<PAGE>
As filed with the Securities and Exchange Commission on February 4, 2000
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------
inTEST Corporation
(Exact name of registrant as specified in its charter)
Delaware 3825 22-2370659
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation)
---------------------
2 Pin Oak Lane
Cherry Hill, New Jersey 08003
(856) 424-6886
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
---------------------
ROBERT E. MATTHIESSEN
President and Chief Executive Officer
inTEST Corporation
2 Pin Oak Lane
Cherry Hill, New Jersey 08003
(856) 424-6886
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copy to:
---------------------
CHARLES C. ZALL, Esq.
PATRICIA A. GRITZAN, Esq.
Saul, Ewing, Remick & Saul LLP
1500 Market Street, 38th Floor
Philadelphia, PA 19102
(215) 972-7777
Approximate date of commencement of proposed offer to the public: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. / /
---------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================
Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of Each Class of Amount to be Offering Price Offering Registration
Securities to be Registered Registered(1) per Share Price(2) Fee(3)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, ............... 2,186,870 shares $ 2.02 $4,417,073 $ 1,166.11
=================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
(1) Based upon the maximum number of shares that may be issued in the
transaction described in this registration statement.
(2) Estimated solely for the purpose of computing the registration fee, in
accordance with Rule 457(f)(2) under the Securities Act, based upon the
book value, as of September 30, 1999, of all shares of common stock of
Temptronic Corporation to be acquired by inTEST Corporation in the
transaction described in this registration statement.
(3) Pursuant to Rule 457(b) under the Securities Act, the calculated fee of
$1,166.11 has been reduced by the fee of $883.41 which was previously paid
with respect to this transaction by inTEST on January 10, 2000 pursuant to
Section 14(g) of the Securities Exchange Act of 1934, as amended, upon the
filing of inTEST's preliminary proxy statement. Accordingly, $282.70 is
paid in connection with the filing of this Registration Statement on Form
S-4.
---------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this registration statement
shall become effective on such date as the Commission, acting pursuant to
Section 8(a) of the Securities Act, may determine.
================================================================================
<PAGE>
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
JOINT PROXY STATEMENT/PROSPECTUS
MERGER PROPOSED: YOUR VOTE IS VERY IMPORTANT
The boards of directors of inTEST Corporation and Temptronic Corporation
have agreed upon a merger combining inTEST and Temptronic. Under the terms of
the merger agreement, which was signed on January 4, 2000, Temptronic will
merge into a wholly-owned subsidiary of inTEST. inTEST will be the surviving,
publicly-traded company.
In the merger, inTEST expects to issue up to 2,156,870 shares of its
common stock to Temptronic shareholders. Of that amount, up to 1,941,183
shares, or 90% of the total shares, will be issued to Temptronic shareholders
at the closing of the merger and up to 215,687 shares, or 10% of the total
shares, will be held in escrow for one year. After one year, the shares held in
escrow will be distributed to Temptronic shareholders, less any shares used to
satisfy any valid claims by inTEST that Temptronic breached its representations
and warranties under the merger agreement.
Thus, at the closing, Temptronic shareholders will receive 0.8325 shares
of inTEST common stock in exchange for each share of Temptronic common stock.
For example, a holder of 10,000 shares of Temptronic stock would receive 8,325
inTEST shares at closing. An additional 925 shares would be held in escrow for
the account of that shareholder. Any of these shares which are not cancelled to
satisfy valid claims by inTEST would be delivered to the shareholder after the
end of one year.
Completion of the merger is subject to approval of shareholders of both
companies. Special meetings for both Temptronic shareholders and inTEST
shareholders have been scheduled to vote on the merger. Each of these special
meetings will take place on March 9, 2000. Only shareholders of record of
inTEST and Temptronic common stock as of February 2, 2000, are entitled to vote
at the meetings.
This joint proxy statement/prospectus serves several purposes: it gives
you detailed information about the proposed merger; it is a proxy statement
that Temptronic is using to solicit proxies for use at the Temptronic special
meeting of shareholders; it is a proxy statement that inTEST is using to
solicit proxies for use at the inTEST special meeting of shareholders; and, it
is a prospectus relating to the issuance of inTEST common stock in connection
with the merger. A copy of the merger agreement is included as Appendix A. You
should read this entire document, including the appendices, carefully.
Your vote is very important. Whether or not you plan to attend a special
meeting, please take the time to vote by completing and mailing the enclosed
proxy card. If you sign, date and mail your proxy card without indicating how
you want to vote, your proxy will be counted as a vote in favor of the merger.
FOR A MORE COMPLETE DESCRIPTION OF THE MERGER AND CERTAIN RISK FACTORS YOU
MAY WANT TO CONSIDER IN CONNECTION WITH YOUR VOTE, SEE "THE MERGER" BEGINNING
ON PAGE 22 AND "RISK FACTORS" BEGINNING ON PAGE 12.
On February 2, 2000 inTEST common stock, which is traded on the Nasdaq
National Market under the trading symbol "INTT", closed at $20.50 per share.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
This joint proxy statement/prospectus is dated February 3, 2000 and is
first mailed to shareholders of inTEST and Temptronic on or about February 9,
2000.
<PAGE>
TEMPTRONIC CORPORATION
55 CHAPEL STREET
NEWTON, MA 02158
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 9, 2000
To the Shareholders of Temptronic Corporation:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of
Temptronic Corporation, a Massachusetts corporation, will be held on March 9,
2000 at the offices of Foley, Hoag & Eliot LLP, One Post Office Square, Boston,
Massachusetts, commencing at 10:00 a.m., local time, for the following
purposes:
1. To consider and vote upon a proposal to approve the agreement and plan of
merger and reorganization dated as of January 4, 2000 among inTEST
Corporation, Temptronic Corporation and a wholly-owned subsidiary of
inTEST, as more fully described in the accompanying joint proxy
statement/prospectus; and
2. To act upon any other business which may properly come before the meeting
or any adjournment or postponement thereof.
After careful consideration, the Board of Directors of Temptronic has
unanimously approved the merger agreement and unanimously recommends that you
vote "FOR" approval of the merger.
Shareholders of record as of the close of business on February 2, 2000 are
entitled to notice of and to vote at the special meeting. Also, participants in
the Temptronic employee stock ownership plan have the right to direct the
voting of shares allocated to them under the plan. The affirmative vote of the
holders of two-thirds of the outstanding shares of Temptronic common stock is
necessary to adopt the merger agreement. All shareholders of Temptronic are
invited to attend the meeting in person. However, to ensure your representation
at the meeting, you are urged to complete, sign and return the enclosed proxy
card as promptly as possible in the enclosed postage-prepaid envelope.
If the merger agreement and the merger are approved by the Temptronic
shareholders at the meeting and the merger is effected by Temptronic, any
shareholder (1) who files with Temptronic, before the taking of the vote at the
meeting, written objection to the merger stating that the shareholder intends
to demand payment for his or her shares if the merger is effected and (2) whose
shares are not voted in favor of the merger has or may have the right to demand
in writing from Temptronic, within twenty days after the date of mailing to him
or her of notice in writing that the merger has become effective, payment for
his or her shares and an appraisal of the value thereof. Temptronic and any
such shareholder shall in such cases have the rights and duties and shall
follow the procedure set forth in sections 88 to 98, inclusive, of chapter 156B
of the General Laws of Massachusetts.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ EDWARD N. GADSBY, JR.
-------------------------
Edward N. Gadsby, Jr.
Clerk
February 3, 2000
Newton, Massachusetts
<PAGE>
inTEST CORPORATION
2 Pin Oak Lane
Cherry Hill, New Jersey 08003
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held March 9, 2000
------------
TO OUR SHAREHOLDERS:
A special meeting of shareholders of inTEST Corporation will be held at
10:00 a.m., local time, on March 9, 2000 at the offices of Saul, Ewing, Remick
& Saul LLP, Centre Square West, 1500 Market Street, 38th Floor, Philadelphia,
Pennsylvania for the following purposes:
1. To consider and vote upon a proposal to approve the agreement and plan
of merger and reorganization dated as of January 4, 2000 among inTEST
Corporation, Temptronic Corporation and a wholly-owned subsidiary of
inTEST, as more fully described in the accompanying joint proxy
statement/prospectus; and
2. To act upon any other business which may properly come before the
meeting or any adjournment or postponement thereof.
After careful consideration, the Board of Directors of inTEST has
unanimously approved the merger agreement and unanimously recommends that you
vote "FOR" approval of the merger agreement.
Shareholders of record as of the close of business February 2, 2000 are
entitled to notice of and to vote at the special meeting. All shareholders are
cordially invited to attend the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ HUGH T. REGAN, JR.
-------------------------
Hugh T. Regan, Jr.
Secretary
February 3, 2000
Cherry Hill, New Jersey
YOUR VOTE IS IMPORTANT
Whether or not you expect to attend the special meeting, please complete, date,
sign and mail your proxy card in order that the necessary quorum may be
represented at the special meeting. The enclosed envelope requires no postage
if mailed in the United States.
<PAGE>
FINDING IMPORTANT INFORMATION
This joint proxy statement/prospectus contains important information about
our companies and the merger that you should read and consider carefully before
you vote your shares. The principal sections of this document are located at
the pages referenced in the Table of Contents below. Some of the documents
related to the merger are included as appendices to this document.
Table of Contents
QUESTIONS AND ANSWERS ABOUT THE inTEST/TEMPTRONIC MERGER ..................... 1
SUMMARY ...................................................................... 3
The Companies ............................................................... 3
The Merger .................................................................. 3
Reasons for the Merger ...................................................... 3
Approval of the Merger ...................................................... 3
Special Meeting of Temptronic Shareholders .................................. 3
Special Meeting of inTEST Shareholders ...................................... 3
Recommendations to Shareholders ............................................. 4
Additional Considerations ................................................... 4
Comparative Per Share Market Price .......................................... 5
SELECTED HISTORICAL FINANCIAL DATA OF inTEST CORPORATION ..................... 6
SELECTED HISTORICAL FINANCIAL DATA OF TEMPTRONIC CORPORATION ................. 7
SELECTED PRO FORMA COMBINED FINANCIAL DATA ................................... 8
COMPARATIVE AND PRO FORMA PER SHARE FINANCIAL DATA ........................... 9
MARKET PRICES AND DIVIDEND POLICIES ..........................................11
RISK FACTORS .................................................................12
WHERE YOU CAN FIND MORE INFORMATION ..........................................17
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION ...................17
SPECIAL MEETINGS OF SHAREHOLDERS .............................................18
SPECIAL MEETING OF inTEST SHAREHOLDERS ......................................18
SPECIAL MEETING OF TEMPTRONIC SHAREHOLDERS ..................................20
THE MERGER ...................................................................22
General .....................................................................22
Temptronic Shares to be Converted ...........................................22
Shares to be Held in Escrow .................................................22
Treatment of Temptronic Stock Options .......................................23
Representations and Warranties ..............................................23
Conduct of Business Pending the Merger ......................................23
Conditions to the Merger ....................................................24
Escrow Agreement and Indemnification Claims .................................24
Closing and Effective Time ..................................................25
Exchange of Temptronic Certificates .........................................25
Background of the Merger ....................................................26
Opinion of Janney Montgomery Scott LLC ......................................27
inTEST's Reasons for the Merger .............................................31
Temptronic's Reasons for the Merger .........................................32
Interests of Temptronic's Management and
Certain Shareholders in the Merger ..........................................32
Ownership of inTEST Following the Merger ....................................33
Management of inTEST Following the Merger ...................................33
Affiliate Agreements ........................................................33
RESALE OF inTEST COMMON STOCK AND NASDAQ LISTING .............................34
NO DISSENTER'S RIGHTS FOR inTEST SHAREHOLDERS ................................34
RIGHTS OF DISSENTING TEMPTRONIC SHAREHOLDERS .................................34
MATERIAL FEDERAL INCOME TAX CONSEQUENCES .....................................34
i
<PAGE>
ACCOUNTING TREATMENT ....................................................... 35
INFORMATION CONCERNING inTEST CORPORATION ................................ 36
The Company ............................................................. 36
Industry Background ..................................................... 36
Products ................................................................ 38
Markets and Customers ................................................... 40
Manufacturing and Supply ................................................ 41
Sales and Distribution .................................................. 41
Competition ............................................................. 42
Patents and Other Proprietary Rights..................................... 42
Backlog ................................................................. 42
Seasonality ............................................................. 42
Employees ............................................................... 43
Properties .............................................................. 43
Legal Proceedings ....................................................... 43
DIRECTORS AND OFFICERS OF inTEST ......................................... 44
Biographical ............................................................ 44
Director Compensation ................................................... 45
Compensation of inTEST Management ....................................... 46
Employment Agreements ................................................... 47
Compensation Committee Interlocks and Insider Participation ............. 48
Certain Relationships and Related Transactions .......................... 48
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS OF inTEST ................... 48
inTEST MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ........................... 50
Overview ................................................................ 50
Significant Events ...................................................... 50
Results of Operations ................................................... 51
Liquidity and Capital Resources ......................................... 53
Year 2000 ............................................................... 53
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK RELATING TO inTEST .................................................. 54
DESCRIPTION OF inTEST COMMON STOCK ....................................... 54
Common Stock ............................................................ 54
Preferred Stock ......................................................... 55
Corporate Provisions .................................................... 55
Transfer Agent and Registrar ............................................ 55
INFORMATION CONCERNING TEMPTRONIC CORPORATION ............................ 55
The Company ............................................................. 55
Industry Background ..................................................... 56
Products and Service .................................................... 56
Markets and Customers ................................................... 58
Manufacturing and Supply ................................................ 58
Sales and Distribution .................................................. 59
Competition ............................................................. 59
Research and Development ................................................ 59
Intellectual Property ................................................... 60
Backlog ................................................................. 60
Seasonality ............................................................. 60
Facilities .............................................................. 60
Personnel .............................................................. 60
Legal Proceedings ....................................................... 60
.... ii
<PAGE>
DIRECTORS AND OFFICER OF TEMPTRONIC ...................................... 61
Biographical ............................................................ 61
Compensation of Temptronic's President and Chief Executive Officer ...... 61
Employment Agreement .................................................... 62
Security Ownership of Certain Beneficial Owners
and Management of Temptronic ............................................ 63
TEMPTRONIC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ..................................... 64
Overview ................................................................ 64
Results of Operations ................................................... 65
Liquidity and Capital Resources ......................................... 67
Year 2000 ............................................................... 68
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK RELATING
TO TEMPTRONIC ........................................................... 68
COMPARISON OF RIGHTS OF SHAREHOLDERS ..................................... 68
Meetings of Shareholders ................................................ 69
Action by Consent of Shareholders ....................................... 69
Sale, Lease or Exchange of Assets and Mergers ........................... 69
Removal of Directors .................................................... 69
Vacancies on the Board of Directors ..................................... 69
Director's Limit of Liability ........................................... 70
Indemnification of Directors, Officers and Others ....................... 70
Interested Directors and Officers ....................................... 70
Amendments to Certificate of Incorporation/Articles of Organization ..... 71
Amendments to Bylaws .................................................... 71
Inspection Rights ....................................................... 71
Appraisal Rights ........................................................ 71
LEGAL MATTERS ............................................................ 72
EXPERTS .................................................................. 72
COMMISSION POSITION ON INDEMNIFICATION ................................... 72
PRO FORMA COMBINEDD FINANCIAL STATEMENTS ................................. 73
INDEX TO FINANCIAL STATEMENTS ............................................ F-1
Appendix A Agreement and Plan of Merger and Reorganization .............. A-1
Appendix B Sections 85 through 98 of Chapter 156B of the General Laws of
Massachusetts -- Appraisal Rights ............................ B-1
Appendix C Opinion of Janney Montgomery Scott LLC ....................... C-1
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE inTEST/TEMPTRONIC MERGER
Q: What do I need to do now?
A: Just sign your proxy card and mail it in the enclosed return envelope as
soon as possible, so that your shares may be represented at your
special meeting. Both the inTEST and Temptronic special meetings will
take place on March 9, 2000.
Q: What if I want to change my vote?
A: Just send in a later dated, signed proxy card before your special
meeting or attend your special meeting in person and vote.
Q: Will I have dissenters' rights?
A: inTEST shareholders will not be entitled to dissenters' rights in
connection with the merger. Temptronic shareholders who do not wish to
accept the inTEST common stock to be issued in the merger may have the
right to be paid the fair value of their shares. These dissenters'
rights are subject to a number of restrictions and technical and
procedural requirements. Generally, in order to exercise dissenters'
rights, a Temptronic shareholder:
o must not vote in favor of the merger; and
o must make a written objection to the merger and a statement that
the shareholder intends to demand payment for his or her shares,
before the vote on the merger.
Merely voting against the merger will not protect Temptronic
shareholders' right of appraisal. Appendix B contains the text of the
Massachusetts appraisal statute.
Please note that inTEST has the right not to proceed with the merger if
the holders of 2% or more of Temptronic stock exercise their dissenters'
rights.
Q: When do you expect the merger to be completed?
A: The merger will be completed as soon as possible following the approval
of the shareholders at the special meetings.
<PAGE>
Q: Should I send in my stock certificates now?
A: No. After the merger is completed, Temptronic shareholders will receive
written instructions for exchanging their stock certificates. inTEST
shareholders will keep their current stock certificates.
Q: What will I receive in the merger?
A: A Temptronic shareholder who does not effectively exercise dissenters'
rights will receive up to 0.925 shares of inTEST common stock for each
share of Temptronic common stock owned by that shareholder, payable as
follows:
o 90%, or 0.8325 shares of inTEST common stock per share of
Temptronic common stock, at the closing of the merger, and
o up to 10%, or 0.0925 shares of inTEST common stock per share of
Temptronic common stock, one year after the closing.
No fractional shares of inTEST common stock will be issued. Instead,
Temptronic shareholders will receive cash in lieu of any fractional
share to which he or she may be entitled.
inTEST shareholders will continue to own the shares they currently own.
Q: How do I vote shares that I hold through the Temptronic ESOP?
A: If you are a participant in Temptronic's employee stock ownership plan,
then you are entitled to direct the voting of Temptronic shares
allocated to you under the plan. The plan trustees will vote these
shares in accordance with your instructions. You should forward your
completed proxy materials to the plan trustees in the return envelope
provided.
Q: What happens to my options to buy Temptronic common stock?
A: Temptronic stock options will be converted into inTEST stock options
based on the share exchange ratio for Temptronic common stock, with an
adjusted exercise price. In other words, if you have the option to buy
100 shares of Temptronic stock at $4.10 per share, after the
1
<PAGE>
merger you will have the right to buy 92 shares of inTEST common stock
at $4.43 per share.
Q: How do I get my shares of inTEST common stock after the merger?
A: After the merger, inTEST will issue common stock to Temptronic
shareholders who have delivered to inTEST's exchange agent their
Temptronic stock certificate together with a completed letter of
transmittal which will be supplied to you by inTEST or inTEST's exchange
agent shortly after the merger is effective.
Temptronic shareholders will receive stock certificates representing 90%
of their shares of inTEST common stock to be issued in the merger. The
remaining 10% of their shares of inTEST common stock will be held in
escrow and released to Temptronic shareholders one year after the merger
is completed, less the number of shares, if any, that may be returned to
inTEST to satisfy claims inTEST may have against Temptronic for breaches
of the merger agreement. Temptronic made statements or promises about
itself, called representations and warranties, in the merger agreement.
If these statements or promises turn out to be incorrect, inTEST may
have a claim against Temptronic which would be satisfied solely out of
the escrowed shares.
Q: What rights do I have with respect to the shares held in escrow?
A: Shares held in escrow will be held for the account of each Temptronic
shareholder. The escrowed shares are issued and outstanding shares of
inTEST. So long as the escrowed shares are not cancelled to satisfy a
claim by inTEST that Temptronic breached its representations and
warranties under the merger agreement, each Temptronic shareholder will
have the rights of an inTEST shareholder with respect to the escrowed
shares held for his or her account. If, however, the Temptronic
shareholder sells the escrowed shares during the one year escrow period,
the proceeds from the sale will be retained in the escrow account in
lieu of the shares.
Q: What are the tax consequences of the merger to me?
A: As a general matter, neither you, inTEST nor Temptronic will recognize
any gain or loss for federal income tax purposes in the merger, except
for those Temptronic shareholders who exercise their dissenters' rights.
Tax matters are very complicated and the tax consequences of the merger
to you will depend on the facts of your own situation. You should
consult your tax advisors for a full understanding of the tax
consequences of the merger to you.
2
<PAGE>
SUMMARY
This summary highlights selected information from this document and may
not contain all of the information that is important to you. To understand the
merger fully, and for more complete descriptions of the terms of the merger,
you should read carefully this entire document and the documents to which we
refer you. Please also refer to the section entitled "Where You Can Find More
Information" on page 17 for sources of additional information.
The Companies
inTEST Corporation
2 Pin Oak Lane
Cherry Hill, NJ 08003
(856) 424-6886
inTEST is a leading independent designer, manufacturer and marketer of test
head manipulators, docking hardware and test head interface products which are
used by semiconductor manufacturers during the testing of wafers and packaged
devices. inTEST's industry, which relates to the automated testing of
semiconductors and their components, is a part of what is generally known as
the "ATE" industry.
Temptronic Corporation
55 Chapel Street
Newton, MA 02458
(617) 969-2501
Temptronic Corporation designs, manufactures and sells temperature management
systems used to test semiconductors and other electronic components over
temperatures ranging from --65o C to +400o C.
The Merger
Temptronic is to be merged into a wholly-owned subsidiary of inTEST. In the
merger, each Temptronic shareholder will receive:
o 0.8325 shares of inTEST common stock for each share of Temptronic
common stock owned by that shareholder, plus
o cash instead of any fractional share, and
o at the end of one year after the closing, up to 0.0925 shares of
inTEST common stock for each share of Temptronic common stock owned
by that shareholder.
As a result of the merger, Temptronic will become a wholly-owned subsidiary of
inTEST.
The merger agreement is attached as Appendix A to this joint proxy
statement/prospectus. You should read the merger agreement, as it is the legal
document that governs the merger.
Reasons for the Merger
Both inTEST and Temptronic provide products and related services to businesses
in various sectors of the ATE industry. We believe that the shareholders of
both inTEST and Temptronic will benefit from the merger in many ways, including
a sharing of technology and of the design, service, marketing and distribution
capabilities of the combined enterprise. The merger is not expected to result
in a material reduction in the workforce of either company or in significant
immediate cost savings.
To review the reasons for the merger in greater detail see pages 31 and 32. The
risks of the merger are discussed beginning on page 12.
<PAGE>
Approval of the Merger
To become effective, the merger must be approved by the shareholders of both
inTEST and Temptronic at the special meetings described below. inTEST has the
right not to proceed with the merger if holders of more than 2% of Temptronic
shares exercise their dissenter's rights.
Special Meeting of Temptronic Shareholders
Time, Date, Place and Purpose. Temptronic will hold a special meeting of its
shareholders on March 9, 2000 at 10:00 a.m., local time, at the offices of
Foley, Hoag & Eliot LLP, One Post Office Square, Boston, Massachusetts. At the
meeting, Temptronic shareholders will vote on the merger.
Record Date, Quorum and Vote Required. You can vote at the Temptronic special
meeting if you owned shares of Temptronic common stock at the close of business
on February 2, 2000, the record date for the special meeting. A majority of the
shares of Temptronic common stock outstanding on the record date must be
present, in person or by proxy, to constitute a quorum at the special meeting.
The merger must be approved by the holders of at least two-thirds of the
outstanding shares on the record date. On the record date, there were 2,208,892
outstanding shares of Temptronic common stock.
Special Meeting of inTEST Shareholders
Time, Date, Place and Purpose. inTEST will hold a special meeting of its
shareholders on March 9, 2000
3
<PAGE>
at 10:00 a.m., local time, at the offices of Saul, Ewing, Remick & Saul LLP,
Centre Square West, 1500 Market Street, 38th Floor, Philadelphia, Pennsylvania.
At the meeting, inTEST shareholders will vote to approve the merger agreement.
Record Date, Quorum and Vote Required. You can vote at the inTEST special
meeting if you owned shares of inTEST common stock at the close of business on
February 2, 2000, the record date for the special meeting. A majority of the
shares of inTEST common stock outstanding on the record date must be present,
in person or by proxy, to constitute a quorum at the special meeting. The
merger agreement must be approved by a majority of the votes cast at the
special meeting. On the record date, there were 6,536,034 shares of inTEST
common stock outstanding.
Recommendations
to Shareholders
To inTEST shareholders:
The inTEST board believes that the merger is in your best interest and
unanimously recommends that you vote FOR the proposal to approve the merger
agreement.
To Temptronic shareholders:
The Temptronic board believes that the merger is in your best interest and
unanimously recommends that you vote FOR the proposal to approve the merger.
Additional Considerations
Ownership of inTEST Following the Merger (see page 33)
inTEST will issue up to 2,156,870 shares of its common stock to Temptronic
shareholders in the merger. Following the merger, existing inTEST shareholders
will own approximately 76%, and former Temptronic shareholders will own
approximately 24%, of the outstanding common stock of inTEST.
Management of inTEST Following the Merger (see page 33)
After the merger, inTEST will continue to be managed by its current directors
and officers. James J. Greed, Jr. and William M. Stone, who are directors of
Temptronic, will become directors of inTEST upon closing of the merger.
<PAGE>
Interests of Temptronic's Management and Certain Shareholders in the Merger
(see page 32)
In considering the boards' recommendations that you vote in favor of the
merger, you should be aware that Temptronic's chief executive officer and its
directors may have interests in the merger that are different from, or in
addition to, your interest in the merger. For example, Temptronic's chief
executive officer has had an employment agreement with Temptronic which
provides for retirement and severance benefits, and he will have an employment
agreement with inTEST providing similar benefits as his existing employment
agreement after the merger. In addition, the chief executive officer and the
Temptronic directors are entitled to indemnification by Temptronic and are
covered by liability insurance for their actions as directors and officers. As
noted above, Messrs. Greed and Stone, currently directors of Temptronic, will
become directors of inTEST in connection with the merger. In addition, several
Temptronic directors, officers or shareholders have options to purchase shares
of Temptronic common stock which will be converted into options to purchase
inTEST common stock when the merger is closed.
Conditions to the Merger (see page 24)
Completion of the merger depends upon the satisfaction or waiver of a number of
conditions.
Closing and Effective Date of the Merger (see
page 25)
The merger will close and become effective on March 9, 2000, unless inTEST and
Temptronic agree to another date for the closing.
Accounting Treatment (see page 35)
It is a condition to the closing of the merger that it qualify as a pooling of
interests, which means that, for accounting and financial reporting purposes,
the companies will be treated as if they had always been combined.
Opinion of Janney Montgomery Scott LLC (see page 27)
In deciding to approve the merger, inTEST's board considered the opinion from
Janney Montgomery Scott LLC that the share exchange ratio is fair, from a
financial point of view, to inTEST. This opinion is attached as Appendix C to
this joint proxy statement/prospectus.
Listing of inTEST Common Stock (see page 34)
The shares of inTEST common stock issued in connection with the merger will be
listed on the
4
<PAGE>
Nasdaq National Market. inTEST common stock has been and will continue to be
listed on the Nasdaq National Market under the symbol "INTT."
Dividends After the Merger (see page 11)
Temptronic has never paid dividends and inTEST has not paid dividends since its
initial public offering in 1997. inTEST does not anticipate paying cash
dividends on its common stock in the foreseeable future. inTEST currently
intends to retain future earnings to finance its operations and fund the growth
of its business, including through acquisitions.
Federal Income Tax Consequences (see page 34)
The merger has been structured so that Temptronic shareholders who exchange
their shares of Temptronic common stock for inTEST common stock will not
recognize any gain or loss for federal income tax purposes in the merger,
except for gain or loss arising from cash received instead of fractional shares
or cash or other property received upon the exercise of dissenters' rights.
Dissenters' Rights
Temptronic Shareholders (see page 34)
As a shareholder of Temptronic, your rights are governed by Massachusetts law.
Under Sections 85-98 of the Massachusetts Business Corporation Law, you will
have the right to dissent from the merger, in which event you are entitled to
receive the "fair value" of your shares of Temptronic common stock if you
comply with the specific dissenters' rights procedures under Massachusetts law.
These procedures are described in this joint proxy statement/prospectus. A copy
of the dissenters' rights provisions of the Massachusetts Business Corporation
Law is attached as Appendix B to this joint proxy statement/prospectus.
inTEST Shareholders (see page 34)
inTEST shareholders are not entitled to appraisal or dissenters' rights in
connection with the approval of the merger agreement.
Difference in Shareholders' Rights (see page 68)
The rights of Temptronic shareholders, which are determined by Massachusetts
corporation law, and the provisions of Temptronic's articles of organization
and bylaws, differ in certain respects from the rights of inTEST shareholders,
which are determined by Delaware corporation law, and inTEST's certificate of
incorporation and bylaws. Upon completion of the merger your rights as a
shareholder of inTEST will be governed by Delaware corporation law and inTEST's
certificate of incorporation and by-laws.
Regulatory Approvals
There are no federal or state regulatory requirements that must be complied
with, or approvals that must be obtained, to complete the merger.
<PAGE>
Comparative Per Share Market Price
inTEST common stock has been traded on the Nasdaq National Market under the
symbol "INTT" since inTEST's initial public offering on June 17, 1997. There is
no trading market for Temptronic stock.
The information in the table below shows the closing price per share of inTEST
common stock, as reported by the Nasdaq National Market, on January 3, 2000 and
February 2, 2000. January 3, 2000 was the last day on which trading occurred
prior to public announcement of the merger. February 2, 2000 was the last
trading day for which information was available prior to the date this joint
proxy statement/prospectus was finalized. The table also shows the pro forma
equivalent price per share of Temptronic common stock on January 3, 2000 and
February 2, 2000, calculated by multiplying the closing price per share of
inTEST common stock reported by the Nasdaq National Market by the share
exchange ratio of 0.925.
Pro Forma Price
inTEST Equivalent of
Common Temptronic
Date Stock Common Stock
-------------- ----------- ----------------
Jan. 3, 2000 $ 16.875 $ 15.61
Feb. 2, 2000 $ 20.500 $ 18.96
The pro forma equivalents are provided merely as an illustration. Temptronic
and inTEST shareholders are urged to obtain a current market quotation for
inTEST common stock. inTEST can not assure you as to the future price of, or
market for, inTEST common stock.
5
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF inTEST CORPORATION
The following table contains selected historical financial data of inTEST.
This data is qualified by the more detailed consolidated financial statements
and the notes to those financial statements included in this joint proxy
statement/prospectus beginning on page F-1. The consolidated statement of
earnings data for the years ended December 31, 1996, 1997 and 1998 and the
consolidated balance sheet data as of December 31, 1997 and 1998 are derived
from inTEST's financial statements which were audited by KPMG LLP. Their report
is included in this joint proxy statement/prospectus. The consolidated
statement of earnings data for the years ended December 31, 1994 and 1995 and
the consolidated balance sheet data as of December 31, 1994, 1995 and 1996 are
derived from inTEST's financial statements, not included in this joint proxy
statement/prospectus, which were audited by KPMG LLP. The consolidated
statement of earnings data for the nine months ended September 30, 1998 and
1999 and the consolidated balance sheet data as of September 30, 1999 are
derived from unaudited financial statements. The unaudited financial statements
include all adjustments (consisting only of normal recurring adjustments) that
inTEST considers necessary for a fair presentation of the results of operations
for these periods. The following data should be read together with inTEST's
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements, the notes to those financial
statements, and other financial information pertaining to inTEST included
elsewhere in this joint proxy statement/prospectus.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------------------
1994 1995 1996 1997 1998
--------- ---------- ------------- ------------- -------------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Earnings
Data:
Net revenues ......................... $9,287 $14,442 $ 18,582 $ 20,746 $ 19,075
Gross margin ......................... 5,150 9,251 11,827 12,938 10,673
Operating income ..................... 1,289 4,037 5,616 6,187 2,518
Net earnings ......................... 817 3,252 4,646 4,332 1,927
Net earnings per common
share -- basic (1) .................. $ 0.83 $ 0.74 $ 0.31
Weighted average common shares
outstanding -- basic (1) ............ 4,091,034 5,068,349 6,169,596
Net earnings per common
share -- diluted (1) ................ $ 0.83 $ 0.73 $ 0.31
Weighted average common shares
outstanding -- diluted (1) .......... 4,091,034 5,092,490 6,186,460
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------------
1998 1999
------------- -------------
(In thousands, except share
data)
<S> <C> <C>
Consolidated Statement of Earnings
Data:
Net revenues ......................... $ 15,238 $ 21,392
Gross margin ......................... 8,785 11,581
Operating income ..................... 3,264 3,097
Net earnings ......................... 2,289 2,006
Net earnings per common
share -- basic (1) .................. $ 0.38 $ 0.31
Weighted average common shares
outstanding -- basic (1) ............ 6,046,107 6,536,034
Net earnings per common
share -- diluted (1) ................ $ 0.38 $ 0.30
Weighted average common shares
outstanding -- diluted (1) .......... 6,055,217 6,606,902
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
As of
As of December 31, September 30,
---------------------------------------------------------- --------------
1994 1995 1996 1997 1998 1999
--------- --------- --------- ---------- --------- --------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents .......... $1,336 $1,919 $3,692 $12,035 $ 8,468 $ 9,689
Working capital .................... 2,944 4,201 4,377 14,655 13,312 15,348
Total assets ....................... 4,624 6,352 7,716 19,945 23,218 28,595
Long-term debt ..................... -- -- 155 -- -- --
Total shareholders' equity ......... 2,765 4,048 4,587 16,557 21,226 23,314
</TABLE>
- -------------
(1) The 1996 and 1997 data are presented on a pro forma basis to reflect
results as if inTEST had been taxed as a C Corporation for all of 1996 and
1997 and the acquisition of the minority interests in the Company's three
foreign subsidiaries had occurred on January 1, 1996.
6
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF TEMPTRONIC CORPORATION
The following table contains certain selected consolidated financial data
of Temptronic and is qualified by the more detailed consolidated financial
statements and notes to those financial statements included elsewhere in this
joint proxy statement/prospectus. The consolidated statement of operations data
for the years ended June 30, 1997, 1998 and 1999 and the consolidated balance
sheet data as of June 30, 1998 and 1999 are derived from Temptronic's financial
statements which were audited by Ernst & Young LLP. Their report is included in
this joint proxy statement/prospectus. The consolidated statement of operations
data for the years ended June 30, 1995 and 1996 and the consolidated balance
sheet data as of June 30, 1995, 1996 and 1997 are derived from Temptronic's
financial statements, not included in this joint proxy statement/prospectus,
which were audited by Ernst & Young LLP. The consolidated statement of
operations data for the three months ended September 30, 1998 and 1999 and the
consolidated balance sheet data as of September 30, 1999 are derived from
unaudited financial statements. The unaudited financial statements include all
adjustments (consisting only of normal recurring adjustments) that Temptronic
considers necessary for a fair presentation of the results of operations for
these periods. The following data should be read together with Temptronic's
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements, the notes to those financial
statements, and other financial information pertaining to Temptronic included
elsewhere in this joint proxy statement/prospectus.
<TABLE>
<CAPTION>
Years ended June 30,
-------------------------------------------------------------------------
1995 1996 1997 1998 1999
------------- ------------- ------------- ------------- -------------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net revenues ............................ $ 14,126 $ 17,677 $ 18,045 $ 19,330 $ 15,223
Gross profit ............................ 7,275 8,488 8,415 8,499 6,527
Operating income (loss) ................. 1,668 1,594 (215) (348) 35
Other income (expense), net ............. (142) (156) (170) (330) (239)
Net income (loss) ....................... 1,191 967 85 (579) (203)
Earnings (loss) per share -- basic ...... $ 0.89 $ 0.72 $ 0.06 $ (0.36) $ (0.12)
Weighted average common shares
outstanding -- basic ................... 1,338,960 1,333,855 1,501,730 1,586,266 1,628,049
Earnings (loss) per share -- diluted $ 0.77 $ 0.59 $ 0.05 $ (0.36) $ (0.12)
Weighted average common shares
outstanding -- diluted ................. 1,631,601 1,726,219 1,666,199 1,586,266 1,628,049
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three months ended
September 30,
----------------------------
1998 1999
------------- -------------
(In thousands, except share
data)
<S> <C> <C>
Consolidated Statement of
Operations Data:
Net revenues ............................ $ 3,931 $ 5,143
Gross profit ............................ 1,664 2,140
Operating income (loss) ................. 0 330
Other income (expense), net ............. (72) (45)
Net income (loss) ....................... (72) 285
Earnings (loss) per share -- basic ...... $ (0.04) $ 0.17
Weighted average common shares
outstanding -- basic ................... 1,595,118 1,639,784
Earnings (loss) per share -- diluted $ (0.04) $ 0.16
Weighted average common shares
outstanding -- diluted ................. 1,595,118 1,732,672
</TABLE>
<TABLE>
<CAPTION>
As of
As of June 30, September 30,
------------------------------------------------------ --------------
1995 1996 1997 1998 1999 1999
-------- -------- --------- --------- -------- --------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash ............................... $ 233 $ 148 $ 306 $ 422 $ 3 $ 4
Working capital .................... 1,260 2,136 1,984 1,682 1,924 2,474
Total assets ....................... 6,700 8,302 10,437 10,611 8,881 9,110
Long-term debt ..................... 1,007 1,157 488 337 183 158
Total shareholders' equity ......... 2,236 3,180 4,464 4,062 4,066 4,417
</TABLE>
7
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL DATA
We derived the selected pro forma combined financial data of inTEST and
Temptronic from the pro forma combined financial statements included elsewhere
in this joint proxy statement/prospectus. The following data is unaudited and
should be read in conjunction with the consolidated financial statements and
the accompanying notes to the financial statements of inTEST and Temptronic and
their "Management's Discussions and Analysis of Financial Condition and Results
of Operations," all of which are included elsewhere in this joint proxy
statement/prospectus.
The pro forma combined financial data does not reflect cost savings which
may be realized from the merger. The accounting adjustments used for the
purpose of calculating the pro forma combined results using the
pooling-of-interest method of accounting are based upon estimates subject to
final determination as of the closing date of the merger. Therefore, the pro
forma amounts reflected in the pro forma combined financial data may differ
from the amounts ultimately determined. The unaudited pro forma data is not
necessarily indicative of the combined financial position or results of
operations of future periods.
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30,
------------------------------------------ ---------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Pro Forma Combined Statement
of Earnings Data:
Net revenues ..................... $ 36,735 $ 39,951 $ 36,024 $ 28,750 $ 34,390
Gross margin ..................... 20,620 21,608 17,798 14,463 17,137
Operating income ................. 6,449 5,900 2,105 2,941 3,552
Net earnings ..................... 5,087 4,376 1,193 1,725 2,329
Net earnings per common
shares -- basic ................ $ 0.71 $ 0.58 $ 0.16 $ 0.23 $ 0.29
Weighted average common shares
outstanding -- basic ........... 5,349,005 6,484,984 7,654,759 7,520,823 8,052,423
Net earnings per common
share -- diluted ............... $ 0.69 $ 0.56 $ 0.15 $ 0.22 $ 0.28
Weighted average common shares
outstanding -- diluted ......... 5,543,304 6,682,707 7,807,937 7,678,109 8,215,370
</TABLE>
As of
September 30, 1999
-------------------
Pro Forma Combined Balance Sheet Data:
Cash and cash equivalents ............ $ 9,693
Working capital ...................... 16,972
Total assets ......................... 37,705
Long-term debt ....................... 158
Total shareholders' equity ........... 26,881
8
<PAGE>
COMPARATIVE AND PRO FORMA PER SHARE FINANCIAL DATA
We show below the per share data for the net earnings (loss) and book
value for inTEST and Temptronic on an historical basis and on a pro forma
combined basis. We derived the pro forma combined per inTEST share data by
combining historical financial information of inTEST and Temptronic using the
pooling-of-interest method of accounting for business combinations. We
calculated the pro forma combined Temptronic share equivalent data by
multiplying the inTEST pro forma data by the exchange ratio of 0.925, which is
the exchange ratio used to determine the maximum number of shares inTEST may
issue in the merger, including the shares which will be held in escrow.
The pro forma information does not reflect cost savings anticipated to be
realized from the merger. The accounting adjustments used for the purpose of
calculating the pro forma combined results using the pooling-of-interest method
of accounting are based upon estimates of inTEST's management and are subject
to final determination as of the closing date of the merger. Therefore, the pro
forma amounts reflected in the pro forma per share financial information may
differ from the amounts ultimately determined. The unaudited pro forma
information is not necessarily indicative of the combined financial position or
results of operations of future periods.
<TABLE>
<CAPTION>
As of and for the
nine months ended
As of and for the years ended December 31, September 30,
1996 1997 1998 1999
------------ ------------ ---------- ------------------
<S> <C> <C> <C> <C>
Historical -- inTEST:
Net earnings per common
share -- basic (1) ................. $ 0.83 $ 0.74 $ 0.31 $ 0.31
Net earnings per common
share -- diluted (1) ............... 0.83 0.73 0.31 0.30
Book value per common share ......... N/R N/R 3.25 3.57
</TABLE>
<TABLE>
<CAPTION>
As of and for the
three months ended
As of and for the years ended June 30, September 30,
1997 1998 1999 1999
------------ ----------- ----------- -------------------
<S> <C> <C> <C> <C>
Historical -- Temptronic:
Net earnings (loss) per common
share -- basic ..................... $ 0.06 $(0.36) $(0.12) $ 0.17
Net earnings (loss) per common
share -- diluted ................... 0.05 (0.36) (0.12) 0.16
Book value per common share ......... N/R N/R 1.87 2.03
</TABLE>
<TABLE>
<CAPTION>
As of and for the
nine months ended
As of and for the years ended December 31, September 30,
1996 1997 1998 1999
------------ ---------- ---------- ------------------
<S> <C> <C> <C> <C>
Pro Forma Combined Per inTEST
Share:
Net earnings per common
share -- basic (1) ..................... $ 0.71 $ 0.58 $ 0.16 $ 0.29
Net earnings per common
share -- diluted (1) ................... 0.69 0.56 0.15 0.28
Book value per common share (2) ......... N/R N/R 2.85 3.15
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
As of and for the
nine months ended
As of and for the years ended December 31, September 30,
1996 1997 1998 1999
------------ ---------- ---------- -------------------
<S> <C> <C> <C> <C>
Pro Forma Combined Per Equivalent
Temptronic Share (3):
Net earnings per common
share -- basic ......................... $ 0.66 $ 0.54 $ 0.15 $ 0.27
Net earnings per common
share -- diluted ....................... 0.64 0.52 0.14 0.26
Book value per common share (2) ......... N/R N/R 2.64 2.91
</TABLE>
- -------------
(1) The 1996 and 1997 data are presented on a pro forma basis to reflect
results as if inTEST had been taxed as a C corporation for all of 1996 and
1997 and the acquisition of the minority interests in its three foreign
subsidiaries had occurred on January 1, 1996.
(2) Adjusted to reflect pro forma adjustments.
(3) The pro forma combined net earnings per equivalent Temptronic share and pro
forma combined book value per equivalent Temptronic share are calculated
by multiplying the respective pro forma combined inTEST per share amounts
by the exchange ratio of 0.925 shares of inTEST common stock for each
share of Temptronic common stock.
N/R Information is not required.
10
<PAGE>
MARKET PRICES AND DIVIDEND POLICIES
inTEST common stock has been traded on the Nasdaq National Market since
its initial public offering on June 17, 1997, and is quoted under the symbol
"INTT." There is no trading market for any Temptronic stock.
The following table sets forth the high and low sale prices of inTEST
common stock, as reported in published financial sources, for the periods
indicated. Sale prices have been rounded to the nearest full cent.
Sales Prices
High Low
---------- ----------
1997
Second Quarter* .................. $ 9.63 $ 7.50
Third Quarter .................... 18.75 8.00
Fourth Quarter ................... 18.25 5.00
1998
First Quarter .................... 10.25 6.25
Second Quarter ................... 8.94 6.00
Third Quarter .................... 6.00 4.00
Fourth Quarter ................... 9.44 4.00
1999
First Quarter .................... 8.25 5.25
Second Quarter ................... 7.75 3.63
Third Quarter .................... 11.26 6.56
Fourth Quarter ................... 20.38 6.63
* For the period beginning with inTEST's initial public offering on June 17,
1997 through June 30, 1997.
inTEST has not paid dividends on its common stock since its initial public
offering and does not anticipate paying cash dividends in the foreseeable
future. inTEST intends to retain any future earnings for reinvestment in the
operation and expansion of its business, including possible acquisitions of
other businesses. Payment of any future dividends will be at the discretion of
inTEST's board of directors after taking into account various factors,
including the financial condition, operating results, current and anticipated
cash needs and plans for expansion of inTEST and its subsidiaries. In addition,
inTEST's credit agreement prohibits inTEST from paying cash dividends without
the lender's prior consent. Temptronic has never paid dividends on its common
stock.
On January 3, 2000, which was the last full trading day prior to the
public announcement of the signing of the merger agreement, the last sale price
of a share of inTEST common stock was $16.875. On February 2, 2000, the last
trading day for which information was available prior to the date this joint
proxy statement/prospectus was finalized, the last sale price of inTEST common
stock was $20.500.
On the date the merger is completed and on the date a Temptronic
shareholder receives an inTEST stock certificate in exchange for a Temptronic
stock certificate(s), the price of a share of inTEST common stock may differ
from the prices set forth above. Temptronic shareholders may want to obtain
current price quotations for inTEST common stock before voting, as the future
price of inTEST common stock may be different from the prices set forth above.
11
<PAGE>
RISK FACTORS
In considering whether to approve the merger and, for Temptronic
shareholders, whether or not to exercise your dissenters' rights under
Massachusetts law, you should consider carefully the risks associated with the
merger and with ownership of inTEST common stock following the merger. The
risks and uncertainties described below are not the only ones which will face
the combined company, but the most significant ones are described below. If one
or more of these risks occurs, inTEST's results of operations, financial
condition or prospects will suffer, and the price of inTEST stock is more than
likely to fall. The value of your investment in the combined company could
decline as a result.
If inTEST does not successfully integrate Temptronic's business, the combined
company may not realize the expected benefits from the merger.
inTEST and Temptronic entered into the merger agreement with the
expectation that the merger will result in benefits to the combined company.
inTEST believes Temptronic provides inTEST with high quality products that are
sold in a segment of the market which inTEST believes is growing. Temptronic
believes inTEST provides Temptronic greatly improved access to capital markets,
and substantial international manufacturing, sales and distribution facilities.
Integrating the operations of Temptronic with those of inTEST after the merger
may be difficult, time consuming and costly. The difficulties involved in
integrating the companies, which could be substantial, include:
o management and key personnel could be distracted from the day-to-day
business of the combined company;
o the business cultures of the two companies could prove to be
incompatible;
o implementing common systems and procedures, especially information and
accounting systems, could be costly and time consuming; and
o key technical, sales and customer support personnel may not be satisfied
or happy in the combined company and may elect to leave.
The merger could have the effect of reducing inTEST's net income per share. In
addition, inTEST shareholders will experience an immediate reduction in net
tangible book value per share.
If the combined company is unable to operate the Temptronic business
profitably, earnings per share in the combined company will be lower after the
merger than were earnings per share for inTEST before the merger. For the nine
months ended September 30, 1999, inTEST's earnings per share-diluted
(unaudited) was $0.30. The pro forma earnings per share-diluted (unaudited) for
the combined company for the same period was $0.28.
Temptronic has experienced losses in each of its last two fiscal years. In
the quarter ended June 30, 1999, Temptronic reported its first quarterly profit
(unaudited) since the quarter ended March 31, 1998. Temptronic's losses were
primarily due to the decline in the semiconductor industry, the slowdown in
Asian markets and significant spending on research and development.
At September 30, 1999, inTEST's net tangible book value per share
(unaudited) was $2.57. The pro forma net tangible book value per share
(unaudited) for the combined company at that date was $2.38, or a reduction of
$0.19 per share.
A large portion of each of inTEST's and Temptronic's sales are to a small
number of customers. If the combined company were to lose one or more of its
larger customers, operating results could suffer dramatically.
In the years ended December 31, 1998, 1997, and 1996, inTEST's three
largest customers accounted for 38%, 39%, and 33%, respectively, of inTEST's
total revenues. Temptronic's three largest customers during its
12
<PAGE>
fiscal years ended June 30, 1999, 1998, and 1997, accounted for 37%, 39% and
33%, respectively, of Temptronic's total revenues. The loss of any one or more
of these customers or a reduction in orders by a major customer could
materially reduce the revenues that would otherwise be generated by the
combined company.
Changes in the quarterly results of operations of inTEST are likely to continue
at the combined company, and these changes, historically, have caused
fluctuations in inTEST's stock price.
Since it became a publicly-owned company in June, 1997, inTEST's operating
results have fluctuated from quarter to quarter, including a net loss of
$362,000 in the quarter ended December 31, 1998, and record high revenues and
net earnings in the quarter ended September 30, 1999. These fluctuations are
primarily due to the cycles of demand in the semiconductor industry. The market
price of inTEST common stock has tended to vary based on, and in relation to,
variations in inTEST's operating results. These fluctuations in operating
results and related fluctuations in market price of inTEST shares are likely to
continue, since Temptronic sells its products in substantially the same market
to substantially the same customers as does inTEST.
In addition to the basic cyclicality of the semiconductor manufacturing
business, other factors that have caused losses at Temptronic and operating
results of inTEST to fluctuate in the past, and may cause losses and
fluctuations in the future, include:
o delays in the shipments of products,
o the mix of products sold,
o the mix of customers and the regions of the world where sales are made
in a particular period,
o increases in the level of fixed costs,
o costs and timing of completion and integration of acquisitions,
o the timing of additional selling, general and administrative expenses to
support new business,
o cancellation or rescheduling of orders by customers, and
o competitive pricing pressures.
If the combined company is unable to make acquisitions, its future growth will
be limited.
A key element of inTEST's growth strategy is to acquire businesses,
technologies or products that expand and complement inTEST's business. inTEST
believes such acquisitions are necessary for it to continue to grow at a
desirable rate, and is constantly evaluating possible acquisition
opportunities. Even if inTEST is able to identify suitable companies or
businesses to buy, it may not be able to purchase any of these companies at
favorable prices, or at all, due to any number of reasons. If inTEST is unable
to make acquisitions, it may not be able to meet or exceed its historical
levels of growth and earnings. Acquisitions also may involve a number of
additional risks including:
o Future acquisitions could divert management's attention from the daily
operations of inTEST or otherwise require additional management,
operational and financial resources;
o inTEST might not be able to successfully integrate future acquisitions
into its business or operate acquired businesses profitably;
o inTEST may be required to amortize goodwill which will reduce its income
in future years; and
o inTEST may be subject to unanticipated problems and liabilities of
companies it acquires.
The success of the combined company will depend in part on its ability to
continue to attract and retain the services of key persons.
Because continuity, interaction and good relations with the customer are
so important in its business, inTEST has been fortunate that most of inTEST
senior management and key personnel have been with
13
<PAGE>
inTEST for many years. inTEST has also so far been able to retain the services
of key personnel from its 1998 acquisition of another entity. Although
Temptronic is in the same industry and serves the same customer base as inTEST,
it is in a slightly different segment of the market. It will be important to
the success of the combined company that key Temptronic personnel remain with
the combined company after the merger. Upon closing the merger, inTEST will
enter into an employment agreement with William Stone, Temptronic's president
and chief executive officer, to continue in those roles.
inTEST must work very hard to be competitive in the market for automatic
testing equipment, which is subject to rapid technological change, introduction
of competing products, and changing industry standards.
Semiconductor technology continues to become more complex, and
semiconductors continue to be used in more and different products. These
trends, and the rapid changes needed in automatic testing systems to keep up
with the semiconductor industry, are expected to continue. The demand for new
testing systems provides both the opportunity and the need for the combined
company to develop additional products. inTEST cannot assure you that the
combined company will be successful in developing, manufacturing or selling new
products that will satisfy customer needs or be accepted in the market.
The combined company will compete with numerous manufacturers, many of
whom have greater financial resources and more extensive design and production
capabilities than inTEST and Temptronic. Among inTEST's principal competitors
are Reid-Ashman Manufacturing, Microhandling Gmbh of Germany, Credence Systems,
LTX, Schlumberger and Teradyne. Among Temptronic's principal competitors are
Triotech International, Thermonics, Inc. and ERS Elektronik Gmbh.
In order to remain competitive, the combined company must be able to
continue to commit a significant portion of its personnel, financial resources,
research and development and customer support to developing new products and
maintaining customer satisfaction worldwide.
The success of the combined company depends, in part, on its ability to obtain
patents for, or otherwise protect, certain of its proprietary technologies.
inTEST's U.S. issued patents expire in the years 2002 through 2015.
Temptronic's U.S. issued patents expire between 2001 and 2006. inTEST and
Temptronic both have pending applications for additional patents, but they can
not be certain that:
o any additional patents will be issued on those applications;
o any patents now or hereafter owned by the combined company will protect
its business against competitors that develop similar technology or
products;
o any patents held by the combined company will be held valid if
subsequently challenged or subjected to reexamination or reissue; and
o others will not claim rights in patents held by the combined company, or
in its proprietary technologies.
If the combined company cannot obtain patent or other protection for its
proprietary technologies, other companies could more easily enter our markets
and compete successfully against us.
Intellectual property infringement, including trade secrets, by or against the
combined company after the merger could seriously harm its businesses.
Much of the combined company's trade secrets, know-how and other
proprietary technology is not covered by patent or similar protection, and in
many cases cannot be so protected. From time to time, the combined company may
be forced to respond to or prosecute intellectual property infringement claims
to protect its rights or defend a customer's rights. These claims, regardless
of merit, may consume valuable management time, result in costly litigation or
cause product shipment delays, all of which could seriously harm its business
and operating results. The combined company may be required to enter into
royalty or
14
<PAGE>
licensing agreements with third parties claiming infringement in order to
settle these claims. These royalty or licensing agreements, if available, may
not have terms acceptable to the combined company. Being forced to enter into a
license agreement with unfavorable terms could seriously harm the operating
results of the combined company.
Sales and operations outside the U.S., which are substantial, present different
risks and concerns than those in the U.S.
Both inTEST and Temptronic have operated internationally for many years.
To date, neither has experienced serious currency or operational problems in
these foreign operations. After the merger, the combined company's
international revenues will continue to represent a significant portion of
total revenues. In addition to the risks generally associated with sales and
operations in the U.S., sales to customers outside the U.S. and operations in
foreign countries are subject to additional risks, which may, in the future,
affect the combined company. These risks include:
o the imposition of financial and operational controls and regulatory
restrictions by foreign governments,
o the need to comply with a wide variety of U.S. and foreign import and
export laws,
o political and economic instability,
o trade restrictions,
o changes in tariffs and taxes,
o longer payment cycles,
o the greater difficulty of administering business abroad, and
o fluctuations in interest and currency exchange rates.
Because the exchange ratio is fixed, Temptronic shareholders will not know the
market value of the inTEST common stock they will receive in the merger, and
inTEST shareholders will not know the market value of the stock which will be
issued in the merger, at the time that they vote on the merger.
The number of inTEST shares to be issued in exchange for each Temptronic
share will not change, even if the market price of inTEST common stock changes.
As a result, Temptronic shareholders will not know the value of the inTEST
common stock they will receive in the merger and inTEST shareholders will not
know the value of the stock to be issued in the merger, at the time that they
vote on the merger proposal. If the price of inTEST stock declines, the
Temptronic shareholders will effectively receive a lower purchase price. If the
price of inTEST stock increases, then inTEST will effectively pay a higher
price in the form of shares of inTEST common stock. Neither Temptronic nor
inTEST has the right to terminate the merger agreement based upon any change in
the market price of inTEST's stock. From January 4, 2000 (the day of the public
announcement of the merger) through February 2, 2000, the Nasdaq closing market
price per share of inTEST common stock ranged from $16.750 to $22.375 and
closed at $20.500 on February 2, 2000. Temptronic shareholders are advised to
obtain recent market quotations for inTEST common stock.
The directors and officers of Temptronic may have interests in the merger that
are different from those of other Temptronic shareholders.
In considering the recommendation of the Temptronic board of directors to
approve the merger, Temptronic shareholders should recognize that some of
Temptronic's directors and officers may have interests which differ from those
of other Temptronic shareholders because of employment arrangements, potential
severance benefits, indemnification and liability insurance and other reasons.
These reasons are described under the heading "The Merger -- Interests of
Temptronic's Management and Certain Shareholders in the Merger."
15
<PAGE>
Control of the combined company after the merger will be held by a limited
number of shareholders, many of whom are presently inTEST shareholders. These
shareholders can exercise significant influence over all matters requiring
shareholder approval and thereby limit the power of other shareholders to
influence corporate action.
As a result of the merger, the shareholders of Temptronic will own
approximately 24% of the outstanding voting stock of the combined company,
including 8% owned by the Temptronic employee stock ownership plan, also
referred to as the ESOP. 68% of the Temptronic ESOP shares (or 5% of the
outstanding voting shares of the combined company) are presently unallocated
and may be voted by the ESOP's trustees at the direction of a committee
appointed by the board of directors of Temptronic. In addition, as of January
31, 2000, several of Temptronic's directors, officers and shareholders also
hold options to purchase shares of Temptronic common stock which will be
converted to options to acquire 181,117 shares of inTEST common stock.
Approximately 35% of the outstanding voting stock of the combined company will
be held by 10 shareholders who are currently directors and officers of inTEST.
These shareholders can exercise significant influence over all matters
requiring shareholder approval, including the election of directors and the
approval of significant corporate transactions. This concentration of ownership
may also potentially delay or prevent a change in control of inTEST.
The possibility of the sale of a large number of shares of inTEST common stock
could keep inTEST's stock price down.
Of a total of 6,536,034 shares of inTEST common stock outstanding at
January 31, 2000, approximately 2.6 million shares are in the public "float"
(i.e., not held by officers, directors and other insiders), including
approximately 2.2 million shares held by institutions. Up to 2,156,870 inTEST
shares will be issued in the merger (assuming all options to purchase shares of
Temptronic common stock which will be vested prior to the closing of the merger
are exercised prior to the closing and including the shares to be held in
escrow), of which 1,783,198 will be issued to the Temptronic employee stock
ownership plan and persons associated with Temptronic who have agreed not to
sell any shares until the combined company releases post-merger financial
results covering a minimum of 30 days. After that period, approximately 44% of
inTEST's outstanding shares (assuming all options to purchase shares of
Temptronic common stock which will be vested prior to the closing of the merger
are exercised prior to the closing) will be available for resale in the public
market without restriction. In addition, inTEST plans to file a registration
statement after the merger to permit the sale of up to 181,117 shares of its
common stock which may be issued to employees of Temptronic in the future
pursuant to outstanding stock options if those options are not exercised prior
to closing. Even the perception that large blocks of inTEST stock might be sold
could depress the prevailing market price for inTEST's common stock.
If inTEST's and Temptronic's systems or those of their customers or suppliers
are not Year 2000 compliant, the combined company might be unable to engage in
normal business activities for a period of time or times after January 1, 2000.
Any disruption of our business could have a material adverse effect on our
business and operating results.
Both inTEST and Temptronic rely on their telephone and computer systems,
software and other systems in operating and monitoring all aspects of their
businesses and also rely heavily on the systems of their suppliers. Efforts by
inTEST and Temptronic to be prepared for the Year 2000 appear to have been
successful but if that is not true, or if suppliers and other vendors with
which inTEST or Temptronic does business are not Year 2000 compliant, they may
be unable to engage in normal business activities for a period of time or times
after January 1, 2000. This may cause inTEST or Temptronic to lose existing or
potential clients and their reputation in the industry might be damaged.
16
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
inTEST has filed with the Securities and Exchange Commission a
registration statement on Form S-4, as required by the Securities Act, which
registers the distribution to Temptronic shareholders of the shares of inTEST
common stock to be issued in connection with the merger. The registration
statement and the exhibits and schedules attached to it contain additional
relevant information about inTEST and its common stock. The rules and
regulations of the Securities and Exchange Commission allow us to omit certain
information included in the registration statement from this joint proxy
statement/prospectus.
In addition, inTEST files reports, proxy statements and other information
with the Securities and Exchange Commission as required by the Exchange Act.
You may read and copy this information at the following locations of the SEC:
<TABLE>
<S> <C> <C>
Public Reference Office New York Regional Office Chicago Regional Office
Room 1024 7 World Trade Center 500 West Madison Street
450 Fifth Street, N.W. 14th Floor Suite 1400
Washington, DC 20549 New York, NY 10048 Chicago, IL 60661
</TABLE>
You may obtain information about the operation of the SEC's Public
Reference Room by calling the SEC at 1-800-SEC-0330. inTEST's SEC filings are
also available on the SEC's Internet site at www.sec.gov.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Each of us makes forward-looking statements in this joint proxy
statement/prospectus, and in inTEST's public documents to which we refer, that
are subject to risks and uncertainties. These forward-looking statements
include information about possible or assumed future results of our operations
or the performance of the combined company after the merger and the impact of
"Year 2000" compliance issues. Also, when we use any of the words "believes,"
"expects," "anticipates," "estimates," "extends," "will be," "plan" or similar
expressions we are making forward-looking statements.
These forward-looking statements are intended to qualify for the safe
harbor provided by the Private Securities Litigation Reform Act of 1995. While
each of us believes that its forward-looking statements are reasonable, you
should not place undue reliance on any forward-looking statements, which speak
only as of the date made. You should understand that the following important
facts, in addition to those discussed elsewhere in this joint proxy
statement/prospectus and in inTEST's public documents, could affect the future
results and performance of each of us and the combined company. Actual results
could differ materially from those expressed in our forward-looking statements.
Factors that might cause a difference include the following:
o expected cost of the merger may be more substantial than anticipated;
o difficulties in integrating our businesses may be greater than expected;
o general economic or business conditions may be less favorable than
expected;
o adverse changes may occur in the securities markets;
o our ability to enter new markets successfully and capitalize on growth
opportunities may be more difficult than expected; and
o technological changes may be more difficult, time consuming or expensive
than we expect.
17
<PAGE>
SPECIAL MEETINGS OF SHAREHOLDERS
We are sending you this joint proxy statement/prospectus in order to
provide you with important information regarding the merger and in connection
with the solicitation of proxies by your company's board of directors for use
at the special meeting of its shareholders and at any adjournment or
postponement of the special meeting. The special meetings are scheduled to be
held at the times and places described below.
Special Meeting of inTEST Shareholders
Matters for Consideration
The inTEST special meeting of shareholders is scheduled to be held on
March 9, 2000, at 10:00 a.m., local time, at the offices of Saul, Ewing, Remick
& Saul LLP, Centre Square West, 1500 Market Street, 38th Floor, Philadelphia,
Pennsylvania, for the following purposes:
o To consider and vote upon a proposal to approve the merger agreement
among inTEST, Temptronic and a wholly-owned subsidiary of inTEST, as more
fully described in this joint proxy statement/prospectus; and
o To act upon any other business which may properly come before the meeting
or any adjournment or postponement thereof.
Board of Directors' Recommendation
The inTEST Board of Directors has unanimously approved the merger
agreement and the merger and recommends a vote "FOR" approval of the merger
agreement.
Record Date
The record date for determining the inTEST shareholders entitled to vote
at the special meeting is February 2, 2000. Only the holders of record of
inTEST common stock as of the close of business on that date are entitled to
vote at the special meeting. Each share of inTEST common stock entitles the
holder to one vote on each proposal and on all other matters properly brought
before the special meeting. inTEST has no other class of outstanding voting
securities. As of the record date, there were 6,536,034 shares of inTEST common
stock outstanding and eligible to be voted at the special meeting.
Quorum and Vote Required
Generally, in order to conduct business at a shareholders meeting, a
quorum must be present. A majority of the outstanding shares of inTEST common
stock entitled to vote, whether present in person or represented by proxy, will
constitute a quorum for the transaction of business at the special meeting. By
checking the appropriate box on the proxy card provided by inTEST's board of
directors, inTEST shareholders may vote "FOR" approval of the merger agreement,
vote "AGAINST" approval of the merger agreement or "ABSTAIN" from voting. A
quorum must be present, and a majority of the votes cast at the special meeting
must be voted "FOR" the proposal to approve the merger agreement in order for
the merger agreement to be approved.
Voting of Proxies
General. Shares represented by a proxy will be voted at the special
meeting as specified in the proxy.
Proxies Without Voting Instructions. Proxies that are properly signed and
dated but which do not contain voting instructions will be voted "FOR" approval
of the merger agreement.
18
<PAGE>
Abstentions. inTEST will count a properly executed proxy marked "ABSTAIN"
for purposes of determining whether there is a quorum, but the shares
represented by that proxy will not be voted at the special meeting. Because the
affirmative vote of a majority of the votes cast by inTEST shareholders is
required for approval of the merger agreement, if you mark your proxy "ABSTAIN"
it will have no effect on approval of the merger agreement.
Broker Non-Votes. If your shares are held by your broker, your broker will
vote your shares for you only if you provide instructions to your broker on how
to vote your shares. You should follow the directions provided by your broker
regarding how to instruct your broker to vote your shares. Your broker cannot
vote your shares of inTEST common stock without specific instructions from you.
Because the affirmative vote of a majority of the votes cast is required to
approve the merger agreement, if you do not instruct your broker how to vote,
your vote will not be counted and will have no effect on the approval of the
merger agreement proposal.
Voting Shares In Person That Are Held Through Brokers. If you hold inTEST
common stock in the name of a broker or other nominee and wish to vote those
shares in person at the special meeting, you must obtain from the nominee
holding the inTEST common stock in the nominee's name a properly executed
"legal proxy" identifying you as an inTEST shareholder, authorizing you to act
on behalf of the nominee at the special meeting and identifying the number of
shares with respect to which the authorization is granted.
Other Matters. If you sign and return the enclosed proxy card, you grant
authority to the persons named in the proxy to vote in their discretion on any
other matters that may properly come before the special meeting or any
adjournment or postponements thereof. inTEST's management does not presently
know of any other matters to be brought before the special meeting. As to other
matters that may be properly brought before the special meeting, unless
otherwise provided in inTEST's articles of incorporation or bylaws or by
statute, the matter will be approved if a majority of the votes cast are in
favor of the matter.
How to Revoke a Proxy
Granting a proxy on the enclosed proxy card will not prevent you from
voting in person at the inTEST special meeting or otherwise revoking your
proxy. You may revoke a proxy at any time prior to the special meeting in the
following ways:
o filing with inTEST, before the vote at the special meeting, a written
notice of revocation bearing a later date than the proxy;
o executing a later dated proxy relating to the same shares and delivering
it to inTEST before the vote at the special meeting; or
o voting in person at the special meeting, although attending the inTEST
special meeting will not by itself constitute a revocation of proxy.
You should send any written notice of revocation or subsequent proxy to
inTEST Corporation, Attn: Secretary, 2 Pin Oak Lane, Cherry, Hill, New Jersey
08003, or hand deliver the notice of revocation or subsequent proxy to the
secretary before the vote at the inTEST special meeting.
Solicitation of Proxies
This solicitation is made on behalf of the board of directors of inTEST
and its costs (including the cost of preparing and mailing this joint proxy
statement/prospectus and the form of proxy card) will be paid by inTEST. In
addition to solicitation by mail, inTEST's directors, officers or employees may
solicit proxies from shareholders by telephone, in person or by other means.
These persons will not receive additional compensation, although they will be
reimbursed for the reasonable, out-of-pocket expenses they incur in connection
with this solicitation. inTEST will also make arrangements with brokerage
firms, fiduciaries, and other nominees who hold shares of record to forward
solicitation materials to the beneficial owners of those shares. inTEST will
reimburse those brokerage firms, fiduciaries, and other nominees for their
reasonable out-of-pocket expenses in connection with this solicitation.
19
<PAGE>
Stock Held by inTEST Directors and Others
As of January 31, 2000, the directors and executive officers of inTEST and
certain persons who may be deemed to be affiliates of inTEST beneficially owned
3,068,536 shares of inTEST common stock, assuming they exercised all options to
purchase inTEST common stock that were then currently exercisable. This figure
represents 47% of the outstanding shares of inTEST common stock after exercise
of those options.
