608 19,012 23,039
---------- ---------- ---------- ---------
Diluted Earnings (Loss) per Share $ (4.82) $ (.26) $ (6.14) $ .73
========== ========== ========== =========
The computation of diluted earnings (loss) per share for certain periods
excludes the effect of assuming the conversion of the Company's $88.9 million
principal amount 3 1/4% subordinated convertible debentures, convertible at
$27.00 per share, and the exercise of stock options, because the effect would be
antidilutive. As of July 3, 1999, there were 1,113,333 options outstanding, with
exercise prices ranging from $.30 to $27.13 per share.
4. Acquisition
In November 1998, the Company's Trex Communications Corporation subsidiary
acquired LNR Communications, Inc. (LNR) for approximately $18.8 million in cash
and the right to receive 1,250,000 shares of Trex Communications common stock
valued at approximately $5.0 million, net of cash acquired. Of the cash portion
of the purchase price, $0.4 million had not been paid as of July 3, 1999, and
was included in other accrued expenses in the accompanying fiscal 1999 balance
sheet. The arrangement with the former owners of LNR permits them to receive
shares of Trex Communications or up to $5.0 million in cash in lieu of the
shares following the first anniversary of the acquisition and ending no later
than August 2000. Accordingly, the maximum potential obligation of $5.0 million
associated with this arrangement is included in other accrued expenses in the
accompanying balance sheet. LNR is a Hauppauge, New York-based manufacturer of
electronic subsystems and turnkey earth stations for the satellite communication
market.
This acquisition has been accounted for using the purchase method of
accounting, and its results have been included in the accompanying financial
statements from the date of acquisition. The aggregate cost of this acquisition
exceeded the estimated fair value of the acquired net assets by $9.2 million,
which is being amortized over 15 years. Allocation of the purchase price was
based on an estimate of the fair value of the net assets acquired and is subject
to adjustment upon finalization of the purchase price allocation. The Company
has gathered no information that indicates that the final purchase price
allocation will differ materially from preliminary estimates.
9
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</TABLE>
4. Acquisition (continued)
<TABLE>
<CAPTION>
Based on unaudited data, the following table presents selected financial
information of the Company and LNR on a pro forma basis, assuming the companies
had been combined since the beginning of fiscal 1998.
Three Nine
Months Ended Months Ended
July 4, July 3, July 4,
(In thousands except per share amounts) 1998 1999 1998
- -------------------------------------------------------- ------------------------- ------------ ----------
<S> <C> <C> <C>
Revenues $ 93,296 $ 268,184 $ 270,684
Net Income (Loss) (5,491) (116,913) 15,717
Earnings (Loss) per Share:
Basic (.30) (6.15) .84
Diluted (.30) (6.15) .75
The pro forma results are not necessarily indicative of future operations
or the actual results that would have occurred had the acquisition of LNR been
made at the beginning of fiscal 1998.
In connection with the acquisition of LNR, Trex Communications has
undertaken a restructuring of the acquired business. This restructuring is
expected to primarily include a reduction in staffing levels. In accordance with
the requirements of Emerging Issues Task Force Pronouncement (EITF) 95-3, as
part of the cost of the acquisition, Trex Communications established a reserve
of approximately $1.3 million for restructuring LNR, primarily for severance, of
which $0.3 million has been expended as of July 3, 1999. As of July 3, 1999, the
remaining liability for restructuring LNR was $1.0 million and is included in
other accrued expenses in the accompanying balance sheet. Unresolved matters at
July 3, 1999, included completion of planned severances. In accordance with the
requirements of EITF 95-3, Trex Communications will finalize its restructuring
plan for LNR no later than one year from the date of acquisition.
5. Restructuring Actions
During the third quarter of fiscal 1999, the Company announced broad-scale
restructuring actions. In connection with these actions, described below, the
Company recorded restructuring and related costs of $93.9 million in the third
quarter of fiscal 1999, including restructuring and nonrecurring costs of $72.3
million, inventory and warranty provisions of $14.3 million, provisions for
uncollectible accounts receivable of $1.6 million, and other nonoperating
expenses of $5.7 million. The inventory and warranty provisions are included in
costs of revenues and the provisions for uncollectible accounts receivable are
included in selling, general, and administrative expenses in the accompanying
fiscal 1999 statement of operations.
Trex Medical Corporation
During the third quarter of fiscal 1999, the Company's Trex Medical
Corporation subsidiary recorded $18.1 million of restructuring and related
costs, including restructuring costs of $6.1 million and inventory and warranty
provisions of $12.0 million. The restructuring costs are primarily in connection
with the consolidation of Trex Medical's Bennett X-Ray Corporation and
Continental X-Ray Corporation facilities into its Danbury, Connecticut, and
Littleton, Massachusetts, sites, respectively, and, to a lesser extent, actions
to reduce costs in other operations. Restructuring costs include $2.3 million
for facility-closing costs, net of assumed sublease income; $2.0 million to
write off leasehold improvements at facilities to be closed and to write down
fixed assets to their estimated disposal value of $0.1 million; and $1.9 million
for severance for 265 employees across all functions, 43 of whom were terminated
in the third quarter of fiscal 1999.
In connection with these actions, Trex Medical expects to record
approximately $5.0 million of additional costs as they are incurred over the
next several quarters for costs not permitted currently as charges, pursuant to
EITF 94-3. These additional costs primarily include costs for certain employee
and business relocation and related costs. Trex Medical plans to complete
implementation of its restructuring plan in the first half of fiscal 2000.
10
<PAGE>
5. Restructuring Actions (continued)
The inventory and warranty charge of $12.0 million includes $9.4 million
to establish inventory provisions and to terminate purchase commitments for
products that have become obsolete due to planned product changes or excess as a
result of the recent decline in demand. The largest component of the inventory
charge was recorded as a result of the decision by the FDA to deny the Trex
Medical's 510(k) filing for its digital mammography systems and resulting design
changes expected to be made to the system. Provisions resulting from other
planned product and technology changes, as well as decreased sales of certain
products at Trex Medical's Lorad division, are also principal components of the
inventory charge. The warranty charge of $2.6 million represents estimated costs
to address certain product warranty issues including costs associated with
corrective actions to be taken with respect to certain previously sold
mammography products.
During the second quarter of fiscal 1999, Trex Medical recorded
restructuring costs of $0.6 million, related to severance costs for 71 employees
across all functions at its XRE Corporation and Continental X-Ray subsidiaries,
all of whom were terminated in the second quarter of fiscal 1999.
ThermoLase Corporation
During fiscal 1998, the Company's ThermoLase Corporation subsidiary
initiated certain restructuring activities, including the announced closure of
three domestic spas and the termination of a joint venture that operated its spa
in France. Two of the domestic spas were closed during the first quarter of
fiscal 1999. ThermoLase closed the third spa, as well as two additional spas, in
the third quarter of fiscal 1999. Also during the third quarter of fiscal 1999,
ThermoLase sold its remaining nine day spas, as well as the stock in its
destination spa, The Greenhouse Spa, Inc. In connection with the sale and
closures announced in fiscal 1999, as well as other actions, ThermoLase recorded
restructuring and related costs of $67.7 million during the third quarter of
fiscal 1999, including restructuring costs of $60.3 million, an investment
write-down of $3.4 million, inventory provisions of $2.3 million, and provisions
for uncollectible accounts receivable of $1.7 million. The restructuring costs
include a $19.9 million loss on the sale of the spa businesses, discussed below;
$17.4 million for the write-off of leasehold improvements and equipment
pertaining to the hair-removal business; $11.7 million for ongoing lease
obligations, net of assumed sublease income; $10.0 million of estimated costs to
terminate certain other obligations related to ThermoLase's hair-removal
business; $0.4 million for losses on laser purchase commitments; $0.3 million
for the write-downs of investments in international joint ventures; and $0.4
million for other related costs. In addition, restructuring costs include $0.2
million of severance costs for approximately 14 employees across all functions,
9 of whom were terminated during the third quarter of fiscal 1999. Provisions
for severance and leases were accounted for in accordance with EITF 94-3. The
inventory provisions were for certain branded product lines at ThermoLase's
Creative Beauty Innovations, Inc. subsidiary that have been discontinued, and
the investment write-down was to reduce the carrying value of ThermoLase's
investment in a privately held company to its estimated disposal value.
Other
During the third quarter of fiscal 1999, the Company recorded
restructuring and nonrecurring costs of $5.9 million, representing a write-off
of cost in excess of net assets of acquired companies. Of the total write-off,
$3.4 million results from a decision to hold for sale its Trex Communications
subsidiary and represents a reduction in the carrying value of Trex
Communications to the amount of expected proceeds from its sale. The balance of
the write-off represents cost in excess of net assets of acquired companies that
arose from repurchases of ThermoLase common stock by the Company. This asset has
become impaired as a result of continuing losses at ThermoLase's spa business
which it exited in June 1999. Trex Communications had unaudited revenues and
operating income of $33.3 million and $0.8 million, respectively, in the first
nine months of fiscal 1999 and revenues and an operating loss of $19.9 million
and $1.7 million, respectively, in fiscal 1998.
Also during the third quarter of fiscal 1999, the Company provided a
reserve of $2.3 million for impairment of a note receivable from an unaffiliated
company. This amount is included in other expense in the accompanying statement
of operations.
11
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5. Restructuring Actions (continued)
<TABLE>
<CAPTION>
During the second quarter of fiscal 1999, the Company incurred $0.5
million of restructuring costs at its corporate office.
A summary of the changes in accrued restructuring costs is as follows:
<S> <C> <C> <C> <C> <C>
Facility- Contract Other Total
closing Termination
(In thousands) Severance Costs Costs
- --------------------------------- -------------- -------------- ------------- -------------- -------------
Balance at October 3, 1998 $ 412 $ 2,399 $2,299 $ 43 $ 5,153
Provision charged to expense 2,904 13,978 10,400 - 27,282
Usage (1,136) (1,713) (2,173) (39) (5,061)
------- ------- ------ ------- -------
Balance at July 3, 1999 $ 2,180 $14,664 $10,526 $ 4 $27,374
======= ======= ======= ======= =======
Of the total restructuring costs accrued as of July 3, 1999, the Company
expects to pay $16.1 million during the remainder of calendar 1999, $3.4 million
in calendar 2000, and $7.9 million in calendar 2001 and thereafter.
6. Sale of Spas
In June 1999, ThermoLase sold the stock of its destination spa, The
Greenhouse Spa, Inc., and the assets, subject to certain liabilities, of its
domestic day spas to companies in which the former president of its day spa
division has a controlling interest. The aggregate sales price of $12.5 million
consists of two promissory notes which bear interest at 10% and are due in June
2000, subject to a six-month extension period that is contingent upon, among
other conditions, payment of $4.0 million of the outstanding balance on the
promissory note relating to the sale of The Greenhouse Spa, Inc. Accordingly, in
the accompanying fiscal 1999 balance sheet, notes receivable of $4.0 million has
been included in accounts receivable and the balance, which has been recorded at
its estimated fair value, is classified as long-term and is included in prepaid
income taxes and other assets. ThermoLase recorded a loss of $19.9 million on
the sale of spa business during the third quarter of fiscal 1999. Unaudited
revenues and operating losses before restructuring costs of the spa business
were $8.9 million and $19.2 million, respectively, for the first nine months of
fiscal 1999, and $10.1 million and $14.1 million, respectively, for fiscal 1998.
7. Cash Management Arrangement
Effective June 1, 1999, the Company and Thermo Electron Corporation
commenced use of a new domestic cash management arrangement. Under the new
arrangement, amounts advanced to Thermo Electron by the Company for domestic
cash management purposes bear interest at the 30-day Dealer Commercial Paper
Rate plus 50 basis points, set at the beginning of each month. Thermo Electron
is contractually required to maintain cash, cash equivalents, and/or immediately
available bank lines of credit equal to at least 50% of all funds invested under
this cash management arrangement by all Thermo Electron subsidiaries other than
wholly owned subsidiaries. The Company has the contractual right to withdraw its
funds invested in the cash management arrangement upon 30 days' prior notice.
Amounts invested in this arrangement are included in "advance to affiliate" in
the accompanying balance sheet.
In addition, under this arrangement, amounts may be borrowed from Thermo
Electron on a short-term, revolving credit basis, bearing interest at the 30-day
Dealer Commercial Paper Rate (DCP Rate) plus 150 basis points, set at the
beginning of each month; provided such rate shall be reduced to the DCP Rate
plus 50 points to the extent of any funds invested by the Company's
majority-owned subsidiaries in the cash management arrangement. The Company had
no borrowings under this arrangement at July 3, 1999.
12
<PAGE>
8. Proposed Reorganization
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company and ThermoLase. Under
this plan, the Company and ThermoLase would be merged into Thermo Electron. As a
result, the Company and ThermoLase would become wholly owned subsidiaries of
Thermo Electron. The public shareholders of the Company and ThermoLase would
receive common stock in Thermo Electron in exchange for their shares. This
proposal is subject to numerous conditions, including establishment of prices
and exchange ratios, confirmation of anticipated tax consequences, receipt of a
fairness opinion from an investment banking firm, approval by the Board of
Directors of the Company (including its independent directors) and ThermoLase,
negotiation and execution of a definitive merger agreement, and completion of
review by the Securities and Exchange Commission of certain required filings
regarding the proposed transactions.
9. Sale of Common Stock to Parent Company
In June 1999, the Company sold 3,712,072 shares of its common stock to
Thermo Electron for proceeds of $41.8 million. Following this transaction,
Thermo Electron owned 80% of the Company's common stock.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K, as
amended, for the fiscal year ended October 3, 1998, filed with the Securities
and Exchange Commission.
Overview
The Company operates in three business segments: Medical Products
manufactured by the Company's Trex Medical Corporation subsidiary, Personal-care
Products and Services offered by the Company's ThermoLase Corporation
subsidiary, and Advanced Technology Research, including the laser communications
research performed by the Company's Trex Communications Corporation subsidiary.
Trex Medical designs, manufactures, and markets mammography equipment and
minimally invasive digital breast-biopsy systems; general-purpose and
specialized X-ray equipment, including imaging systems used during cardiac
procedures such as balloon angioplasty; and dental X-ray systems. Trex Medical
sells its products principally through dealers and direct sales. In addition,
Trex Medical manufactures systems and system components as an original equipment
manufacturer (OEM) for the General Electric Medical Systems division of the
General Electric Company. Trex Medical has five operating units: Lorad, a
manufacturer of mammography and digital breast-biopsy systems; Bennett X-Ray
Corporation, a manufacturer of general-purpose X-ray, mammography, and
breast-biopsy equipment; XRE Corporation, a manufacturer of X-ray imaging
systems used in the diagnosis and treatment of coronary artery disease and other
vascular conditions and a manufacturer of physiological monitoring equipment and
digital-image archiving and networking systems used in cardiac catheterization
procedures; Continental X-Ray Corporation, a manufacturer of general-purpose and
specialized X-ray systems; and Trophy Radiologie S.A., a French manufacturer of
dental and medical X-ray systems, specializing in digital dental technology.
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Overview (continued)
During fiscal 1999, Trex Medical experienced a decline in business due to
the loss of an OEM customer and lower demand for its products resulting from a
decline in the radiographic market and a decline in international sales of
cardiac catheterization systems. In response, Trex Medical initiated certain
restructuring activities in the second quarter of fiscal 1999 and followed these
actions with a larger restructuring plan in the third quarter of fiscal 1999
(Note 5). The third quarter restructuring activities include consolidation of
manufacturing facilities and headcount reductions to achieve material cost
improvements and focus on cost efficiencies.
In August 1999, Trex Medical received notification from the FDA denying
its 510(k) filing for its digital mammography system. Trex Medical plans to meet
with the FDA to discuss the reasons for the denial, and expects to implement
various design changes, initiate additional clinical trials, and, if appropriate
after completing such clinical trials, submit a new application for marketing
clearance. Trex Medical hopes to have initiated additional clinical trials
within one year, but there can be no assurance regarding the timing or results
of such clinical trials, or the submission of a new application to the FDA for
marketing clearance.
ThermoLase has developed a laser-based system called SoftLight(R) for the
removal of unwanted hair. The SoftLight system uses a low-energy, dermatology
laser in combination with a lotion that absorbs the laser's energy to disable
hair follicles. In April 1995, the Company received clearance from the U.S. Food
and Drug Administration (FDA) to commercially market hair-removal services using
the SoftLight system. ThermoLase began earning revenue from the SoftLight system
in the first quarter of fiscal 1996 as a result of opening its first commercial
location (Spa Thira) in November 1995. ThermoLase opened a total of four spas
during fiscal 1996, opened nine additional spas during fiscal 1997, and opened
its fourteenth spa in October 1997. In May 1998, ThermoLase received clearance
from the FDA to market cosmetic skin-resurfacing services using the same laser
as ThermoLase's hair-removal system. In this process, the laser's energy reacts
with an activating lotion, creating heat and mechanical energy that remove the
tough outer layer of dead skin. The treatment, known as the SoftLight Laser
Peel, was being offered at all of ThermoLase's day spa locations, as well as
through participating licensees.
In June 1996, ThermoLase commenced a program to license to physicians and
others the right to perform ThermoLase's patented SoftLight hair-removal
procedure. ThermoLase also provides the licensees with the lasers and lotion
that are necessary to perform the service. In June 1998, ThermoLase began to
offer the SoftLight Laser Peel procedure through its spas and other licensees.
During the second quarter of fiscal 1998, ThermoLase began to experience a
decrease in revenues from its hair-removal services. In response to this trend
and in an attempt to establish price points and other conditions designed to
increase demand and revenues, in April 1998 ThermoLase significantly reduced
treatment prices at its spa locations and modified the terms and conditions
offered to licensees. Under the terms of the modified licenses, per-procedure
royalties were reduced or eliminated and a minimum royalty and/or flat periodic
fee requirement was introduced. In addition, ThermoLase began offering licensees
the opportunity to purchase or lease SoftLight lasers in lieu of paying ongoing
license fees.
Beginning in January 1996, ThermoLase sought to market the SoftLight
system internationally through joint ventures and other licensing arrangements.
ThermoLase liquidated its joint venture relating to the SoftLight system in
France in the fourth quarter of fiscal 1998 and has terminated its licensing
arrangements in certain other countries.
