-----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, PUOqnl8d+EFzVBzNgQWj/x8cl7v1hmi6vt15pC1oR+4/QGR7L3lQQ2I+wIpRbltv IsgQszWja3Y3WWJzojN+6g== 0000102138-98-000003.txt : 19980317 0000102138-98-000003.hdr.sgml : 19980317 ACCESSION NUMBER: 0000102138-98-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19980103 FILED AS OF DATE: 19980316 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO VOLTEK CORP CENTRAL INDEX KEY: 0000102138 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 131946800 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10574 FILM NUMBER: 98566707 BUSINESS ADDRESS: STREET 1: 470 WILDWOOD STREET STREET 2: P O BOX 2878 CITY: WODBURN STATE: MA ZIP: 01888-1587 BUSINESS PHONE: 6176221000 FORMER COMPANY: FORMER CONFORMED NAME: UNIVERSAL VOLTRONICS CORP DATE OF NAME CHANGE: 19920703 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------------------------- FORM 10-K (mark one) [ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended January 3, 1998 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-10574 THERMO VOLTEK CORP. (Exact name of Registrant as specified in its charter) Delaware 13-1946800 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 470 Wildwood Street, P.O. Box 2878 Woburn, Massachusetts 01888-1578 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 622-1000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ---------------------------- ----------------------------------------- Common Stock, $.05 par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to the filing requirements for at least the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference into Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of January 30, 1998, was approximately $14,630,000. As of January 30, 1998, the Registrant had 8,839,370 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Shareholders for the year ended January 3, 1998, are incorporated by reference into Parts I and II. Portions of the Registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 1, 1998, are incorporated by reference into Part III. PAGE PART I Item 1. Business -------- (a) General Development of Business ------------------------------- Thermo Voltek Corp. (the Company or the Registrant) designs, manufactures, and markets test instruments and a range of products related to power amplification, conversion, and quality. The Company's test instruments simulate pulsed electromagnetic interference (pulsed EMI), radio frequency interference (RFI), and changes in AC voltage, to allow manufacturers of electronic systems and integrated circuits to test for electromagnetic compatibility (EMC), to ensure product quality and to meet certain regulatory requirements. The Company also provides EMC consulting and systems-integration services and distributes EMC-related products. The Company's power products include radio frequency (RF) and microwave power amplifiers, power-conversion equipment, and high-voltage and application-specific power supplies. These power products are used in communications, broadcast, research, and medical imaging applications. In July 1996, the Company acquired Pacific Power Source Corporation, a manufacturer of power-conversion equipment and programmable power amplifiers. In April 1997, the Company acquired Milmega Ltd., a manufacturer of microwave amplifiers. During 1997, the Company experienced lower demand for its EMC test products, due to the declining influence of IEC 801, the European Union directive on electromagnetic compatibility that took effect January 1, 1996, and, to a lesser extent, a decline in the component-reliability market for ESD test equipment that resulted from a slowdown in capital expenditures by the semiconductor industry. Due in part to these developments, during 1997 the Company implemented certain operational, organizational, and personnel changes. The Company was originally incorporated in 1960 under the name Universal Voltronics Corp. Thermedics Inc., a publicly traded subsidiary of Thermo Electron Corporation, acquired a controlling interest in the Company's common stock in March 1990. In November 1992, the Company's name was changed to Thermo Voltek Corp. As of January 3, 1998, Thermedics owned 5,771,208 shares of the Company's common stock, representing 65% of such stock outstanding. In addition to the Company's products, Thermedics develops, manufactures, and markets product quality-assurance systems, precision-weighing and inspection equipment, electrochemistry and microweighing products, security devices, and moisture-analysis systems, as well as implantable heart-assist systems, whole blood coagulation testing equipment, skin-incision devices, and other biomedical products. As of January 3, 1998, Thermo Electron owned 238,200 shares of the Company's common stock, representing 3% of such stock outstanding, including 186,500 shares that were purchased during 1997* in the open market for a total purchase price of $1,777,000. Thermo Electron provides analytical and monitoring instruments; biomedical products including heart-assist devices, respiratory-care equipment, and mammography systems; paper recycling and papermaking equipment; alternative-energy systems; industrial process equipment; and other specialized products. Thermo Electron also provides a range of services that include industrial * References to 1997, 1996, and 1995 herein are for the fiscal years ended January 3, 1998, December 28, 1996, and December 30, 1995, respectively. 2PAGE outsourcing, particularly in environmental-liability management, laboratory analysis, and metallurgical processing; and conducts advanced- technology research and development. Thermedics intends, for the foreseeable future, to maintain at least 50% ownership of the Company. This may require the purchase by Thermedics of additional shares (or convertible notes that are then converted) of the Company from time to time as the number of outstanding shares of the Company increases. These or any other purchases by Thermedics may be made either in the open market or directly from the Company or Thermo Electron or pursuant to conversions of the subordinated convertible notes issued by the Company to Thermedics. During 1997, Thermedics purchased 799,875 shares of the Company's common stock in the open market for a total purchase price of $7,376,000. See Notes 4 and 8 to Consolidated Financial Statements in the Company's 1997 Annual Report to Shareholders for a description of outstanding stock options and convertible obligations issued by the Company. Forward-looking Statements Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Annual Report on Form 10-K. 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 the Registrant's 1997 Annual Report to Shareholders, which statements are incorporated herein by reference. (b) Financial Information About Industry Segments --------------------------------------------- The Company conducts business in one industry segment. (c) Description of Business ----------------------- The Company designs, manufactures, and markets test instruments and a range of products related to power amplification, conversion, and quality. The Company's test instruments simulate pulsed electromagnetic interference (pulsed EMI), radio frequency interference (RFI), and changes in AC voltage, to allow manufacturers of electronic systems and integrated circuits to test for electromagnetic compatibility (EMC). These products are used in the product-development, design-verification, and quality-assurance stages, enabling customers to optimize performance, reliability, and safety in the final design, and to meet industry standards and regulatory requirements, including a European Union (EU) directive that took effect in January 1996. The Company's power products include radio frequency (RF) and microwave power amplifiers, power-conversion equipment, and high-voltage and application-specific power supplies. These power products are used in communications, broadcast, research, and medical imaging applications. 3PAGE The Company's testing instruments fall into two main categories: (1) equipment to test completed electronic products, and (2) equipment to test individual electronic components such as integrated circuits. Product Testing Equipment. The Company's EMC testing systems for electronic products simulate pulsed EMI - including RFI, disturbances in electrical power, and natural and man-made phenomena such as lightning and static electricity - to allow manufacturers to check for resistance to these and other forms of potentially troublesome electronic pollution. These systems perform both immunity and emissions testing - to verify that completed electronic products are not only immune to EMI, but also that they are not emitting EMI. The Company's KeyTek Instrument division's ECAT(R) system integrates comprehensive pulsed EMI and power-quality failure simulation and testing with built-in diagnostic capabilities. KeyTek also offers a range of lower-cost instruments designed to test completed products for a particular type of pulsed EMI. KeyTek also manufactures the G-Strip, an RFI immunity tester that analyzes how effectively electronics resist the effects of radio frequency emitted by other electronic devices. Component-reliability Testing Equipment. KeyTek also manufactures EMC testing instruments that allow manufacturers to test electronic components and subassemblies, particularly integrated circuits and printed circuit boards, for immunity to electrostatic discharge (ESD) and electrical overstress (EOS). These products expose integrated circuits and printed circuit boards to controlled and repeatable stress levels, thereby determining their ability to withstand ESD and EOS. These products also simulate the damage that can occur during normal handling or operating procedures associated with the manufacturing, testing, and transportation of such components. The Company also provides EMC consulting and distribution services. Through its Comtest subsidiary, the Company distributes EMC-testing products for pulsed EMI and RFI immunity and emissions testing; provides a wide range of testing, consulting, training, and systems-integration services; and designs EMC test facilities. The Company also provides on-site management and service, and maintains testing and training facilities, at Comtest's Netherlands headquarters. The Company's power products, described below, have applications in both EMC and non-EMC areas. These include RF and microwave power amplifiers, power-conversion equipment, and high-voltage and application-specific power supplies. Power Amplifiers. Through its Kalmus Engineering and Milmega Ltd. divisions, the Company manufactures RF and microwave power amplifiers that have applications in EMC testing and other areas. When used in EMC test applications, the RF power amplifiers manufactured by Kalmus test products for immunity to conducted and radiated RFI. They are also suitable for a variety of laboratory and research applications where precise control over power level and frequency are required; in medical imaging applications; and in wireless communications applications, broadcasting, and mobile data communications. Milmega, acquired in April 1997, designs and manufactures both RF and microwave power amplifiers. 4PAGE Microwave power amplifiers have frequencies of one gigaHertz and above. Milmega's products are suitable for EMC test and other areas, including research, communications, medical, and military applications. Power-conversion Equipment. The Company's Pacific Power Source Corporation division manufactures programmable power amplifiers that can be incorporated into EMC test equipment to assess how well electronics tolerate normal variations in the quality and quantity of AC voltage. These amplifiers are also used in other kinds of testing equipment and in application-specific power supplies. In October 1997, the Company established a new division, Global Power Systems, to market specialized power products, particularly for use in marine applications. Its initial product line is a family of dock-to-yacht power systems that convert power from an onshore source anywhere in the world to the voltage, phase, and frequency required by luxury yachts. High-voltage Power Supplies. Through its Universal Voltronics division, the Company designs, manufactures, and markets high-voltage power supplies, modulators, and related high-voltage equipment for industrial, medical, and security processes, and defense and scientific research applications. These systems transform utility-supplied AC power into the DC voltages and currents required by the user and allow precise control over the performance level desired for each application. Raw Materials A number of the components of the Company's EMC-testing products are supplied by sole-source vendors. Although the Company has not experienced significant difficulty in obtaining adequate supplies from these vendors, and believes that it would be able to identify alternate suppliers if necessary, there can be no assurance that the unanticipated loss of a single vendor would not result in delays in shipments or in the introduction of new products. Backlog The Company's backlog of firm orders is measured by the amount of unshipped orders and, with respect to long-term contracts, the amount of the contract reduced by the revenue that has been recognized to date on a percentage-of-completion basis. Certain of these orders are cancellable by the customer upon payment of a cancellation charge. The Company's backlog was $10.2 million and $10.3 million as of January 3, 1998, and December 28, 1996, respectively. The Company believes that substantially all of the backlog at January 3, 1998, will be shipped or completed during the next 12 months. 5PAGE Competition The Company is a leading supplier of EMC testing equipment. There are numerous companies worldwide that independently manufacture and market pulsed EMC test equipment for electronic products, and several more that independently manufacture and market component-reliability test equipment. The Company competes in this market primarily on the basis of performance, technical expertise, reputation, and price. In the market for RF power amplifiers and programmable power amplifiers, the Company competes with several companies worldwide based primarily on technical expertise, reputation, and price. In the market for high-voltage power supply systems of the general type manufactured and marketed by the Company, the Company competes with numerous companies for both contract and commercial sales primarily on the basis of technical expertise, product performance, reputation, and price. Substantially all of the Company's contract and commercial revenues are subject to intense competitive bidding. Some of the Company's competitors have substantially greater financial resources than those of the Company. Research and Development Research and development expenses for the Company were $3,620,000, $3,618,000, and $2,349,000 in 1997, 1996, and 1995, respectively. Environmental Protection Regulations The Company believes that compliance by the Company with federal, state, and local environmental protection regulations will not have a material adverse effect on its capital expenditures, earnings, or competitive position. Number of Employees As of January 3, 1998, the Company employed 278 people. Except for seven employees at Universal Voltronics, none of the Company's employees is represented by a union. The Company believes that relations with its employees are good. (d) Financial Information About Exports by Domestic Operations and -------------------------------------------------------------- About Foreign Operations ------------------------ Financial information about exports by domestic operations and about foreign operations is summarized in Note 11 to Consolidated Financial Statements in the Registrant's 1997 Annual Report to Shareholders, which information is incorporated herein by reference. 