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 4, 1998.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission File Number 1-13104
THERMOLASE CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 06-1360302
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2055-C Luna Road
Carrollton, Texas 75006
(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 31, 1998
---------------------------- ----------------------------
Common Stock, $.01 par value 39,251,622
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMOLASE CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
July 4, September 27,
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents (includes $56,042
and $49,291 under repurchase agreement
with affiliated company) $ 57,590 $ 87,843
Available-for-sale investments, at quoted
market value (amortized cost of $8,115
and $12,509) 8,118 12,493
Accounts receivable, less allowances of
$485 and $402 4,335 5,863
Inventories:
Raw materials and supplies 1,980 1,343
Work in process and finished goods 2,486 1,905
Prepaid expenses 1,394 1,718
Prepaid income taxes 1,687 1,687
-------- --------
77,590 112,852
-------- --------
Property and Equipment, at Cost 57,133 45,792
Less: Accumulated depreciation and
amortization 10,330 6,055
-------- --------
46,803 39,737
-------- --------
Long-term Prepaid Income Taxes 4,971 6,412
-------- --------
Note Receivable from Related Party (Note 4) 1,667 -
-------- --------
Other Assets 7,037 7,498
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 2) 15,596 8,096
-------- --------
$153,664 $174,595
======== ========
2
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THERMOLASE CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
July 4, September 27,
(In thousands except share amounts) 1998 1997
- --------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 2,340 $ 5,163
Accrued payroll and employee benefits 1,980 2,590
Deferred revenue 1,185 1,355
Other accrued expenses 7,748 5,722
Due to parent company and affiliated
companies 3,086 2,553
-------- --------
16,339 17,383
-------- --------
4 3/8% Subordinated Convertible Debentures 115,000 115,000
-------- --------
Deferred Lease Liability 1,396 1,379
-------- --------
Common Stock Subject to Redemption 40,500 40,500
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 100,000,000
shares authorized; 40,829,132 and
40,807,932 shares issued 408 408
Capital in excess of par value 37,568 46,379
Accumulated deficit (34,841) (15,921)
Treasury stock at cost, 1,623,282 and
2,129,549 shares (22,708) (30,523)
Net unrealized gain (loss) on available-
for-sale investments 2 (10)
-------- --------
(19,571) 333
-------- --------
$153,664 $174,595
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
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THERMOLASE CORPORATION
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
---------------------
July 4, June 28,
(In thousands except per share amounts) 1998 1997
- ---------------------------------------------------------------------------
Revenues:
Product revenues $ 5,248 $ 5,888
Service revenues 3,695 7,012
------- -------
8,943 12,900
------- -------
Costs and Operating Expenses:
Cost of product revenues 3,609 4,073
Cost of service revenues 5,215 5,892
Selling, general, and administrative expenses 5,470 6,608
Research and development expenses 743 1,856
Restructuring costs (Note 5) 1,917 -
------- -------
16,954 18,429
------- -------
Operating Loss (8,011) (5,529)
Interest Income 1,056 223
Interest Expense (1,338) -
Equity in Losses of Joint Ventures (85) (350)
------- -------
Loss Before Income Tax Benefit (8,378) (5,656)
Income Tax Benefit 29 1,923
------- -------
Net Loss $(8,349) $(3,733)
======= =======
Basic Loss per Share (Note 6) $ (.22) $ (.09)
======= =======
Basic Weighted Average Shares (Note 6) 38,381 39,792
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
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THERMOLASE CORPORATION
Consolidated Statement of Operations
(Unaudited)
Nine Months Ended
-------------------
July 4, June 28,
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
Revenues:
Product revenues $ 16,850 $ 18,445
Service revenues 13,634 14,731
-------- --------
30,484 33,176
-------- --------
Costs and Operating Expenses:
Cost of product revenues 11,598 12,480
Cost of service revenues 16,676 13,956
Selling, general, and administrative expenses 16,320 16,874
Research and development expenses 2,565 4,158
Restructuring costs (Note 5) 1,917 -
-------- --------
49,076 47,468
-------- --------
Operating Loss (18,592) (14,292)
Interest Income 3,622 1,277
Interest Expense (4,004) -
Equity in Losses of Joint Ventures (905) (350)
-------- --------
Loss Before Income Tax Benefit (19,879) (13,365)
Income Tax Benefit 959 4,544
-------- --------
Net Loss $(18,920) $ (8,821)
======== ========
Basic Loss per Share (Note 6) $ (.49) $ (.22)
======== ========
Basic Weighted Average Shares (Note 6) 38,281 40,352
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
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THERMOLASE CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
-------------------
July 4, June 28,
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Operating Activities:
Net loss $(18,920) $ (8,821)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 5,272 2,908
Provision for losses on accounts receivable 108 134
Increase in prepaid income taxes (1,092) (4,725)
Increase in deferred lease liability 17 761
Equity in losses of joint ventures 905 350
Restructuring costs (Note 5) 1,917 -
Changes in current accounts, excluding the
effects of acquisition:
Accounts receivable 1,634 (143)
Inventories (1,092) 577
Other current assets 418 (841)
Accounts payable (2,252) (1,605)
Other current liabilities (2,522) 1,460
-------- --------
Net cash used in operating activities (15,607) (9,945)
-------- --------
Investing Activities:
Acquisition, net of cash acquired (Note 2) (4,180) -
Purchases of available-for-sale investments (4,000) -
Proceeds from maturities of available-for-
sale investments 8,400 41,500
Purchases of property and equipment (3,564) (21,965)
Advance pursuant to note receivable from
related party (Note 4) (1,667) -
Investment in other assets (664) (1,144)
Other - 697
-------- --------
Net cash provided by (used in) investing
activities (5,675) 19,088
-------- --------
Financing Activities:
Purchases of Company common stock (8,806) (11,268)
Net proceeds from issuance of Company
common stock and sale of put options 502 492
Net proceeds from stock exchange offer - 522
Payment of withholding taxes related to
stock option exercises (667) (728)
-------- --------
Net cash used in financing activities $ (8,971) $(10,982)
-------- --------
6
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THERMOLASE CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
-------------------
July 4, June 28,
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Decrease in Cash and Cash Equivalents $(30,253) $ (1,839)
Cash and Cash Equivalents at Beginning of Period 87,843 7,923
-------- --------
Cash and Cash Equivalents at End of Period $ 57,590 $ 6,084
======== ========
Noncash Activities (Note 2):
Fair value of assets of acquired company $ 17,128 $ -
Issuance of Company common stock for
acquired company (7,975) -
Cash paid for acquired company (4,180) -
-------- --------
Liabilities assumed of acquired company $ 4,973 $ -
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
7
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THERMOLASE CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by ThermoLase 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 4, 1998, the results of
operations for the three- and nine-month periods ended July 4, 1998, and June
28, 1997, and the cash flows for the nine- month periods ended July 4, 1998, and
June 28, 1997. The Company's results of operations for the nine-month periods
ended July 4, 1998, and June 28, 1997, include 40 weeks and 39 weeks,
respectively. Interim results are not necessarily indicative of results for a
full year.
The consolidated balance sheet presented as of September 27, 1997, 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 for the fiscal year ended September 27,
1997, filed with the Securities and Exchange Commission.
2. Acquisition
In June 1998, a wholly owned subsidiary of the Company merged with The
Greenhouse Spa, Inc., exchanging 1,000,000 shares of Company common stock,
valued at $7,975,000 at the time of the transaction, and the repayment of
$4,180,000 of debt for all of the outstanding stock of The Greenhouse Spa. The
Greenhouse Spa operates a luxury spa in Arlington, Texas. The purchase price is
subject to a post-closing adjustment, although no information has been gathered
to date that would cause the Company to believe that such post-closing
adjustment will be material.
The acquisition has been accounted for using the purchase method of
accounting, and the results of operations have been included in the accompanying
financial statements from the date of acquisition. The cost of this acquisition
exceeded the estimated fair value of the acquired net assets by $7,686,000,
which is being amortized over 40 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 the final allocation will differ
materially from the preliminary estimate. Pro forma data is not presented as
this acquisition was not material to the Company's results of operations.
8
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3. Related-party Transaction
During the nine months ended July 4, 1998, the Company purchased laser
systems, components, and related services from Trex Medical Corporation, a
majority-owned subsidiary of ThermoTrex Corporation, the Company's parent, at an
aggregate cost of $2,590,000.
4. Related-party Note Receivable
In October 1997, the Company advanced $1,667,000 to ThermoLase U.K. Limited
under a note receivable, due December 31, 2003, and bearing interest at 8.0%,
payable annually. ThermoLase U.K. Limited, a subsidiary of a joint venture that
is 50%-owned by the Company, is marketing the Company's SoftLight(R) system in
England.
5. Restructuring Costs
During the third quarter of fiscal 1998, the Company recorded restructuring
costs of $1,917,000 related to certain actions including the relocation of its
corporate office to its Creative Beauty Innovations, Inc. (CBI) subsidiary in
Carrollton, Texas. The charge consisted primarily of severance for 40 terminated
employees and the write-off of fixed assets no longer of use. Other accrued
expenses in the accompanying fiscal 1998 balance sheet include $731,000
associated with these actions.
6. Loss per Share
During the first quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share." As a result, all
previously reported losses per share have been restated; however, basic loss per
share equals the Company's previously reported loss per share for the fiscal
1997 periods. Basic loss per share has been computed by dividing net loss by the
weighted average number of shares outstanding during the period. Diluted loss
per share is not presented because the effect of assuming the conversion of
convertible obligations and the elimination of the related interest expense, and
the exercise of stock options, as well as their related income tax effects,
would be antidilutive, due to the Company's net loss in the periods presented.
As of July 4, 1998, there were outstanding options to purchase 2,541,510 shares
of Company common stock at prices ranging from $1.75 to $29.38 per share, and
the Company had outstanding $115,000,000 principal amount of 4 3/8% subordinated
convertible debentures, convertible at $17.385 per share.
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.
9
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Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
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 for the fiscal year ended September 27, 1997, filed with the
Securities and Exchange Commission.
Overview
The Company 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. The Company 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. The Company opened a total of
four spas during fiscal 1996, opened nine additional spas during fiscal 1997,
and opened its fourteenth spa in October 1997. Rather than continuing to open
additional Spa Thira locations, the Company presently intends to concentrate its
resources on attempting both to increase the capacity utilization of its
existing spas and to expand its physicians' licensing program and international
licensing arrangements, discussed below. In connection with its acquisition of
The Greenhouse Spa (Note 2), the Company is modifying its Dallas Spa Thira to
become the first Greenhouse Day Spa, and is evaluating which of its other
locations will be converted into Greenhouse Day Spas. As part of this
evaluation, the Company is considering whether any of its Spa Thira locations
should be closed or sold. The Company's future results of operations would be
affected by any restructuring costs which might result from such actions.
In June 1996, the Company commenced a program to license to physicians and
others the right to perform the Company's patented SoftLight hair-removal
procedure. In this program, the Company licenses its technology and receives a
one-time fee and a per-procedure royalty that varies depending on the anatomical
site treated and pricing plan selected by the client. The Company also provides
the licensees with the lasers and lotion that are necessary to perform the
service.
The Company has experienced a decrease in revenues from its hair-removal
services, as discussed in the results of operations below. In response to this
trend, in April 1998 the Company significantly reduced the prices in its Spa
Thira locations for its single- and multiple-treatment plans and similarly
changed the pricing terms of its physicians' licensing program to reduce the
per-procedure royalty paid by the physician-licensees, in an attempt to
establish an optimum price
10
<PAGE>
Overview (continued)
point that will result in increased demand and higher revenues. In April 1998,
as part of its effort to improve profitability, the Company began to amend the
existing agreements with its physician-licensees to include certain monthly
minimum royalties, and intends to require such minimums with its new
physician-licensees. As a result of these changes and other factors, including
the addition of new physician-licensees in fiscal 1998, there has been a net
reduction of 11% in the number of physician-licensees, compared to the number
under agreement at the end of fiscal 1997, and two contracts with other
licensees that accounted for approximately 4% of the Company's total
hair-removal revenue in fiscal 1997 have been terminated. As of July 24, 1998,
approximately 30% of the Company's physician-licensees are within a pre-existing
contractual time period that allows such licensees to continue using the
SoftLight system without any minimum royalties. This time period ends in the
fourth quarter of fiscal 1998, at which time some of these licensees may decline
to accept the new terms, which may result in the termination or restructuring of
the applicable licenses by the Company. There can be no assurance that the
strategies described above will be successful in improving the Company's results
of operations.
The Company is marketing the SoftLight system internationally through joint
ventures and other licensing arrangements. In January 1996, the Company
established a joint venture in Japan. During fiscal 1997, the Company
established joint ventures in France in November 1996 and England in September
1997, and six additional licensing arrangements: in Saudi Arabia in November
1996; in Tunisia and Belgium in December 1996; in the United Arab Emirates and
Oman in March 1997; in Switzerland in April 1997; in Brazil in June 1997; and in
the United Kingdom (excluding England) and the Republic of Ireland in September
1997. In December 1997, the Company established a joint venture to market the
SoftLight system in Australia, Cyprus, Germany, Greece, New Zealand, South
Africa, and Spain. The Company's international arrangements resulted in the
opening of spas in Paris in May 1997 and in Lugano, Switzerland, in October
1997.
In May 1998, the Company received clearance from the FDA to market cosmetic
skin resurfacing services using the same laser as the Company'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, is being offered at all
of the Company's Spa Thira locations, as well as through physician-licensees.
The Company also manufactures and markets skin-care, bath, and body products
through its Creative Beauty Innovations, Inc. (CBI) subsidiary, which also
manufactures the lotion used in the SoftLight hair-removal process.
11
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Results of Operations
Third Quarter Fiscal 1998 Compared With Third Quarter Fiscal 1997
Revenues decreased to $8,943,000 in the third quarter of fiscal 1998 from
$12,900,000 in the third quarter of fiscal 1997. The Company earned revenues
from hair-removal services and related activities of $3,695,000 in fiscal 1998,
compared with $7,012,000 in fiscal 1997. The decrease in revenues resulted in
part from reduced demand and price reductions at the Company's Spa Thira
locations in fiscal 1998 compared with fiscal 1997, offset in part by an
increase in the number of U.S. spas to 14, compared with 12 spas open during
fiscal 1997. Revenues from the Company's physicians' licensing program decreased
in fiscal 1998 compared with fiscal 1997, due to a reduction in per-procedure
royalties partially as a result of a reduction in royalty rates and the
termination of a significant licensing contract, described above, as well as a
decrease in one-time fees due to a decline in the number of new
physician-licensees. Revenues in fiscal 1998 also decreased as a result of the
inclusion in fiscal 1997 of $1,052,000 of minimum guaranteed payments recorded
upon granting technology rights under the Company's international licensing
arrangements. The amount of minimum guaranteed payments recorded by the Company
will vary depending on the Company's ability to enter into additional
international licensing arrangements, the availability of additional
territories, and the terms of any such arrangements. Revenues from hair-removal
services and related activities increased $177,000 due to the acquisition of The
Greenhouse Spa in June 1998. Revenues at CBI decreased to $5,248,000 in fiscal
1998 from $5,888,000 in fiscal 1997, primarily due to a shift by certain of its
retail customers away from health- and beauty-aid sales.
The gross profit margin in the third quarter of fiscal 1998 was 1%, compared
with 23% in the third quarter of fiscal 1997. The Company's hair-removal
business reported gross profit of negative $1,520,000 in fiscal 1998, compared
with gross profit of $1,120,000 in fiscal 1997. Each period was impacted by the
operations of the Spa Thira business, which has been operating below maximum
capacity as the Company seeks to develop its client base, expand its product
lines, and refine its process and operating procedures, offset in part by the
effect of physicians' licensing fees and, in fiscal 1997, minimum guaranteed
payments relating to international licensing arrangements, which have a
relatively high gross profit margin. In addition, fiscal 1997 was negatively
impacted by pre-opening costs incurred in connection with new spa openings.