Dissenters' Rights
In connection with the approval of the merger agreement, holders of inTEST
common stock are not entitled to dissenters' rights.
Special Meeting of Temptronic Shareholders
Matters for Consideration
The Temptronic special meeting of shareholders is scheduled to be held on
March 9, 2000, at 10:00 a.m., local time, at the offices of Foley, Hoag & Eliot
LLP, One Post Office Square, Boston, Massachusetts, for the following purposes:
1. To consider and vote upon a proposal to approve the merger set forth in
the agreement and plan of merger and reorganization dated January 4, 2000
among inTEST Corporation, Temptronic Corporation and a wholly-owned
subsidiary of inTEST, as more fully described in this joint proxy
statement/prospectus; and
2. To act upon any other business which may properly come before the
meeting or any adjournment or postponement thereof.
Board of Directors' Recommendation
The Temptronic Board has unanimously approved the merger and recommends a
vote "FOR" approval of the merger.
Record Date
The record date for determining the Temptronic shareholders entitled to
vote on the merger at the special meeting is February 2, 2000. Only the holders
of record of Temptronic common stock as of the close of business on that date
are entitled to vote at the special meeting. Each share of Temptronic common
stock entitles the holder to one vote on each proposal and on all other matters
properly brought before the special meeting. Temptronic has no other class of
outstanding voting securities. As of the record date, there were 2,208,892
shares of Temptronic common stock outstanding and eligible to be voted at the
special meeting.
Quorum and Vote Required
Each holder of record of shares of Temptronic common stock on the record
date is entitled to one vote per share, which may be cast either in person or
by properly executed proxy, at the Temptronic special meeting. Also,
participants in Temptronic's employee stock ownership plan have the right to
direct the voting of shares allocated to them under the plan. The presence, in
person or by properly executed proxy, of the holders of a majority of the
outstanding shares of Temptronic common stock entitled to vote at the
Temptronic special meeting is necessary to constitute a quorum at the meeting.
By checking the appropriate box on the proxy card provided by Temptronic,
Temptronic shareholders may vote "FOR" approval of the merger, vote "AGAINST"
approval of the merger or "ABSTAIN" from voting. The approval and adoption of
the merger will require the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Temptronic common stock.
Shares of Temptronic common stock represented in person or by proxy will
be counted for the purpose of determining whether a quorum is present at the
meeting. Shares abstaining from voting on the merger will
20
<PAGE>
be treated as shares that are present and entitled to vote at the Temptronic
special meeting for purposes of determining whether a quorum exists. Because
the merger must be approved by the holders of at least two-thirds of the
outstanding shares of Temptronic common stock, abstentions will have the same
effect as a vote against the merger.
Voting of Proxies
General. Shares represented by a proxy will be voted at the Temptronic
special meeting as specified in the proxy. Proxies that are returned properly
signed and dated but which do not contain voting instructions will be voted
"FOR" approval of the merger. Temptronic will count a properly executed proxy
marked "ABSTAIN" for purposes of determining whether there is a quorum, but the
shares represented by that proxy will not be voted at the special meeting.
Because the affirmative vote of two-thirds of the outstanding common stock is
required for approval of the merger, abstentions will count as votes against
the merger.
Other Matters. If you sign the proxy card, you grant authority to the
holders of the proxy to vote in their discretion on any other matters that may
properly come before the special meeting or any adjournment or postponements
thereof. If any other matters are properly presented at the Temptronic special
meeting for consideration, including, among other things, consideration of a
motion to adjourn such meeting to another time and/or place (including for the
purpose of soliciting additional proxies), the persons named in the enclosed
form of proxy and acting thereunder will have discretion to vote on such
matters in accordance with their best judgment. Temptronic management does not
presently know of any other matters to be brought before the special meeting.
Revoking a Proxy
Granting a proxy on the enclosed proxy card will not prevent you from
voting in person at the Temptronic special meeting or otherwise revoking your
proxy. Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Temptronic shareholders can
revoke a proxy by:
o filing with the Clerk of Temptronic, before the taking of the vote at the
Temptronic special shareholders' meeting, a written notice of revocation
bearing a later date than the proxy,
o duly executing a later dated proxy relating to the same shares and
delivering it to the Clerk of Temptronic before the taking of the vote at
the meeting, or
o attending the meeting and voting in person (although attendance at the
meeting will not in and of itself constitute a revocation of a proxy).
You should send any written notice of revocation or subsequent proxy to
Edward N. Gadsby, Jr., Clerk, Temptronic Corporation, c/o Foley, Hoag & Eliot
LLP, One Post Office Square, Boston, Massachusetts 02109, or hand deliver the
notice of revocation or subsequent proxy to the Clerk before the taking of the
vote at the Temptronic special meeting.
Solicitation of Proxies and Expenses
This joint proxy statement/prospectus is being furnished to Temptronic
shareholders in connection with the solicitation of proxies by and on behalf of
the Temptronic board of directors for use at the Temptronic special meeting of
shareholders and is accompanied by a form of proxy.
All expenses of Temptronic's solicitation of proxies, including the cost
of mailing this joint proxy statement/prospectus to Temptronic shareholders,
will be borne by Temptronic. In addition, directors, officers and employees of
Temptronic may solicit proxies from Temptronic shareholders in person or by
telephone, facsimile or other means of communication. Such directors, officers
and employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation.
21
<PAGE>
Stock Held by Temptronic Directors and Others
As of January 31, 2000, the directors and executive officers of Temptronic
and certain persons who may be deemed to be affiliates of Temptronic
beneficially owned 1,725,671 shares of Temptronic common stock, assuming they
each exercised all options to purchase Temptronic common stock exercisable
within the sixty-day period following that date. This figure represents 77% of
the outstanding shares of Temptronic common stock after exercise of those
options.
THE MERGER
The discussion of the merger and the description of the material terms of
the agreement and plan of merger and reorganization, which is sometimes
referred to in this document as the merger agreement, is subject to and
qualified in its entirety by reference to the merger agreement itself. A copy
of the merger agreement is included as Appendix A for your convenience. The
merger agreement is incorporated by reference in this joint proxy
statement/prospectus.
General
The merger agreement provides for the acquisition of Temptronic by inTEST
by way of a merger of Temptronic into a wholly owned subsidiary of inTEST. When
the merger is completed, each outstanding share of Temptronic common stock,
with the exception described below, will be converted automatically into 0.925
shares of inTEST common stock, 0.8325 shares to be issuable immediately and
0.0925 to be held in escrow. No fractional shares of inTEST common stock will
be issued. Instead, inTEST will pay in cash an amount equal to the fractional
share multiplied by the closing price of a share of inTEST common stock on the
Nasdaq National Market System on the closing date of the merger.
Temptronic Shares to be Converted
All shares of Temptronic common stock outstanding on the day the merger is
closed, including shares of Temptronic common stock held in Temptronic's
employee stock ownership plan, will be converted into inTEST shares, with one
exception. Shares of Temptronic common stock which are owned by shareholders
who perfect their dissenters' rights under Massachusetts law will not be
converted to inTEST shares. Shares which are held as treasury shares by
Temptronic are not outstanding shares and will not be converted into inTEST
shares. Information on how to perfect dissenters' rights is set forth below
under the heading "Rights of Dissenting Temptronic Shareholders."
Shares to be Held in Escrow
Ten percent of the total shares of inTEST common stock to be issued in the
merger will be held in escrow after closing. The escrowed shares will be held
in escrow for one year after closing unless, during that time, inTEST makes a
valid claim under the indemnification provisions of the merger agreement.
If inTEST makes no claim under the indemnification provisions, the
escrowed shares will be distributed to the Temptronic shareholders one year
after the closing of the merger. If inTEST is entitled to indemnification under
the merger agreement, then escrowed shares having a value equal to the amount
of the indemnified claim will be returned to inTEST for cancellation. Any
shares returned to inTEST will be valued at the closing price of inTEST common
stock on the closing date of the merger. The escrow provisions are more fully
discussed below under the heading "Escrow Agreement and Indemnification
Claims."
The escrowed shares will be validly issued and outstanding shares of
inTEST. So long as the escrowed shares are not returned to inTEST and cancelled
to satisfy a valid claim by inTEST for indemnification, the Temptronic
shareholder for whose account the escrowed shares are held will be entitled to
the rights of a shareholder of inTEST with respect to the escrowed shares,
including the right to vote the escrowed shares at any meeting of inTEST
shareholders. If, however, the Temptronic shareholder sells escrowed shares
during the one year escrow period, the proceeds of sale will be escrowed and
deposited into an interest-bearing savings account at a commercial bank.
Prevailing interest rates for commercial bank savings accounts are
22
<PAGE>
approximately 1.0% to 4.0%, depending upon a variety of factors including the
size of the deposit. Sale proceeds and interest earned thereon will be paid to
the shareholder upon termination of the escrow fund. For a discussion of how
indemnification claims will be handled if a Temptronic shareholder sells his or
her escrowed shares, please refer to "The Merger--Escrow Agreement and
Indemnification Claims" on page 24.
Treatment of Temptronic Stock Options
Each option to purchase Temptronic common stock which is outstanding and
unexercised when the merger is closed will be converted automatically into an
option to purchase inTEST common stock. Each converted option will continue to
be governed by the same terms as those in the applicable Temptronic stock
option plan, if any, and the stock option agreement under which it was granted,
including the terms and provisions governing exercise, subject to the
adjustment of the exercise price per share and the number of shares as
described below. In each case:
o the number of inTEST shares subject to the converted option will be equal
to the number of inTEST shares which would have been issued in the merger
if the Temptronic shares subject to that option were outstanding prior to
the merger, rounded down to the next lower full share; and
o the exercise price per share of the converted option will be equal to the
result obtained by dividing the exercise price per share at which the
Temptronic option was exercisable immediately prior to the time of the
merger by the exchange ratio of 0.925, rounded up to the nearest whole
cent.
For example, if a person holds an unexercised option to purchase 100
shares of Temptronic common stock for $4.10 per share, as of the closing of the
merger that option will automatically be converted into an option to purchase
92 shares of inTEST common stock at $4.43 per share. The other terms of the
option, such as its expiration date, will be unchanged.
As soon as practicable after the closing of the merger, inTEST will issue
to each holder of converted options appropriate confirmation of the conversion
described above. inTEST will not issue any confirmation, nor will inTEST issue
any shares of inTEST common stock issuable upon exercise of a converted option,
until the shares issuable upon exercise of the options are:
o registered with the Securities and Exchange Commission,
o approved for inclusion on the Nasdaq National Market System, and
o authorized for sale by any appropriate state securities regulators.
inTEST will use its reasonable efforts to effect the registration,
approval and authorizations listed above as soon as practicable after the
merger.
Representations and Warranties
The merger agreement contains statements made by Temptronic about itself
called representations and warranties. The merger agreement also contains
representations and warranties made by inTEST about itself. You can review the
representations and warranties in the copy of the merger agreement attached to
this joint proxy statement/prospectus as Appendix A.
The merger agreement provides that the representations and warranties of
both Temptronic and inTEST will survive, or continue in effect, for a period of
one year after the closing date of the merger. A claim for indemnification
could be made by one party stating that it has incurred a cost which it would
not have incurred if the other party's representation or warranty had been
true.
Conduct of Business Pending the Merger
The merger agreement contains various covenants, or promises, that govern
the actions of Temptronic and inTEST prior to the merger. These covenants
require Temptronic and inTEST to take action or to refrain from taking action
with respect to various matters including:
23
<PAGE>
o Temptronic is to conduct its business in the usual and normal course
consistent with past practices and to refrain from any extraordinary
transactions; and
o Temptronic and inTEST are each to refrain from taking any action that
would result in any of the representations and warranties being untrue or
in any of the conditions to the merger not being satisfied.
Conditions to the Merger
The completion of the merger depends upon the satisfaction or waiver of a
number of conditions, including, among other things:
o the merger agreement must be approved by the shareholders of both
Temptronic and inTEST;
o no court order or other legal restraint can be in effect, nor can any
proceeding be pending, that would prevent the completion of the merger;
o the representations and warranties of Temptronic and inTEST must be true
as of the date of the merger;
o each of Temptronic and inTEST must have performed all of the agreements
made by that party in the merger agreement;
o no stop order shall have been threatened, initiated, or issued by the SEC
with respect to the joint proxy statement/prospectus;
o there can be no material adverse change in the business or financial
condition of either Temptronic or inTEST after the date of the merger
agreement;
o inTEST must receive opinions from its independent auditors and from
Temptronic's independent auditors that the merger qualifies for
pooling-of-interest accounting treatment;
o inTEST must receive from each affiliate of Temptronic an affiliate
agreement that he or she has not taken and will not take certain actions
more fully described below under the heading of "Affiliate Agreements";
o holders of no more than 2% of the total number of Temptronic shares can
have exercised or given notice of their intent to exercise their
dissenters' rights under Massachusetts law; and
o the several agreements among Temptronic and some of its shareholders
which were in effect on the date of the merger agreement must be
terminated.
To review all of the conditions contained in the merger agreement, you
should read the merger agreement which is attached to this document as Appendix
A.
Escrow Agreement and Indemnification Claims
Under the merger agreement, an escrow agent will be appointed who will
maintain an account for each Temptronic shareholder containing the
shareholder's stock being held in escrow. The escrowed stock will be held by
the escrow agent and used to satisfy any valid claims for indemnification by
inTEST under the merger agreement. The escrowed stock will be distributed to
the Temptronic shareholders one year after the date the merger is completed,
less any shares used to pay valid claims made by inTEST for indemnification
under the merger agreement. For purposes of paying indemnification claims to
inTEST, shares will have the assumed value of the closing price of a share of
inTEST common stock as reported by Nasdaq on the closing date of the merger.
Each Temptronic shareholder will contribute an equal percentage of his or
her escrow account to satisfy any valid indemnification claim by inTEST. As a
result, a Temptronic shareholder who sells escrowed shares at a per share price
greater than the assumed value of an inTEST share will not receive all the
proceeds from that sale if inTEST subsequently satisfies a claim from the
escrow. Similarly, a Temptronic shareholder who sells escrowed shares at a per
share price less than the assumed value of an inTEST share will not have to
make up the shortfall.
24
<PAGE>
For example, assume that at closing the inTEST shares have an assumed
value of $10 per share, and that a total of 100,000 shares have been escrowed
for a total value of $1,000,000. Assume shareholders A, B and C each own 1,000
escrowed shares, and shareholder A sells no shares during the escrow period,
shareholder B sells all of his or her escrowed shares for $15 per share, or a
total of $15,000, and shareholder C sells all of his or her escrowed shares for
$5 per share, or a total of $5,000. Finally, assume that inTEST has $500,000 of
valid indemnification claims. Thus, inTEST has a claim for one-half the value
of the total escrow account, and each Temptronic shareholder must contribute
one-half of his or her escrow account to satisfy the claim.
If no Temptronic shareholder had sold escrowed shares, inTEST would have
been entitled to an aggregate of 50,000 shares to satisfy the indemnification
claims, based upon the $10 closing price of inTEST shares on the date of
closing. In the foregoing example, however, shareholder A and inTEST would each
receive 500 shares from A's escrow account. Shareholder B and inTEST would each
receive $7,500 plus the interest earned on that $7,500 from B's escrow account,
and shareholder C and inTEST would each receive $2,500 plus interest from C's
escrow account.
If no inTEST claim is required to be satisfied from the escrow, Temptronic
shareholders will receive their escrowed shares, and any person that sold
escrowed shares will receive all of the proceeds of the sale, plus the interest
earned on those proceeds.
By approving the merger agreement, each Temptronic shareholder will
appoint Samuel Rubinovitz, a director of Temptronic, or another person
designated by Temptronic, as the shareholder's representative and will grant to
him, or his designee(s), the full power and authority to represent the
shareholder for the purpose of handling indemnification claims under the escrow
agreement, including settling all related disputes. Nothing in that
authorization will have the effect of treating any Temptronic shareholder
differently from any other.
The escrow agreement requires inTEST to indemnify the escrow agent from
any action, claim or proceeding, arising out of or relating in any way to the
escrow agreement or any transaction to which the escrow agreement relates. This
indemnification will not be available if the action, claim or proceeding is the
result of fraud, willful misconduct, gross negligence or bad faith of the
escrow agent.
Closing and Effective Time
inTEST and Temptronic have agreed that if all of the conditions of the
merger agreement are satisfied or waived on or before March 9, 2000, unless
inTEST and Temptronic agree to another date, the closing date for the merger
will be March 9, 2000. Upon the closing of the merger, the parties will file
certificates of merger with the State of Delaware and the Commonwealth of
Massachusetts. The merger will take effect at the time these filings are made.
Exchange of Temptronic Certificates
Promptly after the closing of the merger, inTEST will cause the exchange
agent to send to each Temptronic shareholder a letter of transmittal which will
set forth instructions for exchanging Temptronic stock certificate(s) for a
certificate representing the shares of inTEST common stock and, if applicable,
a check for the fractional share amount to which the shareholder is entitled.
Each Temptronic shareholder must surrender to the exchange agent all of
his Temptronic stock certificates along with a properly executed and completed
letter of transmittal before he or she can receive inTEST shares and cash for
fractional shares. Until surrendered, outstanding Temptronic stock certificates
will be treated for all corporate purposes as evidence of the ownership of the
inTEST shares into which the Temptronic shares have been automatically
converted. No transfer of Temptronic shares will be made on the stock transfer
books of Temptronic on or after the closing of the merger.
Only one inTEST share certificate will be issued to each Temptronic
shareholder. Thus, if a Temptronic shareholder surrenders more than one
Temptronic stock certificate, the exchange agent will issue to that Temptronic
shareholder a single inTEST stock certificate representing the total number of
inTEST shares to which that owner is entitled under the merger agreement.
25
<PAGE>
Temptronic shareholders should not surrender their Temptronic stock
certificates for exchange until they receive the letter of transmittal from the
exchange agent. However, Temptronic shareholders are urged to notify Alexander
Pyle, Esquire, immediately if their Temptronic stock certificates are lost,
stolen, destroyed or not properly registered, in order to begin the process of
obtaining replacement Temptronic stock certificates. Mr. Pyle can be reached at
617-832-1285.
Background of the Merger
A key element of inTEST's growth strategy has been to attempt to acquire
other companies in the ATE industry that provide products or services that are
complementary to those provided by inTEST. inTEST has been and is actively
seeking acquisitions.
On April 8, 1999, Hugh T. Regan, Jr., inTEST's chief financial officer,
received a letter from Ronald Klammer, Managing Director of OEM Capital, which
had been selected by Temptronic to solicit offers for the purchase of
Temptronic. After agreeing to standard confidentiality terms on April 13, 1999,
Mr. Regan received a descriptive memorandum of information on Temptronic, which
detailed the following:
o a discussion of perceived market opportunity for Temptronic's products;
o details of Temptronic's technology including product development
programs and patents;
o a discussion of Temptronic's products and a competitive assessment;
o an overview of Temptronic's operations;
o an overview of Temptronic's management, personnel and ownership; and
o an analysis of historical financial information.
The memorandum also noted that all prospective buyers that had an interest
in bidding on Temptronic needed to submit written indications of interest by
May 14, 1999, including a non-binding estimate of the value to be paid for
Temptronic and other significant terms and conditions, and that potential
buyers would not be permitted to visit Temptronic or make inquiries of its
management prior to submitting a bid.
During April 1999, senior management of inTEST evaluated technological
aspects of Temptronic's business and products. After an initial review, senior
management requested Dr. Stuart Daniels, a member of the inTEST board of
directors, to conduct a review of the intellectual property used in the
products Temptronic designs and manufactures and to provide management with an
evaluation of the strength of Temptronic's products in the marketplace. On
April 26, 1999, Dr. Daniels reported that Temptronic's products and markets and
the intellectual property concerning those areas were within inTEST's general
acquisition parameters.
On May 1, 1999, Mr. Regan requested of Mr. Klammer a visit to Temptronic
by inTEST management to meet Temptronic management, tour its facilities and
discuss products and markets. The request was denied and inTEST was reminded
that only those that had made acceptable bids would be invited to participate
in meetings with Temptronic. On May 14, 1999, Mr. Regan notified Mr. Klammer
that inTEST had determined not to make a bid for Temptronic until inTEST had
met with management. On May 19, 1999, Mr. Klammer contacted Mr. Regan and
approved inTEST management meeting with Temptronic management.
During the period from May 19, 1999 to August 30, 1999, inTEST and
Temptronic exchanged information about their respective businesses, Temptronic
provided inTEST with documentation of its operations, and inTEST evaluated
Temptronic's products and technology, reviewed Temptronic's financial
statements, quarterly projections, and other financial and operating records.
In addition, senior management representatives of each company had several
meetings with each other and visited the other company.
inTEST representatives presented an offer to Temptronic management at a
meeting held in Temptronic's Newton, Massachusetts office on August 30, 1999.
The offer was rejected by Temptronic, and the parties present at the meeting,
after extensive negotiation, agreed to revise the offer, subject to approval of
the board of directors of each company.
26
<PAGE>
On August 31, 1999, the inTEST board of directors rejected the proposed
terms, but instructed inTEST's management to continue negotiating. Throughout
September 1999, Messrs. Regan and Matthiessen of inTEST continued to negotiate
with Temptronic and Mr. Klammer.
On September 1, 1999, Messrs. Regan and Matthiessen discussed inTEST and
its interest in Temptronic in a conference call with two members of
Temptronic's board of directors who represent the interests of Hakuto
Corporation, the owner of 33 1/3% of Temptronic's outstanding stock. On
September 9, 1999, Mr. Regan and the managing directors of each of inTEST PTE,
Limited and inTEST Kabushiki Kaisha met with the management of Hakuto at the
latter's offices in Tokyo. Mr. Regan gave a presentation on inTEST and the vice
president of Hakuto gave a presentation on Hakuto. A discussion took place
regarding the current status of the negotiations, and the senior management of
Hakuto recommended that all parties continue to negotiate.
On October 8, 1999, at a meeting in Temptronic's Newton offices between
senior management of both inTEST and Temptronic, the parties agreed to an
exchange ratio of 0.925 shares of inTEST for each share of Temptronic, subject
to approval of both boards.
On October 19, 1999, the inTEST board of directors approved the proposed
exchange ratio and the signing of a letter of intent to acquire Temptronic
subject to further due diligence. Between October 20, 1999 and October 28,
1999, the letter of intent was negotiated between management of both companies.
A letter of intent was executed by both companies on October 29, 1999.
During November 1999, inTEST and Temptronic each conducted "due diligence"
examinations of the other. Mr. Regan went to Massachusetts to conduct due
diligence on site from November 1 through November 12. Mr. Regan was joined in
Boston, Massachusetts on November 2 by representatives of inTEST's independent
auditors. Meetings were held with representatives of the independent auditors
for Temptronic to review accounting workpapers. Throughout the month, various
members of management of inTEST visited Temptronic to conduct various aspects
of due diligence. In addition, certain members of Temptronic's board visited
inTEST facilities in Sunnyvale, California and Cherry Hill, New Jersey.
On December 10, 1999, inTEST engaged the services of Janney Montgomery
Scott LLC to provide it with a fairness opinion regarding the terms of the
merger.
On December 15, 1999, the Temptronic board of directors approved the
merger.
On December 16, 1999, the inTEST board of directors held a special meeting
to review the terms of the merger agreement. The board reviewed and discussed
the terms of the merger agreement, and discussed the financial and other
effects the proposed merger would have on inTEST shareholders, operations and
customers. In addition, Janney Montgomery Scott LLC delivered its oral opinion
to the effect that, as of December 16, 1999, and based upon and subject to
matters stated in its written opinion, the exchange ratio was fair from a
financial point of view to inTEST. After Janney delivered its opinion, the
inTEST board of directors unanimously approved the merger and authorized the
officers to finalize and execute the merger agreement.
Janney Montgomery Scott LLC confirmed its opinion as of January 3, 2000.
On January 4, 2000, the merger agreement was executed on behalf of inTEST and
Temptronic and the companies circulated a press release announcing the proposed
merger. Subsequently, the companies amended and restated the merger agreement
to the form set forth in this joint proxy statement/prospectus as Appendix A.
Opinion of Janney Montgomery Scott LLC
inTEST's board of directors retained Janney Montgomery Scott LLC
("Janney") to review the merger and to render an opinion as to the fairness,
from a financial point of view, of the exchange ratio to inTEST. As described
herein, Janney's opinion, dated December 16, 1999 and subsequently confirmed on
January 3, 2000 and January 31, 2000, together with the related presentation to
the board of directors, was only one of many factors taken into consideration
by the inTEST board of directors in making its determination to approve the
merger.
27
<PAGE>
On December 16, 1999, and as subsequently confirmed on January 3, 2000 and
January 31, 2000, Janney delivered its opinion to the board of directors to the
effect that, as of such dates, and based upon and subject to certain matters
stated therein, the exchange ratio was fair, from a financial point of view, to
inTEST.
The full text of Janney's written opinion, dated January 31, 2000, which
sets forth the assumptions made, matters considered and limitations on review
undertaken, is attached to this proxy statement as Appendix C and is
incorporated herein by reference. Janney's opinion is directed to the board of
directors of inTEST and addresses the fairness of the exchange ratio to inTEST
from a financial point of view. Janney's opinion does not address the
underlying decision of inTEST to engage in the merger and does not constitute a
recommendation to any shareholder as to how such shareholder should vote or as
to any other action such shareholder should take in connection with the merger.
The summary of the opinion of Janney set forth in this proxy statement is
qualified in its entirety by reference to the full text of such opinion.
In connection with its opinion, Janney (1) reviewed certain information,
including financial forecasts, relating to the business and prospects of inTEST
and Temptronic; (2) reviewed selected financial and stock market data for
certain publicly traded companies; (3) reviewed the financial terms of certain
recent business combinations; (4) reviewed the Agreement and Plan of Merger and
Reorganization in draft form; and (5) performed such other financial studies
and analyses as Janney deemed appropriate. In addition, Janney held discussions
with the managements of inTEST and Temptronic regarding their respective
businesses, financial conditions and prospects. Janney assumed that the final
terms of the Agreement and Plan of Merger and Reorganization reviewed by Janney
in draft form would not vary materially from the drafts reviewed by Janney.
In preparing its opinion, Janney assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to it,
discussed with or reviewed by or for it, or publicly available, and Janney has
not assumed any responsibility for independently verifying such information or
undertaken any independent evaluation or appraisal of any of the assets or
liabilities of inTEST or Temptronic or been furnished with any such evaluation
or appraisal. In addition, Janney has not assumed any obligation to conduct any
physical inspection of the properties or facilities of inTEST or Temptronic.
With respect to the financial forecast information furnished to or discussed
with it by inTEST and Temptronic, Janney assumed that it was reasonably
prepared and reflected the best currently available estimates and judgments of
the respective managements as to their expected future financial performance.
Janney's opinion expresses no view with respect to the obtainability of such
projections or the assumptions on which they were based. Further, Janney has
relied upon the assurances of the managements of inTEST and Temptronic that
they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. Janney's opinion is necessarily based
upon market, economic and other conditions as they exist and can be evaluated
on, and on the information made available to it as of, January 31, 2000.
In arriving at its opinion as described herein, Janney did not ascribe a
specific range of values to Temptronic, but made its determination as to the
fairness, from a financial point of view, of the exchange ratio to inTEST on
the basis of a variety of financial and comparative analyses, including those
described below. The summary of analyses performed by Janney as set forth below
does not purport to be a complete description of the analyses underlying
Janney's opinion. The presentation of a fairness opinion is a complex analytic
process involving various determinations as to the most appropriate and
relevant methods of financial analyses and the application of those methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to partial or summary description. No company or transaction used
in such analyses as a comparison is identical to Temptronic or the merger, nor
is an evaluation of the results of such analyses entirely mathematical; rather,
it involves complex considerations and judgments concerning financial and
operating characteristics and other factors that could affect the acquisition,
public trading or other values of the companies or transactions being analyzed.
The estimates contained in such analyses and the ranges of valuations resulting
from any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition, analyses relating
to the value of the business or securities do not purport to be appraisals or
to reflect the prices at which businesses, companies or securities actually may
be sold. Accordingly, such
28
<PAGE>
analyses and estimates are inherently subject to substantial uncertainty. In
arriving at this opinion, Janney made qualitative judgments as to the
significance and relevance of each analysis and factor considered by it.
Accordingly, Janney believes that its analyses must be considered as a whole
and that selecting portions of its analyses and factors, without considering
all analyses and factors, could create an incomplete view of the processes
underlying such analyses and its opinion.
The following is a summary of the material analyses performed by Janney
and presented to the board of directors at a meeting on December 16, 1999.
Historical Operating Results and Financial Condition
In rendering its opinion, Janney reviewed and analyzed the historical and
current operating results and financial condition of inTEST and Temptronic
which included (i) an assessment of their respective recent financial
statements and (ii) an analysis of their respective revenue, growth and
operating performance trends.
Projections
Janney analyzed inTEST's and Temptronic's projections in support of its
fairness opinion. The projections were not reviewed by independent auditors and
were not prepared in accordance with generally accepted accounting principles.
Such projections were based on numerous estimates and other assumptions and are
inherently subject to significant uncertainties and contingencies. There is no
assurance that the projections will be achieved and neither inTEST, Temptronic,
or any other person considers such estimates an accurate prediction of future
events.
Analysis of Selected Publicly Traded Comparable Companies
Using publicly available information, Janney compared the operating and
financial performance for Temptronic with performance and stock market
valuation data and ratios of certain similar publicly traded companies. Janney
selected these companies from the universe of possible companies based upon
Janney's view as to the comparability of financial and operating
characteristics of these companies to Temptronic. With respect to each such
analysis, Janney made such comparisons among the following companies: Aetrium
Incorporated, Cerprobe Corporation, Cohu, Inc., Credence Systems Corporation,
Electro Scientific Industries, Inc., Electroglas, Inc., Integrated Measurement
Systems, Inc., inTEST Corporation, LTX Corporation, and Micro Component
Technologies, Inc., collectively referred to herein as comparable companies.
Among other multiples calculated and reviewed by Janney were the
comparable companies': (a) equity value (i.e. stock price) multiples to
historical and estimated net income and (b) enterprise value (total stock
market value adjusted for debt and cash) multiples to latest twelve months
("LTM") revenues, EBITDA and EBIT. The financial information used in connection
with the multiples assumed net debt for Temptronic of $477,000 and was based on
the latest reported 12 month period as derived from publicly available
information and on consensus estimated EPS for calendar years 1999 and 2000 for
the comparable companies as reported by First Call Corporation. The comparable
companies were found to have the following trading ranges:
<TABLE>
<CAPTION>
Enterprise Value / Equity Value /
----------------------------------- -------------------------------------
LTM LTM LTM LTM CY1999(P) CY2000(P)
Revenue EBITDA EBIT Earnings Earnings Earnings
--------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
High 10.2x 31.8x 46.6x 60.0x 175.4x 34.4x
Low 1.1x 9.0x 21.2x 27.0x 17.3x 10.3x
Median 3.0x 27.6x 38.1x 56.4x 49.1x 16.5x
Adjusted Average (1) 2.6x 27.1x 38.5x 53.7x 67.2x 18.5x
</TABLE>
29
<PAGE>
Applying these values to Temptronic's historical and projected financials
resulted in the following implied equity values:
<TABLE>
<CAPTION>
Enterprise Value / Equity Value /
---------------------------------------- -------------------------------------
LTM LTM LTM LTM CY1999(P) CY2000(P)
Revenue EBITDA EBIT Earnings Earnings Earnings
------------ ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
High $ 167,133 $ 38,026 $ 27,169 $ 9,349 $ 93,844 $ 72,858
Low 17,399 10,467 12,079 4,205 9,243 21,813
Median 48,383 33,010 22,165 8,779 26,276 34,959
Adjusted Average (1) 42,940 32,438 22,387 8,363 35,954 39,277
</TABLE>
- ------------
(1) adjusted to exclude the highest and lowest value before averaging.
Analyses of Selected Comparable Transactions
Janney reviewed the financial terms, to the extent publicly available, of
15 completed and pending acquisitions since January 1, 1997 in the
semiconductor and semiconductor capital equipment industries (Micro Component
Technology, Inc. / Aseco Corporation; Cerprobe Corporation / Oz Technologies,
Inc.; FEI Corporation / Micrion Corporation; Steag AG / AG Associates; Advanced
Energy Industries, Inc. / RF Power Products; Aetrium, Incorporated / WEB
Technology, Inc.; Dover Corporation / Vitronics Corporation; Robotic Vision
Systems, Inc. / Vanguard Automation, Inc.; Electro Scientific Industries, Inc.
/ Applied Intelligent Systems, Inc.; Eaton Corporation / Fusion Systems
Corporation; Electro Scientific Industries, Inc. / Chip Star, Inc.; Electro
Scientific Industries, Inc. / Dynamotion ATI Corporation; KLA Instruments
Corporation / Tencor Instruments; FEI Corporation / Philips Electron Optics;
Cerprobe Corporation / Silicon Valley Test & Repair, Inc.), collectively
referred to herein as the comparable transactions. With respect to Temptronic,
Janney examined multiples of the value of common equity and indebtedness
assumed in each of the transactions to, among other measures, such acquired
companies' revenue, EBITDA and EBIT, and examined multiples of the value of the
common equity in each of the comparable transactions to net income and book
value. For each measure, revenue, EBITDA, EBIT and net income consisted of the
latest twelve months and book value consisted of the most recent quarter of
available financial information on the respective date of each transaction.
Janney noted that data from completed transactions must be evaluated in
the context of market conditions in the semiconductor and semiconductor capital
equipment industries prevailing at the time of the comparable transaction and,
as such, a review of transactions completed and pending in 1999 was of more
relevance than a review of those completed during 1997 and 1998. Janney further
noted that in three of the four transactions completed or pending during 1999,
the acquired company generated negative EBITDA, negative EBIT and a net loss
for the periods reviewed. Consequently, Janney advised the board of directors
that the comparable transaction analysis was deemed to be of limited value.
Discounted Cash Flow Analysis
EBITDA Terminal Value. Janney prepared a discounted cash flow analysis of
the future unleveraged free cash flows that Temptronic's operations could be
expected to generate during various periods using projections provided to
Janney by Temptronic. Unleveraged free cash flows of Temptronic were projected
over a period ending December 31, 2004. A terminal value was calculated by
utilizing an exit multiple between 6.0 and 10.0 times projected EBITDA in
calendar year 2004. The estimated future unleveraged free cash flows and the
terminal value were discounted to present values using a range of discount
rates from between 16.0% and 24.0%. After subtracting the present value of
payments due to debtholders, Janney arrived at a range of estimated equity
values for Temptronic of between $33,874,000 and $68,271,000. Based on a
midpoint exit multiple of 8.0 times EBITDA in calendar year 2004, and a
midpoint discount rate of 20.0%, this analysis produced a midpoint equity value
for Temptronic of $48,744,000.
Net Income Terminal Value. Janney prepared a second discounted cash flow
analysis by calculating a terminal value utilizing an exit multiple between
10.0 and 20.0 times projected net income in calendar year 2004. The estimated
future unleveraged free cash flows and the terminal value were discounted to
present
30
<PAGE>
values using a range of discount rates from between 16.0% and 24.0%. After
subtracting the present value of payments due to debtholders, Janney arrived at
a range of estimated equity values for Temptronic of between $33,151,000 and
$77,552,000. Based on a midpoint exit multiple of 15.0 times net income in
calendar year 2004, and a midpoint discount rate of 20.0%, this analysis
produced a midpoint equity value for Temptronic of $52,236,000.
Pro Forma Transaction Analysis
Based on estimates provided by the managements of inTEST and Temptronic,
Janney compared the estimated stand-alone earnings per share for inTEST for
calendar years 1999 and 2000 to the pro forma earnings per share of the
combined company. Based on the exchange ratio, this analysis indicated that the
merger would be dilutive in 1999 and accretive in 2000 to inTEST's earnings per
share.
Contribution Analysis
Janney reviewed the pro forma relative contributions of inTEST and
Temptronic to certain income statement items for the calendar years 1999 and
2000. Based on estimates provided by the managements of inTEST and Temptronic,
the review indicated that the relative contribution by Temptronic to a combined
entity was projected for calendar year 1999 to be 37.2%, 18.3% and 20.5% of
revenue, operating income and net income, respectively; and for calendar year
2000 to be 33.0%, 24.6% and 25.1% of revenue, operating income and net income,
respectively.
Engagement
inTEST selected Janney to review the merger and to render an opinion as to
the fairness, from a financial point of view, of the exchange ratio to inTEST,
because Janney is a nationally recognized investment banking firm that has
experience in the semiconductor industry. Janney was not retained as an advisor
to or agent of the shareholders of inTEST or any person other than inTEST. As
part of its investment banking business, Janney is regularly engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and valuations for corporate and other purposes. Janney has
in the past performed investment banking and other services for inTEST,
including mergers and acquisitions advisory and equity underwriting, and has
been compensated for such services. In the ordinary course of Janney's
securities business it may trade the equity securities of inTEST for its own
account and the accounts of its customers and, therefore, it may from time to
time hold a long or short position in such securities.
Pursuant to the terms of Janney's engagement, inTEST has paid to Janney
$100,000 for rendering its opinion in connection with the merger. In addition,
inTEST has agreed to reimburse Janney for its out-of-pocket expenses, and to
indemnify Janney against certain liabilities, or to contribute to payments
Janney may be required to make in respect thereof.
inTEST's Reasons for the Merger
In reaching its decision to proceed with the merger, the inTEST board of
directors considered a number of factors. A primary consideration was the
consensus of the board and inTEST management that, over the next 5 to 10 years,
there will be a shift in the testing of integrated circuits as semiconductor
manufacturers continue to demand more cost-effective testing. Testing
represents a significant cost in the manufacture of integrated circuits, and
inTEST believes that semiconductor manufacturers will continue to explore ways
to streamline the testing process. As a result, inTEST believes that testing of
integrated circuits at the end of the production process will be reduced
significantly in the future, and most testing will be done in the beginning of
the production process, as wafer testing. inTEST also believes that the
transition to this "front-end" wafer testing will require wafers to be tested
over a range of temperatures. Thus, inTEST believes temperature testing of
wafers will be in greater demand over the next decade. Temptronic has developed
products which facilitate temperature-controlled wafer testing which inTEST
believes will be in increasingly significant demand over the next ten years as
the demand for front-end testing grows.
31
<PAGE>
inTEST's board of directors believes the merger will be beneficial to
inTEST for the following additional reasons:
o inTEST seeks to grow both internally and through the acquisition of
complementary businesses. Temptronic's products will complement and
broaden inTEST's existing product lines.
o The merger will enable inTEST to develop products which combine the
proprietary technologies of both companies.
Temptronic's Reasons for the Merger
In the course of its deliberations with respect to the merger, the
Temptronic board of directors reviewed with Temptronic management and
considered a number of factors relating to the merger and to the board's
commitment to maximizing the value of the shares of Temptronic stock held by
its shareholders, including the following:
o The historical information concerning inTEST's and Temptronic's
respective businesses, prospects, financial performance and condition,
operations, technology, management and competitive positions;
o Temptronic management's view as to the financial condition, results of
operations and businesses of inTEST and Temptronic before and after giving
effect to the merger, based on the similarities between the two businesses
and their markets, the potential for the merged entity to offer a more
complete solution to its customers, as well as on other factors;
o Current financial market conditions and historical market prices,
volatility and trading information with respect to inTEST common stock;
o The consideration to be received by Temptronic shareholders in the merger
and the market value of the inTEST common stock to be issued in exchange
for each share of Temptronic common stock; and
o The impact of the merger on Temptronic's operations and employees.
The Temptronic board of directors also identified and considered a number
of risks and potentially negative factors in its deliberations concerning the
merger, including, but not limited to the risk that the potential benefits
sought in the merger might not be fully realized and risks associated with
integrating the businesses after the merger. The Temptronic board of directors
believed that these risks were outweighed by the potential benefits of the
merger.
Interests of Temptronic's Management and Certain Shareholders in the Merger
In considering the recommendation of the Temptronic board of directors
with respect to the proposed merger, Temptronic shareholders should note that
some of Temptronic's shareholders, directors and officers have interests in the
merger that are different from, or in addition to, the interests of Temptronic
shareholders generally. The boards of directors of inTEST and Temptronic were
aware of these interests and took these interests into account in approving the
proposed merger and the transactions contemplated by the merger documents.
Stock Held by Temptronic Directors and Others. As of January 31, 2000, the
directors and executive officers of Temptronic and persons who may be
considered to be affiliates of Temptronic beneficially owned or held voting
control of 1,725,671 shares or 77% of Temptronic common stock assuming exercise
of all existing options to purchase Temptronic common stock that were
exercisable within the sixty-day period following that date. This includes:
o 489,037 shares held by the Temptronic employee stock ownership plan that
are voted by a committee appointed by the Temptronic board of directors;
o 700,000 shares held by Hakuto American Holdings, Inc., which appoints two
directors to the Temptronic board;
32
<PAGE>
o 27,938 shares held by the Temptronic employee stock ownership plan for
the benefit of former and current officers and directors, the voting of
which may be directed by such beneficial owners; and
o 15,122 shares which would be issued upon exercise of options to purchase
shares of Temptronic common stock held by the officers and directors of
Temptronic.
Election of Directors. In the merger agreement, inTEST agreed to appoint James
J. Greed, Jr. and William Stone, directors of Temptronic, to the board of
directors of inTEST as of the date the merger is completed.
Temptronic Stock Options. Upon consummation of the merger, holders of
Temptronic options will be entitled to receive inTEST stock options and, upon
the exercise of their inTEST stock options, will receive a number of shares of
inTEST common stock determined as described under "The Merger -- Treatment of
Temptronic Stock Options."
Employment Agreement. In connection with the merger, inTEST's wholly-owned
subsidiary will enter into an employment agreement with William M. Stone. Mr.
Stone is currently president, chief executive officer and a director of
Temptronic. This employment agreement will include provisions relating to the
following:
o the payment of performance bonuses,
o non-competition, and
o continuation of compensation following termination without cause as
defined in the employment agreement.
Indemnification; Insurance. The directors and officers of Temptronic are
entitled to indemnification by Temptronic prior to the merger as provided in
its articles of organization and bylaws. Temptronic has maintained a directors'
and officers' liability insurance policy for the benefit of its directors and
officers. The directors and officers of Temptronic who continue as directors or
officers of inTEST will be covered by inTEST's directors' and officers'
liability insurance policy. Indemnification by inTEST is described later in the
joint proxy statement/prospectus under the heading "Indemnity."
Ownership of inTEST Following the Merger
As a result of the merger, the holders of Temptronic common stock, other
than those who exercise their statutory dissenters' rights, will become inTEST
shareholders. Assuming no Temptronic shareholder exercises dissenters' rights,
and assuming that no options to purchase Temptronic common stock are exercised
before the closing of the merger, inTEST will issue 2,043,212 shares of inTEST
common stock to Temptronic shareholders in the merger. Based upon the number of
inTEST shares issued and outstanding on the inTEST record date and the number
of inTEST shares anticipated to be issued in the merger, the shares of inTEST
common stock issued to Temptronic shareholders in the merger will be
approximately 24% of the outstanding common stock of inTEST after the merger.
inTEST will reserve up to an additional 181,117 shares of inTEST common stock
which may be issued upon the exercise of options to purchase Temptronic shares
not exercised before the closing, which will be converted to options to
purchase inTEST shares. If all of these options were exercised immediately
before or after the merger, Temptronic shareholders would own approximately 25%
of the outstanding common stock of inTEST after the merger.
Management of inTEST Following the Merger
When the merger is complete, inTEST will continue to be managed by its
current directors and officers. In addition, James J. Greed, Jr. and William M.
Stone, who are currently directors of Temptronic, will become directors of
inTEST. Mr. Stone, who is currently also president and chief executive officer
of Temptronic, will become president and chief executive officer of inTEST's
wholly-owned subsidiary into which Temptronic will be merged.
Affiliate Agreements
It is a condition to inTEST's obligation to complete the merger that it
receive from each affiliate of Temptronic an agreement stating, among other
things, that the affiliate:
33
<PAGE>
o has not sold any shares of capital stock or other securities of
Temptronic at any time during the 30-day period ending on the closing date
of the merger; and
o will not sell, assign, give, pledge or otherwise transfer, dispose of or
reduce his or her risk relating to any shares of capital stock or other
securities of inTEST, until inTEST has published financial results
covering at least 30 days of post-merger combined operations of inTEST and
Temptronic and, thereafter, only in compliance with applicable federal and
state securities laws.
The purpose of the affiliate agreements is to comply with the requirements
of federal securities law and pooling-of-interests accounting rules. An
affiliate of Temptronic is someone who controls, is controlled by or is under
common control with Temptronic.
RESALE OF inTEST COMMON STOCK AND NASDAQ LISTING
The inTEST common stock issued in connection with the merger will be
freely transferable, except that shares issued to any Temptronic shareholder
who is an affiliate of Temptronic or who becomes an affiliate of inTEST are
subject to restrictions on resale, including those contained in the affiliate
agreements. inTEST common stock is traded under the symbol "INTT." inTEST will
cause the shares of inTEST common stock issued in connection with the merger to
be listed on the Nasdaq National Market.
NO DISSENTER'S RIGHTS FOR inTEST SHAREHOLDERS
Delaware law does not require the approval of the merger by inTEST
shareholders and does not provide dissenters' rights in connection with the
merger. The merger agreement is being submitted to inTEST shareholders for
approval to satisfy a Nasdaq Stock Market requirement that requires companies
whose shares are reported on the Nasdaq National Market to obtain shareholder
approval of acquisitions in which the stock to be issued in the acquisition
exceeds 20% of the outstanding stock prior to the acquisition.
RIGHTS OF DISSENTING TEMPTRONIC SHAREHOLDERS
Under the Massachusetts Business Corporation Law, a properly dissenting
shareholder is entitled to receive the appraised value of his or her shares
when a company's shareholders are required to vote (1) to sell, lease, or
exchange all or substantially all of the company's property and assets, (2) to
adopt an amendment to its articles of organization which adversely affects the
rights of the shareholder, or (3) to merge or consolidate with another
corporation. Accordingly, Temptronic shareholders who have filed with
Temptronic, prior to the shareholder vote at the Temptronic special
shareholders' meeting, a written objection to the merger along with a statement
that they intend to demand payment for their shares and who do not vote in
favor of the merger are entitled, under the Massachusetts Business Corporation
Law, to seek an appraisal of the fair value of their shares. No such shares
will be converted into shares of inTEST common stock as part of the merger. If
a Temptronic shareholder has not properly notified Temptronic prior to the
shareholder vote at the Temptronic special meeting, has withdrawn the demand
for appraisal or has voted in favor of the merger, the shareholder's shares
will be converted into shares of inTEST common stock in accordance with the
terms of the merger agreement. A copy of Sections 85 through 98 of the
Massachusetts Business Corporation Law, regarding dissenters' rights, is
attached as Appendix B to this joint proxy statement/prospectus.
It is a condition to inTEST's obligation to complete the merger that
holders of no more than 2% of the total number of outstanding Temptronic shares
can have exercised or given notice of their intent to exercise their
dissenters' rights under Massachusetts law.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary description of the material United States
federal income tax consequences of the merger to Temptronic and the Temptronic
shareholders who receive inTEST common stock in the merger or perfect
dissenters' rights. This summary does not address tax considerations which may
affect the treatment of special status taxpayers, such as financial
institutions, broker-dealers, life insurance companies, tax-exempt
organizations, investment companies and foreign taxpayers or of Temptronic
shareholders who do not hold
34
<PAGE>
their Temptronic stock as a capital asset at the date the merger is completed.
In addition, no information is provided in this summary with respect to the tax
consequences of the merger either under applicable foreign, state or local laws
or to persons who acquired Temptronic common stock under employee stock options
or otherwise as compensation.
This summary is based on the Internal Revenue Code of 1986, as in effect
on the date of this joint proxy statement/prospectus, without consideration of
the particular facts or circumstances of any particular holder of Temptronic
stock. Temptronic and inTEST have not sought and will not seek any rulings from
the Internal Revenue Service with respect to any of the matters discussed in
this summary. inTEST has obtained an opinion of counsel from Saul, Ewing,
Remick & Saul LLP regarding the tax matters discussed in this section. A
complete copy of their opinion letter is filed as an exhibit to the
Registration Statement on Form S-4 of which this joint proxy
statement/prospectus is a part.
Provided that the merger is consummated in accordance with the merger
agreement, the merger will constitute a reorganization within the meaning of
Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code, and:
o no gain or loss will be recognized by inTEST;
o no gain or loss will be recognized by Temptronic shareholders upon the
exchange of their Temptronic stock for inTEST common stock, except for
gain or loss arising from cash received instead of fractional shares or
cash or other property received upon the exercise of dissenters' rights;
o the aggregate basis of inTEST common stock received by Temptronic
shareholders in the merger will be the same as the aggregate basis of the
Temptronic common stock surrendered in exchange for the inTEST common
stock;
o the holding period of inTEST common stock received by Temptronic
shareholders in the merger will include the period during which the
Temptronic stock surrendered in exchange therefor was held, provided that
the Temptronic stock is held as a capital asset at the date the merger is
completed.
Where a Temptronic shareholder perfects dissenters' rights with respect to
his or her shares of Temptronic stock and receives solely cash in exchange for
such stock, such cash will be treated as received by the shareholder as a
distribution in full payment in exchange for the voting common stock redeemed,
except in the event that the shareholder is deemed to have constructive
ownership of shares in which case the cash received may be treated as a
dividend.
Although the aggregate basis of inTEST common stock to be received can be
calculated by each Temptronic shareholder, the per share basis may vary
depending on whether any inTEST shares are returned to inTEST to satisfy claims
during the one year escrow period. Thus, any Temptronic shareholder who wishes
to sell inTEST shares during the escrow period should consult with his or her
personal tax advisor to obtain assistance in calculating the per share basis of
the shares sold.
The foregoing discussion does not take into account the particular facts
and circumstances of each Temptronic shareholder's tax status and attributes.
Accordingly, each Temptronic shareholder is advised to consult his or her own
tax advisor regarding the specific tax consequences of the merger, including
the application and effect of federal, state, local and other tax laws and the
possible effects of changes in these tax laws.
ACCOUNTING TREATMENT
inTEST and Temptronic believe that the merger will qualify as a pooling of
interests for accounting and financial reporting purposes. The unaudited pro
forma financial information contained in this joint proxy statement/prospectus
has been prepared using the pooling-of-interests accounting method to account
for the merger.
It is a condition to the obligation of inTEST to complete the merger that
inTEST receive an opinion from its independent public accountants, and an
opinion from Temptronic's independent auditors, that the merger will qualify
for pooling-of-interests accounting treatment if completed in accordance with
the merger agreement. Both inTEST and Temptronic have agreed not to take any
action or fail to take any action that would jeopardize the treatment of the
merger as a pooling of interests.
35
<PAGE>
INFORMATION CONCERNING inTEST CORPORATION
The following discussion pertains to the business of inTEST as a separate
company and does not contemplate specifically the effect of the merger.
The Company
inTEST is a leading designer, manufacturer and marketer of test head
manipulators, docking hardware and tester interface products. Semiconductor
manufacturers use inTEST products to improve the efficiency and
cost-effectiveness of automatic test equipment, or ATE, used in the testing of
integrated circuits. Since inTEST's organization in 1981, the company has
developed and continues to support thousands of products and has been granted
14 U.S. patents as well as patents in 26 other countries. By focusing on
producing high quality products and developing innovative proprietary
technologies, inTEST has been able to establish and maintain strong
relationships with leading worldwide semiconductor manufacturers. In 1999, for
example, the company's top ten customers included Hewlett Packard, Lucent
Technologies, Motorola, NEC, SGS Thomson and Texas Instruments.
inTEST's goals are to enhance its leadership position in the design and
manufacture of all of its product lines and to increase its market share in the
United States and abroad. inTEST's strategies to achieve these goals include:
o developing technologically superior products for semiconductor interface
solutions;
o maintaining strong customer relationships;
o expanding its international presence; and
o acquiring businesses, technologies or products that are complementary to
inTEST's current product offerings.
inTEST was incorporated in New Jersey in 1981 and reincorporated in
Delaware in April 1997. inTEST established inTEST Limited in the U.K. in 1985,
inTEST Kabushiki Kaisha in Japan in 1987 and inTEST PTE, Limited in Singapore
in 1990. inTEST Limited designs, manufactures and markets inTEST's products
principally in the European market. inTEST Kabushiki Kaisha acts as a liaison
office with Japanese ATE manufacturers and markets inTEST products in Japan. In
addition, inTEST Kabushiki Kaisha initiated inTEST's business of designing and
marketing related ATE interface products. inTEST PTE, Limited designs,
manufactures, markets and provides technical support to customers in Southeast
Asia. In 1997, inTEST completed its initial public offering and, in 1998,
inTEST acquired all of the stock of TestDesign Corporation, which was
subsequently renamed as inTEST Sunnyvale Corp.
Industry Background
Integrated circuits, or ICs, are the building blocks of modern
electronics. Microprocessors, memory chips, telecommunications devices, digital
signal processors and various other types of ICs are used in everything from
computers, cell phones and DVD players down to a simple household lamp dimmer.
Typically, ICs are manufactured in multiples of several hundred on a
silicon wafer which are later separated or "diced" into individual ICs, or die.
Die then have leads attached (for the eventual connection to other electrical
components) and are put in a protective housing. This process step is called
"packaging." Testing of the wafer is required before the dicing step to insure
that only functional die are packaged. This testing step has several names
including "wafer test," "wafer probe" or "front-end test." To test the circuits
on a wafer, a wafer prober automatically positions the wafer under a probing
assembly which is connected electrically to a test system. Once the good die
have been identified, they are packaged. The packaged IC, or device, requires
further testing which is called "back-end test." This entails an IC handler
individually plugging the packaged ICs into an environmentally-controlled test
socket for testing. Test head manipulators facilitate the movement of the test
head to the wafer prober in front-end test, and to the IC handler in back-end
test. Docking hardware connects the test head to the wafer prober and IC
handler. Tester interface products provide the electrical connection between
the test head and the wafer or packaged IC.
36
<PAGE>
As electronic products become more complex, so do the wafers and
integrated circuits that perform the necessary functions. At the same time,
manufacturers have continued to seek innovation in the design, architecture and
complexity of the automatic testing equipment used in the testing of ICs
because of the need to produce increasingly complex products more efficiently.
The combination of the growth in demand for ICs coupled with the technological
changes in their designs has lead to demand for new automatic test equipment
and, consequently, for inTEST's products.
The semiconductor market is a high volume, high growth market
characterized by rapid technological change and wide fluctuations in demand.
Testers range in price from approximately $500,000 to over $3.0 million each,
depending primarily on the complexity of the device to be tested and the number
of test heads, typically one or two, with which each tester is configured.
Probers and handlers range in price from approximately $100,000 to $500,000. A
typical test floor of a large semiconductor manufacturer may have approximately
100 test heads and 100 probers or 250 handlers available for use at any one
time. Given such a substantial investment, semiconductor manufacturers employ
testing processes which seek to maximize the utilization of ATE and floor space
dedicated to testing.
Until the early 1970s, testers were designed with the interface circuits,
also referred to as the pin electronics, mounted inside the tester's mainframe
cabinet. The pin electronics were connected to the prober's probing assembly or
to the handler's test socket with a five to ten foot electrical cable. As
devices became faster, more complex and more precise, signal distortion
inherent with the use of these cables resulted in degraded test results.
Although some devices are still tested in this manner, these devices tend to be
used in older, less technologically advanced applications.
During the 1970s, tester manufacturers responded by moving the pin
electronics from the tester's mainframe cabinet to an independent test head,
which could be directly connected to a prober or handler, thereby eliminating
the problems associated with using cables as the connection between the
tester's pin electronics and the prober or handler. Directly connecting the
test head pin electronics to the prober's probing assembly or to the handler's
test socket was accomplished by mounting the test head directly to the prober
or handler with a pivot-mechanism manipulator resembling a waffle-iron. This
type of combination resulted in the test head being "dedicated" to only one
prober or one handler.
Dedicated manipulators are of the greatest value in ATE systems in which
the test head is infrequently disconnected and re-connected to and from one
prober or handler to another prober or handler. Consequently, dedicated
manipulators are used (1) primarily in the front-end test, where large,
homogeneous lots of wafers are tested for long, uninterrupted periods of time,
and (2) in the back-end test, where high volume, commodity devices such as
memories are tested in large lots. However, devices, such as microcontrollers
and telecommunications devices, are generally tested in smaller lots due to
varying package types and test specifications, which require frequent handler
changes.
In 1980, free-standing manipulators were introduced to minimize ATE
downtime and increase device testing throughput. These manipulators used
hand-cranked lead screws to position a test head to a prober or handler. These
early manipulators were only marginally better than the waffle-iron design and
did not significantly improve ATE utilization due to the lack of motion freedom
necessary for successful docking.
Users of these early manipulators attempted to precisely align fragile pin
electronics to test sockets and probing assemblies without docking hardware.
Lack of proper docking hardware often causes deterioration and damage to the
interface boards, test sockets or probing assemblies. Such damage can lead to
compromised or inaccurate test results and the rejection of good wafers or
devices resulting in yield loss, or, even more costly, the acceptance of
unsatisfactory wafers or devices resulting in quality error. In addition,
successfully connecting a test head held by a free-standing manipulator to a
prober or handler without docking hardware is difficult and time-consuming.
inTEST's docking hardware and free-standing universal manipulators are
designed to improve the utilization of ATE, particularly ATE employed in
back-end, non-commodity flexible testing environments, by facilitating the
quick, easy and safe changeover of test heads to probers and handlers. inTEST's
docking hardware products mechanically control the intimate interface between
the test head's interface board and the prober's probing assembly or handler's
test socket. As a result, fragile interface boards, test sockets or probing
assemblies are protected from damage during docking. inTEST's docking hardware
allows semiconductor manufacturers to achieve cost savings by:
37
<PAGE>
o improving ATE utilization;
o improving the accuracy and integrity of test results; and
o reducing the need to repair or replace expensive ATE interface products.
inTEST's docking hardware can be designed for use with substantially all
makes and models of test heads, probers and handlers, and can usually be
designed to allow all of the ATE on a test floor to be mechanically compatible.
This compatibility simplifies the docking procedures, allowing for increased
flexibility and utilization of test heads, probers and handlers on a test
floor.
inTEST's free-standing universal manipulators are designed to be used in
either a dedicated or a flexible test environment. In addition, inTEST's
manipulators have been engineered to hold test heads in what seeks to replicate
a "zero gravity" free space. As a result, an operator using no more than 22
pounds of force can reposition the test head by grasping it in his or her hands
and gently moving the test head into position to dock with a prober or handler.
Test heads currently in use weigh up to approximately 900 pounds and measure up
to a cubic yard in volume. A test head held in an inTEST free-standing
universal manipulator and equipped with inTEST docking hardware can be easily,
quickly and safely docked to any handler. After testing a particular production
lot of devices, the test head can quickly and easily be disconnected and docked
to another handler for testing either a subsequent lot of the same packaged
device or to test a different device.
Products
Substantially all of inTEST's products are customized for use with
particular ATE and, in the case of docking hardware, also to achieve
compatibility among particular combinations of ATE. inTEST's docking hardware,
manipulators, tester interfaces and related ATE interface products are designed
for use with more than 175 test heads, 30 probers and 300 handlers, all of
which are mechanically unique makes and models. inTEST has designed and
continues to support more than 4,600 products, any of which can be manufactured
upon request.
Manipulator Products
in2(R) Test Head Positioner: The in2(R) Test Head Positioner, also called the
in2(R), is a universal manipulator which can be designed to hold any test head.
A universal manipulator enables the test head to be repositioned for alternate
use with any one of several probers or handlers on a test floor. The in2(R) is
distinguished from universal manipulators manufactured by competitors by its
innovative, floating-head design. The design of the in2(R) allows a test head
to be held in an effectively weightless state, moved up or down, right or left,
forward or backward and rotated around each axis resulting in six degrees of
motion freedom by an operator using no more than 22 pounds of force.
Consequently, an operator can manually reposition the test head by grasping it
in his or her hands and gently moving the test head into position to dock with
the prober or handler. This same design feature allows the operator to dock the
test interface board while protecting the fragile electrical contacts from
inadvertent damage during the docking action. The interface board is used to
connect the test head's pin electronics to the probing assembly on a prober or
to the test socket on a handler with near zero electrical length between the
pin electronics and the probing assembly or the test socket.
inTEST manufactures six styles of the in2(R), all of which are available
in eight different load-rated sizes. The styles include one tumble mode style
and five cable Pro-Dock(R) pivot style manipulators. Each style provides a
distinct combination of performance characteristics suited to different
customer applications. A tumble mode positioner might be specified for various
reasons including: (1) test head form factor, (2) compatibility with in-line
automation, (3) cable support simplicity or (4) cost minimization. Reasons for
specifying a cable pivot positioner could include: (1) providing improved
handling characteristics necessary for larger test heads, (2) the ability to
handle test heads with short mainframe-to-test head cables or (3) the necessity
to position the test head close to the floor. In addition, inTEST designs
telescopic cable supports to be used with its cable pivot manipulators. These
cable supports minimize bending and twisting stress to mainframe-to-test head
cables, which can be delicate, yet weigh several hundred pounds. The in2(R)
ranges in price from approximately $12,000 to $100,000 depending upon load
capacity, manipulator style and the type of cable management.
38
<PAGE>
Test Head Hoist: In July 1996, inTEST introduced a new, fully-automatic,
electrically-powered and microprocessor-controlled dedicated manipulator called
the "Test Head Hoist." During 1998, inTEST completed a redesign of the Test
Head Hoist which included the simplification of its internal electronics and
resulted in a reduction of its manufacturing cost. The Test Head Hoist was
renamed "Pro-Dock(R)." The patented, overhead design of the Pro-Dock(R) series
manipulator uses a powered scissor mechanism to raise and lower a test head to
a prober or a top docking handler. This design enables a Pro-Dock(R) to dock
very large test heads (weight tested to 1,000 pounds) within .005". inTEST
believes that the Pro-Dock(R) series of manipulators will be attractive to
semiconductor manufacturers for testing 300 mm wafers and packaged memory
devices. The Pro-Dock(R) is the only fully-automatic manipulator which enables
a test head to be automatically docked to a prober or handler with the push of
one button. inTEST believes that the Pro-Dock(R) enables semiconductor
manufacturers to increase floor space utilization of their ATE test systems by
25% to 40% over that achieved by waffle-iron style dedicated manipulators or
universal manipulators because a Pro-Dock(R) series manipulator has a virtually
zero "footprint." inTEST does not expect significant sales of the Pro-Dock(R)
manipulators until demand for 300 mm wafers reach levels warranting significant
investment in new testing equipment by semiconductor manufacturers. All costs
associated with the development of the Pro-Dock(R) have been expensed.
Docking Hardware and ATE Interface Products
inTEST's docking hardware is designed for use with floating-head universal
manipulators which are used when maximum mobility and inter-changeability of
handlers between test heads is required. inTEST's docking hardware provides the
mechanical control to connect safely, with near zero electrical length, the
test interface board with either the probing assembly on a prober or the test
socket on a handler. A simple cam action docks and locks the test head to the
prober or handler so that the two become a single mechanism which prohibits
motion of the test head relative to the prober or handler. This minimizes
deterioration of the interface boards, test sockets and probing assemblies
caused by the constant vibration characteristic of the operation of all probers
and handlers. inTEST's docking hardware allows an operator to manually align
the probing assembly or test socket to within .005" with respect to the
interface board on the test head.
inTEST offers six standard four-cam families and three standard three-cam
families with load ratings of 200, 400 and 600 pounds. These docking families
are primarily distinguished from one another by the number of docking cams and
guide pins, the load rating and the size of test head interface boards that can
be used with each particular family of docking hardware. inTEST's docking
hardware products range in price from approximately $2,000 to $12,000.
inTEST's docking hardware products are distinguished from those offered by
ATE manufacturer competitors by the ability of inTEST's products to make
multiple competing brands of test heads compatible with multiple brands of
probers and handlers used by a semiconductor manufacturer by only changing
interface boards. This is called "plug-compatibility." Creating such
plug-compatibility requires detailed information about competing ATE that would
generally not be available to a competing ATE manufacturer. Plug-compatibility
permits non-commodity semiconductor manufacturers to reduce the changeover time
required to undock a test head from one handler and dock it to another handler
between production lots or when changing the device type being tested.
In addition, inTEST designs and sells a variety of related ATE interface
products including high performance test sockets, interface boards, and other
products. inTEST custom designs all docking hardware and related ATE interface
products for the specific combinations of test heads and probers or handlers
used by its customers.
Tester Interface Products
In August 1998, inTEST entered the tester interface business through the
acquisition of TestDesign, a company engaged primarily in the design,
manufacture and sale of tester interface equipment. A tester interface securely
connects the tester to the wafer prober or device handler and is used to carry
signals from the tester to the device under test. A tester interface typically
consists of custom mechanical docking hardware such as a lock ring and an
insert ring, as well as two intricate multi-layer printed circuit boards
connected by either a system of cables or spring-loaded electrical contact
pins. Tester interfaces range from small, single
39
<PAGE>
board, cable type interfaces for less complex systems to high speed, high
frequency, digital or mixed signal interfaces used in testing more complex ICs.
One end of the tester interface connects to the tester and the other to either
a probe card fixture mounted on a prober or a test socket mounted to a handler
for packaged device testing. In each case, the reliability of the test is
highly dependent on maintaining the integrity of the signal between the tester
and the device being tested.
Every tester interface is custom designed for its application. inTEST's
tester interface products carry signals from the tester to the probe card or
test socket and return signals to the tester from the device. inTEST's tester
interface products are designed to optimize the integrity of the transmitted
signal data through the reduction of channel cross-talk, and the matching of
delay times and impedance, thereby increasing the accuracy of the test data.
Because inTEST's tester interfaces enable the tester to provide reliable yield
data by allowing for clear signal transmission, its interfaces can also be cost
saving devices. inTEST's tester interface products also feature ease of
mechanical installation and ready access to the probe card or test socket
during device testing. inTEST offers over 200 different types of overhead and
cable tester interfaces that range in price from $6,000 to $46,000 depending
upon the type of application and the complexity of the device to be tested.
Markets and Customers
inTEST markets its products to semiconductor manufacturers, and, to a
lesser extent, ATE manufacturers. Sales to ATE manufacturers are sometimes
referred to as "OEM" sales. inTEST believes that it sells to most major
semiconductor manufacturers in the world. inTEST's universal manipulators and
docking hardware are primarily used during back-end testing of non-commodity
packaged devices. inTEST's tester interfaces are used in either front-end or
back-end testing of non-commodity packaged devices. These devices include
linear, digital and mixed signal ICs, such as microprocessors, digital signal
processing chips, application specific ICs and non-commodity memory devices,
and primarily have applications in the automotive, computer, consumer products
and telecommunications industries.
inTEST believes that its sales of manipulators, docking hardware and
tester interfaces are a function of the general level of capital expenditures
by semiconductor manufacturers. In addition, its sales of docking hardware are
generally driven by changes in device designs or test methods, industry-wide
volume of device testing, sales of new handlers and, to a lesser extent, sales
of new test heads. In the past, sales of inTEST's docking hardware generally
have been strong when spending for test heads was low. During such times,
inTEST believes that semiconductor manufacturers seek to improve the
utilization, performance and efficiency of existing ATE by purchasing docking
hardware. inTEST's sales of manipulators generally follow purchases of test
heads by inTEST's semiconductor manufacturer customers. Its sales of tester
interfaces are driven both by new tester sales and by upgrades of existing test
equipment to accommodate the increased performance demands of new IC devices.
inTEST believes its sales of related ATE interface products primarily depend
upon operating expenditures of inTEST's semiconductor manufacturer customers.
Both North American and European semiconductor manufacturers have located
most of their back-end factories in Southeast Asia. The front-end wafer
fabrication plants of U.S. semiconductor manufacturers are primarily in the
U.S. Likewise, European, Taiwanese, South Korean and Japanese semiconductor
manufacturers primarily have located their wafer fabrication plants in their
respective countries. inTEST's sales to Japanese semiconductor manufacturers
primarily consist of tester interfaces, test sockets and interface boards.
