<PAGE>
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- --------------------------------------------------------------------------------
SCHEDULE 13E-3
TRANSACTION STATEMENT PURSUANT TO SECTION 13(E) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 13E-3 THEREUNDER
--------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934)
--------------------------
WATKINS-JOHNSON COMPANY
(NAME OF ISSUER)
WATKINS-JOHNSON COMPANY
DEAN A. WATKINS
WATKINS TRUST DATED SEPTEMBER 19, 1988
(NAME OF PERSONS FILING STATEMENT)
COMMON STOCK, WITHOUT PAR VALUE
COMMON STOCK PURCHASE RIGHTS
(TITLE OF CLASSES OF SECURITIES)
0009424861
(CUSIP NUMBER OF CLASSES OF SECURITIES)
WATKINS-JOHNSON COMPANY
3333 HILLVIEW AVENUE
PALO ALTO, CALIFORNIA 94304
TEL: (650) 493-4141
ATTN. W. KEITH KENNEDY
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF PERSONS FILING STATEMENT)
COPIES TO:
<TABLE>
<S> <C>
HENRY LESSER, ESQ. MARSHALL SMALL, ESQ.
HELLER EHRMAN WHITE & MCAULIFFE MORRISON & FOERSTER LLP
525 UNIVERSITY AVENUE 425 MARKET STREET
PALO ALTO, CALIFORNIA 94301 SAN FRANCISCO, CALIFORNIA 94105
</TABLE>
-------------------
This statement is filed in connection with (check the appropriate box):
/X/ a. The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
/ / b. The filing of registration statement under the Securities Act of
1933.
/ / c. A tender offer.
/ / d. None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: /X/
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
A. TRANSACTION VALUATION* AMOUNT OF FILING FEE
<S> <C>
$293,303,635 $58,661
</TABLE>
* For purposes of calculating the fee only. The proposed maximum aggregate
value of the transaction (the "Aggregate Value") is $293,303,635 (the sum of
(i) the product of 6,679,799 currently outstanding shares of Common Stock
and $41.125 per share cash merger consideration ($274,706,734), (ii) the
product of -0- shares of Common Stock that could be issued in respect of
in-the-money options that are scheduled to expire before the outside date of
the merger (I.E., January 31, 2000), if not extended, and $41.125 per share,
and (iii) aggregate consideration of $18,596,901 to be paid for currently
outstanding options (which are assumed to remain outstanding until closing)
to be cashed out at the spread in the transaction.) The filing fee equals
1/50 of 1% of the Aggregate Value, which was the applicable fee when the fee
was paid (see below).
/X/ Check box if any part of the fee is offset as provided by Rule 0-ll(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: $58,661
Form or Registration No.: Schedule 14A
Filing Party: WATKINS-JOHNSON COMPANY
Date Filed: November 11, 1999
- --------------------------------------------------------------------------------
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<PAGE>
INTRODUCTION
This Rule 13e-3 Transaction Statement on Schedule 13E-3 (the "Transaction
Statement") is being filed by the Watkins-Johnson Company ("WJ"), Dean A.
Watkins ("Dr. Watkins"), an individual who is the Chairman and co-founder of WJ,
and the Watkins Trust Dated September 19, 1988 (the "Watkins Trust"), pursuant
to Section 13(e) of the Securities Exchange Act of 1934, as amended, and
Rule 13e-3 thereunder, in connection with the merger ("Merger") of FP-WJ
Acquisition Corp. ("FP-WJ"), a California corporation, with and into WJ pursuant
to an Agreement and Plan of Merger, dated October 25, 1999 (the "Merger
Agreement"), between WJ and FP-WJ. Pursuant to the Merger Agreement, WJ will
continue as the surviving corporation and each share of WJ common stock, without
par value, outstanding immediately prior to the Merger (together with the common
stock purchase rights associated with those shares), except shares held by
dissenting shareowners, will be converted into the right to receive $41.125 in
cash, without interest. Pursuant to the Recapitalization Agreement, dated
October 25, 1999 (the "Recapitalization Agreement"), between WJ and the Watkins
Trust, shares of WJ common stock held by the Watkins Trust shall, immediately
prior to the Merger, be exchanged for shares of the Series A Convertible
Participating Preferred Stock of WJ, which preferred stock shall be converted
into shares of common stock of the surviving corporation to the Merger pursuant
to the terms of the Merger Agreement. Dr. Watkins is a co-trustee and
beneficiary of the Watkins Trust. The Watkins Trust will sell any shares of
Series A Convertible Participating Preferred Stock it holds in excess of 120,000
shares immediately prior to the Merger, for $41.125 in cash per share, without
interest. Upon consummation of the Merger, approximately 8.9% of the equity
interest in the surviving corporation shall be owned by the Watkins Trust.
Concurrently with the filing of this Transaction Statement, WJ has filed
with the Securities and Exchange Commission Amendment No. 1 to its Preliminary
Proxy Statement on Schedule 14A (the "Preliminary Proxy Statement") in
connection with a special meeting of shareowners of WJ, at which meeting the
shareowners will be asked to approve the Merger Agreement and the Merger. The
filing of this Transaction Statement shall not be construed as an admission by
WJ, Dr. Watkins or the Watkins Trust or any of their affiliates that WJ is
"controlled" by Dr. Watkins or the Watkins Trust.
The following Cross Reference Sheet, prepared pursuant to General
Instruction F to Schedule 13E-3, shows the location in the Preliminary Proxy
Statement of the information required to be included in this Transaction
Statement. The information set forth in the Preliminary Proxy Statement,
including all appendices thereto, is hereby expressly incorporated herein by
reference and the responses in this Transaction Statement are qualified in their
entirety by reference to the information contained in the Preliminary Proxy
Statement.
1
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM IN
SCHEDULE 13E-3 CAPTION OR LOCATION IN THE PRELIMINARY PROXY STATEMENT
-------------- ------------------------------------------------------------
<S> <C>
Item 1(a) "GENERAL INFORMATION."
Item 1(b) "Notice of Special Meeting;" "THE SPECIAL MEETING--Who Can
Vote."
Item 1(c) "MARKET PRICE INFORMATION FOR WJ COMMON STOCK."
Item 1(d) "SUMMARY--WJ Selected Historical Consolidated Financial and
Per Share Data;" "THE WJ MERGER AGREEMENT--Conduct of the WJ
Business Before the WJ Merger."
Item 1(e) *
Item 1(f) *
Item 2(a)-(d) "SUMMARY--Special Factors; Parties."
Item 2(e)-(g) *
Item 3(a)(1) *
Item 3(a)(2) "SUMMARY--Special Factors; Financing; Interests of WJ
Management in the WJ Merger (The Recapitalization
Agreement);" "SPECIAL FACTORS--Background of the WJ Merger;"
"--The WJ Board's Reasons and Recommendation;" "--Interests
of WJ Management in the WJ Merger (The Recapitalization
Agreement);" "--Structure of the Merger;" "--Financing."
Item 3(b) "SUMMARY--Special Factors; Financing; Interests of WJ
Management in the WJ Merger (The Recapitalization
Agreement);" "SPECIAL FACTORS--Background of the WJ Merger;"
"--The WJ Board's Reasons and Recommendation;" "--Interests
of WJ Management in the WJ Merger (The Recapitalization
Agreement);" "--Structure of the Merger;" "--Financing."
Item 4(a) "QUESTIONS AND ANSWERS ABOUT THE WJ MERGER PROPOSAL;"
"SUMMARY--Special Factors; Structure of the WJ Merger;
Financing;" "--The WJ Merger Agreement;" "--Dissenters'
Rights;" "SPECIAL FACTORS--Interests of WJ Management in the
WJ Merger;" "--Structure of the WJ Merger;" "--Financing;"
"--Regulatory and Other Approvals and Consents;" "--Federal
Income Tax Consequences;" "--Accounting Treatment;" "THE WJ
MERGER AGREEMENT."
Item 4(b) "SUMMARY--Special Factors; Background; Parties; Structure of
the WJ Merger; Financing; and Interests of WJ Management in
the WJ Merger (The Recapitalization Agreement);" "SPECIAL
FACTORS--Background of the WJ Merger;" "--The WJ Board's
Reasons and Recommendation;" "--Interests of WJ Management
in the WJ Merger (The Recapitalization Agreement);"
"--Structure of the Merger;" "--Financing."
Item 5(a) *
Item 5(b) *
Item 5(c) "SUMMARY--Special Factors; Certain Effects of the WJ
Merger;" "SPECIAL FACTORS--Certain Effects of the WJ
Merger."
Item 5(d) *
Item 5(e) *
Item 5(f)-(g) "SUMMARY--Special Factors; Certain Effects of the WJ
Merger;" "SPECIAL FACTORS--Certain Effects of the WJ
Merger."
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ITEM IN
SCHEDULE 13E-3 CAPTION OR LOCATION IN THE PRELIMINARY PROXY STATEMENT
-------------- ------------------------------------------------------------
<S> <C>
Item 6(a) "SUMMARY--Financing;" "SPECIAL FACTORS--Financing."
Item 6(b) "THE WJ MERGER AGREEMENT--Termination Fee; Expenses."
Item 6(c) "SUMMARY--Financing;" "SPECIAL FACTORS--Financing."
Item 6(d) *
Item 7(a) "QUESTIONS AND ANSWERS ABOUT THE WJ MERGER PROPOSAL;"
"SUMMARY--Special Factors; Background; Parties; The WJ
Board's Reasons and Recommendation; Opinion of WJ's
Financial Advisor; Purpose of the WJ Merger;" "--The WJ
Merger Agreement;" "SPECIAL FACTORS--Background of the WJ
Merger;" "--The WJ Board's Reasons and Recommendation;"
"--Opinion of WJ's Financial Advisor;" "--Purpose of the WJ
Merger."
Item 7(b) "SUMMARY--Special Factors; Background; The WJ Board's
Reasons and Recommendation;" "SPECIAL FACTORS--Background of
the WJ Merger;" "--The WJ Board's Reasons and
Recommendation."
Item 7(c) "SUMMARY--Special Factors; Background; The WJ Board's
Reasons and Recommendation; Certain Effects of the Merger;"
"SPECIAL FACTORS--Background of the WJ Merger;" "--The WJ
Board's Reasons and Recommendation;" "--Interests of WJ
Management in the WJ Merger;" "--Structure of the Merger;"
"--Financing;" "--Certain Effects of the WJ Merger;"
"--Accounting Treatment."
Item 7(d) "QUESTIONS AND ANSWERS ABOUT THE WJ MERGER PROPOSAL;"
"SUMMARY--Special Factors; Interests of WJ Management in the
WJ Merger; Structure of the WJ Merger; Financing; Certain
Effects of the WJ Merger; Conduct of WJ's Business After the
WJ Merger; Federal Income Tax Consequences; Accounting
Treatment;" "--The WJ Merger; Surrender of Certificates;
Payment for Shares;" "--Dissenters' Rights;" "SPECIAL
FACTORS--Interests of WJ Management in the WJ Merger;"
"--Structure of the WJ Merger;" "--Financing;" "--Certain
Effects of the WJ Merger;" "--Conduct of WJ's Business After
the WJ Merger;" "--Federal Income Tax Consequences;"
"--Accounting Treatment;" "THE WJ MERGER
AGREEMENT--Conversion of Common Shares;" "--Surrender of
Certificates; Payment for Shares;" "--Employee Matters;"
"DISSENTERS' RIGHTS."
Item 8(a)-(b) "SUMMARY--Special Factors; Background; The WJ Board's
Reasons and Recommendation; Opinion of WJ's Financial
Advisor;" "--WJ Selected Historical Consolidated Financial
and Per Share Data;" "SPECIAL FACTORS--Background of the WJ
Merger;" "--The WJ Board's Reasons and Recommendation;"
"--Position of Dr. Watkins and the Watkins Trust Regarding
the Fairness of the WJ Merger to Other Shareowners;"
"--Opinion of WJ's Financial Advisor;" "--Certain Projected
Financial Information;" "MARKET PRICE INFORMATION FOR WJ
COMMON STOCK."
Item 8(c) *
Item 8(d) "SUMMARY--Special Factors; Background; The WJ Board's
Reasons and Recommendation;" "SPECIAL FACTORS--Background of
the WJ Merger;" "--The WJ Board's Reasons and
Recommendation."
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ITEM IN
SCHEDULE 13E-3 CAPTION OR LOCATION IN THE PRELIMINARY PROXY STATEMENT
-------------- ------------------------------------------------------------
<S> <C>
Item 9(a)-(c) "SUMMARY--Special Factors; Opinion of WJ's Financial
Advisor; Financing;" "SPECIAL FACTORS--Background of the WJ
Merger;" "--Opinion of WJ's Financial Advisor;"
"--Financing;" Appendix C and D.
Item 10(a) "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT."
Item 10(b) *
Item 11 "SUMMARY--Special Factors; Interests of WJ Management in the
WJ Merger (The Recapitalization Agreement); Structure of the
Merger; Financing;" "SPECIAL FACTORS--Background of the WJ
Merger;" "--Interests of WJ Management in the WJ Merger;"
Appendix B.
Item 12(a)-(b) "QUESTIONS AND ANSWERS ABOUT THE WJ MERGER PROPOSAL;"
"SUMMARY--Special Factors; The WJ Board's Reasons and
Recommendation; Interests of WJ Management in the WJ Merger
(The Recapitalization Agreement);" "SPECIAL
FACTORS--Background of the WJ Merger;" "--The WJ Board's
Reasons and Recommendation;" "--Position of Dr. Watkins and
the Watkins Trust Regarding the Fairness of the WJ Merger to
Other Shareowners;" "--Interests of WJ Management in the WJ
Merger (The Recapitalization Agreement);" Appendix B.
Item 13(a) "SUMMARY--Dissenters' Rights;" "DISSENTERS' RIGHTS."
Item 13(b) *
Item 13(c) *
Item 14(a) "SUMMARY--WJ Selected Historical Consolidated Financial and
Per Share Data;" "WHERE YOU CAN FIND MORE INFORMATION ABOUT
WJ."
Item 14(b) *
Item 15(a) "THE SPECIAL MEETING--Solicitation of Proxies; Expenses;"
"THE WJ MERGER AGREEMENT--Access to, and Confidentiality of,
Information."
Item 15(b) "SUMMARY--Opinion of WJ's Financial Advisor;" "THE SPECIAL
MEETING--Solicitation of Proxies; Expenses;" Appendix C.
Item 16 The Preliminary Proxy Statement is incorporated herein by
reference.
</TABLE>
- ------------------------
* Not applicable or answer is negative.
4
<PAGE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The disclosure under the caption "GENERAL INFORMATION" in the Proxy
Statement is incorporated herein by reference.
(b) The disclosure in the "Notice of Special Meeting" and under the caption
"THE SPECIAL MEETING--Who Can Vote" is incorporated herein by reference.
(c) The disclosure under the caption "MARKET PRICE INFORMATION FOR WJ COMMON
STOCK" is incorporated herein by reference.
(d) The disclosure under the captions "SUMMARY--WJ Selected Historical
Consolidated Financial and Per Share Data" and "THE WJ MERGER AGREEMENT--Conduct
of the WJ Business Before the WJ Merger" is incorporated herein by reference.
(e) Not applicable.
(f) See Schedule I attached hereto, which is incorporated herein by
reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) This statement is being filed jointly by WJ, Dr. Watkins and the
Watkins Trust. See Schedule II attached hereto, which is incorporated herein by
reference. The disclosure under the caption "SUMMARY--Special Factors; Parties"
is incorporated herein by reference.
(e)-(f) During the last five years, neither the Company nor, to the best
knowledge of the Company, Dr. Watkins or the Watkins Trust (i) has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) was party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining further
violations of, or prohibiting activities subject to, federal or state securities
laws or finding any violation of such laws.
(g) See Schedule II attached hereto, which is incorporated herein by
reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1) Not applicable.
(a)(2)-(b) The disclosure under the captions "SUMMARY--Special Factors;
Background; Parties; Structure of the WJ Merger; Financing; and Interests of WJ
Management in the WJ Merger (The Recapitalization Agreement;)" and "SPECIAL
FACTORS--Background of the WJ Merger;" "--The WJ Board's Reasons and
Recommendation;" "--Interests of WJ Management in the WJ Merger (The
Recapitalization Agreement);" "--Structure of the Merger"; and "--Financing" is
incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
a) The disclosure under the captions "QUESTIONS AND ANSWERS ABOUT THE WJ
MERGER PROPOSAL;" "SUMMARY--Special Factors; Structure of the WJ Merger; and
Financing;" "--The WJ Merger Agreement;" and "--Dissenters' Rights;" "SPECIAL
FACTORS--Interests of WJ Management in the WJ Merger;" "--Structure of the WJ
Merger" "--Financing;" "--Regulatory and Other Approvals and Consents;"
"--Federal Income Tax Consequences;" and "--Accounting Treatment;" and "THE WJ
MERGER AGREEMENT" is incorporated herein by reference.
(b) The disclosure under the captions "SUMMARY--Special Factors; Background;
Parties; Structure of the WJ Merger; Financing; and Interests of WJ Management
in the WJ Merger (The Recapitalization Agreement);" and "SPECIAL
FACTORS--Background of the WJ Merger;" "--The
5
<PAGE>
WJ Board's Reasons and Recommendation;" "--Interests of WJ Management in the WJ
Merger (The Recapitalization Agreement);" "--Structure of the Merger;" and
"--Financing" is incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(b) Not applicable.
(c) The disclosure under the captions "SUMMARY--Special Factors; Certain
Effects of the WJ Merger;" and "SPECIAL FACTORS--Certain Effects of the WJ
Merger" is incorporated herein by reference.
(d)-(e) Not applicable.
(f)-(g) The disclosure under the captions "SUMMARY--Special Factors; Certain
Effects of the WJ Merger;" and "SPECIAL FACTORS--Certain Effects of the WJ
Merger" is incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The disclosure under the captions "SUMMARY--Financing" and "SPECIAL
FACTORS--Financing" is incorporated herein by reference.
(b) The disclosure under the caption "THE WJ MERGER AGREEMENT--Termination
Fee; Expenses" is incorporated herein by reference.
(c) The disclosure under the captions "SUMMARY--Financing" and "SPECIAL
FACTORS--Financing" is incorporated herein by reference.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) The disclosure under the captions "QUESTIONS AND ANSWERS ABOUT THE WJ
MERGER PROPOSAL;" "SUMMARY--Special Factors; Background; Parties; The WJ Board's
Reasons and Recommendation; Opinion of WJ's Financial Advisor; and "Purpose of
the WJ Merger;" "--The WJ Merger Agreement;" and "SPECIAL FACTORS--Background of
the WJ Merger;" "--The WJ Board's Reasons and Recommendation;" "--Opinion of
WJ's Financial Advisor;" and "--Purpose of the WJ Merger" is incorporated herein
by reference.
(b) The disclosure under the captions "SUMMARY--Special Factors; Background;
and The WJ Board's Reasons and Recommendation;" and "SPECIAL FACTORS--Background
of the WJ Merger;" and "--The WJ Board's Reasons and Recommendation" is
incorporated herein by reference.
(c) The disclosure under the captions "SUMMARY--Special Factors; Background;
The WJ Board's Reasons and Recommendation; and Certain Effects of the Merger;"
and "SPECIAL FACTORS--Background of the WJ Merger;" "--The WJ Board's Reasons
and Recommendation;" "--Interests of WJ Management in the WJ Merger;"
"--Structure of the Merger;" "--Financing;" "--Certain Effects of the WJ
Merger;" and "--Accounting Treatment" is incorporated herein by reference.
(d) The disclosure under the captions "QUESTIONS AND ANSWERS ABOUT THE WJ
MERGER PROPOSAL;" "SUMMARY--Special Factors; Interests of WJ Management in the
WJ Merger; Structure of the WJ Merger; Financing; Certain Effects of the WJ
Merger; Conduct of WJ's Business After the WJ Merger; Federal Income Tax
Consequences; and Accounting Treatment;" "--The WJ Merger; Surrender of
Certificates; Payment for Shares;" and "--Dissenters' Rights;" "SPECIAL
FACTORS--Interests of WJ Management in the WJ Merger;" "--Structure of the WJ
6
<PAGE>
Merger;" "--Financing;" "--Certain Effects of the WJ Merger;" "--Conduct of WJ's
Business After the WJ Merger;" "--Federal Income Tax Consequences;" and
"--Accounting Treatment;" "THE WJ MERGER AGREEMENT--Conversion of Common
Shares;" "--Surrender of Certificates; Payment for Shares;" and "--Employee
Matters;" and "DISSENTERS' RIGHTS" is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(b) The disclosure under the captions "SUMMARY--Special Factors;
Background; The WJ Board's Reasons and Recommendation; and Opinion of WJ's
Financial Advisor;" "--WJ Selected Historical Consolidated Financial and Per
Share Data;" and "--WJ Selected Pro Forma Financial Data;" "SPECIAL FACTORS--
Background of the WJ Merger;" "--The WJ Board's Reasons and Recommendation;"
"--Position of Dr. Watkins and the Watkins Trust Regarding the Fairness of the
WJ Merger to Other Shareowners;" "--Opinion of WJ's Financial Advisor;" and
"--Certain Projected Financial Information;" and "MARKET PRICE INFORMATION FOR
WJ COMMON STOCK" is incorporated herein by reference.
(c) The Rule 13e-3 transaction described herein is not structured so that
approval of at least a majority of unaffiliated security holders is required.
(d) The disclosure under the captions "SUMMARY--Special Factors; Background;
and the WJ Board's Reasons and Recommendation;" and "SPECIAL FACTORS--Background
of the WJ Merger;" and "--The WJ Board's Reasons and Recommendation" is
incorporated herein by reference.
(e) The disclosure under the captions "SUMMARY--Special Factors; and The WJ
Board's Reasons and Recommendation;" and "SPECIAL FACTORS--The WJ Board's
Reasons and Recommendation" is incorporated herein by reference.
(f) The disclosure under the captions "SUMMARY--Special Factors;
Background;" and "SPECIAL FACTORS--Background of the WJ Merger" is incorporated
herein by reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c) The disclosure under the captions "SUMMARY -- Special Factors;
Opinion of WJ's Financial Advisor; and Financing;" and "SPECIAL
FACTORS--Background of the WJ Merger;" "--Opinion of WJ's Financial Advisor;"
and "--Financing;" and Appendices C and D to the Preliminary Proxy Statement are
incorporated herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The disclosure under the caption "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" is incorporated herein by reference.
(b) Not applicable.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
The disclosure under the captions "SUMMARY--Special Factors; Interests of WJ
Management in the WJ Merger (The Recapitalization Agreement); Structure of the
Merger; and Financing;" and "SPECIAL FACTORS--Background of the WJ Merger;" and
"--Interests of WJ Management in the WJ Merger;" and Appendix B to the
Preliminary Proxy Statement are incorporated herein by reference.
7
<PAGE>
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a)-(b) The disclosure under the captions "QUESTIONS AND ANSWERS ABOUT THE
WJ MERGER PROPOSAL;" "SUMMARY--Special Factors; The WJ Board's Reasons and
Recommendation; and Interests of WJ Management in the WJ Merger (The
Recapitalization Agreement);" and "SPECIAL FACTORS--Background of the WJ
Merger;" "--The WJ Board's Reasons and Recommendation;" "--Position of
Dr. Watkins and the Watkins Trust Regarding the Fairness of the WJ Merger to
Other Shareowners;" and "--Interests of WJ Management in the WJ Merger (The
Recapitalization Agreement);" and Appendix B to the Preliminary Proxy Statement
are incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The disclosure under the captions "SUMMARY--Dissenters' Rights" and
"DISSENTERS' RIGHTS" and Appendix E to the Proxy Statement are incorporated
herein by reference.
(b) Not applicable.
(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The disclosure under the captions "SUMMARY--WJ Selected Historical
Consolidated Financial and Per Share Data" and "WHERE YOU CAN FIND MORE
INFORMATION ABOUT WJ" is incorporated herein by reference.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The disclosure under the captions "THE SPECIAL MEETING--Solicitation of
Proxies; Expenses" and "THE WJ MERGER AGREEMENT--Access to, and Confidentiality
of, Information" is incorporated herein by reference.
(b) The disclosure under the captions "SUMMARY--Opinion of WJ's Financial
Advisor;" "SPECIAL FACTORS--Opinion of WJ's Financial Advisor;" and "THE SPECIAL
MEETING--Solicitation of Proxies; Expenses;" and Appendix C to the Preliminary
Proxy Statement are incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
The Proxy Statement is incorporated herein by reference.
8
<PAGE>
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<S> <C>
(b)(1) Opinion of CIBC World Markets Corp., dated October 25, 1999
(included as Appendix C to Exhibit (d)(1)).
(b)(2) Presentation materials prepared by CIBC World Markets Corp.
and presented to the Board of Directors of WJ on October 25,
1999.
(c)(1) Agreement and Plan of Merger, dated as of October 25, 1999,
between FP-WJ and WJ (included as Appendix A to
Exhibit (d)(1)).
(c)(2) Recapitalization Agreement, dated as of October 25, 1999,
between WJ and the Watkins Trust (included as Appendix B to
Exhibit (d)(1)).
(d)(1) Preliminary Proxy Statement filed by WJ with the Securities
and Exchange Commission on December 21, 1999.
(d)(2) Letter to Shareowners (included and filed with Exhibit
(d)(1)).
(d)(3) Form of Proxy (included and filed with Exhibit (d)(1)).
(d)(4) Form of Trustee Direction card (included and filed with
Exhibit (d)(1)).
(e) See disclosure under captions "SUMMARY--Dissenters' Rights"
and "DISSENTERS' RIGHTS" in Exhibit (d)(1) and Appendix E to
Exhibit(d)(1).
</TABLE>
9
<PAGE>
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this Statement is true, complete and correct.
December 21, 1999
<TABLE>
<S> <C> <C>
WATKINS-JOHNSON COMPANY
By: /s/ W. KEITH KENNEDY
-----------------------------------------
Name: W. Keith Kennedy
Title: Chief Executive Officer
WATKINS TRUST DATED SEPTEMBER 19, 1988
By: /s/ DEAN A. WATKINS
-----------------------------------------
Name: Dean A. Watkins
Title: Trustee
DEAN A. WATKINS
By: /s/ DEAN A. WATKINS
-----------------------------------------
Name: Dean A. Watkins
</TABLE>
10
<PAGE>
SCHEDULE I
STOCK PURCHASES
The following table sets forth certain information regarding the stock
purchases of WJ Common Stock by WJ and its executive officers and directors
since the commencement of WJ's second full fiscal year preceding the date of the
transaction statement to which this schedule is attached.
Purchases of WJ Common Stock by WJ:
<TABLE>
<CAPTION>
RANGE OF AVG. PURCHASE
TRADE DATE NUMBER OF SHARES PRICE PER SHARE TOTAL PRICE PRICEST PRICE PER QUARTER
- ------------------------ ---------------- --------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
For the quarter ended March 31, 1997:
- ------------------------------------------------------------
Feb. 4, 1997............ 10,000 $26.2938 $ 262,938.00
Feb. 5, 1997............ 6,000 25.7292 154,375.20
Feb. 6, 1997............ 3,000 25.4167 76,250.10
Feb. 7, 1997............ 4,600 25.8261 118,800.06
Feb. 10, 1997........... 5,000 25.6250 128,125.00
Feb. 11, 1997........... 7,000 25.2589 176,812.30
Feb. 14, 1997........... 6,000 26.4167 158,500.20
Feb. 18, 1997........... 2,400 25.9792 62,350.08
Feb. 19, 1997........... 1,000 25.8750 25,875.00
Feb. 25, 1997........... 5,000 24.9750 124,875.00
Feb. 26, 1997........... 5,000 24.9250 124,625.00
Feb. 27, 1997........... 2,000 25.0875 50,175.00
Mar. 6, 1997............ 3,000 26.0417 78,125.10
Mar. 10, 1997........... 3,000 25.6667 77,000.10
Mar. 11, 1997........... 3,000 25.6250 76,875.00
Mar. 12, 1997........... 6,000 25.6625 153,975.00
Mar. 13, 1997........... 6,000 25.8125 154,875.00
------- -------------
$ 24.9250-
Totals.............. 78,000 2,004,551.14 26.4167 $25.6994
======= =============
For the quarter ended June 30, 1997:
- ------------------------------------------------------------
Apr. 18, 1997........... 1,000 27.0000 27,000.00
Apr. 21, 1997........... 2,000 27.0000 54,000.00
Apr. 22, 1997........... 10,000 26.7000 267,000.00
Apr. 24, 1997........... 7,000 26.8393 187,875.10
Apr. 25, 1997........... 4,200 26.2500 110,250.00
Apr. 28, 1997........... 2,000 26.0000 52,000.00
May 15, 1997............ 5,000 29.2725 146,362.50
May 16, 1997............ 6,000 29.5417 177,250.20
May 20, 1997............ 1,000 30.0000 30,000.00
Jun. 4, 1997............ 2,600 30.6250 79,625.00
Jun. 5, 1997............ 2,500 31.3500 78,375.00
Jun. 6, 1997............ 5,000 31.2500 156,250.00
Jun. 7, 1997............ 4,200 30.7679 129,225.18
Jun. 10, 1997........... 6,000 30.2708 181,624.80
Jun. 11, 1997........... 8,000 28.6250 229,000.00
Jun. 12, 1997........... 5,000 28.9250 144,625.00
Jun. 16, 1997........... 3,000 29.5000 88,500.00
Jun. 17, 1997........... 5,000 30.6500 153,250.00
Jun. 19, 1997........... 4,000 30.6250 122,500.00
Jun. 20, 1997........... 5,000 30.6250 153,125.00
Jun. 23, 1997........... 2,000 30.4375 60,875.00
Jun. 24, 1997........... 7,000 30.7143 215,000.10
Jun. 25, 1997........... 6,000 31.1250 186,750.00
Jun. 26, 1997........... 8,000 30.9852 247,881.60
Jun. 27, 1997........... 3,500 30.8214 107,874.90
Jun. 30, 1997........... 4,900 30.4720 149,312.80
------- -------------
Totals.............. 119,900 3,535,532.18 26.00-31.35 29.4873
======= =============
For the quarter ended September 30, 1997:
- ------------------------------------------------------------
Jul. 1, 1997............ 6,300 30.9742 195,137.46 30.9742 30.9742
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AVG. PURCHASE
TRADE DATE NUMBER OF SHARES PRICE PER SHARE TOTAL PRICE RANGE OF PRICES PRICE PER QUARTER
- --------------------- ---------------- --------------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
For the quarter ended March 31, 1998:
- ---------------------------------------------------------
Jan. 29, 1998........ 4,000 $24.7859 $ 99,143.60
Jan. 30, 1998........ 2,800 $24.7143 69,200.04
Mar. 4, 1998......... 45,808 27.0625 1,239,679.00
--------- -------------
$ 24.7143-
Totals........... 52,608 1,408,022.64 27.0625 $26.7644
========= =============
For the quarter ended September 30, 1998:
- ---------------------------------------------------------
Jul. 20, 1998........ 10,000 23.5000 235,000.00
Jul 21, 1998......... 37,000 23.7973 880,500.10
Jul. 22, 1998........ 10,000 23.8750 238,750.00
Jul. 23, 1998........ 35,500 23.9551 850,406.05
Jul. 27, 1998........ 10,000 23.8125 238,125.00
Jul. 28, 1998........ 20,000 22.0000 440,000.00
Jul. 31, 1998........ 361,800 23.0000 8,321,400.00
Aug. 3, 1998......... 35,000 22.8393 799,375.50
Aug. 20, 1998........ 28,000 23.0000 644,000.00
Aug. 21, 1998........ 10,000 22.8750 228,750.00
Aug. 26, 1998........ 10,000 21.9375 219,375.00
Aug. 31, 1998........ 30,000 19.7500 592,500.00
Sep. 2, 1998......... 32,400 20.5625 666,225.00
Sep. 4, 1998......... 10,000 20.3125 203,125.00
Sep. 11, 1998........ 10,000 18.0000 180,000.00
Sep. 15, 1998........ 110,000 17.7500 1,952,500.00
Sep. 16, 1998........ 230,600 17.7500 4,093,150.00
Sep. 17, 1998........ 10,000 17.7500 177,500.00
Sep. 18, 1998........ 30,000 17.7292 531,876.00
Sep. 29, 1998........ 10,000 18.9375 189,375.00
--------- -------------
17.7292
Totals........... 1,040,300 21,681,932.65 23.9551 20.8420
========= =============
For the quarter ended December 31, 1998:
- ---------------------------------------------------------
Oct. 1, 1998......... 10,000 18.4375 184,375.00
Oct. 8, 1998......... 57,000 16.6985 951,814.50
Oct. 15, 1998........ 130,000 17.6250 2,291,250.00
Oct. 16, 1998........ 505,000 18.8750 9,531,875.00
Dec. 10, 1998........ 892 20.6250 18,397.50
--------- -------------
16.6985-
Totals........... 702,892 12,977,712.00 20.6250 18.4633
========= =============
Purchases of WJ Common Stock by Executive Officers and Directors of WJ:
Raymond F. O'Brien--Director
- ---------------------------------------
Feb. 5, 1998......... 4,000 $ 26.375 $ 105,500.00 $ 26.375 $ 26.375
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
AVG. PURCHASE
TRADE DATE NUMBER OF SHARES PRICE PER SHARE TOTAL PRICE RANGE OF PRICES PRICE PER QUARTER
- --------------------- ---------------- --------------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Scott Buchanan--Executive Vice President, Chief Financial Officer and Treasurer
- ---------------------------------------------------------------------------------------------------------------
Feb. 9, 1998......... 1,000* $ 12.375 $ 12,375.00 $ 12.375 $ 12.375
Malcolm J. Caraballo--Vice President
- ---------------------------------------
Dec. 11, 1998........ 2,000* 12.375 24,750.00
Dec. 11, 1998........ 3,900* 13.00 50,700.00 12.375-13 12.788
W. Keith Kennedy--President and Chief Executive Officer
- ---------------------------------------------------------------------------------------------------------------
Feb. 6, 1998......... 2,000* 12.375 24,750.00
Apr. 29, 1998........ 566* 12.375 7,004.00 12.375 12.375
</TABLE>
- ------------------------
* These shares were acquired through the exercise of stock options
13
<PAGE>
SCHEDULE II
DIRECTORS AND EXECUTIVE OFFICERS OF WJ
The following table sets forth the name, principal occupation or employment at
the present time and during the last five years, and the name of any corporation
or other organization in which such employment is conducted or was conducted of
each executive officer and director of WJ. All of the persons listed below are
citizens of the United States of America and the business address of each such
person is 3333 Hillview Avenue, Stanford Research Center, Palo Alto, California
94304. Each occupation set forth opposite a person's name, unless otherwise
indicated, refers to employment with WJ.
<TABLE>
<CAPTION>
PRESENT MATERIAL POSITIONS HELD
NAME OCCUPATION OR EMPLOYMENT DURING THE PAST FIVE YEARS
- ------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
Dean A. Watkins Chairman of the Board since 1957 Founder, Chairman
(1957 - 1973)
H. Richard Johnson Vice Chairman of the Board since 1957 Founder, Vice Chairman
(1973 - 1987)
W. Keith Kennedy, Jr. Director since 1987; President and President and Chief Executive Officer
Chief Executive Officer (1988 - present)
John J. Hartman Director since 1966 Financial Consultant (1970 - present)
Raymond F. O'Brien Director since 1986 Business Consultant (1995 - present)
William R. Graham Director since 1986 Chairman and President of National
Security Research, Inc. (1997 -
present); Senior Vice President, The
Defense Group (1994 - 1997)
Gary M. Cusumano Director since 1994 President of The Newhall Land and
Farming Company (1989 - present)
Robert L. Prestel Director since 1994 Business and Management Consultant
(1994 - present)
Patrick J. Brady President, Semiconductor Equipment President, Semiconductor Equipment
Group* Group (1996 - 1999); Vice President,
Engineering Group (1995 - 1996)
Scott G. Buchanan Executive Vice President, Chief Vice President, Chief Financial
Financial Officer and Treasurer Officer and Treasurer since 1989
Malcolm J. Caraballo Vice President President, Wireless Products Group
(1996 - present); Vice President,
Microwave Products Group (1993 -
1996)
Robert G. Hiller Vice President President, Telecommunications Group
(1997 - present); Vice President,
Telecommunications Group (1996 -
1997); Director, Engineering,
Electronic Equipment Division (1995 -
1996)
</TABLE>
- --------------------------
* Ceased to be an executive officer upon sale of WJ's Semiconductor Equipment
Group on July 6, 1999.
14
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<S> <C>
(b)(1) Opinion of CIBC World Markets Corp., dated October 25, 1999
(included as Appendix C to Exhibit (d)(1)).
(b)(2) Presentation materials prepared by CIBC World Markets Corp.
and presented to the Board of Directors of WJ on October 25,
1999.
(c)(1) Agreement and Plan of Merger, dated as of October 25, 1999,
between FP-WJ and WJ (included as Appendix A to Exhibit
(d)(1)).
(c)(2) Recapitalization Agreement, dated as of October 25, 1999,
between WJ and the Watkins Trust (included as Appendix B to
Exhibit (d)(1)).
(d)(1) Preliminary Proxy Statement filed by WJ with the Securities
and Exchange Commission on December 21, 1999.
(d)(2) Letter to Shareowners (included and filed with Exhibit
(d)(1).
(d)(3) Form of Proxy (included and filed with Exhibit (d)(1)).
(d)(4) Form of Trustee Direction card (included and filed with
Exhibit (d)(1)).
(e) See disclosure under captions "SUMMARY--Dissenters' Rights"
and "DISSENTERS' RIGHTS" in Exhibit (d)(1) and Appendix E to
Exhibit(d)(1).
</TABLE>
<PAGE>
EXHIBIT (b)(2)
PROJECT JUSTICE
PRESENTATION TO BOARD OF DIRECTORS
[LOGO] WATKINS-JOHNSON
Confidential
OCTOBER 25, 1999
CIBC [LOGO]
World Markets
<PAGE>
CONFIDENTIAL
================================================================================
Confidential Material for the Board of Directors
The following pages contain material provided to the Board of Directors of
Warrior ("Warrior" or the "Company") by CIBC World Markets Corp. ("CIBC World
Markets") in connection with the transaction involving Warrior and Falcon
("Falcon"). The accompanying material was compiled or prepared on a confidential
basis solely for the use of the Board of Directors of the Company and not with a
view toward public disclosure under state and federal securities laws or
otherwise. The information contained in this material was obtained from the
Company and public sources, and was relied upon by CIBC World Markets without
independent verification as to the accuracy or completeness of such information.
Any estimates and projections for the Company contained herein have been
supplied by the management of the Company, and involve numerous and significant
subjective determinations, which may not be correct. No representation or
warranty, expressed or implied, is made as to the accuracy or completeness of
such information and nothing contained herein is, or shall be relied upon as, a
representation or warranty, whether as to the past or the future. This material
was not prepared for use by readers not as familiar with the business and
affairs of the Company as the Board of Directors and, accordingly, neither the
Company nor CIBC World Markets or their respective legal or financial advisors
or accountants take any responsibility for the accompanying material when used
by persons other than the Board of Directors of the Company.
CIBC World Markets is assisting Falcon in the financing of the transaction
described in these materials. By arrangement with Warrior, a "Chinese Wall" has
been established between the two CIBC World Markets' team.
CIBC [LOGO]
World Markets
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
TABLE OF CONTENTS
================================================================================
1 TRANSACTION OVERVIEW
2 WARRIOR OVERVIEW
3 VALUATION OVERVEW
4 APPENDICES
A Warrior Stand-Alone Financial Model
B Leveraged Recapitalization Merger Analysis
C Comparable Companies Analysis
D Precedent Transactions Analysis
E Discounted Cash Flow Analysis
CIBC [LOGO]
World Markets 1
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
1 TRANSACTION OVERVIEW
CIBC [LOGO]
World Markets
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
EXECUTIVE SUMMARY
================================================================================
Sale Process Overview
o Marketing materials ("Offering Memorandum") were prepared to describe the
acquisition opportunity to potential buyers
o Potential strategic and financial buyers were selected based upon
investment criteria and existing business operations
o Of the 99 parties contacted, 48 expressed interest and executed
Confidentiality Agreements, entitling them to receive the Offering
Memorandum
o Based upon the receipt of preliminary indications of interest from 13
parties, 11 parties were invited to continue in the sale process. These
parties attended management presentations and conducted limited due
diligence through access to a data room
o After meeting with management and having access to the data room, 3 buyers
submitted final proposals focused solely on the Telecommunications Group
("TG"), 2 buyers submitted final proposals focused on Warrior as a whole,
and 3 buyers submitted final proposals focused on Warrior post disposition
of TG ("WPG")
o Warrior decided to pursue the sale of TG before selling the entire Company
o On August 18, 1999, Warrior announced the sale of TG to Tracor, a
subsidiary of Marconi, for estimated consideration of $57.9 million in
cash
o Subsequent to the sale of TG, the remaining 5 buyers were requested to
resubmit their final proposals
o Two buyers resubmitted final proposals and Warrior decided to enter into
exclusive negotiations with Falcon
o During the course of confirmatory due diligence and negotiations, Warrior
and Falcon agreed to a price of $41.125 per share
CIBC [LOGO]
World Markets 2
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
TRANSACTION OVERVIEW
================================================================================
Sale Process Overview
Bid Range
---------
Warrior Low Mean High
POTENTIAL BUYERS CONTACTED -- -- --
99
OFFERING MEMORANDUMS DELIVERED -- -- --
48
INITIAL INDICATIONS OF -- -- --
INTEREST RECEIVED
13
FINAL BIDS FOR
WARRIOR $41.50 $41.75 $42.00
(9/27/99)
2
CIBC [LOGO]
World Markets 3
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
TRANSACTION OVERVIEW
================================================================================
Key Terms
Transaction Cash consideration of $41.125 per share for the purchase of all
outstanding shares of Warrior (including options).
Transaction Leveraged Recapitalization Merger
Structure
Founder Dr. Dean A. Watkins will retain an approximately 9.4%
Participation post-closing equity interest designed to satisfy
recapitalization accounting requirements
Transaction Price Per Share $41.125
Value Premium to Closing Price on 10/22/99 29%
Fully Diluted Shares Outstanding 7,895.0
-----------------
Warrior's Equity Value $324,681.9
Plus: Net Debt (234,257.0)
-----------------
Warrior's Enterprise Value $90,424.9
=================
Treatment Options will vest automatically and be exchanged for cash
of Options payments equal to the spread between the offer price and the
applicable exercise price and tax withholding
"No-Shop" Warrior may not, directly or indirectly, solicit, initiate or
Provision encourage the submission of any proposal relating to any
acquisition of the assets or shares of Warrior subject to a
fiduciary duty out
CIBC [LOGO]
World Markets 4
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
TRANSACTION OVERVIEW
================================================================================
Key Terms
Conditions o No material breach of representations and warranties
to Closing o Receipt of all regulatory approvals, including HSR
o Confirmation of the Telecom Sale Transaction
o Receipt of financing by Falcon (Falcon has provided a
commitment from CIBC)
o Recapitalization accounting for the Merger
Termination o By mutual written consent
o By either Warrior or Falcon, upon material breach of
representations and warranties
o By either Warrior or Falcon, if any permanent injunction or
action by any Governmental Entity preventing the consummation
of the Merger becomes final and nonappealable
o By either Warrior or Falcon, if Closing has not occurred by
January 31, 2000
o By either Warrior or Falcon, if Warrior's shareholders fail to
approve the transaction
o By Falcon, if Warrior's Board of Directors withdraws, modifies
or changes its approval or recommendation of the transaction
o By Warrior, if Falcon notifies Warrior that it will not
provide funds as set forth in the equity commitment letter
Fees and Warrior will be required to pay Falcon a termination fee of $13.25
Expenses million plus all costs and expenses if the agreement is terminated:
o By Falcon, if Warrior's Board of Directors withdraws, modifies
or changes its recommendation of the transaction
o By either Warrior or Falcon, if Warrior's shareholders fail to
approve the transaction and Warrior enters into an Alternative
Transaction within 12 months
o By Falcon, after an uncured or incurable breach of the
agreement and Warrior enters into an Alternative Transaction
within 12 months
CIBC [LOGO]
World Markets 5
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
TRANSACTION OVERVIEW
================================================================================
Transaction Summary
(Figures in Thousands, Except per Share Data)
Price Per Share $41.13
Premium to Closing on 10/22/99 28.5%
Fully Diluted Shares Outstanding 7,895.0
-------------
Warriors Equity Value $324,681.9
Plus: Net Debt (234,257.0)
-------------
Warrior's Enterprise Value $90,424.9
=============
<TABLE>
<CAPTION>
------------ ----------- -------------------- -----------------------
Financial Transaction Comparable Companies Precedents Transactions
Statictic(1) Multiples Multiples Multiples
------------ ----------- -------------------- -----------------------
Low High Low High
Revenue --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
1999E $83,031.0 1.1x 0.4x 1.4x 1.0x 1.7x
2000E 111,000.0 0.8 0.5 1.1 NA NA
EBITDA
1999E $6,416.0 14.1x 3.4x 12.6x 9.1x 12.8x
2000E 11,406.0 7.9 2.2 9.7 NA NA
Net Income (2)
1999E $2,610.6 34.0x 8.7x 25.6x 16.9x 34.7x
2000E 5,564.6 15.9 7.1 20.6 NA NA
------------ ----------- -------------------- -----------------------
</TABLE>
(1) Financial projections based on Warrior Management estimates
(2) Transaction multiples exclude corporate cash
CIBC [LOGO]
World Markets 6
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
TRANSACTION OVERVIEW
================================================================================
Premium Analysis - Falcon Offer Price @ $41.125
- ------------------------------ ----------- -------
Date Share Price Premium
- ------------------------------ ----------- -------
Current Stock Price (10/22/99) $ 32.00 29%
3 Month Average Stock Price $ 33.18 24%
6 Month Average Stock Price $ 30.39 35%
9 Month Average Stock Price $ 28.28 45%
1 Year Average Stock Price $ 26.18 57%
52 Week High $ 35.00 18%
52 Week Low $ 17.88 130%
CIBC [LOGO]
World Markets 7
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
2 WARRIOR OVERVIEW
CIBC [LOGO]
World Markets
<PAGE>
WARRIOR OVERVIEW
================================================================================
Summary Financials:
(Figures in Thousands, Except per Share Data)
<TABLE>
<CAPTION>
Actual Projected (3)
------------------------- --------------------------------------------------------------------------------
1998 (2) 1998 (3) 1999 2000 2001 2002 2003 2004
----------- ---------- ---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $212,200.0 $63,568.0 $83,031.0 $111,000.0 $144,000.0 $180,000.0 $216,000.0 $259,200.0
Growth -- 103.9% 30.6% 33.7% 29.7% 25.0% 20.0% 20.0%
EBITDA (78,911.0) 6,698.0 6,416.0 11,406.0 15,791.1 19,738.9 23,686.7 28,424.0
Margin NM 10.5% 7.7% 10.3% 11.0% 11.0% 11.0% 11.0%
EBIT (94,693.0) 5,179.0 4,394.0 9,323.0 13,083.1 15,924.5 18,841.0 22,507.7
Margin NM 8.1% 5.3% 8.4% 9.1% 8.8% 8.7% 8.7%
Net Income (49,208.0) 3,107.4 2,610.6 5,564.6 7,886.6 9,698.8 11,599.7 15,677.4
Margin NM 4.9% 3.1% 5.0% 5.5% 5.4% 5.4% 6.0%
</TABLE>
[The following was represented as a bar chart in the printed material]
<TABLE>
<CAPTION>
1998 (2) 1998 (3) 1999 2000 2001 2002 2003 2004
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $212,200.0 $63,568.0 $83,031.0 $111,000.0 $144,000.0 $180,000.0 $216,000.0 $259,200.0
EBITDA (78,911.0) 6,698.0 6,416.0 11,406.0 15,791.1 19,738.9 23,686.7 28,424.0
Margin NM 10.5% 7.7% 10.3% 11.0% 11.0% 11.0% 11.0%
</TABLE>
(1) Source: Management estimates
(2) Includes Semiconductor Equipment Group ("SEG") and Telecommunications
Group ("TG") operations
(3) WPG stand-alone results
CIBC [LOGO]
World Markets 8
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
WARRIOR OVERVIEW
================================================================================
LTM Price\Volume (10/22/98 - 10/22/99)
[GRAPHIC OMITTED]
A. 10/23/98: Fairchild Co.'s Banner Aerospace Inc. unit, which owned
approximately 6.2% of Warrior, said it was interested in exploring ways to
increase shareholder value of Warrior, including a sale. Banner Aerospace
Inc. said it did not believe the current market price at that time
reflected the value of the underlying business and assets of Warrior
B. 11/12/98: CIBC World Markets was engaged by Warrior to act as exclusive
financial advisor
C. 1/29/99: Sandera Partners, a Texas investment firm that owned
approximately 2.5% in Warrior, announced that it planned to nominate three
directors to the Board of Warrior at the upcoming annual meeting
D. 3/1/99: Announced that its Board had decided to pursue a sale of the
Company and its opposition to Sandera's nomination of three directors to
Warrior's board. In response to Warrior's decision to pursue a sale of the
Company, Sandera withdrew its nominees and did not proceed with its
planned proxy contest
E. 3/4/99: Announced the sale of high-density plasma chemical vapor
deposition intellectual property and associated hardware to Applied
Materials, Inc.
F. 3/30/99: Announced definitive agreement to sell SEG to Silicon Valley
Group Inc.
G. 4/14/99: Reported sales for first quarter ending March 26, 1999 of $65.2
million, compared with $68.7 million for the same period a year ago
H. 6/11/99: Announced the super-majority voting requirements for shareholders
has been eliminated
I. 7/6/99: Announced disposition of SEG pursuant to previously announced
agreement
J. 7/28/99: Reported sales from continuing operations for the second quarter
ended June 25 of $34.9 million, up 30% from $26.8 million for the same
period a year ago
K. 8/18/99: Announced definitive agreement to sell TG to Marconi North
America (Tracor)
L. 9/9/99: Signed multi-year Master Purchase Agreement with Sprint for
Warrior repeaters to be used in the Sprint PCS all-digital nationwide
network
M. 9/16/99: Completed sale of San Jose real estate
N. 10/1/99: Completed sale of long-term lease interests in Palo Alto
CIBC [LOGO]
World Markets 9
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
WARRIOR OVERVIEW
================================================================================
3 Year Price\Volume (10/22/96 - 10/22/99)
[GRAPHIC OMITTED]
CIBC [LOGO]
World Markets 10
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
WARRIOR OVERVIEW
================================================================================
LTM Indexed Price Performance (10/22/98 - 10/22/99)
[GRAPHIC OMITTED]
Note: WPG Comparable Companies Index consists of ALN, ARX, CLTK, ELMG, PWAV,
REMC, SAWS, STII, SPCT
CIBC [LOGO]
World Markets 11
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
WARRIOR OVERVIEW
================================================================================
3 Year Indexed Price Performance (10/22/96 - 10/22/99)
[GRAPHIC OMITTED]
Note: WPG Comparable Companies Index consists of ALN, ARX, CLTK, ELMG, PWAV,
REMC, SAWS, STII, SPCT
CIBC [LOGO]
World Markets 12
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
WARRIOR OVERVIEW
================================================================================
LTM Volumes at Various Prices (10/22/98 - 10/22/99)
[GRAPHIC OMITTED]
Note: 7.9 mm cumulative shares were traded, representing 120% of the 6.6 mm
shares outstanding as reported in the quarter ending 6/30/99
CIBC [LOGO]
World Markets 13
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
WARRIOR OVERVIEW
================================================================================
3 Year Volumes at Various Prices (10/21/96 - 10/21/99)
[GRAPHIC OMITTED]
Note: 34.4 mm cumulative shares were traded, representing 522% of the 6.6 mm
shares outstanding as reported in the quarter ending 6/30/99
CIBC [LOGO]
World Markets 14
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
WARRIOR OVERVIEW
================================================================================
Ownership Profile Analysis
- --------------------------------------------------------------------------------
Institutional Holders
- --------------------------------------------------------------------------------
Cumulative
Institutional Holders Shares Percent Percent
- -------------------------------------- --------- ------- ----------
Central Securities Corporation 500,000 7.6% 7.6%
Dimensional Fund Advisors Inc. 488,000 7.4% 15.0%
Kennedy Capital Management 340,000 5.2% 20.2%
- --------------------------------------------------------------------------------
TCW Asset Management 318,900 4.9% 25.1%
Banner Aerospace 300,000 4.6% 29.6%
High Rock Capital Mgmt 296,000 4.5% 34.1%
Seneca Capital Mgmt 270,000 4.1% 38.3%
Putnam Investment Management 207,700 3.2% 41.4%
SCM Advisors 180,000 2.7% 44.2%
David J. Greene & Co. 162,800 2.5% 46.6%
Unidentified Money Manager 115,000 1.8% 48.4%
Boston Safe Deposit 113,500 1.7% 50.1%
GAMCO Investors 110,000 1.7% 51.8%
California Public Employees Retirement 99,800 1.5% 53.3%
Royce & Associates 91,900 1.4% 54.7%
Other Institutional 136,016 2.1% 56.8%
- -------------------------------------- --------- ------- ----------
Total Institutional Ownership 3,729,616 56.8% 56.8%
- --------------------------------------------------------------------------------
Insider Ownership
- --------------------------------------------------------------------------------
Cumulative
Insiders (1) Shares Percent Percent
- -------------------------------------- --------- ------- ----------
W. Keith Kennedy, Jr 353,119 5.4% 5.4%
Dean A. Watkins 258,020 3.9% 9.3%
Malcolm J. Caraballo 87,753 1.3% 10.6%
Scott G. Buchanan 62,864 1.0% 11.6%
H. Richard Johnson 39,259 0.6% 12.2%
Patnck J. Brady 36,701 0.6% 12.8%
William R. Graham 26950 0.4% 13.2%
All Other Insiders 108,989 1.7% 14.8%
- -------------------------------------- --------- ------- ----------
Total Insiders 973,655 14.8% 14.8%
- --------------------------------------------------------------------------------
Distribution Summary
- --------------------------------------------------------------------------------
Shares Percent
-------------- -----------
Institutional Holders (Excl. 5% Holders) 2,401,616 36.6%
5% Institutional Holders 1,328,000 20.2%
Insider Ownership 973,655 14.8%
Retail 1,865,729 28.4%
- ---------------------------------------- -------------- -----------
Total Shares Outstanding 6,569,000 100.0%
[The following was represented as a pie chart in the printed material]
Insider Ownership 15%
5% Institutional Holders 20%
Retail 28%
Institutional Holders (Excl. 5% Holders) 37%
Source: Technimetric's Anamate Database (Thomson Financial) dated 9/24/99, Proxy
dated 3/17/99.
(1) The amounts shown include options exercisable based in Proxy.
CIBC [LOGO]
World Markets 15
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
3 VALUATION OVERVEW
CIBC [LOGO]
World Markets
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
VALUATION OVERVIEW
================================================================================
Valuation Summary
(Figures in Dollars per Share)
[The following was represented as a stock range chart in the printed material]
Comparable Companies Analysis $34.34 - $45.25
Precedent Transactions Analysis $37.99 - $45.60
Discounted Cash Flow Analysis $38.07 - $46.83
Leveraged Recapitalization Merger Analysis $39.30 - $41.70
52 Week Trading Range $17.88 - $35.00
Offer Price @ $41.125
Current Trading Price @ $32.00 as of 10/22/99
CIBC [LOGO]
World Markets 16
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
VALUATION OVERVIEW
================================================================================
Valuation Summary
(Figures in Thousands, Except per Share Data)
----------------------
Cash $45.1
Debt 0.0
Shares 7,895.0
----------------------
COMPARABLE COMPANIES ANALYSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Multiple Range(2) Firm Value Equity Value Per Share Amount
Financial ----------------- ------------------- ------------------------------ -------------------------
Statistic (1) Low High Low High Low Mid High Low Mid High
------------- ---- ---- -------- -------- -------- -------- -------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999E Revenues $83,031 0.4x 1.4x $33,212 $116,243 $33,258 $74,773 $116,289 $4.21 $9.47 $14.73
1999E EBITDA 6,416 3.4 12.6 21,814 80,842 21,860 51,373 80,887 2.77 6.51 10.25
l999E Net lncome 2,611 8.7 25.6 -- -- 22,712 44,772 66,831 2.88 5.67 8.46
2000E Revenues $111,000 0.5x 1.1x $55,500 $122,100 $55,545 $88,845 $122,145 $7.04 $11.25 $15.47
200OE EBITDA 11,406 2.2 9.7 25,093 110,638 25,138 67,911 110,683 3.18 8.60 14.02
2000E Net Income 5,565 7.1 20.6 -- -- 39,509 77,070 114,631 5.00 9.76 14.52
<CAPTION>
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Reference Range $33,004 $67,457 $101,911 $4.18 $8.54 $12.91
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Cash and Cash Equivalents (3) $30.16 $31.25 $32.35
-------------------------------------------------------------------------------------------
===========================================================================================
Adjusted Reference Range $34.34 $39.80 $45.25
===========================================================================================
</TABLE>
PRECEDENT TRANSACTIONS ANALYSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Multiple Range(4) Firm Value Equity Value Per Share Amount
Financial ----------------- ------------------- ------------------------------ -------------------------
Statistic (1) Low High Low High Low Mid High Low Mid High
------------- ---- ---- -------- -------- -------- -------- -------- ------ ------ -------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999E Revenues $83,031 l.Ox 1.7x $83,031 $141,153 $83,076 $112,137 $141,198 $10.52 $14.20 $17.88
1999E EBITDA 6,416 9.1 12.8 58,386 82,125 58,431 70,300 82,170 7.40 8.90 10.41
l999E Net Income 2,611 16.9 34.7 -- -- 44,119 67,353 90,587 5.59 8.53 11.47
<CAPTION>
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Reference Range $61,875 $83,263 $104,652 $7.84 $10.55 $13.26
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Cash and Cash Equivalents (3) $30.16 $31.25 $32.35
-------------------------------------------------------------------------------------------
===========================================================================================
Adjusted Reference Range $37.99 $41.80 $45.60
===========================================================================================
</TABLE>
(1) Source: Management estimates
(2) Excludes outliers and companies with market cap. greater than $300 million
(3) Refer to page 20
(4) Low to median multiples
CIBC [LOGO]
World Markets 17
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
VALUATION OVERVIEW
================================================================================
DISCOUNTED CASH FLOW ANALYSIS (1)
- --------------------------------------------------------------------------------
Valuation Summary
(Figures in Thousands, Except per Share Data)
----------------------
Cash $45.1
Debt 0.0
Shares 7,895.0
----------------------
<TABLE>
<CAPTION>
Discount Rate EBITDA Multiple Firm Value Equity Value Per Share Amount
-------------- --------------- ------------------- ------------------------------ ------------------------
Low High Low High Low High Low Mid High Low Mid High
------ ------ --------------- -------- -------- -------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20.0% 30.0% 7.Ox 9.Ox $62,413 $114,321 $62,458 $88,412 $114,366 $7.91 $11.20 $14.49
<CAPTION>
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Reference Range $62,458 $88,412 $114,366 $7.91 $11.20 $14.49
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Cash and Cash Equivalents (3) $30.16 $31.25 $32.35
-------------------------------------------------------------------------------------------
===========================================================================================
Adjusted Reference Range $38.07 $42.25 $46.83
===========================================================================================
</TABLE>
LEVERAGED RECAPITALIZATION MERGER ANALYSIS (3)
- --------------------------------------------------------------------------------
----------------------
Cash $234,257.0
Debt 0.0
Shares 7,895.0
----------------------
<TABLE>
<CAPTION>
Firm Value Equity Value Per Share Amount
EBITDA ------------------- ------------------------------ ------------------------
Exit Multiple 25% IRR 35% IRR Low Mid High Low Mid High
------------- -------- -------- -------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Exit Year 2004 8.0x $94,964 $76,016 $310,274 $319,748 $329,222 $39.30 $40.50 $41.70
<CAPTION>
===========================================================================================
Adjusted Reference Range $310,274 $319,748 $329,222 $39.30 $40.50 $41.70
===========================================================================================
</TABLE>
(1) Source: Management estimates
(2) Refer to page 20
(3) Estimated 1999 Pro Forma
CIBC [LOGO]
World Markets 18
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
VALUATION OVERVIEW
================================================================================
Leveraged Recapitalization Merger
Transaction Summary
(Figures in Thousands, Except Per Share Data) Recapitalization Accounting
- --------------------------------------------------------------------------------
Transaction Assumptions
- --------------------------------------------------------------------------------
Transaction Date: 12/31/99
Goodwill Amortization Period 7
Deferred Financing Fees Amortization Period 7
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Trading Information
- --------------------------------------------------------------------------------
Warrior
---------------------------
Enterprise Value Current @ Deal
- ---------------- ---------- ----------
Share Price 10/22/99 $32.00 $41.13
Fully Diluted Shares 6,812.0 7,895.0
Equity Market Value $217,985.0 $324,681.9
Plus: Net Debt (105,801.3) (234,257.0)
---------- ----------
Enterprise Value $112,183.7 $90,424.9
Multiple Analysis
- -----------------
1999 E P/E 35.9x 46.lx
1999 E EBITDA 17.5 14.1
2000 E P/E 19.5 25.1
2000 E EBITDA 9.8 7.9
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Debt Capacity Analysis
- --------------------------------------------------------------------------------
LTM EBITDA 9,472.2
Debt / EBITDA Coverage 4.3
----------
Implied Debt Capacity 40,730.2
Less Current Debt $0.0
----------
Incremental Debt Capacity $40,730.25
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Goodwill Calculation
- --------------------------------------------------------------------------------
Purchase Price of Equity $0.0
Plus: Transaction Costs 0.0
Less: Tangible Book Value of Warrior 0.0
----------
Total Deal Goodwill $0.0
==========
Amortization Period (Years) 0.0
Annual Amortization of Transaction Goodwill $0.0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Equity Sources
- --------------------------------------------------------------------------------
Amount Ownership
---------- ----------
Management $0.0 0.0%
Roll - over Equity 5,140.6 9.4%
Financial Sponsor 49,464.2 90.6%
---------- ----------
Total Equity $54,604.9 100.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sources and Uses of Funds
- --------------------------------------------------------------------------------
Sources of Funds Amount Rate Percent
- ---------------- ---------- -------- --------
Bank Revolver $1,000.0 9.4% 0.3%
Balance Sheet Cash 234,257.0 71.0%
Term Loan A 25,000.0 9.4% 7.6%
Term Loan B 15,000.0 9.9% 4.5%
Acquisition PIK Preferred 0.0 0.0%
Equity Sponsor 54,604.9 16.6%
---------- --------
Total Sources of Funds $329,861.9 100.0%
Uses of Funds
- -------------
Purchase of Warrior Common Equity $324,681.9 98.4%
Existing Warrior Current Debt 0.0 0.0%
Existing Warrior Senior Debt 0.0 0.0%
Transaction Costs 3,950.0 4.37% 1.2%
Deferred Fees 1,230.0 3.00% 0.4%
---------- --------
Total Uses of Funds $329,861.9 100.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Equity Sponsor IRR Calculation
- --------------------------------------------------------------------------------
EBITDA Multiple 2002 2003 2004
- --------------- -------- -------- --------
7.Ox 18.2% 22.3% 23.3%
8.Ox 25.1% 27.2% 27.1%
9.Ox 31.3% 31.7% 30.4%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Summary Credit / Leverage Statistics
- --------------------------------------------------------------------------------
1999 PF 2000 2001
-------- -------- --------
Total Debt / EBITDA 6.4x 3.2x 2.2x
EBITDA / Interest Expense 1.8 3.4 5.3
(EBITDA-Capex) / Interest Expense 0.4 2.0 3.5
- --------------------------------------------------------------------------------
CIBC [LOGO]
World Markets 19
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
VALUATION OVERVIEW
================================================================================
Cash and Cash Equivalents - Net After Taxes @ 40%
(Figures in Millions, Except per Share Data)
- --------------------------------------------------------------------------------
Sources of Cash and Cash Equivalents
- --------------------------------------------------------------------------------
Minimum Maximum
------- -------
Cash (as of 9/30) $ 110.9 $ 110.9
Cash from operations: 1.6 1.9
SEG Sale - converts to cash:
Receivables 22.8 23.8
Taxes - convert to cash:
Receivable (98) 1.6 1.6
Tax Defferals (99) 21.6 21.6
Real Estate - convert to cash:
Palo Alto (3,4,5) 33.2 33.6
Palo Alto (6) 8.0 8.0
HP Settlement 0.5 0.5
Escrow:
SEG Deal 1.1 2.2
AMAT Deal 1.6 1.6
TG Deal 0.6 0.6
Cash from Exercise of Options: 32.1 32.1
Payroll Tax Benefit from Option Exercise 8.4 8.4
TG Deal 41.0 41.0
------- -------
Total Sources of Cash $ 284.9 $ 287.7
======= =======
- --------------------------------------------------------------------------------
Uses of Cash and Cash Equivalents
- --------------------------------------------------------------------------------
Minimum Maximum
------- -------
Working Capital $ 3.0 $ 5.0
Capex 1.4 2.5
Accrued Corporate Payables & Liabilities:
Taxes, Govt Claims, Payables
Rep & Warranty, Bonus
Benefits & Misc. 2.6 3.0
Taxes on San Jose Sale 3.9 3.9
Potential Tax Exposure - 11.0
SEG Purchase Price Adjustment 6.4 6.4
Retention Agreements 11.1 11.1
Transaction Fees (Banking & Legal) 4.0 4.0
------- -------
Total Uses of Cash $ 32.4 $ 46.9
======= =======
- --------------------------------------------------------------------------------
Net Cash and Cash Equivalents
- --------------------------------------------------------------------------------
Minimum Maximum
------- -------
Net Cash $ 238.1 $ 255.4
Fully Diluted Shares Outstanding 7.9 7.9
------- -------
Net Cash Per Share $ 30.16 $ 32.35
======= =======
(1) Source: Management estimates
CIBC [LOGO]
World Markets 20
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
4 APPENDICES
CIBC [LOGO]
World Markets
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
A Warrior Stand-Alone Financial Model
CIBC [LOGO]
World Markets
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
WARRIOR STAND-ALONE FINANCIAL MODEL
================================================================================
Warrior Consolidated Income Statement
(Figures in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Actual (1) Estimate (2)
-------------------------- -------------------------
Pro Forma
Fiscal Year End 12/31 1997 1998 1999 1999
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Sales $291,271.0 $212,200.0 $83,031.0 $83,031.0
Cost of Goods Sold 190,119.0 170,876.0 50,321.0 50,321.0
---------- ---------- --------- ---------
Gross Profit 101,152.0 41,324.0 32,710.0 32,710.0
SG&A 45,539.0 44,059.5 5,027.0 5,027.0
Corp. G&A 9,879.0 2,960.0 4,625.0 4,625.0
Restructuring Charges 0.0 27,290.0 0.0 0.0
Research and Development 46,904.0 45,925.5 16,642.0 16,642.0
---------- ---------- --------- ---------
EBITDA (1,170.0) (78,911.0) 6,416.0 6,416.0
Depreciation 13,112.0 15,782.0 2,022.0 2,022.0
Amortization 0.0 0.0 0.0 0.0
---------- ---------- --------- ---------
EBIT (14,282.0) (94,693.0) 4,394.0 4,394.0
Interest Expense (net) (773.0) (4,513.0) (2,661.1) (7,247.4)
Minority Interest Expense 0.0 0.0 0.0 0.0
Other Non-Operating Expense 1,062.0 (2,199.0) 0.0 0.0
Loss/(Gain) on Real Property (7,609.0) (14,973.0) 0.0 0.0
---------- ---------- --------- ---------
Pre-Tax income (6,962.0) (73,008.0) 7,055.1 11,641.4
Provision for Taxes (3,000.0) (23,800.0) 2,822.0 4,601.4
---------- ---------- --------- ---------
(Loss)/Gain from continuing operations (3,962.0) (49,208.0) 4,233.1 7,040.0
Discontinued Operations
Income from discontinued operations, net of taxes (7,210.0) 0.0 0.0 0.0
Loss/(Gain) on disposition, net of taxes (29,677.0) 0.0 0.0 0.0
---------- ---------- --------- ---------
Net income 32,925.0 (49,208.0) 4,233.1 7,040.0
Preferred Dividends 0.0 0.0 0.0 0.0
Loss/(Gain) on Disposition (net of taxes) (1)
SEG 0.0 0.0 0.0 0.0
HDP 0.0 0.0 0.0 (5,850.0)
San Jose 0.0 0.0 0.0 (7,906.0)
Palo Alto 0.0 0.0 0.0 (32,940.0)
Wireless Products Group 0.0 0.0 0.0 0.0
Telecommunications Group 0.0 0.0 0.0 (41,600.0)
---------- ---------- --------- ---------
Net Income to Common $32,925.0 $(49,208.0) $4,233.1 $95,336.0
========== ========== ========= =========
Number of Shares Outstanding 8,258.0 7,737.0 7,895.0 7,895.0
Fully Diluted E.P.S $3.99 ($6.36) $0.54 $12.08
Fully Diluted E.P S. (3)(4)(5) ($1.03) ($5.40) $0.54 $0.89
Margin & Growth Rate Analysis
Revenue Growfh (16.6%) (27.1%) (71.5%) (60.9%)
COGS as a % of Sales 65.3% 80.5% 60.6% 60.6%
Gross Margin 34.7% 19.5% 39.4% 39.4%
SG&A as a % of Sales 15.6% 20.8% 6.1% 6.1%
R&D as a % of Sales 16.1% 21.6% 20.0% 20.0%
EBITDA Margin NM NM 7.7% 7.7%
EBIT Margin NM NM 5.3% 5.3%
Effective Tax Rate NM NM 40.0% 39.5%
Pre-Tax Margin NM NM 8.5% 14.0%
Net Margin 11.3% NM 5.1% 114.8%
<CAPTION>
Projected (2)
--------------------------------------------------------------------------
Fiscal Year End 12/31 2000 2001 2002 2003 2004
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales $111,000.0 $144,000.0 $180,000.0 $216,000.0 $259,200.0
Cost of Goods Sold 70,323.0 91,050.0 113,812.5 136,575.0 163,890.0
---------- ---------- ---------- ---------- ----------
Gross Profit 40,677.0 52,950.0 66,187.5 79,425.0 95,310.0
SG&A 6,336.0 7,392.0 9,240.0 11,088.0 13,305.6
Corp. G&A 3,000.0 3,891.9 4,864.9 5,837.8 7,005.4
Restructuring Charges 0.0 0.0 0.0 0.0 0.0
Research and Development 19,935.0 25,875.0 32,343.8 38,812.5 46,575.0
---------- ---------- ---------- ---------- ----------
EBITDA 11,406.0 15,791.1 19,738.9 23,686.7 28,424.0
Depreciation 2,083.0 2,708.0 3,814.4 4,845.6 5,916.3
Amortization 0.0 0.0 0.0 0.0 0.0
---------- ---------- ---------- ---------- ----------
EBIT 9,323.0 13,083.1 15,924.5 18,841.0 22,507.7
Interest Expense (net) (12,247.3) (13,038.8) (13,592.6) (14,230.6) (15,028.3)
Minority Interest Expense 0.0 0.0 0.0 0.0 0.0
Other Non-Operating Expense 0.0 0.0 0.0 0.0 0.0
Loss/(Gain) on Real Property 0.0 0.0 0.0 0.0 0.0
---------- ---------- ---------- ---------- ----------
Pre-Tax income 21,570.3 26,121.9 29,517.1 33,071.7 37,536.1
Provision for Taxes 8,628.1 10,448.8 11,806.8 13,228.7 13,376.5
---------- ---------- ---------- ---------- ----------
(Loss)/Gain from continuing operations 12,942.2 15,673.1 17,710.3 19,843.0 24,159.6
Discontinued Operations
Income from discontinued operations, net of taxes 0.0 0.0 0.0 0.0 0.0
Loss/(Gain) on disposition, net of taxes 0.0 0.0 0.0 0.0 0.0
---------- ---------- ---------- ---------- ----------
Net income 12,942.2 15,673.1 17,710.3 19,843.0 24,159.6
Preferred Dividends 0.0 0.0 0.0 0.0 0.0
Loss/(Gain) on Disposition (net of taxes) (1)
SEG 0.0 0.0 0.0 0.0 0.0
HDP 0.0 0.0 0.0 0.0 0.0
San Jose 0.0 0.0 0.0 0.0 0.0
Palo Alto 0.0 0.0 0.0 0.0 0.0
Wireless Products Group 0.0 0.0 0.0 0.0
Telecommunications Group 0.0 0.0 0.0 0.0
---------- ---------- ---------- ---------- ----------
Net Income to Common $12,942.2 $15,673.1 $17,710.3 $19,843.0 $24,159.6
========== ========== ========== ========== ==========
Number of Shares Outstanding 7,895.0 7,895.0 7,895.0 7,895.0 7,895.0
Fully Diluted E.P.S $1.64 $1.99 $2.24 $2.51 $3.06
Fully Diluted E.P S. (3)(4)(5) $1.64 $1.99 $2.24 $2.51 $3.06
Margin & Growth Rate Analysis
Revenue Growfh 33.7% 29.7% 25.0% 20.0% 20.0%
COGS as a % of Sales 63.4% 63.2% 63.2% 63.2% 63.2%
Gross Margin 36.6% 36.8% 36.8% 36.8% 36.8%
SG&A as a % of Sales 5.7% 5.1% 5.1% 5.1% 5.1%
R&D as a % of Sales 18.0% 18.0% 18.0% 18.0% 18.0%
EBITDA Margin 10.3% 11.0% 11.0% 11.0% 11.0%
EBIT Margin 8.4% 9.1% 8.8% 8.7% 8.7%
Effective Tax Rate 40.0% 40.0% 40.0% 40.0% 35.6%
Pre-Tax Margin 19.4% 18.1% 16.4% 15.3% 14.5%
Net Margin 11.7% 10.9% 9.8% 9.2% 9.3%
</TABLE>
(1) Includes SEG, TG, HDP, and real estate assets.