6PAGE (e) Executive Officers of the Registrant ------------------------------------ Present Title (Year First Became Name Age Executive Officer) ------------------------ --- -------------------------------- John W. Wood Jr. 54 Chairman of the Board and Chief Executive Officer (1990) Colin I.W. Baxter 66 President and Chief Operating Officer (1997) John N. Hatsopoulos 63 Chief Financial Officer (1990) Paul F. Kelleher 55 Chief Accounting Officer (1990) Each executive officer serves until his successor is chosen or appointed by the Board of Directors and qualified or until his earlier resignation, death, or removal. Messrs. Wood, Hatsopoulos, and Kelleher have held comparable positions for at least five years either with the Company, Thermedics, or Thermo Electron. Mr. Baxter has been President and Chief Operating Officer of the Company since January 1997. Mr. Baxter has been President of the Company's Kalmus division since May 1995, and from July 1996 to January 1997 was President of the Company's Pacific Power division. Prior to joining the Company, Mr. Baxter was President and Chief Executive Officer of Dranetz Technologies, Inc., a designer and manufacturer of electronic instruments for measuring and monitoring electrical power quality, demand, and sequence of events recorders. Mr. Wood is a Senior Vice President of Thermo Electron and the Chairman of the Board of Thermedics but devotes such portion of his time to the affairs of the Company as the Company's needs reasonably require. Messrs. Hatsopoulos and Kelleher are full-time employees of Thermo Electron but devote such time to the affairs of the Company as the Company's needs reasonably require. Item 2. Properties ---------- The Company owns approximately 45,000 square feet of office, engineering, laboratory, and production space in Mount Kisco, New York, and leases approximately 110,000 square feet of office, engineering, laboratory, and production space under leases expiring from 1998 to 2010, principally in Massachusetts, Washington, California, The Netherlands, the United Kingdom, and Italy. The Company believes that these facilities are in good condition and are suitable and adequate for its present operations, and that suitable space is readily available if any of such leases are not extended. Item 3. Legal Proceedings ----------------- Not applicable. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- Not applicable. 7PAGE PART II Item 5. Market for Registrant's Common Equity and Related Stockholder ------------------------------------------------------------- Matters ------- Information concerning the market and market price for the Registrant's common stock, $.05 par value, and dividend policy is included under the sections labeled "Common Stock Market Information" and "Dividend Policy" in the Registrant's 1997 Annual Report to Shareholders and is incorporated herein by reference. Item 6. Selected Financial Data ----------------------- The information required under this item is included under the sections labeled "Selected Financial Information" and "Dividend Policy" in the Registrant's 1997 Annual Report to Shareholders and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations --------------------- The information required under this item is included under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrant's 1997 Annual Report to Shareholders and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data ------------------------------------------- The Registrant's Consolidated Financial Statements as of January 3, 1998, and Supplementary Data are included in the Registrant's 1997 Annual Report to Shareholders and are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure -------------------- Not applicable. 8PAGE PART III Item 10. Directors and Executive Officers of the Registrant -------------------------------------------------- The information concerning directors required under this item is incorporated herein by reference from the material contained under the caption "Election of Directors" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. The information concerning delinquent filers pursuant to Item 405 of Regulation S-K is incorporated herein by reference from the material contained under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" under the caption "Stock Ownership" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. Item 11. Executive Compensation ---------------------- The information required under this item is incorporated herein by reference from the material contained under the caption "Executive Compensation" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. Item 12. Security Ownership of Certain Beneficial Owners and Management -------------------------------------------------------------- The information required under this item is incorporated herein by reference from the material contained under the caption "Stock Ownership" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. Item 13. Certain Relationships and Related Transactions ---------------------------------------------- The information required under this item is incorporated herein by reference from the material contained under the caption "Relationship with Affiliates" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. 9PAGE PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ---------------------------------------------------------------- (a,d) Financial Statements and Schedules ---------------------------------- (1) The consolidated financial statements set forth in the list below are filed as part of this Report. (2) The consolidated financial statement schedule set forth in the list below is filed as part of this Report. (3) Exhibits filed herewith or incorporated herein by reference are set forth in Item 14(c) below. List of Financial Statements and Schedules Referenced in this ------------------------------------------------------------- Item 14 ------- Information incorporated by reference from Exhibit 13 filed herewith: Consolidated Statement of Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Shareholders' Investment Notes to Consolidated Financial Statements Report of Independent Public Accountants Financial Statement Schedules filed herewith: Schedule II: Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or not required, or because the required information is shown either in the financial statements or in the notes thereto. (b)Reports on Form 8-K ------------------- None. (c)Exhibits -------- See Exhibit Index on the page immediately preceding exhibits. 10PAGE SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 16, 1998 THERMO VOLTEK CORP. By: John W. Wood Jr. ----------------------- John W. Wood Jr. Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated below, as of March 16, 1998. Signature Title --------- ----- By: John W. Wood Jr. Chairman of the Board, Chief Executive ------------------------- Officer, and Director John W. Wood Jr. By: John N. Hatsopoulos Chief Financial Officer and Senior ------------------------- Vice President John N. Hatsopoulos By: Paul F. Kelleher Chief Accounting Officer ------------------------- Paul F. Kelleher By Elias P. Gyftopoulos Director ------------------------- Elias P. Gyftopoulos By: William W. Hoover Director ------------------------- William W. Hoover By: Sandra L. Lambert Director ------------------------- Sandra L. Lambert By: Theo Melas-Kyriazi Director ------------------------- Theo Melas-Kyriazi By: Peter Richman Director ------------------------- Peter Richman 11PAGE Report of Independent Public Accountants To the Shareholders and Board of Directors of Thermo Voltek Corp.: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Thermo Voltek Corp.'s Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 12, 1998. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14 on page 10 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the consolidated financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Arthur Andersen LLP Boston, Massachusetts February 12, 1998 12PAGE SCHEDULE II THERMO VOLTEK CORP. Valuation and Qualifying Accounts (In thousands) Balance Provision at Charged Accounts Balance Beginning to Written at End Description of Year Expense Off Other (a) of Year --------------------------------------------------------------------------- Allowance for Doubtful Accounts Year Ended January 3, 1998 $587 $326 $(90) $(24) $799 Year Ended December 28, 1996 $446 $103 $(11) $ 49 $587 Year Ended December 30, 1995 $343 $135 $(51) $ 19 $446 (a)Allowances of businesses acquired during the year as described in Note 3 to Consolidated Financial Statements in the Registrant's 1997 Annual Report to Shareholders and the effect of foreign currency translation. 13PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 2.1 Asset Purchase Agreement dated March 1, 1995, among KeyTek Instrument Division of Thermo Voltek Corp., Kalmus Engineering Incorporated, RF Power Labs, Incorporated, and Frank Kalmus (filed as Exhibit 2.4 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 [File No. 1-10574] and incorporated herein by reference). Pursuant to Item 601(b)(2) of Regulation S-K, schedules to this Agreement have been omitted. The Company hereby undertakes to furnish supplementally a copy of such schedules to the Commission upon request. 2.2 Asset Purchase Agreement dated as of July 3, 1996, between the Registrant and Pacific Power Source Corporation (filed as Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 29, 1996 [File No. 1-10574] and incorporated herein by reference). Pursuant to Item 601(b)(2) of Regulation S-K, schedules to this Agreement have been omitted. The Company hereby undertakes to furnish supplementally a copy of such schedules to the Commission upon request. 3.1 Restated Certificate of Incorporation of the Registrant, as amended (filed as Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the year ended January 2, 1993 [File No. 1-10574] and incorporated herein by reference). 3.2 Composite Restatement of By-Laws, as amended (filed as Exhibit 3.2 to the Registrant's Transition Report on Form 10-K for the six months ended December 29, 1990 [File No. 1-10574] and incorporated herein by reference). 4.1 Agreement between the Registrant and Thermedics dated June 5, 1992, for Purchase of Note (filed as Exhibit 4 to the Registrant's Current Report on Form 8-K dated June 5, 1992 [File No. 1-10574] and incorporated herein by reference). 4.2 Fiscal Agency Agreement dated as of November 19, 1993, among the Registrant, Thermo Electron, and Chemical Bank (filed as Exhibit 4.3 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 [File No. 1-10574] and incorporated herein by reference). 14PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 4.3 Guarantee Reimbursement Agreement dated February 7, 1994, among the Registrant, Thermedics, Thermo Cardiosystems Inc., and Thermo Electron (filed as Exhibit 4.4 to Thermedics' Annual Report on Form 10-K for the fiscal year ended January 1, 1994 [File No. 1-9567] and incorporated herein by reference). 10.1 Amended and Restated Corporate Services Agreement dated January 3, 1993, between Thermo Electron and the Registrant (filed as Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the year ended January 2, 1993 [File No. 1-10574] and incorporated herein by reference). 10.2 Form of Indemnification Agreement for Directors and Officers of the Registrant (filed as Exhibit 10.13 to the Registrant's Transition Report on Form 10-K for the six months ended December 29, 1990 [File No. 1-10574] and incorporated herein by reference). 10.3 Thermo Electron Corporate Charter as amended and restated effective January 3, 1993 (filed as Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the year ended January 2, 1993 [File No. 1-10574] and incorporated herein by reference). 10.4 Consulting Agreement between the Registrant and Peter Richman, as of August 5, 1993 (filed as Exhibit 10.25 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1993 [File No. 1-10574] and incorporated herein by reference). 10.5 Lease Agreement dated August 2, 1993, between Comtest Invest B.V. and Comtest Instrumentation B.V. (filed as Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 [File No. 1-10574] and incorporated herein by reference). 10.6 Note dated July 2, 1993, from the Registrant to Thermo Electron Corporation (filed as Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 [File No. 1-10574] and incorporated herein by reference). 10.7 Amended and Restated Master Repurchase Agreement dated as of July 2, 1996, between the Registrant and Thermo Electron (filed as Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 [File No. 1-10574] and incorporated herein by reference). 10.8 - 10.18 Reserved. 15PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 10.19 1985 Stock Option Plan of the Registrant (filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1985 [File No. 0-8245] and incorporated herein by reference). (Maximum number of shares issuable is 300,000 shares, after adjustment to reflect 1-for-3 reverse stock split effected in November 1992 and 3-for-2 stock splits effected in November 1993 and August 1996.) 10.20 1990 Stock Option Plan, as amended, of the Registrant (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 2, 1994 [File No. 1-10574] and incorporated herein by reference). (Maximum number of shares issuable is 600,000 shares, after adjustment to reflect share increases in 1993 and 1994, 1-for-3 reverse stock split effected in November 1992, and 3-for-2 stock splits effected in November 1993 and August 1996.) 10.21 Equity Incentive Plan of the Registrant (filed as Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 [File No. 1-10574] and incorporated herein by reference). In addition to the stock-based compensation plans of the Registrant, the executive officers of the Registrant may be granted awards under stock-based compensation plans of Thermo Electron and Thermedics for services rendered to the Registrant or such affiliated corporations. The terms of such plans are substantially the same as those of the Registrant's Equity Incentive Plan. 10.22 Deferred Compensation Plan for Directors of the Registrant (filed as Exhibit 10.23 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 3, 1993 [File No. 1-10574] and incorporated herein by reference). 10.23 Directors' Stock Option Plan of the Registrant (filed as Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 [File No. 1-10574] and incorporated herein by reference). 16PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 10.24 Restated Stock Holdings Assistance Plan and Form of Promissory Note. 10.25 Amended and Restated Master Guarantee Reimbursement and Loan Agreement dated December 18, 1997, between the Company and Thermo Electron. 