Sales of docking hardware and universal manipulators have been limited in Japan
and South Korea because manufacturers in these countries emphasize
mass-produced products such as memory devices and other commodity devices.
Commodity devices are typically tested using dedicated manipulators rather than
universal manipulators with docking hardware.
inTEST has maintained long term relationships with substantially all ATE
manufacturers. inTEST believes its relations with these manufacturers are
generally good and have been enhanced by the fact that inTEST does not compete
with these manufacturers for testers, probers and handlers. inTEST believes
that maintaining these relationships is essential to its ability to provide
plug-compatible ATE interface solutions.
inTEST's largest customers include Hewlett Packard, Lucent Technologies,
Motorola, NEC, ST Microelectronics, and Texas Instruments among semiconductor
manufacturers, and Analog Devices, Credence
40
<PAGE>
Systems, LTX, and Teradyne among ATE manufacturers. inTEST's sales to its top
ten customers accounted for 76%, 72% and 70% of the Company's revenues in 1998,
1997 and 1996, respectively. Sales to Lucent Technologies accounted for 16%,
11% and 16%; sales to Motorola accounted for 13%, 5% and 7%; sales to Texas
Instruments accounted for 11%, 7% and 5% and sales to Analog Devices accounted
for 7%, 11% and 6% of inTEST's revenues in 1998, 1997 and 1996, respectively.
Manufacturing and Supply
inTEST's principal manufacturing operations consist of assembly and
testing at its facilities in New Jersey, California, the U.K., and Singapore.
By maintaining manufacturing facilities and technical support in geographic
markets where its semiconductor manufacturer customers are located, inTEST
believes that it is able to respond more quickly and accurately to its
customers needs.
inTEST assembles its manipulator products, docking hardware and tester
interfaces and certain of its probing assemblies from a combination of standard
components and custom parts which have been fabricated to inTEST's
specifications by either third party manufacturers or inTEST's own fabrication
operations in New Jersey and California. inTEST's related ATE interface
products, such as test sockets and interface boards, are manufactured to
inTEST's specifications by third party manufacturers. inTEST's policy is to use
the highest quality raw materials and components in its products. The primary
raw materials used in fabricated parts are all widely available. Substantially
all components are purchased from multiple suppliers. Although certain raw
materials and components are purchased from single suppliers, inTEST believes
that all materials and components are available in adequate amounts from other
sources.
inTEST controls the quality of raw materials, fabricated parts and
components by conducting incoming inspections using sophisticated measurement
equipment, including a coordinate measuring machine in New Jersey and the U.K.,
to ensure that products with critical dimensions meet its specifications.
inTEST's policy is to inspect all products at various stages prior to shipment.
inTEST's inspection standards have been designed to comply with applicable MIL
specifications and ANSI standards. inTEST is preparing a quality manual in
anticipation of applying for ISO 9001 certification in mid-2000.
Sales and Distribution
In North America, inTEST sells to semiconductor manufacturers principally
through independent, commissioned sales representatives and to ATE
manufacturers through its account managers. North American sales
representatives also coordinate product installation and support with inTEST's
technical staff and participate in trade shows. Technical support is provided
to North American customers and independent sales representatives by employees
based in:
o Cherry Hill, New Jersey;
o Sunnyvale, California;
o Austin, Texas;
o Chandler, Arizona; and
o Beaverton, Oregon.
In Europe, inTEST sells to semiconductor and ATE manufacturers through its
account managers. In Japan, inTEST sells to semiconductor and ATE manufacturers
through account managers. In China, Hong Kong, Malaysia, the Philippines, South
Korea, Taiwan and Thailand, inTEST sells through independent sales
representatives. International sales representatives are responsible for sales,
installation, support and trade show participation in their geographic market
areas.
inTEST account managers are responsible for a portfolio of customer
accounts and for managing certain independent sales representatives. In
addition, inTEST's account managers are responsible for applications
engineering, custom product design, pricing, quotations, proposals and
transaction negotiations.
41
<PAGE>
Competition
inTEST's competitors include independent manufacturers and, to a lesser
extent, semiconductor manufacturers' in-house ATE interface groups. inTEST
principally competes on the basis of product performance and functionality,
product reliability, customer service, applications support, price and timely
product delivery.
The independent manufacturers of docking hardware and manipulators which
compete with inTEST include Reid-Ashman Manufacturing of the U.S.,
Microhandling of Germany and Shang Sheng of Taiwan, each of which manufactures
docking hardware and manipulators. The manufacturers of ATE which compete with
inTEST in the sale of docking hardware and universal manipulators include
Credence Systems, LTX, Schlumberger and Teradyne. Some manufacturers of ATE
have been both competitors and customers of inTEST. The independent
manufacturers of tester interfaces which compete with inTEST include Cerprobe
Corporation, Synergetix, a division of IDI, and Xandex Corporation. ATE
manufacturers that compete with inTEST in the sale of tester interfaces include
Credence Systems, Electroglas, LTX and Teradyne. In addition, while inTEST
cannot be sure of the precise number of competitors that sell related ATE
interface products, it believes there are at least 20 manufacturers of
interface boards and at least five manufacturers of high performance test
sockets.
Patents and Other Proprietary Rights
inTEST currently holds 14 U.S. patents and 68 foreign patents and has
pending 3 U.S. patent applications and more than 38 foreign applications that
cover various aspects of its technology. inTEST's policy is to protect its
technology by filing patent applications for the technologies that it considers
important to its business. inTEST first filed for patent protection in the U.S.
for its docking hardware and the in2(R) test head manipulator in 1982, less
than one year after the formation of inTEST. inTEST's U.S. issued patents will
expire at various times beginning in 2002 and extending through 2015. inTEST
cannot assure you, however, that the U.S. Patent and Trademark Office will
issue additional patents on inTEST's pending and future applications.
Furthermore, any patents now or hereafter owned by inTEST may not be afforded
protection against competitors that develop similar technology or products.
There are no pending lawsuits or claims against inTEST regarding infringement
of any existing patents or other intellectual property rights of others.
inTEST also relies on trade secrets and unpatentable know-how to protect
its proprietary rights. It is inTEST's policy to require, as a condition of
permanent employment, that all of its employees agree to assign to inTEST all
rights to inventions or other discoveries relating to inTEST business made
while employed by inTEST. In addition, all employees agree not to disclose any
information regarding inTEST which is private or confidential.
As more fully discussed under the heading "Legal Proceedings," on April
16, 1999, inTEST and its subsidiary, inTEST IP Corp., which holds title to
inTEST's intellectual property, filed suit against Reid-Ashman Manufacturing,
Inc. for infringement of one of inTEST's U.S. patents.
Backlog
At September 30, 1999, inTEST's backlog of unfilled orders for all
products was approximately $11.4 million, compared with approximately $3.4
million at December 31, 1998. inTEST's backlog includes customer purchase
orders which have been accepted by inTEST, substantially all of which inTEST
expects to deliver in the current fiscal year. While backlog is calculated on
the basis of firm purchase orders, there is no guarantee that customers will
purchase inTEST's products that have been ordered or that customers will not
accelerate or postpone currently scheduled delivery dates. As a result,
inTEST's backlog at a particular date is not necessarily indicative of sales
for any future period.
Seasonality
inTEST's business is not seasonal, therefore year-over-year quarterly
comparisons of inTEST's results of operations may not be as meaningful as
sequential quarterly comparisons which tend to reflect the cyclical activity of
the semiconductor industry as a whole. Quarterly fluctuations in expenses are
either related directly
42
<PAGE>
to sales activity and volume or tend to be a function of personnel costs and
the timing of expenses incurred throughout a year. See inTEST's "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for a
presentation of inTEST's quarterly results for each of the two fiscal years
ended December 31, 1998 and through September 30, 1999.
Employees
At January 31, 2000, inTEST had 167 employees, including 63 in customer
operations, 84 in manufacturing operations and 20 in administration.
Substantially all of inTEST's key employees are highly skilled and trained
technical personnel. New technical employees are required to attend an in-house
training program. None of inTEST's employees are represented by a labor union,
and inTEST has never experienced a work stoppage. inTEST believes that its
employee relations are excellent.
Properties
inTEST's headquarters are in Cherry Hill, New Jersey in 28,630 square feet
of office and manufacturing space leased under a seven year lease which expires
in 2003. In August 1997, inTEST leased an additional 11,082 square feet of
warehouse and manufacturing space near its headquarters in Cherry Hill under a
lease which also expires in 2003, and, in July 1999, inTEST leased an
additional 11,000 square feet of manufacturing space for its machine shop under
a five year lease which expires in 2004. inTEST has three facilities in
Sunnyvale, California: the manufacturing and office space occupies
approximately 8,000 square feet under a lease which expires in 2000; the
machine shop occupies 1,109 square feet under a two year lease which expires in
2001; and additional office and warehouse space which occupies 1,900 square
feet leased under a five year lease which expires in 2001. inTEST has sublet
1,200 square feet of the additional office and warehouse space under a lease
which is coterminous with inTEST's lease. inTEST will relocate its Sunnyvale
manufacturing and office space during the first quarter of 2000 to 18,255
square feet of space leased under a five year lease which expires in 2004.
inTEST's facility in the U.K. is located in Thame in 4,600 square feet of
office and manufacturing space leased under an eight year lease which expires
in December 2005. In Singapore, inTEST occupies 3,077 square feet of office and
manufacturing space leased under a four year lease which expires in 2000
subject to a two year renewal option. In Kichijoji, Japan, inTEST occupies
approximately 1,200 square feet of office space under an agreement which is
cancelable on reasonable notice by either party. inTEST is in the process of
negotiating the lease of additional office and manufacturing space in Cherry
Hill, New Jersey and believes that additional space to meet its current and
foreseeable future needs is readily available.
Legal Proceedings
On April 16, 1999, inTEST and its subsidiary, inTEST IP Corp., which holds
title to all company intellectual property, filed suit in the Federal District
Court in Wilmington, DE against Reid-Ashman Manufacturing, Inc., the defendant,
for infringement of a United States patent held by inTEST. The patent is
referred to as the 815 Patent. The invention disclosed and claimed in the 815
Patent is directed to a system for positioning and docking a heavy electronic
test head of a test system with respect to an electronic device handler. The
system is used in the automatic testing of ICs and other electronic devices.
inTEST sells products covered by the 815 Patent worldwide.
As alleged in the complaint, the defendant began manufacturing, offering
to sell, and selling products as early as 1991 that, without license, infringed
upon claims of the 815 Patent. The parties have been discussing possible
settlement of the dispute since inTEST first became aware of the defendant's
infringement in 1991. Discussions were abated at the end of 1995 so that the
U.S. Patent and Trademark Office could reexamine the 815 Patent. On April 7,
1998, the Patent and Trademark Office completed the reexamination and affirmed
the patentability of the nine claims in the patent with minor, technical,
clarifying changes to two of the claims. Thereafter, the parties resumed
settlement negotiations. To date, however, the negotiations have been
unsuccessful.
The presiding judge has attempted to facilitate a settlement through
mediation. Discovery has begun in parallel with the mediation process. The
Court granted the defendant's motion for partial summary judgment, ruling that
damages for infringement of claims 3 through 9 of the 815 Patent can only be
obtained for products that infringe after the date when the reexamination
proceedings were completed.
43
<PAGE>
The complaint asks the court to enjoin the defendant from further acts of
infringement, including the acts of manufacturing, using, offering for sale,
selling and importing positioner systems that embody the invention claimed in
the 815 Patent. The complaint also asks the court to award inTEST damages,
including lost profits. Alleging that the defendant's infringement is and has
been deliberate, willful, and wanton, with knowledge of inTEST's patent rights,
the complaint asks the court to award increased damages up to three times the
amount assessed. The complaint also seeks an award of interest, costs and
reasonable attorney fees. All legal fees incurred in connection with this
matter have been expensed.
DIRECTORS AND OFFICERS OF inTEST
inTEST's by-laws provide that the board of directors shall consist of not
less than five (5) directors, as determined by inTEST's Board of Directors, and
that each director shall hold office until the next annual meeting of
shareholders and until a successor shall be duly elected and qualified. The
present number of directors constituting the entire board is seven.
Biographical
The names of the persons presently serving as directors and officers of
inTEST are listed below, together with their ages and other biographical
information as of January 31, 2000:
<TABLE>
<CAPTION>
Name Age Director Since Position
- ----------------------------------- ----- ---------------- ---------------------------------------------------------------
<S> <C> <C> <C>
Alyn R. Holt ...................... 62 09/17/81 Chairman
Robert E. Matthiessen ............. 55 02/01/97 President, Chief Executive Officer and Director
Douglas W. Smith .................. 50 08/03/98 Executive Vice President, Chief Operating Officer and Director
Daniel J. Graham .................. 53 06/01/88 Vice Chairman, Senior Vice President and Director
Richard O. Endres ................. 74 04/01/82 Director
Stuart F. Daniels, Ph.D. .......... 59 04/01/97 Director
Gregory W. Slayton ................ 40 08/03/98 Director
Hugh T. Regan, Jr. ................ 39 -- Treasurer, Secretary and Chief Financial Officer
Jack R. Edmunds ................... 59 -- Vice President of Operations
Jerome R. Bortnem ................. 47 -- Vice President of Sales and Marketing
</TABLE>
Alyn R. Holt is a co-founder of inTEST and has served as Chairman since
inTEST's inception in September 1981. Mr. Holt served as Chief Executive
Officer of inTEST from September 1981 to August 1998. Mr. Holt has over 35
years experience in the ATE industry, including various positions in general
management, marketing management and engineering management.
Robert E. Matthiessen was elected Chief Executive Officer of inTEST in
August 1998. He was elected President and a director of inTEST in February
1997. Mr. Matthiessen served as Chief Operating Officer of inTEST from December
1997 until August 1998. Prior to that, Mr. Matthiessen served as Executive Vice
President since joining inTEST in October 1984. He has over 25 years experience
in the ATE industry, including various positions in general management,
marketing management and engineering management.
Douglas W. Smith was elected Executive Vice President, Chief Operating
Officer and a director of inTEST in August 1998. Prior to that, Mr. Smith
served as President of TestDesign Corporation, a California corporation engaged
in the manufacture of tester interfaces, which was acquired by inTEST in August
1998. Mr. Smith founded TestDesign Corporation in February 1985. Mr. Smith has
over 19 years of experience in the ATE industry, including various positions in
engineering management, sales management and general management.
Daniel J. Graham is a co-founder of inTEST and has served as Senior Vice
President and a director of inTEST since June 1988. Mr. Graham was elected Vice
Chairman of inTEST in October 1998. Mr. Graham has over 25 years industrial
experience involving the development of software and hardware systems for ATE.
Richard 0. Endres has served as a director of inTEST since April 1982.
Since 1976, he has served as President of VRA, Inc., which provides business
planning and financial services for technology based companies. Mr. Endres has
over 40 years of experience in the ATE industry and was engaged in early
transistor circuit development and computer memory research at RCA's David
Sarnoff Research Center.
44
<PAGE>
Stuart F. Daniels, Ph.D. is a co-founder of inTEST and served as Vice
President and a director in 1982 and was reappointed as a director in April
1997. In 1996, Dr. Daniels founded The Daniels Group, which is engaged in
technology transfer and license consulting. From 1980 to 1995, Dr. Daniels held
several management positions with Siemens Corporation.
Gregory W. Slayton has served as a director of inTEST since August 1998.
Since December 1997, Mr. Slayton has been the President, Chief Executive
Officer and a director of MySoftware Company, a publicly traded company that
develops small business software. From March 1996 to July 1997, Mr. Slayton was
President, Chief Operating Officer and a Director of ParaGraph International, a
privately held internet tools company. From December 1995 to March 1996, Mr.
Slayton also served as President and Chief Executive Officer of Velocity, Inc.,
a privately held CD-gaming company. Mr. Slayton co-founded Worlds, Inc., an
internet technology company, in August 1994 and served as Senior Vice President
and Chief Financial Officer from its inception to November 1995.
Hugh T. Regan, Jr. has served as inTEST's Treasurer and Chief Financial
Officer since joining inTEST in April 1996 and was elected Secretary in
December 1999. From 1989 to 1995, Mr. Regan was the Vice President of Finance
for Value Property Trust, a publicly traded real estate investment trust. From
1995 until he joined inTEST, Mr. Regan was the Chief Financial Officer of the
trust. Mr. Regan has over 13 years of financial management experience.
Jack R. Edmunds has served as inTEST's Vice President of Operations since
October 1998. Prior to that, Mr. Edmunds served as Director of Operations since
joining inTEST in September 1987. He has over 20 years of experience in the ATE
industry, including various positions in operations management, marketing
management, engineering and sales.
Jerome R. Bortnem has served as inTEST's Vice President of Sales and
Marketing since August 1998. Prior to that, Mr. Bortnem served as Western
Regional Sales Manager since joining inTEST in August 1993. Mr. Bortnem has
over 15 years experience in the ATE industry, including various positions in
engineering, marketing and sales.
Director Compensation
Non-employee directors are paid a quarterly retainer of $2,500, a fee of
$2,000 per board meeting attended and a fee of $1,000 per committee meeting
attended that falls on a day other than a board meeting. In addition,
non-employee directors are reimbursed travel expenses and other costs
associated with attending board or committee meetings. inTEST does not pay
additional cash compensation to officers of inTEST for their service as
directors of inTEST. However, officers who serve as directors of inTEST's
foreign subsidiaries receive compensation as approved each year by the
subsidiary's board of directors.
45
<PAGE>
Compensation of inTEST Management
The following table sets forth certain information with respect to the
compensation paid by inTEST for services rendered during the years ended
December 31, 1997, 1998 and 1999, to its chief executive officer and four most
highly compensated executive officers whose total annual salary and bonus
exceeded $100,000 during the year ended December 31, 1999 (each a "named
executive officer"):
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
----------------------------------------------
Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Compensation
- --------------------------------- ------ --------------- ------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
Alyn R. Holt .................... 1999 $ 251,582 $ -- $ 5,602(1) $ 69,565(2)
Chairman 1998 226,238 -- 53,264(1) 65,661(2)
1997 198,010 -- 53,675(1) 137,117(2)
Robert E. Matthiessen ........... 1999 $ 181,994 $ -- $ 5,602(3) $ 66,208(4)
President, Chief Executive 1998 171,576 -- 5,320(3) 53,778(4)
Officer and Director 1997 135,914 -- 8,577(3) 6,240(4)
Douglas W. Smith ................ 1999 $ 155,260 $ -- $ 8,630(5) $ 4,998(6)
Executive Vice President, Chief 1998 56,250(7) -- -- 3,874(6)
Operating Officer and Director 1997 -- -- -- --
Daniel J. Graham ................ 1999 $ 136,850 $ -- $ 7,882(8) $ 6,888(9)
Vice Chairman, Senior Vice 1998 126,704 -- 12,862(8) 7,132(9)
President and Director ......... 1997 112,040 -- 19,088(8) 32,077(9)
Hugh T. Regan, Jr. .............. 1999 $ 128,492 $ -- $ 5,602(10) $ 5,996(11)
Treasurer, Secretary and Chief 1998 118,974 -- 2,533(10) 6,240(11)
Financial Officer 1997 95,400 -- 2,348(10) 6,240(11)
</TABLE>
- ------------
(1) Includes $5,602, $5,320 and $4,931 for group health insurance in 1999,
1998 and 1997, respectively; $24,059 and $9,728 for company paid personal
travel in 1998 and 1997, respectively; $22,688 for the annual lease value
of an automobile for Alyn R. Holt in 1998 and $30,896 for the lease of
automobiles for Alyn R. and Connie E. Holt in 1997; and $1,197 and $6,720
for use of company staff time for personal matters in 1998 and 1997,
respectively.
(2) Includes $4,636, $4,847 and $4,847 for premiums paid on life insurance for
Mr. Holt in 1999, 1998 and 1997, respectively; $4,750, $4,750 and $4,750
for matching contribution to Mr. Holt's 401(k) Plan account in 1999, 1998
and 1997, respectively; and $60,179, $56,064 and $127,520 for serving as a
director of inTEST Limited and inTEST Kabushiki Kaisha in 1999, 1998 and
1997, respectively.
(3) Includes $3,646 for the annual lease value of an automobile for Mr.
Matthiessen in 1997; and $5,602, $5,320 and $4,931 for group health
insurance in 1999, 1998 and 1997, respectively.
(4) Includes $1,279, $1,490 and $1,490 for premiums paid on life insurance for
Mr. Matthiessen in 1999, 1998 and 1997, respectively; $4,750, $4,750 and
$4,750 for matching contributions to Mr. Matthiessen's 401(k) Plan account
in 1999, 1998 and 1997, respectively; and $60,179 and $47,538 for serving
as a director of inTEST Limited and inTEST Kabushiki Kaisha in 1999 and
1998, respectively.
(5) Includes $8,630 for group health insurance in 1999.
(6) Includes $1,248 and $124 for premiums paid on life insurance for Mr. Smith
in 1999 and 1998, respectively; and $3,750 and $3,750 for matching
contributions to Mr. Smith's 401(k) Plan account in 1999 and 1998,
respectively.
(7) Represents salary paid from August 3, 1998, the date Mr. Smith was elected
as an officer of inTEST.
46
<PAGE>
(8) Includes $5,375 and $10,750 for the annual lease value of an automobile
for Mr. Graham in 1998 and 1997, respectively; and $7,882, $7,487 and
$6,938 for group health insurance in 1999, 1998 and 1997, respectively.
(9) Includes $2,138, $2,382 and $2,382 for premiums paid on life insurance for
Mr. Graham in 1999, 1998 and 1997, respectively; $4,750, $4,750 and $4,750
for matching contribution to Mr. Graham's 401(k) Plan account in 1999,
1998 and 1997, respectively; and $24,945 for serving as a director of
inTEST Limited in 1997.
(10) Includes $5,602, $2,533 and $2,348 for group health insurance for Mr.
Regan in 1999, 1998 and 1997, respectively.
(11) Includes $1,246, $1,490 and $1,490 for premiums paid on life insurance for
Mr. Regan in 1999, 1998 and 1997, respectively; and $4,750, $4,750 and
$4,750 for matching contributions to Mr. Regan's 401(k) Plan account in
1999, 1998 and 1997, respectively.
Stock Options
inTEST did not grant any stock options during the year ended December 31,
1999 to the named executive officers.
Exercise of Options
The following table sets forth information regarding the exercise of stock
options and the value of any unexercised stock options of each of the named
executive officers of inTEST, who exercised or held options, during the fiscal
year ended December 31, 1999:
Aggregated Option Exercises in 1999 and December 31, 1999 Option Values
<TABLE>
<CAPTION>
Number of Shares Value Of Unexercised
Shares Underlying Unexercised In-the-Money Options At
Acquired Options At 12/31/99 12/31/99(1)
on Value ------------------------------- ------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------- ---------- ---------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Hugh T. Regan, Jr. ......... 0 $0 16,000 34,000 $ 199,000 $ 436,000
</TABLE>
- ------------
(1) Based upon the closing price for inTEST's common stock as reported on the
Nasdaq National Market System on December 31, 1999 of $18.00 less the
exercise price.
Repricing of Options
The following table sets forth certain information concerning the
repricing of options held by any named executive officer during the last ten
completed fiscal years:
Ten-Year Option Repricing Table
<TABLE>
<CAPTION>
Length of
Number of Exercise Original
Securities Market Price Price at Option Term
Underlying Of Stock at Time of New Remaining
Repriced Time of Repricing Exercise at Date of
Name Date Options Repricing (per share) Price Repricing
- ---------------------------- --------- ------------ -------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Hugh T. Regan, Jr. ......... 6/30/98 30,000 $ 6.00 $ 7.50 $ 6.00 9 years
</TABLE>
Employment Agreements
There were no employment agreements in effect for any executive officer of
inTEST during the year ended December 31, 1999.
47
<PAGE>
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consisted of Dr. Daniels and Messrs. Endres,
Holt and Slayton during 1999. Mr. Holt serves as an executive officer of
inTEST.
Certain Relationships and Related Transactions
There were no related party transactions or indebtedness involving amounts
in excess of $60,000 since January 1, 1999, nor are any currently proposed.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS OF inTEST
The following table sets forth, as of January 31, 2000 (unless otherwise
indicated) the number and percentage of shares of inTEST's common stock which,
according to information supplied to inTEST or filed with the Securities and
Exchange Commission, are beneficially owned by: (i) each person who
beneficially owns more than 5% of the common stock; (ii) each inTEST director,
individually; (iii) each of the named executive officers; and (iv) all of
inTEST's directors and executive officers as a group. Unless otherwise
indicated, the persons named in the table below have sole voting and investment
power with respect to all common stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially Owned Percent of
As of Class
Name of Beneficial Owner January 31, 2000 (Approx.)(1)
- -------------------------------------------------------------------------- -------------------- -------------
<S> <C> <C>
FMR Corp.(2) ............................................................. 653,000 10.0%
Wellington Management Co. LLP(3) ......................................... 545,100 8.3
Brinson Partners, Inc.(4) ................................................ 473,600 7.2
Wellington Trust Company NA(5) ........................................... 335,000 5.1
Alyn R. Holt(6)(7) ....................................................... 1,726,683 26.4
Douglas W. Smith(6) ...................................................... 593,750 9.1
Daniel J. Graham(6)(8) ................................................... 346,560 5.3
Richard O. Endres(9) ..................................................... 145,197 2.2
Robert E. Matthiessen(10) ................................................ 127,037 1.9
Gregory W. Slayton(11) ................................................... 31,250 *
Stuart F. Daniels, Ph.D.(12) ............................................. 15,282 *
Jerome R. Bortnem(13) .................................................... 23,536 *
Jack R. Edmunds(14) ...................................................... 37,141 *
Hugh T. Regan, Jr.(15) ................................................... 22,100 *
All directors and executive officers as a group (10 individuals)(16) ..... 3,068,536 46.7
</TABLE>
- ------------
* Denotes less than one percent of class.
(1) The percent of class for any person or group who, as of January 31, 2000,
beneficially owned any options, warrants or other rights to purchase
shares of inTEST's common stock which are exercisable within 60 days of
January 31, 2000, is calculated assuming all the rights have been
exercised in full.
(2) According to a Schedule 13G/A filed with the SEC on February 1, 1999, as
of December 31, 1998, Fidelity Management & Research Company, a
wholly-owned subsidiary of FMR Corp. is the beneficial owner of 653,000
shares, referred to in this paragraph as the Fidelity shares, of the
common stock as a result of acting as investment adviser to various
investment companies registered under Section 8 of the Investment Company
Act of 1940, including Fidelity Low-Priced Stock Fund, owner of 465,000 of
the Fidelity shares. The address or principal business office of each of
Fidelity Management & Research, FMR and Fidelity Low-Priced Stock Fund is
82 Devonshire Street, Boston, MA 02109. Edward C. Johnson 3d, Chairman of
FMR, and Abigail P. Johnson, Director of FMR and other members of the
Edward C. Johnson 3d family and trusts for their benefit, through their
ownership of voting common stock of FMR and the execution of a
shareholders' voting agreement, may be deemed, under the Investment
Company Act of 1940, to form a controlling group with respect to FMR.
Edward C. Johnson 3d, FMR, Fidelity
48
<PAGE>
Low-Priced Stock Fund and the other investment companies owning Fidelity
shares each has sole power to dispose of the Fidelity shares owned by it.
Neither FMR nor Edward C. Johnson 3d has the sole power to vote or direct
the voting of the shares owned by Fidelity Low-Priced Stock Fund, which
power resides with, and is directed by, the Board of Trustees of Fidelity
Low-Priced Stock Fund.
(3) According to a Schedule 13G filed with the SEC on February 8, 1999, as of
December 31, 1998, Wellington Management Co. LLP is an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940 and a
parent holding company. Wellington Management as investment adviser may be
deemed to beneficially own 545,100 shares, of the common stock which are
held of record by clients of Wellington Management. Wellington
Management's principal business office is located at 75 State Street,
Boston, MA 02109. (See Note 5 below for additional information relating to
a subsidiary of Wellington Management.)
(4) According to a Schedule 13G filed with the SEC on February 3, 1999, as of
December 31, 1998, Brinson Partners, Inc. an investment adviser registered
under Section 203 of the Investment Advisors Act of 1940, and UBS AG, a
Bank as defined in Section 3(a)(6) of the Exchange Act, report beneficial
ownership of the 473,600 shares. Brinson Partners is an indirect
wholly-owned subsidiary of UBS AG. Brinson Partners' principal business
office is located at 209 South LaSalle, Chicago, IL 60604-1295; UBS AG's
principal business office is located at Bahnhofstrasse 45 8021, Zurich,
Switzerland.
(5) According to a Schedule 13G filed with the SEC on February 11, 1999, as of
December 31, 1998, Wellington Trust Company NA, a Bank as defined in
Section 3(a)(6) of the Exchange Act, as investment advisor is deemed to
beneficially own 335,000 shares, of the common stock which are held of
record by clients of Wellington Trust. Wellington Trust's principal
business office is located at 75 State Street, Boston, MA 02109.
Wellington Trust is a wholly-owned subsidiary of Wellington Management
(see Note 3 above).
(6) The address of the shareholder is: c/o inTEST, 2 Pin Oak Lane, Cherry
Hill, New Jersey 08003.
(7) Includes 150,427 shares owned by Mr. Holt's spouse. Mr. Holt disclaims
beneficial ownership of the shares owned by his spouse.
(8) Includes 31,000 shares owned by Mr. Graham's spouse and 4,300 shares owned
by Mr. Graham's child. Mr. Graham disclaims beneficial ownership of the
shares owned by his spouse and child.
(9) Includes 10,000 shares owned by Mr. Endres' spouse and 500 shares held by
a corporation of which Mr. Endres is a shareholder and over which Mr.
Endres shares investment control.
(10) Includes 62,618 shares owned by Mr. Matthiessen's spouse and 2,000 shares
owned by Mr. Matthiessen's child. Mr. Matthiessen disclaims beneficial
ownership of the shares owned by his spouse and child.
(11) Includes 3,600 shares owned by The Slayton Family Foundation of which Mr.
Slayton is the President.
(12) Includes 4,000 shares subject to options exercisable by April 1, 2000.
(13) Includes 8,000 shares subject to options exercisable by April 1, 2000.
(14) Includes 4,000 shares subject to options exercisable by April 1, 2000.
(15) Includes 16,000 shares subject to options exercisable by April 1, 2000.
(16) Includes 32,000 shares subject to options exercisable by April 1, 2000.
49
<PAGE>
inTEST MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
inTEST's revenues are substantially dependent upon the demand for ATE by
semiconductor manufacturers and, therefore, fluctuate generally as a result of
the cyclicality in the semiconductor manufacturing industry. inTEST believes
that purchases of inTEST's docking hardware, manipulators and tester interfaces
are typically made from its customers' capital expenditure budgets, while
related ATE interface products, which must be replaced periodically, are
typically made from its customers' operating budgets.
During the past several years, the demand for ATE by the semiconductor
industry has exhibited a high degree of cyclicality. 1996 represented a year of
sequential quarterly declines in orders for and sales of inTEST's products due
to a reduced level of semiconductor manufacturing activity which caused
cutbacks in semiconductor manufacturers' capital budgets. 1997 marked a
turnaround in the semiconductor industry which was evidenced by a renewal in
demand for ATE and related equipment, which resulted in sequential quarterly
increases in orders for and sales of inTEST's products.
Like 1996, 1998 represented a year of sequential quarterly declines in
orders for and sales of inTEST's products, however, to a more significant
degree than in 1996. During 1998, worldwide demand for ICs fell dramatically
due to excess inventory of older IC designs, and slower transition to new IC
designs resulting generally from the softening demand for end user products. In
addition, the economic downturns in many world economies, especially those in
Southeast Asia and Japan, exacerbated the downturn in the semiconductor
industry. The combination of these conditions contributed to a reduced demand
for products manufactured by semiconductor manufacturers, which in turn
significantly reduced their need for new or additional ATE equipment.
Consequently, inTEST's financial performance was negatively impacted by these
industry conditions.
Like 1997, 1999 marked a turnaround in the semiconductor industry. During
the first nine months of 1999, inTEST has seen significant quarterly increases
in the level of orders for its products, or bookings. Bookings increased to a
record of $13.1 million for the quarter ended September 30, 1999. As a result
of the increased booking activity, inTEST's backlog increased from $3.4 million
at December 31, 1998 to a record $11.4 million at September 30, 1999. During
the same period, inTEST experienced a significant increase in its net revenues,
which grew from $3.8 million for the quarter ended December 31, 1998 to a
record $10.1 million for the quarter ended September 30, 1999. The increase in
inTEST's bookings, net revenues and backlog reflect the increased demand for
ATE by semiconductor manufacturers resulting from increased worldwide demand
for ICs. While bookings and backlog are calculated on the basis of firm orders,
inTEST cannot assure you that its customers will purchase the equipment they
have ordered. As a result, inTEST's bookings for any period and backlog at any
particular date are not necessarily indicative of actual sales for any
succeeding period.
Significant Events
On June 20, 1997, inTEST completed an initial public offering of 2.275
million common shares through which inTEST issued 1.82 million new shares of
common stock. Prior to the offering, inTEST was an S corporation, and its net
earnings were taxed as income to inTEST's shareholders for federal and certain
New Jersey state income tax purposes. inTEST terminated its status as an S
corporation prior to the closing of the offering and is subject to federal and
additional state income taxes for subsequent periods.
On August 3, 1998, inTEST acquired all of the outstanding capital stock of
TestDesign Corporation, a privately held California corporation. TestDesign is
engaged in the design and manufacture of tester interfaces used by the
semiconductor industry. The purchase price was $4.4 million in cash and 625,000
shares of inTEST's common stock (subject to certain adjustments). Subsequent to
the acquisition, TestDesign was renamed "inTEST Sunnyvale Corporation."
50
<PAGE>
Results of Operations
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998
Net Revenues. Net revenues were $21.4 million for the nine months ended
September 30, 1999 compared to $15.2 million for the same period in 1998, an
increase of $6.2 million or 40%. The significant increase in net revenues over
the comparable prior period is a result of the aforementioned turnaround in
demand for ATE in 1999 compared to 1998, as well as the acquisition of inTEST
Sunnyvale in August 1998.
Gross Margin. Gross margin declined to 54% for the nine months ended
September 30, 1999 compared to 58% for the comparable period in 1998. The
reduction in gross margin was primarily the result of the additional fixed
costs of manufacturing and direct labor costs of inTEST Sunnyvale.
Selling Expense. Selling expense was $3.2 million for the nine months
ended September 30, 1999 compared to $2.3 million for the same period in 1998,
an increase of $886,000 or 39%. The increase was attributable to several
factors including the additional salary expense of inTEST Sunnyvale sales staff
and new sales and marketing staff, increased expenditures for travel, higher
levels of warranty replacement expenses and increased advertising costs offset
by a reduction in commission expenses for external sales representatives.
Research and Development Expense. Research and development expense was
$2.2 million for the nine months ended September 30, 1999 compared to $1.3
million for the same period in 1998, an increase of $907,000 or 68%. The
increase was attributable to the additional salary expense of inTEST Sunnyvale
engineering and technical staff coupled with an increase in the number of
engineering and technical staff and higher levels of travel expenses which were
offset in part by reductions in spending on research and development materials
in 1999 as compared to 1998.
General and Administrative Expense. General and administrative expense was
$3.1 million for the nine months ended September 30, 1999 compared to $1.9
million for the same period in 1998, an increase of $1.2 million or 62%. The
increase was primarily attributable to legal costs related to inTEST's patent
infringement suit, costs to maintain existing patents and file for new patents
worldwide and the amortization of goodwill resulting from the acquisition of
TestDesign. In addition, there were increases in administrative salary expense
due to staffing increases and salary increases for existing staff, accruals for
incentive compensation for certain executive officers and communications
expense.
Income Tax Expense. Income tax expense remained constant at $1.4 million
for the nine months ended September 30, 1999 and 1998. inTEST's effective tax
rate was 41% for the first nine months of 1999 compared to 37% for the same
period in 1998. The increase in the effective tax rate is primarily the result
of goodwill amortization related to the acquisition of inTEST Sunnyvale, which
is not deductible for tax purposes, and a higher effective tax rate in Japan,
caused by certain recurring expenses which are not deductible for tax purposes,
which was compounded by the reduced profitability of inTEST's Japanese
operations in 1999 compared to 1998.
1998 Compared to 1997
Net Revenues. Net revenues were $19.1 million for 1998 compared to $20.7
million for 1997, a decrease of $1.7 million or 8%. The decline in net revenues
from the prior year is the result of the aforementioned severe downturn that
the ATE industry experienced during 1998 offset, in part, by the net revenues
of inTEST Sunnyvale from its acquisition in August 1998 through year end.
Gross Margin. Gross margin declined to 56% for 1998 from 62% in 1997. The
reduction in gross margin was primarily the result of the additional fixed
costs of manufacturing of inTEST Sunnyvale which were impacted unfavorably by
the significantly reduced revenue levels during the year. In addition, material
costs as a percentage of sales increased over the comparable prior period due
to an increase in the level of sales of certain products with a greater
component material cost in 1998 compared to 1997.
Selling Expense. Selling expense was $3.3 million for 1998 compared to
$2.8 million for 1997, an increase of $557,000 or 20%. The increase was
attributable to several factors including the additional salary and commission
expenses of inTEST Sunnyvale and increased travel expenses incurred in
connection with inTEST's sales activities, higher levels of warranty expenses
and increased advertising expenditures.
51
<PAGE>
Research and Development Expense. Research and development expense was
$1.9 million for 1998 compared to $1.7 million for 1997, an increase of
$197,000 or 11%. The increase was primarily attributable to the additional
salary expense of inTEST Sunnyvale coupled with a growth in the number of
engineering and technical staff offset in part by reductions in spending on
research and development materials and travel expenses in 1998 as compared to
1997.
General and Administrative Expense. General and administrative expense was
$2.9 million in 1998 compared to $2.2 million in 1997, an increase of $650,000
or 29%. The increase was primarily attributable to the additional salary and
other administrative costs of inTEST Sunnyvale. Also contributing to the
increase in 1998 were the amortization of goodwill resulting from the
acquisition, additional administrative staff, increases in professional fees,
and the increase in amortization of certain prepaid expenses.
Income Tax Expense. Income tax expense decreased to $1.1 million for 1998
from $2.1 million in 1997, a decrease of $991,000 or 47%. inTEST's effective
tax rate was 36% for 1998 compared to 32% in 1997. The increase in the
effective tax rate was caused by the accrual of federal income tax on inTEST's
earnings due to the change of tax status from an S corporation to a C
corporation in June 1997, offset in part by the implementation of tax favorable
corporate structures and a lower percentage of earnings attributable to
inTEST's Japanese subsidiary in 1998 as compared to 1997.
1997 Compared To 1996
Net Revenues. Net revenues were a record $20.7 million for 1997 compared
to $18.6 million for 1996, an increase of $2.1 million or 11%. The year-to-year
increase was primarily due to higher levels of shipments of inTEST's products
during the fourth quarter of 1997 compared to the same period in 1996, which
reflects the higher level of manufacturing activity in the semiconductor
industry in 1997 as compared to 1996. inTEST did not increase sales prices
significantly in 1997. inTEST believes that the increase in net revenues was
from the sales of products used in the testing of mixed signal devices and
digital devices (such as microprocessors and micro controllers) and numerous
other devices used in the automotive, computer, telecommunications and other
industries.
Gross Margin. Gross margin declined to 62% from 1997 from 64% in 1996. The
reduction in gross margin was primarily attributable to a significant increase
in the level of sales to ATE manufacturers, which increased from approximately
21% of sales in 1996 to approximately 34% in 1997. In addition, inTEST
experienced an increase in its fixed operations costs in 1997, due to higher
occupancy costs associated with the larger New Jersey manufacturing facility
which was leased in August 1996. The decline in gross margin was partially
offset by reduced incremental material costs due to volume discounts received
in the last two quarters of 1997.
Selling Expense. Selling expense was $2.8 million for 1997 compared to
$2.5 million for 1996, an increase of $318,000 or 13%. The increase was
primarily attributable to higher salary and benefit expenses resulting from the
allocation of additional personnel costs to selling expense and, to a lesser
extent, salary increases for existing personnel. The increase in selling
expense also reflects an increase in advertising and promotional expenses over
the comparable prior period. In addition, commission expense increased in 1997
over the level incurred in 1996 due to an increase in the level of commissioned
sales to semiconductor manufacturers. These increases were offset by a
reduction in travel and other expenses.
Research and Development Expense. Research and development expense was
$1.7 million for 1997 compared to $1.9 million for 1996, a decrease of $191,000
or 10%. The decline was primarily attributable to reduced levels of spending on
research and development materials in 1997 compared to 1996, and, to a lesser
extent, to the aforementioned allocation of certain personnel costs to selling
expense.
General and Administrative Expense. General and administrative expense was
$2.2 million for 1997 compared to $1.8 million for 1996, an increase of
$413,000 of 23%. The increase was primarily attributable to the additional
costs associated with shareholder and investor relations and increased
expenditures for outside directors' fees and professional fees incurred as a
public company. Other factors contributing to the increase in 1997 were the
amortization of goodwill resulting from the acquisition of the minority
interests in inTEST's three foreign subsidiaries in connection with the
offering and salary increases of administrative staff.
52
<PAGE>
Income Tax Expense. Income tax expense increased to $2.1 million from
$858,000 for 1996, an increase of $1.2 million or 144%. inTEST's effective tax
rate was 32% for 1997 compared to 15% in 1996. The increase in the effective
tax rate was caused by the accrual of Federal income tax on inTEST's earnings
due to the change of tax status from an S corporation to a C corporation in
June 1997 and, to a lesser extent, a greater percentage of earnings before
income taxes and minority interest being attributable to inTEST's Japanese
subsidiary.
Liquidity and Capital Resources
Net cash provided from operations for the nine months ended September 30,
1999 was $1.9 million. Accounts receivable increased $3.6 million from December
31, 1998 to September 30, 1999 due to the increase in sales activity during the
first nine months of 1999. Inventories increased $836,000 as a result of
materials purchases for future product shipments. Refundable domestic and
foreign income taxes decreased $663,000 due to a refund of excess Federal taxes
paid during 1998. Other current assets increased $178,000, primarily as a
result of increases in prepaid expenses. Accounts payable increased $1.9
million due to the higher production levels during the first nine months of
1999. Accrued expenses increased $323,000 primarily as a result of the
increased sales activity and staffing additions and their related expense
accruals. Domestic and foreign income taxes payable increased $1.1 million as a
result of the accrual of income taxes on the earnings for the first nine months
of 1999.
Purchases of machinery and equipment were $651,000 for the nine months
ended September 30, 1999, which consisted primarily of improvements to inTEST's
facilities in the United States and, to a lesser extent, the U.K. inTEST began
the renovation of its U.K. manufacturing facility during the second quarter and
plans to spend approximately $200,000 during the fourth quarter of 1999 to
complete the renovations and to purchase a coordinate measuring machine for
this facility. During the third quarter of 1999, inTEST increased its domestic
fabrication capacity through the addition of a machining operation in Cherry
Hill. inTEST estimates the costs to acquire equipment for this new machining
operation at between $600,000 and $800,000; approximately $200,000 of this
amount was spent during the third quarter of 1999. inTEST commenced
manufacturing operations at its Singapore facility late in the third quarter of
1999 and does not foresee significant capital expenditures related to this
operation.
inTEST believes that existing cash and cash equivalents, its $1.5 million
unused line of credit and the anticipated net cash provided from operations
will be sufficient to satisfy inTEST's cash requirements including those of its
new subsidiary for the foreseeable future. However, additional acquisitions may
require additional equity or debt financing to meet working capital
requirements or capital expenditure needs. inTEST does not anticipate that it
will pay dividends in the foreseeable future.
Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, a temporary inability to
process transactions, send invoices, or engage in normal business activities.
Efforts to be prepared for the Year 2000 appear to have been successful,
however problems relating to the Year 2000 could be discovered in the future.
inTEST prepared for the Year 2000 by analyzing potentially affected
business and process systems and replacing or correcting all noncompliant
critical business and process systems that it would require in the new
millennium. Prior to the acquisition of inTEST Sunnyvale, inTEST had completed
its review and testing of its then existing systems and determined that they
were Year 2000 compliant, and completed the system modifications at inTEST
Sunnyvale during the third quarter of 1999. The products that inTEST has sold
and currently sells are not date-sensitive, and therefore inTEST believes its
product-related exposures are low. In conjunction with inTEST's Year 2000
effort, inTEST surveyed all critical suppliers to ensure readiness and
non-disruption to inTEST's supply chain.
The total expense of inTEST's Year 2000 effort is currently estimated at
less than $100,000 for the identification and remediation of any Year 2000
problems related to inTEST's internal systems. If required
53
<PAGE>
modifications to existing software and hardware are not made, or are not
completed in a timely manner, the Year 2000 issue could have a material impact
on the operations of inTEST. The costs to remediate any Year 2000 problems
which may be identified in the future may exceed inTEST's current estimate, and
inTEST may not be able to resolve these issues in a timely manner. The expenses
of the Year 2000 project are being funded through operating cash flows.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK RELATING TO inTEST
inTEST is exposed to currency exchange rate risk in the normal course of
its business. inTEST employs risk management strategies including the use of
forward exchange rate contracts to manage this exposure. The company's
objective in managing currency exchange risk is to minimize the impact of
significant currency exchange rate fluctuations primarily in the Japanese Yen.
inTEST's Japanese operations expose its earnings to changes in currency
exchange rates because its Japanese subsidiary makes its sales in Japanese Yen
and purchases its inventory in U.S. dollars. Forward exchange rate contracts
are used to establish a fixed conversion rate between the Japanese Yen and the
U.S. dollar so that the level of inTEST's gross margin from sales in Japan is
not negatively impacted from significant movements in the Japanese Yen to U.S.
dollar exchange rate. inTEST purchases forward exchange rate contracts on a
monthly basis in the amounts necessary to pay the U.S. dollar denominated
obligations of its Japanese subsidiary. As of September 30, 1999, there were no
forward exchange rate contracts outstanding.
It is inTEST's policy to enter into forward exchange rate contracts only
to the extent necessary to achieve the desired objectives of management in
limiting inTEST's exposure to significant fluctuations in currency exchange
rates. inTEST does not hedge all of its currency exchange rate risk exposures
in a manner that would completely eliminate the impact of changes in currency
exchange rates on its net earnings. inTEST does not expect that its results of
operations or liquidity will be materially affected by these risk management
activities.
The notional amounts of inTEST's forward exchange rate contracts are used
only to satisfy current payments to material vendors to be exchanged and are
not a measure of inTEST's credit risk or its future cash requirements. Exchange
risk related to forward exchange rate contracts is limited to movement in the
exchange rates that would provide a more favorable exchange rate than that
locked in the forward contract and forward contract amounts purchased in excess
of the amount needed by inTEST to satisfy its obligations. inTEST manages that
rate risk by limiting the size of the forward contracts purchased to the known
amount of obligations due and not purchasing forward contracts with settlement
dates beyond 30 days. inTEST believes that the risk of loss due to exchange
rate fluctuations is remote and that any losses would not be material to its
financial condition or results of operations.
DESCRIPTION OF inTEST COMMON STOCK
The authorized capital stock of inTEST consists of 20,000,000 shares of
common stock and 5,000,000 shares of preferred stock.
The following is a summary of certain provisions of the common stock and
preferred stock and is subject to, and qualified in its entirety by, the
provisions of inTEST's certificate of incorporation, which is included as an
exhibit to this joint proxy statement/prospectus, and by the provisions of
Delaware law.
Common Stock
As of January 31, 2000, there were 6,536,034 shares of common stock
outstanding that were held of record by approximately 1,000 shareholders.
Holders of common stock are entitled to one vote per share, to receive
dividends when and if declared by the board of directors and to share ratably
in the assets of inTEST legally available for distribution to its shareholders
in the event of liquidation. Holders of common stock have no preemptive,
subscription, redemption or conversion rights. All outstanding shares of common
stock are, and the shares to be issued hereby will be upon issuance duly
authorized, fully paid and nonassessable. The holders of common stock do not
have cumulative voting rights. The holders of a majority of the shares of
54
<PAGE>
common stock can elect all the directors and can control the management and
affairs of inTEST. The rights, preferences and privileges of holders of inTEST
common stock will be subject to the rights of the holders of any series of
preferred stock that inTEST may issue in the future.
Preferred Stock
inTEST has an authorized class of undesignated preferred stock consisting
of 5,000,000 shares. Preferred stock may be issued in series from time to time
with designations, relative rights, priorities, preferences, qualifications,
limitations and restrictions, to the extent not fixed in inTEST's certificate
of incorporation, as the board of directors determines. The rights, priorities,
preferences, qualifications, limitations and restrictions of different series
of preferred stock may differ with respect to dividend rates, amounts payable
on liquidation, voting rights, conversion rights, redemption provisions,
sinking fund provisions and other matters. inTEST's board of directors may
authorize the issuance of preferred stock which ranks senior to the common
stock with respect to the payment of dividends and the distribution of assets
on liquidation. In addition, the board of directors is authorized to fix the
limitations and restrictions, if any, upon the payment of dividends on common
stock to be effective while any shares of preferred stock are outstanding. The
board of directors, without shareholder approval, can issue preferred stock
with voting and conversion rights which could adversely affect the voting power
of the holders of common stock. The issuance of preferred stock may have the
effect of delaying, deferring or preventing a change of control of inTEST. Upon
consummation of the transaction, no shares of preferred stock will be
outstanding. inTEST has no present intention to issue shares of preferred
stock.
Corporate Provisions
inTEST's certificate of incorporation and bylaws contain a number of
provisions relating to corporate governance and to the rights of shareholders.
Some of these provisions may be deemed to have a potential "anti-takeover"
effect, in that these provisions may delay, defer or prevent a change of
control of inTEST. These provisions include the authority of the board of
directors to issue series of preferred stock with voting rights and other
powers as the board of directors may determine.
inTEST is subject to the provisions of the Delaware General Corporation
Law (also referred to as the DGCL). Section 203 of the DGCL prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested shareholder" for a period of three years after the date of
the transaction in which the person became an interested shareholder, unless
the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to the interested shareholder. Subject to certain
exceptions, an "interested shareholder" is a person who, together with
affiliates, owns, or within three years did own, 15 percent or more of the
corporation's voting stock.
Transfer Agent and Registrar
The transfer agent and registrar for inTEST's common stock is BankBoston,
N.A. (formerly known as The First National Bank of Boston).
INFORMATION CONCERNING TEMPTRONIC CORPORATION
The following discussion pertains to the business of Temptronic as a
separate company and does not contemplate specifically the effect of the
merger.
The Company
Temptronic was incorporated in Massachusetts in 1970. Temptronic makes and
sells high-performance temperature management systems used in the manufacture
and testing of semiconductors and related products.
Temptronic's products enable a manufacturer to test a semiconductor wafer
or electronic component over a variety of temperature ranges, rapidly shifting
between temperature levels, without removing the wafer or component from its
operating environment. Temptronic's products are used to test semiconductor
wafers, printed circuit boards and other electronic components during the
manufacturing process and to perform
55
<PAGE>
quality assurance and laboratory testing. Temptronic believes that the design
concepts embodied in its products have become standards for thermal testing in
the electronics industry, and that its proprietary technology and extensive
sales and service network have made it a leading supplier of temperature
management systems and diagnostic equipment.
Temptronic's principal executive offices are located at 55 Chapel Street,
Newton, MA 02458. Its telephone number is (617) 969-2501.
Industry Background
Semiconductor manufacturers design a number of integrated circuits onto a
sheet of silicon, known as a wafer. Testing the circuits' ability to operate in
a range of temperatures is a crucial part of the semiconductor manufacturing
process. After fabricating the wafer, the manufacturer separates, or dices, the
wafer into individual components, or chips. The manufacturing process includes
testing each circuit with probers and other testing equipment to determine
whether it will perform its intended function.
Historically, semiconductor manufacturers used temperature-controlled
testing equipment mostly in research and development and post-production
quality assurance applications. Only a few leading-edge companies and
manufacturers of military equipment typically performed extensive temperature
testing in production. Temptronic believes that in the past few years, several
factors have contributed to an increase in the use of temperature-controlled
testing equipment:
o Temperature stress screening at the wafer level, rather than later in the
production process, provides significant cost savings by identifying those
components which will not perform at specified temperatures, thus,
improving production yields as well as product quality and reliability.
o The emergence of new component technologies has boosted demand for more
reliable chips that can perform over the full temperature range in which
the final product is intended to operate.
o Newer-designed integrated circuits tend to operate at higher frequencies
and, thus, generate more heat. Temperature-controlled testing on the wafer
or on the printed circuit board tester during production can test these
circuits more effectively and efficiently.
Because of the above factors, Temptronic believes that demand for its
products may grow as testing at specified temperature levels both before and
during production becomes an increasingly standard part of the manufacturing
process.
In addition, Temptronic also believes that the following trends, if they
occur as management expects, may generate increased demand for its products:
o Semiconductor and testing equipment manufacturers that previously
designed their own rudimentary temperature testing equipment to accomplish
basic temperature tests are increasingly seeking high-performance
temperature management equipment from other companies, as temperature
management systems become more complex.
o Manufacturers are increasingly performing temperature testing of printed
circuit boards as they are used in a larger number of operating
environments. Temptronic's ThermoStream(R) products are used increasingly
for tests of printed circuit boards. Although Temptronic does not expect
this business to grow as rapidly as production temperature testing,
Temptronic does expect it to continue to be an important part of
Temptronic's growth.
Temptronic cannot assure you that these developments will continue, or if
they do, that Temptronic will be able successfully to take advantage of them.
Products and Service
Temptronic's testing equipment delivers a precise temperature-controlled
environment directly to semiconductor wafers, electronic components and circuit
board assemblies undergoing electrical testing. Temptronic's products permit
cost-effective temperature stress screening. Generally, Temptronic manufactures
56
<PAGE>
its products to the specification of its customers to control test
temperatures, and to quickly change the test temperatures, over a range of
temperatures. Customers may specify a range of temperatures from as low as
- -65oC to a high of +400oC. Temptronic's temperature management systems, thus,
enable a manufacturer to test whether its electronic products are able to
withstand extreme heat and cold, or both, and still perform reliably.
Temptronic's temperature management products fall into two main
categories:
o Temperature-controlled testing platforms, or chuck systems, for
semiconductor wafers; and
o Temperature management products for packaged components and electronic
assemblies.
To the extent required by either Temptronic's customers or law, Temptronic
products are certified to all U.S. standards and carry the European CE Mark.
Chuck Systems for Semiconductor Wafers
Manufacturers incorporate Temptronic's ThermoChuck(R) precision vacuum
platform assemblies into semiconductor wafer prober equipment for laboratory
analysis and, increasingly, for in-line production testing. The chuck systems
contain heating and cooling elements and associated equipment such as
temperature controllers, compressors, heaters and dehumidifiers, for quickly
changing and stabilizing the temperature of semiconductor wafers prior to their
dicing and packaging. They are used for testing semiconductor wafers,
semiconductor chips, hybrid circuits, and surface-mount components at specified
temperatures. Net revenues from the sale of ThermoChuck(R) products accounted
for approximately 50% of Temptronic's total net revenues in fiscal 1999.
Recently, Temptronic completely redesigned the ThermoChuck(R) product line
and developed an innovative manufacturing process. Temptronic believes this new
design and manufacturing process will improve the reliability of ThermoChuck(R)
products and reduce production costs for these products. The new design and
manufacturing process also combine to improve the performance of ThermoChuck(R)
products. Specifically, new ThermoChuck(R) products stay flatter during
testing, maintain more uniform temperatures, and resist deflection better than
the previous design. Temptronic expects to be able to produce the redesigned
ThermoChuck(R) products for market during 2000, however, it cannot assure you
that it will be able to do so or that it will achieve the expected benefits.
Products for Testing Packaged Components and Electronic Assemblies
Temptronic's ThermoStream(R) stand-alone temperature management systems
use a temperature-controlled air stream to rapidly change and stabilize the
temperature of packaged devices and printed circuit boards. They are used
primarily in engineering, quality assurance and short-run manufacturing
environments. Net revenues from the sale of ThermoStream(R) products accounted
for approximately 32% of Temptronic's total net revenues in fiscal 1999.
Other Product Categories
Temptronic's temperature management products also include the following:
o Temperature-controlled contact probes for testing electronic components
on printed circuit boards and tester sockets;
o Temperature-controlled enclosures for troubleshooting and testing of
populated printed circuit boards and component arrays;
o Precision temperature platforms used for changing temperature in
increments as small as 0.1oC on integrated circuit chips; and
o Thermally-controlled, moisture-free enclosures, with advanced electronics
for thermal testing of devices over frequencies up to 40 gigahertz.
57
<PAGE>
Net revenues from the sale of these other products account for
approximately 7% of Temptronic's total net revenues in fiscal 1999.
Service
In addition to its sales of ThermoChuck(R), ThermoStream(R) and other
products, Temptronic provides ongoing service and parts sales for all of its
products. Service may be provided by Temptronic's own employees or by service
companies under agreement with Temptronic. Net revenues from service and parts
sales accounted for approximately 11% of Temptronic's total net revenues in
fiscal 1999.
Markets and Customers
During much of its history, Temptronic was primarily an equipment supplier
whose sales were made directly to manufacturers or users of electronic
components or populated printed circuit boards. Before 1993, over 90% of
Temptronic's sales of chucks were to semiconductor manufacturers that
retrofitted their wafer probers with Temptronic's temperature control equipment
to test the products they produced or purchased. In 1993, however,
manufacturers of manual and semi-automatic wafer probers began to offer
ThermoChuck(R) branded products as options with their equipment, and in 1995, a
manufacturer of automatic wafer probers began offering ThermoChuck(R) products
as a factory-installed option on its equipment. Orders for ThermoChuck(R)
products by manufacturers of wafer probers constituted 76% (by sales volume) of
all shipments of ThermoChuck(R) products in fiscal 1999.
Temptronic's customers for its ThermoChuck(R) products include:
o manufacturers and post-production testers of semiconductors and
electronic products;
o manufacturers of wafer probers; and
o semiconductor research facilities.
Cascade Microtech, Inc., Electroglas, Inc., Tokyo Seimitsu Company, Ltd.
and Tokyo Electron, Ltd. are some of Temptronic's primary customers for
ThermoChuck(R)products.
Temptronic's primary market focus for its ThermoStream(R) products has
been to users in engineering development and quality assurance, rather than
production of semiconductors. Lucent Technologies, Inc., Motorola, Inc., and
Intel Corporation are some of Temptronic's primary customers for
ThermoStream(R) products.
In addition, Temptronic sells both chuck systems and ThermoStream(R)
products to Hakuto Co., Ltd. which acts as a distributor and an independent
reseller of Temptronic's products in Japan. Temptronic's customers are located
throughout the world. The following chart shows the percentage of total
revenues from its two largest customers:
Customer 1999 1998 1997
----------------------------- ------ ------ -----
Cascade Microtech, Inc. 21% 17% 14%
Hakuto Co., Ltd. 9% 17% 13%
-- -- --
Total 30% 34% 27%
Manufacturing and Supply
Temptronic manufactures its products in its Newton, Massachusetts and San
Diego, California facilities. The manufacturing process consists primarily of
assembly and testing within a six- to eight-week build cycle. The manufacture
of temperature-controlled chucks also involves a plating operation which is
currently performed in-house. Temptronic relies heavily on outside suppliers
and subcontractors to provide much of the fabricated product, including
contract manufacturing of printed circuit boards, machining and enclosures.
Most components can be manufactured by several suppliers, but some components
are available from only a single source. Although Temptronic considers its sole
source suppliers to be reliable and has long-term relationships with most of
them, if Temptronic were unable to obtain materials from a sole-source
supplier, its business operations could suffer.
58
<PAGE>
Sales and Distribution
Temptronic's direct sales force handles its OEM accounts. Other US sales
are handled through thirteen independent sales representative organizations
throughout the country, except sales in New England and upstate New York which
Temptronic handles directly through its sales staff.
In addition to its domestic sales representatives, Temptronic is
represented in over 30 countries by 21 distributors. Terms of the arrangements
vary, but terms of sale are consistent. International orders typically go
through distributors, in which case the distributor is invoiced, but in some
countries (India, Israel, Italy and Korea) orders are placed directly by the
customer. Almost all of Temptronic's international distributors have
represented it for between five and fifteen years. Temptronic visits its
distributors regularly and trains them to sell and service all of Temptronic's
products.
International sales are a major component of Temptronic's total revenues.
In the fiscal year ended June 30, 1999, Temptronic's export sales accounted for
approximately 45% of its total revenues, or US$6.9 million. Temptronic's
exports sales are primarily to Asia and Europe. Temptronic's primary
international markets include Japan, Korea, Taiwan, Singapore, Thailand,
France, England, Germany and the Benelux countries.
Competition
The market for semiconductor manufacturing equipment is highly
competitive. Temptronic believes that certain barriers to entry in its market,
as well as its long-standing relationships with certain of its customers, give
it a competitive advantage. Temptronic also believes that its technological
leadership, its long-term relationships with the industry's leading
semiconductor manufacturers, and its worldwide distributor and service network,
enable Temptronic to compete in the market for automatic wafer prober OEMs and
their semiconductor manufacturer customers. However, companies with superior
financial resources or technological capabilities could overcome Temptronic's
position in the market or capture new opportunities in the market. Temptronic
can give no assurance that it can maintain its current market share or
competitive position in the industry.
Temptronic believes that companies in its business generally compete on
the basis of:
o equipment performance (actual to promised performance, equipment time in
service and overall quality of results achieved); and
o customer support (overall technical leadership in a particular area,
process and software support, after the sale service and company's
commitment to its customers).
Temptronic's significant competitors, by primary product, are shown below:
ThermoChuck(R) Competitors ThermoStream(R) Competitors
- ---------------------------- ----------------------------
ERS Elektronik Gmbh Thermonics, Inc.
Trio Tech International
Temptronic believes it has positioned itself as a technology leader with a
high customer service level whose premium priced products are cost-effective to
the end-user. Temptronic's business strategy has been to seek opportunities to
encourage partnerships with its customers and to build stable and long-term
relationships with them.
Research and Development
Research and development is crucial to Temptronic's business. Temptronic
employs approximately 20 engineers and technicians dedicated to new product
research and development in Newton, Massachusetts. Temptronic considers itself
a leader in introducing new temperature testing and measurement concepts to the
electronics industry. In the fiscal year ended June 30, 1998, Temptronic spent
approximately $2,900,000 on research and development. In the fiscal year ended
June 30, 1999, Temptronic spent approximately $1,800,000 on research and
development. More than half of these amounts was spent on development of the
new ThermoChuck(R) design and manufacturing process.
59
<PAGE>
Intellectual Property
Temptronic has received numerous patents and filed several patent
applications to protect its proprietary technology in the US and abroad.
Specifically, Temptronic has recently applied for several patents to protect
the proprietary technology underlying its new ThermoChuck(R) products. While
Temptronic has attempted to protect its intellectual property through applying
for these patents, management believes that Temptronic's competitive position
has been sustained more by its proprietary know-how and customer knowledge and
relationships than through patent protection.
Temptronic has registered the following trademarks with the U.S. Patent
and Trademark office: ThermoChuck(R), ThermoSpot(R), ThermoZone(R),
ThermoStream(R), ThermoSocket(R), ThermoJogger(R), ThermoMap(R), Temperature On
The Spot(R), Titan(R), XStream(R) and ThermoFixture(R).
Backlog
At September 30, 1999, Temptronic's backlog of unfilled orders for all
products was approximately $4.8 million compared with approximately $3.8
million at June 30, 1999. Temptronic's backlog includes customer purchase
orders which have been accepted by it and which Temptronic expects to deliver
in the current fiscal year. While backlog is calculated on the basis of firm
purchase orders, there is no guarantee that customers will purchase
Temptronic's products that have been ordered or that customers will not
accelerate or postpone currently scheduled delivery dates. As a result,
Temptronic's backlog at a particular date is not necessarily indicative of
sales for any future period.
Seasonality
Temptronic's business is not seasonal. Rather, Temptronic's results of
operations tend to reflect the cyclical activity of the semiconductor industry
as a whole. Quarterly fluctuations in expenses are either related directly to
sales activity and volume or tend to be a function of personnel costs and the
timing of expenses incurred throughout a year. See "Temptronic Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Facilities
Temptronic's executive offices, manufacturing and substantially all of its
sales and engineering activities are located at 55 Chapel Street, Newton,
Massachusetts. The facility comprises approximately 44,000 square feet on two
levels of four attached buildings in a multi-tenant office and manufacturing
complex. Temptronic's lease for its Newton, Massachusetts facility will expire
August 31, 2001.
Temptronic leases a small manufacturing operation and sales office in San
Diego, California, comprising 1,300 square feet of general manufacturing space
and offices. The lease for this facility expires May 31, 2002. Temptronic also
leases a sales office, comprising 500 square feet of office space, in London,
England under a lease expiring February 28, 2000. Temptronic expects either to
renew the lease on terms acceptable to it or relocate this sales office.
Temptronic believes that its current rent per square foot is at or below
market rates compared to similar facilities located in the respective areas.
Personnel
As of January 31, 2000, Temptronic employed 90 persons on a full-time
basis, including 53 in manufacturing and quality assurance; 7 in sales and
marketing; 18 in engineering and development; and 12 in administration.
Temptronic also employed 37 temporary employees, most in manufacturing jobs.
Over one-third of the employees have been with the company for over ten years.
No employee is or has ever been represented by a collective bargaining
agreement at Temptronic. Management believes that its relationship with its
employees is generally good.
Legal Proceedings
Temptronic is involved from time to time in certain legal proceedings
incidental to its normal business activities. While the outcome of any such
proceedings cannot be accurately predicted, Temptronic does not believe the
ultimate resolution of any existing matters will have a material adverse effect
on its financial position or results of operations.
60
<PAGE>
DIRECTORS AND OFFICER OF TEMPTRONIC
In late 1999, Henry Lyden and Thomas Gerendas, two of the founders of
Temptronic, resigned as officers and members of the board of directors. Mr.
Gerendas elected to terminate his employment with Temptronic in accordance with
the provisions of his employment agreement. William Stone, Temptronic's
President and Chief Executive Officer and a director of Temptronic, will
continue after the merger as President and Chief Executive Officer of the
subsidiary of inTEST into which Temptronic will be merged and will become a
director of inTEST. James J. Greed, Jr., another of Temptronic's current
directors, will also become a director of inTEST upon closing of the merger.
Information regarding Messrs. Greed and Stone is provided below.
Biographical
James J. Greed, Jr., 60, recently retired from the position of President
of VLSI Standards, Inc. of San Jose, CA, the leading supplier of calibration
standards to the semiconductor and related industries. Prior to his 9-year
tenure at VLSI Standards, he was Chief Technology Officer at General Signal,
and he has held various management positions at Perkin-Elmer, Qualitron and CBS
Laboratories. He served on the board of directors of Semiconductor Equipment
and Materials International ("SEMI"), an international trade association, from
July 1992 until December 1999, serving as SEMI's chairman for the 1996-1997
term. He has also served as the chairman of SEMI's International Standards
Committee for the past 6 years. Following his retirement from VLSI, Mr. Greed
founded Foothill Technology, a consulting firm. In September 1999, SEMI
announced that it was engaging Mr. Greed as Coordinating Director of an effort
by semiconductor equipment companies to develop a coordinated international
assessment of, and response to, the recently published International Technology
Roadmap for Semiconductors.
William M. Stone, 57, is President and Chief Executive Officer and a
director of Temptronic. Mr. Stone joined Temptronic in 1997 as Director of
Engineering and became Senior Vice President and Chief Operating Officer in
October 1998. He was appointed President and Chief Executive Officer in August
1999 and became a director of Temptronic in November, 1999. Before joining
Temptronic, Mr. Stone served as Director of Engineering and Operations for the
Technic Equipment Division of Technic Corporation from 1995 to 1997. Before
that, he headed engineering and manufacturing departments with Beloit
Corporation, Textron Defense Systems division of Textron Systems, Inc., Gerber
Optical, Inc. and Leybold Heraeus Vacuum Systems, Inc. Mr. Stone holds a
Bachelor of Science degree in mechanical engineering from Northern Illinois
University and is a graduate of Penn State University's Senior Executive
Management Program.
