<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 5, 1998
REGISTRATION NO. 333-60893
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
TELECOMMUNICATIONS TECHNIQUES CO., LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3825 04-225-8582
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBERS)
ORGANIZATION) ---------------
20400 OBSERVATION DRIVE
GERMANTOWN, MARYLAND 20876-4023
(301) 353-1550
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
DYNATECH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 3825 04-225-8582
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBERS)
ORGANIZATION) ---------------
3 NEW ENGLAND EXECUTIVE PARK
BURLINGTON, MA 01803-5087
(781) 272-6100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
ALLAN M. KLINE
VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER
DYNATECH CORPORATION
3 NEW ENGLAND EXECUTIVE PARK
BURLINGTON, MA 01803-5087
(781) 272-6100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANTS' AGENT FOR SERVICE)
WITH COPIES TO:
MARK V.B. TREMALLO, ESQ. DAVID A. BRITTENHAM, ESQ.
DYNATECH CORPORATION DEBEVOISE & PLIMPTON
3 NEW ENGLAND EXECUTIVE PARK 875 THIRD AVENUE
BURLINGTON, MA 01803-5087 NEW YORK, NEW YORK 10022
(781) 272-6100 (212) 909-6347
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities of an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION (THE "COMMISSION"), ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 5, 1998
PROSPECTUS
TELECOMMUNICATIONS TECHNIQUES CO., LLC
(TO BE RENAMED DYNATECH LLC)
OFFER TO EXCHANGE 9 3/4% SENIOR SUBORDINATED NOTES DUE 2008
FOR ANY AND ALL EXISTING NOTES (AS DEFINED BELOW)
PAYMENT OF PRINCIPAL AND INTEREST GUARANTEED
BY DYNATECH CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME ON OCTOBER , 1998, UNLESS EXTENDED
AS DESCRIBED HEREIN, WITHDRAWAL RIGHTS WITH RESPECT TO THE
EXCHANGE OFFER ARE EXPECTED TO EXPIRE
AT THE EXPIRATION OF THE EXCHANGE OFFER.
----------
Telecommunications Techniques Co., LLC, a Delaware limited liability company
("TTC"), hereby offers (the "Exchange Offer"), upon the terms and subject to
the conditions set forth in this Prospectus (the "Prospectus") and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange
up to $275,000,000 aggregate principal amount of its 9 3/4% Senior Subordinated
Notes Due 2008 (the "New Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act") pursuant to a
Registration Statement of which this Prospectus is a part, for a like principal
amount of its issued and outstanding 9 3/4% Senior Subordinated Notes Due 2008
(the "Existing Notes" and together with the New Notes, the "Notes"). The New
Notes will be issued in denominations of $1,000. The Existing Notes were
originally issued and sold by Dynatech Corporation, TTC's corporate parent
("Dynatech" or "Holding" and, together with its subsidiaries, the "Company"),
and TTC Merger Co. LLC, a Delaware limited liability company ("TTC Merger Co.")
that has merged into TTC, in a transaction that was exempt from registration
under the Securities Act (the "Offering") and resold in reliance on, and
subject to the restrictions imposed pursuant to, Rule 144A under the Securities
Act ("Rule 144A") and other applicable exemptions from the registration
requirements of such Act. Immediately following the consummation of the
Offering, TTC assumed all obligations in respect of the Existing Notes and
became the primary obligor thereon, and Holding was released as a primary
obligor thereon. The terms of the New Notes are identical in all material
respects to the terms of the Existing Notes for which they may be exchanged
pursuant to the Exchange Offer, except that (i) the New Notes will have been
registered under the Securities Act, and thus will not bear restrictive legends
restricting their transfer pursuant to the Securities Act and will not contain
certain provisions providing for an increase in the interest rate on the
Existing Notes under certain circumstances described in the Registration Rights
Agreement (as defined), which provisions will terminate upon the consummation
of the Exchange Offer and (ii) holders of New Notes will not be entitled to
certain registration rights that holders of Existing Notes have under the
Registration Rights Agreement, except under limited circumstances.
Interest on each of the New Notes issued pursuant to the Exchange Offer will
accrue from the last interest payment date to which interest was paid or duly
provided for on the Existing Notes surrendered in exchange therefor or, if no
interest has been paid or duly provided for, from the original date of issuance
of the Existing Notes (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).
Interest on the Notes will be payable semi-annually on May 15 and November 15
of each year, commencing on November 15, 1998. The Notes will mature on May 15,
2008. Except as described below, TTC may not redeem the Notes prior to May 15,
2003. On or after such date, TTC may redeem the Notes, in whole or in part, at
any time at the redemption prices set forth herein together with accrued and
unpaid interest, if any, to the date of redemption. In addition, at any time
and from time to time on or prior to May 15, 2001, TTC may redeem an aggregate
principal amount equal to up to 35% of the original aggregate principal amount
of the Notes (including Additional Notes (as defined)) with funds equal to the
proceeds of one or more Equity Offerings (as defined) at a redemption price
equal to 109.75% of the principal amount redeemed, together with accrued and
unpaid interest, if any, to the date of redemption, provided that an aggregate
principal amount of the Notes equal to at least 65% of the original aggregate
principal amount of the Notes (including Additional Notes) remains outstanding
after each such redemption. The Notes are not subject to any sinking fund
requirement. Upon the occurrence of a Change of Control (as defined), (i) TTC
will have the option prior to May 15, 2003, to redeem the Notes, in whole, at a
redemption price equal to 100% of the principal amount thereof plus the
Applicable Premium (as defined), together with accrued and unpaid interest, if
any, to the date of redemption, and (ii) if TTC does not redeem the Notes, the
holders of the Notes will have the right, subject to certain exceptions, to
require TTC to make an offer to repurchase the Notes at a price equal to 101%
of the principal amount thereof, together with accrued and unpaid interest, if
any, to the date of repurchase. See "Description of Notes."
The Notes are guaranteed on a senior subordinated basis by Holding. The Notes
are unsecured senior subordinated obligations of TTC and are subordinated in
right of payment to all existing and future Senior Indebtedness (as defined
herein) of TTC, including borrowings under TTC's senior secured credit facility
(the "Senior Credit Facility"), and are effectively subordinated to all
obligations of the subsidiaries of TTC. The Notes rank pari passu in right of
payment with all other existing and future senior subordinated indebtedness of
TTC and rank senior to all other Subordinated Indebtedness (as defined) of TTC.
The indenture governing the terms of the Notes (the "Indenture") permits the
Company to incur additional indebtedness, including Senior Indebtedness,
subject to certain limitations. At July 31, 1998, the Company had $281.0
million of Senior Indebtedness outstanding and Indebtedness of $556.5 million
(excluding a maximum $3.0 million guarantee).
The Exchange Offer is not conditioned upon any minimum number of Existing
Notes being tendered for exchange. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on October , 1998, unless extended by TTC (such date as it
may be so extended, the "Expiration Date"). As soon as practicable after the
Expiration Date, TTC will accept all Existing Notes properly tendered and not
validly withdrawn for Exchange (the "Exchange Date") and deliver or cause the
delivery of New Notes in exchange therefor. Existing Notes tendered pursuant to
the Exchange Offer may be withdrawn at any time prior to 5:00 p.m. New York
City time on the Expiration Date; otherwise such tenders are irrevocable. New
Notes to be issued in exchange for validly tendered Existing Notes will be
delivered through the facilities of The Depository Trust Company by the
Exchange Agent (as defined herein).
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT
IN THE NEW NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
THE DATE OF THIS PROSPECTUS IS OCTOBER , 1998.
<PAGE>
The Existing Notes were issued and sold on May 21, 1998 in a transaction not
registered under the Securities Act in reliance upon exemption from the
registration requirements thereof. In general, the Existing Notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act. The
New Notes are being offered hereby in order to satisfy certain obligations of
Dynatech and TTC contained in the Registration Rights Agreement referred to in
this Prospectus. Based on interpretations by the Staff of the Commission as
set forth in no-action letters issued to third parties, the Company believes
that the New Notes issued pursuant to the Exchange Offer may be offered for
resale, resold or otherwise transferred by any holder thereof (other than any
such holder that is a broker-dealer or an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such holder represents to the Company that (i) any New Notes
received by such holder will be acquired in the ordinary course of business,
(ii) such holder will have no arrangements or understanding with any person to
participate in the distribution of the Securities or the New Notes within the
meaning of the Securities Act, (iii) such holder is not an "affiliate," as
defined in Rule 405 of the Securities Act, of the Company or if it is an
affiliate, such holder will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable, (iv) if
such holder is not a broker-dealer, that it is not engaged in, and does not
intend to engage in, the distribution of the New Notes, (v) if such holder is
a broker-dealer, that it will receive New Notes for its own account in
exchange for Existing Notes that were acquired as a result of market-making
activities or other trading activities and that it will deliver a prospectus
in connection with any resale of such New Notes, and (vi) that it is not
acting on behalf of any person who could not truthfully make the foregoing
representations. If a holder of Existing Notes is unable to make the foregoing
representations, such holder may not rely on the applicable interpretations of
the Staff of the Commission as set forth in such no-action letters, and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale transaction. In
addition, since the Company has not sought, and does not intend to seek, its
own no-action letter, there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer.
Notwithstanding the foregoing, each broker-dealer that receives New Notes
for its own account pursuant to the Exchange Offer in exchange for Existing
Notes, where such Existing Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus meeting the requirements of the
Securities Act and that it has not entered into any arrangement or
understanding with the Company or an affiliate of the Company to distribute
the New Notes in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. A broker-dealer that acquired Existing
Notes in a transaction other than as part of its market-making activities or
other trading activities will not be able to participate in the Exchange
Offer. This Prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of New Notes
where such Existing Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities (other than Existing
Notes acquired directly from the Company). Holding and TTC have agreed that,
starting on the Expiration Date, and ending on the close of business 90 days
after the Expiration Date, TTC will make this Prospectus available to any such
participating broker-dealer for use in connection with any such resale. See
"The Exchange Offer" and "Plan of Distribution."
The New Notes will be represented by one or more Global Securities (as
defined) registered in the name of a nominee of The Depository Trust Company,
as Depositary. Beneficial interest in the Global Securities will be shown on,
and transfers will be effected only through, records maintained by the
Depositary and its participants. See "Book-Entry, Delivery and Form."
There has not previously been any public market for the New Notes. The
Issuers do not intend to list the New Notes on any securities exchange or to
seek approval for quotation through any automated quotation system.
i
<PAGE>
There can be no assurance that an active market for the New Notes will
develop. Moreover, to the extent that Existing Notes are tendered and accepted
in the Exchange Offer, a holder's ability to sell untendered, and tendered but
unaccepted, Existing Notes could be adversely affected. See "Risk Factors--
Lack of Established Market for the Existing Notes."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay the expenses it incurs for the Exchange Offer. No
dealer manager is being utilized in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE, NOR WILL TTC ACCEPT SURRENDER FOR
EXCHANGE FROM HOLDERS OF EXISTING NOTES, IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES AND BLUE SKY LAWS OF SUCH JURISDICTION.
AVAILABLE INFORMATION
Holding and TTC have filed with the Commission a Registration Statement
(which term includes any amendments thereto, the "Registration Statement") on
Form S-4 under the Securities Act, with respect to the New Notes offered
hereby. As permitted by the rules and regulations of the Commission, this
Prospectus does not contain all of the information included in the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to herein or therein and filed as an exhibit to the
Registration Statement are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. For further information with respect to
Holding and TTC and the New Notes, reference is hereby made to the
Registration Statement and the exhibits and schedules thereto.
Holding is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Commission. TTC is not currently subject to the periodic reporting and other
informational requirements of the Exchange Act. Pursuant to the Indenture, TTC
has agreed to file with the Commission and provide to the holders of the Notes
annual reports and the information, documents and other reports that are
specified in Sections 13 and 15(d) of the Exchange Act, which agreement may be
satisfied by the reports, documents and other information filed by Holding if
TTC is not required to file such reports, documents and other information
separately. Reports, proxy statements and other information may be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and
at the regional offices of the Commission located at 7 World Trade Center,
13th Floor, New York, New York 10048 and Suite 1400, Northwestern Atrium
Center, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies
of such material can also be obtained at prescribed rates by writing to the
Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549 and such material is contained on the worldwide web site maintained by
the Commission at http://www.sec.gov. This Prospectus constitutes a part of a
Registration Statement on Form S-4 filed by Holding and TTC with the
Commission under the Securities Act. This Prospectus omits certain of the
information contained in the Registration Statement, and reference is hereby
made to the Registration Statement and to the exhibits relating thereto for
further information with respect to Holding and TTC and the New Notes offered
hereby. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and, in each instance, reference is
made to such copy filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference. The Registration Statement and the exhibits
thereto may be inspected without charge at the office of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies
thereof may be obtained from the Commission at prescribed rates.
ii
<PAGE>
FORWARD-LOOKING STATEMENTS
Statements in this Prospectus that are forward looking are based on current
expectations; actual results may differ materially. Forward looking statements
involve numerous risks and uncertainties that could cause actual results to
differ materially, including, but not limited to: the timely development and
market acceptance of new products; the impact of competitive products and
pricing; the effect of changing general and industry specific economic
conditions; the Company's ability to access external sources of capital; and
such risks and uncertainties detailed under "Risk Factors," "Management's
Discussion and Analysis," "Business," and elsewhere in this Prospectus and
from time to time in the Securities and Exchange Commission reports and
filings of Holding or TTC.
DYNATECH CORPORATION and design, FIREBERD 500, FIREBERD 6000, INTERCEPTOR
116, INTERCEPTOR 1402, T-BERD 950, T-BERD 310, T-BERD 2090SP, TPI 550,
CENTEST, SSI, DA VINCI SYSTEMS, AIRSHOW, XC 6250, INDUSTRIAL COMPUTER SOURCE
and INDUSTRIAL COMPUTER SOURCE-BOOK are trademarks of TTC. Other brand or
product names used herein are trademarks or registered trademarks of their
respective companies.
iii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information, risk factors and consolidated
financial statements and notes thereto appearing elsewhere in this Prospectus.
Unless the context otherwise requires, references to "Holding" or "Dynatech"
are references to Dynatech Corporation, references to "TTC" are references to
Telecommunications Techniques Co., LLC, and references to the "Company" are
references to Dynatech and its subsidiaries, including TTC. TTC became the
obligor on the Notes, and the borrower under the Senior Credit Facility, on the
date of the closing of the offering of the Existing Notes following the
effectiveness of the merger of TTC Merger Co. into TTC, in connection with
which TTC became a direct subsidiary of Dynatech and the direct or indirect
parent of the Company's other active subsidiaries. References herein to a
"fiscal" year refer to the Company's fiscal year ended March 31 in the calendar
year indicated (e.g., references to fiscal 1998 are references to the Company's
fiscal year ended March 31, 1998). See "--Selected Historical and Pro Forma
Consolidated Financial Data" and "Unaudited Pro Forma Condensed Consolidated
Financial Data."
The market share and competitive position data contained in this Prospectus
are approximations derived from Company estimates, which the Company believes
to be reasonable but which have not been independently verified and, to a
lesser extent, from industry sources. Industry publications generally state
that the information contained therein has been obtained from sources believed
to be reliable, but that the accuracy and completeness of such information is
not guaranteed. The Company has not independently verified market and
competitive position data provided by third parties or industry or general
publications. Although such market and competitive position data are inherently
imprecise, based on its understanding of the markets in which the Company
competes, management believes that such data are generally indicative of the
Company's relative market share and competitive position. See "Risk Factors--
Market Share and Competitive Position Data."
THE COMPANY
The Company develops, manufactures and sells market-leading test, analysis,
communications and computing equipment in three product categories:
. Communications Test. The Company believes that TTC, the Company's
largest subsidiary, is the second largest U.S. provider of
communications test instruments (by U.S. sales). TTC provides products
to communications service providers (such as the Regional Bell Operating
Companies ("RBOCs"), long-distance companies and competitive access
providers), service users (such as large corporate and government
network operators), and manufacturers of communications equipment and
systems. TTC's broad test and analysis product line ranges from portable
units (used by field service technicians to test telephone and data
communications lines and services) to centralized test and monitoring
systems installed in telephone company central offices. The Company's
communications test business accounted for 51% of its sales (or
approximately $240.4 million), and a higher percentage of its EBITDA (as
defined) for fiscal 1998.
. Industrial Computing and Communications. The Company addresses two
distinct segments of the North American ruggedized computer market. The
Company's Industrial Computer Source, Inc. subsidiary ("ICS") is the
only significant direct marketer of computer products and systems
designed to withstand excessive temperatures, dust, moisture and
vibration in harsh operating environments such as production facilities.
ICS markets to engineers, scientists and production managers through its
widely recognized Industrial Computer Source-Book catalogs. The
Company's Itronix Corporation subsidiary ("Itronix") sells ruggedized
portable communications and computing devices used by field-service
workers for telephone companies, utilities, insurance companies and
other organizations with large field-service workforces. The Company's
industrial computing and communications business accounted for 33% of
the Company's sales (or approximately $155.0 million), and a lower
percentage of its EBITDA, for fiscal 1998.
1
<PAGE>
. Visual Communications. The Company's visual communications business
consists principally of two market-leading niche-focused subsidiaries:
(i) AIRSHOW, Inc. ("AIRSHOW") is the world leader in passenger cabin
video information display systems and information services for the
general and commercial aviation markets; and (ii) da Vinci Systems, Inc.
("da Vinci") is the world leader in digital color enhancement systems
used in the process of transferring film images into electronic
signals--a process commonly used to transfer film images to video for
use in the production of television commercials and programming. The
Company's visual communications business accounted for 16% of the
Company's sales (or approximately $77.5 million), and a higher
percentage of its EBITDA, for fiscal 1998.
For fiscal 1998, the Company generated sales and EBITDA of $472.9 million and
$86.9 million, respectively.
COMPETITIVE STRENGTHS
The following characteristics contribute to the Company's competitive
position and outlook.
. Leading Market Positions. The Company's principal businesses occupy the
#1 or #2 overall position in their respective principal markets. TTC,
which is the Company's largest subsidiary and operates the Company's
communications test business in a highly fragmented market, has in
recent years held the #1 or #2 position in market segments accounting
for an estimated 70% of its test instrument sales. ICS is the only
significant direct marketer of ruggedized industrial computers, and
Itronix is the leading supplier of ruggedized portable notebook
computers to U.S. telecommunications companies. AIRSHOW and da Vinci
have the #1 shares in their respective niche markets. The Company's
market leadership is enhanced by its well-known brand names, including
FIREBERD and T-BERD test instruments, the Industrial Computer Source-
Book catalogs, and the AIRSHOW map system.
. High-Margin, Cash-Generative Business. The Company's gross profit and
EBITDA margins were, as a percent of sales, 56.5% and 18.4%,
respectively, for fiscal 1998. Management believes the Company's strong
profitability is attributable to its leading market positions, its
extensive sales and distribution networks, its entrenched customer
relationships and a management culture emphasizing product quality and
customer service and support, rather than price-based competition. The
Company's strong profitability, combined with relatively low capital
expenditure requirements (averaging 3% of sales since 1995), provides
cash flow to fund the Company's growth strategy and has facilitated a
cumulative investment of approximately $165 million in product
development from the beginning of fiscal 1995 through fiscal 1998.
. High Installed Base of Products. As leaders in each of their respective
served markets, the Company's principal businesses enjoy high installed
product bases, which the Company believes generally provide a
competitive advantage in selling product enhancements, upgrades,
replacements and aftermarket parts and service. For example, the Company
has sold over 100,000 of its communications test instruments
(representing over $1.0 billion in customer investment), the majority of
which the Company believes are currently in service. This installed base
also represents a substantial investment by customers in training on the
Company's communications test products, a familiarity that the Company
capitalizes on in selling and marketing its products and in the
development of new products.
. Extensive Sales and Distribution Network with Longstanding Customer
Relationships. Management believes that each of the Company's principal
businesses enjoys one of the most extensive, effective and highly
trained sales and distribution networks in its respective principal
markets. The communications test business, for example, has a 180-person
U.S. sales organization comprised predominantly of engineers and
technical professionals, who undergo rigorous, ongoing education and
training. The Company has been selling to service providers such as
AT&T, MCI, GTE and Bell
2
<PAGE>
Atlantic (or their predecessors) since prior to the early 1980s. The
Industrial Computer Source-Book (approximately six million copies
distributed in fiscal 1998) is the most widely recognized catalog of
ruggedized industrial computer systems by scientists and engineers.
These purchasers rely upon ICS's sales staff, comprised predominantly of
electrical engineers, to solve compatibility and functionality issues in
configuring the systems.
. Experienced Management Team with Substantial Equity Ownership. Led by
CEO John F. Reno, a 23-year Dynatech veteran, the senior management of
each of the Company's businesses has on average more than 15 years of
industry experience. As a result of the Recapitalization and related
transactions, approximately 350 senior managers and key employees
collectively own or have options to acquire approximately 25% of the
Dynatech's common stock on a fully diluted basis.
BUSINESS STRATEGY
The Company intends to pursue the following strategies:
. Leverage Leading Market Positions. The Company believes that its leading
market positions provide it with several competitive advantages in
comparison to smaller market participants, particularly in its
communications test business, and position it to expand its business by
(i) spreading product development costs over a larger sales and unit
base, (ii) leveraging its sales and marketing resources and customer
relationships to sell new and enhanced products through established
channels, and (iii) taking advantage of its high installed base of
instruments to generate incremental sales for product enhancements,
upgrades, replacements and service.
. Address New Market Segments. The Company intends to continue to develop
products to address new market segments in each of its businesses and
thereby expand the size of its total served market. For example, the
Company currently addresses approximately two-thirds of the $2.1 billion
communications test instrument market and is beginning to address
segments within the $1.0 billion communications test and monitoring
systems market. With product line extensions and additions, the Company
can expand the size of its served market while leveraging its extensive
sales and distribution network.
. Pursue Strategic Acquisitions. Since the end of fiscal 1993, the Company
has focused on its higher-growth, more profitable market-leading
businesses, selling 25 non-core businesses for gross proceeds of $211
million and acquiring five complementary businesses. The Company intends
to continue to pursue strategic acquisitions that complement its
existing businesses and further expand its product lines and
technological capabilities. The communications test instrument market is
highly fragmented, which management believes provides significant
opportunities for future strategic acquisitions. With the Company's
economies of scale, well-established sales and marketing channels and
customer relationships, the Company believes it can, through selective
acquisitions, improve profitability while expanding the breadth of its
product line and enhancing its technological expertise.
. Increase International Penetration. The Company generated approximately
87% of sales for fiscal 1998 in North America, primarily in the United
States, where it has established market-leading positions in each of its
principal businesses. The Company believes there are significant
opportunities to expand its international business. For example, while
the Company generated only 11% of its communications test sales from
markets outside North America during fiscal 1998, the $900 million
international market represents an estimated 43% of the global
communications test instrument market for the same period.
3
<PAGE>
THE RECAPITALIZATION
As of December 20, 1997, Dynatech entered into the Merger Agreement between
Dynatech and MergerCo, formed by Clayton, Dubilier & Rice Fund V Limited
Partnership ("CDR Fund V"), to effect the recapitalization of Dynatech (the
"Recapitalization"). The Recapitalization was accomplished through the merger
of MergerCo with and into Dynatech (the "Merger"), with Dynatech continuing as
the surviving corporation (the "Surviving Corporation"). Dynatech succeeded to
all the rights and obligations of MergerCo. The closing of the Recapitalization
occurred simultaneously with the Offering of the Existing Notes (collectively,
the "May 1998 Closing").
In the Merger, (i) each outstanding share of common stock, par value $0.20
per share, of Dynatech (the "Common Stock") was converted into the right to
receive $47.75 in cash and 0.5 shares of common stock, no par value, of the
Surviving Corporation (the "Recapitalized Common Stock"), subject to certain
exceptions, and (ii) each outstanding share of common stock, $0.01 par value
per share, of MergerCo was converted into one share of Recapitalized Common
Stock.
As a result of the Merger, CDR Fund V holds approximately 92.3% of the
Recapitalized Common Stock, Mr. Reno (together with his family trusts) holds
approximately 0.7%, and stockholders of Dynatech ("Stockholders") other than
Mr. Reno and his family trusts hold approximately 7%. As a result of the
Recapitalization and related transactions, approximately 350 senior managers
and key employees collectively own or have options to acquire approximately 25%
of the Recapitalized Common Stock on a fully diluted basis. See "The
Recapitalization."
Dynatech is treating the Merger as a recapitalization for financial reporting
purposes. Accordingly, the historical basis of Dynatech's assets and
liabilities have not been affected by the transaction.
As a result of the Recapitalization and related transactions, Dynatech used
approximately $873.0 million to (i) finance the purchase of the Common Stock
for $806.5 million, (ii) pay $25.2 million for option cancellation payments and
(iii) pay the fees and expenses incurred in connection with the Merger. In
addition, (a) $300.0 million of bank financing was drawn down under senior
credit facilities, including $260.0 million pursuant to a term loan facility
(the "Term Loan Facility") and $40.0 million under a revolving credit facility
(the "Revolving Credit Facility," and, together with the Term Loan Facility,
the "Senior Credit Facility"), and (b) $275.0 million in gross proceeds was
provided through the sale of the Existing Notes (collectively, the
"Financing"). Dynatech had $21.0 million of cash on-hand to use in connection
with the Merger and approximately $277.0 million of gross proceeds from the
sale of MergerCo common stock to CDR Fund V, which proceeds became an asset of
Dynatech upon effectiveness of the Merger.
The following table illustrates the sources and uses of funds to consummate
the May 1998 Closing of the Merger and related transactions (including the
Financing):
SOURCES
(DOLLARS IN MILLIONS)
<TABLE>
<S> <C>
Senior Credit Facility:
Revolving Credit Facility........ $ 40.0
Tranche A Term Loan.............. 50.0
Tranche B Term Loan.............. 70.0
Tranche C Term Loan.............. 70.0
Tranche D Term Loan.............. 70.0
Existing Notes..................... 275.0
CDR Fund V Equity.................. 277.0
Cash............................... 21.0
------
Total Sources.................. $873.0
======
</TABLE>
<TABLE>
USES
(DOLLARS IN MILLIONS)
<S> <C>
Purchase of Common Stock....................... $806.5
Option Cancellation Payments................... 25.2
Fees and Expenses.............................. 41.3
------
Total Uses................................. $873.0
======
</TABLE>
4
<PAGE>
Immediately after the issuance of the Existing Notes, TTC and TTC Merger Co.
merged, with TTC surviving, TTC succeeded to and assumed all of the obligations
under the Indenture and the Existing Notes, and Dynatech was released as a
primary obligor from its obligations under the Indenture and the Existing
Notes. TTC thereby became the primary obligor on the Existing Notes. Dynatech
provided a full and unconditional guarantee of the monetary obligations of TTC
Merger Co. and TTC under the Indenture and the Existing Notes on a senior
subordinated basis. In connection with the merger of TTC and TTC Merger Co.,
TTC assumed all of the obligations under the Senior Credit Facility and became
the borrower thereunder, and Dynatech transferred to TTC its ownership
interests in all of its other subsidiaries.
The following diagram illustrates the current corporate structure of Dynatech
and its subsidiaries.
Dynatech Issuer of senior guarantee of
Corporation the Senior Credit Facility
obligations and senior
subordinated guarantee of
the Notes.
Telecommunications Issuer of the Notes and
Techniques Co., borrower under the
LLC (/1/)(/3/) Senior Credit Facility.
Direct and indirect
U.S. and non-U.S.
subsidiaries.(/2/)(/3/)
- --------
(1)Surviving entity of merger with TTC Merger Co.
(2)Certain U.S. subsidiaries guarantee TTC's obligations under the Senior
Credit Facility.
(3)Operating companies.
5
<PAGE>
THE EXCHANGE OFFER
Registration Rights The Existing Notes were issued on May 21, 1998 to
Agreement.................. Credit Suisse First Boston Corporation and J.P.
Morgan Securities Inc. (the "Initial
Purchasers"). The Initial Purchasers resold the
Existing Notes in reliance on and subject to the
restrictions imposed pursuant to Rule 144A of the
Securities Act and other applicable exemptions
from the registration requirements of the Act. In
connection therewith, TTC, Dynatech and the
Initial Purchasers entered into the Registration
Rights Agreement, dated as of May 21, 1998 (the
"Registration Rights Agreement"), providing,
among other things, for the Exchange Offer. See
"Registration Rights" and "The Exchange Offer."
The Exchange Offer.......... The New Notes are being offered in exchange for
an equal principal amount of Existing Notes. As
of the date hereof, $275,000,000 aggregate
principal amount of Existing Notes is
outstanding.
Resale of New Notes......... Based on interpretations by the Staff of the
Commission as set forth in no-action letters
issued to third parties, the Company believes
that the New Notes issued pursuant to the
Exchange Offer may be offered for resale, resold
or otherwise transferred by any holder thereof
(other than any such holder that is a broker-
dealer or an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act)
without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that such holder represents to the
Company that (i) any New Notes received by such
holder will be acquired in the ordinary course of
business, (ii) such holder will have no
arrangements or understanding with any person to
participate in the distribution of the Securities
or the New Notes within the meaning of the
Securities Act, (iii) such holder is not an
"affiliate," as defined in Rule 405 of the
Securities Act, of the Company or if it is an
affiliate, such holder will comply with the
registration and prospectus delivery requirements
of the Securities Act to the extent applicable,
(iv) if such holder is not a broker-dealer, that
it is not engaged in, and does not intend to
engage in, the distribution of the New Notes, (v)
if such holder is a broker-dealer, that it will
receive New Notes for its own account in exchange
for Existing Notes that were acquired as a result
of market-making activities or other trading
activities and that it will deliver a prospectus
in connection with any resale of such New Notes,
and (vi) that it is not acting on behalf of any
person who could not truthfully make the
foregoing representations. If a holder of
Existing Notes is unable to make the foregoing
representations, such holder may not rely on the
applicable interpretations of the Staff of the
Commission as set forth in such no-action
letters, and must comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with any secondary
resale transaction. In addition, since the
Company has not sought, and does not intend to
seek, its own no-action letter, there can be no
6
<PAGE>
assurance that the staff of the Commission would
make a similar determination with respect to the
Exchange Offer.
Notwithstanding the foregoing, each broker-dealer
that receives New Notes for its own account
pursuant to the Exchange Offer in exchange for
Existing Notes, where such Existing Notes were
acquired by such broker-dealer as a result of
market-making activities or other trading
activities, must acknowledge that it will deliver
a prospectus meeting the requirements of the
Securities Act and that it has not entered into
any arrangement or understanding with the Company
or an affiliate of the Company to distribute the
New Notes in connection with any resale of such
New Notes. The Letter of Transmittal states that
by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. A broker-dealer
that acquired Existing Notes in a transaction
other than as part of its market-making
activities or other trading activities will not
be able to participate in the Exchange Offer.
This Prospectus, as it may be amended or
supplemented from time to time, may be used by a
broker-dealer in connection with resales of New
Notes where such Existing Notes were acquired by
such broker-dealer as a result of market-making
activities or other trading activities (other
than Existing Notes acquired directly from the
Company). Holding and TTC have agreed that,
starting on the Expiration Date, and ending on
the close of business 90 days after the
Expiration Date, TTC will make this Prospectus
available to any such participating broker-dealer
for use in connection with any such resale. See
"The Exchange Offer" and "Plan of Distribution."
Consequence of Failure to
Exchange Existing Notes.... Upon consummation of the Exchange Offer, subject
to certain limited exceptions, holders of
Existing Notes who do not exchange their Existing
Notes for New Notes in the Exchange Offer will no
longer be entitled to registration rights and
will not be able to offer or sell their Existing
Notes, unless such Existing Notes are
subsequently registered under the Securities Act
(which, subject to certain limited exceptions,
the Company will have no obligation to do),
except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act
and applicable state securities laws. See "The
Exchange Offer--Terms of the Exchange Offer" and
"--Consequences of Failure to Exchange,"
"Registration Rights" and "Risk Factors--
Consequences of Failure to Exchange and
Requirements for Transfer of New Notes."
Expiration Date.............
5:00 p.m., New York City time, on October , 1998
(at least 21 business days following the
commencement of the Exchange Offer), unless the
Exchange Offer is extended by the Company in its
sole discretion, in which case the term
"Expiration Date" means the latest date and time
to which the Exchange Offer is extended.
7
<PAGE>
Interest on the New Notes... The New Notes will accrue interest at a rate of 9
3/4% per annum from May 21, 1998, the issue date
of the Existing Notes, or from the most recent
date to which interest has been paid or duly
provided for on the Existing Notes (subject to
the right of holders of Existing Notes of record
on the relevant record date to receive interest
on the relevant interest payment date). Interest
on the New Notes is payable on May 15 and
November 15 of each year, commencing on November
15, 1998. See "Registration Rights" and
"Description of Notes--Terms of the Notes."
Condition to the Exchange The Exchange Offer is not conditioned upon any
Offer...................... minimum principal amount of Existing Notes being
tendered for exchange. However, the Exchange
Offer is subject to certain customary conditions,
which may be waived by the Company. See "The
Exchange Offer--Conditions." Except for the
requirements of applicable federal and state
securities laws, there are no federal or state
regulatory requirements to be complied with by
the Company in connection with the Exchange
Offer.
Procedures for Tendering
Existing Notes............. Each holder of Existing Notes wishing to accept
the Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or
such facsimile, together with any other required
documentation to the Exchange Agent (as defined
herein) at the address set forth herein and
effect a tender of Existing Notes pursuant to the
procedures for book-entry transfer as provided
for herein. See "The Exchange Offer--Procedures
for Tendering," "--Book Entry Transfer," and "--
Guaranteed Delivery Procedures." Certain other
procedures may apply with respect to certain
book-entry transfers. See "The Exchange Offer--
Exchanging Book-Entry Notes."
Guaranteed Delivery Holders of Existing Notes who wish to tender
Procedures................. their Existing Notes and who cannot deliver their
Existing Notes and a properly completed Letter of
Transmittal or any other documents required by
the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date may tender their
Existing Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Withdrawal Rights...........
Tenders of Existing Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on
the Expiration Date. To withdraw a tender of
Existing Notes, a written or facsimile
transmission notice of withdrawal must be
received by the Exchange Agent at its address set
forth herein under "The Exchange Offer--Exchange
Agent" prior to 5:00 p.m., New York City time, on
the Expiration Date.
8
<PAGE>
Acceptance of Existing
Notes and Delivery of New Subject to certain conditions, any and all
Notes...................... Existing Notes that are validly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date will be accepted for
exchange. The New Notes issued pursuant to the
Exchange Offer will be delivered as soon as
practicable following the Expiration Date. See
"The Exchange Offer--Terms of the Exchange
Offer."
Certain U.S. Tax
Consequences...............
The exchange of Existing Notes for New Notes
should not constitute a taxable exchange for U.S.
federal income tax purposes. See "Certain Federal
Income Tax Considerations."
Exchange Agent/Trustee...... State Street Bank and Trust Company, the trustee
under the indenture governing the Notes (the
"Trustee") is serving as exchange agent, (in such
capacity the "Exchange Agent"), in connection
with the Exchange Offer. See "The Exchange
Offer--Exchange Agent."
Fees and Expenses...........
Expenses incident to the Company's consummation
of the Exchange Offer and compliance with the
Registration Rights Agreement will be borne by
the Company. See "The Exchange Offer--Fees and
Expenses."
Use of Proceeds............. The Company will not receive any proceeds from
the Exchange Offer. The net proceeds from the
sale of the Existing Notes comprised a portion of
the Financing for the Recapitalization and
related transactions.
9
<PAGE>
SUMMARY OF TERMS OF THE NEW NOTES
The Exchange Offer relates to the exchange of up to $275,000,000 aggregate
principal amount of Existing Notes for an equal aggregate principal amount of
New Notes. The New Notes will be entitled to the benefits of the same Indenture
that governs the Existing Notes and that will govern the New Notes. The form
and terms of the New Notes are identical in all material respects to the form
and terms of the Existing Notes, except that (i) the New Notes will have been
registered under the Securities Act, and thus will not bear restrictive legends
restricting their transfer pursuant to the Securities Act and will not contain
certain provisions providing for an increase in the interest rate on the
Existing Notes under certain circumstances described in the Registration Rights
Agreement, which provisions will terminate upon the consummation of the
Exchange Offer and (ii) holders of New Notes will not be entitled to certain
registration rights that holders of Existing Notes have under the Registration
Rights Agreement, except under limited circumstances. See "Description of
Notes."
In this summary of the Terms of the New Notes, references to the "Company"
are to TTC.
Securities Offered.......... U.S. $275.0 million aggregate principal amount of
9 3/4% Senior Subordinated Notes Due 2008 of the
Company, which have been registered under the
Securities Act.
Maturity.................... May 15, 2008.
Interest Payment Dates...... May 15 and November 15 of each year, commencing
November 15, 1998.
Holding Company Guarantee... The Notes will be fully and unconditionally
guaranteed on a senior subordinated basis by
Dynatech on the terms provided in the Indenture.
Optional Redemption.........
The Notes will be redeemable at the option of the
Company (i) at any time and from time to time
prior to May 15, 2001, in an aggregate principal
amount equal to up to 35% of the original
principal amount of the Notes (including
Additional Notes) with funds equal to the
proceeds of one or more Equity Offerings by the
Company, at a redemption price set forth herein,
provided that an aggregate principal amount of
Notes equal to at least 65% of the original
aggregate principal amount of the Notes
(including Additional Notes) remain outstanding
immediately after each such redemption, (ii) in
whole but not in part prior to May 15, 2003 upon
a Change of Control, as described below, and
(iii) in whole or in part at any time on or after
May 15, 2003, at the redemption prices set forth
herein in each case plus accrued and unpaid
interest, if any, to the date of redemption
(subject to the right of holders of record on the
relevant record date to receive interest due on
the relevant payment date). See "Description of
Notes--Optional Redemption."
Change of Control........... In the event of a Change of Control, (i) the
Company will have the option, at any time on or
prior to May 15, 2003, to redeem the Notes, in
whole but not in part, at a redemption price
equal to 100% of the principal amount thereof
plus the Applicable Premium (as defined),
together with accrued and unpaid interest, if
any, to the date of redemption (subject to the
right of holders of record on the relevant record
date to receive interest due on the relevant
payment
10
<PAGE>
date), and (ii) if the Company does not redeem
the Notes, the holders of the Notes will have the
right, subject to certain exceptions, to require
the Company to repurchase such holder's Notes at
a purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest,
if any, to the date of redemption (subject to the
right of holders of record on the relevant record
date to receive interest due on the relevant
payment date). See "Description of Notes--Change
of Control."
Ranking.....................
The Notes will be unsecured Senior Subordinated
Indebtedness of the Company. The Notes will be
subordinated in right of payment to the payment
when due of all existing and future Senior
Indebtedness of the Company, including the
Company's obligations under the Senior Credit
Facility. The Notes will rank pari passu in right
of payment with all existing and future Senior
Subordinated Indebtedness of the Company, and
will be senior in right of payment to all
existing and future Subordinated Obligations of
the Company. The Notes will also be effectively
subordinated to any Secured Indebtedness of the
Company, to the extent of the value of the assets
securing such Indebtedness. The guarantee by
Dynatech of the Notes (the "Parent Guarantee")
will be an unsecured obligation of Dynatech, a
holding company the only significant asset of
which is 100% of the membership interest of TTC.
The Parent Guarantee will be subordinated to all
existing and future senior indebtedness of
Dynatech, including its obligations under its
guarantee in respect of the Senior Credit
Facility. At July 31, 1998, the aggregate amount
of Senior Indebtedness (including indebtedness
under the Senior Credit Facility) and
indebtedness of subsidiaries (other than
intercompany debt) that effectively ranked senior
to the Notes was approximately $281.0 million
(excluding a maximum $3.0 million guarantee), and
the Company had additional availability of $87.0
million for borrowings under the Senior Credit
Facility. See "Description of Notes--Ranking."
Restrictive Covenants....... The Indenture includes certain covenants that,
among other things, limit: (i) the incurrence of
additional indebtedness by the Company and its
Restricted Subsidiaries (as defined); (ii) the
layering of indebtedness; (iii) the payment of
dividends on capital stock of the Company and its
Restricted Subsidiaries and the redemption of
certain capital stock or subordinated obligations
of the Company; (iv) investments; (v) creation of
restrictions on distributions from Restricted
Subsidiaries; (vi) sale of assets and subsidiary
stock; (vii) certain transactions with
affiliates; (viii) incurrence of liens; and (ix)
mergers and consolidations. See "Description of
Notes--Certain Covenants" and "Description of
Notes--Merger and Consolidation."
Exchange Offer and
Registration Rights........ Holders of New Notes (other than as set forth
below) will not be entitled to any registration
rights with respect to the New Notes.
11
<PAGE>
Pursuant to the Registration Rights Agreement,
the Company agreed to use its reasonable best
efforts to file an Exchange Offer Registration
Statement (as defined). The Registration
Statement of which this Prospectus is a part
constitutes the Exchange Offer Registration
Statement. Under certain circumstances, certain
holders of Notes (including certain holders of
Existing Notes who may not participate in the
Exchange Offer or who may not freely resell New
Notes received in the Exchange Offer) may require
the Company to file, and cause to become
effective, a Shelf Registration Statement (as
defined) under the Securities Act, which would
cover resales of Notes by such holders. See
"Registration Rights."
Absence of a Public Market
for the Notes..............
If issued, the New Notes generally will be freely
transferable (subject to the restrictions
discussed elsewhere herein) but will be new
securities for which initially there will not be
a market. Although the Initial Purchasers have
informed the Company that they currently intend
to make a market in the Existing Notes, and if
issued, the New Notes, the Initial Purchasers are
not obligated to do so and any such market making
may be discontinued at any time without notice.
In addition, such market making activity may be
limited during the pendency of the Exchange Offer
or the effectiveness of a Shelf Registration
Statement in lieu thereof. Accordingly, there can
be no assurance as to the development or
liquidity of any market for the New Notes. The
Existing Notes are eligible for trading by
qualified institutional buyers in the PORTAL
market. The Company does not intend to apply for
listing of the New Notes on any securities
exchange or for quotation of the Notes through
the National Association of Securities Dealers
Automated Quotation System. See "Risk Factors--
Absence of Public Market" and "Plan of
Distribution."
RISK FACTORS
Holders of the Existing Notes and prospective purchasers of the New Notes
should carefully consider all of the information set forth in this Prospectus
and, in particular, should evaluate the specific factors set forth under "Risk
Factors" beginning on page 15 for risks involved with an exchange for or an
investment in the New Notes.
* * * * *
TTC's principal executive offices are located at 20400 Observation Drive,
Germantown, Maryland 20876, and its telephone number is (301) 353-1550.
Dynatech's principal executive offices are located at 3 New England Executive
Park, Burlington, Massachusetts 01803, and its telephone number is (781) 272-
6100.
12
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The summary historical consolidated financial data for the three years ended
March 31, 1998 have been derived from, and should be read in conjunction with,
the audited historical Consolidated Financial Statements, and related notes
thereto, of Dynatech. The summary historical and pro forma consolidated
financial data for the three months ended June 30, 1997 and for the three
months and twelve months ended June 30, 1998 have been derived from the
unaudited consolidated financial statements of Dynatech and include, in the
opinion of Dynatech's management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the data for such periods.
The financial data for the three months and twelve months ended June 30, 1998
are not necessarily indicative of the results to be expected for the year ended
March 31, 1999. The following table should be read in conjunction with
"Management's Discussion and Analysis."
<TABLE>
<CAPTION>
TWELVE MONTHS
THREE MONTHS ENDED
YEARS ENDED MARCH 31, ENDED JUNE 30, JUNE 30,
-------------------------- ----------------- -------------
1996(A) 1997(B) 1998 1997 1998 1998
-------- -------- -------- -------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales................... $293,042 $362,412 $472,948 $104,320 $109,143 $477,771
Cost of sales........... 111,436 137,254 205,522 42,637 46,154 209,039
-------- -------- -------- -------- -------- --------
Gross profit............ 181,606 225,158 267,426 61,683 62,989 268,732
Selling, general and
administrative
expenses............... 98,487 114,479 138,310 31,759 35,189 141,740
Product development ex-
penses................. 36,456 43,267 54,995 13,695 13,501 54,801
Non-recurring
charges(c)............. 16,852 27,776 -- -- 43,386 43,386
Amortization of intangi-
bles................... 5,136 6,793 5,835 1,443 1,440 5,832
-------- -------- -------- -------- -------- --------
Operating income
(loss)................. $ 24,675 $ 32,843 $ 68,286 $ 14,786 $(30,527) $ 22,973
======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(d)............... $ 55,917 $ 77,326 $ 86,917 $ 19,239 $ 17,503 $ 84,724
Depreciation and amorti-
zation................. 13,415 16,073 17,901 4,283 4,613 18,231
Capital expenditures.... 8,198 10,176 15,879 4,022 2,416 14,273
Ratio of earnings to
fixed charges(e)....... 8.2x 13.2x 19.1x 15.7x (h) 4.7x
PRO FORMA DATA:
Cash interest
expense(f)............. -- -- -- -- -- $ 51,488
Ratio of EBITDA to cash
interest expense....... -- -- -- -- -- 1.6x
BALANCE SHEET DATA:
Total assets............ $205,189 $249,010 $288,130 $251,590 $315,082 $315,082
Total debt.............. 2,455 5,427 233 25,376 574,756 574,756
Total stockholders' eq-
uity................... 160,719 160,686 202,119 165,124 (337,246) (337,246)
Net debt(g)............. -- -- -- -- -- $522,831
</TABLE>
13
<PAGE>
NOTES TO SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(a) On September 1, 1995, the Company acquired substantially all of the
business and assets of Tele-Path Instruments, Inc. for $23.6 million, of
which approximately $12.6 million was in cash and the remaining $11.0
million was from the issuance of 688,096 shares of Dynatech's common stock.
(b) On December 31, 1996, the Company acquired the assets and assumed certain
liabilities of Itronix, located in Spokane, Washington, for $65.4 million
in cash.
(c) The June 30, 1998 non-recurring charge reflects the charges for the
cancellation and conversion of certain stock options as a result of the
Merger. The 1997 non-recurring charges included a $20.6 million non-cash
charge for incomplete technology which had not reached technological
feasibility and had no alternative use, purchased as part of the
acquisition of Itronix. In addition, the Company recorded a non-cash charge
of $7.2 million related to the impairment of intangible assets, principally
related to the effects of product and distribution transitions. In 1996 the
Company purchased incomplete technology activities as a part of the
acquisition of Tele-Path Instruments, Inc. resulting in a non-cash charge
of $16.9 million.
(d) EBITDA represents operating income and other income (expense), before
depreciation and amortization and excludes non-recurring charges and the
one-time gain of $15.9 million on the sale of ComCoTec, Inc. ("ComCoTec").
While EBITDA is not intended to represent cash flow from operations as
defined by generally accepted accounting principles or as a measure of
liquidity, it is included herein to provide additional information with
respect to the ability of the Company to meet future debt service, capital
expenditures and working capital requirements. See "Management's Discussion
and Analysis."
(e) For the purposes of calculating the ratio of earnings to fixed charges,
earnings represent income from continuing operations before income taxes
and fixed charges. Fixed charges consist of the total of (i) interest,
whether expensed or capitalized, (ii) amortization of debt expense and
discount or premium relating to any indebtedness, whether expensed or
capitalized and (iii) that portion of rental expense considered to
represent interest cost.
(f) Pro forma cash interest expense is comprised of interest expense excluding
non-cash amortization of debt issuance costs and assumes a blended rate on
the Senior Credit Facility of 8.2% and a rate of 9.75% on the Notes. See
"Unaudited Pro Forma Condensed Consolidated Financial Data."
(g) Net debt equals total debt of $574.8 million less cash and cash equivalents
of $51.9 million.
(h) The ratio of earnings to fixed charges for this period is negative due to
earnings for the period being inadequate to cover fixed charges. The
coverage deficiency is $19.9 million and is a result of the non-recurring
charges for the cancellation and conversion of certain stock options as a
result of the Merger.