(2) Source: Management estimates
(3) Fiscal year 1997 excludes a one-time pre-tax gain of $7,609.0 and one-time
net of tax gains of $7,210.0 and $29,677.0
(4) Fiscal year 1998 excludes a pre-tax one-time charge of $(27,290.0) and a
one-time gain of $14,973.0.
(5) Fiscal year 1999 Pro Forma exludes one-time net of tax gains of $5,850.0,
$7,906.0, and $32,940.0.
CIBC [LOGO]
World Markets 21
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
WARRIOR STAND-ALONE FINANCIAL MODEL
================================================================================
Warrior Consolidated Balance Sheet
(Figures in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Actual (1) Estimate (2)
------------------------ ------------------------
Pro Forma
Fiscal Year End 12/31 1998 9/30/99 1999 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets
Cash and Cash Equivalents $63,694.0 $110,889.9 $50,804.8 $234,257.0
Accounts Receivable 13,286.0 16,927.0 17,272.4 17,272.4
Inventory 4,092.0 10,068.1 5,524.2 5,524.2
Deferred Income Tax 35,970.0 25,100.2 35,970.0 35,914.8
Other Current Assets 17,237.0 18,704.2 17,580.2 17,580.2
---------- ---------- ---------- ----------
Total Current Assets 134,279.0 181,689.3 127,151.6 310,548.6
Net Property, Plant & Equipment 14,447.0 24,203.9 17,925.0 17,925.0
Existing Goodwill 0.0 0.0 0.0 0.0
Other Intangible Assets 0.0 0.0 0.0 0.0
Other Assets 7,034.0 4,255.1 7,034.0 240.0
---------- ---------- ---------- ----------
Total Assets $155,760.0 $210,148.3 $152,110.6 $328,713.6
========== ========== ========== ==========
Liabilities and Shareholders' Equity
Bank Revolver $0.0 $149.5 0.0 0.0
Accounts Payable 8,825.0 6,763.2 11,388.5 11,388.5
Other Current Liabilities 43,920.0 43,045.7 45,861.1 45,861.1
---------- ---------- ---------- ----------
Total Current Liabilities 52,745.0 49,958.4 57,249.6 57,249.6
Other Liabilities 0.0 928.5 0.0 0.0
Deferred Tax 0.0 0.0 0.0 0.0
Existing Senior Debt Warrior 12,387.0 4,939.2 0.0 0.0
Existing Subordinated Debt Warrior 0.0 0.0 0.0 0.0
---------- ---------- ---------- ----------
Total Long Term Debt 12,387.0 4,939.2 0.0 0.0
---------- ---------- ---------- ----------
Total Liabilities 65,132.0 55,826.0 57,249.6 57,249.6
Minority Interest 0.0 0.0 0.0 0.0
Existing Preferred Stock 0.0 0.0 0.0 0.0
Common Equity 90,628.0 154,322.3 94,861.1 271,464.0
---------- ---------- ---------- ----------
Total Liabilities and Equity $155,760.0 $210,148.3 $152,110.6 $328,713.6
========== ========== ========== ==========
Total Debt $12,387.0 $5,088.6 $0.0 $0.0
Total Debt, Preferred & Minority Interest 12,387.0 5,088.6 0.0 0.0
Net Debt, Preferred & Minority Interest (51,307.0) (105,801.3) (50,804.8) (234,257.0)
Total Book Equity 90,628.0 154,322.3 94,861.1 271,464.0
Total Book Capitalization 103,015.0 159,410.9 94,861.1 271,464.0
<CAPTION>
Projected (2)
------------------------------------------------------------------
Fiscal Year End 12/31 2000 2001 2002 2003 2004
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Assets
Cash and Cash Equivalents $255,633.5 $265,918.2 $277,785.0 $291,440.8 $309,692.2
Accounts Receivable 23,001.0 29,760.1 37,133.6 44,507.1 53,355.4
Inventory 7,737.5 10,031.0 12,549.7 15,068.5 18,091.0
Deferred Income Tax 35,914.8 35,914.8 35,914.8 35,914.8 35,914.8
Other Current Assets 18,073.4 18,655.4 19,290.2 19,925.1 20,686.9
---------- ---------- ---------- ---------- ----------
Total Current Assets 340,360.2 360,279.5 382,673.4 406,856.3 437,740.2
Net Property, Plant & Equipment 20,742.0 23,934.0 27,394.6 31,199.0 34,247.8
Existing Goodwill 0.0 0.0 0.0 0.0 0.0
Other Intangible Assets 0.0 0.0 0.0 0.0 0.0
Other Assets 240.0 240.0 240.0 240.0 240.0
---------- ---------- ---------- ---------- ----------
Total Assets $361,342.2 $384,453.5 $410,308.0 $438,295.3 $472,228.0
========== ========== ========== ========== ==========
Liabilities and Shareholders' Equity
Bank Revolver $0.0 $0.0 $0.0 $0.0 $0.0
Accounts Payable 15,350.0 19,455.2 23,963.4 28,471.7 33,881.7
Other Current Liabilities 48,686.0 52,019.0 55,655.0 59,291.0 63,654.2
---------- ---------- ---------- ---------- ----------
Total Current Liabilities 64,036.0 71,474.2 79,618.4 87,762.7 97,535.9
Other Liabilities 0.0 0.0 0.0 0.0 0.0
Deferred Tax 0.0 0.0 0.0 0.0 0.0
Existing Senior Debt Warrior 0.0 0.0 0.0 0.0 0.0
Existing Subordinated Debt Warrior 0.0 0.0 0.0 0.0 0.0
---------- ---------- ---------- ---------- ----------
Total Long Term Debt 0.0 0.0 0.0 0.0 0.0
---------- ---------- ---------- ---------- ----------
Total Liabilities 64,036.0 71,474.2 79,618.4 87,762.7 97,535.9
Minority Interest 0.0 0.0 0.0 0.0 0.0
Existing Preferred Stock 0.0 0.0 0.0 0.0 0.0
Common Equity 297,306.2 312,979.3 330,689.6 350,532.6 374,692.2
---------- ---------- ---------- ---------- ----------
Total Liabilities and Equity $361,342.2 $384,453.5 $410,308.0 $438,295.3 $472,228.0
========== ========== ========== ========== ==========
Total Debt $0.0 $0.0 $0.0 $0.0 $0.0
Total Debt, Preferred & Minority Interest 0.0 0.0 0.0 0.0 0.0
Net Debt, Preferred & Minority Interest (255,633.5) (265,918.2) (277,785.0) (291,440.8) (309,692.2)
Total Book Equity 297,306.2 312,979.3 330,689.6 350,532.6 374,692.2
Total Book Capitalization 297,306.2 312,979.3 330,689.6 350,532.6 374,692.2
</TABLE>
(1) Includes SEG, TG, HDP, and real estate assets.
(2) Source: Management estimates
CIBC [LOGO]
World Markets 22
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
WARRIOR STAND-ALONE FINANCIAL MODEL
================================================================================
Warrior Consolidated Cash Flow Statement
(Figures in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Estimate (1) Projected (1)
------------------------ --------------------------------------
Pro Forma
Fiscal Year End 12/31 1999 1999 2000 2001 2002
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash Flow From Operations
Net Income $4,233.1 $95,336.0 $12,942.2 $15,673.1 $17,710.3
Depreciation 2,022.0 2,022.0 2,083.0 2,708.0 3,814.4
Amortization of Existing Goodwill 0.0 0.0 0.0 0.0 0.0
Amortization of Intangible Assets 0.0 0.0 0.0 0.0 0.0
Deferred Taxes 0.0 55.2 0.0 0.0 0.0
Loss/(Gain) on Disposition
SEG 0.0 0.0 0.0 0.0 0.0
HDP 0.0 (9,000.0) 0.0 0.0 0.0
San Jose 0.0 (17,576.0) 0.0 0.0 0.0
Palo Alto 0.0 (54,900.0) 0.0 0.0 0.0
Wireless Products Group 0.0 0.0 0.0 0.0 0.0
Telecommunications Group 0.0 (41,600.0) 0.0 0.0 0.0
Minority Interest 0.0 0.0 0.0 0.0 0.0
Change in Working Capital (1,257.2) (1,257.2) (1,648.7) (2,196.4) (2,382.8)
Change in Other Assets 0.0 0.0 0.0 0.0 0.0
Change in Other Liabilities 0.0 0.0 0.0 0.0 0.0
---------- ---------- ---------- ---------- ----------
Cash Provided/(Used) by Operating Activities $4,997.8 ($26,920.0) $13,376.5 $16,184.8 $19,141.8
Cash Flow From Investing Activities
Capital Expenditures (5,500.0) (5,500.0) (4,900.0) (5,900.0) (7,275.0)
---------- ---------- ---------- ---------- ----------
Proceeds from Disposition
SEG 0.0 (35,700.0) (5,700.0) 0.0 0.0
HDP 0.0 (7,400.0) (1,600.0) 0.0 0.0
San Jose 0.0 (24,370.0) 0.0 0.0 0.0
Palo Alto 0.0 (49,900.0) (5,000.0) 0.0 0.0
Wireless Products Group 0.0 0.0 0.0 0.0 0.0
Telecommunications Group 0.0 (41,000.0) (600.0) 0.0 0.0
---------- ---------- ---------- ---------- ----------
Cash Provided / (Used) by Investing Activities ($5,500.0) $152,870.0 $8,000.0 ($5,900.0) ($7,275.0)
Cash Flow From Financing Activities
Dividend to Subsidiary 0.0 0.0 0.0 0.0 0.0
Change in Existing Senior Debt Warrior (12,387.0) (12,387.0) 0.0 0.0 0.0
Change in Existing Subordinated Debt Warrior 0.0 0.0 0.0 0.0 0.0
Change in Existing Preferred Stock 0.0 0.0 0.0 0.0 0.0
Dividend Paid to Common Shareholders 0.0 0.0 0.0 0.0 0.0
NOLs 0.0 30,600.0 0.0 0.0 0.0
Change in Common Equity 0.0 0.0 0.0 0.0 0.0
Accrued Liabilities, Retention Agreements, & Transaction Fees 0.0 (14,100.0) 0.0 0.0 0.0
Cash from Exercise of Options 0.0 40,500.0 0.0 0.0 0.0
---------- ---------- ---------- ---------- ----------
Cash Provided / (Used) by Financing Activities (12,387.0) 44,613.0 0.0 0.0 0.0
---------- ---------- ---------- ---------- ----------
(Deficiency) / Excess Cash (12,889.2) 170,563.0 21,376.5 10,284.8 11,866.8
(Payments) / Borrowings on Revolver 0.0 0.0 0.0 0.0 0.0
---------- ---------- ---------- ---------- ----------
Total Change In Cash ($12,889.2) $170,563.0 $21,376.5 $10,284.8 $11,866.8
========== ========== ========== ========== ==========
Beginning Cash Balance 63,694.0 63,694.0 234,257.0 255,633.5 265,918.2
Change In Cash (12,889.2) 170,563.0 21,376.5 10,284.8 11,866.8
---------- ---------- ---------- ---------- ----------
Ending Cash Balance $50,804.8 $234,257.0 $255,633.5 $265,918.2 $277,785.0
========== ========== ========== ========== ==========
<CAPTION>
Projected (1)
------------------------
Fiscal Year End 12/31 2003 2004
---------- ----------
<S> <C> <C>
Cash Flow From Operations
Net Income $19,843.0 $24,159.6
Depreciation 4,845.6 5,916.3
Amortization of Existing Goodwill 0.0 0.0
Amortization of Intangible Assets 0.0 0.0
Deferred Taxes 0.0 0.0
Loss/(Gain) on Disposition
SEG 0.0 0.0
HDP 0.0 0.0
San Jose 0.0 0.0
Palo Alto 0.0 0.0
Wireless Products Group 0.0
Telecommunications Group 0.0
Minority Interest 0.0 0.0
Change in Working Capital (2,382.8) (2,859.4)
Change in Other Assets 0.0 0.0
Change in Other Liabilities 0.0 0.0
---------- ----------
Cash Provided/(Used) by Operating Activities $22,305.8 $27,216.4
Cash Flow From Investing Activities
Capital Expenditures (8,650.0) (8,965.1)
---------- ----------
Proceeds from Disposition
SEG 0.0 0.0
HDP 0.0 0.0
San Jose 0.0 0.0
Palo Alto 0.0 0.0
Wireless Products Group 0.0
Telecommunications Group 0.0
---------- ----------
Cash Provided / (Used) by Investing Activities ($8,650.0) ($8,965.1)
Cash Flow From Financing Activities
Dividend to Subsidiary 0.0 0.0
Change in Existing Senior Debt Warrior 0.0 0.0
Change in Existing Subordinated Debt Warrior 0.0 0.0
Change in Existing Preferred Stock 0.0 0.0
Dividend Paid to Common Shareholders 0.0 0.0
NOLs 0.0 0.0
Change in Common Equity 0.0 0.0
Accrued Liabilities, Retention Agreements, & Transaction Fees 0.0 0.0
Cash from Exercise of Options 0.0 0.0
---------- ----------
Cash Provided / (Used) by Financing Activities 0.0 0.0
---------- ----------
(Deficiency) / Excess Cash 13,655.8 18,251.3
(Payments) / Borrowings on Revolver 0.0 0.0
---------- ----------
Total Change In Cash $13,655.8 $18,251.3
========== ==========
Beginning Cash Balance 277,785.0 291,440.8
Change In Cash 13,655.8 18,251.3
---------- ----------
Ending Cash Balance $291,440.8 $309,692.2
========== ==========
</TABLE>
(1) Source: Management estimates
CIBC [LOGO]
World Markets 23
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
B Leveraged Recapitalization Merger Analysis
CIBC [LOGO]
World Markets
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
LEVERAGED RECAPITALIZATION MERGER ANALYSIS
================================================================================
Transaction Summary
(Figures in Thousands, Except Per Share Data) Recapitalization Accounting
- --------------------------------------------------------------------------------
Transaction Assumptions
- --------------------------------------------------------------------------------
Transaction Date: 12/31/99
Goodwill Amortization Period 7
Deferred Financing Fees Amortization Period 7
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Trading Information
- --------------------------------------------------------------------------------
Warrior
---------------------------
Enterprise Value Current @ Deal
- ---------------- ---------- ----------
Share Price 10/22/99 $32.00 $41.13
Fully Diluted Shares 6,812.0 7,895.0
Equity Market Value $217,985.0 $324,681.9
Plus: Net Debt (105,801.3) (234,257.0)
---------- ----------
Enterprise Value $112,183.7 $90,424.9
Multiple Analysis
- -----------------
1999 E P/E 35.9x 46.lx
1999 E EBITDA 17.5 14.1
2000 E P/E 19.5 25.1
2000 E EBITDA 9.8 7.9
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Debt Capacity Analysis
- --------------------------------------------------------------------------------
LTM EBITDA 9,472.2
Debt / EBITDA Coverage 4.3
----------
Implied Debt Capacity 40,730.2
Less Current Debt $0.0
----------
Incremental Debt Capacity $40,730.25
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Goodwill Calculation
- --------------------------------------------------------------------------------
Purchase Price of Equity $0.0
Plus: Transaction Costs 0.0
Less: Tangible Book Value of Warrior 0.0
----------
Total Deal Goodwill $0.0
==========
Amortization Period (Years) 0.0
Annual Amortization of Transaction Goodwill $0.0
- --------------------------------------------------------------------------------
Equity Sources
- --------------------------------------------------------------------------------
Amount Ownership
---------- ----------
Management $0.0 0.0%
Roll - over Equity 5,140.6 9.4%
Financial Sponsor 49,464.2 90.6%
---------- ----------
Total Equity $54,604.9 100.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sources and Uses of Funds
- --------------------------------------------------------------------------------
Sources of Funds Amount Rate Percent
- ---------------- ---------- -------- --------
Bank Revolver $1,000.0 9.4% 0.3%
Balance Sheet Cash 234,257.0 71.0%
Term Loan A 25,000.0 9.4% 7.6%
Term Loan B 15,000.0 9.9% 4.5%
Acquisition PIK Preferred 0.0 0.0%
Equity Sponsor 54,604.9 16.6%
---------- --------
Total Sources of Funds $329,861.9 100.0%
Uses of Funds
- -------------
Purchase of Warrior Common Equity $324,681.9 98.4%
Existing Warrior Current Debt 0.0 0.0%
Existing Warrior Senior Debt 0.0 0.0%
Transaction Costs 3,950.0 4.37% 1.2%
Deferred Fees 1,230.0 3.00% 0.4%
---------- --------
Total Uses of Funds $329,861.9 100.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Equity Sponsor IRR Calculation
- --------------------------------------------------------------------------------
EBITDA Multiple 2002 2003 2004
- --------------- -------- -------- --------
7.Ox 18.2% 22.3% 23.3%
8.Ox 25.1% 27.2% 27.1%
9.Ox 31.3% 31.7% 30.4%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Summary Credit / Leverage Statistics
- --------------------------------------------------------------------------------
1999 PF 2000 2001
--------- -------- --------
Total Debt / EBITDA 6.4x 3.2x 2.2x
EBITDA / Interest Expense 1.8 3.4 5.3
(EBITDA-Capex) / Interest Expense 0.4 2.0 3.5
- --------------------------------------------------------------------------------
CIBC [LOGO]
World Markets 24
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
LEVERAGED RECAPITALIZATION MERGER ANALYSIS
================================================================================
Balance Sheet - Transaction Adjustments Recapitalization Accounting
(Figures in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Adjustments
Warrior ------------------------ Consolidated
1999 Financing Accounting Pro Forma
--------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Assets
Cash and Cash Equivalents 234,257.0 $95,604.9 ($329,861.9) $0.0
Accounts Receivable 17,272.4 0 0 17,272.4
Inventory 5,524.2 0 0 5,524.2
Deferred Income Tax 35,914.8 0 0 35,914.8
Other Current Assets 17,580.2 0 0 17,580.2
---------- --------- ----------- ---------
Total Current Assets 310,548.6 95,604.9 (329,861.9) 76,291.6
Net Property, Plant & Equipment 17,925.0 0.0 0.0 17,925.0
Deal Goodwill 0.0 0.0 0.0 0.0
Existing Goodwill 0.0 0.0 0.0 0.0
Deferred Fees 0.0 0.0 1,230.0 1,230.0
Other Intangible Assets 0.0 0.0 0.0 0.0
Other Assets 240.0 0.0 0.0 240.0
---------- --------- ----------- ---------
Total Assets $328,713.6 $95,604.9 ($328,631.9) $95,686.6
========== ========= =========== =========
Liabilities and Shareholders' Equity
Bank Revolver $0.0 $1,000.0 $0.0 $1,000.0
Accounts Payable 11,388.5 0.0 0.0 11,388.5
Other Current Liabilities 45,861.1 0.0 0.0 45,861.1
---------- --------- ----------- ---------
Total Current Liabilities $57,249.6 1,000.0 0.0 $58,249.6
Other Liabilities 0.0 0.0 0.0 0.0
Deferred Tax 0.0 0.0 0.0 0.0
Term Loan A 0.0 25,000.0 0.0 25,000.0
Term Loan B 0.0 15,000.0 0.0 15,000.0
---------- --------- ----------- ---------
Total Liabilities $57,249.6 41,000.0 0.0 $98,249.6
Minority Interest 0.0 0.0 0.0 0.0
Existing Preferred Stock 0.0 0.0 0.0 0.0
Acquisition PIK Preferred 0.0 0 0 0.0 0.0
Common Equity 271,464.0 54,604.9 (328,631.9) (2,563.0)
---------- --------- ----------- ---------
Total Liabilities and Equity $328,713.6 $95,604.9 ($328,631.9) $95,686.6
========== ========= =========== =========
- ----------------------------------------------------------------------------------------------------------------------------------
Total Debt, Preferred & Minority Interest $0.0 $41,000.0
Total Stockholders Equity 271,464.0 (2,563.0)
---------- ---------
Total Capitalization $271,464.0 $38,437.0
========== =========
Total Debt / Equity 0.0% (1599.7%)
Total Debt / Total Capitalization 0.0% 106.7%
Total Net Debt / Total Capitalization (86.3%) 106.7%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CIBC [LOGO]
World Markets 25
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
LEVERAGED RECAPITALIZATION MERGER ANALYSIS
================================================================================
Warrior Income Statement - Pro Forma for LBO
(Figures in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Estimated Projected
---------- ------------------------------------------------------------------
Fiscal Year End 12/31 1999 2000 2001 2002 2003 2004
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sales $83,031.0 $111,000.0 $144,000.0 $180,000.0 $216,000.0 $259,200.0
Cost of Goods Sold 50,321.0 70,323.0 91,050.0 113,812.5 136,575.0 163,890.0
---------- ---------- ---------- ---------- ---------- ----------
Gross Profit 32,710.0 40,677.0 52,950.0 66,187.5 79,425.0 95,310.0
SG&A 5,027.0 6,336.0 7,392.0 9,240.0 11,088.0 13,305.6
Corp. G&A 4,625.0 2,220.0 2,880.0 3,600.0 4,320.0 5,184.0
Research and Development 16,642.0 19,935.0 25,875.0 32,343.8 38,812.5 46,575.0
---------- ---------- ---------- ---------- ---------- ----------
EBITDA 6,416.0 12,186.0 16,803.0 21,003.8 25,204.5 30,245.4
Existing Depreciation 2,022.0 2,083.0 2,708.0 3,814.4 4,845.6 5,916.3
Existing Amortization 0.0 0.0 0.0 0.0 0.0 0.0
Deal Amortization 0.0 0.0 0.0 0.0 0.0 0.0
Amortization of Deferred Financing Fees 175.7 175.7 175.7 175.7 175.7 175.7
---------- ---------- ---------- ---------- ---------- ----------
EBIT 4,218.3 9,927.3 13,919.3 17,013.7 20,183.2 24,153.4
Interest Expense (net) 3,588.7 3,588.7 3,160.2 2,987.1 2,736.5 2,354.3
Minority Interest Expense 0.0 0.0 0.0 0.0 0.0 0.0
Other Non-Operating Expense 0.0 0.0 0.0 0.0 0.0 0.0
---------- ---------- ---------- ---------- ---------- ----------
Pre-Tax Income 629.6 6,338.6 10,759.1 14,026.5 17,446.6 21,799.1
Provision for Taxes 322.1 2,605.7 4,373.9 5,680.9 7,048.9 8,789.9
---------- ---------- ---------- ---------- ---------- ----------
Net Income 307.5 3,732.9 6,385.2 8,345.6 10,397.7 13,009.2
Preferred Dividends 0.0 0.0 0.0 0.0 0.0 0.0
---------- ---------- ---------- ---------- ---------- ----------
Net Income to Common $307.5 $3,732.9 $6,385.2 $8,345.6 $10,397.7 $13,009.2
Margin & Growth Rate Analysis
Revenue Growth -- 33.7% 29.7% 25.0% 20.0% 20.0%
COGS as a % of Sales 60.6% 63.4% 63.2% 63.2% 63.2% 63.2%
Gross Margin 39.4% 36.6% 36.8% 36.8% 36.8% 36.8%
SG&A as a % of Sales 6.1% 5.7% 5.1% 5.1% 5.1% 5.1%
Research and Development Expenses as a % of Sales 20.0% 18.0% 18.0% 18.0% 18.0% 18.0%
Depreciation & Amortization as a % of Sales 2.4% 1.9% 1.9% 2.1% 2.2% 2.3%
EBITDA Margin 7.7% 11.0% 11.7% 11.7% 11.7% 11.7%
EBIT Margin 5.1% 8.9% 9.7% 9.5% 9.3% 9.3%
Effective Tax Rate 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%
Net Margin 0.4% 3.4% 4.4% 4.6% 4.8% 5.0%
Net Income Growth -- 1114.1% 71.1% 30.7% 24.6% 25.1%
</TABLE>
CIBC [LOGO]
World Markets 26
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
LEVERAGED RECAPITALIZATION MERGER ANALYSIS
================================================================================
Warrior Balance Sheet - Pro Forma for LBO
(Figures in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Estimated Projected
---------- --------------------------------------------------------------
1999 2000 2001 2002 2003 2004
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash and Cash Equivalents $0.0 $10,192.9 $9,465.4 $10,618.3 $13,229.5 $18,231.2
Accounts Receivable 17,272.4 23,001.0 29,760.1 37,133.6 44,507.1 53,355.4
Inventory 5,524.2 7,737.5 10,031.0 12,549.7 15,068.5 18,091.0
Deferred Income Tax 35,914.8 35,914.8 35,914.8 35,914.8 35,914.8 35,914.8
Other Current Assets 17,580.2 18,073.4 18,655.4 19,290.2 19,925.1 20,686.9
---------- ---------- ---------- ---------- ---------- ----------
Total Current Assets 76,291.6 94,919.6 103,826.6 115,506.6 128,645.0 146,279.2
Net Property, Plant & Equipment 17,925.0 20,742.0 23,934.0 27,394.6 31,199.0 34,247.8
Deal Goodwill 0.0 0.0 0.0 0.0 0.0 0.0
Existing Goodwill 0.0 0.0 0.0 0.0 0.0 0.0
Deferred Fees 1,230.0 1,054.3 878.6 702.9 527.1 351.4
Other Intangible Assets 0.0 0.0 0.0 0.0 0.0 0.0
Other Assets 240.0 240.0 240.0 240.0 240.0 240.0
---------- ---------- ---------- ---------- ---------- ----------
Total Assets $95,686.6 $116,955.9 $128,879.2 $143,844.1 $160,611.1 $181,118.5
========== ========== ========== ========== ========== ==========
Liabilities and Shareholders' Equity
Bank Revolver $1,000.0 $0.0 $0.0 $0.0 $0.0 $0.0
Accounts Payable 11,388.5 15,350.0 19,455.2 23,963.4 28,471.7 33,881.7
Other Current Liabilities 45,861.1 48,686.0 52,019.0 55,655.0 59,291.0 63,654.2
---------- ---------- ---------- ---------- ---------- ----------
Total Current Liabilities 58,249.6 64,036.0 71,474.2 79,618.4 87,762.7 97,535.9
Other Liabilities 0.0 0.0 0.0 0.0 0.0 0.0
Deferred Tax 0.0 0.0 0.0 0.0 0.0 0.0
Term Loan A 25,000.0 24,000.0 22,250.0 20,875.0 19,250.0 17,125.0
Term Loan B 15,000.0 14,850.0 14,700.0 14,550.0 14,400.0 14,250.0
---------- ---------- ---------- ---------- ---------- ----------
Total Liabilities 98,249.6 102,886.0 108,424.2 115,043.4 121,412.7 128,910.9
Minority Interest 0.0 0.0 0.0 0.0 0.0 0.0
Existing Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0
Acquisition PIK Preferred 0.0 0.0 0.0 0.0 0.0 0.0
Common Equity (2,563.0) 14,069.9 20,455.1 28,800.7 39,198.4 52,207.6
---------- ---------- ---------- ---------- ---------- ----------
Total Liabilities and Equity $95,686.6 $116,955.9 $128,879.2 $143,844.1 $160,611.1 $181,118.5
========== ========== ========== ========== ========== ==========
</TABLE>
CIBC [LOGO]
World Markets 27
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
LEVERAGED RECAPITALIZATION MERGER ANALYSIS
================================================================================
Warrior Cash Flow Statement - Pro Forma for LBO
(Figures in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Projected
-------------------------------------------------------------
2000 2001 2002 2003 2004
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash Flow from Operations
Net Income $3,732.9 $6,385.2 $8,345.6 $10,397.7 $13,009.2
Existing Depreciation 2,083.0 2,708.0 3,814.4 4,845.6 5,916.3
Existing Goodwill Amortization 0.0 0.0 0.0 0.0 0.0
Existing Amortization of Other Intangibles 0.0 0.0 0.0 0.0 0.0
Deal Amortization 0.0 0.0 0.0 0.0 0.0
Amortization of Deferred Financing Fees 175.7 175.7 175.7 175.7 175.7
Deferred Taxes 0.0 0.0 0.0 0.0 0.0
Minority Interest 0.0 0.0 0.0 0.0 0.0
Change in Working Capital (1,648.7) (2,196.4) (2,382.8) (2,382.8) (2,859.4)
Change in Other Assets 0.0 0.0 0.0 0.0 0.0
Change in Other Liabilities 0.0 0.0 0.0 0.0 0.0
--------- --------- --------- --------- ---------
Cash Provided/(Used) by Operating Activities $4,342.9 $7,072.5 $9,952.9 $13,036.2 $16,241.8
Cash Flow From Investing Activities
Capital Expenditures (4,900.0) (5,900.0) (7,275.0) (8,650.0) (8,965.1)
Proceeds from Disposition
SEG (5,700.0) 0.0 0.0 0.0 0.0
HDP (1,600.0) 0.0 0.0 0.0 0.0
Palo Alto (5,000.0) 0.0 0.0 0.0 0.0
Telecommunications Group (600.0) 0.0 0.0 0.0 0.0
--------- --------- --------- --------- ---------
Cash Provided/(Used) by Investing Activities $8,000.0 ($5,900.0) ($7,275.0) ($8,650.0) ($8,965.1)
Cash Flow From Financing Activities
Change in Acquisition Term A (1,000.0) (1,750.0) (1,375.0) (1,625.0) (2,125.0)
Change in Acquisition Term B (150.0) (150.0) (150.0) (150.0) (150.0)
Existing Preferred Stock 0.0 0.0 0.0 0.0 0.0
Plus: Non-cash Dividend 0.0 0.0 0.0 0.0 0.0
Less: Common Dividend Paid 0.0 0.0 0.0 0.0 0.0
--------- --------- --------- --------- ---------
Cash Provided/(Used) by Investing Activities ($1,150.0) ($1,900.0) ($1,525.0) ($1,775.0) ($2,275.0)
(Deficiency)/Excess Cash $11,192.9 ($727.5) $1,152.9 $2,611.2 $5,001.7
(Payments)/Borrowings on Revolver (1,000.0) 0.0 0.0 0.0 0.0
--------- --------- --------- --------- ---------
Total Change In Cash $10,192.9 ($727.5) $1,152.9 $2,611.2 $5,001.7
Beginning Cash Balance $0.0 $10,192.9 $9,465.4 $10,618.3 $13,229.5
Change in Cash 10,192.9 (727.5) 1,152.9 2,611.2 5,001.7
--------- --------- --------- --------- ---------
Ending Cash Balance $10,192.9 $9,465.4 $10,618.3 $13,229.5 $18,231.2
</TABLE>
CIBC [LOGO]
World Markets 28
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
LEVERAGED RECAPITALIZATION MERGER ANALYSIS
================================================================================
Summary Financials & Credit Analysis - Pro Forma for LBO
(Figures in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Projected
------------------------------------------------------------------
2000 2001 2002 2003 2004
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income Statement Items
Revenue $111,000.0 $144,000.0 $180,000.0 $216,000.0 $259,200.0
EBITDA 12,186.0 16,803.0 21,003.8 25,204.5 30,245.4
EBITDA-Capex 7,286.0 10,903.0 13,728.8 16,554.5 21,280.3
EBIT 9,927.3 13,919.3 17,013.7 20,183.2 24,153.4
Cash Interest Expense 3,588.7 3,160.2 2,987.1 2,736.5 2,354.3
Total Fixed Charges (1) 3,588.7 3,160.2 2,987.1 2,736.5 2,354.3
Balance Sheet Items
Total Debt $38,850.0 $36,950.0 $35,425.0 $33,650.0 $31,375.0
Total Debt, Preferred & MI 38,850.0 36,950.0 35,425.0 33,650.0 31,375.0
Net Debt 28,657.1 27,484.6 24,806.7 20,420.5 13,143.8
Equity 14,069.9 20,455.1 28,800.7 39,198.4 52,207.6
---------- ---------- ---------- ---------- ----------
Total Capitalization 42,727.0 47,939.7 53,607.4 59,618.9 65,351.4
Total Debt/EBITDA 3.2x 2.2x 1.7x 1.3x l.0x
Total Debt, Preferred & MI/EBITDA 3.2x 2.2x 1.7x 1.3x l.0x
Net Debt/Equity 203.7% 134.4% 86.1% 52.1% 25.2%
Net Debt/Capitalization 67.1% 57.3% 46.3% 34.3% 20.1%
Coverages
EBITDA/Cash Interest Expense 3.4x 5.3x 7.0x 9.2x 12.8x
(EBITDA-Capex)/Cash Interest Expense 2.0 3.5 4.6 6.0 9.0
EBITDA/Fixed Charges (1) 3.4 5.3 7.0 9.2 12.8
(EBITDA-Capex)/Fixed Charges 2.0 3.5 4.6 6.0 9.0
</TABLE>
(1) Fixed charges defined as cash interest plus PIK preferred dividends.
CIBC [LOGO]
World Markets 29
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
C Comparable Companies Analysis
CIBC [LOGO]
World Markets
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
COMPARABLE COMPANIES ANALYSIS
================================================================================
Trading Multiples Comparison
[The following tables were represented as bar charts in the printed materials.]
- --------------------------------------------------------------------------------
1999 FV/Revenues
- --------------------------------------------------------------------------------
SAWS (1) 7.6x
PWAV (1) 4.6x
SPCT (1) 2.2x
REMC (2) 1.4x
ALN (2) 1.1x
CLTK (2) 0.8x
ARX (2) 0.8x
ELMG (2) 0.4x
- --------------------------------------------------------------------------------
1999 FV/EBITDA
- --------------------------------------------------------------------------------
PWAV (1) 36.9x
SAWS (1) 15.7x
REMC (2) 12.6x
ALN (2) 9.5x
ARX (2) 4.0x
ELMG (2) 3.4x
CLTK NM
SPCT NM
- --------------------------------------------------------------------------------
1999 PE
- --------------------------------------------------------------------------------
ALN (2) 64.7x
PWAV (1) 51.7x
SAWS (1) 35.4x
REMC (2) 25.6x
ARX (2) 10.0x
ELMG (2) 8.7x
CLTK NM
SPCT NM
- --------------------------------------------------------------------------------
2000 FV/Revenues
- --------------------------------------------------------------------------------
PWAV (1) 4.2x
REMC (2) 1.1x
ALN (2) 0.9x
CLTK (2) 0.8x
ARX (2) 0.5x
SAWS NA
SPCT NA
ELMG NA
- --------------------------------------------------------------------------------
2000 FV/EBITDA
- --------------------------------------------------------------------------------
PWAV (1) 27.6x
REMC (2) 9.7x
ALN (2) 6.1x
ARX (2) 2.2x
SPCT NA
SAWS NA
ELMG NA
CLTK NM
- --------------------------------------------------------------------------------
2000 PE
- --------------------------------------------------------------------------------
PWAV (1) 40.0x
SAWS (1) 31.7x
ALN (2) 20.6x
REMC (2) 12.1x
ARX (2) 7.9x
ELMG (2) 7.1x
SPCT NM
CLTK NM
(1) Market Cap. greater than $300 million
(2) Market Cap. less than $300 million
CIBC [LOGO]
World Markets 30
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
COMPARABLE COMPANIES ANALYSIS
================================================================================
(Figures in Thousands, Except per Share Data)
<TABLE>
<CAPTION>
Market MVE Stock Price(a)/
Stock Value of Net Firm -------- ---------------------
Company Price(a) Equity(b) Debt(c) Value(d) LTM NI 1999E EPS 2000E EPS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allen Telecom Inc ALN $9.06 $250,257 $105,432 $355,689 NM 64.7x 20.6x
Aeroflex Inc ARX 5.69 105,687 31,985 137,672 9.0x 10.0 7.9
Celeritek Inc CLTK 5.63 41,519 (6,339) 35,716 NM NM NM
EMS Technologies Inc. ELMG 8.69 75,657 29,687 105,344 11.7 8.7 7.1
Powerwave Technologies Inc PWAV 62.75 1,082,282 (58,849) 1,167,415 NM 51.7 40.0
Remec Inc REMC 11.31 285,005 (59,534) 225,470 NM 25.6 12.1
Sawtek Inc SAWS 44.19 924,140 (108,279) 848,188 34.7 35.4 31.7
Spectrian Corporation SPCT 29.88 305,610 (49,565) 262,831 NM NM NM
- ------------------------------------------------------------------------------------------------------------------------
High $1,082,282 $105,432 34.7x 64.7x 40.0x
Median 267,631 (27,952) 11.7 30.5 16.4
Mean 383,770 (14,433) 18.5 32.7 19.9
Low 41,519 (108,279) 9.0 8.7 7.1
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Excludes companies with market cap. greater than $300 million
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High $285,005 11.7x 64.7x 20.6x
Median 105,687 10.4 17.8 10.0
Mean 151,625 10.4 27.3 11.9
Low 41,519 9.0 8.7 7.1
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Firm Value(d)/LTM 5-Yr. Cal. '99 P/E
-------------------------- Est. EPS as % of
Company Revenues EBITDA EBIT Growth(a) 5 Yr. Gr.
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allen Telecom Inc ALN 1.1x 15.7x NM 11.7% 176.5%
Aeroflex Inc ARX 0.9 5.0 6.5x 31.9 24.8
Celeritek Inc CLTK 0.9 NM NM NA NA
EMS Technologies Inc. ELMG 0.5 5.2 10.0 25.0 28.5
Powerwave Technologies Inc PWAV 6.4 251.7 NM 32.0 124.9
Remec Inc REMC 1.3 47.4 NM 25.0 48.5
Sawtek Inc SAWS 9.1 18.9 22.3 34.4 92.1
Spectrian Corporation SPCT 2.6 NM NM NA NA
- -----------------------------------------------------------------------------------------
High 9.1x 251.7x 22.3x 34.4% 176.5%
Median 1.2 17.3 10.0 28.5 70.3
Mean 2.8 57.3 12.9 26.7 82.5
Low 0.5 5.0 6.5 11.7 24.8
- -----------------------------------------------------------------------------------------
<CAPTION>
Excludes companies with market cap. greater than $300 million
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
High 1.3x 47.4x 10.0x 31.9% 176.5%
Median 0.9 10.5 8.3 25.0 38.5
Mean 0.9 18.3 8.3 23.4 69.6
Low 0.5 5.0 6.5 11.7 24.8
- -----------------------------------------------------------------------------------------
</TABLE>
Note: EBITDA, EBIT, Net Income to Common, and EPS adjusted for unusual and
nonrecurring items.
LTM: Latest Twelve Months.
NM: Not Meaningful. NA: Not Available
All estimates are presented on a calendar basis.
Blue multiples represent outliers and companies with market cap. greater than
$300 million.
(a) Stock price and First Call Estimates as of October 22, 1999.
(b) Market Value of Equity (MVE) reflects fully diluted shares (common shares
outstanding, options, warrants, in-the-money convertibles).
(c) Net Debt equals straight debt, minority interest, straight preferred
stock, all out-of-the-money convertibles, less investments in
unconsolidated affiliates and cash.
(d) Based on research analyst estimates. Firm Value (FV) equals Market Value
of Equity plus Net Debt.
CIBC [LOGO]
World Markets 31
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
COMPARABLE COMPANIES ANALYSIS
================================================================================
(Figures in Thousands, Except per Share Data)
<TABLE>
<CAPTION>
MVE Stock Price(a)/ Firm Value(d)/LTM Firm Value(d)/1999E
------ ---------------------- ------------------------------ ---------------------------
Company LTM NI 1999E EPS 2000E EPS Revenues EBITDA EBIT Revenues EBITDA EBIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allen Telecom Inc ALN NM 64.7x 20.6x 1.1x 15.7x NM 1.1x 9.5x 29.5x
Aeroflex Inc ARX 9.0x 10.0 7.9 0.9 5.0 6.5x 0.8 4.0 5.1
Celeritek Inc CLTK NM NM NM 0.9 NM NM 0.8 NM NM
EMS Technologies Inc. ELMG 11.7 8.7 7.1 0.5 5.2 10.0 0.4 3.4 5.6
Powerwave Technologies Inc PWAV NM 51.7 40.0 6.4 NM NM 4.6 36.9 54.8
Remec Inc REMC NM 25.6 12.1 1.3 47.4 NM 1.4 12.6 30.8
Sawtek Inc SAWS 34.7 35.4 31.7 9.1 18.9 22.3 7.6 15.7 18.5
Spectrian Corporation SPCT NM NM NM 2.6 NM NM 2.2 NM NM
- ------------------------------------------------------------------------------------------------------------------------------------
High 34.7x 64.7x 40.0x 9.1x 47.4x 22.3x 7.6x 36.9x 54.8x
Median 11.7 30.5 16.4 1.2 15.7 10.0 1.2 11.0 24.0
Mean 18.5 32.7 19.9 2.8 18.4 12.9 2.4 13.7 24.0
Low 9.0 8.7 7.1 0.5 5.0 6.5 0.4 3.4 5.1
- ------------------------------------------------------------------------------------------------------------------------------------
Excludes companies with market cap. greater than $300 million
- ------------------------------------------------------------------------------------------------------------------------------------
High 11.7x 64.7x 20.6x 1.3x 47.4x 10.0x 1.4x 12.6x 30.8x
Median 10.4 17.8 10.0 0.9 10.5 8.3 0.8 6.7 17.5
Mean 10.4 27.3 11.9 0.9 18.3 8.3 0.9 7.4 17.7
Low 9.0 8.7 7.1 0.5 5.0 6.5 0.4 3.4 8.1
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Firm Value(d)/2000E
----------------------------
Company Revenues EBITDA EBIT
- ----------------------------------------------------------------
<S> <C> <C> <C>
Allen Telecom Inc ALN 0.9x 6.1x 12.3x
Aeroflex Inc ARX 0.5 2.2 2.7
Celeritek Inc CLTK 0.8 NM NM
EMS Technologies Inc. ELMG NA NA NA
Powerwave Technologies Inc PWAV 4.2 27.6 37.5
Remec Inc REMC 1.1 9.7 22.0
Sawtek Inc SAWS NA NA NA
Spectrian Corporation SPCT NA NA NA
- ----------------------------------------------------------------
High 4.2x 27.6x 37.5x
Median 0.9 7.9 17.1
Mean 1.5 11.4 18.6
Low 0.5 2.2 2.7
- ----------------------------------------------------------------
Excludes companies with market cap. greater than $300 million
- ----------------------------------------------------------------
High 1.1x 9.7x 22.0x
Median 0.9 6.1 12.3
Mean 0.8 6.0 12.3
Low 0.5 2.2 2.7
- ----------------------------------------------------------------
</TABLE>
Note: EBITDA, EBIT, Net Income to Common, and EPS adjusted for unusual and
nonrecurring items.
LTM: Latest Twelve Months.
NM: Not Meaningful. NA: Not Available
All estimates are presented on a calendar basis.
Blue multiples reflect outliers and companies with market cap. greater than $300
million.
(a) Stock price and First Call Estimates as of October 22, 1999.
(b) Market Value of Equity (MVE) reflects fully diluted shares (common shares
outstanding, options, warrants, in-the-money convertibles).
(c) Net Debt equals straight debt, minority interest, straight preferred
stock, all out-of-the-money convertibles, less investments in
unconsolidated affiliates and cash.
(d) Based on research analyst estimates. Firm Value (FV) equals Market Value
of Equity plus Net Debt.
CIBC [LOGO]
World Markets 32
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
COMPARABLE COMPANIES ANALYSIS
================================================================================
(Figures in Thousands, Except per Share Data)
<TABLE>
<CAPTION>
LTM Operating Results
------------------------------------------------------------------------
LTM Net Gross Net
Company Ended Revenues Profit SG&A R&D EBITDA EBIT Income
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allen Telecom Inc ALN Jun-99 $330,036 $86,777 $62,307 $30,270 $22,619 $(3,234) $(6,845)
Aeroflex Inc ARX Jun-99 157,104 58,459 27,763 9,612 27,738 21,084 11,777
Celeritek Inc CLTK Jun-99 41,120 6,591 8,213 5,505 (4,016) (7,127) (6,875)
EMS Technologies Inc. ELMG Jul-99 210,904 69,886 41,774 17,567 20,265 10,545 6,447
Powerwave Technologies Inc PWAV Jul-99 180,999 49,942 21,003 31,636 4,638 (2,697) (798)
Remec Inc REMC Jul-99 174,704 42,392 36,355 12,523 4,755 (6,487) (3,689)
Sawtek Inc SAWS Jun-99 93,283 53,095 9,098 5,691 44,990 38,110 27,549
Spectrian Corporation SPCT Jun-99 100,031 4,988 17,133 25,658 (23,561) (37,803) (34,337)
- -----------------------------------------------------------------------------------------------------------------------
High $330,036 $86,777 $62,307 $31,636 $44,990 $38,110 $27,549
Median 165,904 51,519 24,383 15,045 12,510 (2,966) (2,244)
Mean 161,023 46,516 27,956 17,308 12,179 1,549 (846)
Low 41,120 4,988 8,213 5,505 (23,561) (37,803) (34,337)
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
LQA Operating Results
--------------------------------------------
LTM Net Net
Company Ended Revenues EBITDA EBIT Income
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allen Telecom Inc ALN Jun-99 $310,004 $27,617 $10,280 $68
Aeroflex Inc ARX Jun-99 162,416 30,274 23,620 1,983
Celeritek Inc CLTK Jun-99 40,752 (8,552) (11,492) (30,152)
EMS Technologies Inc. ELMG Jul-99 269,820 26,866 15,348 8,360
Powerwave Technologies Inc PWAV Jul-99 273,972 31,496 22,796 16,808
Remec Inc REMC Jul-99 189,303 (1,189) (14,270) (11,250)
Sawtek Inc SAWS Jun-99 104,180 52,636 45,372 32,548
Spectrian Corporation SPCT Jun-99 125,936 (824) (14,316) (10,488)
- -----------------------------------------------------------------------------------------
High $310,004 $52,636 $45,372 $32,546
Median 175,860 27,242 12,814 1,026
Mean 184,548 19,791 9,667 985
Low 40,752 (8,552) (14,316) (30,152)
- -----------------------------------------------------------------------------------------
</TABLE>
Note: EBITDA, EBIT, Net Income, and EPS adjusted for unusual and nonrecurring
items.
LTM: Latest Twelve Months.
CIBC [LOGO]
World Markets 33
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
COMPARABLE COMPANIES ANALYSIS
================================================================================
(Figures in Thousands, Except per Share Data)
<TABLE>
<CAPTION>
LTM Margins
-----------------------------------------------------------------------
LTM Gross Net
Company Ended Profit SG&A R&D EBITDA EBIT Income CAPEX NWC
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allen Telecom Inc ALN Jun-99 26.3% 18.9% 9.2% 6.9% (1.0)% (2.1)% 4.2% 40.3%
Aeroflex Inc ARX Jun-99 37.2 17.7 6.1 17.7 13.4 7.5 5.8 30.3
Celeritek Inc CLTK Jun-99 16.0 20.0 13.4 (9.8) (17.3) (16.7) 3.1 32.8
EMS Technologies Inc. ELMG Jul-99 33.1 19.8 8.3 9.6 5.0 3.1 5.3 26.1
Powerwave Technologies Inc PWAV Jul-99 27.6 11.6 17.5 2.6 (1.5) (0.4) 4.3 21.3
Remec Inc REMC Jul-99 24.3 20.8 7.2 2.7 (3.7) (2.1) 12.5 28.8
Sawtek Inc SAWS Jun-99 56.9 9.8 6.1 48.2 40.9 29.5 5.0 18.5
Spectrian Corporation SPCT Jun-99 5.0 17.1 25.7 (23.6) (37.8) (34.3) 7.7 17.2
- -------------------------------------------------------------------------------------------------------------------
High 56.9% 20.8% 25.7% 48.2% 40.9% 29.5% 12.5% 40.3%
Median 26.9 18.3 8.8 4.8 (1.2) (1.3) 5.2 27.5
Mean 28.3 17.0 11.7 6.8 (0.3) (1.9) 6.0 26.9
Trimmed Mean 27.4 17.5 10.3 4.9 (0.8) (1.8) 5.4 26.3
Low 5.0 9.8 6.1 (23.6) (37.8) (34.3) 3.1 17.2
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
LQA Margins
--------------------------
LTM Net
Company Ended EBITDA EBIT Income
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allen Telecom Inc ALN Jun-99 8.9% 3.3% 0.0%
Aeroflex Inc ARX Jun-99 18.6 14.5 1.2
Celeritek Inc CLTK Jun-99 (21.0) (28.2) (74.0)
EMS Technologies Inc. ELMG Jul-99 10.0 5.7 3.1
Powerwave Technologies Inc PWAV Jul-99 11.5 8.3 6.1
Remec Inc REMC Jul-99 (0.6) (7.5) (5.9)
Sawtek Inc SAWS Jun-99 50.5 43.6 31.2
Spectrian Corporation SPCT Jun-99 (0.7) (11.4) (8.3)
- ----------------------------------------------------------------------
High 50.5% 43.6% 31.2%
Median 9.4 4.5 0.6
Mean 9.7 3.5 (5.8)
Trimmed Mean 8.0 2.2 (0.6)
Low (21.0) (28.2) (74.0)
- ----------------------------------------------------------------------
</TABLE>
Note: EBITDA, EBIT, Net Income, and EPS adjusted for unusual and nonrecurring
items.
LTM: Latest Twelve Months.
CIBC [LOGO]
World Markets 34
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
COMPARABLE COMPANIES ANALYSIS
================================================================================
(Figures in Thousands, Except per Share Data)
<TABLE>
<CAPTION>
Debt Debt CAPEX CAPEX Deprec.
---------- ------ Current A/R A/P ------- -------- --------
Company Total Cap. EBITDA Ratio (DSO) (DCOGSO) Deprec. Revenues Net PPE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allen Telecom Inc ALN 33.0% 5.3x 3.5 92.8 42.4 0.5x 4.2% 47.2%
Aeroflex Inc ARX 25.4 1.3 2.5 92.9 29.9 1.4 5.8 13.1
Celeritek Inc CLTK 6.2 NM 3.3 91.7 43.4 0.4 3.1 47.2
EMS Technologies Inc. ELMG 28.0 2.0 2.7 101.5 55.9 1.1 5.3 22.4
Powerwave Technologies Inc PWAV 0.3 0.1 3.7 83.8 51.4 1.1 4.3 31.6
Remec Inc REMC 0.0 0.0 5.0 62.3 29.1 1.9 12.5 19.0
Sawtek Inc SAWS 1.5 0.1 17.4 58.1 23.9 0.7 5.0 17.1
Spectrian Corporation SPCT 6.2 NM 4.0 63.4 33.1 0.5 7.7 55.0
- ----------------------------------------------------------------------------------------------------------------------
High 33.0% 5.3x 17.4 101.5 55.9 1.9x 12.5% 55.0%
Median 6.2 0.7 3.6 87.8 37.8 0.9 5.2 27.0
Mean 12.6 1.5 5.3 80.8 38.6 1.0 6.0 31.6
Trimmed Mean 11.3 0.9 3.7 81.2 38.2 0.9 5.4 30.8
Low 0.0 0.0 2.5 58.1 23.9 0.4 3.1 13.1
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NM: Not Meaningful.
Note: EBITDA adjusted for unusual and nonrecurring items.
Debt includes long term debt, short term debt and current portion of long
term debt.
Total Cap. equals debt plus book value of equity.
All information based on last twelve months.
CIBC [LOGO]
World Markets 35
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
D Precedent Transactions Analysis
CIBC [LOGO]
World Markets
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
PRECEDENT TRANSACTIONS ANALYSIS
================================================================================
(Figures in Thousands, Except per Share Data)
<TABLE>
<CAPTION>
Data Type of Offer
Target Acquiror Announced Consid. Trans. Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Clarity Wireless Cisco Systems, Inc. (Public) 9/1/98 Stock Purchase $157,000
Innova (Public) Digital Microwave (Public) 7/23/98 Stock Pooling 107,391
Coherent Communications Systems (Public) Tellabs Inc (Public) 2/16/98 Stock Purchase 664,300
MAS Technology Limited (Public) Digital Microwave Corporation (Public) 12/23/97 Stock Purchase 98,600
Celcore Inc. (Private) DSC Communication Corporation (Public) 10/29/97 Stock Purchase 160,995
C&S Hybrid Inc. (Private) REMEC, Inc (Public) 4/11/97 Stock Purchase 20,284
Magnum Microwave Corporation (Private) REMEC, Inc. (Public) 5/17/96 Stock Purchase 14,705
M/A-Com, Inc. (Public) AMP, Inc. (Public) 3/10/95 Stock Purchase 268,845
MIC Technology Corporation (Private) Aeroflex Inc. (Public) 2/14/96 Stock & Cash Purchase 39,302
Microwave Networks Inc. (Private) California Microwave, Inc. (Public) 2/1/95 Stock Purchase 112,502
- -----------------------------------------------------------------------------------------------------------------------------------
High
Median
Mean
Low
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Premium Analysis(d)
---------------------------------
Net Firm Offer One Five Twenty
Target Debt(a) Value(b) Price(c) Day Prior Day Prior Day Prior
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Clarity Wireless $0 $157,000 NA NA NA NA
Innova (Public) (9,064) 98,327 $6.83 16.2% 21.5% 30.1%
Coherent Communications Systems (Public) (23,997) 640,303 43.34 35.4 48.8 88.4
MAS Technology Limited (Public) (22,289) 76,311 14.50 18.4 19.6 (9.4)
Celcore Inc. (Private) 28,066 189,061 NA NA NA NA
C&S Hybrid Inc. (Private) 527 20,811 NA NA NA NA
Magnum Microwave Corporation (Private) (1,934) 12,771 NA NA NA NA
M/A-Com, Inc. (Public) 67,537 336,382 10.00 42.9 48.1 40.4
MIC Technology Corporation (Private) 1,939 41,241 NA NA NA NA
Microwave Networks Inc. (Private) 468 112,970 NA NA NA NA
- ----------------------------------------------------------------------------------------------------------
High 42.9% 48.8% 88.4%
Median 26.9 34.8 35.2
Mean 28.2 34.5 37.4
Low 16.2 19.6 (9.4)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Note: EBITDA, EBIT, Net Income to Common, and EPS adjusted for unusual and
nonrecurring items.
LTM: Latest Twelve Months.
NM: Not Meaningful. NA: Not Available
(a) Net Debt equals straight debt, minority interest, straight preferred
stock, all convertibles (if applicable), less investments in
unconsolidated affiliates and cash.
(b) Firm Value (FV) equals Offer Value for the Equity of the Target plus Net
Debt.
(c) If more than one Class of shares exist, refers to price at Class A shares.
(d) Premium based on price of common stock for period specified. If more than
one class of shares trade, refers to Class A shares.
CIBC [LOGO]
World Markets 36
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
PRECEDENT TRANSACTIONS ANALYSIS
================================================================================
(Figures in Thousands, Except per Share Data)
<TABLE>
<CAPTION>
Offer Price (Value)/ EPS Firm Value(b) / LTM Firm Value(b) / FY + 1 Firm Value(b) / FY + 2
------------------------ --------------------- ---------------------- ----------------------
Target LTM FY + 1 FY + 2 Rev. EBITDA EBIT Rev. EBITDA EBIT Rev. EBITDA EBIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Clarity Wireless NA NA NA NA NA NA NA NA NA NA NA NA
Innova 52.5x NA NA 2.0x 23.9x NM NA NA NA NA NA NA
Coherent Communications Systems 333.4 NA NA 9.3 31.3 NM NA NA NA NA NA NA
MAS Technology Limited 16.9 NA NA 1.5 NM NM NA NA NA NA NA NA
Celcore Inc. NM NA NA 51.4 NM NM NA NA NA NA NA NA
C&S Hybrid Inc. 34.7 NA NA 1.6 12.8 NM NA NA NA NA NA NA
Magnum Microwave Corporation 21.8 NA NA 1.4 10.9 NM NA NA NA NA NA NA
M/A-Com, Inc. NM NA NA 1.0 10.4 45.2 NA NA NA NA NA NA
MIC Technology Corporation 19.0 NA NA 1.7 9.1 NM NA NA NA NA NA NA
Microwave Networks Inc. 69.8 NA NA 3.1 32.3 NM NA NA NA NA NA NA
- ------------------------------------------------------------------------------------------------------------------------------------
High 333.4x NA NA 51.4x 32.3x 45.2x NA NA NA NA NA NA
Median 34.7 NA NA 1.7 12.8 45.2 NA NA NA NA NA NA
Mean 78.3 NA NA 8.1 18.7 45.2 NA NA NA NA NA NA
Low 16.9 NA NA 1.0 9.1 45.2 NA NA NA NA NA NA
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: EBITDA, EBIT, Net Income to Common, and EPS adjusted for unusual and
nonrecurring items.
LTM: Latest Twelve Months.
NM: Not Meaningful. NA: Not Available
(a) Net Debt equals straight debt, minority interest, straight preferred
stock, all convertibles (if applicable), less investments in
unconsolidated affiliates and cash.
(b) Firm Value (FV) equals Offer Value for the Equity of the Target plus Net
Debt.
CIBC [LOGO]
World Markets 37
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
PRECEDENT TRANSACTIONS ANALYSIS
================================================================================
(Figures in Thousands, Except per Share Data)
<TABLE>
<CAPTION>
LTM Margins LQA Margins
----------------------------------------------------------------- -----------------------
LTM Gross Net Net
Target Ended Profit SG&A R&D EBITDA EBIT Income CAPEX NWC EBITDA EBIT Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Clarity Wireless NA NA NA NA NA NA NA NA NA NA NA NA
Innova 6/30/98 30.9% 16.8% 11.1% 8.5% 3.0% 4.0% 0.3% 46.1% 6.1% NA 0.0%
Coherent Communications
Systems 9/30/97 63.6 24.5 12.0 29.7 27.1 18.2 0.0 15.3 30.0 27.5 18.7
MAS Technology Limited 9/30/97 36.5 19.6 39.6 NM NM NM 0.0 27.0 NM NM NM
Celcore Inc. 12/31/96 63.3 292.6 182.1 NM NM NM 1.0 97.3 NA NA NA
C&S Hybrid Inc. 12/31/96 42.4 29.4 4.0 12.4 9.0 4.5 0.1 24.9 NA NA NA
Magnum Microwave Corporation 3/29/96 37.3 19.1 7.4 12.5 10.9 7.2 0.0 9.7 NA NA NA
M/A-Com, Inc. 12/31/94 32.5 24.1 6.2 9.4 2.2 NM 0.0 15.6 4.2 NM NM
MIC Technology Corporation 10/31/95 39.3 14.9 9.6 18.3 14.8 8.3 0.0 7.8 NA NA NA
Microwave Networks Inc. 6/30/94 41.9 23.6 11.9 9.5 6.4 4.4 0.0 29.0 NA NA NA
- ------------------------------------------------------------------------------------------------------------------------------------
High 63.6% 292.6% 182.1% 29.7% 27.1% 18.2% 1.0% 97.3% 30.0% 27.5% 18.7%
Median 39.3 23.6 11.1 12.4 9.0 5.8 0.0 24.9 6.1 27.5 9.4
Mean 43.1 51.6 31.6 14.3 10.5 7.8 0.2 30.3 13.4 27.5 9.4
Low 30.9 14.9 4.0 8.5 2.2 4.0 0.0 7.8 4.2 27.5 0.0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: EBITDA, EBIT, Net Income, and EPS adjusted for unusual and nonrecurring
items.
LTM: Latest Twelve Months.
LQA: Latest Quarter Annualized
CIBC [LOGO]
World Markets 38
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
PRECEDENT TRANSACTIONS ANALYSIS
================================================================================
(Figures in Thousands, Except per Share Data)
<TABLE>
<CAPTION>
LTM Operating Results
---------------------------------------------------------------------------
LTM Net Gross Net
Target Ended Revenues Profit SG&A R&D EBITDA EBIT Income
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Clarity Wireless NA NA NA NA NA NA NA NA
Innova 6/30/98 $48,475 $14,970 $8,138 $5,398 $4,118 $1,434 $1,957
Coherent Communications Systems 9/30/97 68,941 43,848 16,903 8,295 20,481 18,650 12,518
MAS Technology Limited 9/30/97 52,150 19,009 10,218 20,667 (11,402) (11,877) (13,775)
Celcore Inc. 12/31/96 3,680 2,329 10,768 6,700 (14,285) (15,139) (14,632)
C&S Hybrid Inc. 12/31/96 13,112 5,562 3,850 527 1,621 1,185 585
Magnum Microwave Corporation 3/29/96 9,360 3,493 1,784 692 1,171 1,016 676
M/A-Com, Inc. 12/31/94 344,085 111,680 83,007 21,225 32,402 7,448 (2,443)
MIC Technology Corporation 10/31/95 24,881 9,780 3,696 2,399 4,544 3,685 2,063
Microwave Networks Inc. 6/30/94 36,976 15,497 8,733 4,384 3,502 2,380 1,613
- ------------------------------------------------------------------------------------------------------------------------
High $344,085 $111,680 $83,007 $21,225 $32,402 $18,650 $12,518
Median 36,976 14,970 8,733 5,398 3,502 1,434 676
Mean 66,851 25,130 16,344 7,810 4,683 976 (1,271)
Low 3,680 2,329 1,784 527 (14,285) (15,139) (14,632)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
LQA Operating Results
---------------------------------------------
Net Net
Target Revenues EBITDA EBIT Income
- -------------------------------------------------------------------------------
Clarity Wireless NA NA NA NA
Innova $99,828 $6,080 ($260) $16
Coherent Communications Systems 76,444 22,929 21,016 14,312
MAS Technology Limited 111,597 (59,519) (60,114) (63,265)
Celcore Inc. NA NA NA NA
C&S Hybrid Inc. NA NA NA NA
Magnum Microwave Corporation NA NA NA NA
M/A-Com, Inc. 326,436 13,862 (9,812) (20,260)
MIC Technology Corporation NA NA NA NA
Microwave Networks Inc. NA NA NA NA
- -------------------------------------------------------------------------------
High $326,436 $22,929 $21,016 $14,312
Median 105,712 9,971 (5,036) ( 10,122)
Mean 153,576 (4,162) (12,292) (17,299)
Low 76,444 (59,519) (60,114) (63,265)
- -------------------------------------------------------------------------------
Note: EBITDA, EBIT, Net Income, and EPS adjusted for unusual and nonrecurring
items.
LTM: Latest Twelve Months.
LQA: Latest Quarter Annualized.
CIBC [LOGO]
World Markets 39
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
PRECEDENT TRANSACTIONS ANALYSIS
================================================================================
(Figures in Thousands, Except per Share Data)
<TABLE>
<CAPTION>
FY-0 Margins
----------------------------------------------------------------------
FY Gross Net
Target Ended Profit SG&A R&D EBITDA EBIT Income CAPEX NWC
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Clarity Wireless NA NA NA NA NA NA NA NA NA
Innova 12/31/97 29.5% 20.0% 12.7% 3.9% NM NM 21.9% 59.4%
Coherent Communications Systems 12/31/96 62.9 24.3 11.4 29.7 27.2 17.9 3.7 19.4
MAS Technology Limited 3/31/97 40.8 23.6 7.4 10.7 9.8 6.0 1.5 39.5
Celcore Inc. 12/31/96 63.3 292.6 182.1 NM NM NM 95.4 88.3
C&S Hybrid Inc. 12131/96 42.4 29.4 4.0 12.4 9.0 4.5 10.1 24.9
Magnum Microwave Corporation 3/29/96 37.3 19.1 7.4 12.5 10.9 7.2 3.7 5.0
M/A-Com, Inc. 10/1/94 34.2 24.0 6.3 11.1 3.8 0.2 4.6 15.7
MIC Technology Corporation 10/31/95 39.3 14.9 9.6 18.3 14.8 8.3 3.2 0.1
Microwave Networks Inc. 6/30/94 41.9 23.6 11.9 9.5 6.4 4.4 2.8 28.1
- ----------------------------------------------------------------------------------------------------------------
High 63.3% 292.6% 182.1% 29.7% 27.2% 17.9% 95.4% 88.3%
Median 40.8 23.6 9.6 11.7 9.8 6.0 3.7 24.9
Mean 43.5 52.4 28.1 13.5 11.7 6.9 16.3 31.2
Low 29.5 14.9 4.0 3.9 3.8 0.2 1.5 0.1
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Note: EBITDA, EBIT, Net Income, and EPS adjusted for unusual and nonrecurring
items.