Compensation of Temptronic's President and Chief Executive Officer
The following table provides certain summary information concerning
William Stone, Temptronic's President and Chief Executive Officer, during the
fiscal years ended June 30, 1999, 1998 and 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation Awards
-------------- ---------------------------
Restricted Securities
Name and Fiscal Stock Underlying All Other
Principal Position Year Salary Awards(1) Options Compensation(2)
- ---------------------- -------- -------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
William Stone, 1999 $121,154 $3,648 50,000 $5,412
President and Chief 1998 102,933 1,746 0 4,581
Executive Officer 1997 8,894(3) -- 12,500 292
</TABLE>
- ------------
(1) Represents the appraised value of shares of Temptronic common stock
allocated to Mr. Stone under the Temptronic employee stock ownership plan.
(2) Includes $3,635, $3,088 and $267 for matching contributions to Mr. Stone's
401(k) Plan account in fiscal 1999, 1998 and 1997, respectively; and
$1,777, $1,493 and $25 for income deemed received in connection with
premiums paid on life insurance in fiscal 1999, 1998 and 1997,
respectively.
(3) Represents salary paid from May 19, 1997, the date Mr. Stone was hired.
61
<PAGE>
Option Grant in Last Fiscal Year
The following table contains information concerning a stock option grant
made during fiscal 1999 under the Temptronic 1998 Incentive and Non-Statutory
Stock Option Plan to William Stone:
Option Grants in Fiscal 1999
<TABLE>
<CAPTION>
Potential Realizable Value
At Assumed Annual Rates
% of Total Market Of Stock Price
Number Options Price on Appreciation
of Options Granted to Exercise Date of Expiration For Option Term(1)
Name Granted Employees Price Grant Date 5% 10%
- --------------- ------------ ------------ ---------- -------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
William Stone 50,000 90.9% $ 3.75 $ 3.75(2) 10/26/08 $117,918 $298,827
</TABLE>
- ------------
(1) Assumes the price of Temptronic common stock appreciates at a rate of 5%
and 10%, respectively, compounded annually for the ten year term of the
options.
(2) The option was granted at an exercise price equal to the fair market value
of Temptronic common stock as determined by an independent appraisal as of
September 30, 1998.
Exercise of Options
The following table sets forth information concerning options held by
William Stone as of June 30, 1999:
Aggregated Option Exercises in Fiscal 1999 and Fiscal Year-End Option Values(1)
<TABLE>
<CAPTION>
Shares Number of Shares Value Of Unexercised
Acquired Underlying Unexercised In-the-Money Options At
Options At 6/30/99 6/30/99(2)
on Value ------------------------------- ------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------- ---------- ---------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
William Stone 0 $0 5,000 57,500 $18,700 $28,050
</TABLE>
- ------------
(1) Amounts disclosed in this table do not necessarily reflect amounts received
but are calculated based on the difference between the fair market value
of the common stock on the date of exercise and the exercise price of the
options. The option holder will receive cash only upon the sale of the
common stock issued upon exercise of the options, and the amount of cash
received by the option holder is dependent on the price of the common
stock at the time of such sale.
(2) Calculated on the basis of the fair market value of Temptronic common stock
of $3.75 per share, determined by reference to an independent appraisal as
of September 30, 1998, less the applicable option exercise price.
<PAGE>
Employment Agreement
William Stone and Temptronic have been parties to an employment agreement,
which will be replaced by a new employment agreement between Mr. Stone and
inTEST's wholly-owned subsidiary upon the closing of the merger. The terms of
the new employment agreement are substantially the same as the current
employment agreement, except that the new agreement provides for some
post-termination fringe benefits as described below. The new agreement has a
term of three years commencing on the effective date with an option to extend
for an additional year. The agreement further provides that Mr. Stone will
serve as the President and Chief Executive Officer of inTEST's subsidiary with
a base salary of $160,000 per annum which may increase, but not decrease,
annually. In addition, Mr. Stone will receive, for each calendar year during
the term of the agreement, a bonus equal to 1% of the pre-tax profit of
inTEST's subsidiary, fringe benefits and reimbursement for reasonable business
expenses.
Mr. Stone's employment under the agreement may be terminated by him if he
resigns without cause, by reason of death or disability, by inTEST's subsidiary
without cause or by inTEST's subsidiary for cause. If his employment is
terminated by reason of death or disability or by inTEST's subsidiary without
cause, Mr. Stone will be entitled to base salary and all fringe benefits for
the remainder of the term of the agreement, including: (1) all fringe benefits
for any period subsequent to the termination of employment, and (2) continued
62
<PAGE>
insurance coverage for Mr. Stone and his family as broad and as is in effect at
the time of the termination, at his expense, until he reaches or would have
reached age 65. If Mr. Stone resigns, inTEST's subsidiary will have no further
liability to him for salary or other compensation or benefits from and after
the effective date of his resignation, other than payment, when calculated, of
any bonus to which he may be entitled which may have accrued through the
effective date of termination. If his employment is terminated for cause,
inTEST's subsidiary will have no further obligation to Mr. Stone except payment
of salary that may have accrued through the effective date of termination.
Security Ownership of Certain Beneficial Owners and Management of Temptronic
The following tables set forth certain information regarding the
beneficial ownership of Temptronic's voting securities as of January 31, 2000,
by (i) any person or entity known to Temptronic to own beneficially more than
5% of Temptronic's common stock; (ii) each of Temptronic's directors and
officers, and (iii) all directors and executive officers of Temptronic as a
group. Unless otherwise indicated, each person or entity named in the table has
sole voting power and investment power (or shares such power with his or her
spouse) with respect to all shares of capital stock listed as owned by such
person or entity.
<TABLE>
<CAPTION>
Shares
Beneficially Owned(1)
-------------------------------
Name of Beneficial Owner Number Percent
- -------------------------------------------------------- ------------------ ----------
<S> <C> <C>
Temptronic Corporation Equity Participation Trust
55 Chapel Street
Newton, MA 02158 ...................................... 719,089(2) 32.6%
Hakuto America Holdings, Inc.
1915 E. State Parkway
Schaumburg, IL 60173 .................................. 700,000 31.7
Henry A. Lyden
46 Cliff Road
Wellesley, MA 02181 ................................... 155,857(3) 7.0
Erhart E. Demand
5 Clinton Street
Cambridge, MA 02139 ................................... 235,686 10.7
Thomas G. Gerendas
24 Bow Road
Wayland, MA 01778 ..................................... 107,936(4) 4.9
William M. Stone, President, Chief Executive Officer and
Director .............................................. 17,895(5) *
William O'Toole, Treasurer ............................. 13,738(6) *
Thomas Kastner, Director ............................... 700,000(7) 31.7
Samuel Rubinovitz, Director ............................ 3,872(8) *
James J. Greed, Jr., Director .......................... 0 *
Robert Fulton, Director ................................ 1,250(9) *
John L. Turner, Director ............................... 400(10) *
All directors and executive officers as a group
(7 persons) ........................................... 737,155(11) 33.1
</TABLE>
- ------------
* Less than 1.0%.
(1) For the purpose of this table, beneficial ownership has been determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to
63
<PAGE>
securities. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of common stock
subject to options held by that person that are currently exercisable, or
become exercisable by April 1, 2000 (60 days after January 31, 2000), are
deemed outstanding. These option shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person. Percentage ownership is based on 2,208,892 shares of common
stock outstanding on January 31, 2000, plus option shares deemed to be
outstanding with respect to individual shareholders as just described. The
information as to each person has been furnished by such person.
(2) Includes shares of common stock held by the Temptronic Corporation Equity
Participation Trust (Temptronic's employee stock ownership plan) in a
fiduciary capacity for employees of Temptronic. Shares held by the trust
are allocated to employees of Temptronic annually based on each employee's
salary. Temptronic employees' interests in the plan begin to vest after
three years of employment and become fully vested after seven years of
employment. Temptronic employees have voting control of shares allocated
to them under the plan for the purpose of voting on the merger. For the
purpose of voting on the merger, 489,037 shares held in the plan which are
not allocated to employees will be voted by a committee appointed by the
Temptronic directors pursuant to the provisions of the plan. See "Special
Meeting of Temptronic Shareholders."
(3) Includes 129,500 shares of common stock held by Harry S. Miller and
Marjorie B. Lyden, Trustees, The Henry A. Lyden Irrevocable Trust, as to
which Mr. Lyden disclaims beneficial ownership, 13,736 shares subject to
options exercisable by April 1, 2000, and 12,621 shares held by the
employee stock ownership plan for the benefit of Mr. Lyden. Mr. Lyden is a
former officer and director of Temptronic.
(4) Includes 10,684 shares held by the Temptronic employee stock ownership
plan for the benefit of Mr. Gerendas. Mr. Gerendas is a former officer and
director of Temptronic.
(5) Includes 10,000 shares subject to options exercisable by April 1, 2000 and
2,895 shares held by the employee stock ownership plan for the benefit of
Mr. Stone.
(6) Includes 1,738 shares held by the Temptronic employee stock ownership plan
for the benefit of Mr. O'Toole.
(7) Consists of shares held by Hakuto America Holdings, Inc. Mr. Kastner is a
Vice President of Hakuto America Holdings, Inc. and is President and a
director of a wholly-owned subsidiary of Hakuto America Holdings, Inc. Mr.
Kastner disclaims beneficial ownership of these shares.
(8) Consists of shares subject to options exercisable by April 1, 2000.
(9) Consists of shares subject to options exercisable by April 1, 2000.
(10) Consists of 400 shares held by John L. Turner and Beverly P. Turner,
Trustees U/D/T dated March 29, 1982.
(11) Includes 15,122 shares subject to options exercisable by April 1, 2000.
See Notes 5, 8, and 9. Also includes 700,000 shares held by Hakuto America
Holdings, Inc. that are attributed, for the purpose of this table, to
Thomas Kastner, of which Mr. Kastner disclaims beneficial ownership. See
Note 7.
TEMPTRONIC MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Temptronic's net revenues are substantially dependent upon the demand for
ATE by semiconductor manufacturers and, therefore, fluctuate generally as a
result of the cyclicality in the semiconductor manufacturing industry.
Historically, net revenues have risen during periods when semiconductor
manufacturers were increasing capacity and upgrading facilities to become more
efficient or due to technological advances with their products while net
revenues have declined in periods when semiconductor manufacturers reduced
purchases of equipment due to excess capacity or slower technological advances.
64
<PAGE>
During the last three years, the demand for ATE by the semiconductor
industry has exhibited a high degree of cyclicality. Fiscal 1997 began during a
period of weak demand for Temptronic's products, due to a reduced level of
semiconductor manufacturing activity, which caused cutbacks in their purchases
of ATE. In the second half of fiscal 1997, there was a renewal in demand for
ATE by semiconductor manufacturers, and orders for and sales of Temptronic's
products increased. In the second half of fiscal 1998, worldwide demand for
semiconductors fell dramatically, due to excess inventory and slower transition
to new product designs. In addition, the economic downturns in many world
economies, especially those in Southeast Asia and Japan, exacerbated the
semiconductor industry downturn. The combination of these conditions
contributed to a reduced demand for products manufactured by semiconductor
manufacturers, which in turn significantly reduced their need for new or
additional ATE. Temptronic's financial performance was negatively impacted by
these industry conditions. In late fiscal 1999, demand for ATE increased
significantly, due to increased demand for semiconductors worldwide generally
combined with ATE capacity constraints caused by the significantly reduced
spending on ATE in the prior year. This increase in demand for ATE is reflected
in Temptronic's backlog, which was $1.8 million at June 30, 1998 and increased
to $4.8 million at September 30, 1999.
Temptronic's products are required to meet very precise specifications and
increasingly tighter tolerances, and as a result, the engineering and
development expenditures to develop and bring these products to market are
substantial. Temptronic believes that due to the long product development
process, it is critical to its success to have state of the art products
available when the semiconductor industry demands them. During 1998 and 1999,
Temptronic invested heavily in this development effort and incurred substantial
losses as a result of these expenditures.
Due to the complex nature of Temptronic's products, and the high stresses
they are subjected to at the extreme temperatures they operate under, failure
rates of certain components are higher than those of other less complex
products that are used in different environments. As a result, warranty costs
are a significant component of Temptronic's cost structure. Customers are
provided parts and service at no charge during the warranty period, which
typically is one year. After the warranty period, customers are charged service
fees for replacement parts. These service revenues have historically
represented approximately 10% of Temptronic's total net revenues.
Results of Operations
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
Net Revenues. Net revenues were $5.1 million for the three months ended
September 30, 1999 compared to $3.9 million for the comparable prior period, an
increase of $1.2 million or 31%. The increase in net revenues was due to the
aforementioned strong recovery in demand for ATE in late 1999 compared to 1998.
Gross Profit. Gross profit was 42% for both the three months ended
September 30, 1999 and 1998. Reductions in the level of material costs in 1999
compared to 1998 resulting from changes in product mix were offset by increases
in other manufacturing costs related to the establishment of a quality
department in 1999.
Selling Expense. Selling expense was $815,000 for the three months ended
September 30, 1999 compared to $820,000 for the comparable prior period, a
decrease of $5,000 or 1%. While selling expense remained relatively constant in
dollar terms, as a percentage of net revenues, selling expense declined from
21% in 1998 to 16% in 1999. This decline was primarily attributable to a
greater percentage of sales to OEMs during 1999 compared to 1998 and, as a
result, reduced levels of sales commissions.
Research and Engineering Expense. Research and engineering expense was
$404,000 for the three months ended September 30, 1999 compared to $401,000 for
the comparable prior period, an increase of $3,000 or 1%. While research and
engineering expense remained relatively constant in dollar terms, as a
percentage of net revenues, research and engineering expense declined from 10%
in 1998 to 8% in 1999. This decline was primarily the result of a higher
revenue level and a relatively stable level of expenses. Also contributing to
the decline was an increase in the level of reimbursement of development costs
by customers.
65
<PAGE>
General and Administrative Expense. General and administrative expense was
$591,000 for the three months ended September 30, 1999 compared to $443,000 for
the comparable prior period, an increase of $148,000 or 33%. The increase in
general and administrative expense was primarily attributable to the write-off
of previously capitalized patent costs, and, to a lesser extent, the accrual of
bonuses as a result of the improved financial performance during the quarter.
Other Expense. Other expense was $45,000 for the three months ended
September 30, 1999 compared to $72,000 for the comparable prior period, a
decrease of $27,000 or 38%. The decrease in other expense was primarily the
result of a reduction in interest expense due to retirement of debt during the
period.
Income Taxes. Temptronic did not accrue any income tax expense on its
earnings for the three months ended September 30, 1999 as it had tax loss
carryforwards from prior periods which were available to offset the current tax
liability.
Year Ended June 30, 1999 Compared to Year Ended June 30, 1998
Net Revenues. Net revenues were $15.2 million for 1999 compared to $19.3
million for fiscal 1998, a decrease of $4.1 million or 21%. The significant
decline in net revenues was the result of the aforementioned reduction in
demand for ATE in most of 1999 compared to fiscal 1998. While all products saw
declines in sales from the comparable prior period, the largest decline was in
sales of ThermoChuck(R) products, which declined 28%. The declines in product
sales were offset slightly by increases in service revenues, which historically
have shown strong performance during periods of reduced product demand.
Gross Profit. Gross profit declined to 43% for 1999 compared to 44% for
fiscal 1998. The reduction in gross profit was primarily the result of the
significant decline in the sales of ThermoChuck(R) products, which have higher
gross margins. This decline was offset, in part, by improved gross margins on
service and reductions in operations staff.
Selling Expense. Selling expense was $3.1 million for 1999 compared to
$4.0 million for 1998, a decrease of $.9 million or 24%. The decline in selling
expense was primarily the result of the lower net revenue levels in 1999
compared to 1998 and the resulting reduction in sales commissions as well as a
decrease in salary expense due to staff cutbacks. In addition, there were
reductions in travel expense, advertising and promotion costs.
Research and Engineering Expense. Research and engineering expense was
$1.8 million for 1999 compared to $2.9 million for 1998, a decrease of $1.1
million or 37%. The decline in research and engineering expense was primarily
the result of reduced spending on outside consultants used in new product
development as well as reductions in engineering staff. In addition, there was
an increase in the level of reimbursement of development costs by customers.
General and Administrative Expense. General and administrative expense was
$1.6 million for 1999 compared to $1.9 million for 1998, a decrease of $306,000
or 16%. The decline in general and administrative expense was primarily the
result of lower levels of salary expense as a result of the staff reductions
completed early in the year as well as reduced spending on information systems
consulting.
Other Expense. Other expense was $239,000 for 1999 compared to $330,000
for 1998, a decrease of $91,000 or 28%. The decrease in other expense was
primarily the result of a reduction in interest expense due to retirements of
debt during the year and lower effective interest rates in 1999 compared to
1998.
Income Taxes. Temptronic did not accrue any income tax expense for 1999 as
a result of the loss for the period. No income taxes were recoverable through
carryback claims, as all available amounts had been recovered in previous
years. Income tax benefits of $99,000 were realized for 1998 as a result of the
use of net operating loss carrybacks and the realization of certain state
income tax credits.
Year Ended June 30, 1998 Compared to Year Ended June 30, 1997
Net Revenues. Net revenues were $19.3 million for 1998 compared to $18.0
million for 1997, an increase of $1.3 million or 7%. Net revenues experienced
significant growth during the first half of the fiscal year due to the strong
demand for ATE during calendar 1997; however, during the second half of the
fiscal year net revenues declined as a result of the downturn in demand
worldwide for ATE in calendar 1998.
66
<PAGE>
Gross Profit. Gross profit declined to 44% for 1998 compared to 47% for
1997. The reduction in gross profit was primarily the result of an increase in
the level of sales to OEM's in 1998 compared to 1997 and increases in the level
of sales discounts on these sales. In addition, the gross profit in 1998 was
negatively impacted by increased material costs.
Selling Expense. Selling expense remained relatively constant at
approximately $4.0 million for 1998 and 1997, while declining as a percentage
of net revenues from 22% in 1997 to 21% in 1998. The reduction in selling
expense as a percentage of net revenues was primarily the result of lower
levels of commissionable sales in 1998 compared to 1997. This reduction was
offset by increases in salary expense resulting from new staff as well as
increases in travel costs and advertising expenditures.
Research and Engineering Expense. Research and engineering expense was
$2.9 million for 1998 compared to $2.8 million for 1997, an increase of
$102,000 or 4%. The increase was primarily attributable to the salary costs of
additional engineering staff. This increase was offset in part by reduced
spending on research and development materials in 1998 compared to 1997 and
greater levels of reimbursement of these development costs by customers.
General and Administrative Expense. General and administrative expense was
$1.9 million for 1998 compared to $1.8 million for 1997, an increase of $71,000
or 4%. The increase was primarily the result of the costs of severance benefits
associated with employee headcount reductions during 1998, as well as higher
levels of expenses for information processing. These increases were offset, in
part, by reductions in the levels of fees for consultants, employee benefits
expenses and bank charges.
Other Expense. Other expense was $330,000 for 1998 compared to $170,000
for 1997, an increase of $160,000 or 94%. The increase in other expense was
primarily the result of increased interest expense due to increased borrowings
during the year, as well as a reduction in other income.
Income Taxes. Income tax benefits were $99,000 for 1998 compared to
$470,000 for 1997. Temptronic realized substantial tax benefits in 1997 as a
result of the reduction of the company's valuation allowance due to the ability
to carryback losses to previous years when income taxes had been paid. As a
result, the effective rate of the tax benefit substantially exceeded
Temptronic's statutory income tax rate. Although Temptronic incurred a loss in
1998, the tax benefits realized were less, as the amount of tax available to be
recovered through carryback of losses had been substantially recognized in the
previous year.
Liquidity and Capital Resources
Net cash provided by operations for the year ended June 30, 1999 was
$708,000 and for the three months ended September 30, 1999 was $178,000.
Accounts receivable did not change materially during the year ended June 30,
1999, but increased by $323,000 in the three months ended September 30, 1999 as
a result of significant sales growth at the end of the quarter. Inventories
decreased by $484,000 during the year ended June 30, 1999 due to Temptronic's
efforts to defer previous purchase commitments and to better match inventory
levels with the lower level of business. Inventories increased $80,000 in the
three months ended September 30, 1999 in order to support the increasing level
of business. Income taxes receivable decreased by $251,000 as a result of
Temptronic receiving refunds during fiscal 1999. Prepaid expenses and other
current assets decreased by $48,000 and $93,000, respectively, during the year
ended June 30, 1999 and the three months ended September 30, 1999 due to the
write-off of expenses related to the abandonment of a potential new product and
the amortization of prepaid expenses related to the line of credit with Bank
Boston, N.A. Accounts payable and accrued expenses decreased by $378,000 during
the year ended June 30, 1999 as a result of the lower level of business and
increased by $107,000 during the three months ended September 30, 1999 as
business activity increased.
Purchases of capital equipment were $166,000 in the year ended June 30,
1999 and $23,000 in the three months ended September 30, 1999, primarily for
demonstration equipment in both periods. Temptronic plans to spend
approximately $450,000 on new equipment in the next year including new
demonstration equipment and new computer hardware and software in the areas of
engineering and quality assurance.
Temptronic has funded its operations with revolving lines of credit with
Bank Boston and a term loan from another bank. Both loans call for Temptronic
to pay interest based upon the prime rate at each institution
67
<PAGE>
and to comply with certain financial and other covenants. At September 30,
1999, Temptronic's total borrowings under these loans were $2.4 million as
compared to $2.6 million at June 30, 1999. In addition to utilizing funds
provided from operations to retire indebtedness, Temptronic generated $337,000
from the sale of assets, principally demonstration equipment, during fiscal
1999.
Temptronic believes that funds provided from operations, together with
availability for its sources of debt will be sufficient to meet its obligations
for the next twelve months.
Year 2000
Temptronic continues to assess the potential impact of the Year 2000 on
its internal business systems, products and operations. Year 2000 initiatives
include testing and upgrading significant information technology systems,
testing and developing upgrades, if necessary for current products and certain
discontinued products.
Temptronic has done a complete review of its internal business systems and
believes that all systems are Year 2000 compliant. Temptronic does not expect
Year 2000 compliance issues to have a material cost or other material effect on
its business.
Temptronic has surveyed all critical suppliers to inquire about their Year
2000 readiness. Temptronic relies on subcontractors for fabrication and certain
other processes and Temptronic utilizes third party equipment and software.
These subcontractors and third parties, and their software products and
services, may not be Year 2000 compliant. In addition, Temptronic relies on
utility and telecommunications suppliers to operate its businesses worldwide.
Temptronic may not be successful in its efforts to identify and resolve all
Year 2000 issues involving its suppliers. Temptronic may not be able to
continue to receive products and services from these suppliers if Year 2000
problems materialize.
Temptronic has not developed a contingency plan to address Year 2000
issues. Temptronic may not be able to develop a contingency plan that will
adequately address issues that may arise in the year 2000 if basic
infrastructure systems, such as utilities and telecommunications, succumb to
Year 2000 problems. In the worst case, Temptronic's failure to successfully
resolve these issues could result in the shutdown of some or all of
Temptronic's operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK RELATING TO TEMPTRONIC
Temptronic's exposure to financial market risk, including changes in
interest rates, relates primarily to outstanding debt obligations. Temptronic
debt obligations include two lines of credit and a term note all of which bear
interest at a variable interest rate, which is subject to market changes.
Temptronic has not entered into any interest rate swap agreements or other
instruments to minimize its exposure to interest rate increases but may
investigate such options should changes in market conditions occur. Temptronic
has not had any derivative instruments in the past and does not plan to in the
future, other than possibly to reduce its interest rate exposure as described
above.
Since Temptronic's debt bears interest at a variable rate, its risk
principally relates to its exposure to higher interest costs in periods of
rising interest rates. This exposure is offset by the benefit of lower interest
costs in periods of decreasing rates. A 10% increase in interest rates,
accordingly, would result in increased interest expense and cash expenditures
for interest of approximately $28,000 in fiscal 1999. A 10% decrease in
interest rates would result in reduced interest expense and cash expenditures
of approximately $28,000 in fiscal 1999.
COMPARISON OF RIGHTS OF SHAREHOLDERS
When the merger is completed, the shareholders of Temptronic will become
shareholders of inTEST. The Massachusetts Business Corporation Law, known as
the "MBCL", and Temptronic's articles of organization and bylaws govern the
rights of Temptronic shareholders prior to the merger. Delaware General
Corporation Law, referred to as the "DGCL", and inTEST's certificate of
incorporation and bylaws govern the rights of inTEST shareholders, and, thus,
will govern the rights of Temptronic shareholders when the merger is
68
<PAGE>
completed. The following discussion is a summary of the major differences
between the rights of inTEST shareholders and Temptronic shareholders. This
summary is qualified in its entirety by reference to the provisions of the
MBCL, the DGCL, inTEST's certificate of incorporation and bylaws and
Temptronic's articles of organization and bylaws.
Meetings of Shareholders
inTEST. Under inTEST's bylaws, a special meeting of shareholders may be
called at any time by a majority of the directors or by the holders of 50% or
more of the inTEST stock entitled to vote at such meeting.
Temptronic. Under Temptronic's bylaws, a special meeting may be called at
any time by the president, a majority of the directors, or on written request
of one or more shareholders owning a total of at least 10% of the Temptronic
stock entitled to vote at the meeting.
Action by Consent of Shareholders
inTEST. inTEST's bylaws provide that any action that may be taken at a
meeting of shareholders may be authorized by shareholders without a meeting if
the shareholders having the number of votes that would be necessary to take
such action at a meeting at which all shareholders were present and voted
consent in writing to the action.
Temptronic. The MBCL and Temptronic's bylaws provide that any action to be
taken by shareholders may be taken without a meeting only if there is unanimous
consent in writing of the Temptronic shareholders entitled to vote on the
matter.
Sale, Lease or Exchange of Assets and Mergers
inTEST. The DGCL requires the approval of the directors and the vote of
the holders of a majority of the outstanding stock entitled to vote thereon for
the sale, lease, or exchange of all or substantially all of a corporation's
property and assets or a merger or consolidation of the corporation into any
other corporation, although the certificate of incorporation may require a
higher shareholder vote. The inTEST certificate of incorporation and bylaws do
not address this issue.
Temptronic. The MBCL requires a vote of two-thirds of the shares of each
class of stock outstanding and entitled to vote thereon for the transactions
described above, although the articles of organization may require a vote of
more or less than two-thirds so long as the vote is not less than a majority of
the outstanding shares of each class. The Temptronic articles of organization
and bylaws do not address this issue.
Removal of Directors
inTEST. Under the DGCL, a director, or the entire board of directors, may
be removed from office, with or without cause by the vote of the holders of a
majority of the stock.
Temptronic. Temptronic's bylaws provide that a director may be removed
from office, with or without cause, by the vote of the holders of a majority
vote of the stock entitled to vote in the election of directors. In addition, a
director may be removed from office for cause by the vote of a majority of the
directors.
Vacancies on the Board of Directors
inTEST. Under the inTEST bylaws, vacancies on the inTEST board of
directors and newly created directorships may be filled by a majority vote of
the remaining members of the board of directors or by a plurality of the votes
cast at a meeting of the shareholders.
Temptronic. Under the Temptronic bylaws, vacancies on the Temptronic board
of directors and newly created directorships may be filled by vote of the
shareholders, or, in the absence of shareholder action, by majority vote of the
directors in office.
69
<PAGE>
Director's Limit of Liability
General. Both the MBCL and the DGCL allow a corporation to limit or
eliminate the personal liability of directors to the corporation and its
shareholders for monetary damages for breach of fiduciary duty as a director
unless otherwise prohibited by law.
inTEST. As required by the DGCL, inTEST does not limit or eliminate the
liability of directors for (i) any breach of the director's duty of loyalty to
the corporation or its shareholders, (ii) acts or omissions not in good faith
or which involve intentional misconduct or knowing violation of law, (iii) for
unlawful payment of dividends or unlawful stock purchase or redemption, or (iv)
for any transaction from which the director derived any improper personal
benefit.
Temptronic. As required by the MBCL, Temptronic does not limit or
eliminate the personal liability of a director for items (i) - (iii) above, or
for any loans to any officer or director of the corporation.
Indemnification of Directors, Officers and Others
General. Both the DGCL and the MBCL generally permit indemnification of
directors and officers for expenses incurred by them by reason of their
position with the corporation, if the person has acted in good faith and with
the reasonable belief that his conduct was in the best interests of the
corporation. However, the DGCL, unlike the MBCL, does not permit a corporation
to indemnify persons in respect of any claim, issue or matter as to which such
person has been adjudged to be liable to the corporation in actions brought by
or in the right of the corporation (although it does permit indemnification in
such situations if approved by the Delaware Court of Chancery).
inTEST. The inTEST bylaws authorize inTEST to provide indemnification to
its directors, officers and employees or persons serving at inTEST's request as
director, officer or employee of another corporation to the maximum extent
legally permissible. inTEST may advance the expenses incurred by a director or
officer in defending any action, if the person promises to repay all amounts
advanced if later found not to be entitled to indemnification. However, no
advance payment of expenses is required if the board of directors determines
that there is a substantial probability that the person will not be able to
repay the advance payments. Expenses incurred in such circumstances by other
employees and other persons who may be entitled to indemnification hereunder
may be paid in advance at the discretion of the board of directors.
Temptronic. The Temptronic bylaws provide for indemnification to its
directors and officers to the maximum extent legally permissible. Temptronic's
bylaws require that indemnification for any matter disposed of by settlement
must be approved as being in the best interest of Temptronic by (i) a majority
of directors, each of whom is disinterested, (ii) a majority of the
disinterested directors who have obtained a legal opinion, or (iii) the holders
of a majority of the outstanding stock entitled to vote for directors. The
indemnification provisions in the Temptronic bylaws are not intended to
restrict or affect any other indemnification rights of the directors, officers
or any other corporate personnel.
Interested Directors and Officers
inTEST. inTEST's bylaws reflect the DGCL, which provides that no
transaction between a corporation and one or more of its directors or officers
or an entity in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for
that reason. In addition, no such transaction shall be void or voidable solely
because the director or officer is present at, participates in, or votes at the
meeting of the board of directors, or committee thereof, which authorizes the
transaction. To be valid, any such transaction must either: (i) after
disclosure of material facts, be approved by a majority of the disinterested
directors or a committee of disinterested directors, (ii) after disclosure of
material facts, be approved by a majority of the shareholders, or (iii) be fair
as to inTEST when it was approved by the board or the shareholders.
Temptronic. The MBCL has no comparable or other provision covering this
issue. The Temptronic articles provide that transactions with interested
persons as described above are not void or voidable solely for that reason, but
are otherwise silent.
70
<PAGE>
Amendments to Certificate of Incorporation/Articles of Organization
inTEST. Under the DGCL, amendments to the certificate of incorporation
require the approval of the directors and the vote of the holders of a majority
of the outstanding stock entitled to vote thereon and a majority of each class
of stock outstanding and entitled to vote thereon as a class, unless the
certificate of incorporation requires a greater proportion.
Temptronic. Under the MBCL, amendments to a corporation's articles of
organization relating to certain changes in capital or in the corporate name
require the vote of at least a majority of each class of stock outstanding and
entitled to vote thereon. Other amendments to the articles of organization
require a vote of at least two-thirds of each class outstanding and entitled to
vote thereon or, if the articles of organization so provide, a greater or
lesser proportion but not less than a majority of the outstanding shares of
each class. The Temptronic articles of organization do not address amendments
to the articles.
Amendments to Bylaws
inTEST. Under the DGCL, shareholders entitled to vote have the power to
adopt, amend or repeal bylaws, however, the corporation may confer the power to
adopt, amend or repeal the bylaws upon the directors. The inTEST certificate
gives the board of directors the power to make, alter, amend or repeal bylaws.
The inTEST bylaws provide that the bylaws may be altered or repealed, and new
bylaws made, by the board of directors but the shareholders may make additional
bylaws and may alter or repeal any bylaws whether the shareholders adopted the
bylaws or not.
Temptronic. Under the MBCL, shareholders have the power to make, amend or
repeal bylaws although the bylaws may provide that the directors also may make,
amend or repeal the bylaws. Under the Temptronic articles, the directors may
make, amend or repeal Temptronic bylaws except if either the law, the articles
or the bylaws requires action by the shareholders. The Temptronic bylaws
provide that the bylaws may be amended by a vote of the shareholders or may be
amended by a vote of a majority of the board of directors unless either the
law, Temptronic's articles or bylaws requires action by the shareholders.
Inspection Rights
inTEST. Under the DGCL, shareholders demonstrating a proper purpose have a
broad right to inspect a corporation's stock ledger, shareholder list, and
other books and records.
Temptronic. Under the MBCL, a corporation's shareholders have the right
for a proper purpose to inspect the corporation's articles of organization,
bylaws, records of all meetings of incorporators and shareholders, and stock
and transfer records, including the shareholder list. In addition, shareholders
of a Massachusetts business corporation have a qualified common law right under
certain circumstances to inspect other books and records of the corporation.
Appraisal Rights
inTEST. Under the DGCL, appraisal rights are available to dissenting
shareholders in connection with a statutory merger or consolidation in certain
specified situations. Appraisal rights are not available under the DGCL when a
corporation is to be the surviving corporation and no vote of its shareholders
is required in order to approve the merger. In addition, unless otherwise
provided in a corporation's charter, no appraisal rights are available under
the DGCL to holders of shares of any class of stock which is either: (a) listed
on a national securities exchange or designated as a national market system
security on an inter-dealer quotation system by the National Association of
Securities Dealers, Inc. (as is the case with inTEST) or (b) held of record by
more than 2,000 shareholders, unless such shareholders (in (a) or (b)) are
required by the terms of the merger to accept in exchange for their shares
anything other than: (i) shares of stock of the surviving corporation; (ii)
shares of stock of another corporation which are or will be listed on a
national securities exchange or designated as a national market system security
on an inter-dealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 shareholders; (iii) cash in
lieu of fractional shares of such stock; or (iv) any combination thereof.
Appraisal rights are not available
71
<PAGE>
under the DGCL in the event of the sale, lease or exchange of all or
substantially all of a corporation's assets or the adoption of an amendment to
its certificate of incorporation, unless such rights are granted in the
certificate of incorporation. The inTEST certificate does not grant such
rights.
Temptronic. Under the MBCL, a properly dissenting shareholder is entitled
to receive the appraised value of his shares under more circumstances than
provided for in the DGCL. Dissenters' rights are available under the MBCL when
the corporation votes (i) to sell, lease, or exchange all or substantially all
of its property and assets, (ii) to adopt an amendment to its articles of
organization which adversely affects the rights of the shareholder or (iii) to
merge or consolidate with another corporation.
LEGAL MATTERS
The legality of the shares of inTEST common stock issued in the merger
will be passed upon by Saul, Ewing, Remick & Saul LLP.
EXPERTS
The consolidated financial statements and schedule of inTEST as of
December 31, 1997 and 1998, and for each of the years in the three-year period
ended December 31, 1998, included in this joint proxy statement/prospectus have
been audited by KPMG LLP, independent auditors, as set forth in their report
appearing elsewhere herein. These financial statements and schedule are
included in this joint proxy statement/prospectus in reliance upon such report
of KPMG LLP and upon the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Temptronic at June 30, 1998 and
1999, and for each of the three years in the period ended June 30, 1999,
included in this joint proxy statement/prospectus, which is referred to and
made a part of this prospectus and registration statement, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report appearing
elsewhere herein and are included in reliance upon such report given on the
authority of such firm as experts in auditing and accounting.
COMMISSION POSITION ON INDEMNIFICATION
Pursuant to the provisions of the Delaware General Corporation Law, inTEST
has adopted provisions in its certificate of incorporation which limit the
personal liability of its directors to inTEST or its shareholders for monetary
damages for breach of their fiduciary duty as a director to the fullest extent
permitted by the DGCL, and in its bylaws which require inTEST to indemnify its
directors and officers to the fullest extent permitted by Delaware law. The
bylaws require inTEST to indemnify an officer or director in connection with a
proceeding, or any part of a proceeding, initiated by that officer or director
only if the initiation of the proceeding by him was authorized by the board of
directors. inTEST has a directors' and officers' liability insurance policy.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission,
indemnification for this purpose is against public policy as expressed in the
Securities Act and is therefore unenforceable.
72
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES AND
TEMPTRONIC CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements have been
prepared to give effect to the merger, using the pooling-of-interests method of
accounting. The unaudited pro forma combined balance sheet as of September 30,
1999 gives effect to the merger as if it had occurred on September 30, 1999,
and combines the historical unaudited consolidated balance sheet of inTEST
Corporation and Subsidiaries ("inTEST") and the historical unaudited
consolidated balance sheet of Temptronic Corporation and Subsidiaries
("Temptronic") as of such date. inTEST intends to retire the outstanding
short-term and long-term debt of Temptronic upon closing of the merger; no
adjustment for this planned debt retirement has been made in the unaudited pro
forma combined balance sheet that follows.
The unaudited pro forma combined statements of earnings for each of the
years ended December 31, 1996, 1997 and 1998 and for the nine months ended
September 30, 1998 and 1999, combine the historical consolidated statements of
earnings of inTEST and Temptronic as if the merger had occurred on January 1,
1996. The historical consolidated financial statements of Temptronic have been
conformed to a calendar year basis from it's original fiscal year ending June
30.
inTEST and Temptronic estimate that they will incur direct transaction
costs of approximately $850,000 associated with the merger, which will be
charged to operations upon consummation of the merger. In addition, it is
possible that following the merger, the combined company will incur additional
costs, which can not currently be estimated, associated with the integration of
the operations of the two companies. Integration related costs are not included
in the accompanying unaudited pro forma combined financial statements.
These unaudited pro forma combined financial statements are based upon the
respective historical consolidated financial statements of inTEST and
Temptronic and the notes thereto, included elsewhere in this joint proxy
statement/prospectus. The following information is not necessarily indicative
of the financial position or operating results that would have occurred had the
merger been completed on the date described above, or at the beginning of the
period for which the merger is being given effect, nor is it necessarily
indicative of future financial position or operation results. These unaudited
pro forma combined financial statements do not incorporate, nor do they assume,
any benefits for cost savings or synergies of operations of the combined
company.
73
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES AND
TEMPTRONIC CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1999
(In thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
inTEST Temptronic Adjustments Combined
----------- ------------ --------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 9,689 $ 4 $ -- $ 9,693
Trade accounts and notes receivable, net ..................... 6,960 3,235 -- 10,195
Inventories .................................................. 3,359 3,582 -- 6,941
Deferred tax account ......................................... 307 -- -- 307
Other current assets ......................................... 314 188 -- 502
-------- -------- -------- --------
Total current assets ....................................... 20,629 7,009 -- 27,638
-------- -------- -------- --------
Machinery and equipment:
Machinery and equipment ...................................... 2,265 4,430 -- 6,695
Leasehold improvements ....................................... 297 996 -- 1,293
-------- -------- -------- --------
2,562 5,426 -- 7,988
Less: accumulated depreciation ............................... (1,335) (4,465) -- (5,800)
-------- -------- -------- --------
Net machinery and equipment ................................ 1,227 961 -- 2,188
-------- -------- -------- --------
Cash surrender value of life insurance ........................ -- 1,049 -- 1,049
Other assets .................................................. 214 91 -- 305
Goodwill ...................................................... 6,525 -- -- 6,525
-------- -------- -------- --------
Total assets ............................................... $ 28,595 $ 9,110 $ -- $ 37,705
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank on demand .............................. $ -- $ 2,120 $ -- $ 2,120
Accounts payable ............................................. 2,882 1,668 -- 4,550
Accrued expenses ............................................. 1,348 611 -- 1,959
Accrued transaction costs .................................... -- -- 850(A) 850
Current portion of long-term debt ............................ -- 100 -- 100
Current portion of obligation under capital lease ............ -- 36 -- 36
Domestic and foreign income taxes payable .................... 1,051 -- -- 1,051
-------- -------- -------- --------
Total current liabilities .................................. 5,281 4,535 850 10,666
-------- -------- -------- --------
Long-term liabilities:
Long-term debt, net of current portion ....................... -- 158 -- 158
Obligation under capital lease ............................... -- -- -- --
-------- -------- -------- --------
Total long-term liabilities ................................ -- 158 -- 158
-------- -------- -------- --------
Total liabilities .......................................... 5,281 4,693 850 10,824
-------- -------- -------- --------
Commitments
Stockholders' equity:
Preferred stock .............................................. -- -- -- --
Common stock ................................................. 65 22 (1)(B) 86
Additional paid in capital ................................... 16,647 5,238 (223)(B) 21,662
Retained earnings ............................................ 6,576 2,798 (850)(A) 8,524
Accumulated other comprehensive earnings ..................... 26 8 -- 34
-------- -------- -------- --------
23,314 8,066 (1,074) 30,306
Less: deferred compensation .................................. -- (161) -- (161)
Less: note receivable from Equity Participation Plan ......... -- (3,264) -- (3,264)
Less: treasury stock, at cost ................................ -- (224) 224(B) --
-------- -------- -------- --------
Total stockholders' equity ................................. 23,314 4,417 (850) 26,881
-------- -------- -------- --------
Total liabilities and stockholders' equity ................. $ 28,595 $ 9,110 $ -- $ 37,705
======== ======== ======== ========
</TABLE>
74
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES AND
TEMPTRONIC CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
inTEST Temptronic Combined
------------- ------------ -------------
<S> <C> <C> <C>
Net revenues ............................................... $ 18,582 $ 18,153 $ 36,735
Cost of revenues ........................................... 6,755 9,360 16,115
---------- ---------- ----------
Gross margin ........................................... 11,827 8,793 20,620
---------- ---------- ----------
Operating expenses:
Selling expense ........................................... 2,471 3,524 5,995
Research and development expense .......................... 1,928 2,464 4,392
General and administrative expense ........................ 1,812 1,777 3,589
Equity participation plan contribution .................... -- 195 195
---------- ---------- ----------
Total operating expenses ............................... 6,211 7,960 14,171
---------- ---------- ----------
Operating income ........................................... 5,616 833 6,449
---------- ---------- ----------
Other income (expense):
Interest income ........................................... 147 -- 147
Interest expense .......................................... (11) (273) (284)
Other ..................................................... (35) 98 63
---------- ---------- ----------
Total other income (expense) ........................... 101 (175) (74)
---------- ---------- ----------
Earnings before income taxes and minority interest ......... 5,717 658 6,375
Income tax expense ......................................... 858 217 1,075
---------- ---------- ----------
Earnings before minority interest .......................... 4,859 441 5,300
Minority interest .......................................... (213) -- (213)
---------- ---------- ----------
Net earnings ............................................... $ 4,646 $ 441 $ 5,087
========== ========== ==========
Pro forma information (C):
Pro forma earnings before income taxes .................... $ 5,627 $ 658 $ 6,285
Pro forma income taxes .................................... 2,251 217 2,468
Pro forma net earnings .................................... 3,376 441 3,817
Earnings per share (C):
Basic ..................................................... $ 0.83 $ 0.32 $ 0.71
Diluted ................................................... 0.83 0.28 0.69
Weighted average shares outstanding (C):
Basic ..................................................... 4,091,034 1,359,969 5,349,005
Diluted ................................................... 4,091,034 1,570,022 5,543,304
</TABLE>
75
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES AND
TEMPTRONIC CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
inTEST Temptronic Combined
------------- ------------ -------------
<S> <C> <C> <C>
Net revenues ............................................... $ 20,746 $ 19,205 $ 39,951
Cost of revenues ........................................... 7,808 10,535 18,343
---------- ---------- ----------
Gross margin ........................................... 12,938 8,670 21,608
---------- ---------- ----------
Operating expenses:
Selling expense ........................................... 2,789 4,180 6,969
Research and development expense .......................... 1,737 2,942 4,679
General and administrative expense ........................ 2,225 1,699 3,924
Equity participation plan contribution .................... -- 136 136
---------- ---------- ----------
Total operating expenses ............................... 6,751 8,957 15,708
---------- ---------- ----------
Operating income ........................................... 6,187 (287) 5,900
---------- ---------- ----------
Other income (expense):
Interest income ........................................... 349 -- 349
Interest expense .......................................... (15) (297) (312)
Other ..................................................... (74) 84 10
---------- ---------- ----------
Total other income (expense) ........................... 260 (213) 47
---------- ---------- ----------
Earnings before income taxes and minority interest ......... 6,447 (500) 5,947
Income tax expense ......................................... 2,090 (544) 1,546
---------- ---------- ----------
Earnings before minority interest .......................... 4,357 44 4,401
Minority interest .......................................... (25) -- (25)
---------- ---------- ----------
Net earnings ............................................... $ 4,332 $ 44 $ 4,376
========== ========== ==========
Pro forma information (C):
Pro forma earnings before income taxes .................... $ 6,407 $ (500) $ 5,907
Pro forma income taxes .................................... 2,680 (544) 2,136
Pro forma net earnings .................................... 3,726 44 3,770
Earnings per share (C):
Basic ..................................................... $ 0.74 $ 0.03 $ 0.58
Diluted ................................................... 0.73 0.03 0.56
Weighted average shares outstanding (C):
Basic ..................................................... 5,068,349 1,531,497 6,484,984
Diluted ................................................... 5,092,490 1,719,153 6,682,707
</TABLE>
76
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES AND
TEMPTRONIC CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
(In thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
inTEST Temptronic Combined
--------------- ------------ -------------
<S> <C> <C> <C>
Net revenues .................................... $ 19,075 $ 16,949 $ 36,024
Cost of revenues ................................ 8,402 9,824 18,226
--------- ---------- ----------
Gross margin ................................ 10,673 7,125 17,798
--------- ---------- ----------
Operating expenses:
Selling expense ................................ 3,346 3,511 6,857
Research and development expense ............... 1,934 2,269 4,203
General and administrative expense ............. 2,875 1,633 4,508
Equity participation plan contribution ......... -- 125 125
--------- ---------- ----------
Total operating expenses .................... 8,155 7,538 15,693
--------- ---------- ----------
Operating income ................................ 2,518 (413) 2,105
--------- ---------- ----------
Other income (expense):
Interest income ................................ 455 -- 455
Interest expense ............................... (3) (351) (354)
Other .......................................... 56 6 62
--------- ---------- ----------
Total other income (expense) ................ 508 (345) 163
--------- ---------- ----------
Earnings before income taxes .................... 3,026 (758) 2,268
Income tax expense .............................. 1,099 (24) 1,075
--------- ---------- ----------
Net earnings .................................... $ 1,927 $ (734) $ 1,193
========= ========== ==========
Earnings per share:
Basic .......................................... $ 0.31 $ (0.46) $ 0.16
Diluted ........................................ 0.31 (0.46) 0.15
Weighted average shares outstanding:
Basic .......................................... 6,169,596 1,605,582 7,654,759
Diluted ........................................ 6,186,460 1,605,582 7,807,937
</TABLE>
77
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES AND
TEMPTRONIC CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(In thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
inTEST Temptronic Combined
--------------- ------------ -------------
<S> <C> <C> <C>
Net revenues .................................... $ 15,238 $ 13,512 $ 28,750
Cost of revenues ................................ 6,453 7,834 14,287
--------- ---------- ----------
Gross margin ................................ 8,785 5,678 14,463
--------- ---------- ----------
Operating expenses:
Selling expense ................................ 2,281 2,819 5,100
Research and development expense ............... 1,338 1,806 3,144
General and administrative expense ............. 1,902 1,283 3,185
Equity participation plan contribution ......... -- 93 93
--------- ---------- ----------
Total operating expenses .................... 5,521 6,001 11,522
--------- ---------- ----------
Operating income ................................ 3,264 (323) 2,941
--------- ---------- ----------
Other income (expense):
Interest income ................................ 377 -- 377
Interest expense ............................... (3) (273) (276)
Other .......................................... 2 8 10
--------- ---------- ----------
Total other income (expense) ................ 376 (265) 111
--------- ---------- ----------
Earnings before income taxes .................... 3,640 (588) 3,052
Income tax expense .............................. 1,351 (24) 1,327
--------- ---------- ----------
Net earnings .................................... $ 2,289 $ (564) $ 1,725
========= ========== ==========
Earnings per share:
Basic .......................................... $ 0.38 $ (0.35) $ 0.23
Diluted ........................................ 0.38 (0.35) 0.22
Weighted average shares outstanding:
Basic .......................................... 6,046,107 1,594,288 7,520,823
Diluted ........................................ 6,055,217 1,594,288 7,678,109
</TABLE>
78
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES AND
TEMPTRONIC CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(In thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
inTEST Temptronic Combined
------------- ------------ -------------
<S> <C> <C> <C>
Net revenues .................................... $ 21,392 $ 12,998 $ 34,390
Cost of revenues ................................ 9,811 7,442 17,253
---------- ---------- ----------
Gross margin ................................ 11,581 5,556 17,137
---------- ---------- ----------
Operating expenses:
Selling expense ................................ 3,167 2,379 5,546
Research and development expense ............... 2,245 1,357 3,602
General and administrative expense ............. 3,072 1,262 4,334
Equity participation plan contribution ......... -- 103 103
---------- ---------- ----------
Total operating expenses .................... 8,484 5,101 13,585
---------- ---------- ----------
Operating income ................................ 3,097 455 3,552
---------- ---------- ----------
Other income (expense):
Interest income ................................ 240 -- 240
Interest expense ............................... (17) (172) (189)
Other .......................................... 69 40 109
---------- ---------- ----------
Total other income (expense) ................ 292 (132) 160
---------- ---------- ----------
Earnings before income taxes .................... 3,389 323 3,712
Income tax expense .............................. 1,383 -- 1,383
---------- ---------- ----------
Net earnings .................................... $ 2,006 $ 323 $ 2,329
========== ========== ==========
Earnings per share:
Basic .......................................... $ 0.31 $ 0.20 $ 0.29
Diluted ........................................ 0.30 0.19 0.28
Weighted average shares outstanding:
Basic .......................................... 6,536,034 1,639,339 8,052,423
Diluted ........................................ 6,606,902 1,738,884 8,215,370
</TABLE>
79
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES AND
TEMPTRONIC CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Notes to Unaudited Pro Forma Combined Financial Statements
(A) Accrued transaction costs consist of the following:
Fee to OEM Capital $470
Fee to Janney Montgomery Scott 100
Professional fees 180
Printing and distribution 50
Other 50
----
Total $850
====
(B) Adjustment to eliminate treasury stock of Temptronic Corporation.
(C) The inTEST 1996 and 1997 data are presented on a pro forma basis to
reflect results as if (a) inTEST had been taxed as a C corporation
for all of 1996 and 1997, and (b) the acquisition of the minority
interests in its three foreign subsidiaries had occurred on January
1, 1996.
80
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Page
-----
<S> <C>
inTEST Corporation
Consolidated Financial Statements:
Independent Auditors' Report .......................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and September 30, 1999 ... F-3
Consolidated Statements of Earnings for the years ended December 31, 1996, 1997 and
1998 and for the nine months ended September 30, 1998 and 1999 ....................... F-4
Consolidated Statements of Comprehensive Earnings for the years ended December 31,
1996, 1997 and 1998 and for the nine months ended September 30, 1998 and 1999 ........ F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996,
1997 and 1998 and for the nine months ended September 30, 1999 ....................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and
1998 and for the nine months ended September 30, 1998 and 1999 ....................... F-7
Notes to Consolidated Financial Statements ............................................ F-8
Consolidated Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts ...................................... F-26
Temptronic Corporation
Consolidated Financial Statements:
Report of Independent Auditors ........................................................ F-27
Consolidated Balance Sheets as of June 30, 1999 and 1998 .............................. F-28
Consolidated Statements of Operations for the years ended June 30, 1999, 1998 and 1997 F-29
Consolidated Statements of Comprehensive Income (Loss) for the years ended June 30,
1999, 1998 and 1997 .................................................................. F-30
Consolidated Statements of Stockholders' Equity for the years ended June 30, 1999, 1998
and 1997 ............................................................................. F-31
Consolidated Statements of Cash Flows for the years ended June 30, 1999, 1998 and 1997 F-33
Notes to Consolidated Financial Statements ............................................ F-34
Interim Financial Statements (unaudited):
Condensed Consolidated Balance Sheet as of September 30, 1999 ......................... F-44
Condensed Consolidated Statements of Operations for the three months ended September
30, 1999 and 1998 .................................................................... F-45
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months
ended September 30, 1999 and 1998 .................................................... F-46
Condensed Consolidated Statements of Cash Flows for the three months ended September
30, 1999 and 1998 .................................................................... F-47
Notes to Unaudited Condensed Consolidated Financial Statements ........................ F-48
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
inTEST Corporation
We have audited the accompanying consolidated balance sheets of inTEST
Corporation and subsidiaries as of December 31, 1997 and 1998, and the related
consolidated statements of earnings, comprehensive earnings, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1998. In connection with our audits of the consolidated financial
statements, we also have audited the consolidated financial statement schedule
of valuation and qualifying accounts as of and for the three years ended
December 31, 1998. These consolidated financial statements and consolidated
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and consolidated financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of inTEST Corporation
and subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also in our opinion, the related consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
Philadelphia, Pennsylvania
February 19, 1999
F-2
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
------------------------- Sept. 30,
1997 1998 1999
----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................ $12,035 $ 8,468 $ 9,689
Trade accounts and notes receivable, net of allowance for
doubtful accounts of $144, $168 and $169, respectively ......... 4,058 3,275 6,960
Inventories ...................................................... 1,649 2,521 3,359
Deferred tax asset ............................................... 165 245 307
Refundable domestic and foreign income taxes ..................... -- 658 --
Other current assets ............................................. 136 137 314
------- -------- --------
Total current assets ........................................... 18,043 15,304 20,629
------- -------- --------
Machinery and equipment:
Machinery and equipment .......................................... 1,129 1,690 2,265
Leasehold improvements ........................................... 179 223 297
------- -------- --------
1,308 1,913 2,562
Less: accumulated depreciation ................................... (831) (1,078) (1,335)
------- -------- --------
Net machinery and equipment .................................... 477 835 1,227
------- -------- --------
Other assets ...................................................... 136 195 214
Goodwill .......................................................... 1,289 6,884 6,525
------- -------- --------
Total assets ................................................... $19,945 $ 23,218 $ 28,595
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................. $ 1,142 $ 969 $ 2,882
Accrued expenses ................................................. 955 1,023 1,348
Domestic and foreign income taxes payable ........................ 1,291 -- 1,051
------- -------- --------
Total current liabilities ...................................... 3,388 1,992 5,281
------- -------- --------
Commitments
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized,
no shares issued or outstanding ................................ -- -- --
Common stock, $0.01 par value; 20,000,000 shares
authorized; 5,911,034, 6,536,034 and 6,536,034 shares
issued and outstanding, respectively ........................... 59 65 65
Additional paid-in capital ....................................... 13,981 16,647 16,647
Retained earnings ................................................ 2,643 4,570 6,576
Accumulated other comprehensive earnings (expense) ............... (126) (56) 26
------- -------- --------
Total stockholders' equity ..................................... 16,557 21,226 23,314
------- -------- --------
Total liabilities and stockholders' equity ..................... $19,945 $ 23,218 $ 28,595
======= ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
----------------------------------------------- -------------------------------
1996 1997 1998 1998 1999
------------- ------------- --------------- --------------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues .......................... $ 18,582 $ 20,746 $ 19,075 $ 15,238 $ 21,392
Cost of revenues ...................... 6,755 7,808 8,402 6,453 9,811
---------- ---------- ----------- ----------- ----------
Gross margin ....................... 11,827 12,938 10,673 8,785 11,581
---------- ---------- ----------- ----------- ----------
Operating expenses:
Selling expense ...................... 2,471 2,789 3,346 2,281 3,167
Research and development
expense ............................ 1,928 1,737 1,934 1,338 2,245
General and administrative
expense ............................ 1,812 2,225 2,875 1,902 3,072
---------- ---------- ----------- ----------- ----------
Total operating expenses ........... 6,211 6,751 8,155 5,521 8,484
---------- ---------- ----------- ----------- ----------
Operating income ...................... 5,616 6,187 2,518 3,264 3,097
---------- ---------- ----------- ----------- ----------
Other income (expense):
Interest income ...................... 147 349 455 377 240
Interest expense ..................... (11) (15) (3) (3) (17)
Other ................................ (35) (74) 56 2 69
---------- ---------- ----------- ----------- ----------
Total other income .................... 101 260 508 376 292
---------- ---------- ----------- ----------- ----------
Earnings before income taxes and
minority interest .................... 5,717 6,447 3,026 3,640 3,389
Income tax expense .................... 858 2,090 1,099 1,351 1,383
---------- ---------- ----------- ----------- ----------
Earnings before minority interest ..... 4,859 4,357 1,927 2,289 2,006
Minority interest ..................... (213) (25) -- -- --
---------- ---------- ----------- ----------- ----------
Net earnings ....................... $ 4,646 $ 4,332 $ 1,927 $ 2,289 $ 2,006
========== ========== =========== =========== ==========
Pro forma information
(unaudited)(Note 3)
Pro forma earnings before
income taxes ....................... $ 5,627 $ 6,407
Pro forma income taxes ............... 2,251 2,680
Pro forma net earnings ............... 3,376 3,726
Earnings per share (1996 and
1997 information is pro
forma):
Basic .............................. $ 0.83 $ 0.74 $ 0.31 $ 0.38 $ 0.31
Diluted ............................ 0.83 0.73 0.31 0.38 0.30
Weighted average shares
outstanding (1996 and 1997
information is pro forma):
Basic .............................. 4,091,034 5,068,349 6,169,596 6,046,107 6,536,034
Diluted ............................ 4,091,034 5,092,490 6,186,460 6,055,217 6,606,902
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands, except share data)
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
--------------------------------- ---------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net earnings ..................................... $4,646 $4,332 $1,927 $2,289 $2,006
Foreign currency translation adjustments ......... (21) (153) 70 (42) 82
------ ------ ------ ------ ------
Comprehensive earnings ........................... $4,625 $4,179 $1,997 $2,247 $2,088
====== ====== ====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Other
Common Stock Additional Comprehensive Total
--------------------- Paid-In Retained Earnings Stockholders'
Shares Amount Capital Earnings (Expense) Equity
----------- -------- ------------ ---------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 ................. 3,790,591 $38 $ 689 $ 3,273 $ 48 $ 4,048
Dividends -- $1.08 per share ............. -- -- -- (4,086) -- (4,086)
Net earnings ............................. -- -- -- 4,646 -- 4,646
Other comprehensive expense .............. -- -- -- -- (21) (21)
--------- --- ------- -------- ------ --------
Balance, December 31, 1996 ............... 3,790,591 38 689 3,833 27 4,587
Dividends -- $1.46 per share ............. -- -- -- (5,522) -- (5,522)
Net earnings ............................. -- -- -- 4,332 -- 4,332
Acquisition of minority interest ......... 300,443 3 1,655 -- -- 1,658
Issuance of common stock in
connection with Offering, net ........... 1,820,000 18 11,637 -- -- 11,655
Other comprehensive expense .............. -- -- -- -- (153) (153)
--------- --- ------- -------- ------ --------
Balance, December 31, 1997 ............... 5,911,034 59 13,981 2,643 (126) 16,557
Net earnings ............................. -- -- -- 1,927 -- 1,927
Issuance of common stock in
connection with Acquisition ............. 625,000 6 2,666 -- -- 2,672
Other comprehensive earnings ............. -- -- -- -- 70 70
--------- --- ------- -------- ------ --------
Balance, December 31, 1998 ............... 6,536,034 65 16,647 4,570 (56) 21,226
Net earnings ............................. -- -- -- 2,006 -- 2,006
Other comprehensive earnings ............. -- -- -- -- 82 82
--------- --- ------- -------- ------ --------
Balance, September 30, 1999
(Unaudited) ............................. 6,536,034 $65 $16,647 $ 6,576 $ 26 $ 23,314
========= === ======= ======== ====== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share data)
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
------------------------------------- --------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ........................................... $ 4,646 $ 4,332 $ 1,927 $ 2,289 $ 2,006
Adjustments to reconcile net earnings to net cash:
Depreciation and amortization ........................ 109 217 491 303 620
Deferred taxes ....................................... -- (165) (79) (58) (62)
Foreign exchange (gain) loss ......................... 31 (62) 17 6 (15)
Provision for bad debts .............................. 51 49 (32) -- --
Minority interest .................................... 213 25 -- -- --
Changes in assets and liabilities, net of effects
of Acquisition:
Trade accounts and notes receivable ................. 915 (2,226) 1,747 1,507 (3,612)
Inventories ......................................... (66) (352) 10 (134) (836)
Refundable domestic and state income taxes -- -- (658) (352) 663
Other current assets ................................ (61) (71) 32 (94) (178)
Accounts payable .................................... (235) 659 (315) (70) 1,917
Domestic and foreign income taxes payable ........... (118) 845 (1,333) (1,424) 1,051
Dividends payable ................................... -- (973) -- -- --
Accrued expenses .................................... 50 331 (244) (415) 323
-------- -------- -------- -------- -------
Net cash provided by operating activities ............... 5,535 2,609 1,563 1,558 1,877
-------- -------- -------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business, net of cash acquired .......... -- -- (4,629) (4,629) --
Purchase of machinery and equipment .................... (554) (70) (261) (165) (651)
Other long-term asset .................................. (65) (54) (42) (21) (7)
-------- -------- -------- -------- -------
Net cash used in investing activities ................... (619) (124) (4,932) (4,815) (658)
-------- -------- -------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid ......................................... (3,339) (5,541) -- -- --
Net principal debt borrowings (repayments) ............. 189 (189) (215) (215) --
Net proceeds from public offering ...................... -- 11,655 -- -- --
-------- -------- -------- -------- -------
Net cash provided by (used in) financing activities ..... (3,150) 5,925 (215) (215) --
-------- -------- -------- -------- -------
Effects of exchange rates on cash ....................... 7 (67) 17 (12) 2
-------- -------- -------- -------- -------
Net cash provided by (used in) all activities ........... 1,773 8,343 (3,567) (3,484) 1,221
Cash and cash equivalents at beginning of period ........ 1,919 3,692 12,035 12,035 8,468
-------- -------- -------- -------- -------
Cash and cash equivalents at end of period .............. $ 3,692 $ 12,035 $ 8,468 $ 8,551 $ 9,689
======== ======== ======== ======== =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Details of Acquisition:
Fair value of assets acquired net of cash
acquired ............................................ $ 2,003 $ 2,003
Liabilities assumed .................................. (549) (549)
Common stock issued .................................. (2,672) (2,672)
Goodwill resulting from Acquisition .................. 5,847 5,847
-------- --------
Net cash paid for Acquisition .......................... $ 4,629 $ 4,629
======== ========
Cash payments made for:
Domestic and foreign income taxes ...................... $ 977 $ 1,366 $ 3,210 $ 3,176 $ 254
Interest ............................................... 11 14 3 3 17
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-7
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(In thousands, except share data)
(1) NATURE OF OPERATIONS
inTEST Corporation (the "Company") designs, manufactures and markets
docking hardware, test head manipulators and tester interfaces used by
semiconductor manufacturers during the testing of wafers and packaged devices.
The Company also designs and markets related automatic test equipment interface
products.
The consolidated entity is comprised of inTEST Corporation (parent) and
seven 100% owned subsidiaries: inTEST Limited (Thame, UK), inTEST Kabushiki
Kaisha (Kichijoji, Japan), inTEST PTE, Limited (Singapore), inTEST Sunnyvale
Corp. (Delaware) (acquired in the third quarter of 1998 -- see Note 4), inTEST
Investments, Inc. (a Delaware holding company), inTEST IP Corp. (a Delaware
holding company) and inTEST Licensing Corp. (a Delaware holding company).
The Company manufactures its products in the U.S., the U.K. and Singapore
(where the Company commenced manufacturing during September 1999). Marketing
and support activities are conducted worldwide from the Company's facilities in
the U.S., U.K., Japan and Singapore.
On June 20, 1997, the Company completed an initial public offering of
2.275 million common shares through which the Company issued 1.82 million new
shares of common stock (the "Offering"). Simultaneous with the closing of the
Offering, the Company acquired the 21% minority interests in each of its three
foreign subsidiaries in exchange for an aggregate of 300,443 shares of the
Company's common stock (the "Exchange"). Prior to the Offering, the Company
owned 79% of each of the three foreign subsidiaries.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated upon consolidation. 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 and 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.
Interim Financial Reporting
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments (consisting only of normally
recurring adjustments) necessary to present fairly the financial position,
results of operations, and changes in cash flows for the interim periods
presented.
Reclassification
Certain prior year amounts have been reclassified to conform with the
current year presentation.
Cash and Cash Equivalents
Short-term investments, which have maturities of three months or less when
purchased, are considered to be cash equivalents and are carried at cost, which
approximates market value.
Notes Receivable
Notes receivable are due from trade customers in Japan, and have original
maturities of less than four months. The notes are non-interest bearing. Notes
receivable were $784, $524 and $161 at December 31, 1997 and 1998 and September
30, 1999, respectively.
F-8
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(In thousands, except share data) -- (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Bad Debts
The Company grants credit to customers and generally requires no
collateral. To minimize its risk, the Company performs ongoing credit
evaluations of its customers' financial condition. Bad debt expense
(recoveries) was $52, $61, $(5), $0 and $0 for the years ended December 31,
1996, 1997 and 1998 and the nine months ended September 30, 1998 and 1999,
respectively.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
under the first-in first-out (FIFO) method.
Machinery and Equipment
Machinery and equipment are stated at cost. Depreciation is based upon the
estimated useful life of the assets using the straight line method. The
estimated useful lives range from three to seven years. Leasehold improvements
are recorded at cost and amortized over the shorter of the lease term or the
estimated useful life of the asset. Total depreciation expense was $112, $175,
$238, $122 and $248 for the years ended December 31, 1996, 1997 and 1998 and
the nine months ended September 30, 1998 and 1999, respectively. Expenditures
for maintenance and repairs are charged to operations as incurred. The Company
assesses the potential impairment of its long-lived assets periodically. At
September 30, 1999, no impairment was indicated.
Intangibles
Goodwill resulting from the acquisition of the minority interest in the
Company's three foreign subsidiaries and the acquisition of TestDesign (as
described in Note 4) is amortized on a straight line basis over 15 years. Total
amortization expense for the years ended December 31, 1996, 1997 and 1998 and
the nine months ended September 30, 1998 and 1999 was $0, $49, $252, $180 and
$371, respectively. The Company assesses the potential impairment of its
intangible assets based on anticipated undiscounted cash flows from operations.
At September 30, 1999, no impairment was indicated.
Income Taxes
Just prior to the closing of the Offering (as described in Note 1), the
Company terminated its status as an S corporation for Federal tax purposes and
in the State of New Jersey. As an S corporation, any Federal and certain New
Jersey state income tax liabilities were those of the former S corporation
stockholders, not of the Company. All tax liabilities on income earned
subsequent to the revocation of the S corporation elections are liabilities of
the Company. The Company is taxed in foreign countries and for activity in
certain states. The Company accounts for income taxes in accordance with the
Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for
Income Taxes.
Net Earnings Per Common Share
Net earnings per common share is computed in accordance with SFAS No. 128,
Earnings Per Share. Basic earnings per share is computed by dividing net
earnings by the weighted average number of common shares outstanding during
each year. Diluted earnings per share is computed by dividing net earnings by
the weighted average number of common shares and common share equivalents
outstanding during each year. Common share equivalents include stock options
using the treasury stock method.
