-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tb0zEqSmhuLcRwxj6Dx/bBaxtXP7+cTd70b+97VsqPI/Hul0NSfeNnDDF5+aqJXc ciPYfTiI+bS8bfJ8EIAV9w== 0000901416-99-000020.txt : 19990810 0000901416-99-000020.hdr.sgml : 19990810 ACCESSION NUMBER: 0000901416-99-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990703 FILED AS OF DATE: 19990809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMOLASE CORP CENTRAL INDEX KEY: 0000901416 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 061360302 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13104 FILM NUMBER: 99681305 BUSINESS ADDRESS: STREET 1: 2055 C LUNA ROAD CITY: CARROLLTON STATE: TX ZIP: 75006 BUSINESS PHONE: 6176221000 MAIL ADDRESS: STREET 1: 2055 C LUNA ROAD CITY: CARROLLTON STATE: TX ZIP: 75006 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ---------------------------------------------------- FORM 10-Q (mark one) [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarter Ended July 3, 1999 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 1-13104 THERMOLASE CORPORATION (Exact name of Registrant as specified in its charter) Delaware 06-1360302 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2055-C Luna Road Carrollton, Texas 75006 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (781) 622-1000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Class Common Stock, $.01 par value Outstanding at July 30, 1999 39,347,996
PART I - FINANCIAL INFORMATION Item 1 - Financial Statements THERMOLASE CORPORATION Consolidated Balance Sheet (Unaudited) Assets July 3, October 3, (In thousands) 1999 1998 - ----------------------------------------------------------------------------------- ---------- ---------- Current Assets: Cash and cash equivalents ($51,246 under repurchase agreement with $ 1,803 $52,831 affiliated company in fiscal 1998) Advance to affiliate (Note 7) 28,459 - Available-for-sale investments, at quoted market value - 3,072 (amortized cost of $3,072) Accounts receivable, less allowances of $2,063 and $490 (Note 5) 8,441 4,339 Inventories: Raw materials and supplies 2,920 2,771 Work in process and finished goods 714 4,054 Prepaid expenses 126 698 -------- -------- 42,463 67,765 -------- -------- Property, Plant, and Equipment, at Cost (Note 5) 5,840 54,706 Less: Accumulated depreciation and amortization 2,908 11,276 -------- -------- 2,932 43,430 -------- -------- Other Assets (Note 5) 6,399 7,531 -------- -------- Cost in Excess of Net Assets of Acquired Companies (Note 5) 7,682 15,489 -------- -------- $ 59,476 $134,215 ======== ======== 2 THERMOLASE CORPORATION Consolidated Balance Sheet (continued) (Unaudited) Liabilities and Shareholders' Investment July 3, October 3, (In thousands except share amounts) 1999 1998 - ----------------------------------------------------------------------------------- ---------- ---------- Current Liabilities: Accounts payable $ 1,893 $ 3,221 Accrued payroll and employee benefits 1,090 1,633 Accrued restructuring costs (Note 5) 23,148 5,153 Customer deposits 488 820 Other accrued expenses 5,898 5,141 Due to parent company and affiliated companies 4,038 3,200 --------- --------- 36,555 19,168 --------- --------- Long-term Obligations: 4 3/8% Subordinated convertible debentures (includes $8,225 115,000 115,000 and $4,500 of related-party debt) Other - 66 --------- --------- 115,000 115,066 --------- --------- Deferred Lease Liability 195 1,172 --------- --------- Common Stock Subject to Redemption 40,500 40,500 --------- --------- Shareholders' Investment: Common stock, $.01 par value, 100,000,000 shares authorized; 408 408 40,829,132 shares issued Capital in excess of par value 35,640 36,279 Accumulated deficit (148,288) (57,107) Treasury stock at cost, 1,481,136 and 1,531,025 shares (20,534) (21,271) --------- --------- (132,774) (41,691) --------- --------- $ 59,476 $ 134,215 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. 3 THERMOLASE CORPORATION Consolidated Statement of Operations (Unaudited) Three Months Ended July 3, July 4, (In thousands except per share amounts) 1999 1998 - ----------------------------------------------------------------------------------- ----------- --------- Revenues: Product revenues $ 7,765 $ 5,248 Service revenues 3,259 3,695 -------- -------- 11,024 8,943 -------- -------- Costs and Operating Expenses: Cost of product revenues (Note 5) 9,418 3,609 Cost of service revenues 7,038 5,215 Selling, general, and administrative expenses (Note 5) 5,675 5,470 Research and development expenses 316 743 Restructuring and nonrecurring costs (Note 5) 60,326 1,917 -------- -------- 82,773 16,954 -------- -------- Operating Loss (71,749) (8,011) Interest Income 504 1,056 Interest Expense (includes $50 to related party in fiscal 1999) (1,340) (1,338) Equity in Losses of Joint Ventures - (85) Other Expense (Note 5) (3,399) - -------- -------- Loss Before Income Taxes (75,984) (8,378) Income Tax (Provision) Benefit (60) 29 -------- -------- Net Loss $(76,044) $ (8,349) ======== ======== Basic and Diluted Loss per Share (Note 3) $ (1.93) $ (.22) ======== ======== Basic and Diluted Weighted Average Shares (Note 3) 39,348 38,381 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 4 THERMOLASE CORPORATION Consolidated Statement of Operations (Unaudited) Nine Months Ended July 3, July 4, (In thousands except per share amounts) 1999 1998 - ----------------------------------------------------------------------------------- ----------- ---------- Revenues: Product revenues $ 20,375 $16,850 Service revenues 10,010 13,634 -------- -------- 30,385 30,484 -------- -------- Costs and Operating Expenses: Cost of product revenues (Note 5) 18,012 11,598 Cost of service revenues 21,709 16,676 Selling, general, and administrative expenses (Note 5) 14,202 16,320 Research and development expenses 1,289 2,565 Restructuring and nonrecurring costs (Note 5) 60,326 1,917 -------- -------- 115,538 49,076 -------- -------- Operating Loss (85,153) (18,592) Interest Income 1,747 3,622 Interest Expense (includes $148 to related party in fiscal 1999) (4,020) (4,004) Equity in Losses of Joint Ventures (200) (905) Other Expense (Note 5) (3,399) - -------- -------- Loss Before Income Taxes (91,025) (19,879) Income Tax (Provision) Benefit (156) 959 -------- -------- Net Loss $(91,181) $(18,920) ======== ======== Basic and Diluted Loss per Share (Note 3) $ (2.32) $ (.49) ======== ======== Basic and Diluted Weighted Average Shares (Note 3) 39,337 38,281 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 5 THERMOLASE CORPORATION Consolidated Statement of Cash Flows (Unaudited) Nine Months Ended July 3, July 4, (In thousands) 1999 1998 - ----------------------------------------------------------------------------------- ----------- --------- Operating Activities: Net loss $(91,181) $(18,920) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 5,666 5,272 Provision for losses on accounts receivable 1,835 108 Increase in prepaid income taxes - (1,092) Increase in deferred lease liability 62 17 Equity in losses of joint ventures 200 905 Noncash restructuring costs (Note 5) 36,994 1,917 Other noncash items 5,075 - Changes in current accounts, excluding the effects of acquisition and dispositions: Accounts receivable (2,642) 1,634 Inventories 1,103 (1,092) Other current assets (313) 418 Accounts payable (1,189) (2,252) Other current liabilities 22,342 (2,522) -------- ------- Net cash used in operating activities (22,048) (15,607) -------- ------- Investing Activities: Advances to affiliate, net (Note 7) (28,459) - Acquisition, net of cash acquired - (4,180) Purchases of available-for-sale investments - (4,000) Proceeds from maturities of available-for-sale investments 3,072 8,400 Purchases of property and equipment (4,964) (3,564) Proceeds from sale of equipment 1,291 - Advance under a note receivable from related-party - (1,667) Increase in other assets - (664) -------- ------- Net cash used in investing activities (29,060) (5,675) -------- ------- Financing Activities: Purchases of Company common stock - (8,806) Net proceeds from issuance of Company common stock 123 502 Payment of withholding taxes related to stock option exercises (25) (667) Other (18) - -------- ------- Net cash provided by (used in) financing activities 80 (8,971) -------- ------- Decrease in Cash and Cash Equivalents (51,028) (30,253) Cash and Cash Equivalents at Beginning of Period 52,831 87,843 -------- ------- Cash and Cash Equivalents at End of Period $ 1,803 $57,590 ======== ======= 6 THERMOLASE CORPORATION Consolidated Statement of Cash Flows (continued) (Unaudited) Nine Months Ended July 3, July 4, (In thousands) 1999 1998 - ----------------------------------------------------------------------------------- ----------- --------- Noncash Activities: Fair value of assets of acquired company $ - $17,128 Issuance of Company common stock for acquired company - (7,975) Cash paid for acquired company - (4,180) -------- ------- Liabilities assumed of acquired company $ - $ 4,973 ======== ======= The accompanying notes are an integral part of these consolidated financial statements. 7 Notes to Consolidated Financial Statements 1. General The interim consolidated financial statements presented have been prepared by ThermoLase Corporation (the Company) without audit and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the financial position at July 3, 1999, the results of operations for the three- and nine-month periods ended July 3, 1999, and July 4, 1998, and the cash flows for the nine-month periods ended July 3, 1999, and July 4, 1998. The Company's results of operations for the nine-month periods ended July 3, 1999, and July 4, 1998, include 39 weeks and 40 weeks, respectively. Interim results are not necessarily indicative of results for a full year. The consolidated balance sheet presented as of October 3, 1998, has been derived from the consolidated financial statements that have been audited by the Company's independent public accountants. The consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in the annual financial statements and notes of the Company. The consolidated financial statements and notes included herein should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K, as amended, for the fiscal year ended October 3, 1998, filed with the Securities and Exchange Commission. 2. Comprehensive Income During the first quarter of fiscal 1999, the Company adopted Statement of Financial Accounting Standards (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 and "other comprehensive items," which represents certain amounts that are reported as components of shareholders' investment in the accompanying balance sheet, including unrealized net of tax gains and losses on available-for-sale investments. During the third quarter of fiscal 1999 and 1998, the Company had a comprehensive loss of $76,044,000 and $8,354,000, respectively. During the first nine months of fiscal 1999 and 1998, the Company had a comprehensive loss of $91,181,000 and $18,908,000, respectively. 3. 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. As of July 3, 1999, there were outstanding options to purchase 2,055,000 shares of Company common stock at prices ranging from $1.75 to $29.38 per share, and the Company had outstanding $115,000,000 principal amount of 4 3/8% subordinated convertible debentures, convertible at $17.385 per share. 4. Related-party Transaction During the third quarter of fiscal 1999 and 1998, and the first nine months of fiscal 1999 and 1998, the Company purchased laser systems, components, and related services from Trex Medical Corporation, a majority-owned subsidiary of ThermoTrex Corporation (the Company's parent), at an aggregate cost of $961,000 and $922,000, and $2,616,000 and $2,590,000, respectively. 8 4. 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. 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 the third quarter of fiscal 1999, the Company sold its remaining nine day spas, as well as the stock in its destination spa, The Greenhouse Spa, Inc. In connection with the sale and closures announced in fiscal 1999, as well as other actions, the Company recorded restructuring and related costs of $67.7 million during the third quarter of fiscal 1999, including restructuring costs of $60.3 million, an investment write-down of $3.4 million, inventory provisions of $2.3 million, and provisions for uncollectible accounts receivable of $1.7 million. The restructuring costs include a $19.9 million loss on the sale of the spa businesses, discussed below; $17.4 million for the write-off of leasehold improvements and equipment pertaining to the hair-removal business; $11.7 million for ongoing lease obligations, net of assumed sublease income; $10.0 million of estimated costs to terminate certain other obligations related to the Company's hair-removal business; $0.4 million for losses on laser purchase commitments; $0.3 million for the write-downs of investments in international joint ventures; and $0.4 million for other related costs. In addition, restructuring costs include $0.2 million of severance costs for approximately 14 employees across all functions, 9 of whom were terminated during the third quarter of fiscal 1999. Provisions for severance and leases were accounted for in accordance with Emerging Issues Task Force 94-3. The inventory provisions are included in cost of sales, the provisions for uncollectible accounts receivable are included in selling, general, and administrative expenses, and the investment write-down is included in other expense in the accompanying statement of operations. The inventory provisions were for certain branded product lines at the Company's Creative Beauty Innovations, Inc. 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 disposal value. A summary of the changes in accrued restructuring costs is as follows:
Abandonment Contract of Excess Termination (In thousands) Severance Facilities Costs Other Total - --------------------------------- -------------- -------------- ------------- -------------- -------------- Balance at October 3, 1998 $ 412 $ 2,399 $2,299 $ 43 $ 5,153 Provision charged to expense 157 11,728 10,400 - 22,285 Usage (365) (1,713) (2,173) (39) (4,290) ------- ------- ------ ------- ------- Balance at July 3, 1999 $ 204 $12,414 $10,526 $ 4 $23,148 ======= ======= ======= ======= ======= Of the total restructuring costs accrued as of July 3, 1999, the Company expects to pay $13.9 million during the remainder of calendar 1999, $2.5 million in calendar 2000, and $6.7 million in calendar 2001 and thereafter. 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 which bear interest at 10% and are due in June 2000, subject to a six-month extension period that is contingent upon, among other conditions, payment of $4.0 million of the outstanding balance on the promissory note relating to the sale of The Greenhouse Spa, Inc. Accordingly, in the accompanying fiscal 1999 balance sheet, notes receivable of $4.0 million has been included in accounts receivable and the balance, which has been recorded at its estimated fair value, is 9 4. Restructuring and Related Costs and Sale of Spas (continued) classified as long-term and is included in other assets. The Company recorded a loss of $19.9 million on the sale of spa business during the third quarter of fiscal 1999. Unaudited revenues and operating losses before restructuring costs of the spa business were $8.9 million and $19.2 million, respectively, for the first nine months of fiscal 1999, and $10.1 million and $14.1 million, respectively, for fiscal 1998. 4. 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. This proposal is subject to numerous conditions, including establishment of a price and exchange ratio, confirmation of anticipated tax consequences, receipt of a fairness opinion from an investment banking firm, approval by the board of directors of the Company (including its independent directors), negotiation and execution of a definitive merger agreement, and completion of review by the Securities and Exchange Commission of certain required filings regarding the proposed transaction. 7. Cash Management Arrangement Effective June 1, 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. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed under the heading "Forward-looking Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K, as amended, for the fiscal year ended October 3, 1998, filed with the Securities and Exchange Commission. Overview The Company 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 10 Overview (continued) from the FDA to market cosmetic skin-resurfacing services using the same laser as the Company's hair-removal system. In this process, the laser's energy reacts with an activating lotion, creating heat and mechanical energy that remove the tough outer layer of dead skin. The treatment, known as the SoftLight Laser Peel, was being offered at all of the Company's day spa locations, as well as through participating physician licensees. 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. The Company liquidated its joint venture relating to the SoftLight system in France in the fourth quarter of 1998 and has terminated its licensing arrangements in various other countries. In connection with its acquisition of The Greenhouse Spa, Inc. in June 1998, a full-service, luxury, destination spa, the Company converted 11 domestic Spa Thiras to Greenhouse day spas, which, in addition to hair-removal and skin-resurfacing services, offer more traditional day-spa services, such as massages and facials. Following conversion of the facilities to Greenhouse day spas, significant losses continued and during fiscal 1998, 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 has decided to exit the spa business and as a result, sold The Greenhouse Spa, Inc. located in Arlington, Texas, and the remaining nine Greenhouse day spas. In addition, the Company has begun terminating certain of its remaining international joint venture arrangements and the licensing program as well as discontinuing certain branded product lines at the Company's Creative Beauty Innovations, Inc. (CBI) subsidiary (Note 5). The Company expects to complete its restructuring plan by the end of calendar 1999 (Note 5). The Company also manufactures and markets skin-care, bath, and body products, and markets dietary supplements through its CBI subsidiary, which also manufactures the lotion used in the SoftLight hair-removal and skin-resurfacing processes. Results of Operations Third Quarter Fiscal 1999 Compared With Third Quarter Fiscal 1998 Revenues increased to $11.0 million in the third quarter of fiscal 1999 from $8.9 million in the third quarter of fiscal 1998. The Company earned service revenues of $3.3 million in fiscal 1999, compared with $3.7 million in fiscal 1998. 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 the third quarter of fiscal 11 Third Quarter Fiscal 1999 Compared With Third Quarter Fiscal 1998 (continued) 1999, the Company began to terminate its licensing program, and therefore, will eventually no longer earn monthly royalties from licensees. Spa revenues decreased primarily due to the closure of the Company's LaJolla and Miami spas during the first quarter of fiscal 1999 and reduced demand. These decreases in revenues were offset in part by the inclusion of $0.9 million in revenue from The Greenhouse Spa, Inc., acquired June 1998. In June 1999, the Company sold The Greenhouse Spa, Inc. and the nine remaining Greenhouse day spas (Note 5). The Company earned product revenues of $7.8 million in the third quarter of fiscal 1999, compared with $5.2 million in the third quarter of fiscal 1998. Product revenues include sales by CBI, and in the fiscal 1999 period, beauty product sales at the Company's spas and lasers sold in international and domestic markets. As a result of the sale of the spa business in June 1999 (Note 5), the Company no longer sells its beauty products at the spas. Revenues at CBI increased to $6.4 million in the third quarter of fiscal 1999 from $5.2 million in the third quarter of fiscal 1998, primarily due to increased demand for its custom products. Product revenues also increased due to the introduction of sales of SoftLight lasers in fiscal 1999. The gross profit margin decreased to negative 49% in the third quarter of fiscal 1999 from a gross profit of 1% in the third quarter of fiscal 1998. The Company's service revenues had a negative gross profit of $3.8 million in fiscal 1999, compared with a negative gross profit of $1.5 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. To a lesser extent, the gross profit margin decreased due to an increase in spa-specific marketing and advertising expenses related to the Company's conversion of its existing spas to Greenhouse day spas prior to their sale. The gross profit margin at CBI decreased to negative 13% in the third quarter of fiscal 1999 from 31% in the third quarter of fiscal 1998, primarily due to the write-off of inventory related to exiting certain branded product lines (Note 5) and, to a lesser extent, changes in product mix. Selling, general, and administrative expenses increased to $5.7 million in the third quarter of fiscal 1999 from $5.5 million in the third quarter of fiscal 1998, primarily due to a $1.7 million provision for uncollectible accounts receivable (Note 5), principally for accounts receivable from parties with whom the Company is terminating business relationships. This increase was substantially offset by the ongoing cost-reduction efforts implemented by the Company during the second half of fiscal 1998. Research and development expenses decreased to $0.3 million in the third quarter of fiscal 1999 from $0.7 million in the third quarter of 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 the third quarter of fiscal 1999, the Company undertook certain restructuring actions, including the sale of The Greenhouse Spa, Inc. and the remaining nine day spas, as well as other actions. As a result, the Company recorded restructuring and nonrecurring costs of $60.3 million (Note 5). Interest income decreased to $0.5 million in the third quarter of fiscal 1999 from $1.1 million in the third quarter of fiscal 1998, primarily due to lower average invested balances. Interest expense was $1.3 million in both periods. Other expense in the third quarter of fiscal 1999 relates to the write-down of an investment recorded in connection with certain restructuring actions (Note 5). First Nine Months Fiscal 1999 Compared With First Nine Months Fiscal 1998 Revenues were $30.4 million and $30.5 million in the first nine months of fiscal 1999 and 1998, respectively. The Company earned service revenues of $10.0 million in fiscal 1999, compared with $13.6 million in fiscal 1998. International revenues decreased due to a decline in minimum guaranteed payments recorded upon granting technology rights under international licensing arrangements. Revenues from the Company's licensing program 12 First Nine Months Fiscal 1999 Compared With First Nine Months Fiscal 1998 (continued) decreased in fiscal 1999, compared with fiscal 1998, due to the reasons discussed in the results of operations for the third quarter. Spa revenues decreased primarily due to reduced demand and price reductions at the Company's spas in fiscal 1999, compared with fiscal 1998, as well as the closure of the Company's LaJolla and Miami spas during the first quarter of fiscal 1999. These decreases in revenues were offset in part by the inclusion of $2.8 million in revenues from The Greenhouse Spa, Inc., acquired in June 1998. The Company earned product revenues of $20.4 million in the first nine months of fiscal 1999, compared with $16.9 million in the first nine months of fiscal 1998. Product revenues include sales by CBI, and in the fiscal 1999 period, beauty product sales at the Company's spas and laser sales. Revenues at CBI increased to $17.4 million in the first nine months of fiscal 1999 from $16.9 million in the first nine months of fiscal 1998, primarily due to increased demand for its custom products. Product revenues also increased due to the introduction of sales of SoftLight lasers in fiscal 1999, as well as an increase in sales of beauty products at the spas. The gross profit margin decreased to negative 31% in the first nine months of fiscal 1999 from 7% in the first nine months of fiscal 1998. The Company's service revenues had a negative gross profit of $11.7 million in fiscal 1999, compared with a negative gross profit of $3.0 million in fiscal 1998. This decrease in gross profit was primarily due to the reasons discussed in the results of operations for the third quarter, as well as a decrease in higher-margin minimum guaranteed payments relating to international licensing arrangements and initial sign-up fees relating to the licensing program. The gross profit margin at CBI decreased to 13% in fiscal 1999 from 31% in fiscal 1998, primarily due to the reasons discussed in the results of operations for the third quarter. Selling, general, and administrative expenses decreased to $14.2 million in the first nine months of fiscal 1999 from $16.3 million in the first nine months of fiscal 1998, primarily due to ongoing cost reduction efforts implemented by the Company during the second half of fiscal 1998. This decrease was offset in part by a $1.7 million provision for uncollectible accounts receivable discussed in the results of operations for the third quarter. Research and development expenses decreased to $1.3 million in the first nine months of fiscal 1999 from $2.6 million in the first nine months of fiscal 1998, primarily due to the reasons discussed in the results of operations for the third quarter. Interest income decreased to $1.7 million in the first nine months of fiscal 1999 from $3.6 million in the first nine months of fiscal 1998, primarily due to lower average invested balances. Interest expense was $4.0 million in both periods. 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. Liquidity and Capital Resources Consolidated working capital was $5.9 million at July 3, 1999, compared with $48.6 million at October 3, 1998. Included in working capital are cash, cash equivalents, and available-for-sale investments of $1.8 million at July 3, 1999, compared with $55.9 million at October 3, 1998. In addition, as of July 3, 1999, the Company had $28.5 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 (Note 7), which became effective June 1, 1999, amounts invested were included in cash and cash equivalents. Operating activities used $22.0 million of cash during the first nine months of fiscal 1999. Cash was used primarily to fund the Company's loss, excluding noncash items, as well as an increase in accounts receivable, which used $2.6 million of cash, primarily due to an increase in international activity and, to a lesser extent, an increase in revenues at CBI. Cash of $22.3 million was provided by an increase in other current 13 Liquidity and Capital Resources (continued) liabilities, primarily due to restructuring costs recorded during the third quarter of fiscal 1999, which were not paid as of July 3, 1999. Of the total restructuring costs accrued as of July 3, 1999, the Company expects to pay $13.9 million during the remainder of calendar 1999, $2.5 million in calendar 2000, and $6.7 million in calendar 2001 and thereafter. Excluding available-for-sale investment and advance to affiliate activity, the Company's primary investing activity in the first nine months of fiscal 1999 consisted primarily of $5.0 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 (the Company's parent). 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 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 6). 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 2000 compliance, has been substantially completed. During phase one, the Company tested and evaluated its significant computer systems, software applications, and related equipment for year 2000 compliance. The Company also evaluated the potential year 2000 impact on its critical non-information technology systems, which efforts included testing the year 2000 readiness of its utility and telecommunications systems at its non-information technology systems. The Company is currently in phase two of its program, during which any material noncompliant systems or facilities that were identified during phase one are prioritized and remediated. The Company is currently upgrading or replacing its noncompliant information technology systems. In many cases, such upgrades or replacements are being made in the ordinary course of business, without accelerating previously scheduled upgrades or replacements. For example, 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 is in the process of identifying and assessing the year 2000 readiness of key suppliers and vendors that are believed to be significant to the Company's business operations. As part of this effort, the Company has developed and is distributing questionnaires relating to year 2000 compliance to its significant suppliers and vendors. To date, no significant supplier or vendor has indicated that it believes its business operations will be materially 14 Year 2000 (continued) disrupted by the year 2000 issue. The Company will follow-up with significant suppliers and vendors that have not responded to the Company's questionnaires. The Company has not completed the majority of its assessment of third-party risk, but expects to be substantially completed by September 1999. Contingency Plan The Company is developing a contingency plan that will allow its primary business operations to continue despite disruptions due to year 2000 problems. This plan may include identifying and securing alternative suppliers, increasing inventories, and modifying production facilities and schedules. As the Company continues to evaluate the year 2000 readiness of its business systems and facilities, significant suppliers, vendors, and customers, it will modify and adjust its contingency plan as may be required. The Company expects to complete its contingency plan by October 1999. Estimated Costs to Address the Company's Year 2000 Issues To date, costs incurred in connection with the year 2000 issue have not been material. The Company does not expect total year 2000 remediation costs to be material, but there can be no assurance that the Company will not encounter unexpected costs or delays in achieving year 2000 compliance. Year 2000 costs relating to products and facilities were funded from working capital. All internal costs and related external costs, other than capital additions, related to year 2000 remediation have been and will continue to be expensed as incurred. The Company does not track internal costs incurred for its year 2000 compliance project. Such costs are principally the related payroll costs for its information systems group. Reasonably Likely Worst Case Scenario At this point in time, the Company is not able to determine the most reasonably likely worst case scenario to result from the year 2000 issue. One possible worst case scenario would be that certain of the Company's material suppliers or vendors experience business disruptions due to the year 2000 issue and are unable to provide materials and services to the Company on time. The Company's operations could be delayed or temporarily shut down, and it could be unable to meet its obligations to customers in a timely fashion. The Company's business, operations, and financial condition could be adversely affected in amounts that cannot be reasonably estimated at this time. If the Company believes that any of its key suppliers or vendors may not be year 2000 compliant, it will seek to identify and secure other suppliers or vendors as part of its contingency plan. Risks of the Company's Year 2000 Issues While the Company is attempting to minimize any negative consequences arising from the year 2000 issue, there can be no assurance that year 2000 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. 