10.26 Amended and Restated Master Guarantee Reimbursement and Loan Agreement dated December 18, 1997, between the Company and Thermedics. 13 Annual Report to Shareholders for the year ended January 3, 1998 (only those portions incorporated herein by reference). 21 Subsidiaries of the Registrant. 23 Consent of Arthur Andersen LLP. 27.1 Financial Data Schedule for the year ended January 3, 1998. 27.2 Financial Data Schedule for the quarter ended March 30, 1996 (restated for the adoption of SFAS No. 128). EX-10.24 2 EXHIBIT 10.24 THERMO VOLTEK CORP. RESTATED STOCK HOLDING ASSISTANCE PLAN SECTION 1. Purpose. The purpose of this Plan is to benefit Thermo Voltek Corp. (the "Company") and its stockholders by encouraging Key Employees to acquire and maintain share ownership in the Company, by increasing such employees' proprietary interest in promoting the growth and performance of the Company and its subsidiaries and by providing for the implementation of the Stock Holding Policy. SECTION 2. Definitions. The following terms, when used in the Plan, shall have the meanings set forth below: Committee: The Human Resources Committee of the Board of Directors of the Company as appointed from time to time. Common Stock: The common stock of the Company and any successor thereto. Company: Thermo Voltek Corp., a Delaware corporation. Stock Holding Policy: The Stock Holding Policy of the Company, as adopted by the Committee and as in effect from time to time. Key Employee: Any employee of the Company or any of its subsidiaries, including any officer or member of the Board of Directors who is also an employee, as designated by the Committee, and who, in the judgment of the Committee, will be in a position to contribute significantly to the attainment of the Company's strategic goals and long-term growth and prosperity. Loans: Loans extended to Key Employees by the Company pursuant to this Plan. Plan: The Thermo Voltek Corp. Stock Holding Assistance Plan, as amended from time to time. SECTION 3. Administration. The Plan and the Stock Holding Policy shall be administered by the Committee, which shall have authority to interpret the Plan and the Stock Holding Policy and, subject to their provisions, to prescribe, amend and rescind any rules and regulations and to make all other determinations necessary or desirable for the administration thereof. The Committee's interpretations and decisions with regard to the Plan and the Stock Holding Policy and such rules and regulations as may be PAGE established thereunder shall be final and conclusive. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or the Stock Holding Policy, or in any Loan in the manner and to the extent the Committee deems desirable to carry it into effect. No member of the Committee shall be liable for any action or omission in connection with the Plan or the Stock Holding Policy that is made in good faith. SECTION 4. Loans and Loan Limits. The Committee has determined that the provision of Loans from time to time to Key Employees in such amounts as to cause such Key Employees to comply with the Stock Holding Policy is, in the judgment of the Committee, reasonably expected to benefit the Company and authorizes the Company to extend Loans from time to time to Key Employees in such amounts as may be requested by such Key Employees in order to comply with the Stock Holding Policy. Such Loans may be used solely for the purpose of acquiring Common Stock (other than upon the exercise of stock options or under employee stock purchase plans) in open market transactions or from the Company. Each Loan shall be full recourse and evidenced by a non-interest bearing promissory note substantially in the form attached hereto as Exhibit A (the "Note") and maturing in accordance with the provisions of Section 6 hereof, and containing such other terms and conditions, which are not inconsistent with the provisions of the Plan and the Stock Holding Policy, as the Committee shall determine in its sole and absolute discretion. SECTION 5. Federal Income Tax Treatment of Loans. For federal income tax purposes, interest on Loans shall be imputed on any interest free Loan extended under the Plan. A Key Employee shall be deemed to have paid the imputed interest to the Company and the Company shall be deemed to have paid said imputed interest back to the Key Employee as additional compensation. The deemed interest payment shall be taxable to the Company as income, and may be deductible to the Key Employee to the extent allowable under the rules relating to investment interest. The deemed compensation payment to the Key Employee shall be taxable to the employee and deductible to the Company, but shall also be subject to employment taxes such as FICA and FUTA. SECTION 6. Maturity of Loans. Each Loan to a Key Employee hereunder shall be due and payable on demand by the Company. If no such demand is made, then each Loan shall mature and the principal thereof shall become due and payable on the fifth anniversary of the date of the Loan, provided that the Committee may, in its sole and absolute discretion, authorize such other maturity and repayment PAGE schedule as the Committee may determine. Each Loan shall also become immediately due and payable in full, without demand, upon the occurrence of any of the events set forth in the Note; provided that the Committee may, in its sole and absolute discretion, authorize an extension of the time for repayment of a Loan upon such terms and conditions as the Committee may determine. SECTION 7. Amendment and Termination of the Plan. The Committee may from time to time alter or amend the Plan or the Stock Holding Policy in any respect, or terminate the Plan or the Stock Holding Policy at any time. No such amendment or termination, however, shall alter or otherwise affect the terms and conditions of any Loan then outstanding to Key Employee without such Key Employee's written consent, except as otherwise provided herein or in the promissory note evidencing such Loan. SECTION 8. Miscellaneous Provisions. (a) No employee or other person shall have any claim or right to receive a Loan under the Plan, and no employee shall have any right to be retained in the employ of the Company due to his or her participation in the Plan. (b) No Loan shall be made hereunder unless counsel for the Company shall be satisfied that such Loan will be in compliance with applicable federal, state and local laws. (c) The expenses of the Plan shall be borne by the Company. (d) The Plan shall be unfunded, and the Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the making of any Loan under the Plan. (e) Except as otherwise provided in Section 7 hereof, by accepting any Loan under the Plan, each Key Employee shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under the Plan or the Stock Holding Policy by the Company, the Board of Directors of the Company or the Committee. (f) The appropriate officers of the Company shall cause to be filed any reports, returns or other information regarding Loans hereunder, as may be required by any applicable statute, rule or regulation. SECTION 9. Effective Date. The Plan and the Stock Holding Policy shall become effective upon approval and adoption by the Committee. PAGE EXHIBIT A TO STOCK HOLDING ASSISTANCE PLAN THERMO VOLTEK CORP. Promissory Note $_________ Dated:____________ For value received, ________________, an individual whose residence is located at _______________________ (the "Employee"), hereby promises to pay to Thermo Voltek Corp. (the "Company"), or assigns, ON DEMAND, but in any case on or before [insert date which is the fifth anniversary of date of issuance] (the "Maturity Date"), the principal sum of [loan amount in words] ($_______), or such part thereof as then remains unpaid, without interest. Principal shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of the Company or at such other place as the Company may designate from time to time in writing to the Employee. Unless the Company has already made a demand for payment in full of this Note, the Employee agrees to repay to the Company from the Employee's annual cash incentive compensation (referred to as bonus), beginning with the first such bonus payment to occur after the date of this Note and on each of the next four bonus payment dates occurring prior to the Maturity Date, such amount as may be designated by the Company. Any amount remaining unpaid under this Note shall be due and payable on the Maturity Date. This Note may be prepaid at any time or from time to time, in whole or in part, without any premium or penalty. The Employee acknowledges and agrees that the Company has advanced to the Employee the principal amount of this Note pursuant to the Company's Stock Holding Assistance Plan, and that all terms and conditions of such Plan are incorporated herein by reference. The unpaid principal amount of this Note shall be and become immediately due and payable without notice or demand, at the option of the Company, upon the occurrence of any of the following events: (a) the termination of the Employee's employment with the Company, with or without cause, for any reason or for no reason; (b) the death or disability of the Employee; PAGE (c) the failure of the Employee to pay his or her debts as they become due, the insolvency of the Employee, the filing by or against the Employee of any petition under the United States Bankruptcy Code (or the filing of any similar petition under the insolvency law of any jurisdiction), or the making by the Employee 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 property of the Employee; or (d) the issuance of any writ of attachment, by trustee process or otherwise, or any restraining order or injunction not removed, repealed or dismissed within thirty (30) days of issuance, against or affecting the person or property of the Employee or any liability or obligation of the Employee to the Company. In case any payment herein provided for shall not be paid when due, the Employee further promises to pay all costs of collection, including all reasonable attorneys' fees. No delay or omission on the part of the Company in exercising any right hereunder shall operate as a waiver of such right or of any other right of the Company, 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 Employee hereby waives presentment, demand, notice of prepayment, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note. The undersigned hereby assents to any indulgence and any extension of time for payment of any indebtedness evidenced hereby granted or permitted by the Company. This Note has been made pursuant to the Company's Stock Holding Assistance Plan and shall be governed by and construed in accordance with, such Plan and the laws of the State of Delaware and shall have the effect of a sealed instrument. _______________________________ Employee Name: _________________ ________________________ Witness EX-10.25 3 EXHIBIT 10.25 AMENDED AND RESTATED MASTER GUARANTEE REIMBURSEMENT AND LOAN AGREEMENT This AGREEMENT is entered into as of the 18th day of December, 1997 by and among Thermo Electron Corporation (the "Parent") and those of its subsidiaries that join in this Agreement by executing the signature page hereto (the "Majority Owned Subsidiaries"). WITNESSETH: WHEREAS, the Majority Owned Subsidiaries and their wholly-owned subsidiaries wish to enter into various financial transactions, such as convertible or nonconvertible debt, loans, and 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 the Parent ("Credit Support Obligations"); WHEREAS, the Majority Owned Subsidiaries and the Parent 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 the Parent (a "Parent Guarantee") or without obtaining Credit Support Obligations from other Majority Owned Subsidiaries; WHEREAS, the Majority Owned Subsidiaries and their wholly-owned subsidiaries may borrow funds from the Parent, and the Parent may loan funds or provide credit to the Majority Owned Subsidiaries and their wholly-owned subsidiaries, on a short-term and unsecured basis; 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, the Parent 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, the Parent is willing to consider continuing to issue Parent Guarantees and providing credit, and the Majority Owned Subsidiaries are willing to consider continuing to provide PAGE Credit Support Obligations and to borrow funds, 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. If the Parent provides a Parent Guarantee of an Underlying Obligation, and the beneficiary(ies) of the Parent Guarantee enforce the Parent Guarantee, or the Parent 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 the Parent from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Parent 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 the Parent (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 the Parent from any remaining liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Parent 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 the Parent, 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 the Parent 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. 2. For purposes of this Agreement, the term "guarantee" shall include not only a formal guarantee of an obligation, but PAGE also any other arrangement where the Parent 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 the Parent, 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 the Parent 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. 