14
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, holders of Existing
Notes and prospective purchasers of the New Notes should consider carefully
the following factors in evaluating an exchange for or an investment in the
New Notes offered hereby.
SUBSTANTIAL LEVERAGE; LIQUIDITY
The Company incurred substantial indebtedness in connection with the Merger
and thereby became highly leveraged, with indebtedness that is very
substantial in relation to its shareholders' equity. The Company did not have
substantial indebtedness prior to the Merger (approximately $233,000 at March
31, 1998 (excluding a maximum $3.0 million guarantee)). At July 31, 1998 the
Company had a total of $556.5 million of consolidated indebtedness (excluding
a maximum $3.0 million guarantee). The Senior Credit Facility and the
Indenture permit the Company to incur or guarantee certain additional
indebtedness, subject to certain limitations. The Company will be required to
repay the $260 million in term loans under the Senior Credit Facility over the
nine year period following the May 1998 Closing. In addition, the Company will
be required to prepay Senior Credit Facility borrowings using the proceeds
from certain asset sales, certain casualty insurance, condemnation or similar
recoveries by the Company and certain indebtedness by the Company other than
indebtedness permitted under the Senior Credit Facility, as well as 50% of its
excess cash flow (as defined in the Senior Credit Facility) unless a leverage
ratio test is met. All outstanding revolving credit borrowings under the
Senior Credit Agreement will become due on the sixth anniversary of the May
1998 Closing. Because of its working capital needs, the Company expects that
it will be required at that time to enter into new revolving credit facility
arrangements. No assurance can be given that any extension, renewal,
replacement or refinancing of the Company's Revolving Credit Facility can be
successfully accomplished or accomplished on acceptable terms. See "Selected
Historical and Pro Forma Consolidated Financial Data," "Management's
Discussion and Analysis--Capital Resources and Liquidity," "Description of
Senior Credit Facility" and "Description of Notes."
The Company's high leverage may have important consequences to the holders
of the Notes, including but not limited to the following: (a) the Company's
ability to obtain additional financing for future acquisitions (if any),
working capital, capital expenditures or other purposes may be impaired or any
such financing may not be on terms favorable to the Company; (b) a substantial
amount of the Company's operating cash flow will be dedicated to the payment
of principal and interest on its indebtedness, thereby reducing funds that
would otherwise be available for the Company's operations and other purposes,
including investments in new products, research and development, capital
spending and acquisitions; (c) a substantial decrease in net operating cash
flows or increase in expenses could make it difficult for the Company to meet
its debt service requirements or force it to modify its operations or sell
assets; and (d) the Company's highly leveraged capital structure may place it
at a competitive disadvantage, hinder its ability to adjust rapidly to market
conditions or make it vulnerable to a downturn in its business or the economy
generally or changing market conditions and regulations.
The Company's ability to repay or to refinance its obligations with respect
to its indebtedness will depend on its future financial and operating
performance, which, in turn, will be subject to prevailing economic and
competitive conditions and to certain financial, business, legislative,
regulatory, industry, economic and other factors, many of which are beyond the
Company's control. These factors could include general economic conditions,
operating difficulties, increased operating costs, product pricing pressures,
potential revenue instability arising from cost savings initiatives or
otherwise, labor relations, the response of competitors or customers to the
Company's business strategy or projects, delays in implementation of the
Company's business strategy, telecommunication provider consolidation or
strategy changes, and the relative success of new product introductions. The
Company's ability to meet its debt service and other obligations may depend in
significant part on the extent to which the Company can implement successfully
its business and growth strategy. There can be no assurance that the Company
will be able to implement its strategy fully or that the anticipated results
of its strategy will be realized. See "--Risks Relating to Business and Growth
Strategy, Including Acquisitions" and "Business--Business Strategy."
15
<PAGE>
If the Company's cash flow and capital resources are insufficient to fund
its debt service obligations, the Company may be forced to reduce or delay
capital or other expenditures, sell assets, seek to obtain additional equity
capital or refinance or restructure its debt. There can be no assurance that
the Company's cash flow and capital resources will be sufficient for payment
of principal of, premium, if any, and interest on, its indebtedness, including
the Notes, in the future, or that any such alternative measures would be
successful or would permit the Company to meet its scheduled debt service
obligations. In addition, because the Company's obligations under the Senior
Credit Facility will bear interest at floating rates, an increase in interest
rates could materially adversely affect, among other things, the Company's
ability to meet its debt service obligations.
SUBORDINATION OF NOTES
The Notes are unsecured, senior subordinated obligations of TTC. The Notes
are subordinated in right of payment to all existing and future Senior
Indebtedness of TTC (which includes all indebtedness under the Senior Credit
Facility). The Notes rank pari passu with all senior subordinated indebtedness
of TTC, if any, and rank senior to all subordinated indebtedness of TTC, if
any. The Notes are also effectively subordinated to all secured indebtedness
of TTC to the extent of the value of the assets securing such indebtedness,
and to all existing and future obligations and liabilities of TTC's
subsidiaries. The obligations under the Senior Credit Facility are secured by
a pledge of the equity interest in TTC, by substantially all of the assets of
TTC and of each active direct or indirect U.S. subsidiary of TTC, and by a
pledge of the capital stock of each such subsidiary and 65% of the capital
stock of each subsidiary of TTC that acts as a holding company for TTC's
foreign subsidiaries. At July 31, 1998, the aggregate amount of Senior
Indebtedness (including indebtedness under the Senior Credit Facility) and
indebtedness of subsidiaries (other than intercompany debt) that would have
effectively ranked senior to the Notes would have been approximately $281.0
million (excluding a maximum $3.0 million guarantee).
In the event of bankruptcy, liquidation, dissolution, reorganization or any
similar proceeding regarding TTC, or any default in payment or acceleration of
any debt thereof, the assets of TTC will be available to pay obligations on
the Notes only after the Senior Indebtedness of TTC has been paid in full, and
there may not be sufficient assets remaining to pay amounts due on all or any
of the Notes. See "Description of Notes--Ranking."
STRUCTURAL SUBORDINATION
TTC generated approximately half of the Company's revenues for fiscal 1998.
However, the Company conducts a substantial part of its operations through
various direct and indirect subsidiaries of TTC. TTC therefore may be
dependent in part on dividends or other distributions of funds from its
subsidiaries to meet its debt service and other obligations, including
obligations under the Senior Credit Facility and the Notes. TTC's subsidiaries
are separate and distinct legal entities and will have no obligation,
contingent or otherwise, to pay any amounts due pursuant to the Notes or to
make any funds available therefor, whether in the form of loans, dividends or
otherwise.
The rights of TTC and its creditors, including holders of the Notes, to
participate in the distribution of the assets of any subsidiary upon such
subsidiary's liquidation or reorganization will be subject to the prior claims
of such subsidiary's creditors, including trade creditors, except to the
extent that TTC itself may be a creditor with enforceable claims against such
subsidiary.
SUBORDINATION OF DYNATECH GUARANTEE; NO INDEPENDENT OPERATIONS OF DYNATECH
Payments in respect of Dynatech's Guarantee of the Notes (the "Parent
Guarantee") are subordinated to the prior payment in full of all existing and
future senior indebtedness of Dynatech, including all of its obligations under
its guarantee in respect of the Senior Credit Facility. At July 31, 1998, the
aggregate amount of such senior indebtedness was $281.0 million (excluding a
maximum $3.0 million guarantee). In the event of a bankruptcy, liquidation,
dissolution, reorganization or similar proceedings with respect to Dynatech,
its assets
16
<PAGE>
will be available to pay obligations under the Notes only after such senior
indebtedness has been paid in full, and there can be no assurance that there
will be sufficient assets to pay amounts due in respect of the Parent
Guarantee.
Dynatech is a holding company with no independent operations and no
significant assets other than its membership interest in TTC. Dynatech,
therefore, is dependent upon the receipt of dividends or other distributions
from TTC to fund any obligations that it incurs, including obligations under
the Parent Guarantee. The Indenture does not, however, permit distributions
from TTC to Dynatech, other than under certain circumstances or for certain
specified purposes. See "Description of Notes--Certain Covenants--Limitation
on Restricted Payments." The Senior Credit Facility contains similar or more
restrictive provisions. Accordingly, if TTC should at any time be unable to
pay interest or premium, if any, on or principal of the Notes, it is unlikely
that TTC will be able to distribute the funds necessary to enable Dynatech to
meet its obligations under the Parent Guarantee.
RESTRICTIVE FINANCING COVENANTS
The Senior Credit Facility agreements contain a number of covenants that
significantly restrict the operations of the Company, limiting the discretion
of the Company's management with respect to certain business matters. These
covenants, among other things, restrict the ability of the Company to incur
additional indebtedness or guarantee obligations, pay dividends and other
distributions, prepay or modify the terms of other indebtedness, create liens,
make capital expenditures, make certain investments or acquisitions, enter
into mergers or consolidations, make sales of assets, engage in certain
transactions with affiliates and otherwise restrict corporate activities.
Certain term loans under the Senior Credit Facility are subject to negative
covenants similar to those contained in the Indenture. In addition, under the
Senior Credit Facility, the Company is required to satisfy a minimum interest
expense coverage ratio and a maximum leverage ratio. These financial tests
become more restrictive in future years.
The Company's ability to comply with the covenants and restrictions
contained in the Senior Credit Facility agreements may be affected by events
beyond its control, including prevailing economic, financial and industry
conditions, and there can be no assurance that the Company will be able to
comply with such covenants or restrictions in the future. A breach of the
covenants and restrictions contained in the Senior Credit Facility agreements
or in any agreements with respect to any additional financing would result in
an event of default under such agreements, which would permit acceleration of
the related debt and acceleration of debt under other debt agreements that may
contain cross-acceleration or cross-default provisions, as well as termination
of the commitments of the lenders to make further extensions of credit under
the Senior Credit Facility. In addition, if the Company were unable to repay
its indebtedness to the lenders under the Senior Credit Facility, such lenders
could proceed against the collateral securing such indebtedness, including
substantially all of the Company's assets, and the Company could be prohibited
from making any payments on the Notes. See "Description of Senior Credit
Facility." In addition, the Indenture contains a number of restrictive
covenants relating to the Company. See "Description of Notes."
DEPENDENCE ON COMMUNICATIONS INDUSTRY
The Company's principal customers are RBOCs, competitive access providers,
wireless service providers, competitive local exchange carriers, other
communications service providers, mobile work forces and industrial engineers
and other users of the Company's communications devices and ruggedized
computers. The industries of the Company's principal customers are
characterized by intense competition and consolidation. Fewer customers as a
result of such consolidation could lead to pressure on the Company to lower
prices. Competitive pressures among the Company's customers or other
communications industry developments could lead to discontinuance or
modifications of products manufactured by the Company and could have a
material adverse effect on the Company's business, financial condition and
results of operations. Growth rates of enterprises engaged in the manufacture
and provision of telecommunications equipment and services will likely be
affected
17
<PAGE>
by the current trend of consolidation among such enterprises. Regulation in
the communications industry could materially adversely affect the Company's
customers or otherwise materially limit or restrict the Company's business.
Further, these industries are evolving rapidly and it is difficult to predict
their potential size or future growth rate or the effect of consolidation on
order rates by customers. In the shorter term, the Company believes that such
consolidation is being reflected in delays in orders for the Company's
products. There can be no assurance that the deregulation trend in the
telecommunications market that has resulted in increased competition and
escalating demand for technologies and services will continue in a manner
favorable to the Company or its business strategies. See "Management's
Discussion and Analysis--Overview--Current and Historical Trends."
HIGHLY COMPETITIVE MARKETS
The markets for the Company's products and services are highly competitive.
The Company competes directly or indirectly with Hewlett-Packard Company and
Panasonic Industrial Co., among others. See "Business--Industry Overview." Due
to the rapidly evolving markets in which the Company competes, additional
competitors with significant market presence and financial resources,
including large telecommunications equipment manufacturers and computer
hardware and software companies, may enter those markets, thereby further
intensifying competition. Increased competition could result in price
reductions and loss of market share which would materially adversely affect
the Company's business, financial condition and results of operations. Certain
of the Company's current and potential competitors have greater name
recognition and greater financial, selling and marketing, technical,
manufacturing and other resources than the Company. Although the Company
believes it has certain technological and other advantages over its
competitors, realizing and maintaining such advantages will require a
continued high level of investment by the Company in research and product
development, marketing and customer service and support. The highly leveraged
nature of the Company could limit the Company's ability to continue to make
such investments or other necessary or desirable capital expenditures, to
compete effectively and respond to market conditions. There can be no
assurance that the Company will be able to compete effectively with its
existing competitors or with new competitors, or that such competitors will
not succeed in adapting more rapidly and effectively to changes in technology
or in the market or in developing or marketing products that will be more
widely accepted.
RAPID TECHNOLOGICAL CHANGE; CHALLENGES OF NEW PRODUCT INTRODUCTIONS
The market for the Company's products and services is characterized by
rapidly changing technology, new and evolving industry standards and protocols
and new product and service introductions and enhancements that may render
existing offerings obsolete or unmarketable. Automation in the Company's
addressed markets for communications test instruments or a shift in customer
emphasis from communications test instruments to test and monitoring systems
could likewise render the Company's existing offerings obsolete or
unmarketable or reduce the size of the Company's addressed market. In
particular, incorporation of self-testing functions in the equipment currently
addressed by the Company's communications test instruments could render the
Company's offerings redundant and unmarketable. Failure to anticipate or
respond rapidly to advances in technology and to adapt the Company's products
appropriately could have a material adverse effect on the success of the
Company's products and thus on the Company's business, financial condition and
results of operations.
The development of new, technologically advanced products is a complex and
uncertain process requiring the accurate anticipation of technological and
market trends and the expenditure of substantial development costs. From the
beginning of fiscal 1995 through fiscal 1998, the Company has expended on
average 12.1% of its sales (or approximately $165.3 million) on product
development and, although the Company expects to continue product development
spending at similar levels, there can be no assurance that the Company will
have sufficient free cash flow to do so. There can be no assurance that errors
will not be found in new products or upgrades after commencement of commercial
shipments, resulting in delays in or loss of market acceptance and sales,
diversion of development resources, injury to the Company's reputation,
increased service and warranty costs or payment of compensatory or other
damages, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
18
<PAGE>
PRODUCT CERTIFICATION AND EVOLVING INDUSTRY STANDARDS
Several of the Company's products must meet significant communications
regulations, certifications, standards and protocols, some of which are
evolving as new technologies are deployed. These regulations, certifications,
standards and protocols include those promulgated by the Federal
Communications Commission, established by Underwriters Laboratories and
imposed by various foreign countries. Compliance with such regulations,
certifications, standards and protocols may prove costly and time-consuming
for the Company, presenting barriers to entry in particular markets or
reducing the profitability of the Company's product offerings. Such
regulations, certifications, standards and protocols may also adversely affect
the communications industry, limit the number of potential customers for the
Company's products and services or otherwise have a material adverse effect on
the Company's business. The failure of the Company's products to comply, or
delays in compliance, with the various existing and evolving industry
regulations, standards and protocols could delay the introduction of the
Company's products or cause the Company's existing products to become
obsolete.
DEPENDENCE ON SOLE SOURCE SUPPLIERS AND LICENSORS
The Company purchases certain key components and licenses technology from
sole source vendors, including a semiconductor manufacturer of a component
utilized in the Company's communications test business and a component
manufacturer for the Itronix series of ruggedized laptop computers. There can
be no assurance that such components will continue to be produced or that such
licensed technology will continue to be made available or that the price for
such components and licensed technology may not significantly increase. The
inability to develop alternative sources for these components and licensed
technology or to obtain sufficient quantities of these components could result
in increased costs and delays or reductions in product shipments which could
materially adversely affect the Company's business, financial condition and
results of operations. In the event of a reduction or interruption of supply,
a significant amount of time could be required before the Company would begin
receiving adequate supplies from such alternative suppliers. In such event,
the Company's business, financial condition and results of operations would be
materially adversely affected. In addition, the manufacture of certain of
these sole source components is technologically complex, and the Company's
reliance on the suppliers of these components exposes the Company to potential
production difficulties and quality variations, which could negatively impact
cost and timely delivery of the Company's products. If supply of certain
components, including but not limited to application-specific integrated
circuits, power supplies, display devices and operating system software,
should cease, the Company may be required to redesign certain of its products.
No assurance can be given that supply problems will not occur or, if such
problems do occur, that satisfactory solutions would be available.
RISKS RELATING TO BUSINESS AND GROWTH STRATEGY, INCLUDING ACQUISITIONS
The Company's future performance depends in part on the Company's success in
implementing its business and growth strategy. The components of the Company's
strategy are subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the control of the
Company. There can be no assurance that the Company will be able to fully
implement its strategy or that the anticipated results of its strategy will be
realized.
The Company's strategy contemplates, among other things, growth through
acquisitions of complementary businesses and entry into new markets.
Management cannot predict the availability of appropriate acquisition
candidates or the likelihood of an acquisition being completed should any
negotiations commence. The Company could have difficulty obtaining financing
to pursue acquisitions due to its substantial debt and to the restrictive
covenants in its debt instruments, among other things. If the Company does
complete any acquisitions, the Company could have difficulties integrating
acquired technology and operations, or retaining and integrating key employees
of acquired companies. Integrating any acquired business could also divert
management attention from ongoing business concerns. In addition, the
Company's future growth, whether by acquisition or otherwise, depends in part
upon its ability to enter markets in which the Company may have limited
experience, including international markets. In conducting business in foreign
jurisdictions, the Company may encounter difficulties
19
<PAGE>
with, among other things, tariffs and other trade or regulatory barriers,
currency controls, hyperinflation, intellectual property protection, potential
adverse tax consequences, longer payment cycles, greater difficulty or delay
in accounts receivable collection, cultural differences and increased
political and economic instability.
The Company's planned growth, if achieved, may place significant demands on
its management, administrative and operational resources. The Company's
ability to manage growth effectively will require the Company to continue to
develop and improve its operational, financial and other internal systems, as
well as its sales capabilities, and attract, manage and retain its employees.
There can be no assurance that the Company will effectively manage any
strategic growth it may achieve.
RISKS RELATING TO ITRONIX
Itronix operated at a modest loss for fiscal 1998 and is currently facing
significant manufacturing and marketing challenges, including competition from
"semi-rugged" products that constrains pricing of premium, ruggedized products
like those manufactured by Itronix. In addition, Itronix's results of
operations have varied significantly in the past and may vary significantly in
the future, on a quarterly and annual basis, as a result of a variety of
factors, many of which are outside the Company's control. These factors
include, without limitation: (i) the timing and size of orders which are
received and can be shipped in any particular period; (ii) the seasonality of
the placement of customer orders; (iii) customer order deferrals in
anticipation of product enhancements or new product offerings by Itronix or
its competitors; (iv) customer cancellation of orders and the gain or loss of
significant customers, including those due to industry combinations; and (v)
the relative unpredictability of timing of customer orders due to the relative
concentration of organizations with large field-service work forces. Moreover,
any downturn in general economic conditions could precipitate significant
reductions in corporate spending for telecommunications equipment, which could
result in delays or cancellations of orders for Itronix's products. Itronix's
expense levels are relatively fixed and are based, in significant part, on
expectations of future revenues. Currently, costs are much higher as a
percentage of revenues for Itronix than for the Company overall. As a result
of its unpredictable revenues, costs at times can be disproportionately high
as a percentage of Itronix's business. If, as a result of these factors,
Itronix's costs continue to exceed its revenues, Itronix's stand-alone
financial condition and results of operations would be materially adversely
affected.
RELIANCE ON KEY PERSONNEL
The Company's success depends in large part upon its senior management, as
well as its ability to attract and retain its highly-skilled technical,
managerial, sales and marketing personnel, particularly engineers skilled and
experienced with communications equipment. Competition for such personnel is
intense and there can be no assurance that the Company will be successful in
retaining its existing key personnel and in attracting and retaining the
personnel it requires. Failure to attract and retain key personnel will have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, continued labor market shortages of
technical personnel may require wage increases well in excess of the growth in
the Company's sales and margins, thereby reducing the overall profitability of
the Company.
CONTROL BY CDR FUND V
As a result of the Recapitalization, CDR Fund V controls approximately 92.3%
of the outstanding shares of Recapitalized Common Stock of Dynatech. As a
result of its stock ownership, CDR Fund V controls Dynatech and its
subsidiaries and has the power to elect the directors of Dynatech, appoint new
management, and approve any action requiring approval by the stockholders of
Dynatech, including adopting certain amendments to the articles of
organization of Dynatech and approving any merger or sale of all or
substantially all the assets of Dynatech. The directors so elected have the
authority to effect decisions affecting the capital structure of Dynatech and
its subsidiaries, including the incurrence of additional indebtedness,
issuance of preferred stock and the declaration of dividends. There can be no
assurances that the policies of Dynatech in effect prior to the
Recapitalization with respect to such matters or other matters will continue.
There can be no assurance that the
20
<PAGE>
interests of CDR Fund V will not conflict with the interests of holders of the
Notes. CDR Fund V has agreed, pursuant to certain employment agreements with
Messrs. Reno, Kline and Peeler, to elect them to serve as directors of
Dynatech so long as they are employed by Dynatech.
CHANGE OF CONTROL
The Indenture provides that, under certain conditions upon the occurrence of
a Change of Control, the Company will be required to make an offer to purchase
all or any part of the Notes at a price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase. The Senior Credit Facility agreements generally prohibit the
Company from so repurchasing any Notes and will also provide that certain
change of control events with respect to the Company would constitute a
default thereunder. Any other agreement relating to Senior Indebtedness to
which the Company becomes a party may contain similar provisions. If the
Company does not repay or refinance borrowings having such provisions or
otherwise obtain consent to purchase the Notes under such agreements, any
resulting failure to offer to purchase or to purchase Notes would constitute
an Event of Default (as defined) under the Indenture. If, as a result thereof,
a default occurs with respect to any Senior Indebtedness, the subordination
provisions in the Indenture would likely restrict payments to the holders of
the Notes. Moreover, the exercise by the holders of the Notes of their right
to require the Company to repurchase the Notes could cause a default under
such agreements, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Company. Finally, the Company's
ability to pay cash to the holders upon a repurchase may be limited by the
Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases. See "Description of Notes--Change of Control" and "--Ranking" and
"Description of Senior Credit Facility."
FRAUDULENT TRANSFER CONSIDERATIONS
The incurrence of indebtedness by the Company, such as the Notes, may be
subject to review under federal or state fraudulent transfer laws in the event
the Company is the subject of a bankruptcy filing or lawsuit commenced by or
on behalf of unpaid creditors of the Company. Under such laws, if a court in a
lawsuit by a creditor or a representative of creditors of the Company, such as
a trustee in bankruptcy, were to find that, at the time the Company incurred
indebtedness, including indebtedness under the Notes, the Company (i) was
insolvent or rendered insolvent thereby, (ii) was engaged in a business or
transaction for which its remaining assets constituted an unreasonably small
amount of capital, (iii) intended to incur, or believed that it would incur,
debts beyond its ability to pay as they matured, or (iv) intended to hinder,
delay or defraud current or future creditors and, in the case of clauses (i),
(ii) and (iii), that the Company did not receive reasonably equivalent value
or fair consideration for incurring such indebtedness, such court could avoid
or subordinate the amounts owing under the Notes to presently existing and
future indebtedness of the Company and take other actions detrimental to the
holders of the Notes.
If a court were to find that the Company came within any of clauses (i)
through (iv) above, the Company, or its creditors or the trustee in
bankruptcy, could seek to avoid the grant of security interests to the lenders
under the Senior Credit Facility. This would result in an event of default
with respect to indebtedness incurred under the Senior Credit Facility which,
under its terms (subject to applicable law), would allow the lenders to
terminate their obligations thereunder and to accelerate repayment of such
indebtedness.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the jurisdiction which is being applied. Generally, however, a
company would be considered insolvent for purposes of the foregoing if, at the
time it incurred the indebtedness, (i) the sum of such company's debts
including contingent liabilities is greater than all such company's property
at a fair valuation, (ii) the present fair saleable value of such company's
assets is less than the amount that will be required to pay its probable
liability on its existing debts and liabilities (including contingent
liabilities) as they become absolute and matured or (iii) the company incurred
obligations beyond its ability to pay as such obligations become due. There
can be no assurance as to what standards a court would use to determine
whether the Company was solvent at the relevant
21
<PAGE>
time, or whether, whatever standard were to be used, the Notes would not be
avoided or further subordinated on another of the grounds set forth above. In
rendering their opinions in connection with the initial borrowings in
connection with the Merger, counsel for the Company and counsel for the
lenders did not express any opinion as to the applicability of federal or
state fraudulent transfer and conveyance laws. Moreover, any solvency analysis
conducted in connection with the Merger would not be binding on a court and
there can be no assurance that a court would not determine that the Company
was insolvent at the time of or after giving effect to the Merger.
The Company believes that at the time the indebtedness constituting the
Notes was incurred initially by the Company, the Company (i) was (a) neither
insolvent nor rendered insolvent thereby, (b) in possession of sufficient
capital to run its businesses effectively and (c) incurring debts within its
ability to pay as the same mature or become due and (ii) had sufficient assets
to satisfy any probable money judgment against it in any pending action. In
reaching the foregoing conclusions, the Company relied upon its analyses of
internal cash flow projections and estimated values of assets and liabilities
of the Company. There can be no assurance, however, that a court passing on
such questions would reach the same conclusions.
YEAR 2000 COMPLIANCE
The Company has commenced a review of its computer systems and products in
order to assess its exposure to Year 2000 issues. The Company is currently in
the process of determining the full scope, related costs and action plan to
ensure that the Company's systems continue to meet its internal needs and
those of its customers. The Company expects to make the necessary
modifications or changes to its computer information systems to enable proper
processing of transactions relating to the Year 2000 and beyond. However,
there can be no assurance that Year 2000 costs and expenses will not have a
material adverse effect on the Company. In addition, the Company does not
currently have complete information concerning the Year 2000 compliance status
of its suppliers and customers. In the event that any of the Company's
significant suppliers or customers do not successfully and timely achieve Year
2000 compliance, the Company's business or operations could be materially
adversely affected. Finally, there can be no assurance that the Company's
existing or installed base of products are Year 2000 compliant, or that the
Company's products will not be integrated by the Company or its customers
with, or otherwise interact with, non-compliant software or other products.
Any such product non-compliance may expose the Company to claims from its
customers and others, and could impair market acceptance of the Company's
products and services, increase service and warranty costs, or result in
payment of damages, which in turn could materially adversely affect the
Company. See "Management's Discussion and Analysis--Year 2000."
MARKET SHARE AND COMPETITIVE POSITION DATA
There are no independent third party sources that publicly disseminate
market share and competitive position data for all of the markets in which the
Company competes. Accordingly, a substantial part of the market share and
competitive position data in this Prospectus is based upon data compiled by
the Company for use in the ordinary course of its business to assess its
competitive position. Data with respect to sales of test, analysis,
communications and computing equipment sales by other companies has been
derived, where available, from data published by those companies, but has not
been independently verified by the Company. Many of the Company's competitors
do not publish revenue or other sales data for products sold in competition
with the Company's products and, accordingly, the Company has compiled its
data based upon estimates of such sales. Although the Company believes that
its estimates of its market shares and competitive position data are
reasonable, such estimates have not been verified by independent third party
sources and there can be no assurance that such data is accurate.
FORWARD-LOOKING STATEMENTS MAY NOT PROVE ACCURATE
When used in this Prospectus the words "anticipate," "estimate," "project,"
and similar expressions are intended to identify forward-looking statements.
Forward-looking statements are made based upon management's expectations and
beliefs concerning future developments and their potential effect upon the
Company, and actual results will vary. In addition, such statements are
subject to certain risks, uncertainties and
22
<PAGE>
assumptions, including but not limited to the risks set forth above in this
"Risk Factors" section. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or projected. There can
be no assurance that the future developments will be in accordance with
management's expectations or that the effect of future developments will be
those anticipated by management. See "Management's Discussion and Analysis."
The forward-looking statements contained herein are made as of the date of
this Prospectus and the Company assumes no obligation to update the forward-
looking statements or to update the reasons why the actual results could
differ from those in the forward-looking statements.
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON RESALES
The New Notes are new securities for which there presently is no established
market and none may develop. The Existing Notes have not been registered under
the Securities Act and are subject to restrictions on transferability and
resale. Although the Initial Purchasers have informed the Company that they
intend to make a market in the Existing Notes, and if issued, the New Notes,
the Initial Purchasers are not obligated to do so and any such market making
may be discontinued at any time without notice, at the sole discretion of the
Initial Purchasers. In addition, such market making activity may be limited
during the pendency of the Exchange Offer or the effectiveness of a Shelf
Registration Statement (as defined) in lieu thereof. Accordingly, there can be
no assurance as to the development or liquidity of any market for the Existing
Notes or, if issued, the New Notes. If an active market for the Existing Notes
or, if issued, the New Notes, fails to develop or be sustained, the trading
price of the Existing Notes or New Notes could be materially adversely
affected. The Existing Notes are eligible for trading through the PORTAL
market. The Company does not intend to apply for listing of the New Notes on
any securities exchange or for quotation of the New Notes through the National
Association of Securities Dealers Automated Quotation System. See "Plan of
Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE AND REQUIREMENTS FOR TRANSFER OF NEW NOTES
To the extent that Existing Notes are tendered and accepted in the Exchange
Offer, the trading market for the remaining untendered or tendered but not
accepted Existing Notes could be adversely affected. Because the Company
anticipates that most holders of the Existing Notes will elect to exchange
such Existing Notes for New Notes due to the absence of restrictions on the
resale of New Notes under the Securities Act, the Company anticipates that the
liquidity of the market for any Existing Notes remaining after the
consummation of the Exchange Offer may be substantially limited.
The liquidity of, and trading market for, the Notes also may be adversely
affected by general declines in the market or by declines in the market for
similar securities. Such declines may adversely affect such liquidity and
trading markets independent of the financial performance of, and prospects
for, the Company.
Holders of Existing Notes who do not exchange their Existing Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Existing Notes as set forth in the legend
thereon as a consequence of the issuance of the Existing Notes pursuant to
exemptions from or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Existing Notes may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register Existing
Notes under the Securities Act. Based on interpretations by the staff of the
Commission, as set forth in no-action letters issued to third parties, the
Company believes that New Notes issued pursuant to the Exchange Offer in
exchange for Existing Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distributions of such New
Notes. However, the Commission has not considered the Exchange Offer in the
context of a no-action letter and there can be no assurance that the staff of
the Commission would
23
<PAGE>
make a similar determination with respect to the Exchange Offer as in such
other circumstances. Each holder, other than a broker-dealer, must acknowledge
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes and has no arrangement or understanding to participate in a
distribution of New Notes. If any holder is an affiliate of the Company, is
engaged in or intends to engage in or has any arrangement or understanding
with respect to the distribution of the New Notes to be acquired pursuant to
the Exchange Offer, such holder (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of New Notes received in exchange for
Existing Notes where such Existing Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. For a
period of 90 days after the Expiration Date, the Company will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution." However, to comply with the securities
laws of certain jurisdictions, if applicable, the New Notes may not be offered
or sold unless they have been registered or qualified for sale in such
jurisdictions or an exemption from registration or qualification is available
and is complied with. See "The Exchange Offer--Consequences of Exchanging Old
Notes."
24
<PAGE>
USE OF PROCEEDS
There will be no cash proceeds payable to the Company from the issuance of
New Notes pursuant to the Exchange Offer. The proceeds of the Offering of the
Existing Notes were used to fund a portion of the financings for the
Recapitalization and related translations, including payments in respect of
common stock and options for common stock of Dynatech, and payment of
transaction-related fees and expenses. For further discussion of the sources
and uses of funds related to the Recapitalization, see "The Recapitalization."
CAPITALIZATION
The following table sets forth the unaudited consolidated cash and
equivalents and capitalization of the Company at June 30, 1998. This table
should be read in conjunction with "Selected Historical and Pro Forma
Consolidated Financial Data," "Unaudited Pro Forma Condensed Consolidated
Financial Data," "Management's Discussion and Analysis," and the consolidated
financial statements (including the notes thereto) appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------
ACTUAL
---------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash and equivalents................................. $ 51.9
======
Debt:
Existing debt...................................... $ 1.8
Merger Financings:
Senior Credit Facility........................... 258.0
Notes............................................ 275.0
Revolving Credit Facility........................ 40.0
------
Total debt....................................... 574.8
------
Shareholders' equity (deficit):
Recapitalized Common Stock, including additional
paid-in-capital................................... 312.8
Retained earnings (deficit)........................ (648.3)
Accumulated other comprehensive loss............... (1.7)
------
Total shareholders' equity (deficit)............. (337.2)
------ ---
Total capitalization............................. $237.6
======
</TABLE>
25
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial data of
the Company has been prepared to give effect to the Merger and related
transactions as a recapitalization for financial reporting purposes.
Accordingly, the historical basis of the Company's assets and liabilities have
not been affected by the transactions. For a discussion of the Merger and
related transactions, see "The Recapitalization."
The pro forma adjustments presented are based upon available information and
certain assumptions that the Company believes are reasonable under the
circumstances. The historical condensed consolidated statements of continuing
operations data for the year ended March 31, 1998 were derived from the
audited consolidated financial statements of the Company included elsewhere
herein. The historical condensed consolidated statement of continuing
operations data for the three months ended June 30, 1998 was derived from the
unaudited condensed consolidated financial statements of the Company included
elsewhere herein.
The unaudited pro forma condensed consolidated statement of continuing
operations data of the Company for the year ended March 31, 1998 gives effect
to the Merger as if it had occurred on April 1, 1997. The unaudited pro forma
condensed consolidated statement of continuing operations data of the Company
for the three months ended June 30, 1998 gives effect to the Merger as if it
had occurred on April 1, 1998.
The unaudited pro forma financial data should be read in conjunction with
the historical consolidated financial statements of the Company and notes
thereto, "Management's Discussion and Analysis" and the other financial data
included elsewhere in this Prospectus, as well as the information concerning
the Merger, including the sources and uses of funds therefor, contained in
"Summary--The Recapitalization" and "The Recapitalization."
The pro forma financial data and related notes are provided for
informational purposes only and do not necessarily reflect the results of
operations of the Company that would have actually resulted had the events
referred to above or in the notes to the unaudited pro forma financial data
been consummated as of the date and for the periods indicated, and are not
intended to project the Company's financial position or results of operations
for any future period.
26
<PAGE>
DYNATECH CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF CONTINUING OPERATIONS DATA
FOR THE YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
DYNATECH
FOR THE YEAR ENDED RECAPITALIZATION PRO FORMA
MARCH 31, 1998 ADJUSTMENTS MARCH 31, 1998
------------------ ---------------- --------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Sales...................... $472,948 $472,948
Cost of sales.............. 205,522 205,522
-------- --------
Gross profit............... 267,426 267,426
Selling, general and admin-
istrative expense......... 138,310 $ 500(a) 138,810
Product development ex-
pense..................... 54,995 54,995
Amortization of intangi-
bles...................... 5,835 5,835
-------- -------- --------
Operating income (loss).... 68,286 (500) 67,786
Interest income............ 3,012 3,012
Interest expense........... (1,221) (54,720)(b) (55,941)
Other income, net.......... 730 730
-------- -------- --------
Income before income tax-
es........................ 70,807 (55,220) 15,587
Provision (benefit) for in-
come taxes................ 29,031 (22,640)(d) 6,391
-------- -------- --------
Income from continuing op-
erations.................. $ 41,776 $(32,580) $9,196
======== ======== ========
Income per common share(e)
Basic.................... $ 2.49 $ 0.08
======== ========
Diluted.................. $ 2.40 $ 0.08
======== ========
Weighted average number of
common shares
Basic.................... 16,795 120,000
Diluted.................. 17,434 120,539
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Continuing Operations Data.
27
<PAGE>
DYNATECH CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF CONTINUING OPERATIONS DATA
FOR THE THREE MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
DYNATECH
FOR THE THREE MONTHS
ENDED RECAPITALIZATION PRO FORMA
JUNE 30, 1998 ADJUSTMENTS JUNE 30, 1998
-------------------- ---------------- -------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Sales.................... $109,143 $109,143
Cost of sales............ 46,154 46,154
-------- --------
Gross profit............. 62,989 62,989
Selling, general and ad-
ministrative expense.... 35,189 $ 83(a) 35,272
Product development ex-
pense................... 13,501 13,501
Recapitalization related
costs................... 43,386 (43,386) -- (c)
Amortization of intangi-
bles.................... 1,440 1,440
-------- -------- --------
Operating income (loss).. (30,527) 43,303 12,776
Interest income.......... 788 788
Interest expense......... (6,082) (7,599) (13,681)(b)
Gain on sale of subsidi-
ary..................... 15,900 15,900
Other income, net........ 32 32
-------- -------- --------
Income (loss) before in-
come taxes.............. (19,889) 35,704 15,815
Provision (benefit) for
income taxes............ (7,956) 14,282(d) 6,326
-------- -------- --------
Income (loss) from con-
tinuing operations...... $(11,933) $ 21,422 $ 9,489
======== ======== ========
Income (loss) per common
share(e)
Basic.................. $ (0.19) $ 0.08
======== ========
Diluted................ $ (0.19) $ 0.08
======== ========
Weighted average number
of common shares
Basic.................. 63,464 120,251
Diluted................ 63,464 124,358
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Continuing Operations Data.
28
<PAGE>
DYNATECH CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF CONTINUING OPERATIONS DATA
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR THREE MONTHS
ENDED ENDED
MARCH 31, 1998 JUNE 30, 1998
-------------- -------------
<S> <C> <C>
(a) Reflects the annual fee payable to Clayton,
Dubilier & Rice, Inc. for management and finan-
cial consulting services provided to the Compa-
ny. The historical Statement of Continuing Op-
erations for the three months ended June 30,
1998 included one month of the annual fee pay-
able to Clayton Dubilier & Rice, Inc. There-
fore, the amount in the Recapitalization Ad-
justments column reflects only two months of
fees........................................... $ 500 $ 125
======= =======
(b) Reflects the following:
<CAPTION>
YEAR THREE MONTHS
ENDED ENDED
MARCH 31, 1998 JUNE 30, 1998
-------------- -------------
<S> <C> <C>
Interest resulting from borrowings under the $40
million revolving credit facility at an assumed
interest rate of LIBOR + 2.25% (7.9%)........... $ 3,150 $ 788
Interest resulting from $50 million term loan
under the Senior Credit Facility at an assumed
interest rate of LIBOR + 2.25% (7.9%)........... 3,938 985
Interest resulting from $70 million term loan
under the Senior Credit Facility at an assumed
interest rate of LIBOR + 2.50% (8.1%)........... 5,688 1,422
Interest resulting from $70 million term loan
under the Senior Credit Facility at an assumed
interest rate of LIBOR + 2.75% (8.4%)........... 5,863 1,466
Interest resulting from $70 million term loan
under the Senior Credit Facility at an assumed
interest rate of LIBOR + 3.0% (8.6%)............ 6,036 1,509
Interest resulting from $275 million of gross
proceeds related to the issuance of Notes at an
assumed interest rate of 9.75%.................. 26,813 6,703
Amortization of debt issuance costs associated
with the Senior Credit Facility and the issuance
of Notes........................................ 3,232 808
------- -------
$54,720 $13,681
======= =======
</TABLE>
For information regarding actual interest rates see "Management's Discussion
and Analysis--Capital Resources and Liquidity--Debt Service."
(c) The Unaudited Pro Forma Condensed Consolidated Statements of Continuing
Operations Data exclude the following non-recurring items that are
included in the historical financial statement for the three months ended
June 30, 1998 and are directly attributable to the Recapitalization
transactions:
1. A compensation charge of $26.1 million ($15.6 million net of related tax
benefit) associated with the cash settlement relating to certain stock
options that were retired or canceled as a result of the Merger.
2. A non-cash compensation charge of $13.8 million ($8.3 million net of
related tax benefit) relating to the conversion of stock options into
fully vested and exercisable equivalent options to purchase shares of
Recapitalized Common Stock.
3. Other non-recurring charges of $3.5 million relating to employee
termination payments and other capitalization-related expenses.
(d) Reflects the tax effect of the pro forma adjustments assuming an effective
tax rate of 40% as of June 1998 and 41% as of March 1998.
(e) The Financial Accounting Standards Board has issued Statement No. 128,
(titled "Earnings Per Share"), which modifies the way in which earnings
per share ("EPS") data is calculated and disclosed. The Company adopted
this standard during the interim period ended December 31, 1997, and has
restated all prior period EPS data presented. See "Management's Discussion
and Analysis--New Pronouncements."
29
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial and other data for the five
fiscal years ended March 31, 1998 have been derived from, and should be read
in conjunction with, the audited historical Consolidated Financial Statements,
and related notes thereto, of the Company. The unaudited pro forma balance
sheet data reflects the Merger and related transactions as if they had
occurred on March 31, 1998. The unaudited pro forma income statement data
exclude certain non-recurring items directly attributable to the Merger and
related transactions. The pro forma adjustments were applied to the historical
financial statements to give effect to the Merger and related transactions as
a recapitalization for financial reporting purposes. Accordingly, the
historical basis of the Company's assets and liabilities has not been affected
by these transactions. The pro forma financial and other data are provided for
information purposes only and do not necessarily reflect the results of
operations or financial position of the Company that would have actually
occurred had the events referred to above been consummated as of the date and
for the periods indicated and are not intended to project the Company's
financial position or results for any future period. The following table
should be read in conjunction with "Management's Discussion and Analysis."
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
THREE MONTHS UNAUDITED
ENDED YEAR ENDED
YEARS ENDED MARCH 31, JUNE 30, MARCH 31,
---------------------------------------------- ------------------ ----------
1994 1995 1996(A) 1997(B) 1998 1997 1998 1998
-------- -------- -------- -------- -------- -------- --------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Sales........... $199,612 $243,078 $293,042 $362,412 $472,948 $104,320 $ 109,143 $472,948
Cost of sales... 72,103 91,412 111,436 137,254 205,522 42,637 46,154 205,522
-------- -------- -------- -------- -------- -------- --------- --------
Gross profit.... 127,509 151,666 181,606 225,158 267,426 61,683 62,989 267,426
Selling, general
and administra-
tive expenses.. 70,719 86,329 98,487 114,479 138,310 31,759 35,189 138,810
Product develop-
ment expenses.. 26,863 30,585 36,456 43,267 54,995 13,695 13,501 54,995
Non-recurring
charges(c)..... -- -- 16,852 27,776 -- -- 43,386 --
Amortization of
intangibles.... 5,728 5,106 5,136 6,793 5,835 1,443 1,440 5,835
-------- -------- -------- -------- -------- -------- --------- --------
Operating income
(loss)......... 24,199 29,646 24,675 32,843 68,286 14,786 (30,527) 67,786
Net interest and
other
income/(expense).. (352) (1,551) 1,433 2,591 2,521 310 10,638 (52,199)
-------- -------- -------- -------- -------- -------- --------- --------
Income (loss)
from continuing
operations
before income
taxes.......... 23,847 28,095 26,108 35,434 70,807 15,096 (19,889) 15,587
Provision
(benefit) for
income taxes... 9,897 11,671 10,394 17,585 29,031 6,114 (7,956) 6,391
-------- -------- -------- -------- -------- -------- --------- --------
Income (loss)
from continuing
operations(d).. $ 13,950 $ 16,424 $ 15,714 $ 17,849 $ 41,776 $ 8,982 $ (11,933) $ 9,196
======== ======== ======== ======== ======== ======== ========= ========
Income (loss)
per common
share from
continuing
operations--
basic(e)....... $ 0.75 $ 0.92 $ 0.87 $ 1.04 $ 2.49 $ 0.54 $ (0.19) $ 0.08
Income (loss)
per common
share from
continuing
operations--
diluted(e)..... $ 0.75 $ 0.91 $ 0.86 $ 0.99 $ 2.40 $ 0.52 $ (0.19) $ 0.08
Weighted average
number of
shares
Basic.......... 18,579 17,846 17,969 17,200 16,795 16,770 63,464 120,000
Diluted........ 18,678 17,971 18,315 18,028 17,434 17,343 63,464 120,539
BALANCE SHEET
DATA:
Total
assets(f)...... $280,553 $256,392 $205,189 $249,010 $288,130 $251,590 $ 315,082
Long term
debt(g)........ 33,006 7,915 1,800 5,226 83 25,226 565,285
Total stockhold-
ers
equity/(deficit)(h).. 142,643 154,320 160,719 160,686 202,119 165,124 (337,246)
Stockholders'
equity/(deficit)
per share...... $ 7.67 $ 8.78 $ 9.14 $ 9.57 $ 11.99 $ 12.11 $ (2.80)
OTHER DATA:
EBITDA(i)....... $ 37,179 $ 42,514 $ 55,917 $ 77,326 $ 86,917 $ 19,239 $ 17,503 $ 86,417
Depreciation and
amortization... 10,782 12,018 13,415 16,073 17,901 4,283 4,613 17,901
Capital expendi-
tures.......... 7,900 8,800 8,198 10,176 15,879 4,022 2,416 15,879
Ratio of earnings to fixed charges(l).. 5.5x 6.2x 8.2x 13.2x 19.1x 15.7x (j) 1.3x
<CAPTION>
PRO FORMA PRO FORMA
UNAUDITED UNAUDITED
THREE MONTHS TWELVE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------ -------------
1998 1998(K)
------------ -------------
<S> <C> <C>
INCOME STATEMENT
DATA:
Sales........... $109,143 $477,771
Cost of sales... 46,154 209,039
------------ -------------
Gross profit.... 62,989 268,732
Selling, general
and administra-
tive expenses.. 35,272 142,198
Product develop-
ment expenses.. 13,501 54,801
Non-recurring
charges(c)..... -- --
Amortization of
intangibles.... 1,440 5,832
------------ -------------
Operating income
(loss)......... 12,776 65,901
Net interest and
other
income/(expense).. 3,039 (35,789)
------------ -------------
Income (loss)
from continuing
operations
before income
taxes.......... 15,815 30,112
Provision
(benefit) for
income taxes... 6,326 12,263
------------ -------------
Income (loss)
from continuing
operations(d).. $ 9,489 $ 17,849
============ =============
Income (loss)
per common
share from
continuing
operations--
basic(e)....... $ 0.08 $ 0.15
Income (loss)
per common
share from
continuing
operations--
diluted(e)..... $ 0.08 $ 0.14
Weighted average
number of
shares
Basic.......... 120,251 120,251
Diluted........ 124,358 124,358
BALANCE SHEET
DATA:
Total
assets(f)......
Long term
debt(g)........
Total stockhold-
ers
equity/(deficit)(h)..
Stockholders'
equity/(deficit)
per share......
OTHER DATA:
EBITDA(i)....... $ 17,421 $ 84,724
Depreciation and
amortization... 4,613 18,231
Capital expendi-
tures.......... 2,416 14,273
Ratio of earnings to fixed charges(l).. 2.1x 1.5x
</TABLE>
30
<PAGE>
NOTES TO SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(a) On September 1, 1995, the Company acquired substantially all of the
business and assets of Tele-Path Industries, Inc. for $23.6 million, of
which approximately $12.6 million was in cash and the remaining $11.0
million was from the issuance of 688,096 shares of Common Stock.
(b) On December 31, 1996, the Company acquired the assets and liabilities and
assumed certain liabilities of Itronix, located in Spokane, Washington,
for $65.4 million in cash.
(c) The June 30, 1998 non-recurring charge reflects the charges for the
cancellation and conversion of certain stock options as a result of the
Merger. The 1997 non-recurring charges included a $20.6 million non-cash
charge for incomplete technology which had not reached technological
feasibility and had no alternative use, purchased as part of the
acquisition of Itronix. In addition, the Company recorded a non-cash
charge of $7.2 million related to the impairment of intangible assets,
principally related to the effects of product and distribution
transitions. In 1996 the Company purchased incomplete technology
activities as a part of the acquisition of Tele-Path Industries, Inc.
resulting in a pretax non-cash charge of $16.9 million.
(d) A formal plan to discontinue non-core businesses was approved by the Board
of Directors of Dynatech on February 7, 1996. In fiscal 1997, the Company
essentially completed its disposition of the non-core businesses, which
resulted in an after-tax gain from discontinued operations of $12.0
million. See "Business--Discontinued Operations and Divested Businesses."