15 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 1998. PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits See Exhibit Index on the page immediately preceding exhibits. (b) Reports on Form 8-K On May 25, 1999, the Company filed a Current Report on Form 8-K, dated as of May 24, 1999, with respect to (i) a proposed merger of the Company and Thermo Electron Corporation, and (ii) pretax restructuring and other charges taken by the Registrant. 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. 16 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 9th day of August 1999. THERMOLASE CORPORATION /s/ Paul F. Kelleher Paul F. Kelleher Chief Accounting Officer /s/ Theo Melas-Kyriazi Theo Melas-Kyriazi Chief Financial Officer 17 EXHIBIT INDEX Exhibit Number Description of Exhibit 10.1 Master Cash Management, Guarantee Reimbursement, and Loan Agreement dated as of June 1, 1999, between the Registrant and Thermo Electron Corporation. 10.2 Amended and Restated Directors Stock Option Plan of the Registrant. 10.3 Amended and Restated Deferred Compensation Plan for Directors of the Registrant. 10.4 Amended and Restated Equity Incentive Plan of the Registrant. 10.5 Amended and Restated Nonqualified Stock Option Plan of the Registrant. 27 Financial Data Schedule.
EX-10.1 2 MASTER CASH MANAGEMENT, GUARANTEE REIMBURSEMENT AND LOAN AGREEMENT This AGREEMENT is entered into as of the 1st day of June, 1999 by and between Thermo Electron Corporation, a Delaware corporation ("Thermo Electron") and ThermoLase Corporation, a Delaware corporation (the "Subsidiary"). WITNESSETH: WHEREAS, Thermo Electron and the Subsidiary are party to a Master Repurchase Agreement, which contains terms governing a cash management arrangement between them and a Master Guarantee Reimbursement and Loan Agreement, as amended and restated, which contains terms relating to intercompany credit support and a short term borrowing facility; WHEREAS, Thermo Electron and the Subsidiary desire to establish a new cash management arrangement and short term borrowing facility between them in lieu of the arrangements set forth in the Master Repurchase Agreement and the Master Guarantee Reimbursement and Loan Agreement and also to consolidate the terms relating to intercompany credit support in one agreement; WHEREAS, the Subsidiary and other majority owned subsidiaries of Thermo Electron that join in this Agreement (collectively, the "Majority-Owned Subsidiaries") and their wholly-owned subsidiaries wish to enter into various financial transactions, such as convertible or nonconvertible debt, loans, equity offerings, and other contractual arrangements with third parties (the "Underlying Obligations") and may provide credit support to, on behalf of or for the benefit of, other subsidiaries of Thermo Electron ("Credit Support Obligations"); WHEREAS, the Majority Owned Subsidiaries and Thermo Electron acknowledge that the Majority Owned Subsidiaries and their wholly-owned subsidiaries may be unable to enter into many kinds of Underlying Obligations without a guarantee of their performance thereunder from Thermo Electron (a "Parent Guarantee") or without obtaining Credit Support Obligations from other Majority Owned Subsidiaries; WHEREAS, certain Majority Owned Subsidiaries ("Second Tier Majority Owned Subsidiaries") may themselves be majority owned subsidiaries of other Majority Owned Subsidiaries ("First Tier Majority Owned Subsidiaries"); WHEREAS, for various reasons, Parent Guarantees of a Second Tier Majority Owned Subsidiary's Underlying Obligations may be demanded and given without the respective First Tier Majority Owned Subsidiary also issuing a guarantee of such Underlying Obligation; WHEREAS, Thermo Electron may itself make a loan or provide other credit to a Second Tier Majority Owned Subsidiary or its wholly-owned subsidiaries under circumstances where the applicable First Tier Majority Owned Subsidiary does not provide such credit; and WHEREAS, Thermo Electron is willing to consider continuing to issue Parent Guarantees and providing credit, and the Majority Owned Subsidiaries are willing to consider continuing to provide Credit Support Obligations, on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each party hereto, the parties agree as follows: 1. Cash Management Arrangement. The Subsidiary directly, or through its wholly-owned U.S. subsidiaries, may, from time to time, lend its excess cash to Thermo Electron (a "Transaction"), on an unsecured basis, bearing interest at a rate equal to the 30-day Dealer Commercial Paper Rate as reported in the Wall Street Journal (the "DCP Rate") plus 50 basis points, which rate shall be adjusted on the second business day of each fiscal month of the Subsidiary and shall be in effect for the entirety of such fiscal month. The Subsidiary shall institute a Transaction by depositing its excess cash in the Subsidiary's concentration account at BankBoston Corporation ("BankBoston") or other bank designated by Thermo Electron. At the end of each business day, the cash balance deposited in the Subsidiary's concentration account shall be transferred to Thermo Electron's intercompany account at BankBoston or other bank designated by Thermo Electron. Thermo Electron shall indicate on its books the balance of the Subsidiary's cash held by Thermo Electron under this arrangement. After each fiscal month end, Thermo Electron shall provide the Subsidiary a report indicating the Subsidiary's aggregate cash balance ("Excess Cash") held by Thermo Electron hereunder. The Subsidiary shall have the right to withdraw all or part of its Excess Cash upon 30 days' prior notice to Thermo Electron. Within 30 days of receipt of such withdrawal notice, Thermo Electron shall transfer the portion of the Excess Cash requested for withdrawal to an account designated by the Subsidiary. Thermo Electron shall maintain, at all times, cash, cash equivalents and/or immediately available bank lines of credit equal to at least 50% of the cash balances of the Subsidiary and of all other participating subsidiaries of Thermo Electron, other than wholly-owned subsidiaries of Thermo Electron, held by Thermo Electron under this arrangement. Interest shall be payable on the Excess Cash by Thermo Electron to the Subsidiary each fiscal month in arrears. In addition, the Subsidiary's non-U.S. subsidiaries may, from time to time, lend or advance their excess cash to Thermo Electron, on an unsecured basis, bearing interest at rates set by Thermo Electron at the beginning of each month, based to the extent practicable on comparable interest rates generally available in the local jurisdiction of such participating non-U.S. subsidiary. Further, Thermo Electron and such non-U.S. subsidiaries participating in the cash management arrangement with Thermo Electron shall establish mutually agreeable procedures governing such cash management arrangement. 2. Loans and Advances. Upon request from the Subsidiary, Thermo Electron may make loans and advances to the Subsidiary on a short-term, revolving credit basis, from time to time, in such amounts as mutually determined by Thermo Electron and the Subsidiary. The aggregate principal amount of such loans and advances shall be reflected on the books and records of the Subsidiary and Thermo Electron. All such loans and advances shall be on an unsecured basis unless specifically provided otherwise in separate loan documents executed at that time. The Subsidiary shall pay interest on the aggregate unpaid principal amount of such loans from time to time outstanding at a rate equal to the DCP Rate plus one hundred fifty (150) basis points, which rate shall be adjusted on 2 the second business day of each fiscal month of the Subsidiary and shall be in effect for the entirety of such fiscal month. If, however, one or more of the Subsidiary's majority-owned U.S. subsidiaries (i.e., not wholly-owned) is also participating in the cash management arrangement with Thermo Electron, then the rate payable on the Subsidiary's outstanding principal balance shall be calculated as follows: If the aggregate amount of the Subsidiary's majority-owned U.S. subsidiaries' cash balances under the cash management arrangement ("Majority-Owned Excess Cash") equals or exceeds the Subsidiary's outstanding principal balance, then the Subsidiary shall pay interest on the aggregate unpaid principal amount of such loans at a rate per annum equal to the DCP Rate plus fifty (50) basis points. If the aggregate amount of the Majority-Owned Excess Cash is less than the Subsidiary's outstanding principal balance, then (A) the Subsidiary shall pay interest at a rate per annum equal to the DCP Rate plus fifty (50) basis points on that portion of the unpaid principal amount equal to the Majority-Owned Excess Cash, and (B) the Subsidiary shall pay interest at a rate per annum equal to the DCP Rate plus one hundred fifty (150) basis points on that portion of the unpaid principal amount equal to (i) the Subsidiary's outstanding principal balance, minus (ii) the Majority-Owned Excess Cash. The interest rates set forth in the prior two sentences shall be adjusted on the second business day of each fiscal month of the Subsidiary and shall be in effect for the entirety of such fiscal month. Interest shall be computed on a 360-day basis. Interest is payable each fiscal month in arrears. The aggregate principal amount outstanding shall be payable within 30 days of demand by Thermo Electron. Overdue principal and interest shall bear interest at a rate per annum equal to the rate of interest published from time to time in the Wall Street Journal as the "prime rate" plus one percent (1%). The principal and accrued interest may be paid by the Subsidiary at any time or from time to time, in whole or in part, without premium or penalty. All payments shall be applied first to accrued interest and then to principal. At the end of each business day, Thermo Electron shall apply the balance of the Subsidiary's Excess Cash held by Thermo Electron under the cash management arrangement toward the payment of any loans or advances to the Subsidiary. Principal and interest shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of Thermo Electron or at such other place as Thermo Electron may designate from time to time in writing to the Subsidiary. The unpaid principal amount of any such borrowings, and accrued interest thereon, shall become immediately due and payable, without demand, upon occurrence of any of the following events: (a) the failure of the Subsidiary to pay any amount due hereunder within fifteen (15) days of the date when due; (b) the failure of the Subsidiary to pay its debts as they become due, the filing by or against the Subsidiary of any petition under the U.S. Bankruptcy Code (or the filing of any similar petition under the insolvency law of any jurisdiction), or the making by the Subsidiary of an assignment or trust mortgage for the benefit of creditors or the appointment of a receiver, custodian or similar agent with respect to, or the taking by any such person of possession of, any material property of the Subsidiary; (c) the sale by the Subsidiary of all or substantially all of its assets; 3 (d) the merger or consolidation of the Subsidiary with or into any other corporation in a transaction in which the Subsidiary is not the surviving entity; (e) the issuance of any writ of attachment, by trustee process or otherwise, or any restraining order or injunction against or affecting the person or property of the Subsidiary that is not removed, repealed or dismissed within thirty (30) days of issuance and as a result has a material adverse effect on the business, operations, assets or condition, financial or otherwise, of the Subsidiary or its ability to discharge any of its liabilities or obligations to Thermo Electron; and (f) the suspension of the transaction of the usual business of the Subsidiary. 3. Guarantee Arrangements. (a) If Thermo Electron provides a Parent Guarantee of an Underlying Obligation, and the beneficiary(ies) of the Parent Guarantee enforce the Parent Guarantee, or Thermo Electron performs under the Parent Guarantee for any other reason, then the Majority Owned Subsidiary that is obligated, either directly or indirectly through a wholly-owned subsidiary, under such Underlying Obligation shall indemnify and save harmless Thermo Electron from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by Thermo Electron as a result of the Parent Guarantee. If the Underlying Obligation is issued by a Second Tier Majority Owned Subsidiary or a wholly-owned subsidiary thereof, and such Second Tier Majority Owned Subsidiary is unable to fully indemnify Thermo Electron (because of the poor financial condition of such Second Tier Majority Owned Subsidiary, or for any other reason), then the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary shall indemnify and save harmless Thermo Electron from any remaining liability, cost, expense or damage (including reasonable attorneys' fees) suffered by Thermo Electron as a result of the Parent Guarantee. If a Majority Owned Subsidiary or a wholly-owned subsidiary thereof provides a Credit Support Obligation for any subsidiary of Thermo Electron, other than a subsidiary of such Majority Owned Subsidiary, and the beneficiary(ies) of the Credit Support Obligation enforce the Credit Support Obligation, or the Majority Owned Subsidiary or its wholly-owned subsidiary performs under the Credit Support Obligation for any other reason, then Thermo Electron shall indemnify and save harmless the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, as a result of the Credit Support Obligation. Without limiting the foregoing, Credit Support Obligations include the deposit of funds by a Majority Owned Subsidiary or a wholly-owned subsidiary thereof in a credit arrangement with a banking facility whereby such funds are available to the banking facility as collateral for overdraft obligations of other Majority Owned Subsidiaries or their subsidiaries also participating in the credit arrangement with such banking facility. Nothwithstanding the foregoing, in order to obtain the benefits of the indemnification obligations of the First Tier Majority Owned Subsidiary set forth above in 4 this Section 3(a), Thermo Electron must have notified the First Tier Majority Owned Subsidiary prior to guaranteeing the obligations of the Second Tier Majority Owned Subsidiary. If