3. Promptly after the Parent receives notice that a beneficiary of a Parent Guarantee is seeking to enforce such Parent Guarantee, the Parent 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, the Parent will not perform under the relevant Parent Guarantee unless and until, in the Parent's reasonable judgment, the Parent 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 the Parent 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 the Parent. The Parent shall have the right, at its own expense, to contest the claim of such beneficiary. If the Parent or the subsidiary of the Parent 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 to perform. Subject to the foregoing, any dispute between the Parent or the subsidiary of the Parent 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 the Parent's obligation to promptly indemnify the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, hereunder. PAGE 4. Upon the request of a Majority Owned Subsidiary, the Parent may make loans and advances to the Majority Owned Subsidiary or its wholly-owned subsidiaries on a short-term, revolving credit basis, from time to time in such amounts as mutually determined by the Parent and the Majority Owned Subsidiary. The aggregate principal amount of such loans and advances shall be reflected on the books and records of the Majority Owned Subsidiary (or wholly-owned subsidiary, as applicable) and the Parent. All such loans and advances shall be on an unsecured basis unless specifically provided otherwise in loan documents executed at that time. The Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall pay interest on the aggregate unpaid principal amount of such loans from time to time outstanding at a rate ("Interest Rate") equal to the rate of the Commercial Paper Composite Rate for 90-day maturities as reported by Merrill Lynch Capital Markets, as an average of the last five business days of such Majority Owned Subsidiary's latest fiscal quarter then ended, plus twenty-five (25) basis points. The Interest Rate shall be adjusted on the first business day of each fiscal quarter of such Majority Owned Subsidiary pursuant to the Interest Rate formula contained in the preceding sentence and shall be in effect for the entirety of such fiscal quarter. Interest shall be computed on a 360-day basis. The aggregate principal amount outstanding and accrued interest thereon shall be payable on demand. The principal and accrued interest may be paid by the Majority Owned Subsidiaries or their wholly-owned subsidiaries, as applicable, 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. Principal and interest shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of the Parent or at such other place as the Parent may designate from time to time in writing to the Majority Owned Subsidiary. The unpaid principal amount of any such borrowings, and accrued interest thereon, shall become immediately due and payable, without demand, upon the failure of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, to pay its debts as they become due, the insolvency of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, the filing by or against the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, 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 Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, 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 property of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable. In case any payments of principal and interest shall not be paid when PAGE due, the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, further promises to pay all cost of collection, including reasonable attorneys' fees. 5. If the Parent 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 the Parent thereunder. Such guaranty shall be enforced only after the Parent, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its obligations under the Credit Extension. If the Parent 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 the Parent 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 the Parent hereunder. Such guaranty by the First Tier Majority Owned Subsidiary shall be enforced only after the Parent, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its guaranty obligation hereunder. 6. All payments required to be made by a Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall be made within two days after receipt of notice from the Parent. All payments required to be made by the Parent shall be made within two days after receipt of notice from the Majority Owned Subsidiary. 7. 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. PAGE IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the date first above written. THERMO ELECTRON CORPORATION By: _____________________________ Melissa F.Riordan Title: Treasurer THERMO VOLTEK CORP. By: _____________________________ John W.Wood Jr. Title: Chief Executive Officer EX-10.26 4 EXHIBIT 10.26 AMENDED AND RESTATED MASTER GUARANTEE REIMBURSEMENT AND LOAN AGREEMENT This AGREEMENT is entered into as of the 18th day of December, 1997 by and among Thermedics Inc. (the "Parent") and those of its subsidiaries that join in this Agreement by executing the signature page hereto (the "Majority Owned Subsidiaries"). WITNESSETH: WHEREAS, the Majority Owned Subsidiaries and their wholly-owned subsidiaries wish to enter into various financial transactions, such as convertible or nonconvertible debt, loans, and 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 the Parent ("Credit Support Obligations"); WHEREAS, the Majority Owned Subsidiaries and the Parent 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 the Parent (a "Parent Guarantee") or without obtaining Credit Support Obligations from other Majority Owned Subsidiaries; WHEREAS, the Majority Owned Subsidiaries and their wholly-owned subsidiaries may borrow funds from the Parent, and the Parent may loan funds or provide credit to the Majority Owned Subsidiaries and their wholly-owned subsidiaries, on a short-term and unsecured basis; and WHEREAS, the Parent 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 and to borrow funds, 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. If the Parent provides a Parent Guarantee of an Underlying Obligation, and the beneficiary(ies) of the Parent Guarantee enforce the Parent Guarantee, or the Parent 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 the Parent from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the PAGE Parent 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 the Parent, 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 the Parent 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. 2. For purposes of this Agreement, the term "guarantee" shall include not only a formal guarantee of an obligation, but also any other arrangement where the Parent 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 the Parent, 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 the Parent 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. 3. Promptly after the Parent receives notice that a beneficiary of a Parent Guarantee is seeking to enforce such Parent Guarantee, the Parent 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, the Parent will not perform under the relevant Parent Guarantee unless and until, in the Parent's reasonable judgment, the Parent 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 PAGE Majority Owned Subsidiary's obligation to promptly indemnify the Parent 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 the Parent. The Parent shall have the right, at its own expense, to contest the claim of such beneficiary. If the Parent or the subsidiary of the Parent 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 to perform. Subject to the foregoing, any dispute between the Parent or the subsidiary of the Parent 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 the Parent's obligation to promptly indemnify the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, hereunder. 4. Upon the request of a Majority Owned Subsidiary, the Parent may make loans and advances to the Majority Owned Subsidiary or its wholly-owned subsidiaries on a short-term, revolving credit basis, from time to time in such amounts as mutually determined by the Parent and the Majority Owned Subsidiary. The aggregate principal amount of such loans and advances shall be reflected on the books and records of the Majority Owned Subsidiary (or wholly-owned subsidiary, as applicable) and the Parent. All such loans and advances shall be on an unsecured basis unless specifically provided otherwise in loan documents executed at that time. The Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall pay interest on the aggregate unpaid principal amount of such loans from time to time outstanding at a rate ("Interest Rate") equal to the rate of the Commercial Paper Composite Rate for 90-day maturities as reported by Merrill Lynch Capital Markets, as an average of the last five business days of such Majority Owned Subsidiary's latest fiscal quarter then ended, plus twenty-five (25) basis points. The Interest Rate shall be adjusted on the first business day of each fiscal quarter of such Majority Owned Subsidiary pursuant to the Interest Rate formula contained in the preceding sentence and shall be in effect for the entirety of such fiscal quarter. Interest shall be computed on a 360-day basis. The aggregate principal amount outstanding and accrued interest thereon shall be payable on demand. The principal and accrued interest may be paid by the Majority Owned Subsidiaries or their wholly-owned subsidiaries, as applicable, at any time or from time to PAGE time, in whole or in part, without premium or penalty. All payments shall be applied first to accrued interest and then to principal. Principal and interest shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of the Parent or at such other place as the Parent may designate from time to time in writing to the Majority Owned Subsidiary. The unpaid principal amount of any such borrowings, and accrued interest thereon, shall become immediately due and payable, without demand, upon the failure of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, to pay its debts as they become due, the insolvency of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, the filing by or against the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, 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 Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, 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 property of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable. In case any payments of principal and interest shall not be paid when due, the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, further promises to pay all cost of collection, including reasonable attorneys' fees. 5. All payments required to be made by a Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall be made within two days after receipt of notice from the Parent. All payments required to be made by the Parent shall be made within two days after receipt of notice from the Majority Owned Subsidiary. 6. 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. PAGE IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the date first above written. THERMEDICS INC. By: _____________________________ John W.Wood Jr. Title: President THERMO VOLTEK CORP. By: _____________________________ Melissa F.Riordan Title: Treasurer EX-13 5 Exhibit 13 THERMO VOLTEK CORP. Consolidated Financial Statements 1997 PAGE Thermo Voltek Corp. 1997 Financial Statements Consolidated Statement of Income (In thousands except per share amounts) 1997 1996 1995 ------------------------------------------------------------------------ Revenues (Note 11) $44,648 $48,507 $36,326 ------- ------- ------- Costs and Operating Expenses: Cost of revenues 24,860 24,357 18,790 Selling, general, and administrative expenses (Note 9) 15,992 14,889 11,766 Research and development expenses 3,620 3,618 2,349 ------- ------- ------- 44,472 42,864 32,905 ------- ------- ------- Operating Income 176 5,643 3,421 Interest Income 1,247 1,774 2,073 Interest Expense (includes $605, $706, and $706 to related parties; Note 9) (1,162) (1,408) (2,130) Gain on Sale of Related-party Investments (Notes 2 and 9) 180 - - Other Income 53 - - ------- ------- ------- Income Before Provision for Income Taxes 494 6,009 3,364 Provision for Income Taxes (Note 6) 215 1,540 692 ------- ------- ------- Net Income $ 279 $ 4,469 $ 2,672 ======= ======= ======= Earnings per Share (Note 12): Basic $ .03 $ .51 $ .41 ======= ======= ======= Diluted $ .03 $ .38 $ .28 ======= ======= ======= Weighted Average Shares (Note 12): Basic 9,182 8,827 6,528 ======= ======= ======= Diluted 9,305 13,628 13,512 ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 2PAGE Thermo Voltek Corp. 1997 Financial Statements Consolidated Balance Sheet (In thousands) 1997 1996 ------------------------------------------------------------------------ Assets Current Assets: Cash and cash equivalents $14,608 $17,874 Available-for-sale investments, at quoted market value (amortized cost of $3,041 and $10,011; includes $1,399 of related-party investments in 1996; Notes 2 and 9) 3,041 10,067 Accounts receivable, less allowances of $799 and $587 10,388 12,123 Inventories 10,981 10,725 Prepaid income taxes and other current assets (Note 6) 1,999 2,025 ------- ------- 41,017 52,814 ------- ------- Property, Plant, and Equipment, at Cost, Net 3,682 4,151 ------- ------- Long-term Prepaid Income Taxes and Other Assets 539 299 ------- ------- Cost in Excess of Net Assets of Acquired Companies (Note 3) 18,058 16,425 ------- ------- $63,296 $73,689 ======= ======= 3PAGE Thermo Voltek Corp. 1997 Financial Statements Consolidated Balance Sheet (continued) (In thousands except share amounts) 1997 1996 ------------------------------------------------------------------------ Liabilities and Shareholders' Investment Current Liabilities: Notes payable (Note 8) $ 2,376 $ 1,666 Accounts payable 3,194 3,718 Accrued payroll and employee benefits 1,159 1,264 Accrued income taxes 489 1,244 Accrued commissions 1,080 1,063 Accrued warranty costs 624 449 Other accrued expenses 1,538 1,594 Due to parent company and affiliated companies 694 901 ------- ------- 11,154 11,899 ------- ------- Subordinated Convertible Obligations (includes $10,000 of related-party debt; Note 8) 17,750 19,345 ------- ------- Commitments (Note 7) Shareholders' Investment (Notes 4 and 5): Common stock, $.05 par value, 25,000,000 shares authorized; 9,939,865 and 9,765,676 shares issued 497 488 Capital in excess of par value 38,799 37,762 Retained earnings 4,563 4,284 Treasury stock at cost, 1,098,912 and 6,438 shares (8,836) (69) Cumulative translation adjustment (631) (56) Net unrealized gain on available-for-sale investments (Note 2) - 36 ------- ------- 34,392 42,445 ------- ------- $63,296 $73,689 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 4PAGE Thermo Voltek Corp. 1997 Financial Statements Consolidated Statement of Cash Flows (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Operating Activities: Net income $ 279 $ 4,469 $ 2,672 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,117 1,636 1,529 Provision for losses on accounts receivable 326 103 135 Gain on sale of investments (180) - - Other (330) - (17) Changes in current accounts, excluding the effects of acquisitions: Accounts receivable 1,616 (3,552) (1,525) Inventories 233 (903) (2,527) Other current assets 25 (1,390) (44) Accounts payable (625) (191) 968 Other current liabilities (1,386) 329 720 ------- ------- ------- Net cash provided by operating activities 2,075 501 1,911 ------- ------- ------- Investing Activities: Acquisitions, net of cash acquired (Note 3) (2,820) (6,040) (4,127) Purchases of available-for-sale investments - (5,500) (7,500) Proceeds from sale and maturities of available-for-sale investments 6,980 21,009 10,000 Purchases of property, plant, and equipment (938) (2,048) (1,364) Other (171) 325 526 ------- ------- ------- Net cash provided by (used in) investing activities $ 3,051 $ 7,746 $(2,465) ------- ------- ------- 5PAGE Thermo Voltek Corp. 1997 Financial Statements Consolidated Statement of Cash Flows (continued) (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Financing Activities: Net increase in short-term obligations $ 979 $ 510 $ 435 Net proceeds from issuance of Company common stock 201 232 324 Repurchases of Company common stock and long-term obligations (9,655) - (132) ------- ------- ------- Net cash provided by (used in) financing activities (8,475) 742 627 ------- ------- ------- Exchange Rate Effect on Cash 83 234 (377) ------- ------- ------- Increase (Decrease) in Cash and Cash Equivalents (3,266) 9,223 (304) Cash and Cash Equivalents at Beginning of Year 17,874 8,651 8,955 ------- ------- ------- Cash and Cash Equivalents at End of Year $14,608 $17,874 $ 8,651 ======= ======= ======= Cash Paid For: Interest $ 1,121 $ 1,311 $ 2,034 Income taxes $ 1,335 $ 2,604 $ 236 Noncash Activities: Conversions of subordinated convertible obligations (Note 8) $ 895 $17,395 $ 