<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 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 CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 33-0457664
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
11995 EL CAMINO REAL, SUITE 301
SAN DIEGO, CALIFORNIA 92130
(Address of Principal Executive Offices) (Zip Code)
(619) 793-2300
Registrant's Telephone Number, Including Area Code
NOT APPLICABLE
Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
--- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of August 13, 1998,
Registrant had only one class of common stock, of which there were 4,884,860
shares outstanding.
<PAGE>
WAVETEK CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1998 and September 30, 1997.................... 3
Consolidated Statements of Operations for the Three and Nine Months Ended June 30,
1998 and June 30, 1997................................................................ 4
Consolidated Statements of Cash Flows for the Nine Months Ended June 30,
1998 and June 30, 1997................................................................ 5
Notes to Consolidated Financial Statements................................................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................................................... 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS......................................................................... 24
ITEM 2. CHANGES IN SECURITIES..................................................................... 24
ITEM 3. DEFAULTS UPON SENIOR SECURITIES........................................................... 24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................... 24
ITEM 5. OTHER INFORMATION......................................................................... 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................................................... 24
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WAVETEK CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1997
--------------- ------------------
(unaudited) (note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 6,385 $ 5,695
Short-term investments, available for sale.......................... - 996
Accounts receivable (less allowance for doubtful accounts
of $1,212 at June 30, 1998 (unaudited) and $851 at
September 30, 1997).............................................. 27,407 25,860
Inventories......................................................... 17,085 15,937
Refundable income taxes............................................. - 616
Deferred income taxes............................................... 3,611 3,611
Other current assets................................................ 1,667 1,730
--------------- ------------------
Total current assets.................................................. 56,155 54,445
Property and equipment, net........................................... 10,821 15,110
Deferred debt issuance costs, net..................................... 3,847 4,233
Deferred merger costs................................................. 600 -
Intangible assets, net................................................ 3,059 3,281
Deferred income taxes................................................. 101 101
Other assets.......................................................... 2,062 183
--------------- ------------------
Total assets.......................................................... $ 76,645 $ 77,353
--------------- ------------------
--------------- ------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable to banks.............................................. $ 8,875 $ 3,859
Trade accounts payable.............................................. 12,343 13,356
Accrued compensation................................................ 5,953 6,034
Income taxes payable................................................ 561 522
Other current liabilities........................................... 7,323 9,847
Current maturities of long-term obligations......................... 4,000 1,972
--------------- ------------------
Total current liabilities............................................. 39,055 35,590
Long-term obligations, less current maturities........................ 106,000 112,972
Deferred income and other liabilities................................. 1,704 431
Commitments and contingencies.........................................
Stockholders' deficit:
Common stock, par value $.01; authorized, 15,000 shares;
issued and outstanding, 4,885 shares............................. 49 49
Additional paid-in capital.......................................... 43,741 43,741
Accumulated deficit................................................. (113,711) (115,048)
Foreign currency translation adjustments............................ (193) (382)
--------------- ------------------
Total stockholders' deficit........................................... (70,114) (71,640)
--------------- ------------------
Total liabilities and stockholders' deficit........................... $ 76,645 $ 77,353
--------------- ------------------
--------------- ------------------
</TABLE>
Note: The balance sheet at September 30, 1997 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
3
<PAGE>
WAVETEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
---------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Net sales.............................................. $ 35,756 $ 36,484 $ 107,035 $ 118,700
Cost of goods sold..................................... 15,959 16,378 46,505 55,479
---------------- ----------------- --------------- -----------------
Gross margin........................................... 19,797 20,106 60,530 63,221
Operating expenses:
Marketing and selling................................ 9,739 9,340 27,598 27,913
Research and development............................. 4,172 3,922 12,899 11,635
General and administrative........................... 3,546 2,473 8,939 7,878
Stock option compensation related
to recapitalization................................. - 7,061 - 7,061
---------------- ----------------- --------------- -----------------
17,457 22,796 49,436 54,487
---------------- ----------------- --------------- -----------------
Operating income (loss)................................ 2,340 (2,690) 11,094 8,734
Non-operating income (expense):
Interest income...................................... 44 118 153 254
Interest expense..................................... (2,996) (709) (8,944) (948)
Other, net........................................... (55) (245) (210) (861)
---------------- ----------------- --------------- -----------------
(3,007) (836) (9,001) (1,555)
---------------- ----------------- --------------- -----------------
Income (loss) before provision (credit) for
income taxes.......................................... (667) (3,526) 2,093 7,179
Provision (credit) for income taxes.................... (349) (1,137) 756 2,728
---------------- ----------------- --------------- -----------------
Net income (loss)...................................... $ (318) $ (2,389) $ 1,337 $ 4,451
---------------- ----------------- --------------- -----------------
---------------- ----------------- --------------- -----------------
Net income (loss) per share - basic.................... $ (.07) $ (.25) $ .28 $ .42
---------------- ----------------- --------------- -----------------
---------------- ----------------- --------------- -----------------
Net income (loss) per share - diluted.................. $ (.07) $ (.25) $ .27 $ .40
---------------- ----------------- --------------- -----------------
---------------- ----------------- --------------- -----------------
Average common shares outstanding - basic.............. 4,885 9,633 4,885 10,526
---------------- ----------------- --------------- -----------------
---------------- ----------------- --------------- -----------------
Average common shares outstanding - diluted............ 4,885 9,633 5,115 11,123
---------------- ----------------- --------------- -----------------
---------------- ----------------- --------------- -----------------
</TABLE>
See accompanying notes.
4
<PAGE>
WAVETEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
1998 1997
--------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.............................................................. $ 1,337 $ 4,451
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation expense.................................................. 2,474 2,102
Amortization expense.................................................. 221 430
Amortization of debt issuance costs................................... 483 33
Provision for losses on accounts receivable........................... 435 252
Deferred income taxes................................................. - 435
Other, net............................................................ (82) (65)
Changes in operating assets and liabilities:
Accounts receivable.............................................. (1,913) (6,948)
Inventories and other assets..................................... (2,914) (335)
Accounts payable and accrued expenses............................ (2,282) 6,136
Income taxes payable, net........................................ 10 540
--------------- ----------------
Net cash provided by (used in) operating activities..................... (2,231) 7,031
INVESTING ACTIVITIES
Purchase of property and equipment...................................... (2,261) (4,784)
Proceeds from sale of property and equipment............................ 152 53
Purchase of short-term investments...................................... - (3,000)
Proceeds from sale of short-term investments............................ 996 -
Payments received on notes receivable................................... 11 169
Issuance of notes receivable............................................ (15) -
--------------- ----------------
Net cash used in investing activities................................... (1,117) (7,562)
FINANCING ACTIVITIES
Issuance of common shares for cash...................................... - 42,856
Repurchase of common shares and stock options for cash.................. - (152,564)
Proceeds from revolving lines of credit and long-term obligations....... 5,881 114,144
Principal payments on revolving lines of credit and long-term
obligations............................................................ (1,726) (1,489)
Debt issuance costs..................................................... (97) (4,326)
--------------- ----------------
Net cash provided by (used in) financing activities..................... 4,058 (1,379)
Effect of exchange rate changes on cash and cash equivalents............ (20) (157)
--------------- ----------------
Increase (decrease) in cash and cash equivalents........................ 690 (2,067)
Cash and cash equivalents at beginning of period........................ 5,695 6,126
--------------- ----------------
Cash and cash equivalents at end of period.............................. $ 6,385 $ 4,059
--------------- ----------------
--------------- ----------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest.................................................. $ 10,747 $ 440
--------------- ----------------
--------------- ----------------
Cash paid for income taxes.............................................. $ 143 $ 1,963
--------------- ----------------
--------------- ----------------
</TABLE>
See accompanying notes.
5
<PAGE>
WAVETEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
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. 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.
The accompanying financial statements and the financial information
included herein are unaudited. However such information includes all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of management, necessary to fairly state the results of the
interim periods. Interim results are not necessarily indicative of results to
be expected for the full year. It is suggested that these consolidated
financial statements be read in conjunction with the Company's audited
consolidated financial statements and notes thereto, included in the
Company's Annual Report on Form 10-K for the year ended September 30, 1997.
2. NET INCOME (LOSS) 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 the three months ended June 30, 1998 and 1997,
the effect of outstanding stock options would have been anti-dilutive and,
therefore, was not considered in the computation of diluted net income (loss)
per share for such periods. 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.
3. FINANCIAL STATEMENT DETAILS
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1997
---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Finished goods......................... $ 6,815 $ 6,451
Work-in-progress....................... 4,351 3,612
Materials.............................. 5,919 5,874
---------------- ----------------
$ 17,085 $ 15,937
---------------- ----------------
---------------- ----------------
</TABLE>
6
<PAGE>
4. 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 $473,000, 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 $387,000. 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, have been
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 is accounted for as an operating lease, with monthly rental
payments recorded as operating expenses.
5. AGREEMENT TO MERGE
On June 15, 1998, Wavetek Corporation and Wandel & Goltermann
Management Holding GmbH jointly announced that they have signed definitive
agreements to merge the companies. The structure of the transaction and the
timing of closing are currently being determined.
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA
The Company's payment obligations under its Senior Subordinated Notes
issued in connection with certain Recapitalization Transactions in June 1997
are guaranteed by all of the Company's current and future domestic
subsidiaries (collectively, the "Subsidiary Guarantors"). Wavetek U.S. Inc.
is the only current Subsidiary Guarantor. Such guarantee is full and
unconditional and future guarantees will be joint and several. Separate
financial statements of the Subsidiary Guarantor 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
Corporation"), (ii) the current Subsidiary Guarantor and (iii) the Company's
current foreign subsidiaries (the "Foreign Subsidiaries"). The supplemental
financial data reflects the investments of Wavetek Corporation in the
Subsidiary Guarantor and the Foreign Subsidiaries using the equity method of
accounting.
7
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED)
CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 1998
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WAVETEK SUBSIDIARY FOREIGN
CORPORATION GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ - $ 4,518 $ 1,867 $ - $ 6,385
Short-term investments, available for sale............. - - - - -
Accounts receivable (less allowance for
doubtful accounts of $1,212)........................ (116) 33,209 17,526 (23,212) 27,407
Inventories............................................ - 6,961 11,068 (944) 17,085
Refundable income taxes................................ - - - - -
Deferred income taxes.................................. 2,301 1,310 - - 3,611
Other current assets................................... 139 242 1,286 - 1,667
------------- ------------- -------------- ------------- -------------
Total current assets...................................... 2,324 46,240 31,747 (24,156) 56,155
Property and equipment, net............................... 1,592 4,340 4,889 - 10,821
Deferred debt issuance costs, net......................... 3,847 - - - 3,847
Deferred merger costs..................................... 600 - - - 600
Intangible assets, net.................................... 3,024 - 35 - 3,059
Deferred income taxes..................................... (4) 105 - - 101
Other assets.............................................. 217 1,947 83 (185) 2,062
Investment in subsidiaries................................ 41,735 - 25 (41,760) -
------------- ------------- -------------- ------------- -------------
Total assets.............................................. $ 53,335 $ 52,632 $ 36,779 $ (66,101) $ 76,645
------------- ------------- -------------- ------------- -------------
------------- ------------- -------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable to banks................................. $ 5,000 $ - $ 3,875 $ - $ 8,875
Trade accounts payable................................. 15,995 7,599 11,968 (23,219) 12,343
Accrued compensation................................... 216 1,783 3,954 - 5,953
Income taxes payable................................... (8,853) 8,490 924 - 561
Other current liabilities.............................. 1,059 2,108 4,149 7 7,323
Current maturities of long-term obligations............ 4,000 - - - 4,000
------------- ------------- -------------- ------------- -------------
Total current liabilities................................. 17,417 19,980 24,870 (23,212) 39,055
Long-term obligations, less current maturities............ 106,000 - 185 (185) 106,000
Deferred income and other liabilities..................... 32 1,644 28 - 1,704
Commitments and contingencies Stockholders'
equity (deficit):
Common stock, par value $.01; authorized, 15,000
shares; issued and outstanding, 4,885 shares.......... 49 - - - 49
Additional paid-in capital............................. 43,741 2,137 15,064 (17,201) 43,741
Retained earnings (accumulated deficit)................ (113,711) 28,871 (3,175) (25,696) (113,711)
Foreign currency translation adjustments............... (193) - (193) 193 (193)
------------- ------------- -------------- ------------- -------------
Total stockholders' equity (deficit)...................... (70,114) 31,008 11,696 (42,704) (70,114)
------------- ------------- -------------- ------------- -------------
------------- ------------- -------------- ------------- -------------
Total liabilities and stockholders' equity (deficit)...... $ 53,335 $ 52,632 $ 36,779 $ (66,101) $ 76,645
------------- ------------- -------------- ------------- -------------
------------- ------------- -------------- ------------- -------------
</TABLE>
8
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED)
CONSOLIDATING BALANCE SHEETS
AS OF SEPTEMBER 30, 1997
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WAVETEK SUBSIDIARY FOREIGN
CORPORATION GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
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, par value $.01; authorized,
15,000 shares; issued and outstanding, 4,885 shares... 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 (deficit)...... $ 52,823 $ 34,145 $ 35,051 $ (44,666) $ 77,353
------------- ------------ -------------- ------------- -------------
------------- ------------ -------------- ------------- -------------
</TABLE>
9
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WAVETEK SUBSIDIARY FOREIGN
CORPORATION GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales............................................ $ - $ 22,811 $ 20,515 $ (7,570) $ 35,756
Cost of goods sold................................... 27 10,331 12,964 (7,363) 15,959
-------------- ------------- -------------- -------------- -------------
Gross margin......................................... (27) 12,480 7,551 (207) 19,797
Operating expenses:
Marketing and selling............................. 370 5,283 4,086 - 9,739
Research and development.......................... (2) 2,267 1,907 - 4,172
General and administrative........................ 907 1,526 1,113 - 3,546
-------------- ------------- -------------- -------------- -------------
1,275 9,076 7,106 - 17,457
-------------- ------------- -------------- -------------- -------------
Operating income (loss).............................. (1,302) 3,404 445 (207) 2,340
Non-operating income (expense):
Interest income................................... - 39 5 - 44
Interest expense.................................. (2,950) - (46) - (2,996)
Equity in net income (loss) of subsidiaries....... 2,012 - - (2,012) -
Other, net........................................ (3) 210 (264) 2 (55)
-------------- ------------- -------------- -------------- -------------
(941) 249 (305) (2,010) (3,007)
-------------- ------------- -------------- -------------- -------------
Income (loss) before provision (credit) for
income taxes........................................ (2,243) 3,653 140 (2,217) (667)
Provision (credit) for income taxes.................. (1,925) 1,462 114 - (349)
-------------- ------------- -------------- -------------- -------------
Net income (loss).................................... $ (318) $ 2,191 $ 26 $ (2,217) $ (318)
-------------- ------------- -------------- -------------- -------------
-------------- ------------- -------------- -------------- -------------
</TABLE>
10
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WAVETEK SUBSIDIARY FOREIGN
CORPORATION GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ----------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales............................................. $ - $ 21,325 $ 24,231 $ (9,072) $ 36,484
Cost of goods sold.................................... (92) 9,525 15,590 (8,645) 16,378
------------- ----------- -------------- -------------- -------------
Gross margin.......................................... 92 11,800 8,641 (427) 20,106
Operating expenses:
Marketing and selling.............................. 220 4,883 4,237 - 9,340
Research and development........................... (12) 2,378 1,556 - 3,922
General and administrative......................... 418 1,012 1,050 (7) 2,473
Stock option compensation related
to recapitalization............................... 1,926 2,318 2,817 - 7,061
------------- ----------- -------------- -------------- -------------
2,552 10,591 9,660 (7) 22,796
------------- ----------- -------------- -------------- -------------
Operating income (loss)............................... (2,460) 1,209 (1,019) (420) (2,690)
Non-operating income (expense):
Interest income.................................... - 100 18 - 118
Interest expense................................... (669) - (40) - (709)
Equity in net income of subsidiaries............... (1,165) - - 1,165 -
Other, net......................................... 181 32 (458) - (245)
------------- ----------- -------------- -------------- -------------
(1,653) 132 (480) 1,165 (836)
------------- ----------- -------------- -------------- -------------
Income before provision (credit) for income taxes..... (4,113) 1,341 (1,499) 745 (3,526)
Provision (credit) for income taxes................... (1,724) 545 42 - (1,137)
------------- ----------- -------------- -------------- -------------
Net income (loss)..................................... $ (2,389) $ 796 $ (1,541) $ 745 $ (2,389)
------------- ----------- -------------- -------------- -------------
------------- ----------- -------------- -------------- -------------
</TABLE>
11
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WAVETEK SUBSIDIARY FOREIGN
CORPORATION GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net sales........................................ $ - $ 65,612 $ 63,236 $ (21,813) $ 107,035
Cost of goods sold............................... (43) 28,486 39,857 (21,795) 46,505
------------- ------------ -------------- ------------ -------------
Gross margin..................................... 43 37,126 23,379 (18) 60,530
Operating expenses:
Marketing and selling......................... 1,210 14,099 12,289 - 27,598
Research and development...................... (22) 7,681 5,240 - 12,899
General and administrative.................... 1,945 3,501 3,493 - 8,939
------------- ------------ -------------- ------------ -------------
3,133 25,281 21,022 - 49,436
------------- ------------ -------------- ------------ -------------
Operating income (loss).......................... (3,090) 11,845 2,357 (18) 11,094
Non-operating income (expense):
Interest income............................... - 145 8 - 153
Interest expense.............................. (8,780) - (164) - (8,944)
Equity in net income of subsidiaries.......... 8,491 - - (8,491) -
Other, net.................................... (3) 603 (815) 5 (210)
------------- ------------ -------------- ------------ -------------
(292) 748 (971) (8,486) (9,001)
------------- ------------ -------------- ------------ -------------
Income (loss) before provision (credit)
for income taxes................................ (3,382) 12,593 1,386 (8,504) 2,093
Provision (credit) for income taxes.............. (4,719) 5,038 437 - 756
------------- ------------ -------------- ------------ -------------
Net income....................................... $ 1,337 $ 7,555 $ 949 $ (8,504) $ 1,337
------------- ------------ -------------- ------------ -------------
------------- ------------ -------------- ------------ -------------
</TABLE>
12
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WAVETEK SUBSIDIARY FOREIGN
CORPORATION GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales............................................. $ - $ 64,759 $ 81,844 $ (27,903) $ 118,700
Cost of goods sold.................................... (244) 29,351 53,956 (27,584) 55,479
------------- ------------ -------------- -------------- --------------
Gross margin.......................................... 244 35,408 27,888 (319) 63,221
Operating expenses:
Marketing and selling.............................. 700 13,159 14,054 - 27,913
Research and development........................... (36) 7,323 4,348 - 11,635
General and administrative......................... 1,661 2,813 3,411 (7) 7,878
Stock option compensation related
to recapitalization............................... 1,926 2,318 2,817 - 7,061
------------- ------------ -------------- -------------- --------------
4,251 25,613 24,630 (7) 54,487
------------- ------------ -------------- -------------- --------------
Operating income (loss)............................... (4,007) 9,795 3,258 (312) 8,734
Non-operating income (expense):
Interest income.................................... 76 221 32 (75) 254
Interest expense................................... (861) - (162) 75 (948)
Equity in net income of subsidiaries............... 7,259 - - (7,259) -
Other, net......................................... 345 128 (1,334) - (861)
------------- ------------ -------------- -------------- --------------
6,819 349 (1,464) (7,259) (1,555)
------------- ------------ -------------- -------------- --------------
Income before provision (credit) for income taxes..... 2,812 10,144 1,794 (7,571) 7,179
Provision (credit) for income taxes................... (1,639) 3,753 614 - 2,728
------------- ------------ -------------- -------------- --------------
Net income............................................ $ 4,451 $ 6,391 $ 1,180 $ (7,571) $ 4,451
------------- ------------ -------------- -------------- --------------
------------- ------------ -------------- -------------- --------------
</TABLE>
13
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WAVETEK SUBSIDIARY FOREIGN
CORPORATION GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities... $ (4,586) $ (134) $ 2,489 $ - $ (2,231)
INVESTING ACTIVITIES
Purchase of property and equipment...................... (295) (880) (1,086) - (2,261)
Proceeds from sale of short-term investments............ - 996 - - 996
Other investing activities.............................. 11 (39) 176 - 148
------------ ----------- -------------- ------------- -------------
Net cash provided by (used in) investing activities..... (284) 77 (910) - (1,117)
FINANCING ACTIVITIES
Proceeds from revolving lines of credit and
long-term obligations.................................. 5,000 - 881 - 5,881
Principal payments on revolving lines of credit and
long-term obligations.................................. (33) - (1,693) - (1,726)
Debt issuance costs..................................... (97) - - - (97)
------------ ----------- -------------- ------------- -------------
Net cash provided by (used in) financing activities..... 4,870 - (812) - 4,058
Effect of exchange rate changes on cash and
cash equivalents.. .................................... - - (20) - (20)
------------ ----------- -------------- ------------- -------------
Increase (decrease) in cash and cash equivalents........ - (57) 747 - 690
Cash and cash equivalents at beginning of period........ - 4,575 1,120 - 5,695
------------ ----------- -------------- ------------- -------------
Cash and cash equivalents at end of period.............. $ - $ 4,518 $ 1,867 $ - $ 6,385
------------ ----------- -------------- ------------- -------------
------------ ----------- -------------- ------------- -------------
</TABLE>
14
<PAGE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WAVETEK SUBSIDIARY FOREIGN
CORPORATION GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ----------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities..... $ (7,307) $ 13,102 $ 1,236 $ - $ 7,031
INVESTING ACTIVITIES
Purchase of short-term investments...................... - (3,000) - - (3,000)
Purchase of property and equipment...................... (1,179) (1,565) (2,040) - (4,784)
Other investing activities.............................. 25 160 37 - 222
------------- ----------- ------------ -------------- -------------
Net cash used in investing activities................... (1,154) (4,405) (2,003) - (7,562)
FINANCING ACTIVITIES
Issuance of common shares for cash...................... 42,856 - - - 42,856
Repurchase of common shares and stock options
for cash............................................... (152,564) - - - (152,564)
Proceeds from revolving lines of credit and
long-term obligations.................................. 110,000 - 4,144 - 114,144
Principal payments on revolving lines of credit and
long-term obligations................................ (68) - (1,421) - (1,489)
Debt issuance costs..................................... (4,326) - - - (4,326)
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) - -
Other financing activities.............................. -
------------- ----------- ------------ -------------- -------------
Net cash provided by (used in) financing activities..... 8,461 (10,000) 160 - (1,379)
Effect of exchange rate changes on cash and
cash equivalents....................................... - - (157) - (157)
------------- ----------- ------------ -------------- -------------
Decrease in cash and cash equivalents................... - (1,303) (764) - (2,067)
Cash and cash equivalents at beginning of period........ - 4,845 1,281 - 6,126
------------- ----------- ------------ -------------- -------------
Cash and cash equivalents at end of period.............. $ - $ 3,542 $ 517 $ - $ 4,059
------------- ----------- ------------ -------------- -------------
------------- ----------- ------------ -------------- -------------
</TABLE>
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Statements contained in this Item 2, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and elsewhere in
this Quarterly Report on Form 10-Q which are not historical facts may be
forward-looking statements. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from
those projected, including, but not limited to, those risks and special
considerations set forth in the Company's other SEC filings. Readers are
cautioned not to place undue reliance on these forward-looking statements
which speak only as of the date hereof. The Company undertakes no obligation
to publicly release any revisions to these forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
OVERVIEW
Wavetek 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.
The Company derives its revenues primarily from the sale of its
products to a broad international base of over 5,000 customers operating in a
wide range of industries. A majority of the Company's sales come from its
Communications Test product lines which serve the CATV, Wireless, Telecom,
LAN and Test Tools market segments of the test instrument industry. The
Company also sells Calibration Instruments and provides repair, upgrade and
calibration services for its products on a worldwide basis. The Company sells
products that are manufactured at its four facilities located in: (i)
Indianapolis, Indiana; (ii) Norwich, England; (iii) St. Etienne, France; and
(iv) Munich, Germany. In major markets such as the United States, England,
France and Germany, the Company sells its products to customers in their
local currencies. In the rest of the world, the Company generally sells its
products to customers or local distributors in the functional currency of the
location where the products are manufactured. During fiscal 1997,
approximately 61% of the Company's sales were generated outside of the United
States and approximately 50% of the Company's sales were made in currencies
other than the United States dollar. During the nine months ended June 30,
1998, approximately 54% of the Company's sales were generated outside the
United States and approximately 43% of the Company's sales were made in
currencies other than the United States dollar. As a result of such foreign
currency sales, the equivalent United States dollar amount of the Company's
sales 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.
Wavetek's cost of goods sold, and its resulting gross margin, are
driven primarily by the cost of the material in its products, the cost of the
labor to manufacture such products and the overhead expenses in its
facilities. In recent years, the Company has focused on improving its gross
margin by: (i) consolidating manufacturing operations; (ii) focusing its new
product development efforts on lower-cost, easier to manufacture designs;
(iii) controlling headcount and expenses in its manufacturing facilities; and
(iv) gaining efficiencies and economies of scale in its material and
component procurement activities.