Gross profit decreased in fiscal 1998 primarily due to the decrease in revenues
from the physicians' licensing program, international licensing arrangements,
and the Company's Spa Thira locations, as well as increased fixed costs
associated with operating more spas in fiscal 1998. During the remainder of
fiscal 1998, the effect of operating each spa below maximum capacity, as the
Company seeks to develop its client base and expand its product lines, will
continue to have a negative impact on the Company's gross profit margin. The
Company believes that improvements in the efficacy and duration of the SoftLight
process, and increasing spa utilization by broadening the array of spa-related
services and products offered, including the conversion of certain Spa Thiras
into Greenhouse
12
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Third Quarter Fiscal 1998 Compared With Third Quarter Fiscal 1997
(continued)
Day Spas, are critical elements in its ability to improve the profitability of
its spas. The degree to which the Company's recent changes in pricing structure
are successful will also affect the Company's gross profit margin. The gross
profit margin at CBI was 31% in both periods.
Selling, general, and administrative expenses as a percentage of revenues
increased to 61% in the third quarter of fiscal 1998 from 51% in the third
quarter of fiscal 1997, primarily due to a decrease in revenues, offset in part
by the impact of spending reductions within the hair-removal business.
Research and development expenses decreased to $743,000 in the third quarter
of fiscal 1998 from $1,856,000 in the third quarter of fiscal 1997, primarily
due to a reduction in the number of outside testing facilities and consultants
used by the Company, as well as a reduction in payroll costs (Note 5). The
Company continues to seek to improve the efficacy and duration of the SoftLight
process as well as to develop laser skin treatments and investigate other health
and beauty applications for its proprietary laser technology, in addition to the
skin-resurfacing services discussed above.
During the third quarter of fiscal 1998, the Company recorded restructuring
costs of $1,917,000 related to certain actions including the relocation of its
corporate office to its CBI subsidiary in Carrollton, Texas (Note 5).
Interest income increased to $1,056,000 in the third quarter of fiscal 1998
from $223,000 in the third quarter of fiscal 1997, primarily due to interest
income earned on the invested proceeds from the Company's August 1997 issuance
of $115,000,000 principal amount of 4 3/8% subordinated convertible debentures.
Interest expense in fiscal 1998 represents interest associated with these
debentures.
Equity in losses of joint ventures in the accompanying statement of
operations represents the Company's proportionate share of losses from its
international joint ventures.
The effective tax rate for the third quarter of fiscal 1998 reflects the
establishment of a valuation allowance for the tax benefit associated with
losses arising during the quarter. The Company establishes valuation allowances
in accordance with the provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes." Management believes that it is more
likely than not that tax benefits that arose during the quarter will not be used
prior to their expiration.
In May 1998, a complaint, styled as a class action, was filed in California
Superior Court against the Company alleging that certain advertisements and
representations made by the Company and/or its licensees relating to the
ThermoLase SoftLight laser hair-removal process
13
<PAGE>
Third Quarter Fiscal 1998 Compared With Third Quarter Fiscal 1997
(continued)
were misleading. The Company believes that its representations and
advertisements relating to the SoftLight process which may be implicated in the
lawsuit are not misleading, and intends to vigorously defend itself against this
lawsuit; however, given the inherent uncertainties of dispute resolution, no
assurances can be given that an unfavorable outcome would not have a material
adverse effect on the Company's results of operations.
The Company is currently assessing the potential impact of the year 2000 on
the processing of date-sensitive information by the Company's computerized
information systems. The Company believes that its internal information systems
are either year 2000 compliant or will be so prior to the year 2000 without
incurring material costs. There can be no assurance, however, that the Company
will not experience unexpected costs and delays in achieving year 2000
compliance for its internal information systems, which could result in a
material adverse effect on the Company's future results of operations. The
Company is also assessing whether its key suppliers are adequately addressing
this issue and the effect this might have on the Company. The Company has not
completed its analysis and is unable to conclude at this time that the year 2000
issue as it relates to products purchased from key suppliers is not reasonably
likely to have a material adverse effect on the Company's future results of
operations.
First Nine Months Fiscal 1998 Compared With First Nine Months Fiscal 1997
Revenues decreased to $30,484,000 in the first nine months of fiscal 1998
from $33,176,000 in the first nine months of fiscal 1997. The Company earned
revenues from hair-removal services and related activities of $13,634,000 in
fiscal 1998, compared with $14,731,000 in fiscal 1997. The decrease in revenues
resulted in part from a decrease in Spa Thira revenues due to the reasons
described in the results of operations for the third quarter. In addition,
revenues from the physicians' licensing program decreased as a result of a
reduction in one-time fees, due to a decline in the number of new
physician-licensees, and a reduction in per-procedure royalties, due to the
termination of a significant licensing contract, described above. Revenues from
hair-removal services and related activities included $2,807,000 in fiscal 1998
and $2,698,000 in fiscal 1997 for minimum guaranteed payments recorded upon
granting technology rights under the Company's international licensing
arrangements. Revenues from hair-removal services and related activities
increased $177,000 due to the acquisition of The Greenhouse Spa in June 1998.
Revenues at CBI decreased to $16,850,000 in fiscal 1998 from $18,445,000 in
fiscal 1997, due to the reasons described in the results of operations for the
third quarter.
The gross profit margin in the first nine months of fiscal 1998 was 7%,
compared with 20% in the first nine months of fiscal 1997. The Company's
hair-removal business reported gross profit of negative $3,042,000 in fiscal
1998, compared with gross profit of $775,000 in
14
<PAGE>
First Nine Months Fiscal 1998 Compared With First Nine Months Fiscal 1997
(continued)
fiscal 1997. Each period was impacted by the factors discussed in the results of
operations for the third quarter. Gross profit decreased in fiscal 1998
primarily due to decreased revenues at the Company's Spa Thira locations and in
the physicians' licensing program, as well as increased fixed costs associated
with operating more spas in fiscal 1998. The gross profit margin at CBI
decreased slightly to 31% in fiscal 1998 from 32% in fiscal 1997, primarily due
to a decrease in revenues.
Selling, general, and administrative expenses as a percentage of revenues
increased to 54% in the first nine months of fiscal 1998 from 51% in the first
nine months of fiscal 1997, primarily due to a decrease in revenues.
Research and development expenses decreased to $2,565,000 in fiscal 1998
from $4,158,000 in fiscal 1997, primarily due to the reasons described in the
results of operations for the third quarter.
During the third quarter of fiscal 1998, the Company recorded restructuring
costs of $1,917,000, as discussed in the results of operations for the third
quarter (Note 5).
Interest income increased to $3,622,000 in the first nine months of fiscal
1998 from $1,277,000 in the first nine months of fiscal 1997, primarily due to
interest income earned on the invested proceeds from the Company's August 1997
issuance of $115,000,000 principal amount of 4 3/8% subordinated convertible
debentures. Interest expense in fiscal 1998 represents interest associated with
these debentures.
Equity in losses of joint ventures in the accompanying statement of
operations represents the Company's proportionate share of losses from its
international ventures, beginning in the third quarter of fiscal 1997.
The effective tax rate for the first nine months of fiscal 1998 reflects the
establishment of a valuation allowance for the tax benefit associated with
losses arising after the first quarter of fiscal 1998. Management believes that
it is more likely than not that such tax benefits will not be used prior to
their expiration.
Liquidity and Capital Resources
Consolidated working capital was $61,251,000 at July 4, 1998, compared with
$95,469,000 at September 27, 1997. Included in working capital are cash, cash
equivalents, and available-for-sale investments of $65,708,000 at July 4, 1998,
compared with $100,336,000 at September 27, 1997. Operating activities used
$15,607,000 of cash during the first nine months of fiscal 1998. Cash was used
primarily to fund the Company's loss, excluding noncash items, as well as a
decrease in accounts payable and other current liabilities, primarily due to the
timing of payments, which used $4,774,000 of cash.
15
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Liquidity and Capital Resources (continued)
In June 1998, a wholly owned subsidiary of the Company merged with The
Greenhouse Spa, exchanging 1,000,000 shares of Company common stock, valued at
$7,975,000 at the time of the transaction, and the repayment of $4,180,000 of
debt for all of the outstanding stock of The Greenhouse Spa (Note 2).
During the first nine months of fiscal 1998, the Company expended $3,564,000
for purchases of property and equipment, including the purchase of laser systems
and components from Trex Medical Corporation, a majority-owned subsidiary of
ThermoTrex Corporation (Note 3). In connection with certain of the Company's
joint venture arrangements, the Company provided funding of $2,331,000,
including a note receivable issued for $1,667,000 (Note 4), during the first
nine months of fiscal 1998. The Company has agreed to provide additional funding
of up to approximately $4,444,000 under these joint venture arrangements. During
the first nine months of fiscal 1998, the Company repurchased 643,000 shares of
its common stock for $8,806,000.
The Company's capital expenditures during the remainder of fiscal 1998 will
primarily be affected by the number of physicians and other domestic and
international licensees engaged in its licensing programs and the extent to
which existing Spa Thira locations are converted to Greenhouse Day Spas.
Depending on the extent of renovations necessary, the cost of converting each
spa is expected to be approximately $50,000 to $150,000. In addition, the
Company plans to expend approximately $1,000,000 to renovate The Greenhouse Spa.
The Company expects that it will finance its capital requirements through a
combination of internal funds, and/or short-term borrowings from ThermoTrex or
Thermo Electron Corporation, ThermoTrex's parent, although it has no agreement
with these companies to ensure that funds will be available on acceptable terms
or at all. The Company believes its existing resources are sufficient to meet
the capital requirements of its existing operations for the foreseeable future.
PART II - OTHER INFORMATION
Item 5 - Other Information
Pursuant to recent amendments to the rules relating to proxy statements
under the Securities Exchange Act of 1934, as amended (the Exchange Act),
shareholders of the Company are hereby notified that any shareholder proposal
not included in the Company's proxy materials for its 1999 Annual Meeting of
Shareholders (the Annual Meeting) in accordance with Rule 14a-8 under the
Exchange Act will be considered untimely for the purposes of Rules 14a-4 and
14a-5 under the Exchange Act if notice thereof is received by the Company after
December 18, 1998. Management proxies will be authorized to exercise
discretionary voting authority with respect to any shareholder proposal not
included in the Company's proxy materials for the Annual Meeting unless (a) the
Company receives notice of such proposal by December 18, 1998, and (b) the
conditions set forth in Rule 14a-4(c)(2)(i)-(iii) under the Exchange Act are
met.
16
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Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
17
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THERMOLASE CORPORATION
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 10th day of August 1998.
THERMOLASE CORPORATION
Paul F. Kelleher
---------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------------
John N. Hatsopoulos
Chief Financial Officer and
Senior Vice President
18
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- -------------------------------------------------------------------------------
10.1 Agreement and Plan of Merger dated June 12, 1998, by and among the
Company, G Acquisition Corp., a Pennsylvania corporation and
wholly-owned subsidiary of the Company, The Greenhouse Spa, Inc., a
Pennsylvania corporation, SMK Group LLC, a Delaware limited
liability company, The Stuart Katzoff Trust, a Pennsylvania trust,
and Lydia Katzoff.
27 Financial Data Schedule.
19
<PAGE>
EXHIBIT 10.1
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger entered into June 12, 1998 by and among
ThermoLase Corporation, a Delaware corporation (the "ThermoLase"), G Acquisition
Corp., a Pennsylvania corporation and a wholly-owned subsidiary of ThermoLase
(the ""Acquisition Subsidiary"), The Greenhouse Spa, Inc., a Pennsylvania
corporation ("Greenhouse Spa"), SMK Group LLC, a Delaware limited liability
company (the "SMK Group"), The Stuart Katzoff Trust, a Pennsylvania Trust and
Lydia Katzoff (the owners of the SMK Group), and Gerald Katzoff. The Stuart
Katzoff Trust and Lydia Katzoff are referred to collectively herein as the
"Members." ThermoLase, the Acquisition Subsidiary, Greenhouse Spa, the SMK
Group, the owners of the SMK Group, and Gerald Katzoff are referred to
collectively herein as the "Parties."
This Agreement contemplates a merger of the Acquisition Subsidiary with
and into Greenhouse Spa. In such merger, the SMK Group will receive shares of
ThermoLase's common stock, $.01 par value per share ("ThermoLase Common Stock")
in exchange for its capital stock of Greenhouse Spa.
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.3 below),
in accordance with this Agreement and the Business Corporation Law of 1988, as
amended, of the Commonwealth of Pennsylvania (the "Pennsylvania Law") the
Acquisition Subsidiary shall be merged with and into Greenhouse Spa (the
"Merger"), the separate existence of the Acquisition Subsidiary shall cease and
Greenhouse Spa shall continue as the surviving corporation.
1.2 Effect of the Merger. At the Effective Time, Acquisition Subsidiary
shall merge with and into Greenhouse Spa, Greenhouse Spa shall continue its
corporate existence under the laws of the Commonwealth of Pennsylvania, and the
Merger shall have the effects set forth in the Pennsylvania Law.
1.3 Consummation of the Merger. At the Closing (as defined in Section
1.6), the Parties will cause the Merger to be consummated by delivering to the
Department of State of the Commonwealth of Pennsylvania Articles of Merger,
together with officer's certificates, each in such form or forms as may be
required by, and executed and acknowledged in accordance with, the relevant
provisions of the Pennsylvania Law (such documents being referred to
collectively as the "Merger Documents"), and shall make all other filings and
recordings required by the Pennsylvania Law in connection with the Merger. The
Merger shall become effective at the time of filing of the appropriate Merger
Documents with the Department of State of the Commonwealth of Pennsylvania, or
at such later time, which shall be as soon as reasonably practicable, specified
as the effective time in the Merger Documents (the "Effective Time").
1.4 Articles of Incorporation; Bylaws; Directors and Officers. The
Articles of Incorporation of the surviving corporation in the Merger shall be
the Articles of Incorporation of Greenhouse Spa as in effect immediately prior
to the Effective Time until thereafter amended as provided under the
Pennsylvania Law. The Bylaws of the surviving corporation in the Merger shall be
the Bylaws of the Acquisition Subsidiary as in effect immediately prior to the
Effective Time until thereafter amended as provided under the Pennsylvania Law.
The directors and officers of the Acquisition Subsidiary immediately prior to
the Effective Date will be the initial directors and officers of the surviving
corporation in the Merger, in each case until their successors are duly elected
and qualified.
1.5 Conversion of Shares.
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of Acquisition Subsidiary, Greenhouse Spa, SMK Group, or ThermoLase,
and subject to Section 1.5(b), (c), and (d) below, each of the shares Greenhouse
Spa's common stock, $1.00 par value per share, issued and outstanding
immediately prior to the Effective Time (not including any such shares held in
treasury by Greenhouse Spa) ("Greenhouse Spa Common Stock") shall be canceled
and extinguished and be converted into and become the right to receive a
pro-rata portion of nine hundred seventy thousand (970,000) shares of
ThermoLase's Common Stock, $.01 par value (the "Merger Consideration") less ten
percent (10%) of such shares (the "Escrow Shares"). The Merger Consideration net
of the Escrow Shares is referred to as the "Closing Consideration." The Escrow
Shares shall be deposited in escrow as set forth in Section 1.10 and shall be
held and disposed of in accordance with the terms of the Escrow Agreement
attached hereto as Exhibit A (the "Escrow Agreement"). All shares of Greenhouse
Spa held at the Effective Time by SMK Group as treasury stock shall be canceled
without any conversion thereof and no payment shall be made with respect to such
shares. Each share of the common stock of the Acquisition Subsidiary issued and
outstanding immediately prior to the Effective Time shall be converted into and
become one validly issued, fully paid and nonassessable share of common stock,
$1.00 par value per share, of the surviving corporation in the Merger.
(b) The Merger Consideration shall be subject to adjustment after the
Closing Date as follows:
(i) Within 30 days after the Closing Date (as defined in Section 1.6),
ThermoLase shall prepare and deliver to Diane Hobbs, as representative of SMK
Group (the "SMK Group Representative"), a balance sheet reflecting the Total
Liabilities of Greenhouse Spa (as defined below) as of June 30, 1998 (the "Draft
Closing Balance Sheet"). Transactions which are: (i) not in the ordinary course
of business of Greenhouse Spa, or (ii) not consistent with the prior practice of
Greenhouse Spa, shall be excluded from the Closing Date Balance Sheet.