In connection with its acquisition of The Greenhouse Spa, Inc. in June
1998, a full-service, luxury, destination spa, ThermoLase converted 11 domestic
Spa Thiras to Greenhouse day spas, which, in addition to hair-removal and
skin-resurfacing services, offer more traditional day-spa services, such as
massages and facials. Following conversion of the facilities to Greenhouse day
spas, significant losses continued, and during fiscal 1998, ThermoLase initiated
certain restructuring actions, including the announced closure of three of its
domestic day spas and the termination of a joint venture that operated its spa
in France. ThermoLase closed two of the domestic day spas in November 1998 and
the third spa, as well as two additional spas, were closed in the third quarter
of fiscal 1999. In May 1999, ThermoLase
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Overview (continued)
announced additional plans to undertake a broad-scale restructuring of its
business. As part of the restructuring plan, ThermoLase has decided to exit the
spa business and as a result, sold The Greenhouse Spa, Inc. located in
Arlington, Texas, and the remaining nine Greenhouse day spas. In addition,
ThermoLase has begun terminating certain of its remaining international joint
venture arrangements and the licensing program as well as discontinuing certain
branded product lines at ThermoLase's Creative Beauty Innovations, Inc. (CBI)
subsidiary (Note 5). ThermoLase expects to complete its restructuring plan by
the end of calendar 1999 (Note 5).
ThermoLase also manufactures and markets skin-care, bath, and body
products, and markets dietary supplements through its CBI subsidiary, which also
manufactures the lotion used in the SoftLight hair-removal and skin-resurfacing
processes.
The Company's Advanced Technology Research segment performs research
primarily in the fields of communications, avionics, X-ray detection, signal
processing, and lasers. The Company has developed its expertise in these core
technologies in connection with government-sponsored research and development.
The Advanced Technology Research segment includes the Company's Trex
Communications subsidiary. In May 1998, Trex Communications acquired
Electro-Magnetic Processes, Inc. (EMP), which designs, develops, and
manufactures ground-based satellite communication systems and develops and
integrates telemetry systems used on military aircraft. In November 1998, Trex
Communications acquired LNR Communications, Inc. (LNR), which manufactures
electronic subsystems and turnkey earth stations for the satellite communication
market. As part of the restructuring plans announced in May 1999, the Company
has decided to hold its Trex Communications subsidiary for sale (Note 5).
The Company conducts all of its manufacturing operations, other than those
of Trophy, in the United States and sells its products worldwide. The Company
anticipates that an increasing amount of its revenues will be from sales to
customers outside the United States. Although the Company seeks to charge its
customers in the same currency as its operating costs, the Company's financial
performance and competitive position can be affected by currency exchange rate
fluctuations affecting the relationship between the U.S. dollar and foreign
currencies. The Company may use forward contracts to reduce its exposure to
currency fluctuations.
Results of Operations
Third Quarter Fiscal 1999 Compared With Third Quarter Fiscal 1998
Total revenues increased to $91.9 million in the third quarter of fiscal
1999 from $88.9 million in the third quarter of fiscal 1998. Revenues from the
Medical Products segment, excluding intersegment sales, decreased to $62.2
million in fiscal 1999 from $71.2 million in fiscal 1998. Revenues increased
$4.1 million as a result of the inclusion for the full fiscal 1999 period of
revenues from Trophy, which was acquired in April 1998. Excluding Trophy,
Medical Products segment revenues decreased $13.1 million. Revenues decreased at
Lorad by $5.6 million, due to the termination of an OEM contract with United
States Surgical Corporation (U.S. Surgical), which accounted for $10.6 million
of revenues in the fiscal 1998 period. This decrease was offset in part by
higher demand for Lorad's mammography systems and mammography system upgrade
components. Revenues decreased at XRE by $3.2 million, primarily due to the
inclusion in fiscal 1998 of a $2.2 million cardiac catheterization system sale
to a Russian customer and lower demand. Revenues decreased at Continental and
Bennett primarily due to lower demand in both businesses for general-purpose
X-ray systems and lower demand at Continental for radiographic/fluoroscopic
systems.
Personal-care Products and Services segment revenues increased to $11.0
million in the third quarter of fiscal 1999 from $8.9 million in the third
quarter of fiscal 1998. ThermoLase earned service revenues of $3.3 million in
fiscal 1999, compared with $3.7 million in fiscal 1998. Revenues from
ThermoLase's licensing program decreased in fiscal 1999, compared with fiscal
1998, due to a reduction in the number of participating licensees, a reduction
in royalty rates and other changes to the financial terms of the licenses, and a
decrease in the number of one-time fees
15
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Third Quarter Fiscal 1999 Compared With Third Quarter Fiscal 1998
from new licensees. During the third quarter of fiscal 1999, ThermoLase began to
terminate its licensing program, and therefore, will eventually no longer earn
monthly royalties from licensees. Spa revenues decreased primarily due to the
closure of ThermoLase's LaJolla and Miami spas during the first quarter of
fiscal 1999 and reduced demand. These decreases in revenues were offset in part
by the inclusion of $0.9 million in revenue from The Greenhouse Spa, Inc., which
was acquired in June 1998. In June 1999, ThermoLase sold The Greenhouse Spa,
Inc. and the nine remaining Greenhouse day spas (Note 5).
ThermoLase earned product revenues of $7.8 million in the third quarter of
fiscal 1999, compared with $5.2 million in the third quarter of fiscal 1998.
Product revenues include sales by CBI and, in the fiscal 1999 period, beauty
product sales at ThermoLase's spas and lasers sold in international and domestic
markets. As a result of the sale of the spa business in June 1999 (Note 5),
ThermoLase no longer sells its beauty products at the spas. Revenues at CBI
increased to $6.4 million in the third quarter of fiscal 1999 from $5.2 million
in the third quarter of fiscal 1998, primarily due to increased demand for its
custom products. Product revenues also increased due to the introduction of
sales of SoftLight lasers in fiscal 1999.
Advanced Technology Research segment revenues, excluding segment sales,
increased to $18.7 million in the third quarter of fiscal 1999 from $8.8 million
in the third quarter of fiscal 1998. Revenues increased $8.3 million due to the
inclusion of revenues from EMP, which was acquired in May 1998, and LNR, which
was acquired in November 1998. Revenues also increased due to an increase in
government contracts.
The gross profit margin decreased to 13% in the third quarter of fiscal
1999 from 39% in the third quarter of fiscal 1998. The Medical Products segment
gross profit margin, excluding intersegment sales, decreased to 38% in the third
quarter of fiscal 1999 from 43% in the third quarter of fiscal 1998, excluding
inventory and warranty provisions of $12.0 million in fiscal 1999 (Note 5). The
gross profit margin decreased at each of this segment's operating units,
primarily at Lorad, XRE, and Continental, due to lower sales of higher-margin
products. The Personal-care Products and Services segment gross profit margin,
excluding intersegment sales, decreased to negative 46% in fiscal 1999 from 5%
in fiscal 1998. ThermoLase's services revenues had a negative gross profit of
$3.5 million in fiscal 1999, compared with negative gross profit of $1.2 million
in fiscal 1998. This decrease in gross profit was primarily due to increased
overhead costs as a result of the assembly of a management team to oversee the
spa operations prior to ThermoLase's decision to sell the spa business. To a
lesser extent, the gross profit margin decreased due to an increase in
spa-specific marketing and advertising expenses related to ThermoLase's
conversion of its existing spas to Greenhouse day spas prior to their sale. The
gross profit margin at CBI decreased to negative 13% in fiscal 1999 from 31% in
fiscal 1998, primarily due to inventory provisions related to exiting certain
branded product lines (Note 5). The gross profit margin from the Advanced
Technology Research segment, excluding intersegment sales, decreased to 32% in
fiscal 1999 from 42% in fiscal 1998. The decrease was primarily due to the
inclusion of lower-margin revenues at EMP and LNR.
Selling, general, and administrative expenses as a percentage of revenues
increased to 30% in the third quarter of fiscal 1999 from 26% in the third
quarter of fiscal 1998. The Medical Products segment selling, general, and
administrative expenses as a percentage of revenues, excluding intersegment
sales, increased to 28% in fiscal 1999 from 19% in fiscal 1998, primarily due to
the decline in revenues at each of this segment's operating units, excluding
Trophy. To a lesser extent, selling, general, and administrative expenses as a
percentage of revenues increased due to costs related to assembling a new
management team, increased provisions for uncollectible accounts receivable
during the quarter, and increased legal costs at Lorad related to patent
infringement litigation with Fischer Imaging Corporation that existed prior to
the acquisition of Lorad by the Company. The Personal-care Products and Services
segment selling, general, and administrative expenses increased to $5.7 million
in the third quarter of fiscal 1999 from $5.5 million in the third quarter of
fiscal 1998, primarily due to a $1.7 million provision for uncollectible
accounts receivable (Note 5), principally for accounts receivable from parties
with whom ThermoLase is terminating business relationships. This increase was
substantially offset by the ongoing cost-reduction efforts implemented by
ThermoLase during the second half of fiscal 1998.
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Third Quarter Fiscal 1999 Compared With Third Quarter Fiscal 1998 (continued)
Research and development expenses remained unchanged at $9.9 million in
the third quarter of fiscal 1999 and 1998.
During the third quarter of fiscal 1999, the Company undertook broad-scale
restructuring actions. As a result, the Company recorded restructuring and
nonrecurring costs of $72.3 million (Note 5). The Company expects to incur
additional charges of $5.0 million related to these actions, primarily for
certain employee and business relocation and related costs at Trex Medical, over
the next several quarters and plans to complete implementation of its
restructuring plan in the first half of fiscal 2000.
Interest income decreased to $1.2 million in the third quarter of fiscal
1999 from $3.3 million in the third quarter of fiscal 1998, as a result of lower
average invested balances due in part to repurchases of Company and subsidiary
common stock and due to the funding of losses at ThermoLase. Interest expense
decreased to $2.2 million in the third quarter of fiscal 1999 from $2.4 million
in the third quarter of fiscal 1998, primarily due to the purchase by the
Company of a portion of its subordinated convertible debentures in the fourth
quarter of fiscal 1998.
Other expense in the third quarter of fiscal 1999 relates to the
write-down of an investment held by ThermoLase and a charge for impairment of a
note receivable, recorded in connection with certain restructuring actions (Note
5).
The effective tax rate in the third quarter of fiscal 1999 and 1998
reflects the establishment of a valuation allowance for the tax benefit
associated with losses arising at ThermoLase during these periods. The Company
establishes valuation allowances in accordance with the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
Company believes that it is more likely than not that tax benefits that arose
during the periods will not be used by ThermoLase prior to their expiration. The
effective tax rate in the third quarter of fiscal 1998 was higher than the
statutory federal income tax rate primarily due to the effect of establishing a
valuation allowance for ThermoLase losses and of state income taxes and certain
nondeductible expenses, including amortization of cost in excess of net assets
of acquired companies.
The Company recorded minority interest income of $4.0 million in the third
quarter of fiscal 1999, compared with minority interest expense of $1.7 million
in the third quarter of fiscal 1998, primarily due to a loss at Trex Medical in
the fiscal 1999 period. The Company is unable to record minority interest income
in ThermoLase's net loss, because the Company's minority interest related to
ThermoLase has been reduced to zero.
First Nine Months Fiscal 1999 Compared With First Nine Months Fiscal 1998
Total revenues increased to $265.4 million in the first nine months of
fiscal 1999 from $257.0 million in the first nine months of fiscal 1998. Medical
Products segment revenues, excluding intersegment sales, decreased to $185.6
million in fiscal 1999 from $201.0 million in fiscal 1998. Revenues increased
$44.8 million as a result of the inclusion for the full fiscal 1999 period of
revenues from Trophy, which was acquired in April 1998. Excluding Trophy,
Medical Products segment revenues decreased $60.2 million. Revenues decreased at
Lorad by $26.9 million, due to the termination of an OEM contract with U.S.
Surgical, which accounted for $33.4 million of revenues in the fiscal 1998
period. This decrease was offset in part by higher demand for mammography
systems and mammography system upgrade components. Revenues decreased at XRE by
$17.5 million, primarily due to the inclusion in fiscal 1998 of an $8.8 million
cardiac catheterization system sale to a Russian customer and lower demand.
Revenues decreased at Continental and Bennett, primarily due to the reasons
discussed in the results of operations for the third quarter.
Personal-care Products and Services segment revenues were $30.4 million
and $30.5 million in the first nine months of fiscal 1999 and 1998,
respectively. ThermoLase earned service revenues of $10.0 million in fiscal
1999, compared with $13.6 million in fiscal 1998. International revenues
decreased due to a decline in minimum guaranteed payments recorded upon granting
technology rights under international licensing arrangements. Revenues from
17
<PAGE>
First Nine Months Fiscal 1999 Compared With First Nine Months Fiscal 1998 (continued)
ThermoLase's licensing program decreased in fiscal 1999 compared with fiscal
1998, due to the reasons discussed in the results of operations for the third
quarter. Spa revenues decreased due to reduced demand and price reductions at
ThermoLase's spas in fiscal 1999 compared with fiscal 1998, as well as the
closure of ThermoLase's LaJolla and Miami spas during the first quarter of
fiscal 1999. These decreases in revenues were offset in part by the inclusion of
$2.8 million in revenues from The Greenhouse Spa, Inc., which was acquired in
June 1998.
ThermoLase earned product revenues of $20.4 million in the first nine
months of fiscal 1999, compared with $16.9 million in the first nine months of
fiscal 1998. Product revenues at ThermoLase include sales by CBI, and in the
fiscal 1999 period, beauty product sales at ThermoLase's spas and laser sales.
Revenues at CBI increased to $17.4 million in the first nine months of fiscal
1999 from $16.9 million in the first nine months of fiscal 1998, primarily due
to increased demand for its custom products. Product revenues also increased due
to the introduction of sales of SoftLight lasers in fiscal 1999, as well as an
increase in sales of beauty products at the spas.
Advanced Technology Research segment revenues, excluding intersegment
sales, increased to $49.4 million in the first nine months of fiscal 1999 from
$25.5 million in the first nine months of fiscal 1998. Revenues increased $22.4
million due to the inclusion of revenues from EMP, which was acquired in May
1998, and LNR, which was acquired in November 1998. Revenues also increased due
to an increase in government contracts.
The gross profit margin was 24% in the first nine months of fiscal 1999,
compared with 38% in the first nine months of fiscal 1998. The Medical Products
segment gross profit margin, excluding intersegment sales, decreased to 37% in
the first nine months of fiscal 1999 from 42% in the first nine months of fiscal
1998, excluding third quarter inventory and warranty provisions of $12.0 million
(Note 5). The gross profit margin decreased primarily due to the reasons
discussed in the results of operations for the third quarter and, to a lesser
extent, inventory provisions of $2.4 million in the second quarter of fiscal
1999. The Personal-care Products and Services segment gross profit margin,
excluding intersegment sales, decreased to negative 27% in the first nine months
of fiscal 1999 from 10% in the first nine months of fiscal 1998. ThermoLase's
service revenues had a negative gross profit of $10.6 million in fiscal 1999,
compared with a negative gross profit of $2.2 million in fiscal 1998. This
decrease in gross profit was primarily due to the reasons discussed in the
results of operations for the third quarter, as well as a decrease in
higher-margin minimum guaranteed payments relating to international licensing
arrangements and initial sign-up fees relating to the licensing program. The
gross profit margin at CBI decreased to 13% in fiscal 1999 from 31% in fiscal
1998, primarily due to the reasons discussed in the results of operations for
the third quarter. The gross profit margin from the Advanced Technology Research
segment, excluding intersegment sales, decreased to 32% in the first nine months
of 1999 from 39% in the first nine months of fiscal 1998. The decrease was
primarily due to the inclusion of lower-margin revenues at EMP and LNR.
Selling, general, and administrative expenses as a percentage of revenues
increased to 31% in the first nine months of fiscal 1999 from 25% in the first
nine months of fiscal 1998, primarily due to the reasons discussed in the
results of operations for the third quarter.
Research and development expenses increased to $30.6 million in the first
nine months of fiscal 1999 from $28.8 million in the first nine months of fiscal
1998. Research and development spending increased primarily due to the inclusion
of expenses at acquired companies, offset in part by ThermoLase's decrease in
spending related primarily to a reduction in the number of outside testing
facilities and consultants used, as well as a reduction in payroll costs.
During fiscal 1999, the Company undertook broad-scale restructuring
actions. As a result, the Company recorded restructuring and nonrecurring costs
of $73.4 million (Note 5).
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First Nine Months Fiscal 1999 Compared With First Nine Months Fiscal 1998 (continued)
Interest income decreased to $4.2 million in the first nine months of
fiscal 1999 from $10.2 million in the first nine months of fiscal 1998,
primarily due to the reasons discussed in the results of operations for the
third quarter. Interest expense decreased to $6.4 million in fiscal 1999 from
$7.2 million in fiscal 1998, primarily due to the reason discussed in the
results of operations for the third quarter.
Equity in loss of joint ventures in the accompanying statement of
operations represents ThermoLase's proportionate share of losses from its
international joint ventures.
Other expense in the first nine months of fiscal 1999 relates to the
write-down of an investment held by ThermoLase and a charge for impairment of a
note receivable, recorded in connection with certain restructuring actions (Note
5).
During the first nine months of fiscal 1998, the Company recorded a gain
of $23.8 million from the issuance of stock by subsidiary.
The effective tax rates in the first nine months of fiscal 1999 and 1998
reflect the establishment of a valuation allowance for the tax benefit
associated with losses arising at ThermoLase during the period. The Company
establishes valuation allowances in accordance with the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
Company believes that it is more likely than not that tax benefits that arose
during the period will not be used by ThermoLase prior to their expiration. The
effective tax rate in the first nine months of fiscal 1998 was lower than the
statutory federal income tax rate primarily due to the impact of a nontaxable
material gain on issuance of subsidiary stock offset in part by the ThermoLase
valuation allowance and the effect of state income taxes and certain
nondeductible expenses, including amortization of cost in excess of net assets
of acquired companies.
The Company recorded minority interest income of $5.8 million in the first
nine months of fiscal 1999, compared with minority interest expense of $3.9
million in the first nine months of fiscal 1998, primarily due to losses at Trex
Medical in the fiscal 1999 period. The Company is unable to record minority
interest income in ThermoLase's net loss, because the Company's minority
interest related to ThermoLase has been reduced to zero.