16
<PAGE>
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: (i) sales volume,
with respect to sales force expenses and commission expenses; (ii) the extent
of market research activities for new product design efforts; (iii)
advertising and trade show activities; and (iv) the number of new products
introduced in the period. Research and development expenses are primarily
driven by the number and complexity of new products under development.
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.
RESULTS OF OPERATIONS
The following table sets forth selected financial information as a
percentage of sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales.................................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold..................................... 44.6 44.9 43.4 46.7
-------------- -------------- -------------- --------------
Gross margin........................................... 55.4 55.1 56.6 53.3
Operating expenses..................................... 48.8 62.5 46.2 45.9
-------------- -------------- -------------- --------------
Operating income (loss)................................ 6.6 (7.4) 10.4 7.4
Interest expense, net.................................. (8.3) (1.6) (8.2) (0.7)
Other non-operating income (expense), net............. (0.2) (0.7) (0.2) (0.7)
-------------- -------------- -------------- --------------
Income (loss) before provision for income taxes....... (1.9) (9.7) 2.0 6.0
Provision (credit) for income taxes................... (1.0) 3.1 0.8 (2.3)
-------------- -------------- -------------- --------------
Net income (loss)...................................... 0.9% (6.6)% 1.2% 3.7%
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
EBITDA (1)............................................. 9.1% 14.3% 12.9% 15.4%
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
The Company's ratio of earnings to fixed charges was as follows for
the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Ratio of earnings to fixed charges (2)................ 0.8x (2.8)x 1.2x 5.4x
</TABLE>
- -----------
(1) EBITDA is operating income plus depreciation, amortization expense and
stock option compensation related to recapitalization. The Company's
definition of EBITDA is consistent with the definition of Consolidated
Cash Flow in the Indenture related to the Company's Senior Subordinated
Notes (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 the Company's bank credit agreement 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
17
<PAGE>
available for management's discretionary use due to the Company's needs
to conserve funds for debt service, capital expenditures and other
commitments.
(2) For purposes of computing this ratio, earnings consist of income before
provision for income taxes plus fixed charges. Fixed charges consist of
interest expense, amortization of deferred debt issuance costs and
one-third of the rent expense from operating leases, which management
believes is a reasonable approximation of the interest factor of the
rent.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
NET SALES. Net sales in the three months ended June 30, 1998
decreased $0.7 million, or 2%, to $35.8 million from $36.5 million in the
comparable fiscal 1997 period. This decrease was due to a decrease in sales
to international customers of $2.5 million, or 12.7%, partially offset by an
increase of $1.8 million, or 10.7%, in sales to customers in the United
States. The Company's sales to customers outside the United States decreased
to 48.4% of total sales in the three months ended June 30, 1998 from 54.4% in
the comparable fiscal 1997 period and the portion of the Company's sales
which were made in currencies other than the United States dollar decreased
to approximately 39% in the three months ended June 30, 1998 from
approximately 45% in the comparable fiscal 1997 period. The decrease in sales
to international customers was primarily due to (i) a reduction in sales to
customers in Asia due to recent economic downturns in that region and certain
large shipments to Asian customers which were made in the three months ended
June 30, 1997 that did not recur in similar magnitude in the three months
ended June 30, 1998, (ii) certain sales from orders backlog of newly released
products which were made in the three months ended June 30, 1997 that did not
recur in similar magnitude in the three months ended June 30, 1998 and (iii)
a reduction in sales of a product line of the Company due to delays in the
completion of a new product. Such product was completed and began shipping at
volume levels in June 1998. Changes in certain foreign exchange rates also
had a small favorable impact on the United States dollar equivalent of the
Company's sales denominated in foreign currencies in the three months ended
June 30, 1998. The increase in sales to customers in the United States was
primarily due to an increase in orders in the United States for certain
products of the Company, due to improved market penetration, and an increase
in sales from orders backlog in the three months ended June 30, 1998,
compared to the three months ended June 30, 1997, in two product lines of the
Company due to the release of new products in the United States. Sales of the
Company's Communications Test products in the three months ended June 30,
1998 increased $1.8 million, or 6.8%, from the comparable fiscal 1997 period
primarily due to the increase in sales to customers in the United States
discussed above. Sales of Calibration Instruments products in the three
months ended June 30, 1998 decreased $2.3 million, or 31.4%, from the
comparable fiscal 1997 period, due partially to an unfavorable geographic mix
of such sales resulting in less revenue per unit sold and partially to
certain sales from orders backlog of newly released products which were made
in the three months ended June 30, 1997 that did not recur in similar
magnitude in the three months ended June 30, 1998. Sales in the three months
ended June 30, 1998 from repair, upgrade and calibration services decreased
$0.2 million, or 5.6%, from the comparable fiscal 1997 period.
GROSS MARGIN. The Company's gross margin in the three months ended
June 30, 1998 decreased $0.3 million or 1.5%, to $19.8 million from $20.1
million in the comparable fiscal 1997 period. Gross margin as a percentage of
sales increased to 55.4% in the three months ended June 30, 1998 from 55.1%
in the comparable fiscal 1997 period. The increase in the gross margin
percentage during the three months ended June 30, 1998 resulted primarily
from increases in gross margin percentages realized from the Company's sales
of Communications Test products due substantially to improvements made by the
Company in recent periods to the cost structure of its manufacturing
operations, including the replacement of a major manufacturing subcontractor
in Europe. In addition, the Company's improved gross margin percentages were
positively impacted by a favorable geographical and product mix of its sales.
As a partial offset to these improved gross margin percentages, the Company
experienced a reduction in gross margin percentages realized from sales
18
<PAGE>
of its Calibration Instruments products during the three months ended June
30, 1998 due primarily to lower sales volume and an unfavorable geographic
mix of its sales. Changes in foreign exchange rates had a small unfavorable
impact on the United States dollar equivalent of gross margins related to
international sales denominated in foreign currencies in the three months
ended June 30, 1998.
OPERATING EXPENSES. Operating expenses in the three months ended June
30, 1998 decreased $5.3 million, or 23.4%, to $17.5 million from $22.8
million in the comparable fiscal 1997 period. Operating expenses as a
percentage of sales decreased to 48.8% in the three months ended June 30,
1998 from 62.5% in the comparable fiscal 1997 period. The decrease in
operating expenses in the three months ended June 30, 1998 was due to a
one-time charge of $7.1 million, or 19.4% of sales, in the three months ended
June 30, 1997 for stock option compensation related to certain
recapitalization transactions of the Company that occurred in June 1997.
Excluding that charge, operating expenses in the three months ended June 30,
1998 increased $1.7 million, or 10.9%, from the comparable fiscal 1997
period. The increase in operating expenses in the three months ended June 30,
1998 was primarily due to an increase in spending for general and
administrative activities of $1.0 million, to $3.5 million, or 9.9% of sales,
in the three months ended June 30, 1998 from $2.5 million, or 6.8% of sales,
in the comparable 1997 period, primarily due to expenses incurred in the
three months ended June 30, 1998 in connection with certain legal claims
against the Company and an increase in expense in the three months ended June
30, 1998 related to the Company's management information systems. In
addition, spending for marketing and selling activities increased by $0.4
million, to $9.7 million, or 27.2% of sales, in the three months ended June
30, 1998 from $9.3 million, or 25.6% of sales, in the comparable 1997 period,
primarily due to the addition of certain marketing personnel and certain
recruiting and relocation costs incurred in connection with recruiting
activities for new marketing and sales personnel during the three months
ended June 30, 1998. Spending for research and development activities also
increased by $0.3 million, to $4.2 million, or 11.7% of sales, in the three
months ended June 30, 1998 from $3.9 million, or 10.7% of sales, in the
comparable 1997 period, in order to accelerate the timing of new product
introductions. Changes in foreign exchange rates had a small favorable impact
on the United States dollar equivalent of operating expenses denominated in
foreign currencies in the three months ended June 30, 1998.
NON-OPERATING INCOME (EXPENSE). Non-operating expense, net, in the
three months ended June 30, 1998 increased by $2.2 million over the
comparable fiscal 1997 period to $3.0 million. The increase was primarily due
to an increase in the Company's net interest expense to $3.0 million during
the three months ended June 30, 1998 from $0.6 million in the comparable
fiscal 1997 period, reflecting additional interest expense due to the
Company's outstanding debt securities (the "Notes") and the New Credit
Agreement. The increase in net interest expense was partially offset by a
reduction of $0.2 million in other non-operating expenses.
PROVISION (CREDIT) FOR INCOME TAXES. The Company's effective tax rate
decreased to approximately 36% in the nine months ended June 30, 1998, from
approximately 38% in the comparable fiscal 1997 period. The provisions
(credits) for income taxes for the three months ended June 30, 1998 and 1997
include certain adjustments, which are not material in amount, to reflect
these revised estimates of the Company's annualized effective tax rates.
NET INCOME (LOSS). As a result of the above factors, net loss was
$0.3 million in the three months ended June 30, 1998 as compared to $2.4
million in the comparable fiscal 1997 period.
EBITDA. As a result of the above factors, EBITDA was $3.2 million in
the three months ended June 30, 1998 as compared to $5.2 million in the
comparable fiscal 1997 period. EBITDA as a percentage of sales decreased to
9.1% in the three months ended June 30, 1998 from 14.3% in the comparable
fiscal 1997 period.
19
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES. As a result of the above factors,
the ratio of earnings to fixed charges was 0.8x in the three months ended
June 30, 1998 as compared to (2.8)x in the comparable fiscal 1997 period.
NINE MONTHS ENDED JUNE 30, 1998 COMPARED TO NINE MONTHS ENDED JUNE 30, 1997
NET SALES. Net sales in the nine months ended June 30, 1998 decreased
$11.7 million, or 9.8%, to $107.0 million from $118.7 million in the
comparable fiscal 1997 period. This decrease was due to a decrease in sales
to international customers of $14.4 million, or 20.1%, partially offset by an
increase of $2.7 million, or 5.7%, in sales to customers in the United
States. The Company's sales to customers outside the United States decreased
to 53.5% of total sales in the nine months ended June 30, 1998 from 60.3% in
the comparable fiscal 1997 period and the portion of the Company's sales
which were made in currencies other than the United States dollar decreased
to approximately 43% in the nine months ended June 30, 1998 from
approximately 51% in the comparable fiscal 1997 period. The decrease in sales
to international customers was primarily due to several large shipments to
international customers which were made during the nine months ended June 30,
1997 and did not recur in similar magnitude during the nine months ended June
30, 1998. The Company has also experienced a reduction in its sales to
customers in Asia as a result of recent economic down turns in that region
and a reduction of sales in a product line due to delays in the completion of
a new product. Changes in certain foreign exchange rates also had the effect
of reducing the United States dollar equivalent of the Company's foreign
currency sales by $2.8 million from the United States dollar equivalent
amount that would have been reported if the average exchange rates in effect
during the nine months ended June 30, 1997 had remained in effect during the
nine months ended June 30, 1998. Sales of the Company's Communications Test
products in the nine months ended June 30, 1998 decreased $6.8 million, or
7.6%, from the comparable fiscal 1997 period primarily as a result of the
large shipments mentioned above that occurred during the comparable fiscal
1997 period and the delay in the completion of the new product also mentioned
above. Sales of Calibration Instruments products in the nine months ended
June 30, 1998 decreased $5.2 million, or 25.6%, from the comparable fiscal
1997 period, due partially to the fact that the comparable fiscal 1997 period
included higher shipments in connection with a planned reduction in the
backlog of this product line during that period due to a newly released
product, partially to an unfavorable geographic mix of sales and partially to
a reduction in sales to customers in Asia. Sales in the nine months ended
June 30, 1998 from repair, upgrade and calibration services increased $0.4
million, or 4.0%, from the comparable fiscal 1997 period.
GROSS MARGIN. The Company's gross margin in the nine months ended
June 30, 1998 decreased $2.7 million or 4.3%, to $60.5 million from $63.2
million in the comparable fiscal 1997 period. Gross margin as a percentage of
sales increased to 56.6% in the nine months ended June 30, 1998 from 53.3% in
the comparable fiscal 1997 period. The increase in the gross margin
percentage during the nine months ended June 30, 1998 results primarily from
increases in gross margin percentages realized from the Company's sales of
Communications Test products due substantially to improvements made by the
Company in recent periods to the cost structure of its manufacturing
operations, including the replacement of a major manufacturing subcontractor
in Europe. In addition, the Company's improved gross margin percentages were
positively impacted by a favorable geographical and product mix of its sales.
As a partial offset to these improved gross margin percentages, the Company
experienced a reduction in gross margin percentages realized from sales of
its Calibration Instruments products during the nine months ended June 30,
1998 due primarily to lower sales volume and an unfavorable geographic mix of
its sales. Changes in foreign exchange rates had an unfavorable impact on the
United States dollar equivalent of gross margins related to international
sales denominated in foreign currencies in the nine months ended June 30,
1998.
OPERATING EXPENSES. Operating expenses in the nine months ended June
30, 1998 decreased $5.1 million, or 9.3%, to $49.4 million from $54.5 million
in the comparable fiscal 1997 period. Operating expenses as a percentage of
sales increased to 46.2% in the nine months ended June 30, 1998 from 45.9% in
the comparable fiscal 1997 period. The decrease
20
<PAGE>
in operating expenses in the nine months ended June 30, 1998 was due to a
one-time charge of $7.1 million, or 5.9% of sales, in the nine months ended
June 30, 1997 for stock option compensation related to certain
recapitalization transactions of the Company that occurred in June 1997.
Excluding that charge, operating expenses in the nine months ended June 30,
1998 increased $2.0 million, or 4.2%, from the comparable fiscal 1997 period.
The increase in operating expenses in the nine months ended June 30, 1998 was
partially due to an increase in spending for research and development
activities of $1.3 million, to $12.9 million, or 12.1% of sales, in the nine
months ended June 30, 1998 from $11.6 million, or 9.8% of sales, in the
comparable 1997 period, in order to accelerate the timing and number of new
product introductions. In addition, spending for general and administrative
activities increased by $1.0 million, to $8.9 million, or 8.4% of sales, in
the nine months ended June 30, 1998 from $7.9 million, or 6.6% of sales, in
the comparable 1997 period, primarily due to expenses incurred in the nine
months ended June 30, 1998 in connection with certain legal claims against
the Company and an increase in expense in the nine months ended June 30, 1998
related to the Company's management information systems. As a partial offset
to these increased expenses, spending for marketing and selling activities
decreased by $0.3 million, to $27.6 million, or 25.8% of sales, in the nine
months ended June 30, 1998 from $27.9 million, or 23.5% of sales, in the
comparable 1997 period, primarily due to a reduction in sales commissions
paid to independent sales representatives due to reduced sales volumes in the
nine months ended June 30, 1998 compared to the nine months ended June 30,
1997, partially offset by the addition of certain marketing personnel and
certain recruiting and relocation costs incurred in connection with
recruiting activities for new marketing and sales personnel during the nine
months ended June 30, 1998. Although total expenses related to marketing and
selling activities decreased in the nine months ended June 30, 1998, such
expenses increased as a percentage of sales due to the fixed portion of such
expenses being spread over a lower sales volume. Changes in foreign exchange
rates had a favorable impact on the United States dollar equivalent of
operating expenses denominated in foreign currencies in the nine months ended
June 30, 1998.
NON-OPERATING INCOME (EXPENSE). Non-operating expense, net, in the
nine months ended June 30, 1998 increased by $7.4 million over the comparable
fiscal 1997 period to $9.0 million. The increase was primarily due to an
increase in the Company's net interest expense to $8.8 million during the
nine months ended June 30, 1998 from $0.7 million in the comparable fiscal
1997 period, reflecting additional interest expense due to the Notes and the
New Credit Agreement. The increase in net interest expense was partially
offset by a reduction of $0.7 million in other non-operating expenses.
PROVISION FOR INCOME TAXES. The Company's effective tax rate
decreased to approximately 36% in the nine months ended June 30, 1998 from
approximately 38% in the comparable fiscal 1997 period.
NET INCOME. As a result of the above factors, net income was $1.3
million in the nine months ended June 30, 1998 as compared to $4.5 million in
the comparable fiscal 1997 period.
EBITDA. As a result of the above factors, EBITDA was $13.8 million in
the nine months ended June 30, 1998 as compared to $18.3 million in the
comparable fiscal 1997 period. EBITDA as a percentage of sales decreased to
12.9% in the nine months ended June 30, 1998 from 15.4% in the comparable
fiscal 1997 period.
RATIO OF EARNINGS TO FIXED CHARGES. As a result of the above factors,
the ratio of earnings to fixed charges was 1.2x in the nine months ended June
30, 1998 as compared to 5.4x in the comparable fiscal 1997 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash provided by (used in) operating activities was
$(2.2 million) and $7.0 million in the nine months ended June 30, 1998 and
1997, respectively. The Company had cash, cash equivalents and short-term
investments
21
<PAGE>
at June 30, 1998 of $6.4 million. The Company invests its excess cash in
money market funds and U.S. Treasury obligations. Historically 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 borrowings outstanding under revolving
credit agreements of $8.9 million at June 30, 1998 for funding short-term
working capital requirements and had additional obligations outstanding
totaling approximately $1.3 million in the form of letters of credit and bank
guarantees.
The Company's primary cash needs have been for the funding of working
capital requirements (primarily inventory and accounts receivable) and
capital expenditures. The Company's net cash used in investing activities was
$1.1 million and $7.6 million in the nine months ended June 30, 1998 and
1997, respectively. The Company's recurring cash requirements for investing
activities are primarily for capital expenditures. The Company made capital
expenditures in the nine months ended June 30, 1998 and 1997 of approximately
$2.3 million and $4.8 million, respectively. The Company's cash flows from
investing activities for the nine months ended June 30, 1998 and 1997 also
included net proceeds from the sale of and (purchase of) short-term
investments of $1.0 million and $(3.0 million), respectively.
The Company's net cash provided by (used in) financing activities was
$4.1 million and ($1.4) million in the nine months ended June 30, 1998 and
1997, respectively. The net cash provided by (used in) financing activities
substantially reflects the proceeds from and repayments for borrowings used
to finance the Company's operating and investing activities, or as an
application of the cash generated from these activities.
As part of certain recapitalization transactions that occurred in
June 1997, the Company entered into a new credit agreement (the "New Credit
Agreement') with Fleet National Bank, DLJ Capital Funding, Inc. and various
other lenders providing for a term loan facility of $25.0 million and a
revolving credit facility providing for borrowings up to $20.0 million, of
which the Company borrowed all $25.0 million of the term loan facility and
none of the revolving credit facility to complete the recapitalization
transactions. The Company borrowed $5 million under this revolving credit
facility in June 1998. In connection with entering into the New Credit
Agreement, the Company terminated $4.0 million of United States availability
under its existing credit agreements ("Existing Credit Agreements"), leaving
borrowing availability of approximately $9.2 million at its Foreign
Subsidiaries. The Company believes that its cash flow from operations,
combined with the remaining available borrowings under the Existing and New
Credit Agreements will be sufficient to fund its debt service obligations,
including its obligations under the Notes, and working capital requirements.
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's
subsidiaries in the United Kingdom, France and Germany have credit facilities
providing for borrowings in British pounds, French francs and Deutsche marks,
respectively. The revolving credit facility under the New Credit Agreement
provides for up to an aggregate of $7.5 million of borrowings in British
pounds, French francs and Deutsche marks. 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 to hedge certain known foreign
exchange exposures. Gains or losses from such contracts are included in the
Company's statements of income to offset gains and losses from the underlying
foreign currency transactions.
The Indenture under which the Notes were issued and the New Credit
Agreement permit the Company and its subsidiaries to make investments in, and
intercompany loans to, the Foreign Subsidiaries. Payments to the Company or
its
22
<PAGE>
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. All intercompany loans from the Company to the Foreign
Subsidiaries are pledged to the lenders under the New Credit Agreement.
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 anticipated impact of the euro conversion on the Company.
PERIODIC FLUCTUATIONS
The Company's sales for the twelve months ended June 30, 1998
occurred approximately 25% in each of the four fiscal quarters ended
September 30, 1997, December 31, 1997, March 31, 1998 and June 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, expenditures
levels could be disproportionately high and operating results for that
quarter, and potentially future quarters, would be adversely affected.
IMPACT OF YEAR 2000
In 1995, the Company evaluated its information systems for Year 2000
compliance. As a result of this activity, an Information Systems Strategic
Plan was developed to address any deficiencies associated with dates and to
significantly improve the Company's overall information capabilities. The
Company has already addressed most of its Year 2000 date 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. A substantial
portion of the costs of this project, including costs associated with the
implementation of certain new core information systems, have already been
incurred by the Company. Additional costs necessary to complete the Company's
Information Systems Strategic Plan are not expected to have a material effect
on the Company's results of operations or its financial condition. Failure to
complete the Information Systems Strategic Plan as it relates to Year 2000
compliance could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, the Company has
initiated formal communications with all of its significant suppliers to
determine the extent to which the Company's systems or business processes may
be vulnerable to those third parties' failure to remediate their own year
2000 issues. There can be no assurance that any year 2000 issues present in
the systems of such other companies on which the Company's systems or
business processes rely will be timely remedied and will not have an adverse
effect on the Company.
23
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of its business, the Company from time to time
is subject 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.
