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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-37172
Dear Stockholder:
A MERGER PROPOSAL--YOUR VOTE IS VERY IMPORTANT
The board of directors of ThermoLase Corporation and a special committee of
the board have approved a merger agreement with Thermo Electron Corporation, its
ultimate parent corporation.
We will hold a special stockholders' meeting on Monday, August 14, 2000 at
11:00 a.m. local time at the offices of Thermo Electron, 81 Wyman Street,
Waltham, Massachusetts at which we will ask you to adopt the merger agreement.
If the merger agreement is adopted:
- ThermoLase will become an indirect wholly-owned subsidiary of Thermo
Electron; and
- You will receive between 0.198 and 0.132 shares of Thermo Electron common
stock, depending on the price of Thermo Electron's common stock for the 20
trading days prior to the effective date of the merger, in exchange for
each of your shares of ThermoLase common stock.
The number of shares that you will receive will be calculated using the
formula set forth in the section called "THE MERGER--Conversion of Securities"
of this proxy statement-prospectus. Please read this information carefully.
Because the formula will be adjusted for changes in the price of Thermo
Electron's common stock, you may not know at the time of the stockholders'
meeting exactly how many shares of Thermo Electron common stock you will
receive.
On July 13, 2000, Thermo Electron's common stock closed at $23.125 per
share. The average closing price of Thermo Electron stock for the 20 trading
days prior to this date was $20.91 per share. If, for example, July 13, 2000 was
the effective date of the merger, under the terms of the merger you would
receive .132 shares of Thermo Electron common stock per ThermoLase share. Thermo
Electron's common stock is listed on the New York Stock Exchange under the
symbol "TMO".
PLEASE CAREFULLY CONSIDER ALL OF THE INFORMATION IN THIS PROXY
STATEMENT-PROSPECTUS REGARDING THERMOLASE, THERMO ELECTRON AND THE MERGER,
INCLUDING IN PARTICULAR THE DISCUSSION IN THE SECTION CALLED "RISK FACTORS"
BEGINNING ON PAGE 10.
NEITHER THE SEC NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR
DISAPPROVED THE THERMO ELECTRON COMMON STOCK TO BE ISSUED UNDER THIS PROXY
STATEMENT-PROSPECTUS OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROXY
STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement-prospectus is dated July 14, 2000 and was first mailed
to stockholders on or about July 17, 2000.
GERALD FELDMAN
President and Chief Executive Officer
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[LOGO]
NOTICE OF SPECIAL MEETING
July 14, 2000
TO THE STOCKHOLDERS OF
THERMOLASE CORPORATION
I am pleased to give you notice of and cordially invite you to attend,
either in person or by proxy, the special meeting of the stockholders of
ThermoLase Corporation, which will be held on Monday, August 14, 2000, at
11:00 a.m., local time, at the offices of Thermo Electron Corporation, 81 Wyman
Street, Waltham, Massachusetts 02454, and at any adjournment or adjournments
thereof. The purposes of the special meeting are:
1. To consider and vote on a proposal to adopt a merger agreement dated as
of December 14, 1999, by and among ThermoLase, Thermo Electron and
ThermoLase Acquisition Corporation, an indirect wholly-owned subsidiary
of Thermo Electron. The merger agreement provides that ThermoLase
Acquisition will be merged with and into ThermoLase. In the merger, each
stockholder of ThermoLase, other than Thermo Electron and ThermoTrex
Corporation, will receive between 0.198 and 0.132 shares of Thermo
Electron common stock, subject to adjustment as described in the
enclosed proxy statement-prospectus, of the common stock of Thermo
Electron for each outstanding share of common stock of ThermoLase owned
by each stockholder prior to the effective time of the merger. The
merger agreement is attached as Appendix A to and is described in the
enclosed proxy statement-prospectus.
2. To transact any other business that properly comes before the special
meeting.
Only stockholders of record at the close of business on July 13, 2000 will
receive notice of and be able to vote at the special meeting.
The enclosed proxy statement-prospectus describes the merger agreement, the
proposed merger and the actions to be taken in connection with the merger. The
holders of a majority of the outstanding shares of ThermoLase common stock
entitled to vote must be present or represented by proxy at the special meeting
in order to constitute a quorum for the transaction of business. It is important
that your shares are represented at the special meeting regardless of the number
of shares you hold. Whether or not you are able to be at the special meeting in
person, please sign and return promptly the enclosed proxy card in the enclosed,
postage-paid envelope. You may revoke your proxy in the manner described in the
enclosed proxy statement-prospectus at any time before it is voted at the
special meeting.
This notice, the enclosed proxy card and the enclosed proxy
statement-prospectus are sent to you by order of ThermoLase's board of
directors.
SANDRA L. LAMBERT
Secretary
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TABLE OF CONTENTS
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SUMMARY..................................................... 1
Date, Time and Place of the Special Meeting............... 1
Purpose of the Special Meeting............................ 1
Record Date and Quorum.................................... 1
Vote Required and Revocation of Proxies................... 1
Parties to the Merger..................................... 2
The Merger................................................ 3
Federal Income Tax Consequences........................... 3
Exchange of Shares........................................ 3
Effect of the Merger on ThermoLase Stock Options, Units
and Debentures.......................................... 4
The Special Committee's and the Board's Recommendation.... 4
Opinion of Financial Advisor.............................. 4
Purpose and Reasons of Thermo Electron for the Merger..... 5
Purpose and Reasons of ThermoLase for the Merger.......... 5
Position of Thermo Electron as to Fairness of the
Merger.................................................. 5
Conflicts of Interest..................................... 5
Conditions to the Merger.................................. 6
Termination and Expenses.................................. 6
Accounting Treatment...................................... 6
Regulatory Approvals...................................... 6
Restrictions on Sales of Shares by Affiliates of
ThermoLase and Thermo Electron.......................... 6
Disssenters' and Appraisal Rights......................... 6
Comparison of Rights of Holders of ThermoLase and Thermo
Electron Common Stock................................... 7
Forward-Looking Statements in this Proxy
Statement-Prospectus.................................... 7
Comparative Per Share Market Price Data................... 7
Other Questions........................................... 7
Unaudited Pro Forma Combined Selected Financial
Information............................................. 8
RISK FACTORS................................................ 10
Risks Related to Thermo Electron's Reorganization......... 10
Risks Related to Thermo Electron's Business and Financial
Condition............................................... 12
THE MERGER.................................................. 15
General................................................... 15
Background: Thermo Electron Spin-Outs and Reorganization
Plans................................................... 15
Background: The Merger.................................... 16
The Special Committee's and the Board's Recommendation.... 22
Opinion of Financial Advisor.............................. 26
Purpose and Reasons of Thermo Electron for the Merger..... 36
Purpose and Reasons of ThermoLase for the Merger.......... 37
Position of Thermo Electron as to Fairness of the
Merger.................................................. 37
Conflicts of Interest..................................... 38
Effects of the Merger..................................... 39
Conduct of ThermoLase's Business After the Merger......... 39
Conduct of the Business of ThermoLase if the Merger is Not
Consummated............................................. 39
Conversion of Securities.................................. 40
Effect of the Merger on ThermoLase Stock Options, Units
and Debentures.......................................... 41
Deferred Compensation Plan for Directors.................. 41
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Transfer of Shares........................................ 42
Representations and Warranties............................ 42
Covenants................................................. 43
Conditions................................................ 43
Indemnification and Insurance............................. 44
Termination, Amendment and Waiver......................... 45
Expenses.................................................. 47
Accounting Treatment...................................... 47
Regulatory Approvals...................................... 47
Restrictions on Sales of Shares by Affiliates of
ThermoLase and Thermo Electron.......................... 47
Listing on the New York Stock Exchange of Thermo Electron
Common Stock to be
Issued in the Merger.................................... 48
Dissenters' and Appraisal Rights.......................... 48
Comparative Per Share Market Price Data................... 48
THE SPECIAL MEETING......................................... 49
Proxy Solicitation........................................ 49
Record Date and Quorum Requirement........................ 49
Voting Procedures......................................... 49
Voting and Revocation of Proxies.......................... 50
Effective Time............................................ 50
SELECTED FINANCIAL INFORMATION--THERMO ELECTRON............. 51
SELECTED FINANCIAL INFORMATION--THERMOLASE.................. 52
FEDERAL INCOME TAX CONSEQUENCES............................. 53
PROJECTED FINANCIAL DATA.................................... 54
Projections............................................... 55
INFORMATION ABOUT THERMO ELECTRON, THERMOLASE AND THERMOLASE
ACQUISITION............................................... 57
Thermo Electron........................................... 57
ThermoLase................................................ 57
ThermoLase Acquisition.................................... 58
COMPARISON OF RIGHTS OF HOLDERS OF THERMOLASE AND THERMO
ELECTRON COMMON STOCK..................................... 59
Classes of Common Stock of ThermoLase and Thermo
Electron................................................ 59
Classified Board of Directors............................. 60
Number of Directors....................................... 60
Removal of Directors...................................... 60
Filling Vacancies on the Board of Directors............... 61
Stockholder Action by Written Consent..................... 61
Ability to Call Special Meetings.......................... 61
Advance Notice Provisions for Stockholder Nominations and
Proposals............................................... 61
Amendment of Certificate of Incorporation................. 62
Amendment of Bylaws....................................... 62
Delaware Anti-Takeover Statute............................ 63
Indemnification of Directors and Officers................. 63
Preferred Stock........................................... 63
Stockholder Rights Plan................................... 64
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RECENT DEVELOPMENTS......................................... 67
LEGAL OPINION............................................... 67
EXPERTS..................................................... 67
STOCKHOLDER PROPOSALS....................................... 67
WHERE YOU CAN FIND MORE INFORMATION......................... 68
ThermoLase................................................ 68
Thermo Electron........................................... 68
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS............ 70
INDEX TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS........ F-1
APPENDIX A--Agreement and Plan of Merger.................... A-1
APPENDIX B--Opinion of Stonebridge Associates, LLC.......... B-1
APPENDIX C--Annual Report on Form 10-K of ThermoLase
Corporation for the Fiscal Year ended October 2, 1999..... C-1
APPENDIX D--Quarterly Report on Form 10-Q of ThermoLase
Corporation for the Quarter ended April 1, 2000........... D-1
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SUMMARY
This summary highlights selected information from the proxy
statement-prospectus and may not contain all of the information that is
important to you. You should carefully read this entire document and the other
documents we refer to for a more complete understanding of the merger. In
particular, you should read the documents that are attached to this proxy
statement-prospectus, including the merger agreement, which is attached as
Appendix A and incorporated by reference into this proxy statement-prospectus.
In addition, we incorporate by reference important business and financial
information about Thermo Electron and ThermoLase into this proxy
statement-prospectus. You can obtain that information without charge by
following the instructions in the section entitled "WHERE YOU CAN FIND MORE
INFORMATION" on page 68 of this proxy statement-prospectus. We have included
page references in parentheses to direct you to a more complete description of
the topics presented in this summary.
DATE, TIME AND PLACE OF THE SPECIAL MEETING (SEE PAGE 49)
The special meeting will be held on Monday, August 14, 2000, at 11:00 a.m.,
local time, at the offices of Thermo Electron Corporation, 81 Wyman Street,
Waltham, Massachusetts 02454.
PURPOSE OF THE SPECIAL MEETING (SEE PAGE 15)
At the special meeting, the stockholders of ThermoLase will consider and
vote on a proposal to adopt the merger agreement. The merger agreement provides
that ThermoLase would merge with Thermo Electron and become an indirect
wholly-owned subsidiary of Thermo Electron. Each outstanding share of common
stock of ThermoLase, other than shares held by ThermoLase in treasury and shares
held by Thermo Electron and ThermoTrex, would be converted automatically into
the right to receive between 0.198 and 0.132 shares of common stock of Thermo
Electron, depending on the price of Thermo Electron's common stock during the
twenty trading days prior to the effective date of the merger, for each share of
ThermoLase common stock owned by them. We refer to this fraction of a share of
Thermo Electron common stock as the exchange ratio.
RECORD DATE AND QUORUM (SEE PAGE 49)
You can vote at the special meeting if you owned ThermoLase common stock at
the close of business on July 13, 2000, which is the record date for the special
meeting. You are entitled to one vote for each share of ThermoLase common stock
held by you on the record date. At the close of business on the record date,
there were 39,622,063 shares of ThermoLase common stock outstanding. Holders of
a majority of the outstanding shares of ThermoLase common stock entitled to vote
at the special meeting must be present in person or represented by proxy to
constitute a quorum for the transaction of business.
VOTE REQUIRED AND REVOCATION OF PROXIES (SEE PAGES 49 AND 50)
Under Delaware law, holders of a majority of the outstanding shares of
ThermoLase common stock entitled to vote at the special meeting must adopt the
merger. Thermo Electron, which owns approximately 15.9% of the outstanding
ThermoLase common stock, and ThermoTrex, a majority-owned subsidiary of Thermo
Electron, which owns approximately 70.6% of the outstanding ThermoLase common
stock, own enough shares of ThermoLase common stock to adopt the merger under
Delaware law without the vote of any other holders of ThermoLase common stock.
Thermo Electron has agreed to vote, or cause to be voted, all of the shares of
ThermoLase common stock owned by Thermo Electron and its subsidiaries, including
ThermoTrex, in favor of the merger agreement. See "THE SPECIAL MEETING--Voting
Procedures."
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You may revoke your proxy at any time before your shares are voted at the
special meeting by sending a written notice to the secretary of ThermoLase so
that it is received prior to the special meeting, by executing and returning a
later-dated proxy, or by voting in person at the special meeting. See "THE
SPECIAL MEETING--Voting and Revocation of Proxies."
If you send in your proxy card without instructions on to how to vote, your
shares will be voted "FOR" the adoption of the proposed merger agreement.
The board of directors of ThermoLase does not expect any other matters to be
voted on at the special meeting. If any other matters do properly come before
the special meeting, the people named on the accompanying proxy card will vote
the shares represented by all properly executed proxies in their discretion.
However, shares represented by proxies that have been voted "AGAINST" adoption
of the merger agreement will not be used to vote "FOR" adjournment of the
special meeting to allow more time to solicit additional votes "FOR" adoption of
the merger agreement. See "THE SPECIAL MEETING--Voting Procedures."
Please complete, sign and mail your proxy card in the enclosed envelope as
soon as possible after you have read this proxy statement-prospectus. You should
receive a proxy card from your broker if you hold your shares through a broker
as nominee. You must return your proxy card or attend the special meeting in
person in order for your vote to be counted.
PARTIES TO THE MERGER (SEE PAGES 57-58)
THERMO ELECTRON
Thermo Electron develops, manufactures and sells measurement and detection
instruments that its customers use to monitor, collect, and analyze data. On
January 31, 2000, Thermo Electron announced that its board of directors had
authorized management to proceed with a major reorganization of the operations
of Thermo Electron and its subsidiaries, including ThermoLase. As part of this
reorganization, Thermo Electron plans to:
- acquire the minority interests in most of its public subsidiaries;
- spin off to stockholders its business that serves the healthcare industry
with a range of medical products for diagnosis and monitoring, and its
paper recycling and papermaking equipment business; and
- sell various non-core businesses.
Thermo Electron plans to take Thermo Ecotek Corporation, its electric power
generation business, private. Although Thermo Electron no longer considers
Thermo Ecotek a core business under its new strategy, Thermo Electron expects to
retain Thermo Ecotek after it is taken private while Thermo Electron continues
to evaluate how best to exit that business and create maximum value for Thermo
Electron stockholders.
The primary goal of the reorganization plan is for Thermo Electron and each
of its spun-off subsidiaries to focus on their core businesses.
Thermo Electron's principal executive offices are located at 81 Wyman
Street, Waltham, Massachusetts 02454-9046, and its telephone number is
(781) 622-1000.
THERMOLASE
ThermoLase operates in two business segments: hair removal and related
activities, and health and beauty products. ThermoLase's hair removal segment
developed SoftLight-Registered Trademark-, a proprietary system for the removal
of unwanted hair. ThermoLase's health and beauty products, including skin-care,
bath and
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body products, and dietary supplements, are manufactured and/or marketed by its
Creative Beauty Innovations, Inc. subsidiary.
ThermoLase's principal executive offices are located at 2055-C Luna Road,
Carrollton, Texas 75006, and its telephone number is (781) 622-1000.
THERMOLASE ACQUISITION
ThermoLase Acquisition is a newly-formed Delaware corporation organized by
Thermo Electron for the sole purpose of effecting the merger. ThermoLase
Acquisition has not conducted any prior business.
ThermoLase Acquisition's principal executive offices are located at 81 Wyman
Street, Waltham, Massachusetts 02454-9046, and its telephone number is
(781) 622-1000.
THE MERGER (SEE PAGE 15)
At the effective time of the merger, each share of ThermoLase common stock,
other than shares held by ThermoLase in treasury and shares held by Thermo
Electron and ThermoTrex, will be canceled and converted into the right to
receive between 0.198 and 0.132 shares of Thermo Electron common stock,
depending on the price of Thermo Electron's common stock. After the merger,
ThermoLase will cease to be a publicly traded company. See "THE MERGER."
FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 53)
The merger will be treated as a taxable exchange by the ThermoLase
stockholders of their shares of ThermoLase common stock for shares of Thermo
Electron common stock, and as a taxable exchange by the ThermoLase unit holders
of their ThermoLase units (which currently consist of one share of ThermoLase
common stock coupled with a right to have ThermoLase redeem such share for
$20.25 in April 2001) for Thermo Electron units (which will consist of a
fractional share of Thermo Electron common stock coupled with a right to have
Thermo Electron redeem such fractional share for $20.25 in April 2001). Each
ThermoLase stockholder will realize taxable gain, or loss, to the extent that
the fair market value of the Thermo Electron common stock received by the
stockholder in the merger exceeds, or is less than, the stockholder's basis in
the ThermoLase common stock exchanged in the merger. Similarly, each ThermoLase
unit holder will realize taxable gain, or loss, to the extent that the fair
market value of the Thermo Electron unit received in the merger exceeds, or is
less than, the unit holder's basis in the ThermoLase unit surrendered. You
should consult your own tax advisor for a full understanding of the merger's tax
consequences. Additionally, no gain or loss will generally be recognized by
ThermoLase, Thermo Electron or ThermoLase Acquisition as a result of the merger.
Please read the section called "FEDERAL INCOME TAX CONSEQUENCES" for a fuller
discussion of the tax consequences of the merger.
EXCHANGE OF SHARES
You will receive detailed instructions regarding the surrender of your stock
certificates from Thermo Electron's exchange agent, EquiServe, L.P., promptly
following the effective time of the merger. You will receive certificates for
Thermo Electron common stock as soon as practicable after the exchange agent
receives your ThermoLase stock certificates and other required documents. Please
do not send any stock certificates to Thermo Electron, ThermoLase or the
exchange agent until you receive these instructions. If you are the record owner
of your shares, you will not have to pay brokerage fees or incur similar
expenses. If you own your shares through a broker or other nominee, your broker
may charge you a fee. You should consult your broker or nominee to determine
whether any charges will apply.
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EFFECT OF THE MERGER ON THERMOLASE STOCK OPTIONS, UNITS AND DEBENTURES (SEE PAGE
41)
Thermo Electron will assume options to purchase shares of ThermoLase common
stock under ThermoLase's stock option plans at the effective time of the merger.
The ThermoLase options will be exercisable for Thermo Electron common stock
after the merger. The number of shares of Thermo Electron common stock
underlying each option will equal the number of shares of ThermoLase common
stock underlying the option before the merger, multiplied by the exchange ratio,
rounded down to the nearest whole share. The exercise price for each assumed
option will be calculated by dividing the exercise price of the ThermoLase stock
option before the merger by the exchange ratio, rounded up to the nearest whole
cent.
In addition, the merger agreement provides that the ThermoLase units will be
modified so that, following the merger, each unit will consist of a fractional
share of Thermo Electron common stock, based on the same exchange ratio
applicable to all stockholders, that will be redeemable in April 2001 for
$20.25. The cash value of the redemption right will remain constant before and
after the merger. Thermo Electron will use its best efforts to list the units,
as modified, on the American Stock Exchange.
After the merger, ThermoLase's 4 3/8% convertible subordinated debentures
due August 2004 will be convertible into shares of Thermo Electron common stock,
instead of ThermoLase common stock. The debentures are now convertible into
ThermoLase common stock at a price of $17.385 per share. A total of
$115 million principal amount of the debentures was outstanding as of May 31,
2000. Holders of the debentures will not have the right to require ThermoLase to
redeem the debentures as a result of the merger. At an assumed exchange ratio of
0.132, the debentures would be convertible into Thermo Electron common stock at
a conversion price of $131.70 per share.
See "THE MERGER--Effect of the Merger on ThermoLase Stock Options, Units and
Debentures."
THE SPECIAL COMMITTEE'S AND THE BOARD'S RECOMMENDATION (SEE PAGES 22-25)
The board of directors of ThermoLase appointed a special committee of
Dr. Carliss Y. Baldwin and Mr. I. MacAllister Booth, directors of ThermoLase who
are not officers or employees of ThermoLase, ThermoLase Acquisition, ThermoTrex
or Thermo Electron, and who are not directors of ThermoLase Acquisition,
ThermoTrex or Thermo Electron, to review the proposed merger on behalf of the
ThermoLase stockholders other than Thermo Electron, ThermoTrex and the officers
and directors of each of Thermo Electron, ThermoTrex and ThermoLase. The special
committee considered the opinion of Stonebridge Associates, LLC that the
exchange ratio was fair from a financial point of view, as of the date of its
opinion, to the public stockholders. Throughout this proxy statement-prospectus,
the term "public stockholders" refers to all ThermoLase stockholders other than
Thermo Electron, ThermoTrex and the officers and directors of each of Thermo
Electron, ThermoTrex and ThermoLase. After careful consideration, the special
committee determined that the merger is fair to the public stockholders. The
special committee also recommended that the board of directors approve the
merger agreement and recommend the merger agreement to the ThermoLase
stockholders for adoption.
The board of directors has approved the merger agreement, declared it to be
advisable and recommends that the ThermoLase stockholders adopt the merger
agreement.
OPINION OF FINANCIAL ADVISOR (SEE PAGES 26-36)
Stonebridge Associates provided its opinion to the special committee on
December 14, 1999, that, as of the date of its opinion, the consideration to be
received in the merger was fair, from a financial point of view, to the public
stockholders of ThermoLase. The full text of the written opinion of Stonebridge
Associates dated December 14, 1999 is attached to this proxy
statement-prospectus as
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Appendix B. The opinion of Stonebridge Associates does not constitute a
recommendation as to how any stockholder should vote on the merger. We urge you
to read the opinion in its entirety.
PURPOSE AND REASONS OF THERMO ELECTRON FOR THE MERGER (SEE PAGE 36)
Thermo Electron intends to undertake the merger in order to acquire all of
the outstanding shares of ThermoLase common stock. In deciding to undertake the
merger, Thermo Electron considered the following factors, among others:
- uncertainty regarding ThermoLase's future growth prospects;
- recent public capital market trends affecting small companies;
- ThermoLase's debt;
- the costs of, and the burdens on management associated with, being a
public company; and
- reducing the public information available to competitors about
ThermoLase's business, which would result from ThermoLase no longer having
to file reports with the SEC.
Thermo Electron also considered the advantages and disadvantages of some
alternatives to taking ThermoLase private, including leaving ThermoLase as a
public majority-owned subsidiary. Thermo Electron considered the following
factors, among others:
- the relative lack of liquidity for the ThermoLase common stock;
- the impact on its own common stock of the issuance of shares to the
ThermoLase stockholders; and
- the advancement of Thermo Electron's proposed corporate reorganization, in
the form in which it was originally proposed, to reduce the number of its
public subsidiaries.
PURPOSE AND REASONS OF THERMOLASE FOR THE MERGER (SEE PAGE 37)
The purpose of ThermoLase for engaging in the transactions contemplated by
the merger agreement was to become part of a larger operating entity and thereby
potentially realize improved operating and financial results and a stronger
competitive position. ThermoLase considered substantially the same factors that
Thermo Electron did, as described above, in deciding to undertake the merger at
the time the merger agreement was signed.
POSITION OF THERMO ELECTRON AS TO FAIRNESS OF THE MERGER (SEE PAGE 37)
As of the date of the merger agreement, Thermo Electron adopted the
findings, analysis and recommendations of ThermoLase's special committee and
board on the fairness of the merger. Based solely on the findings, analysis and
recommendations of the special committee and board, and its own review of the
terms of the merger, Thermo Electron believes that the merger is both
procedurally and substantively fair to the public stockholders and that the
exchange ratio is fair to the public stockholders from a financial point of
view. Thermo Electron is not making any recommendation as to how the public
stockholders should vote on the merger agreement.
CONFLICTS OF INTEREST (SEE PAGES 38-39)
When you consider the recommendation of the special committee and the board
regarding the merger, you should be aware that officers and directors of
ThermoLase may have interests in the merger that are different from, or in
addition to, yours. These interests include ownership of ThermoLase common
stock, options to purchase ThermoLase common stock, compensation for serving on
the ThermoLase board or on committees of the ThermoLase board, ownership of
Thermo Electron
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common stock, and indemnification arrangements between the directors and
ThermoLase and Thermo Electron.
In addition, three of Thermo Electron's executive officers and directors are
also officers and directors of ThermoLase and have interests that are in
addition to, or different from, your interests. Thermo Electron considered these
potential conflicts of interest and based in part thereon, Thermo Electron's
proposed offer was conditioned on, among other things, the approval of the
merger by the special committee and the receipt by the special committee of a
fairness opinion from an investment banking firm.
CONDITIONS TO THE MERGER (SEE PAGES 43-44)
The completion of the merger depends upon meeting a number of conditions,
including the adoption of the merger agreement by the holders of a majority of
the outstanding shares of ThermoLase common stock.
The obligations of ThermoLase Acquisition and Thermo Electron to effect the
merger are subject to the condition, which may be waived in writing by
ThermoLase Acquisition and Thermo Electron, that the special committee shall not
have withdrawn its recommendation to the ThermoLase board to approve the merger
agreement.
TERMINATION AND EXPENSES (SEE PAGES 45-47)
The merger agreement may be terminated by ThermoLase Acquisition and
ThermoLase if their boards of directors consent (in ThermoLase's case, with the
concurrence of the special committee). In addition, each of ThermoLase, with the
concurrence of the special committee, and ThermoLase Acquisition can terminate
the merger agreement if the merger has not been completed by September 30, 2000.
Neither party will have to pay a termination fee if the merger agreement is
terminated.
Each of the parties will pay its own costs and expenses in connection with
the merger agreement, whether or not the merger is consummated.
ACCOUNTING TREATMENT (SEE PAGE 47)
The merger will be accounted for as the acquisition of a minority interest
by Thermo Electron, using the purchase method of accounting.
REGULATORY APPROVALS (SEE PAGE 47)
There are no federal or state regulatory approvals required that have not
already been obtained in order for us to complete the merger, except for
(1) the requirements of the Delaware General Corporation Law relating to
stockholder approval and completion of the merger and (2) the requirements of
the securities laws.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF THERMOLASE AND THERMO ELECTRON
(SEE PAGE 47)
All shares of Thermo Electron common stock you receive in the merger will be
freely transferable unless you are considered an "affiliate" of Thermo Electron
under the Securities Act of 1933. Shares of Thermo Electron common stock held by
its affiliates may only be sold under a registration statement or exemption
under the Securities Act.
DISSENTERS' AND APPRAISAL RIGHTS (SEE PAGE 48)
Under Delaware law, you are not entitled to dissenters' or appraisal rights
in the merger.
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COMPARISON OF RIGHTS OF HOLDERS OF THERMOLASE AND THERMO ELECTRON COMMON STOCK
(SEE PAGES 59-66)
There are differences between the rights you have as a holder of ThermoLase
common stock and the rights you will have as a holder of Thermo Electron common
stock. For a description of these differences, please read the section called
"COMPARISON OF RIGHTS OF HOLDERS OF THERMOLASE AND THERMO ELECTRON COMMON
STOCK."
FORWARD-LOOKING STATEMENTS IN THIS PROXY STATEMENT-PROSPECTUS
This proxy statement-prospectus and the documents incorporated by reference
into this proxy statement-prospectus contain forward-looking statements within
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Words such as "anticipates," "expects," "intends," "plans," "believes,"
"seeks," "estimates" and similar expressions identify forward-looking
statements. These forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties that could cause actual
results to differ materially from the results contemplated by the
forward-looking statements. In evaluating the merger, you should carefully
consider the discussion of risks and uncertainties in the section entitled "RISK
FACTORS" on pages 10-14.
COMPARATIVE PER SHARE MARKET PRICE DATA
The Thermo Electron common stock is traded on the New York Stock Exchange
under the symbol "TMO." The ThermoLase common stock is traded on the American
Stock Exchange under the symbol "TLZ."
The following table presents the closing prices per share of the ThermoLase
common stock and the closing prices per share of the Thermo Electron common
stock on the following dates:
- May 21, 1999, the last trading day before the public announcement of
Thermo Electron's proposal, with no price having been determined, to take
ThermoLase private;
- December 14, 1999, the last trading day before the public announcement
that Thermo Electron and ThermoLase had entered into the merger agreement;
and
- July 13, 2000, the last trading day before the date of this proxy
statement-prospectus.
The chart also presents, in the line entitled "Equivalent Per Share Price,"
the price per share of ThermoLase common stock you would have received if the
exchange ratio had been set under the terms of the merger agreement on each of
May 21, 1999, December 14, 1999 and July 13, 2000.
<TABLE>
<CAPTION>
MAY 21, DECEMBER 14, JULY 13,
STOCK/DATE 1999 1999 2000
---------- -------- ------------ --------
<S> <C> <C> <C>
ThermoLase.................................................. $ 1.75 $ 2.375 $ 2.875
Thermo Electron............................................. 19.625 15.4375 23.125
Equivalent Per Share Price.................................. 2.5905 2.4391 3.0525
</TABLE>
You should obtain current stock price quotations for the Thermo Electron
common stock and the ThermoLase common stock.
OTHER QUESTIONS
Please call ThermoLase's Investor Relations department at 781-622-1111 if
you have any other questions.
7
<PAGE>
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL INFORMATION
The following table presents unaudited pro forma combined selected financial
information for Thermo Electron and ThermoLase, historical selected financial
information for Thermo Electron and ThermoLase, and unaudited pro forma combined
per share data for Thermo Electron and ThermoLase. The historical financial
information is derived from the financial statements of Thermo Electron and
ThermoLase, included in or incorporated by reference into this proxy statement-
prospectus. The pro forma information is derived from the pro forma combined
condensed financial information included elsewhere in this proxy
statement-prospectus. The unaudited pro forma consolidated condensed statement
of operations data sets forth the results of continuing operations for the three
months ended April 1, 2000, and the fiscal year ended January 1, 2000, as if the
merger had become effective at the beginning of 1999. The unaudited pro forma
consolidated condensed balance sheet data sets forth the financial position as
of April 1, 2000, as if the merger had become effective on April 1, 2000.
This data is not necessarily indicative of the results of the future
operations of the combined entity or the actual results that would have occurred
had the merger been consummated prior to the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
APRIL 1, 2000 JANUARY 1, 2000
------------------- ------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
PRO FORMA COMBINED:
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $ 598,929 $2,471,193
Income (Loss) from Continuing Operations Before
Extraordinary Items.................................... 15,291 (14,580)
BALANCE SHEET DATA (AT END OF PERIOD):
Working Capital.......................................... $1,629,388
Total Assets............................................. 5,193,817
Long-term Obligations.................................... 1,570,323
Minority Interest........................................ 364,900
Common Stock of Subsidiary Subject to Redemption......... 7,692
Shareholders' Investment................................. 2,030,881
PER SHARE DATA:
THERMO ELECTRON (HISTORICAL):
Book Value per Common Share.............................. $ 12.84
Cash Dividends Declared Per Share........................ -- --
Income (Loss) per Share from Continuing Operations Before
Extraordinary Items:
Basic................................................ $ .10 $ (.09)
Diluted.............................................. $ .09 $ (.11)
PRO FORMA:
COMBINED PER SHARE OF THERMO ELECTRON STOCK (1):
Book Value per Common Share.............................. $ 12.88
Cash Dividends Declared Per Share........................ -- --
Income (Loss) per Share from Continuing Operations Before
Extraordinary Items:
Basic................................................ $ .10 $ (.09)
Diluted.............................................. $ .09 $ (.11)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
APRIL 1, 2000 JANUARY 1, 2000
------------------ -----------------
<S> <C> <C>
COMBINED PER THERMO ELECTRON SHARE EQUIVALENT (2):
ASSUMING EXCHANGE RATIO OF 0.132 (3):
Book Value per Common Share.............................. $1.70
Cash Dividends Declared per Share........................ -- --
Income (Loss) per Share from Continuing Operations Before
Extraordinary Items:
Basic................................................ $ .01 $(.01)
Diluted.............................................. $ .01 $(.01)
ASSUMING EXCHANGE RATIO OF 0.198 (4):
Book Value per Common Share.............................. $2.55
Cash Dividends Declared per Share........................ -- --
Income (Loss) per Share from Continuing Operations Before
Extraordinary Items:...................................
Basic................................................ $ .02 $(.02)
Diluted.............................................. $ .02 $(.02)
ASSUMING EXCHANGE RATIO OF 0.158 (5):
Book Value per Common Share.............................. $2.03
Cash Dividends Declared per Share........................ -- --
Income (Loss) per Share from Continuing Operations Before
Extraordinary Items:
Basic.................................................. $ .02 $(.01)
Diluted................................................ $ .01 $(.02)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
APRIL 1, 2000 OCTOBER 2, 1999
---------------- -----------------
<S> <C> <C>
THERMOLASE (HISTORICAL):
Book Value per Common Share............................... $(3.51)
Cash Dividends Declared Per Share......................... -- --
Basic and Diluted Loss per Share.......................... $ (.14) $(2.37)
</TABLE>
------------------------
(1) Changes to the exchange ratio would not result in significant variances to
the pro forma combined per share of Thermo Electron stock information. As a
result, disclosures of the pro forma combined per share information at the
maximum and minimum of the range have not been presented.
(2) Pro forma combined per Thermo Electron share equivalent data has been
calculated based on the pro forma combined data for Thermo Electron common
stock, multiplied by assumed exchange ratios. See "THE MERGER--Conversion of
Securities" for a description of the exchange ratio. The exchange ratio is
the fraction of one Thermo Electron share which you would have received for
each share of ThermoLase common stock in the merger.
(3) This pro forma combined per Thermo Electron share equivalent data applies an
assumed exchange ratio of 0.132 to the pro forma combined condensed
financial information included elsewhere in this proxy statement-prospectus.
See "THE MERGER--Conversion of Securities."
(4) This pro forma combined per Thermo Electron share equivalent data applies an
assumed exchange ratio of 0.198 to the pro forma combined condensed
financial information included elsewhere in this proxy statement-prospectus.
See "THE MERGER--Conversion of Securities."
(5) This pro forma combined per Thermo Electron share equivalent data applies an
assumed exchange ratio of 0.158 to the pro forma combined condensed
financial information included elsewhere in this proxy statement-prospectus.
See "THE MERGER--Conversion of Securities."
9
<PAGE>
RISK FACTORS
If you hold your shares of ThermoLase common stock until the merger, you
will be investing in Thermo Electron common stock. The following important
factors, among others, in some cases have affected, and in the future could
affect, Thermo Electron's actual results and could cause its actual results to
differ materially from those expressed in any forward-looking statements made
by, or on behalf of, Thermo Electron. In addition to the other information
contained in or incorporated by reference into this proxy statement-prospectus,
you should carefully consider the following risk factors in deciding whether to
vote for the merger.
RISKS RELATED TO THERMO ELECTRON'S REORGANIZATION
BECAUSE THERMO ELECTRON'S REORGANIZATION IS VERY COMPLEX AND WILL REQUIRE THIRD
PARTY AND GOVERNMENTAL CONSENTS AND APPROVALS, IT MAY NOT BE ABLE TO
SUCCESSFULLY COMPLETE THIS REORGANIZATION OR DO SO ON THE TIME SCHEDULE IT
CONTEMPLATES.
Thermo Electron's reorganization consists of:
- acquiring the minority interests in most of its public subsidiaries;
- spinning off to stockholders two of its businesses; and
- selling various non-core businesses.
In order to accomplish these objectives, Thermo Electron will need to obtain a
variety of third party and governmental consents and approvals. In particular,
in addition to the Internal Revenue Service ruling discussed below, Thermo
Electron will need to obtain:
- approval of the spin-offs and some of the other transactions by its board
of directors;
- when Thermo Electron makes a tender or exchange offer, the tender by
minority stockholders of enough shares to allow it to own at least 90% of
the target subsidiary's outstanding shares; and
- the receipt of any necessary third party contractual consents.
Thermo Electron also must make various filings with the SEC relating to the
reorganization that must comply with the SEC's rules.
If Thermo Electron does not receive these consents and approvals and make
the required filings with the SEC in compliance with its rules, it may not be
able to achieve all aspects of its reorganization. If Thermo Electron is not
able to effect all aspects of its reorganization, it may not be able to achieve
all of the anticipated benefits of the reorganization. Until Thermo Electron
completes the entire reorganization, it will continue to own and operate a
diverse group of businesses, some of which may continue to have minority
stockholders.
Thermo Electron's reorganization is time-consuming and expensive, and
consumes management resources. The failure of Thermo Electron's management to
complete the proposed reorganization in a timely manner could negatively affect
the public market's confidence in its management, which in turn may adversely
affect the market price of Thermo Electron common stock.
THERMO ELECTRON DOES NOT EXPECT TO PROCEED WITH ITS TWO PLANNED SPIN-OFFS UNTIL
IT RECEIVES A FAVORABLE RULING FROM THE INTERNAL REVENUE SERVICE, WHICH THE
INTERNAL REVENUE SERVICE MAY NOT ISSUE OR MAY TAKE A SUBSTANTIAL PERIOD OF TIME
TO ISSUE.
Thermo Electron does not expect to spin off to stockholders its paper
recycling and papermaking equipment business and its business that serves the
healthcare industry with a range of medical products for diagnosis and
monitoring unless it obtains a favorable ruling from the Internal Revenue
Service. The Internal Revenue Service may not grant the necessary ruling or may
seek to impose conditions to the granting of the ruling that are not acceptable
to Thermo Electron. Thermo Electron
10
<PAGE>
does not expect the Internal Revenue Service to issue a tax ruling before the
end of 2000, and additional delays are possible.
AS PART OF THERMO ELECTRON'S REORGANIZATION, IT SEEKS TO DIVEST A SIGNIFICANT
NUMBER OF BUSINESSES; THERMO ELECTRON MAY NOT SUCCEED IN SELLING ALL OF THESE
BUSINESSES IN A TIMELY MANNER OR AT PRICES IT CONSIDERS APPROPRIATE.
Thermo Electron plans to sell a significant number of businesses as part of
its reorganization. This process will entail a number of risks:
- Thermo Electron may not find buyers for all of these businesses.
- The timing of these dispositions is uncertain.
- Thermo Electron cannot be certain that the terms, including price, for the
sale of these businesses will be acceptable to it.
- Each of these sales will be subject to various conditions, including
conditions in the agreements governing the transaction and the receipt of
necessary governmental approvals.
EVEN IF THERMO ELECTRON SUCCEEDS IN COMPLETING ITS REORGANIZATION, IT WILL FACE
A NUMBER OF CHALLENGES IN INTEGRATING ITS INSTRUMENT BUSINESS.
Currently Thermo Electron operates its instrument business directly and
through a number of majority-owned subsidiaries, including Thermo Instrument
Systems Inc. and Thermedics Inc. Thermo Electron has conducted these operations
largely as autonomous, unaffiliated businesses. As part of its reorganization,
Thermo Electron plans to manage these operations in a more coordinated manner.
The following factors may make it difficult to successfully integrate and
consolidate Thermo Electron's instrument operations:
- Thermo Electron's success in integrating these businesses will depend on
its ability to coordinate geographically separate organizations and
integrate personnel with different business backgrounds and corporate
cultures.
- Thermo Electron's ability to combine these businesses will require
coordination of administrative, sales and marketing, distribution and
accounting and finance functions and expansion of information and
management systems.
- The integration process could disrupt Thermo Electron's instrument
business.
- Retaining key employees of these businesses may be difficult.
THERMO ELECTRON'S REORGANIZATION CONTEMPLATES THE ISSUANCE OF A SIGNIFICANT
NUMBER OF ADDITIONAL SHARES OF ITS COMMON STOCK, WHICH MAY DEPRESS THE MARKET
PRICE OF ITS SHARES.
Thermo Electron expects to issue a substantial number of shares of its
common stock or securities exercisable for shares of its common stock in
connection with its reorganization. At May 31, 2000, 155,545,899 shares of
Thermo Electron common stock were outstanding. The number of shares of Thermo
Electron common stock outstanding may increase by as many as 55.2 million shares
because, as part of Thermo Electron's reorganization:
- Thermo Electron plans to exchange shares of its common stock for the
common stock held by minority stockholders in a number of its public
subsidiaries, including ThermoLase. Thermo Electron expects to issue a
total of approximately 22.3 million shares of its common stock in these
transactions.
- Thermo Electron plans to assume employee stock options in these
transactions, including the merger with ThermoLase, which would be
exercisable for approximately 15.3 million shares of its common stock. In
addition, Thermo Electron may be required to issue additional stock
options to retain its key employees.
11
<PAGE>
- The debentures issued by some of Thermo Electron's subsidiaries, including
ThermoLase, will become convertible into shares of Thermo Electron common
stock. Based on the total principal amounts outstanding of these
debentures and the conversion rates at May 31, 2000, Thermo Electron
expects these debentures would be convertible into approximately
17.6 million shares of its common stock.
The increase in the number of outstanding shares of Thermo Electron common
stock, as well as the potential future issuance of shares of Thermo Electron
common stock upon conversion of debentures or exercise of employee stock
options, may depress the market price of Thermo Electron common stock.
AS A RESULT OF THE SPIN-OFF OF THERMO FIBERTEK AND ITS SUBSIDIARIES, THERMO
ELECTRON WILL REMAIN AS THE GUARANTOR OF INDEBTEDNESS AND STOCK REDEMPTION
RIGHTS OF THESE COMPANIES EVEN THOUGH IT WILL NO LONGER CONTROL THEIR BUSINESS
OR OPERATIONS.
Thermo Electron has guaranteed the payment of principal and interest on
$153 million principal amount of debentures issued by Thermo Fibertek Inc. These
debentures mature in July 2004. Thermo Electron has also guaranteed the
financial obligations of Thermo Fibergen Inc., a subsidiary of Thermo Fibertek,
under stock redemption rights granted by Thermo Fibergen. Thermo Electron may
have to pay up to $60.1 million under these stock redemption rights, which
terminate in September 2000 or September 2001. Thermo Electron will remain
liable as a guarantor for these obligations following the spin-offs, although it
will no longer control the business or operations of Thermo Fibertek.
THERMO ELECTRON IS UNABLE TO PREDICT THE LIQUIDITY OR PROSPECTIVE PERFORMANCE OF
THE COMMON STOCK OF THE COMPANIES THAT IT INTENDS TO SPIN OFF.
Thermo Electron is unable to predict the liquidity or market performance of
the shares of the businesses it plans to spin off. Although Thermo Fibertek, the
company that conducts its paper recycling and papermaking equipment business,
has publicly traded shares, the historic prices of these shares may not be
representative of the trading price of Thermo Fibertek's common stock after the
number of shares held by its stockholders other than Thermo Electron increases
as a result of the spin-off. Thermo Electron currently conducts its business
that serves the healthcare industry with a range of medical products for
diagnosis and monitoring both directly and through some of its subsidiaries.
There is currently no public trading market for the shares of the company that
will conduct this business following the proposed spin-off. The businesses that
Thermo Electron is spinning off to its stockholders may not have the financial
resources and management skills necessary to succeed as independent entities.
RISKS RELATED TO THERMO ELECTRON'S BUSINESS AND FINANCIAL CONDITION
THERMO ELECTRON'S STOCK PRICE MAY BE VOLATILE, WHICH COULD CAUSE YOU TO LOSE
PART OR ALL OF YOUR INVESTMENT.
The market price for Thermo Electron common stock can be very volatile. As
of July 13, 2000, the 52-week range of the market price of Thermo Electron
common stock was $12.75 to $26.875 per share. The market price for Thermo
Electron common stock may be affected by a number of factors, including:
- the risks described in this proxy statement-prospectus;
- Thermo Electron's financial results; and
- general market conditions.
In addition, the stock market has experienced extreme price and volume
fluctuations. This volatility has significantly affected the market prices of
securities for reasons frequently unrelated to or disproportionate to the
operating performance of the specific companies. These broad market fluctuations
may adversely affect the market price of Thermo Electron common stock.
12
<PAGE>
THERMO ELECTRON HAS ACQUIRED SEVERAL COMPANIES AND BUSINESSES; AS A RESULT IT
HAS RECORDED SIGNIFICANT GOODWILL ON ITS BALANCE SHEET, WHICH IT MUST
CONTINUALLY EVALUATE FOR POTENTIAL IMPAIRMENT.
Thermo Electron has acquired significant intangible assets, including
approximately $1.2 billion of cost in excess of net assets of acquired
companies, or goodwill, that it has recorded on its balance sheet as of January
1, 2000. Thermo Electron amortizes this goodwill principally over 40 year
periods. Thermo Electron assesses the future useful life of the goodwill it has
on its books whenever events or changes in circumstances indicate that the
current useful life has diminished. These events or circumstances generally
include operating losses or a significant decline in earnings associated with
the acquired business or asset. Goodwill amortization from Thermo Electron's
continuing operations was $35 million in fiscal 1999. In addition, in fiscal
1999 it wrote off $29 million of goodwill attributable to its continuing
operations that it determined was impaired in connection with the planned sale
of its power electronics and test equipment business.
Thermo Electron expects to record additional goodwill in 2000 as a result of
its acquisition of the minority interests in most of its publicly-traded
subsidiaries. Thermo Electron's ability to realize the value of this asset will
depend on future cash flows of the businesses in which it acquires these
interests. These cash flows in turn depend in part on how well it can integrate
these businesses.
IT MAY BE DIFFICULT FOR THERMO ELECTRON TO EXPAND BECAUSE SOME OF THE MARKETS
FOR ITS PRODUCTS ARE NOT GROWING.
Some of the markets in which Thermo Electron competes have been flat or
declining over the past several years. To address this issue, Thermo Electron is
pursuing a number of strategies to improve its internal growth, including:
- finding new markets for its products;
- developing new applications for its technologies;
- combining sales and marketing operations in appropriate markets to compete
more effectively;
- actively funding research and development; and
- strengthening its presence in selected geographic markets.
Thermo Electron may not be able to successfully implement these strategies,
and these strategies may not result in growth of Thermo Electron's business.
THERMO ELECTRON HAS SIGNIFICANT INTERNATIONAL OPERATIONS, WHICH ENTAIL THE RISK
THAT EXCHANGE RATE FLUCTUATIONS MAY NEGATIVELY AFFECT DEMAND FOR ITS PRODUCTS
AND ITS PROFITABILITY.
Thermo Electron is a global company with substantial operations outside the
United States. Thermo Electron intends to continue expanding its presence in
international markets. In 1999, Thermo Electron's international revenues from
continuing operations, including export revenues from the United States,
accounted for approximately 63% of its total revenues. International revenues
are subject to the risk that changes in exchange rates may adversely affect
demand for products and the profitability in U.S. dollars of products and
services provided by Thermo Electron in foreign markets, where payment for
Thermo Electron's products and services is made in the local currency. For
example, in the first quarter of fiscal 2000, the unfavorable effects of
currency translation decreased revenues of Thermo Electron's continuing
operations by $15.6 million.
THERMO ELECTRON MUST DEVELOP NEW PRODUCTS, ADAPT TO RAPID AND SIGNIFICANT
TECHNOLOGICAL CHANGE, AND RESPOND TO INTRODUCTIONS OF NEW PRODUCTS IN ORDER TO
REMAIN COMPETITIVE.
Thermo Electron's growth strategy includes significant investment in product
development. Thermo Electron intends to increase spending in the area of
research and development. Thermo Electron sells its products in several
industries that are characterized by rapid and significant technological
changes,
13
<PAGE>
frequent new product and service introductions and enhancements and evolving
industry standards. Without the timely introduction of new products, services
and enhancements, Thermo Electron's products and services will likely become
technologically obsolete over time, in which case its revenue and operating
results would suffer.
Thermo Electron's customers use many of its products to develop, test and
manufacture their new products. As a result, Thermo Electron must anticipate
industry trends and develop products in advance of the commercialization of its
customers' products. If it fails to adequately predict its customers' needs and
future activities, Thermo Electron may invest heavily in research and
development of products and services that do not lead to significant revenue.
Many of its products and products under development are technologically
innovative and require significant planning, design, development and testing at
the technological, product and manufacturing-process levels. These activities
require Thermo Electron to make significant investments.
Products in Thermo Electron's markets undergo rapid and significant
technological change because of quickly changing industry standards and the
introduction of new products and technologies that make existing products and
technologies uncompetitive or obsolete. Thermo Electron's competition may adapt
more quickly to new technologies and changes in its customers' requirements than
it can. The products Thermo Electron is currently developing, or those it will
develop in the future, may not be technologically feasible or accepted by the
marketplace, and its products or technologies could become uncompetitive or
obsolete.
CHANGES IN GOVERNMENTAL REGULATIONS MAY REDUCE DEMAND FOR THERMO ELECTRON'S
PRODUCTS OR INCREASE ITS EXPENSES.
Thermo Electron competes in many markets in which it and its customers must
comply with federal, state, local, and foreign regulations, such as
environmental, health and safety, and food and drug regulations. Thermo Electron
develops, configures, and markets its products to meet customer needs created by
those regulations. These regulations may change in response to new scientific
evidence or political or economic considerations. Any significant change in
regulations could reduce demand for Thermo Electron's products. For example,
many of Thermo Electron's instruments are marketed to the pharmaceutical
industry for use in discovering and developing drugs. Changes in the Food and
Drug Administration's regulation of the drug discovery and development process
could have an adverse effect on the demand for these products.
DEMAND FOR SOME OF THERMO ELECTRON'S PRODUCTS DEPENDS ON CAPITAL SPENDING
POLICIES OF ITS CUSTOMERS AND ON GOVERNMENT FUNDING POLICIES.
Thermo Electron's customers include manufacturers of semiconductors and
products incorporating semiconductors, pharmaceutical and chemical companies,
laboratories, universities, healthcare providers, government agencies, and
public and private research institutions. Many factors, including public policy
spending priorities, available resources, and economic cycles, have a
significant effect on the capital spending policies of these entities. These
policies in turn can have a significant effect on the demand for our products.
For example, a reduction in discretionary capital spending by petrochemical, oil
and gas, and mining companies, due to difficult market conditions, has adversely
affected Thermo Electron's businesses operating in the process control industry.
Similarly, softness in the semiconductor industry has resulted in lower revenues
at some Thermo Electron businesses. Also, Thermo Electron's Thermedics
Detection Inc. subsidiary has experienced lower demand for its detection
instruments as a result a shift in the process of recycling plastic containers
in Europe, from sanitizing and reusing recyclables, to melting and re-forming
plastic containers.
14
<PAGE>
THE MERGER
GENERAL
The ThermoLase board of directors is using this proxy statement-prospectus
to solicit proxies from the holders of ThermoLase common stock for use at the
ThermoLase special meeting. At the special meeting, we will ask holders of
ThermoLase common stock to adopt the merger agreement. You are encouraged to
read the merger agreement, which is attached as Appendix A to this proxy
statement-prospectus, in its entirety.
BACKGROUND: THERMO ELECTRON SPIN-OUTS AND REORGANIZATION PLANS
Thermo Electron initially began the process of "spinning out" subsidiaries,
or selling a minority interest in its wholly-owned subsidiaries to the public,
with the spinout of Thermedics Inc. in 1983. Over the next fifteen years, Thermo
Electron spun out 20 additional subsidiaries and acquired the majority interest
in two companies that were already publicly traded when they were acquired. The
purposes of the spinout process included incentivizing management and employees
of the subsidiary with subsidiary-level stock options and other stock-based
compensation, and allowing greater access to the capital markets at the
subsidiary level. However, Thermo Electron ultimately determined that the
creation of its many subsidiaries had generated confusion among the public as to
its structure and the relationship among the various companies involved. In
August 1998, Thermo Electron announced a reorganization plan, the goals of which
included the following:
- reducing the complexity of Thermo Electron's corporate structure by taking
private certain of its publicly traded subsidiaries;
- improving competitiveness and improving management coordination;
- retaining and growing businesses that Thermo Electron believes have the
most growth potential and are the most profitable.
In May 1999, Thermo Electron announced its plan to expand its reorganization
plan by taking private four additional public subsidiaries, including
ThermoLase. The announcement indicated that the transaction involving ThermoLase
would be effected through an exchange of Thermo Electron common stock for the
common stock of ThermoLase.
On January 31, 2000, Thermo Electron announced a revised reorganization
plan. The primary goal of the revised reorganization plan is to permit Thermo
Electron to focus on its core instruments businesses. The revised reorganization
plan calls for Thermo Electron to take the following steps:
- acquire the public minority interest in most of its subsidiaries that have
minority interests,
- spin off its paper recycling and papermaking equipment business and its
business that serves the healthcare industry with a range of medical
products for diagnosis and monitoring as dividends to Thermo Electron
stockholders, and
- sell several non-core businesses.
The component of the reorganization plan that involves taking some
subsidiaries private will reduce Thermo Electron's working capital by
approximately $325 million, of $1.63 billion in working capital at April 1,
2000. The results of operations of the majority of the businesses to be sold or
spun off as part of the reorganization are classified as discontinued operations
in Thermo Electron's financial statements included in its Annual Report on
Form 10-K for the year ended January 1, 2000. Revenues and loss from
discontinued operations were $1.83 billion and $111.5 million in 1999. In
addition, Thermo Electron recorded a provision of $50 million for the loss on
disposal of discontinued operations in 1999.
15
<PAGE>
As of July 13, 2000, the status of the reorganization was as follows:
- Thermo Electron had acquired for cash the publicly held minority equity
interests in 13 of its subsidiaries;
- Thermo Electron had acquired, in exchange offers, the publicly held
minority equity interests in two of its subsidiaries;
- Thermo Electron had filed registration statements with the SEC relating to
the acquisitions of the publicly held minority equity interests in four of
its subsidiaries, including ThermoLase, for shares of its common stock in
mergers;
- Thermo Electron was seeking buyers for two of its publicly traded
subsidiaries;
- Thermo Electron had filed a ruling request with the IRS relating to the
two proposed spin-offs; and
- Thermo Electron was evaluating its options for its subsidiary,
Spectra-Physics Lasers, Inc.
Thermo Electron currently expects that it will complete the acquisitions of
minority interests in its subsidiaries in the third quarter of 2000 and the
spin-offs at the end of 2000 or early in 2001.
In addition, as of July 13, 2000, Thermo Electron had sold businesses with
total 1999 revenues of approximately $246.4 million under its reorganization
plan. Thermo Electron received total gross proceeds, including both cash and
non-cash consideration, of approximately $235.7 million from these sales.
If Thermo Electron completes its reorganization as described above, it will
not have any public subsidiaries, unless it decides to keep Spectra-Physics
Lasers as a public subsidiary.
Thermo Electron has acquired the minority public interest in some of its
subsidiaries for cash, while in other cases it is issuing its common stock in
exchange offers or mergers. The primary factor in Thermo Electron's decision
whether to offer the minority stockholders cash or common stock was the
outstanding principal amount, if any, and due date, of that subsidiary's
convertible debentures. In a stock-for-stock merger or exchange offer, these
debentures become convertible into Thermo Electron common stock. If Thermo
Electron takes the subsidiary private in a cash transaction, it must repay these
debentures immediately. For example, if Thermo Electron had offered cash in
exchange for each outstanding share of ThermoLase common stock in this proposed
merger, it would have been required to repay an aggregate of $115,000,000 in
principal amount of ThermoLase's debentures.
BACKGROUND: THE MERGER
As part of an ongoing review of Thermo Electron's entire corporate
structure, Thermo Electron's management began to examine the status of
ThermoLase and its subsidiaries as public companies in April 1999. Management
considered the following factors:
- the financial performance and profitability of ThermoLase and its
subsidiaries;
- uncertainty regarding ThermoLase's future growth prospects, including
difficulties relating to the business of ThermoLase;
- recent public capital market trends affecting small companies, and the
impact of those trends on ThermoLase, including the low liquidity in the
public markets resulting from the small market float of ThermoLase common
stock and the absence of significant analyst coverage of ThermoLase common
stock;
- ThermoLase's debt;
16
<PAGE>
- the costs associated with being a public company, including the costs of
preparing and filing quarterly, annual, and other required reports with
the SEC and publishing and distributing annual reports and proxy
statements to stockholders, which Thermo Electron estimates to be
approximately $450,000 per year, including fees for an audit by an
independent accounting firm and legal fees;
- the burdens on management of public reporting and other tasks required of
public companies, including for example, time and resources required to
deal with stockholder and analyst inquiries and investor and public
relations;
- the availability to competitors of information about ThermoLase's
business, resulting from ThermoLase's obligation to file reports with the
SEC; and
- the greater ability of ThermoLase's management to focus on long-term
business goals, as opposed to quarterly earnings, if it were a private
company.
Thermo Electron management also considered the relatively low volume of
trading in ThermoLase common stock and considered that a merger based on a stock
for stock exchange of ThermoLase stock for Thermo Electron stock would result in
the ThermoLase public stockholders' receiving a more liquid, more readily
tradable security. Management of Thermo Electron also considered that acquiring
the minority stockholder interest in ThermoLase would advance the goal of Thermo
Electron's corporate reorganization of reducing the number of majority-owned,
public subsidiaries of Thermo Electron. Management of Thermo Electron also
considered recent trends in the price of ThermoLase common stock, although
ThermoLase's current stock price was not a significant factor in the timing of
Thermo Electron's decision to pursue the merger.
Thermo Electron management considered the advantages and disadvantages of
leaving ThermoLase as a majority-owned, public subsidiary of Thermo Electron.
The advantages to leaving ThermoLase as a majority-owned, public subsidiary of
Thermo Electron that were considered by management included the following:
- not having to expend funds that would be required for a cash transaction,
or to issue additional shares of Thermo Electron common stock for a stock
for stock exchange at a time when the price of the shares was relatively
low; and
- maintaining ThermoLase's access to capital in the public markets as a
public company.