9,111 ======= ======= ======= Fair value of assets of acquired companies $ 4,807 $ 7,048 $ 5,228 Cash paid for acquired companies (3,248) (6,300) (4,157) ------- ------- ------- Liabilities assumed of acquired companies $ 1,559 $ 748 $ 1,071 ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 6PAGE Thermo Voltek Corp. 1997 Financial Statements Consolidated Statement of Shareholders' Investment (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Common Stock, $.05 Par Value Balance at beginning of year $ 488 $ 244 $ 202 Issuance of stock under employees' and directors' stock plans 3 3 3 Conversion of subordinated convertible obligations (Note 8) 6 83 39 Effect of three-for-two stock split - 158 - ------- ------- ------- Balance at end of year 497 488 244 ------- ------- ------- Capital in Excess of Par Value Balance at beginning of year 37,762 20,545 11,237 Issuance of stock under employees' and directors' stock plans 10 279 291 Tax benefit related to employees' and directors' stock plans 153 112 166 Conversion of subordinated convertible obligations (Note 8) 874 16,984 8,851 Effect of three-for-two stock split - (158) - ------- ------- ------- Balance at end of year 38,799 37,762 20,545 ------- ------- ------- Retained Earnings (Accumulated Deficit) Balance at beginning of year 4,284 (185) (2,857) Net income 279 4,469 2,672 ------- ------- ------- Balance at end of year $ 4,563 $ 4,284 $ (185) ------- ------- ------- 7PAGE Thermo Voltek Corp. 1997 Financial Statements Consolidated Statement of Shareholders' Investment (continued) (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Treasury Stock Balance at beginning of year $ (69) $ (20) $ (50) Issuance of stock under employees' and directors' stock plans 188 (49) 30 Repurchase of Company common stock (8,955) - - ------- ------- ------- Balance at end of year (8,836) (69) (20) ------- ------- ------- Cumulative Translation Adjustment Balance at beginning of year (56) 229 260 Translation adjustment (575) (285) (31) ------- ------- ------- Balance at end of year (631) (56) 229 ------- ------- ------- Net Unrealized Gain (Loss) on Available-for-sale Investments Balance at beginning of year 36 146 (320) Change in net unrealized gain (loss) on available-for-sale investments (Note 2) (36) (110) 466 ------- ------- ------- Balance at end of year - 36 146 ------- ------- ------- Total Shareholders' Investment $34,392 $42,445 $20,959 ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 8PAGE Thermo Voltek Corp. 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Thermo Voltek Corp. (the Company) designs, manufactures, and markets test instruments and a range of products related to power amplification, conversion, and quality. The Company's test instruments simulate pulsed electromagnetic interference (pulsed EMI), radio frequency interference (RFI), and changes in AC voltage, to allow manufacturers of electronic systems and integrated circuits to test for electromagnetic compatibility (EMC) to ensure product quality and to meet certain regulatory requirements. The Company also provides EMC consulting and systems-integration services and distributes EMC-related products. The Company's power products include radio frequency (RF) and microwave power amplifiers, power-conversion equipment, and high-voltage and application-specific power supplies. These power products are used in communications, broadcast, research, and medical imaging applications. Relationship with Thermedics Inc. and Thermo Electron Corporation As of January 3, 1998, Thermedics Inc. owned 5,771,208 shares of the Company's common stock, representing 65% of such stock outstanding. Thermedics is a 58%-owned subsidiary of Thermo Electron Corporation. As of January 3, 1998, Thermo Electron owned 238,200 shares of the Company's common stock, representing 3% of such stock outstanding. Principles of Consolidation The accompanying financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated. Fiscal Year The Company has adopted a fiscal year ending the Saturday nearest December 31. References to 1997, 1996, and 1995 are for the fiscal years ended January 3, 1998, December 28, 1996, and December 30, 1995, respectively. Fiscal year 1997 included 53 weeks; 1996 and 1995 each included 52 weeks. Revenue Recognition The Company recognizes product revenues upon shipment of its products. The Company provides a reserve for its estimate of warranty costs at the time of shipment. Revenues and profits on substantially all contracts are recognized using the percentage-of-completion method. Revenues recorded under the percentage-of-completion method were $5,367,000 in 1997, $4,806,000 in 1996, and $2,884,000 in 1995. The percentage of completion is determined by relating either the actual costs or actual labor incurred to date to management's estimate of total costs or total labor, respectively, to be incurred on each contract. If a loss is indicated on any contract in process, a provision is made currently for the entire loss. The Company's contracts generally provide for billing of customers upon the attainment of certain milestones specified in each contract. Revenues earned on contracts in process in excess of billings are included in inventories in the accompanying 9PAGE Thermo Voltek Corp. 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) balance sheet and were not material at year-end 1997 and 1996. There are no significant amounts included in the accompanying balance sheet that are not expected to be recovered from existing contracts at current contract values, or that are not expected to be collected within one year, including amounts billed but not paid under retainage provisions. Stock-based Compensation Plans The Company applies Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock-based compensation plans (Note 4). Accordingly, no accounting recognition is given to stock options granted at fair market value until they are exercised. Upon exercise, net proceeds, including tax benefits realized, are credited to equity. Income Taxes In accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. Earnings per Share During the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings per Share" (Note 12). As a result, all previously reported earnings per share have been restated; however, basic earnings per share equals the Company's previously reported primary earnings per share for 1996 and diluted earnings per share equals the Company's previously reported fully diluted earnings per share for 1996 and 1995. Basic earnings per share have been computed by dividing net income by the weighted average number of shares outstanding during the year. Except where the result would be antidilutive, diluted earnings per share have been computed assuming the conversion of convertible obligations and the elimination of the related interest expense, and the exercise of stock options, as well as their related income tax effects (Note 12). Stock Split All share and per share information has been restated to reflect a three-for-two stock split, effected in the form of a 50% stock dividend, distributed in August 1996. 10PAGE Thermo Voltek Corp. 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) Cash and Cash Equivalents At year-end 1997 and 1996, $13,744,000 and $16,623,000, respectively, of the Company's cash equivalents were invested in a repurchase agreement with Thermo Electron. Under this agreement, the Company in effect lends excess cash to Thermo Electron, which Thermo Electron collateralizes with investments principally consisting of corporate notes, commercial paper, U.S. government-agency securities, money market funds, and other marketable equity securities, in the amount of at least 103% of such obligation. The Company's funds subject to the repurchase agreement are readily convertible into cash by the Company. The repurchase agreement earns a rate based on the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. Cash equivalents are carried at cost, which approximates market value. Inventories Inventories are stated at the lower of cost (on a first-in, first-out basis) or market value and include materials, labor, and manufacturing overhead. The components of inventories are as follows: (In thousands) 1997 1996 ----------------------------------------------------------------------- Raw materials $ 5,100 $ 4,835 Work in process 4,089 3,097 Finished goods 1,792 2,793 ------- ------- $10,981 $10,725 ======= ======= Property, Plant, and Equipment The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. The Company provides for depreciation and amortization using the straight-line method over the estimated useful lives of the property as follows: building and improvements, 5 to 25 years; machinery and equipment, 2 to 10 years; and leasehold improvements, the shorter of the term of the lease or the life of the asset. Property, plant, and equipment consists of the following: (In thousands) 1997 1996 ----------------------------------------------------------------------- Land and building $ 1,808 $ 1,806 Machinery, equipment, and leasehold improvements 8,829 7,933 ------- ------- 10,637 9,739 Less: Accumulated depreciation and amortization 6,955 5,588 ------- ------- $ 3,682 $ 4,151 ======= ======= 11PAGE Thermo Voltek Corp. 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) Cost in Excess of Net Assets of Acquired Companies The excess of cost over the fair value of net assets of acquired companies is amortized using the straight-line method over periods not exceeding 40 years. Accumulated amortization was $1,886,000 and $1,371,000 at year-end 1997 and 1996, respectively. The Company assesses the future useful life of this asset whenever events or changes in circumstances indicate that the current useful life has diminished. The Company considers the future undiscounted cash flows of the acquired companies in assessing the recoverability of this asset. If impairment has occurred, any excess of carrying value over fair value is recorded as a loss. Foreign Currency All assets and liabilities of the Company's foreign subsidiaries are translated at year-end exchange rates, and revenues and expenses are translated at average exchange rates for the year in accordance with SFAS No. 52, "Foreign Currency Translation." Resulting translation adjustments are reflected as a separate component of shareholders' investment titled "Cumulative translation adjustment." Foreign currency transaction gains and losses are included in the accompanying statement of income and are not material for the three years presented. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Presentation Certain amounts in 1996 have been reclassified to conform to the presentation in the 1997 financial statements. 2. Available-for-sale Investments In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Company's debt and marketable equity securities are considered available-for-sale investments in the accompanying balance sheet and are carried at market value, with the difference between cost and market value, net of related tax effects, recorded currently as a component of shareholders' investment titled "Net unrealized gain on available-for-sale investments." 12PAGE Thermo Voltek Corp. 1997 Financial Statements Notes to Consolidated Financial Statements 2. Available-for-sale Investments (continued) The aggregate market value, cost basis, and gross unrealized gains and losses of available-for-sale investments by major security type are as follows: Gross Gross Market Cost Unrealized Unrealized (In thousands) Value Basis Gains Losses ----------------------------------------------------------------------- 1997 Corporate bonds $ 1,001 $ 1,001 $ - $ - Other 2,040 2,040 - - ------- ------- ------- ------- $ 3,041 $ 3,041 $ - $ - ======= ======= ======= ======= 1996 Government-agency securities $ 4,501 $ 4,500 $ 1 $ - Corporate bonds 2,379 2,314 65 - Money market preferred stock 1,060 1,070 - (10) Other 2,127 2,127 - - ------- ------- ------- ------- $10,067 $10,011 $ 66 $ (10) ======= ======= ======= ======= All of the Company's available-for-sale investments in the accompanying 1997 balance sheet had contractual maturities of one year or less. Actual maturities may differ from contractual maturities as a result of the Company's intent to sell these securities prior to maturity and as a result of put and call options that enable the Company, the issuer, or both to redeem these securities at an earlier date. Gain on the sale of investments in the accompanying 1997 statement of income represents the gross realized gains relating to the sale of related-party available-for-sale investments (Note 9). To determine the gain, the cost of such investments was based on specific identification. 3. Acquisitions In April 1997, the Company acquired substantially all of the assets, subject to certain liabilities, of Milmega Ltd. for approximately $3,248,000 in cash. Milmega primarily manufactures and markets microwave amplifiers that are suitable for EMC testing, physics research, and communications, medical, and military applications. 13PAGE Thermo Voltek Corp. 1997 Financial Statements Notes to Consolidated Financial Statements 3. Acquisitions (continued) In July 1996, the Company acquired substantially all of the assets, subject to certain liabilities, of Pacific Power Source Corporation for $6,300,000 in cash, including the repayment of $800,000 in debt. Pacific Power manufactures programmable power amplifiers that can be incorporated into EMC test equipment to assess how well electronics tolerate normal variations in the quality and quantity of AC voltage. These amplifiers are also used in other kinds of test equipment and in application-specific power supplies. In March 1995, the Company acquired substantially all of the assets, subject to certain liabilities, of Kalmus Engineering Incorporated and R.F. Power Labs, Incorporated (collectively, Kalmus) for $3,755,000 in cash. Kalmus is a manufacturer of radio frequency power amplifiers and systems used to test products for immunity to RFI and in medical imaging and telecommunications applications. Additionally, the Company acquired a component-reliability product line in 1995 for approximately $402,000 in cash. These acquisitions have been accounted for using the purchase method of accounting, and their results of operations have been included in the accompanying financial statements from their respective dates of acquisition. The aggregate cost of these acquisitions exceeded the estimated fair value of the acquired net assets by $10,413,000, which is being amortized over periods not exceeding 40 years. Allocation of the purchase price for these acquisitions was based on estimates of the fair value of the net assets acquired and, for Milmega, is subject to adjustment upon finalization of the purchase price allocation. The Company has gathered no information that indicates that the final allocation will differ materially from the preliminary estimate. Pro forma data is not presented for the Company's acquisitions since they were not material to the Company's results of operations. 