CIBC [LOGO]
World Markets 40
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
PRECEDENT TRANSACTIONS ANALYSIS
================================================================================
(Figures in Thousands, Except per Share Data)
<TABLE>
<CAPTION>
FY-1 Margins
---------------------------------------------------------
Gross Net
Target Profit SG&A R&D EBITDA EBIT Income
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Clarity Wireless NA NA NA NA NA NA
Innova NA NA NA NA NA NA
Coherent Communications Systems 61.2% 23.2% 10.4% 29.3% 27.5% 17.3%
MAS Technology Limited 31.1 16.1 6.7 8.4 8.4 5.6
Celcore Inc. 64.1 89.5 66.5 NM NM NM
C&S Hybrid Inc. 52.6 34.5 6.1 15.9 11.9 5.3
Magnum Microwave Corporation 39.5 16.5 7.0 17.4 16.0 9.8
M/A-Com, Inc. 31.6 31.8 5.7 1.2 NM NM
MIC Technology Corporation 44.3 18.3 9.8 20.1 16.2 14.6
Microwave Networks Inc. 42.8 21.3 9.4 14.4 12.1 9.4
- -------------------------------------------------------------------------------------------
High 64.1% 89.5% 66.5% 29.3% 27.5% 17.3%
Median 43.6 22.3 8.2 15.9 14.1 9.6
Mean 45.9 31.4 15.2 15.2 15.4 10.3
Low 31.1 16.1 5.7 1.2 8.4 5.3
- -------------------------------------------------------------------------------------------
<CAPTION>
FY-2 Margins
--------------------------------------------------------
Gross Net
Target Profit SG&A R&D EBITDA EBIT Income
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Clarity Wireless NA NA NA NA NA NA
Innova NA NA NA NA NA NA
Coherent Communications Systems 58.6% 25.0% 13.0% 23.7% 20.6% 12.5%
MAS Technology Limited NA NA NA NA NA NA
Celcore Inc. 67.2 52.7 47.7 NM NM NM
C&S Hybrid Inc. NA NA NA NA NA NA
Magnum Microwave Corporation 42.7 17.5 6.6 20.0 18.6 14.4
M/A-Com, Inc. 100.0 33.4 7.5 69.4 59.1 56.5
MIC Technology Corporation NA NA NA NA NA NA
Microwave Networks Inc. 34.2 26.8 9.9 0.4 NM NM
- ------------------------------------------------------------------------------------------
High 100.0% 52.7% 47.7% 69.4% 59.1% 56.5%
Median 58.6 26.8 9.9 21.9 20.6 14.4
Mean 60.5 31.1 16.9 28.4 32.7 27.8
Low 34.2 17.5 6.6 0.4 18.6 12.5
- ------------------------------------------------------------------------------------------
</TABLE>
Note: EBITDA, EBIT, Net Income, and EPS adjusted for unusual and nonrecurring
items.
CIBC [LOGO]
World Markets 41
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
PRECEDENT TRANSACTIONS ANALYSIS
================================================================================
(Figures in Thousands, Except per Share Data)
<TABLE>
<CAPTION>
Debt Debt Current A/R A/P CAPEX CAPEX Deprec.
------------------ -----------------------------
Company Total Cap. EBITDA Ratio (DSO) (DCOGSO) Deprec. Revenues Net PPE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Clarity Wireless NA NA NA NA NA NA NA NA
Innova 3.0% 0.4x 3.1 101.3 140.0 5.2x 28.9% 16.1%
Coherent Communications Systems 0.0 0.0 5.1 77.7 23.2 1.8 4.7 34.8
MAS Technology Limited 0.0 NM 5.0 90.4 81.1 1.6 1.4 28.2
Celcore Inc. NM NM 6.6 175.1 301.0 4.1 95.4 19.9
C&S Hybrid Inc. 10.8 0.3 2.2 65.7 70.5 3.1 10.1 20.0
Magnum Microwave Corporation 11.6 0.4 2.2 42.7 22.0 2.2 3.7 34.5
M/A-Com, Inc. 39.6 2.4 1.6 64.2 20.5 0.6 4.6 24.6
MIC Technology Corporation 45.2 0.7 1.3 49.7 25.2 0.9 3.2 22.1
Microwave Networks Inc. 7.7 0.3 2.3 79.1 115.8 0.9 2.8 33.9
- ----------------------------------------------------------------------------------------------------------
High 45.2% 2.4x 6.6 175.1 301.0 5.2x 95.4% 34.8%
Median 10.8 0.4 2.3 71.7 47.9 1.7 4.2 23.4
Mean 17.5 0.9 3.1 74.6 79.9 2.1 15.5 23.4
Low 0.0 0.0 1.3 0.0 0.0 0.6 0.0 0.2
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NM: Not Meaningful.
Note: EBITDA adjusted for unusual and nonrecurring items.
Debt includes long term debt, short term debt and current portion of long
term debt.
Total Cap. equals debt plus book value of equity.
All information based on last twelve months.
CIBC [LOGO]
World Markets 42
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
E Discounted Cash Flow Analysis
CIBC [LOGO]
World Markets
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS
================================================================================
Terminal EBITDA Multiple
(Figures in Thousands, Except per Share Data)
<TABLE>
<CAPTION>
Projected
------------------------------------------------------------------
Fiscal Year End 12/31 2000 2001 2002 2003 2004
----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues $111,000.0 $144,000.0 $180,000.0 $216,000.0 $259,200.0
EBITDA 11,406.0 15,791.1 19,738.9 23,686.7 28,424.0
Less: Depreciation & Amortization (2,083.0) (2,708.0) (3,814.4) (4,845.6) (5,916.3)
---------- ---------- ---------- ---------- ----------
EBIT 9,323.0 13,083.1 15,924.5 18,841.0 22,507.7
Less: Income Taxes @ 40.0% (3,729.2) (5,233.2) (6,369.8) (7,536.4) (9,003.1)
---------- ---------- ---------- ---------- ----------
Unlevered After-Tax Income 5,593.8 7,849.9 9,554.7 11,304.6 13,504.6
Plus: Depreciation & Amortization 2,083.0 2,708.0 3,814.4 4,845.6 5,916.3
Less: Capital Expenditures (4,500.0) (5,500.0) (6,875.0) (8,250.0) (8,565.1)
Less: Working Capital Investment (1,648.7) (2,196.4) (2,382.8) (2,382.8) (2,859.4)
---------- ---------- ---------- ---------- ----------
Free Cash Flow $1,528.1 $2,861.5 $4,111.3 $5,517.4 $7,996.4
========== ========== ========== ========== ==========
<CAPTION>
Terminal value Based on EBITDA Multiple
--------------------------------------------------------------------------
Exit Multiple In Year 5 (2004) 7.0 x EBITDA 8.0 x EBITDA
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
20.0% 25.0% 30.0% 20.0% 25.0% 30.0%
---------- ---------- ---------- ---------- ---------- ----------
Discounted Free Cash Flows 2000 - 2004 $11,514.1 $10,039.0 $8,825.4 $11,514.1 $10,039.0 $8,825.4
Discounted Terminal Value 79,960.8 65,197.8 53,587.9 91,383.7 74,511.8 61,243.3
---------- ---------- ---------- ---------- ---------- ----------
Firm Value 91,474.9 75,236.8 62,413.3 102,897.9 84,550.8 70,068.7
Less: Debt, Preferred & Minority Interest @ 09/30/99 0.0 0.0 0.0 0.0 0.0 0.0
Plus: Cash @ 09/30/99 45.1 45.1 45.1 45.1 45.1 45.1
---------- ---------- ---------- ---------- ---------- ----------
Implied Equity Value $91,520.0 $75,281.9 $62,458.4 $102,943.0 $84,595.9 $70,113.8
========== ========== ========== ========== ========== ==========
<CAPTION>
Terminal value Based on EBITDA Multiple
------------------------------------
Exit Multiple In Year 5 (2004) 9.0 x EBITDA
------------------------------------
<S> <C> <C> <C>
20.0% 25.0% 30.0%
----------- ---------- ----------
Discounted Free Cash Flows 2000 - 2004 $11,514.1 $10,039.0 $8,825.4
Discounted Terminal Value 102,806.7 83,825.8 68,898.7
----------- ---------- ----------
Firm Value 114,320.8 93,864.8 77,724.1
Less: Debt, Preferred & Minority Interest @ 09/30/99 0.0 0.0 0.0
Plus: Cash @ 09/30/99 45.1 45.1 45.1
----------- ---------- ----------
Implied Equity Value $114,365.9 $93,909.9 $77,769.2
=========== ========== ==========
</TABLE>
- -----------------------------------
Shares Outstanding 7,895.0
- -----------------------------------
--------------------------------------
Equity Value Based on EBITDA Multiple
--------------------------------------
EBITDA Terminal Multiple
Discount ---------------------------
Rate 7.0x 8.0x 9.0x
-------- ------- ------- -------
20.0% $11.59 $13.04 $14.49
25.0% $9.54 $10.72 $11.89
30.0% $7.91 $8.88 $9.85
--------------------------------------
- --------------------------------------------------------------------------------
Reference Range Per Share $7.91 $11.20 $14.49
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Equity Reference Range $62,458 $88,412 $114,366
- --------------------------------------------------------------------------------
(1) Source: Management estimates
CIBC [LOGO]
World Markets 43
<PAGE>
PROJECT JUSTICE | OCTOBER 25, 1999
DISCOUNTED CASH FLOW ANALYSIS
================================================================================
Weighted Average Cost of Capital
(Figures in Thousands, Except per Share Data)
- --------------------------------------------------------------------------------
Assumptions
- --------------------------------------------------------------------------------
Risk Free Rate(1) 6.1%
Market Risk Premium(2) 13.2%
Marginal Tax Rate 36.0%
Cost of Target Debt 8.0%
- --------------------------------------------------------------------------------
Bloomberg Reported Betas(3)
- --------------------------------------------------------------------------------
Allen Telecom 1.00
Aeroflex 1.42
Celeritek 1.19
EMS Technologies 0.84
Powerwave Technologies 1.71
Remec 1.16
Sawtek 1.25
Spectrian Corporation 0.90
- --------------------------------------------------------------------------------
Warrior 0.91
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Levered Mkt. Val. Book Val. Book Val. BV Debt/ BV Pref. Unlevered
Unlevered Betas Beta Equity Debt Preferred MV Equity MV Equity Beta
- --------------- ------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Allen Telecom 1.00 $250,257 $120,024 $0 48.0% 0.0% 0.77
Aeroflex 1.42 105,687 34,699 0 32.8% 0.0% 1.17
Celeritek 1.19 41,519 1,828 0 4.4% 0.0% 1.16
EMS Technologies 0.84 75,657 41,082 0 54.3% 0.0% 0.62
Powerwave Technologies 1.71 1,082,282 392 0 0.0% 0.0% 1.71
Remec 1.16 285,005 0 0 0.0% 0.0% 1.16
Sawtek 1.25 924,140 2,287 0 0.2% 0.0% 1.25
Spectrian Corporation 0.90 305,610 6,226 0 2.0% 0.0% 0.89
- --------------------------------------------------------------------------------------------------------
Mean 1.18 $383,770 $25,817 $0 17.7% 0.0% 1.09
- --------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Cost of Equity Estimate
- --------------------------------------------------------------------------------
Unlevered Beta 1.09
Target BV Debt/MV Equity 17.7%
Target BV Preferred/MV Equity 0.0%
Levered Beta 1.21
Risk Free Rate 6.1%
Risk Premium 13.2%
- --------------------------------------------------------------------------------
22.2%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WACC Estimate
- --------------------------------------------------------------------------------
Mean BV Debt/MV Equity 17.7%
Mean BV Debt/Total Market Capitalization 6.7%
Mean MV Equity/Total Market Capitalization 93.3%
Cost of Debt 8.0%
Cost of Equity 22.2%
- --------------------------------------------------------------------------------
WACC 21.2%
- --------------------------------------------------------------------------------
Notes:
- ----------
(1) Based on 30 year U.S. treasury bond rate.
(2) Source: Ibbotson arithmetic market premium, 1926 - 1998 plus Micro-cap
premium.
(3) Company Betas are based on weekly data points over the past 2 years as per
Bloomberg
CIBC [LOGO]
World Markets 44
<PAGE>
PRELIMINARY COPY
[LOGO]
WATKINS-JOHNSON COMPANY
3333 HILLVIEW AVENUE
STANFORD RESEARCH PARK
PALO ALTO, CALIFORNIA 94304
<TABLE>
<S> <C>
H. RICHARD JOHNSON W. KEITH KENNEDY, JR.
VICE CHAIRMAN PRESIDENT AND CHIEF
EXECUTIVE OFFICER
</TABLE>
December , 1999
Dear Shareowner:
We are pleased to invite you to attend a second special meeting of the
shareowners of Watkins-Johnson Company to be held on January , 2000 at
[time], a.m., Pacific time. The special meeting will be held at [location].
THIS IS THE SECOND OF TWO SPECIAL MEETINGS WE ARE HOLDING WITHIN A FEW WEEKS
OF EACH OTHER (USING THE SAME RECORD DATE OF DECEMBER 3, 1999 TO DETERMINE THE
SHAREOWNERS ENTITLED TO VOTE AT BOTH MEETINGS). AT EACH MEETING, YOU ARE BEING
ASKED TO VOTE ON A DIFFERENT TRANSACTION. WE HAVE ALREADY SENT YOU OUR PROXY
STATEMENT DATED DECEMBER 15, 1999 WHICH RELATES TO A MEETING BEING HELD ON
JANUARY 14, 2000 TO VOTE ON THE PROPOSED SALE OF OUR TELECOMMUNICATIONS GROUP.
AT THIS SECOND MEETING (WHICH IS THE ONE TO WHICH THE ENCLOSED PROXY STATEMENT,
WHICH IS A DIFFERENT PROXY STATEMENT, RELATES), YOU ARE BEING ASKED TO VOTE ON A
PROPOSED RECAPITALIZATION MERGER INVOLVING THE REST OF THE COMPANY. THIS PROXY
STATEMENT DOES NOT REPEAT THE DETAILED INFORMATION ABOUT THE TELECOMMUNICATIONS
GROUP SALE CONTAINED IN OUR EARLIER PROXY STATEMENT.
----------------------------------------------------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
- --------------------------------------------------------------------------------
<PAGE>
TO HELP YOU VOTE AT EACH OF THE TWO MEETINGS, WE ARE USING DIFFERENT COLORED
PROXY CARDS. THE PROXY CARD FOR THE FIRST MEETING IS WHITE. THE PROXY CARD FOR
THIS SECOND MEETING IS BLUE. PLEASE REMEMBER THAT THE ENCLOSED PROXY STATEMENT
AND BLUE PROXY CARD ARE NOT DUPLICATES OF THE PROXY STATEMENT AND WHITE PROXY
CARD PREVIOUSLY SENT TO YOU; THEY RELATE TO A DIFFERENT MEETING AND A DIFFERENT
TRANSACTION.
IT IS VERY IMPORTANT THAT YOU READ THIS PROXY STATEMENT BEFORE DECIDING HOW
TO VOTE AT THIS MEETING AND THAT YOU USE THE BLUE PROXY CARD TO VOTE AT THIS
MEETING.
At this second special meeting, shareowners will be asked to vote on the
proposed recapitalization of WJ in a merger in which every non-dissenting WJ
common share will be exchanged for $41.125 in cash. As a result of the merger,
Fox Paine Capital Fund, L.P., a private investment fund managed by Fox Paine &
Company, LLC, will become WJ's controlling shareowner. The Watkins Trust, a
family trust of which Dean A. Watkins, WJ's Chairman and co-founder, is a
co-trustee and beneficiary, has agreed to remain a minority shareowner. We are
referring to this merger as the "WJ Merger" and the proposal to be submitted to
shareowners at the special meeting as the "WJ Merger Proposal." THE COMPLETION
OF THE TELECOMMUNICATIONS GROUP SALE IS NOT DEPENDENT ON THE COMPLETION OF THE
WJ MERGER BUT THE FOX PAINE ENTITY'S OBLIGATION TO COMPLETE THE WJ MERGER IS
CONDITIONED ON THE COMPLETION OF THE TELECOMMUNICATIONS GROUP SALE.
YOUR BOARD RECOMMENDS THAT YOU VOTE "FOR" THE WJ MERGER PROPOSAL AT THE
SPECIAL MEETING.
The accompanying proxy statement describes the WJ Merger Proposal,
including:
- the background to the WJ Merger;
- the Board's reasons for recommending that you vote "for" the WJ Merger
Proposal;
- the conditions to completing the proposed transaction;
- some risks you should consider in connection with the proposed
transaction; and
- other important information regarding the proposed transaction.
2
<PAGE>
The proxy statement also includes an opinion dated October 25, 1999 of our
financial advisor, CIBC World Markets Corp., to the effect that, as of that date
and subject to the matters described in that opinion, the cash consideration of
$41.125 per share to be received in the WJ Merger by holders of WJ common stock
(other than the Watkins Trust, as to which CIBC World Markets was not asked to
express an opinion) was fair, from a financial point of view, to them.
Dr. Watkins did not participate in the WJ Board's decision to approve the WJ
Merger because of his trust's proposed participation in the transaction. That
participation is designed to enable the transaction to be accounted for as a
recapitalization of WJ for financial reporting purposes. That is why, for the
first time since WJ became a public company 36 years ago, you do not see
Dr. Watkins' name on a letter to our shareowners.
YOUR VOTE IS IMPORTANT. BY USING THE ENCLOSED BLUE PROXY CARD TO VOTE YOUR
SHARES, YOU WILL ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING IF YOU DO NOT
ATTEND IN PERSON. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE
VOTE AS SOON AS POSSIBLE BY SIGNING AND RETURNING THE ENCLOSED PROXY CARD IN THE
ENVELOPE PROVIDED. YOUR FAILURE TO RETURN THE ENCLOSED PROXY CARD WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST THE WJ MERGER UNLESS YOU VOTE IN PERSON AT THE
SPECIAL MEETING.
PLEASE DO NOT SEND US ANY OF YOUR STOCK CERTIFICATES. IF THE WJ MERGER IS
COMPLETED, WE WILL SEND YOU DETAILED INSTRUCTIONS AS TO HOW TO SUBMIT YOUR STOCK
CERTIFICATES IN ORDER TO RECEIVE THE CASH CONSIDERATION FOR YOUR SHARES.
Sincerely yours,
/s/ H. Richard Johnson
H. Richard Johnson
/s/ W. Keith Kennedy, Jr.
W. Keith Kennedy, Jr.
3
<PAGE>
- ----------------------------------------------------------------------
IF YOU HAVE ANY QUESTIONS OR NEED ASSISTANCE COMPLETING YOUR PROXY CARD PLEASE
CALL:
MACKENZIE PARTNERS, INC.
156 FIFTH AVENUE
NEW YORK, NEW YORK 10010
(212)929-5500 (CALL COLLECT)
OR
CALL TOLL-FREE (800)322-2855
- ----------------------------------------------------------------------
4
<PAGE>
[LOGO]
WATKINS-JOHNSON COMPANY
3333 HILLVIEW AVENUE
STANFORD RESEARCH PARK
PALO ALTO, CALIFORNIA 94304
(650) 493-4141
------------------------
NOTICE OF SPECIAL MEETING OF SHAREOWNERS
---------------------
TO THE SHAREOWNERS:
A special meeting of the shareowners of Watkins-Johnson Company ("WJ") will
be held on January , 2000 at [time] a.m., Pacific time, at [location], for the
following purposes:
- To consider and vote on a single proposal (the "WJ Merger Proposal") to
approve and adopt both the "WJ Merger Agreement" and the "WJ Merger," as
those two terms are defined below:
-- "WJ MERGER AGREEMENT" means the Agreement and Plan of Merger dated as
of October 25, 1999 between WJ and FP-WJ Acquisition Corp. ("FP-WJ"),
a newly-formed corporation wholly-owned by Fox Paine Capital Fund,
L.P. (a private investment fund managed by Fox Paine & Company, LLC),
providing for the WJ Merger.
-- "WJ MERGER" means the merger of FP-WJ into WJ on the terms of the WJ
Merger Agreement. In the WJ Merger, Fox Paine Capital Fund will become
the controlling shareowner of WJ, a family trust of which Dean A.
Watkins, WJ's Chairman and co-founder, is a co-trustee and beneficiary
(the "Watkins Trust"), will remain a minority shareowner and each
outstanding share of WJ common stock (other than shares as to which
dissenters' rights are perfected) will be converted into the right to
receive $41.125 in cash.
- To transact such other business as may properly come before the special
meeting or any adjournments or postponements, including, if submitted, a
motion to adjourn the special meeting to another time or place for the
purpose of soliciting additional proxies.
The WJ Merger Proposal is more fully described in the proxy statement
accompanying this notice. The proxy statement includes (as Appendix A) a copy of
the WJ Merger Agreement and (as Appendix B) a copy of the related
Recapitalization Agreement.
WJ'S BOARD OF DIRECTORS RECOMMENDS THAT SHAREOWNERS VOTE "FOR" THE WJ MERGER
PROPOSAL.
Only shareowners of record at the close of business on December 3, 1999 will
be entitled to notice of and to vote at the special meeting and any adjournments
or postponements of the meeting. The special meeting is subject to adjournment
from time to time as the shareowners present in person or by proxy may
determine.
The affirmative vote of the holders of at least a majority of the
outstanding shares of WJ common stock is necessary to approve the WJ Merger
Proposal.
If you sign and send back the accompanying BLUE proxy card with no contrary
instructions, your shares will be voted at the special meeting "FOR" the WJ
Merger Proposal and in the discretion of the
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proxy holders named in the proxy card on any other business that may properly
come before the special meeting and any postponements and adjournments of the
meeting including, if submitted, a motion to adjourn the special meeting to
another time or place for the purpose of soliciting additional proxies in favor
of the WJ Merger Proposal. (If you vote any of your shares against the WJ Merger
Proposal, those shares will not be voted in favor of any adjournment motion
submitted for that purpose.). If you attend the special meeting, you may
withdraw your proxy and vote in person.
Holders of WJ common stock who comply with the requirements of Chapter 13 of
the California General Corporation Law are entitled to assert dissenters' rights
with respect to the WJ Merger and to obtain payment of the "fair market value"
of their shares on October 25, 1999 (the day before the first announcement of
the WJ Merger Agreement) if the WJ Merger is completed provided, in general,
that the holders of at least five percent of all outstanding shares file demands
for payment in accordance with Chapter 13. A copy of Chapter 13 is attached as
Appendix E to the proxy statement accompanying this notice.
We appreciate your giving this matter your prompt attention.
By Order of the Board of Directors
/s/ Claudia D. Kelly
Claudia D. Kelly,
SECRETARY
Palo Alto, California
December , 1999
PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED BLUE PROXY CARD AS PROMPTLY
AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE. OTHERWISE, UNLESS YOU ATTEND
THE SPECIAL MEETING IN PERSON, YOUR SHARES WILL NOT BE VOTED IN FAVOR OF THE WJ
MERGER PROPOSAL AND THIS WILL HAVE THE SAME EFFECT AS A "NO" VOTE.
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WATKINS-JOHNSON COMPANY
3333 HILLVIEW AVENUE
STANFORD RESEARCH PARK
PALO ALTO, CALIFORNIA 94304
------------------------
PROXY STATEMENT
SPECIAL MEETING OF SHAREOWNERS
TO BE HELD ON JANUARY , 2000
------------------------
GENERAL INFORMATION
WJ's Board of Directors is furnishing this proxy statement to the WJ
shareowners in connection with a special meeting to be held on January , 2000
at [time], a.m., Pacific time, at [location]. WJ's Board is soliciting the
accompanying BLUE proxy, which is to be voted at the special meeting and any
adjournments or postponements of the meeting.
At the special meeting, WJ's shareowners will vote on the WJ Merger Proposal
(as defined below).
THE WJ BOARD:
- HAS APPROVED THE WJ MERGER;
- HAS DETERMINED THAT THE WJ MERGER IS FAIR TO, AND IN THE BEST INTERESTS
OF, WJ AND ITS SHAREOWNERS; AND
- RECOMMENDS THAT SHAREOWNERS VOTE "FOR" THE WJ MERGER PROPOSAL.
WJ has not authorized any person to give any information or to make any
statements about the WJ Merger Proposal other than those contained in, or
incorporated by reference into, this proxy statement. Neither shareowners nor
others should rely on any other information or statements as being authorized by
WJ.
The delivery of this proxy statement does not, under any circumstances,
constitute a statement about WJ's affairs after the date of this proxy
statement, nor that the included or incorporated information is correct as of
any time after the date of this proxy statement. If any change occurs in that
information prior to the date of the special meeting and WJ determines that,
under applicable law, the change is material to shareowners in connection with
their consideration and vote on the WJ Merger, WJ will either report the change
in a filing with the Securities and Exchange Commission (see "WHERE YOU CAN FIND
MORE INFORMATION ABOUT WJ" on page ) or supplement this proxy statement, as it
determines appropriate under the circumstances. WJ undertakes no obligation to
update any of that information.
The mailing address for WJ's executive offices is 3333 Hillview Avenue, Palo
Alto, California 94304.
The approximate date on which this proxy statement and the accompanying
proxy card were first mailed to shareowners is December , 1999.
The date of this proxy statement is December , 1999.
KEY DEFINED TERMS
In this proxy statement:
- "WJ" means Watkins-Johnson Company, a California corporation;
- "WJ MERGER" means the merger of FP-WJ into WJ on the terms of the WJ
Merger Agreement. In the WJ Merger, Fox Paine Capital Fund will become the
controlling shareowner of WJ, the Watkins Trust will remain a minority
shareowner and each outstanding share of WJ common
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stock (other than shares as to which dissenters' rights are perfected)
will be converted into the right to receive $41.125 in cash;
- "WJ MERGER AGREEMENT" means the Agreement and Plan of Merger dated as of
October 25, 1999 between FP-WJ and WJ providing for the WJ Merger (a copy
is attached to this proxy statement as Appendix A);
- "WJ MERGER PROPOSAL" means the single proposal, to be considered and voted
on at the special meeting, to approve and adopt both the WJ Merger
Agreement and the WJ Merger;
- "FP-WJ" means FP-WJ Acquisition Corp., a newly-formed California
corporation formed by Fox Paine Capital Fund;
- "FOX PAINE CAPITAL FUND" means Fox Paine Capital Fund, L.P., a private
investment fund managed by Fox Paine;
- "FOX PAINE" means Fox Paine & Company, LLC, which manages a number of
investment funds, including Fox Paine Capital Fund;
- "FOX PAINE INVESTORS" means (i) Fox Paine Capital Fund and (ii) other
investors (described in the next sentence) that may be permitted by Fox
Paine Capital Fund to purchase a minority equity interest in FP-WJ that
would otherwise be purchased by Fox Paine Capital Fund in connection with
the equity portion of the financing for the WJ Merger. Fox Paine Capital
Fund may permit institutional investors and funds managed by Fox Paine, as
well as individuals or entities having significant business relationships
with WJ, to purchase a portion of the equity of FP-WJ that would otherwise
be purchased by Fox Paine Capital Fund in connection with the financing of
the WJ Merger. It is possible that such permitted investors could include
one or more current shareowners of WJ (E.G., a vendor or customer that is
also a WJ shareowner today) but Fox Paine has advised WJ that it is not
currently aware of any such potential permitted investor. None of
Dr. Dean A. Watkins, the Watkins Trust or any current directors, officers
or employees of WJ will be offered the opportunity to purchase a portion
of the FP-WJ equity Fox Paine Capital Fund has committed to purchase from
FP-WJ. All other investors are expected to pay the same price per share
for their FP-WJ shares as Fox Paine Capital Fund does. The participation
of any such additional investors will not result in Fox Paine Capital Fund
being the beneficial owner of less than a majority of the equity interests
in either FP-WJ (before the WJ Merger) or WJ (afterwards);
- "RECAPITALIZATION AGREEMENT" means the Recapitalization Agreement dated as
of October 25, 1999 between WJ and the Watkins Trust (and acknowledged, as
to certain provisions, by FP-WJ), which was entered into in connection
with the WJ Merger Agreement (a copy is attached to this proxy statement
as Appendix B);
- "WATKINS TRUST" means the Watkins Trust dated September 19, 1988, of which
Dr. Dean A. Watkins, WJ's Chairman and co-founder, is a co-trustee and
beneficiary;
- "TELECOMMUNICATIONS GROUP SALE" means WJ's sale of substantially all of
its Telecommunications Group's assets to BAe Aerospace Electronic
Systems Inc., for an estimated cash purchase price of $57.9 million,
subject to adjustment, and BAe Aerospace's assumption of certain related
liabilities of WJ, on the terms contained in the Telecommunications Group
Sale Agreement, all as described in detail in WJ's proxy statement dated
December 15, 1999; and
- "TELECOMMUNICATIONS GROUP SALE AGREEMENT" means the Amended and Restated
Purchase Agreement dated as of August 18, 1999 between WJ and
Tracor, Inc. (with Marconi Aerospace Inc. as assignee of Tracor's rights
and obligations under the Agreement), a copy of which was attached as
Appendix A to WJ's proxy statement dated December 15, 1999 relating to the
separate special meeting at which shareowners will be asked to vote on the
Telecommunications Group Sale.
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TABLE OF CONTENTS
<TABLE>
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GENERAL INFORMATION......................................... 1
KEY DEFINED TERMS........................................... 1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... 5
QUESTIONS AND ANSWERS ABOUT THE WJ MERGER PROPOSAL.......... 6
SUMMARY..................................................... 9
Special Meeting........................................... 9
Risks of the WJ Merger.................................... 9
Special Factors........................................... 9
Background.............................................. 9
Parties................................................. 12
The WJ Board's Reasons and Recommendations.............. 13
Opinion of WJ's Financial Advisor....................... 13
Interests of WJ Management in the WJ Merger............. 14
Purpose of the WJ Merger................................ 15
Structure of the WJ Merger.............................. 15
Financing............................................... 16
Certain Effects of the WJ Merger........................ 16
Conduct of WJ's Business After the WJ Merger............ 17
Federal Income Tax Consequences......................... 17
Accounting Treatment.................................... 17
Certain Litigation...................................... 17
The WJ Merger Agreement................................... 17
Effective Time of the WJ Merger......................... 17
Restrictions on Solicitations........................... 17
Principal Conditions.................................... 18
Termination............................................. 19
Termination Fee; Expenses............................... 19
Surrender of Certificates; Payment for Shares........... 20
Dissenters' Rights........................................ 20
WJ Selected Historical Consolidated Financial and Per
Share Data.............................................. 21
WJ Selected Pro Forma Financial Data...................... 22
RISKS OF THE WJ MERGER...................................... 23
SPECIAL FACTORS............................................. 25
Background of the WJ Merger............................... 25
Parties................................................... 33
The WJ Board's Reasons and Recommendation................. 33
Position of Dr. Watkins and the Watkins Trust Regarding
the Fairness of the WJ Merger to Other Shareowners...... 40
Opinion of WJ's Financial Advisor......................... 40
Interests of WJ Management in the WJ Merger............... 45
Purpose of the WJ Merger.................................. 49
Structure of the WJ Merger................................ 50
Financing................................................. 50
Certain Effects of the WJ Merger.......................... 52
Conduct of WJ's Business After the WJ Merger.............. 52
</TABLE>
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PAGE
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Regulatory and Other Approvals and Consents............... 53
Federal Income Tax Consequences........................... 53
Accounting Treatment...................................... 54
Certain Projected Financial Information................... 54
Certain Litigation........................................ 56
THE SPECIAL MEETING......................................... 57
Date, Time and Place...................................... 57
Purpose................................................... 57
Who Can Vote.............................................. 57
How You Can Vote.......................................... 57
Vote Required; Quorum..................................... 57
Revocation of Proxies..................................... 58
Solicitation of Proxies; Expenses......................... 58
Other Matters to be Acted On.............................. 58
THE WJ MERGER AGREEMENT..................................... 59
Effective Time of the WJ Merger........................... 59
Conversion of Common Shares............................... 59
Surrender of Certificates; Payment for Shares............. 59
Treatment of Stock Options................................ 59
Representations and Warranties............................ 60
Conduct of the WJ Business before the WJ Merger........... 61
Restrictions on Solicitations............................. 62
Recommendation of the WJ Board............................ 63
Access to, and Confidentiality of, Information............ 64
Additional Covenants...................................... 64
Conditions to Closing..................................... 64
Termination............................................... 66
Termination Fee; Expenses................................. 67
Employee Matters.......................................... 68
Amendments................................................ 68
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 69
MARKET PRICE INFORMATION FOR WJ COMMON STOCK................ 71
PRO FORMA FINANCIAL INFORMATION............................. 72
DISSENTERS' RIGHTS.......................................... 79
WHERE YOU CAN FIND MORE INFORMATION ABOUT WJ................ 81
APPENDIX A--WJ Merger Agreement
APPENDIX B--Recapitalization Agreement
APPENDIX C--Opinion of CIBC World Markets Corp. dated
October 25, 1999
APPENDIX D--Expected Material Terms of the Debt Financing
APPENDIX E--Chapter 13 of the California General Corporation
Law
</TABLE>
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains and incorporates by reference certain
statements that constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements include all statements that are not statements of historical fact
(including statements as to "beliefs," "expectations," "anticipations,"
"intentions" or similar words). Such statements are subject to risks,
uncertainties and assumptions, including (but not limited to) those described in
the WJ documents incorporated by reference into this proxy statement (see "WHERE
YOU CAN FIND MORE INFORMATION" ABOUT WJ on page ) and in the following
sections of this proxy statement and the summaries of those sections appearing
in "SUMMARY:"
- "RISKS OF THE WJ MERGER" on pages to ;
- "SPECIAL FACTORS--Background of the WJ Merger" on pages to ;
- "SPECIAL FACTORS--The WJ Board's Reasons and Recommendation" on pages to
;
- "SPECIAL FACTORS--Financing" on pages to ;
- "SPECIAL FACTORS--Certain Projected Financial Information" on pages to
; and
- "PRO FORMA FINANCIAL INFORMATION" on pages to .
5
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QUESTIONS AND ANSWERS ABOUT THE WJ MERGER PROPOSAL
THE FOLLOWING IS INTENDED TO ANSWER SOME OF THE QUESTIONS WE EXPECT YOU HAVE
ABOUT THE TRANSACTION TO BE VOTED ON AT THE SPECIAL MEETING. IT IS NOT INTENDED
AS A SUBSTITUTE FOR READING THIS ENTIRE PROXY STATEMENT.
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
1. Q: WHAT SHOULD I DO NOW?
A: After carefully reviewing this proxy statement, indicate on your BLUE proxy
card how you want to vote, and sign and mail it in the enclosed envelope as soon
as possible, so that your shares are represented at the special meeting. If you
sign and send in your proxy card and do not indicate how you want to vote, your
shares will be voted FOR the WJ Merger Proposal. If you do not vote at all or
you abstain, this will have the same effect as voting your shares against the WJ
Merger Proposal.
2. Q: WHEN IS THE SPECIAL MEETING?
A: The special meeting will take place on January , 2000, at [time], a.m.,
Pacific time. If you wish, you may attend the special meeting and vote your
shares in person rather than signing and mailing your proxy card. If you do not
attend the special meeting in person, we must receive your proxy card before the
vote is taken in order for your shares to be counted.
3. Q: IF MY SHARES ARE HELD IN THE NAME OF MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: You should instruct your broker how you want your shares voted. Without
instructions, your broker will not be able to vote your shares on the WJ Merger
Proposal. Not voting is the equivalent of a "no" vote.
4. Q: HOW DO I CHANGE MY VOTE?
A: Just complete, date and sign a new BLUE proxy card and mail it to our
transfer agent. The new card must arrive before the vote is taken at the special
meeting. Alternatively, you may come to the special meeting and vote your shares
as you wish, whether or not you have already returned a proxy card. Additional
information regarding the procedure for revoking a proxy appears on page .
5. Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: If you have any questions about the WJ Merger Proposal, how to vote your
shares or any other matter relating to the special meeting, please call
MacKenzie Partners, Inc., our proxy solicitors, at (800) 322-2855 (toll-free) or
(212) 929-5500 (call collect).
QUESTIONS AND ANSWERS ABOUT THE
WJ MERGER
6. Q: WHAT DOES THE WJ BOARD RECOMMEND?
A: WJ'S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE WJ MERGER.
7. Q: WHY IS THE WJ BOARD RECOMMENDING THE WJ MERGER?
A: After we sold our Semiconductor Equipment Group in July 1999 and signed the
Telecommunications Group Sale Agreement in August 1999, we continued to seek a
buyer for the rest of the company. We gave the two competitive bidders remaining
in our sale process an opportunity to submit their final offers. After reviewing
these, we decided to negotiate exclusively with Fox Paine because we viewed its
proposal as superior. These negotiations resulted in the signing of the WJ
Merger Agreement on October 25, 1999.
We believe the WJ Merger will maximize the value of that portion of WJ
(including our Wireless Products Group and unsold real estate) that will remain
after the Telecommunications Group Sale is completed and will eliminate the
risks that we would otherwise face in operating the Wireless Products Group as a
stand-alone public company.
Additional information regarding the WJ Board's reasons for selecting the
Fox Paine merger proposal appears on pages to .
6
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8. Q: HOW WILL I BENEFIT FROM THE WJ MERGER?
A: When the WJ Merger is completed, you will be entitled to receive $41.125 in
cash for each of your WJ shares. This amount is substantially above the price at
which WJ shares traded for the three years preceding our March 1, 1999
announcement that we were pursuing a sale of WJ. Market price information for WJ
shares since January 1, 1997 appears on page .
9. Q: WHEN DO YOU EXPECT THE WJ MERGER TO BE COMPLETED?
A: We are working with Fox Paine to complete the WJ Merger as quickly as
possible. Shareowner approval and the completion of Telecommunications Group
Sale are both conditions to the WJ Merger. Other conditions must also be met,
such as the completion of the debt financing (see Q.10). We hope to complete the
WJ Merger as soon as possible after the special meeting and the closing of the
Telecommunications Group Sale.
10. Q: WHAT ASSURANCE DO YOU HAVE THAT FOX PAINE WILL RAISE THE NECESSARY
FINANCING?
A. Fox Paine Capital Fund has told us it expects to need approximately
$301 million to finance the WJ Merger. It is raising the financing from four
sources.
- If the conditions to the transaction are met, the Fox Paine Investors will
together contribute $50.8 million as an equity investment in FP-WJ and to
purchase a portion of the preferred shares issued to the Watkins Trust
under the Recapitalization Agreement. After considering Fox Paine's track
record of closing transactions and receiving an equity commitment letter
from Fox Paine Capital Fund, we expect that Fox Paine Capital Fund will
have this money available from its own investors once the other conditions
to the WJ Merger are satisfied.
- CIBC World Markets (on behalf of one or more of its affiliates) has
committed to provide to WJ, subject to the satisfaction of certain
conditions, a $55 million secured credit facility (which may be syndicated
among a wider group of lending institutions arranged by CIBC World
Markets). WJ expects to borrow $40 million under this facility to help
finance the WJ Merger. In light of the commitment letter from CIBC World
Markets, as agent of the lending group, detailing the terms that will be
included in the definitive loan agreement (which has not yet been
negotiated or signed), we expect that WJ will likely be able to complete
this borrowing.
- Approximately $5 million will be financed by the Watkins Trust retaining
an approximately 8.9% equity interest in the post-closing WJ under the
Recapitalization Agreement instead of receiving the $41.125 per share cash
price payable for all other WJ shares. This retained interest is designed
to ensure that the WJ Merger is accounted for as a recapitalization of WJ
for financial reporting purposes.
- The balance of the required funds (approximately $205.2 million) will be
supplied by our own cash, including the proceeds of the other divestitures
and asset sales we completed in 1997 and 1999 and the Telecommunications
Group Sale (which is why the completion of that transaction is a condition
to the WJ Merger).
11. Q: WHAT ARE THE TAX CONSEQUENCES OF THE WJ MERGER TO ME?
A: Your receipt of cash in the WJ Merger Agreement will be a taxable
transaction for federal income tax purposes and may also be a taxable
transaction for state, local, foreign and other tax purposes. Additional
information regarding federal income tax consequences appears on pages to .
YOU ARE URGED TO CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
OF THE WJ MERGER TO YOU, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL,
STATE, LOCAL AND OTHER TAX LAWS.
7
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RELATIONSHIP BETWEEN THE TELECOMMUNICATIONS GROUP SALE AND THE WJ MERGER
12. Q: WHAT ARE THE CONSEQUENCES OF SHAREOWNERS APPROVING ONE PROPOSED
TRANSACTION BUT NOT THE OTHER AT THE TWO SEPARATE SPECIAL MEETINGS?
A: If shareowners approve the Telecommunications Group Sale at the separate
special meeting scheduled for [date] and all other closing conditions are met,
we will close the Telecommunications Group Sale regardless of whether
shareowners approve the WJ Merger. This is because the closing of the
Telecommunications Group Sale is NOT conditioned on the closing of the WJ
Merger.
However, the obligation of FP-WJ to complete the WJ Merger IS conditioned on
the prior completion of the Telecommunications Group Sale, which cannot occur
without shareowner approval. Accordingly, unless FP-WJ waives this condition and
alternative financing is raised to replace the proceeds of the
Telecommunications Group Sale, if shareowners do not approve the
Telecommunications Group Sale the WJ Merger will not close, even if all the
other conditions to the WJ Merger (including shareowner approval) are met.
Additional information regarding the consequences of the failure of one of
the transactions to close appears on pages to .
13. Q: WHAT WILL HAPPEN IF THE TELECOMMUNICATIONS GROUP SALE CLOSES BUT THE WJ
MERGER DOES NOT?
A: If the WJ Merger does not occur, WJ may continue to seek a buyer for the
remainder of the company in a transaction that the WJ Board determines to be
fair to, and in the best interests of, the shareowners. If we do not find
another buyer for the remainder of the company by the time the
Telecommunications Group Sale is completed or within a reasonable period after
that, or if we decide not to look for another buyer, we may use some of our cash
(including some of the net after-tax proceeds of the Telecommunications Group
Sale and the other asset sales we completed in 1999), to purchase some (but not
all) of the outstanding WJ shares.
If the Telecommunications Group Sale closes but the WJ Merger does not, then
WJ will remain a public company with its Wireless Products Group as its only
business if we do not find another buyer or we decide to discontinue our efforts
to sell WJ.
Additional information regarding the consequences of closing of the
Telecommunications Group Sale but not the WJ Merger, appears on pages to .
8
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SUMMARY
The following is a summary of certain information contained or incorporated
by reference into this proxy statement. This summary is not intended to be a
complete statement of all material information concerning the WJ Merger
Proposal. This summary is qualified by the more detailed information contained
elsewhere in this proxy statement and the appendices, as well as by the
incorporated information. PLEASE READ THE ENTIRE PROXY STATEMENT CAREFULLY.
AT THE SPECIAL MEETING TO WHICH THIS PROXY STATEMENT RELATES, SHAREOWNERS
ARE BEING ASKED TO VOTE ON THE WJ MERGER PROPOSAL BUT NOT ON THE
TELECOMMUNICATIONS GROUP SALE. A SEPARATE SPECIAL MEETING HAS BEEN SCHEDULED FOR
JANUARY , 2000 TO VOTE ON THE TELECOMMUNICATIONS GROUP SALE. IN CONNECTION
WITH THAT SEPARATE SPECIAL MEETING, WE HAVE ALREADY SENT YOU ANOTHER PROXY
STATEMENT DATED DECEMBER , 1999 AND A WHITE PROXY CARD. PLEASE READ THAT OTHER
PROXY STATEMENT FOR DETAILED INFORMATION ABOUT THE TELECOMMUNICATIONS GROUP
SALE. THAT INFORMATION IS NOT REPEATED IN THIS PROXY STATEMENT. TO VOTE ON THE
WJ MERGER PROPOSAL AT THIS SPECIAL MEETING, PLEASE USE THE BLUE PROXY CARD.
SPECIAL MEETING
DATE. January , 2000.
TIME. , a.m., Pacific time.
PLACE. .
PURPOSE. To consider and vote on the WJ Merger Proposal.
WHO CAN VOTE. Shareowners of record of WJ common stock at the close of
business on the record date, which was December 3, 1999.
VOTE REQUIRED. The affirmative vote of the holders of a majority of WJ's
shares outstanding at the close of business on the record date is required to
approve the WJ Merger Proposal. Abstentions, broker non-votes and proxies that
are not received by WJ will have the effect of "no" votes except where the
shareowner votes in person at the special meeting. (See "THE SPECIAL
MEETING--Vote Required; Quorum" on pages to .)
RISKS OF THE WJ MERGER
In considering whether to approve the WJ Merger Proposal, WJ's shareowners
should carefully consider the information in "RISKS OF THE WJ MERGER" on pages
to .
SPECIAL FACTORS
BACKGROUND. After WJ sold its Semiconductor Equipment Group in July 1999
and signed the Telecommunications Group Sale Agreement in August 1999, WJ
continued to seek a buyer for the rest of the company and, after negotiating
with the two final competitive bidders, WJ gave them an opportunity to submit
their final offers. After reviewing these, the WJ Board authorized senior
management to negotiate exclusively with Fox Paine. These further negotiations
resulted in the October 25, 1999 signing of the WJ Merger Agreement, a copy of
which is attached as Appendix A.
We have included the diagram on the next page to show WJ's component
businesses and unused real estate assets that have been sold since October 1997
and those that are under contract to be sold, subject to shareowner approval and
other conditions. We have selected October 1997 as the starting date for the
diagram because, that month, we completed a significant divestiture by selling
the defense-related portion of our Microwave Products Group as part of a plan to
redeploy our assets into our other businesses. We have included the 1999
divestiture of our Semiconductor Equipment Group and sales of certain unused
real estate because those transactions were the product of the WJ Board's
9
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ongoing review and evaluation of WJ's business. These were important
developments in the background to the Board's February 1999 decision to pursue
the sale of the ENTIRE company or ALL of its business components. That process
led directly to the Telecommunications Group Sale Agreement and, later, to the
WJ Merger Agreement.
(See "SPECIAL FACTORS--Background Of The WJ Merger" on pages to .)
[PLEASE TURN TO THE DIAGRAM ON THE NEXT PAGE]
10
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DIVESTITURES AND DISPOSITIONS SINCE OCTOBER 1997
[GRAPH]
* These transactions were independent of WJ's sale process announced on
March 1, 1999 (see pages to ).
** This transaction resulted from WJ's sale process announced on March 1, 1999
(see pages to ).
*** For information concerning the Telecommunications Group Sale, see WJ's proxy
statement dated December 15, 1999.
11
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PARTIES. The parties to the WJ Merger Agreement are WJ and FP-WJ. The
following information describes WJ, FP-WJ and related parties.
- WJ: WJ is a corporation organized under the laws of the State of
California. It has been in business since 1957. Its headquarters address
is 3333 Hillview Avenue, Stanford Industrial Park, Palo Alto, California.
Since divesting its Semiconductor Equipment Group on July 6, 1999, it has
been operating and reporting its financial results in two business
segments: the Telecommunications Group (which is to be sold to BAe
Aerospace Electronics Systems, Inc., under the Telecommunications Group
Sale), and the Wireless Products Group. (See the diagram on page and
"SPECIAL FACTORS -- Background of the WJ Merger". on pages to .) The
information that it files with the Securities and Exchange Commission can
be obtained in the manner described under "WHERE YOU CAN FIND MORE
INFORMATION ABOUT WJ" on pages to .
- FP-WJ: a newly-organized California corporation formed by Fox Paine
Capital Fund to participate in the WJ Merger. It will not have any
significant assets or liabilities, or conduct any business, before the WJ
Merger closes. After the WJ Merger, it will cease to exist and WJ will be
controlled by Fox Paine Capital Fund.
- FOX PAINE CAPITAL FUND: a private investment fund managed by Fox Paine. It
has committed (subject to the satisfaction or waiver of the conditions to
FP-WJ's obligation to complete the WJ Merger) to provide the equity
financing for the WJ Merger and will be the controlling shareowner of WJ
after the WJ Merger.
- FOX PAINE INVESTORS: Fox Paine Capital Fund and other investors (described
in the next sentence) that may be permitted by Fox Paine Capital Fund to
purchase a minority equity interest in FP-WJ that would otherwise be
purchased by Fox Paine Capital Fund in connection with the equity portion
of the financing to be provided for the WJ Merger. Fox Paine Capital Fund
may permit institutional investors and funds managed by Fox Paine, as well
as individuals or entities having significant business relationships with
WJ, to purchase a portion of the equity of FP-WJ that would otherwise be
purchased by Fox Paine Capital Fund in connection with the financing of
the WJ Merger. It is possible that such permitted investors could include
one or more current shareowners of WJ (E.G., a vendor or customer that is
also a WJ shareowner today) but Fox Paine has advised WJ that it is not
currently aware of any such potential permitted investor. None of
Dr. Dean A. Watkins, the Watkins Trust or any current directors, officers
or employees of WJ will be offered the opportunity to purchase a portion
of the FP-WJ equity Fox Paine Capital Fund has committed to purchase from
FP-WJ. All other investors are expected to pay the same price per share
for their FP-WJ shares as Fox Paine Capital Fund does. The participation
of any such additional investors will not result in Fox Paine Capital Fund
being the beneficial owner of less than a majority of the equity interests
in either FP-WJ (before the WJ Merger) or WJ (afterwards).
- FOX PAINE: Fox Paine manages investment funds (including Fox Paine Capital
Fund) in excess of $500 million which provide equity capital to
growth-oriented buyouts and company expansion programs. The participants
in its managed funds (including Fox Paine Capital Fund) include the
long-term equity arms of leading domestic and international public and
corporate pension funds, endowments and financial institutions. The
co-founders of Fox Paine are Saul Fox and Dexter Paine. They are also the
managing members of Fox Paine Capital, LLC, which serves as the general
partner of Fox Paine Capital Fund, and Mr. Paine is the sole director and
executive officer of FP-WJ.
- DR. DEAN A. WATKINS. Dr. Watkins is WJ's Chairman and co-founder, and has
served as Chairman since 1967. He maintains his business office at WJ's
executive offices in Palo Alto, California, and is a U.S. citizen.
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- THE WATKINS TRUST: A family trust of which Dr. Watkins, is a co-trustee
and beneficiary. At present, the Watkins Trust is an approximately 3.7%
shareowner of WJ. Immediately before the closing of the WJ Merger, the
Watkins Trust will exchange its WJ shares for a new issue of WJ preferred
shares and retain approximately half of those preferred shares until the
closing (the balance will be sold to Fox Paine Capital Fund for $41.125
per share in cash--the same price that will be received by all
non-dissenting holders of WJ common shares in the WJ Merger--before the
closing). In the WJ Merger, the Watkins Trust's preferred shares will be
converted into WJ common shares, representing approximately 8.9% of the
then-outstanding shares. This percentage reflects the relative
contributions of Fox Paine and the Watkins Trust to the post-closing
equity of WJ (which will be reduced to $55.8 million from its pre-closing
level of approximately $293 million because of the total amount paid to
the holders of WJ common shares in the WJ Merger). The Fox Paine Investors
will be contributing $50.8 million in equity capital for an approximately
91.1% equity interest in the post-closing company. The Watkins Trust will
be "rolling over" 120,000 shares valued at $41.125 (the price to be paid
in the WJ Merger), for a total contribution of approximately $5 million,
or approximately 8.9% of the total post-closing equity. The retention of
this equity interest in WJ by the Watkins Trust is designed to ensure that
the WJ Merger is accounted for as a recapitalization of WJ for financial
reporting purposes. Prevailing interpretations of the financial accounting
standards governing the use of recapitalization accounting include a
requirement for a "rollover" equityholder holding not less than 5-6% of
the post-closing "recapitalized" company. As a conservative measure, FP-WJ
preferred a rollover interest reasonably in excess of that amount but
consistent with its goal of ensuring that the Fox Paine Investors would
together hold a substantial majority economic and voting interest in WJ.
The specific percentage was the product of arms'-length negotiation
between Fox Paine and the Watkins Trust. (See "SPECIAL FACTORS--Interests
of WJ Management in the WJ Merger--THE RECAPITALIZATION AGREEMENT" on
pages to ).
THE WJ BOARD'S REASONS AND RECOMMENDATION. On October 25, 1999, the WJ
Board unanimously concluded that the WJ Merger maximized the value of the
remainder of WJ and that the WJ Merger was fair to, and in the best interests
of, WJ and its shareowners. This conclusion was unanimous except that
Dr. Watkins did not participate in the deliberations or the vote because of the
proposed retention of an equity interest in the post-closing WJ by the Watkins
Trust. In arriving at its conclusion, the Board considered a number of factors.
(See "SPECIAL FACTORS--The WJ Board's Reasons and Recommendations" on pages to
.)
OPINION OF WJ'S FINANCIAL ADVISOR. The WJ Board has received an opinion
from WJ's financial advisor, CIBC World Markets, as to the fairness, from a
financial point of view, of the $41.125 per share cash consideration to be
received in the WJ Merger by the holders of WJ common stock (other than the
Watkins Trust, as to which CIBC World Markets was not asked to express an
opinion). The full text of the written opinion of CIBC World Markets dated
October 25, 1999 is attached to this proxy statement as Appendix C. We encourage
you to read this opinion carefully in its entirety for a description of the
assumptions made, matters considered and limitations on the review undertaken.
THIS OPINION IS DIRECTED TO THE WJ BOARD AND ADDRESSES ONLY THE FAIRNESS OF THE
$41.125 PER SHARE CASH CONSIDERATION FROM A FINANCIAL POINT OF VIEW. THIS
OPINION DOES NOT ADDRESS ANY OTHER TERMS OF THE WJ MERGER AGREEMENT OR ANY OTHER
ASPECT OF THE WJ MERGER. THIS OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY SHAREOWNER AS TO ANY MATTER RELATING TO THE WJ MERGER. (See "SPECIAL
FACTORS--Opinion of WJ's Financial Advisor" on pages to .)
INTERESTS OF WJ MANAGEMENT IN THE WJ MERGER. For additional information on
the following matters, see "SPECIAL FACTORS--Interests of WJ Management in the
WJ Merger" on pages to .
EXECUTIVE AGREEMENTS. Dr. W. Keith Kennedy, Jr., WJ's President and Chief
Executive Officer, and Scott G. Buchanan, WJ's Executive Vice President, Chief
Financial Officer and Treasurer, have agreed
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with Fox Paine that their employment by WJ will end following the WJ Merger.
Accordingly, they will be entitled to change-in-control payments under their
employment contracts following the closing. WJ estimates that these payments
will total approximately $3,417,000 in the case of Dr. Kennedy and approximately
$874,000 in the case of Mr. Buchanan.
Malcolm J. Caraballo, the President of WJ's Wireless Products Group, is
expected to become the president and chief executive officer of WJ if the WJ
Merger is completed. When the WJ Merger closes, he will be entitled to receive,
under his retention agreement with WJ, certain cash payments. WJ estimates that
the payments will total approximately $395,000. In addition, if his employment
with WJ ends after the WJ Merger under any of the circumstances included in his
severance agreement as a termination entitling him to a change-in-control
payment, he will be entitled to receive an additional payment. WJ estimates that
this payment would total approximately $596,000 ($100,000 if he voluntarily
terminated his employment without good reason between the 90(th) and the 120(th)
day after 90 days of the closing).
DIRECTORS' RETIREMENT PLAN. In July 1999, in light of the WJ Board's
earlier decision to sell the company, the WJ Board adopted a resolution related
to WJ's 1995 directors retirement plan. Under this resolution, if the WJ Merger
closes before April 8, 2000, each outside director of WJ will be paid $27,000,
which represents the total amount each outside director would have received
under the retirement plan had he retired on April 8, 2000.
SHARES AND STOCK OPTIONS. Each of WJ's directors and executive officers has
(i) WJ shares which will be converted into $41.125 in cash in the WJ Merger and
(ii) WJ stock options which will be terminated in the WJ Merger in exchange for
a cash payment equal to the amount by which $41.125 exceeds the exercise price.
The amount that each of the directors and executive officers will receive for
his WJ shares and options is stated on page .
FP-WJ expects to cause WJ to offer the senior management of WJ's Wireless
Products Group an opportunity for post-closing equity or equity-based
participation in WJ, including performance-related incentive compensation. The
scope, nature and terms of these equity arrangements have not been determined
and the individual participants have not been identified at this time.
INDEMNIFICATION. Under the WJ Merger Agreement, all of WJ's directors and
officers will continue to be entitled to indemnification from WJ for their
pre-closing actions to the fullest extent permitted by law. In addition, WJ is
required to maintain, for six years after the WJ Merger, a directors' and
officers' liability policy for their benefit, subject to a limit on the amount
of annual premiums WJ is required to pay for the policy.
THE RECAPITALIZATION AGREEMENT. The Watkins Trust currently owns
approximately 3.7% of the outstanding WJ shares. The WJ shares held by the
Watkins Trust when the WJ Merger closes will not be converted into cash.
Instead, under the Recapitalization Agreement, those shares will be exchanged
for new WJ convertible voting preferred shares before the closing. Fox Paine
Capital Fund will then purchase all of those preferred shares in excess of
120,000 for the same $41.125 per share price to be paid to all non-dissenting
holders of WJ common shares in the WJ Merger (a total payment of approximately
$5.3 million, assuming that, before the exchange, the Watkins Trust does not
dispose of any of its current 249,020 WJ common shares) and all of the
newly-issued preferred shares will be converted into WJ common shares (which
will be valued at the WJ Merger price of $41.125 per share, for a total value,
in the case of the Watkins Trust, of approximately $5 million) in the WJ Merger.
The new WJ common shares held by the Watkins Trust will represent approximately
8.9% of WJ's post-closing equity and the WJ Merger will not constitute a taxable
event for the Watkins Trust as to those shares. WJ has agreed to indemnify the
Watkins Trust for its costs and expenses in connection with certain kinds of
proceedings brought in connection with the transactions provided for in the
Recapitalization Agreement.
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Dr. Watkins did not participate in the Board's decision to approve the WJ
Merger Agreement. He will not be a director, officer, employee or consultant of
WJ following the WJ Merger.
PURPOSE OF THE WJ MERGER. The purpose of the WJ Merger is to effectuate the
acquisition of a majority of the equity of WJ by the Fox Paine Investors. WJ's
reason for agreeing to this acquisition is to enable its shareowners to receive
$41.125 per share in cash for their WJ shares. (See "SPECIAL FACTORS -- and
Recommendation" on pages to and "Purpose of the WJ Merger" on page .
The purpose of the Recapitalization Agreement is to ensure that the WJ
Merger will be treated as a recapitalization of WJ for financial reporting
purposes by providing for the rollover, by the Watkins Trust as an existing
equityholder, of a sufficient pre-closing equity interest in WJ to result in the
Watkins Trust holding in excess of the percentage of the post-closing equity of
the "recapitalized" WJ required by the prevailing interpretations of the
financial accounting standards governing the use of recapitalization accounting.
(See "PARTIES -- THE WATKINS TRUST" on page , "SPECIAL FACTORS -- The WJ
Board's Reasons and Recommendations" on pages to ," Interests of WJ
Management in the WJ Merger -- THE RECAPITALIZATION AGREEMENT" on pages to
"Purpose of WJ Merger" on page and "Certain Effects of the WJ Merger" on pages
to .)
For a discussion of the Watkins Trust's reasons for entering into the
Recapitalization Agreement and for Dr. Watkins, as co-trustee of the Watkins
Trust, causing the Watkins Trust to enter into the Recapitalization Agreement,
see "SPECIAL FACTORS -- Purpose of the WJ Merger" on pages to .
STRUCTURE OF THE WJ MERGER. The WJ Merger has been structured as a merger
of FP-WJ into WJ in order to effectuate the acquisition of a marjority of the
equity of WJ by the Fox Paine Investors in a manner that will not affect the
continuing corporate existence and contractual arrangements of WJ.
When the WJ Merger closes:
- FP-WJ will cease to exist and WJ will continue in existence as the
surviving corporation;
- each then-issued and outstanding share of WJ common stock (except for any
dissenting shares) will be converted into the right to receive $41.125 in
cash (reduced by any applicable withholding taxes) and will not receive
any further dividends or otherwise participate in, or benefit from, the
future earnings or growth of WJ;
- each share of FP-WJ will be converted into one WJ common share and these
new WJ shares (which will be owned by the Fox Paine Investors) will,
together with the shares referred to immediately below, represent
approximately 91.1% of the then-outstanding WJ shares;
- each preferred share originally issued to the Watkins Trust and then sold
to Fox Paine Capital Fund immediately before the closing will be converted
into one WJ common share; and
- each preferred share still held by the Watkins Trust will be converted
into one WJ common share and these new WJ shares will together represent
approximately 8.9% of the then-outstanding WJ shares.
(See "SPECIAL FACTORS--Interests of WJ Management in the WJ Merger--THE
RECAPITALIZATION AGREEMENT," on pages to , "--Structure of the WJ Merger" on
page and "--Certain Effects of the WJ Merger" on page , and "THE WJ MERGER
AGREEMENT--Surrender of Stock Certificates; Payment for Shares" on page .)
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FINANCING. Fox Paine has advised WJ that it expects to need approximately
$301 million to finance the WJ Merger, including transaction expenses (this
estimate assumes that no WJ stock options outstanding on October 25, 1999 will
have been exercised before the closing). This amount will be financed from four
sources:
- Fox Paine Capital Fund has committed to invest a total of $50.8 million
(less any amount invested by the other Fox Paine Investors) as the equity
portion of the financing, to be used to purchase shares of FP-WJ and to
purchase a portion of the Watkins Trust's preferred shares under the
Recapitalization Agreement;
- CIBC World Markets (on behalf of one or more of its affiliates) has
committed to provide to WJ, subject to the satisfaction of certain
conditions, a $55 million secured credit facility (which may be syndicated
among a wider group of lending institutions arranged by CIBC World
Markets). WJ expects to borrow $40 million under this facility to help
finance the WJ Merger (the remaining $15 million of the facility will be
available to WJ for its post-closing working capital needs in the form of
a revolving credit facility, although two letters of credit are expected
to be issued against $6.1 million of this facility at the closing);
- The Watkins Trust will contribute approximately $5 million in the form of
existing WJ common shares which will not be converted into the $41.125 WJ
Merger consideration but will become common shares of the post-closing
company; and
- WJ will provide the balance (approximately $205.2 million) from its cash
on hand.
The approximately $205.2 million of cash that WJ will need to provide in
order to complete the financing will consist primarily of:
-- the proceeds from the closing of the Telecommunications Group Sale;
-- the net after-tax proceeds from the sale of WJ's former Semiconductor
Equipment Group in July 1999, including that Group's pre-closing
receivables to the extent collected by WJ;
-- the net after-tax proceeds of the other divestitures and asset sales
completed by WJ in 1999; and
-- other cash on hand, including cash generated by continuing operations
and not applied to pay operating or transaction expenses.
(See "SPECIAL FACTORS--Financing" on pages to .)
The conditions to FP-WJ's obligation to close the WJ Merger include a
condition that FP-WJ has received $55 million of debt financing for the WJ
Merger and the other transactions contemplated by the WJ Merger Agreement, and
to provide working capital to WJ after the WJ Merger, on terms no less favorable
in the aggregate, in its reasonable judgment, than those contained in the
commitment letter delivered by CIBC World Markets to FP-WJ in connection with
the signing of the WJ Merger Agreement. (See "THE WJ MERGER
AGREEMENT--Conditions to Closing--CONDITIONS TO FP-WJ'S OBLIGATIONS TO CLOSE" on
page .)
CERTAIN EFFECTS OF THE WJ MERGER. Following the WJ Merger:
- the pre-closing owners of WJ common shares will no longer have any
continuing interest in WJ but will have the right to receive a cash
payment of $41.125 (reduced by any applicable withholding taxes) for each
share owned at the time the WJ Merger takes effect (or, if they satisfy
the requirements of Chapter 13 of the California General Corporations Law,
to exercise their statutory dissenters' rights);
- WJ common shares will no longer be listed on the New York Stock Exchange
and will no longer be publicly traded;
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- the registration of WJ shares with the Securities and Exchange Commission
will be terminated and WJ will cease to file public reports; and
- the WJ Board will consist entirely of directors designated by FP-WJ (who
will not include Dr. Watkins or any of the other current directors).
(See "SPECIAL FACTORS--Certain Effects of the WJ Merger" on page and
"DISSENTERS' RIGHTS" on pages to .)
CONDUCT OF WJ'S BUSINESS AFTER THE WJ MERGER--Fox Paine Capital Fund has
advised WJ that:
- its present intention is to conduct the business of WJ (I.E.,the Wireless
Products Group) substantially as it has been conducted in the past, after
reflecting completed dispositions and the pending Telecommunications Group
Sale;
- following the WJ Merger, Malcolm J. Caraballo, who is currently President
of WJ's Wireless Products Group, will be appointed president and chief
executive officer of WJ;
- it is FP-WJ's current expectation that substantially all of the current
members of the management of the Wireless Products Group will be retained;
and
- Fox Paine Capital Fund will continue to evaluate WJ and will cause those
changes it considers appropriate.
(See "SPECIAL FACTORS--Conduct of WJ's Business after the WJ Merger" on
page .)
FEDERAL INCOME TAX CONSEQUENCES. The receipt of cash by a WJ shareowner in
the WJ Merger will be a taxable transaction for federal income tax purposes and
may also be a taxable transaction for state, local, foreign and other tax
purposes. In general, for federal income tax purposes under current law, a WJ
shareowner in whose hands the WJ shares are capital assets will recognize gain
or loss equal to the difference between the shareowner's adjusted tax basis in
each block of the shares converted to cash in the WJ Merger and the amount of
cash received for those shares. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER,
EACH WJ SHAREOWNER SHOULD CONSULT SUCH SHAREOWNER'S TAX ADVISOR TO DETERMINE THE
PARTICULAR TAX EFFECTS OF THE WJ MERGER FOR SUCH SHAREOWNER.(See "SPECIAL
FACTORS--Federal Income Tax Consequences" on pages to .)
ACCOUNTING TREATMENT. Fox Paine and WJ expect the WJ Merger and related
transactions to be accounted for as a recapitalization of WJ for financial
reporting purposes. It is a condition to FP-WJ's obligation to close the WJ
Merger that no change in accounting rules has been made which, in FP-WJ's
reasonable judgment following consideration with its accounting advisors, would
prevent the WJ Merger from qualifying for this accounting treatment. (See
"SPECIAL FACTORS--Accounting Treatment" on pages to and "THE WJ MERGER
AGREEMENT--Conditions to Closing--CONDITIONS TO FP-WJ'S OBLIGATION TO CLOSE" on
page .)
CERTAIN LITIGATION. Four purported class actions have been filed in
California Superior Court alleging (among other things) that the WJ Board
breached its fiduciary duty to shareowners in approving the WJ Merger Agreement.
(See "SPECIAL FACTORS--Certain Litigation" on page .)
THE WJ MERGER AGREEMENT
EFFECTIVE TIME OF THE WJ MERGER. The WJ Merger will become effective upon
the filing of a certificate of merger with the California Secretary of State.
The filing will be made after the closing, which is to take place on the later
of January 5, 2000 or promptly after all conditions to the WJ Merger contained
in the WJ Merger Agreement have been satisfied or waived or as otherwise agreed
by the parties. (See "THE WJ MERGER AGREEMENT--Effective Time" on page .)
RESTRICTIONS ON SOLICITATIONS. Pending the closing of the WJ Merger, WJ has
agreed not to solicit any other offers or negotiate with other bidders for a
sale or exchange of any material portion of WJ's assets or any equity interest
in, or any business combination with, WJ or any of its subsidiaries other
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than the Telecommunications Group Sale. However, WJ is not precluded from
providing information or entering into discussions or negotiations with an
unsolicited bidder for the entire company that makes an unsolicited bona fide
written proposal before the adjournment of the special meeting if:
- the WJ Board determines in good faith, having been advised by counsel,
that its failure to authorize such actions would constitute a breach of
the Board's fiduciary duties to WJ shareowners under California law;
- upon receipt of the proposal, WJ notifies FP-WJ of its intention to
furnish the information or begin the discussions and includes a summary of
the material terms of the proposal and the identity of the person making
the proposal; and
- before beginning discussions or providing information
-- WJ determines, in good faith, after consultation with its financial
advisors, that the financial value of the consideration in the
alternative proposal exceeds the financial value of the WJ Merger
consideration; and
-- the financing of the alternative transaction, to the extent required,
is then committed by a third party (this commitment may, in part, be
made in reliance on the firm written commitments of third party
lenders).
(See "THE WJ MERGER AGREEMENT--Restrictions on Solicitations" on page ).