ThermoLase shall prepare the Draft Closing Balance Sheet in accordance with GAAP
(as defined in Section 2.6 below) applied on a consistent basis with Greenhouse
Spa's past accounting periods. For purposes of this Agreement "Total Liabilities
of Greenhouse Spa" shall mean the sum of all current and long term liabilities
of Greenhouse Spa, including all operating or other expenses accrued with
respect to the period prior to the Closing Date, including without limitation
all accounts payable, payroll, vacation, withholding taxes and other employee
benefits), tax obligations (including hotel, sales, real estate, excise and
other taxes), and all other liabilities incurred by Greenhouse Spa except as
indicated below. The following items shall be excluded for purposes of
determining the Total Liabilities of Greenhouse Spa: (i) liabilities with
respect to advance deposits received from Greenhouse Spa clients, (ii)
liabilities associated with barter arrangements, (iii) contingent liabilities
under a Deed of Trust and Security Agreement dated July, 1995 given by
Greenhouse Spa to Charles Nye as Trustee for the benefit of United Jersey Bank;
and (iv) the outstanding balance of a $120,000 loan from First Bank of
Philadelphia to Greenhouse Spa.
(ii) The SMK Group Representative shall deliver to ThermoLase within 15
days after receiving the Draft Closing Balance Sheet a detailed statement
describing any objections thereto. Failure of the SMK Group Representative so to
object to the Draft Closing Balance Sheet shall constitute acceptance thereof,
whereupon the Draft Closing Balance Sheet shall be deemed to be the "Closing
Balance Sheet". In the event of any objections, ThermoLase and the SMK Group
Representative shall use reasonable efforts to resolve any such objections, but
if they do not reach a final resolution within 45 days after ThermoLase has
received the statement of objections, ThermoLase and the SMK Group
Representative shall select an internationally recognized accounting firm
mutually acceptable to them (the "Neutral Auditors") to resolve any remaining
objections. If ThermoLase and the SMK Group Representative are unable to agree
on the choice of Neutral Auditors, they shall select by lot a "big five"
accounting firm other than Arthur Andersen LLP as Neutral Auditors. The Draft
Closing Balance Sheet shall be adjusted by the Neutral Auditors in accordance
with the Neutral Auditors' determination and, as so adjusted, shall constitute
the Closing Balance Sheet. All such adjustments by the Neutral Auditors shall be
conclusive and binding upon ThermoLase and SMK Group, and Greenhouse Spa as of
the Effective Time. ThermoLase, on the one hand, and SMK Group, on the other,
shall share equally the fees and expenses of the Neutral Auditors.
(iii) During the period of any dispute referred to above, ThermoLase shall
cooperate fully with the SMK Group Representative and The SMK Group
Representative's accountants. The SMK Group Representative and The SMK Group
Representative's accountants shall have access to all books and records and
other information of Greenhouse Spa reasonably necessary for the evaluation of
the Draft Closing Balance Sheet; provided, however, that any such access shall
be allowed only during normal business hours, upon reasonable notice and in such
manner as not to interfere unreasonably with the operations of Greenhouse Spa.
(iv) If the Total Liabilities of Greenhouse Spa as shown on the Closing
Balance Sheet is greater than $5.5 million, then the number of shares of
ThermoLase Common Stock included in the Merger Consideration shall be reduced by
the number of shares determined by dividing the amount of such excess by the
average closing price per share for the five trading days immediately preceding
the date hereof, which shares shall be returned to ThermoLase, and such shares
shall not be paid in consideration for Greenhouse Common Stock in the Merger.
Any adjustment required hereunder shall be effected within 10 business days
after the date on which the Closing Balance Sheet is finally determined pursuant
to this Section 1.5(iv).
(v) The approval of this Agreement and the Merger by SMK Group shall
constitute approval of the appointment of the SMK Group Representative and
ratification by SMK Group of all actions taken by The SMK Group Representative
pursuant to this Section 1.5(b) or otherwise on behalf of SMK Group in respect
of this Agreement or the transactions contemplated hereby.
1.6 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at such place as shall be mutually
agreed to, commencing at 11:00 a.m. local time on, June 15, 1998 or on such
mutually agreeable later date as soon as practicable after the satisfaction or
waiver of all conditions to the obligations of the Parties to consummate the
transactions contemplated hereby (the "Closing Date").
1.7 Actions at the Closing. At the Closing, (a) Greenhouse Spa shall
deliver to ThermoLase and the Acquisition Subsidiary the various certificates,
instruments and documents referred to in Section 5.2; (b) ThermoLase and the
Acquisition Subsidiary shall deliver to Greenhouse Spa and SMK Group the various
certificates, instruments and documents referred to in Section 5.3; (c)
Greenhouse Spa and Acquisition Subsidiary shall file the Merger Documents as
provided in Section 1.3; (d) ThermoLase, the SMK Group Representative and the
Escrow Agent (as defined therein) shall execute and deliver the Escrow Agreement
substantially in the form of Exhibit A attached hereto; and (e) ThermoLase shall
pay the Closing Consideration to SMK Group (in the manner outlined in Section
1.9 below) and the Escrow Amount to the Escrow Agent.
1.8 Additional Action. Greenhouse Spa, as the surviving corporation in the
Merger, may at any time after the Effective Time take any action, including
executing and delivering any document, in the name and on behalf of either
Greenhouse Spa or the Acquisition Subsidiary, in order to consummate the
transactions contemplated by this Agreement.
1.9 Payment for Shares.
(a) Promptly following the Closing, SMK Group shall deliver to Acquisition
Subsidiary certificates for all of the issued and outstanding shares of the
capital stock of Greenhouse Spa, and upon proper surrender thereof to
Acquisition Subsidiary, SMK Group shall receive from ThermoLase in exchange
therefor the Closing Consideration. Stock certificates representing the shares
of the Common Stock of ThermoLase provided as the Closing Consideration shall be
dated as of the Effective Time. The certificates for the shares of Greenhouse
Spa shall be properly endorsed or otherwise in proper form for transfer. Until
properly delivered, each share certificate representing outstanding shares of
Greenhouse Spa Common Stock shall be deemed for all purposes to evidence,
subject to Section 1.10, only the right to receive the Merger Consideration as
provided in Section 1.5 and the holder of such certificates shall cease to have
any rights as a shareholder of Greenhouse Spa, and shall not be entitled to
receive the Merger Consideration to which such holder would otherwise be
entitled until such certificates are properly delivered to Acquisition
Subsidiary.
(c) In the event any share certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such certificate to be lost, stolen or destroyed, ThermoLase, subject to Section
1.10, shall issue in exchange for such lost, stolen or destroyed certificate the
cash and stock payable in exchange therefor as provided in Section 1.5.
ThermoLase may, in its discretion and as a condition precedent to the payment
thereof, require the owner of such lost, stolen or destroyed certificate to
indemnify ThermoLase against any claim that may be made against ThermoLase with
respect to the certificate alleged to have been lost, stolen or destroyed and to
post a bond in respect thereof.
1.10 Escrow.
(a) The Escrow Shares shall be held by the Escrow Agent under the Escrow
Agreement pursuant to the terms thereof. The Escrow Shares shall be held as a
trust fund and shall not be subject to any lien, attachment, trustee process or
any other judicial process of any creditor. The Escrow Shares shall be held and
disbursed solely for the purposes and in accordance with the terms of the Escrow
Agreement. It is intended that the assets held in escrow as above provided shall
facilitate the ability of ThermoLase to recover amounts to which it is entitled
under this Agreement or the Escrow Agreement as a result of misrepresentations,
breaches of warranties and breaches of covenants contained in this Agreement and
to satisfy claims of ThermoLase arising as a result of this Agreement or the
Escrow Agreement. Accordingly, and to the extent necessary to provide such
protection to ThermoLase, property held in escrow thereunder shall be available
to satisfy claims of ThermoLase under this Agreement or the Escrow Agreement to
the extent provided in such agreements.
(b) The approval of this Agreement and the Merger by SMK Group shall
constitute approval of the Escrow Agreement and of all of the arrangements
relating thereto, including without limitation the placement of the Escrow
Shares in escrow and the appointment of the SMK Group Representative to act on
behalf of SMK Group in respect of the Escrow Agreement and the ratification by
SMK Group of all actions taken by the SMK Group Representative pursuant to the
Escrow Agreement.
1.11 Fractional Shares. No certificates or scrip representing fractional
shares of ThermoLase Common Stock shall be issued to SMK Group upon the
surrender of share certificates representing Greenhouse Spa Common Stock and SMK
Group shall not be entitled to any voting rights, rights to receive any
dividends or distributions or other rights as a shareholder of ThermoLase with
respect to any fractional shares of ThermoLase Common Stock that would otherwise
be issued to SMK Group. In lieu of any fractional shares of ThermoLase Common
Stock that would otherwise be issued SMK Group shall, upon proper surrender of
its share certificates representing Greenhouse Spa Common Stock, receive a cash
payment equal to the closing price per share for ThermoLase Common Stock on the
American Stock Exchange on the business day immediately preceding the Closing
Date, multiplied by the fraction of a share that SMK Group would otherwise be
entitled to receive.
1.12 Closing of Transfer Books. At the Effective Time, the stock transfer
books of Greenhouse Spa shall be closed and no transfer of shares of Greenhouse
Spa Common Stock shall thereafter be made.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SMK GROUP AND ITS MEMBERS
SMK Group and its Members, jointly and severally, represent and warrant to
ThermoLase that the statements contained in this Article II are true and correct
or will be true and correct at the Closing, except as qualified by those matters
described in the disclosure schedule attached hereto as Exhibit B (the
"Disclosure Schedule") and/or qualified by information provided in the Financial
Statements (as defined below). The Disclosure Schedule shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article II, and the disclosures in any paragraph of the Disclosure Schedule
shall qualify only the corresponding paragraph in this Article II. Each
individual representation and warranty contained herein shall be interpreted and
enforced separately and no representation or warranty contained herein shall be
construed as limiting any other representation and warranty contained herein.
ThermoLase shall be assumed to have relied upon the representations and
warranties contained herein, subject to the disclosures in the Disclosure
Schedule and/or qualified by information provided in the Financial Statements
(as defined below) notwithstanding any investigation of Greenhouse Spa made by
ThermoLase or the Acquisition Subsidiary or any of their respective officers,
directors, representatives or agents, prior to the Closing. The term "ordinary
course of business", when used in this Agreement, shall mean the ordinary course
of business of Greenhouse Spa consistent with its past custom and practice
(including with respect to frequency and amount) during the last three fiscal
years. An individual will be deemed to have "Knowledge" of a particular fact or
other matter if: (a) such individual is actually aware of such fact or other
matter; or (b) a prudent individual could be expected to know, discover, or
otherwise become aware of such fact or other matter in the course of conducting
a reasonably comprehensive investigation that a prudent person would conduct. A
corporation, limited liability company, partnership, business entity or other
person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, or general manager of such Person (or
in any similar capacity) has, or at any time had, Knowledge of such fact or
other matter.
2.1 Organization, Qualification, and Corporate Power. Greenhouse Spa is a
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the Commonwealth of Pennsylvania. Greenhouse Spa is
duly qualified to conduct business and is in corporate and tax good standing as
a foreign corporation in the state of Texas and each other jurisdiction in which
the failure to be so qualified would have a material adverse effect on its
business, properties, financial condition or results of operations (a "Material
Adverse Effect"). Greenhouse Spa has all requisite corporate power and authority
to carry on the businesses in which it is engaged and to own and use the
properties owned and used by it. Greenhouse Spa has furnished to ThermoLase true
and complete copies of its Articles of Incorporation and Bylaws, each as amended
and as in effect as of the date hereof. Each amendment to Greenhouse Spa's
Articles of Incorporation has been duly adopted by all requisite director and
shareholder action and in accordance with all applicable law. Greenhouse Spa is
not in default under or in violation of any provision of its Articles of
Incorporation or Bylaws or any other instrument, document or agreement setting
forth the terms and conditions of any shares of capital stock or other
securities of Greenhouse Spa, or the rights and obligations of any holder of
such shares or other securities.
2.2 Capitalization. The authorized capital stock of Greenhouse Spa
consists of one million (1,000,000) shares of common stock, $1.00 par value, of
which 2,000 shares are issued and outstanding. Section 2.2 of the Disclosure
Schedule sets forth a complete and accurate list of all shareholders of
Greenhouse Spa, indicating the number of shares owned and held by each
shareholder. All outstanding shares of Greenhouse Spa Common Stock are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. SMK Group is the owner of record and beneficial owner of all of the
issued and outstanding shares of the capital stock of Greenhouse Spa free and
clear of all Security Interests (as defined in Section 2.5). Except as provided
in the preceding sentences, there are no shares of capital stock, options,
warrants, or other securities of Greenhouse Spa outstanding. Greenhouse Spa is
not a party to or bound by any contract or other agreement (whether oral or
written) providing for the issuance, sale, transfer or other disposition of any
of shares of capital stock, options, warrants, or other securities of Greenhouse
Spa. There are no outstanding or authorized stock appreciation, phantom stock or
similar rights with respect to Greenhouse Spa. There are no agreements, voting
trusts, proxies, or understandings with respect to the voting or registration
under the Securities Act of 1933 (the "Securities Act") of any shares of capital
stock or other securities of Greenhouse Spa. All of the outstanding shares of
Greenhouse Spa Common Stock were issued in compliance with applicable federal
and state securities laws. No repurchase of capital stock or other securities by
Greenhouse Spa (i) violated Greenhouse Spa's Articles of Incorporation or Bylaws
or any laws, rules or regulations applicable to Greenhouse Spa or (ii) caused
any breach of any contract or other agreement (whether oral or written) to which
Greenhouse Spa is or was a party.
<PAGE>
2.3 Authorization of Transactions. Greenhouse Spa has all requisite
corporate power and authority to execute and deliver this Agreement and the Real
Estate Purchase and Sale Agreement dated the date hereof by and between
Greenhouse Spa and the Acquisition Subsidiary (the "Real Estate Agreement") and
to perform its obligations hereunder and thereunder. The execution and delivery
by Greenhouse Spa of this Agreement and the Real Estate Agreement, the
performance by Greenhouse Spa of this Agreement and the Real Estate Agreement,
and the consummation by Greenhouse Spa of the Merger and the other transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of Greenhouse Spa and all necessary
action by SMK Group and its Members. This Agreement and the Real Estate
Agreement have been duly and validly executed and delivered by Greenhouse Spa
and constitute valid and binding obligations of Greenhouse Spa, enforceable in
accordance with their respective terms against Greenhouse Spa. The Board of
Directors of Greenhouse Spa has unanimously, after due consideration of its
fiduciary duties, (i) determined that this Agreement and the transactions
contemplated hereby, including the Merger, are fair to Greenhouse Spa and SMK
Group, and (ii) approved this Agreement and the Real Estate Agreement and the
transactions contemplated hereby, including the Merger. SMK Group has approved
this Agreement, the Escrow Agreement, and the Real Estate Agreement and the
transactions contemplated hereby, including the Merger. The execution and
delivery by SMK Group and its Members of this Agreement and the Escrow Agreement
and the performance by SMK Group and its Members of this Agreement and the
Escrow Agreement, and the consummation by SMK Group of the Merger and the other
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of SMK Group. This
Agreement and the Escrow Agreement have been duly and validly executed and
delivered by SMK Group and constitute valid and binding obligations of SMK
Group, enforceable in accordance with their respective terms against SMK Group.
2.4 Subsidiaries. Greenhouse Spa does not, directly or indirectly, own of
record or beneficially any securities of any other corporation, limited
liability company or other business entity (any of the foregoing being referred
to herein as a "Subsidiary").