(e) The Financial Accounting Standards Board has issued Statement No. 128
(titled "Earnings Per Share"), which modifies the way in which EPS data is
calculated and disclosed. The Company adopted this standard during the
interim period ended December 31, 1997 and has restated all prior EPS data
presented. See "Management's Discussion and Analysis--New Pronouncements."
(f) The June 30, 1998 total assets includes $27.3 million of deferred debt
issuance costs related to the Recapitalization.
(g) The components of long-term debt at June 30, 1998 are (in thousands):
<TABLE>
<S> <C>
Revolving Credit Facility..................................... $ 40,000
Term Loan Facility............................................ 250,000
Notes......................................................... 275,000
Other debt.................................................... 285
---------
$ 565,285
=========
(h) The June 30, 1998 total stockholders deficit reflects the following (in
thousands):
Balance at 3/31/98............................................ $ 202,119
Net loss...................................................... (11,933)
Currency translation.......................................... (115)
Exercise of stock options and other issuances................. 1,568
Recapitalization:
Common stock repurchased...................................... (841,673)
Issuance of new stock, net of fees............................ 298,148
Stock options................................................. 14,640
---------
$(337,246)
=========
</TABLE>
(i) EBITDA represents operating income and other income (expense), before
depreciation and amortization and excludes non-recurring charges and
excludes the one-time gain of $15.9 million on the sale of ComCoTec. While
EBITDA is not intended to represent cash flow from operations as defined
by generally accepted accounting principles or as a measure of liquidity,
it is included herein to provide additional information with respect to
the ability of the Company to meet future debt service, capital
expenditures and working capital requirements. See "Management's
Discussion and Analysis."
(j) The ratio of earnings to fixed charges for this period is negative due to
earnings for the period being inadequate to cover fixed charges. The
coverage deficiency is $19.9 million and is a result of the nonrecurring
charges for the cancellation and conversion of certain stock options as a
result of the Merger.
(k) The pro forma unaudited financial data for the twelve month period ended
June 30, 1998 were derived by adding the income statement data for the
quarter ended June 30, 1998 to the income statement data for the nine
months ended March 31, 1998, adjusted to reflect the effects of the
Recapitalization.
(l) For the purposes of calculating the ratio of earnings to fixed charges,
earnings represent income from continuing operations before income taxes
and fixed charges. Fixed charges consist of the total of (i) interest,
whether expensed or capitalized, (ii) amortization of debt expense and
discount or premium relating to any indebtedness, whether expensed or
capitalized and (iii) that portion of rental expense considered to
represent interest cost.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion contains forward-looking statements concerning the Company's
operations, economic performance and financial condition, all of which involve
risks and uncertainties. Forward-looking statements are made based upon
management's expectations and beliefs concerning future developments and their
potential effect upon the Company. The Company's actual results may differ
significantly from management's expectations and there can be no assurance
that the effects of future developments on the Company will be those
anticipated by management. There are certain factors that might cause such a
difference. These factors include, but are not limited to, product demand and
market acceptance risks, the effect of economic conditions, the impact of
competitive products and pricing, product development, commercialization and
technological difficulties, capacity and supply constraints or difficulties,
availability of capital resources, general business and economic conditions,
the effect of the Company's accounting policies, and other risks detailed
herein. See "Risk Factors."
OVERVIEW
The Merger. On May 21, 1998, MergerCo, which was organized at the direction
of CDR, was merged with and into the Company with the Company continuing as
the surviving corporation. In the Merger, (i) each then outstanding share of
Common Stock was converted into the right to receive $47.75 in cash and 0.5
shares of Recapitalized Common Stock and (ii) each then outstanding share of
common stock of MergerCo was converted into one share of Recapitalized Common
Stock.
As a result of the Merger, CDR Fund V holds approximately 92.3% of the
Recapitalized Common Stock. Mr. Reno together with two family trusts holds
approximately 0.7% of the Recapitalized Common Stock and other Stockholders
hold approximately 7.0% of the Recapitalized Common Stock.
In connection with the Merger, the Company entered into a senior credit
agreement with certain lenders providing for the Senior Credit Facility,
including a $260 million Term Loan Facility and a $110 million Revolving
Credit Facility. In connection with the Merger, the Company also completed the
offering of the Existing Notes. On July 31, 1998, the Company had a total of
$556.5 million of debt, which consisted primarily of $275 million principal
amount of the Existing Notes, $258 million in term loan borrowings under the
Term Loan Facility and $23 million in revolving credit borrowings under the
Revolving Credit Facility.
The Merger was accounted for as a recapitalization of Dynatech, which had no
impact on the historical basis of assets and liabilities as reflected in the
financial statements of Dynatech. However, the Merger involved a change in the
Company's capital structure which will lead to, among other things, higher
reported interest expense. As a result, operating results for periods
subsequent to the Merger will not be comparable in all material respects to
operating results for periods prior to the Merger.
General. The Company develops, manufactures and sells test, analysis,
communications and computing equipment in three product categories: (i)
communications test instruments, (ii) industrial computing and communications,
and (iii) visual communications. In its communications test business, the
Company provides products that test and analyze communications networks and
equipment. In its industrial computing and communications business, the
Company addresses two areas of the worldwide ruggedized computer market
through two of its subsidiaries: (i) ICS, which provides computer products for
use in harsh environments, and (ii) Itronix, which provides ruggedized
portable computing and communications devices to field-service organizations
such as telephone companies. In its visual communications business, the
Company sells visual communications products principally through two of its
subsidiaries: (i) AIRSHOW, which provides passenger cabin video information
display systems for the general and commercial aviation markets and (ii) da
Vinci, which provides digital color enhancement systems used in transferring
film images into electronic signals. Since 1993, the Company has sold 25 non-
core businesses for gross proceeds of approximately $211 million pursuant to a
plan to focus on businesses that enjoy leading positions in their respective
markets, strong profitability, and good growth prospects.
32
<PAGE>
Current and Historical Trends. The Company believes that overall trends in
the communications industry are the most significant trends affecting the
Company's sales and results of operations. The 18.3% average annual increase
in sales of its communications test instruments products from fiscal 1996 to
fiscal 1998 was principally driven by market growth and new product
introductions by the Company. The Company believes that demand for
communications test equipment during that period resulted from the combination
of increased competition among existing and new telecommunications service
providers, the proliferation of new telecommunications services and the
increased usage of technologies related to wireless and internet services. The
Company believes that these trends have driven overall communications test
instrument industry growth of approximately 10-12% annually in recent years.
Growth rates vary widely across segments of the market and are typically
higher in segments that support the development of high growth communications
services such as Asynchronous Transfer Mode, frame relay and wireless
services.
The Company believes the communications test and monitoring systems market
(in which the Company is now beginning to participate) has grown at
approximately 12% annually in recent years, driven by the needs of service
providers to provider higher quality networks and to reduce costs through
efficiency, which may be gained by using test and monitoring systems. The
Company's other businesses similarly benefit from growth in their customers'
markets. Growth in demand for AIRSHOW's products, for example, is driven in
part by growth in the general aviation market.
The Company, however, cannot predict whether growth will continue at
historical rates in either its own businesses or in the markets in which it
participates, due in part to recent global economic events.
Growth rates of enterprises engaged in the manufacture and provision of
telecommunications equipment and services will likely be affected by the
current trend of consolidation among such enterprises. In the shorter term,
the Company believes that such consolidation is being reflected in delays in
orders for the Company's products as consolidating companies integrate or
coordinate their purchasing practices. In addition, particularly in the near
term, recent capital market volatility and reduced financing availability may
affect growth rates for certain customers, particularly those that may be
highly leveraged with significant capital requirements, as well as growth of
the economy in general. Any resulting slowdown in such growth could result in
delays or reductions of orders for the Company's products, and accordingly
affect the Company's own growth.
Industrial Computing and Communications Trends. Itronix, as a manufacturer
of ruggedized portable computing and communications hardware, generally has
lower margins than the Company's other businesses. As a result, profitability
of the Company's industrial computing and communications businesses is lower
than the average profitability of the Company's other businesses. Itronix is
also currently facing significant manufacturing and marketing challenges,
including competition from "semi-rugged" portable computers that constrains
pricing of premium ruggedized products like Itronix's. The Company has taken
several steps designed to improve the operating performance of Itronix,
including programs designed to reduce costs and streamline manufacturing, as
well as a change in Itronix senior management. The Company anticipates
improvements in Itronix's performance in fiscal 1999, although there can be no
assurance that Itronix will return to profitability. See "Risk Factors--Risks
Relating to Itronix." Growth at ICS in the near term is expected to lag behind
historical growth rates, due in part to slower than expected development of
its newer non-catalog business.
Operating Profit. From fiscal 1996 to fiscal 1998 the Company increased
operating profit, excluding non-recurring charges, by a compound annual growth
of 28.2%, driven primarily by sales growth and the Company's acquisitions
during this period. Excluding non-recurring charges, operating profit margins
also increased from 14.2% of consolidated sales to 14.4% of consolidated sales
for the same period. The Company, however, cannot predict whether growth will
continue at historical rates. See "--Current and Historical Trends." The
excluded non-recurring charges included a charge of $16.9 million for
purchased incomplete technology related to the acquisition of Tele-Path
Industries, Inc., and $27.8 million for purchased incomplete technology and
impaired intangible asset writeoffs in fiscal 1996 and fiscal 1997,
respectively.
Seasonality. As a result of purchasing patterns of its telecommunications
customers, which tend to place large orders periodically, typically at the end
of the Company's first and third fiscal quarters, the Company
33
<PAGE>
expects its results of operations to vary significantly on a quarterly basis,
as they have in the past. In addition, growth rates and results of operations
for Itronix also have varied widely and are expected to continue to do so
because of the relatively small number of potential customers with large
field-service work forces, the timing and size of whose orders are irregular.
Product Development. The market for the Company's products is characterized
by changing technology, evolving industry standards and protocols, and
frequent introductions of new products. Automation in the Company's addressed
markets for communications test instruments or a shift in customer emphasis
from communications test instruments to test and monitoring systems could
render the Company's existing product offerings obsolete or unmarketable or
reduce the size of the Company's addressed market. In particular,
incorporation of self-testing functions in the equipment currently addressed
by the Company's communications test instruments could render the Company's
offerings redundant and unmarketable. The Company thus faces the challenges of
anticipating and responding rapidly to advances in technology and adapting its
existing products or developing new products. The development of new,
technologically advanced products is a complex and uncertain process requiring
the accurate anticipation of technological and market trends and the
expenditure of substantial development costs. From the beginning of fiscal
1996 through fiscal 1998, the Company has spent an aggregate of $134.7 million
on product development or approximately 11.9% of sales, and the Company
expects to continue product development spending at similar levels as a
percentage of annual sales, to the extent that the Company has sufficient free
cash flow to do so. See "Risk Factors--Rapid Technological Change; Challenges
of New Product Introductions" and "--Substantial Leverage; Liquidity."
Recent Acquisitions and Dispositions. On December 31, 1996, the Company
acquired substantially all of the assets and assumed certain liabilities of
Itronix for $65.4 million in cash. Incident to this acquisition was the
purchase of incomplete technology activities which resulted in a one-time non-
cash charge of $20.6 million reflected in the Company's results for fiscal
1997. This incomplete technology had not reached technological feasibility and
had no alternative use.
In March 1997, the Company acquired the net assets of Advent Design, Inc.
("Advent"), a supplier to ICS for $3.5 million in cash. Advent designs and
manufactures high performance microprocessor-based systems for the computer,
medical and communications market.
During fiscal 1997, the Company essentially completed the disposition of
non-core businesses pursuant to a strategy approved by the Board of Directors
of Dynatech in February of 1996. The Company received proceeds of $110.2
million and $48.9 million in 1997 and 1996, respectively, related to these
dispositions, which resulted in an after-tax gain of $12.0 million.
On June 19, 1998, the Company acquired the stock of Pacific Systems
Corporation of Kirkland, Washington ("Pacific") for a total purchase price of
$20 million, including an incentive earnout. Pacific designs and manufactures
customer specified avionics and integrated cabin management equipment for the
corporate and general aviation market.
On June 30, 1998 the Company sold the assets and certain liabilities of its
subsidiary ComCoTec, Inc. ("ComCoTec") for a total sale price of $21.0
million.
Recapitalization Accounting; Recapitalization Fees and Expenses; Financial
Statement Presentation. The Company is treating the Merger and related
transactions as a recapitalization for financial reporting purposes.
Accordingly, the historical basis of the Company's assets and liabilities has
not been affected by these transactions.
Of the approximately $41.3 million of fees and expenses relating to these
transactions, (i) approximately $27.3 million of such costs are attributable
to costs of the Financing and will be capitalized and amortized over the life
of the Financing, and (ii) approximately $14.0 million of such costs are
attributable to costs of the Merger and related transactions and will be
accounted for as a reduction in the proceeds from the issuance of the
Recapitalized Common Stock.
The consolidated financial statements and data included in this Prospectus
are financial statements and data of Dynatech, which is the direct parent of
TTC and which was the initial issuer of the Notes. TTC became the
34
<PAGE>
obligor on the Notes, and the borrower under the Senior Credit Facility, on
the date of the May 1998 Closing of the Offering of the Existing Notes,
following the effectiveness of the merger of TTC Merger Co. into TTC. In
connection with that merger, TTC became a direct subsidiary of Dynatech and
the direct or indirect parent of the Company's remaining active subsidiaries,
and Dynatech guaranteed the monetary obligations of TTC under the Notes as
well as the Senior Credit Facility. Dynatech is a holding company with no
significant independent operations. Accordingly, the consolidated financial
statements of Dynatech are not materially different from those of TTC.
SUPPLEMENTARY PRO FORMA FINANCIAL INFORMATION
On December 31, 1996, the Company acquired substantially all of the assets
and assumed certain liabilities of Itronix, for $65.4 million in cash.
Approximately $40 million of the purchase price was borrowed pursuant to the
terms of the Company's revolving credit and term loan agreement in effect at
that time. A significant portion of the borrowed funds was repaid during the
fourth quarter of fiscal 1997.
Incident to this acquisition was the purchase of incomplete technology
activities which resulted in a one-time pretax charge of $20.6 million or
($0.74) per share on a diluted basis. This purchased incomplete technology
that had not reached technological feasibility and which had no alternative
future use was valued using a risk adjusted cash flow model, under which
future cash flows associated with in-process research and development were
discounted considering risks and uncertainties related to the viability of
potential changes in future target markets and to the completion of the
products that will ultimately be marketed by the Company.
As a percentage of sales, the gross margin and selling, general and
administrative expenses of Itronix are lower than the consolidated financial
results of the Company prior to the acquisition. Therefore, the pro forma
income statements below reflect a lower gross profit and selling, general and
administrative expenses as a percent of consolidated sales. Hence, in order to
demonstrate the Company's operating performance versus the previous years, the
following unaudited pro forma information presents a summary of consolidated
results of operations of the Company as if the acquisition had occurred at the
beginning of fiscal 1997, with pro forma adjustments to give effect to
amortization of goodwill and intangibles, interest expense on acquisition
debt, and certain other adjustments, together with related income tax effects
(such pro forma basis, the "Itronix Pro Forma Basis"). (In thousands except
per share data).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
MARCH 31, 1997
(PRO FORMA)
-----------------
<S> <C>
Sales......................................................... $426,234
Cost of sales................................................. 183,076
--------
Gross profit.................................................. 243,158
Selling, general & administrative expense..................... 122,232
Product development expense................................... 48,515
Nonrecurring charges.......................................... 7,149
Amortization of intangibles................................... 8,853
--------
Operating income.............................................. 56,409
Interest expense.............................................. (3,284)
Interest income............................................... 2,785
Other income, net............................................. 633
--------
Income from continuing operations before income taxes......... 56,543
Provision for income taxes.................................... 24,974
--------
Income from continuing operations............................. $ 31,569
========
Income per share:
Basic....................................................... $ 1.84
Diluted..................................................... $ 1.74
Weighted average shares:
Basic....................................................... 17,200
Diluted..................................................... 18,028
</TABLE>
35
<PAGE>
The following table and commentary should be read in conjunction with the
Consolidated Financial Statements and related Notes to Consolidated Financial
Statements located elsewhere in this Prospectus.
PERCENT OF SALES
<TABLE>
<CAPTION>
YEARS ENDED MARCH
31, PERCENT CHANGE
------------------- --------------
1997
(ITRONIX PRO
1998 FORMA BASIS) 1998 VS. 1997
----- ------------ --------------
<S> <C> <C> <C>
Sales........................................ 100.0% 100.0% 11.0%
Gross profit................................. 56.5 57.1 10.0
Selling, general & admin. expense............ 29.2 28.7 13.2
Product development expense.................. 11.6 11.4 13.4
Amortization of intangibles.................. 1.2 2.1 (34.1)
Operating income............................. 14.4 13.2 21.1
Net income from operations................... 8.8% 7.4% 32.3%
</TABLE>
FISCAL 1998 COMPARED TO FISCAL 1997 ON AN ITRONIX PRO FORMA BASIS
Sales. For fiscal 1998 consolidated sales increased $46.7 million or 11.0%
to $472.9 million as compared to $426.2 million for fiscal 1997 on an Itronix
Pro Forma Basis. The increase was primarily attributable to increased demand
for communications test products, catalog sales of industrial computing and
communications products, and aircraft cabin video information services.
Sales of communications test products increased $29.1 million or 13.8% to
$240.4 million for fiscal 1998 as compared to $211.3 million for fiscal 1997.
The increase is primarily attributable to continued growth in the U.S. market
for communications test solutions as a result of network expansions of the
local telco service providers. The growth was driven by the needs of
communications service providers to provide higher quality networks and to
reduce costs through efficiency, which may be gained by using test and
monitoring systems.
Sales of industrial computing and communications products increased $12.8
million or 9% to $155.0 million for fiscal 1998 as compared to $142.2 million
for fiscal 1997 on an Itronix Pro Forma Basis. The increase was primarily
attributable to an increase in sales for the Company's catalog-marketed, rack-
mounted computers, with a significant portion of sales to customers within the
Original Equipment Manufacturer (OEM) market. The overall increase in sales of
Industrial Computing and Communication products was partially offset by
slightly lower sales of the Company's ruggedized laptop computers.
Sales of visual communications products increased $4.7 million or 6.5% to
$77.5 million for fiscal 1998 as compared to $72.8 million for fiscal 1997.
Sales of the Company's real-time flight information passenger video displays
increased as more airlines integrated this product into their in-flight
entertainment systems. In addition, the Company has improved its market
penetration with additional sales to commercial airline companies. Partially
offsetting this increase was a lower sales volume in the video compression and
graphical user-interface (GUI) product lines.
International sales (defined as sales outside of North America) were $76.1
million or 16% of consolidated sales for fiscal 1998, as compared to $70.8
million or 16.6% for fiscal 1997 on an Itronix Pro Forma Basis.
Gross profit. Consolidated gross profit increased $24.2 million to $267.4
million or 56.5% of consolidated sales for fiscal 1998 as compared to $243.2
million or 57.1% for fiscal 1997 on an Itronix Pro Forma Basis. The slight
decrease in percentage was attributable to a change in the sales mix within
the consolidated group along with lower gross margins on the Company's
ruggedized laptop computers.
Operating expenses. Operating expenses consist of selling, general and
administrative expenses; product development expense; amortization of
intangibles; and non-recurring expenses. Total operating expenses were $199.1
million or 42.1% of consolidated sales for fiscal 1998 as compared to $186.7
million or 43.8% of
36
<PAGE>
consolidated sales for fiscal 1997 on an Itronix Pro Forma Basis. Excluding
the impact of the non-recurring charge of $7.1 million related to the
impairment of intangible assets during fiscal 1997, operating expenses were
$179.6 million or 42.1% of consolidated sales in fiscal 1997 on an Itronix Pro
Forma Basis, at the same level as fiscal 1998.
Selling, general and administrative expense was $138.3 million or 29.2% of
consolidated sales for fiscal 1998 as compared to $122.2 million or 28.7% of
consolidated sales for fiscal 1997 on an Itronix Pro Forma Basis. The
percentage increase was primarily attributable to additional expenses related
to information systems upgrades and increased selling expenses due to the
increased sales volume within the communications test business.
Product development expense was $55.0 million or 11.6% of consolidated sales
for fiscal 1998 as compared to $48.5 million or 11.4% of consolidated sales
for fiscal 1997 on an Itronix Pro Forma Basis. The Company continues to invest
in product development and enhancement within all three product areas.
Amortization of intangibles was $5.8 million for fiscal 1998 as compared to
$8.9 million for fiscal 1997 on an Itronix Pro Forma Basis. Amortization
decreased during fiscal 1998 due to the write-off of goodwill and certain
intangibles related to product and distribution transitions at the end of
fiscal 1997.
Interest. Interest income, net of interest expense, was $1.8 million for
fiscal 1998 as compared to net interest expense of $0.5 million for fiscal
1997 on an Itronix Pro Forma Basis. Net interest income increased year to year
based on higher average investment balances and lower overall borrowings.
Interest expense will increase in future years due to the increase in
borrowings in connection with the Recapitalization.
Other income. Other income was $0.7 million for fiscal 1998, essentially at
the same level of $0.6 million for fiscal 1997 on an Itronix Pro Forma Basis.
Taxes. The effective tax rate, before one time charges, increased for fiscal
1998 to 41% as compared to 40.0% for fiscal 1997, primarily due to increased
income in states with higher income tax rates. The effective tax rate after
one time charges decreased to 41% for fiscal 1998 from 44.2% for fiscal 1997
due to the limited tax benefits in 1997 of the charges relating to the $20.6
million writeoff of incomplete technology from the Itronix acquisition.
Net income. Net income from continuing operations was $41.8 million or $2.40
per share on a diluted basis for fiscal 1998 as compared to $31.6 million or
$1.74 per share on a diluted basis and a pro forma basis for fiscal 1997. The
increase was primarily attributable to the increase in sales. Net income in
future years will be negatively impacted by the rise in interest expense due
to the increase in borrowings in connection with the Recapitalization.
Backlog. Backlog at March 31, 1998 was $79.1 million, an increase of 10.3%
from $71.7 million at March 31, 1997.
37
<PAGE>
HISTORICAL FINANCIAL STATEMENTS
The following discussion relates to the actual results of operations of the
Company, in which fiscal 1998 includes a full year of operations of Itronix,
as compared to fiscal 1997, in which the results of operations included only
three months of operations.
The following table and commentary should be read in conjunction with the
Consolidated Financial Statements and related Notes to Consolidated Financial
Statements located elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERCENT OF
PERCENT OF SALES CHANGE
------------------- ------------
YEARS ENDED MARCH
31, 1998 1997
------------------- VS. VS.
1998 1997 1996 1997 1996
----- ----- ----- ------ ----
<S> <C> <C> <C> <C> <C>
Sales........................................ 100.0% 100.0% 100.0% 30.5% 23.7%
Gross profit................................. 56.5 62.1 62.0 18.8 24.0
Selling, general & admin. expense............ 29.2 31.6 33.6 20.8 16.2
Product development expense.................. 11.6 11.9 12.4 27.1 18.7
Nonrecurring charges......................... -- 7.7 5.8 (100.0) 64.8
Amortization of intangibles.................. 1.2 1.9 1.8 (14.1) 32.3
Operating income............................. 14.4 9.1 8.4 107.9 33.1
Net income from continuing operations........ 8.8 4.9 5.4 134.1 13.6
</TABLE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
ON A HISTORICAL BASIS
Acquisitions. On June 19, 1998 the Company, through one of its indirect
wholly owned subsidiaries, acquired all of the outstanding capital stock of
Pacific for a total purchase price of $20 million, including an incentive
earnout. The company generated $17.8 million of goodwill related to this
acquisition. Pacific designs and manufactures customer-specified avionics and
integrated cabin management equipment for the corporate and general aviation
market.
Sale of Subsidiary. On June 30, 1998 the Company sold the assets of ComCoTec
located in Lombard, Illinois to The Potomac Group, Inc. for $21 million with
$1 million remaining in escrow pending any purchase price adjustments which
resulted in a gain of $15.9 million. ComCoTec is a supplier of pharmacy
management software and services and was a subsidiary within the Company's
visual communications products group.
Sales. Consolidated sales increased $4.8 million or 4.6% to $109.1 million
for the three months ended June 30, 1998 as compared to $104.3 million for the
three months ended June 30, 1997.
Sales of communications test products decreased $3.2 million or 5.6% to
$53.8 million. This was the result of reduced demand for hand-held test
devices plus a slowdown of orders from the RBOCs due to the lengthening of the
sales cycle during a period of industry consolidation.
Sales for industrial computing and communication products increased $5.3
million or 18.4% to $34.0 million. The increase was primarily attributable to
additional sales volume of the Company's ruggedized laptop computers due to
fewer Pentium-based field-service units shipped during the first quarter of
last year while the products continued final testing.
Sales of visual communications products increased $2.8 million or 15.0% to
$21.4 million. Sales for the Company's real-time flight information passenger
video displays continued to be strong. Offsetting this increase were lower
sales in the video compression and graphical user-interface (GUI) products.
38
<PAGE>
Gross Profit. Consolidated gross profit increased $1.3 million to $63.0
million or 57.7% of consolidated sales for the three months ended June 30,
1998 as compared to $61.7 million or 59.1% of consolidated sales for the three
months ended June 30, 1997. The percentage decrease was attributable to a
change in the product mix of the Company. The Company had increased shipments
of ruggedized laptop computers which sell at a lower gross margin and made
fewer shipments of communications test products that have a higher gross
margin than the consolidated family of products.
Operating Expenses. Operating expenses consist of selling, marketing and
distribution expense; general and administrative expense; product development
expense; recapitalization related costs; and amortization of intangibles.
Total operating expenses were $93.5 million or 85.7% of consolidated sales for
the three months ended June 30, 1998 as compared to $46.9 million or 45.0% of
consolidated sales for the three months ended June 30, 1997. Included in this
quarter's operating expenses were the expenses of $43.4 million referred to
below related to the Merger for the option cancellation payments. Excluding
these Merger-related expenses, operating expenses for the three months ended
June 30, 1998 were $50.1 million or 45.9% of consolidated sales. The increase
in percentage was primarily attributable to increased selling and marketing
expense due primarily to an increase in compensation expense.
Selling, general and administrative expense was $35.2 million or 32.2% of
consolidated sales for the three months ended June 30, 1998, compared to $31.8
million or 30.4% of consolidated sales for the three months ended June 30,
1997. The increase in percentage was primarily attributable to increased
commission and compensation expense during the first quarter of fiscal 1999 as
well as additional expenses related to catalog costs for the Company's
Industrial Computer Source-Book.
Product development expense was $13.5 million or 12.4% of consolidated sales
for the three months ended June 30, 1998 as compared to $13.7 million or 13.1%
of consolidated sales for the three months ended June 30, 1997. The decrease
was primarily driven by a higher product development expense for the same
period last year which the Company incurred for the introduction of Pentium-
based ruggedized laptops.
Recapitalization related costs. In connection with the Merger, the Company
incurred $43.4 million for the cancellation payments of employee stock
options, compensation expense due to the acceleration of unvested stock
options, and other merger-related expenses. The Company incurred an additional
$41.3 million in expenses, of which $27.3 million was capitalized and will be
amortized over the life of the Senior Credit Facility and Notes, and $14.0
million was charged directly to stockholders' equity.
Amortization of intangibles during the first quarter of both fiscal 1999 and
1998 was $1.4 million.
Interest. Interest expense, net of interest income, was $5.3 million for the
first quarter of fiscal 1999 as compared to net interest income of $0.1
million for the first quarter of fiscal 1998. The increase in net interest
expense was attributable to the debt incurred in connection with the Merger on
May 21, 1998.
Other income. Other income for the first quarter of fiscal 1999 was $32
thousand as compared to $170 thousand for the first quarter of fiscal 1998.
Taxes. The effective tax rate for the first quarter of fiscal 1999 was
40.0%, essentially at the same level as the first quarter of fiscal 1998.
Net income (loss). The Company's net loss was $11.9 million or $(0.19) per
share on a diluted basis for the three months ended June 30, 1998 as compared
to net income of $9.0 million or $0.52 per share on a diluted basis for the
three months ended June 30, 1997. The loss was primarily attributable to both
the cancellation payments of the employee stock options and the additional
interest expense incurred in connection with the Merger.
Backlog. Backlog at June 30, 1998 was $88.8 million, an increase of $9.7
million over the backlog at March 31, 1998.
39
<PAGE>
FISCAL 1998 COMPARED TO FISCAL 1997 ON A HISTORICAL BASIS
Sales. For fiscal 1998 consolidated sales increased $110.5 million or 30.5%
to $472.9 million as compared to $362.4 million for fiscal 1997. The increase
was primarily attributable to a full year of operations of Itronix and
increased demand for communications test products, catalog sales of industrial
computing and communications products, and aircraft cabin video information
services.
Sales of communications test products increased $29.1 million or 13.8% to
$240.4 million for fiscal 1998 as compared to $211.3 million for fiscal 1997.
The increase was primarily attributable to continued growth in the U.S. market
for communications test solutions as a result of network expansions of the
local telco service providers. The growth was driven by the needs of
communications service providers to provide higher quality networks and to
reduce costs through efficiency, which may be gained by using test and
monitoring systems.
Sales of industrial computing and communications products increased $76.7
million or 97.8% to $155.0 million for fiscal 1998 as compared to $78.3
million for fiscal 1997. The increase was primarily attributable to a full-
year of operations of Itronix in fiscal 1998 as compared to three months of
operation in fiscal 1997. In addition, the Company had an increase in sales
for its rack-mounted computers.
Sales of visual communications products increased $4.7 million or 6.5% to
$77.5 million for fiscal 1998 as compared to $72.8 million for fiscal 1997.
Sales of the Company's real-time flight information passenger video displays
increased as more airlines integrated this product into their in-flight
entertainment systems. In addition, the Company improved its market
penetration with additional sales to commercial airline companies. Offsetting
this increase was a lower sales volume in the video compression and graphical
user-interface (GUI) product lines.
Gross profit. Consolidated gross profit increased $42.3 million to $267.4
million or 56.5% of consolidated sales for fiscal 1998 as compared to $225.2
million or 62.1% for fiscal 1997. The decrease in gross profit as a percentage
of sales was attributable to a lower gross margin at Itronix compared with
other parts of the Company as well as a change in the sales mix within the
consolidated group.
Operating expenses. Operating expenses consist of selling, general and
administrative expense; product development expense; amortization of
intangibles; and non-recurring expenses. Total operating expenses were $199.1
million or 42.1% of consolidated sales for fiscal 1998 as compared to $192.3
million or 53.1% of consolidated sales for fiscal 1997. Excluding the impact
of the non-recurring charge of $27.8 million related to the impairment of
intangible assets and the write-off of purchased incomplete technology during
fiscal 1997, operating expenses were $164.5 million or 45.4% of consolidated
sales in fiscal 1997.
Selling, general and administrative expense was $138.3 million or 29.2% of
consolidated sales for fiscal 1998 as compared to $114.5 million or 31.6% of
consolidated sales for fiscal 1997. The percentage decrease was primarily
attributable to a full-year of results of Itronix in which the percentage of
selling, general and administrative expense to sales for Itronix is less than
the consolidated average.
Product development expense was $55.0 million or 11.6% of consolidated sales
for fiscal 1998 as compared to $43.3 million or 11.9% of consolidated sales
for fiscal 1997. The Company continues to invest in product development and
enhancement within all three product areas.
Amortization of intangibles was $5.8 million for fiscal 1998 as compared to
$6.8 million for fiscal 1997. Amortization decreased during fiscal 1998 due to
the write-off of goodwill and certain intangibles related to product and
distribution transitions at the end of fiscal 1997 and was offset by an
increase in goodwill amortization related to the acquisition of Itronix.
Interest. Interest income, net of interest expense, was $1.8 million for
fiscal 1998 as compared to $2.0 million for fiscal 1997. Interest expense will
increase in future years due to the increase in borrowings.
Other income. Other income was $0.7 million for fiscal 1998, essentially at
the same level of $0.6 million for fiscal 1997.
40
<PAGE>
Taxes. The effective tax rate, before one time charges, increased for fiscal
1998 to 41% as compared to 40.5% for fiscal 1997, primarily due to increased
income in states with higher income tax rates. The effective tax rate after
one time charges decreased to 41% for fiscal 1998 from 49.6% for fiscal 1997
due to the limited tax benefits in 1997 of the charges relating to the $20.6
million writeoff of incomplete technology from the Itronix acquisition.
Net income. Net income from continuing operations was $41.8 million or $2.40
per share on a diluted basis for fiscal 1998 as compared to $17.8 million or
$0.99 per share on a diluted basis for fiscal 1997. The fiscal 1997 net income
included a pretax charge of $27.8 million (with an aftertax effect on earnings
per share on a diluted basis of $1.10) related to the write-off of intangible
assets and the write-off of purchased incomplete technology. Net income in
future years will be negatively impacted by the expected rise in interest
expense due to the increase in borrowings.
FISCAL 1997 COMPARED TO FISCAL 1996 ON A HISTORICAL BASIS
Sales. For fiscal 1997, consolidated sales from continuing operations
increased 23.7% to $362.4 million from $293.0 million in fiscal 1996. Sales of
communications test products increased 22.8%, or $39.3 million due to
increased demand for existing products and a full year of operating results
for two acquisitions made in fiscal 1996. Sales of industrial computing and
communications products increased 35.3% or $20.4 million primarily driven by
revenue at Itronix during the fourth quarter of fiscal 1997. Sales of visual
communications products increased 15.3% or $9.7 million principally due to
continued strength in aircraft passenger video information systems and color
correction products.
Backlog from ongoing operations was $71.7 million at March 31, 1997, as
compared to $57.3 million at March 31, 1996.
International sales were 20% of consolidated sales in fiscal 1997, an
increase of 18% over consolidated sales in fiscal 1996.
Gross Profit. As a percentage of consolidated sales, gross profit from
continuing operations for fiscal 1997 was 62.1%, essentially at the same level
as the prior year.
Expenses. Selling, general and administrative costs increased 16.2% in
fiscal 1997 as compared to fiscal 1996. As a percentage of consolidated sales,
selling, general and administrative expenses decreased to 31.6% as compared to
33.6% in the previous year. Administrative and selling expenses increased at a
rate slower than revenue growth in the communications test products as a
result of the fiscal 1996 acquisitions.
Product development expense increased $6.8 million to 11.9% of consolidated
sales, compared to 12.4% of sales in fiscal 1996. The increase was a result of
additional investment in developing core communications test products as well
as the full year effect of product development at Tele-Path Industries, Inc.
("TPI"), a communications test subsidiary which was purchased in September
1995. Additional expense was incurred due to the acquisition of Itronix.
Amortization of intangibles increased $1.7 million as a result of the
acquisitions in fiscal 1997 and fiscal 1996.
During fiscal 1997 nonrecurring charges were $27.8 million as compared to
$16.9 million in 1996. The 1997 charges included $20.6 million for incomplete
technology which had not reached technological feasibility and had no
alternative use, purchased as part of the acquisition of Itronix at the end of
the third quarter. In addition, the Company recorded a noncash charge of $7.1
million related to the impairment of intangible assets, principally related to
the effects of product and distribution transitions. The charge consisted of a
$4.5 million writeoff of goodwill and a $2.6 million writeoff in product
technology.
Interest expense declined in fiscal 1997 compared to the prior year as a
result of lower average borrowings. Interest income increased in fiscal 1997
primarily from higher average cash balances during the year.
41
<PAGE>
Taxes. The effective tax rate, before one-time charges, increased in fiscal
1997 to 40.5% as compared to 39.8% in fiscal 1996, primarily due to losses
generated in foreign locations without tax benefit. The effective tax rate
after one-time charges increased to 49.6% due to limited tax benefits of these
charges. These charges included $20.6 million of incomplete technology from
the Itronix acquisition which resulted only in a federal tax savings. In
addition, the majority of the $7.1 million of intangibles written off
represented goodwill which was not deductible for tax purposes.
Net Income. Net income from continuing operations in fiscal 1997 was $17.8
million, or $0.99 per share on a diluted basis, as compared to $0.86 per share
on a diluted basis in fiscal 1996. Net income in fiscal 1997 included a pretax
charge of $27.8 million for purchased incomplete technology and impaired
intangible asset writeoffs with an aftertax effect on earnings per share of
($1.10) on a diluted basis. Net income for the prior fiscal year included a
charge for incomplete purchased technology that accounted for $16.9 million
with an aftertax effect on earnings per share of ($0.56) on a diluted basis.
CAPITAL RESOURCES AND LIQUIDITY
The Company broadly defines liquidity as its ability to generate sufficient
cash flow from operating activities to meet its obligations and commitments.
In addition, liquidity includes the ability to obtain appropriate debt and
equity financing and to convert into cash those assets that are no longer
required to meet existing strategic and financial objectives. Therefore,
liquidity cannot be considered separately from capital resources that consist
of current or potentially available funds for use in achieving long-range
business objectives and meeting debt service commitments.
The Company's liquidity needs arise primarily from debt service on the
substantial indebtedness incurred in connection with the Merger and from the
funding of working capital and capital expenditures. As of July 31, 1998, the
Company had $556.5 million of indebtedness, primarily consisting of $275
million principal amount of the Notes, $258 million in borrowings under the
Term Loan Facility and $23 million in borrowings under the new Revolving
Credit Facility. On May 21, 1998, the Company terminated its two credit
facilities that were in effect prior to the Merger.
Cash Flows. The Company's cash and cash equivalents increased $25.1 million
during the fiscal year ended March 31, 1998. Net cash provided by operating
activities generated $45.3 million after $13.7 million was used for the
payment of expenses related to discontinued operations. During the same
period, the Company's investing activities totaled $15.0 million primarily for
the purchase and replacement of property and equipment. See "--Capital
Expenditures" below.
The Company's cash and cash equivalents decreased $13 million during the
first three months of fiscal 1999, principally due to the Recapitalization of
the Company. During the same period, the Company's investing activities
totaled $6.1 million, primarily for the purchase and replacement of property
and equipment and the payment of an earnout incentive related to the fiscal
1998 operating result of Advent Design, Inc., a subsidiary purchased in March
1997. Also included in this total are the proceeds received from the sale of
ComCoTec, offset by the purchase of Pacific.
Capital Expenditures. The Company's historical capital expenditures since
fiscal 1996 have in substantial part resulted from the replacement of existing
property and equipment, including computer systems. The Company's capital
expenditures (including acquisitions) were $15.9 million, $10.2 million, and
$8.2 million for the three fiscal years ended March 31, 1998, 1997 and 1996,
respectively. The increase in expenditures for fiscal year 1998 relates
principally to the Company continuing to replace existing computer equipment.
The Company's capital expenditures during the first quarter of fiscal 1999
were $2.4 million compared with $4.0 million during the first quarter of
fiscal 1998. The decrease is primarily due to the timing of certain capital
expenditure purchases. The Company anticipates capital expenditures to be at
or close to the same level in fiscal year 1999 as in fiscal year 1998.
42
<PAGE>
Working Capital. During fiscal 1998 the Company's working capital was
affected as follows. The Company's operating assets and liabilities provided a
source of cash of $4.4 million. Inventory levels increased from $40.1 million
to $48.9 million, resulting in a $8.7 million use of cash, primarily
attributable to the increased volume for the Company's rack-mounted computers.
Accounts receivable decreased from $70.9 million to $70.0 million, resulting
in a source of cash of approximately $1.0 million. Other current assets
increased, resulting in a use of cash of $2.4 million. This increase was
primarily attributable to expenses relating to the Merger. Accounts payable
increased from $16.9 million to $22.9 million, resulting in a source of cash
of $6.0 million as the Company continues to aggressively manage its working
capital. Other current liabilities from continuing operations increased $8.5
million due to an increase in deferred revenue due to higher prepaid warranty
costs and an increase in accrued income taxes due to the effective tax rate
increase. This increase was offset by a decrease in discontinued operations
liabilities of $13.7 million, of which approximately $21.9 million was used
for the payment of expenses previously provided for offset by an $8.2 million
deferred tax adjustment.
During the first quarter of fiscal 1999, the Company's working capital
increased as its operating assets and liabilities provided a $4.3 million
source of cash excluding the acquisition of Pacific. Inventory levels
increased, creating a use of cash of $400 thousand. Accounts receivable
decreased from $70.0 million to $58.8 million, or a source of cash of $11.1
million, as a result of improved collection processes at the Company. Other
current assets decreased, creating a source of cash of $3.0 million, due
mainly to the recognition of expenses previously capitalized related to the
Merger. Accounts payable decreased, creating a use of cash of $6.3 million.
Other current liabilities decreased, creating a use of cash of $3.1 million,
relating primarily to the payment of bonuses previously accrued.
Other Activities. During fiscal 1998, the Company generated $4.5 million
from the exercise of stock options and the issuance of common stock of
Dynatech related to the Company's Employee Stock Purchase Plan. The Company
repurchased 163,000 shares of its common stock for $5.3 million during the
first quarter of fiscal 1998. During the quarter ended December 31, 1997, the
Company repaid all of its borrowings under its two then-existing credit
facilities. At March 31, 1998, the Company had $180 million in an unused line
of credit in those facilities, which were terminated on May 21, 1998 when the
Company entered into the Senior Credit Facility.
During the first quarter of fiscal 1999, the Company's financing activities
generated $2.8 million in cash after $573 million of net proceeds from
borrowing and $277 million from issuance of stock related to the Merger were
used to pay $806.5 million for the purchase of the outstanding stock and $41.3
million for financing fees related to the Merger.
Debt Service. Principal and interest payments under the Senior Credit
Facility and interest payments on the Notes represent significant liquidity
requirements for the Company. With respect to the $260 million borrowed under
the Term Loan Facility (which is divided into four tranches), the Company will
be required to make scheduled principal payments of the $50 million tranche A
term loan thereunder over its six-year term, with substantial amortization of
the $70 million tranche B term loan, $70 million tranche C term loan and $70
million tranche D term loan thereunder occurring after six, seven and eight
years, respectively. The $275 million of Notes will mature in 2008 and bear
interest at 9 3/4%. The Senior Credit Facility is also subject to mandatory
prepayment and reduction in an amount equal to, subject to certain exceptions,
(a) 100% of the net proceeds of (i) certain debt offerings by the Company and
any of its subsidiaries, (ii) certain asset sales by the Company or any of its
subsidiaries, and (iii) casualty insurance, condemnation awards or other
recoveries received by the Company or any of its subsidiaries and (b) 50% of
the Company's excess cash flow (as defined) for each fiscal year in which the
Company exceeds a certain leverage ratio. The Notes are subject to certain
mandatory prepayments under certain circumstances. The Revolving Credit
Facility matures in 2004, with all amounts then outstanding becoming due. The
Company expects that its working capital needs will require it to obtain new
revolving credit facilities at the time that the Revolving Credit Facility
matures, whether by extending, renewing, replacing or otherwise refinancing
the Revolving Credit Facility. No assurance can be given that any such
extension, renewal, replacement or refinancing can be successfully
accomplished or accomplished on acceptable terms. The loans under the Senior
Credit Facility bear interest at floating rates based upon the interest rate
option elected by the Company. The weighted-average interest rate on the
Senior Credit Facility loans was 9.2% for the
43
<PAGE>
period commencing May 21, 1998 and ending June 30, 1998 and is expected to be
9.01% for the period commencing July 1, 1998 and ending September 30, 1998.
See "Description of Senior Credit Facility." However, the Company has entered
into interest rate swaps which will be effective for three years beginning
September 30, 1998 to fix the interest rate charged on a portion of the total
debt outstanding under the Term Loan Facility. After giving effect to these
arrangements, approximately $195 million of the debt outstanding will be
subject to an effective average annual fixed interest rate of 5.84% plus
applicable margins specified in the Senior Credit Facility. As a result of the
substantial indebtedness incurred in connection with the Merger, the Company's
interest expense will be higher and will have a greater proportionate impact
on net income in comparison to preceding periods. Total interest expense is
expected to be $51 million in fiscal 1999.
Covenant Restrictions. The Senior Credit Facility imposes restrictions on
the ability of the Company to make capital expenditures and both the Senior
Credit Facility and the Indenture governing the Notes limit the Company's
ability to incur additional indebtedness. Such restrictions, together with the
highly leveraged nature of the Company, could limit the Company's ability to
respond to market conditions, to meet its capital spending program, to provide
for unanticipated capital investments or to take advantage of business
opportunities. The covenants contained in the Senior Credit Facility also,
among other things, restrict the ability of the Company (including its
subsidiaries) to dispose of assets, incur guarantee obligations, prepay other
indebtedness, make restricted payments, create liens, make equity or debt
investments, make acquisitions, modify terms of the indenture governing the
Notes, engage in mergers or consolidations, change the business conducted by
the Company (including its subsidiaries) or engage in certain transactions
with affiliates. In addition, under the Senior Credit Facility, the Company is
required to satisfy a minimum interest expense coverage ratio and a maximum
leverage ratio. These financial tests become more restrictive in future years.
The term loans under the Senior Credit Facility (other than the $50 million
tranche A term loan) are governed by negative covenants which are
substantially similar to the negative covenants contained in the Indenture
governing the Notes, which also impose restrictions on the operation of the
Company's businesses. See "Description of Senior Credit Facility--Covenants"
and "Risk Factors--Restrictive Financing Covenants."
Future Financing Sources and Cash Flows. The amount under the Revolving
Credit Facility that remained undrawn following the May 1998 Closing of the
Merger was $70.0 million. The undrawn portion of this facility will be
available to meet future working capital and other business needs of the
Company and replaced the Company's previously outstanding credit facilities
totaling $180.0 million. At July 31, 1998, the undrawn portion of this
facility was $87 million. The Company believes that cash generated from
operations, together with amounts available under the Revolving Credit
Facility and any other available sources of liquidity, will be adequate to
permit the Company to meet its debt service obligations, capital expenditure
program requirements, ongoing operating costs and working capital needs,
although no assurance can be given in this regard. The Company's future
operating performance and ability to service or refinance the Notes and to
repay, extend or refinance the Senior Credit Facility (including the Revolving
Credit Facility) will be, among other things, subject to future economic
conditions and to financial, business and other factors, many of which are
beyond the Company's control. See "Risk Factors--Substantial Leverage;
Liquidity."
YEAR 2000
Broadly speaking, Year 2000 issues may arise when certain computer programs
use only two digits to refer to a year or to recognize a year. As a result,
computers that are not Year 2000 compliant may read the date 2000 as 1900. The
Company is aware that Year 2000 issues could adversely impact its operations,
and as detailed below, has commenced a process intended to address Year 2000
issues that the Company has been able to identify.
State of Readiness. Management at each of the Company's businesses has
commenced a review of its computer systems and products to assess exposure to
Year 2000 issues. The review process is being conducted by employees with
expertise in information technology ("IT") as well as engineers familiar with
non-IT systems, and focuses on both the Company's internal systems and its
existing and installed base of products. As of September 15, 1998, the Company
had conducted an inventory of almost all of its existing internal systems
44
<PAGE>
and existing products with regard to Year 2000 issues (i.e. an assessment
phase). The Company has not completed its assessment of its installed base of
products for Year 2000 compliance.
As part of its assessment phase, the Company is in the process of
communicating with its significant suppliers and customers to determine the
extent to which the Company is vulnerable to any failure by those third
parties to remediate their own Year 2000 issues. In addition, the Company is
evaluating the extent to which Year 2000 issues may arise as a result of some
combinations of certain of its products with other companies' products. If any
such suppliers or customers or product combinations do not successfully and
timely achieve Year 2000 compliance, the Company's business or operations
could be materially adversely affected.
While the Company's assessment of Year 2000 issues is ongoing, internal
testing and remediation of the Company's internal systems and existing
products for compliance has commenced. Although the Company has used the
services of consultants to a limited extent in connection with its assessment
of some Year 2000 issues, it has not used independent verification and
validation processes in its testing of its systems and products. The Company
believes that, as of September 15, 1998, it had tested almost all of its
significant internal systems and existing products.