PRINCIPAL CONDITIONS. The obligations of both parties to complete the WJ
Merger are subject to several conditions including:
- WJ shareowner approval of the WJ Merger Proposal;
- absence of any orders, laws or injunctions that may prohibit the WJ Merger
or, as a result of the WJ Merger, would give rise to a "Company Material
Adverse Effect" (as defined in the WJ Merger Agreement); and
- receipt of an opinion concerning the solvency of FP-WJ, WJ and their
respective affiliates, after giving effect to the WJ Merger and related
transactions, from an independent firm that is expert in providing such
opinions and is reasonably acceptable to both parties.
In addition, each party's obligations to complete the WJ Merger is subject
to several other conditions, including:
- the truthfulness (both on October 25, 1999 and, with certain exceptions,
at the closing) of the other party's representations and warranties in the
WJ Merger Agreement; and
- the other party's performance of all its pre-closing obligations under the
WJ Merger Agreement with such exceptions as would not give rise to a
"Company Material Adverse Effect" (in the case of the condition to FP-WJ's
closing obligation) or a "Purchaser Material Adverse Effect" (in the case
of the condition to WJ's closing obligation).
Further, the obligations of FP-WJ to close the WJ Merger is also conditioned
upon:
- there not being shareowners seeking to perfect their dissenters' rights
whose ownership exceeds 5% of the issued and outstanding WJ common stock;
- receipt of all governmental and other consents, agreements, approvals and
permits necessary for completion of the WJ Merger, except those consents
and approvals which could not individually or in the aggregate have a
"Company Material Adverse Effect" as defined in the WJ Merger Agreement;
- the closing of the Telecommunications Group Sale;
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- FP-WJ's receipt of financing on terms and conditions that, in FP-WJ's
reasonable judgment, are not less favorable to it than those contained in
the commitment letter dated October 25, 1999 issued by CIBC World Markets
(on behalf of one or more of its affiliates) in connection with the debt
portion of the financing for the WJ Merger; and
- the absence of a change in generally accepted accounting principles or any
ruling, policy statement, rule, regulation or pronouncement by a
governmental entity or authoritative accounting standards board or body,
the effect of which would be to prevent the WJ Merger from qualifying for
recapitalization accounting treatment in FP-WJ's reasonable judgment
following consultation with its accounting advisors.
(See "THE WJ MERGER AGREEMENT--Conditions to Closing" on pages to .)
TERMINATION. Before the closing, WJ or FP-WJ may terminate the WJ Merger
Agreement:
- with the written consent of the other party;
- as a result of any non-appealable governmental action prohibiting the WJ
Merger;
- if shareowner approval of the WJ Merger Proposal is not received at the
special meeting, except that WJ may not terminate on this ground if:
-- the failure to obtain shareowner approval was caused by WJ's breach of
the WJ Merger Agreement; or
-- FP-WJ is permitted to terminate due to a change in the WJ Board's
recommendation concerning the WJ Merger in a manner that is adverse to
FP-WJ; or
-- the WJ Board fails to recommend rejection of a tender or exchange
offer made for at least 25% of WJ's shares
- if the WJ Merger does not occur by January 31, 2000 or a later agreed-upon
date (except that the right to terminate may not be exercised by a party
that has willfully failed to perform its obligations under the WJ Merger
Agreement);
- if a representation or warranty of the other party is breached and cannot
be cured prior to January 31, 2000 (or a later agreed-upon date) or has
not been cured within 30 days after a notice of the breach.
In addition, FP-WJ may terminate the WJ Merger Agreement if:
- the WJ Board changes its recommendation of the WJ Merger Proposal in a
manner adverse to FP-WJ; or
- the WJ Board fails to recommend against a tender or exchange offer made
for at least 25% of WJ's shares by a third party.
In addition, WJ may terminate the WJ Merger Agreement if Fox Paine Capital
Fund gives WJ written notice that it will not, or it otherwise becomes
manifestly obvious that it has become unable to, fund FP-WJ as required under
its equity commitment letter.
(See "THE WJ MERGER AGREEMENT--Termination of the WJ Merger Agreement" on
pages to .)
TERMINATION FEE; EXPENSES. WJ must pay FP-WJ a $13.25 million termination
fee plus all FP-WJ's costs and expenses in connection with the Merger Agreement
if the WJ Merger Agreement is terminated:
- by FP-WJ based on a breach of a representation or warranty by WJ that
cannot be cured prior to January 31, 2000 (or a later agreed-on date) or
has not been cured within 30 days after notice
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of a breach and an alternative transaction is entered into by WJ during
the twelve months following termination;
- by FP-WJ because the WJ Board changes its recommendation of the WJ Merger
in a manner adverse to FP-WJ;
- by FP-WJ because the WJ Board fails to recommend rejection of a tender or
exchange offer made for at least 25% of WJ's shares by a third party;
- by WJ if WJ's Board decides to withdraw, modify or change its
recommendation of the WJ Merger Proposal due to receipt of a superior
alternative transaction; or
- by either party if the WJ shareowners fail to approve the WJ Merger
Proposal and an agreement for an alternative transaction is entered into
by WJ during the twelve months following termination.
If WJ is required to pay the $13.25 million termination fee plus FP-WJ's
costs and expenses, receipt of the payment by FP-WJ constitutes its sole remedy.
If either party terminates the WJ Merger Agreement because of the other
party's breach, the breaching party must pay the terminating party's costs and
expenses incurred in connection with the WJ Merger Agreement. In any other case
of termination of the WJ Merger Agreement, each party must bear its own costs
and expenses.
(See "THE WJ MERGER AGREEMENT--Termination Fees; Expenses" on pages to
.)
SURRENDER OF CERTIFICATES; PAYMENT FOR SHARES. Promptly after the closing
of the WJ Merger, the paying agent designated by FP-WJ will send to each WJ
shareowner (other than those shareowners holding shares as to which dissenters'
rights are perfected) a letter advising as to the procedures for surrendering
certificates representing shares of WJ common stock in exchange for the $41.125
in cash. The amount of cash actually paid to a WJ shareowner will be reduced by
the amount of any applicable withholding taxes paid by WJ on behalf of such
shareowner. WJ shareowners should not surrender their stock certificates until
they receive the letter from the paying agent. (See "THE WJ MERGER
AGREEMENT--Surrender of Certificates; Payment for Shares" on pages to
.)
DISSENTERS' RIGHTS
Under Chapter 13 of the California General Corporation Law, WJ shareowners
who exercise their dissenters rights under California law (by voting against the
WJ Merger Proposal and properly filing demands for appraisal prior to the
shareowners' vote at the special meeting) will have the right to obtain cash for
the "fair value" of their shares (exclusive of any appreciation or depreciation
in anticipation of the WJ Merger) provided the holders of at least 5% of all
outstanding shares of WJ common stock properly file demands and the WJ Merger is
completed. However, if 5% or more of the outstanding WJ common shares properly
file demands for appraisal, FP-WJ is not obligated to complete the WJ Merger.
(See "DISSENTERS' RIGHTS" on pages to .)
20
<PAGE>
WJ SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND PER SHARE DATA
WJ derived the following selected historical financial data from its audited
financial statements for the years 1994 through 1998 and unaudited interim
financial statements for the nine months ended September 25, 1998 and
September 24, 1999. In the opinion of WJ, the following unaudited information
reflects all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations and financial
condition for the nine months ended September 25, 1998 and September 24, 1999.
Results for interim periods should not be considered indicative of results for
any periods or for the year.
The following information is only a summary and should be read in
conjunction with WJ's historical financial statements and notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in WJ's annual reports, quarterly reports and other
information on file with the Securities and Exchange Commission and incorporated
by reference in this Proxy Statement. See "WHERE YOU CAN FIND MORE INFORMATION
ABOUT WJ" on page .
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
09/24/99 09/25/98 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Sales.................................. $ 98,311 $ 75,910 $ 115,219 $ 104,817 $ 76,683 $ 62,123 $ 65,794
Net income (loss) from continuing
operations........................... 12,121 3,218 5,080 5,036 (6,335) (3,184) 3,969
Net income (loss)...................... $ 23,250 $ (50,920) $ (49,208) $ 32,925 $ 3,034 $ 31,428 $ 20,961
FINANCIAL POSITION:
Working capital*....................... $ 116,586 $ 109,804 $ 83,565 $ 128,381 $ 41,576 $ 41,124 $ 36,273
Total assets........................... 211,957 199,676 202,380 300,942 233,139 232,246 192,428
Long-term obligations.................. 5,868 10,846 8,611 10,534 13,124 16,088 16,574
Shareowners' equity.................... $ 156,131 $ 145,944 $ 133,679 $ 220,987 $ 195,005 $ 191,253 $ 149,626
PER SHARE DATA:
Basic average common shares............ 6,576,000 8,122,000 7,737,000 8,258,000 8,265,000 7,938,000 7,425,000
Diluted average common shares.......... 6,724,000 8,271,000 7,857,000 8,509,000 8,265,000 7,938,000 8,153,000
Basic net income (loss) per share from
continuing operations................ $ 1.84 $ 0.40 $ 0.66 $ 0.61 $ (0.77) $ (0.40) $ 0.53
Diluted net income (loss) per share
from continuing operations........... 1.80 0.39 0.65 0.59 (0.77) (0.40) 0.49
Basic net income (loss) per share...... 3.54 (6.27) (6.36) 3.99 0.36 3.96 2.82
Diluted net income (loss) per share.... 3.46 (6.16) (6.26) 3.87 0.36 3.96 2.57
Dividends per share**.................. 0.36 0.36 0.48 0.48 0.48 0.48 0.48
Shareowners' equity (book value) per
share................................ $ 23.56 $ 20.13 $ 20.42 $ 26.75 $ 23.41 $ 23.54 $ 19.75
</TABLE>
- ------------------------------
*Working capital does not include "Net assets of discontinued operations" of the
defense-related portion of the Microwave Products Group, divested in 1997, and
the Semiconductor Equipment Group, divested in July 1999.
**Paid quarterly
21
<PAGE>
WJ SELECTED PRO FORMA FINANCIAL DATA
WJ derived the following selected pro forma financial information from its
unaudited pro forma combined condensed financial statements appearing under the
caption "PRO FORMA FINANCIAL INFORMATION" on pages to . The table should be
read in conjunction with those statements and related notes.
Although the Telecommunications Group Sale will not be voted on at the
special meeting to which this proxy statement relates, the following information
is being provided because the completion of the Telecommunications Group Sale is
a condition to FP-WJ's obligation to close the WJ Merger but the completion of
the Telecommunications Group Sale is not conditioned on the completion of the WJ
Merger. Accordingly, it is possible that the Telecommunications Group Sale will
close but the WJ Merger will not. The following information presents certain
effects of the Telecommunications Group Sale on WJ's financial statements (as of
the dates indicated in the next paragraph) assuming that the WJ Merger is not
completed.
The pro forma information below under the caption "Operating Results"
presents certain effects of the Telecommunications Group Sale on WJ's financial
statements assuming the transaction was completed on January 1, 1998. The pro
forma information below under the caption "Financial Position" presents certain
effects of the transaction on WJ's financial statements assuming the transaction
was completed on September 24, 1999. The pro forma adjustments are based on
available information and assumptions that WJ believes are reasonable at the
time made. The pro forma amounts shown below are not necessarily indicative of
(i) WJ's actual financial position or results of operations if and when the
proposed Telecommunications Group Sale is completed or (ii) the actual cash
proceeds WJ will realize if the Telecommunications Group Sale is completed.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA AMOUNTS
----------------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 24, 1999
------------------ -------------------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
OPERATING RESULTS:
Sales...................................................... $ 63,568 $ 63,740
Income from operations..................................... 198 2,821
Net income from continuing operations...................... 14,493 10,290
Basic per share amounts:
Net income from continuing operations...................... 1.87 1.56
Diluted per share amounts:
Net income from continuing operations...................... $ 1.84 $ 1.53
Basic average shares outstanding........................... 7,737,000 6,576,000
Diluted average shares outstanding......................... 7,857,000 6,724,000
FINANCIAL POSITION:
Total assets............................................... $ 246,811
Long-term obligations and debt............................. 5,868
Total shareowners' equity.................................. 180,547
</TABLE>
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<PAGE>
RISKS OF THE WJ MERGER
RISKS ASSOCIATED WITH THE TERMINATION FEE IN THE WJ MERGER AGREEMENT
Under the WJ Merger Agreement, there are situations in which WJ would have
to pay FP-WJ a termination fee of $13.25 million plus its transactional expenses
in the event that the WJ Merger Agreement was terminated (see "THE WJ MERGER
AGREEMENT--Termination Fee, Expenses" on page ).
In some of these situations (for instance, if the WJ Board felt it necessary
to change its recommendation of the WJ Merger in a manner adverse to FP-WJ), we
would not necessarily have another buyer to help fund the payment. In other
situations, our ability to find a buyer at an attractive price might be
adversely affected by our obligation to make the payment (for instance, if our
shareowners do not approve the WJ Merger Proposal and we enter into an agreement
with another buyer within a year of the WJ Merger Agreement terminating, whether
or not we close the other transaction).
If we had to make this payment under circumstances where another buyer was
not helping to fund it, this could adversely affect our operations as a
stand-alone company, whether or not the Telecommunications Group Sale is
completed.
RISKS ASSOCIATED WITH THE DEBT PORTION OF THE FINANCING FOR THE WJ MERGER
When a company borrows money to finance an acquisition of its own shares,
there is a risk that, if the company defaults on the loan or the lender takes
the collateral in a foreclosure proceeding, this may precipitate a voluntary or
involuntary bankruptcy proceeding under federal law or a receivership proceeding
under state law.
In such a proceeding, an unpaid creditor, or the company's own trustee or
receiver, could invoke the "fraudulent conveyance" provisions of federal or
state law as a basis for seeking to recover payments that were made by the
company within a specified period before the proceeding was instituted.
WJ intends to borrow money from a lending group in connection with the WJ
Merger. $40 million of this debt is expected to be used to help finance the WJ
Merger itself, I.E., to help pay the $41.125 cash price for each WJ share and to
pay for terminated stock options. This debt, together with any amount later
borrowed under the $15 million revolving credit facility to be provided by the
same lenders for WJ's post-closing working capital needs, will be secured by all
of WJ's assets and will also be senior to other debt WJ may incur. (See "SPECIAL
FACTORS--Financing" on pages to .)
There is a risk that WJ's post-closing operations will not generate
sufficient revenue to service this debt and that WJ could default on its loan
obligations. This could lead to the institution of a bankruptcy or receivership
proceeding by WJ, the lenders or other creditors. In such a proceeding, if a
court determined that the cash payments made to WJ's shareowners or optionees in
the WJ Merger constituted a fraudulent conveyance, it could require some or all
shareowners and optionees to repay all (or a portion) of the cash they received
in the WJ Merger.
To make such determination, the court would have to find that:
- WJ was insolvent when the payment was made; or
- WJ was rendered insolvent by the payment; or
- WJ was engaged in a business or transaction for which its assets
constituted unreasonably small capital; or
23
<PAGE>
- WJ intended to incur, or believed it would incur, debts beyond its ability
to pay as they matured (we have no such intention or belief).
The way in which "insolvency" is tested varies depending upon the law that
is being applied. Under the most common test, WJ would be considered insolvent
if the fair value of its assets was less than the amount of its total debts and
liabilities or if it incurred debt beyond its ability to repay as the debt
matures.
It is a condition to the parties' obligation to close the WJ Merger that
they receive an opinion from an independent expert confirming the solvency of
FP-WJ, WJ and their respective affiliates after giving effect to the WJ Merger
and related transactions, including the financing for the WJ Merger. While this
kind of solvency opinion is often obtained in a leveraged merger transaction
like the WJ Merger, there is a risk that a court would disagree with the
opinion.
There have been very few, if any, cases where the fraudulent conveyance laws
have been applied to force shareholders to repay cash received by them in
leveraged mergers involving public companies with which they were not affiliated
and in which they did not play an active role. Moreover, a number of courts have
held that payments made to shareholders of acquired companies through financial
intermediaries are not recoverable under the fraudulent conveyance doctrine.
Under these holdings, payments made to former WJ shareowners in the WJ Merger by
the paying agent designated by FP-WJ would not be recoverable.
Nevertheless, we cannot assure you of a favorable outcome if WJ defaults on
the debt incurred to finance the WJ Merger, this precipitates a bankruptcy or
similar proceeding and a claim is made in that proceeding to recover the
payments made to you in the WJ Merger.
24
<PAGE>
SPECIAL FACTORS
BACKGROUND OF THE WJ MERGER
IN 1997, WJ DECIDED TO DIVEST THE DEFENSE-RELATED PORTION OF THE
MICROWAVE PRODUCTS GROUP AS WELL AS ITS UNUSED REAL ESTATE
In the fall of 1996, in the course of preparing WJ's five-year strategic
plan and the related 1997 tactical operating plan, WJ's senior management
determined that WJ should consider divesting the defense-related portion of its
Microwave Products Group located in Palo Alto, California. Senior management
believed that the prospects for growth in that business were low due to
decreased Federal defense spending and a consolidation trend in the industry.
Senior management also believed that the proceeds received in the divestiture
would generate greater shareowner value if redeployed in WJ's other businesses.
In presenting the 1997 tactical operating plan at a Board meeting on
January 27, 1997, Dr. W. Keith Kennedy, Jr., WJ's President and Chief Executive
Officer, proposed this divestiture and the Board authorized him to pursue it.
As a further step to convert under-utilized assets into cash, the WJ Board
authorized the sale of approximately 15 acres of land at WJ's San Jose facility
and WJ's leasehold interest in approximately seven acres of land at its Palo
Alto facility. In December 1997, an exchange of interests between WJ and its
sublessor relating to a portion of the Palo Alto leased property resulted in a
pre-tax gain of approximately $7.6 million for WJ. In January 1998, the San Jose
land was sold for a pre-tax gain of approximately $15 million.
During February and March 1997, WJ's senior management considered the most
appropriate strategy for divesting the defense-related portion of the Microwave
Products Group. In March 1997, WJ engaged an investment banking firm with which
it had previously worked to act as its financial advisor for the divestiture (to
distinguish this firm from CIBC World Markets, WJ's financial advisor in
connection with the WJ Merger and other matters referred to below, this other
firm is referred to as the "Other Investment Banking Firm"). On April 7, 1997,
WJ publicly announced that WJ would divest this business if WJ received a price
that reflected its intrinsic value and profit-making potential.
IN OCTOBER 1997 WJ SOLD THE DEFENSE-RELATED PORTION OF ITS MICROWAVE
PRODUCTS GROUP AND CONCENTRATED ON ENHANCING THE VALUE OF ITS REMAINING
BUSINESSES, PARTLY THROUGH ACQUISITIONS
During the next several months, WJ's senior management and the Other
Investment Banking Firm met with numerous potential buyers of the
defense-related portion of the Microwave Products Group. The WJ Board was
periodically updated on the status of this initiative. On August 19, 1997, the
Board authorized the sale of this business (which had been contributed to a
wholly-owned subsidiary) to whichever of the two remaining bidders offered more
advantageous terms. On September 2, 1997, WJ entered into a definitive agreement
to sell that subsidiary to Mentmore Holdings Corporation for total consideration
of approximately $103 million. The transaction was completed on October 31,
1997.
Following the Mentmore transaction, WJ's senior management continued to
concentrate on enhancing the value of WJ's Semiconductor Equipment Group, the
Telecommunications Group and WJ's Wireless Products Group (the new name for the
remaining portion of the Microwave Products Group). As part of this initiative,
WJ started to look for opportunities to apply the proceeds from the Mentmore
transaction and the sale of undeveloped real estate to investments in each of
these continuing businesses.
In December 1997, WJ acquired the assets of the Microwave Semiconductor
Division of Samsung Semiconductor, Inc. for aggregate consideration of
$6 million. The acquisition provided WJ with
25
<PAGE>
increased capacity to manufacture gallium-arsenide field effect transistors. The
Wireless Products Group sells these transistors as individual devices and also
uses them in other products it manufactures.
Between September 1997 and May 1998, WJ's senior management and the Other
Investment Banking Firm attempted to identify strategic acquisitions or joint
ventures that would increase the global competitiveness of the Semiconductor
Equipment Group. However, all of the possible transactions that they considered
would have diluted, rather than increased, WJ's earnings. The WJ Board has had a
long-standing policy requiring that any acquisition must be accretive to WJ's
earnings within a two year period from closing. In light of this policy, and
having regard to its view that a dilutive acquisition would be particularly
unattractive during a period when the market was (in the Board's opinion)
undervaluing WJ's stock, WJ did not pursue these possible transactions.
IN MAY 1998 WJ DECIDED TO EXPLORE THE POSSIBLE DISPOSITION OF ITS
SEMICONDUCTOR EQUIPMENT BUSINESS AND CONCENTRATE ON ENHANCING THE
VALUE OF ITS WIRELESS PRODUCTS AND TELECOMMUNICATIONS GROUPS
On May 18, 1998, Dr. Kennedy made a presentation to the WJ Board on the
business prospects for the Semiconductor Equipment Group in light of the lack of
acquisition or joint venture opportunities that would have increased WJ's
earnings. The WJ Board concluded that a disposition of the Semiconductor
Equipment Group should be explored because, if it could be accomplished, WJ
could concentrate its resources on the Telecommunications Group and the Wireless
Products Group. Accordingly, in June 1998, WJ engaged the Other Investment
Banking Firm to act as its financial advisor for such a possible transaction.
During June and July 1998, WJ's senior management and the Other Investment
Banking Firm explored a disposition of the Semiconductor Equipment Group. On
July 27, 1998, Dr. Kennedy made a presentation to the WJ Board on the status of
this initiative and potential uses of the proceeds. The Board agreed that the
potential proceeds would be most productively used for acquisitions that would
enhance the Telecommunications Group or the Wireless Products Group.
Accordingly, WJ engaged CIBC World Markets in September 1998 primarily to assist
in identifying a wireless components company that would add to WJ's earnings.
On September 28, 1998, the President of the Wireless Products Group made a
presentation to the WJ Board on that Group's business prospects. He explained
that WJ was actively seeking acquisition candidates in the RF filter market as
the ability to produce and integrate RF filters (an important device in setting
the performance parameters of the Group's products) would be a strong addition
to the Group's business. However, the outcome of this search was not successful
as all of the potential acquisitions that WJ considered were viewed as dilutive
to earnings.
At the same September 28, 1998 meeting, Dr. Kennedy reported to the WJ Board
on the expected strategy and configuration of WJ following a disposition of the
Semiconductor Equipment Group. The Board asked Dr. Kennedy to prepare an
analysis of various scenarios for further discussion.
Also at the September 28, 1998 meeting, the WJ Board authorized the sale of
the remaining portion of the San Jose facility on approximately 14.3 acres of
land along with a 190,000 sq. ft. building in order to generate cash for
investment in WJ's businesses. This property was sold in September 1999 for net
proceeds of approximately $17.0 million.
IN THE SECOND AND THIRD QUARTERS OF 1998, WJ RESPONDED TO
DIFFICULT MARKET CONDITIONS BY RESTRUCTURING ITS SEMICONDUCTOR
EQUIPMENT AND TELECOMMUNICATIONS GROUPS AND RESUMING A SIGNIFICANT
STOCK REPURCHASE PROGRAM
During the second and third quarters of 1998, in response to difficult
market conditions, WJ's senior management and the management of WJ's
Telecommunications Group together reviewed the market opportunities for the
Telecommunications Group's major new product initiative, the Base(2) -TM-
26
<PAGE>
Cellular Wireless Base Station. This review resulted in a decision to reposition
the Telecommunications Group by discontinuing this product, resulting in a
write-down of the associated assets that were included in the restructuring
charge referred to below.
During the third quarter of 1998, also in response to difficult market
conditions, WJ's senior management and the management of WJ's Semiconductor
Equipment Group reviewed that Group's market opportunities. This review resulted
in a decision to reduce the size of the Semiconductor Equipment Group to match a
lower level of forecasted revenue by reducing staff and inventory. Also as part
of this reduction, WJ discontinued the Group's high-density plasma
chemical-vapor-deposition product initiative, resulting in a write-down of the
associated assets. The intellectual property related to this product was offered
to potential buyers.
In the third quarter of 1998, WJ incurred a restructuring charge because of
the actions taken to reposition the Telecommunications Group and reduce the size
of the Semiconductor Equipment Group. This restructuring resulted in a net loss
from operations of approximately $54.4 million, or $6.93 per share, for that
quarter.
WJ's stock, which had been trading at a depressed value during 1998, further
declined during the third quarter of that year. Acting on a prior authorization
by the WJ Board, WJ increased the scope of its ongoing stock repurchase program.
During the third quarter of 1998, the WJ Board increased the share repurchase
authorization by 1,000,000 shares to a maximum of 3,500,000 shares. WJ completed
the entire 3,500,000-share repurchase program by early December 1998.
In June 1998, Fairchild Corporation approached WJ regarding Fairchild's
potential interest in acquiring either WJ in its entirety or the Semiconductor
Equipment Group. Subsequently, Dr. Kennedy met on two occasions with Fairchild's
chairman, who expressed Fairchild's interest in general terms, without giving
any indication of possible purchase prices. At the second of these meetings, on
October 12, 1998, Fairchild's chairman advised Dr. Kennedy that Fairchild had
acquired more than 5% of WJ's shares and would be reporting its ownership to the
Securities and Exchange Commission in a Schedule 13D. On October 23, 1998,
Fairchild and one of its wholly-owned subsidiaries filed a Schedule 13D with the
Securities and Exchange Commission reporting the acquisition of approximately 7%
of WJ's outstanding shares. In its filing, Fairchild reported that it had
acquired the shares because it believed the market price of WJ's common stock
did not adequately reflect the value of WJ's underlying business and assets. In
addition, Fairchild reported that it had held discussions with WJ's senior
management prior to the date of its filing regarding ways in which the value of
WJ's shares might be enhanced, including the sale of all or part of WJ to
Fairchild. Fairchild expressed particular interest in the Semiconductor
Equipment Group. Over the course of the next approximately three months,
Fairchild and WJ had preliminary discussions concerning a possible sale of the
Semiconductor Equipment Group to Fairchild but in late January 1999 Fairchild
advised WJ that Fairchild did not wish to continue the discussions.
Subsequently, Fairchild filed amendments to its Schedule 13D reporting sales of
its WJ shares that reduced its holdings to below the 5% reporting threshold.
IN THE FOURTH QUARTER OF 1998, WJ BEGAN TO EXPLORE ALL STRATEGIC
ALTERNATIVES INCLUDING THE POSSIBLE SALE OF WJ OR ALL OF ITS
REMAINING BUSINESSES
In the fourth quarter of 1998, WJ's senior management completed WJ's 1999
strategic plan and tactical operating plan. These plans contemplated the
redeployment of certain assets, including the proceeds to be received from the
possible disposition of the Semiconductor Equipment Group and unused real
estate, into the business of the Wireless Products Group. However, in accordance
with the WJ Board's desire to explore various alternate scenarios and in light
of Fairchild's expressed interest in acquiring all or part of WJ, in November
1998 WJ expanded CIBC World Markets' role as WJ's financial advisor. In this
expanded role, CIBC World Markets was engaged to advise WJ in connection with
possible transactions in which third parties might acquire all or part of WJ
(other than the possible disposition of the Semiconductor Equipment Group and
the sale of the high density plasma-
27
<PAGE>
related intellectual property, for which the Other Investment Banking Firm had
already been retained). CIBC World Markets, with the assistance of WJ's senior
management, then began to evaluate WJ's strategic alternatives, including the
possible sale of all of WJ or all of its remaining businesses.
On November 23, 1998, the WJ Board received a presentation from Dr. Kennedy
related to WJ's alternatives for increasing shareowner value over the long term,
as well as the discussions with Fairchild. The Board also received a
presentation from Heller Ehrman White & McAuliffe, WJ's general outside counsel,
on various legal matters in connection with the Board's consideration of a
possible sale of the entire company or its component businesses, as well as
Fairchild's Schedule 13D filing.
On December 10, 1998, the WJ Board reviewed with CIBC World Markets the
status of the ongoing evaluation of WJ's strategic alternatives. At the same
meeting, the Board amended WJ's shareholder rights plan to decrease from 15% to
10% the threshold level of common stock ownership that would trigger the
issuance of share purchase rights dilutive to a non-Board approved acquirer. The
Board also adopted bylaw amendments requiring that shareholder nominations to
the Board and proposals for other business to be considered at annual shareowner
meetings had to be received by WJ within a period of 45 to 75 days prior to the
first anniversary of the prior year's meeting. The WJ Board concluded that these
actions were critical to its ability to retain control over the process of
selecting and implementing the best strategy to maximize shareowner value. In
reaching this conclusion, the Board took into consideration the Schedule 13D
filed by Fairchild in October 1998 and the possibilities that Fairchild might
seek to pursue its stated interest in WJ on a non-negotiated basis and that the
filing of the Fairchild Schedule 13D might prompt other parties to take
unsolicited action in connection with a possible acquisition of WJ.
In January 1999, WJ received a request from Sandera Partners, L.P., an
investment partnership, to nominate two of Sandera's principals to the WJ Board.
Sandera stated that it owned 2.5% of WJ's common stock. At a January 25, 1999
meeting, Dr. Kennedy described to the WJ Board his discussions with Sandera. He
told the WJ Board that Sandera had stated its general opposition to the
redeployment of WJ's assets and its belief that the Board should pursue a sale
of WJ. The WJ Board concluded that Board representation for Sandera was not
warranted by the size of Sandera's investment in WJ. The Board also decided to
solicit proxies against the Sandera nominees if Sandera pursued its request in a
formal bylaw notice.
At the same January 25, 1999 meeting, the WJ Board also authorized WJ's
senior management to oversee the preparation of proxy materials soliciting
shareowner approval for amendments to WJ's articles and bylaws. These amendments
would eliminate (i) 80% supermajority shareholder voting requirements for sales
of WJ and various other corporate governance changes and (ii) 75% supermajority
director voting requirements for amendments to the bylaws and various other
corporate actions. WJ explained to its shareowners, in soliciting their approval
of these amendments in its proxy statement dated March 17, 1999 issued in
connection with the 1999 annual meeting, that the purpose of the proposed
elimination of the 80% supermajority shareowner voting requirements was to
prevent holders of a minority of its shares from having a "blocking" position
with respect to important and fundamental matters, including the sale of all or
substantially all of WJ's assets or a merger involving WJ, and thereby impede
WJ's strategy of pursuing the sale of the company in its entirety or its
component businesses. WJ also explained to shareowners in its proxy materials
that the purpose of the proposed elimination of the 75% supermajority director
voting requirements was to prevent a minority of directors (such as the Sandera
designees, if they were nominated and elected) from creating deadlock on the WJ
Board, thereby hampering the conduct of business and preventing action (such as
approving a sale of WJ or one of its component businesses) that a majority of
the directors believed to be in the best interests of shareowners. At the 1999
annual meeting, the shareowners approved the elimination of the supermajority
shareholder voting requirements but the proposed elimination of the
supermajority director voting requirements failed to obtain the required 80%
shareowner vote.
28
<PAGE>
Also at the January 25, 1999 meeting, the WJ Board again reviewed with CIBC
World Markets the status of the ongoing evaluation of WJ's strategic
alternatives. The Board authorized WJ's senior management, with the assistance
of CIBC World Markets, to prepare a confidential information memorandum for
distribution to potential acquirers in the event the Board later decided to
pursue a sale of all or part of WJ.
ON FEBRUARY 10, 1999, SANDERA FILED A PRELIMINARY PROXY STATEMENT
WITH THE SECURITIES AND EXCHANGE COMMISSION SOLICITING PROXIES TO
REPLACE THREE OF THE CURRENT DIRECTORS WITH THREE OF ITS OWN
NOMINEES AT THE 1999 ANNUAL SHAREOWNERS MEETING.
Throughout February 1999, WJ's senior management and CIBC World Markets
continued to evaluate WJ's options for increasing shareowner value.
On February 22, 1999, the WJ Board reviewed with senior management and
Heller Ehrman White & McAuliffe a proposed sale of WJ's high density
plasma-related intellectual property to Applied Materials, Inc. The Board
authorized the sale and WJ completed it on March 31, 1999, for a total gain of
approximately $9 million. The Board also reviewed with senior management and
CIBC World Markets the ongoing preparation of a confidential memorandum in the
event that the Board elected to pursue a sale of all or part of WJ.
ON FEBRUARY 26, 1999 THE WJ BOARD DECIDED TO PURSUE THE SALE OF WJ
IN ITS ENTIRETY OR ITS COMPONENT BUSINESSES AS THE BEST STRATEGY
TO MAXIMIZE SHAREOWNER VALUE. THIS DECISION WAS PUBLICLY ANNOUNCED
ON MARCH 1, 1999
On February 26, 1999, the WJ Board again considered WJ's strategic
alternatives. The Board concluded that the best strategy to maximize shareowner
value was to pursue the sale of WJ in its entirety or as separate businesses
rather than selling only certain businesses and assets. In reaching this
conclusion, the Board took into consideration the fact that, in its view, WJ's
stock was undervalued in the marketplace. The Board believed that the basic
reason for this was that WJ was engaged in businesses with varying historical
results and future prospects, and the market had difficulty in categorizing WJ's
industry and identifying comparable companies for purposes of pricing WJ's
stock. The Board also believed that, even if WJ's exploration of a possible
disposition of its Semiconductor Equipment Group resulted in a sale of that
business, this problem would likely continue because the increasing independence
of the two remaining businesses (I.E., the Wireless Products Group and the
Telecommunications Group) from each other would likely not be reflected in WJ's
stock price. The Board also took account of the fact that there was increasing
consolidation in the wireless industry generally and, since WJ had not been able
to find accretive acquisitions to grow its business base and raise its stock
price, shareowner value would be more effectively enhanced by WJ seeking to
pursue a sale of itself (either in its entirety or as separate businesses)
rather than continuing its search for accretive acquisitions. The Board was also
concerned that if WJ sold either the Wireless Products Group or the
Telecommunications Group, the remaining business would face significant
competitive challenges as a stand-alone public company without an infusion of
new capital.
At the same February 26, 1999 meeting, Dr. Kennedy updated the Board on the
progress of the disposition of the Semiconductor Equipment Group. He reported
that, after discussions with interested parties, Silicon Valley Group, Inc. had
emerged as the bidder with the most attractive proposal and he outlined the
proposed terms of the transaction.
On March 1, 1999, WJ filed proxy materials for the 1999 annual shareowners
meeting with the Securities and Exchange Commission. On the same date, WJ
publicly announced the WJ Board's conclusion that pursuing a sale was the best
course of action for maximizing shareowner value. The announcement also reported
the Board's opposition to the Sandera nominees. Later that day, Sandera withdrew
its nominations.
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Over the next two months, WJ and Silicon Valley Group negotiated the terms
of a sale of WJ's Semiconductor Equipment Group. On May 3, 1999, WJ announced
that it had entered into a definitive agreement to sell the assets of the Group
to Silicon Valley Group. The sale was completed on July 6, 1999 for total
consideration (including the sale of associated real estate in Kawasaki, Japan,
to Silicon Valley Group and the sale of associated real estate in Scotts Valley,
California, which WJ sold to a third party on behalf of Silicon Valley Group) in
excess of $70 million, including receivables retained by WJ and the assumption
of the debt associated with the Japanese property by Silicon Valley Group.
BETWEEN MARCH AND JULY 1999 A SUBSTANTIAL NUMBER OF POTENTIAL
BIDDERS WERE APPROACHED ABOUT POSSIBLY PURCHASING ALL OR PART OF
WJ AND THE BIDDING PROCESS NARROWED. MARCONI NORTH AMERICA EMERGED
AS THE PREFERRED BIDDER FOR THE TELECOMMUNICATIONS GROUP AND A
DEFINITIVE SALE AGREEMENT WAS SIGNED IN AUGUST 1999.
Meanwhile, to implement the WJ Board's strategy regarding the rest of WJ,
CIBC World Markets, at the direction of WJ, contacted approximately 99 potential
bidders, including Fox Paine, to determine their interest in buying WJ in its
entirety or its component businesses. Most of these potential bidders were
selected through discussions between WJ senior management and CIBC World
Markets, which were focused on identifying companies that--by reason of their
current businesses, known or perceived expansion plans, reputations, track
records, and financial resources--would likely be potentially interested in one
or more of WJ's component businesses and capable of making and implementing
attractive proposals. Other potential bidders were approached in response to
their own indications of interest, received after WJ's public announcement that
it was pursuing a sale process. Approximately 48 of those potential bidders
signed confidentiality agreements with WJ and received the confidential
information memorandum. Approximately 13 of those potential bidders indicated
interest and received additional confidential information.
During this process, it became clear from the responses of the interested
parties that WJ would achieve greater value for shareowners by selling the
Telecommunications Group and the rest of the company (principally the Wireless
Products Group) in separate transactions because the high end of the ranges of
value ascribed to WJ as an entirety by those bidders that expressed interest in
acquiring the whole company (I.E., both the Wireless Products Group and the
Telecommunications Group) were markedly lower than the sum of the high ends of
the ranges of value ascribed to the Telecommunications Group by those bidders
that expressed interest in acquiring only that Group and to the entirety of WJ
excluding the Telecommunications Group by those bidders that expressed interest
in acquiring WJ but did not want to own the Telecommunications Group. This was
the case even after taking into account that WJ might have to pay taxes if it
sold the Telecommunications Group for cash in an asset transaction whereas a
sale of the entire company in a merger would not be taxable at the corporate
level.
On July 26, 1999, Dr. Kennedy made a presentation to the WJ Board on the
status of the potential sale of WJ or its component businesses. He advised the
WJ Board that WJ had received a total of eight formal bids, comprising two for
WJ in its entirety, three for the Telecommunications Group and three for all of
WJ excluding the Telecommunications Group. After Dr. Kennedy described the bids
for the Telecommunications Group, the Board authorized WJ's senior management to
negotiate a definitive agreement for the sale of the Telecommunications Group
with BAe North America or, if those negotiations failed, with the other
competitive bidder. Regarding the bids for all of WJ excluding the
Telecommunications Group, Dr. Kennedy advised the WJ Board that one of the bids
contemplated consideration consisting partly of cash and partly of a continuing
publicly-traded equity interest in WJ, which would be combined with a business
owned by the bidder. He explained to the Board the substantial uncertainty that
existed as to the value of the equity portion of the consideration,
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which made it unlikely that the combined package would be comparable in total
value to the approximately equal all-cash offers made by the other two bidders.
The WJ Board authorized senior management to conduct parallel negotiations with
both of those cash bidders.
During the three weeks following the July 26, 1999 WJ Board meeting, WJ's
senior management negotiated the definitive agreement for the sale of the
Telecommunications Group with BAe North America while BAe North America
completed its due diligence on the Telecommunications Group.
At a meeting on August 17, 1999, the WJ Board reviewed with Dr. Kennedy and
CIBC World Markets the results of the bidding process. The Board received
presentations from Heller Ehrman White & McAuliffe and CIBC World Markets
concerning the terms of the Telecommunications Group Sale Agreement that had
been negotiated with Marconi North America. The Board authorized WJ to sign the
Telecommunications Group Sale Agreement.
On August 18, 1999, WJ entered into the Telecommunications Group Sale
Agreement, which was publicly announced after the close of trading on the New
York Stock Exchange.
IN SEPTEMBER 1999 FOX PAINE MADE THE MOST ATTRACTIVE PROPOSAL FOR ALL OF WJ
EXCLUDING THE TELECOMMUNICATIONS GROUP
At the same time that the negotiations with Marconi North America were
proceeding for the sale of the Telecommunications Group, WJ senior management,
with the assistance of CIBC World Markets, continued to pursue the sale of the
rest of WJ. WJ's goal was to conclude an agreement in time to be able to
complete a sale of the rest of WJ as soon as possible after the closing of the
Telecommunications Group Sale. By around the time the WJ Board approved the
Telecommunications Group Sale on August 18, 1999, one of the two remaining
competitive bidders for WJ had advised WJ that its bid was being withdrawn as it
was no longer interested in pursuing a transaction with WJ. Accordingly, for
approximately the next three weeks, negotiations were focused on the other
competitive bidder.
Up until this time WJ had not been negotiating with Fox Paine regarding an
acquisition of WJ because, although Fox Paine had received confidential
information and expressed an interest at an earlier stage in the process, its
indicated price range had been several dollars per share lower than the price
ranges offered by the other bidders with which WJ had been negotiating. However,
in the second week of September 1999 Fox Paine expressed renewed interest in an
acquisition by its managed funds (in the form of a leveraged recapitalization
merger) of control of WJ, excluding the Telecommunications Group, at an
increased price which WJ believed could be comparable to the one remaining
competitive bidder's price. Fox Paine and the other bidder both indicated that
they were willing to pursue the negotiations only if WJ entered into an
exclusive negotiation agreement. WJ then gave both bidders an opportunity to
submit their final offers and both submitted bids in response. Fox Paine's bid
was consistent with the price range WJ had expected from its discussions with
Fox Paine but the other bidder reduced its previous bid.
On September 27, 1999, Dr. Kennedy advised the WJ Board regarding the status
of the negotiations. By the time of this meeting, it appeared to WJ senior
management that Fox Paine had made the most attractive proposal for the whole of
WJ excluding the Telecommunications Group because its proposal offered a higher
per share price than the other bidder's; was conditioned on a substantially
lower amount of debt financing; and contemplated a significant equity
contribution as part of the financing arrangements in addition to WJ's own cash
(in contrast, the other bid contemplated financing consisting entirely of debt
and WJ's own cash). At the meeting, the Board authorized Dr. Kennedy to enter
into an agreement for exclusive negotiations with either Fox Paine or, if those
negotiations were unsuccessful, with the other bidder. Dr. Watkins told the
Board he was abstaining on the vote to give Dr. Kennedy this authority because
he was considering suggesting to Fox Paine that he
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might be willing to roll over the WJ shares beneficially owned by him so as to
retain an equity interest in WJ instead of his WJ shares being converted into
the cash merger price if Fox Paine was the successful bidder. Dr. Watkins also
advised the Board that he would not participate in any of its further
deliberations or votes regarding the sale of WJ, or receive any information on
that subject, if discussions between him and Fox Paine began and for so long as
they continued.
Following the WJ Board meeting, on September 27, 1999, WJ and Fox Paine
entered into an agreement for a 21-day exclusive negotiation period
(subsequently extended). During the next several weeks, WJ senior management and
Fox Paine negotiated the terms of the WJ Merger Agreement and Fox Paine
conducted due diligence on WJ. Concurrently with those negotiations, Fox Paine
pursued discussions with a CIBC World Markets team different from the financial
advisory team advising WJ (see "Opinion of WJ's Financial Advisor" on page and
"The WJ Board's Reasons and Recommendations on page ) regarding the bank
financing that CIBC World Markets was arranging for Fox Paine. During the same
period, Dr. Watkins had separate negotiations with Fox Paine on the terms on
which he might roll over his shares and retain an equity interest in WJ
following the closing.
On October 1, 1999, WJ announced that it completed the sale of one of its
long-term lease interests in Palo Alto, California to Stanford University,
resulting in approximately $54 million in pre-tax proceeds. Within a few days of
this sale, it became clear to WJ that it would be able to sell its remaining
Palo Alto leasehold interest only if it was willing to accept a price
several million dollars less than the price WJ had earlier shared with Fox Paine
and the other bidder as the price WJ believed the lease should attract and which
it expected to be offered. When WJ shared this conclusion with Fox Paine in the
course of their exclusive negotiations, Fox Paine lowered its price to $41.125
per share (the price ultimately included in the WJ Merger Agreement) but
indicated that, at that price, it was willing to proceed with the negotiations
without conditioning the closing of a transaction on the sale of that remaining
lease. WJ took note of the fact that the other bidder, whose bid was to be
financed solely by debt and WJ's cash, had conditioned its previous final bid on
all of WJ's real estate, including this lease, being sold before the closing. WJ
concluded that if it invited the other bidder back into the bidding process and
shared this conclusion with the other bidder, the other bidder would either
withdraw its bid or reduce its earlier bid (which had been higher than Fox
Paine's current bid of $41.125 per share) by at least a corresponding amount, in
which event Fox Paine's reduced bid would continue to be superior for the
reasons considered by the WJ Board when it had compared the two earlier bids on
September 27, 1999 (I.E., the higher price of the Fox Paine bid, and the
substantially higher debt component, and the absence of any equity component, in
the other bid). Accordingly, WJ determined that there was a substantial risk
that, in re-admitting the other bidder to the bidding process and terminating
exclusive negotiations with Fox Paine, Fox Paine would withdraw its bid with no
assurance that an acceptable price could be obtained from the other bidder. For
these reasons, WJ decided that it was in the best interests of its shareowners
to continue the negotiations with Fox Paine, with a view to reaching a
definitive agreement as quickly as possible to preserve the benefits of Fox
Paine's bid.
On October 25, 1999, Dr. Kennedy reported to the WJ Board on the status of
the negotiations with Fox Paine, and Heller Ehrman White & McAuliffe made a
presentation to the WJ Board on the detailed terms that had been negotiated with
Fox Paine. In addition, CIBC World Markets delivered to the WJ Board an oral
opinion, confirmed by the delivery of a written opinion dated October 25, 1999,
to the effect that, as of that date and based on, and subject to, the matters
described in its opinion, the $41.125 per share cash consideration to be
received in the WJ Merger by holders of WJ common stock (other than the Watkins
Trust, as to which CIBC World Markets was not asked to express an opinion) was
fair, from a financial point of view, to them. CIBC World Markets also reviewed
with the Board the financial analyses that it performed in connection with its
opinion. The Board (with Dr. Watkins not participating in the meeting or the
vote) authorized WJ to sign the WJ Merger Agreement.
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Later on October 25, 1999, WJ entered into the WJ Merger Agreement with
FP-WJ, which was the newly-formed entity organized by Fox Paine Capital Fund for
the purpose of accomplishing the WJ Merger. The signing of the WJ Merger
Agreement was publicly announced before the opening of trading on the New York
Stock Exchange the next day.
PARTIES
For a description of the parties to the WJ Merger Agreement, see
"SUMMARY--Special Factors--PARTIES" on page .
THE WJ BOARD'S REASONS AND RECOMMENDATION
The following is a discussion of the factors considered by WJ's Board in
making its decision to approve and recommend the WJ Merger and in concluding
that it is fair to the WJ shareholders (other than the Watkins Trust, as to
which the Board formed no view). That decision was unanimous except that
Dr. Watkins did not participate in the deliberations or the vote because of the
proposed retention of an equity interest in the post-closing WJ by the Watkins
Trust. The following discussion is not intended to be exhaustive but it
summarizes the material factors taken into account by the WJ Board in making its
decision. The WJ Board did not assign any relative or specific weight as between
those factors nor did it specifically characterize any factor as positive or
negative (except as described below). Individual directors may have given
differing weights to particular factors and may have viewed any single factor
more positively or negatively than other directors. In view of the participation
of the entire Board (except Dr. Watkins) in the decision to authorize exclusive
negotiations with Fox Paine and in considering the WJ Merger and the
presentations regarding it from WJ's outside legal and financial advisors, and
because the entire Board (with the exception of Dr. Kennedy) consists of
non-employee directors, the non-employee members of the WJ Board did not retain
a non-affiliated representative to act solely on behalf of WJ's public
stockholders in negotiating the transaction or to report on its fairness.
Throughout its deliberations, the WJ Board consulted with WJ's senior
management and its legal and financial advisors.
THE WJ BOARD RECOMMENDS THAT WJ SHAREOWNERS VOTE "FOR" THE WJ MERGER
PROPOSAL
THE DECISION TO RECOMMEND THE WJ MERGER RESULTED FROM THE WJ BOARD'S EVALUATION
OF THE RESULTS OF THE BIDDING PROCESS THAT FOCUSED ON THE WIRELESS PRODUCTS
GROUP AFTER WJ ANNOUNCED THE
TELECOMMUNICATIONS GROUP SALE AGREEMENT
The WJ Board's decision to approve the WJ Merger and recommend the WJ Merger
Proposal stems from its decision on February 26, 1999 to pursue the sale of WJ
in its entirety or its component businesses. For a discussion of the reasons for
this decision, as well as a discussion of the Board's reasons for its subsequent
selection of Fox Paine as the bidder with which WJ senior management should
exclusively negotiate a definitive agreement for the acquisition of the entirety
of WJ except the Telecommunications Group, see "Background of the WJ Merger" on
pages to .
At its October 25, 1999 meeting, the WJ Board considered, with the
assistance of Dr. Kennedy and CIBC World Markets, the results of the bidding
process for WJ in its entirety exclusive of the Telecommunications Group (which
was already under contract to be sold in accordance with the Telecommunications
Group Sale Agreement). At that meeting, the WJ Board approved the WJ Merger
Agreement. The Board concluded that Fox Paine's bid maximized the value of the
Wireless Products Group and WJ's other assets (including the anticipated further
collection of the pre-sale receivables of its former Semiconductor Equipment
Group and the anticipated proceeds of the Telecommunications Group Sale, net of
WJ's related tax obligations). The Board decided that the merger of FP-WJ into
WJ
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on the terms contained in the WJ Merger Agreement was fair to, and in the best
interests of, WJ and its shareowners.
In reaching this decision, the WJ Board considered Fox Paine's bid in
relation to all other bids received for the Wireless Products Group and for WJ
in its entirety exclusive of the Telecommunications Group since the initiation
of the sale process. The Board took into account the number of potential bidders
that had been approached, the number that had submitted formal bids and the
terms of those bids, as well as the fact that WJ's interest in selling the
company in its entirety or its component businesses had been a matter of public
record since March 1, 1999. The Board also noted that the signing of the
Telecommunications Group Sale Agreement and WJ's intention to continue pursuing
the sale of the rest of the company had been a matter of public record since
August 18, 1999.
The WJ Board recognized that all of the bids it had received for WJ in its
entirety exclusive of the Telecommunications Group had contemplated some form of
leveraged acquisition financed with substantial bank borrowings and WJ's own
cash. The Board considered that the prospect of finding a buyer that was willing
and able to finance a transaction from its own cash or other resources were
remote and that WJ needed to be willing to accept a leveraged transaction--with
a corresponding financing condition--as the best realistic alternative for
providing shareowners with a cash acquisition of their shares.
THE WJ BOARD CONSIDERED THE RISKS AND UNCERTAINTIES ASSOCIATED WITH OPERATING
THE WIRELESS PRODUCTS
GROUP AS A STAND-ALONE PUBLIC COMPANY
The WJ Board took into account the possibility that if it did not approve
the WJ Merger Agreement--which it viewed as offering the best transaction for
the remaining company--WJ might not be able to find another buyer on acceptable
terms before, or within a reasonable period after, the completion of the
Telecommunications Group Sale. The Board concluded that, if the
Telecommunications Group Sale was completed without WJ having entered into an
agreement to sell the remainder of the company, both WJ and its shareowners
would face several risks:
- Uncertainty as to whether, or when, any of the net after-tax proceeds of
the Telecommunications Group Sale (assuming that transaction was
completed) or the earlier dispositions and asset sales would be directly
received by shareowners.
- The operational challenges and market price uncertainty that would
confront WJ in operating its only remaining business--the Wireless
Products Group--as a stand-alone public company, including:
-- the need to reduce its expenses, with possible resulting disruption to
its business and effects on its operating results and financial
condition;
-- the possibility that employees, including key personnel, might choose
not to remain with WJ; and
-- the competitive pressures it would face from several competitors in
the wireless products business which are larger and have significantly
greater resources.
- The possibility that, to address these risks, WJ might decide to retain a
substantial portion of the net after-tax proceeds of the
Telecommunications Group Sale and the earlier completed dispositions and
asset sales as working capital.
-- This would reduce the amount available to buy back outstanding shares
if WJ decided to authorize such a repurchase as a means of enabling
shareowners to participate in some of the cash realized from the
completed transactions in the absence of an acquisition of the entire
company.
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- The fact that, even if WJ did authorize a share repurchase as an
alternative to a sale of the remainder of the company, it was very
unlikely that individual shareowners would be able to sell their entire
holdings of WJ shares to WJ in any transaction of that kind.
- The reduction in WJ's market capitalization that would result in any such
repurchase.
-- This could cause WJ's common stock to lose some of its current
following among institutional investors and could also depress the
market price of the stock or subject it to increased volatility.
THE WJ BOARD ALSO CONSIDERED THE RISKS AND UNCERTAINTIES ASSOCIATED WITH
PROLONGING THE
BIDDING PROCESS
The WJ Board took into consideration the fact that WJ had been engaged in a
public sale process for almost eight months, during which a substantial amount
of senior management's time had been dedicated to the process. The Board was
also aware of the fact that such a process is unsettling for employees and
customers. In the Board's view, there was a substantial risk that prolonging the
bidding process could adversely affect WJ's continuing business with no
countervailing likelihood--having regard to the number of bidders already
contacted, the level of interest expressed, the terms of the bids received and
the public nature of the process--that a proposal superior to Fox Paine's would
emerge in the near-term future or at all.
Having regard to this risk, as well as the risks and uncertainties
(discussed above) associated with operating the Wireless Products Companies as a
stand-alone public company, the Board concluded that a cash acquisition by Fox
Paine of all outstanding shares at a fair price, capable of being closed soon
after the Telecommunications Group Sale, was a superior alternative to extending
the bidding process and operating the Wireless Products Group as a stand-alone
company for a potentially indefinite period.
IN ADDITION TO THE RESULTS OF THE BIDDING PROCESS, THE WJ BOARD CONSIDERED
SEVERAL FACTORS RELATING
SPECIFICALLY TO THE IDENTITY OF THE BUYER AND THE TERMS OF THE TRANSACTION
The WJ Board also considered a variety of other factors, including the
following:
- The WJ Board's familiarity with the business, financial condition and
prospects of the Wireless Products Group.
- The detailed consideration the WJ Board had given, with assistance from
senior management and investment bankers, to WJ's strategic alternatives
over several years. This is discussed in "Background of the WJ Merger" on
pages to .
- The provisions of the WJ Merger Agreement (see "THE WJ MERGER AGREEMENT"
on pages to ).
-- The WJ Board noted that these provisions had been vigorously
negotiated at arm's-length between the two companies and their
advisors. The Board concluded that these provisions were appropriate
for a transaction like this and accommodated Fox Paine's wishes
without subjecting the transaction, WJ or its shareowners to undue
risk.
- The cash consideration of $41.125 per share, which represented an
approximately 30% premium over the trading price of WJ's stock the
previous day.
-- The WJ Board also noted that the $41.125 per share cash price
represented an approximately 60% premium over the price at which WJ's
stock had been trading immediately before the March 1, 1999
announcement of WJ's sale strategy and above the
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highest price at which WJ's stock had traded for the three years
preceding that announcement.
(See "MARKET PRICE INFORMATION FOR WJ COMMON STOCK" on page .)
- The fact that CIBC World Markets rendered an opinion as to the fairness,
from a financial point of view, to the holders of WJ common stock (other
than the Watkins Trust, as to which CIBC World Markets was not asked to
express an opinion) of the $41.125 per share cash consideration as of
October 25, 1999.
-- For a detailed discussion of the written opinion of CIBC World Markets
and related financial analyses, including the assumptions made,
matters considered and limitations on the review undertaken, see
"Opinion of WJ's Financial Advisor" on pages to . It is also
important that you read the opinion itself, which is reproduced as
Appendix C.
-- The WJ Board took note of the fact that another team of CIBC World
Markets personnel was assisting Fox Paine in connection with the debt
portion of the financing for the WJ Merger. The Board also considered
CIBC World Markets' commitment to use its customary procedures for
maintaining separation between the two teams and the information
provided to each team by the client it was representing. In light of
this commitment, as well as the extensive nature of the assistance
CIBC World Markets' advisory team had rendered to the Board and WJ
senior management for more than a year (see "Background of the WJ
Merger") and the Board's familiarity with the members of that team
gained through numerous Board meetings, the Board concluded that the
role of CIBC World Markets in assisting Fox Paine did not affect the
reasonableness of the Board's reliance on the opinion of CIBC World
Markets or the relevance of that opinion to the Board's decision.
- Fox Paine's reputation, experience and track record of completing a number
of substantial leveraged acquisitions of public companies, as well as the
Board's receipt of commitment letters for both the equity and debt
portions of the financing (see "THE WJ MERGER--Financing" on pages to
).
THE WJ BOARD ALSO WEIGHED THE RISKS OF THE TRANSACTION AGAINST THE BENEFITS
The WJ Board took into consideration the risks associated with the WJ Merger
and concluded that the risks were substantially outweighed by the benefits.
- The Board recognized that, as in every leveraged transaction of this
nature, there was an inherent risk that the financing condition might not
be satisfied (see "Financing" on pages to and "THE WJ MERGER
AGREEMENT--Conditions to Closing--CONDITIONS TO FP-WJ'S OBLIGATION TO
CLOSE" on pages to ). However, the Board determined that this risk was
acceptable.
-- As to the equity portion of the financing, the WJ Board took into
account the commitment letter furnished by Fox Paine Capital Fund, as
well as the reputation and experience both of Fox Paine and its
principals.
-- As to the debt portion of the financing, the WJ Board took into
account the fact that Canadian Imperial Bank of Commerce and CIBC
World Markets had furnished a commitment letter. The Board recognized
that a definitive loan agreement had not yet been negotiated or
executed but concluded that the risk of such an agreement not being
signed, or the funding not being provided, if the parties were
otherwise in a position to proceed with the WJ Merger, was not
substantial in light of the reputations, experience and track records
of Fox Paine and the lenders.
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-- As to the portion of the financing to be provided by WJ's own cash,
the WJ Board noted that WJ had kept on hand the net after-tax proceeds
from the prior asset sales completed in 1999; that it had been
successful in collecting those pre-closing receivables from its former
Semiconductor Equipment Group that had become due since the sale and
had kept these collections on hand also; and that WJ did not expect to
spend any substantial amount of this retained cash on its continuing
operations prior to the closing of the WJ Merger. The Board further
took into account that satisfactory progress was being made in
implementing the Telecommunications Group Sale.
-- The WJ Board took into account, as noted above, that all of the bids
received for WJ in its entirety, exclusive of the Telecommunications
Group, contemplated leveraged transactions using substantial bank
borrowings and WJ's own cash.
- The WJ Board recognized that another risk inherent in every leveraged
transaction of this nature was the fraudulent conveyance risk discussed in
"RISKS OF THE WJ MERGER--Risks Associated with the Debt Portion of the
Financing for the WJ Merger" on pages to . However, the Board
concluded that this risk was not high and was also acceptable.
-- The Board took note of the uncertainties associated with the
applicability of the fraudulent conveyance doctrine to claims
attempting to recover merger payments from unaffiliated shareholders
of acquired public companies (see pages to ).
-- The WJ Board also took into account the fact that the closing of the
WJ Merger was conditioned on the receipt of a solvency opinion (see
"Financing--SOLVENCY OPINION CONDITION" on page and "THE WJ MERGER
AGREEMENT--Conditions to Closing--CONDITIONS TO EACH PARTY'S
OBLIGATION TO CLOSE" on page ).
-- The Board also noted the fact that, of the total amount of financing
to be raised for the WJ Merger and WJ's post-closing working capital
requirements, approximately 17% was being provided in the form of
equity (including the retained equity interest of the Watkins Trust),
approximately 17% was being provided in the form of secured debt and
approximately 66% was being provided in the form of WJ's cash on hand.
The Board concluded that the approximately one-to-one debt-to-equity
ratio of the post-closing company, together with Fox Paine's
experience of managing its leveraged acquisitions, significantly
reduced the risk that WJ would default on its obligations to its
creditors.
- The WJ Board recognized that the WJ Merger would be subject to a number of
other conditions that would be beyond WJ's ability to satisfy (for a
summary of those conditions, see "THE WJ MERGER AGREEMENT--Conditions to
Closing" on pages to ).
-- The WJ Board concluded that the risks of the WJ Merger not closing had
been appropriately limited by the terms of the WJ Merger Agreement and
the extensive due diligence investigation that Fox Paine had
conducted.
-- The Board, in reaching that conclusion, took into consideration Fox
Paine's willingness to close without WJ having sold its remaining Palo
Alto lease.
- The WJ Board took note of the provision of the WJ Merger Agreement under
which WJ would have to pay FP-WJ a termination fee of $13.5 million plus
expenses if the WJ Merger Agreement was terminated under certain
circumstances (see "THE WJ MERGER AGREEMENT--Termination Fee; Expenses" on
pages to ).
-- The WJ Board concluded that it was necessary to agree to these
provisions (which Fox Paine had insisted upon) in order to induce Fox
Paine to cause FP-WJ to sign the WJ Merger Agreement and that similar
provisions were likely to have been insisted upon by any bidder as
compensation for the loss of the transaction under the circumstances
contemplated by this provision.
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THE WJ BOARD TOOK NOTE OF DR. WATKINS' INDIVIDUAL INTEREST IN THE WJ MERGER
The WJ Board noted that:
- The WJ common shares owned by the Watkins Trust (representing
approximately 3.7% of the outstanding WJ shares on the date of the Board's
deliberations) would not be converted into $41.125 in cash.
- Rather, under the Recapitalization Agreement, these shares would be
converted into WJ convertible voting preferred shares immediately before
the closing of the WJ Merger. All of those preferred shares in excess of
120,000 would be purchased by Fox Paine Capital Fund at $41.125 (the same
price at which all of WJ's common stock are being valued for purposes of
the WJ Merger) and 120,000 of those preferred shares would be converted
into WJ common shares, representing approximately 8.9% of WJ's
post-closing equity.
- As to the portion of its convertible voting preferred shares retained
until the closing and converted into WJ common shares, the Watkins Trust
would be deferring a taxable event whereas the WJ Merger would constitute
a taxable event for other WJ shareowners.
- The Watkins Trust was being afforded an investment opportunity in the
post-closing company (including the potential benefits of a public
offering of WJ's shares at some future time after the WJ Merger) that was
not being afforded to other WJ shareowners.
(See "SPECIAL FACTORS--Interests of WJ Management in the WJ Merger--THE
RECAPITALIZATION AGREEMENT" on pages to .)
The WJ Board recognized (as did Dr. Watkins) that these arrangements created
a potential conflict of interest between Dr. Watkins' role as the Chairman of
the WJ Board and as a WJ shareowner. However, the Board concluded that these
arrangements conferred significant benefits on the other WJ shareowners in
connection with the WJ Merger Agreement and were acceptable in the context of
the Board's goal of maximizing value for all shareowners through a transaction
in which they could realize a fair cash price for their shares. The Board
reached this conclusion for the following reasons:
- Fox Paine had insisted that, if it was to commit to a transaction on the
terms (including price) contemplated by the WJ Merger Agreement, the
transaction had to qualify as a recapitalization of WJ for financial
reporting purposes and FP-WJ had to be entitled not to close the WJ Merger
if any change in accounting standards occurred before the closing that
would, in its reasonable judgment, prevent the WJ Merger from being
accounted for as a recapitalization of WJ (see "THE WJ MERGER
AGREEMENT--Conditions to FP-WJ's Obligation to Close" on pages to ).
The Board was aware that the prevailing interpretations of the financial
accounting standards governing the use of recapitalization accounting
include a requirement for a "rollover" equityholder holding not less than
5-6% of the post-closing "recapitalized" company. The Board was also aware
of the fact that, through arms'-length negotiation between Fox Paine and
the Watkins Trust, those parties had agreed that the Watkins Trust would
roll over approximately half its pre-closing equity interest in WJ for a
post-closing interest of approximately 8.9% (see "SUMMARY--Special
Factors--PARTIES" on page .). The Board's view was that, by retaining,
through the Watkins Trust, an approximately 8.9% equity interest in the
post-closing company, Dr. Watkins was facilitating, on terms acceptable to
Fox Paine and the Watkins Trust, a transaction that the Board had
determined to be in the best interests of all other shareowners and the
best bid from their perspective.
-- Although none of the other bids received for WJ in its entirety,
exclusive of the Telecommunications Group--including the other bid
that the Board had viewed as competitive with Fox Paine's--had been
conditioned on the availability of recapitalization
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accounting, the Board recognized that the availability of
recapitalization accounting--and the fact that a "rollover" by an
existing equityholder (I.E., the Watkins Trust), owning sufficient WJ
shares to satisfy the prevailing interpretations of what was
sufficient to ensure this accounting treatment--was one of the factors
that Fox Paine had considered essential to enable it to make its
proposal.
-- The Board was also aware of the fact that none of the bids had offered
the opportunity for WJ's shareowners to exchange their shares for
securities in a tax-free reorganization and therefore the ability of
the Watkins Trust to defer tax on the portion of its pre-closing
equity interest that would be rolled over was not depriving the other
shareowners of a similar opportunity.
- Fox Paine had advised WJ that it was not willing to satisfy the
requirements for recapitalization accounting by offering all shareowners
the opportunity to retain a post-closing equity interest in WJ because
such an offer might have resulted in WJ continuing to be a public company
subject to the reporting and other requirements of the federal securities
laws. Fox Paine had also advised WJ that it was not interested in any of
its managed funds acquiring control of WJ unless WJ could be operated as a
private company and without ongoing public reporting requirements.
- By foregoing the $41.125 per share cash price on those shares that it was
retaining, and investing in an illiquid security in a leveraged company
that would be subject to the operational challenges which would confront
WJ as a stand-alone wireless products company (see page ), the Watkins
Trust was subjecting itself to a significant risk that WJ's other
shareowners were not being asked to take.
- Fox Paine had separately negotiated the terms of the Watkins Trust's
equity participation with Dr. Watkins, who had not participated in the
negotiations of the WJ Merger on behalf of WJ and had recused himself from
the Board's vote on the decision to grant exclusive negotiation rights to
Fox Paine and the Board's subsequent deliberations concerning, and
decision whether to approve, the WJ Merger Agreement.
- Dr. Watkins would not be a director, officer, employee or consultant of
the post-closing company and would not be in a position to influence its
conduct.
THE WJ BOARD NOTED THAT WJ'S DIRECTORS AND EXECUTIVE OFFICERS WOULD RECEIVE
PAYMENTS
AS A RESULT OF THE TRANSACTION
The WJ Board took into consideration the fact that its directors and
officers would receive certain payments as a result of the completion of the WJ
Merger (see "Interests of WJ Management in the WJ Merger--EXECUTIVE AGREEMENTS,"
"--DIRECTORS' RETIREMENT PLAN," and "--SHARES AND STOCK OPTIONS" on pages to
). The Board concluded these payments would be a customary by-product of the
WJ Merger rather than a reason for approving it; that they were appropriate
under the circumstances; and that they did not detract from the benefits that
shareowners would realize from the WJ Merger. In that regard, the Board noted
that:
- The severance and retention payments to be received by WJ's executive
officers would be the result of agreements that had been entered into with
the approval of the Board's Compensation Committee in order to secure the
continued services of these key individuals during the period of
inevitable uncertainty resulting from WJ's continued evaluation of its
strategic alternatives.
- The payments to be received under the directors' retirement plan would (as
contemplated when the plan's acceleration feature had been earlier
approved by the Board in light of the ongoing sale process) compensate the
outside directors for the retirement plan benefits that would not become
payable to them because they would all be leaving the Board at the closing
of the WJ
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Merger, before the earliest date on which they could have become entitled
to those payments upon retirement from the Board.
- The payments that directors and executive officers would receive for their
shares and stock options would be the same as all other shareowners and
optionees would receive under the terms of the WJ Merger Agreement.
POSITION OF DR. WATKINS AND THE WATKINS TRUST REGARDING THE FAIRNESS OF THE WJ
MERGER TO OTHER SHAREOWNERS
Having recused himself from participation in WJ's negotiations with Fox
Paine regarding the WJ Merger and the WJ Board's deliberations on the WJ Merger
(see "Background of the WJ Merger" on pages to ), Dr. Watkins is making no
recommendation to WJ shareowners as to whether to approve the WJ Merger
Proposal. However, based on his review of this proxy statement and the reasons
given by the WJ Board contained in this proxy statement for recommending that WJ
shareowners approve the WJ Merger Proposal (which reasons Dr. Watkins adopts on
behalf of himself and the Watkins Trust), and his own knowledge of WJ,
Dr. Watkins believes that the WJ Merger is fair to the shareowners of WJ. He
intends to vote the WJ shares held by the Watkins Trust in favor of the WJ
Merger Proposal.
OPINION OF WJ'S FINANCIAL ADVISOR
CIBC World Markets acted as WJ's exclusive financial advisor in connection
with the process of pursuing the sale of WJ in its entirety or its component
businesses (other than the sale of the Semiconductor Equipment Group). In that
capacity, CIBC World Markets advised WJ in connection with the WJ Merger. On
October 25, 1999, at a meeting of the WJ Board held to evaluate the proposed WJ
Merger, CIBC World Markets rendered an oral opinion, which was confirmed by
delivery of a written opinion dated October 25, 1999, to the effect that, as of
that date and based on and subject to the matters described in its opinion, the
$41.125 per share cash consideration to be received in the WJ Merger by holders
of WJ common stock (other than the Watkins Trust, as to which CIBC World Markets
was not asked to express an opinion) was fair, from a financial point of view,
to such holders.
