<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended September 30, 1998.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____ to _____.
Commission file number 333-32195
WAVETEK WANDEL & GOLTERMANN, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0457664
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1030 SWABIA COURT
RESEARCH TRIANGLE PARK, NC 27709-3585
(Address of Principal Executive Offices) (Zip Code)
(919) 941-5730
Registrant's Telephone Number, Including Area Code
Securities registered pursuant to
Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Not applicable. Not applicable.
Securities pursuant to section 12(g) of the Act:
10-1/8 % Senior Subordinated Notes Due 2007
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
------ -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 299.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of December 14, 1998.
NOT APPLICABLE.
The number of shares outstanding of the issuer's classes of common stock as
of December 14, 1998.
As of December 14, 1998, issuer had only one class of common stock, of which
there were 13,202,323 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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ITEM 1. BUSINESS OF THE COMPANY
HISTORY
On September 30, 1998, Wavetek Corporation, a Delaware corporation
("Wavetek"), and Wandel & Goltermann Management Holding GmbH, a German
limited liability company ("WG"), consummated an exchange transaction
whereby the stockholders of WG became stockholders of Wavetek, and WG became
a subsidiary of Wavetek (the "Exchange Transaction"). In connection with the
Exchange Transaction, Wavetek was renamed Wavetek Wandel & Goltermann, Inc.
(the "Company"). The Company believes that the consummation of the Exchange
Transaction created the world's second largest manufacturer and distributor
of communications test equipment, with annual revenues in excess of $460
million (DM 820 million), and with significant opportunities for growth
through marketing and other operating synergies.
Wavetek was founded in San Diego, California in 1962, and was acquired by
an investment group led by Dr. Terence J. Gooding in 1991. After Dr. Gooding
acquired Wavetek and prior to the consummation of the Exchange Transaction,
Wavetek completed two strategic acquisitions: (1) the instrumentation
products division of Beckman Industrial in 1992 and (2) the wireless and
fiber optics test businesses of Schlumberger S.A. in 1994. In June 1997,
Wavetek completed a recapitalization of the Company involving the repurchase
of equity from existing investors, the issuance of equity to new investors
and the incurrence of debt.
WG was founded in Eningen, Germany in 1923. Prior to entering into the
Exchange Transaction, WG was majority owned by the families of the founders.
On October 1997, WG completed a phased acquisition of Switching Test
Solutions AG, a Swiss joint venture formed by WG and Alcatel. Also in
September 1998, WG completed the acquisition of the shares of its U.S.
subsidiary, Wandel & Goltermann Technologies, Inc., that it did not
previously own.
Although WG became a subsidiary of Wavetek, the Exchange Transaction was
treated, for accounting and reporting purposes, as a purchase of Wavetek by
WG. Accordingly, the consolidated financial statements of the Company
included herein as of any date or for any period prior to September 30, 1998,
are the historical consolidated financial statements of WG. The consolidated
balance sheet of the Company as of September 30, 1998, included herein,
reflects the Exchange Transaction and the related purchase accounting
adjustments. In the following discussion, all references to "pro forma"
financial information mean the combined historical results of operations of
Wavetek and WG for the fiscal year indicated, as if the Exchange Transaction
had been consummated on October 1 of that year. See "Unaudited Pro Forma
Combined Financial Data" and "Consolidated Financial Statements of Wavetek
Corporation" included in Item 14 herein.
The executive offices of the Company are located at 1030 Swabia Court,
Research Triangle Park, North Carolina 27709-3585, and its telephone number
is (919) 941-5730.
GENERAL
The Company is a leading global designer, manufacturer and marketer of a
broad range of communications test instruments used to develop, manufacture,
install and maintain communications networks and equipment. The Company
conducts its communications test business, which addresses most sectors of
the communications test market, in four principal business areas: (1) Telecom
Networks (traditional voice/data transmissions and new multi-service
networks), (2) Enterprise Networks (local and wide-area network
infrastructures), (3) Multimedia (cable television and digital video
broadcast) and (4) Wireless (mobile telephony and data). The Company's
communications test business accounted for greater than 85% of the Company's
pro forma fiscal 1998 sales. The Company also designs, manufactures and sells
precision measurement instruments and general-purpose handheld test tools. In
addition, the Company provides repair,
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upgrade and calibration services, as well as value-added professional
services such as consulting, training and rental services on a worldwide
basis. For its fiscal year ended September 30, 1998, the Company had pro
forma sales of $469.7 million, EBITDA (as defined) of $50.4 million and a
loss before extraordinary items of $28.6 million, after giving effect to
certain purchase accounting adjustments and other charges related to the
Exchange Transaction.
The Company believes that it is well positioned to compete in its markets
as a result of its: (1) position as the second largest provider of
communications test equipment in the world, with strong global market
positions in most sectors of the communications test market, including
worldwide leading market shares in field test instruments for cable
television networks and Synchronous Digital Hierarchy ("SDH") transport
networks; (2) large, long-standing business in the telecom networks markets
(greater than 50% of pro forma fiscal 1998 sales), coupled with emerging
business in the higher growth enterprise networks, multimedia and wireless
markets; (3) integrated and comprehensive product offering to test a wide
range of communications equipment, networks and services through their entire
life cycle from development to installation to maintenance; (4)
well-established global distribution capabilities and (5) relationships with
a diverse and global client base.
The Company's products provide comprehensive testing solutions to a wide
range of end users. For example, the Company's high-end instruments are used
during the product development phase to stress test product functionality and
performance. Other products are used during the production process to verify
conformance to manufacturing specifications, while the Company's enhanced
portable field service tools enable field technicians to quickly install,
repair and maintain complex network infrastructure as well as validate
service levels. The Company also provides distributed remote test systems to
many of its service provider customers which allow such customers to more
efficiently utilize their network engineers to monitor and test service
levels.
The Company sells its products to a broad base of over 5,000 customers
worldwide, including (1) global communications equipment manufacturers such
as Alcatel, Cisco Systems, Inc., L.M. Ericsson Telephon AB ("Ericsson"),
International Business Machines Corp. ("IBM"), Lucent Technologies, Inc.,
Motorola, Inc., Northern Telecom, Ltd. ("Nortel"), NCR Corporation and
Siemens AG, (2) communications service providers such as AT&T Corporation,
TeleCommunications, Inc. ("TCI"), Deutsche Telekom AG, France Telecom,
Embratel, China Telecom and Time Warner Cable and (3) the information service
departments of corporations and governmental entities such as the Boeing
Company, DaimlerChrysler and the U.S. Navy. In fiscal 1998, no customer
represented more than 5% of the Company's pro forma sales. The Company's
sales are also diversified geographically with pro forma fiscal 1998 sales to
customers in Europe (48%), United States (22%), Canada, Mexico, Central and
South America (16%) and Asia-Pacific and rest of world (14%).
The Company sells and services its products through (1) its global sales
and service organization of over 800 employees in over 25 countries and (2) a
global network of over 250 distributors, resellers and independent
representatives, which together provide the Company with a sales and service
presence in over 85 countries. The Company has design and manufacturing
capabilities through 11 major facilities located in the United States,
Germany, the United Kingdom, Brazil, France and Switzerland.
GROWTH STRATEGY
The Company's growth strategy is to enhance its strong position in the
communications test market and to continue to increase sales and
profitability through the following key initiatives:
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- FOCUS ON THE LARGE, GROWING COMMUNICATIONS TEST MARKET. According to Prime
Data, the worldwide market for communications test equipment has grown from
approximately $1.3 billion in 1989 to approximately $2.9 billion in 1997,
representing a 10.5% compound annual growth rate. Prime Data expects this
segment to grow approximately 4.4% in 1998, accelerating to 9.2% per annum
by 2002. The Company's pro forma fiscal 1998 revenues from communications
test products grew by 7.4% over comparable pro forma fiscal 1997 revenues.
The Company believes that the growth in this market will continue to be
driven by: (1) rapidly changing communications technology; (2) growing
demand for communications services (including Internet access, interactive
cable networks and mobile phones); (3) increasing worldwide investment to
build or upgrade data and communications infrastructure and (4) the
continued deregulation and privatization of the telecommunications
industry. The Company generated over 85% of its pro forma fiscal 1998 sales
from communications test products and intends to continue to capitalize on
its strong competitive positions and broad market coverage in order to
benefit from this market growth.
- CAPITALIZE ON COMPREHENSIVE PRODUCT OFFERING AND GLOBAL DISTRIBUTION
CAPABILITIES. The Company believes that its comprehensive product offering
and global distribution capabilities are key factors for its continued
success in the communications test market. To meet the challenges of
rapidly advancing technologies and global customer bases, the Company
believes its customers will seek to form strategic alliances with test
equipment manufacturers in order to provide total life cycle solutions and
to support a wide range of communications networks and equipment. The
Company believes it is one of only two companies that is able to provide
comprehensive communications test solutions and service on a worldwide
basis. The Company intends to use this competitive advantage to generate
incremental revenues from existing customers and to develop additional
customer relationships.
- LEVERAGE CROSS-SELLING OPPORTUNITIES. Historically, Wavetek primarily
utilized an established distributor and reseller network while WG relied
substantially on its strong global direct sales organization to sell their
products. The Company believes there will be significant opportunities to
generate incremental revenues and profits by selling Wavetek products
directly to WG's customer base and WG's products through Wavetek's
distributor and reseller network. Specifically, the Company believes there
will be opportunities to: (1) reduce costs to the Company on certain
Wavetek product sales by selling directly to end users instead of through
distributors or resellers; (2) increase sales of certain low cost WG
products by utilizing Wavetek's distributor and reseller network and
(3) increase direct sales of certain Wavetek products by utilizing WG's key
customer account teams.
- DEVELOP INNOVATIVE TEST SOLUTIONS ON A TIMELY BASIS. The Company's product
development strategy is to: (1) identify test solutions that are responsive
to customer needs; (2) minimize development time in order to address
rapidly changing technology; (3) share complementary technologies and
design techniques among its development groups and (4) leverage design
efforts by generating multiple product line extensions from each product
platform. The Company executes this strategy by investing in new product
development, which expenditures represented 14% of pro forma fiscal 1998
sales, continuing to improve the performance of existing products with
additional features and reducing manufacturing costs. The Company has a
history of successfully introducing new products, with 22 new products
introduced in fiscal 1998. Within the communications test segment, and
excluding customized systems, more than 52% of pro forma fiscal 1998
revenues were generated from products less than three years old and 80%
from products less than five years old.
- EXPAND VALUE-ADDED SERVICE BUSINESS. As technology and customer needs
become more complex, the Company believes there will be increasing
opportunities to expand its business of providing value-added services,
such as consulting, training and rental in addition to traditional services
such as repair, calibration and upgrade. Value-
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added services typically provide the Company with higher margins than the
Company's communications test business. The Company has worldwide
educational programs to assist its customers with new technologies and the
use of its products and intends to leverage its broad customer base and its
global capabilities to generate additional revenues from its service
business.
- EXPLORE ACQUISITION OPPORTUNITIES. The Company intends to selectively
explore acquisition opportunities to: (1) strategically enhance its
comprehensive product line; (2) strengthen its market position in certain
sub-markets that it has not fully addressed and (3) gain access to
strategic technologies that could not be developed in a cost-effective or
timely manner. The highly fragmented nature of the communications test
market should provide significant opportunities for such strategic
acquisitions. Both Wavetek and WG have a history of successfully
integrating acquisitions, having completed an aggregate of five strategic
acquisitions since the beginning of fiscal 1993.
COMMUNICATIONS TEST PRODUCTS
The Company's communications test business, which accounted for
approximately 89% of pro forma fiscal 1998 sales, consists of four product
areas: Telecom Networks, Enterprise Networks, Multimedia and Wireless.
TELECOM NETWORKS
The Company is a leading global designer and manufacturer of test
solutions for use in the development, manufacture, installation and
maintenance of public voice, data and image communications systems worldwide.
Specific testing applications for the Company's Telecom Networks products
address the local loop, switches and the backbone transport network, as
described below. The Company provides a comprehensive range of portable test
products for all three testing applications as well as dedicated test
instruments for product development, systems for manufacturing test and
distributed remote test systems for operations and maintenance. Although the
Company believes it is the worldwide market leader in SDH field test and
switching test equipment, the Company's Telecom Networks products
historically have had a relatively low market presence in North America,
which provides a significant growth opportunity that the Company intends to
address by increasing marketing and sales activities.
The local loop provides the 'final mile' of the network for
traditional voice-line services such as voice, data over modem, leased lines,
and newer digital services such as Integrated Services Digital Network ("ISDN"),
Frame Relay and Asynchronous Transfer Mode ("ATM") packet switching. Technology
is constantly evolving in this field, as exemplified by new high-speed data
access to the Internet, which is being introduced using Digital Subscriber
Loop ("xDSL") technology. The Company's test products help customers
economically install and verify copper and fiber cabling, test the
multi-service network equipment that connects the customer premises with the
central office and verify service availability and performance to the service
end-user. An example is the Company's PA/PF/PFA-x family, a market leader in
handheld multi-technology, multi-protocol testers. Remote operation software
products for certain test instruments allow remote test systems to be
constructed using the Company's existing test products.
Switches send communications to a desired location and provide an
increasing array of intelligent services such as Call Waiting and Caller ID.
Switches also provide packet and internet routing and work with wireless and
cable network telephony equipment for seamless communication services. All of
these applications require functional and performance testing as well as
monitoring operational Quality of Service. The Company's switching test
products include testing systems and portable equipment used in the
development, manufacture, installation and verification of switches.
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The backbone transport network provides high bandwidth connectivity for
the multiple services offered by telecommunications service providers.
Specific applications of the Company's transport products test fiber optic
systems, including new Dense Wavelength Divisional Multiplex ("DWDM")
systems, as well as SDH/Synchronous Optical Network ("SONET")/ATM digital
transport systems, and the Telecommunications Management Network ("TMN")
systems. The Company believes its ANT-20 product family, which accounted for
approximately 14% of the Company's pro forma fiscal 1998 sales, is the
worldwide market leader in SDH field testing. The ANT-20, the seventh
generation of digital transport testers, exemplifies the Company's deep
experience and long-term commitment to this market.
The Company's Telecom Networks customers include Alcatel, AT&T
Corporation, Deutsche Telecom AG, Lucent Technologies, Inc. and Siemens AG.
The following table lists selected Telecom Networks product offerings of the
Company:
<TABLE>
<CAPTION>
APPROXIMATE
U.S. PRICE
PRODUCT NAME DESCRIPTION PRIMARY CUSTOMER POINT
- ------------ -------------------------------- ----------------- -----------
<S> <C> <C> <C>
ANT-20 High performance SDH/SONET/ATM Telecom equipment $ 15,000-
tester of high-speed digital manufacturers, $100,000
transport systems in the installers and
backbone and local loop networks operators
MTS OTDR Hand-held, portable optical time Telecom $12,000
domain reflectometer ("OTDR") operators, fiber
for measuring and characterizing installers,
fiber optic networks utilities,
private networks
Helios Mainframe, high performance OTDR Telecom $26,000
for measuring and characterizing operators, fiber
fiber optic networks manufacturers,
utilities,
private networks
Atlas Distributed remote fiber optic Telecom $50,000+
test system monitors operators,
availability and performance of utilities
fiber optic networks private networks
OMS-100, Laboratory-grade fiber optic Telecom network $10,000-
OMS-200 test systems, modular, with equipment $50,000
rackmount and benchtop developers,
configurations manufacturers and
operators
OLS-5, OLP-6 Rugged pocket-sized fiber optic Telecom fiber $1,200+
testers, including a separate optic installers
light source and power meter and maintenance
for field use crews
OSA-155 High performance, portable field Telecom network $30,000
optical spectrum analyzer, used installers and
for the installation, operation operators
and maintenance of DWDM
transport systems
SLK Handheld measurement kit for Telecom network $9,000
xDSL systems and the local installers and
twisted-pair loop operators
PFA-30/-35, Family of handheld, multipurpose Telecom operators $5,000+
PA-20/41, instruments for installation,
PF-30 maintenance and troubleshooting
of local loop digital networks
and services, such as Frame
Relay
</TABLE>
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<TABLE>
<CAPTION>
APPROXIMATE
U.S. PRICE
PRODUCT NAME DESCRIPTION PRIMARY CUSTOMER POINT
- ------------ -------------------------------- ----------------- -----------
<S> <C> <C> <C>
IBT-5/10/20 Family of handheld ISDN testers Telecom operators $1,300 -
for installation and maintenance $6,000
of ISDN services worldwide
TSA-40 Modular handheld rugged analog Telecom operators $9,000
telephony Quality of Service
tester for the local loop
STS 8610/8620 High performance, modular system Testing labs of $50,000
for comprehensive testing and telecom equipment
remote monitoring of manufacturers and
telecommunications switching telecom operators
systems
AMS-980 ATE telephony test system for Telecom equipment $100,000
functional testing of POTS, manufacturers
PABX, xDSL, ISDN and wireless
telephony equipment during
manufacturing
</TABLE>
ENTERPRISE NETWORKS
The Company is a global designer and manufacturer of test instruments for
the Enterprise Networks market. The Company's Enterprise Networks products
are used to develop, install, and maintain local area networks ("LAN") and
wide area networks ("WAN") and to evaluate the performance and functionality
of complex internetworks and the internetworking devices that connect them.
The Company's products also can be used to maintain the business applications
that use the LAN/WAN infrastructure as well as test the integrity of the LAN
physical layer. The Company's Enterprise Networks products are used by
manufacturers of LAN communications equipment, value-added resellers of
network equipment, information systems departments of companies and
governmental entities, and providers of public Internet access, ISDN and
Frame Relay services.
The Company seeks to develop new products in the Enterprise Networks
market by anticipating the future needs of its customers. For example, the
Company believes it has developed the industry's first product family of LAN
cable testers which are fully upgradable to anticipated future standards and
higher frequencies. In addition, the Company believes its NetForce Ranger is
the internetworking industry's first network analysis solution able to search
for, detect, isolate and locate problems before the network fails. Recent
platform extensions to the Domino family of protocol analyzers have included
a test solution for Gigabit Ethernet and the Mentor, an expert system for
troubleshooting LANs that won the "Best of Show" award in its category at the
Spring 1998 Networld/Interop trade show.
The Company's Enterprise Networks customers include BellSouth, the Boeing
Company, 3Com, Cisco Systems, Inc., DaimlerChrysler, IBM, NCR Corporation and
the U.S. Navy, and the Company's LAN cable test products are marketed through
its worldwide network of distributors including Anixter and Graybar. The
following table lists selected Enterprise Networks product offerings of the
Company:
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<TABLE>
<CAPTION>
APPROXIMATE
PRIMARY U.S. PRICE
PRODUCT NAME DESCRIPTION CUSTOMER POINT
- ------------ ----------------------------------- ------------- ------------
<S> <C> <C> <C>
LT-8000, Family of hand-held, portable units LAN cable $ 1,000 -
LT-8100, used to certify and troubleshoot installation $ 4,000
LT-8155 LAN cable installation. Fully crews, LAN
upgradable to future standards and technicians,
higher frequencies. Fiber kit option network
for testing single or multi-mode managers
fiber
Domino LAN, High performance field service LAN Higher level $ 10,000 -
FE, Gigabit protocol analyzer family based on enterprise $ 30,000
high speed proprietary hardware with network
application-specific software to technicians,
test and monitor all significant LAN network
technologies, including Fast managers, field
Ethernet, Gigabit Ethernet, Token service
Ring and FDDI technicians for
equipment
manufacturers
and network
service
providers
Wizard, Software tools for network Enterprise $ 3,500 -
Mentor baselining and interactive expert network $ 5,000
network analysis, run in conjunction technicians,
with select Domino and Link View network
products managers, field
service
technicians
Link View Entry level field service LAN LAN equipment $ 500-
protocol analyzer family utilizing installers and $ 2,000
off the shelf notebook PCs and service
network interface cards personnel
NetForce Distributed remote test system to Enterprise $ 20,000+
Ranger monitor and test connectivity in network
operational networks operators
DA-30 High performance modular benchtop Test labs for $ 30,000-
LAN/WAN protocol analyzer network $100,000
equipment
manufacturers
and large
business
network
operators
DA-5 Entry level WAN protocol analyzer WAN equipment $ 7,000
utilizing off the shelf notebook PC installers and
and the Company's WAN analysis service
hardware personnel,
network
managers
DominoWAN/ High performance field serive WAN Higher level $ 12,000+
ATM protocol analyzer family based on enterprise
high speed proprietary hardware with network
application-specific software to technicians,
test and monitor all significant WAN network
technologies, including ATM, ISDN managers, field
and T1/E1 service
technicians for
equipment
manufacturers
and network
service
providers
</TABLE>
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MULTIMEDIA
The Company manufacturers test instruments for the Multimedia market and
is the global leader in developing and manufacturing test equipment used for
commissioning and maintaining broadband cable networks. Major cable network
products include: sweep systems, signal level meters, leakage meters, network
monitoring systems and related software. These products test and monitor the
quality of signals transmitted over a cable network and monitor network
availability. The Company also believes that the deployment by cable network
operators of advanced services, including two-way data paths to provide
telephony or Internet services, has created new product opportunities for the
Company. For example, the Company's close customer relationships gave the
Company early indication of the need for return path testing capability. The
Company used this information to create the world's first two-way sweep
system designed to assist cable network technicians in the installation and
servicing of the return path of two-way cable networks.
One of the primary technical problems inhibiting deployment of two-way
cable networks is interference (noise commonly know as ingress) on the return
path. If the return path is not securely installed with tight connectors and
well-maintained cable, ingress from external sources such as computers, home
appliances and motors can enter the cable network system and interfere with
customer data on the return path. In order to reduce the time and difficulty
in locating the source of noise, the Company has developed a family of
leakage meters including the CLI 1750, 1450 and 950, a return path ingress
monitoring system, the PathTrak, and an advanced ingress capable sweep system
known as StealthTrak. These products are specifically designed to assist
installers in detecting ingress in cable networks.
The Company entered the digital video broadcast ("DVB") test market in
1997 by introducing the DTS-A transport stream analyzer, and subsequently a
companion test generator, the DTS-G, for product development, installation
and operation of Moving Picture Expert Group ("MPEG-2")/DVB systems.
Significant Multimedia customers of the Company include Continental
Cablevision, Inc., Deutsche Telekom AG, TCI and Time Warner Cable.
The following table lists selected Multimedia product offerings of the
Company:
<TABLE>
<CAPTION>
APPROXIMATE
PRIMARY U.S. PRICE
PRODUCT NAME DESCRIPTION CUSTOMER POINT
- ------------ ------------------------------------ --------------- -----------
<S> <C> <C> <C>
MicroStealth Hand-held unit tests signal quality Cable network $ 1,200
at multiple points in cable networks service
technicians and
installers
SAM 4040 Hand-held, broadband signal analysis Cable network $ 2,500
meter used for maintaining cable service
networks technicians
CLI 1750 Tests home wiring for digital and Cable network $ 2,500
interactive services compatibility service
technicians and
installers
Stealth Trak Flexible, portable instruments for Cable network $ 3,600
testing frequency response and sweep
ingress characteristics of cable technicians
networks
3SM Modular remote monitoring system for Cable network $ 4,300
up to 200 remote head ends or hub operations and
sites reliability
managers
</TABLE>
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<TABLE>
<CAPTION>
APPROXIMATE
PRIMARY U.S. PRICE
PRODUCT NAME DESCRIPTION CUSTOMER POINT
- ------------ ------------------------------------ --------------- -----------
<S> <C> <C> <C>
Benchmark Versatile sweep/scalar analyzer used Radio frequency $ 10,000
1175 to test sweep response, transmission amplifier
loss or gain manufacturers,
service and
repair
facilities
PathTrak Return path performance monitoring Network $100,000
system operators, head
end and field
technicians
DTS-A, DTS-G Digital video broadcast analyzer and Video broadcast $ 30,000 +
generator available in desktop, equipment
portable or rackmount configuration developers and
to test and monitor MPEG-2/DVB or service
Advanced Television Systems providers
Committee ("ATSC") systems
</TABLE>
WIRELESS
The Company is a significant supplier of test instruments for mobile
phones, base stations and mobile radio network switches. The Company
manufactures instruments to test wireless systems at the Radio Frequency
("RF") interface between cellular base stations and mobile phones, the
land-lines of cellular base stations and telephony switching systems and the
switching systems that provide mobile services. The Company's products
address most analog and digital formats used worldwide, including PCS,
Digital Enhanced Cordless Telecommunications ("DECT"), Groupe Speciale Mobile
("GSM"), Time Division Multiple Access ("TDMA") and Code Division Multiple
Access ("CDMA"). The Company's mobile phone test products are used during the
manufacturing process, at service facilities and at the point-of-sale for
cellular and cordless phones. Test tools for cellular base station RF and
land-line interfaces are used by base station manufacturers for product
development, manufacturing test and are also used in the field by wireless
service providers for installation and maintenance. The Company also produces
a distributed remote test system for continuous monitoring and testing of
basic services and roaming functionality for telephony switches that support
mobile services.
The Company's point-of-sale, application-specific product for the
Wireless market, the 4100 GSM Tester, was designed to address the increasing
demand for testing GSM telephones. The shift in phone repair from local
repair shops or retail stores to high volume service facilities, combined
with the high cost to process, ship and test a phone at a service facility,
is creating a need for testing at retail sites to minimize the number of
properly functioning phones that are mistakenly returned to the manufacturer
for repair. The 4100 GSM Tester family provides accurate testing at a price
point approximately one-third of the price of traditional service testers,
allowing economical sorting of phones at the point-of-sale. The Company was
able to bring the 4100 GSM Tester family to market quickly, innovating the
repair process, due in part to the application of technology from its LAN
products and existing Wireless products.
Significant Wireless customers of the Company include AT&T Corporation,
Ericsson, Lucent Technologies, Inc., Motorola, Inc., Nortel, Nokia
Corporation and Siemens AG.
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The following table lists selected Wireless product offerings of the
Company:
<TABLE>
<CAPTION>
APPROXIMATE
PRIMARY U.S. PRICE
PRODUCT NAME DESCRIPTION CUSTOMER POINT
- ------------- ------------------------------------ -------------------- --------------------
<S> <C> <C> <C>
4032 Benchtop RF base station and phone Base station $ 27,000 +
tester for analog, CDMA, cellular and phone
and PCS manufacturers,
wireless
service
providers and
repair
organizations
3600D Benchtop RF tester for analog and Phone $ 28,000
CDMA Tester digital cellular or PCS phones manufacturers,
wireless
service
providers and
repair
organizations
4015 Benchtop tester for many types of Service shops, $ 14,000
analog radios governments,
aircraft
workshops
4100 Hand-held, point-of-sale tester for Phone $ 6,000
GSM Tester cellular or PCS phones manufacturers,
carriers,
retail outlets
MA-10 Modular, portable instrument tests Wireless $ 7,000 -
and monitors the land-line service $ 50,000
connection between a GSM or CDMA provider
cellular base station and the installation
telephony switching system and maintenance
STS 8620 Distributed remote test system for Wireless and $ 50,000 +
operational GSM wireless networks telecom service
and certain telephony networks providers
STS 8619 Modular, portable protocol analyzer Development $ 35,000 -
for network emulation, conformance labs, $120,000
and functional tests production,
telecom service
providers
installation,
maintenance and
troubleshooting
4400 Benchtop tester for digital mobile Phone $ 37,500
phones manufacturers,
service
centers, repair
organizations
</TABLE>
OTHER TEST PRODUCTS
The Company's other products, which accounted for approximately 6% of the
Company's pro forma fiscal 1998 sales, consist primarily of portable
electronic testing tools ("Test Tools"), instruments used to calibrate
electronic equipment ("Precision Measurement Instruments"), electromagnetic
measurement instruments and a small group of other non-test products.
11
<PAGE>
TEST TOOLS
The Company's Test Tools business develops and distributes portable
measurement instruments that are used to measure and service a broad range of
electrical and electronic equipment including wiring, appliances, computer
equipment and consumer electronics. The Company's Test Tools products are
used by the electronic and electro-mechanical maintenance and service
industries. Hand-held digital multi-meters ("DMMs") are a key instrument in
this market and range from simple volt meters to advanced tools for
professional electrical and electronic technicians, as well as wire and cable
installers. The Company believes that its shipments of over 100,000 hand-held
DMMs per year worldwide increase the Company's overall visibility in the test
instruments industry. The Test Tools business also provides a wide range of
low-cost communications test products, from tone generators and optical fault
finders to cable verifiers. The Company also believes that the Test Tools
business complements its other Communications Test businesses by providing a
distribution channel for certain of its LAN products and potential new low
cost Communications Test products.
Significant Test Tools customers of the Company include Farnell/Newark
Electronics, RS Components and W. W. Grainger. The following table lists
selected Test Tools product offerings of the Company:
<TABLE>
<CAPTION>
APPROXIMATE
PRIMARY U.S. PRICE
PRODUCT NAME DESCRIPTION CUSTOMER POINT
- ------------ ---------------------------------- ----------------- ------------
<S> <C> <C> <C>
Hand-held Portable, field troubleshooting of Electronics $20 - $350
DMMs electronic and electrical circuits repair
personnel,
electricians,
electronics
engineers,
industrial
plant
servicers,
home/hobbyist
Clamp-on Non-intrusive verification and test Electricians, $60 - $250
Multimeters of electrical circuits electrical
repair
personnel,
wiring
installers,
industrial
plant service
personnel
Component Verify quality and sorting of Electronic $70 - $200
Checkers electronic parts technicians and
quality control
departments of
electronic
manufacturers
Cable Simple Twisted Pair Cable Testing Telephone and $80 - $800
Verifiers LAN installers,
electricians,
industrial
office and
plant service
Fiber Optic Simple power, LAN and continuity LAN and $200 - $400
Testers testers Telephone
installers
</TABLE>
PRECISION MEASUREMENT INSTRUMENTS
The Company's Precision Measurement Instruments products are used in
metrology, engineering and manufacturing environments worldwide to calibrate
electronic equipment and certify compliance with international standards. The
12
<PAGE>
Company believes it is the second largest global manufacturer of Calibration
Sources and Transfer Standards. The Company also produces precision DMMs. The
Company believes that it successfully competes in the Precision Measurement
Instruments market by capitalizing on its technical expertise, relationships
with national laboratories and product reputation. The Company has recognized
the needs of an increasing number of customers to calibrate their test
equipment, including oscilloscopes and Precision DMMs, in order to comply
with international quality standards such as ISO 9000.
Because the need to calibrate electronic equipment is universal across a
wide range of industries, the list of customers includes a large number of
well known names in aerospace, defense, communications, semiconductor,
automotive, industrial electronic and instrumentation industries. Examples of
Precision Measurement Instruments customers of the Company include Kodak,
Nokia, Northrop Grumman Corporation, Samsung, Tektronix, Inc., the U.K. and
German military, the U.S. Army and Navy and Yokogawa Electric Corporation.
SERVICE BUSINESS
The Company's service business, which accounted for approximately 5% of
the Company's pro forma fiscal 1998 sales, provides traditional product-based
service as well as value-added professional services. The Company provides
traditional services such as repair, calibration and upgrade through service
centers and a network of independent representatives worldwide. The Company's
products are generally sold with warranties included in the product price. In
addition, the Company offers extended warranties and software update
subscriptions on certain of its products for additional charges. The
Company's professional services, such as consulting, training and rental, are
generally offered at the regional or local level through the Company's own
sales companies. Customized products and test systems are available from the
Company's product design and manufacturing units.
To complement its support services, the Company sponsors both free and
for-fee educational programs in various countries to train its customers in
advanced communications technologies and the application of its products to
solve communication network problems. These programs not only provide product
training but also serve as a forum for user suggestions for product
development and enhancements.
The Company believes that opportunities exist to expand its service
business, particularly in the area of professional services such as
consulting and training, and will continue to increase its worldwide offering
of services.
SALES AND MARKETING
The Company sells its products through (1) its global sales and service
organization of over 800 employees in over 25 countries and (2) a global
network of over 250 distributors, resellers and independent representatives,
which together provide the Company with a sales and service presence in over
85 countries.
The Company leverages its comprehensive product offering and global
distribution capabilities with a global key account program which targets
many of the world's largest equipment vendors and service providers. The
Company believes these customers seek to form strategic alliances with those
communications test equipment vendors that can provide total life cycle
solutions for a wide range of communications networks and equipment. The
global key account program offers these customers a high level of service in
order to help pre-determine their testing requirements. In addition, the key
account representatives coordinate with the Company's worldwide design,
manufacturing, sales and service resources to offer a package of
comprehensive testing solutions.
13
<PAGE>
Other customers with application-specific testing needs are addressed by
a broad network of technical distributors and independent representatives,
which are supported by the Company's own indirect sales management
organization. The Company's contracts with these distributors and independent
representatives are generally short-term in nature and typically can be
terminated by either party with 30 to 90 days notice. The multipurpose Test
Tools and certain LAN products are marketed by a dedicated general
distribution sales force working with a large network of specialized
distributors and catalog sales companies.
The Company markets its products through advertisements, direct mail,
seminars, the Internet, participation in trade shows and the publication of
quarterly newsletters for customers highlighting the Company's products and
describing industry trends. The Company not only focuses on worldwide
marketing activities, but also tailors the marketing message to meet the
distinct needs of each region and culture. The Company believes its products
have developed high visibility, including favorable recognition in several
significant trade publications.
CUSTOMERS
The Company has a broad international base of over 5,000 customers
operating in a wide range of industries. The largest group of users of the
Company's products are communications equipment manufacturers, public network
operators and information service departments of corporations and government
entities. Significant customers include: Alcatel, AT&T Corporation, Boeing
Company, China Telecom, Cisco Systems, Inc., DaimlerChrysler, Deutsche
Telekom AG, Embratel, Ericsson, France Telecom, IBM, Lucent Technologies,
Inc., Motorola, Inc., NCR Corporation, Nortel, Siemens AG, TCI, Time Warner
Cable and the U.S. Navy.
The Company's pro forma fiscal 1998 sales were distributed geographically
as follows: in Europe (48%), United States (22%), Canada, Mexico, Central and
South America (16%) and Asia-Pacific and rest of world (14%). See Note 10 to
the Company's consolidated financial statements. For fiscal 1998, no one
customer accounted for more than 5% of the Company's pro forma sales, and the
top ten customers, each of which is a global company with global affiliates,
represented approximately 22% of pro forma sales.
PRODUCT DEVELOPMENT
The Company seeks to develop and introduce products that are responsive
to market needs on a timely basis. The Company designs products for global
markets and often deploys market research and product definition teams
worldwide to meet and work with major customers in order to determine and
address their needs. On a pro forma basis, the Company invested $64.8
million, $52.7 million, and $47.4 million on research and development
activities in fiscal 1998, 1997 and 1996, respectively. As of September 30,
1998, the Company had approximately 525 research and development employees,
many of whom have advanced degrees in electrical engineering, computer
engineering or computer science. In connection with the Exchange Transaction,
the Company believes that it will have significant opportunities to share
complementary technologies and design techniques among its development
groups. The Company has made a significant effort in recent years to
supplement its engineering staff with engineers skilled in key technology
areas, as well as emerging technology areas such as digital communications
and advanced signal processing. The Company also makes selective use of
outside technical consulting companies to supplement internal capabilities.
In order to access information about new technologies and standards in
the communications industry, the Company is an active member of several
international standards bodies, such as American National Standards Institute
("ANSI"), European Telecommunications Standards Institute ("ETSI"),
International Telecommunications Union-Telecommunications Standardization
Sector ("ITU-T"), Internet Engineering Task Force ("IETF"), Institute of
Electrical and Electronic Engineers ("IEEE"), Frame Relay Forum and ATM Forum.
14
<PAGE>
MANUFACTURING AND SUPPLIERS
The Company has five manufacturing facilities worldwide: Indianapolis,
Indiana; Research Triangle Park, North Carolina; Eningen, Germany; Norwich,
United Kingdom and Plymouth, United Kingdom. In addition, the Company has
final assembly and testing facilities in St. Etienne, France; Munich, Germany
and Sao Paulo, Brazil. The Company has product design facilities at each of
its manufacturing and assembly facilities, as well as in San Diego,
California; Rennes, France and Zurich, Switzerland. The Company outsources
certain of its manufacturing to subcontractors, including certain printed
circuit boards and total manufacturing for its Test Tools products, which are
primarily manufactured by third party suppliers in Taiwan.
Although the Company attempts to use common, multi-sourced components
throughout its design, certain technological requirements may necessitate the
use of single-sourced, unique components. The Company attempts to minimize
its exposure on these components through careful vendor qualification and
purchasing, though risk exists that these parts may become obsolete,
necessitating redesign or withdrawal of the product from the market. Although
the Company has not experienced any significant problems in obtaining
sole-sourced components, it may experience certain problems from time to time
and typically carries extra inventory of critical sole-sourced components.
The inability to develop alternative sources, if required, or a reduction or
interruption in supply or a significant increase in the price of one or more
sole-sourced components would adversely affect the Company's business,
financial condition and results of operations.
All of the Company's manufacturing and final assembly facilities are
certified under ISO 9002, and five of the Company's facilities have received
certification under ISO 9001, the highest available certification for a
development and manufacturing company. The Company's certifications under ISO
9001 and 9002 certify that its product development, manufacturing,
installation and maintenance practices meet certain predetermined standards.
In addition, the Company received certification under ISO 14001, which
relates to environmental compliance for Germany, in 1996.
BACKLOG
As of September 30, 1998, the Company had a firm order backlog of $76.9
million (compared to a pro forma backlog of $69.2 million as of September 30,
1997), nearly all of which is expected to be filled by September 30, 1999.
Backlog reflects firm customer orders for products and services usually
scheduled for shipment within 12 months. The level of backlog at any
particular time is not necessarily indicative of future operating performance
of the Company. Delivery schedules may be extended, and orders may be
cancelled at any time subject to certain cancellation penalties.
COMPETITION
The Company operates in markets that are highly competitive, and the
Company expects that competition will increase in the future. Some of the
industries in which the Company operates are characterized by rapid
technological advances and emerging industry standards. Failure to keep pace
with technological advances would adversely affect the Company's competitive
positions and results of operations. The Company competes primarily on the
basis of technology, performance, price, brand identity, quality,
reliability, distribution and customer service and support. To remain
competitive, the Company must continue to develop new products, periodically
enhance its existing products and compete effectively in the areas described
above. Although the Company believes its products are competitive in each of
these areas, there can be no assurance that existing or future competitors,
some of which have greater financial resources than the Company, will not
introduce comparable or superior products incorporating more advanced
technology at lower prices.
15
<PAGE>
The Company's competitors are numerous, ranging from some of the world's
largest corporations to many relatively small and highly specialized firms.
The Company believes that the Hewlett-Packard Company is the only company
other than the Company that offers a comprehensive communications test
product line with global sales coverage. Major competitors which compete in
individual product markets or geographic areas include Anritsu, Dynatech
Corporation, Microtest, Network Associates, Rohde & Schwarz, IFR Systems, GN
Nettest and Tektronix. Some of these competitors have more extensive
engineering, manufacturing and marketing capabilities and substantially
greater financial, technological and personnel resources than the Company.
INTELLECTUAL PROPERTY
The Company's success and ability to compete depends in part upon
protecting its proprietary technology. The Company relies upon a combination
of patents, trademark and trade secret laws, together with licenses,
confidentiality agreements and other contractual covenants, to establish and
protect its technology and other intellectual property rights.
There can be no assurance that the steps taken by the Company to protect
its proprietary rights will be adequate to deter misappropriation or
independent third-party development of its technology, or that its
intellectual property can be successfully enforced or defended if challenged.
Given the rapid development of technology, there can be no assurance that
certain aspects of the Company's products do not or will not infringe upon
the existing or future proprietary rights of others or that, if licenses or
rights are required to avoid infringement, such licenses or rights could be
obtained on terms that would not have a material adverse effect on the
Company. In any event, because of the rapid pace of technological change in
many of the Company's product industries, the Company believes that patent
protection for its products is less significant to its success than the
knowledge, ability and experience of its employees and the frequent
introduction and market acceptance of new products and product enhancements.
See Item 3. Legal Proceedings.
EMPLOYEES
As of September 30, 1998, the Company employed approximately 2,600
people, of whom 525 were engaged in product development activities, 650 in
manufacturing operations and quality control, 265 in marketing, 820 in sales
and service, and the remainder in management and administrative capacities.
Most of the Company's employees are highly skilled and the Company's
continued success will depend in part upon its ability to attract and retain
these employees. Certain of the Company's employees in Europe are members of
standard unions. The Company believes its relationship with its employees is
good.
16
<PAGE>
ITEM 2. PROPERTIES
The table below sets forth selected relevant statistics for the Company's
current facilities:
<TABLE>
<CAPTION>
LEASE
LOCATION FACILITY TYPE/USE SIZE OF FACILITY TITLE EXPIRATION
- ------------------------ -------------------------------------------------------- ----------------- ------- -------------
<S> <C> <C> <C> <C>
Eningen, Germany Corporate offices; German sales/service headquarters; 606,000 sq. ft. Owned N/A
design, manufacturing and marketing for Telecom Networks
transport products and certain Wireless test products
Research Triangle Park, Corporate offices; US sales/service headquarters; design, 106,900 sq. ft. Leased 2010
North Carolina manufacturing and marketing for Enterprise Networks
products (1)
Indianapolis, Indiana Design, manufacturing and marketing for Multimedia and 206,000 sq. ft. (2) Leased 10/31/2014
certain Wireless products; manufacturing for certain
Enterprise Networks products
Plymouth, United Kingdom Design, manufacturing and marketing for Telecom Networks 86,400 sq. ft. Owned N/A
local loop products
San Diego, California U.S. distribution center for Test Tools; design and 70,000 sq. ft. Leased 6/29/2006
marketing for Enterprise Networks LAN cable products
and certain Multimedia products (3)
Munich, Germany Design, final assembly and marketing for certain Wireless 51,067 sq. ft. Leased 12/31/2001
products
Norwich, United Kingdom Design, manufacturing and marketing for Calibration 40,000 sq. ft. Owned N/A
Instruments; European distribution center for Test Tools 3.2 acres-land Leased 3/31/2103
Sao Paulo, Brazil Manufacturing and design for the Brazilian market, service 32,400 sq. ft Owned N/A
St. Etienne, France Design, final assembly and marketing for Telecom Networks 23,414 sq. ft. Leased 9/30/2005
fiber optics products
Rennes, France Design and marketing for Multimedia digital video and 16,200 sq. ft Owned N/A
Telecom Network ISDN products
Zurich, Switzerland Design and marketing for Telecom Networks switching 15,700 sq. ft. Leased Nine-month
products notice
Milan, Italy Sales/Service office 11,200 sq. ft. Owned N/A
Baden, Austria Sales/Service office 10,800 sq. ft. Owned N/A
Bern, Switzerland Sales/Service office 10,800 sq. ft. Owned N/A
Scarborough, Ontario, Sales/Service office 8,200 sq. ft. Owned N/A
Canada
San Diego, California Corporate offices (4) 4,305 sq. ft. Leased 12/31/1999
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION> LEASE
LOCATION FACILITY TYPE/USE SIZE OF FACILITY TITLE EXPIRATION
- ------------------------ -------------------------------------------------------- ---------------- ------- -------------
<S> <C> <C> <C> <C>
Buenos Sales/Service office 3,400 sq. ft. Owned N/A
Aires, Argentina
</TABLE>
(1) The Company leases this facility from a partnership owned by the Goltermann
family. The Company has a right of first refusal to purchase this property
in the event the lessor proposes to sell it during the initial or any
renewal term.
(2) 120,739 sq. ft. of this facility are subleased to unrelated parties through
November 30, 1999.
(3) The Company leases this facility from a company controlled by Terence J.
Gooding.
(4) The Company intends to vacate this facility before March 31, 1999, and
Terence J. Gooding has agreed to assume this lease thereafter.
The Company also leases sales/service offices in 29 countries: United
States, Germany, Argentina, Australia, Austria, Brazil (two small offices are
owned), Canada, China, Colombia, France, Guatemala, India, Indonesia, Italy,
Japan, Mexico, Netherlands, New Zealand, Pakistan, Philippines, Poland,
Russia, South Korea, Spain, Sweden (own building on leasehold), Switzerland,
Turkey, United Kingdom and Venezuela.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its business, the Company from time to time is
subjected to legal claims. The Company does not believe that the likely
outcome of any such claims or related lawsuits would have a material adverse
effect on the Company or its ability to develop new products.
A matter is pending in the United States District Court for the Southern
District of Indiana, involving a claim by Trilithic, Inc. ("Trilithic") that
certain products of the Company infringe Trilithic's patent on a radio
frequency leakage detection system for a cable network system. Trilithic
seeks injunctive and unspecified monetary relief, including enhanced damages
for alleged willful infringement. The product line potentially affected by
this claim, and by a second patent that has been issued to Trilithic
subsequent to the filing of the lawsuit, had fiscal 1998 sales of
approximately $6.3 million. Trilithic's complaint, which was served on the
Company in March 1997, was the first notice to the Company of Trilithic's
patent. This litigation is ongoing and in the event the outcome of the
litigation is not favorable, the Company could be required to: (1) redesign
existing or future products so that they do not use the rights covered by
Trilithic's patent; (2) negotiate licenses from Trilithic to avoid such
redesign; (3) withdraw existing products or not introduce future products
that are covered by those patent rights and (4) pay Trilithic damages for any
infringement since March 1997.
In December 1998, the Company received a letter from counsel for certain
beneficial owners of the Company's 10 1/8% Senior Subordinated Notes due 2007
(the "Notes") alleging that, as a result of the Exchange Transaction, a
"Change of Control" under the indenture governing such notes (the
"Indenture") has occurred and, because the Company has failed to make an
offer to purchase the Notes, that an Event of Default under the Indenture has
occurred. The Company believes that the Exchange Transaction did not result
in a Change of Control under the Indenture and that the Company was not
required to make an offer to purchase the Notes.
18
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 20, 1998, the holders of 65% of the Company's Common Stock
approved the principal terms of the Exchange Transaction and the related
agreements by written consent. On September 30, 1998, the holders of 80% of
the Company's Common Stock approved, by written consent, the amendment and
restatement of the Company's certificate of incorporation and the change of
the Company's name to Wavetek Wandel & Goltermann, Inc.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
There is no established public market for the Company's Common Stock.
In connection with the Exchange Transaction, on September 30, 1998, the
Company issued 8,317,463 shares of Common Stock to seven individuals and one
entity in exchange for all of the outstanding shares of WG. The issuance of
such shares was exempt from registration as private placement pursuant to
Section 4(2) of the Securities Act of 1933, as amended.
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data should be read in conjunction with
the consolidated financial statements of the Company included in Item 8 herein
and the information contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in Item 7 herein.
Although WG became a subsidiary of Wavetek, the Exchange Transaction was
treated, for accounting and reporting purposes, as a purchase of Wavetek by WG.