In January 1998, the Company was sued by ComSonics, Incorporated
("ComSonics") for infringement by the Company and certain of its CATV test
equipment products of ComSonics' U.S. Patent No. 4,685,065. The Company has
reached an agreement to settle the action on terms that include a payment by
Wavetek to ComSonics of $400,000 to settle all claims arising from Wavetek
sales for all prior periods and through December 31, 1998, and a license to
Wavetek under the ComSonics patent commencing January 1, 1999, fixed payments
for which are to be made annually commencing January 1, 1999, in the amount
of $766,667 for the next six years. The definitive settlement agreement did
not have a material effect on the Company's financial position at June 30,
1998, or its results of operations for the nine months then ended, nor will
it have material adverse effect on the Company or its ability to develop new
products.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
10.1 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
10.2 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
10.3 First Amendment to Credit Agreement dated 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
12.1 Schedule Re: Computation of Ratio of Earnings to Fixed
Charges
27.1 Financial Data Schedule for the nine months ended June 30, 1998
</TABLE>
24
<PAGE>
(b) Reports on Form 8-K
The Company filed a Form 8-K on June 15, 1998 to report that on
June 15, 1998, Wavetek Corporation and Wandel & Goltermann
Management Holding GmbH jointly announced that they have signed
definitive agreements to merge the companies.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of the
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: August 14, 1998 WAVETEK CORPORATION
(Registrant)
/s/ VICKIE L. CAPPS
----------------------------------
Vickie L. Capps
Chief Financial Officer
26
<PAGE>
EXHIBIT 10.1
Conformed Copy
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 HERETO
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I. THE EXCHANGE AND MERGER
SECTION 1.1. Structure of the Exchange and Merger. . . . . . . . . . . 2
SECTION 1.2. Procedures. . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.3. WG Stockholder Loans. . . . . . . . . . . . . . . . . . . 4
SECTION 1.4. Option Grants . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 1.5. Dissenters' Rights. . . . . . . . . . . . . . . . . . . . 4
ARTICLE II. CONDUCT PENDING THE EXCHANGE AND MERGER
SECTION 2.1. Conduct of Business Prior to
the Effective Time. . . . . . . . . . . . . . . . . . . . 5
SECTION 2.2. Forbearance by Wavetek and WG . . . . . . . . . . . . . . 5
SECTION 2.3. Forbearance by WG Stockholders. . . . . . . . . . . . . . 7
SECTION 2.4. Forbearance by Wavetek Stockholders . . . . . . . . . . . 8
SECTION 2.5. Initial Public Offering . . . . . . . . . . . . . . . . . 9
SECTION 2.6 Consultation . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III. REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of
Wavetek and WG. . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3.2. Representations and Warranties of
WG Stockholders . . . . . . . . . . . . . . . . . . . . . 17
SECTION 3.3. Representations and Warranties of
Wavetek Stockholders. . . . . . . . . . . . . . . . . . . 19
ARTICLE IV. COVENANTS
SECTION 4.1. Acquisition Proposals . . . . . . . . . . . . . . . . . . 20
SECTION 4.2. Wavetek Stock Options . . . . . . . . . . . . . . . . . . 20
SECTION 4.3. Access and Information. . . . . . . . . . . . . . . . . . 21
SECTION 4.4. Certain Filings, Consents and
Arrangements. . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 4.5. Additional Agreements . . . . . . . . . . . . . . . . . . 22
-i-
<PAGE>
SECTION 4.6. Publicity . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 4.7. U.S. Tax Consequence. . . . . . . . . . . . . . . . . . . 22
SECTION 4.8. Board of Directors of Wavetek . . . . . . . . . . . . . . 22
SECTION 4.9. Switching Test Solutions AG . . . . . . . . . . . . . . . 23
SECTION 4.10. Formation of WG Holding Company . . . . . . . . . . . . . 23
SECTION 4.11. Opinion . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE V. CONDITIONS TO CONSUMMATION
SECTION 5.1. Conditions to All Parties' Obligations. . . . . . . . . . 23
ARTICLE VI. TERMINATION
SECTION 6.1. Termination . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 6.2. Effect of Termination . . . . . . . . . . . . . . . . . . 25
ARTICLE VII. EFFECTIVE DATE AND EFFECTIVE TIME
SECTION 7.1. Effective Date and Effective Time . . . . . . . . . . . . 25
ARTICLE VIII. OTHER MATTERS
SECTION 8.1. Certain Definitions; Interpretation . . . . . . . . . . . 26
SECTION 8.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 8.3. Severability. . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 8.4. Entire Agreement; Etc.. . . . . . . . . . . . . . . . . . 28
SECTION 8.5. Survival. . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 8.6. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 8.7. Amendments and Waiver . . . . . . . . . . . . . . . . . . 29
SECTION 8.8. Consent to Specific Performance . . . . . . . . . . . . . 29
SECTION 8.9. Assignment. . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 8.10. Governing Law . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 8.11. Jurisdiction; Waivers . . . . . . . . . . . . . . . . . . 30
SECTION 8.12. WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . . . . . 30
SECTION 8.13. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 8.14. Facsimile Signature; Counterparts . . . . . . . . . . . . 30
SECTION 8.15. Binding Agreement . . . . . . . . . . . . . . . . . . . . 31
-ii-
<PAGE>
LIST OF ANNEXES
Annex 1 -- WG Stockholder Information (Section 1.1)
Annex 2 -- Form of Notarial Deed (Section 1.2(a))
Annex 3 -- Wavetek Rights (Section 3.1(c)(1))
Annex 4 -- WG Rights (Section 3.1(c)(1))
Annex 5 -- Subsidiaries of WG (Section 3.1(c)(3))
Annex 6 -- Subsidiaries of Wavetek (Section 3.1(c)(3))
Annex 7 -- Taxes (Section 3.1(c)(7))
Annex 8 -- Wavetek Stockholder Information (Section 3.3(a))
-iii-
<PAGE>
EXCHANGE AND MERGER AGREEMENT, dated as of June 12, 1998 (this
"Agreement"), by and among Wavetek Corporation, a Delaware corporation
("WAVETEK"), DLJ Merchant Banking Partners II, L.P. ("DLJMB"), DLJ
Diversified Partners, L.P., DLJMB Funding II, Inc., DLJ First ESC L.L.C., DLJ
EAB Partners, L.P., DLJ Millennium Partners, L.P., DLJ Offshore Partners II,
C.V. and UK Investment Plan 1997 Partners (collectively, and together with
DLJMB, the "DLJ INVESTORS"), Green Equity Investors II, L.P. ("GEI"),
Schroder UK Venture Fund III, L.P., Schroder UK Venture Fund III, L.P.2,
Schroder UK Venture Fund III Trust (collectively, "SCHRODER"), Yokogawa
Electric Corporation ("YOKOGAWA", and together with the DLJ Investors, GEI
and Schroder, the "INSTITUTIONAL STOCKHOLDERS"), Dr. Terence J. Gooding,
Barbara A. Gooding, Terence J. Gooding GRAT 1, Terence J. Gooding GRAT 2 and
Barbara A. Gooding GRAT (collectively, "GOODING"), the Wavetek management
stockholders listed on the signature pages hereto (the "MANAGEMENT
STOCKHOLDERS" and, together with the Institutional Stockholders and Gooding,
the "WAVETEK STOCKHOLDERS"), Wandel & Goltermann Management Holding GmbH, a
German limited liability company ("WG"), Albrecht Wandel, a resident of the
Federal Republic of Germany, and Renate Wandel, a resident of the Federal
Republic of Germany (collectively, "WANDEL STOCKHOLDERS"), Frank Goltermann,
a resident of the Federal Republic of Germany, Ulrike Goltermann, a resident
of the Federal Republic of Germany, and Burkhard Goltermann, a resident of
the Federal Republic of Germany (collectively, "GOLTERMANN STOCKHOLDERS"),
Peter Wagner, a resident of the Federal Republic of Germany ("WAGNER"), and
Hannover Finanz W&G Beteiligungsgesellschaft mbH ("HF"). Wandel Stockholders,
Goltermann Stockholders, Wagner and HF are collectively referred to as "WG
STOCKHOLDERS".
RECITALS:
WHEREAS, Wavetek, the Wavetek Stockholders, WG and the WG
Stockholders desire to enter into the transactions described herein whereby
WG will become a wholly-owned subsidiary of Wavetek and the WG Stockholders
will become stockholders of Wavetek (the "Merger");
WHEREAS, Wavetek, Wavetek Stockholders, WG and WG Stockholders are
concurrently entering into a Stockholders Agreement, dated as of the date
hereof and effective as of the Effective Time (the "Stockholders Agreement"),
setting forth
<PAGE>
the matters relating to governance and stockholders' rights subsequent to the
Effective Time (as defined in Section 7.1);
WHEREAS, Wavetek and WG are entering into a side letter, dated as
of the date hereof (the "Side Letter"), setting forth certain additional
agreements;
WHEREAS, it is the intention of the parties to this Agreement that
the Merger (i) for federal income tax purposes shall qualify as an asset
purchase within the meaning of Section 338 of the Internal Revenue Code of
1986, as amended (the "Code") and permit an election to step up to fair
market value the U.S. tax basis of such purchase and (ii) for accounting
purposes shall qualify for treatment as a "purchase"; and
WHEREAS, the Board of Directors of Wavetek, the Supervisory Board
of WG, the Wavetek Stockholders and the WG Stockholders have duly approved
this Agreement and have duly authorized its execution and delivery.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, the parties hereto agree as follows:
ARTICLE I. THE EXCHANGE AND MERGER
SECTION 1.1. STRUCTURE OF THE EXCHANGE AND MERGER.
(a) Subject to the terms and conditions hereof,
(i) Immediately prior to the Effective Time, each WG Stockholder
shall transfer and assign to WG Holding (defined below) (free and
clear of all liabilities, liens, claims, pledges, security interests,
charges or encumbrances, restrictions, title retention agreements,
proxies or other voting arrangements, rights of first refusal, tag
along or similar rights of any nature whatsoever (all of the foregoing
collectively "Liens")) all the outstanding share capital of WG ("WG
Interests"), with the right to all dividends not distributed prior to
September 30, 1998, but without prejudice to Section 2.2(b), in
exchange for all of the outstanding shares of common stock of a
newly-formed corporation incorporated under the laws of
-2-
<PAGE>
the State of Delaware ("WG Holding"), whereupon WG Holding shall
become the owner of 100% of the WG Interests (the "Exchange").
(ii) At the Effective Time, WG Holding shall merge with and into
Wavetek, with Wavetek as the surviving corporation. At the Effective
Time, the certificate of incorporation and by-laws of Wavetek shall be
amended and restated as contemplated by the Stockholders Agreement and
the directors of Wavetek shall be those contemplated by the
Stockholders Agreement. By virtue of the Merger, automatically and
without any action on the part of the holders thereof, the shares of
common stock of WG Holding (each, a "WG Holding Interest") outstanding
at the Effective Time shall become and be converted into shares of
Wavetek Common Stock as described herein. In the Merger, each WG
Stockholder shall receive the number of shares of Wavetek Common Stock
set forth opposite the name of such WG Stockholder on Annex 1 and the
aggregate number of shares of Wavetek Common Stock issued will be
8,317,464.
(b) Wavetek and WG may at any time prior to the Effective Time change
the structure of the Exchange and Merger if and to the extent they deem
such change to be necessary, appropriate or desirable; provided, however,
that no such change shall (i) alter or change the amount of consideration
to be issued to WG Stockholders as provided for in this Agreement,
(ii) adversely affect the tax treatment to Wavetek, the Wavetek
Stockholders or the WG Stockholders as a result of the transactions
contemplated hereby or (iii) materially impede or delay consummation of the
transactions contemplated by this Agreement.
(c) Although the Exchange, the Merger and the Initial Public Offering
shall occur sequentially, all such transactions shall be unwound and deemed
not to have occurred unless all such transactions are consummated at or
immediately prior to the Effective Time.
SECTION 1.2. PROCEDURES.
(a) Immediately prior to the Effective Time, WG Holding, on the one
hand, and the WG Stockholders, on the
-3-
<PAGE>
other hand, shall be parties to a notarial deed of a German or Swiss notary
pursuant to which all outstanding WG Interests shall be transferred to WG
Holding, such notarial deed to be substantially in the form of Annex 2
hereto.
(b) At the Effective Time, Wavetek shall deliver to each holder of a
WG Holding Interest, upon delivery of the certificates representing all the
WG Holding Interests held by such holder, a certificate or certificates
representing the number of whole shares of Wavetek Common Stock which such
holder has the right to receive in respect of the WG Holding Interests
pursuant to the provisions of Section 1.1 and this Section 1.2.
(c) From and after the Effective Time, there shall be no transfers on
the transfer records of WG Holding of any WG Holding Interests that were
outstanding immediately prior to the Effective Time.
SECTION 1.3. WG STOCKHOLDER LOANS. The WG stockholder loans (as
set forth in Annex 4) shall be repaid at the Effective Time.
SECTION 1.4. OPTION GRANTS. At the Effective Time, (i) Wavetek's
1992 Non-Qualified Employee Stock Option Plan, as amended, will be amended to
increase the number of shares of Common Stock available for option grants
thereunder from 663,160 shares to a number of shares equal to up to 10% of
the number of outstanding shares immediately following the Initial Public
Offering and (ii) Wavetek shall grant up to 558,055 options at the Effective
Time to WG employees, directors and new hires, of which 97,161 options shall
be fully vested upon their grant; provided that such vested options shall not
constitute more than 50% of the options held by any grantee and shall
represent acceleration of the earliest vesting dates; provided, however, that
the recipients of such options shall be determined by the Compensation
Committee (as defined in the Stockholders Agreement). The exercise price for
such options shall be the price per share in the Initial Public Offering.
SECTION 1.5. DISSENTERS' RIGHTS. The WG Stockholders hereby
waive any dissenters' rights they may have in connection with the Merger
pursuant to the Delaware General Corporation Law.
-4-
<PAGE>
ARTICLE II. CONDUCT PENDING THE EXCHANGE AND MERGER
SECTION 2.1. CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME.
Except as otherwise provided for in, or contemplated by, this Agreement,
during the period from the date of this Agreement to the Effective Time, each
of Wavetek and WG shall, and shall cause its subsidiaries to, (i) conduct its
business in the usual, regular and ordinary course, (ii) use its best efforts
to maintain and preserve intact its business organization, employees and
advantageous business relationships and retain the services of its officers
and key employees and (iii) take no action which would materially and
adversely affect or delay the ability of WG or Wavetek to obtain any
necessary approvals, consents or waivers of any governmental authority
required for the transactions contemplated hereby or to perform its covenants
and agreements on a timely basis under this Agreement. Notwithstanding
anything herein to the contrary, WG shall be permitted to consummate its
acquisition of the shares of Wandel & Goltermann Technologies, Inc., a North
Carolina corporation ("WGTI"), not owned by WG, on the terms set forth in the
Agreement and Plan of Merger dated as of March 28, 1998 among WGTI, WG Merger
Corporation and WG, and shall be entitled to borrow the funds necessary to
complete such transaction, provided that the price per share paid for such
WGTI shares shall not exceed $15.90 unless and except approved in advance by
Wavetek (the "WGTI Transaction").
SECTION 2.2. FORBEARANCE BY WAVETEK AND WG. During the period
from the date of this Agreement to the Effective Time, except as otherwise
provided for in, or contemplated by, this Agreement, each of Wavetek and WG
shall not, and shall not permit any of its subsidiaries, without the prior
written consent of WG or Wavetek, as applicable, to:
(a) in the case of Wavetek, adjust, split, combine or reclassify any
capital stock (other than any stock split necessary to consummate the
transactions contemplated hereby or the Initial Public Offering) or issue
any additional shares of capital stock except pursuant to the exercise of
stock options outstanding as of the date hereof, to consummate the
transactions contemplated hereby or in the Initial Public Offering; in the
case of WG, take any action to adjust, split, combine or reclassify any
capital stock (other than any stock split necessary to consummate the
transactions contemplated hereby) or issue any additional shares of
-5-
<PAGE>
capital stock except pursuant to the exercise of stock options
outstanding as of the date hereof or except as contemplated by Section
4.9 hereof;
(b) make, declare or pay any dividend or make any other distribution
on, or directly or indirectly redeem, purchase or otherwise acquire, any
shares of its capital stock or any securities or obligations convertible
into or exchangeable for any shares of its capital stock, or grant any
stock appreciation rights, options or any right to acquire any shares of
its capital stock, except for dividends paid by any wholly owned subsidiary
to WG or Wavetek, as applicable, or any of its wholly owned subsidiaries;
provided, however, that (i) WG may pay a dividend to its stockholders in an
amount not to exceed DM1 million, (ii) if WG is required to pay a dividend
for fiscal 1998 to the WG Stockholders under WG's governing documents, WG
may pay such dividend in an amount up to DM3.3 million and Wavetek may pay
a dividend to the Wavetek Stockholders in an amount not to exceed 66 % of
the dividend so paid by WG and (iii) Wavetek may purchase shares of its
capital stock and options from its employees who terminate employment with
Wavetek in a manner consistent with past practice;
(c) other than in the ordinary course of business, sell, transfer,
mortgage, encumber or otherwise dispose of any of its material properties
or assets to any person other than a direct or indirect wholly owned
subsidiary;
(d) other than in the ordinary course of business, make any material
investment or purchase any material property or assets of any person other
than a wholly owned subsidiary;
(e) other than in the ordinary course of business, enter into or
terminate any material contract or agreement, or make any change in any of
its material leases or contracts, other than renewals of contracts and
leases without material adverse changes of terms or, with respect to
Wavetek, in connection with the settlement of the litigation with
Comsonics, Incorporated on terms not materially different than those set
forth in the Side Letter;
(f) increase in any manner the compensation or fringe benefits of any
of its officers or employees or
-6-
<PAGE>
pay any pension or retirement allowance not required by any existing plan
or agreement to any such officers or employees, or become a party to,
amend or commit itself to any pension, retirement, profit-sharing or
welfare benefit plan or agreement or employment agreement with or for the
benefit of any officer or employee, in each case other than in the
ordinary course of business, or voluntarily accelerate the vesting of any
stock options or other stock-based compensation not required by an
existing plan or agreement;
(g) modify in any material respect the manner in which it and its
subsidiaries have heretofore conducted or accounted for their business;
(h) except as contemplated by this Agreement, amend its charter or
by-laws or similar organizational documents;
(i) take, or omit to take, any action that would (i) delay or
adversely affect the ability of WG, Wavetek or any WG Stockholder to obtain
any necessary approvals, consents, clearances, actions or waivers of any
governmental authority required for the transactions contemplated hereby or
the timing thereof or (ii) adversely affect its ability to perform its
covenants and agreements on a timely basis under this Agreement; or
(j) agree to, or make any commitment to, take any of the actions
prohibited by this Section 2.2.
SECTION 2.3. FORBEARANCE BY WG STOCKHOLDERS. During the period from
the date of this Agreement to the Effective Time, except as otherwise provided
for in, or contemplated by, this Agreement, each WG Stockholder shall not,
without the prior written consent of Wavetek:
(a) sell, transfer, mortgage, encumber or otherwise dispose of any WG
Interests or WG Holding Interests owned or held by it other than in a
Permitted Transfer (as defined in the Stockholders Agreement, assuming the
Stockholders Agreement were binding at the time of such transfer) provided
that such transferee becomes a party to and agrees to be bound by each of
this Agreement and the Stockholders Agreement as a condition to such
transfer, except in connection with the Merger or the
-7-
<PAGE>
Exchange or take any action that would adjust, split, combine or reclassify
any capital stock of WG or issue any additional shares of capital stock of
WG except as contemplated by Section 4.9 hereof;
(b) take, or omit to take, any action that would (i) delay or
adversely affect the ability of WG, Wavetek or it to obtain any necessary
approvals, consents, clearances, actions or waivers of any governmental
authority required for the transactions contemplated hereby or the timing
thereof or (ii) adversely affect its ability to perform its covenants and
agreements on a timely basis under this Agreement; or
(c) agree to, or make any commitment to, take any of the actions
prohibited by this Section 2.3.
SECTION 2.4. FORBEARANCE BY WAVETEK STOCKHOLDERS. During the period
from the date of this Agreement to the Effective Time, except as otherwise
provided for in, or contemplated by, this Agreement, each Wavetek Stockholder
shall not, without the prior written consent of WG:
(a) sell, transfer, mortgage, encumber or otherwise dispose of any
shares of Common Stock owned or held by it other than in a Permitted
Transfer (as defined in the Stockholders Agreement), assuming that the
Stockholders Agreement were binding at the time of such transfer, provided
that such transferee becomes a party to and agrees to be bound by this
Agreement and the Stockholders Agreement as a condition to such transfer;
(b) take, or omit to take, any action that would (i) delay or
adversely affect the ability of WG, Wavetek or it to obtain any necessary
approvals, consents, clearances, actions or waivers of any governmental
authority required for the transactions contemplated hereby or the timing
thereof or (ii) adversely affect its ability to perform its covenants and
agreements on a timely basis under this Agreement; or
(c) agree to, or make any commitment to, take any of the actions
prohibited by this Section 2.4.
-8-
<PAGE>
SECTION 2.5. INITIAL PUBLIC OFFERING.
(a) The parties hereby agree to use their best efforts to consummate
an Initial Public Offering (as defined in the Stockholders Agreement) at or
immediately following the Effective Time. In connection therewith, as soon
as it is reasonably practicable after the date hereof, Wavetek and WG shall
commence preparation of a Registration Statement on Form S-1 (the
"Registration Statement") and file the Registration Statement with the
Securities and Exchange Commission. Each of Wavetek and WG shall use their
best efforts to have the Registration Statement declared effective under
the Securities Act of 1933 and take any action required to be taken under
applicable state securities and blue sky laws in connection with the
issuance of the Wavetek Common Stock in connection with the Initial Public
Offering. Wavetek and WG shall promptly furnish to each other all
information, and take such other actions, as may be reasonably requested in
connection with this Section 2.5. Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") shall be the lead manager for the Initial Public
Offering under usual and customary arrangements and fees. DLJ and the WG
Stockholders will select co-managers for the offering and listing of shares
of Wavetek Common Stock in Europe (with a dual listing preferably on the
Frankfurt exchange) as part of the Initial Public Offering.
(b) In connection with the Initial Public Offering, the Stockholders
(as defined in the Stockholders Agreement) shall have the registration
rights set forth in Section 5.2 of the Stockholders Agreement (as if the
Stockholders Agreement were in effect prior to the Effective Time).
SECTION 2.6 CONSULTATION. During the period from the date of this
Agreement to the Effective Time, Dr. Terence J. Gooding and Peter Wagner shall
consult on a weekly basis on all operating issues affecting Wavetek and WG
following the Effective Time. Any differences of opinion or disagreements
arising from such consultation shall be discussed with the Executive Committee
(as defined in the Stockholders Agreement).
-9-
<PAGE>
ARTICLE III. REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF WAVETEK AND WG.
(a) Wavetek represents and warrants to WG that:
(1) CORPORATE STATUS. As of the date hereof, Wavetek has been
duly incorporated and is an existing corporation in good standing
under the laws of the State of Delaware, with its principal executive
offices located at 11995 El Camino Real, Suite 301, San Diego,
California 92130, USA. As of the date hereof, Wavetek has 15,000,000
authorized shares of Wavetek Common Stock, of which 4,884,860 shares
are issued and outstanding and an aggregate of 663,160 shares are
reserved for issuance pursuant to outstanding employee stock option
plans, of which 504,908 shares are subject to issuance pursuant to
outstanding employee stock option agreements.
(2) CAPITAL STOCK. All outstanding shares of capital stock of
it and its subsidiaries are duly authorized, validly issued and
outstanding, fully paid and non-assessable, and subject to no
preemptive rights (other than such rights set forth in the Prior
Agreement (as defined in the Stockholders Agreement) which have been
waived by the parties thereto).
(b) WG represents and warrants to Wavetek that:
(1) CORPORATE STATUS. As of the date hereof, WG has been duly
organized and is an existing limited liability company (GmbH) under
the laws of Germany, with its principal executive offices located at
Muhleweg 5, D-72800 Eningen u.A., Germany.
(2) WG INTERESTS. As of the date hereof, WG has a share capital
in the total amount of DM 40,000,000 which is divided into the
following WG Interests:
(i) HF with one share of nominal DM 10,940,000;
-10-
<PAGE>
(ii) Mr. Albrecht Wandel with one share of nominal DM 5,928,400
and one share of nominal DM 899,000, total nominal DM
6,827,400;
(iii) Mrs. Renate Wandel with one share of nominal DM 5,451,600
and one share of nominal DM 651,000, total nominal DM
6,102,600;
(iv) Mr. Frank Goltermann with one share of nominal DM 3,115,200,
one share of nominal DM 1,600,000, and one share of nominal
DM 372,000 total nominal DM 5,087,200;
(v) Mr. Burkhard Goltermann with one share of nominal DM
6,480,000, and one share of nominal DM 775,000, in total
nominal DM 7,255,000; and
(vi) Mrs. Ulrike Goltermann with one share of nominal DM
3,384,800 and one share of nominal DM 403,000, in total
nominal DM 3,787,800.
(c) Wavetek represents and warrants to WG, and WG represents and
warrants to Wavetek, that:
(1) RIGHTS. It does not have any shares of its capital stock or
interests reserved for issuance, any outstanding option, call or
commitment relating to shares of its capital stock or interests or any
outstanding securities, obligations or agreements convertible into or
exchangeable for, or giving any person any right (including, without
limitation, pre-emptive rights) to subscribe for or acquire from it,
or cause it to register with the Securities and Exchange Commission or
any other national, state or local authority for resale any shares of
its capital stock or interests (collectively, "Rights"), except as set
forth on Annex 3 (as to Wavetek) and Annex 4 (as to WG). Annex 4
lists the principal amount, interest rate and maturity of all loans or
other debt obligations due from WG to any WG Stockholder.
-11-
<PAGE>
(2) AUTHORITY. Each of it and its subsidiaries has the power
and authority, and is duly qualified in all jurisdictions (except for
such qualifications the absence of which, individually or in the
aggregate, would not have a Material Adverse Effect (as defined in
Section 8.1)) where such qualification is required, to carry on its
business as it is now being conducted and to own all its material
properties and assets, and it has all federal, state, local, and
foreign governmental permits, licenses and authorizations necessary
for it to own or lease its properties and assets and to carry on its
business as it is now being conducted, except for such powers and
authorizations the absence of which, either individually or in the
aggregate, would not have a Material Adverse Effect.
(3) SUBSIDIARIES. In the case of WG, a list of its subsidiaries
is contained in Annex 5; in the case of Wavetek, a list of its
subsidiaries is contained in Annex 6; all of the shares of capital
stock of each of its subsidiaries have been duly authorized and
validly issued and are owned by it free and clear of all Liens, and
there are no Rights with respect to such capital stock, except as
listed on Annex 5 (in the case of WG) or Annex 6 (in the case of
Wavetek).
(4) APPROVALS. This Agreement has been authorized by all
necessary corporate action of it. Subject to receipt of the required
approvals, consents or waivers of governmental authorities referred to
in Section 5.1(b), this Agreement is a valid and binding agreement of
it enforceable against it in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
(5) NO VIOLATIONS. The execution, delivery and performance of
this Agreement by it does not, and the consummation of the
transactions contemplated hereby by it will not, constitute (i) a
breach or violation of, or a default under, any
-12-
<PAGE>
law, rule or regulation or any judgment, decree, order,
governmental permit or license, or agreement, indenture or
instrument of it or its subsidiaries or to which it or its
subsidiaries (or any of their respective properties) is subject,
which breach, violation or default would have a Material Adverse
Effect on it, or enable any person to enjoin the Exchange or (ii) a
breach or violation of, or a default under, the certificate or
articles of incorporation or by-laws of it or any of its
subsidiaries; and the consummation of the transactions contemplated
hereby will not require any approval, consent or waiver under any
such law, rule, regulation, judgment, decree, order, governmental
permit or license or the approval, consent or waiver of any other
party to any such agreement, indenture or instrument, other than
(i) the required approval, consents, waivers and administrative
actions referred to in Section 5.1(a), (ii) such approvals,
consents or waivers as are required under the federal and state
securities or "Blue Sky" laws in connection with the transactions
contemplated by this Agreement and (iii) any other approvals,
consents or waivers the absence of which, individually or in the
aggregate, would not result in a Material Adverse Effect or enable
any person to enjoin the Exchange.
(6) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
pursuant to this Section 3.1, since December 31, 1997, there has not
been any change in the financial condition or results of operations of
it or any of its subsidiaries which, individually or in the aggregate,
has had a Material Adverse Effect on it.