2.5 Noncontravention. Subject to the filing of the Merger Documents with
the Department of State of the Commonwealth of Pennsylvania, neither the
execution and delivery of this Agreement and the Escrow Agreement (and in the
case of Greenhouse Spa, the Real Estate Agreement) by SMK Group and its Members,
or Greenhouse Spa, nor the consummation by such Parties of the transactions
contemplated thereby, including the Merger, will: (a) require on the part of SMK
Group or its members or the Greenhouse Spa any filing with, or any permit,
authorization, consent or approval of, any court, arbitration tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency (a "Governmental Entity"), (b) conflict with or violate any
provision of the charter documents or bylaws of SMK Group or Greenhouse Spa, (c)
conflict with, result in a breach of, constitute (with or without due notice or
lapse of time or both) a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify or cancel, or require any
notice, consent or waiver under, any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest (as defined below) or other
arrangement to which SMK Group or Greenhouse Spa is a party or by which they are
bound or to which any of their assets is subject except as provided in Section
2.5 of the Disclosure Schedule or which is satisfied in full and which do not
cause the Total Liabilities of Greenhouse Spa to exceed $5.5 million, (d) result
in the imposition of any Security Interest (as defined below) upon any assets of
SMK Group or Greenhouse Spa, (e) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to SMK Group or Greenhouse Spa or any of
their properties or assets, or (f) entitle any employee of Greenhouse Spa to
severance or other payments or to any increase in compensation or benefits. For
purposes of this Agreement, "Security Interest" means any mortgage, pledge,
security interest, encumbrance, charge, or other lien (whether arising by
contract or by operation of law), other than (i) mechanic's, materialmen's, and
similar liens, (ii) liens arising under worker's compensation, unemployment
insurance, social security, retirement, and similar legislation, and (iii) liens
on goods in transit incurred pursuant to documentary letters of credit and liens
for Taxes not yet due, in each case arising in the ordinary course of business
of SMK Group or Greenhouse Spa. Section 2.5 of the Disclosure Schedule sets
forth a true, correct and complete list of all consents and approvals of
non-governmental third parties that are required in connection with the
consummation by SMK Group and Greenhouse Spa of the transactions contemplated by
this Agreement and the Real Estate Agreement. There has not been made or
threatened by any person any claim asserting that such person is the holder or
beneficial owner of, or has the right to acquire or to obtain beneficial
ownership of any capital stock of, or any other voting, equity or ownership
interests in SMK Group or Greenhouse Spa or is entitled to all or a portion of
the Merger Consideration.
2.6 Reports and Financial Statements. Greenhouse Spa has provided to
ThermoLase the balance sheets and statements of operations, changes in
shareholders' equity and cash flows for each of the fiscal years for Greenhouse
Spa and the balance sheet for the interim period ending December 31, 1997, for
the quarter ending March 31, 1998, and for the month ending April 30, 1998. Such
financial statements (collectively, the "Financial Statements") have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis throughout the periods covered thereby
("GAAP"), fairly present the consolidated financial condition, results of
operations and cash flows of Greenhouse Spa as of the respective dates thereof
and for the periods referred to therein and are consistent with the books and
records of Greenhouse Spa.
2.7 Absence of Certain Changes. Except as disclosed in Section 2.7 of the
Disclosure Schedule, since April 30, 1998, there has been no material adverse
change in the assets, business, prospects, financial condition or results of
operations of Greenhouse Spa, nor has there occurred any event or development
which could reasonably be foreseen to result in such a material adverse change
in the future.
2.8 Undisclosed Liabilities. Greenhouse Spa has no liabilities, whether
absolute or contingent, liquidated or unliquidated, accrued or unaccrued and
whether due or to become due, except for: (a) liabilities shown on the face of
(rather than any notes to) the most recent balance sheet included in the
Financial Statements (the "Most Recent Balance Sheet"), (b) liabilities which
have arisen in the ordinary course of business and which are similar in nature
and amount to the liabilities which arose during the comparable period of time
in the immediately preceding fiscal year, and (c) contractual liabilities
incurred in the ordinary course of business which are not required by GAAP to be
reflected on a balance sheet, none of the foregoing of which results from,
arises out of, or relates to, is in the nature of, or was caused by any breach
of contract, breach of warranty, tort, infringement or violation of law.
2.9 Tax Matters.
(a) Greenhouse Spa has filed in a timely manner (including permitted
extensions) all Tax Returns (as defined below) that it was required to file and
all such Tax Returns were correct and complete. All Taxes owed by Greenhouse Spa
(whether or not shown on any Tax Return) have been paid in full on a timely
basis or have been satisfied in full and do not cause the Total Liabilities of
Greenhouse Spa to exceed $5.5 million. Greenhouse Spa is not currently the
beneficiary of any extensions of time within which to file any Tax Return except
with respect to its 1997 federal and state corporate income tax returns with
respect to which Greenhouse Spa has timely filed requests for extensions. The
unpaid Taxes of Greenhouse Spa for Tax periods or portions of Tax periods
through the Closing Date do not exceed the accruals and reserves for Taxes set
forth on the Most Recent Balance Sheet. Greenhouse Spa has no actual or
potential liability for any Tax obligation of any taxpayer (including without
limitation any Member of SMK Group or any affiliated group of corporations or
other entities that included Greenhouse Spa during a prior period) other than
Greenhouse Spa. All Taxes that Greenhouse Spa is or was required by law to
withhold or collect have been duly withheld or collected and, to the extent
required, have been paid to the proper Governmental Entity. Except as set forth
in Section 2.9(a) of the Disclosure Schedule, there are no liens or other
Security Interests for Taxes on any of the assets of Greenhouse Spa, other than
liens for Taxes not yet due or which have been satisfied in full and do not
cause the Total Liabilities of Greenhouse Spa to exceed $5.5 million. For
purposes of this Agreement, "Taxes" means all taxes, charges, fees, levies or
other similar assessments or liabilities, including without limitation income,
gross receipts, ad valorem, premium, value-added, excise, real property,
personal property, sales, use, transfer, severance, registration, alternative or
add on minimum, estimated, withholding, employment, payroll, franchise and any
other tax imposed by the United States of America or any state, local or foreign
government, or any agency thereof, or other political subdivision of the United
States or any such government, and any interest, fines, penalties, assessments
or additions to tax resulting from, attributable to or incurred in connection
with any tax or any contest or dispute thereof, whether disputed or not. For
purposes of this Agreement, "Tax Returns" means all reports, returns,
declarations, claims for refunds, statements or other information relating to
Taxes, including any schedule or attachment thereto, and including any amendment
thereof.
(b) Greenhouse Spa has delivered to ThermoLase correct and complete copies
of all federal income Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to by Greenhouse Spa for the 1995 and
1996 tax years and a proposed tax return for the 1997 tax year. Section 2.9(b)
of the Disclosure Schedule lists all Tax Returns filed with respect to
Greenhouse Spa and indicates those Tax Returns that have been audited or
currently are the subject of an audit. Except as disclosed in Section 2.9(b) of
the Disclosure Schedule, no examination or audit of any Tax Returns of
Greenhouse Spa by any Governmental Entity is currently in progress or, to the
best knowledge of Greenhouse Spa, threatened or contemplated. Greenhouse Spa has
not waived any statute of limitations with respect to Taxes or agreed to an
extension of time with respect to a Tax assessment or deficiency, which waiver
or extension is still in effect. To the Knowledge of Greenhouse Spa, there is no
dispute or claim concerning any Tax liability of Greenhouse Spa and no director,
officer or employee responsible for Tax matters expects any authority to assess
any additional Taxes with respect to any Tax period with respect to which Tax
Returns have been filed. No claim has ever been made by an authority in a
jurisdiction where Greenhouse Spa does not file Tax Returns that it is or may be
subject to Tax in that jurisdiction.
(c) Greenhouse Spa is not a "consenting corporation" within the meaning of
Section 341(f) of the Internal Revenue Code of 1986 (the "Code") and none of the
assets of Greenhouse Spa are subject to an election under Section 341(f) of the
Code. Greenhouse Spa has not made any payments or is a party to any agreement
that under certain circumstances could obligate it to make any payments that
will not be deductible under Section 280G of the Code. Greenhouse Spa has never
been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(l)(A)(ii) of the Code. Greenhouse Spa is not a party to any Tax
allocation or sharing agreement.
(d) Greenhouse Spa is not and never has been a member of an "affiliated
group" of corporations (within the meaning of Section 1504 of the Code).
Greenhouse Spa has not made an election under Treasury Reg. Section
1.1502-20(g). Greenhouse Spa is not and never had been required to make a basis
reduction pursuant to Treasury Reg. Section 1.1502-20(b) or Treasury Reg.
Section 1.337(d)-2T(b).
(e) Section 2.9(e) of the Disclosure Schedule sets forth the following
information as of the most recent practicable date as well as on an estimated
pro forma basis as of the Closing Date giving effect to the transactions
contemplated by this Agreement: (i) the basis of Greenhouse Spa in its assets,
(ii) the amount of any net operating loss, net capital loss, unused investment
or other credit, unused foreign tax or excess charitable contribution of
Greenhouse Spa, and (iii) all material elections with respect to Taxes, other
than those elections reflected in the Tax Returns referred to in the first
sentence of Section 2.9(b) above. None of the assets of Greenhouse Spa is
property that Greenhouse Spa is required to treat as being owned by any other
person pursuant to the "safe harbor lease" provisions of former Section
168(f)(8) of the Code. None of the assets of Greenhouse Spa directly or
indirectly secures any debt the interest on which is tax exempt under Section
103(a) of the Code. None of the assets of Greenhouse Spa is "tax exempt use
property" within the meaning of Section 168(h) of the Code. Greenhouse Spa has
not agreed to make or is required to make any adjustment under Section 481 of
the Code by reason of a change in accounting method or otherwise. Greenhouse Spa
has not participated in an international boycott within the meaning of Section
999 of the Code. Greenhouse Spa does not or has not had a permanent
establishment in any foreign country, as defined in any applicable treaty or
convention between the United States and such foreign country. Greenhouse Spa is
not a party to any joint venture, partnership, limited liability company
agreement, or other arrangement or contract that could be treated as a
partnership for federal income tax purposes.
2.10 Assets. Except for the real property located at 1171 107th Street,
Arlington, Texas which is being separately conveyed to Acquisition Subsidiary,
Greenhouse Spa owns or leases all assets necessary for the conduct of its
business as presently conducted and as presently proposed to be conducted. Each
such asset is free from material defects, has been maintained in accordance with
normal industry practice, is in good operating condition and repair (subject to
normal wear and tear) and is suitable for the purposes for which it presently is
used. Except as described in Section 2.10 of the Disclosure Schedule, no asset
of Greenhouse Spa is subject to any Security Interest.
2.11 Real Property. Except for the real property located at 1171 107th
Street, Arlington, Texas which is being separately conveyed to Acquisition
Subsidiary, Greenhouse Spa does not own any real property. Greenhouse Spa is not
a lessor or lessee pursuant to any lease for any real property.
2.12 Intellectual Property.
(a) Greenhouse Spa owns, or is licensed or otherwise possesses legally
enforceable rights to use, all Intellectual Property (as defined below) that is
used to conduct its business as currently conducted or planned to be conducted.
For purposes of this Agreement, the term "Intellectual Property" means all: (i)
patents, patent applications, patent disclosures and all related continuation,
continuation-in-part, divisional, reissue, reexamination, utility, model,
certificate of invention and design patents, patent applications, registrations
and applications for registrations, (ii) trademarks, service marks, trade dress,
logos, trade names and corporate names and registrations and applications for
registration thereof, (iii) copyrights and registrations and applications for
registration thereof, (iv) computer software (other than software that is
generally commercially available), data and documentation, (v) trade secrets and
confidential business information, whether patentable or unpatentable and
whether or not reduced to practice, know-how, manufacturing and production
processes and techniques, research and development information, copyrightable
works, financial, marketing and business data, pricing and cost information,
business and marketing plans and customer and supplier lists and information,
(vi) other proprietary rights relating to any of the foregoing, and (vii) copies
and tangible embodiments thereof. Section 2.12 of the Disclosure Schedule lists
(i) all patents and patent applications, all trademarks, all registered
copyrights, and all trade names and service marks which are used in the business
of Greenhouse Spa, including the jurisdictions in which each such Intellectual
Property right has been issued or registered or in which any such application
for such issuance or registration has been filed, (ii) all written licenses,
sublicenses and other agreements to which Greenhouse Spa is a party and pursuant
to which any person is authorized to use any Intellectual Property rights, and
(iii) all written licenses, sublicenses and other agreements to which Greenhouse
Spa is a party and pursuant to which Greenhouse Spa is authorized to use any
third party's Intellectual Property ("Third Party Intellectual Property Rights")
which is used in the business of Greenhouse Spa or which form a part of any
product or service provided by Greenhouse Spa. Greenhouse Spa has made available
to ThermoLase correct and complete copies of all such patents, registrations,
applications, licenses and agreements (as amended to date) and related
documentation. Except as provided in Section 2.12 of the Disclosure Schedule,
Greenhouse Spa has not agreed to indemnify any person or entity for or against
any infringement, misappropriation or other conflict with respect to any item of
Intellectual Property that Greenhouse Spa owns or uses. Greenhouse Spa is not a
party to any oral license, sublicense or agreement which, if reduced to written
form, would be required to be listed in Section 2.12 of the Disclosure Schedule
under the terms of this Section 2.12(a).
(b) Greenhouse Spa is not, nor will it be, as a result of the execution
and delivery of this Agreement or the performance of Greenhouse Spa's
obligations under this Agreement, in breach of any license, sublicense or other
agreement relating to the Intellectual Property or any Third Party Intellectual
Property Rights.
(c) Greenhouse Spa has not been named in any suit, action or proceeding
which involves a claim of infringement of any Intellectual Property right of any
third party. No person or entity has alleged or made claim, either orally or in
writing, that the manufacturing, marketing, licensing or sale of the products or
performance of the service offerings of Greenhouse Spa infringes any
Intellectual Property right of any third party. Greenhouse Spa has not infringed
or engaged in the unauthorized use of, or violated any confidentiality agreement
that pertains to, any Intellectual Property right of any third party. Except as
set forth on Section 2.12(c) of the Disclosure Schedule, to the Knowledge of
Greenhouse Spa and its members, the Intellectual Property rights of Greenhouse
Spa are not being infringed by activities, products or services of any third
party. Except as set forth in Section 2.12(c) of the Disclosure Schedule, no
patent maintenance or other fees with respect to any patents owned by Greenhouse
Spa will be due within six (6) months after the Closing Date.
2.13 Year 2000 Compliance. To Seller's Knowledge, all computer hardware
and software and any other systems relied upon by Greenhouse Spa in connection
with its business are Year 2000 Compliant. "Year 2000 Compliant" means that the
system is designed to be used prior to, during, and after the calendar year 2000
A.D., and that systems used during each such time period will accurately
receive, provide, and process date and time data (including without limitation,
calculating, comparing, and sequencing) from, into and between the twentieth and
twenty-first centuries, including the years 1999 and 2000, and leap year
calculations will not malfunction, cease to function, or provide invalid or
incorrect results as a result of date and time data.
<PAGE>
2.14 Contracts. Section 2.14 of the Disclosure Schedule lists the
following written arrangements to which Greenhouse Spa is a party:
(a) any written arrangement pursuant to which any party is indemnified for
or against any liability under Environmental Laws (as defined in Section 2.21
below);
(b) any written arrangement (or group of related written arrangements) for
the lease of personal property from or to third parties providing for lease
payments in excess of $5,000 per annum;
(c) any written arrangement (or group of related written arrangements) for
the purchase or sale of raw materials, commodities, supplies, products or other
personal property or for the furnishing or receipt of services: (i) which has a
term in excess of one year, (ii) which involves more than the sum of $10,000 per
year, or (iii) in which Greenhouse Spa has granted manufacturing rights, "most
favored nation" pricing provisions or marketing or distribution rights relating
to any products or territory or has agreed to purchase a minimum quantity of
goods or services or has agreed to purchase goods or services exclusively from a
certain party;
(d) any written arrangement establishing a partnership, joint venture or
limited liability company;
(e) any written arrangement (or group of related written arrangements)
under which it has created, incurred, assumed, or guaranteed (or may create,
incur, assume, or guarantee) indebtedness (including capitalized lease
obligations) involving more than $5,000 or under which it has imposed (or may
impose) a Security Interest on any of its assets, tangible or intangible;
(f) any written arrangement concerning confidentiality or noncompetition;
(g) any written arrangement involving any employee, former employee,
shareholder of Greenhouse Spa or their respective affiliates, as defined in Rule
12b-2 under the Securities Exchange Act of 1934 (as amended, the "Exchange Act")
("Affiliates");
(h) any written arrangement for the purchase or sale of assets or
businesses out of the ordinary course of business of Greenhouse Spa, or for the
purchase or sale of securities;
(i) any written arrangement under which the consequences of a default or
termination could have a Material Adverse Effect on Greenhouse Spa;
(j) any written arrangement relating to the borrowing of money or
availability of credit to or from Greenhouse Spa, other than customer/supplier
agreements in the ordinary course of business of Greenhouse Spa involving not in
excess of $10,000;
(k) each guaranty or similar undertaking with respect to the obligations
or liabilities of any other person;
(l) each collective bargaining agreement or other contract or commitment
to or with any labor union or other group of employees, and
(m) any other written arrangement (or group of related written
arrangements) either involving more than $10,000 or not entered into in the
ordinary course of business.