after five (5) business days, Thermo Electron has not received from the First Tier Majority Owned Subsidiary a notice of objection stating that the First Tier Majority Owned Subsidiary objects to Thermo Electron guaranteeing the obligations of the Second Tier Majority Owned Subsidiary, then Thermo Electron may proceed to issue its guarantee of the Underlying Obligation and such guarantee shall be subject to the benefits of the indemnification obligations of the First Tier Majority Owned Subsidiary set forth above in this Section 3(a). If Thermo Electron does receive such notice of objection, then Thermo Electron's guarantee shall not be subject to the indemnification obligations of the First Tier Majority Owned Subsidiary set forth above in this Section 3(a). (b) For purposes of this Agreement, the term "guarantee" shall include not only a formal guarantee of an obligation, but also any other arrangement where Thermo Electron is liable for the obligations of a Majority Owned Subsidiary or its wholly-owned subsidiaries. Such other arrangements include (a) representations, warranties and/or covenants or other obligations joined in by Thermo Electron, whether on a joint or joint and several basis, for the benefit of the Majority Owned Subsidiary or its wholly-owned subsidiaries and (b) responsibility of Thermo Electron by operation of law for the acts and omissions of the Majority Owned Subsidiary or its wholly-owned subsidiaries, including controlling person liability under securities and other laws. (c) Promptly after Thermo Electron receives notice that a beneficiary of a Parent Guarantee is seeking to enforce such Parent Guarantee, Thermo Electron shall notify the Majority Owned Subsidiary(s) obligated, either directly or indirectly through a wholly-owned subsidiary, under the relevant Underlying Obligation. Such Majority Owned Subsidiary(s) or wholly-owned subsidiary thereof, as applicable, shall have the right, at its own expense, to contest the claim of such beneficiary. If a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is contesting the claim of such beneficiary, Thermo Electron will not perform under the relevant Parent Guarantee unless and until, in Thermo Electron's reasonable judgment, Thermo Electron is obligated under the terms of such Parent Guarantee to perform. Subject to the foregoing, any dispute between a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, and a beneficiary of a Parent Guarantee shall not affect such Majority Owned Subsidiary's obligation to promptly indemnify Thermo Electron hereunder. Promptly after a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, receives notice that a beneficiary of a Credit Support Obligation is seeking to enforce such Credit Support Obligation, the Majority Owned Subsidiary shall notify Thermo Electron. Thermo Electron shall have the right, at its own expense, to contest the claim of such beneficiary. If Thermo Electron or the subsidiary of Thermo Electron on whose behalf the Credit Support Obligation is given is contesting the claim of such beneficiary, the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, will not perform under the relevant Credit Support Obligation unless and until, in the Majority Owned Subsidiary's reasonable judgment, the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is obligated under the terms of such Credit Support Obligation 5 to perform. Subject to the foregoing, any dispute between Thermo Electron or the subsidiary of Thermo Electron on whose behalf the Credit Support Obligation was given, on the one hand, and a beneficiary of a Credit Support Obligation, on the other, shall not affect Thermo Electron's obligation to promptly indemnify the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, hereunder. (d) If Thermo Electron makes a loan or provides other credit ("Credit Extension") to a Second Tier Majority Owned Subsidiary, the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned Subsidiary's obligations to Thermo Electron thereunder. Such guaranty shall be enforced only after Thermo Electron, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its obligations under the Credit Extension. If Thermo Electron provides Credit Extension to a wholly-owned subsidiary of a Second Tier Majority Owned Subsidiary, the Second Tier Majority Owned Subsidiary hereby guarantees it wholly-owned subsidiary's obligations to Thermo Electron thereunder and the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned Subsidiary's obligations to Thermo Electron hereunder. Such guaranty by the First Tier Majority Owned Subsidiary shall be enforced only after Thermo Electron, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its guaranty obligation hereunder. Notwithstanding the foregoing, in order for a Credit Extension to be deemed guaranteed by the First Tier Majority Owned Subsidiary as set forth above in this Section 3(d), Thermo Electron must have notified the First Tier Majority Owned Subsidiary prior to providing the Credit Extension to the Second Tier Majority Owned Subsidiary. If after five (5) business days, Thermo Electron has not received from the First Tier Majority Owned Subsidiary a notice of objection stating that the First Tier Majority Owned Subsidiary objects to Thermo Electron providing a Credit Extension to the Second Tier Majority Owned Subsidiary, then Thermo Electron may proceed to issue the Credit Extension to the Second Tier Majority Owned Subsidiary and the First Tier Majority Owned Subsidiary shall be deemed to have guaranteed such Credit Extension as set forth above in this Section 3(d). If Thermo Electron does receive such notice of objection, then Thermo Electron's Credit Extension shall not be deemed guaranteed by the First Tier Majority Owned Subsidiary as set forth in this Section 3(d). (e) All payments required to be made under this Section 3 by a Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall be made within two days after receipt of notice from Thermo Electron. All payments required to be made under this Section 3 by Thermo Electron shall be made within two days after receipt of notice from the Majority Owned Subsidiary. 4. Waivers. No delay or omission on the part of either party in exercising any right hereunder shall operate as a waiver of such right or of any other right of the party, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same or any other right on any future occasion. The Subsidiary hereby waives demand, notice of prepayment, protest and 6 all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of the Subsidiary's obligations hereunder. The Subsidiary hereby assents to any indulgence and any extension of time for payment of any indebtedness hereunder granted or permitted by the party. 5. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts made and performed therein without giving effect to any choice of law provision or rule that would cause the application of laws of any jurisdiction other than the Commonwealth of Massachusetts. 6. Severability. Each provision and agreement herein shall be treated as separate and independent from any other provision or agreement herein and shall be enforceable notwithstanding the unenforceability of any such other provision or agreement. 7. Non-assignability. The rights and obligations of the parties under this Agreement shall not be assigned by either party without the prior written consent of the other party. Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns. 8. Other Agreements. The parties agree that, effective as of the date hereof, each of the Master Repurchase Agreement, as amended and restated, between the Subsidiary and Thermo Electron and the Master Guarantee Reimbursement and Loan Agreement, as amended and restated, between the Subsidiary and Thermo Electron, is hereby terminated and is of no further force and effect. 7 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the date first above written. THERMO ELECTRON CORPORATION By: /s/ Theo Melas-Kyriazi --------------------------------- Title: Vice President & Chief Financial Officer THERMOLASE CORPORATION By: /s/ Gerald Feldman --------------------------------- Title: President and Chief Executive Officer 8 EX-10.2 3 THERMOLASE CORPORATION DIRECTORS STOCK OPTION PLAN As amended and restated effective as of June 25, 1999 1. Purpose The purpose of this Directors Stock Option Plan (the "Plan") of ThermoLase Corporation (the "Company") is to encourage ownership in the Company by outside directors of the Company whose services are considered essential to the Company's growth and progress and to provide them with a further incentive to become directors and to continue as directors of the Company. The Plan is intended to be a nonstatutory stock option plan. 2. Administration The Board of Directors, or a Committee (the "Committee") consisting of one or more directors of the Company appointed by the Board of Directors, shall supervise and administer the Plan. Grants of stock options under the Plan and the amount and nature of the options to be granted shall be automatic in accordance with Section 5. However, all questions of interpretation of the Plan or of any stock options granted under it shall be determined by the Board of Directors or the Committee and such determination shall be final and binding upon all persons having an interest in the Plan. 3. Participation in the Plan Directors of the Company who are not employees of the Company or any subsidiary or parent of the Company shall be eligible to participate in the Plan. Directors who receive grants of stock options in accordance with this Plan are sometimes referred to herein as "Optionees." 4. Stock Subject to the Plan The maximum number of shares that may be issued under the Plan shall be 400,000 shares of the Company's Common Stock (the "Common Stock"), subject to adjustment as provided in Section 9. Shares to be issued upon the exercise of options granted under the Plan may be either authorized but unissued shares or shares held by the Company in its treasury. If any option expires or terminates for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for options thereafter to be granted. 5. Terms and Conditions A. Annual Stock Option Grants Each Director of the Company who meets the requirements of Section 3 and who is holding office immediately following the Annual Meeting of Stockholders commencing with the Annual Meeting of Stockholders held in calendar year 1999, shall be granted an option to purchase 1,000 shares of Common Stock at the close of business on the date of such Annual Meeting. B. General Terms and Conditions Applicable to All Grants. 1. Options shall be immediately exercisable at any time from and after the grant date and prior to the date which is the earliest of: (a) three years after the grant date for options granted under Section 5(A), (b) two years after the Optionee ceases to serve as a director of the Company, Thermo Electron or any subsidiary of Thermo Electron (one year in the event the Optionee ceases to meet the requirements of this Subsection by reason of his or her death), or (c) the date of dissolution or liquidation of the Company. 2. The exercise price at which Options are granted hereunder shall be the average of the closing prices reported by the national securities exchange on which the Common Stock is principally traded for the five trading days immediately preceding and including the date the option is granted or, if such security is not traded on an exchange, the average last reported sale price for the five-day period on the NASDAQ National Market List, or the average of the closing bid prices for the five-day period last quoted by an established quotation service for over-the-counter securities, or if none of the above shall apply, the last price paid for shares of the Common Stock by independent investors in a private placement. 3. All options shall be evidenced by a written agreement substantially in such form as shall be approved by the Board of Directors or Committee, containing terms and conditions consistent with the provisions of this Plan. 6. Exercise of Options A. Exercise/Consideration An option may be exercised in accordance with its terms by written notice of intent to exercise the option, specifying the number of shares of stock with respect to which the option is then being exercised. The notice shall be accompanied by payment in the form of cash or shares of Common Stock of the Company (the shares so tendered referred to herein as "Tendered Shares") with a then current market value equal to the exercise price of the shares to be purchased; provided, however, that such Tendered Shares shall have been acquired by the Optionee more than six months prior to the date of exercise (unless such requirement is waived in writing by the Company). Against such payment the Company shall deliver or cause to be delivered to the Optionee a certificate for the number of shares then being purchased, registered in the name of the Optionee or other person exercising the option. If any law or applicable regulation of the Securities and Exchange Commission or other body having jurisdiction in the premises shall require the Company or the Director to take any action in connection with shares being purchased upon exercise of the option, exercise of the option and delivery of the certificate or certificates for such shares shall be postponed until completion of the necessary action, which shall be taken at the Company's expense. B. Tax Withholding The Company shall have the right to deduct from payments of any kind otherwise due to the Optionee any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options under the Plan. Subject to the prior approval of the Company, which may be withheld by the Company in its sole discretion, the Optionee may elect to satisfy such obligations, in whole or in part, (i) by causing the Company to withhold shares of Common Stock otherwise issuable pursuant to the exercise of an option or (ii) by delivering to the Company shares of Common Stock already owned by the Optionee. The shares so delivered or withheld shall have a fair market value equal to such withholding obligation. The fair market value of the shares used to satisfy such withholding obligation shall be determined by the Company as of the date that the amount of tax to be withheld is to be determined. Notwithstanding the foregoing, no election to use shares for the payment of withholding taxes shall be effective unless made in compliance with any applicable requirements of Rule 16b-3. 7. Transferability Except as may be authorized by the Board, in its sole discretion, no Option may be transferred other than by will or the laws of descent and distribution, and during an Optionee's lifetime an Option may be exercised only by him or her (or in the event of incapacity, the person or persons properly appointed to act on his or her behalf). The Board may, in its discretion, determine the extent to which Options granted to an Optionee shall be transferable, and such provisions permitting or acknowledging transfer shall be set forth in the written agreement evidencing the Option executed and delivered by or on behalf of the Company and the Optionee. 8. Limitation of Rights to Continue as a Director Neither the Plan, nor the quantity of shares subject to options granted under the Plan, nor any other action taken pursuant to the Plan, shall constitute or be evidence of any agreement or understanding, express or implied, that the Company will retain a Director for any period of time, or at any particular rate of compensation. 