The targeted completion date for the review and remediation process for the
Communications Test business, the Company's largest, is June 1999. Management
does not consider data time fields to be critical to the functionality of the
Company's Communications Test products. Targeted completion dates range from
June 1998 to June 1999 for the review and remediation process for the
Company's other product categories, which may employ data time fields in areas
that are critical to product functionality.
Costs. The Company's historical and estimated costs of remediation have not
been and are not anticipated to be material to the Company's financial
position or results of operations, and will be funded through operating cash
flows. Total costs associated with remediation of Year 2000 (including
systems, software, and non-IT systems replaced as a result of Year 2000
issues) are currently estimated at approximately $3 million to $4 million, of
which at least $2 million to $3 million remains to be spent. The largest cost
factor to date has consisted of expenditure of management and employee time in
attention to Year 2000 and related issues. Estimated remediation costs are
based on management's best estimates. There can be no guarantee that these
estimates will be achieved and actual results could differ materially from
those anticipated, particularly if unanticipated Year 2000 issues arise.
Year 2000 Risks and Related Plans. While the Company expects to make the
necessary modifications or changes to both its internal IT and non-IT systems
and existing product base in a timely fashion, there can be no assurance that
the Company's internal systems and existing or installed base of products will
not be materially adversely affected by the advent of Year 2000. Certain of
the Company's products are used, in conjunction with products of other
companies, in applications that may be critical to the operations of its
customers. Any product non-compliance, whether standing alone or used in
conjunction with the products of other companies, may expose the Company to
claims from its customers or others, and could impair market acceptance of the
Company's products and services, increase service and warranty costs, or
result in payment of damages, which in turn could materially adversely affect
the Company.
In the event of a failure as a result of Year 2000 issues, the Company could
lose or have trouble accessing accurate internal data, resulting in incomplete
or inaccurate accounting of Company financial results, the Company's
manufacturing operating systems could be impaired, and the Company could be
required to expend significant resources to address such failures. In an
effort intended to minimize potential disruption to its internal systems, the
Company intends to perform additional hard-disk back-up of its rudimentary
systems and critical information in advance of the Year 2000.
Similarly, in the event of a failure as a result of Year 2000 issues in any
systems of third parties with whom the Company interacts, the Company could
lose or have trouble accessing or receive inaccurate third party data,
45
<PAGE>
experience internal and external communications difficulties or have
difficulty obtaining components that are Year 2000 compliant from its vendors.
The Company could also experience a slowdown or reduction of sales if
customers such as telecommunications companies or commercial airlines are
adversely affected by Year 2000 issues.
NEW PRONOUNCEMENTS
During the quarter ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share," which modifies
the calculation of earnings per share ("EPS"). The Standard replaces the
previous presentation of primary and fully diluted EPS to basic and diluted
EPS. Basic EPS excludes dilution and is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS includes the dilution of common stock
equivalents, and is computed similarly to fully diluted EPS pursuant to APB
Opinion 15. All prior periods presented have been restated to reflect this
adoption.
During the quarter ended June 30, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income,"
which establishes standards for the reporting and display of comprehensive
income and its components. This Standard requires, among other things, foreign
currency translation adjustments, which prior to adoption were reported
separately in stockholders' equity, to be included in other comprehensive
income. The adoption of this Standard has not had, and is not expected to
have, a material impact on the Company's disclosures.
The Financial Accounting Standards Board issued Statement No. 131 ("SFAS
131"), "Disclosures about Segments of an Enterprise and Related Information,"
which establishes standards for the reporting of operating segments in the
financial statements. The Company is required to adopt SFAS 131 in the fourth
quarter of fiscal 1999, and its adoption is not expected to have a material
impact on the Company's historical financial data.
On June 15, 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Standard is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 and requires that
all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the
type of hedge transaction. The Company anticipates that, due to its limited
use of derivative instruments, the adoption of this Standard will not have a
significant effect on the Company's results of operations or its financial
position.
In October, 1997, Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"), was issued which provides guidance on applying generally
accepted accounting principles in recognizing revenue on software
transactions. SOP 97-2 is effective for transactions entered into in fiscal
years beginning after December 15, 1997. The Company adopted the guidelines of
SOP 97-2 as of April 1, 1998, and the adoption has not had, and is not
expected to have, a material impact on the Company's financial results.
46
<PAGE>
THE EXCHANGE OFFER
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and reference is made to the
provisions of the Registration Rights Agreement, which has been filed as an
exhibit to the Registration Statement and a copy of which is available as set
forth under the heading "Available Information."
TERMS OF THE EXCHANGE OFFER
General
In connection with the issuance of the Existing Notes pursuant to a Purchase
Agreement, dated as of May 14, 1998 between Dynatech, TTC Merger Co. and the
Initial Purchasers, the Initial Purchasers and their respective assignees
became entitled to the benefits of the Registration Rights Agreement.
Under the Registration Rights Agreement, the Company has agreed to use its
reasonable best efforts (i) to file with the Commission within 120 days after
May 21, 1998, the date the Existing Notes were issued (the "Issue Date"), the
Registration Statement of which this Prospectus is a part with respect to a
registered offer to exchange the Existing Notes for the New Notes and (ii) to
cause the Registration Statement to be declared effective under the Securities
Act within 150 days after the Issue Date. The Company will keep the Exchange
Offer open for not less than 20 business days after the date notice of the
Exchange Offer is mailed to holders of the Existing Notes. The Exchange Offer
being made hereby, if commenced and consummated within the time periods
described in this paragraph, will satisfy those requirements under the
Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, all Existing Notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date will
be accepted for exchange. New Notes will be issued in exchange for an equal
principal amount of outstanding Existing Notes accepted in the Exchange Offer.
Existing Notes may be tendered only in integral multiples of $1,000. The
Exchange Offer is not conditioned upon any minimum principal amount of
Existing Notes being tendered for exchange. However, the obligation to accept
Existing Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions as set forth herein under "--Conditions."
Existing Notes shall be deemed to have been accepted as validly tendered
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Existing Notes for the purposes of receiving the New Notes and delivering
New Notes to such holders.
Based on interpretations by the Staff of the Commission as set forth in no-
action letters issued to third parties (including Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated
(available June 5, 1991), K-III Communications Corporation (available May 14,
1993) and Shearman & Sterling (available July 2, 1993)), the Company believes
that the New Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by any holder thereof (other than any
such holder that is a broker-dealer or an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that (i) such New Notes are acquired in the ordinary course of
business, (ii) at the time of the commencement of the Exchange Offer such
holder has no arrangement or understanding with any person to participate in a
distribution of such New Notes and (iii) such holder is not engaged in, and
does not intend to engage in, a distribution of such New Notes. The Company
has not sought, and does not intend to seek, a no-action letter from the
Commission with respect to the effects of the Exchange Offer, and there can be
no assurance that the Staff would make a similar determination with respect to
the New Notes as it has in such no-action letters.
47
<PAGE>
By tendering Existing Notes in exchange for New Notes and executing the
Letter of Transmittal, each holder will represent to the Company that: (i) any
New Notes received by such Holder will be acquired in the ordinary course of
business, (ii) such Holder will have no arrangements or understanding with any
person to participate in the distribution of the Securities or the New Notes
within the meaning of the Securities Act, (iii) such Holder is not an
"affiliate," as defined in Rule 405 of the Securities Act, of the Company or
if it is an affiliate, such Holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent
applicable, (iv) if such Holder is not a broker-dealer, that it is not engaged
in, and does not intend to engage in, the distribution of the New Notes, (v)
if such Holder is a broker-dealer, that it will receive New Notes for its own
account in exchange for Existing Notes that were acquired as a result of
market-making activities or other trading activities and that it will deliver
a prospectus in connection with any resale of such New Notes, and (vi) that it
is not acting on behalf of any person who could not truthfully make the
foregoing representations.
Each broker-dealer that receives New Notes for its own account in exchange
for Existing Notes where such Existing Notes were acquired by such broker-
dealer as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus meeting the requirements of the
Securities Act and that it has not entered into any arrangement or
understanding with the Company or an affiliate of the Company to distribute
the New Notes in connection with any resale of such New Notes. See "Plan of
Distribution."
Upon consummation of the Exchange Offer, subject to certain limited
exceptions, holders of Existing Notes who do not exchange their Existing Notes
for New Notes in the Exchange Offer will no longer be entitled to registration
rights and will not be able to offer or sell their Existing Notes, unless such
Existing Notes are subsequently registered under the Securities Act (which,
subject to certain limited exceptions, the Company will have no obligation to
do), except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws.
Expiration Date; Extensions; Amendments; Termination
The term "Expiration Date" shall mean October , 1998 (at least 21 business
days following the commencement of the Exchange Offer), unless the Company, in
its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended.
To extend the Expiration Date, the Company will notify the Exchange Agent of
any extension by oral or written notice and will notify the holders of the
Existing Notes by means of a press release or other public announcement prior
to 9:00 A.M., New York City time, on the next business day after the
previously scheduled Expiration Date. Such announcement may state that the
Company is extending the Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any Existing
Notes, to extend the Exchange Offer or to terminate the Exchange Offer and not
permit acceptance of Existing Notes not previously accepted if any of the
conditions set forth herein under "--Conditions" shall have occurred and shall
not have been waived by the Company prior to the Expiration Date, by giving
oral or written notice of such delay, extension or termination to the Exchange
Agent, or (ii) to amend the terms of the Exchange Offer in any manner deemed
by it to be advantageous to the holders of the Existing Notes. Any such delay
in acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice thereof to the Exchange
Agent. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of the
Existing Notes of such amendment.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligations to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
48
<PAGE>
INTEREST ON THE NEW NOTES
The New Notes will accrue interest at the rate of 9 3/4% per annum from the
last interest payment date on which interest was paid on the Existing Note
surrendered in exchange therefor, or, if no interest has been paid on such
Existing Note, from the Issue Date, provided, that if an Existing Note is
surrendered for exchange on or after a record date for an interest payment
date that will occur on or after the date of such exchange and as to which
interest will be paid, interest on the New Note received in exchange therefor
will accrue from the date of such interest payment date. Interest on the New
Notes is payable on May 15 and November 15 of each year, commencing November
15, 1998.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, either (i) a timely confirmation of
a book-entry transfer (a "Book-Entry Confirmation") of such Existing Notes
into the Exchange Agent's account at The Depository Trust Company (the "Book-
Entry Transfer Facility") pursuant to the procedure for book-entry transfer
described below, must be received by the Exchange Agent prior to the
Expiration Date or (ii) the holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF LETTERS OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS.
IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR
OTHER REQUIRED DOCUMENTS SHOULD BE SENT TO THE COMPANY. Delivery of all
documents must be made to the Exchange Agent at its address set forth below.
Holders may also request their respective brokers, dealers, commercial banks,
trust companies or nominees to effect such tender for such holders.
The tender by a holder of Existing Notes will constitute an agreement
between such holder and the Company in accordance with the terms and subject
to the conditions set forth herein and in the Letter of Transmittal. Any
beneficial owner whose Existing Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or an "eligible guarantor" institution within the meaning of
Rule 17Ad-15 under the Exchange Act (each an "Eligible Institution") unless
the Existing Notes tendered pursuant thereto is tendered for the account of an
Eligible Institution.
If the Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, such person should so
indicate when signing, and unless waived by the Company, evidence satisfactory
to the Company of their authority to so act must be submitted with the Letter
of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Existing Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all
Existing Notes not properly tendered or any Existing Notes which, if accepted,
would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the absolute right to waive any irregularities or conditions of
tender as to particular Existing Notes. The Company's interpretation of the
terms and conditions of the Exchange Offer (including the instructions in the
Letter of Transmittal) will be final and binding on all parties. Unless
waived, any defects or
49
<PAGE>
irregularities in connection with tenders of Existing Notes must be cured
within such time as the Company shall determine. Neither the Company, the
Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Existing
Notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of Existing Notes will not be deemed to have been made
until such irregularities have been cured or waived. Any Existing Notes
received by the Exchange Agent that is not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
without cost to such holder by the Exchange Agent, unless otherwise provided
in the Letter of Transmittal, as soon as practicable following the Expiration
Date.
In addition, the Company reserves the right in its sole discretion, subject
to the provisions of the Indenture, (i) to purchase or make offers for any
Existing Notes that remains outstanding subsequent to the Expiration Date or,
as set forth under "--Conditions," (ii) to terminate the Exchange Offer in
accordance with the terms of the Registration Rights Agreement, (iii) to
redeem Existing Notes as a whole or in part at any time and from time to time,
as set forth under "Description of Notes--Optional Redemption" and (iv) to the
extent permitted by applicable law, to purchase Existing Notes in the open
market, in privately negotiated transactions or otherwise. The terms of any
such purchases or offers could differ from the terms of the Exchange Offer.
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
all Existing Notes properly tendered will be accepted promptly after the
Expiration Date, and the New Notes will be issued promptly after acceptance of
the Existing Notes. See "--Conditions." For purposes of the Exchange Offer,
Existing Notes shall be deemed to have been accepted as validly tendered for
exchange when, as and if the Company has given oral or written notice thereof
to the Exchange Agent.
In all cases, issuance of New Notes for Existing Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of a Book-Entry Confirmation of such Existing Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility, a properly
completed and duly executed Letter of Transmittal and all other required
documents. If any tendered Existing Notes are not accepted for any reason set
forth in the terms and conditions of the Exchange Offer, such unaccepted or
such nonexchanged Existing Notes will be credited to an account maintained
with such Book-Entry Transfer Facility as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Existing Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Existing Notes by causing
the Book-Entry Transfer Facility to transfer such Existing Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance
with such Book-Entry Transfer Facility's procedures for transfer. However, the
Letter of Transmittal or facsimile thereof with any required signature
guarantees and any other required documents must, in any case, be transmitted
to and received by the Exchange Agent at one of the addresses set forth below
under "--Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
EXCHANGING BOOK-ENTRY NOTES
The Exchange Agent and the Book Entry Transfer Facility have confirmed that
any financial institution that is a participant in the Book Entry Transfer
Facility may utilize the Book-Entry Transfer Facility Automated Tender Offer
Program ("ATOP") procedures to tender Existing Notes.
Any participant in the Book Entry Transfer Facility may make book-entry
delivery of Existing Notes by causing the Book Entry Transfer Facility to
transfer such Existing Notes into the Exchange Agent's account in
50
<PAGE>
accordance with the Book Entry Transfer Facility's ATOP procedures for
transfer. However, the exchange for the Existing Notes so tendered will only
be made after a Book-Entry Confirmation of such book-entry transfer of
Existing Notes into the Exchange Agent's account, and timely receipt by the
Exchange Agent of an Agent's Message (as such term is defined in the next
sentence) and any other documents required by the Letter of Transmittal. The
term "Agent's Message" means a message, transmitted by the Book Entry Transfer
Facility and received by the Exchange Agent and forming part of a Book-Entry
Confirmation, which states that the Book Entry Transfer Facility has received
an express acknowledgment from a participant tendering Existing Notes that are
the subject of such Book-Entry Confirmation that such participant has received
and agrees to be bound by the terms of the Letter of Transmittal, and that the
Company may enforce such agreement against such participant.
GUARANTEED DELIVERY PROCEDURES
If the procedures for book-entry transfer cannot be completed on a timely
basis, a tender may be effected if (i) the tender is made through an Eligible
Institution, (ii) prior to the Expiration Date, the Exchange Agent receives
from such Eligible Institution a properly completed and duly executed Letter
of Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by facsimile transmission,
mail or hand delivery), setting forth the name and address of the holder of
Existing Notes and the amount of Existing Notes tendered, stating that the
tender is being made thereby and guaranteeing that within three New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, a Book-Entry Confirmation and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent and (iii) a Book-Entry Confirmation and
all other documents required by the Letter of Transmittal are received by the
Exchange Agent within three NYSE trading days after the date of execution of
the Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Existing Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date at one of the addresses set forth below under "--Exchange
Agent." Any such notice of withdrawal must specify the name and number of the
account at the Book-Entry Transfer Facility from which the Existing Notes was
tendered, identify the principal amount of the Existing Notes to be withdrawn,
and specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Existing Notes and otherwise comply
with the procedures of such facility. All questions as to the validity, form
and eligibility (including time of receipt) of such notice will be determined
by the Company, whose determination shall be final and binding on all parties.
Any Existing Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Existing Notes
which have been tendered for exchange but which are not exchanged for any
reason will be credited to an account maintained with such Book-Entry Transfer
Facility for the Existing Notes as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Existing Notes may be retendered by following one of the procedures described
under "--Procedures for Tendering" and "--Book-Entry Transfer" above at any
time on or prior to the Expiration Date.
CONDITIONS
The Company has no obligation to consummate the Exchange Offer if the New
Notes to be received by such holder or holders of Existing Notes in the
Exchange Offer, upon receipt, will not be tradable by such holder without
restriction under the Securities Act and the Exchange Act and without material
restrictions under the "blue sky" or securities laws of the several states of
the United States. All conditions to the Exchange Offer (with the exception of
certain necessary governmental approvals) must be satisfied or waived prior to
the Expiration Date.
51
<PAGE>
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Existing Notes and may terminate or amend the Exchange Offer, if at any
time before the acceptance of such Existing Notes for exchange or the exchange
of the New Notes for such Existing Notes, any of the following events shall
occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking any
damages as a result thereof, or (ii) resulting in a material delay in the
ability of the Company to accept for exchange or exchange some or all of
the Existing Notes pursuant to the Exchange Offer; or any statute, rule,
regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of
the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the sole judgment of the
Company might directly or indirectly result in any of the consequences
referred to in clauses (i) or (ii) above or, in the sole judgment of the
Company, might result in the holders of New Notes having obligations with
respect to resales and transfers of New Notes which are greater than those
described in the interpretation of the Commission referred to on the cover
page of this Prospectus, or would otherwise make it inadvisable to proceed
with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by a governmental agency or authority which may adversely affect the
ability of the Company to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitations by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any changes (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company and its subsidiaries taken as a whole that, in the
sole judgment of the Company is or may be adverse to the Company, or the
Company shall have become aware of facts that, in its sole judgment have or
may have adverse significance with respect to the value of the Existing
Notes or the New Notes; which in the sole judgment of the Company in any
case, and regardless of the circumstances (including any action by the
Company) giving rise to any such condition, makes it advisable not to
proceed with the Exchange Offer and/or with such acceptance for exchange or
with such exchange.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise thereto at
any time and from time to time in its sole discretion. The failure by the
Company at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right and each such right shall be deemed an
ongoing right which may be asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Existing Notes
tendered, and no New Notes will be issued in exchange for any such Existing
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939.
52
<PAGE>
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
By Mail: By Overnight Carrier
State Street Bank and Trust Company State Street Bank and Trust Company
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: Corporate Trust Department Attention: Corporate Trust Department
Kellie Mullen Kellie Mullen
By Hand: in New York (as Drop Agent) By Hand: in Boston
State Street Bank and Trust Company, State Street Bank and Trust Company
N.A. Two International Place
61 Broadway, 15th Floor Fourth Floor, Corporate Trust
Corporate Trust Window Boston, Massachusetts 02110
New York, New York 10006
For Information Call:
(617) 664-5587
By Facsimile Transmission
(for Eligible Institutions only):
(617) 664-5314
Attention: Corporate Trust Department
Confirm by Telephone:
(617) 664-5314
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and regular
employees of the Company.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of the Prospectus and related documents
to the beneficial owners of the Existing Notes, and in handling or forwarding
tenders for exchange.
The expenses to be incurred by the Company in connection with the Exchange
Offer will be paid by the Company, including fees and expenses of the Exchange
Agent and Trustee and accounting, legal, printing and related fees and
expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Existing Notes pursuant to the Exchange Offer. If, however, New Notes or
Existing Notes for principal amounts not tendered or accepted for exchange are
to be registered or issued in the name of any person other than the registered
holder of the
53
<PAGE>
Existing Notes tendered, or if tendered Existing Notes are registered in the
name of any person other than the person signing the Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the exchange of
Existing Notes pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment
of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Existing Notes who do not exchange their Existing Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Existing Notes as set forth in the legend
thereon as a consequence of the issuance of the Existing Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Existing Notes may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the
Existing Notes under the Securities Act. To the extent that Existing Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Existing Notes could be adversely affected.
54
<PAGE>
BUSINESS
The Company develops, manufactures and sells market-leading test, analysis,
communications and computing equipment in three product categories:
. Communications Test. The Company believes that TTC is the second largest
U.S. provider of communications test instruments (by U.S. sales). TTC
provides products to communications service providers (such as the
RBOCs, long-distance companies and competitive access providers),
service users (such as large corporate and government network
operators), and manufacturers of communications equipment and systems.
TTC's broad test and analysis product line ranges from portable units
(used by field service technicians to test telephone and data
communications lines and services) to centralized test and monitoring
systems installed in telephone company central offices. The Company's
communications test business accounted for 51% of its sales (or
approximately $240.4 million), and a higher percentage of its EBITDA (as
defined), for fiscal 1998.
. Industrial Computing and Communications. The Company addresses two
distinct segments of the North American ruggedized computer market. ICS
is the only significant direct marketer of computer products and systems
designed to withstand excessive temperatures, dust, moisture and
vibration in harsh operating environments such as production facilities.
ICS markets to engineers, scientists and production managers through its
widely recognized Industrial Computer Source-Book catalogs. Itronix
sells ruggedized portable communications and computing devices used by
field-service workers for telephone companies, utilities, insurance
companies and other organizations with large field-service workforces.
The Company's industrial computing and communications business accounted
for 33% of the Company's sales (or approximately $155.0 million), and a
lower percentage of its EBITDA, for fiscal 1998.
. Visual Communications. The Company's visual communications business
consists principally of two market-leading niche-focused subsidiaries:
(i) AIRSHOW is the world leader in passenger cabin video information
display systems and information services for the general and commercial
aviation markets; and (ii) da Vinci is the world leader in digital color
enhancement systems used in the process of transferring film images into
electronic signals--a process commonly used to transfer film images to
video for use in the production of television commercials and
programming. The Company's visual communications business accounted for
16% of the Company's sales (or approximately $77.5 million), and a
higher percentage of its EBITDA, for fiscal 1998.
For fiscal 1998, the Company generated sales and EBITDA of $472.9 million
and $86.9 million, respectively.
COMPETITIVE STRENGTHS
The following characteristics contribute to the Company's competitive
position and outlook.
. Leading Market Positions. The Company's principal businesses occupy the
#1 or #2 overall position in their respective principal markets. TTC,
which is the Company's largest subsidiary and operates the Company's
communications test business in a highly fragmented market, has in
recent years held the #1 or #2 position in market segments accounting
for an estimated 70% of its test instrument sales. ICS is the only
significant direct marketer of ruggedized industrial computers and
Itronix is the leading supplier of ruggedized portable notebook
computers to U.S. telecommunications companies. AIRSHOW and da Vinci
have the #1 shares in their respective niche markets. The Company's
market leadership is enhanced by its well known brand names, including
FIREBERD and T-BERD test instruments, the Industrial Computer Source-
Book catalogs, and the AIRSHOW map system.
. High-Margin, Cash-Generative Business. The Company's gross profit and
EBITDA margins were, as a percent of sales, 56.5% and 18.4%,
respectively, for fiscal 1998. Management believes the Company's strong
profitability is attributable to its leading market positions, its
extensive sales and distribution networks, its entrenched customer
relationships and a management culture emphasizing
55
<PAGE>
product quality and customer service and support, rather than price-
based competition. The Company's strong profitability, combined with
relatively low capital expenditure requirements (averaging 3% of sales
since 1995), provides cash flow to fund the Company's growth strategy
and has facilitated a cumulative investment of approximately $165
million in product development from the beginning of fiscal 1995 through
fiscal 1998.
. High Installed Base of Products. As leaders in each of their respective
served markets, the Company's principal businesses enjoy high installed
product bases, which the Company believes generally provide a
competitive advantage in selling product enhancements, upgrades,
replacements and aftermarket parts and service. For example, the Company
has sold over 100,000 of its communications test instruments
(representing over $1.0 billion in customer investment), the majority of
which the Company believes are currently in service. This installed base
also represents a substantial investment by customers in training on the
Company's communications test products, a familiarity that the Company
capitalizes on in selling and marketing its products and in the
development of new products.
. Extensive Sales and Distribution Network with Longstanding Customer
Relationships. Management believes that each of the Company's principal
businesses enjoys one of the most extensive, effective and highly
trained sales and distribution networks in its respective principal
markets. The communications test business, for example, has a 180-person
U.S. sales organization comprising predominantly engineers and technical
professionals, who undergo rigorous, ongoing education and training. The
Company has been selling to service providers such as AT&T, MCI, GTE and
Bell Atlantic (or their predecessors) since prior to the early 1980s.
The Industrial Computer Source-Book (approximately six million copies
distributed in fiscal 1998) is the most widely recognized catalog of
ruggedized industrial computer systems by scientists and engineers.
These purchasers rely upon ICS's sales staff, comprised predominantly of
electrical engineers, to solve compatibility and functionality issues in
configuring the systems.
. Experienced Management Team with Substantial Equity Ownership. Led by
CEO John F. Reno, a 23-year Dynatech veteran, the senior management of
each of the Company's businesses has on average more than 15 years of
industry experience. As a result of the Recapitalization and related
transactions, approximately 350 senior managers and key employees
collectively own or have options to acquire approximately 25% of
Dynatech's common stock on a fully diluted basis.
BUSINESS STRATEGY
The Company intends to pursue the following strategies:
. Leverage Leading Market Positions. The Company believes that its leading
market positions provide it with several competitive advantages in
comparison to smaller market participants, particularly in its
communications test business, and position it to expand its business by
(i) spreading product development costs over a larger sales and unit
base, (ii) leveraging its sales and marketing resources and customer
relationships to sell new and enhanced products through established
channels, and (iii) taking advantage of its high installed base of
instruments to generate incremental sales for product enhancements,
upgrades, replacements and service.
. Address New Market Segments. The Company intends to continue to develop
products to address new market segments in each of its businesses and
thereby expand the size of its total served market. For example, the
Company currently addresses approximately two-thirds of the $2.1 billion
communications test instrument market and is beginning to address
segments within the $1.0 billion communications test and monitoring
systems market. With product line extensions and additions, the Company
can expand the size of its served market while leveraging its extensive
sales and distribution network.
. Pursue Strategic Acquisitions. Since the end of fiscal 1993, the Company
has focused on its higher-growth, more profitable market-leading
businesses, selling 25 non-core businesses for gross proceeds
56
<PAGE>
of $211 million and acquiring five complementary businesses. The Company
intends to continue to pursue strategic acquisitions that complement its
existing businesses and further expand its product lines and
technological capabilities. The communications test instrument market is
highly fragmented, which management believes provides significant
opportunities for future strategic acquisitions. With the Company's
economies of scale, well-established sales and marketing channels and
customer relationships, the Company believes it can, through selective
acquisitions, improve profitability while expanding the breadth of its
product line and enhancing its technological expertise.
. Increase International Penetration. The Company generated approximately
87% of sales for fiscal 1998 in North America, primarily in the United
States, where it has established market-leading positions in each of its
principal businesses. The Company believes there are significant
opportunities to expand its international business. For example, while
the Company generated only 11% of its communications test sales from
markets outside North America during fiscal 1998, the $900 million
international market represents an estimated 43% of the global
communications test instrument market for the same period.
INDUSTRY OVERVIEW
Communications Test
Market Overview. The Company believes that the worldwide market for
communications testing is approximately $3.1 billion, comprising the $2.1
billion communications test instrument market and the $1.0 billion test and
monitoring systems market. Test instruments are used in the design,
manufacturing, installation and maintenance of communications equipment and
networks while test and monitoring systems automate the process of detecting,
isolating and resolving faults within a communications network. TTC currently
addresses approximately two-thirds of the $2.1 billion test instruments market,
primarily in North America, and is beginning to address segments within the
$1.0 billion test and monitoring systems market.
Given the historical growth of communications networks, the multiplicity of
communications technologies and the broad range of applications at various
points in a network, there are numerous different tests and analyses necessary
for communications service providers and users to install, maintain and
troubleshoot communications networks. As a result, the communications test
instrument market is highly fragmented with many competitors, most of which
address only selected niches within the overall market. The Company estimates
that there are approximately 50 competitors in the communications test
instrument market having sales of over $1 million. A small number of larger
companies compete in many segments of the overall market, including Hewlett-
Packard Company, which the Company believes is the worldwide overall market
leader and which competes in many of the same segments as the Company. Other
significant participants in the overall market include Tektronix, Inc., Wandel
& Goltermann GmbH & Co. and Wavetek Corporation (which have recently merged),
and Network General Corporation. The schematic below illustrates some of the
applications of communications test instruments in communications networks
throughout the overall industry (including applications that the Company does
not currently address):
57
<PAGE>
[DIAGRAM APPEARS HERE]
Industry Trends. Growth in the communications test instrument market is
driven in part by growth in the number of service providers, increased demand
for communications services and the introduction of new communications
protocols. Deregulation and privatization of the worldwide telecommunications
industry has produced increased competition and a proliferation of service
providers. To compete, communications providers must accelerate their network
deployment, maintain and upgrade existing infrastructures, and continue to
increase their quality of service, all while also reducing cost structures. In
addition, the growth of the volume of voice traffic, LAN backbones and
interconnections, high-speed interconnects, Internet access and cellular and
other wireless communications systems have led to the deployment of new high-
speed transmission technologies such as Synchronous Optical Network ("SONET"),
Asynchronous Transfer Mode ("ATM"), frame relay and Integrated Services
Digital Network ("ISDN").
The Company believes that these trends have driven overall communications
test instrument industry growth of approximately 10-12% annually in recent
years. Growth rates vary widely across segments of the market and have been
typically higher in segments that support the development of high growth
communications services such as ATM, frame relay, SONET and wireless services.
The Company believes the communications test and monitoring systems market has
grown by as much as approximately 12% annually, driven by the needs of service
providers to provide higher quality networks and to reduce costs through
efficiency, which may be gained by using test and monitoring systems.
Current and future growth rates are difficult to predict, in part due to
recent global economic events. See "Management's Discussion and Analysis--
Overview--Current and Historical Trends."
Industrial Computing and Communications
The Company's industrial computing and communications business addresses two
markets: (1) the market for ruggedized rack-mounted computers, which is
characterized by thousands of smaller customers who typically order fewer than
ten units each, and (2) the market for ruggedized portable computers, which is
characterized by a more concentrated group of larger customers that typically
order large quantities of units.
Ruggedized Rack-Mounted Computers. The Company believes that the global
market for ruggedized industrial computer products currently exceeds $1.0
billion annually, split roughly evenly between North
58
<PAGE>
America and the rest of the world. The Company estimates that this global
market has grown approximately 10% annually in recent years driven by the
increased use of computers in harsh environments, although current and future
growth rates are difficult to predict, in part due to recent global economic
events. See Management's Discussion and Analysis--Overview--Current and
Historical Trends." The market consists of sales of (i) modular component
products, which include chassis and CPUs sold separately and integrated by the
customer, and (ii) fully integrated systems, which consist of a considerably
broader product offering that is fully integrated into complete systems prior
to sale. The Company believes that modular component products and fully
integrated systems each account for approximately half of the total global
market. ICS competes primarily in the fully integrated systems segment of the
market and focuses on the direct marketing of its products to engineers and
scientists purchasing one to ten units through its catalogs, utilizing a
proprietary database developed over many years. In ICS's target market, ICS's
principal competitors include Texas Microsystems Inc., the I-Bus Division of
Maxwell Technologies, Inc., American Advantech Corp. and Diversified
Technology, Inc. Other significant competitors in the overall market include
IBM and Siemens AG.
Ruggedized Portable Computers. The market for ruggedized portable computers
consists of customers with large mobile workforces in industries such as
telecommunications, utilities, insurance and others that employ service and
maintenance technicians for a variety of products. The Company estimates that
the global market for ruggedized portable notebook computers, Itronix's
principal market, currently exceeds $400 million. The Company believes this
market grew approximately 16% in 1997, although current and future growth
rates are difficult to predict, in part due to recent global economic events.
See "Management's Discussion and Analysis--Overview--Current and Historical
Trends." In this market, because of the relatively small number of customers
with large field-service work forces, the timing and size of whose orders are
irregular, growth rates vary widely. Ruggedized portable computers provide
field workers with the ability to install, diagnose and maintain company and
customer equipment and collect critical information from remote locations. The
critical feature of ruggedized portable computers is the ability to operate
reliably in adverse environments and work conditions while withstanding
mechanical shock, vibration, moisture and extreme temperatures. Itronix is the
market leader in sales to U.S. telecommunications service providers, whose
large field service personnel require portable computers to collect data from
various remote locations. Itronix's competitors in the fully-ruggedized
portable notebook computer market include Panasonic Industrial Co. (which the
Company believes is the worldwide market leader) and a number of smaller
competitors, as well as competition from manufacturers of competing mass-
market "semi-rugged" mobile computers, which constrains the pricing of premium
portable ruggedized products like Itronix's. Producers of ruggedized portable
computers also face indirect competition from off-the-shelf portable computers
and single-purpose diagnostic and data collection instruments.
Visual Communications
AIRSHOW. AIRSHOW addresses a segment of the overall market for information
and entertainment systems used by passengers of commercial and general
aviation aircraft. The market is driven by growth in aircraft production and
demand by aircraft passengers to receive real-time video or data information
while the aircraft is in the air. Management projects estimated growth in new
general aviation aircraft production of 20% in 1998. AIRSHOW has a leadership
position in a market niche for passenger cabin video information systems for
the general aviation and commercial airline markets. On June 19, 1998 the
Company acquired Pacific Systems Corporation, a designer and manufacturer of
customer specified avionics and integrated cabin management equipment for the
corporate and general aviation market, which is intended to complement
AIRSHOW's existing offerings. See "--Products and Services."
da Vinci. da Vinci produces digital color correction systems, which are a
component of telecine systems used by video post production and commercial
production facilities to enhance and color match images as they are
transferred from film to video tape for editing and distribution. The
principal application of da Vinci's color correction system is to conform and
enhance color in the film editing process and to provide color to black and
white films and video images. da Vinci's products occupy the leadership
position in this small niche market, growth in which is driven primarily by
the introduction of new video technologies and standards within the film and
video production industry.
59
<PAGE>
PRODUCTS AND SERVICES
Communications Test
Overview. TTC provides a wide range of test and analysis products, service
and support that enable customers worldwide to develop, manufacture, install
and maintain communications networks and equipment. TTC's products include a
broad portfolio of test instruments, test systems, software and professional
services that address multiple technologies and applications at various
locations in communications networks.
TTC's test instrument products address two key categories of applications in
communications networks: (i) transmission testing between service providers'
central offices ("digital transport") and between a service provider's central
office and its customers (the "local loop"), and (ii) network services testing
by both service providers and users of a broad range of technologies and
services delivered principally to business customers. In addition, TTC is
expanding its product offerings for the communications test and monitoring
systems market.
TTC's sales were $116.1 million in fiscal 1994, $143.1 million in fiscal
1995, $172.0 million in fiscal 1996, $211.3 million in fiscal 1997 and $240.4
million in fiscal 1998.
Transmission Testing. TTC produces a wide range of products that test and
monitor the physical transmission of voice and data signals across a service
provider's network of transmission circuits, cables, connectors and related
network components in the central office and local loop. Domestic and
international service providers use TTC's transport test products to install
and maintain high-speed transmission circuits. Service providers have employed
such circuits as inter-office links to connect voice and data transmission
between long-distance carriers, local exchange carriers and wireless carriers.
More recently, transmission circuits employing newer technologies, such as
ISDN, SONET and ATM, have been proliferating as more analog networks are being
upgraded as customers demand improvements to facilitate high-speed data
transmission. TTC's products cover most widely accepted existing and emerging
technologies in its markets, with average selling prices ranging from $5,000
for a handheld unit to $45,000 for a fully-featured portable instrument to
$70,000 for a test system.
Service providers use TTC's local loop test products to install and maintain
voice telephone services, ISDN, digital data system ("DDS"), T1 lines, and
fiber optic facilities between the service providers' local central offices
and the customers' premises. For example, technicians use products such as the
T-BERD 209OSP, a ruggedized field service test set, to perform fault location
and data quality testing of voice or data circuits in the local loop. With the
increased competition among service providers and the attendant workforce
downsizing of incumbent local service providers such as the RBOCs, TTC designs
its local loop test products to assist such customers in improving service
quality and productivity while reducing costs.
Network Services Testing. TTC's network services products test
communications technologies and services employed primarily by businesses,
including their physical transmission facilities, voice services, and data
services such as ATM, frame relay and ISDN. TTC's FIREBERD data communications
analyzers, for example, measure performance of a wide range of network
transmission equipment utilized on a business customer's premises and have a
modular construction to facilitate simple upgrades as new technologies and
services are employed. TTC's FIREBERD 500 Internetwork Analyzer monitors and
tests network traffic between a LAN and WAN and can analyze numerous
communications protocols. In addition, TTC manufactures portable, hand-held
test instruments that enable service technicians to install or repair
networks.
Communications Test and Monitoring Systems. TTC historically has focused on
the communications test instrument market, which continues to account for the
predominance of TTC's sales. However, TTC has been developing products to
address the $1.0 billion communications test and monitoring systems market.
For example, the CENTEST 650 was developed to automate the monitoring and
testing of DS0, DS1 and DS3 signals so that service providers can identify
network trouble spots quickly and direct mobile repair crews more efficiently
from a central location. In addition, TTC is devoting significant resources to
develop additional products for the communications test and monitoring systems
market.
60
<PAGE>
Industrial Computing and Communications
Overview. The Company's industrial computing and communications business
consists of two subsidiaries addressing different segments of the ruggedized
computer market: (1) ICS, primarily a direct marketer of rack-mounted computer
products and systems used by engineers, scientists and others in industrial or
otherwise harsh operating environments, and (2) Itronix, acquired by the
Company in December 1996, which produces mobile computing and communications
devices used by companies with field service organizations such as telephone
companies and utilities. ICS generally sells to thousands of small accounts,
which typically order fewer than ten units, whereas Itronix sells to a more
concentrated group of large organizations that typically order large
quantities of units.
Industrial Computer Source. ICS employs a direct marketing strategy with its
widely recognized Industrial Computer Source-Book catalogs, proprietary target
customer database and highly trained sales force of electrical engineers to
sell a broad range of integrated industrial computers, input/output devices,
and communication and accessory products. ICS primarily sells fully customized
integrated systems that its sales force configures to address a customer's
particular computing needs. ICS is geared to serving a large number of
customers which typically order fewer than ten units per order. Over the past
three years, ICS has sold to over 12,000 customers with an average order size
of approximately $3,000. ICS mailed approximately six million catalogs in
fiscal 1998 to a proprietary list of over 250,000 scientists, engineers and
production managers.
ICS offers rack-mounted personal computers for use in environments other
than homes and offices, including a wide range of commercial and
communications applications. Products include ruggedized computers and remote
terminals designed for operation in adverse environments (exposure to
vibration, noise, temperature fluctuations and extremes, dust, moisture,
electromagnetic fields and other hazards). ICS designs, configures and
assembles its products but generally sources components from third-party
vendors and contract manufacturers. ICS also uses its in-house CPU design
capabilities to sell customized modular products and subsystems to systems
integrators.
ICS's sales were $36.6 million in fiscal 1994, $44.8 million in fiscal 1995,
$57.9 million in fiscal 1996, $60.5 million in fiscal 1997, and $83.8 million
in fiscal 1998.
Itronix. Itronix is the leading supplier of portable, networked notebook
computing and communications devices used by field-service technicians in the
U.S. telecommunications industry. These products are carried by field-service
technicians who use them in a broad range of environments to communicate--
either through wireline or wireless connections--to a central office.
Customers use Itronix's mobile computing products to automate dispatching,
work management and field reporting processes.
Itronix also targets utilities, insurance companies, and other organizations
seeking to increase the efficiency of their field-service personnel. Service
technicians often make multiple service calls to different locations without
returning to a base office. The use of networked computing devices allows for
more effective dispatching to service sites and provides two-way
communications with technicians. Itronix's flagship product provides
technicians with the ability to access engineering data and customer service
histories, or to collect and transmit key information regarding their service
calls to a central database.
Itronix currently produces two hardware product lines, the X-C Series of
laptop computers and the T Series of smaller handheld computing devices.
Itronix's flagship product line, the X-C series, is a rugged laptop computer
that features functionality and power that is similar to commodity laptops yet
is designed to withstand harsh environments, including heat, cold, rain and
the shock and vibration found in service vehicles. The X-C is also an
integrated communications device with options for both wired and wireless
communications. Other features include intelligent battery-life management and
touch screen functionality.
Itronix, which the Company acquired on December 31, 1996, is facing
significant manufacturing and marketing challenges and operated at a modest
loss for fiscal 1998. Management is currently implementing a
61
<PAGE>
plan designed to (1) reduce manufacturing costs by renegotiating component
costs, outsourcing non-core manufacturing activities and redesigning its
products and (2) reposition its premium niche against new market competition
from "semi-rugged" and mass market products. See "Risk Factors--Risks Relating
to Itronix."
Itronix's sales were $62.8 million in fiscal 1996, $81.6 million in fiscal
1997, and $71.2 million in fiscal 1998.
Visual Communications
Overview. The Company's principal visual communications businesses are
AIRSHOW and da Vinci. The Company's total visual communications sales were
$46.9 million in fiscal 1994, $55.2 million in fiscal 1995, $63.1 million in
fiscal 1996, $72.8 million in fiscal 1997 and $77.5 million in fiscal 1998.
AIRSHOW. AIRSHOW primarily manufactures passenger cabin video information
display systems for the general and commercial aviation markets, selling its
equipment to airlines, aircraft manufacturers, and aircraft electronic system
(avionics) installation centers. AIRSHOW also provides information services by
collecting data from various information service providers and transmitting
news, weather and financial information as text and graphics to aircraft
equipped with AIRSHOW Network products. AIRSHOW systems are installed on over
3,000 general aviation aircraft and on approximately 100 commercial airlines.
The AIRSHOW moving map system and real-time flight information passenger
video displays are offered across general and commercial aviation markets with
variations in equipment interface for different aircraft and video systems
types. The AIRSHOW Network is an extension of the moving map system and
includes a real-time data communications system. AIRSHOW Network is now
offered as an option by leading corporate aircraft manufacturers such as
Bombardier Inc., The Cessna Aircraft Company, Inc., Dassault Falcon Jet Corp.,
Gulfstream Aerospace Corporation and Learjet Inc. AIRSHOW recently introduced
its AIRSHOW TV service which provides for reception of direct broadcast
satellite TV aboard general aviation aircraft which operate within the
continental U.S. This service is being primarily marketed to the general
aviation market.
da Vinci. da Vinci produces digital color correction systems, which are a
component of telecine systems used by video post production and commercial
production facilities to enhance and color match images as they are
transferred from film to video tape for editing and distribution. The
principal application of da Vinci's color correction system is to conform and
enhance color in the film editing process and to provide color to black and
white films and video images. da Vinci products occupy the leadership position
in this small niche market, growth in which is driven primarily by the
introduction of new video technologies and standards within the film and video
production industry.
Other Subsidiaries. The Company's other visual communications subsidiaries
are: DataViews, which provides tools for software developers; and Parallax
Graphics, Inc., which the Company plans to close operations over time. On June
30, 1998, the Company sold the assets and certain liabilities of ComCoTec,
Inc. for a total sale price of $21.0 million.
PRODUCT DEVELOPMENT
For each of the Company's businesses, the development of new and enhanced
products is a key element of its strategy, designed to further penetrate
served markets, address new markets and reduce costs. From the beginning of
fiscal 1994 through fiscal 1998, consolidated product development expense was
approximately $192 million, representing an average of 12.2% of sales per
year. Consolidated product development expense was 12.6% of sales ($30.6
million) in fiscal 1995, 12.4% of sales ($36.5 million) in fiscal 1996, 11.9%
of sales ($43.3 million) in fiscal 1997 and 11.6% of sales ($55.0 million) in
fiscal 1998. The Company anticipates product development spending to continue
at similar levels as a percentage of sales in the future. See "Risk Factors--
Rapid Technological Change; Challenges of New Product Introductions."
From the beginning of fiscal 1994 through fiscal 1998, the Company invested
approximately $133 million in the development of communications test products.
In fiscal 1998, the Company introduced a significant
62
<PAGE>
number of new test instrument products including NetAnalyst, a client/server-
based software product that will allow users to centrally test the entire
network from the network operations center, the TPI 550E ISDN test set which
provides complete ISDN testing in a portable instrument, and the T-BERD 950
multi-service test set.
The Company has also made recent Pentium product introductions in its
industrial computing and communications product lines and has significantly
expanded its AIRSHOW product offerings.
The Company uses its customer relationships to focus its product development
strategy on customer needs and emerging technologies.
CUSTOMERS AND MARKETING
Overview. The Company markets its products to a diverse customer base. The
Company's products are sold to a broad range of communications service
providers, including RBOCs, long-distance carriers, competitive access
providers, wireless service companies, independent telephone companies, cable
television operations, and a wide array of computer and data communication
users, corporate and industrial customers, and scientific organizations.
Most of the Company's revenues are generated through direct selling. The
Company also uses distributorships and representative relationships to sell
its products in areas of the United States and the rest of the world with
relatively low sales volume.
The Company's sales of goods and services to various agencies of the United
States federal government were approximately $12.8 million, $17.5 million and
$19.3 million in fiscal 1996, 1997 and 1998, respectively. Sales of goods and
services to the agencies of the United States federal government are made
pursuant to standard contracts which generally permit such agencies to cancel
or revise the contracts at will.
No single customer accounted for more than 10% of sales in any of these
three years.
Communications Test. In the U.S., TTC markets and sells its communications
test and analysis products primarily through a 180-person direct sales team
comprising predominantly engineers and technical professionals who undergo
intensive initial training on TTC's and its competitors' products.
Internationally, TTC employs a 60-person direct sales team for key markets
along with distributors and representatives to market and sell its products.
TTC's principal customers are communications service providers (such as RBOCs,
long-distance companies and competitive access providers), service users such
as large corporate and government network operators, and manufacturers of
communications equipment and systems.
Industrial Computing and Communications. ICS sells its ruggedized industrial
computer products to engineers and scientists primarily through its catalogs
and a telemarketing sales force comprised of highly- trained electrical
engineers. Itronix employs a direct sales force of engineers to market and
sell its ruggedized mobile computer products to organizations with large field
service groups such as telephone and insurance companies and utilities. ICS
typically sells to thousands of customers with no significant customer
concentration while Itronix's sales tend to be more concentrated on fewer
large customers.
Visual Communications. The Company's niche visual communications businesses
generally sell into niche markets directly through their own sales forces as
well as through distributors and representatives.
PRODUCT ASSEMBLY
The Company outsources most of its manufacturing and mechanical parts
fabrication and generally performs its own final assembly and testing of
products.
COMPETITION
The markets in which the Company competes are highly competitive and are
characterized by rapidly changing technology. Principal competitors include
businesses with significant financial, development, marketing, and
manufacturing resources, as well as numerous small, specialized companies. The
Company believes it holds a relatively favorable position with respect to the
important competitive factors in each of its
63
<PAGE>
markets. The Company considers rapid product development, product
functionality and features, and highly trained technical sales and support
staff to be key competitive factors. See "--Industry Overview" and "Risk
Factors--Highly Competitive Markets."
INTERNATIONAL
The Company maintains sales subsidiaries or branches for its communications
test business in major countries in Western Europe and Asia and has
distribution agreements in other countries where sales volume does not warrant
a direct sales organization. The Company's foreign sales from continuing
operations (including exports from the United States directly to foreign
customers) were approximately 20%, 20%, and 16% of consolidated net sales in
fiscal 1996, 1997, and 1998, respectively.
The Company's international business is subject to risks customarily found
in foreign operations, such as fluctuations in currency exchange rates, import
and export controls, and regulatory policies of foreign governments. A summary
of the Company's sales, earnings and identifiable assets by geographic area is
found in the Company's financial statements. See the Company's consolidated
financial statements (including the notes thereto) appearing elsewhere in this
Prospectus.