The full text of the written opinion of CIBC World Markets dated
October 25, 1999, which describes the assumptions made, matters considered and
limitations on the review undertaken, is attached as Appendix C and is
incorporated into this proxy statement by reference. CIBC World Markets has
consented to the inclusion of the full text of its written opinion as
Appendix C to this proxy statement. In giving this consent, CIBC World Markets
does not admit that it comes within the category of persons whose consent is
required under the Federal securities laws or the rules and regulations adopted
by the Securities and Exchange Commission under those laws. CIBC World Markets
also does not admit that, with respect to any part of this proxy statement, it
is an "expert" within the meaning of that term under those laws, rules or
regulations.
THE OPINION OF CIBC WORLD MARKETS IS DIRECTED TO THE WJ BOARD AND ADDRESSES
ONLY THE FAIRNESS TO THE HOLDERS OF WJ COMMON STOCK (OTHER THAN THE WATKINS
TRUST, AS TO WHICH CIBC WORLD MARKETS WAS NOT ASKED TO EXPRESS AN OPINION) OF
THE $41.125 PER SHARE WJ MERGER CASH CONSIDERATION FROM A FINANCIAL POINT OF
VIEW. THE OPINION OF CIBC WORLD MARKETS DOES NOT ADDRESS ANY OTHER TERMS OF THE
WJ MERGER AGREEMENT OR ANY OTHER ASPECT OF THE WJ MERGER. THE OPINION OF CIBC
WORLD MARKETS DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREOWNER AS TO ANY
MATTER RELATING TO THE WJ MERGER. THE FOLLOWING DISCUSSION OF THE OPINION OF
CIBC WORLD MARKETS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THE OPINION.
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In connection with its role as WJ's financial advisor and in arriving at its
opinion, CIBC World Markets:
- reviewed an October 24, 1999 draft of the WJ Merger Agreement;
- reviewed audited financial statements for WJ for the fiscal years ended
December 31, 1997 and December 31, 1998;
- reviewed unaudited financial statements for WJ for the six-month period
ended June 25, 1999 and subsequent monthly periods ended September 24,
1999;
- reviewed financial projections for WJ prepared by the senior management of
WJ;
- held discussions with the senior management of WJ and representatives of
Fox Paine with respect to the business and prospects for future growth of
WJ;
- reviewed and analyzed publicly available financial data for companies with
operations it deemed comparable to WJ;
- performed a discounted cash flow analysis of WJ using assumptions of
future performance provided to it by the senior management of WJ;
- reviewed and analyzed publicly available information for transactions that
it deemed comparable to the WJ Merger;
- reviewed public information concerning WJ;
- at the direction of WJ, approached and held discussions with third parties
to solicit indications of interest in the acquisition of all or a part of
WJ; and
- performed other analyses and reviewed other information as CIBC World
Markets deemed appropriate.
In rendering its opinion, CIBC World Markets relied on and assumed, without
independent verification or investigation, the accuracy and completeness of all
of the financial and other information provided to or discussed with it by WJ
and its employees, representatives and affiliates.
With respect to forecasts of future financial condition and operating
results of WJ provided to or discussed with CIBC World Markets, CIBC World
Markets assumed, at the direction of the senior management of WJ, without
independent verification or investigation, that the forecasts were reasonably
prepared on bases reflecting the best available information, estimates and
judgments of the senior management of WJ.
CIBC World Markets also assumed, with WJ's consent, that the
Telecommunications Group Sale would be consummated in accordance with its terms
and, to the extent relevant to its analysis, CIBC World Markets evaluated WJ
after giving effect to that transaction.
In addition, CIBC World Markets assumed, with WJ's consent, that in the
course of obtaining the necessary regulatory and third party consents for the WJ
Merger, no delay or restriction would be imposed that would have a material
adverse effect on the contemplated benefits to WJ of the WJ Merger.
Representatives of WJ advised CIBC World Markets, and CIBC World Markets further
assumed, that the final terms of the WJ Merger Agreement would not vary
materially from the terms set forth in the draft of the WJ Merger Agreement
reviewed by CIBC World Markets. (WJ does not consider that there is any material
variance between the final terms of the WJ Merger Agreement and the draft
reviewed by CIBC World Markets.)
CIBC World Markets did not make or obtain any independent evaluations or
appraisals of the assets or liabilities of WJ or its affiliated entities. CIBC
World Markets did not express any opinion as to the underlying valuation, future
performance or long-term viability of WJ, or the price at which
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shares of WJ common stock would trade after announcement of the signing of the
WJ Merger Agreement or the closing of the WJ Merger.
The opinion of CIBC World Markets was necessarily based on the information
available to it and general economic, financial and stock market conditions and
circumstances existing, and as could be evaluated by CIBC World Markets, on the
date of its opinion. Although subsequent developments may affect its opinion, it
does not have any obligation to update, revise or reaffirm its opinion. No other
instructions or limitations were imposed by the WJ Board upon CIBC World Markets
with respect to the investigations made or the procedures followed by CIBC World
Markets in rendering its opinion.
The following is a summary of the material financial analyses performed by
CIBC World Markets in connection with its opinion to the WJ Board dated
October 25, 1999:
SELECTED COMPANIES ANALYSIS. CIBC World Markets compared financial and
stock market information for WJ and the following eight selected publicly held
companies in the wireless communications equipment industry, with particular
focus on companies with a market capitalization of $300 million or less:
<TABLE>
<C> <S> <C> <C>
- Allen Telecom Inc. - Powerwave Technologies, Inc.
- Aeroflex Inc. - REMEC, Inc.
- Celeritek, Inc. - Sawtek Inc.
- EMS Technologies, Inc. - Spectrian Corporation
</TABLE>
CIBC World Markets reviewed enterprise values (calculated as equity market
value, plus debt, less cash) as multiples of, among other things, estimated
calendar years 1999 and 2000 revenues and earnings before interest, taxes,
depreciation and amortization, commonly referred to as "EBITDA." CIBC World
Markets also reviewed equity values as a multiple of estimated calendar years
1999 and 2000 net income. All multiples were based on closing stock prices on
October 22, 1999. Estimated financial data for the selected companies were based
on publicly available research analysts' estimates and estimated financial data
for WJ were based on internal estimates of the senior management of WJ.
Application of selected multiples of estimated calendar years 1999 and 2000
revenues, EBITDA and net income derived for the selected companies to
corresponding financial statistics of WJ, and taking into account cash and cash
equivalents of WJ as of September 24, 1999, indicated an implied equity
reference range for WJ of approximately $34.34 to $45.25 per share, as compared
to the WJ Merger consideration of $41.125 per share.
SELECTED TRANSACTIONS ANALYSIS. CIBC World Markets reviewed the purchase
prices and implied transaction multiples in the following 10 selected
transactions in the wireless communications equipment industry:
<TABLE>
<CAPTION>
ACQUIROR TARGET
----------------------------------------------- ------------------------------------------------------
<C> <S> <C> <C>
- Cisco Systems, Inc. - Clarity Wireless Incorporated
- Digital Microwave Corporation - Innova Corporation
- Tellabs, Inc. - Coherent Communications Systems Corporation
- Digital Microwave Corporation - MAS Technology Limited
- DSC Communications Corporation - Celcore, Inc.
- REMEC, Inc. - C&S Hybrid, Inc.
- REMEC, Inc. - Magnum Microwave Corporation
- AMP, Incorporated - M/A-Com, Inc.
- Aeroflex Inc. - MIC Technology Corporation
- California Microwave, Inc. - Microwave Networks, Inc.
</TABLE>
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CIBC World Markets reviewed enterprise values in the selected transactions
as multiples of, among other things, estimated calendar year 1999 revenues and
EBITDA, and equity values as a multiple of estimated calendar year 1999 net
income. All multiples were based on publicly available information at the time
of announcement of the relevant transaction. Application of selected multiples
of latest 12 months revenues, EBITDA and net income derived for the selected
transactions to estimated calendar year 1999 revenues, EBITDA and net income of
WJ, and taking into account cash and cash equivalents of WJ as of September 24,
1999, indicated an implied equity reference range for WJ of approximately $37.99
to $45.60 per share, as compared to the WJ Merger consideration of $41.125 per
share.
DISCOUNTED CASH FLOW ANALYSIS. CIBC World Markets performed a discounted
cash flow analysis to estimate the present value of the unlevered, after-tax
free cash flows that WJ could generate during fiscal years 2000 through 2004,
based on internal estimates of the senior management of WJ. The range of
estimated terminal values for WJ was calculated by applying terminal value
multiples ranging from 7.0x to 9.0x to WJ's projected fiscal year 2004 EBITDA.
The present value of the cash flows and terminal values were calculated using
discount rates ranging from 20.0% to 30.0%. After taking into account cash and
cash equivalents of WJ as of September 24, 1999, this analysis yielded an
implied equity reference range for WJ of approximately $38.07 to $46.83 per
share, as compared to the WJ Merger consideration of $41.125 per share.
LEVERAGED RECAPITALIZATION MERGER ANALYSIS. CIBC World Markets derived an
implied per share reference range for WJ by performing a leveraged
recapitalization merger analysis based on internal estimates of the senior
management of WJ and estimated rates of return for a financial buyer. The
analysis was performed assuming, among other things, a range of required rates
of return to a financial buyer of approximately 25.0% to 35.0% and an EBITDA
terminal multiple of 8.0x. This analysis indicated an implied equity reference
range for WJ of approximately $39.30 to $41.70 per share, as compared to the WJ
Merger consideration of $41.125 per share.
OTHER FACTORS. In rendering its opinion, CIBC World Markets also reviewed
and considered, among other things:
- historical and projected financial data for WJ; and
- historical market prices for the shares of WJ common stock and the
relationship between movements in the shares of WJ common stock, movements
in the common stock of the selected companies, movements in the S&P 500
Index and movements in the Nasdaq market.
The above summary is not a complete description of the opinion of CIBC World
Markets to the WJ Board or the financial analyses performed and factors
considered by CIBC World Markets in connection with its opinion. A copy of CIBC
World Markets' written presentation to the WJ Board in connection with its
opinion dated October 25, 1999 has been filed as an exhibit to the Rule 13e-3
Transaction Statement on Schedule 13E-3 filed by WJ, Dr. Watkins and the Watkins
Trust with the Securities and Exchange Commission and will be available for
inspection and copying at the principal executive offices of WJ during regular
business hours by any interested shareowner of WJ or representative of such
shareowner who has been so designated in writing and may be inspected and
copied, and obtained by mail, from the Securities and Exchange Commission (see
"WHERE YOU CAN FIND MORE INFORMATION ABOUT WJ" on pages to ).
The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances. Accordingly, a fairness opinion is not readily susceptible to
summary description. CIBC World Markets believes that its analyses and the
summary above must be considered as a whole and that selecting portions of its
analyses and factors it
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<PAGE>
considered, without considering all analyses and factors it considered, could
create a misleading or incomplete view of the processes underlying its analyses
and opinion.
In performing its analyses, CIBC World Markets considered industry
performance, general business, economic, market and financial conditions and
other matters existing as of the date of its opinion, many of which are beyond
the control of WJ. No company, business or transaction used in the analyses as a
comparison is identical to WJ or the WJ Merger, and an evaluation of the results
of those analyses is not entirely mathematical. Rather, the analyses involve
complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, businesses or transactions analyzed.
The estimates contained in the analyses of CIBC World Markets and the ranges
of valuations resulting from any particular analysis are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by its analyses. In addition, analyses
relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, the analyses and estimates of CIBC World Markets are
inherently subject to substantial uncertainty.
The type and amount of consideration payable in the WJ Merger were
determined through negotiation between WJ and Fox Paine. Although CIBC World
Markets provided financial advice to WJ during the course of negotiations, the
decision to enter into the WJ Merger Agreement was solely that of the WJ Board.
The opinion and financial analyses of CIBC World Markets were only one of many
factors considered by the WJ Board in its evaluation of the WJ Merger and should
not be viewed as determinative of the views of the WJ Board or senior management
with respect to the WJ Merger or the consideration payable in the WJ Merger.
WJ selected CIBC World Markets based on its reputation, expertise and
familiarity with, and prior work for, WJ, having interviewed both CIBC World
Markets and several other prominent investment banking firms for the purpose of
deciding which firm to engage to assist WJ in evaluating its strategic
alternatives. CIBC World Markets is an internationally recognized investment
banking firm and, as a customary part of its investment banking business, is
regularly engaged in valuations of businesses and securities in connection with
acquisitions and mergers, underwritings, secondary distributions of securities,
private placements and valuations for other purposes. In the ordinary course of
business, CIBC World Markets and its affiliates may actively trade the
securities of WJ and affiliates of Fox Paine for their own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
Affiliates of CIBC World Markets have, in the past two years, provided
financial advisory services to WJ and CIBC World Markets is currently providing
financial services to WJ in connection with the WJ sale process. CIBC World
Markets and its affiliates have, in the past two years, provided financial
services to Fox Paine and its affiliates with respect to matters unrelated to
the WJ Merger, for which services CIBC World Markets and such affiliates have
received and will receive compensation. CIBC World Markets is also
participating, through a different team, in the financing of the WJ Merger by
providing a portion of the debt financing as a principal and arranging the
syndication of the loan. In connection with the negotiations between WJ and Fox
Paine that led to the signing of the WJ Merger Agreement, CIBC World Markets
confirmed to WJ that it would maintain separate teams to advise WJ and Fox Paine
in accordance with its normal and customary procedures for establishing
confidentiality with respect to information obtained from each client or
otherwise in the course of each team's respective assignment. Based on this
confirmation, WJ consented to CIBC World Markets, simultaneously providing,
through its separate teams, services to WJ with respect to the WJ Merger and
services to Fox Paine with respect to the debt financing. The services of CIBC
World Markets to Fox Paine in connection with the WJ Merger were limited to its
services in relation to the financing.
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The total compensation payable to CIBC World Markets in connection with the
WJ Merger is approximately $3.9 million (exclusive of (i) the total fees of
$800,000 CIBC World Markets has previously received from WJ for its financial
advisory services in connection with the WJ sale process, including the
Telecommunications Group Sale, and (ii) an annual administrative fee CIBC World
Markets will receive from WJ, as the successor to FP-WJ's obligations in the WJ
Merger, in connection with the debt financing arranged for Fox Paine). This
amount includes both:
- the aggregate financial advisory fee payable by WJ for the services of
CIBC World Markets as WJ's financial advisor in connection with the WJ
Merger, which are payable pursuant to a fee agreement negotiated with WJ
in November 1998; and
- the financing and commitment fees payable by WJ (as the successor to FP-WJ
in the WJ Merger) relating to the debt financing services provided to Fox
Paine in connection with the WJ Merger, which are payable pursuant to a
fee agreement negotiated with Fox Paine and entered into with FP-WJ.
In addition, WJ has agreed to reimburse CIBC World Markets for its
reasonable travel and other out-of-pocket expenses, including reasonable fees
and disbursements of counsel, in connection with its engagement as WJ's
financial advisor and to indemnify CIBC World Markets and related parties
against liabilities, including liabilities under the federal securities laws,
relating to, or arising out of, that engagement. FP-WJ (whose obligation will
become WJ's, as the surviving corporation in the WJ Merger) is obligated to
provide corresponding reimbursement and indemnification to CIBC World Markets in
connection with its services to FP-WJ related to arranging the debt portion of
the financing for the WJ Merger. Except for the fees and expense reimbursement
referred to in the two preceding paragraphs, WJ has not paid CIBC World Markets
or any of its affiliates any amounts in connection with services rendered by
CIBC World Markets in the past two years.
INTERESTS OF WJ MANAGEMENT IN THE WJ MERGER
EXECUTIVE AGREEMENTS. Dr. W. Keith Kennedy, Jr. WJ's President and Chief
Executive Officer, has a three-year employment agreement with WJ restated as of
July 9, 1999. This agreement includes a provision that in the event of a change
in control of WJ, (which would include the WJ Merger) he will have the right to
terminate the agreement: (i) for any reason within 120 days of the occurrence of
the change in control or (ii) for "good reason," which generally includes a
substantial alteration in the terms of his employment, at any time after such
120-day period until March 2001. Upon his termination under either of those
circumstances, he is entitled to receive:
- an amount equal to (i) the compensation that would be payable for the
balance of the contractual term (which runs though March 2001) plus six
months additional compensation, and (ii) 299.99% of his base compensation
under the agreement; and
- 36 months of pre-paid disability, accident, group life, medical and dental
benefits.
Dr. Kennedy has agreed with FP-WJ that his employment by WJ will end once
the WJ Merger is completed. WJ estimates that the total amount he will receive
under his employment agreement if the WJ Merger Agreement closes on January 31,
2000 (in addition to pre-paid benefits) will be approximately $3,417,000, which
is required by his agreement to be deposited into escrow seven days before the
closing and paid to him immediately following the closing
Scott G. Buchanan, WJ's Executive Vice President, Chief Financial Officer
and Treasurer, has a severance agreement with WJ restated as of July 9, 1999.
This agreement gives him the right to treat the occurrence of a "triggering
event" as a material breach of the agreement and terminate his employment for
any reason within 120 days of a change in control. A "triggering event"
includes: (i) a change in control of WJ (which would include the WJ Merger)
while he is still an employee of WJ or (ii) a change in control of WJ after his
employment with WJ is terminated by (A) WJ for any reason
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<PAGE>
other than death, disability or cause or (B) by him for good reason, and in each
case such termination is in anticipation of a change in control. In addition, he
may terminate his employment for "good reason" at any time before the second
anniversary of a change in control. Upon the termination of his employment under
any of these circumstances, he is entitled to receive:
- an amount equal to 299.99% of his base compensation under the agreement;
and
- 36 months of prepaid disability, accident, group life, medical and dental
benefits.
Mr. Buchanan has agreed with FP-WJ that his employment by WJ will end once
the WJ Merger is completed. WJ estimates that the total amount he will receive
under his severance agreement if the WJ Merger Agreement closes on January 31,
2000 (in addition to pre-paid benefits) will be approximately $874,000, which is
required by his agreement to be deposited into escrow seven days before the
closing and paid to him immediately following the closing.
In connection with the March 1, 1999 announcement of the WJ Board's decision
to pursue the sale of WJ in its entirety or its component businesses (see
"Background of the WJ Merger" on pages to ), WJ adopted a retention program
for its employees, to allay the uncertainty likely to be caused by the
announcement and to encourage them to stay with WJ during the sale initiative.
In the case of Malcolm J. Caraballo, the President of the Wireless Products
Group, this retention program was implemented by a letter agreement dated
May 7, 1999. When the WJ Merger closes, Mr. Caraballo will receive certain
payments under his retention agreement. WJ estimates that the total amount
Mr. Caraballo will receive under his retention agreement when the WJ Merger
closes will be approximately $395,000 (including a transfer bonus if he remains
an employee, which is expected since Fox Paine has designated him to serve as
the president and chief executive officer of WJ following the WJ Merger).
In addition to his retention agreement Mr. Caraballo has a severance
agreement with WJ dated September 28, 1998, which provides that if, within three
years after a change in control (which would include the WJ Merger),
Mr. Caraballo is terminated other than for death, disability or cause, or
suffers a substantial alteration in the terms of his employment and terminates
his own employment because of such alteration, WJ is obligated to pay him an
amount equal to 299.99% of his yearly base compensation plus six months of
health benefits. In addition, Mr. Caraballo has the right to terminate his
employment after 90 days and within 120 days of the change in control and
receive from WJ one-half of the amount set forth in the preceding sentence.
Although Mr. Caraballo is expected to remain with WJ after the WJ Merger, if,
within three years after the WJ Merger, he becomes entitled to a payment under
his severance agreement, the amount will be reduced, dollar-for-dollar, by the
total amount received under his retention agreement. WJ estimates that if his
severance agreement was triggered after the closing of the WJ Merger,
Mr. Caraballo would receive an additional $596,000 ($100,000 if he voluntarily
terminated his employment without good reason between the 90(th) and the 120(th)
day after the closing).
DIRECTORS' RETIREMENT PLAN. In 1995, WJ adopted a directors retirement plan
for directors who have completed at least five years of active service on the WJ
Board. Under the plan, when an eligible director retires from the WJ Board, he
is entitled to receive half his quarterly director fee for a further period not
to exceed half his years of Board service after April 8, 1995. In July 1999, in
light of the WJ Board's decision to pursue a sale of WJ, the WJ Board adopted a
resolution providing for each director to be paid, at the closing of a sale of
WJ before April 8, 2000, the total amount that he would have received under the
retirement plan if he had retired on that date. Accordingly, when the WJ Merger
closes (assuming a January 31, 2000 closing), each director will receive an
accelerated payment of $27,000. As an employee of WJ, Dr. Kennedy receives no
director fees so will not receive the accelerated payment.
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SHARES AND STOCK OPTIONS. Each of WJ's directors and executive officers has
(i) WJ shares that will be converted into $41.125 in cash in the WJ Merger and
(ii) stock options that will (whether or not vested by the effective time of the
WJ Merger) be terminated in exchange for a cash payment equal to the amount by
which $41.125 exceeds the exercise price (see "THE WJ MERGER AGREEMENT--Stock
Options"). WJ estimates that the pre-tax amount that each director and executive
officer will receive for his shares and options in the WJ Merger will be as
follows:
<TABLE>
<CAPTION>
NAME SHARE PAYMENT(1) OPTION PAYMENT(2)
- ---- ---------------- -----------------
<S> <C> <C>
Dean A. Watkins (Chairman).................................. $5,305,948(3) $ 154,875(4)
H. Richard Johnson (Vice Chairman).......................... 1,244,401 154,875
W. Keith Kennedy, Jr. (President and CEO)................... 1,588,988 3,262,545
John J. Hartmann (Director)................................. 24,675 373,353
Raymond F. O'Brien (Director)............................... 246,750 279,683
William R. Graham (Director)................................ 12,338 546,741
Gary M. Cusumano (Director)................................. 20,503 161,740
Robert C. Prestel (Director)................................ 12,338 161,740
Scott G. Buchanan (Executive Officer)....................... 503,535 1,342,724
Malcolm J. Caraballo (Executive Officer).................... 1,029,811 1,824,837
Robert G. Hiller (Executive Officer)........................ 31,049 854,124(5)
</TABLE>
- ------------------------------
(1) Includes shares credited to WJ Investment Plan accounts.
(2) Includes options not included in the table under "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" on page because they were not
exercisable within 60 days of December 3, 1999.
(3) Assumes that the Watkins Trust continues to own, until the closing under the
Recapitalization Agreement, 249,020 WJ common shares. On this assumption,
under the Recapitalization Agreement that number of common shares will be
converted into an identical number of newly-issued WJ preferred shares, of
which 120,000 will be retained by the Watkins Trust until the closing of the
WJ Merger (in which they will become WJ common shares representing
approximately 8.9% of WJ's post-closing equity) and 129,020 will be sold to
Fox Paine Capital Fund for $41.125 (the same price that will be paid for
non-dissenting WJ common shares in the WJ Merger), for the total amount
shown in the table. See "THE RECAPITALIZATION AGREEMENT" on pages to and
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" on
pages to .
(4) Dr. Watkins' stock options are held in his own name and the cash payment for
them will be received directly by him.
(5) Mr. Hiller, the President of the Telecommunications Group, will receive
payments under his retention agreement dated April 13, 1999, when the
Telecommunications Group Sale closes whether or not he remains employed by,
or (as is currently under discussion) become a consultant to, the
Telecommunications Group after that closing. However, his retention
agreement (which implements, in his case, the company-wide retention program
announced on March 1, 1999), provides that he will remain an employee of WJ,
eligible to participate in those employee benefit plans available to WJ
employees at large, until the earliest of: (i) the vesting, according to
their normal vesting schedule, of his unvested WJ stock options; (ii) the
occurrence of any event which causes the accelerated vesting of all his
unvested WJ stock options according to their applicable terms; or (iii) a
specified period after the closing of a sale of the Telecommunications
Group. Accordingly, Mr. Hiller is expected to be an employee of WJ when the
WJ Merger closes whether or not he continues to render services to the
Telecommunications Group in any capacity after the closing of the
Telecommunications Group Sale.
FP-WJ expects to cause WJ to offer the senior management of WJ's Wireless
Products Group an opportunity for post-closing equity or equity-based
participation in WJ, including performance-related incentive compensation. The
scope, nature and terms of these equity arrangements have not been determined
and the individual participants have not been identified at this time. Although
the Merger Agreement entitles FP-WJ to designate, with their consent, optionees
whose options would not be cashed out in the WJ Merger but would be rolled over
into options of the post-closing WJ, FP-WJ has advised WJ that it has no present
intention of exercising this right (see "THE WJ MERGER AGREEMENT--Treatment of
Stock Options").
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS. The WJ Merger
Agreement provides that WJ's Articles of Incorporation and Bylaws may not be
amended for six years following the effective time of the WJ Merger in any
manner that would adversely affect persons serving as directors, officers,
employees or agents of WJ at or prior to the effective time of the WJ Merger. In
addition, WJ must maintain for a period of six years after the WJ Merger, a
directors' and officers' liability policy for the
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benefit of the current directors and officers of WJ. However, in no event will
WJ be required to pay in any one year a premium on such policy that exceeds 150%
of the current annual premiums for the policy.
The WJ Merger Agreement also provides that, following the effective time of
the WJ Merger, WJ must continue to indemnify all current and former directors
and officers, to the fullest extent permitted by law, for their acts or
omissions, prior to the effective time of the WJ Merger (including the
transactions contemplated by the WJ Merger Agreement). In addition, if any such
officer or director becomes involved in any proceeding for which he or she is
entitled to indemnification, WJ must pay, as incurred, such director's or
officer's legal and other expenses. WJ must also pay all reasonable expenses,
including attorneys' fees, that may be incurred by an officer or director in
enforcing his or her rights to indemnification. The indemnified parties are
express third party beneficiaries of those provisions with the right to seek
compliance.
THE RECAPITALIZATION AGREEMENT. The following section summarizes certain
terms of the Recapitalization Agreement, a copy of which is included in this
proxy statement as Appendix B and incorporated into this summary by reference.
WE URGE YOU TO READ THE WHOLE RECAPITALIZATION AGREEMENT FOR MORE DETAILED
INFORMATION ON THE TERMS AND CONDITIONS OF THE RECAPITALIZATION AGREEMENT.
For a description of the provisions of the Recapitalization Agreement
relating to the transactions that will take place immediately before the closing
of the WJ Merger in connection with the WJ shares currently held by the Watkins
Trust, and the interest of Dr. Dean A. Watkins, WJ's Chairman and co-founder, in
those transactions, see "SPECIAL FACTORS--The WJ Board's Reasons and
Recommendations--THE WJ BOARD TOOK NOTE OF DR. WATKINS' INDIVIDUAL INTEREST IN
THE WJ MERGER" on pages to and the other sections of this proxy statement
referred to in the first paragraph under that caption on page .
The WJ preferred shares to be issued to the Watkins Trust in exchange for
its WJ common shares (on a share-for-share basis) under the Recapitalization
Agreement will be a new issue of WJ's Series A Convertible Participating
Preferred Stock which will be convertible into common shares on a one-to-one
basis and will have the same voting rights as the common shares into which they
are convertible. The Watkins Trust is required to retain at least 120,000 of
these WJ preferred shares until the closing of the WJ Merger and these retained
shares will be valued at $41.125 per share (the price to be paid to all
non-dissenting holders of WJ common shares in the WJ Merger), resulting in the
total value of the equity interest retained by the Watkins Trust being valued at
approximately $5 million, or approximately 8.9% of WJ's total post-closing
equity of $55.8 million. All preferred shares will be converted into WJ common
shares in the WJ Merger, resulting in the Watkins Trust becoming an
approximately 8.9% shareowner of the post-closing company. All preferred shares
issued to the Watkins Trust in excess of 120,000 will be purchased by Fox Paine
Capital Fund, immediately before the closing, for $41.125 per share (or a total
of approximately $5.3 million assuming that, before the exchange, the Watkins
Trust has not disposed of any of the 249,020 WJ common shares it currently
owns).
The Recapitalization Agreement provides for a Stockholders Agreement to be
entered into among (i) WJ, on the one hand, and (ii) Fox Paine Capital Fund, the
Watkins Trust, and any other purchaser of WJ's Series A Participating Preferred
Stock whose preferred shares are purchased under an agreement substantially
similar to the Recapitalization Agreement, on the other hand (the Watkins Trust,
Fox Paine Capital Fund and any other purchaser being referred to as a
"Stockholder"). This Stockholders Agreement will contain provisions addressing
the Stockholders' rights in connection with their WJ common shares after the WJ
Merger. Under the Recapitalization Agreement, these provisions are to include:
- the right of all Stockholders to participate pro rata in any sale of their
WJ common stock shares to a third party whose offer to purchase any
Stockholder's WJ common shares is accepted before any initial underwritten
public offering of WJ's equity securities (an "IPO");
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- the right of Fox Paine Capital Fund to require the other Stockholders to
sell a proportional number of their WJ common shares if Fox Paine Capital
Fund sells at least 75% of its WJ common shares in a bona fide
arm's-length transaction or series of related transactions before an IPO;
- the right of Fox Paine Capital Fund to demand five registrations, and of
the other Stockholders to demand one registration, of their WJ common
shares held after an IPO in order that those shares may be publicly
offered and sold under the federal securities laws;
- the right of all other Stockholders to participate if Fox Paine Capital
Fund is permitted to sell any of its WJ common shares in an initial public
offering; and
- Fox Paine's right of first refusal on proposed bona fide cash sales of WJ
common shares by other Stockholders to unrelated parties.
The Recapitalization Agreement requires WJ, both before and after the
closing of the WJ Merger, to indemnify the Watkins Trust against claims and
proceedings asserted with respect to the transactions contemplated by the
Recapitalization Agreement by third parties and in the nature of derivative
claims (but excluding any claims relating to a breach of the Recapitalization
Agreement by the Watkins Trust or the assertion of any tax obligation by a
governmental entity) to the fullest extent permitted by applicable law. WJ's
obligation includes paying, as incurred, the Watkins Trust's legal and other
expenses if the Watkins Trust gives WJ a customary undertaking to reimburse such
expenses if a court of competent jurisdiction makes a final determination that
indemnification of the Watkins Trust is prohibited by applicable law. The
indemnification rights of the Watkins Trust under these provisions are separate
from Dr. Watkins' indemnification rights, as WJ's Chairman, under the WJ Merger
Agreement and WJ's Articles of Incorporation and Bylaws and under his individual
indemnification agreement as a director.
Dr. Watkins is being indemnified by WJ in connection with the four lawsuits
filed against WJ and its directors in connection with the WJ Merger (see
"SPECIAL FACTORS--Certain Litigation" on page ).
PURPOSE OF THE WJ MERGER
The purpose of the WJ Merger is to effectuate the acquisition of a majority
of the equity of WJ by the Fox Paine Investors. WJ's reason for agreeing to this
acquisition is to enable its shareowners to receive $41.125 per share in cash
for their WJ shares (see "The WJ Board's Reasons and Recommendation" on
pages to .)
The purpose of the Recapitalization Agreement is to ensure that the WJ
Merger will be treated as a recapitalization of WJ for financial reporting
purposes by providing for the rollover, by the Watkins Trust as an existing
equityholder, of a sufficient pre-closing equity interest in WJ to result in the
Watkins Trust holding in excess of the percentage of the post-closing equity of
the "recapitalized" WJ required by the prevailing interpretations of the
financial accounting standards governing the use of recapitalization accounting
(see "SUMMARY--Special Factors--PARTIES" on page , "The WJ Board's Reasons and
Recommendation" on pages to , "Interests of WJ Management in the WJ Merger--
THE RECAPITALIZATION AGREEMENT" on pages to and "Certain Effects of the WJ
Merger" on pages to ).
Dr. Watkins, as co-trustee of the Watkins Trust, has caused the Watkins
Trust to enter into the Recapitalization Agreement, and the Watkins Trust has
entered into the Recapitalization Agreement, in order to ensure that the WJ
Merger is accounted for as a recapitalization of WJ for financial purposes, as
required by Fox Paine, and, by facilitating the WJ Merger, to enable the Watkins
Trust to retain an equity interest in WJ following the closing and defer, on the
retained portion of its pre-closing equity interest, the tax that would
otherwise be payable if that equity interest was converted into cash in the WJ
Merger (see "SUMMARY--Special Factors--PARTIES--THE WATKINS TRUST" on pages to
and
49
<PAGE>
"--Interests of WJ Management in the WJ Merger--THE RECAPITALIZATION AGREEMENT"
on pages to .)
STRUCTURE OF THE WJ MERGER
If the WJ Merger is completed, FP-WJ will merge into WJ and WJ will be the
surviving corporation, continuing in existence under its present name. The WJ
Merger has been structured as a merger of FP-WJ into WJ in order to effectuate
the acquisition of a majority of the equity of WJ by the Fox Paine Investors in
a manner that will not affect the continuing corporate existence and contractual
arrangements of WJ.
At the effective time of the WJ Merger:
- the holders of outstanding WJ common shares will cease to be shareowners
of WJ and will not receive any further dividends or otherwise share in the
future earnings or growth of WJ;
- each WJ shareowner (other than those holding shares as to which
dissenters' rights are perfected) will be entitled to receive $41.125 per
share in exchange for each common share upon surrender of the shareowner's
certificate or other appropriate evidence of stock ownership (the amount
of cash actually paid to a WJ shareowner will be reduced by the amount of
any applicable withholding taxes paid by WJ on behalf of such shareowner);
- each share of FP-WJ will be converted into one common share of WJ and
these new common shares (which will be owned by the Fox Paine Investors)
will, together with the shares of Fox Paine Capital Fund referred to
immediately below, represent approximately 91.1% of the then-outstanding
WJ shares;
- each preferred share originally issued to the Watkins Trust and then sold
to Fox Paine Capital Fund immediately before the closing (for $41.125 per
share) will be converted into one WJ common share; (see "Interests of WJ
Management in the WJ Merger--THE RECAPITALIZATION AGREEMENT") on
page ); and
- each preferred share still held by the Watkins Trust will be converted
into one WJ common share and these new WJ shares will together represent
approximately 8.9% of the then-outstanding WJ shares (see "Interests of WJ
Management in the WJ Merger--THE RECAPITALIZATION AGREEMENT" on page ).
Shareowners who perfect their dissenters' rights will be entitled to receive
such consideration as may be determined to be due, and will have such other
rights, as is provided in Chapter 13 of the California General Corporations Law
(see "DISSENTERS' RIGHTS" on page and Appendix E).
FINANCING
TOTAL AMOUNT OF REQUIRED FINANCING. Fox Paine has advised WJ that it
expects to need approximately $301 million to finance the WJ Merger, including
transaction expenses (this estimate assumes that no WJ stock options outstanding
on October 25, 1999 will have been exercised before the closing). This amount
will be financed from four sources:
- Fox Paine Capital Fund has committed (subject to the satisfaction to the
conditions to FP-WJ's obligation to complete the WJ Merger) to invest a
total of $50.8 million as the equity portion of the financing, to be used
to purchase additional shares of FP-WJ and to purchase a portion of the WJ
preferred shares (at a purchase price of $41.125 per share) that will be
issued to the Watkins Trust under the Recapitalization Agreement;
- CIBC World Markets (on behalf of one or more of its affiliates) has
committed to provide to WJ, subject to the satisfaction of certain
conditions, a $55 million secured credit facility (which may be syndicated
among a wider group of lending institutions arranged by CIBC World
Markets). WJ expects to borrow $40 million under this facility to help
finance the WJ Merger
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(the remaining $15 million of the facility will be available to WJ for its
post-closing working capital needs in the form of a revolving credit
facility, although two letters of credit are expected to be issued against
$6.1 million of this facility at the closing);
- the Watkins Trust will contribute approximately $5 million in the form of
existing WJ common shares which will not be converted into the $41.125 WJ
Merger consideration but will remain shares of the post-closing company;
and
- WJ will provide the balance (approximately $205.2 million) from its cash
on hand.
DEBT FINANCING CONDITION. It is a condition to FP-WJ's obligation to close
the WJ Merger that it has received $55 million of debt financing for the WJ
Merger and the other transactions contemplated by the WJ Merger Agreement, and
to provide working capital to WJ after the WJ Merger, on terms no less favorable
in the aggregate, in FP-WJ's reasonable judgment, than those contained in the
commitment letter delivered by CIBC World Markets to FP-WJ in connection with
the signing of the WJ Merger Agreement (see "THE WJ MERGER AGREEMENT--Conditions
to Closing--CONDITIONS TO FP-WJ'S OBLIGATION TO CLOSE" on pages to ).
SOLVENCY OPINION CONDITION. It is a condition to the obligations of both
parties to close the WJ Merger that they receive a solvency opinion from a
mutually-acceptable independent firm that is expert in providing such opinions
(see "THE WJ MERGER AGREEMENT--Conditions to Closing--CONDITIONS TO EACH PARTY'S
OBLIGATION TO CLOSE" on pages to ). The firm that will be engaged to render
such opinion has not been selected. The purpose of such an opinion is to
provide, for both the lenders and WJ, the view of such expert that the debt
portion of the financing for the WJ Merger will not render WJ insolvent (see
"RISKS OF THE WJ MERGER--Risks Associated with the Debt Portion of the Financing
for the WJ Merger" on page ).
THE EQUITY FINANCING FROM FOX PAINE CAPITAL FUND. In the WJ Merger
Agreement, FP-WJ has represented to WJ that it will have cash funds of not less
than $50 million (which it subsequently increased to $50.8 million) under the
commitment letter from Fox Paine Capital Fund that was delivered to FP-WJ in
connection with the signing of the WJ Merger Agreement. This amount includes
funds to be used by the Fox Paine Investors to purchase preferred shares from
the Watkins Trust before the closing of the WJ Merger Agreement, as provided for
in the Recapitalization Agreement. FP-WJ has also represented that it has been
informed by Fox Paine Capital Fund that the Fund has the authority to call the
funds from its investors without the need for any other person's consent or
approval.
Fox Paine Capital Fund has issued to FP-WJ a letter which (as amended)
commits it to provide $50.8 million equity financing for the WJ Merger,
conditioned on the satisfaction of all the conditions to FP-WJ's obligation to
close under the WJ Merger Agreement (see "THE WJ MERGER AGREEMENT--Conditions to
Closing" on pages to ).
THE DEBT PORTION OF THE FINANCING. Fox Paine Capital Fund has furnished to
WJ, for inclusion in this proxy statement, information regarding the material
terms which are expected to be included in the definitive credit agreement under
which the $55 million secured credit facility will be provided by a syndicated
group of lenders arranged by CIBC World Markets. This information is included
separately at Appendix D, which is incorporated by reference.
EQUITY CONTRIBUTION BY THE WATKINS TRUST. The equity to be provided by the
Watkins Trust will consist of 120,000 of the new convertible voting preferred
shares to be issued to the Watkins Trust under the Recapitalization Agreement in
exchange for an equal number of WJ common shares (see "Interests of WJ
Management in the WJ Merger--THE RECAPITALIZATION AGREEMENT" on pages to .
In the WJ Merger, these preferred shares will be converted into WJ common shares
valued at $41.125 per share (the per share price payable in the WJ Merger) with
a total value of approximately $5 million.
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Under the Recapitalization Agreement, the obligation of the Watkins Trust to
exchange its WJ common shares for new WJ convertible voting preferred shares,
invest 120,000 of those preferred shares in the WJ Merger (through their
conversion into WJ common shares) and sell those preferred shares it owns in
excess of 120,000 to Fox Paine Capital Fund (for $41.125 per share) is
conditioned on all of the conditions to FP-WJ's obligation to close under the
Merger Agreement being satisfied or (with certain exceptions, where the
condition can only be waived with concurrence of the Watkins Trust) waived by
FP-WJ.
THE CASH PORTION OF THE FINANCING. The approximately $205.2 million of cash
that WJ will need to provide in order to complete the financing will consist
primarily of:
-- the proceeds from the closing of the Telecommunications Group Sale
(see "Background of the WJ Merger" on pages to );
-- the net after-tax proceeds from the sale of WJ's former Semiconductor
Equipment Group in July 1999 (see "Background of the WJ Merger" on
pages to ), including that Group's pre-closing receivables to the
extent collected by WJ (at the time of the sale, the Group's
receivables totaled approximately $45 million, of which approximately
$ have been collected by WJ through the date of this proxy
statement);
-- the net after-tax proceeds of the other divestitures and asset sales
completed by WJ in 1999 (see "Background of the Transactions" on
pages to "); and
-- other cash on hand, including cash generated by continuing operations
and not applied to pay operating or transaction expenses.
CERTAIN EFFECTS OF THE WJ MERGER
Following the WJ Merger:
- the pre-closing owners of WJ common stock will no longer have any
continuing interest in WJ but (except for any who have perfected their
dissenters' rights; see "DISSENTERS' RIGHTS" on pages to ) will have
the right to receive their cash payment of $41.125 (reduced by any
applicable withholding taxes) for each WJ common share owned at the
effective time of the WJ Merger;
- WJ's shares will no longer be listed on the New York Stock Exchange and
will no longer be publicly traded;
- the registration of WJ's shares with the Securities and Exchange
Commission will be terminated and WJ will cease to file public reports;
- the WJ Board will consist entirely of directors designated by FP-WJ (who
will not include any of the current directors);
- the bylaws of FP-WJ will become the bylaws of WJ; and
- the Articles of Incorporation of WJ will continue in effect.
CONDUCT OF WJ'S BUSINESS AFTER THE WJ MERGER
After the WJ Merger is completed, WJ's only business will be its Wireless
Products Group. Fox Paine Capital Fund has advised WJ that:
- its present intention is to conduct WJ's business substantially as it has
been conducted in the past, after reflecting completed dispositions and
the pending Telecommunications Group Sale;
- following the WJ Merger, Malcolm J. Caraballo, who is currently President
of WJ's Wireless Products Group, will be appointed President and Chief
Executive Officer of WJ (see "Interests of WJ Management in the WJ
Merger--EXECUTIVE AGREEMENTS" on page );
- it is FP-WJ's current expectation that substantially all of the current
members of the management of the Wireless Products Group will be retained;
and
- Fox Paine Capital Fund will continue to evaluate WJ's business, assets,
practices, operations, properties, corporate structure, capitalization and
personnel and will cause those changes it considers appropriate.
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REGULATORY AND OTHER APPROVALS AND CONSENTS
REGULATORY APPROVALS. Completion of the WJ Merger is conditioned on the
receipt of all governmental permits, consents and approvals and the completion
of all governmental filings, the absence of which could reasonably be expected
to have a "Company Material Adverse Effect" as that term is defined in the WJ
Merger Agreement (see "THE WJ MERGER AGREEMENT--Conditions to
Closing--CONDITIONS TO FP-WJ'S OBLIGATION TO CLOSE" on page ). Although WJ and
FP-WJ have agreed to use their reasonable commercial efforts to satisfy this
condition, there can be no assurance regarding the timing or receipt of the
required approvals and consents.
The only material governmental approval required for the WJ Merger is
imposed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
rules adopted under that Act. Under these requirements, the WJ Merger may not be
completed until notifications have been given to the Federal Trade Commission
and the Antitrust Division of the Department of Justice and specified waiting
period requirements have been satisfied. WJ and Fox Paine Capital Fund, as the
ultimate parent of FP-WJ, filed the required notifications on November 22, 1999
and the waiting period was terminated on December 9, 1999.
At any time before the WJ Merger is completed (even after the
Hart-Scott-Rodino Act waiting period has expired), the Federal Trade Commission
or the Antitrust Division could take such action under the antitrust laws as it
deems necessary or desirable in the public interest, including seeking to enjoin
the completion of the WJ Merger, as could any state under its own antitrust
laws. Private parties may also seek to take legal action under antitrust laws.
OTHER CONSENTS. Some of WJ's contracts relating to WJ's Wireless Products
Group and other agreements require the consent of the other party in the event
of a change of control of WJ. In those cases, the required consents are being
requested but WJ cannot assure their receipt. FP-WJ's (but not WJ's) obligation
to close the WJ Merger is conditioned on receipt of all these consents, except
where the absence of a consent could not, individually or in the aggregate,
reasonably be expected to have a "Company Material Adverse Effect" (for the
definition of this term see "THE WJ MERGER AGREEMENT--Conditions to
Closing--CONDITIONS TO FP-WJ'S OBLIGATION TO CLOSE" on page ).
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal federal tax consequences of the
WJ Merger to WJ shareowners whose shares are converted into the right to receive
cash in the WJ Merger.
This discussion is based upon the Internal Revenue Code, the regulations
adopted under the Code, Internal Revenue Service rulings, and judicial and
administrative rulings presently in effect, all of which are subject to change,
possibly retroactively. This discussion does not address all aspects of federal
income taxation that may be relevant to a shareowner in light of the
shareowner's particular circumstances or to those of shareowners subject to
special rules, such as shareowners who are not citizens or residents of the
United States, financial institutions, tax-exempt organizations, insurance
companies, dealers in securities, shareowners who acquired shares through the
exercise of employee stock options or otherwise as compensation, shareowners who
hold their shares as part of a straddle or similar transaction, or shareowners
who exercise dissenters' rights with respect to their shares.
THIS DISCUSSION IS INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY AND IS
BASED UPON PRESENT LAW. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH WJ
SHAREOWNER SHOULD CONSULT SUCH SHAREOWNER'S OWN TAX ADVISOR TO DETERMINE THE
APPLICABILITY OF THE RULES DISCUSSED TO SUCH SHAREOWNER AND THE PARTICULAR TAX
EFFECTS OF THE WJ MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL
AND OTHER TAX LAWS ON SUCH SHAREOWNER.
The receipt of cash in the WJ Merger will be a taxable transaction for
federal income tax purposes. In general, for federal income tax purposes, a
holder of WJ shares will recognize gain or loss
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equal to the difference between the shareowner's adjusted tax basis in the WJ
shares converted to cash in the WJ Merger and the amount of cash received for
those shares. Gain or loss must be determined separately for each block of
shares (I.E., shares acquired at the same cost in a single transaction)
converted to cash in the WJ Merger. Gain or loss will be capital gain or loss.
Individual holders will be subject to tax on the net amount of their gain at
long-term capital gains rates provided the shares were held for more than
12 months. Short-term capital gains are taxed at ordinary income rates. The
deduction of capital losses is subject to certain limitations, generally
limiting usable losses in any year to an amount equal to capital gains
recognized that year plus $3,000. The balance of unused capital losses generally
may be carried forward to subsequent tax years.
Payments in connection with the WJ Merger may be subject to backup
withholding at a 31% rate, in which case the WJ Merger Agreement calls for the
applicable amount to be withheld. Backup withholding generally applies if a
shareowner fails to furnish his, her or its social security number or taxpayer
identification number ("TIN"), furnishes an incorrect TIN, or under certain
circumstances, fails to provide a certified statement, signed under penalties of
perjury, that the TIN provided is the shareowner's correct number and that the
shareowner is not subject to backup withholding. Backup withholding is not an
additional tax but merely an advance payment, which may be refunded to the
extent it results in an overpayment of tax. Certain shareowners, including
corporations and financial institutions generally, are exempt from backup
withholding. Each shareowner should consult with the shareowner's own tax
advisor as to the shareowner's qualifications for exemption from withholding and
the procedure for obtaining an exemption.
ACCOUNTING TREATMENT
Fox Paine and WJ expect the WJ Merger and related transactions to be
accounted for as a recapitalization for financial reporting purposes. For a
description of the condition to FP-WJ's obligation to close the WJ Merger that
is related to this accounting treatment continuing to be available, see "THE WJ
MERGER AGREEMENT--Conditions to Closing--CONDITIONS TO FP-WJ'S OBLIGATION TO
CLOSE" on page .
CERTAIN PROJECTED FINANCIAL INFORMATION
WJ does not as a matter of course make public forecasts or projections as to
its future financial performance or publish historical financial information
about its component businesses on a non-consolidated basis. However, in
connection with the process of soliciting buyers for WJ and its component
business, WJ prepared certain financial projections about the Wireless Products
Group and WJ in its entirety (excluding the Telecommunications Group). WJ made
those projections available, together with certain historical unconsolidated
financial information about the Wireless Products Group and WJ in its entirety
(excluding the Telecommunications Group), to potential bidders that had signed
confidentiality agreements with WJ, including Fox Paine. In the course of due
diligence, WJ also provided Fox Paine with certain other financial projections
prepared in the ordinary course of WJ's business for internal purposes.
THE FOLLOWING PROJECTED FINANCIAL INFORMATION IS INCLUDED IN THIS PROXY
STATEMENT ONLY BECAUSE IT WAS PROVIDED TO FOX PAINE IN CONNECTION WITH THE
DISCUSSIONS GIVING RISE TO THE WJ MERGER AGREEMENT. THE INFORMATION WAS NOT
PREPARED FOR PUBLICATION OR WITH A VIEW TO COMPLYING WITH THE PUBLISHED
GUIDELINES OF THE SECURITIES AND EXCHANGE COMMISSION REGARDING PROJECTIONS OR
WITH THE GUIDE FOR PROSPECTIVE FINANCIAL STATEMENTS ISSUED BY THE AMERICAN
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, NOR WAS IT AUDITED OR REVIEWED BY
WJ'S INDEPENDENT ACCOUNTING FIRM OR ANY OTHER INDEPENDENT ACCOUNTING FIRM.
THE FOLLOWING PROJECTED FINANCIAL INFORMATION NECESSARILY REFLECTS NUMEROUS
ASSUMPTIONS WITH RESPECT TO GENERAL BUSINESS AND ECONOMIC CONDITIONS AND OTHER
MATTERS, MANY OF WHICH ARE INHERENTLY
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UNCERTAIN OR BEYOND WJ'S CONTROL, AND DOES NOT TAKE INTO ACCOUNT ANY CHANGES TO
THE WIRELESS PRODUCTS GROUP, OR WJ AS A WHOLE (EXCLUSIVE OF THE
TELECOMMUNICATIONS GROUP) WHICH MAY RESULT FROM THE WJ MERGER.
IT IS NOT POSSIBLE TO PREDICT WHETHER THE ASSUMPTIONS MADE IN PREPARING THE
FOLLOWING PROJECTED FINANCIAL INFORMATION WILL PROVE TO BE CORRECT. ACTUAL
RESULTS MAY PROVE TO BE MATERIALLY BETTER OR WORSE THAN THOSE CONTAINED IN THE
PROJECTIONS. THE INCLUSION OF THIS INFORMATION SHOULD NOT BE REGARDED AS AN
INDICATION THAT ANYONE WHO RECEIVED THIS INFORMATION, OR ANYONE WHO PREPARED OR
FURNISHED IT, CONSIDERED IT A RELIABLE PREDICTOR OF FUTURE EVENTS, AND THIS
INFORMATION SHOULD NOT BE RELIED ON AS SUCH. WJ DOES NOT ASSUME ANY
RESPONSIBILITY FOR THE VALIDITY, REASONABLENESS, ACCURACY OR COMPLETENESS OF THE
PROJECTED FINANCIAL INFORMATION.
Set forth below is a summary of estimated selected projected income
statement information for the Wireless Products Group and WJ as an entirety
(excluding the Telecommunications Group) provided to Fox Paine, as described
above. For comparative purposes only, also included below is certain unaudited
unconsolidated historical financial information with respect to the Wireless
Products Group and WJ as an entirety (excluding the Telecommunications Group)
for fiscal 1996 through 1998:
<TABLE>
<CAPTION>
UNAUDITED HISTORICAL RESULTS FOR UNAUDITED ESTIMATES FOR
THE YEAR ENDED DECEMBER 31, THE YEAR ENDING DECEMBER 31,
--------------------------------- ------------------------------
1996 1997 1998 1999 2000 2001
--------- --------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
THE WIRELESS PRODUCTS
GROUP/WJ AS A WHOLE LESS
TELECOMMUNICATIONS GROUP:
Revenues............................... $12,633 $31,174 $63,568 $85,599 $111,000 $144,000
Cost of goods sold..................... 12,135 24,091 43,647 53,677 71,359 92,429
Gross profit........................... 498 7,083 19,921 31,922 39,641 51,571
Earnings (loss) before interest, taxes,
depreciation, and corporate
allocations and adjustments(1)....... (9,234) (6,182) 2,924 11,312 14,406 19,683
Earnings (loss) before interest, taxes,
and corporate allocations and
adjustments(1)....................... (9,653) (6,840) 1,405 9,295 12,323 16,975
Earnings (loss) before interest and
taxes(1)............................. (10,214) (8,080) 198 N/A N/A N/A
Total capital expenditures............. 473 2,743 5,692 3,750 4,500 5,500
</TABLE>
- ------------------------------
(1) Included in 1998 results were total charges of $5.5 million associated with
ramp-up of the Milpitas GaAs and thin-film facility, and excess material
costs from noncancellable purchase commitments. Included in 1997 results
were charges of $4.6 million related to the acquisition of assets from
Samsung Microwave Semiconductor. See "THE WJ MERGER--Background of the WJ
Merger" on pages to .
After the WJ Merger Agreement was signed, WJ's senior management and the
management of the Wireless Products Group collaborated with Fox Paine and the
CIBC World Markets team assisting Fox Paine in the preparation of a confidential
information memorandum to be furnished to a group of financial institutions that
are being approached as potential syndicate members. (See "SPECIAL
FACTORS--Financing" on pages to ). This confidential information memorandum
includes certain projections of WJ's future financial performance, which
projections represent those provided to Fox Paine by WJ as adjusted to reflect
Fox Paine's plans for WJ following the closing of the WJ Merger. These
projections included no adjustments to revenues, and indicated cost of goods
sold, gross profit and EBITDA that were 0.0% to 2.3% lower, 0.0% to 3.6% higher,
and 3.3% to 12.6% lower, respectively, than indicated in the projections
described above for the 1999-2001 period.
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CERTAIN LITIGATION
On October 26, 1999, following WJ's press release that morning announcing
the WJ Merger Agreement, a purported shareholder class action lawsuit was filed
against WJ, its directors, Fox Paine and FP-WJ in the California Superior Court
for the County of Santa Clara entitled ROSENZWEIG V. WATKINS-JOHNSON COMPANY,
ET. AL., Case No. CV7885528. The following day, October 27, 1999, another
purported shareholder class action lawsuit was filed in the same court against
WJ, its directors and 25 unnamed "Doe" defendants entitled SOSHTAIN V.
WATKINS-JOHNSON CO., ET AL., Case No. CV785560. Two days later on October 29,
1999, a third purported shareholder class action lawsuit was filed in the same
court against WJ,. its directors, FP-WJ, Fox Paine and 25 unnamed "Doe"
defendants entitled LEONG V. WATKINS-JOHNSON COMPANY, ET AL., Case
No. CV785617. On November 3, 1999, a fourth purported shareholder class action
lawsuit was filed in the same court against WJ, its directors and 25 unnamed
"Doe" defendants entitled FONG V. WATKINS-JOHNSON CO., ET AL., Case
No. CV785683.
While the allegations are not identical in the four complaints, they all
allege essentially the same grounds for relief, namely that the individual
defendants breached their fiduciary duty to the WJ shareowners in connection
with the WJ Merger by failing to maximize the value of WJ through an appropriate
process for eliciting and evaluating bids. The complaints also allege that the
individual defendants had conflicts of interest and committed this breach of
fiduciary duty in order to entrench themselves in office, enrich themselves
financially and receive unspecified additional perquisites. According to the
complaints, the proposed cash consideration to be received by WJ shareowners in
the WJ Merger is "unfair" or "inadequate" because it allegedly does not reflect
the "true value" of WJ.
All four complaints seek declarations that the defendants breached their
fiduciary duties (or aided and abetted a breach), unspecified damages (described
generally as the "real value" of WJ shares) and an award of attorneys' fees,
among other relief. Three of the four lawsuits include, in the relief sought,
preliminary and permanent injunctions against the consummation of the WJ Merger,
a declaration that it is a nullity and rescission in the event it is completed.
Two of the four lawsuits also seek an order that the defendants permit a
stockholders committee comprised exclusively of purported class members and
their representatives to establish unspecified "fair" procedures, and
independent input by the plaintiffs and the classes they purportedly represent,
in connection with any proposed transaction, and for plaintiffs and other
members of the alleged class to play an unspecified oversight role in connection
with any proposed transaction for WJ shares.
Although three of the lawsuits include general claims for injunctive relief,
to WJ's knowledge none of the plaintiffs has filed a motion requesting the Court
to prohibit the closing of the WJ Merger. None of these lawsuits challenges, or
seeks any relief in respect of, the Telecommunications Group Sale.
WJ considers that these lawsuits are without merit and intends to defend
against all of them vigorously. On December 20, 1999 WJ and the individual
defendants filed a demurrer to the complaints, arguing that the complaints
failed to state a basis for relief.
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THE SPECIAL MEETING
DATE, TIME AND PLACE
The WJ Board is soliciting proxies for use at a special meeting of
shareowners. The special meeting will be held on January , 2000, at
[time] a.m., Pacific time, at [location]. This proxy statement and the enclosed
BLUE proxy card were first mailed to shareowners beginning December , 1999.
SHAREOWNERS ARE URGED TO READ ALL THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT BEFORE VOTING.
PURPOSE
As described in the Notice of Special Meeting, the purpose of the special
meeting is:
- to consider and vote on the WJ Merger Proposal; and
- to transact such other business as may properly come before the special
meeting or any adjournments or postponements, including, if submitted, a
motion to adjourn to another time or place for the purpose of soliciting
additional proxies.
THE WJ BOARD RECOMMENDS A VOTE "FOR" THE WJ MERGER PROPOSAL.
WHO CAN VOTE
Only shareowners of record of WJ common shares at the close of business on
the record date, namely December 3, 1999, are entitled to vote at the special
meeting and any adjournments or postponements. On the record date, WJ had
6,680,699 common shares outstanding, held by 732 record owners. Each shareowner
has one vote for each share.
HOW YOU CAN VOTE
You can vote by proxy or in person at the special meeting. If you return
your signed BLUE proxy card before the special meeting, the proxy holders will
vote your shares as you direct. IF YOU RETURN YOUR BLUE PROXY CARD AND DO NOT
SPECIFY ON THE CARD HOW YOU WANT YOUR SHARES VOTED, THE PROXY HOLDERS WILL VOTE
THEM "FOR" THE WJ MERGER PROPOSAL.
VOTE REQUIRED; QUORUM
The affirmative vote of holders of a majority of the outstanding WJ shares
at the close of business on the record date (I.E., December 3, 1999) is required
to approve the WJ Merger Proposal. As of the record date, the directors and
executive officers of WJ, including Dr. Watkins, owned or controlled 366,682
shares of WJ common stock, or approximately 5.49% of the oustanding shares (see
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" on pages to
) and they intend to vote, or cause to be voted, all of such shares in favor
of the WJ Merger Proposal.
In order for shareowners to conduct business at the special meeting, a
quorum must be present. This means that at least a majority of the shares
outstanding on the record date must be present in person or by proxy.
For purposes of determining the presence of a quorum, shares represented by
proxies that reflect "abstentions" will be treated as present and entitled to
vote. If a broker or other nominee is the holder of record of shares, and that
holder does not receive instructions from the beneficial owner as to how the
shares should be voted at the special meeting, the holder may choose to send in
a proxy card to enable the shares to be present for purposes of determining a
quorum and those shares may be entitled
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to vote on other matters that may properly come before the special meeting.
However, the record holder will have to indicate that it has received no voting
instructions on either Proposal and this will mean that those shares will NOT be
voted on the WJ Merger Proposal.
SINCE THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES ENTITLED
TO VOTE AT THE SPECIAL MEETING IS REQUIRED TO APPROVE THE WJ MERGER PROPOSAL,
ANY ABSTENTIONS, "BROKER NON-VOTES" AND BLUE PROXY CARDS THAT ARE NOT RECEIVED
BY WJ WILL HAVE THE EFFECT OF "NO" VOTES EXCEPT WHERE THE SHAREOWNER VOTES IN
PERSON AT THE SPECIAL MEETING.
ChaseMellon Shareholder Services, LLC, WJ's transfer agent, will tabulate
the votes and its representative will serve as inspector of election for the
special meeting.
REVOCATION OF PROXIES
Any person giving a proxy in the form of the BLUE proxy card accompanying
this proxy statement has the power to revoke it at any time before its exercise.
It may be revoked:
- by filing with the Secretary of WJ an instrument of revocation;
- by presenting at the special meeting a duly executed proxy bearing a later
date or time; or
- by attending the special meeting and voting in person.
SOLICITATION OF PROXIES; EXPENSES
WJ is paying the entire cost of preparing, assembling, printing and mailing
this proxy statement, the accompanying proxy card and any additional material
that may be furnished to shareowners. Copies of solicitation material will be
furnished to brokerage houses, fiduciaries and custodians to forward to
beneficial owners of shares held in the names of such nominees.
The solicitation of proxies will be conducted by the use of the mails and
through direct communication with certain shareowners or their representatives
by officers, directors and employees of WJ, who will receive no additional
compensation for their solicitation activities. WJ has engaged MacKenzie
Partners, Inc. to solicit proxies and distribute materials to certain
shareowners, brokerage houses, banks, custodians and other nominee holders. WJ
will pay MacKenzie Partners, Inc. $10,000 for these services, plus expenses.
OTHER MATTERS TO BE ACTED ON
WJ does not know of any matters, other than the WJ Merger Proposal, to be
presented or acted on at the special meeting. However, WJ reserves the right for
the chairman of the special meeting to invite a motion to adjourn the meeting to
another time or place for the purpose of soliciting additional proxies in favor
of the WJ Merger Proposal. If such a motion or any other matter is properly
presented at the special meeting, the shares represented by proxies in the form
of the enclosed BLUE proxy card will be voted in the discretion of the named
proxy holders. If a shareowner votes any shares against the WJ Merger Proposal
on the enclosed blue proxy card, those shares will not be voted in favor of any
motion to adjourn the special meeting for the purpose of soliciting additional
proxies in favor of the WJ Merger Proposal.
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THE WJ MERGER AGREEMENT
THE FOLLOWING SECTION SUMMARIZES THE MATERIAL TERMS OF THE WJ MERGER
AGREEMENT, A COPY OF WHICH IS INCLUDED IN THIS PROXY STATEMENT AS APPENDIX A AND
INCORPORATED INTO THIS SUMMARY BY REFERENCE. WE URGE YOU TO READ THE WHOLE WJ
MERGER AGREEMENT FOR MORE DETAILED INFORMATION ON THE TERMS AND CONDITIONS OF
THE WJ MERGER.
EFFECTIVE TIME OF THE WJ MERGER
The closing of the WJ Merger is scheduled to take place on the later of
January 5, 2000 or immediately following satisfaction or waiver of all
conditions to the completion of the WJ Merger or as otherwise agreed by the
parties. At the closing, the WJ Merger will be consummated by the filing of a
Certificate of Merger with the California Secretary of State. The date and time
of the filing of the Certificate of Merger (or such later time specified in the
Certificate of Merger) will be the effective time of the WJ Merger.
CONVERSION OF COMMON SHARES
Except for Dissenting Shares (see "DISSENTERS' RIGHTS" on pages to ),
each WJ common share outstanding at the effective time of the WJ Merger will be
converted into the right to receive $41.125 in cash (reduced by any applicable
withholding taxes). No interest will accrue with respect to the payment of the
$41.125 per share WJ Merger consideration. The per share consideration of
$41.125 includes the share purchase right that is attached to every WJ common
share under WJ's stockholder rights plan and no additional consideration will be
paid for that right.
SURRENDER OF CERTIFICATES; PAYMENT FOR SHARES
Before the effective time of the WJ Merger, FP-WJ will appoint a bank or
trust company to act as the paying agent for the payment of the consideration of
$41.125 per share for each WJ common share. WJ, as the surviving corporation in
the WJ Merger, is required to make cash available, when needed, so that the
paying agent can pay for shares properly surrendered for payment. No interest
will accrue or be paid on the $41.125 merger consideration between the effective
time and the date the paying agent sends a check for shares surrendered for
payment.
Shortly after the effective time of the WJ Merger, WJ shareowners will
receive documents and instructions for transmitting their stock certificates or
other appropriate evidence of stock ownership to the paying agent. WJ
shareowners will be required to submit a W-9 tax form or similar document and
other forms to permit an orderly exchange.
After the effective time of the WJ Merger, there will be no further
transfers of WJ shares on the records of WJ or its transfer agent (other than to
give effect to sales of shares and to exercises of options that took place prior
to the effective time).
TREATMENT OF STOCK OPTIONS
Except as described in the next paragraph, at the effective time of the WJ
Merger all then-outstanding stock options previously granted to employees,
non-employees, directors and consultants under WJ stock option plans, whether or
not then vested or exercisable, will terminate and no longer be exercisable. On
the closing date of the WJ Merger, WJ will make a cash payment (reduced by
applicable tax withholding) for each terminated option in an amount equal to the
number of shares that are subject to the option multiplied by the excess of
$41.125 over the option exercise price.
FP-WJ has the right, before the effective time of the WJ Merger, to deliver
to WJ a schedule identifying stock options which (with the optionee's consent)
will not be terminated under the general provisions described in the preceding
paragraph. Instead, these scheduled options will continue to exist
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in accordance with their terms except that they will be exercisable for the
common shares of the post-closing WJ (as the surviving corporation in the WJ
Merger) rather than the pre-closing WJ. Fox Paine has advised WJ that FP-WJ has
no present intention of exercising this right.
As of the effective time of the WJ Merger, all of WJ's stock option and
equity incentive plans will terminate.
For information regarding payments that WJ's directors and executive
officers will receive for their shares and options in the WJ Merger, see
"SPECIAL FACTORS--Interests of WJ Management in the WJ Merger--SHARES AND STOCK
OPTIONS" on page .
REPRESENTATIONS AND WARRANTIES
REPRESENTATIONS AND WARRANTIES OF EACH PARTY. The WJ Merger Agreement
includes representations and warranties by each party relating to a number of
matters, including the following:
- its capitalization, organization and similar corporate matters;
- the material accuracy of the information supplied by WJ for inclusion in
any documents delivered to potential lenders in connection with the
syndication of the debt portion of the financing for the WJ Merger;
- the absence of undisclosed liabilities affecting WJ or its subsidiaries;
- its authorization, execution and delivery of the WJ Merger Agreement;
- the enforceability of the WJ Merger Agreement against it;
- the consistency of the WJ Merger Agreement with its charter documents and
its contracts;
- required consents and approvals for its execution, delivery and
performance of the WJ Merger Agreement;
- the accuracy of the information supplied by it for inclusion in this proxy
statement; and
- the absence of litigation against it and material adverse events affecting
it.
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF WJ. WJ has made
representations and warranties relating to a number of additional matters,
including the following:
- its compliance with laws (including environmental laws), judgments and
contracts of WJ and its subsidiaries;
- the accuracy of its Securities and Exchange Commission filings;
- its audited and unaudited consolidated financial information;
- transactions with affiliates of WJ or its subsidiaries;
- employee and labor matters of WJ and its subsidiaries;
- tax matters;
- WJ's title to, and ownership of, properties and assets;
- compliance with, and enforceability of, material contracts and agreements
of WJ and its subsidiaries;
- the status of WJ's intellectual property and the Year 2000 compliance of
its computer systems;
- insurance policies of WJ and its subsidiaries;
- the amount of cash held by WJ and its subsidiaries;
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- the completion of recent real estate sales described in "SPECIAL
FACTORS--Background of the WJ Merger" on pages to ; and
- the inapplicability to the WJ Merger of WJ's shareholder rights plan and
state takeover laws by reason of WJ having taken the necessary exemptive
action.
ADDITIONAL REPRESENTATIONS BY FP-WJ. FP-WJ has represented and warranted
that, at the effective time of the WJ Merger and subject to all the closing
conditions in the WJ Merger Agreement, it will have cash funds from the issuance
of equity in FP-WJ of not less than $50 million (including the amount to be paid
by Fox Paine Capital Fund to purchase a portion of the preferred shares to be
issued to the Watkins Trust under the Recapitalization Agreement). Subsequently,
FP-WJ increased this commitment to $50.8 million. In addition, FP-WJ has
represented and warranted that it has received a commitment letter under which a
financial institution is committed, subject to the satisfaction of certain
conditions, to arrange $55 million of debt financing to be used in connection
with the WJ Merger and to provide working capital to WJ. See "Financing" on
pages to and "THE WJ MERGER AGREEMENT--Conditions to Closing--CONDITIONS TO
FP-WJ'S OBLIGATION TO CLOSE" on page .
CONDUCT OF THE WJ BUSINESS BEFORE THE WJ MERGER
Except as contemplated by the WJ Merger or agreed to in writing by FP-WJ,
pending the closing of the WJ Merger, WJ must:
- conduct its business in the ordinary course consistent with past practices
and in compliance with applicable law; and
- use commercially reasonable efforts to:
-- preserve intact the business organization of WJ and its subsidiaries;
-- keep available the services of WJ officers, employees and consultants;
and
-- preserve the relationships of WJ and its subsidiaries with their
customers, suppliers and other persons with whom WJ or any of its
subsidiaries has any significant business relations.