Accordingly, the selected consolidated financial data of the Company included
herein as of any date or for any period prior to September 30, 1998, are the
historical consolidated selected financial data of WG. The consolidated balance
sheet data of the Company as of September 30, 1998, included herein reflects the
Exchange Transaction and the related purchase accounting adjustments. See
"Consolidated Financial Statements of Wavetek" included in Item 14 herein.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------
1998 1997 1996 1995 1994
--------- ---------- ------------ ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales. . . . . . . . . . . . . . . . . . . . . $327,888 $281,887 $242,984 $227,455 $208,359
Cost of goods sold . . . . . . . . . . . . . . . . 130,863 113,812 98,466 92,336 80,156
--------- ---------- ------------ ---------- ----------
Gross margin . . . . . . . . . . . . . . . . . . . 197,025 168,075 144,518 135,119 128,203
Operating expenses:
Marketing and selling. . . . . . . . . . . . . . 95,338 82,687 68,938 70,815 57,965
Research and development . . . . . . . . . . . . 47,730 37,322 34,528 37,044 32,434
General and administrative . . . . . . . . . . . 26,019 25,609 27,003 27,287 29,534
Acquired in-process research and
development (1). . . . . . . . . . . . . . . . 32,925 1,743 362 - -
Provisions for restructuring operations and other
non-recurring charges (2). . . . . . . . . . . 9,369 - - 6,855 7,202
--------- ---------- ------------ ---------- ----------
211,381 147,361 130,831 142,001 127,135
--------- ---------- ------------ ---------- ----------
Operating income (loss). . . . . . . . . . . . . . (14,356) 20,714 13,687 (6,882) 1,068
Non-operating income (expense):
Interest income. . . . . . . . . . . . . . . . . 977 1,610 1,172 1,332 464
Interest expense . . . . . . . . . . . . . . . . (7,629) (8,509) (9,340) (10,591) (8,461)
Other, net . . . . . . . . . . . . . . . . . . . (4,814) 790 861 (602) 16,404
--------- ---------- ------------ ---------- ----------
(11,466) (6,109) (7,307) (9,861) 8,407
--------- ---------- ------------ ---------- ----------
Income (loss) before provision (credit) for
income taxes . . . . . . . . . . . . . . . . . . (25,822) 14,605 6,380 (16,743) 9,475
Provision (credit) for income taxes. . . . . . . . 6,541 7,362 (250) (10,667) (266)
Minority interest in income (loss) . . . . . . . . (5,096) 185 2,273 536 1,628
--------- ---------- ------------ ---------- ----------
Net income (loss). . . . . . . . . . . . . . . . . $(27,267) $ 7,058 $ 4,357 $ (6,612) $ 8,113
--------- ---------- ------------ ---------- ----------
--------- ---------- ------------ ---------- ----------
OTHER FINANCIAL DATA:
EBITDA (3) . . . . . . . . . . . . . . . . . . . . $ 38,152 $ 32,161 $ 23,366 $ 9,288 $ 17,336
Depreciation and amortization expenses . . . . . . 10,214 9,704 9,317 9,315 9,066
EBITDA as a percentage of sales. . . . . . . . . . 11.6% 11.4% 9.6% 4.1% 8.3%
Ratio of earnings to fixed charges (4) . . . . . . (1.7)x 2.5x 1.6x (0.2)x 1.9x
AS OF SEPTEMBER 30,
-----------------------------------------------------------
1998 1997 1996 1995 1994
--------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (5):
Cash and cash equivalents (6). . . . . . . . . . . $ 6,635 $ 9,400 $ 14,416 $ 8,857 $ 8,986
Total assets . . . . . . . . . . . . . . . . . . . 487,145 222,208 235,935 232,395 215,618
Total debt (7) . . . . . . . . . . . . . . . . . . 248,328 93,901 116,232 123,540 110,056
Stockholders' equity (deficit) . . . . . . . . . . 28,035 18,607 9,408 2,225 (5,975)
</TABLE>
(SEE NOTES ON FOLLOWING PAGE)
20
<PAGE>
- ------------
(1) In connection with the Exchange Transaction and its acquisitions of Wandel
& Goltermann Technologies, Inc. ("WGTI"), Switching Test Solutions AG,
Tinwald Networking Technologies Inc., and Network Intelligence, Inc., the
Company recorded acquired in-process research and development of $32.9
million in fiscal 1998, $1.7 million in fiscal 1997 and $0.4 million in
fiscal 1996. These amounts are included in operating expenses.
(2) In connection with the Exchange Transaction, the acquisition of WGTI and
related restructuring activities, the Company recorded provisions for
restructuring operations and other non-recurring charges of $9.4 million in
fiscal 1998. In fiscal 1995 and 1994, the Company initiated activities to
restructure certain German and U.S. manufacturing, research and development
and marketing activities in order to reduce the level of expenses in
relation to net sales. As a result, the Company recorded provisions for
restructuring of $6.9 million in fiscal 1995 and $7.2 million in fiscal
1994, primarily for employee severance and inventory write-offs. These
restructuring activities were completed during fiscal 1996.
(3) EBITDA is operating income plus depreciation and amortization expense,
acquired in-process research and development and provisions for
restructuring operations and other non-recurring charges. The Company's
definition of EBITDA is consistent with the definition of Consolidated Cash
Flow in the Indenture related to the Company's 10 1/8% Senior Subordinated
Notes due June 15, 2007 (the "Indenture"). While EBITDA should not be
construed as a substitute for income from operations, net income or cash
flows from operating activities in analyzing the Company's operating
performance, financial position or cash flows, the Company has included
EBITDA because it may be viewed as an indicator of compliance with certain
covenants in the Indenture and is commonly used by certain investors and
analysts to analyze and compare companies on the basis of operating
performance, leverage and liquidity and to determine a Company's ability to
service debt. EBITDA as presented by the Company herein may not be
comparable to similarly titled measures reported by other companies. In
addition, the amount reported by the Company as EBITDA may not be fully
available for management's discretionary use due to the Company's needs to
conserve funds for debt service, capital expenditures and other
commitments.
(4) For purposes of computing this ratio, earnings consist of income (loss)
before provision (credit) for income taxes plus fixed charges. Fixed
charges consist of interest expense and one-third of the rent expense from
operating leases, which management believes is a reasonable approximation
of the interest factor of the rent.
(5) The consolidated balance sheet data of the Company as of September 30, 1998
reflects the Exchange Transaction and the related purchase accounting
adjustments.
(6) Cash and cash equivalents includes short-term investments, which are
comprised primarily of investment grade commercial paper, U.S. Treasury
securities and guaranteed obligations of the U.S. government or its
agencies with original maturities of less than 90 days. Cash and cash
equivalents has been reduced by $28.9 million, received on September 30,
1998, for the purpose of repaying in full on October 2, 1998, the debt
outstanding under the Wavetek New Credit Agreement.
(7) Total debt includes notes payable to banks, long-term obligations including
current maturities and long-term obligations to related parties including
current maturities. Total debt at September 30, 1998 has been reduced by
$28.9 million which was received on September 30, 1998, for the purpose of
repaying in full on October 2, 1998, the debt outstanding under the Wavetek
New Credit Agreement.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements included in Item 8 herein. Although WG
became a subsidiary of Wavetek, the Exchange Transaction was treated, for
accounting and reporting purposes, as a purchase of Wavetek by WG.
Accordingly, the results of operations of the Company as of any date or for
any period prior to September 30, 1998, are the historical results of
operations of WG. See "Consolidated Financial Statements of Wavetek" included
in Item 14 herein.
OVERVIEW
On September 30, 1998, Wavetek Corporation, a Delaware corporation
("Wavetek"), and Wandel & Goltermann Management Holding GmbH, a German
limited liability company ("WG"), consummated an exchange transaction
whereby the stockholders of WG became stockholders of Wavetek, and WG became
a subsidiary of Wavetek (the "Exchange Transaction"). In connection with the
Exchange Transaction, Wavetek was renamed Wavetek Wandel & Goltermann, Inc.
(the "Company"). Although WG became a subsidiary of Wavetek, the Exchange
Transaction was treated, for accounting and reporting purposes, as a purchase
of Wavetek by WG. Accordingly, the consolidated financial statements of the
Company included herein as of any date or for any period prior to September
30, 1998, are the historical consolidated financial statements of WG. The
consolidated balance sheet of the Company as of September 30, 1998, included
herein reflects the Exchange Transaction and the related purchase accounting
adjustments. The Company expects net sales, cost of goods sold, gross margin,
operating expenses and interest expense to increase significantly in fiscal
1999 as a result of the Exchange Transaction. The Company's pro forma
statement of operations for fiscal 1998, giving effect to the Exchange
Transaction as if it had occurred on October 1, 1997, is included in Item 14
herein.
GENERAL
The Company is a leading global designer, manufacturer and marketer of a
broad range of communications test instruments used to develop, manufacture,
install and maintain communications networks and equipment. The Company
conducts its communications test business, which addresses most sectors of
the communications test market, in four principal business areas: (1)
Telecom Networks (traditional voice/data transmissions and new multi-service
networks), (2) Enterprise Networks (local and wide-area network
infrastructures), (3) Multimedia (cable television and digital video
broadcast) and (4) Wireless (mobile telephony and data). The Company also
designs, manufactures and sells precision measurement instruments and
general-purpose handheld test tools. In addition, the Company provides
repair, upgrade and calibration services, as well as value-added professional
services such as consulting, training and rental services on a worldwide
basis.
The Company sells its products to a broad base of over 5,000 customers
worldwide, including (1) global communications equipment manufacturers such
as Alcatel, Cisco Systems, Inc., L.M. Ericsson Telephon AB ("Ericsson"),
International Business Machines Corp. ("IBM"), Lucent Technologies, Inc.,
Motorola, Inc., Northern Telecom, Ltd. ("Nortel"), NCR Corporation and
Siemens AG, (2) communications service providers such as AT&T Corporation,
TeleCommunications, Inc. ("TCI"), Deutsche Telekom AG, France Telecom,
Embratel, China Telecom and Time Warner Cable and (3) the information service
departments of corporations and governmental entities such as the Boeing
Company, DaimlerChrysler and the U.S. Navy. In fiscal 1998, no customer
represented more than 5% of the Company's pro forma sales. The Company's
sales are also diversified geographically.
22
<PAGE>
The Company sells and services its products through (1) its global sales
and service organization of over 800 employees in over 25 countries and (2) a
global network of over 250 distributors, resellers and independent
representatives, which together provide the Company with a sales and service
presence in over 85 countries. The Company has design and manufacturing
capabilities through 10 major facilities located in the United States,
Germany, France, the United Kingdom and Switzerland.
The Company's operating expenses are substantially impacted by marketing
and selling activities and by research and development activities. Marketing
and selling expenses are primarily driven by: (1) sales volume, with respect
to sales force expenses and commission expenses; (2) the extent of market
research activities for new product design efforts; (3) advertising and trade
show activities and (4) the number of new products launched in the period. In
recent periods, the Company has increased its spending on research and
development activities primarily to accelerate the timing of new product
introductions. General and administrative expenses primarily include costs
associated with the Company's administrative employees, facilities and
functions. The Company incurs expenses in foreign countries primarily in the
functional currencies of such locations. As a result of the Company's
substantial international operations, the United States dollar amount of its
expenses is impacted by changes in foreign currency exchange rates. The
Company's ability to maintain and grow its sales depends on a variety of
factors including its ability to maintain its competitive position in areas
such as technology, performance, price, brand identity, quality, reliability,
distribution and customer service and support, and its ability to continue to
introduce new products that respond to technological change and market demand
in a timely manner.
RESULTS OF OPERATIONS
The following table sets forth selected financial information as a
percentage of net sales for the periods indicated:
<TABLE>
Caption
YEARS ENDED SEPTEMBER 30,
--------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Cost of goods sold . . . . . . . . . . . . . 39.9 40.4 40.5
---------- --------- ---------
Gross margin . . . . . . . . . . . . . . . . 60.1 59.6 59.5
Operating expenses . . . . . . . . . . . . . 64.5 52.3 53.9
---------- --------- ---------
Operating income (loss). . . . . . . . . . . (4.4) 7.3 5.6
Interest expense, net. . . . . . . . . . . . (2.0) (2.4) (3.4)
Other non-operating income (expense), net. . (1.5) 0.3 0.4
---------- --------- ---------
Income (loss) before provision (credit) for
income taxes and minority interest in
income (loss). . . . . . . . . . . . . . . (7.9) 5.2 2.6
Provision (credit) for income taxes. . . . . 2.0 2.6 (0.1)
Minority interest in income (loss) . . . . . (1.6) 0.1 0.9
---------- --------- ---------
Net income (loss). . . . . . . . . . . . . . (8.3)% 2.5% 1.8%
---------- --------- ---------
---------- --------- ---------
EBITDA . . . . . . . . . . . . . . . . . . . 11.6% 11.4% 9.6%
---------- --------- ---------
---------- --------- ---------
</TABLE>
The Company's ratio of earnings to fixed charges was as follows for the
periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------
1998 1997 1996
---------- --------- --------
<S> <C> <C> <C>
Ratio of earnings to fixed charges . . . . . (1.7)x 2.5x 1.6x
</TABLE>
23
<PAGE>
FISCAL YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1997
NET SALES. Net sales in fiscal 1998 increased $46.0 million, or 16.3%,
to $327.9 million from $281.9 million in fiscal 1997. This reflects an
increase in sales in all geographic areas, including an increase of $28.4
million, or 19.2%, in European sales and an increase of $7.0 million, or
22.8%, in sales to customers in the United States. Changes in certain foreign
exchange rates during fiscal 1998 had the effect of reducing the U.S. dollar
equivalent of the Company's foreign currency sales by $19.3 million from the
U.S. dollar equivalent amount that would have been reported if the average
exchange rates in effect for fiscal 1997 had remained in effect for fiscal
1998. Sales of the Company's communications test products increased $44.7
million, or 16.4%, from fiscal 1997 primarily due to the acquisition of
Switching Test Solutions AG ("STS"), increased revenues from sales of the
Company's ANT-20 product and continued growth in the markets for the
Company's products.
Sales from repair, upgrade and other services increased $1.3 million, or
13.4%, from fiscal 1997 primarily due to an emphasis on value-added services
in addition to traditional repair and calibration services, increases in the
installed base of the Company's products and growth in the markets for the
Company's products.
GROSS MARGIN. The Company's gross margin in fiscal 1998 increased $28.9
million, or 17.2%, to $197.0 million from $168.1 million in fiscal 1997.
Gross margin as a percentage of net sales increased slightly to 60.1% in
fiscal 1998 as compared to 59.6% in fiscal 1997 primarily due to increased
sales of products with higher software content or unique product features
that generate higher margins and cost reduction programs in the Company's
manufacturing operations, partially offset by competitive pressures on
pricing. Changes in certain exchange rates had an unfavorable impact of $9.0
million on the U.S. dollar equivalent of gross margin in fiscal 1998 from the
U.S. dollar equivalent amount that would have been reported if the average
exchange rates in effect for fiscal 1997 had remained in effect for fiscal
1998.
OPERATING EXPENSES. Operating expenses in fiscal 1998 increased $64.0
million, or 43.4%, to $211.4 million from $147.4 million in fiscal 1997.
Operating expenses as a percentage of sales increased to 64.5% in fiscal 1998
from 52.3% in fiscal 1997. The increase in operating expenses in fiscal 1998
was primarily due to charges for acquired in-process research and development
and provisions for restructuring and other non-recurring charges. In 1998,
the Company recorded charges for acquired in-process research and development
of $11.8 million related to the Exchange Transaction and $21.1 million
related to acquisitions of Wandel & Goltermann Technologies, Inc. ("WGTI"),
STS, Tinwald Networking Technologies, Inc. ("Tinwald") and Network
Intelligence, Inc. ("NI"). The Company also recorded provisions of $4.5
million for restructuring and other non-recurring charges related to the
Exchange Transaction and related restructuring activities and provisions of
$4.8 million in connection with the acquisition of WGTI and related
restructuring activities.
Spending for marketing and selling activities increased $12.6 million to
$95.3 million, or 29.1% of net sales, in fiscal 1998 from $82.7 million, or
29.3% of net sales, in fiscal 1997 primarily due to increased personnel costs
to support higher net sales levels and the acquisition of STS, partially
offset by the favorable impact of changes in foreign exchange rates on the
U.S. dollar equivalent of selling and marketing expenses denominated in
foreign currencies. Spending for research and development activities
increased $10.4 million to $47.7 million, or 14.6% of net sales, in fiscal
1998 from $37.3 million, or 13.2% of net sales, in fiscal 1997 reflecting
increases resulting from the acquisition of STS, Tinwald and NI partially
offset by the favorable impact of changes in foreign exchange rates on the
U.S. dollar equivalent of research and development expenses dominated in
foreign currencies. Spending for general and administrative activities
increased $0.4 million, to 7.9% of net sales in fiscal 1998 from 9.1% of net
sales in fiscal 1997. General and administrative spending increased to
support higher net sales levels but decreased as a percentage of net sales
primarily reflecting the Company's efforts to spread certain fixed
administrative costs over a higher level of net sales.
24
<PAGE>
NON-OPERATING INCOME (EXPENSE). Non-operating expense, net, in fiscal
1998 increased by $5.4 million over fiscal 1997 to $11.5 million. The
increase was primarily due to foreign currency losses recognized on certain
forward exchange contracts as the U.S. dollar weakened significantly against
the German Deutsche mark during fiscal 1998. Interest expense decreased to
$7.6 million in fiscal 1998 compared to $8.5 million in fiscal 1997
reflecting lower average outstanding debt balances. Interest income decreased
to $1.0 million in 1998 from $1.6 million in fiscal 1997 reflecting lower
average cash balances for the year.
PROVISION (CREDIT) FOR INCOME TAXES. In fiscal 1998, although the
Company incurred a loss before income taxes and minority interest of $25.8
million, the Company recorded a provision for income taxes of $6.5 million
since $32.9 million of the pre-tax loss was related to write-offs of acquired
in-process research and development, which is not deductible for income tax
purposes. Additionally, in fiscal 1998 the Company recorded certain valuation
allowances against certain credits for income taxes which would otherwise
have reduced the Company's provision for income taxes. In fiscal 1997, the
Company recorded a provision for income taxes of $7.4 million, or 50.4%, of
income before provision for income taxes and minority interest.
NET INCOME (LOSS). As a result of the above factors, net loss was $27.3
million in fiscal 1998 as compared to net income of $7.1 million in fiscal
1997.
EBITDA. As a result of the above factors, EBITDA was $38.2 million in
fiscal 1998 as compared to $32.2 million in fiscal 1997. EBITDA as a
percentage of net sales increased to 11.6% in fiscal 1998 from 11.4% in
fiscal 1997.
RATIO OF EARNINGS TO FIXED CHARGES. As a result of the above factors,
the ratio of earnings to fixed charges was (1.7)x for fiscal 1998 compared to
2.5x for fiscal 1997.
FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1996
NET SALES. Net sales in fiscal 1997 increased $38.9 million, or 16.0%,
to $281.9 million from $243.0 million in fiscal 1996. This increase was due
to an increase in sales to international customers of $44.9 million, or
21.7%, primarily due to a $19.2 million, or 14.9%, increase in European sales
and a $20.1 million, or 46.9%, increase in sales to Canada, Mexico, Central
and South America. These increases were partially offset by a decrease of
$6.0 million, or 16.3%, in sales to customers in the United States. Changes
in certain foreign exchange rates during fiscal 1997 had the effect of
reducing the U.S. dollar equivalent of the Company's foreign currency sales
by $11.9 million from the U.S. dollar equivalent amount that would have been
reported if the average exchange rates in effect for fiscal 1996 had remained
in effect for fiscal 1997.
Sales of the Company's communications test products increased $37.2
million, or 15.9%, from fiscal 1996 primarily as a result of an increase in
unit sales of the Company's ANT-20 products and growth in the markets for the
Company's products. Sales from repair, upgrade and other services increased
$1.7 million, or 20.1%, from fiscal 1996 primarily due to emphasis on
value-added services in addition to traditional repair and calibration
services, increases in the installed base of the Company's products and
growth in the markets for the Company's products.
GROSS MARGIN. The Company's gross margin in fiscal 1997 increased $23.6
million, or 16.3%, to $168.1 million from $144.5 million in fiscal 1996.
Gross margin as a percentage of net sales increased slightly to 59.6% in
fiscal 1997 as compared to 59.5% in fiscal 1996. Changes in certain foreign
exchange rates during fiscal 1997 had the effect of reducing the U.S. dollar
equivalent of gross margin by $10.7 million compared to the amount that would
have been reported if the average exchange rates in effect for fiscal 1996
had remained in effect for fiscal 1997.
25
<PAGE>
OPERATING EXPENSES. Operating expenses in fiscal 1997 increased $16.6
million, or 12.7%, to $147.4 million from $130.8 million in fiscal 1996, but
operating expenses as a percentage of net sales decreased to 52.3% in fiscal
1997 from 53.9% in fiscal 1996. The increase in operating expenses in fiscal
1997 was primarily due to increased spending for marketing and selling
activities of $13.8 million to $82.7 million, or 29.3% of net sales, in
fiscal 1997 from $68.9 million, or 28.4% of net sales, in fiscal 1996 as the
Company increased its marketing efforts and made investments in new sales
infrastructure in Asia to support a higher level of sales. Spending for
research and development activities increased $2.8 million to $37.3 million,
or 13.2% of net sales, in fiscal 1997 from $34.5 million, or 14.2% of net
sales, in fiscal 1996, in order to accelerate the timing of new product
introductions. These increases in fiscal 1997 were partially offset by
reduced spending in general and administrative activities of $1.4 million to
9.1% of net sales in fiscal 1997 from 11.1% of net sales in fiscal 1996, as a
result of general cost controls. Changes in foreign exchange rates had a
favorable impact on the U.S. dollar equivalent of operating expenses
denominated in foreign currencies in fiscal 1997.
NON-OPERATING INCOME (EXPENSE). Non-operating expense, net, in fiscal
1997 decreased by $1.2 million from fiscal 1996 to $6.1 million. The decrease
was primarily due to a decrease in the Company's net interest expense to $6.9
million in fiscal 1997 from $8.2 million in fiscal 1996, reflecting decreased
interest expense resulting from lower average outstanding borrowings and
interest rates.
PROVISION (CREDIT) FOR INCOME TAXES. In fiscal 1997, the Company
recorded a provision for income taxes of $7.4 million, reflecting an
effective tax rate of 50.4%. In fiscal 1996, the Company recorded a credit
for income taxes of $0.3 million primarily due to a favorable foreign tax
rate differential and a write-down of investments for which tax benefits were
not previously recognized, partially offset by an increase in certain
valuation allowances.
NET INCOME. As a result of the above factors, net income was $7.1
million in fiscal 1997 as compared to $4.4 million in fiscal 1996.
EBITDA. As a result of the above factors, EBITDA was $32.2 million in
fiscal 1997 as compared to $23.4 million in fiscal 1996. EBITDA as a
percentage of net sales increased to 11.4% in fiscal 1997 from 9.6% in fiscal
1996.
RATIO OF EARNINGS TO FIXED CHARGES. As a result of the above factors,
the ratio of earnings to fixed charges was 2.5x for fiscal 1997 compared to
1.6x for fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operating activities was $21.9 million,
$17.5 million and $13.6 million, in fiscal 1998, 1997 and 1996, respectively.
The Company had cash and cash equivalents at September 30, 1998 of $35.5
million. Of this amount, $29.7 million was from the proceeds of debt incurred
under a bridge facility used to refinance and repay Wavetek's existing credit
facility in full on October 2, 1998. The Company invests its excess cash in
highly liquid money market funds, U.S. Treasury obligations and investment
grade commercial paper. In recent years, the Company has funded its business
through operating cash flow, has not relied on sales of equity to provide
cash and has used short-term debt primarily for cash management purposes. The
Company had short-term borrowings outstanding of $113.1 million at September
30, 1998, including amounts borrowed for working capital requirements and
amounts used to refinance and repay Wavetek's existing credit facility. The
Company had additional obligations outstanding totaling approximately $3.2
million in the form of letters of credit and bank guarantees.
The Company's primary cash needs have been for purchase of businesses,
the funding of working capital requirements (primarily inventory and accounts
receivable) and capital expenditures. The Company's net cash used in
26
<PAGE>
investing activities was $17.6 million, $11.0 million and $8.3 million in
fiscal 1998, 1997 and 1996, respectively. The Company used cash of $45.2
million in fiscal 1998 for the purchases of WGTI, STS, Tinwald and NI. The
Company used cash of $6.7 million in fiscal 1997 for purchases of interests
in WGTI and STS and used cash of $1.9 million in 1996 for purchases of
interests in WGTI. In fiscal 1998, the Company acquired cash of $31.3 million
in connection with the Exchange Transaction, of which $28.9 million was used
to refinance and repay the Wavetek New Credit Agreement in full on October 2,
1998. The Company's recurring cash requirements for investing activities are
primarily for capital expenditures. The Company made capital expenditures in
fiscal 1998, 1997 and 1996 of $10.4 million, $9.4 million and $10.6 million,
respectively.
The Company's net cash provided by (used in) financing activities was
$21.7 million, ($11.2 million) and $0.6 million in fiscal 1998, 1997 and
1996, respectively. For fiscal 1998, net cash provided by financing
activities included $54.8 million of proceeds from revolving lines of credit
and long-term obligations partially offset by $34.6 million used for
repayments of revolving lines of credit and long-term obligations and cash
dividend payments of $2.0 million. For fiscal 1997, net cash used in
financing activities substantially reflected the net borrowing activities and
cash dividend payments of $1.2 million.
The Company intends to enter into a new credit facility to refinance
certain portions of its outstanding debt. The Company believes that its cash
flow from operations, combined with the remaining available borrowings under
its existing credit agreements and the new credit facility will be sufficient
to fund its debt service obligations and working capital requirements, as
well as implement its growth strategy.
FOREIGN OPERATIONS
As discussed above, a significant portion of the Company's sales and
expenses are denominated in currencies other than the United States dollar.
In order to maintain access to such foreign currencies, the Company and
certain of its foreign subsidiaries have credit facilities providing for
borrowings in local currency. Adjustments made in translating the balance
sheet accounts of the foreign subsidiaries from their respective functional
currencies at appropriate exchange rates are included as a separate component
of stockholders' equity. In addition, the Company periodically uses forward
exchange contracts and collars to hedge certain known foreign exchange
exposures. Gains or losses from such contracts are included in the Company's
consolidated statements of operations to offset gains and losses from the
underlying foreign currency transactions.
The Indenture under which the Company's 10 1/8% Senior Subordinated Notes,
due June 15, 2007, were issued permits the Company and its subsidiaries to
make investments in, and intercompany loans to, its foreign subsidiaries.
Payments to the Company or its other subsidiaries by such foreign
subsidiaries, including the payment of dividends, redemption of capital stock
or repayment of such intercompany loans, may be restricted by the credit
agreements of the foreign subsidiaries.
On January 1, 1999, eleven of the fifteen member countries of the
European Union are scheduled to establish fixed conversion rates between
their existing currencies and a new common currency (the "euro"). The
participating countries have agreed to adopt the euro as their common legal
currency on that date. The Company is assessing the potential impact from the
euro conversion in a number of areas, including the competitive impact of
cross-border price transparency, which may make it more difficult for
businesses to charge different prices for the same products on a
country-by-country basis, and the impact on currency exchange costs and
currency exchange rate risk. At this stage of its assessment, the Company can
not yet predict the full impact of the euro conversion on the Company.
27
<PAGE>
PERIODIC FLUCTUATIONS
The Company's fiscal 1998 net sales occurred in the following percentages
in each of the last four quarters: 27% for the quarter ended December 31,
1997, 19% for the quarter ended March 31, 1998, 27% for the quarter ended
June 30, 1998 and 27% for the quarter ended September 30, 1998. A variety of
factors may cause period-to-period fluctuations in the operating results of
the Company. Such factors include, but are not limited to, product mix,
European summer holidays and other seasonal influences, competitive pricing
pressures, materials costs, currency fluctuations, revenues and expenses
related to new products and enhancements of existing products, as well as
delays in customer purchases in anticipation of the introduction of new
products or product enhancements by the Company or its competitors. The
majority of the Company's revenues in each quarter results from orders
received in that quarter. As a result, the Company establishes its
production, inventory and operating expenditure levels based on anticipated
revenue levels. Thus, if sales do not occur when expected, expenditure levels
could be disproportionately high and operating results for that quarter, and
potentially future quarters, would be adversely affected.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than
the Year 2000. This could result in a system failure or a miscalculation
causing disruption of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities.
WG and Wavetek, prior to the Exchange Transaction, independently
addressed the issues involved in the Year 2000 Issue. The Company has
determined that it will be required to modify or replace significant portions
of its hardware and software so that those systems will properly utilize
dates beyond December 31, 1999. The Company presently believes that with
modifications or replacements of existing hardware and software, the Year
2000 Issue can be mitigated. However, if such modifications and replacements
are not made, or are not completed timely, the Year 2000 Issue could have a
material impact on the operations of the Company.
The Company's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing and implementation. Starting in
1995, both WG and Wavetek began to evaluate their internal business and
information systems for Year 2000 compliance. The Company has completed an
assessment of the impact of the Year 2000 Issue on its internal and external
operations, and is in the process of upgrading or replacing certain hardware,
embedded chips and software programs it employs in the normal course of
business, including its manufacturing, accounting applications and certain
other administrative hardware and software systems. As a result, the Company
has already addressed many of its Year 2000 Issues and continues on schedule
to complete this project before it will have any material impact on the
Company's ability to deliver products and services.
The total cost of the year 2000 Issue project is estimated to be
approximately $2.2 million and is estimated to be completed no later than
June 30, 1999 including testing and implementation. The Company has already
incurred a substantial portion of the costs of this project, including costs
associated with the implementation of certain new core information systems.
Much of this expenditure, both incurred and expected, would have been
necessary in any case as part of the regular process of maintaining and
updating systems. In some instances, the expenditures have been accelerated
in order to comply with Year 2000 requirements. As of September 30, 1998, the
Company has incurred approximately $1.1 million related to the Year 2000
Issue.
28
<PAGE>
The costs of the Year 2000 Issue project and the date on which the
Company believes it will complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources and other factors. However, there can be no assurance that these
results will be achieved and actual results could differ materially from
those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all
relevant computer codes and similar uncertainties.
The Company expects to mitigate the Year 2000 Issue so that the Company's
operations or business are not materially adversely affected. In some cases,
the Company is relying upon suppliers to provide Year 2000 compliant upgrades
in a timely manner. The Company has a program in place to assess the extent
to which the Company's systems or business processes may be vulnerable to
third party non-compliance and the ability of its suppliers and business
partners to continue normal operations beyond Year 2000. Where responses from
suppliers or partners to the questions asked as part of this formal
assessment program are unsatisfactory, the Company will take steps to seek
alternative suppliers or partnerships. However, there can be no assurance
that the systems of other companies on which the Company's systems rely will
be timely converted and will not have an adverse effect on the Company's
systems.
With very few exceptions, all Company products now being delivered are
Year 2000 compliant. For the few exceptions, the Company intends to make a
modification or upgrade available by December 31, 1998. Information has also
been provided to address customer inquiries concerning previously delivered
products, including those no longer manufactured. Nearly all expenditures for
product correction have been incurred.
The Company has taken steps to minimize the risks for its business
processes and systems. Contingency plans for certain critical applications
are in place. The Company is, however, vulnerable to failures of major
utilities or service providers to become Year 2000 compliant. The Company's
major facilities include 11 discrete locations in six countries, thus
mitigating any potential impact upon the Company as a whole of any such
material failures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company uses financial instruments, including fixed and variable rate
debt, to finance its operations. The information below summarizes the
Company's market risks associated with debt obligations outstanding as of
September 30, 1998. The following table presents principal cash flows and
related weighted average interest rates by fiscal year of maturity. Capital
lease obligations, term loans under the Wavetek New Credit Agreement repaid
in full on October 2, 1998, long-term obligations to related parties and
notes payable to banks, including variable interest rate obligations, which
mature in 1998 are not included in the table. The information is presented in
U.S. dollar equivalents, which is the Company's reporting currency. The
instruments' actual cash flows are denominated in U.S. dollars ("US$"),
German Deutsche marks ("DM") and other currencies ("other") as indicated.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
--------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total
--------- ---------- ---------- ---------- ---------- ------------ ------------
(US$ EQUIVALENT IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term Obligations:
Fixed Rate (US$) . . . . . . . . $ 741 $ 685 $ 633 $ 585 $ 541 $85,500 $88,685
Average. . . . . . . . . . . . 8.2% 8.2% 8.2% 8.2% 8.2% 10.1% 10.0%
Fixed Rate (DM). . . . . . . . . $4,979 $4,916 $3,915 $3,545 $3,547 $12,621 $33,523
Average interest rate. . . . . 4.8% 4.4% 3.8% 3.5% 3.5% 5.9% 4.8%
Fixed Rate (other) . . . . . . . $ 237 $ 454 $ 195 $2,008 $ 180 $ 1,661 $4,735
Average interest rate. . . . . 5.5% 8.6% 5.6% 5.3% 5.6% 5.6% 5.7%
</TABLE>
29
<PAGE>
The carrying amounts of the Company's debt instruments approximate
their fair values. At September 30, 1998, the Company had interest rate cap
agreements in an aggregate notional amount of $8.9 million to limit its
exposure on interest rate changes related to certain variable interest rate
debt instruments. The carrying values of the interest rate caps approximate
fair value.
The Company uses forward exchange contracts and collars in the
ordinary course of business to mitigate its exposure to changes in foreign
currency exchange rates relating to cash, accounts receivable, accounts
payable, significant transactions and anticipated future sales denominated in
foreign currencies. The terms of these contracts are generally less than one
year. The Company's risk management policies do not provide for the
utilization of financial instruments for trading purposes. Gains and losses
on financial instruments that qualify as hedges of existing assets or
liabilities or firm commitments are recognized in income or as adjustments of
carrying amounts when the hedged transaction occurs. Financial instruments
which are not designated as hedges of specific assets, liabilities, firm
commitments or anticipated transactions are marked to market and any
resulting unrealized gains or losses are recorded in "Other, net" in the
accompanying consolidated statements of operations. At September 30, 1998 and
1997, the Company had foreign exchange contracts outstanding in an aggregate
notional amount of $25.8 million and $24.7 million, respectively. While it is
not the Company's intention to terminate any of these contracts, the
estimated fair value of these contracts indicated that termination of the
forward currency exchange contracts at September 30, 1998 would have resulted
in a loss of $0.6 million and termination at September 30, 1997 would have
resulted in a gain of $0.4 million. Due to the volatility of currency
exchange rates, these estimated results may or may not be realized.
ITEM 8. FINANCIAL STATEMENTS
Index To Consolidated Financial Statements of Wavetek Wandel & Goltermann, Inc.
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants..................................... 31
Consolidated Balance Sheets as of September 30, 1998 and 1997..................................... 32
Consolidated Statements of Operations for each of the three years in the period ended
September 30, 1998............................................................................ 33
Consolidated Statements of Stockholders' Equity for each of the three years in the period ended
September 30, 1998............................................................................ 34
Consolidated Statements of Cash Flows for each of the three years in the period ended
September 30, 1998........................................................................... 35
Notes to Consolidated Financial Statements........................................................ 36
</TABLE>
30
<PAGE>
REPORT OF ARTHUR ANDERSEN LLP, INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Wavetek Wandel & Goltermann, Inc.
We have audited the accompanying consolidated balance sheets of Wavetek
Wandel & Goltermann, Inc. (as described in Note 1) as of September 30, 1998 and
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended September
30, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Wavetek
Wandel & Goltermann, Inc. as of September 30, 1998 and 1997, and the results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Raleigh, North Carolina
December 11, 1998
31
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
CONSOLIDATED BALANCE SHEETS
(dollars and shares in thousands, except per share data)
<TABLE>
<CAPTION>
September 30,
-------------------------
1998 1997
----------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 35,544 $ 9,400
Accounts receivable (less allowance for doubtful accounts of $4,432 in 1998
and $1,938 in 1997)............................................................ 92,281 53,490
Inventories....................................................................... 74,886 52,968
Notes receivable from related parties............................................. - 5,715
Deferred income taxes............................................................. 17,095 11,587
Other current assets.............................................................. 12,736 10,499
----------- -------------
Total current assets................................................................ 232,542 143,659
Property and equipment, net......................................................... 66,597 51,909
Intangible assets, net.............................................................. 181,296 4,468
Deferred income taxes............................................................... - 15,258
Other assets........................................................................ 6,710 6,914
----------- -------------
Total assets........................................................................ $ 487,145 $ 222,208
----------- -------------
----------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks............................................................ $ 113,085 $ 35,833
Trade accounts payable............................................................ 37,612 21,985
Accrued compensation.............................................................. 25,907 14,832
Income taxes payable.............................................................. 5,956 3,768
Other current liabilities......................................................... 41,259 19,804
Current maturities of long-term obligations....................................... 30,222 16,332
Current maturities of long-term obligations to related parties.................... 12,335 808
----------- -------------
Total current liabilities........................................................... 266,376 113,362
Long-term obligations, less current maturities...................................... 121,595 34,043
Long-term obligations to related parties, less current maturities................... - 6,885
Pension liabilities................................................................. 39,991 34,749
Deferred income taxes............................................................... 25,582 -
Other non-current liabilities....................................................... 5,566 3,041
Commitments and contingencies
Minority interest................................................................... - 11,521
Stockholders' equity:
Common stock, par value $.01; authorized, 50,000 shares in 1998 and 15,000
shares in 1997; issued and outstanding, 13,202 shares in 1998 and 8,317
shares in 1997................................................................ 132 83
Additional paid-in capital........................................................ 75,569 33,435
Accumulated deficit............................................................... (57,645) (26,785)
Foreign currency translation adjustments.......................................... 9,979 11,874
----------- -------------
Total stockholders' equity.......................................................... 28,035 18,607
----------- -------------
Total liabilities and stockholders' equity.......................................... $ 487,145 $ 222,208
----------- -------------
----------- -------------
</TABLE>
See accompanying notes.
32
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars and shares in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------------------
1998 1997 1996
------------ ------------- -------------
<S> <C> <C> <C>
Net sales..............................................................$ 327,888 $ 281,887 $242,984
Cost of goods sold..................................................... 130,863 113,812 98,466
------------ ------------- -------------
Gross margin........................................................... 197,025 168,075 144,518
Operating expenses:
Marketing and selling................................................ 95,338 82,687 68,938
Research and development............................................. 47,730 37,322 34,528
General and administrative........................................... 26,019 25,609 27,003
Acquired in-process research and development......................... 32,925 1,743 362
Provisions for restructuring operations and other non-recurring
charges............................................................ 9,369 - -
------------ ------------- -------------
211,381 147,361 130,831
------------ ------------- -------------
Operating income (loss)................................................ (14,356) 20,714 13,687
Non-operating income (expense):
Interest income...................................................... 977 1,610 1,172
Interest expense..................................................... (7,629) (8,509) (9,340)
Other, net........................................................... (4,814) 790 861
------------ ------------- -------------
(11,466) (6,109) (7,307)
------------ ------------- -------------
Income (loss) before provision (credit) for income taxes and
minority interest in income (loss)................................... (25,822) 14,605 6,380
Provision (credit) for income taxes.................................... 6,541 7,362 (250)
Minority interest in income (loss)..................................... (5,096) 185 2,273
------------ ------------- -------------
Net income (loss)...................................................... $(27,267) $ 7,058 $ 4,357
------------ ------------- -------------
------------ ------------- -------------
Net income (loss) per share............................................ $ (3.28) $ 0.85 $ 0.52
------------ ------------- -------------
------------ ------------- -------------
Weighted average number of shares outstanding.......................... 8,317 8,317 8,317
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
See accompanying notes.
33
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended September 30, 1996, 1997 and 1998
(dollars and shares in thousands)
<TABLE>
<CAPTION>
Foreign
Common Stock Additional Currency Total
------------------------- Paid-in Accumulated Translation Stockholders'
Shares Amount Capital Deficit Adjustments Equity
------------- ----------- ---------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995...... 8,317 $ 83 $32,634 $ (36,213) $ 5,721 $ 2,225
Sales of stock by subsidiaries. - - 296 - - 296
Net income..................... - - - 4,357 - 4,357
Foreign currency translation
adjustments.................. - - - - 2,530 2,530
------------- ----------- ----------- --------------- ------------- --------------
Balance, September 30, 1996...... 8,317 83 32,930 (31,856) 8,251 9,408
Sales of stock by subsidiaries. - - 505 - - 505
Dividends...................... - - - (1,987) - (1,987)
Net income..................... - - - 7,058 - 7,058
Foreign currency translation
adjustments.................. - - - - 3,623 3,623
------------- ----------- ----------- --------------- ------------- --------------
Balance, September 30, 1997...... 8,317 83 33,435 (26,785) 11,874 18,607
Sales of stock by subsidiaries. - - 662 - - 662
Shares issued in connection
with the Exchange
Transaction with Wavetek
Corporation.................. 4,885 49 41,472 - - 41,521
Dividends...................... - - - (3,593) - (3,593)
Net loss....................... - - - (27,267) - (27,267)
Foreign currency translation
adjustments.................. - - - - (1,895) (1,895)
------------- ----------- ----------- --------------- ------------- --------------
Balance, September 30, 1998...... 13,202 $ 132 $75,569 $ (57,645) $ 9,979 $ 28,035
------------- ----------- ----------- --------------- ------------- --------------
------------- ----------- ----------- --------------- ------------- --------------
</TABLE>
See accompanying notes.
34
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------------
1998 1997 1996
----------- ------------ -----------
<S> <C> <C> <C>
Operating activities
Net income (loss)........................................................ $ (27,267) $ 7,058 $ 4,357
Adjustments to reconcile net income to net cash provided by operating
activities:
Minority interest in net income (loss).................................. (5,096) 185 2,273
Depreciation and amortization expense................................... 10,214 9,704 9,317
Acquired in-process research and development............................ 32,925 1,743 362
Deferred income taxes................................................... 1,978 4,600 (4,836)
Changes in operating assets and liabilities, net of effect of purchased
businesses:
Accounts receivable.................................................... (4,415) (6,520) (8,449)
Inventories............................................................ 2,282 (8,239) 2,506
Other current assets................................................... 1,876 (3,643) (35)
Accounts payable and accrued expenses.................................. 5,111 10,051 6,993
Income taxes payable, net.............................................. 1,572 2,383 73
Pension liabilities.................................................... 3,180 698 1,328
Other, net............................................................. (438) (507) (265)
----------- ------------ -----------
Net cash provided by operating activities................................ 21,922 17,513 13,624
Investing activities
Purchases of businesses, net of cash acquired............................ (45,207) (6,658) (1,858)
Cash acquired in connection with Exchange Transaction.................... 31,329 - -
Proceeds from sale of investments in affiliates.......................... 1,757 1,890 716
Purchase of property and equipment and intangibles....................... (10,416) (9,356) (10,578)
Proceeds from sale of property and equipment............................. - 3,999 2,849
Purchase of short-term investments, available for sale................... (41,100) (76,160) (23,560)
Sale of short-term investments, available for sale....................... 41,100 76,160 23,560
Payments received for notes receivable from related parties.............. 6,042 740 949
Increases in notes receivable from related parties....................... (1,081) (1,607) (364)
----------- ------------ -----------
Net cash used in investing activities.................................... (17,576) (10,992) (8,286)
Financing activities
Proceeds from revolving lines of credit and long-term obligations........ 56,241 1,961 39,619
Principal payments on revolving lines of credit and long-term
obligations............................................................. (35,647) (12,084) (39,665)
Cash dividends paid to stockholders...................................... (2,043) (1,188) -
Proceeds from long-term obligations to related parties................... 3,364 63 634
Principal payments on long-term obligations to related parties........... (258) - -
----------- ------------ -----------
Net cash provided by (used in) financing activities...................... 21,657 (11,248) 588
Effect of exchange rate changes on cash and cash equivalents............. 141 (289) (367)
----------- ------------ -----------
Increase (decrease) in cash and cash equivalents......................... 26,144 (5,016) 5,559
Cash and cash equivalents at beginning of year........................... 9,400 14,416 8,857
----------- ------------ -----------
Cash and cash equivalents at end of year................................. $ 35,544 $ 9,400 $14,416
----------- ------------ -----------
----------- ------------ -----------
Supplemental disclosures of cash flow information:
Cash paid for interest................................................... $ 7,103 $ 8,314 $ 8,649
----------- ------------ -----------
----------- ------------ -----------
Cash paid for income taxes............................................... $ 2,038 $ 3,346 $ 3,053
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
See accompanying notes.
35
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
Organization
On September 30, 1998, Wavetek Corporation, a Delaware corporation
("Wavetek"), and Wandel & Goltermann Management Holding GmbH, a German limited
liability company ("WG"), consummated an exchange transaction whereby the
stockholders of WG became stockholders of Wavetek, and WG became a subsidiary of
Wavetek (the "Exchange Transaction"). In connection with the Exchange
Transaction, Wavetek was renamed Wavetek Wandel & Goltermann, Inc. (the
"Company"). The Exchange Transaction was accounted for as a purchase of Wavetek
by WG. Accordingly, the financial statements of the Company included herein as
of any date or for any period prior to September 30, 1998, are the historical
financial statements of WG.
The Company is a leading global designer, manufacturer and marketer of a
broad range of communications test instruments used to develop, manufacture,
install and maintain communications networks and equipment. The Company conducts
its communications test business, which addresses most sectors of the
communications test market, in four principal business areas: (1) Telecom
Networks (traditional voice/data transmissions and new multi-service networks),
(2) Enterprise Networks (local and wide-area network infrastructures), (3)
Multimedia (cable television and digital video broadcast) and (4) Wireless
(mobile telephony and data). The Company also designs, manufactures and sells
precision measurement instruments and general-purpose handheld test tools. In
addition, the Company provides repair, upgrade and calibration services, as well
as value-added professional services such as consulting, training and rental
services on a worldwide basis. The accompanying consolidated financial
statements include the operations of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Foreign Currency
The accounts of foreign subsidiaries consolidated herein have been
translated from their respective functional currencies into U.S. dollars based
on the current exchange rates at the end of the period for the balance sheet and
an average rate for the period on the statement of operations. Cumulative
translation adjustments are included as a separate component of stockholders'
equity. Exchange gains and losses from foreign currency transactions are
included in "Other, net" in the accompanying consolidated statements of
operations.
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 amounts reported in the financial statements and
accompanying notes. These estimates include assessing the collectibility of
accounts receivable, the use and recoverability of inventory, costs of future
product returns under warranty and provisions for contingencies expected to be
incurred. Actual results could differ from those estimates.
Cash, Cash Equivalents and Short-Term Investments, Available for Sale
The carrying amounts reported in the consolidated balance sheet for
cash and cash equivalents approximate their fair values. As part of the
Company's cash management program, the Company invests in highly liquid
investments, primarily investment grade commercial paper, U.S. Treasury
Securities, guaranteed obligations of the U.S. government or its agencies,
mutual funds which invest in U.S. Treasury Securities, preferred stock and
municipal bonds. The interest and dividend rates on these securities are
reset on a frequent basis. Under Statement of Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, these
securities are classified as "available-for-sale securities." For purposes of
financial statement presentation, the Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents. The Company evaluates the financial strength of the institutions
in which significant investments are made and believes that related credit
risk is limited to an acceptable level.
36
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Organization and Significant Accounting Policies (Continued)
Inventories
Inventories are valued at cost determined on the first-in, first-out
basis, not in excess of market. Costs include direct material, labor and
manufacturing overhead.
Property and Equipment
Property and equipment are recorded at cost. Depreciation for financial
statement purposes is computed using the straight-line method based upon the
estimated useful lives of the various classes of assets which range from 3 to 50
years for buildings and improvements and from 3 to 10 years for fixtures and
equipment.