DISCONTINUED OPERATIONS AND DIVESTED BUSINESSES
The Company engaged in a business divestiture program beginning in 1994 and
ending in fiscal 1997. Through this program, the Company sold 24 non-core
businesses, which resulted in total proceeds to the Company of approximately
$190 million, including $13.5 million in non-cash proceeds. In addition, on
June 30, 1998 the Company sold the assets and certain liabilities of ComCoTec,
Inc. for a total sale price of $21.0 million dollars. See the notes to the
Company's consolidated financial statements appearing elsewhere in this
Prospectus. (ComCoTec, Inc. was not considered a discontinued operation in the
Company's historical financial statements.)
BACKLOG
The Company's backlog of orders at March 31, 1997 and 1998 was $71.7 million
and $79.1 million, respectively.
EMPLOYEES
At March 31, 1998, the Company employed approximately 2,249 people. The
Company's experience has been that employees having requisite skills for the
Company's purposes are generally available in the areas where its facilities
are located, although there are constraints on the Company's ability to fill
certain engineering positions. The Company's employees are not represented by
a labor union, and the Company believes its employee relations are good.
LITIGATION
The Company is involved from time to time in routine legal matters
incidental to its business. The Company believes that the resolution of such
matters will not have a material adverse effect on the Company's financial
condition or results of operations.
On June 27, 1996, Cincinnati Microwave, Inc. ("CMI") filed an action in the
United States District Court for the Southern District of Ohio against the
Company and Whistler Corporation of Massachusetts ("Whistler"), alleging
willful infringement of CMI's patent for a mute function in radar detectors.
In 1994, the Company sold its radar detector business to Whistler. The Company
and Whistler have asserted in response that they have not infringed, and that
the patent is invalid and unenforceable. The Company obtained an opinion of
counsel from Bromberg & Sunstein LLP in connection with the manufacture and
sale of the Company's Whistler series radar detectors and will be offering the
opinion, among other things, as evidence that any alleged infringement was not
willful. On March 24, 1998, CMI, together with its co-plaintiff and patent
assignee Escort, Inc., moved for summary judgment. The Company and Whistler
have opposed the motion for summary judgment. The Company
64
<PAGE>
intends to defend the lawsuit vigorously and does not believe that the outcome
of the litigation is likely to have a material adverse effect on the Company's
financial condition, results of operations or liquidity.
INTELLECTUAL PROPERTY
The Company relies primarily on trade secrets, trademark laws,
confidentiality procedures and contractual restrictions to establish and
protect its proprietary rights.
The Company generally seeks patent protection for inventions and
improvements to its products which it believes to be patentable. It holds
numerous United States and foreign patents and patent applications covering
many products. The Company does not believe that the expiration of any patent
or group of patents would materially affect its business.
FIREBERD, T-BERD, CENTEST, INTERCEPTOR, XC 6250, INDUSTRIAL COMPUTER SOURCE-
BOOK, DA VINCI SYSTEMS and AIRSHOW are among the registered trademarks which
the Company considers valuable assets.
DYNATECH (and design) is a registered service mark of the Company in the
United States and a registered trade or service mark (issued or applied for)
of the Company in most other major industrialized countries of the world.
The Company is subject to customary risks of infringement of its proprietary
rights. While the Company considers its proprietary rights important, it
believes its technical marketing and manufacturing capabilities are of greater
competitive significance.
SUPPLIERS
Materials and components used in the Company's products are normally
available stock items or can be obtained to Company specifications from more
than one potential supplier, with the exception of certain components which
are being sourced from a single supplier. These include certain commercially
available and customized microprocessors and application specific integrated
circuits, power supplies, display devices and certain operating system
software. The Company has not entered into long term contracts for the supply
of such components. Although alternative sources generally exist for these
materials, a significant amount of time could be required before the Company
would begin to receive adequate supplies from such alternative suppliers. The
Company also purchases certain key components from sole source vendors,
including a semi-conductor manufacturer of a component utilized in the
Company's communications test business and a component manufacturer for the
Itronix series of ruggedized laptop computers. There can be no assurance that
such components will continue to be produced or that the price for such
components may not significantly increase. Some components and assemblies are
purchased in Asia pursuant to volume contracts. See "Risk Factors--Dependence
on Sole Source Suppliers and Licensors."
ENVIRONMENTAL MATTERS
Federal, state and local laws or regulations which have been enacted or
adopted regulating the discharge of materials into the environment have not
had, and under present conditions, the Company does not foresee that they will
have, a material adverse effect on capital expenditures, earnings, or the
competitive position of the Company.
65
<PAGE>
PROPERTIES
The Company's policy is generally to lease real property for its
manufacturing and sales operations. Principal operating facilities for
continuing operations are as follows:
<TABLE>
<CAPTION>
LEASE
LOCATION SQUARE FEET TERMINATION
-------- ----------- -----------
<S> <C> <C>
Burlington, Massachusetts............................ 14,600 1999
Ft. Lauderdale, Florida.............................. 16,300 2001
Germantown, Maryland................................. 30,000 2006
Germantown, Maryland................................. 68,400 2001
Germantown, Maryland................................. 30,000 2003
Germantown, Maryland................................. 68,600 2003
Kirkland, Washington................................. 39,000 2000
Northampton, Massachusetts........................... 22,500 1999
Tustin, California................................... 52,000 2005
Salem, Virginia...................................... 35,900 2004
San Diego, California................................ 135,000 2004
Spokane, Washington.................................. 66,400 1999
</TABLE>
The Company has other leases for continuing operations manufacturing space
and sales offices, but in each case the total leased space is under 15,000
square feet.
The Company has leased approximately 239,000 square feet of space in various
leased facilities in discontinued operations at March 31, 1998.
YEAR 2000
The Company has commenced a review of its computer systems and products in
order to assess its exposure to Year 2000 issues. The Company is currently in
the process of determining the full scope, related costs and action plan to
insure that the Company's systems continue to meet its internal needs and
those of its customers. The Company expects to make the necessary
modifications or changes to its computer information systems to enable proper
processing of transactions relating to the Year 2000 and beyond. However,
there can be no assurance that Year 2000 costs and expenses will not have a
material adverse effect on the Company. In addition, the Company does not
currently have complete information concerning the Year 2000 compliance status
of its suppliers and customers. In the event that any of the Company's
significant suppliers or customers do not successfully and timely achieve Year
2000 compliance, the Company's business or operations could be materially
adversely affected. Finally, there can be no assurance that the Company's
existing or installed base of products are Year 2000 compliant, or that the
Company's products will not be integrated by the Company or its customers
with, or otherwise interact with, non-compliant software or other products.
Any such product non-compliance may expose the Company to claims from its
customers and others, and could impair market acceptance of the Company's
products and services, increase service and warranty costs, or result in
payment of damages, which in turn could materially adversely affect the
Company. See "Management's Discussion and Analysis--Year 2000."
66
<PAGE>
MANAGEMENT
TTC is managed by Holding, TTC's sole member, and TTC does not currently
have any executive officers or directors. The Company anticipates that, in the
future, TTC will have executive officers and directors that are identical to
those of Holding. The Communications Test Business of TTC will also have a
slate of officers.
Listed below are the individuals who currently serve as the executive
officers and directors of Holding, each of whom is a citizen of the United
States.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
John F. Reno............... 59 Chairman, President, Chief Executive Officer,
Director
Allan M. Kline............. 53 Corporate Vice President, Chief Financial
Officer, Treasurer, Director
John R. Peeler............. 43 Corporate Vice President--Communications Test
Business, Director
Samuel W. Tishler.......... 60 Corporate Vice President, Corporate Development
John A. Mixon.............. 52 Corporate Vice President, Human Resources
Robert W. Woodbury, Jr..... 42 Corporate Vice President, Corporate Controller
Mark V.B. Tremallo......... 42 Corporate Vice President, General Counsel
Joseph L. Rice, III........ 66 Director
Brian D. Finn.............. 38 Director
Charles P. Pieper.......... 51 Director
</TABLE>
John F. Reno presently serves as Chairman, President and Chief Executive
Officer and a Director of Holding. Mr. Reno has served as Chairman, President
and Chief Executive Officer since August 1996 and as President and Chief
Executive Officer since January 1993. From July 1991 to January 1993, Mr. Reno
was President and Chief Operating Officer. Prior to July 1991, Mr. Reno served
as Executive Vice President and Chief Operating Officer. Mr. Reno is also a
director of Millipore Corporation.
Allan M. Kline presently serves as Corporate Vice President, Chief Financial
Officer and Treasurer of Holding. Mr. Kline is presently a Director of Holding
and has served as such since May 21, 1998. Mr. Kline joined Holding in June
1996. From 1995 to 1996, he served as Senior Vice President, Chief Financial
Officer of CrossComm Corporation, a manufacturer of networking products. From
1994 to 1995, he was President of TAR Acquisition Corp., a private investment
company. From 1989 to 1994, Mr. Kline was also a Director of CrossComm
Corporation. From 1990 to 1994, Mr. Kline was Senior Vice President, Chief
Financial Officer of Cabot Safety Corporation, a subsidiary of Cabot
Corporation. Prior to that, he served at Leggett & Platt, Incorporated and was
a partner with Arthur Young & Company.
John R. Peeler presently serves as Corporate Vice President--Communications
Test Business, and President and Chief Executive Officer of all of the
Company's telecommunications test businesses. Mr. Peeler is presently a
Director of Holding and has served as such since May 21, 1998. Mr. Peeler has
been employed by the Company since 1980.
Samuel W. Tishler presently serves as Corporate Vice President--Corporate
Development of Holding. Mr. Tishler joined Holding in September 1994. From
1988 to 1994, he was Vice President of Raytheon Ventures, the venture capital
portfolio of Raytheon Co. From 1977 to 1986, he served as Vice President of
ADL Enterprises, a wholly owned subsidiary of Arthur D. Little, Inc. From 1970
to 1977, Mr. Tishler was President of Harnessed Energies, Inc., a manufacturer
of scientific instrumentation.
John A. Mixon presently serves as Corporate Vice President--Human Resources
of Holding. Mr. Mixon has been employed by the Company since 1989.
Robert W. Woodbury, Jr. presently serves as Corporate Vice President--
Corporate Controller of Holding. Mr. Woodbury joined Holding in January 1996.
From 1992 to January 1996, he served as Vice President and Controller for
Kollmorgen Corporation, a manufacturer of motion control devices. From 1990 to
1992, he was Chief Financial Officer of Kidde Fenwal, Inc., a manufacturer of
fire suppression equipment.
67
<PAGE>
Mark V.B. Tremallo presently serves as Corporate Vice President--General
Counsel of Holding. Mr. Tremallo joined Holding in May 1997. From 1995 to 1997
he served as Vice President, General Counsel and Secretary of Aearo
Corporation (formerly Cabot Safety Corporation), a manufacturer of industrial
safety products. From 1990 to 1995 he was General Counsel of Cabot Safety
Corporation, a subsidiary of Cabot Corporation.
Joseph L. Rice, III is Chairman of CDR and, since May 21, 1998, a Director
of Holding. In addition, Mr. Rice is a director of Uniroyal Holding, Inc.,
Remington Arms Company, Inc. and Thyssen Schulte Bautechnik, corporations in
which an investment partnership managed by CDR has an investment, and serves
as a trustee of Williams College and The Manhattan Institute. He is a graduate
of Williams College and Harvard Law School. Mr. Rice is a limited partner of
CD&R Associates V Limited Partnership, the general partner of CDR Fund V
("Associates V"), and is a Director and President of CD&R Investment
Associates II, Inc. ("Associates II Inc."), the managing general partner of
Associates V.
Brian D. Finn is a principal of CDR and, since May 21, 1998, a Director of
Holding. Mr. Finn is also a director of U.S. Office Products Company, a
corporation in which CDR Fund V has an investment. Mr. Finn joined CDR in 1997
from Credit Suisse First Boston where he was Managing Director and Co-Head of
Mergers & Acquisitions. During his 15 years at Credit Suisse First Boston he
advised a large number of corporate clients in various industries in
transactions totaling approximately $250 billion. Mr. Finn received his B.S.
in Economics from The Wharton School of the University of Pennsylvania. He is
a limited partner of Associates V and a Director of Associates II Inc.
Charles P. Pieper is a principal of CDR and, since May 21, 1998, a Director
of Holding. Mr. Pieper is also Chairman of North American Van Lines, Inc. and
U.S. Office Products Company, corporations in which CDR Fund V has an
investment. Mr. Pieper joined CDR in 1997. Prior to joining CDR, he was
President and Chief Executive Officer of GE Lighting Europe. During his 16-
year career at GE, Mr. Pieper was responsible for several key business units,
including serving as President and Chief Executive Officer of: GE Japan,
Korea, Taiwan; GE Medical Systems Asia; as well as GE Lighting Europe. He
joined GE in 1981, from the Boston Consulting Group. Mr. Pieper graduated from
Harvard College and holds an M.B.A. from Harvard Business School. He is a
limited partner of Associates V and a Director of Associates II Inc.
The composition of the Board is subject to change from time to time. CDR
Fund V has the right to elect the directors of the Board, except that CDR Fund
V has agreed, pursuant to the employment agreements with Messrs. Reno, Kline
and Peeler, to elect such officers to serve as members of the Board during the
period of their employment with the Company.
ELECTION AND COMPENSATION OF DIRECTORS
All directors are elected annually and hold office until their successors
are elected and qualified, or until their earlier removal or resignation.
None of the Company's current directors is separately compensated for
service as a member of the Board. Three of the directors are also employees
and are compensated for their services as employees as described below. The
other three directors are principals of CDR, which receives a management fee
for providing certain financial and management services to the Company,
including the services of these individuals as directors.
During fiscal 1998, compensation of non-employee Directors ("Non-Employee
Directors") of Holding was at the rate of $1,500 for each Board of Directors
or committee meeting attended ($500 for each committee meeting held directly
before or after a meeting of the Board of Directors), $750 for a meeting held
over the telephone, plus a quarterly retainer fee paid at the rate of 200
shares of Dynatech Common Stock per quarter. Chairmen of all committees other
than the Executive Committee also received an additional 25 shares of Dynatech
Common Stock per quarter. In addition, Non-Employee Directors were granted
Options under the Dynatech Corporation 1994 Stock Option and Incentive Plan.
Non-Employee Directors who had served on the Board for at least five years
were also entitled to receive an annual retirement benefit equal to $16,000.
Such retirement benefit was payable following the later of the Non-Employee
Director's 60th birthday or retirement from the Board (or such later date as
the Director shall elect) for a period equal to the number of full years
service on the Board, up to a maximum of ten years. None of the current
Directors of Holding participate in the programs or receive the compensation
described above.
68
<PAGE>
EXECUTIVE COMPENSATION
The following summary compensation table sets forth information concerning
compensation awarded to, earned by, or paid to (i) Holding's Chief Executive
Officer, and (ii) the four highest compensated executive officers who were
serving as executive officers at the end of fiscal 1998 (collectively, the
"Named Executive Officers"), for services rendered in all capacities with
respect to Holding's fiscal years ended March 31, 1996, 1997 and 1998
(references to "Common Stock" mean the common stock of Dynatech Corporation
prior to the Recapitalization, and not Recapitalized Common Stock):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG TERM
----------------------- COMPENSATION ALL OTHER
FISCAL SALARY BONUS AWARDS(2) COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS # ($)(3)
- --------------------------- ------ ----------------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
John F. Reno............. 1998 481,250 604,053 56,700 11,857
Chairman, President and 1997 456,250 1,032,185 55,100 31,892
Chief Executive Officer 1996 435,000 372,836 62,000 25,533
John R. Peeler........... 1998 270,000 383,513 24,800 47,870
Corporate Vice President
of Dynatech; 1997 244,242 662,214 20,800 18,936
President and Chief
Executive Officer of 1996 225,042 293,128 28,000 15,939
all Telecommunications
Test Businesses
Allan M. Kline(4)........ 1998 218,750 198,108 16,000 23,060
Corporate Vice
President, Chief
Financial 1997 158,333 218,918 50,000 3,234
Officer and Treasurer
John A. Mixon............ 1998 185,591 152,680 12,900 23,828
Corporate Vice
President-- 1997 178,500 270,591 13,800 9,910
Human Resources 1996 172,125 94,384 14,000 8,851
Samuel W. Tishler(5)..... 1998 176,667 145,338 31,800 15,834
Corporate Vice
President-- 1997 144,167 108,521 5,000 6,701
Corporate Development 1996 130,000 48,227 2,000 4,471
</TABLE>
- --------
(1) Perquisites and other personal benefits paid to each Named Executive
Officer in each instance aggregated less than the lesser of $50,000 or 10%
of the total annual salary and bonus set forth in the columns entitled
"Salary" and "Bonus" for each Named Executive Officer, and accordingly,
have been omitted from the table as permitted by the rules of the SEC.
(2) Figures in this column show the number of options for Common Stock (not
Recapitalized Common Stock) granted. Holding did not grant any restricted
stock awards or stock appreciation rights to any of the Named Executive
Officers during the years shown.
(3) Figures in this column represent Holding's contributions on behalf of each
of the Named Executive Officers to Holding's 401(k) plan. These figures
also include Holding's contributions to a nonqualified deferred
compensation plan, which became effective April 1, 1995.
(4) Mr. Kline's employment with Holding commenced in June 1996.
(5) Mr. Tishler became an officer of Holding in May 1997.
69
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants of
options to purchase Common Stock (not Recapitalized Common Stock) granted to
the Named Executive Officers during fiscal 1998:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
----------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE OR FOR OPTION TERM(2)
OPTIONS IN FISCAL BASE PRICE EXPIRATION ----------------------------
NAME GRANTED (#) YEAR (%) ($/SH)(1) DATE 5% ($) 10% ($)
---- ----------- ---------- ----------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
John F. Reno............ 56,700 8.9% $35.9375 7/30/07 $ 1,281,471 $ 3,247,498
John R. Peeler.......... 24,800 3.9% $35.9375 7/30/07 $ 560,502 $ 1,420,422
Allan M. Kline.......... 16,000 2.5% $35.9375 7/30/07 $ 361,614 $ 916,402
John A. Mixon........... 12,900 2.0% $35.9375 7/30/07 $ 291,552 $ 738,849
Samuel W. Tishler....... 20,000 3.2% $38.8750 5/6/07 $ 488,966 $ 1,239,134
Samuel W. Tishler....... 11,800 1.8% $35.9375 7/30/07 $ 266,691 $ 675,846
</TABLE>
- --------
(1) Options vest annually in five equal installments beginning on the first
anniversary date of grant. The options in this table expire 10 years after
grant. In connection with the Merger, all of the options became fully
vested and exercisable, other than options to purchase 20,737 shares of
Common Stock granted to Mr. Reno.
(2) These columns show the hypothetical value of the options granted at the
end of the option terms if the price of the Common Stock were to
appreciate annually by 5% and 10%, respectively, based on the grant date
(i.e. pre-Merger) value of the Common Stock. As a result of the
Recapitalization, these projected values no longer bear any direct
relationship to the value of the underlying shares.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information regarding exercises of
options to purchase Common Stock (not Recapitalized Common Stock) by the Named
Executive Officers during the fiscal year ended March 31, 1998 and stock
options for Common Stock (not Recapitalized Common Stock) held by the Named
Executive Officers at March 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END(#) AT FY-END(2)(3)($)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED(1)($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
John F. Reno............ 0 0 175,820/237,180 $5,674,711/5,824,895
John R. Peeler.......... 0 0 68,160/ 98,240 2,271,940/2,464,210
Allan M. Kline.......... 0 0 10,000/ 56,000 161,875/ 843,500
John A. Mixon........... 3,250 96,906 30,360/ 52,340 898,303/1,224,860
Samuel W. Tishler....... 0 0 1,800/ 37,000 37,288/ 424,075
</TABLE>
- --------
(1) Calculated on the basis of the fair market value of the Common Stock on
the date of exercise, less the option exercise price.
(2) Based on the number of shares subject to such options at fiscal year end
March 31, 1998. The number of shares shown does not reflect the
adjustments made to such number in connection with the Merger.
(3) Calculated on the basis of the pre-Merger fair market value of the Common
Stock on March 31, 1998 ($48.875), less the applicable option exercise
price. In the Merger, all of the options held by the Named Executive
Officers (other than options with respect to 20,737 shares held by Mr.
Reno) became exercisable.
CONVERSION OF OPTIONS IN CONNECTION WITH THE MERGER
Immediately prior to the Merger, all outstanding stock options to purchase
shares of Common Stock, including those stock options held by the Named
Executive Officers, became fully vested and exercisable except those unvested
stock options held by Mr. Reno that qualify as "incentive stock options" under
the Internal
70
<PAGE>
Revenue Code. At the effective time of the Merger, outstanding options to
purchase Common Stock held by each of the Named Executive Officers were
converted into equivalent options to purchase shares of Recapitalized Common
Stock. As a result of the conversion of the options, Messrs. Reno, Peeler,
Kline, Mixon and Tishler hold options to purchase 8,094,800, 2,696,960,
1,293,600, 1,464,119 and 623,279 shares of Recapitalized Common Stock,
respectively, at option exercise prices ranging from $0.5357 to $1.9834. The
terms of the converted options are substantially similar to those of the prior
options except that the period following a termination of employment during
which the Named Executive Officer may exercise converted options (other than
those that qualify as incentive stock options) has been extended and in the
case of Messrs. Reno, Peeler and Kline, such extended period is substantial.
EMPLOYMENT AND OTHER AGREEMENTS
In connection with the Merger, Holding entered into employment agreements
with each of Messrs. Reno, Kline and Peeler that supersede their respective
Special Termination Agreements. The employment agreements generally provide
for an initial term of five years, commencing at the effective time of the
Merger, and for compensation and benefit arrangements that are consistent with
the compensation and benefit arrangements of each such Named Executive Officer
in effect prior to the Merger. The employment agreements further provide for
the election of such officers to serve as directors of Holding during their
employment with Holding. These employment agreements replace and supersede
certain change of control severance agreements (the "Special Termination
Agreements") that were in effect prior to the Merger.
Pursuant to his employment agreement, Mr. Reno together with his family
trusts, contributed 40,804 shares of Common Stock to MergerCo in exchange for
799,758 shares of MergerCo Common Stock ("MergerCo Common Stock"), which
shares of MergerCo Common Stock were converted in the Merger into a like
number of shares of Recapitalized Common Stock. In addition, pursuant to their
respective other employment agreements, all options to purchase Common Stock
held by each of Messrs. Reno and Kline prior to the Merger and a substantial
majority of the options held by Mr. Peeler prior to the Merger were converted
into equivalent options to purchase shares of Recapitalized Common Stock (the
exercise prices of which preserve the economic value of their former options),
all of which, other than options to purchase 20,737 shares of Common Stock
held by Mr. Reno, became fully vested and exercisable in connection with the
Merger. In addition, the employment agreements: (i) restrict the ability of
each Named Executive Officer to transfer shares of Recapitalized Common Stock
beneficially owned by him (other than certain permitted transfers for estate
planning purposes and transfers not exceeding in the aggregate 25% of the
Recapitalized Common Stock owned, or subject to options held by each Named
Executive Officer, at the effective time of the Merger), (ii) grant each Named
Executive Officer certain "tag along" rights which entitle the Named Executive
Officer to participate in certain sales of Recapitalized Common Stock by CDR
Fund V prior to a Public Offering (as defined in the employment agreements),
(iii) grant CDR Fund V certain "drag along" rights which entitle CDR Fund V to
require each Named Executive Officer to sell his shares of Recapitalized
Common Stock in a proposed sale by CDR Fund V of substantially all of its
shares of Recapitalized Common Stock prior to a Public Offering, and (iv)
grant Holding and CDR Fund V the right, following any termination of a Named
Executive Officer's employment prior to a Public Offering, to purchase the
Named Executive Officer's shares of Recapitalized Common Stock and options to
purchase Recapitalized Common Stock.
The Employment Agreements also provide that, in the event of a termination
of any such Named Executive Officer's employment during the term of the
agreement by Holding other than for "Cause" (as defined in the employment
agreements) or by such Named Executive Officer for "Good Reason" (as so
defined), the Named Executive Officer will be entitled to special termination
benefits consisting of (i) continued payments of his average annual base
salary and average annual bonus until the second anniversary of the date of
termination, (ii) continued coverage under Holding's medical insurance plan
until his 65th birthday and (iii) a pro rata incentive compensation bonus for
the portion of the calendar year preceding such termination. The agreements
also contain customary indemnification, confidentiality, noncompetition and
nonsolicitation provisions.
71
<PAGE>
In connection with the Merger, Holding entered into certain agreements (the
"Agreements"), with Messrs. Mixon and Tishler, which supersede their special
termination agreements. The Agreements provide that, in the event of a
termination of employment prior to the third anniversary of the effective time
of the Merger by Holding other than for "Cause" (as defined in such
agreements) or by such executive for "Good Reason" (as so defined), each such
executive will be entitled to special termination benefits during a salary
continuation period ranging from 12 to 18 months, depending upon such
executive's period of service with Holding. Such salary continuation benefits
will consist of continued payments of such executive's average annual base
salary and average annual bonus and continued coverage under Holding's medical
insurance and other benefit plans. The Agreements also contain customary
indemnification, confidentiality, noncompetition and nonsolicitation
provisions.
Pursuant to the Agreements, a substantial majority of the options to
purchase shares of Common Stock held by Messrs. Mixon and Tishler prior to the
Merger were converted into equivalent options to purchase shares of
Recapitalized Common Stock (the exercise prices of which preserve the economic
value of the former options), all of which became fully vested and exercisable
as of the effective time of the Merger. In addition, these Agreements provide
for substantially the same call, drag-along and tag-along rights as do the
employment agreements of Messrs. Reno, Peeler and Kline.
72
<PAGE>
OWNERSHIP OF CAPITAL STOCK
The following table sets forth certain information regarding the beneficial
ownership of outstanding Recapitalized Common Stock as of July 31, 1998.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME BENEFICIAL OWNERSHIP(1) COMMON STOCK(2)
---- ----------------------- ---------------
<S> <C> <C>
Clayton, Dubilier & Rice Fund V
Limited Partnership(3)............... 110,790,770 92.1%
John F. Reno(4)....................... 8,491,637 6.6%
John R. Peeler(5)..................... 2,708,907 2.2%
John A. Mixon(6)...................... 1,467,227 1.2%
Allan M. Kline(7)..................... 1,294,769 1.1%
Samuel W. Tishler(8).................. 623,780 *
All Directors and Executive Officers
as a group (10 persons)(9)........... 126,483,354 93.6%
</TABLE>
- --------
*Less than 1% of outstanding Recapitalized Common Stock.
(1) Represents shares of Recapitalized Common Stock beneficially owned on July
31, 1998. Unless otherwise noted, each person has sole voting and
investment power with respect to such shares.
(2) Based upon 120,251,376 shares of Recapitalized Common Stock outstanding as
of July 31, 1998. Recapitalized Common Stock includes all shares of
outstanding Recapitalized Common Stock plus, as required for the purpose
of determining beneficial ownership (in accordance with Rule 13d-3
promulgated pursuant to the Exchange Act), all shares of Recapitalized
Common Stock subject to any right of acquisition by such person, through
exercise or conversion of any security, within 60 days of July 31, 1998.
(3) B. Charles Ames, Michael G. Babiarz, William A. Barbe, Kevin J. Conway,
Brian D. Finn, Donald J. Gogel, Hubbard C. Howe, Thomas F. Ireland,
Christopher MacKenzie, Charles P. Pieper and Joseph L. Rice, III may be
deemed to share beneficial ownership of the shares owned of record by CDR
Fund V by virtue of their status as stockholders of Associates II Inc.,
the managing general partner of Associates V, the general partner of CDR
Fund V, but each expressly disclaims such beneficial ownership of the
shares owned by CDR Fund V. The voting stockholders of Associates II Inc.
share investment and voting power with respect to securities owned by CDR
Fund V, but no individual controls such investment or voting power. The
business address of Associates II Inc., Associates V and CDR Fund V is
1403 Foulk Road, Suite 106, Wilmington, Delaware 19803. The business
address for each of the individuals named in this paragraph (except Mr.
MacKenzie) is 375 Park Avenue, New York, New York 10152. The business
address for Mr. MacKenzie is 45 Berkeley Street, London WIA WEB.
(4) Includes 1,000 shares owned by Mr. Reno's spouse, 294,000 shares owned by
The John F. Reno 1997 Qualified Annuity Trust for which Mr. Reno has sole
voting power, 294,000 shares owned by The Suzanne M. Reno 1997 Qualified
Annuity Trust, of which Mr. Reno is a Trustee, and 2,525 shares owned by a
relative for which Mr. Reno has power of attorney. Includes 7,688,355
shares of Recapitalized Common Stock issuable upon exercise of stock
options which are exercisable within 60 days of July 31, 1998.
(5) Includes 2,696,690 shares of Recapitalized Common Stock issuable upon
exercise of stock options which are exercisable within 60 days of July 31,
1998.
(6) Includes 1,464,120 shares of Recapitalized Common Stock issuable upon
exercise of stock options which are exercisable within 60 days of July 31,
1998.
(7) Includes 1,293,600 shares of Recapitalized Common Stock issuable upon
exercise of stock options which are exercisable with 60 days of July 31,
1998.
(8) Includes 623,280 shares of Recapitalized Common Stock issuable upon
exercise of stock options which are exercisable within 60 days of July 31,
1998.
(9) Includes 14,871,755 shares of Recapitalized Common Stock issuable upon
exercise of stock options which are exercisable within 60 days of July 31,
1998. Also includes 110,790,770 shares of Recapitalized Common Stock owned
by CDR Fund V. Brian D. Finn, Charles P. Pieper and Joseph L. Rice, III
may be deemed to share beneficial ownership of the shares owned of record
by CDR Fund V by virtue of their status as stockholders of Associates II
Inc., the managing general partner of Associates V, the general partner of
CDR Fund V, but each expressly disclaims such beneficial ownership of the
shares owned by CDR Fund V. The voting stockholders of Associates II Inc.
share investment and voting power with respect to securities owned by CDR
Fund V, but no individual controls such investment or voting power.
73
<PAGE>
THE RECAPITALIZATION
The following is a summary of the structure of the Recapitalization, the
Merger and certain provisions of the Merger Agreement. This summary does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part and a copy of which is available
as set forth under the heading "Available Information."
As of December 20, 1997, Dynatech entered into the Merger Agreement between
Dynatech and MergerCo, formed by CDR Fund V, to effect the Recapitalization of
Dynatech. The Recapitalization was accomplished through the Merger of MergerCo
with and into Dynatech with Dynatech continuing as the surviving corporation.
Dynatech succeeded to all the rights and obligations of MergerCo. The May 1998
closing of the Recapitalization occurred simultaneously with the closing of
the offering of the Existing Notes. Immediately after the issuance of the
Existing Notes, TTC and TTC Merger Co. merged with TTC surviving, TTC
succeeded to and assumed all of the obligations under the Indenture and the
Existing Notes, and Dynatech was released as a primary obligor from its
obligations under the Indenture and the Existing Notes. TTC thereby became the
primary obligor on the Existing Notes. Dynatech agreed to guarantee the
monetary obligations of TTC Merger Co. and TTC under the Indenture and the
Notes on a senior subordinated basis. In connection with the merger of TTC and
TTC Merger Co., TTC assumed all of the obligations under the Senior Credit
Facility and became the borrower thereunder, and Dynatech transferred to TTC
its ownership interest in all of its other subsidiaries. See "Description of
Notes" and "Description of Senior Credit Facility."
Immediately prior to the Merger, (a) John F. Reno, together with two family
trusts established by Mr. Reno, contributed 40,804 shares of Common Stock to
MergerCo in exchange for 799,758 shares of MergerCo Common Stock and (b) CDR
Fund V purchased 110,790,770 shares of MergerCo Common Stock for approximately
$277 million.
Pursuant to the Merger Agreement, the "Effective Time" occurred upon filing
the Articles of Merger with the Massachusetts Secretary of State and the
Certificate of Merger with the Delaware Secretary of State. At the Effective
Time, (i) each share of Common Stock outstanding immediately prior to the
Effective Time was converted into the right to receive $47.75 in cash and 0.5
fully paid and nonassessable shares of Recapitalized Common Stock (the "Merger
Consideration") (except that any shares held by MergerCo or held in Dynatech's
treasury were canceled, and any stockholder that properly dissented from the
Merger is entitled to appraisal rights under the Massachusetts Business
Corporation Law (the "MBCL")); and (ii) each share of MergerCo Common Stock
was converted into one share of Recapitalized Common Stock. Of the 120,021,689
shares of Recapitalized Common Stock outstanding immediately after the Merger,
CDR Fund V holds 110,790,770 shares, or approximately 92.3%, Mr. Reno
(together with his family trusts) holds 799,758 shares, or approximately 0.7%,
and Stockholders, other than Mr. Reno and his family trusts, hold 8,431,161
shares, or approximately 7.0%. Dynatech is treating the Merger as a
recapitalization for financial reporting purposes. Accordingly, the historical
basis of Dynatech's assets and liabilities have not been affected by the
transaction.
As a result of the Recapitalization and related transactions, Dynatech used
approximately $873.0 million to (i) finance the purchase of Dynatech common
stock for $806.5 million, (ii) pay $25.2 million for option cancellation
payments and (iii) pay $41.3 million for the fees and expenses incurred in
connection with the Merger. In addition, (a) $300.0 million of bank financing
was drawn down under the Senior Credit Facility, including $260.0 million
pursuant to the Term Loan Facility and $40.0 million under the Revolving
Credit Facility, and (b) $275.0 million in gross proceeds was provided through
the sale of the Existing Notes. Dynatech had $21.0 million of cash on-hand to
use in connection with the Merger and approximately $277 million of gross
proceeds from the sale of MergerCo common stock to CDR Fund V, which proceeds
became an asset of Dynatech upon effectiveness of the Merger.
Pursuant to the Merger Agreement, Dynatech's 1996 Employee Stock Purchase
Plan (the "ESPP") was amended to provide that there would be no new stock
purchase periods after March 31, 1998. The ESPP terminated at the Effective
Time.
74
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CDR FUND V
CDR Fund V is a private investment fund managed by CDR. The general partner
of CFR Fund V is Associates V. Associates V has three general partners. The
managing general partner of Associates V is Associates II Inc. The other
general partners of Associates V are CD&R Cayman Investment Associates, Inc.,
a Cayman Islands exempted company ("Associates Cayman Inc.") and CD&R
Investment Associates Inc., a Delaware corporation ("Associates Inc.").
Mr. Rice, who is a principal of CDR and the Chairman of CDR, is a Director
and the Chairman of both Associates II Inc. and Associates Inc., is a
shareholder and Director of Associates Cayman Inc., and also serves as a
Director of Dynatech. Mr. Finn, who is a principal of CDR and is a Director of
Associates II Inc., also serves as a Director of Dynatech. Mr. Pieper, who is
a principal of CDR and a Director of Associates II Inc., also serves as a
Director of Dynatech. See "Management."
CDR
CDR is a private investment firm which is organized as a Delaware
corporation. CDR is the manager of a series of investment funds, including CDR
Fund V, formed to invest in equity or equity-related securities of entities
formed to effect leveraged acquisition transactions and in the equity of
corporations where the infusion of capital, coupled with the provision of
managerial assistance by CDR, can be expected to generate returns on
investments comparable to returns historically achieved in leveraged
acquisition transactions. CDR generally assists in structuring, arranging
financing for and negotiating the transactions in which the funds it manages
invest. After the consummation of such transactions, CDR generally provides
management and financial consulting services to the companies in which its
investment funds have invested during the period of such funds' investment.
Such services include helping such companies to establish effective banking,
legal and other business relationships and assisting management in developing
and implementing strategies for improving the operational, marketing and
financial performance of such companies.
Dynatech and TTC entered into a consulting agreement with CDR which
provides, for so long as CDR Fund V has an investment in the Company, for (i)
an annual fee initially of $500,000, for providing such management and
financial consulting services to the Company and (ii) reimbursement of out-of-
pocket expenses it incurs after the Merger. At the closing of the Merger, the
Company paid CDR a transaction fee of $9.2 million plus reimbursement of out-
of-pocket expenses incurred by CDR in consideration for services provided by
CDR in arranging the Merger, arranging and negotiating the financing for the
Merger and related services. Dynatech and TTC also agreed to indemnify CDR and
CDR Fund V and certain related parties, subject to certain limitations,
against all claims and liabilities arising out of or in connection with the
Securities Act, the Exchange Act or any other applicable securities or other
laws in connection with the Merger and related transactions and the operation
of the business following the Merger. In addition, Dynatech entered into a
registration rights agreement with CDR Fund V, Mr. Reno and certain family
trusts which provides that such persons may require Dynatech to register their
shares of Recapitalized Common Stock under the Securities Act.
EMPLOYMENT AND OTHER AGREEMENTS
In connection with the Merger, the Company entered into employment
agreements with Messrs. Reno, Kline and Peeler and certain other agreements
with Messrs. Mixon and Tishler. See "Executive Compensation--Employment and
Other Agreements."
In addition, certain other executives and key employees of the Company
elected to convert substantially all of their stock options to purchase shares
of Common Stock into equivalent options to purchase shares of Recapitalized
Common Stock (the exercise prices of which preserved the economic value of
their prior Dynatech stock options), all of which became fully vested and
exercisable as of the Effective Time. Such other executives and key employees
also entered into agreements with Dynatech containing terms that are
substantially identical to the terms of the Mixon/Tishler Agreements.
75
<PAGE>
DESCRIPTION OF SENIOR CREDIT FACILITY
General. In connection with the Recapitalization, Dynatech and TTC Merger
Co. entered into the Senior Credit Facility with a syndicate of financial
institutions, Morgan Guaranty Trust Company ("Morgan") as administrative agent
(the "Administrative Agent"), The Chase Manhattan Bank, as documentation
agent, and Credit Suisse First Boston, as syndication agent. The following is
a summary of the principal terms of the credit agreement governing the Senior
Credit Facility and the related loan documents (the "Credit Documentation")
and is subject to and qualified in its entirety by reference to the Credit
Documentation, which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and a copy of which is available
as set forth under the heading "Available Information."
Immediately after the issuance of the Existing Notes, TTC and TTC Merger Co.
merged (the "Second Merger") with TTC surviving, TTC succeeded to and assumed
all of the obligations under the Senior Credit Facility, and thereby became
the primary obligor under the Senior Credit Facility. Dynatech was released
from its obligations under the Senior Credit Facility.
The Senior Credit Facility provides for senior secured credit facilities in
an aggregate amount of $370.0 million, consisting of (i) a revolving credit
facility in the amount of $110.0 million (the "Revolving Credit Facility"),
(ii) a 6-year $50.0 million term loan (the "Tranche A Term Loan"), (iii) a 7-
year $70.0 million term loan (the "Tranche B Term Loan"), (iv) an 8-year $70.0
million term loan (the "Tranche C Term Loan"), and (v) a 9-year $70.0 million
term loan (the "Tranche D Term Loan" and together with the Tranche A Term
Loan, the Tranche B Term Loan and the Tranche C Term Loan, the "Term Loans").
The Revolving Credit Facility also provides for a swingline subfacility of
$10.0 million and a letter of credit subfacility of $25.0 million.
Amortization. The Tranche A Term Loan will be amortized in twelve quarterly
installments of $1.250 million commencing on June 30, 1998, four quarterly
installments of $2.125 million commencing on June 30, 2001, four quarterly
installments of $2.875 million commencing on June 30, 2002 and four quarterly
installments of $3.750 million commencing on June 30, 2003. The Tranche B Term
Loan will be amortized in 27 equal quarterly installments of $0.250 million,
with the balance to be paid on March 31, 2005. The Tranche C Term Loan will be
amortized in 31 equal quarterly installments of $0.250 million, with the
balance to be paid on March 31, 2006. The Tranche D Term Loan will be
amortized in 35 equal quarterly installments of $0.250 million, with the
balance to be paid on March 31, 2007. The annual amortizations of the Term
Loans are set forth in the following table:
<TABLE>
<CAPTION>
CALENDAR YEAR TRANCHE A TRANCHE B TRANCHE C TRANCHE D TOTAL
------------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1998.............. $ 3,750,000 $ 750,000 $ 750,000 $ 750,000 $ 6,000,000
1999.............. 5,000,000 1,000,000 1,000,000 1,000,000 8,000,000
2000.............. 5,000,000 1,000,000 1,000,000 1,000,000 8,000,000
2001.............. 7,625,000 1,000,000 1,000,000 1,000,000 10,625,000
2002.............. 10,750,000 1,000,000 1,000,000 1,000,000 13,750,000
2003.............. 14,125,000 1,000,000 1,000,000 1,000,000 17,125,000
2004.............. 3,750,000 1,000,000 1,000,000 1,000,000 6,750,000
2005.............. -- 63,250,000 1,000,000 1,000,000 65,250,000
2006.............. -- -- 62,250,000 1,000,000 63,250,000
2007.............. -- -- -- 61,250,000 61,250,000
----------- ----------- ----------- ----------- ------------
Total........... 50,000,000 70,000,000 70,000,000 70,000,000 260,000,000
</TABLE>
Use of Facility. In connection with the Merger, Dynatech drew down the
$260.0 million in term loan borrowings under the Senior Credit Facility, and
Dynatech drew approximately $40.0 million under the Revolving Credit Facility,
as part of the financing for the Recapitalization. See "The Recapitalization."
Any undrawn portion of the Revolving Credit Facility is available to TTC for
working capital and general corporate purposes.
76
<PAGE>
Guarantee; Security. The obligations of TTC under the Revolving Credit
Facility and the Term Loans are guaranteed by each active direct or indirect
U.S. subsidiary of TTC and by Dynatech. The obligations under the Senior
Credit Facility are secured by a pledge of the equity interest in TTC, by
substantially all of the assets of TTC and each active direct or indirect U.S.
subsidiary of TTC, and by a pledge of the capital stock of each such direct or
indirect U.S. subsidiary, and 65% of the capital stock of each subsidiary of
TTC that acts as a holding company of TTC's foreign subsidiaries.
Interest; Fees. At TTC's option, the Revolving Credit Facility and the Term
Loans bear interest at variable rates equal to either (i) the higher of (A)
Morgan's prime rate, or (B) 0.50% per annum over the federal funds rate (the
"Base Rate"), or (ii) reserve-adjusted LIBO rate ("LIBOR"), plus, in either
case, a borrowing margin ranging from 0% to 3%, based upon (x) whether the
loan is a Base Rate loan or LIBOR loan, (y) whether the loan is a Revolving
Credit Facility loan, Tranche A Term Loan, Tranche B Term Loan, Tranche C Term
Loan, or Tranche D Term Loan and (z) TTC's debt to EBITDA ratio.
The transaction fees and expenses referred to in the sources and uses of
funds for the Recapitalization (see "Summary--The Recapitalization") include
transaction fees payable in connection with the provision of the Senior Credit
Facility. In addition, a commitment fee is payable quarterly on the daily
average unused portion of the Revolving Credit Facility, in an amount from
0.30% to 0.50% per annum on such unused portion, based upon TTC's debt to
EBITDA ratio.
Prepayments. The Senior Credit Facility generally permits voluntary
prepayment of loans thereunder without premium or penalty, subject to certain
limitations, including certain rights of holders of the Tranche B Term Loan,
Tranche C Term Loan and Tranche D Term Loan under certain circumstances (i) to
receive a premium of 1% of the principal amount of any such Term Loans prepaid
within 18 months of the May 1998 Closing and (ii) to decline partial
prepayments. Mandatory prepayments are required to be made from (a) 100% of
net proceeds from certain asset sales, casualty insurance, and condemnation
awards or other similar recoveries; (b) 100% of the net proceeds from the
issuance of indebtedness by TTC or any of its subsidiaries, other than as
permitted by the Senior Credit Facility; and (c) 50% of annual excess cash
flow for each fiscal year in which the ratio of TTC's debt on the last day of
such fiscal year to its EBITDA for the four fiscal quarters then ended is
greater than or equal to 4.0 to 1.0 (the "Excess Cash Flow Recapture").
Subject to certain rights of holders of the Tranche B Term Loan, Tranche C
Term Loan and Tranche D Term Loan to decline partial mandatory prepayments,
mandatory prepayments will be applied to the Term Loans until all the Term
Loans are paid in full, and then to prepay loans and permanently reduce
commitments under the Revolving Credit Facility, subject to certain
limitations.
Covenants. The Revolving Credit Facility and the Tranche A Term Loan are
subject to covenants that, among other things, restrict the ability of TTC and
its subsidiaries to dispose of assets, incur additional debt, guarantee
obligations or contingent liabilities, repay the Notes, pay dividends, create
liens on assets, make investments, loans or advances, engage in mergers or
consolidations, make capital expenditures or engage in certain transactions
with affiliates, and otherwise restrict corporate activities. The Tranche B
Term Loan, Tranche C Term Loan and Tranche D Term Loan are subject to negative
covenants which are substantially similar to those contained in the Indenture.
Events of Default. The Revolving Credit Facility and the Tranche A Term Loan
are subject to customary events of default. The events of default applicable
to the Tranche B Term Loan, Tranche C Term Loan and Tranche D Term Loan
include certain events of default relating to non-financial covenants that are
substantially similar to those contained in the Indenture, in lieu of certain
non-financial covenant-related defaults applicable to the Revolving Credit
Facility and the Tranche A Term Loan, and differ in certain other respects
from the events of default applicable to the Revolving Credit Facility and
Tranche A Term Loan.
77
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Existing Notes were issued under an Indenture, dated as of May 21, 1998,
among Holding and its wholly owned subsidiary TTC Merger Co. LLC ("TTC Merger
Co."), as primary obligors, and State Street Bank and Trust Company, as
Trustee (the "Trustee"). Immediately after the issuance of the Existing Notes,
TTC and TTC Merger Co. merged (the "Second Merger"), with TTC surviving. TTC
thereupon succeeded to and assumed all of the obligations under such Indenture
and the Existing Notes, and thereby became the primary obligor on the Existing
Notes. Concurrently, Holding was released from its obligations as primary
obligor under such Indenture and the Existing Notes. TTC entered into a First
Supplemental Indenture, dated as of May 21, 1998, with the Trustee, confirming
TTC's assumption of all of the obligations under such Indenture and the
Existing Notes (such Indenture as amended by such First Supplemental
Indenture, the "Indenture"). The New Notes will be issued under the Indenture
as so amended. The Indenture has been filed as an exhibit under the
Registration Statement of which this Prospectus is a part and is available as
set forth under the heading "Available Information." The terms of the New
Notes are identical in all material respects to the terms of the Existing
Notes for which they may be exchanged pursuant to the Exchange Offer, except
for certain transfer restrictions and rights relating to the Exchange Offer.
The following is a summary of certain provisions of the Indenture and the
Notes after giving effect to the Second Merger. It does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Indenture, including the definitions of certain
terms therein and those terms to be made a part thereof by the Trust Indenture
Act of 1939, as amended ("TIA"). The term "Company" and the other capitalized
terms defined in "--Certain Definitions" below are used in this "Description
of Notes" as so defined. As used in this "Description of Notes" section, the
term "Notes" means the Existing Notes and the New Notes, collectively.
Principal of, and premium, if any, and interest on, the Notes will be
payable, and the Notes may be exchanged or transferred, at the office or
agency of the Company in the Borough of Manhattan, The City of New York (which
initially shall be the corporate trust office of the Trustee, at 61 Broadway,
15th Floor, New York, New York 10006), except that, at the option of the
Company, payment of interest may be made by check mailed to the address of the
registered holders of the Notes as such address appears in the Note Register.
The Notes will be unsecured obligations of the Company, ranking subordinate
in right of payment to all Senior Indebtedness of the Company.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Notes will mature on May 15, 2008. Each Note will bear interest at a
rate of 9 3/4% per annum from the date of issuance, or from the most recent
date to which interest has been paid or provided for, payable semiannually in
cash to Holders of record at the close of business on the May 1 or November 1
immediately preceding the interest payment date on May 15 and November 15 of
each year, commencing November 15, 1998. Interest will be paid on the basis of
a 360-day year consisting of twelve 30-day months.
The Existing Notes were issued initially in an aggregate principal amount of
$275.0 million. The Company has agreed to use its reasonable best efforts to
file a registration statement relating to the Exchange Offer with the
Commission, to permit the exchange of Existing Notes for New Notes as
described under "Exchange Offer" and "Registration Rights." The Registration
Statement of which this Prospectus is a part constitutes the Exchange Offer
Registration Statement. The terms of the New Notes will be identical in all
material respects to
78
<PAGE>
the Existing Notes, except for certain transfer restrictions and other rights
relating to the Exchange Offer, and New Notes will otherwise be treated as
Notes for purposes of the Indenture.