(7) TAXES. Except as otherwise would not have a Material
Adverse Effect, all federal, state, local, and foreign tax returns
required to be filed by or on behalf of it or any of its subsidiaries
have been timely filed or requests for extensions have been timely
filed and any such extension shall have been granted and not have
expired. All taxes shown on returns filed by or on behalf of it or
any of its subsidiaries have been paid in full or adequate provision
has been made for any such taxes on its balance sheet as of December
31, 1997 (in
-13-
<PAGE>
the case of Wavetek, in accordance with United States generally
accepted accounting principles ("US GAAP"), and in the case of WG,
in accordance with German generally accepted accounting
principles). As of the date of this Agreement, there are no
assessments or notices of deficiency or proposed assessments with
respect to any taxes of it or any of its subsidiaries other than as
set forth in Annex 7 or that, if resolved in a manner adverse to
it, would result in a determination that would have a Material
Adverse Effect on it. Except as otherwise would not have a
Material Adverse Effect, it has not executed an extension or waiver
of any statute of limitations on the assessment or collection of
any tax due that is currently in effect.
(8) ABSENCE OF CLAIMS. Except as disclosed in Wavetek's filings
with the Securities and Exchange Commission or in writing to WG or
Wavetek, as applicable, and except for the pending WGTI stockholder
litigation, no material litigation, proceeding or controversy before
any court or governmental agency is pending, and there is no pending
claim, action or proceeding against it or any of its subsidiaries,
which is reasonably likely, individually or in the aggregate, to have
a Material Adverse Effect on it or to materially hinder or delay
consummation of the transactions contemplated hereby.
(9) ABSENCE OF REGULATORY ACTIONS. Neither it nor any of its
subsidiaries is a party to any cease and desist order, written
agreement or memorandum of understanding with, or a party to any
commitment letter or similar undertaking to, or is subject to any
order or directive by, or is a recipient of any extraordinary
supervisory letter from, or has adopted any board resolutions at the
request of, any relevant federal, state or local governmental
authorities.
(10) TITLE TO ASSETS. Each of it and its subsidiaries has good
and marketable title to its properties and assets reflected as owned
by it on its September 30, 1997 balance sheet, and valid leasehold
interests in all property leased by it
-14-
<PAGE>
and its subsidiaries, except for such dispositions in the ordinary
course of business or defects in title which would not,
individually or in the aggregate, have a Material Adverse Effect.
(11) KNOWLEDGE AS TO CONDITIONS. As of the date hereof, it
knows of no reason why the approvals, consents and waivers of
governmental authorities referred to in Section 5.1(a) will not be
obtained without the imposition of any condition of the type referred
to in the provisos thereto.
(12) WAVETEK COMMON STOCK. In the case of Wavetek, the shares
of Wavetek Common Stock to be issued pursuant to this Agreement, when
issued in accordance with the terms of this Agreement, will be duly
authorized, validly issued, fully paid and non-assessable and subject
to no preemptive rights (other than, in the case of Wavetek, such
rights set forth in the Prior Agreement which have been waived by the
parties thereto).
(13) FEES. Other than financial advisory services performed for
Wavetek by Donaldson, Lufkin & Jenrette Securities Corporation and for
WG by Broadview Associates, neither it nor any of its subsidiaries,
nor any of their respective officers, directors, employees or agents
has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions, or finder's
fees, and no broker or finder has acted directly or indirectly for it
or any of its subsidiaries, in connection with this Agreement or the
transactions contemplated hereby.
(14) ANTITAKEOVER PROVISIONS INAPPLICABLE. No antitakeover or
similar law applies to this Agreement or the Exchange or the
transactions contemplated hereby.
(15) ENVIRONMENTAL MATTERS. Except for such matters that, alone
or in the aggregate, would not have a Material Adverse Effect, to the
best knowledge of its senior management (without inquiry), (i) it and
its subsidiaries have complied with all applicable Environmental Laws;
(ii) the properties presently or formerly owned or operated
-15-
<PAGE>
by it or its subsidiaries (including, without limitation, soil,
groundwater or surface water on, under or adjacent to the
properties, and buildings thereon as well as properties held in an
agency or fiduciary capacity) (the "Properties") do not contain any
Hazardous Substance (as hereinafter defined) other than as
permitted under applicable Environmental Law, do not contain, and
have not contained, any underground storage tanks, do not have any
asbestos present (and have not had any asbestos removed therefrom)
and have not been used as a sanitary landfill or hazardous waste
disposal site (PROVIDED, HOWEVER, that with respect to Properties
owned or operated by it at any time, such representation is limited
to the period after the time of acquisition of such Property by it
or one of its subsidiaries and prior to the disposition of such
Properties by it or one of its subsidiaries); (iii) neither it nor
any of its subsidiaries has received any notices, demand letters or
request for information from any governmental entity or any third
party that it or any of its subsidiaries may be in violation of, or
liable under, any Environmental Law and none of it, its
subsidiaries or the Properties are subject to any court order,
administrative order or decree arising under any Environmental Law;
and (iv) no Hazardous Substance has been disposed of, transferred,
released or transported from any of the Properties during the time
such Property was owned or operated by it or one of its
subsidiaries, other than as permitted under applicable
Environmental Law.
"Environmental Law" means (i) any federal, state, foreign or
local law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, common law, legal doctrine,
order, judgment, decree, injunction, requirement or agreement with any
government entity, (x) relating to the protection, preservation or
restoration of the environment (including, without limitation, air,
water vapor, surface water, groundwater, drinking water supply,
surface land, subsurface land, plant and animal life or any other
natural resource), or to human health or safety, or (y) the exposure
to, or the
-16-
<PAGE>
use, storage, recycling, treatment, generation, transformation,
processing, handling, labeling, production, release or disposal of
Hazardous Substances, in each case as amended and as now in effect.
"Hazardous Substance" means any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or
dangerous, or otherwise regulated, under any Environmental Law,
whether by type or by quantity, including any substance containing any
such substance as a component.
(16) FINANCIAL STATEMENTS; INFORMATION. With respect to
Wavetek, the financial statements contained in its filings with the
Securities and Exchange Commission (the "Commission") have been
prepared in accordance with US GAAP, applied on a consistent basis for
all periods presented. With respect to WG, the financial statements
provided to Wavetek have been prepared in accordance with German
generally accepted accounting principles, applied on a consistent
basis for all periods presented. With respect to Wavetek, the filings
made by it with the Commission, and with respect to WG, the
information delivered by it to Wavetek, as of the respective date of
such filing or information, did not contain a misstatement of, or omit
to state, any material fact necessary to make the information
contained therein, in the light of the circumstances under which it
was made, not misleading.
SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF WG STOCKHOLDERS. Each
WG Stockholder represents and warrants that:
(a) CAPITAL STOCK. Annex 1 accurately sets forth the name, address
and WG Interests held by it; all such WG Interests are beneficially owned
and held by it free and clear of all Liens, except as set forth on Annex 1.
(b) APPROVALS. This Agreement is a valid and binding agreement of it
enforceable against it in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, fraudulent transfer, reorgani-
-17-
<PAGE>
zation, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles. No
approval of any spouse of such WG Stockholder or any other person is
required for the performance of its obligations hereunder, except for
such approvals as have been obtained by such WG Stockholder.
(c) NO VIOLATIONS. To its knowledge, the execution, delivery and
performance of this Agreement by it does not, and the consummation of the
transactions contemplated hereby by it will not, constitute a breach or
violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement,
indenture or instrument of it or to which it (or any its properties) is
subject, which breach, violation or default would have a Material Adverse
Effect on WG, or enable any person to enjoin the Exchange and, in the case
of a WG Stockholder that is not a natural person, constitute a breach or
violation of, or a default under, the charter, by-laws or other governing
document of it; and the consummation of the transactions contemplated
hereby will not require any approval, consent or waiver under any such
law, rule, regulation, judgment, decree, order, governmental permit or
license or the approval, consent or waiver of any other party to any such
agreement, indenture or instrument, other than (i) the required approval,
consents and waivers of third parties or governmental authorities referred
to in or contemplated by Section 5.1, (ii) such approvals, consents or
waivers as are required under the federal and state securities or "Blue
Sky" laws in connection with the transactions contemplated by this
Agreement and (iii) any other approvals, consents or waivers the absence of
which, individually or in the aggregate, would not result in a Material
Adverse Effect on WG or enable any person to enjoin the Exchange.
(d) KNOWLEDGE AS TO CONDITIONS. As of the date hereof, it knows of
no reason why the approvals, consents and waivers of third parties and
governmental authorities referred to in Section 5.1 and will not be
obtained without the imposition of any condition of the type referred to in
the proviso thereto.
-18-
<PAGE>
SECTION 3.3. REPRESENTATIONS AND WARRANTIES OF WAVETEK STOCKHOLDERS.
Each Wavetek Stockholder represents and warrants that:
(a) CAPITAL STOCK. Annex 8 accurately sets forth the name, address
and number of shares of Common Stock held by it; all such shares of Common
Stock are beneficially owned and held by it free and clear of all Liens,
except as set forth on Annex 8.
(b) APPROVALS. This Agreement is a valid and binding Agreement of it
enforceable against it in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles. No approval
of any spouse of such Wavetek Stockholder or any other person is required
for the performance of its obligations hereunder, except for such approvals
as have been obtained by such Wavetek Stockholder.
(c) NO VIOLATIONS. The execution, delivery and performance of this
Agreement by it does not, and the consummation of the transactions
contemplated hereby by it will not, constitute a breach or violation of, or
a default under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or agreement, indenture or
instrument of it or to which it (or any its properties) is subject, which
breach, violation or default would have a Material Adverse Effect on
Wavetek, or enable any person to enjoin the Exchange and, in the case of a
Wavetek Stockholder that is not a natural person, constitute a breach or
violation of, or a default under, the charter, by-laws or other governing
document of it; and the consummation of the transactions contemplated
hereby will not require any approval, consent or waiver under any such law,
rule, regulation, judgment, decree, order, governmental permit or license
or the approval, consent or waiver of any other party to any such
agreement, indenture or instrument, other than (i) the required approval,
consents and waivers of third parties or governmental authorities referred
to in or contemplated by Section 5.1, (ii) such approvals, consents or
waivers as are required under the federal and state securities or "Blue
Sky" laws in connection with the transactions contemplated by this
Agreement and
-19-
<PAGE>
(iii) any other approvals, consents or waivers the absence of which,
individually or in the aggregate, would not result in a Material Adverse
Effect or enable any person to enjoin the Exchange.
(d) KNOWLEDGE AS TO CONDITIONS. As of the date hereof, it knows of
no reason why the approvals, consents and waivers of third parties and
governmental authorities referred to in Section 5.1 will not be obtained
without the imposition of any condition of the type referred to in the
proviso thereto.
ARTICLE IV. COVENANTS
SECTION 4.1. ACQUISITION PROPOSALS. Except for the WGTI Transaction,
between the date hereof and the Effective Time, each of Wavetek and WG agrees
that neither it nor any of its subsidiaries nor any of the respective officers
and directors of such company or its subsidiaries shall, and each of Wavetek and
WG shall direct and use its best efforts to cause its employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it or any of its subsidiaries) not to, and each of the
WG Stockholders agrees that it shall not, initiate, solicit or encourage,
directly or indirectly, any inquiries or the making of any proposal or offer
(including, without limitation, any proposal or offer to stockholders) with
respect to a merger, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets or any equity
securities of, Wavetek, WG or any of their respective subsidiaries (any such
proposal or offer being hereinafter referred to as an "Acquisition Proposal")
or, except as may be legally required for the discharge by the board of
directors of its fiduciary duties after receiving the advice of counsel, engage
in any negotiations concerning, or provide any confidential information or data
to, or have any discussions with, any person relating to an Acquisition
Proposal, or otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal.
SECTION 4.2. WAVETEK STOCK OPTIONS. Immediately prior to the
Effective Time, Wavetek hereby agrees to reserve for issuance pursuant to stock
options additional shares of Wavetek Common Stock for stock option compensation
pursuant to its 1992 non-qualified Employee Stock Option Plan up to the amount
contemplated by Section 1.4 hereof.
-20-
<PAGE>
SECTION 4.3. ACCESS AND INFORMATION. Each of Wavetek and WG shall
(and shall cause each of its subsidiaries to) afford to the other parties and
their representatives (including, without limitation, directors, officers and
employees of the parties and their affiliates, and counsel, accountants and
other professionals retained) such access during normal business hours
throughout the period prior to the Effective Time to the books, records
(including, without limitation, tax returns and work papers of independent
auditors), properties, personnel and to such other information as any party
may reasonably request, including with respect to the matters set forth in
the Side Letter. Each party will not, and will cause its representatives not
to, use any information obtained pursuant to this Section 4.3 for any purpose
unrelated to the consummation of the transactions contemplated by this
Agreement. Subject to the requirements of law, each party will keep
confidential, and will cause its representatives to keep confidential, all
information and documents obtained pursuant to this Section 4.3 unless such
information (i) was already known to such party (and not subject to a
separate confidentiality agreement), (ii) becomes available to such party
from other sources not known by such party to be bound by a confidentiality
obligation, (iii) is disclosed with the prior written approval of the party
to which such information pertains, (iv) is or becomes readily ascertainable
from published information or trade sources or (v) is necessary or advisable
in connection with the Initial Public Offering or in other filings of Wavetek
with the Securities and Exchange Commission. In the event that this
Agreement is terminated or the transactions contemplated by this Agreement
shall otherwise fail to be consummated, each party shall promptly cause all
copies of documents or extracts thereof containing information and data as to
another party hereto to be destroyed or returned to the party which furnished
the same.
SECTION 4.4. CERTAIN FILINGS, CONSENTS AND ARRANGEMENTS. Wavetek, WG
and each WG Stockholder shall (a) as soon as practicable make any filings and
applications required to be filed in order to obtain all approvals, consents and
waivers of governmental authorities necessary or appropriate for the
consummation of the transactions contemplated hereby, (b) cooperate with one
another (i) in promptly determining what filings are required to be made or
approvals, consents or waivers are required to be obtained under any relevant
federal, state or foreign law or regulation and (ii) in promptly making any such
filings, furnishing information
-21-
<PAGE>
required in connection therewith and seeking timely to obtain any such
approvals, consents or waivers (which shall include providing the other
interested parties with draft copies of such filings sufficiently in advance
of filing to enable such party a reasonable opportunity to comment on them)
and (c) deliver to the other interested parties copies of the publicly
available portions of all such filings and applications promptly after they
are filed.
SECTION 4.5. ADDITIONAL AGREEMENTS. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take promptly, or cause to be taken promptly, all
actions and to do promptly, or cause to be done promptly, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
as promptly as practicable, including (i) using efforts to obtain all
necessary actions or non-actions, extensions, waivers, consents and approvals
from all applicable governmental entities, effecting all necessary
registrations, applications and filings (including, without limitation,
filings under any applicable state securities laws) and (ii) obtaining any
required contractual consents and regulatory approvals.
SECTION 4.6. PUBLICITY. The initial press release announcing this
Agreement shall be a joint press release and thereafter and prior to the
Effective Time, WG and Wavetek shall consult with each other in issuing any
press releases or otherwise making public statements with respect to the
transactions contemplated hereby and in making any filings with any
governmental entity or with any national securities exchange with respect
thereto.
SECTION 4.7. U.S. TAX CONSEQUENCE. Neither Wavetek nor WG shall
take or cause to be taken any action, whether before or after the Effective
Time, which would disqualify the Exchange for a step up in the U.S. tax basis
of the Exchange within the meaning of Section 338 of the Code.
SECTION 4.8. BOARD OF DIRECTORS OF WAVETEK. As of the Effective
Time, the composition of the Board of Directors of Wavetek, the quorum
required for action by such Board, the voting requirements for such Board and
the committees thereof shall be as set forth in the Stockholders Agreement.
-22-
<PAGE>
SECTION 4.9. SWITCHING TEST SOLUTIONS AG. Prior to the Effective
Time, the WG Stockholders (other than HF) shall deliver to Wavetek or WG the
10% of the capital stock of Switching Test Solutions AG not currently owned
by WG.
SECTION 4.10. FORMATION OF WG HOLDING COMPANY. Prior to the
Effective Time, WG shall cause WG Holding to be incorporated and WG Holding
and the WG Stockholders shall have consummated the Exchange set forth in
Section 1.1(a).
SECTION 4.11. OPINION. WG shall receive and be entitled to rely
upon the opinion of Sullivan & Cromwell delivered to the Trustee in
connection with the Merger under the Indenture, dated as of June 10, 1997,
among the Company, the Subsidiary Guarantors named therein and The Bank of
New York, as trustee, which opinion will include an opinion that the
transactions contemplated by this Agreement do not result in a breach of or
default under such Indenture.
ARTICLE V. CONDITIONS TO CONSUMMATION
SECTION 5.1. CONDITIONS TO ALL PARTIES' OBLIGATIONS. The
respective obligations of Wavetek, WG and each WG Stockholder to effect the
Exchange or any other transaction contemplated by this Agreement shall be
subject to the satisfaction or waiver prior to the Effective Time of the
following conditions:
(a) Wavetek shall have procured the required approval, consent,
waiver or other administrative action pursuant to the Wavetek Credit
Agreement; WG shall have procured the required approval, consent, waiver or
other administrative action required pursuant to the WG Credit Agreement;
Wavetek, WG and each WG Stockholder shall have procured the required
approval, consent, waiver or other administrative action with respect to
the Agreement and the transactions contemplated hereby pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and all
applicable statutory waiting periods shall have expired or have been
terminated; and Wavetek, WG and each WG Stockholder shall have procured all
other regulatory approvals, consents, waivers or administrative actions of
governmental authorities or other persons that are necessary to the
consummation of the transactions contemplated by this Agreement; PROVIDED,
HOWEVER, that no approval, consent, waiver or administrative action
-23-
<PAGE>
referred to in this Section 5.1(a) shall be deemed to have been received if
it shall include any condition or requirement that would (i) result in a
Material Adverse Effect on Wavetek or WG (on a combined basis giving effect
to the Exchange and the other transactions contemplated by this Agreement)
or (ii) so materially and adversely affect the economic or business
benefits of the Exchange that Wavetek or WG would not have entered into
this Agreement had such conditions or requirements been known at the date
hereof.
(b) All other requirements prescribed by law which are necessary to
the consummation of the transactions contemplated by this Agreement shall
have been satisfied.
(c) No party hereto shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the Exchange or any other transaction
contemplated by this Agreement. No litigation or proceeding shall be
pending against the WG Stockholders, the Wavetek Stockholders, Wavetek or
WG or any of their subsidiaries brought by any governmental agency seeking
to prevent consummation of the transactions contemplated hereby.
(d) No statute, rule, regulation, order, injunction or decree shall
have been enacted, entered, promulgated or enforced by any governmental
authority which prohibits, restricts or makes illegal consummation of the
Exchange or any other transaction contemplated by this Agreement.
(e) The Certificate of Incorporation and Bylaws of Wavetek shall have
been amended as contemplated by the Stockholders Agreement.
(f) The Initial Public Offering shall occur at the Effective Time.
(g) WG shall have received the opinion described in Section 4.11
hereto.
-24-
<PAGE>
ARTICLE VI. TERMINATION
SECTION 6.1. TERMINATION. This Agreement may be terminated, and the
Exchange abandoned, prior to the Effective Date:
(a) by the mutual consent of Wavetek and WG, if the respective board
of directors or shareholder assembly of each so determines by vote of a
majority of the members of its entire board or shareholder assembly;
(b) by Wavetek or WG by written notice to the other if either (i) any
approval, consent, waiver or administrative action required to permit
consummation of the transactions contemplated hereby shall have been denied
and such denial shall no longer be subject to any possible appeal, petition
or repetition or hearing or rehearing or other administrative or judicial
action or (ii) any governmental authority of competent jurisdiction shall
have issued a final, unappealable order enjoining or otherwise prohibiting
consummation of the transactions contemplated by this Agreement; or
(c) by Wavetek or WG, if its board of directors or shareholder
assembly so determines, in the event that the Exchange is not consummated
by December 31, 1998.
SECTION 6.2. EFFECT OF TERMINATION. In the event of the termination
of this Agreement by either Wavetek or WG, as provided herein, this Agreement
shall thereafter become void and there shall be no liability on the part of any
party hereto or their respective officers or directors, except that any such
termination shall be without prejudice to the rights of any party hereto
contained in this Agreement and except as set forth in Section 8.5.
ARTICLE VII. EFFECTIVE DATE AND EFFECTIVE TIME
SECTION 7.1. EFFECTIVE DATE AND EFFECTIVE TIME. At or immediately
prior to the consummation of the Initial Public Offering, or on such earlier or
later date as may be agreed by Wavetek and WG, a closing of the Exchange, the
Merger and the transactions contemplated hereby shall be held simultaneously at
the offices of Sullivan & Cromwell, 444 South Flower Street, Los Angeles,
California 90071 and Oberlindau 54-56, 60323 Frankfurt am Main, Germany at 7:00
a.m., Los Angeles
-25-
<PAGE>
time, 4:00 p.m., Frankfurt time, or such other locations as may be agreed by
Wavetek and WG, whereupon the deliveries and proceedings contemplated hereby,
including, without limitation, those matters described in Article I hereof,
shall be effected. The date of such closing is herein called the "Effective
Date". The Merger shall become effective when the Certificate of Merger with
respect to the Merger is filed in accordance with the General Corporation Law
of the State of Delaware, or at such later time as is specified in the
Certificate of Merger (the "Effective Time").
ARTICLE VIII. OTHER MATTERS
SECTION 8.1. CERTAIN DEFINITIONS; INTERPRETATION. As used in this
Agreement, the following terms shall have the meanings indicated:
"material" means material to Wavetek or WG (as the case may be) and
its respective subsidiaries, taken as a whole.
"Material Adverse Effect," with respect to a person, means any
condition, event, change or occurrence that is reasonably likely to have a
material adverse effect upon (A) the financial condition, business or
results of operations of such person and its subsidiaries, taken as a whole
(other than as a result of changes in laws or regulations or accounting
rules of general applicability or interpretations thereof), or (B) the
ability of such person to perform its obligations under, and to consummate
the transactions contemplated by, this Agreement.
"person" includes an individual, corporation, partnership, limited
liability company, association, trust or unincorporated organization.
"Subsidiary," with respect to a person, means any other person
controlled by such person.
"Wavetek Credit Agreement" means the Credit Agreement, dated as of
June 11, 1997, among Wavetek, the lenders listed therein, DLJ Capital
Funding, Inc., as Syndication Agent, and Fleet National Bank, as
Administrative Agent.
-26-
<PAGE>
"WG Credit Agreement" means the Bank Pool Agreement (Pool Vertrag),
dated June 10, 1997, among the Company, WGR and Commerzbank AG (as agent),
Baden-Warttenbergishe Bank AG, Deutsche Bank AG, Kreissparkasse Reutlingen,
Landesgirokasse, Stuttgart and Stuttgarter Bank AG.
When a reference is made in this Agreement to Sections or Annexes, such
reference shall be to a Section of, or Annex to, this Agreement unless otherwise
indicated. The table of contents, list of annexes and headings contained in
this Agreement are for ease of reference only and shall not affect the meaning
or interpretation of this Agreement. Whenever the words "include", "includes",
or "including" are used in this Agreement, they shall be deemed to be followed
by the words "without limitation". Any singular term in this Agreement shall be
deemed to include the plural, and any plural term the singular.
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine or neuter, singular or plural, as the identity of the
antecedent person or persons or entity or entities may require.
SECTION 8.2. NOTICES. All notices, requests, acknowledgments and
other communications hereunder to a party shall be in writing and shall be
deemed to have been duly given when delivered by hand, telecopy, or telegram
(confirmed in writing) to such party at its address set forth below or such
other address as such party may specify by notice to the other party hereto.
If to Wavetek, to:
Wavetek Corporation
11995 El Camino Real, Suite 301
San Diego, California 92130
Telecopy No.: (619) 793-2310
Attention: Chief Executive Officer
With copies to:
Sullivan & Cromwell
444 South Flower Street, 12th Floor
Los Angeles, California 90071
Telecopy No.: (213) 683-0457
Attention: Alison S. Ressler
-27-
<PAGE>
If to WG, to:
Wandel & Goltermann
Muhleweg 5
D-72800 Eningen u.A.
Germany
Telecopy No.: (011) 49-7121-88996
Attention: Chief Executive Officer
With copies to:
Rogers & Hardin
2700 International Tower, Peachtree Center
229 Peachtree Street N.E.
Atlanta, Georgia 30303-1601
Telecopy No.: (404) 525-2224
Attention: Alan C. Leet
If to any WG Stockholders, at the address indicated on Annex 2 hereto.
SECTION 8.3. SEVERABILITY. In the event any provision hereof is held
or rendered void or unenforceable by any court or other legal authority, then
such provisions shall be severable and shall not affect the remaining provisions
hereof.