Intangible Assets
Intangible assets include acquired core technologies and assembled work
force, the excess of purchase price over net tangible assets of businesses
acquired (goodwill) and deferred debt issuance costs. Intangible assets are
recorded at cost and amortized over their estimated lives ranging from 5 to 15
years.
Debt Instruments
The carrying amounts of the Company's debt instruments approximate their
fair values.
Revenue and Credit Risk
The Company recognizes product revenues at the time of shipment to the
customer. Service revenues are recognized as services are performed. The Company
accrues related product return reserves and warranty expenditures at the time of
sale. The Company grants credit to its customers based on an evaluation of the
customers' financial condition and generally collateral is not required. Credit
losses have traditionally been minimal and within management's expectations.
Net Income Per Share
Effective October 1, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings Per Share ("SFAS 128"). SFAS 128
replaced the calculation of primary and fully diluted net income (loss) per
share with basic and diluted net income (loss) per share. Unlike primary net
income (loss) per share previously reported by the Company, basic net income
(loss) per share is based only on average common shares outstanding and excludes
the dilutive effects of common stock equivalents. Diluted net income (loss) per
share is very similar to the previous concept of
37
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Organization and Significant Accounting Policies (Continued)
fully diluted net income (loss) per share and includes the dilutive effect of
common stock equivalents. The Company has no common stock equivalents during the
periods presented. Accordingly, basic and diluted net income (loss) per share
are the same. All net income (loss) per share amounts for all periods have been
presented, and where necessary, restated to conform to the requirements of SFAS
128.
Stock-Based Compensation
Effective October 1, 1996, the Company adopted SFAS No. 123, Accounting
for Stock-Based Compensation ("SFAS 123"). SFAS 123 allows companies to either
account for stock-based compensation under the new provisions of SFAS 123 or
under the provisions of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25"), but requires pro forma disclosure in
the footnotes to the financial statements as if the measurement provisions of
SFAS 123 had been adopted. The Company has continued accounting for its
stock-based compensation in accordance with the provisions of APB 25.
Derivative Financial Instruments
The Company uses derivative financial instruments, primarily forward
exchange contracts and collars, in the ordinary course of business to
mitigate its exposure to changes in foreign currency exchange rates relating
to cash, accounts receivable, accounts payable, significant transactions and
anticipated future sales denominated in foreign currencies. The terms of
these contracts are generally less than one year. The Company also uses
interest rate cap agreements to mitigate its exposure to changes in interest
rates on variable interest rate debt instruments. The terms of such
agreements are generally in excess of one year. The Company's risk management
policies prohibit financial instruments to be used for trading purposes.
Gains and losses on financial instruments that qualify as hedges of existing
assets or liabilities or firm commitments are recognized in income as
adjustments of carrying amounts when the hedged transaction occurs. Financial
instruments which are not designated as hedges of specific assets,
liabilities, firm commitments or anticipated transactions are marked to
market and any resulting unrealized gains or losses are recorded in "Other,
net" in the accompanying consolidated statements of operations. At September
30, 1998 and 1997, the Company had foreign exchange contracts outstanding in
an aggregate notional amount of $25.8 million and $24.7 million,
respectively. While it is not the Company's intention to terminate any of
these contracts, the estimated fair value of these contracts indicated that
termination of the forward currency exchange contracts at September 30, 1998
would have resulted in a loss of $0.6 million and termination at September
30, 1997 would have resulted in a gain of $0.4 million. Due to the volatility
of currency exchange rates, these estimated results may or may not be
realized. At September 30, 1998 and 1997, the Company had interest rate cap
agreements outstanding with notional values of $8.9 million and $8.5 million,
respectively, which had carrying values that approximated fair value.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, Reporting Comprehensive Income ("SFAS 130") and SFAS No. 131, Segment
Information ("SFAS 131"). In February 1998, the FASB issued SFAS No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits, an
amendment of FASB Statements No. 87, 88, and 106 ("SFAS 132"). All three of
these standards are effective for fiscal years beginning after December 15,
1997.
38
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Organization and Significant Accounting Policies (Continued)
SFAS 130 requires that all components of comprehensive income, including
net income, be reported in the financial statements in the period in which they
are recognized. Comprehensive income is defined as the change in equity during a
period from transactions and other events and circumstances from non-owner
sources. Net income and other comprehensive income, including foreign currency
translation adjustment, minimum pension accrual, and unrealized gains and losses
on investments, shall be reported, net of their related tax effect, to arrive at
comprehensive income. The Company intends to adopt SFAS 130 in fiscal 1999 and
operating results of prior periods will be reclassified. The Company's only
component of other comprehensive income is the foreign currency translation
adjustment which is currently reported as part of stockholders' equity.
Historically, the Company has operated in one business segment; however,
SFAS 131 redefines segments and in the future, the Company will be required to
disclose certain financial information about operating segments, products,
services and geographic areas in which they operate. The Company has not
determined how operating segments will be defined for disclosure purposes or
which segments will meet the quantitative requirements for disclosure. The
adoption of SFAS 131 will have no impact on the Company's future results of
operations or financial position. The Company intends to adopt SFAS 131 in
fiscal 1999.
SFAS 132 revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans. It standardizes the disclosure requirements for pensions and
other postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis and eliminates certain disclosures. The
adoption of SFAS 132 will have no impact on the Company's future results of
operations. The Company intends to adopt SFAS 132 in fiscal 1999.
In June 1998, the FASB issued SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. This statement requires companies to
record derivatives on the balance sheet as assets and liabilities, measured
at fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. This statement is not expected to
have a material impact on the Company's consolidated financial statements.
This statement is effective for fiscal years beginning after June 15, 1999,
with earlier adoption encouraged. The Company will adopt this accounting
standard in fiscal 2000.
2. Financial Statement Details
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30,
------------------------
1998 1997
----------- ------------
(dollars in thousands)
<S> <C> <C>
Materials.......................................... $ 19,217 $ 13,805
Work-in-progress................................... 21,469 15,155
Finished goods..................................... 34,200 24,008
----------- ------------
$ 74,886 $ 52,968
----------- ------------
----------- ------------
</TABLE>
39
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Financial Statement Details (Continued)
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30,
------------------------
1998 1997
----------- ------------
(dollars in thousands)
<S> <C> <C>
Land............................................... $ 6,073 $ 5,572
Building and improvements.......................... 52,699 48,859
Fixtures and equipment............................. 107,626 86,711
----------- -----------
166,398 141,142
Less: accumulated depreciation..................... (99,801) (89,233)
----------- -----------
$ 66,597 $ 51,909
----------- -----------
----------- -----------
</TABLE>
Intangible assets consist of the following:
<TABLE>
<CAPTION>
September 30,
------------------------
1998 1997
----------- ------------
(dollars in thousands)
<S> <C> <C>
Goodwill........................................... $ 69,466 $ 815
Acquired core technologies......................... 90,032 363
Acquired assembled work force...................... 9,069 226
Other.............................................. 23,425 12,242
----------- ------------
191,992 13,646
Less: accumulated amortization..................... (10,696) (9,178)
----------- ------------
$ 181,296 $ 4,468
----------- -----------
----------- -----------
</TABLE>
3. Exchange Transaction
On September 30, 1998, Wavetek and WG consummated the Exchange
Transaction whereby the stockholders of WG received 8,317,463 shares of Common
Stock of Wavetek valued by an independent appraisal at $38.7 million plus cash
of 2.0 million Deutsche marks ($1.2 million) and WG became a subsidiary of
Wavetek. In connection with the Exchange Transaction, Wavetek was renamed
Wavetek Wandel & Goltermann, Inc. and changed its year-end to September 30 from
the Saturday closest to September 30. The Exchange Transaction was accounted for
as a purchase of Wavetek by WG. Accordingly, the financial statements of the
Company included herein as of any date or for any period prior to September 30,
1998, are the historical financial statements of WG.
In addition, the historical stockholders' equity of the Company has
been retroactively restated to reflect the equivalent number of shares issued
in connection with the Exchange Transaction. The accounts and results of
operations of Wavetek have been included in the financial statements from
September 30, 1998 and reflect purchase price allocations and adjustments.
The purchase price of Wavetek including expenses of the transaction, was
deemed to be $41.5 million and was allocated to the assets acquired and
liabilities assumed based on their estimated fair values as determined by an
40
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Exchange Transaction (Continued)
independent valuation. The fair value of assets acquired was $271.1 million,
including $56.7 million of goodwill, and liabilities assumed was $229.6 million.
The Company allocated $11.8 million of the purchase price to in-process research
and development projects that had not reached technological feasibility, which
the Company expensed at the date of the Exchange Transaction. Goodwill will be
amortized over 15 years.
In connection with the Exchange Transaction and related restructuring
activities, the Company recorded approximately $4.5 million of restructuring and
other non-recurring charges in fiscal 1998. This expense included elimination of
one duplicate product line, costs of consolidation of certain sales and service
operations, accounting and tax consulting charges and severance payments.
4. Acquisitions
Purchase of the minority interest in Wandel & Goltermann Technologies,
Inc.
During fiscal 1997, the Company's ownership interests in its then
publicly-traded U.S. subsidiary, Wandel & Goltermann Technologies, Inc.
("WGTI"), was increased by the repurchases of common shares of WGTI on the
open market. The Company's ownership interest was increased from 57% as of
September 30, 1996, to 62% as of September 30, 1997. The total purchase cost
of shares acquired was $4.5 million and was accounted for as a purchase. The
Company allocated $1.4 million of the purchase price to in-process research
and development projects that had not reached technological feasibility,
which the Company expensed at the date of acquisition. In addition, $1.2
million of the purchase price was allocated to goodwill and other intangibles
and is being amortized over five years.
On September 18, 1998, the Company purchased the remaining outstanding
minority interest in WGTI for $15.90 per share, or $32.3 million. The Company
allocated $14.3 million of the purchase price to in-process research and
development projects that had not reached technological feasibility, which
the Company expensed at the date of acquisition. In addition, $11.5 million
of the purchase price was allocated to goodwill and other intangibles and is
being amortized over five years. In connection with the acquisition of WGTI,
the Company incurred non-recurring charges of $4.8 million in fiscal 1998.
These costs included $3.4 million of stock option compensation, $0.9 million
of severance expenses and $0.5 million of legal and consulting expenses
incurred by WGTI.
In connection with the Company's initial proposal in January 1998 to
acquire the outstanding shares of WGTI's common stock for $13.00 in cash, five
actions were filed in the Superior Court of Durham County, North Carolina, that
alleged breaches of fiduciary duty by the Company and the directors of WGTI. The
Company believes the claims made in these actions to be without merit, and the
Company intends to defend itself vigorously.
41
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Acquisitions (Continued)
Purchase of Switching Test Solutions AG
In fiscal 1997, the Company purchased 40% of the outstanding capital
stock of Switching Test Solutions AG, ("STS") for $2.0 million. The Company
allocated $0.3 million of the purchase price to in-process research and
development projects that had not reached technological feasibility, which
the Company expensed at the date of acquisition. In addition, $0.6 million of
the purchase price was allocated to goodwill and other intangibles and is
being amortized over five years. This investment was accounted for using the
equity method of accounting in fiscal 1997.
At the beginning of fiscal 1998, the Company purchased the remaining
60% interest in STS for a purchase price of $6.5 million. The Company
allocated $1.4 million of the purchase price to in-process research and
development projects that had not reached technological feasibility, which
the Company expensed at the date of acquisition. In addition, $3.3 million of
the purchase price was allocated to goodwill and other intangibles and is
being amortized over five years. The accounts and results of STS have been
included in the Company's consolidated financial statements from the date of
the acquisition of the remaining 60% interest.
In February 1998, the Company sold 400 shares, or 10%, of the common
stock of STS to the new CEO of the Company for a purchase price of $0.8
million, which was paid in April 1998. In connection with this transaction,
the CEO and two principal owners and directors of the Company entered into
put and call options related to the shares sold to the CEO. In September
1998, the two shareholders exercised the call options and purchased the
shares of common stock of STS held by the CEO. Subsequently, the Company
purchased these shares from the two principal owners for $0.8 million in
cash. The Company allocated $0.1 million of the purchase price to in-process
research and development projects that had not reached technological
feasibility, which the Company expensed at the date of acquisition. In
addition, $0.3 million of the purchase price has been allocated to goodwill
and other intangibles and is being amortized over five years.
Other Acquisitions
In January 1998, the Company acquired privately-held Tinwald
Networking Technologies Inc. (Tinwald), an Ontario Canada-based developer of
software analysis tools. Under the terms of the transaction, the Company
acquired all of the outstanding common stock of Tinwald for an initial
payment of approximately $5.0 million, plus the possibility of contingent
payments for up to three years after the acquisition. The Company accounted
for the transaction as a purchase. The purchase price was allocated to the
assets acquired and liabilities assumed based on their estimated fair values
as determined by an independent valuation. The fair value of tangible assets
acquired was approximately $1.6 million and liabilities assumed was
approximately $0.3 million. In addition, approximately $3.9 million of the
purchase price was allocated to in-process research and development projects
that had not reached technological feasibility, which the Company expensed at
the date of the acquisition. The remainder of the purchase price, including
expenses related to the purchase, of $0.3 million has been allocated to
goodwill and is being amortized over five years.
In March 1998, the Company acquired the assets of privately held
Network Intelligence, Inc. ("NI"), a California-based developer of network
performance management software. Under the terms of the transaction, the
Company acquired all of the assets of NI for an initial payment of $1.3
million. The Company accounted for the transaction as a purchase.
42
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Acquisitions (Continued)
The total purchase price of approximately $1.5 million, including expenses
related to the purchase, was allocated to in-process research and development
projects that had not reached technological feasibility, which the Company
expensed at the date of the acquisition.
The following unaudited pro forma information presents a summary of
consolidated results of operations as if the Exchange Transaction and the
acquisitions of WGTI, STS, Tinwald and NI had all occurred as of the beginning
of each period presented:
<TABLE>
<CAPTION>
For the year ended
September 30,
--------------------------
1998 1997
------------ -------------
(dollars in thousands)
<S> <C> <C>
Revenues........................................... $ 469,773 $ 437,485
Loss before extraordinary items.................... $ (51,542) $ (45,781)
Net loss........................................... $ (56,053) $ (50,292)
Net loss per share................................. $ (4.25) $ (3.81)
</TABLE>
The unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as additional amortization
expense as a result of goodwill and other intangible assets. They do not purport
to be indicative of the results of operations which would have resulted had the
combinations been consummated on the first day of each period presented. In
addition, the pro forma results are not intended to be a projection of future
results of operations of the consolidated entities.
43
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Credit Agreements and Long-Term Obligations
Long-term obligations are as follows:
<TABLE>
<CAPTION>
September 30,
-----------------------
1998 1997
----------- -----------
(dollars in
thousands)
<S> <C> <C>
Senior Subordinated Notes; total principal balance due June 15, 2007; interest
payable semiannually on June 15 and December 15 at 10 1/8%; guaranteed by the
Company's U.S. subsidiaries.................................................... $ 85,000 $ -
Term loan payable to banks, paid in full in October 1998......................... 24,000 -
Term loans payable to banks under Bank Pooling Agreement; payable in quarterly
installments through 2011; interest payable at rates set on dates of
borrowing ranging from 5.60% to 7.75%; secured by certain inventories, trade
receivables, fixed assets and other assets of the Company and the share
capital of certain subsidiaries................................................ 20,906 25,388
Term loans payable to banks; payable in semi-annual installments through 2007;
interest ranging from 3.50% to 6.0%; secured by mortgages on certain
facilities..................................................................... 12,617 16,783
Credit facilities with banks; interest rates ranging from 5.0% to 10.5%........... 4,735 7,115
Unsecured non-interest bearing promissory note recorded at present value on
issuance date at implied interest rate of 8.1875%; issued in connection with
license of technology; payable in six annual installments of $0.8 million
commencing January 1999........................................................ 3,685 -
Other obligations................................................................. 874 1,089
----------- -----------
151,817 50,375
Less current maturities........................................................... (30,222) (16,332)
----------- -----------
Long-term obligations, less current maturities.................................... $121,595 $ 34,043
----------- -----------
----------- -----------
</TABLE>
As of September 30, 1998, the future annual principal payments on
long-term obligations outstanding at September 30, 1998, were as follows (in
thousands):
<TABLE>
<S> <C>
1999........................... $ 30,222
2000........................... 6,376
2001........................... 5,032
2002........................... 6,138
2003........................... 4,267
Thereafter..................... 99,782
-------------
$ 151,817
-------------
-------------
</TABLE>
44
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Credit Agreements and Long-Term Obligations (Continued)
In November 1997, WG and one of its German subsidiaries entered into a
collateral pooling agreement with six banks (the "Bank Pooling Agreement").
The Bank Pooling Agreement has an indefinite term, however, may be terminated
by either party with a notice period of three months before the end of any
calendar quarter, but not before December 31, 1999. The Bank Pooling
Agreement provides for term loans and revolving credit facilities up to a
maximum of approximately $116 million at terms and interest rates negotiated
at the date of each borrowing. Prior to November 1997, the Company had a
similar bank pooling agreement in place. Under the bank pooling agreements,
the Company has short-term borrowings outstanding of $59.6 million and $14.2
million at September 30, 1998 and 1997, respectively, which were classified
as "Notes payable to banks" in the accompanying consolidated balance sheets.
The short-term borrowings bear interest at rates ranging from 2.6% to 6.75% at
September 30, 1998. The Bank Pooling Agreement stipulates that if the Company
does not complete an initial public offering of its Common Stock by the year
2000, the Company is required to achieve a Total Capital Ratio, as defined,
that is acceptable to the banks. The Bank Pooling Agreement is secured by
certain inventories, trade receivables, fixed assets and other assets of WG
and the share capital of certain of its subsidiaries. At September 30, 1998,
approximately $35.8 million is available for borrowing under the Bank Pooling
Agreement.
Prior to the Exchange Transaction, Wavetek had, and following the
Exchange Transaction, the Company has $85 million outstanding in aggregate
principal amount of Senior Subordinated Notes (the "Notes") issued pursuant
to an Indenture (the "Indenture") between the Company and the Bank of New
York, as trustee. The Notes bear interest at 101/8%, payable semi-annually on
each June 15 and December 15. The total principal balance of the Notes is due
June 15, 2007. On or after June 15, 2002, the Notes will be redeemable at the
option of the Company, in whole or in part, at the following redemption
prices (expressed as percentages of principal amount) plus accrued and unpaid
interest and liquidated damages, if any: 105.063% if redeemed during the
twelve-month period beginning on June 15, 2002; 103.375% if redeemed during
the twelve-month period beginning on June 15, 2003; 101.688% if redeemed
during the twelve-month period beginning on June 15, 2004, and 100%
thereafter. Notwithstanding the foregoing, during the first three years
following the issue date of the Notes, the Company may redeem up to 331/3% of
the aggregate principal amount of the Notes with the proceeds of one or more
Public Equity Offerings (as defined in the Indenture) at a redemption price
of 110.125% of the principal amount thereof, in each case plus accrued and
unpaid interest and liquidated damages, if any. The Notes are guaranteed on a
senior subordinated basis by the Company's current and future subsidiaries in
the United States. The Indenture requires the Company to comply with various
affirmative and negative covenants. The Company was in compliance with all
such covenants at September 30, 1998.
Also in connection with the Exchange Transaction, the Company's financial
statements include the New Credit Agreement (the "New Credit Agreement") with a
group of five lending banks (the "Lenders") including DLJ Capital Funding, Inc.
as Syndication Agent and Fleet National Bank as Administrative Agent. The
Company had $24.0 million outstanding under the term facility and $4.8 million
outstanding under the revolving credit facility at September 30, 1998.
45
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Credit Agreements and Long-Term Obligations (Continued)
All borrowings under the New Credit Agreement were repaid in full on October
2, 1998. Accordingly, all such amounts were classified as current liabilities
in the accompanying consolidated balance sheet as of September 30, 1998.
Borrowings outstanding under the New Credit Agreement at September 30, 1998
were refinanced with the proceeds of unsecured short-term loans from two
German banks, aggregating $29.7 million, received September 30, 1998. These
short-term loans bear interest at rates ranging from 5.0625% to 6.7%, are due
January 4, 1999 and were classified as "Notes payable to banks" in the
accompanying consolidated balance sheet as of September 30, 1998. The cash
proceeds were invested upon receipt on September 30, 1998 in cash equivalents
pending the repayment of the New Credit Agreement. Management is currently
negotiating the terms of a new long-term credit facility, which it intends to
draw upon to repay the short-term loans upon their maturity in January 1999.
Certain of the Company's foreign subsidiaries have agreements with
banks providing for short-term revolving advances and overdraft facilities in
an aggregate total amount of approximately $24.4 million. At September 30,
1998 and 1997, aggregate amounts of $19.0 million and $21.7 million,
respectively, had been borrowed under these facilities. Revolving borrowings
under these agreements bear interest at variable rates ranging from 3.578% to
9% as of September 30, 1998. Certain of these bank agreements also provide
for long-term borrowings and are generally secured by the assets of the local
subsidiary and the guarantee of the Company. Most of these agreements do not
have stated expiration dates, but are cancelable by the banks at any time. In
addition, these bank agreements provide for issuance of letters of credit and
bank guarantees in an aggregate total amount of approximately $10.5 million.
At September 30, 1998, the Company was contingently liable for outstanding
letters of credit and bank guarantees aggregating $3.2 million.
Borrowings under all of the Company's revolving bank agreements have been
classified as "Notes payable to banks" in the accompanying consolidated balance
sheets due to the short-term nature of the revolving advances taken under these
agreements.
At September 30, 1998 and 1997, the Company had unsecured notes payable
to stockholders of $12.3 million and $7.7 million, respectively. These
obligations bear interest at 7.75%, payable quarterly, and are due at the
earlier of an initial public offering of the Company's Common Stock or September
30, 2000. In addition, each stockholder has the right to call outstanding
obligations in part or in total at the end of each fiscal year with nine months
notice. The Company recorded interest expense related to these obligations of
$0.8 million in fiscal 1998 and $0.9 million in each of fiscal 1997 and 1996.
6. Retirement Benefits
Defined Contribution Plans
In certain countries the Company's employees participate in Company
sponsored defined contribution plans. Contributions by the Company to these
Plans were $0.8 million in fiscal 1998 and $0.7 million in each of fiscal
1997 and 1996.
Defined Benefit Plans
For those Company employees participating in defined benefit plans,
benefits are generally based upon years of service and compensation or stated
amounts for each year of service.
46
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Retirement Benefits (Continued)
The components of net pension expense for the Company's defined
benefit plans are (in thousands):
<TABLE>
<CAPTION>
For the year ended September 30,
----------------------------------------------
1998 1997 1996
--------------- -------------- --------------
<S> <C> <C> <C>
Service cost........................................ $3,304 $1,338 $ 1,754
Interest cost....................................... 2,797 2,774 2,899
Return on plan assets............................... (915) (704) (1,154)
--------------- -------------- --------------
Pension expense..................................... $5,186 $3,408 $ 3,499
--------------- -------------- --------------
--------------- -------------- --------------
</TABLE>
The funded status of the Company's major pension plans and the amounts
recognized in the Company's consolidated balance sheet are as follows (in
thousands):
<TABLE>
<CAPTION>
September 30, 1998 September 30, 1997
-------------------------- --------------------------
Plan assets Accumulated Plan assets Accumulated
exceed benefits exceed benefits
accumulated exceed accumulated exceed
benefits plan assets benefits plan assets
------------ ------------- ------------ -------------
Actuarial present value of benefit obligations:
<S> <C> <C> <C> <C>
Vested benefit obligation........................ $ 9,870 $41,652 $ 8,032 $33,703
Non-vested benefit obligation.................... - 1,220 - 1,014
------------ ------------- ------------ -------------
Accumulated benefit obligation....................... 9,870 42,872 8,032 34,717
Effect of projected future compensation levels....... 208 64 161 32
------------ ------------- ------------ -------------
Projected benefit obligation......................... 10,078 42,936 8,193 34,749
Plan assets at fair value............................ (10,861) - (10,123) -
Unrecognized prior service costs and
net gain (loss).................................. (1,243) (2,945) - -
------------ ------------- ------------ -------------
Accrued pension liabilities (prepaid pension costs).. $(2,026) $39,991 $(1,930) $34,749
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>
The key economic assumptions used in the actuarial calculations are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ---------------- ---------------
<S> <C> <C> <C>
Discount rate........................................ 6.25% 6.5%-7.0% 6.5%
Rate of increase in compensation levels.............. 3.5 - 4.25% 4.5%-5.0% 4.5%
Expected long-term rate of return on assets.......... 7.5% 8.5% 8.5%
</TABLE>
Assets of the various plans consist primarily of managed funds that
have underlying investments in stocks and bonds. The Company's policy for
funded plans is to make contributions equal to or greater than the
requirements prescribed by law in each country.
47
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Lease Commitments
The Company rents certain facilities under operating leases. The leases
generally provide that the Company pay the taxes, insurance and maintenance
expenses related to the leased property. Certain leases include renewal options
and/or options to purchase the leased property. The Company also rents equipment
and other facilities on a month-to-month basis. Total rent expense was $5.8
million for fiscal 1998, $4.4 million for fiscal 1997 and $3.8 million for
fiscal 1996.
In 1991, Wavetek entered into a sale/leaseback arrangement for its San
Diego manufacturing facility with an affiliate of a major stockholder. The lease
runs through June 2006 with the minimum annual rental of $0.6 million, subject
to annual consumer price index adjustments. The original gain on the transaction
was deferred and is being amortized over the original ten-year lease term.
The Company's U.S. corporate headquarters and the office and
manufacturing facilities of two of the Company's U.S. subsidiaries are leased
from a partnership affiliated with certain major stockholders of the Company.
Under these leases, which expire on September 30, 2005 and 2010, annual rent
of $1.2 million is payable in monthly installments and is adjusted annually
for changes in the consumer price index.
At September 30, 1998, the annual future minimum lease payments under
noncancelable operating leases and the future minimum annual lease receipts
under noncancelable subleases are as follows:
<TABLE>
<CAPTION>
Lease Lease
Payments Receipts
------------- -------------
(dollars in thousands)
<S> <C> <C>
1999............................................... $ 9,225 $ 542
2000............................................... 7,005 263
2001............................................... 5,895 213
2002............................................... 3,679 222
2003............................................... 3,019 37
Later years........................................ 16,645 -
------------- -------------
Total minimum lease payments....................... $ 45,468 $1,277
------------- -------------
------------- -------------
</TABLE>
8. Stockholders' Equity
In September 1998, the Company increased its authorized capital stock to
55,000,000 shares, of which 50,000,000 shares were designated as Common Stock
and 5,000,000 shares were designated as Preferred Stock. Previously, the Company
had authorized capital stock of 15,000,000, all of which was designated as
Common Stock. All authorized shares have a par value of $.01 per share. No
Preferred Stock has been issued by the Company.
In fiscal 1998, the Company declared dividends of $3.6 million of
which $2.0 million was paid in cash, $0.7 million was paid as a decrease to
notes receivable from related parties and $0.9 million was paid as an
increase to long-term obligations to related parties. In fiscal 1997, the
Company declared dividends of $2.0 million of which $1.2 million was paid in
cash, $0.4 million was paid as a decrease to notes receivable from related
parties and $0.4 million was paid as an increase to long-term obligations to
related parties.
48
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Stockholders' Equity (Continued)
Prior to the Exchange Transaction, Wavetek had, and following the
Exchange Transaction, the Company has 513,298 options outstanding under the
Company's Amended and Restated Stock Option Plan ("the Stock Option Plan") at
prices ranging from $1.25 to $17.91 per share and which expire through 2008.
Under the Stock Option Plan, options to purchase an aggregate of up to 1,320,232
shares of Common Stock may be issued at an exercise price equal to the fair
value of the shares at the date of grant. Options generally vest and become
exercisable over a period not to exceed five years.
A summary of stock option transactions is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
-------------- ---------------
<S> <C> <C>
Outstanding at September 30, 1997................ - -
Options of Wavetek........................... 513,298 $10.48
Granted...................................... - -
Canceled..................................... - -
Exercised.................................... - -
--------------
Outstanding at September 30, 1998................ 513,298 $10.48
--------------
--------------
</TABLE>
As of September 30, 1998, options to purchase 194,696 shares, were
exercisable and 766,934 shares are available for future grant under the Stock
Option Plan.
Exercise prices and weighted average remaining contractual lives for the
options outstanding under the Stock Option Plan as of September 30, 1998 are as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------- ------------------------------
Weighted
Average
Number of Remaining Weighted Number of Weighted
Options Contractual Average Options Average
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
- ---------------------- ----------------- ------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$1.25 - $2.57 123,250 4.9 $ 1.72 95,750 $ 1.48
$5.21 - $12.50 158,000 6.9 $ 6.41 57,250 $ 6.96
$17.91 232,048 8.9 $ 17.91 41,696 $ 17.91
----------------- -------------
513,298 194,696
----------------- -------------
----------------- -------------
</TABLE>
SFAS 123 requires pro forma information to be disclosed regarding the
amount of net income determined as if the Company had accounted for its employee
stock options under the fair value method prescribed by SFAS 123. For the
purpose of determining such pro forma net income, the fair value of these
options was estimated as of the date of grant using the minimum value method
provided for in SFAS 123 with the following assumptions for 1998: risk-free
interest rate of 6%, no annual dividends and an expected option life of five
years. The effect of applying the minimum value method of SFAS 123 to options
granted in 1998 did not result in pro forma net income amounts that are
materially different from amounts reported. Accordingly, no such pro forma
information is presented herein.
49
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Income Taxes
The provision (credit) for income taxes is comprised as follows:
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------------
1998 1997 1996
------------- ---------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Federal:
Current.................................................. $ (866) $ (123) $ 1,100
Deferred................................................. (2,151) 57 780
------------- ---------- ---------
(3,017) (66) 1,880
------------- ---------- ---------
State:
Current.................................................. - 73 241
Deferred................................................. - (7) 87
------------- ---------- ---------
- 66 328
------------- ---------- ---------
Foreign:
Current.................................................. 5,429 2,812 3,245
Deferred................................................. 4,129 4,550 (5,703)
------------- ---------- ---------
9,558 7,362 (2,458)
------------- ---------- ---------
Total provision (credit) for income taxes.................. $6,541 $7,362 $ (250)
------------- ---------- ---------
------------- ---------- ---------
</TABLE>
The reconciliation of income taxes computed at the U.S. federal statutory
tax rate to income tax provision (credit) is as follows:
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------------
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Federal income tax at statutory rate......................... (35)% 35% 35%
State income taxes, net of federal tax benefit............... - 1 5
Foreign tax rate differential................................ 6 10 (30)
Benefit from foreign sales corporation....................... - (1) (5)
Acquired in-process research and development and amortization
of goodwill............................................... 46 - -
Other, net................................................... (2) (1) (5)
Write-down of investments in subsidiaries for which
benefits were not previously recognized................... - - (42)
---------- ----------- -----------
15 44 (42)
Changes in valuation allowance............................... 10 6 38
---------- ----------- -----------
Effective income tax rate.................................... 25% 50% (4)%
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities as of September
30, 1998 and 1997 are set forth in the following table.
50
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Income Taxes (Continued)
The significant components of deferred tax assets and liabilities at
September 30, result from:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
(dollars in thousands)
<S> <C> <C>
Deferred tax assets:
Inventories................................................ $ 6,845 $ 5,734
Accrued and unpaid expenses................................ 6,508 1,905
Property, plant and equipment.............................. 1,138 1,599
Intangible assets.......................................... 3,089 2,543
Pension plans.............................................. 3,253 2,308
Tax credit carryforwards................................... 3,179 1,541
Net operating loss carryforwards........................... 24,707 23,377
Other...................................................... 946 890
------------- -------------
Total deferred tax assets.................................... 49,665 39,897
Deferred tax liabilities:
Intangible assets.......................................... (39,736) -
Property, plant and equipment.............................. (1,480) (855)
Pension plans.............................................. (1,551) (591)
Other...................................................... (233) (717)
------------- -------------
Deferred tax liabilities..................................... (43,000) (2,163)
------------- -------------
Valuation allowance.......................................... (15,152) (10,889)
------------- -------------
Net deferred tax assets (liabilities)........................ $(8,487) $ 26,845
------------- -------------
------------- -------------
</TABLE>
As of September 30, 1998, the Company's German subsidiaries had net
operating loss carryforwards of approximately $24 million which can be used
indefinitely. The Company's U.S. subsidiaries had net operating loss
carryforwards of approximately $7.7 million and tax credit carryforwards of
approximately $3.2 million which can be used through 2015, subject to certain
restrictions on amounts which may be used in each year. The Company's French
subsidiaries had net operating loss carryforwards of approximately $7.2
million which expire at various dates during the next four years.
The Company establishes valuation allowances in accordance with the
provisions of SFAS No. 109, Accounting for Income Taxes. Management believes
sufficient uncertainty exists regarding the realizability of deferred tax
assets that a valuation allowance is required. The Company continually
reviews the adequacy of the valuation allowance and is recognizing these
benefits only as reassessment indicates that it is more likely than not that
the benefits will be realized.
51
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Geographic Information
The Company operates in a single industry segment: the design,
manufacture and distribution of electronic test equipment and measurement
tools. In the table below, net sales, income (loss) before provision (credit)
for income taxes and total assets are reported based on the location of the
Company's facilities. Intercompany transfers are made at arm's length between
the various geographic areas.
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------------------
1998 1997 1996
------------- ------------- -------------
(dollars in thousands)
<S> <C> <C> <C>
Net sales:
Europe......................................................... $ 176,437 $ 148,037 $128,810
Canada, Mexico, Central and South America...................... 69,725 62,922 42,837
Asia-Pacific................................................... 44,258 40,417 34,870
United States.................................................. 37,468 30,511 36,467
------------- ------------- -------------
Consolidated net sales............................................ $ 327,888 $ 281,887 $242,984
------------- ------------- -------------
------------- ------------- -------------
Income before provision (credit) for income taxes and minority
interest in income (loss):
Europe......................................................... $ 14,871 $ 28,056 $ 8,275
Canada, Mexico, Central and South America...................... 131 1,668 482
Asia-Pacific................................................... 864 (203) 525
United States.................................................. (38,495) (1,329) 5,870
Eliminations................................................... (3,193) (13,587) (8,772)
------------- ------------- -------------
Consolidated income before provision (credit) for income
taxes and minority interest in income (loss)................... $ (25,822) $ 14,605 $ 6,380
------------- ------------- -------------
------------- ------------- -------------
Total Assets:
Europe......................................................... $ 515,203 $ 364,722 $396,174
Canada, Mexico, Central and South America...................... 26,174 12,786 15,213
Asia-Pacific................................................... 14,341 14,095 10,418
United States and Canada....................................... 265,722 42,432 37,411
Eliminations................................................... (334,295) (211,827) (223,281)
------------- ------------- -------------
Consolidated total assets......................................... $ 487,145 $ 222,208 $235,935
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
52
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Litigation and Other Claims
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. It is management's opinion that the likely
outcome of any such proceedings and claims would not have a material adverse
effect on the Company's future results of operations or financial position.
A matter is pending in the United States District Court for the
Southern District of Indiana, involving a claim by Trilithic, Inc.
("Trilithic") that certain products of the Company infringe Trilithic's
patent on a radio frequency leakage detection system for a cable network
system. Trilithic seeks injunctive and unspecified monetary relief, including
enhanced damages for alleged willful infringement. The product line
potentially affected by this claim, and by a second patent that has been
issued to Trilithic subsequent to the filing of the lawsuit, had fiscal 1998
sales of approximately $6.3 million. Trilithic's complaint, which was served
on the Company in March 1997, was the first notice to the Company of
Trilithic's patent. This litigation is ongoing and in the event the outcome
of the litigation is not favorable, the Company could be required to: (1)
redesign existing or future products so that they do not use the rights
covered by Trilithic's patent; (2) negotiate licenses from Trilithic to avoid
such redesign; (3) withdraw existing products or not introduce future
products that are covered by those patent rights and (4) pay Trilithic
damages for any infringement since March 1997. It is management's opinion
that the outcome of this matter, net of amounts currently accrued, will not
have a material adverse effect on the Company's results of operations or
financial position.
In December 1998, the Company received a letter from counsel for certain
beneficial owners of the Company's 10 1/8 % Senior Subordinated Notes due 2007
(the "Notes") alleging that, as a result of the Exchange Transaction, a "Change
of Control" under the indenture governing such notes (the "Indenture") has
occurred and, because the Company has failed to make an offer to purchase the
Notes, that an Event of Default under the Indenture has occurred. The Company
believes that the Exchange Transaction did not result in a Change of Control
under the Indenture and that the Company was not required to make an offer to
purchase the Notes.
12. Supplemental Condensed Consolidating Financial Data
The Company's payment obligations under the Notes are guaranteed by
all of the Company's current and future domestic subsidiaries (collectively,
the "Subsidiary Guarantors"). WGTI and Wandel & Goltermann ATE Systems, Inc.,
which became legal Subsidiary Guarantors upon completion of the Exchange
Transaction, are shown as Subsidiary Guarantors for all periods presented.
Wavetek U.S. Inc. and its subsidiary, Digital Transport Systems, Inc., are
also included in the balance sheet as of September 30, 1998 as a result of
the Exchange Transaction. Such guarantees are full and unconditional and
joint and several. Separate financial statements of the Subsidiary Guarantors
are not presented because the Company's management has deemed that they would
not be material to investors. The following supplemental condensed
consolidating financial data sets forth, on an unconsolidated basis, balance
sheets, statements of operations and statements of cash flows data for
(i) the Company (Wavetek Wandel & Goltermann, Inc., formerly Wavetek
Corporation, the legal obligor under the Notes), (ii) the current Subsidiary
Guarantors and (iii) the Company's foreign subsidiaries (the "Foreign
Subsidiaries"). The supplemental financial data reflects the investments of
the Company in the Subsidiary Guarantors and the Foreign Subsidiaries using
the equity method of accounting.
53
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Supplemental Condensed Consolidating Financial Data (Continued)
Consolidating Balance Sheets
As of September 30, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Wavetek
Wandel &
Goltermann, Subsidiary Foreign
Inc. Guarantors Subsidiaries Eliminations Consolidated
------------- -------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 19 $ 31,143 $ 4,382 $ - $ 35,544
Accounts receivable (less allowance for
doubtful accounts of $4,432)................. 8,710 26,166 81,907 (24,502) 92,281
Inventories.................................... - 18,033 59,942 (3,089) 74,886
Deferred income taxes.......................... 3,592 4,408 9,095 - 17,095
Other current assets........................... 1,244 1,884 9,608 - 12,736
------------- -------------- ------------- -------------- ---------------
Total current assets.............................. 13,565 81,634 164,934 (27,591) 232,542
Property and equipment, net....................... 1,611 8,015 56,971 - 66,597
Intangible assets, net............................ 6,755 111,588 62,953 - 181,296
Investment in subsidiaries........................ 146,191 - 29,932 (176,123) -
Other assets...................................... 213 2,763 3,794 (60) 6,710
------------- -------------- ------------- --------------- --------------
Total assets...................................... $ 168,335 $ 204,000 $ 318,584 $ (203,774) $487,145
------------- -------------- ------------- --------------- --------------
------------- -------------- ------------- --------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks......................... $ 34,463 $ 373 $ 78,249 $ - $113,085
Trade accounts payable......................... 2,805 20,322 35,845 (21,360) 37,612
Accrued compensation........................... 714 5,478 19,715 - 25,907
Income taxes payable........................... (10,839) 9,978 6,817 5,956
Other current liabilities...................... 3,683 8,967 30,397 (1,788) 41,259
Current maturities of long-term obligations.... 24,000 741 5,481 - 30,222
Current maturities of long-term obligations to
related parties.............................. - - 12,335 - 12,335
------------- -------------- ------------- --------------- --------------
Total current liabilities......................... 54,826 45,859 188,839 (23,148) 266,376
Long-term obligations, less current maturities.... 85,000 4,299 33,711 (1,415) 121,595
Pension liabilities............................... - - 39,991 - 39,991
Deferred taxes.................................... 229 21,908 3,445 - 25,582
Other non-current liabilities..................... 245 2,142 3,179 - 5,566
Commitments and contingencies.....................
Stockholders' equity:
Common stock................................... 132 - - - 132
Additional paid-in capital..................... 75,569 163,580 78,206 (241,786) 75,569
Accumulated deficit............................ (57,645) (33,762) (38,766) 72,528 (57,645)
Foreign currency translation adjustments....... 9,979 (26) 9,979 (9,953) 9,979
------------- -------------- ------------- --------------- --------------
Total stockholders' equity........................ 28,035 129,792 49,419 (179,211) 28,035
------------- -------------- ------------- --------------- --------------
Total liabilities and stockholders' equity........ $ 168,335 $ 204,000 $ 318,584 $ (203,774) $487,145
------------- -------------- ------------- --------------- --------------
------------- -------------- ------------- --------------- --------------
</TABLE>
54
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Supplemental Condensed Consolidating Financial Data (Continued)
Consolidating Balance Sheets
As of September 30, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Wavetek
Wandel &
Goltermann, Subsidiary Foreign
Inc. Guarantors Subsidiaries Eliminations Consolidated
------------ ------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ - $13,401 $ 4,499 $ (8,500) $ 9,400
Accounts receivable (less allowance for
doubtful accounts of $1,938)................. - 11,075 48,681 (6,266) 53,490
Inventories.................................... - 8,848 48,305 (4,185) 52,968
Notes receivable from related parties.......... - - 7,070 (1,355) 5,715
Deferred income taxes.......................... - 1,448 10,139 - 11,587
Other current assets........................... - 2,301 8,198 - 10,499
------------ ------------- ----------- -------------- ---------------
Total current assets.............................. - 37,073 126,892 (20,306) 143,659
Property and equipment, net....................... - 3,320 48,589 - 51,909
Intangible assets, net............................ - 2,039 2,429 - 4,468
Investment in subsidiaries........................ - - 20,576 (20,576) -
Deferred income taxes............................. - - 15,258 - 15,258
Other assets...................................... - - 6,914 6,914
------------ ------------- ----------- -------------- ---------------
Total assets...................................... $ - $42,432 $ 220,658 $ (40,882) $ 222,208
------------ ------------- ----------- -------------- ---------------
------------ ------------- ----------- -------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks......................... $ - $ - $ 35,833 $ - $ 35,833
Trade accounts payable......................... - 4,451 32,300 (14,766) 21,985
Accrued compensation........................... - 1,487 13,345 - 14,832
Income taxes payable........................... - - 3,768 - 3,768
Other current liabilities...................... - 3,042 16,762 - 19,804
Current maturities of long-term obligations.... - - 16,332 - 16,332
Current maturities of long-term obligations to
related parties.............................. - - 808 - 808
------------ ------------- ----------- -------------- ---------------
Total current liabilities......................... - 8,980 119,148 (14,766) 113,362
Long-term obligations, less current maturities.... - 1,355 34,043 (1,355) 34,043
Long-term obligations to related parties, less
current maturities............................. - - 6,885 - 6,885
Pension liabilities............................... - - 34,749 - 34,749
Other liabilities................................. - - 3,041 - 3,041
Commitments and contingencies.....................