Additional securities may be issued under the Indenture in one or more
series from time to time ("Additional Notes"), subject to the limitations set
forth under "--Certain Covenants--Limitation on Indebtedness," which may vote
as a class with the Notes and otherwise be treated as Notes for purposes of
the Indenture.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
and from time to time on and after May 15, 2003 and prior to maturity. Such
redemption may be made upon notice mailed by first-class mail to each Holder's
registered address, not less than 30 nor more than 60 days prior to the
redemption date. Any such redemption and notice may, in the Company's
discretion, be subject to the satisfaction of one or more conditions
precedent. The Notes will be so redeemable at the following redemption prices
(expressed as a percentage of principal amount), plus accrued interest, if
any, to the relevant redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on
May 15 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2003.............................................................. 104.875%
2004.............................................................. 103.250%
2005.............................................................. 101.625%
2006 and thereafter............................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to May 15, 2001, the
Company at its option may redeem Notes in an aggregate principal amount equal
to up to 35% of the original aggregate principal amount of the Notes
(including the principal amount of any Additional Notes), with funds in an
aggregate amount (the "Redemption Amount") not exceeding the aggregate
proceeds of one or more Equity Offerings (as defined below) at a redemption
price (expressed as a percentage of principal amount thereof) of 109.75% plus
accrued interest, if any, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); provided, however, that an aggregate
principal amount of Notes equal to at least 65% of the original aggregate
principal amount of the Notes (including the principal amount of any
Additional Notes) must remain outstanding after each such redemption. "Equity
Offering" means a sale of Capital Stock (other than Disqualified Stock) (x)
that is a sale of Capital Stock of the Company, or (y) proceeds of which in an
amount equal to or exceeding the Redemption Amount are contributed to the
Company or any of its Restricted Subsidiaries. The Company may make such
redemption upon notice mailed by first-class mail to each Holder's registered
address, not less than 30 nor more than 60 days prior to the redemption date
(but in no event more than 180 days after the completion of the related Equity
Offering). Any such notice may be given prior to the completion of the related
Equity Offering, and any such redemption or notice may, at the Company's
discretion, be subject to the satisfaction of one or more conditions
precedent, including but not limited to the completion of the related Equity
Offering.
At any time on or prior to May 15, 2003, the Notes may also be redeemed or
purchased (by the Company or any other Person) in whole but not in part, at
the Company's option, upon the occurrence of a Change of Control, at a price
(the "Redemption Price") equal to 100% of the principal amount thereof plus
the Applicable Premium as of, and accrued but unpaid interest, if any, to, the
date of redemption or purchase (the "Redemption Date") (subject to the right
of Holders of record on the relevant record date to receive interest due on
the relevant interest payment date). Such redemption or purchase may be made
upon notice mailed by first-class mail to each Holder's registered address,
not less than 30 nor more than 60 days prior to the Redemption Date (but in no
event more than 180 days after the occurrence of such Change of Control). The
Company may provide in such notice that payment of the Redemption Price and
performance of the Company's obligations with respect to such
79
<PAGE>
redemption or purchase may be performed by another Person. Any such notice may
be given prior to the occurrence of the related Change of Control, and any
such redemption, purchase or notice may, at the Company's discretion, be
subject to the satisfaction of one or more conditions precedent, including but
not limited to the occurrence of the related Change of Control.
"Applicable Premium" means, with respect to a Note at any Redemption Date,
the greater of (i) 1.0% of the principal amount of such Note and (ii) the
excess of (A) the present value at such Redemption Date of (1) the redemption
price of such Note on May 15, 2003 (such redemption price being that described
in the first paragraph of this "Optional Redemption" section) plus (2) all
required remaining scheduled interest payments due on such Note through May
15, 2003, computed using a discount rate equal to the Treasury Rate plus 50
basis points, over (B) the principal amount of such Note on such Redemption
Date. Calculation of the Applicable Premium will be made by the Company or on
behalf of the Company by such Person as the Company shall designate, provided,
that such calculation shall not be a duty or obligation of the Trustee.
"Treasury Rate" means, with respect to a Redemption Date, the yield to
maturity at the time of computation of United States Treasury securities with
a constant maturity (as compiled and published in the most recent Federal
Reserve Statistical Release H.15(519) that has become publicly available at
least two Business Days prior to such Redemption Date (or, if such Statistical
Release is no longer published, any publicly available source or similar
market data)) most nearly equal to the period from such Redemption Date to May
15, 2003; provided, however, that if the period from the Redemption Date to
May 15, 2003 is not equal to the constant maturity of the United States
Treasury security for which a weekly average yield is given, the Treasury Rate
shall be obtained by linear interpolation (calculated to the nearest one-
twelfth of a year) from the weekly average yields of United States securities
for which such yields are given, except that if the period from the Redemption
Date to May 15, 2003 is less than one year, the weekly average yield on
actually traded United States Treasury securities adjusted to a constant
maturity of one year shall be used.
In addition, as more fully described under "--Change of Control," each
Holder will have the right to require the Company to repurchase all or any
part of such Holder's Notes following a Change of Control Trigger Event at a
purchase price in cash equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of repurchase.
SELECTION
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other
method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal
to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note.
HOLDING GUARANTEE
Holding has, as a primary obligor and not merely as surety, irrevocably and
fully and unconditionally Guaranteed (the "Parent Guarantee"), on a senior
subordinated basis, the punctual payment when due, whether at Stated Maturity,
by acceleration or otherwise, of all monetary obligations of the Company under
the Indenture and the Notes, whether for principal of or interest on the
Notes, expenses, indemnification or otherwise (all such obligations guaranteed
by Holding being herein called the "Parent Guaranteed Obligations"). Holding,
pursuant to the Parent Guarantee, has agreed to pay, in addition to the amount
stated above, any and all reasonable out-of-pocket expenses (including
reasonable counsel fees and expenses) incurred by the Trustee or the Holders
in enforcing any rights under the Parent Guarantee. The obligations of Holding
will be limited to the maximum amount, as will, after giving effect to all
other contingent and fixed liabilities of Holding, result in the obligations
of Holding under the Parent Guarantee not constituting a fraudulent conveyance
or fraudulent transfer under applicable law, or void or unenforceable under
any law relating to the insolvency of debtors.
80
<PAGE>
The Parent Guarantee shall be a continuing Guarantee and shall (i) remain in
full force and effect until payment in full of the principal amount of all
outstanding Notes (whether by payment at maturity, purchase, redemption,
defeasance, retirement or other acquisition) and all other Parent Guaranteed
Obligations then due and owing, (ii) be binding upon such Note Guarantor and
(iii) inure to the benefit of and be enforceable by the Trustee, the Holders
and their permitted successors, transferees and assigns. Holding will
automatically and unconditionally be released from all obligations under the
Parent Guarantee, and the Parent Guarantee shall thereupon terminate and be
discharged and of no further force of effect, (i) upon any merger or
consolidation of Holding with and into the Company, (ii) upon legal or
covenant defeasance of the Company's obligations, or satisfaction and
discharge of the Indenture, or (iii) subject to customary contingent
reinstatement provisions, upon payment in full of the aggregate principal
amount of all Notes then outstanding and all other Parent Guaranteed
Obligations then due and owing. Upon any such occurrence specified in this
paragraph, the Trustee shall execute any documents reasonably required in
order to evidence such release, discharge and termination in respect of the
Parent Guarantee. Neither the Company nor Holding shall be required to make a
notation on the Notes to reflect the Parent Guarantee or any such release,
termination or discharge.
NOTE GUARANTEES
After the Issue Date, the Company will cause each Significant Domestic
Subsidiary that guarantees payment by the Company of Indebtedness of the
Company (other than Bank Indebtedness) to execute and deliver to the Trustee a
supplemental indenture or other instrument pursuant to which such Subsidiary
will guarantee payment of the Notes, whereupon such Subsidiary will become a
Note Guarantor for all purposes under the Indenture. The Company will also
have the right to cause any other Subsidiary so to guarantee payment of the
Notes. No Subsidiaries will be Note Guarantors as of the Issue Date. Note
Guarantees will be subject to release and discharge under certain
circumstances prior to payment in full of the Notes. See "--Certain
Covenants--Future Note Guarantors."
RANKING
The indebtedness evidenced by the Notes is unsecured Senior Subordinated
Indebtedness of the Company, is subordinated in right of payment, as set forth
in the Indenture, to the payment when due of all existing and future Senior
Indebtedness of the Company, including the Company's obligations under the
Senior Credit Facility, ranks pari passu in right of payment with all existing
and future Senior Subordinated Indebtedness of the Company and is senior in
right of payment to all existing and future Subordinated Obligations of the
Company. The Notes are also effectively subordinated to any Secured
Indebtedness of the Company to the extent of the value of the assets securing
such Indebtedness. However, payment from the money or the proceeds of U.S.
Government Obligations held in any defeasance trust described under "--
Defeasance" below is not subordinated to any Senior Indebtedness or subject to
the restrictions described herein.
At July 31, 1998, Senior Indebtedness of the Company was $281.0 million
(excluding a maximum $3.0 million guarantee) and the Company had additional
availability of $87.0 million for borrowings under the Senior Credit Facility,
all of which would have been Secured Indebtedness, and no Senior Subordinated
Indebtedness (other than the indebtedness represented by the Notes). Although
the Indenture contains limitations on the amount of additional Indebtedness
that the Company may Incur, under certain circumstances the amount of such
Indebtedness could be substantial and, in any case, such Indebtedness may be
Senior Indebtedness or Secured Indebtedness. See "--Certain Covenants--
Limitation on Indebtedness" below.
The obligations of Holding under the Parent Guarantee are unsecured Parent
Senior Subordinated Indebtedness, subordinated in right of payment, as set
forth in the Indenture, to the payment when due of all existing and future
Parent Senior Indebtedness, including Holding's obligations under or relating
to the Senior Credit Facility, rank pari passu in right of payment with all
existing and future Parent Senior Subordinated Indebtedness and are senior in
right of payment of all existing and future Parent Subordinated Obligations.
The Parent Guarantee is also effectively subordinated to any Secured
Indebtedness of Holding to the extent of the value of the assets securing such
Indebtedness. The terms on which the Parent Guarantee is subordinated to the
81
<PAGE>
prior payment in full of Parent Senior Indebtedness are substantially
identical to those described below governing the subordination of the Notes to
the prior payment in full of Senior Indebtedness. All of the operations of
Holding are conducted through Subsidiaries, including the Company. Claims of
creditors of such Subsidiaries, including trade creditors, and claims of
preferred shareholders (if any) of such Subsidiaries will have priority with
respect to the assets and earnings of such Subsidiaries over the claims of
creditors of Holding, including claims under the Parent Guarantee. The Parent
Guarantee, therefore, is effectively subordinated to creditors (including
trade creditors) and preferred shareholders (if any) of such Subsidiaries,
including of TTC. Moreover, as a holding company with no assets other than its
membership interest in TTC, Holding will depend upon distributions from TTC to
fund any obligations under the Parent Guarantee. Accordingly, if TTC should at
any time be unable to pay interest or premium, if any, on or principal of the
Notes, it is unlikely that TTC will be able to distribute the funds necessary
to enable Holding to meet its obligations under the Parent Guarantee. See
"Risk Factors--Subordination of Dynatech Guarantee; No Independent Operations
of Dynatech."
The obligations of each Note Guarantor, if any, under the Note Guarantee to
which it is a party will be unsecured Guarantor Senior Subordinated
Indebtedness of such Note Guarantor, will be subordinated in right of payment,
as set forth in the Indenture, to the payment when due of all existing and
future Guarantor Senior Indebtedness of such Note Guarantor, including the
Note Guarantor's obligations under or relating to the Senior Credit Facility,
will rank pari passu in right of payment with all existing and future
Guarantor Senior Subordinated Indebtedness of such Note Guarantor and will be
senior in right of payment to all existing and future Guarantor Subordinated
Obligations of such Note Guarantor. The Note Guarantee of each Note Guarantor,
if any, will also be effectively subordinated to any Secured Indebtedness of
such Note Guarantor to the extent of the value of the assets securing such
Indebtedness. The terms on which each Note Guarantee, if any, will be
subordinated to the prior payment in full of Guarantor Senior Indebtedness
will be substantially identical to those described below governing the
subordination of the Notes to the prior payment in full of Senior
Indebtedness.
A substantial part of the operations of the Company are conducted through
its Subsidiaries. Claims of creditors of such Subsidiaries, including trade
creditors, and claims of preferred shareholders (if any) of such Subsidiaries
will have priority with respect to the assets and earnings of such
Subsidiaries over the claims of creditors of the Company, including holders of
the Notes. The Notes, therefore, will be effectively subordinated to creditors
(including trade creditors) and preferred shareholders (if any) of
Subsidiaries of the Company (other than Subsidiaries, if any, that may become
Note Guarantors in the future). Certain of the operations of a Note Guarantor
may be conducted through Subsidiaries thereof that are not also Note
Guarantors. Claims of creditors of such Subsidiaries, including trade
creditors, and claims of preferred shareholders (if any) of such Subsidiaries
will have priority with respect to the assets and earnings of such
Subsidiaries over the claims of creditors of such Note Guarantor, including
claims under the Note Guarantee of such Note Guarantor. Such Note Guarantee,
if any, therefore, will be effectively subordinated to creditors (including
trade creditors) and preferred shareholders (if any) of such Subsidiaries.
Although the Indenture limits the incurrence of Indebtedness (including
preferred stock) by certain of the Company's Subsidiaries, such limitation is
subject to a number of significant qualifications. At July 31, 1998, the
Company's Subsidiaries had no material outstanding Indebtedness for borrowed
money (excluding inter-company indebtedness). No preferred stock of such
Subsidiaries was outstanding at such date. See "--Certain Covenants--
Limitation on Indebtedness" below.
"Senior Indebtedness" means, with respect to the Company, the following
obligations, whether outstanding on the date of the Indenture or thereafter
issued, without duplication: (i) all Bank Indebtedness, (ii) all obligations
in respect of any Receivables Financing, and (iii) all obligations consisting
of the principal of and premium, if any, and accrued and unpaid interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company regardless of whether
post-filing interest is allowed in such proceeding) on, and fees and other
amounts owing in respect of, all other Indebtedness of the Company, unless, in
the instrument creating or evidencing the same or pursuant to which the same
is outstanding, it is expressly provided that the obligations in respect of
such Indebtedness are not senior in right of payment to the Notes; provided,
however, that Senior Indebtedness shall not include (1) any obligation of the
Company to any Subsidiary, (2) any liability for Federal, state, foreign,
local or other taxes owed or owing by the Company,
82
<PAGE>
(3) any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including Guarantees thereof or instruments
evidencing such liabilities), (4) any Indebtedness of the Company (or
Guarantee by the Company of any Indebtedness) that is expressly subordinated
in right of payment to any other Indebtedness of the Company (or Guarantee by
the Company of any Indebtedness), (5) any Capital Stock of the Company or (6)
that portion of any Indebtedness of the Company that is Incurred by the
Company in violation of the covenant described under "--Certain Covenants--
Limitation on Indebtedness" (but no such violation shall be deemed to exist
for purposes of this clause (6) if any holder of such Indebtedness or such
holder's representative shall have received an Officer's Certificate of the
Company to the effect that such Incurrence of such Indebtedness does not (or
that the Incurrence by the Company of the entire committed amount thereof at
the date on which the initial borrowing thereunder is made would not) violate
such covenant). If any Senior Indebtedness is disallowed, avoided or
subordinated pursuant to the provisions of Section 548 of Title 11 of the
United States Code or any applicable state fraudulent conveyance law, such
Senior Indebtedness nevertheless will constitute Senior Indebtedness.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes will in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company. Only Indebtedness of a Note Guarantor that is
Guarantor Senior Indebtedness will rank senior to the Note Guarantee of such
Note Guarantor in accordance with the provisions of the Indenture. Such Note
Guarantee will in all respects rank pari passu with all other Guarantor Senior
Subordinated Indebtedness of such Note Guarantor. The Company has agreed in
the Indenture that it will not Incur, directly or indirectly, any Indebtedness
that is expressly subordinated in right of payment to Senior Indebtedness of
the Company unless such Indebtedness is pari passu with, or subordinated in
right of payment to, the Notes. Each Note Guarantor, if any, will agree that
it will not Incur, directly or indirectly, any Indebtedness that is expressly
subordinated in right of payment to Guarantor Senior Indebtedness of such Note
Guarantor unless such Indebtedness is pari passu with, or subordinated in
right of payment to, the Note Guarantee of such Note Guarantor. Unsecured
Indebtedness is not deemed to be subordinate or junior to Secured Indebtedness
merely because it is unsecured, and Indebtedness that is not guaranteed by a
particular Person is not deemed to be subordinate or junior to Indebtedness
that is so guaranteed merely because it is not so guaranteed.
The Company may not pay principal of, or premium (if any) or interest on,
the Notes or make any deposit pursuant to the provisions described under "--
Defeasance" below and may not otherwise purchase, redeem or otherwise retire
any Notes (collectively, "pay the Notes") if (i) any Senior Indebtedness is
not paid when due in cash or Cash Equivalents or (ii) any other default on
Senior Indebtedness occurs and the maturity of such Senior Indebtedness is
accelerated in accordance with its terms (either such event, a "Payment
Default") unless, in either case, (x) the Payment Default has been cured or
waived and any such acceleration has been rescinded in writing or (y) such
Senior Indebtedness has been paid in full in cash or Cash Equivalents.
However, the Company may pay the Notes without regard to the foregoing if the
Company and the Trustee receive written notice approving such payment from the
Representative for the Designated Senior Indebtedness with respect to which
the Payment Default has occurred and is continuing.
In addition, during the continuance of any default (other than a Payment
Default) with respect to any Designated Senior Indebtedness pursuant to which
the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace period (a "Non-payment Default"), the
Company may not pay the Notes for the period specified as follows (a "Payment
Blockage Period"). The Payment Blockage Period shall commence upon the receipt
by the Trustee (with a copy to the Company) of written notice (a "Blockage
Notice") of such Non-payment Default from the Representative for such
Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and shall end on the earliest to occur of the following
events: (i) 179 days shall have elapsed since such receipt of such Blockage
Notice, (ii) the Non-payment Default giving rise to such Blockage Notice is no
longer continuing (and no other Payment Default or Non-payment Default is then
continuing), (iii) such Designated Senior Indebtedness shall have been
discharged or repaid in full in cash or
83
<PAGE>
Cash Equivalents or (iv) such Payment Blockage Period shall have been
terminated by written notice to the Trustee and the Company from the Person or
Persons who gave such Blockage Notice. The Company shall promptly resume
payments on the Notes, including any missed payments, after such Payment
Blockage Period ends, unless the holders of such Designated Senior
Indebtedness or the Representative of such holders have accelerated the
maturity of such Designated Senior Indebtedness, or any Payment Default
otherwise exists. Not more than one Blockage Notice may be given in any 360
consecutive day period, irrespective of the number of defaults with respect to
Designated Senior Indebtedness during such period, except that if any Blockage
Notice within such 360-day period is given by or on behalf of any holders of
Designated Senior Indebtedness other than Bank Indebtedness, a Representative
of holders of Bank Indebtedness may give another Blockage Notice within such
period. In no event may the total number of days during which any Payment
Blockage Period is in effect extend beyond 179 days from the date of receipt
by the Trustee of the relevant Blockage Notice, and there must be a 181
consecutive day period during any 360 consecutive day period during which no
Payment Blockage Period is in effect.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar
proceeding relating to the Company or its property, or in a bankruptcy,
insolvency, receivership or similar proceeding relating to the Company or its
property, the holders of Senior Indebtedness will be entitled to receive
payment in full of the Senior Indebtedness before the Noteholders are entitled
to receive any payment and until the Senior Indebtedness is paid in full, any
payment or distribution to which Noteholders would be entitled but for the
subordination provisions of the Indenture will be made to holders of the
Senior Indebtedness as their interests may appear. If a distribution is made
to Noteholders that due to the subordination provisions should not have been
made to them, such Noteholders are required to hold it in trust for the
holders of Senior Indebtedness and pay it over to them as their interests may
appear.
If the Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of
Default under the Indenture and would enable the holders of the Notes to
accelerate the maturity thereof. See "--Defaults." If payment of the Notes is
accelerated because of an Event of Default, the Company or the Trustee shall
promptly notify the holders of the Designated Senior Indebtedness or the
Representative of such holders of the acceleration. Such acceleration will not
be effective, and the Company may not pay the Notes, until five Business Days
after such holders or the Representative of each Designated Senior
Indebtedness receive notice of such acceleration and, thereafter, the Company
may pay the Notes only if the subordination provisions of the Indenture
otherwise permit payment at that time.
By reason of such subordination provisions contained in the Indenture, in
the event of liquidation, receivership, reorganization or insolvency, (i)
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the Noteholders, (ii) trade creditors of the Company who
are not holders of Senior Indebtedness or of Senior Subordinated Indebtedness
(including the Notes) may recover less, ratably, than holders of Senior
Indebtedness and may recover more, ratably, than the holders of Senior
Subordinated Indebtedness, and (iii) the Company may be unable to meet its
obligations on the Notes. In addition, as described above, the Notes will be
effectively subordinated, with respect to the Company's Subsidiaries, to the
claims of creditors of those Subsidiaries.
CHANGE OF CONTROL
Upon the occurrence after the Issue Date of a Change of Control (as defined
below) and the failure of the Notes to have, on the 30th day after such Change
of Control, a rating of at least BBB- (or equivalent successor rating) by S&P
and a rating of at least Baa3 (or equivalent successor rating) by Moody's (a
"Change of Control Triggering Event"), each Holder will have the right to
require the Company to repurchase all or any part of such Holder's Notes at a
purchase price in cash equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of repurchase (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date); provided, however, that the Company
shall
84
<PAGE>
not be obligated to repurchase Notes pursuant to this covenant in the event
that it has exercised its right to redeem all of the Notes as described under
"--Optional Redemption."
The term "Change of Control" means:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders or Holding, is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act), directly or indirectly, of more than 50% of the total
voting power of the Voting Stock of the Company, provided that so long as
the Company is a Subsidiary of Holding, no Person shall be deemed to be or
become a "beneficial owner" of more than 50% of the total voting power of
the Voting Stock of the Company unless such Person shall be or become a
"beneficial owner" of more than 50% of the total voting power of the Voting
Stock of Holding;
(ii) the Company merges or consolidates with or into, or sells or
transfers (in one or a series of related transactions) all or substantially
all of the assets of the Company and its Restricted Subsidiaries to,
another Person (other than one or more Permitted Holders) and any "person"
(as defined in clause (i) above), other than one or more Permitted Holders
or Holding, is or becomes the "beneficial owner" (as so defined), directly
or indirectly, of more than 50% of the total voting power of the Voting
Stock of the surviving Person in such merger or consolidation, or the
transferee Person in such sale or transfer of assets, as the case may be,
provided that so long as such surviving or transferee Person is a
Subsidiary of a parent Person, no Person shall be deemed to be or become a
"beneficial owner" of more than 50% of the total voting power of the Voting
Stock of such surviving or transferee Person unless such Person shall be or
become a "beneficial owner" of more than 50% of the total voting power of
the Voting Stock of such parent Person; or
(iii) during any period of two consecutive years (during which period the
Company has been a party to the Indenture), individuals who at the
beginning of such period were members of the board of directors of the
Company (together with any new members thereof whose election by such board
of directors or whose nomination for election by holders of Capital Stock
of the Company was approved by one or more Permitted Holders or by a vote
of a majority of the members of such board of directors then still in
office who were either members thereof at the beginning of such period or
whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of such board of directors then in
office.
In the event that, at the time of such Change of Control Triggering Event,
the terms of the Bank Indebtedness restrict or prohibit the repurchase of
Notes pursuant to this covenant, then prior to the mailing of the notice to
Holders provided for in the immediately following paragraph but in any event
not later than 30 days following the date the Company obtains actual knowledge
of any Change of Control Triggering Event (unless the Company has exercised
its right to redeem all the Notes as described under "--Optional Redemption"),
the Company shall (i) repay in full all Bank Indebtedness or offer to repay in
full all Bank Indebtedness and repay the Bank Indebtedness of each lender who
has accepted such offer or (ii) obtain the requisite consent under the
agreements governing the Bank Indebtedness to permit the repurchase of the
Notes as provided for in the immediately following paragraph. The Company
shall first comply with the provisions of the immediately preceding sentence
before it shall be required to repurchase Notes pursuant to the provisions
described below. The Company's failure to comply with such provisions or the
provisions of the immediately following paragraph shall constitute an Event of
Default described in clause (iv) and not in clause (ii) under "--Defaults"
below.
Unless the Company has exercised its right to redeem all the Notes as
described under "--Optional Redemption," the Company shall, not later than 30
days following the date the Company obtains actual knowledge of any Change of
Control Triggering Event having occurred, mail a notice to each Holder with a
copy to the Trustee stating: (1) that a Change of Control Triggering Event has
occurred or may occur and that such Holder has, or upon such occurrence will
have, the right to require the Company to purchase such Holder's Notes at a
purchase price in cash equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase (subject to the
right of Holders of record on a record date to receive interest on
85
<PAGE>
the relevant interest payment date); (2) the circumstances and relevant facts
and financial information regarding such Change of Control; (3) the repurchase
date (which shall be no earlier than 30 days nor later than 60 days from the
date such notice is mailed); (4) the instructions determined by the Company,
consistent with this covenant, that a Holder must follow in order to have its
Notes purchased; and (5) if such notice is mailed prior to the occurrence of a
Change of Control or Change of Control Triggering Event, that such offer is
conditioned on the occurrence of such Change of Control Triggering Event.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this covenant by virtue thereof.
The Change of Control Triggering Event purchase feature is a result of
negotiations between the Company and the Initial Purchasers. The Company has
no present plans to engage in a transaction involving a Change of Control,
although it is possible that the Company would decide to do so in the future.
Subject to the limitations discussed below, the Company could, in the future,
enter into certain transactions, including acquisitions, refinancings or
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of Indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit
ratings.
The occurrence of a Change of Control would constitute a default under the
Senior Credit Agreement. Agreements governing future Senior Indebtedness of
the Company may contain prohibitions of certain events that would constitute a
Change of Control or require such Senior Indebtedness to be repurchased or
repaid upon a Change of Control. Moreover, the exercise by the Holders of
their right to require the Company to repurchase the Notes could cause a
default under such agreements, even if the Change of Control itself does not,
due to the financial effect of such repurchase on the Company. Finally, the
Company's ability to pay cash to the Holders upon a repurchase may be limited
by the Company's then existing financial resources. There can be no assurance
that sufficient funds will be available when necessary to make any required
repurchases. As described above under "--Optional Redemption," the Company
also has the right to redeem the Notes at specified prices, in whole or in
part, upon a Change of Control.
The definition of Change of Control includes a phrase relating to the sale
or other transfer of "all or substantially all" of the Company's assets, as
such phrase is used in the Revised Model Business Corporation Act. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise definition of the phrase under applicable law.
Accordingly, in certain circumstances there may be a degree of uncertainty in
ascertaining whether a particular transaction would involve a disposition of
"all or substantially all" of the assets of the Company, and therefore it may
be unclear as to whether a Change of Control has occurred and whether the
holders of the Notes have the right to require the Company to repurchase such
Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company will not, and will not permit
any Restricted Subsidiary to, Incur any Indebtedness; provided, however, that
the Company or any Note Guarantor may Incur Indebtedness if on the date of the
Incurrence of such Indebtedness, after giving effect to the Incurrence
thereof, the Consolidated Coverage Ratio would be greater than 1.75:1.00 if
such Indebtedness is Incurred prior to June 1, 2001 or 2.00:1.00 if such
Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness Incurred pursuant to the Senior Credit Facility
(including but not limited to in respect of letters of credit or bankers'
acceptances issued or created thereunder) and Indebtedness of any Foreign
86
<PAGE>
Subsidiary Incurred other than under the Senior Credit Facility, and
(without limiting the foregoing), in each case, any Refinancing
Indebtedness in respect thereof, in a maximum principal amount at any time
outstanding not exceeding in the aggregate the amount equal to (A) $410.0
million, plus (B) the amount, if any, by which the Borrowing Base exceeds
$110.0 million, plus (C) in the case of any refinancing of the Senior
Credit Facility or any portion thereof, the aggregate amount of fees,
underwriting discounts, premiums and other costs and expenses incurred in
connection with such refinancing;
(ii) Indebtedness (A) of any Restricted Subsidiary to the Company or (B)
of the Company or any Restricted Subsidiary to any Restricted Subsidiary;
provided, that any subsequent issuance or transfer of any Capital Stock of
such Restricted Subsidiary to which such Indebtedness is owed, or other
event, that results in such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any other subsequent transfer of such Indebtedness
(except to the Company or a Restricted Subsidiary) will be deemed, in each
case, an Incurrence of such Indebtedness by the issuer thereof;
(iii) Indebtedness represented by the Notes, any Indebtedness (other than
the Indebtedness described in clauses (i) or (ii) above) outstanding on the
Issue Date and any Refinancing Indebtedness Incurred in respect of any
Indebtedness described in this clause (iii) or paragraph (a) above;
(iv) Purchase Money Obligations and Capitalized Lease Obligations, and
any Refinancing Indebtedness with respect thereto, in an aggregate
principal amount at any time outstanding not exceeding an amount equal to
10% of Consolidated Total Assets at any time outstanding;
(v) Indebtedness of any Foreign Subsidiary Incurred for working capital
purposes;
(vi) (A) Guarantees by the Company or any Restricted Subsidiary of
Indebtedness or any other obligation or liability of the Company or any
Restricted Subsidiary (other than any Indebtedness incurred by the Company
or such Restricted Subsidiary, as the case may be, in violation of the
covenant described under "--Limitation on Indebtedness"), or (B) without
limiting the covenant described under "--Limitation on Liens," Indebtedness
of the Company or any Restricted Subsidiary arising by reason of any Lien
granted by or applicable to such Person securing Indebtedness of the
Company or any Restricted Subsidiary (other than any Indebtedness incurred
by the Company or such Restricted Subsidiary, as the case may be, in
violation of the covenant described under "--Limitation on Indebtedness");
(vii) Indebtedness of the Company or any Restricted Subsidiary (A)
arising from the honoring of a check, draft or similar instrument of such
Person drawn against insufficient funds, provided that such Indebtedness is
extinguished within five Business Days of its incurrence, or (B) consisting
of guarantees, indemnities, obligations in respect of earnouts or other
purchase price adjustments, or similar obligations, Incurred in connection
with the acquisition or disposition of any business, assets or Person
(including pursuant to the Recapitalization);
(viii) Indebtedness of the Company or any Restricted Subsidiary in
respect of (A) letters of credit, bankers' acceptances or other similar
instruments or obligations issued, or relating to liabilities or
obligations incurred, in the ordinary course of business (including those
issued to governmental entities in connection with self-insurance under
applicable workers' compensation statutes), or (B) completion guarantees,
surety, judgment, appeal or performance bonds, or other similar bonds,
instruments or obligations, provided, or relating to liabilities or
obligations incurred, in the ordinary course of business, or (C) Hedging
Obligations entered into for bona fide hedging purposes in the ordinary
course of business, or (D) Management Guarantees, or (E) the financing of
insurance premiums in the ordinary course of business;
(ix) Indebtedness of a Receivables Subsidiary secured by a Lien on all or
part of the assets disposed of in, or otherwise incurred in connection
with, a Financing Disposition;
(x) Indebtedness of any Person that is assumed by the Company or any
Restricted Subsidiary in connection with its acquisition of assets from
such Person or any Affiliate thereof or is issued and outstanding on or
prior to the date on which such Person was acquired by the Company or any
Restricted Subsidiary or merged or consolidated with or into any Restricted
Subsidiary (other than Indebtedness Incurred to finance, or otherwise in
connection with, such acquisition), provided that on the date of such
acquisition, merger or consolidation, after giving effect thereto, (x) with
respect to any such Indebtedness of
87
<PAGE>
the Company or any Note Guarantor, (A) the Company could Incur at least
$1.00 of additional Indebtedness pursuant to paragraph (a) above or (B) the
Consolidated Coverage Ratio is greater than it was on such date immediately
prior to giving effect to such acquisition and (y) with respect to any such
Indebtedness of any Restricted Subsidiary that is not a Note Guarantor, the
Company could Incur at least $1.00 of additional Indebtedness pursuant to
paragraph (a) above; and any Refinancing Indebtedness with respect to any
such Indebtedness;
(xi) Indebtedness of the Company or any Restricted Subsidiary in an
amount at any time outstanding not exceeding twice the amount of Excluded
Contributions made after the Issue Date; provided, that the proceeds of
such Indebtedness and the related amount of such Excluded Contributions are
used to finance the acquisition of assets from any Person in a Related
Business or the merger or consolidation of such a Person into or with the
Company or any Restricted Subsidiary (including but not limited to payment
of any related fees and expenses), or to refinance any such acquisition,
merger or consolidation with such Indebtedness being Incurred for such
refinancing within nine months of the closing of such acquisition, merger
or consolidation; and any Refinancing Indebtedness with respect to any such
Indebtedness; and
(xii) Indebtedness of the Company or any Restricted Subsidiary in an
aggregate principal amount at any time outstanding not exceeding an amount
equal to 20% of Consolidated Total Assets.
(c) For purposes of determining compliance with, and the outstanding
principal amount of any particular Indebtedness Incurred pursuant to and in
compliance with, this covenant, (i) any other obligation of the obligor on
such Indebtedness (or of any other Person who could have Incurred such
Indebtedness under this covenant) arising under any Guarantee, Lien or letter
of credit, bankers' acceptance or other similar instrument or obligation
supporting such Indebtedness shall be disregarded to the extent that such
Guarantee, Lien or letter of credit, bankers' acceptance or other similar
instrument or obligation secures the principal amount of such Indebtedness;
(ii) in the event that Indebtedness meets the criteria of more than one of the
types of Indebtedness described in paragraph (b) above, the Company, in its
sole discretion, shall classify such item of Indebtedness and only be required
to include the amount and type of such Indebtedness in one of such clauses;
and (iii) the amount of Indebtedness issued at a price that is less than the
principal amount thereof shall be equal to the amount of the liability in
respect thereof determined in accordance with GAAP.
(d) For purposes of determining compliance with any Dollar-denominated
restriction on the Incurrence of Indebtedness denominated in a foreign
currency, the Dollar-equivalent principal amount of such Indebtedness Incurred
pursuant thereto shall be calculated based on the relevant currency exchange
rate in effect on the date that such Indebtedness was Incurred, in the case of
term Indebtedness, or first committed, in the case of revolving credit
Indebtedness, provided that (x) the Dollar-equivalent principal amount of any
such Indebtedness outstanding on the Issue Date shall be calculated based on
the relevant currency exchange rate in effect on the Issue Date, (y) if such
Indebtedness is Incurred to refinance other Indebtedness denominated in a
foreign currency, and such refinancing would cause the applicable Dollar-
denominated restriction to be exceeded if calculated at the relevant currency
exchange rate in effect on the date of such refinancing, such Dollar-
denominated restriction shall be deemed not to have been exceeded so long as
the principal amount of such refinancing Indebtedness does not exceed the
principal amount of such Indebtedness being refinanced and (z) the Dollar-
equivalent principal amount of Indebtedness denominated in a foreign currency
and Incurred pursuant to the Senior Credit Facility shall be calculated based
on the relevant currency exchange rate in effect on, at the Company's option,
(i) the Issue Date, (ii) any date on which any of the respective commitments
under the Senior Credit Facility shall be reallocated between or among
facilities or subfacilities thereunder, or on which such rate is otherwise
calculated for any purpose thereunder, or (iii) the date of such Incurrence.
The principal amount of any Indebtedness Incurred to refinance other
Indebtedness, if Incurred in a different currency from the Indebtedness being
refinanced, shall be calculated based on the currency exchange rate applicable
to the currencies in which such respective Indebtedness is denominated that is
in effect on the date of such refinancing.
Limitation on Layering. The Company shall not Incur any Indebtedness that is
expressly subordinated in right of payment to any Senior Indebtedness of the
Company, unless such Indebtedness so Incurred ranks pari
88
<PAGE>
passu in right of payment with the Notes, or is subordinated in right of
payment to the Notes. No Note Guarantor shall Incur any Indebtedness that is
expressly subordinated in right of payment to any Guarantor Senior
Indebtedness of such Note Guarantor, unless such Indebtedness so Incurred
ranks pari passu in right of payment with such Note Guarantor's Note
Guarantee, or is subordinated in right of payment to such Note Guarantor's
Note Guarantee. Unsecured Indebtedness is not deemed to be subordinate or
junior to secured Indebtedness merely because it is unsecured, and
Indebtedness that is not guaranteed by a particular Person is not deemed to be
subordinate or junior to Indebtedness that is so guaranteed merely because it
is not so guaranteed.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to (i) declare or
pay any dividend or make any distribution on or in respect of its Capital
Stock (including any such payment in connection with any merger or
consolidation to which the Company is a party) except (x) dividends or
distributions payable solely in its Capital Stock (other than Disqualified
Stock) and (y) dividends or distributions payable to the Company or any
Restricted Subsidiary (and, in the case of any such Restricted Subsidiary
making such dividend or distribution, to other holders of its Capital Stock on
no more than a pro rata basis, measured by value), (ii) purchase, redeem,
retire or otherwise acquire for value any Capital Stock of the Company held by
Persons other than the Company or a Restricted Subsidiary, (iii) purchase,
repurchase, redeem, defease or otherwise acquire or retire for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Obligations (other than a purchase, redemption, defeasance or
other acquisition or retirement for value in anticipation of satisfying a
sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of such acquisition or retirement) or (iv)
make any Investment (other than a Permitted Investment) in any Person (any
such dividend, distribution, purchase, redemption, repurchase, defeasance,
other acquisition or retirement or Investment being herein referred to as a
"Restricted Payment"), if at the time the Company or such Restricted
Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company could not incur at least an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under "--
Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to be
as determined in good faith by the Board of Directors, whose determination
shall be conclusive) declared or made subsequent to the Issue Date and then
outstanding would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from March 31, 1998 to the end of
the most recent fiscal quarter ending prior to the date of such
Restricted Payment for which consolidated financial statements of the
Company are available (or, in case such Consolidated Net Income shall
be a negative number, 100% of such negative number);
(B) the aggregate Net Cash Proceeds, and fair value (as determined in
good faith by the Board of Directors) of property or assets, received
(x) by the Company as capital contributions to the Company after the
Issue Date or from the issuance or sale (other than to a Restricted
Subsidiary) of its Capital Stock (other than Disqualified Stock) after
the Issue Date (other than Excluded Contributions) or (y) by the
Company or any Restricted Subsidiary from the issuance and sale by the
Company or any Restricted Subsidiary after the Issue Date of
Indebtedness that shall have been converted into or exchanged for
Capital Stock of the Company (other than Disqualified Stock), plus the
amount of cash, property or assets (determined as provided above)
received by the Company or any Restricted Subsidiary upon such
conversion or exchange;
(C) the aggregate amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from (i) dividends, distributions,
interest payments, return of capital, repayments of Investments or
other transfers of assets to the Company or any Restricted Subsidiary
from any Unrestricted Subsidiary, or (ii) the redesignation of any
Unrestricted Subsidiary as a Restricted Subsidiary (valued in each case
as provided in the definition of "Investment"), not to exceed in the
case of any such Unrestricted Subsidiary the aggregate amount of
Investments (other than Permitted
89
<PAGE>
Investments) made by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary after the Issue Date; and
(D) in the case of any disposition or repayment of any Investment
constituting a Restricted Payment (without duplication of any amount
deducted in calculating the amount of Investments at any time
outstanding included in the amount of Restricted Payments), an amount
in the aggregate equal to the lesser of the return of capital,
repayment or other proceeds with respect to all such Investments and
the initial amount of all such Investments.
(b) The provisions of the foregoing paragraph (a) will not prohibit any
of the following (each, a "Permitted Payment"):
(i) any purchase, redemption, repurchase, defeasance or other
acquisition or retirement of Capital Stock of the Company or
Subordinated Obligations made by exchange (including any such exchange
pursuant to the exercise of a conversion right or privilege in
connection with which cash is paid in lieu of the issuance of
fractional shares) for, or out of the proceeds of the substantially
concurrent issuance or sale of, Capital Stock of the Company (other
than Disqualified Stock and other than Capital Stock issued or sold to
a Subsidiary) or a substantially concurrent capital contribution to the
Company; provided, that the Net Cash Proceeds from such issuance, sale
or capital contribution shall be excluded in subsequent calculations
under clause (B) of the preceding paragraph (a);
(ii) any purchase, redemption, repurchase, defeasance or other
acquisition or retirement of Subordinated Obligations (x) made by
exchange for, or out of the proceeds of the substantially concurrent
issuance or sale of, Indebtedness of the Company or Refinancing
Indebtedness Incurred in compliance with the covenant described under
"--Limitation on Indebtedness," (y) from Net Available Cash to the
extent permitted by the covenant described under "--Limitation on Sales
of Assets and Subsidiary Stock" or (z) to the extent required by the
agreement governing such Subordinated Obligations, following the
occurrence of a Change of Control (or other similar event described
therein as a "change of control"), but only if the Company shall have
complied with the covenant described under "--Change of Control" and,
if required, purchased all Notes tendered pursuant to the offer to
repurchase all the Notes required thereby, prior to purchasing or
repaying such Subordinated Obligations;
(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have
complied with the preceding paragraph (a);
(iv) Investments or other Restricted Payments in an aggregate amount
outstanding at any time not to exceed the amount of Excluded
Contributions, provided that such Excluded Contributions shall not
include any Excluded Contribution the proceeds of which were used to
finance the acquisition of assets from any Person in a Related Business
or the merger or consolidation of such a Person into or with the
Company or any Restricted Subsidiary pursuant to clause (xi) of
paragraph (b) of the covenant described under "--Limitation on
Indebtedness";
(v) loans, advances, dividends or distributions by the Company to
Holding to permit Holding to repurchase or otherwise acquire its
Capital Stock (including any options, warrants or other rights in
respect thereof), or payments by the Company to repurchase or otherwise
acquire Capital Stock (including any options, warrants or other rights
in respect thereof), in each case from Management Investors, such
payments, loans, advances, dividends or distributions not to exceed an
amount (net of repayments of any such loans or advances) equal to (1)
$25.0 million, plus (2) $5.0 million multiplied by the number of
calendar years that have commenced since the Issue Date, plus the Net
Cash Proceeds received by the Company since the Issue Date from, or as
a capital contribution from, the issuance or sale to Management
Investors of Capital Stock (including any options, warrants or other
rights in respect thereof), to the extent such Net Cash Proceeds are
not included in any calculation under clause (3)(B)(x) of the preceding
paragraph (a);
(vi) the payment by the Company of, or loans, advances, dividends or
distributions by the Company to Holding to pay, dividends on the common
stock or equity of the Company or Holding
90
<PAGE>
following a public offering of such common stock or equity, in an
amount not to exceed in any fiscal year 6% of the aggregate gross
proceeds received by the Company in or from such public offering;
(vii) Restricted Payments (including loans or advances) in an
aggregate amount outstanding at any time not to exceed $10.0 million
(net of repayments of any such loans or advances);
(viii) loans, advances, dividends or distributions to Holding or
other payments by the Company or any Restricted Subsidiary (A) to
satisfy or permit Holding to satisfy obligations under the Management
Agreements, (B) pursuant to the Tax Sharing Agreement, or (C) to pay or
permit Holding to pay any Holding Expenses or any Related Taxes;
(ix) payments by the Company, or loans, advances, dividends or
distributions by the Company to Holding to make payments, to holders of
Capital Stock of the Company or Holding in lieu of issuance of
fractional shares of such Capital Stock, not to exceed $100,000 in the
aggregate outstanding at any time;
(x) dividends or other distributions of Capital Stock, Indebtedness
or other securities of Unrestricted Subsidiaries; and
(xi) the Transactions;
provided, that (A) in the case of clauses (iii), (vi), (vii) and (ix), the net
amount of any such Permitted Payment shall be included in subsequent
calculations of the amount of Restricted Payments, (B) in the case of clause
(v), at the time of any calculation of the amount of Restricted Payments, the
net amount of Permitted Payments that have then actually been made under
clause (v) that is in excess of 50% of the total amount of Permitted Payments
then permitted under clause (v) shall be included in such calculation of the
amount of Restricted Payments, (C) in all cases other than pursuant to clauses
(A) and (B) immediately above, the net amount of any such Permitted Payment
shall be excluded in subsequent calculations of the amount of Restricted
Payments and (D) solely with respect to clause (vii), no Default or Event of
Default shall have occurred or be continuing at the time of any such Permitted
Payment after giving effect thereto.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness or other obligations owed to the Company, (ii)
make any loans or advances to the Company or (iii) transfer any of its
property or assets to the Company, except any encumbrance or restriction:
(1) pursuant to an agreement or instrument in effect at or entered into
on the Issue Date (including, without limitation, the Senior Credit
Facility), the Indenture or the Notes;
(2) pursuant to any agreement or instrument of a Person, or relating to
Indebtedness or Capital Stock of a Person, which Person is acquired by or
merged or consolidated with or into the Company or any Restricted
Subsidiary, or which agreement or instrument is assumed by the Company or
any Restricted Subsidiary in connection with an acquisition of assets from
such Person, as in effect at the time of such acquisition, merger or
consolidation (except to the extent that such Indebtedness was incurred to
finance, or otherwise in connection with, such acquisition, merger or
consolidation), provided that for purposes of this clause (2), if another
Person is the Successor Company, any Subsidiary thereof or agreement or
instrument of such Person or any such Subsidiary shall be deemed acquired
or assumed, as the case may be, by the Company or a Restricted Subsidiary,
as the case may be, when such Person becomes the Successor Company;
(3) pursuant to an agreement or instrument (a "Refinancing Agreement")
effecting a refinancing of Indebtedness Incurred pursuant to, or that
otherwise extends, renews, refunds, refinances or replaces, an agreement or
instrument referred to in clause (1) or (2) of this covenant or this clause
(3) (an "Initial Agreement") or contained in any amendment, supplement or
other modification to an Initial Agreement (an "Amendment"); provided,
however, that the encumbrances and restrictions contained in any such
91
<PAGE>
Refinancing Agreement or Amendment are not materially less favorable to the
Holders of the Notes taken as a whole than encumbrances and restrictions
contained in the Initial Agreement or Initial Agreements to which such
Refinancing Agreement or Amendment relates (as determined in good faith by
the Company);
(4) (A) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is subject to a lease, license or
similar contract, or the assignment or transfer of any lease, license or
other contract, (B) by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or assets of the
Company or any Restricted Subsidiary not otherwise prohibited by the
Indenture, (C) contained in mortgages, pledges or other security agreements
securing Indebtedness of a Restricted Subsidiary to the extent restricting
the transfer of the property or assets subject thereto, (D) pursuant to
customary provisions restricting dispositions of real property interests
set forth in any reciprocal easement agreements of the Company or any
Restricted Subsidiary, (E) pursuant to Purchase Money Obligations that
impose encumbrances or restrictions on the property or assets so acquired,
(F) on cash or other deposits or net worth imposed by customers under
agreements entered into in the ordinary course of business, (G) pursuant to
customary provisions contained in agreements and instruments entered into
in the ordinary course of business (including but not limited to leases and
joint venture and other similar agreements entered into in the ordinary
course of business) or (H) that arises or is agreed to in the ordinary
course of business and does not detract from the value of property or
assets of the Company or any Restricted Subsidiary in any manner material
to the Company or such Restricted Subsidiary;
(5) with respect to a Restricted Subsidiary (or any of its property or
assets) imposed pursuant to an agreement entered into for the direct or
indirect sale or disposition of all or substantially all the Capital Stock
or assets of such Restricted Subsidiary (or the property or assets that are
subject to such restriction) pending the closing of such sale or
disposition;
(6) required by any applicable law, rule, regulation or order or by any
regulatory authority having jurisdiction over the Company or any Restricted
Subsidiary or any of their businesses; or
(7) pursuant to an agreement or instrument (A) relating to any
Indebtedness permitted to be Incurred subsequent to the Issue Date pursuant
to the provisions of the covenant described under "--Limitation on
Indebtedness," if the Company determines that such encumbrance or
restriction will not cause the Company not to have the funds necessary to
pay the principal of or interest on the Notes, (B) relating to any sale of
receivables by a Foreign Subsidiary or (C) relating to Indebtedness of or a
Financing Disposition to or by any Receivables Entity.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company will
not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless
(i) the Company or such Restricted Subsidiary receives consideration
(including by way of relief from, or by any other Person assuming
responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the fair market value of the
shares and assets subject to such Asset Disposition, as such fair market
value may be determined (and shall be determined, to the extent such Asset
Disposition or any series of related Asset Dispositions involves aggregate
consideration in excess of $10.0 million) in good faith by the Board of
Directors, whose determination shall be conclusive (including as to the
value of all noncash consideration),
(ii) in the case of any Asset Disposition (or series of related Asset
Dispositions) having a fair market value of $10.0 million or more, at least
75% of the consideration therefor (excluding, in the case of an Asset
Disposition (or series of related Asset Dispositions) of assets, any
consideration by way of relief from, or by any other Person assuming
responsibility for, any liabilities, contingent or otherwise, that are not
Indebtedness) received by the Company or such Restricted Subsidiary is in
the form of cash, and provided that this clause (ii) shall not apply to any
Asset Disposition (or series of related Asset Dispositions), involving
assets that accounted for less than two percent of Consolidated EBITDA
during the period of the most recent four consecutive fiscal quarters
ending prior to the date of such Asset Disposition for which consolidated
financial statements of the Company are available, and
92
<PAGE>
(iii) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or any Restricted Subsidiary, as the
case may be) as follows:
(A) first, either (x) to the extent the Company elects (or is
required by the terms of any Senior Indebtedness or Indebtedness of a
Restricted Subsidiary), to prepay, repay or purchase Senior
Indebtedness or such Indebtedness of a Restricted Subsidiary (in each
case other than Indebtedness owed to the Company or a Restricted
Subsidiary) within 365 days after the date of such Asset Disposition,
or (y) to the extent the Company or such Restricted Subsidiary elects,
to reinvest in Additional Assets (including by means of an investment
in Additional Assets by a Restricted Subsidiary with Net Available Cash
received by the Company or another Restricted Subsidiary) within 365
days from the date of such Asset Disposition, or, if such reinvestment
in Additional Assets is a project authorized by the Board of Directors
that will take longer than such 365 days to complete, the period of
time necessary to complete such project;
(B) second, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A) above (such balance,
the "Excess Proceeds"), to make an offer to purchase Notes and (to the
extent the Company or such Restricted Subsidiary elects, or is required
by the terms thereof) to purchase, redeem or repay any other Senior
Subordinated Indebtedness or Guarantor Senior Subordinated
Indebtedness, pursuant and subject to the conditions of the Indenture
and the agreements governing such other Indebtedness; and
(C) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B) above, to fund
(to the extent consistent with any other applicable provision of the
Indenture) any general corporate purpose (including but not limited to
the repurchase, repayment or other acquisition or retirement of any
Subordinated Obligations);
provided, however, that in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A)(x) or (B) above, the Company
or such Restricted Subsidiary will retire such Indebtedness and will cause the
related loan commitment (if any) to be permanently reduced in an amount equal
to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this covenant, the Company and
the Restricted Subsidiaries shall not be required to apply any Net Available
Cash in accordance with this covenant except to the extent that the aggregate
Net Available Cash from all Asset Dispositions that is not applied in
accordance with this covenant exceeds $15.0 million. If the aggregate
principal amount of Notes, Senior Subordinated Indebtedness and Guarantor
Senior Subordinated Indebtedness validly tendered and not withdrawn (or
otherwise subject to purchase, redemption or repayment) in connection with an
offer pursuant to clause (B) above exceeds the Excess Proceeds, the Excess
Proceeds will be apportioned between the Notes and such Senior Subordinated
Indebtedness and Guarantor Senior Subordinated Indebtedness, with the portion
of the Excess Proceeds payable in respect of the Notes to equal the lesser of
(x) the Excess Proceeds amount multiplied by a fraction, the numerator of
which is the outstanding principal amount of the Notes and the denominator of
which is the sum of the outstanding principal amount of the Notes and the
outstanding principal amount of the relevant Senior Subordinated Indebtedness
and Guarantor Senior Subordinated Indebtedness, and (y) the aggregate
principal amount of Notes validly tendered and not withdrawn.