F-9
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(In thousands, except share data) -- (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
A reconciliation of weighted average shares outstanding -- basic to
weighted average shares outstanding -- diluted appears below:
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
--------------------------------------- --------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Weighted average shares outstanding-basic . 4,091,034 5,068,349 6,169,596 6,046,107 6,536,034
Potentially dilutive securities:
Employee stock options ................... -- 24,141 16,864 9,110 70,868
--------- --------- --------- --------- ---------
Weighted average shares outstanding-diluted 4,091,034 5,092,490 6,186,460 6,055,217 6,606,902
========= ========= ========= ========= =========
</TABLE>
As discussed in Note 3, pro forma earnings per share information for the
years ended December 31, 1996 and 1997 includes certain adjustments to reflect
results as if (i) the Company had been taxed as a C corporation for all of 1996
and 1997 and, (ii) the acquisition of the minority interests in the Company's
three foreign subsidiaries had occurred on January 1, 1996.
Revenue Recognition
Revenue from sales of products are recognized upon shipment to customers.
Research and Development
Research and development costs are expensed as incurred.
Product Warranties
The Company generally provides product warranties and records estimated
warranty expense at the time of sale based upon historical claims experience.
Warranty expense for the years ended December 31, 1996, 1997 and 1998 and the
nine months ended September 30, 1998 and 1999 was $196, $147, $202, $121 and
$193, respectively.
Stock Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, was adopted by the
Company effective with adoption of its 1997 Stock Plan. As permitted by SFAS
No. 123, the Company has elected to continue to follow Accounting Principles
Board Opinion No. 23, Accounting for Stock Issued to Employees ("APB 25") in
accounting for its stock option plans. Under APB 25, the Company does not
recognize compensation expense on the issuance of its stock options because the
option terms are fixed and the exercise price equals the market price of the
underlying stock on the grant date.
Foreign Currency
The accounts of the foreign subsidiaries are translated in accordance with
the SFAS No. 52, Foreign Currency Translation, which requires that assets and
liabilities of international operations be translated using the exchange rate
in effect at the balance sheet date. The results of operations are translated
using an average exchange rate for the period. The effects of rate fluctuations
in translating assets and liabilities of international operations into U.S.
dollars are accumulated and reflected as other comprehensive earnings or
expense in the consolidated statements of stockholders' equity. Transaction
gains or losses are included in net earnings.
F-10
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(In thousands, except share data) -- (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Financial Instruments
The Company's financial instruments, principally accounts and notes
receivable and accounts payable, are carried at cost which approximates fair
value, due to the short maturities of the accounts.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, Disclosures About Segments of an Enterprise and Related Information. This
Statement established standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosure about products and services,
geographic areas and major customers. The Company adopted this Statement for
the year ended December 31, 1998, as required (see Note 5).
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for Costs of Computer Software
Developed or Obtained for Internal Use. This Statement requires that certain
costs related to the development or purchase of internal software be
capitalized and amortized over the estimated useful life of the software. This
Statement also requires that costs related to the preliminary project stage and
the post implementation/operation stage of an internal use computer software
development project be expensed as incurred. The Company adopted this Statement
in the first quarter of 1999, as required. The adoption of this Statement did
not have a material effect on the results of operations, financial condition or
long-term liquidity of the Company.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 2000. The Company plans to adopt this Statement, as required. The adoption
of this Statement is not expected to have a material effect on the results of
operations, financial condition or long-term liquidity of the Company.
(3) PRO FORMA STATEMENT OF EARNINGS INFORMATION (Unaudited)
The Company terminated its status as an S corporation just prior to the
closing of the Offering, described in Note 1, and is subject to Federal and
additional state income taxes for periods after such termination.
Accordingly, for informational purposes, the following pro forma
information for the years ended December 31, 1996 and 1997, respectively, is
presented to show pro forma earnings on an after-tax basis, assuming the
Company had been taxed as a C corporation since January 1, 1996. The difference
between the Federal statutory income tax rate and the pro forma income tax rate
is as follows:
Years ended December 31,
------------------------
1996 1997
--------- ------------
Federal statutory tax rate 34 % 34 %
State income taxes, net of Federal benefit 3 4
Foreign income taxes 3 4
Non-deductible goodwill amortization 1 1
Research credits (1) (1)
---- ----
Pro forma income tax rate 40 % 42 %
===== =====
F-11
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(In thousands, except share data) -- (Continued)
(3) PRO FORMA STATEMENT OF EARNINGS INFORMATION (Unaudited) -- (Continued)
Set forth below are pro forma results of the Company's operations for the
years ended December 31, 1996 and 1997. These pro forma results reflect
adjustments for:
(i) the aforementioned change in method of computing taxes; and
(ii) the amortization of goodwill resulting from the acquisition of
minority interests in the Company's three foreign subsidiaries, net of
the elimination of the minority interests charge reflected in the
historical financial statements, as if the Exchange (as described in
Note 1) had occurred on January 1, 1996. The goodwill resulting from
the Exchange, which totaled $1.3 million, is being amortized over 15
years.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
Pro forma earnings before income taxes $ 5,627 $ 6,407
Pro forma income taxes 2,251 2,680
Pro forma net earnings 3,376 3,726
Pro forma net earnings per common share -- basic $ 0.83 $ 0.74
Pro forma weighted average common shares outstanding --
basic 4,091,034 5,068,349
Pro forma net earnings per common share -- diluted $ 0.83 $ 0.73
Pro forma weighted average common shares and common share
equivalents outstanding -- diluted 4,091,034 5,092,490
</TABLE>
Pro forma net earnings per common share -- basic was calculated by
dividing pro forma net earnings by the pro forma weighted average number of
common shares outstanding during the period calculated as if the Exchange had
occurred on January 1, 1996.
Pro forma net earnings per common share -- diluted was calculated by
dividing pro forma net earnings by the pro forma weighted average number of
common shares and common share equivalents outstanding during the period
calculated as if the Exchange had occurred on January 1, 1996.
(4) ACQUISITION
On August 3, 1998, the Company acquired all of the outstanding capital
stock of TestDesign Corporation ("TestDesign"), a privately held California
corporation (the "Acquisition"). Subsequent to the Acquisition, the Company
changed the name of TestDesign to inTEST Sunnyvale Corp. TestDesign is engaged
in the design and manufacture of tester interfaces used by the semiconductor
industry. The purchase price was $4.4 million in cash and 625,000 shares of the
Company's common stock (subject to certain adjustments). An escrow (held by a
third party escrow agent) of $1.0 million of the cash portion of the purchase
price was established at closing. If the Company is entitled to indemnification
pursuant to the terms of its agreement with the Seller, such claims will remain
in escrow until July 31, 2000, unless any indemnity claims are then pending, in
which case an amount equal to the amount of such pending claims will be
retained in escrow until resolution of the claims. Although the Company's
common stock had a market price of $4.75 per share on the closing date of the
transaction, all of the 625,000 shares issued in connection with the
Acquisition are subject to legal
F-12
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(In thousands, except share data) -- (Continued)
(4) ACQUISITION -- (Continued)
restrictions on transfer and have been valued at a 10% discount to the market
price of the shares. In addition, the Company incurred transaction costs of
approximately $425 in completing the Acquisition. The following is an
allocation of the purchase price:
<TABLE>
<S> <C>
Cash payment $ 4,400
Transaction costs 425
625,000 common shares at $4.28 2,672
-------
7,497
Estimated fair value of identifiable assets acquired net of
liabilities assumed 1,650
-------
Goodwill to be amortized over 15 years $ 5,847
=======
</TABLE>
The Acquisition has been accounted for as a purchase and the results of
operations of the acquired business have been included in the Company's
consolidated financial statements since the date of the Acquisition. The
following unaudited pro forma information presents a summary of consolidated
results of operations for the Company and TestDesign as if the Acquisition had
occurred on January 1, 1997 (the 1997 amounts also reflect the pro forma
adjustments described in Note 3):
<TABLE>
<CAPTION>
Years Ended December 31, Nine Months Ended
--------------------------- ------------------
1997 1998 Sept. 30, 1998
------------ ------------ ------------------
(Unaudited)
<S> <C> <C> <C>
Pro forma net revenues $ 29,689 $ 23,335 $ 19,498
Pro forma earnings before income taxes 6,440 2,892 3,505
Pro forma income taxes 2,698 1,081 1,333
Pro forma net earnings 3,742 1,811 2,173
Pro forma net eanings per common share -- basic $ 0.66 $ 0.28 $ 0.33
Pro forma weighted average common shares
outstanding -- basic 5,693,349 6,536,034 6,536,034
Pro forma net earnings per common share --
diluted $ 0.65 $ 0.28 $ 0.33
Pro forma weighted average common shares and
common share equivalents outstanding -- diluted 5,717,490 6,548,519 6,545,144
</TABLE>
(5) SEGMENT INFORMATION
The various products the Company designs, manufactures and markets, which
include docking hardware, test head manipulators and tester interfaces, are
considered by management to be a single product segment. Included in this
segment are products the Company designs and markets that are manufactured by
third parties, which include high performance test sockets, interface boards
and probing assemblies. The Company operates its business worldwide and divides
the world into three geographic segments: North America, Asia-Pacific and
Europe. The North America segment includes the Company's manufacturing, design
and service facilities in New Jersey, and California; the Asia-Pacific segment
includes the Company's manufacturing, design and service facilities in
Singapore and the Company's design and service facilities in Japan; and the
Europe segment includes the Company's manufacturing, design and service
facility in the U.K. Each segment sells Company designed and manufactured
products, while products produced by third party manufacturers are primarily
distributed by the Company's Asia-Pacific segment. All three segments sell to
F-13
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(In thousands, except share data) -- (Continued)
(5) SEGMENT INFORMATION -- (Continued)
semiconductor manufacturers and automatic test equipment manufacturers. The
North America segment sells through company account managers and independent
sales representatives; the Asia-Pacific segment sells through company account
managers and independent sales representatives; and the Europe segment sells
through company account managers.
Intercompany pricing between segments is either a multiple of cost for
component parts used in manufacturing or a percentage discount from list price
for finished goods sold to non-manufacturing segments. The Company acquired
TestDesign in August 1998 and has included it in the North America segment.
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
------------------------------------ ----------------------
1996 1997 1998 1998 1999
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues from unaffiliated customers:
North America $10,614 $13,608 $12,637 $ 9,918 $15,852
Asia-Pacific 4,860 5,743 4,727 3,879 3,979
Europe 3,108 1,395 1,711 1,441 1,561
------- ------- ------- ------- -------
$18,582 $20,746 $19,075 $15,238 $21,392
======= ======= ======= ======= =======
Affiliate sales or transfer from:
North America $ 1,321 $ 768 $ 943 $ 742 $ 1,074
Asia-Pacific -- -- -- -- --
Europe 54 500 378 323 724
------- ------- ------- ------- -------
$ 1,375 $ 1,268 $ 1,321 $ 1,065 $ 1,798
======= ======= ======= ======= =======
Depreciation/amortization:
North America $ 22 $ 127 $ 413 $ 239 $ 586
Asia-Pacific 63 69 53 45 12
Europe 27 28 24 18 21
------- ------- ------- ------- -------
$ 112 $ 224 $ 490 $ 302 $ 619
======= ======= ======= ======= =======
</TABLE>
F-14
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(In thousands, except share data) -- (Continued)
(5) SEGMENT INFORMATION -- (Continued)
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating income:
North America $ 3,815 $ 5,067 $ 1,705 $ 2,292 $ 2,200
Asia-Pacific 432 651 299 421 230
Europe 1,369 469 514 551 667
------- ------- ------- ------- -------
$ 5,616 $ 6,187 $ 2,518 $ 3,264 $ 3,097
======= ======= ======= ======= =======
Earnings before income taxes and minority interest:
North America $ 3,916 $ 5,356 $ 2,100 $ 2,620 $ 2,387
Asia-Pacific 415 606 379 444 321
Europe 1,386 485 547 576 681
------- ------- ------- ------- -------
$ 5,717 $ 6,447 $ 3,026 $ 3,640 $ 3,389
======= ======= ======= ======= =======
Income tax expense:
North America $ 134 $ 1,517 $ 747 $ 936 $ 985
Asia-Pacific 343 463 263 307 259
Europe 381 110 89 108 139
------- ------- ------- ------- -------
$ 858 $ 2,090 $ 1,099 $ 1,351 $ 1,383
======= ======= ======= ======= =======
Net earnings:
North America $ 3,781 $ 3,839 $ 1,353 $ 1,684 $ 1,402
Asia-Pacific 20 131 116 137 62
Europe 845 362 458 468 542
------- ------- ------- ------- -------
$ 4,646 $ 4,332 $ 1,927 $ 2,289 $ 2,006
======= ======= ======= ======= =======
Identifiable assets:
North America $ 5,408 $16,177 $20,226 $19,781 $23,948
Asia-Pacific 1,409 2,679 1,706 1,488 1,848
Europe 899 1,089 1,286 2,204 2,799
------- ------- ------- ------- -------
$ 7,716 $19,945 $23,218 $23,473 $28,595
======= ======= ======= ======= =======
</TABLE>
Substantially all interest income is generated by the North America
segment. Export sales from the Company's domestic manufacturing facilities (New
Jersey and California) totaled $3,486, $2,042, $4,380, $3,437 and $5,494 during
the years ended December 31, 1996, 1997 and 1998 and the nine months ended
September 30, 1998 and 1999, respectively. During the years ended December 31,
1996, 1997 and 1998 and the nine months ended September 30, 1998 and 1999, the
Company had sales to Japan of $3,376, $4,277, $2,932, $2,538 and $1,950,
respectively.
F-15
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(In thousands, except share data) -- (Continued)
(6) MAJOR CUSTOMERS
The Company's customers are in the semiconductor industry. During 1996,
1997 and 1998 the Company had sales to certain customers which exceeded 10% of
the Company's consolidated revenues. Those sales were as follows:
Customer 1996 1997 1998
- ----------------------------------------- ------ ------ -----
A (North America, Asia-Pacific) 16% 11% 16%
B (North America, Asia-Pacific) 7 5 13
C (North America, Asia-Pacific, Europe) 5 7 11
D (North America, Asia-Pacific, Europe) 6 11 7
---- ---- ----
34% 34% 47%
==== ==== ====
Additionally, at December 31, 1998, these four customers accounted for 36%
of trade receivables.
(7) INVENTORIES
Inventories were comprised of the following:
12/31/97 12/31/98 9/30/99
---------- ---------- ------------
(Unaudited)
Raw materials $ 364 $ 1,097 $ 1,574
Work in process 1,044 1,305 1,474
Finished goods 360 339 678
Reserve for obsolete inventory (119) (220) (367)
------- ------- -------
$ 1,649 $ 2,521 $ 3,359
======= ======= =======
(8) LINE OF CREDIT
The Company has a $1.5 million line of credit. Borrowings under this line
of credit are principally used for working capital purposes. Borrowings on the
line of credit bear interest at prime rate, which is payable monthly on any
outstanding balance. The Company is required to maintain a $50 compensating
balance at the bank which granted the line of credit. The credit line expires
on June 29, 2000. At September 30, 1999, there were no borrowings outstanding.
(9) STOCK OPTION PLAN
The 1997 Stock Plan (the "Plan") provides for the granting of either
incentive stock options or non-qualified stock options to purchase shares of
the Company's common stock and for other stock-based awards to key employees
and directors responsible for the direction and management of the Company and
to non-employee consultants. The Plan consists of two parts: the Non-Qualified
Plan (administered by the Board of Directors of the Company) and the Key
Employee Plan (administered by the Compensation Committee of the Board of
Directors of the Company). The Company has reserved 500,000 shares of common
stock for issuance upon exercise of options or stock awards under the Plan.
No option may be granted with an exercise period in excess of ten years
from date of grant. Generally, incentive stock options will be granted with an
exercise price equal to the fair market value on the date of grant; the
exercise price of non-qualified stock options will be determined by either the
Board of Directors or the Compensation Committee of the Board of Directors.
F-16
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(In thousands, except share data) -- (Continued)
(9) STOCK OPTION PLAN -- (Continued)
Had compensation costs for the Company's stock-based compensation plans
been determined consistent with SFAS No. 123, the Company's net earnings and
net earnings per share for the years ended December 31, 1997 and 1998, would
have been reduced to the unaudited pro forma amounts indicated below:
1997 1998
------------ ------------
Net earnings:
As reported (pro forma for 1997) $ 3,726 $ 1,927
Pro forma $ 3,643 $ 1,790
Net earnings per share -- basic:
As reported (pro forma for 1997) $ 0.74 $ 0.31
Pro forma $ 0.72 $ 0.29
The fair value for stock options granted in 1997 and 1998 was estimated at
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions for 1997 and 1998:
1997 1998
---------- ----------
Risk-free interest rate 5.67% 5.65%
Dividend yield 0.00% 0.00%
Expected common stock market price volatility
factor 0.65 0.82
Weighted average expected life of stock options 5 years 5 years
The per share weighted average fair value of stock options issued by the
Company in 1997 and 1998 was $4.61 and $3.92, respectively.
The options which have been issued vest 20% one year from date of grant
and 20% in each of the succeeding four years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. As the Company's stock options have characteristics significantly
different from those of traded options, and as 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 stock options.
F-17
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(In thousands, except share data) -- (Continued)
(9) STOCK OPTION PLAN -- (Continued)
The following table summarizes the stock option activity for the years
ended December 31, 1997 and 1998:
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise
of Shares Price
----------- -----------
<S> <C> <C>
Options outstanding, January 1, 1997 -- --
Granted 160,000 $ 7.72
Exercised -- --
Canceled (9,000) 7.50
------- --------
Options outstanding, December 31, 1997 (none exercisable) 151,000 $ 7.73
======= ========
Granted 150,000 $ 4.25
Exercised -- --
Canceled (10,000) 6.00
------- --------
Options outstanding, December 31, 1998 (28,200 exercisable) 291,000 $ 5.10
======= ========
</TABLE>
There was no stock option activity for the nine months ended September 30,
1999.
On June 30, 1998, the Company modified 131,000 options originally
exercisable at $7.50 per share and 10,000 options originally exercisable at
$11.00 per share to reduce the exercise price of such options to $6.00 per
share.
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Weighted Exercise Exercise
Range of Number Average Price of Number Price of
Exercise Outstanding Maximum Remaining Outstanding Exercisable Exercisable
Prices at 12/31/98 Life Life Options at 12/31/98 Options
- ------------ ------------- ---------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ 6.00 141,000 10 years 8.5 years $ 6.00 28,200 $ 6.00
$ 4.25 150,000 10 years 9.6 years $ 4.25 -- N/A
</TABLE>
F-18
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(In thousands, except share data) -- (Continued)
(10) COMMITMENTS
The Company leases its offices, warehouse facilities, automobiles and
certain equipment under noncancellable operating leases which expire at various
dates through 2005. Total rental expense for the years ended December 31, 1996,
1997 and 1998 and for the nine months ended September 30, 1998 and 1999 was
$422, $442, $536, $403 and $439, respectively. The aggregate minimum rental
commitments under the noncancellable operating leases in effect at December 31,
1998, are as follows:
1999 $541
2000 318
2001 281
2002 262
2003 153
Thereafter 70
On July 28, 1999, the Company entered into a lease for a facility to be
used for domestic material fabrication. The term of this lease is from
September 1, 1999 to August 31, 2004 and the annual lease payments will be
approximately $48,400.
On October 27, 1999, the Company entered into a lease for a facility for
its Sunnyvale manufacturing operations. The term of this lease is from January
1, 2000 to December 31, 2004 and the annual lease payments will be $306,684.
(11) INCOME TAXES
As discussed in Notes 2 and 3, prior to the Offering the Company had
elected S corporation status for Federal and state of New Jersey tax purposes,
and therefore, was not directly subject to Federal and certain New Jersey
income taxes. Immediately prior to the Offering, the Company terminated its
status as an S corporation and is now subject to Federal and additional state
income taxes. In addition, the Company is taxed in foreign countries and for
activity in certain states. For Federal, state and foreign jurisdictions in
which the Company is subject to taxation, the temporary differences that give
rise to deferred tax assets and liabilities were not significant at December
31, 1996. The cumulative amount of undistributed earnings of foreign
subsidiaries for which U.S. income taxes have not been provided was
approximately $1.9 million at December 31, 1998 and $2.4 million at September
30, 1999. As of September 30, 1999, the Company had repatriated a portion of
the earnings of its foreign subsidiaries. The estimated tax effect of
distributing such earnings is expected to be offset by available foreign tax
credits.
Earnings before income taxes were as follows:
Nine Months Ended
Years Ended December 31, September 30,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(Unaudited)
Domestic $ 3,916 $ 5,356 $ 2,100 $ 2,620 $ 2,387
Foreign 1,801 1,091 926 1,020 1,002
------- ------- ------- ------- -------
$ 5,717 $ 6,447 $ 3,026 $ 3,640 $ 3,389
======= ======= ======= ======= =======
F-19
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(In thousands, except share data) -- (Continued)
(11) INCOME TAXES -- (Continued)
Income tax expense was as follows:
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
----------------------------------- ---------------------------
1996 1997 1998 1998 1999
-------- ---------- ----------- ----------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Current:
Domestic -- Federal $ -- $ 1,379 $ 772 $ 892 $ 927
Domestic -- state 134 303 54 97 62
Foreign 724 573 352 420 456
----- ------- ------- ------- -------
858 2,255 1,178 1,409 1,445
----- ------- ------- ------- -------
Deferred:
Domestic -- Federal -- (147) (54) (40) (56)
Domestic -- state -- (18) (25) (18) (6)
----- ------- ------- ------- -------
-- (165) (79) (58) (62)
----- ------- ------- ------- -------
Income tax expense $ 858 $ 2,090 $ 1,099 $ 1,351 $ 1,383
===== ======= ======= ======= =======
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The following is a
summary of the significant components of the Company's deferred tax assets and
liabilities as of December 31, 1997 and 1998 and September 30, 1999:
<TABLE>
<CAPTION>
12/31/97 12/31/98 9/30/99
---------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Accrued vacation pay $ 69 $ 91 $ 90
Allowance for doubtful accounts 47 60 60
Inventories (principally due to obsolescence reserve) 42 107 157
Accrued warranty 9 17 38
Excess foreign tax credit carryforward 17 -- --
Capital loss carryforward -- 90 90
Other 5 (5) 5
----- ------ -----
189 360 440
Valuation allowance (17) (90) (90)
----- ------ -----
Deferred tax assets 172 270 350
----- ------ -----
Deferred tax liabilities:
Accrued royalty income (7) (25) (43)
----- ------ -----
Net deferred tax asset $ 165 $ 245 $ 307
===== ====== =====
</TABLE>
Based on the Company's history of prior operating earnings, and its
expectation of the future, management believes that taxable income will more
likely than not be sufficient to realize the net deferred tax assets of $245 at
December 31, 1998 and $307 at September 30, 1999. A valuation allowance of $90
was established in 1998 to offset the domestic capital loss carryforward. A
valuation allowance of $17 was established in 1997 to offset the foreign tax
credit carryforward, which was realized in 1998.
F-20
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(In thousands, except share data) -- (Continued)
(11) INCOME TAXES -- (Continued)
An analysis of the effective tax rate on earnings and a reconciliation
from the expected statutory rate are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Expected income tax provision at U.S. Statutory
rate $ 1,944 $ 2,192 $ 1,029 $ 1,238 $ 1,152
State taxes, net of Federal benefit 134 188 19 52 39
Increase (decrease) in tax from:
Non-deductible goodwill -- 17 86 61 122
Foreign income tax rate differences 133 219 12 53 103
Tax exempt interest -- -- (80) (60) (33)
S corporation earnings not subject to Federal
taxation (1,353) (549) -- -- --
Other -- 23 33 7 --
-------- ------- ------- ------- -------
Income tax expense $ 858 $ 2,090 $ 1,099 $ 1,351 $ 1,383
======== ======= ======= ======= =======
</TABLE>
(12) EMPLOYEE BENEFIT PLAN
In 1996, the Company instituted a defined contribution 401(k) plan for its
employees who work in the U.S. All permanent employees of inTEST Corporation
and inTEST Sunnyvale Corp. who are at least 18 years of age and have completed
six months of service with the Company are eligible to participate in the plan.
Under the plan, the Company matches employee contributions dollar for dollar up
to 10% of the employee's annual compensation up to $5. In addition, the Company
may match employee contributions dollar for dollar for amounts exceeding 10% up
to 15% of the employee's annual compensation to a maximum of $5. Employer
contributions vest over a six-year period. The Company contributed $71, $129,
$157, $113 and $185 to the plan for the years ended December 31, 1996, 1997 and
1998 and for the nine months ended September 30, 1998 and 1999, respectively.
inTEST Sunnyvale (formerly TestDesign) adopted a defined contribution
401(k) plan for its employees in July 1994. All permanent employees who are at
least 18 years of age and have completed six months of service with inTEST
Sunnyvale are eligible to participate in the plan. Under the plan, inTEST
Sunnyvale matched employee contributions equal to 25% of an employee's
contributions up to 5% of gross salary. Matching contributions for the plan
were $6 from the date of the Acquisition through December 31, 1998. In
addition, the plan allowed inTEST Sunnyvale to make discretionary matching
contributions up to 6.5% of an employee's gross salary for the year based upon
inTEST Sunnyvale's profitability. There were no discretionary matching
contributions made from the date of the Acquisition through December 31, 1998.
Effective October 1, 1998, all inTEST Sunnyvale permanent employees who were at
least 18 years of age and had completed six months of service were offered
enrollment in the Company's 401(k) plan, and employee contributions and
employer matching contributions into the inTEST Sunnyvale plan ceased. The
Company is currently in the process of terminating the inTEST Sunnyvale plan at
which time the former participants will have the option of rolling their assets
into the Company's plan.
The Company sponsored a noncontributory pension plan for an employee of
its U.K. subsidiary until July 1998, when that employee retired from the
Company. The Company has no other defined contribution or defined benefit
plans.
F-21
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(In thousands, except share data) -- (Continued)
(13) ACCRUED EXPENSES
12/31/97 12/31/98 9/30/99
---------- ---------- ------------
(Unaudited)
Accrued vacation $ 181 $ 236 $ 235
Accrued commissions 285 206 300
Accrued directors fees -- 109 82
Accrued wages 81 106 259
Customer deposits 200 100 101
Accrued professional fees 68 78 77
Accrued warranty 25 45 100
Accrued shareholder relations 50 42 13
Accrued other 65 101 181
----- ------- -------
$ 955 $ 1,023 $ 1,348
===== ======= =======
(14) RELATED PARTY TRANSACTIONS
The Company paid consulting fees to one individual who is a member of the
Board of Directors of the parent company which totaled $17, $56, $43 and $44
during the years ended December 31, 1997 and 1998 and for the nine months ended
September 30, 1998 and 1999, respectively. There were no consulting fees paid
to related parties during the year ended December 31, 1996.
During 1998, in connection with the acquisition of TestDesign, the Company
repaid $215 on a note due to a firm ("PRIM") controlled by Douglas W. Smith,
Executive Vice President and Chief Operating Officer of the Company. This note,
which did not bear interest or have a maturity date, evidenced borrowings that
TestDesign had made from PRIM prior to the acquisition. In addition, subject to
the terms of a consulting agreement between TestDesign and Gregory W. Slayton,
a current board member of the Company, the Company paid directly to Mr.
Slayton, on behalf of TestDesign, $170 in cash and 31,250 shares of the
Company's common stock. These payments are included in the merger consideration
and are accounted for as described in Note 4.
The Company's foreign subsidiaries paid directors' fees to several
individuals who are members of management of the parent company which totaled
$192, $177, $104, $81 and $93 during the years ended December 31, 1996, 1997
and 1998 and for the nine months ended September 30, 1998 and 1999,
respectively.
At December 31, 1997 and 1998 and September 30, 1999 there were $0, $49
and $37 of foreign directors' fees payable to members of management of the
parent company. There were no amounts outstanding in prior years.
(15) LEGAL PROCEEDINGS
On November 18, 1998, the Company and its subsidiary inTEST IP Corp.
(which holds title to all Company intellectual property) filed suit against a
competitor for infringement of a United States patent held by the Company (the
"815 Patent").
The invention disclosed and claimed in the 815 Patent is directed to a
system for positioning and docking a heavy electronic test head of a test
system with respect to an electronic device handler. The system is used in the
automatic testing of integrated circuits and other electronic devices. The
Company sells products covered by the 815 Patent worldwide.
F-22
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(In thousands, except share data) -- (Continued)
(15) LEGAL PROCEEDINGS -- (Continued)
As alleged in the complaint, the competitor began manufacturing, offering
to sell, and selling products as early as 1991 that, without license, infringe
claims of the 815 Patent. The parties have been discussing possible settlement
of the dispute since the Company first became aware of the defendants'
infringement in 1991. Discussions were abated at the end of 1995 so that the
United States Patent and Trademark Office (the "PTO") could reexamine the 815
Patent. On April 7, 1998, the PTO completed the reexamination and affirmed the
patentability of the nine claims in the patent with minor, technical,
clarifying changes. Thereafter, the parties resumed settlement negotiations,
however, to date such negotiations have been unsuccessful.
The complaint asks the court to enjoin the competitor from further acts of
infringement, including the acts of manufacturing, using, offering for sale,
selling and importing positioner systems that embody the patented invention
claimed in the 815 Patent. The complaint also asks the court to award the
Company damages against the competitor, including the Company's lost profits.
Alleging that the competitor's infringement is and has been deliberate,
willful, and wanton, with knowledge of the Company's patent rights, the
complaint asks the court to award increased damages up to three times the
amount assessed. The complaint also seeks an award of interest, costs and
reasonable attorney fees.
All legal fees incurred in connection with this matter have been expensed.
In the opinion of management, the ultimate disposition of this matter will not
have a material adverse effect on the Company's financial position, results of
operations or liquidity.
(16) QUARTERLY CONSOLIDATED FINANCIAL DATA (Unaudited)
The following tables present certain unaudited consolidated quarterly
financial information for each of the eleven quarters ended September 30, 1999.
In the opinion of the Company's management, this quarterly information has been
prepared on the same basis as the Consolidated Financial Statements and
includes all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the information for the period presented. The
results of operations for any quarter are not necessarily indicative of results
for the full year or for any future period.
The Company's business is not seasonal, therefore year-over-year quarterly
comparisons of the Company's results of operations may not be as meaningful as
the sequential quarterly comparisons set forth below which tend to reflect the
cyclical activity of the semiconductor industry as a whole. Quarterly
fluctuations in expenses either are related directly to sales activity and
volume, or tend to be a function of personnel costs and the timing of expenses
incurred throughout the year.
F-23
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(In thousands, except share data) -- (Continued)
(16) QUARTERLY CONSOLIDATED FINANCIAL DATA (Unaudited) -- (Continued)
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------------
3/31/97 6/30/97 9/30/97 12/31/97 Total
------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 3,887 $ 4,619 $ 6,212 $ 6,028 $ 20,746
Gross margin 2,285 2,784 3,893 3,976 12,938
Pro forma earnings before income taxes 1,000 1,321 2,190 1,896 6,407
Pro forma income taxes 462 578 924 716 2,680
Pro forma net earnings 538 743 1,266 1,180 3,726
Pro forma net earnings per common share -- basic $ 0.13 $ 0.18 $ 0.21 $ 0.20 $ 0.74
Pro forma weighted average common shares out-
standing -- basic 4,091,034 4,331,034 5,911,034 5,911,034 5,068,349
Pro forma net earnings per common share --
diluted $ 0.13 $ 0.17 $ 0.21 $ 0.20 $ 0.73
Pro forma weighted average common shares and
common share equivalents outstanding -- diluted 4,091,034 4,332,242 5,966,413 5,950,235 5,092,490
Other comprehensive earnings (expense) $ (61) $ 51 $ (65) $ (78) $ (153)
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------------
3/31/98 6/30/98 9/30/98 12/31/98 Total
------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 5,626 $ 5,163 $ 4,449 $ 3,837 $ 19,075
Gross margin 3,426 3,029 2,331 1,887 10,673
Earnings (loss) before income taxes 1,822 1,458 360 (614) 3,026
Income taxes 668 550 133 (252) 1,099
Net earnings (loss) 1,154 908 227 (362) 1,927
Net earnings (loss) per common share -- basic $ 0.20 $ 0.15 $ 0.04 $ (0.06) $ 0.31
Weighted average common shares outstanding --
basic 5,911,034 5,911,034 6,311,849 6,536,034 6,169,596
Net earnings (loss) per common share -- diluted $ 0.19 $ 0.15 $ 0.04 $ (0.06) $ 0.31
Weighted average common shares and common
share equivalents outstanding -- diluted 5,924,949 5,918,809 6,317,578 6,575,910 6,186,460
Other comprehensive earnings (expense) $ (42) $ (19) $ 19 $ 112 $ 70
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended
--------------------------------------------
3/31/99 6/30/99 9/30/99 Total
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 4,811 $ 6,485 $ 10,097 $ 21,392
Gross margin 2,532 3,506 5,543 11,581
Earnings before income taxes 297 850 2,242 3,389
Income taxes 125 357 901 1,383
Net earnings 172 493 1,341 2,006
Net earnings per common share -- basic $ 0.03 $ 0.07 $ 0.21 $ 0.31
Weighted average common shares outstanding --
basic 6,536,034 6,536,034 6,536,034 6,536,034
Net earnings per common share -- diluted $ 0.03 $ 0.07 $ 0.20 $ 0.30
Weighted average common shares and common
share equivalents outstanding -- diluted 6,602,317 6,591,785 6,626,342 6,606,902
Other comprehensive earnings (expense) $ (75) $ (11) $ 168 $ 82
</TABLE>
F-24
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1999 and for the nine months ended
September 30, 1998 and 1999 is unaudited)
(In thousands, except share data) -- (Continued)
(17) SUBSEQUENT EVENT (Unaudited)
On December 16, 1999, the Board of Directors of the Company authorized a
merger with Temptronic Corporation, a Massachusetts corporation,
("Temptronic"). Each issued and outstanding common share of Temptronic will be
exchanged for 0.925 shares of the Company's common stock. Upon closing of the
proposed merger, which must be ratified by the shareholders of both the Company
and Temptronic, Temptronic will be merged into a to-be-formed wholly-owned
subsidiary of the Company.
F-25
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance
Additions
at Acquisition ------------------------ Balance at
Beginning of Other End of
of Period TestDesign Expense Deductions Period
----------- ------------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Bad debt reserve $ 45 $-- $ 52 $ 1 $ 96
Inventory obsolescence reserve -- -- 56 56 --
Warranty reserve -- -- 196 171 25
Year Ended December 31, 1997
Bad debt reserve 96 -- 61 13 144
Inventory obsolescence reserve -- -- 178 59 119
Warranty reserve 25 -- 147 147 25
Year Ended December 31, 1998
Bad debt reserve 144 54 (5) 25 168
Inventory obsolescence reserve 119 38 193 130 220
Warranty reserve 25 20 202 202 45
</TABLE>
F-26
<PAGE>
Report of Independent Auditors
To the Stockholders and Board of Directors of
Temptronic Corporation
We have audited the accompanying consolidated balance sheets of Temptronic
Corporation and subsidiaries (the Company) as of June 30, 1999 and 1998, and
the related consolidated statements of operations, comprehensive income (loss),
stockholders' equity, and cash flows for each of the three years in the period
ended June 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance as to whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Temptronic
Corporation and subsidiaries at June 30, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1999, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
Boston, Massachusetts
August 6, 1999
F-27
<PAGE>
Temptronic Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30
--------------------------------
1999 1998
-------------- ---------------
<S> <C> <C>
Assets
Current assets:
Cash $ 2,543 $ 422,050
Accounts receivable, net of allowance for doubtful accounts
of $53,000 in 1999 and $52,000 in 1998 2,677,026 2,663,213
Due from related party 192,799 274,266
Inventories 3,507,380 3,994,955
Income tax receivable -- 250,510
Prepaid expenses and other current assets 176,360 288,646
---------- ------------
Total current assets 6,556,108 7,893,640
Property and equipment, net 1,098,820 1,626,061
Cash surrender value of life insurance 1,031,320 960,688
Other assets 194,990 130,480
---------- ------------
Total assets $ 8,881,238 $ 10,610,869
=========== ============
Liabilities and stockholders' equity
Current liabilities:
Notes payable to bank $ 2,311,922 $ 3,508,426
Accounts payable and accrued expenses 2,170,567 2,551,693
Current portion of long-term debt 100,000 100,000
Current portion of obligation under capital lease 49,211 51,937
----------- ------------
Total current liabilities 4,631,700 6,212,056
Long-term debt, net of current portion 183,334 283,334
Obligation under capital lease, net of current portion -- 53,424
Stockholders' equity:
Common stock, $0.01 par value; authorized 3,000,000 shares,
issued and outstanding 2,228,982 shares in 1999 and
2,224,482 shares in 1998 22,290 22,245
Additional paid-in capital 5,248,426 5,290,846
Retained earnings 2,513,377 2,716,615
Accumulated other comprehensive income (loss) (3,434) 18,341
----------- ------------
7,780,659 8,048,047
Less deferred compensation 191,347 331,038
Less note receivable from Equity Participation Plan 3,299,013 3,430,859
Less treasury stock, at cost; 60,062 shares in 1999 and in
1998 224,095 224,095
----------- ------------
Total stockholders' equity 4,066,204 4,062,055
----------- ------------
Total liabilities and stockholders' equity $ 8,881,238 $ 10,610,869
=========== ============
</TABLE>
See accompanying notes.
F-28
<PAGE>
Temptronic Corporation and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended June 30
---------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Net revenues:
Product $ 13,520,257 $ 17,774,731 $ 16,380,889
Service 1,702,907 1,555,439 1,664,353
------------ ------------ ------------
15,223,164 19,330,170 18,045,242
Cost of revenues 8,695,988 10,831,097 9,629,769
------------ ------------ ------------
Gross profit 6,527,176 8,499,073 8,415,473
Operating expenses:
Selling 3,075,523 4,040,107 3,996,661
Research and engineering 1,816,047 2,900,411 2,798,897
General and administrative 1,600,222 1,906,410 1,835,187
------------ ------------ ------------
Total operating expenses 6,491,792 8,846,928 8,630,745
------------ ------------ ------------
Operating income (loss) 35,384 (347,855) (215,272)
Other (income) expense:
Interest expense 283,996 348,943 273,536
Other income (45,374) (19,149) (103,449)
-------------- ------------ ------------
238,622 329,794 170,087
------------ ------------ ------------
Loss before income taxes (203,238) (677,649) (385,359)
Income tax benefit -- (98,779) (470,000)
------------ ------------ ------------
Net income (loss) $ (203,238) $ (578,870) $ 84,641
============== ============ ============
Earnings (loss) per share:
Basic $ (0.12) $ (0.36) $ 0.06
============== ============ ============
Diluted $ (0.12) $ (0.36) $ 0.05
============== ============ ============
Weighted-average common shares outstanding:
Basic 1,628,049 1,586,266 1,501,730
============ ============ ============
Diluted 1,628,049 1,586,266 1,666,199
============ ============ ============
</TABLE>
See accompanying notes.
F-29
<PAGE>
Temptronic Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
<TABLE>
<CAPTION>
Year ended June 30
----------------------------------------------
1999 1998 1997
-------------- --------------- -----------
<S> <C> <C> <C>
Net income (loss) $ (203,238) $ (578,870) $ 84,641
Unrealized gains (losses) on foreign currency
translation adjustments, net of tax (21,775) 1,094 4,568
----------- ----------- --------
Comprehensive income (loss) $ (225,013) $ (577,776) $ 89,209
=========== =========== ========
</TABLE>
See accompanying notes.
F-30
<PAGE>
Temptronic Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
-------------------------------------
Class A Class B Class C
----------- ----------- -----------
<S> <C> <C> <C>
Balance at June 30, 1996 $ 10,000 $ 1,563 $ 4,306
Net income
Other comprehensive income, net of tax
Conversion of Class B and Class C common stock to
Class A common stock 5,869 (1,563) (4,306)
Conversion of note payable to common stock
Stock options exercised 1,876
Sale of common stock, net of offering costs of
$230,739 4,500
Deferred compensation related to stock options granted
Amortization of deferred compensation
Note receivable from Equity Participation Plan
Principal payments made by Equity Participation Plan
-------- -------- --------
Balance at June 30, 1997 22,245 -- --
Net loss
Other comprehensive income, net of tax
Deferred compensation related to stock options granted
Amortization of deferred compensation
Elimination of deferred compensation related to stock options
forfeited
Principal payments made by Equity Participation Plan
Acquisition of treasury stock
-------- -------- --------
Balance at June 30, 1998 22,245 -- --
Net loss
Other comprehensive expense, net of tax
Deferred compensation related to stock options granted
Amortization of deferred compensation
Elimination of deferred compensation related to stock options
forfeited
Stock options exercised 45
Principal payments made by Equity Participation Plan
-------- -------- --------
Balance at June 30, 1999 $ 22,290 $ -- $ --
======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Retained
Additional --------------
Paid-in Capital Earnings
----------------- --------------
<S> <C> <C>
Balance at June 30, 1996 $ 845,881 $ 3,210,844
Net income 84,641
Other comprehensive income, net of tax
Conversion of Class B and Class C common stock to
Class A common stock
Conversion of note payable to common stock 287,560
Stock options exercised 685,589
Sale of common stock, net of offering costs of
$230,739 2,914,761
Deferred compensation related to stock options granted 447,705
Amortization of deferred compensation
Note receivable from Equity Participation Plan
Principal payments made by Equity Participation Plan
----------- -----------
Balance at June 30, 1997 5,181,496 3,295,485
Net loss (578,870)
Other comprehensive income, net of tax
Deferred compensation related to stock options granted 145,290
Amortization of deferred compensation
Elimination of deferred compensation related to stock options
forfeited (35,940)
Principal payments made by Equity Participation Plan
Acquisition of treasury stock
----------- -----------
Balance at June 30, 1998 5,290,846 2,716,615
Net loss (203,238)
Other comprehensive expense, net of tax
Deferred compensation related to stock options granted 46,935
Amortization of deferred compensation
Elimination of deferred compensation related to stock options
forfeited (89,355)
Stock options exercised
Principal payments made by Equity Participation Plan
----------- -----------
Balance at June 30, 1999 $ 5,248,426 $ 2,513,377
=========== ===========
</TABLE>
See accompanying notes.
F-31
<PAGE>
Temptronic Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity (continued)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income Deferred
(Loss) Compensation
--------------- --------------
<S> <C> <C>
Balance at June 30, 1996 $ 12,679
Net income
Other comprehensive income, net of tax 4,568
Conversion of Class B and Class C common stock to
Class A common stock
Conversion of note payable to common stock
Stock options exercised
Sale of common stock, net of offering costs of
$230,739
Deferred compensation related to stock options granted $ (447,705)
Amortization of deferred compensation 137,845
Note receivable from Equity Participation Plan
Principal payments made by Equity Participation Plan
--------- -----------
Balance at June 30, 1997 17,247 (309,860)
Net loss
Other comprehensive income, net of tax 1,094
Deferred compensation related to stock options granted (145,290)
Amortization of deferred compensation 88,172
Elimination of deferred compensation related to stock
options forfeited 35,940
Principal payments made by Equity Participation Plan
Acquisition of treasury stock
--------- -----------
Balance at June 30, 1998 18,341 (331,038)
Net loss
Other comprehensive expense, net of tax (21,775)
Deferred compensation related to stock options granted (46,935)
Amortization of deferred compensation 97,271
Elimination of deferred compensation related to stock
options forfeited 89,355
Stock options exercised
Principal payments made by Equity Participation Plan
--------- -----------
Balance at June 30, 1999 $ (3,434) $ (191,347)
========= ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Note Total
Receivable Treasury Stockholders'
from EPP Stock Equity
----------------- --------------- --------------
<S> <C> <C> <C>
Balance at June 30, 1996 $ (905,035) $ 3,180,238
Net income 84,641
Other comprehensive income, net of tax 4,568
Conversion of Class B and Class C common stock to
Class A common stock --
Conversion of note payable to common stock 712,440 1,000,000
Stock options exercised 687,465
Sale of common stock, net of offering costs of
$230,739 2,919,261
Deferred compensation related to stock options granted --
Amortization of deferred compensation 137,845
Note receivable from Equity Participation Plan $ (3,667,998) (3,667,998)
Principal payments made by Equity Participation Plan 117,693 117,693
------------- ----------- ------------
Balance at June 30, 1997 (3,550,305) (192,595) 4,463,713
Net loss (578,870)
Other comprehensive income, net of tax 1,094
Deferred compensation related to stock options granted --
Amortization of deferred compensation 88,172
Elimination of deferred compensation related to stock
options forfeited --
Principal payments made by Equity Participation Plan 119,446 119,446
Acquisition of treasury stock (31,500) (31,500)
------------- ----------- ------------
Balance at June 30, 1998 (3,430,859) (224,095) 4,062,055
Net loss (203,238)
Other comprehensive expense, net of tax (21,775)
Deferred compensation related to stock options granted --
Amortization of deferred compensation 97,271
Elimination of deferred compensation related to stock
options forfeited --
Stock options exercised 45
Principal payments made by Equity Participation Plan 131,846 131,846
------------- ------------
Balance at June 30, 1999 $ (3,299,013) $ (224,095) $ 4,066,204
============= =========== ============
</TABLE>
See accompanying notes.
F-32
<PAGE>
Temptronic Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended June 30
---------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ (203,238) $ (578,870) $ 84,641
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Compensation relating to stock options 97,271 94,633 74,733
Provision for (recovery of) allowance for doubtful
accounts 1,000 (8,000) 15,000
Depreciation and amortization 576,673 585,708 556,622
Gain on sale of equipment (220,247) (165,824) (111,613)
Deferred taxes -- 330,000 (330,000)
Changes in operating assets and liabilities:
Accounts receivable and due from related party 51,543 361,112 (641,099)
Inventories 484,498 (883,864) (89,303)
Prepaid expenses and other 47,776 (126,714) 16,981
Accounts payable and accrued expenses (377,655) (53,645) (165,749)
Income taxes receivable / payable 250,510 (49,586) (287,001)
------------ ----------- ------------
Net cash provided (used) by operating activities 708,131 (495,050) (876,788)
Investing activities
Acquisition of equipment (165,984) (902,287) (790,359)
Net proceeds from sale of equipment 336,579 391,540 204,047
(Increase) decrease in cash surrender value of life
insurance (70,632) 417,856 (106,828)
------------ ----------- ------------
Net cash provided (used) by investing activities 99,963 (92,891) (693,140)
Financing activities
Net (repayments of) proceeds from notes payable to bank (1,196,504) 786,668 1,931,891
Proceeds from long-term debt -- -- 500,000
Repayments of long-term debt (100,000) (100,839) (29,227)
Acquisition of treasury stock -- (31,500) --
Net proceeds from sale of Class A common stock -- -- 2,919,261
Net proceeds from stock options exercised 45 -- 527,465
Note receivable (issuance to) repayments from EPP 131,846 119,446 (3,550,305)
Payments related to loans on life insurance policies -- -- (500,040)
Payments under capital leases (56,150) (57,050) (63,432)
------------ ----------- ------------
Net cash (used) provided by financing activities (1,220,763) 716,725 1,735,613
Effect of exchange rate changes on cash (6,838) (12,677) (7,941)
------------ ----------- ------------
Net (decrease) increase in cash (419,507) 116,107 157,744
Cash balance at beginning of year 422,050 305,943 148,199
------------ ----------- ------------
Cash balance at end of year $ 2,543 $ 422,050 $ 305,943
============ =========== ============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 284,021 $ 350,228 $ 264,151
============ =========== ============
Supplemental disclosure of financing activities:
Conversion of note payable from related party into
200,000 shares of Class A common stock $ -- $ -- $ 1,000,000
============ =========== ============
</TABLE>
See accompanying notes.
F-33
<PAGE>
Temptronic Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1999
1. Organization
Temptronic Corporation (the Company) is engaged in the manufacture, sale
and service of temperature control instruments used in the electronics
industry. The Company's principal customers are large electronics manufacturers
throughout the world.
2. Summary of Significant Accounting Policies
The accompanying consolidated financial statements reflect the application
of certain significant accounting policies described below and elsewhere in the
accompanying consolidated financial statements and notes.
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, and
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.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Temptronic Corporation, its wholly-owned subsidiary and its 95%-owned foreign
subsidiary. All material intercompany accounts and transactions have been
eliminated. Minority interest in the Company's 95%-owned foreign subsidiary is
not material.
Concentration of Credit Risk
The Company provides credit in the normal course of business and,
accordingly, performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses. These allowances, when realized, have
been within the range of management's expectations. Credit risk on trade
receivables is minimized as a result of the large and diverse nature of the
Company's worldwide customer base. Credit losses have consistently been within
management's estimates.
Inventories
Inventories are stated at the lower of cost or market as determined under
the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Provisions for depreciation and
amortization on property and equipment are calculated by the straight-line
method over the expected useful lives of the assets as follows:
<TABLE>
<CAPTION>
Estimated Useful Life
---------------------------------------
<S> <C>
Machinery and equipment 5 years
Equipment under capital lease Lesser of useful life or life of lease
Demonstration equipment 3-4 years
Furniture and fixtures 3-7 years
Leasehold improvements Lesser of useful life or life of lease
</TABLE>
F-34
<PAGE>
Temptronic Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
June 30, 1999
2. Summary of Significant Accounting Policies -- (Continued)
Foreign Currency Translation
The Company translates the financial statement items of its foreign
subsidiary in accordance with Statement of Financial Accounting Standards No.
52, Foreign Currency Translation (SFAS No. 52). In translating the accounts of
the foreign subsidiary into U.S. dollars, assets and liabilities are translated
at the rate of exchange in effect at year end, while stockholders' equity is
translated at historical rates. Income statement items are translated at
average currency exchange rates for the year. The resulting translation
adjustment is included as part of accumulated other comprehensive income (loss)
in the accompanying consolidated balance sheets. Transaction gains and losses
included in income were not significant.
Stock-Based Compensation
The Company grants stock options for a fixed number of shares to employees
and nonemployee directors with an exercise price equal to or less than the fair
value of the shares at the date of grant. The Company has elected to follow
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB No. 25), and related interpretations in accounting for its
stock-based compensation plans. Under APB No. 25, when the exercise price of
options granted to employees equals the market price of the underlying stock on
the date of grant, no compensation expense is recognized. Stock options granted
to nonemployees are accounted for under SFAS No. 123, Stock-Based Compensation,
based upon the fair value of the options on the date of grant.
Income Taxes
The Company provides for income taxes under SFAS No. 109, Accounting for
Income Taxes. Under SFAS No. 109, the liability method is used in accounting
for income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
Financial Instruments
The estimated fair values of the Company's consolidated financial
instruments, which include cash, accounts receivable, accounts payable and
accrued expenses, approximate their carrying value due to the short maturity of
these instruments as of June 30, 1999 and 1998. The estimated fair values of
the Company's note payable, capital lease obligations and long-term debt
approximates their carrying value based upon the current rates offered to the
Company for similar type arrangements.
Revenue Recognition
Revenues from equipment sales are recognized at the time the equipment is
shipped. Service revenues are recognized as the services are performed.
Research and Engineering
Expenditures for research and engineering are expensed as incurred.
Included in these expenses are research and development expenditures of
approximately $1,800,000 in 1999, $2,900,000 in 1998 and $2,800,000 in 1997.
F-35
<PAGE>
Temptronic Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
June 30, 1999
2. Summary of Significant Accounting Policies -- (Continued)
Warranty Costs
The Company warrants its products against defects in design, materials and
workmanship for a maximum period of one year. A provision for estimated future
costs related to warranty expense is recognized at the time of sale and
periodically adjusted to reflect actual experience.
Comprehensive Income (Loss)
The Company adopted SFAS No. 130, Reporting Comprehensive Income, in 1999.
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income (loss) and its components; however, the adoption of SFAS
No. 130 had no impact on the Company's results of operations or financial
position. SFAS No. 130 requires the Company's foreign currency translation
adjustments, which prior to adoption were reported as a separate component in
stockholders' equity, to be included in accumulated other comprehensive income
(loss). Prior year financial statements have been presented to conform with the
requirements of SFAS No. 130.
Segment and Related Information
Effective July 1, 1998, the Company adopted SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information. SFAS No. 131
superseded SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise. SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports. SFAS No. 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of SFAS No.131 did not
affect operations or financial position, but did affect the disclosure of
segment and related information.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in fiscal years beginning after June 15, 2000.
Management does not anticipate that the adoption of SFAS No. 133 will have a
significant effect on earnings or the financial position of the Company.
3. Earnings (Loss) Per Share
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings per Share. SFAS No. 128 replaces the calculation of primary and fully
diluted earnings per share with basic and diluted earning per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is similar to fully diluted earnings per share.
F-36
<PAGE>
Temptronic Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
June 30, 1999
3. Earnings (Loss) Per Share -- (Continued)
The following table sets forth the computation of earnings (loss) per
share for the years ended June 30:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Basic Earnings (Loss) Per Share
Numerator:
Net income (loss) .................................. $ (203,238) $ (578,870) $ 84,641
Denominator:
Weighted-average common shares outstanding ......... 1,628,049 1,586,266 1,501,730
---------- ---------- -----------
Basic earnings (loss) per share ..................... $ (0.12) $ (0.36) $ 0.06
========== ========== ===========
Diluted Earnings (Loss) Per Share
Numerator:
Net income (loss) .................................. $ (203,238) $ (578,870) $ 84,641
Denominator:
Weighted-average common shares outstanding ......... 1,628,049 1,586,266 1,501,730
Dilutive effect of stock options ................... -- -- 164,469
---------- ---------- -----------
Shares used in computing diluted earnings (loss)
per share ........................................ 1,628,049 1,586,266 1,666,199
---------- ---------- -----------
Diluted earnings (loss) per share ................... $ (0.12) $ (0.36) $ 0.05
========== ========== ===========
</TABLE>
Weighted-average common shares exclude unallocated shares of common stock
held by the Company's Equity Participation Plan (see Note 12). Options to
purchase shares of common stock during the years ended June 30, 1999 and 1998,
and convertible notes payable for the year ended June 30, 1997, were excluded
from the calculation of diluted net loss per share as the effect of their
inclusion would have been antidilutive.
4. Inventories
Inventories consist of the following at June 30:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Purchased parts and components .......... $2,943,024 $3,563,624
Work-in-process ......................... 279,456 352,850
Finished goods .......................... 284,900 78,481
---------- ----------
$3,507,380 $3,994,955
========== ==========
</TABLE>
<PAGE>
5. Property and Equipment
Property and equipment consist of the following at June 30:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Machinery and equipment ................................. $3,657,361 $3,627,207
Leasehold improvements .................................. 996,324 987,441
Demonstration equipment ................................. 513,275 643,368
Furniture and fixtures .................................. 275,756 275,756
---------- ----------
5,442,716 5,533,772
Less accumulated depreciation and amortization .......... 4,343,896 3,907,711
---------- ----------
$1,098,820 $1,626,061
========== ==========
</TABLE>
F-37
<PAGE>
Temptronic Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
June 30, 1999
6. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following at June 30:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Trade accounts payable .......................... $1,509,636 $1,673,188
Accrued compensation and related items .......... 256,091 297,922
Accrued warranty costs .......................... 100,561 100,000
Other ........................................... 304,279 480,583
---------- ----------
$2,170,567 $2,551,693
========== ==========
</TABLE>
7. Debt
Notes Payable to Bank
The Company had a maximum borrowing capacity of $5.0 million under two
lines of credit with a bank, subject to a borrowing limitation based on a
maximum percentage of qualified inventories and accounts receivable. At June
30, 1999, the Company had approximately $3,567,000 of borrowing capacity
available under those lines, of which the Company had $2,311,922 of borrowings
outstanding at the bank's prime interest rate (7.75% at June 30, 1999). The
weighted-average interest rate on outstanding borrowings under the line of
credits in 1999 and 1998 was 7.99% and 8.75%, respectively. In July 1999, the
lines of credit were renewed and reduced by the Company to a maximum borrowing
capacity of $4.0 million. The lines of credit are collateralized by a security
interest in the Company's inventories, accounts receivable and equipment. The
line of credit agreements contain certain covenants with which the Company must
comply, including the maintenance of certain financial ratios. The Company was
in compliance with these covenants at June 30, 1999.
Term Note
In May 1997, the Company entered into a note agreement for $500,000 with a
bank in which interest is based on the bank's prime rate plus 0.75% (8.50% at
June 30, 1999) and is collateralized by a security interest in the Company's
inventories, accounts receivable and equipment. The note matures on May 2,
2002. The note agreement contains certain covenants with which the Company must
comply, including the maintenance of certain financial ratios.
Principal maturities of the term note subsequent to 1999 amount to
$100,000 in 2000, $100,000 in 2001 and $83,334 in 2002.
8. Note Receivable from Equity Participation Plan
On November 6, 1996, the Company entered into an agreement with the
Temptronic Corporation Equity Participation Plan (EPP) to provide the EPP with
cash of $3,667,998 in exchange for a note receivable. The note bears interest
at 10% and matures on September 30, 2011. The note allowed the EPP to purchase
approximately 611,333 shares of Class A common stock at $6.00 from certain
shareholders of the Company for a total cost of $3,667,998. In connection with
this agreement, the Company has agreed to make an annual contribution to the
EPP in the amount of principal plus interest due on the EPP's note (see Note
12).
9. Stock Redemption Agreement
In 1982, the Company entered into a stock redemption agreement with
certain individuals who were then officer-stockholders. Under the terms of the
agreement, in the event of death of such stockholders, the Company is required
to purchase their shares at a price equal to the appraised value as of the date
of death.
F-38
<PAGE>
Temptronic Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
June 30, 1999
9. Stock Redemption Agreement -- (Continued)
As of June 30, 1999 and 1998, the appraised value of the stockholders' shares
(based on the most recent stock appraisals obtained by the Company) amounted to
$1,677,893 and $2,349,050, respectively. The commitment is funded by life
insurance policies with a face value of $2,796,232 as of June 30, 1999 and
1998.
10. Lease Obligations
The Company leases its present facility under an operating lease expiring
in August 2001. Rent expense charged to income for the years ended June 30,
1999, 1998 and 1997 was approximately $519,000, $581,000 and $518,000,
respectively, net of sublease income of approximately $29,000 in 1998 and
$130,000 in 1997. There was no sublease income during 1999.
The Company also leases certain machinery and equipment, which is
capitalized in accordance with generally accepted accounting principles.
Minimum lease payments through the expiration of the leases are
approximately as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
--------- -------------
<S> <C> <C>
Year ending June 30, 2000 ......................... $52,195 $ 519,103
2001 .............................................. -- 519,679
2002 .............................................. -- 96,709
------- ----------
Total minimum lease payments ...................... 52,195 $1,135,491
==========
Less amounts representing interest ................ 2,984
-------
Present value of remaining lease payments ......... 49,211
Less amounts due within one year .................. 49,211
-------
Amounts due after one year ........................ $ --
=======
</TABLE>
Assets under capital lease are capitalized using interest rates
appropriate at the inception of each lease. The net book value of assets under
capital lease amounted to $47,208 and $93,591 at June 30, 1999 and 1998,
respectively. Assets under capital lease are net of accumulated amortization of
$170,671 and $149,498 at June 30, 1999 and 1998, respectively. Amortization of
assets under capital lease obligations is included in depreciation expense.
11. Stock Options
Pro forma net income (loss) information is required by SFAS No. 123 and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of SFAS No. 123. The fair values for these
options were estimated at the date of grant using a binomial pricing model. The
following weighted-average assumptions were made for grants in 1999, 1998 and
1997, respectively:
1999 1998 1997
-------- -------- --------
Dividend yield ...................... -- -- --
Expected life of options (in years) . 5.0 5.0 6.2
Expected volatility ................. -- -- --
Risk-free interest rate ............. 5.8% 6.5% 6.1%
For purposes of pro forma net income (loss), the estimated fair value of
the options is amortized to expense over the options' vesting period. For the
years ended June 30, 1999, 1998 and 1997, pro forma net income (loss) would
have been as follows:
F-39
<PAGE>
Temptronic Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
June 30, 1999
11. Stock Options -- (Continued)
<TABLE>
<CAPTION>
1999
-----------------------------
As Reported Pro Forma
------------- --------------
<S> <C> <C>
Net income (loss) ..................... $ (203,238) $ (233,442)
========== ==========
Basic earnings (loss) per share ....... $ (0.12) $ (0.14)
========== ==========
Diluted earnings (loss) per share ..... $ (0.12) $ (0.14)
========== ==========
<CAPTION>
1998 1997
----------------------------- ---------------------------
As Reported Pro Forma As Reported Pro Forma
------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Net income (loss) ..................... $ (578,870) $ (586,913) $ 84,641 $ 75,926
========== ========== ======== ========
Basic earnings (loss) per share ....... $ (0.36) $ (0.37) $ 0.06 $ 0.05
========== ========== ======== ========
Diluted earnings (loss) per share ..... $ (0.36) $ (0.37) $ 0.05 $ 0.05
========== ========== ======== ========
</TABLE>
The effects on pro forma net income (loss) and earnings (loss) per share
of expensing the estimated fair market value of stock options are not
necessarily representative of the effects on reported net income for future
years due to such factors as the vesting period of the stock options and the
potential for issuance of additional stock options in future years. Because
SFAS No. 123 is applicable only to options granted subsequent to June 1995, its
pro forma effect is not fully reflected until fiscal year 1999.
Both qualified and nonqualified options are granted by the Board of
Directors. Option activity is summarized below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- ------------------------- -------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ----------- ------------ ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year ......... 282,005 $ 2.25 285,371 $ 2.41 430,531 $ 2.82
Granted .................................. 55,000 3.75 17,000 0.01 42,500 0.01
Expired or canceled ...................... (85,026) 3.09 (20,366) 2.59 -- --
Exercised ................................ (4,500) 0.01 -- -- (187,660) 2.82
------- ------- --------
Outstanding at end of year ............... 247,479 2.34 282,005 2.25 285,371 2.41
======= ====== ======= ====== ======== ======
Exercisable at end of year ............... 155,810 $ 2.27 207,688 $ 2.89 198,841 $ 3.17
======= ====== ======= ====== ======== ======
Weighted-average fair value of
options granted during the year $ 0.94 $ 6.24 $ 6.24
========= ========= ==========
</TABLE>
<PAGE>
The following table presents weighted-average price and life information
about significant option groups outstanding at June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ --------------------------
Weighted-
Average Weighted Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ---------------------- ------------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
$ 0.01 92,591 6.2 $ 0.01 60,282 $ 0.01
$ 3.50-$4.10 154,888 6.5 3.73 95,528 3.70
------- ------
247,479 155,810
======= =======
</TABLE>
12. Retirement and Profit-Sharing Plans
During fiscal year 1982, the Company established an Equity Participation
Plan (EPP) covering substantially all employees. The Company contributed
approximately $25,000 to the EPP in 1996. On November 6, 1996, the Company
provided the EPP $3,667,998 in exchange for a note receivable to purchase
611,333 shares of stock from certain shareholders of the Company. The amount of
the note to the EPP was recorded as a reduction of shareholders' equity. As the
Company makes tax-deductible contributions to the EPP, shares acquired with the
note proceeds are allocated to EPP participants and the amount in shareholders'
F-40
<PAGE>
Temptronic Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
June 30, 1999
12. Retirement and Profit-Sharing Plans -- (Continued)
equity is reduced. Shares acquired are allocated to participant accounts on
September 30 of each plan year. In 1999, 1998 and 1997, the Company contributed
approximately $470,000, $470,000 and $352,000, respectively, to the EPP and
recorded interest income of $338,000, $350,000 and $235,000, respectively, on
the EPP note. At June 30, 1999, the EPP owned 719,089 shares of stock with a
fair market value of $2,696,584 of which 189,267 shares were allocated to
participants. The remaining shares will be allocated to participants in the
future under EPP guidelines.
The Company adopted a 401(k) plan (the Plan) in 1988. The Plan covers all
U.S. employees, subject to minimum age and experience requirements. The Company
made matching contributions to the 401(k) plan during 1999, 1998 and 1997 of
approximately $76,000, $97,000 and $92,000, respectively.
13. Income Taxes
Income tax expense (benefit) consists of the following:
Year ended June 30
----------------------------------------
1999 1998 1997
------ -------------- --------------
Current:
Federal .................. $ -- $ (428,779) $ (140,000)
State .................... -- -- --
---- ---------- ----------
-- (428,779) (140,000)
Deferred:
Federal .................. -- 330,000 (330,000)
State .................... -- -- --
---- ---------- ----------
-- 330,000 (330,000)
---- ---------- ----------
Income tax ............... $ -- $ (98,779) $ (470,000)
==== ========== ==========
No income tax payments were made in fiscal 1999, 1998 and 1997.
The provision for income taxes differs from the amount computed by
applying the statutory federal and state income tax rates to loss before income
taxes as follows:
<TABLE>
<CAPTION>
Year ended June 30
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Tax provision at statutory rates ......... (40.3)% (40.3)% (40.3)%
Permanent differences .................... (34.4) (0.5) (3.1)
Other .................................... 74.7 26.2 (78.6)
----- ----- ------
0.0% (14.6)% (122.0)%
===== ===== ======
</TABLE>
Other includes the effect of increases in the Company's valuation
allowance of $349,000 in 1999, $369,000 in 1998 and $110,000 in 1997.
F-41
<PAGE>
Temptronic Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
June 30, 1999
13. Income Taxes -- (Continued)
Deferred income taxes consist of the following at June 30:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ------------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss and tax credit
carryforwards .................... $ 769,000 $ 375,000 $ 310,000
Book over tax depreciation ......... 146,000 177,000 204,000
Inventory valuation ................ 152,000 167,000 148,000
Vacation accrual ................... 92,000 49,000 97,000
Other .............................. 149,000 170,000 119,000
------------ ---------- ----------
1,308,000 938,000 878,000
Less valuation allowance for
deferred tax assets .............. (1,256,000) (907,000) (538,000)
------------ ---------- ----------
52,000 31,000 340,000
Deferred tax liabilities:
Capitalized patent costs ........... (52,000) (31,000) (10,000)
------------ ---------- ----------
Net deferred tax assets ............ $ -- $ -- $ 330,000
============ ========== ==========
</TABLE>
A valuation allowance has been established to reflect the uncertainty of
sufficient future taxable income to utilize available deferred tax assets
beyond the amount the Company has available for net operating loss carrybacks.
The Company has research and development credit carryforwards of
approximately $406,000, investment tax credit carryforwards of approximately
$14,000, alternative minimum tax credit carryforwards of approximately $62,000,
and federal and state net operating loss carryforwards of approximately
$429,000 and $1,843,000, respectively, available at June 30, 1999 to offset
future taxable income. The above credits and net operating loss carryforwards
expire through fiscal year 2014 and 2019, respectively. Net operating loss
carryforwards and tax credits are subject to review and possible adjustment by
the Internal Revenue Service. In addition, the occurrence of certain events,
including significant changes in ownership interests, may limit the amount of
the net operating loss carryforwards available to be used in any given year.
14. Related Party
The Company has transactions in the normal course of business with Hakuto
Corporation. As of June 30, 1999, Hakuto Corporation owned 700,000 shares of
the Company's outstanding stock. During fiscal 1999, 1998 and 1997, the Company
sold product at market prices totaling approximately $1.3 million, $3.3 million
and $2.3 million, respectively, to Hakuto Corporation. At June 30, 1999 and
1998, accounts receivable from Hakuto Corporation amounted to approximately
$193,000 and $274,000, respectively.
15. Segment Reporting and Related Information
Segment and Geographical Areas
To date, the Company has viewed its operations and manages its business as
principally one operating segment. As a result, the financial statement
disclosed herein represents all of the material financial information related
to the Company's principal operating segment. The following table provides
information relating to the Company's consolidated net revenues from
unaffiliated customers in particular geographical areas for the years ended
June 30:
F-42
<PAGE>
Temptronic Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- (Continued)
June 30, 1999
15. Segment Reporting and Related Information -- (Continued)
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
United States .............. $ 8,274,089 $ 9,536,084 $ 8,820,118
Asia - Pacific Rim ......... 3,506,058 7,399,645 6,220,499
Europe ..................... 2,763,206 1,900,344 2,520,220
Other ...................... 679,811 494,097 484,405
----------- ----------- -----------
$15,223,164 $19,330,170 $18,045,242
=========== =========== ===========
</TABLE>
For the years ended June 30, 1999, 1998 and 1997, the Company's facilities
located in the United States manufactured, serviced and distributed all
products to customers worldwide. During the years ended June 30, 1999, 1998 and
1997, the Company had sales to Japan of approximately $1,978,000, $4,679,000
and $3,198,000, respectively. Transfers between geographical areas were not
material for the years ended June 30, 1999, 1998 and 1997.