Greenhouse Spa has delivered to ThermoLase a correct and complete copy of
each written arrangement (as amended to date) listed or required to be listed in
Section 2.14 of the Disclosure Schedule. Except as set forth in Section 2.14 of
the Disclosure Schedule, with respect to each written arrangement so listed or
required to be listed: (i) the written arrangement is legal, valid, binding and
enforceable and in full force and effect; (ii) the written arrangement will
continue to be legal, valid, binding and enforceable and in full force and
effect immediately following the Closing in accordance with the terms thereof as
in effect prior to the Closing; (iii) each party to any such written
arrangement, is, and at all times has been, in compliance with all applicable
material terms and requirements thereof; and (iv) no party is in breach or
default, and no event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination, modification, or
acceleration, under the written arrangement. Greenhouse Spa is not a party to
any oral contract, agreement or other legally binding arrangement which, if
reduced to written form, would be required to be listed in Section 2.14 of the
Disclosure Schedule under the terms of this Section 2.14. Except as disclosed in
Section 2.14 of the Disclosure Schedule there are no renegotiations of, attempts
to renegotiate, or outstanding rights to renegotiate any amounts paid or payable
to Greenhouse Spa under any such written arrangement with any person having the
contractual or statutory right to demand or require such renegotiation and no
such person has made demand for such renegotiation.
2.15 Accounts Receivable. Except as set forth in Section 2.15 of the
Disclosure Schedule all accounts receivable of Greenhouse Spa reflected on the
Most Recent Balance Sheet (except for those that have been collected since March
31, 1998) are valid receivables subject to no setoffs or counterclaims and are
current and collectible (within 90 days after the date on which it first became
due and payable) net of the applicable reserve for bad debts on the Most Recent
Balance Sheet. All accounts receivable reflected in the financial or accounting
records of Greenhouse Spa that have arisen since March 31, 1998 (except for
those that have been collected since March 31, 1998) are valid receivables
subject to no setoffs or counterclaims and are collectible (within 90 days after
the date on which it first became due and payable), net of a reserve for bad
debts in an amount proportionate to the reserve shown on the Most Recent Balance
Sheet.
2.16 Powers of Attorney. Except as disclosed in Section 2.16 of the
Disclosure Schedule, there are no outstanding powers of attorney executed on
behalf of Greenhouse Spa.
2.17 Insurance. Section 2.17 of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including fire,
theft, casualty, general liability, workers compensation, business interruption,
environmental, product liability and automobile insurance policies and bond and
surety arrangements) to which Greenhouse Spa has been a party, a named insured,
or otherwise the beneficiary of coverage at any time:
(a) the name of the insurer, the name of the policyholder and the name of
each covered insured;
(b) the policy number and the period of coverage;
(c) the scope (including an indication of whether the coverage was on a
claims made, occurrence, or other basis) and amount (including a description of
how deductibles and ceilings are calculated and operate) of coverage; and
(d) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
Each such insurance policy: (i) is enforceable and in full force and effect; and
(ii) will continue to be enforceable and in full force and effect immediately
following the Closing in accordance with the terms thereof as in effect prior to
the Closing. Greenhouse Spa (A) is not in breach or default (including with
respect to the payment of premiums or the giving of notices) under such policy,
and no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default or permit termination, modification or
acceleration, of such policy by the issuer thereof; (B) has not received any
notice from the insurer disclaiming coverage or reserving rights with respect to
a particular claim or such policy in general; and (C) has not incurred any loss,
damage, expense or liability covered by any such insurance policy for which it
has not asserted a claim under such policy in accordance with the terms of such
policy. Greenhouse Spa is, and has been since its incorporation, covered by
insurance in scope and amount customary and reasonable for the businesses in
which it is engaged.
2.18 Litigation. Section 2.18 of the Disclosure Schedule identifies, and
contains a brief description of: (a) any unsatisfied judgment, or any order,
decree, stipulation or injunction to which Greenhouse Spa is subject, and (b)
any claim, complaint, action, suit, proceeding, hearing or investigation by or
before any Governmental Entity or before any arbitrator to which Greenhouse Spa
is a party or, to the Knowledge of Greenhouse Spa or SMK Group and its Members,
is threatened to be made a party. Greenhouse Spa has not received any other
written threat of litigation that could have a Material Adverse Effect on
Greenhouse Spa and to the Knowledge of Greenhouse Spa and SMK Group and its
Members no basis therefor exists.
2.19 Employees. Section 2.19 of the Disclosure Schedule contains a list of
all employees of Greenhouse Spa, indicating, with respect to each such employee,
his or her position, total wages reported on Form W-2 for the last fiscal year
of Greenhouse Spa, method for calculating bonus for the current fiscal year and
any other arrangement under which cash compensation is payable by Greenhouse
Spa, and whether such employee has entered into a confidentiality or
non-competition agreement with Greenhouse Spa. Copies of any such
confidentiality or non-competition agreements have previously been provided to
ThermoLase. To the Knowledge of Greenhouse Spa and SMK Group and its Members, no
employee has any plans to terminate employment with Greenhouse Spa. Greenhouse
Spa is not a party to or bound by any collective bargaining agreement, nor has
Greenhouse Spa experienced any strikes, grievances, claims of unfair labor
practices or other collective bargaining disputes. Neither Greenhouse Spa nor
SMK Group and its members has any Knowledge of any organizational effort made or
threatened, either currently or in the past, by or on behalf of any labor union
with respect to employees of Greenhouse Spa or any Subsidiary.
2.20 Employee Benefits.
(a) Section 2.20(a) of the Disclosure Schedule contains a complete and
accurate list of all Employee Benefit Plans (as defined below) maintained, or
contributed to, by Greenhouse Spa or any ERISA Affiliate (as defined below). For
purposes of this Agreement, "Employee Benefit Plan" means any "employee pension
benefit plan" (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), any "employee welfare benefit plan"
(as defined in Section 3(1) of ERISA), and any other written or oral plan,
agreement or arrangement involving direct or indirect compensation, including
without limitation insurance coverage, severance benefits, disability benefits,
deferred compensation, bonuses, stock options, stock purchase, phantom stock,
stock appreciation or other forms of incentive compensation or post-retirement
compensation. For purposes of this Agreement, "ERISA Affiliate" means any entity
which is a member of: (i) a controlled group of corporations (as defined in
Section 414(b) of the Code), (ii) a group of trades or businesses under common
control (as defined in Section 414(c) of the Code), or (iii) an affiliated
service group (as defined under Section 414(m) of the Code or the regulations
under Section 414(o) of the Code), any of which includes Greenhouse Spa or a
subsidiary of Greenhouse Spa. Complete and accurate copies of: (i) all Employee
Benefit Plans which have been reduced to writing, (ii) written summaries of all
unwritten Employee Benefit Plans, (iii) all related trust agreements, insurance
contracts and summary plan descriptions, and (iv) all annual reports filed on
IRS Form 5500, 5500C or 5500R for each Employee Benefit Plan, have been
delivered to ThermoLase. Each Employee Benefit Plan has been administered in all
material respects in accordance with its terms and Greenhouse Spa and its ERISA
Affiliates have in all material respects met its obligations with respect to
such Employee Benefit Plan and has made all required contributions thereto.
Greenhouse Spa and all Employee Benefit Plans are in compliance in all material
respects with the currently applicable provisions of ERISA and the Code and the
regulations thereunder.
(b) There are no investigations by any Governmental Entity, termination
proceedings or other claims (except claims for benefits payable in the normal
operation of the Employee Benefit Plans and proceedings with respect to
qualified domestic relations orders), suits or proceedings against or involving
any Employee Benefit Plan or asserting any rights or claims to benefits under
any Employee Benefit Plan that could give rise to any material liability.
(c) All the Employee Benefit Plans that are intended to be qualified under
Section 401(a) of the Code have received determination letters from the Internal
Revenue Service to the effect that such Employee Benefit Plans are qualified and
the plans and the trusts related thereto are exempt from federal income taxes
under Sections 401(a) and 501(a), respectively, of the Code, no such
determination letter has been revoked and revocation has not been threatened,
and no such Employee Benefit Plan has been amended since the date of its most
recent determination letter or application therefor in any respect, and no act
or omission has occurred, that would adversely affect its qualification or
materially increase its cost.
(d) Neither Greenhouse Spa nor any ERISA Affiliate has ever maintained an
Employee Benefit Plan subject to Section 412 of the Code or Title IV of ERISA.
(e) At no time has Greenhouse Spa or any ERISA Affiliate been obligated to
contribute to any "multi-employer plan" (as defined in Section 4001(a)(3) of
ERISA).
(f) There are no unfunded obligations under any Employee Benefit Plan
providing benefits after termination of employment to any employee of Greenhouse
Spa (or to any beneficiary of any such employee), including but not limited to
retiree health coverage and deferred compensation, but excluding continuation of
health coverage required to be continued under Section 4980B of the Code and
insurance conversion privileges under state law.
(g) No act or omission has occurred and no condition exists with respect
to any Employee Benefit Plan maintained by Greenhouse Spa or any ERISA Affiliate
that would subject Greenhouse Spa or any ERISA Affiliate to any material fine,
penalty, tax or liability of any kind imposed under ERISA or the Code.
(h) No Employee Benefit Plan is funded by, associated with, or related to
a "voluntary employee's beneficiary association" within the meaning of Section
501(c)(9) of the Code.
(i) No Employee Benefit Plan, plan documentation or agreement, summary
plan description or other written communication distributed generally to
employees by its terms prohibits Greenhouse Spa from amending or terminating any
such Employee Benefit Plan except as required by law.
(j) Section 2.20(j) of the Disclosure Schedule discloses each: (i)
agreement with any director, executive officer or other key employee of
Greenhouse Spa (A) the benefits of which are contingent, or the terms of which
are materially altered, upon the occurrence of a transaction involving
Greenhouse Spa of the nature of any of the transactions contemplated by this
Agreement, (B) providing any term of employment or compensation guarantee, or
(C) providing severance benefits or other benefits after the termination of
employment of such director, executive officer or key employee; (ii) agreement,
plan or arrangement under which any person may receive payments from Greenhouse
Spa that may be subject to the tax imposed by Section 4999 of the Code or
included in the determination of such person's "parachute payment" under Section
280G of the Code; and (iii) agreement or plan binding Greenhouse Spa, including
without limitation any stock option plan, stock appreciation right plan,
restricted stock plan, stock purchase plan, severance benefit plan, or any
Employee Benefit Plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
2.21 Environmental Matters.
(a) Greenhouse Spa has complied with all Environmental Laws (as defined
below) applicable to its business operations. Greenhouse Spa has delivered to
ThermoLase a copy of a Phase I Environmental Site Assessment of the Greenhouse
Spa located at 1171 107th Street, Arlington, Texas, dated August 8, 1996, and an
Update of such site assessment dated January 7, 1998, prepared by Secor
International Incorporated. For purposes of this Agreement, "Environmental Law"
means any federal, state or local law, statute, rule or regulation or the common
law relating to the environment or occupational health and safety, including
without limitation any statute, regulation or order pertaining to: (i)
treatment, storage, disposal, generation and transportation of Materials of
Environmental Concern (as defined below); (ii) air, water and noise pollution;
(iii) groundwater and soil contamination; (iv) the release or threatened release
into the environment of Materials of Environmental Concern, including without
limitation emissions, discharges, injections, spills, escapes or dumping of
pollutants, contaminants or chemicals; (v) the protection of wild life, marine
sanctuaries and wetlands, including without limitation all endangered and
threatened species; (vi) storage tanks, vessels and containers; (vii)
underground and other storage tanks or vessels, abandoned, disposed or discarded
barrels, containers and other closed receptacles; (viii) health and safety of
employees and other persons; and (ix) manufacture, processing, use,
distribution, treatment, storage, disposal, transportation or handling of
Materials of Environmental Concern. As used above, the terms "release" and
"environment" shall have the meaning set forth in the federal Comprehensive
Environmental Compensation, Liability and Response Act of 1980, as amended
("CERCLA").
(b) There have been no releases of any Materials of Environmental Concern
into the environment, at any parcel of real property or any facility formerly or
currently owned or leased by Greenhouse Spa or any locations where any Materials
of Environmental Concern were generated, manufactured, refined, transferred,
transported, produced, imported, used or processed at or from any such parcel of
real property or facility, or by Greenhouse Spa, for which liability can be
imposed on Greenhouse Spa under any Environmental Law. For purposes of this
Agreement, "Materials of Environmental Concern" means any chemicals, pollutants
or contaminants, hazardous substances (as such term is defined under CERCLA),
solid wastes and hazardous wastes (as such terms are defined under the federal
Resource Conservation and Recovery Act), toxic materials, industrial materials,
oil or petroleum and petroleum products, polychlorinated biphenyls, pesticides,
asbestos or asbestos containing materials, or any other material subject to
regulation under any Environmental Law.
(c) There is no pending or, to the Knowledge of Greenhouse Spa or SMK
Group or its Members, threatened civil or criminal litigation, written notice of
violation or noncompliance, formal administrative or judicial proceeding, claim,
cause of action, liability, investigation, citation, order, consent order,
consent decree, inquiry or information request (except for normally required
reports, notices or manifests in the ordinary course of business) by any
Governmental Entity, involving Greenhouse Spa relating to any of the following:
(i) violation of any Environmental Law; (ii) violation of any permit, license or
registration issued under any Environmental Law; (iii) the disposal, discharge
or release of Materials of Environmental Concern, whether or not in compliance
with Environmental Laws; (iv) the generation, storage, treatment,
transportation, reclamation, recycling or other handling of Materials of
Environmental Concern, whether or not in compliance with Environmental Laws; (v)
the ownership, operation or use of any landfill, surface impoundment, pit, pond,
lagoon, underground injection well, waste pile, land treatment unit, wastewater
treatment plant, air pollution control equipment, or any other unit used for the
storage, disposal, handling or treatment of Materials of Environmental Concern;
(vi) the exacerbation of previously existing environmental contamination; or
(vii) exposure to any Materials of Environmental Concern, noises, odors, or
vibrations at or from any real property or facility formerly or currently owned
or leased by Greenhouse Spa. Without limiting the foregoing, Greenhouse Spa has
not been named a "potentially responsible party" under any Environmental Law or
has received any correspondence or notice that it may be named a "potentially
responsible party."
(d) Set forth in Section 2.21(d) of the Disclosure Schedule is a list of
all environmental, health and safety reports, investigations, audits,
assessments, surveys and analyses, relating to premises currently or previously
owned or occupied by Greenhouse Spa which Greenhouse Spa has possession of or
access to. Complete and accurate copies of each such report, or the results of
each such investigation have been provided to ThermoLase.
(e) To the Knowledge of SMK Group and its Members and Greenhouse Spa, all
entities, including without limitation transporters, treatment, storage and
disposal facilities, and remediation companies used by Greenhouse Spa for the
transportation, storage, disposal, treatment or other handling of Materials of
Environmental Concern possess all permits, licenses and registrations required
under Environmental Laws, and does not have and will not have any liability as a
result of any act or omission by any of such entities. To the Knowledge of SMK
Group and its Members and Greenhouse Spa, there is no previous, pending or
threatened civil or criminal litigation, written notice of violation or
noncompliance, formal administrative or judicial proceeding, investigation,
citation, order, consent order, consent decree, inquiry or information request
by any Governmental Entity, relating to such entities for any violations of
Environmental Laws.