In addition, WJ has agreed not to take certain actions before the effective
time of the WJ Merger, including the following:
- declare, set aside or pay dividends other than regular quarterly dividends
consistent with past practice not to exceed $0.12 per share of WJ common
stock per quarter;
- issue or authorize the issuance of WJ stock or split, combine or
reclassify its stock;
- purchase, redeem or acquire any WJ common stock or securities convertible
into WJ common stock;
- authorize the issuance or commit to issue, sell or deliver, pledge or
otherwise encumber any capital stock of WJ or its subsidiaries (including
any options, rights and warrants) except for new preferred shares in
accordance with the Recapitalization Agreement (see "SPECIAL
FACTORS--Interests of WJ Management in the WJ Merger--THE RECAPITALIZATION
AGREEMENT," on page ) and shares upon exercise of options outstanding on
October 25, 1999;
- increase the compensation or fringe benefits of any of WJ's directors,
officers or employees (except as required under existing plans, programs
and contracts), grant them any new rights to severance or termination pay
or establish any new plans for them (but WJ may, consistent with past
practice, hire non-managerial or non-officer personnel in the ordinary
course of its business and provide them with appropriate benefits);
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- amend its Articles of Incorporation or Bylaws or alter its corporate
structure;
- sell, lease, license, mortgage or otherwise encumber any of its properties
or assets, other than inventory or obsolete equipment in the ordinary
course of business consistent with past practices and in amounts that
could not, individually or together, reasonably be expected to have a
"Company Material Adverse Effect" (for the definition of this term, see
"Conditions to Closing--CONDITIONS TO FP-WJ'S OBLIGATION TO CLOSE" on
page );
- incur or guarantee any debt or enter into any financing obligation
(whether or not required to be presented on a balance sheet);
- with certain limited exceptions, make any loans or advances to, or capital
contributions to, or any investments in, any other person or entity;
- acquire or agree to acquire any business, corporation, partnership or
other organization or any assets (other than in the ordinary course of
business) and in amounts not to exceed $500,000;
- expend or commit funds in excess of specified amounts;
- adopt a plan of liquidation;
- recognize any labor union or enter into any collective bargaining
agreement;
- change any accounting methods other than as a result of a change in U.S.
generally accepted accounting principles or as recommended by WJ's
independent accountants and consented to by FP-WJ;
- enter into any new line of business;
- enter into any contracts or commitments which contain payment obligations
above specified levels, depending upon the type of contract; or
- take any action that would make untrue any of its representations in the
WJ Merger Agreement.
WJ's right to complete the Telecommunications Group Sale is excluded from
the covenants described above but the WJ Merger Agreement requires WJ to close
the Telecommunications Group Sale strictly in accordance with the
Telecommunications Group Sale Agreement. WJ may not amend or modify, or waive
any rights or obligations of any party to, the Telecommunications Group Sale
Agreement (except for amendments which are not material, individually or
together, and do not affect the proceeds payable to WJ pursuant to that
Agreement or the financial value of the Telecommunications Group Sale to WJ).
RESTRICTIONS ON SOLICITATIONS
OFFERS FOR WJ. Other than the Telecommunications Group Sale, WJ may not
directly or indirectly, through any officer, director or agent:
- solicit, initiate or encourage the submission of any proposal or offer
relating to:
-- any acquisition or purchase of all or any material portion of the
assets of WJ or its subsidiaries;
-- any acquisition or purchase of any equity interest in WJ or its
subsidiaries; or
-- any merger, consolidation, business combination or similar transaction
with WJ or its subsidiaries;
or
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- solicit, participate or initiate any negotiations regarding, or furnish to
any other person any information with respect to, or otherwise cooperate
in any way with, or assist or participate in, facilitate or encourage, any
effort or attempt by any person or entity to do or seek to do any of the
foregoing.
WJ has also agreed:
- to discontinue all efforts to solicit purchasers of WJ or its component
businesses; and
- not to release any third party from any confidentiality or standstill
agreement with WJ.
UNSOLICITED OFFERS FOR WJ. WJ is not prohibited from furnishing information
to, or entering into discussions or negotiations with, any person or entity in
connection with an unsolicited written bona fide proposal to WJ to acquire all
the equity or assets of WJ and its subsidiaries viewed as a whole if, and only
to the extent that:
- the proposal is made before the adjournment of the special meeting;
- the WJ Board determines in good faith, having been advised by counsel,
that its failure to authorize such action would constitute a breach of the
Board's fiduciary duties to WJ shareowners under California law;
- upon receipt of the unsolicited proposal, WJ notifies FP-WJ of its
intention to furnish the information or begin the discussions and includes
a summary of the material terms of the proposal and the identity of the
person or entity making the proposal; and
- before beginning discussions or providing information
-- WJ determines in good faith, after consultation with its financial
advisors, that the financial value of the consideration in the
alternative proposal exceeds the financial value of the WJ Merger
consideration; and
-- the financing of the alternative transaction, to the extent required,
is then committed by a third party (this commitment may, in part, be
made in reliance on the firm written commitments of third party
lenders).
RECOMMENDATION OF THE WJ BOARD
As noted under "SPECIAL FACTORS--WJ Board's Reasons and Recommendations" on
page , the WJ Board recommends that shareowners vote to approve the WJ
Merger Proposal. Under the WJ Merger Agreement, the WJ Board may withdraw,
modify or change its recommendation only if:
- a proposal for a superior alternative transaction is made to WJ and is not
withdrawn;
- neither WJ nor its representatives has violated its agreements described
above under "Restrictions on Solicitations";
- the WJ Board concludes in good faith, and after consulting with counsel,
that, in light of the alternative proposal, it is required not to make, or
to withdraw, modify or change, its recommendation in order to comply with
its fiduciary obligations to WJ shareowners under California law; and
- such withdrawal, modification or change occurs prior to the special
meeting.
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ACCESS TO, AND CONFIDENTIALITY OF, INFORMATION
ACCESS RIGHTS. WJ must afford FP-WJ's officers, auditors and other agents,
as well as the providers of the debt financing for the WJ Merger, reasonable
access to:
- WJ's senior officers, other employees (after prior consultation with a
senior officer), agents, independent accountants, properties, offices and
other facilities; and
- all books and records, and all requested financial, operating and other
data, (subject to restrictions imposed by applicable law or contract).
In addition, WJ and its accountants, agents and other representatives must
provide information about WJ which is necessary for FP-WJ and its accountants,
agents, counsel and other representatives to participate in, and assist WJ in
preparing the documents for, and securing, the debt financing for the WJ Merger
and in response to reasonable requests with respect to such debt financing
documents. To the extent reasonably appropriate to assure the success of the
debt financing, FP-WJ and its representatives may disclose information
concerning WJ and its subsidiaries as well as any transaction involving WJ that
occurs outside the ordinary course of business or relates to any material part
of WJ's businesses, assets or properties. FP-WJ has agreed to instruct its
representatives to maintain the confidentiality of such information.
CONFIDENTIALITY AND STANDSTILL OBLIGATIONS. FP-WJ has agreed that any
non-public information it receives under the access provisions summarized above
will be held in confidence under the restrictions of the confidentiality
agreement dated May 7, 1999 between WJ and Fox Paine and that information may
not be distributed to third parties except as described in the preceding
paragraph. The confidentiality agreement also precludes Fox Paine and its
affiliates, through November 2000, from initiating or participating in
unsolicited acquisition efforts or proxy contest activities directed at WJ and
from soliciting WJ's officers or senior level employees with whom it had contact
during its due diligence investigation of WJ.
ADDITIONAL COVENANTS
The parties have undertaken additional obligations, including their
covenants to do the following:
- use their reasonable commercial efforts to cooperate in obtaining all the
required governmental and private party consents;
- notify one another promptly of the occurrence or non-occurrence of any
event that will likely cause any of the notifying parties' representations
and warranties in the WJ Merger Agreement to be materially untrue; and
- notify one another promptly of any failure by the notifying party to
comply with or satisfy, in any material respect, any condition or any of
its other covenants in the WJ Merger Agreement.
CONDITIONS TO CLOSING
CONDITIONS TO EACH PARTY'S OBLIGATION TO CLOSE. The obligations of the
parties to complete the WJ Merger are subject to satisfaction or (to the extent
permitted by applicable law) waiver of the following conditions:
- approval and adoption of the WJ Merger Proposal by the affirmative vote of
the holders of a majority of the outstanding shares of WJ common stock
entitled to vote at the special meeting;
- the absence of any temporary restraining order, preliminary or permanent
injunction or other court order or legal restraint or prohibition that
makes completion of the WJ Merger unlawful
64
<PAGE>
or, as a result of completing the WJ Merger, would give rise to a "Company
Material Adverse Effect" as defined in the WJ Merger Agreement;
-- The term "Company Material Adverse Effect" is defined in
Section 3(a) of the WJ Merger Agreement (see page A-6 of Appendix A)
to include any material adverse change in or effect on (i) the
business, results of operations or condition (financial or other) of
(1) WJ either before or after the effective time of the WJ Merger or
(2) WJ's Wireless Products Group, in each case excluding any change or
effect that is directly attributable to conditions generally affecting
the United States, California or Maryland economy or any of the
industries in which WJ or its subsidiaries operates unless such
conditions adversely affect WJ in a materially disproportionate
manner, or (ii) WJ's ability to complete the WJ Merger on or before
January 31, 2000 (or a later agreed-on date).
- the receipt by the WJ and FP-WJ boards of an opinion concerning the
solvency of FP-WJ, WJ and their respective affiliates after giving effect
to the WJ Merger (see "SPECIAL FACTORS--Financing--SOLVENCY OPINION
CONDITION" on page ) prepared by an independent firm expert in providing
such opinions which is reasonably acceptable to both parties;
- the other party's representations and warranties in the WJ Merger
Agreement must be true and correct in all respects as of October 25, 1999
and (except for certain representations and warranties made only as of
specified dates) as of the closing;
-- one of WJ's representations and warranties that was not made as of a
specified date is that (except as disclosed in any of WJ's filings
with the Securities and Exchange Commission made prior to October 25,
1999 or otherwise disclosed to FP-WJ before the WJ Merger Agreement
was signed) no Company Material Adverse Effect has occurred since
December 31, 1998. Accordingly, such an occurrence before the closing
would result in this condition not being satisfied;
- the other party must have performed all obligations required to be
performed by it under the WJ Merger Agreement at or before the closing,
with such exceptions, either individually or together, as could not
constitute, and could not reasonably be expected to have, a Company
Material Adverse Effect.
CONDITIONS TO FP-WJ'S OBLIGATION TO CLOSE. FP-WJ's obligation to complete
the WJ Merger is subject to satisfaction of the following additional conditions,
except to the extent lawfully waived by it:
- the number of WJ common shares as to which the holders have taken those
actions that Chapter 13 requires them to take before the closing in order
for their shares to become Dissenting Shares must not exceed 5% of the
outstanding WJ common shares (see "DISSENTERS' RIGHTS" on page );
- receipt of required governmental and other authorizations, consents and
approvals other than those that (with certain exceptions) could not
reasonably be expected to have a Company Material Adverse Effect;
- the closing of the Telecommunications Group Sale;
- FP-WJ's receipt of the $55 million debt portion of the financing for the
WJ Merger on terms and conditions that, in FP-WJ's reasonable judgment,
are not less favorable, in the aggregate, to FP-WJ than those set forth in
the commitment letter delivered by CIBC World Markets to FP-WJ in
connection with the signing of the WJ Merger Agreement (see "SPECIAL
FACTORS--Financing--THE FINANCING CONDITION" on page ); and
- there must not be any change in generally accepted accounting principles
(as in effect on October 25, 1999) or a decision, statement, policy
statement, pronouncement, speech, statute,
65
<PAGE>
ordinance, writ, judgment, injunction, rule, regulation (formal, informal
or otherwise), order or decree of any court or governmental entity or
authoritative accounting standards board or body (including the Securities
and Exchange Commission or the Financial Accounting Standards Board), the
effect of which is to prevent the WJ Merger from being accounted for as a
recapitalization (as a result of the structure and/or capitalization of
WJ, as the surviving corporation in the WJ Merger, as contemplated by the
WJ Merger Agreement), in FP-WJ's reasonable judgment, following
consultation with its accounting advisors.
TERMINATION
Before the effective time of the WJ Merger, either party may terminate the
WJ Merger Agreement:
- with the written consent of the other party;
- if any permanent injunction or action by any federal, state, local or
foreign governmental entity preventing completion of the WJ Merger has
become final and non-appealable;
-- this termination right is not available to a party if it has failed to
make reasonable efforts to prevent or contest the imposition of the
injunction or action and that failure materially contributes to its
imposition;
- if the WJ Merger has not occurred on or before January 31, 2000 or any
later date to which the completion of the WJ Merger is extended in writing
by both parties;
-- this termination right is not available to a party that has willfully
failed to perform its pre-closing obligations under the WJ Merger
Agreement;
- a vote of WJ's shareowners on a motion to approve the WJ Merger Proposal
has been taken and the vote in favor was not sufficient to cause the
motion to pass;
-- this termination right is not available to WJ if (i) such failure to
obtain approval was caused by a breach of the WJ Merger Agreement by
WJ or (ii) FP-WJ is entitled to terminate because (1) there is a
change in the WJ Board's recommendation concerning the WJ Merger in a
manner adverse to FP-WJ or (2) the WJ Board fails, within ten business
days after the commencement of a tender or exchange offer seeking to
purchase at least 25% of WJ's shares, to recommend rejection of the
offer;
- if the other party breaches any of its representations, warranties or
covenants in the WJ Merger Agreement and that breach:
-- would prevent satisfaction of the terminating party's closing
conditions relating to the breaching party's representations and
warranties or covenants (see "Conditions to Closing" on pages to
); and
-- either that breach cannot be cured before the Terminal Date or has not
been cured within 30 days after written notice from the terminating
party specifying its nature in reasonable detail.
In addition, FP-WJ may also terminate the WJ Merger Agreement if:
- the WJ Board withdraws, modifies or changes its approval or recommendation
of the WJ Merger Proposal in a manner adverse to FP-WJ; or
- the WJ Board fails, within ten business days after the commencement of a
tender or exchange offer seeking to purchase at least 25% of WJ's shares,
to recommend rejection of the offer.
66
<PAGE>
In addition, WJ may terminate the WJ Merger Agreement if Fox Paine Capital
Fund gives WJ written notice that it will not, or it otherwise becomes
manifestly obvious that it has become unable to, fund FP-WJ as required under
its equity commitment letter (see "SPECIAL FACTORS--Financing--THE EQUITY
FINANCING FROM FOX PAINE CAPITAL FUND" on page ).
TERMINATION FEE; EXPENSES
The general rule under the WJ Merger Agreement is that all costs and
expenses incurred in connection with the WJ Merger Agreement and the WJ Merger
will be paid by the party incurring them, whether or not the WJ Merger is
completed. However, there are two exceptions:
- under specified circumstances, summarized below, involving the termination
of the WJ Merger Agreement, WJ would have to pay FP-WJ a termination fee
of $13.25 million plus all costs and expenses incurred by FP-WJ in
connection with the WJ Merger Agreement; and
- if either party terminates the WJ Merger Agreement on the basis of a
breach of a representation, warranty, covenant or agreement of the other
party and that breach:
-- would prevent the satisfaction of the terminating party's closing
conditions relating to the breaching party's representations and
warranties (see "Conditions to Closing" on pages to ); and
-- either the breach cannot be cured before the Terminal Date or it has
not been cured within 30 days after written notice from the
terminating party specifying its nature in reasonable detail.
In this last situation, all costs and expenses of the non-breaching party
must be paid by the breaching party.
The $13.25 million termination fee plus all costs and expenses of FP-WJ
would be payable to FP-WJ if the WJ Merger Agreement was terminated:
- by FP-WJ upon a breach by WJ of any representation, warranty, covenant or
agreement that prevents the conditions concerning the truth and accuracy
of WJ's representations and warranties or WJ's obligations from being
satisfied (and such breach cannot be cured prior to January 31, 2000 or
within 30 days after notice of such breach) and an alternative transaction
is approved by WJ within twelve months following termination;
- by FP-WJ because the WJ Board changes its recommendation of the WJ Merger
in a manner adverse to FP-WJ;
- by FP-WJ because the WJ Board fails, within ten business days of the
commencement of a tender or exchange offer made by a third party for at
least 25% of WJ's shares, to recommend rejection of the offer;
- by WJ if the WJ Board withdraws, modifies or changes its recommendation
due to receipt of a proposal for a superior alternative transaction; or
- by either party based on the WJ shareowners failing to approve the WJ
Merger Proposal and WJ enters into an alternative transaction within
twelve months following termination of the WJ Merger.
In circumstances where the $13.25 million termination fee plus FP-WJ's costs
and expenses are payable, receipt of the payment by FP-WJ constitutes its sole
remedy for WJ's breach of the WJ Merger Agreement.
Estimated fees and expenses incurred or to be incurred by WJ in connection
with the WJ Merger and related transactions (excluding (i) the
Telecommunications Group Sale, which is not conditioned on
67
<PAGE>
the WJ Merger but the completion of which is a condition to the WJ Merger,
(ii) expenses relating to the litigation referred to in "SPECIAL
ACTIONS--Certain Litigation" on pages to , and (iii) severance and retention
payments) are as follows:
<TABLE>
<S> <C>
Investment banking and financial advisory fees.............. $
Legal, accounting and printing fees and expenses............
Proxy solicitation fees and expenses........................
SEC filing fee.............................................. 58,661
Miscellaneous expenses......................................
----------
Total....................................................... $
==========
</TABLE>
EMPLOYEE MATTERS
WJ must honor all pre-closing employee benefit plans and contract
obligations to its current or former employees. Following the WJ Merger, WJ may
take any action in connection with those plans and contracts that is not
precluded by their terms.
AMENDMENTS
The WJ Merger Agreement permits the parties to amend the WJ Merger Agreement
by action of their boards of directors, at any time before the closing. However,
if shareowners approve the WJ Merger Proposal, no amendment may be made that
would require shareowner approval without that further approval being obtained.
68
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of December 3, 1999, with
respect to the ownership of WJ shares by:
- any person who is known to WJ to be the beneficial owner of more than 5%
of WJ's common stock;
- all directors of WJ;
- WJ's Chief Executive Officer;
- WJ's four other most highly compensated executive officers in fiscal 1998;
and
- all of WJ's directors and officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT(1)
- ---------------- ----------------------- ----------
<S> <C> <C>
Mellon Bank Corporation.................................. 599,988(2) 8.98
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Dimensional Fund Advisors................................ 473,600(3) 7.09
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Central Securities Corporation........................... 465,000(3) 6.96
375 Park Avenue
New York, New York 10152
The TCW Group, Inc....................................... 439,000(3) 6.57
865 South Figueroa Street
Los Angeles, California 90017
Gabelli Funds LLC/GAMCO Investors, Inc................... 408,200(4) 6.11
One Corporate Center
Rye, New York 10580
Watkins-Johnson Company Employee Investment Plan(5)...... 375,106 5.61
Dean A. Watkins(6)(7).................................... 261,020 3.90
H. Richard Johnson(7).................................... 42,259 *
W. Keith Kennedy, Jr.(7)................................. 185,540 2.72
John J. Hartmann(7)...................................... 23,960 *
Raymond F. O'Brien(7).................................... 26,260 *
William R. Graham(7)..................................... 30,790 *
Gary M. Cusumano(7)...................................... 17,740 *
Robert L. Prestel(7)..................................... 17,540 *
Patrick J. Brady(7)(8)................................... 49,357 *
Scott G. Buchanan(7)..................................... 63,194 *
Malcolm J. Caraballo(7).................................. 87,674 1.30
Robert G. Hiller(7)...................................... 21,755 *
All directors and officers as a group (12
persons)(7)(8)......................................... 827,089 11.58
</TABLE>
- ------------------------
* Less than 1% of shares outstanding.
(1) Based on 6,680,699 shares of WJ common stock issued and outstanding as of
December 3, 1999.
(2) Based on a Schedule 13G (as amended) filed by such shareowner. Amount
includes 138,688 shares beneficially owned by Mellon Bank N.A.
(3) Based on a Schedule 13G (or amendment thereto).
(4) Based on a Schedule 13D (or amendment thereto) filed by such shareowner.
69
<PAGE>
(5) Includes shares credited to the accounts of the named executive officers and
included in their respective numbers shown below.
(6) Outstanding shares are held by the Watkins Trust, of which Dr. Watkins is a
co-trustee and beneficiary. Options are held by Dr. Watkins individually.
(7) Includes options, exercisable within 60 days of December 3, 1999, to
purchase WJ common shares as follows: Dean A. Watkins-12,000; H. Richard
Johnson-12,000; W. Keith Kennedy-146,902; John J. Hartmann-23,360;
Raymond F. O'Brien-20,260; William R. Graham-30,490; Gary M.
Cusumano-17,240; Robert L. Prestel-17,240; Patrick J. Brady (see note
(8))-46,332; Scott G. Buchanan-50,950; Malcolm J. Caraballo-62,633; Robert
G. Hiller-21,000; and all directors and officers as a group (12 persons; see
note (8))-460,407. Also includes, in the case of the named executive
officers, shares credited to their WJ Employee Investment Plan accounts (see
note (5)).
(8) Ceased being an executive officer upon the completion of the disposition of
WJ's Semiconductor Equipment Group on July 6, 1999.
70
<PAGE>
MARKET PRICE INFORMATION FOR WJ COMMON STOCK
Set forth below are:
- the high and low sale prices of WJ common stock on the New York Stock
Exchange during each of the quarters beginning on January 1, 1997 (the
year in which the WJ Board began to re-focus WJ's business); and
- the high and low sale prices of WJ common stock on the New York Stock
Exchange on
-- October 25, 1999, the last trading day prior to the public
announcement of the signing of the WJ Merger Agreement; and
-- December , 1999, the last full trading day for which price
information was available at the time of the printing of this proxy
statement.
<TABLE>
<CAPTION>
WJ COMMON STOCK
------------------------------
HIGH LOW
----------- -------------
<S> <C> <C>
First Quarter 1997........................................ $26 7/8 $22 1/8
Second Quarter 1997....................................... 32 3/8 22 1/4
Third Quarter 1997........................................ 37 1/4 30 3/4
Fourth Quarter 1997....................................... 35 3/4 24 3/16
First Quarter 1998........................................ 28 1/2 22 13/16
Second Quarter 1998....................................... 28 1/2 23 5/16
Third Quarter 1998........................................ 29 1/2 17 9/16
Fourth Quarter 1998....................................... 22 9/16 16 3/8
First Quarter 1999........................................ 26 1/2 20 1/8
Second Quarter 1999....................................... 28 1/4 22 5/8
Third Quarter 1999........................................ 36 26 7/8
October 25, 1999.......................................... 31 7/8 31 7/16
December , 1999.........................................
</TABLE>
71
<PAGE>
PRO FORMA FINANCIAL INFORMATION
Although the Telecommunications Group Sale will not be voted on at the
special meeting to which this proxy statement relates, the following information
is being provided because the completion of the Telecommunications Group Sale is
a condition to FP-WJ's obligation to close the WJ Merger but the completion of
the Telecommunications Group Sale is not conditioned on the completion of the WJ
Merger. Accordingly, it is possible that the Telecommunications Group Sale will
close but the WJ Merger will not. The following information presents certain
effects of the Telecommunications Group Sale on WJ's financial statements (as of
the dates indicated in the next paragraph) assuming that the WJ Merger is not
completed.
The following unaudited pro forma financial information consists of:
- WJ's unaudited pro forma combined condensed statements of operations for
the nine months ended September 24, 1999 and the years ended December 31,
1998, 1997 and 1996; and
- WJ's unaudited pro forma combined condensed balance sheet as of
September 24, 1999.
The following unaudited pro forma financial information should be read in
conjunction with WJ's historical financial statements. These are on file with
the Securities and Exchange Commission and can be found in the manner described
under "WHERE YOU CAN FIND MORE INFORMATION ABOUT WJ" on page .
The following unaudited pro forma financial information presents the effects
of the Telecommunications Group Sale on WJ's financial statements as if the
transaction had already occurred on the date indicated below:
- the unaudited pro forma combined condensed statements of operations for
the nine months ended September 24, 1999 assume that the
Telecommunications Group Sale had been completed on January 1, 1999;
- the unaudited pro forma combined condensed statements of operations for
the years ended December 31, 1998, 1997 and 1996 assume that the
Telecommunications Group Sale had been completed on January 1 in each of
those three years; and
- the unaudited pro forma combined condensed balance sheet as of
September 24, 1999 assumes that the Telecommunications Group Sale had been
completed on that date.
The pro forma adjustments are based on available information and assumptions
that WJ believes are reasonable at the time made. The pro forma amounts shown
are not necessarily indicative of WJ's actual financial position or results of
operations if and when the Telecommunications Group Sale is completed.
The pro forma amounts shown are not necessarily indicative of the actual
cash proceeds WJ will realize if the Telecommunications Group Sale is completed
because the estimated purchase price of $57.9 million is subject to a
post-closing balance sheet-related adjustment (see Note (d) to WJ's unaudited
pro forma combined condensed balance sheet as of September 24, 1999 on
page ).
72
<PAGE>
WATKINS-JOHNSON COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 24, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (a)
<TABLE>
<CAPTION>
LESS
TELECOMMUNICATIONS OTHER PRO FORMA
HISTORICAL GROUP ADJUSTMENTS AMOUNTS
---------- ------------------ ----------- ---------
<S> <C> <C> <C> <C>
Sales...................................... $ 98,311 34,571 $ 63,740
COSTS AND EXPENSES:
Cost of goods sold......................... 60,995 21,486 39,509
Selling and administrative................. 14,848 8,095 6,753
Research and development................... 15,078 2,060 13,018
Divestiture................................ 1,639 1,639
--------- --------- --------- ---------
92,560 31,641 -- 60,919
--------- --------- --------- ---------
Income from operations..................... 5,751 2,930 -- 2,821
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income............................ 2,708 2,708
Interest expense........................... (380) (1) (379)
Other income (expense)--net................ 192 (129) 321
Gain on real property...................... 9,686 9,686
--------- --------- --------- ---------
Income from continuing operations before
income taxes............................. 17,957 2,800 -- 15,157
Income taxes............................... (5,836) (969) (4,867)
--------- --------- --------- ---------
Net income from continuing operations...... $ 12,121 1,831 -- $ 10,290
========= ========= ========= =========
Basic net income per share
Income from continuing operations........ $ 1.84 0.28 $ 1.56
========= ========= =========
Basic average common shares................ 6,576,000 6,576,000 6,576,000
Diluted net income per share
Income from continuing operations........ $ 1.80 0.27 $ 1.53
========= ========= =========
Diluted average common shares.............. 6,724,000 6,724,000 6,724,000
</TABLE>
- ------------------------
(a) These Unaudited Pro Forma Combined Condensed Statements of Operations
exclude any pro forma gain or loss from the Telecommunications Group Sale as
described in Note (h) (page ) to WJ's Unaudited Pro Forma Combined
Condensed Balance Sheet as of September 24, 1999 (page ).
73
<PAGE>
WATKINS-JOHNSON COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LESS
TELECOMMUNICATIONS OTHER PRO FORMA
HISTORICAL GROUP ADJUSTMENTS AMOUNTS
---------- ------------------ ----------- ---------
<S> <C> <C> <C> <C>
Sales...................................... $ 115,219 51,651 $ 63,568
COSTS AND EXPENSES:
Cost of goods sold......................... 81,320 37,920 43,400
Cost of goods sold--write down of
discontinued products.................... 3,399 3,399 --
Selling and administrative................. 19,636 13,790 5,846
Restructuring charges...................... 2,700 2,700 --
Research and development................... 21,861 7,737 14,124
--------- --------- --------- ---------
128,916 65,546 -- 63,370
--------- --------- --------- ---------
Income (Loss) from operations.............. (13,697) (13,895) -- 198
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income............................ 5,681 5,681
Interest expense........................... (601) (601)
Other income (expense)--net................ 1,170 (50) 1,220
Gain on real property...................... 14,973 -- 14,973
--------- --------- --------- ---------
Income from continuing operations before
income taxes............................. 7,526 (13,945) -- 21,471
Income taxes............................... (2,446) 4,532 -- (6,978)
--------- --------- --------- ---------
Net income from continuing operations...... $ 5,080 (9,413) -- $ 14,493
========= ========= ========= =========
Basic net income per share
Income from continuing operations........ $ 0.66 (1.22) $ 1.87
========= ========= =========
Basic average common shares................ 7,737,000 7,737,000 7,737,000
Diluted net income per share
Income from continuing operations........ $ 0.65 (1.20) $ 1.84
========= ========= =========
Diluted average common shares.............. 7,857,000 7,857,000 7,857,000
</TABLE>
74
<PAGE>
WATKINS-JOHNSON COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LESS
TELECOMMUNICATIONS OTHER PRO FORMA
HISTORICAL GROUP ADJUSTMENTS AMOUNTS
---------- ------------------ ----------- ---------
<S> <C> <C> <C> <C>
Sales...................................... $ 104,817 73,643 $ 31,174
COSTS AND EXPENSES:
Cost of goods sold......................... 65,558 39,967 25,591
Selling and administrative................. 17,352 13,893 3,459
Research and development................... 22,861 12,657 10,204
--------- --------- --------- ---------
105,771 66,517 -- 39,254
--------- --------- --------- ---------
Income (Loss) from operations.............. (954) 7,126 -- (8,080)
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income............................ 2,198 2,198
Interest expense........................... (795) (795)
Other income (expense)--net................ (289) (40) (249)
Gain on real property...................... 7,609 -- 7,609
--------- --------- --------- ---------
Income from continuing operations before
income taxes............................. 7,769 7,086 -- 683
Income taxes............................... (2,733) (2,493) -- (240)
--------- --------- --------- ---------
Net income from continuing operations...... $ 5,036 4,593 -- $ 443
========= ========= ========= =========
Basic net income per share
Income from continuing operations........ $ 0.61 0.56 $ 0.05
========= ========= =========
Basic average common shares................ 8,258,000 8,258,000 8,258,000
Diluted net income per share
Income from continuing operations........ $ 0.59 0.54 $ 0.05
========= ========= =========
Diluted average common shares.............. 8,509,000 8,509,000 8,509,000
</TABLE>
75
<PAGE>
WATKINS-JOHNSON COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LESS
TELECOMMUNICATIONS OTHER PRO FORMA
HISTORICAL GROUP ADJUSTMENTS AMOUNTS
---------- ------------------ ----------- ---------
<S> <C> <C> <C> <C>
Sales...................................... $ 76,683 64,050 $ 12,633
COSTS AND EXPENSES:
Cost of goods sold......................... 53,942 41,704 12,238
Selling and administrative................. 17,267 13,243 4,024
Research and development................... 13,985 7,400 6,585
--------- --------- --------- ---------
85,194 62,347 -- 22,847
--------- --------- --------- ---------
Income (Loss) from operations.............. (8,511) 1,703 -- (10,214)
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income............................ 789 789
Interest expense........................... (1,574) (1,574)
Other income (expense)--net................ (509) (50) -- (459)
--------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes...................... (9,805) 1,653 -- (11,458)
Income taxes............................... 3,470 (585) -- 4,055
--------- --------- --------- ---------
Net (loss) income from continuing
operations............................... $ (6,335) 1,068 -- $ (7,403)
========= ========= ========= =========
Basic net income (loss) per share
Income (loss) from continuing
operations............................. $ (0.77) 0.13 $ (0.90)
========= ========= =========
Basic average common shares................ 8,265,000 8,265,000 8,265,000
Diluted net income (loss) per share
Income (loss) from continuing
operations............................. $ (0.77) 0.13 $ (0.90)
========= ========= =========
Diluted average common shares.............. 8,265,000 8,265,000 8,265,000
</TABLE>
76
<PAGE>
WATKINS-JOHNSON COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 24, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LESS
TELECOMMUNICATIONS OTHER PRO FORMA
HISTORICAL GROUP(A) ADJUSTMENTS BALANCE
---------- ------------------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents....................... $ 66,212 (417) 57,900(b) $122,993
(1,700)(c)
164(d)
Short-term investments..................... 44,678 44,678
Receivables................................ 16,927 6,026 10,901
Inventories................................ 10,068 5,949 4,119
Deferred income taxes...................... 25,100 -- (1,400)(e) 23,700
Net assets from discontinued operations.... 16,954 16,954
Other...................................... 3,559 243 3,316
-------- ------- ------- --------
Total current assets....................... 183,498 11,801 54,964 226,661
-------- ------- ------- --------
Property, plant, and equipment............. 65,803 22,978 42,825
Accumulated depreciation and
amortization............................. (41,599) (14,669) (26,930)
-------- ------- ------- --------
Property, plant, and equipment--net........ 24,204 8,309 -- 15,895
-------- ------- ------- --------
Other assets............................... 4,255 4,255
Net assets of Telecommunications Group..... (14,671) (14,671)(f) --
-------- ------- ------- --------
$211,957 5,439 40,293 $246,811
======== ======= ======= ========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Payables................................... $ 5,709 1,323 $ 4,386
Accrued liabilities........................ 44,249 4,116 1,000(g) 56,010
14,877(e)
-------- ------- ------- --------
Total current liabilities.................. 49,958 5,439 15,877 60,396
-------- ------- ------- --------
Long-term obligations...................... 5,868 5,868
SHAREOWNERS' EQUITY:
Common stock............................... 36,331 36,331
Retained earnings.......................... 119,952 24,416(h) 144,368
Accumulated other comprehensive income
(loss)................................... (152) (152)
-------- ------- ------- --------
Total shareowners' equity................ 156,131 -- 24,416 180,547
-------- ------- ------- --------
$211,957 5,439 40,293 $246,811
======== ======= ======= ========
</TABLE>
- ------------------------
(footnotes on next page)
77
<PAGE>
WATKINS-JOHNSON COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 24, 1999
(DOLLARS IN THOUSANDS)
- ------------------------
(footnotes)
(a) To remove assets and liabilities of the Telecommunications Group Business
from continuing operations and shown on this pro forma balance sheet as "net
assets of Telecommunications Group."
(b) To reflect estimated cash proceeds of $57.9 million from the
Telecommunications Group Sale. Assumes release to WJ of the entire
$1 million deposited into escrow at the closing of the Telecommunications
Group Sale.
(c) To reflect estimated cash payments totaling $1.7 million to employees of the
Telecommunications Group under WJ's retention program announced March 1,
1999.
(d) Estimated additional cash proceeds as a result of the price adjustment
formula contained in the Telecommunications Group Sale. This adjustment is
based on a comparison of the historical September 24, 1999 unaudited balance
sheet of the Telecommunications Group, as adjusted in the manner specified
in the Telecommunications Group Sale Agreement, to the historical June 25,
1999 unaudited balance sheet of the Telecommunications Group, similarly
adjusted. WJ cannot determine, on the date of this proxy statement, the
effect of applying the price adjustment formula to the adjusted unaudited
closing date balance sheet of the Telecommunications Group.
(e) To accrue estimated income taxes due in connection with the estimated gain
from the Telecommunications Group Sale.
(f) To adjust balance sheet items that are affected by the Telecommunications
Group Sale.
(g) To accrue estimated legal fees related to the completion of the
Telecommunications Group Sale.
(h) To adjust retained earnings to reflect the estimated gain from the
Telecommunications Group Sale as follows:
<TABLE>
<S> <C>
Estimated cash proceeds (note (b)).......................... $ 57,900
Estimated price adjustment (note (d))....................... 164
Less: net asset basis....................................... (14,671)
Less: retention payments (note (c))......................... (1,700)
Less: estimated legal fees (note (g))....................... (1,000)
--------
Gain before income taxes.................................... 40,693
Less: 40% tax (current--$14,877, deferred--$1,400).......... (16,277)
--------
Net gain in retained earnings............................... $ 24,416*
========
</TABLE>
-------------------------------
* Net gain in retained earnings has no effect on the unaudited pro
forma combined condensed statements of operations on pages to .
78
<PAGE>
DISSENTERS' RIGHTS
Under Chapter 13 of the California General Corporation Law ("Chapter 13"),
shareowners of WJ are entitled to exercise dissenters' rights in connection with
the WJ Merger. THE FOLLOWING SUMMARY OF THE PROVISIONS OF CHAPTER 13 IS NOT
INTENDED TO BE A COMPLETE STATEMENT OF SUCH PROVISIONS. WJ SHAREOWNERS ARE URGED
TO READ IN FULL THE TEXT OF CHAPTER 13, A COPY OF WHICH IS ATTACHED TO THIS
PROXY STATEMENT AS APPENDIX D.
BECAUSE WJ COMMON SHARES ARE LISTED ON THE NEW YORK STOCK EXCHANGE, NO
HOLDER OF WJ SHARES (EXCEPT SHARES THAT ARE SUBJECT TO TRANSFER RESTRICTIONS)
WILL HAVE THE RIGHT TO EXERCISE DISSENTERS' RIGHTS UNDER CHAPTER 13 IN
CONNECTION WITH THE WJ MERGER UNLESS AT LEAST 5% OF THE OUTSTANDING WJ COMMON
SHARES PROPERLY EXERCISE THEIR DISSENTERS' RIGHTS IN THE MANNER DESCRIBED BELOW.
IT IS A CONDITION TO FP-WJ'S OBLIGATION TO CLOSE THE WJ MERGER THAT THE NUMBER
OF DISSENTING SHARES IS BELOW THIS AMOUNT. ACCORDINGLY, FP-WJ CAN REFUSE TO
COMPLETE THE WJ MERGER IF THE HOLDERS OF 5% OR MORE OF THE OUTSTANDING WJ COMMON
SHARES PROPERLY EXERCISE DISSENTERS' RIGHTS IN CONNECTION WITH THE WJ MERGER. IN
ADDITION, EVEN THOUGH A SHAREOWNER WHO WISHES TO EXERCISE DISSENTERS' RIGHTS IS
REQUIRED TO TAKE CERTAIN ACTIONS BEFORE THE WJ SPECIAL MEETING, IF THE WJ MERGER
AGREEMENT IS LATER TERMINATED AND THE WJ MERGER IS ABANDONED, NO SHAREOWNER WILL
HAVE THE RIGHT TO ANY PAYMENT FROM WJ BY REASON OF HAVING TAKEN THAT ACTION. THE
FOLLOWING SUMMARY IS SUBJECT TO THESE QUALIFICATIONS.
For a WJ shareowner to exercise dissenters' rights as to any WJ shares in
connection with the WJ Merger, the shareowner must vote against the WJ Merger
and make a written demand to have WJ purchase the shares at their fair market
price. The demand must:
- be made by the record holder of the shares;
-- a beneficial owner of WJ shares registered in the record ownership of
another person (such as a broker or nominee) should instruct the
record holder to follow the procedures for perfecting dissenters'
rights if the beneficial owner wants to dissent with respect to any or
all of the shares;
- be received by WJ by not later than the date of the special meeting (I.E.,
January , 2000);
- be mailed to, and received by, WJ at Watkins-Johnson Company, 3333
Hillview Avenue, Palo Alto, California 94304, Attention: Corporate
Secretary;
- specify the holder's name and mailing address and the number of WJ shares
held of record;
- state that the holder is demanding purchase of the shares and payment of
their fair market value; and
- contain a statement as to the price which the shareowner claims to be the
fair market value of the shares as of the day before the first
announcement of the WJ Merger Agreement, I.E., October 25, 1999 (this
statement will constitute an offer by the shareowner to sell the shares at
that price).
In addition, within the time period provided in Section 1302 of Chapter 13,
the shareowner must also submit to WJ, for endorsement as dissenting shares, the
stock certificates representing the WJ shares, as to which the shareowner is
exercising dissenters' rights.
WJ shares held by shareowners who have perfected their dissenters' rights in
accordance with Chapter 13 and have not withdrawn their demands or otherwise
lost their rights, are referred to in this summary as "Dissenting Shares."
Within ten days after approval of the WJ Merger by WJ's shareowners, WJ must
mail a notice of the approval to all holders of WJ common shares who voted
against the WJ Merger Proposal at the special meeting and made timely demands
for purchase (and who are entitled to require WJ to
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<PAGE>
purchase their shares because holders of at least 5% of the outstanding WJ
shares have done so). This notice must state the price determined by WJ to
represent the fair market value of the Dissenting Shares as of October 25, 1999
(the day before the first announcement of the WJ Merger Agreement), a brief
description of the procedures to be followed by those holders in order to pursue
their dissenters' rights, and a copy of Sections 1300-1304 of Chapter 13. A
statement of price by WJ will constitute an offer by WJ to purchase all
Dissenting Shares at the stated amount but if the WJ Merger has not then closed
such offer will be conditioned on the WJ Merger becoming effective.
Irrespective of the percentage of WJ shares with respect to which demands
for appraisal have been properly filed, WJ must mail the notice referred to in
the preceding paragraph to any shareowner who has filed a demand with respect to
WJ shares that are subject to transfer restrictions imposed by WJ. WJ is not
aware of any transfer restrictions on its shares except for those restrictions
which apply to some of the shares held by shareowners who are deemed to be
affiliates of WJ as that term is defined by Rule 144 adopted by the Securities
and Exchange Commission under the Securities Act of 1933. Any shareowners who
believe there is some restriction on their shares should consult with their own
advisor as to the nature of the restriction and its relationship to the
availability of dissenters' rights in connection with the WJ Merger.
If WJ and a dissenting shareowner agree that the shares are Dissenting
Shares and agree on the purchase price of the shares, the dissenting shareowner
is entitled to receive the agreed-upon price with interest thereon at the legal
rate on judgments from the date of such agreement. Payment for the Dissenting
Shares must be made within 30 days after the later of the date of such agreement
or the date on which all statutory and contractual conditions to the WJ Merger
are satisfied. Payments are also conditioned on the surrender to WJ of the
certificates representing the Dissenting Shares.
If WJ denies that any shares are Dissenting Shares or the shareowner fails
to agree with WJ as to the fair market value of the shares, then, within the
time period provided by Section 1304(a) of Chapter 13, any shareowner who has
made a valid written demand and has not voted in favor of approval of the WJ
Merger may file a complaint in the Superior Court in the proper California
county requesting a determination as to whether the shares are Dissenting Shares
or as to the fair market value of such holder's shares, or both, or may
intervene in any pending action brought by any other WJ shareowner. If the fair
market value of the Dissenting Shares is at issue, the Court may appoint one or
more impartial appraisers to determine the fair market value of such Dissenting
Shares.
Except as expressly limited by Chapter 13, holders of Dissenting Shares
continue to have all the rights and privileges incident to their shares until
the fair market value of their shares is agreed upon or determined.
Cash dividends declared and paid by WJ on the Dissenting Shares after the
date of approval of the WJ Merger Proposal by WJ's shareowners and prior to
payment for the Dissenting Shares will be credited against the total amount to
be paid by WJ.
A holder of Dissenting Shares may not withdraw a demand for payment unless
WJ consents to such withdrawal. Dissenting Shares lose their status as
Dissenting Shares, and dissenting shareowners cease to be entitled to require WJ
to purchase their shares, if:
- the WJ Merger is abandoned;
- the shares are transferred prior to their submission to WJ for the
required endorsement;
- the dissenting shareowner and WJ do not agree on the status of the shares
as Dissenting Shares or do not agree on the purchase price, but neither WJ
nor the shareowner files a complaint or intervenes in a pending action
within six months after WJ mails a notice that its shareowners have
approved the WJ Merger; or
- with WJ's consent, the holder delivers to WJ a written withdrawal of such
holder's demand for purchase of the shares.
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<PAGE>
WHERE YOU CAN FIND MORE INFORMATION ABOUT WJ
WJ files annual, quarterly and special reports, proxy statements and other
information with the United States Securities and Exchange Commission (the
"SEC"). You may read and copy any document filed by WJ at the following SEC's
public reference facilities:
<TABLE>
<S> <C> <C>
WASHINGTON D.C. NEW YORK CHICAGO
Judiciary Plaza Seven World Trade Center Citicorp Center
450 Fifth Street, N.W. Suite 1300 500 West Madison Street
Room 1024 New York, NY 10048 Suite 1400
Washington, D.C. 20549 Chicago, IL 60061-2511
</TABLE>
You may call the SEC at 1-800-SEC-0330 for further information about its
public reference facilities. These SEC filings are also available to the public
at the SEC's web site at "http://www.sec.gov." Reports, proxy statements and
other information concerning WJ can also be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, NY 10005.
WJ, Dr. Watkins and the Watkins Trust have filed with the Securities and
Exchange Commission a Transaction Statement on Schedule 13E-3 relating to the WJ
Merger. That document and its exhibits can be obtained in the same manner as the
other WJ information referred to on this page.
The SEC allows WJ to "incorporate by reference" the information it files
with the SEC, which means that WJ can disclose important information to you by
referring you to documents previously filed with the SEC. The information
incorporated by reference is considered to be a part of this proxy statement.
Any later information filed with the SEC will automatically update and supersede
that information.
WJ incorporates by reference the documents listed below, and any further
filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 prior to the date of the special meeting to
which this proxy statement relates. The exhibits to those filings are also
incorporated by reference.
The WJ documents incorporated by reference are its:
- Proxy statement dated March 17, 1999, filed on March 17, 1999 relating to
the 1999 annual meeting of shareowners;
- Supplement dated April 14, 1999, to March 17, 1999 proxy statement, filed
on April 14, 1999;
- Current Report on Form 8-K filed on July 21, 1999;
- Current Report on Form 8-K/A, filed on July 28, 1999;
- Quarterly Report on Form 10-Q for the quarter ended June 25, 1999, filed
on August 9, 1999;
- Current Report on Form 8-K filed on August 19, 1999;
- Current Report on Form 8-K filed on October 6, 1999;
- Current Report on Form 8-K filed on October 28, 1999;
- Form 10-K/A Amended Annual Report for the fiscal year ended December 31,
1998, filed on December 10, 1999;
- Form 10-Q/A Amended Quarterly Report for the quarter ended September 24,
1999, filed on December 10, 1999; and
- Proxy statement dated December 15, 1999, filed on December 15, 1999
relating to the special meeting of shareowners to be held on January 14,
2000 to vote on the Telecommunications Group Sale.
You can obtain copies of the documents listed above, without charge, by
contacting Claudia Kelly, Secretary at:
Watkins-Johnson Company
3333 Hillview Avenue
Palo Alto, CA 94304-1223
Telephone (650) 813-2201
In order to ensure timely delivery of the documents, any requests should be
made by [ ], 2000.
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<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
FP-WJ ACQUISITION CORP.,
A CALIFORNIA CORPORATION,
AND
WATKINS-JOHNSON COMPANY,
A CALIFORNIA CORPORATION
DATED OCTOBER 25, 1999
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is dated as of
October 25, 1999, between FP-WJ Acquisition Corp., a California corporation
("PURCHASER"), and Watkins-Johnson Company, a California corporation (the
"COMPANY").
BACKGROUND
A. The Boards of Directors of the Company and Purchaser have approved the
merger of Purchaser with and into the Company (the "MERGER") in accordance with
the California Corporations Code (the "CALIFORNIA CODE"), with the Company being
the surviving corporation in the Merger (the Company, in its capacity as such
surviving corporation, being referred to as the "SURVIVING CORPORATION"), upon
the terms and subject to the conditions of this Agreement.
B. In the Merger, all of the issued and outstanding shares of the Common
Stock, without par value, of the Company ("COMPANY COMMON STOCK") (other than
shares of Company Common Stock owned, directly or indirectly, by the Company or
Purchaser) will be converted into the right to receive $41.125 per share in cash
(without interest) upon the terms and subject to the limitations and conditions
of this Agreement (the term "COMPANY COMMON STOCK" including, for all purposes
of this Agreement, the associated share purchase rights (the "RIGHTS") issued
under the Rights Agreement dated as of September 30, 1996, as amended, between
the Company and ChaseMellon Shareholders Services, L.L.C. as Rights Agreement
(the "RIGHTS AGREEMENT")). As more specifically hereinafter provided, the cash
payable to holders of Company Common Stock in the Merger shall be provided
(i) from the cash of the Company, (ii) an aggregate of $50 million from
Purchaser (which amount includes funds utilized by Sponsor (as defined in
Section 3.2(g) hereof) to purchase the Purchased Shares (as defined in and
pursuant to the Recapitalization Agreement (as defined in Recital E below)
between the Company and the Watkins Trust dated September 19, 1988, and
(iii) $41 million in debt financing to be arranged by or at the direction of
Purchaser.
C. The Board of Directors of the Company has determined that the Merger is
fair to, and in the best interests of, the holders of Company Common Stock, has
approved the Merger and has decided to recommend the approval and adoption of
this Agreement by the shareholders of the Company.
D. The parties hereto intend that the Merger be treated as a
recapitalization for financial reporting purposes.
E. For the purpose of accounting for the Merger as a recapitalization, one
or more beneficial owners of Company Common Stock (the "ADDITIONAL INVESTORS")
have, concurrently herewith, subscribed for and agreed to acquire shares of
Series A Preferred Stock (as defined in Section 2.4 hereof) pursuant to
recapitalization agreements substantially in the form attached as EXHIBIT A
hereto (the "RECAPITALIZATION AGREEMENTS"), each of which share of Series A
Preferred Stock shall, as more specifically hereinafter provided, be converted
into a single share of the common stock of the Surviving Corporation in the
Merger.
F. Purchaser and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
NOW, THEREFORE, Purchaser and the Company (the "PARTIES") hereby agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the California Code, at the
Effective Time (as defined in
A-1
<PAGE>
Section 1.3 below), Purchaser shall be merged with and into the Company. At the
Effective Time, the separate corporate existence of Purchaser shall cease, and
the Company shall continue as the Surviving Corporation under the laws of the
State of California under the name "Watkins-Johnson Company," and the separate
corporate existence of the Company, with all of its rights, privileges,
immunities, powers and franchises, shall continue unaffected by the Merger.
SECTION 1.2 CLOSING. Unless this Agreement shall have been terminated
pursuant to Section 6.1, and subject to the satisfaction or waiver of the
conditions set forth in Article V, the closing of the Merger (the "CLOSING")
shall take place on the later of (i) January 5, 2000 or (ii) immediately
following the satisfaction or waiver of the conditions set forth in Article V,
other than those conditions which by their terms are to be satisfied at the
Closing, at the offices of Irell & Manella LLP, 333 South Hope Street, Suite
3300, Los Angeles, California 90071, unless another date, time or place is
agreed to in writing by the Parties. The date of the Closing is referred to as
the "CLOSING DATE."
SECTION 1.3 EFFECTIVE TIME OF THE MERGER. At the Closing, the Parties
shall cause the Merger to be consummated by filing a certificate of merger (the
"CERTIFICATE OF MERGER") with the Secretary of State of the State of California,
in such form as required by, and executed in accordance with the relevant
provisions of, the California Code (the date and time of the filing of the
Certificate of Merger with the Secretary of State of the State of California, or
such later time as is specified in the Certificate of Merger, being referred to
as the "EFFECTIVE TIME").
SECTION 1.4 EFFECTS OF THE MERGER. From and after the Effective Time, the
Merger shall have the effects set forth in this Agreement and the California
Code.
SECTION 1.5 ARTICLES OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION. At the Effective Time, the Articles of Incorporation of the
Surviving Corporation shall be the Articles of Incorporation of the Company as
in effect immediately prior to the Effective Time, and the Bylaws of the
Surviving Corporation shall be the Bylaws of Purchaser as in effect immediately
prior to the Effective Time, except that the Bylaws shall contain the
indemnification and exculpation provisions required by Section 4.7(a).
SECTION 1.6 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The
directors and officers of Purchaser immediately prior to the Effective Time
shall be the initial directors and officers, respectively, of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, and with the California
Code.
ARTICLE II
CONVERSION OF COMPANY CAPITAL STOCK AND
CERTAIN OTHER EFFECTS OF THE MERGER
SECTION 2.1 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of the holders of any shares of
Company Common Stock or any other shares of capital stock of Purchaser or the
Company:
(a) COMMON STOCK OF PURCHASER. Each share of Common Stock, without par
value, of Purchaser issued and outstanding immediately prior to the Effective
Time shall be converted into and shall constitute one validly issued, fully paid
and nonassessable share of common stock, without par value, of the Surviving
Corporation, which, other than as set forth in Section 2.1(d), shall be all of
the issued and outstanding capital stock of the Surviving Corporation as of the
Effective Time.
(b) CANCELLATION OF CERTAIN SHARES OF COMPANY COMMON STOCK. Each share of
Company Common Stock that is owned by the Company or by any direct or indirect
subsidiary of the Company (as treasury shares or otherwise), and each share of
Company Common Stock that is owned by
A-2
<PAGE>
Purchaser or any subsidiary of Purchaser, shall automatically be canceled and
retired and shall cease to exist, and no other consideration shall be delivered
or deliverable in exchange therefor.
(c) CONVERSION OF ISSUED AND OUTSTANDING COMPANY COMMON STOCK. Except as
otherwise provided in this Agreement and subject to Section 2.1(e), each issued
and outstanding share of Company Common Stock (other than shares to be canceled
in accordance with Section 2.1(b)) shall be converted into the right to receive
cash from the Surviving Corporation in an amount equal to $41.125 (net of any
applicable withholding taxes), payable to the holder without interest (the
"MERGER CONSIDERATION").
(d) CONVERSION OF SERIES A PREFERRED STOCK. Each share of Series A
Preferred Stock issued and outstanding immediately prior to the Effective Time
shall be converted into and shall constitute one validly issued, fully paid and
nonassessable share of common stock, without par value, of the Surviving
Corporation.
(e) SHARES OF DISSENTING HOLDERS. Notwithstanding anything else in this
Agreement to the contrary but only to the extent required by the California
Code, shares of Company Common Stock that are issued and outstanding immediately
before the Effective Time and that are held by holders of Company Common Stock
who have not voted in favor of the Merger and who comply with all the provisions
of the California Code concerning the right of holders of Company Common Stock
to dissent from the Merger and require appraisal of their shares of Company
Common Stock (the "DISSENTING SHAREHOLDERS", with the shares of Company Common
Stock held by such Dissenting Shareholders being referred to as the "DISSENTING
SHARES") shall not be converted into the right to receive the Merger
Consideration but shall represent solely the right to receive such consideration
as may be determined to be due such Dissenting Shareholder pursuant to the
California Code; PROVIDED, HOWEVER, that any Dissenting Shares which, at any
time after the Effective Time, lose their status as Dissenting Shares under the
California Code, shall forfeit the right to appraisal and all such Dissenting
Shares shall then be deemed to have been converted into the right to receive, as
of the Effective Time, the Merger Consideration as contemplated by
Section 2.1(c), without interest. Prior to the Effective Time, the Company shall
give Purchaser prompt notice of any written demands for appraisal, withdrawals
of demands for appraisal and any other related instruments received by the
Company and the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal. The Company shall not voluntarily make any
payment with respect to any demands for appraisal and shall not, except with the
prior written consent of Purchaser, settle or offer to settle any demand.
(f) CANCELLATION AND RETIREMENT OF COMPANY COMMON STOCK. As of the
Effective Time, all shares of Company Common Stock issued and outstanding
immediately before the Effective Time shall no longer be outstanding and shall
automatically be canceled and retired and cease to exist, and each holder of a
certificate representing any such shares shall cease to have any rights with
respect to such shares, except (in each case, other than shares referred to in
Section 2.1(b) and Dissenting Shares) the right to receive the Merger
Consideration, without interest, upon surrender of such certificate in
accordance with Section 2.2.
SECTION 2.2 SURRENDER OF CERTIFICATES.
(a) APPOINTMENT OF PAYING AGENT. Prior to the Effective Time, Purchaser
shall, under an agreement in form and substance reasonably satisfactory to the
Company (the "PAYING AGENT AGREEMENT"), appoint a bank or trust company located
in the United States (which may not be an affiliate of Purchaser) to act as
Paying Agent (the "PAYING AGENT") for the payment of the Merger Consideration.
The Surviving Corporation (using its own funds and the proceeds from the equity
and debt commitments described in Section 3.2(g)) will make available to the
Paying Agent, as and when needed, an amount in cash equal to the total Merger
Consideration for all shares of Company Common Stock outstanding at the
Effective Time (other than shares referred to in Section 2.1(b) and Dissenting
Shares). Such cash provided to the Paying Agent shall be held for the benefit of
the holders
A-3
<PAGE>
of shares of Company Common Stock for exchange in accordance with this
Article II (the "EXCHANGE FUND").
(b) EXCHANGE PROCEDURES. As soon as practicable after the Effective Time,
each holder of an outstanding certificate or certificates that represented
issued and outstanding shares of Company Common Stock immediately prior to the
Effective Time (other than shares referred to in Section 2.1(b) and Dissenting
Shares) shall, upon surrender to the Paying Agent of such certificate or
certificates and acceptance thereof by the Paying Agent, be entitled to the
amount of cash into which the total number of shares of Company Common Stock
previously represented by such surrendered certificate or certificates shall
have been converted pursuant to the Merger. The Paying Agent shall accept such
certificates upon surrender of such certificates pursuant to a Letter of
Transmittal, substitute form W-9 or similar document, and related documents, the
form of which shall be provided by Purchaser and approved by the Company prior
to the Effective Time (such approval not to be unreasonably withheld) and upon
compliance with such other reasonable terms and conditions as the Paying Agent
may impose in order to effect an orderly exchange thereof in accordance with
normal exchange practices. After the Effective Time, there shall be no further
transfers on the records of the Company or its transfer agent of certificates
representing shares of Company Common Stock (other than to give effect, (i) in
accordance with customary settlement procedures as determined by the Company's
transfer agent, to sales of shares, and (ii) to exercises of Options (as defined
in Section 2.3(a), to the extent that such sales and/or exercises took place
before the Effective Time), and if such certificates are presented to the
Company for transfer, they shall be canceled against delivery of cash as
provided above. If any cash is to be remitted to a person other than the
registered holder of a certificate for Company Common Stock surrendered for
exchange, it shall be a condition of such exchange that the certificate so
surrendered shall be properly endorsed, with signature guaranteed, or otherwise
in proper form for transfer and that the person requesting such exchange shall
pay to the Surviving Corporation or the Paying Agent any transfer or other taxes
required by reason of the payment of cash to a person other than the registered
holder of the certificate surrendered, or establish to the satisfaction of the
Surviving Corporation or the Paying Agent that such tax has been paid or is not
applicable. Until surrendered as contemplated by this Section 2.2(b), each
certificate for shares of Company Common Stock (other than shares referred to in
Section 2.1(a) and Dissenting Shares) shall be deemed from the Effective Time to
represent only the right to receive upon such surrender the Merger Consideration
as contemplated by Section 2.1 and any dividends or other distributions as
described in Section 2.2(c). No interest shall be paid or shall accrue on any
cash payable as Merger Consideration.
(c) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All cash paid
upon the surrender of certificates representing shares of Company Common Stock
in accordance with the terms of this Article II shall be deemed to have been
paid in full satisfaction of all rights pertaining to the shares of Company
Common Stock previously represented by such certificates, subject, however, to
the Surviving Corporation's obligation, with respect to shares of Company Common
Stock outstanding immediately before the Effective Time, to pay any dividends or
make any other distributions with a record date prior to the Effective Time
which may have been declared or made by the Company on such shares of Company
Common Stock consistently with the terms of this Agreement or prior to the date
of this Agreement and which remain unpaid at the Effective Time.
(d) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which,
on the 270th calendar day from and excluding the Closing Date, remains
undistributed to the holders of the certificates representing shares of Company
Common Stock converted into the right to receive the Merger Consideration in the
Merger shall be delivered to the Surviving Corporation, upon demand, and any
such holders who have not previously complied with this Section 2.2 shall
thereafter look only to the Surviving Corporation and only as general creditors
thereof for payment of their claim for cash.
(e) NO LIABILITY. None of Purchaser, the Company, the Surviving
Corporation or the Paying Agent shall be liable to any person in respect of any
cash from the Exchange Fund delivered to a
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public official pursuant to any applicable abandoned property, escheat or
similar law. If any certificates representing shares of Company Common Stock
have not been surrendered before the latest date on which any cash in respect of
such certificate would otherwise escheat to or become the property of any
Governmental Entity, as defined in Section 3.1(e), any such cash shall, to the
extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any person previously
entitled thereto.
(f) INVESTMENT OF EXCHANGE FUND. The Paying Agent shall invest any cash
included in the Exchange Fund in accordance with the Paying Agent Agreement. Any
interest and other income resulting from such investments shall be paid to the
Surviving Corporation.
SECTION 2.3 TREATMENT OF STOCK OPTIONS.
(a) PAYMENT FOR OPTIONS. At the Effective Time, except as set forth on a
schedule to be provided to the Company by Purchaser prior to the Effective Time
(with the consent of each Option holder identified thereon, the "ROLLOVER OPTION
SCHEDULE"), all the then outstanding stock options previously granted to
employees, non-employee directors and consultants (the "OPTIONS") under the
Company's stock option plans (the "STOCK OPTION PLANS"), whether or not then
vested or exercisable, shall terminate and shall no longer be exercisable. Those
Options set forth on the Rollover Option Schedule shall by virtue of the Merger
be assumed by the Surviving Corporation. Each Option so assumed by the Surviving
Corporation will continue to have, and be subject to, the same terms and
conditions of such Options immediately prior to the Effective Time except that
each such Option will be exercisable (or will become exercisable in accordance
with its terms) for the common stock of the Surviving Corporation. With respect
to each terminated Option, the Surviving Corporation shall make a cash payment
to the former holder thereof at the Effective Time in an amount equal to
(subject to any applicable withholding taxes, the "CASH PAYMENT") the product of
(x) the total number of shares of Company Common Stock subject to such Option
(i.e., to the extent such Option has not theretofore been exercised), whether or
not then vested or exercisable, and (y) the excess, if any, of the Merger
Consideration over the exercise price per share of Company Common Stock subject
to such Option (i.e., to the extent such Option has not theretofore been
exercised), each such Cash Payment to be paid to each holder of an outstanding
Option on the Closing Date; PROVIDED, HOWEVER, that the Surviving Corporation
shall have the right to condition the making of the Cash Payment on its receipt
of a release or waiver satisfactory to the Surviving Corporation in its
reasonable discretion. All Cash Payments shall be funded by the Surviving
Corporation.
(b) TERMINATION OF STOCK OPTION PLANS AND PHANTOM STOCK APPRECIATION RIGHT
PLAN. Prior to the Effective Time, the Board of Directors of the Company (or
any duly authorized committee thereof) shall adopt appropriate resolutions, and
take all other actions necessary, to provide for the termination, as of the
Effective Time, of all of the Stock Option Plans and the 1997 Phantom Stock
Appreciation Right Plan for the Wireless Products Group of the Company. The
Company represents and warrants to the Purchaser that no other Company Plans (as
defined in Section 3.1(n)) provide for the issuance, transfer or grant of any
capital stock of the Company or any interest in respect of any capital stock of
the Company (other than in respect of cash payments through the Merger), and the
Company shall ensure that, following the Effective Time, no holder of an Option
shall have any right to acquire any capital stock of Purchaser or the Surviving
Corporation by reason of such Option.
SECTION 2.4 SERIES A PREFERRED STOCK. A reasonable time prior to the
Effective Time, the Company shall file with the Secretary of State of the State
of California a certificate of designation (the "CERTIFICATE OF DESIGNATION")
with respect to its Series A Convertible Participating Preferred Stock,
substantially in the form attached hereto as EXHIBIT 2.4(A) (the "SERIES A
PREFERRED STOCK"). Immediately prior to the Effective Time, the Company shall
issue shares of Series A Preferred Stock to the Additional Investors pursuant to
and as set forth in the Recapitalization Agreements.
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SECTION 2.5 ASSET DROP-DOWN. The Company agrees that, in the reasonable
discretion of Purchaser in order to secure the Financing (as defined in
Section 3.2(g)) or pursuant to the terms of the commitment letter with respect
thereto, it will (if so requested by Purchaser) use commercially reasonable
efforts to transfer all or substantially all of its Wireless Products Groups
assets and liabilities (other than with respect to its rights and obligations
under this Agreement, and other than assets and liabilities requested to be
excluded from the drop-down by Purchaser) to a wholly-owned subsidiary of the
Company immediately prior to the Effective Time, pursuant to one or more
instruments of conveyance satisfactory to Purchaser in its reasonable
discretion.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except to the
extent that the Company's Disclosure Schedule delivered to Purchaser at the same
time as the execution of this Agreement and accepted by Purchaser under this
Agreement (the "COMPANY DISCLOSURE SCHEDULES") specifically qualifies any of the
following representations and warranties (in which case, the specified
representation and warranty shall be deemed made with such qualification), the
Company hereby represents and warrants to Purchaser as follows:
(a) ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of the Company and
its subsidiaries is (i) set forth on Schedule 3.1(a) of the Company Disclosure
Schedules and (ii) a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority and any necessary governmental approvals
to own, lease and operate its properties and to carry on its business as it is
now being conducted, except where the failure to be so organized, existing and
in good standing or to have such power, authority and governmental approvals
could not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect (as defined below in this Section 3.1(a)). The
Company and each of its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing which could
not, individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. The term "COMPANY MATERIAL ADVERSE EFFECT" means any
material adverse change in or effect on (i) the business, results of operations
or condition (financial or other) of (1) the Company (or, following the
Effective Time, the Surviving Corporation) and its subsidiaries taken as a whole
or (2) the Company's Wireless Products Group ("WPG"), in each case excluding any
change or effect that is directly attributable to conditions generally affecting
the United States, California or Maryland economy or any of the industries in
which the Company or its subsidiaries operates unless such conditions adversely
affect the Company in a materially disproportionate manner, or (ii) the ability
of the Company to consummate the Merger on or before the Terminal Date (as
defined in Section 6.1(e)).
(b) ARTICLES OF INCORPORATION AND BYLAWS. The Company has furnished to
Purchaser a complete and correct copy of the Articles of Incorporation and the
Bylaws of the Company and the equivalent organizational documents of each
subsidiary of the Company as currently in effect. Neither the Company nor any
subsidiary of the Company is in violation of any of the provisions of its
Articles of Incorporation or Bylaws (or equivalent organizational documents).
(c) CAPITALIZATION. The authorized capital stock of the Company consists
of 45,000,000 shares of Company Common Stock and 500,000 shares of preferred
stock, $1.00 par value ("COMPANY PREFERRED STOCK"). As of the date hereof:
(i) 6,659,799 shares of Company Common Stock were issued and outstanding, all of
which are validly issued, fully paid and nonassessable and not subject to
preemptive rights; (ii) 1,279,446 shares of Company Common Stock were issuable
pursuant to all outstanding
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Options; and (iii) no more than 1,117,213 shares were available for issuance
under the Stock Option Plans, none of which (other than shares issuable pursuant
to Options outstanding as of the date of this Agreement) are or will be subject
to issuance or issued. All outstanding Options were issued pursuant to the Stock
Option Plans. The number of Options, by exercise price, outstanding as of the
date hereof, is set forth in Schedule 3.1(c) of the Company Disclosure
Schedules. No shares of Company Preferred Stock are issued and outstanding
(excepting from the foregoing, as of the time immediately prior to the Effective
Time, the Series A Preferred Stock to be issued pursuant to Section 2.4 hereof).
The authorized capital stock and issued and outstanding stock of each subsidiary
is set forth in Schedule 3.1(c) of the Company Disclosure Schedules. Except as
set forth in this Section 3.1(c) or Schedule 3.1(c) of the Company Disclosure
Schedules, there are no (i) options, warrants or other rights, agreements,
arrangements or commitments of any character obligating the Company or any
subsidiary of the Company to issue or sell any shares of capital stock of, or
other equity interests in, the Company or any subsidiary of the Company and no
shares of Company Common Stock or Company Preferred Stock are reserved for
issuance or (ii) outstanding contractual obligations of the Company or any
subsidiary to repurchase, redeem or otherwise acquire any shares of Company
Common Stock or any capital stock of, or any equity interest in, any subsidiary.
Each outstanding share of capital stock of, or other equity interest in, each
subsidiary of the Company is duly authorized, validly issued, fully paid and
nonassessable.
(d) AUTHORITY RELATIVE TO AGREEMENT. The Company has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations under this Agreement and to consummate the Merger. The
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the Merger have been duly and validly authorized
by all necessary corporate action and no other corporate proceedings on the part
of the Company are necessary to authorize this Agreement or to consummate the
Merger, other than the approval and adoption of this Agreement (including any
actions described in Section 3.1(u) and Section 3.1(v)) and the Merger by the
holders of a majority of the outstanding shares of Company Common Stock. This
Agreement has been duly executed and delivered by the Company and, assuming the
due authorization, execution and delivery by Purchaser, constitutes a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, subject to bankruptcy, insolvency and similar laws
affecting creditors' rights and to the discretionary nature of equitable
remedies. The Company shall have received, prior to the Effective Time, the
approval and adoption of the Telecom Agreement and the Telecom Sale Transaction
(each such term as defined in Section 4.1 hereof) by the holders of a majority
of the outstanding shares of Company Common Stock. The only vote of the holders
of any class or series of outstanding securities of the Company required for
approval of (A) this Agreement and the Merger and the transactions contemplated
hereby is the affirmative vote of the holders of a majority of (x) the
outstanding shares of Company Common Stock and (y) the Series A Preferred Stock
and (B) the Telecom Agreement and the Telecom Sale Transaction is the
affirmative vote of the holders of a majority of the outstanding shares of
Company Common Stock.