The disadvantages to leaving ThermoLase as a majority-owned, public
subsidiary that were considered by Thermo Electron included the following:
- the burden on ThermoLase of its debt;
- the low liquidity in the public markets resulting from the small market
float of ThermoLase common stock;
- the costs of being a public company, including costs of SEC reporting
obligations, and public and investor relations functions;
- the public information available to competitors about ThermoLase and its
subsidiaries' business through its SEC filings;
- the pressure to focus on quarterly earnings, as opposed to long-term
business goals, if ThermoLase remains a public company.
Thermo Electron management also considered the fact that acquiring the
minority stockholders' interests in ThermoLase would advance the goal of Thermo
Electron's proposed corporate reorganization. Thermo Electron management
concluded that the advantages of leaving ThermoLase as a majority-owned, public
subsidiary were outweighed by the disadvantages.
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On May 5, 1999, the board of directors of Thermo Electron held a special
meeting at which Thermo Electron's management recommended that ThermoLase be
included in Thermo Electron's corporate reorganization and that Thermo Electron
make an offer to acquire all of the shares of ThermoLase common stock that
Thermo Electron and ThermoTrex did not already own in exchange for shares of
Thermo Electron common stock. At that meeting, the Thermo Electron board of
directors discussed several factors presented by management regarding the
proposal, including the factors described in the preceding paragraphs. The
Thermo Electron board of directors made no decision on the recommendation at
that time.
On May 20, 1999, the board of directors of Thermo Electron held a special
meeting at which Thermo Electron management proposed to revise its
reorganization plan to include the merger of ThermoLase with and into Thermo
Electron whereby the ThermoLase stockholders would receive shares of Thermo
Electron common stock in exchange for their shares of ThermoLase common stock.
After consideration of the factors identified above, Thermo Electron's board of
directors authorized an amendment to its reorganization plan to include taking
ThermoLase and certain other subsidiaries of Thermo Electron private.
On May 24, 1999, Thermo Electron publicly announced its plan to expand its
previously announced reorganization. Under the expanded plan, Thermo Electron
would, subject to numerous conditions, including negotiation of prices and
exchange ratios, approval by the board of directors of the affected subsidiaries
and negotiation and execution of definitive purchase and sale or merger
agreements, acquire the portion of four additional publicly traded subsidiaries
that it did not already own, including ThermoLase, thereby reducing the number
of publicly traded spinout companies from 23 when Thermo Electron's
reorganization plan was originally announced in August, 1998, to 11 upon
completion of the plan. The announcement indicated that ThermoLase would be
merged into Thermo Electron in exchange for shares of Thermo Electron common
stock.
In response to Thermo Electron's indication of interest in acquiring the
publicly-held portion of ThermoLase, the ThermoLase board held a meeting on
May 24, 1999 at which all members were present in person or by telephone. The
ThermoLase board was advised at that meeting of Thermo Electron's proposal to
take ThermoLase private, and the advisability of establishing a special
committee to act on behalf of, and in the interests of, the public stockholders
in evaluating the merits of, and negotiating the terms of, any potential
transaction with Thermo Electron because Thermo Electron controlled a majority
of the stock of ThermoLase. Although the special committee was not formed and
the special committee members were not appointed at the May 24, 1999 ThermoLase
board of directors meeting, at that meeting the board determined that
Dr. Carliss Y. Baldwin should serve on the special committee because of her
independence from Thermo Electron and that because all of the other directors
were either employed by or directors of, or had equity interests in Thermo
Electron, an additional independent director should be appointed to the
ThermoLase board who would also serve on the special committee. Dr. Baldwin has
been a director of ThermoLase since June 1994. She is the William L. White
Professor of Business Administration, senior associate dean and director of the
doctoral programs at the Harvard Business School.
On June 25, 1999, the ThermoLase board of directors discussed the merits of
appointing an additional director and appointing a special committee to
represent the interests of and negotiate with Thermo Electron on behalf of the
stockholders of ThermoLase other than Thermo Electron. Mr. I. MacAllister Booth
was proposed as a candidate for the ThermoLase board and special committee based
on his past business experience and past service on other public company boards
of directors, as well as the fact that he was not an officer, director or
employee of Thermo Electron, ThermoLase or any of their affiliates. Mr. Booth
was formerly the CEO of Polaroid Corporation, and currently serves on the board
of ThermoLase, John Hancock Mutual Life Insurance Company, State Street Bank,
State Street Holding Company, and Western Digital Corporation. The ThermoLase
board then appointed Mr. Booth as a director of ThermoLase and formed the
special committee and appointed Dr. Baldwin
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and Mr. Booth to serve as the members of the special committee. At that meeting,
the ThermoLase board authorized the special committee to retain a financial
advisor, a legal advisor and any other advisors it deemed necessary to assist it
in carrying out its responsibilities. Additionally, the ThermoLase board
informed the special committee that the special committee and its advisors would
be permitted access to all of the officers and members of management of
ThermoLase and its subsidiaries, including its books, records, projections and
financial statements deemed necessary by the special committee and its advisors
for their review.
In September 1999, after considering the qualifications of several law
firms, the special committee selected and retained Sullivan & Worcester LLP to
serve as its legal advisor. The special committee chose Sullivan and Worcester
based on the firm's reputation and experience generally in representing
companies in public transactions. Additionally, the special committee considered
that Sullivan & Worcester was based in Boston and therefore could meet easily
with the special committee and conduct its due diligence review of ThermoLase
and Thermo Electron.
In September 1999, the special committee discussed with Sullivan & Worcester
the duties of the special committee and developed a schedule for hiring a
financial advisor and conducting Sullivan & Worcester's due diligence review of
ThermoLase and Thermo Electron.
During September and early October 1999, several investment banking firms
made presentations to the special committee. After considering the various
proposals, early in October 1999, the special committee engaged the investment
banking firm of Stonebridge Associates, LLC to serve as its financial advisor.
The special committee selected Stonebridge because of its qualifications,
reputation and experience. The special committee also considered that
Stonebridge was located in Boston and therefore could meet easily with the
special committee and conduct its due diligence review of ThermoLase and Thermo
Electron.
Following its engagement, Stonebridge performed the analyses and provided
assistance described under "--Opinion of Financial Advisor" below.
On October 19, 1999, Sullivan & Worcester and Stonebridge met with counsel
to Thermo Electron to discuss the schedule of Stonebridge's due diligence review
and the tax implications of the proposed merger. At the meeting, Sullivan &
Worcester and Stonebridge discussed a timetable for the proposed merger and were
given an update of ThermoLase's business activities. Also on October 19, 1999,
by way of memoranda to the office of the general counsel of Thermo Electron,
Sullivan & Worcester and Stonebridge requested that the general counsel make
available certain information for the due diligence review of Thermo Electron
and ThermoLase.
On October 27, 1999, Stonebridge met with employees of ThermoLase and Thermo
Electron at Thermo Electron's headquarters to discuss ThermoLase's ongoing
business operations, the completed sale of ThermoLase's spa business,
ThermoLase's intellectual property rights, as well as ThermoLase's general
financial condition and future prospects.
On November 2, 1999, Sullivan & Worcester and Stonebridge met with the
special committee to discuss the status of Stonebridge's due diligence review
and to prepare for negotiations with Thermo Electron. Also on November 2, 1999,
the legal and financial advisors discussed with the special committee its due
diligence review and the timing and procedures for negotiations in connection
with the proposed transaction.
On November 11, 1999, Sullivan & Worcester and Stonebridge met with
Mr. Theo Melas-Kyriazi, chief financial officer of Thermo Electron and
ThermoLase, to discuss the availability of information regarding Thermo Electron
and ThermoLase and to discuss Thermo Electron's financial status generally. At
the meeting Stonebridge communicated the special committee's intention to hire a
technical consultant experienced in evaluating laser technologies to assist it
in assessing the value of the patents and technology owned by ThermoLase.
Counsel to Thermo Electron reported that a data room
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would be set up at Thermo Electron within the coming week so that Sullivan &
Worcester could begin its due diligence review. Counsel to Thermo Electron also
provided to Stonebridge and Sullivan & Worcester copies of documents relating to
ThermoLase that were responsive to their due diligence requests. At the meeting
Mr. Theo Melas-Kyriazi also discussed Thermo Electron's strategic reasons for
entering into the merger and reviewed in detail the current and prospective
performance for 1999 and 2000.
Between October 27, 1999 and November 29, 1999, Stonebridge participated in
a variety of conference calls with management and employees of ThermoLase and
Thermo Electron, and submitted additional requests for information that was
subsequently provided by ThermoLase and Thermo Electron.
On November 18, 1999, Stonebridge hired an outside consulting firm with
expertise in the area of aesthetic laser technology to conduct a review of
ThermoLase's existing patent portfolio and to assess the market size and
potential of ThermoLase's intellectual property. Between November 18, 1999 and
November 29, 1999, Stonebridge participated in a variety of conference calls
with the outside consulting firm regarding its overall market analyses as well
as its assessment of ThermoLase's intellectual property.
On November 24, 1999, the special committee and Stonebridge received from
Sullivan & Worcester memoranda summarizing Sullivan & Worcester's due diligence
review of ThermoLase and Thermo Electron.
On November 29, 1999, the special committee met with Stonebridge and
Sullivan & Worcester to discuss an offer from Thermo Electron, which had been
communicated orally to Stonebridge on November 19, 1999. Pursuant to the oral
offer, Thermo Electron would exchange a certain fraction of a share of its
common stock for each share of ThermoLase stock according to an exchange ratio
which would be the quotient obtained by dividing ThermoLase's stock price as of
November 19, 1999 of $1.875 by the 20-day average of Thermo Electron's stock
price as of the date of signing a merger agreement. To minimize the impact of a
significant fluctuation of the Thermo Electron common stock price between the
signing of a merger agreement and the effective time of a merger, a fixed
"collar" was placed on the exchange ratio. The collar would work as follows: the
exchange ratio would become fixed at 0.1676 or 0.0957 if, as of the effective
time of the merger, Thermo Electron's 20-day average had fallen by more than 20%
or increased by more than 40%, respectively. On the date of the meeting, Thermo
Electron's trading price was $14.813 with a 20-day average of $13.991 and
ThermoLase's trading price was $1.875. Based on ThermoLase's stock price of
$1.875 and Thermo Electron's 20-day average of $13.991 as of the day of the
November 29, 1999 meeting, each share of ThermoLase common stock would be
exchanged for 0.134 shares of Thermo Electron common stock, effectively creating
a purchase price of $1.985 for the ThermoLase stock and representing a premium
for ThermoLase stockholders, other than Thermo Electron and ThermoTrex, of
5.88%.
In the context of discussing Thermo Electron's offer, Stonebridge presented
its preliminary assessments of ThermoLase and Thermo Electron. Based on these
discussions, the special committee determined that the offer was unacceptable
and that Stonebridge should prepare a counteroffer consisting of a higher price
for ThermoLase's stock and a collar that would be triggered by a 20% increase or
decrease in the 20-day average of Thermo Electron's stock price between the
signing of a merger agreement and the effective time of a merger. In addition to
discussing Thermo Electron's offer at the November 29, 1999 meeting, Sullivan &
Worcester discussed the fiduciary duties of the special committee to
ThermoLase's public stockholders, including the holders of ThermoLase units, and
ThermoLase's duty to holders of units and to creditors, including the holders of
ThermoLase convertible subordinated debentures; the proposed tax treatment of
net operating losses on the books of ThermoLase, and alternatives to the
proposed merger, including bankruptcy and reorganization.
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On November 30, 1999, Thermo Electron provided the special committee,
Stonebridge and Sullivan & Worcester with an initial draft of the merger
agreement. The special committee instructed Sullivan & Worcester to review the
proposed merger agreement and negotiate the agreement in accordance with
discussions with the special committee.
From November 30, 1999 until December 13, 1999, the special committee and
Sullivan & Worcester negotiated the terms of the merger agreement with Thermo
Electron.
On December 1, 1999, on behalf of the special committee, Stonebridge made a
counteroffer to Thermo Electron that proposed the following: The preliminary
exchange ratio would be the quotient determined by dividing (a) the ThermoLase
common stock price at the close of trading on the day prior to the signing of
the merger agreement multiplied by 1.15, by (b) the Thermo Electron common stock
price at the close of trading on the day prior to the signing of the merger
agreement. Upon the effective date of the merger, ThermoLase stockholders would
receive Thermo Electron shares at an exchange ratio calculated to be that
product obtained by multiplying (a) the preliminary exchange ratio by (b) the
quotient obtained by dividing the average closing price for Thermo Electron
common stock during the twenty trading days ending on the last full trading day
prior to the signing of the merger agreement by the average closing price for
Thermo Electron common stock during the twenty trading days ending on the last
full trading day prior to the effective time of the merger. Additionally,
Stonebridge proposed that the exchange ratio would become fixed if the 20-day
average of Thermo Electron's stock price prior to the effective time of the
merger is 20% higher or 20% lower than the 20-day average of Thermo Electron's
stock price prior to the signing of the merger agreement.
On December 3, 1999, Thermo Electron management accepted, subject to Thermo
Electron board of directors approval, Stonebridge's proposal for fixing the
exchange ratio if the average closing price for Thermo Electron common stock
during the twenty trading days ending on the last full trading day prior to the
effective time of a merger were either 20% higher or 20% lower than the average
closing price for Thermo Electron common stock during the twenty trading days
ending on the last full trading day prior to the signing of the merger
agreement. However, Thermo Electron proposed that the calculation for
determining the preliminary exchange ratio would be the quotient determined by
dividing (a) the five-day average of ThermoLase's stock price prior to the
signing of the merger agreement multiplied by 1.15, by (b) the five-day average
of Thermo Electron's stock price prior to the signing of the merger agreement.
On December 3, 1999, Stonebridge communicated Thermo Electron's
counterproposal to the special committee, who agreed to accept the proposal,
subject to final approval by the ThermoLase board of directors.
On December 7, 1999 the board of directors of ThermoLase met to discuss the
status of the merger discussions with Thermo Electron as well as ThermoLase's
business operations.
On December 9, 1999 the special committee received from Sullivan & Worcester
an initial confidential memorandum describing the not-yet-final terms of the
merger agreement and the fiduciary duties of the special committee. The special
committee received a final confidential memorandum on December 12, 1999.
On December 10, 1999, Stonebridge mailed a preliminary summary of its
analyses to each member of the special committee and the board of directors for
their review prior to Stonebridge's presentation and delivery of its opinion on
December 14, 1999.
On December 14, 1999, Sullivan & Worcester and Stonebridge met with the
special committee to review the final terms of the merger agreement. Stonebridge
presented its opinion to the special committee that the merger consideration was
fair to the stockholders of ThermoLase, other than Thermo Electron and
ThermoTrex, from a financial point of view. Later that same day, at a meeting of
the full board of directors of ThermoLase, Stonebridge reviewed the bases for
its opinion. Stonebridge
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noted that based on the negotiated preliminary exchange ratio, determined by
using stock prices as of the close of trading on December 13, 1999, the
stockholders of ThermoLase, other than Thermo Electron and ThermoTrex, would be
entitled to receive common stock of Thermo Electron for each share of ThermoLase
common stock at an exchange ratio equal to 0.158 multiplied by the quotient
obtained by dividing $14.906 by the 20-day average closing price of Thermo
Electron stock at the effective time. This represented a premium of 12.9% to
ThermoLase's stock price as of the close of trading on December 13, 1999.
Additionally, if the 20-day average of Thermo Electron's stock price at the
effective time of the merger were to fall below 80% or rise above 120% of the
20-day average of Thermo Electron's stock price at the signing of the merger
agreement, the exchange ratio would be fixed at 0.198 and 0.132, respectively,
based on stock prices as of the close of trading on December 13, 1999. The
special committee then recommended to the full board that it accept Thermo
Electron's offer and approve the merger agreement in the form presented at the
meeting. The board of directors unanimously approved the merger agreement,
declared its advisability and recommended that the stockholders vote in favor of
the proposed merger.
On December 15, 1999, the board of directors of Thermo Electron held a
special meeting at which it approved and adopted the merger agreement and the
merger and authorized the execution of the merger agreement, in the form in
which it was approved by the ThermoLase board of directors and presented to the
Thermo Electron board of directors, and the taking of all actions required to
effectuate the merger.
On December 15, 1999, ThermoLase issued a press release announcing the
transaction.
THE SPECIAL COMMITTEE'S AND THE BOARD'S RECOMMENDATION
The special committee and the board believe that the terms of the merger are
fair to, and in the best interests of, the public stockholders. In reaching this
conclusion, the special committee has determined that the merger is both
substantively and procedurally fair, and is therefore entirely fair, to the
public stockholders. The board has adopted the findings and recommendation of
the special committee on both the substantive and procedural fairness of the
merger. Accordingly, the board has unanimously approved the merger agreement and
unanimously recommends that you vote to adopt it.
In reaching their decisions to approve the merger agreement and to recommend
its approval to the public stockholders, the special committee and the board
considered the following factors, each of which they believed to be favorable:
THE PREMIUM REFLECTED IN THE EXCHANGE RATIO. The special committee and the
board considered the exchange ratio in light of the historical market price of
ThermoLase common stock and the course of negotiations with Thermo Electron in
making their respective decisions to approve the merger agreement. In
particular, the special committee and the board considered the relationship of
the exchange ratio to Thermo Electron's original proposal. In addition, they
compared the exchange ratio, with a minimum exchange ratio of 0.132 and a
maximum exchange ratio of 0.198, to the historical market prices of ThermoLase
and Thermo Electron common stock. The special committee and the board considered
the prevailing trading price of ThermoLase common stock and the likelihood that
the price would remain depressed in light of ThermoLase's recent history of
losses. The special committee and the board noted that, based on the respective
closing prices of ThermoLase and Thermo Electron common stock on December 13,
1999, the day before the merger agreement was approved, the value of the merger
consideration per share was $2.40 and that this amount represents a premium of
12.9% over the price of ThermoLase common stock as of the close of trading on
December 13, 1999, and a premium of 28.0% over the price of ThermoLase common
stock as of the close of trading 30 days before, or November 15, 1999. The
special committee and the board concluded that the exchange ratio proposed by
Thermo Electron would enable the public stockholders to obtain a higher price
for their ThermoLase common stock than would otherwise be available in the
market at that time. The special
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committee and the board also believed that the prevailing trading price of
ThermoLase common stock in the period immediately before December 13, 1999, had
been favorably affected, in part, by Thermo Electron's previously announced
intent to take ThermoLase private. In addition, the merger would eliminate the
risk to public stockholders of any future declines in the price of the
ThermoLase common stock.
INFORMATION CONCERNING THE FINANCIAL PERFORMANCE, CONDITION, BUSINESS
OPERATIONS, AND PROSPECTS OF THERMOLASE. The special committee and the board
considered the historical, current, and potential future performance of
ThermoLase and determined that the premium reflected in the exchange ratio
offered by Thermo Electron was attractive in light of ThermoLase's current
performance, its recent history of losses, and the uncertainty of its future
growth prospects. In addition, the special committee and the board determined
that the merger would shift the risk of the future financial performance of
ThermoLase from the public stockholders, who do not have the power to control
ThermoLase, entirely to Thermo Electron, which has both the ability to control
ThermoLase and also the resources to manage and bear that risk over the long
term.
TERMS OF THE MERGER AGREEMENT. The special committee and the board
considered the terms of the merger agreement, including the following:
- the amount and form of the merger consideration;
- the limited number of conditions on Thermo Electron's obligations;
- the board's right to terminate the merger agreement if it determines after
consultation with outside legal counsel that failure to do so would
violate the board's fiduciary duties under state law; and
- the absence of a termination fee if ThermoLase terminates the merger
agreement.
The special committee and the board believed that these factors made the
completion of the merger more likely than it would be if the parties'
obligations were subject to more significant conditions. In addition, the
special committee and the board believed that the ability of the board to
terminate the merger agreement without the payment of a termination fee if its
fiduciary duties to ThermoLase stockholders required it to do so provided the
board with the flexibility to protect the interests of the public stockholders.
THE IMPROVED TRADING MARKET FOR THEIR INVESTMENT THAT WOULD RESULT FROM THE
PUBLIC STOCKHOLDERS' RECEIPT OF THERMO ELECTRON COMMON STOCK. The special
committee and the board believed that the public stockholders would benefit from
an improved trading market and liquidity in their investment because the
significant ownership by Thermo Electron and ThermoTrex of ThermoLase common
stock (1) resulted in a relatively small public float that limited the amount of
trading in ThermoLase common stock and (2) made it unlikely that an independent
entity would make a proposal to acquire the ThermoLase common stock without the
consent of Thermo Electron. In addition, the liquidity of ThermoLase common
stock was likely to be adversely affected if the American Stock Exchange
delisted ThermoLase common stock, an event that was scheduled to occur on
December 15, 1999 absent the signing of a merger agreement with Thermo Electron.
Furthermore, Thermo Electron had stated its intention to retain its direct and
indirect majority holding in ThermoLase, which foreclosed the opportunity to
consider alternative transactions with independent third parties for the
purchase of ThermoLase or to otherwise provide increased liquidity to the public
stockholders.
THE OPINION OF STONEBRIDGE THAT THE MERGER CONSIDERATION IS FAIR FROM A
FINANCIAL POINT OF VIEW, AS OF THE DATE OF ITS OPINION, TO THE STOCKHOLDERS OF
THERMOLASE OTHER THAN THERMO ELECTRON AND THERMOTREX. The special committee
reviewed the independent financial analyses performed by Stonebridge, including
analyses of relative value and discounted cash flows that assume ThermoLase will
continue as a going concern, and found them to be reasonable. The special
committee also believed that
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Stonebridge's conclusion that the consideration offered by Thermo Electron was
fair, from a financial point of view, to the stockholders of ThermoLase other
than Thermo Electron and ThermoTrex was a reasonable conclusion based on the
analyses performed. See "--Opinion of Financial Advisor."
THERMOLASE'S NEED FOR CASH UPON EXERCISE OF RIGHTS BY HOLDERS OF THERMOLASE
UNITS AND THE MATURITY OF THERMOLASE'S CONVERTIBLE SUBORDINATED DEBENTURES. The
holders of units, including Thermo Electron, have the right, in April 2001 to
require ThermoLase to repurchase the units for $20.25 per Unit. The aggregate
exchange value of the units is approximately $40.5 million. In addition, the
holders of the convertible subordinated debentures, including Thermo Electron,
who do not exchange their debentures for ThermoLase common stock have the right
to repayment upon maturity of the convertible subordinated debentures in
August 2004. The aggregate value of the convertible subordinated debentures
outstanding is approximately $115.0 million. Although Thermo Electron is the
guarantor of each of those securities, Thermo Electron has no obligation to
forego its creditor's rights as guarantor or as holder of units or convertible
subordinated debentures. The merger relieves the public stockholders from any
impact on the value of their investment in ThermoLase due to ThermoLase's
potential inability to satisfy these obligations, except for any indirect effect
on the value of Thermo Electron common stock.
The special committee and the board also considered the following factors,
each of which they considered to be negative factors in their deliberations
concerning their decisions to approve the merger agreement:
- Following the merger, the public stockholders would not have the
opportunity, except as stockholders of Thermo Electron, to participate in
the future earnings or growth, if any, of ThermoLase or benefit from
increases, if any, in the value of ThermoLase common stock. The special
committee and the board evaluated this factor in light of the recent
financial performance of ThermoLase, including its recent history of
losses, the current industry outlook, and the risks and uncertainties
associated with ThermoLase's future prospects.
- The positive aspects of ThermoLase, including its hair removal and skin
resurfacing technology.
- Potential or actual conflicts of interest of certain officers and
directors of ThermoLase in connection with the merger. See "--Conflicts of
Interest."
The special committee and the board also considered a going concern business
analysis of ThermoLase, and in connection with that analysis considered whether
or not a sale of ThermoLase to a third party would be feasible. The going
concern business analysis was given little, if any weight, because Thermo
Electron's holdings in and financial guarantees of ThermoLase make the prospects
for such a sale on terms more attractive than the merger doubtful. Additionally,
Thermo Electron told the special committee and the board that it had no desire
or intention to sell ThermoLase.
The factors discussed above constitute all of the material factors
considered by the special committee and the board. The members of the special
committee and the board evaluated the various factors considered in light of
their knowledge of the business, financial condition and prospects of ThermoLase
and sought and considered the advice of financial and legal advisors. In
determining that the merger is fair to the public stockholders, the special
committee and the board considered the above factors as a whole and did not
assign specific or relative weights to them. In the view of the special
committee and the board, each of the positive factors listed above, in the
aggregate, reinforced their belief that the transaction was fair to the public
stockholders and outweighed the negative factors listed above.
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The special committee's and the board's belief as to the procedural fairness
of the merger was based, among other things, on the following factors:
- The special committee consisted of two independent directors appointed by
a majority of the board of directors to represent solely the interests of
the public stockholders and to provide independent consideration of the
transaction.
- The special committee retained and was advised by independent legal
counsel.
- The special committee retained Stonebridge to assist in evaluating the
proposed transaction and received advice from Stonebridge.
- The special committee and its advisors conducted a detailed review of the
business and financial condition of ThermoLase.
- The exchange ratio and the other terms and conditions of the merger
agreement resulted from active arms' length bargaining between
representatives of the special committee on the one hand and
representatives of management of Thermo Electron on the other.
- The units, as modified to include a fractional share of Thermo Electron
common stock, will be listed on the American Stock Exchange.
THE SPECIAL COMMITTEE AND THE BOARD HAVE APPROVED THE MERGER AGREEMENT AND
BELIEVE THAT THE TERMS OF THE MERGER ARE FAIR TO THE PUBLIC STOCKHOLDERS.
ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO ADOPT THE MERGER
AGREEMENT.
In considering the recommendation of the special committee and the board
concerning the merger agreement you should be aware that some members of the
special committee and the board have interests in the merger that are different
from, or in addition to, your interests and that represent actual or potential
conflicts of interest. The special committee and the board were aware of these
interests and considered them, among other matters, in approving the merger
agreement. See "--Conflicts of Interest."
In order to aid the evaluation of ThermoLase by the special committee and
Stonebridge and Stonebridge's assessment of the fairness, from a financial point
of view, of the consideration payable to the stockholders, other than Thermo
Electron and ThermoTrex, pursuant to the merger agreement, ThermoLase gave the
special committee and Stonebridge projected financial data prepared by
ThermoLase management which was relied upon by the special committee and
Stonebridge without independent verification. See "PROJECTED FINANCIAL DATA."
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OPINION OF FINANCIAL ADVISOR
Stonebridge is a private investment bank that specializes in providing a
broad range of corporate finance services to middle market and emerging growth
companies. Its primary areas of focus include mergers and acquisitions,
divestitures and private placements of debt and equity securities, as well as
related corporate advisory services such as fairness opinions, valuations and
restructurings and recapitalizations. Stonebridge, as part of these investment
banking services, is regularly engaged in the valuation of businesses and their
securities.
Pursuant to a letter agreement dated October 7, 1999, Stonebridge was
engaged to act as a financial advisor to the special committee in connection
with Thermo Electron's expressed interest in acquiring ThermoLase by an exchange
of Thermo Electron shares of common stock for shares of ThermoLase common stock.
Under the letter agreement, should ThermoLase's Board of Directors propose that
ThermoLase enter into a transaction, Stonebridge was requested to determine the
fairness of the merger consideration to the stockholders of ThermoLase, other
than Thermo Electron or ThermoTrex, from a financial point of view. Stonebridge
was not engaged to, and did not, solicit offers from other parties for the
acquisition of ThermoLase or any of its assets. Stonebridge had not previously
provided financial advisory services to ThermoLase or Thermo Electron or any of
Thermo Electron's corporate affiliates.
Stonebridge rendered to the special committee on December 14, 1999 an oral
and written opinion to the effect that, as of the date of such opinion and based
upon and subject to certain matters, the merger consideration was fair, from a
financial point of view, to ThermoLase's stockholders other than Thermo Electron
and ThermoTrex. THE FULL TEXT OF THE FAIRNESS OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN,
IS INCLUDED AS APPENDIX B TO THIS PROXY STATEMENT-PROSPECTUS AND INCORPORATED
HEREIN BY REFERENCE. THE STOCKHOLDERS ARE URGED TO READ THAT OPINION CAREFULLY
IN ITS ENTIRETY. THE FAIRNESS OPINION IS DIRECTED TO THE SPECIAL COMMITTEE AND
ADDRESSES ONLY THE FAIRNESS OF THE MERGER CONSIDERATION TO THE STOCKHOLDERS OF
THERMOLASE OTHER THAN THERMO ELECTRON AND THERMOTREX FROM A FINANCIAL POINT OF
VIEW AS OF THE DATE OF THE FAIRNESS OPINION. THE FAIRNESS OPINION HAS BEEN
PROVIDED FOR THE USE OF THE SPECIAL COMMITTEE IN ITS EVALUATION OF THE MERGER
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF THERMOLASE AS TO
HOW SUCH STOCKHOLDER SHOULD VOTE AT THE SPECIAL MEETING OR ADDRESS ANY OTHER
ASPECT OF THE MERGER. THE SUMMARY OF THE FAIRNESS OPINION OF STONEBRIDGE SET
FORTH IN THIS PROXY STATEMENT-PROSPECTUS IS A DESCRIPTION OF THE MATERIAL
ASPECTS OF THE OPINION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION INCLUDED IN APPENDIX B.
In connection with rendering the fairness opinion, Stonebridge reviewed and
examined, among other items, the following: (1) a draft of the merger agreement
dated December 10, 1999; (2) certain publicly available information concerning
ThermoLase, including the annual reports on Form 10-K and proxy statements of
ThermoLase for each of the fiscal years in the three year period ended
October 3, 1998 and the quarterly reports on Form 10-Q of ThermoLase for the
quarters ended January 2, 1999, April 3, 1999 and July 3, 1999; (3) unaudited
financial statements for ThermoLase for the fiscal year ended October 2, 1999;
(4) certain publicly available information concerning Thermo Electron, including
the annual reports on Form 10-K and proxy statements for Thermo Electron for
each of the fiscal years in the three year period ended January 2, 1999, and the
quarterly reports on Form 10-Q for the quarters ended April 3, 1999, July 3,
1999, and October 2, 1999; (5) unaudited financial results for Thermo Electron
through November 30, 1999; (6) real estate leases to which ThermoLase is a
party; (7) the terms and conditions of the ThermoLase units issued in
April 1997; (8) the terms and conditions of ThermoLase's $115.0 million
subordinated convertible debentures issued in August 1997; (9) financial and
operating information with respect to the business, operations and prospects of
ThermoLase and Thermo Electron; (10) certain internal business plans and
financial budgets prepared by the management of ThermoLase and Thermo Electron
and (11) certain publicly available
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information concerning other aesthetic laser service companies, private label
health and beauty aid companies, and diversified companies in the scientific
instrument and equipment industry, the trading markets for such companies'
securities and the nature and terms of certain other merger and acquisition
transactions Stonebridge believed to be relevant to its inquiry. During the
course of its review, Stonebridge met and had discussions with management of
ThermoLase and Thermo Electron concerning their respective company's business
and operations, assets, liabilities, present financial condition, future
prospects and other matters which Stonebridge believed to be relevant. The
fairness opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to Stonebridge as
of, December 14, 1999. Although subsequent developments may affect the fairness
opinion, Stonebridge has assumed no obligation to update, revise or reaffirm it,
except to the extent requested by the special committee and for which
Stonebridge will receive an additional fee. See "--OTHER SERVICES AND FINANCIAL
ARRANGEMENTS" below in this section.
In its review and in arriving at its opinion, Stonebridge relied upon the
accuracy and completeness of all financial and other information that was
available to it from public sources, that was provided to it by ThermoLase and
Thermo Electron or their representatives or that was otherwise reviewed by it.
Stonebridge did not attempt independently to verify any such information and
relied upon the assurances of management of ThermoLase and Thermo Electron that
they were unaware of any facts that would make the information provided to or
reviewed by Stonebridge misleading. Stonebridge assumed that management's
financial and business forecasts for ThermoLase and Thermo Electron had been
reasonably prepared incorporating management's best, currently available
judgments as to the future operating and financial performance of the businesses
and that these forecasts would be realized in the amounts and in the time
periods currently estimated by management. Except as indicated below,
Stonebridge did not make any independent evaluation or appraisal of the assets
or liabilities of ThermoLase or Thermo Electron and did not obtain or receive
any such evaluation or appraisal from a third party. Stonebridge relied upon the
representations of ThermoLase and Thermo Electron to be contained in the merger
agreement with respect to legal and other matters. Stonebridge did not conduct a
physical inspection of any properties or assets.
In connection with its analysis and the fairness opinion, Stonebridge
performed a variety of financial and comparative analyses, including those
described below. The preparation of a fairness opinion is a complex process that
involves various determinations as to the most appropriate and relevant methods
of financial analyses and the application of those methods to the particular
circumstances, and therefore such an opinion is not necessarily susceptible to
summary description. Furthermore, in arriving at its opinion, Stonebridge
considered the results of all of its analyses as a whole and did not attribute
any particular weight to any analysis or factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each analysis
and factor. Accordingly, Stonebridge believes that its analyses must be
considered as a whole and that considering any portion of such analyses and the
factors considered, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying the opinion.
In performing its analyses, Stonebridge made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of ThermoLase and Thermo
Electron. Any estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than as set forth therein. Any
theoretical or implied values derived from these analyses are not necessarily
indicative of actual fair market values, which may be significantly more or less
favorable than as set forth therein. In addition, analyses relating to the value
of businesses do not purport to be appraisals or to reflect the prices at which
businesses may actually be sold. Stonebridge also assumed that the merger will
be consummated in accordance with the terms set forth in the draft merger
agreement presented to it.
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The following is a brief summary of some of the analyses performed by
Stonebridge in connection with the preparation of the fairness opinion. The
summary does not purport to be a complete description of the analyses underlying
the fairness opinion.
TRANSACTION OVERVIEW
Stonebridge noted that the merger agreement contemplates that at the
effective time of the merger: (1) each share of common stock held by ThermoLase
stockholders other than Thermo Electron and ThermoTrex will be entitled to
receive a fraction of a share of common stock of Thermo Electron for each share
of ThermoLase common stock owned by such stockholder at an exchange ratio
calculated to be the product obtained by multiplying (a) 0.158, or the quotient
of the average closing price for the five-day period ending the day before the
date of the merger agreement of ThermoLase's stock to Thermo Electron stock, by
(b) the quotient obtained by dividing $14.906 by the 20 day average price of
Thermo Electron at the effective time of the merger, which we refer to as the
Merger Consideration; (2) if at the effective time of the merger the 20 day
average stock price for Thermo Electron is less than or equal to $11.925 (80% of
$14.906), then the exchange ratio shall be .198 (1.25 times .158) while if at
the effective time of the merger the 20 day average stock price for Thermo
Electron is greater than or equal to $17.888 (120% of $14.906), then the
exchange ratio shall be .132 (0.8333 times .158); (3) at the effective time of
the merger, ThermoLase units that are not exchanged for shares of Thermo
Electron common stock will be assumed by Thermo Electron and will continue to
have the same terms and conditions applicable to the units prior to the
effective time of the merger, except that each share of ThermoLase common stock
included as part of the unit will be converted into a fractional share of Thermo
Electron common stock using the appropriate exchange ratio and except that the
redemption right associated with the Thermo Electron stock issued to the unit
holders shall entitle the holder of such units to require redemption of such
Thermo Electron stock included in the unit for cash in an amount equal to
$20.25; and (4) at the effective time of the merger, all outstanding options to
purchase shares of ThermoLase common stock will be assumed by Thermo Electron.
Each ThermoLase option will be exercisable in accordance with its terms for that
number of shares of Thermo Electron common stock equal to the product of the
number of ThermoLase shares that were issuable upon exercise, multiplied by the
appropriate exchange ratio. The per share exercise price for the shares of
Thermo Electron common stock issued upon exercise will be equal to the quotient
determined by dividing (a) the exercise price of ThermoLase stock at which the
ThermoLase option was exercisable by (b) the appropriate exchange ratio.
MERGER CONSIDERATION PER SHARE ANALYSIS
Assuming the effective time of the merger was December 14, 1999, the day
Stonebridge delivered the fairness opinion, Stonebridge determined the Merger
Consideration per share to be $2.40. Stonebridge calculated this Merger
Consideration per share by multiplying .158 times $15.188, the closing price for
a share of Thermo Electron common stock on December 13, 1999.
STOCK TRADING HISTORY
Stonebridge examined ThermoLase's historical weekly stock price and trading
volume since January 1996 as well as over the 52 weeks ended December 10, 1999.
ThermoLase's highest stock price from January 1996 to December 10, 1999 was
$36.375, which occurred in April 1996, while its stock price reached a low of
$1.313 per share in June 1999. Over this period, average daily trading volume
was approximately 61,961 shares. During the 52 week period ending December 10,
1999, ThermoLase's highest stock price was $5.063, in December 1998, while its
stock price reached a low of $1.313 per share in June 1999. Over this period,
average weekly trading volume was approximately 21,691 shares.
Stonebridge also examined the trading volume history of ThermoLase's common
stock over 360, 90 and 30 day periods ended December 13, 1999. During the
360 day period, 46.5% of the trading volume
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occurred at prices at or above $2.50 per share, and during the 90 day period
59.6% of the volume occurred below $2.00 per share. Over the 30 day period,
67.3% of the volume occurred above $2.00 per share.
Stonebridge compared ThermoLase's stock price history since January 1996 to
the trading history for the period of an index comprised of a group of
publicly-traded private-label health and beauty-aid companies consisting of
Azurel Ltd.; Carson, Inc.; French Fragrances, Inc.; Inter Parfums, Inc.; Parlux
Fragrances, Inc.; Surrey, Inc.; and The Stephan Co. and to the trading history
for the period of an index comprised of a group of publicly-traded aesthetic
laser service providers consisting of BioLase Technology, Inc.; Candela
Corporation; Coherent, Inc.; ESC Medical Systems Ltd.; and Laserscope.
Stonebridge considered these companies to be comparable to ThermoLase based upon
their business activities and operating formats, although it noted that none of
these companies is identical to ThermoLase because of varying sizes, financial
condition and general market focus. Stonebridge also compared ThermoLase's stock
price history since January 1996 to the AMEX Composite Index and the S&P 600
Small Cap Index for the period.
Since January 1996, ThermoLase's stock price has significantly
underperformed all four indices. Stonebridge further noted that when compared to
these publicly-traded private-label health and beauty-aid manufacturers and
aesthetic laser service providers, ThermoLase's public float was one of the
lowest and that ThermoLase had the third lowest average monthly trading volume.
Stonebridge also noted that ThermoLase has only seven percent institutional
ownership and is followed by only one equity research analyst. Stonebridge
offered its assessment that these factors have influenced ThermoLase's
historical stock trading history and would most likely continue to affect the
stock's price and trading performance. Stonebridge also took into account that
ThermoLase had been notified by the American Stock Exchange of its intention to
discontinue the listing of ThermoLase's shares.
Because the ThermoLase stockholders will be receiving shares of Thermo
Electron common stock, Stonebridge also performed a stock trading analysis on
Thermo Electron. Stonebridge examined Thermo Electron's historical stock price
and trading volume since January 1996 as well as over the 52 week period ended
December 10, 1999. Thermo Electron's highest stock price from January 1996 to
the week ending December 10, 1999 was $44.00, which occurred in December 1997,
while its stock price reached a low of $12.688 per share in April 1999. Over
this period, average daily trading volume was approximately 545,548 shares.
During the 52 week period ended December 10, 1999, Thermo Electron's highest
stock price was $20.063 in June 1999, while its stock price reached a low of
$12.688 per share in April 1999. Over this period, average weekly trading volume
was approximately 535,963 shares.
Stonebridge examined the trading volume history of Thermo Electron's common
stock over 360, 90 and 30 day periods ended December 13, 1999. Over the 360 day
period 39.1% of the trading volume occurred at prices below $15.00 per share,
and during the 90 day period 68.2% of the volume occurred below $15.00 per
share. Over the 30 day period, 38.3% of the volume occurred below $15.00 per
share.
Stonebridge compared Thermo Electron's stock price history since
January 1996 to the trading history for the period of an index comprised of a
group of publicly-traded scientific instrument and equipment companies
consisting of Agilent Technologies, Inc.; Baxter International Inc.; Bio-Rad
Laboratories, Inc.; Millipore Corporation; PE Corporation; PerkinElmer, Inc.;
and Varian Inc. Stonebridge considered these companies to be comparable to
Thermo Electron based upon their business activities and operating formats,
although it noted that none of these companies is identical to Thermo Electron
because of varying sizes, financial condition and general market focus.
Stonebridge also compared Thermo Electron's stock price history since
January 1996 to the NYSE Composite Index and the S&P 500 Index. Since
January 1996, Thermo Electron's stock price has underperformed all three
indices.
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Stonebridge further noted that Thermo Electron's common stock is traded on
the New York Stock Exchange and that Thermo Electron had a public float of
approximately 148.5 million shares, had an average monthly trading volume of
approximately 11.0 million shares, had 67.4% institutional ownership, and was
followed by 15 equity research analysts.
In rendering the fairness opinion, Stonebridge is expressing no opinion as
to the price or the range of prices at which Thermo Electron common stock will
trade subsequent to the merger. The fairness opinion is necessarily based upon
economic, monetary, market and other conditions and information made available
to Stonebridge as of the date of its opinion.
PREMIUMS PAID ANALYSIS
Stonebridge noted that the Merger Consideration per share calculated as of
the close of trading on December 13, 1999 of $2.40 represented a 12.9% premium
over ThermoLase's closing stock price of $2.13 on December 10, 1999 (one day
prior), a 12.9% premium over ThermoLase's closing stock price of $2.13 on
December 6, 1999 (one week prior), and a 28.0% premium over ThermoLase's stock
price of $1.88 on November 15, 1999 (30 days prior).
As a comparison, Stonebridge reviewed and analyzed public information for 78
transactions completed or announced between September 1994 and December 1999 in
which the buyer was acquiring the remaining interest in the target that it did
not already own to determine the relative premiums paid in these transactions
over the target companies' stock price one day, one week and 30 days prior to
the announcement of the transaction. Of these, 30 transactions provided
information Stonebridge deemed relevant to the premiums paid analysis. For these
transactions, the range of premiums paid relative to the stock price one day
prior to the announcement date was (14.7%) to 100.0%, the range of premiums paid
relative to the stock price one week prior to the announcement date was (14.7%)
to 112.5%, and the range of premiums paid relative to the stock price 30 days
prior to the announcement in these acquisitions was (26.9%) to 77.8%.
THERMOLASE--COMPARABLE PUBLIC COMPANY ANALYSES
Stonebridge analyzed ThermoLase's ongoing businesses, Creative Beauty
Innovations, Inc., or CBI, and ThermoLase U.K., on a stand-alone basis using
appropriate multiples of operating performance derived from the peer groups of
public companies referred to above. Given that the redemption price of the units
is significantly greater than ThermoLase's stock price as of the close of
trading on December 13, 1999, Stonebridge assumed that 2.0 million shares of
common stock with redemption rights will be put to ThermoLase for cash.
Therefore, for implied per share valuations, Stonebridge assumed 37,347,996
total shares outstanding.
CBI
For the purposes of valuing CBI, Stonebridge reviewed and compared selected
historical and current operating and financial data of CBI to comparable data of
the private label health and beauty aid group of comparable companies listed
above. Historical and current financial data compared included total
capitalization; market equity capitalization; revenues; earnings before
interest, taxes, depreciation and amortization, referred to as EBITDA; earnings
before interest and taxes, referred to as EBIT; net income; book value; revenue
growth; gross profit margin; EBITDA margin; EBIT margin and net margin.
Over the last three full fiscal years for each company, CBI's compound
annual revenue growth rate of (2.3%) was lower than that of all but one of the
peer group companies and lower than the group's median of 15.1% and mean of
32.1%. CBI's 1997 EBIT margin of 4.6% was lower than that of all but two of the
peer group companies, as well as lower than the group's mean of 7.7% and median
of 10.6%. In 1998, CBI recorded an EBIT margin of (5.1%), which was lower than
many of the peer group companies, as well as lower than the group's mean of 1.3%
and median of 4.0%. CBI's EBIT
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margin of (20.0%) for the latest twelve months, also referred to as LTM, was
lower than that of all but one of the peer group companies, as well as lower
than the group's mean of 2.9% and median of 5.7%.
CBI recorded net income in 1997, but recorded net losses in 1998 and the LTM
1999. In 1997, CBI's net margin of 1.7% was lower than that of all but two of
the peer group companies, as well as lower than the group's mean of 2.6% and
median of 3.4%. CBI's 1998 net margin of (7.0%) was lower than that of four of
the peer group companies, as well as lower than the group's mean of (1.5%) and
median of 1.8%. For the LTM ended September 30, 1999, CBI's net margin of
(25.3%) was lower than all of the peer group companies, as well as lower than
the group's mean of (1.3%) and median of 3.3%.
Stonebridge calculated that the mean and median equity capitalization values
as multiples of revenue for the LTM ended September 30, 1999 for the peer group
were 0.72 and 0.77 times, respectively. Applying those multiples to CBI's latest
twelve months of revenue, and applying a 40.7% acquisition control premium based
on Stonebridge's review of premiums paid over the last 18 months, an implied
equity valuation range of $24.9 million to $26.4 million for CBI was calculated,
resulting in an implied per share equity valuation range of $0.67 to $0.71.
Stonebridge was not able to perform this analysis using CBI's EBITDA, EBIT, and
net income given that these figures were negative for the LTM ended
September 30, 1999.
THERMOLASE U.K.
For the purposes of valuing ThermoLase U.K., Stonebridge reviewed selected
historical and current operating and financial data of ThermoLase U.K. and the
comparable data of the aesthetic laser group of comparable companies listed
above. Historical and current financial data reviewed included total
capitalization, market equity capitalization, revenues, EBITDA, EBIT, net
income, book value, revenue growth, gross profit margin, EBITDA margin, EBIT
margin and net margin.
Stonebridge did not compare ThermoLase U.K.'s historical performance to that
of the peer group because the foreign operations of ThermoLase were divided
among several operating entities and were only consolidated into ThermoLase U.K.
during fiscal 1999.
Stonebridge calculated that the mean and high equity capitalization values
as multiples of revenue for the LTM ended September 30, 1999 for the peer group
were 2.37 and 6.28 times, respectively. The mean-to-high range was selected
because of ThermoLase's strong revenue growth rate relative to the peer group.
Stonebridge applied these multiples to ThermoLase U.K.'s LTM ended
September 30, 1999 of revenue, incorporated a 40.7% acquisition control premium
based on Stonebridge's review of premiums paid over the last 18 months, and
further adjusted the valuations to reflect ThermoLase's 46% ownership interest
in ThermoLase U.K. This yielded an implied equity valuation range of
$3.4 million to $11.0 million for ThermoLase U.K. and an implied per share
equity valuation range of $0.09 to $0.30. Stonebridge was not able to perform
this analysis using ThermoLase U.K.'s EBITDA, EBIT, and net income given that
these figures were negative for the LTM ended September 30, 1999.
THERMOLASE--COMPARABLE TRANSACTION ANALYSES
Stonebridge examined mergers and acquisitions in the past three years within
the health and beauty products industry and the past five years for the medical
device industry to determine multiples of operating performance paid in
arms-length transactions.
CBI
Stonebridge examined and analyzed certain financial parameters of merger and
acquisition transactions for the three-year period from November 1996 to
December 1999 in the health and beauty products industry. Of the 77 transactions
examined, 19 disclosed target company information from which the companies could
be valued as multiples of revenue, EBITDA, or EBIT. Stonebridge then
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calculated the market capitalization value of these companies as multiples of
revenue given that CBI's EBITDA and EBIT were negative for the latest twelve
months ended September 30, 1999. The median and mean revenue multiples of the
comparable transactions were 1.06 and 1.92 times, respectively. Applying these
multiples to CBI's revenues for the latest twelve months, an implied equity
valuation range of $24.5 million to $44.3 million, and a per share implied
equity valuation range of $0.66 to $1.19 was calculated for CBI.
THERMOLASE U.K.
Stonebridge examined and analyzed certain financial parameters of merger and
acquisition transactions for the five-year period from January 1995 to
December 1999 in the aesthetic laser industry. Of the 71 transactions examined,
63 disclosed target company information from which the companies could be valued
as multiples of revenue, EBITDA, or EBIT. Stonebridge then calculated the market
capitalization value of these companies as multiples of revenue given that
ThermoLase U.K.'s EBITDA and EBIT were negative for the latest twelve months
ended September 30, 1999. The mean to high revenue multiples of the comparable
transactions were 4.23 and 17.26 times, respectively. Applying these multiples
to ThermoLase U.K.'s revenues for the latest twelve months ending September 30,
1999 and adjusting the valuations to reflect ThermoLase's 46% ownership interest
in ThermoLase U.K. an implied equity valuation range of $5.0 million to
$23.0 million and a per share implied equity valuation range of $0.13 to $0.62
was calculated for ThermoLase U.K.
THERMOLASE--DISCOUNTED CASH FLOW ANALYSIS
To derive a theoretical valuation of CBI's and ThermoLase U.K.'s equity
value based on the company's future business opportunities, Stonebridge
performed a discounted cash flow analysis based upon pro forma financial
projections for 2000 through 2004 using information supplied by ThermoLase
management. To estimate the total net present value of CBI and ThermoLase U.K.
before giving effect to their respective capital structures, Stonebridge
discounted the projected stream of after-tax cash flows and the terminal value,
defined as the estimated future sale value, of the CBI and ThermoLase U.K.
businesses as reflected in the projections.
CBI
For CBI, the discounted cash flow model was constructed based on
management's budget for fiscal 2000 and Stonebridge's projections for the fiscal
years 2001 through 2004 using information supplied by ThermoLase management. For
this analysis, Stonebridge applied discount rates ranging from 14% to 18%, which
were selected based on a weighted average cost of capital analysis of CBI. To
calculate the terminal value, Stonebridge employed multiples of 1.0 to 2.0 times
projected revenue in 2004 that were based primarily on a review of the company
and transaction analyses deemed comparable by Stonebridge. This discounted cash
flow analysis suggested an implied equity valuation range of $24.5 million to
$42.7 million for CBI, or $0.66 to $1.14 per share.
THERMOLASE U.K.
For ThermoLase U.K., the discounted cash flow model was constructed based on
management's budget for fiscal 2000 and 2001 and Stonebridge's projections for
the fiscal years 2002 through 2004 based upon information supplied by
management. For this analysis, Stonebridge applied discount rates ranging from
16% to 20%, which were selected based on a weighted average cost of capital
analysis of ThermoLase U.K. To calculate the terminal value, Stonebridge
employed multiples of 2.0 to 3.0 times projected revenue in 2004, which were
based primarily on a review of the comparable company and comparable transaction
analyses. Taking into account ThermoLase's 46% ownership interest in ThermoLase
U.K., this discounted cash flow analysis suggested an implied equity valuation
range of $11.8 million to $17.8 million for ThermoLase U.K., or $0.32 to $0.48
per share.
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THERMOLASE OVERALL ASSESSMENT
Stonebridge's overall assessment included not only CBI and ThermoLase U.K.
but several other assets and liabilities as well, including those related to
ThermoLase's previous operations in the aesthetic laser industry and its spa
operations. In order to analyze the potential future cash flows of these other
aspects of ThermoLase, Stonebridge segmented ThermoLase into its remaining
assets and liabilities. The assets consisted of cash on the balance sheet; notes
receivable from the sale of the spas; a note receivable from ThermoLase U.K.;
intellectual property, and other miscellaneous assets. The liabilities consisted
of $115.0 million of subordinated convertible debentures; $40.5 million of
common stock with redemption rights; and other miscellaneous liabilities.
Stonebridge used discount rates of 16% and 18%, based on the weighted average
cost of capital of CBI and ThermoLase U.K., to calculate the present value of
each non-CBI and non-ThermoLase U.K. asset and liability category as follows:
ASSETS:
1. Cash on the balance sheet: $12.8 million as of December 3, 1999.
2. Notes receivable from the sale of the spas of $12.5 million:
$11.9 million to $12.1 million based on an assumed maturity of
December 31, 2000.
3. Note receivable from ThermoLase U.K. of $1.4 million: $439,495 to
$666,558 based on an assumed repayment period of five to seven years.
4. Other assets: Various balance sheet items were ascribed full value of
$2.7 million while a $4.4 million investment in Anti-Cancer, Inc. was
ascribed a range of values from zero to $4.4 million.
5. Intellectual property: ThermoLase owns a number of trademarks, patents
and other intellectual property related to the use of lasers in the hair
removal, skin resurfacing, and drug delivery industries. Stonebridge
retained an outside consultant with expertise in this general area to
conduct a review of ThermoLase's existing patent portfolio and to assess
the market size and potential of the technologies owned by ThermoLase.
For purposes of this analysis, Stonebridge assumed that ThermoLase would
license the technology to a third party who would maintain a market share
of 1.0% to 2.0% in the hair removal and skin resurfacing industries.
Stonebridge assumed royalty payments ranging from 5.0% to 8.0% based on
both equipment sales and the number of procedures performed. Stonebridge
did not ascribe any value to ThermoLase's intellectual property for the
purposes of drug delivery given ThermoLase's lack of product development
and the existing work being done by other companies in this area. Based
on these assumptions and market size estimates and the report of the
consultant, Stonebridge estimated the value of ThermoLase's intellectual
property to be between $26.8 million and $102.2 million.
LIABILITIES:
1. $40.5 million of common stock with redemption rights: $32.4 million to
$33.2 million based on the assumption that the units will be put to
ThermoLase in April 2001.
2. $115.0 million of subordinated convertible debentures: $66.2 million to
$71.5 million for the principal and interest of these debentures due in
2004.
3. Other liabilities: Stonebridge ascribed full value to $3.2 million of
current liabilities related to the spa operations, and a range of values
for contingent lease obligations related to the sale of its spa
operations of zero to $12.8 million.
Collectively, the implied valuation range for ThermoLase's assets other than
CBI and ThermoLase U.K. totaled $54.7 million to $134.9 million, or $1.46 to
$3.60 per share, while the implied valuation
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range for ThermoLase's liabilities other than those of CBI and ThermoLase U.K.
totaled ($101.8 million) to ($120.7 million), or ($2.72) to ($3.23) per share.
To arrive at a valuation range for ThermoLase as an entire enterprise,
Stonebridge added the implied values of the non-CBI and ThermoLase U.K. assets
and liabilities to the range of values derived for CBI and ThermoLase U.K. using
the comparable company, comparable transaction, and discounted cash flow
analyses. For CBI, the range of implied equity values derived from these
analyses was $24.5 million to $44.3 million, or $0.66 to $1.19 per share, while
the same analyses yielded a range of implied equity values for ThermoLase U.K.
of $3.4 million to $23.0 million, or $0.09 to $0.62 per share. Based on these
ranges of implied values for CBI, ThermoLase U.K., and ThermoLase's remaining
assets and liabilities, Stonebridge arrived at an implied total equity valuation
range for ThermoLase of ($38.1 million) to $100.4 million, or ($1.02) to $2.69
per share.
THERMO ELECTRON
Because the ThermoLase stockholders will be receiving shares of Thermo
Electron common stock, Stonebridge also performed several analyses of Thermo
Electron, including a comparable company analysis, a discounted cash flow
analysis, and a subsidiary portfolio analysis. In rendering the fairness
opinion, Stonebridge expresses no opinion as to the price or the range of prices
at which Thermo Electron common stock will trade subsequent to the merger. The
fairness opinion is necessarily based upon economic, monetary, market and other
conditions and information made available to Stonebridge as of the date of its
opinion.
THERMO ELECTRON--COMPARABLE PUBLIC COMPANY ANALYSES
The comparable company analysis performed by Stonebridge analyzed Thermo
Electron using appropriate multiples of operating performance derived from the
peer group of public companies consisting of Agilent Technologies, Inc.; Baxter
International Inc.; Bio-Rad Laboratories, Inc.; Millipore Corporation; PE
Corporation; PerkinElmer, Inc.; and Varian Inc. For the purposes of analyzing
Thermo Electron, Stonebridge reviewed and compared selected historical and
current operating and financial data of Thermo Electron to the comparable data
of the peer group. Historical and current financial data compared included total
capitalization, market equity capitalization, revenues, EBITDA, EBIT, net
income, book value, revenue growth, gross profit margin, EBITDA margin, EBIT
margin and net margin.
Over the last three full fiscal years for each company, Thermo Electron's
compound annual revenue growth rate of 14.8% was higher than all but one of the
peer group companies, and higher than the group's median of 5.2% and mean of
7.7%. Thermo Electron's 1997 EBIT margin of 11.4% was higher than four of the
peer group companies, and higher than the group's mean of 10.5% and median of
11.2%. In 1998, Thermo Electron recorded an EBIT margin of 9.7%, which was
higher than that of all but two of the peer group companies, as well as higher
than the group's median of 7.0% and mean of 9.3%. Thermo Electron's EBIT margin
of 6.8% for the latest twelve months was lower than all but two of the peer
group companies, as well as lower than the group's median of 9.5% and mean of
10.3%.
Thermo Electron's 1997 net income margin of 6.7% was lower than two of the
peer group companies, but higher than the group's mean of 5.3% and median of
5.6%. In 1998, Thermo Electron's net margin of 5.2% was lower than that of three
of the peer group companies and lower than the group's mean of 5.8%, but higher
than the peer group's median of 4.4%. In the latest twelve months of 1999,
Thermo Electron's net margin of 1.9% was lower than all but one of the peer
group companies, as well as lower than the group's median of 6.2% and mean of
6.9%.
Stonebridge calculated that the low and mean equity capitalization values as
multiples of revenue for the LTM ended September 30, 1999 for the peer group
were 0.69 and 1.73 times, respectively. Applying these multiples to Thermo
Electron's LTM revenues suggested an implied equity valuation
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range of $1.84 billion to $6.18 billion, or $11.60 to $39.06 per share,
respectively. The low and mean multiples of EBIT for the LTM ended
September 30, 1999 for the peer group were 7.2 and 16.2 times, respectively.