2.22 Legal Compliance. Greenhouse Spa, and the conduct and operation of
its businesses, is in compliance with all laws (including rules and regulations
thereunder) of any federal, state or local government or foreign government of a
country in which Greenhouse Spa does business, or any Governmental Entity, which
are applicable to Greenhouse Spa, and Greenhouse Spa has not received any notice
from any Governmental Entity that Greenhouse Spa is in violation of, or has
violated any such laws (including rules and regulations thereunder).
2.23 Permits. Section 2.23 of the Disclosure Schedule sets forth a list of
all material permits, licenses, registrations, certificates, orders or approvals
from any Governmental Entity (including without limitation those issued or
required under Environmental Laws and those relating to the occupancy or use of
owned or leased real property) ("Permits") issued to or held by Greenhouse Spa.
Such listed Permits are the only Permits that are required for Greenhouse Spa to
conduct its businesses as presently conducted or as proposed to be conducted,
except for such Permits the absence of which will not result in a Material
Adverse Effect. Each such Permit is in full force and effect and, to the
Knowledge of SMK Group and its Members and Greenhouse Spa, no suspension or
cancellation of such Permit is threatened, and there is no basis for believing
that such Permit will not be renewable upon expiration. Except as set forth in
Section 2.23 of the Disclosure Schedule, each such Permit will continue in full
force and effect following the Closing.
2.24 Certain Business Relationships with Affiliates. Except as set forth
in Sections 2.19 and 2.24 to the Disclosure Schedule, no Member, shareholder,
director, executive officer, or Affiliate of SMK Group or Greenhouse Spa: (a)
owns any property or right, tangible or intangible, that is used in the business
of Greenhouse Spa, (b) has a financial or profit interest in Greenhouse Spa
other than as a shareholder or employee of Greenhouse Spa, (c) has or ever had
any business dealings with Greenhouse Spa, (d) has or ever had any claim or
cause of action against Greenhouse Spa, or (e) owes any money to, or is owed any
money by, Greenhouse Spa. Sections 2.19 and 2.24 of the Disclosure Schedule
describe any transactions or relationships between Greenhouse Spa and any
Member, shareholder, director, executive officer, or Affiliate of SMK Group or
Greenhouse Spa which are not reflected in the statements of operations of
Greenhouse Spa included in the Financial Statements.
2.25 Brokers Fees. Except for the fees and expenses incurred pursuant to
the agreements listed in Section 2.25 of the Disclosure Schedule, Greenhouse Spa
has no liability or obligation to pay any fees or commissions to any broker,
finder or agent with respect to the transactions contemplated by this Agreement,
including, without limitation in respect of fees owed to Kirsten Florian Inc. in
respect of certain financial and other services rendered to SMK Group or its
Members, Greenhouse Spa, or Gerald Katzoff in connection with the transactions
contemplated by this Agreement (the "Broker Fees").
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2.26 Books and Records. The minute books and other similar records of
Greenhouse Spa contain true and complete records of all actions taken at any
meetings of Greenhouse Spa's shareholders, Board of Directors, or any committee
thereof and of all written consents executed in lieu of the holding of any such
meeting. The books and records of Greenhouse Spa accurately reflect in all
material respects the assets, liabilities, business, financial condition and
results of operations of Greenhouse Spa and have been maintained in accordance
with good business and bookkeeping practices. Greenhouse Spa has previously
delivered to ThermoLase true, correct and complete copies of the minute books or
other similar records of Greenhouse Spa.
2.27 Customers and Suppliers. Except as set forth in Section 2.27 of the
Disclosure Schedule, no purchase order or commitment of Greenhouse Spa is in
excess of normal requirements, nor are prices provided therein in excess of
current market prices for the products or services to be provided thereunder. No
supplier of Greenhouse Spa has indicated to Greenhouse Spa within the past year
that it will stop, or decrease the rate of, supplying materials, products or
services to Greenhouse Spa. Section 2.27 of the Disclosure Schedule sets forth a
list of (a) each customer that accounted for more than 5% of the consolidated
revenues of Greenhouse Spa during the last full fiscal year or the interim
period through the Most Recent Balance Sheet and the amount of revenues
accounted for by such customer during each such period and (b) each supplier
that is the sole supplier of any significant product or component to Greenhouse
Spa.
2.28 Banking Facilities.
(a) Section 2.28 of the Disclosure Schedule sets forth a true, correct and
complete list of: (i) each bank, savings and loan or similar financial
institution at which Greenhouse Spa has an account, safety deposit box, line of
credit or credit facility and the numbers of the accounts or safety deposit
boxes maintained by Greenhouse Spa thereat and details, including terms, of any
line of credit or credit facility; and (ii) the names of all persons authorized
to draw on each such account or to have access to any such safety deposit box
facility, together with a description of the authority (and conditions thereof,
if any) of each such person with respect thereto.
(b) All of the outstanding indebtedness (secured or unsecured) for
borrowed money of Greenhouse Spa may be prepaid without the consent or approval
of, or prior notice to, any other person, and without payment of any premium or
penalty. Section 2.28 of the Disclosure Schedule sets forth all outstanding
indebtedness (secured or unsecured) for borrowed money of Greenhouse Spa.
2.29 Suretyships. Except as disclosed in Section 2.29 of the Disclosure
Schedule, Greenhouse Spa has no obligation or liability (whether actual,
accrued, accruing, contingent or otherwise) as guarantor, surety, co-signer,
endorser, co-maker, indemnitor or otherwise in respect of the obligation of any
person, corporation, limited liability company, partnership, joint venture,
association, organization or other entity, except as endorser or maker of checks
or letters of credit, respectively, endorsed or made in the ordinary course of
business.
2.30 Governmental Approvals. No product offered by Greenhouse Spa requires
any clearance or approval by the United States Food and Drug Administration or
any other governmental agency. Except as set forth in Schedule 2.30 of the
Disclosure Schedule, no services offered by Greenhouse Spa are treated by the
Texas Board of Medicine or any governmental agency as the practice of medicine.
All services provided by the Greenhouse Spa which must be provided by a licensed
person are provided by persons with appropriate licenses. Greenhouse Spa has all
licenses and permits required by it in order to carry on its business as
conducted by it through the date hereof and to provide the products and services
currently offered by it.
2.31 Inventories. All Inventories (as defined below) are of a quality and
quantity usable and salable in the ordinary course of business. Items included
in such Inventories are carried on the books of Greenhouse Spa at the lower of
cost or market and, with respect to Inventories existing as of the date of the
Most Recent Balance Sheet are reflected on the Most Recent Balance Sheet, net of
applicable reserves for excess and obsolete items. Such reserves have been
determined in accordance with past practices and conform to GAAP. The term
"Inventories" includes all stock of raw materials, work-in-process and finished
goods, including demonstration inventory, owned by Greenhouse Spa, for
manufacturing, assembly, processing, finishing, demonstration and sale or resale
to others.
2.32 Disclosure. No representation or warranty of Greenhouse Spa in this
Agreement and no statement in the Disclosure Schedule omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
ARTICLE III
ADDITIONAL REPRESENTATIONS AND WARRANTIES
OF SMK GROUP AND ITS MEMBERS
SMK Group and its Members, jointly and severally, represent and warrant to
ThermoLase that the statements contained in this Article III are true and
correct. Each individual representation and warranty contained herein shall be
interpreted and enforced separately and no representation or warranty contained
herein shall be construed as limiting any other representation and warranty
contained herein. ThermoLase shall be assumed to have relied upon the
representations and warranties contained herein, notwithstanding any
investigation of SMK Group made by ThermoLase or the Acquisition Subsidiary or
any of their respective officers, directors, representatives or agents, prior to
the Closing.
3.1 Authority. Except as disclosed in Section 3.1 of the Disclosure
Schedule, SMK Group has full power and authority to execute and deliver this
Agreement and the Escrow Agreement and perform its obligations hereunder and
thereunder. This Agreement and the Escrow Agreement constitute the valid and
binding obligations of SMK Group enforceable against SMK Group in accordance
with the terms hereof and thereof. Neither the execution, delivery and
performance of this Agreement or the Escrow Agreement by SMK Group, nor the
consummation of the transactions contemplated hereby to be performed by SMK
Group will: (x) conflict with or result in a violation, breach, termination or
acceleration of, or default under (or would result in such a violation, breach,
termination or acceleration of, or default with the giving of notice or passage
of time, or both), any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, agreement or other instrument or obligation to which SMK
Group is a party or by which it or its properties or assets may be bound or
materially negatively affected; (y) result in the violation of any order, writ,
injunction, decree, statute, rule or regulation applicable to SMK Group or its
properties or assets; or (z) result in the imposition of any lien, encumbrance,
charge or claim upon any of SMK Group's assets. There is no action,
investigation or other proceeding pending against, and to the Knowledge of SMK
Group, threatened against or affecting SMK Group or any of SMK Groups'
Affiliates before any Governmental Entity which in any manner challenges or
seeks to prevent, enjoin, alter or delay any of the transactions contemplated by
this Agreement. No consent or approval by, or notification to or filing with,
any court, governmental authority or third party is required to be obtained or
made by SMK Group or Greenhouse Spa in connection with the execution, delivery
and performance of this Agreement by SMK Group or the consummation of the
transactions contemplated hereby to be performed by SMK Group.
3.2 Title. SMK Group holds of record and owns beneficially all of the
issued and outstanding shares of Greenhouse Spa Common Stock free and clear of
any restrictions on transfer (other than any restrictions under the Securities
Act). SMK Group is not party to or bound by any option, warrant, purchase right,
Security Interest or other arrangement that could require it to sell, transfer
or otherwise dispose of any capital stock of Greenhouse Spa. SMK Group is not
party to any voting trust, proxy, or other agreement or understanding with
respect to the voting of any capital stock of Greenhouse Spa.
3.3 Brokers' Fees. Other than in respect of the Broker Fees set forth in
Section 2.25 of the Disclosure Schedule, SMK Group and its Members have no
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement.
3.4 Investment Representations.
(a) SMK Group and its Members are "accredited investors" as defined in
Regulation D under Securities Act; SMK Group is acquiring the shares of
ThermoLase Common Stock being transferred to SMK Group as the Merger
Consideration for investment purposes and has no present intention of effecting
a distribution of such shares of ThermoLase Common Stock; and SMK Group and its
Members and their representatives have had an opportunity to ask questions and
receive answers from the management of ThermoLase regarding ThermoLase, its
business and such shares of ThermoLase Common Stock.
(b) SMK Group has received and reviewed the Confidential Private Placement
Memorandum prepared by ThermoLase for delivery to SMK Group in connection with
the distribution to SMK Group of the Merger Consideration.
(c) SMK Group understands that (i) no action has been or will be taken in
any jurisdiction outside the United States by ThermoLase that would permit an
offering of the shares of ThermoLase Common Stock being transferred to SMK Group
as the Merger Consideration, or possession or distribution of offering material
in connection with the issue of such shares, in any country or jurisdiction
outside the United States where action for that purpose is required; (ii) the
certificates evidencing the shares of ThermoLase Common Stock being transferred
to SMK Group as the Merger Consideration will be delivered to SMK Group 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 THERMOLASE CORPORATION) OF COUNSEL
SATISFACTORY TO THERMOLASE CORPORATION, THAT SUCH REGISTRATION IS NOT
REQUIRED";
and (iii) SMK Group must bear the economic risk of its investment for an
indefinite period of time because the shares of ThermoLase Common Stock being
distributed to it as Merger Consideration 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.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THERMOLASE AND THE ACQUISITION SUBSIDIARY
ThermoLase and the Acquisition Subsidiary, jointly and severally,
represent and warrant to Greenhouse Spa and SMK Group as follows:
4.1 Organization. Each of ThermoLase and the Acquisition Subsidiary is a
corporation duly organized, validly existing and in corporate good standing
under the laws of the state of its incorporation. ThermoLase and Acquisition
Subsidiary have delivered to Greenhouse Spa true and correct copies of their
charter documents and bylaws, as amended and in effect on the date hereof.
4.2 Authorization of Transaction. Each of ThermoLase and the Acquisition
Subsidiary has all corporate power and authority to execute and deliver this
Agreement and the Real Estate Agreement and (in the case of ThermoLase the
Escrow Agreement) and to perform its respective obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Real Estate
Agreement (and in the case of ThermoLase the Escrow Agreement) by ThermoLase and
the Acquisition Subsidiary, the performance of this Agreement and the Real
Estate Agreement (and in the case of ThermoLase the Escrow Agreement) and the
consummation of the transactions contemplated hereby and thereby by ThermoLase
and the Acquisition Subsidiary have been duly and validly authorized by all
necessary corporate action on the part of ThermoLase and the Acquisition
Subsidiary. This Agreement and the Real Estate Agreement (and in the case of
ThermoLase the Escrow Agreement) have been duly and validly executed and
delivered by ThermoLase and the Acquisition Subsidiary and constitute valid and
binding obligations of ThermoLase and the Acquisition Subsidiary, enforceable
against them in accordance with their terms. The Board of Directors of each of
ThermoLase and the Acquisition Subsidiary has approved this Merger and the
transactions contemplated hereby and the approval of the stockholders of
ThermoLase is not required for this Merger.
4.3 Noncontravention. Subject to the filing of the Merger Documents with
the Department of State of the Commonwealth of Pennsylvania, neither the
execution and delivery by ThermoLase or the Acquisition Subsidiary of this
Agreement or the Real estate Agreement or (in the case of ThermoLase of the
Escrow Agreement), nor the consummation by ThermoLase or the Acquisition
Subsidiary of the transactions contemplated hereby or thereby, will (a) conflict
or violate any provision of the charter documents or bylaws of ThermoLase or the
Acquisition Subsidiary, (b) require on the part of ThermoLase or the Acquisition
Subsidiary any filing with, or permit, authorization, consent or approval of any
Governmental Entity, (c) conflict with, result in breach of, constitute (with or
without due notice or lapse of time or both) a default under, result in the
acceleration of, create in any party any right to accelerate, terminate, modify
or cancel, or require any notice, consent or waiver under, any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest or
other arrangement to which ThermoLase or the Acquisition Subsidiary is a party
or by which either is bound or to which any of their assets are subject, or (d)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to ThermoLase or the Acquisition Subsidiary or any of their
properties or assets.
4.4 Merger Consideration. As of the Effective Time, the Merger
Consideration will be validly issued, duly authorized, fully paid and
non-assessable.
4.5 Reports and Financial Statements. ThermoLase has previously provided
to SMK Group complete and accurate copies, as amended or supplemented, of (a)
its Annual Report on Form 10-K, as amended, for the fiscal year ended September
27, 1997, as filed with the Securities and Exchange Commission, (b) its
Quarterly Report on Form 10-Q for the fiscal quarter ended January 3, 1998, as
filed with the Securities and Exchange commission, (c) its Quarterly Report on
Form 10-Q for the fiscal quarter ended April 4, 1998, as filed with the
Securities and Exchange Commission (such reports are collectively referred to
herein as the "ThermoLase Reports"). As of their respective dates, the
ThermoLase Reports did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The audited financial statements and unaudited interim
financial statements of ThermoLase included in the ThermoLase reports (I) comply
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the Securities and Exchange Commission
with respect thereto, (ii) have been prepared in accordance with GAAP applied on
a consistent basis throughout the periods covered thereby, (except as may be
indicated therein or in the notes thereto, and in the case of quarterly
financial statements, as permitted by Form 10-Q under the Exchange Act, (iii)
fairly present the consolidated financial condition, results of operations and
cash flows of ThermoLase as of the respective dates thereof and for the periods
referred to therein and (iv) are consistent with the books and records of
ThermoLase.
4.6 Brokers' Fees. Except for the brokers fees payable to Kerstin Florian,
Inc. by ThermoLase pursuant to a Finders Fee Agreement dated April 8, 1998 by
and between ThermoLase and Kerstin Florian, Inc., a copy of which has previously
been provided to SMK Group, neither ThermoLase nor the Acquisition Subsidiary
has any liability or obligation to pay any fees or commissions to any broker,
finder or agent with respect to the transactions contemplated by this Agreement.