9. Adjustments in the Event of Certain Transactions (a) In the event of a stock dividend, stock split or combination of shares, or other distribution with respect to holders of Common Stock other than normal cash dividends, the Board will make (i) appropriate adjustments to the maximum number of shares that may be delivered under the Plan under Section 4 above, and (ii) appropriate adjustments to the number and kind of shares of stock or securities subject to Options then outstanding or subsequently granted, any exercise prices relating to Options and any other provisions of Options affected by such change. (b) In the event of any recapitalization, merger or consolidation involving the Company, any transaction in which the Company becomes a subsidiary of another entity, any sale or other disposition of all or a substantial portion of the assets of the Company or any similar transaction, as determined by the Board, the Board in its discretion may make appropriate adjustments to outstanding Options to avoid distortion in the operation of the Plan. 10. Limitation of Rights in Option Stock The Optionees shall have no rights as stockholders in respect of shares as to which their options shall not have been exercised, certificates issued and delivered and payment as herein provided made in full, and shall have no rights with respect to such shares not expressly conferred by this Plan or the written agreement evidencing options granted hereunder. 11. Stock Reserved The Company shall at all times during the term of the options reserve and keep available such number of shares of the Common Stock as will be sufficient to permit the exercise in full of all options granted under this Plan and shall pay all other fees and expenses necessarily incurred by the Company in connection therewith. 12. Securities Laws Restrictions A. Investment Representations. The Company may require any person to whom an option is granted, as a condition of exercising such option, to give written assurances in substance and form satisfactory to the Company to the effect that such person is acquiring the Common Stock subject to the option for his or her own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws. B. Compliance with Securities Laws. Each option shall be subject to the requirement that if, at any time, counsel to the Company shall determine that the listing, registration or qualification of the shares subject to such option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, or that the disclosure of non-public information or the satisfaction of any other condition is necessary as a condition of, or in connection with, the issuance or purchase of shares thereunder, such option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval, or satisfaction of such condition shall have been effected or obtained on conditions acceptable to the Board of Directors. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration or qualification, or to satisfy such condition. 13. Change in Control A. Impact of Event In the event of a "Change in Control" as defined in Section 13(A), the following provisions shall apply, unless the agreement evidencing the Award otherwise provides (by specific explicit reference to Section 13(B) below). If a Change in Control occurs while any Options are outstanding, then, effective upon the Change in Control, each outstanding Option under the Plan that was not previously exercisable and vested shall become immediately exercisable in full and will no longer be subject to a right of repurchase by the Company. B. Definition of "Change in Control" "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership of any capital stock of Thermo Electron Corporation ("Thermo Electron") if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 40% or more of either (i) the then-outstanding shares of common stock of Thermo Electron (the "Outstanding TMO Common Stock") or (ii) the combined voting power of the then-outstanding securities of Thermo Electron entitled to vote generally in the election of directors (the "Outstanding TMO Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition by Thermo Electron, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Thermo Electron or any corporation controlled by Thermo Electron, or (iii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this definition; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board of Directors of Thermo Electron (the "Thermo Board") (or, if applicable, the Board of Directors of a successor corporation to Thermo Electron), where the term "Continuing Director" means at any date a member of the Thermo Board (i) who was a member of the Thermo Board as of July 1, 1999 or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Thermo Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Thermo Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving Thermo Electron or a sale or other disposition of all or substantially all of the assets of Thermo Electron in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding TMO Common Stock and Outstanding TMO Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns Thermo Electron or substantially all of Thermo Electron's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding TMO Common Stock and Outstanding TMO Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by Thermo Electron or by the Acquiring Corporation) beneficially owns, directly or indirectly, 40% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors; or (d) approval by the stockholders of Thermo Electron of a complete liquidation or dissolution of Thermo Electron. 14. Amendment of the Plan The provisions of Sections 3 and 5 of the Plan shall not be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, or the rules thereunder. Subject to the foregoing, the Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect, except that if at any time the approval of the Stockholders of the Company is required as to such modification or amendment under Rule 16b-3, the Board of Directors may not effect such modification or amendment without such approval. The termination or any modification or amendment of the Plan shall not, without the consent of an Optionee, affect his or her rights under an option previously granted to him or her. With the consent of the Optionees affected, the Board of Directors may amend outstanding option agreements in a manner not inconsistent with the Plan. The Board of Directors shall have the right to amend or modify the terms and provisions of the Plan and of any outstanding option to the extent necessary to ensure the qualification of the Plan under Rule 16b-3. 15. Effective Date of the Plan The Plan shall become effective when adopted by the Board of Directors, but no option granted under the Plan shall become exercisable until six months after the Plan is approved by the Stockholders of the Company. 16. Notice Any written notice to the Company required by any of the provisions of the Plan shall be addressed to the Secretary of the Company and shall become effective when it is received. 17. Governing Law The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware. EX-10.3 4 THERMOLASE CORPORATION DEFERRED COMPENSATION PLAN FOR DIRECTORS As amended and restated as of June 25, 1999 Section 1. Participation. Any director of ThermoLase Corporation (the "Company") may elect to have such percentage as he or she may specify of the fees otherwise payable to him or her deferred and paid to him or her as provided in this Plan. A director who is also an employee of the Company or any subsidiary or parent of the Company, shall not be eligible to participate in this Plan. Each election shall be made by notice in writing delivered to the Secretary of the Company, in such form as the Secretary shall designate, and each election shall be applicable only with respect to fees earned subsequent to the date of the election for the period designated in the form. The term "participant" as used herein refers to any director who shall have made an election. No participant may defer the receipt of any fees to be earned after the later to occur of either (a) the date on which the participant shall retire from or otherwise cease to engage in his or her principal occupation or employment or (b) the date on which he or she shall cease to be a director of the Company, or such earlier date as the Board of Directors of the Company, with the participant's consent, may designate (the "deferral termination date"). In the event that the participant's deferral termination date is the date on which he or she ceases to engage in his or her principal occupation or employment, the participant or a personal representative shall advise the Company of that date by written notice delivered to the Secretary of the Company. Section 2. Establishment of Deferred Compensation Accounts. There shall be established for each participant an account to be designated as that participant's deferred compensation account. Section 3. Allocations to Deferred Compensation Accounts. There shall be allocated to each participant's deferred compensation account, as of the end of each quarter, an amount equal to his or her fees for that quarter which that participant shall have elected to have deferred pursuant to Section 1. Section 4. Stock Units and Stock Unit Accounts. All amounts allocated to a participant's deferred compensation account pursuant to Section 3 and Section 5 shall be converted, at the end of each quarter, into stock units by dividing the accumulated balance in the deferred compensation account as of the end of that quarter by the average last sale price per share of the Company's common stock as reported in The Wall Street Journal, for the five business days up to and including the last business day of that quarter. The number of stock units, so determined, rounded to the nearest one-hundredth of a share, shall be credited to a separate stock unit account to be established for the participant, and the aggregate value thereof as of the last business day of that quarter shall be charged to the participant's deferred compensation account. No amounts credited to the participant's deferred compensation account pursuant to Section 5 subsequent to the close of the fiscal year in which occurs the participant's deferral termination date shall be converted into stock units. Any such amount shall be distributed in cash as provided in Section 8. A maximum number of 100,000 shares of the Company's common stock may be represented by stock units credited under this Plan, subject to proportionate adjustment in the event of any stock dividend, stock split or other capital change affecting the Company's common stock. Section 5. Cash Dividend Credits. Additional credits shall be made to a participant's deferred compensation account, until all distributions shall have been made from the participant's stock unit account, in amounts equal to the cash dividends (or the fair market value of dividends paid in property other than dividends payable in common stock of the Company) which the participant would have received from time to time had he or she been the owner on the record dates for the payment of such dividends of the number of shares of the Company's common stock equal to the number of units in his or her stock unit account on those dates. Section 6. Stock Dividend Credits. Additional credits shall be made to a participant's stock unit account, until all distributions shall have been made from the participant's stock unit account, of a number of units equal to the number of shares of the Company's common stock, rounded to the nearest one-hundredth share, which the participant would have received from time to time as stock dividends had he or she been the owner on the record dates for the payments of such stock dividends of the number of units of the Company's common stock equal to the number of units credited to his or her stock unit account on those dates. Section 7. Adjustments in the Event of Certain Transactions. In the event of a stock dividend, stock split or combination of shares, or other distribution with respect to holders of Common Stock other than normal cash dividends, the number of units then credited to a partipant's stock unit account shall be appropriately adjusted on the same basis. In the event of any recapitalization, merger or consolidation involving the Company, any transaction in which the Company becomes a subsidiary of another entity, any sale or other disposition of all or a substantial portion of the assets of the Company or any similar transaction, as determined by the Board, the Board in its discretion may terminate the Plan pursuant to Section 11. Section 8. Distribution of Stock and Cash After Participant's Deferral Termination Date. When a participant's deferral termination date shall occur, the Company shall become obligated to make the distributions prescribed in the following paragraphs (a) and (b). (a) The Company shall distribute to the participant the number of shares of the common stock of the Company which shall equal the total number of units accumulated in his or her stock unit account as of the close of the fiscal year in which the participant's deferral termination date occurs. Such distribution of stock shall be made in ten annual installments, unless, at least six months prior to his or her deferral termination date, the participant shall have elected, by notice in writing filed with the Secretary of the Company, to have such distribution made in five annual installments. In either such case, the installments shall be of as nearly equal number of shares as practicable, adjusted to reflect any changes pursuant to Sections 6 and 7 in the number of units remaining in the participant's stock unit account. The first such installment shall be distributed within 60 days after the close of the fiscal year in which the participant's deferral termination date occurs. The remaining installments shall be distributed at annual intervals thereafter. Anything herein to the contrary notwithstanding, the Company shall have the option, if its Board of Directors shall by resolution so determine, in lieu of making distribution in ten or five annual installments as set forth above, with the participant's consent, to distribute stock or any remaining installments thereof in a single distribution at any time following the close of the fiscal year in which the participant's deferral termination date occurs. Distribution of stock made hereunder may be made from shares of common stock held in the treasury and/or from shares of authorized but previously unissued shares of common stock. (b) The Company shall distribute to the participant sums in cash equal to the balance credited to his or her deferred compensation account as of the close of the fiscal year in which his or her deferral termination date occurs plus such additional amounts as shall be credited thereto from time to time thereafter pursuant to Section 5. The cash distribution shall be made on the same dates as the annual distributions made pursuant to paragraph (a) above, and each cash distribution shall consist of the entire balance credited to the participant's deferred compensation account at the time of the annual distribution. If a participant's deferral termination date shall occur by reason of his or her death or if he or she shall die after his or her deferral termination date but prior to receipt of all distributions of stock and cash provided for in this Section 8, all stock and cash remaining distributable hereunder shall be distributed to such beneficiary as the participant shall have designated in writing and filed with the Secretary of the Company or, in the absence of designation, to the participant's personal representative. Such distributions shall be made in the same manner and at the same intervals as they would have been made to the participant had he or she continued to live. Section 9. Participant's Rights Unsecured. The right of any participant to receive distributions under Section 8 shall be an unsecured claim against the general assets of the Company. The Company may but shall not be obligated to acquire shares of its outstanding common stock from time to time in anticipation of its obligation to make such distributions, but no participant shall have any rights in or against any shares of stock so acquired by the Company. All such stock shall constitute general assets of the Company and may be disposed of by the Company at such time and for such purposes as it may deem appropriate. 