Significant Customers
Net revenues from two customers as a percent of total net revenues of the
Company amounted to 20.9% and 8.7% in 1999, 17.4% and 17.1% in 1998, and 14.1%
and 13.0% in 1997. Accounts receivable from these two customers as a percent of
total accounts receivable of the Company amounted to 21.4% and 6.7% as of June
30, 1999, and 17.7% and 9.3% as of June 30, 1998.
F-43
<PAGE>
Temptronic Corporation and Subsidiaries
Condensed Consolidated Balance Sheet
September 30, 1999
(Unaudited)
<TABLE>
<S> <C>
Assets
Current assets:
Cash .................................................................. $ 3,648
Accounts receivable, net of allowance for doubtful accounts of $54,000 3,000,016
Due from related party ................................................ 235,404
Inventories ........................................................... 3,581,966
Prepaid expenses and other current assets ............................. 187,958
----------
Total current assets .................................................. 7,008,992
Property and equipment, net ............................................ 961,317
Cash surrender value of life insurance ................................. 1,048,939
Other assets ........................................................... 91,216
----------
Total assets ........................................................... $9,110,464
==========
Liabilities and stockholders' equity
Current liabilities:
Notes payable to bank ................................................. $2,120,295
Accounts payable and accrued expenses ................................. 2,278,828
Current portion of long-term debt ..................................... 100,000
Current portion of obligation under capital lease ..................... 35,935
----------
Total current liabilities ............................................. 4,535,058
Long-term debt, net of current portion ................................. 158,333
Stockholders' equity:
Common stock, $0.01 par value; authorized 3,000,000 shares, issued and
outstanding 2,231,782 shares ........................................ 22,318
Additional paid-in capital ............................................ 5,237,726
Retained earnings ..................................................... 2,798,487
Accumulated other comprehensive income ................................ 7,749
----------
8,066,280
Less deferred compensation ............................................ 161,146
Less note receivable from Equity Participation Plan ................... 3,263,966
Less treasury stock, at cost; 60,062 shares ........................... 224,095
----------
Total stockholders' equity ............................................ 4,417,073
----------
Total liabilities and stockholders' equity ............................. $9,110,464
==========
</TABLE>
See accompanying notes.
F-44
<PAGE>
Temptronic Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended September 30,
--------------------------------
1999 1998
------------- ---------------
Net revenues:
Product .................................. $4,598,027 $3,524,752
Service .................................. 545,102 406,680
---------- ----------
5,143,129 3,931,432
Cost of revenues .......................... 3,003,034 2,267,227
---------- ----------
Gross profit .............................. 2,140,095 1,664,205
Operating expenses:
Selling .................................. 815,236 819,625
Research and engineering ................. 403,568 400,537
General and administrative ............... 591,340 443,492
---------- ----------
Total operating expenses .................. 1,810,144 1,663,654
---------- ----------
Operating income .......................... 329,951 551
Other (income) expense:
Interest expense ......................... 52,679 87,121
Other income ............................. (7,838) (15,051)
---------- ----------
44,841 72,070
---------- ----------
Income (loss) before income taxes ......... 285,110 (71,519)
Income taxes .............................. -- --
---------- ----------
Net income (loss) ......................... $ 285,110 $ (71,519)
========== ==========
Earnings (loss) per share:
Basic ..................................... $ 0.17 $ (0.04)
========== ==========
Diluted ................................... $ 0.16 $ (0.04)
========== ==========
Weighted-average common shares outstanding:
Basic .................................... 1,639,784 1,595,118
========== ==========
Diluted .................................. 1,732,672 1,595,118
========== ==========
See accompanying notes.
F-45
<PAGE>
Temptronic Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1999 1998
----------- -------------
<S> <C> <C>
Net income (loss) ....................................... $285,110 $ (71,519)
Unrealized gains (losses) on foreign currency translation
adjustments, net of tax ................................ 11,183 (25,108)
-------- ---------
Comprehensive income (loss) ............................. $296,293 $ (96,627)
======== =========
</TABLE>
See accompanying notes.
F-46
<PAGE>
Temptronic Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
-------------------------------
1999 1998
------------- ---------------
<S> <C> <C>
Operating activities
Net income (loss) ............................................... $ 285,110 $ (71,519)
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Compensation relating to stock options ......................... 19,501 25,074
Provision for allowance for doubtful accounts .................. 1,000 2,000
Depreciation and amortization .................................. 134,257 155,169
Gain on sale of equipment ...................................... (26,641) (131,272)
Changes in operating assets and liabilities:
Accounts receivable and due from related party ............... (354,174) 324,784
Inventories .................................................. (80,490) 230,804
Prepaid expenses and other ................................... 93,101 (31,938)
Accounts payable and accrued expenses ........................ 106,632 (697,660)
Income taxes receivable/payable .............................. -- (68,448)
---------- ----------
Net cash provided (used) by operating activities ................ 178,296 (263,006)
Investing activities
Acquisition of equipment ........................................ (22,891) (48,631)
Net proceeds from sale of equipment ............................. 52,977 192,071
Increase in cash surrender value of life insurance .............. (17,619) (16,647)
---------- ----------
Net cash provided by investing activities ....................... 12,467 126,793
Financing activities
Net repayments of note payable to bank .......................... (191,627) (125,951)
Repayments of long-term debt .................................... (25,001) (16,667)
Net proceeds from stock options exercised ....................... 28 45
Note receivable payments from Equity Participation Plan ......... 35,047 31,751
Payments under capital lease .................................... (13,276) (22,613)
---------- ----------
Net cash used in financing activities ........................... (194,829) (133,435)
Effect of exchange rate changes on cash ......................... 5,171 (17,929)
---------- ----------
Net increase (decrease) in cash ................................. 1,105 (287,577)
Cash balance at beginning of period ............................. 2,543 422,050
---------- ----------
Cash balance at end of period ................................... $ 3,648 $ 134,473
========== ==========
</TABLE>
See accompanying notes.
F-47
<PAGE>
Temptronic Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(Unaudited)
1. Organization
Temptronic Corporation (the Company) is engaged in the manufacture, sale
and service of temperature control instruments used in the electronics
industry. The Company's principal customers are large electronics manufacturers
throughout the world. To date, the Company has viewed and manages its business
as principally one operating segment.
2. Interim Financial Reporting
The interim unaudited condensed consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission and in accordance with generally accepted
accounting principles. Accordingly, certain information and footnote
disclosures normally included in annual consolidated financial statements have
been omitted or condensed. In the opinion of management, all necessary
adjustments (consisting of only normal recurring accruals) have been made to
provide a fair presentation. The operating results for the three months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending June 30, 2000.
3. Inventories
Inventories consist of the following at September 30, 1999:
Purchased parts and components ......... $3,217,826
Work-in-process ........................ 163,154
Finished goods ......................... 200,986
----------
$3,581,966
==========
4. Income Taxes
The Company has research and development credit, investment tax credit,
alternative minimum tax credit, and federal and state net operating loss
carryforwards, respectively, available at September 30, 1999 to offset future
taxable income. Net operating loss carryforwards and tax credits are subject to
review and possible adjustment by the Internal Revenue Service. In addition,
the occurrence of certain events, including significant changes in ownership
interests, may limit the amount of the net operating loss carryforwards
available to be used in any given year.
5. Earnings (Loss) Per Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS No. 128). SFAS
No. 128 replaces the calculation of primary and fully diluted earnings per
share with basic and diluted earning per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is similar to
fully diluted earnings per share. The following table sets forth the
computation of earnings (loss) per share for the three months ended September
30:
F-48
<PAGE>
Temptronic Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements -- (Continued)
September 30, 1999
(Unaudited)
5. Earnings (Loss) Per Share -- (Continued)
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
<S> <C> <C>
Basic Earnings (Loss) Per Share
Numerator:
Net income (loss) .................................. $ 285,110 $ (71,519)
Denominator:
Weighted-average common shares outstanding ......... 1,639,784 1,595,118
----------- ----------
Basic earnings (loss) per share ...................... $ 0.17 $ (0.04)
=========== ==========
Diluted Earnings (Loss) Per Share
Numerator:
Net income (loss) .................................. $ 285,110 $ (71,519)
Denominator:
Weighted-average common shares outstanding ......... 1,639,784 1,595,118
Dilutive effect of stock options ................... 92,888 --
----------- ----------
Shares used in computing diluted earnings (loss)
per share ......................................... 1,732,672 1,595,118
----------- ----------
Diluted earnings (loss) per share .................... $ 0.16 $ (0.04)
=========== ==========
</TABLE>
Weighted-average common shares exclude unallocated shares of common stock
held by the Company's Equity Participation Plan. Options to purchase shares of
common stock during the three months ended September 30, 1998 were excluded
from the calculation of diluted net loss per share as the effect of their
inclusion would have been antidilutive.
6. Subsequent Event
Agreement and Plan of Merger and Reorganization
The Company has entered into an Agreement and Plan of Merger and
Reorganization, dated January 4, 2000, with inTEST Corporation of Cherry Hill,
New Jersey (the Agreement). The Agreement is subject to satisfaction of certain
closing transactions, among which is an effective Form S-4 Registration
Statement.
F-49
<PAGE>
APPENDIX A
AMENDED AND RESTATED AGREEMENT AND
PLAN OF MERGER AND REORGANIZATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
1. Merger ................................................................ A-2
2. The Closing ........................................................... A-2
3. Conversion of Capital Stock ........................................... A-2
4. Escrow Fund ........................................................... A-3
5. Warranties and Representations of inTEST and Newsub ................... A-5
6. Warranties and Representations of the Company ......................... A-7
7. Conduct of Business ................................................... A-15
8. News Releases ......................................................... A-15
9. Registration Statement, Proxy Statement and Piggyback Rights .......... A-15
10. Shareholder Meetings ................................................. A-16
11. Covenants of the Parties ............................................. A-16
12. Conditions to Obligations of Each Party .............................. A-17
13. Conditions to Obligations of the Company ............................. A-17
14. Conditions to Obligations of inTEST and Newsub ....................... A-18
15. Indemnity by inTEST and Newsub ....................................... A-19
16. Indemnities by the Shareholders of the Company ....................... A-20
17. Indemnification Procedure ............................................ A-20
18. Duty to Minimize Damages ............................................. A-22
19. Survival of Representations .......................................... A-22
20. Notices .............................................................. A-22
21. General .............................................................. A-23
</TABLE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
Agreement and Plan of Merger and Reorganization (the "Agreement") made as
of January 4, 2000 by and among Temptronic Corporation, a Massachusetts
corporation (the "Company"), inTEST Corporation, a Delaware corporation
("inTEST") and Temptronic Corporation, a Delaware corporation ("Newsub").
RECITALS
The Company desires that the Company be merged with and into Newsub.
inTEST owns all of the issued and outstanding capital stock of Newsub and
desires that the Company merge with and into Newsub.
Newsub was incorporated on December 14, 1999 expressly for the purpose of
this Agreement and has not conducted any business.
For federal income tax purposes, it is intended that the merger of the
Company into Newsub shall qualify as a reorganization within the meaning of
Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as
amended (the "Code").
It is the intent of all parties hereto that at the time of the Closing
(defined below) that the Company be merged with and into Newsub and that Newsub
be the surviving corporation.
WITNESSETH
In consideration of the payments, mutual promises, representations,
covenants and actions herein provided, the parties hereto, each intending to be
legally bound hereby, do agree as follows:
A-1
<PAGE>
1. Merger
(a) Agreement of Merger. Subject to the terms and upon the conditions set
forth herein, at the time of the Closing, the Company and Newsub shall execute
and deliver the Agreement of Merger in the form of Exhibit "A" hereto (the
"Agreement of Merger") and file the Agreement of Merger and any required
certificates and other documents with the Secretary of the State of Delaware
and the Secretary of State of Massachusetts.
(b) The Merger. At the time of the Closing, the Company shall be merged
with and into Newsub in accordance with the Agreement of Merger (the "Merger"),
with Newsub as the "Surviving Corporation", and the separate existence of the
Company shall cease.
2. The Closing
The "Closing" hereunder shall be made at 10:00 o'clock a.m. on or about
March 9, 2000 (the "Closing Date") at the offices of Saul, Ewing, Remick &
Saul, Philadelphia, Pennsylvania, or at such other time and place as the
parties shall mutually agree. In no event shall the Closing take place later
than April 30, 2000 unless all parties hereto agree; and if all of such parties
do not so agree, any party may give notice to the other parties that this
Agreement is terminated.
3. Conversion of Capital Stock
(a) Company Stock. At the time of the Merger, each share of the common
stock of the Company issued and outstanding immediately prior thereto (the
"Company Common Stock") shall be converted into the right to receive .925
shares of the Common Stock of inTEST, par value $.01 per share (the "inTEST
Stock") (the "Exchange Ratio"), and each share of the Company Common Stock
issued and held in the treasury of the Company shall be cancelled and retired.
(b) Newsub Stock. At the time of the Merger, each share of the common
stock, par value $.01 per share, of Newsub (the "Newsub Common Stock") issued
and outstanding immediately prior thereto shall not be converted and shall
remain issued and outstanding.
(c) Company Options. At the time of the Merger, each outstanding option to
acquire or receive Company Common Stock (whether or not vested) (the "Company
Options") shall be transferred to and assumed by inTEST in such manner that it
is converted into an option to purchase shares of inTEST Stock ("inTEST
Option"). Following the time of the Merger each inTEST Option shall be
exercisable upon the same terms and conditions as then were applicable to such
Company Options, except that (i) each inTEST Option shall be exercisable for
that number of shares of inTEST Stock equal to the product obtained by
multiplying the number of shares of Company Common Stock that were issuable
upon exercise in full of such assumed Company Option immediately prior to the
time of the Merger by the Exchange Ratio, rounded down to the nearest whole
number of shares of inTEST Stock and (ii) the per share exercise price for the
shares of inTEST Stock issued upon exercise of inTEST Options shall be equal to
the quotient obtained by dividing the exercise price per share of Company Stock
at which such Company Option was exercisable immediately prior to the time of
the Merger by the Exchange Ratio, rounded up to the nearest whole cent. It is
the intention of the parties that, to the extent that any Company Option
constituted an "incentive stock option" (within the meaning of Section 422 of
the Code) immediately prior to the time of the Merger, the inTEST Option shall
continue to qualify as an incentive stock option to the maximum extent
permitted by Section 422 of the Code and that the assumption of the Company
Options provided by this Section 3(c) satisfy the conditions of Section 424(a)
of the Code. As soon as practicable after the Closing inTEST shall use
reasonable efforts to file and cause to become effective a Form S-8
registration statement under the Securities Act to cover the inTEST Stock to be
issued upon the exercise of the inTEST Options into which the Company Options
are converted.
(d) Exchange Agent. inTEST shall appoint a reputable institution
reasonably acceptable to the Company to serve as Exchange Agent (the "Exchange
Agent") in the Merger.
(e) inTEST to Provide inTEST Stock. Promptly after the time of the Merger,
inTEST shall make available to the Exchange Agent for exchange in accordance
with this Section 3 the shares of inTEST Stock issuable pursuant to Section
3(a) in exchange for all the outstanding shares of the Company Stock.
A-2
<PAGE>
(f) Exchange Procedures. Promptly after the time of the Merger, inTEST
shall cause the Exchange Agent to mail to each holder of record (as of the time
of the Merger) of a certificate or certificates (the "Certificates") which,
immediately prior to the time of the Merger represented outstanding shares of
Company Stock, which shares were converted into shares of inTEST Stock pursuant
to Section 3(a), (i) a letter of transmittal (which shall specify that delivery
shall be effective, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall contain
such other provisions as inTEST may reasonably specify) and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for
certificates representing shares of inTEST Stock. Upon surrender of
Certificates for cancellation to the Exchange Agent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holders of such Certificates shall be entitled to
receive in exchange therefor Certificates representing the number of whole
shares of inTEST Stock into which their shares of Company Stock were converted
at the time of the Merger (less the shares of inTEST Stock deposited in the
Escrow Fund), and the Certificates so surrendered shall forthwith be cancelled.
Until so surrendered, outstanding Certificates will be deemed from and after
the time of the Merger, for all corporate purposes, to evidence the ownership
of the number of full shares of inTEST Stock into which such shares of Company
Stock shall have been so converted. If any portion of the inTEST Stock, and
cash in lieu of fractional shares thereof otherwise payable hereunder to any
person, is to be issued or paid to a person other than the person in whose name
the Certificate is registered, it shall be a condition of such issuance or
payment that the Certificate so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the person requesting such
issuance or payments shall pay to the Exchange Agent any transfer or other
taxes required as a result of such issuance or payment to a person other than
the registered holder of such Company Stock or establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not payable.
(g) Fractional Shares. No fractional shares of inTEST Stock shall be
issued pursuant to the Merger. In lieu of the issuance of any fractional share
of inTEST Stock pursuant to the Merger, cash adjustment will be paid to holders
in respect of any fractional share of inTEST Stock that would otherwise be
issuable, and the amount of such cash adjustment shall be equal to the product
of such fractional share and the closing price of inTEST Stock on the Closing
Date.
(h) Rule 145. Subject to applicable law, Company Stock Certificates
surrendered for exchange by any person constituting an "affiliate" of the
Company for purposes of Rule 145 (c) under the Securities Act of 1933, as
amended (the "Securities Act"), shall not be exchanged until inTEST has
received a written agreement in substantially the form attached hereto as
Exhibit "B" from such person agreeing to comply with the provisions of Rule 145
under the Securities Act.
4. Escrow Fund
(a) Escrow Agreement. At the time of the Closing, inTEST, Newsub,
Shareholder Representative and PNC Bank, National Association, (the "Escrow
Agent") shall enter into an Escrow Agreement in the form attached as Exhibit
"C" hereto (the "Escrow Agreement").
(b) Deposits to the Escrow Funds. At the time of the Closing, from the
shares of inTEST Stock to be delivered to the former shareholders of the
Company hereunder, inTEST shall deliver a stock certificate representing 10% of
such shares of the inTEST Stock to the Escrow Agent which shares shall be
deposited in the "Escrow Fund". All such shares shall be held and distributed
in accordance with the terms of this Agreement and the Escrow Agreement.
(c) Claims Under Agreement. If an event or state of facts giving rise to
indemnification under Section 16 hereof has occurred (an "Event"), inTEST shall
provide the Shareholder Representative and the Escrow Agent with a Claim Notice
in accordance with the terms of Section 17 hereof, stating that such Event has
occurred, describing such Event in reasonable detail, specifying the amount of
the Losses and the method of computation thereof, containing a reference to the
provision(s) of this Agreement in respect of which such right of
indemnification is claimed or arises (a "Claim"). inTEST may make more than one
Claim with respect to any Event.
A-3
<PAGE>
(i) If all or a portion of the amount described in a Claim Notice
becomes an Admitted Liability or is determined by an arbitrator (as
provided in Section 21(b) hereof) to be due and owing to inTEST, then the
Escrow Agent shall be instructed to distribute, out of the Escrow Fund, to
inTEST (or, at the direction of inTEST, to Newsub) such number of shares
of inTEST Stock having a Market Value equal to the amount due to inTEST.
The "Market Value" of a share of the inTEST Stock for the purposes of this
Agreement shall be the closing price of a share of the inTEST Stock as
reported by The NASDAQ Stock Market ("NASDAQ") on the Closing Date.
(ii) If the Shareholder Representative delivers to inTEST a Dispute
Statement in accordance with the terms of Section 17, then the portion of
the Claim that is disputed shall not be payable by the Escrow Agent to
inTEST or Newsub, except in accordance with a final decision of an
arbitrator (as provided in Section 21(b) hereof) or by joint written
instructions by inTEST and the Shareholder Representative to the Escrow
Agent stipulating the number of shares of inTEST Stock to be distributed
out of the Escrow Fund, which shares of inTEST Stock shall have a Market
Value equal to the amount of the Claim then due and payable.
(iii) If as a result of a Third Party Claim inTEST incurs Losses for
which it is determined that inTEST is entitled to indemnification under
Section 16, then the Escrow Agent shall be instructed to distribute to
inTEST out of the Escrow Fund such number of shares of inTEST Stock
having a Market Value equal to such Losses.
(d) Final Payment from Escrow Fund. On a date one year after the Closing
Date (the "Final Release Date"), the Escrow Agent shall be instructed to
deliver to the former shareholders of the Company the remaining balance of the
inTEST Stock in the Escrow Fund.
(e) Termination of the Escrow. The escrow shall terminate upon the final
disbursement of all shares of inTEST Stock deposited with the Escrow Agent as
provided herein and the Escrow Agreement.
(f) Escrow Agent Fees. The fees of the Escrow Agent shall be paid by
inTEST.
(g) Appointment of Shareholder Representative. Samuel Rubinowitz (or
another person designated by the Company) shall, by virtue of the Merger and
the resolutions to be adopted at the Company Shareholders Meeting, be
irrevocably appointed attorney-in-fact and authorized and empowered to act, for
and on behalf of any or all of the shareholders of the Company (with full power
of substitution) in connection with the indemnification provisions of this
Agreement as they relate to such shareholders generally, the Escrow Agreement,
the notice provisions of this Agreement and such other matters as are
reasonably necessary for the consummation of the transactions contemplated
hereby, including to act as the representative of such shareholders to review
and authorize all claims and other payments authorized or directed by the
Escrow Agreement and dispute or question the accuracy thereof, to compromise on
their behalf with inTEST any claims asserted thereunder and to authorize
payments to be made with respect thereto, and to take such further actions as
are authorized in this Agreement. The above-named representative, as well as
any subsequent representative of the shareholders of the Company appointed by
such representative (or, after such representative's death or incapacity,
elected by vote of holders of a majority of capital stock of the Company
outstanding immediately prior to the Merger), is referred to herein as the
"Shareholder Representative." The Shareholder Representative shall not be
liable to any stockholder of the Company, inTEST, Newsub, the Surviving
Corporation or any other person with respect to any action taken or omitted to
be taken by the Shareholder Representative under or in connection with this
Agreement or the Escrow Agreement unless such action or omission results from
or arises out of fraud, gross negligence, willful misconduct or bad faith on
the part of the Shareholder Representative. The shareholders of the Company
shall severally indemnify and hold the Shareholder Representative harmless
against any loss, liability or expense incurred without fraud, gross
negligence, willful misconduct or bad faith on the part of the Shareholder
Representative and arising out of or in connection with the acceptance or
administration of the duties of the Shareholder Representative hereunder,
including the reasonable fees and expenses of any legal counsel retained by the
Shareholder Representative. Each of inTEST and Newsub and each of their
respective affiliates shall be entitled to rely on such appointment and treat
the Shareholder Representative as the duly appointed attorney-in-fact of each
shareholder of the Company. Each shareholder of the Company who votes in favor
of the Merger pursuant to
A-4
<PAGE>
the terms hereof, by such vote, without any further action, and each
shareholder of the Company who receives shares of inTEST Stock in connection
with the Merger, by acceptance thereof and without any further action, confirms
such appointment and authority and acknowledges and agrees that such
appointment is irrevocable and coupled with an interest, it being understood
that the willingness of inTEST and Newsub to enter into this Agreement is
based, in part, on the appointment of a representative to act on behalf of the
shareholders of the Company.
5. Warranties and Representations of inTEST and Newsub
inTEST and Newsub, jointly and severally, represent and warrant to the
Company as follows, and all such representations and warranties shall be true
and correct at and as of the Closing as though then made:
(a) Organization of inTEST and Newsub. Each of inTEST and Newsub is a
corporation duly organized and validly existing in good standing under the laws
of the State of Delaware, and each is qualified, in good standing and entitled
to own its properties and conduct its business all as and in the places where
such properties are now owned or such business is conducted, except where
failure to be so qualified would not have a material adverse effect on the
business, results of operation or financial condition, in each case taken as a
whole (a "Material Adverse Effect"), on inTEST and its subsidiaries taken as a
whole. Newsub was incorporated on December 14, 1999 expressly for the purposes
of the Merger and has not conducted any business.
(b) Corporate Power. Each of inTEST and Newsub has all requisite corporate
power and authority to execute and deliver this Agreement and all of the
documents related hereto, to perform all the terms and conditions hereof to be
performed by them and, subject to shareholder approval, to consummate the
transaction contemplated hereby.
(c) Capitalization of inTEST. inTEST has an authorized capital stock of
20,000,000 shares of Common Stock, par value $.01 per share, 6,536,034 shares
of which are duly issued and now outstanding, fully paid and non-assessable,
and 5,000,000 shares of Preferred Stock, par value $.01 per share, none of
which are issued and outstanding. All voting rights are vested exclusively in
the said Common Stock. Except for 500,000 shares of said Common Stock reserved
for issuance under employee and director stock options, there are no authorized
or outstanding options, warrants, convertible securities, subscription rights,
puts, calls, unsatisfied preemptive rights or other rights of any nature to
purchase or otherwise receive, or to require inTEST to purchase, redeem or
acquire any shares of the capital stock of inTEST, and there is no outstanding
security of any kind convertible into such capital stock. No shareholder of
inTEST has been granted any registration rights in respect of the securities of
inTEST. The inTEST Common Stock to be issued pursuant to the Merger will be
duly authorized, validly issued, fully paid and non-assessable, and not subject
to preemptive rights created by statute, inTEST's Certificate of Incorporation
or By-Laws or any agreement to which inTEST is a party or by which inTEST is
bound.
(d) No Proceedings in Dissolution. No proceedings or actions are pending
to limit or impair any of the powers, rights or privileges of inTEST or Newsub.
(e) Certificate of Incorporation and By-Laws. Copies of the Certificates
of Incorporation and By-Laws, and all amendments thereto, of inTEST and Newsub
delivered to the Company are true and complete copies thereof and such
Certificates of Incorporation and By-Laws have not been amended since such
delivery.
(f) Authorization of Agreement and Enforceability. The execution and
delivery of this Agreement on behalf of inTEST and Newsub have been duly
approved by the boards of directors of inTEST and Newsub and the sole
stockholder of Newsub, and, with the exception of approval of this Agreement by
the shareholders of inTEST, no further corporate action is required to approve
the execution, delivery and performance of this Agreement on behalf of inTEST
or Newsub. The Agreement constitutes the legal, valid and binding obligation of
inTEST and Newsub enforceable in accordance with its terms and conditions.
(g) Conflict. Except for the filing and effectiveness of the Registration
Statement and the Joint Proxy Statement, filings under the state securities
laws, the approval by the shareholders of inTEST and Newsub, and the
fulfillment of the conditions required under this Agreement, the execution,
delivery and performance
A-5
<PAGE>
by inTEST and Newsub of this Agreement and the consummation of the transactions
contemplated hereby will not (with or without the giving of notice or the lapse
of time, or both): (i) violate any provision of the Certificate of
Incorporation or By-Laws of inTEST or Newsub, (ii) violate or require any
consent, authorization or approval of, or exemption by, or filing under any
provisions of law, statute, rule or regulation to which inTEST or Newsub is
subject, (iii) violate any judgment, order, writ or decree of any court
applicable to inTEST or Newsub, (iv) conflict with, result in a breach of,
constitute a default under, or accelerate or permit the acceleration of the
performance required by or require any consent, authorization or approval
(which has not been obtained) under any contract, agreement or instrument to
which inTEST or Newsub is a party or any of the assets of inTEST or Newsub are
bound, or (v) result in the creation or imposition of any claim, demand,
charge, mortgage, judgment, lien, lease, security interest, easement or any
encumbrance whatsoever upon any of the assets of inTEST or Newsub, which
violation, conflict, breach, default, acceleration or encumbrance or the
failure to make or obtain such filing, consent, authorization or approval with
respect to the matter specified in clauses (ii) through (v) could, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect
on inTEST or prevent or delay the consummation of the transactions contemplated
by this Agreement.
(h) Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any governmental body or any other
party is required by or with respect to inTEST or Newsub in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing with the Securities
and Exchange Commission (the "SEC") of the joint proxy statement of inTEST and
the Company, as amended from time to time through effectiveness (the "Joint
Proxy Statement"), pursuant to the Securities Act for the solicitation of the
approval of the shareholders of inTEST, (ii) the filing with the SEC of a
registration statement on Form S-4 (the "Registration Statement") pursuant to
the Securities Act with respect to those shares of inTEST issuable in the
Merger, in which the Joint Proxy Statement will be included as part of the
Registration Statement, (iii) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable federal and state securities law, (iv) any applicable filing
required under the Hart Scott Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (v) the approval of the shareholders of inTEST, (vi)
any other such filings or approvals as may be required under Delaware law and
(vii) such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings which, if not obtained or made would not, individually
or in the aggregate have a Material Adverse Effect on inTEST or prevent or
materially delay the consummation of the transactions contemplated hereby.
(i) Financial Statements and SEC Reports.
(i) The audited consolidated balance sheet of inTEST as of December 31,
1998 (the "inTEST Balance Sheet"), and the related consolidated statements
of earnings, changes in shareholders' equity and cash flows for the year
then ended, with related notes, certified by KPMG LLP, certified public
accountants, copies of which have been delivered to the Company, present
fairly the financial position and results of operations and changes in
financial position of inTEST on the date or for the fiscal period covered
by such financial statements and were prepared in accordance with United
States generally accepted accounting principles ("GAAP"), and there has
been no material adverse change in the condition, financial or otherwise,
results of operations, retained earnings or business of inTEST from that
set forth in the financial statements dated December 31, 1998.
(ii) inTEST has filed all forms, reports and documents required to be
filed by it with the SEC under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (collectively, the "SEC Reports"). The SEC
Reports (i) at the time filed complied in all material respects in
accordance with the requirements of the Securities Act and the Exchange
Act, as the case may be, and the rules and regulations thereunder and (ii)
did not, at the time they were filed, contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. No
subsidiary of inTEST is currently required to file any form, report or
other document with the SEC under Section 12 of the Exchange Act.
(iii) inTEST has delivered to the Company a copy of each SEC Report in
the form filed with the SEC (excluding exhibits and any amendments
thereto and all documents incorporated by reference
A-6
<PAGE>
therein) since January 1, 1999. inTEST has furnished to the Company
complete and correct copies of all material amendments and modifications
(if any) that have not been filed by inTEST with the SEC to all agreements,
documents and other instruments that previously had been filed by inTEST as
exhibits to SEC Reports and are currently in effect.
(j) No Undisclosed Liabilities. Except (i) to the extent set forth on the
inTEST Balance Sheet, including the Notes thereto, or (ii) as disclosed in any
SEC Report filed by inTEST after December 31, 1998, inTEST does not have any
liability or obligation of any nature (whether accrued, absolute, contingent or
otherwise) which would be required to be reflected on a balance sheet, or in
the notes thereto, prepared in accordance with GAAP which would have a Material
Adverse Effect on inTEST, except for liabilities and obligations incurred in
the ordinary course of business consistent with past practice since December
31, 1998.
(k) Litigation. Except as set forth in Schedule "5(k)", there are no
material actions, suits or proceedings pending or, to the Actual Knowledge
(defined below) of inTEST or Newsub, threatened against or affecting inTEST or
Newsub or their properties or business before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency,
court or instrumentality. To the Best Knowledge (defined below) of inTEST,
there is no basis for any such action, suit or proceeding, the outcome of which
would have a Material Adverse Effect on inTEST. There are no outstanding
orders, decrees or stipulations which will have a Material Adverse Effect on
inTEST. There is no litigation or proceedings pending or, to the Actual
Knowledge of inTEST, threatened against or affecting inTEST or Newsub or
pertaining to this Agreement, the result of which could prevent, delay or make
unlawful the consummation of the transaction contemplated by this Agreement.
(l) Finders Fee. No person, corporation, partnership or firm retained by
or on behalf of inTEST or Newsub (i) brought about the transaction contemplated
hereunder or (ii) is entitled to any commission or fee from the Company, inTEST
or Newsub upon consummation of such transaction.
6. Warranties and Representations of the Company
The Company represents and warrants to inTEST and Newsub as follows and
all such representations and warranties shall be true and correct at and as of
the Closing as though then made:
(a) Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of The
Commonwealth of Massachusetts. The Company has full corporate power and
authority to own, lease and use its properties and assets that it purports to
own, lease or use and to carry on its business as presently conducted. The
Company is duly qualified or licensed to do business and is in good standing as
a foreign corporation in each of the jurisdictions where the nature of its
business requires such qualification, except as set forth in Schedule "6(a)" or
except where the failure to be so qualified would not result in a loss to or a
liability of the Company in excess of $5,000. The Company is duly qualified and
licensed to do business in the jurisdictions set forth in Schedule "6(a)".
(b) Corporate Power. The Company has all requisite corporate power and
authority to execute and deliver this Agreement and all of the documents
related hereto, and subject to the approval of the shareholders of the Company,
to consummate the transaction contemplated hereby and to perform all of the
terms and conditions hereof to be performed by the Company.
(c) Capitalization. The authorized capital stock of the Company consists
of 3,000,000 shares of Common Stock, of which 2,204,120 shares are issued and
outstanding. All of the said shares of the Company Common Stock are validly
issued, fully paid and non-assessable and are entitled to vote at the
shareholder meeting at which the Merger will be considered, and none of the
shares of the Company Common Stock has been issued in violation of any
applicable law or any pre-emptive rights of any shareholder by which the
Company is bound or transferred in violation of any transfer restrictions
relating thereto under the Stockholders Agreements set forth on Schedule "6(c)"
(the "Stockholder Agreements"). Except as set forth in Schedule "6(c)", there
are no authorized or outstanding options, warrants, convertible securities,
subscriptions rights, puts, calls, unsatisfied pre-emptive rights or other
rights of any nature to purchase or otherwise receive, or to require the
Company to purchase, redeem, acquire or register, any shares of the capital
stock or other
A-7
<PAGE>
securities of the Company, and there is no outstanding security of any kind
convertible into such capital stock. Except as set forth in Schedule "6(c)", to
the Best Knowledge of the Company, there are no existing stockholder
agreements, voting agreements or voting trusts respecting any shares of the
capital stock of the Company.
(d) Corporate Instruments and Records. The copies of the Company's
Articles of Organization and By-Laws heretofore furnished to inTEST are true,
correct and complete and each include all amendments to the date of this
Agreement. Copies of the Company's minute books, as made available to inTEST,
contain a true and correct record of all material corporate action taken on or
prior to the date of this Agreement at the meetings of the Company's
shareholders and directors and committees thereof, and no meetings of any
shareholders, directors or committees have been held for which minutes have not
been prepared and are not contained in such minute books. Copies of the stock
certificate books and ledgers of the Company, as made available to inTEST for
inspection, are true, correct and complete copies of such books and ledgers, as
currently in effect, and accurately reflect, as of the date hereof, the
ownership of the Company Common Stock. The books of account, minute books,
stock record books and other records of the Company, copies of all of which
have been made available to inTEST, are complete and correct in all material
respects and have been maintained in accordance with reasonably sound business
practices. On the Closing Date, all of the Company's minute books and corporate
records will be in the possession of the Company.
(e) Subsidiaries. Except as set forth on Schedule "6(e)", the Company (i)
has no subsidiaries or affiliates or any ownership interest in any other
entity, (ii) is not a party to any joint venture and (iii) does not have the
right to acquire any securities of or ownership interest in any other person or
entity. Each of the subsidiaries of the Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated. Each subsidiary has full corporate
power and authority to own, lease and use its properties and assets that it
purports to own, lease or use and to carry on its business as presently
conducted. Each subsidiary of the Company is duly qualified or licensed to do
business and is in good standing in each of the jurisdictions where the nature
of its business requires such qualification, except where the failure to be so
qualified would not result in a loss or liability of such subsidiary in excess
of $5,000.
(f) No Proceedings in Dissolution. No proceedings or actions are pending
to limit or impair any of the powers, rights or privileges of the Company.
(g) Authorization of Agreement and Enforceability. The execution and
delivery of this Agreement on behalf of the Company have been duly approved by
the Board of Directors of the Company, and no further corporate action is
required to approve the execution and delivery of this Agreement on behalf of
the Company. This Agreement constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms and conditions.
(h) Property and Assets. Schedule "6(h)" contains a true and correct
schedule and brief description of all of the tangible personal property owned
or leased by the Company having a fair market value in excess of $2,500, and
such assets are in good operating condition, reasonable wear and tear excepted,
and generally conform with all applicable municipal ordinances, regulations,
building and zoning laws. Except as set forth in Schedule "6(h)", the Company
has good title, free from any liens, security interests or encumbrances of any
kind, to all the assets listed or described as being owned in the Company
Balance Sheet and Schedule "6(h)", except for (i) any lien, claim or
encumbrance securing taxes, assessments, governmental charges or levies, or the
claims of materialmen, carriers, landlords and like persons, all of which are
not yet due and payable, and (ii) imperfections of title and other minor liens,
claims and encumbrances that do not materially detract from the value or impair
the use of the asset subject thereto. None of such assets, property or
operations of the Company have been adversely affected by fire, windstorm,
floods, strikes, walkouts, acts of God, condemnation of property or any other
cause.
(i) Financial Statements. The books of the Company fairly and correctly
reflects its income, expenses, assets and liabilities in accordance with GAAP
consistently applied. The balance sheets of the Company as of June 30, 1999,
1998 and 1997 and the related statements of income, shareholders' equity and
cash flow for the years then ended, certified by Ernst & Young LLP, independent
public accountants, and an unaudited balance sheet of the Company at November
30, 1999 (the "Company Balance Sheet") and the related
A-8
<PAGE>
Statement of Income, with related notes, copies of which have been delivered to
inTEST, present fairly the financial position and results of operations and
changes in financial position of the Company on the dates and for the fiscal
periods covered by such financial statements and were prepared in accordance
with GAAP applied on a consistent basis. There has been no Material Adverse
Effect on the financial condition, results of operations, retained earnings or
business of the Company from that set forth in the financial statements dated
November 30, 1999.
(j) No Undisclosed Liabilities. The Company has no debts, liabilities or
obligations in excess of $5,000 in the aggregate, known or unknown, of any
kind, character or description whether accrued, absolute, contingent or
otherwise or due or to become due, except (i) to the extent reflected in the
Company Balance Sheet; (ii) to the extent described or referred to in this
Agreement or in any Schedule to this Agreement; and (iii) those incurred in or
as a result of the ordinary course of business of the Company since November
30, 1999, each of which has been consistent with past practices. To the Best
Knowledge of the Company, there is no basis for the assertion against the
Company by any person of any claim in excess of $5,000 based on a liability
which is required to be and is not disclosed in the Company Balance Sheet or on
Schedule "6(p)".
(k) Accounts Receivable. All accounts receivable of the Company (i) have
or will have arisen only in the ordinary course of business consistent with
past practice for goods sold and delivered or services performed and (ii) are
collectable and will be collected in full at the recorded amounts thereof
(subject to no defenses, set-offs or counterclaims, other than the right of
customers to return goods) in the ordinary course of business (without resort
to litigation or assignment to a collection agency) no later than December 31,
2000, net of any allowance for bad debts reflected on the Company Balance
Sheet.
(l) Inventory. The inventory of the Company (i) was acquired and
maintained in accordance with the regular business practices of the Company,
(ii) consists of new and unused items of a quality and quantity usable and, to
the Best Knowledge of the Company, salable in the ordinary course of the
Company's business consistent with past practice, and (iii) is valued in
accordance with GAAP consistently applied and the value of obsolete items,
slow-moving items and of items below standard quality have been written off or
adequate reserves have been provided therefor.
(m) No Violation or Consents. Except as set forth on Schedule "6(m)", the
execution, delivery and performance by the Company of this Agreement and the
consummation of the transactions contemplated hereby will not (with or without
the giving of notice or the lapse of time, or both) (i) violate any provision
of the Articles of Organization or By-Laws of the Company, (ii) violate or
require any consent, authorization or approval of, or exemption by, or filing
under any provision of any law, statute, rule or regulation to which the
Company is subject, (iii) violate any judgment, order, writ or decree of any
court applicable to the Company, (iv) conflict with, result in a breach of,
constitute a default under, or accelerate or permit the acceleration of the
performance required by or require any consent, authorization or approval under
any contract, agreement or instrument to which the Company is a party or any of
the assets of the Company is bound or (v) result in the creation or imposition
of any claim, demand, charge, mortgage, judgment, lien, lease, security
interest, easement or any encumbrance whatsoever upon any of the assets of the
Company, which violation, conflict, breach, default, acceleration or
encumbrance or the failure to make or obtain such filing, consent,
authorization or approval with respect to the matter specified in clauses (ii)
through (v) could, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on the Company or prevent or delay the
consummation of the transactions contemplated by this Agreement.
(n) Taxes. The Company has duly prepared and timely filed all federal,
state, local and other tax returns which are required to be filed and which
were due prior to the date of this Agreement and has paid all taxes and
assessments which have become due pursuant to such returns or pursuant to any
assessment received by the Company. All such tax returns were true and correct
in all material respects and have been completed in all material respects in
accordance with applicable law. All federal, state, local and other taxes
accruable since the filing of such returns have been accrued on the books of
the Company. All taxes and other assessments and levies which the Company has
been required by law to withhold or to collect have been duly withheld and
collected and have been paid over to the proper governmental authorities or
have been properly provided for by the Company for such payment and all other
payments due in connection therewith, to the extent accrued through November
30, 1999, are duly reflected in the Balance Sheet of the Company. No
proceedings
A-9
<PAGE>
or other action has been taken, nor is there any basis for any proceedings or
other action to be taken, for the assessment and collection of additional taxes
of any kind for any period for which returns have been filed, and no additional
taxes of any kind in excess of $5,000 for any such period will be assessed or
collected. Since the examination of the 1987 federal income tax returns of the
Company, none of the federal income tax returns of the Company has been
examined by the Internal Revenue Service and to the Actual Knowledge of the
Company, there is no examination by the Internal Revenue Service presently
pending.
(o) Governmental Approvals. The Company has all permits, licenses,
registrations, orders and approvals of federal, state or local government or
regulatory bodies that are required for it to conduct its business as presently
conducted (including, without limitation, those required under any
environmental law) (collectively the "Permits") where the failure to obtain any
Permits would result in a loss to or a liability of the Company in excess of
$5,000. All Permits are in full force and effect, and the Company is in
material compliance with all of the terms and conditions of the Permits.
Schedule "6(o)" hereto sets forth the correct and complete list of all material
Permits. To the Best Knowledge of the Company, no suspension or cancellation of
any of the Permits is threatened and, to its Best Knowledge, no cause exists
for such suspension or cancellation.
(p) Litigation. Except set forth in Schedule "6(p)", there are no actions,
suits or proceedings pending or, to the Actual Knowledge of the Company,
threatened against or affecting the Company, its assets or business before or
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency, court or instrumentality. Except set forth in Schedule
"6(p)", there is no basis for any such action, suit or proceeding, the outcome
of which would result in a loss to or a liability of the Company in excess of
$5,000, and there are no outstanding orders, decrees or stipulations which
would have a Material Adverse Effect on the Company. There is no litigation or
proceedings pending or, to the Actual Knowledge of the Company, threatened
against or affecting the Company or pertaining to this Agreement, the result of
which could prevent, delay or make unlawful the consummation of the transaction
contemplated by this Agreement.
(q) Compliance with Laws. The Company has at all times conducted, and is
presently conducting, its business so as to comply with all laws, ordinances
and regulations applicable to the conduct or operation of its business or the
ownership or use of its assets, in each case except where the failure to comply
would not, individually or in the aggregate result in a loss to or a liability
of the Company in excess of $5,000.
(r) Contracts and Commitments. Except as listed and described on Schedule
"6(r)" hereto, the Company is not a party to any written or oral:
(i) agreement, contract or commitment for the future purchase of or
payment for supplies or products or for the performance of
services by another party involving in any one case $5,000 or
more per annum;
(ii) agreement, contract or commitment to sell or supply products or
to perform services involving in any one case $5,000 or more per
annum (other than purchase orders received by the Company in the
ordinary course of business);
(iii) agreement, contract or commitment continuing over a period of
more than six months from the date hereof or exceeding $5,000 in
value per annum;
(iv) representative, sales agency, dealer or distributor agreement,
contract or commitment;
(v) lease under which the Company is either lessor or lessee with
respect to real property;
(vi) note, debenture, bond, conditional sale agreement, equipment
trust agreement, letter of credit agreement, loan agreement or
other contract or commitment for the borrowing or lending of
money (including, without limitation, loans to or from
employees) or guarantee, pledge or undertaking of the
indebtedness of any other corporation, firm or person (other
than endorsement of items for deposit in the ordinary course of
business);
(vii) agreement, contract or commitment for any charitable or
political contribution;
(viii) agreement, contract or commitment limiting or restraining the
Company or any successor or assign from engaging or competing in
any lines of business with any corporation, firm or person;
A-10
<PAGE>
(ix) license, franchise, distributorship or other agreement,
including those that relate in whole or in part, to any patent,
trademark, tradename, service mark or copyright, or to any
ideas, technical assistance or other know-how of or used in the
business of the Company; or
(x) any other agreement, contract or commitment not made in the
ordinary course of business.
Each of the agreements, contracts, commitments, leases and other
instruments, documents and undertakings listed on Schedule "6(r)" hereto (the
"Commitments") is valid and enforceable in accordance with its terms, the
Company is in material compliance with the provisions thereof, the Company is
not in default in the performance, observance, or fulfillment of any material
obligation, covenant or condition contained in any Commitment, and no event has
occurred that, with or without the giving of notice or lapse of time, or both,
would constitute a default thereunder by the Company; and, to the Best
Knowledge of the Company, no such Commitment contains any contractual
requirement with which there is a reasonable likelihood the Company will be
unable to comply. Except as set forth in Schedule "6(r)", no advance payments
have been received by the Company from or on behalf of any party to any of the
Commitments for services to be rendered or products to be delivered to such
party after the Closing Date, and no consent or approval of any party to any
Commitment is required for the execution of this Agreement or the consummation
of the transaction contemplated hereby.
(s) Insurance. Schedule "6(s)" hereto is a true and complete list of all
insurance policies now owned by the Company covering the lives of shareholders,
product liabilities, umbrella and excess liabilities and blanket crime, all of
which policies are valid and are in full force and effect. The surrender value
of the life insurance policies owned by the Company is not less than
$1,031,320.
(t) Finder's Fee. With the exception of OEM Capital Corp. who will be paid
by inTEST, no person, corporation, partnership or firm retained by or on behalf
of the Company (i) brought about the transaction contemplated hereunder or (ii)
is entitled to any commission or fee from the Company, inTEST or Newsub upon
the consummation of such transaction.
(u) Employees. Schedule "6(u)" hereto is a true and correct list of all
current employees of the Company and a description of their titles and
positions and the wages (including base rates and total compensation for 1998
and 1999), benefits and vacation schedules currently paid or provided for such
employees.
(v) Labor Disputes. Except as set forth in Schedule "6(v)", there are no
discrimination complaints nor any other kind of employment or labor related
disputes against the Company in connection with its business pending before or,
to the Actual Knowledge of the Company, threatened before any federal, state or
local court or agency, and to the Best Knowledge of the Company, no disputes
respecting minimum wage or overtime claims or other conditions or terms of
employment exist. The Company has not experienced any labor disputes or any
work stoppage due to labor disagreements within the past three years. With
respect to the Company and its business (i) there is no unfair labor practice
charge or complaint against the Company pending or to the Actual Knowledge of
the Company threatened before the National Labor Relations Board; (ii) there is
no labor strike, slow down or stoppage pending or, to the Actual Knowledge of
the Company, threatened against or affecting the Company; and (iii) no question
concerning representation has been raised within the past three years, or to
the Actual Knowledge of the Company, is threatened respecting its employees.
(w) Customers and Suppliers. To the Best Knowledge of the Company, there
is no controversy with any customers or suppliers of a nature which,
individually or in the aggregate, will result in a loss to or a liability of
the Company in excess of $5,000.
(x) Proprietary Rights.
(i) Patents and Trademarks. Schedule "6(x)(i)" hereto sets forth a
correct and complete list of all patents, registered copyrights,
maskworks, logos, trademarks, tradenames, service marks and other
intellectual property rights and applications or registrations
therefor used in the business of the Company and/or owned by the
Company (collectively and including inventions and trade secrets,
the "Proprietary Rights").
A-11
<PAGE>
(ii) Fees. All necessary registration, maintenance and renewal fees in
connection with the Proprietary Rights, the absence of which would
have a Material Adverse Effect on the Company or the conduct of the
Company's business, have been paid and the necessary documents and
certificates in connection with such Proprietary Rights have been
filed with the relevant patent, copyright, trademark or other
authorities of the United States or foreign jurisdictions, as the
case may be, for the purposes of maintaining such Proprietary Rights
when commercially reasonable.
(iii) Rights and Title. The Company owns or possesses adequate licenses
or other valid rights to use (without making any payment to others,
except for standard software license payments or the obligation to
grant rights to others in exchange) all of the Proprietary Rights.
The Proprietary Rights constitute all such rights necessary to
conduct the business of the Company as presently conducted. The
validity of the Proprietary Rights and the rights therein of the
Company have not been questioned in any litigation to which the
Company is a party, nor, to the Actual Knowledge of the Company, is
any such litigation threatened or any claim made. To the Best
Knowledge of the Company, the conduct of the business of the Company
as presently conducted does not conflict with patent rights,
licenses, trademark rights, tradename rights, copyrights, maskworks
or other intellectual property rights of others, except as set forth
in Schedule 6(x)(iii).
(iv) Infringement. To the Best Knowledge of the Company, there is no
use of any of the Proprietary Rights being made by any corporation,
firm or person other than the Company that has not been authorized
by the Company as set forth on Schedule 6(x)(iv).
(v) Conflicts. No present or former director or officer or employee, or
consultant of the Company has any interest in any of the Proprietary
Rights.
(y) ERISA.
(i) Employee Benefit Plans. Schedule "6(y)" hereto contains a correct
and complete list of each employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), each holiday, vacation or other bonus practice or any
other employee pay practice, arrangement, agreement or commitment
maintained by or with respect to which the Company has any liability
or obligation, whether actual or contingent, with respect to any of
its employees or their respective beneficiaries.
(ii) Retiree Benefits. Except as set forth on Schedule 6(y), the
Company has no ERISA plan or other employee arrangement which
provides for the payment of retiree benefits.
(iii) Compliance. Except as disclosed in Schedule "6(y)", all employee
benefit plans of the Company are and have been operated in full
compliance with all applicable laws including, without limitation,
the Health Insurance Portability and Accountability Act, ERISA and
the regulations thereunder, and the Code (including Section 4980B
thereof). There are no violations of Sections 404, 406, or 407 of
ERISA, no prohibited transaction (as defined in the Code or ERISA),
no violation of the reporting and disclosure provisions of ERISA and
the Code, and no termination or partial termination (including any
termination or partial termination attributable to the Merger) of
any employee benefit plan maintained or established by the Company
or to which the Company contributes or has contributed. Except as
disclosed in Schedule "6(y)", no event has occurred or is expected
to occur which will result in liability to the Company in connection
with any employee pension benefit plan (as defined in ERISA)
established, maintained, or contributed to (currently or previously)
by the Company. If required by applicable law, the Company has
properly submitted, or intends to properly submit, all employee
benefit plans described in Schedule "6(y)" in good faith for the
purpose of meeting the applicable - requirements of ERISA or the
Code, as the case may be, to the Internal Revenue Service for its
approval within the time prescribed therefor under applicable
federal regulations.
A-12
<PAGE>
(iv) Accruals. Except as set forth in Schedule "6(y)", the Company has
made on or prior to the date hereof and will have accrued on or
prior to the Closing Date all payments required to be made by it on
or prior to the date hereof and the Closing Date, and has accrued
(in accordance with GAAP) as of the date hereof and will have
accrued on or prior to the Closing Date all payments due but not yet
payable as of the date hereof and the Closing Date, so there have
not been nor will there be any Accumulated Funding Deficiencies (as
defined in ERISA or the Code), in respect of the employee benefit
plans, or waivers of such deficiencies.
(v) Multi-Employer Plans. Except as specifically set forth in Schedule
"6(y)", the Company does not sponsor or maintain, and is not a
contributing employer or otherwise a party to, nor has any
obligation or liability under or with respect to, and has never
maintained or participated in, or been obligated to contribute to
any defined benefit plan (as defined in Section 3(35) of ERISA) or
multi-employer plan (as defined in Section 3(37) of ERISA).
(z) Affiliate Transaction. Schedule "6(z)" hereto sets forth a summary of
all purchases of goods or services from the Company by any Affiliate of the
Company (except transactions for the purchases of goods or services between the
Company and any subsidiary of the Company in the ordinary course consistent
with past practices) for the three years ended as of the Closing Date. No
Affiliate of the Company provides any services or products to the Company. For
the purposes of this Agreement, the term "Affiliate" shall mean any director,
employee or any person or entity that directly or indirectly controls the
Company, is controlled by, or is under common control with, the Company.
(aa) Environmental Matters.
(i) Notice of Violation. The Company has not received any notice
relating to its business or any real property owned or leased by the
Company alleging any violation of any Environmental Law (defined
below) or any written request for written information from any
governmental agency or any other corporation, firm or person
pursuant to any Environmental Law. The Company and all real property
which the Company leases or uses is in compliance in all material
respects with, and is not in material violation of or liable under,
any applicable Environmental Law.
(ii) No Releases. Except as set forth in Schedule "6(aa)(ii)" hereto or
as authorized by any valid permit issued pursuant to any
Environmental Law, there are no Regulated Substances released by the
Company or any other person, firm or corporation on or beneath any
of the real property leased or used by the Company in quantities or
concentrations that could give rise to obligations,
responsibilities, liabilities or debts of the Company under any
Environmental Law.
(iii) Notice of Violation. The Company has not received any notice or
order from any governmental agency or private or public entity in
connection with its business advising it that the Company is
responsible for or potentially responsible for remediation or paying
for the cost of investigation or remediation of any Regulated
Substance, and the Company has not entered into any agreements
pertaining thereto.
(iv) Underground Problems. Except as set forth in Schedule "6(aa)(iv)",
none of the real property leased or used by the Company contains any
asbestos, equipment using PCB's, drums buried in the ground,
underground storage tanks, underground injection wells or septic
tanks in which processed waste water or any Regulated Substances
have been disposed.
(v) Environmental Studies. Schedule "6(aa)(v)" hereto identifies all
environmental studies in possession of the Company or its Affiliates
relating to any real property leased or used by the Company, and
true and complete copies of said studies have been delivered to
inTEST.
(vi) Environmental Law. "Environmental Law" shall mean any legal
requirement that requires or relates to:
o advising appropriate authorities, employees, and the public of
intended or actual releases of any Regulated Substance (defined
below), violations of discharge limits, or other prohibitions and
of the commencements of activities, such as resource extraction or
construction, that could have significant impact on the
environment;
A-13
<PAGE>
o preventing or reducing to acceptable levels the release of
Regulated Substances into the environment;
o reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
o assuring that products are designed, formulated, packaged, and used
so that they do not present unreasonable risks to human health or
the environment when used or disposed of;
o protecting resources, species, or ecological amenities;
o reducing to acceptable levels the risks inherent in the
transportation of Regulated Substances, or other potentially
harmful substances;
o cleaning up Regulated Substances that have been released,
preventing the threat of release, or paying the costs of such
cleanup or prevention;
o making responsible parties pay private parties, or groups of them,
for damages done to their health or the environment, or permitting
self-appointed representatives of the public interest to recover
for injuries done to public assets by, or as a result of exposure
to, Regulated Substances; or
o any governmental authorization issued pursuant to any of the above.
(vii) Regulated Substance. "Regulated Substance" shall include any (i)
"hazardous substance," "pollutants," or "contaminant" (as defined in
Sections 101(14) and (33) of CERCLA or the regulations issued
pursuant to Section 102 of CERCLA and found at 40 C.F.R.ss.302),
including any element, compound, mixture, solution, or substance
that is designated pursuant to Section 102 of CERCLA; (ii) substance
that is designated pursuant to Section 311(b)(2)(A) of the Federal
Water Pollution Control Act, as amended (33 U.S.C.ss.ss.1251,
1321(b)(2)(A)) ("FWPCA"); (iii) hazardous waste having the
characteristics identified under or listed pursuant to Section 3001
of the Resource Conservation and Recovery Act, as amended (42
U.S.C.ss.ss.6901, 6921) ("RCRA"); (iv) substance containing
petroleum, as that term is defined in Section 9001(8) of RCRA; (v)
toxic pollutant that is or may be listed under Section 307(a) of
FWPCA; (vi) hazardous air pollutant that is listed under Section 112
of the Clean Air Act, as amended (42 U.S.C.ss.ss.7401, 7412); (vii)
imminently hazardous chemical substance or mixture with respect to
which action has been taken pursuant to Section 7 of the Toxic
Substances Control Act, as amended (15 U.S.C.ss.ss.2601, 2606);
(viii) source, special nuclear, or by product material as defined by
the Atomic Energy Act of 1954, as amended (42 U.S.C.ss.2011 et
seq.); (ix) asbestos, asbestos-containing material, or urea
formaldehyde or material that contains urea formaldehyde; (x) waste
oil and other petroleum products; and (xi) any other toxic
materials, contaminants, or hazardous substances or wastes pursuant
to any Environmental Law.
(bb) Product Warranties. Schedule "6(bb)" hereto contains true, correct
and complete copies of all product warranties issued by the Company which
remain outstanding for products sold by the Company prior to the Closing Date.
Except as set forth in Schedule "6(bb)": (i) the Company has made no other
written warranties relating to its products or services that would materially
increase the warranty obligations of the Company and (ii) there is no pending
or, to the Best Knowledge of the Company, threatened claim against the Company
on account of product warranties or with respect to defective or inferior
products in excess of $20,000.
(cc) Disclosure. None of the representations by the Company made in this
Agreement or in any Schedule or Exhibit hereto and the statements made in all
certificates furnished by it, required by this Agreement contains any untrue
statement of a material fact or omits to state any material fact necessary to
make any such representations or statements not misleading. Except as set forth
in Schedule "6(cc)", to the Best Knowledge of the Company, there is no fact
which may have a Material Adverse Effect on the Company which has not been set
forth in this Agreement or any Schedule hereto.
A-14
<PAGE>
7. Conduct of Business
Except as set forth in Schedule "7" hereto or in order to consummate the
transaction contemplated by this Agreement, during the period between November
30, 1999 and the Closing Date, the Company has and shall have conducted its
business in the usual and normal course consistent with past practices and has
and shall have refrained from any extraordinary transactions.
8. News Releases
No notices to third parties or any publicity, including press releases,
concerning any of the transactions provided for herein shall be made unless
planned and coordinated jointly between the Company and inTEST, unless inTEST
is advised by counsel that a news release or disclosure is required or
appropriate; provided that, in such case, inTEST shall deliver to the Company a
copy of the text of the proposed news release as far in advance of its
disclosure as is practicable, and shall in good faith consult with and consider
the suggestions of the Company concerning the nature and scope of the news
release.
9. Registration Statement, Proxy Statement and Piggyback Rights.
(a) Filing of Registration Statement. As soon as practicable after the
execution of this Agreement, inTEST shall, with the assistance and cooperation
of the Company, prepare and cause to be filed with the SEC a Joint Proxy
Statement and the Registration Statement. Each of inTEST and the Company shall
use all reasonable efforts to cause the Registration Statement and the Joint
Proxy Statement to comply with applicable law and the rules and regulations
promulgated by the SEC, to respond promptly to any comments of the SEC or its
staff, and to have the Registration Statement declared effective under the
Securities Act as promptly as practicable after it is filed with the SEC; and
the Company shall cooperate with inTEST in connection with such matters. inTEST
and the Company shall use all reasonable efforts to cause the Joint Proxy
Statement to be mailed to their respective shareholders as promptly as
practicable after the Registration Statement is declared effective under the
Securities Act.
(b) Furnishing Information. Each of the parties hereto shall promptly
furnish to the other party all information concerning itself, its shareholders
and its affiliates that may be required or reasonably requested in connection
with any action contemplated by this Section 9. If any event relating to inTEST
or the Company occurs, or if inTEST or the Company becomes aware of any
information, that should be disclosed in an amendment or supplement to the
Registration Statement or the Joint Proxy Statement, then inTEST or the
Company, as applicable, shall inform the other thereof and shall cooperate with
each other in filing such amendment or supplement with the SEC and, if
appropriate, in mailing such amendment or supplement to the shareholders of
inTEST and the Company. inTEST will notify the Company promptly upon the
receipt of any comments from the SEC or its staff or any other government
officials and of any request by the SEC or its staff or any other government
officials for amendments or supplements to the Registration Statement or the
Joint Proxy Statement or for additional information and will supply the Company
with copies of all correspondence between inTEST or any of its representatives,
on the one hand, and the SEC or its staff or any other government officials, on
the other hand, with respect to the Registration Statement, the Joint Proxy
Statement or the Merger. The Joint Proxy Statement shall include the
recommendations of the Boards of Directors of inTEST and the Company in favor
of this Agreement, the Merger and the transactions contemplated hereby.
(c) Blue Sky Filings. Prior to the time of the Merger inTEST shall use
reasonable efforts to obtain all regulatory or other approvals needed to ensure
that inTEST Stock to be issued in the Merger: (i) will be registered or
qualified under the securities law of every jurisdiction of the United States
in which any registered holder of Company Common Stock who is receiving shares
of registered inTEST Stock has an address of record or be exempt from such
registration and (ii) will be approved for quotation at the time of the Merger
on the Nasdaq National Market provided, however, that inTEST shall not,
pursuant to the foregoing, be required (A) to qualify to do business as a
foreign corporation in any jurisdiction in which it is not now qualified or (B)
to file a general consent to service of process in any jurisdiction with
respect to matters unrelated to the issuance of inTEST Stock pursuant hereto.
A-15
<PAGE>
(d) No Misrepresentation. Each of inTEST and the Company (in respect of
the information respectively supplied by it) agrees that at the time (1) the
Registration Statement is filed, (2) the Registration Statement becomes
effective, (3) the Joint Proxy Statement is mailed to the shareholders of
inTEST and the Company, (4) of the meetings of the shareholders of inTEST and
the Company and (5) of the Closing: (i) none of the information to be supplied
by each of inTEST and the Company or its affiliates for inclusion in the
Registration Statement will contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading; and (ii) as to matters respecting it, the Joint
Proxy Statement and the Registration Statement will comply as to form in all
material respects with the provisions of the Securities Act and the Exchange
Act, as applicable, and the rules and regulations promulgated by the SEC
thereunder, except that no covenant, representation or warranty is made by the
Company with respect to statements made or incorporated by reference therein
based on information supplied by inTEST for inclusion or incorporation by
reference therein and no covenant, representation or warranty is made by inTEST
with respect to statements made or incorporated by reference therein based on
information supplied by the Company for inclusion or incorporation by reference
therein.
(e) Piggyback Rights. All shareholders of the Company who, immediately
prior to the Merger, own five percent or more of the then outstanding Company
Stock shall be included, at their option, in any future registered offering of
inTEST Stock by inTEST if other shareholders are included in such offering and
on the terms and conditions on which such other shareholders participate.
10. Shareholder Meetings.
(a) Company Shareholder Meeting. The Company shall promptly after the date
hereof take all action necessary in accordance with applicable law and its
Articles of Organization and Bylaws to hold and convene a meeting of the
Company's Shareholders (the "Company Shareholders Meeting"). Except as required
by the SEC or applicable court order and except as may be required in order to
amend or supplement the Registration Statement or Joint Proxy Statement, the
Company shall not postpone or adjourn (other than for the absence of a quorum)
the Company Shareholders Meeting without the consent of inTEST. The Company
shall take all reasonable actions necessary or advisable to secure the vote or
consent of its shareholders required by applicable law to effect the Merger and
the transactions contemplated hereby.
(b) inTEST Shareholder Meeting. inTEST shall promptly after the date
hereof take all action necessary in accordance with applicable law and its
Certificate of Incorporation and Bylaws to hold and convene a meeting of
inTEST's shareholders (the "inTEST Shareholders Meeting"). Except as required
by the SEC or applicable court order, inTEST shall not postpone or adjourn
(other than for the absence of a quorum) the inTEST Shareholders Meeting
without the consent of the Company. inTEST shall take all reasonable actions
necessary or advisable to secure the vote or consent of its shareholders
required by applicable law to effect the issuance of shares of inTEST Stock in
the Merger.
11. Covenants of the Parties.
(a) Confidentiality. Until the time of the Merger, all information
regarding the Company received by inTEST or Newsub shall be subject to the
provisions of the Confidentiality Agreement between the Company and inTEST
dated April 8, 1999.
(b) Take No Action. No party shall take any action that would, or is
reasonably likely to, result in any of its representations and warranties set
forth in this Agreement being untrue or in any of the conditions precedent set
forth in Sections 12, 13 and 14 not being satisfied.
(c) Salary and Benefits. Following consummation of the Merger, the salary
and benefits of all employees of Newsub formerly employed by the Company (other
than William Stone) shall remain the same until each employee's next regularly
scheduled review date.
(d) ESOP. After the Merger, the Temptronic Equity Participation Plan will
remain in place.
(e) Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use reasonable efforts to take
promptly, or cause to be taken, all actions, and to do promptly, or cause to be
done all things necessary, proper or advisable under applicable laws and
regulations
A-16
<PAGE>
to consummate and make effective the transactions contemplated hereby, to
obtain all necessary waivers, consents and approvals and to effect all
necessary registrations and filings and to remove any impediments or delays,
legal or otherwise, in order to consummate and make effective the transactions
contemplated by this Agreement for the purpose of securing to the parties
hereto the benefits contemplated by this Agreement.
(f) Access to Information. Upon reasonable prior notice, the Company shall
afford inTEST and its accountants, counsel and other representatives,
reasonable access during normal business hours during the period prior to the
time of the Merger to all of its properties, books, contracts, commitments and
records, all other information concerning its business, properties and
personnel (subject to restrictions imposed by applicable law) as inTEST may
reasonably request and all its key employees. Upon reasonable prior notice, the
Company agrees to provide inTEST and its accountants, counsel and other
representatives copies of internal financial statements (including tax returns
and supporting documentation) promptly upon request. No information or
knowledge obtained in any investigation pursuant to this Section 11 shall
affect or be deemed to modify any representation or warranty contained herein
or the conditions to the obligations of the parties to consummate the Merger.
(g) Re-election. For a period of two years following the Closing Date,
inTEST shall nominate the Temptronic Directors for re-election at each annual
meeting of its stockholders or special meeting in lieu thereof and shall
recommend their re-election to its stockholders.
(h) Thirty Day Financials. As soon as reasonably practicable after the
Merger, inTEST shall publish by a public filing or announcement the results of
operations covering at least thirty days of combined operations of Newsub and
inTEST in accordance with and to the extent permitted by applicable accounting
principles and applicable laws.
12. Conditions to Obligations of Each Party.
The respective obligations of each party to this Agreement are subject to
the fulfillment, at or prior to the Closing of each of the following
conditions:
(a) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any proceeding brought
by an administrative agency or commission or other governmental authority or
instrumentality seeking any of the foregoing be pending.
(b) Listing. The shares of inTEST Stock to be issued in the Merger to the
shareholders of the Company shall have been approved for quotation, subject to
official notice of issuance, on NASDAQ.
(c) Effectiveness of Registration Statement. The Registration Statement
shall have become effective in accordance with the provisions of the Securities
Act, and no stop order shall have been issued by the SEC with respect thereto,
and no similar proceeding in respect of the Joint Proxy Statement shall have
been initiated or threatened in writing by the SEC.
(d) Shareholder Approval. The shareholders of the Company shall have
approved the Merger at the Company Shareholders Meeting and the shareholders of
inTEST shall have approved the issuance of shares of inTEST Stock in the Merger
at the inTEST Shareholders Meeting.