ARTICLE V
COVENANTS
5.1 Best Efforts. Each of the Parties shall use their best efforts, to the
extent commercially reasonable, to take all actions to do all things necessary,
proper or advisable to consummate the transactions contemplated by this
Agreement.
5.2 Notices and Consents. Greenhouse Spa shall use its best efforts to
obtain, at its expense, all such waivers, permits, consents, approvals or other
authorizations from third parties and Governmental Entities, and to effect all
such registrations, filings and notices with or to third parties and
Governmental Entities, as may be required by or with respect to Greenhouses Spa
in connection with the transactions contemplated by this Agreement.
5.3 Operation of Business. Except as contemplated by this Agreement,
during the period from the date of this Agreement to the Closing Date,
Greenhouse Spa shall conduct its operations in the ordinary course of business
and in compliance with all applicable laws and regulations and, to the extent
consistent therewith, use all reasonable efforts to preserve intact its current
business organization, keep its physical assets in good working condition, keep
available the services of its current officers and employees, and preserve its
relationships with customers, suppliers, and others having business dealings
with it to the end that its goodwill and ongoing business shall not be impaired
in any material respect. Without limiting the generality of the foregoing, prior
to the Closing Date, or the termination of this Agreement, Greenhouse Spa shall
not, without the consent of ThermoLase:
(a) issue, sell, deliver or agree to commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) or authorize the issuance o,
sale, delivery of, or redeem or repurchase, any stock of any class or any other
securities or any rights, warrants or options to acquire any such stock or other
securities;
(b) Split, combine, or reclassify any shares of its capital stock; or
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock;
(c) create, incur, or assume any debt not currently outstanding (including
obligation in respect of capital leases) except in the ordinary course of
business and except for professional fees associated with the transactions
contemplated by this Agreement; assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently, or otherwise) for the
obligations of any other person or entity; or make any loans, advances or
capital contributions to, or investments in, any other person or entity;
(d) enter into, adopt, or amend any Employee Benefit Plan or any
employment or severance agreement or arrangement of the type described in
Section 2.20(j) or except for normal increases in the ordinary course of
business) increase in any manner the compensation or fringe benefits of, or
modify the employment terms of, its directors, officers, or employees, generally
or individually, or pay any benefit not required by the terms in effect on the
date hereof of any existing Employee Benefit Plan;
(e) acquire, sell, lease, encumber, or dispose of any assets or property
(including without limitation any shares or other equity interests in or
securities of any corporation, partnership, association or other business
organization or division thereof), other than purchases and sales of assets in
the ordinary course of business;
(f) amend its charter or By-laws;
(g) change in any material respect its accounting methods, principles or
practices, except insofar as may be required by a generally applicable change in
GAAP;
(h) discharge or satisfy any Security Interest or pay any obligation or
liability other than in the ordinary course of business;
(i) mortgage or pledge any of its property or assets or subject any such
assets to any Security Interest other than in the ordinary course of business;
(j) sell, assign, transfer, or license any Intellectual Property, other
than in the ordinary course of business;
(k) enter into any material contract or amend, terminate, or take or omit
to take any action that would constitute a violation of or default under, or
waive any rights under, any contract or agreement listed in Section 2.14 of the
Disclosure Schedule;
(l) make or commit to make any capital expenditure in excess of $10,000
per item;
(m) except as set forth in Section 5.3 of the Disclosure Schedule, make
any tax election or, except in the ordinary course of business, settle or
compromise any federal, state, local or foreign tax liability;
(n) take any action or fail to take any action permitted by this Agreement
with the knowledge that such action or failure to take action would result in:
(i) any of the representations and warranties of SMK Group and its Member set
forth in this Agreement becoming untrue, or (ii) any of the conditions of the
Merger set forth in Article VI not being satisfied; or
(o) agree in writing or otherwise take any of the foregoing actions.
5.4 Full Access. During the period from the date of this Agreement to the
Closing Date, Greenhouse Spa shall permit representatives of ThermoLase and
Acquisition Subsidiary to have full access (at all reasonable times, and in a
manner so as not to interfere with the normal business operations of Greenhouse
Spa) to all premises, properties, financial and accounting records, contracts,
other records and documents and personnel, of or pertaining to Greenhouse Spa.
5.5 Notice of Breaches. SMK Group and its Members shall promptly deliver
to the ThermoLase and the Acquisition Subsidiary written notice of any event or
development that would: (a) render any statement, representation, or warranty of
SMK Group and its Members (including in the Disclosure Schedule) inaccurate or
incomplete in any material respect, of (b) constitute or result in a breach by
SMK Group or its Members of, or a failure by SMK Group or its Members to comply
with, any agreement or covenant in this Agreement applicable to SMK Group or its
Members. ThermoLase and the Acquisition Subsidiary shall promptly deliver to SMK
Group and its Members written notice of any development that would (i) render
any statement, representation, or warranty of ThermoLase and the Acquisition
Subsidiary in this Agreement inaccurate or incomplete in any material respect,
or (ii) constitute or result in a breach by ThermoLase or Acquisition Subsidiary
of, or a failure by ThermoLase or Acquisition Subsidiary to comply with, any
agreement or covenant in this Agreement applicable to such party. No such
disclosure shall be deemed to avoid or cure any such misrepresentation or
breach.
5.6 Exclusivity. Between the date hereof and the Closing or the
termination of this Agreement, Gerald Katzoff and SMK Group and its Members
shall not, and shall use their best effort to cause their Affiliates and each of
their officers, directors, employees, representatives, and agents not to,
directly or indirectly, (a) encourage, solicit, initiate, engage or participate
in discussions or negotiations with any person or entity (other than ThermoLase
and Acquisition Subsidiary and their representatives) concerning any merger,
consolidation, sale of material assets, recapitalization, or any business
combination involving Greenhouse Spa, or (b) provide any non-public information
concerning the business, properties, or assets of Greenhouse Spa to any person
or entity (other than ThermoLase and Acquisition Subsidiary and their
representatives).
5.7 Tax Payments.
(a) Except as provided in Section 5.7(b) hereof:
(i) SMK Group and its Members shall be jointly and severally liable for
any and all claims, losses, liabilities, obligations, damages, impositions,
assessments, demands, judgments, settlements, costs and expenses (including
reasonable attorneys', accountants' and experts' fees and expenses) with respect
to Taxes of Greenhouse Spa or for which Greenhouse Spa may be liable with
respect to any and all periods (Taxes attributable to any portions thereof to be
determined in accordance with subsection (b)) ending on or before the Closing
Date ("Pre-Closing Periods").
(ii) ThermoLase shall be liable for any and all claims, losses,
liabilities, obligations, damages, impositions, assessments, demands, judgments,
settlements, costs and expenses (including reasonable attorneys', accountants'
and experts' fees and expenses and any applicable assessments of interest and
penalties) with respect to Taxes attributable to Greenhouse Spa or for which
Greenhouse Spa may be liable with respect to any and all periods, or portions
thereof, ending after the Closing Date ("Post-Closing Periods").
(b) In the case of any Tax that is attributable to a taxable period which
begins before the Closing Date and ends on or after the Closing Date, the amount
of Taxes attributable to the Pre-Closing Period shall be determined as follows:
(i) In the case of ad valorem, franchise, or similar Taxes imposed on a
periodic basis on Greenhouse Spa based on capital (including net worth or
long-term debt) or number of shares of stock authorized, issued or outstanding,
the portion attributable to the Pre-Closing Period shall be the amount of such
Taxes for the entire taxable period multiplied by a fraction, the numerator of
which is the number of days in the Pre-Closing Period and the denominator of
which is the number of days in the entire taxable period.
(ii) In the case of all other Taxes, the portion attributable to the
Pre-Closing Period shall be determined on the basis of an interim closing of the
books of Greenhouse Spa as of the Closing Date, and the determination of the
hypothetical Tax for such Pre-Closing Period, determined on the basis of such
interim closing of the books, without annualization.
(c) For purposes of this Section 5.7, any and all transactions or events
contemplated by this Agreement that occur on or prior to the Closing Date shall
be deemed to have occurred in the Pre-Closing Period.
(d) To the maximum extent permitted by applicable law, neither ThermoLase
nor any of ThermoLase's Affiliates or Subsidiaries (including, with respect to
Post-Closing Periods, Greenhouse Spa) will carry back to any Pre-Closing Period
of Greenhouse Spa, any loss, credit or deduction incurred or generated in, or
attributable to, any Post-Closing Period that would affect any Tax Return of
Greenhouse Spa for such period, and ThermoLase agrees to make or exercise, or
cause to be made or exercised, any and all necessary or permitted elections or
options available under applicable law to avoid any such carryback.
(e) Any payments to be made by SMK Group under this Section 5.7 at the
option of ThermoLase shall be deducted from the Escrow Amount and returned by
the Escrow Agent to ThermoLase, as provided in the Escrow Agreement.
(f) All payments under Sections 1.5(b) or 5.7 of this Agreement and under
the Escrow Agreement shall be deemed adjustments to the Merger Consideration for
Tax purposes.
5.8 Payment of Greenhouse Spa Liabilities. ThermoLase shall cause
Greenhouse Spa to satisfy the Total Liabilities (as defined in Section 1.5(b)
hereof) within ninety days after the Closing Date.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF MERGER
6.1 Conditions to Each Party's Obligations. The respective obligations of
each Party to consummate the Merger are subject to there being no action, suit
or proceeding pending or threatened by or before any Governmental Entity wherein
an unfavorable judgment, order, decree, stipulation or injunction would (i)
prevent consummation of any of the transactions contemplated by this Agreement
or (ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation.
6.2 Conditions to Obligations of ThermoLase and the Acquisition
Subsidiary. The obligation of each of ThermoLase and the Acquisition Subsidiary
to consummate the Merger is subject to the satisfaction of the following
additional conditions:
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(a) Greenhouse Spa shall have obtained such waivers, permits, consents,
approvals or other authorizations as ThermoLase, in ThermoLase's reasonable
opinion, believes are necessary to effect the transactions contemplated by this
Agreement, including the Merger;
(b) there must not have been made or threatened by any person (other than
SMK Group) any claim asserting that such person is the holder or beneficial
owner of, or has the right to acquire or to obtain beneficial ownership of any
capital stock of, or any other voting, equity or ownership interests in
Greenhouse Spa or is entitled to all or a portion of the Merger Consideration;
(c) no action, suit or proceeding shall be pending or threatened by or
before any Governmental Entity wherein an unfavorable judgment, order, decree,
stipulation or injunction would affect adversely the right of ThermoLase to own
the capital stock of Greenhouse Spa or to operate or control any of the assets
and operations of Greenhouse Spa following the Merger, and no such judgment,
order, decree, stipulation or injunction shall be in effect;
(d) the representations and warranties of SMK Group and its Members set
forth in Articles II and III shall be true and correct as of the Closing Date;
(e) Greenhouse Spa and SMK Group shall have performed or complied with the
agreements and covenants required to be performed or complied with by them under
this Agreement as of or prior to the Closing Date;
(f) Greenhouse Spa and SMK Group shall have delivered to ThermoLase and
the Acquisition Subsidiary a certificate (without qualification as to knowledge
or materiality or otherwise) to the effect that each of the conditions specified
in clauses (a) through (e) of this Section 6.2 is satisfied in all respects;
(g) ThermoLase and the Acquisition Subsidiary shall have received from
counsel to Greenhouse Spa, an opinion dated as of the Closing Date in the form
attached as Exhibit C;
(h) ThermoLase and the Acquisition Subsidiary shall have received
evidence, satisfactory to ThermoLase, that none of ThermoLase, the Acquisition
Subsidiary, nor Greenhouse Spa has any liability or obligation in respect of the
Broker Fees other than that portion of such fees to be paid by ThermoLase
pursuant to the agreement referenced in Section 4.6;
(i) all agreements between Greenhouse Spa and SMK Group shall have been
terminated prior to, or shall terminate effective upon, the Effective Time with
the effect that Greenhouse Spa shall have no further obligation or liability
thereunder;
(j) SMK Group shall have executed an investor's letter substantially in
the form attached hereto as Exhibit D;
(k) Greenhouse Spa shall have transferred to Acquisition Subsidiary the
land and buildings located at 1171 107th Street, Arlington, Texas on terms and
conditions set forth in the Real Estate Agreement;
(l) the Total Liabilities of Greenhouse Spa as defined in Section 1.5
shall not exceed Five Million Five Hundred Thousand Dollars ($5,500,000);
(m) each of Gerald Katzoff and Lydia Katzoff shall have agreed to remain
employees of Greenhouse Spa on terms and conditions satisfactory to ThermoLase,
and shall have executed a non-competition agreement (the "Non-Competition
Agreements") substantially in the form attached hereto as Exhibit E;
(n) all actions to be taken by Greenhouse Spa and SMK Group in connection
with the consummation of the transactions contemplated hereby and all
certificates, opinions, instruments and other documents required to effect the
transactions contemplated hereby shall be reasonably satisfactory in form and
substance to ThermoLase.
6.3 Conditions to Obligations of Greenhouse and SMK Group. The obligation
of Greenhouse Spa and SMK Group to consummate the Merger is subject to the
satisfaction of the following additional conditions:
(a) the representations and warranties of ThermoLase and the Acquisition
Subsidiary set forth in Article IV shall be true and correct;
(b) each of ThermoLase and the Acquisition Subsidiary shall have performed
or complied with its agreements and covenants required to be performed or
complied with under this Agreement as of or prior to the Closing Date;
(c) each of ThermoLase and the Acquisition Subsidiary shall have delivered
to Greenhouse Spa and SMK Group a certificate (without qualification as to
knowledge or materiality or otherwise) to the effect that each of the conditions
specified in clauses (a) and (b) of this Section 6.3 is satisfied in all
respects;
(d) SMK Group shall have received from Seth H. Hoogasian, General Counsel
of ThermoLase and the Acquisition Subsidiary, an opinion dated as of the Closing
Date substantially in the form attached as Exhibit F;
(e) The land and buildings located at 1171 107th Street Arlington, Texas
shall have been conveyed to Acquisition Subsidiary on the terms and conditions
set forth in the Real Estate Agreement;
(f) ThermoLase or Acquisition Subsidiary shall have agreed that Gerald
Katzoff and Lydia Katzoff shall remain employees of Greenhouse Spa on terms and
conditions satisfactory to each of them;
(g) ThermoLase shall have entered into an agreement with SMK Group
pursuant to which SMK Group shall have a right of first refusal to purchase
Greenhouse Spa or the land and buildings located at 1171 107th Street,
Arlington, Texas on terms and conditions no less favorable than terms on which
ThermoLase proposes to sell Greenhouse Spa or such land and buildings to a third
party; and
(h) all actions to be taken by ThermoLase and the Acquisition Subsidiary
in connection with the consummation of the transactions contemplated hereby and
all certificates, instruments and other documents required to effect the
transactions contemplated hereby shall be reasonably satisfactory in form and
substance to Greenhouse Spa.
ARTICLE VII
TERMINATION
7.1 Termination of Agreement. The Parties may terminate this Agreement
prior to the Effective time as provided below:
(a) the Parties may terminate this Agreement by mutual written consent;
(b) any Party may terminate this Agreement by giving written notice to the
other Parties if a Party not controlled by the notifying Party is in breach of
any material representation, warranty, or covenant contained in this Agreement
or the Real Estate Agreement and such breach is not cured within ten days after
delivery of written notice thereof;
(c) any Party may terminate this Agreement if: (i) there shall be an order
of a court in effect to prevent consummation of the transactions contemplated by
this Agreement or the Real Estate Agreement, or (ii) there shall be any action
taken, or any statute, rule, regulation or order enacted, promulgated, issued or
deemed applicable to this Agreement or the Real Estate Agreement or the
transactions contemplated thereby, by any Governmental Entity that would make
the consummation of this Agreement or the Real Estate Agreement illegal;
(d) ThermoLase may terminate this Agreement by giving written notice to
the other Parties if the Closing shall not have occurred on or before July 1,
1998 by reason of the failure of any condition precedent under Sections 6.1 and
6.2 hereof (unless such failure results from a breach by ThermoLase or the
Acquisition Subsidiary of any representation, warranty, or covenant contained in
this Agreement or the Real Estate Agreement); or
(e) SMK Group may terminate this Agreement by giving written notice to the
other Parties if the Closing shall not have occurred on or before July 1, 1998
by reason of the failure of any condition precedent under Sections 6.1 and 6.3
hereof (unless such failure results from a breach by SMK Group or its members of
any representation, warranty, or covenant contained in this Agreement or the
Real Estate Agreement).