4. Employee Benefit Plans Stock-based Compensation Plans Stock Option Plans ------------------ The Company has stock-based compensation plans for its key employees, directors, and others. Two of the plans, adopted in 1985 and 1990, permit the grant of nonqualified and incentive stock options. The plan adopted in 1985 expired in 1995, and no grants were made after that date. A third plan, adopted in 1994, permits the grant of a variety of stock and stock-based awards as determined by the human resources committee of the Company's Board of Directors (the Board Committee), including restricted stock, stock options, stock bonus shares, or performance-based shares. To date, only nonqualified stock options have been awarded under this plan. The option recipients and the terms of options granted under these plans are determined by the Board Committee. Generally, options granted to date are exercisable immediately, but are subject to certain transfer restrictions and the right of the Company to repurchase shares issued upon exercise of the options at the exercise price, upon certain events. 14PAGE Thermo Voltek Corp. 1997 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) The restrictions and repurchase rights generally lapse ratably over a five to ten year period, depending on the term of the option, which may range from five to twelve years. Nonqualified stock options may be granted at any price determined by the Board Committee, although incentive stock options must be granted at not less than the fair market value of the Company's stock on the date of grant. To date, all options have been granted at fair market value. The Company also has a directors' stock option plan, adopted in 1993, that provides for the grant of stock options to outside directors pursuant to a formula approved by the Company's shareholders. Options awarded under this plan are exercisable six months after the date of grant and expire three or seven years after the date of grant. In addition to the Company's stock-based compensation plans, certain officers and key employees may also participate in the stock-based compensation plans of Thermo Electron and Thermedics. A summary of the Company's stock option activity is as follows: 1997 1996 1995 ---------------- ---------------- ---------------- Weighted Weighted Weighted Number Average Number Average Number Average (Shares of Exercise of Exercise of Exercise in thousands) Shares Price Shares Price Shares Price ------------------------------------------------------------------------ Options outstanding, beginning of year 782 $ 6.37 766 $ 5.22 740 $ 4.07 Granted 196 8.27 115 12.52 167 8.73 Exercised (95) 3.28 (55) 3.64 (98) 2.94 Forfeited (93) 9.06 (44) 5.74 (43) 4.30 ----- ----- ----- Options outstanding, end of year 790 $ 6.90 782 $ 6.37 766 $ 5.22 ===== ====== ===== ====== ===== ====== Options exercisable 790 $ 6.90 782 $ 6.37 766 $ 5.22 ===== ====== ===== ====== ===== ====== Options available for grant 281 85 155 ===== ===== ===== 15PAGE Thermo Voltek Corp. 1997 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) A summary of the status of the Company's stock options at January 3, 1998, is as follows: Options Outstanding and Exercisable ----------------------------------- Weighted Weighted Average Average Number Remaining Exercise Range of Exercise Prices Shares Contractual Life Price ---------------------------------------------------------------------- (Shares in thousands) $ 1.59 - $ 4.70 221 2.0 years $ 3.30 4.71 - 7.82 324 6.7 years 6.33 7.83 - 10.93 173 5.6 years 10.15 10.94 - 14.05 72 6.0 years 12.60 --- $ 1.59 - $14.05 790 5.1 years $ 6.90 === Employee Stock Purchase Program ------------------------------- Substantially all of the Company's full-time U.S. employees are eligible to participate in an employee stock purchase program sponsored by the Company and Thermo Electron. Under this program, shares of the Company's and Thermo Electron's common stock may be purchased at the end of a 12-month period at 95% of the fair market value at the beginning of the period, and the shares purchased are subject to a six-month resale restriction. Prior to November 1, 1995, the applicable shares of common stock could be purchased at 85% of the fair market value at the beginning of the period, and the shares purchased were subject to a one-year resale restriction. Shares are purchased through payroll deductions of up to 10% of each participating employee's gross wages. Pro Forma Stock-based Compensation Expense In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-based Compensation," which sets forth a fair-value based method of recognizing stock-based compensation expense. As permitted by SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account for its stock-based compensation plans. Had compensation cost for awards in 1997, 1996, and 1995 under the Company's stock-based compensation plans been determined based on the fair value at 16PAGE Thermo Voltek Corp. 1997 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) the grant dates consistent with the method set forth under SFAS No. 123, the effect on the Company's net income and earnings per share would have been as follows: (In thousands except per share amounts) 1997 1996 1995 ------------------------------------------------------------------------ Net income: As reported $ 279 $4,469 $2,672 Pro forma 16 4,294 2,601 Basic earnings per share: As reported .03 .51 .41 Pro forma - .49 .40 Diluted earnings per share: As reported .03 .38 .28 Pro forma - .37 .28 Because the method prescribed by SFAS No. 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation expense may not be representative of the amount to be expected in future years. Pro forma compensation expense for options granted is reflected over the vesting period; therefore, future pro forma compensation expense may be greater as additional options are granted. The weighted average fair value per share of options granted was $3.41, $5.58, and $3.70 in 1997, 1996, and 1995, respectively. The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions: 1997 1996 1995 ------------------------------------------------------------------------ Volatility 37% 41% 41% Risk-free interest rate 6.1% 6.6% 6.3% Expected life of options 4.8 years 5 years 4.4 years The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 17PAGE Thermo Voltek Corp. 1997 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) 401(k) Savings Plan Substantially all of the Company's full-time U.S. employees are eligible to participate in Thermo Electron's 401(k) savings plan. Contributions to the plan are made by both the employee and the Company. Company contributions are based upon the level of employee contributions. For this plan, the Company contributed and charged to expense $258,000, $249,000, and $184,000 in 1997, 1996, and 1995, respectively. 5. Common Stock At January 3, 1998, the Company had reserved 4,670,330 unissued shares of its common stock for possible issuance under stock-based compensation plans and for issuance upon possible conversion of the Company's subordinated convertible obligations. 6. Income Taxes The components of income before provision for income taxes are as follows: (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Domestic $ 1,805 $ 4,684 $ 2,616 Foreign (1,311) 1,325 748 ------- ------- ------- $ 494 $ 6,009 $ 3,364 ======= ======= ======= The components of the provision for income taxes are as follows: (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Currently payable (receivable): Federal $ 815 $1,554 $ 608 Foreign (540) 466 323 State 92 249 276 ------ ------ ------ 367 2,269 1,207 ------ ------ ------ Net prepaid: Federal (132) (689) (412) State (20) (40) (103) ------ ------ ------ (152) (729) (515) ------ ------ ------ $ 215 $1,540 $ 692 ====== ====== ====== 18PAGE Thermo Voltek Corp. 1997 Financial Statements Notes to Consolidated Financial Statements 6. Income Taxes (continued) The Company receives a tax deduction upon exercise of nonqualified stock options by employees for the difference between the exercise price and the market price of the Company's common stock on the date of exercise. The provision for income taxes that is currently payable does not reflect $153,000, $112,000, and $166,000 of such benefits allocated to capital in excess of par value in 1997, 1996, and 1995, respectively. The provision for income taxes in the accompanying statement of income differs from the provision calculated by applying the statutory federal income tax rate of 34% to income before provision for income taxes due to the following: (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Provision for income taxes at statutory rate $ 168 $2,043 $1,144 Increases (decreases) resulting from: Decrease in valuation allowance - (684) (630) State income taxes, net of federal tax 48 138 114 Nondeductible expenses 63 62 86 Foreign tax rate and tax regulation differential 10 15 68 Foreign sales corporation (89) (123) (87) Other 15 89 (3) ------ ------ ------ $ 215 $1,540 $ 692 ====== ====== ====== Prepaid income taxes in the accompanying balance sheet consist of the following: (In thousands) 1997 1996 ------------------------------------------------------------- Prepaid (deferred) income taxes: Tax loss and credit carryforwards $ 568 $ 652 Accruals and reserves 199 65 Inventory basis differences 875 693 Accrued compensation 470 290 Allowance for doubtful accounts 174 82 Other (108) 20 ------ ------ $2,178 $1,802 ====== ====== The Company had a valuation allowance at year-end 1995 that primarily related to uncertainty surrounding the realization of tax loss and credit carryforwards and certain other tax assets of the Company. The valuation allowance was eliminated in 1996. Of the total decrease to the valuation allowance, $684,000 related to reduced uncertainty surrounding the realizability of the tax loss and credit carryforwards, and was recorded 19PAGE Thermo Voltek Corp. 1997 Financial Statements Notes to Consolidated Financial Statements 6. Income Taxes (continued) as a decrease in the provision for income taxes in 1996. The remaining decrease in the valuation allowance primarily related to the elimination of related tax loss and credit carryforwards due to the inability to obtain a benefit prior to the expiration thereof. The provision for income taxes was reduced by $630,000 in 1995 as a result of changes in the amount of estimated tax assets and the utilization of a portion of the Company's tax loss and credit carryforwards. The Company has federal tax net loss carryforwards, subject to the limitations described below. These net operating loss carryforwards will begin to expire in 1999. Pursuant to U.S. Internal Revenue Code Sections 382 and 383, the utilization of the net operating loss carryforwards is limited to the tax benefit of a deduction of approximately $240,000 per year with any unused portion of this annual limitation carried forward to future years. As of January 3, 1998, net operating loss carryforwards totaled $2.5 million, including $0.6 million that have not been benefited since they will expire unused. A provision has not been made for U.S. or additional foreign taxes on $0.6 million of undistributed earnings of foreign subsidiaries that could be subject to tax if remitted to the U.S. because the Company currently plans to keep these amounts permanently reinvested overseas. 7. Commitments The Company occupies office and operating facilities under operating leases expiring at various dates through 2010. The accompanying statement of income includes expenses from operating leases of $886,000, $555,000, and $381,000 in 1997, 1996, and 1995, respectively. The future minimum payments due under noncancellable operating leases as of January 3, 1998, are $814,000 in 1998; $745,000 in 1999; $655,000 in 2000; $312,000 in 2001; $149,000 in 2002; and $89,000 in 2003 and thereafter. Total future minimum lease payments are $2,764,000. 8. Short- and Long-term Obligations Short-term Obligations The Company has lines of credit denominated in certain foreign currencies to borrow up to approximately $3,638,000. Amounts borrowed under these arrangements are classified as notes payable in the accompanying balance sheet. The weighted average interest rate for these borrowings at year-end 1997 and 1996 was 8.0% and 6.3%, respectively. Unused lines of credit were $1,262,000 at January 3, 1998. 20PAGE Thermo Voltek Corp. 1997 Financial Statements Notes to Consolidated Financial Statements 8. Short- and Long-term Obligations (continued) Long-term Obligations Long-term obligations of the Company are as follows: (In thousands except per share amounts) 1997 1996 ------------------------------------------------------------------------ 3 3/4% Subordinated convertible debentures, due 2000, convertible at $7.83 per share (a) $ 7,750 $ 9,345 5% Subordinated convertible note, due 2003, convertible at $3.78 per share (b) 4,000 4,000 6 3/4% Subordinated convertible note, due 2002, convertible at $4.27 per share (b) 6,000 6,000 ------- ------- $17,750 $19,345 ======= ======= ___________ (a) In lieu of issuing shares of the Company's common stock upon conversion, the Company has the option to pay holders of the debentures cash equal to the weighted average market price of the Company's common stock on the last trading date prior to conversion. (b) Represents an obligation to Thermedics. During 1997 and 1996, $895,000 and $17,395,000, respectively, of convertible obligations were converted into shares of the Company's common stock. Short- and long-term obligations in the accompanying balance sheet are guaranteed on a subordinated basis by Thermo Electron. Thermedics has agreed to reimburse Thermo Electron in the event Thermo Electron is required to make a payment under the guarantees. See Note 10 for fair value information pertaining to the Company's long-term obligations. 9. Related-party Transactions Corporate Services Agreement The Company and Thermo Electron have a corporate services agreement under which Thermo Electron's corporate staff provides certain administrative services, including certain legal advice and services, risk management, certain employee benefit administration, tax advice and preparation of tax returns, centralized cash management, and certain financial and other services, for which the Company paid Thermo Electron annually an amount equal to 1.0% of the Company's revenues in 1997 and 1996 and 1.20% of the Company's revenues in 1995. For these services, the Company was charged $446,000, $485,000, and $436,000 in 1997, 1996, and 1995, respectively. Beginning in fiscal 1998, the Company will pay an annual fee equal to 0.8% of the Company's revenues. The annual fee is reviewed and adjusted annually by mutual agreement of the parties. The corporate services agreement is renewed annually but can be terminated upon 30 days' prior notice by the Company or upon the Company's withdrawal from the Thermo Electron Corporate Charter (the Thermo Electron Corporate Charter defines the relationship among Thermo Electron 21PAGE Thermo Voltek Corp. 1997 Financial Statements Notes to Consolidated Financial Statements 9. Related-party Transactions (continued) and its majority-owned subsidiaries). Management believes that the service fee charged by Thermo Electron is reasonable and that such fees are representative of the expenses the Company would have incurred on a stand-alone basis. For additional items such as employee benefit plans, insurance coverage, and other identifiable costs, Thermo Electron charges the Company based upon costs attributable to the Company. Repurchase Agreement The Company invests excess cash in a repurchase agreement with Thermo Electron as discussed in Note 1. Available-for-sale Investments At December 28, 1996, the Company's available-for-sale investments included $1,399,000 (amortized cost of $1,336,000), of 6 1/2% subordinated convertible debentures, which were purchased on the open market. These debentures, which were sold in 1997 for a gain of $180,000, had a par value of $1,300,000 and were issued by Thermo TerraTech Inc., a majority-owned subsidiary of Thermo Electron. Subordinated Convertible Notes See Note 8 for subordinated convertible notes of the Company held by Thermedics. 