13. Conditions to Obligations of the Company
All obligations of the Company under this Agreement are subject to the
fulfillment, at or prior to the Closing of each of the following conditions:
(a) Representations and Warranties. All representations and warranties of
inTEST and Newsub contained in this Agreement or in any certificate or document
delivered pursuant to this Agreement shall be true and correct at and as of the
time of Closing as though then made at and as of such time (except that such
A-17
<PAGE>
representations and warranties shall reflect the consummation of any
transactions permitted by this Agreement); and inTEST and Newsub shall have
performed and complied with all of their obligations under this Agreement which
are to be performed and complied with by them prior to or at the time of the
Closing.
(b) No Material Adverse Effect. No Material Adverse Effect with respect to
inTEST shall have occurred since the date of this Agreement and no events or
circumstances shall have occurred since the date hereof that would have a
Material Adverse Effect on inTEST.
(c) Escrow Stock. inTEST shall have delivered to the Escrow Agent shares
of the inTEST Stock registered in the name of the Escrow Agent for deposit in
the Escrow Fund as set forth in Section 4(b) hereof.
(d) Escrow Agreement. inTEST and Newsub shall have delivered to the Escrow
Agent the Escrow Agreement duly executed by inTEST and Newsub.
(e) inTEST Resolutions. inTEST shall have delivered to the Company
certified resolutions of the Board of Directors and the Shareholders of inTEST
authorizing consummation of the transactions contemplated by this Agreement.
(f) Resolutions of Newsub. Newsub shall have delivered to the Company
certified resolutions of the Board of Directors and Sole Shareholder of Newsub
authorizing consummation of the transactions contemplated by this Agreement.
(g) Election of Directors. inTEST shall have delivered to the Company
evidence that James Greed and William M. Stone (the "Temptronic Directors")
have been elected as members of the Board of Directors of inTEST.
(h) Employment Agreement. William M. Stone and inTEST or Newsub shall have
entered into an employment agreement in the form of Exhibit "D".
(i) Legal Opinion. Saul, Ewing, Remick & Saul LLP, counsel for inTEST and
Newsub, shall have delivered to the Company its Opinion dated the Closing Date,
in the form of Exhibit "E".
14. Conditions to Obligations of inTEST and Newsub
All obligations of inTEST and Newsub under this Agreement are subject to
the fulfillment, at or prior to the Closing, of each of the following
conditions:
(a) Representations and Warranties. All representations and warranties of
the Company contained in this Agreement or in any certificate or document
delivered pursuant to this Agreement shall be true and correct at and as of the
time of the Closing as though then made at and as of such time (except that
such representations and warranties may reflect the consummation of any
transactions permitted by this Agreement); and the Company shall have performed
and complied with all of its obligations under this Agreement which are to be
performed and complied with by it prior to or at the time of the Closing.
(b) No Material Adverse Effect. No Material Adverse Effect with respect to
the Company shall have occurred since the date of this Agreement and no events
or circumstances shall have occurred since the date hereof that would have a
Material Adverse Effect on the Company.
(c) Escrow Agreement. The Shareholder Representative shall have executed
and delivered to the Escrow Agent an executed copy of the Escrow Agreement.
(d) Releases. There shall have been delivered to inTEST releases in the
form of Exhibit "F" pursuant to which each of Thomas Gerendas and William M.
Stone releases any and all claims that he may have against the Company (other
than for remuneration and benefits in the ordinary course of business for the
then current pay period, claims arising out of his Employment Agreement with
the Company, this Agreement and the Agreements executed in connection herewith
and claims for indemnification arising out of his service prior to Closing as
an officer or director of the Company).
A-18
<PAGE>
(e) Resolutions of the Company. The Company shall have delivered to inTEST
certified resolutions of the Board of Directors and the Shareholders of the
Company authorizing consummation of the transactions contemplated by this
Agreement.
(f) Good Standing Certificate. The Company shall deliver to inTEST a
certificate dated as of a recent date from the Secretary of State of The
Commonwealth of Massachusetts to the effect that the Company is duly
incorporated and in good standing and a certificate of the Department of
Revenue of The Commonwealth of Massachusetts certifying as to the tax status of
the Company.
(g) Charter. The Company shall have delivered to inTEST a copy of the
Company's Articles of Organization, including all amendments thereto, certified
as of a recent date by the Secretary of State of The Commonwealth of
Massachusetts.
(h) Consents. The Company shall have delivered to inTEST all necessary
consents, waivers, authorizations, orders or approvals required by agreements
to which the Company may be a party or required by law, regulations or
otherwise in order to execute and deliver this Agreement, the Agreement of
Merger, the Escrow Agreement, and to perform its obligations hereunder and
thereunder.
(i) Resignations. The Company shall have caused to be delivered to inTEST
the resignations of all officers and directors of the Company, to be effective
as of the Closing Date.
(j) Corporate Books. The Company shall have delivered to inTEST and Newsub
the corporate minute books and stock record books of the Company.
(k) Company Stockholder Agreeement. All of the Stockholder Agreements of
the Company in effect at the time of the Merger shall have been terminated and
all life insurance policies related to such Stockholder Agreeements shall be
terminated by Newsub, and Newsub shall be entitled to keep all proceeds from
the surrender of such life insurance policies.
(l) ESOP. The Employee Stock Ownership Plan of the Company shall have been
assumed by Newsub.
(m) Pooling of Interests. inTEST shall have received an opinion of KPMG
LLP and an opinion of Ernst & Young LLP that the Merger and the other
transactions contemplated hereunder will be treated, for financial reporting
purposes, as a "pooling of interests".
(n) Dissenting Shareholders. The number of shares of the Company Stock
owned by those shareholders of the Company (if any) who shall have exercised
(or given notice of their intent to exercise) the rights of dissenting
shareholders under the law of The Commonwealth of Massachusetts or any other
applicable law shall be less than 2% of the total number of outstanding shares
of the Company Stock.
(o) Affiliate Letters. inTEST shall have received, from each director,
officer and other affiliate (as defined in Rule 144 under the Securities Act)
of the Company a duly signed letter, in form and substance satisfactory to
inTEST, stating that such affiliate (i) has not sold any shares of the capital
stock or other securities of the Company at any time during the 30 day period
ending on the Closing Date and (ii) will not sell, assign, give, pledge or
otherwise transfer, dispose of or reduce such affiliate's risk relating to any
of such affiliate's shares of the capital stock or other securities of the
Company until inTEST shall have published financial results covering at least
30 days of post-Merger combined operations of the Company and inTEST and,
thereafter, and, in any event, only in compliance with applicable federal and
state securities laws.
(p) Legal Opinion. An Opinion of Foley, Hoag & Eliot LLP, counsel for the
Company, shall have been delivered dated the Closing Date and addressed to
inTEST, in a form reasonably acceptable to inTEST and its counsel.
15. Indemnity by inTEST and Newsub
inTEST and Newsub, jointly and severally, hereby indemnify the
shareholders of the Company against and hold the shareholders of the Company
harmless of and from any and all demands, claims, losses, expenses, damages,
deficiencies and liabilities (including reasonable attorneys' fees and other
costs and expenses incident to any suit, action or proceeding) ("Losses"), to
the extent set forth in Section 17(d) of this
A-19
<PAGE>
Agreement, resulting at any time after the Closing Date by reason of any
misrepresentation, breach of warranty or nonfulfillment of any covenant or
agreement on the part of inTEST or Newsub contained in this Agreement, the
Agreement of Merger, the Escrow Agreement or any Schedule hereto or in any
written statement or certificate furnished or to be furnished by inTEST or
Newsub to the Company pursuant to this Agreement. Any liability of inTEST or
Newsub under this Section 15 shall be satisfied by the delivery of such number
of shares of inTEST Stock having a Market Value equal to the amount due to the
shareholders of the Company hereunder.
16. Indemnities by the Shareholders of the Company
The shareholders of the Company hereby indemnify inTEST and Newsub against
and hold inTEST and Newsub harmless of and from any and all Losses, to the
extent set forth in Section 17(d) of this Agreement, resulting at any time
after the Closing Date by reason of any misrepresentation, breach of warranty
or nonfulfillment of any covenant or agreement on the part of the Company
contained in this Agreement, the Agreement of Merger, the Escrow Agreement or
any Schedule hereto or in any written statement or certificate furnished or to
be furnished by the Company pursuant to this Agreement.
17. Indemnification Procedure
(a) Claims for Indemnification. Any party seeking indemnification
hereunder (the "Indemnified Party") shall give to the party obligated to
provide indemnification to such Indemnified Party (the "Indemnitor") a written
notice (a "Claim Notice") describing in reasonable detail the facts giving rise
to any good faith claim for indemnification hereunder and shall include in such
Claim Notice the reasonably estimated amount of such claim, if known (which
amount shall not include interest), and a reference to the provision of this
Agreement or of any other agreement, document or instrument executed hereunder
or in connection herewith upon which such claim is based. Such Claim Notice
shall be given within thirty (30) days after the Indemnified Party becomes
aware of the facts giving rise to the claim for indemnification.
(i) If the Indemnitor shall in good faith dispute the validity of all or
any amount of a claim for indemnification as set forth in the Claim
Notice, the Indemnitor shall, within thirty (30) days of its receipt of
the Claim Notice, execute and deliver to the Indemnified Party a notice
setting forth with reasonable particularity the grounds and the basis upon
which the claim or amount of the alleged Losses is disputed (the "Dispute
Statement").
(ii) If the Indemnitor does not dispute the Claim Notice or only
disputes a portion of the amount set forth therein, then the amount of the
claim described in the Claim Notice or the portion thereof not disputed
shall be deemed to be admitted (the "Admitted Liability") and shall, upon
the incurring of such Losses, immediately be due and payable to the
Indemnified Party by the Indemnitor.
(iii) If the Indemnitor shall within thirty (30) days of its receipt of
the Claim Notice deliver to the Indemnified Party a Dispute Statement,
then the portion of the claim described in the Claim Notice that is
disputed by the Indemnitor shall not be due and payable, except in
accordance with a decision of an arbitrator (as provided in Section 21(b)
hereof), or a written agreement by the parties stipulating the amount of
the Admitted Liability.
(iv) The Indemnitor and the Indemnified Party shall endeavor to resolve
any portion of a claim described in a Claim Notice that is disputed by the
Indemnitor within sixty (60) days after the date of the applicable Dispute
Statement. Any such disputed claims not resolved within such sixty (60)
day period shall be resolved by arbitration in accordance with Section 21
hereof.
(b) Third Party Claims.
(i) If the Indemnified Party shall receive notice of any claim by a
third party which is or may be subject to indemnification (a "Third Party
Claim"), the Indemnified Party shall give the Indemnitor prompt written
notice of such Third Party Claim and shall permit the Indemnitor, at the
Indemnitor's option, to assume the defense of such Third Party Claim or to
participate in the defense using counsel of its own choice and at its own
expense; provided, however that the Indemnitor shall not have the right to
A-20
<PAGE>
assume the defense of a Third Party Claim: (1) to the extent such Third
Party Claim seeks an injunction, restraining order, declaratory relief or
other non-monetary relief and such Third Party Claim, if decided adversely,
would have a Material Adverse Effect on the Indemnified Party; or (2) if
the named parties to any such Third Party Claim (including any impleaded
parties) include both the Indemnified Party and the Indemnitor and (A) the
Indemnified Party shall have been advised by counsel that there are one or
more legal or equitable defenses available to it which are different from
or additional to those available to the Indemnitor, and (B) in the
reasonable opinion of counsel for the Indemnified Party, counsel for the
Indemnitor would not be able to adequately represent the interests of the
Indemnified Party because such interests would materially conflict with
those of the Indemnitor, and (C) such Third Party Claim, if decided
adversely, would have a Material Adverse Effect on the Indemnified Party.
(ii) Regardless of which party is controlling the defense of a Third
Party Claim: (1) the controlling party shall keep the other party fully
informed of such Third Party Claim at all stages thereof; (2) the party
not controlling the defense of such Third Party Claim shall make
available, without charge, to the other party all books and records of
such party relating to such Third Party Claim; (3) the party not
controlling the defense of the Third Party Claim shall cooperate with the
other in connection therewith and shall furnish such records, information
and testimony and attend such conferences, discovery proceedings,
hearings, trials and appeals as may be reasonably requested by the
Indemnitor in connection therewith, and (4) subject to Section 17(b)(iii)
below, the controlling party shall not make any settlement of any Third
Party Claim without the written consent of the party not controlling the
defense, such consent not to be unreasonably withheld.
(iii) If the Indemnitor exercises its right to assume the defense of a
Third Party Claim, the Indemnified Party may participate, through counsel
of its own choice and at its own expense, in the defense of any Third
Party Claim, action or suit as to which the Indemnitor has elected to
assume and control the defense thereof, and the Indemnitor shall not make
any settlement of any such action, suit or proceeding without the written
consent of the Indemnified Party, unless the settlement involves only the
payment of money by the Indemnitor without prejudice to the Indemnified
Party. So long as the Indemnitor is defending in good faith any Third
Party Claim as to which indemnification has been sought hereunder, the
Indemnified Party shall not settle or compromise such Third Party Claim.
(c) Exclusive Remedy. Except for (i) claims of fraud or willful
misrepresentation, or (ii) as otherwise specifically set forth in this
Agreement, the indemnification provisions contained in Sections 15, 16 and 17
shall be deemed to be, to the extent permitted by law, the exclusive remedy or
exclusive means to obtain relief, as the case may be, of any party hereto in
the event of any breach of any representation, warranty, covenant or agreement
contained herein (or in any certificates or other documents delivered pursuant
hereto) by any other party hereto, Claims pursuant to Section 16 hereof or with
respect to any claim of any third party arising out of or in connection with
this Agreement or the transactions contemplated hereby, and the provisions of
Sections 15, 16 and 17 shall be in lieu of any other rights or remedies that
may be available to any party at law, in equity or otherwise. Any
indemnification amount payable in accordance with the indemnification
provisions contained in Sections 15, 16 an 17 shall be deducted proportionately
from the shares of each shareholder of the Company held in the Escrow Fund,
provided, however, that recovery for any claim based upon a shareholder's
failure to have adequate title to his or her shares may only be made against
shares in the Escrow Fund held for the account of such shareholder.
(d) Limitation of Indemnification. inTEST and Newsub shall not be entitled
to indemnification under Section 16 of this Agreement until the aggregate
amount for which indemnification is sought exceeds $50,000, whether represented
by one or more claims, and then only to the extent such aggregate amount
exceeds $50,000, and in no event shall the shareholders of the Company be
liable under Sections 16 and 17 of this Agreement for Losses in excess of the
value of the inTEST Stock held in the Escrow Fund, provided that such
limitation shall not apply to claims based on any party's intentional, willful
or reckless (i) misrepresentations or (ii) breaches of warranties or agreements
made as a part of or contained in this Agreement. In addition, for purposes of
claims brought under this Agreement, Losses shall be calculated net of any
insurance proceeds (including, without limitation, proceeds from directors and
officers liability insurance) realized by and paid to or for the benefit of the
Indemnified Party in respect of such claim. If
A-21
<PAGE>
inTEST or Newsub is entitled to indemnification under this Agreement, the
amount shall be paid by the Escrow Agent delivering to inTEST or Newsub (as
directed by inTEST) shares of inTEST Stock having a Market Value equal to the
amount owed by the Company to inTEST or Newsub.
18. Duty to Minimize Damages
Each party who shall seek indemnification under Sections 15, 16 and 17
hereof shall be under a duty to take all reasonable actions which would
minimize the Losses for which the Indemnitor may be liable.
19. Survival of Representations
All representations and warranties made herein, in the schedules hereto
and in any document delivered pursuant hereto by the Company, inTEST or Newsub
shall survive for one year after the Closing Date and then shall terminate.
Except as otherwise expressly provided in this Agreement, all covenants,
agreements, undertakings and indemnities set forth in this Agreement shall
survive indefinitely.
20. Notices
Any notice, request, demand or other communication given by any party
under this Agreement (each a "notice") shall be in writing, may be given by a
party or its legal counsel, may be given by the Shareholder Representative on
behalf of the shareholders of the Company, by inTEST on behalf of Newsub or by
Newsub on behalf of inTEST and shall be deemed to have been duly given (i) when
personally delivered, or (ii) upon delivery by United States Express Mail or
similar overnight courier service which provides evidence of delivery, or (iii)
when five days have elapsed after its transmittal by registered or certified
mail, postage prepaid, return receipt requested, addressed to the party to whom
directed at that party's address as it appears below or another address of
which that party has given notice, or (iv) when transmitted by facsimile
transmission if a copy thereof is also delivered in person or by overnight
courier. Notices of address change shall be effective only upon receipt
notwithstanding the provisions of the foregoing sentence.
Notice to inTEST or Newsub shall be sufficient if given to:
inTEST Corporation
Attention: Hugh T. Regan, Jr.
2 Pin Oak Lane
Cherry Hill, NJ 08003
Fax: (856) 751-1222
with a copy to:
James W. Schwartz, Esquire
Saul, Ewing, Remick & Saul LLP
1500 Market Street
38th Floor, Centre Square West
Philadelphia, PA 19102
Fax: (215) 972-1914
Notice to the Company shall be sufficient if given to:
Temptronic Corporation
Attention William M. Stone
55 Chapel Street
Newton, MA 02158
Fax 617-969-2475
A-22
<PAGE>
with a copy to:
Edward N. Gadsby, Jr., Esquire
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Fax 617-832-7000
Notice to the Shareholder Representative shall be sufficient if given to:
Samuel Rubinovitz
3 Bowser Rd
Lexington, MA 02420
with a copy to:
Edward N. Gadsby, Jr., Esquire
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Fax 617-832-7000
21. General
(a) Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware.
(b) Arbitration.
(i) Any and all disputes or differences pertaining to or arising out of
this Agreement or the breach, termination or invalidity thereof, shall be
finally and exclusively settled by binding arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association.
The arbitration shall be held in Philadelphia, Pennsylvania, before one
arbitrator appointed in accordance with said rules. The arbitration
proceedings shall be conducted in English. Judgment upon an award rendered
may be entered in any court having jurisdiction or application may be made
to such court for a judicial acceptance of the award and an order of
enforcement, as the case may be. The prevailing party in any such
proceeding shall be entitled to its actual reasonable attorneys' fees and
all other costs in connection with the arbitration and enforcement of the
arbitor's award to the extent set forth in the arbitor's award.
(ii) Either party may, without inconsistency with this Agreement, seek
from a court any interim or provisional relief that may be necessary to
protect the rights or property of that party, pending the establishment of
the arbitral tribunal or pending the arbitral tribunal's determination of
the merits of the controversy.
(c) Further Assurances. The parties hereto agree: (i) to execute and
deliver any and all papers and documents which may be reasonably necessary to
carry out the terms of this Agreement, and (ii) in the case of licenses,
certificates, approvals, authorizations, agreements, contracts, leases,
easements and other commitments of the Company which cannot be transferred or
assigned effectively without the consent of third parties which consent has not
been obtained prior to the Closing Date, to cooperate with the other party at
its reasonable request in endeavoring to obtain such consent promptly.
(d) Schedules. All of the Schedules attached to this Agreement are hereby
incorporated herein and made a part hereof.
(e) Entire Agreement. This Agreement and the Exhibits hereto, together
with the Confidentiality Agreement between the Company and inTEST dated April
8, 1999, contain the entire agreement among the parties hereto and there are no
agreements, representations or warranties which are not set forth herein. All
prior negotiations, agreements and understandings are superseded hereby. This
Agreement may not be amended or revised except by a writing signed by all
parties hereto.
A-23
<PAGE>
(f) Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the successors and assign of the respective parties hereto;
provided, however, that this Agreement and any and all rights hereunder may not
be assigned by any party hereto except by or with the written consent of the
other parties.
(g) Construction of Agreement. In the case any provision of this Agreement
shall for any reason be held to be invalid, illegal or unenforceable, such
holding shall not affect the validity, legality or enforceability of the
remaining provisions of this Agreement, which shall be construed as if such
invalid, illegal or unenforceable provision had never been included herein.
(h) Headings. The section and paragraph headings of this Agreement are for
convenience only, form no part of this Agreement and shall not affect its
interpretation.
(i) Effect of Investigation. Any inspection, preparation or compilation of
information or Schedules or audit of the inventory, property, financial
condition or other matters relating to the Company conducted by or on behalf of
inTEST pursuant to this Agreement shall in no way limit, affect or impair the
ability of inTEST or Newsub to rely upon the representations, warranties,
covenants and agreements of the Company set forth in this Agreement or in any
Schedule or Exhibit to this Agreement or in the Company Financial Statements or
in any certificate furnished by the Company required pursuant hereto. All
statements contained in any certificate delivered at the Closing or by or on
behalf of the Company, inTEST or Newsub pursuant to this Agreement or in any
Schedule to this Agreement shall be deemed representations and warranties
hereunder by the Company, inTEST or Newsub, as the case may be. Any disclosure
made on one Schedule shall be deemed made on all Schedules provided an
appropriate cross reference is made.
(j) Waivers. Any term or provision of this Agreement may be waived, or the
time for its performance may be extended, by the party or parties entitled to
the benefit thereof. Any such waiver shall be validly and sufficiently
authorized for the purposes of this Agreement if, as to any party, it is
authorized in writing by an authorized representative of such party. The
failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
any party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to constitute a waiver of any other or
subsequent breach.
(k) Costs and Expenses. If the Merger is not consummated for any reason,
other than a breach by one of the parties hereto, inTEST and the Company will
each be responsible for and bear its own costs and expenses. If the Merger is
consummated, inTEST and Newsub will be responsible for and bear all costs and
expenses (including legal and accounting expenses and the fees of OEM Capital
Corp.) incurred by all parties hereto in connection with pursuing and
consummating the Merger.
(l) Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be considered an original instrument,
but all of which shall together be considered one and the same agreement, and
shall become binding when one or more counterparts have been signed by each of
the parties hereto and delivered to each of inTEST and the Company.
(m) Knowledge.
(i) "Best Knowledge" with respect to the Company means facts or
information that have come to the attention of any executive officer, and
facts or information that would have come to the attention of any
executive officer if he had made all reasonable inquiries into such
further information. An individual will be deemed to have "Best Knowledge"
of a particular fact or matter if such individual is actually aware of
such fact or matter or could be expected to discover or otherwise become
aware of such fact or matter in the course of conducting a reasonable
investigation concerning the existence of such fact or matter.
(ii) "Actual Knowledge" as used herein means the conscious awareness of
facts or information by an executive officer.
(iii) For the purposes of this Section 21(m) an "executive officer"
shall mean any of the following persons: Thomas Gerendas, William Stone
and William O'Toole.
A-24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
Temptronic Corporation
(a Massachusetts corporation)
By: /s/ William M. Stone
-------------------------------------
William M. Stone
President
inTEST Corporation
By: /s/ Hugh T. Regan, Jr.
-------------------------------------
Hugh T. Regan, Jr.
Treasurer and Chief Financial Officer
Temptronic Corporation
(a Delaware corporation)
By: /s/ Hugh T. Regan, Jr.
-------------------------------------
Hugh T. Regan, Jr.
Treasurer and Chief Financial Officer
A-25
<PAGE>
Appendix B
Sections 85 through 98 of Chapter 156B of the General Law of Massachusetts --
Appraisal Rights
Sec. 85. Dissenting stockholder; right to demand payment for stock; exception
A stockholder in any corporation organized under the laws of Massachusetts
which shall have duly voted to consolidate or merge with another corporation or
corporations under the provisions of sections seventy-eight or seventy-nine who
objects to such consolidation or merger may demand payment for his stock from
the resulting or surviving corporation and an appraisal in accordance with the
provisions of sections eighty-six to ninety-eight, inclusive, and such
stockholder and the resulting or surviving corporation shall have the rights
and duties and follow the procedure set forth in those sections. This section
shall not apply to the holders of any shares of stock of a constituent
corporation surviving a merger if, as permitted by subsection (c) of section
seventy-eight, the merger did not require for its approval a vote of the
stockholders of the surviving corporation.
Sec. 86. Sections applicable to appraisal; prerequisites
If a corporation proposes to take a corporate action as to which any section of
this chapter provides that a stockholder who objects to such action shall have
the right to demand payment for his shares and an appraisal thereof, sections
eighty-seven to ninety-eight, inclusive, shall apply except as otherwise
specifically provided in any section of this chapter. Except as provided in
sections eighty-two and eighty-three, no stockholder shall have such right
unless (1) he files with the corporation before the taking of the vote of the
shareholders on such corporate action, written objection to the proposed action
stating that he intends to demand payment for his shares if the action is taken
and (2) his shares are not voted in favor of the proposed action.
Sec. 87. Statement of rights of objecting stockholders in notice of meeting;
form
The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of
notice shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the corporation
before the taking of the vote on the approval of such action, written objection
to the proposed action stating that he intends to demand payment for his shares
if the action is taken and (2) whose shares are not voted in favor of such
action has or may have the right to demand in writing from the corporation (or,
in the case of a consolidation or merger, the name of the resulting or
surviving corporation shall be inserted), within twenty days after the date of
mailing to him of notice in writing that the corporate action has become
effective, payment for his shares and an appraisal of the value thereof. Such
corporation and any such stockholder shall in such cases have the rights and
duties and shall follow the procedure set forth in sections 88 to 98,
inclusive, of chapter 156B of the General Laws of Massachusetts."
Sec. 88. Notice of effectiveness of action objected to
The corporation taking such action, or in the case of a merger or consolidation
the surviving or resulting corporation, shall, within ten days after the date
on which such corporate action became effective, notify each stockholder who
filed a written objection meeting the requirements of section eighty-six and
whose shares were not voted in favor of the approval of such action, that the
action approved at the meeting of the corporation of which he is a stockholder
has become effective. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock. The notice shall be sent by registered or certified mail, addressed to
the stockholder at his last known address as it appears in the records of the
corporation.
B-1
<PAGE>
Sec. 89. Demand for payment; time for payment
If within twenty days after the date of mailing of a notice under subsection
(e) of section eighty-two, subsection (f) of section eighty-three, or section
eighty-eight, any stockholder to whom the corporation was required to give such
notice shall demand in writing from the corporation taking such action, or in
the case of a consolidation or merger from the resulting or surviving
corporation, payment for his stock, the corporation upon which such demand is
made shall pay to him the fair value of his stock within thirty days after the
expiration of the period during which such demand may be made.
Sec. 90. Demand for determination of value; bill in equity; venue
If during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county
where the corporation in which such objecting stockholder held stock had or has
its principal office in the commonwealth.
Sec. 91. Parties to suit to determine value; service
If the bill is filed by the corporation, it shall name as parties respondent
all stockholders who have demanded payment for their shares and with whom the
corporation has not reached agreement as to the value thereof. If the bill is
filed by a stockholder, he shall bring the bill in his own behalf and in behalf
of all other stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof, and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to
each stockholder party to the bill by registered or certified mail, addressed
to the last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
Sec. 92. Decree determining value and ordering payment; valuation date
After hearing the court shall enter a decree determining the fair value of the
stock of those stockholders who have become entitled to the valuation of and
payment for their shares, and shall order the corporation to make payment of
such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or, if uncertificated,
upon receipt of an instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and
shall be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
Sec. 93. Reference to special master
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report
the same to the court, all in accordance with the usual practice in suits in
equity in the superior court.
Sec. 94. Notation on stock certificates of pendency of bill
On motion the court may order stockholder parties to the bill to submit their
certificates of stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
B-2
<PAGE>
Sec. 95. Costs; interest
The costs of the bill, including the reasonable compensation and expenses of
any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided
in this chapter shall be paid by the corporation. Interest shall be paid upon
any award from the date of the vote approving the proposed corporate action,
and the court may on application of any interested party determine the amount
of interest to be paid in the case of any stockholder.
Sec. 96. Dividends and voting rights after demand for payment
Any stockholder who has demanded payment for his stock as provided in this
chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends
or other distributions payable to stockholders of record at a date which is
prior to the date of the vote approving the proposed corporate action) unless:
(1) A bill shall not be filed within the time provided in section ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation, or in
the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to and
an acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
Sec. 97. Status of shares paid for
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock, or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been converted had he not objected to such consolidation or merger
shall have the status of treasury stock or securities.
Sec. 98. Exclusive remedy; exception
The enforcement by a stockholder of his right to receive payment for his shares
in the manner provided in this chapter shall be an exclusive remedy except that
this chapter shall not exclude the right of such stockholder to bring or
maintain an appropriate proceeding to obtain relief on the ground that such
corporate action will be or is illegal or fraudulent as to him.
B-3
<PAGE>
APPENDIX C
January 31, 2000
Board of Directors
inTEST Corporation
2 Pin Oak Lane
Cherry Hill, NJ 08003
Dear Members of the Board:
You have requested our opinion with respect to the fairness, from a financial
point of view, to inTEST Corporation, a Delaware corporation ("inTEST" or the
"Company"), of the exchange ratio in connection with the proposed merger
("Merger") pursuant to the Agreement and Plan of Merger and Reorganization (the
"Merger Agreement") by and among Temptronic Corporation, a Massachusetts
corporation ("Temptronic"), the Company, and Temptronic Corporation, a Delaware
corporation ("Newsub").
Under the terms of the Merger Agreement, Temptronic will become a wholly owned,
direct subsidiary of the Company. At the closing of the Merger, each share of
the common stock of Temptronic issued and outstanding immediately prior thereto
(the "Temptronic Common Stock") shall be converted into the right to receive
0.925 shares of the common stock of inTEST (the "Company Common Stock") (the
"Exchange Ratio"), and each share of Temptronic Common Stock issued and held in
the treasury of Temptronic shall be cancelled and retired. The terms and
conditions of the Merger are more fully set forth in the Merger Agreement.
In reaching our opinion, we (i) reviewed a draft of the Merger Agreement dated
December 10, 1999; (ii) reviewed selected financial and stock market data for
certain publicly traded companies; (iii) reviewed the financial terms of
certain recent business combinations; (iv) performed discounted cash flow
analyses for Temptronic; (v) reviewed the audited financial statements of
inTEST for the fiscal years ended December 31, 1996 through December 31, 1998,
and unaudited financial statements for the nine months ended September 30,
1999; (vi) reviewed the audited financial statements of Temptronic for the
fiscal years ended June 30, 1996 through June 30, 1999, and unaudited financial
statements for the five months ended November 30, 1999; (vii) reviewed various
descriptions of the business, operations, and earnings prospects of the Company
and Temptronic; and (viii) performed such other analyses, and considered such
other factors, as we deemed appropriate. In addition, we held discussions with
the management of the Company and Temptronic regarding their respective
businesses, operating results, financial conditions and prospects.
In connection with our review, we have relied upon the accuracy and
completeness of all information provided to us by the Company and Temptronic
and their representatives, and we have not attempted to independently verify
any such information. We have also relied upon the assessment of the
managements of the Company and Temptronic regarding their respective businesses
and prospects, and assumed that the budgets and financial projections provided
to us were prepared by the respective managements on the basis of reasonable
assumptions and reflected the best currently available estimates and good faith
judgments of their future financial performance. We have also assumed that the
final terms of the Merger Agreement and certain related documents reviewed by
us in draft form will not vary materially from the drafts reviewed by us, and
that the Merger will have the tax and accounting consequences described in the
Proxy Statement. We have not made an independent evaluation or appraisal of the
Company's or Temptronic's assets and liabilities. Our opinion is necessarily
based on financial, market, economic and other conditions as they exist and can
be evaluated as of the date of this letter. We undertake no obligation to
update this opinion to reflect any developments occurring after the date
hereof.
Janney Montgomery Scott LLC ("Janney") is a nationally recognized investment
banking firm and, as part of its investment banking activities, is regularly
engaged in the valuation of businesses and securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and valuations for corporate and other purposes.
Janney will receive customary fees from inTEST in connection with the Merger.
In addition, the Company has agreed to indemnify Janney against
C-1
<PAGE>
certain liabilities arising out of the rendering of this opinion. We have in
the past performed investment banking and other services for the Company,
including mergers and acquisitions advisory and equity underwriting, and have
been compensated for such services. In the ordinary course of our securities
business we may trade the equity securities of inTEST for our own account and
the accounts of our customers and, therefore, we may from time to time hold a
long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of the Company in evaluating the Merger and does not address the
relative merits of the Merger or any other business strategies being considered
by the Company's Board of Directors, nor does it address the Board's decision
to proceed with the Merger. We are expressing no opinion as to the prices at
which the Company Common Stock will trade at any time. Our opinion does not
constitute a recommendation to any shareholder of the Company as to how such
shareholder should vote their shares in the Merger. This opinion may not be
used for any other purpose, and may not be quoted or referred to, in whole or
in part, without our prior written consent, except that this opinion may be
included in its entirety in any filing with the Securities and Exchange
Commission in connection with the Merger.
Based upon the foregoing, we are of the opinion, as of the date hereof, that
the Exchange Ratio in connection with the proposed Merger is fair to the
Company from a financial point of view.
Very truly yours,
/s/ JANNEY MONTGOMERY SCOTT LLC
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Indemnification of Directors and Officers
Article VI of inTEST's bylaws provides that inTEST shall indemnify its
directors and officers to the fullest extent permitted by the General
Corporation Law of the State of Delaware. The bylaws require inTEST, among
other things, to indemnify its directors and officers against certain
liabilities that may arise by reason of their status or service as directors or
officers, to advance expenses to them as they are incurred, provided that they
undertake to repay the amount advanced if it is ultimately determined by a
court that they are not entitled to indemnification and to obtain directors'
and officers' liability insurance if available on reasonable terms. The bylaws
require inTEST to indemnify an officer or director in connection with a
proceeding (or part thereof) initiated by the officer or director only if the
initiation of the proceeding was authorized by the board of directors.
Reference is made to Section 145 of the Delaware General Corporation Law which
provides for indemnification of directors and officers in certain
circumstances.
Article IX of inTEST's certificate of incorporation provides that a
director of inTEST shall not be personally liable to inTEST or its shareholders
for monetary damages for breach of his or her fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
inTEST or its shareholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
willful or negligent conduct in paying dividends or repurchasing stock out of
other than lawfully available funds, or (iv) for any transaction from which the
director derives an improper personal benefit.
inTEST has an insurance policy which will entitle it to be reimbursed for
certain indemnity payments it is required or permitted to make to its directors
and officers.
Exhibits and Financial Statement Schedules
(a) The exhibits listed in the Index to Exhibits are attached or
incorporated herein by reference and filed as part of this Registration
Statement.
(b) The financial statement schedule listed in the Index to Consolidated
Financial Statements and Financial Statement Schedule is filed as part of this
Registration Statement.
Undertakings
The undersigned registrant hereby undertakes as follows:
(1) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that the reoffering prospectus
will contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of the applicable
form.
(2) that every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until the
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of the securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of the request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
II-1
<PAGE>
(4) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it
became effective.
(5) for the purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(6) for the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in, in the Township of Cherry Hill, and
State of New Jersey on the 4th day of February, 2000.
inTEST Corporation
By: /s/ Robert E. Matthiessen
-------------------------------
Robert E. Matthiessen
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Robert E. Matthiessen and Hugh T. Regan, Jr., and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution, to sign on
his behalf, individually and in each capacity stated below, all amendments and
post-effective amendments to this Registration Statement on Form S-4 and any
subsequent registration statement filed by the registrant pursuant to Rule
462(b) of the Securities Act and to file the same, with all exhibits thereto
and any other documents in connection therewith with the Commission under the
Securities Act, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as each might or could do in person, hereby ratifying and confirming
each act that said attorneys-in-fact and agents may lawfully do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities
indicated on February 4, 2000.
<TABLE>
<S> <C>
/s/ Alyn R. Holt Chairman
- -----------------------------------
Alyn R. Holt
/s/ Robert E. Matthiessen President, Chief Executive Officer and Director
- ----------------------------------- (principal executive officer)
Robert E. Matthiessen
/s/ Douglas W. Smith Executive Vice President, Chief Operating Officer and
- ----------------------------------- Director
Douglas W. Smith
/s/ Daniel J. Graham Vice Chairman, Senior Vice President and Director
- -----------------------------------
Daniel J. Graham
/s/ Hugh T. Regan, Jr. Chief Financial Officer, Treasurer, and Secretary
- ----------------------------------- (principal financial officer)
Hugh T. Regan, Jr.
/s/ Richard O. Endres Director
- -----------------------------------
Richard O. Endres
/s/ Stuart F. Daniels Director
- -----------------------------------
Stuart F. Daniels
/s/ Gregory Slayton Director
- -----------------------------------
Gregory Slayton
</TABLE>
II-3
<PAGE>
INDEX TO EXHIBITS
2.1 Agreement and Plan of Merger.
3.1 Certificate of Incorporation. (1)
3.2 By-Laws. (1)
4 Specimen stock certificate, representing Common Stock. (2)
5 Legal Opinion from Saul, Ewing, Remick & Saul LLP.
8 Legal Opinion regarding tax matters from Saul, Ewing, Remick & Saul
LLP.
10.1 Amended and Restated Loan Agreement, dated June 30,1996, between inTEST
Corporation and PNC Bank, National Association. (1) (Amended effective
as of June 30, 1998 pursuant to an Amendment to Loan Documents dated
October 5, 1998 which is listed below as Exhibit 10.11).
10.2 Lease, dated February 11, 1996, between First Industrial L.P. (formerly
Cherry Hill Industrial Sites, Inc.) and inTEST. (1)
10.3 Lease, dated August 5, 1996, between KIP Properties and inTEST. (1)
10.4 Tenancy Agreement, dated April 18, 1996, between Alambon Tools Private
Limited and inTEST PTE. (1)
10.5 1997 Stock Plan. (3)
10.6 Consulting Agreement, dated April 1, 1997, between inTEST and Stuart F.
Daniels, Ph.D. (1)
10.7 Lease, dated August 22, 1997, between First Industrial L.P. (formerly
Cherry Hill Industrial Sites, Inc.) and inTEST. (4)
10.8 Lease Agreement, dated March 3, 1998, between inTEST Limited and Alan
Breck Robertson and Mavis Robertson. (5)
<PAGE>
10.9 Lease, dated January 16, 1998, between Tasman Associates and inTEST
Sunnyvale, Inc. (as successor by merger with TestDesign Corporation)
and First Amendment signed February 24, 1999. (6)
10.10 Lease, dated June 12, 1998, between A. Bogomilsky and inTEST Sunnyvale,
Inc. (as successor by merger with TestDesign Corporation). (6)
10.11 Amendment to Loan Documents dated October 5, 1998, amending the loan
agreement listed above as Exhibit 10.1. (6)
10.12 Lease Agreement between inTEST and Hoot Owl Farms, Inc. dated July 28,
1999. (7)
21 Subsidiaries of inTEST
23.1 Consent of Saul, Ewing, Remick & Saul LLP (contained in its opinion
filed as Exhibit 5 hereto)
23.2 Consent of KPMG LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of Janney Montgomery Scott LLC
24 Power of attorney (included in signature page of this Registration
Statement)
<PAGE>
99 Fairness Opinion of Janney Montgomery Scott LLC
(1) Previously filed by inTEST as an exhibit to its Registration
Statement on Form S-1, Registration Statement No. 333-26457.
(2) Previously filed by inTEST as an exhibit to Amendment No. 2 to
Form S-1 filed on June 6, 1997.
(3) Previously filed by inTEST as an exhibit to its Registration
Statement on Form S-8, Registration Statement No. 333-44059.
(4) Previously filed by inTEST as an exhibit to its Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997.
(5) Previously filed by inTEST as an exhibit to its Annual Report
on Form 10-K for the fiscal year ended December 31, 1997.
(6) Previously filed by inTEST as an exhibit to its Annual Report
on Form 10-K for the fiscal year ended December 31, 1998.
(7) Previously filed by inTEST as an exhibit to its Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999.
<PAGE>
AMENDED AND RESTATED AGREEMENT AND
PLAN OF MERGER AND REORGANIZATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
1. Merger ................................................................ A-2
2. The Closing ........................................................... A-2
3. Conversion of Capital Stock ........................................... A-2
4. Escrow Fund ........................................................... A-3
5. Warranties and Representations of inTEST and Newsub ................... A-5
6. Warranties and Representations of the Company ......................... A-7
7. Conduct of Business ................................................... A-15
8. News Releases ......................................................... A-15
9. Registration Statement, Proxy Statement and Piggyback Rights .......... A-15
10. Shareholder Meetings ................................................. A-16
11. Covenants of the Parties ............................................. A-16
12. Conditions to Obligations of Each Party .............................. A-17
13. Conditions to Obligations of the Company ............................. A-17
14. Conditions to Obligations of inTEST and Newsub ....................... A-18
15. Indemnity by inTEST and Newsub ....................................... A-19
16. Indemnities by the Shareholders of the Company ....................... A-20
17. Indemnification Procedure ............................................ A-20
18. Duty to Minimize Damages ............................................. A-22
19. Survival of Representations .......................................... A-22
20. Notices .............................................................. A-22
21. General .............................................................. A-23
</TABLE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
Agreement and Plan of Merger and Reorganization (the "Agreement") made as
of January 4, 2000 by and among Temptronic Corporation, a Massachusetts
corporation (the "Company"), inTEST Corporation, a Delaware corporation
("inTEST") and Temptronic Corporation, a Delaware corporation ("Newsub").
RECITALS
The Company desires that the Company be merged with and into Newsub.
inTEST owns all of the issued and outstanding capital stock of Newsub and
desires that the Company merge with and into Newsub.
Newsub was incorporated on December 14, 1999 expressly for the purpose of
this Agreement and has not conducted any business.
For federal income tax purposes, it is intended that the merger of the
Company into Newsub shall qualify as a reorganization within the meaning of
Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as
amended (the "Code").
It is the intent of all parties hereto that at the time of the Closing
(defined below) that the Company be merged with and into Newsub and that Newsub
be the surviving corporation.
WITNESSETH
In consideration of the payments, mutual promises, representations,
covenants and actions herein provided, the parties hereto, each intending to be
legally bound hereby, do agree as follows:
A-1
<PAGE>
1. Merger
(a) Agreement of Merger. Subject to the terms and upon the conditions set
forth herein, at the time of the Closing, the Company and Newsub shall execute
and deliver the Agreement of Merger in the form of Exhibit "A" hereto (the
"Agreement of Merger") and file the Agreement of Merger and any required
certificates and other documents with the Secretary of the State of Delaware
and the Secretary of State of Massachusetts.
(b) The Merger. At the time of the Closing, the Company shall be merged
with and into Newsub in accordance with the Agreement of Merger (the "Merger"),
with Newsub as the "Surviving Corporation", and the separate existence of the
Company shall cease.
2. The Closing
The "Closing" hereunder shall be made at 10:00 o'clock a.m. on or about
March 9, 2000 (the "Closing Date") at the offices of Saul, Ewing, Remick &
Saul, Philadelphia, Pennsylvania, or at such other time and place as the
parties shall mutually agree. In no event shall the Closing take place later
than April 30, 2000 unless all parties hereto agree; and if all of such parties
do not so agree, any party may give notice to the other parties that this
Agreement is terminated.
3. Conversion of Capital Stock
(a) Company Stock. At the time of the Merger, each share of the common
stock of the Company issued and outstanding immediately prior thereto (the
"Company Common Stock") shall be converted into the right to receive .925
shares of the Common Stock of inTEST, par value $.01 per share (the "inTEST
Stock") (the "Exchange Ratio"), and each share of the Company Common Stock
issued and held in the treasury of the Company shall be cancelled and retired.
(b) Newsub Stock. At the time of the Merger, each share of the common
stock, par value $.01 per share, of Newsub (the "Newsub Common Stock") issued
and outstanding immediately prior thereto shall not be converted and shall
remain issued and outstanding.
(c) Company Options. At the time of the Merger, each outstanding option to
acquire or receive Company Common Stock (whether or not vested) (the "Company
Options") shall be transferred to and assumed by inTEST in such manner that it
is converted into an option to purchase shares of inTEST Stock ("inTEST
Option"). Following the time of the Merger each inTEST Option shall be
exercisable upon the same terms and conditions as then were applicable to such
Company Options, except that (i) each inTEST Option shall be exercisable for
that number of shares of inTEST Stock equal to the product obtained by
multiplying the number of shares of Company Common Stock that were issuable
upon exercise in full of such assumed Company Option immediately prior to the
time of the Merger by the Exchange Ratio, rounded down to the nearest whole
number of shares of inTEST Stock and (ii) the per share exercise price for the
shares of inTEST Stock issued upon exercise of inTEST Options shall be equal to
the quotient obtained by dividing the exercise price per share of Company Stock
at which such Company Option was exercisable immediately prior to the time of
the Merger by the Exchange Ratio, rounded up to the nearest whole cent. It is
the intention of the parties that, to the extent that any Company Option
constituted an "incentive stock option" (within the meaning of Section 422 of
the Code) immediately prior to the time of the Merger, the inTEST Option shall
continue to qualify as an incentive stock option to the maximum extent
permitted by Section 422 of the Code and that the assumption of the Company
Options provided by this Section 3(c) satisfy the conditions of Section 424(a)
of the Code. As soon as practicable after the Closing inTEST shall use
reasonable efforts to file and cause to become effective a Form S-8
registration statement under the Securities Act to cover the inTEST Stock to be
issued upon the exercise of the inTEST Options into which the Company Options
are converted.
(d) Exchange Agent. inTEST shall appoint a reputable institution
reasonably acceptable to the Company to serve as Exchange Agent (the "Exchange
Agent") in the Merger.
(e) inTEST to Provide inTEST Stock. Promptly after the time of the Merger,
inTEST shall make available to the Exchange Agent for exchange in accordance
with this Section 3 the shares of inTEST Stock issuable pursuant to Section
3(a) in exchange for all the outstanding shares of the Company Stock.
A-2
<PAGE>
(f) Exchange Procedures. Promptly after the time of the Merger, inTEST
shall cause the Exchange Agent to mail to each holder of record (as of the time
of the Merger) of a certificate or certificates (the "Certificates") which,
immediately prior to the time of the Merger represented outstanding shares of
Company Stock, which shares were converted into shares of inTEST Stock pursuant
to Section 3(a), (i) a letter of transmittal (which shall specify that delivery
shall be effective, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall contain
such other provisions as inTEST may reasonably specify) and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for
certificates representing shares of inTEST Stock. Upon surrender of
Certificates for cancellation to the Exchange Agent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holders of such Certificates shall be entitled to
receive in exchange therefor Certificates representing the number of whole
shares of inTEST Stock into which their shares of Company Stock were converted
at the time of the Merger (less the shares of inTEST Stock deposited in the
Escrow Fund), and the Certificates so surrendered shall forthwith be cancelled.
Until so surrendered, outstanding Certificates will be deemed from and after
the time of the Merger, for all corporate purposes, to evidence the ownership
of the number of full shares of inTEST Stock into which such shares of Company
Stock shall have been so converted. If any portion of the inTEST Stock, and
cash in lieu of fractional shares thereof otherwise payable hereunder to any
person, is to be issued or paid to a person other than the person in whose name
the Certificate is registered, it shall be a condition of such issuance or
payment that the Certificate so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the person requesting such
issuance or payments shall pay to the Exchange Agent any transfer or other
taxes required as a result of such issuance or payment to a person other than
the registered holder of such Company Stock or establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not payable.
(g) Fractional Shares. No fractional shares of inTEST Stock shall be
issued pursuant to the Merger. In lieu of the issuance of any fractional share
of inTEST Stock pursuant to the Merger, cash adjustment will be paid to holders
in respect of any fractional share of inTEST Stock that would otherwise be
issuable, and the amount of such cash adjustment shall be equal to the product
of such fractional share and the closing price of inTEST Stock on the Closing
Date.
(h) Rule 145. Subject to applicable law, Company Stock Certificates
surrendered for exchange by any person constituting an "affiliate" of the
Company for purposes of Rule 145 (c) under the Securities Act of 1933, as
amended (the "Securities Act"), shall not be exchanged until inTEST has
received a written agreement in substantially the form attached hereto as
Exhibit "B" from such person agreeing to comply with the provisions of Rule 145
under the Securities Act.
4. Escrow Fund
(a) Escrow Agreement. At the time of the Closing, inTEST, Newsub,
Shareholder Representative and PNC Bank, National Association, (the "Escrow
Agent") shall enter into an Escrow Agreement in the form attached as Exhibit
"C" hereto (the "Escrow Agreement").
(b) Deposits to the Escrow Funds. At the time of the Closing, from the
shares of inTEST Stock to be delivered to the former shareholders of the
Company hereunder, inTEST shall deliver a stock certificate representing 10% of
such shares of the inTEST Stock to the Escrow Agent which shares shall be
deposited in the "Escrow Fund". All such shares shall be held and distributed
in accordance with the terms of this Agreement and the Escrow Agreement.
(c) Claims Under Agreement. If an event or state of facts giving rise to
indemnification under Section 16 hereof has occurred (an "Event"), inTEST shall
provide the Shareholder Representative and the Escrow Agent with a Claim Notice
in accordance with the terms of Section 17 hereof, stating that such Event has
occurred, describing such Event in reasonable detail, specifying the amount of
the Losses and the method of computation thereof, containing a reference to the
provision(s) of this Agreement in respect of which such right of
indemnification is claimed or arises (a "Claim"). inTEST may make more than one
Claim with respect to any Event.
A-3
<PAGE>
(i) If all or a portion of the amount described in a Claim Notice
becomes an Admitted Liability or is determined by an arbitrator (as
provided in Section 21(b) hereof) to be due and owing to inTEST, then the
Escrow Agent shall be instructed to distribute, out of the Escrow Fund, to
inTEST (or, at the direction of inTEST, to Newsub) such number of shares
of inTEST Stock having a Market Value equal to the amount due to inTEST.
The "Market Value" of a share of the inTEST Stock for the purposes of this
Agreement shall be the closing price of a share of the inTEST Stock as
reported by The NASDAQ Stock Market ("NASDAQ") on the Closing Date.
(ii) If the Shareholder Representative delivers to inTEST a Dispute
Statement in accordance with the terms of Section 17, then the portion of
the Claim that is disputed shall not be payable by the Escrow Agent to
inTEST or Newsub, except in accordance with a final decision of an
arbitrator (as provided in Section 21(b) hereof) or by joint written
instructions by inTEST and the Shareholder Representative to the Escrow
Agent stipulating the number of shares of inTEST Stock to be distributed
out of the Escrow Fund, which shares of inTEST Stock shall have a Market
Value equal to the amount of the Claim then due and payable.
(iii) If as a result of a Third Party Claim inTEST incurs Losses for
which it is determined that inTEST is entitled to indemnification under
Section 16, then the Escrow Agent shall be instructed to distribute to
inTEST out of the Escrow Fund such number of shares of inTEST Stock
having a Market Value equal to such Losses.
(d) Final Payment from Escrow Fund. On a date one year after the Closing
Date (the "Final Release Date"), the Escrow Agent shall be instructed to
deliver to the former shareholders of the Company the remaining balance of the
inTEST Stock in the Escrow Fund.
(e) Termination of the Escrow. The escrow shall terminate upon the final
disbursement of all shares of inTEST Stock deposited with the Escrow Agent as
provided herein and the Escrow Agreement.
(f) Escrow Agent Fees. The fees of the Escrow Agent shall be paid by
inTEST.
(g) Appointment of Shareholder Representative. Samuel Rubinowitz (or
another person designated by the Company) shall, by virtue of the Merger and
the resolutions to be adopted at the Company Shareholders Meeting, be
irrevocably appointed attorney-in-fact and authorized and empowered to act, for
and on behalf of any or all of the shareholders of the Company (with full power
of substitution) in connection with the indemnification provisions of this
Agreement as they relate to such shareholders generally, the Escrow Agreement,
the notice provisions of this Agreement and such other matters as are
reasonably necessary for the consummation of the transactions contemplated
hereby, including to act as the representative of such shareholders to review
and authorize all claims and other payments authorized or directed by the
Escrow Agreement and dispute or question the accuracy thereof, to compromise on
their behalf with inTEST any claims asserted thereunder and to authorize
payments to be made with respect thereto, and to take such further actions as
are authorized in this Agreement. The above-named representative, as well as
any subsequent representative of the shareholders of the Company appointed by
such representative (or, after such representative's death or incapacity,
elected by vote of holders of a majority of capital stock of the Company
outstanding immediately prior to the Merger), is referred to herein as the
"Shareholder Representative." The Shareholder Representative shall not be
liable to any stockholder of the Company, inTEST, Newsub, the Surviving
Corporation or any other person with respect to any action taken or omitted to
be taken by the Shareholder Representative under or in connection with this
Agreement or the Escrow Agreement unless such action or omission results from
or arises out of fraud, gross negligence, willful misconduct or bad faith on
the part of the Shareholder Representative. The shareholders of the Company
shall severally indemnify and hold the Shareholder Representative harmless
against any loss, liability or expense incurred without fraud, gross
negligence, willful misconduct or bad faith on the part of the Shareholder
Representative and arising out of or in connection with the acceptance or
administration of the duties of the Shareholder Representative hereunder,
including the reasonable fees and expenses of any legal counsel retained by the
Shareholder Representative. Each of inTEST and Newsub and each of their
respective affiliates shall be entitled to rely on such appointment and treat
the Shareholder Representative as the duly appointed attorney-in-fact of each
shareholder of the Company. Each shareholder of the Company who votes in favor
of the Merger pursuant to
A-4
<PAGE>
the terms hereof, by such vote, without any further action, and each
shareholder of the Company who receives shares of inTEST Stock in connection
with the Merger, by acceptance thereof and without any further action, confirms
such appointment and authority and acknowledges and agrees that such
appointment is irrevocable and coupled with an interest, it being understood
that the willingness of inTEST and Newsub to enter into this Agreement is
based, in part, on the appointment of a representative to act on behalf of the
shareholders of the Company.
5. Warranties and Representations of inTEST and Newsub
inTEST and Newsub, jointly and severally, represent and warrant to the
Company as follows, and all such representations and warranties shall be true
and correct at and as of the Closing as though then made:
(a) Organization of inTEST and Newsub. Each of inTEST and Newsub is a
corporation duly organized and validly existing in good standing under the laws
of the State of Delaware, and each is qualified, in good standing and entitled
to own its properties and conduct its business all as and in the places where
such properties are now owned or such business is conducted, except where
failure to be so qualified would not have a material adverse effect on the
business, results of operation or financial condition, in each case taken as a
whole (a "Material Adverse Effect"), on inTEST and its subsidiaries taken as a
whole. Newsub was incorporated on December 14, 1999 expressly for the purposes
of the Merger and has not conducted any business.
(b) Corporate Power. Each of inTEST and Newsub has all requisite corporate
power and authority to execute and deliver this Agreement and all of the
documents related hereto, to perform all the terms and conditions hereof to be
performed by them and, subject to shareholder approval, to consummate the
transaction contemplated hereby.
(c) Capitalization of inTEST. inTEST has an authorized capital stock of
20,000,000 shares of Common Stock, par value $.01 per share, 6,536,034 shares
of which are duly issued and now outstanding, fully paid and non-assessable,
and 5,000,000 shares of Preferred Stock, par value $.01 per share, none of
which are issued and outstanding. All voting rights are vested exclusively in
the said Common Stock. Except for 500,000 shares of said Common Stock reserved
for issuance under employee and director stock options, there are no authorized
or outstanding options, warrants, convertible securities, subscription rights,
puts, calls, unsatisfied preemptive rights or other rights of any nature to
purchase or otherwise receive, or to require inTEST to purchase, redeem or
acquire any shares of the capital stock of inTEST, and there is no outstanding
security of any kind convertible into such capital stock. No shareholder of
inTEST has been granted any registration rights in respect of the securities of
inTEST. The inTEST Common Stock to be issued pursuant to the Merger will be
duly authorized, validly issued, fully paid and non-assessable, and not subject
to preemptive rights created by statute, inTEST's Certificate of Incorporation
or By-Laws or any agreement to which inTEST is a party or by which inTEST is
bound.
(d) No Proceedings in Dissolution. No proceedings or actions are pending
to limit or impair any of the powers, rights or privileges of inTEST or Newsub.
(e) Certificate of Incorporation and By-Laws. Copies of the Certificates
of Incorporation and By-Laws, and all amendments thereto, of inTEST and Newsub
delivered to the Company are true and complete copies thereof and such
Certificates of Incorporation and By-Laws have not been amended since such
delivery.
(f) Authorization of Agreement and Enforceability. The execution and
delivery of this Agreement on behalf of inTEST and Newsub have been duly
approved by the boards of directors of inTEST and Newsub and the sole
stockholder of Newsub, and, with the exception of approval of this Agreement by
the shareholders of inTEST, no further corporate action is required to approve
the execution, delivery and performance of this Agreement on behalf of inTEST
or Newsub. The Agreement constitutes the legal, valid and binding obligation of
inTEST and Newsub enforceable in accordance with its terms and conditions.
(g) Conflict. Except for the filing and effectiveness of the Registration
Statement and the Joint Proxy Statement, filings under the state securities
laws, the approval by the shareholders of inTEST and Newsub, and the
fulfillment of the conditions required under this Agreement, the execution,
delivery and performance
A-5
<PAGE>
by inTEST and Newsub of this Agreement and the consummation of the transactions
contemplated hereby will not (with or without the giving of notice or the lapse
of time, or both): (i) violate any provision of the Certificate of
Incorporation or By-Laws of inTEST or Newsub, (ii) violate or require any
consent, authorization or approval of, or exemption by, or filing under any
provisions of law, statute, rule or regulation to which inTEST or Newsub is
subject, (iii) violate any judgment, order, writ or decree of any court
applicable to inTEST or Newsub, (iv) conflict with, result in a breach of,
constitute a default under, or accelerate or permit the acceleration of the
performance required by or require any consent, authorization or approval
(which has not been obtained) under any contract, agreement or instrument to
which inTEST or Newsub is a party or any of the assets of inTEST or Newsub are
bound, or (v) result in the creation or imposition of any claim, demand,
charge, mortgage, judgment, lien, lease, security interest, easement or any
encumbrance whatsoever upon any of the assets of inTEST or Newsub, which
violation, conflict, breach, default, acceleration or encumbrance or the
failure to make or obtain such filing, consent, authorization or approval with
respect to the matter specified in clauses (ii) through (v) could, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect
on inTEST or prevent or delay the consummation of the transactions contemplated
by this Agreement.
(h) Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any governmental body or any other
party is required by or with respect to inTEST or Newsub in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing with the Securities
and Exchange Commission (the "SEC") of the joint proxy statement of inTEST and
the Company, as amended from time to time through effectiveness (the "Joint
Proxy Statement"), pursuant to the Securities Act for the solicitation of the
approval of the shareholders of inTEST, (ii) the filing with the SEC of a
registration statement on Form S-4 (the "Registration Statement") pursuant to
the Securities Act with respect to those shares of inTEST issuable in the
Merger, in which the Joint Proxy Statement will be included as part of the
Registration Statement, (iii) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable federal and state securities law, (iv) any applicable filing
required under the Hart Scott Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (v) the approval of the shareholders of inTEST, (vi)
any other such filings or approvals as may be required under Delaware law and
(vii) such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings which, if not obtained or made would not, individually
or in the aggregate have a Material Adverse Effect on inTEST or prevent or
materially delay the consummation of the transactions contemplated hereby.
(i) Financial Statements and SEC Reports.
(i) The audited consolidated balance sheet of inTEST as of December 31,
1998 (the "inTEST Balance Sheet"), and the related consolidated statements
of earnings, changes in shareholders' equity and cash flows for the year
then ended, with related notes, certified by KPMG LLP, certified public
accountants, copies of which have been delivered to the Company, present
fairly the financial position and results of operations and changes in
financial position of inTEST on the date or for the fiscal period covered
by such financial statements and were prepared in accordance with United
States generally accepted accounting principles ("GAAP"), and there has
been no material adverse change in the condition, financial or otherwise,
results of operations, retained earnings or business of inTEST from that
set forth in the financial statements dated December 31, 1998.
(ii) inTEST has filed all forms, reports and documents required to be
filed by it with the SEC under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (collectively, the "SEC Reports"). The SEC
Reports (i) at the time filed complied in all material respects in
accordance with the requirements of the Securities Act and the Exchange
Act, as the case may be, and the rules and regulations thereunder and (ii)
did not, at the time they were filed, contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. No
subsidiary of inTEST is currently required to file any form, report or
other document with the SEC under Section 12 of the Exchange Act.
(iii) inTEST has delivered to the Company a copy of each SEC Report in
the form filed with the SEC (excluding exhibits and any amendments
thereto and all documents incorporated by reference
A-6
<PAGE>
therein) since January 1, 1999. inTEST has furnished to the Company
complete and correct copies of all material amendments and modifications
(if any) that have not been filed by inTEST with the SEC to all agreements,
documents and other instruments that previously had been filed by inTEST as
exhibits to SEC Reports and are currently in effect.
(j) No Undisclosed Liabilities. Except (i) to the extent set forth on the
inTEST Balance Sheet, including the Notes thereto, or (ii) as disclosed in any
SEC Report filed by inTEST after December 31, 1998, inTEST does not have any
liability or obligation of any nature (whether accrued, absolute, contingent or
otherwise) which would be required to be reflected on a balance sheet, or in
the notes thereto, prepared in accordance with GAAP which would have a Material
Adverse Effect on inTEST, except for liabilities and obligations incurred in
the ordinary course of business consistent with past practice since December
31, 1998.
(k) Litigation. Except as set forth in Schedule "5(k)", there are no
material actions, suits or proceedings pending or, to the Actual Knowledge
(defined below) of inTEST or Newsub, threatened against or affecting inTEST or
Newsub or their properties or business before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency,
court or instrumentality. To the Best Knowledge (defined below) of inTEST,
there is no basis for any such action, suit or proceeding, the outcome of which
would have a Material Adverse Effect on inTEST. There are no outstanding
orders, decrees or stipulations which will have a Material Adverse Effect on
inTEST. There is no litigation or proceedings pending or, to the Actual
Knowledge of inTEST, threatened against or affecting inTEST or Newsub or
pertaining to this Agreement, the result of which could prevent, delay or make
unlawful the consummation of the transaction contemplated by this Agreement.
(l) Finders Fee. No person, corporation, partnership or firm retained by
or on behalf of inTEST or Newsub (i) brought about the transaction contemplated
hereunder or (ii) is entitled to any commission or fee from the Company, inTEST
or Newsub upon consummation of such transaction.
6. Warranties and Representations of the Company
The Company represents and warrants to inTEST and Newsub as follows and
all such representations and warranties shall be true and correct at and as of
the Closing as though then made:
(a) Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of The
Commonwealth of Massachusetts. The Company has full corporate power and
authority to own, lease and use its properties and assets that it purports to
own, lease or use and to carry on its business as presently conducted. The
Company is duly qualified or licensed to do business and is in good standing as
a foreign corporation in each of the jurisdictions where the nature of its
business requires such qualification, except as set forth in Schedule "6(a)" or
except where the failure to be so qualified would not result in a loss to or a
liability of the Company in excess of $5,000. The Company is duly qualified and
licensed to do business in the jurisdictions set forth in Schedule "6(a)".
(b) Corporate Power. The Company has all requisite corporate power and
authority to execute and deliver this Agreement and all of the documents
related hereto, and subject to the approval of the shareholders of the Company,
to consummate the transaction contemplated hereby and to perform all of the
terms and conditions hereof to be performed by the Company.
(c) Capitalization. The authorized capital stock of the Company consists
of 3,000,000 shares of Common Stock, of which 2,204,120 shares are issued and
outstanding. All of the said shares of the Company Common Stock are validly
issued, fully paid and non-assessable and are entitled to vote at the
shareholder meeting at which the Merger will be considered, and none of the
shares of the Company Common Stock has been issued in violation of any
applicable law or any pre-emptive rights of any shareholder by which the
Company is bound or transferred in violation of any transfer restrictions
relating thereto under the Stockholders Agreements set forth on Schedule "6(c)"
(the "Stockholder Agreements"). Except as set forth in Schedule "6(c)", there
are no authorized or outstanding options, warrants, convertible securities,
subscriptions rights, puts, calls, unsatisfied pre-emptive rights or other
rights of any nature to purchase or otherwise receive, or to require the
Company to purchase, redeem, acquire or register, any shares of the capital
stock or other
A-7
<PAGE>
securities of the Company, and there is no outstanding security of any kind
convertible into such capital stock. Except as set forth in Schedule "6(c)", to
the Best Knowledge of the Company, there are no existing stockholder
agreements, voting agreements or voting trusts respecting any shares of the
capital stock of the Company.
(d) Corporate Instruments and Records. The copies of the Company's
Articles of Organization and By-Laws heretofore furnished to inTEST are true,
correct and complete and each include all amendments to the date of this
Agreement. Copies of the Company's minute books, as made available to inTEST,
contain a true and correct record of all material corporate action taken on or
prior to the date of this Agreement at the meetings of the Company's
shareholders and directors and committees thereof, and no meetings of any
shareholders, directors or committees have been held for which minutes have not
been prepared and are not contained in such minute books. Copies of the stock
certificate books and ledgers of the Company, as made available to inTEST for
inspection, are true, correct and complete copies of such books and ledgers, as
currently in effect, and accurately reflect, as of the date hereof, the
ownership of the Company Common Stock. The books of account, minute books,
stock record books and other records of the Company, copies of all of which
have been made available to inTEST, are complete and correct in all material
respects and have been maintained in accordance with reasonably sound business
practices. On the Closing Date, all of the Company's minute books and corporate
records will be in the possession of the Company.
(e) Subsidiaries. Except as set forth on Schedule "6(e)", the Company (i)
has no subsidiaries or affiliates or any ownership interest in any other
entity, (ii) is not a party to any joint venture and (iii) does not have the
right to acquire any securities of or ownership interest in any other person or
entity. Each of the subsidiaries of the Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated. Each subsidiary has full corporate
power and authority to own, lease and use its properties and assets that it
purports to own, lease or use and to carry on its business as presently
conducted. Each subsidiary of the Company is duly qualified or licensed to do
business and is in good standing in each of the jurisdictions where the nature
of its business requires such qualification, except where the failure to be so
qualified would not result in a loss or liability of such subsidiary in excess
of $5,000.
(f) No Proceedings in Dissolution. No proceedings or actions are pending
to limit or impair any of the powers, rights or privileges of the Company.
(g) Authorization of Agreement and Enforceability. The execution and
delivery of this Agreement on behalf of the Company have been duly approved by
the Board of Directors of the Company, and no further corporate action is
required to approve the execution and delivery of this Agreement on behalf of
the Company. This Agreement constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms and conditions.
(h) Property and Assets. Schedule "6(h)" contains a true and correct
schedule and brief description of all of the tangible personal property owned
or leased by the Company having a fair market value in excess of $2,500, and
such assets are in good operating condition, reasonable wear and tear excepted,
and generally conform with all applicable municipal ordinances, regulations,
building and zoning laws. Except as set forth in Schedule "6(h)", the Company
has good title, free from any liens, security interests or encumbrances of any
kind, to all the assets listed or described as being owned in the Company
Balance Sheet and Schedule "6(h)", except for (i) any lien, claim or
encumbrance securing taxes, assessments, governmental charges or levies, or the
claims of materialmen, carriers, landlords and like persons, all of which are
not yet due and payable, and (ii) imperfections of title and other minor liens,
claims and encumbrances that do not materially detract from the value or impair
the use of the asset subject thereto. None of such assets, property or
operations of the Company have been adversely affected by fire, windstorm,
floods, strikes, walkouts, acts of God, condemnation of property or any other
cause.
(i) Financial Statements. The books of the Company fairly and correctly
reflects its income, expenses, assets and liabilities in accordance with GAAP
consistently applied. The balance sheets of the Company as of June 30, 1999,
1998 and 1997 and the related statements of income, shareholders' equity and
cash flow for the years then ended, certified by Ernst & Young LLP, independent
public accountants, and an unaudited balance sheet of the Company at November
30, 1999 (the "Company Balance Sheet") and the related
A-8
<PAGE>
Statement of Income, with related notes, copies of which have been delivered to
inTEST, present fairly the financial position and results of operations and
changes in financial position of the Company on the dates and for the fiscal
periods covered by such financial statements and were prepared in accordance
with GAAP applied on a consistent basis. There has been no Material Adverse
Effect on the financial condition, results of operations, retained earnings or
business of the Company from that set forth in the financial statements dated
November 30, 1999.