SECTION 8.4. ENTIRE AGREEMENT; ETC. This Agreement, the Stockholders
Agreement and the Side Letter represents the entire understanding of the parties
hereto with reference to the transactions contemplated hereby and supersedes any
and all other oral or written agreements heretofore made between the parties
hereto with respect to the subject matter contained herein. All terms and
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Nothing in this Agreement is intended to confer upon any other person any rights
or remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 8.5. SURVIVAL. Only those agreements and covenants of the
parties that are applicable in whole or in part after the Effective Time
(specifically, Sections 1.3, 4.2, 4.3, 4.5, 4.7, 4.9, 6.2 and Article VIII
hereof and the Stockholders Agreement) shall survive the Effective Time. All
other agreements and covenants shall not survive the Effective Time. All
representations and warranties shall not survive
-28-
<PAGE>
the date of this Agreement. If this Agreement shall be terminated, the
agreements of the parties in Sections 4.3 (other than the first sentence
thereof) and 8.6 shall survive such termination.
SECTION 8.6. EXPENSES. The fees and expenses of the German notary
incurred in connection with the preparation, execution, delivery and
notarization of the notarial deed pursuant to Section 1.2(a) hereof shall be
borne by Wavetek. All expenses incurred by a party in connection with the
negotiation, preparation, performance and enforcement of this Agreement shall
be borne by such party. The filing fees associated with the filing of all
pre-merger notifications of the Exchange and Merger pursuant to The
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
filings with the German Cartel Office, including filings made by any Wavetek
Stockholder or WG Stockholder, and all other out-of-pocket expenses incurred
in connection with the consummation of the Initial Public Offering and the
other transactions with respect to Wavetek and WG following the Effective
Time contemplated by this Agreement, including the fees and expenses of
attorneys and accountants and other persons agreed to by Wavetek and WG,
shall be shared equally by Wavetek and WG.
SECTION 8.7. AMENDMENTS AND WAIVER. Prior to the Effective Time,
any provision of this Agreement may be (i) waived by the party benefitted by
the provision or by all parties by a writing executed by an executive
officer, in the case of Wavetek or WG, or such person, in the case of a WG
Stockholder, or (ii) amended or modified at any time (including the structure
of the transaction) by an agreement in writing among the parties hereto
approved, in the case of Wavetek or WG, by their respective board of
directors or supervisory board.
SECTION 8.8. CONSENT TO SPECIFIC PERFORMANCE. The parties hereto
declare that it is impossible to measure in money the damages which would
accrue to a party by reason of failure to perform any of the obligations
hereunder. Therefore, if any party shall institute any action or proceeding
to enforce the provisions hereof, any party against whom such action or
proceeding is brought hereby waives any claim or defense therein that the
other party has an adequate remedy at law.
-29-
<PAGE>
SECTION 8.9. ASSIGNMENT. This Agreement may not be assigned by
any party hereto without the written consent of the other parties.
SECTION 8.10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE,
WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PROVISIONS THEREOF.
SECTION 8.11. JURISDICTION; WAIVERS. Each of the parties hereto
hereby irrevocably submits in any legal action or proceeding relating to or
arising out of this Agreement or any other document relating hereto or
delivered in connection with the transactions contemplated hereby, or for
recognition and enforcement of any judgment in respect thereof, to the
exclusive jurisdiction of the United States District Court for the District
of Delaware, and appellate courts thereof. Each of the parties hereto
further (a) consents that any such action or proceeding may be brought in
such court and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or
claim the same; (b) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage prepaid,
to such party at its address set forth in Section 8.2 or at such other
address of which such party shall have given notice pursuant thereto; and (c)
agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law.
SECTION 8.12. WAIVERS OF JURY TRIAL. EACH PARTY HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY
COUNTERCLAIM THEREIN.
SECTION 8.13. REMEDIES. The rights and remedies provided in this
Agreement are cumulative and nonexclusive of any other rights or remedies
available to any party hereunder, whether by contract, by law, in equity or
otherwise. No single or partial exercise of any right or remedy shall
preclude any other future exercise thereof or the exercise of any other right
or remedy.
SECTION 8.14. FACSIMILE SIGNATURE; COUNTERPARTS. This Agreement may
be executed by facsimile signature and in
-30-
<PAGE>
counterparts each of which shall be deemed to constitute an original, but all
of which together shall constitute one and the same instrument.
SECTION 8.15. BINDING AGREEMENT. This Agreement shall be a
binding obligation of each party to this Agreement upon the signature of such
party hereto, even if such party executes this Agreement prior to June 12,
1998, and shall not be binding upon any party after June 12, 1998 if all
parties have not executed this Agreement by June 12, 1998.
-31-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Exchange
Agreement as of the date first written above.
WAVETEK CORPORATION
By: /s/ Terence J. Gooding
------------------------------
Name: Terence J. Gooding
Title: Chairman of the Board
DLJ MERCHANT BANKING PARTNERS II, L.P.
By: DLJ Merchant Banking II, Inc.
Managing General Partner
By: /s/ Ivy Dodes
------------------------------
Name: Ivy Dodes
Title: Vice President
DLJ MERCHANT BANKING PARTNERS II-A, L.P.
By: DLJ Merchant Banking II, Inc.
Managing General Partner
By: /s/ Ivy Dodes
------------------------------
Name: Ivy Dodes
Title: Vice President
DLJ DIVERSIFIED PARTNERS, L.P.
By: DLJ Diversified Partners, Inc.
Managing General Partner
By: /s/ Ivy Dodes
------------------------------
Name: Ivy Dodes
Title: Vice President
-32-
<PAGE>
DLJ DIVERSIFIED PARTNERS-A, L.P.
By: DLJ Diversified Partners, Inc.
Managing General Partner
By: /s/ Ivy Dodes
------------------------------
Name: Ivy Dodes
Title: Vice President
DLJMB FUNDING II, INC.
By: /s/ Ivy Dodes
------------------------------
Name: Ivy Dodes
Title: Vice President
DLJ FIRST ESC L.P.
By: DLJ LBO Plans Management
Corporation
By: /s/ Ivy Dodes
------------------------------
Name: Ivy Dodes
Title: Vice President
DLJ EAB PARTNERS, L.P.
By: DLJ LBO Plans Management
Corporation
General Partner
By: /s/ Ivy Dodes
------------------------------
Name: Ivy Dodes
Title: Vice President
-33-
<PAGE>
DLJ MILLENNIUM PARTNERS, L.P.
By: DLJ Merchant Banking II, Inc.
Managing General Partner
By: /s/ Ivy Dodes
------------------------------
Name: Ivy Dodes
Title: Vice President
DLJ MILLENNIUM PARTNERS-A, L.P.
By: DLJ Merchant Banking II, Inc.
Managing General Partner
By: /s/ Ivy Dodes
------------------------------
Name: Ivy Dodes
Title: Vice President
DLJ OFFSHORE PARTNERS II, C.V.
By: /s/ Ivy Dodes
------------------------------
Name: Ivy Dodes
Title: Vice President
UK INVESTMENT PLAN 1997 PARTNERS
By: UK Investment Plan 1997 Partners,
Inc.
General Partner
By: /s/ Ivy Dodes
------------------------------
Name: Ivy Dodes
Title: Vice President
-34-
<PAGE>
GREEN EQUITY INVESTORS II, L.P.
By: Grand Avenue Capital Partners, L.P.
Grand Avenue Capital
Corporation, its general partner
By: /s/ Peter Nolan
------------------------------
Name: Peter Nolan
Title: Partner
SCHRODER UK VENTURE FUND III
By: Schroder Venture Managers Inc.,
as General Partner of
Schroder UK Venture Fund III LP1
By: /s/ Peter L. Everson /s/ John W. Evans
---------------------------------------
Peter L. Everson, Director & VP
John W. Evans, Director & VP
SCHRODER UK VENTURE FUND III
By: Schroder Venture Managers Inc.,
as General Partner of
Schroder UK Venture Fund III LP2
By: /s/ Peter L. Everson /s/ John W. Evans
---------------------------------------
Peter L. Everson, Director & VP
John W. Evans, Director & VP
SCHRODER UK VENTURE FUND III
By: Schroder International Trust Company
Limited, as Trustee of
Schroder UK Venture Fund III Trust
By: /s/ Peter L. Everson /s/ John W. Evans
---------------------------------------
Peter L. Everson, Director & VP
John W. Evans, Director & VP
YOKOGAWA ELECTRIC CORPORATION
By: /s/ Joichi Ueba
------------------------------
Name: Joichi Ueba
Title: Senior Vice President
-35-
<PAGE>
DR. TERENCE J. GOODING
/s/ Terence J. Gooding
------------------------------
Dr. Terence J. Gooding
BARBARA A. GOODING
TERENCE J. GOODING GRAT 1
TERENCE J. GOODING GRAT 2
BARBARA A. GOODING GRAT
By: /s/ Terence J. Gooding
------------------------------
Terence J. Gooding, as
Attorney-in-Fact
WAVETEK MANAGEMENT STOCKHOLDERS:
SNOW HILL TRUSTEES
RICHARD J. BERRY
PAUL STEVENSON
By: /s/ Terence J. Gooding
------------------------------
Terence J. Gooding, as
Attorney-in-Fact
DEREK T. MORIKAWA
/s/ Derek T. Morikawa
------------------------------
Derek T. Morikawa
MORIKAWA TRUST F/B/O MEGAN K. MORIKAWA
By: /s/ Criss Y. Morikawa
------------------------------
Criss Y. Morikawa, as
Trustee
MORIKAWA TRUST F/B/O EVAN T. MORIKAWA
By: /s/ Criss Y. Morikawa
------------------------------
Criss Y. Morikawa, as
Trustee
-36-
<PAGE>
BEN J. CONSTANTINI
/s/ Ben J. Constantini
------------------------------
Ben J. Constantini
WG STOCKHOLDERS:
WANDEL & GOLTERMANN MANAGEMENT
HOLDING GmbH
By: /s/ Peter Wagner
------------------------------
Name: Peter Wagner
Title: President and CEO
And: /s/ Karl Heinz-Eisemann
------------------------------
Name: Karl Heinz-Eisemann
Title: Vice President Controlling
and Logistics
ALBRECHT WANDEL
/s/ Albrecht Wandel
------------------------------
Albrecht Wandel
RENATE WANDEL
/s/ Renate Wandel
------------------------------
Renate Wandel
-37-
<PAGE>
FRANK GOLTERMANN
/s/ Frank Goltermann
------------------------------
Frank Goltermann
ULRIKE GOLTERMAN
/s/ Ulrike Goltermann
------------------------------
Ulrike Golterman
BURKHARD GOLTERMAN
/s/ Burkhard Goltermann
------------------------------
Burkhard Golterman
HANNOVER FINANZ W&G
BETEILIGUNGSGESELLSCHAFT mbH
By: /s/ Joachim Simmross
------------------------------
Name: Joachim Simmross
Title: Managing Director
AND: /s/ Claus von Loeper
------------------------------
Name: Claus von Loeper
Title: Managing Director
-38-
<PAGE>
EXHIBIT 10.2
Conformed Copy
===============================================================================
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 HERETO
===============================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I
ARTICLE DEFINITIONS
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
GOVERNANCE
2.1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2 Approval of Certain Transactions. . . . . . . . . . . . . . . . . . . . .12
2.3 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
2.4 Voting Rights of Stockholders . . . . . . . . . . . . . . . . . . . . . .15
2.5 Stockholder Votes . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
2.6 Certificate and Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . .15
2.7 Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . . . . .15
2.8 Stockholder Decisions . . . . . . . . . . . . . . . . . . . . . . . . . .16
ARTICLE III
TRANSFER RESTRICTIONS;
CERTAIN PERMITTED TRANSFERS;
INVOLUNTARY TRANSFERS
3.1 Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
3.2 Sale of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
3.3 Certain Permitted Transfers . . . . . . . . . . . . . . . . . . . . . . .16
3.4 Pledges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
3.5 Consent of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . .18
ARTICLE IV
RIGHT OF FIRST OFFER: TAG-ALONG RIGHTS;
CERTAIN PURCHASE RIGHTS
4.1. Right of First Offer. . . . . . . . . . . . . . . . . . . . . . . . . . .18
4.2. Tag-Along Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
4.3 Bring-Along Right . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
-i-
<PAGE>
ARTICLE V
REGISTRATION RIGHTS
5.1 Registration on Request . . . . . . . . . . . . . . . . . . . . . . . . .21
5.2 Incidental Registration . . . . . . . . . . . . . . . . . . . . . . . . .23
5.3 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . .26
5.4 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
ARTICLE VI
MISCELLANEOUS
6.1 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
6.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
6.3 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
6.4 Entire Agreement; Amendments and Waivers. . . . . . . . . . . . . . . . .35
6.5 Successors, Assigns and Transferees . . . . . . . . . . . . . . . . . . .36
6.6 Consent to Specific Performance . . . . . . . . . . . . . . . . . . . . .37
6.7 Variations in Pronouns. . . . . . . . . . . . . . . . . . . . . . . . . .37
6.8 Effectiveness; Termination. . . . . . . . . . . . . . . . . . . . . . . .37
6.9 CHOICE OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
6.10 Jurisdiction; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . .37
6.11 WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . . . . . .38
6.12 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . .38
6.13 Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . .38
6.14 Inspection and Compliance with Law. . . . . . . . . . . . . . . . . . . .38
6.15 Termination of Prior Agreement. . . . . . . . . . . . . . . . . . . . . .38
6.16 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
6.17 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
6.18 Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
LIST OF ANNEXES
Annex 1 -- Chairman Roles and Responsibilities (Section 2.1(h))
Annex 2 -- Chief Executive Officer Roles and Responsibilities (Section 2.1(h))
Annex 3 -- Form of Supplemental Agreement (Section 3.1)
Annex 4 -- Stockholder Address and Contact (Section 6.2)
Annex 5 -- Board Approval Policy
-ii-
<PAGE>
STOCKHOLDERS AGREEMENT, dated as of June 12, 1998 and effective as
of the Effective Time (defined herein) (this "Agreement"), by and among
Wavetek Corporation, a Delaware corporation (the "COMPANY"), DLJ Merchant
Banking Partners II, L.P. ("DLJMB"), DLJ Offshore Partners II, C.V., DLJ
Diversified Partners, L.P., DLJMB Funding II, Inc., UK Investment Plan 1997
Partners, DLJ First ESC L.L.C., DLJ EAB Partners, L.P., DLJ Millennium
Partners, L.P., DLJ Offshore Partners II, C.V. and UK Investment Plan 1997
Partners (collectively, and together with DLJMB, the "DLJ INVESTORS"), Green
Equity Investors II, L.P. ("GEI"), Schroder UK Venture Fund III, L.P.,
Schroder UK Venture Fund III, L.P.2, Schroder UK Venture Fund III Trust
(collectively, "SCHRODER"), Yokogawa Electric Corporation ("YOKOGAWA", and
together with the DLJ Investors, GEI and Schroder, the "INSTITUTIONAL
STOCKHOLDERS"), Dr. Terence J. Gooding, Barbara A. Gooding, Terence J.
Gooding GRAT 1, Terence J. Gooding GRAT 2 and Barbara A. Gooding GRAT
(collectively, "GOODING"), the Wavetek management stockholders listed on the
signature pages hereto (the "MANAGEMENT STOCKHOLDERS"), Albrecht Wandel, a
resident of the Federal Republic of Germany, and Renate Wandel, a resident of
the Federal Republic of Germany (the "WANDEL STOCKHOLDERS"), Frank
Goltermann, a resident of the Federal Republic of Germany, Ulrike Goltermann,
a resident of the Federal Republic of Germany, and Burkhard Goltermann, a
resident of the Federal Republic of Germany (the "GOLTERMANN STOCKHOLDERS"),
Peter Wagner, a resident of the Federal Republic of Germany ("WAGNER") and
Hannover Finanz W&G Beteiligungsgesellschaft mbH ("HF"). The Institutional
Stockholders, the Management Stockholders and Gooding are collectively
referred to as the "WAVETEK STOCKHOLDERS" and the Wandel Stockholders, the
Goltermann Stockholders , Wagner and HF and collectively referred to as the
"WG STOCKHOLDERS". All parties to this Agreement, with the exception of the
Company and WG, are collectively referred to as the "STOCKHOLDERS".
RECITALS:
WHEREAS, pursuant to the terms of the Exchange and Merger Agreement
dated as of June 12, 1998 (the "EXCHANGE AND MERGER AGREEMENT") by and among
the Company, Wandel & Goltermann Management Holding GmbH, a German limited
liability company ("WG") and the Stockholders, WG will become a wholly owned
subsidiary of the Company and the WG Stockholders will become stockholders of
the Company (the "MERGER");
<PAGE>
WHEREAS, the Company and the Stockholders desire to enter into this
Agreement for the purpose of regulating governance of the Company and certain
aspects of the Stockholders' relationships with regard to each other and the
Company subsequent to the Effective Time (except that, to the extent that
either the Exchange and Merger Agreement or the Side Letter entered into by
the Company and WG in connection therewith require or contemplate action by
the Board of the Company (or any committee thereof) prior to the Effective
Time, the provisions of this Agreement addressing Board and committee
composition, conduct and action shall be operative prior to the Effective
Time); and
WHEREAS, this Agreement is intended to supersede and replace the
Stockholders' Agreement dated as of June 11, 1997 between the Company and
certain Wavetek Stockholders and the Registration Rights Agreement dated as
of June 11, 1997 between the Company and certain Wavetek Stockholders
(collectively, the "PRIOR AGREEMENT").
NOW THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties agree as follows from and after the Effective Time
(except that, to the extent that either the Exchange and Merger Agreement or
the Side Letter entered into by the Company and WG in connection therewith
require or contemplate action by the Board of the Company (or any committee
thereof) prior to the Effective Time, the provisions of this Agreement
addressing Board and committee composition, conduct and action shall be
operative prior to the Effective Time):
ARTICLE I
DEFINITIONS
As used herein, the terms below shall have the following meanings.
Any such term, unless the context otherwise requires, may be used in the
singular or plural, depending upon reference.
"AFFILIATE" shall mean, with respect to any Person, (i) any Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such Person, (ii) any natural person who is
related by blood or marriage to such Person, (iii) any trust of which there
are
-2-
<PAGE>
no principal beneficiaries other than such Person or Affiliates of such
Person, (iv) any charitable foundation over which such Person has
discretionary authority or (v) any trust or investment fund administered or
managed by such Person or by an Affiliate of such person as defined in any of
clauses (i), (ii), (iii) or (iv) hereof. For purposes of this definition,
ownership of 10% or more of the voting common equity of a Person shall be
deemed to be control of such Person.
"BANK DEBT" shall mean any indebtedness incurred pursuant to loans from
any financial institution.
"BENEFICIAL OWNER" shall have the meaning set forth in Rule 13d-3 under
the Exchange Act.
"BOARD" shall be the Board of Directors of the Company.
"BOARD APPROVAL POLICY" shall mean the Board approval policy attached as
Annex 5 hereto specifying the matters requiring a simple majority approval of
the Board, matters delegated to the Executive Committee, the level of Capital
Expenditures and capital leases requiring Supermajority approval and the
matters within the authority of the Chief Executive Officer.
"BRING-ALONG RIGHT" shall have the meaning set forth in Section 4.3.
"BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in the City of New
York are authorized or obligated by law or executive order to close.
"BYLAWS" shall mean the bylaws of the Company.
"CAPITAL EXPENDITURES" means all direct and indirect expenditures
(including capitalized interest) which are required to be included in
property, plant or equipment or similar tangible property account, including,
without limitation, additions to equipment and leasehold improvements, on a
consolidated balance sheet prepared in accordance with US GAAP.
"CAPITAL LEASE OBLIGATION" means the obligation to pay rent or other
payment amounts under a lease of (or other debt
-3-
<PAGE>
arrangements conveying the right to use) real or personal property which is
required to be classified and accounted for as a capital lease or a liability
on the face of a balance sheet in accordance with US GAAP.
"CERTIFICATE" shall mean the Restated Certificate of Incorporation of
the Company.
"CHIEF EXECUTIVE OFFICER" shall mean the chief executive officer of the
Company.
"COMMON PLAN" shall mean any explicit or tacit agreement, arrangement or
understanding, whether written or otherwise, to Transfer any securities to
any Person.
"COMMON STOCK" shall mean the Common Stock, $.01 par value per share, of
the Company.
"COMPENSATION COMMITTEE" shall have the meaning set forth in Section
2.1(f).
"DLJSC" shall mean Donaldson, Lufkin & Jenrette Securities Corporation.
"DIRECTOR" shall mean directors of the Board of Directors of the Company.
"EFFECTIVE TIME" shall have the meaning set forth in Section 7.1 of the
Exchange Agreement.
"EMPLOYEE BENEFIT PLAN" means any stock option or other incentive-based
plan of the Company or any of its subsidiaries that is existing at the
Effective Time or approved by a Supermajority.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, and the
rules and regulations promulgated thereunder, as the same may be amended from
time to time.
"EXECUTIVE COMMITTEE" shall have the meaning set forth in Section 2.1(f).
"GOOD REASON" shall mean (i) any event, regardless of when such event
occurred, with respect to a person described in Item 401(f)(1) through (6) of
Regulation S-K of the United States Securities and Exchange Commission that
the Board
-4-
<PAGE>
determines to be material to the ability or integrity of such person, (ii)
any material affiliation with a competitor of the Company or (iii) any other
reason, similar in effect and order of magnitude as items (i) and (ii) above,
that is materially adverse to the interests of the Company.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 5.4.
"INDEPENDENT DIRECTOR" shall mean any director who is not an officer or
employee of the Company or an Affiliate of any DLJ Investor, GEI, HF,
Gooding, any Wandel Stockholder or any Goltermann Stockholder.
"INITIAL PUBLIC OFFERING" shall mean the initial underwritten offering
by the Company of securities of the Company registered with the SEC under the
Securities Act after which the Common Stock is included for quotation on the
Nasdaq National Market or listed on a national securities exchange in
conjunction with a dual listing in Europe (preferably the Frankfurt
exchange), which Initial Public Offering shall be approved by Supermajority
Vote of the persons who will become members of the Board of the Company
pursuant to Section 2.1 hereof at the Effective Time.
"MATERIAL TRANSACTION" means a material transaction in which the Company
or any of its subsidiaries proposes to engage or is engaged, including a
purchase or sale of assets or securities, financing, merger, consolidation,
tender offer or other material corporate development, and with respect to
which the Board reasonably has determined in good faith that compliance with
this Agreement may reasonably be expected to either materially interfere with
the Company's or such Subsidiary's ability to consummate such transaction in
a timely fashion or require the Company to disclose material, non-public
information or such material corporate development prior to such time as it
would otherwise be required to be disclosed.
"OFFERING NOTICE" shall mean the written notice that a Selling
Stockholder shall give to each Stockholder not less than 30 days prior to
each Proposed Sale, setting forth: (A) the name of the Selling Stockholder
and the number of Shares proposed to be sold, (B) the name and address of the
proposed purchaser, (C) the proposed per share purchase price (which must be
payable in cash, cash equivalents or marketable
-5-
<PAGE>
securities) and the terms and conditions of payment offered by such proposed
purchaser and (D), if applicable, that the proposed purchaser has been
informed of the Tag-Along Right provided for in Section 4.2 and has agreed to
purchase Shares subject to such Tag-Along Right.
"OTHER WAVETEK STOCKHOLDERS" refers to the Stockholders listed under
such heading on the signature pages hereto.
"PERMITTED TRANSFER" shall have the meaning set forth in Section 3.3.
"PERSON" shall be construed broadly and shall include an individual, a
partnership, a corporation, an association, a joint stock company, a limited
liability company, a trust, a joint venture, an unincorporated organization
and a governmental entity or any department, agency or political subdivision
thereof or any group comprised of such individuals or entities.
"POST-OFFERING REGISTRATION RIGHT" shall have the meaning set forth in
Section 5.1.
"PROPOSED SALE" shall have the meaning set forth in Section 4.1.
"PROPOSING STOCKHOLDERS" shall have the meaning set forth in Section 4.3.
"PURCHASE NOTICE" shall mean written notice by a Stockholder to all
Stockholders and the Company electing or not electing to purchase any or all
Shares of such Selling Stockholder pursuant to a Right of First Offer.
"REFUSAL NOTICE" shall mean written notice by a Stockholder or the
Company, as the case may be, to all Stockholders and/or the Company, as
appropriate, electing not to purchase Shares from a Selling Stockholder
pursuant to a Right of First Offer.
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance with Sections 5.1 and 5.2 of this Agreement,
including without limitation, (i) all
-6-
<PAGE>
SEC and securities exchange or National Association of Securities Dealers,
Inc. registration and filing fees, (ii) all fees and expenses on complying
with securities or blue sky laws (including fees and disbursements of counsel
for the underwriters in connection with blue sky qualifications of the
securities), (iii) all printing, messenger and delivery expenses, (iv) all
fees and expenses incurred in connection with the listing of the securities
on any securities exchange pursuant to Sections 5.1 and 5.2, (v) the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audits and/or "comfort"
letters required by or incident to such performance and compliance, (vi) the
reasonable fees and disbursements of one counsel, other than the Company's
counsel, selected by Stockholders holding a majority of the securities being
registered by Stockholders to represent all holders of the securities being
registered in connection with each such registration (it being understood
that any Stockholder may, at its own expense, retain separate counsel to
represent it in connection with such registration), (vii) any fees and
disbursements of underwriters customarily paid by the issuers or sellers of
securities, and the reasonable fees and expenses of any special experts
retained in connection with the requested registration, but excluding
underwriting discounts and commissions and transfer taxes, if any.