Applying these multiples to Thermo Electron's LTM ended September 30, 1999 EBIT
suggested an implied equity valuation range of $1.02 billion to $3.57 billion,
or $6.41 to $22.56 per share, respectively. The low and mean multiples of EBITDA
for the LTM ended September 30, 1999 for the peer group were 4.8 and 11.0 times,
respectively. Applying these multiples to Thermo Electron's LTM EBITDA suggested
an implied equity valuation range of $1.22 billion to $4.09 billion, or $7.68 to
$25.85 per share, respectively. The low and mean multiples of net income for the
LTM ended September 30, 1999 for the peer group were 10.0 and 22.9 times,
respectively. Applying these multiples to Thermo Electron's LTM net income
suggested an implied equity valuation range of $811 million to $1.86 billion, or
$5.12 to $11.73 per share, respectively. The low-to-mean range was selected
because of Thermo Electron's recent weak operating performance relative to the
scientific instrument and equipment peer group of comparable companies.
THERMO ELECTRON--DISCOUNTED CASH FLOW ANALYSIS
To derive a theoretical valuation of Thermo Electron's equity value based on
its future business opportunities, Stonebridge performed a discounted cash flow
analysis based upon management's pro forma financial projections for 2000, and
Stonebridge's projections for 2001 through 2004 based upon information supplied
by management. To estimate the total net present value of Thermo Electron before
giving effect to its capital structure, Stonebridge discounted the projected
stream of after-tax cash flows and the terminal value, defined as the estimated
future sale value, as reflected in the projections. For this analysis,
Stonebridge applied discount rates ranging from 12% to 16%, which were selected
based on a weighted average cost of capital analysis of Thermo Electron. To
calculate the terminal value, Stonebridge employed multiples of 11.0 to 13.0
times projected EBIT in 2004, which was based primarily on a review of the
comparable company analysis. This discounted cash flow analysis suggested an
implied equity valuation range of $3.15 billion to $3.83 billion, or $19.91 to
$24.23 per share.
THERMO ELECTRON--SUBSIDIARY PORTFOLIO ANALYSIS
The subsidiary portfolio analysis performed by Stonebridge valued Thermo
Electron based on its direct ownership interest in each of its publicly held
subsidiaries as well as its wholly owned subsidiaries, as of November 17, 1999.
Based on the stock prices of each subsidiary at the close of trading on
December 13, 1999, Thermo Electron's ownership interest had a value of
$2.59 billion, or $16.35 per share. Based on management's 1999 EBIT estimate for
the wholly owned subsidiaries and Thermo Electron's own EBIT multiple,
Stonebridge derived an implied equity value of $282.9 million for the wholly
owned subsidiaries, or $1.79 per share. After deducting Thermo Electron's net
debt as of October 2, 1999, Stonebridge derived a total equity value for Thermo
Electron of $2.76 billion, or $17.44 per share.
OTHER SERVICES AND FINANCIAL ARRANGEMENTS
In its capacity as financial advisor to the special committee, Stonebridge
assisted in the review and evaluation of all relevant information relating to
the merger, and assisted the special committee in negotiating and structuring
the final terms and conditions of the merger agreement. Although Stonebridge
provided advice to the special committee and its legal advisor during the course
of the negotiations of the merger agreement, the decision to enter into the
merger agreement was solely that of ThermoLase's board of directors. Stonebridge
did not solicit offers from parties other than Thermo Electron.
Pursuant to the engagement letter between the special committee and
Stonebridge, ThermoLase has paid Stonebridge monthly retainers totaling $75,000,
$75,000 upon the delivery of the fairness opinion, regardless of the conclusions
expressed therein, and $50,000 upon the mailing of the proxy
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statement-prospectus. If Stonebridge is asked to render an updated fairness
opinion, it will be paid $15,000 for each fairness opinion rendered. In
addition, ThermoLase has agreed to indemnify Stonebridge and its affiliates
against certain liabilities arising out of Stonebridge's engagement and to
reimburse Stonebridge for its reasonable out-of-pocket expenses and legal fees
in connection with the engagement. Thermo Electron has joined in ThermoLase's
obligation to indemnify.
PURPOSE AND REASONS OF THERMO ELECTRON FOR THE MERGER
Thermo Electron intends to undertake the merger in order to acquire all of
the outstanding shares of ThermoLase common stock. In deciding to acquire all of
the outstanding shares of ThermoLase common stock, Thermo Electron considered
the following factors:
- uncertainty regarding ThermoLase's future growth prospects, including
difficulties relating to the business of ThermoLase;
- recent public capital market trends affecting small companies and the
impact of those trends on ThermoLase, including the low liquidity in the
public markets resulting from the small market float of ThermoLase common
stock and the absence of significant analyst coverage of ThermoLase common
stock;
- ThermoLase's debt (as of October 2, 1999, ThermoLase had debt of
approximately $115 million under its 4 3/8% convertible subordinated
debentures due 2004, of which approximately $8.2 million was owed to
Thermo Electron);
- the costs of being a public company, including the costs of preparing and
filing quarterly, annual and other required reports with the SEC and
publishing and distributing annual reports and proxy statements to
stockholders, which Thermo Electron estimates to be approximately $450,000
per year including fees for an audit by an independent accounting firm and
legal fees;
- the burdens on management of public reporting and other tasks required of
public companies, including for example, the time and resources required
to deal with stockholder and analyst inquires, and investor and public
relations;
- the availability to competitors of information about ThermoLase and its
subsidiaries, resulting from ThermoLase's obligation to file reports with
the SEC; and
- the greater ability of ThermoLase's management to focus on long-term
business goals, as opposed to quarterly earnings, if it were a private
company.
Thermo Electron also considered the number of ThermoLase shares held by the
public stockholders, recent trends in the price of ThermoLase common stock and
the relative lack of liquidity for ThermoLase common stock. Thermo Electron also
reviewed the net overall cost of the transaction and its benefits, including the
transaction's contribution to Thermo Electron's earnings. Thermo Electron also
explored the impact on its own common stock of the issuance of shares proposed
to be used for this transaction. In addition, Thermo Electron considered that,
by acquiring the minority stockholder interest in ThermoLase, it would advance
the goal of its proposed corporate reorganization by reducing the number of
Thermo Electron's majority-owned, public subsidiaries.
After consideration of the factors identified above, Thermo Electron
determined that the advantages of acquiring all of the outstanding shares of
ThermoLase outweighed the disadvantages, and decided to propose that Thermo
Electron acquire all of the outstanding shares of ThermoLase common stock not
already owned by Thermo Electron or ThermoTrex in a stock for stock exchange.
After extensive negotiations with the special committee, Thermo Electron entered
into the merger agreement, under which ThermoLase will become an indirect
wholly-owned subsidiary of Thermo Electron.
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PURPOSE AND REASONS OF THERMOLASE FOR THE MERGER
The purpose of ThermoLase for engaging in the transactions contemplated by
the merger agreement is to address the following factors, which were considered
by ThermoLase in determining to engage in the merger:
- uncertainty regarding ThermoLase's future growth prospects, including
difficulties relating to the business of ThermoLase;
- recent public capital market trends affecting small companies and the
impact of those trends on ThermoLase, including the low liquidity in the
public markets resulting from the small market float of ThermoLase common
stock and the absence of significant analyst coverage of ThermoLase common
stock;
- ThermoLase's debt (as of October 2, 1999, ThermoLase had debt of
approximately $115 million under its 4 3/8% convertible subordinated
debentures due 2004, of which approximately $8.2 million was owed to
Thermo Electron);
- the costs of being a public company, including the costs of preparing and
filing quarterly, annual and other required reports with the SEC and
publishing and distributing annual reports and proxy statements to
stockholders, which Thermo Electron estimates to be approximately $450,000
per year including fees for an audit by an independent accounting firm and
legal fees;
- the burdens on management of public reporting and other tasks required of
public companies, including for example, the time and resources required
to deal with stockholder and analyst inquires, and investor and public
relations;
- the availability to competitors of information about ThermoLase and its
subsidiaries, resulting from ThermoLase's obligation to file reports with
the SEC; and
- the greater ability of ThermoLase's management to focus on long-term
business goals, as opposed to quarterly earnings, if it were a private
company.
POSITION OF THERMO ELECTRON AS TO FAIRNESS OF THE MERGER
Thermo Electron considered the findings and recommendations of ThermoLase's
special committee and board with respect to the fairness of the merger to the
public stockholders. As of the date of the merger agreement, Thermo Electron
adopted the findings and recommendations of the special committee and the board
with respect to the fairness of the merger. Based on the findings and
recommendations of the special committee, and its own review of the terms of the
merger, Thermo Electron believes that the merger is both procedurally and
substantively fair to the public stockholders and that the terms of the merger,
including the exchange ratio, are fair to the public stockholders from a
financial point of view. Thermo Electron did not attach specific weights to any
factors in reaching its belief as to fairness. Thermo Electron is not making any
recommendation as to how you should vote on the merger agreement.
Some officers and directors of Thermo Electron are also officers and
directors of ThermoLase and have interests that are in addition to, or different
from, your interests. See "--Conflicts of Interest." Thermo Electron considered
these potential conflicts of interest and, based in part thereon, Thermo
Electron's proposed offer was conditioned on, among other things, the approval
of the merger by ThermoLase's special committee and the receipt by the special
committee of a fairness opinion from an investment banking firm.
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CONFLICTS OF INTEREST
In considering the recommendation of the ThermoLase board with respect to
the merger, the public stockholders should be aware that officers and directors
of ThermoLase may have interests in connection with the merger that present them
with actual or potential conflicts of interest, as summarized below. The special
committee and the ThermoLase board were aware of these interests and considered
them among the other matters described above under "--The Special Committee's
and the Board's Recommendation."
Following consummation of the merger, the current executive officers and
directors of ThermoLase will continue as the initial executive officers and
directors of the surviving corporation; however, Thermo Electron intends to
appoint a board of directors comprised solely of members of the surviving
corporation's and ThermoLase's management after the merger. Officers and
directors who own ThermoLase common stock will receive shares of Thermo Electron
common stock in the merger on the same terms as all the other stockholders.
SPECIAL COMMITTEE.
As compensation for serving on the special committee, which formally met on
five occasions from June, 1999 through the date of this document, the ThermoLase
board has authorized that each member of the special committee receive a
one-time, special retainer fee of $20,000 and additional fees of $1,000 for each
meeting attended in person and $500 for each meeting attended telephonically.
As of May 31, 2000, Dr. Baldwin had options to acquire 62,400 shares of
ThermoLase common stock at exercise prices ranging from $2.70 to $4.44 per
share. These options will be treated on the same terms as all other ThermoLase
stock options and therefore will be assumed by Thermo Electron and be converted
into options to acquire shares of Thermo Electron common stock. See "--Effect of
the Merger on ThermoLase Stock Options, Units and Debentures." Dr. Baldwin does
not own any shares of ThermoLase common stock. Dr. Baldwin owns 1,000 shares of
Thermo Electron common stock and does not have any options to acquire Thermo
Electron common stock.
Mr. Booth does not own any shares of ThermoLase common stock and does not
have any options to acquire ThermoLase common stock, and accordingly will
receive no shares of Thermo Electron common stock in the merger. Mr. Booth also
does not own any shares of Thermo Electron common stock and does not hold any
options to acquire Thermo Electron common stock.
THERMOLASE DIRECTORS AND EXECUTIVE OFFICERS.
The members of the ThermoLase board, other than the members of the special
committee, and the executive officers of ThermoLase own in the aggregate 50,673
shares of ThermoLase common stock, and would receive approximately 6,688 shares
of Thermo Electron common stock in exchange for these ThermoLase shares in the
merger, assuming an exchange ratio of 0.132 and a Thermo Electron 20 day average
stock price of $19.99. In addition, such ThermoLase board members and executive
officers hold options to acquire an aggregate of 342,250 shares of ThermoLase
common stock, with exercise prices ranging from $2.70 to $4.99. These options
will be treated on the same terms as all other ThermoLase stock options and
therefore will be assumed by Thermo Electron and converted into options to
acquire shares of Thermo Electron common stock. See "--Effect of the Merger on
ThermoLase Stock Options, Units and Debentures." Deferred units equal to an
aggregate of 4,425 shares of ThermoLase common stock have accumulated under
ThermoLase's deferred compensation plan for directors, which units will be
converted into the right to receive 584 shares of Thermo Electron common stock,
assuming an exchange ratio of 0.132 and a Thermo Electron 20 day average stock
price of $19.99. See "--Deferred Compensation Plan for Directors." In addition,
the ThermoLase board members and executive officers also beneficially owned
1,390,837 shares of Thermo Electron common stock as of May 31, 2000.
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Further, certain members of the ThermoLase board and certain executive
officers hold directorships or officer positions with Thermo Electron. John T.
Keiser, who is a director and chairman of the board of ThermoLase, is also the
chief operating officer, biomedical of Thermo Electron. Elias P. Gyftopoulos, a
director of ThermoLase, is also a director of Thermo Electron. Theo
Melas-Kyriazi, the chief financial officer of ThermoLase, is also the chief
financial officer and a vice president of Thermo Electron.
INDEMNIFICATION AND INSURANCE.
The officers and directors of ThermoLase are also covered under various
indemnification arrangements with Thermo Electron. See "--Indemnification and
Insurance."
EFFECTS OF THE MERGER
As a result of the merger, Thermo Electron will beneficially own the entire
equity interest in ThermoLase. Thermo Electron will have complete control over
the conduct of ThermoLase's business and will have a 100% interest in the net
book value and net earnings of ThermoLase and any future increases in the value
of ThermoLase. Thermo Electron's ownership of ThermoLase prior to the merger was
approximately 83%. Upon completion of the merger, Thermo Electron's interest in
ThermoLase's net book value of negative $139.2 million on April 1, 2000, and net
loss of $93.3 million for the fiscal year ended October 2, 1999, and net loss of
$5.5 million for the six months ended April 1, 2000, respectively, would
increase from approximately 83% of such amounts to 100% of such amounts. You
will no longer have any interest in, and will not be a stockholder of,
ThermoLase and therefore will not directly participate in ThermoLase's future
earnings and potential growth. In addition, you will no longer bear the risk of
any decreases in the value of ThermoLase. Instead, the stockholders of
ThermoLase other than Thermo Electron and ThermoTrex will have the right to
receive shares of Thermo Electron common stock in accordance with the terms of
the merger.
In addition, after the merger, ThermoLase common stock will no longer be
traded on the American Stock Exchange, price quotations for sales of shares in
the public market will no longer be available and the registration of ThermoLase
common stock under the Exchange Act will be terminated. The termination of
registration of ThermoLase common stock under the Exchange Act will eliminate
ThermoLase's obligation to file periodic financial and other information with
the SEC and will make most of the provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b) and the requirement of
furnishing a proxy or information statement in connection with stockholders'
meetings, no longer applicable.
CONDUCT OF THERMOLASE'S BUSINESS AFTER THE MERGER
Thermo Electron is continuing to evaluate ThermoLase's business, assets,
practices, operations, properties, corporate structure, capitalization,
management and personnel, and discussing what changes, if any, will be
desirable. ThermoLase expects to seek a buyer for its CBI subsidiary following
the merger. ThermoLase is not currently engaged in negotiations with respect to
the sale of CBI. Thermo Electron does not currently contemplate any material
change in the composition of ThermoLase's management except that Thermo Electron
intends to appoint a board of directors comprised of the surviving corporation's
management after the merger.
CONDUCT OF THE BUSINESS OF THERMOLASE IF THE MERGER IS NOT CONSUMMATED
If the merger is not consummated, the board of directors expects that
ThermoLase's current management will continue to operate ThermoLase's business
substantially as currently operated, except for the possible sale of CBI. See
"--Conduct of ThermoLase's Business After the Merger."
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CONVERSION OF SECURITIES
At the effective time of the merger, each share of ThermoLase common stock,
other than shares held in treasury by ThermoLase and shares held by Thermo
Electron and ThermoTrex, will be automatically converted into the right to
receive a fraction of a shares of Thermo Electron common stock, as set forth
below. Except for the right to receive shares of Thermo Electron common stock,
from and after the effective time of the merger, all shares of ThermoLase common
stock will no longer be outstanding and will be canceled and retired and will
cease to exist. Each holder of a stock certificate formerly representing shares
of ThermoLase common stock will after the effective time cease to have any
rights with respect to the shares, other than the right to receive shares of
Thermo Electron common stock for their shares of ThermoLase common stock upon
surrender of the stock certificate.
Under the agreement, the number of Thermo Electron shares to be issued to
ThermoLase public stockholders will be determined at the completion of the
merger, as described below.
- If the average closing price of Thermo Electron stock is between $11.925
and $17.887 for the 20 trading days prior to the effective date of the
merger, a preliminary exchange ratio of 0.158 shares of Thermo Electron
common stock for each ThermoLase share would be adjusted on the effective
date by multiplying the 0.158 by a fraction--the numerator being $14.906
(the average per-share closing price of Thermo Electron common stock for
the 20 trading days ending December 13, 1999), and the denominator being
the average per-share closing price of Thermo Electron common stock for
the 20 trading days ending on the day before the effective date.
EXAMPLE: Assuming that the 20-day average closing price of Thermo Electron
common stock prior to the effective date is $15.00, and that the closing price
on the effective date is $15.50, then each ThermoLase share would be exchanged
for 0.157 shares of Thermo Electron common stock, giving each ThermoLase share a
value of approximately $2.43 on the effective date.
This would be computed as follows: 0.158 X (14.906/15.00) = 0.157, and
0.157 X $15.50 = $2.43.
- If the average closing price of Thermo Electron common stock for the 20
trading days prior to the effective date is below $11.925, the exchange
ratio would be fixed at 0.198 shares of Thermo Electron common stock per
ThermoLase share.
- If the average closing price of Thermo Electron common stock for the 20
trading days prior to the effective date is above $17.887, the exchange
ratio would be fixed at 0.132 shares of Thermo Electron common stock per
ThermoLase share.
As of May 31, 2000, assuming an exchange ratio of 0.132 and an average
closing price of Thermo Electron stock for the 20 trading days prior to the
effective date of $20.91, ThermoLase public stockholders would hold
approximately 0.5% of the outstanding Thermo Electron common stock following the
merger. If you also assume the exercise or conversion of all outstanding
ThermoLase stock options and debentures, which will, after the merger, be
exercisable for or convertible into Thermo Electron common stock, ThermoLase
public stockholders would hold approximately 1.2% of the outstanding Thermo
Electron common stock following the merger.
You will not receive interest on the consideration payable upon the
surrender of your stock certificates. Payment of the exchange ratio to a person
who is not the registered holder of a stock certificate is conditioned upon the
surrendered certificate being properly endorsed and otherwise in proper form for
transfer, as determined by the exchange agent. Further, the person requesting
payment will be required to pay any transfer or other taxes required because of
the payment to a person other than the registered holder of the stock
certificate, or establish to the satisfaction of the exchange agent that any
necessary tax has been paid or is not payable. Six months after the effective
time, Thermo Electron may require the exchange agent to deliver to it any shares
of Thermo Electron common stock and any cash in lieu of fractional shares made
available to the exchange agent which have not been
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disbursed to ThermoLase common stockholders. Neither the exchange agent nor any
party to the merger agreement will be liable to any holder of stock certificates
formerly representing shares for any amount paid pursuant to any applicable
abandoned property, escheat or similar law.
At the effective time, each share of common stock of ThermoLase Acquisition
will automatically be converted into one share of common stock of the surviving
corporation. All shares held in treasury by ThermoLase will, at the effective
time, cease to exist.
EFFECT OF THE MERGER ON THERMOLASE STOCK OPTIONS, UNITS AND DEBENTURES
ThermoLase has, from time to time, issued options to acquire ThermoLase
common stock under its incentive stock option plan, its equity incentive plan,
and its directors stock option plan, each as amended. At the effective time of
the merger, each outstanding ThermoLase stock option under the ThermoLase stock
option plans, whether or not exercisable, will be assumed by Thermo Electron.
Each ThermoLase stock option will continue to have, and be subject to, the same
terms and conditions that it had immediately prior to the effective time, except
that:
- each ThermoLase stock option will be exercisable for a number of shares of
Thermo Electron common stock determined by multiplying the number of
shares of ThermoLase common stock issuable upon exercise of the option
immediately prior to the effective time of the merger by the exchange
ratio, rounded down to the nearest whole share; and
- the exercise price for the shares of Thermo Electron common stock issuable
upon exercise of the option will be determined by dividing the exercise
price per share of ThermoLase common stock at which the option was
exercisable immediately prior to the effective time by the exchange ratio,
rounded up to the nearest whole cent.
In addition, the merger agreement provides that the ThermoLase units,
currently consisting of one share of ThermoLase common stock coupled with the
right to have ThermoLase redeem that share for $20.25 in April 2001, will be
modified so that, following the merger, each unit will consist of a fractional
share of Thermo Electron common stock, based on the same exchange ratio
applicable to all stockholders, that will be redeemable in April 2001 for
$20.25. The cash value of the redemption right will remain constant before and
after the merger. Thermo Electron will use its best efforts to list the units,
as modified, on the American Stock Exchange.
After the merger, ThermoLase's debentures will be convertible into shares of
Thermo Electron common stock, rather than into shares of ThermoLase common
stock. The debentures are currently convertible into ThermoLase common stock at
a price of $17.385 per share. An aggregate of $115 million principal amount of
the debentures was outstanding as of May 31, 2000. Holders of the debentures
will not have the right to cause ThermoLase to redeem the debentures as a result
of the merger. At an assumed exchange ratio of 0.132, following the merger, the
debentures will be convertible into Thermo Electron common stock at a conversion
price of $131.70 per share.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
At the effective time, the ThermoLase deferred compensation plan for outside
directors will terminate, and ThermoLase will distribute to each participant
Thermo Electron common stock in an amount equal to the balance of stock units
credited to such participant's account, as of the effective time, multiplied by
the exchange ratio. Two directors, Dr. Gyftopoulos and Dr. Zervas, had as of
April 1, 2000, deferred units equal to 2,180 and 2,245 shares of ThermoLase
common stock under the deferred compensation plan. These directors would receive
287 and 296 shares of Thermo Electron common stock, respectively, at the
effective time of the merger, assuming an exchange ratio of 0.132 and a Thermo
Electron 20 day stock price of $20.91.
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TRANSFER OF SHARES
Shares of ThermoLase common stock will not be transferred on the stock
transfer books at or after the effective time. If certificates representing such
shares are presented to ThermoLase after the effective time, the shares will be
canceled and exchanged for shares of Thermo Electron common stock and cash in
lieu of fractional shares.
REPRESENTATIONS AND WARRANTIES
ThermoLase made representations and warranties in the merger agreement
regarding, among other things, the following:
- its organization and good standing;
- its authority to enter into the merger agreement and consummate the
transactions contemplated in the agreement;
- its capitalization;
- the accuracy of information supplied by ThermoLase for inclusion in the
registration statement of which this proxy statement-prospectus forms a
part;
- required governmental and other consents and approvals; and
- the receipt by the special committee of a fairness opinion from
Stonebridge Associates.
Thermo Electron and ThermoLase Acquisition made representations and
warranties in the merger agreement regarding, among other things, the following:
- their organization and good standing;
- their authority to enter into the merger agreement and consummate the
transactions contemplated in the agreement;
- Thermo Electron's capitalization;
- litigation;
- the accuracy of information supplied by Thermo Electron for inclusion in
forms and reports required to be filed with the SEC;
- the accuracy of information supplied by Thermo Electron to Stonebridge
Associates;
- Thermo Electron has filed all material forms, reports and documents
required to be filed with the SEC since January 1, 1997; and
- required governmental and other consents and approvals.
The representations and warranties of the parties in the merger agreement
will terminate at the completion of the merger.
Representations and warranties like these are made by parties to merger
agreements in order to assure the other parties involved that important facts
about a company and prerequisites to a merger transaction are true. For example,
it is important for a party to a merger agreement to know that the other party
has been authorized by its board of directors or other governing body to take
part in the transaction. If it turned out after the transaction that a company
was not actually authorized to take part in the transaction, the merger could be
undone on the grounds that it was not entered into by two validly contracting
parties. That would be very disruptive for the parties concerned and their
stockholders. The merger agreement can be terminated, and the merger would not
happen, if one of our representations or warranties is materially untrue as of
the effective time of the merger, and we cannot make them true after we have
been notified by the other party that they are not true. The termination of the
merger agreement would affect you in that you would remain a stockholder of
ThermoLase, and you would not become a stockholder of Thermo Electron.
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COVENANTS
In the merger agreement, ThermoLase agreed that from the date of the merger
agreement until the earlier of termination of the merger agreement or the
effective time, it will, except for actions contemplated by the merger
agreement:
- carry on its business in the usual, regular and ordinary course,
substantially consistent with past practice, except as consented to by
Thermo Electron;
- pay its debts and taxes when due subject to good faith disputes over its
debts or taxes;
- pay or perform other material obligations when due;
- use its commercially reasonable efforts consistent with past practices and
policies to preserve its present business organization;
- keep available the services of its present officers and employees; and
- preserve its relationships with customers, suppliers, distributors,
licensors, licensees and others with which it has business dealings.
Thermo Electron agreed that from the date of the merger agreement until the
earlier of termination of the merger agreement or the effective time, it will
not, and will not permit any of its material subsidiaries, other than
ThermoLase, to, take any action that would make any of the representations and
warranties of Thermo Electron in the merger agreement untrue or cause Thermo
Electron not to be in compliance with any covenant in the merger agreement.
Covenants like these are included in merger agreements in order to create
obligations on a party to a merger agreement to do, or not to do, things that
are important to the other party before the merger happens. For example, it is
important to Thermo Electron that ThermoLase continue to pay its bills and
maintain its current business until the merger, because Thermo Electron wants
ThermoLase's business to have basically the same qualities when it merges with
Thermo Electron as it had when Thermo Electron decided it wanted to merge with
ThermoLase. The merger agreement can be terminated, and the merger would not
happen, if ThermoLase or Thermo Electron has not materially performed or
complied with one of its covenants as of the effective time of the merger. The
termination of the merger agreement would affect you in that you would remain a
stockholder of ThermoLase, and you would not become a stockholder of Thermo
Electron.
CONDITIONS
The completion of the merger depends upon our meeting a number of
conditions, including the following:
- the absence of any statute, injunction or other order that has the effect
of making the merger illegal or otherwise prohibits consummation of the
merger;
- the effectiveness of the registration statement of which this proxy
statement-prospectus forms a part and the absence of an order suspending
the effectiveness of the registration statement;
- the authorization for listing on the New York Stock Exchange of all shares
of Thermo Electron common stock issuable under the merger agreement;
- the authorization for listing on the American Stock Exchange of the
ThermoLase units, as modified in accordance with the merger agreement;
- adoption of the merger agreement by the holders of a majority of the
outstanding shares of ThermoLase common stock;
43
<PAGE>
- no event that would result in the issuance of the rights to purchase
Thermo Electron's Series B Junior Participating Preferred Stock shall have
occurred;
- each of Thermo Electron's, ThermoLase's and ThermoLase Acquisition's
representations and warranties in the merger agreement must be materially
true and correct on and as of the effective time of the merger; and
- each of Thermo Electron, ThermoLase and ThermoLase Acquisition shall have
materially performed or complied with the agreements and covenants that
the merger agreement requires each of them to perform or comply with at or
prior to the effective time of the merger.
In addition, ThermoLase's obligation to complete the merger is subject to
the following conditions, which may be waived in writing by ThermoLase if the
special committee approves:
- at the time of mailing of this proxy statement-prospectus, Stonebridge
Associates shall have reaffirmed in writing their fairness opinion and
shall not have withdrawn their fairness opinion;
- any and all necessary state securities approvals for the issuance of the
Thermo Electron common stock in the merger shall have been obtained; and
- ThermoLase shall have received a certificate signed by an officer of
Thermo Electron stating that there has been no change in the business,
financial condition or results of operations of Thermo Electron that has
or is reasonably likely to have a material adverse effect on Thermo
Electron.
The obligations of ThermoLase Acquisition and Thermo Electron to effect the
merger are subject to the following conditions, which may be waived in writing
by ThermoLase Acquisition and Thermo Electron:
- the special committee shall not have withdrawn its recommendation to the
board of directors to approve the merger agreement; and
- ThermoLase Acquisition and Thermo Electron shall have received a
certificate signed by an officer of ThermoLase stating that there has been
no change in the business, financial condition or results of operations of
ThermoLase that has or is reasonably likely to have a material adverse
effect on ThermoLase.
Conditions like these are put in merger agreements in order to make sure
that things that each party wants to have happen before the merger have in fact
occurred before the parties go through with the merger. For example, it is very
important to ThermoLase that the Thermo Electron common stock that you will
receive in the merger is registered with the SEC before the merger happens, so
that you can freely resell it if you are not an affiliate of Thermo Electron or
ThermoLase. If any of the conditions to the completion of the merger is not met,
and the failure by one party to meet the condition is not waived by the other
party, the merger agreement may be terminated, and the merger would not happen.
This would affect you in that you would remain a stockholder of ThermoLase and
you would not become a stockholder of Thermo Electron.
INDEMNIFICATION AND INSURANCE
The surviving corporation shall, and Thermo Electron will cause the
surviving corporation to, fulfill and honor in all respects the indemnification
obligations of ThermoLase, under ThermoLase's Certificate of Incorporation and
Restated Bylaws, each as amended, as in effect on the date of the merger
agreement. The surviving corporation's Certificate of Incorporation and Bylaws
will contain the indemnification and elimination of liability for monetary
damages provisions that are currently set forth in ThermoLase's Certificate of
Incorporation and Restated Bylaws, each as amended. Those provisions will not be
amended, repealed or otherwise modified for six years from the effective time of
the merger
44
<PAGE>
in a manner that would adversely affect the rights of those people who, as of
the date of the merger agreement, and at any time from the date of the merger
agreement until the effective time of the merger, were directors or officers of
ThermoLase, unless modifications are required by law.
In addition, Thermo Electron will cause the surviving corporation, either
directly or through participation in Thermo Electron's umbrella policy, to
maintain in effect, for six years after the effective time of the merger, a
directors' and officers' liability insurance policy covering the ThermoLase
directors and officers who, on the date of the merger agreement, were then
covered by Thermo Electron's liability insurance policy. The coverage of that
policy will be no less favorable in amount and scope than the directors' and
officers' existing coverage. However, the surviving corporation will not be
required to pay premiums for that insurance if they would be more than 175% of
the current annual premiums, as adjusted for inflation each year, allocable to
and paid by ThermoLase. If the premiums exceed 175% of the current annual
premiums, then Thermo Electron will, and will cause the surviving corporation
to, obtain the maximum amount of coverage that can be purchased or maintained
for a premium up to 175% of the current annual premiums allocable to and paid by
ThermoLase.
In addition, Thermo Electron has entered into separate indemnification
agreements with each of the members of the board of directors, including the
members of the special committee. These agreements provide for indemnification
of and advancement of expenses to the ThermoLase directors directly by Thermo
Electron in the event that a director, because of his or her status as a
director or officer of ThermoLase, or service as a director, officer or
fiduciary of another company at the request of Thermo Electron, is made or
threatened to be made a party to any action, suit or other proceeding, if the
director acted in good faith and in a manner the director reasonably believed to
be in or not opposed to the best interests of Thermo Electron. In addition, with
respect to any criminal action or proceeding, indemnification shall be made only
if the director also had no reasonable cause to believe his or her conduct was
unlawful. In the case of any threatened, pending or completed action, suit or
proceeding by or in the right of Thermo Electron, indemnification shall be made
to the maximum extent permitted under Delaware law.
Thermo Electron entered into these indemnification agreements with
ThermoLase's officers and directors so that the indemnified officers and
directors would have supplemental protection in the event that indemnification
directly from ThermoLase was not available either because of legal restrictions
or because ThermoLase did not have the funds to cover the obligation.
TERMINATION, AMENDMENT AND WAIVER
At any time prior to the effective time of the merger, whether before or
after approval of the merger agreement by the stockholders of ThermoLase, the
merger agreement may be terminated by the mutual written consent of the board of
directors of ThermoLase Acquisition and the board of directors of ThermoLase,
with the concurrence of the special committee.
In addition, either ThermoLase Acquisition or ThermoLase, with the
concurrence of the special committee, may terminate the merger agreement prior
to the effective time of the merger, whether before or after approval of the
merger agreement by the stockholders of ThermoLase, in the following
circumstances:
- the merger has not been completed by September 30, 2000, unless the party
seeking to terminate has breached the merger agreement and that breach has
been a principal cause of the failure of the merger to be completed;
- a court of competent jurisdiction or governmental, regulatory or
administrative agency or commission issues an order, decree or ruling or
takes any other action permanently enjoining,
45
<PAGE>
restraining or otherwise prohibiting the merger and the order, decree,
ruling or action is final and nonappealable; or
- the stockholders of ThermoLase have not approved the merger agreement,
unless the failure to obtain stockholder approval of the merger agreement
shall have been caused by the action or failure to act of ThermoLase or
ThermoLase Acquisition or Thermo Electron in breach of the merger
agreement.
ThermoLase, with the concurrence of the special committee, may terminate the
merger agreement prior to the effective time of the merger, whether before or
after adoption of the merger agreement by the stockholders of ThermoLase, if:
- Thermo Electron or ThermoLase Acquisition breaches any representation,
warranty, covenant or agreement in any material respect and fails to cure
the breach within 10 business days after written notice of the breach from
ThermoLase; or
- the ThermoLase board of directors determines after consultation with
outside legal counsel that failure to terminate the merger agreement would
violate the board's fiduciary duties under applicable law.
In addition, ThermoLase Acquisition may terminate the merger agreement prior
to the effective time of the merger, whether before or after adoption of the
merger agreement by the stockholders of ThermoLase, if:
- ThermoLase breaches any representation, warranty, covenant or agreement in
any material respect and fails to cure the breach within 10 business days
after written notice of the breach from ThermoLase Acquisition; or
- ThermoLase is unable to provide a certificate signed by an officer of
ThermoLase stating that there has been no change in the business,
financial condition or results of operations of ThermoLase that has or is
reasonably likely to have a material adverse effect on ThermoLase and is
still unable to provide such certificate within 15 business days after
written notice from ThermoLase Acquisition.
Subject to applicable law, the merger agreement may be amended by the
parties at any time by written agreement; provided, however, that ThermoLase may
not amend the merger agreement without the concurrence of the special committee.
Neither party will have to pay a termination fee if the merger agreement is
terminated.
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<PAGE>
EXPENSES
The parties will to pay their own costs and expenses in connection with the
merger agreement. Assuming the merger is consummated, the estimated costs and
fees that will be paid by ThermoLase are as follows:
<TABLE>
<CAPTION>
COST OR FEE ESTIMATED AMOUNT
----------- ----------------
<S> <C>
Financial advisory fees..................................... $225,000
Listing fees................................................ 22,150
Legal fees.................................................. 175,000
Accounting fees............................................. 15,000
Special committee fees...................................... 65,000
Printing and mailing fees................................... 150,000
SEC filing fees............................................. 6,107
Miscellaneous............................................... 6,743
--------
$665,000
</TABLE>
See "--Opinion of Financial Advisor" for a description of the fees to be
paid to Stonebridge Associates in connection with its engagement. For a
description of the fees payable to the members of the special committee, see
"--Conflicts of Interest."
ACCOUNTING TREATMENT
The merger will be accounted for as the acquisition of a minority interest
by Thermo Electron, using the purchase method of accounting.
REGULATORY APPROVALS
There are no federal or state regulatory approvals required that have not
already been obtained, nor any regulatory requirements complied with, in
connection with the consummation of the merger by any party to the merger
agreement, except for (1) the requirements of the Delaware General Corporation
Law relating to stockholder approval and completion of the merger and (2) the
requirements of the securities laws.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF THERMOLASE AND THERMO ELECTRON
The shares of Thermo Electron common stock to be issued in the merger will
be registered under the Securities Act of 1933, as amended, and will be freely
transferable under the Securities Act, except for shares of Thermo Electron
common stock issued to any person who is deemed to be an "affiliate" of either
of us at the time of the special meeting. Persons who may be deemed to be
affiliates include individuals or entities that control, are controlled by, or
are under the common control of either of us and may include some of our
respective officers and directors, as well as the principal stockholders of each
of us. Affiliates may not sell their shares of Thermo Electron common stock
acquired in the merger except pursuant to:
- an effective registration statement under the Securities Act covering the
resale of those shares;
- an exemption under paragraph (d) of Rule 145 under the Securities Act; or
- any other applicable exemption under the Securities Act.
Thermo Electron's registration statement on Form S-4, of which this proxy
statement-prospectus forms a part, does not cover the resale of shares of Thermo
Electron common stock to be received by affiliates in the merger.
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<PAGE>
LISTING ON THE NEW YORK STOCK EXCHANGE OF THERMO ELECTRON COMMON STOCK TO BE
ISSUED IN THE MERGER
Thermo Electron will use its best efforts to cause the shares of its common
stock to be issued in connection with the merger to be approved for listing on
the New York Stock Exchange before the completion of the merger.
DISSENTERS' AND APPRAISAL RIGHTS
Under Delaware law, stockholders of ThermoLase are not entitled to exercise
dissenters' or appraisal rights as a result of the merger or to demand payment
for their shares of ThermoLase common stock.
COMPARATIVE PER SHARE MARKET PRICE DATA
The Thermo Electron common stock is traded on the New York Stock Exchange
under the symbol "TMO." The ThermoLase common stock is traded on the American
Stock Exchange under the symbol "TLZ."
The following table sets forth the closing prices per share of ThermoLase
common stock and the closing prices per share of Thermo Electron common stock on
the following dates:
- May 21, 1999, the last trading day before the public announcement of
Thermo Electron's proposal, with no price having been determined, to take
ThermoLase private;
- December 14, 1999, the last trading day before the public announcement
that Thermo Electron and ThermoLase had entered into the merger agreement;
and
- July 13, 2000, the last trading day before the date of this proxy
statement-prospectus.
The chart also presents, in the line entitled "Equivalent Per Share Price,"
the price per share of ThermoLase common stock you would have received if the
exchange ratio had been set under the terms of the merger agreement on each of
May 21, 1999, December 14, 1999 and July 13, 2000.
<TABLE>
<CAPTION>
MAY 21, DECEMBER 14, JULY 13,
STOCK/DATE 1999 1999 2000
---------- -------- ------------ --------
<S> <C> <C> <C>
ThermoLase.................................................. $ 1.75 $ 2.375 $ 2.875
Thermo Electron............................................. 19.625 15.4375 23.125
Equivalent Per Share Price.................................. 2.5905 2.4391 3.0525
</TABLE>
48
<PAGE>
THE SPECIAL MEETING
PROXY SOLICITATION
This proxy statement-prospectus is being delivered to you in connection with
the solicitation by the board of proxies to be voted at the special meeting to
be held on Monday, August 14, 2000 at 11:00 a.m., local time, at the offices of
Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts 02454.
ThermoLase will pay all expenses in connection with solicitation of the proxy
statement-prospectus. Officers, directors and regular employees of ThermoLase,
who will receive no additional compensation for their services, may solicit
proxies by telephone or personal call. ThermoLase has asked brokers and nominees
who hold stock in their names to give the proxy statement-prospectus to their
customers. This proxy statement-prospectus is first being mailed on or about
July 17, 2000.
RECORD DATE AND QUORUM REQUIREMENT
Stockholders of record at the close of business on July 13, 2000 are
entitled to notice of, and to vote at, the special meeting. Each holder of
record of ThermoLase common stock at the close of business on the record date is
entitled to one vote for each share then held on each matter voted on by
stockholders. At the close of business on the record date, there were 39,622,063
shares of ThermoLase common stock issued and outstanding held by 304 holders of
record and by approximately 2,124 persons or entities holding in nominee name.
The holders of a majority of the outstanding shares entitled to vote at the
special meeting must be present in person or represented by proxy to constitute
a quorum for the transaction of business. Abstentions are counted for purposes
of determining whether a quorum exists. If you hold your shares of ThermoLase
common stock through a broker, bank or other nominee, generally the nominee may
only vote your ThermoLase common stock in accordance with your instructions.
However, if it has not timely received your instructions, the nominee may vote
on matters for which it has discretionary voting authority. Brokers generally
will not have discretionary voting authority to vote on the proposal to adopt
the merger agreement. If a nominee cannot vote on a matter because it does not
have discretionary voting authority, this is a "broker non-vote" on that matter.
Broker non-votes are counted as shares present or represented at the special
meeting for purposes of determining whether a quorum exists.
VOTING PROCEDURES
Under Delaware law, holders of a majority of the outstanding shares of
ThermoLase common stock entitled to vote at the special meeting must vote to
adopt the merger agreement. For purposes of the vote required under Delaware
law, a failure to vote, a vote to abstain and a broker non-vote will each have
the same legal effect as a vote against adoption of the merger agreement. Thermo
Electron, which owns approximately 15.9% of the outstanding ThermoLase common
stock, and ThermoTrex, a majority-owned subsidiary of Thermo Electron, which
owns approximately 70.6% of the outstanding ThermoLase common stock, own enough
shares of ThermoLase common stock to adopt the merger under Delaware law without
the vote of any other holders of ThermoLase common stock. Thermo Electron has
agreed to vote, or cause to be voted, all of the shares of ThermoLase common
stock owned by Thermo Electron and its subsidiaries, including ThermoTrex, in
favor of the merger agreement.
If you execute a proxy card without giving instructions, the shares of
ThermoLase common stock represented by that proxy card will be voted "FOR"
adoption of the proposed merger agreement.
The board is not aware of any other matters to be voted on at the special
meeting. If any other matters properly come before the special meeting,
including a motion to adjourn the special meeting in
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<PAGE>
order to solicit additional proxies, the persons named on the proxy card will
vote the shares represented by all properly executed proxies on those matters in
their discretion, except that shares represented by proxies that have been voted
"AGAINST" adoption of the merger agreement will not be used to vote "FOR"
adjournment of the special meeting to allow additional time to solicit
additional votes "FOR" the merger agreement.
VOTING AND REVOCATION OF PROXIES
You may revoke your proxy at any time before it is exercised by one of the
following means:
- sending the secretary of ThermoLase a notice revoking it;
- submitting a duly executed proxy with a later date; or
- voting in person at the special meeting.
All shares represented by each properly executed and not revoked proxy
received by the secretary of ThermoLase prior to the special meeting will be
voted in accordance with the instructions given on the proxy. If no instructions
are indicated, the proxy will be voted to adopt the merger agreement.
EFFECTIVE TIME
The merger will be effective as soon as practicable following stockholder
adoption of the merger agreement and the satisfaction or waiver of the terms and
conditions set forth in the merger agreement, and upon the filing of a
certificate of merger with the secretary of state of the State of Delaware. See
"THE MERGER--Conditions."
50
<PAGE>
SELECTED FINANCIAL INFORMATION -- THERMO ELECTRON
The selected financial information presented below as of and for the fiscal
years ended January 1, 2000, and January 2, 1999, and for the fiscal year ended
January 3, 1998, has been derived from Thermo Electron's consolidated financial
statements, which have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report incorporated by reference into this
proxy statement-prospectus. The selected financial information presented below
as of January 3, 1998, and as of and for the fiscal years ended December 28,
1996, and December 30, 1995, has been derived from Thermo Electron's
consolidated financial statements, which have been audited by Arthur Andersen
LLP, but have not been included or incorporated by reference herein. This
information should be read in conjunction with Thermo Electron's consolidated
financial statements and related notes incorporated by reference into this proxy
statement-prospectus. The selected financial information as of and for the three
months ended April 1, 2000, and April 3, 1999, has not been audited but, in the
opinion of Thermo Electron, includes all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly such information in
accordance with generally accepted accounting principles applied on a consistent
basis. The results of operations for the three months ended April 1, 2000, are
not necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED FISCAL YEAR (1)
----------------------- --------------------------------------------------------------
APRIL 1, APRIL 3,
2000 1999 1999 (2) 1998 (3) 1997 1996 (4) 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $ 598,929 $ 555,750 $2,471,193 $2,055,805 $1,979,602 $1,573,005 $1,059,064
Income (Loss) from Continuing
Operations Before Extraordinary
Items................................ 15,291 18,069 (14,580) 114,676 174,665 164,172 76,167
Net Income (Loss)...................... 15,823 28,299 (174,573) 181,901 239,328 190,816 139,582
Earnings (Loss) per Share from
Continuing Operations Before
Extraordinary Items:
Basic................................ .10 .11 (.09) .71 1.15 1.16 .60
Diluted.............................. .09 .11 (.11) .67 1.05 1.03 .55
Earnings (Loss) per Share:
Basic................................ .10 .18 (1.10) 1.12 1.57 1.35 1.10
Diluted.............................. .09 .17 (1.13) 1.08 1.41 1.17 .95
BALANCE SHEET DATA (AT END OF PERIOD):
Working Capital........................ $1,629,388 $1,450,858 $2,163,010 $2,001,963 $2,218,617 $1,317,146
Total Assets........................... 5,177,187 5,181,842 5,421,060 4,961,046 4,546,942 3,247,952
Long-term Obligations.................. 1,570,323 1,565,974 1,808,582 1,518,687 1,531,668 1,079,761
Minority Interest...................... 364,900 364,278 399,512 464,191 364,163 200,868
Common Stock of Subsidiaries Subject to
Redemption........................... 7,692 7,692 40,500 40,500 2,613 --
Shareholders' Investment............... 2,014,251 2,014,486 2,254,802 2,007,862 1,755,576 1,311,311
OTHER DATA (UNAUDITED):
Book Value per Share................... $ 12.84 $ 12.87 $ 14.23 $ 12.62 $ 11.71 $ 9.82
Cash Dividends
Declared per Share................... -- -- -- -- -- --
</TABLE>
------------------------------
(1) Thermo Electron's 1999, 1998, 1997, 1996, and 1995 fiscal years ended
January 1, 2000, January 2, 1999, January 3, 1998, December 28, 1996, and
December 30, 1995, respectively.
(2) Reflects a $182.4 million pretax charge for restructuring and related costs.
(3) Reflects a $32.5 million pretax charge for restructuring and related costs,
the issuance of $150.0 million principal amount of Thermo Electron's notes,
and Thermo Electron's public offering of common stock for net proceeds of
$290.1 million.
(4) Reflects the issuance of $585.0 million principal amount of Thermo
Electron's convertible debentures.
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<PAGE>
SELECTED FINANCIAL INFORMATION--THERMOLASE
The selected financial information presented below as of and for the fiscal
years ended October 2, 1999, and October 3, 1998, and for the fiscal year ended
September 27, 1997, has been derived from ThermoLase's consolidated financial
statements, which have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report incorporated by reference into this
proxy statement-prospectus. The selected financial information presented below
as of the fiscal year ended September 27, 1997, as of and for the fiscal year
ended September 28, 1996, and as of and for the nine month period ended
September 30, 1995, has been derived from ThermoLase's consolidated financial
statements, which have been audited by Arthur Andersen LLP, but have not been
included or incorporated by reference herein. This information should be read in
conjunction with ThermoLase's consolidated financial statements and related
notes incorporated by reference into this proxy statement-prospectus. The
selected financial information for the six months ended April 1, 2000, and
April 3, 1999, and the fiscal year ended September 30, 1995, has not been
audited but, in the opinion of ThermoLase, includes all adjustments (consisting
only of normal, recurring adjustments) necessary to present fairly such
information in accordance with generally accepted accounting principles applied
on a consistent basis. The results of operations for the six months ended
April 1, 2000, are not necessarily indicative of results for the full year.
<TABLE>
<CAPTION>
NINE
MONTHS
SIX MONTHS ENDED ENDED (2)
-------------------- FISCAL YEAR (1) ---------
APRIL 1, APRIL 3, ----------------------------------------------------- SEPT. 30,
2000 (3) 1999 1999 (4) 1998 (5) 1997 (6) 1996 1995 1995
--------- -------- --------- -------- -------- -------- -------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $ 9,745 $ 19,361 $ 36,255 $ 40,091 $ 45,233 $27,812 $23,348 $17,544
Net Loss............................... (5,459) (15,137) (93,331) (41,186) (12,405) (1,386) (1,675) (1,679)
Basic and Diluted Loss per Share....... (.14) (.38) (2.37) (1.07) (.31) (.03) (.04) (.04)
BALANCE SHEET DATA (AT END OF PERIOD):
Working Capital........................ $ 755 $ 5,162 $ 48,597 $ 95,469 $47,197 $68,691
Total Assets........................... 37,960 45,978 134,215 174,595 95,520 89,463
Long-term Obligations.................. 115,000 115,000 115,066 115,000 -- --
Common Stock Subject to Redemption..... 40,500 40,500 40,500 40,500 -- --
Shareholders' Investment (Deficit)..... (139,174) (134,204) (41,691) 333 79,037 82,218
OTHER DATA:
Book Value per Share................... $ (3.51) $ (3.41) $ (1.06) $ .01 $ 1.94 $ 2.05
Cash Dividends Declared per Share...... -- -- -- -- -- --
</TABLE>
------------------------------
(1) ThermoLase's 1999, 1998, 1997, 1996, and 1995 fiscal years ended October 2,
1999, October 3, 1998, September 27, 1997, September 28, 1996, and
September 30, 1995, respectively.
(2) In September 1995, ThermoLase changed its fiscal year end from the Saturday
nearest December 31 to the Saturday nearest September 30. Accordingly,
ThermoLase's 39-week transition period ended September 30, 1995, is
presented.
(3) Reflects a $0.4 million charge for restructuring and unusual costs.
(4) Reflects a $67.7 million charge for restructuring and unusual costs and the
sale of spas.
(5) Reflects a $10.2 million charge for restructuring costs and $5.9 million for
the establishment of a tax valuation allowance.
(6) Reflects the issuance of $115.0 million principal amount of subordinated
convertible debentures and the reclassification of $40.5 million to "Common
stock subject to redemption" from "Shareholders' investment" due to
ThermoLase's stock exchange transaction.
52
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax considerations relevant to the merger that are applicable to holders
of ThermoLase common stock and holders of units, currently consisting of one
share of ThermoLase common stock coupled with the right to have ThermoLase
redeem the share for $20.25 in April 2001. This discussion is based on currently
existing provisions of the Internal Revenue Code, existing Treasury Regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change. Any such change, which may or may not be retroactive,
could alter the tax consequences to Thermo Electron, ThermoLase or ThermoLase
stockholders or unit holders as described herein.
ThermoLase stockholders and unit holders should be aware that this
discussion does not deal with all federal income tax considerations that may be
relevant to particular ThermoLase stockholders or unit holders in light of their
particular circumstances, including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, foreign persons,
stockholders who own their stock as part of a hedge, appreciated financial
position, straddle or conversion transaction, stockholders or unit holders who
do not own their stock or units as a capital asset and stockholders or unit
holders who have acquired their stock upon the exercise of employee options or
otherwise as compensation. In addition, this discussion does not address the
following topics:
- the tax consequences of the merger under foreign, state or local tax laws;
- the tax consequences of transactions effectuated before or after, or
concurrently with, the merger, whether or not any such transactions are
undertaken in connection with the merger, including without limitation any
transaction in which shares of ThermoLase common stock are acquired or
shares of Thermo Electron common stock are disposed of;
- the tax consequences of the assumption by Thermo Electron of outstanding
options to acquire ThermoLase common stock; or
- the tax consequences to holders of the debentures.
ACCORDINGLY, THERMOLASE STOCKHOLDERS AND UNIT HOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER,
INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO
THEM OF THE MERGER.
The merger will be treated as a taxable exchange by the ThermoLase
stockholders of their shares of ThermoLase common stock for shares of Thermo
Electron common stock and as a taxable exchange by the ThermoLase unit holders
of their ThermoLase units for Thermo Electron units, consisting of a fractional
share of Thermo Electron common stock coupled with the right to have Thermo
Electron redeem such fractional share for $20.25 in April 2001. As a result,
each ThermoLase stockholder will realize taxable gain, or loss, to the extent
that the fair market value of the Thermo Electron common stock, plus any cash in
lieu of fractional shares, received by the stockholder in the merger exceeds, or
is less than, the stockholder's basis in the ThermoLase stock surrendered.
Similarly, each ThermoLase unit holder will realize taxable gain, or loss, to
the extent that the fair market value of the Thermo Electron unit received in
the merger exceeds, or is less than, the unit holder's basis in the ThermoLase
unit surrendered. A stockholder's basis in the Thermo Electron common stock
received in the merger and a unit holder's basis in the Thermo Electron units
received in the merger will equal the fair market value of the Thermo Electron
stock or unit, as applicable, received in the merger determined as of the time
of the merger and the holding period will commence on the day following the
merger.
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PROJECTED FINANCIAL DATA
ThermoLase does not, as a matter of course, make public forecasts or
projections as to future sales, earnings or other income statement data, cash
flows or balance sheet and financial position information. However, in order to
aid the ThermoLase special committee and Stonebridge Associates in their
evaluation of ThermoLase and to aid Stonebridge Associates in its assessment of
the fairness, from a financial point of view, of the per share consideration
payable to the public stockholders in the merger agreement, ThermoLase, in
November 1999, gave the special committee and Stonebridge Associates projections
prepared by ThermoLase's management. The following summary of the projections is
included in this proxy statement-prospectus solely because the projections were
given to Stonebridge Associates and the special committee. The projections do
not reflect any of the effects of the merger or other changes that may in the
future be deemed appropriate concerning ThermoLase and its assets, business,
operations, properties, policies, corporate structure, capitalization and
management in light of future circumstances. The projections have not been
updated to reflect changes that have occurred since their preparation.
The projections were not prepared with a view toward public disclosure or
compliance with published guidelines of the SEC or the American Institute of
Certified Public Accountants regarding forward-looking information or generally
accepted accounting principles. Neither ThermoLase's independent accountants,
nor any other independent accountants, have compiled, examined or performed any
procedures with respect to the prospective financial information contained in
the projections, nor have they expressed any opinion or given any form of
assurance on that information or its achievability, and assume no responsibility
for, and disclaim any association with, such prospective financial information.
Furthermore, the projections necessarily make many assumptions, many of which
are beyond ThermoLase's control and may prove not to have been, or may no longer
be, accurate. Additionally, this information does not reflect revised prospects
for ThermoLase's businesses, changes in general business and economic
conditions, or any other transaction or event that has occurred or that may
occur and that was not anticipated at the time the information was prepared.
Accordingly, the information presented may not be indicative of current values
or future performance, which may be significantly more favorable or less
favorable than as set forth in the projections, and should not be regarded as a
representation that they will be achieved.
THE PROJECTIONS ARE NOT GUARANTEES OF PERFORMANCE. THEY INVOLVE RISKS,
UNCERTAINTIES AND ASSUMPTIONS. THE FUTURE RESULTS AND STOCKHOLDER VALUE OF
THERMOLASE MAY MATERIALLY DIFFER FROM THOSE EXPRESSED IN THE PROJECTIONS. MANY
OF THE FACTORS THAT WILL DETERMINE THESE RESULTS AND VALUES ARE BEYOND
THERMOLASE'S ABILITY TO CONTROL OR PREDICT. YOU SHOULD NOT PLACE UNDUE RELIANCE
ON THE PROJECTIONS. THE PROJECTIONS MAY NOT BE REALIZED, AND THERMOLASE'S FUTURE
FINANCIAL RESULTS MAY MATERIALLY VARY FROM THE PROJECTIONS. THERMOLASE DOES NOT
INTEND TO UPDATE OR REVISE THE PROJECTIONS.
The projections have been prepared by ThermoLase based upon management's
estimates of the total market for the products and services of CBI and
ThermoLase U.K., South Africa and Spain through 2003.
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CREATIVE BEAUTY INNOVATIONS, INC. (CBI)
PROJECTIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CALENDAR YEAR
----------------------------------------------------
1999 (P) 2000 (P) 2001 (P) 2002 (P) 2003 (P)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues....................................... $24,224 $30,167 $34,691 $39,896 $45,880
Costs and Operating Expenses:
Cost of revenues............................. 20,454 19,215 21,668 24,354 27,387
Selling, general, and administrative
expenses................................... 8,378 10,535 11,210 11,875 12,663
------- ------- ------- ------- -------
28,832 29,750 32,878 36,229 40,050
Operating Income (Loss)........................ $(4,608) $ 417 $ 1,813 $ 3,667 $ 5,830
======= ======= ======= ======= =======
SELECTED BALANCE SHEET DATA:
Accounts Receivable, Net....................... $ 3,200 $ 4,300 $ 4,900 $ 5,600 $ 6,300
Inventories.................................... 3,600 5,500 5,900 6,100 6,200
Prepaid Income Taxes and Other Current
Assets....................................... 400 500 550 600 650
------- ------- ------- ------- -------
Total Current Assets Excluding Cash and
Investments.................................. 7,200 10,300 11,350 12,300 13,150
Property, Plant, and Equipment:
Balance, beginning of year................... 3,412 3,234 2,984 2,584 2,034
Additions.................................... 659 800 800 800 800
Depreciation expense......................... (837) (1,050) (1,200) (1,350) (1,500)
Sales and retirements........................ -- -- -- -- --
------- ------- ------- ------- -------
Balance, end of year........................... 3,234 2,984 2,584 2,034 1,334
Cost in Excess of Net Assets of Acquired
Companies.................................... 7,564 7,328 7,092 6,856 6,620
</TABLE>
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THERMOLASE U.K., SOUTH AFRICA AND SPAIN
PROJECTIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------
1999 (P) 2000 (P) 2001 (P)
--------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues.................................................... $3,002 $6,321 $9,696
Costs and Operating Expenses:
Cost of revenues.......................................... 1,145 1,616 1,987
Selling, general, and administrative expenses............. 1,999 3,107 4,668
------ ------ ------
Operating Income (Loss)..................................... (142) 1,597 3,040
====== ====== ======
</TABLE>
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INFORMATION ABOUT THERMO ELECTRON, THERMOLASE
AND THERMOLASE ACQUISITION
THERMO ELECTRON
Thermo Electron develops, manufactures and sells measurement and detection
instruments that its customers use to monitor, collect, and analyze data. On
January 31, 2000, Thermo Electron announced that its board of directors had
authorized management to proceed with a major reorganization of the operations
of Thermo Electron and its subsidiaries, including ThermoLase. As part of this
reorganization, Thermo Electron plans to:
- acquire the minority interests in most of its public subsidiaries;
- spin off to stockholders its business that serves the healthcare industry
with a range of medical products for diagnosis and monitoring, and its
paper recycling and papermaking equipment business; and
- sell various non-core businesses.
Thermo Electron plans to take Thermo Ecotek Corporation, its electric power
generation business, private. Although Thermo Electron no longer considers
Thermo Ecotek a core business under its new strategy, Thermo Electron expects to
retain Thermo Ecotek after it is taken private while Thermo Electron continues
to evaluate how best to exit that business and create maximum value for Thermo
Electron stockholders.