10. Fair Value of Financial Instruments The Company's financial instruments consist mainly of cash and cash equivalents, available-for-sale investments, accounts receivable, notes payable, accounts payable, due to parent company and affiliated companies, and subordinated convertible obligations. The carrying amounts of these financial instruments, with the exception of available-for-sale investments and subordinated convertible obligations, approximate fair value due to their short-term nature. Available-for-sale investments are carried at fair value in the accompanying balance sheet. The fair values were determined based on quoted market prices. See Note 2 for fair value information pertaining to these financial instruments. The fair value of the Company's subordinated convertible obligations was determined based on quoted market prices. The carrying amount and fair value of the Company's subordinated convertible obligations are as follows: 1997 1996 --------------------- --------------------- Carrying Fair Carrying Fair (In thousands) Amount Value Amount Value ----------------------------------------------------------------------- Subordinated convertible obligations $17,750 $21,263 $19,345 $38,836 The fair value of subordinated convertible obligations exceeds the carrying amount primarily due to the market price of the Company's common stock exceeding the conversion price of the subordinated convertible obligations. 22PAGE Thermo Voltek Corp. 1997 Financial Statements Notes to Consolidated Financial Statements 11. Geographical Information The following table shows data for the Company by geographical area. (In thousands) 1997 1996 1995 ------------------------------------------------------------------------ Revenues: United States $31,415 $31,013 $23,375 The Netherlands 7,509 8,164 6,977 United Kingdom 4,621 8,565 6,967 Italy 2,421 3,460 2,143 Transfers among geographical areas (a) (1,318) (2,695) (3,136) ------- ------- ------- $44,648 $48,507 $36,326 ======= ======= ======= Income before provision for income taxes: United States $ 2,829 $ 5,045 $ 3,343 The Netherlands 247 798 405 United Kingdom (1,357) 370 388 Italy (231) 236 123 Corporate and eliminations (b) (1,312) (806) (838) ------- ------- ------- Total operating income 176 5,643 3,421 Interest and other income (expense), net 318 366 (57) ------- ------- ------- $ 494 $ 6,009 $ 3,364 ======= ======= ======= Identifiable assets: United States $33,731 $30,954 $21,816 The Netherlands 4,147 5,249 5,238 United Kingdom 5,099 6,561 5,015 Italy 1,115 1,643 1,914 Corporate (c) 19,204 29,282 34,862 ------- ------- ------- $63,296 $73,689 $68,845 ======= ======= ======= Export revenues included in United States revenues above (d): Europe $ 4,733 $ 2,150 $ 4,598 Asia 6,041 7,881 4,994 Other 1,249 1,513 330 ------- ------- ------- $12,023 $11,544 $ 9,922 ======= ======= ======= (a) Transfers among geographical areas are accounted for at prices that are representative of transactions with unaffiliated parties. (b) Primarily corporate general and administrative expenses. (c) Primarily cash and cash equivalents and available-for-sale investments. (d) In general, export sales are denominated in U.S. dollars. 23PAGE Thermo Voltek Corp. 1997 Financial Statements Notes to Consolidated Financial Statements 12. Earnings per Share Basic and diluted earnings per share were calculated as follows: (In thousands except per share amounts) 1997 1996 1995 ----------------------------------------------------------------------- Basic Net income $ 279 $ 4,469 $ 2,672 ------- ------- ------- Weighted average shares 9,182 8,827 6,528 ------- ------- ------- Basic earnings per share $ .03 $ .51 $ .41 ======= ======= ======= Diluted Net income $ 279 $ 4,469 $ 2,672 Effect of: Convertible obligations - 731 1,123 ------- ------- ------- Income available to common shareholders, as adjusted $ 279 $ 5,200 $ 3,795 ------- ------- ------- Weighted average shares 9,182 8,827 6,528 Effect of: Convertible obligations - 4,553 6,781 Stock options 123 248 203 ------- ------- ------- Weighted average shares, as adjusted 9,305 13,628 13,512 ------- ------- ------- Diluted earnings per share $ .03 $ .38 $ .28 ======= ======= ======= The computation of diluted earnings per share in each period excludes the effect of assuming the exercise of certain outstanding stock options because the effect would be antidilutive. As of January 3, 1998, there were 347,750 of such options outstanding, with exercise prices ranging from $7.01 to $14.40 per share. In addition, the computation of diluted earnings per share for 1997 excludes the effect of assuming the conversion of all of the Company's convertible obligations (Note 8) because the effect would be antidilutive. 24PAGE Thermo Voltek Corp. 1997 Financial Statements Notes to Consolidated Financial Statements 13. Unaudited Quarterly Information (In thousands except per share amounts) 1997 First Second(a) Third Fourth ------------------------------------------------------------------------ Revenues $ 9,716 $11,888 $11,132 $11,912 Gross profit 4,265 5,446 4,983 5,094 Net income (loss) (333) 160 427 25 Basic and diluted earnings (loss) per share (.03) .02 .05 - 1996 First Second Third(b) Fourth ------------------------------------------------------------------------ Revenues $10,621 $11,882 $12,800 $13,204 Gross profit 5,231 5,729 6,330 6,860 Net income 937 1,132 1,194 1,206 Earnings per share: Basic .12 .13 .13 .13 Diluted .09 .10 .10 .10 (a) Reflects the April 1997 acquisition of Milmega. (b)Reflects the July 1996 acquisition of Pacific Power. 25PAGE Thermo Voltek Corp. 1997 Financial Statements Report of Independent Public Accountants To the Shareholders and Board of Directors of Thermo Voltek Corp.: We have audited the accompanying consolidated balance sheet of Thermo Voltek Corp. (a Delaware corporation and 65%-owned subsidiary of Thermedics Inc.) and subsidiaries as of January 3, 1998, and December 28, 1996, and the related consolidated statements of income, shareholders' investment, and cash flows for each of the three years in the period ended January 3, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Thermo Voltek Corp. and subsidiaries as of January 3, 1998, and December 28, 1996, and the results of their operations and their cash flows for each of the three years in the period ended January 3, 1998, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts February 12, 1998 26PAGE Thermo Voltek Corp. 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed immediately after this Management's Discussion and Analysis of Financial Conditions and Results of Operations under the heading "Forward-looking Statements." Overview The Company designs, manufactures, and markets electromagnetic compatibility (EMC) test instruments and a range of products related to power amplification, conversion, and quality. The Company's test instruments help manufacturers of electronic systems and integrated circuits ensure product quality and meet certain regulatory requirements. The Company's power products are used in communications, broadcast, research, and medical imaging applications, as well as in EMC testing applications. The Company's KeyTek Instrument division manufactures instruments that test for immunity to pulsed electromagnetic interference (pulsed EMI) and systems used in reliability testing and characterization of semiconductor devices. Through its Universal Voltronics division, the Company manufactures high-voltage power supplies and related equipment that transform utility-supplied AC power into DC voltages and currents required by the user, while allowing precise control over the performance level desired for each application. The Company's Kalmus division manufactures radio frequency (RF) power amplifiers and systems used to test products for immunity to conducted and radiated radio frequency interference (RFI) and in communications, medical, and research applications. Comtest Europe B.V. distributes a range of EMC-related products, and provides EMC consulting and systems-integration services. Acquired in July 1996, Pacific Power Source Corporation manufactures power-conversion equipment for use in a variety of commercial applications and programmable power amplifiers that can be incorporated into EMC test equipment to assess tolerance to normal variances in the quality and quantity of AC voltage. Acquired in April 1997, Milmega Ltd. primarily manufactures and markets microwave amplifiers that are suitable for EMC testing, physics research, and communications, medical, and military applications. In October 1997, the Company established its Global Power Systems division to market specialized power products, particularly for use in boating and marine applications. 27PAGE Thermo Voltek Corp. 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Overview (continued) During 1997, the Company experienced lower demand for its EMC test products, as described below. Due in part to these developments, during 1997 the Company implemented certain operational, organizational, and personnel changes. The Company's strategy is to expand through a combination of internal product development and the acquisition of new businesses and technologies. As discussed above, the Company acquired Pacific Power in July 1996 and Milmega Ltd. in April 1997 (Note 3). Approximately 57%, 60%, and 63% of the Company's revenues in 1997, 1996, and 1995, respectively, were derived from sales of products outside the U.S., through export sales and sales by the Company's European operations. During 1997, the Company had exports from the Company's U.S. and foreign operations to Asia of approximately 16% of total revenues, primarily to Taiwan, Japan, and South Korea. Asia is experiencing a severe economic crisis, which has been characterized by sharply reduced economic activity and liquidity, highly volatile foreign-currency- exchange and interest rates, and unstable stock markets. The Company's export sales to Asia could be adversely affected by the unstable economic conditions there. Although the Company seeks to charge its customers in the same currency as its operating costs, the Company's financial performance and competitive position can be affected by currency exchange rate fluctuations. Results of Operations 1997 Compared With 1996 Revenues decreased to $44.6 million in 1997 from $48.5 million in 1996. The decrease was primarily due to lower demand for the Company's EMC test products, resulting from the declining influence of IEC 801, the European Union directive on electromagnetic compatibility that took effect January 1, 1996, and, to a lesser extent, a decline in the component-reliability market for ESD test equipment that resulted from a slowdown in capital expenditures by the semiconductor industry. These decreases in revenues were offset in part by an increase in revenues of $5.8 million due to the acquisitions of Pacific Power in July 1996 and Milmega in April 1997. The gross profit margin decreased to 44% in 1997 from 50% in 1996, primarily due to a decrease in the sale of certain higher-margin EMC test products, as well as the effect of the Company's decrease in total revenues. Selling, general, and administrative expenses as a percentage of revenues increased to 36% in 1997 from 31% in 1996, primarily due to the effect of the Company's decrease in revenues, offset in part by the effect of the acquisitions of Pacific Power and Milmega, which have lower costs as a percentage of revenues. In addition, during the second quarter of 1997, the Company incurred $0.4 million of severance and related costs associated with reductions in personnel, as part of a continuing 28PAGE Thermo Voltek Corp. 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1997 Compared With 1996 (continued) evaluation of its lines of business. Research and development expenses were $3.6 million in both periods, primarily due to an increase of $0.4 million related to the acquisitions of Pacific Power and Milmega, offset by the completed development of certain new products in the third and fourth quarters of 1996. Interest income decreased to $1.2 million in 1997 from $1.8 million in 1996, primarily due to lower average invested balances. Interest expense decreased to $1.2 million in 1997 from $1.4 million in 1996, primarily due to conversions of the Company's subordinated convertible obligations. The effective tax rates were 44% and 26% in 1997 and 1996, respectively. The effective tax rate exceeded the statutory federal income tax rate in 1997, primarily due to the impact of nondeductible expenses and state income taxes. The effective tax rate was below the statutory federal income tax rate in 1996, primarily due to the elimination of the tax valuation allowance that was no longer required (Note 6), offset in part by the impact of state income taxes. The Company is currently assessing the potential impact of the year 2000 on the processing of date-sensitive information by the Company's computerized information systems and on products sold as well as products purchased by the Company. The Company believes that its internal information systems and current products are either year 2000 compliant or will be so prior to the year 2000 without incurring material costs. There can be no assurance, however, that the Company will not experience unexpected costs and delays in achieving year 2000 compliance for its internal information systems and current products, which could result in a material adverse effect on the Company's future results of operations. The Company is presently assessing the effect that the year 2000 problem may have on its previously sold products. The Company is also assessing whether its key suppliers are adequately addressing this issue and the effect this might have on the Company. The Company has not completed its analysis and is unable to conclude at this time that the year 2000 problem as it relates to its previously sold products and products purchased from key suppliers is not reasonably likely to have a material adverse effect on the Company's future results of operations. 1996 Compared With 1995 Revenues increased 34% to $48.5 million in 1996 from $36.3 million in 1995, due to an increase in revenues at Comtest, the inclusion of $3.0 million in revenues from the July 1996 acquisition of Pacific Power, and increased revenues at KeyTek and Kalmus. Revenues at Comtest increased primarily due to an increase in demand for electrostatic-discharge test equipment manufactured by its Verifier division, as well as an increase in revenues from a product line for testing immunity to RFI that was introduced in 1995. Increased revenues at KeyTek primarily resulted from greater demand for its EMC test equipment. Revenues at Kalmus, acquired in March 1995, increased $1.1 million due to the inclusion of revenues 29PAGE Thermo Voltek Corp. 