10. Change in Control 10.1 Impact of Event In the event of a "Change in Control" as defined in Section 10.2, the Plan shall terminate and full distribution shall be made from all participants' deferred compensation accounts and stock unit accounts effective upon the Change of Control. 10.2 Definition of "Change in Control" "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership of any capital stock of Thermo Electron Corporation ("Thermo Electron") if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 40% or more of either (i) the then-outstanding shares of common stock of Thermo Electron (the "Outstanding TMO Common Stock") or (ii) the combined voting power of the then-outstanding securities of Thermo Electron entitled to vote generally in the election of directors (the "Outstanding TMO Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition by Thermo Electron, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Thermo Electron or any corporation controlled by Thermo Electron, or (iii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this definition; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board of Directors of Thermo Electron (the "Thermo Board") (or, if applicable, the Board of Directors of a successor corporation to Thermo Electron), where the term "Continuing Director" means at any date a member of the Thermo Board (i) who was a member of the Thermo Board as of July 1, 1999 or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Thermo Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Thermo Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving Thermo Electron or a sale or other disposition of all or substantially all of the assets of Thermo Electron in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding TMO Common Stock and Outstanding TMO Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns Thermo Electron or substantially all of Thermo Electron's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding TMO Common Stock and Outstanding TMO Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by Thermo Electron or by the Acquiring Corporation) beneficially owns, directly or indirectly, 40% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors; or (d) approval by the stockholders of Thermo Electron of a complete liquidation or dissolution of Thermo Electron. Section 11. Amendment and Termination of the Plan. The Board of Directors of the Company may amend or terminate the Plan at any time and from time to time, provided, however, that no amendment adversely affecting credits already made to any participant's deferred compensation account or stock unit account may be made without the consent of that participant or, if that participant has died, that participant's beneficiary. Upon termination of the Plan, the Company shall be obligated to distribute to the participant either of the following as the Board of Directors of the Company, in its sole discretion, may determine: (i) the number of shares of the common stock of the Company which shall equal the total number of units accumulated in the participant's stock unit account as of the effective date of termination of the Plan or (ii) a sum in cash equal to the balance credited to the participant's deferred compensation account as of the effective date of termination of the Plan. EX-10.4 5 THERMOLASE CORPORATION EQUITY INCENTIVE PLAN As amended and restated effective as of June 25, 1999 1. Purpose The purpose of this Equity Incentive Plan (the "Plan") is to secure for ThermoLase Corporation (the "Company") and its Stockholders the benefits arising from capital stock ownership by employees and Directors of, and consultants to, the Company and its subsidiaries or other persons who are expected to make significant contributions to the future growth and success of the Company and its subsidiaries. The Plan is intended to accomplish these goals by enabling the Company to offer such persons equity-based interests, equity-based incentives or performance-based stock incentives in the Company, or any combination thereof ("Awards"). 2. Administration The Plan will be administered by the Board of Directors of the Company (the "Board"). The Board shall have full power to interpret and administer the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan and Awards, and full authority to select the persons to whom Awards will be granted ("Participants"), determine the type and amount of Awards to be granted to Participants (including any combination of Awards), determine the terms and conditions of Awards granted under the Plan (including terms and conditions relating to events of merger, consolidation, dissolution and liquidation, change of control, vesting, forfeiture, restrictions, dividends and interest, if any, on deferred amounts), waive compliance by a participant with any obligation to be performed by him or her under an Award, waive any term or condition of an Award, cancel an existing Award in whole or in part with the consent of a Participant, grant replacement Awards, accelerate the vesting or lapse of any restrictions of any Award and adopt the form of instruments evidencing Awards under the Plan and change such forms from time to time. Any interpretation by the Board of the terms and provisions of the Plan or any Award thereunder and the administration thereof, and all action taken by the Board, shall be final, binding and conclusive on all parties and any person claiming under or through any party. No Director shall be liable for any action or determination made in good faith. The Board may, to the full extent permitted by law, delegate any or all of its responsibilities under the Plan to a committee (the "Committee") appointed by the Board and consisting of two or more members of the Board, each of whom shall be deemed a "disinterested person" within the meaning of Rule 16b-3 (or any successor rule) of the Securities Exchange Act of 1934 (the "Exchange Act"). 3. Effective Date The Plan shall be effective as of the date first approved by the Board of Directors, subject to the approval of the Plan by the Corporation's Stockholders. Grants of Awards under the Plan made prior to such approval shall be effective when made (unless otherwise specified by the Board at the time of grant), but shall be conditioned on and subject to such approval of the Plan. 4. Shares Subject to the Plan Subject to adjustment as provided in Section 10.6, the total number of shares of Common Stock reserved and available for distribution under the Plan shall be 1,000,000 shares. Such shares may consist, in whole or in part, of authorized and unissued shares or treasury shares. If any Award of shares of Common Stock requiring exercise by the Participant for delivery of such shares terminates without having been exercised in full, is forfeited or is otherwise terminated without a payment being made to the Participant in the form of Common Stock, or if any shares of Common Stock subject to restrictions are repurchased by the Company pursuant to the terms of any Award or are otherwise reacquired by the Company to satisfy obligations arising by virtue of any Award, such shares shall be available for distribution in connection with future Awards under the Plan. 5. Eligibility Employees and Directors of, and consultants to, the Company and its subsidiaries, or other persons who are expected to make significant contributions to the future growth and success of the Company and its subsidiaries shall be eligible to receive Awards under the Plan. The Board, or other appropriate committee or person to the extent permitted pursuant to the last sentence of Section 2, shall from time to time select from among such eligible persons those who will receive Awards under the Plan. 6. Types of Awards The Board may offer Awards under the Plan in any form of equity-based interest, equity-based incentive or performance-based stock incentive in Common Stock of the Company or any combination thereof. The type, terms and conditions and restrictions of an Award shall be determined by the Board at the time such Award is made to a Participant; provided however that the maximum number of shares permitted to be granted under any Award or combination of Awards to any Participant during any one calendar year may not exceed 500,000 shares of Common Stock. An Award shall be made at the time specified by the Board and shall be subject to such conditions or restrictions as may be imposed by the Board and shall conform to the general rules applicable under the Plan as well as any special rules then applicable under federal tax laws or regulations or the federal securities laws relating to the type of Award granted. Without limiting the foregoing, Awards may take the following forms and shall be subject to the following rules and conditions: 6.1 Options An option is an Award that entitles the holder on exercise thereof to purchase Common Stock at a specified exercise price. Options granted under the Plan may be either incentive stock options ("incentive stock options") that meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or options that are not intended to meet the requirements of Section 422 ("non-statutory options"). 6.1.1 Option Price. The price at which Common Stock may be purchased upon exercise of an option shall be determined by the Board, provided however, the exercise price shall not be less than the par value per share of Common Stock. 6.1.2 Option Grants. The granting of an option shall take place at the time specified by the Board. Options shall be evidenced by option agreements. Such agreements shall conform to the requirements of the Plan, and may contain such other provisions (including but not limited to vesting and forfeiture provisions, acceleration, change of control, protection in the event of merger, consolidations, dissolutions and liquidations) as the Board shall deem advisable. Option agreements shall expressly state whether an option grant is intended to qualify as an incentive stock option or non-statutory option. 6.1.3 Option Period. An option will become exercisable at such time or times (which may be immediately or in such installments as the Board shall determine) and on such terms and conditions as the Board shall specify. The option agreements shall specify the terms and conditions applicable in the event of an option holder's termination of employment during the option's term. Any exercise of an option must be in writing, signed by the proper person and delivered or mailed to the Company, accompanied by (1) any additional documents required by the Board and (2) payment in full in accordance with Section 6.1.4 for the number of shares for which the option is exercised. 6.1.4 Payment of Exercise Price. Stock purchased on exercise of an option shall be paid for as follows: (1) in cash or by check (subject to such guidelines as the Company may establish for this purpose), bank draft or money order payable to the order of the Company or (2) if so permitted by the instrument evidencing the option (or in the case of a non-statutory option, by the Board at or after grant of the option), (i) through the delivery of shares of Common Stock that have been outstanding for at least six months (unless the Board expressly approves a shorter period) and that have a fair market value (determined in accordance with procedures prescribed by the Board) equal to the exercise price, (ii) by delivery of a promissory note of the option holder to the Company, payable on such terms as are specified by the Board, (iii) by delivery of an unconditional and irrevocable undertaking by a broker to deliver promptly to the Company sufficient funds to pay the exercise price, or (iv) by any combination of the permissible forms of payment. 6.1.5 Buyout Provision. The Board may at any time offer to buy out for a payment in cash, shares of Common Stock, deferred stock or restricted stock, an option previously granted, based on such terms and conditions as the Board shall establish and communicate to the option holder at the time that such offer is made. 6.1.6 Special Rules for Incentive Stock Options. Each provision of the Plan and each option agreement evidencing an incentive stock option shall be construed so that each incentive stock option shall be an incentive stock option as defined in Section 422 of the Code or any statutory provision that may replace such Section, and any provisions thereof that cannot be so construed shall be disregarded. Instruments evidencing incentive stock options must contain such provisions as are required under applicable provisions of the Code. Incentive stock options may be granted only to employees of the Company and its subsidiaries. The exercise price of an incentive stock option shall not be less than 100% (110% in the case of an incentive stock option granted to a more than ten percent Stockholder of the Company) of the fair market value of the Common Stock on the date of grant, as determined by the Board. An incentive stock option may not be granted after the tenth anniversary of the date on which the Plan was adopted by the Board and the latest date on which an incentive stock option may be exercised shall be the tenth anniversary (fifth anniversary, in the case of any incentive stock option granted to a more than ten percent Stockholder of the Company) of the date of grant, as determined by the Board. 6.2 Restricted and Unrestricted Stock An Award of restricted stock entitles the recipient thereof to acquire shares of Common Stock upon payment of the purchase price subject to restrictions specified in the instrument evidencing the Award. 6.2.1 Restricted Stock Awards. Awards of restricted stock shall be evidenced by restricted stock agreements. Such agreements shall conform to the requirements of the Plan, and may contain such other provisions (including restriction and forfeiture provisions, change of control, protection in the event of mergers, consolidations, dissolutions and liquidations) as the Board shall deem advisable. 6.2.2 Restrictions. Until the restrictions specified in a restricted stock agreement shall lapse, restricted stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of, and upon certain conditions specified in the restricted stock agreement, must be resold to the Company for the price, if any, specified in such agreement. The restrictions shall lapse at such time or times, and on such conditions, as the Board may specify. The Board may at any time accelerate the time at which the restrictions on all or any part of the shares shall lapse. 