Liquidity and Capital Resources
Consolidated working capital was $205.1 million at July 3, 1999, compared
with $261.7 million at October 3, 1998. Included in working capital are cash,
cash equivalents, and available-for-sale investments of $62.5 million at July 3,
1999, compared with $165.2 million at October 3, 1998. Of the $62.5 million
balance at July 3, 1999, $8.3 million was held by the Company's majority-owned
subsidiaries, and the remainder was held by the Company and its wholly owned
subsidiary. In addition, as of July 3, 1999, the Company had $64.1 million
invested in an advance to Thermo Electron. Of the $64.1 million balance, $40.1
million was advanced by the Company's majority-owned subsidiaries and the
remainder by the Company and its wholly owned subsidiaries. Prior to the use of
a new domestic cash management arrangement between the Company and Thermo
Electron Corporation (Note 7), which became effective June 1, 1999, amounts
invested with Thermo Electron were included in cash and cash equivalents.
Net cash used in operating activities during the first nine months of
fiscal 1999 was $30.9 million. Cash was primarily used to fund the Company's
loss, excluding noncash items. A decrease in accounts receivable provided $11.4
million of cash during the period, due primarily to lower revenues at a majority
of Trex Medical's subsidiaries and, to a lesser extent, improved collections. An
increase in prepaid and refundable income taxes resulting from the tax benefit
for the period contributed to a $9.5 million increase in other current assets.
The Company used $8.9 million of cash during the period to fund an increase in
inventories and unbilled contract costs and fees, which was primarily due to
lower than expected sales at Trex Medical. Cash of $18.8 million was provided by
an increase in
19
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Liquidity and Capital Resources (continued)
other current liabilities, primarily due to restructuring costs recorded during
the third quarter of fiscal 1999, which were not paid as of July 3, 1999 (Note
5). Of the total restructuring costs accrued as of July 3, 1999, the Company
expects to pay $16.1 million during the remainder of calendar 1999, $3.4 million
in calendar 2000, and $7.9 million in calendar 2001, and thereafter. In
addition, the Company's Trex Medical subsidiary expects to incur an additional
$5.0 million for restructuring costs, primarily during the remainder of calendar
1999.
In connection with the acquisition of U.S. Surgical by Tyco International,
Ltd., and U.S. Surgical's decision to focus on other areas of its business, Trex
Medical has committed to purchase inventories that had been sold to U.S.
Surgical in prior periods. The purchase obligation of approximately $5.6 million
is payable through the end of calendar 2000.
Excluding available-for-sale investments and advance to affiliate
activity, the Company's primary investing activities primarily consisted of
$18.8 million, net of cash acquired, for an acquisition. Up to an additional
$5.0 million of cash or shares of Trex Communications common stock will be paid
or issued for the acquisition (Note 4). The Company also expended $9.6 million
for property, plant, and equipment during fiscal 1999.
The Company's financing activities provided $18.9 million of cash during
the first nine months of fiscal 1999. In June 1999, the Company sold shares of
its common stock to Thermo Electron, for proceeds of $41.8 million (Note 9).
During this period, two of the Company's majority-owned subsidiaries expended
$24.1 million to purchase their own securities. These purchases were funded from
working capital. As of July 3, 1999, an additional $2.4 million may be purchased
through December 1999 under a subsidiary's authorization from its Board of
Directors.
The Company believes its existing resources are sufficient to meet the
capital requirements of its existing operations for the foreseeable future.
Thermo Electron has expressed its willingness to lend Trex Medical up to $10
million for short-term liquidity should the need arise. ThermoLase has an
obligation to pay $40.5 million, in the aggregate, to the holders of redemption
rights if all of the holders thereof exercise their redemption rights in April
2001 when such rights become exercisable. ThermoLase does not have sufficient
funds to satisfy these obligations, and the exercise of the redemption rights
would have a material adverse effect on ThermoLase's liquidity and financial
position.
The Company plans to make capital additions of approximately $2.1 million
during the remainder of fiscal 1999. The Company expects that it will finance
acquisitions of businesses, if any, at its majority-owned and wholly owned
subsidiaries through a combination of internal funds and/or short-term
borrowings from Thermo Electron, although it has no agreement to ensure that
funds will be available from Thermo Electron on acceptable terms or at all.
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company and ThermoLase. Under
this plan, the Company and ThermoLase would be merged into and become wholly
owned subsidiaries of Thermo Electron (Note 8).
Year 2000
The following information constitutes a "Year 2000 Readiness Disclosure"
under the Year 2000 Information and Readiness Disclosure Act. The Company
continues to assess the potential impact of the year 2000 date recognition issue
on the Company's internal business systems, products, and operations. The
Company's year 2000 initiatives include (i) testing and upgrading significant
information technology systems and facilities; (ii) testing and developing
upgrades, if necessary, for the Company's current products and certain
discontinued products; (iii) assessing the year 2000 readiness of its key
suppliers and vendors; and (iv) developing a contingency plan.
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Year 2000 (continued)
The Company's State of Readiness
The Company has implemented a compliance program to ensure that its
critical information technology systems and non-information technology systems
will be ready for the year 2000. The first phase of the program, testing and
evaluating the Company's critical information technology systems and
non-information technology systems for year 2000 compliance, has been
substantially completed. During phase one, the Company tested and evaluated its
significant computer systems, software applications, and related equipment for
year 2000 compliance. The Company also evaluated the potential year 2000 impact
on its critical non-information technology systems, which efforts included
testing the year 2000 readiness of its manufacturing, utility, and
telecommunications systems at its critical facilities. The Company is currently
in phase two of its program, during which any material noncompliant information
technology systems or non-information technology systems that were identified
during phase one are prioritized and remediated. The Company is currently
upgrading or replacing its material noncompliant information technology system,
and this process was approximately 70% complete as of July 3, 1999. In many
cases, such upgrades or replacements are being made in the ordinary course of
business, without accelerating previously scheduled upgrades or replacements.
The Company believes that all of its material information technology systems and
critical facilities will be year 2000 compliant by the end of September 1999.
There can be no assurance that the Company will be able to identify all of the
year 2000 problems with its critical information technology systems and
facilities.
The Company has also implemented a compliance program to test and evaluate
the year 2000 readiness of the material products that it currently manufactures
and sells. The Company believes that all such material products are year 2000
compliant. However, as many of the Company's products are complex, interact with
or incorporate third-party products, and operate on computer systems that are
not under the Company's control, there can be no assurance that the Company has
identified all of the year 2000 problems with its current products. The Company
believes that certain of its older products, which it no longer manufactures or
sells, may not be year 2000 compliant nor capable of being upgraded to make them
year 2000 compliant. The Company is continuing to test and evaluate such
products. The Company is focusing its efforts on products that are still under
warranty, early in their expected life, and/or subject to FDA considerations
related to the year 2000. The Company is offering upgrades and/or identifying
potential solutions where reasonably practicable.
The Company is in the process of identifying and assessing the year 2000
readiness of key suppliers and vendors that are believed to be significant to
the Company's business operations. As part of this effort, the Company has
developed and is distributing questionnaires relating to year 2000 compliance to
its significant suppliers and vendors. To date, no significant supplier or
vendor has indicated that it believes its business operations will be materially
disrupted by the year 2000 issue. The Company has started to follow-up with
significant suppliers and vendors that indicate that they are not year 2000
compliant or that do not respond to the Company's questionnaires. The Company
has not completed the majority of its assessment of third-party risk, but
expects to be substantially completed by September 1999.
Contingency Plan
The Company has developed a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
The plan identifies and secures alternate suppliers. As the Company continues to
evaluate the year 2000 readiness of its business systems and facilities,
products, and significant suppliers and vendors, it will modify and adjust its
contingency plan as may be required.
21
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Year 2000 (continued)
Estimated Costs to Address the Company's Year 2000 Issues
To date, costs incurred in connection with the year 2000 issue have not
been material. The Company does not expect total year 2000 remediation costs to
be material, but there can be no assurance that the Company will not encounter
unexpected costs or delays in achieving year 2000 compliance. Year 2000 costs
relating to products and facilities were funded from working capital. All
internal costs and related external costs, other than capital additions, related
to year 2000 remediation have been and will continue to be expensed as incurred.
The Company does not track internal costs incurred for its year 2000 compliance
project. Such costs are principally the related payroll costs for its
information systems group.
Reasonably Likely Worst Case Scenario
At this point in time, the Company is not able to determine the most
reasonably likely worst case scenario to result from the year 2000 issue. One
possible worst case scenario would be that certain of the Company's material
suppliers or vendors experience business disruptions due to the year 2000 issue
and are unable to provide materials and services to the Company on time. The
Company's operations could be delayed or temporarily shut down, and it could be
unable to meet its obligations to customers in a timely fashion. The Company's
business, operations, and financial condition could be adversely affected in
amounts that cannot be reasonably estimated at this time. If the Company
believes that any of its key suppliers or vendors may not be year 2000
compliant, it will seek to identify and secure other suppliers or vendors as
part of its contingency plan.
Risks of the Company's Year 2000 Issues
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
Despite its efforts to ensure that its material current products are year 2000
compliant, the Company may see an increase in warranty and other claims,
especially those related to Company products that incorporate, or operate using,
third-party software or hardware. In addition, certain of the Company's older
products, which it no longer manufactures or sells, may not be year 2000
compliant, which may expose the Company to claims. As discussed above, if any of
the Company's material suppliers or vendors experience business disruptions due
to year 2000 issues, the Company might also be materially adversely affected.
There is expected to be a significant amount of litigation relating to the year
2000 issue, and there can be no assurance that the Company will not incur
material costs in defending or bringing lawsuits. In addition, if any year 2000
issues are identified, there can be no assurance that the Company will be able
to retain qualified personnel to remedy such issues. Any unexpected costs or
delays arising from the year 2000 issue could have a material adverse impact on
the Company's business, operations, and financial condition in amounts that
cannot be reasonably estimated at this time.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk from changes in foreign currency
exchange rates, interest rates, and equity prices has not changed materially
from its exposure at fiscal year-end 1998.
22
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PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
On May 6, 1999, the Company filed a Current Report on Form 8-K, dated May
3, 1999, with respect to restructuring and other charges by Trex Medical
Corporation totaling approximately $11 million.
On May 25, 1999, the Company filed a Current Report on Form 8-K, dated May
24, 1999, with respect to a proposed merger of the Company and its parent
company, Thermo Electron.
On July 12, 1999, the Company filed a Current Report on Form 8-K, dated as
of June 27, 1999, with respect to the sale by ThermoLase Corporation of the
stock of The Greenhouse Spa, Inc. and the assets of ThermoLase Corporation's day
spas.
23
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 13th day of August 1999.
THERMOTREX CORPORATION
/s/ Paul F. Kelleher
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-Kyriazi
Theo Melas-Kyriazi
Chief Financial Officer
24
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
10.1 Master Cash Management, Guarantee Reimbursement and Loan Agreement dated
as of June 1, 1999, by and between the Registrant and Thermo
Electron Corporation.
10.2 Amended and Restated Nonqualified Stock Option Plan of the Registrant.
10.3 Amended and Restated Directors Stock Option Plan of the Registrant.
10.4 Amended and Restated Deferred Compensation Plan for Directors of the Registrant.
10.5 Amended and Restated ThermoTrex Corporation - ThermoLase Corporation Nonqualified Stock Option Plan.
10.6 Amended and Restated ThermoTrex Corporation - Trex Medical Corporation Nonqualified Stock Option Plan.
10.7 Amended and Restated ThermoTrex Corporation - Trex Communications Corporation Nonqualified Stock
Option Plan.
10.8 Master Cash Management, Guarantee Reimbursement and Loan Agreement dated
as of June 1, 1999, by and between Trex Medical Corporation and
Thermo Electron Corporation (filed as Exhibit 10.1 to Trex
Medical Corporation's Quarterly Report on Form 10-Q for the
quarter ended July 3, 1999 [File No. 1-11827] and incorporated
herein by reference).
10.9 Master Cash Management, Guarantee Reimbursement and Loan Agreement dated
as of June 1, 1999, by and between ThermoLase Corporation and
Thermo Electron Corporation (filed as Exhibit 10.1 to ThermoLase
Corporation's Quarterly Report on Form 10-Q for the quarter ended
July 3, 1999 [File No. 1-13104] and incorporated herein by
reference).
10.10 Agreement for Sale of Shares dated June 4, 1999, between the Registrant
and Thermo Electron.
10.11 Stock Purchase Agreement between ThermoLase Corporation and TGH, LLC,
dated June 27, 1999 (filed as Exhibit 2.1 to ThermoLase
Corporation's Current Report on Form 8-K filed July 12, 1999
[File No. 1-13104] and incorporated by reference).
10.12 Asset Purchase Agreement between ThermoLase Corporation and GH Day
Spas, Inc., dated June 27, 1999 (filed as Exhibit 2.2 to
ThermoLase Corporation's Current Report on Form 8-K filed July
12, 1999 [File No. 1-13104] and incorporated by reference).
27 Financial Data Schedule.
</TABLE>
MASTER CASH MANAGEMENT, GUARANTEE
REIMBURSEMENT AND LOAN AGREEMENT
This AGREEMENT is entered into as of the 1st day of June, 1999 by and
between Thermo Electron Corporation, a Delaware corporation ("Thermo Electron")
and ThermoTrex Corporation, a Delaware corporation (the "Subsidiary").
WITNESSETH:
WHEREAS, Thermo Electron and the Subsidiary are party to a Master
Repurchase Agreement, which contains terms governing a cash management
arrangement between them and a Master Guarantee Reimbursement and Loan
Agreement, as amended and restated, which contains terms relating to
intercompany credit support and a short term borrowing facility;
WHEREAS, Thermo Electron and the Subsidiary desire to establish a new cash
management arrangement and short term borrowing facility between them in lieu of
the arrangements set forth in the Master Repurchase Agreement and the Master
Guarantee Reimbursement and Loan Agreement and also to consolidate the terms
relating to intercompany credit support in one agreement;
WHEREAS, the Subsidiary and other majority owned subsidiaries of Thermo
Electron that join in this Agreement (collectively, the "Majority-Owned
Subsidiaries") and their wholly-owned subsidiaries wish to enter into various
financial transactions, such as convertible or nonconvertible debt, loans,
equity offerings, and other contractual arrangements with third parties (the
"Underlying Obligations") and may provide credit support to, on behalf of or for
the benefit of, other subsidiaries of Thermo Electron ("Credit Support
Obligations");
WHEREAS, the Majority Owned Subsidiaries and Thermo Electron acknowledge
that the Majority Owned Subsidiaries and their wholly-owned subsidiaries may be
unable to enter into many kinds of Underlying Obligations without a guarantee of
their performance thereunder from Thermo Electron (a "Parent Guarantee") or
without obtaining Credit Support Obligations from other Majority Owned
Subsidiaries;
WHEREAS, certain Majority Owned Subsidiaries ("Second Tier Majority Owned
Subsidiaries") may themselves be majority owned subsidiaries of other Majority
Owned Subsidiaries ("First Tier Majority Owned Subsidiaries");
WHEREAS, for various reasons, Parent Guarantees of a Second Tier Majority
Owned Subsidiary's Underlying Obligations may be demanded and given without the
respective First Tier Majority Owned Subsidiary also issuing a guarantee of such
Underlying Obligation;
WHEREAS, Thermo Electron may itself make a loan or provide other credit to
a Second Tier Majority Owned Subsidiary or its wholly-owned subsidiaries under
circumstances where the applicable First Tier Majority Owned Subsidiary does not
provide such credit; and
<PAGE>
WHEREAS, Thermo Electron is willing to consider continuing to issue Parent
Guarantees and providing credit, and the Majority Owned Subsidiaries are willing
to consider continuing to provide Credit Support Obligations, on the terms and
conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each party hereto, the parties agree as follows:
1. Cash Management Arrangement. The Subsidiary directly, or through its
wholly-owned U.S. subsidiaries, may, from time to time, lend its excess cash to
Thermo Electron (a "Transaction"), on an unsecured basis, bearing interest at a
rate equal to the 30-day Dealer Commercial Paper Rate as reported in the Wall
Street Journal (the "DCP Rate") plus 50 basis points, which rate shall be
adjusted on the second business day of each fiscal month of the Subsidiary and
shall be in effect for the entirety of such fiscal month. The Subsidiary shall
institute a Transaction by depositing its excess cash in the Subsidiary's
concentration account at BankBoston Corporation ("BankBoston") or other bank
designated by Thermo Electron. At the end of each business day, the cash balance
deposited in the Subsidiary's concentration account shall be transferred to
Thermo Electron's intercompany account at BankBoston or other bank designated by
Thermo Electron. Thermo Electron shall indicate on its books the balance of the
Subsidiary's cash held by Thermo Electron under this arrangement. After each
fiscal month end, Thermo Electron shall provide the Subsidiary a report
indicating the Subsidiary's aggregate cash balance ("Excess Cash") held by
Thermo Electron hereunder. The Subsidiary shall have the right to withdraw all
or part of its Excess Cash upon 30 days' prior notice to Thermo Electron. Within
30 days of receipt of such withdrawal notice, Thermo Electron shall transfer the
portion of the Excess Cash requested for withdrawal to an account designated by
the Subsidiary. Thermo Electron shall maintain, at all times, cash, cash
equivalents and/or immediately available bank lines of credit equal to at least
50% of the cash balances of the Subsidiary and of all other participating
subsidiaries of Thermo Electron, other than wholly-owned subsidiaries of Thermo
Electron, held by Thermo Electron under this arrangement. Interest shall be
payable on the Excess Cash by Thermo Electron to the Subsidiary each fiscal
month in arrears. In addition, the Subsidiary's non-U.S. subsidiaries may, from
time to time, lend or advance their excess cash to Thermo Electron, on an
unsecured basis, bearing interest at rates set by Thermo Electron at the
beginning of each month, based to the extent practicable on comparable interest
rates generally available in the local jurisdiction of such participating
non-U.S. subsidiary. Further, Thermo Electron and such non-U.S. subsidiaries
participating in the cash management arrangement with Thermo Electron shall
establish mutually agreeable procedures governing such cash management
arrangement.