The primary goal of the reorganization plan is for Thermo Electron and each
of its spun-off subsidiaries to focus on their core businesses.
Thermo Electron's principal executive offices are located at 81 Wyman
Street, Waltham, Massachusetts 02454-9046, and its telephone number is
(781) 622-1000.
THERMOLASE
ThermoLase operates in two business segments: hair removal and related
activities, and health and beauty products.
In its hair removal products and services segment, ThermoLase developed
laser-based hair-removal and skin-resurfacing systems, and licensed its
SoftLight-Registered Trademark- hair-removal system to physicians in the U.S.
and to international licensees. In June 1996, ThermoLase began a program to
license the SoftLight technology to physicians and others who wanted to offer
SoftLight as part of their practices. Through these arrangements, we received a
per-procedure or minimum royalty and/or a flat periodic fee. The company also
entered into a variety of joint ventures and licensing agreements to bring the
technology to international markets. During fiscal 1998, we closed the spa in
France, which operated under a joint venture agreement, and during fiscal 1999,
we terminated or renegotiated the terms of the remaining international licensing
arrangements to minimize our ongoing management, maintenance, and service
obligations. In fiscal 1999, the company offered licensees the opportunity to
purchase or lease SoftLight lasers in lieu of paying ongoing licensing fees.
ThermoLase developed a network of 14 high-end day spas, originally called
Spa Thira. In June 1998, the company acquired The Greenhouse Spa, Inc., a
destination spa located in Arlington, Texas. During fiscal 1998, the company
announced the closure of three of the day spas and converted the other 11 into
full-service day spas that were operated under The Greenhouse Spa name. In
addition to hair-removal and skin-resurfacing services, these spas offered more
traditional day spa services such as massages and facials. During the third
quarter of fiscal 1999, ThermoLase closed two additional spas and sold the nine
remaining day spas, as well as The Greenhouse Spa, Inc.
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ThermoLase also manufactures and markets skin-care and bath and body
products and markets dietary supplements through its wholly-owned Creative
Beauty Innovations, Inc. subsidiary.
ThermoLase's principal executive offices are located 2055-C Luna Road,
Carrollton, Texas 75006, and its telephone number is (781) 622-1000.
THERMOLASE ACQUISITION
ThermoLase Acquisition is a newly-formed Delaware corporation organized by
Thermo Electron for the sole purpose of effecting the merger. ThermoLase
Acquisition has not conducted any prior business.
ThermoLase Acquisition's principal executive offices are located at 81 Wyman
Street, Waltham, Massachusetts 02454-9046, and its telephone number is
(781) 622-1000.
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COMPARISON OF RIGHTS OF HOLDERS OF THERMOLASE
AND THERMO ELECTRON COMMON STOCK
This section of the proxy statement-prospectus describes certain differences
between the rights of holders of ThermoLase common stock and Thermo Electron
common stock. While we believe that the description covers the material
differences between the two, this summary may not contain all of the information
that is important to you. You should carefully read this entire document and the
other documents we refer to for a more complete understanding of the differences
between being a stockholder of ThermoLase and being a stockholder of Thermo
Electron.
As a stockholder of ThermoLase, your rights are governed by ThermoLase's
Certificate of Incorporation and ThermoLase's Restated Bylaws, each as amended.
After completion of the merger, you will become a stockholder of Thermo
Electron. As a Thermo Electron stockholder, your rights will be governed by
Thermo Electron's Restated Certificate of Incorporation and Thermo Electron's
Bylaws, each as amended. We are each incorporated under the laws of the State of
Delaware and accordingly, your rights as a stockholder will continue to be
governed by the Delaware General Corporation Law after completion of the merger.
CLASSES OF COMMON STOCK OF THERMOLASE AND THERMO ELECTRON
Thermo Electron and ThermoLase each has only one class of common stock
issued and outstanding. There are 350,000,000 shares of Thermo Electron common
stock authorized, and ThermoLase currently has 100,000,000 shares of common
stock authorized. As of May 31, 2000, there were 155,545,899 outstanding shares
of Thermo Electron common stock, and an aggregate of 35,466,101 shares reserved
for issuance upon conversion of convertible debentures and exercise of options.
As of May 31, 2000, there were 39,631,938 outstanding shares of ThermoLase
common stock, and an aggregate of 7,952,785 shares reserved for issuance upon
conversion of convertible debentures and exercise of stock options.
Each of us has a large number of shares available for issuance that has been
authorized but not yet issued. We can issue up to our authorized number of
shares of common stock without going to stockholders to ask for approval of an
increase in our authorized shares, except in circumstances described below. We
are each subject to the stockholder approval requirements of the stock exchanges
on which our common stock is traded relating to issuance of common stock. The
New York Stock Exchange, on which the Thermo Electron common stock is listed,
requires that Thermo Electron obtain stockholder approval for the listing of
shares in the following circumstances:
- issuing more than 20% of its outstanding common stock in a transaction or
series of related transactions, other than a public offering for cash, or
a private financing involving the sale of common stock for cash at a price
at least equal to the greater of book or market value of the common stock;
or
- issuing more than one percent of its common stock to a director, officer
or substantial securityholder of Thermo Electron, or any of their
affiliates, except that in the case of substantial securityholders only,
the limit is increased to five percent if the sale of stock is for cash at
a price at least equal to the greater of book or market value of the
common stock.
The American Stock Exchange, on which the ThermoLase common stock is listed,
requires that ThermoLase obtain stockholder approval for the listing of shares
in the following circumstances:
- issuing more than 20% of its common stock for cash for less than the
greater of book or market value of the common stock;
- issuing more than five percent of its common stock in an acquisition if
any director, officer or substantial securityholder of ThermoLase
individually has a five percent, or, collectively, a ten
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percent interest in the company or assets being acquired or the
consideration to be paid in the acquisition; or
- issuing more than 20% of its common stock in an acquisition.
In addition, the Delaware General Corporation Law would require us to obtain
stockholder approval to authorize a merger in which we were (1) the surviving
corporation and (2) obligated under the merger agreement to issue more than 20%
of our shares outstanding immediately before the effective date of the merger.
Thermo Electron has authorized a class of 50,000 shares of preferred stock,
of which Thermo Electron currently has 40,000 shares designated as Series B
junior participating preferred stock. The preferred stock is described below
under "--Preferred Stock."
CLASSIFIED BOARD OF DIRECTORS
Delaware law provides that a corporation's board of directors may be divided
into various classes with staggered terms of office. Thermo Electron's board of
directors is divided into three classes, as nearly equal in size as possible,
with one class elected annually. Thermo Electron directors are elected for a
term of three years. The term of each director is subject to the election and
qualification of the director's successor and to the director's earlier death,
resignation or removal. Thermo Electron's classified board of directors may make
it more difficult for a third party to gain control of Thermo Electron.
ThermoLase's board of directors is not divided into different classes.
Members of ThermoLase's board of directors are elected by a plurality of the
votes cast at the annual meeting of the stockholders. ThermoLase directors are
elected until the next annual meeting of the stockholders and until their
successors are elected and qualified or until their earlier resignation or
removal.
The classified structure of Thermo Electron's board of directors serves to
ensure continuity and stability in a corporation's leadership in part because,
at any time, at least two-thirds of the board has had prior experience on the
board. The structure also would moderate the pace of any change in control of
Thermo Electron because all directors' terms do not expire at the same time,
which extends the time required to elect a majority of the board.
NUMBER OF DIRECTORS
Thermo Electron's board of directors currently consists of nine directors.
The number of directors on Thermo Electron's board is determined by resolution
of the board, but can not be less than three.
ThermoLase's board of directors currently consists of seven directors. The
number of directors on ThermoLase's board can not be less than one nor more than
thirteen. The exact number of directors is fixed from time to time by the board
of directors or by the stockholders at an annual meeting.
Because there are more directors on Thermo Electron's board than there are
on ThermoLase's board, more director votes must be obtained in order for a
resolution to be approved or denied by Thermo Electron's board.
REMOVAL OF DIRECTORS
ThermoLase directors, or the entire ThermoLase board, may be removed with or
without cause by the affirmative vote of the holders of a majority of the shares
of ThermoLase common stock then entitled to vote at an election of directors.
Neither the Restated Certificate of Incorporation nor the Bylaws of Thermo
Electron, each as amended, contain an explicit procedure for the removal of a
member of the board of directors. Delaware law provides that unless otherwise
provided in the certificate of incorporation of a company,
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a director of a classified board such as Thermo Electron's can be removed only
for cause, by the holders of a majority of the shares then entitled to vote at
an election of directors of such company. This means that, unlike removal of a
member of ThermoLase's board, there must be a good reason for removing a member
of the Thermo Electron board, and that members of the Thermo Electron board
cannot simply be removed for no reason. This may make it harder to remove a
member of the Thermo Electron board than it would be to remove a member of the
ThermoLase board.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Except as otherwise required by the Certificate of Incorporation, as
amended, or the Delaware General Corporation Law, any vacancies in both the
Thermo Electron and ThermoLase boards of directors, however occurring, or any
newly-created directorship resulting from an increase in the number of seats on
the board of directors, will be filled by vote of a majority of the directors
then in office, even if less than a quorum, or by the sole remaining director.
Vacancies will not be filled by the stockholders. Newly created directorships or
decreases in directorships in Thermo Electron's board of directors will be
apportioned among the classes of directors so as to make all classes as nearly
equal in number as practicable.
To the extent reasonably possible, any newly created Thermo Electron
directorship will be added to the class of directors whose term of office is to
expire at the latest date following the creation of that directorship, unless
otherwise provided for by resolution of the majority of the directors then in
office. Any newly eliminated Thermo Electron directorship will be subtracted
from the class whose office is to expire at the earliest date following the
elimination of the directorship, unless otherwise provided for by resolution of
the majority of the directors then in office.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Thermo Electron stockholders may take action at annual or special meetings
of stockholders, or by the written consent of stockholders having no less than
the minimum number of votes that would be necessary to take such action at a
meeting at which all shares entitled to vote on the matter were present and
voted.
ThermoLase stockholders may take action at annual or special meetings of
stockholders, or by the written consent of stockholders having not less than 50%
of all of the stock entitled to vote on the action if a meeting were held, so
long as the written consent is not by stockholders having less than the minimum
percentage of the total vote required by Delaware law for the proposed corporate
action.
ABILITY TO CALL SPECIAL MEETINGS
Special meetings of Thermo Electron stockholders may be called only by
Thermo Electron's board of directors, the chairman of the board of directors, or
its chief executive officer. Special meetings of ThermoLase stockholders may be
called only by ThermoLase's board of directors, the chairman of the board of
directors, its president, or any vice president. This means that more people are
allowed to call a special stockholders' meeting for ThermoLase stockholders than
are allowed to call a special stockholders' meeting for Thermo Electron
stockholders. This could mean that it would be easier to call a special
stockholders' meeting at ThermoLase than at Thermo Electron, since more people
have the ability to make the decision to call the meeting.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND PROPOSALS
The Thermo Electron Bylaws allow stockholders to nominate candidates for
election to Thermo Electron's board of directors or to propose business to be
transacted at an annual stockholder meeting. However, such nominations and
proposals may only be made by a stockholder who has given timely
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written notice to the secretary of Thermo Electron before the annual stockholder
meeting in the manner described below.
Under Thermo Electron's Bylaws, to be timely, notice of stockholder
nominations or proposals to be made at an annual stockholder meeting must be
delivered to the secretary of Thermo Electron not less than 60 days nor more
than 75 days before the first anniversary of the date on which Thermo Electron
first mailed its proxy materials for the preceding year's annual stockholder
meeting. However, if the date of the annual meeting is moved ahead more than
30 days before or delayed by more than 30 days after the anniversary of the
preceding year's annual stockholder meeting, notice to be timely must be
delivered not later than the close of business on the later of (1) the 90(th)
day prior to such annual meeting or (2) the 10(th) day following the day on
which public announcement of the date of such meeting is first made.
Stockholder nominations and proposals will not be brought before any Thermo
Electron stockholder meeting unless the nomination or proposal was brought
before the meeting in accordance with Thermo Electron's stockholder advance
notice procedure, as set forth in the Bylaws.
ThermoLase does not have a provision in its Certificate of Incorporation or
Restated Bylaws, each as amended, requiring advance notice or a specific
procedural process for stockholder nominations of candidates for election to the
board of directors or for stockholder proposals before ThermoLase's annual
stockholder meeting.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Under Delaware law, a certificate of incorporation of a Delaware corporation
may be amended by approval of the board of directors of the corporation and the
affirmative vote of the holders of a majority of the outstanding shares entitled
to vote for the amendment, unless a higher vote is required by the corporation's
certificate of incorporation. Neither Thermo Electron nor ThermoLase currently
has a higher vote required by their Certificates of Incorporation, as amended,
in order to amend such documents.
AMENDMENT OF BYLAWS
Under Delaware law, stockholders entitled to vote have the power to adopt,
amend or repeal bylaws. In addition, a corporation may, in its certificate of
incorporation, confer that power upon the board of directors. The stockholders
always have the power to adopt, amend or repeal bylaws, even though the board
may also be delegated that power.
Thermo Electron's board of directors is authorized to alter, amend and
repeal Thermo Electron's Bylaws or to make new Bylaws. Thermo Electron's Bylaws
may also be altered, amended and repealed, or new Bylaws may be made, by the
affirmative vote of the holders of a majority of the shares of capital stock of
Thermo Electron issued and outstanding and entitled to vote, voting together as
a single class, except that the affirmative vote of the holders of at least
two-thirds of the shares of capital stock of Thermo Electron issued and
outstanding and entitled to vote is required to alter, amend or repeal, or make
new Bylaws inconsistent with Article II, on matters relating to directors, or
Article VI, on amendments to the Bylaws of the Bylaws.
ThermoLase's board of directors is authorized to alter, amend and repeal
ThermoLase's Restated Bylaws at any meeting of the board. Its Restated Bylaws
may also be altered, amended or repealed at any meeting of the stockholders of
ThermoLase by the vote of the holders of the majority of the stock issued and
outstanding and entitled to vote at such meeting. For amendments relating to
directors and amendments to the Bylaws, there is a lower stockholder vote
required to change ThermoLase's Restated Bylaws than is required to change
Thermo Electron's Bylaws. However, since Thermo Electron controls the
stockholder vote at ThermoLase, because of its and ThermoTrex's ownership of
more than 50% of ThermoLase's outstanding common stock, the fact that a lower
stockholder vote is
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required to change the bylaws at ThermoLase than at Thermo Electron does not
have any practical effect as far as unaffiliated stockholders are concerned.
DELAWARE ANTI-TAKEOVER STATUTE
We are both subject to Section 203 of the Delaware General Corporation Law
which, under certain circumstances, may make it more difficult for a person who
would be an "interested stockholder," as defined in Section 203, in each of our
companies, to effect various business combinations with either of us for a
three-year period after becoming an interested stockholder. Under Delaware law,
a corporation's certificate of incorporation or bylaws may exclude a corporation
from the restrictions imposed by Section 203. Our respective certificates of
incorporation and bylaws do not exclude us from the restrictions imposed by
Section 203.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware law permits a corporation to indemnify officers and directors for
actions taken in good faith and in a manner they reasonably believed to be in,
or not opposed to, the best interests of the corporation, and with respect to
any criminal action or proceeding, which they had no reasonable cause to believe
was unlawful.
Thermo Electron's Restated Certificate of Incorporation, as amended, and
ThermoLase's Restated Bylaws, as amended, each provide for the indemnification
of their respective officers and directors. The indemnification provisions state
that any person who was or is a party or is threatened to be made a party to any
action, suit, or proceeding, whether civil, criminal, administrative or
investigative, other than an action or suit brought by Thermo Electron or
ThermoLase, because that person either:
- is or was a director or officer of Thermo Electron or ThermoLase, or an
employee or agent of ThermoLase, or
- is or was serving at the request of Thermo Electron or ThermoLase, as a
director or officer, or employee or agent, in the case of ThermoLase, of
another corporation, partnership, joint venture, trust or other
enterprise,
will be indemnified against expenses, including attorneys' fees, judgments,
fines, and amounts paid in settlement actually and reasonably incurred by him or
her in connection with the action, suit or proceeding, to the fullest extent
permitted by Delaware law. These indemnification rights are not exclusive of any
other right to which persons seeking indemnification may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
In the case of any action or suit by Thermo Electron or ThermoLase to
procure a judgment in its favor, no indemnification will be made (1) except for
expenses, including attorneys' fees, or (2) relating to any claim, issue or
matter as to which the director or officer has been judged to be liable to
Thermo Electron or ThermoLase, unless and only to the extent that the court
determines that, despite the adjudication of liability, but in view of all of
the circumstances of the case, the director or officer is entitled to indemnity
for such expenses that the court finds proper.
Additionally, we may each pay expenses incurred by our directors or officers
in defending a civil or criminal action, suit or proceeding in advance of the
final disposition of that action, suit or proceeding. However, those payments
will be made only if we receive an undertaking by or on behalf of the director
or officer to repay all amounts advanced if it is ultimately determined that he
or she is not entitled to be indemnified by us.
PREFERRED STOCK
Thermo Electron's board of directors may, without further action of Thermo
Electron's stockholders, issue up to 50,000 shares of preferred stock, in one or
more classes and one or more
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series and fix the number of shares in any class or series. In a certificate of
designation filed on January 31, 1996, 40,000 shares of the preferred stock were
designated as Series B junior participating preferred stock. The terms of the
Series B junior participating preferred stock are described in "--Stockholder
Rights Plan," below. Thermo Electron's board may fix the rights and preferences
of any class or series of the remaining 10,000 shares of preferred stock,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, including sinking fund provisions, maturity dates,
redemption prices and liquidation preferences. The rights of the holders of
Thermo Electron common stock will be subject to, and may be adversely affected
by, the rights of holders of any preferred stock that may be issued in the
future. Also, any issuance of preferred stock could make it more difficult for a
third party to acquire, or discourage a third party from acquiring, a majority
of the outstanding voting stock of Thermo Electron.
ThermoLase does not have any shares of preferred stock authorized. This
means that, if ThermoLase ever wanted to issue any shares of preferred stock, it
would have to hold a stockholder meeting in order to get approval for the
amendment to its certificate of incorporation that would be required in order to
create a class of preferred stock.
STOCKHOLDER RIGHTS PLAN
Under Delaware law, every corporation may create and issue rights entitling
the holders of the rights to purchase from the corporation shares of its capital
stock of any class or classes, subject to any provisions in its certificate of
incorporation. The price and terms of the shares must be stated in the
certificate of incorporation or in a resolution adopted by the board of
directors for the creation or issuance of such rights.
Thermo Electron has entered into a rights agreement dated as of January 19,
1996, as amended, between Thermo Electron and BankBoston, N.A., as rights agent.
As with most stockholder rights agreements, the terms of Thermo Electron's
rights agreement are complex and not easily summarized, particularly as they
relate to the acquisition of Thermo Electron's common stock and to
exercisability. The purpose of Thermo Electron's stockholder rights agreement is
to encourage potential acquirors of a large percentage of Thermo Electron's
common stock to initiate negotiations with the board of directors relating to
the acquisition, rather than to proceed without the approval of the board. As
described in more detail below, the rights would cause substantial dilution to
any party attempting to acquire Thermo Electron unless the board of directors
has found the transaction to be fair and in the best interests of stockholders.
On January 19, 1996, Thermo Electron's board declared a dividend
distribution of one right for each outstanding share of Thermo Electron common
stock to stockholders of record at the close of business on January 29, 1996.
Each right entitles the registered holder to purchase from Thermo Electron a
unit consisting of one ten-thousandth of a share of Series B junior
participating preferred stock at a purchase price of $250.00 in cash per unit,
subject to adjustment. The following is a summary description of the terms of
the rights. Please read the rights agreement for the complete description of the
terms of the rights.
Initially, the rights attach to all outstanding Thermo Electron common stock
certificates and no separate rights certificates will be distributed. The rights
will separate from the Thermo Electron common stock, and a distribution date
will occur, upon the earlier of the following events:
- 10 days after a public announcement that a person or group of affiliated
or associated persons has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of Thermo
Electron common stock; or
- 10 business days following the start of a tender offer or exchange offer
that would result in a person or group beneficially owning 15% or more of
the outstanding shares of Thermo Electron common stock.
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Until the distribution date:
- the rights will be evidenced by the Thermo Electron common stock
certificates and will be transferred only with the Thermo Electron common
stock certificates;
- new Thermo Electron common stock certificates will incorporate the rights
agreement by reference; and
- the surrender for transfer of any certificates of Thermo Electron common
stock will also transfer the rights associated with the Thermo Electron
common stock represented by the certificate.
The rights are not exercisable until the distribution date and will expire
at the close of business on January 29, 2006, unless earlier redeemed or
exchanged by Thermo Electron as described below.
If a person acquires 15% or more of the shares of Thermo Electron common
stock, except as part of an offer for all of the outstanding shares of Thermo
Electron common stock that at least a majority of the board of directors has
approved, if, each holder of a right will thereafter have the right to exercise
the right for a number of shares of Thermo Electron common stock or, in some
circumstances, cash, property or other securities of Thermo Electron, equal to
the exercise price of the right divided by one-half of the current market price
of the Thermo Electron common stock on the date of the acquisition. However,
rights are not exercisable following the acquisition until the rights are no
longer redeemable by Thermo Electron as described below. Notwithstanding any of
the foregoing, after the acquisition, all rights that are, or, as described in
the rights agreement, were, beneficially owned by any acquiring person will be
null and void. The event set forth in this paragraph is referred to as a
"section 11(a)(ii) event."
For example, at an exercise price of $250.00 per right, each holder of
rights, other than acquiring persons or parties related to them, would be able
to purchase, for $250.00, a number of shares of Thermo Electron common stock, or
other consideration, as noted above, equal to $250.00 divided by one-half of the
current market price of the Thermo Electron common stock. Assuming that the
Thermo Electron common stock had a per share value of $50.00 at that time,
holders of each valid right would be entitled to purchase ten shares of Thermo
Electron common stock for $250.00.
If, at any time after a person has become an acquiring person:
- Thermo Electron is acquired in a merger or other transaction in which
Thermo Electron is not the surviving corporation, or its common stock is
changed or exchanged, other than a merger which follows an offer that is
approved by the board of directors, or
- 50% or more of Thermo Electron's assets or earning power is sold or
transferred,
each holder of a valid right shall thereafter have the right to receive,
upon exercise, a number of shares of common stock of the acquiring company equal
to the exercise price of the right divided by one-half of the current market
price of that company's common stock at the date the event occurs.
For example, at an exercise price of $250.00 per right, each holder of
rights, following an event described in the last paragraph, would be able to
purchase, for $250.00, a number of shares of common stock of the acquiring
company equal to $250.00 divided by one-half of the current market price of that
company's common stock. Assuming that the common stock had a per share value of
$100.00 at that time, holders of each valid right would be entitled to purchase
five shares of common stock of the acquiring company for $250.00.
At any time after a section 11(a)(ii) event, Thermo Electron's board may
exchange all or a part of the rights, other than rights owned by the acquiring
person that have become void, at an exchange ratio of one share of Thermo
Electron common stock, or one ten-thousandth of a share of preferred stock, per
right, subject to adjustment.
65
<PAGE>
The preferred stock purchasable upon exercise of the rights will not be
redeemable. The rights of the preferred stock are protected by customary
antidilution provisions and, in light of Thermo Electron's stock dividend in
1996, currently provide for the following:
- a minimum preferential quarterly dividend payment of $100 per share and an
aggregate dividend per share of preferred stock of 15,000 times the
dividend declared per share of Thermo Electron common stock;
- an aggregate payment per share of preferred stock, in the event of
liquidation, of 15,000 times the payment made per share of Thermo Electron
common stock, with a minimum preferential liquidating payment of $100 per
share;
- 15,000 votes per share of preferred stock, voting together with the Thermo
Electron common stock; and
- in the event of any merger, consolidation or other transaction in which
the Thermo Electron common stock is changed or exchanged, each share of
preferred stock will be entitled to 15,000 times the amount received per
share of Thermo Electron common stock.
Because of the nature of the preferred stock's dividend, liquidation and
voting rights, the value of one ten-thousandth of a share of preferred stock
purchasable upon exercise of each right should approximate the value of one
share of Thermo Electron common stock.
At any time until ten days after the stock acquisition date, Thermo Electron
may redeem the rights in whole, but not in part, at a price of $.01 per right,
payable in cash or stock. Immediately upon the decision of the board of
directors to redeem the rights, the rights will terminate and the only right of
the holders of rights will be to receive the $.01 redemption price.
Until a right is exercised, holders of rights, as such, will have no rights
as a stockholder of Thermo Electron, including the right to vote or to receive
dividends. While the distribution of the rights will not be taxable to
stockholders or to Thermo Electron, stockholders may, depending upon the
circumstances, recognize taxable income in the event that the rights become
exercisable for Thermo Electron common stock or other consideration or for
common stock of the acquiring company as set forth above.
The rights have certain anti-takeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire Thermo
Electron without conditioning the offer on a substantial number of rights being
acquired. The rights, however, should not affect any prospective offeror willing
to make an offer at a fair price and otherwise in the best interests of Thermo
Electron and its stockholders, as determined by a majority of the board of
directors. The rights should not interfere with any merger or other business
combination that is approved by the board of directors of Thermo Electron since
the board of directors can decide, at any time prior to the close of business on
the earlier of (1) the tenth day following the stock acquisition date or
(2) January 29, 2006, and in certain other circumstances, redeem all of the then
outstanding rights at the redemption price.
ThermoLase has not entered into a stockholder rights agreement. Accordingly,
it does not have the protections against takeovers that are given by stockholder
rights agreements. However, as noted above in this section under "--Delaware
Anti-Takeover Statute," ThermoLase is subject to Section 203 of the Delaware
General Corporation Law, which may inhibit unsolicited takeover attempts.
66
<PAGE>
RECENT DEVELOPMENTS
Mr. Gerald Feldman, ThermoLase's President and Chief Executive Officer, has
an agreement with Thermo Electron under which Mr. Feldman will receive a payment
equal to one year's salary ($210,000) if he remains employed with a Thermo
Electron company as of January 1, 2002. Mr. Feldman will forfeit this payment if
he leaves his employment voluntarily or is terminated for cause prior to
January 1, 2002.
Additionally, in July 2000, ThermoLase entered into an agreement with the
party to whom it had sold its spa business in 1999. Under the new agreement, the
buyer of the spa business paid $4.0 million on a note it had issued to
ThermoLase in connection with the purchase of the spas. The buyer also obtained
releases for ThermoLase from third party lease obligations of the day spas
transferred to the buyer at the time of sale. ThermoLase had previously been
liable for the remaining lease obligations at these facilities. In return,
ThermoLase agreed to reduce the remaining principal amount of the note
receivable from the buyer and to subordinate the remaining balance to other
external financing obtained by the buyer. In connection with the favorable
resolution of the lease obligations, as well as the reduction in principal
amount of the remaining note receivable, ThermoLase expects to record unusual
income, net, of approximately $3.0-4.0 million in the quarter ended July 1,
2000.
LEGAL OPINION
The validity of the shares of Thermo Electron common stock offered by this
proxy statement-prospectus will be passed upon for Thermo Electron by Seth H.
Hoogasian, Esq. Mr. Hoogasian is a full-time employee of Thermo Electron, is an
officer of ThermoLase and Thermo Electron, and owns or has the right to acquire
421,171 shares of Thermo Electron common stock and 71,973 shares of the common
stock of Thermo Electron's subsidiaries.
EXPERTS
The financial statements of Thermo Electron and ThermoLase incorporated by
reference in this proxy statement-prospectus and the financial statement
schedules incorporated by reference in the registration statement of which this
proxy statement-prospectus forms a part have been audited by Arthur Andersen
LLP, independent public accountants, to the extent and for the periods as
indicated in their reports with respect thereto, and are incorporated by
reference in reliance upon the authority of said firm as experts in giving said
reports.
STOCKHOLDER PROPOSALS
If the merger is not completed, ThermoLase will set a date for its 2000
annual meeting of stockholders. Pursuant to Rule 14a-8 under the Exchange Act,
ThermoLase stockholders may present proper proposals for inclusion in
ThermoLase's proxy statement and for consideration at its 2000 annual meeting of
stockholders, in the event the merger is not completed, by submitting the
proposals to ThermoLase in a timely manner. In order to be included for the 2000
annual meeting, stockholder proposals must be received by ThermoLase within a
reasonable time before the meeting, and must otherwise comply with the
requirements of Rule 14a-8.
67
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE,
INCLUDING IMPORTANT BUSINESS AND FINANCIAL INFORMATION, WHICH ARE NOT PRESENTED
IN OR DELIVERED WITH THIS PROXY STATEMENT-PROSPECTUS.
All documents filed by Thermo Electron pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this proxy statement-prospectus
and before the date of the special meeting are incorporated by reference into
and are deemed to be a part of this proxy statement-prospectus from the date of
filing of those documents.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT
TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
ANY INFORMATION THAT IS DIFFERENT.
THERMOLASE
The following documents, filed by ThermoLase (File No. 1-13104) with the
SEC, are hereby incorporated by reference into this proxy statement-prospectus:
- Annual Report on Form 10-K for the fiscal year ended October 2, 1999;
- Quarterly Report on Form 10-Q for the fiscal quarter ended January 1,
2000;
- Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2000;
THERMO ELECTRON
The following documents, filed by Thermo Electron (File No. 1-8002) with the
SEC, are hereby incorporated by reference into this proxy statement-prospectus:
- Annual Report on Form 10-K for the fiscal year ended January 1, 2000, as
amended by Form 10-K/A filed on June 27, 2000;
- Proxy Statement dated April 19, 2000, filed with the SEC on April 21,
2000;
- Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2000;
- Current Report on Form 8-K filed on February 1, 2000 regarding Thermo
Electron's proposed reorganization plan;
- Current Report on Form 8-K filed on May 2, 2000 regarding Thermo
Electron's financial results for the quarter ended April 1, 2000;
- Current Report on Form 8-K filed on June 14, 2000 regarding financial
results for the quarter and fiscal year ended January 1, 2000;
- Current Report on Form 8-K filed on June 30, 2000 regarding the completion
of Thermo Electron's exchange offers for Thermo Instrument Systems Inc.
and Thermedics Inc.;
- Current Report on Form 8-K filed on July 11, 2000 regarding the
appointment of Marijn Dekkers as chief operating officer;
- The description of the Thermo Electron common stock that is contained in
Thermo Electron's Registration Statement on Form 8-A/A filed under the
Exchange Act on September 9, 1999; and
- The description of Thermo Electron's preferred stock purchase rights that
is contained in Thermo Electron's Registration Statement on Form 8-A/A
filed under the Exchange Act on June 21, 1999.
Any statement contained in a document incorporated or deemed to be
incorporated by reference into this proxy statement-prospectus will be deemed to
be modified or superseded for purposes of this proxy statement-prospectus to the
extent that a statement contained in this proxy statement-prospectus or any
other subsequently filed document that is deemed to be incorporated by reference
into this proxy statement-prospectus modifies or supersedes the statement. Any
statement so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this proxy statement-prospectus.
68
<PAGE>
The documents incorporated by reference into this proxy statement-prospectus
are available from us upon request. We will provide a copy of any and all of the
information that is incorporated by reference in this proxy statement-prospectus
to any person, without charge, upon written or oral request. If exhibits to the
documents incorporated by reference in this proxy statement-prospectus are not
themselves specifically incorporated by reference in this proxy
statement-prospectus, then such exhibits will not be provided. ANY REQUEST FOR
DOCUMENTS SHOULD BE MADE BY AUGUST 7, 2000 TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS.
Requests for documents relating to ThermoLase or Thermo Electron should be
directed to: Sandra L. Lambert, Corporate Secretary, Thermo Electron
Corporation, P.O. Box 9046, 81 Wyman Street, Waltham, Massachusetts 02454-9046
(telephone: 781-622-1000; facsimile: 781-768-6620).
We file reports, proxy statements and other information with the SEC. Copies
of our reports, proxy statements and other information may be inspected and
copied at the public reference facilities maintained by the SEC at:
<TABLE>
<S> <C> <C>
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
</TABLE>
Reports, proxy statements and other information concerning ThermoLase may be
inspected at:
The American Stock Exchange
86 Trinity Place
New York, New York 10006-1881
Reports, proxy statements and other information concerning Thermo Electron
may be inspected at:
The New York Stock Exchange
20 Broad Street
New York, New York 10005
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Room at the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the Public Reference
Room by calling the SEC at l-800-SEC-0330. The SEC maintains an Internet site
that contains reports, proxy statements and other information regarding each of
us. The address of the SEC's website is http://www.sec.gov.
Thermo Electron has filed a registration statement on Form S-4 under the
Securities Act with the SEC with respect to the Thermo Electron common stock to
be issued to ThermoLase stockholders in the merger. This proxy
statement-prospectus constitutes the prospectus of Thermo Electron filed as part
of the registration statement. This proxy statement-prospectus does not contain
all of the information set forth in the registration statement because Thermo
Electron has omitted parts of the registration statement in accordance with the
SEC's rules. The registration statement and its exhibits are available for
inspection and copying as set forth above.
Copies of ThermoLase's Annual Report on Form 10-K for the fiscal year ended
October 2, 1999 and its Quarterly Report on Form 10-Q for the quarter ended
April 1, 2000 are attached to this proxy statement-prospectus as Appendices C
and D, respectively. Please read each of such documents in their entirety for
the important information they contain regarding the business of ThermoLase.
If you have any questions about the merger, please call ThermoLase Investor
Relations at 781-622-1111.
THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY
STATEMENT-PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR
FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER,
SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES
PURSUANT TO THIS PROXY STATEMENT-PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH OR INCORPORATED INTO THIS PROXY STATEMENT-PROSPECTUS BY REFERENCE OR IN
OUR AFFAIRS SINCE THE DATE OF THIS PROXY STATEMENT-PROSPECTUS.
69
<PAGE>
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement-prospectus and the documents incorporated by reference
into this proxy statement-prospectus (see "WHERE YOU CAN FIND MORE INFORMATION")
include forward-looking statements about Thermo Electron and ThermoLase within
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. These statements relate to expectations concerning matters that are not
historical facts, such as future financial performance, anticipated
developments, business strategy, projected costs and plans and objectives of
Thermo Electron and ThermoLase. Many of these statements are preceded by,
followed by or otherwise include the words "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates" or similar expressions. These
statements may be made expressly in this document or may be incorporated by
reference to other documents Thermo Electron and ThermoLase have filed with the
SEC.
Although each of Thermo Electron and ThermoLase believes that such
forward-looking statements are reasonable, neither can assure you that such
expectations will prove to be correct. Forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties that
may cause actual results of Thermo Electron or ThermoLase to be materially
different from any future results expressed or implied by either Thermo Electron
or ThermoLase. The risks and uncertainties include those risks, uncertainties
and risk factors identified, among other places, under "RISK FACTORS" in this
document, and under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Thermo Electron's Annual Report on Form 10-K for
the year ended January 1, 2000.
The most important facts that could prevent Thermo Electron from achieving
its stated goals include, but are not limited to, the following:
- Thermo Electron's corporate reorganization, which includes taking several
subsidiaries private, spinning off some subsidiaries and selling several
businesses, is very complex, expensive and time-consuming.
- Thermo Electron has acquired several companies and businesses; as a result
it has recorded significant goodwill on its balance sheet, which it must
continually evaluate for potential impairment.
- Thermo Electron's significant international operations entail the risk
that exchange rate fluctuations may negatively affect demand for its
products and its profitability.
- Thermo Electron must develop new products, adapt to rapid and significant
technological change, and respond to introductions of new products in
order to remain competitive.
- Changes in governmental regulations may reduce demand for Thermo
Electron's products or increase its expenses.
- Demand for some of Thermo Electron's products depends on capital spending
policies of its customers and on government funding policies.
We cannot always predict or determine after the fact what factors would
cause actual results to differ materially from those indicated by the
forward-looking statements or other statements. All cautionary statements should
be read as being applicable to all forward-looking statements wherever they
appear. Thermo Electron and ThermoLase do not undertake any obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed herein might
not occur.
70
<PAGE>
THERMO ELECTRON CORPORATION
INDEX TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Pro Forma Consolidated Condensed Financial Statements....... F-2
Pro Forma Consolidated Condensed Statement of Continuing
Operations for the three months ended April 1, 2000....... F-3
Pro Forma Consolidated Condensed Statement of Continuing
Operations for the fiscal year ended January 1, 2000...... F-4
Pro Forma Consolidated Condensed Balance Sheet as of April
1, 2000................................................... F-5
Notes to Pro Forma Consolidated Condensed Financial
Statements................................................ F-6
</TABLE>
F-1
<PAGE>
THERMO ELECTRON CORPORATION
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma consolidated condensed statements of
continuing operations sets forth the results of continuing operations for the
three months ended April 1, 2000, and the fiscal year ended January 1, 2000, as
if the merger had become effective at the beginning of calendar year 1999. The
results of ThermoLase are reported as discontinued operations in the financial
statements of Thermo Electron. The only pro forma adjustment to the Pro Forma
Consolidated Condensed Statements of Continuing Operations is an increase in
Thermo Electron's outstanding shares. The following unaudited pro forma
consolidated condensed balance sheet sets forth the financial position as of
April 1, 2000, as if the merger had become effective on April 1, 2000. For
purposes of determining the number of shares of Thermo Electron that will be
issued under the merger agreement, an exchange ratio of 0.132 shares of Thermo
Electron common stock for each share of ThermoLase common stock not already
owned by Thermo Electron has been assumed. The pro forma results of continuing
operations are not necessarily indicative of future operations or the actual
results that would have occurred had the merger become effective at the
beginning of calendar year 1999.
F-2
<PAGE>
THERMO ELECTRON CORPORATION
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF CONTINUING OPERATIONS
THREE MONTHS ENDED APRIL 1, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues.................................................. $598,929 $ -- $598,929
-------- ---- --------
Costs and Operating Expenses:
Cost of revenues........................................ 325,183 -- 325,183
Selling, general, and administrative expenses........... 173,682 -- 173,682
Research and development expenses....................... 48,446 -- 48,446
Restructuring and other unusual income, net............. (7,700) -- (7,700)
-------- ---- --------
539,611 -- 539,611
-------- ---- --------
Operating Income.......................................... 59,318 -- 59,318
Other Expense, Net........................................ (21,172) -- (21,172)
-------- ---- --------
Income from Continuing Operations Before Income Taxes,
Minority Interest, and Extraordinary Item............... 38,146 -- 38,146
Income Tax Provision...................................... 16,728 -- 16,728
Minority Interest Expense................................. 6,127 -- 6,127
-------- ---- --------
Income from Continuing Operations Before Extraordinary
Item.................................................... $ 15,291 $ -- $ 15,291
======== ==== ========
Earnings per Share from Continuing Operations Before
Extraordinary Item:
Basic................................................. $ .10 $ -- $ .10
======== ==== ========
Diluted............................................... $ .09 $ -- $ .09
======== ==== ========
Weighted Average Shares:
Basic................................................. 156,813 818 157,631
======== ==== ========
Diluted............................................... 157,464 818 158,282
======== ==== ========
</TABLE>
F-3
<PAGE>
THERMO ELECTRON CORPORATION
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF CONTINUING OPERATIONS
FISCAL YEAR ENDED JANUARY 1, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------ -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues.................................................. $2,471,193 $ -- $2,471,193
---------- ---- ----------
Costs and Operating Expenses:
Cost of revenues...................................... 1,378,494 -- 1,378,494
Selling, general, and administrative expenses......... 673,004 -- 673,004
Research and development expenses..................... 171,100 -- 171,100
Restructuring and other unusual costs, net............ 149,589 -- 149,589
---------- ---- ----------
2,372,187 -- 2,372,187
---------- ---- ----------
Operating Income.......................................... 99,006 -- 99,006
Other Expense, Net........................................ (61,520) -- (61,520)
---------- ---- ----------
Income from Continuing Operations Before Income Taxes,
Minority Interest, and Extraordinary Items.............. 37,486 -- 37,486
Income Tax Provision...................................... 33,073 -- 33,073
Minority Interest Expense................................. 18,993 -- 18,993
---------- ---- ----------
Loss from Continuing Operations Before Extraordinary
Items................................................... $ (14,580) $ -- $ (14,580)
========== ==== ==========
Loss per Share from Continuing Operations Before
Extraordinary Items:
Basic................................................. $ (.09) $ -- $ (.09)
========== ==== ==========
Diluted............................................... $ (.11) $ -- $ (.11)
========== ==== ==========
Basic and Diluted Weighted Average Shares................. 157,987 818 158,805
========== ==== ==========
</TABLE>
F-4
<PAGE>
THERMO ELECTRON CORPORATION
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
APRIL 1, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 533,471 $ -- $ 533,471
Short-term available-for-sale investments, at quoted
market value.......................................... 426,015 -- 426,015
Accounts receivable, net................................ 534,569 -- 534,569
Other current assets.................................... 690,103 -- 690,103
Net assets of discontinued operations................... 502,629 -- 502,629
---------- ------- ----------
2,686,787 -- 2,686,787
---------- ------- ----------
Property, Plant, and Equipment, at Cost, Net.............. 424,874 -- 424,874
---------- ------- ----------
Other Assets.............................................. 233,486 -- 233,486
---------- ------- ----------
Cost in Excess of Net Assets of Acquired Companies........ 1,206,238 -- 1,206,238
---------- ------- ----------
Long-term Net Assets of Discontinued Operations........... 625,802 16,630 642,432
---------- ------- ----------
$5,177,187 $16,630 $5,193,817
========== ======= ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities....................................... $1,057,399 $ -- $1,057,399
---------- ------- ----------
Deferred Income Taxes and Other Deferred Items............ 162,622 -- 162,622
---------- ------- ----------
Long-term Obligations:
Subordinated convertible obligations.................... 1,184,033 -- 1,184,033
Other................................................... 386,290 -- 386,290
---------- ------- ----------
1,570,323 -- 1,570,323
---------- ------- ----------
Minority Interest......................................... 364,900 -- 364,900
---------- ------- ----------
Common Stock of Subsidiary Subject to Redemption.......... 7,692 -- 7,692
---------- ------- ----------
Shareholders' Investment:
Common stock............................................ 167,990 818 168,808
Capital in excess of par value.......................... 1,061,754 15,812 1,077,566
Retained earnings....................................... 1,057,791 -- 1,057,791
Treasury stock at cost.................................. (193,457) -- (193,457)
Deferred compensation................................... (6,917) -- (6,917)
Accumulated other comprehensive items................... (72,910) -- (72,910)
---------- ------- ----------
2,014,251 16,630 2,030,881
---------- ------- ----------
$5,177,187 $16,630 $5,193,817
========== ======= ==========
</TABLE>
F-5
<PAGE>
THERMO ELECTRON CORPORATION
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--PRO FORMA ADJUSTMENTS TO PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF
CONTINUING OPERATIONS
(IN THOUSANDS EXCEPT IN TEXT)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 1, 2000 AND
FISCAL YEAR ENDED
JANUARY 1, 2000
------------------
<S> <C>
WEIGHTED AVERAGE SHARES
Increase in weighted average shares outstanding due to the
assumed issuance of 818,005 shares of Thermo Electron's
common stock for the acquisition of additional shares of
ThermoLase as of the beginning of calendar year 1999...... 818
--------
</TABLE>
NOTE 2--PRO FORMA ADJUSTMENTS TO PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 1, 2000
DEBIT (CREDIT)
---------------
<S> <C>
LONG-TERM NET ASSETS OF DISCONTINUED OPERATIONS
Increase in long-term net assets of discontinued operations
as a result of Thermo Electron's increased ownership of
ThermoLase................................................ $ 16,630
--------
COMMON STOCK
Increase in common stock due to the assumed issuance of
818,005 shares of Thermo Electron's common stock for the
acquisition of additional shares of ThermoLase............ (818)
--------
CAPITAL IN EXCESS OF PAR VALUE
Increase in capital in excess of par value as a result of
Thermo Electron's increased ownership of ThermoLase and
the conversion of outstanding stock options of ThermoLase
into stock options of Thermo Electron..................... (15,812)
--------
</TABLE>
F-6
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
THERMO ELECTRON CORPORATION
THERMOLASE ACQUISITION CORPORATION
AND
THERMOLASE CORPORATION
DATED AS OF DECEMBER 14, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE I THE MERGER............................................. A-2
1.1 The Merger.................................................. A-2
1.2 Effective Time; Closing..................................... A-2
1.3 Effect of the Merger........................................ A-2
1.4 Certificate of Incorporation; Bylaws........................ A-2
1.5 Directors and Officers...................................... A-2
1.6 Effect on Capital Stock..................................... A-3
1.7 Surrender of Certificates................................... A-4
1.8 No Further Ownership Rights in Company Common Stock or
Units....................................................... A-6
1.9 Lost, Stolen or Destroyed Certificates...................... A-6
1.10 Dividends................................................... A-6
1.11 Fractional Shares........................................... A-6
1.12 Closing of Transfer Books................................... A-7
1.13 Taking of Necessary Action; Further Action.................. A-7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY......... A-7
2.1 Organization of the Company................................. A-7
2.2 Company Capital Structure................................... A-7
2.3 Authority................................................... A-7
2.4 Board Approval.............................................. A-8
2.5 Fairness Opinion............................................ A-8
2.6 Registration Statement; Proxy Statement/Prospectus.......... A-8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THERMO ELECTRON AND
MERGER SUB........................................................ A-9
3.1 Organization................................................ A-9
3.2 Authority................................................... A-9
3.3 Capitalization.............................................. A-10
3.4 Reports and Financial Statements............................ A-11
3.5 Information Provided to Financial Advisor................... A-11
3.6 Litigation.................................................. A-11
3.7 Merger Sub.................................................. A-12
3.8 Registration Statement; Proxy Statement/Prospectus.......... A-12
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME................... A-12
4.1 Conduct of Business by the Company.......................... A-12
4.2 Conduct of Business by Thermo Electron...................... A-12
ARTICLE V ADDITIONAL AGREEMENTS.................................. A-12
5.1 Registration Statement; Other Filings....................... A-12
5.2 Meeting of the Company Stockholders......................... A-14
5.3 Access to Information....................................... A-14
5.4 Public Disclosure........................................... A-14
5.5 Legal Requirements.......................................... A-15
5.6 Notification of Certain Matters............................. A-15
5.7 Best Efforts and Further Assurances......................... A-15
5.8 Stock Option Plans; Reservation of Shares................... A-15
5.9 Thermo Electron Form S-8.................................... A-16
5.10 Indemnification; Insurance.................................. A-16
5.11 Deferred Compensation Plan.................................. A-18
</TABLE>
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<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
5.12 Compliance by Merger Sub.................................... A-18
5.13 NYSE Listing................................................ A-18
5.14 AMEX Listing................................................ A-18
ARTICLE VI CONDITIONS TO THE MERGER.............................. A-18
6.1 Conditions to Obligations of Each Party to Effect the
Merger...................................................... A-18
6.2 Additional Conditions to Obligations of the Company......... A-18
6.3 Additional Conditions to the Obligations of Thermo Electron
and Merger Sub.............................................. A-19
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.................... A-20
7.1 Termination................................................. A-20
7.2 Notice of Termination; Effect of Termination................ A-21
7.3 Fees and Expenses........................................... A-21
7.4 Amendment................................................... A-21
7.5 Extension; Waiver........................................... A-21
ARTICLE VIII GENERAL PROVISIONS.................................. A-21
8.1 Non-Survival of Representations and Warranties.............. A-21
8.2 Notices..................................................... A-21
8.3 Counterparts................................................ A-22
8.4 Entire Agreement............................................ A-22
8.5 Severability................................................ A-23
8.6 Other Remedies; Specific Performance........................ A-23
8.7 Governing Law............................................... A-23
8.8 Assignment.................................................. A-23
8.9 Headings.................................................... A-23
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of
December 14, 1999 is by and among Thermo Electron Corporation ("Thermo
Electron"), a Delaware corporation, ThermoLase Acquisition Corporation ("Merger
Sub"), a Delaware corporation and a wholly-owned subsidiary of ThermoTrex
Acquisition Corporation which in turn is a wholly owned subsidiary of Thermo
Electron, and ThermoLase Corporation (the "Company"), a Delaware corporation.
RECITALS
A. Thermo Electron owns approximately 13.91%, and ThermoTrex Corporation
("ThermoTrex"), a Delaware corporation and majority owned subsidiary of Thermo
Electron, owns approximately 71.06%, of the outstanding shares of common stock,
par value $.01 per share, of the Company (the "Company Common Stock"), and
Thermo Electron desires to acquire all of the remaining outstanding shares of
Company Common Stock.
B. Thermo Electron has formed the Merger Sub as an indirect subsidiary with
the intent of causing it to merge with the Company, as described in this
Agreement.
C. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law (the "DGCL"), Thermo
Electron and the Company will enter into a business combination transaction
pursuant to which Merger Sub will merge with and into the Company (the
"Merger").
D. The Board of Directors of Thermo Electron (i) has determined that the
Merger is consistent with and in furtherance of the long-term business strategy
of Thermo Electron and is in the best interests of Thermo Electron and its
stockholders, and (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement.
E. The Board of Directors of the Company, on the recommendation of a
special committee of the Board of Directors (the "Special Committee"),
consisting of two directors of the Company who are not employees, officers or
directors of Thermo Electron and its subsidiaries (other than the Company), and
who are not officers or employees of the Company, (i) has determined that this
Agreement, including the Exchange Ratio (as defined below), and the transactions
contemplated by this Agreement, are fair to the stockholders of the Company
(other than Thermo Electron and ThermoTrex) from a financial point of view,
(ii) has approved and declared the advisability of this Agreement, the Merger
and the other transactions contemplated by this Agreement and (iii) has resolved
to recommend the approval and adoption of this Agreement by the stockholders of
the Company.
F. Stonebridge Associates LLC (the "Financial Advisor") has delivered to
the Special Committee, for its consideration and for inclusion in its entirety
in the Proxy Statement to be delivered to the stockholders of the Company
relating to the Merger, its written opinion that, subject to the various
assumptions and limitations set forth therein, as of the date of such opinion
the consideration to be received by the stockholders of the Company (other than
Thermo Electron and ThermoTrex) is fair to such stockholders from a financial
point of view.
G. Thermo Electron, the Company and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
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NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1. THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the DGCL, Merger Sub shall be merged with and into the
Company, the separate corporate existence of Merger Sub shall cease and the
Company shall continue as the surviving corporation. The Company as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation."
1.2. EFFECTIVE TIME; CLOSING. Subject to the provisions of this Agreement,
the Surviving Corporation shall cause the Merger to be consummated by filing a
Certificate of Merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware in accordance with the relevant provisions of the DGCL
(the time of such filing, or such later time as may be agreed in writing by the
parties and specified in the Certificate of Merger, being the "Effective Time"
and the date on which the Effective Time occurs being the "Effective Date") as
early as practicable on the Closing Date (as herein defined). Unless the context
otherwise requires, the term "Agreement" as used herein refers collectively to
this Agreement and the Certificate of Merger. The closing of the Merger (the
"Closing") shall take place at the executive offices of Thermo Electron at a
time and date to be specified by the parties, which shall be no later than the
tenth business day after the satisfaction or waiver of the conditions set forth
in Article VI, or at such other time, date and location as the parties hereto
agree in writing (the "Closing Date"). At the Closing, (i) the Company shall
deliver to Thermo Electron the various certificates and instruments required
under Article VI, (ii) Thermo Electron and Merger Sub shall deliver to the
Company the various certificates and instruments required under Article VI and
(iii) the Company shall execute and file the Certificate of Merger with the
Secretary of State of the State of Delaware, in accordance with the applicable
provisions of the DGCL.
1.3. EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of the
DGCL. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4. CERTIFICATE OF INCORPORATION; BYLAWS.
(a) Subject to the requirements of Section 5.10 hereof, at the Effective
Time, the Certificate of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Certificate of Incorporation.
(b) Subject to the requirements of Section 5.10 hereof, the Bylaws of
Merger Sub, as in effect immediately prior to the Effective Time, shall be,
at the Effective Time, the Bylaws of the Surviving Corporation until
thereafter amended.
1.5. DIRECTORS AND OFFICERS. The directors of the Company immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, to serve until their respective successors are duly elected or
appointed and qualified. The officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, to serve
until their successors are duly elected or appointed and qualified.
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<PAGE>
1.6. EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, the Company or the
holders of any of the following securities:
(a) EXCHANGE OF THE COMPANY COMMON STOCK AND UNITS.
(i) Subject to the balance of this Section 1.6 and Section 1.11
hereof, each issued and outstanding share of Company Common Stock (other
than shares to be canceled in accordance with Section 1.6(e), and other
than shares of Company Common Stock coupled with the right to have the
Company redeem such share of Common Stock for $20.25 per share between
April 3, 2001 and April 30, 2001 (the "Units")) will be automatically
converted into the right to receive that number of validly issued, fully
paid and nonassessable shares of the common stock, $1.00 par value, of
Thermo Electron (the "Thermo Common Stock"), equal to the Exchange Ratio,
determined as set forth in Section 1.6(f). Subject to
Section 1.6(a)(ii) below, as of the Effective Time, all shares of Company
Common Stock shall no longer be outstanding and shall be automatically
canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of Company Common Stock shall
cease to have any rights with respect thereto, except the right to
receive the Stock Merger Consideration (as defined in Section 1.7(b))
upon surrender of the certificate representing such shares of Company
Common Stock in the manner provided in Section 1.7 (or in the case of a
lost, stolen or destroyed certificate, upon delivery of an affidavit (and
bond, if required) in the manner provided in Section 1.9).
(ii) At the Effective Time, each issued and outstanding Unit will
continue to have, and be subject to, the same terms and conditions
applicable to the Units immediately prior to the Effective Time, except
that each share of Company Common Stock included as part of the Unit will
be automatically converted into that number of validly issued, fully paid
and nonassessable shares of Thermo Common Stock equal to one share times
the Exchange Ratio, determined as set forth in Section 1.6(f), and except
that the redemption right associated with the Thermo Common Stock issued
to the Unit holder shall be the right to have Thermo Electron redeem such
Thermo Common Stock for cash in an amount per whole share of Thermo
Common Stock included in such Unit or Units equal to $20.25 divided by
the Exchange Ratio. Each Unit of Thermo Common Stock ("Thermo Units")
shall be comprised of the fractional share of Thermo Common Stock
determined as set forth in Section 1.6(f), coupled with the redemption
right described above. Holders of fractional shares of Thermo Common
Stock included in the Thermo Units shall have all of the rights of
holders of whole shares of Thermo Common Stock except that the rights
associated with fractional shares shall be proportional based on the
fraction of a share owned by such holders, including without limitation
with respect to voting rights, dividends, and distributions with respect
to such fractional shares. As of the Effective Time, all Units shall no
longer be outstanding and shall be automatically canceled and retired and
shall cease to exist, and each holder of a certificate representing any
Units shall cease to have any rights with respect thereto, except the
right to receive the Unit Merger Consideration (as defined in
Section 1.7(b)) upon surrender of the certificate representing such Units
in the manner provided in Section 1.7 (or in the case of a lost, stolen
or destroyed certificate, upon delivery of an affidavit (and bond, if
required) in the manner provided in Section 1.9).
(b) STOCK OPTION PLANS. All options to purchase Company Common Stock
outstanding immediately prior to the Effective Time under stock option plans
maintained by the Company (the "Company Stock Option Plans"), shall be
converted into options to purchase Thermo Common Stock in accordance with
Section 5.8 hereof.
(c) CONVERTIBLE DEBENTURES. All Company convertible debentures (the
"Convertible Debentures") issued pursuant to a Fiscal Agency Agreement dated
as of August 12, 1997 by and among the Company, Thermo Electron, and Bankers
Trust Company, as Fiscal Agent, outstanding
A-3
<PAGE>
at the Effective Time shall remain the Convertible Debentures of the
Company, provided however, that in lieu of Company Common Stock being
issuable upon conversion of such Convertible Debentures, after the Effective
Time, Thermo Common Stock shall be issuable upon conversion of such
Convertible Debentures in accordance with the terms of the Fiscal Agency
Agreement. At the Effective Time, the price at which Convertible Debentures
then outstanding will be convertible into Thermo Common Stock shall be
adjusted in accordance with the terms of the Fiscal Agency Agreement.
(d) CAPITAL STOCK OF MERGER SUB. At the Effective Time, each share of
common stock, par value $.01 per share, of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into and become
one validly issued, fully paid and non-assessable share of common stock, par
value $.01 per share, of the Surviving Corporation.
(e) TREASURY STOCK; STOCK HELD BY THERMO ELECTRON AND THERMOTREX.
Notwithstanding any other provision of this Agreement, each share of Company
Common Stock issued and outstanding and owned by Thermo Electron, ThermoTrex
or any wholly-owned subsidiary of Thermo Electron, together with all shares
owned by the Company or any wholly-owned subsidiary of the Company
immediately prior to the Effective Time shall cease to be outstanding, and
shall automatically be cancelled and retired without payment of any
consideration therefor, cash or otherwise, and cease to exist.
(f) DETERMINATION AND ADJUSTMENT OF EXCHANGE RATIO. The Exchange Ratio
shall be determined as follows:
The "Exchange Ratio" means the product obtained by multiplying (x) .158
by (y) the quotient obtained by dividing $14.906 by the Average Closing
Price and rounding to the nearest 1/10,000; provided, however that in the
event that the Average Closing Price is less than $11.925, or greater than
$17.887, then the Exchange Ratio shall be set at .198 and .132,
respectively. The "Average Closing Price" shall be an amount equal to the
average per share closing price of Thermo Common Stock, as reported on the
consolidated transaction reporting system for the 20 trading days ending
with the trading day immediately preceding the Effective Date.
The Exchange Ratio shall be adjusted to reflect fully the effect of any
stock split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into, or exercisable or exchangeable
for, Company Common Stock or Thermo Common Stock, as the case may be),
recapitalization or other like change without receipt of consideration with
respect to either the Company Common Stock or the Thermo Common Stock
occurring on or after the date hereof and prior to the Effective Time.