(e) NO CONFLICT; REQUIRED FILINGS AND CONSENTS. Other than in connection
with or in compliance with the specific provisions of (A) the California Code
relating to the filing and recordation of the Certificate of Merger and other
appropriate merger documents, if any, and the approval of the Merger by the
Company's shareholders, (B) the provisions of the Securities Exchange Act of
1934, as amended, and the rules and regulations adopted under such Act
(collectively, the "EXCHANGE ACT"), relating to (1) the filing with, and
clearance by the Securities and Exchange Commission (the "SEC") of, a proxy
statement relating to the Shareholders Meeting referred to in Section 4.2 (such
proxy statement, as amended or supplemented from time to time, being referred to
as the "PROXY STATEMENT," the Parties acknowledge that they intend that the
Proxy Statement will be included in the form of a supplement and amendment to
the Company's proxy statement relating to the Telecom Sale Transaction if the
latter proxy statement shall have been previously filed) and (2) the filing of
any other reports and documents with the SEC relating to this Agreement or any
of the transactions contemplated hereby, (C) the "blue
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sky" laws of the various states, (D) the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HART-SCOTT ACT") relating to the
filing of notification regarding the Merger with the Antitrust Division of the
Department of Justice and the Federal Trade Commission (collectively, the
"ANTITRUST AUTHORITIES") and the expiration of the applicable waiting period
under the Hart-Scott Act, and (E) applicable local permit laws, rules and
regulations pertaining to the operation of the business of the Company and its
subsidiaries, the execution and delivery of this Agreement by the Company, the
performance of the obligations of the Company hereunder and the consummation of
the Merger by the Company do not and will not: (1) violate any provision of the
Articles of Incorporation or By-Laws (or other organizational documents) of the
Company or any of its subsidiaries; (2) violate any statute, ordinance, writ,
judgment, injunction, rule, regulation, order or decree of any court or of any
governmental or regulatory body, agency or authority, federal, state, local or
foreign (a "GOVERNMENTAL ENTITY"), applicable to the Company or any of its
subsidiaries or by which any of their respective properties or assets may be
bound; (3) require any filing with, or permit, consent or approval of, or the
giving of any notice to, any Governmental Entity; or (4) result in a violation
or breach of, conflict with, constitute (with or without due notice or lapse of
time or both) a default under, result in the creation of any lien, security
interest, charge or encumbrance on any of the properties or assets of the
Company or any of its subsidiaries under, or give rise to any right of payment,
termination or modification of any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, contract, lease, license, permit, franchise or
other instrument or obligation, including without limitation the Company Plans,
to which the Company or any of its subsidiaries is a party, or by which any of
the properties or assets of the Company or any of its subsidiaries is bound or
affected, except (x) in the case of clauses (2) and (3) above, where the failure
to obtain or make any such filing, permit, consent, or approval or the failure
to give such notice or (y) in the case of clause (4) above, where such
violation, breach or conflict, could not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.
(f) COMPLIANCE WITH LAWS. The Company and its subsidiaries are in
compliance with all applicable laws, regulations, orders, judgments,
injunctions, writs and decrees except where the failure to so comply could not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. Schedule 3.1(f) of the Company Disclosure Schedules
sets forth all orders, judgments, injunctions, writs and decrees applicable to
the Company and/or any of its subsidiaries. There is no claim, action,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against the Company or any subsidiary of the Company by, on behalf of
or before any court, arbitrator or Governmental Entity which, individually or in
the aggregate, could reasonably be expected to have a Company Material Adverse
Effect. No investigation by any Governmental Entity with respect to the Company
or any of its subsidiaries is pending or, to the knowledge of the Company,
threatened, other than, in each case, those (i) set forth on Schedule 3.1(g) of
the Company Disclosure Schedules and (ii) the outcome of which, individually or
in the aggregate, could not reasonably be expected to have a Company Material
Adverse Effect.
(g) COMPANY SEC FILINGS AND FINANCIAL STATEMENTS.
(i) Since December 31, 1995, the Company has filed all forms, reports
and documents with the SEC required to be filed by it pursuant to the
federal securities laws and the SEC rules and regulations thereunder, in
each case as in effect at the time of such filings, and each form, report
and document filed with the SEC by the Company since December 31, 1995 (the
"COMPANY SEC FILINGS") has complied in all material respects with all
applicable requirements of the federal securities laws and the SEC rules and
regulations adopted under those laws as of the date of such filing. As of
their respective dates, each of the Company SEC Filings did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
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(ii) Each of the consolidated financial statements included in the
Company SEC Filings was prepared in accordance with United States generally
accepted accounting principles as in effect from time to time ("GAAP")
applied on a consistent basis (except as may be indicated therein or in the
notes or schedules thereto), and fairly presented in all material respects
the consolidated financial position of the Company and its consolidated
subsidiaries as of the date of such consolidated financial statements and
the results of their operations and their cash flows for the periods then
ended (subject, in the case of any unaudited financial statements, to normal
year end audit adjustments).
(iii) The Company will deliver to Purchaser as soon as they become
available true and complete copies of any report or statement mailed by the
Company to its shareholders generally or filed by the Company with the SEC
subsequent to the date of this Agreement and prior to the Effective Time. As
of their respective dates, each of such reports and statements (excluding
any information therein provided in writing by or on behalf of Purchaser
specifically for inclusion therein, as to which the Company makes no
representation) will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
are made, not misleading and will comply in all material respects with all
applicable requirements of the federal securities laws and the SEC rules and
regulations thereunder as in effect on the date of such filing. The
consolidated financial statements of the Company to be included in each of
such reports and statements (excluding any information therein provided in
writing by Purchaser specifically for inclusion therein, as to which the
Company makes no representation) will be prepared in accordance with GAAP
applied on a consistent basis (except as may be indicated therein or in the
notes or schedules thereto), and will fairly present in all material
respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the respective dates of such consolidated
financial statements and the results of their operations and their cash
flows for the respective periods then ended (subject, in the case of any
unaudited financial statements, to normal year-end audit adjustments).
(h) INFORMATION SUPPLIED. None of the information included in the Proxy
Statement (other than information supplied in writing by or on behalf of
Purchaser specifically for inclusion in the Proxy Statement, as to which the
Company makes no representation) will contain, at the date it is first mailed to
the Company's shareholders or at the time of the Shareholders Meeting, any
statement which, in the light of the circumstances under which such statement is
made, is false or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of any proxy for the Shareholders Meeting or
any amendment or supplement thereto. The Proxy Statement will comply as to form
in all material respects with the requirements of the Exchange Act except that
the Company makes no representation with respect to any statements made based on
information supplied in writing by or on behalf of Purchaser specifically for
inclusion in the Proxy Statement.
(i) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in any
Company SEC Filing made prior to the date hereof, since December 31, 1998 there
has not been (i) any change, event or development in or affecting the Company
that, individually or in the aggregate, constituted or could reasonably be
expected to have a Company Material Adverse Effect, (ii) any change by the
Company in its accounting methods, principles or practices, except as required
by changes in GAAP, (iii) any declaration, setting aside or payment of any
dividends or distributions in respect of any series of capital stock of the
Company, (iv) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including, without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards), stock
purchase or other employee benefit plan or agreement or arrangement, or any
other
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increase in the compensation payable or to become payable to any present or
former directors, officers at or above the rank of Vice President of the Company
or any of its subsidiaries, or (v) any event, circumstance, action or omission
to act that would have constituted a breach of Section 4.1 hereof were the same
to have been applicable to the Company and its subsidiaries as of such date.
(j) ABSENCE OF LITIGATION. There are no suits, claims, actions,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries, or any properties of
the Company or any of its subsidiaries, before any court, arbitrator or other
Governmental Entity, that, individually or in the aggregate, could reasonably be
expected to have a Company Material Adverse Effect. Neither the Company nor any
of its subsidiaries, nor any of their respective properties or assets, is
subject to any order, writ, judgment, injunction, decree, determination or award
having, or which could reasonably be expected, individually or in the aggregate
to have, a Company Material Adverse Effect.
(k) LIABILITIES. Other than regular quarterly cash dividends on Company
Common Stock not in excess of $0.12 per share per quarter and except as set
forth in the Company SEC Filings made prior to the date hereof or disclosed on
Schedule 3.1(k) of the Company Disclosure Schedules, there is no claim,
liability or obligation (including without limitation obligations to
shareholders with respect to dividends or distributions of any sort) of any
nature, whether absolute, accrued, known or unknown, contingent or otherwise,
affecting the Company, WPG or any of their subsidiaries which (i) is or results
from indebtedness for borrowed money, (ii) would be required to be disclosed in
the Company's consolidated financial statements prepared in accordance with GAAP
or (iii) could, individually or in the aggregate, reasonably be expected to have
a Company Material Adverse Effect.
(l) LABOR MATTERS.
(i) The Company, its subsidiaries and all of its former subsidiaries
(while the same were subsidiaries of the Company, the "FORMER SUBSIDIARIES")
have complied in all respects with all laws, rules and regulations
pertaining to employment practices including, without limitation, the Worker
Adjustment Retraining Notification Act, the wage hour laws, the Americans
with Disabilities Act, and the discrimination laws, and no fact or event
exists that could give rise to liability under such acts, laws, rules or
regulations, except for such occurrences, non-compliances and liabilities as
could not, individually or in the aggregate, reasonably be expected to have
a Company Material Adverse Effect. Neither the Company nor any of its
subsidiaries is a party to any collective bargaining agreement and there is
no unfair labor practice or labor arbitration proceeding pending with
respect to the Company or any of its subsidiaries or, to the knowledge of
the Company, threatened, and there are no facts or circumstances known to
the Company that could reasonably be expected to give rise to such a
complaint or claim. Neither the Company nor any of its subsidiaries has,
since December 31, 1995, (i) had any employees strikes, work stoppages,
slowdowns or lockouts, (ii) received any requests for certifications of
bargaining units or any other requests for collective bargaining, or
(iii) become aware or had knowledge of any efforts to organize employees of
the Company or any of its subsidiaries or any employees performing work for
the Company but provided by an outside employment agency into a collective
bargaining unit.
(ii) Except as described in Schedule 3.1(1) of the Company Disclosure
Schedules, the completion of the transactions contemplated by this Agreement
will not result in any payment or increased payment or other benefit
becoming due from the Company or any of its subsidiaries to any officer,
director, or employee of, or consultant to, the Company or any of its
subsidiaries or any Former Subsidiary, and to the knowledge of the Company
as of the date hereof (but not later), no employee of the Company or any of
its subsidiaries has made any threat, or otherwise revealed an intent, to
terminate said employee's relationship with Company or any of its
subsidiaries, for any reason, including the consummation of the transactions
contemplated by this Agreement. Neither the Company nor any of its
subsidiaries is a party to any agreement for the
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provision of labor pursuant to employee "loan-outs" or with an agency
providing temporary labor services except as set forth in Schedule 3.1(1) of
the Company Disclosure Schedules. To the knowledge of the Company, except as
set forth in Schedule 3.1(1) of the Company Disclosure Schedules, during the
preceding three years, there have been no claims by employees of such
outside agencies, if any, assigned to work for Company or any of its
subsidiaries or any Former Subsidiary, no claims by any governmental agency
with regard to such employees and no attempts by any labor organization to
organize the employees assigned by any outside agency to work for, at or on
behalf of the Company or any of its subsidiaries or any Former Subsidiary.
(iii) Within the three-year period preceding the date hereof, there have
been no federal or state claims based on the sex, sexual or other
harassment, age, disability, race or other discrimination or common law
claims, including claims of wrongful termination, by any employees of
Company or any of its subsidiaries or any Former Subsidiary or by any of the
employees performing work for the Company or any of its subsidiaries or any
Former Subsidiary but provided by an outside employment agency, and there
are no facts or circumstances known to the Company that could reasonably be
expected to give rise to such complaint or claim. The Company and its
subsidiaries and Former Subsidiaries have complied with all laws related to
the employment of employees except for such occurrences where non-compliance
and resulting liabilities could not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect. Except as
set forth on Schedule 3.1(1) of the Company Disclosure Schedules, neither
the Company nor any of its subsidiaries nor any Former Subsidiary has
received any notice of any claim during the preceding three years that it
has not complied in any material respect with any laws relating to the
employment of employees, including without limitation any provisions thereof
relating to wages, hours, collective bargaining, the payment of Social
Security and similar taxes, equal employment opportunity, employment
discrimination, the WARN Act, employee safety, or that it is liable for any
arrearages of wages or any taxes or penalties for failure to comply with any
of the foregoing.
(iv) Neither the Company nor any of its subsidiaries has any written
policies and/or employee handbooks or manuals except as set forth in
Schedule 3.1(1) of the Company Disclosure Schedules.
(m) ENVIRONMENTAL MATTERS.
(i) For purposes of this Agreement, the following terms shall have the
following meanings: (A) "HAZARDOUS SUBSTANCES" means (1) those substances
defined in or regulated under the following federal statutes and their state
counterparts, as each may be amended from time to time, and all regulations
thereunder: the Hazardous Materials Transportation Act, 49 U.S.C. 5110 ET
SEQ., the Resource Conservation and Recovery Act, 42 U.S.C. 6901 ET SEQ.,
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. 9601 ET SEQ., the Clean Water Act, 33 U.S.C 1251 ET SEQ., the Safe
Drinking Water Act, 42 U.S.C. 300f ET SEQ., the Atomic Energy Act, 42
U.S.C 2014 ET SEQ., the Federal Insecticide, Fungicide, and Rodenticide Act,
7 U.S.C 136 ET SEQ., the Toxic Substances Control Act, 15 U.S.C. 2601 ET
SEQ.,and the Clean Air Act, 42 U.S.C 7401 ET SEQ., and their state
counterparts, as each may be amended from time to time, and all regulations
adopted under all of the foregoing federal and state laws; (2) petroleum and
petroleum products, byproducts and breakdown products including crude oil
and any fractions thereof; (3) methane, natural gas, synthetic gas, and any
mixtures thereof; (4) polychlorinated biphenyls; (5) any other chemicals,
materials or substances defined or regulated as toxic or hazardous or as a
pollutant or contaminant or as a waste under any applicable Environmental
Law; and (6) any substance with respect to which a federal, state or local
agency requires environmental investigation, monitoring, reporting or
remediation; PROVIDED, HOWEVER, that Hazardous Substances shall not include
office and janitorial supplies used in a manner and in amounts consistent
with current normal business practices; and (B) "ENVIRONMENTAL LAWS" means
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any federal, state, foreign, or local law, rule or regulation, now in effect
and as amended, and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or judgment,
relating to pollution or protection of the environment, health, safety or
natural resources, including without limitation, those relating to
(1) releases or threatened releases of Hazardous Substances or materials
containing Hazardous Substances or (2) the presence, manufacture, handling,
transport, use, treatment, storage or disposal of Hazardous Substances or
materials containing Hazardous Substances.
(ii) (A) The Company and each of its subsidiaries is and has been in
material compliance with all applicable Environmental Laws; (B) the Company
and each of its subsidiaries has obtained all permits, approvals,
identification numbers, licenses or other authorizations required under any
applicable Environmental Laws (the "ENVIRONMENTAL PERMITS") and is and has
been in material compliance with their requirements; (C) the Surviving
Corporation will continue to have the benefit of the Environmental Permits
pursuant to the Merger without the consent of any Governmental Entity;
(D) there are no underground or aboveground storage tanks or any surface
impoundments, septic tanks, injection wells, pits, sumps or lagoons or other
devices or conduits to the environment in which Hazardous Substances are
being or have been treated, stored or disposed of on or at any property
currently owned, leased, used or occupied by the Company or any of its
subsidiaries; (E) there is no asbestos or asbestos-containing material on
any owned or leased real property in violation of Environmental Laws or in a
condition in which good management practices would require its abatement;
(F) no Hazardous Substances are present or have been released, discharged or
disposed of, at or on any real property currently or formerly owned,
occupied, used or leased by the Company or any of its subsidiaries or Former
Subsidiaries (but, with respect to Former Subsidiaries, only on or before
the date of divestiture by the Company of each such Former Subsidiary) or
their respective predecessors, and none of such property is contaminated
with any Hazardous Substances, in a manner or amount that, if made known to
any Governmental Entity with jurisdiction thereover or any interested third
party, reasonably could be expected to give rise to material liability for
investigation or clean-up under or pursuant to any Environmental Law;
(G) neither the Company nor any of its subsidiaries or Former Subsidiaries
(but, with respect to Former Subsidiaries, only with respect to liability
arising from activities or conditions occurring on or before the date of
divestiture by the Company of each such Former Subsidiary) is undertaking or
has completed any investigation or clean-up relating to the presence,
release, discharge or disposal of or contamination with Hazardous Substances
at any site, location or operation; and (H) there are no past, pending or
threatened actions, suits, demands, demand letters, claims, liens, notices
of non-compliance or violation, notices of liability or potential liability,
investigations, proceedings, consent orders or consent agreements relating
to Environmental Laws, any Environmental Permits or any Hazardous Substances
(each, an "ENVIRONMENTAL CLAIM") against the Company or any of its
subsidiaries or Former Subsidiaries or with respect to any currently or
formerly owned, occupied, leased or used real properties or assets of the
Company or any of its subsidiaries or Former Subsidiaries (but, with respect
to Former Subsidiaries, only with respect to liability arising from
activities or conditions occurring on or before the date of divestiture by
the Company of each such Former Subsidiary) and there are no facts, events,
conditions or circumstances that could reasonably be expected to form the
basis of any material Environmental Claim against the Company, including
without limitation with respect to personal injury or "toxic tort" suits or
any off-site disposal location presently or formerly used by the Company or
any of its subsidiaries or Former Subsidiaries.
(iii) The Company and its subsidiaries have made available to Purchaser
copies of all environmental reports, studies or analyses in its possession
or under its control relating to owned, leased, occupied or used real
property or the operations of the Company or the subsidiaries or Former
Subsidiaries.
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(iv) Schedule 3.1(m) of the Company Disclosure Schedules sets forth
(A) a list of all real property currently or formerly owned, leased, used or
occupied by the Company, any of the subsidiaries or any of the Former
Subsidiaries, with the exception of such real property comprising less than
3,000 square feet used for commercial sales purposes and not used for
manufacturing, assembly, research and development, warehousing, maintenance
or any other non-sales use; (B) a description of the status of any
"Superfund" or other litigation under any Environmental Laws to which the
Company, any subsidiary or any Former Subsidiary is or has been a party; and
(C) a list of all off-site disposal locations used by the Company or any of
its subsidiaries or Former Subsidiaries and a description of the nature and
amount of any Hazardous Substances transported to such locations by such
entities.
(v) Schedule 3.1(m) of the Company Disclosure Schedules sets forth
complete, true and correct copies of all environmental remediation insurance
purchased and similar and other arrangements entered into with third parties
relating to the remediation of releases of Hazardous Substances and other
issues that have arisen or may arise under applicable Environmental Laws.
All such insurance and other arrangements are in full force and effect and
are binding and enforceable obligations of the counterparties thereto, and
neither the Company nor its subsidiaries or Former Subsidiaries has breached
or is in breach or default in any material respect thereunder. None of such
third parties has denied any claim made by or coverage afforded the Company
under such insurance or arrangements or has indicated that it will deny any
such claim or coverage. The insurance and remediation contracts listed in
Section 3.1(m) of the Company Disclosure Schedules are adequate to provide
for the satisfaction of all known environmental liabilities with respect to
the Palo Alto and Scott's Valley facilities, excluding applicable deductible
or self-insured retention amounts stated therein.
(n) EMPLOYEE BENEFITS.
(i) Schedule 3.1(n) of the Company Disclosure Schedules lists (A) all
employee benefit plans, programs and arrangements maintained for the benefit
of any current or former employee, officer or director of the Company or any
of its subsidiaries, including, but not limited to, all "employee benefit
plans" (as such term is defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), but excluding the Stock
Option Plans (the "COMPANY PLANS") and (B) all written agreements relating
to employment or severance with any of the directors, officers or employees
of the Company or any of its subsidiaries (the "COMPANY EMPLOYMENT
CONTRACTS"). Schedule 3.1(n) of the Company Disclosure Schedules sets forth
the name of each current officer or employee of the Company or any
subsidiary with an annual base salary (including the most recent year-end
bonus) greater than $125,000 and the annual base salary and most recent
year-end bonus applicable to each such officer or employee. The Company has
made available to Purchaser a copy of each Company Plan, each material
document prepared in connection with each Company Plan (including, without
limitation, all Forms 5500 and all schedules and exhibits thereto, Plan and
trust documents and insurance policies, summary plan descriptions, and all
correspondence with the Internal Revenue Service and the Department of
Labor) and each Company Employment Contract. Neither the Company nor any
member of the same controlled group of businesses as the Company within the
meaning of Section 4001(a)(14) of ERISA (an "ERISA AFFILIATE") has within
the seven year period ending on the Effective Time sponsored or been
obligated to contribute to any "multi-employer plan" within the meaning of
Section 3(37) of ERISA or any plan subject to Title IV of ERISA or
Section 412 of the Tax Code. Except as set forth in Schedule 3.1(n) and
except as required by applicable law, none of the Company Plans or Company
Employment Contracts promises or provides medical or life insurance benefits
to any person or the beneficiaries of any person for any period beyond the
termination of such person's employment with the Company and any of its
subsidiaries (the "POST-EMPLOYMENT OBLIGATIONS"). Assuming that all
personnel employed in the Company's WPG division remain so
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employed but that all other employees of the Company and its subsidiaries
cease to be employed, Section 3.1(n) of the Company Disclosure Schedules
contains information accurately setting forth the annualized cost, in any
particular year, to the Company of all Post-Employment Obligations (whether
or not identified in Schedule 3.1(n), but excluding COBRA medical insurance
coverage to the extent paid for by the beneficiaries of such insurance).
Each Company Plan intended to be qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "TAX CODE"), is so qualified.
Each Company Plan has been operated in all material respects in accordance
with its terms and the requirements of ERISA and all other applicable laws.
Each Company Plan which is required to comply with the provisions of
Sections 4980B and 4980C of the Tax Code, or with the requirements referred
to in Section 4980D(a) of the Tax Code, has complied in all material
respects. The Company has not incurred any direct or indirect material
liability under, arising out of or by operation of Title IV of ERISA or any
other provision of ERISA in connection with the termination of, or
withdrawal from, any Company Plan or other retirement plan or arrangement by
the Company or any ERISA Affiliate, and no fact exists or event has occurred
that could reasonably be expected to give rise to any such liability. With
respect to any insurance policy which provides, or has provided, funding for
benefits under any Company Plan, there is and will be no liability of the
Company or any subsidiary in the nature of a retroactive or retrospective
rate adjustment, loss sharing arrangement, or actual or contingent liability
as of the Effective Time, nor would there be any such liability or
termination fee if such insurance policy were terminated as of the Effective
Time.
(ii) Other than routine claims for benefits under the Company Plans,
(A) there are no proceedings, claims, lawsuits, disputes, actions, or
controversies for which a complaint or other pleading has been served upon,
or for which a written demand has been received by, the Company Plans, or
the fiduciaries, administrators, or trustees of any of the Company Plans or
the Company or any of its subsidiaries or any of their respective ERISA
Affiliates as the employer or sponsor under any Company Plan, with any of
the Internal Revenue Service, the Department of Labor, the Pension Benefit
Guaranty Corporation, any participant or beneficiary of any Company Plan or
any other person whomsoever, (B) no written notice or written communication
has been received by the Company Plans, or the fiduciaries, administrators,
or trustees of any of the Company Plans or the Company or any of its
subsidiaries or any of their respective ERISA Affiliates as the employer or
sponsor under any Company Plan, from the Internal Revenue Service, the
Department of Labor, or any other governmental entity regarding any pending
or threatened audit or investigation of any Company Plan, and (C) there are
no pending or, to the knowledge of the Company, threatened other material
investigations, proceedings, claims, lawsuits, disputes, actions, audits or
controversies involving the Company Plans, or the fiduciaries,
administrators, or trustees of any of the Company Plans or the Company or
any of its subsidiaries or any of their respective ERISA Affiliates as the
employer or sponsor under any Company Plan, with any of the Internal Revenue
Service, the Department of Labor, the Pension Benefit Guaranty Corporation,
any participant or beneficiary of any Company Plan or any other person
whomsoever. The Company has no knowledge of any reasonable basis for any
such claim, lawsuit, dispute, action or controversy.
(iii) The Company and its subsidiaries will be able to terminate each of
the Company Plans at the Effective Time without violating the provisions of
ERISA or of such Company Plans and without incurring any charge, fee, or
expense (other than administrative costs which are not material in amount)
by reason of such termination. Except as set forth in Section 2.3(a), the
termination of the Stock Option Plans by the Company prior to the Effective
Time and the cancellation of all outstanding Options pursuant to this
Agreement shall not result in any liability whatsoever.
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(o) TAX MATTERS.
(i) For purposes of this Agreement: (A) "INCOME TAXES" means any
federal, state, local, or foreign income or franchise Tax and, in each
instance, any interest, penalties or additions to Tax attributable to such
Tax; (B) "TAX" and, collectively, "TAXES," means: (1) any and all federal,
state, local and foreign taxes, assessments and other governmental charges,
duties, impositions and liabilities, including taxes based upon or measured
by gross receipts, capital, net worth, income, profits, sales, use and
occupation, and value added, AD VALOREM, transfer, franchise, withholding,
payroll, recapture, employment, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts;
(2) any liability for the payment of any amounts of the type described in
clause (1) as a result of being a member of an affiliated, consolidated,
combined or unitary group for any period; and (3) any liability for the
payment of any amounts of the type described in clause (1) or (2) as a
result of any express or implied obligation to indemnify any other person or
as a result of any obligations under any agreements or arrangements with any
other person with respect to such amounts and including any liability for
Taxes of a predecessor entity; and (C) "RETURN" means all federal, state,
local and foreign tax returns, estimates, information statements and reports
relating to any and all Taxes concerning or attributable to the Company.
(ii) Except as set forth in Schedule 3.1(o) of the Company Disclosure
Schedules, each of the Company and its subsidiaries has (A) timely filed in
accordance with all applicable laws, all Returns required to be filed by
them (taking into account extensions) and such Returns are complete and
correct in all material respects, (B) paid all Taxes shown as due on such
Returns, and (C) paid all Taxes other than those not yet due and other than
those being contested in good faith and for which appropriate reserves (in
accordance with GAAP) have been made on the Company's latest balance sheet,
all of which contested Taxes are disclosed in Schedule 3.1(o) of the Company
Disclosure Schedules, for which a notice of, or assessment or demand for,
payment has been received or which are otherwise due and payable. Except as
set forth in Schedule 3.1(o) of the Company Disclosure Schedules, complete
copies of (A) consolidated federal Income Tax Returns for the Company and
its subsidiaries and (B) state and local Income Tax and other Returns of the
Company and its subsidiaries for each of the years ended December 31, 1996,
1997 and 1998 have heretofore been delivered or made available to Purchaser.
(iii) Except as set forth in Schedule 3.1(o) of the Company Disclosure
Schedules: (A) there is no action, suit, proceeding, audit, claim or
assessment pending or, to the knowledge of the Company, proposed with
respect to any liability for Tax that relates to the Company or any of its
subsidiaries for which a material amount of Tax is at issue, (B) all
material amounts required to be collected or withheld by the Company and
each of its subsidiaries with respect to Taxes have been duly collected or
withheld and any such amounts that are required to be remitted to any taxing
authority have been duly remitted, (C) no extension of time within which to
file any material Return that relates to the Company or any of its
subsidiaries has been requested which Return has not since been filed,
(D) there are no waivers or extensions of any applicable statute of
limitations for the assessment or collection of Taxes with respect to any
material Return that relates to the Company or any of its subsidiaries which
remain in effect, (E) there are no tax rulings, requests for filings,
closing agreements or changes of accounting method relating to the Company
or any of its subsidiaries which could materially affect their liability for
Taxes for any period after the Effective Time and (F) no power of attorney
has been granted by the Company or any of its subsidiaries with respect to
any matter relating to Taxes of the Company and its subsidiaries which is
currently in force. Except as set forth in Schedule 3.1(o) of the Company
Disclosure Schedules, immediately prior to the Effective Time, (A) neither
the Company nor any subsidiary has filed a consent under Section 341(f) of
the Tax Code or any comparable provision of state revenue statutes, (B) no
property of the Company or its subsidiaries is "tax-exempt use property"
within
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the meaning of Section 168(h) of the Tax Code; (C) neither the Company nor
any of its subsidiaries is a party to any lease made pursuant to
Section 168(f) of the Tax Code, (D) no portion of the cost of any asset of
the Company or any of its subsidiaries has been financed directly or
indirectly from the proceeds of any tax-exempt state or local government
obligation described in Tax Code Section 103, (E) beginning in 1995 the
Company and its subsidiaries have documented their transfer pricing
methodology annually and have supplied copies of such studies to Purchaser,
and (F) any amount or other entitlement that could be received (whether in
cash or property or the vesting of property) as a result of or in connection
(in whole or in part) with the Merger by any employee, officer or director
of the Company or any of its subsidiaries who is a "disqualified individual"
(as that term is defined in proposed Treasury Regulation Section 1.280G-1)
under any Company Plans or other compensation arrangement entered into or in
effect prior to the Closing would not be characterized as an "excess
parachute payment" (as such terms are defined in Section 280G(b)(1) of the
Tax Code).
(iv) Neither the Company nor any subsidiary of the Company is a party to
any joint venture, partnership or other arrangement or contract which is
treated as a partnership for federal tax purposes.
(v) There are no Tax sharing agreements or similar arrangements with
respect to or involving the Company or any of its subsidiaries.
(vi) Neither the Company nor any subsidiary of the Company was included
or includable in any consolidated or unitary Tax Return or report, other
than Tax Returns or reports in which the Company was the common parent of
the consolidated or unitary group.
(p) TANGIBLE PROPERTY.
(i) The Company and its subsidiaries have good and marketable title to
all their tangible properties and assets, which tangible properties and
assets are sufficient to enable each of the Company and WPG to conduct its
business as the same is currently conducted. All of the tangible properties
and assets of the Company and its subsidiaries have been maintained and
repaired for their continued operation and are in good operating condition,
reasonable wear and tear excepted, and usable in the ordinary course of
business.
(ii) All of the tangible properties and assets of the Company and its
subsidiaries are free and clear of all liens, except (A) liens for taxes not
yet due and payable, (B) liens of landlords, vendors, warehousemen and
mechanics, and (C) such imperfections of title, easements and encumbrances,
if any, as are not material in character, amount or expense, or do not
materially detract from the value or interfere with the present use of the
property subject thereto or affected thereby. To the knowledge of the
Company, all properties used in the Company's business (whether owned or
leased) are in compliance in all material respects with all applicable laws,
statutes, rules and regulations (including, without limitation, building,
zoning and environmental laws) and all covenants, conditions, restrictions
or easements affecting the property or its use or occupancy, and, to the
knowledge of the Company, no notices of any material violations thereof have
been received.
(iii) Each of the leases (the "COMPANY LEASES") under which any of the
material properties of the Company or any of its subsidiaries is leased is
unmodified, valid and subsisting and in full force and effect in the form
made available to Purchaser prior to the date hereof, and, to the knowledge
of the Company, there are no other agreements, written or oral, between the
Company or any of its subsidiaries and any third parties claiming an
interest in the interest of the Company or any of its subsidiaries in, or
otherwise affecting the use and occupancy of, the property leased under each
Company Lease. Neither the Company nor any of its subsidiaries is in default
under the Company Leases in any material respect and no material defaults
(whether or not subsequently
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cured) by the Company or any of its subsidiaries have been alleged
thereunder. To the knowledge of the Company, no lessor named in any of the
Company Leases is in default thereunder in any material respect, and no
material defaults (whether or not subsequently cured) by such lessor have
been alleged thereunder.
(q) CERTAIN CONTRACTS AND AGREEMENTS.
(i) Schedule 3.1(q)(i) of the Company Disclosure Schedules lists each
contract which is required by its terms or is currently expected to result
in the payment or receipt by the Company or any subsidiary of more than
$200,000 and which is not terminable by the Company or any of its
subsidiaries without the payment of any penalty or fine on not more than
three months' notice, other than the Company Plans (a "MATERIAL CONTRACT").
To the knowledge of the Company, each Material Contract is in full force and
effect and is enforceable against the parties thereto (other than the
Company) in accordance with its terms and no condition or state of facts
exists that, with notice or the passage of time, or both, would constitute a
material default by the Company or any third party under such Material
Contracts. The Company or the applicable subsidiary of the Company has duly
complied in all material respects with the provisions of each Material
Contract to which it is a party.
(ii) Schedule 3.1(q)(ii) of the Company Disclosure Schedules lists:
(1) all material agreements relating to joint ventures, partnerships and
equity or debt investments involving the Company or any of its subsidiaries;
(2) all noncompete agreements with the Company or the subsidiaries (whether
as beneficiary or obligor); (3) all agreements, notes, bonds, indentures or
other instruments governing indebtedness for borrowed money of the Company
or any of its subsidiaries, and any guarantee thereof or the pledge of any
assets or other security therefor; (4) each agreement affording registration
rights as to any securities of the Company under the Securities Act of 1933,
as amended (the "SECURITIES ACT"), (5) each Company Lease providing for
annual lease payments by the Company or any of its subsidiaries in an amount
in excess of $200,000; (6) each agreement to which the Company or a
subsidiary is a party restricting or otherwise affecting voting or other
rights with respect to any securities of the Company or subsidiaries,
including voting trusts, voting agreements, irrevocable proxies, preemptive
rights, shareholders' agreements, redemption agreements and buy sell
agreements; (7) each material agreement between the Company or any of its
subsidiaries and any hospital, hospital management company, health
maintenance organization or other managed care payor; (8) each agreement
between or among the Company or any subsidiary; (9) each management contract
and contract with independent contractors or consultants (or similar
arrangements) including exclusive rights or requiring payments in excess of
$200,000 individually or $500,000 in the aggregate to which the Company or
any subsidiary is a party, which are not cancelable without penalty or
further payment upon 30 days' or less notice; and (10) each other material
agreement of the Company or any of the subsidiaries not made in the ordinary
course of business that is to be performed on or after the date of this
Agreement, except for any agreement which is required by any other provision
of this Section 3.1 to be included on a Company Disclosure Schedule
delivered under that provision. To the knowledge of the Company, each such
agreement, note, bond, indenture, other instrument or contract (including
those required by any other provision of this Section 3.1 to be included on
a Company Disclosure Schedule delivered under that provision, the "SCHEDULED
AGREEMENTS") is in full force and effect and is enforceable against the
parties thereto (other than the Company) in accordance with its terms and no
condition or state of facts exists that, with notice of the passage of time,
or both, would constitute a default in any material respect by the Company
or any third party under any of such Scheduled Agreements. The Company or
the applicable subsidiary of the Company has duly complied in all material
respects with the provisions of each of the Scheduled Agreements to which it
is a party.
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(r) INSURANCE. The Company and subsidiaries have in full force and effect
the policies of fire, liability, title, errors and omissions and other forms of
insurance listed on Schedule 3.1(r) of the Company Disclosure Schedules. None of
the Company or any of its subsidiaries is in default under any such policies
which default could reasonably be expected to have a Company Material Adverse
Effect and there is no material inaccuracy in any application for such policies.
Each of the Company's and its subsidiaries' activities and operations have been
conducted in a manner so as to conform in all material respects to the
applicable provisions of such policies. None of the Company and subsidiaries has
received a notice of cancellation or non-renewal with respect to any such
policy. Schedule 3.1(r) of the Company Disclosure Schedules lists all pending
claims under any of such policies in excess of $10,000 and timely notice has
been given of all such claims. None of such insurers has rejected or, to the
knowledge of the Company, plans to reject any of such claims.
(s) TRANSACTIONS WITH AFFILIATES. Except as disclosed in any of the
Company SEC Filings made prior to the date hereof and excluding the Company
Employment Contracts, there are no contracts, agreements, arrangements or
understandings of any kind involving any monetary payment or other obligation or
commitment (excluding non-monetary obligations or commitments of a de minimis
nature) between any affiliate (as defined in Section 7.3(a), it being understood
that for the purposes of this Section 3.1(s) such definition shall include,
without limitation, the officers and directors of the Company and WPG) of the
Company, on the one hand, and the Company or any subsidiary of the Company, on
the other hand.
(t) OPINION OF FINANCIAL ADVISOR. CIBC World Markets Corp., the Company's
financial advisor, has delivered an opinion to the board of directors of the
Company to the effect that, as of the date of such opinion, the Merger
Consideration is fair, from a financial point of view, to the holders of Company
Common Stock (other than the holder of Rollover Shares), a copy of which opinion
will be delivered to Purchaser.
(u) RIGHTS AGREEMENT. The Company has taken all action necessary to
prevent the Rights Agreement from becoming applicable, or the Rights becoming
exercisable, as a result of the execution of this Agreement by the Parties or of
the consummation of the Merger.
(v) TAKEOVER LAWS. The Company has taken all action required to be taken
by it in order to exempt this Agreement, the Merger and the transactions
contemplated hereby from any applicable "moratorium", "control share", "fair
price" or other antitakeover laws and regulations of any state.
(w) INTELLECTUAL PROPERTY.
(i) The Company (which term, for all purposes of this Section 3.1(w),
includes the subsidiaries of the Company) is entitled to use all of the
following which are used with or necessary for the conduct of the business
of the Company (including, without limitation, WPG) as currently conducted,
namely (1) trademarks, service marks, trade names, internet domain names,
designs, slogans, and general intangibles of like nature, together with all
goodwill related to the foregoing (collectively, the "TRADEMARKS"),
(2) patents and patent applications, (3) copyrights (including any
registrations, renewals and applications for any of the foregoing),
(4) software, (5) technology, and (6) trade secrets and other confidential
information, know-how, proprietary processes, formulae, algorithms, models,
and methodologies (collectively, the "TRADE SECRETS," and, together with the
items referred to in clauses (1) through (4) above, the "INTELLECTUAL
PROPERTY"). The Intellectual Property together with the rights granted in
the User Agreements and the License Agreements (each as defined in
clause (ii) below) is sufficient to enable each of the Company and WPG to
conduct its business as the same is currently conducted.
(ii) Schedule 3.1(w) of the Company Disclosure Schedules sets forth, for
the Intellectual Property owned by the Company, a complete and accurate list
of all U.S. and foreign (1) patents and patent applications,
(2) registrations of Trademarks (including internet domain registrations)
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and applications; and (3) copyright registrations and applications
(collectively, the "REGISTERED INTELLECTUAL PROPERTY"). Schedule 3.1(w) of
the Company Disclosure Schedules sets forth a complete and accurate list of
all license agreements (except for end user license and support/maintenance
agreements entered into in the ordinary course of business (the "USER
AGREEMENTS")) granting any right to use or practice any Intellectual
Property, whether the Company is the licensee or licensor thereunder, and
any written settlements relating to any Intellectual Property to which the
Company is a party or otherwise bound (collectively, the "LICENSE
AGREEMENTS"), indicating for each the title, the parties, and the date
executed.
(iii) Except for the User Agreements and License Agreements, to the
Company's knowledge, the Company has the right to use the Intellectual
Property free and clear of all liens and without any obligation or liability
to any third persons.
(iv) The Registered Intellectual Property is valid and subsisting, and
has not been canceled, expired, or abandoned. There is no pending, or to the
Company's knowledge, threatened opposition, interference or cancellation
proceeding before any court or registration authority in any jurisdiction
against the Registered Intellectual Property.
(v) To the Company's knowledge, the conduct of the Company's business as
currently conducted, including the use of the Intellectual Property, does
not infringe upon any intellectual property rights owned or controlled by
any third party. There are no claims or suits pending or to the Company's
knowledge, threatened, and the Company has not received any notice of a
third party claim or suit (A) alleging that its activities or the conduct of
its businesses infringes upon, violates, or constitutes the unauthorized use
of the intellectual property rights of any third party, or (B) challenging
the ownership, use, validity or enforceability of any Intellectual Property.
(vi) There are no settlements, forbearances to sue, consents, judgments,
orders, writs or injunctions to which the Company is a party which
(A) restrict the Company's rights to use any Intellectual Property,
(B) restrict the Company's businesses in order to accommodate a third
party's intellectual property rights, or (C) permit third parties to use any
Intellectual Property used by the Company. The Company has not licensed or
sublicensed its rights in any material Intellectual Property other than
pursuant to the User Agreements and/or the License Agreements, and no
royalties, honoraria or other fees are payable by the Company for its use of
or right to use any Intellectual Property, except pursuant to the License
Agreements. To the Company's knowledge, the License Agreements are valid and
binding obligations of all parties thereto, enforceable in accordance with
their terms, subject to bankruptcy, insolvency and similar laws affecting
creditors' rights and to the discretionary nature of equitable remedies,
and, to the Company's knowledge, there exists no event or condition which
will result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default by any party under, any such
License Agreement which violation, breach or default could, individually or
in the aggregate, reasonably be expected to have a Company Material Adverse
Effect.
(vii) The Company takes all reasonable and customary measures to
protect the confidentiality of the Trade Secrets. To the Company's
knowledge, no party to any non-disclosure agreement with the Company
relating to any Trade Secrets is in breach or default thereof.
(viii) To the knowledge of the Company, no third party is
misappropriating, infringing, diluting, or violating any Intellectual
Property used by the Company, and no such claims have been brought against
any third party by the Company. No person has a right to receive a royalty
or similar payment in respect of the Registered Intellectual Property or in
respect of any Intellectual Property of the Company pursuant to any User
Agreements, License Agreements or any other contractual arrangement entered
into by the Company or any of its subsidiaries. No former or present
employees, officers or directors of the Company hold any right, title or
interest, directly or indirectly, in whole or in part, in or to any
Intellectual Property.
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(ix) The consummation of the Merger will not (A) result in the loss or
impairment of the Company's right to use any Intellectual Property, or
(B) require the consent of any Governmental Entity or third party in respect
of any such Intellectual Property.
(x) To the extent used in accordance with their intended purpose as set
forth in any manuals or materials (as amended or supplemented) delivered in
connection therewith, all of the products, as upgraded to be Year 2000
Compliant (as defined below in this clause (x)), of the Company (including
products currently under development) will, after the Closing, accurately
record, store, process, calculate and present calendar dates falling on and
after (and if applicable, spans of time including) January 1, 2000, and will
accurately calculate any information dependent on or relating to such dates
in the same manner, and with the same functionality, data integrity and
performance, as such products record, store, process, calculate and present
calendar dates on or before December 31, 1999, or calculate any information
dependent on or relating to such dated (collectively, "YEAR 2000
COMPLIANT"). All of the products of the Company, after the Closing, except
as could not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect, (A) will lose no functionality with
respect to the introduction of records containing dates falling on or after
January 1, 2000 and (B) will be operable without error with other products
used and distributed by the Company that may deliver records to the products
of the Company or receive records from the products of the Company, or
interact with the products, including but not limited to back up and
archived data, provided that such other products are also Year 2000
Compliant. Set forth on Schedule 3.1(x) of the Company Disclosure Schedules
is a true and correct statement of the extent to which the internal computer
and technology products and systems of the Company are Year 2000 Compliant.
The Company has taken all actions represented in such statement to have been
taken by it. To the knowledge of the Company, the software and computer
systems of and products supplied to the Company by all third persons, and
the software and computer systems of the Company's customers, in each case
with respect to whom the Company has a material business relationship, are
Year 2000 Compliant.
(x) INFORMATION IN FINANCING DOCUMENTS. None of the information supplied
or to be supplied by the Company in writing specifically for inclusion or
incorporation by reference in any syndication and other materials to be
delivered to potential financing sources in connection with the Financing (as
defined in Section 3.2(g)) will, at the date delivered, contain any untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances in which they were made, not misleading.
(y) COMPANY CASH. As of the date hereof, the Company and its subsidiaries
have at least $159,800,000 in cash and short-term liquid investments.
(z) CLOSING OF ASSET DISPOSITIONS. The Company has closed (i) the sale of
the Company's San Jose property in accordance with the terms and conditions of
the Purchase and Sale Agreement between the Company and Lincoln Property Company
Commercial, Inc. dated August 21, 1999, and (ii) the sale of the Company's
interest in its Palo Alto property (Buildings 3, 4 and 5) to Stanford University
in accordance with the terms and conditions of the Agreement for Assignment of
Leasehold Interest, Sublease of Property, Leaseback of Real Property and Joint
Escrow Instructions between the Company and the Board of Trustees of the Leland
Stanford Junior University dated as of September 30, 1999.
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SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby
represents and warrants to the Company as follows:
(a) CORPORATE ORGANIZATION. Purchaser is a corporation duty organized,
validly existing and in good standing under the laws of the State of California,
and Purchaser has the requisite corporate power and authority and any necessary
governmental approvals to own, operate or lease its properties and to carry on
its business as it is now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority and
governmental approvals could not, individually or in the aggregate, reasonably
be expected to have a Purchaser Material Adverse Effect (as defined below). As
of the date hereof, Purchaser has not engaged in any business other than in
connection with the execution, delivery and performance of this Agreement and
the consummation of the Merger. The term "PURCHASER MATERIAL ADVERSE EFFECT"
means any material adverse change in or effect on (i) the business, results of
operations or condition (financial or other) of Purchaser and its subsidiaries
taken as a whole or (ii) the ability of Purchaser to consummate the Merger on or
before the Terminal Date (a Purchaser Material Adverse Effect of the kind
included in this clause (ii) being referred to as a "PURCHASER MATERIAL ADVERSE
CONSUMMATION EFFECT").
(b) CHARTERS AND BYLAWS. Purchaser has furnished to the Company a complete
and correct copy of the Articles of Incorporation and Bylaws of Purchaser as
currently in effect. Purchaser is not in violation of any of the provisions of
its respective Articles of Incorporation or Bylaws.
(c) AUTHORITY RELATIVE TO AGREEMENT. Purchaser has all necessary corporate
power and authority to enter into this Agreement, to perform its obligations
under this Agreement and to consummate the Merger. The execution, delivery and
performance of this Agreement by Purchaser and the consummation by Purchaser of
the Merger have been duly and validly authorized by all necessary corporate
action on the part of Purchaser, and no other corporate proceedings on the part
of Purchaser are necessary to authorize this Agreement or to consummate the
Merger. This Agreement has been duly executed and delivered by Purchaser and,
assuming due authorization, execution and delivery by the Company, constitutes a
legal, valid and binding obligation of Purchaser enforceable against them in
accordance with its terms, subject to bankruptcy, insolvency and similar laws
affecting creditors' rights and to the discretionary nature of equitable
remedies.
(d) NO CONFLICT, REQUIRED FILINGS AND CONSENTS.
(i) The execution, delivery and performance of this Agreement by
Purchaser and the consummation of the Merger by them do not and will not:
(A) conflict with or violate the Articles of Incorporation or Bylaws of
Purchaser; (B) assuming that all consents, approvals and authorizations
contemplated by Section 3.2(d)(ii) have been obtained, all filings described
in such Section have been made and all notification periods referred to in
such Section have expired, conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Purchaser or by which it
or its properties are bound or affected; or (C) result in any breach or
violation of or constitute a default (or an event which with notice or lapse
of time or both could become a default) or result in the loss of a material
benefit under, or give rise to any right of termination, amendment,
acceleration or cancellation of, or result in the creation of any lien,
security interest, change or encumbrance on any of the properties or assets
of Purchaser pursuant to, any note, bond, mortgage, indenture, contract,
lease, license, permit, franchise or other instrument or obligation to which
Purchaser is a party or by which Purchaser or any of the properties or
assets of Purchaser is bound or affected, except, in the case of clauses
(B) and (C), for any such conflicts, violations, breaches, defaults or other
occurrences which could not, individually or in the aggregate, reasonably be
expected to result in a Purchaser Material Adverse Effect.
(ii) The execution, delivery and performance of this Agreement by
Purchaser and the consummation of the Merger by Purchaser do not and will
not require any consent, approval, authorization or permit of, action by,
filing with or notification to, any Governmental Entity,
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except for: (A) the filing and recordation of the Certificate of Merger as
required by California law; (B) applicable filings under the Hart-Scott Act
and the termination or expiration of the waiting period under that Act; and
(C) such other consents, approvals, authorizations, actions, filings and
notifications as shall have been specified by Purchaser to the Company in
writing prior to the date of this Agreement.
(e) INFORMATION SUPPLIED. None of the information supplied or to be
supplied by or on behalf of Purchaser in writing specifically for inclusion in
the Proxy Statement will contain, at the date the Proxy Statement is first
mailed to the Company's shareholders or at the time of the Shareholders Meeting,
any statement which, in the light of the circumstances under which such
statement is made, is false or misleading with respect to any material fact, or
omit to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy for the
Shareholders Meeting or any amendment or supplement thereto.
(f) ABSENCE OF LITIGATION. There are no suits, claims, actions,
proceedings or investigations pending or, to the knowledge of Purchaser,
threatened against Purchaser, or any properties of Purchaser, before any court,
arbitrator or Governmental Entity that, individually or in the aggregate, could
reasonably be expected to have a Purchaser Material Adverse Effect. Neither
Purchaser nor any of its properties or assets is or are subject to any order,
writ, judgment, injunction, decree, determination or award having, or which
could reasonably be expected to have, a Purchaser Material Adverse Consummation
Effect.
(g) FINANCING.
(i) At the Effective Time and subject to satisfaction of the conditions
set forth in Article V, Purchaser will have cash funds from the issuance of
equity (pursuant to the equity commitment letter provided to Purchaser by
Fox Paine Capital Fund, L.P. (the "SPONSOR") attached hereto as
EXHIBIT 3.2(G)) of not less than $50 million (such amount including the
amount to be utilized by Sponsor to purchase the Purchased Shares).
Purchaser has been informed by Sponsor that Sponsor has the necessary power
and authority to call the funds necessary to make the aforementioned equity
commitment, without the need for any consent or approval of any other person
or entity and without the requirement that any other condition be satisfied
(excluding customary conditions that have been previously disclosed to the
Company).
(ii) Purchaser has received a commitment letter from a financial
institution, a true and correct copy of which has been provided to the
Company, pursuant to which such financial institution has committed, subject
to the terms and conditions thereof, to arrange or fund on behalf of
Purchaser $55 million of debt financing (the "FINANCING") to be utilized in
connection with the Merger and the other transactions contemplated by this
Agreement and to provide working capital to the Surviving Corporation.
(iii) Purchaser represents that the terms and conditions of the
commitment letters are acceptable in form and substance to Purchaser.
(h) NO FOREIGN OWNERSHIP. Purchaser is not, and is not owned or controlled
by, a foreign interest or foreign person under the Exon-Florio Act, as
implemented in 31 C.F.R. Part 800, the International Trafficking in Arms
Regulations, 22 C.F.R. Parts 120-130 or the National Industrial Security Program
Operating Manual, DOD 5220-22.M (January 1985).
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ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER; OTHER COVENANTS
SECTION 4.1 CONDUCT OF BUSINESS OF THE COMPANY PENDING THE MERGER. Except
as otherwise required by the terms of this Agreement or unless Purchaser shall
otherwise agree in writing: (i) the businesses of the Company and its
subsidiaries shall be conducted only in, and the Company and its subsidiaries
shall not take any action except in, the ordinary course of business and in a
manner consistent with past practice and in compliance with applicable laws (it
being understood that the ordinary course of business of the Company does not
include the disposition (by any means) of material assets (individually or in
the aggregate), subsidiaries, divisions or other identifiable groups within or
subsets of the Company); (ii) each of the Company and its subsidiaries shall use
its reasonable commercial efforts to preserve intact the business organization
of the Company and its subsidiaries, to keep available the services of the
present officers, employees and consultants of the Company and its subsidiaries
and to preserve the present relationships of the Company and its subsidiaries
with their customers, suppliers and other persons with whom the Company or any
of its subsidiaries has significant business relations; and (iii) by way of
amplification and not limitation of the foregoing, neither the Company nor any
of its subsidiaries shall directly or indirectly do, or propose or commit to do,
any of the following:
(a) Either: (i) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, other than regular
quarterly cash dividends on Company Common Stock declared and paid on dates
consistent with past practice in an amount not to exceed $0.12 per share per
quarter; or (ii) split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for, shares of its capital stock; or (iii) purchase, redeem or
otherwise acquire or agree to acquire any shares of capital stock of the Company
or any of its subsidiaries or any other securities convertible into shares of
capital stock or any rights, warrants or options to acquire any such shares or
convertible securities;
(b) Authorize for issuance, issue, deliver, sell or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise), pledge
or otherwise encumber any shares of its capital stock or the capital stock of
any of its subsidiaries, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities or any other securities or
equity equivalents (including without limitation stock appreciation rights),
other than (i) sales of capital stock of any subsidiary of the Company to the
Company or another subsidiary of the Company, (ii) the issuance of shares of
Company Common Stock upon exercise of Options that were issued and outstanding
prior to the date of this Agreement or in compliance with other obligations that
were in existence on the date of this Agreement and disclosed in any Company
Disclosure Schedules, and (iii) the issuance of shares of Series A Preferred
Stock as set forth in Section 2.4 of this Agreement;
(c) Except to the extent required under the Stock Option Plans, the Company
Plans or the Company Employment Contracts: (i) increase the compensation or
fringe benefits of any of its directors, officers or employees, except for
increases in compensation of non-managerial personnel of the Company or its
subsidiaries in the ordinary course of business in accordance with past
practice; or (ii) grant any severance or termination pay, or (iii) establish,
adopt, enter into or amend or terminate any Company Plan or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any directors,
officers or employees except as required by law or as provided in Section 2.3 of
this Agreement; PROVIDED, HOWEVER, that this Section 4.1(c) shall not prohibit
the Company or any of its subsidiaries, to the extent consistent with past
practice, from hiring non-managerial or non-officer personnel from time to time
in the ordinary course of its business and providing such personnel with
benefits deemed appropriate by the Company;
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(d) Amend its Articles of Incorporation, Bylaws or other comparable charter
or organizational documents or alter, through merger, liquidation,
reorganization, restructuring or in any other fashion, its corporate structure;
(e) Acquire or agree to acquire (i) by merging or consolidating with, or by
purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, joint venture, association
or other business organization or division thereof, or (ii) any assets (not
otherwise subject to paragraph (h) below) other than in the ordinary course of
business consistent with past practice or in an aggregate amount not to exceed
$500,000, or in accordance with the cash management practices of the Company set
forth on Schedule 4.1(e) of the Company Disclosure Schedules;
(f) Sell, lease, license, mortgage or otherwise encumber or subject to any
lien or otherwise transfer or dispose of any of its properties or assets other
than inventory or obsolete equipment in the ordinary course of business in
commercial transactions consistent with past practice and in amounts that could
not, individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect;
(g) Either: (A) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person (other than guarantees by the Company in
favor of any of its wholly owned subsidiaries or by any of its subsidiaries in
favor of the Company) or enter into any other financing obligation that would be
required to be presented as indebtedness on a balance sheet prepared in
accordance with GAAP, or enter into any "off balance sheet" financing
arrangement or transaction; or (B) make any loans, advances or capital
contributions to, or investments in (excluding investments made in accordance
with cash management practices set forth on Schedule 4.1(e) of the Company
Disclosure Schedules), any other person, other than (1) to any direct or
indirect wholly owned subsidiary of the Company, or (2) to an employee described
in Schedule 4.1(g) of the Company Disclosure Schedules and (3) to other
employees of the Company and its subsidiaries, provided that the loans
contemplated by this clause (g)(B)(3) will not exceed $100,000 in the aggregate;
(h) Except for current capital expenditure plans set forth on
Schedule 4.1(h) of the Company Disclosure Schedules, expend, or commit to
expend, funds for capital expenditures;
(i) Adopt a plan of complete or partial liquidation or resolutions providing
for or authorizing such a liquidation;
(j) Recognize any labor union (unless legally required to do so) or enter
into any collective bargaining agreement;
(k) Except as may be required as a result of a change in GAAP or as
recommended by the Company's independent accountants and consented to in writing
by Purchaser prior to such change, change any of the accounting methods,
practices or principles used by the Company or any of its subsidiaries;
(l) Enter into any new line of business or open any new facilities;
(m) Amend or otherwise modify, or waive any rights or obligations of any
other party to the Telecom Agreement (as hereinafter defined), other than such
amendments, modifications or waivers as (v) are immaterial, individually or in
the aggregate, (x) in no manner affect the proceeds payable to the Company
pursuant to the Telecom Agreement or the financial value to the Company of the
Telecom Sale Transaction, (y) to which the Company has previously disclosed to
Purchaser in writing and (z) is otherwise permissible pursuant to this
Section 4.1 (without giving effect to the parenthetical statement set forth in
subclause (i) within the body of the introductory paragraph of this
Section 4.1); or
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(n) Authorize any of, or commit or agree to take any of, the foregoing
actions or any action which would make any of the representations or warranties
of the Company contained in this Agreement untrue as of the date when made if
such action had then been taken.
Nothing in this Section 4.1, in Section 4.6 or elsewhere in this Agreement
(other than Section 4.12), shall limit the Company's right or ability to
complete the sale (the "TELECOM SALE TRANSACTION") of the Company's telecom
business strictly in accordance with the terms and conditions of the Amended and
Restated Purchase Agreement between the Company, Tracor, Inc. and Marconi
Aerospace Electronic Systems Inc. (as assignee of Tracor, Inc.'s rights and
obligations thereunder) dated as of August 18, 1999 (the "TELECOM AGREEMENT"),
as such Telecom Agreement may be further amended, modified or waived as
permitted in Section 4.1(m) above.
SECTION 4.2 SHAREHOLDERS MEETING. The Company shall take all action
necessary, in accordance with and subject to the California Code and its
Articles of Incorporation and Bylaws, to convene a meeting of its shareholders
(the "SHAREHOLDERS MEETING") as soon as reasonably practicable after the date of
this Agreement to consider and vote upon the adoption and approval of this
Agreement and the Merger. Subject to the next sentence, the Company, through its
Board of Directors, shall recommend to its shareholders approval of the
foregoing matters and such recommendation shall be included in the Proxy
Statement. The Board of Directors of the Company may fail to make such
recommendation, or withdraw, modify or change such recommendation, if and only
if (i) an Acquisition Proposal (as defined below) which constitutes a Superior
Proposal (as defined below) is made to the Company and is not withdrawn,
(ii) neither the Company nor any of its representatives shall have violated any
of the restrictions set forth in Section 4.6, (iii) the Board of Directors of
the Company concludes in good faith, after consultation with its outside
counsel, that, in light of such Acquisition Proposal, the failure to make or
withdrawal, modification or change of such recommendation is required in order
for the Board of Directors of the Company to comply with its fiduciary
obligations to the Company's shareholders under California law, and (iv) such
failure, withdrawal, modification or change occurs or is made prior to the
Shareholders Meeting. Nothing in this Section 4.2 shall limit the Company's
obligation to hold and convene the Shareholders Meeting. For the purposes of
this Section 4.2, a "Superior Proposal" means a bona fide Acquisition Proposal
which a majority of the disinterested members of the Board of Directors of the
Company determines in their reasonable good faith judgment to be more favorable
to the Company's shareholders than the Merger (after receiving the written
opinion, with only customary qualifications, of the Company's independent
financial advisor that the financial value of the consideration provided for in
such Acquisition Proposal exceeds the financial value of the Merger
Consideration) and for which financing, to the extent required, is then
committed by a third party.
SECTION 4.3 PREPARATION OF THE PROXY STATEMENT. As soon as reasonably
practicable following the date of this Agreement, the Company shall prepare the
Proxy Statement and, following approval by Purchaser (which approval shall not
be unreasonably withheld), shall file the Proxy Statement with the SEC. The
Company shall use its reasonable commercial efforts to have the Proxy Statement
cleared by the SEC as promptly as practicable after such filing, subject to the
Company's rights with respect to an Alternative Transaction (as defined below).
The Company shall use its reasonable commercial efforts to cause the Proxy
Statement to be mailed to the Company's shareholders as promptly as practicable
after the Proxy Statement is cleared by the SEC. The Company and Purchaser shall
each correct any information provided by it for use in the Proxy Statement which
shall have become false or misleading. In the event that the SEC comments upon
or otherwise reviews the Proxy Statement, the Company shall promptly inform
Purchaser of such comments and/or review, shall consult with Purchaser in
connection with responding to any such comments (including without limitation
the revision of the Proxy Statement). The Company shall not file the Proxy
Statement or any amendment thereto or revision thereof without Purchaser's prior
approval, which approval will not be unreasonably withheld.
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SECTION 4.4 HART-SCOTT ACT FILINGS. Promptly following the date of this
Agreement, the Company and Purchaser shall prepare and file with the Antitrust
Authorities all documents and forms required under the Hart-Scott Act. Each of
the Company and Purchaser shall use its reasonable commercial efforts to obtain
the timely termination or expiration of the waiting period applicable to the
Merger under the Hart-Scott Act.
SECTION 4.5 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) ACCESS TO INFORMATION.
(i) The Company: (A) shall, and shall cause its subsidiaries, auditors
and other agents to, afford the officers, auditors and other agents and
representatives of Purchaser and persons or entities (and representatives
thereof) committed or proposing to provide Purchaser or the Company with the
Financing reasonable access at all reasonable times (during normal business
hours so as not to unduly or unreasonably interfere with the business of the
Company and its subsidiaries) to its employees (it being understood that
access to the Company's employees, other than its senior officers, shall be
with the prior consultation of a senior officer of the Company), agents,
properties, customers, contractors, suppliers and others, offices and other
facilities and (subject to restrictions imposed by applicable law or by
contract) to all books and records, and shall furnish Purchaser and such
other persons with all financial, operating and other data and information
as Purchaser, through its officers, may from time to time reasonably
request; and (B) shall make available its senior officers, upon reasonable
prior notice and during normal business hours, to confer on a regular basis
with the appropriate officers of Purchaser regarding the ongoing operations
of the Company and its subsidiaries, the implementation of the Merger and
other matters reasonably related hereto. No investigation pursuant to this
Section 4.5(a) shall affect any representations or warranties of the Parties
made in this Agreement or the conditions to the obligations of the Parties
under this Agreement.
(ii) Prior to the Effective Time, the Company and its accountants,
agents and other representatives shall cooperate with Purchaser by providing
information about the Company which is necessary for Purchaser and its
accountants, agents, counsel and other representatives to participate in and
to assist the Company in preparing the Financing documents and securing the
Financing and in response to other reasonable requests with respect to such
Financing documents. Notwithstanding anything in this Agreement to the
contrary, to the extent reasonably appropriate to assist the success of the
Financing, Purchaser may disclose, or cause its representatives to disclose,
and, at the request of Purchaser, the Company shall disclose (in each case,
to the extent requested by Purchaser, subject to the Company receiving
reasonable assurances as to the maintenance of the confidentiality of
confidential information), information concerning the Company and its
subsidiaries and their respective businesses, assets and properties and any
transaction involving the Company occurring outside the ordinary course of
business or with respect to any material portion of the Company's (including
its subsidiaries') businesses, assets or properties prior to the Effective
Time.
(b) CONFIDENTIALITY. Purchaser shall hold information it receives pursuant
to Section 4.5(a)(i) which is nonpublic in confidence and, other than as
provided in Section 4.5(a)(ii), will not disclose such information to any third
party, and will instruct its Representatives (as such term is defined in the
Confidentiality Agreement) not to disclose such information to any third party,
without the written consent of the Company. Such information shall be subject to
the Confidentiality Agreement dated May 7, 1999 between the Company and Fox
Paine & Company, LLC (the "CONFIDENTIALITY AGREEMENT").
SECTION 4.6 NO SOLICITATION. The Company, its subsidiaries and affiliates
and their respective officers, directors, employees, representatives and agents
shall immediately cease any existing discussions or negotiations, if any, with
any parties conducted heretofore with respect to any acquisitions or exchange of
all or any material portion of the assets of, or any equity interest in, the
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Company or any of its subsidiaries or any business combination with the Company
or any of its subsidiaries other than the Telecom Sale Transaction. Subject to
the last paragraph of Section 4.1, the Company shall not, directly or
indirectly, through any officer, director, agent or otherwise, solicit, initiate
or encourage the submission of any proposal or offer from any person relating to
any acquisition or purchase of all or any material portion of the assets of, or
any equity interest in, the Company (or any subsidiary or division thereof) or
any merger, consolidation, share exchange, business combination or other similar
transaction with the Company (or any subsidiary or division thereof) or solicit,
participate in or initiate any negotiations or discussions regarding, or furnish
to any other person any information with respect to, or otherwise cooperate in
any way with, or assist or participate in, facilitate or encourage, any effort
or attempt by any other person to do or seek to do any of the foregoing, and all
efforts being conducted by or on behalf of the Company on the date of this
Agreement to solicit purchasers of the Company as an entirety or for its
component businesses shall be discontinued forthwith; PROVIDED, HOWEVER, that
nothing in this Section 4.6 shall prohibit the Company from furnishing
information to, or entering into discussions or negotiations with, any person in
connection with an unsolicited written bona fide proposal made to the Company by
or on behalf of such person after the date of this Agreement and prior to the
adjournment of the Shareholders Meeting (an "ACQUISITION PROPOSAL") to acquire
all of the equity or all or substantially all of the assets of the Company and
its subsidiaries (viewed as a whole), pursuant to a merger, consolidation, share
exchange, business combination, tender or exchange offer, recapitalization,
asset acquisition or other comparable transaction (an "ALTERNATIVE TRANSACTION")
if, and only to the extent that, (a) the Board of Directors of the Company
determines in good faith, having been advised by counsel, that its failure to
authorize any such action on the Company's part would constitute a breach of the
Board's fiduciary duties to the Company's shareholders under California law,
(b) upon receipt of such Acquisition Proposal, the Company gives Purchaser prior
written notice (which shall include a summary of the material terms of such
person's Acquisition Proposal and the identity of such person) of the Company's
intention to furnish such information or begin such discussions, (c) prior to
furnishing such information or beginning such discussions with such person, the
Company shall have determined, in good faith, after consultation with the
Company's financial advisor, that the financial value of the consideration
provided for in such Acquisition Proposal exceeds the financial value of the
Merger Consideration, and (d) prior to furnishing such information or beginning
such discussions, the financing for such Acquisition Proposal, to the extent
required, is then committed by a third party (which commitment may, in part, be
made in reliance upon the firm written commitments of third-party lenders). The
Company shall not release any third party from or waive any provision of, any
confidentiality or standstill agreement to which the Company is a party.
Notwithstanding anything to the contrary in this Section 4.6, the Company shall
not provide any non-public information concerning the Company to a third party
unless (i) the Company provides such non-public information under a
non-disclosure agreement with terms regarding the protection of confidential
information at least as restrictive as such terms in the Confidentiality
Agreement, and (ii) such non-public information has been previously delivered to
Purchaser.
SECTION 4.7 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) NO CHANGE IN ORGANIZATIONAL DOCUMENTS. Notwithstanding anything to the
contrary in Section 1.5, the Articles of Incorporation and the Bylaws of the
Surviving Corporation shall contain provisions no less beneficial to directors,
officers, employees or agents of the Company with respect to indemnification and
exculpation from liability as those set forth in the Company's Articles of
Incorporation and Bylaws on the date of this Agreement, which provisions shall
not be amended, repealed or otherwise modified for a period of six years from
the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who on or prior to the Effective Time were directors,
officers, employees or agents of the Company, unless such modification is
required by law.
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(b) DIRECTORS' AND OFFICERS' INSURANCE. The Surviving Corporation shall,
for a period of six years commencing on the Closing Date, maintain in effect the
Company's current directors' and officers' liability insurance policies (which
may be customary "tail" policies) covering those persons who are currently
covered on the date of this Agreement by such policies (copies of which policies
have been delivered to Purchaser) and by Indemnification Agreements with the
Company as set forth on Schedule 4.7(b) of the Company Disclosure Schedules (the
"INDEMNIFIED PARTIES"); PROVIDED, HOWEVER, that in no event shall Purchaser be
required to expend in any one year an amount in excess of 150% of the annual
premiums currently paid by the Company for such insurance; and, PROVIDED,
FURTHER, that if the annual premiums of such insurance coverage exceed such
amount, the Surviving Corporation shall be obligated to obtain a policy with the
greatest coverage available for a cost not exceeding such amount; PROVIDED,
FURTHER, that the Surviving Corporation may substitute, for the policies in
existence at the Effective Time, policies (which may be customary "tail"
policies) with at least the coverage required by this Section 4.7(b) provided
such substitute policies contain terms and conditions which are no less
advantageous and that such substitution does not result in any gaps or lapses in
coverage with respect to matters occurring prior to the Effective Time.