Minority interest................................. - - - 11,521 11,521
Stockholders' equity:
Common stock................................... - - 83 - 83
Additional paid-in capital..................... - 30,479 33,435 (30,479) 33,435
Retained earnings (accumulated deficit)........ - 1,618 (22,600) (5,803) (26,785)
Foreign currency translation adjustments....... - - 11,874 - 11,874
------------ ------------- ----------- -------------- ---------------
Total stockholders' equity........................ - 32,097 22,792 (36,282) 18,607
------------ ------------- ----------- -------------- ---------------
Total liabilities and stockholders' equity........ $ - $42,432 $ 220,658 $ (40,882) $ 222,208
------------ ------------- ----------- -------------- ---------------
------------ ------------- ----------- -------------- ---------------
</TABLE>
55
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Supplemental Condensed Consolidating Financial Data (Continued)
Consolidating Statements of Operations
For the Year Ended September 30, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Wavetek
Wandel &
Goltermann, Subsidiary Foreign
Inc. Guarantors Subsidiaries Eliminations Consolidated
------------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales..........................................$ - $ 59,261 $ 305,916 $ (37,289) $ 327,888
Cost of goods sold................................. - 32,278 137,680 (39,095) 130,863
------------- -------------- ------------- -------------- --------------
Gross margin....................................... - 26,983 168,236 1,806 197,025
Operating expenses: - -
Marketing and selling........................... - 17,181 78,157 - 95,338
Research and development........................ - 13,891 33,839 - 47,730
General and administrative...................... - 5,281 20,738 - 26,019
Acquired in-process research and development.... - 24,342 8,583 - 32,925
Provisions for restructuring and other
non-recurring charges......................... - 4,820 4,549 - 9,369
------------- -------------- ------------- -------------- --------------
- 65,515 145,866 - 211,381
------------- -------------- ------------- -------------- --------------
Operating income (loss)............................ - (38,532) 22,370 1,806 (14,356)
Non-operating income (expense): -
Interest income................................. - 351 807 (181) 977
Interest expense................................ - (181) (7,629) 181 (7,629)
Other, net...................................... - (133) (4,681) - (4,814)
------------- -------------- ------------- -------------- --------------
- 37 (11,503) - (11,466)
------------- -------------- ------------- -------------- --------------
Income (loss) before provision (credit) for income
taxes and minority interest in income (loss).... - (38,495) 10,867 1,806 (25,822)
Provision (credit) for income taxes................ - (3,017) 9,558 - 6,541
Minority interest in income (loss)................. - 124 (5,220) (5,096)
------------- -------------- ------------- -------------- --------------
Net income (loss)..................................$ - $(35,478) $ 1,185 $ 7,026 $ (27,267)
------------- -------------- ------------- -------------- --------------
------------- -------------- ------------- -------------- --------------
</TABLE>
56
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Supplemental Condensed Consolidating Financial Data (Continued)
Consolidating Statements of Operations
For the Year Ended September 30, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Wavetek
Wandel &
Goltermann, Subsidiary Foreign
Inc. Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net sales...................................... $ - $61,302 $ 258,945 $ (38,360) $ 281,887
Cost of goods sold............................. - 27,311 125,944 (39,443) 113,812
------------- ------------- ------------- --------------- ---------------
Gross margin................................... - 33,991 133,001 1,083 168,075
Operating expenses:
Marketing and selling....................... - 15,870 66,817 - 82,687
Research and development.................... - 12,510 24,812 - 37,322
General and administrative.................. - 5,324 20,285 - 25,609
Acquired in-process research
and development........................... - 1,401 342 - 1,743
------------- ------------- ------------- --------------- ---------------
- 35,105 112,256 - 147,361
------------- ------------- ------------- --------------- ---------------
Operating income (loss)........................ - (1,114) 20,745 1,083 20,714
Non-operating income (expense):
Interest income............................. - 639 1,094 (123) 1,610
Interest expense............................ - (123) (8,509) 123 (8,509)
Other, net.................................. - (217) 1,007 - 790
------------- ------------- ------------- --------------- ---------------
- 299 (6,408) - (6,109)
------------- ------------- ------------- --------------- ---------------
Income (loss) before provision for income
taxes and minority interest in income....... - (815) 14,337 1,083 14,605
Provision for income taxes..................... - - 7,362 - 7,362
Minority interest in income.................... - - - 185 185
------------- ------------- ------------- --------------- ---------------
Net income (loss).............................. $ - $ (815) $ 6,975 $ 898 $ 7,058
------------- ------------- ------------- --------------- ---------------
------------- ------------- ------------- --------------- ---------------
</TABLE>
57
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Supplemental Condensed Consolidating Financial Data (Continued)
Consolidating Statements of Operations
For the Year Ended September 30, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Wavetek Wandel
& Goltermann, Subsidiary Foreign
Inc. Guarantors Subsidiaries Eliminations Consolidated
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net sales................................... $ - $ 62,433 $ 215,011 $ (34,460) $ 242,984
Cost of goods sold.......................... - 25,531 106,724 (33,789) 98,466
--------------- --------------- --------------- --------------- ---------------
Gross margin................................ - 36,902 108,287 (671) 144,518
Operating expenses:
Marketing and selling.................... - 14,701 54,237 - 68,938
Research and development................. - 10,994 23,534 - 34,528
General and administrative............... - 5,419 21,584 - 27,003
Acquired in-process research
and development........................ - 362 - - 362
--------------- --------------- --------------- --------------- ---------------
- 31,476 99,355 - 130,831
--------------- --------------- --------------- --------------- ---------------
Operating income............................ - 5,426 8,932 (671) 13,687
Non-operating income (expense): -
Interest income.......................... - 350 979 (157) 1,172
Interest expense......................... - (157) (9,340) 157 (9,340)
Other, net............................... - (104) 965 - 861
--------------- --------------- --------------- --------------- ---------------
- 89 (7,396) - (7,307)
--------------- --------------- --------------- --------------- ---------------
Income before provision (credit) for income
taxes and minority interest in income.... - 5,515 1,536 (671) 6,380
Provision (credit) for income taxes......... - 2,208 (2,458) - (250)
Minority interest in income................. - - - 2,273 2,273
--------------- --------------- --------------- --------------- ---------------
Net income.................................. $ - $ 3,307 $ 3,994 $ (2,944) $ 4,357
--------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- ---------------
</TABLE>
58
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Supplemental Condensed Consolidating Financial Data (Continued)
Condensed Consolidating Statements of Cash Flows
For the Year Ended September 30, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Wavetek
Wandel &
Goltermann, Subsidiary Foreign
Inc. Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities.................................... $ - $(7,100) $ 20,522 $8,500 $21,922
Investing activities
Purchases of businesses, net of cash acquired.... - (39,182) (6,025) - (45,207)
Cash acquired in connection with the Exchange
Transaction................................... 19 30,438 872 - 31,329
Purchase of short-term investments, available
for sale...................................... - (41,100) - - (41,100)
Sale of short-term investments, available for
sale.......................................... - 41,100 - - 41,100
Purchase of property, equipment and
intangibles................................... - (1,779) (8,637) - (10,416)
Other investing activities....................... - 302 6,416 - 6,718
------------- ------------- ------------- -------------- ---------------
Net cash provided by (used in) investing
activities.................................... 19 (10,221) (7,374) - (17,576)
Financing activities
Proceeds from revolving lines of credit and
long-term obligations......................... - 1,455 54,786 - 56,241
Principal payments on revolving lines of credit
and long-term obligations..................... - (1,087) (34,560) - (35,647)
Capital contributions from the Company to
subsidiaries.................................. - 34,695 (34,695) - -
Cash dividends paid to stockholders - - (2,043) - (2,043)
Other financing activities....................... - - 3,106 - 3,106
------------- ------------- ------------- -------------- ---------------
Net cash provided by (used in) financing
activities.................................... - 35,063 (13,406) - 21,657
Effect of exchange rate changes on cash and
cash equivalents.............................. - - 141 - 141
------------- ------------- ------------- -------------- ---------------
Increase (decrease) in cash and cash equivalents
19 17,742 (117) 8,500 26,144
Cash and cash equivalents at beginning of year... - 13,401 4,499 (8,500) 9,400
------------- ------------- ------------- -------------- ---------------
Cash and cash equivalents at end of year......... $19 $31,143 $ 4,382 $ - $35,544
------------- ------------- ------------- -------------- ---------------
------------- ------------- ------------- -------------- ---------------
</TABLE>
59
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Supplemental Condensed Consolidating Financial Data (Continued)
Condensed Consolidating Statements of Cash Flows
For the Year Ended September 30, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Wavetek
Wandel &
Goltermann, Subsidiary Foreign
Inc. Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities........ $ - $3,411 $ 22,602 $(8,500) $17,513
Investing activities
Purchase of businesses, net of cash acquired..... (6,658) (6,658)
Purchase of short-term investments, available
for sale...................................... - (76,160) - - (76,160)
Proceeds from sale of short-term investments,
available for sale........................... - 76,160 - - 76,160
Purchase of property, equipment and
intangibles................................... - (1,728) (7,628) - (9,356)
Other investing activities....................... - 1,413 3,609 - 5,022
------------- ------------- ------------- -------------- ---------------
Net cash used in investing activities............ - (315) (10,677) - (10,992)
Financing activities
Proceeds from revolving lines of credit and
long-term obligations......................... - - 1,961 - 1,961
Principal payments on revolving lines of credit
and long-term obligations..................... - - (12,084) - (12,084)
Dividends........................................ - (1,188) - (1,188)
Other financing activities....................... - - 63 - 63
------------- ------------- ------------- -------------- ---------------
Net cash used in financing activities............ - - (11,248) - (11,248)
Effect of exchange rate changes on cash and cash
equivalents................................... - - (289) - (289)
------------- ------------- ------------- -------------- ---------------
Increase (decrease) in cash and cash equivalents. - 3,096 388 (8,500) (5,016)
Cash and cash equivalents at beginning of year... - 10,305 4,111 - 14,416
------------- ------------- ------------- -------------- ---------------
Cash and cash equivalents at end of year......... $ - $13,401 $ 4,499 $(8,500) $ 9,400
------------- ------------- ------------- -------------- ---------------
------------- ------------- ------------- -------------- ---------------
</TABLE>
60
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Supplemental Condensed Consolidating Financial Data (Continued)
Condensed Consolidating Statements of Cash Flows
For the Year Ended September 30, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Wavetek
Wandel &
Goltermann, Subsidiary Foreign
Inc. Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities........ $ - $ 6,995 $ 6,629 $ - $13,624
Investing activities -
Purchase of businesses, net of cash acquired..... (1,287) (571) - (1,858)
Purchase of marketable securities................ - (23,560) - - (23,560)
Proceeds from sale of marketable securities...... - 23,560 - - 23,560
Purchase of property, equipment and
intangibles................................... - (2,180) (8,398) - (10,578)
Other investing activities....................... - 603 2,747 800 4,150
------------- ------------- ------------- -------------- ---------------
Net cash used in investing activities............ - (2,864) (6,222) 800 (8,286)
Financing activities -
Proceeds from revolving lines of credit and
long-term obligations......................... - - 39,619 - 39,619
Principal payments on revolving lines of credit
and long-term obligations..................... - - (39,665) - (39,665)
Proceeds from long-term obligations to related
parties....................................... - - 634 - 634
Capital contributions from the Company to
subsidiaries.................................. - 800 - (800) -
------------- ------------- ------------- -------------- ---------------
Net cash provided by financing activities....... - 800 588 (800) 588
Effect of exchange rate changes on cash and
cash equivalents.............................. - - (367) - (367)
------------- ------------- ------------- -------------- ---------------
Increase in cash and cash equivalents............ - 4,931 628 - 5,559
Cash and cash equivalents at beginning of year... - 5,374 3,483 - 8,857
------------- ------------- ------------- -------------- ---------------
Cash and cash equivalents at end of year......... $ - $ 10,305 $ 4,111 $ - $14,416
------------- ------------- ------------- -------------- ---------------
------------- ------------- ------------- -------------- ---------------
</TABLE>
61
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Item 4 of the Company's Current Report on Form 8-K dated October 6, 1998
is hereby incorporated by reference.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
Set forth below is certain information regarding each director and
executive officer of the Company:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Terence J. Gooding (1)(3) 64 Co-Chairman of the Board
Albrecht Wandel (1)(2)(3) 54 Co-Chairman of the Board
Peter M. Wagner (1) 45 President, Chief Executive Officer and Director
Derek T. Morikawa 43 Chief Operating Officer
Ben J. Constantini 55 Executive Vice President, Sales
Vickie L. Capps 37 Senior Vice President-Finance, Treasurer, Secretary and
Acting Chief Financial Officer
Karl-Heinz Eisemann 48 Senior Vice President-Finance and Assistant Secretary
Sir Malcolm Bates (2) 64 Director
Frank Goltermann 70 Director
Peter J. Nolan (3) 40 Director
Susan C. Schnabel (2) 36 Director
Joachim Simmross 57 Director
Gerhard Zeidler 61 Director
</TABLE>
- -----------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
The following are biographies of the Company's executive officers and
directors:
Terence J. Gooding, Co-Chairman of the Board. In June 1991, Dr.
Gooding formed a holding company to acquire Wavetek Corporation. Dr. Gooding
served as Chairman and Chief Executive Officer of Wavetek until September 30,
1998. Dr. Gooding became Co-Chairman of the Company following the completion
of the Exchange Transaction on September 30, 1998. Dr. Gooding has been
involved in the management of technology companies since 1965 when he formed
Maxwell Laboratories, which today is a successful defense contractor. He was
President of Kratos (1971-1979), Chairman of the Board of Cambridge
Instruments and Leica plc (1979-1990), and President of Picker International
(1981-1986).
Albrecht Wandel, Co-Chairman of the Board. Albrecht Wandel became a
director and Co-Chairman of the Company on September 30, 1998. Mr. Wandel served
as a Managing Director of WG from 1974 to 1998 and as President and Chief
Executive Officer from 1990 to 1998. Mr. Wandel has been a member of the
Supervisory Board of WG since February 1998.
62
<PAGE>
Peter M. Wagner, President, Chief Executive Officer and Director. Peter
M. Wagner was named President, Chief Executive Officer and director of the
Company on September 30, 1998. Mr. Wagner served as President, Chief Executive
Officer and Managing Director of WG from February to September 1998, as
Executive Vice President, Chief Operating Officer and Managing Director of WG
from October 1995 to February 1998 and as Vice President, Sales and Marketing
from March to October 1995. From 1990 to 1995, he was General Manager of the
Line Transmission Systems Division of Alcatel SEL AG in Stuttgart, Germany.
Derek T. Morikawa, Chief Operating Officer. Derek T. Morikawa was named
Chief Operating Officer of the Company on September 30, 1998. Previously, Mr.
Morikawa was with Wavetek for 12 years and was promoted to President and Chief
Operating Officer in October 1996. Prior to that he was Executive Vice President
of Operations, managing Wavetek's Operating Divisions and integrating the
Wireless and Fiber Optics businesses acquired from Schlumberger in October 1994.
Mr. Morikawa has been Vice President and General Manager of the Indianapolis
CATV Division, the San Diego LAN Division, and the former Microwave Division of
Wavetek. Prior to joining Wavetek, Mr. Morikawa spent seven years with the
Microwave Instrumentation Division of Hewlett-Packard where he managed the
Product Marketing Department.
Ben J. Constantini, Executive Vice President, Sales. Ben J. Constantini
joined Wavetek in June 1991 with responsibility for worldwide sales and customer
service. Prior to joining Wavetek, Mr. Constantini was President of North
American Operations for Leica, plc. He has also been Senior Vice President,
Sales for Picker International and District Sales Manager for Siemens Medical
Systems, Inc. Prior to that, he spent ten years with General Motors in various
management positions.
Vickie L. Capps, Senior Vice President-Finance, Treasurer, Secretary and
Acting Chief Financial Officer. On September 30, 1998 Vickie L. Capps was
appointed Senior Vice President-Finance and Acting Chief Financial Officer of
the Company. Ms. Capps joined Wavetek in October 1992 as Group Controller -
North America and was later promoted to Vice President, Corporate Finance and in
October 1996 to Chief Financial Officer. Ms. Capps is also the Secretary and
Treasurer of the Company. Prior to joining Wavetek, Ms. Capps was a Senior
Manager at Ernst & Young LLP where she specialized in providing audit and
consulting services, for over ten years, to both publicly and privately owned
corporations in technology and other industries. Ms. Capps is a Certified Public
Accountant.
Karl-Heinz Eisemann, Senior Vice President-Finance and Assistant
Secretary. Karl-Heinz Eisemann was named Senior Vice President-Finance and
Assistant Secretary on September 30, 1998. Mr. Eisemann served as Vice President
and Managing Director, Controlling, Logistics and Information Technologies of WG
from October 1997 through September 1998. From 1995 to 1997, Mr. Eisemann was
the Chief Financial Officer of the German division of WG. Prior to joining WG,
Mr. Eisemann spent 22 years with Alcatel SEL AG in Stuttgart, Germany serving in
various financial positions.
Sir Malcolm Bates, Director. Sir Malcolm Bates became a director of the
Company on July 21, 1997. Sir Malcolm has been Chairman of Pearl Group PLC since
March 1996 and Chairman of Premier Farnell plc since January 1997. Until March
31, 1997, Sir Malcolm was the Deputy Managing Director of The General Electric
Company, p.l.c. (GEC), a position he held for twelve years, having joined GEC as
Senior Commercial Director in January 1976. He serves on the board of directors
of several companies, including BICC plc and is a member of the Advisory Board
of Phoenix Equity Partners II. Sir Malcolm is also a member of the United
Kingdom Government's Industrial Development Advisory Board, Special Advisor to
the Paymaster General, Chairman of the Business in the Arts and a Governor of
The University of Westminster.
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<PAGE>
Frank Goltermann, Director. Frank Goltermann became a director of the
Company on September 30, 1998. Mr. Goltermann joined WG in 1966 and served as a
Managing Director of WG from 1980 until 1990, at which time he became Chairman
of the Advisory Board of WG. From 1995 to February 1998, Mr. Goltermann served
as Vice-Chairman of the Supervisory Board of WG.
Peter J. Nolan, Director. Peter J. Nolan became a director of the Company
in June 1997. He has been an executive officer and partner of Leonard Green &
Partners, L.P., a merchant banking firm which manages GEI, since April 1997. Mr.
Nolan had previously been a Managing Director of DLJ since 1990 and Co-Head of
DLJ's Los Angeles Investment Banking Division. Mr. Nolan had also previously
been a First Vice President in corporate finance at Drexel and a Vice President
at Prudential Securities Inc. Mr. Nolan is also a director of M2 Automotive,
Inc. and serves on the Supervisory Board of adidas AG.
Susan C. Schnabel, Director. Susan C. Schnabel became a director of the
Company on September 30, 1998. Ms. Schnabel is a Managing Director in the Los
Angeles office of Donaldson, Lufkin & Jenrette Securities Corporation. Ms.
Schnabel began her career with Drexel Burnham Lambert in the Beverly Hills
office, moving over to DLJ in 1990. In 1997, she served as Chief Financial
Officer of PETsMART, a high growth specialty retailer of pet products and
supplies. Ms. Schnabel rejoined DLJ in 1998 as a Managing Director of DLJ
Merchant Banking Partners. Ms. Schnabel also serves as a Director of Dick's
Clothing and Sporting Goods, DeCrane Aircraft Holdings and Envirosystems
Corporation.
Joachim Simmross, Director. Joachim Simmross became a director of the
Company on September 30, 1998. Mr. Simmross has served as a director of
Hannover Finanz GmbH since 1984 and has served as a member of the Supervisory
Board of WG since 1995.
Gerhard Zeidler, Director. Gerhard Zeidler became a director of the
Company on September 30, 1998. Prof. Zeidler has been Chairman and Chief
Executive Officer of DEKRA e.V. and DEKRA Holding AG since 1996. In 1995, Prof.
Zeidler served as Chairman and Chief Executive Officer of Perot Systems Corp.
Central Europe. From 1989 to 1995, Prof. Zeidler was President and Chairman of
the Board of Management of Alcatel SEL AG in Stuttgart, Germany and a Vice
President and Member of the Executive Committee of Alcatel N.V.
Board of Directors
Members of the Board of Directors serve until the next annual meeting of
Stockholders and until a successor has been elected and qualified. Pursuant to
the Stockholders Agreement, the members are designated as follows: (i) one
Director shall be appointed by the Wandel Stockholders (initially Mr. Wandel);
(ii) one Director shall be appointed by the Goltermann Stockholders (initially
Mr. Goltermann); (iii) one Director shall be appointed by HF (initially Mr.
Simmross); provided that if HF beneficially owns less than 4% of the
outstanding shares of Common Stock and the Wandel Stockholders and the
Goltermann stockholders collectively beneficially own at least 12% of the
outstanding shares of Common Stock, such Director shall be appointed jointly by
the Wandel Stockholders and the Goltermann Stockholders; (iv) one Independent
Director shall be appointed jointly by the Wandel Stockholders, the Goltermann
Stockholders and HF so long as either the Wandel Stockholders or the Goltermann
Stockholders beneficially own at least 4% of the outstanding shares of Common
Stock (initially Mr. Zeidler); (v) one Director and one Independent Director
shall be appointed by Gooding (initially Mr. Gooding and Mr. Bates); (vi) one
Director shall be appointed by DLJMB (initially Ms. Schnabel); (vii) one
Director shall be appointed by GEI (initially Mr. Nolan); and (viii) one
Director shall be the Chief Executive Officer (initially Mr. Wagner). There are
currently nine directors of the Company, each of whom is named under "-Executive
Officers and Directors."
64
<PAGE>
The Company's Certificate of Incorporation contains a provision permitted
under the Delaware General Corporation Law (the "DGCL") eliminating each
director's personal liability for monetary damages for breach of fiduciary duty
as a director, except to the extent that such exemption from liability or
limitation thereof is not permitted under the DGCL as currently in effect at the
time. The Company's Bylaws authorize the Company to indemnify its present and
former directors, officers and employees against expenses, judgments, fines and
amounts paid in settlement if such person is made a party, or is threatened to
be made a party, to a legal proceeding by reason of the fact that such person is
or was a director, officer, employee or agent of the Company, or was serving in
such position at another company at the request of the Company. Such
indemnification is mandatory in certain circumstances and permissive in others,
subject to authorization by the Company's Board of Directors. In addition, the
Bylaws authorize the Company to advance litigation expenses to such person
prior to the final disposition of the legal proceeding.
Pursuant to the Stockholders Agreement, Hannover Finanz is entitled to
have a non-voting observer at each Board of Directors meeting and Messrs.
Wagner, Goltermann, Simmross, Wandel and Zeidler are entitled to have an
attorney present.
Board Committees
The Board of Directors has three standing committees: an Executive
Committee, an Audit Committee and a Compensation Committee (together, the
"Committees"). The Executive Committee, currently consisting of Messrs. Gooding,
Wandel and Wagner, has the power to exercise all of the powers and authority of
the Board of Directors in the management of the business of the Company, with
certain exceptions. The Audit Committee, currently consisting of Messrs. Bates
and Wandel and Ms. Schnabel meets with the Company's financial management and
its independent auditors at various times during each year, reviews internal
control conditions, audit plans and results, and makes recommendations to the
Board of Directors concerning the Company's engagement of independent auditors.
The Compensation Committee, currently consisting of Messrs. Gooding, Nolan and
Wandel, reviews and proposes to the Board of Directors compensation arrangements
for directors and officers of the Company.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid in fiscal 1998 and
1997 to the Company's Chief Executive Officer and the Company's four other most
highly compensated executive officers (the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Total
------------------------------------------------------------------
Auto 401 (k) Other Annual
Name and Principal Position Salary Bonus Allowance Match Compensation* Compensation
- ------------------------------------------ ------------ ----------- ----------- ------------ ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Terence J. Gooding..................... 1998 $ 326,924 $ - $- $ 4,800 $ - $ 331,724
Co-Chairman of the Board and 1997 348,089 - - 3,692 - 351,781
Former Chief Executive Officer
Peter M. Wagner........................ 1998 247,614 153,767 6,337 - 42,450 450,168
President and Chief Executive 1997 214,567 115,651 8,248 - 41,728 380,194
Officer
Derek T. Morikawa...................... 1998 244,231 - 5,820 4,800 - 254,851
Chief Operating Officer 1997 223,462 50,625 5,820 5,575 916,923 1,202,405
Ben J. Constantini..................... 1998 191,692 - 5,820 3,201 - 200,713
Executive Vice President, Sales 1997 184,616 37,000 5,820 5,018 511,468 743,922
Vickie L. Capps........................ 1998 149,423 - 5,820 3,776 - 159,019
Senior Vice President-Finance, 1997 134,231 23,625 5,820 6,470 229,653 399,799
Treasurer, Secretary and Acting
Chief Financial Officer
Karl-Heinz Eisemann.................... 1998 168,190 52,223 13,008 - - 233,421
Senior Vice President-Finance 1997 126,336 72,540 13,829 - - 212,705
</TABLE>
* Other compensation for Morikawa, Constantini and Capps reflects payments
to stock option holders as compensation for the surrender of all or a
portion of vested stock options related to certain recapitalization
transactions of Wavetek consummated in June 1997. Other compensation for
Wagner represents fees received in connection with Wagner's participation
on the Boards of Directors of the Company's subsidiaries in the U.S. and
United Kingdom.
There were no grants of stock options made during the fiscal year ended
September 30, 1998 to any of the Named Executive Officers.
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<PAGE>
The following table sets forth information with respect to each of the
Named Executive Officers concerning the exercise of stock options and
unexercised stock options held at September 30, 1998.
Aggregated Option Exercises in the Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired Value Options at Fiscal Year-End at Fiscal Year-End*
----------------------------- -----------------------------
Name on Realized Exercisable Unexercisable Exercisable Unexercisable
Exercise
- ---------------------------------------- ----------- ----------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Terence J. Gooding.................... - - - - - -
Peter M. Wagner....................... - - - - - -
Derek T. Morikawa..................... - - 65,437 48,313 $ 361,380 $54,740
Ben J. Constantini.................... - - 8,312 36,938 - $44,400
Vickie L. Capps....................... - - 23,725 25,175 $ 106,200 $19,040
Karl-Heinz Eisemann................... - - - - - -
</TABLE>
* The value of the unexercised in-the-money options is based on a fair
value of the Company's Common Stock on September 30, 1998, of $7.59 per
share. This value has not been adjusted to reflect the fair value of the
Company's Common Stock following the Exchange Transaction.
Employment Agreements
The Company has employment agreements with each of its Named Executive
Officers, except Mr. Morikawa. The Company's executive employment agreements
typically provide for total compensation, including base salary and bonus
compensation. In the event the Company terminates an executive without cause,
the Company's employment agreements generally provide for the payment of lump
sum termination benefits equal to the greater of the base salary payable during
the period of employment remaining under the employment agreement or one year's
base salary. The Company's executive employment agreements generally contain
noncompetition agreements and confidentiality agreements.
Mr. Gooding's employment agreement provides for Mr. Gooding to serve as
an employee of the Company through March 31, 1999, with base salary at an annual
rate of $325,000. Upon termination of Mr. Gooding's employment on March 31,
1999, the Company will pay Mr. Gooding a termination payment equal to $325,000.
Mr. Wagner's employment agreement provides for Mr. Wagner to serve as an
employee of the Company through September 29, 2001, with current target total
compensation at an annual rate of 990,000 Deutsche marks (approximately $590,000
as of September 30, 1998), of which 66-2/3% is base salary and 33-1/3% is target
bonus compensation, payable in accordance with the Company's annual bonus plan.
Mr. Wagner is also entitled to receive certain special pension benefits from the
Company.
Mr. Constantini's employment agreement provides for Mr. Constantini to
serve as an employee of the Company through September 29, 2000, with current
target total compensation at an annual rate of $350,000, of which 70% is base
salary and 30% is target bonus compensation, payable in accordance with the
Company's annual bonus plan. Effective September 30, 1998, Mr. Constantini
relocated from San Diego, California to Eningen, Germany in connection with his
employment with the Company. Mr. Constantini's employment agreement provides for
certain relocation payments, cost of living allowances and travel expenses in
connection with his relocation. In addition to standard termination payment
benefits, in exchange for continuing his employment though September 28, 2000,
Mr. Constantini is entitled to receive a special bonus equal to one year's base
salary on September 28, 2000 or such earlier date as the Company terminates his
67
<PAGE>
employment without cause. In addition, if the Company terminates his employment
without cause, certain stock options held by Mr. Constantini would become
immediately and fully vested on such termination date.
Ms. Capps' employment agreement provides for Ms. Capps to serve as an
employee of the Company through December 31, 1999, with current target total
compensation at an annual rate of $253,000, of which 70% is base salary and 30%
is target bonus compensation, payable in accordance with the Company's annual
bonus plan. In exchange for continuing her employment though June 30, 1999, Ms.
Capps is entitled to receive a retention payment on June 30, 1999 equal to
$100,000. In addition, certain stock options held by Ms. Capps would become
immediately and fully vested on such date. If the Company terminates Ms. Capps
employment without cause, or if Ms. Capps terminates her employment with the
Company for any reason after June 30, 1999, Ms. Capps is entitled to receive a
payment equal to $250,000, reduced by the amount of the retention payment paid,
if any.
Mr. Eisemann's employment agreement provides for Mr. Eisemann to serve as
an employee of the Company through September 30, 2000, with current target total
compensation at an annual rate of 450,000 Deutsche marks (approximately $269,000
as of September 30, 1998), of which 80% is base salary and 20% is target bonus
compensation, payable in accordance with the Company's annual bonus plan.
In June 1997, the Company entered into an executive severance agreement
with Mr. Morikawa, providing for a specified level of U.S. benefits and for a
lump sum payment upon termination other than for cause equal to twelve months
salary.
Compensation Committee Interlocks and Insider Participation
The Board of Directors established a Compensation Committee in July 1997.
As of September 30, 1998, Messrs. Gooding, Nolan and Wandel are the members of
the Compensation Committee. Other than Mr. Gooding, none of the members of the
Compensation Committee has served as an officer or employee of the Company.
Prior to the establishment of the Compensation Committee, all decisions relating
to compensation of executive officers were made by the Company's Board of
Directors. For a description of the transactions between the Company and members
of the Compensation Committee and entities affiliated with such members, see
"Certain Relationships and Related Transactions" included as Item 13 herein. No
executive officer of the Company serves as a member of the board of directors or
compensation committee of any entity which has one or more members of the
Company's Board of Directors or Compensation Committee.
Compensation Committee Report on Executive Compensation
The Compensation Committee is responsible for recommending salaries,
incentives and benefits for the Company's senior officers, awarding all employee
stock options, reviewing overall compensation policies and evaluating the
performance of management. The Compensation Committee reviews with the Board of
Directors in detail all aspects of compensation for senior officers.
The Company's executive compensation package is typically comprised of
three components: base compensation, annual cash bonus and stock options. Base
compensation consists of fixed salaries and employee benefits. Base salaries and
benefits for each of the Company's executive officers are based on industry
norms and an individual's experience. Annual cash bonuses are based on the
Company's overall orders, operating profit, cash flow and on meeting the
Company's business objectives and goals.
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<PAGE>
In reviewing 1998 executive compensation and making recommendations for
1999, the Compensation Committee reviewed reports prepared by the Company's
Human Resources Managers, which compared the base salary and total cash
compensation package for each of the Company's Named Executive Officers and
other senior officers of the Company with data compiled from independent
compensation surveys providing general and industry-specific ranges and
averages. The Compensation Committee also took into account the Company's
performance during the period and such individual's contribution to the
Company's performance. The Compensation Committee has generally proposed
moderate increases in base salary and target bonuses for the Company's executive
officers for 1999.
Prior to September 30, 1998, Mr. Gooding served as the Chief Executive
Officer of the Company. The Compensation Committee recommended a moderate
decrease in Gooding's base salary and no stock option grant for fiscal 1998.
Such compensation reflects the significant ownership that Gooding has in the
Company. Effective September 30, 1998, the Company's Chief Executive Officer is
Mr. Wagner. The Compensation Committee recommended Mr. Wagner's compensation for
1999 in accordance with the procedures described above in connection with its
review of executive compensation. Mr. Wagner's compensation for 1998 was
determined through negotiation with the Chairman of the Supervisory Board of WG.
Mr. Wagner's 1998 compensation included a base salary component and a variable
bonus based upon the pre-tax income of WG, determined in accordance with German
accounting principles and adjusted for certain items at the discretion of the
Supervisory Board of WG.
Stock options are utilized as an important component of executive
compensation to motivate executives to improve the long-term performance and
value of the Company and to promote loyalty and equity ownership in the Company
by such individuals. The Compensation Committee bases awards of stock options
principally on an individual's job grade, performance and length of service.
Option grants are made annually at the fair market value of the Company's Common
Stock, as determined by the Board of Directors, and vest over a four-year
period. No options were granted to the Named Executive Officers in 1998.
The Compensation Committee report was completed by Messrs. Gooding, Nolan
and Wandel during a series of telephone meetings in October and November 1998.
Compensation of Directors
Executive officers of the Company and representatives of the
institutional investors who serve on the Board of Directors do not receive any
compensation for such services. Other directors receive $10,000 per year, plus a
fee of $2,500 per Board meeting attended and are reimbursed for their expenses
incurred in connection with attendance of meetings of, and other activities
relating to serving on, the Board of Directors. Members of the Committees of the
Board of Directors receive no additional compensation for their membership in,
or participation in the meetings of, such Committees.
The Company's Board of Directors is currently evaluating new alternatives
for compensation of Directors following the Exchange Transaction.
69
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information about persons known to
the Company to own beneficially more than 5% of the outstanding Common Stock,
each director of the Company, each named executive officer and all directors and
executive officers of the Company as a group, in each case as of the date of
this report. There are 13,202,323 shares of Common Stock outstanding.
<TABLE>
<CAPTION>
Shares Percentage
Beneficially Beneficially
Name and Address Owned (1) Owned
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hannover Finanz W&G Beteiligungsgesellschaft mbH (2)................. 2,524,350 19.1%
DLJ Merchant Banking Partners II, L.P. (3)........................... 1,674,810 12.7
Terence J. Gooding (4)(5)............................................ 1,526,780 11.6
Burkhard Goltermann (6)(7)........................................... 1,508,580 11.4
Albrecht Wandel (7).................................................. 1,294,904 9.8
Renate Wandel (7).................................................... 1,019,430 7.7
Frank Goltermann (7)................................................. 933,053 7.1
Ulrike Goltermann (7)................................................ 787,622 6.0
Green Equity Investors II, L.P (8)................................... 753,660 5.7
Peter J. Nolan (9)................................................... 753,660 5.7
Peter M. Wagner (7).................................................. 249,524 1.9
Derek T. Morikawa (5)(10)............................................ 186,937 1.4
Ben J. Constantini (7)............................................... 43,312 *
Vickie L. Capps (5).................................................. 27,725 *
Sir Malcolm Bates (11)............................................... 6,667 *
Karl-Heinz Eisemann (7).............................................. - -
Susan C. Schnabel (12)............................................... - -
Joachim Simmross(13)................................................. - -
Gerhard Zeidler (14)................................................. - -
All directors and executive officers as a
group (15)....................................................... 5,022,562 38.0
</TABLE>
* Less than 1%.
- -----------
(1) Computed in accordance with Rule 13d-3(d)(1) of the Securities Exchange
Act of 1934, as amended.
(2) Address is Gunter-Wagner-Allee 13, D-30177 Hannover, Federal Republic of
Germany.
(3) Consists of shares held directly by the following investors related to
DLJ Merchant Banking Partners II, L.P. ("DLJMB"); DLJ Merchant Banking
Partners II - A ("DLJMB-A"); DLJ Diversified Partners, L.P. ("DLJ
Diversified"); DLJ Diversified Partners - A, L.P. ("DLJ Diversified -
A"); DLJ Offshore Partners II, C.V. ("DLJOP"); DLJMB Funding II, Inc.
("DLJ Funding"); DLJ EAB Partners, L.P. ("DLJ EAB"); DLJ First ESC L.P.
("DLJ ESC"); DLJ Millenium Partners ("Millenium"); DLJ Millenium Partners
- A, ("Millenium - A") and UK Investment Plan 1997 Partners ("UK
Investment"). The address of each of DLJMB, DLJMB - A, DLJ Diversified,
DLJ Diversified - A, DLJ Funding, DLJ EAB, DLJ ESC, Millenium and
Millenium - A is 277 Park Avenue, New
70
<PAGE>
York, New York 10172. The address of DLJOP is c/o John B. Gorsiraweg, 14
Willemstad, Curacao, Netherlands Antilles. The address of UK Investment
is 2121 Avenue of the Stars, Los Angeles, California 90067.
(4) Includes 1,050,000 shares held by Gooding's spouse, children and
grandchildren and trusts for the benefit thereof over which Gooding has
investment and voting control.
(5) Address is c/o Wavetek Wandel & Goltermann, Inc., 11995 El Camino Real,
Suite 301, San Diego, CA 92130.
(6) Includes 189,222 shares held by his spouse.
(7) Address is c/o Wandel & Goltermann Management Holding GmbH, Box 1262,
D-72795 Eningen u.A., Federal Republic of Germany.
(8) Address is 11111 Santa Monica Boulevard, Suite 2000, Los Angeles, CA
90025.
(9) Address is c/o Green Equity Investors II, L.P., 11111 Santa Monica
Boulevard, Suite 2000, Los Angeles, CA 90025. The shares shown as
beneficially owned by Mr. Nolan include all of the shares owned of record
by GEI. GEI is a Delaware limited partnership managed by Leonard Green &
Partners, L.P. ("LGP"), which is an affiliate of the general partner of
GEI. Mr. Nolan, either directly (whether through ownership interest or
position) or through one or more intermediaries, may be deemed to control
LGP and such general partner. LGP and such general partner may be deemed
to control the voting and disposition of the shares of Common Stock of
the Company owned by GEI. As such, Mr. Nolan may be deemed to have shared
voting and investment power with respect to all shares held by GEI.
However, Mr. Nolan disclaims beneficial ownership of the securities held
by GEI except to the extent of his respective pecuniary interests
therein.
(10) Includes 40,000 shares held in two trusts for the benefit of his
children. Criss Morikawa, Derek Morikawa's brother, is the trustee of
both of the trusts.
(11) Address is Mulberry Close, Croft Road, Goring-on-Thames, RG8 9ES,
England.
(12) Address is c/o Donaldson, Lufkin & Jenrette Securities Corporation, 2121
Avenue of the Stars, Los Angeles, CA 90067. Ms. Schnabel is a Managing
Director of DLJ. Share data for Ms. Schnabel excludes shares shown as
held by DLJMB and its affiliates, as to which Ms. Schnabel disclaims
beneficial ownership.
(13) Address is c/o Hannover Finanz W&G Beteiligungsgesellschaft mbH,
Gunter-Wagner-Allee 13, D-30177 Hannover, Federal Republic of Germany.
Share data for Mr. Simmross excludes shares shown as held by Hannover
Finanz, as to which Mr. Simmross disclaims beneficial ownership.
(14) Address is c/o Dekra e.V., Handwerkerstr. 15, D-70565 Stuttgart, Federal
Republic of Germany.
(15) Consists of 13 persons.
71
<PAGE>
Stock Option Plan
From time to time, the Company issues stock options to employees of the
Company in order to attract, retain and provide equity incentives to key
employees and to stimulate the efforts of such employees. One quarter of each
grant of stock options becomes exercisable on each anniversary date of their
issuance, so that after four years, all of the options are vested.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1995, the Board of Directors of the Company resolved that in
the event Gooding's shareholdings in the Company are reduced to less than 50% of
the outstanding shares, and/or if Gooding's employment as Chief Executive
Officer of the Company is terminated for any reason, Gooding or his nominee
shall have the right, but not the obligation, to take over the lease and
occupancy of the Company's executive offices at 11995 El Camino Real, Suite 301,
San Diego, CA 92130, and to purchase all of the leasehold improvements and fixed
assets located in such offices at such time, at depreciated net book value.
Gooding has agreed to assume this lease after March 31, 1999. See "Item 2. -
Properties."
The Company leases its headquarters for its LAN and Test Tools business
in San Diego from a corporation controlled by Gooding for an annual rent of
$586,000, plus annual consumer price index adjustments, not to exceed 3% per
annum. The lease expires in June 2006. See "Item 2. - Properties."
The Company leases its facility in Research Triangle Park, North
Carolina, including its corporate headquarters and the facilities of its
subsidiaries Wandel & Goltermann Technologies, Inc. and Wandel & Goltermann ATE
Systems, Inc., from a partnership which is owned by Burkhard Goltermann, Frank
Goltermann, Ulrike Goltermann and certain other family members. Under the
leases, which expire in September 2005 and September 2010, annual rent of
$1,203,000 is payable in monthly installments and is adjusted annually for
changes in the consumer price index. See "Item 2. - Properties."
The Company leases certain offices and manufacturing facilities in
Eningen, Germany for one of its German subsidiaries from Else Wandel, the mother
of Albrecht Wandel and Renate Wandel. The Company pays annual rent of $262,000
under the lease, which expires on September 30, 2000.
In February 1998, the Company sold 400 shares, or 10%, of the common
stock of its then wholly-owned subsidiary Switching Test Solutions AG ("STS") to
Peter Wagner for a purchase price of $817,000, which was paid in April 1998. In
connection with this transaction, Mr. Wagner, Frank Goltermann and Albrecht
Wandel entered into put and call options related to the shares sold to Mr.
Wagner. In September 1998, Messrs. Goltermann and Wandel exercised the call
options and purchased the shares of STS held by Mr. Wagner. Subsequently, the
Company purchased these shares from Messrs. Goltermann and Wandel for $840,000.
The Company had notes receivable from Albrecht Wandel and Renate Wandel
of $4,431,000 and $1,285,000, respectively, at September 30, 1997. All amounts
due under these notes were received by the Company in June 1998. The notes bore
interest at rates ranging from 6% to 8%. The Company recorded interest income
related to these notes of $263,000 in the year ended September 30, 1998.
The Company has unsecured notes payable to stockholders at September 30,
1998 as follows: Frank Goltermann - $4,649,000; Hannover Finanz - $3,242,000;
Albrecht Wandel - $1,790,000; Renate Wandel - $1,790,000; Burkhard Goltermann -
$556,000 and Ulrike Goltermann - $307,000.
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<PAGE>
Prior to September 30, 1998, interest was payable on these notes at 7% to 8%
plus, in the case of the notes payable to Frank Goltermann and Hannover
Finanz, an additional 5% if the Company was Profitable, as defined. On
September 30, 1998, the Company paid Frank Goltermann $147,000 and Hannover
Finanz $122,000 in consideration for changing the terms of their notes. As a
result, subsequent to September 30, 1998, all of the unsecured notes payable
to stockholders bear interest at 7.75%, payable quarterly. The notes are due
at the earlier of an initial public offering of the Company's Common Stock or
September 30, 2000. In addition, each stockholder has the right to call
outstanding notes in part or in total at the end of each fiscal year with
nine months notice. The Company incurred interest expense related to these
notes of $770,000 in the year ended September 30, 1998.
In 1994, the Company entered into a consulting agreement with Frank
Goltermann under which Mr. Goltermann received annual fees of $90,000, plus
certain expenses. The consulting agreement expired on September 30, 1998.
Albrecht Wandel served as President and Chief Executive Officer of WG
through February 1998 and received employment compensation from the Company in
the amount of $409,000 for the year ended September 30, 1998. In connection with
his resignation from his position with the Company, the Company paid Mr. Wandel
$630,000 to cover the present value of its obligation to Mr. Wandel for pension
and insurance benefits as specified in his employment contract with WG. On
October 1, 1998, the Company entered into a consulting agreement with Mr. Wandel
under which Mr. Wandel will receive annual fees of $60,000, plus certain
expenses. The consulting agreement expires on September 30, 1999, subject to
renewal.
Burkhard Goltermann is employed by the Company as an Assistant Corporate
Manager and received employment compensation from the Company in the amount of
$83,000 in 1998.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
The following consolidated financial statements of Wavetek
Wandel & Goltermann, Inc. are included in Item 8 of this report:
Report of Arthur Andersen LLP, Independent Public Accountants
Consolidated Balance Sheets as of September 30, 1998 and 1997
Consolidated Statements of Operations for each of the three
years in the period ended September 30, 1998 Consolidated
Statements of Stockholders' Equity for each of the three years
in the period ended September
30, 1998
Consolidated Statements of Cash Flows for each of the three
years in the period ended September 30, 1998 Notes to
Consolidated Financial Statements
The following consolidated financial statements of Wavetek
Corporation are included in Item 14 of this report:
Report of Ernst & Young LLP, Independent Auditors Consolidated
Balance Sheets as of September 30, 1998 and 1997
Consolidated Statements of Operations for each of the three
years in the period ended September 30, 1998 Consolidated
Statements of Stockholders' Deficit for each of the three years
in the period ended September
30, 1998
Consolidated Statements of Cash Flows for each of the three
years in the period ended September 30, 1998 Notes to
Consolidated Financial Statements
The following unaudited pro forma combined financial data of
Wavetek Wandel & Goltermann, Inc. are included in Item 14 of
this report:
Unaudited Pro Forma Combined Statement of Operations
Notes to Unaudited Pro Forma Combined Statement of Operations
(2) Financial Statement Schedules
No financial statement schedules are required to be filed by
this form.
(3) Index to Exhibits
74
<PAGE>
Exhibit No. Description of Exhibit
2.1 Exchange and Merger Agreement, dated as of June 12,
1998, by and among Wavetek Corporation, Wandel &
Goltermann Management Holding GmbH and the
Stockholders listed on the signature pages thereto
(Incorporated by reference from Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998).
2.2 First Amendment, dated September 25, 1998, to the
Exchange and Merger Agreement and Stockholders
Agreement (Incorporated by reference from exhibit 2.2
to the Company's Current Report on Form 8-K dated
October 6, 1998).
2.3 Agreement and Plan of Merger by and among Wandel &
Goltermann Technologies, Inc., Wandel & Goltermann
Management Holding, GmbH and WG Merger Corp. dated
March 28, 1998 (Incorporated by reference from
Appendix A of Exhibit (d) (3) of Schedule 13E-3 of
Wandel & Goltermann Technologies, Inc. and Wandel &
Goltermann Management Holding, GmbH, file number
0-25176).
3.1 Amended and Restated Certificate of Incorporation of
Wavetek Wandel & Goltermann, Inc. (Incorporated by
reference from exhibit 3.1 to the Company's Current
Report on Form 8-K dated October 6, 1998).
3.2 Bylaws of Wavetek Corporation (Incorporated by
reference from exhibit 3.7 to Registration Statement
of Wavetek Corporation on Form S-4, file number
333-32195).
3.3 Amendment to Bylaws, dated September 30, 1998
(Incorporated by reference from exhibit 3.2 to the
Company's Current Report on Form 8-K dated October 6,
1998).
4.1 Indenture, dated as of June 11, 1997, among Wavetek
Corporation, Wavetek U.S. Inc. and The Bank of New
York, as Trustee (Incorporated by reference from
exhibit 4.1 to Registration Statement of Wavetek
Corporation on Form S-4, file number 333-32195).
4.2 Form of Notes (see Exhibit 4.1) (Incorporated by
reference from exhibit 4.2 to Registration Statement
of Wavetek Corporation on Form S-4, file number
333-32195).
4.3 Form of Subsidiary Guarantee (see Exhibit 4.1)
(Incorporated by reference from exhibit 4.3 to
Registration Statement of Wavetek Corporation on Form
S-4, file number 333-32195).
4.4 First Supplemental Indenture, dated as of September
30, 1998, among Wavetek Wandel & Goltermann, Inc.,
Wandel & Goltermann Technologies, Inc., Wandel &
Goltermann A.T.E. Systems, Inc., Wandel & Goltermann,
Inc., W&G Equities, Inc. and The Bank of New York.
4.5 Second Supplemental Indenture, dated as of October
30, 1998, among Wavetek Wandel & Goltermann, Inc.,
Digital Transport Systems, Inc. and The Bank of New
York.
10.1 Credit Agreement, dated as of June 11, 1997, among
Wavetek Corporation, DLJ Capital Funding, Inc., as
Syndication Agent, Fleet National Bank, as
Administrative Agent, and the
75
<PAGE>
lenders named therein (Incorporated by reference from
exhibit 10.1 to Registration Statement of Wavetek
Corporation on Form S-4, file number 333-32195).
10.2 First Amendment to Credit Agreement, dated as of July
21, 1998 entered into by and among Wavetek
Corporation, the Lenders listed on the signature
pages thereof, DLJ Capital Funding, Inc. and Fleet
National Bank (Incorporated by reference from Exhibit
10.3 to Quarterly Report of Wavetek Corporation on
Form 10-Q for the quarter ended June 30, 1998).
10.3 Stockholders Agreement, dated as of June 12, 1998 and
effective as of the effective time by and among
Wavetek Corporation and the Stockholders listed on
the signature pages thereto (Incorporated by
reference from exhibit 10.2 to Quarterly Report of
Wavetek Corporation on Form 10-Q for the quarter
ended June 30, 1998).
10.4 Credit Facility, dated September 29, 1998, between
Wavetek Corporation and Deutsche Bank AG.
10.5 Credit Facility, dated September 29, 1998, between
Wavetek Corporation and Commerzbank
Aktiengesellschaft.
10.6 Bank Pool Contract, dated as of November 6, 1997,
among Wandel & Goltermann Management Holding GmbH,
Wandel & Goltermann GmbH & Co. Elektronische
Messtechnik, Commerzbank, BW Bank, Deutsche Bank,
Kreissparkasse, Landesgirokasse and Stuttgarter Bank.
10.7 Employment Agreement, dated as of September 30, 1998,
by and between Wavetek Corporation and Terence J.
Gooding.
10.8 Employment Agreement, dated as of September 30, 1998,
by and between Wavetek Wandel & Goltermann, Inc. and
Peter Wagner.
10.9 Employment Agreement, dated as of September 30, 1998,
by and between Wavetek Wandel & Goltermann, Inc. and
Ben Constantini.
10.10 Employment Agreement, dated as of September 30, 1998,
by and between Wavetek Wandel & Goltermann, Inc. and
Vickie Capps.
10.11 Contract of Employment, dated as of October 1, 1997,
between Wandel & Goltermann Management Holding GmbH
and Karl-Heinz Eisemann.
10.12 Extraordinary Severance Agreement, dated May 23,
1997, between Wavetek Corporation and Derek T.
Morikawa (Incorporated by reference from exhibit 10.7
to Registration Statement of Wavetek Corporation on
Form S-4, file number 333-32195).
10.13 Wavetek Corporation Executive Benefits Plan, dated
June 1, 1997, (Incorporated by reference from exhibit
10.8 to Registration Statement of Wavetek Corporation
on Form S-4, file number 333-32195).
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<PAGE>
10.14 Wavetek Wandel & Goltermann, Inc. Amended and
Restated Stock Option Plan.
10.15 Lease Agreement, dated October 1, 1984, between W&G
Associates and W&G Instruments, Incorporated
(Incorporated by reference from exhibit 10.3 to
Registration Statement of Wandel & Goltermann
Technologies, Inc. on Form S-1, file number
33-74564).
10.16 Lease Agreement, dated May 18, 1994, between W&G
Associates and Wandel & Goltermann Technologies, Inc
(Incorporated by reference from Quarterly Report of
Wandel & Goltermann Technologies, Inc. on Form 10-Q
for the quarter ended June 30, 1994, file number
0-23742).
12.1 Schedule Re: Computation of Ratio of Earnings to
Fixed Charges.
21.1 Subsidiaries of Registrant.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
On October 6, 1998, the Company filed a Current Report on Form 8-K
relating to the consummation of the Exchange Transaction and a
change in accountants.