1.7. SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time, Thermo Electron shall
authorize Boston EquiServe to act as the exchange agent (the "Exchange
Agent") in the Merger. Immediately following the Effective Time, Thermo
Electron shall deposit with the Exchange Agent, for the benefit of the
holders of shares of Company Common Stock and Units, for exchange in
accordance with the provisions of this Article I, certificates representing
the shares of Thermo Common Stock and Thermo Units issuable pursuant to this
Agreement in exchange for certificates representing outstanding shares of
Company Common Stock and outstanding Units, and cash sufficient to make
payments pursuant to Section 1.11 for fractional shares of Thermo Common
Stock and fractional Thermo Units. The Thermo Common Stock and Thermo Units
into which Company Common Stock and Units shall be converted pursuant to the
Merger shall be deemed to have been issued at the Effective Time.
(b) EXCHANGE PROCEDURES. As soon as practicable after, and in no event
more than five business days after, the Effective Time, Thermo Electron
shall cause the Exchange Agent to mail
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<PAGE>
to each holder of record (as of the Effective Time) of a certificate (a
"Certificate" or the "Certificates") representing Company Common Stock or
Units (i) a letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall otherwise
be in such form and have such other provisions as Thermo Electron may
reasonably specify and as are reasonably acceptable to the Company) and
(ii) instructions for effecting the exchange of the Certificates for
certificates representing shares of Thermo Common Stock or Thermo Units, as
the case may be, as provided herein. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal
duly completed and validly executed in accordance with the instructions
thereto, the holders of Company Common Stock (excluding Company Common Stock
included in any Units) shall be entitled to receive in exchange for their
Certificates, (x) subject to Section 1.11, a certificate representing shares
of Thermo Common Stock equal to the Exchange Ratio multiplied by the number
of shares of Company Common Stock represented by such Certificate, (y) any
dividends or other distributions to which such holder is entitled pursuant
to Section 1.10 hereof, and (z) a check issued pursuant to Section 1.11
hereof for any fractional share of Thermo Common Stock (the consideration
specified in clauses (x), (y) and (z) above are referred to herein,
collectively, as the "Stock Merger Consideration"), and the Certificate so
surrendered shall forthwith be cancelled; and holders of Units shall be
entitled to receive in exchange for their Certificates, (I) subject to
Section 1.11, Thermo Units in an amount equal to the Exchange Ratio
multiplied by the number of Units represented by such Certificate, and
(II) any dividends or other distributions to which such holder is entitled
pursuant to Section 1.10 hereof. (the consideration specified in clauses
(I) and (II) above are referred to herein, collectively, as the "Unit Merger
Consideration"), and the Certificate so surrendered shall forthwith be
cancelled. The term "Merger Consideration" means, collectively, the Stock
Merger Consideration and the Unit Merger Consideration. In the event of a
transfer of ownership of shares of Company Common Stock or Units which is
not registered in the transfer records of the Company as of the Effective
Time, the Stock Merger Consideration or the Unit Merger Consideration, as
the case may be, may be delivered in accordance with this Article I to a
transferee if the Certificate evidencing such shares or Units is presented
to the Exchange Agent, accompanied by all documents required by law to
evidence and effect such transfer pursuant to this Section. Until so
surrendered, each outstanding Certificate will be deemed from and after the
Effective Time, for all corporate purposes, to evidence only the right to
receive the Stock Merger Consideration or the Unit Merger Consideration, as
the case may be.
(c) TRANSFERS OF OWNERSHIP. If payment of the Merger Consideration is
to be made to any person other than the person in whose name the Certificate
surrendered in exchange therefor is registered, it will be a condition of
such payment that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting
such payment will have paid to Thermo Electron or any agent designated by it
any transfer or other taxes required by reason of payment to a person other
than the registered holder of the Certificate surrendered, or established to
the reasonable satisfaction of Thermo Electron or any agent designated by it
that such tax has been paid or is not payable.
(d) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.7, neither the Exchange Agent, Thermo Electron, the Surviving
Corporation nor any party hereto shall be liable to a holder of shares of
Company Common Stock or Units for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
(e) RESPONSIBILITY; TERM. During the term of its engagement, the
Exchange Agent shall be responsible for delivering certificates representing
Thermo Common Stock or Thermo Units and the other Merger Consideration to
the holders of properly endorsed Certificates that are returned to the
Exchange Agent. Promptly following the date that is six months after the
Effective Date, the
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<PAGE>
Exchange Agent shall, upon request by Thermo Electron, deliver to Thermo
Electron all cash, cancelled Certificates, certificates representing shares
of Thermo Common Stock and Thermo Units and other documents in its
possession relating to the transactions described in this Agreement, and the
Exchange Agent's duties shall terminate. Thereafter, each holder of a
Certificate formerly representing shares of Company Common Stock or Units
may surrender such Certificate to Thermo Electron and (subject to applicable
abandoned property, escheat and similar laws) receive in exchange therefor
the Merger Consideration represented by such Certificate, without any
interest thereon.
1.8. NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK OR UNITS. The
Thermo Common Stock or Thermo Units, as the case may be, and cash, if any,
delivered to the holders of Company Common Stock or Units upon the surrender of
shares of Company Common Stock or Units in accordance with the terms hereof
shall be deemed to have been delivered in full satisfaction of all rights
pertaining to such shares of Company Common Stock or Units.
1.9. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall deliver the
certificates representing Thermo Common Stock or Thermo Units, as the case may
be, and the other Merger Consideration in respect of such lost, stolen or
destroyed Certificates, upon the making of an affidavit of that fact by the
holder thereof; provided, however, that, as a condition precedent to the payment
thereof, the owner of such lost, stolen or destroyed Certificates shall deliver
a bond in such sum as Thermo Electron or the Exchange Agent may reasonably
direct as indemnity against any claim that may be made against Thermo Electron
or the Exchange Agent with respect to the Certificates alleged to have been
lost, stolen or destroyed, unless Thermo Electron waives such requirement in
writing.
1.10. DIVIDENDS. No dividends or other distributions that are payable to
the holders of record of Thermo Common Stock or Thermo Units as of a date on or
after the Effective Time shall be paid to the holders of Company Common Stock or
Units entitled by reason of the Merger to receive Thermo Common Stock or Thermo
Units, as the case may be, until such holders surrender their Certificates in
accordance with Section 1.7(b) or provide an affidavit and indemnity in
accordance with Section 1.9. Upon such surrender, the Exchange Agent or Thermo
Electron (in the event that the Exchange Agent's term has expired), shall pay or
deliver to the persons in whose name the certificates representing such Thermo
Common Stock or Thermo Units, as the case may be, are issued any dividends or
other distributions that are payable to the holders of record of Thermo Common
Stock or Thermo Units as of a date on or after the Effective Time and which were
paid or delivered between the Effective Time and the time of such surrender;
provided that no such person shall be entitled to receive any interest on such
dividends or other distributions (except as expressly provided in any securities
or other property that may be so dividended or distributed).
1.11. FRACTIONAL SHARES. No certificates or scrip representing fractional
shares of Thermo Common Stock shall be issued to holders of Company Common Stock
upon the surrender for exchange of Certificates, and such holders shall not be
entitled to any voting rights, rights to receive any dividends or distributions
or other rights as a stockholder of Thermo Electron with respect to any
fractional shares of Thermo Common Stock that would otherwise be issued to such
holders. In lieu of any fractional shares of Thermo Common Stock that would
otherwise be issued, each holder of Company Common Stock that would have been
entitled to receive a fractional share of Thermo Common Stock shall, upon proper
surrender of such person's Certificates, receive a cash payment (rounded up to
the nearest cent) equal to the closing price per share of Thermo Common Stock,
as reported in the consolidated transaction reporting system on the trading day
immediately preceding the Closing Date, multiplied by the fraction of a share
that such holder would otherwise be entitled to receive. Fractional shares of
Thermo Common Stock may be issued to holders of Units.
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<PAGE>
1.12. CLOSING OF TRANSFER BOOKS. At the Effective Time, the stock transfer
books of the Company shall be closed and no transfer of Company Common Stock or
Units shall thereafter be made. If, after the Effective Time, Certificates are
presented to Thermo Electron, they shall be canceled and exchanged for Merger
Consideration in accordance with Article I.
1.13. TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Surviving Corporation are fully authorized in the name of the Company and Merger
Sub or otherwise to take, and will take, all such lawful and necessary action,
so long as such action is consistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Thermo Electron and Merger Sub as
follows:
2.1. ORGANIZATION OF THE COMPANY. The Company and each of its subsidiaries
is a corporation or other legal entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization, has the corporate or similar power to own, lease and operate its
property and to carry on its business as now being conducted and as proposed by
the Company to be conducted, and is duly qualified to do business and in good
standing as a foreign corporation or other legal entity in each jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect on the
Company. In this Agreement, the term "Material Adverse Effect" used in reference
to the Company means any event, change or effect, that is or is reasonably
likely to be, individually or in the aggregate with other events, changes or
effects, materially adverse to the financial condition, assets, liabilities,
results of operations or business of the Company and its subsidiaries, taken as
a whole.
2.2. COMPANY CAPITAL STRUCTURE. The authorized capital stock of the
Company consists of 100,000,000 shares of Common Stock, par value $.01 per
share, of which there were 39,347,996 shares issued and outstanding as of
October 31, 1999 (including 2,000,000 shares that are included in the
outstanding Units), and 1,481,136 shares in treasury. All outstanding shares of
Company Common Stock are duly authorized, validly issued, fully paid and
non-assessable and are not subject to preemptive rights created by statute, the
Certificate of Incorporation or Bylaws of the Company or any agreement or
document to which the Company is a party or by which it is bound. As of
October 27, 1999, an aggregate of 2,985,320 shares of Company Common Stock, net
of exercises, were reserved for issuance to employees, consultants and
non-employee directors pursuant to Company Stock Option Plans, under which
options were outstanding for an aggregate of 1,642,283 shares as of such date.
As of October 27, 1999, 6,614,897 shares of Company Common Stock were reserved
for issuance upon the conversion of the Convertible Debentures and 100,000
shares of Company Common Stock were reserved for issuance under the Company
Directors Deferred Compensation Plan. All shares of Company Common Stock subject
to issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, would be duly authorized,
validly issued, fully paid and non-assessable.
2.3. AUTHORITY.
(a) The Company has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject only to the adoption of
this Agreement by the Company's stockholders by the affirmative vote of the
holders of a majority of the outstanding shares of Company Common Stock (the
"Company Vote") and
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the filing and recording of the Certificate of Merger pursuant to the DGCL.
Under the DGCL, the Company's stockholders may adopt this Agreement by vote
of the holders of a majority of the outstanding shares of Company Common
Stock. This Agreement has been duly executed and delivered by the Company,
and assuming the due authorization, execution and delivery by Thermo
Electron and Merger Sub, constitutes the valid and binding obligation of the
Company, enforceable in accordance with its terms. The execution and
delivery of this Agreement by the Company do not, and the performance of
this Agreement by the Company will not, (i) conflict with or violate the
Certificate of Incorporation or Bylaws of the Company or (ii) subject to
obtaining the Company Vote and compliance with the requirements set forth in
Section 2.3(b) below, conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to the Company or any of its material
subsidiaries or by which its or their respective properties is bound,
except, with respect to clause (ii), for any such conflicts, violations,
defaults or other occurrences that would not have a Material Adverse Effect
on the Company or the Surviving Corporation.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental or regulatory body or authority or instrumentality
("Governmental Entity") is required by or with respect to the Company in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) the
filing of the Certificate of Merger with the Secretary of State of Delaware,
(ii) the filing by the Company and Thermo Electron of the Proxy Statement
and the Registration Statement (as defined in Section 5.1), respectively,
with the U.S. Securities and Exchange Commission ("SEC") in accordance with
the Securities Act of 1933, as amended (the "Securities Act") and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
(iii) such other consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and
state securities laws.
2.4. BOARD APPROVAL. The Board of Directors of the Company, upon
recommendation of the Special Committee that this Agreement, including the
Exchange Ratio, is fair to, and in the best interests of, the Company and its
stockholders (other than Thermo Electron and ThermoTrex), has, as of the date of
this Agreement, unanimously (i) adopted a resolution approving this Agreement
and declaring its advisability, (ii) determined that the Merger is fair to the
stockholders of the Company and in the best interests of the Company, and
(iii) determined to recommend that the stockholders of the Company vote to adopt
this Agreement.
2.5. FAIRNESS OPINION. The Special Committee has received an opinion from
the Financial Advisor dated December 14, 1999 that, as of such date, the
consideration to be received by the Company's stockholders in the Merger is
fair, from a financial point of view, to the Company's stockholders other than
Thermo Electron, ThermoTrex and their affiliates (other than the Company).
2.6 REGISTRATION STATEMENT, PROXY STATEMENT/PROSPECTUS. The information
supplied by the Company for inclusion in the Registration Statement (as defined
in Section 5.1(a)) (including any information incorporated by reference in the
Registration Statement from other filings made by the Company with the SEC)
shall not at the time the Registration Statement becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein not
misleading in light of the circumstances under which they were made. Other than
with respect to the information supplied by Thermo Electron or the Merger Sub,
the Proxy Statement (as defined in Section 5.1(a)) shall not, on the date the
Proxy Statement is first mailed to stockholders, at the time of the Company
Stockholders' Meeting (as defined in Section 5.1(b)) or at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not false or
misleading. The Proxy Statement will comply (other than with respect to
information relating to Thermo Electron and/or Merger Sub) as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THERMO ELECTRON AND MERGER SUB
Thermo Electron and Merger Sub, jointly and severally, represent and warrant
to the Company as follows:
3.1. ORGANIZATION. Thermo Electron is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, each has the corporate power
to own, lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and in good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified would have a Material Adverse Effect on Thermo
Electron. In this Agreement, the term "Material Adverse Effect" used in
reference to Thermo Electron means any event, change or effect, that is or is
reasonably likely to be, individually or in the aggregate with other events,
changes or effects, materially adverse to the financial condition, assets,
liabilities, results of operations or business of Thermo Electron and its
subsidiaries, taken as a whole.
3.2. AUTHORITY.
(a) Each of Thermo Electron and Merger Sub has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Thermo
Electron and Merger Sub, subject only to the filing and recording of the
Certificate of Merger pursuant to the DGCL. This Agreement has been duly
executed and delivered by each of Thermo Electron and Merger Sub and,
assuming the due authorization, execution and delivery of this Agreement by
the Company, this Agreement constitutes the valid and binding obligation of
each of Thermo Electron and Merger Sub, enforceable in accordance with its
terms. The execution and delivery of this Agreement by each of Thermo
Electron and Merger Sub do not, and the performance of this Agreement by
each of Thermo Electron and Merger Sub will not, (i) conflict with or
violate the Certificate of Incorporation or Bylaws of Thermo Electron or the
Certificate of Incorporation or Bylaws of Merger Sub or of any material
subsidiary, direct or indirect, of Thermo Electron (including Merger Sub,
but excluding the Company and its subsidiaries) (each, a "Material Thermo
Subsidiary"), (ii) subject to compliance with the requirements set forth in
Section 3.2(c) below, conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to Thermo Electron or any Material
Thermo Subsidiaries or by which its or any of their respective properties is
bound or affected, or (iii) result in any breach of or constitute a default
(or an event that with notice or lapse of time or both would become a
default) under, or impair Thermo Electron's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of
Thermo Electron or any Material Thermo Subsidiaries pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Thermo Electron or any
Material Thermo Subsidiaries is a party or by which Thermo Electron or any
Material Thermo Subsidiaries or its or any of their respective properties
are bound or affected, except, with respect to clause (iii), for any such
conflicts, violations, defaults or other occurrences that would not have a
Material Adverse Effect on Thermo Electron.
(b) All shares of Thermo Common Stock and Thermo Units issuable in
accordance with this Agreement, and shares of Thermo Common Stock which will
be subject to issuance pursuant to Company Stock Option Plans or the
Convertible Debentures will, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights
created
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by statute, the Certificate of Incorporation or Bylaws of Thermo Electron or
Merger Sub or any other agreement or document to which either is a party or
by which either is bound.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to Thermo Electron or Merger Sub in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the Certificate of Merger
with the Secretary of State of Delaware, (ii) the filing of the Proxy
Statement and the Registration Statement (as defined in Section 5.1) with
the SEC in accordance with the Securities Act and the Exchange Act, and
(iii) such other consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and
state securities laws.
3.3 CAPITALIZATION.
(a) The authorized capital stock of Thermo Electron consists of
350,000,000 shares of Thermo Common Stock, par value $1.00 per share, of
which there were 158,236,781 shares issued and outstanding as of October 2,
1999, and 9,011,451 shares in treasury as of October 2, 1999, and 50,000
shares of preferred stock, $100 par value per share, of which 40,000 shares
have been designated Series B Junior Participating Preferred Stock, none of
which are issued and outstanding. All of the outstanding shares of Thermo
Common Stock are duly authorized, validly issued, fully paid and
non-assessable and are not subject to preemptive rights created by statute,
the Certificate of Incorporation or Bylaws of Thermo Electron or any
agreement or document to which Thermo Electron or any subsidiary of Thermo
Electron is a party or by which it is bound. As of October 2, 1999, an
aggregate of 15,653,373 shares of Thermo Common Stock, net of exercises,
were reserved for issuance to employees, consultants and non-employee
directors pursuant to stock option plans maintained by Thermo Electron or
any subsidiary of Thermo Electron, under which options are outstanding for
an aggregate of 11,912,116 shares. As of October 2, 1999, an aggregate of
15,476,191 shares of Thermo Common Stock were reserved for issuance upon the
conversion of convertible debentures issued by Thermo Electron. All shares
of Thermo Common Stock subject to issuance as aforesaid, upon issuance on
the terms and conditions specified in the instruments pursuant to which they
are issuable, will be duly authorized, validly issued, fully paid and
non-assessable. There are no bonds, debentures, notes or other indebtedness
of Thermo Electron issued and outstanding which have rights to vote in the
election of directors of Thermo Electron. Except as described in the Thermo
Reports (as defined in Section 3.4) filed prior to the date of this
Agreement, there are no other material outstanding options, warrants, equity
securities, subscriptions, calls, rights, commitments or agreements of any
character to which Thermo Electron or any of its subsidiaries is a party or
by which it is bound, obligating Thermo Electron to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock
or other equity securities of Thermo Electron or obligating Thermo Electron
to grant or enter into any such option, warrant, equity security, call,
right, commitment or agreement.
(b) Thermo Electron has also assumed the obligations of certain of its
subsidiaries under stock option plans which have been modified to provide
that option holders have the right to acquire shares of Thermo Electron
common stock on certain terms and conditions. The options to acquire
additional shares of Thermo Common Stock assumed by Thermo Electron in
connection with signed merger agreements with its majority owned
subsidiaries which options are not reflected in the number of shares
identified in Section 3.3(a) as reserved for issuance pursuant to Thermo
Electron Stock Option Plans, constitute less than one percent of the issued
and outstanding shares of Thermo Common Stock issued and outstanding as of
October 2, 1999. Since October 2, 1999, other than pursuant to merger
agreements with its majority owned subsidiaries, Thermo Electron has not
issued additional options, warrants, equity securities, subscriptions,
calls, rights, commitments or agreements obligating Thermo Electron to
issue, deliver or sell, or cause to be
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issued, delivered or sold, additional shares of capital stock or other
equity securities of Thermo Electron obligating Thermo Electron to grant or
enter into options, warrants, equity securities, calls, rights, commitments
or agreements.
(c) As of the date of this Agreement, no Stock Acquisition Date or other
event that would result in the occurrence of a Distribution Date has
occurred (as such terms are defined in the Rights Agreement dated
January 19, 1996, as amended, by and between Thermo Electron and BankBoston,
N.A. (the "Rights Agreement")), with respect to the rights to purchase a
unit consisting of one ten-thousandth of a share of Thermo Electron's
Series B Junior Participating Preferred Stock pursuant to the Rights
Agreement.
3.4 REPORTS AND FINANCIAL STATEMENTS. Thermo Electron has filed all
material forms, reports and documents required to be filed with the SEC since
January 1, 1997. Thermo Electron has made available to the Company complete and
accurate copies, as amended or supplemented, of (a) its Annual Report on
Form 10-K for the fiscal year ended January 2, 1999 as filed with the SEC, and
(b) all other reports filed by Thermo Electron with the SEC under Sections 13 or
14 of the Exchange Act since January 2, 1999 (such reports are collectively
referred to herein as the "Thermo Reports"). Since October 2, 1999, there has
been no change in the business, financial condition or results of operations of
Thermo Electron that has resulted or is reasonably likely to result in a
Material Adverse Effect on Thermo Electron. As of their respective dates, the
Thermo Reports (i) complied in all material respects with the requirements of
the Exchange Act and the applicable rules of the SEC thereunder and (ii) 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
Thermo Electron included in the Thermo Reports (in each case including the notes
thereto) (i) comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, (ii) have been prepared in accordance with generally accepted
accounting principles 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, in all material respects, the
consolidated financial condition, results of operation and cash flows of Thermo
Electron as of the respective dates thereof and for the periods referred to
therein, and (iv) are consistent with the books and records of Thermo Electron.
There are no liabilities of Thermo Electron which are not disclosed in the
Thermo Reports which would be reasonably likely to have a Material Adverse
Effect on Thermo Electron.
3.5 INFORMATION PROVIDED TO FINANCIAL ADVISOR. To the knowledge of Thermo
Electron, the information provided by Thermo Electron and the Company to the
Financial Advisor in connection with the Merger does not contain any untrue
statement of 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. For purposes of the
foregoing sentence, any projections or forward-looking statements shall not be
deemed to be statements of material fact; however, the projections were prepared
in good faith and based on assumptions that were reasonable at the time such
projections were prepared, given the information known by management at such
time. Furthermore, it is recognized that such projections and forward-looking
statements do not constitute any warranty as to the future performance of Thermo
Electron or the Company and that actual results may vary from projected results.
3.6 LITIGATION. Except as discussed in the Thermo Reports, there are no
suits, actions, arbitrations, demands, claims or proceedings pending, or to the
knowledge of Thermo Electron, threatened against Thermo Electron or any
subsidiary of Thermo Electron which, individually or in the aggregate, are
reasonably likely to have a Material Adverse Effect on Thermo Electron.
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3.7 MERGER SUB. Since the date of its incorporation, Merger Sub has not
engaged in any activities other than in connection with or as contemplated by
this Agreement and has incurred no material liabilities or obligations other
than those arising under this Agreement.
3.8 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. Other than with
respect to the information supplied by the Company, the Registration Statement
shall not, at the time the Registration Statement becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements included therein not
misleading. The information supplied by Thermo Electron for inclusion in the
Proxy Statement (including any information incorporated by reference in the
Proxy Statement from other filings made by Thermo Electron with the SEC) shall
not, on the date the Proxy Statement is first mailed to stockholders, at the
time of the Company Stockholders' Meeting or at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not false or misleading.
The Proxy Statement will comply (with respect to information relating to Thermo
Electron) as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1. CONDUCT OF BUSINESS BY THE COMPANY. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, the Company shall, except
for such actions which are contemplated by this Agreement or reasonably
appropriate in connection with the transactions contemplated by this Agreement,
and except as consented to by Thermo Electron, carry on its business in the
usual, regular and ordinary course, in substantially the same manner as
heretofore conducted, pay its debts and taxes when due subject to good faith
disputes over such debts or taxes, pay or perform other material obligations
when due, and use its commercially reasonable efforts consistent with past
practices and policies to preserve intact its present business organization,
keep available the services of its present officers and employees and preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others with which it has business dealings.
4.2. CONDUCT OF BUSINESS BY THERMO ELECTRON. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement pursuant to its terms or the Effective Time, Thermo Electron
shall not, and shall not permit any Material Thermo Subsidiary to, take any
action which would make any of the representations and warranties of Thermo
Electron contained herein untrue or cause Thermo Electron not to be in
compliance with any covenant set forth herein.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1. REGISTRATION STATEMENT; OTHER FILINGS.
(a) As promptly as practicable after the execution of this Agreement,
the Company and Thermo Electron will jointly prepare and file with the SEC a
preliminary proxy statement (with appropriate requests for confidential
treatment) relating to the Merger and this Agreement (such proxy statement,
as amended or supplemented, the "Proxy Statement"), and Thermo Electron will
prepare and file with the SEC a registration statement on Form S-4 (the
"Registration Statement"), in which the Proxy Statement shall be included as
a prospectus. Thermo Electron will use its best efforts to cause the
Registration Statement to be declared effective under the Securities Act as
soon as practicable after such filing, and will take all actions required
under
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applicable federal or state securities laws in connection with the issuance
of Thermo Common Stock in the Merger. Each party will notify the other
promptly upon the receipt of any comments from the SEC or its staff and of
any request by the SEC or its staff or any other government officials for
amendments or supplements to the Proxy Statement, the Registration Statement
or any other filing or for additional information and will supply the other
party with copies of all correspondence between such party or any of its
representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the Registration
Statement, the Proxy Statement or the Merger. Whenever any event occurs that
is required to be set forth in an amendment or supplement to the
Registration Statement or the Proxy Statement, the relevant party will
promptly inform the other party of such occurrence and cooperate in filing
with the SEC or its staff or any other government officials, and/or mailing
to stockholders of the Company, such amendment or supplement.
(b) The information supplied by the Company for inclusion in the
Registration Statement (including any information incorporated by reference
in the Registration Statement from other filings made by the Company with
the SEC) will not, at the time the Registration Statement (including any
amendments or supplements thereto) is declared effective by the SEC, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The information supplied by the Company for inclusion in the
Proxy Statement to be sent to the stockholders of the Company in connection
with the meeting of the Company's stockholders to consider the adoption of
this Agreement and approval of the Merger (the "Company Stockholders'
Meeting") (including any information incorporated by reference in the Proxy
Statement from other filings made by the Company with the SEC) will not, on
the date the Proxy Statement (or any amendment thereof or supplement
thereto) is first mailed to the Company stockholders, at the time of the
Company Stockholders' Meeting and at the Effective Time, contain any
statement which, at such time and in light of the circumstances under which
it shall be made, is false or misleading with respect to any material fact,
or shall omit to state any material fact necessary in order to make the
statements made therein not false or misleading in light of the
circumstances under which they were made, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect
to the solicitation of proxies for the Company Stockholders' Meeting which
has become false or misleading.
(c) The information supplied by Thermo Electron and Merger Sub for
inclusion in the Registration Statement (including any information
incorporated by reference in the Registration Statement from other filings
made by Thermo Electron with the SEC) will not, at the time the Registration
Statement (including any amendments or supplements thereto) is declared
effective by the SEC, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The information supplied by Thermo
Electron and Merger Sub for inclusion in the Proxy Statement to be sent to
the stockholders of the Company in connection with the Company Stockholders'
Meeting (including any information incorporated by reference in the Proxy
Statement from other filings made by Thermo Electron with the SEC) will not,
on the date the Proxy Statement (or any amendment thereof or supplement
thereto) is first mailed to the Company stockholders, at the time of the
Company Stockholders' Meeting and at the Effective Time, contain any
statement which, at such time and in light of the circumstances under which
it shall be made, is false or misleading with respect to any material fact,
or shall omit to state any material fact necessary in order to make the
statements made therein not false or misleading in light of the
circumstances under which they were made, or omit to state any material fact
necessary to correct any statement in any earlier communication
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with respect to the solicitation of proxies for the Company Stockholders'
Meeting which has become false or misleading.
(d) The Proxy Statement will include the recommendation of the Special
Committee in favor of approval of this Agreement (except that the Special
Committee may withdraw, modify or refrain from making such recommendation to
the extent that the Special Committee determines after consultation with
outside legal counsel that failure to do so would violate the Special
Committee's fiduciary duties under applicable law).
(e) The Proxy Statement will include the recommendation of the Board of
Directors of the Company in favor of approval of this Agreement (except that
the Board of Directors of the Company may withdraw, modify or refrain from
making such recommendation to the extent that the Board determines after
consultation with outside legal counsel that failure to do so would violate
the Board's fiduciary duties under applicable law).
(f) To the extent that the Special Committee or the Board withdraws,
modifies or refrains from making their respective recommendations pursuant
to Sections 5.1(d) or (e) hereof, the Proxy Statement will reflect such
action.
5.2. MEETING OF THE COMPANY STOCKHOLDERS. Promptly after the date hereof,
the Company will take all action necessary in accordance with the DGCL and its
Certificate of Incorporation and Bylaws to convene the Company Stockholders'
Meeting to be held as promptly as reasonably practicable for the purpose of
voting upon this Agreement. Unless the Special Committee determines after
consultation with outside legal counsel that to do so would be inconsistent with
the Board's or the Special Committee's fiduciary duties under applicable law,
the Company will use its reasonable best efforts to solicit from its
stockholders proxies in favor of the approval of this Agreement and the Merger,
and will take all other action necessary or advisable to secure the vote or
consent of its stockholders required by the DGCL to obtain such approvals.
Thermo Electron shall vote, or cause to be voted, all of the Company Common
Stock then owned by it and any of its subsidiaries in favor of the approval of
this Agreement and the Merger.
5.3. ACCESS TO INFORMATION. Subject to applicable legal restrictions, each
of the parties hereto will afford the other (including, in the case of the
Company, the Special Committee) and each of their respective accountants,
counsel and other representatives reasonable access during normal business hours
to the properties, books, records and personnel of each of them during the
period prior to the Effective Time to obtain all information concerning their
respective businesses, including the status of their respective product
development efforts, properties, results of operations and personnel, as each of
them may reasonably request. Each of the parties hereto agrees that it will, and
will cause its representatives and agents to, keep all such information
confidential and will not, and will cause its representatives or agents not to,
use any information obtained pursuant to this Section 5.3 for any purpose
unrelated to the consummation of the transactions contemplated by this
Agreement. Notwithstanding the foregoing, none of the parties hereto shall be
required to keep confidential any information (i) which is or becomes generally
available to the public, other than by wrongful disclosure by the disclosing
party in violation of this Agreement or (ii) which becomes available to the
disclosing party on a nonconfidential basis from a source other than the
nondisclosing party or any officer or director of such party.
5.4. PUBLIC DISCLOSURE. Thermo Electron and the Company will consult with
each other before issuing any press release or otherwise making any public
statement with respect to the Merger or this Agreement and will not issue any
such press release or make any such public statement prior to such consultation,
except as may be required by law or any listing agreement with a national
securities exchange. Promptly upon the execution hereof, the parties shall
jointly make a press release with respect to the transactions contemplated by
this Agreement, in form reasonably satisfactory to the Special Committee.
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5.5. LEGAL REQUIREMENTS. Subject to the terms of this Agreement, each of
Thermo Electron, Merger Sub and the Company will take all reasonable actions
necessary or desirable to comply promptly with all legal requirements that may
be imposed on them with respect to the consummation of the transactions
contemplated by this Agreement (including furnishing all information required in
connection with approvals of or filings with any Governmental Entity, and
including using its reasonable best efforts to defend any litigation prompted
hereby) and will promptly cooperate with and furnish information to any party
hereto necessary in connection with any such requirements imposed upon any of
them or their respective subsidiaries in connection with the consummation of the
transactions contemplated by this Agreement.
5.6. NOTIFICATION OF CERTAIN MATTERS. Subject to the terms of this
Agreement, Thermo Electron and Merger Sub will give prompt notice to the
Company, and the Company will give prompt notice to Thermo Electron, of the
occurrence, or failure to occur, of any event, which occurrence or failure to
occur would be reasonably likely to cause (a) any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at any time from the date of this Agreement to the Effective Time, or (b) any
material failure of Thermo Electron and Merger Sub or the Company, as the case
may be, or of any officer, director, employee or agent thereof, to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it under this Agreement. From the date of this Agreement until the Effective
Time, Thermo Electron will give prompt notice to the Company and the Special
Committee of any written offers or indications of interest it receives from a
prospective purchaser of any material properties or assets of the Company or its
subsidiaries, which set forth a proposed purchase price greater than
$50 million or in which the book value of the assets being sold is greater than
$10 million, other than sales of assets and services in the ordinary course of
business. Notwithstanding the above, the delivery of any notice pursuant to this
section will not limit or otherwise affect the remedies available hereunder to
the party receiving such notice or the conditions to such party's obligation to
consummate the Merger.
5.7. BEST EFFORTS AND FURTHER ASSURANCES. Subject to the respective rights
and obligations of Thermo Electron and the Company under this Agreement, each of
the parties to this Agreement will use its reasonable best efforts to effectuate
the Merger and the other transactions contemplated hereby and to fulfill and
cause to be fulfilled the conditions to closing under this Agreement, it being
understood that such efforts shall not include any obligation to settle any
litigation prompted hereby. Subject to the terms hereof, each party hereto, at
the reasonable request of another party hereto, will execute and deliver such
other instruments and do and perform such other acts and things as may be
reasonably necessary or desirable for effecting completely the consummation of
the transactions contemplated hereby.
5.8. STOCK OPTION PLANS; RESERVATION OF SHARES.
(a) At the Effective Time, each outstanding option to purchase shares of
the Company Common Stock (each a "Company Stock Option") under the Company
Stock Option Plans, whether or not exercisable, will be assumed by Thermo
Electron. Each Company Stock Option so assumed by Thermo Electron under this
Agreement will continue to have, and be subject to, the same terms and
conditions set forth in the applicable Company Stock Option Plan immediately
prior to the Effective Time (including, without limitation, any repurchase
rights), except that (i) each Company Stock Option will be exercisable (or
will become exercisable in accordance with its terms) for that number of
whole shares of Thermo Common Stock equal to the product of the number of
shares of Company Common Stock that were issuable upon exercise of such
Company Stock Option immediately prior to the Effective Time multiplied by
the Exchange Ratio (rounded down to the nearest whole share), and (ii) the
per share exercise price for the shares of Thermo Common Stock issuable upon
exercise of such assumed Company Stock Option will be equal to the quotient
determined by dividing the exercise price per share of Company Common Stock
at which such Company Stock Option was exercisable immediately prior to the
Effective Time by the
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Exchange Ratio, rounded up to the nearest whole cent. After the Effective
Time, Thermo Electron will issue to each holder of an outstanding Company
Stock Option a notice describing the foregoing assumption of such Company
Stock Option by Thermo Electron.
(b) Thermo Electron will reserve sufficient shares of Thermo Common
Stock for issuance under this Section 5.8 and pursuant to conversion of the
Convertible Debentures.
5.9. THERMO ELECTRON FORM S-8. Thermo Electron agrees to file a
registration statement on Form S-8 or, if possible, an amendment to Thermo
Electron's then effective registration statement on Form S-8, for the shares of
Thermo Common Stock issuable with respect to the assumed Company Stock Options
within five (5) business days after the Effective Time and shall use its best
efforts to keep such registration statement effective for so long as any such
options remain outstanding.
5.10. INDEMNIFICATION; INSURANCE.
(a) The Certificate of Incorporation and Bylaws of the Surviving
Corporation will contain the provisions with respect to indemnification and
elimination of liability for monetary damages set forth in the Certificate
of Incorporation and Bylaws of the Company, which provisions will not be
amended, repealed or otherwise modified for a period of six (6) years from
the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who, on or prior to the date hereof or at any time
from the date hereof to the Effective Time, were directors or officers of
the Company, unless such modification is required by law. The Surviving
Corporation shall, and Thermo Electron will cause the Surviving Corporation
to, fulfill and honor in all respects the indemnification obligations of the
Company pursuant to the provisions of the Certificate of Incorporation and
the Bylaws of the Company as in effect on the date of this Agreement.
(b) For a period of six (6) years after the Effective Time, Thermo
Electron shall cause the Surviving Corporation to, either directly or
through participation in Thermo Electron's umbrella policy, maintain in
effect a directors' and officers' liability insurance policy covering those
Company directors and officers currently covered by Thermo Electron's
liability insurance policy with coverage no less favorable in amount and
scope than existing coverage for such Company directors and officers (which
coverage may be an endorsement extending the period in which claims may be
made under such existing policy); provided, however, that in no event shall
the Surviving Corporation be required to expend to maintain or procure
insurance coverage pursuant to this Section 5.10, directly or through
participation in Thermo Electron's policy, an amount per annum in excess of
175% of the current annual premiums, as adjusted for inflation each year,
allocable and payable by the Company (the "Maximum Premium") with respect to
such insurance, or, if the cost of such insurance exceeds the Maximum
Premium, the maximum amount of coverage that can be purchased or maintained
for the Maximum Premium.
(c) The Company shall, to the fullest extent permitted under applicable
law and regardless of whether the Merger becomes effective, indemnify and
hold harmless each of Carliss Y. Baldwin and I. MacAllister Booth
(collectively, the "Outside Directors") against all costs and expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and settlement amounts paid in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to any action
or omission in the Outside Directors' capacity as directors (including,
without limitation, as members of the Special Committee) or fiduciaries of
the Company (including, without limitation, in connection with the
transactions contemplated by this Agreement) occurring on, before or after
the Effective Time (or, if this Agreement is terminated without the Merger
becoming effective, occurring on, before or after the date of such
termination), until the expiration of the statute of limitations relating
thereto (and shall pay any expenses in advance of the final disposition of
such action or proceeding to the Outside Directors to the fullest extent
permitted under applicable law, upon receipt from the Outside Directors of
an undertaking (which need not be secured or subject to a
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bond or other requirement) to repay any advanced expenses if it shall
ultimately be determined that the Outside Directors are not entitled to be
indemnified against such expenses). If the Merger becomes effective, Thermo
Electron shall be jointly and severally responsible, to the fullest extent
permitted by applicable law (it being understood that applicable law may
permit Thermo Electron to indemnify or advance expenses to the Outside
Directors under circumstances in which the Company could not do so), for the
indemnification and advancement of expenses obligations provided for in the
first sentence of this Section 5.10(c). If the Merger does not become
effective, Thermo Electron shall have the same responsibilities set forth in
the immediately preceding sentence, except that Thermo Electron shall have
no responsibility for indemnifying or advancing expenses to the Outside
Directors with respect to matters that do not arise out of or pertain to the
work of the Special Committee, this Agreement or the transactions
contemplated hereby. In the event of any claim, action, suit, proceeding or
investigation covered by this Section 5.10(c), (i) the Company, Thermo
Electron and the Surviving Corporation, as the case may be, shall pay the
reasonable fees and expenses of counsel selected by the Outside Directors,
promptly after statements therefor are received, and (ii) the Company,
Thermo Electron and the Surviving Corporation shall cooperate in the defense
of any such matter; provided, however, that neither the Company nor Thermo
Electron nor the Surviving Corporation shall be liable for any settlement
effected without Thermo Electron's prior written consent (such consent not
to be unreasonably withheld or delayed); and provided, further, that, in the
event any claim for indemnification is asserted or made within the period
prior to the expiration of the applicable statute of limitations, all rights
to indemnification in respect of such claim shall continue until the
disposition of such claim. In connection with Thermo Electron or the
Surviving Corporation making any payment or advancing any funds pursuant to
this Section 5.10(c), Thermo Electron or the Surviving Corporation, as the
case may be, shall be entitled to require the Outside Directors to use
commercially reasonable efforts, at the cost and expense of Thermo Electron
and the Surviving Corporation, to cause Thermo Electron or the Surviving
Corporation, as the case may be, to be subrogated to the Outside Directors'
rights under any insurance coverage maintained by the Surviving Corporation,
Thermo Electron or any of their respective affiliates with respect to the
underlying subject matter of, and to the extent of, such payment or advance.
(d) In the event the Company, Thermo Electron or the Surviving
Corporation or any of their respective successors or assigns
(i) consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers all or substantially all of its properties or
assets to any person, then, and in each such case, proper provision shall be
made so that the successors and assigns of the Company, Thermo Electron and
the Surviving Corporation, as the case may be, shall assume the obligations
set forth in this Section 5.10.
(e) This Section 5.10 shall survive the Effective Time for a period of
six (6) years and is intended to benefit the Company, the Surviving
Corporation and those individuals who, at or prior to the Effective Time,
were directors or officers of the Company and their respective heirs and
representatives (each of whom shall be entitled to enforce this
Section 5.10 against Thermo Electron or the Surviving Corporation) and shall
be binding on all successors and assigns of Thermo Electron and the
Surviving Corporation.
(f) The rights of the officers and directors of the Company (including,
without limitation, the Outside Directors) under this Section 5.10 are in
addition to any rights of such persons under separate indemnification
agreements any such persons may have with the Company and/or Thermo
Electron, under the Certificate of Incorporation or Bylaws of the Company or
Thermo Electron or otherwise.
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5.11. DEFERRED COMPENSATION PLAN. At the Effective Time, the Company
Directors Deferred Compensation Plan will terminate, and the Company will
distribute to each participant Thermo Common Stock in amounts determined by
multiplying the Exchange Ratio by the balance of the stock units credited to
such participant's deferred compensation account under the Company Directors
Deferred Compensation Plan as of the Effective Time, adjusted as described in
Section 1.6(f) and Section 1.11 of this Agreement.
5.12 COMPLIANCE BY MERGER SUB. Thermo Electron shall cause Merger Sub to
timely perform and comply with all of its obligations under or related to this
Agreement.
5.13 NYSE LISTING. Thermo Electron shall use its best efforts to cause all
shares of Thermo Common Stock issuable (i) to holders of Company Common Stock as
a result of the Merger, (ii) upon conversion of the Convertible Debentures, and
(iii) pursuant to Company Stock Option Plans as assumed by Thermo Electron
pursuant to this Agreement, to be authorized for listing on the New York Stock
Exchange.
5.14 AMEX LISTING. Thermo Electron shall use its best efforts to cause all
Thermo Units to be authorized for listing on the American Stock Exchange.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) NO ORDER. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger.
(b) REGISTRATION STATEMENTS. The Registration Statement shall have
been declared effective by the SEC and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.
(c) NYSE AND AMEX LISTINGS. The Thermo Common Stock issuable (i) to
holders of Company Common Stock, (ii) upon conversion of the Convertible
Debentures, and (iii) pursuant to Company Stock Option Plans as assumed by
Thermo Electron pursuant to this Agreement, shall have been authorized for
listing on the New York Stock Exchange; and the Thermo Units shall have been
authorized for listing on the American Stock Exchange.
(d) STOCKHOLDER APPROVAL. This Agreement shall have been approved and
adopted by the requisite vote under the DGCL by the stockholders of the
Company.
(e) RIGHTS AGREEMENT. No Stock Acquisition Date or other event that
would result in the occurrence of a Distribution Date shall have occurred
(as such terms are defined in the Rights Agreement), with respect to the
rights to purchase a unit consisting of one ten-thousandth of a share of
Thermo Electron's Series B Junior Participating Preferred Stock pursuant to
the Rights Agreement.
6.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations
of the Company to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time
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of each of the following conditions, any of which may be waived, in writing,
exclusively by the Company (provided that the Special Committee shall have
consented in writing to any such waiver):
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Thermo Electron and Merger Sub contained in this Agreement shall be true
and correct in all material respects (other than those already qualified by
a materiality standard, which shall be true and correct in all respects) on
and as of the Effective Time, except for changes expressly contemplated by
this Agreement and except for those representations and warranties that
address matters only as of a particular date (which shall remain true and
correct as of such particular date), with the same force and effect as if
made on and as of the Effective Time; and the Company shall have received a
certificate to such effect signed on behalf of Thermo Electron by the
President, Chief Executive Officer or Vice President of Thermo Electron.
(b) AGREEMENTS AND COVENANTS. Thermo Electron and Merger Sub shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Effective Time, and the Company shall have received
a certificate to such effect signed on behalf of Thermo Electron by the
President, Chief Executive Officer or Vice President of Thermo Electron.
(c) FAIRNESS OPINION. At the time of mailing of the Proxy Statement to
the stockholders of the Company and at the Effective Time, the Financial
Advisor shall have reaffirmed in writing the fairness opinion previously
prepared and delivered by it to the Special Committee and the Financial
Advisor shall not have withdrawn such opinion.
(d) STATE SECURITIES LAWS. Any and all necessary state securities
approvals for the issuance of Thermo Common Stock pursuant to this Agreement
shall have been obtained.
(e) CERTIFICATE REGARDING NO MATERIAL ADVERSE CHANGE. The Company
shall have received a certificate signed on behalf of Thermo Electron by its
President, Chief Executive Officer or Vice President stating that there has
been no change in the business, financial condition, or results of
operations of Thermo Electron that has resulted in or is reasonably likely
to result in a Material Adverse Effect on Thermo Electron.
6.3. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THERMO ELECTRON AND MERGER
SUB. The obligations of Thermo Electron and Merger Sub to consummate and effect
the Merger shall be subject to the satisfaction at or prior to the Effective
Time of each of the following conditions, any of which may be waived, in
writing, exclusively by Thermo Electron and Merger Sub:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects (other than those already qualified by a materiality
standard, which shall be true and correct in all respects) on and as of the
Effective Time, except for changes contemplated by this Agreement and except
for those representations and warranties that address matters only as of a
particular date (which shall remain true and correct as of such particular
date), with the same force and effect as if made on and as of the Effective
Time, except, in all such cases, where the failure to be so true and correct
would not have a Material Adverse Effect on the Company; and Thermo Electron
and Merger Sub shall have received a certificate to such effect signed on
behalf of the Company by the President, Chief Executive Officer or Vice
President of the Company.
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or prior to the
Effective Time, and Thermo Electron shall have received a certificate to
such effect signed on behalf of the Company by the President, Chief
Executive Officer or Vice President of the Company.
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<PAGE>
(c) NO WITHDRAWAL OF SPECIAL COMMITTEE RECOMMENDATION. The Special
Committee shall not have withdrawn its recommendation to the Board of
Directors to approve this Agreement and the Merger as set forth in
Section 2.4 hereof.
(d) STOCKHOLDER APPROVAL. This Agreement shall have been approved and
adopted by the Company Vote.
(e) CERTIFICATE REGARDING NO MATERIAL ADVERSE CHANGE. Thermo Electron
and Merger Sub shall have received a certificate signed on behalf of the
Company by the President, Chief Executive Officer or Vice President of the
Company stating that there has been no change in the business, financial
condition, or results of operations of the Company that has resulted in or
is reasonably likely to result in a Material Adverse Effect on the Company.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1. TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time of the Merger, whether before or after approval of this
Agreement by the stockholders of the Company:
(a) by mutual written consent duly authorized by the Boards of Directors
of Merger Sub and the Company (with the concurrence of the Special
Committee);
(b) by either the Company (with the concurrence of the Special
Committee) or Merger Sub if the Merger shall not have been consummated by
September 30, 2000; provided, however, that the right to terminate this
Agreement under this Section 7.1(b) shall not be available to any party
whose action or failure to act has been a principal cause of or resulted in
the failure of the Merger to occur on or before such date if such action or
failure to act constitutes a breach of this Agreement;
(c) by either the Company (with the concurrence of the Special
Committee) or Merger Sub if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action (an "Order"), in
any case having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger, which order, decree or ruling is final and
nonappealable;
(d) by either the Company (with the concurrence of the Special
Committee) or Merger Sub if the required approval of the stockholders of the
Company contemplated by this Agreement shall not have been obtained by
reason of the failure to obtain the required vote upon a vote taken at a
meeting of stockholders duly convened therefor or at any adjournment thereof
(provided that the right to terminate this Agreement under this
Section 7.1(d) shall not be available to the Company where the failure to
obtain stockholder approval of the Company shall have been caused by the
action or failure to act of the Company in breach of this Agreement and the
right to terminate this Agreement under this Section 7.1(d) shall not be
available to Thermo Electron or Merger Sub where the failure to obtain the
requisite vote by the stockholders of the Company shall have been caused by
the action or failure to act of Thermo Electron or Merger Sub in breach of
this Agreement or by the failure of Thermo Electron or any direct or
indirect subsidiary of Thermo Electron (whether or not wholly-owned) to vote
its shares of Company Common Stock in favor of the Merger and this
Agreement);
(e) by the Company (with the concurrence of the Special Committee), upon
a breach of any representation, warranty, covenant or agreement on the part
of Thermo Electron or Merger Sub set forth in this Agreement, if (i) as a
result of such breach the conditions set forth in Section 6.2(a) or
Section 6.2(b) would not be satisfied as of the time of such breach and
(ii) such
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breach shall not have been cured by Thermo Electron or Merger Sub within ten
(10) business days following receipt by Thermo Electron of written notice of
such breach from the Company;
(f) by Merger Sub, upon a breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this
Agreement, if (i) as a result of such breach the conditions set forth in
Section 6.3(a) or Section 6.3(b) would not be satisfied as of the time of
such breach and (ii) such breach shall not have been cured by the Company
within ten (10) business days following receipt by the Company of written
notice of such breach from Merger Sub;
(g) by the Company if the Board of Directors determines after
consultation with outside legal counsel that failure to do so would violate
the Board's fiduciary duties under applicable law;
(h) by Merger Sub upon the Company's inability to provide the
certificate required by Section 6.3(e) hereof and its continuing inability
to provide such certificate within fifteen (15) business days following
receipt by the Company of written notice from Merger Sub; or
7.2. NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice by the terminating party to the other parties hereto
(or, in the case of a termination pursuant to Section 7.1(e), 7.1(f), or 7.1(h),
the expiration of the ten or fifteen business day period referred to therein).
In the event of the termination of this Agreement as provided in Section 7.1,
this Agreement shall be of no further force or effect, except that (i) the
confidentiality obligations of each party hereto contained in Section 5.3, the
covenants and obligations set forth in Section 5.10 and the provisions of
Sections 7.2, 7.3 and 8.1 shall survive any such termination and (ii) nothing
herein shall relieve any party from liability for any material breach of this
Agreement.
7.3. FEES AND EXPENSES. All fees and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by Thermo
Electron, whether or not the Merger is consummated.
7.4. AMENDMENT. Subject to applicable law, this Agreement may be amended
by the parties hereto at any time by execution of an instrument in writing
signed on behalf of each of the parties hereto; provided, however, that the
Company may not amend this Agreement without the concurrence of the Special
Committee.
7.5. EXTENSION; WAIVER. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein; provided, however, that the Company may not take
any such actions without the concurrence of the Special Committee. Any agreement
on the part of a party hereto to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Company, Thermo Electron and Merger Sub contained in this
Agreement shall terminate at the Effective Time, and only the covenants that by
their terms, or as the context requires, survive the Effective Time shall
survive the Effective Time.
8.2. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt
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<PAGE>
confirmed) to the parties at the following addresses or telecopy numbers (or at
such other address or telecopy numbers for a party as shall be specified by like
notice):
<TABLE>
<S> <C>
(a) if to Thermo Electron or Merger Sub, to:
Thermo Electron Corporation
81 Wyman Street
Waltham, MA 02454
Attention: President
Telephone: (781) 622-1000
Facsimile: (781) 622-1283
with a copy to:
Thermo Electron Corporation
81 Wyman Street
Waltham, MA 02454
Attention: General Counsel
Telephone: (781) 622-1000
Facsimile: (781) 622-1283
(b) if to the Company, to
ThermoLase Corporation
2055-C Luna Road
Carrollton, TX 75006
Attention: President
Telephone: (972) 488-0710
Facsimile: (972) 241-0669
with a copy (which shall not constitute notice to the
Company) to:
Sullivan & Worcester LLP
One Post Office Square
Boston, MA 02109
Attention: Harvey E. Bines. Esq.
Telephone: (617) 338-2800
Facsimile: (617) 338-2880
</TABLE>
8.3. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.4. ENTIRE AGREEMENT. This Agreement and the documents and instruments
and other agreements among the parties hereto as contemplated by or referred to
herein (a) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, with the exception of the agreements relating to the Convertible
Debentures, the Units, the Company Stock Option Plans and any agreements
relating to the indemnification of members of the Board; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as set forth herein. Notwithstanding the foregoing, Section 5.10 hereof
is intended to be for the benefit of, and may be enforced by, those individuals
who, as of the date hereof and at any time from the date hereof to the Effective
Time, were directors or officers of the Company.
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<PAGE>
8.5. SEVERABILITY. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.6. OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
8.7. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, regardless of the
laws that might otherwise govern under applicable principles of conflicts of law
thereof, except to the extent that the DGCL applies.
8.8. ASSIGNMENT. 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.
8.9 HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
[remainder of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, Thermo Electron, Merger Sub and the Company have caused
this Agreement to be signed by themselves or their duly authorized respective
officers, all as of the date first written above.
<TABLE>
<S> <C> <C>
THERMO ELECTRON CORPORATION
BY: /S/ THEO MELAS-KYRIAZI
-----------------------------------------
Name: Theo Melas-Kyriazi
Title: Vice President and
Chief Financial Officer
THERMOLASE ACQUISITION
CORPORATION
BY: /S/ JOHN T. KEISER
-----------------------------------------
Name: John T. Keiser
Title: President
THERMOLASE CORPORATION
BY: /S/ KENNETH J. APICERNO
-----------------------------------------
Name: Kenneth J. Apicerno
Title: Treasurer
</TABLE>
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<PAGE>
APPENDIX B
STONEBRIDGE
ASSOCIATES, LLC
Ten Post Office Square, Boston, Massachusetts 02109
Investment Bankers
December 14, 1999
The Special Committee
of the Board of Directors
ThermoLase Corporation
2055-C Luna Road
Carrollton, TX 75006
Attention: Ms. Carliss Y. Baldwin
Mr. I. MacAllister Booth
Dear Ms. Baldwin and Mr. Booth:
We understand that ThermoLase Corporation (the "Company") proposes to enter
into an Agreement and Plan of Merger by and among the Company, Thermo Electron
Corporation ("Thermo Electron") and ThermoLase Acquisition Corporation ("Merger
Sub"), a wholly-owned subsidiary of ThermoTrex Acquisition Corporation, which in
turn is a wholly-owned subsidiary of Thermo Electron (the "Merger Agreement").
Pursuant to the Merger Agreement, Merger Sub shall be merged with and into the
Company, and the Company shall continue as the surviving corporation (the
"Merger").
At the effective time of the merger ("Effective Time"), each shareholder of
the Company, other than Thermo Electron and ThermoTrex Corporation
("ThermoTrex") and other than shareholders of Company common stock coupled with
certain redemption rights ("Company Units") will be entitled to receive common
stock of Thermo Electron for each share of Company common stock owned by such
shareholder at an exchange ratio equal to .158 multiplied by the quotient
obtained by dividing $14.906 by the 20 day average closing price of Thermo
Electron stock at the Effective Time ("Average Closing Price") (the "Exchange
Ratio"). In the event that the Average Closing Price is less than $11.925 or
greater than $17.887, then the Exchange Ratio shall be set at .198 or .132,
respectively.
Also at the Effective Time, Company Units will continue to have the same
terms and conditions applicable to Company Units prior to the Effective Time
except that each share of Company common stock included as part of the Company
Unit will be converted into Thermo Electron common stock at the Exchange Rate,
and that the redemption right associated with the Thermo Electron common stock
issued to the Company Unit holders shall be the right to have Thermo Electron
redeem such Thermo Electron common stock included in the Thermo Electron Unit
(as herein defined) for cash in an amount per whole share of Thermo Electron
common stock included in the Thermo Electron Unit equal to $20.25 divided by the
Exchange Ratio. Shares of Thermo Electron common stock issued at the Exchange
Ratio for each share of Company common stock, assuming the Exchange Ratio to be
calculated as of the date of this opinion, are herein referred to as the "Merger
Consideration Per Share."
In connection with the Merger, you have asked us to render our opinion, as
investment bankers, as to the fairness to the holders of the Company common
stock, other than Thermo Electron and ThermoTrex, from a financial point of view
of the Merger Consideration Per Share. We have not been
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<PAGE>
requested to opine as to, and our opinion has not in any manner addressed, any
other terms or provisions of the Merger or the Merger Agreement, or the
Company's underlying decision to proceed with the Merger.
As you are aware, we have acted as financial advisor to a Special Committee
of the Company's Board of Directors (the "Committee") in connection with the
Merger and will receive a fee for our services which include the rendering of
this opinion. In addition, the Company has agreed to indemnify us against
certain liabilities arising out of providing these services and the rendering of
this opinion.
In connection with rendering the opinion, we have reviewed and examined,
among other items, the following: (i) a draft of the Merger Agreement dated
December 10, 1999, (ii) certain publicly available information concerning the
Company, including the Annual Reports on Form 10-K and proxy statements of the
Company for each of the fiscal years in the three year period ended October 3,
1998 and the Quarterly Reports on Form 10-Q of the Company for the quarters
ended January 2, 1999, April 3, 1999 and July 3, 1999, (iii) unaudited financial
statements for the Company for the fiscal year ended October 2, 1999;
(iv) certain publicly available information concerning Thermo Electron,
including the Annual Reports on Form 10-K and proxy statements for Thermo
Electron for each of the fiscal years in the three year period ended January 2,
1999, and the Quarterly Reports on Form 10-Q for the quarters ended April 3,
1999, July 3, 1999, and October 2, 1999; (v) unaudited financial results for
Thermo Electron through November 30, 1999; (vi) the terms and conditions of real
estate lease agreements to which the Company is a party; (vii) the terms and
conditions of the Company Units issued in April 1997; (viii) the terms and
conditions of the Company's 4 3/8% Subordinated Convertible Debentures issued in
August 1997; (ix) financial and operating information with respect to the
business, operations and prospects of the Company and Thermo Electron;
(x) certain internal business plans and financial budgets prepared by the
respective managements of the Company and of Thermo Electron ("Management"); and
(xi) certain publicly available information concerning other aesthetic laser
service companies, private label health and beauty aid companies, and
diversified conglomerates in the scientific instrument and equipment industry,
the trading markets for such companies' securities and the nature and terms of
certain other merger and acquisition transactions we believe to be relevant to
our inquiry. During the course of our review, we met and had discussions with
the Management concerning each company's business and operations, assets,
liabilities, present financial condition, the general condition and future
prospects for the businesses in which each is engaged and other matters which we
believe to be relevant.
As part of our investment banking business, we are continually engaged in
the valuation of businesses and their securities in connection with mergers,
acquisitions, divestitures, leveraged buyouts and private placements of debt and
equity securities. In our review and in arriving at our opinion, we have relied
upon the accuracy and completeness of all financial and other information that
was available to us from public sources, that was provided to us by the Company
and Thermo Electron or their representatives or that was otherwise reviewed by
us. We have not attempted independently to verify any such information and have
relied upon the assurances of Management that they are unaware of any facts that
would make the information provided to or reviewed by us misleading. We have
assumed that Management's financial and business forecasts for the Company and
Thermo Electron have been reasonably prepared incorporating Managements' best,
currently available judgments as to the future operating and financial
performance of the businesses and that said forecasts will be realized in the
amounts and in the time periods currently estimated by Management. We have not
made any independent evaluation or appraisal of the assets or liabilities of the
Company or Thermo Electron. We have relied upon the representations of the
Company contained in the Merger Agreement with respect to legal and other
matters.