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations 1996 Compared With 1995 (continued) for the full year in 1996 and $1.3 million primarily due to increased shipments resulting from the implementation of manufacturing efficiencies. The gross profit margin increased to 50% in 1996 from 48% in 1995, primarily due to an increase in higher-margin domestic sales at KeyTek and an increase in the gross profit margin at Kalmus, primarily due to implementation of manufacturing efficiencies. Selling, general, and administrative expenses as a percentage of revenues decreased to 31% in 1996 from 32% in 1995, primarily due to an increase in revenues. Research and development expenses increased to $3.6 million in 1996 from $2.3 million in 1995, principally due to higher research and development expenses at Comtest and KeyTek. Interest income decreased to $1.8 million in 1996 from $2.1 million in 1995, primarily due to lower average invested balances. Interest expense decreased to $1.4 million in 1996 from $2.1 million in 1995, primarily due to conversions of the Company's subordinated convertible obligations during 1995 and 1996. The effective tax rate was 26% in 1996 and 21% in 1995. The effective tax rates were below the statutory federal income tax rate primarily due to the elimination of the tax valuation allowance that was no longer required (Note 6), offset in part by the impact of state income taxes. The effective tax rate increased in 1996 primarily due to a decrease in tax net operating loss carryforwards as a percentage of income before provision for income taxes. Liquidity and Capital Resources Consolidated working capital was $29.9 million at January 3, 1998, compared with $40.9 million at December 28, 1996. Included in working capital are cash, cash equivalents, and available-for-sale investments of $17.6 million at January 3, 1998, compared with $27.9 million at December 28, 1996. During 1997, $2.1 million of cash was provided by operating activities. Cash of $1.6 million provided by a decrease in accounts receivable as a result of the Company's decrease in revenues was offset by cash of $1.4 million used to reduce other current liabilities. Excluding available-for-sale investment activity, the Company's investing activities in 1997 consisted primarily of the acquisition of Milmega for $2.8 million, net of cash acquired (Note 3), and $0.9 million of expenditures for purchases of property, plant, and equipment. The Company expects to make capital expenditures of approximately $1.4 million during 1998. The Company's financing activities used $8.5 million of cash during 1997. In April and December 1997, the Company's Board of Directors authorized the repurchase, through various dates ending December 16, 1998, of up to $15.0 million of Company securities, to be funded from working capital. During 1997, the Company expended $9.7 million under these authorizations. Although the Company expects to have positive cash flow from its existing operations, the Company anticipates it will require significant amounts of cash for the possible acquisition of complementary businesses 30PAGE Thermo Voltek Corp. 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources (continued) and technologies. While the Company currently has no agreement to make any acquisition, it expects that it will finance any acquisition through a combination of internal funds, additional debt or equity financing, and/or short-term borrowings from Thermo Electron or Thermedics, although there is no agreement with these companies to ensure that funds will be available on acceptable terms or at all. The Company believes that its existing resources are sufficient to meet the capital requirements of its existing operations for the foreseeable future. 31PAGE Thermo Voltek Corp. 1997 Financial Statements Forward-looking Statements In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company wishes to caution readers that the following important factors, among others, in some cases have affected, and in the future could affect, the Company's actual results and could cause its actual results in 1998 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Rapid Technological Change. The market for EMC testing products and services is characterized by rapid technological change. No assurance can be given that the Company will be able to develop new and enhanced instruments that keep pace with technological developments and respond to the increasingly complex requirements of electronics manufacturers. Reliance on Electrical Standards. Demand for the Company's EMC testing products and services is driven to a large extent by mandatory government standards and voluntary industry standards relating to electromagnetic compatibility. In particular, demand for many of the Company's products results from efforts by manufacturers to comply with IEC 801, an EC directive that became effective on January 1, 1996. As the number of noncomplying manufacturers is reduced over time, demand for the Company's products could be adversely affected. In addition, if new EMC standards requiring new testing capabilities are enacted less frequently or if EMC standards become less strict or are not strictly enforced, demand for the Company's products could be adversely affected. Sole Source Suppliers. A number of the components of the Company's EMC testing products are supplied by single vendors. Although the Company has not experienced significant difficulty in obtaining adequate supplies from these vendors, and believes that it would be able to identify alternative suppliers if necessary, there can be no assurance that the unanticipated loss of a single vendor would not result in delays in shipments or in the introduction of new products. International Sales. International sales account for a significant portion of the Company's revenues. Sales to customers in certain foreign countries are subject to a number of risks, including the following: agreements may be difficult to enforce, and receivables difficult to collect, through a foreign country's legal system; foreign customers may have longer payment cycles; foreign countries could impose withholding taxes or otherwise tax the Company's foreign income, impose tariffs, embargoes, or exchange controls, or adopt other restrictions on foreign trade; and export licenses, if required, may be difficult to obtain. In addition, fluctuations in foreign currency exchange rates could have an adverse impact on international sales. A portion of the Company's revenues is derived from exports to the Asia. Certain countries in Asia are experiencing a severe economic crisis, which has been characterized by sharply reduced economic activity and liquidity, highly volatile foreign-currency-exchange and interest rates, and unstable stock markets. The Company's export sales to Asia could be adversely affected by the unstable economic conditions there. 32PAGE Thermo Voltek Corp. 1997 Financial Statements Forward-looking Statements Risks Associated With Acquisition Strategy. The Company's strategy includes the acquisition of businesses and technologies that complement or augment the Company's existing product lines. Promising acquisitions are difficult to identify and complete for a number of reasons, including competition among prospective buyers and the need for regulatory approval, including antitrust approvals. There can be no assurance that the Company will be able to complete future acquisitions or that the Company will be able to successfully integrate any acquired business. In order to finance such acquisitions, it may be necessary for the Company to raise additional funds through public or private financings. Any equity or debt financing, if available at all, may be on terms that are not favorable to the Company and, in the case of equity financing, may result in dilution to the Company's stockholders. Potential Impact of Year 2000 on Processing of Date-Sensitive Information. The Company is currently assessing the potential impact of the year 2000 on the processing of date-sensitive information by the Company's computerized information systems and on products sold as well as products purchased by the Company. The Company believes that its internal information systems and current products are either year 2000 compliant or will be so prior to the year 2000 without incurring material costs. There can be no assurance, however, that the Company will not experience unexpected costs and delays in achieving year 2000 compliance for its internal information systems and current products, which could result in a material adverse effect on the Company's future results of operations. The Company is presently assessing the effect that the year 2000 problem may have on its previously sold products. The Company is also assessing whether its key suppliers are adequately addressing this issue and the effect this might have on the Company. The Company has not completed its analysis and is unable to conclude at this time that the year 2000 problem as it relates to its previously sold products and products purchased from key suppliers is not reasonably likely to have a material adverse effect on the Company's future results of operations. 33PAGE Thermo Voltek Corp. 1997 Financial Statements Selected Financial Information (In thousands except per share amounts) 1997(a) 1996(b) 1995(c) 1994(d) 1993 ---------------------------------------------------------------------- Statement of Income Data: Revenues $44,648 $48,507 $36,326 $23,641 $18,089 Net income 279 4,469 2,672 1,118 480 Earnings per share: Basic .03 .51 .41 .19 .08 Diluted .03 .38 .28 .17 .08 Balance Sheet Data: Working capital $29,863 $40,915 $41,826 $41,990 $42,023 Total assets 63,296 73,689 68,845 62,224 57,471 Long-term obligations 17,750 19,345 36,740 46,000 46,000 Shareholders' investment 34,392 42,445 20,959 8,472 7,097 (a)Reflects the April 1997 acquisition of Milmega. (b)Reflects the July 1996 acquisition of Pacific Power. (c)Reflects the March 1995 acquisition of Kalmus. (d)Reflects the July 1994 acquisition of Verifier. 34PAGE Thermo Voltek Corp. 1997 Financial Statements Common Stock Market Information The Company's common stock is traded on the American Stock Exchange under the symbol TVL. The following table sets forth the high and low sale prices of the Company's common stock for 1997 and 1996, as reported in the consolidated transaction reporting system. 1997 1996 -------------------- -------------------- Quarter High Low High Low ------------------------------------------------------------------------ First $12 7/8 $ 9 3/8 $14 1/12 $10 1/4 Second 9 5/8 6 7/8 15 12 1/12 Third 7 9/16 6 14 1/8 10 1/3 Fourth 7 13/16 5 14 9 3/4 As of January 30, 1998, the Company had 330 holders of record of its common stock. This does not include holdings in street or nominee names. The closing market price on the American Stock Exchange for the Company's common stock on January 30, 1998, was $5 5/16 per share. Shareholder Services Shareholders of Thermo Voltek Corp. who desire information about the Company are invited to contact John N. Hatsopoulos, Chief Financial Officer, Thermo Voltek Corp., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046, (781) 622-1111. A mailing list is maintained to enable shareholders whose stock is held in street name, and other interested individuals, to receive quarterly reports, annual reports, and press releases as quickly as possible. Distribution of printed quarterly reports is limited to the second quarter only. All material will be available from Thermo Electron's Internet site (http://www.thermo.com/ subsid/tvl1.html). Stock Transfer Agent American Stock Transfer & Trust Company is the stock transfer agent and maintains shareholder activity records. The agent will respond to questions on issuance of stock certificates, change of ownership, lost stock certificates, and change of address. For these and similar matters, please direct inquiries to: American Stock Transfer & Trust Company Shareholder Services Department 40 Wall Street, 46th Floor New York, New York 10005 (718) 921-8200 Dividend Policy The Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future because its policy has been to use earnings to finance expansion and growth. Payment of dividends will rest within the discretion of the Board of Directors and will depend upon, among other factors, earnings, capital requirements, and financial condition. 35PAGE Thermo Voltek Corp. 1997 Financial Statements Form 10-K Report A copy of the Annual Report on Form 10-K for the fiscal year ended January 3, 1998, as filed with the Securities and Exchange Commission, may be obtained at no charge by writing to John N. Hatsopoulos, Chief Financial Officer, Thermo Voltek Corp., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046. Annual Meeting The annual meeting of shareholders will be held on Monday, June 1, 1998, at 1:30 p.m., at the Hyatt Regency Hotel, Scottsdale, Arizona. 36 EX-21 6 Exhibit 21 THERMO VOLTEK CORP. Subsidiaries of the Registrant At February 28, 1998, the Registrant owned the following companies: State or Jurisdiction Registrant's % Name of Incorporation of Ownership ------------------------------------------------------------------------- Comtest Europe B.V. The Netherlands 100% Comtest Instrumentation, B.V. The Netherlands 100% Comtest Italia S.R.L. Italy 100% Comtest Limited United Kingdom 100% Milmega Limited United Kingdom 100% TVL Securities Corporation Delaware 100% UVC Realty Corp. New York 100% EX-23 7 Exhibit 23 Consent of Independent Public Accountants ----------------------------------------- As independent public accountants, we hereby consent to the incorporation by reference of our reports dated February 12, 1998, included in or incorporated by reference into Thermo Voltek Corp.'s Annual Report on Form 10-K for the year ended January 3, 1998, into the Company's previously filed Registration Statements as follows: Registration Statement No. 33-74484 on Form S-3, Registration Statement No. 33-52802 on Form S-8, Registration Statement No. 33-71780 on Form S-8, Registration Statement No. 33-70646 on Form S-8, Registration Statement No. 33-71782 on Form S-8, Registration Statement No. 33-71784 on Form S-8, Registration Statement No. 33-85954 on Form S-8, Registration Statement No. 033-65277 on Form S-8, and Registration Statement No. 333-8835 on Form S-8. Arthur Andersen LLP Boston, Massachusetts March 13, 1998 EX-27.1 8
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO VOLTEK CORP.'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JANUARY 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-03-1998 JAN-03-1998 14,608 3,041 11,187 799 10,981 41,017 10,637 6,955 63,296 11,154 7,750 0 0 497 33,895 63,296 44,648 44,648 24,860 24,860 3,620 326 1,162 494 215 279 0 0 0 279 .03 .03
EX-27.2 9
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO VOLTEK CORP.'S QUARTERLY REPORT ON FORM 10-K FOR THE QUARTER ENDED MARCH 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-28-1996 MAR-30-1996 12,601 21,124 10,147 489 9,160 53,683 7,869 4,813 69,149 10,685 21,005 0 0 262 25,697 69,149 10,621 10,621 5,390 5,390 710 43 435 1,327 390 937 0 0 0 937 .12 .09
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