2. Loans and Advances. Upon request from the Subsidiary, Thermo Electron
may make loans and advances to the Subsidiary on a short-term, revolving credit
basis, from time to time, in such amounts as mutually determined by Thermo
Electron and the Subsidiary. The aggregate principal amount of such loans and
2
<PAGE>
advances shall be reflected on the books and records of the Subsidiary and
Thermo Electron. All such loans and advances shall be on an unsecured basis
unless specifically provided otherwise in separate loan documents executed at
that time. The Subsidiary shall pay interest on the aggregate unpaid principal
amount of such loans from time to time outstanding at a rate equal to the DCP
Rate plus one hundred fifty (150) basis points, which rate shall be adjusted on
the second business day of each fiscal month of the Subsidiary and shall be in
effect for the entirety of such fiscal month. If, however, one or more of the
Subsidiary's majority-owned U.S. subsidiaries (i.e., not wholly-owned) is also
participating in the cash management arrangement with Thermo Electron, then the
rate payable on the Subsidiary's outstanding principal balance shall be
calculated as follows: If the aggregate amount of the Subsidiary's
majority-owned U.S. subsidiaries' cash balances under the cash management
arrangement ("Majority-Owned Excess Cash") equals or exceeds the Subsidiary's
outstanding principal balance, then the Subsidiary shall pay interest on the
aggregate unpaid principal amount of such loans at a rate per annum equal to the
DCP Rate plus fifty (50) basis points. If the aggregate amount of the
Majority-Owned Excess Cash is less than the Subsidiary's outstanding principal
balance, then (A) the Subsidiary shall pay interest at a rate per annum equal to
the DCP Rate plus fifty (50) basis points on that portion of the unpaid
principal amount equal to the Majority-Owned Excess Cash, and (B) the Subsidiary
shall pay interest at a rate per annum equal to the DCP Rate plus one hundred
fifty (150) basis points on that portion of the unpaid principal amount equal to
(i) the Subsidiary's outstanding principal balance, minus (ii) the
Majority-Owned Excess Cash. The interest rates set forth in the prior two
sentences shall be adjusted on the second business day of each fiscal month of
the Subsidiary and shall be in effect for the entirety of such fiscal month.
Interest shall be computed on a 360-day basis. Interest is payable each fiscal
month in arrears. The aggregate principal amount outstanding shall be payable
within 30 days of demand by Thermo Electron. Overdue principal and interest
shall bear interest at a rate per annum equal to the rate of interest published
from time to time in the Wall Street Journal as the "prime rate" plus one
percent (1%). The principal and accrued interest may be paid by the Subsidiary
at any time or from time to time, in whole or in part, without premium or
penalty. All payments shall be applied first to accrued interest and then to
principal. At the end of each business day, Thermo Electron shall apply the
balance of the Subsidiary's Excess Cash held by Thermo Electron under the cash
management arrangement toward the payment of any loans or advances to the
Subsidiary. Principal and interest shall be payable in lawful money of the
United States of America, in immediately available funds, at the principal
office of Thermo Electron or at such other place as Thermo Electron may
designate from time to time in writing to the Subsidiary. The unpaid principal
amount of any such borrowings, and accrued interest thereon, shall become
immediately due and payable, without demand, upon occurrence of any of the
following events:
(a) the failure of the Subsidiary to pay any amount due hereunder within
fifteen (15) days of the date when due;
(b) the failure of the Subsidiary to pay its debts as they become due, the
filing by or against the Subsidiary of any petition under the U.S.
Bankruptcy Code (or the filing of any similar petition under the
insolvency law of any jurisdiction), or the making by the Subsidiary of an
assignment or trust mortgage for the benefit of creditors or the
appointment of a receiver, custodian or similar agent with respect to, or
the taking by any such person of possession of, any material property of
the Subsidiary;
(c) the sale by the Subsidiary of all or substantially all of its
assets;
3
<PAGE>
(d) the merger or consolidation of the Subsidiary with or into any other
corporation in a transaction in which the Subsidiary is not the surviving
entity;
(e) the issuance of any writ of attachment, by trustee process or
otherwise, or any restraining order or injunction against or affecting the
person or property of the Subsidiary that is not removed, repealed or
dismissed within thirty (30) days of issuance and as a result has a
material adverse effect on the business, operations, assets or condition,
financial or otherwise, of the Subsidiary or its ability to discharge any
of its liabilities or obligations to Thermo Electron; and
(f) the suspension of the transaction of the usual business of the
Subsidiary.
3. Guarantee Arrangements.
(a) If Thermo Electron provides a Parent Guarantee of an Underlying
Obligation, and the beneficiary(ies) of the Parent Guarantee enforce the
Parent Guarantee, or Thermo Electron performs under the Parent Guarantee
for any other reason, then the Majority Owned Subsidiary that is
obligated, either directly or indirectly through a wholly-owned
subsidiary, under such Underlying Obligation shall indemnify and save
harmless Thermo Electron from any liability, cost, expense or damage
(including reasonable attorneys' fees) suffered by Thermo Electron as a
result of the Parent Guarantee. If the Underlying Obligation is issued by
a Second Tier Majority Owned Subsidiary or a wholly-owned subsidiary
thereof, and such Second Tier Majority Owned Subsidiary is unable to fully
indemnify Thermo Electron (because of the poor financial condition of such
Second Tier Majority Owned Subsidiary, or for any other reason), then the
First Tier Majority Owned Subsidiary that owns the majority of the stock
of such Second Tier Majority Owned Subsidiary shall indemnify and save
harmless Thermo Electron from any remaining liability, cost, expense or
damage (including reasonable attorneys' fees) suffered by Thermo Electron
as a result of the Parent Guarantee. If a Majority Owned Subsidiary or a
wholly-owned subsidiary thereof provides a Credit Support Obligation for
any subsidiary of Thermo Electron, other than a subsidiary of such
Majority Owned Subsidiary, and the beneficiary(ies) of the Credit Support
Obligation enforce the Credit Support Obligation, or the Majority Owned
Subsidiary or its wholly-owned subsidiary performs under the Credit
Support Obligation for any other reason, then Thermo Electron shall
indemnify and save harmless the Majority Owned Subsidiary or its
wholly-owned subsidiary, as applicable, from any liability, cost, expense
or damage (including reasonable attorneys' fees) suffered by the Majority
Owned Subsidiary or its wholly-owned subsidiary, as applicable, as a
result of the Credit Support Obligation. Without limiting the foregoing,
Credit Support Obligations include the deposit of funds by a Majority
Owned Subsidiary or a wholly-owned subsidiary thereof in a credit
arrangement with a banking facility whereby such funds are available to
the banking facility as collateral for overdraft obligations of other
Majority Owned Subsidiaries or their subsidiaries also participating in
the credit arrangement with such banking facility. Nothwithstanding the
foregoing, in order to obtain the benefits of the indemnification
obligations of the First Tier Majority Owned Subsidiary set forth above in
4
<PAGE>
this Section 3(a), Thermo Electron must have notified the First Tier
Majority Owned Subsidiary prior to guaranteeing the obligations of the
Second Tier Majority Owned Subsidiary. If after five (5) business days,
Thermo Electron has not received from the First Tier Majority Owned
Subsidiary a notice of objection stating that the First Tier Majority
Owned Subsidiary objects to Thermo Electron guaranteeing the obligations
of the Second Tier Majority Owned Subsidiary, then Thermo Electron may
proceed to issue its guarantee of the Underlying Obligation and such
guarantee shall be subject to the benefits of the indemnification
obligations of the First Tier Majority Owned Subsidiary set forth above in
this Section 3(a). If Thermo Electron does receive such notice of
objection, then Thermo Electron's guarantee shall not be subject to the
indemnification obligations of the First Tier Majority Owned Subsidiary
set forth above in this Section 3(a).
(b) For purposes of this Agreement, the term "guarantee" shall include not
only a formal guarantee of an obligation, but also any other arrangement
where Thermo Electron is liable for the obligations of a Majority Owned
Subsidiary or its wholly-owned subsidiaries. Such other arrangements
include (a) representations, warranties and/or covenants or other
obligations joined in by Thermo Electron, whether on a joint or joint and
several basis, for the benefit of the Majority Owned Subsidiary or its
wholly-owned subsidiaries and (b) responsibility of Thermo Electron by
operation of law for the acts and omissions of the Majority Owned
Subsidiary or its wholly-owned subsidiaries, including controlling person
liability under securities and other laws.
(c) Promptly after Thermo Electron receives notice that a beneficiary of a
Parent Guarantee is seeking to enforce such Parent Guarantee, Thermo
Electron shall notify the Majority Owned Subsidiary(s) obligated, either
directly or indirectly through a wholly-owned subsidiary, under the
relevant Underlying Obligation. Such Majority Owned Subsidiary(s) or
wholly-owned subsidiary thereof, as applicable, shall have the right, at
its own expense, to contest the claim of such beneficiary. If a Majority
Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is
contesting the claim of such beneficiary, Thermo Electron will not perform
under the relevant Parent Guarantee unless and until, in Thermo Electron's
reasonable judgment, Thermo Electron is obligated under the terms of such
Parent Guarantee to perform. Subject to the foregoing, any dispute between
a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as
applicable, and a beneficiary of a Parent Guarantee shall not affect such
Majority Owned Subsidiary's obligation to promptly indemnify Thermo
Electron hereunder. Promptly after a Majority Owned Subsidiary or
wholly-owned subsidiary thereof, as applicable, receives notice that a
beneficiary of a Credit Support Obligation is seeking to enforce such
Credit Support Obligation, the Majority Owned Subsidiary shall notify
Thermo Electron. Thermo Electron shall have the right, at its own expense,
to contest the claim of such beneficiary. If Thermo Electron or the
subsidiary of Thermo Electron on whose behalf the Credit Support
Obligation is given is contesting the claim of such beneficiary, the
Majority Owned Subsidiary or wholly-owned subsidiary thereof, as
applicable, will not perform under the relevant Credit Support Obligation
unless and until, in the Majority Owned Subsidiary's reasonable judgment,
the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as
applicable, is obligated under the terms of such Credit Support Obligation
5
<PAGE>
to perform. Subject to the foregoing, any dispute between Thermo Electron
or the subsidiary of Thermo Electron on whose behalf the Credit Support
Obligation was given, on the one hand, and a beneficiary of a Credit
Support Obligation, on the other, shall not affect Thermo Electron's
obligation to promptly indemnify the Majority Owned Subsidiary or its
wholly-owned subsidiary, as applicable, hereunder.
(d) If Thermo Electron makes a loan or provides other credit ("Credit
Extension") to a Second Tier Majority Owned Subsidiary, the First Tier Majority
Owned Subsidiary that owns the majority of the stock of such Second Tier
Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned
Subsidiary's obligations to Thermo Electron thereunder. Such guaranty shall be
enforced only after Thermo Electron, in its reasonable judgment, determines that
the Second Tier Majority Owned Subsidiary is unable to fully perform its
obligations under the Credit Extension. If Thermo Electron provides Credit
Extension to a wholly-owned subsidiary of a Second Tier Majority Owned
Subsidiary, the Second Tier Majority Owned Subsidiary hereby guarantees it
wholly-owned subsidiary's obligations to Thermo Electron thereunder and the
First Tier Majority Owned Subsidiary that owns the majority of the stock of such
Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier Majority
Owned Subsidiary's obligations to Thermo Electron hereunder. Such guaranty by
the First Tier Majority Owned Subsidiary shall be enforced only after Thermo
Electron, in its reasonable judgment, determines that the Second Tier Majority
Owned Subsidiary is unable to fully perform its guaranty obligation hereunder.
Notwithstanding the foregoing, in order for a Credit Extension to be deemed
guaranteed by the First Tier Majority Owned Subsidiary as set forth above in
this Section 3(d), Thermo Electron must have notified the First Tier Majority
Owned Subsidiary prior to providing the Credit Extension to the Second Tier
Majority Owned Subsidiary. If after five (5) business days, Thermo Electron has
not received from the First Tier Majority Owned Subsidiary a notice of objection
stating that the First Tier Majority Owned Subsidiary objects to Thermo Electron
providing a Credit Extension to the Second Tier Majority Owned Subsidiary, then
Thermo Electron may proceed to issue the Credit Extension to the Second Tier
Majority Owned Subsidiary and the First Tier Majority Owned Subsidiary shall be
deemed to have guaranteed such Credit Extension as set forth above in this
Section 3(d). If Thermo Electron does receive such notice of objection, then
Thermo Electron's Credit Extension shall not be deemed guaranteed by the First
Tier Majority Owned Subsidiary as set forth in this Section 3(d).
(e) All payments required to be made under this Section 3 by a Majority
Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall be made
within two days after receipt of notice from Thermo Electron. All payments
required to be made under this Section 3 by Thermo Electron shall be made within
two days after receipt of notice from the Majority Owned Subsidiary.
6
<PAGE>
4. Waivers. No delay or omission on the part of either party in exercising
any right hereunder shall operate as a waiver of such right or of any other
right of the party, nor shall any delay, omission or waiver on any one occasion
be deemed a bar to or waiver of the same or any other right on any future
occasion. The Subsidiary hereby waives demand, notice of prepayment, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of the Subsidiary's obligations hereunder.
The Subsidiary hereby assents to any indulgence and any extension of time for
payment of any indebtedness hereunder granted or permitted by the party.
5. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts applicable to
contracts made and performed therein without giving effect to any choice of law
provision or rule that would cause the application of laws of any jurisdiction
other than the Commonwealth of Massachusetts.
6. Severability. Each provision and agreement herein shall be treated as
separate and independent from any other provision or agreement herein and shall
be enforceable notwithstanding the unenforceability of any such other provision
or agreement.
7. Non-assignability. The rights and obligations of the parties under this
Agreement shall not be assigned by either party without the prior written
consent of the other party. Subject to the foregoing, this Agreement shall be
binding upon and shall inure to the benefit of the parties and their respective
successors and assigns.
8. Other Agreements. The parties agree that, effective as of the date
hereof, each of the Master Repurchase Agreement, as amended and restated,
between the Subsidiary and Thermo Electron and the Master Guarantee
Reimbursement and Loan Agreement, as amended and restated, between the
Subsidiary and Thermo Electron, is hereby terminated and is of no further force
and effect.
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first above written.
THERMO ELECTRON CORPORATION
By: /s/ Theo Melas-Kyriazi
---------------------------------
Title: Vice President and Chief Financial
Officer
THERMOTREX CORPORATION
By: /s/ Anne Pol
---------------------------------
Title: President
THERMOTREX CORPORATION
NONQUALIFIED STOCK OPTION PLAN
As amended and restated effective as of June 24, 1999
1. Purpose
This Nonqualified Stock Option Plan (the "Plan") is intended to
encourage ownership of Common Stock (the "Common Stock"), of ThermoTrex
Corporation ("Company"), by persons selected by the Board of Directors (or a
committee thereof) in its sole discretion, including directors, executive
officers, key employees and consultants of the Company and its subsidiaries, and
to provide additional incentive for them to promote the success of the business
of the Company. The Plan is intended to be a nonstatutory stock option plan.
2. Effective Date of the Plan
The Plan shall become effective when adopted by the Board of Directors
of the Company.
3. Stock Subject to Plan
Subject to adjustment as provided in Section 11, the total number of
shares of Common Stock reserved and available for issuance under the Plan and
the Company's Incentive Stock Option Plan in the aggregate shall be 2,445,000
shares. Shares to be issued upon the exercise of options granted under the Plan
may be either authorized but unissued shares or shares held by the Company in
its treasury. If any option expires or terminates for any reason without having
been exercised in full, the unpurchased shares subject thereto shall again be
available for options thereafter to be granted.
4. Administration
The Plan will be administered by the Board of Directors of the Company
(the "Board"). Subject to the provisions of the Plan, the Board shall have
complete authority, in its discretion, to make the following determinations with
respect to each option to be granted by the Company: (a) the person to receive
the option (the "Optionee"); (b) the time of granting the option; (c) the number
of shares subject thereto; (d) the option price; (e) the option period; (f) the
terms and conditions of options granted under the Plan (including terms and
conditions relating to events of merger, consolidation, dissolution and
liquidation, change of control, vesting, forfeiture, restrictions, dividends and
interest, if any, on deferred amounts); (g) waive compliance by an optionee with
any obligation to be performed by him or her under an option; (h) waive any term
or condition of an option; (i) cancel an existing option in whole or in part
with the consent of an Optionee; (j) grant replacement options; (k) accelerate
the vesting or lapse of any restrictions of any option; and (l) adopt the form
of instruments evidencing options under the Plan and change such forms from time
to time. In making such determinations, the Board may take into account the
nature of the services rendered by the Optionees, their present and potential
contributions to the success of the Company and/or one or more of its
subsidiaries, and such other factors as the Board in its discretion shall deem
relevant. Subject to the provisions of the Plan, the Board shall also have
complete authority to interpret the Plan, to prescribe, amend, and rescind rules
and regulations relating to it, to determine the terms and provisions of the
respective option agreements (which need not be identical), and to make all
other determinations necessary or advisable for the administration of the Plan.
Any interpretation by the Board of the terms and provisions of the Plan or any
Award thereunder and the administration thereof, and all action taken by the
Board, shall be final, binding and conclusive on all parties and any person
claiming under or through any party. No Director shall be liable for any action
or determination made in good faith. The Board may, to the full extent permitted
by law, delegate any or all of its responsibilities under the Plan to a
committee (the "Committee") appointed by the Board and consisting of two or more
members of the Board, each of whom shall be deemed a "disinterested person"
within the meaning of Rule 16b-3 (or any successor rule) of the Securities
Exchange Act of 1934 (the "Exchange Act").
5. Eligibility
An option may be granted to any person selected by the Board in its sole
discretion.
6. Time of Granting Options
The granting of an option shall take place at the time specified by the
Board. Only if expressly so provided by the Board shall the granting of an
option be regarded as taking place at the time when a written option agreement
shall have been duly executed and delivered by or on behalf of the Company and
the Optionee to whom such option shall be granted. The agreement shall provide,
among other things, that it does not confer upon an Optionee any right to
continue in the employ of the Company and/or one or more of its subsidiaries or
to continue as a director or consultant of the Company, and that it does not
interfere in any way with the right of the Company or any such subsidiary to
terminate the employment of the Optionee at any time if the Optionee is an
employee, to remove the Optionee as a director of the Company if the Optionee is
a director, or to terminate the services of the Optionee if the Optionee is a
consultant.
7. Option Period
An option may become exercisable immediately or in such installments,
cumulative or noncumulative, as the Board may determine.
8. Exercise of Option
An option may be exercised in accordance with its terms by written
notice of intent to exercise the option, specifying the number of shares of
stock with respect to which the option is then being exercised. The notice shall
be accompanied by payment in the form of cash or shares of Common Stock (the
"Tendered Shares") with a then current market value equal to the option price of
the shares to be purchased; provided, however, that such Tendered Shares shall
have been acquired by the Optionee more than six months prior to the date of
exercise, unless such requirement is waived in writing by the Company. Against
such payment the Company shall deliver or cause to be delivered to the Optionee
a certificate for the number of shares then being purchased, registered in the
name of the Optionee or other person exercising the option. If any law or
applicable regulation of the Securities and Exchange Commission or other body
having jurisdiction in the premises shall require the Company or the Optionee to
take any action in connection with shares being purchased upon exercise of the
option, exercise of the option and delivery of the certificate or certificates
for such shares shall be postponed until completion of the necessary action,
which shall be taken at the Company's expense.