6.2.3 Rights as a Stockholder. A Participant who acquires shares of restricted stock will have all of the rights of a Stockholder with respect to such shares including the right to receive dividends and to vote such shares. Unless the Board otherwise determines, certificates evidencing shares of restricted stock will remain in the possession of the Company until such shares are free of all restrictions under the Plan. 6.2.4 Purchase Price. The purchase price of shares of restricted stock shall be determined by the Board, in its sole discretion, but such price may not be less than the par value of such shares. 6.2.5 Other Awards Settled With Restricted Stock. The Board may provide that any or all the Common Stock delivered pursuant to an Award will be restricted stock. 6.2.6 Unrestricted Stock. The Board may, in its sole discretion, sell to any Participant shares of Common Stock free of restrictions under the Plan for a price determined by the Board, but which may not be less than the par value per share of the Common Stock. 6.3 Deferred Stock 6.3.1 Deferred Stock Award. A deferred stock Award entitles the recipient to receive shares of deferred stock, which is Common Stock to be delivered in the future. Delivery of the Common Stock will take place at such time or times, and on such conditions, as the Board may specify. The Board may at any time accelerate the time at which delivery of all or any part of the Common Stock will take place. 6.3.2 Other Awards Settled with Deferred Stock. The Board may, at the time any Award described in this Section 6 is granted, provide that, at the time Common Stock would otherwise be delivered pursuant to the Award, the Participant will instead receive an instrument evidencing the right to future delivery of deferred stock. 6.4 Performance Awards 6.4.1 Performance Awards. A performance Award entitles the recipient to receive, without payment, an amount, in cash or Common Stock or a combination thereof (such form to be determined by the Board), following the attainment of performance goals. Performance goals may be related to personal performance, corporate performance, departmental performance or any other category of performance deemed by the Board to be important to the success of the Company. The Board will determine the performance goals, the period or periods during which performance is to be measured and all other terms and conditions applicable to the Award. 6.4.2 Other Awards Subject to Performance Conditions. The Board may, at the time any Award described in this Section 6 is granted, impose the condition (in addition to any conditions specified or authorized in this Section 6 of the Plan) that performance goals be met prior to the Participant's realization of any payment or benefit under the Award. 7. Purchase Price and Payment Except as otherwise provided in the Plan, the purchase price of Common Stock to be acquired pursuant to an Award shall be the price determined by the Board, provided that such price shall not be less than the par value of the Common Stock. Except as otherwise provided in the Plan, the Board may determine the method of payment of the exercise price or purchase price of an Award granted under the Plan and the form of payment. The Board may determine that all or any part of the purchase price of Common Stock pursuant to an Award has been satisfied by past services rendered by the Participant. The Board may agree at any time, upon request of the Participant, to defer the date on which any payment under an Award will be made. 8. Loans and Supplemental Grants The Company may make a loan to a Participant, either on or after the grant to the Participant of any Award, in connection with the purchase of Common Stock under the Award or with the payment of any obligation incurred or recognized as a result of the Award. The Board will have full authority to decide whether the loan is to be secured or unsecured or with or without recourse against the borrower, the terms on which the loan is to be repaid and the conditions, if any, under which it may be forgiven. In connection with any Award, the Board may at the time such Award is made or at a later date, provide for and make a cash payment to the participant not to exceed an amount equal to (a) the amount of any federal, state and local income tax or ordinary income for which the Participant will be liable with respect to the Award, plus (b) an additional amount on a grossed-up basis necessary to make him or her whole after tax, discharging all the participant's income tax liabilities arising from all payments under the Plan. 9. Change in Control 9.1 Impact of Event In the event of a "Change in Control" as defined in Section 9.2, the following provisions shall apply, unless the agreement evidencing the Award otherwise provides (by specific explicit reference to Section 9.2 below). If a Change in Control occurs while any Awards are outstanding, then, effective upon the Change in Control, (i) each outstanding stock option or other stock-based Award awarded under the Plan that was not previously exercisable and vested shall become immediately exercisable in full and will no longer be subject to a right of repurchase by the Company, (ii) each outstanding restricted stock award or other stock-based Award subject to restrictions and to the extent not fully vested, shall be deemed to be fully vested, free of restrictions and no longer subject to a right of repurchase by the Company, and (iii) deferral limitations and conditions that relate solely to the passage of time, continued employment or affiliation will be waived and removed as to deferred stock Awards and performance Awards; performance of other conditions (other than conditions relating solely to the passage of time, continued employment or affiliation) will continue to apply unless otherwise provided in the agreement evidencing the Award or in any other agreement between the Participant and the Company or unless otherwise agreed by the Board. 9.2 Definition of "Change in Control" "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership of any capital stock of Thermo Electron Corporation ("Thermo Electron") if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 40% or more of either (i) the then-outstanding shares of common stock of Thermo Electron (the "Outstanding TMO Common Stock") or (ii) the combined voting power of the then-outstanding securities of Thermo Electron entitled to vote generally in the election of directors (the "Outstanding TMO Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition by Thermo Electron, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Thermo Electron or any corporation controlled by Thermo Electron, or (iii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this definition; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board of Directors of Thermo Electron (the "Thermo Board") (or, if applicable, the Board of Directors of a successor corporation to Thermo Electron), where the term "Continuing Director" means at any date a member of the Thermo Board (i) who was a member of the Thermo Board as of July 1, 1999 or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Thermo Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Thermo Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving Thermo Electron or a sale or other disposition of all or substantially all of the assets of Thermo Electron in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding TMO Common Stock and Outstanding TMO Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns Thermo Electron or substantially all of Thermo Electron's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding TMO Common Stock and Outstanding TMO Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by Thermo Electron or by the Acquiring Corporation) beneficially owns, directly or indirectly, 40% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors; or (d) approval by the stockholders of Thermo Electron of a complete liquidation or dissolution of Thermo Electron. 10. General Provisions 10.1 Documentation of Awards Awards will be evidenced by written instruments, which may differ among Participants, prescribed by the Board from time to time. Such instruments may be in the form of agreements to be executed by both the Participant and the Company or certificates, letters or similar instruments which need not be executed by the participant but acceptance of which will evidence agreement to the terms thereof. Such instruments shall conform to the requirements of the Plan and may contain such other provisions (including provisions relating to events of merger, consolidation, dissolution and liquidations, change of control and restrictions affecting either the agreement or the Common Stock issued thereunder), as the Board deems advisable. 10.2 Rights as a Stockholder Except as specifically provided by the Plan or the instrument evidencing the Award, the receipt of an Award will not give a Participant rights as a Stockholder with respect to any shares covered by an Award until the date of issue of a stock certificate to the participant for such shares. 10.3 Conditions on Delivery of Stock The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove any restriction from shares previously delivered under the Plan (a) until all conditions of the Award have been satisfied or removed, (b) until, in the opinion of the Company's counsel, all applicable federal and state laws and regulations have been complied with, (c) if the outstanding Common Stock is at the time listed on any stock exchange, until the shares have been listed or authorized to be listed on such exchange upon official notice of issuance, and (d) until all other legal matters in connection with the issuance and delivery of such shares have been approved by the Company's counsel. If the sale of Common Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such act and may require that the certificates evidencing such Common Stock bear an appropriate legend restricting transfer. If an Award is exercised by the participant's legal representative, the Company will be under no obligation to deliver Common Stock pursuant to such exercise until the Company is satisfied as to the authority of such representative. 10.4 Tax Withholding The Company will withhold from any cash payment made pursuant to an Award an amount sufficient to satisfy all federal, state and local withholding tax requirements (the "withholding requirements"). In the case of an Award pursuant to which Common Stock may be delivered, the Board will have the right to require that the participant or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Board with regard to such requirements, prior to the delivery of any Common Stock. If and to the extent that such withholding is required, the Board may permit the participant or such other person to elect at such time and in such manner as the Board provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Common Stock having a value calculated to satisfy the withholding requirement. 10.5 Transferability of Awards Except as may be authorized by the Board, in its sole discretion, no Award (other than an Award in the form of an outright transfer of cash or Common Stock not subject to any restrictions) may be transferred other than by will or the laws of descent and distribution, and during a Participant's lifetime an Award requiring exercise may be exercised only by him or her (or in the event of incapacity, the person or persons properly appointed to act on his or her behalf). The Board may, in its discretion, determine the extent to which Awards granted to a Participant shall be transferable, and such provisions permitting or acknowledging transfer shall be set forth in the written agreement evidencing the Award executed and delivered by or on behalf of the Company and the Participant. 10.6 Adjustments in the Event of Certain Transactions (a) In the event of a stock dividend, stock split or combination of shares, or other distribution with respect to holders of Common Stock other than normal cash dividends, the Board will make (i) appropriate adjustments to the maximum number of shares that may be delivered under the Plan under Section 4 above, and (ii) appropriate adjustments to the number and kind of shares of stock or securities subject to Awards then outstanding or subsequently granted, any exercise prices relating to Awards and any other provisions of Awards affected by such change. (b) In the event of any recapitalization, merger or consolidation involving the Company, any transaction in which the Company becomes a subsidiary of another entity, any sale or other disposition of all or a substantial portion of the assets of the Company or any similar transaction, as determined by the Board, the Board in its discretion may make appropriate adjustments to outstanding Awards to avoid distortion in the operation of the Plan. 10.7 Employment Rights Neither the adoption of the Plan nor the grant of Awards will confer upon any person any right to continued employment with the Company or any subsidiary or interfere in any way with the right of the Company or subsidiary to terminate any employment relationship at any time or to increase or decrease the compensation of such person. Except as specifically provided by the Board in any particular case, the loss of existing or potential profit in Awards granted under the Plan will not constitute an element of damages in the event of termination of an employment relationship even if the termination is in violation of an obligation of the Company to the employee. Whether an authorized leave of absence, or absence in military or government service, shall constitute termination of employment shall be determined by the Board at the time. For purposes of this Plan, transfer of employment between the Company and its subsidiaries shall not be deemed termination of employment. 10.8 Other Employee Benefits The value of an Award granted to a Participant who is an employee, and the amount of any compensation deemed to be received by an employee as a result of any exercise or purchase of Common Stock pursuant to an Award or sale of shares received under the Plan, will not constitute "earnings" or "compensation" with respect to which any other employee benefits of such employee are determined, including without limitation benefits under any pension, stock ownership, stock purchase, life insurance, medical, health, disability or salary continuation plan. 10.9 Legal Holidays If any day on or before which action under the Plan must be taken falls on a Saturday, Sunday or legal holiday, such action may be taken on the next succeeding day not a Saturday, Sunday or legal holiday. 