(c) All required exhibits have been filed or incorporated by reference in
this form.
(d) No financial schedules are required to be filed by this form. The
financial statements of Wavetek Corporation and certain pro forma
financial information of the Company are set forth below.
77
<PAGE>
FINANCIAL STATEMENTS OF WAVETEK CORPORATION
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Ernst & Young LLP, Independent Auditors................................................. 79
Consolidated Balance Sheets as of September 30, 1998 and 1997..................................... 80
Consolidated Statements of Operations for each of the three years in the period ended
September 30, 1998............................................................................ 81
Consolidated Statements of Stockholders' Deficit for each of the three years in the
period ended September 30, 1998............................................................... 82
Consolidated Statements of Cash Flows for each of the three years in the period ended
September 30, 1998............................................................................ 83
Notes to Consolidated Financial Statements........................................................ 84
</TABLE>
78
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Wavetek Corporation
We have audited the accompanying consolidated balance sheets of Wavetek
Corporation as of September 30, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended September 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Wavetek Corporation at September 30, 1998 and 1997 and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended September 30, 1998 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Diego, California
November 4, 1998,
except for the third paragraph
of Note 13, as to which the date
is December 11, 1998
79
<PAGE>
WAVETEK CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars and shares in thousands, except per share data)
<TABLE>
<CAPTION>
September 30,
-------------------------
1998 1997
----------- -------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents......................................................... $ 32,527 $ 5,695
Short-term investments, available for sale........................................ - 996
Accounts receivable (less allowance for doubtful accounts of $1,550 in 1998
and $851 in 1997).............................................................. 26,694 25,860
Inventories....................................................................... 17,739 15,937
Refundable income taxes........................................................... 1,160 616
Deferred income taxes............................................................. 5,883 3,611
Other current assets.............................................................. 1,751 1,730
----------- -------------
Total current assets................................................................ 85,754 54,445
Property and equipment, net......................................................... 11,714 15,110
Debt issuance costs, net............................................................ 2,877 4,233
Intangible assets, net.............................................................. 6,972 3,281
Deferred income taxes............................................................... - 101
Other assets........................................................................ 1,763 183
----------- -------------
Total assets........................................................................ $ 109,080 $ 77,353
----------- -------------
----------- -------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable to banks............................................................ $ 38,036 $ 3,859
Trade accounts payable............................................................ 15,089 13,356
Accrued compensation.............................................................. 7,829 6,034
Income taxes payable.............................................................. 141 522
Other current liabilities......................................................... 12,437 9,847
Current maturities of long-term obligations....................................... 24,741 1,972
----------- -------------
Total current liabilities........................................................... 98,273 35,590
Long-term obligations, less current maturities...................................... 87,944 112,972
Deferred income and other liabilities............................................... 2,185 431
Commitments and contingencies
Stockholders' deficit:
Common stock, par value $.01; authorized, 50,000 shares in 1998 and 15,000 shares
in 1997; issued and outstanding, 4,885 shares in 1998 and 1997................. 49 49
Additional paid-in capital........................................................ 43,741 43,741
Accumulated deficit............................................................... (123,351) (115,048)
Foreign currency translation adjustments.......................................... 239 (382)
----------- -------------
Total stockholders' deficit......................................................... (79,322) (71,640)
----------- -------------
Total liabilities and stockholders' deficit......................................... $ 109,080 $ 77,353
----------- -------------
----------- -------------
</TABLE>
See accompanying notes.
80
<PAGE>
WAVETEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars and shares in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended September 30,
-------------------------- -------------
1998 1997 1996
------------- ------------ -------------
<S> <C> <C> <C>
Net sales....................................................$ 141,779 $155,279 $ 150,993
Cost of goods sold........................................... 62,307 71,316 72,364
------------- ------------ -------------
Gross margin................................................. 79,472 83,963 78,629
Operating expenses:
Marketing and selling...................................... 38,375 37,387 36,197
Research and development................................... 17,033 15,348 12,917
General and administrative................................. 15,475 10,742 11,612
Acquired in-process research and development............... 1,521 - -
Stock option compensation related to recapitalization...... - 7,061 -
Provisions for restructuring operations.................... - - 1,832
------------- ------------ -------------
72,404 70,538 62,558
------------- ------------ -------------
Operating income............................................. 7,068 13,425 16,071
Non-operating income (expense):
Interest income............................................ 201 315 167
Interest expense........................................... (12,149) (4,008) (762)
Other, net................................................. (304) (791) (1,036)
------------- ------------ -------------
(12,252) (4,484) (1,631)
------------- ------------ -------------
Income (loss) before provision (credit) for income taxes and
extraordinary item......................................... (5,184) 8,941 14,440
Provision (credit) for income taxes.......................... (1,392) 2,878 965
------------- ------------ -------------
Income (loss) before extraordinary items..................... (3,792) 6,063 13,475
Extraordinary items, net of income tax benefit of $699....... (4,511) - -
------------- ------------ -------------
Net income (loss)............................................$ (8,303) $ 6,063 $ 13,475
------------- ------------ -------------
------------- ------------ -------------
Income (loss) per share before extraordinary items - basic... $ (.78) $ .67 $ 1.23
------------- ------------ -------------
------------- ------------ -------------
Income (loss) per share before extraordinary items - diluted. $ (.78) $ .63 $ 1.17
------------- ------------ -------------
------------- ------------ -------------
Loss per share of extraordinary items - basic................ $ (.92) $ - $ -
------------- ------------ -------------
------------- ------------ -------------
Loss per share of extraordinary items - diluted.............. $ (.92) $ - $ -
------------- ------------ -------------
------------- ------------ -------------
Net income (loss) per share - basic.......................... $ (1.70) $ .67 $ 1.23
------------- ------------ -------------
------------- ------------ -------------
Net income (loss) per share - diluted........................ $ (1.70) $ .63 $ 1.17
------------- ------------ -------------
------------- ------------ -------------
Average common shares outstanding - basic.................... 4,885 9,104 10,974
------------- ------------ -------------
------------- ------------ -------------
Average common shares outstanding - diluted.................. 4,885 9,612 11,520
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
See accompanying notes.
81
<PAGE>
WAVETEK CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended September 30, 1996, 1997 and 1998
(dollars and shares in thousands)
<TABLE>
<CAPTION>
Retained Foreign Total
Additional Earnings Currency Stockholders'
Common Stock Paid-in (Accumulated Translation Equity
----------------------
Shares Amount Capital Deficit) Adjustments (Deficit)
--------- ------------- ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995.... 10,974 $ 110 $ 5,505 $ 13,271 $ 530 $ 19,416
Income tax benefit from stock
options exercised.......... - - 33 - - 33
Net income................... - - - 13,475 - 13,475
Foreign currency translation
adjustments................ - - - - (236) (236)
---------- ------------ ----------- -------------- -------------- --------------
Balance, September 30, 1996.... 10,974 110 5,538 26,746 294 32,688
Shares repurchased for cash.. (8,517) (85) (4,608) (147,857) - (152,550)
Shares issued for cash, net of
related costs of $651...... 2,428 24 42,825 - - 42,849
Stock options repurchased for
cash, net of income tax
benefit.................... - - (14) - - (14)
Net income................... - - - 6,063 - 6,063
Foreign currency translation
adjustments................ - - - - (676) (676)
---------- ------------ ----------- -------------- -------------- --------------
Balance, September 30, 1997.... 4,885 49 43,741 (115,048) (382) (71,640)
Net loss..................... - - - (8,303) - (8,303)
Foreign currency translation
adjustments................ - - - - 621 621
---------- ------------ ----------- -------------- -------------- --------------
Balance, September 30, 1998.... 4,885 $ 49 $43,741 $(123,351) $ 239 $ (79,322)
---------- ------------ ----------- -------------- -------------- --------------
---------- ------------ ----------- -------------- -------------- --------------
</TABLE>
See accompanying notes.
82
<PAGE>
WAVETEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------------
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Operating activities
Net income (loss) before extraordinary items..................... $(3,792) $6,063 $13,475
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Acquired in-process research and development.................... 1,521 - -
Depreciation expense............................................ 3,343 2,905 2,453
Amortization expense............................................ 295 575 577
Amortization of debt issuance costs............................. 637 184 -
Provision for losses on accounts receivable..................... 710 259 1,542
Loss on disposal of property and equipment...................... 14 29 78
Deferred income................................................. (99) (97) (99)
Deferred income taxes........................................... (1,055) 1,234 (3,843)
Changes in operating assets and liabilities, net of effect of
purchased businesses:
Accounts receivable............................................ (210) (7,853) (405)
Inventories and other assets................................... (3,582) 1,558 (2,166)
Accounts payable and accrued expenses.......................... 2,409 3,623 2,809
Income taxes payable, net...................................... (302) (945) 655
----------- ----------- ------------
Net cash provided by (used in) operating activities.............. (111) 7,535 15,076
Investing activities
Purchase of property and equipment............................... (3,918) (6,034) (4,544)
Proceeds from sale of property and equipment..................... 288 13 91
Purchase of short-term investments............................... - (3,000) -
Sale of short-term investments................................... 996 2,004 -
Merger costs paid in cash........................................ (1,629) - -
Other, net....................................................... 8 169 503
----------- ----------- ------------
Net cash used in investing activities............................ (4,255) (6,848) (3,950)
Financing activities
Net proceeds from issuance of common shares...................... - 42,849 -
Repurchase of common shares and stock options for cash........... - (152,564) -
Proceeds from revolving lines of credit, notes payable and
long-term obligations........................................... 36,685 115,030 14,932
Principal payments on revolving lines of credit and
long-term obligations...................................... (5,389) (1,841) (23,575)
Debt issuance costs and other.................................... (124) (4,417) -
----------- ----------- ------------
Net cash provided by (used in) financing activities.............. 31,172 (943) (8,643)
Effect of exchange rate changes on cash and cash equivalents..... 26 (175) (46)
----------- ----------- ------------
Increase (decrease) in cash and cash equivalents................. 26,832 (431) 2,437
Cash and cash equivalents at beginning of year................... 5,695 6,126 3,689
----------- ----------- ------------
Cash and cash equivalents at end of year......................... $32,527 $5,695 $ 6,126
----------- ----------- ------------
----------- ----------- ------------
Supplemental disclosures of cash flow information:
Cash paid for interest........................................... $11,429 $1,138 $ 753
----------- ----------- ------------
----------- ----------- ------------
Cash paid for income taxes....................................... $ 566 $3,316 $ 4,133
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See accompanying notes.
83
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
Organization
Wavetek Corporation ("the Company") is a leading global designer,
manufacturer and distributor of a broad range of electronic test instruments,
with a primary focus on application-specific instruments for testing voice,
video and data communications equipment and networks. The Company also designs,
manufactures and distributes precision instruments to calibrate and test
electronic equipment and provides repair, upgrade and calibration services for
its products on a worldwide basis.
On September 30, 1998, the Company and Wandel & Goltermann Management
Holding GmbH ("WG"), consummated an exchange transaction whereby the
stockholders of WG became stockholders of the Company and WG became a
subsidiary of the Company (the "Exchange Transaction"). In connection with
the Exchange Transaction, the Company issued 8,317,463 new shares of the
Company's Common Stock and paid 2.0 million Deutsche marks ($1.2 million) in
cash to the stockholders of WG in exchange for all of the outstanding capital
stock of WG. The Exchange Transaction was accounted for as a "reverse
acquisition" whereby WG was deemed to have acquired the Company for financial
reporting purposes. The Company incurred direct expenses of $3.7 million in
connection with the Exchange Transaction. In addition, the Company was
required to repay and refinance its existing bank credit agreement as a
result of the Exchange Transaction (Note 6), resulting in additional expenses
of $1.5 million, representing the write-off of certain unamortized debt
issuance costs and other expenses incurred in connection with this repayment
and refinancing. These expenses, aggregating $4.5 million, net of tax, are
included in the accompanying consolidated statement of operations for fiscal
1998 as extraordinary items.
The accompanying consolidated financial statements included the
operations of the Company and its wholly owned subsidiaries, excluding WG,
immediately prior to the Exchange Transaction. All significant intercompany
accounts and transactions have been eliminated in consolidation.
In connection with the Exchange Transaction, the Company changed its 1998
fiscal year-end to September 30, 1998. In prior years, the Company's fiscal year
ended on the Saturday closest to September 30. Fiscal 1997 and 1996 each
consisted of 52 weeks.
Foreign Currency
The accounts of foreign subsidiaries consolidated herein have been
translated from their respective functional currencies into U.S. dollars at
appropriate exchange rates. Cumulative translation adjustments are included as a
separate component of stockholders' equity (deficit). Exchange gains and losses
from foreign currency transactions are not material for any period presented and
are included in "Other, net" in the accompanying consolidated statements of
operations.
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 amounts reported in the financial statements and
accompanying notes. These estimates include assessing the collectibility of
accounts receivable, the use and recoverability of inventory, costs of future
product returns under warranty and provisions for contingencies expected to be
incurred. Actual results could differ from those estimates.
84
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Organization and Significant Accounting Policies (Continued)
Cash, Cash Equivalents and Short-Term Investments, Available for Sale
The carrying amounts reported in the consolidated balance sheet for cash,
cash equivalents and short-term investments approximate their fair values. It is
the Company's policy to invest excess funds in highly liquid, short-term
investments. Such investments are comprised of investment grade commercial paper
at September 30, 1998 and primarily of U.S. Treasury securities, guaranteed
obligations of the U.S. government or its agencies and mutual funds which invest
in U.S. Treasury securities at September 30, 1997. For purposes of financial
statement presentation, the Company considers all highly liquid investments with
maturities of three months or less from the date of purchase to be cash
equivalents. Included in cash and cash equivalents at September 30, 1998 and
1997 are investments totaling $29.0 million and $3.4, respectively. The
amortized cost of short-term investments, available for sale, approximates fair
market value. There were no realized gains or losses related to such investments
for fiscal 1998, 1997 or 1996. The Company evaluates the financial strength of
the institutions in which significant investments are made and believes that
related credit risk is limited to an acceptable level.
Inventories
Inventories are valued at cost determined on the first-in, first-out
basis, not in excess of market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation for financial
statement purposes is computed using the straight-line method based upon the
estimated useful lives of the various classes of assets which range from 3 to 35
years for buildings and improvements and from 3 to 10 years for fixtures and
equipment.
Debt Issuance Costs
Costs associated with the issuance of long-term debt have been deferred
and are being amortized over the term of the related debt using the interest
method. Amortization expense for these costs is included in interest expense in
the accompanying consolidated statements of operations.
Intangible Assets
Intangible assets consist of deferred royalty payments, the excess of
purchase price over net tangible assets of businesses acquired (goodwill) and in
1997, covenants not to compete, all of which are recorded at cost. Intangible
assets are amortized over their estimated lives ranging from 5 to 15 years.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, the Company regularly evaluates its long-lived assets for
indicators of possible impairment. To date, no such indicators have been
identified.
Long-Term Obligations
The carrying amounts of the Company's long-term obligations approximate
their fair values.
85
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Organization and Significant Accounting Policies (Continued)
Revenue and Credit Risk
The Company recognizes product revenues at the time of shipment to the
customer. Service revenues are recognized as services are performed. The Company
grants credit to its customers based on an evaluation of the customers'
financial condition and generally collateral is not required. Credit losses have
traditionally been minimal and within management's expectations.
Net Income Per Share
Effective October 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS 128 replaced
the calculation of primary and fully diluted net income (loss) per share with
basic and diluted net income (loss) per share. Unlike primary net income (loss)
per share previously reported by the Company, basic net income (loss) per share
is based only on average common shares outstanding and excludes the dilutive
effects of the Company's outstanding stock options. Diluted net income (loss)
per share is very similar to the previous concept of fully diluted net income
(loss) per share and includes the dilutive effect of the Company's outstanding
stock options. The Company has a simple capital structure and, accordingly, the
only difference in the Company's computations of basic and diluted net income
(loss) per share is the dilutive effect of outstanding stock options. For fiscal
1998, the effect of outstanding stock options would have been anti-dilutive and,
therefore, was not considered in the computation of diluted net loss per share
for that period. All net income (loss) per share amounts for all periods have
been presented, and where necessary, restated to conform to the requirements of
SFAS 128.
Stock-Based Compensation
Effective October 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
123"). SFAS 123 allows companies to either account for stock-based compensation
under the new provisions of SFAS 123 or under the provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB
25"), but requires pro forma disclosure in the footnotes to the financial
statements as if the measurement provisions of SFAS 123 had been adopted. The
Company has continued accounting for its stock-based compensation in accordance
with the provisions of APB 25.
Financial Instruments
The Company periodically uses forward exchange contracts to hedge certain
transactions denominated in foreign currencies. Unrealized gains and losses on
forward contracts are deferred and offset against foreign exchange gains or
losses on the underlying hedged item. At September 30, 1998 and 1997, the
Company had no material forward exchange contracts outstanding.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"), and Statement of Financial Accounting Standards No. 131, Segment
Information ("SFAS 131"). Both of these standards are effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 requires that all components of
comprehensive income (loss), including net income (loss), be reported in the
86
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Organization and Significant Accounting Policies (Continued)
financial statements in the period in which they are recognized. Comprehensive
income (loss) is defined as the change in equity during a period from
transactions and other events and circumstances from non-owner sources. Net
income (loss) and other comprehensive income (loss), including foreign currency
translation adjustment, minimum pension accrual, and unrealized gains and losses
on investments, shall be reported, net of their related tax effect, to arrive at
comprehensive income (loss). The Company intends to adopt SFAS 130 in fiscal
1999 and operating results of prior periods will be reclassified. The Company's
only component of other comprehensive income (loss) is the foreign currency
translation adjustment which is currently reported as part of stockholders'
equity. Historically, the Company has operated in one business segment; however,
SFAS 131 redefines segments and in the future, the Company will be required to
disclose certain financial information about operating segments, products,
services and geographic areas in which they operate. The Company has not
determined how operating segments will be defined for disclosure purposes or
which segments will meet the quantitative requirements for disclosure. The
adoption of SFAS 131 will have no impact on the Company's future results of
operations or financial position.
2. Financial Statement Details
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30,
------------------------
1998 1997
----------- ------------
(dollars in thousands)
<S> <C> <C>
Finished goods....................... $ 7,096 $ 6,451
Work-in-progress..................... 4,785 3,612
Materials............................ 5,858 5,874
----------- ------------
$ 17,739 $ 15,937
----------- ------------
----------- ------------
</TABLE>
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30,
------------------------
1998 1997
----------- ------------
(dollars in thousands)
<S> <C> <C>
Building and improvements............ $ 1,551 $ 5,748
Fixtures and equipment............... 23,141 18,990
----------- ------------
24,692 24,738
Less: accumulated depreciation....... (12,978) (9,628)
----------- ------------
$ 11,714 $ 15,110
----------- ------------
----------- ------------
</TABLE>
87
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Financial Statement Details (Continued)
Intangible assets consist of the following:
<TABLE>
<CAPTION>
September 30,
------------------------
1998 1997
----------- ------------
(dollars in thousands)
<S> <C> <C>
Goodwill........................................... $ 4,171 $4,171
Covenant not to compete, expired in 1998........... - 1,390
Deferred royalty................................... 3,985 -
----------- ------------
8,156 5,561
Less: accumulated amortization..................... (1,184) (2,280)
----------- ------------
$ 6,972 $3,281
----------- ------------
----------- ------------
</TABLE>
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
September 30,
------------------------
1998 1997
----------- ------------
(dollars in thousands)
<S> <C> <C>
Other.............................................. $ 8,978 $6,451
Accrued interest................................... 2,840 2,694
Customer deposits.................................. 619 702
----------- ------------
$ 12,437 $9,847
----------- ------------
----------- ------------
</TABLE>
3. Recapitalization Transactions
On June 11, 1997, the Company completed the following transactions (the
"Recapitalization Transactions"): (i) the Company sold an aggregate of 2,428,470
shares of its Common Stock, representing 49.7% of the Common Stock outstanding
following the Recapitalization Transactions, to DLJ Merchant Banking Partners
II, L.P. and its affiliates and to Green Equity Investors II, L.P. and its
affiliates for an aggregate purchase price of $43.5 million, less related costs
of $0.7 million (the "New Equity Investment"); (ii) the Company issued $85
million aggregate principal amount of 101/8% Senior Subordinated Notes maturing
June 15, 2007 (the "Notes") (Note 6); (iii) the Company incurred indebtedness of
$25 million under a five-year and six-month term loan facility and entered into
a five-year and six-month revolving credit facility providing for borrowings of
up to $20 million (the "New Credit Agreement") (Note 6); (iv) the Company
incurred aggregate debt issuance costs of $4.4 million in connection with the
issuance of the Notes and with entering the New Credit Agreement; (v) the
Company used the net proceeds from the New Equity Investment, the issuance of
the Notes and the New Credit Agreement to repurchase an aggregate of 8,513,610
shares of common stock from existing stockholders for an aggregate of $152.5
million and to make cash payments upon surrender of stock options by employees
in an aggregate amount of $7.1 million (Note 9). Such existing stockholders
retained 50.3% of the shares of common stock outstanding following the
Recapitalization Transactions.
4. Strategic Alliance and Purchase and Sale of Businesses
Effective September 30, 1998, the Company acquired all of the outstanding
common stock of Digital Transport Systems, Inc. ("DTS") for an initial fixed
cash payment of $1.1 million which is scheduled to be paid January 4, 1999. The
acquisition was accounted for as a purchase and the assets and liabilities
acquired were recorded at their estimated fair
88
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Strategic Alliance and Purchase and Sale of Businesses (Continued)
values aggregating $0.5 million and $0.9 million, respectively. In addition,
$1.5 million of the purchase price was allocated to in-process research and
development projects that had not reached technological feasibility, which the
Company charged to expense on the acquisition date. The purchase agreement
provides for the payment of certain future amounts, which are contingent upon
certain events and have not been included in the purchase price as of September
30, 1998. Any such future payments will be expensed as incurred and will not be
material to the Company.
In April 1996, the Company entered into a Strategic Alliance with
Yokogawa Electric Corporation ("Yokogawa"), a leading Japanese process control
and test and measurement company. Under terms of the Strategic Alliance,
Yokogawa acquired all of the outstanding shares of the Company's Japanese
subsidiary for 10 million Japanese yen (approximately $0.1 million) and 12% of
the Company's common stock from certain of the Company's stockholders. There was
no significant gain or loss on the sale of the Japanese subsidiary.
Additionally, Yokogawa will distribute the Company's products in Japan and
Yokogawa and the Company will collaborate to develop new products for
communications test markets worldwide. In connection with the June 1997
Recapitalization Transactions (Note 3), the Company repurchased a portion of the
common stock owned by Yokogawa, reducing Yokogawa's ownership of the outstanding
common stock to 5.8%.
In October 1994, the Company acquired certain worldwide assets and
liabilities of the Communications Test Division of Schlumberger for local
currency amounts approximating $16.1 million (the "Schlumberger Acquisition").
The acquisition was accounted for as a purchase and the assets and liabilities
of the acquired business were recorded at their estimated fair values, including
goodwill of $4.2 million. Additionally, $4.2 million was accrued as an estimate
of the costs that would be incurred to restructure and integrate the acquired
business into the Company. Such restructuring and integration was completed in
fiscal 1997.
5. Sale and Leaseback Financing
In October 1994, the Company entered into a sale and leaseback financing
whereby it sold its facility in Indianapolis to a third party investor for $4.5
million, resulting in a charge to income of $1.8 million, representing the
excess of the net book value of the property over the net proceeds received. The
Company simultaneously entered a Master Lease Agreement with the buyer, under
which the Company leased back the facility for a period of 20 years for an
annual rental of $0.5 million, subject to annual adjustments based on the change
in the consumer price index, not to exceed 3.0% per annum. In December 1994, the
Company subleased a portion of this facility to a third party for five years for
an annual base rental and common area expense reimbursement of $0.4 million.
Because of the significance of the sublease in relation to the Company's master
lease of the facility, generally accepted accounting principles required that
the transaction be recorded as a financing transaction, whereby the building
remained on the Company's balance sheet in an amount equal to the net proceeds
from the sale and an offsetting long-term financing obligation was recorded. In
February 1998 the sublease was no longer significant in relation to the
Company's master lease of the facility. Accordingly, both the building asset and
the long-term financing obligation, each in the amount of approximately $4.0
million, were removed from the Company's balance sheet, with no impact on the
Company's results of operations or its cash flows. Effective February 1, 1998,
the master lease was accounted for as an operating lease, with monthly rental
payments recorded as operating expenses.
89
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Credit Agreements and Long-Term Obligations
Long-term obligations are as follows:
<TABLE>
<CAPTION>
September 30,
-----------------------
1998 1997
---------- ------------
(dollars in thousands)
<S> <C> <C>
Senior Subordinated Notes issued in connection with Recapitalization
Transactions (Note 3); total principal balance due June 15, 2007;
interest payable semiannually on June 15 and December 15 at 101/8%;
guaranteed by the
Company's U.S. subsidiaries................................................... $ 85,000 $ 85,000
Term Loan payable to banks obtained in connection with Recapitalization
Transactions (Note 3); paid in full in October 1998........................... 24,000 25,000
Unsecured non-interest bearing promissory note recorded at present value on
issuance date at implied interest rate of 8.1875%; issued in connection with
license of technology (Note 13); payable in six annual installments of
$0.8 million, including imputed interest commencing January 1999.............. 3,685 -
Unsecured promissory note issued in connection with Schlumberger Acquisition
(Note 4); total principal balance paid January 1998........................... - 875
Financing obligation recorded in connection with sales and leaseback of real
property; removed from balance sheet in February 1998 (Note 5)................ - 4,069
------------ ----------
112,685 114,944
Less current maturities.......................................................... (24,741) (1,972)
------------ ----------
Long-term obligations, less current maturities................................... $ 87,944 $ 112,972
------------ ----------
------------ ----------
</TABLE>
As of September 30, 1998, the future annual principal payments on
long-term obligations outstanding at September 30, 1998 were as follows: 1999 -
$24.7 million; 2000 - $0.7 million; 2001 - $0.6 million; 2002 - $0.6 million;
2003 - $0.6 million and thereafter - $85.5 million.
In connection with the Recapitalization Transactions (Note 3), the
Company issued $85 million in aggregate principal amount of Senior
Subordinated Notes (the "Notes") pursuant to an Indenture (the "Indenture")
between the Company and the Bank of New York, as trustee. The Notes bear
interest at 10 1/8%, payable semi-annually on each June 15 and December 15
commencing December 15, 1997. The total principal balance of the Notes is due
June 15, 2007. On or after June 15, 2002, the Notes will be redeemable at the
option of the Company, in whole or in part, at the following redemption
prices (expressed as percentages of principal amount) plus accrued and unpaid
interest and liquidated damages, if any: 105.063% if redeemed during the
twelve-month period beginning on June 15, 2002; 103.375% if redeemed during
the twelve-month period beginning on June 15, 2003; 101.688% if redeemed
during the twelve-month period beginning on June 15, 2004; and 100%
thereafter. Notwithstanding the foregoing, during the first three years
following the issue date of the Notes, the Company may redeem up to 33 1/3%
of the aggregate principal amount of the Notes with the proceeds of one or
more Public Equity Offerings (as defined in the Indenture) at a redemption
price of 110.125% of the principal amount thereof, in each case plus accrued
and unpaid interest and liquidated damages, if any. The Notes are guaranteed
on
90
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Credit Agreements and Long-Term Obligations (Continued)
a senior subordinated basis by the Company's current and future subsidiaries in
the United States. The Indenture requires the Company to comply with various
affirmative and negative covenants. The Company was in compliance with all such
covenants at September 30, 1998. The Company incurred aggregate debt issuance
costs of $3.2 million in connection with the issuance of the Notes. Such costs
have been deferred and are being amortized over the term of the notes using the
interest method.
Also in connection with the Recapitalization Transactions, the Company
entered into a New Credit Agreement (the "New Credit Agreement") with a group of
five lending banks (the "Lenders") including DLJ Capital Funding, Inc. as
Syndication Agent and Fleet National Bank as Administrative Agent. The New
Credit Agreement provided for a $25 million five-year and six-month term loan
(the "Term Loan") borrowed by the Company on June 11, 1997. The New Credit
Agreement also provided for a five-year and six-month revolving credit facility
in the amount of $20 million. The Company had $4.8 million outstanding under the
revolving credit facility at September 30, 1998. All borrowings under the New
Credit Agreement were repaid in full and refinanced on October 2, 1998 in
connection with the Exchange Transaction (Note 1). Accordingly, all such amounts
were classified as current liabilities in the accompanying consolidated balance
sheet as of September 30, 1998. The Company incurred aggregate debt issuance
costs of $1.2 million in fiscal 1997 in connection with entering into the New
Credit Agreement. Such costs were deferred and were being amortized over the
term of the New Credit Agreement using the interest method. The unamortized
balance of these costs, $0.8 million, was charged to expense as an extraordinary
item at September 30, 1998 in connection with the early extinguishment of the
debt.
Borrowings outstanding under the New Credit Agreement at September 30,
1998 were repaid and refinanced with the proceeds of unsecured short-term loans
from two German banks aggregating $29.7 million, received September 30, 1998.
These short-term loans bear interest at rates ranging from 5.0625% to 6.7%, are
due January 4, 1999 and were classified as "Notes payable to banks" in the
accompanying consolidated balance sheet as of September 30, 1998. The cash
proceeds were invested upon receipt on September 30, 1998 in cash equivalents
pending the repayment of the New Credit Agreement. Management is currently
negotiating the terms of a new long-term credit facility, which it intends to
draw upon to repay the short-term loans upon their maturity in January 1999.
The Company's subsidiaries in the United Kingdom, France, Germany and
Austria have agreements with banks providing for short-term revolving advances
and overdraft facilities in an aggregate total amount of approximately $5.2
million. In addition, the bank agreements with such subsidiaries also provide
for issuance of letters of credit and bank guarantees in an aggregate additional
total amount of approximately $4.5 million. At September 30, 1998, aggregate
amounts of $3.6 million had been borrowed under these facilities. Revolving
borrowings under these agreements bear interest at variable rates ranging from
3.578% to 9% as of September 30, 1998. These bank agreements also provide for
long-term borrowings and are generally secured by the assets of the local
subsidiary and the guarantee of the Company. Most of these agreements do not
have stated expiration dates, but are cancelable by the banks at any time. At
September 30, 1998, the Company was contingently liable for outstanding letters
of credit and bank guarantees aggregating $1.5 million.
Borrowings under all of the Company's revolving bank agreements have been
classified as "Notes payable to banks" in the accompanying consolidated balance
sheets due to the short-term nature of the revolving advances taken under these
agreements.
91
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Employee Retirement Savings Plan
The Company has a tax deferred retirement savings plan (the "Plan") under
Section 401(k) of the Internal Revenue Code whereby U.S. employees may defer a
portion of their compensation through payroll deductions as contributions to the
Plan. The Company may match a portion of the savings contribution as prescribed
in the Plan. The Company's contributions may be made each year out of
accumulated profits in cash, and are at the discretion of the Board of
Directors. Contributions by the Company to the Plan were $0.4 million, $0.4
million and $0.2 million for the years ended September 30, 1998, 1997 and 1996,
respectively.
8. Lease Commitments
The Company rents certain office and plant facilities under operating
leases which expire at various dates through 2006, except for a land lease in
the U.K. extending to 2103. The leases generally provide that the Company pay
the taxes, insurance and maintenance expenses related to the leased property.
Certain leases include renewal options and/or options to purchase the leased
property. The Company also rents equipment and other facilities on a
month-to-month basis. Total rent expense was $3.4 million, $2.2 million and $2.6
million for the years ended September 30, 1998, 1997 and 1996 respectively.
In 1991, the Company entered into a sale/leaseback arrangement for its
San Diego manufacturing facility with an affiliate of a major stockholder. The
lease runs through June 2006 with the minimum annual rental of $0.6 million,
subject to annual consumer price index adjustments. The Company's gain on the
transaction was deferred and is being amortized over the original ten-year lease
term.
At September 30, 1998, the annual future minimum lease payments under
noncancelable operating leases and the future minimum annual lease receipts
under noncancelable subleases are as follows:
<TABLE>
<CAPTION>
Lease Lease
Payments Receipts
----------- ----------
(dollars in
thousands)
<S> <C> <C>
1999................................ $ 3,246 $ 542
2000................................ 3,012 263
2001................................ 2,829 213
2002................................ 1,993 222
2003................................ 1,740 37
Later years......................... 11,375 -
----------- ----------
Total minimum lease payments........ $ 24,195 $ 1,277
----------- ----------
----------- ----------
</TABLE>
9. Stockholders' Equity (Deficit)
Prior to June 11, 1997, the Company had two classes of common stock
outstanding, Common Stock and Class B Common Stock. The rights and preferences
of both classes of common stock were identical, except that holders of
92
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Stockholders' Equity (Deficit) (Continued)
Common Stock were entitled to one vote per share and holders of Class B Common
Stock were entitled to ten votes per share. The Class B Common Stock was
convertible, at the holder's option, into shares of Common Stock on a share for
share basis. Total common stock authorized and issued and outstanding in each
period presented in the accompanying consolidated financial statements included
two million shares of Class B Common Stock through June 11, 1997. In connection
with the Recapitalization Transactions (Note 3), all shares of Class B Common
Stock were repurchased by the Company and the Company's Certificate of
Incorporation was amended to eliminate the Class B Common Stock. In September
1998, the Company's authorized capital stock was increased to 55,000,000 shares,
of which 50,000,000 shares were designated as Common Stock and 5,000,000 shares
were designated as Preferred Stock. All authorized shares have a par value of
$.01 per share. No Preferred Stock has been issued by the Company.
In accordance with the Company's Amended and Restated Stock Option Plan
(the "Stock Option Plan"), options to purchase an aggregate of up to 1,320,232
shares of Common Stock may be issued at an exercise price equal to the fair
value of the shares on the date of grant. Options generally vest and become
exercisable over a period not to exceed five years.
Prior to the Recapitalization Transactions (Note 3), options to purchase
805,000 common shares had been issued and were outstanding. In connection with
the Recapitalization Transactions, the Company accelerated the vesting of these
outstanding options such that 75% of each option holders' options became fully
vested and the Company offered to make cash payments to each option holder as
compensation for the surrender of all or a portion of such vested options in a
per share amount equal to the price paid to the selling stockholders in the
Recapitalization Transactions. Such surrendering option holders were also
required to pay a pro rata portion of the expenses incurred by the selling
stockholders. Holders of vested options to purchase 472,100 common shares
elected to surrender such options in exchange for payments aggregating
approximately $6.8 million. The amount of such payments, and related employer
expenses of $0.2 million, were recorded as compensation expense in the
accompanying consolidated statement of income for the year ended September 30,
1997.
93
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Stockholders' Equity (Deficit) (Continued)
A summary of stock option transactions is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
------------- ----------------
<S> <C> <C>
Outstanding at September 30, 1995............... 786,000 $ 3.19
Granted.................................... 175,000 $ 6.96
Canceled................................... (118,000) $ 2.12
Exercised.................................. - $ -
--------------
Outstanding at September 30, 1996............... 843,000 $ 4.12
Granted.................................... 141,788 $17.91
Canceled................................... (525,600) $ 4.08
Exercised.................................. - $ -
--------------
Outstanding at September 30, 1997............... 459,188 $ 8.43
Granted.................................... 94,830 $17.91
Canceled................................... (40,720) $ 4.58
Exercised.................................. - $ -
--------------
Outstanding at September 30, 1998............... 513,298 $10.48
--------------
--------------
</TABLE>
As of September 30, 1998, 1997 and 1996, options to purchase 194,696,
144,149 and 116,000 shares, respectively, were exercisable and at September 30,
1998, 766,934 shares are available for future grant under the Stock Option Plan.
Exercise prices and weighted average remaining contractual lives for the
options outstanding under the Stock Option Plan as of September 30, 1998 are as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------- -----------------------------
Weighted
Average
Number of Remaining Weighted Number of Weighted
Options Contractual Average Options Average
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
- --------------------- ------------------ ------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$1.25 - $2.57 123,250 4.9 $ 1.72 95,750 $ 1.48
$5.21 - $12.50 158,000 6.9 $ 6.41 57,250 $ 6.96
$17.91 232,048 8.9 $ 17.91 41,696 $17.91
----------------- -------------
513,298 194,696
----------------- -------------
----------------- -------------
</TABLE>
The weighted average fair value per share of options granted in fiscal
1998 and 1997 is $4.13 and $4.30, respectively. SFAS 123 requires pro forma
information to be disclosed regarding the amount of net income determined as if
the Company had accounted for its employee stock options under the fair value
method prescribed by SFAS 123. For the purpose of determining such pro forma net
income, the fair value of these options was estimated as of the date of grant
using the minimum value method provided for in SFAS 123 with the following
assumptions for 1997 and 1998: risk-free interest rate of 6%, no annual
dividends and an expected option life of five years. The effect of applying the
minimum value method of SFAS 123 to options granted in 1997 and 1998 did not
result in pro forma net income amounts that are materially different from
amounts reported. Accordingly, no such pro forma information is presented
herein.
94
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Provision For Restructuring Operations
In fiscal year 1996, the Company initiated a plan to restructure certain
corporate management functions, its European manufacturing, service and sales
activities and its San Diego manufacturing activities. The restructuring costs
primarily include expenses for employee severance and the transition of certain
manufacturing operations. A provision for the restructuring of $1.8 million is
included in the accompanying consolidated statement of operations for fiscal
1996. The restructuring plan was substantially completed during fiscal 1997.
11. Income Taxes
The provision (credit) for income taxes is comprised as follows:
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------------
1998 1997 1996
----------- ------------ -----------
(dollars in thousands)
<S> <C> <C> <C>
Federal:
Current.................................................. $(1,312) $ 755 $2,677
Deferred................................................. (847) 1,304 (1,945)
----------- ------------ -----------
(2,159) 2,059 732
----------- ------------ -----------
State:
Current.................................................. (18) 235 1,015
Deferred................................................. (248) 215 (498)
----------- ------------ -----------
(266) 450 517
----------- ------------ -----------
Foreign:
Current.................................................. 856 652 1,117
Deferred................................................. (522) (283) (1,401)
----------- ------------ -----------
334 369 (284)
----------- ------------ -----------
Total provision (credit) for income taxes................ $(2,091) $2,878 $ 965
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
Income tax provision (credit) is included in the statement of income as follows:
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------------
1998 1997 1996
----------- ------------ -----------
(dollars in thousands)
<S> <C> <C> <C>
Continuing operations.................................... $(1,392) $2,878 $965
Extraordinary item....................................... (699) - -
----------- ------------ -----------
$(2,091) $2,878 $965
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
95
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Income Taxes (Continued)
The reconciliation of income taxes computed at the U.S. federal statutory
tax rate to income tax expense (credit) from continuing operations is as
follows:
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------------
1998 1997 1996
----------- ------------ -----------
<S> <C> <C> <C>
Federal income tax at statutory rate....................... (34.0)% 34.0% 34.0%
State income taxes, net of federal tax benefit............. (3.4) 3.3 4.8
Foreign tax rate below federal statutory rate.............. 1.1 (1.2) (1.4)
Benefit from foreign sales corporation..................... (6.1) (3.6) (1.0)
Amortization of goodwill................................... 1.8 1.2 0.8
Utilization of tax credits................................. (8.3) - -
Acquired in-process research and development............... 10.5 - -
Other, net................................................. 3.6 (1.5) 0.3
----------- ------------ -----------
(34.8) 32.2 37.5
Increase (decrease) in valuation allowance................. 7.9 - (30.8)
----------- ------------ -----------
Effective income tax rate.................................. (26.9)% 32.2% 6.7%
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities as of September
30, 1997 and 1998 are set forth in the following table. A valuation allowance of
$0.4 million was recognized at September 30, 1998 as an offset to certain of the
deferred tax assets, as realization of such assets was uncertain.
The significant components of deferred tax assets and liabilities at
September 30, result from:
<TABLE>
<CAPTION>
1998 1997
----------- ------------
(dollars in
thousands)
<S> <C> <C>
Deferred tax assets:
Inventories....................................................... $ 811 $ 777
Accrued and unpaid expenses....................................... 2,141 983
Deferred income................................................... 274 189
Credit carryforwards.............................................. 727 -
Foreign net operating loss carryforwards.......................... 2,206 1,683
Other............................................................. 133 130
Valuation allowance............................................... (409) -
----------- ------------
Total deferred tax assets........................................... 5,883 3,762
Deferred tax liability - fixed assets............................... (492) (50)
----------- ------------
Net deferred tax assets............................................. $ 5,391 $ 3,712
----------- ------------
----------- ------------
</TABLE>
As of September 30, 1998, the Company's German subsidiary had net
operating loss carryforwards of approximately $4.7 million, which can be used
indefinitely. The Company also has U.S. tax credits of $0.7 million available to
offset future income. Credits expire from 2003 through 2012.
96
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Geographic Information
The Company operates in a single industry segment: the design,
manufacture and distribution of electronic test equipment and measurement
tools. In the table below, net sales, income before provision for income
taxes and total assets are reported based on the location of the Company's
facilities. Intercompany transfers are made at arm's length between the
various geographic areas.
<TABLE>
<CAPTION>
Years ended September 30,
-----------------------------------------
1998 1997 1996
------------- ------------- -------------
(dollars in thousands)
<S> <C> <C> <C>
Net Sales:
United States:
Net sales to unaffiliated domestic customers................ $ 65,483 $ 59,921 $ 62,069
Export sales................................................ 13,291 16,810 16,876
Interarea transfers......................................... 7,327 8,923 6,809
------------- ------------- -------------
86,101 85,654 85,754
Europe:
Net sales to unaffiliated customers......................... 61,842 77,107 70,141
Interarea transfers......................................... 21,191 25,548 24,519
------------- ------------- -------------
83,033 102,655 94,660
Asia:
Net sales to unaffiliated customers......................... 1,163 1,441 1,907
Interarea transfers......................................... 10 90 24
------------- ------------- -------------
1,173 1,531 1,931
Eliminations................................................... (28,528) (34,561) (31,352)
------------- ------------- -------------
Consolidated net sales......................................... $ 141,779 $ 155,279 $ 150,993
------------- ------------- -------------
------------- ------------- -------------
Income (loss) before provision for income taxes and
extraordinary items:
United States............................................... $ 11,109 $ 14,688 $ 17,711
Europe...................................................... 850 1,778 3,033
Asia........................................................ (27) (375) 724
Corporate expenses and eliminations......................... (17,116) (7,150) (7,028)
------------- ------------- -------------
Consolidated income (loss) before provision for
income taxes and extraordinary items........................ $ (5,184) $ 8,941 $ 14,440
------------- ------------- -------------
------------- ------------- -------------
Total assets:
United States............................................... $ 128,066 $ 86,968 $ 82,415
Europe...................................................... 37,823 33,741 34,958
Asia........................................................ 1,691 1,310 1,258
Eliminations................................................ (58,500) (44,666) (49,779)
------------- ------------- -------------
Consolidated total assets...................................... $ 109,080 $ 77,353 $ 68,852
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
97
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Litigation and Other Claims
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. It is management's opinion that the likely
outcome of any such proceedings and claims would not have a material adverse
effect on the Company's future results of operations or financial position.
A matter is pending in the United States District Court for the Southern
District of Indiana, involving a claim by Trilithic, Inc. ("Trilithic") that
certain products of the Company infringe Trilithic's patent on a radio frequency
leakage detection system for a cable network system. Trilithic seeks injunctive
and unspecified monetary relief, including enhanced damages for alleged willful
infringement. The product line potentially affected by this claim, and by a
second patent that has been issued to Trilithic subsequent to the filing of the
lawsuit, had fiscal 1998 sales of approximately $6.3 million. Trilithic's
complaint, which was served on the Company in March 1997, was the first notice
to the Company of Trilithic's patent. This litigation is ongoing and in the
event the outcome of the litigation is not favorable, the Company could be
required to: (1) redesign existing or future products so that they do not use
the rights covered by Trilithic's patent; (2) negotiate licenses from Trilithic
to avoid such redesign; (3) withdraw existing products or not introduce future
products that are covered by those patent rights and (4) pay Trilithic damages
for any infringement since March 1997. It is management's opinion that the
outcome of this matter, net of amounts currently accrued, will not have a
material adverse effect on the Company's results of operations or financial
position.
In December 1998, the Company received a letter from counsel for certain
beneficial owners of the Company's 10 1/8 % Senior Subordinated Notes due 2007
(the "Notes") alleging that, as a result of the Exchange Transaction, a "Change
of Control" under the indenture governing such notes (the "Indenture") has
occurred and, because the Company has failed to make an offer to purchase the
Notes, that an Event of Default under the Indenture has occurred. The Company
believes that the Exchange Transaction did not result in a Change of Control
under the Indenture and that the Company was not required to make an offer to
purchase the Notes.
In January 1998, the Company was sued by a competitor for infringement by
the Company and certain of its CATV test equipment products of a patent owned by
the competitor. In July 1998, the Company reached an agreement to settle the
action on terms that included a payment by the Company to the competitor of $0.4
million to settle all claims arising from the Company sales for all prior
periods and through December 31, 1998, and a license to the Company under the
the competitor's patent commencing January 1, 1999. Fixed payments are to be
made annually in connection with the license, commencing January 1, 1999, in the
amount of $0.8 million for each of the next six years. The definitive settlement
agreement will not have material adverse effect on the Company or its ability to
develop new products. The Company intends to record the royalty payments to
expense, commencing January 1999, in proportion to the revenue generated from
the products effected by the patent at an amount at least equal to the annual
payment and not to exceed a six year period.
The Company was notified in fiscal 1997 by a competitor that it believed
that certain products of the Company infringed on a patent issued to the
competitor. In November 1997, the Company entered into a license agreement with
the competitor under which the Company obtained a retroactive and prospective
license to the patent for a licensing fee of $3 million, payable $1 million on
January 1, 1998, and $0.7 million on or before the first business day of each
calendar years 1999, 2000 and 2001. The Company is recording the licensing fee
as expense in proportion to the revenue generated from the products affected by
the patent over a period not exceeding the patent life. Accordingly, the Company
had accrued, in "other current liabilities," $0.9 million as of September 30,
1997, of which a significant amount was provided in prior years, representing
the estimated portion of the license fee that related to revenue recognized
through September 30, 1997.
98
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Litigation and Other Claims (Continued)
For fiscal 1998, expense of $0.5 million was recorded in connection with this
agreement in proportion to revenue received in fiscal 1998.
14. Supplemental Condensed Consolidating Financial Data
The Company's payment obligations under the Notes issued in the
Recapitalization Transactions are guaranteed by all of the Company's current and
future domestic subsidiaries (collectively, the "Subsidiary Guarantors").
Wavetek U.S. Inc. and its subsidiary Digital Transport Systems, Inc. are the
only Subsidiary Guarantors for the periods presented. Such guarantees are full
and unconditional and joint and several. Separate financial statements of the
Subsidiary Guarantors are not presented because the Company's management has
deemed that they would not be material to investors. The following supplemental
condensed consolidating financial data sets forth, on an unconsolidated basis,
balance sheets, statements of income and statements of cash flows data for (i)
the Company ("Wavetek Corporation"), (ii) the current Subsidiary Guarantors and
(iii) the Company's current foreign subsidiaries (the "Foreign Subsidiaries").