9. Transferability
Except as may be authorized by the Board, in its sole discretion, no
Option may be transferred other than by will or the laws of descent and
distribution, and during a Optionee's lifetime an option requiring exercise may
be exercised only by him or her (or in the event of incapacity, the person or
persons properly appointed to act on his or her behalf). The Board may, in its
discretion, determine the extent to which options granted to an Optionee shall
be transferable, and such provisions permitting or acknowledging transfer shall
be set forth in the written agreement evidencing the option executed and
delivered by or on behalf of the Company and the Optionee.
10. Vesting, Restrictions and Termination of Options
The Board, in its sole discretion, may determine the manner in which
options shall vest, the rights of the Company to repurchase the shares issued
upon the exercise of any option and the manner in which such rights shall lapse,
and the terms upon which any option granted shall terminate. The Board shall
have the right to accelerate the date of exercise of any installment or to
accelerate the lapse of the Company's repurchase rights. All of such terms shall
be specified in a written option agreement executed and delivered by or on
behalf of the Company and the Optionee to whom such option shall be granted.
11. Adjustments in the Event of Certain Transactions
(a) In the event of a stock dividend, stock split or combination of
shares, or other distribution with respect to holders of Common Stock other than
normal cash dividends, the Board will make (i) appropriate adjustments to the
maximum number of shares that may be delivered under the Plan under Section 3
above, and (ii) appropriate adjustments to the number and kind of shares of
stock or securities subject to Options then outstanding or subsequently granted,
any exercise prices relating to Options and any other provisions of Awards
affected by such change.
(b) In the event of any recapitalization, merger or consolidation
involving the Company, any transaction in which the Company becomes a subsidiary
of another entity, any sale or other disposition of all or a substantial portion
of the assets of the Company or any similar transaction, as determined by the
Board, the Board in its discretion may make appropriate adjustments to
outstanding Options to avoid distortion in the operation of the Plan.
12. Change in Control
12.1 Impact of Event
In the event of a "Change in Control" as defined in Section 12.2, the
following provisions shall apply, unless the agreement evidencing the Option
otherwise provides (by specific explicit reference to Section 12.2 below). If a
Change in Control occurs while any Options are outstanding, then, effective upon
the Change in Control, (i) each outstanding stock option granted under the Plan
that was not previously exercisable and vested shall become immediately
exercisable in full and will no longer be subject to a right of repurchase by
the Company, (ii) each outstanding Option subject to restrictions and to the
extent not fully vested, shall be deemed to be fully vested, free of
restrictions and no longer subject to a right of repurchase by the Company, and
(iii) performance of other conditions (other than conditions relating solely to
the passage of time, continued employment or affiliation) will continue to apply
unless otherwise provided in the agreement evidencing the Option or in any other
agreement between the Optionee and the Company or unless otherwise agreed by the
Board.
12.2 Definition of "Change in Control"
"Change in Control" means an event or occurrence set forth in any one or
more of subsections (a) through (d) below (including an event or occurrence that
constitutes a Change in Control under one of such subsections but is
specifically exempted from another such subsection):
(a) the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership of any capital stock of Thermo Electron Corporation
("Thermo Electron") if, after such acquisition, such Person beneficially owns
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) 40% or
more of either (i) the then-outstanding shares of common stock of Thermo
Electron (the "Outstanding TMO Common Stock") or (ii) the combined voting power
of the then-outstanding securities of Thermo Electron entitled to vote generally
in the election of directors (the "Outstanding TMO Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change in Control: (i) any acquisition by
Thermo Electron, (ii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by Thermo Electron or any corporation controlled
by Thermo Electron, or (iii) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i) and (ii) of subsection (c) of this
definition; or
(b) such time as the Continuing Directors (as defined below) do not
constitute a majority of the Board of Directors of Thermo Electron (the "Thermo
Board") (or, if applicable, the Board of Directors of a successor corporation to
Thermo Electron), where the term "Continuing Director" means at any date a
member of the Thermo Board (i) who was a member of the Thermo Board as of July
1, 1999 or (ii) who was nominated or elected subsequent to such date by at least
a majority of the directors who were Continuing Directors at the time of such
nomination or election or whose election to the Thermo Board was recommended or
endorsed by at least a majority of the directors who were Continuing Directors
at the time of such nomination or election; provided, however, that there shall
be excluded from this clause (ii) any individual whose initial assumption of
office occurred as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents, by or on behalf of a person other than the
Thermo Board; or
(c) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving Thermo Electron or a sale
or other disposition of all or substantially all of the assets of Thermo
Electron in one or a series of transactions (a "Business Combination"), unless,
immediately following such Business Combination, each of the following two
conditions is satisfied: (i) all or substantially all of the individuals and
entities who were the beneficial owners of the Outstanding TMO Common Stock and
Outstanding TMO Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of the then-outstanding
shares of common stock and the combined voting power of the then-outstanding
securities entitled to vote generally in the election of directors,
respectively, of the resulting or acquiring corporation in such Business
Combination (which shall include, without limitation, a corporation which as a
result of such transaction owns Thermo Electron or substantially all of Thermo
Electron's assets either directly or through one or more subsidiaries) (such
resulting or acquiring corporation is referred to herein as the "Acquiring
Corporation") in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding TMO Common
Stock and Outstanding TMO Voting Securities, respectively; and (ii) no Person
(excluding the Acquiring Corporation or any employee benefit plan (or related
trust) maintained or sponsored by Thermo Electron or by the Acquiring
Corporation) beneficially owns, directly or indirectly, 40% or more of the then
outstanding shares of common stock of the Acquiring Corporation, or of the
combined voting power of the then-outstanding securities of such corporation
entitled to vote generally in the election of directors; or
(d) approval by the stockholders of Thermo Electron of a complete
liquidation or dissolution of Thermo Electron.
13. Limitation of Rights in Option Stock
The Optionees shall have no rights as stockholders in respect of shares
as to which their options shall not have been exercised, certificates issued and
delivered and payment as herein provided made in full, and shall have no rights
with respect to such shares not expressly conferred by this Plan.
14. Stock Reserved
The Company shall at all times during the term of the options reserve
and keep available such number of shares of the Common Stock as will be
sufficient to satisfy the requirements of this Plan and shall pay all other fees
and expenses necessarily incurred by the Company in connection therewith.
15. Securities Laws Restrictions
Each Optionee exercising an option, at the request of the Company, will
be required to give a representation in form satisfactory to counsel for the
Company that he will not transfer, sell or otherwise dispose of the shares
received upon exercise of the option at any time purchased by him, upon exercise
of any portion of the option, in a manner which would violate the Securities Act
of 1933, as amended, and the regulations of the Securities and Exchange
Commission thereunder and the Company may, if required or at its discretion,
make a notation on any certificates issued upon exercise of options to the
effect that such certificate may not be transferred except after receipt by the
Company of an opinion of counsel satisfactory to it to the effect that such
transfer will not violate such Act and such regulations.
16. Tax Withholding
The Company shall have the right to deduct from payments of any kind
otherwise due to an Optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan (the "withholding requirements"). The Board will have
the right to require that the Optionee or other appropriate person remit to the
Company an amount sufficient to satisfy the withholding requirements, or make
other arrangements satisfactory to the Board with regard to such requirements,
prior to the delivery of any Common Stock pursuant to exercise of an option. If
and to the extent that such withholding is required, the Board may permit the
Optionee or such other person to elect at such time and in such manner as the
Board provides to have the Company hold back from the shares to be delivered, or
to deliver to the Company, Common Stock having a value calculated to satisfy the
withholding requirements.
17. Termination and Amendment
The Plan shall remain in full force and effect until terminated by the
Board. Subject to the last sentence of this Section 17, the Board may at any
time or times amend the Plan or any outstanding Option for any purpose that may
at the time be permitted by law, or may at any time terminate the Plan as to any
further grants of Options. No amendment of the Plan or any agreement evidencing
Options under the Plan may adversely affect the rights of any participant under
any Option previously granted without such participant's consent.
THERMOTREX CORPORATION
DIRECTORS STOCK OPTION PLAN
As amended and restated effective as of June 24, 1999
1. Purpose
The purpose of this Directors Stock Option Plan (the "Plan") of
ThermoTrex Corporation (the "Company") is to encourage ownership in the Company
by outside directors of the Company whose services are considered essential to
the Company's growth and progress and to provide them with a further incentive
to become directors and to continue as directors of the Company. The Plan is
intended to be a nonstatutory stock option plan.
2. Administration
The Board of Directors, or a Committee (the "Committee") consisting of
one or more directors of the Company appointed by the Board of Directors, shall
supervise and administer the Plan. Grants of stock options under the Plan and
the amount and nature of the options to be granted shall be automatic in
accordance with Section 5. However, all questions of interpretation of the Plan
or of any stock options granted under it shall be determined by the Board of
Directors or the Committee and such determination shall be final and binding
upon all persons having an interest in the Plan.
3. Participation in the Plan
Directors of the Company who are not employees of the Company or any
subsidiary or parent of the Company shall be eligible to participate in the
Plan. Directors who receive grants of stock options in accordance with this Plan
are sometimes referred to herein as "Optionees."
4. Stock Subject to the Plan
The maximum number of shares that may be issued under the Plan shall be
225,000 shares of the Company's Common Stock (the "Common Stock"), subject to
adjustment as provided in Section 9. Shares to be issued upon the exercise of
options granted under the Plan may be either authorized but unissued shares or
shares held by the Company in its treasury. If any option expires or terminates
for any reason without having been exercised in full, the unpurchased shares
subject thereto shall again be available for options thereafter to be granted.
5. Terms and Conditions
A. Annual Stock Option Grants
Each Director of the Company who meets the requirements of Section 3 and
who is holding office immediately following the Annual Meeting of Stockholders
commencing with the Annual Meeting of Stockholders held in calendar year 1996,
shall be granted an option to purchase 1,000 shares of Common Stock at the close
of business on the date of such Annual Meeting.
B. General Terms and Conditions Applicable to All Grants.
1. Options shall be immediately exercisable at any time from and
after the grant date and prior to the date which is the earliest
of:
(a) three years after the grant date for options granted
under Section 5(A), (b) two years after the Optionee ceases to
serve as a director of the Company, Thermo Electron or any
subsidiary of Thermo Electron (one year in the event the Optionee
ceases to meet the requirements of this Subsection by reason of
his or her death), or (c) the date of dissolution or liquidation
of the Company.
2. The exercise price at which Options are granted hereunder
shall be the average of the closing prices reported by the
national securities exchange on which the Common Stock is
principally traded for the five trading days immediately
preceding and including the date the option is granted or, if
such security is not traded on an exchange, the average last
reported sale price for the five-day period on the NASDAQ
National Market List, or the average of the closing bid prices
for the five-day period last quoted by an established quotation
service for over-the-counter securities, or if none of the above
shall apply, the last price paid for shares of the Common Stock
by independent investors in a private placement.
3. All options shall be evidenced by a written agreement
substantially in such form as shall be approved by the Board of
Directors or Committee, containing terms and conditions
consistent with the provisions of this Plan.
6. Exercise of Options
A. Exercise/Consideration
An option may be exercised in accordance with its terms by written
notice of intent to exercise the option, specifying the number of shares of
stock with respect to which the option is then being exercised. The notice shall
be accompanied by payment in the form of cash or shares of Common Stock of the
Company (the shares so tendered referred to herein as "Tendered Shares") with a
then current market value equal to the exercise price of the shares to be
purchased; provided, however, that such Tendered Shares shall have been acquired
by the Optionee more than six months prior to the date of exercise (unless such
requirement is waived in writing by the Company). Against such payment the
Company shall deliver or cause to be delivered to the Optionee a certificate for
the number of shares then being purchased, registered in the name of the
Optionee or other person exercising the option. If any law or applicable
regulation of the Securities and Exchange Commission or other body having
jurisdiction in the premises shall require the Company or the Director to take
any action in connection with shares being purchased upon exercise of the
option, exercise of the option and delivery of the certificate or certificates
for such shares shall be postponed until completion of the necessary action,
which shall be taken at the Company's expense.
B. Tax Withholding
The Company shall have the right to deduct from payments of any kind
otherwise due to the Optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the Optionee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option or (ii) by delivering to the Company shares of Common Stock already
owned by the Optionee. The shares so delivered or withheld shall have a fair
market value equal to such withholding obligation. The fair market value of the
shares used to satisfy such withholding obligation shall be determined by the
Company as of the date that the amount of tax to be withheld is to be
determined. Notwithstanding the foregoing, no election to use shares for the
payment of withholding taxes shall be effective unless made in compliance with
any applicable requirements of Rule 16b-3.
7. Transferability
Except as may be authorized by the Board, in its sole discretion, no
Option may be transferred other than by will or the laws of descent and
distribution, and during an Optionee's lifetime an Option may be exercised only
by him or her (or in the event of incapacity, the person or persons properly
appointed to act on his or her behalf). The Board may, in its discretion,
determine the extent to which Options granted to an Optionee shall be
transferable, and such provisions permitting or acknowledging transfer shall be
set forth in the written agreement evidencing the Option executed and delivered
by or on behalf of the Company and the Optionee.
8. Limitation of Rights to Continue as a Director
Neither the Plan, nor the quantity of shares subject to options granted
under the Plan, nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain a Director for any period of time, or at any
particular rate of compensation.
9. Adjustments in the Event of Certain Transactions
(a) In the event of a stock dividend, stock split or combination of
shares, or other distribution with respect to holders of Common Stock other than
normal cash dividends, the Board will make (i) appropriate adjustments to the
maximum number of shares that may be delivered under the Plan under Section 4
above, and (ii) appropriate adjustments to the number and kind of shares of
stock or securities subject to Options then outstanding or subsequently granted,
any exercise prices relating to Options and any other provisions of Options
affected by such change.
(b) In the event of any recapitalization, merger or consolidation
involving the Company, any transaction in which the Company becomes a subsidiary
of another entity, any sale or other disposition of all or a substantial portion
of the assets of the Company or any similar transaction, as determined by the
Board, the Board in its discretion may make appropriate adjustments to
outstanding Options to avoid distortion in the operation of the Plan.
10. Limitation of Rights in Option Stock
The Optionees shall have no rights as stockholders in respect of shares
as to which their options shall not have been exercised, certificates issued and
delivered and payment as herein provided made in full, and shall have no rights
with respect to such shares not expressly conferred by this Plan or the written
agreement evidencing options granted hereunder.
11. Stock Reserved
The Company shall at all times during the term of the options reserve
and keep available such number of shares of the Common Stock as will be
sufficient to permit the exercise in full of all options granted under this Plan
and shall pay all other fees and expenses necessarily incurred by the Company in
connection therewith.
12. Securities Laws Restrictions
A. Investment Representations.
The Company may require any person to whom an option is granted, as a
condition of exercising such option, to give written assurances in substance and
form satisfactory to the Company to the effect that such person is acquiring the
Common Stock subject to the option for his or her own account for investment and
not with any present intention of selling or otherwise distributing the same,
and to such other effects as the Company deems necessary or appropriate in order
to comply with federal and applicable state securities laws.
B. Compliance with Securities Laws.
Each option shall be subject to the requirement that if, at any time,
counsel to the Company shall determine that the listing, registration or
qualification of the shares subject to such option upon any securities exchange
or under any state or federal law, or the consent or approval of any
governmental or regulatory body, or that the disclosure of non-public
information or the satisfaction of any other condition is necessary as a
condition of, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions acceptable to
the Board of Directors. Nothing herein shall be deemed to require the Company to
apply for or to obtain such listing, registration or qualification, or to
satisfy such condition.
13. Change in Control
A. Impact of Event
In the event of a "Change in Control" as defined in Section 13(A), the
following provisions shall apply, unless the agreement evidencing the Award
otherwise provides (by specific explicit reference to Section 13(B) below). If a
Change in Control occurs while any Options are outstanding, then, effective upon
the Change in Control, each outstanding Option under the Plan that was not
previously exercisable and vested shall become immediately exercisable in full
and will no longer be subject to a right of repurchase by the Company.
B. Definition of "Change in Control"
"Change in Control" means an event or occurrence set forth in any one or
more of subsections (a) through (d) below (including an event or occurrence that
constitutes a Change in Control under one of such subsections but is
specifically exempted from another such subsection):
(a) the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership of any capital stock of Thermo Electron Corporation
("Thermo Electron") if, after such acquisition, such Person beneficially owns
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) 40% or
more of either (i) the then-outstanding shares of common stock of Thermo
Electron (the "Outstanding TMO Common Stock") or (ii) the combined voting power
of the then-outstanding securities of Thermo Electron entitled to vote generally
in the election of directors (the "Outstanding TMO Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change in Control: (i) any acquisition by
Thermo Electron, (ii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by Thermo Electron or any corporation controlled
by Thermo Electron, or (iii) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i) and (ii) of subsection (c) of this
definition; or
(b) such time as the Continuing Directors (as defined below) do not
constitute a majority of the Board of Directors of Thermo Electron (the "Thermo
Board") (or, if applicable, the Board of Directors of a successor corporation to
Thermo Electron), where the term "Continuing Director" means at any date a
member of the Thermo Board (i) who was a member of the Thermo Board as of July
1, 1999 or (ii) who was nominated or elected subsequent to such date by at least
a majority of the directors who were Continuing Directors at the time of such
nomination or election or whose election to the Thermo Board was recommended or
endorsed by at least a majority of the directors who were Continuing Directors
at the time of such nomination or election; provided, however, that there shall
be excluded from this clause (ii) any individual whose initial assumption of
office occurred as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents, by or on behalf of a person other than the
Thermo Board; or
(c) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving Thermo Electron or a sale
or other disposition of all or substantially all of the assets of Thermo
Electron in one or a series of transactions (a "Business Combination"), unless,
immediately following such Business Combination, each of the following two
conditions is satisfied: (i) all or substantially all of the individuals and
entities who were the beneficial owners of the Outstanding TMO Common Stock and
Outstanding TMO Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of the then-outstanding
shares of common stock and the combined voting power of the then-outstanding
securities entitled to vote generally in the election of directors,
respectively, of the resulting or acquiring corporation in such Business
Combination (which shall include, without limitation, a corporation which as a
result of such transaction owns Thermo Electron or substantially all of Thermo
Electron's assets either directly or through one or more subsidiaries) (such
resulting or acquiring corporation is referred to herein as the "Acquiring
Corporation") in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding TMO Common
Stock and Outstanding TMO Voting Securities, respectively; and (ii) no Person
(excluding the Acquiring Corporation or any employee benefit plan (or related
trust) maintained or sponsored by Thermo Electron or by the Acquiring
Corporation) beneficially owns, directly or indirectly, 40% or more of the then
outstanding shares of common stock of the Acquiring Corporation, or of the
combined voting power of the then-outstanding securities of such corporation
entitled to vote generally in the election of directors; or
(d) approval by the stockholders of Thermo Electron of a complete
liquidation or dissolution of Thermo Electron.