10.10 Foreign Nationals Without amending the Plan, Awards may be granted to persons who are foreign nationals or employed outside the United States or both, on such terms and conditions different from those specified in the Plan, as may, in the judgment of the Board, be necessary or desirable to further the purpose of the Plan. 11. Termination and Amendment The Plan shall remain in full force and effect until terminated by the Board. Subject to the last sentence of this Section 11, the Board may at any time or times amend the Plan or any outstanding Award for any purpose that may at the time be permitted by law, or may at any time terminate the Plan as to any further grants of Awards. No amendment of the Plan or any agreement evidencing Awards under the Plan may adversely affect the rights of any participant under any Award previously granted without such participant's consent. EX-10.5 6 THERMOLASE CORPORATION NONQUALIFIED STOCK OPTION PLAN As amended and restated effective as of June 25, 1999 1. Purpose This Nonqualified Stock Option Plan (the "Plan") is intended to encourage ownership of Common Stock (the "Common Stock"), of ThermoLase Corporation ("Company"), by persons selected by the Board of Directors (or a committee thereof) in its sole discretion, including directors, executive officers, key employees and consultants of the Company and its subsidiaries, and to provide additional incentive for them to promote the success of the business of the Company. The Plan is intended to be a nonstatutory stock option plan. 2. Effective Date of the Plan The Plan shall become effective when adopted by the Board of Directors of the Company. 3. Stock Subject to Plan Subject to adjustment as provided in Section 11, the total number of shares of Common Stock reserved and available for issuance under the Plan and the Company's Incentive Stock Option Plan in the aggregate shall be 2,800,000 shares. Shares to be issued upon the exercise of options granted under the Plan may be either authorized but unissued shares or shares held by the Company in its treasury. If any option expires or terminates for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for options thereafter to be granted. 4. Administration The Plan will be administered by the Board of Directors of the Company (the "Board"). Subject to the provisions of the Plan, the Board shall have complete authority, in its discretion, to make the following determinations with respect to each option to be granted by the Company: (a) the person to receive the option (the "Optionee"); (b) the time of granting the option; (c) the number of shares subject thereto; (d) the option price; (e) the option period; (f) the terms and conditions of options granted under the Plan (including terms and conditions relating to events of merger, consolidation, dissolution and liquidation, change of control, vesting, forfeiture, restrictions, dividends and interest, if any, on deferred amounts); (g) waive compliance by an optionee with any obligation to be performed by him or her under an option; (h) waive any term or condition of an option; (i) cancel an existing option in whole or in part with the consent of an Optionee; (j) grant replacement options; (k) accelerate the vesting or lapse of any restrictions of any option; and (l) adopt the form of instruments evidencing options under the Plan and change such forms from time to time. In making such determinations, the Board may take into account the nature of the services rendered by the Optionees, their present and potential contributions to the success of the Company and/or one or more of its subsidiaries, and such other factors as the Board in its discretion shall deem relevant. Subject to the provisions of the Plan, the Board shall also have complete authority to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to it, to determine the terms and provisions of the respective option agreements (which need not be identical), and to make all other determinations necessary or advisable for the administration of the Plan. Any interpretation by the Board of the terms and provisions of the Plan or any Award thereunder and the administration thereof, and all action taken by the Board, shall be final, binding and conclusive on all parties and any person claiming under or through any party. No Director shall be liable for any action or determination made in good faith. The Board may, to the full extent permitted by law, delegate any or all of its responsibilities under the Plan to a committee (the "Committee") appointed by the Board and consisting of two or more members of the Board, each of whom shall be deemed a "disinterested person" within the meaning of Rule 16b-3 (or any successor rule) of the Securities Exchange Act of 1934 (the "Exchange Act"). 5. Eligibility An option may be granted to any person selected by the Board in its sole discretion. 6. Time of Granting Options The granting of an option shall take place at the time specified by the Board. Only if expressly so provided by the Board shall the granting of an option be regarded as taking place at the time when a written option agreement shall have been duly executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. The agreement shall provide, among other things, that it does not confer upon an Optionee any right to continue in the employ of the Company and/or one or more of its subsidiaries or to continue as a director or consultant of the Company, and that it does not interfere in any way with the right of the Company or any such subsidiary to terminate the employment of the Optionee at any time if the Optionee is an employee, to remove the Optionee as a director of the Company if the Optionee is a director, or to terminate the services of the Optionee if the Optionee is a consultant. 7. Option Period An option may become exercisable immediately or in such installments, cumulative or noncumulative, as the Board may determine. 8. Exercise of Option An option may be exercised in accordance with its terms by written notice of intent to exercise the option, specifying the number of shares of stock with respect to which the option is then being exercised. The notice shall be accompanied by payment in the form of cash or shares of Common Stock (the "Tendered Shares") with a then current market value equal to the option price of the shares to be purchased; provided, however, that such Tendered Shares shall have been acquired by the Optionee more than six months prior to the date of exercise, unless such requirement is waived in writing by the Company. Against such payment the Company shall deliver or cause to be delivered to the Optionee a certificate for the number of shares then being purchased, registered in the name of the Optionee or other person exercising the option. If any law or applicable regulation of the Securities and Exchange Commission or other body having jurisdiction in the premises shall require the Company or the Optionee to take any action in connection with shares being purchased upon exercise of the option, exercise of the option and delivery of the certificate or certificates for such shares shall be postponed until completion of the necessary action, which shall be taken at the Company's expense. 9. Transferability Except as may be authorized by the Board, in its sole discretion, no Option may be transferred other than by will or the laws of descent and distribution, and during a Optionee's lifetime an option requiring exercise may be exercised only by him or her (or in the event of incapacity, the person or persons properly appointed to act on his or her behalf). The Board may, in its discretion, determine the extent to which options granted to an Optionee shall be transferable, and such provisions permitting or acknowledging transfer shall be set forth in the written agreement evidencing the option executed and delivered by or on behalf of the Company and the Optionee. 10. Vesting, Restrictions and Termination of Options The Board, in its sole discretion, may determine the manner in which options shall vest, the rights of the Company to repurchase the shares issued upon the exercise of any option and the manner in which such rights shall lapse, and the terms upon which any option granted shall terminate. The Board shall have the right to accelerate the date of exercise of any installment or to accelerate the lapse of the Company's repurchase rights. All of such terms shall be specified in a written option agreement executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. 11. Adjustments in the Event of Certain Transactions (a) In the event of a stock dividend, stock split or combination of shares, or other distribution with respect to holders of Common Stock other than normal cash dividends, the Board will make (i) appropriate adjustments to the maximum number of shares that may be delivered under the Plan under Section 3 above, and (ii) appropriate adjustments to the number and kind of shares of stock or securities subject to Options then outstanding or subsequently granted, any exercise prices relating to Options and any other provisions of Awards affected by such change. (b) In the event of any recapitalization, merger or consolidation involving the Company, any transaction in which the Company becomes a subsidiary of another entity, any sale or other disposition of all or a substantial portion of the assets of the Company or any similar transaction, as determined by the Board, the Board in its discretion may make appropriate adjustments to outstanding Options to avoid distortion in the operation of the Plan. 12. Change in Control 12.1 Impact of Event In the event of a "Change in Control" as defined in Section 12.2, the following provisions shall apply, unless the agreement evidencing the Option otherwise provides (by specific explicit reference to Section 12.2 below). If a Change in Control occurs while any Options are outstanding, then, effective upon the Change in Control, (i) each outstanding stock option granted under the Plan that was not previously exercisable and vested shall become immediately exercisable in full and will no longer be subject to a right of repurchase by the Company, (ii) each outstanding Option subject to restrictions and to the extent not fully vested, shall be deemed to be fully vested, free of restrictions and no longer subject to a right of repurchase by the Company, and (iii) performance of other conditions (other than conditions relating solely to the passage of time, continued employment or affiliation) will continue to apply unless otherwise provided in the agreement evidencing the Option or in any other agreement between the Optionee and the Company or unless otherwise agreed by the Board. 12.2 Definition of "Change in Control" "Change in Control" means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection): (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership of any capital stock of Thermo Electron Corporation ("Thermo Electron") if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 40% or more of either (i) the then-outstanding shares of common stock of Thermo Electron (the "Outstanding TMO Common Stock") or (ii) the combined voting power of the then-outstanding securities of Thermo Electron entitled to vote generally in the election of directors (the "Outstanding TMO Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition by Thermo Electron, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Thermo Electron or any corporation controlled by Thermo Electron, or (iii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this definition; or (b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board of Directors of Thermo Electron (the "Thermo Board") (or, if applicable, the Board of Directors of a successor corporation to Thermo Electron), where the term "Continuing Director" means at any date a member of the Thermo Board (i) who was a member of the Thermo Board as of July 1, 1999 or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Thermo Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Thermo Board; or (c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving Thermo Electron or a sale or other disposition of all or substantially all of the assets of Thermo Electron in one or a series of transactions (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding TMO Common Stock and Outstanding TMO Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns Thermo Electron or substantially all of Thermo Electron's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding TMO Common Stock and Outstanding TMO Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by Thermo Electron or by the Acquiring Corporation) beneficially owns, directly or indirectly, 40% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors; or (d) approval by the stockholders of Thermo Electron of a complete liquidation or dissolution of Thermo Electron. 13. Limitation of Rights in Option Stock The Optionees shall have no rights as stockholders in respect of shares as to which their options shall not have been exercised, certificates issued and delivered and payment as herein provided made in full, and shall have no rights with respect to such shares not expressly conferred by this Plan. 14. Stock Reserved The Company shall at all times during the term of the options reserve and keep available such number of shares of the Common Stock as will be sufficient to satisfy the requirements of this Plan and shall pay all other fees and expenses necessarily incurred by the Company in connection therewith. 15. Securities Laws Restrictions Each Optionee exercising an option, at the request of the Company, will be required to give a representation in form satisfactory to counsel for the Company that he will not transfer, sell or otherwise dispose of the shares received upon exercise of the option at any time purchased by him, upon exercise of any portion of the option, in a manner which would violate the Securities Act of 1933, as amended, and the regulations of the Securities and Exchange Commission thereunder and the Company may, if required or at its discretion, make a notation on any certificates issued upon exercise of options to the effect that such certificate may not be transferred except after receipt by the Company of an opinion of counsel satisfactory to it to the effect that such transfer will not violate such Act and such regulations. 16. Tax Withholding The Company shall have the right to deduct from payments of any kind otherwise due to an Optionee any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options under the Plan (the "withholding requirements"). The Board will have the right to require that the Optionee or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Board with regard to such requirements, prior to the delivery of any Common Stock pursuant to exercise of an option. If and to the extent that such withholding is required, the Board may permit the Optionee or such other person to elect at such time and in such manner as the Board provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Common Stock having a value calculated to satisfy the withholding requirements. 17. Termination and Amendment The Plan shall remain in full force and effect until terminated by the Board. Subject to the last sentence of this Section 17, the Board may at any time or times amend the Plan or any outstanding Option for any purpose that may at the time be permitted by law, or may at any time terminate the Plan as to any further grants of Options. No amendment of the Plan or any agreement evidencing Options under the Plan may adversely affect the rights of any participant under any Option previously granted without such participant's consent. EX-27 7
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMOLASE CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JULY 3, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS OCT-02-1999 JUL-03-1999 1,803 0 10,504 2,063 3,634 42,463 5,840 2,908 59,476 36,555 106,775 0 0 408 (133,182) 59,476 20,375 30,385 18,012 39,721 61,615 1,835 4,020 (91,025) 156 (91,181) 0 0 0 (91,181) (2.32) (2.32)
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