7.2 Effect of Termination. If any Party terminates this Agreement pursuant
to Section 7.1, all obligations of the Parties hereunder shall terminate without
liability of any Party to any other Party (except for any liability of any Party
for breaches of this Agreement).
ARTICLE VIII
INDEMNIFICATION
8.1 By SMK Group and its Members. SMK Group and its Members shall jointly
and severally indemnify and hold harmless ThermoLase, Acquisition Subsidiary,
and Greenhouse Spa from and against any and all Damages (as defined below)
arising out of, constituting or related to each and all of the following:
(a) subject to Section 8.5, any misrepresentation or breach of any
representation or warranty made by Greenhouse Spa or SMK Group in Article II or
III of this Agreement, or in the Real Estate Agreement, the Escrow Agreement, or
in any statement, certificate, Exhibit, Schedule or agreement which contains a
representation or warranty and is furnished by Greenhouse Spa or SMK Group or
its Members pursuant to or in connection with such agreements; and
(b) subject to Section 8.5, any breach of any covenant, agreement or
obligation of Greenhouse Spa or SMK Group or its Members, or Gerald Katzoff
contained in this Agreement, the Real Estate Agreement, the Escrow Agreement, or
any other agreement, instrument or document contemplated by such agreements.
The term "Damages" as used in this Agreement shall mean any and all claims,
damages, losses, liabilities, costs and expenses (including, without limitation,
settlement costs and any reasonable legal, accounting, consulting or other fees
or expenses for investigating or defending any actions or threatened actions)
incurred by ThermoLase, Acquisition Subsidiary, Greenhouse Spa, or SMK Group or
its Members to the extent not covered by insurance or reflected in the
Disclosure Schedule or the Financial Statements or the Closing Balance Sheet,
which results in an actual loss to the Indemnified Party, whether or not
involving a third-party claim.
8.2 By ThermoLase. ThermoLase shall indemnify and hold harmless SMK Group
from and against all Damages arising out of, constituting or related to each and
all of the following:
(a) any misrepresentation or breach of any representation or warranty made
by ThermoLase or the Acquisition Subsidiary in this Agreement, the Real Estate
Agreement, the Escrow Agreement, or in any statement, certificate or schedule
furnished by ThermoLase or the Acquisition Subsidiary pursuant to this
Agreement;
(b) any breach of any covenant, agreement or obligation of ThermoLase or
the Acquisition Subsidiary contained in this Agreement, the Real Estate
Agreement, the Escrow Agreement, or any other agreement, instrument or document
contemplated by such agreements; and
(c) any failure by Greenhouse Spa to perform any obligation or satisfy any
liability of Greenhouse Spa after the Closing except for any such obligation or
liability with respect to which ThermoLase or the Acquisition Subsidiary would
be entitled to indemnification hereunder.
8.3 Claims for Indemnification.
(a) Whenever any claim shall arise for indemnification under this Article
VIII, the party seeking indemnification (the "Indemnified Party") shall promptly
notify the party from whom indemnification is sought (the "Indemnifying Party")
of the claim and, when known, the facts constituting the basis for such claim;
provided, however, that no delay on the part of the Indemnified Party in
notifying any Indemnifying Party shall relieve the Indemnifying Party from any
liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such failure.
(b) In the event of any such claim for indemnification hereunder resulting
from or in connection with any claim or legal proceeding by a person other than
the Indemnified Party, the notice shall specify, if known, the amount or an
estimate of the amount of the liability arising therefrom. The Indemnified Party
shall not settle or compromise any claim by a third party for which the
Indemnified Party is entitled to indemnification hereunder without the prior
written consent, which shall not be unreasonably withheld or delayed, of the
Indemnifying Party; provided, however, that if suit shall have been instituted
against an Indemnified Party and the Indemnifying Party shall not have taken
control of such suit after notification thereof as provided in Section 8.4 of
this Agreement (if permitted by such Section), the Indemnified Party shall have
the right to settle or compromise such claim as provided in Section 8.4.
8.4 Defense by the Indemnifying Party. In connection with any claim which
may give rise to indemnity hereunder resulting from or arising out of any claim
or legal proceeding by a person other than the Indemnified Party, the
Indemnifying Party, at the Indemnifying Party's sole cost and expense, may, upon
written notice to the Indemnified Party, assume the defense of any such claim or
legal proceeding if: (i) the Indemnifying Party acknowledges to the Indemnified
Party in writing the obligation of the Indemnifying Party to indemnify the
Indemnified Party with respect to all elements of such claim, and (ii) the third
party seeks monetary Damages solely; provided, however, that such acknowledgment
shall not be deemed or construed as any admission of the Indemnifying Party with
respect to such underlying third party claim. If the Indemnifying Party assumes
the defense of any such claim or legal proceeding, the Indemnifying Party shall
select counsel reasonably acceptable to the Indemnified Party to conduct the
defense of such claims or legal proceedings and at the sole cost and expense of
the Indemnifying Party shall take all steps necessary in the defense or
settlement thereof. The Indemnifying Party shall not consent to a settlement of,
or the entry of any judgment arising from, any such claim or legal proceeding,
without the prior written consent of the Indemnified Party (which consent shall
not be unreasonably withheld or delayed). The Indemnified Party shall be
entitled to participate in (but not control) the defense of any such action,
with its own counsel and at its own expense (except that the Indemnifying Party
will be responsible for the fees and expenses of the separate co-counsel to the
extent the Indemnified Party reasonably concludes that the counsel the
Indemnifying Party has selected has a conflict of interest with the Indemnified
Party). If a third party seeks monetary Damages solely and the Indemnifying
Party does not assume the defense of any such claim or litigation resulting
therefrom as provided in this Section 8.4 within 30 days after the date that the
Indemnified Party has given notice of the claim to the Indemnifying Party: (a)
the Indemnified Party may defend against such claim or litigation in such manner
as she or it may deem appropriate, including, but not limited to, settling such
claim or litigation on such terms as the Indemnified Party may deem appropriate;
provided, however, that any admission by the Indemnified Party in settling any
such claim or litigation shall not be deemed to be an admission for any purpose
by the Indemnifying Party; and (b) the Indemnifying Party shall be entitled to
participate in (but not control) the defense of such action, with his or its
counsel and at his or its own expense. If a third party does not seek monetary
Damages solely: (x) the Indemnified Party may defend against such claim or
litigation in such manner as it may deem appropriate; provided that the
Indemnified Party shall not consent to any settlement, compromise or adjustment,
or the entry of any judgment arising from such claim or litigation without the
prior written consent of the Indemnifying Party (which consent shall not be
unreasonably withheld or delayed); and (y) the Indemnifying Party shall be
entitled to participate in (but not control) the defense of such action with his
or its counsel and at his or its expense.
8.5 Survival.
(a) Except as provided below, the representations and warranties of the
Parties set forth in this Agreement shall survive the Closing and the
consummation of the transactions contemplated hereby and continue until 24
months after the Effective Time, at which time they shall terminate.
Notwithstanding the foregoing, the representations and warranties contained in
Sections 2.1, 2.2, 2.3, 2.5, 2.25, 3.1, 3.2, 3.3, 4.1, 4.2, 4.3, and 4.4 shall
survive the Closing and consummation of the transactions contemplated hereby
indefinitely, and the representations and warranties contained in Section 2.9
and Sections 2.20 through 2.22 shall survive the Closing and the consummation of
the transactions contemplated thereby and continue until 90 days following the
expiration of the statute of limitations applicable to the underlying claims
giving rise to indemnification relating to the subject matter of such
representations.
(b) The indemnification obligation under Section 8.2(c) shall terminate on
the ninetieth day following the expiration of the statute of limitations
applicable to the underlying claims giving rise to such indemnification.
(c) If a notice of an indemnification claim is given before
expiration of any applicable time period hereunder, then (notwithstanding the
expiration of such time period) the indemnification obligation applicable to
such claim shall survive until, but only for purposes of, the resolution of such
claim. Notwithstanding anything herein to the contrary, this Section 8.5 and
Section 8.6 below shall not apply to claims for indemnification with respect to
any Damages arising from a breach of a representation or warranty of which the
Party making such representation or warranty had actual knowledge as of the
Closing Date which such Party failed to disclose to the other Parties.
8.6 Limitations. No Party shall be entitled to indemnification hereunder
until the total of all Damages incurred by such Party exceeds fifty thousand
dollars ($50,000); provided, however that such limitation shall not apply to a
breach of Section 8.1(b) or to any breach of any of the representations and
warranties of which the Indemnifying Party had Knowledge at any time prior to
the date on which such representation and warranty is made or any intentional
breach by the Indemnifying Party of any covenant or obligation set forth in this
Agreement, the Real Estate Agreement, the Escrow Agreement, or any other
agreement contemplated thereunder. The total liability of any Party (for
indemnification or otherwise) with respect to the matters described in Sections
8.1 and 8.2 shall not exceed the Merger Consideration.
ARTICLE IX
DEFINITIONS
For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.
DEFINED TERM SECTION
- ------------ -------
Affiliate 2.14(g)
Broker Fees 2.25
CERCLA 2.21(a)
Closing 1.6
Closing Balance Sheet 1.5(b)
Closing Date 1.6
Code 2.9(c)
Disclosure Schedule Article II
Draft Closing Balance Sheet 1.5(b)
Effective Time 1.3
Employee Benefit Plan 2.20(a)
Environmental Law 2.21(a)
ERISA 2.20(a)
ERISA Affiliate 2.20(a)
Escrow Agreement 1.5
Escrow Shares 1.5
Exchange Act 2.14(g)
Financial Statements 2.6
GAAP 2.6
Governmental Entity 2.5
Greenhouse Spa Introduction
Greenhouse Spa Common Stock 1.5(a)
Intellectual Property 2.12(a)
Inventories 2.31
Material Adverse Effect 2.1
Materials of Environmental Concern 2.21(b)
Merger 1.1
Merger Consideration 1.5(a)
Merger Documents 1.3
Most Recent Balance Sheet 2.8
Neutral Auditors 1.5(b)
Ordinary Course of Business Article II
Party Introduction
Pennsylvania Law 1.10
Permits 2.23
Securities Act 2.2
Security Interest 2.5
SMK Group Introduction
SMK Group Representative 1.5(b)
Subsidiary 2.4
Taxes 2.9(a)
Tax Returns 2.9(a)
ThermoLase Introduction
ThermoLase Common Stock Introduction
Third Party Intellectual Property Rights 2.12(a)
ARTICLE X
MISCELLANEOUS
10.1 Press Releases and Announcements. No Party shall issue any press
release or public disclosure relating to the subject matter of this Agreement
without the prior approval of the other Parties, which shall not be unreasonably
delayed or withheld; provided, however, that ThermoLase may make any public
disclosure it believes in good faith is required by law, regulation or stock
exchange rule (in which case ThermoLase shall advise the other Parties and
provide them with a copy of the proposed disclosure prior to making the
disclosure).
10.2 No third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
10.3 Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, with respect to the subject matter hereof.
<PAGE>
10.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Parties; provided that the Acquisition Subsidiary may assign its
rights, interests and obligations hereunder to an Affiliate of ThermoLase.
10.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
10.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered two
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or one business day after it is sent via a reputable
nationwide overnight courier service, in each case to the intended recipient as
set forth below:
If to SMK Group or its Members With a Copy to:
or Gerald Katzoff:
SMK Group LLC Leonard Lundy, Esq.
7 E. Skippack Pike Kaplin, Stewart, Meloff,
Reiter & Stein
Ambler, PA 19002 350 Sentry Parkway,
Building 640
Attention: President Blue Bell, PA 19422-0765
If to ThermoLase or the Acquisition With a Copy to:
Subsidiary:
ThermoLase Corporation Thermo Electron Corporation
10455 Pacific Center Court 81 Wyman Street
San Diego, CA 92121-4339 Waltham, MA 02254
Attention: President Attention: General Counsel
Any Party may give any notice, request, demand, claim, or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
10.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the
Commonwealth of Pennsylvania.
10.9 Amendments and Waivers. The Parties may mutually amend any provision
of this Agreement at any time prior to the Effective Time. No amendment of any
provision of this Agreement shall be valid unless the same shall be in writing
and signed by all of the Parties. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
10.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
10.11 Expenses. Except as set forth in Section 8.3 and in the Escrow
Agreement, each of the Parties shall bear its own costs and expenses (including
legal fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby.
10.12 Specific Performance. Each of the Parties acknowledges and agrees
that one or more of the other Parties would be damaged irreparably in the event
any of the provisions of this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other remedy to
which it may be entitled, at law or in equity.
10.13 Construction. The language used in this Agreement shall be deemed to
be the language chosen by the Parties hereto to express their mutual intent, and
no rule of strict construction shall be applied against any Party. Any reference
to any federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise.
10.14 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
THERMOLASE CORPORATION
By: Gary S Weinstein
Name:Gary S. Weinstein
Title: Chairman
G ACQUISITION CORP.
By:Gary S. Weinstein
Name: Gary S. Weinstein
Title: President
THE GREENHOUSE SPA, INC.
By:/s/ Gerald Katzoff
Name: Gerald Katzoff
Title: President
SMK GROUP LLC
By its Members:
THE STUART KATZOFF TRUST
By:/s/ Gerald Katzoff
Name: Gerald Katzoff
Title: Trustee
/s/ Lydia Katzoff
Lydia Katzoff
/s/ Gerald Katzoff
Gerald Katzoff, individually
/s/ Lydia Katzoff
Lydia Katzoff, individually
The undersigned Gerald Katzoff, hereby acknowledges that he has read the above
Agreement and consent to its execution, delivery and performance and to the
disposition or sale made therein of any interest he may have in any capital
stock of The Greenhouse Spa, Inc. through community property laws or otherwise
under the terms of this Agreement.
/s/ Gerald Katzoff
Gerald Katzoff
The undersigned hereby agree to indemnify and hold harmless The Greenhouse Spa,
Inc., ThermoLase Corporation and G Acquisition Corp. with respect to any
monetary or other damages that they may incur in connection with a Deed of Trust
and Security Agreement dated July, 1995 given by The Greenhouse Spa, Inc. to
Charles Nye as Trustee for the benefit of United Jersey Bank.
/s/ Gerald Katzoff
Gerald Katzoff
/s/ Lydia Katzoff
Lydia Katzoff
THE STUART KATZOFF TRUST
By: /s/ Gerald Katzoff
Name: Gerald Katzoff
Title: Trustee
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMOLASE
CORPORATION'S REPORT ON FORM 10-Q FOR THE PERIOD ENDED JULY 4, 1998 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-03-1998
<PERIOD-END> JUL-04-1998
<CASH> 57,590
<SECURITIES> 8,118
<RECEIVABLES> 4,820
<ALLOWANCES> 485
<INVENTORY> 4,466
<CURRENT-ASSETS> 77,590
<PP&E> 57,133
<DEPRECIATION> 10,330
<TOTAL-ASSETS> 153,664
<CURRENT-LIABILITIES> 16,339
<BONDS> 115,000
0
0
<COMMON> 408
<OTHER-SE> (19,979)
<TOTAL-LIABILITY-AND-EQUITY> 153,664
<SALES> 16,850
<TOTAL-REVENUES> 30,484
<CGS> 11,598
<TOTAL-COSTS> 28,274
<OTHER-EXPENSES> 4,482
<LOSS-PROVISION> 108
<INTEREST-EXPENSE> 4,004
<INCOME-PRETAX> (19,879)
<INCOME-TAX> (959)
<INCOME-CONTINUING> (18,920)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,920)
<EPS-PRIMARY> (0.49)
<EPS-DILUTED> 0
</TABLE>