14. Amendment of the Plan
The provisions of Sections 3 and 5 of the Plan shall not be amended more
than once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, or the rules thereunder.
Subject to the foregoing, the Board of Directors may at any time, and from time
to time, modify or amend the Plan in any respect, except that if at any time the
approval of the Stockholders of the Company is required as to such modification
or amendment under Rule 16b-3, the Board of Directors may not effect such
modification or amendment without such approval.
The termination or any modification or amendment of the Plan shall not,
without the consent of an Optionee, affect his or her rights under an option
previously granted to him or her. With the consent of the Optionees affected,
the Board of Directors may amend outstanding option agreements in a manner not
inconsistent with the Plan. The Board of Directors shall have the right to amend
or modify the terms and provisions of the Plan and of any outstanding option to
the extent necessary to ensure the qualification of the Plan under Rule 16b-3.
15. Effective Date of the Plan
The Plan shall become effective when adopted by the Board of Directors,
but no option granted under the Plan shall become exercisable until six months
after the Plan is approved by the Stockholders of the Company.
16. Notice
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Secretary of the Company and shall become
effective when it is received.
17. Governing Law
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware.
THERMOTREX CORPORATION
DEFERRED COMPENSATION PLAN FOR DIRECTORS
As amended and restated as of June 24, 1999
Section 1. Participation. Any director of ThermoTrex Corporation (the "Company")
may elect to have such percentage as he or she may specify of the fees otherwise
payable to him or her deferred and paid to him or her as provided in this Plan.
A director who is also an employee of the Company or any subsidiary or parent of
the Company, shall not be eligible to participate in this Plan. Each election
shall be made by notice in writing delivered to the Secretary of the Company, in
such form as the Secretary shall designate, and each election shall be
applicable only with respect to fees earned subsequent to the date of the
election for the period designated in the form. The term "participant" as used
herein refers to any director who shall have made an election. No participant
may defer the receipt of any fees to be earned after the later to occur of
either (a) the date on which the participant shall retire from or otherwise
cease to engage in his or her principal occupation or employment or (b) the date
on which he or she shall cease to be a director of the Company, or such earlier
date as the Board of Directors of the Company, with the participant's consent,
may designate (the "deferral termination date"). In the event that the
participant's deferral termination date is the date on which he or she ceases to
engage in his or her principal occupation or employment, the participant or a
personal representative shall advise the Company of that date by written notice
delivered to the Secretary of the Company.
Section 2. Establishment of Deferred Compensation Accounts. There shall be
established for each participant an account to be designated as that
participant's deferred compensation account.
Section 3. Allocations to Deferred Compensation Accounts. There shall be
allocated to each participant's deferred compensation account, as of the end of
each quarter, an amount equal to his or her fees for that quarter which that
participant shall have elected to have deferred pursuant to Section 1.
Section 4. Stock Units and Stock Unit Accounts. All amounts allocated to a
participant's deferred compensation account pursuant to Section 3 and Section 5
shall be converted, at the end of each quarter, into stock units by dividing the
accumulated balance in the deferred compensation account as of the end of that
quarter by the average last sale price per share of the Company's common stock
as reported in The Wall Street Journal, for the five business days up to and
including the last business day of that quarter. The number of stock units, so
determined, rounded to the nearest one-hundredth of a share, shall be credited
to a separate stock unit account to be established for the participant, and the
aggregate value thereof as of the last business day of that quarter shall be
charged to the participant's deferred compensation account. No amounts credited
to the participant's deferred compensation account pursuant to Section 5
subsequent to the close of the fiscal year in which occurs the participant's
deferral termination date shall be converted into stock units. Any such amount
shall be distributed in cash as provided in Section 8. A maximum number of
22,500 shares of the Company's common stock may be represented by stock units
credited under this Plan, subject to proportionate adjustment in the event of
any stock dividend, stock split or other capital change affecting the Company's
common stock.
Section 5. Cash Dividend Credits. Additional credits shall be made to a
participant's deferred compensation account, until all distributions shall have
been made from the participant's stock unit account, in amounts equal to the
cash dividends (or the fair market value of dividends paid in property other
than dividends payable in common stock of the Company) which the participant
would have received from time to time had he or she been the owner on the record
dates for the payment of such dividends of the number of shares of the Company's
common stock equal to the number of units in his or her stock unit account on
those dates.
Section 6. Stock Dividend Credits. Additional credits shall be made to a
participant's stock unit account, until all distributions shall have been made
from the participant's stock unit account, of a number of units equal to the
number of shares of the Company's common stock, rounded to the nearest
one-hundredth share, which the participant would have received from time to time
as stock dividends had he or she been the owner on the record dates for the
payments of such stock dividends of the number of units of the Company's common
stock equal to the number of units credited to his or her stock unit account on
those dates.
Section 7. Adjustments in the Event of Certain Transactions. In the event of a
stock dividend, stock split or combination of shares, or other distribution with
respect to holders of Common Stock other than normal cash dividends, the number
of units then credited to a partipant's stock unit account shall be
appropriately adjusted on the same basis. In the event of any recapitalization,
merger or consolidation involving the Company, any transaction in which the
Company becomes a subsidiary of another entity, any sale or other disposition of
all or a substantial portion of the assets of the Company or any similar
transaction, as determined by the Board, the Board in its discretion may
terminate the Plan pursuant to Section 11.
Section 8. Distribution of Stock and Cash After Participant's Deferral
Termination Date. When a participant's deferral termination date shall occur,
the Company shall become obligated to make the distributions prescribed in the
following paragraphs (a) and (b).
(a) The Company shall distribute to the participant the number of shares
of the common stock of the Company which shall equal the total number of units
accumulated in his or her stock unit account as of the close of the fiscal year
in which the participant's deferral termination date occurs. Such distribution
of stock shall be made in ten annual installments, unless, at least six months
prior to his or her deferral termination date, the participant shall have
elected, by notice in writing filed with the Secretary of the Company, to have
such distribution made in five annual installments. In either such case, the
installments shall be of as nearly equal number of shares as practicable,
adjusted to reflect any changes pursuant to Sections 6 and 7 in the number of
units remaining in the participant's stock unit account. The first such
installment shall be distributed within 60 days after the close of the fiscal
year in which the participant's deferral termination date occurs. The remaining
installments shall be distributed at annual intervals thereafter. Anything
herein to the contrary notwithstanding, the Company shall have the option, if
its Board of Directors shall by resolution so determine, in lieu of making
distribution in ten or five annual installments as set forth above, with the
participant's consent, to distribute stock or any remaining installments thereof
in a single distribution at any time following the close of the fiscal year in
which the participant's deferral termination date occurs. Distribution of stock
made hereunder may be made from shares of common stock held in the treasury
and/or from shares of authorized but previously unissued shares of common stock.
(b) The Company shall distribute to the participant sums in cash equal
to the balance credited to his or her deferred compensation account as of the
close of the fiscal year in which his or her deferral termination date occurs
plus such additional amounts as shall be credited thereto from time to time
thereafter pursuant to Section 5. The cash distribution shall be made on the
same dates as the annual distributions made pursuant to paragraph (a) above, and
each cash distribution shall consist of the entire balance credited to the
participant's deferred compensation account at the time of the annual
distribution.
If a participant's deferral termination date shall occur by reason of
his or her death or if he or she shall die after his or her deferral termination
date but prior to receipt of all distributions of stock and cash provided for in
this Section 8, all stock and cash remaining distributable hereunder shall be
distributed to such beneficiary as the participant shall have designated in
writing and filed with the Secretary of the Company or, in the absence of
designation, to the participant's personal representative. Such distributions
shall be made in the same manner and at the same intervals as they would have
been made to the participant had he or she continued to live.
Section 9. Participant's Rights Unsecured. The right of any participant to
receive distributions under Section 8 shall be an unsecured claim against the
general assets of the Company. The Company may but shall not be obligated to
acquire shares of its outstanding common stock from time to time in anticipation
of its obligation to make such distributions, but no participant shall have any
rights in or against any shares of stock so acquired by the Company. All such
stock shall constitute general assets of the Company and may be disposed of by
the Company at such time and for such purposes as it may deem appropriate.
10. Change in Control
10.1 Impact of Event
In the event of a "Change in Control" as defined in Section 10.2, the Plan shall
terminate and full distribution shall be made from all participants' deferred
compensation accounts and stock unit accounts effective upon the Change of
Control.
10.2 Definition of "Change in Control"
"Change in Control" means an event or occurrence set forth in any one or
more of subsections (a) through (d) below (including an event or occurrence that
constitutes a Change in Control under one of such subsections but is
specifically exempted from another such subsection):
(a) the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership of any capital stock of Thermo Electron Corporation
("Thermo Electron") if, after such acquisition, such Person beneficially owns
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) 40% or
more of either (i) the then-outstanding shares of common stock of Thermo
Electron (the "Outstanding TMO Common Stock") or (ii) the combined voting power
of the then-outstanding securities of Thermo Electron entitled to vote generally
in the election of directors (the "Outstanding TMO Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change in Control: (i) any acquisition by
Thermo Electron, (ii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by Thermo Electron or any corporation controlled
by Thermo Electron, or (iii) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i) and (ii) of subsection (c) of this
definition; or
(b) such time as the Continuing Directors (as defined below) do not
constitute a majority of the Board of Directors of Thermo Electron (the "Thermo
Board") (or, if applicable, the Board of Directors of a successor corporation to
Thermo Electron), where the term "Continuing Director" means at any date a
member of the Thermo Board (i) who was a member of the Thermo Board as of July
1, 1999 or (ii) who was nominated or elected subsequent to such date by at least
a majority of the directors who were Continuing Directors at the time of such
nomination or election or whose election to the Thermo Board was recommended or
endorsed by at least a majority of the directors who were Continuing Directors
at the time of such nomination or election; provided, however, that there shall
be excluded from this clause (ii) any individual whose initial assumption of
office occurred as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents, by or on behalf of a person other than the
Thermo Board; or
(c) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving Thermo Electron or a sale
or other disposition of all or substantially all of the assets of Thermo
Electron in one or a series of transactions (a "Business Combination"), unless,
immediately following such Business Combination, each of the following two
conditions is satisfied: (i) all or substantially all of the individuals and
entities who were the beneficial owners of the Outstanding TMO Common Stock and
Outstanding TMO Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of the then-outstanding
shares of common stock and the combined voting power of the then-outstanding
securities entitled to vote generally in the election of directors,
respectively, of the resulting or acquiring corporation in such Business
Combination (which shall include, without limitation, a corporation which as a
result of such transaction owns Thermo Electron or substantially all of Thermo
Electron's assets either directly or through one or more subsidiaries) (such
resulting or acquiring corporation is referred to herein as the "Acquiring
Corporation") in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding TMO Common
Stock and Outstanding TMO Voting Securities, respectively; and (ii) no Person
(excluding the Acquiring Corporation or any employee benefit plan (or related
trust) maintained or sponsored by Thermo Electron or by the Acquiring
Corporation) beneficially owns, directly or indirectly, 40% or more of the then
outstanding shares of common stock of the Acquiring Corporation, or of the
combined voting power of the then-outstanding securities of such corporation
entitled to vote generally in the election of directors; or
(d) approval by the stockholders of Thermo Electron of a complete
liquidation or dissolution of Thermo Electron.
Section 11. Amendment and Termination of the Plan. The Board of Directors of the
Company may amend or terminate the Plan at any time and from time to time,
provided, however, that no amendment adversely affecting credits already made to
any participant's deferred compensation account or stock unit account may be
made without the consent of that participant or, if that participant has died,
that participant's beneficiary. Upon termination of the Plan, the Company shall
be obligated to distribute to the participant either of the following as the
Board of Directors of the Company, in its sole discretion, may determine: (i)
the number of shares of the common stock of the Company which shall equal the
total number of units accumulated in the participant's stock unit account as of
the effective date of termination of the Plan or (ii) a sum in cash equal to the
balance credited to the participant's deferred compensation account as of the
effective date of termination of the Plan.
THERMOTREX CORPORATION
THERMOLASE CORPORATION NONQUALIFIED STOCK OPTION PLAN
As amended and restated effective as of June 24, 1999
1. Purpose
This Nonqualified Stock Option Plan (the "Plan") is intended to
encourage ownership of Common Stock (the "Common Stock"), of ThermoLase
Corporation ("Subsidiary"), a subsidiary of ThermoTrex Corporation (the
"Company"), by persons selected by the Board of Directors (or a committee
thereof) in its sole discretion, including directors, executive officers, key
employees and consultants of the Company and its subsidiaries, and to provide
additional incentive for them to promote the success of the business of the
Company and Subsidiary.
The Plan is intended to be a nonstatutory stock option plan.
2. Effective Date of the Plan
The Plan shall become effective when adopted by the Board of Directors
of the Company.
3. Stock Subject to Plan
Subject to adjustment as provided in Section 11, the total number of
shares of Common Stock reserved and available for issuance under the Plan shall
be 800,000 shares. Shares to be issued upon the exercise of options granted
under the Plan shall be shares of Subsidiary beneficially owned by the Company.
If any option expires or terminates for any reason without having been exercised
in full, the unpurchased shares subject thereto shall again be available for
options thereafter to be granted.
4. Administration
The Plan will be administered by the Board of Directors of the Company
(the "Board"). Subject to the provisions of the Plan, the Board shall have
complete authority, in its discretion, to make the following determinations with
respect to each option to be granted by the Company: (a) the person to receive
the option (the "Optionee"); (b) the time of granting the option; (c) the number
of shares subject thereto; (d) the option price; (e) the option period; and (f)
the terms and conditions of options granted under the Plan (including terms and
conditions relating to events of merger, consolidation, dissolution and
liquidation, change of control, vesting, forfeiture, restrictions, dividends and
interest, if any, on deferred amounts); (g) waive compliance by an optionee with
any obligation to be performed by him or her under an option; (h) waive any term
or condition of an option; (i) cancel an existing option in whole or in part
with the consent of an Optionee; (j) grant replacement options; (k) accelerate
the vesting or lapse of any restrictions of any option; and (l) adopt the form
of instruments evidencing options under the Plan and change such forms from time
to time.. In making such determinations, the Board may take into account the
nature of the services rendered by the Optionees, their present and potential
contributions to the success of the Company and/or one or more of its
subsidiaries, and such other factors as the Board in its discretion shall deem
relevant. Subject to the provisions of the Plan, the Board shall also have
complete authority to interpret the Plan, to prescribe, amend, and rescind rules
and regulations relating to it, to determine the terms and provisions of the
respective option agreements (which need not be identical), and to make all
other determinations necessary or advisable for the administration of the Plan.
Any interpretation by the Board of the terms and provisions of the Plan or any
Award thereunder and the administration thereof, and all action taken by the
Board, shall be final, binding and conclusive on all parties and any person
claiming under or through any party. No Director shall be liable for any action
or determination made in good faith. The Board may, to the full extent permitted
by law, delegate any or all of its responsibilities under the Plan to a
committee (the "Committee") appointed by the Board and consisting of two or more
members of the Board, each of whom shall be deemed a "disinterested person"
within the meaning of Rule 16b-3 (or any successor rule) of the Securities
Exchange Act of 1934 (the "Exchange Act").
5. Eligibility
An option may be granted to any person selected by the Board in its sole
discretion.
6. Time of Granting Options
The granting of an option shall take place at the time specified by the
Board. Only if expressly so provided by the Board shall the granting of an
option be regarded as taking place at the time when a written option agreement
shall have been duly executed and delivered by or on behalf of the Company and
the Optionee to whom such option shall be granted. The agreement shall provide,
among other things, that it does not confer upon an Optionee any right to
continue in the employ of the Company and/or one or more of its subsidiaries or
to continue as a director or consultant of the Company, and that it does not
interfere in any way with the right of the Company or any such subsidiary to
terminate the employment of the Optionee at any time if the Optionee is an
employee, to remove the Optionee as a director of the Company if the Optionee is
a director, or to terminate the services of the Optionee if the Optionee is a
consultant.
7. Option Period
An option may become exercisable immediately or in such installments,
cumulative or noncumulative, as the Board may determine.
8. Exercise of Option
An option may be exercised in accordance with its terms by written
notice of intent to exercise the option, specifying the number of shares of
stock with respect to which the option is then being exercised. The notice shall
be accompanied by payment in the form of cash or shares of Subsidiary Common
Stock (the "Tendered Shares") with a then current market value equal to the
option price of the shares to be purchased; provided, however, that such
Tendered Shares shall have been acquired by the Optionee more than six months
prior to the date of exercise, unless such requirement is waived in writing by
the Company. Against such payment the Company shall deliver or cause to be
delivered to the Optionee a certificate for the number of shares then being
purchased, registered in the name of the Optionee or other person exercising the
option. If any law or applicable regulation of the Securities and Exchange
Commission or other body having jurisdiction in the premises shall require the
Company, Subsidiary or the Optionee to take any action in connection with shares
being purchased upon exercise of the option, exercise of the option and delivery
of the certificate or certificates for such shares shall be postponed until
completion of the necessary action, which shall be taken at the Company's
expense.
9. Transferability
Except as may be authorized by the Board, in its sole discretion, no
Option may be transferred other than by will or the laws of descent and
distribution, and during a Optionee's lifetime an option requiring exercise may
be exercised only by him or her (or in the event of incapacity, the person or
persons properly appointed to act on his or her behalf). The Board may, in its
discretion, determine the extent to which options granted to an Optionee shall
be transferable, and such provisions permitting or acknowledging transfer shall
be set forth in the written agreement evidencing the option executed and
delivered by or on behalf of the Company and the Optionee.
10. Vesting, Restrictions and Termination of Options
The Board, in its sole discretion, may determine the manner in which
options shall vest, the rights of the Company to repurchase the shares issued
upon the exercise of any option and the manner in which such rights shall lapse,
and the terms upon which any option granted shall terminate. The Board shall
have the right to accelerate the date of exercise of any installment or to
accelerate the lapse of the Company's repurchase rights. All of such terms shall
be specified in a written option agreement executed and delivered by or on
behalf of the Company and the Optionee to whom such option shall be granted.