For the purposes of clause (ii) of paragraph (a) above, the following are
deemed to be cash: (1) Temporary Cash Investments and Cash Equivalents, (2)
the assumption of Indebtedness of the Company (other than Disqualified Stock
of the Company) or any Restricted Subsidiary and the release of the Company or
such Restricted Subsidiary from all liability on payment of the principal
amount of such Indebtedness in connection with such Asset Disposition, (3)
Indebtedness of any Restricted Subsidiary that is no longer a Restricted
Subsidiary as a result of such Asset Disposition, to the extent that the
Company and each other Restricted Subsidiary are released from any Guarantee
of payment of the principal amount of such Indebtedness in connection with
such Asset Disposition, (4) securities received by the Company or any
Restricted Subsidiary from the transferee that are converted by the Company or
such Restricted Subsidiary into cash and (5) consideration consisting of
Indebtedness of the Company or any Restricted Subsidiary.
93
<PAGE>
(b) In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (iii)(B) of paragraph (a) above, the Company will be
required to purchase Notes tendered pursuant to an offer by the Company for
the Notes (the "Offer") at a purchase price of 100% of their principal amount
plus accrued and unpaid interest to the Purchase Date in accordance with the
procedures (including prorating in the event of oversubscription) set forth in
the Indenture. If the aggregate purchase price of the Notes tendered pursuant
to the Offer is less than the Net Available Cash allotted to the purchase of
Notes, the remaining Net Available Cash will be available to the Company for
use in accordance with clause (iii)(B) of paragraph (a) above (to repay Senior
Subordinated Indebtedness or Guarantor Senior Subordinated Indebtedness) or
clause (iii)(C) of paragraph (a) above. The Company shall not be required to
make an Offer for Notes pursuant to this covenant if the Net Available Cash
available therefor (after application of the proceeds as provided in clause
(iii)(A) of paragraph (a) above) is less than $15.0 million for any particular
Asset Disposition (which lesser amounts shall be carried forward for purposes
of determining whether an Offer is required with respect to the Net Available
Cash from any subsequent Asset Disposition).
(c) The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue thereof.
Limitation on Transactions with Affiliates. (a) The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter
into or conduct any transaction or series of related transactions (including
the purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") unless
(i) the terms of such Affiliate Transaction are not materially less favorable
to the Company or such Restricted Subsidiary, as the case may be, than those
that could be obtained at the time in a transaction with a Person who is not
such an Affiliate and (ii) if such Affiliate Transaction involves aggregate
consideration in excess of $10.0 million, the terms of such Affiliate
Transaction have been approved by a majority of the Disinterested Directors.
For purposes of this paragraph, any Affiliate Transaction shall be deemed to
have satisfied the requirements set forth in this paragraph if (x) such
Affiliate Transaction is approved by a majority of the Disinterested Directors
or (y) in the event there are no Disinterested Directors, a fairness opinion
is provided by a nationally recognized appraisal or investment banking firm
with respect to such Affiliate Transaction.
(b) The provisions of the preceding paragraph (a) will not apply to:
(i) any Restricted Payment Transaction,
(ii) (1) the entering into, maintaining or performance of any employment
contract, collective bargaining agreement, benefit plan, program or
arrangement, related trust agreement or any other similar arrangement for
or with any employee, officer or director heretofore or hereafter entered
into in the ordinary course of business, including vacation, health,
insurance, deferred compensation, severance, retirement, savings or other
similar plans, programs or arrangements, (2) the payment of compensation,
performance of indemnification or contribution obligations, or any
issuance, grant or award of stock, options, other equity-related interests
or other securities, to employees, officers or directors in the ordinary
course of business, (3) the payment of fees to directors of the Company or
any of its Subsidiaries, (4) any transaction with an officer or director in
the ordinary course of business not involving more than $100,000 in any one
case, or (5) Management Advances and payments in respect thereof,
(iii) any transaction with the Company, any Restricted Subsidiary, or any
Receivables Entity,
(iv) any transaction arising out of agreements or instruments in
existence on the Issue Date, and any payments made pursuant thereto,
(v) execution, delivery and performance of the Tax Sharing Agreement and
Management Agreements, including (1) payment to CDR or any Affiliate of CDR
of a fee of $9.2 million plus out-of-pocket expenses
94
<PAGE>
in connection with the Transactions, and (2) payment to CDR or any
Affiliate of CDR of fees of up to $1.0 million in any fiscal year plus all
out-of-pocket expenses incurred by CDR or any such Affiliate in connection
with its performance of management consulting, monitoring, financial
advisory or other services with respect to the Company and its Restricted
Subsidiaries,
(vi) the Transactions, all transactions in connection therewith
(including but not limited to the financing thereof), and all fees or
expenses paid or payable in connection with the Transactions,
(vii) any transaction in the ordinary course of business on terms not
materially less favorable to the Company or the relevant Restricted
Subsidiary than those that could be obtained at the time in a transaction
with a Person who is not an Affiliate of the Company, and
(viii) any transaction in the ordinary course of business, or approved by
a majority of the Board of Directors, between the Company or any Restricted
Subsidiary and any Affiliate of the Company controlled by the Company that
is a joint venture or similar entity.
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, create or permit to exist
any Lien (other than Permitted Liens) on any of its property or assets
(including Capital Stock of any other Person), whether owned on the date of
the Indenture or thereafter acquired, securing any Indebtedness of the Company
or any Note Guarantor that by its terms is expressly subordinated in right of
payment to or ranks pari passu in right of payment with the Notes or such Note
Guarantor's Note Guarantee (the "Initial Lien"), unless contemporaneously
therewith effective provision is made to secure the Indebtedness due under the
Indenture and the Notes or, in respect of Liens on any Restricted Subsidiary's
property or assets, any Note Guarantee of such Restricted Subsidiary, equally
and ratably with such obligation for so long as such obligation is so secured
by such Initial Lien. Any such Lien thereby created in favor of the Notes or
any such Note Guarantee will be automatically and unconditionally released and
discharged upon (i) the release and discharge of the Initial Lien to which it
relates, or (ii) any sale, exchange or transfer to any Person not an Affiliate
of the Company of the property or assets secured by such Initial Lien, or of
all of the Capital Stock held by the Company or any Restricted Subsidiary in,
or all or substantially all the assets of, any Restricted Subsidiary creating
such Lien.
Future Note Guarantors. After the Issue Date, the Company will cause each
Significant Domestic Subsidiary that guarantees payment by the Company of
Indebtedness of the Company (other than Bank Indebtedness), to execute and
deliver to the Trustee a supplemental indenture or other instrument pursuant
to which such Subsidiary will guarantee payment of the Notes, whereupon such
Subsidiary will become a Note Guarantor for all purposes under the Indenture.
In addition, the Company may cause any Subsidiary that is not a Note Guarantor
so to guarantee payment of the Notes and become a Note Guarantor.
Each Note Guarantor, as primary obligor and not merely as surety, will
jointly and severally, irrevocably and fully and unconditionally Guarantee, on
a senior subordinated basis, the punctual payment when due, whether at Stated
Maturity, by acceleration or otherwise, of all monetary obligations of the
Company under the Indenture and the Notes, whether for principal of or
interest on the Notes, expenses, indemnification or otherwise (all such
obligations guaranteed by such Note Guarantors being herein called the
"Guaranteed Obligations"). Such Note Guarantor will agree to pay, in addition
to the amount stated above, any and all reasonable out-of-pocket expenses
(including reasonable counsel fees and expenses) incurred by the Trustee or
the Holders in enforcing any rights under its Note Guarantee.
The obligations of each Note Guarantor will be limited to the maximum
amount, as will, after giving effect to all other contingent and fixed
liabilities of such Note Guarantor, result in the obligations of such Note
Guarantor under the Note Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under applicable law, or being void or unenforceable under
any law relating to insolvency of debtors.
Each such Note Guarantee shall be a continuing Guarantee and shall (i)
remain in full force and effect until payment in full of the principal amount
of all outstanding Notes (whether by payment at maturity, purchase,
95
<PAGE>
redemption, defeasance, retirement or other acquisition) and all other
Guaranteed Obligations then due and owing, unless earlier terminated as
described below, (ii) be binding upon such Note Guarantor and (iii) inure to
the benefit of and be enforceable by the Trustee, the Holders and their
permitted successors, transferees and assigns.
Notwithstanding the preceding paragraph, any Note Guarantor will
automatically and unconditionally be released from all obligations under its
Note Guarantee, and such Note Guarantee shall thereupon terminate and be
discharged and of no further force or effect, (i) concurrently with any sale
or disposition (by merger or otherwise) of any Note Guarantor or any interest
therein in accordance with the terms of the Indenture (including the covenant
described under "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock") by the Company or a Restricted Subsidiary, following which
such Note Guarantor is no longer a Restricted Subsidiary of the Company, (ii)
pursuant to the terms of its Note Guarantee, (iii) at any time that such Note
Guarantor is released from all of its obligations under all of its Guarantees
of payment by the Company of Indebtedness (other than Bank Indebtedness) of
the Company, (iv) upon the merger or consolidation of any Note Guarantor with
and into the Company or another Note Guarantor that is the surviving Person in
such merger or consolidation, (v) upon legal or covenant defeasance of the
Company's obligations, or satisfaction and discharge of the Indenture, or (vi)
subject to customary contingent reinstatement provisions, upon payment in full
of the aggregate principal amount of all Notes then outstanding and all other
Guaranteed Obligations then due and owing. In addition, the Company will have
the right, upon 30 days' notice to the Trustee, to cause any Note Guarantor
that has not guaranteed payment by the Company of any other Indebtedness
(other than Bank Indebtedness) of the Company to be unconditionally released
from all obligations under its Note Guarantee, and such Note Guarantee shall
thereupon terminate and be discharged and of no further force or effect. Upon
any such occurrence specified in this paragraph, the Trustee shall execute any
documents reasonably required in order to evidence such release, discharge and
termination in respect of such Note Guarantee.
Neither the Company nor any such Note Guarantor shall be required to make a
notation on the Notes to reflect any such Guarantee or any such release,
termination or discharge.
SEC Reports. Notwithstanding that the Company may not be required to be or
remain subject to the reporting requirements of Section 13(a) or 15(d) of the
Exchange Act, the Company will file with the SEC (unless such filing is not
permitted under the Exchange Act or by the SEC), so long as Notes are
outstanding, the annual reports, information, documents and other reports that
the Company is required to file with the Commission pursuant to such Section
13(a) or 15(d) or would be so required to file if the Company were so subject.
The Company will also, within 15 days after the date on which the Company was
so required to file or would be so required to file if the Company were so
subject (or, if later, 120 days after the Issue Date), transmit by mail to all
Holders, as their names and addresses appear in the Note Register, and to the
Trustee copies of any such information, documents and reports (without
exhibits) so required to be filed (or, in lieu of one or more of the annual
report for the fiscal year ended March 31, 1998 and the quarterly reports for
the following fiscal year, a registration statement filed with the SEC under
the Securities Act or any amendment thereto, provided such registration
statement or amendment contains the information that would have been included
in each such report). The Company will be deemed to have satisfied such
requirements if Holding files and provides reports, documents and information
of the types otherwise so required, in each case within the applicable time
periods, and the Company is not required to file such reports, documents and
information separately under the applicable rules and regulations of the SEC
(after giving effect to any exemptive relief) because of the filings by
Holding. The Company also will comply with the other provisions of TIA
(S) 314(a).
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company")
will be a Person organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor
Company (if not the Company) will expressly assume all
96
<PAGE>
the obligations of the Company under the Notes and the Indenture by executing
and delivering to the Trustee a supplemental indenture or one or more other
documents or instruments in form reasonably satisfactory to the Trustee; (ii)
immediately after giving effect to such transaction (and treating any
Indebtedness that becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been Incurred
by the Successor Company or such Restricted Subsidiary at the time of such
transaction), no Default will have occurred and be continuing; (iii)
immediately after giving effect to such transaction, either (A) the Successor
Company could Incur at least $1.00 of additional Indebtedness pursuant to
paragraph (a) of the covenant described under "--Certain Covenants--Limitation
on Indebtedness," or (B) the Consolidated Coverage Ratio of the Successor
Company would equal or exceed the Consolidated Coverage Ratio of the Company
immediately prior to giving effect to such transaction; (iv) each Note
Guarantor (other than any party to any such consolidation or merger) shall
have delivered a supplemental indenture or other document or instrument in
form reasonably satisfactory to the Trustee, confirming its Note Guarantee;
and (v) the Company will have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each to the effect that such
consolidation, merger or transfer complies with the provisions described in
this paragraph, provided that (x) in giving such opinion such counsel may rely
on an Officer's Certificate as to compliance with the foregoing clauses (ii)
and (iii) and as to any matters of fact, and (y) no Opinion of Counsel will be
required for a consolidation, merger or transfer described in the last
paragraph of this covenant. Any Indebtedness that becomes an obligation of the
Company or any Restricted Subsidiary (or that is deemed to be Incurred by any
Restricted Subsidiary that becomes a Restricted Subsidiary) as a result of any
such transaction undertaken in compliance with this covenant, and any
Refinancing Indebtedness with respect thereto, shall be deemed to have been
Incurred in compliance with the covenant described under "--Certain
Covenants--Limitation on Indebtedness."
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, and
thereafter the predecessor Company shall be relieved of all obligations and
covenants under the Indenture.
Clauses (ii) and (iii) of the first paragraph of this "Merger and
Consolidation" section will not apply to any transaction in which (1) any
Restricted Subsidiary consolidates with, merges into or transfers all or part
of its assets to the Company or (2) the Company consolidates or merges with or
into or transfers all or substantially all its properties and assets to (x) an
Affiliate incorporated or organized for the purpose of reincorporating or
reorganizing the Company in another jurisdiction or changing its legal
structure to a corporation or other entity or (y) a Restricted Subsidiary of
the Company so long as all assets of the Company and the Restricted
Subsidiaries immediately prior to such transaction (other than Capital Stock
of such Restricted Subsidiary) are owned by such Restricted Subsidiary and its
Restricted Subsidiaries immediately after the consummation thereof. The first
paragraph of this "Merger and Consolidation" section will not apply to the
Merger or the Second Merger.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Note when due, continued for 30 days, (ii) a
default in the payment of principal of any Note when due, whether at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, whether or not such payment is prohibited by the
provisions described under "--Ranking" above, (iii) the failure by the Company
to comply for 30 days after notice with its obligations under the covenant
described under "--Merger and Consolidation" above, (iv) the failure by the
Company to comply for 30 days after notice with any of its obligations under
the covenant described under "--Change of Control" above (other than a failure
to purchase Notes), (v) the failure by the Company to comply for 60 days after
notice with its other agreements contained in the Notes or the Indenture, (vi)
the failure by any Note Guarantor to comply for 45 days after notice with its
obligations under its Note Guarantee, (vii) the failure by the Company or any
Significant Subsidiary to pay any Indebtedness within any applicable grace
period after final maturity or the acceleration of any such Indebtedness by
the holders thereof because of a default, if the total amount of such
Indebtedness so unpaid or accelerated exceeds $15.0 million or its foreign
currency equivalent (the "cross acceleration provision"), (viii) certain
events
97
<PAGE>
of bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary (the "bankruptcy provisions"), (ix) the rendering of any judgment
or decree for the payment of money in an amount (net of any insurance or
indemnity payments actually received in respect thereof prior to or within 90
days from the entry thereof, or to be received in respect thereof in the event
any appeal thereof shall be unsuccessful) in excess of $15.0 million or its
foreign currency equivalent against the Company or a Significant Subsidiary
that is not discharged, or bonded or insured by a third Person, if such
judgment or decree remains outstanding for a period of 90 days following such
judgment or decree and is not discharged, waived or stayed (the "judgment
default provision") or (x) the failure of any Note Guarantee by a Note
Guarantor that is a Significant Subsidiary to be in full force and effect
(except as contemplated by the terms thereof or of the Indenture) or the
denial or disaffirmation in writing by any Note Guarantor that is a
Significant Subsidiary of its obligations under the Indenture or any Note
Guarantee, if such Default continues for 10 days.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body.
However, a Default under clause (iii), (iv), (v) or (vi) will not constitute
an Event of Default until the Trustee or the Holders of at least 25% in
principal amount of the outstanding Notes notify the Company of the Default
and the Company does not cure such Default within the time specified in such
clause after receipt of such notice.
If an Event of Default (other than a Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company) occurs and is
continuing, the Trustee by notice to the Company, or the Holders of at least a
majority in principal amount of the outstanding Notes by notice to the Company
and the Trustee, may declare the principal of and accrued but unpaid interest
on all the Notes to be due and payable, provided that so long as any
Designated Senior Indebtedness shall be outstanding, such acceleration shall
not be effective until the earlier to occur of (x) five Business Days
following delivery of a written notice of such acceleration of the Notes to
the Company and the holders of all Designated Senior Indebtedness or each
Representative thereof and (y) the acceleration of any Designated Senior
Indebtedness. Upon the effectiveness of such a declaration, such principal and
interest will be due and payable immediately. Notwithstanding the foregoing,
if an Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of the Company occurs and is continuing, the principal of and
accrued interest on all the Notes will become immediately due and payable
without any declaration or other act on the part of the Trustee or any
Holders. Under certain circumstances, the Holders of a majority in principal
amount of the outstanding Notes may rescind any such acceleration with respect
to the Notes and its consequences.
Notwithstanding the foregoing, in the event of a declaration of acceleration
in respect of the Notes because an Event of Default specified in clause (vii)
above shall have occurred and be continuing, such declaration of acceleration
of the Notes and such Event of Default and all consequences thereof (including
without limitation any acceleration or resulting payment default) shall be
annulled, waived and rescinded, automatically and without any action by the
Trustee or the Holders, and be of no further effect, if within 60 days after
such Event of Default arose (x) the Indebtedness that is the basis for such
Event of Default has been discharged, or (y) the holders thereof have
rescinded or waived the acceleration, notice or action (as the case may be)
giving rise to such Event of Default, or (z) the default in respect of such
Indebtedness that is the basis for such Event of Default has been cured.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such
Holders have offered to the Trustee reasonable indemnity or security against
any loss, liability or expense. Except to enforce the right to receive payment
of principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee written notice that an Event
98
<PAGE>
of Default is continuing, (ii) Holders of at least 25% in principal amount of
the outstanding Notes have requested the Trustee in writing to pursue the
remedy, (iii) such Holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense, (iv) the Trustee has not
complied with such request within 60 days after the receipt of the request and
the offer of security or indemnity and (v) the Holders of a majority in
principal amount of the outstanding Notes have not given the Trustee a
direction inconsistent with such request within such 60-day period. Subject to
certain restrictions, the Holders of a majority in principal amount of the
outstanding Notes are given the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
Holder or that would involve the Trustee in personal liability. Prior to
taking any action under the Indenture, the Trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses
and expenses caused by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the
Default within 90 days after it occurs. Except in the case of a Default in the
payment of principal of, or premium (if any) or interest on, any Note, the
Trustee may withhold notice if and so long as a committee of its Trust
Officers in good faith determines that withholding notice is in the interests
of the Noteholders. In addition, the Company is required to deliver to the
Trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any Default that occurred
during the previous year. The Company also is required to deliver to the
Trustee, within 30 days after the occurrence thereof, written notice of any
event that would constitute certain Defaults, their status and what action the
Company is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in principal amount of the Notes then outstanding
and any past default or compliance with any provisions may be waived with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding (including in each case, consents obtained in connection with a
tender offer or exchange offer for Notes). However, without the consent of
each Holder of an outstanding Note affected, no amendment or waiver may
(i) reduce the principal amount of Notes whose Holders must consent to an
amendment or waiver, (ii) reduce the rate of or extend the time for payment of
interest on any Note, (iii) reduce the principal of or extend the Stated
Maturity of any Note, (iv) reduce the premium payable upon the redemption of
any Note or change the date on which any Note may be redeemed as described
under "Optional Redemption" above, (v) make any Note payable in money other
than that stated in the Note, (vi) make any change to the subordination
provisions of the Indenture that adversely affects the rights of any Holder in
any material respect, (vii) impair the right of any Holder to receive payment
of principal of and interest on such Holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such Holder's Notes or (viii) make any change in the amendment or
waiver provisions described in this sentence.
Without the consent of any Holder, the Company, the Trustee and (as
applicable) any Note Guarantor may amend the Indenture to cure any ambiguity,
omission, defect or inconsistency, to provide for the assumption by a
successor of the obligations of the Company under the Indenture, to provide
for uncertificated Notes in addition to or in place of certificated Notes, to
add Guarantees with respect to the Notes, to secure the Notes, to confirm and
evidence the release, termination or discharge of any Guarantee or Lien with
respect to or securing the Notes when such release, termination or discharge
is provided for under the Indenture, to add to the covenants of the Company
for the benefit of the Noteholders or to surrender any right or power
conferred upon the Company, to provide that any Indebtedness that becomes or
will become an obligation of the Successor Company or a Note Guarantor
pursuant to a transaction governed by the provisions described under "--Merger
and Consolidation" (and that is not a Subordinated Obligation) is Senior
Subordinated Indebtedness or Guarantor Senior Subordinated Indebtedness for
purposes of this Indenture, to provide for or confirm the issuance of
Additional Notes, to make any change that does not adversely affect the rights
of any Holder, or to comply with any requirement of the SEC in connection with
the qualification of the Indenture under the TIA or otherwise.
99
<PAGE>
However, no amendment may be made to the subordination provisions of the
Indenture that adversely affects the rights of any holder of Senior
Indebtedness then outstanding (which Senior Indebtedness has been previously
designated in writing by the Company to the Trustee for this purpose) unless
the holders of such Senior Indebtedness (or any group or representative
thereof authorized to give a consent) consent to such change.
The consent of the Noteholders is not necessary under the Indenture to
approve the particular form of any proposed amendment or waiver. It is
sufficient if such consent approves the substance of the proposed amendment or
waiver. Until an amendment or waiver becomes effective, a consent to it by a
Noteholder is a continuing consent by such Noteholder and every subsequent
Holder of all or part of the related Note. Any such Noteholder or subsequent
holder may revoke such consent as to its Note by written notice to the Trustee
or the Company, received thereby before the date on which the Company
certifies to the Trustee that the Holders of the requisite principal amount of
Notes have consented to such amendment or waiver. After an amendment or waiver
under the Indenture becomes effective, the Company is required to mail to
Noteholders a notice briefly describing such amendment or waiver. However, the
failure to give such notice to all Noteholders, or any defect therein, will
not impair or affect the validity of the amendment or waiver.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those relating to the defeasance trust and obligations to register
the transfer or exchange of the Notes, to replace mutilated, destroyed, lost
or stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under certain
covenants under the Indenture, including the covenants described under "--
Certain Covenants" and "--Change of Control," the operation of the default
provisions relating to such covenants described under "--Defaults" above, the
operation of the cross acceleration provision, the bankruptcy provisions with
respect to Subsidiaries and the judgment default provision described under "--
Defaults" above, and the limitations contained in clauses (iii), (iv) and (v)
under "--Merger and Consolidation" above ("covenant defeasance"). If the
Company exercises its legal defeasance option or its covenant defeasance
option, each Note Guarantor will be released from all of its obligations with
respect to its Note Guarantee.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because
of an Event of Default with respect thereto. If the Company exercises its
covenant defeasance option, payment of the Notes may not be accelerated
because of an Event of Default specified in clause (iv), (v) (as it relates to
the covenants described under "--Certain Covenants" above), (vi), (vii),
(viii) (but only with respect to events of bankruptcy, insolvency or
reorganization of a Significant Subsidiary), (ix) or (x) under "Defaults"
above or because of the failure of the Company to comply with clause (iii),
(iv) or (v) under "--Merger and Consolidation" above.
Either defeasance option may be exercised to any redemption date or to the
maturity date for the Notes. In order to exercise either defeasance option,
the Company must irrevocably deposit in trust (the "defeasance trust") with
the Trustee money or U.S. Government Obligations, or a combination thereof,
for the payment of principal of, and premium (if any) and interest on, the
Notes to redemption or maturity, as the case may be, and must comply with
certain other conditions, including delivery to the Trustee of an Opinion of
Counsel to the effect that holders of the Notes will not recognize income,
gain or loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal
Revenue Service or other change in applicable Federal income tax law since the
Issue Date).
SATISFACTION AND DISCHARGE
The Indenture will be discharged and cease to be of further effect (except
as to surviving rights of registration of transfer or exchange of the Notes,
as expressly provided for in the Indenture) as to all outstanding
100
<PAGE>
Notes when (i) either (a) all the Notes previously authenticated and delivered
(other than certain lost, stolen or destroyed Notes, and certain Notes for
which provision for payment was previously made and thereafter the funds have
been released to the Company) have been delivered to the Trustee for
cancellation or (b) all Notes not previously delivered to the Trustee for
cancellation (x) have become due and payable, (y) will become due and payable
at their Stated Maturity within one year or (z) are to be called for
redemption within one year under arrangements reasonably satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in the name, and
at the expense, of the Company, (ii) the Company has irrevocably deposited or
caused to be deposited with the Trustee money, U.S. Government Obligations, or
a combination thereof, sufficient to pay and discharge the entire indebtedness
on the Notes not previously delivered to the Trustee for cancellation, for
principal, premium, if any, and interest to the date of deposit; (iii) the
Company has paid or caused to be paid all other sums payable under the
Indenture by the Company; and (iv) the Company has delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel each to the effect that all
conditions precedent under the "Satisfaction and Discharge" section of the
Indenture relating to the satisfaction and discharge of the Indenture have
been complied with, provided that any such counsel may rely on any Officer's
Certificate as to matters of fact (including as to compliance with the
foregoing clauses (i), (ii) and (iii)).
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS AND
STOCKHOLDERS
No director, officer, employee, incorporator, member or stockholder, as
such, of the Company, Holding, any Note Guarantor or any Subsidiary of any
thereof shall have any liability for any obligation of the Company, Holding or
any Note Guarantor under the Indenture, the Notes, the Parent Guarantee or any
Note Guarantee, or for any claim based on, in respect of, or by reason of, any
such obligation or its creation. Each Noteholder, by accepting the Notes,
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company is the Trustee under the Indenture and
has been appointed by the Company as Registrar and Paying Agent with regard to
the Notes.
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are set forth
specifically in the Indenture. During the existence of an Event of Default,
the Trustee will exercise such of the rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and the TIA will impose certain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, that if it acquires any conflicting
interest as described in the TIA, it must eliminate such conflict, apply to
the SEC for permission to continue as Trustee with such conflict, or resign.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York, without
giving effect to any principles of conflict of laws to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets that replace the
property or assets that are the subject of an Asset Disposition; (ii) any
property or assets (other than Indebtedness and Capital Stock) to be used by
the Company or a Restricted Subsidiary in a Related Business; (iii) the
Capital Stock of a Person that is engaged in
101
<PAGE>
a Related Business and becomes a Restricted Subsidiary as a result of the
acquisition of such Capital Stock by the Company or another Restricted
Subsidiary; or (iv) Capital Stock of any Person that at such time is a
Restricted Subsidiary, acquired from a third party.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"all or substantially all" has the meaning given to such phrase in the
Revised Model Business Corporation Act and commentary thereto.
"Asset Disposition" means any sale, lease, transfer or other disposition of
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares, or (in the case of a Foreign Subsidiary) to the extent
required by applicable law), property or other assets (each referred to for
the purposes of this definition as a "disposition") by the Company or any of
its Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction), other than (i) a disposition to the
Company or a Restricted Subsidiary, (ii) a disposition in the ordinary course
of business, (iii) the sale or discount (with or without recourse, and on
customary or commercially reasonable terms) of accounts receivable or notes
receivable arising in the ordinary course of business, or the conversion or
exchange of accounts receivable for notes receivable, (iv) any Restricted
Payment Transaction, (v) a disposition that is governed by the provisions
described under "--Merger and Consolidation", (vi) any Financing Disposition,
(vii) any "fee in lieu" or other disposition of assets to any governmental
authority or agency that continue in use by the Company or any Restricted
Subsidiary, so long as the Company or any Restricted Subsidiary may obtain
title to such assets upon reasonable notice by paying a nominal fee, (viii)
any exchange of like property pursuant to Section 1031 (or any successor
section) of the Code, (ix) any financing transaction with respect to property
built or acquired by the Company or any Restricted Subsidiary after the Issue
Date, including without limitation any sale/leaseback transaction or asset
securitization, (x) any disposition arising from foreclosure, condemnation or
similar action with respect to any property or other assets, (xi) any
disposition of Capital Stock, Indebtedness or other securities of an
Unrestricted Subsidiary, (xii) a disposition of Capital Stock of a Restricted
Subsidiary pursuant to an agreement or other obligation with or to a Person
(other than the Company or a Restricted Subsidiary) from whom such Restricted
Subsidiary was acquired, or from whom such Restricted Subsidiary acquired its
business and assets (having been newly formed in connection with such
acquisition), entered into in connection with such acquisition, (xiii) a
disposition of not more than 5% of the outstanding Capital Stock of a Foreign
Subsidiary that has been approved by the Board of Directors, or (xiv) any
disposition or series of related dispositions for aggregate consideration not
to exceed $2.5 million.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts, whether outstanding on the
Issue Date or thereafter incurred, payable under or in respect of the Senior
Credit Facility, including without limitation principal, premium (if any),
interest (including interest accruing on or after the filing of any petition
in bankruptcy or for reorganization relating to the Company or any Restricted
Subsidiary whether or not a claim for post-filing interest is allowed in such
proceedings), fees, charges, expenses, reimbursement obligations, guarantees,
other monetary obligations of any nature and all other amounts payable
thereunder or in respect thereof.
"Board of Directors" means the board of directors or other governing body of
the Company or, if the Company is owned or managed by a single entity, the
board of directors or other governing body of such entity, or, in either case,
any committee thereof duly authorized to act on behalf of such board or
governing body.
102
<PAGE>
"Borrowing Base" means the sum (determined as of the end of the most
recently ended fiscal quarter for which consolidated financial statements of
the Company are available) of (1) 60% of Inventory of the Company and its
Restricted Subsidiaries and (2) 80% of Receivables of the Company and its
Restricted Subsidiaries.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banking institutions are authorized or required by law to
close in New York City.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
"Capitalized Lease Obligation" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP. The Stated Maturity of any Capitalized Lease
Obligation shall be the date of the last payment of rent or any other amount
due under the related lease.
"Cash Equivalents" means any of the following: (a) securities issued or
fully guaranteed or insured by the United States Government or any agency or
instrumentality thereof, (b) time deposits, certificates of deposit or
bankers' acceptances of (i) any lender under the Senior Credit Agreement or
(ii) any commercial bank having capital and surplus in excess of $500,000,000
and the commercial paper of the holding company of which is rated at least A-1
or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by
Moody's (or if at such time neither is issuing ratings, then a comparable
rating of another nationally recognized rating agency), (c) commercial paper
rated at least A-1 or the equivalent thereof by S&P or at least P-1 or the
equivalent thereof by Moody's (or if at such time neither is issuing ratings,
then a comparable rating of another nationally recognized rating agency) and
(d) investments in money market funds complying with the risk limiting
conditions of Rule 2a-7 or any successor rule of the SEC under the Investment
Company Act of 1940, as amended.
"CDR" means Clayton, Dubilier & Rice, Inc.
"CDR Fund V" means Clayton, Dubilier & Rice Fund V Limited Partnership, a
Cayman Islands exempted limited partnership, and any successor in interest
thereto.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means, until the consummation of the Second Merger, Holding and
TTC Merger Co., and from and after such consummation, Telecommunications
Techniques Co., LLC, a Delaware limited liability company, and any successor
in interest thereto.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated EBITDA of the Company and
its Restricted Subsidiaries for the period of the most recent four consecutive
fiscal quarters ending prior to the date of such determination for which
consolidated financial statements of the Company are available to (ii)
Consolidated Interest Expense for such four fiscal quarters (in each case,
determined, for each fiscal quarter (or portion thereof) of the four fiscal
quarters ending prior to the Issue Date, on a pro forma basis to give effect
to the Recapitalization as if it had occurred at the beginning of such four-
quarter period); provided, that
(1) if since the beginning of such period the Company or any Restricted
Subsidiary has Incurred any Indebtedness that remains outstanding on such
date of determination or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness,
Consolidated EBITDA and Consolidated Interest Expense for such period shall
be calculated after giving effect on a pro forma basis to such Indebtedness
as if such Indebtedness had been Incurred on the first day of such period
(except that in making such computation, the amount of Indebtedness under
any revolving credit facility outstanding on the date of such calculation
shall be computed based on (A) the average daily balance of such
103
<PAGE>
Indebtedness during such four fiscal quarters or such shorter period for
which such facility was outstanding or (B) if such facility was created
after the end of such four fiscal quarters, the average daily balance of
such Indebtedness during the period from the date of creation of such
facility to the date of such calculation),
(2) if since the beginning of such period the Company or any Restricted
Subsidiary has repaid, repurchased, redeemed, defeased or otherwise
acquired, retired or discharged any Indebtedness (each, a "Discharge") or
if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio involves a Discharge of Indebtedness (in each case other
than Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid), Consolidated EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Discharge of such Indebtedness,
including with the proceeds of such new Indebtedness, as if such Discharge
had occurred on the first day of such period,
(3) if since the beginning of such period the Company or any Restricted
Subsidiary shall have disposed of any company, any business or any group of
assets constituting an operating unit of a business (any such disposition,
a "Sale"), the Consolidated EBITDA for such period shall be reduced by an
amount equal to the Consolidated EBITDA (if positive) attributable to the
assets that are the subject of such Sale for such period or increased by an
amount equal to the Consolidated EBITDA (if negative) attributable thereto
for such period and Consolidated Interest Expense for such period shall be
reduced by an amount equal to (A) the Consolidated Interest Expense
attributable to any Indebtedness of the Company or any Restricted
Subsidiary repaid, repurchased, redeemed, defeased or otherwise acquired,
retired or discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Sale for such period
(including but not limited to through the assumption of such Indebtedness
by another Person) plus (B) if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period
attributable to the Indebtedness of such Restricted Subsidiary to the
extent the Company and its continuing Restricted Subsidiaries are no longer
liable for such Indebtedness after such Sale,
(4) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger, consolidation or otherwise) shall have made an
Investment in any Person that thereby becomes a Restricted Subsidiary, or
otherwise acquired any company, any business or any group of assets
constituting an operating unit of a business, including any such Investment
or acquisition occurring in connection with a transaction causing a
calculation to be made hereunder (any such Investment or acquisition, a
"Purchase"), Consolidated EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto (including
the Incurrence of any related Indebtedness) as if such Purchase occurred on
the first day of such period, and
(5) if since the beginning of such period any Person became a Restricted
Subsidiary or was merged or consolidated with or into the Company or any
Restricted Subsidiary, and since the beginning of such period such Person
shall have Discharged any Indebtedness or made any Sale or Purchase that
would have required an adjustment pursuant to clause (2), (3) or (4) above
if made by the Company or a Restricted Subsidiary during such period,
Consolidated EBITDA and Consolidated Interest Expense for such period shall
be calculated after giving pro forma effect thereto as if such Discharge,
Sale or Purchase occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to
any Sale, Purchase or other transaction, or the amount of income or earnings
relating thereto and the amount of Consolidated Interest Expense associated
with any Indebtedness Incurred or repaid, repurchased, redeemed, defeased or
otherwise acquired, retired or discharged in connection therewith, the pro
forma calculations in respect thereof (including without limitation in respect
of anticipated cost savings or synergies relating to any such Sale, Purchase
or other transaction) shall be as determined in good faith by a responsible
financial or accounting Officer of the Company. If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Indebtedness shall be calculated as if the rate in effect on
the date of determination had been the applicable rate for the entire period
(taking into account any Interest Rate Agreement applicable to such
Indebtedness). If
104
<PAGE>
any Indebtedness bears, at the option of the Company or a Restricted
Subsidiary, a rate of interest based on a prime or similar rate, a
eurocurrency interbank offered rate or other fixed or floating rate, and such
Indebtedness is being given pro forma effect, the interest expense on such
Indebtedness shall be calculated by applying such optional rate as the Company
or such Restricted Subsidiary may designate. If any Indebtedness that is being
given pro forma effect was Incurred under a revolving credit facility, the
interest expense on such Indebtedness shall be computed based upon the average
daily balance of such Indebtedness during the applicable period. Interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
determined in good faith by a responsible financial or accounting officer of
the Company to be the rate of interest implicit in such Capitalized Lease
Obligation in accordance with GAAP.
"Consolidated EBITDA" means, for any period, the Consolidated Net Income for
such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) provision for all taxes (whether or not paid,
estimated or accrued) based on income, profits or capital, (ii) Consolidated
Interest Expense and any Receivables Fees, (iii) depreciation, amortization
(including but not limited to amortization of goodwill and intangibles and
amortization and write-off of financing costs) and all other non-cash charges
or non-cash losses, (iv) any expenses or charges related to any Equity
Offering, Investment or Indebtedness permitted by the Indenture (whether or
not consummated or incurred) and (v) the amount of any minority interest
expense.
"Consolidated Interest Expense" means, for any period, (i) the total
interest expense of the Company and its Restricted Subsidiaries to the extent
deducted in calculating Consolidated Net Income, net of any interest income of
the Company and its Restricted Subsidiaries, including without limitation any
such interest expense consisting of (a) interest expense attributable to
Capitalized Lease Obligations, (b) amortization of debt discount, (c) interest
in respect of Indebtedness of any other Person that has been Guaranteed by the
Company or any Restricted Subsidiary, but only to the extent that such
interest is actually paid by the Company or any Restricted Subsidiary, (d)
non-cash interest expense, (e) the interest portion of any deferred payment
obligation, and (f) commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, plus (ii)
Preferred Stock dividends paid in cash in respect of Disqualified Stock of the
Company held by Persons other than the Company or a Restricted Subsidiary and
minus (iii) to the extent otherwise included in such interest expense referred
to in clause (i) above, Receivables Fees and amortization or write-off of
financing costs, in each case under clauses (i) through (iii) as determined on
a Consolidated basis in accordance with GAAP; provided, that gross interest
expense shall be determined after giving effect to any net payments made or
received by the Company and its Restricted Subsidiaries with respect to
Interest Rate Agreements.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its Restricted Subsidiaries, determined on a consolidated
basis in accordance with GAAP and before any reduction in respect of Preferred
Stock dividends; provided, that there shall not be included in such
Consolidated Net Income:
(i) any net income (loss) of any Person if such Person is not a
Restricted Subsidiary, except that (A) subject to the limitations contained
in clause (iv) below, the Company's equity in the net income of any such
Person for such period shall be included in such Consolidated Net Income up
to the aggregate amount actually distributed by such Person during such
period to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution to a
Restricted Subsidiary, to the limitations contained in clause (iii) below)
and (B) the Company's equity in the net loss of such Person shall be
included to the extent of the aggregate Investment of the Company or any of
its Restricted Subsidiaries in such Person,
(ii) any net income (loss) of any Person acquired by the Company or a
Restricted Subsidiary in a pooling of interests transaction for any period
prior to the date of such acquisition,
(iii) any net income (loss) of any Restricted Subsidiary that is not a
Note Guarantor if such Restricted Subsidiary is subject to restrictions,
directly or indirectly, on the payment of dividends or the making of
similar distributions by such Restricted Subsidiary, directly or
indirectly, to the Company by operation of the terms of such Restricted
Subsidiary's charter or any agreement, instrument, judgment, decree, order,
105
<PAGE>
statute or governmental rule or regulation applicable to such Restricted
Subsidiary or its stockholders (other than (x) restrictions that have been
waived or otherwise released, (y) restrictions pursuant to the Notes or the
Indenture and (z) restrictions in effect on the Issue Date with respect to
a Restricted Subsidiary and other restrictions with respect to such
Restricted Subsidiary that taken as a whole are not materially less
favorable to the Noteholders than such restrictions in effect on the Issue
Date), except that (A) subject to the limitations contained in clause (iv)
below, the Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of any dividend or distribution that was
or that could have been made by such Restricted Subsidiary during such
period to the Company or another Restricted Subsidiary (subject, in the
case of a dividend that could have been made to another Restricted
Subsidiary, to the limitation contained in this clause) and (B) the net
loss of such Restricted Subsidiary shall be included to the extent of the
aggregate Investment of the Company or any of its other Restricted
Subsidiaries in such Restricted Subsidiary,
(iv) any gain or loss realized upon the sale or other disposition of any
asset of the Company or any Restricted Subsidiary (including pursuant to
any sale/leaseback transaction) that is not sold or otherwise disposed of
in the ordinary course of business (as determined in good faith by the
Board of Directors),
(v) any item classified as an extraordinary, unusual or nonrecurring
gain, loss or charge (including without limitation (a) any compensation
expense for stock options that will be cashed out, converted, exchanged or
otherwise retired in connection with the Recapitalization, (b) any charge
or expense incurred for employee bonuses in connection with the
Recapitalization, and (c) fees, expenses and charges associated with the
Recapitalization or any acquisition, merger or consolidation after the
Issue Date),
(vi) the cumulative effect of a change in accounting principles,
(vii) all deferred financing costs written off and premiums paid in
connection with any early extinguishment of Indebtedness,
(viii) any unrealized gains or losses in respect of Currency Agreements,
(ix) any unrealized foreign currency transaction gains or losses in
respect of Indebtedness of any Person denominated in a currency other than
the functional currency of such Person, and
(x) any non-cash compensation charge arising from any grant of stock,
stock options or other equity based awards.
In the case of any unusual or nonrecurring gain, loss or charge not included
in Consolidated Net Income pursuant to clause (v) above in any determination
thereof, the Company will deliver an Officer's Certificate to the Trustee
promptly after the date on which Consolidated Net Income is so determined,
setting forth the nature and amount of such unusual or nonrecurring gain, loss
or charge.
"Consolidated Total Assets" means, as of any date of determination, the
total assets shown on the consolidated balance sheet of the Company and its
Restricted Subsidiaries as of the most recent date for which such a balance
sheet is available, determined on a consolidated basis in accordance with GAAP
(and, in the case of any determination relating to any Incurrence of
Indebtedness or any Investment, on a pro forma basis including any property or
assets being acquired in connection therewith), provided that for purposes of
paragraph (b) of the covenant described in "--Certain Covenants--Limitation on
Indebtedness" and the definition of "Permitted Investment," Consolidated Total
Assets shall not be less than $285.3 million.
"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP;
provided that "Consolidation" will not include consolidation of the accounts
of any Unrestricted Subsidiary, but the interest of the Company or any
Restricted Subsidiary in any Unrestricted Subsidiary will be accounted for as
an investment. The term "Consolidated" has a correlative meaning.
106
<PAGE>
"Currency Agreement" means, in respect of a Person, any foreign exchange
contract, currency swap agreement or other similar agreement or arrangements
(including derivative agreements or arrangements), as to which such Person is
a party or a beneficiary.
"Default" means any event or condition that is, or after notice or passage
of time or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness that, at the date of determination, has an
aggregate principal amount equal to or under which, at the date of
determination, the holders thereof are committed to lend up to, at least $10.0
million and is specifically designated by the Company in an agreement or
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of the Indenture.
"Disinterested Director" means, with respect to any Affiliate Transaction, a
member of the Board of Directors having no material direct or indirect
financial interest in or with respect to such Affiliate Transaction. A member
of the Board of Directors shall not be deemed to have such a financial
interest by reason of such member's holding Capital Stock of the Company or
Holding or any options, warrants or other rights in respect of such Capital
Stock.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
(other than Management Stock) that by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable) or upon the happening of any event (other than following the
occurrence of a Change of Control or other similar event described under such
terms as a "change of control," or an Asset Disposition) (i) matures or is
mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or
(iii) is redeemable at the option of the holder thereof (other than following
the occurrence of a Change of Control or other similar event described under
such terms as a "change of control," or an Asset Disposition), in whole or in
part, in each case on or prior to the final Stated Maturity of the Notes.