In conducting our review and analysis and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed to be
relevant, including, among others, (i) a review of the trading history of the
B-2
<PAGE>
Company's and Thermo Electron's common stock, (ii) a review of the historical
and current financial condition and operating characteristics of the Company as
compared with those of other companies we deemed comparable, (iii) a review of
equity market valuation parameters for securities of companies we deemed
comparable, (iv) a review of the nature and financial terms of certain
transactions that we considered relevant for comparison with the financial terms
of the Merger, and (v) a discounted cash flow analysis of the ongoing business
of the Company and Thermo Electron. In addition, we performed such other
analyses and examinations and considered such information and financial economic
and market data as we deemed relevant, including preparing an assessment of the
market opportunity relating to licensing of the Company's patented laser
technology.
In rendering our opinion, we have taken into account our assessment of
general economic, market, financial and other conditions, as well as our
experience in connection with similar transactions and securities evaluation
generally. Our opinion necessarily is based upon conditions as they exist and
can be evaluated on the date hereof. We were not engaged to solicit, and have
not solicited, potential purchasers for the Company. In addition, we have
assumed that the Merger Agreement in the form finally entered into will not
differ in any material respect from the draft furnished to us and that the
Merger will be consummated on the terms set forth in the Merger Agreement
(including the assumed Exchange Ratio as of the date of this opinion) without
waiver or amendment of any of the terms thereof. This opinion is not intended to
be and does not constitute a recommendation to any holder of the Company's
common stock as to whether or not to vote in favor of the Merger.
It is understood that this opinion is for the information of the Committee
only in connection with its evaluation of the Merger. This opinion may not be
reproduced, disclosed, referred to, or quoted (in whole or part) in any manner
for any purpose whatsoever except with our prior written consent in each
instance or as otherwise provided in our engagement letter with the Committee.
This opinion may be reproduced in full in any proxy statement mailed to
shareholders of the Company.
Based upon and subject to the foregoing, we are of the opinion, as
investment bankers, that as of the date hereof, the Merger Consideration Per
Share is fair to the Company's shareholders other than Thermo Electron and
ThermoTrex from a financial point of view.
Very truly yours,
/s/ Stonebridge Associates, LLC
STONEBRIDGE ASSOCIATES, LLC
B-3
<PAGE>
APPENDIX C
ANNUAL REPORT ON FORM 10-K OF THERMOLASE
FOR THE FISCAL YEAR ENDED OCTOBER 2, 1999
<PAGE>
Appendix C
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------------------------
FORM 10-K
(mark one)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended October 2, 1999
[ ] 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)
<TABLE>
<S> <C>
Delaware 06-1360302
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2055-C Luna Road
Carrollton, Texas 75006
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (781) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
------------------------------------- --------------------------------------
Common Stock, $.01 par value American Stock Exchange
Units (each unit consisting of
one share of common stock
and one redemption right) American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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, and (2) has been subject to the filing requirements for
at least the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of October 29, 1999, was approximately $10,699,000.
As of October 29, 1999, the Registrant had 39,347,996 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended October 2, 1999, are incorporated by reference into Parts I and II.
<PAGE>
PART I
Item 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
ThermoLase Corporation, which we also refer to as "the company" or the
"registrant," operates in two business segments: Hair-removal and Related
Activities (Hair Removal) and Health and Beauty Products. The company's Hair
Removal segment has developed SoftLight(R), a proprietary system for the removal
of unwanted hair. In April 1995, we received clearance from the U.S. Food and
Drug Administration (FDA) to commercially market hair-removal services using
this system and, in May 1998, the FDA cleared our SoftLight Laser Peel for
skin-resurfacing. Due to the company's continuing losses, in fiscal 1999*, we
decided to substantially exit this business, as discussed below.
Our Creative Beauty Innovations, Inc. (CBI) subsidiary represents the
Health and Beauty Products segment, which manufactures and markets skin-care,
bath, and body products, and markets dietary supplements.
HAIR-REMOVAL AND RELATED ACTIVITIES
SPAS
To provide our laser-based hair-removal and skin-resurfacing services,
ThermoLase developed a network of 14 high-end day spas, originally called Spa
Thira. In June 1998, the company acquired The Greenhouse Spa, Inc., a
destination spa located in Arlington, Texas. During fiscal 1998, the company
announced the closure of three of the day spas and converted the other 11 into
full-service day spas that were operated under The Greenhouse Spa name. In
addition to hair-removal and skin-resurfacing services, these spas offered more
traditional day spa services such as massages and facials. During the third
quarter of fiscal 1999, ThermoLase closed two additional spas and sold the nine
remaining day spas, as well as The Greenhouse Spa, Inc. In connection with the
sale and closures announced in fiscal 1999, as well as other actions, the
company recorded restructuring and related costs of $67.7 million.
LICENSING PROGRAMS
In June 1996, ThermoLase began a program to license the SoftLight
technology to physicians and others who wanted to offer SoftLight as part of
their practices. Through these arrangements, we received a per-procedure or
minimum royalty and/or a flat periodic fee. The company also entered into a
variety of joint ventures and licensing agreements to bring the technology to
international markets. During fiscal 1998, we closed the spa in France, which
operated under a joint venture agreement, and during fiscal 1999, we terminated
or renegotiated the terms of the remaining international licensing arrangements
to minimize our ongoing management, maintenance, and service obligations. In
fiscal 1999, the company offered licensees the opportunity to purchase or lease
SoftLight lasers in lieu of paying ongoing licensing fees.
We purchased our SoftLight laser systems and components from Trex Medical
Corporation, a majority-owned subsidiary of ThermoTrex Corporation, at an
aggregate cost of $3,414,000 in fiscal 1999, $2,902,000 in fiscal 1998, and
$11,390,000 in fiscal 1997.
-----------------
* References to fiscal 1999, 1998, and 1997, in this document are for the
years ended October 2, 1999, October 3, 1998, and September 27, 1997,
respectively.
2
<PAGE>
PROPOSED REORGANIZATION
In fiscal 1999, Thermo Electron Corporation announced a proposed
reorganization involving certain of Thermo Electron's subsidiaries, including
the company. In December 1999, the boards of directors of the company and Thermo
Electron approved a definitive plan of merger under which Thermo Electron would
acquire all of the outstanding shares of company common stock (other than shares
held by Thermo Electron or ThermoTrex) in exchange for Thermo Electron common
stock. As a result, the company would become a wholly owned subsidiary of Thermo
Electron. The terms of the exchange, and certain conditions as to which the
completion of the merger is subject to, are outlined in Note 14 to Consolidated
Financial Statements in our Fiscal 1999 Annual Report to Shareholders. This
information is incorporated in this document by reference.
STOCK OWNERSHIP
On October 2, 1999, our parent company, ThermoTrex owned 27,960,996
shares of our common stock, representing 71% of ThermoLase's outstanding shares
on that date. ThermoTrex is a majority-owned public subsidiary of Thermo
Electron. In addition to the products and services that ThermoLase offers,
ThermoTrex, through its majority-owned and wholly owned subsidiaries,
manufactures mammography and other specialized and general-purpose X-ray
equipment, as well as dental imaging systems. ThermoTrex also conducts
advanced-technology research in communications, avionics, X-ray detection,
signal processing, and lasers. On October 2, 1999, Thermo Electron owned
5,473,935 shares of ThermoLase's common stock, representing 14% of our
outstanding stock on that date. During fiscal 1999, Thermo Electron purchased
1,233,200 shares of ThermoLase's common stock in the open market for $5,117,000,
and 1,620,127 units for $28,572,000. These units represent one share of company
common stock and one redemption right, which entitles the holder to sell the
related share of common stock to the company for $20.25 during the period from
April 3, 2001, through April 30, 2001. As of October 2, 1999, Thermo Electron
owned 1,620,127 units, representing 81% of our outstanding units on that date.
Thermo Electron is a leading provider of analytical and monitoring instruments,
used in everything from life sciences research to food and beverage production,
and a recognized leader in heart-assist devices, respiratory-care equipment,
neurodiagnostics, and mammography systems. In addition, Thermo Electron develops
and operates power plants, offers a range of environmental consulting and
resource management services, is a major producer of paper-recycling equipment,
provides water-clarification and fiber-recovery products and services, and
conducts a broad range of advanced technology R&D.
FORWARD-LOOKING STATEMENTS
We make forward-looking statements throughout this document. We typically
use the words "believe," "anticipate," "plan," "expect," "seek," "estimate," and
similar expressions to identify forward-looking statements. Unless a passage
describes an historical event, you should consider it to be a forward-looking
statement. As you make decisions about your investments in ThermoLase, we
caution you, in keeping with the "Safe Harbor" provision of the Private
Securities Litigation Reform Act of 1995, that forward-looking statements
regarding the company's future expectations and projections are not guarantees
of future performance. They involve risks, uncertainties, and assumptions, and
many of the factors that will determine the company's future results are beyond
our ability to control or predict. Therefore, our actual results may differ
significantly from those suggested by forward-looking statements. You can find
these risk factors detailed under the heading "Forward-looking Statements"
immediately following the Management's Discussion and Analysis of Financial
Condition and Results of Operations in our Fiscal 1999 Annual Report to
Shareholders, which is incorporated in this document by reference.
(b) FINANCIAL INFORMATION ABOUT SEGMENTS
Financial information concerning the company's segments is summarized in
Note 12 to Consolidated Financial Statements in our Fiscal 1999 Annual Report to
Shareholders. This information is incorporated in this document by reference.
3
<PAGE>
(c) DESCRIPTION OF BUSINESS
(i) PRINCIPAL PRODUCTS AND SERVICES
HEALTH AND BEAUTY PRODUCTS
CBI has built its reputation as a manufacturer of private-label and
custom-designed personal-care products by combining European herbalist
traditions with botanical-based technology. CBI develops, manufactures, and
packages most of its products, which include shampoos, lotions, shower creams,
bath salts, and facial treatments. It does not manufacture packaging materials,
such as containers and boxes, but contracts with third parties for these
supplies. During fiscal 1998, CBI began to diversify from being primarily a
private-label manufacturer to marketing products under its own brand names.
During fiscal 1999, CBI discontinued certain branded product lines. CBI sales
accounted for 64% of our total revenue in fiscal 1999, 57% in fiscal 1998, and
53% in fiscal 1997.
(ii) NEW PRODUCTS
During fiscal 1999, ThermoLase submitted a 510k application with the FDA
to use its lasers for tattoo removal.
(iii) RAW MATERIALS
The raw materials, components, and supplies we purchase are available
from a number of different suppliers. If necessary, we believe that we could
develop alternative sources without a material adverse effect on our results. To
date, we have not experienced any difficulty in obtaining materials, components,
or supplies.
(iv) PATENTS, LICENSES, AND TRADEMARKS
CBI relies primarily on trade secret protection for the proprietary
formulations that form its products. CBI generally retains the proprietary
rights to the formulations it develops, either for itself or for a specific
customer.
(v) SEASONAL INFLUENCES
Wholesale sales of CBI's products decrease, while retail sales increase,
during the December holiday season.
(vi) WORKING CAPITAL REQUIREMENTS
There are no special inventory requirements or credit terms extended to
customers that would have a material adverse effect on our working capital.
(vii) DEPENDENCY ON A SINGLE CUSTOMER
No single customer accounted for more than 10% of our total revenue in
fiscal 1999.
(viii) BACKLOG
Our backlog of firm orders at the Health and Beauty Products segment was
$4,537,000 at October 2, 1999, compared with $4,116,000 at October 3, 1998. We
anticipate that substantially all of our fiscal 1999 backlog will be shipped or
completed during fiscal 2000.
(ix) GOVERNMENT CONTRACTS
Not applicable.
4
<PAGE>
(x) COMPETITION
The professional skin-care, bath, and body product, and dietary
supplement markets are highly competitive and fragmented, with no single
competitor dominating the market. Many small manufacturers, as well as divisions
of larger companies, may have substantially greater financial, marketing, and
research and development resources than ThermoLase. CBI competes primarily on
the basis of quality and price.
(xi) RESEARCH AND DEVELOPMENT
We spent $1,519,000 on research and development in fiscal 1999,
$3,028,000 in fiscal 1998, and $5,704,000 in fiscal 1997. Research and
development funds supported development of our SoftLight Laser Peel and CBI's
branded product lines.
(xii) ENVIRONMENTAL PROTECTION REGULATIONS
We believe that compliance with federal, state, and local environmental
regulations will not have a material adverse effect on our capital expenditures,
earnings, or competitive position.
(xiii) NUMBER OF EMPLOYEES
As of October 2, 1999, ThermoLase employed 211 people.
(d) FINANCIAL INFORMATION ABOUT EXPORTS BY DOMESTIC OPERATIONS
Not applicable.
(e) EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Present Title (Fiscal Year First Became Executive Officer)
------------------------ ------- -----------------------------------------------------------------
<S> <C> <C>
Gerald Feldman 49 President and Chief Executive Officer (1998)
Theo Melas-Kyriazi 40 Chief Financial Officer (1999)
Richard E. Weitzel 51 Vice President, Marketing (1998)
Paul F. Kelleher 57 Chief Accounting Officer (1992)
</TABLE>
Each executive officer serves until his successor is chosen or appointed
by the board of directors and qualified, or until earlier resignation, death, or
removal. Mr. Feldman has been president and chief executive officer of the
company since August 1998. He came to ThermoLase from International Technidyne
Corporation (ITC), a maker of near-patient, whole-blood coagulation testing
equipment and related disposables, where he served as president since 1987. ITC
has been a Thermo Electron company since 1991. Mr. Melas-Kyriazi was appointed
chief financial officer of the company and Thermo Electron on January 1, 1999.
He joined Thermo Electron in 1986 as assistant treasurer, and became treasurer
in 1988. He was named president and chief executive officer of ThermoSpectra
Corporation, a public subsidiary of Thermo Instrument Systems Inc., in 1994, a
position he held until becoming vice president of corporate strategy for Thermo
Electron in 1998. Mr. Melas-Kyriazi remains a vice president of Thermo Electron.
Mr. Weitzel was appointed vice president, marketing in 1998. Prior to joining
ThermoLase, Mr. Weitzel was employed at Arthur Andersen LLP, where he served as
the director of business development. Prior to joining Arthur Andersen in 1998,
he served as the vice president of marketing for various companies from 1995
through 1998. From 1989 to 1994, Mr. Weitzel served as president and chief
operating officer of CITATION Professional Services, Inc. Mr. Kelleher has held
comparable positions for at least five years with Thermo Electron. Mr.
Melas-Kyriazi and Mr. Kelleher are full-time employees of Thermo Electron, but
they devote as much time to the affairs of the company as is reasonably
required.
5
<PAGE>
Item 2. PROPERTIES
The Health and Beauty Products segment occupies approximately 201,000
square feet of office and manufacturing space in Carrollton, Texas, under a
lease expiring in 2004. We believe that this facility is in good condition and
is suitable and adequate to meet our current needs.
Item 3. LEGAL PROCEEDINGS
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information concerning the market and market price for the Registrant's
Common Stock, $.01 par value, and dividend policy is included under the sections
labeled "Common Stock Market Information" and "Dividend Policy" in the
Registrant's Fiscal 1999 Annual Report to Shareholders and is incorporated in
this document by reference.
Item 6. SELECTED FINANCIAL DATA
The information required under this item is included under the sections
labeled "Selected Financial Information" and "Dividend Policy" in the
Registrant's Fiscal 1999 Annual Report to Shareholders and is incorporated in
this document by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required under this item is included under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's Fiscal 1999 Annual Report to Shareholders and is
incorporated in this document by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required under this item is included under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's Fiscal 1999 Annual Report to Shareholders and is
incorporated in this document by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Registrant's Consolidated Financial Statements and Supplementary Data
are included in the Registrant's Fiscal 1999 Annual Report to Shareholders and
are incorporated in this document by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
6
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Set forth below are the names of the directors; their ages; their offices
in the company, if any; their principal occupation or employment for the past
five years; the length of their tenure as directors; and the names of other
public companies in which such persons hold directorships.
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------------------------------------------
CARLISS Y. BALDWIN Dr. Baldwin, 49, has been a director of the company since June 1994. She has been the William L.
White Professor of Business Administration, Harvard Business School, since 1988.
---------------------------------------------------------------------------------------------------------------------------------
I. MACALLISTER BOOTH Mr. Booth, 67, has been a director of the company since June 1999. He was president, chairman, and
chief executive officer of Polaroid Corporation, a manufacturer of instant and digital imaging and
related products, from 1986 until 1995. He is also a director of John Hancock Mutual Life
Insurance Company, State Street Bank and State Street Holding Company, and Western Digital
Corporation.
---------------------------------------------------------------------------------------------------------------------------------
GERALD FELDMAN Mr. Feldman, 49, has been a director of the company since September 1998. He has also served as
the president and chief executive officer of the company since August 1998. Mr. Feldman has been
the president of International Technidyne Corporation, a wholly owned subsidiary of Thermo
Cardiosystems Inc. (an indirect majority-owned subsidiary of Thermo Electron), since October 1987;
and a director since September 1991. International Technidyne develops, manufactures, and markets
hemostasis management products.
---------------------------------------------------------------------------------------------------------------------------------
ELIAS P. GYFTOPOULOS Dr. Gyftopoulos, 72, has been a director of the company since September 1994. He
is Professor Emeritus of the Massachusetts Institute of Technology, where he was the Ford
Professor of Mechanical Engineering and of Nuclear Engineering for more than 20 years until his
retirement in 1996. He is also a director of Thermo BioAnalysis Corporation, Thermo
Cardiosystems, Thermo Electron, ThermoRetec Corporation, Trex Medical, and Thermo Vision
Corporation.
---------------------------------------------------------------------------------------------------------------------------------
JOHN T. KEISER Mr. Keiser, 63, has been a director of the company since September 1998. He has been the chief
operating officer, biomedical, of Thermo Electron, a provider of products and services in
measurement instrumentation, biomedical devices, energy, resource recovery, and emerging
technologies, since September 1998; and was a vice president from April 1997 until his promotion.
He has been the president of Thermedics Inc. since March 1998, and was named chief executive
officer in December 1998. He was a senior vice president of Thermedics from 1994 until his
promotion to president. Mr. Keiser has also been the president of Thermo Electron's wholly owned
biomedical group, a manufacturer of medical equipment and instruments, since 1994. He is a
director of Metrika Systems Corporation, Thermedics, Thermedics Detection Inc., Thermo
Cardiosystems, Thermo Sentron Inc., ThermoTrex, and Trex Medical.
---------------------------------------------------------------------------------------------------------------------------------
PAUL F. KELLEHER Mr. Kelleher, 57, has been chief accounting officer of the company since its
inception in December 1992, and a director since March 1994. He has been senior vice president,
finance and administration, of Thermo Electron since June 1997; and served as its vice president,
finance, from 1987 to 1997, and as its controller from 1982 to January 1996.
---------------------------------------------------------------------------------------------------------------------------------
NICHOLAS T. ZERVAS Dr. Zervas, 70, has been a director of the company since its inception in December 1992, and has
been Chief of Neurological Service at Massachusetts General Hospital since 1977. Dr. Zervas is
also a director of Thermedics, Thermo Cardiosystems, and ThermoTrex.
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
EXECUTIVE OFFICERS
Reference is made to Item 1(e) - Executive Officers of the Registrant for
information regarding the Executive Officers of the company.
7
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the company's directors, executive officers, and beneficial owners of
more than 10% of the company's common stock (the Common Stock), such as Thermo
Electron, to file with the Securities and Exchange Commission initial reports of
ownership and periodic reports of changes in ownership of the company's
securities. Based upon a review of such filings, all Section 16(a) filing
requirements applicable to such persons were complied with during fiscal 1999,
except in the following instances: Thermo Electron filed one Form 4 late
reporting a total of 15 transactions, including one open market purchase of
Units (each Unit consisting of one share of Common Stock and one redemption
right) and 14 transactions associated with the cancellation and grant of options
to purchase Common Stock granted to employees under its stock option program.
Item 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
CASH COMPENSATION
Outside directors receive an annual retainer of $2,000, a fee of $1,000
per day for attending regular meetings of the board of directors, and $500 per
day for participating in meetings of the board of directors held by means of
conference telephone and for participating in certain meetings of committees of
the board of directors. Payment of directors' fees is made quarterly. Mr.
Feldman, Mr. Keiser, and Mr. Kelleher are all employees of Thermo Electron or
its subsidiaries and do not receive any cash compensation from the company for
their services as directors. Directors are also reimbursed for out-of-pocket
expenses incurred in attending such meetings.
The board of directors established a special committee (the Special
Committee) consisting solely of outside directors for the purpose of evaluating
the merits and negotiating the terms of the proposed transaction with Thermo
Electron pursuant to which the company would be taken private. Dr. Baldwin and
Mr. Booth were appointed as the members of the Special Committee.
The members of the Special Committee receive a one-time retainer of
$20,000, a fee of $1,000 per day for attending regular meetings of the Special
Committee, and $500 per day for participating in meetings of the Special
Committee held by means of conference telephone.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
Under the company's deferred compensation plan for directors (the
Deferred Compensation Plan), a director has the right to defer receipt of his
cash fees until he ceases to serve as a director, dies, or retires from his
principal occupation. In the event of a change in control or proposed change in
control of the company that is not approved by the board of directors, deferred
amounts become payable immediately. Any of the following is deemed to be a
change of control: (i) the acquisition by any person of 40% or more of the
outstanding common stock or voting securities of Thermo Electron; (ii) the
failure of the Thermo Electron board of directors to include a majority of
directors who are "continuing directors," which term is defined to include
directors who were members of Thermo Electron's board on July 1, 1999, or who
subsequent to that date were nominated or elected by a majority of directors who
were "continuing directors" at the time of such nomination or election; (iii)
the consummation of a merger, consolidation, reorganization, recapitalization,
or statutory share exchange involving Thermo Electron or the sale or other
disposition of all or substantially all of the assets of Thermo Electron unless
immediately after such transaction all holders of Thermo Electron common stock
immediately prior to such transaction own more than 60% of the outstanding
voting securities of the resulting or acquiring corporation in substantially the
same proportions as their ownership immediately prior to such transaction and no
person after the transaction owns 40% or more of the outstanding voting
securities of the resulting or acquiring corporation; or (iv) approval by
stockholders of a complete liquidation or dissolution of Thermo Electron.
Amounts deferred pursuant to the Deferred Compensation Plan are valued at the
end
8
<PAGE>
of each quarter as units of Common Stock. When payable, amounts deferred may be
disbursed solely in shares of Common Stock accumulated under the Deferred
Compensation Plan. A total of 100,000 shares of Common Stock have been reserved
for issuance under the Deferred Compensation Plan. As of October 2, 1999,
deferred units equal to approximately 3,435 full shares of Common Stock were
accumulated for current directors under the Deferred Compensation Plan.
DIRECTORS STOCK OPTION PLAN
The company's directors stock option plan (the Directors Plan) provides
for the grant of stock options to purchase shares of Common Stock of the company
and its majority-owned subsidiaries to outside directors as additional
compensation for their service as directors. Under the Directors Plan, outside
directors are automatically granted options to purchase 1,000 shares of Common
Stock annually. The annual grant is made at the close of business on the date of
each Annual Meeting of the Stockholders of the company to each outside director
then holding office. Options evidencing annual grants are immediately
exercisable at any time from and after the grant date of the option and prior to
the earliest to occur of (i) the expiration of the option on the third
anniversary of the grant date; (ii) two years after the director ceases to serve
as a director of the company; or (iii) the date of dissolution or liquidation of
the company. Shares acquired upon exercise of the options are subject to
repurchase by the company at the exercise price if the recipient ceases to serve
as a director of the company or another Thermo Electron company prior to the
first anniversary of the grant date.
The exercise price for options granted under the Directors Plan is the
average of the closing prices of the Common Stock as reported on the American
Stock Exchange (or other principal market on which the Common Stock is then
traded) for the five trading days immediately preceding and including the date
of grant, or, if the shares are not then traded, at the last price paid per
share by third parties in an arms-length transaction prior to the option grant.
As of October 2, 1999, options to purchase 127,400 shares of Common Stock had
been granted and were outstanding under the Directors Plan, 1,000 options had
lapsed or been exercised, and options to purchase 273,600 shares of Common Stock
were reserved and available for grant.
STOCK OWNERSHIP POLICIES FOR DIRECTORS
The human resources committee of the board of directors (the Committee)
has established a stock holding policy for directors. The stock holding policy
requires each director to hold a minimum of 1,000 shares of Common Stock.
Directors are requested to achieve this ownership level within a three-year
period. The chief executive officer of the company is required to comply with a
separate stock holding policy established by the Committee, which is described
below.
In addition, the Committee has adopted a policy requiring directors to
hold shares of Common Stock equal to one-half of their net option exercises over
a period of five years. The net option exercise is determined by calculating the
number of shares acquired upon exercise of a stock option, after deducting the
number of shares that could have been traded to exercise the option and the
number of shares that could have been surrendered to satisfy tax-withholding
obligations attributable to the exercise of the option. This policy is also
applicable to executive officers and is described below.
SUMMARY COMPENSATION TABLE
The following table summarizes compensation during the last three fiscal
years for services to the company in all capacities awarded to, earned by, or
paid to the company's chief executive officer and its other executive officers,
whose total annual salary and bonus, as determined in accordance with the rules
of the Securities and Exchange Commission, was greater than $100,000, and who
were employed by the company as of the end of fiscal 1999. The table also
includes information as to one executive who was not serving as an executive
officer as of the end of fiscal 1999. These executive officers are together
referred to as the "named executive officers."
9
<PAGE>
The company is required to appoint certain executive officers and
full-time employees of Thermo Electron as executive officers of the company, in
accordance with the Thermo Electron Corporate Charter (the Charter). The
compensation for these executive officers is determined and paid entirely by
Thermo Electron. The time and effort devoted by these individuals to the
company's affairs is provided to the company under the Corporate Services
Agreement (the Services Agreement) between the company and Thermo Electron. See
Item 13 Certain Relationships and Related Transactions. Accordingly, the
compensation for these individuals is not reported in the following table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION (1) LONG TERM COMPENSATION
---------------------------- -----------------------------
RESTRICTED SECURITIES
FISCAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (2) AWARD (3) OPTIONS (4) COMPENSATION (5)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gerald Feldman (6)
President and Chief Executive
Officer 1999 $210,000 N/A $224,975 (TMO) 27,800 (TMO) $ 6,715
1998 $ 35,000 $103,000 - 225,000 (TLZ) $ 5,625
55,000 (TMO)
45,000 (TKN)
----------------------------------------------------------------------------------------------------------------------------------
Gina M. Goodrich (7)
Former Vice President,
Licensees 1999 $ 99,828 N/A - - $80,000 (8)
1998 $ 97,958 $ 20,250 - 27,400 (TLZ) $ 4,874
----------------------------------------------------------------------------------------------------------------------------------
Richard E. Weitzel (9)
Vice President, Marketing 1999 $104,423 N/A - 20,000 (TLZ) -
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annual compensation for the named executive officers is reviewed and
determined on a calendar year basis, even though the company's fiscal
year ends in September.
(2) Bonuses are generally determined and paid following the end of the
calendar year based on performance during the calendar year in which the
corporation's fiscal year end occurred. The bonus amount represents the
bonus paid for performance during the calendar year in which the
company's fiscal year-end occurred. As of the date hereof, bonuses for
calendar 1999 have not yet been determined. The Committee expects to
determine bonuses in March 2000 when audited financial statements of the
company's parent company will be available.
(3) In fiscal 1999, Mr. Feldman was awarded 11,500 shares of restricted stock
of Thermo Electron with a value of $224,975 on the grant date. The
restricted stock awards vest 33%, 33%, and 34% on each of May 20, 2000,
2001, and 2002, respectively. Any dividends paid on restricted stock are
entitled to be retained by the recipient without regard to vesting. At
the end of fiscal 1999, Mr. Feldman held 11,500 shares of restricted
stock with an aggregate value of $155,969.
(4) Options granted by the company are designated in the table as "TLZ." In
addition, the named executive officers have also been granted options to
purchase common stock of Thermo Electron and its majority-owned
subsidiaries from time to time as part of Thermo Electron's stock option
program. Options have been granted during the last three fiscal years in
the following Thermo Electron companies: Thermo Electron (designated in
the table as TMO) and ThermoTrex (designated in the table as TKN).
(5) Represents the amount of matching contributions made on behalf of the
named executive officer participating in the Thermo Electron 401(k) Plan,
except as noted.
(6) Mr. Feldman was appointed president and chief executive officer of the
company on August 3, 1998. The salary reported for fiscal year 1998
represents the amount paid from the commencement of his employment
through October 3, 1998.
(7) Ms. Goodrich was elected a vice president of the company on August 3,
1998. The salary reported for fiscal year 1998 represents compensation
for the entire fiscal year. Ms. Goodrich resigned as a vice president of
the company effective July 31, 1999.
(8) In addition to a $6,667 matching contribution referred to in footnote (5)
in fiscal 1999, this amount includes a payment of $73,333 as part of a
severance agreement.
(9) Mr. Weitzel was elected a vice president of the company on December 16,
1998. The salary reported for fiscal year 1999 represents the amount paid
from the commencement of his employment through October 2, 1999.
10
<PAGE>
STOCK OPTIONS GRANTED DURING FISCAL 1999
The following table sets forth information concerning individual grants
of stock options made during fiscal 1999 to the company's named executive
officers. It has not been the company's policy in the past to grant stock
appreciation rights, and no such rights were granted during fiscal 1999.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL 1999
----------------------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL OPTIONS ANNUAL RATES OF STOCK
NUMBER OF SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION FOR
UNDERLYING OPTIONS EMPLOYEES IN PRICE PER EXPIRATION OPTION TERM (2)
NAME GRANTED AND COMPANY (1) FISCAL YEAR SHARE DATE 5% 10%
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gerald Feldman 25,400 (TMO) 0.5% (3) $17.06 12/02/03 $119,720 $ 264,549
2,400 (TMO) 0.05% (3) $14.81 09/22/04 $ 9,820 $ 21,700
----------------------------------------------------------------------------------------------------------------------------------
Gina M. Goodrich - - - - - -
----------------------------------------------------------------------------------------------------------------------------------
Richard E. Weitzel 20,000 (TLZ) 9.6% $ 4.41 12/16/05 $ 35,910 $ 83,676
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All of the options granted during the fiscal year are immediately
exercisable at the date of grant. In all cases, the shares acquired upon
exercise are subject to repurchase by the granting company at the exercise
price if the optionee ceases to be employed by such company or any other
Thermo Electron company. The granting company may exercise its repurchase
rights within six months after the termination of the optionee's
employment. The repurchase rights lapse ratably over a one to five year
period, depending on the option term, which in the present case is five to
seven years, provided the optionee continues to be employed by the
granting company or any other Thermo Electron company. The granting
company may permit the holder of options to exercise options and to
satisfy tax withholding obligations by surrendering shares equal in fair
market value to the exercise price or withholding obligation. See footnote
(4) under Summary Compensation Table above for the company abbreviations
used in this table.
(2) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10% compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the common stock of the
applicable corporation, the optionee's continued employment through the
option period, and the date on which the options are exercised.
(3) These options were granted under stock option plans maintained by Thermo
Electron and accordingly are reported as a percentage of total options
granted to employees of Thermo Electron and its subsidiaries.
11
<PAGE>
STOCK OPTIONS EXERCISED DURING FISCAL 1999 AND FISCAL YEAR-END OPTION VALUES
The following table reports certain information regarding stock option
exercises during fiscal 1999 and outstanding stock options held at the end of
fiscal 1999 by the company's named executive officers. No stock appreciation
rights were exercised or were outstanding during fiscal 1999.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND FISCAL 1999 YEAR-END OPTION VALUES
--------------------------------------------------------------------------------------------------------------------------------
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
SHARES YEAR-END YEAR-END
ACQUIRED ON VALUE (EXERCISABLE/ (EXERCISABLE/
NAME COMPANY (1) EXERCISE REALIZED (2) UNEXERCISABLE) (1) UNEXERCISABLE)
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gerald Feldman (3) (TLZ) - - 225,000 /- $0 /-
(TMO) - - 82,800 /- $0 /-
(TKN) - - 45,000 /- $0 /-
--------------------------------------------------------------------------------------------------------------------------------
Gina M. Goodrich (TLZ) - - 10,750 /- $0 /-
--------------------------------------------------------------------------------------------------------------------------------
Richard E. Weitzel (TLZ) - - 20,000 /- $0 /-
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All of the options reported outstanding at the end of the fiscal year are
immediately exercisable as of fiscal year-end. In all cases, the shares
acquired upon exercise of the options reported in the table are subject to
repurchase by the granting company at the exercise price if the optionee
ceases to be employed by such company or any other Thermo Electron
company. The granting company may exercise its repurchase rights within
six months after the termination of the optionee's employment. The
repurchase rights generally lapse ratably over a four- to five-year
period, depending on the option term, which may vary from five to seven
years, provided that the optionee continues to be employed by the granting
company or another Thermo Electron company. The granting company may
permit the holder of options to exercise options and to satisfy tax
withholding obligations by surrendering shares equal in fair market value
to the exercise price or withholding obligation. See footnote (4) under
Summary Compensation Table above for the company abbreviations used in
this table.
(2) Amounts shown in this column do not necessarily represent actual value
realized from the sale of the shares acquired upon exercise of the option
because in many cases the shares are not sold on exercise but continue to
be held by the named executive officer exercising the option. The amounts
shown represent the difference between the option exercise price and the
market price on the date of exercise, which is the amount that would have
been realized if the shares had been sold immediately upon exercise.
(3) Mr. Feldman became president and chief executive officer of the company in
August 1998. Prior to that date, he had been employed by International
Technidyne, a wholly owned subsidiary of Thermo Cardiosystems, an indirect
majority-owned subsidiary of Thermo Electron, and had been granted options
to purchase shares of common stock of Thermo Electron and its
subsidiaries, other than the company, as compensation for his services to
Thermo Electron. These options are not reported in the table as they were
granted as compensation for service to Thermo Electron companies other
than the company.
EXECUTIVE RETENTION AGREEMENTS
Thermo Electron has entered into agreements with certain executive
officers and key employees of Thermo Electron and its subsidiaries that provide
severance benefits if there is a change in control of Thermo Electron and their
employment is terminated by Thermo Electron "without cause" or by the individual
for "good reason", as those terms are defined therein, within 18 months
thereafter. For purposes of these agreements, a change in control exists upon
(i) the acquisition by any person of 40% or more of the outstanding common stock
or voting securities of Thermo
12
<PAGE>
Electron; (ii) the failure of the Thermo Electron board of directors to include
a majority of directors who are "continuing directors", which term is defined to
include directors who were members of Thermo Electron's board on the date of the
agreement or who subsequent to the date of the agreement were nominated or
elected by a majority of directors who were "continuing directors" at the time
of such nomination or election; (iii) the consummation of a merger,
consolidation, reorganization, recapitalization, or statutory share exchange
involving Thermo Electron or the sale or other disposition of all or
substantially all of the assets of Thermo Electron unless immediately after such
transaction all holders of Thermo Electron common stock immediately prior to
such transaction own more than 60% of the outstanding voting securities of the
resulting or acquiring corporation in substantially the same proportions as
their ownership immediately prior to such transaction and no person after the
transaction owns 40% or more of the outstanding voting securities of the
resulting or acquiring corporation; or (iv) approval by stockholders of a
complete liquidation or dissolution of Thermo Electron.
In 1998, Thermo Electron authorized an executive retention agreement with
Mr. Feldman. This agreement provides that in the event Mr. Feldman's employment
is terminated under the circumstances described above, he would be entitled to a
lump sum payment equal to the sum of (a) one times his highest annual base
salary in any 12-month period during the prior five-year period, plus (b) one
times his highest annual bonus in any 12-month period during the prior five-year
period. In addition, he would be provided benefits for a period of one year
after such termination substantially equivalent to the benefits package he would
have been otherwise entitled to receive if he was not terminated. Further, all
repurchase rights of Thermo Electron and its subsidiaries shall lapse in their
entirety with respect to all options that he holds in Thermo Electron and its
subsidiaries, including the company, as of the date of the change in control.
Finally, Mr. Feldman would be entitled to a cash payment equal to $15,000, to be
used toward outplacement services.
Assuming that the severance benefits would have been payable as of
October 2, 1999, the lump sum salary and bonus payment under such agreement to
Mr. Feldman would have been approximately $313,000. In the event that payments
under these agreements are deemed to be so called "excess parachute payments"
under the applicable provisions of the Internal Revenue Code of 1986, as
amended, Mr. Feldman would be entitled to receive a gross-up payment equal to
the amount of any excise tax payable by him with respect to such payment, plus
the amount of all other additional taxes imposed on him attributable to the
receipt of such gross-up payment.
STOCK OWNERSHIP POLICIES
The Committee established a stock holding policy for executive officers
of the company that required executive officers to own a multiple of their
compensation in shares of Common Stock. For the chief executive officer, the
multiple is one times his base salary and reference incentive compensation for
the fiscal year. For all other officers, the multiple was one times the
officer's base salary. The Committee deemed it appropriate to permit officers to
achieve these ownership levels over a three-year period. The policy has been
amended to apply only to the chief executive officer.
In order to assist executive officers in complying with the policy, the
Committee also adopted a stock holding assistance plan under which the company
is authorized to make interest-free loans to executive officers to enable them
to purchase shares of Common Stock in the open market. This plan was also
amended to apply only to the chief executive officer. The loans are required to
be repaid upon the earlier of demand or the tenth anniversary of the date of the
loan, unless otherwise determined by the Committee.
The Committee also has a policy requiring its executive officers to hold
shares of Common Stock equal to one-half of their net option exercises over a
period of five years. The net option exercise is determined by calculating the
number of shares acquired upon exercise of a stock option, after deducting the
number of shares that could have been traded to exercise the option and the
number of shares that could have been surrendered to satisfy tax withholding
obligations attributable to the exercise of the option.
13
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock,
as well as the common stock of Thermo Electron and ThermoTrex, as of October 2,
1999, with respect to (i) each director, (ii) each executive officer named in
the summary compensation table set forth in Item 11 - Executive Compensation,
and (iii) all directors and current executive officers as a group. In addition,
the following table sets forth the beneficial ownership of Common Stock, as of
October 2, 1999, with respect to each person who was known by the company to own
beneficially more than 5% of the outstanding shares of Common Stock.
While certain directors or executive officers of the company are also
directors and executive officers of Thermo Electron or its subsidiaries other
than the company, all such persons disclaim beneficial ownership of the shares
of Common Stock beneficially owned by Thermo Electron.
<TABLE>
<CAPTION>
THERMOLASE THERMOTREX THERMO ELECTRON
NAME (1) CORPORATION (2) CORPORATION (3) CORPORATION (4)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Thermo Electron Corporation (5) 33,908,040 N/A N/A
Carliss Y. Baldwin 62,400 0 1,000
I. MacAllister Booth 0 0 0
Gerald Feldman 225,000 45,000 152,161
Gina M. Goodrich 1,120 0 63
Elias P. Gyftopoulos 64,754 0 73,272
John T. Keiser 0 90,000 290,487
Paul F. Kelleher 83,300 8,916 205,251
Richard E. Weitzel 20,000 0 0
Nicholas T. Zervas 89,554 10,647 0
All directors and current executive officers as a group
(10 persons) 546,345 154,563 1,032,177
</TABLE>
(1) Except as reflected in the footnotes to this table, shares of Common Stock
and the common stock of ThermoTrex and Thermo Electron beneficially owned
consist of shares owned by the indicated person or by that person for the
benefit of minor children, and all share ownership includes sole voting
and investment power.
(2) Shares of Common Stock beneficially owned by Dr. Baldwin, Mr. Feldman, Dr.
Gyftopoulos, Mr. Kelleher, Mr. Weitzel, Dr. Zervas, and all directors and
current executive officers as a group include 62,400, 225,000, 62,400,
77,000, 20,000, 68,318, and 515,118 shares, respectively, that such person
or group has the right to acquire within 60 days of October 2, 1999,
through the exercise of stock options. Shares beneficially owned by Dr.
Gyftopoulos, Dr. Zervas, and all directors and current executive officers
as a group include 1,354, 2,080, and 3,434, shares, respectively,
allocated through October 2, 1999, to their respective accounts maintained
pursuant to the company's Deferred Compensation Plan for Directors. No
director or named executive officer beneficially owned more than 1% of the
Common Stock as of October 2, 1999; all directors and current executive
officers as a group beneficially owned 1.38% of the Common Stock
outstanding as of such date.
(3) Shares of ThermoTrex common stock beneficially owned by Mr. Feldman, Mr.
Keiser, Mr. Kelleher, Dr. Zervas, and all directors and current executive
officers as a group include 45,000, 90,000, 5,000, 5,850, and 145,850
shares, respectively, that such person or group has the right to acquire
within 60 days of October 2, 1999, through the exercise of stock options.
Shares beneficially owned by Dr. Zervas and all directors and current
executive officers as a group include 4,797 shares allocated through
October 2, 1999, to Dr. Zervas's account maintained pursuant to
ThermoTrex's Deferred Compensation Plan for Directors. No director or
named executive officer beneficially owned more than 1% of the common
stock of ThermoTrex as of October 2, 1999; all directors and current
executive officers as a group beneficially owned less than 1% of the
common stock of ThermoTrex outstanding as of such date.
14
<PAGE>
(4) Shares of Thermo Electron common stock beneficially owned by Mr. Feldman,
Dr. Gyftopoulos, Mr. Keiser, Mr. Kelleher, and all directors and current
executive officers as a group include 124,920, 9,673, 243,334, 172,333,
and 821,032 shares, respectively, that such person or group has the right
to acquire within 60 days of October 2, 1999, through the exercise of
stock options. Shares beneficially owned by Mr. Kelleher and all directors
and current executive officers as a group include 1,426 and 2,497 shares,
respectively, allocated through October 2, 1999, to their respective
accounts maintained pursuant to Thermo Electron's employee stock ownership
plan, of which the trustees, who have investment power over its assets,
were, as of October 2, 1999, executive officers of Thermo Electron. Shares
beneficially owned by Dr. Gyftopoulos and all directors and current
executive officers as a group include 1,020 shares allocated through
October 2, 1999, to Dr. Gyftopoulos' account maintained pursuant to Thermo
Electron's Deferred Compensation Plan for Directors. No director or named
executive officer beneficially owned more than 1% of Thermo Electron's
common stock outstanding as of such date; all directors and current
executive officers as a group beneficially owned less than 1% of the
common stock of Thermo Electron outstanding as of such date.
(5) Thermo Electron beneficially owned 85.99% of the Common Stock outstanding
as of October 2, 1999, of which 71.06 % is owned through ThermoTrex, a
majority-owned subsidiary of Thermo Electron. Shares beneficially owned by
Thermo Electron include 473,109 shares issuable upon conversion of
$8,225,000 principal amount of the company's 4 3/8% Convertible
Subordinated Debenture due in 2004. Thermo Electron's address is 81 Wyman
Street, Waltham, Massachusetts 02454-9046. As of October 2, 1999, Thermo
Electron, through ThermoTrex, had the power to elect all of the members of
the company's board of directors.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Thermo Electron has, from time to time, caused its subsidiaries to sell
minority interests to investors, resulting in several majority-owned, private
and publicly-held subsidiaries. Thermo Electron has created the company as a
majority-owned, publicly-held subsidiary. The company and such other
majority-owned Thermo Electron subsidiaries are hereinafter referred to as the
"Thermo Subsidiaries."
Thermo Electron and each of the Thermo Subsidiaries recognize that the
benefits and support that derive from their affiliation are essential elements
of their individual performance. Accordingly, Thermo Electron and each of the
Thermo Subsidiaries, including the company, have adopted the Thermo Electron
Corporate Charter to define the relationships and delineate the nature of such
cooperation among themselves. The purpose of the Charter is to ensure that (1)
all of the companies and their stockholders are treated consistently and fairly;
(2) the scope and nature of the cooperation among the companies, and each
company's responsibilities, are adequately defined; (3) each company has access
to the combined resources and financial, managerial, and technological strengths
of the others; and (4) Thermo Electron and the Thermo Subsidiaries, in the
aggregate, are able to obtain the most favorable terms from outside parties.
To achieve these ends, the Charter identifies the general principles to
be followed by the companies, addresses the role and responsibilities of the
management of each company, provides for the sharing of group resources by the
companies, and provides for centralized administrative, banking, and credit
services to be performed by Thermo Electron. The services provided by Thermo
Electron include collecting and managing cash generated by members, coordinating
the access of Thermo Electron and the Thermo Subsidiaries (the Thermo Group) to
external financing sources, ensuring compliance with external financial
covenants and internal financial policies, assisting in the formulation of
long-range planning, and providing other banking and credit services. Pursuant
to the Charter, Thermo Electron may also provide guarantees of debt or other
obligations of the Thermo Subsidiaries or may obtain external financing at the
parent level for the benefit of the Thermo Subsidiaries. In certain instances,
the Thermo Subsidiaries may provide credit support to, or on behalf of, the
consolidated entity or may obtain financing directly from external financing
sources. Under the Charter, Thermo Electron is responsible for determining that
the Thermo Group remains in compliance with all covenants imposed by external
financing sources, including covenants related to borrowings of Thermo Electron
or other members of the Thermo Group, and for apportioning such constraints
within the Thermo Group. In addition, Thermo Electron establishes certain
internal policies and procedures applicable to members of the Thermo Group. The
cost of the services provided by Thermo Electron to the Thermo Subsidiaries is
covered under existing corporate services agreements between Thermo Electron and
the Thermo Subsidiaries.
15
<PAGE>
The Charter currently provides that it shall continue in effect so long
as Thermo Electron and at least one Thermo Subsidiary participate. The Charter
may be amended at any time by agreement of the participants. Any Thermo
Subsidiary, including the company, can withdraw from participation in the
Charter upon 30 days' prior notice. In addition, Thermo Electron may terminate a
subsidiary's participation in the Charter in the event the subsidiary ceases to
be controlled by Thermo Electron or ceases to comply with the Charter or the
policies and procedures applicable to the Thermo Group. A withdrawal from the
Charter automatically terminates the corporate services agreement and tax
allocation agreement (if any) in effect between the withdrawing company and
Thermo Electron. The withdrawal from participation does not terminate
outstanding commitments to third parties made by the withdrawing company, or by
Thermo Electron or other members of the Thermo Group, prior to the withdrawal.
In addition, a withdrawing company is required to continue to comply with all
policies and procedures applicable to the Thermo Group and to provide certain
administrative functions mandated by Thermo Electron so long as the withdrawing
company is controlled by or affiliated with Thermo Electron.
As provided in the Charter, the company and Thermo Electron have entered
into a Corporate Services Agreement under which Thermo Electron's corporate
staff provides certain administrative services, including certain legal advice
and services, risk management, employee benefit administration, tax advice and
preparation of tax returns, centralized cash management, and financial and other
services to the company. The company was assessed an annual fee equal to 0.8% of
the company's revenues for these services in fiscal 1999. The annual fee will
remain at 0.8% of the company's revenues for fiscal 2000. The fee is reviewed
annually and may be changed by mutual agreement of the company and Thermo
Electron. During fiscal 1999, Thermo Electron assessed the company $290,000 in
fees under the Services Agreement. Management believes that the charges under
the Services Agreement are reasonable and that the terms of the Services
Agreement are fair to the company. In fiscal 1999, the company was billed an
additional $87,000 by Thermo Electron for certain administrative services
required by the company that were not covered by the Services Agreement. The
Services Agreement automatically renews for successive one-year terms, unless
canceled by the company upon 30 days' prior notice. In addition, the Services
Agreement terminates automatically in the event the company ceases to be a
member of the Thermo Group or ceases to be a participant in the Charter. In the
event of a termination of the Services Agreement, the company will be required
to pay a termination fee equal to the fee that was paid by the company for
services under the Services Agreement for the nine-month period prior to
termination. Following termination, Thermo Electron may provide certain
administrative services on an as-requested basis by the company or as required
in order to meet the company's obligations under Thermo Electron's policies and
procedures. Thermo Electron will charge the company a fee equal to the market
rate for comparable services if such services are provided to the company
following termination.
The company has entered into a Tax Allocation Agreement with Thermo
Electron that outlines the terms under which the company will be included in
Thermo Electron's consolidated federal and state income tax returns. Under
current law, the company will be included in such tax returns so long as Thermo
Electron (and/or its 80% owned subsidiaries) owns 80% of the Common Stock. If
Thermo Electron's equity ownership of the company were to drop below 80%, the
company would file its own tax returns. The agreement provides that Thermo
Electron charges or pays the company amounts based on the company's relative
contribution to Thermo Electron's tax liability at the time that Thermo Electron
pays its tax liability or receives a tax benefit. Due to the tax losses incurred
by the company since June 1999 when the company became part of a consolidated
tax group with Thermo Electron, Thermo Electron will pay to the company with
respect to fiscal 1999, an amount equal to the tax benefit received by Thermo
Electron with respect to such tax losses.
As of October 2, 1999, Thermo Electron and its other subsidiaries owed
the company an aggregate of $486,000 for products and services and miscellaneous
items, net of amounts owed by the company to Thermo Electron and its other
subsidiaries for amounts due under the Corporate Services Agreement and related
administrative charges, for other products and services, and for miscellaneous
items excluding the debentures described below. The largest amount of such net
indebtedness owed by the company to Thermo Electron and its other subsidiaries
since October 3, 1998 was $4,038,000. These amounts do not bear interest and are
expected to be paid in the normal course of business.
16
<PAGE>
Gina Goodrich, former Vice President, Licensees, of the company resigned
in July 1999. In connection with her resignation, the company entered into a
separation agreement pursuant to which the company paid Ms. Goodrich $73,333 as
severance pay, and $3,569 for certain medical and dental benefits.
From time to time, the company may transact business with other companies
in the Thermo Group. In fiscal 1999, such transactions included the following:
In fiscal 1999, the company subleased office and research facilities from
ThermoTrex and was charged for the actual square footage occupied at
approximately the same cost-per-square-foot paid by ThermoTrex under its prime
lease. The accompanying statement of operations includes expenses from this
sublease of $111,000 in fiscal 1999.
During fiscal 1999, the company purchased laser systems and components at
an aggregate cost of $3,414,000 from Trex Medical, a majority-owned subsidiary
of ThermoTrex.
As of October 2, 1999, the company owed Thermo Electron $8,225,000
principal amount, pursuant to a 4 3/8% subordinated convertible debenture due
2004, convertible into shares of the company's common stock at $17.385 per
share.
During fiscal 1999, the company purchased products totaling $169,000 from
Bird Products Corporation, a wholly owned subsidiary of Thermo Electron.
As of October 3, 1998, $51,246,000 of the company's cash equivalents were
invested in a repurchase agreement with Thermo Electron. Under this agreement,
the company in effect lent excess cash to Thermo Electron, which Thermo Electron
collateralized with investments principally consisting of corporate notes, U.S.
government agency securities, commercial paper, money market funds, and other
marketable securities, in the amount of at least 103% of such obligation. The
company's funds subject to the repurchase agreement were readily convertible
into cash by the company. The repurchase agreement earned a rate based on the
90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter. Effective June 1999, the company adopted a new cash
management arrangement with Thermo Electron, described below, that replaces the
repurchase agreement.
As of October 2, 1999, $15,387,000 of the company's cash equivalents were
invested in a cash management arrangement with Thermo Electron, which was
effective June 1999. Under the cash management arrangement, the company lends
its excess cash to Thermo Electron and has the contractual right to withdraw its
invested funds upon 30 days' prior notice. Thermo Electron is contractually
required to maintain cash, cash equivalents, and/or immediately available bank
lines of credit equal to at least 50% of all the funds invested under the
arrangement by all Thermo Electron subsidiaries other than wholly-owned
subsidiaries. The company's funds invested in the cash management arrangement
earn a rate equal to the 30-day Dealer Commercial Paper Rate as reported in THE
WALL STREET JOURNAL plus 50 basis points, set at the beginning of each month.
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the company. Under this plan, the
company would be merged into Thermo Electron. As a result, the company would
become a wholly owned subsidiary of Thermo Electron. In December 1999, the
boards of directors of the company and Thermo Electron approved a definitive
agreement and plan of merger pursuant to which Thermo Electron would acquire all
of the outstanding common stock, $.01 par value per share (Common Stock), held
by the shareholders of the company other than Thermo Electron and ThermoTrex in
exchange for shares of Thermo Electron's common stock (TMO Common Stock). The
company's board of directors approved the merger agreement based on a
recommendation of its special committee, which was charged with representing the
interests of the company's public shareholders.
17
<PAGE>
Under the agreement, the number of shares of TMO Common Stock to be
issued to the company's public shareholders will be determined at the completion
of the merger (the effective date), as described below.
(1) If the average closing price of TMO Common Stock is between $11.925 and
$17.887 for the 20 trading days prior to the effective date of the merger,
a preliminary exchange ratio of 0.158 shares of TMO Common Stock for each
share of Common Stock would be adjusted on the effective date by
multiplying 0.158 by a fraction of which the numerator would be $14.906
(the average per-share closing price of TMO Common Stock for the 20 trading
days ended December 13, 1999), and of which the denominator would be the
average per-share closing price of TMO Common Stock for the 20 trading days
ending on the day before the effective date.
(2) If the average closing price of TMO Common Stock for the 20 trading days
prior to the effective date is below $11.925, the exchange ratio would be
fixed at 0.198 shares of TMO Common Stock per share of Common Stock.
(3) If the average closing price of TMO Common Stock for the 20 trading days
prior to the effective date is above $17.887, the exchange ratio would be
fixed at 0.132 shares of TMO Common Stock per share of Common Stock.
In addition, under the agreement, units of the company (currently
consisting of one share of Common Stock coupled with the right to have the
company redeem that share for $20.25 in April 2001) would be modified so that,
following the merger, each unit would consist of a fractional share of TMO
Common Stock (in an amount determined using the exchange ratio described above),
which would be redeemable in April 2001 for $20.25. The cash value of the
redemption right would remain constant before and after the merger.
This proposal is subject to certain conditions including the completion
of review by the Securities and Exchange Commission of certain required filings
regarding the proposed transaction and listing on the New York Stock Exchange of
TMO Common Stock to be issued in connection with the merger.
18
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a, d) FINANCIAL STATEMENTS AND SCHEDULES
(1) The consolidated financial statements set forth in the list below are
filed as part of this Report.
(2) The consolidated financial statement schedule set forth in the list
below is filed as part of this Report.
(3) Exhibits filed herewith or incorporated in this document by reference
are set forth in Item 14(c) below.
LIST OF FINANCIAL STATEMENTS AND SCHEDULES REFERENCED IN THIS ITEM 14
Information incorporated by reference from Exhibit 13 filed herewith:
Consolidated Statement of Operations
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Comprehensive Income and Shareholders'
Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedules filed herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or not
required, or because the required information is shown either in the
financial statements or in the notes thereto.
(b) REPORTS ON FORM 8-K
On December 17, 1999, the company filed a Current Report on Form 8-K
dated December 17, 1999, with respect to the execution of an Agreement
and Plan of Merger.
On July 12, 1999, the company filed a Current Report on Form 8-K dated as
of June 27, 1999, with respect to the disposition of the company's spa
business.
(c) EXHIBITS
See Exhibit Index on the page immediately preceding exhibits.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed by
the undersigned, thereunto duly authorized.
Date: December 23, 1999 THERMOLASE CORPORATION
By: /s/ GERALD FELDMAN
-------------------------------------
Gerald Feldman
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, as of December 23, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
By: /s/ GERALD FELDMAN President, Chief Executive Officer, and Director
-------------------------------------
Gerald Feldman
By: /s/ THEO MELAS-KYRIAZI Chief Financial Officer
-------------------------------------
Theo Melas-Kyriazi
By: /s/ PAUL F. KELLEHER Chief Accounting Officer and Director
-------------------------------------
Paul F. Kelleher
By: /s/ JOHN T. KEISER Chairman of the Board and Director
-------------------------------------
John T. Keiser
By: /s/ CARLISS Y. BALDWIN Director
-------------------------------------
Carliss Y. Baldwin
By: /s/ I. MACALLISTER BOOTH Director
-------------------------------------
I. MacAllister Booth
By: /s/ ELIAS P. GYFTOPOULOS Director
-------------------------------------
Elias P. Gyftopoulos
By: /s/ NICHOLAS T. ZERVAS Director
-------------------------------------
Nicholas T. Zervas
</TABLE>
20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of ThermoLase Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in ThermoLase
Corporation's Annual Report to Shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated November 9, 1999 (except
with respect to the matter discussed in Note 14, as to which the date is
December 16, 1999). Our audits were made for the purpose of forming an opinion
on those statements taken as a whole. The schedule listed in Item 14 on page 19
is the responsibility of the Company's management and is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic consolidated financial statements. This schedule has been subjected
to the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states, in all material
respects, the consolidated financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
November 9, 1999
21
<PAGE>
SCHEDULE II
THERMOLASE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Balance at Provision Accounts Balance
Beginning Charged to Written at End
Description of Year Expense (a) Off of Year
------------------------------------------------------------ ---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year Ended October 2, 1999 $ 490 $ 1,891 $ (301) $ 2,080
Year Ended October 3, 1998 $ 402 $ 88 $ - $ 490
Year Ended September 27, 1997 $ 319 $ 83 $ - $ 402
</TABLE>
<TABLE>
<CAPTION>
Balance at Provision Activity Balance
Beginning Charged to Charged to at End
Description of Year Expense (c) Reserve of Year
------------------------------------------------------------ ---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
ACCRUED RESTRUCTURING COSTS (b)
Year Ended October 2, 1999 $ 5,153 $ 22,285 $ (8,597) $ 18,841
Year Ended October 3, 1998 $ - $ 5,962 $ (809) $ 5,153
</TABLE>
(a) Includes a provision of $1.7 million in fiscal 1999, recorded in
connection with certain restructuring actions as described in Note 13 to
Consolidated Financial Statements in the Registrant's Fiscal 1999 Annual
Report to Shareholders.
(b) The nature of activity in this account is described in Note 13 to
Consolidated Financial Statements in the Registrant's Fiscal 1999 Annual
Report to Shareholders.
(c) Excludes noncash charges of $2.9 million, primarily for the write-off of
leasehold improvements and related spa assets and $1.3 million for the
write-off of a joint venture in fiscal 1998. Excludes noncash charges of
$19.9 million for the loss on the sale of the spa business and $18.1
million, primarily for the write-off of leasehold improvements and
equipment in fiscal 1999.