11. Adjustments in the Event of Certain Transactions
(a) In the event of a stock dividend, stock split or combination of
shares, or other distribution with respect to holders of Common Stock other than
normal cash dividends, the Board will make (i) appropriate adjustments to the
maximum number of shares that may be delivered under the Plan under Section 3
above, and (ii) appropriate adjustments to the number and kind of shares of
stock or securities subject to Options then outstanding or subsequently granted,
any exercise prices relating to Options and any other provisions of Awards
affected by such change.
(b) In the event of any recapitalization, merger or consolidation
involving the Company, any transaction in which the Company becomes a subsidiary
of another entity, any sale or other disposition of all or a substantial portion
of the assets of the Company, any transaction which results in Thermo Electron
Corporation ceasing to be the beneficial owner of a majority of the
then-outstanding shares of Common Stock, or any similar transaction, as
determined by the Board, the Board in its discretion may make appropriate
adjustments to outstanding Options to avoid distortion in the operation of the
Plan.
12. Change in Control
12.1 Impact of Event
In the event of a "Change in Control" as defined in Section 12.2, the
following provisions shall apply, unless the agreement evidencing the Option
otherwise provides (by specific explicit reference to Section 12.2 below). If a
Change in Control occurs while any Options are outstanding, then, effective upon
the Change in Control, (i) each outstanding stock option granted under the Plan
that was not previously exercisable and vested shall become immediately
exercisable in full and will no longer be subject to a right of repurchase by
the Company, (ii) each outstanding Option subject to restrictions and to the
extent not fully vested, shall be deemed to be fully vested, free of
restrictions and no longer subject to a right of repurchase by the Company, and
(iii) performance of other conditions (other than conditions relating solely to
the passage of time, continued employment or affiliation) will continue to apply
unless otherwise provided in the agreement evidencing the Option or in any other
agreement between the Optioneet and the Company or unless otherwise agreed by
the Board.
12.2 Definition of "Change in Control"
"Change in Control" means an event or occurrence set forth in any one or
more of subsections (a) through (d) below (including an event or occurrence that
constitutes a Change in Control under one of such subsections but is
specifically exempted from another such subsection):
(a) the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership of any capital stock of Thermo Electron Corporation
("Thermo Electron") if, after such acquisition, such Person beneficially owns
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) 40% or
more of either (i) the then-outstanding shares of common stock of Thermo
Electron (the "Outstanding TMO Common Stock") or (ii) the combined voting power
of the then-outstanding securities of Thermo Electron entitled to vote generally
in the election of directors (the "Outstanding TMO Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change in Control: (i) any acquisition by
Thermo Electron, (ii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by Thermo Electron or any corporation controlled
by Thermo Electron, or (iii) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i) and (ii) of subsection (c) of this
definition; or
(b) such time as the Continuing Directors (as defined below) do not
constitute a majority of the Board of Directors of Thermo Electron (the "Thermo
Board") (or, if applicable, the Board of Directors of a successor corporation to
Thermo Electron), where the term "Continuing Director" means at any date a
member of the Thermo Board (i) who was a member of the Thermo Board as of July
1, 1999 or (ii) who was nominated or elected subsequent to such date by at least
a majority of the directors who were Continuing Directors at the time of such
nomination or election or whose election to the Thermo Board was recommended or
endorsed by at least a majority of the directors who were Continuing Directors
at the time of such nomination or election; provided, however, that there shall
be excluded from this clause (ii) any individual whose initial assumption of
office occurred as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents, by or on behalf of a person other than the
Thermo Board; or
(c) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving Thermo Electron or a sale
or other disposition of all or substantially all of the assets of Thermo
Electron in one or a series of transactions (a "Business Combination"), unless,
immediately following such Business Combination, each of the following two
conditions is satisfied: (i) all or substantially all of the individuals and
entities who were the beneficial owners of the Outstanding TMO Common Stock and
Outstanding TMO Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of the then-outstanding
shares of common stock and the combined voting power of the then-outstanding
securities entitled to vote generally in the election of directors,
respectively, of the resulting or acquiring corporation in such Business
Combination (which shall include, without limitation, a corporation which as a
result of such transaction owns Thermo Electron or substantially all of Thermo
Electron's assets either directly or through one or more subsidiaries) (such
resulting or acquiring corporation is referred to herein as the "Acquiring
Corporation") in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding TMO Common
Stock and Outstanding TMO Voting Securities, respectively; and (ii) no Person
(excluding the Acquiring Corporation or any employee benefit plan (or related
trust) maintained or sponsored by Thermo Electron or by the Acquiring
Corporation) beneficially owns, directly or indirectly, 40% or more of the then
outstanding shares of common stock of the Acquiring Corporation, or of the
combined voting power of the then-outstanding securities of such corporation
entitled to vote generally in the election of directors; or
(d) approval by the stockholders of Thermo Electron of a complete
liquidation or dissolution of Thermo Electron.
13. Limitation of Rights in Option Stock
The Optionees shall have no rights as stockholders in respect of shares
as to which their options shall not have been exercised, certificates issued and
delivered and payment as herein provided made in full, and shall have no rights
with respect to such shares not expressly conferred by this Plan.
14. Stock Reserved
The Company shall at all times during the term of the options reserve
and keep available such number of shares of the Common Stock as will be
sufficient to satisfy the requirements of this Plan and shall pay all other fees
and expenses necessarily incurred by the Company in connection therewith.
15. Securities Laws Restrictions
Each Optionee exercising an option, at the request of the Company, will
be required to give a representation in form satisfactory to counsel for the
Company that he will not transfer, sell or otherwise dispose of the shares
received upon exercise of the option at any time purchased by him, upon exercise
of any portion of the option, in a manner which would violate the Securities Act
of 1933, as amended, and the regulations of the Securities and Exchange
Commission thereunder and the Company may, if required or at its discretion,
make a notation on any certificates issued upon exercise of options to the
effect that such certificate may not be transferred except after receipt by the
Company of an opinion of counsel satisfactory to it to the effect that such
transfer will not violate such Act and such regulations.
16. Tax Withholding
The Company shall have the right to deduct from payments of any kind
otherwise due to an Optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan (the "withholding requirements"). The Board will have
the right to require that the Optionee or other appropriate person remit to the
Company an amount sufficient to satisfy the withholding requirements, or make
other arrangements satisfactory to the Board with regard to such requirements,
prior to the delivery of any Common Stock pursuant to exercise of an option. If
and to the extent that such withholding is required, the Board may permit the
Optionee or such other person to elect at such time and in such manner as the
Board provides to have the Company hold back from the shares to be delivered, or
to deliver to the Company, Common Stock having a value calculated to satisfy the
withholding requirements.
17. Termination and Amendment
The Plan shall remain in full force and effect until terminated by the
Board. Subject to the last sentence of this Section 17, the Board may at any
time or times amend the Plan or any outstanding Option for any purpose that may
at the time be permitted by law, or may at any time terminate the Plan as to any
further grants of Options. No amendment of the Plan or any agreement evidencing
Options under the Plan may adversely affect the rights of any participant under
any Option previously granted without such participant's consent.
THERMOTREX CORPORATION
TREX MEDICAL CORPORATION NONQUALIFIED STOCK OPTION PLAN
As amended and restated effective as of June 24, 1999
1. Purpose
This Nonqualified Stock Option Plan (the "Plan") is intended to
encourage ownership of Common Stock (the "Common Stock"), of Trex Medical
Corporation ("Subsidiary"), a subsidiary of ThermoTrex Corporation (the
"Company"), by persons selected by the Board of Directors (or a committee
thereof) in its sole discretion, including directors, executive officers, key
employees and consultants of the Company and its subsidiaries, and to provide
additional incentive for them to promote the success of the business of the
Company and Subsidiary. The Plan is intended to be a nonstatutory stock option
plan.
2. Effective Date of the Plan
The Plan shall become effective when adopted by the Board of Directors
of the Company.
3. Stock Subject to Plan
Subject to adjustment as provided in Section 11, the total number of
shares of Common Stock reserved and available for issuance under the Plan shall
be 400,000 shares. Shares to be issued upon the exercise of options granted
under the Plan shall be shares of Subsidiary beneficially owned by the Company.
If any option expires or terminates for any reason without having been exercised
in full, the unpurchased shares subject thereto shall again be available for
options thereafter to be granted.
4. Administration
The Plan will be administered by the Board of Directors of the Company
(the "Board"). Subject to the provisions of the Plan, the Board shall have
complete authority, in its discretion, to make the following determinations with
respect to each option to be granted by the Company: (a) the person to receive
the option (the "Optionee"); (b) the time of granting the option; (c) the number
of shares subject thereto; (d) the option price; (e) the option period; and (f)
the terms and conditions of options granted under the Plan (including terms and
conditions relating to events of merger, consolidation, dissolution and
liquidation, change of control, vesting, forfeiture, restrictions, dividends and
interest, if any, on deferred amounts); (g) waive compliance by an optionee with
any obligation to be performed by him or her under an option; (h) waive any term
or condition of an option; (i) cancel an existing option in whole or in part
with the consent of an Optionee; (j) grant replacement options; (k) accelerate
the vesting or lapse of any restrictions of any option; and (l) adopt the form
of instruments evidencing options under the Plan and change such forms from time
to time.. In making such determinations, the Board may take into account the
nature of the services rendered by the Optionees, their present and potential
contributions to the success of the Company and/or one or more of its
subsidiaries, and such other factors as the Board in its discretion shall deem
relevant. Subject to the provisions of the Plan, the Board shall also have
complete authority to interpret the Plan, to prescribe, amend, and rescind rules
and regulations relating to it, to determine the terms and provisions of the
respective option agreements (which need not be identical), and to make all
other determinations necessary or advisable for the administration of the Plan.
Any interpretation by the Board of the terms and provisions of the Plan or any
Award thereunder and the administration thereof, and all action taken by the
Board, shall be final, binding and conclusive on all parties and any person
claiming under or through any party. No Director shall be liable for any action
or determination made in good faith. The Board may, to the full extent permitted
by law, delegate any or all of its responsibilities under the Plan to a
committee (the "Committee") appointed by the Board and consisting of two or more
members of the Board, each of whom shall be deemed a "disinterested person"
within the meaning of Rule 16b-3 (or any successor rule) of the Securities
Exchange Act of 1934 (the "Exchange Act").
5. Eligibility
An option may be granted to any person selected by the Board in its sole
discretion.
6. Time of Granting Options
The granting of an option shall take place at the time specified by the
Board. Only if expressly so provided by the Board shall the granting of an
option be regarded as taking place at the time when a written option agreement
shall have been duly executed and delivered by or on behalf of the Company and
the Optionee to whom such option shall be granted. The agreement shall provide,
among other things, that it does not confer upon an Optionee any right to
continue in the employ of the Company and/or one or more of its subsidiaries or
to continue as a director or consultant of the Company, and that it does not
interfere in any way with the right of the Company or any such subsidiary to
terminate the employment of the Optionee at any time if the Optionee is an
employee, to remove the Optionee as a director of the Company if the Optionee is
a director, or to terminate the services of the Optionee if the Optionee is a
consultant.
7. Option Period
An option may become exercisable immediately or in such installments,
cumulative or noncumulative, as the Board may determine.
8. Exercise of Option
An option may be exercised in accordance with its terms by written
notice of intent to exercise the option, specifying the number of shares of
stock with respect to which the option is then being exercised. The notice shall
be accompanied by payment in the form of cash or shares of Subsidiary Common
Stock (the "Tendered Shares") with a then current market value equal to the
option price of the shares to be purchased; provided, however, that such
Tendered Shares shall have been acquired by the Optionee more than six months
prior to the date of exercise, unless such requirement is waived in writing by
the Company. Against such payment the Company shall deliver or cause to be
delivered to the Optionee a certificate for the number of shares then being
purchased, registered in the name of the Optionee or other person exercising the
option. If any law or applicable regulation of the Securities and Exchange
Commission or other body having jurisdiction in the premises shall require the
Company, Subsidiary or the Optionee to take any action in connection with shares
being purchased upon exercise of the option, exercise of the option and delivery
of the certificate or certificates for such shares shall be postponed until
completion of the necessary action, which shall be taken at the Company's
expense.
9. Transferability
Except as may be authorized by the Board, in its sole discretion, no
Option may be transferred other than by will or the laws of descent and
distribution, and during a Optionee's lifetime an option requiring exercise may
be exercised only by him or her (or in the event of incapacity, the person or
persons properly appointed to act on his or her behalf). The Board may, in its
discretion, determine the extent to which options granted to an Optionee shall
be transferable, and such provisions permitting or acknowledging transfer shall
be set forth in the written agreement evidencing the option executed and
delivered by or on behalf of the Company and the Optionee.
10. Vesting, Restrictions and Termination of Options
The Board, in its sole discretion, may determine the manner in which
options shall vest, the rights of the Company to repurchase the shares issued
upon the exercise of any option and the manner in which such rights shall lapse,
and the terms upon which any option granted shall terminate. The Board shall
have the right to accelerate the date of exercise of any installment or to
accelerate the lapse of the Company's repurchase rights. All of such terms shall
be specified in a written option agreement executed and delivered by or on
behalf of the Company and the Optionee to whom such option shall be granted.
11. Adjustments in the Event of Certain Transactions
(a) In the event of a stock dividend, stock split or combination of
shares, or other distribution with respect to holders of Common Stock other than
normal cash dividends, the Board will make (i) appropriate adjustments to the
maximum number of shares that may be delivered under the Plan under Section 3
above, and (ii) appropriate adjustments to the number and kind of shares of
stock or securities subject to Options then outstanding or subsequently granted,
any exercise prices relating to Options and any other provisions of Awards
affected by such change.
(b) In the event of any recapitalization, merger or consolidation
involving the Company, any transaction in which the Company becomes a subsidiary
of another entity, any sale or other disposition of all or a substantial portion
of the assets of the Company, any transaction which results in Thermo Electron
Corporation ceasing to be the beneficial owner of a majority of the
then-outstanding shares of Common Stock, or any similar transaction, as
determined by the Board, the Board in its discretion may make appropriate
adjustments to outstanding Options to avoid distortion in the operation of the
Plan.
12. Change in Control
12.1 Impact of Event
In the event of a "Change in Control" as defined in Section 12.2, the
following provisions shall apply, unless the agreement evidencing the Option
otherwise provides (by specific explicit reference to Section 12.2 below). If a
Change in Control occurs while any Options are outstanding, then, effective upon
the Change in Control, (i) each outstanding stock option granted under the Plan
that was not previously exercisable and vested shall become immediately
exercisable in full and will no longer be subject to a right of repurchase by
the Company, (ii) each outstanding Option subject to restrictions and to the
extent not fully vested, shall be deemed to be fully vested, free of
restrictions and no longer subject to a right of repurchase by the Company, and
(iii) performance of other conditions (other than conditions relating solely to
the passage of time, continued employment or affiliation) will continue to apply
unless otherwise provided in the agreement evidencing the Option or in any other
agreement between the Optioneet and the Company or unless otherwise agreed by
the Board.
12.2 Definition of "Change in Control"
"Change in Control" means an event or occurrence set forth in any one or
more of subsections (a) through (d) below (including an event or occurrence that
constitutes a Change in Control under one of such subsections but is
specifically exempted from another such subsection):
(a) the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership of any capital stock of Thermo Electron Corporation
("Thermo Electron") if, after such acquisition, such Person beneficially owns
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) 40% or
more of either (i) the then-outstanding shares of common stock of Thermo
Electron (the "Outstanding TMO Common Stock") or (ii) the combined voting power
of the then-outstanding securities of Thermo Electron entitled to vote generally
in the election of directors (the "Outstanding TMO Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change in Control: (i) any acquisition by
Thermo Electron, (ii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by Thermo Electron or any corporation controlled
by Thermo Electron, or (iii) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i) and (ii) of subsection (c) of this
definition; or
(b) such time as the Continuing Directors (as defined below) do not
constitute a majority of the Board of Directors of Thermo Electron (the "Thermo
Board") (or, if applicable, the Board of Directors of a successor corporation to
Thermo Electron), where the term "Continuing Director" means at any date a
member of the Thermo Board (i) who was a member of the Thermo Board as of July
1, 1999 or (ii) who was nominated or elected subsequent to such date by at least
a majority of the directors who were Continuing Directors at the time of such
nomination or election or whose election to the Thermo Board was recommended or
endorsed by at least a majority of the directors who were Continuing Directors
at the time of such nomination or election; provided, however, that there shall
be excluded from this clause (ii) any individual whose initial assumption of
office occurred as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents, by or on behalf of a person other than the
Thermo Board; or
(c) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving Thermo Electron or a sale
or other disposition of all or substantially all of the assets of Thermo
Electron in one or a series of transactions (a "Business Combination"), unless,
immediately following such Business Combination, each of the following two
conditions is satisfied: (i) all or substantially all of the individuals and
entities who were the beneficial owners of the Outstanding TMO Common Stock and
Outstanding TMO Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of the then-outstanding
shares of common stock and the combined voting power of the then-outstanding
securities entitled to vote generally in the election of directors,
respectively, of the resulting or acquiring corporation in such Business
Combination (which shall include, without limitation, a corporation which as a
result of such transaction owns Thermo Electron or substantially all of Thermo
Electron's assets either directly or through one or more subsidiaries) (such
resulting or acquiring corporation is referred to herein as the "Acquiring
Corporation") in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding TMO Common
Stock and Outstanding TMO Voting Securities, respectively; and (ii) no Person
(excluding the Acquiring Corporation or any employee benefit plan (or related
trust) maintained or sponsored by Thermo Electron or by the Acquiring
Corporation) beneficially owns, directly or indirectly, 40% or more of the then
outstanding shares of common stock of the Acquiring Corporation, or of the
combined voting power of the then-outstanding securities of such corporation
entitled to vote generally in the election of directors; or
(d) approval by the stockholders of Thermo Electron of a complete
liquidation or dissolution of Thermo Electron.
13. Limitation of Rights in Option Stock
The Optionees shall have no rights as stockholders in respect of shares
as to which their options shall not have been exercised, certificates issued and
delivered and payment as herein provided made in full, and shall have no rights
with respect to such shares not expressly conferred by this Plan.
14. Stock Reserved
The Company shall at all times during the term of the options reserve
and keep available such number of shares of the Common Stock as will be
sufficient to satisfy the requirements of this Plan and shall pay all other fees
and expenses necessarily incurred by the Company in connection therewith.