(j) No Undisclosed Liabilities. The Company has no debts, liabilities or
obligations in excess of $5,000 in the aggregate, known or unknown, of any
kind, character or description whether accrued, absolute, contingent or
otherwise or due or to become due, except (i) to the extent reflected in the
Company Balance Sheet; (ii) to the extent described or referred to in this
Agreement or in any Schedule to this Agreement; and (iii) those incurred in or
as a result of the ordinary course of business of the Company since November
30, 1999, each of which has been consistent with past practices. To the Best
Knowledge of the Company, there is no basis for the assertion against the
Company by any person of any claim in excess of $5,000 based on a liability
which is required to be and is not disclosed in the Company Balance Sheet or on
Schedule "6(p)".
(k) Accounts Receivable. All accounts receivable of the Company (i) have
or will have arisen only in the ordinary course of business consistent with
past practice for goods sold and delivered or services performed and (ii) are
collectable and will be collected in full at the recorded amounts thereof
(subject to no defenses, set-offs or counterclaims, other than the right of
customers to return goods) in the ordinary course of business (without resort
to litigation or assignment to a collection agency) no later than December 31,
2000, net of any allowance for bad debts reflected on the Company Balance
Sheet.
(l) Inventory. The inventory of the Company (i) was acquired and
maintained in accordance with the regular business practices of the Company,
(ii) consists of new and unused items of a quality and quantity usable and, to
the Best Knowledge of the Company, salable in the ordinary course of the
Company's business consistent with past practice, and (iii) is valued in
accordance with GAAP consistently applied and the value of obsolete items,
slow-moving items and of items below standard quality have been written off or
adequate reserves have been provided therefor.
(m) No Violation or Consents. Except as set forth on Schedule "6(m)", the
execution, delivery and performance by the Company of this Agreement and the
consummation of the transactions contemplated hereby will not (with or without
the giving of notice or the lapse of time, or both) (i) violate any provision
of the Articles of Organization or By-Laws of the Company, (ii) violate or
require any consent, authorization or approval of, or exemption by, or filing
under any provision of any law, statute, rule or regulation to which the
Company is subject, (iii) violate any judgment, order, writ or decree of any
court applicable to the Company, (iv) conflict with, result in a breach of,
constitute a default under, or accelerate or permit the acceleration of the
performance required by or require any consent, authorization or approval under
any contract, agreement or instrument to which the Company is a party or any of
the assets of the Company is bound or (v) result in the creation or imposition
of any claim, demand, charge, mortgage, judgment, lien, lease, security
interest, easement or any encumbrance whatsoever upon any of the assets of the
Company, which violation, conflict, breach, default, acceleration or
encumbrance or the failure to make or obtain such filing, consent,
authorization or approval with respect to the matter specified in clauses (ii)
through (v) could, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on the Company or prevent or delay the
consummation of the transactions contemplated by this Agreement.
(n) Taxes. The Company has duly prepared and timely filed all federal,
state, local and other tax returns which are required to be filed and which
were due prior to the date of this Agreement and has paid all taxes and
assessments which have become due pursuant to such returns or pursuant to any
assessment received by the Company. All such tax returns were true and correct
in all material respects and have been completed in all material respects in
accordance with applicable law. All federal, state, local and other taxes
accruable since the filing of such returns have been accrued on the books of
the Company. All taxes and other assessments and levies which the Company has
been required by law to withhold or to collect have been duly withheld and
collected and have been paid over to the proper governmental authorities or
have been properly provided for by the Company for such payment and all other
payments due in connection therewith, to the extent accrued through November
30, 1999, are duly reflected in the Balance Sheet of the Company. No
proceedings
A-9
<PAGE>
or other action has been taken, nor is there any basis for any proceedings or
other action to be taken, for the assessment and collection of additional taxes
of any kind for any period for which returns have been filed, and no additional
taxes of any kind in excess of $5,000 for any such period will be assessed or
collected. Since the examination of the 1987 federal income tax returns of the
Company, none of the federal income tax returns of the Company has been
examined by the Internal Revenue Service and to the Actual Knowledge of the
Company, there is no examination by the Internal Revenue Service presently
pending.
(o) Governmental Approvals. The Company has all permits, licenses,
registrations, orders and approvals of federal, state or local government or
regulatory bodies that are required for it to conduct its business as presently
conducted (including, without limitation, those required under any
environmental law) (collectively the "Permits") where the failure to obtain any
Permits would result in a loss to or a liability of the Company in excess of
$5,000. All Permits are in full force and effect, and the Company is in
material compliance with all of the terms and conditions of the Permits.
Schedule "6(o)" hereto sets forth the correct and complete list of all material
Permits. To the Best Knowledge of the Company, no suspension or cancellation of
any of the Permits is threatened and, to its Best Knowledge, no cause exists
for such suspension or cancellation.
(p) Litigation. Except set forth in Schedule "6(p)", there are no actions,
suits or proceedings pending or, to the Actual Knowledge of the Company,
threatened against or affecting the Company, its assets or business before or
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency, court or instrumentality. Except set forth in Schedule
"6(p)", there is no basis for any such action, suit or proceeding, the outcome
of which would result in a loss to or a liability of the Company in excess of
$5,000, and there are no outstanding orders, decrees or stipulations which
would have a Material Adverse Effect on the Company. There is no litigation or
proceedings pending or, to the Actual Knowledge of the Company, threatened
against or affecting the Company or pertaining to this Agreement, the result of
which could prevent, delay or make unlawful the consummation of the transaction
contemplated by this Agreement.
(q) Compliance with Laws. The Company has at all times conducted, and is
presently conducting, its business so as to comply with all laws, ordinances
and regulations applicable to the conduct or operation of its business or the
ownership or use of its assets, in each case except where the failure to comply
would not, individually or in the aggregate result in a loss to or a liability
of the Company in excess of $5,000.
(r) Contracts and Commitments. Except as listed and described on Schedule
"6(r)" hereto, the Company is not a party to any written or oral:
(i) agreement, contract or commitment for the future purchase of or
payment for supplies or products or for the performance of
services by another party involving in any one case $5,000 or
more per annum;
(ii) agreement, contract or commitment to sell or supply products or
to perform services involving in any one case $5,000 or more per
annum (other than purchase orders received by the Company in the
ordinary course of business);
(iii) agreement, contract or commitment continuing over a period of
more than six months from the date hereof or exceeding $5,000 in
value per annum;
(iv) representative, sales agency, dealer or distributor agreement,
contract or commitment;
(v) lease under which the Company is either lessor or lessee with
respect to real property;
(vi) note, debenture, bond, conditional sale agreement, equipment
trust agreement, letter of credit agreement, loan agreement or
other contract or commitment for the borrowing or lending of
money (including, without limitation, loans to or from
employees) or guarantee, pledge or undertaking of the
indebtedness of any other corporation, firm or person (other
than endorsement of items for deposit in the ordinary course of
business);
(vii) agreement, contract or commitment for any charitable or
political contribution;
(viii) agreement, contract or commitment limiting or restraining the
Company or any successor or assign from engaging or competing in
any lines of business with any corporation, firm or person;
A-10
<PAGE>
(ix) license, franchise, distributorship or other agreement,
including those that relate in whole or in part, to any patent,
trademark, tradename, service mark or copyright, or to any
ideas, technical assistance or other know-how of or used in the
business of the Company; or
(x) any other agreement, contract or commitment not made in the
ordinary course of business.
Each of the agreements, contracts, commitments, leases and other
instruments, documents and undertakings listed on Schedule "6(r)" hereto (the
"Commitments") is valid and enforceable in accordance with its terms, the
Company is in material compliance with the provisions thereof, the Company is
not in default in the performance, observance, or fulfillment of any material
obligation, covenant or condition contained in any Commitment, and no event has
occurred that, with or without the giving of notice or lapse of time, or both,
would constitute a default thereunder by the Company; and, to the Best
Knowledge of the Company, no such Commitment contains any contractual
requirement with which there is a reasonable likelihood the Company will be
unable to comply. Except as set forth in Schedule "6(r)", no advance payments
have been received by the Company from or on behalf of any party to any of the
Commitments for services to be rendered or products to be delivered to such
party after the Closing Date, and no consent or approval of any party to any
Commitment is required for the execution of this Agreement or the consummation
of the transaction contemplated hereby.
(s) Insurance. Schedule "6(s)" hereto is a true and complete list of all
insurance policies now owned by the Company covering the lives of shareholders,
product liabilities, umbrella and excess liabilities and blanket crime, all of
which policies are valid and are in full force and effect. The surrender value
of the life insurance policies owned by the Company is not less than
$1,031,320.
(t) Finder's Fee. With the exception of OEM Capital Corp. who will be paid
by inTEST, no person, corporation, partnership or firm retained by or on behalf
of the Company (i) brought about the transaction contemplated hereunder or (ii)
is entitled to any commission or fee from the Company, inTEST or Newsub upon
the consummation of such transaction.
(u) Employees. Schedule "6(u)" hereto is a true and correct list of all
current employees of the Company and a description of their titles and
positions and the wages (including base rates and total compensation for 1998
and 1999), benefits and vacation schedules currently paid or provided for such
employees.
(v) Labor Disputes. Except as set forth in Schedule "6(v)", there are no
discrimination complaints nor any other kind of employment or labor related
disputes against the Company in connection with its business pending before or,
to the Actual Knowledge of the Company, threatened before any federal, state or
local court or agency, and to the Best Knowledge of the Company, no disputes
respecting minimum wage or overtime claims or other conditions or terms of
employment exist. The Company has not experienced any labor disputes or any
work stoppage due to labor disagreements within the past three years. With
respect to the Company and its business (i) there is no unfair labor practice
charge or complaint against the Company pending or to the Actual Knowledge of
the Company threatened before the National Labor Relations Board; (ii) there is
no labor strike, slow down or stoppage pending or, to the Actual Knowledge of
the Company, threatened against or affecting the Company; and (iii) no question
concerning representation has been raised within the past three years, or to
the Actual Knowledge of the Company, is threatened respecting its employees.
(w) Customers and Suppliers. To the Best Knowledge of the Company, there
is no controversy with any customers or suppliers of a nature which,
individually or in the aggregate, will result in a loss to or a liability of
the Company in excess of $5,000.
(x) Proprietary Rights.
(i) Patents and Trademarks. Schedule "6(x)(i)" hereto sets forth a
correct and complete list of all patents, registered copyrights,
maskworks, logos, trademarks, tradenames, service marks and other
intellectual property rights and applications or registrations
therefor used in the business of the Company and/or owned by the
Company (collectively and including inventions and trade secrets,
the "Proprietary Rights").
A-11
<PAGE>
(ii) Fees. All necessary registration, maintenance and renewal fees in
connection with the Proprietary Rights, the absence of which would
have a Material Adverse Effect on the Company or the conduct of the
Company's business, have been paid and the necessary documents and
certificates in connection with such Proprietary Rights have been
filed with the relevant patent, copyright, trademark or other
authorities of the United States or foreign jurisdictions, as the
case may be, for the purposes of maintaining such Proprietary Rights
when commercially reasonable.
(iii) Rights and Title. The Company owns or possesses adequate licenses
or other valid rights to use (without making any payment to others,
except for standard software license payments or the obligation to
grant rights to others in exchange) all of the Proprietary Rights.
The Proprietary Rights constitute all such rights necessary to
conduct the business of the Company as presently conducted. The
validity of the Proprietary Rights and the rights therein of the
Company have not been questioned in any litigation to which the
Company is a party, nor, to the Actual Knowledge of the Company, is
any such litigation threatened or any claim made. To the Best
Knowledge of the Company, the conduct of the business of the Company
as presently conducted does not conflict with patent rights,
licenses, trademark rights, tradename rights, copyrights, maskworks
or other intellectual property rights of others, except as set forth
in Schedule 6(x)(iii).
(iv) Infringement. To the Best Knowledge of the Company, there is no
use of any of the Proprietary Rights being made by any corporation,
firm or person other than the Company that has not been authorized
by the Company as set forth on Schedule 6(x)(iv).
(v) Conflicts. No present or former director or officer or employee, or
consultant of the Company has any interest in any of the Proprietary
Rights.
(y) ERISA.
(i) Employee Benefit Plans. Schedule "6(y)" hereto contains a correct
and complete list of each employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), each holiday, vacation or other bonus practice or any
other employee pay practice, arrangement, agreement or commitment
maintained by or with respect to which the Company has any liability
or obligation, whether actual or contingent, with respect to any of
its employees or their respective beneficiaries.
(ii) Retiree Benefits. Except as set forth on Schedule 6(y), the
Company has no ERISA plan or other employee arrangement which
provides for the payment of retiree benefits.
(iii) Compliance. Except as disclosed in Schedule "6(y)", all employee
benefit plans of the Company are and have been operated in full
compliance with all applicable laws including, without limitation,
the Health Insurance Portability and Accountability Act, ERISA and
the regulations thereunder, and the Code (including Section 4980B
thereof). There are no violations of Sections 404, 406, or 407 of
ERISA, no prohibited transaction (as defined in the Code or ERISA),
no violation of the reporting and disclosure provisions of ERISA and
the Code, and no termination or partial termination (including any
termination or partial termination attributable to the Merger) of
any employee benefit plan maintained or established by the Company
or to which the Company contributes or has contributed. Except as
disclosed in Schedule "6(y)", no event has occurred or is expected
to occur which will result in liability to the Company in connection
with any employee pension benefit plan (as defined in ERISA)
established, maintained, or contributed to (currently or previously)
by the Company. If required by applicable law, the Company has
properly submitted, or intends to properly submit, all employee
benefit plans described in Schedule "6(y)" in good faith for the
purpose of meeting the applicable - requirements of ERISA or the
Code, as the case may be, to the Internal Revenue Service for its
approval within the time prescribed therefor under applicable
federal regulations.
A-12
<PAGE>
(iv) Accruals. Except as set forth in Schedule "6(y)", the Company has
made on or prior to the date hereof and will have accrued on or
prior to the Closing Date all payments required to be made by it on
or prior to the date hereof and the Closing Date, and has accrued
(in accordance with GAAP) as of the date hereof and will have
accrued on or prior to the Closing Date all payments due but not yet
payable as of the date hereof and the Closing Date, so there have
not been nor will there be any Accumulated Funding Deficiencies (as
defined in ERISA or the Code), in respect of the employee benefit
plans, or waivers of such deficiencies.
(v) Multi-Employer Plans. Except as specifically set forth in Schedule
"6(y)", the Company does not sponsor or maintain, and is not a
contributing employer or otherwise a party to, nor has any
obligation or liability under or with respect to, and has never
maintained or participated in, or been obligated to contribute to
any defined benefit plan (as defined in Section 3(35) of ERISA) or
multi-employer plan (as defined in Section 3(37) of ERISA).
(z) Affiliate Transaction. Schedule "6(z)" hereto sets forth a summary of
all purchases of goods or services from the Company by any Affiliate of the
Company (except transactions for the purchases of goods or services between the
Company and any subsidiary of the Company in the ordinary course consistent
with past practices) for the three years ended as of the Closing Date. No
Affiliate of the Company provides any services or products to the Company. For
the purposes of this Agreement, the term "Affiliate" shall mean any director,
employee or any person or entity that directly or indirectly controls the
Company, is controlled by, or is under common control with, the Company.
(aa) Environmental Matters.
(i) Notice of Violation. The Company has not received any notice
relating to its business or any real property owned or leased by the
Company alleging any violation of any Environmental Law (defined
below) or any written request for written information from any
governmental agency or any other corporation, firm or person
pursuant to any Environmental Law. The Company and all real property
which the Company leases or uses is in compliance in all material
respects with, and is not in material violation of or liable under,
any applicable Environmental Law.
(ii) No Releases. Except as set forth in Schedule "6(aa)(ii)" hereto or
as authorized by any valid permit issued pursuant to any
Environmental Law, there are no Regulated Substances released by the
Company or any other person, firm or corporation on or beneath any
of the real property leased or used by the Company in quantities or
concentrations that could give rise to obligations,
responsibilities, liabilities or debts of the Company under any
Environmental Law.
(iii) Notice of Violation. The Company has not received any notice or
order from any governmental agency or private or public entity in
connection with its business advising it that the Company is
responsible for or potentially responsible for remediation or paying
for the cost of investigation or remediation of any Regulated
Substance, and the Company has not entered into any agreements
pertaining thereto.
(iv) Underground Problems. Except as set forth in Schedule "6(aa)(iv)",
none of the real property leased or used by the Company contains any
asbestos, equipment using PCB's, drums buried in the ground,
underground storage tanks, underground injection wells or septic
tanks in which processed waste water or any Regulated Substances
have been disposed.
(v) Environmental Studies. Schedule "6(aa)(v)" hereto identifies all
environmental studies in possession of the Company or its Affiliates
relating to any real property leased or used by the Company, and
true and complete copies of said studies have been delivered to
inTEST.
(vi) Environmental Law. "Environmental Law" shall mean any legal
requirement that requires or relates to:
o advising appropriate authorities, employees, and the public of
intended or actual releases of any Regulated Substance (defined
below), violations of discharge limits, or other prohibitions and
of the commencements of activities, such as resource extraction or
construction, that could have significant impact on the
environment;
A-13
<PAGE>
o preventing or reducing to acceptable levels the release of
Regulated Substances into the environment;
o reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
o assuring that products are designed, formulated, packaged, and used
so that they do not present unreasonable risks to human health or
the environment when used or disposed of;
o protecting resources, species, or ecological amenities;
o reducing to acceptable levels the risks inherent in the
transportation of Regulated Substances, or other potentially
harmful substances;
o cleaning up Regulated Substances that have been released,
preventing the threat of release, or paying the costs of such
cleanup or prevention;
o making responsible parties pay private parties, or groups of them,
for damages done to their health or the environment, or permitting
self-appointed representatives of the public interest to recover
for injuries done to public assets by, or as a result of exposure
to, Regulated Substances; or
o any governmental authorization issued pursuant to any of the above.
(vii) Regulated Substance. "Regulated Substance" shall include any (i)
"hazardous substance," "pollutants," or "contaminant" (as defined in
Sections 101(14) and (33) of CERCLA or the regulations issued
pursuant to Section 102 of CERCLA and found at 40 C.F.R.ss.302),
including any element, compound, mixture, solution, or substance
that is designated pursuant to Section 102 of CERCLA; (ii) substance
that is designated pursuant to Section 311(b)(2)(A) of the Federal
Water Pollution Control Act, as amended (33 U.S.C.ss.ss.1251,
1321(b)(2)(A)) ("FWPCA"); (iii) hazardous waste having the
characteristics identified under or listed pursuant to Section 3001
of the Resource Conservation and Recovery Act, as amended (42
U.S.C.ss.ss.6901, 6921) ("RCRA"); (iv) substance containing
petroleum, as that term is defined in Section 9001(8) of RCRA; (v)
toxic pollutant that is or may be listed under Section 307(a) of
FWPCA; (vi) hazardous air pollutant that is listed under Section 112
of the Clean Air Act, as amended (42 U.S.C.ss.ss.7401, 7412); (vii)
imminently hazardous chemical substance or mixture with respect to
which action has been taken pursuant to Section 7 of the Toxic
Substances Control Act, as amended (15 U.S.C.ss.ss.2601, 2606);
(viii) source, special nuclear, or by product material as defined by
the Atomic Energy Act of 1954, as amended (42 U.S.C.ss.2011 et
seq.); (ix) asbestos, asbestos-containing material, or urea
formaldehyde or material that contains urea formaldehyde; (x) waste
oil and other petroleum products; and (xi) any other toxic
materials, contaminants, or hazardous substances or wastes pursuant
to any Environmental Law.
(bb) Product Warranties. Schedule "6(bb)" hereto contains true, correct
and complete copies of all product warranties issued by the Company which
remain outstanding for products sold by the Company prior to the Closing Date.
Except as set forth in Schedule "6(bb)": (i) the Company has made no other
written warranties relating to its products or services that would materially
increase the warranty obligations of the Company and (ii) there is no pending
or, to the Best Knowledge of the Company, threatened claim against the Company
on account of product warranties or with respect to defective or inferior
products in excess of $20,000.
(cc) Disclosure. None of the representations by the Company made in this
Agreement or in any Schedule or Exhibit hereto and the statements made in all
certificates furnished by it, required by this Agreement contains any untrue
statement of a material fact or omits to state any material fact necessary to
make any such representations or statements not misleading. Except as set forth
in Schedule "6(cc)", to the Best Knowledge of the Company, there is no fact
which may have a Material Adverse Effect on the Company which has not been set
forth in this Agreement or any Schedule hereto.
A-14
<PAGE>
7. Conduct of Business
Except as set forth in Schedule "7" hereto or in order to consummate the
transaction contemplated by this Agreement, during the period between November
30, 1999 and the Closing Date, the Company has and shall have conducted its
business in the usual and normal course consistent with past practices and has
and shall have refrained from any extraordinary transactions.
8. News Releases
No notices to third parties or any publicity, including press releases,
concerning any of the transactions provided for herein shall be made unless
planned and coordinated jointly between the Company and inTEST, unless inTEST
is advised by counsel that a news release or disclosure is required or
appropriate; provided that, in such case, inTEST shall deliver to the Company a
copy of the text of the proposed news release as far in advance of its
disclosure as is practicable, and shall in good faith consult with and consider
the suggestions of the Company concerning the nature and scope of the news
release.
9. Registration Statement, Proxy Statement and Piggyback Rights.
(a) Filing of Registration Statement. As soon as practicable after the
execution of this Agreement, inTEST shall, with the assistance and cooperation
of the Company, prepare and cause to be filed with the SEC a Joint Proxy
Statement and the Registration Statement. Each of inTEST and the Company shall
use all reasonable efforts to cause the Registration Statement and the Joint
Proxy Statement to comply with applicable law and the rules and regulations
promulgated by the SEC, to respond promptly to any comments of the SEC or its
staff, and to have the Registration Statement declared effective under the
Securities Act as promptly as practicable after it is filed with the SEC; and
the Company shall cooperate with inTEST in connection with such matters. inTEST
and the Company shall use all reasonable efforts to cause the Joint Proxy
Statement to be mailed to their respective shareholders as promptly as
practicable after the Registration Statement is declared effective under the
Securities Act.
(b) Furnishing Information. Each of the parties hereto shall promptly
furnish to the other party all information concerning itself, its shareholders
and its affiliates that may be required or reasonably requested in connection
with any action contemplated by this Section 9. If any event relating to inTEST
or the Company occurs, or if inTEST or the Company becomes aware of any
information, that should be disclosed in an amendment or supplement to the
Registration Statement or the Joint Proxy Statement, then inTEST or the
Company, as applicable, shall inform the other thereof and shall cooperate with
each other in filing such amendment or supplement with the SEC and, if
appropriate, in mailing such amendment or supplement to the shareholders of
inTEST and the Company. inTEST will notify the Company promptly upon the
receipt of any comments from the SEC or its staff or any other government
officials and of any request by the SEC or its staff or any other government
officials for amendments or supplements to the Registration Statement or the
Joint Proxy Statement or for additional information and will supply the Company
with copies of all correspondence between inTEST or any of its representatives,
on the one hand, and the SEC or its staff or any other government officials, on
the other hand, with respect to the Registration Statement, the Joint Proxy
Statement or the Merger. The Joint Proxy Statement shall include the
recommendations of the Boards of Directors of inTEST and the Company in favor
of this Agreement, the Merger and the transactions contemplated hereby.
(c) Blue Sky Filings. Prior to the time of the Merger inTEST shall use
reasonable efforts to obtain all regulatory or other approvals needed to ensure
that inTEST Stock to be issued in the Merger: (i) will be registered or
qualified under the securities law of every jurisdiction of the United States
in which any registered holder of Company Common Stock who is receiving shares
of registered inTEST Stock has an address of record or be exempt from such
registration and (ii) will be approved for quotation at the time of the Merger
on the Nasdaq National Market provided, however, that inTEST shall not,
pursuant to the foregoing, be required (A) to qualify to do business as a
foreign corporation in any jurisdiction in which it is not now qualified or (B)
to file a general consent to service of process in any jurisdiction with
respect to matters unrelated to the issuance of inTEST Stock pursuant hereto.
A-15
<PAGE>
(d) No Misrepresentation. Each of inTEST and the Company (in respect of
the information respectively supplied by it) agrees that at the time (1) the
Registration Statement is filed, (2) the Registration Statement becomes
effective, (3) the Joint Proxy Statement is mailed to the shareholders of
inTEST and the Company, (4) of the meetings of the shareholders of inTEST and
the Company and (5) of the Closing: (i) none of the information to be supplied
by each of inTEST and the Company or its affiliates for inclusion in the
Registration Statement will contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading; and (ii) as to matters respecting it, the Joint
Proxy Statement and the Registration Statement will comply as to form in all
material respects with the provisions of the Securities Act and the Exchange
Act, as applicable, and the rules and regulations promulgated by the SEC
thereunder, except that no covenant, representation or warranty is made by the
Company with respect to statements made or incorporated by reference therein
based on information supplied by inTEST for inclusion or incorporation by
reference therein and no covenant, representation or warranty is made by inTEST
with respect to statements made or incorporated by reference therein based on
information supplied by the Company for inclusion or incorporation by reference
therein.
(e) Piggyback Rights. All shareholders of the Company who, immediately
prior to the Merger, own five percent or more of the then outstanding Company
Stock shall be included, at their option, in any future registered offering of
inTEST Stock by inTEST if other shareholders are included in such offering and
on the terms and conditions on which such other shareholders participate.
10. Shareholder Meetings.
(a) Company Shareholder Meeting. The Company shall promptly after the date
hereof take all action necessary in accordance with applicable law and its
Articles of Organization and Bylaws to hold and convene a meeting of the
Company's Shareholders (the "Company Shareholders Meeting"). Except as required
by the SEC or applicable court order and except as may be required in order to
amend or supplement the Registration Statement or Joint Proxy Statement, the
Company shall not postpone or adjourn (other than for the absence of a quorum)
the Company Shareholders Meeting without the consent of inTEST. The Company
shall take all reasonable actions necessary or advisable to secure the vote or
consent of its shareholders required by applicable law to effect the Merger and
the transactions contemplated hereby.
(b) inTEST Shareholder Meeting. inTEST shall promptly after the date
hereof take all action necessary in accordance with applicable law and its
Certificate of Incorporation and Bylaws to hold and convene a meeting of
inTEST's shareholders (the "inTEST Shareholders Meeting"). Except as required
by the SEC or applicable court order, inTEST shall not postpone or adjourn
(other than for the absence of a quorum) the inTEST Shareholders Meeting
without the consent of the Company. inTEST shall take all reasonable actions
necessary or advisable to secure the vote or consent of its shareholders
required by applicable law to effect the issuance of shares of inTEST Stock in
the Merger.
11. Covenants of the Parties.
(a) Confidentiality. Until the time of the Merger, all information
regarding the Company received by inTEST or Newsub shall be subject to the
provisions of the Confidentiality Agreement between the Company and inTEST
dated April 8, 1999.
(b) Take No Action. No party shall take any action that would, or is
reasonably likely to, result in any of its representations and warranties set
forth in this Agreement being untrue or in any of the conditions precedent set
forth in Sections 12, 13 and 14 not being satisfied.
(c) Salary and Benefits. Following consummation of the Merger, the salary
and benefits of all employees of Newsub formerly employed by the Company (other
than William Stone) shall remain the same until each employee's next regularly
scheduled review date.
(d) ESOP. After the Merger, the Temptronic Equity Participation Plan will
remain in place.
(e) Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use reasonable efforts to take
promptly, or cause to be taken, all actions, and to do promptly, or cause to be
done all things necessary, proper or advisable under applicable laws and
regulations
A-16
<PAGE>
to consummate and make effective the transactions contemplated hereby, to
obtain all necessary waivers, consents and approvals and to effect all
necessary registrations and filings and to remove any impediments or delays,
legal or otherwise, in order to consummate and make effective the transactions
contemplated by this Agreement for the purpose of securing to the parties
hereto the benefits contemplated by this Agreement.
(f) Access to Information. Upon reasonable prior notice, the Company shall
afford inTEST and its accountants, counsel and other representatives,
reasonable access during normal business hours during the period prior to the
time of the Merger to all of its properties, books, contracts, commitments and
records, all other information concerning its business, properties and
personnel (subject to restrictions imposed by applicable law) as inTEST may
reasonably request and all its key employees. Upon reasonable prior notice, the
Company agrees to provide inTEST and its accountants, counsel and other
representatives copies of internal financial statements (including tax returns
and supporting documentation) promptly upon request. No information or
knowledge obtained in any investigation pursuant to this Section 11 shall
affect or be deemed to modify any representation or warranty contained herein
or the conditions to the obligations of the parties to consummate the Merger.
(g) Re-election. For a period of two years following the Closing Date,
inTEST shall nominate the Temptronic Directors for re-election at each annual
meeting of its stockholders or special meeting in lieu thereof and shall
recommend their re-election to its stockholders.
(h) Thirty Day Financials. As soon as reasonably practicable after the
Merger, inTEST shall publish by a public filing or announcement the results of
operations covering at least thirty days of combined operations of Newsub and
inTEST in accordance with and to the extent permitted by applicable accounting
principles and applicable laws.
12. Conditions to Obligations of Each Party.
The respective obligations of each party to this Agreement are subject to
the fulfillment, at or prior to the Closing of each of the following
conditions:
(a) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any proceeding brought
by an administrative agency or commission or other governmental authority or
instrumentality seeking any of the foregoing be pending.
(b) Listing. The shares of inTEST Stock to be issued in the Merger to the
shareholders of the Company shall have been approved for quotation, subject to
official notice of issuance, on NASDAQ.
(c) Effectiveness of Registration Statement. The Registration Statement
shall have become effective in accordance with the provisions of the Securities
Act, and no stop order shall have been issued by the SEC with respect thereto,
and no similar proceeding in respect of the Joint Proxy Statement shall have
been initiated or threatened in writing by the SEC.
(d) Shareholder Approval. The shareholders of the Company shall have
approved the Merger at the Company Shareholders Meeting and the shareholders of
inTEST shall have approved the issuance of shares of inTEST Stock in the Merger
at the inTEST Shareholders Meeting.
13. Conditions to Obligations of the Company
All obligations of the Company under this Agreement are subject to the
fulfillment, at or prior to the Closing of each of the following conditions:
(a) Representations and Warranties. All representations and warranties of
inTEST and Newsub contained in this Agreement or in any certificate or document
delivered pursuant to this Agreement shall be true and correct at and as of the
time of Closing as though then made at and as of such time (except that such
A-17
<PAGE>
representations and warranties shall reflect the consummation of any
transactions permitted by this Agreement); and inTEST and Newsub shall have
performed and complied with all of their obligations under this Agreement which
are to be performed and complied with by them prior to or at the time of the
Closing.
(b) No Material Adverse Effect. No Material Adverse Effect with respect to
inTEST shall have occurred since the date of this Agreement and no events or
circumstances shall have occurred since the date hereof that would have a
Material Adverse Effect on inTEST.
(c) Escrow Stock. inTEST shall have delivered to the Escrow Agent shares
of the inTEST Stock registered in the name of the Escrow Agent for deposit in
the Escrow Fund as set forth in Section 4(b) hereof.
(d) Escrow Agreement. inTEST and Newsub shall have delivered to the Escrow
Agent the Escrow Agreement duly executed by inTEST and Newsub.
(e) inTEST Resolutions. inTEST shall have delivered to the Company
certified resolutions of the Board of Directors and the Shareholders of inTEST
authorizing consummation of the transactions contemplated by this Agreement.
(f) Resolutions of Newsub. Newsub shall have delivered to the Company
certified resolutions of the Board of Directors and Sole Shareholder of Newsub
authorizing consummation of the transactions contemplated by this Agreement.
(g) Election of Directors. inTEST shall have delivered to the Company
evidence that James Greed and William M. Stone (the "Temptronic Directors")
have been elected as members of the Board of Directors of inTEST.
(h) Employment Agreement. William M. Stone and inTEST or Newsub shall have
entered into an employment agreement in the form of Exhibit "D".
(i) Legal Opinion. Saul, Ewing, Remick & Saul LLP, counsel for inTEST and
Newsub, shall have delivered to the Company its Opinion dated the Closing Date,
in the form of Exhibit "E".
14. Conditions to Obligations of inTEST and Newsub
All obligations of inTEST and Newsub under this Agreement are subject to
the fulfillment, at or prior to the Closing, of each of the following
conditions:
(a) Representations and Warranties. All representations and warranties of
the Company contained in this Agreement or in any certificate or document
delivered pursuant to this Agreement shall be true and correct at and as of the
time of the Closing as though then made at and as of such time (except that
such representations and warranties may reflect the consummation of any
transactions permitted by this Agreement); and the Company shall have performed
and complied with all of its obligations under this Agreement which are to be
performed and complied with by it prior to or at the time of the Closing.
(b) No Material Adverse Effect. No Material Adverse Effect with respect to
the Company shall have occurred since the date of this Agreement and no events
or circumstances shall have occurred since the date hereof that would have a
Material Adverse Effect on the Company.
(c) Escrow Agreement. The Shareholder Representative shall have executed
and delivered to the Escrow Agent an executed copy of the Escrow Agreement.
(d) Releases. There shall have been delivered to inTEST releases in the
form of Exhibit "F" pursuant to which each of Thomas Gerendas and William M.
Stone releases any and all claims that he may have against the Company (other
than for remuneration and benefits in the ordinary course of business for the
then current pay period, claims arising out of his Employment Agreement with
the Company, this Agreement and the Agreements executed in connection herewith
and claims for indemnification arising out of his service prior to Closing as
an officer or director of the Company).
A-18
<PAGE>
(e) Resolutions of the Company. The Company shall have delivered to inTEST
certified resolutions of the Board of Directors and the Shareholders of the
Company authorizing consummation of the transactions contemplated by this
Agreement.
(f) Good Standing Certificate. The Company shall deliver to inTEST a
certificate dated as of a recent date from the Secretary of State of The
Commonwealth of Massachusetts to the effect that the Company is duly
incorporated and in good standing and a certificate of the Department of
Revenue of The Commonwealth of Massachusetts certifying as to the tax status of
the Company.
(g) Charter. The Company shall have delivered to inTEST a copy of the
Company's Articles of Organization, including all amendments thereto, certified
as of a recent date by the Secretary of State of The Commonwealth of
Massachusetts.
(h) Consents. The Company shall have delivered to inTEST all necessary
consents, waivers, authorizations, orders or approvals required by agreements
to which the Company may be a party or required by law, regulations or
otherwise in order to execute and deliver this Agreement, the Agreement of
Merger, the Escrow Agreement, and to perform its obligations hereunder and
thereunder.
(i) Resignations. The Company shall have caused to be delivered to inTEST
the resignations of all officers and directors of the Company, to be effective
as of the Closing Date.
(j) Corporate Books. The Company shall have delivered to inTEST and Newsub
the corporate minute books and stock record books of the Company.
(k) Company Stockholder Agreeement. All of the Stockholder Agreements of
the Company in effect at the time of the Merger shall have been terminated and
all life insurance policies related to such Stockholder Agreeements shall be
terminated by Newsub, and Newsub shall be entitled to keep all proceeds from
the surrender of such life insurance policies.
(l) ESOP. The Employee Stock Ownership Plan of the Company shall have been
assumed by Newsub.
(m) Pooling of Interests. inTEST shall have received an opinion of KPMG
LLP and an opinion of Ernst & Young LLP that the Merger and the other
transactions contemplated hereunder will be treated, for financial reporting
purposes, as a "pooling of interests".
(n) Dissenting Shareholders. The number of shares of the Company Stock
owned by those shareholders of the Company (if any) who shall have exercised
(or given notice of their intent to exercise) the rights of dissenting
shareholders under the law of The Commonwealth of Massachusetts or any other
applicable law shall be less than 2% of the total number of outstanding shares
of the Company Stock.
(o) Affiliate Letters. inTEST shall have received, from each director,
officer and other affiliate (as defined in Rule 144 under the Securities Act)
of the Company a duly signed letter, in form and substance satisfactory to
inTEST, stating that such affiliate (i) has not sold any shares of the capital
stock or other securities of the Company at any time during the 30 day period
ending on the Closing Date and (ii) will not sell, assign, give, pledge or
otherwise transfer, dispose of or reduce such affiliate's risk relating to any
of such affiliate's shares of the capital stock or other securities of the
Company until inTEST shall have published financial results covering at least
30 days of post-Merger combined operations of the Company and inTEST and,
thereafter, and, in any event, only in compliance with applicable federal and
state securities laws.
(p) Legal Opinion. An Opinion of Foley, Hoag & Eliot LLP, counsel for the
Company, shall have been delivered dated the Closing Date and addressed to
inTEST, in a form reasonably acceptable to inTEST and its counsel.
15. Indemnity by inTEST and Newsub
inTEST and Newsub, jointly and severally, hereby indemnify the
shareholders of the Company against and hold the shareholders of the Company
harmless of and from any and all demands, claims, losses, expenses, damages,
deficiencies and liabilities (including reasonable attorneys' fees and other
costs and expenses incident to any suit, action or proceeding) ("Losses"), to
the extent set forth in Section 17(d) of this
A-19
<PAGE>
Agreement, resulting at any time after the Closing Date by reason of any
misrepresentation, breach of warranty or nonfulfillment of any covenant or
agreement on the part of inTEST or Newsub contained in this Agreement, the
Agreement of Merger, the Escrow Agreement or any Schedule hereto or in any
written statement or certificate furnished or to be furnished by inTEST or
Newsub to the Company pursuant to this Agreement. Any liability of inTEST or
Newsub under this Section 15 shall be satisfied by the delivery of such number
of shares of inTEST Stock having a Market Value equal to the amount due to the
shareholders of the Company hereunder.
16. Indemnities by the Shareholders of the Company
The shareholders of the Company hereby indemnify inTEST and Newsub against
and hold inTEST and Newsub harmless of and from any and all Losses, to the
extent set forth in Section 17(d) of this Agreement, resulting at any time
after the Closing Date by reason of any misrepresentation, breach of warranty
or nonfulfillment of any covenant or agreement on the part of the Company
contained in this Agreement, the Agreement of Merger, the Escrow Agreement or
any Schedule hereto or in any written statement or certificate furnished or to
be furnished by the Company pursuant to this Agreement.
17. Indemnification Procedure
(a) Claims for Indemnification. Any party seeking indemnification
hereunder (the "Indemnified Party") shall give to the party obligated to
provide indemnification to such Indemnified Party (the "Indemnitor") a written
notice (a "Claim Notice") describing in reasonable detail the facts giving rise
to any good faith claim for indemnification hereunder and shall include in such
Claim Notice the reasonably estimated amount of such claim, if known (which
amount shall not include interest), and a reference to the provision of this
Agreement or of any other agreement, document or instrument executed hereunder
or in connection herewith upon which such claim is based. Such Claim Notice
shall be given within thirty (30) days after the Indemnified Party becomes
aware of the facts giving rise to the claim for indemnification.
(i) If the Indemnitor shall in good faith dispute the validity of all or
any amount of a claim for indemnification as set forth in the Claim
Notice, the Indemnitor shall, within thirty (30) days of its receipt of
the Claim Notice, execute and deliver to the Indemnified Party a notice
setting forth with reasonable particularity the grounds and the basis upon
which the claim or amount of the alleged Losses is disputed (the "Dispute
Statement").
(ii) If the Indemnitor does not dispute the Claim Notice or only
disputes a portion of the amount set forth therein, then the amount of the
claim described in the Claim Notice or the portion thereof not disputed
shall be deemed to be admitted (the "Admitted Liability") and shall, upon
the incurring of such Losses, immediately be due and payable to the
Indemnified Party by the Indemnitor.
(iii) If the Indemnitor shall within thirty (30) days of its receipt of
the Claim Notice deliver to the Indemnified Party a Dispute Statement,
then the portion of the claim described in the Claim Notice that is
disputed by the Indemnitor shall not be due and payable, except in
accordance with a decision of an arbitrator (as provided in Section 21(b)
hereof), or a written agreement by the parties stipulating the amount of
the Admitted Liability.
(iv) The Indemnitor and the Indemnified Party shall endeavor to resolve
any portion of a claim described in a Claim Notice that is disputed by the
Indemnitor within sixty (60) days after the date of the applicable Dispute
Statement. Any such disputed claims not resolved within such sixty (60)
day period shall be resolved by arbitration in accordance with Section 21
hereof.
(b) Third Party Claims.
(i) If the Indemnified Party shall receive notice of any claim by a
third party which is or may be subject to indemnification (a "Third Party
Claim"), the Indemnified Party shall give the Indemnitor prompt written
notice of such Third Party Claim and shall permit the Indemnitor, at the
Indemnitor's option, to assume the defense of such Third Party Claim or to
participate in the defense using counsel of its own choice and at its own
expense; provided, however that the Indemnitor shall not have the right to
A-20
<PAGE>
assume the defense of a Third Party Claim: (1) to the extent such Third
Party Claim seeks an injunction, restraining order, declaratory relief or
other non-monetary relief and such Third Party Claim, if decided adversely,
would have a Material Adverse Effect on the Indemnified Party; or (2) if
the named parties to any such Third Party Claim (including any impleaded
parties) include both the Indemnified Party and the Indemnitor and (A) the
Indemnified Party shall have been advised by counsel that there are one or
more legal or equitable defenses available to it which are different from
or additional to those available to the Indemnitor, and (B) in the
reasonable opinion of counsel for the Indemnified Party, counsel for the
Indemnitor would not be able to adequately represent the interests of the
Indemnified Party because such interests would materially conflict with
those of the Indemnitor, and (C) such Third Party Claim, if decided
adversely, would have a Material Adverse Effect on the Indemnified Party.
(ii) Regardless of which party is controlling the defense of a Third
Party Claim: (1) the controlling party shall keep the other party fully
informed of such Third Party Claim at all stages thereof; (2) the party
not controlling the defense of such Third Party Claim shall make
available, without charge, to the other party all books and records of
such party relating to such Third Party Claim; (3) the party not
controlling the defense of the Third Party Claim shall cooperate with the
other in connection therewith and shall furnish such records, information
and testimony and attend such conferences, discovery proceedings,
hearings, trials and appeals as may be reasonably requested by the
Indemnitor in connection therewith, and (4) subject to Section 17(b)(iii)
below, the controlling party shall not make any settlement of any Third
Party Claim without the written consent of the party not controlling the
defense, such consent not to be unreasonably withheld.
(iii) If the Indemnitor exercises its right to assume the defense of a
Third Party Claim, the Indemnified Party may participate, through counsel
of its own choice and at its own expense, in the defense of any Third
Party Claim, action or suit as to which the Indemnitor has elected to
assume and control the defense thereof, and the Indemnitor shall not make
any settlement of any such action, suit or proceeding without the written
consent of the Indemnified Party, unless the settlement involves only the
payment of money by the Indemnitor without prejudice to the Indemnified
Party. So long as the Indemnitor is defending in good faith any Third
Party Claim as to which indemnification has been sought hereunder, the
Indemnified Party shall not settle or compromise such Third Party Claim.
(c) Exclusive Remedy. Except for (i) claims of fraud or willful
misrepresentation, or (ii) as otherwise specifically set forth in this
Agreement, the indemnification provisions contained in Sections 15, 16 and 17
shall be deemed to be, to the extent permitted by law, the exclusive remedy or
exclusive means to obtain relief, as the case may be, of any party hereto in
the event of any breach of any representation, warranty, covenant or agreement
contained herein (or in any certificates or other documents delivered pursuant
hereto) by any other party hereto, Claims pursuant to Section 16 hereof or with
respect to any claim of any third party arising out of or in connection with
this Agreement or the transactions contemplated hereby, and the provisions of
Sections 15, 16 and 17 shall be in lieu of any other rights or remedies that
may be available to any party at law, in equity or otherwise. Any
indemnification amount payable in accordance with the indemnification
provisions contained in Sections 15, 16 an 17 shall be deducted proportionately
from the shares of each shareholder of the Company held in the Escrow Fund,
provided, however, that recovery for any claim based upon a shareholder's
failure to have adequate title to his or her shares may only be made against
shares in the Escrow Fund held for the account of such shareholder.
(d) Limitation of Indemnification. inTEST and Newsub shall not be entitled
to indemnification under Section 16 of this Agreement until the aggregate
amount for which indemnification is sought exceeds $50,000, whether represented
by one or more claims, and then only to the extent such aggregate amount
exceeds $50,000, and in no event shall the shareholders of the Company be
liable under Sections 16 and 17 of this Agreement for Losses in excess of the
value of the inTEST Stock held in the Escrow Fund, provided that such
limitation shall not apply to claims based on any party's intentional, willful
or reckless (i) misrepresentations or (ii) breaches of warranties or agreements
made as a part of or contained in this Agreement. In addition, for purposes of
claims brought under this Agreement, Losses shall be calculated net of any
insurance proceeds (including, without limitation, proceeds from directors and
officers liability insurance) realized by and paid to or for the benefit of the
Indemnified Party in respect of such claim. If
A-21
<PAGE>
inTEST or Newsub is entitled to indemnification under this Agreement, the
amount shall be paid by the Escrow Agent delivering to inTEST or Newsub (as
directed by inTEST) shares of inTEST Stock having a Market Value equal to the
amount owed by the Company to inTEST or Newsub.
18. Duty to Minimize Damages
Each party who shall seek indemnification under Sections 15, 16 and 17
hereof shall be under a duty to take all reasonable actions which would
minimize the Losses for which the Indemnitor may be liable.
19. Survival of Representations
All representations and warranties made herein, in the schedules hereto
and in any document delivered pursuant hereto by the Company, inTEST or Newsub
shall survive for one year after the Closing Date and then shall terminate.
Except as otherwise expressly provided in this Agreement, all covenants,
agreements, undertakings and indemnities set forth in this Agreement shall
survive indefinitely.
20. Notices
Any notice, request, demand or other communication given by any party
under this Agreement (each a "notice") shall be in writing, may be given by a
party or its legal counsel, may be given by the Shareholder Representative on
behalf of the shareholders of the Company, by inTEST on behalf of Newsub or by
Newsub on behalf of inTEST and shall be deemed to have been duly given (i) when
personally delivered, or (ii) upon delivery by United States Express Mail or
similar overnight courier service which provides evidence of delivery, or (iii)
when five days have elapsed after its transmittal by registered or certified
mail, postage prepaid, return receipt requested, addressed to the party to whom
directed at that party's address as it appears below or another address of
which that party has given notice, or (iv) when transmitted by facsimile
transmission if a copy thereof is also delivered in person or by overnight
courier. Notices of address change shall be effective only upon receipt
notwithstanding the provisions of the foregoing sentence.
Notice to inTEST or Newsub shall be sufficient if given to:
inTEST Corporation
Attention: Hugh T. Regan, Jr.
2 Pin Oak Lane
Cherry Hill, NJ 08003
Fax: (856) 751-1222
with a copy to:
James W. Schwartz, Esquire
Saul, Ewing, Remick & Saul LLP
1500 Market Street
38th Floor, Centre Square West
Philadelphia, PA 19102
Fax: (215) 972-1914
Notice to the Company shall be sufficient if given to:
Temptronic Corporation
Attention William M. Stone
55 Chapel Street
Newton, MA 02158
Fax 617-969-2475
A-22
<PAGE>
with a copy to:
Edward N. Gadsby, Jr., Esquire
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Fax 617-832-7000
Notice to the Shareholder Representative shall be sufficient if given to:
Samuel Rubinovitz
3 Bowser Rd
Lexington, MA 02420
with a copy to:
Edward N. Gadsby, Jr., Esquire
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Fax 617-832-7000
21. General
(a) Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware.
(b) Arbitration.
(i) Any and all disputes or differences pertaining to or arising out of
this Agreement or the breach, termination or invalidity thereof, shall be
finally and exclusively settled by binding arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association.
The arbitration shall be held in Philadelphia, Pennsylvania, before one
arbitrator appointed in accordance with said rules. The arbitration
proceedings shall be conducted in English. Judgment upon an award rendered
may be entered in any court having jurisdiction or application may be made
to such court for a judicial acceptance of the award and an order of
enforcement, as the case may be. The prevailing party in any such
proceeding shall be entitled to its actual reasonable attorneys' fees and
all other costs in connection with the arbitration and enforcement of the
arbitor's award to the extent set forth in the arbitor's award.
(ii) Either party may, without inconsistency with this Agreement, seek
from a court any interim or provisional relief that may be necessary to
protect the rights or property of that party, pending the establishment of
the arbitral tribunal or pending the arbitral tribunal's determination of
the merits of the controversy.
(c) Further Assurances. The parties hereto agree: (i) to execute and
deliver any and all papers and documents which may be reasonably necessary to
carry out the terms of this Agreement, and (ii) in the case of licenses,
certificates, approvals, authorizations, agreements, contracts, leases,
easements and other commitments of the Company which cannot be transferred or
assigned effectively without the consent of third parties which consent has not
been obtained prior to the Closing Date, to cooperate with the other party at
its reasonable request in endeavoring to obtain such consent promptly.
(d) Schedules. All of the Schedules attached to this Agreement are hereby
incorporated herein and made a part hereof.
(e) Entire Agreement. This Agreement and the Exhibits hereto, together
with the Confidentiality Agreement between the Company and inTEST dated April
8, 1999, contain the entire agreement among the parties hereto and there are no
agreements, representations or warranties which are not set forth herein. All
prior negotiations, agreements and understandings are superseded hereby. This
Agreement may not be amended or revised except by a writing signed by all
parties hereto.
A-23
<PAGE>
(f) Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the successors and assign of the respective parties hereto;
provided, however, that this Agreement and any and all rights hereunder may not
be assigned by any party hereto except by or with the written consent of the
other parties.
(g) Construction of Agreement. In the case any provision of this Agreement
shall for any reason be held to be invalid, illegal or unenforceable, such
holding shall not affect the validity, legality or enforceability of the
remaining provisions of this Agreement, which shall be construed as if such
invalid, illegal or unenforceable provision had never been included herein.
(h) Headings. The section and paragraph headings of this Agreement are for
convenience only, form no part of this Agreement and shall not affect its
interpretation.
(i) Effect of Investigation. Any inspection, preparation or compilation of
information or Schedules or audit of the inventory, property, financial
condition or other matters relating to the Company conducted by or on behalf of
inTEST pursuant to this Agreement shall in no way limit, affect or impair the
ability of inTEST or Newsub to rely upon the representations, warranties,
covenants and agreements of the Company set forth in this Agreement or in any
Schedule or Exhibit to this Agreement or in the Company Financial Statements or
in any certificate furnished by the Company required pursuant hereto. All
statements contained in any certificate delivered at the Closing or by or on
behalf of the Company, inTEST or Newsub pursuant to this Agreement or in any
Schedule to this Agreement shall be deemed representations and warranties
hereunder by the Company, inTEST or Newsub, as the case may be. Any disclosure
made on one Schedule shall be deemed made on all Schedules provided an
appropriate cross reference is made.
(j) Waivers. Any term or provision of this Agreement may be waived, or the
time for its performance may be extended, by the party or parties entitled to
the benefit thereof. Any such waiver shall be validly and sufficiently
authorized for the purposes of this Agreement if, as to any party, it is
authorized in writing by an authorized representative of such party. The
failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
any party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to constitute a waiver of any other or
subsequent breach.
(k) Costs and Expenses. If the Merger is not consummated for any reason,
other than a breach by one of the parties hereto, inTEST and the Company will
each be responsible for and bear its own costs and expenses. If the Merger is
consummated, inTEST and Newsub will be responsible for and bear all costs and
expenses (including legal and accounting expenses and the fees of OEM Capital
Corp.) incurred by all parties hereto in connection with pursuing and
consummating the Merger.
(l) Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be considered an original instrument,
but all of which shall together be considered one and the same agreement, and
shall become binding when one or more counterparts have been signed by each of
the parties hereto and delivered to each of inTEST and the Company.
(m) Knowledge.
(i) "Best Knowledge" with respect to the Company means facts or
information that have come to the attention of any executive officer, and
facts or information that would have come to the attention of any
executive officer if he had made all reasonable inquiries into such
further information. An individual will be deemed to have "Best Knowledge"
of a particular fact or matter if such individual is actually aware of
such fact or matter or could be expected to discover or otherwise become
aware of such fact or matter in the course of conducting a reasonable
investigation concerning the existence of such fact or matter.
(ii) "Actual Knowledge" as used herein means the conscious awareness of
facts or information by an executive officer.
(iii) For the purposes of this Section 21(m) an "executive officer"
shall mean any of the following persons: Thomas Gerendas, William Stone
and William O'Toole.
A-24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
Temptronic Corporation
(a Massachusetts corporation)
By: -------------------------------------
William M. Stone
President
inTEST Corporation
By:-------------------------------------
Hugh T. Regan, Jr.
Treasurer and Chief Financial Officer
Temptronic Corporation
(a Delaware corporation)
By:-------------------------------------
Hugh T. Regan, Jr.
Treasurer and Chief Financial Officer
A-25
<PAGE>
Exhibit 5
<TABLE>
<CAPTION>
LAW OFFICES OF
SAUL, EWING, REMICK & SAUL LLP
<S> <C> <C>
BALTIMORE, MARYLAND CENTRE SQUARE WEST NEW YORK, NEW YORK
BERWYN, PENNSYLVANIA 1500 MARKET STREET, 38th FLOOR PRINCETON, NEW JERSEY
HARRISBURG, PENNSYLVANIA PHILADELPHIA, PA 19102-2186 WILMINGTON, DELAWARE
(215) 972-7777
Fax: (215) 972-7725
Internet Email: [email protected]
World Wide Web: http://www.saul.com
</TABLE>
February 4, 2000
inTEST Corporation
2 Pin Oak Lane
Cherry Hill, NJ 08003
Re: inTEST Corporation
Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel to inTEST Corporation, a Delaware corporation
(the "Company"), in connection with the preparation of a Registration Statement
on Form S-4, as amended (the "Registration Statement"), filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), relating to the public offering of up to 2,186,870 shares of the
Company's common stock, par value $0.01 per share (the "Common Stock"), which
will be issued by the Company to the shareholders of Temptronic Corporation, a
Massachusetts corporation ("Temptronic") in connection with the merger of
Temptronic into a wholly-owned subsidiary of the Company (the "Merger") pursuant
to the terms of the Agreement and Plan of Merger and Reorganization dated
January 4, 2000 among the Company , Temptronic, and a wholly-owned subsidiary of
the Company (the "Merger Agreement").
We have reviewed (a) the Registration Statement; (b) the Company's
Certificate of Incorporation and Bylaws; (c) certain records of the Company's
corporate proceedings as reflected in its minute and stock books; and (d) such
other documents and instruments as we have deemed necessary or appropriate for
purposes of this opinion. In our examination, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals
and the conformity with the original of all documents submitted to us as copies
thereof.
Our opinion set forth below is limited to the General Corporation Law
of the State of Delaware.
<PAGE>
We are of the opinion that the shares of Common Stock to be issued by
the Company to the shareholders of Temptronic as described in the Registration
Statement, when and to the extent issued in accordance with the Merger
Agreement, will be legally issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as Exhibit 5 to the
Registration Statement. In giving such opinion, we do not thereby admit that we
are acting within the category of persons whose consent is required under
Section 7 of the Act or the rules or regulations of the Securities and Exchange
Commission thereunder.
The opinion expressed herein is solely for your benefit, and may be
relied upon only by you.
Very truly yours,
/s/ Saul, Ewing, Remick & Saul LLP
<PAGE>
Exhibit 8
[LETTERHEAD OF SAUL EWING REMICK & SAUL LLP]
February 4, 2000
inTEST Corporation
2 Pin Oak Lane
Cherry Hill, New Jersey 08003
Re: Certain Federal Income Tax Consequences of the
Agreement and Plan of Merger and Reorganization
among inTEST Corporation, Temptronic Corporation and
Temptronic Corporation
Gentlemen:
We have acted as counsel to inTEST Corporation, a Delaware
corporation ("inTEST"), in connection with the proposed merger (the "Merger") of
Temptronic Corporation, a Massachusetts Corporation (the "Company") with and
into Temptronic Corporation, a Delaware corporation ("Merger Sub"), pursuant to
the terms of the Agreement and Plan of Merger and Reorganization among the
Company, inTEST and Merger Sub dated as of January 4, 2000 (the "Merger
Agreement"), and as further described in the Registration Statement on Form S-4
filed by inTEST with the Securities and Exchange Commission (the "Registration
Statement").
This opinion is being rendered pursuant to your request and in
accordance with Section 9 of the Merger Agreement. All capitalized terms, unless
otherwise specified, have the meaning assigned to them in the Merger Agreement.
In rendering the opinion set forth below, we have relied upon
certain written representations and covenants of the Company and of inTEST
("Representation Certificates"), as well as those representations set forth in
Sections 5 and 6 of the Merger Agreement. In connection with this opinion, we
have examined and are relying upon (without any independent examination or
review) the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the following documents:
(i) the Merger Agreement, (ii) the Representation Certificates, (iii) the
Registration Statement, and (iv) such other instruments and documents as we have
deemed necessary or appropriate in order to enable us to render the opinion
below.
<PAGE>
FACTS
Pursuant to the Merger Agreement, the Company will merge with
and into Merger Sub. Merger Sub will be the surviving corporation and will
continue to be a wholly-owned subsidiary of inTEST following the Merger.
OPINIONS
In connection with the opinions set forth below with respect
to the Merger, we have reviewed and relied upon the following documents:
(i) The charter, bylaws and directors' and stockholders'
resolutions of the Company;
(ii) The charter, bylaws, organizational documents and
directors' resolutions of Merger Sub and inTEST;
(iii) The Merger Agreement between inTEST, Merger Sub and the
Company;
(iv) Articles of Merger which will be filed in Massachusetts
and Delaware;
(v) Certificates of Officers of both inTEST and the Company;
and
(vi) Such other documents as we have deemed relevant or
appropriate to our opinion.
In rendering this opinion, we have relied upon the accuracy
and authenticity of the information contained in such documents. This opinion is
further based upon the following assumptions which we have made with your
consent and upon which we are relying:
(i) The Company shareholders will receive shares of inTEST
voting common stock in exchange for their shares of the Company voting common
stock surrendered in the exchange based upon a formula provided in the Merger
Agreement;
(ii) Immediately following the transaction, Merger Sub will
possess all of the assets and liabilities as possessed by the Company
immediately prior to the transaction;
<PAGE>
(iii) Merger Sub will continue the historic business of the
Company or will use a significant portion of the Company's assets in the
continuing business of Merger Sub and inTEST; and
(iv) The Merger will be consummated in accordance with the
Merger Agreement (including satisfaction of all covenants and conditions to the
obligations of the parties without amendment or waiver thereof).
Based upon the foregoing facts, documents and assumptions, it
is our opinion that for U.S. federal income tax purposes:
(i) The merger of the Company into Merger Sub will constitute
a "reorganization" within the meaning of Sections 368 (a) (1) (A) and 368 (a)
(2) (D) of the Internal Revenue Code of 1986, as amended (the "Code"), and the
Company, Merger Sub and inTEST will each be a party to the "reorganization"
within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by the Company, Merger
Sub or inTEST as a result of the Merger;
(iii) No gain or loss will be recognized by the Company
stockholders upon the exchange of their shares of the Company voting common
stock solely for shares of inTEST voting common stock pursuant to the Merger;
(iv) The aggregate tax basis of the shares of inTEST voting
common stock received solely in exchange for shares of the Company voting common
stock pursuant to the Merger will be the same as the aggregate tax basis of the
shares of the Company voting common stock exchanged therefor;
(v) The holding period for the shares of inTEST voting common
stock received in exchange for shares of the Company voting common stock
pursuant to the Merger will include the holding period of the shares of the
Company voting common stock exchanged therefor, provided such shares of the
Company voting common stock were held as capital assets by the stockholder at
the effective date of the Merger;
(vi) The payment of cash in lieu of fractional share interests
of inTEST voting common stock will be treated as if the fractional share
interests were distributed as part of the Merger and then redeemed by inTEST.
Such cash payments will be treated as having been received as a distribution in
full payment in exchange for the fractional share interest redeemed, as provided
in Section 302(a) of the Code;
(vii) Any Company shareholder who dissents to the transaction
and receives only cash in exchange for the Company voting common stock will be
treated as receiving a distribution in redemption of the Company voting common
stock subject to the provisions and limitations of Section 302 of the Code.
<PAGE>
(viii) As provided in Section 381(c)(2) of the Code and
related Treasury Regulations, Merger Sub will succeed to and take into account
the earnings and profits, or deficit in earnings and profits, of the Company as
of the Merger. Any deficit in the earnings and profits of Merger Sub or the
Company will be used only to offset the earnings and profits accumulated after
the Merger; and
(ix) Pursuant to Section 381(a) of the Code and related
Treasury Regulations, Merger Sub will succeed to and take into account the items
of the Company described in Section 381(c) of the Code. Such items will be taken
into account by Merger Sub subject to the conditions and limitations of Sections
381, 382, 383 and 384 of the Code and the Treasury Regulations thereunder.
In addition, we confirm that the discussion of the material
United States federal income tax consequences under the caption "Material
Federal Income Tax Consequences" (the "Tax Section") reflects our opinion
regarding the material federal income tax consequences of the Merger.
The above opinions are based solely upon the documents, facts
and assumptions stated above. Any inaccuracy in, or breach of, any of the
aforementioned agreements, documents or assumptions, or any change after the
date hereof in the applicable law could adversely affect our opinion.
Furthermore, the tax consequences described above may not be applicable to
stockholders subject to special treatment under certain federal income tax laws,
such as foreign holders or holders whose stock was acquired pursuant to the
exercise of an option.
No opinion is expressed as to any matter not specifically
addressed above. Also, no opinion is expressed as to the tax consequences of any
of the transactions under any foreign, state or local tax law. Furthermore, our
opinion is based on current federal income tax law and administrative practice,
and we do not undertake to advise you as to any changes in federal income law or
administrative practice that may affect our opinion after the effective date of
the Merger.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our Firm in the Tax Section. In
giving this consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act or the rules and
regulations of the SEC thereunder.
Very truly yours,
/s/ Saul, Ewing, Remick & Saul LLP
---------------------------------------
<PAGE>
Exhibit 21
Subsidiaries of inTEST
inTEST Limited
inTEST Kabushiki Kaisha
inTEST PTE, Limited
inTEST Sunnyvale Corp.
inTEST Investments, Inc.
inTEST IP Corp.
inTEST Licensing Corp.
<PAGE>
Exhibit 23.2
Consent Of Independent Accountant
The Board of Directors
inTEST Corporation:
We consent to the use of our report included herein and to the reference to our
firm under the headings "Selected Historical Financial Data of inTEST
Corporation" and "Experts" in the joint proxy statement/prospectus.
/s/ KPMG LLP
- -----------------------------
Philadelphia, Pennsylvania
February 3, 2000
<PAGE>
Exhibit 23.3
Consent Of Independent Accountant
We consent to the reference to our firm under the captions "Selected Historical
Financial Data" and "Experts," and to the use of our report dated August 6,
1999, included in the joint proxy statement of inTEST Corporation and Temptronic
Corporation that is made a part of the Registration Statement (Form S-4) and
related Prospectus of inTEST Corporation for the registration of shares of its
common stock.
/s/ Ernst & Young LLP
- -----------------------------
Boston, Massachusetts
February 3, 2000
<PAGE>
Exhibit 23.4
Consent of Janney Montgomery Scott LLC
February 2, 2000
The Board of Directors
inTEST Corporation:
We hereby consent to the inclusion of the Opinion of Janney Montgomery Scott LLC
dated January 31, 2000 as an Appendix to the joint proxy statement/prospectus
filed as part of the Form S-4 Registration Statement of inTEST Corporation, and
to the references to our firm as in the text of said joint proxy
statement/prospectus. In giving such consent, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission.
/s/ Janney Montgomery Scott LLC
Philadelphia, Pennsylvania
<PAGE>
January 31, 2000
Board of Directors
inTEST Corporation
2 Pin Oak Lane
Cherry Hill, NJ 08003
Dear Members of the Board:
You have requested our opinion with respect to the fairness, from a financial
point of view, to inTEST Corporation, a Delaware corporation ("inTEST" or the
"Company"), of the exchange ratio in connection with the proposed merger
("Merger") pursuant to the Agreement and Plan of Merger and Reorganization (the
"Merger Agreement") by and among Temptronic Corporation, a Massachusetts
corporation ("Temptronic"), the Company, and Temptronic Corporation, a Delaware
corporation ("Newsub").
Under the terms of the Merger Agreement, Temptronic will become a wholly owned,
direct subsidiary of the Company. At the closing of the Merger, each share of
the common stock of Temptronic issued and outstanding immediately prior thereto
(the "Temptronic Common Stock") shall be converted into the right to receive
0.925 shares of the common stock of inTEST (the "Company Common Stock") (the
"Exchange Ratio"), and each share of Temptronic Common Stock issued and held in
the treasury of Temptronic shall be cancelled and retired. The terms and
conditions of the Merger are more fully set forth in the Merger Agreement.
In reaching our opinion, we (i) reviewed a draft of the Merger Agreement dated
December 10, 1999; (ii) reviewed selected financial and stock market data for
certain publicly traded companies; (iii) reviewed the financial terms of
certain recent business combinations; (iv) performed discounted cash flow
analyses for Temptronic; (v) reviewed the audited financial statements of
inTEST for the fiscal years ended December 31, 1996 through December 31, 1998,
and unaudited financial statements for the nine months ended September 30,
1999; (vi) reviewed the audited financial statements of Temptronic for the
fiscal years ended June 30, 1996 through June 30, 1999, and unaudited financial
statements for the five months ended November 30, 1999; (vii) reviewed various
descriptions of the business, operations, and earnings prospects of the Company
and Temptronic; and (viii) performed such other analyses, and considered such
other factors, as we deemed appropriate. In addition, we held discussions with
the management of the Company and Temptronic regarding their respective
businesses, operating results, financial conditions and prospects.
In connection with our review, we have relied upon the accuracy and
completeness of all information provided to us by the Company and Temptronic
and their representatives, and we have not attempted to independently verify
any such information. We have also relied upon the assessment of the
managements of the Company and Temptronic regarding their respective businesses
and prospects, and assumed that the budgets and financial projections provided
to us were prepared by the respective managements on the basis of reasonable
assumptions and reflected the best currently available estimates and good faith
judgments of their future financial performance. We have also assumed that the
final terms of the Merger Agreement and certain related documents reviewed by
us in draft form will not vary materially from the drafts reviewed by us, and
that the Merger will have the tax and accounting consequences described in the
Proxy Statement. We have not made an independent evaluation or appraisal of the
Company's or Temptronic's assets and liabilities. Our opinion is necessarily
based on financial, market, economic and other conditions as they exist and can
be evaluated as of the date of this letter. We undertake no obligation to
update this opinion to reflect any developments occurring after the date
hereof.
Janney Montgomery Scott LLC ("Janney") is a nationally recognized investment
banking firm and, as part of its investment banking activities, is regularly
engaged in the valuation of businesses and securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and valuations for corporate and other purposes.
Janney will receive customary fees from inTEST in connection with the Merger.
In addition, the Company has agreed to indemnify Janney against
C-1
<PAGE>
certain liabilities arising out of the rendering of this opinion. We have in
the past performed investment banking and other services for the Company,
including mergers and acquisitions advisory and equity underwriting, and have
been compensated for such services. In the ordinary course of our securities
business we may trade the equity securities of inTEST for our own account and
the accounts of our customers and, therefore, we may from time to time hold a
long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of the Company in evaluating the Merger and does not address the
relative merits of the Merger or any other business strategies being considered
by the Company's Board of Directors, nor does it address the Board's decision
to proceed with the Merger. We are expressing no opinion as to the prices at
which the Company Common Stock will trade at any time. Our opinion does not
constitute a recommendation to any shareholder of the Company as to how such
shareholder should vote their shares in the Merger. This opinion may not be
used for any other purpose, and may not be quoted or referred to, in whole or
in part, without our prior written consent, except that this opinion may be
included in its entirety in any filing with the Securities and Exchange
Commission in connection with the Merger.
Based upon the foregoing, we are of the opinion, as of the date hereof, that
the Exchange Ratio in connection with the proposed Merger is fair to the
Company from a financial point of view.
Very truly yours,
/s/ JANNEY MONTGOMERY SCOTT LLC
C-2