22
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
-------- ----------------------
<S> <C>
3.1 Certificate of Incorporation of the Registrant (filed as Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-78052] and incorporated herein by reference).
3.2 By-Laws of the Registrant, as amended and restated (filed as Exhibit 3.2 to the Registrant's
Transition Report on Form 10-K for the transition period January 1, 1995, through September 30, 1995
[File No. 1-13104] and incorporated herein by reference).
4.1 Form of Unit Certificate (filed as Exhibit 4.1 to the Registrant's Registration Statement on Form S-4
[Reg. No. 333-19633] and incorporated herein by reference).
4.2 Guaranty Agreement between the Registrant and Thermo Electron Corporation dated March 5, 1997 (filed
as Exhibit 4.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 29, 1997,
[File No. 1-13104] and incorporated herein by reference).
4.3 Fiscal Agency Agreement dated as of August 12, 1997, among the Registrant, Thermo Electron
Corporation, and Bankers Trust Company as Fiscal Agent, relating to $115,000,000 principal amount of 4
3/8% Convertible Subordinated Debentures due 2004 (filed as Exhibit 4.3 to the Registrants Annual
Report on Form 10-K for the fiscal year ended September 27, 1997 [File No. 1-13104] and incorporated
herein by reference).
10.1 Corporate Services Agreement dated as of January 13, 1993, between Thermo Electron Corporation and the
Registrant (filed as Exhibit 10.1 to the Registrant's Registration Statement on Form S-1 [Reg. No.
33-78052] and incorporated herein by reference).
10.2 Thermo Electron Corporate Charter, as amended and restated effective January 3, 1993 (filed as Exhibit
10.1 to Thermo Electron's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 [File
No. 1-8002] and incorporated herein by reference).
10.3 License Agreement dated as of February 10, 1993, between the Registrant and Nicolai I. Tankovich
(filed as Exhibit 10.4 to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-78052] and
incorporated herein by reference).
10.4 Lease Agreement dated March 11, 1994, between Lincoln Property Company Acquisition Fund Limited
Partnership and CBI Laboratories, Inc. (filed as Exhibit 10.7 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-78052] and incorporated herein by reference).
10.5 Form of Indemnification Agreement for Officers and Directors (filed as Exhibit 10.12 to the
Registrant's Registration Statement on Form S-1 [Reg. No. 33-78052] and incorporated herein by
reference).
10.6 Incentive Stock Option Plan of the Registrant (filed as Exhibit 10.9 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-78052] and incorporated herein by reference). (Maximum number of
shares issuable in the aggregate under this plan and the Registrant's Nonqualified Stock Option Plan
is 2,800,000 shares, after adjustment to reflect share increase approved in 1993 and 2-for-1 stock
splits effected in March 1994 and June 1995.)
</TABLE>
In addition to the stock-based compensation plans of the
Registrant, the executive officers of the Registrant may be
granted awards under stock-based compensation plans of Thermo
Electron for services rendered to the Registrant. The terms of
such plans are substantially the same as those of the
Registrant's Equity Incentive Plan.
23
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
-------- ----------------------
<S> <C>
10.7 Amended and Restated Stock Holding Assistance Plan and Form of Promissory Note (filed as Exhibit 10.14
to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 27, 1997 [File No.
1-13104] and incorporated herein by reference).
10.8 Operating Agreement of ThermoLase Japan L.L.C. dated as of January 22, 1996, between the Registrant
and Fox River Japan Partners, L.P. (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended December 30, 1995 [File No. 1-13104] and incorporated herein by reference).
10.9 License Agreement dated as of January 22, 1996, between the Registrant and ThermoLase Japan L.L.C.
(filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 30, 1995 [File No. 1-13104] and incorporated herein by reference).
10.10 Option Agreement dated as of January 22, 1996, between the Registrant and Fox River Japan Partners,
L.P. (filed as Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
December 30, 1995 [File No. 1-13104] and incorporated herein by reference).
10.11 Lease dated as of December 8, 1995, between the Registrant and Canon Properties (filed as Exhibit 10.8
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 30, 1995 [File No.
1-13104] and incorporated herein by reference).
10.12 Lease dated as of January 17, 1996, between the Registrant and Trammell Crow Equity Partners (filed as
Exhibit 10.9 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 30, 1995
[File No. 1-13104] and incorporated herein by reference).
10.13 Loan Agreement between the Registrant and Thermo Electron Corporation dated July 30, 1997 (filed as
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 28, 1997,
[File No. 1-13104] and incorporated herein by reference).
10.14 Amendment to Operating Agreement of ThermoLase Japan L.L.C. dated as of May 1, 1996, by and among the
Registrant, Fox River Partners L.P., and ThermoLase Japan L.L.C. (filed as Exhibit 10.29 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended September 27, 1997 [File No.
1-13104] and incorporated herein by reference).
10.15 Form of Terms and Conditions for Purchases of Lasers from Trex Medical Corporation (filed as Exhibit
10.30 to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 27, 1997
[File No. 1-13104] and incorporated herein by reference).
10.16 Agreement between the Registrant and John C. Hansen (filed as Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended January 3, 1998 [File No. 1-13104] and
incorporated herein by reference).
10.17 Agreement and Plan of Merger dated June 12, 1998, by and among the Registrant, 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 (filed as Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended July 4, 1998 [File No. 1-13104] and incorporated herein by
reference).
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
-------- ----------------------
<S> <C>
10.18 Master Cash Management, Guarantee Reimbursement, and Loan Agreement dated as of June 1, 1999, between
the Registrant and Thermo Electron Corporation (filed as Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-13104] and incorporated herein by
reference).
10.19 Amended and Restated Directors Stock Option Plan of the Registrant (filed as Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-13104] and
incorporated herein by reference).
10.20 Amended and Restated Deferred Compensation Plan for Directors of the Registrant (filed as Exhibit 10.3
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No.
1-13104] and incorporated herein by reference).
10.21 Amended and Restated Equity Incentive Plan of the Registrant (filed as Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-13104] and
incorporated herein by reference).
10.22 Amended and Restated Nonqualified Stock Option Plan of the Registrant (filed as Exhibit 10.5 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1999 [File No. 1-13104] and
incorporated herein by reference).
10.23 Tax Allocation Agreement by and between the Registrant and Thermo Electron Corporation dated as of
June 1, 1999.
10.24 Agreement between the Registrant and Gina Goodrich dated July 16, 1999.
10.25 Agreement and Plan of Merger by and among the Registrant, Thermo Electron Corporation, and ThermoLase
Acquisition Corporation dated as of December 14, 1999 (filed as Exhibit 2.1 to the Registrant's
Current Report on Form 8-K filed December 17, 1999 [File No. 1-13104] and incorporated herein by
reference).
13 Annual Report to Shareholders for the fiscal year ended October 2, 1999 (only those portions
incorporated herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
</TABLE>
25
<PAGE>
EXHIBIT 13
ThermoLase Corporation
Consolidated Financial Statements
Fiscal Year 1999
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------
October 2, October 3, September 27,
(In thousands except per share amounts) 1999 1998 1997
------------------------------------------------------------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C>
REVENUES (Note 12)
Product revenues $ 26,059 $ 22,765 $ 24,196
Service revenues 10,196 17,326 21,037
---------- ---------- ----------
36,255 40,091 45,233
---------- ---------- ----------
Costs and Operating Expenses:
Cost of product revenues (Note 13) 20,590 15,590 16,499
Cost of service revenues 24,010 22,285 19,628
Selling, general, and administrative expenses (Notes 8
and 13) 16,083 22,306 22,972
Research and development expenses 1,519 3,028 5,704
Restructuring and nonrecurring costs (Note 13) 60,326 10,155 -
---------- ---------- ----------
122,528 73,364 64,803
---------- ---------- ----------
Operating Loss (86,273) (33,273) (19,570)
Interest Income 2,061 4,512 2,110
Interest Expense (includes $290 and $39 to related party in
fiscal 1999 and 1998; Note 9) (5,361) (5,343) (637)
Equity in Losses of Joint Ventures (Note 4) (200) (1,203) (700)
Other Expense (Note 13) (3,399) - -
---------- ---------- ----------
Loss Before Income Taxes (93,172) (35,307) (18,797)
Income Tax (Provision) Benefit (Note 7) (159) (5,879) 6,392
---------- ---------- ----------
NET LOSS $ (93,331) $ (41,186) $ (12,405)
========== ========== ==========
BASIC AND DILUTED LOSS PER SHARE $ (2.37) $ (1.07) $ (.31)
========== ========== ==========
BASIC AND DILUTED WEIGHTED AVERAGE SHARES 39,340 38,528 40,075
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
October 2, October 3,
(In thousands) 1999 1998
----------------------------------------------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (includes $51,246 under repurchase agreement
with affiliated company in fiscal 1998) $ 1,358 $ 52,831
Advance to affiliate 15,387 -
Available-for-sale investments, at quoted market value (amortized
cost of $3,072; Note 2) - 3,072
Accounts receivable, less allowances of $2,080 and $490 (Note 13) 3,959 4,339
Inventories 4,374 6,825
Other current assets (Note 13) 4,000 -
Prepaid expenses 85 698
Due from parent company and affiliated companies 486 -
----------- -----------
29,649 67,765
----------- -----------
Property, Plant, and Equipment, at Cost, Net (Note 13) 2,889 43,430
----------- -----------
Other Assets (Note 13) 5,817 7,531
----------- -----------
Cost in Excess of Net Assets of Acquired Companies (Notes 3 and 13) 7,623 15,489
----------- -----------
$ 45,978 $ 134,215
=========== ===========
</TABLE>
3
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET (CONTINUED)
<TABLE>
<CAPTION>
October 2, October 3,
(In thousands except share amounts) 1999 1998
----------------------------------------------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable $ 932 $ 3,221
Accrued payroll and employee benefits 741 1,633
Accrued restructuring costs (Note 13) 18,841 5,153
Other accrued expenses 3,973 5,961
Due to parent company and affiliated companies - 3,200
----------- -----------
24,487 19,168
----------- -----------
Long-term Obligations:
4 3/8% Subordinated Convertible Debentures (includes $8,225 and $4,500 of
related-party debt; Note 9) 115,000 115,000
Other - 66
----------- -----------
115,000 115,066
----------- -----------
Deferred Lease Liability 195 1,172
----------- -----------
Common Stock Subject to Redemption (Note 1) 40,500 40,500
----------- -----------
Commitments and Contingencies (Notes 8 and 10)
Shareholders' Investment (Notes 5 and 6):
Common stock, $.01 par value, 100,000,000 shares authorized; 40,829,132 shares
issued 408 408
Capital in excess of par value 36,360 36,279
Accumulated deficit (150,438) (57,107)
Treasury stock at cost, 1,481,136 and 1,531,025 shares (20,534) (21,271)
----------- -----------
(134,204) (41,691)
$ 45,978 $ 134,215
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------
October 2, October 3, September 27,
(In thousands) 1999 1998 1997
------------------------------------------------------------------------ ------------------ ------------------- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (93,331) $ (41,186) $ (12,405)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 6,015 7,234 4,345
Provision for losses on accounts receivable (Note 13) 1,891 88 83
Decrease (increase) in prepaid income taxes - 5,567 (6,236)
Increase in deferred lease liability 62 71 885
Equity in losses of joint ventures (Note 4) 200 1,203 700
Noncash restructuring costs (Note 13) 37,238 4,193 -
Other noncash items 5,325 - -
Changes in current accounts, excluding the effects of acquisition and sale
of spas:
Accounts receivable (1,716) 1,275 (1,374)
Inventories 363 (3,450) 1,021
Other current assets (272) 1,158 (714)
Accounts payable (2,150) (2,426) (16)
Other current liabilities 11,224 1,804 3,767
---------- ---------- ----------
Net cash used in operating activities (35,151) (24,469) (9,944)
---------- ---------- ----------
INVESTING ACTIVITIES
Acquisition, net of cash acquired (Note 3) - (4,180) -
Advances to affiliate, net (15,387) - -
Purchases of available-for-sale investments - (4,000) (10,400)
Proceeds from maturities of available-for-sale investments 3,072 13,400 41,500
Purchases of property, plant, and equipment (5,134) (4,513) (26,807)
Increase in other assets (250) (983) (1,144)
Advance under a note receivable from related party - (1,667) -
Other 1,297 230 -
---------- ---------- ----------
Net cash provided by (used in) investing
activities $ (16,402) $ (1,713) $ 3,149
---------- ---------- ----------
</TABLE>
5
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------
October 2, October 3, September 27,
(In thousands) 1999 1998 1997
------------------------------------------------------------------------ ------------------ ------------------- -----------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net proceeds from issuance of subordinated convertible
debentures (Note 9) $ - $ - $ 112,551
Purchases of Company common stock - (8,806) (26,072)
Net proceeds from issuance of Company common stock and sale of
put options 123 776 625
Payment of withholding taxes related to stock option
exercises (25) (792) (891)
Net proceeds from common stock exchange offer (Notes 1 and 5) - - 502
Other (18) (8) -
---------- ---------- ----------
Net cash provided by (used in) financing
activities 80 (8,830) 86,715
---------- ---------- ----------
Increase (Decrease) in Cash and Cash Equivalents (51,473) (35,012) 79,920
Cash and Cash Equivalents at Beginning of Year 52,831 87,843 7,923
---------- ---------- ----------
Cash and Cash Equivalents at End of Year $ 1,358 $ 52,831 $ 87,843
========== ========== ==========
CASH PAID FOR
Income taxes $ - $ - $ 70
Interest $ 5,037 $ 5,074 $ -
NONCASH ACTIVITIES
Fair value of assets of acquired company $ - $ 17,128 $ -
Cash paid for acquired company - (4,180) -
Issuance of Company common stock for acquired company - (7,975) -
---------- ---------- ----------
Liabilities assumed of acquired company $ - $ 4,973 $ -
========== ========== ==========
Exchange of common stock for common stock subject to
redemption (Notes 1 and 5) $ - $ - $ 40,500
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------
October 2, October 3, September 27,
(In thousands) 1999 1998 1997
------------------------------------------------------------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C>
COMPREHENSIVE INCOME
Net Loss $ (93,331) $ (41,186) $ (12,405)
Other Comprehensive Items:
Net unrealized gain on available-for-sale investments - 10 37
----------- ----------- -----------
$ (93,331) $ (41,176) $ (12,368)
=========== =========== ===========
SHAREHOLDERS' INVESTMENT
Common Stock, $.01 Par Value:
Balance at beginning and end of year $ 408 $ 408 $ 408
----------- ----------- -----------
Capital in Excess of Par Value:
Balance at beginning of year 36,279 46,379 85,813
Activity under employees' and directors' stock plans (639) (3,986) (2,969)
Issuance of Company common stock for acquisition (Note 3) - (6,114) -
Effect of common stock exchange offer (Notes 1 and 5) - - (36,759)
Net proceeds from sale of common stock and put options - - 294
Due from affiliated company for tax benefit utilized (Note 7) 720 - -
----------- ----------- -----------
Balance at end of year 36,360 36,279 46,379
----------- ----------- -----------
Accumulated Deficit:
Balance at beginning of year (57,107) (15,921) (3,516)
Net loss (93,331) (41,186) (12,405)
----------- ----------- -----------
Balance at end of year (150,438) (57,107) (15,921)
----------- ----------- -----------
Treasury Stock:
Balance at beginning of year (21,271) (30,523) (3,621)
Activity under employees' and directors' stock plans 737 3,969 2,409
Issuance of Company common stock for acquisition (Note 3) - 14,089 -
Purchases of Company common stock - (8,806) (26,072)
Effect of common stock exchange offer (Notes 1 and 5) - - (3,239)
----------- ----------- -----------
Balance at end of year (20,534) (21,271) (30,523)
----------- ----------- -----------
Accumulated Other Comprehensive Items:
Balance at beginning of year - (10) (47)
Other comprehensive items - 10 37
----------- ----------- -----------
Balance at end of year - - (10)
----------- ----------- -----------
$ (134,204) $ (41,691) $ 333
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
ThermoLase Corporation (the Company) operates in two business segments:
Hair-removal and Related Activities (Hair Removal) and Health and Beauty
Products. The Company's Hair Removal segment 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 impact hair follicles. In May 1998, the Company received
clearance from the U.S. Food and Drug Administration to market laser-based
skin-resurfacing services. The Company has marketed the SoftLight hair-removal
and the SoftLight Laser Peel skin-resurfacing services through its day spa
locations through June 1999, and through a network of independent doctors who
paid the Company a per-procedure or minimum royalty and/or a flat periodic fee,
as well as internationally through joint ventures and other licensing
arrangements. The Company also has offered licensees the opportunity to purchase
or lease SoftLight lasers in lieu of paying ongoing licensing fees. During
fiscal 1999, the Company began the process of terminating its
physician-licensing program, and terminated or renegotiated the terms of its
licensing arrangements in various countries following a decision to
substantially exit the hair-removal business (Note 13).
In June 1998, the Company acquired The Greenhouse Spa, Inc. (Note 3), a
luxury, destination spa located in Texas. In connection with this acquisition,
the Company converted its domestic Spa Thira locations into facilities that were
operated under The Greenhouse Spa name. The Company provided hair-removal and
skin-resurfacing services as well as more traditional day spa services, such as
massages and facials, through its Greenhouse day spas, prior to their sale in
June 1999 (Note 13).
The Company's Creative Beauty Innovations, Inc. (CBI) subsidiary
represents the Health and Beauty Products segment, which manufactures and
markets skin-care, bath, and body products and markets dietary supplements.
RELATIONSHIP WITH THERMOTREX CORPORATION AND THERMO ELECTRON CORPORATION
The Company was incorporated in January 1993 as a wholly owned subsidiary
of ThermoTrex Corporation. As of October 2, 1999, ThermoTrex owned 27,960,996
shares of the Company's common stock, representing 71% of such stock
outstanding. ThermoTrex is an 80%-owned subsidiary of Thermo Electron
Corporation. As of October 2, 1999, Thermo Electron owned 5,473,935 shares of
the Company's common stock, representing 14% of such stock outstanding.
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company. Under this plan, the
Company would be merged into Thermo Electron. As a result, the Company would
become a wholly owned subsidiary of Thermo Electron (Note 14).
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.
The Company accounts for investments in joint ventures in which it owns
between 20% and 50% using the equity method. Under the equity method, the
Company records its initial investment in each joint venture at cost and adjusts
the carrying value of the investment to recognize its proportionate share of the
joint venture's earnings or losses. In instances where the Company has no
obligation to provide additional funding to a joint venture, the Company
discontinues applying the equity method when its investment has been reduced to
zero.
FISCAL YEAR
The Company has adopted a fiscal year ending the Saturday nearest
September 30. References to fiscal 1999, 1998, and 1997 are for the years ended
October 2, 1999, October 3, 1998, and September 27, 1997, respectively. Fiscal
1999 and 1997 each included 52 weeks; fiscal 1998 included 53 weeks.
8
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
REVENUE RECOGNITION
The Company generally recognizes product revenues upon shipment of its
products. Prior to the Company exiting the spa business in June 1999 (Note 13),
the Company offered a variety of treatment plans for its spa-based services,
which included one-time services and multiple treatment plans that provided
varying numbers of treatments or treatment periods. The Company recognized
revenue from the one-time treatment plan upon performance of the related
service. Revenues from multiple treatment plans were recognized over the
anticipated treatment period, which was six months in each period based upon the
average service pattern for customers treated.
The Company earned an initial technology licensing fee and ongoing
royalties from licensing its SoftLight technology to a network of independent
physicians. Initial nonrefundable technology licensing fees were recorded as
revenue at the time the technology was transferred to the practitioner.
Royalties arising from hair-removal and skin-resurfacing procedures performed by
these physicians were recognized when such procedures were performed.
During fiscal 1998, the Company initiated the process of modifying the
terms of its physician-licensing program under which per-procedure royalties
were reduced or eliminated and a minimum royalty and/or flat periodic fee was
required. Minimum royalties and flat fees were recognized monthly. During fiscal
1999, the Company began to terminate its physician-licensing program and by the
end of calendar 1999 will no longer earn monthly royalties from licensees.
The Company earned an initial technology licensing fee and ongoing
technology licensing royalties from its international arrangements. Initial
nonrefundable technology licensing fees were recorded as revenue at the time the
technology was transferred. Ongoing technology licensing royalties were recorded
when earned in accordance with contractual terms. The accompanying statement of
operations includes international licensing fees of $724,000, $2,760,000, and
$4,195,000 in fiscal 1999, 1998, and 1997, respectively. During fiscal 1999, the
Company terminated or renegotiated the terms of its licensing arrangements in
various countries (Note 13).
PRE-OPENING SPA COSTS
The Company expensed all pre-opening costs associated with the
establishment and startup of its former Spa Thira salons as such costs were
incurred.
CONCENTRATION OF CREDIT RISK
The Company sells its skin-care and other personal-care products
primarily to regional and national stores and salons. As a result, a majority of
the Company's receivables are with these customers. Management does not believe
that this concentration of credit risk has, or will have, a significant negative
impact on the Company.
The Company does not typically require collateral on its credit sales.
STOCK-BASED COMPENSATION PLANS
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock-based compensation plans (Note 6). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to shareholders' investment.
INCOME TAXES
The Company was required to file its own federal income tax returns for
fiscal 1997 and 1998 because ThermoTrex's and Thermo Electron's equity ownership
in the Company was below 80%. Effective in the second quarter of fiscal 1999,
ThermoTrex's and Thermo Electron's equity ownership of the Company exceeded 80%.
As a result, the Company and ThermoTrex will be included in Thermo Electron's
consolidated tax return as provided for under a tax allocation agreement between
the Company and Thermo Electron. This agreement provides that Thermo Electron
charges or pays the Company amounts based on the Company's relative contribution
to Thermo Electron's tax liability.
9
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
In accordance with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," the Company recognizes deferred income taxes
based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities calculated
using enacted tax rates in effect for the year in which the differences are
expected to be reflected in the tax return, subject to determination of the need
for a valuation allowance for any deferred tax assets (Note 7).
LOSS PER SHARE
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 does not differ from basic loss per share because the effect of
assuming the conversion of convertible obligations and the elimination of the
related interest expense, the exercise of stock options, and the effect of
redeemable common stock would be antidilutive, due to the Company's net loss in
the periods presented. Options to purchase 2,031,000, 2,672,000, and 2,912,000
shares of common stock were not included in the computation of diluted loss per
share for fiscal 1999, 1998, and 1997, respectively, due to the Company's net
loss position in each period. In addition, the computation of diluted loss per
share for each period excludes the effect of assuming the conversion of the
Company's $115,000,000 principal amount of 4 3/8% subordinated convertible
debentures, convertible at $17.385 per share, due to the Company's net loss
position.
CASH AND CASH EQUIVALENTS
At fiscal year-end 1998, $51,246,000 of the Company's cash equivalents
were invested in a repurchase agreement with Thermo Electron. Under this
agreement, the Company in effect lent excess cash to Thermo Electron, which
Thermo Electron collateralized with investments principally consisting of
corporate notes, U.S. government-agency securities, commercial paper, money
market funds, and other marketable securities, in the amount of at least 103% of
such obligation. The Company's funds subject to the repurchase agreement were
readily convertible into cash by the Company. The repurchase agreement earned a
rate based on the 90-day Commercial Paper Composite Rate plus 25 basis points,
set at the beginning of each quarter. Effective June 1999, the Company adopted a
new cash management arrangement with Thermo Electron, described below, that
replaces the repurchase agreement.
ADVANCE TO AFFILIATE
Effective June 1999, the Company and Thermo Electron commenced use of a
new domestic cash management arrangement. Under the new arrangement, amounts
advanced to Thermo Electron by the Company for domestic cash management purposes
bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis points,
set at the beginning of each month. Thermo Electron is contractually required to
maintain cash, cash equivalents, and/or immediately available bank lines of
credit equal to at least 50% of all funds invested under this cash management
arrangement by all Thermo Electron subsidiaries other than wholly owned
subsidiaries. The Company has the contractual right to withdraw its funds
invested in the cash management arrangement upon 30 days' prior notice. Amounts
invested in this arrangement are included in "advance to affiliate" in the
accompanying balance sheet.
INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out
basis) or market value and include materials, labor, and manufacturing overhead.
The components of inventories are as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
----------------------------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Raw Materials and Supplies $ 3,240 $ 2,771
Work in Process 384 759
Finished Goods 750 3,295
------- -------
$ 4,374 $ 6,825
======= =======
</TABLE>
10
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The Company periodically reviews the quantities of inventories on hand
and compares these amounts to expected usage of each particular product or
product line. The Company records as a charge to cost of product revenues any
amounts required to reduce the carrying value of inventories to net realizable
value.
PROPERTY, PLANT, AND EQUIPMENT
The costs of additions and improvements are capitalized, while
maintenance and repairs are charged to expense as incurred. The Company provides
for depreciation and amortization using the straight-line method over the
estimated useful lives of the property as follows: building, 40 years; machinery
and equipment, 5 to 10 years; and leasehold improvements, the shorter of the
term of the lease or the life of the asset. Property, plant, and equipment
consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
----------------------------------------------------------------------------------------------------- -------------- ------------
<S> <C> <C>
Land $ - $ 730
Building - 7,494
Machinery and Equipment 4,554 30,773
Leasehold Improvements 1,450 15,709
-------- --------
6,004 54,706
Less: Accumulated Depreciation and Amortization 3,115 11,276
-------- --------
$ 2,889 $ 43,430
======== ========
</TABLE>
OTHER ASSETS
Other assets includes the long-term portion of a note receivable recorded
at its estimated fair value (Note 13). Other assets also include a cost method
investment in a private company that was written down to its estimated
realizable value in fiscal 1999 (Note 13) and deferred debt expense, which is
amortized over the term of the debt.
COST IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES
The excess of cost over the fair value of net assets of the acquired
companies is amortized using the straight-line method over 40 years. Accumulated
amortization was $1,367,000 and $1,187,000 at fiscal year-end 1999 and 1998,
respectively. The Company assesses the future useful life of this asset whenever
events or changes in circumstances indicate that the current useful life has
diminished. The Company considers the future undiscounted cash flows of the
acquired businesses in assessing the recoverability of this asset. If impairment
has occurred, any excess of carrying value over fair value is recorded as a
loss. At October 2, 1999, this asset relates to the Company's CBI subsidiary.
DEFERRED LEASE LIABILITY
Deferred lease liability in the accompanying balance sheet represents
facilities rent that is being recognized ratably over the respective lease
terms.
COMMON STOCK SUBJECT TO REDEMPTION
In April 1997, the Company completed an exchange offer whereby its
shareholders had the opportunity to exchange one share of existing Company
common stock and $3.00 (in cash or Company common stock) for a new unit
consisting of one share of Company common stock and one redemption right. The
redemption right entitles the holder to sell the related share of common stock
to the Company for $20.25 during the period from April 3, 2001, through April
30, 2001. The redemption right will expire and become worthless if the closing
price of Company common stock is at least $26.00 for 20 of any 30 consecutive
trading days. The redemption rights are guaranteed on a
11
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
subordinated basis by Thermo Electron. ThermoTrex has agreed to reimburse Thermo
Electron in the event Thermo Electron is required to make a payment under the
guarantee. In connection with this offer, in April 1997, the Company issued
2,000,000 units in exchange for 2,261,706 shares of Company common stock and
$502,000 in cash, net of expenses. As a result of these transactions, the
Company reclassified $40,500,000 from "Shareholders' investment" to "Common
stock subject to redemption," based on the issuance of 2,000,000 redemption
rights, each carrying a maximum liability to the Company of $20.25.
During fiscal 1999, Thermo Electron purchased 1,620,000 of the Company's
units in the open market.
COMPREHENSIVE INCOME
During the first quarter of fiscal 1999, the Company adopted SFAS No.
130, "Reporting Comprehensive Income." This pronouncement sets forth
requirements for disclosure of the Company's comprehensive income and
accumulated other comprehensive items. In general, comprehensive income combines
net income (loss) and "other comprehensive items," which prior to fiscal 1999
represented unrealized net of tax gains and losses on available-for-sale
investments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
As discussed in Note 13, during fiscal 1999, the Company recorded
significant restructuring and related costs associated with its Hair Removal
segment. These amounts include management's best estimate of the exit costs
associated with this business. It is reasonably possible that the amounts that
the Company will ultimately expend could differ materially in the near term from
the amounts recorded in the accompanying financial statements. The Company's
estimates will be affected principally by the amount of future sublease income
from its leased facilities and the result of any negotiations to settle the
lease obligations.
PRESENTATION
Certain amounts in fiscal 1998 and 1997 have been reclassified to conform
to the presentation in the fiscal 1999 financial statements.
2. AVAILABLE-FOR-SALE INVESTMENTS
The Company's debt securities are considered available-for-sale
investments in the accompanying fiscal 1998 balance sheet, are carried at market
value and represent investments in government-agency securities in which the
cost approximated market value.
3. 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 operated a luxury, destination spa in Arlington, Texas.
The acquisition was accounted for using the purchase method of
accounting, and results of its operations have been included in the accompanying
financial statements from the date of acquisition through the date of sale. The
cost of this acquisition exceeded the estimated fair value of the acquired net
assets by $7,686,000, which was being amortized over 40 years. Allocation of the
purchase price was based on an estimate of the fair value of the net assets
acquired. Pro forma data is not presented as this acquisition was not material
to the Company's results of operations.
In connection with certain restructuring activities, the Company sold The
Greenhouse Spa in June 1999 (Note 13).
12
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. JOINT VENTURES
The Company entered into joint venture arrangements to market its
SoftLight system internationally. The Company currently has two joint venture
arrangements in which it holds a 46% and 50% stake. Amounts advanced under such
arrangements totaled $2,650,000 in fiscal 1998 and $1,144,000 in fiscal 1997. No
amounts were advanced in fiscal 1999. As of October 2, 1999, the Company had no
material obligation for further funding of such arrangements. The accompanying
fiscal 1999, 1998, and 1997 statement of operations includes $200,000,
$1,203,000, and $700,000, respectively, of equity in losses of joint ventures,
reflecting the Company's share of losses from joint venture operations. During
fiscal 1998, the Company liquidated its joint venture relating to the SoftLight
system in France and in fiscal 1999 terminated or renegotiated the terms of its
remaining joint venture arrangements (Note 13). The costs associated with these
actions are included in restructuring and nonrecurring costs in the accompanying
statement of operations.
5. COMMON STOCK
EXCHANGE OFFER
In April 1997, the Company completed an exchange offer whereby the
Company received 2,261,706 shares of its common stock and $502,000 in cash, net
of expenses, from its shareholders in exchange for 2,000,000 units of common
stock subject to redemption (Note 1).
RESERVED SHARES
At October 2, 1999, the Company had reserved 9,799,000 unissued shares of
its common stock for possible issuance under stock-based compensation plans and
possible issuance upon conversion of its subordinated convertible debentures.
6. EMPLOYEE BENEFIT PLANS
STOCK-BASED COMPENSATION PLANS
STOCK OPTION PLANS
The Company has stock-based compensation plans for its key employees,
directors, and others. Two of these plans permit the grant of nonqualified and
incentive stock options. Two other plans permit the grant of a variety of stock
and stock-based awards as determined by the human resources committee of the
Company's Board of Directors (the Board Committee), including restricted stock,
stock options, stock bonus shares, or performance-based shares. As of fiscal
year-end 1999, only nonqualified stock options have been awarded under these
plans. The option recipients and the terms of options granted under these plans
are determined by the Board Committee. Generally, options granted to date are
exercisable immediately, but are subject to certain transfer restrictions and
the right of the Company to repurchase shares issued upon exercise of the
options at the exercise price, upon certain events. The restrictions and
repurchase rights generally lapse ratably over a one to ten year period after
the first anniversary of the grant date, depending on the term of the option,
which generally ranges from five to twelve years. Nonqualified stock options may
be granted at any price determined by the Board Committee, although incentive
stock options must be granted at not less than the fair market value of the
Company's stock on the date of grant. To date, all options have been granted at
fair market value. The Company also has a directors' stock option plan that
provides for the grant of stock options to outside directors pursuant to a
formula approved by the Company's shareholders. Options awarded under this plan
are exercisable six months after the date of grant and expire three to seven
years after the date of grant. In addition to the Company's stock-based
compensation plans, certain officers and key employees may also participate in
the stock-based compensation plans of Thermo Electron and ThermoTrex.
13
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. EMPLOYEE BENEFIT PLANS (CONTINUED)
In November 1998, the Company's employees, excluding its officers and
directors, were offered the opportunity to exchange previously granted options
to purchase shares of Company common stock for an amount of options equal to
half of the number of options previously held, exercisable at a price equal to
the fair market value at the time of the exchange offer. Holders of options to
acquire 465,000 shares at a weighted average exercise price of $13.62 per share
elected to participate in this exchange and, as a result, received options to
purchase 232,000 shares of Company common stock at $4.66 per share, which are
included in the fiscal 1999 grants in the table below. The other terms of the
new options are the same as the exchanged options except that the holders may
not sell shares pursuant to such new options for six months from the exchange
date. The options exchanged were canceled by the Company.
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- ----------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
(Shares in thousands) Shares Price Shares Price Shares Price
------------------------------------------------------- ----------- ------------ ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Options Outstanding, Beginning of Year 2,492 $ 7.57 2,888 $ 8.72 2,820 $ 7.50
Granted 321 4.46 972 7.51 341 14.97
Exercised (54) 2.24 (358) 2.12 (173) 1.91
Forfeited (534) 11.88 (1,010) 12.74 (100) 7.33
Canceled due to exchange (465) 13.62 - - - -
------- ------- -------
Options Outstanding, End of Year 1,760 $ 4.26 2,492 $ 7.56 2,888 $ 8.72
======= ======= ======= ======= ======= ========
Options Exercisable 1,760 $ 4.26 2,492 $ 7.56 2,888 $ 8.72
======= ======= ======= ======= ======= ========
Options Available for Grant 1,225 548 410
======= ======= =======
</TABLE>
A summary of the status of the Company's stock options at October 2,
1999, is as follows:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
-----------------------------------------------------------------
Number Weighted Weighted
of Average Average
Shares Remaining Exercise
Range of Exercise Prices (In thousands) Contractual Life Price
----------------------------------------------------------- -------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ 1.75 - $ 8.66 1,672 4.3 years $ 3.52
8.67 - 15.57 23 6.3 years 12.57
15.58 - 22.47 30 4.4 years 16.29
22.48 - 29.38 35 7.9 years 23.93
------
$ 1.75 - $29.38 1,760 4.4 years $ 4.26
======
</TABLE>
14
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. EMPLOYEE BENEFIT PLANS (CONTINUED)
EMPLOYEE STOCK PURCHASE PROGRAM
Substantially all of the Company's full-time employees are eligible to
participate in an employee stock purchase program sponsored by the Company and
Thermo Electron. Under this program, shares of the Company's and Thermo
Electron's common stock may be purchased at 85% of the lower of the fair market
value at the beginning or end of the plan year, and the shares purchased are
subject to a one-year resale restriction. Prior to November 1, 1998, the
applicable shares of common stock could be purchased at the end of a 12-month
period at 95% of the fair market value at the beginning of the period, and the
shares purchased were subject to a six-month resale restriction. Shares are
purchased through payroll deductions of up to 10% of each participating
employee's gross wages.
PRO FORMA STOCK-BASED COMPENSATION EXPENSE
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-based Compensation," which sets forth a fair-value
based method of recognizing stock-based compensation expense. As permitted by
SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account
for its stock-based compensation plans. Had compensation cost for awards granted
after fiscal 1995 under the Company's stock-based compensation plans been
determined based on the fair value at the grant dates consistent with the method
set forth under SFAS No. 123, the effect on the Company's net loss and loss per
share would have been as follows:
<TABLE>
<CAPTION>
(In thousands except per share amounts) 1999 1998 1997
------------------------------------------------------------------------------------ -------------- --------------- -------------
<S> <C> <C> <C>
Net Loss:
As reported $ (93,331) $ (41,186) $ (12,405)
Pro forma (93,873) (41,910) (12,848)
Basic and Diluted Loss per Share:
As reported (2.37) (1.07) (.31)
Pro forma (2.39) (1.09) (.32)
</TABLE>
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to October 1, 1995, the resulting pro forma compensation
expense may not be representative of the amount to be expected in future years.
Pro forma compensation expense for options granted is reflected over the vesting
period; therefore, future pro forma compensation expense may be greater as
additional options are granted.
The weighted average fair value per share of options granted was $2.31,
$3.84, and $8.34 in fiscal 1999, 1998, and 1997, respectively. The fair value of
each option grant was estimated on the grant date using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------------------------------------ -------------- --------------- -------------
<S> <C> <C> <C>
Volatility 52% 51% 50%
Risk-free Interest Rate 4.8% 5.6% 6.3%
Expected Life of Options 5.3 years 5.1 years 6.1 years
</TABLE>
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option-pricing models require the input
of highly subjective assumptions including expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
15
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. EMPLOYEE BENEFIT PLANS (CONTINUED)
401(k) SAVINGS PLAN
The majority of the Company's full-time employees are eligible to
participate in Thermo Electron's 401(k) savings plan. Contributions to the
401(k) savings plan are made by both the employee and the Company. Company
contributions are based upon the level of employee contributions. The Company
contributed and charged to expense for this plan $182,000, $220,000, and
$207,000 in fiscal 1999, 1998, and 1997, respectively.
7. INCOME TAXES
The components of the income tax (provision) benefit are as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
-------------------------------------------------------------------------------------- -------------- ------------- ------------
<S> <C> <C> <C>
Currently Payable:
Federal $ - $ - $ -
State (159) - (27)
-------- -------- --------
(159) - (27)
-------- -------- --------
Prepaid (Deferred):
Federal - (5,879) 6,226
State - - 193
-------- -------- --------
- (5,879) 6,419
$ (159) $ (5,879) $ 6,392
======== ======== ========
</TABLE>
The income tax (provision) benefit in the accompanying statement of
operations differs from the amounts calculated by applying the statutory federal
income tax rate of 34% to loss before income taxes due to the following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
-------------------------------------------------------------------------------------- -------------- ------------- -------------
<S> <C> <C> <C>
Income Tax (Provision) Benefit at Statutory Rate $ 31,678 $ 12,004 $ 6,391
Differences Resulting From:
State income taxes, net of federal tax (159) - 110
Nondeductible expenses (161) (120) (109)
Increase in valuation allowance (31,517) (17,763) -
---------- ---------- ----------
$ (159) $ (5,879) $ 6,392
========== ========== ==========
</TABLE>
16
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES (CONTINUED)
Prepaid income taxes in the accompanying balance sheet consists of the
following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
---------------------------------------------------------------------------------------------------- -------------- ------------
<S> <C> <C>
Prepaid Income Taxes:
Net operating loss carryforward $ 39,897 $ 19,634
Inventory basis differences 1,251 409
Accruals and other reserves 8,294 2,598
Accrued compensation 262 280
Fixed assets 753 (3,609)
Other, net 883 511
--------- ---------
51,340 19,823
Less: Valuation allowance 51,340 19,823
--------- ---------
$ - $ -
========= =========
</TABLE>
The valuation allowance relates primarily to loss carryforwards. During
fiscal 1998, the Company established a valuation allowance totaling $5,879,000
for previously benefited loss carryforwards. The Company took this action as a
result of increased operating losses, uncertainty concerning its ability to
successfully convert its existing spas to Greenhouse day spas (Note 1), and
resulting uncertainty concerning realization of the tax asset. Based on these
factors, the Company concluded in fiscal 1998 that it was more likely than not
that the tax benefit from the Company's loss carryforwards would not be
realized. As of October 2, 1999, the Company had federal tax net operating loss
carryforwards of approximately $114,000,000 that will begin to expire in fiscal
2009.
As of June 1999, ThermoTrex's and Thermo Electron's combined equity
ownership of the Company increased to greater than 80%, and as a result, the
Company and ThermoTrex will be included in Thermo Electron's consolidated
federal income tax return for periods thereafter. The majority of the existing
tax loss carryforwards of the Company were generated at a time when it was not
in a consolidated tax group with Thermo Electron. The Company's ability to
obtain a benefit for such tax loss carryforwards is dependent on the level of
its future taxable income. Tax losses incurred by the Company after it became
part of a consolidated tax group with Thermo Electron in June 1999 may be usable
by Thermo Electron under certain circumstances, and the Company will be paid by
Thermo Electron for the use of such tax losses pursuant to a tax allocation
agreement with Thermo Electron. Such payments are reflected as contributions to
shareholders' investment. As of October 2, 1999, the Company has recorded a
receivable of $720,000 from Thermo Electron for the tax benefit resulting from
approximately $2,000,000 of losses generated by the Company subsequent to being
included in the Thermo Electron consolidated tax group.
8. RELATED-PARTY TRANSACTIONS
CORPORATE SERVICES AGREEMENT
The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management, and certain financial and other services, for which
the Company currently pays Thermo Electron annually an amount equal to 0.8% of
the Company's revenues. In calendar years 1997 and 1996, the Company paid an
amount equal to 1.0% of the Company's revenues. For these services, the Company
was charged $290,000, $348,000, and $452,000 in fiscal 1999, 1998, and 1997,
respectively. The fee is reviewed and adjusted annually by mutual agreement of
the parties.
17
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. RELATED-PARTY TRANSACTIONS (CONTINUED)
Management believes that the service fee charged by Thermo Electron is
reasonable and that such fees are representative of the expenses the Company
would have incurred on a stand-alone basis. The corporate services agreement is
renewed annually but can be terminated upon 30 days' prior notice by the Company
or upon the Company's withdrawal from the Thermo Electron Corporate Charter (the
Thermo Electron Corporate Charter defines the relationship among Thermo Electron
and its majority-owned subsidiaries). For additional items such as employee
benefit plans, insurance coverage, and other identifiable costs, Thermo Electron
charges the Company based upon costs attributable to the Company.
OTHER RELATED-PARTY SERVICES
ThermoTrex provided personnel administration, accounting, data
processing, and general administrative management services to the Company, and
charged the Company based on actual usage. This agreement was terminated during
fiscal 1997 and services are no longer being provided. The Company was charged
$144,000 for these services in fiscal 1997.
OPERATING LEASES
Through the third quarter of fiscal 1999, the Company subleased office
and research facilities from ThermoTrex and was charged for the actual square
footage occupied at approximately the same cost-per-square-foot paid by
ThermoTrex under its prime lease. The accompanying statement of operations
includes expenses from this sublease of $111,000, $306,000, and $296,000 in
fiscal 1999, 1998, and 1997, respectively.
LASER MANUFACTURING ARRANGEMENT
During fiscal 1999, 1998, and 1997, the Company purchased laser systems
and components at an aggregate cost of $3,414,000, $2,902,000, and $11,390,000,
respectively, from Trex Medical Corporation, a majority-owned subsidiary of
ThermoTrex.
OTHER RELATED-PARTY PURCHASES
During fiscal 1999 and 1998, the Company purchased products totaling
$169,000 and $241,000, respectively, from Bird Products Corporation, a wholly
owned subsidiary of Thermo Electron.
SUBORDINATED CONVERTIBLE DEBENTURES
See Note 9 for subordinated convertible debentures of the Company that
are held by Thermo Electron.
CASH MANAGEMENT
The Company invests excess cash in arrangements with Thermo Electron as
discussed in Note 1.
9. SUBORDINATED CONVERTIBLE DEBENTURES
In August 1997, the Company issued and sold at par value $115,000,000
principal amount of 4 3/8% subordinated convertible debentures due 2004 (Note
14). The debentures are convertible into shares of the Company's common stock at
a conversion price of $17.385 per share and are guaranteed on a subordinated
basis by Thermo Electron. ThermoTrex has agreed to reimburse Thermo Electron in
the event Thermo Electron is required to make a payment under the guarantee.
Thermo Electron purchased $3,725,000 and $4,500,000 principal amount of such
debentures in the open market in fiscal 1999 and 1998, respectively.
See Note 11 for fair value information pertaining to these debentures.
18
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
In addition to the leases described in Note 8, the Company occupies
office, manufacturing, warehouse, and service facilities under various operating
lease arrangements. The accompanying statement of operations includes expenses
from operating leases of $4,436,000, $4,867,000, and $3,806,000 in fiscal 1999,
1998, and 1997, respectively. Future minimum payments due under noncancellable
operating leases as of October 2, 1999, are $2,954,000 in fiscal 2000;
$2,976,000 in fiscal 2001; $3,019,000 in fiscal 2002; $3,080,000 in fiscal 2003;
$2,751,000 in fiscal 2004; and $9,816,000 in fiscal 2005 and thereafter. Total
future minimum lease payments are $24,596,000, of which $21,798,000 relates to
lease payments for the spas that have been closed and sold, for which the
Company will be responsible in the event that the buyer of the Greenhouse day
spas does not continue to sublease these facilities. This amount, net of assumed
sublease income, is included in accrued restructuring costs in the accompanying
fiscal 1999 balance sheet (Note 13).
TECHNOLOGY LICENSE AGREEMENT
In February 1993, the Company entered into an irrevocable exclusive
technology license agreement for the use of the laser-based hair-removal system
technology. Under the terms of the agreement, the Company will pay a royalty
equal to 0.25% of the revenues recorded from the sale or use of the laser-based
hair-removal system through February 10, 2010. No material amounts have been
incurred under this agreement.
CONTINGENCIES
The Company has from time to time received allegations that its SoftLight
laser-based hair-removal system infringes the intellectual property rights of
others, and the Company may continue to receive such allegations in the future.
In general, an owner of intellectual property can prevent others from using such
property and is entitled to damages for unauthorized past usage. The Company has
investigated the bases of the allegations it has received to date and, based on
opinions of its counsel, believes that if it were sued on these bases it would
have meritorious defenses.
The Company is contingently liable with respect to lawsuits and other
matters that arose in the ordinary course of business. In the opinion of
management, these contingencies will not have a material adverse effect upon the
financial position of the Company or its results of operations.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, advance to affiliate, available-for-sale investments, accounts
receivable, accounts payable, due to/from parent company and affiliated
companies, subordinated convertible debentures, and common stock subject to
redemption. The carrying amounts of the Company's cash and cash equivalents,
advance to affiliate, accounts receivable, accounts payable, and amounts due
to/from parent company and affiliated companies approximate fair value due to
their short-term nature.
Available-for-sale investments are carried at fair value in the
accompanying fiscal 1998 balance sheet. The fair values were determined based on
quoted market prices. See Note 2 for information pertaining to the fair value of
available-for-sale investments.
The fair value of the Company's subordinated convertible debentures,
based on quoted market prices, was $90,850,000 and $95,519,000 at October 2,
1999, and October 3, 1998, respectively. The fair value is less than the
carrying amount in both periods, primarily due to a decrease in the market price
of the Company's common stock relative to the conversion price of the
debentures.
The fair value of the Company's common stock subject to redemption, based
upon quoted market prices, was $34,750,000 and $30,750,000 at October 2, 1999,
and October 3, 1998, respectively.
12. BUSINESS SEGMENT INFORMATION
The Company organizes and manages its businesses by individual functional
operating entity. The Company's businesses operate in two segments: Hair-removal
and Related Activities (Hair Removal) and Health and Beauty Products.
19
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. BUSINESS SEGMENT INFORMATION (CONTINUED)
The Company's Hair Removal segment has marketed its SoftLight
hair-removal and SoftLight Laser Peel skin-resurfacing services through a
network of independent doctors as well as internationally through joint ventures
and other licensing arrangements. The Company also has offered licensees the
opportunity to purchase or lease SoftLight lasers in lieu of paying ongoing
licensing fees. Prior to the sale of the Greenhouse spas in June 1999 (Note 13),
the Company provided hair-removal and skin-resurfacing services as well as more
traditional day spa services, such as massages and facials, through its spa
locations. During fiscal 1999, the Company began the process of terminating its
physician-licensing program, and terminated or renegotiated the terms of its
joint ventures and licensing arrangements in various countries.
The Company's CBI subsidiary represents the Health and Beauty Products
segment, which manufactures and markets skin-care, bath, and body products and
markets dietary supplements.
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
------------------------------------------------------------------------------------------- ------------ ------------ -----------
<S> <C> <C> <C>
Revenues:
Hair Removal $ 13,159 $ 17,326 $ 21,037
Health and Beauty Products 23,096 22,765 24,196
----------- ---------- -----------
$ 36,255 $ 40,091 $ 45,233
=========== ========== ===========
Loss Before Income Taxes:
Hair Removal (a) $ (79,866) $ (31,267) $ (19,383)
Health and Beauty Products (b) (5,820) (1,612) 604
Corporate (c) (587) (394) (791)
----------- ---------- -----------
Total operating loss (86,273) (33,273) (19,570)
Interest and other income (expense), net (6,899) (2,034) 773
----------- ---------- -----------
$ (93,172) $ (35,307) $ (18,797)
=========== ========== ===========
Total Assets:
Hair Removal (a) $ 9,106 $ 53,299 $ 46,478
Health and Beauty Products (b) 18,948 21,719 18,347
Corporate (d) 17,924 59,197 109,770
----------- ---------- -----------
$ 45,978 $ 134,215 $ 174,595
=========== ========== ===========
Depreciation and Amortization:
Hair Removal $ 4,636 $ 6,055 $ 3,481
Health and Beauty Products 1,056 906 829
Corporate 323 273 35
----------- ---------- -----------
$ 6,015 $ 7,234 $ 4,345
=========== ========== ===========
Capital Expenditures:
Hair Removal $ 4,301 $ 3,437 $ 26,156
Health and Beauty Products 833 1,076 651
----------- ---------- -----------
$ 5,134 $ 4,513 $ 26,807
=========== ========== ===========
</TABLE>
(a) Reflects restructuring and related costs of $64.3 million and $10.2 million
in fiscal 1999 and 1998, respectively, and the sale of spas in fiscal 1999.
(b) Reflects restructuring and related costs of $3.4 million in fiscal 1999.
(c) Primarily general and administrative expenses.
(d) Primarily cash and cash equivalents and advance to affiliate.
20
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RESTRUCTURING AND RELATED COSTS AND SALE OF SPAS
RESTRUCTURING AND RELATED COSTS
During fiscal 1998, the Company initiated certain restructuring
activities, including the announced closure of three domestic spas and the
termination of a joint venture that operated its spa in France following
unsuccessful efforts to reduce significant operating losses at these facilities.
Two of the domestic spas were closed during the first quarter of fiscal 1999.
The Company closed the third spa, as well as two additional spas, in the third
quarter of fiscal 1999. Also during fiscal 1999, the Company sold its remaining
nine day spas, as well as the stock in its destination spa, The Greenhouse Spa,
Inc., following a determination that the Company would be unable to operate
these facilities profitably. In connection with the sale and closures announced
in fiscal 1999, as well as other actions, the Company recorded restructuring and
related costs of $67.7 million, including restructuring costs of $60.3 million,
an investment write-down of $3.4 million, inventory provisions of $2.3 million,
and provisions for uncollectible accounts receivable of $1.7 million. The
restructuring costs include a $19.9 million loss on the sale of the spa
business, discussed below; $17.4 million for the write-off of leasehold
improvements and equipment, primarily pertaining to the hair-removal business;
$11.7 million for ongoing lease obligations, net of assumed sublease income;
$10.0 million of estimated costs to terminate certain other obligations related
to the Company's hair-removal business (primarily payments to licensees and
joint venture partners to sever relationships and terminate all existing
arrangements); $0.4 million for losses on laser purchase commitments; $0.3
million for the write-down of investments in international joint ventures; and
$0.4 million for other related charges. The fiscal 1999 restructuring charges
are net of a reduction of $1.2 million in the cost of the fiscal 1998
restructuring plan, principally due to the favorable resolution of certain lease
obligations. In addition, fiscal 1999 restructuring costs include $0.2 million
of severance costs for 26 employees across all functions, 23 of whom were
terminated during fiscal 1999. The fiscal 1999 restructuring actions commenced
in June 1999, and are expected to be substantially completed by the middle of
calendar 2000.
Provisions for severance and leases were accounted for in accordance with
Emerging Issues Task Force Pronouncement No. 94-3. In the accompanying statement
of operations, the inventory provisions are included in cost of product
revenues, the provisions for uncollectible accounts receivable are included in
selling, general, and administrative expenses, and the investment write-down is
included in other expense. The inventory provisions were for certain branded
product lines at the Company's CBI subsidiary that have been discontinued and
the investment write-down was to reduce the carrying value of the Company's
investment in a privately held company to its estimated realizable value. The
accounts receivable write-down resulted principally from certain international
receivables that the Company deems uncollectible due to the decision to cease
international operations and, to a lesser extent, from the bankruptcy of a
retail chain customer of CBI.
During fiscal 1998, the Company's Hair Removal segment recorded
restructuring costs of $10.2 million. These costs consist of $4.6 million
related to the closure of three domestic Spa Thira locations, including $2.4
million for the write-off of leasehold improvements and related spa assets and
$2.2 million primarily for abandoned-facility payments, net of assumed sublease
income. In addition, in connection with the closure of its spa in France, which
operated under a joint venture agreement, the Company recorded costs of $3.6
million, including payments of $2.3 million to third parties to liquidate the
joint venture and $1.3 million to write off its remaining investment.
Restructuring costs also include $1.9 million related to certain actions
including the relocation of the Company's corporate office to its CBI subsidiary
in Carrollton, Texas. This amount primarily represents severance of $1.1 million
for 40 terminated employees and the write-off of fixed assets no longer of use.
The fiscal 1998 restructuring actions commenced in June 1998, and were completed
during the first quarter of fiscal 2000. The fiscal 1998 restructuring plan was
completed for $1.2 million less than had been accrued, primarily as a result of
a favorable settlement of certain lease obligations. The
21
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RESTRUCTURING AND RELATED COSTS AND SALE OF SPAS (CONTINUED)
charges recorded by the Company in fiscal 1999 and 1998 were substantially
noncash except for amounts recorded as accrued restructuring costs. A summary of
activity in accrued restructuring costs is as follows:
<TABLE>
<CAPTION>
Hair Removal Segment
----------------------------------------------------------------
Abandonment
of Excess Other Exit
(In thousands) Severance Facilities Obligations Total
--------------------------------------------------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
FISCAL 1998 RESTRUCTURING PLAN
Provision charged to expense in fiscal 1998 (a) $ 1,169 $ 2,399 $ 2,394 $ 5,962
Fiscal 1998 usage (757) - (52) (809)
--------- --------- --------- ---------
BALANCE AT OCTOBER 3, 1998 412 2,399 2,342 5,153
Fiscal 1999 usage (412) (1,258) (2,216) (3,886)
Transfer to fiscal 1999 restructuring plan
principally due to favorable resolution of
lease obligations - (1,141) (76) (1,217)
--------- --------- --------- ---------
BALANCE AT OCTOBER 2, 1999 $ - $ - $ 50 $ 50
========= ========= ========= =========
FISCAL 1999 RESTRUCTURING PLAN
Transfer from fiscal 1998 restructuring plan
principally due to favorable resolution of lease
obligations $ - $ 1,141 $ 76 $ 1,217
Provision charged to expense in fiscal 1999 (b) 157 11,728 10,400 22,285
Fiscal 1999 usage (58) (1,870) (2,783) (4,711)
--------- --------- --------- ---------
BALANCE AT OCTOBER 2, 1999 $ 99 $ 10,999 $ 7,693 $ 18,791
========= ========= ========= =========
</TABLE>
(a) Excludes noncash restructuring charges at the Hair Removal segment of $2.9
million, primarily for the write-off of leasehold improvements and related
spa assets and $1.3 million for the write-off of its remaining investment
in the joint venture in France.
(b) Excludes noncash restructuring charges at the Hair Removal segment of $19.9
million for the loss on the sale of the spa business, $17.3 million for the
write-off of leasehold improvements and equipment, and $0.3 million for the
write-down of investments in international joint ventures. Excludes noncash
charges at the Health and Beauty Products segment of $0.1 million for the
write-off of equipment no longer in use and $0.4 million for other related
charges.
Of the total restructuring costs accrued as of October 2, 1999, the
Company expects to pay $0.5 million during the remainder of calendar 1999, $9.5
million in calendar 2000, and $8.8 million in calendar 2001 and thereafter
through the expiration of various leases in fiscal 2014. The timing of these
cash payments will be affected by the terms of any subleases or settlement
arrangements with landlords.
22
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RESTRUCTURING AND RELATED COSTS AND SALE OF SPAS (CONTINUED)
SALE OF SPAS
In June 1999, the Company sold the stock of its destination spa, The
Greenhouse Spa, Inc., and the assets, subject to certain liabilities, of its
domestic day spas to companies in which the former president of its day spa
division has a controlling interest. The aggregate sales price of $12.5 million
consists of two promissory notes that bear interest at 10% and are due in June
2000, subject to a six-month extension period that is contingent upon, among
other conditions, payment of $4.0 million of the outstanding balance on the
promissory note relating to the sale of The Greenhouse Spa, Inc. Accordingly, in
the accompanying fiscal 1999 balance sheet, the $4.0 million current portion of
the notes receivable is included in other current assets and the balance, which
has been recorded at its estimated fair value, is classified as long-term, and
is included in other assets. The Company recorded a loss of $19.9 million on the
sale of the spa business during fiscal 1999. Unaudited revenues and operating
losses before restructuring costs of the spa business were $9.0 million and
$19.3 million, respectively, in fiscal 1999.
14. PROPOSED REORGANIZATION
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company. Under this plan, the
Company would be merged into Thermo Electron. As a result, the Company would
become a wholly owned subsidiary of Thermo Electron. The public shareholders of
the Company would receive common stock in Thermo Electron in exchange for their
shares. In December 1999, the boards of directors of the Company and Thermo
Electron approved a definitive agreement and plan of merger pursuant to which
Thermo Electron would acquire all of the outstanding shares of Company common
stock held by shareholders other than Thermo Electron and ThermoTrex in exchange
for shares of Thermo Electron's common stock (TMO common stock). The Company's
board of directors approved the merger agreement based on a recommendation of
its special committee, which was charged with representing the interests of the
Company's public shareholders.
Under the agreement, the number of shares of TMO common stock to be
issued to the Company's public shareholders will be determined at the completion
of the merger (the effective date), as described below.
(1) If the average closing price of TMO common stock is between $11.925 and
$17.887 for the 20 trading days prior to the effective date of the merger,
a preliminary exchange ratio of 0.158 shares of TMO common stock for each
share of Company common stock would be adjusted on the effective date by
multiplying 0.158 by a fraction of which the numerator would be $14.906
(the average per-share closing price of TMO common stock for the 20 trading
days ended December 13, 1999), and of which the denominator would be the
average per-share closing price of TMO common stock for the 20 trading days
ending on the day before the effective date.