"REGISTRATION STATEMENT" shall mean a registration statement filed with
the Securities and Exchange Commission on which it is permissible to register
securities for sale to the public under the Securities Act.
"RIGHTS" shall mean any rights to acquire equity securities of the
Company or securities convertible into, or in exchange for, such equity
securities of the Company.
"RIGHT OF FIRST OFFER" shall have the meaning set forth in Section 4.1.
"SEC" shall mean the Securities and Exchange Commission.
"SELLING STOCKHOLDER" shall have the meaning set forth in Section 4.1.
-7-
<PAGE>
"SECURITIES ACT" shall mean the Securities Act of 1933, and the rules
and regulations promulgated thereunder, as the same may be amended from time
to time.
"SHARES" shall mean shares of Common Stock.
"SPECIAL STOCKHOLDER APPROVAL" shall have the meaning set forth in
Section 2.4(b).
"SUPERMAJORITY VOTE" shall mean the approval of six Directors.
"TAG-ALONG NOTICE" shall have the meaning set forth in Section 4.2.
"TAG-ALONG RIGHT" shall have the meaning set forth in Section 4.2.
"TAG-ALONG STOCKHOLDERS" shall have the meaning set forth in Section 4.2.
"TOTAL VOTING POWER" shall mean the capital stock which ordinarily has
voting power for the election of Directors of the Company, whether at all
times or only so long as no senior class of securities has such voting power
by reason of any contingency.
"TRANSFER" shall mean to directly or indirectly sell, give, transfer,
assign, pledge, hypothecate or otherwise dispose of, or to contract or agree
to do any of the foregoing.
"US GAAP" shall mean generally accepted accounting principles in the
United States.
"WAVETEK DIRECTORS" shall have the meaning set forth in Section 2.1.
"WAVETEK HOLDER" shall have the meaning set forth in Section 4.1.
"WG DIRECTORS" shall have the meaning set forth in Section 2.1.
"WG HOLDER" shall have the meaning set forth in Section 4.1.
-8-
<PAGE>
ARTICLE II
GOVERNANCE
2.1 BOARD OF DIRECTORS.
(a) The Board shall be comprised of nine Directors, who shall be
designated as follows: (i) one Director shall be appointed by the Wandel
Stockholders; (ii) one Director shall be appointed by the Goltermann
Stockholders; (iii) one Director shall be appointed by HF; 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; (v)
one Director and one Independent Director shall be appointed by Gooding; (vi)
one Director shall be appointed by DLJMB; (vii) one Director shall be
appointed by GEI; and (viii) one Director shall be the Chief Executive
Officer. Directors appointed by the Wandel Stockholders, the Goltermann
Stockholders and/or HF shall be referred to as the "WG DIRECTORS" and
Directors appointed by Gooding, DLJMB and/or GEI shall be referred to as the
"WAVETEK DIRECTORS."
As of the Effective Time, the Directors designated under the above clauses
shall be as follows: clause (i) shall be Albrecht Wandel; clause (ii) shall
be Frank Goltermann; clause (iii) shall be Joachim Simmroo; clause (iv) shall
be Gerhard Zeidler; clause (v) shall be Terence J. Gooding and Malcolm Bates;
clause (vi) shall be Susan C. Schnabel; clause (vii) shall be Peter Nolan;
and clause (viii) shall be Peter Wagner.
(b) The Independent Directors shall be "independent directors"
(or the legal equivalent) under the rules and regulations of the New York
Stock Exchange, Inc. or other principal securities exchange on which the
Common Stock is listed or traded.
-9-
<PAGE>
(c) If, at any time that this Agreement is in effect, a Director
has been designated by a Stockholder or Stockholders and elected pursuant to
this Section 2.1 and such Stockholder or Stockholders request that such
Director be removed (with or without cause) by written notice thereof to the
other Stockholders, then each Stockholder shall vote all Shares owned or held
of record by such Stockholder to effect such removal upon such notice.
(d) If a vacancy is created on the Board at any time by reason
of death, disability, retirement, resignation, removal or otherwise, the
Stockholder or Stockholders entitled to designate such Director shall be
entitled to designate a successor Director to fill the vacancy created
thereby, and each other Stockholder shall vote all Shares owned or held of
record by such Stockholder and cause the Director(s) designated by such
Stockholder(s) to elect such successor Director, provided that (A), if such
proposed successor Director is an employee holding a management position with
the Company or its principal German subsidiary (WG or its successor), such
person has been approved by a Supermajority Vote or (B) such person has not
been disapproved by the Board for Good Reason.
(e) In the event that the Chief Executive Officer shall be
removed under Section 2.2(j) or shall otherwise be unable to serve due to
death, resignation, disability or otherwise, then each of the WG Directors
and the Wavetek Directors shall have the right to nominate one or more
successor candidate and the Stockholders shall elect one of such successor
candidates designated by the Board in accordance with Section 2.2(j);
provided, however, that pending appointment of the new Chief Executive
Officer, the Board, by a majority vote, will appoint an interim Chief
Executive Officer; provided, further, that if a Supermajority of the Board
has not approved a candidate to fill such vacancy for a period of 26 weeks,
then such vacancy shall be filled by a successor candidate nominated by
Terence J. Gooding, Albrecht Wandel and Frank Goltermann, acting unanimously.
(f) The Board shall appoint an audit committee (the "AUDIT
COMMITTEE"), a compensation committee (the "COMPENSATION COMMITTEE") and an
executive committee (the "EXECUTIVE COMMITTEE") at the Effective Time.
-10-
<PAGE>
As of the Effective Time, the Audit Committee shall be comprised of Malcolm
Bates, Albrecht Wandel and Susan C. Schnabel, and the Compensation Committee
shall be comprised of Albrecht Wandel (who shall serve as Chairman), Terence
J. Gooding and Peter Nolan. The Compensation Committee and the Audit
Committee shall be delegated such authority as is normal and customary for a
U.S. corporation and shall recommend matters to the Board of Directors for
approval.
(g) The Executive Committee shall be comprised of three
Directors. The quorum required for action by such committee shall be three
Directors and unanimous consent shall be required for all actions taken by
it. The Executive Committee shall be delegated such authority as is normal
and customary for a U.S. corporation and as set forth in the Board Approval
Policy, but shall not be delegated authority to approve matters that require
a Supermajority Vote (as defined in Section 2.2). If any WG Director serving
as a member of the Executive Committee ceases to serve on such committee, the
Director appointed to replace such person as a member of the Executive
Committee shall be designated by the WG Directors. If any Wavetek Director
serving as a member of the Executive Committee ceases to serve on such
committee, the Director appointed to replace such person as a member of the
Executive Committee shall be designated by the Wavetek Directors.
As of the Effective Time, the Executive Committee shall be comprised of
Terence J. Gooding (who shall be Chairman), Albrecht Wandel and Peter Wagner.
(h) At the Effective Time, the Chairman of the Board shall be
Terence J. Gooding (with the roles and responsibilities set forth on Annex
1), the Vice Chairman of the Board and the Chairman of the Compensation
Committee shall be Albrecht Wandel and the Chief Executive Officer shall be
Peter Wagner (with the roles and responsibilities set forth on Annex 2). The
Company shall employ Peter Wagner as Chief Executive Officer pursuant to
employment agreements agreed to between the Company and such individual prior
to the Effective Time. Terence J. Gooding shall not be an executive officer
of the Company.
(i) The rights of any of the Wandel Stockholders, the Goltermann
Stockholders, HF, Gooding, DLJMB and GEI to designate one or more Directors
pursuant to this Agreement will terminate if such Stockholder and its
Affiliates cease to
-11-
<PAGE>
beneficially own at least 4% of the outstanding shares of Common Stock
(whereupon such Stockholder shall be referred to as a "Disqualified
Stockholder"); provided, however, that the WG Stockholders (excluding any
Disqualified Stockholder), as a group, and the Wavetek Stockholders
(excluding any Disqualified Stockholder), as a group, each will have the
right to appoint (a) one or more replacement WG Directors or Wavetek
Directors, respectively, so long as they, together with their Affiliates,
beneficially own as a group in excess of 30% of the outstanding shares of
Common Stock; (b) one or more replacement WG Directors or Wavetek Directors,
respectively, such that the total number of Directors appointed by such group
does not exceed 3 so long as they beneficially own as a group 30% or less but
in excess of 20% of the outstanding shares of Common Stock; and (c) one or
more replacement WG Directors or Wavetek Directors, respectively, such that
the total number of Directors appointed by such group does not exceed 2 so
long as they beneficially own as a group 20% or less but in excess of 10% of
the outstanding shares of Common Stock.
(j) HF shall be entitled to bring one non-voting observer to each
meeting of the Board of Directors. During the one year period following the
Effective Time and thereafter until the Board determines otherwise, the WG
Directors shall be entitled to retain, at the expense of the Company for the
one year period following the Effective Time and thereafter at their expense,
a legal advisor to advise them with respect to matters relating to the
Company, and a representative of such legal advisor shall be permitted to
attend meetings of the Board unless a majority of the members of the Board
determine that such representative should not participate in any particular
deliberations of the Board.
2.2 APPROVAL OF CERTAIN TRANSACTIONS. In addition to any approval of
the Board required by applicable law and the Board Approval Policy, the
following transactions shall require a Supermajority Vote unless such action
may be taken by the Board by simple majority vote, by the Executive Committee
or by the Chief Executive Officer in accordance with the Board Approval
Policy:
(a) any merger, consolidation or liquidation of the Company or
any of its subsidiaries;
-12-
<PAGE>
(b) any purchase or other acquisition by the Company or any of
its subsidiaries of, in one or a series of transactions, any other Person;
(c) any joint venture, partnership or establishment of
non-wholly owned subsidiaries;
(d) any significant change in or expansion of the business of
the Company or any of its subsidiaries outside of the business conducted by
the Company and its subsidiaries (including WG) at the Effective Time;
(e) any sale, lease, exchange or other disposition of a
substantial part of the assets, including a line of business, division or
subsidiary of the Company;
(f) any incurrence by the Company or its subsidiaries of
indebtedness, or any mortgage, pledge or grant of lien or security interest
in assets of the Company or its subsidiaries, in each case in an amount in
excess of $10,000,000;
(g) any Capital Expenditures or Capital Leases in excess of the
amounts specified in the Board Approval Policy;
(h) any issuance or sale of securities by the Company or any of
its subsidiaries, including any Initial Public Offering of Common Stock, any
registration of securities under the Securities Act of 1933 and any grant of
registration rights, PROVIDED that any issuance or sale of securities upon
exercise of stock options or pursuant to any Employee Benefit Plan (and,
following the Initial Public Offering, the registration of any securities in
connection therewith) shall not be subject to the voting requirements of this
Section 2.2;
(i) any payment of dividends by the Company and any repurchase
or redemption of securities or debt of the Company, PROVIDED that (i)
repurchases of Common Stock and stock options from employees of the Company,
(ii) payment and prepayment of Bank Debt and (iii) redemptions of other debt
in accordance with its terms shall not be subject to the voting requirements
of this Section 2.2;
(j) the appointment or removal of the Chief Executive Officer or
Chairman of the Board or any changes in the roles or responsibilities of the
Chief Executive Officer or the Chairman of the Board as set forth in Annex 1
and Annex 2;
-13-
<PAGE>
(k) any agreement or transaction between the Company and any
Affiliates not in the ordinary course of business or involving consideration
(whether cash, securities, property or otherwise) in excess of $5 million;
PROVIDED, HOWEVER, that the foregoing shall not restrict (A) transactions
between the Company and any of its subsidiaries, or among any of such
subsidiaries, (B) payments or advances to employees of the Company or its
subsidiaries in the ordinary course of business, (C) transactions pursuant to
any Employee Benefit Plan, (D) transactions contemplated by this Agreement,
the Exchange Agreement or agreements (including the issuance of the notes,
the cancellation of loans of stockholders of WG, the entering into of
employment agreements with Terence J. Gooding and Peter Wagner and the
issuance of new options to purchase Common Stock) entered into in connection
with the Exchange and (E) transactions pursuant to any arrangements existing
on the date hereof;
(l) any action to amend or repeal any provision of the
Certificate or Bylaws, including any change in the size of the Board;
(m) removal or appointment of the Company's independent
accountants and any material change to the Company's accounting policies or
practices;
(n) any adoption or amendment of employment contracts or benefit
plans relating to officers of the Company or its subsidiaries;
(o) any approval of amendments to this Agreement;
(p) any approval of the annual budget of the Company;
(q) exercise of the right of first offer provided in Section 4.1;
(r) approval of the Board Approval Policy or any amendment or
modification thereto;
-14-
<PAGE>
(s) approval or disapproval of a successor Director pursuant to
Section 2.1(d); and
(t) approval of anti-takeover measures.
2.3 QUORUM. At any time this Agreement is in effect, a quorum of the
Board shall consist of six Directors.
2.4 VOTING RIGHTS OF STOCKHOLDERS.
(a) The Common Stock shall have one vote per share and no
cumulative voting.
(b) Ordinary corporate actions shall require a majority vote of
all Stockholders. At least 662/3% of all Stockholders shall determine
whether to approve: (i) any merger, consolidation, liquidation or sale of all
or substantially all of the assets of the Company and (ii) any action to
amend or repeal any provision of the Certificate or Bylaws (the "SPECIAL
STOCKHOLDER APPROVAL").
2.5 STOCKHOLDER VOTES. Each of the Stockholders agrees to vote all of
its shares of Common Stock (i) following any Stockholder vote pursuant to
Section 2.4(b), "FOR" any such matter receiving Special Stockholder Approval
pursuant to Section 2.4(b), (ii) following any Stockholder vote pursuant to
Section 2.4(b), "AGAINST" any such matter failing to receive Special
Stockholder Approval in accordance with Section 2.4(b) and (iii) for each of
the designees appointed to the Board pursuant to this Agreement.
2.6 CERTIFICATE AND BYLAWS. (a) At the Effective Time, the Certificate
and the Bylaws shall be amended and restated to give effect to the provisions
set forth in this Agreement.
(b) The Stockholders further agree to cause the Certificate to
be amended to change the name of the Company to a name agreed to by the
Executive Committee at or prior to the Effective Time.
2.7 INDEPENDENT AUDITORS. The independent auditors for the fiscal year
ending September 30, 1999 shall be Ernst & Young LLP, with Arthur Andersen
LLP performing approximately 50% of the work. The Audit Committee shall
select and the Board shall approve the independent auditors for the Company
for each year thereafter.
-15-
<PAGE>
2.8 STOCKHOLDER DECISIONS. Any decision to be made as a group by the
Wavetek Stockholders under this Agreement shall be made by Wavetek
Stockholders owning more than 50% of all the Common Stock owned by the
Wavetek Stockholders. Any decision to be made as a group by the WG
Stockholders under this Agreement shall be made by WG Stockholders owning
more than 50% of all the Common Stock owned by the WG Stockholders.
ARTICLE III
TRANSFER RESTRICTIONS;
CERTAIN PERMITTED TRANSFERS;
INVOLUNTARY TRANSFERS
3.1 TRANSFERS. Any Transfer of Common Stock in violation of this
Agreement shall be void AB INITIO. Any Transfer of a majority of the equity
interest in an Affiliate of a Stockholder that first acquired shares of
Common Stock as a result of a Permitted Transfer shall be deemed to be a
Transfer of Shares by such Stockholder.
3.2 SALE OF CONTROL. Each Stockholder, acting alone or together with
any other stockholder or stockholders pursuant to a Common Plan, shall not
Transfer any securities of the Company to any Person if, as a result of such
Transfer, such Person would become the Beneficial Owner, directly or
indirectly, of securities of the Company representing 40% or more of the
Total Voting Power of the Company, UNLESS such Person offers to purchase all
outstanding equity securities from all Stockholders at the same price and on
the same terms as the selling Stockholder. This Section 3.2 shall not apply
to Transfers of any securities of the Company by and among any Stockholder
pursuant to an exercise of a Right of First Offer pursuant to Section 4.1.
3.3 CERTAIN PERMITTED TRANSFERS. None of the restrictions contained in
this Agreement with respect to Transfers of Shares shall apply:
(i) to any gift or sale of Shares by any Stockholder to an
Affiliate of such Stockholder;
(ii) to any Transfer to a legal representative, conservator or
guardian of a Stockholder if such Stockholder
-16-
<PAGE>
becomes mentally incompetent or otherwise become incapable of taking care of
his or her business affairs;
(iii) to any Transfer by a Stockholder who is a natural person by
will, intestacy laws or the laws of descent or survivorship;
(iv) to any Transfer by a Stockholder who is a natural person by
the laws of community property or otherwise pursuant to a court order upon
the divorce of such Stockholder; or
(v) to a Transfer from the custodian or trustee of an individual
retirement account or other self-directed employee benefit plan to the
beneficiary of such account or plan provided that in all events such
beneficiary will at all times control the voting and transfer rights of the
subject Shares and shall become a signatory hereto;
PROVIDED, HOWEVER, that in the case of any Transfer described in one or more
of clauses (i) through (v), inclusive, above (each a "PERMITTED TRANSFER" and
collectively the "PERMITTED TRANSFERS" and the transferee being a "PERMITTED
TRANSFEREE"):
(A) each Permitted Transferee shall have executed and
delivered to the Company, as a condition precedent to any Transfer of Shares,
a written agreement in substantially the form of Annex 3 hereto confirming
that such Transferee agrees to be bound by the terms of this Agreement and
shall have submitted to the Company such evidence as the Company may
reasonably request to demonstrate that such Transfer is a Permitted Transfer;
and
(B) the certificates issued to the Permitted Transferee
which represent the Shares so Transferred shall bear the legends provided in
Section 6.1.
3.4 PLEDGES. None of the restrictions contained in this Agreement with
respect to Transfers of Shares shall apply to the Transfer of a bona fide
pledge of Shares by a Stockholder to a commercial bank, savings and loan
institution or any other lending institution as security for any indebtedness
of such Stockholder to such lender, if prior to any such pledge, the pledgee
shall deliver to the Company its written agreement (which shall expressly be
stated to be for the benefit of the Company and each Stockholder), in form
and substance
-17-
<PAGE>
satisfactory to the Company, that upon any foreclosure or similar event, the
Transfer occasioned thereby will be subject to the Right of First Offer
(hereinafter defined) (but not the Tag-Along Right (hereinafter defined)),
and, upon acquiring any Share pursuant to such Transfer, such pledgee shall
assume and be bound by all the terms of this Agreement.
3.5 CONSENT OF DIRECTORS. Notwithstanding anything to the contrary
contained in this Agreement, a Stockholder may Transfer Shares (and the
Company shall reflect on its books such Transfer) if the specific terms of
such Transfer and the Transferee thereof shall, prior to the effectiveness of
such Transfer, have been approved by a unanimous vote of all or Directors at
a meeting of all Directors duly called and held or acting by written consent.
ARTICLE IV
RIGHT OF FIRST OFFER: TAG-ALONG RIGHTS;
CERTAIN PURCHASE RIGHTS
4.1. RIGHT OF FIRST OFFER.
(a) GENERAL. If a Stockholder ("SELLING STOCKHOLDER") proposes
to sell or Transfer Shares of such Stockholder to a third party (a "PROPOSED
SALE"), the Selling Stockholder must first offer such Shares to other
Stockholders and the Company (the "RIGHT OF FIRST OFFER") at the same price
and on the same terms and conditions as the Proposed Sale (except that any
Stockholder exercising its Right of First Offer shall be entitled to pay cash
for the purchase price) in accordance with Sections 4.1, 4.2 and 4.3:
(i) the consideration for the Proposed Sale shall consist solely
of cash, cash equivalents or marketable securities;
(ii) the Selling Stockholder shall deliver an Offering Notice to
the Company and each of the Stockholders;
(iii) if such Selling Stockholder is any of the Wandel
Stockholders, the Goltermann Stockholders, Wagner or HF, or any party
acquiring such Shares from such Selling Stockholders pursuant to a Permitted
Transfer (each such
-18-
<PAGE>
Stockholder who, together with its Affiliates, beneficially owns 4% or more
of the outstanding shares of Common Stock, a "WG HOLDER," and collectively,
the "WG HOLDERS"), the other WG Holders shall have a pro rata Right of First
Offer on such Shares;
(iv) if such Selling Stockholder is any of Gooding, DLJMB, GEI or
an Other Wavetek Stockholder, or any party acquiring such Shares from such
Selling Stockholder pursuant to a Permitted Transfer (each such Stockholder
who, together with its Affiliates, beneficially owns 4% or more of the
outstanding shares of Common Stock, a "WAVETEK HOLDER", and collectively the
"WAVETEK HOLDERS"), the other Wavetek Holders shall have a pro rata Right of
First Offer on such Shares;
(v) each WG Holder or Wavetek Holder, as the case may be, shall
give a Purchase Notice or a Refusal Notice to the Company and each of the
Stockholders within 10 days of receipt of the Offering Notice; and
(vi) if the WG Holders pursuant to Section 4.1(a)(iii) or the
Wavetek Holders pursuant to Section 4.1(a)(iv), as the case may be, decline
to purchase all of the Shares in the Proposed Sale, the Company shall have a
Right of First Offer on such remaining Shares. The Company shall give a
Purchase Notice or a Refusal Notice to all Stockholders within 10 days after
receipt of the WG Holders' or Wavetek Holders' Refusal Notice; PROVIDED,
HOWEVER, that in the event the Company declines to purchase all of the
remaining Shares, any other Stockholder (excluding any WG Holder or Wavetek
Holder that was offered the prior right to acquire all or a portion of such
Shares pursuant to a Right of First Offer pursuant to Section 4.1(a)(iii) or
(iv)), may elect to purchase such remaining Shares by giving a Purchase
Notice within 10 days after receipt of the Company's Refusal Notice. Such
other Stockholder or Stockholders electing to purchase any Shares in the
Proposed Sale shall participate on a pro rata basis. Any failure by a party
hereto to give a Purchase Notice or a Refusal Notice in a timely manner as
contemplated herein shall have the same effect as the giving of a Refusal
Notice by such party.
(b) In the event that all of the Shares are not sold pursuant to
the Right of First Offer set forth in Section 4.1(a), and the Selling
Stockholder has complied with Section 4.2 below (to the extent Section 4.2 is
operative),
-19-
<PAGE>
the Selling Stockholder may sell, at any time within 90 days from the date of
the last Refusal Notice, the Shares in the Proposed Sale in cash, cash
equivalents or marketable securities at a price per share equal to or greater
than and on other terms and conditions no more favorable to the purchaser
than those of the Proposed Sale.
(c) Section 4.1(a) shall not apply to Transfers (i) pursuant to
the Initial Public Offering or any subsequent registered offering, (ii)
pursuant to a sale of securities of the Company pursuant to Rule 144 under
the Securities Act of 1933, (iii) that constitute Permitted Transfers or (iv)
by any WG Holder to any other WG Holder or by any Wavetek Holder to any other
Wavetek Holder.
4.2. TAG-ALONG RIGHT. Except in the case of a proposed transfer by HF
of all of its shares, which shares constitute in excess of 10% of the
outstanding shares of Common Stock, in which case this Section 4.2 shall not
be operative, in the event that the Right of First Offer set forth in Section
4.1 is not exercised, each of the Stockholders not a Selling Stockholder (the
"TAG-ALONG STOCKHOLDERS") shall have the right (the "TAG-ALONG RIGHT") to
include up to the following number of its Shares in the Proposed Sale: the
total number of Shares proposed to be sold by the Selling Stockholder in the
Proposed Sale MULTIPLIED BY a fraction the numerator of which is the number
of Shares owned by such Tag-Along Stockholder and the denominator of which is
the aggregate number of Shares owned by such Selling Stockholder and by all
Tag-Along Stockholders exercising their Tag-Along Rights hereunder. Any
shares of Tag-Along Stockholders so included will reduce the number of shares
to be sold by the Selling Stockholder. Any Shares purchased from such
Stockholders pursuant to this Section 4.2 shall be at the same price per
Share and upon the same terms and conditions as such Proposed Sale.
Prior to making any Transfer pursuant to Section 4.1(b) hereof, the
Selling Stockholder shall give written notice to the Company and all other
Stockholders of such Stockholders' right to exercise their Tag-Along Right in
accordance herewith (the "Tag-Along Announcement"). The Tag-Along
Announcement shall indicate, in a schedule attached thereto, the maximum
number of shares of Common Stock that each such other Stockholder may sell
pursuant to its exercise of its Tag-Along Right pursuant to this Section 4.2.
Any
-20-
<PAGE>
Stockholder delivering a written notice to the Selling Stockholder (the
"TAG-ALONG NOTICE") within 10 days following its receipt of the Tag-Along
Announcement shall be entitled to exercise the Tag-Along Right. The
Tag-Along Notice shall state the number of Shares that such Stockholder
proposes to include in such Transfer to the proposed purchaser determined as
aforesaid.