(c) INDEMNIFICATION OBLIGATIONS. As of and following the Effective Time,
the Surviving Corporation shall indemnify all Indemnified Parties to the fullest
extent permitted by applicable law with respect to all acts and omissions
arising out of such individuals' services as officers, directors, employees or
agents of the Company or any of its subsidiaries, or as trustees or fiduciaries
of any plan for the benefit of employees of the Company or any of its
subsidiaries, occurring prior to the Effective Time including, without
limitation, the transactions contemplated by this Agreement. Without limiting
the foregoing, if any such Indemnified Party is or becomes involved in any
capacity in any action, proceeding or investigation in connection with any
matter, including without limitation, the transactions contemplated by this
Agreement, occurring prior to, and including, the Effective Time, the Surviving
Corporation, from the Effective Time, will pay as incurred such Indemnified
Party's reasonable legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith upon receipt by
the Surviving Corporation of a customary undertaking in a form to be provided by
the Surviving Corporation, with such Indemnified Party being entitled to
representation by counsel not representing any other Indemnified Party to the
extent that a conflict of interest precludes the effective representation of
more than one Indemnified Party with respect to the applicable action,
proceeding and investigation. Subject to Section 4.7(d), the Surviving
Corporation shall pay all reasonable expenses, including attorneys' fees, that
may be incurred by any Indemnified Party in enforcing this Section 4.7 or any
action involving an Indemnified Party resulting from the transactions
contemplated by this Agreement. If the indemnity provided for in this
Section 4.7 is not available with respect to any Indemnified Party, then the
Surviving Corporation and the Indemnified Party shall contribute to the amount
payable in such proportion as is appropriate to reflect relative faults and
benefits.
(d) PROCEDURES CONCERNING INDEMNIFICATION. Any Indemnified Party wishing
to claim indemnification under Sections 4.7(a), (b) or (c), upon learning of any
such claim, action, suit, proceeding or investigation, shall promptly notify the
Surviving Corporation thereof, PROVIDED, HOWEVER, that failure to give, or delay
in giving, such notice shall not impair the applicable Indemnified Party's
rights under this Section 4.7 except to the extent (if any) to which the
Surviving Corporation is materially prejudiced by such failure or delay. In the
event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time): (i) the Surviving Corporation shall
have the right, from the Effective Time, to assume the defense thereof (with
counsel engaged by the Surviving Corporation to be reasonably acceptable to the
relevant Indemnified Party), the relevant Indemnified Party shall cooperate in
the defense of such matter and the Surviving Corporation shall not be liable to
such Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, and (ii) the Surviving Corporation shall not be liable for
any settlement effected without its or Purchaser's prior
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written consent. The Surviving Corporation shall not have any obligation under
Section 4.8(c) to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final, that the indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law.
SECTION 4.8 FURTHER ACTION; REASONABLE COMMERCIAL EFFORTS. Upon the terms
and subject to the conditions of this Agreement, each Party shall use its
reasonable commercial efforts to take, or cause to be taken, all appropriate
action, and to do or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
Merger, including but not limited to (i) cooperating in the preparation and
filing of the Proxy Statement, and any amendments to any thereof, and
(ii) using its reasonable commercial efforts to make all required regulatory
filings and applications and to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental Entities
and third parties to contracts with the Company and its subsidiaries as are
necessary for the consummation of the Merger, and to fulfill the conditions to
the Merger. To the extent practicable in the circumstances and subject to
applicable laws, each Party shall provide the others with the opportunity to
review any information relating to such Party, or any of its subsidiaries, which
appears in any filing made with, or written materials submitted to, any
Governmental Entity in connection with obtaining the necessary regulatory or
non- governmental approvals for the consummation of the Merger. In case at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers and directors of
each Party shall use their reasonable commercial efforts to take all such
necessary action.
SECTION 4.9 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Purchaser, and Purchaser shall give prompt notice to the Company, of
(i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect,
and (ii) any failure of the Company or Purchaser, as the case may be, to comply
with or satisfy in any material respect any condition or agreement to be
complied with or satisfied by it hereunder; PROVIDED, HOWEVER, that the delivery
of any notice pursuant to this Section 4.9 shall not limit or otherwise affect
the remedies available hereunder to the Party receiving such notice.
SECTION 4.10 PUBLIC ANNOUNCEMENTS. Each Party shall consult with the other
before issuing any press release or otherwise making any public statements with
respect to this Agreement and shall not issue any such press release or make any
such public statement prior to such consultation, except (where circumstances
make such prior consultation impracticable) as may be required by law or any
listing agreement with its securities exchange or quotation system.
SECTION 4.11 CERTAIN OBLIGATIONS TO EMPLOYEES. The Surviving Corporation
shall honor all employee benefit obligations to current and former employees
that have been incurred prior to the Effective Time under the Company Plans and
the Company Employment Contracts; PROVIDED, HOWEVER, that nothing shall prevent
the Surviving Corporation from taking, or refraining from taking, any action
with respect to any of the Company Plans and the Company Employment Contracts to
the extent not precluded by the terms thereof.
ARTICLE V
CONDITIONS OF MERGER
SECTION 5.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE
MERGER. The respective obligations of each Party to effect the Merger shall be
subject to the satisfaction or (to the extent permitted by applicable law)
waiver, at or prior to the Closing, of the following conditions:
(a) This Agreement and the Merger shall have been approved and adopted by
the affirmative vote of the holders of a majority of the outstanding shares of
Company Common Stock entitled to vote thereon.
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(b) No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition making the consummation of the Merger unlawful shall be
in effect, nor shall any proceeding by any Governmental Entity seeking any of
the foregoing be pending.
(c) There shall not be any action taken, or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the Merger, which makes
the consummation of the Merger illegal, or, as a result of the consummation of
the Merger, will give rise to a Company Material Adverse Effect with respect to
the Surviving Corporation.
(d) Each of the Company and Purchaser shall have received an opinion (in
each case addressed to the Board of Directors of the same) concerning the
solvency of Purchaser, the Company and their respective affiliates giving effect
to the Merger and the related transactions, prepared by an independent firm
expert in providing such opinions which is reasonably acceptable to each of the
Company and Purchaser. The solvency opinion shall be in such form that is
reasonably acceptable to each of the Company and Purchaser.
SECTION 5.2 CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of
Purchaser to effect the Merger are subject to the satisfaction of the following
conditions unless waived by Purchaser:
(a) The representations and warranties of the Company set forth in this
Agreement (i) shall be true and correct in all respects as of the date of this
Agreement and (ii) except for those representations and warranties made only as
of a specified date, shall be true and correct on and as of the Closing Date as
though made on and as of the Closing Date, except, in the case of each of
clauses (i) and (ii), for inaccuracies that do not, individually or in the
aggregate, constitute a Company Material Adverse Effect, PROVIDED, HOWEVER, for
purposes of this Section 5.2(a), (A) the immediately preceding Company Material
Adverse Effect qualifier shall be inapplicable with respect to representations
and warranties of the Company contained in Section 3.1(c) and Section 3.1(y),
and (B) any Company Material Adverse Effect or knowledge qualifiers in the body
of and applicable to any particular representation or warranty of the Company
shall be disregarded. Purchaser shall have received a certificate signed on
behalf of the Company by its Chief Executive Officer and by its Chief Financial
Officer to such effect.
(b) The Company shall have performed all obligations required to be
performed by it under this Agreement at or prior to the Closing Date with such
exceptions as, either individually or in the aggregate, have not constituted,
and do not constitute a Company Material Adverse Effect, and Purchaser shall
have received a certificate signed on behalf of the Company by its Chief
Executive Officer and by its Chief Financial Officer to such effect.
(c) The number of issued and outstanding shares of Company Common Stock with
respect to which the holders have properly taken those actions which the
California Code requires be taken prior to the Effective Time to permit such
holders to become Dissenting Shareholders shall not exceed 5% of the total
number of issued and outstanding shares of Company Common Stock.
(d) Other than the filing contemplated by Section 1.3, all consents,
approvals, authorizations or permits of, actions by, or filings with or
notifications to, and all terminations or expirations of waiting periods imposed
by, any Governmental Entity which are necessary for the consummation of the
Merger (including, without limitation, under the Hart-Scott Act and the Exchange
Act), other than those (not including those under the Hart-Scott Act, which
shall be required without reference to this clause) the absence of which could
not, individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect, shall have been obtained or made or shall have occurred
without the requirement of any payment or any material condition (all such
consents, approvals, authorizations, permits, actions and filings, and the
termination or expiration of all such waiting periods, being referred to as the
"REQUISITE GOVERNMENTAL APPROVALS"); all conditions, if any, to the Requisite
Governmental
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Approvals shall have been satisfied; and all Requisite Governmental Approvals
shall be in full force and effect.
(e) All consents, approvals, authorizations or permits of, actions by,
notifications to, or waiting periods imposed by, any contract, agreement or
arrangement between either the Company or Purchaser, on the one hand, and any
other person (except a Governmental Entity), on the other hand, which are
necessary for the consummation of the Merger, other than those the absence of
which could not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect, shall have been obtained or made or
shall have occurred without cost or condition (all such consents, approvals,
authorizations, permits, actions and notifications and the expiration of all
such waiting periods, being referred to as the "REQUISITE NON-GOVERNMENTAL
APPROVALS"); all conditions, if any, to the Requisite Non-Governmental Approvals
shall have been satisfied; and all of the Requisite Non-Governmental Approvals
shall be in full force and effect.
(f) The Company shall have closed the Telecom Sale Transaction in accordance
with the terms and conditions of the Telecom Agreement as in effect on the date
hereof (other than with such amendments, modifications or waivers as are
permitted the Company under Section 4.1(m)).
(g) Purchaser shall have received the Financing on terms and conditions
that, in Purchaser's reasonable judgment, are not less favorable, in the
aggregate, to Purchaser than those set forth in the commitment letter described
in Section 3.2(g)(ii) hereof.
(h) After the execution date of this Agreement, there shall not have
occurred or been enacted or promulgated a change in GAAP (as in effect on the
date of such letter) or a decision, statement, policy statement, pronouncement,
speech, statute, ordinance, writ, judgment, injunction, rule, regulation
(formal, informal or otherwise), order or decree of any Governmental Entity or
authoritative accounting standards board or body (including without limitation
the SEC and/or the Financial Accounting Standards Board) (any of the foregoing
matters being referred to as a "SUBSEQUENT RULING"), if the effect of such
Subsequent Ruling is to prevent the Merger from being accounted for as a
recapitalization (as a result of the structure and/or capitalization of the
Surviving Corporation as contemplated by this Agreement) in the reasonable
judgment of Purchaser following consultation with Purchaser's accounting
advisors.
SECTION 5.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of
the Company to effect the Merger is subject to the satisfaction of the following
unless waived by the Company:
(a) The representations and warranties of Purchaser set forth in this
Agreement (i) shall be true and correct in all respects as of the date of this
Agreement and (ii) except for those representations and warranties made only as
of a specified date, shall be true and correct on and as of the Closing Date as
though made on and as of the Closing Date except, in the case of each of clauses
(i) and (ii), for inaccuracies that do not, individually, or in the aggregate,
constitute a Purchaser Material Adverse Effect, PROVIDED, HOWEVER, for purposes
of this Section 5.3(a), (A) the immediately preceding Purchaser Material Adverse
Effect qualifier shall be inapplicable with respect to representations and
warranties of the Purchaser contained in Section 3.2(c) and (B) any Purchaser
Material Adverse Effect or knowledge qualifiers in the body of and applicable to
any particular representation or warranty of Purchaser shall be disregarded. The
Company shall have received a certificate signed on behalf of Purchaser by the
Chief Executive Officer of Purchaser and by the Chief Financial Officer of
Purchaser to such effect.
(b) Purchaser shall have performed all obligations required to be performed
by them under this Agreement at or prior to the Closing Date, with such
exceptions as, either individually or in the aggregate, have not constituted,
and do not constitute a Purchaser Material Adverse Effect, and the Company shall
have received a certificate signed on behalf of Purchaser by its Chief Executive
Officer and by its Chief Financial Officer to such effect.
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ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
SECTION 6.1 TERMINATION. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
either before or after approval thereof by the shareholders of the Company:
(a) by mutual written consent of Purchaser and the Company; or
(b) by Purchaser, upon any breach of any representation, warranty, covenant
or agreement of the Company set forth in this Agreement that, either
individually or in the aggregate, would prevent the satisfaction of the
conditions set forth in Section 5.2(a) or (b), if either (i) such breach cannot
be cured prior to the Terminal Date, or (ii) has not been cured within 30 days
after the date on which written notice of such breach is given by Purchaser to
the Company, specifying in reasonable detail the nature of such breach;
(c) by the Company, upon breach of any representation, warranty or agreement
of Purchaser set forth in this Agreement that, either individually or in the
aggregate, would prevent the satisfaction of the condition set forth in
Section 5.3(a) or (b), if either (i) such breach cannot be cured prior to the
Terminal Date, or (ii) has not been cured within 30 days after the date on which
written notice of such breach is given by the Company to Purchaser specifying in
reasonable detail the nature of such breach;
(d) by either Purchaser or the Company, if any permanent injunction or
action by any Governmental Entity preventing the consummation of the Merger
shall have become final and nonappealable; PROVIDED, HOWEVER, that such right of
termination shall not be available to any Party if such Party shall have failed
to make reasonable efforts to prevent or contest the imposition of such
injunction or action and such failure materially contributed to such imposition;
(e) by either Purchaser or the Company, if (other than due to the willful
failure of the Party seeking to terminate this Agreement to perform its
obligations hereunder which are required to be performed at or prior to the
Effective Time) the Merger shall not have been consummated on or prior to
January 31, 2000, unless extended in writing by Purchaser and the Company (such
date, or any date to which it is so extended, being referred to as the "TERMINAL
DATE");
(f) by Purchaser or the Company, if the vote of the shareholders of the
Company on a motion to adopt and approve this Agreement and the Merger has been
taken at the Shareholders Meeting or any adjournment thereof and the vote in
favor of such adoption and approval was not sufficient, under the California
Code and the Articles of Incorporation of the Company, to cause such motion to
pass; PROVIDED, HOWEVER, that the right to terminate this Agreement under this
Section 6.1(f) shall not be available to Company if (A) the failure to obtain
Company shareholder approval shall have been caused by the action or failure to
act of the Company and such action or the failure to act constitutes a breach by
the Company of this Agreement or (B) Purchaser is entitled to terminate the
Agreement under Section 6.1(g);
(g) by Purchaser, if (i) a majority of the Board of Directors of the Company
shall have withdrawn, modified or changed its approval or recommendation of this
Agreement or the Merger in any manner which is adverse to Purchaser, or shall
have adopted a resolution to do the foregoing, whether or not the reason for
such action by the Board of Directors of the Company would entitle the Company
to terminate this Agreement under Section 6.2(h), or (ii) a tender offer or
exchange offer for 25% or more of the outstanding shares of the Company Common
Stock is commenced (other than by Purchaser or any of its subsidiaries or
affiliates), and the Board of Directors of the Company fails to recommend that
such shareholders reject such tender offer or exchange offer in the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 filed in response
thereto;
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(h) by the Company prior to the closing of the polls at the Shareholders
Meeting, if the Board of Directors of the Company shall decide not to make or
shall withdraw, modify or change its affirmative recommendation of this
Agreement or the Merger, in each instance to the extent permitted pursuant to
Section 4.2 hereof;
(i) by the Company, if Sponsor notifies the Company in writing that Sponsor
has determined that it will not, or if it otherwise becomes manifestly obvious
that Sponsor has become unable to, fund Purchaser as set forth in and pursuant
to the equity commitment letter attached hereto as EXHIBIT 3.2(G).
SECTION 6.2 FEES AND EXPENSES.
(a) The Company shall pay Purchaser a termination fee of $13,250,000 plus
all costs and expenses incurred by Purchaser in connection with the
investigation, negotiation, financing and performance of this Agreement and the
Merger (collectively, to avoid duplication, net of any payments made to
Purchaser pursuant to Section 6.2(b), the "TERMINATION FEE"), as a result of the
termination of this Agreement (i) by Purchaser pursuant to Section 6.1(g) or the
Company pursuant to Section 6.1(h), (ii) by Purchaser or the Company pursuant to
Section 6.1(f), or (iii) by Purchaser pursuant to Section 6.1(b) (PROVIDED, in
the cases of clauses (ii) and (iii), within twelve (12) months of the date of
such termination of this Agreement the Company either enters into a definitive
agreement for or otherwise consummates an Alternative Transaction). The
Termination Fee shall be payable, in the case of clause (i) above, on the next
business day following the termination of this Agreement, or, in the case of
clause (ii) or clause (iii) above, on the next business day following the
execution of the definitive agreement for or the consummation of the Alternative
Transaction. In the circumstances in which it is payable, the payment of the
Termination Fee shall be Purchaser's sole remedy and entitlement hereunder for
any breach or default by the Company hereunder.
(b) In the event of a termination of this Agreement by Purchaser pursuant to
Section 6.1(b) or the Company pursuant to Section 6.1(c), all costs and expenses
of the non-breaching Party incurred in connection with this Agreement and the
Merger shall be paid by the breaching Party.
(c) Except as set forth in Sections 6.2(a) and 6.2(b), all costs and
expenses incurred in connection with this Agreement and the Merger shall be paid
by the Party incurring such costs and expenses, whether or not the Merger is
consummated.
SECTION 6.3 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 6.1, this Agreement shall forthwith become void
and there shall be no liability on the part of any Party except that the
provisions of Section 4.5(b), Section 6.2 and all of Article VII except
Section 7.1 shall survive such termination indefinitely (or to such earlier date
as may be specified by the terms of such provision); and PROVIDED, HOWEVER, that
nothing herein shall relieve any Party from liability for any willful and
material breach hereof, PROVIDED FURTHER, that any action that the Board of
Directors of the Company takes under Section 4.2, Section 4.6 or
Section 6.1(h), having been advised by counsel, on the basis of its good faith
determination that its failure to take such action could be deemed to constitute
a breach of its fiduciary duties to the Company's shareholders under California
law shall not constitute a willful and material breach of this Agreement by the
Company.
SECTION 6.4 AMENDMENT. This Agreement may be amended by the Parties by
action taken by the respective Boards of Directors of Purchaser and the Company
at any time prior to the Effective Time; PROVIDED, HOWEVER, that, after approval
of this Agreement and the Merger by the shareholders of the Company, no
amendment may be made which would require the approval of the shareholders of
the Company without being subject to further shareholder approval. This
Agreement may not be amended except by an instrument in writing signed by the
Parties.
SECTION 6.5 WAIVER. At any time prior to the Effective Time, any Party may
(a) extend the time for the performance of any of the obligations or other acts
of the other Party, (b) waive any
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inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the Party or Parties to
be bound thereby.
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1 NON SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
AFTER THE EFFECTIVE TIME. The representations, warranties, and agreements in
this Agreement shall terminate at the Effective Time, except that those set
forth in Section 4.7 and Section 4.11 and this Article VII shall survive such
termination indefinitely (or to such earlier date as shall be specified by the
terms of such provisions).
SECTION 7.2 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt or, in the case of notice by
registered or certified mail, three business days after deposit with the United
States Postal Service) by delivery in person, by cable, facsimile, telecopy
transmission or telegram or by registered or certified mail (postage prepaid,
return receipt requested) to the respective Party at the following addresses (or
at such other address for a Party as shall be specified by like notice):
IF TO PURCHASER:
FP-WJ Acquisition Corp.
c/o Fox Paine & Company, LLC
950 Tower Lane, Suite 1950
Foster City, California 94404
Attention: W. Dexter Paine III
Facsimile: (650) 525-1396
WITH A COPY TO:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Mitchell S. Presser
Facsimile: (212) 403-2000
WITH A COPY TO:
Irell & Manella LLP
333 South Hope Street, Suite 3300
Los Angeles, California 90071
Attention: Anthony T. Iler
Facsimile: (213) 229-0515
IF TO THE COMPANY:
Watkins-Johnson Company
3333 Hillview Avenue
Palo Alto, California 94304-1223
Attention: Chief Executive Officer
Facsimile: (650) 813-2502
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WITH A COPY TO:
Heller Ehrman White & McAuliffe
333 Bush Street
San Francisco, California 94104
Attention: Daniel E. Titelbaum, Esq.
Facsimile: (415) 772-6268
SECTION 7.3 CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "AFFILIATE" of a person means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person;
(b) "BUSINESS DAY" means any day other than a Saturday, Sunday or other day
on which commercial banks in Palo Alto, California are required or permitted to
be closed;
(c) "CONTROL" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the management policies of a
person, whether through the ownership of stock, as trustee or executor, by
contract or credit arrangement or otherwise;
(d) "KNOWLEDGE" means the actual subjective knowledge, without independent
inquiry or verification, of (i) in the case of the Company, any of (x) the
Company's executive officers named in the Company's proxy statement relating to
its 1999 Annual Meeting of Shareholders (which is one of the SEC Filings) and
(y) any of Malcolm Caraballo, John Galli, Skip Hoover, Tom Kreitzer and Rainer
Growitz; and (ii) in the case of Purchaser, any Executive Vice President or more
senior officer of Purchaser.
(e) "PERSON" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in
Section 13(d)(3) of the Exchange Act); and
(f) "SUBSIDIARY" or "SUBSIDIARIES" of any Party or other person means any
corporation, partnership, joint venture or other legal entity of which the
Company, the Surviving Corporation, Purchaser or such other person, as the case
may be (either alone or through or together with any other subsidiary), owns,
directly or indirectly, 50% or more of the stock or other equity interests the
holder of which is generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
SECTION 7.4 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any Party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
Parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.
SECTION 7.5 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement constitutes the
entire agreement among the Parties with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, among
the Parties, or any of them, with respect to the subject matter hereof, except
the Confidentiality Agreement, which shall continue in effect in accordance with
its terms. This Agreement shall not be assigned by operation of law or
otherwise, except that Purchaser may assign all or any of their respective
rights and obligations hereunder to any other direct subsidiary or subsidiaries
of Purchaser but no such assignment shall relieve the assigning Party of its
obligations hereunder.
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SECTION 7.6 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each Party. Nothing in this Agreement, express or
implied, is intended to or shall confer upon any other person any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement; PROVIDED, HOWEVER, that each Indemnified Party is intended to be a
third party beneficiary of, and have the individual right to seek compliance
with, Section 4.7.
SECTION 7.7 APPLICABLE LAW; JURISDICTION. This Agreement and the legal
relations among the Parties hereto shall be governed by and construed in
accordance with the laws of the State of California, without regard to the
conflict-of-laws rules thereof. ALL ACTIONS AND PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT SHALL BE HEARD AND DETERMINED IN ANY FEDERAL OR STATE
COURT WHICH SITS IN EITHER THE CITY OF SAN FRANCISCO OR SAN JOSE, CALIFORNIA AND
HAS JURISDICTION OVER THE PARTIES AND THE SUBJECT MATTER.
SECTION 7.8 HEADINGS. The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 7.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different Parties in separate counterparts, each of
which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Purchaser and the Company have caused this Agreement to
be executed by their respective officers thereunto duly authorized, all as of
the date written above.
FP-WJ ACQUISITION CORP.
By: /s/ W. DEXTER PAINE, III
--------------------------------------
Name: W. Dexter Paine, III
Title: Chief Executive Officer
WATKINS-JOHNSON COMPANY
By: /s/ W. KEITH KENNEDY, JR.
--------------------------------------
Name: W. Keith Kennedy, Jr.
Title: Chief Executive Officer
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APPENDIX B
RECAPITALIZATION AGREEMENT
BY AND BETWEEN
WATKINS-JOHNSON COMPANY
AND
WATKINS TRUST DATED SEPTEMBER 19, 1988
DATED AS OF OCTOBER 25, 1999
<PAGE>
RECAPITALIZATION AGREEMENT
RECAPITALIZATION AGREEMENT (the "Agreement"), dated as of October 25, 1999,
by and between Watkins-Johnson Company, a California corporation (the
"Company"), and Watkins Trust Dated September 19, 1988 (the "Shareholder").
WITNESSETH:
WHEREAS, pursuant to that certain Agreement and Plan of Merger (the "Merger
Agreement") dated as of October 25, 1999, by and between the Company and FP-WJ
Acquisition Corp., a California corporation (the "Purchaser"), subject to the
terms and conditions thereof, (i) the Purchaser will merge with and into the
Company with the Company continuing as the surviving corporation, (ii) except as
expressly provided in the Merger Agreement, the outstanding common stock of the
Company, without par value (the "Common Stock") will be converted into the right
to receive $41.125 per share in cash, and (iii) each share of the issued and
outstanding Series A Convertible Participating Preferred Stock of the Company
will be converted into one fully paid and nonassessable share of common stock of
the surviving corporation; and
WHEREAS, it is a requirement to the Purchaser's agreement to execute the
Merger Agreement that Shareholder remain a shareholder of the Company following
the Merger (as defined in the Merger Agreement);
WHEREAS, to facilitate the Merger Agreement, subject to the terms of this
Agreement, the Company will issue up to 249,020 shares of its Series A
Convertible Participating Preferred Stock (the "Shares"), par value $1.00, the
rights, preferences, privileges and restrictions of which will be as set forth
in the form of the Certificate of Determination substantially in the form
attached hereto as EXHIBIT A (the "Certificate of Determination") in exchange
for shares of Common Stock of the Company held by Shareholder in a transaction
intended to be described by Section 368(a)(1)(E) of the Internal Revenue Code of
1986, as amended. Shareholder shall exchange all of its shares of Common Stock
of the Company, consisting of not less than 120,000 shares (the "Common
Shares"), in the ratio of one Share for each Common Share.
NOW, THEREFORE, in order to implement the foregoing and in consideration of
the mutual representations, warranties, covenants and agreements contained
herein and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1. DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings ascribed to them below:
EXCHANGE ACT: shall mean the Securities Exchange Act of 1934, as amended,
including the rules and regulations promulgated thereunder, or any similar
federal statute then in effect, and a reference to a particular section thereof
shall be deemed to include a reference to the comparable section, if any, of
such similar federal statute.
SEC: shall mean the Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act or the Exchange Act.
SECURITIES ACT: shall mean the Securities Act of 1933, as amended,
including the rules and regulations promulgated thereunder, or any similar
federal statute then in effect, and a reference to a
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particular section thereof shall be deemed to include a reference to the
comparable section, if any, of any such similar federal statute.
ARTICLE II.
ISSUANCE OF SHARES
Section 2.1. ISSUANCE OF SHARES. Pursuant to the terms and subject to the
conditions set forth in this Agreement, Shareholder hereby agrees to acquire,
and Company hereby agrees to issue to Shareholder on the Closing Date, the
Shares in exchange for the Common Shares.
Section 2.2. THE CLOSING. The closing (the "Closing") of the transactions
contemplated by this Article II shall take place at the offices of Irell &
Manella LLP, 333 South Hope Street, Suite 3300, Los Angeles, California
90071-3042 immediately prior to the consummation of the Merger, or at such other
time and place as the parties hereto mutually agree. The date of such Closing is
hereinafter referred to as the "Closing Date."
Section 2.3. CLOSING DELIVERIES. Subject to Article IV:
(a) at the Closing, the Company shall deliver to Shareholder, against
delivery of the Common Shares, duly issued stock certificates representing the
Shares; and
(b) at the Closing, Shareholder shall deliver to Company, against delivery
to Shareholder of stock certificates representing the Shares, stock certificates
representing the Common Shares, together with one or more stock powers separate
from certificate as specified by the Company, free and clear of any and all
liens, charges and encumbrances whatsoever.
Section 2.4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF
SHAREHOLDER. Shareholder represents, warrants and covenants to the Company as
follows:
(a) Shareholder has full right, power and authority to execute and deliver
this Agreement, and to perform Shareholder's obligations hereunder, and this
Agreement has been duly authorized, executed and delivered by Shareholder and is
valid, binding and enforceable against Shareholder in accordance with its terms;
(b) none of the execution and delivery of this Agreement and the performance
of the transactions contemplated by this Agreement by Shareholder will
(i) result in any breach of any terms or provisions of, or constitute a default
under, any contract, agreement or instrument to which Shareholder is a party or
by which Shareholder is bound, (ii) violate any law, statute, ordinance, writ,
judgment, injunction, rule, regulation, order or decree of any court or of any
governmental or regulatory body, agency or authority, federal, state, local or
foreign (a "GOVERNMENTAL ENTITY"), applicable to Shareholder or by which any of
its properties or assets may be bound, or (iii) require any filing with, or
permit, consent or approval of, or the giving of any notice to, any Governmental
Entity (other than the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, to the extent applicable; in the event that a filing under said Act is
required in connection with the transactions contemplated by this Agreement,
Shareholder and the Company agree to reasonably cooperate with one another to
make such filing and thereafter achieve the early termination or expiration of
the waiting period under said Act);
(c) this Agreement and the transactions contemplated hereby have been
authorized by all necessary action of Shareholder on or prior to the date hereof
and no other proceedings on the part of Shareholder are necessary to authorize
this Agreement and the transactions contemplated hereby;
(d) In connection with this Agreement and the transactions contemplated
hereby, Shareholder may disclose to its representatives any nonpublic
information it receives regarding the Company; PROVIDED that Shareholder shall,
and shall cause its representatives to, otherwise hold such information
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in confidence and not disclose such information to any third party without the
prior written consent of the Company; and
(e) Shareholder holds all right, title and interest in and to the shares of
Common Stock to be exchanged for the Shares pursuant to this Agreement, free and
clear of any and all liens, charges and encumbrances whatsoever, and upon
delivery of such shares to the Company in payment of the Purchase Price, the
Company will acquire good and valid title thereto, free and clear of any and all
liens, charges and encumbrances whatsoever.
Section 2.5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The
Company represents, warrants and covenants to Shareholder as follows:
(a) Each of the representations and warranties of the Company made to
Purchaser in the Merger Agreement are incorporated herein by reference to the
Merger Agreement such that such representations and warranties are herein made
to Shareholder to the extent the same are made to Purchaser in the Merger
Agreement;
(b) the Shares to be issued to Shareholder pursuant to this Agreement, when
issued and delivered in accordance with the terms hereof and the Certificate of
Determination, will be duly and validly issued and fully paid and nonassessable;
(c) none of the execution, delivery and performance of this Agreement and
the transactions contemplated hereby by the Company will conflict with the
Company's Articles of Incorporation, as amended, or by-laws or result in any
breach of any terms or provisions of, or constitute a default under, any
contract, agreement or instrument to which the Company is a party or by which
the Company is bound; and
(d) prior to the Closing, the Company shall duly authorize, execute and file
the Certificate of Determination with the Secretary of State of the State of
California.
ARTICLE III.
INVESTMENT REPRESENTATIONS OF SHAREHOLDER
Section 3.1. INVESTMENT INTENTION; NO RESALES. Shareholder represents and
warrants that Shareholder is acquiring the Shares for investment purposes only,
solely for Shareholder's own account and not with a view to, or for resale in
connection with, the distribution or other disposition thereof or with any
present intention of distributing or reselling any Shares (except as
contemplated by Section 6.1 hereof). Shareholder agrees and acknowledges that
Shareholder will not, directly or indirectly, offer, transfer, sell, assign,
pledge, hypothecate or otherwise dispose of any Shares (except as contemplated
by Section 6.1 hereof), or solicit any offers to purchase or otherwise acquire
or take a pledge of any Shares, other than (i) transfers, sales, assignments,
pledges, hypothecations or other dispositions pursuant to an effective
registration statement under the Securities Act and pursuant to qualification or
exemption from qualification under all applicable state securities, or "blue
sky," laws, or (ii) Shareholder shall have furnished the Company with an opinion
of counsel (which counsel and the form and substance of which opinion shall be
reasonably satisfactory to the Company), to the effect that no such registration
is required because of the availability of an exemption from registration under
the Securities Act and the rules and regulations in effect thereunder and under
all applicable state securities, or "blue sky," laws.
Section 3.2 ADDITIONAL INVESTMENT REPRESENTATIONS. Shareholder represents
and warrants that (a) Shareholder's financial situation is such that Shareholder
can afford to bear the economic risk of holding the Shares for an indefinite
period of time and suffer complete loss of Shareholder's investment in the
Shares; (b) Shareholder's knowledge and experience in financial and business
matters are such that Shareholder is capable of evaluating the merits and risks
of Shareholder's investment in
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the Shares; (c) Shareholder understands that the Shares are a speculative
investment which involve a high degree of risk of loss of Shareholder's
investment therein, that there are substantial restrictions on the
transferability of the Shares and that on the Closing Date and for an indefinite
period following the Closing there will be no public market for the Shares and,
accordingly, it may not be possible to liquidate such Shareholder's investment
in the Company at all, including in case of emergency; (d) Shareholder and such
Shareholder's representatives, including Shareholder's professional, tax and
other advisors, have carefully reviewed the financial and other information with
respect to the Company and the Purchaser (including with respect to the Merger)
supplied to them and such Shareholder understands and has taken cognizance of
(and has been advised by Shareholder's representatives as to) all the risks
related to an investment in the Shares; (e) in making Shareholder's decision to
invest in the Shares hereunder, Shareholder has relied upon independent
investigations made by Shareholder and, to the extent believed by Shareholder to
be appropriate, Shareholder's representatives, including Shareholder's own
professional, tax and other advisors; (f) Shareholder and Shareholder's
representatives have been given the opportunity to examine all documents and to
ask questions of, and to receive answers from, the Company and its
representatives concerning the terms and conditions of the investment in the
Shares and to obtain any additional information necessary to verify the accuracy
of the information supplied to them, and no representations have been made to
Shareholder or such representatives concerning the Shares, the Company or the
Purchaser, their respective subsidiaries, their businesses or prospects or other
matters, except as set forth herein.
ARTICLE IV.
CONDITIONS
Section 4.1 CONDITIONS TO SHAREHOLDER'S OBLIGATIONS. Shareholder's
obligation hereunder to purchase the Shares is conditioned upon the following:
(a) the fulfillment, as of the Closing, or the waiver by Purchaser (other
than with respect to the conditions set forth in Section 5.2(a) and
Section 5.2(b) of the Merger Agreement, which conditions may not be waived by
Purchaser for the purpose of this Section 4.1), of all conditions to Purchaser's
obligations under the Merger Agreement;
(b) the representations and warranties of the Company set forth in
Section 2.5(b) and Section 2.5(c) of this Agreement shall be true and correct in
all material respects as the date of this Agreement and (except for those
representations and warranties made only as of a specified date) as of the
Closing Date as though made on and as of the Closing Date;
(c) the Company shall have performed all obligations required by it to be
performed under this Agreement at or prior to the Closing Date.
Section 4.2. CONDITIONS TO THE COMPANY'S OBLIGATIONS. The Company's
obligation to consummate the transactions contemplated hereby are conditioned
upon the fulfillment, as of the Closing, or the waiver by the Company, of all
conditions to the Company's obligations under the Merger Agreement.
ARTICLE V.
APPROVAL OF THE MERGER AGREEMENT
Section 5.1. APPROVAL OF THE MERGER AGREEMENT. Shareholder, with respect
to the Shares, does hereby irrevocably consent to, adopts and approves and votes
in favor of (i) the Merger, the Merger Agreement and the transactions
contemplated thereby and any and all corporate action required to effectuate the
Merger and the other transactions contemplated by the Merger Agreement, and
(ii) to the extent applicable, the Telecom Sale Transaction (as defined in the
Merger Agreement) and the transactions contemplated thereby. Shareholder, with
respect to the Shares, further covenants and
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agrees to (i) provide such additional votes, consents or approvals and to
perform all other acts reasonably requested by the Company or the Purchaser from
time to time for the purpose of effectuating the Merger and the other
transactions contemplated by the Merger Agreement and, to the extent applicable,
the Telecom Sale Transaction and (ii) waive any dissenters' rights with respect
to the Merger to which Shareholder might otherwise be entitled under
Section 1300 et. seq. of the General Corporation Law of the State of California.
Section 5.2 POWER OF ATTORNEY. Shareholder hereby irrevocably constitutes
and appoints, to the extent necessary to fulfill Shareholder's obligations
pursuant to Section 5.1 hereof, Purchaser as Shareholder's true and lawful agent
and attorney-in-fact, with full power and authority in Shareholder's name, place
and stead to execute such proxies and shareholder consents necessary or useful
to approve the Merger Agreement and the Merger and the other transactions
contemplated thereby.
ARTICLE VI.
STOCKHOLDERS AGREEMENT
Section 6.1. PURCHASE OF ROLLOVER SHARES.
(a) Shareholder and Purchaser (which is executing this Agreement as a party
solely with respect to this Article VI., and to acknowledge the balance of this
Agreement) hereby agree that, immediately following the acquisition of the
Shares by Shareholder pursuant to Section 2.1 and immediately prior to the
Effective Time (as defined in the Merger Agreement) of the Merger, Purchaser
shall cause Fox Paine Capital Fund, L.P. ("Sponsor") to purchase all of the
Shares in excess of 120,000 Shares (the "Purchased Shares") from Shareholder for
cash consideration, in immediately available funds, equal to the Merger
Consideration per Purchased Share. With respect to the Purchased Shares,
Shareholder hereby reiterates for the benefit of Purchaser and Sponsor the
representations and warranties set forth in Section 2.4 hereof, as if made with
respect to the Purchased Shares and to Purchaser and Sponsor. The 120,000 Shares
not purchased by Sponsor pursuant to this Section 6.1 are referred to herein as
the "Rollover Shares". Shareholder agrees that, as of the time immediately prior
to the Merger, he will own not less than 120,000 Shares, to ensure that the
number of Rollover Shares is 120,000.
(b) Purchaser (on behalf of itself and Sponsor) represents, warrants and
covenants to Shareholder that: (i) Sponsor shall purchase the Purchased Shares
with its own funds and not with funds provided by Purchaser or the Company;
(ii) neither Purchaser nor the Company shall assume or guarantee any
indebtedness of Sponsor obtained in connection with the acquisition of the
Purchased Shares; and (iii) except for the conversion of the Purchased Shares to
common stock of the surviving corporation in the Merger, Sponsor will not sell
the Purchased Shares (or the common stock of the surviving corporation in the
Merger received in exchange therefor in the Merger) to the Company within three
years following the date hereof.
Section 6.2 STOCKHOLDERS AGREEMENT TERM SHEET. The Company, Shareholder
and Purchaser hereby agree to all of the terms and conditions set forth in the
term sheet attached hereto as ANNEX A, and, unless and until definitive
documentation incorporating the terms set forth therein has been executed and
delivered, each of the foregoing parties agrees that such term sheet constitutes
a binding agreement among them, enforceable against each such party in
accordance with its terms.
Section 6.3 EXECUTION OF DEFINITIVE DOCUMENTATION. Each of the parties
agrees to negotiate in good faith and use all reasonable efforts to prepare,
execute and deliver a definitive agreement and other instruments implementing
the terms set forth in the term sheet attached hereto as Annex A on reasonable
and customary terms, such agreement and other instruments to be executed not
later than the Closing Date.
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ARTICLE VII.
INDEMNIFICATION
Section 7.1. ADDITIONAL INDEMNIFICATION RIGHTS. In addition to rights to
indemnification that Shareholder has pursuant to the Merger Agreement, and not
in lieu thereof, the Company (for all purposes of this Article VII., including,
from and after the Effective Time of the Merger, the Surviving Corporation, as
defined in the Merger Agreement) agrees to indemnify Shareholder against claims,
actions, suits, proceedings and investigations (for purposes of this
Article VII, indemnifiable claims, actions, suits, proceedings and
investigations to include only such matters asserted by third parties and such
matters in the nature of derivative actions, but not to include such matters
asserted by Shareholder against the Company), to the fullest extent permitted by
applicable law with respect to the transactions contemplated by this Agreement
(excluding any such matter to the extent that (i) it corresponds to or involves
a breach by Shareholder of any provision of this Agreement, or (ii) it relates
to the assertion of a tax obligation by a Governmental Entity). Without limiting
the foregoing, if Shareholder is or becomes involved in any capacity in any such
action, proceeding or investigation in connection with the transactions
contemplated by this Agreement, the Company will pay as incurred Shareholder's
reasonable legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith upon receipt by the Company of a
customary undertaking in a form to be provided by the Company, with Shareholder
being entitled to representation by counsel not representing any other
indemnified party to the extent that a conflict of interest precludes the
effective representation of more than one indemnified party with respect to the
applicable action, proceeding or investigation. Subject to Section 7.2 below and
the limitations described above, the Company shall pay all reasonable expenses,
including attorneys' fees, that may be incurred by Shareholder in enforcing this
Section 7.1 or any action involving Shareholder resulting from the transactions
contemplated by this Agreement. If the indemnity provided for in this
Section 7.1 is not available with respect to Shareholder, then the Company and
Shareholder shall contribute to the amount payable in such proportion as is
appropriate to reflect relative faults and benefits.
Section 7.2 PROCEDURES CONCERNING INDEMNIFICATION. If Shareholder wishes
to claim indemnification under Section 7.1 above with respect to any claim,
action, suit, proceeding or investigation, Shareholder shall, upon learning of
any such claim, action, suit, proceeding or investigation, promptly notify the
Company thereof, PROVIDED, HOWEVER, that failure to give, or delay in giving,
such notice shall not impair Shareholder's rights under Section 7.1 except to
the extent (if any) to which the Company is materially prejudiced by such
failure or delay. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time): (i) the
Company shall have the right to assume the defense thereof (with counsel engaged
by the Company to be reasonably acceptable to Shareholder), Shareholder shall
cooperate in the defense of such matter and the Company shall not be liable to
Shareholder for any legal expenses of other counsel or any other expenses
subsequently incurred by Shareholder in connection with the defense thereof, and
(ii) the Company shall not be liable for any settlement effected without its
prior written consent. Notwithstanding anything in this Agreement to the
contrary, the Company shall not have any obligation hereunder to Shareholder
when and if a court of competent jurisdiction shall ultimately determine, and
such determination shall have become final, that the indemnification of
Shareholder in the manner contemplated hereby is prohibited by applicable law.
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ARTICLE VIII.
MISCELLANEOUS
Section 8.1. BINDING EFFECT. The provisions of this Agreement shall be
binding upon the parties hereto and their respective heirs, legal
representatives, successors and assigns.
Section 8.2 THIRD-PARTY BENEFICIARY. Purchaser (and, as indicated in
Section 6.1, Sponsor) is an express third-party beneficiary of all of the
representations, warranties, covenants and agreements contained herein.
Section 8.3 WAIVER AND AMENDMENT. Any party hereto may waive its rights
under this Agreement at any time. Any agreement on the part of any such party to
any such waiver shall be valid only if set forth in an instrument in writing
signed by such party. This Agreement may be amended only by a written instrument
signed by the Company and by Shareholder.
Section 8.4. NOTICES. all notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt or, in the case of notice by
registered or certified mail, three business days after deposit with the United
States Postal Service) by delivery in person, by cable, facsimile, telecopy
transmission, or telegram or by registered or certified mail (postage prepaid,
return receipt requested) to the respective party at the following addresses (or
at such other address for a party as shall be specified by like notice):
<TABLE>
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(a) IF TO THE COMPANY, TO IT AT THE FOLLOWING ADDRESS:
Watkins-Johnson Company
3333 Hillview Avenue
Palo Alto, California 94303-1223
Facsimile: (650) 813-2502
Attention: Chief Executive Officer
WITH A COPY TO:
Heller Ehrman White & McAuliffe
333 Bush Street San Francisco, California 94104
Facsimile: (415) 772-6268
Attention: Daniel E. Titelbaum, Esq.
AND WITH A COPY TO:
Irell & Manella LLP
333 South Hope Street, Suite 3300
Los Angeles, California 90071
Facsimile (213) 229-0515
Attention: Anthony T. Iler, Esq.
(b) IF TO SHAREHOLDER, TO IT AT THE FOLLOWING ADDRESS:
Watkins Trust Dated September 19, 1988
c/o Dean A. Watkins
Waktins-Johnson Company
3333 Hillview Avenue
Palo Alto, California 94304-1223
Facsimile: (650) 813-2502
</TABLE>
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<TABLE>
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WITH A COPY TO:
Morrison & Foerster LLP
425 Market Street
San Francisco, California 94105-2482
Facsimile: (415) 268-7522
Attention: Marshall L. Small
AND WITH A COPY TO:
Irell & Manella LLP
333 South Hope Street, Suite 3300
Los Angeles, California 90071
Facsimile (213) 229-0515
Attention: Anthony T. Iler, Esq.
</TABLE>
Section 8.5 APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, without
regard to the principles of conflicts of law.
Section 8.6 INTEGRATION. This Agreement and the documents referred to
herein or delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than those
expressly set forth herein and the other agreements referred to herein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to its subject matter other than those agreements and
understandings set forth herein.
Section 8.7 DESCRIPTIVE HEADINGS, ETC. The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Agreement
otherwise requires, (i) words of any gender shall be deemed to include each
other gender; (ii) words using the singular or plural number shall also include
the plural or singular number, respectively; and (iii) references to "hereof,"
"herein," "hereby" and similar terms shall refer to this entire Agreement unless
the context otherwise requires.
Section 8.8 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 8.9 EXPENSES. Each party hereto shall pay the legal fees and the
expenses incurred thereby in connection with this Agreement.
Section 8.10 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
Section 8.11 FURTHER ASSURANCES. The parties hereto shall from time to
time execute and deliver all such further documents and do all acts and things
as the other party may reasonably require to effectively carry out or better
evidence or perfect the full intent and meaning of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
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WATKINS-JOHNSON COMPANY
By: /s/ W. KEITH KENNEDY
--------------------------------------------
Name: W. Keith Kennedy
Title: President
WATKINS TRUST
DATED SEPTEMBER 19, 1988
By: /s/ DEAN A. WATKINS
--------------------------------------------
Dean A. Watkins, its Trustee
ACKNOWLEDGED (AND AGREED
WITH RESPECT TO ARTICLE VI.):
FP-WJ ACQUISITION CORP.
By: /s/ DEXTER PAINE
--------------------------------------------
Name: Dexter Paine
Title: CEO
</TABLE>
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ANNEX A
TERM SHEET FOR STOCKHOLDERS AGREEMENT
This Term Sheet sets forth the principal terms and conditions for a
Stockholders Agreement to be entered into among the Company, Shareholder, one or
more additional Shareholders purchasing shares of Series A Preferred Stock
pursuant to a Recapitalization Agreement substantially similar (except as to
amounts) to this Agreement (collectively, Shareholder and such additional
Shareholders are referred to as "Shareholders"), and Purchaser (on behalf of
itself and Fox Paine Capital Fund, L.P. ("Fox Paine")) to set forth certain
restrictions relating to and other agreements concerning the capital stock of
the Company following the recapitalization contemplated by the Merger Agreement.
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TAG-ALONG RIGHTS: If, at any time prior to the initial public offering of
the Company's equity securities in an underwritten
offering pursuant to the Securities Act (the "Initial
Public Offering"), Fox Paine or any of the Shareholders
(as the case may be) accepts a third party offer to sell
any or all of its common stock in the Company (other
than to a permitted transferee), Fox Paine and the
remaining Shareholders (as applicable) will be able to
participate in the proposed sale by the other(s) on a
proportional basis, based on ownership, at the same
price and on the same terms in the sale of shares of the
Company.
DRAG-ALONG RIGHTS: Prior to an Initial Public Offering, if Fox Paine sells
at least 75% of its common stock in the Company in a
bona fide arm's length transaction or series of related
transactions, Fox Paine may require Shareholders to sell
a proportional number of their shares of common stock in
the Company in the same transaction (at the same price
and on the same terms).
REGISTRATION RIGHTS: After an Initial Public Offering, Shareholders
collectively will have one demand registration right and
Fox Paine will have five. All parties will have full
piggybacks in each other's demands, with no relative
priority as to cutbacks; cutbacks will be proportional
based on ownership among the parties, no matter who
initiated the demand. Fox Paine and Shareholders will
also have customary "piggyback" registration rights.
Expenses, in both demands and piggybacks, to be borne by
the Company. Other customary registration rights
provisions will apply, including holdbacks,
indemnification and contribution provisions. If Fox
Paine is permitted to sell secondary shares in an
Initial Public Offering, Shareholders will get a
proportionate opportunity.
</TABLE>
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RIGHT OF FIRST REFUSAL: Fox Paine will have a right of first refusal on proposed
transfers of shares by Shareholders (acceptance must be
all shares offered or none), other than transfers to
customary permitted transferees (including family
members and trusts for them, and certain charitable
transferees to be defined), prior to an Initial Public
Offering. Permitted transferees step into shoes of
transferor for transfer restriction and registration
rights provisions. Right of first refusal triggered only
by proposed bona fide sale to an unrelated party for
cash; other proposed transfers (excluding to permitted
transferees) not permitted.
</TABLE>
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APPENDIX C
[LOGO]
October 25, 1999
The Board of Directors
Watkins-Johnson Company
Stanford Research Park
3333 Hillview Avenue
Palo Alto, California 94304
Members of the Board:
You have asked CIBC World Markets Corp. ("CIBC World Markets") to render a
written opinion ("Opinion") to the Board of Directors as to the fairness, from a
financial point of view, to the holders of the common stock of Watkins-Johnson
Company ("Watkins-Johnson") of the Cash Consideration (defined below) to be
received pursuant to an Agreement and Plan of Merger (the "Merger Agreement") to
be entered into between FP-WJ Acquisition Corp. ("Acquisition Corp."), an
affiliate of Fox Paine & Company, LLC ("Fox Paine"), and Watkins-Johnson. The
Merger Agreement provides for, among other things, the merger of Acquisition
Corp. with and into Watkins-Johnson (the "Merger") pursuant to which all
outstanding shares of the common stock, no par value, of Watkins-Johnson (the
"WJ Common Stock") will be converted into the right to receive $41.125 per share
in cash (the "Cash Consideration"). We have been advised by representatives of
Watkins-Johnson that, in connection with the transactions contemplated by the
Merger Agreement, a trust established by a founding shareholder will,
immediately prior to consummation of the Merger, convert its shares of WJ Common
Stock into an equivalent number of shares of preferred stock of Watkins-Johnson
("WJ Preferred Stock") and sell a portion of such WJ Preferred Stock to an
affiliate of Fox Paine and that, in the Merger, the remaining shares of WJ
Preferred Stock owned by such trust will be converted into equity securities of
the surviving corporation (collectively, the "Rollover Shares").
In arriving at our Opinion, we:
(a) reviewed a draft dated October 24, 1999 of the Merger Agreement;
(b) reviewed audited financial statements for Watkins-Johnson for the fiscal
years ended December 31, 1997 and December 31, 1998;
(c) reviewed unaudited financial statements for Watkins-Johnson for the
six-month period ended June 25, 1999 and subsequent monthly periods ended
September 24, 1999;
(d) reviewed financial projections for Watkins-Johnson prepared by the
management of Watkins-Johnson;
(e) held discussions with the senior management of Watkins-Johnson and
representatives of Fox Paine with respect to the business and prospects
for future growth of Watkins-Johnson;
(f) reviewed and analyzed certain publicly available financial data for
certain companies with operations we deemed comparable to
Watkins-Johnson;
(g) performed a discounted cash flow analysis of Watkins-Johnson using
certain assumptions of future performance provided to us by the
management of Watkins-Johnson;
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The Board of Directors
Watkins-Johnson Company
October 25, 1999
Page 2
(h) reviewed and analyzed certain publicly available information for
transactions that we deemed comparable to the Merger;
(i) reviewed public information concerning Watkins-Johnson;
(j) at the direction of Watkins-Johnson, approached and held discussions
with third parties to solicit indications of interest in the acquisition
of all or a part of Watkins-Johnson; and
(l) performed such other analyses and reviewed such other information as we
deemed appropriate.
In rendering our Opinion, we relied upon and assumed, without independent
verification or investigation, the accuracy and completeness of all of the
financial and other information provided to or discussed with us by
Watkins-Johnson and its employees, representatives and affiliates. With respect
to forecasts of the future financial condition and operating results of
Watkins-Johnson provided to or discussed with us, we assumed, at the direction
of the management of Watkins-Johnson, without independent verification or
investigation, that such forecasts were reasonably prepared on bases reflecting
the best available information, estimates and judgments of the management of
Watkins-Johnson. We also have assumed, with your consent, that the sale
transaction involving Watkins-Johnson's Telecommunications Group will be
consummated in accordance with its terms and, to the extent relevant to our
analysis, have evaluated Watkins-Johnson after giving effect to that
transaction. In addition, we have assumed, with your consent, that in the course
of obtaining the necessary regulatory and third party consents for the Merger
and the transactions contemplated by the Merger Agreement, no delay or
restriction will be imposed that will have a material adverse effect on the
contemplated benefits to Watkins-Johnson of the Merger or the transactions
contemplated by the Merger Agreement. Representatives of Watkins-Johnson have
advised us, and we therefore have further assumed, that the final terms of the
Merger Agreement will not vary materially from those set forth in the draft of
the Merger Agreement reviewed by us. We have neither made nor obtained any
independent evaluations or appraisals of the assets or liabilities of
Watkins-Johnson or its affiliated entities. We are not expressing any opinion as
to the underlying valuation, future performance or long-term viability of
Watkins-Johnson, or the price at which shares of WJ Common Stock will trade
subsequent to announcement of the proposed Merger. Our Opinion is necessarily
based on the information available to us and general economic, financial and
stock market conditions and circumstances as they exist and can be evaluated by
us on the date hereof. It should be understood that, although subsequent
developments may affect this Opinion, we do not have any obligation to update,
revise or reaffirm the Opinion.
As part of our investment banking business, we are regularly engaged in
valuations of businesses and securities in connection with acquisitions and
mergers, underwritings, secondary distributions of securities, private
placements and valuations for other purposes.
We have acted as financial advisor to Watkins-Johnson in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon consummation of the Merger and a portion of which is payable
upon the delivery of this Opinion. CIBC World Markets and its affiliates have in
the past provided and are currently providing financial services to
Watkins-Johnson in connection with the sale process of Watkins-Johnson, and have
provided financial services to Fox Paine and its affiliates with respect to
matters unrelated to the Merger, for which services CIBC World Markets and such
affiliates have received and will receive compensation. CIBC World Markets also
will be participating in the financing of the Merger on behalf of Fox Paine, for
which services CIBC World
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The Board of Directors
Watkins-Johnson Company
October 25, 1999
Page 3
Markets will receive additional compensation. In the ordinary course of
business, CIBC World Markets and its affiliates may actively trade securities of
Watkins-Johnson and affiliates of Fox Paine for their own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
Based upon and subject to the foregoing, and such other factors as we deemed
relevant, it is our opinion that, as of the date hereof, the Cash Consideration
to be received in the Merger by holders of WJ Common Stock (other than the
holder of Rollover Shares) is fair to such holders from a financial point of
view. This Opinion is for the use of the Board of Directors of Watkins-Johnson
in its evaluation of the Merger, and does not constitute a recommendation to any
shareholder as to how such shareholder should vote on any matters relating to
the Merger. Neither this Opinion nor the services provided by CIBC World Markets
in connection herewith may be publicly disclosed or referred to in any manner by
Watkins-Johnson without the prior written approval of CIBC World Markets.
Very truly yours,
/s/ CIBC WORLD MARKETS CORP.
CIBC WORLD MARKETS CORP.
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APPENDIX D
EXPECTED MATERIAL TERMS OF THE DEBT FINANCING
THE FOLLOWING INFORMATION HAS BEEN PROVIDED BY FOX PAINE CAPITAL FUND BASED
ON ITS UNDERSTANDING, AS OF THE DATE OF THIS PROXY STATEMENT, OF THE EXPECTED
PRINCIPAL TERMS OF THE DEBT FINANCING. SUCH TERMS MAY, TO THE EXTENT CONSISTENT
WITH THE WJ MERGER AGREEMENT, CHANGE IN THE FUTURE.
The following information should be read in conjunction with the following
sections of the preceding proxy statement:
- "RISKS OF THE WJ MERGER--Risks Associated with the Debt Portion of the
Financing for the WJ Merger" on pages to ;
- "SPECIAL FACTORS--Financing;" and
- "THE WJ MERGER AGREEMENT--Conditions to Closing--CONDITIONS TO FP-WJ'S
OBLIGATION TO CLOSE" ON PAGES TO .
COMMITMENT; STRUCTURE; AMORTIZATION; INTEREST; MATURITY.
In connection with the signing of the WJ Merger Agreement, FP-WJ received a
commitment from Canadian Imperial Bank of Commerce and CIBC World Markets to
provide (or through CIBC World Markets, to arrange for) $55 million in senior
secured credit facilities to WJ as the debt portion of the financing for the WJ
Merger. FP-WJ will be the borrower under the facility (its obligations will be
assumed by WJ as a result of the completion of the WJ Merger).
It is expected that the senior secured credit facilities will consist of two
term loans and a revolving credit facility, as follows:
- A $25 million Term Loan A, which will mature five years after the closing
of the WJ Merger and will be amortized quarterly beginning in the third
quarter following the closing on a pre-determined schedule. The loan will
bear interest, at WJ's option, at (i) the Eurodollar Rate plus 2.5% to
3.25% (determined on the basis of the ratio) (the "Total Leverage") of
WJ's total indebtedness to its earnings before interest, taxes,
depreciation and amortization calculated on a rolling four quarter basis
per year or (ii) the alternate Base Rate described below plus 1.25% to
2.25% (determined on the basis of WJ's Total Leverage) per year, in each
case subject to adjustments to be agreed upon by WJ and the lenders.
- A $15 million Term Loan B, which will mature six years after the closing
of the WJ Merger and will be amortized quarterly on a pre-determined
schedule beginning in the first quarter following the closing. The loan
will bear interest, at WJ's option, at (i) the Eurodollar Rate plus 3.5%
to 3.75% (determined on the basis of WJ's Total Leverage) per year or
(ii) the alternate Base Rate plus 2.5% to 2.75% (determined on the basis
of WJ's Total Leverage) per year, in each case subject to adjustments to
be agreed upon by WJ and the lenders.
- A $15 million revolving credit facility, which will mature five years
after the closing of the WJ Merger. The revolving facility will bear
interest, at WJ's option, at (i) the Eurodollar Rate plus 2.5% to 3.25%
(determined on the basis of WJ's Total Leverage) per annum or (ii) the
alternate Base Rate plus 1.5% to 2.25% (determined on the basis of WJ's
Total Leverage) per year, in each case subject to adjustments to be agreed
upon by WJ and the lenders. WJ is obligated to pay a quarterly commitment
fee on unused funds available under the revolving credit facility in an
amount equal to 0.5% of such funds per year.
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The alternate Base Rate is the higher of the reference rate of CIBC World
Markets' reference rate and the federal funds rate plus 0.50%.
The revolving credit facility is expected to include a $2.5 million sublimit
facility for letters of credit. At the closing of the WJ Merger, a $1.1 million
letter of credit will be issued pursuant to this sublimit to support WJ's
workers' compensation obligations in the State of California. It is also
expected that, outside that general sublimit, the facility will be used to back
a $5 million letter of credit to be issued to Stanford University as required
security (in lieu of a security deposit) in connection with a real estate
transaction between WJ and Stanford University completed on October 1, 1999 (see
"SPECIAL FACTORS--Background of the WJ Merger" on page ). To the extent that
this letter of credit is drawn by Stanford University, Fox Paine Capital Fund
has committed to provide additional equity capital in a like amount to WJ in
order to assure full availability under the $15 million revolving credit
facility. The revolving credit facility will reduce by $5,000,000 upon the
earlier of (i) the termination of the $5 million letter of credit issued to
Stanford University or (ii) the maturity of that letter of credit (which is
expected to occur on October 31, 2000).
GUARANTEES; SECURITY
WJ's obligations under the term loans and the revolving credit facility are
expected to be unconditionally guaranteed by each of WJ's domestic subsidiaries.
WJ's obligations under the term loans and the revolving credit facility and
the guarantee obligations referred to above are expected to be secured by:
- subject to certain exceptions, a perfected first priority pledge of all
capital stock of each of WJ's subsidiaries (including 65% of the stock of
any foreign subsidiaries);
- subject to certain exceptions, a perfected first priority security
interest in all or substantially all of the tangible and intangible assets
of WJ and each of its subsidiaries; and
- subject to certain exceptions, a deed of trust or mortgage (as applicable)
on fee simple and leasehold real properties.
AVAILABILITY
The availability of the term loans and the revolving credit facility will be
subject to various conditions precedent including:
- the availability of the equity funding for the WJ Merger and related
transactions, including at least $50.8 million in cash from Fox Paine
Capital Fund, so as to ensure that the initial funding on the credit
facilities (including the State of California workers' compensation letter
of credit) is not more than $41 million;
- delivery of a commitment letter by Fox Paine Capital Fund to provide for
additional equity capital in case and to the extent that the letter of
credit issued to Stanford University is drawn;
- CIBC World Markets having obtained certain additional information
concerning environmental matters and its being satisfied that the
environmental liability exposure of WJ and its subsidiaries is not
materially worse than indicated in information previously supplied to CIBC
World Markets;
- no material adverse change in the financial markets or in the condition of
WJ; and
- the completion of the WJ Merger and related transactions.
The term loans will be subject to mandatory prepayments upon the occurrence
of certain events, and WJ may prepay any of the borrowings in whole or in part
at any time. Amounts repaid or prepaid
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under the term loans will not be available for reborrowing. Amounts repaid under
the revolving credit facility will be available for reborrowing on a revolving
basis, subject to customary terms and conditions.
REPRESENTATIONS AND WARRANTIES; COVENANTS; EVENTS OF DEFAULT.
The term loans and the revolving credit facility will contain customary
representations and warranties and customary affirmative and negative covenants,
including covenants related to delivery of financial information, corporate
obligations and financial audits, as well as financial covenants, including
covenants related to minimum EBITDA, maximum total leverage, minimum interest
coverage and minimum fixed charge coverage.
The term loans and the revolving credit facility will contain customary
default provisions, including the nonpayment of principal or interest when due,
cross-defaults, non-compliance with covenants, breach of representations and
warranties, bankruptcy and changes of control.
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APPENDIX E
CHAPTER 13
GENERAL CORPORATION LAW OF CALIFORNIA
DISSENTERS' RIGHTS
SECTION 1300. RIGHT TO REQUIRE PURCHASE; "DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of such corporation entitled to
vote on the transaction, and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the record
holder of dissenting shares and includes a transferee of record.
SECTION 1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require
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the corporation to purchase their shares for cash, such corporation shall mail
to each such shareholder a notice of the approval of the reorganization by its
outstanding shares (Section 152) within 10 days after the date of such approval,
accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a
statement of the price determined by the corporation to represent the fair
market value of the dissenting shares, and a brief description of the procedure
to be followed if the shareholder desires to exercise the shareholder's right
under such sections. The statement of price constitutes an offer by the
corporation to purchase at the price stated any dissenting shares as defined in
subdivision (b) of Section 1300, unless they lose their status as dissenting
shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION 1303. AGREED PRICE; TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
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SECTION 1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within 6 months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. APPRAISER'S REPORT--PAYMENT--COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than
125 percent of the price offered by the corporation under subdivision (a) of
Section 1301).
SECTION 1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
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SECTION 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SECTION 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SECTION 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
SECTION 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof, but any holder of shares of a class
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whose terms and provisions specifically set forth the amount to be paid in
respect to them in the event of a reorganization or short-form merger is
entitled to payment in accordance with those terms and provisions or, if the
principal terms of the reorganization are approved pursuant to subdivision
(b) of Section 1202, is entitled to payment in accordance with the terms and
provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-for
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by or under common control with, another party
to the reorganization or short-form merger, in any action to attack the validity
of the reorganization or short-form merger or to have the reorganization or
short-form merger set aside or rescinded, (1) a party to a reorganization or
short-form merger which controls another party to the reorganization or
short-form merger shall have the burden of proving that the transaction is just
and reasonable as to the shareholders of the controlled party, and (2) a person
who controls two or more parties to a reorganization shall have the burden of
proving that the transaction is just and reasonable as to the shareholders of
any party so controlled.
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PRELIMINARY COPY
[FORM OF PROXY CARD]
WATKINS-JOHNSON COMPANY
PROXY FOR SPECIAL MEETING OF SHAREOWNERS
This Proxy Is Solicited On Behalf Of The Board Of Directors
In connection with the special meeting of shareowners of Watkins-Johnson
Company to be held at [location] at [time] a.m., Pacific time, on January ,
2000 and all adjournments and postponements of the meeting, the undersigned
shareowner appoints each of Gary M. Cusumano and John J. Hartmann as the
undersigned shareowner's attorney and proxy, each with full power of
substitution, to vote all shares of Watkins-Johnson Company common stock held by
the undersigned shareowner as of the close of business on December 3, 1999
(i) as instructed on the other side of this card on THE WJ MERGER PROPOSAL
referred to on the other side of this card, and (ii) in their discretion on any
other matters that may properly come before the special meeting and at all
adjournments or postponements of the meeting. This proxy revokes all prior
proxies given by the undersigned in connection with the special meeting.
This proxy, when properly executed, will be voted in the manner directed
herein. Where no vote is specified, this proxy will be voted "FOR" the WJ Merger
Proposal.
(Continued and to be signed on the other side.)
FOLD AND DETACH HERE
<PAGE>
<TABLE>
<S> <C> <C>
/X/ Please mark your
votes like this
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE WJ MERGER PROPOSAL REFERRED TO
BELOW
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C> <C>
THE WJ MERGER PROPOSAL -- To approve and adopt the WJ Merger / / / / / /
Agreement and the WJ Merger, as more completely described in
the Proxy Statement.
</TABLE>
In their discretion, the proxy holders are hereby authorized to vote on such
other business as may properly come before the special meeting or any
adjournments or postponements, including, if submitted, a motion to adjourn the
special meeting to another time or place for the purpose of soliciting
additional proxies in favor of the WJ Merger Proposal. (If you vote any of your
shares "Against" the WJ Merger Proposal, those shares will not be voted in favor
of any adjournment motion submitted for that purpose.)
PLEASE MARK ABOVE, THEN DATE, THIS PROXY AND SIGN EXACTLY AS YOUR NAME(S)
APPEARS HEREON. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE,
GUARDIAN OR OTHER REPRESENTATIVE, GIVE YOUR FULL TITLE AS SUCH. IF YOUR SHARES
ARE HELD OF RECORD BY A CORPORATION, SIGN IN ITS FULL CORPORATE NAME BY AN
AUTHORIZED OFFICER, STATING HIS/HER TITLE. IF YOUR SHARES ARE HELD OF RECORD BY
A PARTNERSHIP, LIMITED LIABILITY COMPANY OR OTHER LEGAL ENTITY, SIGN IN THE FULL
NAME OF THE ENTITY BY AN AUTHORIZED PERSON, STATING HIS/HER AUTHORITY.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY AS PROMPTLY AS POSSIBLE IN THE
POSTPAID ENVELOPE PROVIDED.
Signature(s) ________________________ Dated: ________________, 2000
FOLD AND DETACH HERE
<PAGE>
PRELIMINARY COPY
[FORM OF TRUSTEE DIRECTION]
WATKINS-JOHNSON COMPANY
TRUSTEE DIRECTION FOR SPECIAL MEETING OF SHAREOWNERS
DIRECTION TO TRUSTEE
WATKINS-JOHNSON EMPLOYEES' INVESTMENT PLAN
I hereby direct you as Trustee of the Watkins-Johnson Employees' Investment
Plan to vote the shares of Watkins-Johnson Company common stock credited to my
account under the aforementioned plan at the special meeting of shareowners of
Watkins-Johnson Company, to be held at [location], at [time], a.m., Pacific
time, on January , 2000 and at all adjournments or postponements of the
meeting. I hereby acknowledge receipt of the Watkins-Johnson Company proxy
statement for the special meeting. This direction revokes all prior directions
given by the undersigned under the aforementioned plans in connection with the
special meeting.
I have filled in the appropriate boxes on the other side of this card, and I
authorize you to vote as indicated. Pursuant to the aforementioned plan, in the
absence of any instructions from me as to any item, shares credited to my
account shall be voted by you, as Trustee, in the same proportion as shares are
voted on that item in accordance with voting instructions you have received, as
Trustee under the aforementioned plan, in connection with the special meeting.
(Continued, and to be signed, on the other side)
FOLD AND DETACH HERE
<PAGE>
<TABLE>
<S> <C> <C>
/X/ Please mark your
votes like this
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE WJ MERGER PROPOSAL REFERRED TO
BELOW
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C> <C>
THE WJ MERGER PROPOSAL -- To approve and adopt the WJ Merger / / / / / /
Agreement and the WJ Merger, as more completely described in
the Proxy Statement.
In its discretion, the Trustee is authorized to vote for such other business as may properly come
before the special meeting or any adjournments or postponements, including, if submitted, a motion to
adjourn the special meeting to another time or place for the purpose of soliciting additional proxies
in favor of the WT Merger Proposal. (If you direct the Trustee to vote any of the shares credited to
your account "Against" the WJ Merger Proposal, those shares will not be voted in favor of any
adjournment motion submitted for that purpose.)
</TABLE>
PLEASE VOTE, SIGN, DATE AND RETURN THIS TRUSTEE DIRECTION AS PROMPTLY AS
POSSIBLE IN THE POSTPAID ENVELOPE PROVIDED.
Signature(s): ________________________ Dated: _________, 2000
NOTE: Please mark above, then date, this Trustee Direction exactly as your
name(s) appear(s) hereon.
FOLD AND DETACH HERE