(2) If the average closing price of TMO common stock for the 20 trading days
prior to the effective date is below $11.925, the exchange ratio would be
fixed at 0.198 shares of TMO common stock per share of Company common
stock.
(3) If the average closing price of TMO common stock for the 20 trading days
prior to the effective date is above $17.887, the exchange ratio would be
fixed at 0.132 shares of TMO common stock per share of Company common
stock.
In addition, under the agreement, units of the Company (currently
consisting of one share of Company common stock coupled with the right to have
the Company redeem that share for $20.25 in April 2001) would be modified so
that, following the merger, each unit would consist of a fractional share of TMO
common stock (in an amount determined using the exchange ratio described above),
which would be redeemable in April 2001 for $20.25. The cash value of the
redemption right would remain constant before and after the merger.
This proposal is subject to certain conditions including the completion
of review by the Securities and Exchange Commission of certain required filings
regarding the proposed transaction and listing on the New York Stock Exchange of
TMO common stock to be issued in connection with the merger.
23
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. PROPOSED REORGANIZATION (CONTINUED)
In October 1999, the American Stock Exchange (the Exchange) notified the
Company that if the Company did not have a definitive agreement to merge with
Thermo Electron by December 15, 1999, the Exchange would request a meeting to
discuss its intent to proceed with delisting the Company's shares from the
Exchange due to a possible failure to meet listing requirements. Holders of the
Company's subordinated convertible debentures would be entitled to have their
debentures redeemed by the Company if the Company's shares are neither listed
for trading on a United States national securities exchange nor approved for
trading on an established automated over-the-counter trading market in the
United States. As a result of the agreement to merge with Thermo Electron,
described above, the Company expects that its shares will continue to be listed
through the completion of the merger transaction. Accordingly, the Company has
classified the debentures as long-term in the accompanying fiscal 1999 balance
sheet.
15. UNAUDITED QUARTERLY INFORMATION
<TABLE>
<CAPTION>
(In thousands except per share amounts)
1999 First Second Third (a) Fourth
-------------------------------------------------------------------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 9,546 $ 9,815 $ 11,024 $ 5,870
Gross Profit (1,844) (2,060) (5,432) 991
Net Loss (8,104) (7,033) (76,044) (2,150)
Basic and Diluted Loss per Share (.21) (.18) (1.93) (.06)
1998 First Second Third Fourth (b)
-------------------------------------------------------------------------- ------------- ------------- ------------- ------------
Revenues $ 13,449 $ 8,092 $ 8,943 $ 9,607
Gross Profit 3,430 (1,339) 119 6
Net Loss (2,035) (8,535) (8,349) (22,267)
Basic and Diluted Loss per Share (.05) (.22) (.22) (.57)
</TABLE>
(a) Reflects restructuring and related costs of $67.7 million and the sale of
spas.
(b) Reflects restructuring costs of $10.2 million and the establishment of a
tax valuation allowance.
24
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of ThermoLase Corporation:
We have audited the accompanying consolidated balance sheet of ThermoLase
Corporation (a Delaware corporation and 71%-owned subsidiary of ThermoTrex
Corporation) and subsidiaries as of October 2, 1999, and October 3, 1998, and
the related consolidated statements of operations, cash flows, and comprehensive
income and shareholders' investment for each of the three years in the period
ended October 2, 1999. These consolidated financial statements are the
responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ThermoLase
Corporation and subsidiaries as of October 2, 1999, and October 3, 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended October 2, 1999, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
November 9, 1999 (except with
respect to the matter discussed in
Note 14, as to which the date is
December 16, 1999)
25
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed immediately after this Management's
Discussion and Analysis of Financial Condition and Results of Operations under
the heading "Forward-looking Statements."
OVERVIEW
The Company's businesses operate in two segments: Hair-removal and
Related Activities (Hair Removal) and Health and Beauty Products. The Company's
Hair Removal segment 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. In May 1998, the Company
received clearance from the FDA to market cosmetic skin-resurfacing services,
known as the SoftLight Laser Peel, using the same laser as the Company's
hair-removal system.
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. The Company also provides the licensees with the lasers and lotion
that are necessary to perform the service. In June 1998, the Company began to
offer the SoftLight Laser Peel procedure through its spas and other licensees.
During the second quarter of fiscal 1998, the Company began to experience
a decrease in revenues from its hair-removal services. In response to this trend
and in an attempt to establish price points and other conditions designed to
increase demand and revenues, in April 1998 the Company significantly reduced
treatment prices at its spa locations and modified the terms and conditions
offered to licensees. Under the terms of the modified licenses, per-procedure
royalties were reduced or eliminated and a minimum royalty and/or flat periodic
fee requirement was introduced. In fiscal 1999, the Company began offering
licensees the opportunity to purchase or lease SoftLight lasers in lieu of
paying ongoing license fees.
Beginning in January 1996, the Company sought to market the SoftLight
system internationally through joint ventures and other licensing arrangements.
In connection with its June 1998 acquisition of The Greenhouse Spa, Inc., a
full-service, luxury, destination spa (Note 3), the Company converted 11
domestic Spa Thiras to Greenhouse day spas. In addition to hair-removal and
skin-resurfacing services, these facilities offered more traditional day-spa
services, such as massages and facials. Following conversion of the facilities
to Greenhouse day spas, significant losses continued and, during fiscal 1998,
the Company initiated certain restructuring actions, including the announced
closure of three of its domestic day spas and the termination of a joint venture
that operated its spa in France. The Company closed two of the domestic day spas
in November 1998 and the third spa, as well as two additional spas, were closed
in the third quarter of fiscal 1999. In May 1999, the Company announced
additional plans to undertake a broad-scale restructuring of its business. As
part of the restructuring plan, the Company decided to exit the spa business
and, as a result, sold The Greenhouse Spa, Inc., located in Arlington, Texas,
and the remaining nine Greenhouse day spas. In addition, the Company has begun
the process of terminating the physician-licensing program and has terminated or
renegotiated the terms of its international joint venture arrangements as well
as discontinuing certain branded product lines at the Company's Creative Beauty
Innovations, Inc. (CBI) subsidiary (Note 13). The Company expects to complete
its restructuring plan by the middle of calendar 2000.
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW (CONTINUED)
The Company's CBI subsidiary represents the Health and Beauty Products
segment, which manufactures and markets skin-care, bath, and body products and
markets dietary supplements. This business represents the Company's principal
operations following the sale of the spas and the termination of various
licensing agreements.
RESULTS OF OPERATIONS
FISCAL 1999 COMPARED WITH FISCAL 1998
Revenues were $36.3 million and $40.1 million in fiscal 1999 and 1998,
respectively. The Company's Hair Removal segment earned service revenues of
$10.2 million in fiscal 1999, compared with $17.3 million in fiscal 1998. Spa
revenues decreased in fiscal 1999 primarily due to the sale and closure of the
Company's Greenhouse day spas during the year (Note 13), as well as lower demand
and price reductions at the Company's spas while they were in operation.
Revenues from the Company's licensing program decreased in fiscal 1999, compared
with fiscal 1998, due to a reduction in the number of participating licensees, a
reduction in royalty rates and other changes to the financial terms of the
licenses, and a decrease in the number of one-time fees from new licensees.
During fiscal 1999, the Company began to terminate its licensing program, and by
the end of calendar 1999 will no longer earn monthly royalties from licensees.
International revenues decreased due to a decline in minimum guaranteed payments
recorded upon granting technology rights under international licensing
arrangements. During fiscal 1999, the Company terminated or renegotiated the
terms of its international licensing arrangements. These decreases in revenues
were offset in part by an increase in revenues of $2.2 million from The
Greenhouse Spa, Inc., acquired in June 1998 (Note 3). In June 1999, the Company
sold The Greenhouse Spa, Inc. (Note 13).
The Company earned product revenues of $26.1 million in fiscal 1999,
compared with $22.8 million in fiscal 1998. Product revenues include sales at
the Health and Beauty Products segment, and in the fiscal 1999 period, beauty
product sales at the Company's spas and lasers sold in international and
domestic markets by the Company's Hair Removal segment. Product revenues at the
Hair Removal segment increased due to the introduction of sales of SoftLight
lasers in fiscal 1999, as well as an increase in sales of beauty products at the
spas. As a result of the sale of the spa business in June 1999 (Note 13), the
Company no longer sells its beauty products at the spas. Product revenues at the
Health and Beauty Products segment increased to $23.1 million in fiscal 1999
from $22.8 million in fiscal 1998, primarily due to increased demand for its
custom products.
The gross profit margin was negative 23% in fiscal 1999 compared with a
gross profit margin of 6% in fiscal 1998. The Company's service revenues had a
negative gross profit of $13.8 million in fiscal 1999, compared with a negative
gross profit of $5.0 million in fiscal 1998. This decrease in gross profit was
primarily due to increased overhead costs as a result of the assembly of a
management team to oversee the spa operations prior to the Company's decision to
sell the spa business and increased spa-specific marketing and advertising
expenses related to the Company's conversion of its existing spas to Greenhouse
day spas prior to their sale. To a lesser extent, the gross profit margin
decreased due to a reduction in higher-margin minimum guaranteed payments
relating to international licensing arrangements and initial sign-up fees
relating to the licensing program. The Company's product revenues had a gross
profit margin of 21% in fiscal 1999 compared with 32% in fiscal 1998, primarily
due to the write-off of inventory related to exiting certain branded product
lines (Note 13) and, to a lesser extent, changes in product mix.
Selling, general, and administrative expenses decreased to $16.1 million
in fiscal 1999 from $22.3 million in fiscal 1998, primarily due to ongoing cost
reduction efforts implemented by the Company during the second half of fiscal
1998. These efforts primarily included reductions in personnel. This decrease
was offset in part by a $1.7 million provision for uncollectible accounts
receivable (Note 13), principally for accounts receivable from parties with whom
the Company is terminating business relationships.
27
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL 1999 COMPARED WITH FISCAL 1998 (CONTINUED)
Research and development expenses decreased to $1.5 million in fiscal
1999 from $3.0 million in fiscal 1998, 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.
During fiscal 1999, the Company undertook certain restructuring actions,
including the sale of The Greenhouse Spa, Inc. and the remaining nine Greenhouse
day spas, as well as other actions. As a result, the Company recorded
restructuring and nonrecurring costs of $60.3 million (Note 13). The Company
expects that the restructuring actions will be completed by the middle of
calendar 2000.
Interest income decreased to $2.1 million in fiscal 1999 from $4.5
million in fiscal 1998, primarily due to lower average invested balances.
Interest expense was relatively unchanged at $5.4 million and $5.3 million in
fiscal 1999 and 1998, respectively.
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 (Note 4).
Other expense in fiscal 1999 represents the write-down of an investment
to its net realizable value (Note 13).
FISCAL 1998 COMPARED WITH FISCAL 1997
Revenues were $40.1 million and $45.2 million in fiscal 1998 and 1997,
respectively. The Company's Hair Removal segment earned service revenues of
$17.3 million in fiscal 1998, compared with $21.0 million 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 13
spas in fiscal 1997. Revenues from the Company's licensing program decreased in
fiscal 1998, compared with fiscal 1997, due to a reduction in royalty rates and
other changes to the financial terms of the licenses and the termination of two
significant licensing contracts, as well as a decrease in the number of one-time
fees from new licensees. Service revenues included $2.8 million and $4.2 million
in fiscal 1998 and 1997, respectively, for minimum guaranteed payments recorded
upon granting technology rights under the Company's international licensing
arrangements. These decreases in revenues were offset in part by the inclusion
of $0.8 million in revenues from The Greenhouse Spa, Inc., acquired in June 1998
(Note 3).
Product revenues at the Health and Beauty Products segment decreased to
$22.8 million in fiscal 1998 from $24.2 million 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 decreased to 6% in fiscal 1998 from 20% in fiscal
1997. The Company's service revenues had a negative gross profit of $5.0 million
in fiscal 1998, compared with gross profit of $1.4 million in fiscal 1997. Each
period was impacted by the operations of the Spa Thira business, which was
operating below maximum capacity as the Company attempted to develop its client
base, expand its product lines, and refine its operating procedures. The gross
profit margin decreased in fiscal 1998, primarily due to decreased revenues at
the Company's Spa Thira locations and the licensing program, as well as
increased fixed costs associated with operating more spas in fiscal 1998. This
decrease in the gross profit margin was offset in part by the effect of
licensing fees and 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. The Company's product revenues had a gross
profit margin of 32% in both periods.
Selling, general, and administrative expenses as a percentage of revenues
increased to 56% in fiscal 1998 from 51% in fiscal 1997, primarily due to a
decrease in revenues. Selling, general, and administrative expenses decreased to
$22.3 million in fiscal 1998 from $23.0 million in fiscal 1997, primarily due to
the cost reduction efforts implemented by the Company during the second half of
fiscal 1998. These efforts primarily included reductions in personnel.
Research and development expenses decreased to $3.0 million in fiscal
1998 from $5.7 million in 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.
28
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL 1998 COMPARED WITH FISCAL 1997 (CONTINUED)
During fiscal 1998, the Company recorded restructuring costs of $10.2
million, primarily related to closing three of its domestic spas, closing its
spa in France and liquidating the related French joint venture, and relocating
its corporate office to its CBI subsidiary in Carrollton, Texas (Note 13).
Interest income increased to $4.5 million in fiscal 1998 from $2.1
million in fiscal 1997, primarily due to interest income earned on the invested
proceeds from the Company's August 1997 issuance of $115.0 million principal
amount of 4 3/8% subordinated convertible debentures, offset in part by cash
used to fund the Company's loss. Interest expense increased to $5.3 million in
fiscal 1998 from $0.6 million in fiscal 1997, primarily due to the inclusion of
a full period of interest expense on the subordinated convertible 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, beginning in the third quarter of fiscal 1997
(Note 4).
The provision for income taxes in fiscal 1998 reflects the establishment
of a valuation allowance for the tax asset associated with previously benefited
loss carryforwards and the tax loss arising in fiscal 1998. The Company
establishes valuation allowances in accordance with the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
increase in the valuation allowance in fiscal 1998 is a result of the Company's
increased operating losses, uncertainty concerning the Company's ability to
successfully convert its existing spas to Greenhouse day spas, and resulting
uncertainty concerning realization of the tax asset (Note 7).
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital was $5.2 million at October 2, 1999,
compared with $48.6 million at October 3, 1998. Included in working capital are
cash, cash equivalents, and available-for-sale investments of $1.4 million at
October 2, 1999, compared with $55.9 million at October 3, 1998. In addition, as
of October 2, 1999, the Company had $15.4 million invested in an advance to
affiliate. Prior to the use of a new domestic cash management arrangement
between the Company and Thermo Electron Corporation, which became effective June
1999, amounts invested with Thermo Electron were included in cash and cash
equivalents. Operating activities used $35.2 million of cash during fiscal 1999.
Cash was used primarily to fund the Company's loss, excluding noncash items, as
well as a decrease in accounts payable, which used $2.2 million of cash,
primarily due to the timing of payments. Cash of $11.2 million was provided by
an increase in other accrued liabilities, primarily due to the restructuring
costs recorded during fiscal 1999, which were not paid as of October 2, 1999. Of
the total restructuring costs accrued as of October 2, 1999, the Company expects
to pay $0.5 million during the remainder of calendar 1999, $9.5 million in
calendar 2000, and $8.8 million in calendar 2001 and thereafter through the
expiration of various leases in fiscal 2014. The timing of these cash payments
will be affected by the terms of any subleases or settlement arrangements with
landlords.
Excluding available-for-sale investment and advance to affiliate
activity, the Company's primary investing activity during fiscal 1999 consisted
primarily of $5.1 million 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 8).
The Company has an obligation to pay $40.5 million, in the aggregate, to
the holders of redemption rights if all of the holders thereof exercise their
redemption rights in April 2001 when such rights become exercisable. The Company
does not have sufficient funds to satisfy these obligations and the exercise of
the redemption rights would have a material adverse effect on the Company's
liquidity and financial position. Thermo Electron has guaranteed such
obligation. In addition, Thermo Electron has expressed its willingness to lend
the Company up to $10.0 million for short-term liquidity should the need arise.
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company. Under this plan, the
Company would be merged into Thermo Electron. As a result, the Company would
become a wholly owned subsidiary of Thermo Electron (Note 14).
29
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
In October 1999, the American Stock Exchange (the Exchange) notified the
Company that if the Company did not have a definitive agreement to merge with
Thermo Electron by December 15, 1999, the Exchange would request a meeting to
discuss its intent to proceed with delisting the Company's shares from the
Exchange due to a possible failure to meet listing requirements. Holders of the
Company's subordinated convertible debentures would be entitled to have their
debentures redeemed by the Company if the Company's shares are neither listed
for trading on a United States national securities exchange nor approved for
trading on an established automated over-the-counter trading market in the
United States. As a result of the agreement to merge with Thermo Electron,
described in Note 14, the Company expects that its shares will continue to be
listed through the completion of the merger transaction. Accordingly, the
Company has classified the debentures as long-term in the accompanying fiscal
1999 balance sheet.
MARKET RISK
The Company is exposed to market risk from changes in interest rates and
equity prices, which could affect its future results of operations and financial
condition. The Company manages its exposure to these risks through its regular
operating and financing activities.
INTEREST RATES
The Company's available-for-sale investments and long-term obligations
are sensitive to changes in interest rates. Interest rate changes would result
in a change in the fair value of these financial instruments due to the
difference between the market interest rate and the rate at the date of purchase
or issuance of the financial instrument. A 10% decrease in year-end fiscal 1999
and 1998 market interest rates would result in a negative impact to the Company
of $0.6 million and $1.2 million, respectively, on the net fair value of its
interest-sensitive financial instruments.
EQUITY PRICES
The Company's 4 3/8% subordinated convertible obligation is sensitive to
fluctuations in the price of Company common stock into which it is convertible.
In addition, the Company's common stock subject to redemption is sensitive to
fluctuations in the price of the Company's units. Changes in equity prices would
result in changes in the fair value of the Company's convertible obligation and
common stock subject to redemption due to the difference between the current
market price and the market price at the date of issuance of the financial
instrument. A 10% increase in the year-end fiscal 1999 and 1998 market equity
prices would result in a negative impact to the Company of $3.8 million and
$13.9 million, respectively, on the net fair value of its price-sensitive equity
financial instruments. The change in the net fair value from fiscal 1998 to 1999
is primarily due to a decrease in the market price of the Company's common stock
relative to the conversion price of the debentures.
YEAR 2000
The following information constitutes a "Year 2000 Readiness Disclosure"
under the Year 2000 Information and Readiness Disclosure Act. The Company
continues to assess the potential impact of the year 2000 date recognition issue
on the Company's internal business systems and operations. The Company's year
2000 initiatives include (i) testing and upgrading significant information
technology systems and facilities; (ii) assessing the year 2000 readiness of its
key suppliers, vendors, and customers; and (iii) developing contingency plans.
THE COMPANY'S STATE OF READINESS
The Company has implemented a compliance program to ensure that its
critical information technology systems and non-information technology systems
will be ready for the year 2000. The first phase of the program, testing and
evaluating the Company's critical information technology systems and
non-information technology systems for year
30
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 (CONTINUED)
2000 compliance, has been completed. During phase one, the Company tested and
evaluated its significant computer systems, software applications, and related
equipment for year 2000 compliance. The Company also evaluated the potential
year 2000 impact on its critical non-information technology systems, which
efforts included testing the year 2000 readiness of its utility and
telecommunications systems at its non-information technology systems. During
phase two of its program, the Company remediated any material noncompliant
systems or facilities identified during phase one. The Company has upgraded or
replaced its noncompliant information technology systems. In many cases, such
upgrades or replacements were made in the ordinary course of business, without
accelerating previously scheduled upgrades or replacements. The Company had
planned to upgrade its spa point-of-sale system with a new point-of-sale system
for efficiency and other reasons unrelated to year 2000 compliance. As a result
of a decision to exit this business, this upgrade will not be made. The Company
believes that all of its material information technology systems and critical
non-information technology systems are now year 2000 compliant.
The Company has assessed the year 2000 readiness of key suppliers and
vendors that are believed to be significant to the Company's business
operations. As part of this effort, the Company developed and distributed
questionnaires relating to year 2000 compliance to its significant suppliers and
vendors. No significant supplier or vendor has indicated that it believes its
business operations will be materially disrupted by the year 2000 issue.
CONTINGENCY PLAN
The Company has developed a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
The plan identifies and secures alternative suppliers.
ESTIMATED COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
To date, costs incurred in connection with the year 2000 issue have not
been material. Year 2000 costs relating to products and facilities were funded
from working capital. All internal costs and related external costs, other than
capital additions, related to year 2000 remediation have been expensed as
incurred. The Company does not track internal costs incurred for its year 2000
compliance project. Such costs are principally the related payroll costs for its
information systems group.
REASONABLY LIKELY WORST CASE SCENARIO
At this point in time, the Company is not able to determine the most
reasonably likely worst case scenario to result from the year 2000 issue. One
possible worst case scenario would be that certain of the Company's material
suppliers or vendors experience business disruptions due to the year 2000 issue
and are unable to provide materials and services to the Company on time. The
Company's operations could be delayed or temporarily shut down, and it could be
unable to meet its obligations to customers in a timely fashion. The Company's
business, operations, and financial condition could be adversely affected in
amounts that cannot be reasonably estimated at this time.
RISKS OF THE COMPANY'S YEAR 2000 ISSUES
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
issues will not have a material adverse impact on the Company's business,
operations, or financial condition. As discussed above, if any of the Company's
material suppliers or vendors experience business disruptions due to year 2000
issues, the Company might also be materially adversely affected. There is
expected to be a significant amount of litigation relating to the year 2000
issue and there can be no assurance that the Company will not incur material
costs in defending or bringing lawsuits. In addition, if any year 2000 issues
are identified, there can be no assurance that the Company will be able to
retain qualified personnel to remedy such issues. Any unexpected costs or delays
arising from the year 2000 issue could have a material adverse impact on the
Company's business, operations, and financial condition in amounts that cannot
be reasonably estimated at this time.
31
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
FORWARD-LOOKING STATEMENTS
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company wishes to caution readers that the
following important risk factors, among others, in some cases have affected, and
in the future could affect, the Company's actual results and could cause its
actual results in fiscal 1999 and beyond to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company.
RECENT OPERATING LOSSES OF THE COMPANY. The Company incurred losses of
$93.3 million, $41.2 million, $12.4 million, and $1.4 million in fiscal 1999,
1998, 1997, and 1996, respectively. At October 2, 1999, the Company's
accumulated deficit was $150.4 million. There can be no assurance that the
Company will achieve profitable operations in any future period.
DIFFICULTY IN RETAINING QUALIFIED MANAGEMENT. The Company has had
difficulty in retaining management, technical, marketing, and sales personnel,
due in part to the relocation of the Company headquarters to Carrollton, Texas.
The Company's future success depends in part on whether the Company can attract
and retain highly qualified management, technical, marketing, and sales
personnel. The Company faces significant competition for the services of such
personnel. There can be no assurance that the Company will attract and retain
personnel with the background and expertise necessary to support the development
of the Company's continuing business. The failure to hire and retain such
personnel could materially adversely affect the financial position and results
of operations of the Company.
POTENTIAL FOR CUSTOMER CLAIMS; INSURANCE. The Company has received
complaints from several of its physician licensees, joint venture partners, and
consumers stating that the Company's SoftLight hair-removal process has not met
their expectations. Some of these parties have filed lawsuits against the
Company. The Company may receive similar allegations and/or become subject to
similar lawsuits in the future. There can be no assurance that additional
litigation relating to such claims will not be brought against the Company, or
that the Company would prevail in any or all such cases, if brought. The Company
has no insurance coverage for such claims. In addition, the laser hair-removal
and skin-resurfacing market involves the treatment of persons who could be
harmed by or have an adverse reaction to the SoftLight laser resulting in
liability claims against the Company. Such claims could result in damages
against the Company and negative publicity. The Company currently carries
general liability, product liability, and other insurance coverage. There can be
no assurance that such coverage will be adequate to cover all losses arising
from such claims or that in the future such insurance will be available to the
Company at reasonable cost or at all.
DEPENDENCE UPON PROPRIETARY TECHNOLOGY. There can be no assurance that
other companies or individuals are not investigating, developing, or using other
technologies that are similar to the Company's technology, that the Company will
be awarded any additional patents, or that the Company's patents or any
additional patents, if issued, will provide the Company with sufficiently broad
patent coverage to provide any significant deterrent to competitive products or
services. If the Company becomes involved in a patent infringement claim, the
expense of litigating such claim may be costly. In addition, there may be
patents or intellectual property rights owned by persons other than the Company,
which, if infringed by the Company, would permit the owner to prevent the
Company from marketing, licensing, or using the SoftLight hair-removal and
skin-resurfacing processes and entitle the owner to damages for past
infringement. The Company has from time to time received allegations that the
SoftLight hair-removal process infringes the intellectual property rights of
others, and the Company may receive similar allegations in the future. There can
be no assurance that litigation relating to such a claim will not be brought
against the Company, or that the Company would prevail in any or all such cases,
if brought. The Company's financial position and results of operations would be
materially adversely affected if the Company devotes substantial financial or
management resources to intellectual property litigation. The Company has
pending patent applications relating to laser hair removal in various countries
outside the United States. There can be no assurance that any of these patent
applications will result in any patents being issued. The issuance of additional
patents to the Company with respect to any technological improvements or new
products and the validity and enforceability of such patents may be essential to
the success of the Company. There can be no assurance that the Company will be
able to obtain such patent protection.
32
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
FORWARD-LOOKING STATEMENTS
The Company has registered trademarks and service marks in the United
States and certain foreign countries for "SoftLight." The Company also has
trademark and service mark applications for the "SoftLight" marks in various
other foreign countries. No assurance can be given that any pending trademark or
service mark application will be granted.
NEED TO COMPLY WITH FDA REGULATIONS. The laser used in the SoftLight
hair-removal and skin-resurfacing process must comply with United States Food
and Drug Administration (FDA) regulations governing the use and marketing of
medical devices. The Company's hair-removal system received FDA clearance in
April 1995 and its SoftLight Laser Peel skin-resurfacing procedure received FDA
clearance in May 1998. In addition, the Company is subject to regulatory
requirements in foreign countries where the Company conducts its business or
advertises its services and products. Obtaining regulatory approvals is a
lengthy, expensive, and an uncertain process. There can be no assurance that
foreign regulatory agencies will grant the necessary clearances or that the
process to obtain such clearances will not be excessively expensive or lengthy.
For example, in 1996, the Company established a joint venture to commercialize
the SoftLight laser hair-removal process in Japan and, in 1999, withdrew its
application seeking the approval of the Japanese Ministry of Health to
commercialize the SoftLight process in Japan.
Most of CBI's products are classified as cosmetics, which are regulated
by the FDA, and are subject to inspection by the FDA. Furthermore, CBI
manufactures a few preparations, principally sunscreens and skin-bleaching
agents, that are classified as over-the-counter drugs, and CBI has an FDA
license for this purpose. This license requires, among other things, that CBI
adhere to the FDA's Good Manufacturing Practices procedures for finished
pharmaceuticals, and subjects CBI's facility to inspection by the FDA. CBI also
markets nutritional supplements which are also subject to FDA regulations.
The FDA also imposes various requirements on manufacturers and sellers of
products under its jurisdiction such as labeling, manufacturing practices,
record keeping, and reporting. The FDA may also require post-market testing and
surveillance programs of drugs or devices to monitor a product's effects.
Failure to comply with applicable regulatory requirements can result in, among
other things, civil and criminal fines, suspensions of approvals, recalls of
products, seizures, injunctions, and/or criminal prosecutions.
INTENSE COMPETITION. Competition in the market for personal-care products
and services is intense. Competition limits the prices the Company is able to
charge for its products.
RISKS ASSOCIATED WITH CASH MANAGEMENT ARRANGEMENT WITH THERMO ELECTRON.
The Company participates in a cash management arrangement with its parent
company, Thermo Electron. Under this cash management arrangement, the Company
lends its excess cash to Thermo Electron on an unsecured basis. The Company has
the contractual right to withdraw its funds invested in the cash management
arrangement upon 30 days' prior notice. Thermo Electron is contractually
required to maintain cash, cash equivalents, and/or immediately available bank
lines of credit equal to at least 50% of all funds invested under the cash
management arrangement by all Thermo Electron subsidiaries other than wholly
owned subsidiaries. The funds are held on an unsecured basis and therefore are
subject to the credit risk of Thermo Electron. The Company's ability to receive
its cash upon notice of withdrawal could be adversely affected if participants
in the cash management arrangement demand withdrawal of their funds in an
aggregate amount in excess of the 50% reserve required to be maintained by
Thermo Electron. In the event of a bankruptcy of Thermo Electron, the Company
would be treated as an unsecured creditor and its right to receive funds from
the bankruptcy estate would be subordinated to secured creditors and would be
treated on a pari passu basis with all other unsecured creditors. Further, all
cash withdrawn by the Company from the cash management arrangement within one
year before the bankruptcy would be subject to rescission. The inability of
Thermo Electron to return the Company's cash on a timely basis or at all could
have a material adverse effect on the Company's results of operations and
financial position.
33
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
FORWARD-LOOKING STATEMENTS
POTENTIAL IMPACT OF YEAR 2000 ON PROCESSING OF DATE-SENSITIVE
INFORMATION. The Company believes its products are not year 2000 sensitive.
While the Company is attempting to minimize any negative consequences arising
from the year 2000 issue, there can be no assurance that year 2000 issues will
not have a material adverse impact on the Company's business, operations, or
financial condition. If any of the Company's material suppliers or vendors
experience business disruptions due to year 2000 issues, the Company may be
materially adversely affected. There is expected to be a significant amount of
litigation relating to the year 2000 issue and there can be no assurance that
the Company will not incur material costs in defending or bringing lawsuits. In
addition, if any year 2000 issues are identified, there can be no assurance that
the Company will be able to retain qualified personnel to remedy such issues.
Any unexpected costs or delays arising from the year 2000 issue could have a
significant adverse impact on the Company's business, operations, and financial
condition.
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Nine
Months
Year Ended Ended (d)
----------------------------------------------------------------------- -------------
(In thousands except per Oct. 2, Oct. 3, Sept. 27, Sept. 28, Sept. 30, Sept. 30,
share amounts) 1999 (a) 1998 (b) 1997 (c) 1996 1995 1995
----------------------------------------- -------------- -------------- -------------- ------------- -------------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues $ 36,255 $ 40,091 $ 45,233 $ 27,812 $ 23,348 $ 17,544
Net Loss (93,331) (41,186) (12,405) (1,386) (1,675) (1,679)
Basic and Diluted Loss per Share (2.37) (1.07) (.31) (.03) (.04) (.04)
BALANCE SHEET DATA
Working Capital $ 5,162 $ 48,597 $ 95,469 $ 47,197 $ 68,691
Total Assets 45,978 134,215 174,595 95,520 89,463
Long-term Obligations 115,000 115,066 115,000 - -
Common Stock Subject to Redemption 40,500 40,500 40,500 - -
Shareholders' Investment (134,204) (41,691) 333 79,037 82,218
</TABLE>
(a) Reflects restructuring and related costs of $67.7 million and the sale of
spas.
(b) Reflects restructuring costs of $10.2 million and $5.9 million for the
establishment of a tax valuation allowance.
(c) Reflects the issuance of $115.0 million principal amount of 4 3/8%
subordinated convertible debentures and the reclassification of $40.5
million to "Common stock subject to redemption" from "Shareholders'
investment" due to the Company's stock exchange transaction.
(d) In September 1995, the Company changed its fiscal year end from the
Saturday nearest December 31 to the Saturday nearest September 30.
Accordingly, the Company's 39-week transition period ended September 30,
1995, is presented.
34
<PAGE>
THERMOLASE CORPORATION 1999 FINANCIAL STATEMENTS
COMMON STOCK AND UNIT MARKET INFORMATION
The Company's common stock and units are traded on the American Stock
Exchange under the symbol TLZ and TLZ/U, respectively. The following table sets
forth the high and low sale prices of the Company's common stock and units for
1999 and 1998, as reported in the consolidated transaction reporting system.
<TABLE>
<CAPTION>
Common Stock Units
----------------------------- ---------------------------
Fiscal 1999 High Low High Low
----------------------------------------------------------------------- ------------- --------------- -------------- ------------
<S> <C> <C> <C> <C>
First Quarter $ 6 7/8 $ 4 1/4 $ 16 1/2 $ 15 1/4
Second Quarter 4 7/8 2 5/8 16 13/16 15 13/16
Third Quarter 3 3/16 1 5/16 17 3/4 16 5/8
Fourth Quarter 2 7/16 1 11/16 17 5/8 17 3/8
Fiscal 1998
----------------------------------------------------------------------- ------------ ---------------- -------------- ------------
First Quarter $18 11/16 $ 10 1/2 $ 18 7/8 $ 17
Second Quarter 11 1/4 5 1/2 17 3/16 15 5/8
Third Quarter 8 1/2 5 1/8 16 1/2 15 5/8
Fourth Quarter 7 9/16 4 1/4 16 1/8 15 1/8
</TABLE>
As of October 29, 1999, the Company had 332 holders of record of its
common stock and 17 holders of record of its units. This does not include
holdings in street or nominee names. The closing market prices on the American
Stock Exchange for the Company's common stock and units on October 29, 1999,
were $1 13/16 per share of common stock and $17 3/8 per unit.
DIVIDEND POLICY
The Company has never paid cash dividends and does not expect to pay cash
dividends in the foreseeable future because its policy has been to use earnings
to finance expansion and growth. Payment of dividends will rest within the
discretion of the Board of Directors and will depend upon, among other factors,
the Company's earnings, capital requirements, and financial condition.
35
<PAGE>
APPENDIX D
QUARTERLY REPORT ON FORM 10-Q OF THERMOLASE
FOR THE QUARTER ENDED APRIL 1, 2000
<PAGE>
Appendix D
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 April 1, 2000
/ / 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)
<TABLE>
<S> <C>
Delaware 06-1360302
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2055-C Luna Road
Carrollton, Texas 75006
(Address of principal executive offices) (Zip Code)
</TABLE>
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, 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 APRIL 28, 2000
------------------------------ -----------------------------
Common Stock, $.01 par value 39,631,938
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THERMOLASE CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
<TABLE>
<CAPTION>
April 1, October 2,
(In thousands) 2000 1999
----------------------------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,224 $ 1,358
Advance to affiliate 7,745 15,387
Accounts receivable, less allowances of $810 and $2,080 3,548 3,959
Inventories:
Raw materials and supplies 4,217 3,240
Work in process and finished goods 927 1,134
Other current assets 4,000 4,000
Prepaid expenses 200 85
Due from parent company and affiliated companies 334 486
--------- ---------
22,195 29,649
--------- ---------
Property, Plant, and Equipment, at Cost 6,118 6,004
Less: Accumulated depreciation and amortization 3,508 3,115
--------- ---------
2,610 2,889
--------- ---------
Other Assets 5,650 5,817
--------- ---------
Cost in Excess of Net Assets of Acquired Companies 7,505 7,623
--------- ---------
$ 37,960 $ 45,978
========= =========
</TABLE>
2
<PAGE>
THERMOLASE CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
<TABLE>
<CAPTION>
April 1, October 2,
(In thousands except share amounts) 2000 1999
----------------------------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 2,178 $ 932
Accrued payroll and employee benefits 487 741
Accrued restructuring costs (Note 5) 16,417 18,841
Accrued interest 559 559
Other accrued expenses 1,799 3,414
----------- -----------
21,440 24,487
----------- -----------
4 3/8% Subordinated Convertible Debentures (includes $16,690 and $8,225 of
related-party debt) 115,000 115,000
----------- -----------
Deferred Lease Liability 194 195
----------- -----------
Common Stock Subject to Redemption 40,500 40,500
----------- -----------
Shareholders' Investment:
Common stock, $.01 par value, 100,000,000 shares authorized; 40,857,932 and
40,829,132 shares issued 409 408
Capital in excess of par value 32,698 36,360
Accumulated deficit (155,897) (150,438)
Treasury stock at cost, 1,225,994 and 1,481,136 shares (16,384) (20,534)
----------- -----------
(139,174) (134,204)
----------- -----------
$ 37,960 $ 45,978
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THERMOLASE CORPORATION
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
April 1, April 3,
(In thousands except per share amounts) 2000 1999
----------------------------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Revenues:
Product revenues $ 4,819 $ 5,820
Service revenues - 3,995
--------- ---------
4,819 9,815
--------- ---------
Costs and Operating Expenses:
Cost of product revenues (Note 3) 4,389 3,898
Cost of service revenues - 7,977
Selling, general, and administrative expenses 1,972 3,674
Research and development expenses 93 484
Restructuring and unusual costs (Note 5) 99 -
--------- ---------
6,553 16,033
--------- ---------
Operating Loss (1,734) (6,218)
Interest Income 171 577
Interest Expense (includes $136 and $50 to related party) (1,341) (1,340)
--------- ---------
Loss Before Provision for Income Taxes (2,904) (6,981)
Provision for Income Taxes - 52
--------- ---------
Net Loss $ (2,904) $ (7,033)
========= =========
Basic and Diluted Loss per Share (Note 2) $ (.07) $ (.18)
=========== ==========
Basic and Diluted Weighted Average Shares (Note 2) 39,607 39,344
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMOLASE CORPORATION
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
April 1, April 3,
(In thousands except per share amounts) 2000 1999
----------------------------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Revenues:
Product revenues $ 9,726 $ 12,610
Service revenues 19 6,751
---------- ----------
9,745 19,361
---------- ----------
Costs and Operating Expenses:
Cost of product revenues (Note 3) 8,491 8,594
Cost of service revenues 121 14,671
Selling, general, and administrative expenses 3,717 8,527
Research and development expenses 192 973
Restructuring and unusual costs (Note 5) 385 -
---------- ----------
12,906 32,765
---------- ----------
Operating Loss (3,161) (13,404)
Interest Income 384 1,243
Interest Expense (includes $225 and $99 to related party) (2,682) (2,680)
Equity in Losses of Joint Ventures - (200)
---------- ----------
Loss Before Provision for Income Taxes (5,459) (15,041)
Provision for Income Taxes - 96
---------- ----------
Net Loss $ (5,459) $ (15,137)
========== ==========
Basic and Diluted Loss per Share (Note 2) $ (.14) $ (.38)
=========== ==========
Basic and Diluted Weighted Average Shares (Note 2) 39,481 39,332
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THERMOLASE CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
April 1, April 3,
(In thousands) 2000 1999
----------------------------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Operating Activities:
Net loss $ (5,459) $ (15,137)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 510 3,824
Provision for losses on accounts receivable 150 12
Increase (decrease) in deferred lease liability (1) 34
Equity in losses of joint ventures - 200
Other noncash items 167 -
Changes in current accounts:
Accounts receivable 261 (638)
Inventories (770) 204
Other current assets 37 (324)
Accounts payable 1,246 (907)
Other current liabilities (4,294) (892)
---------- ----------
Net cash used in operating activities (8,153) (13,624)
---------- ----------
Investing Activities:
Advances to affiliate, net 7,642 -
Proceeds from maturities of available-for-sale investments - 3,072
Purchases of property and equipment (113) (1,746)
Proceeds from sale of equipment - 436
Increase in other assets - (250)
Other - 15
---------- ----------
Net cash provided by investing activities 7,529 1,527
---------- ----------
Financing Activities:
Net proceeds from issuance of Company common stock 594 123
Payment of withholding taxes related to stock option exercises (104) (25)
Other - (12)
---------- ----------
Net cash provided by financing activities 490 86
---------- ----------
Decrease in Cash and Cash Equivalents (134) (12,011)
Cash and Cash Equivalents at Beginning of Period 1,358 52,831
---------- ----------
Cash and Cash Equivalents at End of Period $ 1,224 $ 40,820
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
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 April 1, 2000, the
results of operations for the three- and six-month periods ended April 1, 2000,
and April 3, 1999, and the cash flows for the six-month periods ended April 1,
2000, and April 3, 1999. Certain prior period amounts have been reclassified to
conform to the presentation in the current financial statements. Interim results
are not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of October 2, 1999, 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 October 2, 1999,
filed with the Securities and Exchange Commission.
2. Loss per Share
Basic loss per share has been computed by dividing the net loss by the
weighted average number of shares outstanding during the period. Diluted loss
per share does not differ from basic loss per share because the effect of
assuming the conversion of convertible debentures and the elimination of the
related interest expense, the exercise of stock options, and the effect of
redeemable common stock would be antidilutive, due to the Company's net loss in
the periods presented. Options to purchase 1,602,000 and 2,145,000 shares of
common stock for the second quarter of fiscal 2000 and 1999, respectively, and
1,176,000 and 2,154,000 shares of common stock for the first six months of
fiscal 2000 and 1999, respectively, were not included in the computation of
diluted loss per share due to the Company's net loss position. In addition, the
computation of diluted loss per share for each period excludes the effect of
assuming the conversion of the Company's $115,000,000 principal amount of 4 3/8%
subordinated convertible debentures, convertible at $17.385 per share, due to
the Company's net loss position.
3. Related-party Transactions
During the second quarter of fiscal 1999, and the six-month periods ended
April 1, 2000, and April 3, 1999, 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 $1,022,000, $717,000, and $1,655,000, respectively. There were no
related party purchases during the second quarter of fiscal 2000.
7
<PAGE>
THERMOLASE CORPORATION
4. Business Segment Information
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- --------------------------
April 1, April 3, April 1, April 3,
(In thousands) 2000 1999 2000 1999
-------------------------------------------------------------------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Health and Beauty Products $ 4,819 $ 4,952 $ 9,710 $ 11,038
Hair-removal and Related Activities (a) - 4,863 35 8,323
---------- ---------- ---------- ----------
$ 4,819 $ 9,815 $ 9,745 $ 19,361
========== ========== ========== ==========
Loss Before Provision for Income Taxes:
Health and Beauty Products $ (1,302) $ (674) $ (1,780) $ (1,646)
Hair-removal and Related Activities (a) (246) (5,383) (833) (11,476)
Corporate (b) (186) (161) (548) (282)
---------- ---------- ---------- ----------
Total operating loss (1,734) (6,218) (3,161) (13,404)
Interest and other expense, net (1,170) (763) (2,298) (1,637)
---------- ---------- ---------- ----------
$ (2,904) $ (6,981) $ (5,459) $ (15,041)
========== ========== ========== ==========
</TABLE>
(a) Reflects the June 1999 sale of spas and the termination of various
licensing agreements.
(b) Primarily general and administrative expenses as well as restructuring
and unusual costs in the fiscal 2000 periods.
5. Restructuring and Unusual Costs
During fiscal 1999 and 1998, the Company recorded restructuring and
unusual costs, primarily in connection with the Company's decision to exit the
spa business and, to a lesser extent, to terminate certain obligations related
to the hair-removal business. The restructuring and unusual costs were primarily
for the sale and closure of the Company's spas; the write-off of leasehold
improvements and equipment; costs for ongoing lease obligations, net of assumed
sublease income; and payments to licensees and joint venture partners to sever
relationships and terminate arrangements. The fiscal 1999 restructuring costs
included severance for 26 employees across all functions, 23 of whom were
terminated during fiscal 1999. One additional employee was terminated during the
first six months of fiscal 2000.
During the first six months of fiscal 2000, in connection with the
Company's proposed reorganization (Note 6), the Company incurred and recorded
costs of $385,000, primarily for investment banker and legal fees.
8
<PAGE>
THERMOLASE CORPORATION
5. Restructuring and Unusual Costs (continued)
A summary of activity in accrued restructuring costs is as follows:
<TABLE>
<CAPTION>
Hair-removal and Related Activities Segment Corporate
----------------------------------------------------- -----------------
Abandonment
of Excess Other Exit
(In thousands) Severance Facilities Obligations Other Total
---------------------------------------- ----------------- ----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
FISCAL 1998 RESTRUCTURING PLAN
BALANCE AT OCTOBER 2, 1999 $ - $ - $ 50 $ - $ 50
Fiscal 2000 usage - - (50) - (50)
--------- --------- --------- --------- ---------
BALANCE AT JANUARY 1, 2000 $ - $ - $ - $ - $ -
========= ========= ========= ========= =========
FISCAL 1999 RESTRUCTURING PLAN
BALANCE AT OCTOBER 2, 1999 $ 99 $ 10,999 $ 7,693 $ - $ 18,791
Provision charged to expense in
fiscal 2000 - - - 385 385
Fiscal 2000 usage (74) (174) (2,259) (252) (2,759)
--------- --------- --------- --------- ---------
BALANCE AT APRIL 1, 2000 $ 25 $ 10,825 $ 5,434 $ 133 $ 16,417
========= ========= ========= ========= =========
</TABLE>
Of the total restructuring costs accrued as of April 1, 2000, the Company
expects to pay $7.6 million in the remainder of calendar 2000 and $8.8 million
in calendar 2001 and thereafter, through the expiration of various leases in
fiscal 2014. The timing of these cash payments will be affected by the terms of
any subleases or settlement arrangements with landlords.
6. Proposed Reorganization
Thermo Electron Corporation has announced a proposed reorganization
involving certain of Thermo Electron's subsidiaries, including the Company.
Under this plan, the Company would be merged into Thermo Electron. As a result,
the Company would become a wholly owned subsidiary of Thermo Electron. The
public shareholders of the Company would receive common stock in Thermo Electron
in exchange for their shares. In December 1999, the boards of directors of the
Company and Thermo Electron approved a definitive agreement and plan of merger
pursuant to which Thermo Electron would acquire all of the outstanding shares of
Company common stock held by shareholders other than Thermo Electron and
ThermoTrex in exchange for shares of Thermo Electron's common stock. The
Company's board of directors approved the merger agreement based on a
recommendation of its special committee, which was charged with representing the
interests of the Company's public shareholders. Under the agreement, the number
of shares of Thermo Electron common stock to be issued to the Company's
shareholders will be determined using an exchange ratio of between 0.132 and
0.198, depending on the price of Thermo Electron's common stock. The exchange of
common stock will be a taxable transaction to the shareholders.
In addition, under the agreement, units of the Company (currently
consisting of one share of Company common stock coupled with the right to have
the Company redeem that share for $20.25 in April 2001) would be modified so
that, following the merger, each unit would consist of a fractional share of
Thermo Electron common stock, which would be redeemable in April 2001 for
$20.25.
This proposal is subject to certain conditions including the filing with
and review by the Securities and Exchange Commission of certain required filings
regarding the proposed transaction and listing on the New York Stock Exchange of
the shares of Thermo Electron common stock to be issued in connection with the
merger.
9
<PAGE>
THERMOLASE CORPORATION
6. Proposed Reorganization (continued)
In October 1999, the American Stock Exchange (the Exchange) notified the
Company that if the Company did not have a definitive agreement to merge with
Thermo Electron by December 15, 1999, the Exchange would request a meeting to
discuss its intent to proceed with delisting the Company's shares from the
Exchange due to a possible failure to meet listing requirements. Holders of the
Company's subordinated convertible debentures would be entitled to have their
debentures redeemed by the Company if the Company's shares are neither listed
for trading on a United States national securities exchange nor approved for
trading on an established automated over-the-counter trading market in the
United States. As a result of the agreement to merge with Thermo Electron, the
Company expects that its shares will continue to be listed through the
completion of the merger transaction. Accordingly, the Company has classified
the debentures as long-term in the accompanying balance sheet.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K, for the
fiscal year ended October 2, 1999, filed with the Securities and Exchange
Commission.
OVERVIEW
The Company's businesses operate in two segments: Hair-removal and
Related Activities (Hair Removal) and Health and Beauty Products. The Company's
Hair Removal segment 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, and in May 1998, the Company received
clearance from the FDA to market its SoftLight Laser Peel for skin resurfacing.
To provide the laser-based hair removal and skin-resurfacing services, the
Company developed a network of 14 high-end day spas, originally called Spa
Thira.
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
and skin-resurfacing procedures. Through these arrangements, the Company
received a per procedure or minimum royalty and/or flat periodic fee. The
Company also entered into joint venture and other licensing agreements to bring
the technology to international markets. In fiscal 1999, the Company began
offering licensees the opportunity to purchase or lease SoftLight lasers in lieu
of paying ongoing license fees.
In connection with its June 1998 acquisition of The Greenhouse Spa, Inc.,
a full-service, luxury, destination spa, the Company converted 11 of its
domestic Spa Thiras to Greenhouse day spas. In addition to hair-removal and
skin-resurfacing services, these facilities offered more traditional day-spa
services, such as massages and facials. Following conversion of the facilities
to Greenhouse day spas, significant losses continued and, during fiscal 1998,
the Company initiated certain restructuring actions, including the announced
closure of three of its domestic day spas and the termination of a joint venture
that operated its spa in France. The Company closed two of the domestic day spas
in November 1998 and the third spa, as well as two additional spas, were closed
in the third quarter of fiscal 1999. In May 1999, the Company announced
additional plans to undertake a broad-scale restructuring of its business. As
part of the restructuring plan, the Company decided to exit the spa business
and, as a result, sold The Greenhouse Spa, Inc., located in Arlington, Texas,
and the remaining nine Greenhouse day spas. In addition, the Company has
terminated
10
<PAGE>
THERMOLASE CORPORATION
OVERVIEW (CONTINUED)
the physician-licensing program and has terminated or renegotiated the terms of
its international joint venture arrangements as well as discontinued certain
branded product lines at the Company's Creative Beauty Innovations, Inc. (CBI)
subsidiary. The Company expects to complete its restructuring plan by the middle
of calendar 2000.
The Company's CBI subsidiary represents the Health and Beauty Products
segment, which manufactures and markets skin-care, bath, and body products and
markets dietary supplements. This business represents the Company's principal
operations following the sale of the spas and the termination of various
licensing agreements.
RESULTS OF OPERATIONS
SECOND QUARTER FISCAL 2000 COMPARED WITH SECOND QUARTER FISCAL 1999
Revenues were $4.8 million and $9.8 million in the second quarter of
fiscal 2000 and 1999, respectively. The Company earned product revenues of $4.8
million in fiscal 2000, compared with $5.8 million in fiscal 1999. Product
revenues include sales in the Health and Beauty Products segment and, in the
fiscal 1999 period, lasers sold in international and domestic markets by the
Company's Hair Removal segment and beauty product sales at the Company's spas.
Product revenues in the Health and Beauty Products segment decreased to $4.8
million in the second quarter of fiscal 2000 from $5.0 million in the second
quarter of fiscal 1999, primarily due to the discontinuation of certain branded
product lines. There were no product revenues in the Hair Removal segment in
fiscal 2000, compared with $0.8 million in fiscal 1999, due to a decision to
exit this segment.
There were no service revenues in the Hair Removal segment in the second
quarter of fiscal 2000, compared with $4.0 million in the second quarter of
fiscal 1999. This decrease is due to the sale and closure of the Company's
Greenhouse day spas and the termination of its physician-licensing program and
certain international licensing arrangements (Note 5).
The gross profit margin was $0.4 million in the second quarter of fiscal
2000, compared with a negative gross profit margin of $2.1 million in the second
quarter of fiscal 1999. This increase in gross profit margin was primarily due
to the sale of the spa business, offset in part by a decrease in gross profit
margin in the Health and Beauty Products segment due to changes in product mix
and, to a lesser extent, $0.7 million of higher provisions for excess and
obsolete inventories. The gross profit margin in the Health and Beauty Products
segment was 9% in the second quarter of fiscal 2000 compared with 32% in the
second quarter of fiscal 1999.
Selling, general, and administrative expenses decreased to $2.0 million
in the second quarter of fiscal 2000 from $3.7 million in the second quarter of
fiscal 1999, primarily due to $1.1 million of lower costs following the sale of
the spa business and the termination of various licensing agreements and, to a
lesser extent, reductions in personnel in the Health and Beauty Products
segment, as a result of cost reduction measures.
Research and development expenses decreased to $0.1 million in the second
quarter of fiscal 2000 from $0.5 million in the second quarter of fiscal 1999,
primarily due to the Company's decision to substantially exit the SoftLight
business.
During the second quarter of fiscal 2000, the Company recorded costs of
$0.1 million in connection with its proposed reorganization (Note 5).
Interest income decreased to $0.2 million in the second quarter of fiscal
2000 from $0.6 million in the second quarter of fiscal 1999, primarily due to
lower average invested balances. Interest expense was unchanged at $1.3 million
in both periods.
11
<PAGE>
THERMOLASE CORPORATION
FIRST SIX MONTHS FISCAL 2000 COMPARED WITH FIRST SIX MONTHS FISCAL 1999
Revenues were $9.7 million and $19.4 million in the first six months of
fiscal 2000 and 1999, respectively. The Company earned product revenues of $9.7
million in fiscal 2000, compared with $12.6 million in fiscal 1999. Product
revenues include sales in the Health and Beauty Products segment and, in the
fiscal 1999 period, lasers sold in international and domestic markets by the
Company's Hair Removal segment and beauty product sales at the Company's spas.
Product revenues in the Health and Beauty Products segment decreased to $9.7
million in the first six months of fiscal 2000 from $11.0 million in the first
six months of fiscal 1999, primarily due to the discontinuation of certain
branded product lines. Product revenues in the Hair Removal segment decreased to
$16,000 in fiscal 2000 from $1.5 million in fiscal 1999, primarily due to a
decrease in laser sales.
Service revenues in the Hair Removal segment decreased to $19,000 in the
first six months of fiscal 2000 from $6.8 million in the first six months of
fiscal 1999. This decrease is due to the sale and closure of the Company's
Greenhouse day spas and the termination of its physician-licensing program and
certain international licensing arrangements (Note 5). Service revenues for the
fiscal 2000 period represent licensing fees from the remaining
physician-licensing agreements, which have been terminated as of April 1, 2000.
The gross profit margin was $1.1 million in the first six months of
fiscal 2000, compared with a negative gross profit margin of $3.9 million in the
first six months of fiscal 1999. This increase in gross profit margin was
primarily due to the sale of the spa business, offset in part by a decrease in
gross profit margin in the Health and Beauty Products segment due to changes in
product mix, $0.5 million of higher provisions for excess and obsolete
inventories, as well as the discontinuation of certain branded product lines,
which had higher gross profit margins. The gross profit margin in the Health and
Beauty Products segment was 3% in the first six months of fiscal 2000, compared
with 29% in the first six months of fiscal 1999.
Selling, general, and administrative expenses decreased to $3.7 million
in the first six months of fiscal 2000 from $8.5 million in the first six months
of fiscal 1999, primarily due to $3.1 million of lower costs following the sale
of the spa business and the termination of various licensing agreements. In
addition, Health and Beauty Products segment advertising costs decreased $0.8
million as a result of the discontinuation of certain branded product lines,
management efforts to reduce overall marketing costs, and reductions in
personnel.
Research and development expenses decreased to $0.2 million in the first
six months of fiscal 2000 from $1.0 million in the first six months of fiscal
1999, primarily due to the Company's decision to substantially exit the
SoftLight business.
During the first six months of fiscal 2000, the Company recorded costs of
$0.4 million in connection with its proposed reorganization (Note 5).
Interest income decreased to $0.4 million in the first six months of
fiscal 2000 from $1.2 million in the first six months of fiscal 1999, primarily
due to lower average invested balances. Interest expense was unchanged at $2.7
million in both periods.
Equity in losses of joint ventures in the fiscal 1999 period represents
the Company's proportionate share of losses from its international joint
ventures, which have been substantially terminated with the exception of the
Company's continued ownership of a 46% equity interest in ThermoLase England
LLC, which continues to pursue the SoftLight business in the United Kingdom,
Ireland, Spain, and South Africa.
12
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THERMOLASE CORPORATION
LIQUIDITY AND CAPITAL RESOURCES
Consolidated working capital was $0.8 million at April 1, 2000, compared
with $5.2 million at October 2, 1999. Included in working capital are cash, cash
equivalents, and advance to affiliate of $9.0 million at April 1, 2000, compared
with $16.7 million at October 2, 1999. Operating activities used $8.2 million of
cash during the first six months of fiscal 2000. Cash was used primarily to fund
the Company's loss, excluding noncash items, as well as a decrease in other
current liabilities, which used $4.3 million of cash, primarily due to payments
for accrued restructuring costs. Of the total restructuring costs accrued as of
April 1, 2000, the Company expects to pay $7.6 million in the remainder of
calendar 2000 and $8.8 million in calendar 2001 and thereafter, through the
expiration of various leases in fiscal 2014. The timing of these cash payments
will be affected by the terms of any subleases or settlement arrangements with
landlords.
Excluding advance to affiliate activity, the Company's primary investing
activity during the first six months of fiscal 2000 consisted of $0.1 million
for purchases of property and equipment.
The Company has an obligation to pay $40.5 million, in the aggregate, to
the holders of redemption rights if all of the holders thereof exercise their
redemption rights in April 2001 when such rights become exercisable. The Company
does not have sufficient funds to satisfy these obligations and the exercise of
the redemption rights would have a material adverse effect on the Company's
liquidity and financial position. Thermo Electron Corporation has guaranteed
such obligation (Note 6). In addition, Thermo Electron has expressed its
willingness to lend the Company up to $10.0 million for short-term liquidity
should the need arise.
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company. Under this plan, the
Company would be merged into and become a wholly owned subsidiary of Thermo
Electron (Note 6).
In October 1999, the American Stock Exchange (the Exchange) notified the
Company that if the Company did not have a definitive agreement to merge with
Thermo Electron by December 15, 1999, the Exchange would request a meeting to
discuss its intent to proceed with delisting the Company's shares from the
Exchange due to a possible failure to meet listing requirements. Holders of the
Company's subordinated convertible debentures would be entitled to have their
debentures redeemed by the Company if the Company's shares are neither listed
for trading on a United States national securities exchange nor approved for
trading on an established automated over-the-counter trading market in the
United States. As a result of the agreement to merge with Thermo Electron, the
Company expects that its shares will continue to be listed through the
completion of the merger transaction. Accordingly, the Company has classified
the debentures as long-term in the accompanying balance sheet.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk from changes in interest rates and
equity prices has not changed materially from its exposure at fiscal year-end
1999.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
None.
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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 May 2000.
THERMOLASE CORPORATION
/s/ THEO MELAS-KYRIAZI
---------------------------------------
Theo Melas-Kyriazi
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
14
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THERMOLASE CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------------ ------------------------------------------------------------------
<S> <C>
27 Financial Data Schedule.
</TABLE>
15