The Company agrees not to effect any transfer of Shares by any
Stockholder until it has received evidence reasonably satisfactory to it that
the Tag-Along Right, if applicable to such transfer, has been complied with.
4.3 BRING-ALONG RIGHT. Prior to and after the Initial Public Offering,
subject to Section 4.1, if Stockholders owning or holding beneficial
ownership of at least 75% of all issued and outstanding Shares held by
Stockholders if the Stockholders collectively own more than 40% of the issued
and outstanding Shares (the "PROPOSING STOCKHOLDERS") elect to sell all of
such Stockholders' Shares to any Person not a party to this Agreement for
consideration consisting solely of cash or cash equivalent, such Proposing
Stockholders shall have the right to require the Transfer of all other
Stockholders' Shares to such Person at the same price and on the same terms
and conditions as such Proposing Stockholders (the "Bring-Along Right").
Such Proposing Stockholders shall give written notice to such other
Stockholders stating their exercise of the Bring-Along Right and the terms
and conditions of the requested Transfer. Upon receipt of such notice, such
other Stockholders shall transfer such other Stockholders' Shares in
accordance with such notice.
ARTICLE V
REGISTRATION RIGHTS
5.1 REGISTRATION ON REQUEST.
(a) One or more Stockholders owning or holding of record greater
than 10% of the issued and outstanding Common Stock shall have a right
("Post-Offering Registration Right") to require the Company, as expeditiously
as possible, to use its best efforts to effect the registration of the Shares
that such Stockholders shall request, pursuant to a Registration Statement,
subject to the following limitations:
-21-
<PAGE>
(i) such Post-Offering Registration Right may be exercised by
any Stockholder only on one occasion, by written notice given to the Company;
(ii) the shares to be registered (if other than by HF) shall have
an aggregate offering price of at least $10 million; and
(iii) the Company shall not be required to effect a registration
pursuant to Section 5.1(a) within 9 months of an effective Registration
Statement (as defined in Section 5.1(c)) pursuant to this Section 5.1 or as
to which the registration rights afforded by Section 5.2 apply.
(b) EXPENSES. The Company shall pay all (and will promptly
reimburse to the Stockholders to the extent they have borne any) Registration
Expenses in connection with each registration of Shares pursuant to this
Section 5.1 regardless of whether such Registration Statement becomes
effective. Each of the Stockholders requesting the registration of Shares
and the Company, if the Company included securities not owned or held of
record by such requesting Stockholders, shall pay all underwriting discounts
and commissions and transfer taxes, if any, on the basis of the relative
number of Shares registered then owned or held of record by such Stockholders
and the Company, if applicable.
(c) EFFECTIVE REGISTRATION STATEMENT. A registration requested
pursuant to this Section 5.1 and Section 5.2 will not be deemed to have been
effected unless it has become effective; PROVIDED, that if, within the period
ending on the earlier to occur of (i) 90 days after the applicable
Registration Statement has become effective or (ii) the date on which the
distribution of the securities covered thereby has been completed, the
offering of securities pursuant to such Registration Statement is interfered
with by any stop order, injunction or other order or requirement of the SEC
or other governmental agency or court, such Registration Statement will be
deemed not to have been effected; provided, however, if any Stockholder
exercising its right to request a registration pursuant to this Section 5.1
shall withdraw from a registration so requested after the filing thereof,
such registration will be deemed to have been effective with respect to such
Stockholder in accordance with this Section 5.1.
-22-
<PAGE>
(d) MATERIAL TRANSACTION. The Company may delay the filing or
effectiveness of any Registration Statement for a period of up to 180 days
after the request for registration pursuant to this Section 5.1 if a Material
Transaction exists or is pending at such time.
(e) PRIORITY IN REGISTRATIONS ON REQUEST. If a registration
pursuant to this Section 5.1 involves an underwritten offering and the
managing underwriter with respect to such offering advises the Stockholders
participating in such registration in writing that, in its opinion, the
number of Shares which the Stockholders and any other persons intended to be
included in such registration exceeds the largest number of Shares which can
be sold in such offering without having an adverse effect on the offering of
Shares as contemplated by such Stockholders, then the Company will include in
such registration (i) first, in the case of any registration following the
Initial Public Offering in which HF shall be entitled to register Shares
pursuant to Section 5.1 or 5.2 hereof, such shares requested by HF, if any,
(ii) second, all the shares the Company proposes to sell for its own account
and (iii) third, the Shares which the Stockholders (excluding HF in the event
clause (i) shall be applicable with respect to such registration) have
requested to be included in such registration pursuant to Section 5.1 and
which, in the opinion of such managing underwriter, can be sold without
having the adverse effect referred to above, such reduced number of Shares
shall be allocated pro rata among all requesting Stockholders on the basis of
the relative number of Shares then owned or held of record by each such
Stockholder (provided that (A) any shares thereby allocated to any Wavetek
Stockholder that exceed such Wavetek Stockholder's request will be first
reallocated among the remaining requesting Wavetek Stockholders in like
manner and (B) any shares thereby allocated to any WG Stockholder that exceed
such WG Stockholders' request will first be reallocated among the remaining
requesting WG Stockholders in like manner).
5.2 INCIDENTAL REGISTRATION.
(a) RIGHT TO INCLUDE SECURITIES. In connection with the Initial
Public Offering and during the two-year period from the effective date of the
Registration Statement filed pursuant to an Initial Public Offering, each
time the Company proposes to register Shares under the Securities Act
-23-
<PAGE>
(other than a registration on Form S-4 or S-8, or any successor or other
forms promulgated for similar purposes), whether or not for sale for its own
account, pursuant to a Registration Statement, the Stockholders shall have
the right to require the Company to register the Shares of such Stockholder,
subject to the limitations set forth in Section 5.2(c). The Company shall
give prompt written notice to all Stockholders of its intention to register
Shares and of the Stockholders' rights under this Section 5.2(a). Upon the
written request of any Stockholder made within 30 days after the receipt of
any such notice (which request shall specify the Shares intended to be
disposed of by such Stockholder and such Stockholder's proposed manner of
disposition of such Shares), the Company shall use its best efforts to effect
the registration of such Shares under the Securities Act; PROVIDED that (i)
if, at any time after giving written notice of its intention to register any
Shares and prior to the effective date of the Registration Statement filed in
connection with such registration, the Company shall determine for any reason
not to proceed with the proposed registration, the Company may, at its
election, give written notice of such determination to the Stockholders that
had given notice to participate in such registration and thereupon shall be
relieved of its obligation to register any securities in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith), and (ii) if such registration involves an underwritten
offering by the Company, all Stockholders requesting to have Shares included
in the Company's registration must Transfer such Shares to such underwriters
who shall have been selected by the Company on the same terms and conditions
as are applicable to the Company (except for the Company's obligation to pay
all Registration Expenses), with such differences, including any with respect
to indemnification and contribution, as may be customary or appropriate in
combined primary and secondary offerings. If a proposed registration
pursuant to this Section 5.2(a) involves such an underwritten public
offering, any Stockholder making a request under this Section 5.2(a) in
connection with such registration may elect in writing, prior to the
effective date of the registration statement filed in connection with such
registration, to withdraw such request and not to have such securities
registered in connection with such registration; provided, however, such
withdrawing Stockholder shall be responsible for reimbursing the Company for
expenses it incurred directly as a consequence of such
-24-
<PAGE>
incidental registration (including any filing fees paid in connection
therewith).
(b) EXPENSES. The Company shall pay all (and shall promptly
reimburse to the Stockholders to the extent they have borne any) Registration
Expenses in connection with each registration of the Shares requested
pursuant to this Section 5.2, regardless of whether the Registration
Statement filed in connection with such registration becomes effective. Each
of the Stockholders requesting the registration of Shares and the Company
shall pay all underwriting discounts and commissions and transfer taxes, if
any, on the basis of the number of Shares registered by such Stockholders and
the Company.
(c) PRIORITY IN INCIDENTAL REGISTRATIONS. If a registration
pursuant to this Section 5.2 involves an underwritten offering by the Company
and the managing underwriter with respect to such offering advises the
Company in writing that, in its opinion, the number of Shares which the
Company, the Stockholders and any other persons intended to be included in
such registration exceeds the largest number of Shares which can be sold in
such offering without having an adverse effect on the offering of Shares as
contemplated by the Company (including the price at which the Company
proposes to sell the Shares), then the Company will include in such
registration (i) first, in the case of the Initial Public Offering only, such
Shares requested by HF, if any, to enable it to reduce its ownership of
shares in the Company immediately following consummation of the Initial
Public Offering to not less than 10% of the outstanding shares (provided that
any shares thereby allocated to HF will reduce the shares available to other
WG Stockholders pursuant to clause (iv) and (v)), (ii) second, in the case of
any registration other than the Initial Public Offering in which HF shall be
entitled to register Shares either pursuant to Section 5.1 or 5.2 hereof,
such shares requested by HF, if any, (iii) third, all the shares the Company
proposes to sell for its own account, (iv) fourth, the Shares which the
Stockholders have requested to be included in such registration pursuant to
Section 5.1 hereof (with any necessary proration thereof to be effected in
accordance with Section 5.1(e)) and (v) fifth, the Shares which the
Stockholders (excluding HF in the event either clause (i) or (ii) shall be
applicable with respect to such registration) have requested to be included
in such registration pursuant to Section 5.2 hereof and which, in the opinion
of such managing
-25-
<PAGE>
underwriter, can be sold without having the adverse effect referred to above,
such reduced number of Shares shall be allocated pro rata among all
requesting Stockholders on the basis of the relative number of Shares then
owned or held of record by each such Stockholder (provided that (A) any
shares thereby allocated to any Wavetek Stockholder that exceed such Wavetek
Stockholder's request will be first reallocated among the remaining
requesting Wavetek Stockholders in like manner and (B) any shares thereby
allocated to any WG Stockholder that exceed such WG Stockholders' request
will be first reallocated among the remaining requesting WG Stockholders in
like manner).
5.3 REGISTRATION PROCEDURES. If and whenever the Company is required
to use its best efforts to effect or cause the registration of Shares under
the Securities Act as provided in this Agreement, the Company shall, as
expeditiously as possible:
(a) prepare and, if the registration is pursuant to notice given
under Section 5.1, in any event within 60 days after the giving of notice
pursuant to Section 5.1, file with the SEC a Registration Statement with
respect to such Shares on any form for which the Company then qualifies or
which counsel for the Company shall deem appropriate and which form shall be
available for the sale of the such Shares in accordance with the intended
methods of distribution thereof, and use its best efforts to cause such
Registration Statement to become and remain effective; PROVIDED, HOWEVER,
that the Company may discontinue any registration of Shares for its own
account which is being effected pursuant to Section 5.2 at any time prior to
the effective date of the Registration Statement relating thereto;
(b) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective for a period of 180 days or such lesser period of time as the
Company or any Stockholder may be required under the Securities Act to
deliver a prospectus in connection with any sale of Shares, and to comply
with the provisions of the Securities Act with respect to the disposition of
all Shares covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the Stockholder or
Stockholders thereof set forth in such Registration Statement;
-26-
<PAGE>
provided, that before filing a Registration Statement or prospectus, or any
amendments or supplements thereto, the Company will furnish to the
Stockholders and their counsel copies of all documents proposed to be filed,
which documents will be subject to the prompt review of such counsel and will
not be filed if such counsel reasonably objects;
(c) furnish to each Stockholder of such Shares such number of
copies of such Registration Statement and of each amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
prospectus included in such Registration Statement (including each
preliminary prospectus and summary prospectus and prospectus supplement, as
applicable), each in conformity with the requirements of the Securities Act,
and such other documents as such Stockholder may reasonably request in order
to facilitate the disposition of Shares by such Stockholder;
(d) use its best efforts to register or qualify such Shares
covered by such Registration Statement under such other securities or blue
sky laws of such jurisdictions as each Stockholder shall reasonably request,
and do any and all other acts and things which may be reasonably necessary or
advisable to enable such Stockholder to consummate the disposition in such
jurisdictions of the Shares owned by such Stockholder, except that the
Company shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction where, but for the
requirements of this Section 5.3(d), it would not be obligated to be so
qualified, to subject itself to taxation in any such jurisdiction or to
consent to general service of process in any such jurisdiction;
(e) use its best efforts to cause such Shares covered by such
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
Stockholder or Stockholders thereof to consummate the disposition of such
Shares;
(f) notify each Stockholder of any such Shares covered by such
Registration Statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act within the appropriate
period mentioned in Section 5.3(b), of the Company's becoming aware that the
prospectus included in such Registration Statement, as then in effect,
includes or may include an untrue statement of a
-27-
<PAGE>
material fact or omits or may omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing, and at the request of any such
Stockholder, prepare and furnish to such Stockholder a reasonable number of
copies of an amended or supplemental prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such Shares, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the Company may delay the preparation of such amended or supplemental
prospectus for a period of up to 180 days if a Material Transaction exists or
is pending at such time;
(g) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to the Stockholders, as
soon as reasonably practicable (but not more than eighteen months) after the
effective date of the Registration Statement, an earning statement which
shall satisfy the provisions of Section 11(a) of the Securities Act and the
rules and regulations promulgated thereunder;
(h) cause all such Shares to be listed on any securities
exchange on which the Common Stock is then listed, if such Shares are not
already so listed and if such listing is then permitted under the rules of
such exchange, or to be quoted on the Nasdaq National Market System if the
Common Stock is quoted thereon, and to provide a transfer agent and registrar
and a CUSIP number for such Shares covered by such Registration Statement, in
each case no later than the effective date of such Registration Statement;
(i) enter into such customary agreements (including an
underwriting agreement in customary form) and take such other actions as
sellers of a majority of Shares or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such Shares;
(j) obtain a "comfort" letter or letters from the Company's
independent public accountants in customary form and covering matters of the
type customarily covered by "comfort" letters as the Stockholder or
Stockholders of a majority of
-28-
<PAGE>
the Shares covered by such Registration Statement shall reasonably request;
(k) make available for inspection by representatives of the
Stockholders of Shares covered by such Registration Statement, by any
underwriter participating in any disposition to be effected pursuant to such
Registration Statement and by any attorney, accountant or other agent
retained by such Stockholders or any such underwriter, all pertinent
financial and other records, pertinent corporate documents and properties of
the Company, and cause all of the Company's officers, directors and employees
to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such
Registration Statement; and
(l) permit any Stockholder to participate in the preparation of
such Registration Statement and to require the insertion therein of material
regarding such Stockholder, furnished to the Company in writing, which in the
reasonable judgment of such Stockholder and its counsel should be included.
The Company may require each Stockholder of the Shares for which a
registration is being effected to furnish the Company with such information
regarding such Stockholder (pertinent to the disclosure requirements relating
to the registration and the distribution of such Shares) as the Company may
from time to time reasonably request in writing.
Each Stockholder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section
5.3(f), such Stockholder will forthwith discontinue disposition of such
Shares pursuant to the Registration Statement covering such Shares until such
Stockholder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 5.3(f) and, if so directed by the Company, such
Stockholder will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in such Stockholder's
possession, of the prospectus covering such Shares current at the time of
receipt of such notice. In the event the Company shall give any such notice,
the period mentioned in Section 5.3(b) shall be extended by the number of
days in the period from the date of the giving of such notice pursuant to
Section 5.3(f) through the date when each seller of Shares covered by such
-29-
<PAGE>
registration statement shall have received the copies of the supplemented or
amended prospectus contemplated by Section 5.3(f).
5.4 INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. In the event of any
registration of any Shares under the Securities Act pursuant to Section 5.1
or 5.2, the Company hereby indemnifies and agrees to hold harmless each
Stockholder of Shares covered by such Registration Statement, each Affiliate
of such Stockholder and their respective directors, officers, employees,
agents, and general and limited partners (and the directors, officers,
affiliates and controlling Persons thereof), each other Person who
participates as an underwriter in the offering or sale of such securities and
each other Person, if any, who controls such Stockholder or any such
underwriter within the meaning of the Securities Act (collectively, the
"Indemnified Parties"), against any and all losses, claims, damages or
liabilities, joint or several, and expenses to which such Indemnified Party
may become subject to under the Securities Act, common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof, whether or not such Indemnified Party is a
party thereto) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in any Registration
Statement under which such Shares were registered under the Securities Act,
any preliminary, final or summary prospectus contained therein, or any
amendment or supplement thereto, or (ii) any omission or alleged omission to
state therein a material fact necessary to make the statements made, in the
light of the circumstances under which they were made, not misleading, and
the Company will reimburse such Indemnified Party for any legal or other
expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, liability, action or proceeding; PROVIDED,
that the Company shall not be liable to any Indemnified Party in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in such Registration Statement, in any such preliminary, final or
summary prospectus, or any amendment or supplement thereto in reliance upon
and in conformity with written information with respect to such Indemnified
Party furnished to the
-30-
<PAGE>
Company by such Indemnified Party expressly for use in the preparation
thereof. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Stockholder or any Indemnified
Party and shall survive the transfer of such securities by such Stockholder.
(b) INDEMNIFICATION BY THE STOCKHOLDERS AND UNDERWRITERS. The
Company may require, as a condition to including any Shares in any
Registration Statement filed in accordance with Sections 5.1 or 5.2 herein,
that the Company shall have received an undertaking reasonably satisfactory
to it from the Stockholder of such Shares or any underwriter to indemnify and
hold harmless (in the same manner and to the same extent as set forth in
Section 5.4(a)) the Company, all other Stockholders including Shares in such
Registration Statement or any underwriter, as the case may be, and any of
their respective affiliates, directors, officers, employees, agents, general
and limited partners and controlling Persons, with respect to any statement
or alleged statement in or omission or alleged omission from such
Registration Statement, any preliminary, final or summary prospectus
contained therein, or any amendment or supplement, if such statement or
alleged statement or omission or alleged omission was made in reliance upon
and in conformity with written information with respect to such Stockholder
or underwriter furnished to the Company by such Stockholder or underwriter
expressly for use in the preparation of such Registration Statement,
preliminary, final or summary prospectus or amendment or supplement, or a
document incorporated by reference into any of the foregoing; provided that
no Stockholder shall be liable pursuant to this clause (b) for any amount in
excess of the net proceeds received by such Stockholder from the sale of
Shares covered by the Registration Statement giving rise to the claim for
indemnification. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any of
the Stockholders, or any of their respective affiliates, directors, officers
or controlling Persons and shall survive the transfer of such Shares by such
Stockholder.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an
Indemnified Party hereunder of written notice of the commencement of any
action or proceeding with respect to which a claim for indemnification may be
made pursuant to this Section 5.4, such Indemnified Party will, if a claim in
respect thereof is to be made against an Indemnifying Party,
-31-
<PAGE>
give written notice to the latter of the commencement of such action;
provided, that the failure of the Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under Sections 5.4(a) or 5.4(b), except to the extent that the Indemnifying
Party is actually prejudiced by such failure to give notice. In case any
such action is brought against an Indemnified Party, unless in such
Indemnified Party's reasonable judgment a conflict of interest between the
Indemnified Parties and the applicable Indemnifying Party may exist in
respect of such claim, the Indemnifying Party will be entitled to participate
in and to assume the defense thereof, jointly with any other Indemnifying
Party similarly notified to the extent that it may wish, with counsel
reasonably satisfactory to such Indemnified Party, and after notice from the
Indemnifying Party to such Indemnified Party of its election so to assume the
defense thereof, the Indemnifying Party will not be liable to such
Indemnified Party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable costs
of investigation. If the Indemnified Party has been advised by counsel that
having common counsel would result in a conflict of interest between the
interests of such indemnified and indemnifying parties, then such Indemnified
Party may employ separate counsel reasonably acceptable to the Indemnifying
Party to represent or defend such Indemnified Party in such action, it being
understood, however, that the Indemnifying Party shall not be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at
any time for all such Indemnified Parties (and not more than one separate
firm of local counsel at any time for all such Indemnified Parties) in such
action. No Indemnifying Party will consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect of such claim or litigation.
(d) OTHER INDEMNIFICATION. Indemnification similar to that
specified in this Section 5.4 (with appropriate modifications) shall be given
by the Company and each Stockholder with respect to any required registration
or other qualification of Shares under any federal or state law or regulation
or governmental authority other than the Securities Act.
-32-
<PAGE>
(e) CONTRIBUTION. If recovery is not available under the
foregoing indemnification provisions of this Section 5.4 for any reason, the
parties entitled to indemnification by the terms thereof shall be entitled to
contribution for liabilities and expenses except to the extent that
contribution is not permitted under Section 11(f) of the Securities Act. In
determining the amount of contribution to which the respective parties are
entitled, there shall be considered the relative benefits received by each
party from the offering of the Shares (taking into account the portion of the
proceeds realized by each), the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was
fasserted, the opportunity to correct and prevent any misstatement or omission
and any other equitable considerations appropriate under the circumstances.
The Company and the Stockholders agree that it would not be just
and equitable if contribution pursuant to this paragraph (e) were determined
by pro rata allocation (even if the sellers of Shares were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the liabilities and expenses referred to in the immediately
preceding paragraph shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 5.4, no seller of such Shares shall be required to
contribute any amount in excess of the net proceeds received by such seller
from the sale of such Shares covered by the Registration Statement giving
rise to the claim for contribution. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(f) NON-EXCLUSIVITY. The obligations of the parties under this
Section 5.4 shall be in addition to any liability which any party may
otherwise have to any other party.
-33-
<PAGE>
ARTICLE VI
MISCELLANEOUS
6.1 LEGENDS. The certificates representing the Shares to be purchased
by or are owned or held of record by each of the Stockholders, as the case
may be, shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED,
SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF (A
"TRANSFER") EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF A STOCKHOLDERS
AGREEMENT DATED AS OF JUNE 12, 1998. ANY TRANSFEREE OF THESE SECURITIES
TAKES SUBJECT TO THE TERMS OP SUCH AGREEMENTS, COPIES OF WHICH ARE ON FILE
WITH THE COMPANY."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR UNDER ANY STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EXEMPTION THEREFROM UNDER THE ACT OR LAW OR THE RULES AND REGULATIONS
PROMULGATED THEREUNDER."
Each of the parties hereto agrees that it will not Transfer any Shares
without complying with each of the restrictions set forth herein and agrees
that in connection with any such Transfer it will, if requested by the
Company, deliver at its expense to the Company an opinion of counsel
(including in-house or special counsel), in form and substance reasonably
satisfactory to the Company and counsel for the Company, that such Transfer
is not in violation of the securities laws of the United States of America or
any state thereof; PROVIDED, HOWEVER, that in case of any sale or other
Transfer of Shares to any person or entity who is an "accredited investor"
(as such term is defined and used in Rule 501 of Regulation D under the Act),
no opinion of counsel shall be required if the transferor obtains a
representation from such person or entity that it is an accredited investor
and is acquiring such Shares for its own account and with no intention of
distributing or reselling said Shares or any
-34-
<PAGE>
part thereof, or interest therein, in any transaction that would violate the
securities laws of the United States of America or any state thereof, without
prejudice, however, to such person's or entity's right at all times to
Transfer all or any part of said Shares pursuant to an effective Registration
Statement under the Act or any exemption from such registration available
under the Act, and subject, nevertheless, to such person's or entity's
disposition of its property being at all times within its control.
6.2 NOTICES. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing
and shall be deemed to have been duly given when received if personally
delivered; when transmitted if transmitted by telecopy, electronic or digital
transmission method; the day after it is sent, if sent for next day delivery
to a domestic address by recognized overnight delivery service (E.G., Federal
Express); and upon receipt, if sent by certified or registered mail, return
receipt requested. In each case notice shall be sent to:
If to the Company addressed to:
Wavetek Corporation
1030 Swabia Court
P.O. Box 13585
Research Triangle Park, NC 27709-3585
Telecopier No.:
Attention: Chief Executive Officer
With a copy to:
Sullivan & Cromwell
444 South Flower Street
Los Angeles, CA 90071
Telecopier No.: (213) 683-0457
Attention: Alison S. Ressler
If to any Stockholder to such Stockholder at the address
indicated on Annex 4 hereto.
6.3 SEVERABILITY. In the event that any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, then to the maximum extent permitted
by law, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement.
-35-
<PAGE>
6.4 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. (a) This Agreement
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the parties,
including, without limitation, the Prior Agreement and other agreements among
the stockholders of Wavetek and/or WG prior to the Effective Time. This
Agreement may not be terminated or amended except by an instrument in writing
signed on behalf of the Stockholders holding at least 70% of the outstanding
Shares held by Stockholders; provided that any amendment that expressly
alters the rights of any Stockholder differently from other Stockholders
shall require the consent of such affected Stockholder. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
(b) It being the intent of the Stockholders that this Agreement
shall be the sole and exclusive agreement with respect to the matters set
forth herein, during the term of this Agreement, each Stockholder agrees (i)
not to enter into any other agreements or arrangements that are in conflict
with or are expressly governed by the terms of this Agreement, (ii) not to
grant a proxy to any party with respect to the voting of its Common Stock
(other than routine proxies granted to approve matters recommended by the
Board of Directors) or (iii) not to enter into any agreement with any other
holder of Common Stock of the Company (including Stockholders) with respect
to the voting of shares of Common Stock except, in the case of clauses (i),
(ii) or (iii) above, for agreements or arrangements (a) approved or consented
to by the holders of at least 70% of the outstanding Common Stock held by
Stockholders, (b) agreements or arrangements between any Stockholder and its
Affiliates and (c) agreements or arrangements pursuant to the Company's
Employee Benefit Plans.