15. Securities Laws Restrictions
Each Optionee exercising an option, at the request of the Company, will
be required to give a representation in form satisfactory to counsel for the
Company that he will not transfer, sell or otherwise dispose of the shares
received upon exercise of the option at any time purchased by him, upon exercise
of any portion of the option, in a manner which would violate the Securities Act
of 1933, as amended, and the regulations of the Securities and Exchange
Commission thereunder and the Company may, if required or at its discretion,
make a notation on any certificates issued upon exercise of options to the
effect that such certificate may not be transferred except after receipt by the
Company of an opinion of counsel satisfactory to it to the effect that such
transfer will not violate such Act and such regulations.
16. Tax Withholding
The Company shall have the right to deduct from payments of any kind
otherwise due to an Optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan (the "withholding requirements"). The Board will have
the right to require that the Optionee or other appropriate person remit to the
Company an amount sufficient to satisfy the withholding requirements, or make
other arrangements satisfactory to the Board with regard to such requirements,
prior to the delivery of any Common Stock pursuant to exercise of an option. If
and to the extent that such withholding is required, the Board may permit the
Optionee or such other person to elect at such time and in such manner as the
Board provides to have the Company hold back from the shares to be delivered, or
to deliver to the Company, Common Stock having a value calculated to satisfy the
withholding requirements.
17. Termination and Amendment
The Plan shall remain in full force and effect until terminated by the
Board. Subject to the last sentence of this Section 17, the Board may at any
time or times amend the Plan or any outstanding Option for any purpose that may
at the time be permitted by law, or may at any time terminate the Plan as to any
further grants of Options. No amendment of the Plan or any agreement evidencing
Options under the Plan may adversely affect the rights of any participant under
any Option previously granted without such participant's consent.
THERMOTREX CORPORATION
TREX COMMUNICATIONS CORPORATION NONQUALIFIED STOCK OPTION PLAN
As amended and restated effective as of June 24, 1999
1. Purpose
This Nonqualified Stock Option Plan (the "Plan") is intended to
encourage ownership of Common Stock (the "Common Stock"), of Trex Communications
Corporation ("Subsidiary"), a subsidiary of ThermoTrex Corporation (the
"Company"), by persons selected by the Board of Directors (or a committee
thereof) in its sole discretion, including directors, executive officers, key
employees and consultants of the Company and its subsidiaries, and to provide
additional incentive for them to promote the success of the business of the
Company and Subsidiary. The Plan is intended to be a nonstatutory stock option
plan.
2. Effective Date of the Plan
The Plan shall become effective when adopted by the Board of Directors
of the Company.
3. Stock Subject to Plan
Subject to adjustment as provided in Section 11, the total number of
shares of Common Stock reserved and available for issuance under the Plan shall
be 125,000 shares. Shares to be issued upon the exercise of options granted
under the Plan shall be shares of Subsidiary beneficially owned by the Company.
If any option expires or terminates for any reason without having been exercised
in full, the unpurchased shares subject thereto shall again be available for
options thereafter to be granted.
4. Administration
The Plan will be administered by the Board of Directors of the Company
(the "Board"). Subject to the provisions of the Plan, the Board shall have
complete authority, in its discretion, to make the following determinations with
respect to each option to be granted by the Company: (a) the person to receive
the option (the "Optionee"); (b) the time of granting the option; (c) the number
of shares subject thereto; (d) the option price; (e) the option period; and (f)
the terms and conditions of options granted under the Plan (including terms and
conditions relating to events of merger, consolidation, dissolution and
liquidation, change of control, vesting, forfeiture, restrictions, dividends and
interest, if any, on deferred amounts); (g) waive compliance by an optionee with
any obligation to be performed by him or her under an option; (h) waive any term
or condition of an option; (i) cancel an existing option in whole or in part
with the consent of an Optionee; (j) grant replacement options; (k) accelerate
the vesting or lapse of any restrictions of any option; and (l) adopt the form
of instruments evidencing options under the Plan and change such forms from time
to time.. In making such determinations, the Board may take into account the
nature of the services rendered by the Optionees, their present and potential
contributions to the success of the Company and/or one or more of its
subsidiaries, and such other factors as the Board in its discretion shall deem
relevant. Subject to the provisions of the Plan, the Board shall also have
complete authority to interpret the Plan, to prescribe, amend, and rescind rules
and regulations relating to it, to determine the terms and provisions of the
respective option agreements (which need not be identical), and to make all
other determinations necessary or advisable for the administration of the Plan.
Any interpretation by the Board of the terms and provisions of the Plan or any
Award thereunder and the administration thereof, and all action taken by the
Board, shall be final, binding and conclusive on all parties and any person
claiming under or through any party. No Director shall be liable for any action
or determination made in good faith. The Board may, to the full extent permitted
by law, delegate any or all of its responsibilities under the Plan to a
committee (the "Committee") appointed by the Board and consisting of two or more
members of the Board, each of whom shall be deemed a "disinterested person"
within the meaning of Rule 16b-3 (or any successor rule) of the Securities
Exchange Act of 1934 (the "Exchange Act").
5. Eligibility
An option may be granted to any person selected by the Board in its sole
discretion.
6. Time of Granting Options
The granting of an option shall take place at the time specified by the
Board. Only if expressly so provided by the Board shall the granting of an
option be regarded as taking place at the time when a written option agreement
shall have been duly executed and delivered by or on behalf of the Company and
the Optionee to whom such option shall be granted. The agreement shall provide,
among other things, that it does not confer upon an Optionee any right to
continue in the employ of the Company and/or one or more of its subsidiaries or
to continue as a director or consultant of the Company, and that it does not
interfere in any way with the right of the Company or any such subsidiary to
terminate the employment of the Optionee at any time if the Optionee is an
employee, to remove the Optionee as a director of the Company if the Optionee is
a director, or to terminate the services of the Optionee if the Optionee is a
consultant.
7. Option Period
An option may become exercisable immediately or in such installments,
cumulative or noncumulative, as the Board may determine.
8. Exercise of Option
An option may be exercised in accordance with its terms by written
notice of intent to exercise the option, specifying the number of shares of
stock with respect to which the option is then being exercised. The notice shall
be accompanied by payment in the form of cash or shares of Subsidiary Common
Stock (the "Tendered Shares") with a then current market value equal to the
option price of the shares to be purchased; provided, however, that such
Tendered Shares shall have been acquired by the Optionee more than six months
prior to the date of exercise, unless such requirement is waived in writing by
the Company. Against such payment the Company shall deliver or cause to be
delivered to the Optionee a certificate for the number of shares then being
purchased, registered in the name of the Optionee or other person exercising the
option. If any law or applicable regulation of the Securities and Exchange
Commission or other body having jurisdiction in the premises shall require the
Company, Subsidiary or the Optionee to take any action in connection with shares
being purchased upon exercise of the option, exercise of the option and delivery
of the certificate or certificates for such shares shall be postponed until
completion of the necessary action, which shall be taken at the Company's
expense.
9. Transferability
Except as may be authorized by the Board, in its sole discretion, no
Option may be transferred other than by will or the laws of descent and
distribution, and during a Optionee's lifetime an option requiring exercise may
be exercised only by him or her (or in the event of incapacity, the person or
persons properly appointed to act on his or her behalf). The Board may, in its
discretion, determine the extent to which options granted to an Optionee shall
be transferable, and such provisions permitting or acknowledging transfer shall
be set forth in the written agreement evidencing the option executed and
delivered by or on behalf of the Company and the Optionee.
10. Vesting, Restrictions and Termination of Options
The Board, in its sole discretion, may determine the manner in which
options shall vest, the rights of the Company to repurchase the shares issued
upon the exercise of any option and the manner in which such rights shall lapse,
and the terms upon which any option granted shall terminate. The Board shall
have the right to accelerate the date of exercise of any installment or to
accelerate the lapse of the Company's repurchase rights. All of such terms shall
be specified in a written option agreement executed and delivered by or on
behalf of the Company and the Optionee to whom such option shall be granted.
11. Adjustments in the Event of Certain Transactions
(a) In the event of a stock dividend, stock split or combination of
shares, or other distribution with respect to holders of Common Stock other than
normal cash dividends, the Board will make (i) appropriate adjustments to the
maximum number of shares that may be delivered under the Plan under Section 3
above, and (ii) appropriate adjustments to the number and kind of shares of
stock or securities subject to Options then outstanding or subsequently granted,
any exercise prices relating to Options and any other provisions of Awards
affected by such change.
(b) In the event of any recapitalization, merger or consolidation
involving the Company, any transaction in which the Company becomes a subsidiary
of another entity, any sale or other disposition of all or a substantial portion
of the assets of the Company, any transaction which results in Thermo Electron
Corporation ceasing to be the beneficial owner of a majority of the
then-outstanding shares of Common Stock, or any similar transaction, as
determined by the Board, the Board in its discretion may make appropriate
adjustments to outstanding Options to avoid distortion in the operation of the
Plan.
12. Change in Control
12.1 Impact of Event
In the event of a "Change in Control" as defined in Section 12.2, the
following provisions shall apply, unless the agreement evidencing the Option
otherwise provides (by specific explicit reference to Section 12.2 below). If a
Change in Control occurs while any Options are outstanding, then, effective upon
the Change in Control, (i) each outstanding stock option granted under the Plan
that was not previously exercisable and vested shall become immediately
exercisable in full and will no longer be subject to a right of repurchase by
the Company, (ii) each outstanding Option subject to restrictions and to the
extent not fully vested, shall be deemed to be fully vested, free of
restrictions and no longer subject to a right of repurchase by the Company, and
(iii) performance of other conditions (other than conditions relating solely to
the passage of time, continued employment or affiliation) will continue to apply
unless otherwise provided in the agreement evidencing the Option or in any other
agreement between the Optioneet and the Company or unless otherwise agreed by
the Board.
12.2 Definition of "Change in Control"
"Change in Control" means an event or occurrence set forth in any one or
more of subsections (a) through (d) below (including an event or occurrence that
constitutes a Change in Control under one of such subsections but is
specifically exempted from another such subsection):
(a) the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership of any capital stock of Thermo Electron Corporation
("Thermo Electron") if, after such acquisition, such Person beneficially owns
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) 40% or
more of either (i) the then-outstanding shares of common stock of Thermo
Electron (the "Outstanding TMO Common Stock") or (ii) the combined voting power
of the then-outstanding securities of Thermo Electron entitled to vote generally
in the election of directors (the "Outstanding TMO Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change in Control: (i) any acquisition by
Thermo Electron, (ii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by Thermo Electron or any corporation controlled
by Thermo Electron, or (iii) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i) and (ii) of subsection (c) of this
definition; or
(b) such time as the Continuing Directors (as defined below) do not
constitute a majority of the Board of Directors of Thermo Electron (the "Thermo
Board") (or, if applicable, the Board of Directors of a successor corporation to
Thermo Electron), where the term "Continuing Director" means at any date a
member of the Thermo Board (i) who was a member of the Thermo Board as of July
1, 1999 or (ii) who was nominated or elected subsequent to such date by at least
a majority of the directors who were Continuing Directors at the time of such
nomination or election or whose election to the Thermo Board was recommended or
endorsed by at least a majority of the directors who were Continuing Directors
at the time of such nomination or election; provided, however, that there shall
be excluded from this clause (ii) any individual whose initial assumption of
office occurred as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents, by or on behalf of a person other than the
Thermo Board; or
(c) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving Thermo Electron or a sale
or other disposition of all or substantially all of the assets of Thermo
Electron in one or a series of transactions (a "Business Combination"), unless,
immediately following such Business Combination, each of the following two
conditions is satisfied: (i) all or substantially all of the individuals and
entities who were the beneficial owners of the Outstanding TMO Common Stock and
Outstanding TMO Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of the then-outstanding
shares of common stock and the combined voting power of the then-outstanding
securities entitled to vote generally in the election of directors,
respectively, of the resulting or acquiring corporation in such Business
Combination (which shall include, without limitation, a corporation which as a
result of such transaction owns Thermo Electron or substantially all of Thermo
Electron's assets either directly or through one or more subsidiaries) (such
resulting or acquiring corporation is referred to herein as the "Acquiring
Corporation") in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding TMO Common
Stock and Outstanding TMO Voting Securities, respectively; and (ii) no Person
(excluding the Acquiring Corporation or any employee benefit plan (or related
trust) maintained or sponsored by Thermo Electron or by the Acquiring
Corporation) beneficially owns, directly or indirectly, 40% or more of the then
outstanding shares of common stock of the Acquiring Corporation, or of the
combined voting power of the then-outstanding securities of such corporation
entitled to vote generally in the election of directors; or
(d) approval by the stockholders of Thermo Electron of a complete
liquidation or dissolution of Thermo Electron.
13. Limitation of Rights in Option Stock
The Optionees shall have no rights as stockholders in respect of shares
as to which their options shall not have been exercised, certificates issued and
delivered and payment as herein provided made in full, and shall have no rights
with respect to such shares not expressly conferred by this Plan.
14. Stock Reserved
The Company shall at all times during the term of the options reserve
and keep available such number of shares of the Common Stock as will be
sufficient to satisfy the requirements of this Plan and shall pay all other fees
and expenses necessarily incurred by the Company in connection therewith.
15. Securities Laws Restrictions
Each Optionee exercising an option, at the request of the Company, will
be required to give a representation in form satisfactory to counsel for the
Company that he will not transfer, sell or otherwise dispose of the shares
received upon exercise of the option at any time purchased by him, upon exercise
of any portion of the option, in a manner which would violate the Securities Act
of 1933, as amended, and the regulations of the Securities and Exchange
Commission thereunder and the Company may, if required or at its discretion,
make a notation on any certificates issued upon exercise of options to the
effect that such certificate may not be transferred except after receipt by the
Company of an opinion of counsel satisfactory to it to the effect that such
transfer will not violate such Act and such regulations.
16. Tax Withholding
The Company shall have the right to deduct from payments of any kind
otherwise due to an Optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan (the "withholding requirements"). The Board will have
the right to require that the Optionee or other appropriate person remit to the
Company an amount sufficient to satisfy the withholding requirements, or make
other arrangements satisfactory to the Board with regard to such requirements,
prior to the delivery of any Common Stock pursuant to exercise of an option. If
and to the extent that such withholding is required, the Board may permit the
Optionee or such other person to elect at such time and in such manner as the
Board provides to have the Company hold back from the shares to be delivered, or
to deliver to the Company, Common Stock having a value calculated to satisfy the
withholding requirements.
17. Termination and Amendment
The Plan shall remain in full force and effect until terminated by the
Board. Subject to the last sentence of this Section 17, the Board may at any
time or times amend the Plan or any outstanding Option for any purpose that may
at the time be permitted by law, or may at any time terminate the Plan as to any
further grants of Options. No amendment of the Plan or any agreement evidencing
Options under the Plan may adversely affect the rights of any participant under
any Option previously granted without such participant's consent.
AGREEMENT FOR SALE OF SHARES
Thermo Electron Corporation, a Delaware corporation with a principal place
of business at 81 Wyman Street, Waltham, Massachusetts 02454-9046 (the
"Purchaser"), and ThermoTrex Corporation, a Delaware corporation with a
principal place of business at 10455 Pacific Center Court, San Diego, California
92121 (the "Seller"), hereby agree as follows:
1. The Seller hereby agrees to sell, and the Purchaser hereby agrees to
purchase, 3,712,072 shares of the Seller's common stock, $.01 par value per
share (the "Common Stock"), for consideration of $11.25 per share in cash, and
the Seller and the Purchaser agree to execute any and all further documents
necessary to complete the transfer of the shares sold hereunder (the "Shares")
to the Purchaser.
2. The Seller represents and warrants that (i) the Shares are not subject
to any encumbrance of any nature, and (ii) it does not need the consent of any
person to sell the Shares to the Purchaser.
3. (a) The Purchaser represents and warrants to, and covenants with, the
Seller that: (i) the Purchaser is acquiring the Shares being purchased by it for
its own account for investment and with no present intention of distributing
such Shares; and (ii) the Purchaser will not, directly or indirectly,
voluntarily offer, sell, pledge, transfer or otherwise dispose of (or solicit
any offers to buy, purchase or otherwise acquire or take a pledge of) any of the
Shares except in compliance with the Securities Act and the rules and
regulations promulgated thereunder.
(b) The Purchaser acknowledges, represents and agrees that:
(i) certificates evidencing the Shares will be delivered to it
upon the purchase thereof with a legend substantially to the following effect:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE WERE ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT OR AN OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE
SATISFACTORY TO THE SELLER) OF COUNSEL SATISFACTORY TO THE
SELLER, THAT SUCH REGISTRATION IS NOT REQUIRED.
The Purchaser agrees that any sale, transfer, pledge, hypothecation or
other disposition made by it shall be made in compliance with such legend; and
<PAGE>
(ii) it understands that it must bear the economic risk of its
investment for an indefinite period of time because the Shares have not been
registered under the Securities Act and, therefore, cannot be sold unless
subsequently registered under the Securities Act or an exemption from such
registration is available.
4. The closing of the sale of the Shares will take place on June 8, 1999.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
June 4, 1999.
THERMO ELECTRON CORPORATION
By:/s/ Theo Melas-Kyriazi
-----------------------
Theo Melas-Kyriazi
Chief Financial Officer
THERMOTREX CORPORATION
By: /s/ John T. Keiser
------------------------
John T. Keiser
Chairman of the Board of Directors
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMOTREX
CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JULY 3, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-END> JUL-03-1999
<CASH> 33,065
<SECURITIES> 29,467
<RECEIVABLES> 81,724
<ALLOWANCES> 5,757
<INVENTORY> 82,010
<CURRENT-ASSETS> 328,188
<PP&E> 37,952
<DEPRECIATION> 15,925
<TOTAL-ASSETS> 505,359
<CURRENT-LIABILITIES> 123,077
<BONDS> 186,211
0
0
<COMMON> 233
<OTHER-SE> 62,844
<TOTAL-LIABILITY-AND-EQUITY> 505,359
<SALES> 235,308
<TOTAL-REVENUES> 265,400
<CGS> 163,433
<TOTAL-COSTS> 201,595
<OTHER-EXPENSES> 103,954
<LOSS-PROVISION> 3,160
<INTEREST-EXPENSE> 6,406
<INCOME-PRETAX> (130,748)
<INCOME-TAX> (8,233)
<INCOME-CONTINUING> (116,690)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (116,690)
<EPS-BASIC> (6.14)
<EPS-DILUTED> (6.14)
</TABLE>