The supplemental financial data reflects the investments of Wavetek Corporation
in the Subsidiary Guarantors and the Foreign Subsidiaries using the equity
method of accounting.
99
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Supplemental Condensed Consolidating Financial Data (Continued)
Consolidating Balance Sheets
As of September 30, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Wavetek Subsidiary Foreign
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------ ----------- ------------------------------
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents...................... $ 19 $31,636 $ 872 $ - $ 32,527
Accounts receivable (less allowance for
doubtful accounts of $1,550)................. 8,710 16,042 20,673 (18,731) 26,694
Inventories.................................... - 7,295 11,154 (710) 17,739
Refundable income taxes........................ 1,160 - - - 1,160
Deferred income taxes.......................... 3,592 2,291 - - 5,883
Other current assets........................... 118 286 1,347 - 1,751
-------------- ------------ ----------- --------------- ---------------
Total current assets.............................. 13,599 57,550 34,046 (19,441) 85,754
Property and equipment, net....................... 1,611 4,786 5,317 - 11,714
Debt issuance costs, net.......................... 2,877 - - - 2,877
Intangible assets, net............................ 2,957 3,985 30 - 6,972
Deferred income taxes............................. - - - - -
Other assets...................................... 213 1,514 96 (60) 1,763
Investment in subsidiaries........................ 38,974 - 25 (38,999) -
-------------- ------------ ----------- --------------- ---------------
Total assets...................................... $ 60,231 $67,835 $ 39,514 $ (58,500) $ 109,080
-------------- ------------ ----------- --------------- ---------------
-------------- ------------ ----------- --------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable to banks......................... $ 34,463 $ 5 $ 3,568 $ - $ 38,036
Trade accounts payable......................... 2,805 15,349 13,879 (16,944) 15,089
Accrued compensation........................... 714 2,593 4,522 - 7,829
Income taxes payable........................... (10,839) 9,978 1,002 - 141
Other current liabilities...................... 3,165 5,749 5,311 (1,788) 12,437
Current maturities of long-term obligations.... 24,000 741 - - 24,741
-------------- ----------- ----------- ---------------- -------------
Total current liabilities......................... 54,309 34,415 28,281 (18,732) 98,273
Long-term obligations, less current maturities.... 85,000 2,944 60 (60) 87,944
Deferred income and other liabilities............. 244 1,914 27 - 2,185
Commitments and contingencies.....................
Stockholders' equity (deficit):
Common stock................................... 49 - - - 49
Additional paid-in capital..................... 43,741 2,137 15,064 (17,201) 43,741
Retained earnings (accumulated deficit)........ (123,351) 26,425 (4,157) (22,268) (123,351)
Foreign currency translation adjustments....... 239 - 239 (239) 239
-------------- ----------- ----------- ---------------- -------------
Total stockholders' equity (deficit).............. (79,322) 28,562 11,146 (39,708) (79,322)
-------------- ----------- ----------- ---------------- -------------
-------------- ----------- ----------- ---------------- -------------
Total liabilities and stockholders' equity
(deficit)......................................... $ 60,231 $67,835 $ 39,514 $ (58,500) $ 109,080
-------------- ----------- ----------- --------------- --------------
-------------- ----------- ----------- --------------- --------------
</TABLE>
100
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Supplemental Condensed Consolidating Financial Data (Continued)
Consolidating Balance Sheets
As of September 30, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Wavetek Subsidiary Foreign
Corporation Guarantor Subsidiaries Eliminations Consolidated
-------------- ------------- ------------- -------------- ---------------
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents...................... $ - $ 4,575 $ 1,120 $ - $ 5,695
Short-term investments, available for sale..... - 996 - - 996
Accounts receivable (less allowance for
doubtful accounts of $851)................... (103) 20,202 16,230 (10,469) 25,860
Inventories.................................... - 5,758 11,084 (905) 15,937
Refundable income taxes........................ 4,134 (3,521) 3 - 616
Deferred income taxes.......................... 2,301 1,310 - - 3,611
Other current assets........................... 63 246 1,421 - 1,730
-------------- ------------- ------------- -------------- ---------------
Total current assets.............................. 6,395 29,566 29,858 (11,374) 54,445
Property and equipment, net....................... 5,690 4,428 5,015 (23) 15,110
Debt issuance costs, net.......................... 4,233 - - - 4,233
Intangible assets, net............................ 3,224 - 57 - 3,281
Deferred income taxes............................. (4) 105 - - 101
Other assets...................................... 226 46 96 (185) 183
Investment in subsidiaries........................ 33,059 - 25 (33,084) -
-------------- ------------- ------------- -------------- ---------------
Total assets...................................... $52,823 $ 34,145 $ 35,051 $ (44,666) $77,353
-------------- ------------- ------------- -------------- ---------------
-------------- ------------- ------------- -------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable to banks......................... $ - $ - $ 3,859 $ - $ 3,859
Trade accounts payable......................... 5,215 5,795 12,817 (10,471) 13,356
Accrued compensation........................... 418 1,486 4,130 - 6,034
Income taxes payable........................... - - 522 - 522
Other current liabilities...................... 4,727 3,042 2,077 1 9,847
Current maturities of long-term obligations.... 1,097 - 875 - 1,972
-------------- ------------- ------------- -------------- ---------------
Total current liabilities......................... 11,457 10,323 24,280 (10,470) 35,590
Long-term obligations, less current maturities.... 112,971 - 186 (185) 112,972
Deferred income and other liabilities............. 35 369 27 - 431
Commitments and contingencies.....................
Stockholders' equity (deficit):
Common stock................................... 49 - - - 49
Additional paid-in capital..................... 43,741 2,137 15,064 (17,201) 43,741
Retained earnings (accumulated deficit)........ (115,048) 21,316 (4,124) (17,192) (115,048)
Foreign currency translation adjustments....... (382) - (382) 382 (382)
-------------- ------------- ------------- -------------- ---------------
Total stockholders' equity (deficit).............. (71,640) 23,453 10,558 (34,011) (71,640)
-------------- ------------- ------------- -------------- ---------------
-------------- ------------- ------------- -------------- ---------------
Total liabilities and stockholders' equity $ 52,823 $ 34,145 $ 35,051 $ (44,666) $77,353
(deficit).........................................
-------------- ------------- ------------- -------------- ---------------
-------------- ------------- ------------- -------------- ---------------
</TABLE>
101
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Supplemental Condensed Consolidating Financial Data (Continued)
Consolidating Statements of Operations
For the Year Ended September 30, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Wavetek Subsidiary Foreign
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales......................................... $ - $86,101 $ 84,206 $(28,528) $ 141,779
Cost of goods sold................................ 11 37,964 53,077 (28,745) 62,307
------------- -------------- ------------- -------------- --------------
Gross margin...................................... (11) 48,137 31,129 217 79,472
Operating expenses:
Marketing and selling.......................... 2,091 19,411 16,873 - 38,375
Research and development....................... (23) 10,122 6,934 - 17,033
General and administrative..................... 3,478 6,913 5,084 - 15,475
Acquired in-process technology................. - 1,521 - - 1,521
------------- -------------- ------------- -------------- --------------
5,546 37,967 28,891 - 72,404
------------- -------------- ------------- -------------- --------------
Operating income (loss)........................... (5,557) 10,170 2,238 217 7,068
Interest income................................ 18 190 16 (23) 201
Interest expense............................... (11,878) (48) (246) 23 (12,149)
Equity in net income of subsidiaries........... 5,298 - - (5,298) -
Other, net..................................... 80 797 (1,186) 5 (304)
------------- -------------- ------------- -------------- --------------
(6,482) 939 (1,416) (5,293) (12,252)
------------- -------------- ------------- -------------- --------------
Income (loss) before provision (credit) for income
taxes and extraordinary items.................. (12,039) 11,109 822 (5,076) (5,184)
Provision (credit) for income taxes............... (8,247) 5,999 856 - (1,392)
------------- -------------- ------------- -------------- --------------
Net income (loss) before extraordinary items...... (3,792) 5,110 (34) (5,076) (3,792)
Extraordinary items, net of taxes................. (4,511) - - - (4,511)
------------- -------------- ------------- -------------- --------------
Net income (loss)................................. $(8,303) $ 5,110 $ (34) $ (5,076) $ (8,303)
------------- -------------- ------------- -------------- --------------
------------- -------------- ------------- -------------- --------------
</TABLE>
102
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Supplemental Condensed Consolidating Financial Data (Continued)
Consolidating Statements of Operations
For the Year Ended September 30, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Wavetek Subsidiary Foreign
Corporation Guarantor Subsidiaries Eliminations Consolidated
------------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales......................................... $ - $85,654 $ 104,186 $(34,561) $ 155,279
Cost of goods sold................................ (551) 37,992 68,599 (34,724) 71,316
------------- -------------- ------------- -------------- --------------
Gross margin...................................... 551 47,662 35,587 163 83,963
Operating expenses:
Marketing and selling.......................... 1,123 17,912 18,352 - 37,387
Research and development....................... (47) 9,533 5,862 - 15,348
General and administrative..................... 2,608 3,757 4,387 (10) 10,742
Stock option compensation related to
recapitalization............................. 1,926 2,318 2,817 - 7,061
------------- -------------- ------------- -------------- --------------
5,610 33,520 31,418 (10) 70,538
------------- -------------- ------------- -------------- --------------
Operating income (loss)........................... (5,059) 14,142 4,169 173 13,425
Non-operating income (expense):
Interest income................................ 76 282 32 (75) 315
Interest expense............................... (3,842) - (241) 75 (4,008)
Equity in net income of subsidiaries........... 9,948 - - (9,948) -
Other, net..................................... 1,502 264 (2,557) - (791)
------------- -------------- ------------- -------------- --------------
7,684 546 (2,766) (9,948) (4,484)
------------- -------------- ------------- -------------- --------------
Income before provision (credit) for income taxes. 2,625 14,688 1,403 (9,775) 8,941
Provision (credit) for income taxes............... (3,438) 5,581 735 - 2,878
------------- -------------- ------------- -------------- --------------
Net income........................................ $ 6,063 $ 9,107 $ 668 $ (9,775) $ 6,063
------------- -------------- ------------- -------------- --------------
------------- -------------- ------------- -------------- --------------
</TABLE>
103
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Supplemental Condensed Consolidating Financial Data (Continued)
Consolidating Statements of Operations
For the Year Ended September 30, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Wavetek Subsidiary Foreign
Corporation Guarantor Subsidiaries Eliminations Consolidated
------------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net sales...................................... $ - $85,754 $96,592 $ (31,353) $150,993
Cost of goods sold............................. 616 42,141 60,774 (31,167) 72,364
------------- ------------- ------------- --------------- ---------------
Gross margin................................... (616) 43,613 35,818 (186) 78,629
Operating expenses:
Marketing and selling....................... 959 16,215 19,023 - 36,197
Research and development.................... (52) 5,451 7,518 - 12,917
General and administrative.................. 3,374 4,323 3,927 (12) 11,612
Provisions for restructuring operations..... 1,832 - - - 1,832
------------- ------------- ------------- --------------- ---------------
6,113 25,989 30,468 (12) 62,558
------------- ------------- ------------- --------------- ---------------
Operating income (loss)........................ (6,729) 17,624 5,350 (174) 16,071
Non-operating income (expense):
Interest income............................. 142 76 83 (134) 167
Interest expense............................ (388) (77) (431) 134 (762)
Equity in net income of subsidiaries........ 17,952 - - (17,952) -
Other, net.................................. 483 88 (1,245) (362) (1,036)
------------- ------------- ------------- --------------- ---------------
18,189 87 (1,593) (18,314) (1,631)
------------- ------------- ------------- --------------- ---------------
Income before provision (credit) for income
taxes........................................ 11,460 17,711 3,757 (18,488) 14,440
Provision (credit) for income taxes............ (2,015) 1,863 1,117 - 965
------------- ------------- ------------- --------------- ---------------
Net income..................................... $13,475 $15,848 $ 2,640 $ (18,488) $ 13,475
------------- ------------- ------------- --------------- ---------------
------------- ------------- ------------- --------------- ---------------
</TABLE>
104
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Supplemental Condensed Consolidating Financial Data (Continued)
Condensed Consolidating Statements of Cash Flows
For the Year Ended September 30, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Wavetek Subsidiary Foreign
Corporation Guarantors Subsidiaries Eliminations Consolidated
------------- ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities.................................... $(28,856) $ 27,800 $945 $ - $ (111)
Investing activities
Purchase of property and equipment............... (440) (1,660) (1,818) - (3,918)
Proceeds from sale of property and equipment..... - (72) 360 - 288
Sale of short-term investments................... - 996 - - 996
Merger costs paid in cash........................ (1,629) - - - (1,629)
Other investing activities....................... 11 (3) - - 8
------------- ------------- ------------- -------------- ---------------
Net cash used in investing activities............ (2,058) (739) (1,458) - (4,255)
Financing activities
Proceeds from revolving lines of credit and
long-term obligations......................... 35,762 - 923 - 36,685
Principal payments on revolving lines of credit
and long-term obligations..................... (3,033) - (2,356) - (5,389)
Loan from Wavetek Corporation to subsidiary...... (1,797) - 1,797 - -
Repayment of loan from Wavetek Corporation
to subsidiary................................. 125 - (125) - -
Debt issuance costs and other.................... (124) - - - (124)
------------- ------------- ------------- -------------- ---------------
Net cash provided by financing activities........ 30,933 - 239 - 31,172
Effect of exchange rate changes on cash and
cash equivalents.............................. - - 26 - 26
------------- ------------- ------------- -------------- ---------------
Increase (decrease) in cash and cash
equivalents................................... 19 27,061 (248) - 26,832
Cash and cash equivalents at beginning of
year........................................... - 4,575 1,120 - 5,695
------------- ------------- ------------- -------------- ---------------
Cash and cash equivalents at end of year......... $ 19 $ 31,636 $872 $ - $ 32,527
------------- ------------- ------------- -------------- ---------------
------------- ------------- ------------- -------------- ---------------
</TABLE>
105
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Supplemental Condensed Consolidating Financial Data (Continued)
Condensed Consolidating Statements of Cash Flows
For the Year Ended September 30, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Wavetek Subsidiary Foreign
Corporation Guarantor Subsidiaries Eliminations Consolidated
------------- ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities.................................... $ (6,832) $ 12,469 $ 1,898 $ - $7,535
Investing activities
Purchase of property and equipment............... (1,532) (1,896) (2,606) - (6,034)
Purchase of short-term investments............... - (3,000) - - (3,000)
Sale of short-term investments................... - 2,004 - - 2,004
Other investing activities....................... 27 153 2 - 182
------------- ------------- ------------- -------------- ---------------
Net cash used in investing activities............ (1,505) (2,739) (2,604) - (6,848)
Financing activities
Net proceeds from issuance of common shares...... 42,849 - - - 42,849
Repurchase of common shares and stock options.. (152,564) - - - (152,564)
Proceeds from revolving lines of credit, notes
payable and long-term obligations............. 110,000 - 5,030 - 115,030
Principal payments on revolving lines of credit
and long-term obligations..................... (94) - (1,747) - (1,841)
Debt issuance costs.............................. (4,417) - - (4,417)
Dividends from subsidiaries to Wavetek
Corporation................................... 11,304 (10,000) (1,304) - -
Capital contributions from Wavetek
Corporation to subsidiaries................... (2,578) - 2,578 - -
Repayment of loans from Wavetek Corporation
to subsidiaries............................... 3,837 - (3,837) - -
------------- ------------- ------------- -------------- ---------------
Net cash provided by (used in) financing
activities.................................... 8,337 (10,000) 720 - (943)
Effect of exchange rate changes on cash and
cash equivalents.............................. - - (175) - (175)
------------- ------------- ------------- -------------- ---------------
Decrease in cash and cash equivalents............ - (270) (161) - (431)
Cash and cash equivalents at beginning of year... - 4,845 1,281 - 6,126
------------- ------------- ------------- -------------- ---------------
Cash and cash equivalents at end of year......... $ - $ 4,575 $ 1,120 $ - $5,695
------------- ------------- ------------- -------------- ---------------
------------- ------------- ------------- -------------- ---------------
</TABLE>
106
<PAGE>
14. Supplemental Condensed Consolidating Financial Data (Continued)
Condensed Consolidating Statements of Cash Flows
For the Year Ended September 30, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Wavetek Subsidiary Foreign
Corporation Guarantor Subsidiaries Eliminations Consolidated
------------- ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities........ $1,285 $9,252 $ 4,539 $ - $ 15,076
Investing activities
Purchase of property and equipment............... (236) (2,631) (1,677) - (4,544)
Other investing activities....................... 200 501 (107) - 594
------------- ------------- ------------- -------------- ---------------
Net cash used in investing activities............ (36) (2,130) (1,784) - (3,950)
Financing activities
Proceeds from revolving lines of credit, notes
payable and long-term obligations............. - 11,713 3,219 - 14,932
Principal payments on revolving lines of credit
and long-term obligations..................... (85) (16,246) (7,244) - (23,575)
Dividends from subsidiaries to
Wavetek Corporation........................... 553 - (553) - -
Loans from Wavetek Corporation to subsidiaries... (3,819) - 3,819 - -
Repayment of loans from Wavetek Corporation to
subsidiaries.................................. 2,102 - (2,102) - -
------------- ------------- ------------- -------------- ---------------
Net cash used in financing activities............ (1,249) (4,533) (2,861) - (8,643)
Effect of exchange rate changes on cash and cash
equivalents................................... - - (46) - (46)
------------- ------------- ------------- -------------- ---------------
Increase (decrease) in cash and cash equivalents. - 2,589 (152) - 2,437
Cash and cash equivalents at beginning of year... - 2,256 1,433 - 3,689
------------- ------------- ------------- -------------- ---------------
Cash and cash equivalents at end of year......... $ - $4,845 $ 1,281 $ - $ 6,126
------------- ------------- ------------- -------------- ---------------
------------- ------------- ------------- -------------- ---------------
</TABLE>
107
<PAGE>
UNAUDITED PROFORMA COMBINED FINANCIAL DATA OF WAVETEK WANDEL & GOLTERMANN, INC.
<TABLE>
<CAPTION>
Page
<S> <C>
Unaudited Pro Forma Combined Statement of Operations................... 109
Notes to Unaudited Pro Forma Combined Statement of Operations.......... 110
</TABLE>
108
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined statement of operations data
for the fiscal year ended September 30, 1998 are derived from the Company's
consolidated financial statements and Wavetek's consolidated financial
statements, both included elsewhere in this Annual Report, as adjusted to give
effect to the Exchange Transaction as if it had occurred on October 1, 1997. The
pro forma adjustments are based upon available data and certain assumptions that
the Company believes are reasonable. The unaudited pro forma combined statement
of operations data does not purport to represent what the Company's results of
operations would actually have been had the Exchange Transaction in fact
occurred on October 1, 1997, or project the Company's results of operations for
any future period. The unaudited pro forma combined statement of operations data
should be read in conjunction with the consolidated financial statements of the
Company, the consolidated financial statements of Wavetek and the information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Year Ended September 30, 1998
---------------------------------------------------------------------------
Pro Forma Pro Forma
The Company Wavetek Adjustments Notes Combined
------------- -------------- -------------- --------------- ---------------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales......................................... $ 327,888 $ 141,779 $ - $ 469,667
Cost of goods sold................................ 130,863 62,307 2,700 (1) 195,870
------------ -------------- --------------- ---------------
Gross margin...................................... 197,025 79,472 (2,700) 273,797
------------ -------------- --------------- ---------------
Operating expenses:
Marketing and selling.......................... 95,338 38,375 2,190 (2) 135,903
Research and development....................... 47,730 17,033 - 64,763
General and administrative..................... 26,019 15,475 13,587 (3) 55,081
Acquired in-process research and development... 32,925 1,521 (11,800) (4) 22,646
Provision for restructuring operations and
other non-recurring charges.................. 9,369 - (4,548) (5) 4,821
------------ -------------- --------------- ---------------
211,381 72,404 (571) 283,214
------------ -------------- --------------- ---------------
Operating income (loss)........................... (14,356) 7,068 (2,129) (9,417)
------------ -------------- --------------- ---------------
Non-operating income/(expense):
Interest income................................ 977 201 - 1,178
Interest expense............................... (7,629) (12,149) - (19,778)
Other, net..................................... (4,814) (304) - (5,118)
------------ -------------- --------------- ---------------
(11,466) (12,252) - (23,718)
------------ -------------- --------------- ---------------
Income (loss) before provision (credit) for income
taxes and minority interest in loss............ (25,822) (5,184) (2,129) (33,135)
Provision (credit) for income taxes............... 6,541 (1,392) (4,574) (6) 575
Minority interest in loss......................... (5,096) - - (5,096)
------------ -------------- --------------- ---------------
Income (loss) before extraordinary item........... $ (27,267) $ (3,792) $ 2,445 $ (28,614)
------------ -------------- --------------- ---------------
------------ -------------- --------------- ---------------
Income (loss) per share before extraordinary
items - basic and diluted...................... $ (3.28) $ (0.78) $ (2.17)
------------ -------------- ---------------
------------ -------------- ---------------
Average common shares outstanding - basic
and diluted.................................... 8,317 4,885 13,202
------------ -------------- ---------------
------------ -------------- ---------------
EBITDA............................................ $ 38,152 $ 12,227 $ - (7) $ 50,379
------------ -------------- --------------- ---------------
------------ -------------- --------------- ---------------
</TABLE>
109
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(1) To adjust cost of goods sold resulting from the adjustment of inventory
to fair value.
(2) To record additional amortization expense related to increase in
intangible assets. Such amounts, related to distributor agreements, are
expected to be amortized over a twelve month period.
(3) To record additional amortization expense related to increase in
intangible assets. Such amounts are expected to be amortized over the
following useful lives:
<TABLE>
<CAPTION>
Annual
Intangible Asset Amortization Life
---------------- ------------ ----
<S> <C> <C>
Core technologies.............. $ 8,410 10 years
Assembled work force........... 1,400 5 years
Goodwill....................... 3,777 15 years
-------------
$ 13,587
-------------
-------------
</TABLE>
(4) To reverse one-time charge related to write off of acquired in-process
research and development related to the Exchange Transaction.
(5) To reverse one-time charge for provisions for restructuring operations
and other non-recurring charges related to the Exchange Transaction.
(6) To record the tax benefit associated with the increase in cost of goods
sold and the amortization related to the identifiable intangible assets,
excluding goodwill, net of the reversal of the tax benefit associated
with restructuring provisions of $1.4 million.
(7) EBITDA is operating income (loss) plus depreciation and amortization
expense, acquired in-process research and development, provisions for
restructuring and other non-recurring charges and the one-time non-cash
increase in cost of goods sold resulting from the adjustment of
inventories to fair value (see note (1)). While EBITDA should not be
construed as a substitute for income from operations, net income or
cash flows from operating activities in analyzing the Company's
operating performance, financial position or cash flows, the Company
has included EBITDA because it is commonly used by certain investors
and analysts to analyze and compare companies on the basis of operating
performance, leverage and liquidity and to determine a Company's
ability to service debt.
110
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WAVETEK WANDEL & GOLTERMANN, INC.
/S/ VICKIE L. CAPPS
---------------------------------------------
Vickie L. Capps
Senior Vice President-Finance, Treasurer,
Secretary and Acting Chief Financial Officer
Dated: December 14, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Date
/S/ PETER WAGNER December 14, 1998
- ----------------------------------------
Peter Wagner
President, Chief Executive Officer and
Director
/S/ TERENCE J. GOODING December 14, 1998
- ----------------------------------------
Terence J. Gooding
Co-Chairman of the Board
/S/ ALBRECHT WANDEL December 14, 1998
- ----------------------------------------
Albrecht Wandel
Co-Chairman of the Board
/S/ VICKIE L. CAPPS December 14, 1998
- ----------------------------------------
Vickie L. Capps
Senior Vice President-Finance
Treasurer, Secretary and Acting Chief
Financial Officer
/S/ MALCOLM BATES December 14, 1998
- ----------------------------------------
Malcolm Bates
Director
/S/ SUSAN SCHNABEL December 14, 1998
- ----------------------------------------
Susan Schnabel
Director
111
<PAGE>
Exhibit 4.4
FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE, dated as of September 30, 1998 (this "First
Supplemental Indenture"), among Wandel & Goltermann Technologies, Inc. ("WGTI"),
Wandel & Goltermann A.T.E. Systems, Inc. ("WGATE"), Wandel & Goltermann, Inc.
("WGI"), W&G Equities, Inc. ("WGE") and The Bank of New York (the "Trustee").
W I T N E S S E T H:
WHEREAS, Wavetek Wandel & Goltermann, Inc., (the "Company"), Wavetek
U.S. Inc, as guarantor, and the Trustee executed and delivered an Indenture,
dated as of June 11, 1997 (as supplemented hereby, the "Indenture"), to
provide for the issuance of $85,000,000 of the Issuer's 10 1/8% Senior
Subordinated Notes due June 15, 2007 (the "Notes");
WHEREAS, on September 30, 1998, WGTI, WGATE, WGI and WGE became
Subsidiaries (as defined in the Indenture) of the Company;
WHEREAS, pursuant to Section 4.16 and Section 10.02 of the Indenture, WGTI,
WGATE, WGI and WGE are required to become Subsidiary Guarantors (as defined in
the Indenture) under the Indenture and execute and deliver Subsidiary Guarantees
(as defined in the Indenture);
NOW, THEREFORE, each party agrees as follows for the benefit of each other
and for the equal ratable benefit of the holders of the Notes:
1. SUBSIDIARY GUARANTEE. Each of WGTI, WGATE, WGI and WGE agrees to
execute and deliver a Subsidiary Guarantee and agrees to be bound by the terms
of the Indenture as a Subsidiary Guarantor. The obligations of each Subsidiary
Guarantor to the holders of the Notes and to the Trustee pursuant to the
Indenture are set forth in Article 10 of the Indenture, which terms are
incorporated herein by reference.
2. CONFIRMATION OF INDENTURE. The Indenture, as heretofore supplemented
by this First Supplemental Indenture, is in all respects ratified and confirmed,
and the Indenture, this First Supplemental Indenture and all indentures
supplemental thereto shall be read, taken and construed as one and the same
instrument.
3. CONCERNING THE TRUSTEE. The Trustee assumes no duties,
responsibilities or liabilities by reason of this First Supplemental Indenture
other than as set forth in the Indenture and, in carrying out its
responsibilities hereunder, shall have all of the rights, protections and
immunities which it possesses under the Indenture.
<PAGE>
4. GOVERNING LAW. This First Supplemental Indenture and the Subsidiary
Guarantee shall be governed by and construed in accordance with the law of the
State of New York.
5. COUNTERPARTS. This First Supplemental Indenture may be executed in
any number of counterparts each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed, and the Subsidiary Guarantors have caused the
corporate seal of the company to be hereunto affixed and attested, as of the day
and year first above written.
WANDEL & GOLTERMANN TECHNOLOGIES, INC.
[seal]
By: /s/ BERT KUTHE
----------------------------------
Name: Bert Kuthe
Title: Vice President and Secretary
Attest:
/s/ Daniel Hunt
- ------------------------------------
Name: Daniel Hunt
Title: Assistant Secretary
WANDEL & GOLTERMANN A.T.E. SYSTEMS, INC.
[seal]
By: /s/ BERT KUTHE
----------------------------------
Name: Bert Kuthe
Title: Vice President and Secretary
Attest:
/s/ Daniel L. Troutman
- ------------------------------------
Name: Daniel L. Troutman
Title: Treasurer
-3-
<PAGE>
WANDEL & GOLTERMANN, INC.
[seal]
By: /s/ BERT KUTHE
-----------------------------------
Name: Bert Kuthe
Title: Vice President and Secretary
Attest:
/s/ Daniel Hunt
- ----------------------------------
Name: Daniel Hunt
Title: Assistant Secretary
W&G EQUITIES, INC.
[seal]
By: /s/ BERT KUTHE
----------------------------------
Name: Bert Kuthe
Title: President
Attest:
/s/ Daniel Hunt
- ----------------------------------
Name: Daniel Hunt
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Thomas C. Knight
----------------------------------
Name: Thomas C. Knight
Title: Assistant Vice President
-4-
<PAGE>
Exhibit 4.5
SECOND SUPPLEMENTAL INDENTURE
SECOND SUPPLEMENTAL INDENTURE, dated as of October 30, 1998 (this "Second
Supplemental Indenture"), among Wavetek Wandel & Goltermann, Inc. (the
"Company"), Digital Transport Systems, Inc. ("DTS") and The Bank of New York, as
trustee (the "Trustee").
W I T N E S S E T H:
WHEREAS, the Company, Wandel & Goltermann Technologies, Inc., Wandel &
Goltermann A.T.E. Systems, Inc., Wandel & Goltermann, Inc., W&G Equities,
Inc. and the Trustee are parties to an Indenture, dated as of June 11, 1997
and supplemented as of September 30, 1998 (the "Indenture"), providing for
the issuance of $85,000,000 of the Company's 10 1/8% Senior Subordinated
Notes due June 15, 2007 (the "Notes");
WHEREAS, effective as of September 30, 1998, DTS became a Subsidiary (as
defined in the Indenture) of the Company;
WHEREAS, pursuant to Section 4.16 and Section 10.02 of the Indenture, DTS
is required to become a Subsidiary Guarantor (as defined in the Indenture) under
the Indenture and execute and deliver a Subsidiary Guarantee (as defined in the
Indenture);
NOW, THEREFORE, each party agrees as follows for the benefit of each other
and for the equal ratable benefit of the holders of the Notes:
1. SUBSIDIARY GUARANTEE. DTS agrees to execute and deliver a Subsidiary
Guarantee and agrees to be bound by the terms of the Indenture as a Subsidiary
Guarantor. The obligations of each Subsidiary Guarantor to the holders of the
Notes and to the Trustee pursuant to the Indenture are set forth in Article 10
of the Indenture, which terms are incorporated herein by reference.
2. CONFIRMATION OF INDENTURE. The Indenture, as supplemented by this
Second Supplemental Indenture, is in all respects ratified and confirmed, and
the Indenture, this Second Supplemental Indenture and all indentures
supplemental thereto shall be read, taken and construed as one and the same
instrument.
3. CONCERNING THE TRUSTEE. The Trustee assumes no duties,
responsibilities or liabilities by reason of this Second Supplemental Indenture
other than as set forth in the Indenture and, in carrying out its
responsibilities hereunder, shall have all of the rights, protections and
immunities which it possesses under the Indenture.
4. GOVERNING LAW. This Second Supplemental Indenture and the Subsidiary
Guarantee shall be governed by and construed in accordance with the law of the
State of New York.
<PAGE>
5. COUNTERPARTS. This Second Supplemental Indenture may be executed in
any number of counterparts each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed, and the Subsidiary Guarantor has caused its
corporate seal to be hereunto affixed and attested, as of the day and year first
above written.
DIGITAL TRANSPORT SYSTEMS, INC.
[seal]
By: /s/ VICKIE CAPPS
-----------------------------------
Name: Vickie Capps
Title: Vice President, Treasurer and
Secretary
Attest:
/s/ Gene Jones
- ----------------------------------
Name: Gene Jones
Title: President
WAVETEK WANDEL & GOLTERMANN, INC.
[seal]
By: /s/ VICKIE CAPPS
-----------------------------------
Name: Vickie Capps
Title: Senior Vice President -
Finance
Attest:
/s/ Terence J. Gooding
- ---------------------------------
Name: Terence J. Gooding
Title: Co-Chairman
THE BANK OF NEW YORK
By: /s/ Thomas C. Knight
-----------------------------------
Name: Thomas C. Knight
Title: Assistant Vice President
<PAGE>
EXHIBIT 10.4
[DEUTSCHE BANK LETTERHEAD]
29. September 1998
Wavetek Corporation
11995 El Camino Real, Suite 501
San Diego, California 93130
GRANTING OF CREDIT FACILITY
Dear Sirs,
We hereby confirm that we are prepared to grant you a credit facility in the
amount of up to Deutsche Mark 35,000,000 (in words thirty-five million). The
purpose of this facility is to refinance in part existing loans (the "Existing
Loans") to Wavetek Corporation (Wavetek) as set out in attachment A. This
credit facility is subject to the terms and conditions of this letter agreement
and in addition hereto to our General Business Conditions (Allgemeine
Geschaftsbedingungen), a copy of which is attached.
The credit facility may be utilized in one amount on 30 September 1998 subject
to the following conditions precedent having been fulfilled:
- - Receipt by us of certified copy of Wavetek's charter and by-laws.
- - Evidence in form and substance acceptable to us, that the Restructuring
Events (as defined in the term sheet (the "Term Sheet") annexed hereto on
Attachment B) have occurred.
- - Receipt of a legal opinion (in form and substance satisfactory and
addressed to us) of Sullivan & Cromwell opining on matters such as legal
existence, due authorization, etc. and confirming that the holders of the
outstanding USD 85 Mio. subordinated bonds of Wavetek Corp. have no right
to call for the repayment of the bonds during the lifetime of the facility
agreement or take any other action having a similar effect by reason of the
occurrences of the Restructuring Events, the IPO or the entering by any of
the obligors into the transactions set out herein or in the Term-Sheet.
<PAGE>
side 2, letter to Wavetek corp., dd. 29.09.1998
- - Receipt by us of a mandate letter, duly signed by Wavetek and Wandel &
Goltermann Management Holding GmbH (WGMH) pursuant to which Commerzbank AG
and Deutsche Bank AG are mandated to jointly arrange certain Syndicated
Loans ("The Syndicated Loans") as further set out in the Term-Sheet.
- - Evidence in form and substance acceptable to us, that Wavetek has arranged
for an additional loan from Commerzbank AG in the amount Deutsche Mark
15,000,000 (in words fifteen million) for the purpose of refinancing the
remainder of the Existing Loans.
- - A copy of this letter agreement duly signed by Wavetek.
- - Receipt by us of a signature list from Wavetek containing specimen
signatures of Wavetek's authorized signatories.
- - Receipt by us of a letter, duly signed by Wavetek and WGMH pursuant to
which Wavetek irrevocably appoints WGMH, and WGMH irrevocably accepts to
act as Wavetek's agent for service of process in Germany.
- - Remittance order duly signed by Wavetek.
The facility is to be repaid in full out the proceeds of the Syndicated Loans
and in any case not later than 31. January 1999.
Drawdown of the present facility will be effected as a term loan with a fixed
tenor of three months and an interest rate of Libor (as determined by us on 30.
September 1998 on the basis of appropriate Telerate screen) plus a margin of
1,50% p.a., the interest being calculated on the actual days elapsed/year of 360
days.
Prepayment is not permitted.
You agree to deliver to us as soon as available your audited financial
statements per 30. September 1998 and the audited opening accounts of Wavetek
setting out Wavetek consolidated financial conditions after the occurrence of
the Restructuring Events.
This facility is governed by the laws of the Federal Republic of Germany. Non
exclusive place of jurisdiction shall be Stuttgart and Wavetek expressly submits
to the jurisdiction of the Landgericht in Stuttgart.
Yours faithfully,
Deutsche Bank AG
Filiale Reutlingen
/s/ Hosle /s/ Buhler
- -----------------------
Agreed and Accepted
Date: 29/09/98
For and on behalf of Wavetek Corp.
By: /s/ Terence J. Gooding
--------------------------
/s/ Vickie L. Capps
--------------------------
<PAGE>
EXHIBIT 10.5
[COMMERZBANK LETTERHEAD]
29. September 1998
Wavetek Corporation
11995 El Camino Real, Suite 501
San Diego, California 93130
GRANTING OF CREDIT FACILITY
Dear Sirs,
We hereby confirm that we are prepared to grant you a credit facility in the
amount of up to
Deutsche Mark 15.000.000, - (in words fifteen million)
The purpose of this facility is to refinance in part existing loans (the
"Existing Loans") to Wavetek Corporation (Wavetek) as set out in attachment A.
This credit facility is subject to the terms and conditions of this letter
agreement and in addition hereto to our General Business Conditions (Allgemeine
Geschaftsbedingungen), a copy of which is attached.
The credit facility may be utilized in one amount on (30. September 1998)
subject to the following conditions precedent having been fulfilled:
- - Receipt by us of certified copy of Wavetek's charter and by-laws.
- - Evidence in form and substance acceptable to us, that the Restructuring
Events (as defined in the term sheet (the "Term Sheet") annexed hereto on
Attachment B) have occurred.
- - Receipt of a legal opinion (in form and substance satisfactory and
addressed to us) of Sullivan & Cromwell opining on matters such as legal
existence, due authorization, etc. and confirming that the holders of the
outstanding USD 85 Mio. subordinated bonds of Wavetek Corp. have no right
to call for the repayment of the bonds during the lifetime of the facility
agreement or take any other action having a similar effect by reason of the
occurrences of the Restructuring Events, the IPO or the entering by any of
the obligors into the transactions set out herein or in the Term-Sheet.
- - Receipt by us of a mandate letter, duly signed by Wavetek and Wandel &
Goltermann Management Holding GmbH (WGMH) pursuant to which Commerzbank AG
and Deutsche Bank AG are mandated to jointly arrange certain Syndicated
Loans ("The Syndicated Loans") as further set out in the Term-Sheet.
<PAGE>
[page -2- 29. September 1998, Wavetek Corporation]
- - Evidence in form and substance acceptable to us, that Wavetek has arranged
for an additional loan from Deutsche Bank AG in the amount Deutsche Mark
35.000.000, - (in words thirty-five million) for the purpose of refinancing
the remainder of the Existing Loans.
- - A copy of this letter agreement duly signed by Wavetek.
- - Receipt by us of a signature list from Wavetek containing specimen
signatures of Wavetek's authorized signatories.
- - Receipt by us of a letter, duly signed by Wavetek and WGMH pursuant to
which Wavetek irrevocably appoints WGMH, and WGMH irrevocably accepts to
act as Wavetek's agent for service of process in Germany.
- - Remittance order duly signed by Wavetek.
The facility is to be repaid in full out the proceeds of the Syndicated Loans
and in any case not later than 31. January 1999.
Drawdown of the present facility will be effected as a term loan with a fixed
tenor of three months and an interest rate of Libor (as determined by us on 30.
September 1998 on the basis of appropriate Telerate screen) plus a margin of
1,50% p.a., the interest being calculated on the actual days elapsed/year of 360
days.
Prepayment is not permitted.
You agree to deliver to us as soon as available your audited financial
statements per 30. September 1998 and the audited opening accounts of Wavetek
setting out Wavetek consolidated financial conditions after the occurrence of
the Restructuring Events.
This facility is governed by the laws of the Federal Republic of Germany. Non
exclusive place of jurisdiction shall be Stuttgart and Wavetek expressly submits
to the jurisdiction of the Landgericht in Stuttgart.
Yours faithfully,
COMMERZBANK
Akriengesellschaft
Filiale Reutlingen
/s/ [Authorized Officer]
Agreed and Accepted
Date: 29/09/98
For and on behalf of Wavetek Corp.
By: /s/ Vickie L. Capps
/s/ Terence J. Gooding
cc: Sullivan & Cromwell attention Alison Ressler or Steve Stokdyk
<PAGE>
Wandel & Goltermann
Management Holding GmbH
- - Managing Directors -
Muehleweg 5
72800 Eningen u.A.
Dear Sirs,
POOL CONTRACT
We should like to refer to the pool contract enclosed which has been signed
by all pool banks, dated 6th November 1997.
The issue of this credit, which will be confirmed to you in confirming
letters from each of the individual banks, is based upon the following
requirements:
1.
The shareholders agree (with the exception of the minimum profit retention by
Hannover Finanz at the level of DM 1.5 million) not to retain any further
profits or to deposit these.
2.
We assume, that the Wandel & Goltermann Technologies Inc. (USA)'s current
dividend policy will remain in place. A dividend payment of profits can only
be made when Wandel & Goltermann Management Holding holds at least 75% of
the shares in Wandel & Goltermann Technologies Inc./USA.
3.
The current shareholders loans totaling approx. DM 11 million are still
available to the credit holders and are and/or will be furnished with
corresponding withdrawals from the order.
4.
Should the planned initial public offering not be announced or not be
possible, then the Wandel & Goltermann's family shareholders declare that
they will assist with measures which ensures an appropriate amount of equity
by other means. This includes taking on other shareholders of divestiture of
stakes in the business.
<PAGE>
Page 2 to the letter dated 8th November 1997 to Wandel & Goltermann
Management Holding GmbH - Managing Directors -
5.
For the supply of goods within the Wandel & Goltermann group, the sale and
delivery conditions are to include reservation of ownership (company internal
and extended) with a current account clause.
6.
As discussed, you will deposit the shares which you hold in Wandel &
Goltermann Management Ltd./GB in a postal deposit with the pool leader. The
shares in Wandel & Goltermann Technologies Inc./USA are to be deposited with a
bank or notary. It is taken to be agreed that the place of deposit will
inform the pool leader upon return of the share package or a part of it
without delay.
The pool banks are aware of the fact that the sales subsidiaries of Wandel &
Goltermann Vertriebsholding GmbH have obligations arising from loans with
other, non-pool banks at a current level of approx. DM 30 million, and that
Wandel & Goltermann Ltd./GB has been granted a loan of approx. DM 10 million
from a third party. The parties concerned agree that Wandel & Goltermann
Management Holding GmbH will ensure that credit agreements outside the pool
lines are only entered into after the pool banks have been informed and/or
after new securities have been made available.
The pool banks already agree their readiness to enter into negotiations
regarding the pool contract enclosed, insofar as major alterations in the
shareholder and/or capital structure of the Wandel & Goltermann group are to
be foreseen.
We would ask you to sign a duplicate of the pool contract and of this letter
and to return these to us.
Yours sincerely,
/SIGNATURE ILLEGIBLE/
Commerzbank AG
Reutlingen Branch
We agree to the letter above
Eningen u.A. (Date) 17 NOV 1997 /s/ ALBRECHT WANDEL
--------------------------------------
(Wandel & Goltermann Management
Holding GmbH)
Eningen u.A. (Date) 17 NOV 1997 /s/ ALBRECHT WANDEL
--------------------------------------
(Wandel & Goltermann Holding & Co
Elektronische Messtechnik)
<PAGE>
Page 3 to the letter dated 7th November 1997 to Wandel & Goltermann
Management Holding GmbH - Managing Directors -
Eningen u.A. (Date) 17 NOV 1997 /s/ F. GOLTERMANN
------------ ---------------------
(Burkhard Goltermann)
/s/ F. GOLTERMANN /s/ F. GOLTERMANN
- ------------------------------- ---------------------
(Ulrike Goltermann) (Frank Goltermann)
/s/ A. WANDEL /s/ A. WANDEL
- ------------------------------- ---------------------
(Albrecht Wandel) (Renate Wandel)
/SIGNATURE ILLEGIBLE/
- -------------------------------
(Hannover Finanz) W & G BETELLIGUNGS GmbH
CF LETTER TO THE MANAGING DIRECTORS
I confirm that this document is a fair and accurate translation
from the German original.
Eningen,
this 11 day of December, 1998
Wavetek Wandel & Goltermann, Inc.
By: /s/ PETER M. WAGNER
-----------------------------
Peter M. Wagner
Chief Executive Officer
<PAGE>
Security Pool Contract
The following agreement has been reached between:
1. Commerzbank AG, Reutlingen branch (hereafter also referred to as "pool
leader")
2. Baden-Wuerttembergische Bank AG, Reutlingen branch
3. Deutsche Bank AG, Reutlingen branch
4. Krelssparkasse Reutlingen
5. Landesgirokasse Stuttgart
6. Stuttgarter Bank AG
- hereafter collectively referred to as the "banks" and each of them
individually is referred to as "bank"-
Section 1 Loans
(1) The banks do business with the companies:
Wandel & Goltermann Management Holding GmbH, Eningen
- hereafter referred to as the "company" or "WGMH"
and
Wandel & Goltermann GmbH & Co Elektronische Messtechnik, Eningen
- hereafter also referred to as the "company" or "WGR"
- these are both also hereafter referred to as the "companies" -
The banks have/will given both companies the following credit lines as
part of their liabilities both jointly and severally but also both
independently of each other on the basis of the general terms and
conditions of business:
<TABLE>
<S> <C> <C>
Commerzbank DM 50,000,000.00
BW Bank DM 30,000,000.00
Deutsche Bank DM 30,000,000.00
Kreissparkasse DM 10,000,000.00
Landesgirokasse DM 25,000,000.00
Stuttgarter Bank DM 25,000,000.00
-------------------------------------------------------------
total DM 170,000,000.00
</TABLE>
The credit line given for the Landesgirokasse is a skeleton credit
agreement which will be made available in two slices - one slice of DM
18,000,000.00 and one of DM 7,000,000.00. This is based on Position 2 of
the letter from the Landesgirokasse to WGMH dated 8th July 1997 which is
known to the banks. For repayment (Section 7) and distribution of
proceeds (Section 8) (and only as far as this is concerned), the
slices of the loan already made available to the company at
<PAGE>
the particular moment in time are to be regarded as the credit line
from the Landesgirokasse.
The credit funds made available under the credit scheme detailed above
are to be used solely for the purpose of financing operating resources
and are not to be used of acquisitions (if they exceed the cash flow of
the previous year).
(2) The credit lines detailed in position (1) can be taken by the companies
in the form of guarantee, discount, acceptance or euro credits, insofar
as the credit agreements allow. The cash credit lines in the form of
euro credits can also be made by means of guarantee or acceptance
credits from foreign branches or subsidiaries of the banks and/or other
negotiating institutes (hereafter referred to as "negotiating credit
banks"). The agreements made regarding the pool securities should also
be passed on to the negotiating credit banks to the extent that their
rights and obligations will be looked after in trust by the appropriate
bank.
The cash credit lines detailed in position (1) can also be exhausted by
creating branch lines for the credit and guarantee orders for the credit
of concern companies of the Wandel & Goltermann group from the domestic
and foreign branches and subsidiaries of the banks. The banks will make
every effort to ensure security of their claims on the loans made as a
result of the creation of branch lines from their branches and/or
credit-granting subsidiaries. Insofar as such security is available, as
per a distribution of proceeds as in Section 8, the bank will only
respect such claims from the WG concern company which arise from branch
lines at the level which remains after the securities provided by the WG
concern company have been utilised. Insofar as such a loss occurs only
after proceeds have been distributed as per Section 8, then
Section 8(5) is to be followed.
(3) The companies can make use of the credit lines and credits autonomously
- whilst respecting the regulations set out in position (5). The banks
grant the debt claims arising from the credit lines they have agreed to
both alone and directly.
(4) The banks have bound themselves to grant the credit lines for the
duration of this contract and only to make reductions or cancellations
with the agreement of the others. This is not the case for credits
granted outside the pool.
(5) In addition, Commerzbank has granted WGR a repayment loan for an
original sum of DM 15,000,000.00 as per the credit contract dated 24th
March 1994. This loan is guaranteed by the LAKRA Landeskreditbank
Baden-Wuerttemberg under orders from the state of Baden-Wuerttemberg in
a declaration dated 1st December 1993 at a level of 66.66% (deficit
guarantee). It has been agreed that the credit risk which is not covered
by the deficit guarantee of 33.34% (original sum of DM 5,000,000.00) is
split between the banks as follows:
<PAGE>
<TABLE>
<S> <C> <C>
Commerzbank 29.42% (corresponds to original sum of DM 1,471,000.00)
BW-Bank 17.65% (corresponds to original sum of DM 882,500.00)
Deutsche Bank 17.65% (corresponds to original sum of DM 882,500.00)
Kreissparkasse 5.88% (corresponds to original sum of DM 294,000.00)
Landesgirokasse 14.70% (corresponds to original sum of DM 735,000.00)
Stuttgarter Bank 14.70% (corresponds to original sum of DM 735,000.00)
---------------------------------------------------------------------------
100.00% (corresponds to original sum of DM 5,000,000.00)
</TABLE>
On behalf of WGR and for the benefit of the Commerzbank, the remaining
banks herewith guarantee the sum which is not guaranteed by the LAKRA
should the Commerzbank have claims arising from the repayment loan as
closed with WGR detailed above. The other banks guarantee the sum to the
amount of their share in the assumed risk as stated above without a
joint liability for the amount. These guarantees are in addition to the
credit lines detailed in Section 1(1) with the respective banks.