(c) The representations, warranties, covenants and
indemnification obligations contained in the Stock and Recapitalization
Agreement, dated as of May 23, 1997, among Wavetek and the other parties
thereto, shall terminate at the Effective Time.
6.5 SUCCESSORS, ASSIGNS AND TRANSFEREES. This Agreement shall be
binding upon and inure to the benefit of the parties
-36-
<PAGE>
hereto and their respective legal representatives, heirs, legatees,
successors and assigns including any party to which any Stockholder has
transferred or sold his or its Shares. Except as provided herein, each
transferee of Shares from a party hereto or a Permitted Transferee thereof
shall take such Shares subject to the same restrictions as existed in the
hands of the transferor.
6.6 CONSENT TO SPECIFIC PERFORMANCE. The parties hereto declare that
it is impossible to measure in money the damages which would accrue to a
party by reason of failure to perform any of the obligations hereunder.
Therefore, if any party shall institute any action or proceeding to enforce
the provisions hereof, any party against whom such action or proceeding is
brought hereby waives any claim or defense therein that the other party has
an adequate remedy at law.
6.7 VARIATIONS IN PRONOUNS. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine or neuter, singular or
plural, as the identity of the antecedent person or persons or entity or
entities may require.
6.8 EFFECTIVENESS; TERMINATION. This Agreement shall only be effective
as of the Effective Time. Unless earlier terminated by mutual agreement
among the parties hereto, this Agreement shall in any event terminate when
the Stockholders collectively own or hold of record less than 35% of the
outstanding Shares.
6.9 CHOICE OF LAW. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND
THE RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF DELAWARE, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PROVISIONS THEREOF.
6.10 JURISDICTION; WAIVERS. Each of the parties hereto hereby
irrevocably submits in any legal action or proceeding relating to or arising
out of this Agreement or any other document relating hereto or delivered in
connection with the transactions contemplated hereby, or for recognition and
enforcement of any judgment in respect thereof, to the exclusive jurisdiction
of the United States District Court for the District of Delaware, and
appellate courts thereof. Each of the parties hereto further (a) consents
that any such action or proceeding may be brought in such court and waives
any objection that it may now or hereafter have to the venue
-37-
<PAGE>
of any such action or proceeding in such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or
claim the same; (b) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage prepaid,
to such party at its address set forth in Section 6.2 or at such other
address of which such party shall have given notice pursuant thereto; and (c)
agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law.
6.11 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.
6.12 FURTHER ASSURANCES. Each of the parties shall execute and deliver
such further instruments and documents and take such further actions as may
be reasonably required or desirable to carry out the provisions hereof and
the transactions contemplated hereby.
6.13 CUMULATIVE REMEDIES. All rights and remedies of either party
hereto are cumulative of each other and of every other right or remedy such
party may otherwise have at law or in equity, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.
6.14 INSPECTION AND COMPLIANCE WITH LAW. Copies of this Agreement will
be available for inspection or copying by any Stockholder at the offices of
the Company through the Secretary of the Company.
6.15 TERMINATION OF PRIOR AGREEMENT. This Agreement supersedes and
replaces the Prior Agreement, which as of the Effective Time shall be deemed
null and void and without further effect.
6.16 HEADINGS. The titles, captions or headings of the Articles and
Sections herein are for convenience of reference only and are not intended to
be a part of or to affect the meaning or interpretation of this Agreement.
-38-
<PAGE>
6.17 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.18 BINDING AGREEMENT. This Agreement shall be a binding obligation of
each party to this Agreement upon the signature of such party hereto, even if
such party executes this Agreement prior to June 12, 1998, and shall not be
binding upon any party after June 12, 1998 if all parties have not executed
this Agreement by June 12, 1998.
-39-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement as of the date first written above.
WAVETEK CORPORATION
By: /s/ Terence J. Gooding
-----------------------------------
Name: Terence J. Gooding
Title: Chairman of the Board
DLJ MERCHANT BANKING PARTNERS II, L.P.
By: DLJ Merchant Banking II, Inc.
Managing General Partner
By: /s/ Ivy Dodes
-----------------------------------
Name: Ivy Dodes
Title: Vice President
DLJ MERCHANT BANKING PARTNERS II-A, L.P.
By: DLJ Merchant Banking II, Inc.
Managing General Partner
By: /s/ Ivy Dodes
-----------------------------------
Name: Ivy Dodes
Title: Vice President
DLJ DIVERSIFIED PARTNERS, L.P.
By: DLJ Diversified Partners, Inc.
Managing General Partner
By: /s/ Ivy Dodes
-----------------------------------
Name: Ivy Dodes
Title: Vice President
-40-
<PAGE>
DLJ DIVERSIFIED PARTNERS-A, L.P.
By: DLJ Diversified Partners, Inc.
Managing General Partner
By: /s/ Ivy Dodes
-----------------------------------
Name: Ivy Dodes
Title: Vice President
DLJMB FUNDING II, INC.
By: /s/ Ivy Dodes
-----------------------------------
Name: Ivy Dodes
Title: Vice President
DLJ FIRST ESC L.P.
By: DLJ LBO Plans Management
Corporation
By: /s/ Ivy Dodes
-----------------------------------
Name: Ivy Dodes
Title: Vice President
DLJ EAB PARTNERS, L.P.
By: DLJ LBO Plans Management
Corporation
General Partner
By: /s/ Ivy Dodes
-----------------------------------
Name: Ivy Dodes
Title: Vice President
-41-
<PAGE>
DLJ MILLENNIUM PARTNERS, L.P.
By: DLJ Merchant Banking II, Inc.
Managing General Partner
By: /s/ Ivy Dodes
------------------------------------
Name: Ivy Dodes
Title: Vice President
DLJ MILLENNIUM PARTNERS-A, L.P.
By: DLJ Merchant Banking II, Inc.
Managing General Partner
By: /s/ Ivy Dodes
-----------------------------------
Name: Ivy Dodes
Title: Vice President
DLJ OFFSHORE PARTNERS II, C.V.
By: /s/ Ivy Dodes
-----------------------------------
Name: Ivy Dodes
Title: Vice President
UK INVESTMENT PLAN 1997 PARTNERS
By: UK Investment Plan 1997 Partners,
Inc.
General Partner
By: /s/ Ivy Dodes
-----------------------------------
Name: Ivy Dodes
Title: Vice President
-42-
<PAGE>
GREEN EQUITY INVESTORS II, L.P.
By: Grand Avenue Capital Partners, L.P.
Grand Avenue Capital
Corporation, its general partner
By: /s/ Peter Nolan
-----------------------------------
Name: Peter Nolan
Title: Partner
SCHRODER UK VENTURE FUND III
By: Schroder Venture Managers Inc.,
as General Partner of
Schroder UK Venture Fund III LP1
By: /s/ Peter L. Everson /s/ John W. Evans
---------------------------------------
Peter L. Everson, Director & VP
John W. Evans, Director & VP
SCHRODER UK VENTURE FUND III
By: Schroder Venture Managers Inc.,
as General Partner of
Schroder UK Venture Fund III LP2
By: /s/ Peter L. Everson /s/ John W. Evans
---------------------------------------
Peter L. Everson, Director & VP
John W. Evans, Director & VP
SCHRODER UK VENTURE FUND III
By: Schroder International Trust Company
Limited, as Trustee of
Schroder UK Venture Fund III Trust
By: /s/ Peter L. Everson /s/ John W. Evans
---------------------------------------
Peter L. Everson, Director & VP
John W. Evans, Director & VP
YOKOGAWA ELECTRIC CORPORATION
By: /s/ Joichi Ueba
-------------------------------------
Name: Joichi Ueba
Title: Senior Vice President
-43-
<PAGE>
DR. TERENCE J. GOODING
/s/ Terence J. Gooding
----------------------------------------
Dr. Terence J. Gooding
BARBARA A. GOODING
TERENCE J. GOODING GRAT 1
TERENCE J. GOODING GRAT 2
BARBARA A. GOODING GRAT
By: /s/ Terence J. Gooding
------------------------------------
Terence J. Gooding, as
Attorney-in-Fact
WAVETEK MANAGEMENT STOCKHOLDERS:
SNOW HILL TRUSTEES
RICHARD J. BERRY
PAUL STEVENSON
By: /s/ Terence J. Gooding
-----------------------------------
Terence J. Gooding, as
Attorney-in-Fact
DEREK T. MORIKAWA
/s/ Derek T. Morikawa
---------------------------------------
Derek T. Morikawa
MORIKAWA TRUST F/B/O MEGAN K. MORIKAWA
By: /s/ Criss Y. Morikawa
------------------------------------
Criss Y. Morikawa, as
Trustee
MORIKAWA TRUST F/B/O EVAN T. MORIKAWA
By: /s/ Criss Y. Morikawa
------------------------------------
Criss Y. Morikawa, as
Trustee
-44-
<PAGE>
BEN J. CONSTANTINI
/s/ Ben J. Constantini
----------------------------------------
Ben J. Constantini
WG STOCKHOLDERS:
WANDEL & GOLTERMANN MANAGEMENT
HOLDING GmbH
By: /s/ Peter Wagner
-----------------------------------
Name: Peter Wagner
Title: President and CEO
And: /s/ Karl Heinz-Eisemann
----------------------------------
Name: Karl Heinz-Eisemann
Title: Vice President Controlling
and Logistics
ALBRECHT WANDEL
/s/ Albrecht Wandel
---------------------------------------
Albrecht Wandel
RENATE WANDEL
/s/ Renate Wandel
---------------------------------------
Renate Wandel
-45-
<PAGE>
FRANK GOLTERMANN
/s/ Frank Goltermann
----------------------------------------
Frank Goltermann
ULRIKE GOLTERMAN
/s/ Ulrike Goltermann
---------------------------------------
Ulrike Golterman
BURKHARD GOLTERMAN
/s/ Burkhard Goltermann
---------------------------------------
Burkhard Golterman
HANNOVER FINANZ W&G
BETEILIGUNGSGESELLSCHAFT mbH
By: /s/ Joachim Simmross
-----------------------------------
Name: Joachim Simmross
Title: Managing Director
AND: /s/ Claus von Loeper
----------------------------------
Name: Claus von Loeper
Title: Managing Director
-46-
<PAGE>
EXHIBIT 10.3
WAVETEK CORPORATION
FIRST AMENDMENT
TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is
dated as of July 21, 1998 and entered into by and among WAVETEK CORPORATION,
a Delaware corporation ("COMPANY"), THE LENDERS LISTED ON THE SIGNATURE PAGES
HEREOF ("Lenders"), DLJ CAPITAL FUNDING, INC. ("DLJ"), as syndication agent
for Lenders (in such capacity, "SYNDICATION AGENT"), and FLEET NATIONAL BANK,
as administrative agent for Lenders (in such capacity "ADMINISTRATIVE
AGENT"), and, for purposes of Section 4 hereof, the Subsidiary Guarantors
listed on the signature pages hereof, and is made with reference to that
certain Credit Agreement dated as of June 11, 1997 (the "CREDIT AGREEMENT"),
by and among Company, Lenders, Syndication Agent and Administrative Agent.
Capitalized terms used herein without definition shall have the same meanings
herein as set forth in the Credit Agreement.
RECITALS
WHEREAS, Company and Lenders desire to amend the Credit Agreement
to (i) adjust the financial covenants as set forth herein, and (ii) make
certain other amendments as set forth below;
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the parties hereto
agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 AMENDMENTS TO SECTION 7: COMPANY'S NEGATIVE COVENANTS
A. INDEBTEDNESS. Subsection 7.1 of the Credit Agreement is
hereby amended by re-numbering clause (viii) thereof as clause (ix) and by
inserting in numerical order a new clause (viii) as follows:
"(viii) Company may become and remain liable with respect
to an unsecured promissory note in the principal amount of up to
$4.6 million for the benefit of ComSonics, Incorporated, as
payee, which promissory note evidences Company's obligations to
make royalty payments to such payee pursuant to a licensing
agreement entered into between Company and such payee."
B. MINIMUM FIXED CHARGE COVERAGE RATIO. Subsection 7.6A of the
Credit Agreement is hereby amended by deleting the seventh line in the table
set forth therein in its entirety and substituting the following therefor:
1
<PAGE>
<TABLE>
<CAPTION>
Minimum Fixed Charge
"Period Coverage Ratio
------- --------------
<S> <C>
12/31/1998 1.20 : 1.00"
</TABLE>
C. MAXIMUM LEVERAGE RATIO. Subsection 7.6B of the Credit
Agreement is hereby amended by deleting the fifth, sixth and seventh lines in
the table set forth therein in their entirety and substituting the following
therefor:
<TABLE>
<CAPTION>
"Period Maximum Leverage Ratio
------- -----------------------
<S> <C>
6/30/1998 6.30 : 1.00
9/30/1998 6.80 : 1.00
12/31/1998 7.10 : 1.00"
</TABLE>
D. MINIMUM CONSOLIDATED EBITDA. Subsection 7.6C of the Credit
Agreement is hereby amended by deleting the fifth, sixth and seventh lines in
the table set forth therein in their entirety and substituting the following
therefor:
<TABLE>
<CAPTION>
"Period Minimum Consolidated EBITDA
------- ---------------------------
<S> <C>
(in millions)
6/30/1998 $ 19.0
9/30/1998 $ 17.9
12/31/1998 $ 17.0"
</TABLE>
E. MINIMUM CONSOLIDATED NET WORTH. Subsection 7.6D of the Credit
Agreement is hereby amended by deleting the fifth, sixth and seventh lines in
the table set forth therein in their entirety and substituting the following
therefor:
<TABLE>
<CAPTION>
"Period Minimum Consolidated Net Worth
------- ------------------------------
<S> <C>
(in millions)
9/30/1998 $ (71.9)
12/31/1998 $ (72.2)"
</TABLE>
F. AMENDMENT FEES. Section 7 of the Credit Agreement is hereby
amended by adding at the end thereof a new subsection 7.16 as follows:
2
<PAGE>
"7.16 PAYMENT OF AMENDMENT FEES.
Company shall not fail to pay on January 1, 1999, to
Administrative Agent, for payment to each Lender in accordance with
its Pro Rata Share, a fee equal to 0.25% of the sum of (i) the Term
Loan Exposure of all Lenders plus (ii) the Revolving Loan Commitments
of all Lenders; PROVIDED HOWEVER that if all Revolving Loan
Commitments have been terminated in full and all Obligations paid in
full prior to such date, no such amendment fee shall be payable
pursuant to this subsection 7.16."
SECTION 2. CONDITIONS TO EFFECTIVENESS
Section 1 of this Amendment shall become effective only upon the
satisfaction of all of the following conditions precedent (the date of
satisfaction of such conditions being referred to herein as the "FIRST
AMENDMENT EFFECTIVE DATE"):
A. On or before the First Amendment Effective Date, Company shall
deliver to Lenders (or to Administrative Agent for Lenders with sufficient
originally executed copies, where appropriate, for each Lender and its
counsel) the following, each, unless otherwise noted, dated the First
Amendment Effective Date:
1. Signature and incumbency certificates of its officers
executing this Amendment; and
2. Executed copies of this Amendment.
B. Requisite Lenders shall have executed this Amendment.
C. On or before the First Amendment Effective Date, all corporate
and other proceedings taken or to be taken in connection with the
transactions contemplated hereby and all documents incidental thereto not
previously found acceptable by Administrative Agent and Syndication Agent,
acting on behalf of Lenders, and their counsel shall be satisfactory in form
and substance to Administrative Agent and Syndication Agent and such counsel,
and Administrative Agent and Syndication Agent and such counsel shall have
received all such counterpart originals or certified copies of such documents
as Administrative Agent and Syndication Agent may reasonably request.
SECTION 3. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and to amend
the Credit Agreement in the manner provided herein, Company represents and
warrants to each Lender that the following statements are true, correct and
complete:
A. CORPORATE POWER AND AUTHORITY. Company has all requisite
corporate power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement as amended by this Amendment (the "AMENDED AGREEMENT").
3
<PAGE>
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of
this Amendment and the performance of the Amended Agreement have been duly
authorized by all necessary corporate action on the part of Company.
C. NO CONFLICT. The execution and delivery by Company of this
Amendment and the performance by Company of the Amended Agreement do not and
will not (i) violate any provision of any law or any governmental rule or
regulation applicable to Company or any of its Subsidiaries, the Certificate
or Articles of Incorporation or Bylaws of Company or any of its Subsidiaries
or any order, judgment or decree of any court or other agency of government
binding on Company or any of its Subsidiaries, (ii) conflict with, result in
a breach of or constitute (with due notice or lapse of time or both) a
default under any Contractual Obligation of Company or any of its
Subsidiaries, (iii) result in or require the creation or imposition of any
Lien upon any of the properties or assets of Company or any of its
Subsidiaries, or (iv) require any approval of stockholders or any approval or
consent of any Person under any Contractual Obligation of Company or any of
its Subsidiaries.
D. GOVERNMENTAL CONSENTS. The execution and delivery by Company
of this Amendment and the performance by Company of the Amended Agreement do
not and will not require any registration with, consent or approval of, or
notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body.
E. BINDING OBLIGATION. This Amendment and the Amended Agreement
have been duly executed and delivered by Company and are the legally valid
and binding obligations of Company, enforceable against Company in accordance
with their respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or
limiting creditors' rights generally or by equitable principles relating to
enforceability.
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Section 5 of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the First Amendment Effective Date to the same extent
as though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in
which case they were true, correct and complete in all material respects on
and as of such earlier date.
G. ABSENCE OF DEFAULT. No event has occurred and is continuing
or will result from the consummation of the transactions contemplated by this
Amendment that would constitute an Event of Default or a Potential Event of
Default.
4
<PAGE>
SECTION 4. ACKNOWLEDGEMENT AND CONSENT
Company is a party to certain of the Collateral Documents, in each
case as amended through the First Amendment Effective Date, pursuant to which
Company has created Liens in favor of Agent on certain Collateral to secure
the Obligations. Each Subsidiary Guarantor is a party to the Guaranties and
certain of the Collateral Documents, in each case as amended through the
First Amendment Effective Date, pursuant to which each such Subsidiary
Guarantor has (i) guarantied the Obligations and (ii) created Liens in favor
of Administrative Agent on certain Collateral to secure the obligations of
such Subsidiary Guarantor under the applicable Guaranty of such Subsidiary
Guarantor. Company and each such Subsidiary Guarantor are collectively
referred to herein as the "CREDIT SUPPORT PARTIES", and the Guaranties and
Collateral Documents referred to above are collectively referred to herein as
the "CREDIT SUPPORT DOCUMENTs".
Each Credit Support Party hereby acknowledges that it has reviewed
the terms and provisions of the Credit Agreement and this Amendment and
consents to the amendment of the Credit Agreement effected pursuant to this
Amendment. Each Credit Support Party hereby confirms that each Credit
Support Document to which it is a party or otherwise bound and all Collateral
encumbered thereby will continue to guaranty or secure, as the case may be,
to the fullest extent possible the payment and performance of all
"Obligations," "Guarantied Obligations" and "Secured Obligations," as the
case may be (in each case as such terms are defined in the applicable Credit
Support Document), including without limitation the payment and performance
of all such "Obligations," "Guarantied Obligations" or "Secured Obligations,"
as the case may be, in respect of the Obligations of Company now or hereafter
existing under or in respect of the Amended Agreement.
Each Credit Support Party acknowledges and agrees that any of the
Credit Support Documents to which it is a party or otherwise bound shall
continue in full force and effect and that all of its obligations thereunder
shall be valid and enforceable and shall not be impaired or limited by the
execution or effectiveness of this Amendment. Each Credit Support Party
represents and warrants that all representations and warranties contained in
the Amended Agreement and the Credit Support Documents to which it is a party
or otherwise bound are true, correct and complete in all material respects on
and as of the First Amendment Effective Date to the same extent as though
made on and as of that date, except to the extent such representations and
warranties specifically relate to an earlier date, in which case they were
true, correct and complete in all material respects on and as of such earlier
date.
Each Credit Support Party (other than Company) acknowledges and agrees
that (i) notwithstanding the conditions to effectiveness set forth in this
Amendment, such Credit Support Party is not required by the terms of the Credit
Agreement or any other Loan Document to consent to the amendments to the Credit
Agreement effected pursuant to this Amendment and (ii) nothing in the Credit
Agreement, this Amendment or any other Loan Document shall be deemed to require
the consent of such Credit Support Party to any future amendments to the Credit
Agreement.
5
<PAGE>
SECTION 5. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER
LOAN DOCUMENTS.
(i) On and after the First Amendment Effective Date, each
reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Credit
Agreement, and each reference in the other Loan Documents to the "Credit
Agreement", "thereunder", "thereof" or words of like import referring to
the Credit Agreement shall mean and be a reference to the Amended
Agreement.
(ii) Except as specifically amended by this Amendment, the
Credit Agreement and the other Loan Documents shall remain in full force
and effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment
shall not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of
Administrative Agent or any Lender under, the Credit Agreement or any of
the other Loan Documents.
B. FEES AND EXPENSES. Company acknowledges that all costs, fees
and expenses as described in subsection 10.2 of the Credit Agreement incurred
by Syndication Agent and its counsel with respect to this Amendment and the
documents and transactions contemplated hereby shall be for the account of
Company.
C. HEADINGS. Section and subsection headings in this Amendment
are included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose or be given any
substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK
(INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW
OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and
attached to a single counterpart so that all signature pages are physically
attached to the same document.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
WAVETEK CORPORATION
By: /s/ Vickie L. Capps
---------------------------------
Title: CHIEF FINANCIAL OFFICER
---------------------------------
WAVETEK U.S. INC., (for purposes of Section 4
only) as a Credit Support Party
By: /s/ Vickie L. Capps
---------------------------------
Title: CHIEF FINANCIAL OFFICER
---------------------------------
DLJ CAPITAL FUNDING, INC., INDIVIDUALLY AND
AS SYNDICATION AGENT
By: /s/ Harold J. Philipps
---------------------------------
Title: HAROLD J. PHILLIPS
MANAGING DIRECTOR
---------------------------------
FLEET NATIONAL BANK, INDIVIDUALLY AND AS
ADMINISTRATIVE AGENT
By: Glenn Kewley
---------------------------------
Title: ASSISTANT VICE PRESIDENT
---------------------------------
S-1
<PAGE>
IMPERIAL BANK, AS A LENDER
By: /s/ R. Vadalma
---------------------------------
Title: RAY VADALMA
SENIOR VICE PRESIDENT
---------------------------------
UNION BANK OF CALIFORNIA, AS A LENDER
By: /s/ Kent McBeth
---------------------------------
Title: VICE PRESIDENT
---------------------------------
CREDITANSTALT BANKVEREIN, AS A LENDER
By: /s/ Patrick Rounds
---------------------------------
Title: VICE PRESIDENT
---------------------------------
By: /s/ Jack Bertges
---------------------------------
Title: S.V.P.
---------------------------------
S-2
<PAGE>
EXHIBIT 12.1
SCHEDULE RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Income (loss) before provision for income taxes........................ $ (667) $ (3,526) $ 2,093 $ 7,179
Interest expense, including amortization of debt issuance costs........ 2,996 709 8,944 948
Interest portion of rental expense..................................... 277 221 747 678
------------ ------------ ----------- ------------
Earnings............................................................... $ 2,606 $ (2,596) $ 11,784 $ 8,805
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Interest expense, including amortization of debt issuance costs........ $ 2,996 $ 709 $ 8,944 $ 948
Interest portion of rental expense..................................... 277 221 747 678
------------ ------------ ----------- ------------
Fixed charges.......................................................... $ 3,273 $ 930 $ 9,691 $ 1,626
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Ratio of earnings to fixed charges..................................... 0.8 (2.8) 1.2 5.4
</TABLE>
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS
ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,385
<SECURITIES> 0
<RECEIVABLES> 28,619
<ALLOWANCES> 1,212
<INVENTORY> 17,085
<CURRENT-ASSETS> 56,154
<PP&E> 22,606
<DEPRECIATION> 11,785
<TOTAL-ASSETS> 76,646
<CURRENT-LIABILITIES> 39,055
<BONDS> 106,000
0
0
<COMMON> 49
<OTHER-SE> 43,741
<TOTAL-LIABILITY-AND-EQUITY> 76,646
<SALES> 107,035
<TOTAL-REVENUES> 107,035
<CGS> 46,505
<TOTAL-COSTS> 95,941
<OTHER-EXPENSES> 210
<LOSS-PROVISION> 435
<INTEREST-EXPENSE> 8,944
<INCOME-PRETAX> 2,093
<INCOME-TAX> 756
<INCOME-CONTINUING> 1,337
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,337
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.27
</TABLE>