The guarantee declaration dated 1st December 1993 as well as the letter
of acceptance from LAKRA dated 1st December 1993 (including the special
guarantee conditions it contains) and the general terms and conditions
for bank guarantees made by the state of Baden-Wuerttemberg are known to
all banks in the pool.
Section 2
Securities
(1) WGR has provided the pool leader and each individual bank the following
securities and/or will provide the following securities without delay:
a) Positive declaration of, and upon specific request from the pool
leader the mortgage of all limited partners shares in Wandel &
Goltermann GmbH & Co Elektronische Messtechnik at a nominal value
of DM 13,000,000.00 (corresponds to 100%)
b) Positive declaration of, and upon specific request from the pool
leader the mortgage of all shares in Wandel & Goltermann CTS S.A.
(France) at a nominal value of FRF 11,930,000.00 (corresponds to
100%)
c) A negative declaration of the type usual for banks regarding all
shares currently held in and to be acquired in future in Wandel &
Goltermann Technologies Inc. (USA)
d) Positive declaration of, and upon specific request from the pool
leader the mortgage of all shares in Wandel & Goltermann
Management Ltd. (Great Britain) at a nominal value of GBP
3,000,000.00 (corresponds to 100%)
e) Positive declaration of, and upon specific request from the pool
leader the mortgage of all shares in Wandel & Goltermann
Vertriebsholding GmbH at a nominal value of DM 50,000.00
(corresponds to 100%)
f) Mortgage of trademarks currently held and those to be held in the
future.
<PAGE>
(2) WGMH has provided the pool leader with the following securities and/or
will provide the following securities without delay:
a) Assignment of claims from license holders and licenses arising from
mortgaging the trademarks as detailed above (see above (1) f))
(3) WGR has provided the pool leader with the following securities and/or
will provide the following securities without delay:
a) DM 30,000,000.00 land charges (encumbrance of real estate) on
various properties in Enningen (real estate register, book 13, BV no.
3,7,9,19,22,28 and 30, book 4224, BV no. 2, 6-9, book 5334 BV no.
1-3,5,6)
b) Assignment of repossession claims regarding land charges
(encumbrance of real estate) which already exist.
c) Security agreement of the whole warehouse including raw materials,
auxiliary material and expendable supplies as per the contract dated
28th April 1994
d) Assignment of all existing and future claims from material
deliveries and supplies as per the contract dated 28th April 1993
e) Assignment of claims from license holders and licenses arising from
mortgaging the patents as detailed below (see below (4) a)).
(4) WGR has provided the pool leader and the banks (with no order of
preference) with the following securities and/or will provide the
following securities without delay:
f) Mortgage of domestic and foreign patents currently held and those
to be held in the future.
(5) Should a bank receive further securities for one of the credit lines
detailed in Section 1 (1), then it is agreed that these are incorporated
in the pool contract.
(6) Should a bank grant the companies further credit, for which it receives
further securities, it is already agreed that these can be incorporated
into the pool contract. Third-party proceeds would serve primarily the
return of these additional credits.
(7) WGMH and WGR agree to offer securities to third parties only after
informing the banks. This applies not only to branch typical extended
reservations of ownership of suppliers and the credit institutes'
deposit and security rights as based on general terms of business.
Section 3
Purpose of Security
<PAGE>
(1) The securities offered by WGMH according to Section 2 (1) and (2) as well
as any other further securities offered by WGMH which are incorporated into
this pool contract according to "2 (5) and (6) serve as securities
against all existing, future and conditional claims which may be
accorded to the banks and all their domestic and foreign branches from
each corresponding business contact as well as the credit institutions
referred from the provision of credit according to Section 1 (1, 2) as well
as to cover and claims against WGR that LAKRA might make based on the
indemnity bond as mentioned in Section 1 (5).
(2) The securities offered by WGMH according to Section 2 (3) a), b), c), d),
e), (4) a) as well as any other securities offered by WGR which are
incorporated into this pool contract according to Section 2 (5) and (6)
serve equally as security for all existing, future and conditional
claims by:
-the banks from the credits provided according to Section 1 (1, 2)
against the companies
-the pool leaders from the redemption loan according to Section 1 (6)
against the WGR
-LAKRA from the indemnity bond as mentioned in Section 1 (6) against
the WGR
-the remaining banks from their bond assumptions according to
Section 1 (6) against the WGR
(3) The securities according to Section 2(3) a), b), c), d), e), (4) a)
thus serve as security against all existing, future and conditional
claims which the banks might make against WGR for exceeding the credit
lines according to Section 1 (1) as well as claims by other bank-related
business relations.
(4) Should WGMH and/or WGR have assumed liability for debts from another
customer of the particular bank (for example as a guarantor), the
individual security only assures the debt from the assumption of
liabilities when it is due and only when WGMH and/or WGR is providing
security.
Section 4
Release of securities
(1) After release from the claims secured in Section 3, the banks have to give
the securities taken in as a result of this contract back to the
provider of the security and return any excess proceeds, insofar as the
securities were not needed. This is not the case when the banks are
obliged to pass securities over to a third party (for example a
guarantor, who has satisfied one or several of the banks).
(2) The banks are already obliged to release pool securities upon demand if
and insofar as the realisable value of the pool securities exceeds 120%
of the claims secured by the banks (for an ongoing period). The value of
the securities which can be realised is defined by the individual
security agreements; should there be mistakes in these then it is to be
defined by the type of the individual security.
<PAGE>
(3) The agreements reached in the individual security agreements regarding
coverage amounts and release obligations are completed for the duration
of this pool contract by the regulations set out above.
Section 5
Trust relationship / security administration
(1) The pool leader will administer the securities included in this contract
in trust for the other banks and utilise them as necessary. The
acquisition rights named as pool securities Section 2 (1) a), b), c),
d), e), f), (4) a) (mortgage rights) are also to be administered and
utilised by the pool leader in the name of and on behalf of the
remaining banks. The pool leader is also allowed (beside the banks
holding the securities), but not obliged to use the controlling and
administrative rights arising from the security contracts in its own
name. The release or partial release of securities requires the approval
of the banks. For the release obligations according to Section 4 (2),
this approval is only required for the selection of the securities to be
released.
(2) Upon request, the pool leader will send copies of the contracts for the
securities which it is holding to the other banks for them to check at
their own risk. If there should be complaints, these have to be made to
the pool leader immediately, so that a regulation agreeable to all banks
can be reached. If securities are held by a bank which is not the pool
leader, then this regulation is valid accordingly.
(3) The banks authorise the pool leader to make all declarations necessary
for ordering, managing and utilising the securities in its own name and
to receive such in its own name. The pool leader is also authorised by
the banks to carry out all negotiations necessary or pertinent. The pool
leader is freed from all restrictions contained in Section 181 BGB for
all the measures it takes resulting from this contract.
(4) The pool leader and/or each bank holding a security my only pass on the
administration of the securities to another trustee with the approval of
the other banks. The trustee is freed from the restrictions contained in
Section 181 BGB.
Section 6
Utilisation
(1) The pool leader will utilise the securities given in Section 2 in its
own name, but for the account of all the banks. Insofar as securities
are not held by the pool leader, these are to be utilised by the holding
bank after consultation with and approval from the pool leader for the
account of the other banks.
(2) The banks will decide democratically when securities are to be utilised.
In urgent cases the pool leader will decide this alone upon its own due
judgement; in this case the pool leader will inform the other banks of
the measures taken without delay.
(3) The banks will adhere to the utilisation requirements contained in the
individual security contracts.
<PAGE>
Section 7
Balance of payments
(1) The companies will distribute the credit taken proportionately amongst
the credit lines detailed in Section 1 (1) insofar as this is possible.
(2) According to the irrevocable orders of the companies, the banks obligate
themselves that in the event of a security having to be utilised as per
Section 6, they will bring their credit requirements which do not exceed
their cash credit lines as per Section 1 (1) into such a position (by
corresponding transfers) that the credit level taken up is proportionate
to the cash credit lines for all banks. The individual banks thereby to
set off any holdings in other accounts of both companies against their
credit requirements, which are in line with the cash credit lines given
in Section 1 (1). Charges arising from cheques and debit note returns
will be charged to the appropriate liabilities in line with the balance
of sums due. This will not be the case when the cash credit lines
detailed in Section 1 (1) will be exceeded by us,
(3) Insofar as the cash credit line is given as a compound line, then its
liabilities arising from bill discounts are only valid insofar as these
are taken up, should a deficit occur. Liabilities from guarantee or
acceptance credits as well as from opened letters of credit will only be
regarded as availments when payments are made on these by the pool banks.
(4) Target day for repayment of the balance is the realisation of a decision
on the introduction of utilisation measures as per Section 6 (2)
sentence 1 and/or in individual cases the earliest receipt of
notification from the pool leader about the commencement of utilisation
measures as per Section 6 (2) sentence 2 by the other banks.
(5) If the accounting criteria change after a balance of payment has been
carried out (for example by charging further holdings or payments from
guarantees), then a new balance of payments is to be made.
(6) Insofar as the balance of payments detailed cannot be carried out for
the companies or for a third party for legal reasons, then the banks are
obliged to reach a corresponding result internally. In doing this it is
of no import which one of the companies assumed the credit under their
joint liability.
Section 8
Distribution of proceeds
(1) The proceeds from utilisation of the securities provided by WGMH
(Section 2 (1), (2), (5), (6)) are to be used in the following order:
a) To pay the costs, any taxes and other expenses which arise from the
administration and utilisation of the securities and to pay the
pool leader (Section 9);
b) To repay the claims which are due to:
<PAGE>
- the banks, from granting credit as per Section 1 (1,2) to the
companies the Commerzbank from the repayment loan as per Section 1
(5) from WGR
- LAKRA from the deficit guarantee for WGR as mentioned in
Section 1 (5)
- the remaining banks for their assumption of guarantees as per
Section 1 (5) for WGR.
This is to occur in an order equal priority and proportionately
according to the claims being made. For claims which arise from
credit granted according to Section 1 (1,2), the level of credit
taken up after the balance of payments has been carried out as per
Section 7 is applicable. However only the liabilities are based on
the distribution key which do not exceed the credit lines mentioned
in Section (1).
c) To pay off the money owed to the banks, whose credit lines have been
exceeded according to Section (1) in a manner proportional to the
amount exceeded.
d) To pay off the money owed to band for additionally granted credits
and in a manner which is equal in its relationship of the assumption
of the additional credit as long as they are not returned out of the
third party proceeds from the separately ordered securities
(Section 2 (6));
e) To fulfil the other claims from the bangs against WGMH based on the
banking business transaction, and in an equal relationship with the
remaining claims.
(2) The proceeds from the utilisation of the securities offered by the WGR
according to Section 2 (2) a), b), c), d), e), (4) a), (5), (6) is to be
applied according to the following order of priority:
a) to cover costs, any taxes or other expenses which arise from
administrating and utilising the securities as well as
recompensation for the pool leader. (Section 9);
b) to pay of any claims due to:
- the banks, from granting credit as per Section 1 (1,2) to the
companies
- the Commerzbank from the repayment loan as per Section 1 (5)
from WGR
- LAKRA from the deficit guarantee for WGR as mentioned in Section 1
(5)
- the remaining banks for their assumption of guarantees as per
Section 1 (5) for WGR.
This is to occur in an order equal priority and proportionately
according to the claims being made. For claims which arise from
credit granted according to Section 1 (1,2), the level of credit
taken up after the balance of payments has been carried out as per
Section 7 is applicable. However only the liabilities are based on
the distribution key which do not exceed the credit lines mentioned
in Section (1).
c) To pay off the money owed to the banks, whose credit lines have
been exceeded according to Section (1) as well as any bank-related
business claims against the WGR in a manner proportional to the
amount exceeded.
<PAGE>
(3) Proceeds which are not required are to be transferred to the guarantor
unless the banks are required to pay these to a third party who has
satisfied one or more banks (for example a bond).
(4) Should there be a claim arising from discount, guarantee or acceptance
credits, or from letters of credit which have been opened, then this is
to be dealt with as per Section 7 (3).
(5) If the level of the claims to be respected is not set at the time of the
distribution of proceeds, then they will not be considered when the
share ratio for the proceeds is being set. A final calculation of the
share ratio will be made only after these amounts have been set. The
changes which occur as a result of this in the amounts due from the
proceeds to the individual contacting parties are to be evened out
between the contracting parties (also insofar as payments have already
been made).
(6) The banks are empowered to change the distribution key at any time.
Section 9
Costs, taxes, payment
(1) All costs and taxes which the pool leader and/or any other security
holding bank incurs as a result of this security pool contract,
especially in connection with the administration and any utilisation of
the securities are to be borne by the companies.
The pool leader has a claim against the company for fulfilling its
obligations arising from this contract for a yearly fee. This fee is to
be 0.25% of the credit lines as per Section 1 (1) and (5) plus VAT at the
legal rate on this sum. This fee is due for the year in which the
contract is closed (one full years payment is then due) and for the
following years the fee is payable in advance on the first working day
of the year.
(2) Insofar as the costs and taxes are not paid by WGMH, then the banks are
responsible for their payment, proportionately as per the credit lines
detailed in Section 1.
Section 10
Notification / Information
(1) The pool leader will inform the other banks as it sees fit about the
status of execution. The banks will provide the pool leader with such
information as is necessary for this.
(2) The banks will inform each other if facts should become known which
could seriously affect repayment of the credit lines detailed in Section 1.
(3) Upon request, each bank has to inform the other banks about their claims
on the company and the securities, insofar as these affect this contract
and its execution.
<PAGE>
(4) The company and the other guarantors free the banks from banking secrecy
for this.
Section 11
Duration and termination
(1) This pool contract is closed for an unlimited period.
(2) Each pool bank may terminate the contract with a notice period of 3
months to the end of the quarter. The first possible termination date
is, however, 31st December 1999. The date of termination is seen as
being the date upon which the pool leader receives the termination
letter. If the pool leader should terminate the contract, then the date
of termination is seen as being the date upon which the letter of
termination is received by the other banks. The earliest receipt by
another bank is the deciding factor. Upon termination, the terminating
bank exits the pool. The pool will be continued by the other banks.
(3) If termination should occur as per paragraph (2), then the distribution
of the securities shall still require special consultation amongst the
banks. The companies and third party guarantors are obliged to
co-operate with the transfer of securities, insofar as this is legally
required. Upon request of any one bank, a balance of payments as per the
regulations given in Section 7 is to be conducted upon the termination
of any bank. This balance of payments is to include the terminating bank.
Section 12
Place of fulfilment, place of jurisdiction and governing law
(1) It has been agreed that Stuttgart shall be the place of fulfilment and
jurisdiction for all obligations arising from this contract.
(2) This contract is governed by the laws of the Federal Republic of Germany
Section 13
Alterations and additions to the contract
(1) Alterations and additions to this contract must be made in writing to be
valid. The same applies for renunciation of this form requirement.
Ancillary agreements have not been met.
(2) This contract is also valid should the shareholders change or if the
companies should change their legal form.
Section 14
Salvatorial clause
Insofar as any one of the clauses of this contract or several of the clauses
of this contract should become cease to be legal or impossible to apply, then
the remaining clauses are not affected by this. The contracting parties will
replace invalid or inapplicable clauses with others, which corresponds to
that which was desired with
<PAGE>
the original clause and is as close as possible to the contents of the clause
being replaced. The same applies if omissions are found which need to be
amended.
/s/ Herr Weihing
REUTLINGEN 6 NOV 1997 /s/ Herr Schopp
- -------------------------------- --------------------------------
(Place/Date) (Commerzbank)
/s/ Herr Koppka
REUTLINGEN 10 NOV 1997 /s/ Herr Dr. Arndt
- -------------------------------- --------------------------------
(Place/Date) (BW Bank)
/s/ Herr Servais
REUTLINGEN 10 NOV 1997 /s/ Herr Buhler
- -------------------------------- --------------------------------
(Place/Date) (Deutsche Bank)
/s/ Herr Fugen
REUTLINGEN 10 NOV 1997 /s/ Herr Diedler
- -------------------------------- --------------------------------
(Place/Date) (Kreissparkasse)
/s/ Frau Diem
STUTTGART 11 NOV 1997 /s/ Herr Horgung
- -------------------------------- --------------------------------
(Place/Date) (Landesgirokasse)
/s/ Herr Haussler
STUTTGART 11 NOV 1997 /s/ Herr Hellenschmidt
- -------------------------------- --------------------------------
(Place/Date) (Stuttgarter Bank)
We, Wandel & Goltermann Management Holding GmbH and Wandel & Goltermann GmbH
& Co. Elektronische Messtechnik, assume all obligations which affect us as a
result of this contract and also agree to it; especially the regulations set
out in Section 3 (Purpose of security), Section 7 (Balance of payments),
Section 9 (Costs) and Section 10 (Notification).
REUTLINGEN 6 NOV 1997 /s/ A. WANDEL
- -------------------------------- --------------------------------
(Place/Date) (Wandel & Goltermann Management
Holding GmbH)
REUTLINGEN 6 NOV 1997 /s/ A. WANDEL
- -------------------------------- --------------------------------
(Place/Date) (Wandel & Goltermann GmbH & Co.
Elektr. Messtechnik)
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of September 30, 1998, by and between Wavetek
Corporation, a Delaware corporation (the "Company"), and Terence J. Gooding
(the "Employee").
WHEREAS, Employee has been employed as an executive officer of
Company; and
WHEREAS, Company and Employee wish to set forth the terms of the
Employee's continued employment by Company;
NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein
contained, and other good and valuable consideration, the parties hereto agree
as follows:
1. EMPLOYMENT.
Company hereby employs Employee, and Employee agrees to serve as an
employee of the Company, on the terms and conditions set forth in this
Agreement.
2. PERIOD OF EMPLOYMENT.
The "Period of Employment" shall be the period commencing on
September 30, 1998, and ending on March 31, 1999.
3. DUTIES DURING THE PERIOD OF EMPLOYMENT.
During the Period of Employment, Employee shall have such duties and
responsibilities as are assigned to Employee by the Board of Directors of
Company commensurate with such position. In performing such duties, Employee's
principal place of employment shall be at the offices of the Company set forth
on Exhibit A.
<PAGE>
4. CURRENT CASH COMPENSATION.
(a) BASE SALARY.
As compensation for his services hereunder, Company will pay to
Employee during the Period of Employment a base salary at the annual rate of
$325,000, payable in accordance with the Company's payroll practices for senior
executives.
(b) DISCRETIONARY BONUS.
In addition to the base salary referred to in paragraph (a) of this
Section, Employee shall be entitled to a bonus in such amount as determined by
the Board of Directors of Company in its discretion.
5. OTHER EMPLOYEE BENEFITS.
(a) REGULAR REIMBURSED BUSINESS EXPENSES.
Company shall reimburse Employee for all expenses and disbursements
reasonably incurred by Employee in the performance of Employee's duties during
the Period of Employment, including first-class air travel, and provide such
other facilities or services as Company and Employee may, from time to time,
agree are appropriate, all in accordance with Company's established policies.
(b) EMPLOYEE BENEFIT PLANS.
In addition to the cash compensation provided for in Section 4 hereof,
Employee, subject to meeting eligibility provisions and to the provisions of
this Agreement, shall be entitled to participate in Company's employee benefit
plans for U.S. executives, as presently in effect or as they may be modified or
added to by Company from time to time.
(c) ADDITIONAL BENEFITS.
In addition to the cash compensation provided for in Section 4 hereof
and participation in the employee benefit plans provided in paragraph (b) of
this Section, Employee shall be entitled to the additional benefits set forth in
Exhibit A.
-2-
<PAGE>
6. CONFIDENTIAL INFORMATION.
Employee agrees to keep secret and retain in the strictest confidence
all confidential matters which relate to Company or any affiliate of Company,
including, without limitation, customer lists, client lists, trade secrets,
pricing policies and other business affairs of Company and any affiliate of
Company learned by Employee from Company or any such affiliate or otherwise
before or after the date of this Agreement, and not to disclose any such
confidential matter to anyone outside Company or any of its affiliates, whether
during or after Employee's period of service with Company, except as may be
required by a court of law, by any governmental agency having supervisory
authority over the business of the Company or by any administrative or
legislative body (including a committee thereof) with apparent jurisdiction to
order him to divulge, disclose or make accessible such information. Employee
agrees to give Company advance written notice of any disclosure pursuant to the
preceding sentence and to cooperate with any efforts by Company to limit the
extent of such disclosure. Upon request by Company, Employee agrees to deliver
promptly to Company upon termination of Employee's services for Company, or at
any time thereafter as Company may request, all Company or affiliate memoranda,
notes, records, reports, manuals, drawings, designs, computer files in any media
and other documents (and all copies thereof) relating to Company's or any
affiliate's business and all property of Company or any affiliate associated
therewith, which Employee may then possess or have under Employee's control,
other than personal notes, diaries, rolodexes and correspondence.
7. NONCOMPETITION AGREEMENT.
Without the consent in writing of the Board of Directors of Company
which will not be unreasonably withheld, upon termination of Employee's
employment for any reason whatsoever, Employee will not for a period of one year
thereafter (i) engage in, or carry on, directly or indirectly, either for
himself or as a member of a partnership or as a stockholder, investor, officer
or director of a corporation or as an employee, agent, associate, adviser or
consultant of any person, partnership or corporation, any business in
-3-
<PAGE>
competition with the business carried on by Company or any of its affiliates or
(ii) employ or seek to employ any person then employed by the Company or any of
its affiliates. Notwithstanding the preceding sentence, Employee shall not be
prohibited from owning less than five percent (5%) of any publicly traded
corporation (whether or not such corporation is in competition with Company or
its affiliates).
It is the intention of the parties hereto that the restrictions
contained in this Section be enforceable to the fullest extent permitted by
applicable law. Therefore, to the extent any court of competent jurisdiction
shall determine that any portion of the foregoing restrictions is excessive,
such provision shall not be entirely void, but rather shall be limited or
revised only to the extent necessary to make it enforceable.
Employee confirms that all restrictions in this Section are reasonable
and valid and hereby waives all defenses to the strict enforcement thereof by
Company.
8. REMEDY.
Should Employee engage in or perform, either directly or indirectly,
any of the acts prohibited by Sections 6 and 7 hereof, it is agreed that Company
shall be entitled to full injunctive relief, to be issued by any competent court
of equity, enjoining and restraining Employee and each and every other person,
firm, organization, association, or corporation concerned therein, from the
continuance of such violative acts. The foregoing remedy available to Company
shall not be deemed to limit or prevent the exercise by Company of any or all
further rights and remedies which may be available to Company hereunder or at
law or in equity.
9. GOVERNING LAW.
This Agreement is governed by and is to be construed and enforced in
accordance with the laws of the State of Delaware, without reference to rules
relating to conflicts of law. If under such law, any portion of this Agreement
is at any time deemed to be in conflict with any applicable statute, rule,
regulation or ordinance, such portion shall be deemed to be modified or altered
to conform thereto or, if that is not possible, to be
-4-
<PAGE>
omitted from this Agreement; the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof.
10. NOTICES.
All notices under this Agreement shall be in writing and shall be
deemed effective when delivered in person, or five (5) days after deposit
thereof in the U.S. mails, postage prepaid, for delivery as registered or
certified mail, addressed to the respective party at the address set forth below
or to such other address as may hereafter be designated by like notice. Unless
otherwise notified as set forth above, notice shall be sent to each party as
follows:
(a) Employee, to:
Terence J. Gooding
P. O. Box 675220
Rancho Santa Fe, California 92067
(b) Company, to:
Wavetek Corporation
1030A Swabia Court
P.O. Box 113585
Research Triangle Park, North Carolina 27709-3585
Attention: Chief Executive Officer
In lieu of personal notice or notice by deposit in the U.S. mail, a
party may give notice by confirmed telegram, telex or fax, which shall be
effective upon receipt.
11. MISCELLANEOUS.
(a) ENTIRE AGREEMENT.
This Agreement constitutes the entire understanding between Company
and Employee relating to employment of Employee by Company and supersedes and
cancels all prior written and oral agreements and understandings with respect to
the subject matter of this Agreement. This Agreement may be amended but only by
a subsequent written agreement of the parties. This Agreement shall be binding
upon and shall inure to the
-5-
<PAGE>
benefit of Employee, Employee's heirs, executors, administrators and
beneficiaries, and Company and its successors.
(b) WITHHOLDING TAXES.
All amounts payable to Employee under this Agreement shall be subject
to applicable withholding of income, employment and other taxes.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the year and day first above written.
WAVETEK CORPORATION
By: /s/ Albrecht Wandel
--------------------------------------------
Albrecht Wandel
Co-Chairman of the Board of Directors
/s/ Terence J. Gooding
--------------------------------------------
Terence J. Gooding
-6-
<PAGE>
EXHIBIT A TO EMPLOYMENT AGREEMENT
BETWEEN WAVETEK CORPORATION AND
TERENCE J. GOODING
PRINCIPAL PLACE OF EMPLOYMENT
San Diego, California
ADDITIONAL BENEFITS
1. ASSUMPTION OF LEASE. Effective as of April 1, 1999, Employee shall
assume the lease for Company's offices in San Diego, California. At that time
Employee shall have the option to purchase any or all of the furniture, fixtures
and equipment at Company's offices in San Diego, California for a cost equal to
depreciated book value.
2. EXECUTIVE ASSISTANT. Company shall continue to employ the current
executive assistant of Employee or a replacement designated by Employee during
the Period of Employment and provide such assistant with salary, bonus and
benefits no less favorable than those provided to such assistant on
September 30, 1998.
PAYMENT ON TERMINATION OF PERIOD OF EMPLOYMENT
Upon termination of the Period of Employment on March 31, 1999, Company
shall pay Employee an amount equal to 12 months' base salary at the rate in
effect at the commencement of the Period of Employment (i.e., $325,000).
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of September 30, 1998, by and between Wavetek
Wandel & Goltermann, Inc., a Delaware corporation (the "Company"), and Peter
Wagner (the "Employee").
WHEREAS, Employee has been employed as an executive officer of
Company; and
WHEREAS, Company and Employee wish to set forth the terms of the
Employee's continued employment by Company;
NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein
contained, and other good and valuable consideration, the parties hereto
agree as follows:
1. EMPLOYMENT.
Company hereby employs Employee, and Employee agrees to serve as an
employee of the Company, on the terms and conditions set forth in this
Agreement.
2. PERIOD OF EMPLOYMENT.
The "Period of Employment" shall be the period commencing on
September 30, 1998, and ending on September 29, 2001; PROVIDED, HOWEVER, that
commencing on September 30, 1999 and on the September 30 of each year
thereafter, the term of the Agreement shall automatically be extended for one
additional year unless at least 30 days prior to any such date, Company or
Employee shall have given notice in accordance with Section 11 hereof that
such extension shall not occur.
3. DUTIES DURING THE PERIOD OF EMPLOYMENT.
During the Period of Employment, Employee shall serve as President
and Chief Executive Officer of the Company and shall have such duties and
responsibilities as are assigned to Employee by the Board of Directors of
Employee's full business time, attention and efforts to the affairs of
Company during the Period of Employment, PROVIDED, HOWEVER, that Employee
<PAGE>
may engage in other activities, such as activities involving professional,
charitable, educational, religious and similar types of organizations,
speaking engagements, membership on the board of directors of such other
organizations as Company may from time to time agree to, and similar type
activities to the extent that such other activities do not inhibit or
prohibit the performance of Employee's duties under this Agreement, or
conflict in any material way with the business of Company and its affiliates.
In performing such duties, Employee's principal place of employment
shall be at the offices of the Company set forth on Exhibit A.
4. CURRENT CASH COMPENSATION.
As compensation for Employee's services hereunder, during the
Period of Employment Employee will be entitled to target total compensation
at the annual rate of 990,000 DM of which: (i) 66 2/3% shall be base salary,
payable in accordance with the Company's payroll practices for senior
executives and (ii) 33 1/3% shall be target bonus, payable in accordance with
Company's annual bonus plan. Company shall review such target total
compensation annually and in light of such review may, in the discretion of
the Board of Directors of Company (but shall not be obligated to), increase
such target total compensation taking into account any change in Employee's
then responsibilities, increases in the cost of living, performance by
Employee, and other pertinent factors.
5. OTHER EMPLOYEE BENEFITS.
(a) VACATION AND SICK LEAVE.
Employee shall be entitled to reasonable paid annual vacation
periods and sick leave in accordance with the Company's executive vacation
and sick leave policies.
(b) REGULAR REIMBURSED BUSINESS EXPENSES.
Company shall reimburse Employee for all expenses and disbursements
reasonably incurred by Employee in the performance of Employee's duties
during the Period of Employment, and provide such other facilities or
services as Company and Employee may, from time to time, agree are
appropriate, all in accordance with Company's established policies.
-2-
<PAGE>
(c) EMPLOYEE BENEFIT PLANS.
In addition to the cash compensation provided for in Section 4
hereof, Employee, subject to meeting eligibility provisions and to the
provisions of this Agreement, shall be entitled to participate in Company's
employee benefit plans, as presently in effect or as they may be modified or
added to by Company from time to time.
(d) EXECUTIVE COMPENSATION PLANS.
In addition to the cash compensation provided for in Section 4
hereof and the employee benefits provided for in paragraph (c) of this
Section, Employee, subject to meeting eligibility provisions and to the
provisions of this Agreement, shall be entitled to participate in Company's
executive compensation plans, as presently in effect or as they may be
modified or added to by Company from time to time.
(e) ADDITIONAL BENEFITS.
In addition to the cash compensation provided for in Section 4
hereof and participation in the employee benefit and executive compensation
plans provided in paragraphs (c) and (d) of this Section, Employee shall be
entitled to the additional benefits set forth in Exhibit A.
6. TERMINATION.
(a) TERMINATION BY COMPANY WITHOUT CAUSE.
If Company should terminate the Period of Employment without Cause
as defined below, in addition to any other compensation and benefits payable
as provided for hereunder, Company shall pay to Employee a lump sum amount
equal to the base salary payable to Employee pursuant to Section 4 as of the
date of termination of the Period of Employment for the greater of (i) the
balance of the Period of Employment or (ii) twelve months.
"Cause" shall mean the willful and continued failure by Employee to
use reasonable effort to substantially perform Employee's duties with Company
(other than any such failure resulting from incapacity due to physical or
mental illness) after a demand for substantial performance is delivered to
Employee by the Company which specifically
-3-
<PAGE>
identifies the manner in which Company believes Employee has not
substantially performed his duties; conviction of, or plea of NOLO CONTENDERE
to, a felony; habitual abuse of narcotics or alcohol; fraud, material
dishonesty or gross misconduct in connection with the business of the Company.
(b) TERMINATION BY EMPLOYEE; TERMINATION BY COMPANY FOR CAUSE.
Employee shall have the right, upon 30 days' prior written notice
given to Company, to terminate the Period of Employment. If Employee should
terminate the Period of Employment or Company should terminate the Period of
Employment for Cause, Employee will be entitled only to be paid the base
annual salary otherwise payable to Employee under paragraph (a) of Section 4
through the end of the month in which the Period of Employment is terminated.
7. CONFIDENTIAL INFORMATION.
Employee agrees to keep secret and retain in the strictest
confidence all confidential matters which relate to Company or any affiliate
of Company, including, without limitation, customer lists, client lists,
trade secrets, pricing policies and other business affairs of Company and any
affiliate of Company learned by Employee from Company or any such affiliate
or otherwise before or after the date of this Agreement, and not to disclose
any such confidential matter to anyone outside Company or any of its
affiliates, whether during or after Employee's period of service with
Company, except as may be required by a court of law, by any governmental
agency having supervisory authority over the business of the Company or by
any administrative or legislative body (including a committee thereof) with
apparent jurisdiction to order him to divulge, disclose or make accessible
such information. Employee agrees to give Company advance written notice of
any disclosure pursuant to the preceding sentence and to cooperate with any
efforts by Company to limit the extent of such disclosure. Upon request by
Company, Employee agrees to deliver promptly to Company upon termination of
Employee's services for Company, or at any time thereafter as Company may
request, all Company or affiliate memoranda, notes, records, reports,
manuals, drawings, designs, computer files in any
-4-
<PAGE>
media and other documents (and all copies thereof) relating to Company's or
any affiliate's business and all property of Company or any affiliate
associated therewith, which Employee may then possess or have under
Employee's control, other than personal notes, diaries, rolodexes and
correspondence.
8. NONCOMPETITION AGREEMENT.
Without the consent in writing of the Board of Directors of Company
which will not be unreasonably withheld, upon termination of Employee's
employment for any reason whatsoever, Employee will not for a period of one
year thereafter (i) engage in, or carry on, directly or indirectly, either
for himself or as a member of a partnership or as a stockholder, investor,
officer or director of a corporation or as an employee, agent, associate,
adviser or consultant of any person, partnership or corporation, any business
in competition with the business carried on by Company or any of its
affiliates or (ii) employ or seek to employ any person then employed by the
Company or any of its affiliates. Notwithstanding the preceding sentence,
Employee shall not be prohibited from owning less than five percent (5%) of
any publicly traded corporation (whether or not such corporation is in
competition with Company or its affiliates).
It is the intention of the parties hereto that the restrictions
contained in this Section be enforceable to the fullest extent permitted by
applicable law. Therefore, to the extent any court of competent jurisdiction
shall determine that any portion of the foregoing restrictions is excessive,
such provision shall not be entirely void, but rather shall be limited or
revised only to the extent necessary to make it enforceable.
Employee confirms that all restrictions in this Section are
reasonable and valid and hereby waives all defenses to the strict enforcement
thereof by Company.
9. REMEDY.
Should Employee engage in or perform, either directly or
indirectly, any of the acts prohibited by Sections 7 and 8 hereof, it is
agreed that Company shall be entitled to full injunctive relief, to be issued
by any competent court of equity, enjoining and restraining Employee and each
and every other person, firm, organization, association, or corporation
-5-
<PAGE>
concerned therein, from the continuance of such violative acts. The
foregoing remedy available to Company shall not be deemed to limit or prevent
the exercise by Company of any or all further rights and remedies which may
be available to Company hereunder or at law or in equity.
10. GOVERNING LAW.
This Agreement is governed by and is to be construed and enforced
in accordance with the laws of the State of Delaware, without reference to
rules relating to conflicts of law. If under such law, any portion of this
Agreement is at any time deemed to be in conflict with any applicable
statute, rule, regulation or ordinance, such portion shall be deemed to be
modified or altered to conform thereto or, if that is not possible, to be
omitted from this Agreement; the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof.
11. NOTICES.
All notices under this Agreement shall be in writing and shall be
deemed effective when delivered in person, or five (5) days after deposit
thereof in the U.S. mails, postage prepaid, for delivery as registered or
certified mail, addressed to the respective party at the address set forth
below or to such other address as may hereafter be designated by like notice.
Unless otherwise notified as set forth above, notice shall be sent to each
party as follows:
(a) Employee, to:
Peter Wagner
Bergasse 75
Reutlingen 72762 Germany
(b) Company, to:
Wavetek Wandel & Goltermann, Inc.
1030A Swabia Court
P.O. Box 113585
Research Triangle Park, North Carolina 27709-3585
Attention: Chief Financial Officer
-6-
<PAGE>
In lieu of personal notice or notice by deposit in the U.S. mail, a
party may give notice by confirmed telegram, telex or fax, which shall be
effective upon receipt.
12. MISCELLANEOUS.
(a) ENTIRE AGREEMENT.
This Agreement constitutes the entire understanding between Company
and Employee relating to employment of Employee by Company and supersedes and
cancels all prior written and oral agreements and understandings with respect
to the subject matter of this Agreement. This Agreement may be amended but
only by a subsequent written agreement of the parties. This Agreement shall
be binding upon and shall inure to the benefit of Employee, Employee's heirs,
executors, administrators and beneficiaries, and Company and its successors.
(b) ADVERSE TAX CONSEQUENCES
In the event this Agreement will result in adverse tax consequences
to Employee, the parties shall negotiate in good faith a new or amended
Agreement which eliminates, to the extent practicable, such adverse tax
treatment.
(c) WITHHOLDING TAXES.
All amounts payable to Employee under this Agreement shall be
subject to applicable withholding of income, employment and other taxes.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the year and day first above written.
WAVETEK WANDEL & GOLTERMANN, INC.
By: /s/ Terence J. Gooding
-----------------------------------------
Terence J. Gooding
Co-Chairman of the Board of Directors
/s/ Peter Wagner
------------------------------------------
Peter Wagner
-7-
<PAGE>
EXHIBIT A TO EMPLOYMENT AGREEMENT
BETWEEN WAVETEK WANDEL & GOLTERMANN, INC.
AND PETER WAGNER
PRINCIPAL PLACE OF EMPLOYMENT
Eningen, Germany
ADDITIONAL BENEFITS
Employee shall be entitled to the following benefits as provided in his
employment agreement with Wandel & Goltermann in effect immediately prior to
the beginning of the Period of Employment: company car with mobile phone,
private telephone and facsimile machine at home for business use, illness and
death benefits and special pension arrangements.
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of September 30, 1998, by and between Wavetek
Wandel & Goltermann, Inc., a Delaware corporation (the "Company"), and Ben
Constantini (the "Employee").
WHEREAS, Employee has been employed as an executive officer of
Company; and
WHEREAS, Company and Employee wish to set forth the terms of the
Employee's continued employment by Company;
NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein
contained, and other good and valuable consideration, the parties hereto
agree as follows:
1. EMPLOYMENT.
Company hereby employs Employee, and Employee agrees to serve as an
employee of the Company, on the terms and conditions set forth in this
Agreement.
2. PERIOD OF EMPLOYMENT.
The "Period of Employment" shall be the period commencing on
September 30, 1998, and ending on September 29, 2000; PROVIDED, HOWEVER, that
commencing on September 30, 1999 and on the September 30 of each year
thereafter, the term of the Agreement shall automatically be extended for one
additional year unless at least 30 days prior to any such date, Company or
Employee shall have given notice in accordance with Section 11 hereof that
such extension shall not occur.
3. DUTIES DURING THE PERIOD OF EMPLOYMENT.
During the Period of Employment, Employee shall serve as Executive
Vice President, Sales of the Company and shall have such duties and
responsibilities as are assigned to Employee by the Board of Directors of
Company commensurate with such position. Employee shall devote Employee's
full business time, attention and efforts to the affairs of Company during
the Period of Employment, PROVIDED, HOWEVER, that Employee
<PAGE>
may engage in other activities, such as activities involving professional,
charitable, educational, religious and similar types of organizations,
speaking engagements, membership on the board of directors of such other
organizations as Company may from time to time agree to, and similar type
activities to the extent that such other activities do not inhibit or
prohibit the performance of Employee's duties under this Agreement, or
conflict in any material way with the business of Company and its affiliates.
In performing such duties, Employee's principal place of employment
shall be at the offices of the Company set forth on Exhibit A.
4. CURRENT CASH COMPENSATION.
As compensation for Employee's services hereunder, during the
Period of Employment Employee will be entitled to target total compensation
at the annual rate of $350,000 of which: (i) 70% shall be base salary,
payable in accordance with the Company's payroll practices for senior
executives and (ii) 30% shall be target bonus, payable in accordance with
Company's annual bonus plan. Company shall review such target total
compensation annually and in light of such review may, in the discretion of
the Board of Directors of Company (but shall not be obligated to), increase
such target total compensation taking into account any change in Employee's
then responsibilities, increases in the cost of living, performance by
Employee, and other pertinent factors.
5. OTHER EMPLOYEE BENEFITS.
(a) VACATION AND SICK LEAVE.
Employee shall be entitled to reasonable paid annual vacation
periods and sick leave in accordance with the Company's executive vacation
and sick leave policies.
(b) REGULAR REIMBURSED BUSINESS EXPENSES.
Company shall reimburse Employee for all expenses and disbursements
reasonably incurred by Employee in the performance of Employee's duties
during the Period of Employment, and provide such other facilities or
services as Company and Employee may, from time to time, agree are
appropriate, all in accordance with Company's established policies.
-2-
<PAGE>
(c) EMPLOYEE BENEFIT PLANS.
In addition to the cash compensation provided for in Section 4
hereof, Employee, subject to meeting eligibility provisions and to the
provisions of this Agreement, shall be entitled to participate in Company's
employee benefit plans for U.S. executives, as presently in effect or as they
may be modified or added to by Company from time to time.
(d) EXECUTIVE COMPENSATION PLANS.
In addition to the cash compensation provided for in Section 4
hereof and the employee benefits provided for in paragraph (c) of this
Section, Employee, subject to meeting eligibility provisions and to the
provisions of this Agreement, shall be entitled to participate in Company's
executive compensation plans, as presently in effect or as they may be
modified or added to by Company from time to time.
(e) ADDITIONAL BENEFITS.
In addition to the cash compensation provided for in Section 4
hereof and participation in the employee benefit and executive compensation
plans provided in paragraphs (c) and (d) of this Section, Employee shall be
entitled to the additional benefits set forth in Exhibit A.
6. TERMINATION.
(a) TERMINATION BY COMPANY WITHOUT CAUSE.
If Company should terminate the Period of Employment without Cause
as defined below, in addition to any other compensation and benefits payable
as provided for hereunder, Company shall pay to Employee a lump sum amount
equal to the base salary payable to Employee pursuant to Section 4 as of the
date of termination of the Period of Employment for the greater of (i) the
balance of the Period of Employment or (ii) twelve months.
In addition to the payment provided for above, in the event of such
termination all stock options held by Employee to purchase stock of Company
which would otherwise vest on or before January 5, 2000 shall become
immediately and fully
-3-
<PAGE>
vested. Notwithstanding anything contained herein to the contrary, such
stock option vesting is conditioned on Employee's execution of Company's
severance and general release agreement.
"Cause" shall mean the willful and continued failure by Employee to
use reasonable efforts to substantially perform Employee's duties with
Company (other than any such failure resulting from incapacity due to
physical or mental illness) after a demand for substantial performance is
delivered to Employee by the Company which specifically identifies the manner
in which Company believes Employee has not substantially performed his
duties; conviction of, or plea of NOLO CONTENDERE to, a felony; habitual
abuse of narcotics or alcohol; fraud, material dishonesty or gross misconduct
in connection with the business of the Company.
(b) TERMINATION BY EMPLOYEE; TERMINATION BY COMPANY FOR CAUSE.
Employee shall have the right, upon 30 days' prior written notice
given to Company, to terminate the Period of Employment. If Employee should
terminate the Period of Employment (except as provided in paragraph (c)
below) or Company should terminate the Period of Employment for Cause,
Employee will be entitled only to be paid the base annual salary otherwise
payable to Employee under paragraph (a) of Section 4 through the end of the
month in which the Period of Employment is terminated.
(c) TERMINATION AT END OF INITIAL PERIOD OF EMPLOYMENT.
Company shall pay to Employee a lump sum amount equal to twelve
months' base salary payable pursuant to Section 4 at the rate then in effect
if the Period of Employment terminates on September 29, 2000 pursuant to (i)
notice given by either party pursuant to Section 2 or (ii) at least 90 days'
prior written notice by Employee.
7. CONFIDENTIAL INFORMATION.
Employee agrees to keep secret and retain in the strictest
confidence all confidential matters which relate to Company or any affiliate
of Company, including, without limitation, customer lists, client lists,
trade secrets, pricing policies and other business affairs of Company and any
affiliate of Company learned by Employee from
-4-
<PAGE>
Company or any such affiliate or otherwise before or after the date of this
Agreement, and not to disclose any such confidential matter to anyone outside
Company or any of its affiliates, whether during or after Employee's period
of service with Company, except as may be required by a court of law, by any
governmental agency having supervisory authority over the business of the
Company or by any administrative or legislative body (including a committee
thereof) with apparent jurisdiction to order him to divulge, disclose or make
accessible such information. Employee agrees to give Company advance written
notice of any disclosure pursuant to the preceding sentence and to cooperate
with any efforts by Company to limit the extent of such disclosure. Upon
request by Company, Employee agrees to deliver promptly to Company upon
termination of Employee's services for Company, or at any time thereafter as
Company may request, all Company or affiliate memoranda, notes, records,
reports, manuals, drawings, designs, computer files in any media and other
documents (and all copies thereof) relating to Company's or any affiliate's
business and all property of Company or any affiliate associated therewith,
which Employee may then possess or have under Employee's control, other than
personal notes, diaries, rolodexes and correspondence.
8. NONCOMPETITION AGREEMENT.
Without the consent in writing of the Board of Directors of Company
which will not be unreasonably withheld, upon termination of Employee's
employment for any reason whatsoever, Employee will not for a period of one
year thereafter (i) engage in, or carry on, directly or indirectly, either
for himself or as a member of a partnership or as a stockholder, investor,
officer or director of a corporation or as an employee, agent, associate,
adviser or consultant of any person, partnership or corporation, any business
in competition with the business carried on by Company or any of its
affiliates or (ii) employ or seek to employ any person then employed by the
Company or any of its affiliates. Notwithstanding the preceding sentence,
Employee shall not be prohibited from owning less than five percent (5%) of
any publicly traded corporation (whether or not such corporation is in
competition with Company or its affiliates).
-5-
<PAGE>
It is the intention of the parties hereto that the restrictions
contained in this Section be enforceable to the fullest extent permitted by
applicable law. Therefore, to the extent any court of competent jurisdiction
shall determine that any portion of the foregoing restrictions is excessive,
such provision shall not be entirely void, but rather shall be limited or
revised only to the extent necessary to make it enforceable.
Employee confirms that all restrictions in this Section are
reasonable and valid and hereby waives all defenses to the strict enforcement
thereof by Company.
9. REMEDY.
Should Employee engage in or perform, either directly or
indirectly, any of the acts prohibited by Sections 7 and 8 hereof, it is
agreed that Company shall be entitled to full injunctive relief, to be issued
by any competent court of equity, enjoining and restraining Employee and each
and every other person, firm, organization, association, or corporation
concerned therein, from the continuance of such violative acts. The
foregoing remedy available to Company shall not be deemed to limit or prevent
the exercise by Company of any or all further rights and remedies which may
be available to Company hereunder or at law or in equity.
10. GOVERNING LAW.
This Agreement is governed by and is to be construed and enforced
in accordance with the laws of the State of Delaware, without reference to
rules relating to conflicts of law. If under such law, any portion of this
Agreement is at any time deemed to be in conflict with any applicable
statute, rule, regulation or ordinance, such portion shall be deemed to be
modified or altered to conform thereto or, if that is not possible, to be
omitted from this Agreement; the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof.
-6-
<PAGE>
11. NOTICES.
All notices under this Agreement shall be in writing and shall be
deemed effective when delivered in person, or five (5) days after deposit
thereof in the U.S. mails, postage prepaid, for delivery as registered or
certified mail, addressed to the respective party at the address set forth
below or to such other address as may hereafter be designated by like notice.
Unless otherwise notified as set forth above, notice shall be sent to each
party as follows:
(a) Employee, to:
Ben Constantini
Rohrer Strasse 117
70771 Leinfelden-Echterdingen
Germany
(b) Company, to:
Wavetek Wandel & Goltermann, Inc.
1030A Swabia Court
P.O. Box 113585
Research Triangle Park, North Carolina 27709-3585
Attention: Chief Executive Officer
In lieu of personal notice or notice by deposit in the U.S. mail, a
party may give notice by confirmed telegram, telex or fax, which shall be
effective upon receipt.
12. MISCELLANEOUS.
(a) ENTIRE AGREEMENT.
This Agreement constitutes the entire understanding between Company
and Employee relating to employment of Employee by Company and supersedes and
cancels all prior written and oral agreements and understandings with respect
to the subject matter of this Agreement. This Agreement may be amended but
only by a subsequent written agreement of the parties. This Agreement shall
be binding upon and shall inure to the
-7-
<PAGE>
benefit of Employee, Employee's heirs, executors, administrators and
beneficiaries, and Company and its successors.
(b) WITHHOLDING TAXES.
All amounts payable to Employee under this Agreement shall be
subject to applicable withholding of income, employment and other taxes.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the year and day first above written.
WAVETEK WANDEL & GOLTERMANN, INC.
By: /s/ Terence J. Gooding
------------------------------------
Terence J. Gooding
Co-Chairman of the Board of Directors
/s/ Ben Constantini
------------------------------------
Ben Constantini
-8-
<PAGE>
EXHIBIT A TO EMPLOYMENT AGREEMENT
BETWEEN WAVETEK WANDEL & GOLTERMANN, INC.
AND BEN CONSTANTINI
PRINCIPAL PLACE OF EMPLOYMENT
Eningen, Germany; Employee will also be provided with an office in the
United States
ADDITIONAL BENEFITS
1. LIVING EXPENSES AND PERSONAL EFFECTS. Company shall reimburse
Employee for (i) the rental expenses of an apartment in Germany (including
utilities) in excess of $1,500 per month and (ii) furniture for such
apartment; provided, however, that the cost of such apartment and furniture
must be agreed to by Company's Chief Executive Officer. Company shall make
an additional payment to Employee to "gross-up" Employee for the income taxes
payable on such reimbursement. In addition, Company shall pay Employee the
sum of DM 5,000 to be used by Employee for miscellaneous items in such
apartment (e.g., towels, sheets, dishes, silverware, etc.), together with an
additional payment to "gross-up" Employee for the income taxes payable on
such DM 5,000 payment.
Company will also pay Employee a cost of living allowance to cover a
market basket of goods and services to compensate Employee for the increased
cost of such goods and services in Germany over and above the cost thereof in
the United States.
2. AUTOMOBILE. Company shall provide Employee with the use of a car
of his choice in Germany, subject to the approval of the Company's Chief
Executive Officer, and Company shall pay all expenses of such car, including
gas, oil, repairs and insurance.
3. RELOCATION EXPENSES. Company shall reimburse Employee for expenses
incurred in relocating to the Eningen area in accordance with Company's
standard relocation policy. At the end of the Period of Employment, unless
such termination is for Cause, Company shall reimburse Employee for expenses
incurred in relocating to the San Diego, California area as if it were
covered by Company's standard relocation policy.
4. AIR FARE. Company will reimburse Employee for the reasonable cost
of roundtrip airfare between Germany and San Diego, California for two trips
per year.
5. TAX EQUALIZATION. Company shall make tax equalization payment to
Employee (at U.S. income tax rates) in respect of German income tax payable
by Employee during the taxable years which begin during the Period of
Employment.
<PAGE>
6. TAX RETURN PREPARATION. Company shall pay Ernst & Young (or
another nationally recognized accounting firm) to prepare Employee's United
States and German income tax returns for the taxable years which begin during
the Period of Employment.
7. SPECIAL BONUS. On September 28, 2000, Company shall pay Employee a
special bonus equal to one year's base salary (at the annual rate then in
effect), regardless of whether Employee has given notice under paragraph (c)
of Section 6 of this Agreement. If Company terminates the Period of
Employment prior to such date, other than for Cause, Company shall pay such
special bonus to Employee in addition to the payments provided for in
paragraphs (a) and (c) of Section 6 of this Agreement.
-2-
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of September 30, 1998, by and between Wavetek
Wandel & Goltermann, Inc., a Delaware corporation (the "Company"), and Vickie
Capps (the "Employee").
WHEREAS, Employee has been employed as an executive officer of
Company; and
WHEREAS, Company and Employee wish to set forth the terms of the
Employee's continued employment by Company;
NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants herein
contained, and other good and valuable consideration, the parties hereto agree
as follows:
1. EMPLOYMENT.
Company hereby employs Employee, and Employee agrees to serve as an
employee of the Company, on the terms and conditions set forth in this
Agreement.
2. PERIOD OF EMPLOYMENT.
The "Period of Employment" shall be the period commencing on
September 30, 1998, and ending on December 31, 1999.
3. DUTIES DURING THE PERIOD OF EMPLOYMENT.
During the Period of Employment, Employee shall serve as (i) Senior
Vice President, Finance of the Company and (ii) Acting Chief Financial Officer
until a new Chief Financial Officer is appointed, and shall have such duties and
responsibilities as are assigned to Employee by the Board of Directors of
Company commensurate with such positions. Employee shall devote Employee's full
business time, attention and efforts to the affairs of Company during the Period
of Employment, PROVIDED, HOWEVER, that Employee may engage in other activities,
such as activities involving professional, charitable, educational, religious
and similar types of organizations, speaking engagements, membership on the
board of directors of such other organizations as Company may from
<PAGE>
time to time agree to, and similar type activities to the extent that such
other activities do not inhibit or prohibit the performance of Employee's
duties under this Agreement, or conflict in any material way with the
business of Company and its affiliates.
In performing such duties, Employee's principal place of employment
shall be at the offices of the Company set forth on Exhibit A.
4. CURRENT CASH COMPENSATION.
As compensation for Employee's services hereunder, during the Period
of Employment Employee will be entitled to target total compensation at the
annual rate of $253,000 of which: (i) 70% shall be base salary, payable in
accordance with the Company's payroll practices for senior executives and
(ii) 30% shall be target bonus (pro-rated for the portion of the fiscal year
during the Period of Employment), payable if the Employee's personal objectives
and the Company's objectives as agreed to by Company's Chief Executive Officer
are met.
5. OTHER EMPLOYEE BENEFITS.
(a) VACATION AND SICK LEAVE.
Employee shall be entitled to reasonable paid annual vacation periods
and sick leave in accordance with the Company's executive vacation and sick
leave policies.
(b) REGULAR REIMBURSED BUSINESS EXPENSES.
Company shall reimburse Employee for all expenses and disbursements
reasonably incurred by Employee in the performance of Employee's duties during
the Period of Employment, and provide such other facilities or services as
Company and Employee may, from time to time, agree are appropriate, all in
accordance with Company's established policies.
-2-
<PAGE>
(c) EMPLOYEE BENEFIT PLANS.
In addition to the cash compensation provided for in Section 4 hereof,
Employee, subject to meeting eligibility provisions and to the provisions of
this Agreement, shall be entitled to participate in Company's employee benefit
plans for U.S. executives, as presently in effect or as they may be modified or
added to by Company from time to time.
(d) EXECUTIVE COMPENSATION PLANS.
In addition to the cash compensation provided for in Section 4 hereof
and the employee benefits provided for in paragraph (c) of this Section,
Employee, subject to meeting eligibility provisions and to the provisions of
this Agreement, shall be entitled to participate in Company's executive
compensation plans, as presently in effect or as they may be modified or added
to by Company from time to time.
(e) ADDITIONAL BENEFITS.
In addition to the cash compensation provided for in Section 4 hereof
and participation in the employee benefit and executive compensation plans
provided in paragraphs (c) and (d) of this Section, Employee shall be entitled
to the additional benefits set forth in Exhibit A.
(f) RETENTION PAYMENT; STOCK OPTION VESTING.
If Employee continues to be employed by Company until June 30, 1999,
Company shall pay to Employee an amount equal to $100,000 (the "Retention
Payment"). In addition, in such event all stock options held by Employee to
purchase stock of Company which would otherwise vest on or before January 5,
2000 shall become immediately and fully vested.
6. TERMINATION.
(a) TERMINATION BY COMPANY WITHOUT CAUSE;
TERMINATION BY EMPLOYEE AFTER JUNE 30, 1999.
If Company should terminate the Period of Employment without Cause (as
defined below) at any time or if Employee terminates the Period of Employment
for any reason after June 30, 1999, in addition to any other compensation and
benefits payable as
-3-
<PAGE>
provided for hereunder, Company shall pay to Employee an amount equal
to $250,000, reduced by the amount of the Retention Payment, if any, paid
to Employee.
If Company terminates the Period of Employment without Cause before
June 30, 1999, stock options held by Employee to purchase stock of Company which
would otherwise vest on or before January 5, 2000 shall become immediately and
fully vested upon the date of termination. Notwithstanding anything contained
herein to the contrary, such stock option vesting is conditioned on Employee's
execution of Company's severance and general release agreement.
"Cause" shall mean the willful and continued failure by Employee to
use reasonable efforts to substantially perform Employee's duties with Company
(other than any such failure resulting from incapacity due to physical or mental
illness) after a demand for substantial performance is delivered to Employee by
the Company which specifically identifies the manner in which Company believes
Employee has not substantially performed his duties; conviction of, or plea of
NOLO CONTENDERE to, a felony; habitual abuse of narcotics or alcohol; fraud,
material dishonesty or gross misconduct in connection with the business of the
Company.
(b) TERMINATION BY EMPLOYEE PRIOR TO JULY 1, 1999;
TERMINATION BY COMPANY FOR CAUSE.
Employee shall have the right, upon 30 days' prior written notice
given to Company, to terminate the Period of Employment. If Employee should
terminate the Period of Employment prior to July 1, 1999 or Company should
terminate the Period of Employment for Cause, Employee will be entitled only to
be paid the base annual salary otherwise payable to Employee under Section 4
through the end of the month in which the Period of Employment is terminated.
7. CONFIDENTIAL INFORMATION.
Employee agrees to keep secret and retain in the strictest confidence
all confidential matters which relate to Company or any affiliate of Company,
including, without limitation, customer lists, client lists, trade secrets,
pricing policies and other
-4-
<PAGE>
business affairs of Company and any affiliate of Company learned by Employee
from Company or any such affiliate or otherwise before or after the date of
this Agreement, and not to disclose any such confidential matter to anyone
outside Company or any of its affiliates, whether during or after Employee's
period of service with Company, except as may be required by a court of law,
by any governmental agency having supervisory authority over the business of
the Company or by any administrative or legislative body (including a
committee thereof) with apparent jurisdiction to order him to divulge,
disclose or make accessible such information. Employee agrees to give
Company advance written notice of any disclosure pursuant to the preceding
sentence and to cooperate with any efforts by Company to limit the extent of
such disclosure. Upon request by Company, Employee agrees to deliver
promptly to Company upon termination of Employee's services for Company, or
at any time thereafter as Company may request, all Company or affiliate
memoranda, notes, records, reports, manuals, drawings, designs, computer
files in any media and other documents (and all copies thereof) relating to
Company's or any affiliate's business and all property of Company or any
affiliate associated therewith, which Employee may then possess or have under
Employee's control, other than personal notes, diaries, rolodexes and
correspondence.
8. NONCOMPETITION AGREEMENT.
Without the consent in writing of the Board of Directors of Company
which will not be unreasonably withheld, upon termination of Employee's
employment for any reason whatsoever, Employee will not for a period of one year
thereafter (i) engage in, or carry on, directly or indirectly, either for
himself or as a member of a partnership or as a stockholder, investor, officer
or director of a corporation or as an employee, agent, associate, adviser or
consultant of any person, partnership or corporation, any business in
competition with the business carried on by Company or any of its affiliates or
(ii) employ or seek to employ any person then employed by the Company or any of
its affiliates. Notwithstanding the preceding sentence, Employee shall not be
prohibited from owning
-5-
<PAGE>
less than five percent (5%) of any publicly traded corporation (whether or
not such corporation is in competition with Company or its affiliates).
It is the intention of the parties hereto that the restrictions
contained in this Section be enforceable to the fullest extent permitted by
applicable law. Therefore, to the extent any court of competent jurisdiction
shall determine that any portion of the foregoing restrictions is excessive,
such provision shall not be entirely void, but rather shall be limited or
revised only to the extent necessary to make it enforceable.
Employee confirms that all restrictions in this Section are reasonable
and valid and hereby waives all defenses to the strict enforcement thereof by
Company.
9. REMEDY.
Should Employee engage in or perform, either directly or indirectly,
any of the acts prohibited by Sections 7 and 8 hereof, it is agreed that Company
shall be entitled to full injunctive relief, to be issued by any competent court
of equity, enjoining and restraining Employee and each and every other person,
firm, organization, association, or corporation concerned therein, from the
continuance of such violative acts. The foregoing remedy available to Company
shall not be deemed to limit or prevent the exercise by Company of any or all
further rights and remedies which may be available to Company hereunder or at
law or in equity.
10. GOVERNING LAW.
This Agreement is governed by and is to be construed and enforced in
accordance with the laws of the State of Delaware, without reference to rules
relating to conflicts of law. If under such law, any portion of this Agreement
is at any time deemed to be in conflict with any applicable statute, rule,
regulation or ordinance, such portion shall be deemed to be modified or altered
to conform thereto or, if that is not possible, to be omitted from this
Agreement; the invalidity of any such portion shall not affect the force, effect
and validity of the remaining portion hereof.
11. NOTICES.
-6-
<PAGE>
All notices under this Agreement shall be in writing and shall be
deemed effective when delivered in person, or five (5) days after deposit
thereof in the U.S. mails, postage prepaid, for delivery as registered or
certified mail, addressed to the respective party at the address set forth below
or to such other address as may hereafter be designated by like notice. Unless
otherwise notified as set forth above, notice shall be sent to each party as
follows:
(a) Employee, to:
Vickie Capps
7445 Arucauna Court
San Diego, CA 92129
(b) Company, to:
Wavetek Wandel & Goltermann, Inc.
1030A Swabia Court
P.O. Box 113585
Research Triangle Park, North Carolina 27709-3585
Attention: Chief Executive Officer
In lieu of personal notice or notice by deposit in the U.S. mail, a
party may give notice by confirmed telegram, telex or fax, which shall be
effective upon receipt.
12. MISCELLANEOUS.
(a) ENTIRE AGREEMENT.
This Agreement constitutes the entire understanding between Company
and Employee relating to employment of Employee by Company and supersedes and
cancels all prior written and oral agreements and understandings with respect to
the subject matter of this Agreement. This Agreement may be amended but only by
a subsequent written agreement of the parties. This Agreement shall be binding
upon and shall inure to the benefit of Employee, Employee's heirs, executors,
administrators and beneficiaries, and Company and its successors.
(b) WITHHOLDING TAXES.
-7-
<PAGE>
All amounts payable to Employee under this Agreement shall be subject
to applicable withholding of income, employment and other taxes.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the year and day first above written.
WAVETEK WANDEL & GOLTERMANN, INC.
By: /s/ Terence J. Gooding
-----------------------------------------
Terence J. Gooding
Co-Chairman of the Board of Directors
/s/ Vickie Capps
-----------------------------------------
Vickie Capps
-8-
<PAGE>
EXHIBIT A TO EMPLOYMENT AGREEMENT
BETWEEN WAVETEK WANDEL & GOLTERMANN, INC.
AND VICKIE CAPPS
PRINCIPAL PLACE OF EMPLOYMENT
San Diego, California until completion of Company's new offices in Research
Triangle Park, North Carolina
ADDITIONAL BENEFITS
1. TEMPORARY LIVING EXPENSES. Upon the establishment of Company's
offices in Research Triangle Park, North Carolina, Company shall reimburse
Employee for the cost of an apartment in the Research Triangle Park area
(including rent and utilities) and furniture for such apartment; provided,
however, that the cost of such apartment must be agreed to by Company's Chief
Executive Officer. Company shall make an additional payment to Employee to
"gross-up" Employee for the income taxes payable on such reimbursement.
2. AIR FARE. Company shall reimburse Employee for the reasonable cost of
roundtrip air fare between San Diego and Research Triangle Park for two trips
per month through December 1999.
<PAGE>
The following
CONTRACT OF EMPLOYMENT
is made
between
Wandel & Goltermann Management Holding GmbH
72800 Eningen,
represented by the Chairman of the Supervisory Board,
Professor Dr.-Ing. Gerhard Zeidler
and
Karl-Heinz Eisemann
MuhlstraBe 28
70839 Gerlingen
1. DUTIES AND RESPONSIBILITIES
1.1. Karl-Heinz Eisemann is appointed as Director of Controlling and
Logistics for the Company with effect from 01.10.1997 in accordance
with the decision of the General Meeting of the Partners held on
24.03.1997. He represents the Company together with one other
Director or a "Prokurist" (holder of power of attorney for the
Company).
1.2. Mr. Eisemann will direct business in accordance with the Law and the
terms of this Contract and the statutes of Wandel & Goltermann
Management Holding GmbH as well as the applicable bylaws of the
Company.
<PAGE>
1.3. Mr. Eisemann shall devote his labor exclusively to the Company.
Acceptance of any secondary employment within his profession, either
paid or unpaid, or of any honorary position, supervisory board
appointment or similar assignment requires the previous agreement of
a General Meeting of the Partners insofar as such appointment is not
detrimental to the interests of the Company to any extent.
1.4. For the duration of this Contract Mr. Eisemann shall not acquire an
interest in or participate in any business that is in competition
with the Company or that has business dealings with the Company.
Any exceptions to this clause require the agreement of the
Supervisory Board.
1.5. Any trade discoveries in the sense of the Law Governing Employee's
Discoveries / Inventions that Mr. Eisemann may make during the
duration of this Contract are subject to the regulations contained
in the aforementioned Law as it stands at the time such application
is made.
2. DURATION OF CONTRACT
2.1. This Contract of Employment commences on 01.10.1997 and terminates
on 30.09.2000. Any decision regarding extension of this Contract of
Employment shall be made twelve months before the termination of
office agreed herein.
2.2. The appointment of Mr. Eisemann as Director can at any time be
revoked by a decision of a General Meeting of the Partners without
affecting his rights to compensation as detailed in this Contract of
Employment.
2.3. In the event that the Company is converted into a stock company
Mr. Eisemann shall receive the rights of a Member of the Board of
Management insofar as the Supervisory Board of the Corporation
appoints him as a Member of the Board of Management. The remainder
of this Contract will apply unchanged.
2
<PAGE>
2.4. In the event that the appointment is revoked, the Company reserves
the right to immediately suspend Mr. Eisemann from office or to
employ him in other reasonable duties until the termination date of
this Contract is reached. Any outstanding vacation shall be deemed
discharged by the suspension of duties.
3. REMUNERATION
3.1. Mr. Eisemann shall receive a fixed annual basic salary in the amount
of DM 300,000.00 (three hundred thousand Deutschmarks) as payment
for his services.
The salary shall be paid after deduction of statutory payments in
twelve equal monthly installments, each payment to be made at the
end of each calendar month.
3.2. The amount of the basic salary shall be reviewed every two years.
The economic development of the Company and the personal
achievements of Mr. Eisemann as well as any increase in the cost of
living shall be appropriately considered by such review.
3.3. In addition to the basic salary, Mr. Eisemann shall receive a
performance-related bonus in the amount of 5% of the basic salary
for every 1% of pre-tax profit on sales made by the Wandel &
Goltermann Group on the basis of the consolidated figures.
Subsequent to later transfer of overall commercial responsibility to
Mr. Eisemann the performance-related bonus shall be increased from
5% to 10% of the basic salary.
The bonus is calculated on the basis of the consolidated pre-tax
balance of trade result for the Wandel & Goltermann Group. The
inclusion or exclusion of gains made on disposal or other transfer
or losses incurred
3
<PAGE>
through liquidation due to the sale or closure of Companies shall be
decided at the reasonable discretion of the Supervisory Board. In
such cases the influence of Mr. Eisemann or his ability to influence
the gains from disposal or transfer of assets or losses due to
liquidation shall be especially taken into account.
A minimum bonus of 20% of the basic salary is assured for the
1997/98 business year.
The minimum bonus shall be paid in twelve equal monthly installments
together with the basic salary. Any payment of bonus in excess of
this shall be made after presentation of the consolidated annual
accounts.
3.4. The trade balances prepared by the Company's Tax Advisers are
binding as the basis for calculating the bonus.
3.5. The foregoing remuneration is considered full compensation for all
the duties performed by Mr. Eisemann for the Company including any
overtime hours. The bonus shall be paid proportionately in the event
that employment commences or ceases at some point during the
business year. The basis of remuneration shall be the percentage
return on sales for the current business year.
4. OTHER BENEFITS
4.1. Mr. Eisemann shall be reimbursed for the costs of travel and other
expenses incurred during business travel insofar as such expenses
are deemed necessary in the interests of the Company. Should the
expenses exceed the fixed allowances permitted by fiscal law,
reasonable reimbursement shall be made on production of the
appropriate receipts. Any taxes that are to be paid on such
reimbursements are to be borne by Mr. Eisemann.
4
<PAGE>
4.2. The Company shall provide Mr. Eisemann with a company car and
automobile telephone for Company business as well as for private
use, which he may freely select from the list of makes, models and
price classes approved by the Company. Replacement purchases may be
made on request after approval of the Company. Mr. Eisemann is
responsible for the care and punctual maintenance of the vehicle.
Any taxes that are due as a result of private use of the vehicle are
to be borne by Mr. Eisemann.
4.3. The Company shall pay the telephone and facsimile charges for Mr.
Eisemann's private telephone connection and the automobile telephone
including the standing charges. Any taxes that are due as a result
are to be borne by Mr. Eisemann.
5. REMUNERATION IN THE EVENT OF SICKNESS, ACCIDENT OR DEATH
5.1. In the event of temporary unfitness to work due to sickness or some
other reason beyond the control of Mr. Eisemann, Mr. Eisemann
retains entitlement to the Remuneration as detailed in Section 3 and
the Other Benefits as detailed in Sections 4.2. and 4.3. for the
period of unfitness for work up to an uninterrupted duration of six
months. The bonus detailed in Section 3.3. will be awarded
proportionally.
5.2. Should Mr. Eisemann be unfit for work as a result of the actions of
third parties, Mr. Eisemann shall transfer to the Company the amount
of any claim for damages and / or compensation made on the person(s)
liable corresponding to the remuneration and other benefits paid or
being paid by the Company.
5.3. Should Mr. Eisemann die during the period of validity of this
Contract of Employment his surviving dependents (widow and dependent
children) have a claim as a single creditor to the continued payment
of the basic salary as detailed in Section 3.1. of this Contract of
Employment for the month in which death occurred and the three
following months.
5
<PAGE>
The surviving dependents are entitled to the proportion of the bonus
due up to and including the month in which death occurs. The bonus
for the preceding period of the business year will be as detailed in
Section 3.5.
5.4. The Company shall at its own expense insure Mr. Eisemann against
accident at work or outside work for the sum of DM 200,000 in the
event of death and DM 400,000 in the event of disablement.
5.5. The Company assumes responsibility for any damages incurred by Mr.
Eisemann during the performance of his duties. This does not apply
in the case of premeditated action or gross negligence.
6. VACATION
Mr. Eisemann is entitled to an annual vacation of 30 working days which may
be taken in installments. The periods of vacation shall be agreed with the
other Members of the Board of Directors. In the event that Mr. Eisemann is
unable to take all the entitlement or must interrupt a vacation due to
urgent reasons in the interests of the Company, such vacation shall be
taken in the following year. In all other cases, the terms of the Federal
Law on Vacation apply in principle.
7. PENSION PROMISE
Mr. Eisemann is also entitled to company pension benefits as governed by
the Pension Promise of 7th July 1995 which is a part of this Contract of
Employment.
6
<PAGE>
8. CONFIDENTIALITY
8.1. Mr. Eisemann is obligated not to communicate any information about
procedures with which he is involved in connection with his duties
to the Company to third parties including near relatives and those
employees of the Company who have no need to be informed of such in
order to fulfill their duties.
8.2. This confidentiality obligation remains in force even after Mr.
Eisemann is no longer employed by the Company. Mr. Eisemann is
obligated immediately upon his leaving the Company to return to the
Company all documents and letters in his possession and any copies
or reproductions including his own records pertaining to his duties
for the Company.
9. CONCLUDING TERMS
9.1 All claims arising from the employment relationship are to be
validated in writing within a period of 3 months of their becoming
due.
9.2 Insofar as the term the Company is used in this Contract this refers
to the Contracting Party and to all Member Companies in the Wandel &
Goltermann Group of Companies, even if this is not stated explicitly
in the text of this Contract.
9.3 Alterations and additions to this Contract of Employment require the
agreement of the Company and the signatures of both parties on the
same legal document.
7
<PAGE>
9.4 In the event that any individual clauses of this contract are o
should become invalid, this shall not affect the validity of the
remainder of the Contract. The invalid clause(s) shall be replaced
by an agreement between the contracting parties that is as close as
possible to the commercial aim and implementation of this Contract.
Eningen,
this 25 day of August, 1997 this 17 day of October, 1997
On behalf of the Supervisory Board of The Director
Wandel & Goltermann
Management Holding GmbH
/s/ Prof. Dr.-Ing. Gerhard Zeidler /s/ Karl-Heinz Eisemann
------------------------------------ -----------------------------
Prof. Dr.-Ing. Gerhard Zeidler Karl-Heinz Eisemann
I confirm that this document is a fair and accurate translation from the
German original.
Eningen,
this 11 day of December, 1998
Wavetek Wandel & Goltermann, Inc.
By: /s/ Peter M. Wagner
-------------------------
Peter M. Wagner
Chief Executive Officer
8
<PAGE>
[LETTERHEAD]
ANNUAL TARGETED SALARY
- Basis: Policy attached -
PERIOD: FY 1998/99 (01.10.1998 - 30.09.1999)
NAME: Karl-Heinz Eisemann
POSITION: Sr. VP Controlling
GRADE: 21
VARIABLE PART (%): 20%
2/3 on group result
1/3 on qualitative target
Targeted Salary FY 1998/99
DM 450.000,--
----------------------------
Qualitative objectives for FY 1998/99
- attached form -
November 23, 1998
Wavetek Wandel & Goltermann Karl-Heinz Eisemann
Management Holding GmbH
/s/ [Illegible] /s/ Karl-Heinz Eisemann
- ---------------------------- -----------------------------
Encl.: 1. Company Policy Annual Targeted Salaries
2. Performance Evaluation - Objectives for period 1998/99
<PAGE>
WAVETEK WANDEL & GOLTERMANN, INC.
AMENDED AND RESTATED STOCK OPTION PLAN
SECTION 1. ESTABLISHMENT, PURPOSE AND EFFECTIVE DATE
1.1 ESTABLISHMENT AND PURPOSE OF PLAN. Wavetek Wandel &
Goltermann, Inc. (the "Company") has adopted this Amended and Restated Stock
Option Plan (the "Plan") in order to enable the Company and its subsidiaries to
attract, retain and provide equity incentives to key employees, to stimulate the
efforts of such employees toward the achievement of objectives established by
the Company to encourage such employees to identify their long-term interests
with those of the Company's stockholders.
1.2 EFFECTIVE DATE OF THE PLAN. The effective date of this
amendment and restatement of the Plan is October 1, 1998. The original
effective date of the Plan was April 29, 1992.
SECTION 2. ADMINISTRATION
2.1 ADMINISTRATION. The Plan shall be administered by a committee
(the "Committee") consisting of two or more members appointed by the Board of
Directors of the Company (the "Board"). In the event any class of the Company's
shares are required to be registered under Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Committee shall consist of two
or more non-employee members of the Board who shall be "outside directors" under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
and "non-employee directors" under Rule 16b-3 under the Exchange Act.
<PAGE>
2.2 AUTHORITY OF THE COMMITTEE. The Committee shall have full
power and authority to interpret the Plan, to establish, amend and rescind rules
and regulations relating to the Plan, to determine the form, terms and
conditions of the options (the "Options") to purchase the Company's Common
Stock, par value $.01 per share (the "Stock"), to be issued pursuant to the
Plan, to provide for such conditions and assurances as the Committee deems
necessary or advisable to protect the interests of the Company and to make all
other determinations necessary or advisable in connection with the
administration of the Plan.
The Committee shall determine the employees ("Optionees") to whom and
the time or times at which Options shall be granted, the number of shares of
Stock to be subject to each Option, the duration of each Option, the exercise
price of each Option (the "Option Price"), whether the Option will be an
incentive stock option within the meaning of Section 422 of the Code and the
time or times within which (during the term of such Options) all or portions of
each Option may be exercised, except as otherwise provided herein.
2.3 DECISIONS FINAL AND CONCLUSIVE. The determination of the
Committee as to any question arising under the Plan, including questions of
construction and interpretation, shall be final, binding and conclusive upon all
persons, including the Company, its stockholders and persons having any
interests in the Options.
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<PAGE>
SECTION 3. ELIGIBILITY
3.1 ELIGIBILITY. Key employees of the Company or its subsidiaries
who are involved in the attainment of long-range and overall Company objectives,
members of the Board who are neither employees nor members of the Committee and
members of the Company's advisory board established by the Board shall be
eligible to receive Options.
3.2 RIGHTS OF OPTIONEES. Nothing in this Plan or in any Option
shall interfere with or limit in any way the right of the Company, any of its
subsidiaries or any other corporation to terminate the employment of an Optionee
at any time or shall confer upon any Optionee any right to continue in the
employ of the Company, any of its subsidiaries or any other corporation.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 NUMBER. The maximum number of shares of Stock that may be
issued pursuant to Options granted pursuant to the Plan is 1,320,232, subject to
adjustment as provided in Section 4.2. Such shares may consist, in whole or in
part, of authorized but unissued Stock or treasury Stock of the Company which is
not reserved for issuance for any other purpose. In the event that any Option,
for any reason, is terminated unexercised as to all or any portion of the shares
of Stock subject thereto, such shares nay be subjected to another Option issued
pursuant to the Plan. At all times during the term of the Plan, the Company
shall reserve and keep available such number of shares of Stock as shall be
required to enable the Company to issue shares upon the exercise of all
outstanding Options to the extent then exercisable.
-3-
<PAGE>
4.2 ANTIDILUTION ADJUSTMENTS. In the event of any increase or decrease
in the outstanding shares of Stock by reason of a stock dividend, stock split,
combination of shares or distribution payable in shares of capital stock of the
Company of any class, then the aggregate number of shares of Stock available for
issuance under the Plan, the number and class of shares subject to each
outstanding Option and the Option Price thereof shall be adjusted by the
Committee, whose determination shall be conclusive, so that Optionees shall be
entitled to receive the number and kind of shares at an Option Price
corresponding to what they would have received if they exercised their Options
prior to the occurrence of such event; provided, however, that except with the
approval of the Committee no fractional shares shall be issued upon the exercise
of Options and no payment shall be made in lieu thereof.
SECTION 5. OPTIONS
5.1 GRANT OF OPTIONS. The Committee may from time to time, at its
discretion, grant Options pursuant to the Plan to such key employees of the
Company or its subsidiaries as it shall determine. In no event may any employee
receive Options with respect to more than 150,000 shares of Stock in any
calendar year.
5.2 OPTION AGREEMENT. Each Option granted under the Plan shall be
evidenced by a written stock option agreement (the "Option Agreement"), to be
executed by the Company and the Optionee, in such form (which need not be the
same for each Option) as the Committee shall approve. Each Option Agreement
shall state the number of shares of Stock that may be purchased upon the
exercise of such Option, the Option
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<PAGE>
Price and the duration thereof. More than one Option may be granted to an
eligible employee. The Option Agreement evidencing the Option will be
delivered to the Optionee within a reasonable time after the grant of the
Option.
5.3 DATE OF GRANT. The date of grant of an Option shall be the
date on which the Committee determines to grant such Option, unless otherwise
specified by Committee.
5.4 OPTION PRICE. The Option Price for each Option shall not be
less than 100% of the fair market value of one share of Stock on the date the
Option is granted, as determined by the Board; provided, however, in the event
the Company's Stock becomes Publicly Traded (as defined below), fair market
value shall be the closing price of one share of Stock on the principal stock
exchange on which the Stock trades on the date the Option is granted or, if
there was no sale of Stock on such stock exchange on such date, the closing
price of the Stock on the last previous day on which a sale occurred shall be
used. For purposes of the Plan, "Publicly Traded" means that the Stock is
traded on any internationally recognized stock exchange.
5.5 DURATION OF OPTIONS. Each Option shall have a duration
determined by the Committee, but in no event more than ten years from the date
of grant.
5.6 OTHER TERMS AND PROVISIONS. Options may contain such other
terms and provisions, not inconsistent with the Plan, as the Committee shall
deem appropriate, including with respect to Options intended to be incentive
stock options,
-5-
<PAGE>
such provisions as the Committee determines are necessary to comply with
Section 422 of the Code.
SECTION 6. EXERCISE OF OPTIONS
6.1 WRITTEN NOTICE. An Optionee who wishes to exercise an Option
in whole or in part shall give written notice of such exercise to the Company.
The date on which the Company receives such notice shall be considered the date
such Option was exercised as to the shares specified in such notice.
6.2 PAYMENT. Simultaneously with the delivery to the company of
notice of the exercise of any Option, the Optionee shall: (a) pay to the
Company the sum of (i) the aggregate Option Price for all shares to be purchased
upon the exercise of the Option or, if the Committee shall permit, by delivering
an interest-bearing full recourse promissory note (subject to any limitations of
applicable law), and (ii) an amount equal to all federal, state and local income
taxes, if any, required to be withheld and paid by the Company as a result of
such exercise; and (b) if the Stock is not Publicly Traded, execute and deliver
to the Company (i) a representation that the Optionee is acquiring such shares
for his or her own account for investment and not with a view to, or for resale
in connection with, any distribution thereof, and (ii) a counterpart of the
Stockholders' Agreement in the form provided by the Company to which other
stockholders of the Company are parties. All payments shall be made by check
payable to the order of the Company or, if the Stock is Publicly Traded, such
other method permitted by the Committee, including (i) tendering shares of Stock
owned by the Optionee,
-6-
<PAGE>
(ii) authorizing a third party to sell the shares (or a sufficient portion
thereof) acquired upon exercise of a stock option and assigning the delivery
to the Company of a sufficient amount of the sale proceeds to pay for all the
shares acquired through such exercise, or (iii) any combination of the above.
The Committee may if the Stock is Publicly Traded, in its discretion and
subject to such rules as it may adopt, permit participants to elect to
satisfy the required income tax withholding by having the Company retain the
number of shares of Stock, the fair market value of which (as determined in a
manner consistent with Section 5.4) equals the amount required to be withheld.
6.3 ISSUANCE OF STOCK CERTIFICATES. As soon as practicable after
receipt of notice of exercise, payment and satisfaction of any other conditions
set forth in the Option Agreement, the Company shall deliver to the Optionee a
certificate or certificates for the number of shares of Stock purchased upon
such exercise.
6.4 PRIVILEGES OF A STOCKHOLDER. No Optionee shall be deemed a
stockholder with respect to any shares of Stock covered by an Option until a
stock certificate has been issued to such Optionee.
SECTION 7 TRANSFER AND EXERCISE OF OPTIONS
Options shall be transferable only by will or the laws of descent and
distribution and shall be exercisable, during the Optionee's lifetime, only by
the Optionee.
-7-
<PAGE>
SECTION 8 TERMINATION OF EMPLOYMENT.
8.1 Prior to the date the Stock is Publicly Traded:
(a) If an Optionee's employment is terminated for cause by the
Company or any of its subsidiaries:
(i) An Optionee's Options are terminated effective on the date of
such resignation or termination; and
(ii) Within ninety days after the date of such termination, the
Company shall have the right but not the obligation to purchase any Stock
acquired upon exercise of any Options by Optionee at the employees cost.
(b) If an Optionee's employment is terminated other than for cause
by the Company or any of its subsidiaries, or if the Optionee resigns from
employment, then within ninety days after the date of such termination:
(i) The Optionee shall have the right to exercise all Options held
by such Optionee, to the extent exercisable on the date of termination of
employment, but in no event later than the expiration date of such Options;
and
(ii) The Company shall have the right but not the obligation to
purchase any Stock acquired upon exercise of any Options by Optionee at the
fair market value of the Stock on the date of such termination of
employment, as determined by the Board in its sole discretion.
8.2 On or after the date the Stock is Publicly Traded, if an
Optionee ceases to be employed by the Company or any of its subsidiaries for any
reason, such
-8-
<PAGE>
Optionee may exercise all Options held by such Optionee, to the extent
exercisable on the date of termination, but in no event later than the
expiration date of such Options, unless termination was for cause (as defined
below), in which event all Options held by such Optionee are terminated
effective with the termination of employment.
8.3 Termination "for cause" shall mean termination of Optionee's
employment because of Optionee's (i) involvement in fraud, misappropriation or
embezzlement related to the business or property of the Company, (ii) conviction
for, or plea of guilt or NOLO CONTENDERE to, a felony, (iii) habitual abuse of
any substance, (iv) breach of confidentiality or disclosure of trade secrets.
SECTION 9 DURATION OF PLAN
The Plan shall remain in effect for a period of ten years from and
after the effective date of the amendment and restatement of the Plan, but
Options granted pursuant to the Plan may extend beyond termination of the Plan
in accordance with the terms of such Options. All Options pursuant to the Plan
shall be granted while the Plan is in effect.
SECTION 10 AMENDMENT OF PLAN
The Board may amend the Plan from time to time in such respects as
it deems advisable, provided that no amendment shall adversely affect the
rights of any Optionee without such Optionee's consent, and no amendment
shall be made unless approved by the stockholders of the Company if such
amendment would materially increase the benefits accruing to employees
participating in the Plan, materially increase
-9-
<PAGE>
the number of shares of Stock which may be issued pursuant to the
Plan (other than by operation of Section 4.2), or materially modify the
eligibility requirements of Section 3.1.
SECTION 11 LAWS, RULES AND REGULATIONS
The Plan, the grant and exercise of Options pursuant thereto and the
obligation of the Company to issue and deliver shares of Stock upon exercise of
such Options shall be subject to all applicable laws, rules and regulations and
to any required approvals by any governmental agencies or national securities
exchanges on which the Stock may from time to time be listed. No Option shall
be exercisable unless such exercise is in compliance with the Securities Act of
1933, as amended, and applicable state securities laws as in effect on the date
of exercise. The Company shall have no obligation to register or qualify the
Stock under any such law. This Plan will be governed by the laws of the State
of Delaware, without reference to principles of conflict of laws.
-10-
<PAGE>
EXHIBIT 12.1
SCHEDULE RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Income (loss) before provision for income
taxes and minority interest in income
(loss). . . . . . . . . . . . . . . . . . . $(25,822) $14,605 $ 6,380 $(16,743) $ 9,475
Interest expense . . . . . . . . . . . . . . . 7,629 8,509 9,340 10,591 8,461
Interest portion of rental expense . . . . . . 1,948 1,457 1,280 2,997 1,516
-------- ------- ------- -------- --------
Earnings . . . . . . . . . . . . . . . . . . . $(16,245) $24,571 $17,000 $ (3,155) $19,452
-------- ------- ------- -------- --------
-------- ------- ------- -------- --------
Interest expense . . . . . . . . . . . . . . . $ 7,629 $ 8,509 $ 9,340 $ 10,591 $ 8,461
Interest portion of rental expense . . . . . . 1,948 1,457 1,280 2,997 1,516
-------- ------- ------- -------- --------
Fixed Charges. . . . . . . . . . . . . . . . . $ 9,577 $ 9,966 $10,620 $ 13,588 $ 9,977
-------- ------- ------- -------- --------
-------- ------- ------- -------- --------
Ratio of Earnings to Fixed Charges . . . . . . (1.7)x 2.5x 1.6x (0.2)x 1.9x
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
SUBSIDIARIES JURISDICTION OF INCORPORATION
- ------------ ------------------------------
<S> <C>
Wavetek U.S. Inc. (1) Delaware
Digital Transport Systems, Inc. (2) California
Wavetek Export Corporation (2) U.S. Virgin Islands
Wavetek (G.B.) Ltd. (1) (3) United Kingdom
Wavetek Limited (3) United Kingdom
Wavetek S.A. (1) France
Wavetek GmbH (1) (4) Germany
Wavetek Ges.mbH (4) Austria
Wavetek Asia-Pacific Pte. Ltd. (1) Singapore
Wavetek Hong Kong Ltd. (1) Hong Kong
Wandel & Goltermann Management Holding GmbH (1) Germany
Wandel & Goltermann GmbH & Co. Elektronische
Messtechnik (5) Germany
Wandel & Goltermann CTS S.A. (5) France
Wandel & Goltermann Technologies, Inc. (5) North Carolina
Wandel & Goltermann Management Ltd. (5) United Kingdom
Switching Test Solutions AG (5) Switzerland
Wandel & Goltermann Vertriebsholding GmbH (5) Germany
Wandel & Goltermann A.T.E. Systems, Inc. (5) North Carolina
Wandel & Goltermann GmbH & Co.
Vertriebsgesellschaft (6) Germany
Wandel & Goltermann Beteiligungs GmbH (7) Germany
Wandel & Goltermann Verwaltungs GmbH (6) Germany
Wandel & Goltermann & Co. (6) Switzerland
Wandel & Goltermann Instrumentacao Ltda. (8) Brazil
Wandel & Goltermann S.A. (8) Argentina
Wandel & Goltermann de Mexico, S.A. de C.V. (8) Mexico
Wandel & Goltermann S.A. (8) Guatemala
Wandel & Goltermann de Venezuela, C.A. (8) Venezuela
Wandel & Goltermann Andina Ltda. (9) Columbia
Wandel & Goltermann, Inc. (10) North Carolina
W&G Equities Inc. (10) Delaware
WGT - FS Corporation (10) U.S. Virgin Islands
Wandel & Goltermann Technologies Canada Inc. (10) Canada
Wandel & Goltermann Ltd. (11) United Kingdom
Wandel & Goltermann S.R.L. Tecnologie di Misura
Electroniche (12) Italy
Wandel & Goltermann & Forbes Pvt. Ltd. (13) India
Wandel & Goltermann Singapore Pte. Ltd. (14) Singapore
Wandel & Goltermann Sales Ltd. (11) United Kingdom
Wandel & Goltermann AB (15) Sweden
Wandel & Goltermann Pty. Ltd. (15) Australia
Wandel & Goltermann Investments Pty. Ltd. (15) Australia
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUBSIDIARIES (CONTINUED) JURISDICTION OF INCORPORATION
- ------------------------ ------------------------------
<S> <C>
Wandel & Goltermann Private Limited (16) India
Wandel & Goltermann B.V. (15) Netherlands
Wandel & Goltermann Inc. (15) Canada
Wandel & Goltermann (Schweiz) AG (15) Switzerland
Wandel & Goltermann France S.A.R.L. (15) France
Wandel & Goltermann K.K. (15) Japan
Wandel & Goltermann Vertriebs-Ges.m.b.H. (15) Austria
WGA Electronica de Precision S.A. (15) Argentina
Wandel & Goltermann Ltd. (17) South Korea
Wandel & Goltermann S.A. (15) Spain
Wandel & Goltermann Spolka (15) Poland
Wandel & Goltermann Malaysia SDN.BHD (15) Malaysia
Empowered Networks Inc. (15) Canada
Wandel & Goltermann Telektronik B.V. (15) Netherlands
N.V. Wandel & Goltermann S.A. (18) Belgium
Wandel & Goltermann Ltd. (18) Hong Kong
Wandel & Goltermann Ges.m.b.H. (18) Austria
Wandel & Goltermann Russia (19) Russia
WGB - Electronica de Precisao Ltda. (15) Brazil
</TABLE>
___________
(1) The Company owns all of the outstanding shares of these subsidiaries.
(2) Wavetek U.S. Inc. owns all of the outstanding shares of these
subsidiaries.
(3) Wavetek (G.B.) Ltd. owns all of the outstanding shares of its
subsidiary, Wavetek Limited.
(4) Wavetek GmbH owns all of the outstanding shares of its subsidiary,
Wavetek Ges.mbH.
(5) Wandel & Goltermann Management Holding GmbH owns all of the outstanding
shares of these subsidiaries.
(6) Wandel & Goltermann GmbH & Co. Elektronische Messtechnik owns all of the
outstanding shares of these subsidiaries.
(7) Wandel & Goltermann GmbH & Co. Vertriebsgesellschaft owns all of the
outstanding shares of its subsidary, Wandel & Goltermann Beteiligungs
GmbH.
(8) Wandel & Goltermann & Co. owns all of the outstanding shares of these
subsidiaries.
(9) Wandel & Goltermann Andina Ltda. is owned 82.9% by Wandel & Goltermann &
Co. and 17.1% by Wandel & Goltermann de Mexico, S.A. de C.V.
(10) Wandel & Goltermann Technologies, Inc. owns all of the outstanding
shares of these subsidiaries.
(11) Wandel & Goltermann Management Ltd. owns all of the outstanding shares
of these subsidiaries.
(12) Wandel & Goltermann S.R.L. Tecnologie di Misura Electroniche is owned
50% by Wandel & Goltermann Ltd. and 50% by Wandel & Goltermann
Vertriebsholding GmbH.
(13) Wandel & Goltermann Ltd. owns 51% of the outstanding shares of Wandel &
Goltermann & Forbes Pvt. Ltd.
(14) Wandel & Goltermann Ltd. owns all of the outstanding shares of Wandel &
Goltermann Singapore Pte. Ltd.
(15) Wandel & Goltermann Vertriebsholding GmbH owns all of the outstanding
shares of these subsidiaries.
(16) Wandel & Goltermann Investments Pty. Ltd. owns all of the outstanding
shares of Wandel & Goltermann Private Limited.
(17) Wandel & Goltermann Ltd. is owned 10% by Wandel & Goltermann
Vertriebsholding GmbH and 90% by Wandel & Goltermann Telektronik B.V.
(18) Wandel & Goltermann Telektronik B.V. GmbH owns all of the outstanding
shares of these subsidiaries.
(19) Wandel & Goltermann Ges.m.b.H. owns all of the outstanding shares of its
subsidiary, Wandel & Goltermann Russia.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 35,544
<SECURITIES> 0
<RECEIVABLES> 96,713
<ALLOWANCES> 4,432
<INVENTORY> 74,886
<CURRENT-ASSETS> 232,542
<PP&E> 166,398
<DEPRECIATION> 99,801
<TOTAL-ASSETS> 487,145
<CURRENT-LIABILITIES> 266,376
<BONDS> 121,595
0
0
<COMMON> 132
<OTHER-SE> 75,569
<TOTAL-LIABILITY-AND-EQUITY> 487,145
<SALES> 327,888
<TOTAL-REVENUES> 327,888
<CGS> 130,863
<TOTAL-COSTS> 342,244
<OTHER-EXPENSES> 4,814
<LOSS-PROVISION> 944
<INTEREST-EXPENSE> 7,629
<INCOME-PRETAX> (20,726)
<INCOME-TAX> 6,541
<INCOME-CONTINUING> (27,267)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,267)
<EPS-PRIMARY> (3.28)
<EPS-DILUTED> (3.28)
</TABLE>