"Domestic Subsidiary" means any Restricted Subsidiary of the Company other
than a Foreign Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Contribution" means Net Cash Proceeds, or the fair value, as
determined in good faith by the Board of Directors, of property or assets,
received by the Company as capital contributions to the Company after the
Issue Date or from the issuance or sale (other than to a Restricted
Subsidiary) of Capital Stock (other than Disqualified Stock) of the Company,
in each case to the extent designated as an Excluded Contribution pursuant to
an Officer's Certificate of the Company and not previously included in the
calculation set forth in subparagraph (a)(3)(B)(x) of the covenant described
under "--Certain Covenants--Limitation on Restricted Payments" for purposes of
determining whether a Restricted Payment may be made.
"Financing Disposition" means any sale, transfer, conveyance or other
disposition of property or assets by the Company or any Subsidiary thereof to
any Receivables Entity, or by any Receivables Subsidiary, in each case in
connection with the Incurrence by a Receivables Entity of Indebtedness, or
obligations to make payments to the obligor on Indebtedness, which may be
secured by a Lien in respect of such property or assets.
"Foreign Subsidiary" means (a) any Restricted Subsidiary of the Company that
is not organized under the laws of the United States of America or any state
thereof or the District of Columbia and (b) any Restricted Subsidiary of the
Company that has no material assets other than securities of one or more
Foreign Subsidiaries, and other assets relating to an ownership interest in
any such securities or Subsidiaries.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect on the Issue Date (for purposes of the definitions of
the terms "Consolidated Coverage Ratio," "Consolidated
107
<PAGE>
EBITDA," "Consolidated Interest Expense," "Consolidated Net Income" and
"Consolidated Total Assets," all defined terms in the Indenture to the extent
used in or relating to any of the foregoing definitions, and all ratios and
computations based on any of the foregoing definitions) and as in effect from
time to time (for all other purposes of the Indenture), including those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of
any other Person; provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Guarantor Senior Indebtedness" means, with respect to any Note Guarantor,
the following obligations, whether outstanding on the date of the Indenture or
thereafter issued, without duplication: (i) any Guarantee of Bank Indebtedness
by such Note Guarantor and all other Guarantees by such Note Guarantor of
Senior Indebtedness of the Company or Guarantor Senior Indebtedness of any
other Note Guarantor; (ii) all obligations in respect of any Receivables
Financing; and (iii) all obligations consisting of the principal of and
premium, if any, and accrued and unpaid interest (including interest accruing
on or after the filing of any petition in bankruptcy or for reorganization
relating to the Note Guarantor regardless of whether post-filing interest is
allowed in such proceeding) on, and fees and other amounts owing in respect
of, all other Indebtedness of the Note Guarantor, unless, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding,
it is expressly provided that the obligations in respect of such Indebtedness
are not senior in right of payment to the obligations of such Note Guarantor
under its Note Guarantee; provided, however, that Guarantor Senior
Indebtedness shall not include (1) any obligations of such Note Guarantor to
the Company or any other Subsidiary of the Company, (2) any liability for
Federal, state, local, foreign or other taxes owed or owing by such Note
Guarantor, (3) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities), (4) any Indebtedness of such Note
Guarantor (or Guarantee by such Note Guarantor of Indebtedness) that is
expressly subordinated in right of payment to any other Indebtedness of such
Note Guarantor (or Guarantee by such Note Guarantor of Indebtedness), (5) any
Capital Stock of such Note Guarantor or (6) that portion of any Indebtedness
of such Note Guarantor that is Incurred by such Note Guarantor in violation of
the covenant described under "--Certain Covenants--Limitation on Indebtedness"
(but no such violation shall be deemed to exist for purposes of this clause
(6) if any holder of such Indebtedness or such holder's representative shall
have received an Officer's Certificate to the effect that such Incurrence of
such Indebtedness does not (or that the Incurrence by such Note Guarantor of
the entire committed amount thereof at the date on which the initial borrowing
thereunder is made would not) violate such covenant). If any Guarantor Senior
Indebtedness is disallowed, avoided or subordinated pursuant to the provisions
of Section 548 of Title 11 of the United States Code or any applicable state
fraudulent conveyance law, such Guarantor Senior Indebtedness nevertheless
will constitute Guarantor Senior Indebtedness.
"Guarantor Senior Subordinated Indebtedness" means, with respect to a Note
Guarantor, (i) the obligations of such Note Guarantor under its Note Guarantee
and (ii) any other Indebtedness of such Note Guarantor that ranks pari passu
in right of payment with the obligations of such Note Guarantor under its Note
Guarantee.
"Guarantor Subordinated Obligations" means, with respect to a Note
Guarantor, any Indebtedness of such Note Guarantor (whether outstanding on the
Issue Date or thereafter Incurred) that is expressly subordinated in right of
payment to the obligations of such Note Guarantor under the Note Guarantee
pursuant to a written agreement.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
108
<PAGE>
"Holder" or "Noteholder" means the Person in whose name a Note is registered
in the Note Register.
"Holding" means Dynatech Corporation, a Massachusetts corporation, and any
successor in interest thereto.
"Holding Expenses" means (i) costs (including all professional fees and
expenses) incurred by Holding to comply with its reporting obligations under
federal or state laws or under the Indenture, including any reports filed with
respect to the Securities Act, Exchange Act or the respective rules and
regulations promulgated thereunder, (ii) indemnification obligations of
Holding owing to directors, officers, employees or other Persons under its
charter or by-laws or pursuant to written agreements with any such Person,
(iii) fees and expenses payable by Holding in connection with the
Transactions, (iv) other operational expenses of Holding incurred in the
ordinary course of business, and (v) expenses incurred by Holding in
connection with any public offering of Capital Stock or Indebtedness (x) where
the net proceeds of such offering are intended to be received by or
contributed or loaned to the Company or a Restricted Subsidiary, or (y) in a
prorated amount of such expenses in proportion to the amount of such net
proceeds intended to be so received, contributed or loaned, or (z) otherwise
on an interim basis prior to completion of such offering so long as Holding
shall cause the amount of such expenses to be repaid to the Company or the
relevant Restricted Subsidiary out of the proceeds of such offering promptly
if completed.
"Incur" means issue, assume, enter into any Guarantee of, incur or otherwise
become liable for; provided, however, that any Indebtedness or Capital Stock
of a Person existing at the time such Person becomes a Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be
Incurred by such Subsidiary at the time it becomes a Subsidiary. Accrual of
interest, the accretion of accreted value and the payment of interest in the
form of additional Indebtedness will not be deemed to be an Incurrence of
Indebtedness. Any Indebtedness issued at a discount (including Indebtedness on
which interest is payable through the issuance of additional Indebtedness)
shall be deemed Incurred at the time of original issuance of the Indebtedness
at the initial accreted amount thereof.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal of indebtedness of such Person for borrowed money,
(ii) the principal of obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments,
(iii) all reimbursement obligations of such Person in respect of letters
of credit or other similar instruments (the amount of such obligations
being equal at any time to the aggregate then undrawn and unexpired amount
of such letters of credit or other instruments plus the aggregate amount of
drawings thereunder that have not then been reimbursed),
(iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property (except Trade Payables), which purchase price is
due more than one year after the date of placing such property in final
service or taking final delivery and title thereto,
(v) all Capitalized Lease Obligations of such Person,
(vi) the redemption, repayment or other repurchase amount of such Person
with respect to any Disqualified Stock of such Person or (if such Person is
a Subsidiary of the Company other than a Note Guarantor) any Preferred
Stock of such Subsidiary, but excluding, in each case, any accrued
dividends (the amount of such obligation to be equal at any time to the
maximum fixed involuntary redemption, repayment or repurchase price for
such Capital Stock, or if less (or if such Capital Stock has no such fixed
price), to the involuntary redemption, repayment or repurchase price
therefor calculated in accordance with the terms thereof as if then
redeemed, repaid or repurchased, and if such price is based upon or
measured by the fair market value of such Capital Stock, such fair market
value shall be as determined in good faith by the Board of Directors or the
board of directors or other governing body of the issuer of such Capital
Stock),
109
<PAGE>
(vii) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of Indebtedness of such Person shall be the lesser
of (A) the fair market value of such asset at such date of determination
(as determined in good faith by the Company) and (B) the amount of such
Indebtedness of such other Persons,
(viii) all Indebtedness of other Persons to the extent Guaranteed by such
Person, and
(ix) to the extent not otherwise included in this definition, net Hedging
Obligations of such Person (the amount of any such obligation to be equal
at any time to the termination value of such agreement or arrangement
giving rise to such Hedging Obligation that would be payable by such Person
at such time).
The amount of Indebtedness of any Person at any date shall be determined as
set forth above or otherwise provided in the Indenture, or otherwise shall
equal the amount thereof that would appear on a balance sheet of such Person
(excluding any notes thereto) prepared in accordance with GAAP.
"Interest Rate Agreement" means, with respect to any Person, any interest
rate protection agreement, interest rate future agreement, interest rate
option agreement, interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate hedge agreement or other similar
agreement or arrangement (including derivative agreements or arrangements), as
to which such Person is party or a beneficiary.
"Inventory" means goods held for sale or lease by a Person in the ordinary
course of business, net of any reserve for goods that have been segregated by
such Person to be returned to the applicable vendor for credit, as determined
in accordance with GAAP.
"Investment" in any Person by any other Person means any direct or indirect
advance, loan or other extension of credit (other than to customers,
suppliers, directors, officers or employees of any Person in the ordinary
course of business) or capital contribution (by means of any transfer of cash
or other property to others or any payment for property or services for the
account or use of others) to, or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by, such Person. For purposes
of the definition of "Unrestricted Subsidiary" and the covenant described
under "--Certain Covenants--Limitation on Restricted Payments," (i)
"Investment" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of any
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary, provided that upon a redesignation of such Subsidiary
as a Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary in an amount (if
positive) equal to (x) the Company's "Investment" in such Subsidiary at the
time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation, (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, and (iii) in each case
under clause (i) or (ii) above, fair market value shall be as determined in
good faith by the Board of Directors. Guarantees shall not be deemed to be
Investments. The amount of any Investment outstanding at any time shall be the
original cost of such Investment, reduced (at the Company's option) by any
dividend, distribution, interest payment, return of capital, repayment or
other amount or value received in respect of such Investment; provided, that
to the extent that the amount of Restricted Payments outstanding at any time
is so reduced by any portion of any such amount or value that would otherwise
be included in the calculation of Consolidated Net Income, such portion of
such amount or value shall not be so included for purposes of calculating the
amount of Restricted Payments that may be made pursuant to paragraph (a) of
the covenant described under "--Certain Covenants--Limitation on Restricted
Payments."
"Investors" means CDR Fund V and John F. Reno or his family members or
relatives, or trusts for the benefit of any of the foregoing, or any of their
heirs, executors, successors and legal representatives.
"Issue Date" means the first date on which Existing Notes are issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
110
<PAGE>
"Management Advances" means (1) loans or advances made to directors,
officers or employees of Holding, the Company or any Restricted Subsidiary (x)
in respect of travel, entertainment or moving-related expenses incurred in the
ordinary course of business, (y) in respect of moving-related expenses
incurred in connection with any closing or consolidation of any facility, or
(z) in the ordinary course of business and (in the case of this clause (z))
not exceeding $2.5 million in the aggregate outstanding at any time, (2)
promissory notes of Management Investors acquired in connection with the
issuance of Management Stock to such Management Investors, (3) Management
Guarantees, or (4) other Guarantees of borrowings by Management Investors in
connection with the purchase of Management Stock, which Guarantees are
permitted under the covenant described under "--Certain Covenants--Limitation
on Indebtedness."
"Management Agreements" means, collectively, the Consulting Agreement and
the Indemnification Agreement, each dated as of May 21, 1998, each between the
Company and CDR (and its permitted successors and assigns thereunder), as each
may be amended, supplemented, waived or otherwise modified from time to time
in accordance with the terms thereof and of the Indenture.
"Management Guarantees" means guarantees (x) of up to an aggregate principal
amount of $20.0 million of borrowings by Management Investors in connection
with their purchase of Management Stock or (y) made on behalf of, or in
respect of loans or advances made to, directors, officers or employees of
Holding, the Company or any Restricted Subsidiary (1) in respect of travel,
entertainment and moving-related expenses incurred in the ordinary course of
business, or (2) in the ordinary course of business and (in the case of this
clause (2)) not exceeding $2.5 million in the aggregate outstanding at any
time.
"Management Investors" means the officers, directors, employees and other
members of the management of Holding, the Company or any of their respective
Subsidiaries, or family members or relatives thereof, or trusts or
partnerships for the benefit of any of the foregoing, or any of their heirs,
executors, successors and legal representatives, who at any date beneficially
own or have the right to acquire, directly or indirectly, Capital Stock of the
Company or Holding.
"Management Stock" means Capital Stock of the Company or Holding (including
any options, warrants or other rights in respect thereof) held by any of the
Management Investors.
"Merger" means the merger of MergerCo with and into Holding, with Holding
the surviving corporation, on the date of the Recapitalization.
"Moody's" means Moody's Investors Service, Inc., and its successors.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and
when received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other non-cash form) therefrom, in each case
net of (i) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, provincial, foreign and
local taxes required to be paid or accrued as a liability under GAAP, as a
consequence of such Asset Disposition (including as a consequence of any
transfer of funds in connection with the application thereof in accordance
with the covenant described under "--Certain Covenants--Limitation on Sales of
Assets and Subsidiary Stock"), (ii) all payments made, and all installment
payments required to be made, on any Indebtedness that is secured by any
assets subject to such Asset Disposition, in accordance with the terms of any
Lien upon such assets, or that must by its terms, or in order to obtain a
necessary consent to such Asset Disposition, or by applicable law, be repaid
out of the proceeds from such Asset Disposition, (iii) all distributions and
other payments required to be made to minority interest holders in
Subsidiaries or joint ventures as a result of such Asset Disposition, or to
any other Person (other than the Company or a Restricted Subsidiary) owning a
beneficial interest in the assets disposed of in such Asset Disposition and
(iv) any liabilities or obligations associated with the assets disposed of in
such Asset Disposition and retained by the Company or any
111
<PAGE>
Restricted Subsidiary after such Asset Disposition, including without
limitation pension and other post-employment benefit liabilities, liabilities
related to environmental matters, and liabilities relating to any
indemnification obligations associated with such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of any securities
of the Company or any Subsidiary by the Company or any Subsidiary, or any
capital contribution, means the cash proceeds of such issuance, sale or
contribution net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance, sale or
contribution and net of taxes paid or payable as a result thereof.
"Note Guarantee" means any guarantee that may from time to time be entered
into by a Restricted Subsidiary of the Company pursuant to the covenant
described under "--Certain Covenants--Future Note Guarantors."
"Note Guarantor" means any Restricted Subsidiary of the Company that enters
into a Note Guarantee.
"Officer" means, with respect to the Company or any other obligor upon the
Notes, the Chairman of the Board, the President, the Chief Executive Officer,
the Chief Financial Officer, any Vice President, the Controller, the Treasurer
or the Secretary (a) of such Person or (b) if such Person is owned or managed
by a single entity, of such entity (or any other individual designated as an
"Officer" for the purposes of the Indenture by the Board of Directors).
"Officer's Certificate" means, with respect to the Company or any other
obligor upon the Notes, a certificate signed by one Officer of such Person.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Parent Guarantee" means the Guarantee executed and delivered by Holding as
described under "--Holding Guarantee."
"Parent Senior Indebtedness" means, with respect to Holding, the following
obligations, whether outstanding on the date of the Indenture or thereafter
issued, without duplication: (i) any Guarantee of Bank Indebtedness by Holding
and all other Guarantees by Holding of Senior Indebtedness of the Company or
Guarantor Senior Indebtedness of any Note Guarantor; (ii) all obligations in
respect of any Receivables Financing; and (iii) all obligations consisting of
the principal of and premium, if any, and accrued and unpaid interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to Holding regardless of whether
post-filing interest is allowed in such proceeding) on, and fees and other
amounts owing in respect of, all other Indebtedness of Holding, unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is expressly provided that the obligations in respect of such
Indebtedness are not senior in right of payment to the obligations of Holding
under the Parent Guarantee.
"Parent Senior Subordinated Indebtedness" means (i) the obligations of
Holding under the Parent Guarantee and (ii) any other Indebtedness of Holding
that ranks pari passu in right of payment with the obligations of Holding
under the Parent Guarantee.
"Parent Subordinated Obligations" means any Indebtedness of Holding (whether
outstanding on the Issue Date or thereafter Incurred) that is expressly
subordinated in right of payment to the obligations of Holding under the
Parent Guarantee pursuant to a written agreement.
"Permitted Holder" means any of the following: (i) any of the Investors,
Management Investors, CDR and their respective Affiliates; (ii) any investment
fund or vehicle managed, sponsored or advised by CDR; (iii) any
112
<PAGE>
limited or general partners of, or other investors in, any of the Investors
and their respective Affiliates, or any such investment fund or vehicle; and
(iv) any Person acting in the capacity of an underwriter in connection with a
public or private offering of Capital Stock of Holding or the Company.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in, or consisting of, any of the following:
(i) a Restricted Subsidiary, the Company, or a Person that will, upon the
making of such Investment, become a Restricted Subsidiary;
(ii) another Person if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, or is liquidated into, the Company or a
Restricted Subsidiary;
(iii) Temporary Cash Investments or Cash Equivalents;
(iv) receivables owing to the Company or any Restricted Subsidiary, if
created or acquired in the ordinary course of business;
(v) any securities or other Investments received as consideration in, or
retained in connection with, sales or other dispositions of property or
assets, including Asset Dispositions made in compliance with the covenant
described under "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock";
(vi) securities or other Investments received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary, or as a result of foreclosure, perfection or
enforcement of any Lien, or in satisfaction of judgments, including in
connection with any bankruptcy proceeding or other reorganization of
another Person;
(vii) Investments in existence or made pursuant to legally binding
written commitments in existence on the Issue Date;
(viii) Currency Agreements, Interest Rate Agreements and related Hedging
Obligations, which obligations are Incurred in compliance with the covenant
described under "--Certain Covenants--Limitation on Indebtedness";
(ix) pledges or deposits (x) with respect to leases or utilities provided
to third parties in the ordinary course of business or (y) otherwise
described in the definition of "Permitted Liens" or made in connection with
Liens permitted under the covenant described under "--Certain Covenants--
Limitation on Liens";
(x) any Investment in a joint venture or similar entity that is not a
Restricted Subsidiary, or in any Related Business, in an aggregate amount
outstanding at any time not to exceed 7% of Consolidated Total Assets;
(xi) (1) Investments in any Receivables Subsidiary, or in connection with
a Financing Disposition by or to any Receivables Entity, including
Investments of funds held in accounts permitted or required by the
arrangements governing such Financing Disposition or any related
Indebtedness, or (2) any promissory note issued by the Company or Holding,
provided that if Holding receives cash from the relevant Receivables Entity
in exchange for such note, an equal cash amount is contributed by Holding
to the Company;
(xii) bonds secured by assets leased to and operated by the Company or
any Restricted Subsidiary that were issued in connection with the financing
of such assets so long as the Company or any Restricted Subsidiary may
obtain title to such assets at any time by paying a nominal fee, canceling
such bonds and terminating the transaction;
(xiii) Notes;
(xiv) any Investment to the extent made using Capital Stock of the
Company (other than Disqualified Stock), or Capital Stock of Holding, as
consideration;
(xv) Management Advances; and
(xvi) other Investments in an aggregate amount outstanding at any time
not to exceed 10% of Consolidated Total Assets.
113
<PAGE>
"Permitted Liens" means:
(a) Liens for taxes, assessments or other governmental charges not yet
delinquent or the nonpayment of which in the aggregate would not reasonably be
expected to have a material adverse effect on the Company and its Restricted
Subsidiaries, or that are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of the Company or a Subsidiary thereof, as the case may be, in
accordance with GAAP;
(b) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business in
respect of obligations that are not overdue for a period of more than 60 days,
or that are bonded or that are being contested in good faith and by
appropriate proceedings;
(c) pledges, deposits or Liens in connection with workers' compensation,
unemployment insurance and other social security and other similar legislation
or other insurance-related obligations (including, without limitation, pledges
or deposits securing liability to insurance carriers under insurance or self-
insurance arrangements);
(d) pledges, deposits or Liens to secure the performance of bids, tenders,
trade, government or other contracts (other than for borrowed money),
obligations for utilities, leases, licenses, statutory obligations, completion
guarantees, surety, judgment, appeal or performance bonds, other similar
bonds, instruments or obligations, and other obligations of a like nature
incurred in the ordinary course of business;
(e) easements (including reciprocal easement agreements), rights-of-way,
building, zoning and similar restrictions, utility agreements, covenants,
reservations, restrictions, encroachments, changes, and other similar
encumbrances or title defects incurred, or leases or subleases granted to
others, in the ordinary course of business, which do not in the aggregate
materially interfere with the ordinary conduct of the business of the Company
and its Subsidiaries, taken as a whole;
(f) Liens existing on, or provided for under written arrangements existing
on, the Issue Date, or (in the case of any such Liens securing Indebtedness of
the Company or any of its Subsidiaries existing or arising under written
arrangements existing on the Issue Date) securing any Refinancing Indebtedness
in respect of such Indebtedness so long as the Lien securing such Refinancing
Indebtedness is limited to all or part of the same property or assets (plus
improvements, accessions, proceeds or dividends or distributions in respect
thereof) that secured (or under such written arrangements could secure) the
original Indebtedness;
(g) (i) mortgages, liens, security interests, restrictions, encumbrances or
any other matters of record that have been placed by any developer, landlord
or other third party on property over which the Company or any Restricted
Subsidiary of the Company has easement rights or on any leased property and
subordination or similar agreements relating thereto and (ii) any condemnation
or eminent domain proceedings affecting any real property;
(h) Liens securing Hedging Obligations, Purchase Money Obligations or
Capitalized Lease Obligations Incurred in compliance with the covenant
described under "--Certain Covenants--Limitation on Indebtedness";
(i) Liens arising out of judgments, decrees, orders or awards in respect of
which the Company shall in good faith be prosecuting an appeal or proceedings
for review, which appeal or proceedings shall not have been finally
terminated, or if the period within which such appeal or proceedings may be
initiated shall not have expired;
(j) leases, subleases, licenses or sublicenses to third parties;
(k) Liens securing (1) Indebtedness Incurred in compliance with clause
(b)(i), (b)(iv), (b)(v), (b)(vii), (b)(viii)(E) or (b)(x), of the covenant
described under "--Certain Covenants--Limitation on Indebtedness," or clause
(b)(iii) thereof (other than Refinancing Indebtedness Incurred in respect of
Indebtedness described in
114
<PAGE>
paragraph (a) thereof), (2) Bank Indebtedness, (3) commercial bank
Indebtedness, (4) Indebtedness of any Restricted Subsidiary that is not a Note
Guarantor, (5) the Notes or (6) Indebtedness or other obligations of any
Receivables Entity;
(l) Liens existing on property or assets of a Person at the time such Person
becomes a Subsidiary of the Company (or at the time the Company or a
Restricted Subsidiary acquires such property or assets); provided, however,
that such Liens are not created in connection with, or in contemplation of,
such other Person becoming such a Subsidiary (or such acquisition of such
property or assets), and that such Liens are limited to all or part of the
same property or assets (plus improvements, accessions, proceeds or dividends
or distributions in respect thereof) that secured (or, under the written
arrangements under which such Liens arose, could secure) the obligations to
which such Liens relate;
(m) Liens on Capital Stock or other securities of an Unrestricted Subsidiary
that secure Indebtedness or other obligations of such Unrestricted Subsidiary;
(n) any encumbrance or restriction (including, but not limited to, put and
call agreements) with respect to Capital Stock of any joint venture or similar
arrangement pursuant to any joint venture or similar agreement; and
(o) Liens securing Refinancing Indebtedness Incurred in respect of any
Indebtedness secured by, or securing any refinancing, refunding, extension,
renewal or replacement (in whole or in part) of any other obligation secured
by, any other Permitted Liens, provided that any such new Lien is limited to
all or part of the same property or assets (plus improvements, accessions,
proceeds or dividends or distributions in respect thereof) that secured (or,
under the written arrangements under which the original Lien arose, could
secure) the obligations to which such Liens relate.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock" as applied to the Capital Stock of any corporation means
Capital Stock of any class or classes (however designated) that by its terms
is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Purchase Money Obligations" means any Indebtedness Incurred to finance or
refinance the acquisition, leasing, construction or improvement of property
(real or personal) or assets, and whether acquired through the direct
acquisition of such property or assets or the acquisition of the Capital Stock
of any Person owning such property or assets, or otherwise.
"Recapitalization" means the recapitalization of Holding pursuant to the
Agreement and Plan of Merger, dated as of December 20, 1997, between MergerCo
and Holding whereby MergerCo will be merged with and into Holding, with
Holding being the surviving corporation.
"Receivable" means a right to receive payment arising from a sale or lease
of goods or services by a Person pursuant to an arrangement with another
Person pursuant to which such other Person is obligated to pay for goods or
services under terms that permit the purchase of such goods and services on
credit, as determined in accordance with GAAP.
"Receivables Entity" means (x) any Receivables Subsidiary or (y) any other
Person that is engaged in the business of acquiring, selling, collecting,
financing or refinancing Receivables, accounts (as defined in the Uniform
Commercial Code as in effect in any jurisdiction from time to time), other
accounts and/or other receivables, and/or related assets.
115
<PAGE>
"Receivables Fees" means distributions or payments made directly or by means
of discounts with respect to any participation interest issued or sold in
connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any Receivables Financing.
"Receivables Financing" means any financing of Receivables of the Company or
any Restricted Subsidiary that have been transferred to a Receivables Entity
in a Financing Disposition.
"Receivables Subsidiary" means a Subsidiary of the Company that (a) is
engaged solely in the business of acquiring, selling, collecting, financing or
refinancing Receivables, accounts (as defined in the Uniform Commercial Code
as in effect in any jurisdiction from time to time) and other accounts and
receivables (including any thereof constituting or evidenced by chattel paper,
instruments or general intangibles), all proceeds thereof and all rights
(contractual and other), collateral and other assets relating thereto, and any
business or activities incidental or related to such business, and (b) is
designated as a "Receivables Subsidiary" by the Board of Directors.
"refinance" means refinance, refund, replace, renew, repay, modify, restate,
defer, substitute, supplement, reissue, resell or extend (including pursuant
to any defeasance or discharge mechanism); and the terms "refinances,"
"refinanced" and "refinancing" as used for any purpose in the Indenture shall
have a correlative meaning.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refinance
any Indebtedness existing on the date of the Indenture or Incurred in
compliance with the Indenture (including Indebtedness of the Company that
refinances Indebtedness of any Restricted Subsidiary (to the extent permitted
in the Indenture) and Indebtedness of any Restricted Subsidiary that
refinances Indebtedness of another Restricted Subsidiary) including
Indebtedness that refinances Refinancing Indebtedness; provided, that (1) if
the Indebtedness being refinanced is Subordinated Obligations or Guarantor
Subordinated Obligations, the Refinancing Indebtedness has an Average Life at
the time such Refinancing Indebtedness is Incurred that is equal to or greater
than the Average Life of the Indebtedness being refinanced, (2) such
Refinancing Indebtedness is Incurred in an aggregate principal amount (or if
issued with original issue discount, an aggregate issue price) that is equal
to or less than the sum of (x) the aggregate principal amount (or if issued
with original issue discount, the aggregate accreted value) then outstanding
of the Indebtedness being refinanced, plus (y) fees, underwriting discounts,
premiums and other costs and expenses incurred in connection with such
Refinancing Indebtedness and (3) Refinancing Indebtedness shall not include
(x) Indebtedness of a Restricted Subsidiary that is not a Note Guarantor that
refinances Indebtedness of the Company that was incurred by the Company
pursuant to paragraph (a) of the covenant described under "--Certain
Covenants--Limitation on Indebtedness" or (y) Indebtedness of the Company or a
Restricted Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary.
"Related Business" means those businesses in which the Company or any of its
Subsidiaries is engaged on the date of the Indenture, or that are related,
complementary, incidental or ancillary thereto or extensions, developments or
expansions thereof.
"Related Taxes" means (x) any taxes, charges or assessments, including but
not limited to sales, use, transfer, rental, ad valorem, value-added, stamp,
property, consumption, franchise, license, capital, net worth, gross receipts,
excise, occupancy, intangibles or similar taxes, charges or assessments (other
than federal, state or local taxes measured by income and federal, state or
local withholding imposed on payments made by Holding), required to be paid by
Holding by virtue of its being incorporated or having Capital Stock
outstanding (but not by virtue of owning stock or other equity interests of
any corporation or other entity other than the Company or any of its
Subsidiaries), or being a holding company parent of the Company or receiving
dividends from or other distributions in respect of the Capital Stock of the
Company, or having guaranteed any obligations of the Company or any Subsidiary
thereof, or having made any payment in respect of any of the items for which
the Company is permitted to make payments to Holding pursuant to the covenant
described under "--Certain Covenants--Limitation on Restricted Payments," or
(y) any other federal, state, foreign, provincial or local taxes measured by
income for which Holding is liable up to an amount not to exceed with respect
to such federal
116
<PAGE>
taxes the amount of any such taxes that the Company would have been required
to pay on a separate company basis or on a consolidated basis if the Company
had filed a consolidated return on behalf of an affiliated group (as defined
in Section 1504 of the Code or an analogous provision of state, local or
foreign law) of which it were the common parent, or with respect to state and
local taxes, on a combined basis if the Company had filed a combined return on
behalf of an affiliated group consisting only of the Company and its
Subsidiaries.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"Restricted Payment Transaction" means any Restricted Payment permitted
pursuant to the covenant described under "--Certain Covenants--Limitation on
Restricted Payments," any Permitted Payment, any Permitted Investment, or any
transaction specifically excluded from the definition of the term "Restricted
Payment."
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Credit Agreement" means the credit agreement dated as of May 21,
1998, among the Company (after giving effect to the Second Merger), the banks
and other financial institutions party thereto from time to time, Credit
Suisse First Boston, as syndication agent, The Chase Manhattan Bank, as
documentation agent, and Morgan Guaranty Trust Company of New York, as
administrative agent, as such agreement may be assumed by any successor in
interest, and as such agreement may be amended, supplemented, waived or
otherwise modified from time to time, or refunded, refinanced, restructured,
replaced, renewed, repaid, increased or extended from time to time (whether in
whole or in part, whether with the original agent and lenders or other agents
and lenders or otherwise, and whether provided under the original Senior
Credit Agreement or otherwise).
"Senior Credit Facility" means the collective reference to the Senior Credit
Agreement, any Credit Documents (as defined therein), any notes and letters of
credit issued pursuant thereto and any guarantee and collateral agreement,
patent and trademark security agreement, mortgages, letter of credit
applications and other guarantees, pledge agreements, security agreements and
collateral documents, and other instruments and documents, executed and
delivered pursuant to or in connection with any of the foregoing, in each case
as the same may be amended, supplemented, waived or otherwise modified from
time to time, or refunded, refinanced, restructured, replaced, renewed,
repaid, increased or extended from time to time (whether in whole or in part,
whether with the original agent and lenders or other agents and lenders or
otherwise, and whether provided under the original Senior Credit Agreement or
one or more other credit agreements, indentures (including the Indenture) or
financing agreements or otherwise). Without limiting the generality of the
foregoing, the term "Senior Credit Facility" shall include any agreement (i)
changing the maturity of any Indebtedness incurred thereunder or contemplated
thereby, (ii) adding Subsidiaries of the Company as additional borrowers or
guarantors thereunder, (iii) increasing the amount of Indebtedness incurred
thereunder or available to be borrowed thereunder or (iv) otherwise altering
the terms and conditions thereof.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that ranks pari passu with the Notes.
"Significant Domestic Subsidiary" means any Domestic Subsidiary that is a
Significant Subsidiary.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC, as in effect on the Issue Date.
"S&P" means Standard & Poor's Ratings Service, a division of The McGraw-Hill
Companies, Inc., and its successors.
117
<PAGE>
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligations" means any Indebtedness of the Company (whether
outstanding on the date of the Indenture or thereafter Incurred) that is
expressly subordinated in right of payment to the Notes pursuant to a written
agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other equity interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person or (ii) one or
more Subsidiaries of such Person.
"Successor Company" shall have the meaning assigned thereto in clause (i)
under "--Merger and Consolidation."
"Tax Sharing Agreement" means the Tax Sharing Agreement, dated as of May 21,
1998, between the Company and Holding, as the same may be amended,
supplemented, waived or otherwise modified from time to time in accordance
with the terms thereof and of the Indenture.
"Temporary Cash Investments" means any of the following: (i) any investment
in (x) direct obligations of the United States of America or any agency or
instrumentality thereof or obligations Guaranteed by the United States of
America or any agency or instrumentality thereof or (y) direct obligations of
any foreign country recognized by the United States of America rated at least
"A" by S&P or "A-1" by Moody's (or, in either case, the equivalent of such
rating by such organization or, if no rating of S&P or Moody's then exists,
the equivalent of such rating by any nationally recognized rating
organization), (ii) overnight bank deposits, and investments in time deposit
accounts, certificates of deposit, bankers' acceptances and money market
deposits (or, with respect to foreign banks, similar instruments) maturing not
more than one year after the date of acquisition thereof issued by (x) any
lender under the Senior Credit Agreement or (y) a bank or trust company that
is organized under the laws of the United States of America, any state thereof
or any foreign country recognized by the United States of America having
capital and surplus aggregating in excess of $250 million (or the foreign
currency equivalent thereof) and whose long term debt is rated at least "A" by
S&P or "A-1" by Moody's (or, in either case, the equivalent of such rating by
such organization or, if no rating of S&P or Moody's then exists, the
equivalent of such rating by any nationally recognized rating organization) at
the time such Investment is made, (iii) repurchase obligations with a term of
not more than 30 days for underlying securities of the types described in
clause (i) or (ii) above entered into with a bank meeting the qualifications
described in clause (ii) above, (iv) Investments in commercial paper, maturing
not more than 270 days after the date of acquisition, issued by a Person
(other than of the Company or any of its Subsidiaries), with a rating at the
time as of which any Investment therein is made of "P-2" (or higher) according
to Moody's or "A-2" (or higher) according to S&P (or, in either case, the
equivalent of such rating by such organization or, if no rating of S&P or
Moody's then exists, the equivalent of such rating by any nationally
recognized rating organization), (v) Investments in securities maturing not
more than one year after the date of acquisition issued or fully guaranteed by
any state, commonwealth or territory of the United States of America, or by
any political subdivision or taxing authority thereof, and rated at least "A"
by S&P or "A" by Moody's (or, in either case, the equivalent of such rating by
such organization or, if no rating of S&P or Moody's then exists, the
equivalent of such rating by any nationally recognized rating organization),
(vi) Preferred Stock (other than of the Company or any of its Subsidiaries)
having a rating of "A" or higher by S&P or "A2" or higher by Moody's (or, in
either case, the equivalent of such rating by such organization or, if no
rating of S&P or Moody's then exists, the equivalent of such rating by any
nationally recognized rating organization), (vii) investment funds investing
95% of their assets in securities of the type described in clauses (i)-(vi)
above (which funds may also hold
118
<PAGE>
reasonable amounts of cash pending investment and/or distribution), (viii) any
money market deposit accounts issued or offered by a domestic commercial bank
or a commercial bank organized and located in a country recognized by the
United States of America, in each case, having capital and surplus in excess
of $250 million (or the foreign currency equivalent thereof), or investments
in money market funds complying with the risk limiting conditions of Rule 2a-7
(or any successor rule) of the SEC under the Investment Company Act of 1940,
as amended, and (ix) similar short-term investments approved by the Board of
Directors in the ordinary course of business.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-7bbbb)
as in effect on the date of the Indenture.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Transactions" means, collectively, the Recapitalization, the Merger, the
Second Merger, the initial equity investment by the Investors, the offering
and issuance of the Notes, the initial borrowings under the Senior Credit
Facility, the assumption by the Company of obligations under the Indenture and
the Notes and under the Senior Credit Facility, and all other transactions
relating to the Recapitalization or the financing thereof.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination is an Unrestricted Subsidiary, as designated by the
Board of Directors in the manner provided below, and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
of the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any other Restricted Subsidiary of the
Company that is not a Subsidiary of the Subsidiary to be so designated;
provided, that either (A) the Subsidiary to be so designated has total
consolidated assets of $1,000 or less or (B) if such Subsidiary has
consolidated assets greater than $1,000, then such designation would be
permitted under the covenant described under "--Certain Covenants--Limitation
on Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, that immediately after
giving effect to such designation either (x) the Company could incur at least
$1.00 of additional Indebtedness under paragraph (a) in the covenant described
under "--Certain Covenants--Limitation on Indebtedness" or (y) the
Consolidated Coverage Ratio would be greater than it was immediately prior to
giving effect to such designation. Any such designation by the Board of
Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the resolution of the Company's Board of Directors giving
effect to such designation and an Officer's Certificate of the Company
certifying that such designation complied with the foregoing provisions.
"Voting Stock" of an entity means all classes of Capital Stock of such
entity then outstanding and normally entitled to vote in the election of
directors or all interests in such entity with the ability to control the
management or actions of such entity.
119
<PAGE>
BOOK-ENTRY; DELIVERY AND FORM
The Existing Notes were issued and the New Notes will be issued in fully
registered form without interest coupons. The Existing Notes are represented
by and the New Notes will be represented by one or more permanent global Notes
in definitive, fully registered form without coupons (the "Global Security")
and registered in the name of a nominee of The Depository Trust company
("DTC") and deposited with the Trustee as custodian for DTC for credit to the
respective accounts of the purchasers (or to such other accounts as they may
direct). The Global Security that represents the Existing Notes is subject to
certain restrictions on transfer set forth therein and in the Indenture and
bears a legend regarding such restrictions.
DTC is a limited purpose trust company organized under the laws of the State
of New York, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the Uniform Commercial Code and a "Clearing Agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants
through electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and certain other organizations. Indirect access to the DTC
system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Upon the issuance of the Global Security, DTC or its custodian will credit,
on its internal system, the respective principal amount of the individual
beneficial interests represented by such Global Security to the accounts of
persons who have accounts with such depositary. Ownership of beneficial
interests in the Global Security will be limited to persons who have accounts
with DTC ("participants") or persons who hold interests through participants.
Ownership of beneficial interests in the Global Security will be shown on, and
the transfer of that ownership will be effected only through, records
maintained by DTC or its nominee (with respect to interests of participants)
and the records of participants (with respect to interests of persons other
than participants).
The Indenture does not provide for issuance of Notes in definitive form
except in limited circumstances, described below under "--Certificated Notes."
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of the Global Security representing New Notes, DTC will credit the
account of participants tendering Existing Notes in exchange for New Notes
with an interest in the Global Security and (ii) ownership of beneficial
interests therein will be effected only through records maintained by DTC
(with respect to interests of participants), participants and indirect
participants. The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own and that
security interests in negotiable instruments can only be perfected by delivery
of certificates representing the instruments. Consequently, the ability to
transfer the Notes or to pledge the Notes as collateral to persons in such
states will be limited to such extent.
So long as DTC or its nominee is the registered owner or holder of the
Global Security, DTC or such nominee, as the case may be, will be considered
the sole record owner or holder of the Notes represented by such Global
Security for all purposes under the Indenture and the Notes. No beneficial
owners of an interest in the Global Security will be able to transfer that
interest except in accordance with the applicable procedures of DTC or
Euroclear, in addition to those provided for under the Indenture. Beneficial
owners of an interest in a Global Security will not be entitled to have Notes
represented by such Global Security registered in their names, will not
receive or be entitled to receive physical delivery of Notes in definitive
form, and will not be considered the owners or holders thereof under the
Indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the Trustee thereunder. As a result, the
ability of a person having a beneficial interest in Notes represented by a
Global Security to pledge or transfer such interest to persons or entities
that do
120
<PAGE>
not participate in DTC's system or otherwise to take action with respect to
such interest, may be affected by lack of a physical certificate evidencing
such interest.
Accordingly, each holder owning a beneficial interest in a Global Security
must rely on the procedures of DTC or Euroclear and, if such holder is not a
participant or an indirect participant, on the procedures of the participant
through which such holder owns its interest, to exercise any rights of a
holder of Notes under the Indenture or such Global Security. The Company
understands that under existing practice, in the event the Company requests
any action of holders of Notes or a holder that is an owner of a beneficial
interest in a Global Security requests any action of holders of Notes or a
holder that is an owner of a beneficial interest in a Global Security desires
to take any action that DTC as the holder of such Global Security, is entitled
to take, DTC would authorize the participants to take such action and the
participant would authorize holders owning through such participants to take
such action or would otherwise act upon the instruction of such holders.
Payments of the principal of, premium, if any, and interest on the Global
Security will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. Neither the Company, the Trustee, nor any paying
agent will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Global Security or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the Global Security,
will credit participants' accounts with payments in amounts proportionate to
their respective beneficial ownership interests in the principal amount of
such Global Security, as shown on the records of DTC or its nominee. The
Company also expects that payments by participants to owners of beneficial
interests in such Global Security held through such participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in immediately available
funds.
Neither the Company nor the Trustee will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations. Although DTC and its participants have agreed to the foregoing
procedures to facilitate transfers of interests in the Global Security among
participants, it is under no obligation to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but
the Company takes no responsibility for the accuracy thereof.
CERTIFICATED NOTES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depository or DTC ceases to be registered as a
clearing agency under the Exchange Act and the Company is unable to locate a
qualified successor within 90 days, (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture or (iii) upon the occurrence of certain
other events, then, upon surrender by DTC of its Global Securities, definitive
Notes in registered form without coupons ("Certificated Securities") will be
issued, subject to certain certification requirements, to each person that DTC
identifies as the beneficial owner of the Notes represented by the Global
Security. All such Certificated Securities representing Existing Notes would
be subject to certain transfer restrictions.
121
<PAGE>
UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
consequences of the acquisition, ownership and disposition of the Notes to the
initial acquirors, and the principal U.S. federal estate tax consequences of
the ownership of the Notes to acquirors who are Non-U.S. Holders (as defined
below).
This summary is based on provisions of the Code, existing and proposed
Treasury regulations promulgated thereunder (the "Treasury Regulations") and
administrative and judicial interpretations thereof, all as of the date hereof
and all of which are subject to change, possibly on a retroactive basis.
This summary does not address the tax consequences to subsequent purchasers
of the Notes, and is limited to acquirors who hold the Notes as capital
assets. This summary is for general information only, and does not address all
of the tax consequences that may be relevant to particular acquirors in light
of their personal circumstances, or to certain types of acquirors (such as
banks and other financial institutions, real estate investment trusts,
regulated investment companies, insurance companies, tax-exempt organizations,
dealers in securities, persons who have hedged the interest rate on the Notes
or persons whose functional currency is not the U.S. dollar). In addition,
this summary does not include any description of the tax laws of any state,
local or non-U.S. government that may be applicable to a particular acquiror.
PROSPECTIVE ACQUIRORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE PARTICULAR U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO
THEM OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES, AS WELL AS
THE TAX CONSEQUENCES UNDER STATE, LOCAL, NON-U.S. AND OTHER U.S. FEDERAL TAX
LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN TAX LAWS.
EXCHANGE OFFER
The exchange of any Existing Note for a New Note should not constitute a
taxable exchange of the Existing Note. As a result, the New Notes should have
the same issue price (and adjusted issue price immediately after the exchange)
and the same amount of original issue discount, if any, as the Existing Notes,
and each holder should have the same adjusted basis and holding period in the
New Notes as it had in the Existing Notes immediately before the exchange. The
following discussion assumes that the exchange of Existing Notes for New Notes
pursuant to the Exchange Offer will not be treated as a taxable exchange and
that the Existing Notes and the New Notes will be treated as the same security
for federal income tax purposes.
TAXATION OF U.S. HOLDERS
As used herein, the term "U.S. Holder" means a holder of a Note that is, for
U.S. federal income tax purposes, (a) a citizen or resident of the United
States, (b) a corporation or partnership created or organized in the United
States or under the laws of the United States or of any state of the United
States, (c) an estate whose income is includable in gross income for U.S.
federal income tax purposes regardless of its source or (d) a trust if (i) a
court within the United States is able to exercise primary supervision over
the administration of the trust and (ii) at least one U.S. person has
authority to control all substantial decisions of the trust. Recently enacted
legislation authorizes the issuance of Treasury Regulations that, under
certain circumstances, could reclassify as a non-U.S. partnership a
partnership that would otherwise be treated as a U.S. partnership, or could
reclassify as a U.S. partnership a partnership that would otherwise be treated
as a non-U.S. partnership. Such regulations would apply only to partnerships
created or organized after the date that proposed Treasury Regulations are
filed with the Federal Register (or, if earlier, the date of issuance of a
notice substantially describing the expected contents of the regulations).
Payment of Interest on the Notes Other than Payments upon Registration
Default. In general, interest paid on a Note (other than payments upon a
Registration Default discussed below) will be taxable to a U.S. Holder as
ordinary interest income, as received or accrued, in accordance with such
holder's method of accounting for
122
<PAGE>
federal income tax purposes. If original issue discount on a Note is not
greater than a de minimis amount equal to 0.25% of its stated principal amount
multiplied by the number of complete years to its maturity, any such discount
will be deemed to be equal to zero, and a holder will not be required to
accrue a portion of such discount as income in each taxable year. See,
however, the discussion below under "--Payments upon Registration Default."
Holders should consult their tax advisors as to the possible effect of
payments upon a Registration Default on the treatment of original issue
discount on the Notes, if any.
Payments upon Registration Default. Because the Notes provide for the
payment of additional interest under the circumstances described below under
"Registration Rights," the Notes could be subject to certain Treasury
Regulations relating to debt instruments that provide for one or more
contingent payments (the "Contingent Payment Regulations"). Under the
Contingent Payment Regulations, however, a payment is not a contingent payment
merely because of a contingency that, as of the issue date, is either "remote"
or "incidental." The Company intends to take the position that, for purposes
of the Contingent Payment Regulations, the payment of such additional interest
is a remote or incidental contingency as of the issue date. Accordingly, the
Contingent Payment Regulations should not apply to the Notes.
If, as of the date of issuance, the payment of such additional interest were
not a "remote" or "incidental" contingency for purposes of the Contingent
Payment Regulations, then (i) all payments (including any projected payments
of such additional interest) on a Note in excess of its issue price would
effectively be treated as original issue discount, and (ii) in each taxable
year, a holder would be required to include an allocable portion of such
amounts in gross income on a constant yield basis whether or not the payment
of such additional interest were fixed or determinable in the taxable year.
The Company's position for purposes of the Contingent Payment Regulations
that the payment of such additional interest is a remote contingency as of the
issue date is binding on each holder for federal income tax purposes, unless
such holder discloses in the proper manner to the Internal Revenue Service
("IRS") that it is taking a different position.
Prospective acquirors should consult their tax advisors as to the tax
considerations relating to debt instruments providing for payments such as the
additional interest payable upon a Registration Default, particularly in
connection with the possible application of the Contingent Payment
Regulations.
Sale, Exchange or Retirement of the Notes. Upon the sale, exchange,
redemption, retirement at maturity or other disposition of a Note, a U.S.
Holder will generally recognize taxable gain or loss equal to the difference
between the sum of the cash and the fair market value of all other property
received on such disposition (except to the extent such cash or property is
attributable to accrued interest, which will be taxable as ordinary income)
and such holder's adjusted tax basis in the New Note.
Gain or loss recognized on the disposition of a Note generally will be
capital gain or loss (except to the extent the gain is attributable to accrued
market discount, as described below), and will be long-term capital gain or
loss if, at the time of such disposition, the holder's holding period for the
Note is more than one year.
Market Discount. A U.S. Holder (other than a holder who makes the election
described below) that acquires a Note with market discount that is not de
minimis, except in certain non-recognition transactions, generally will be
required to treat any gain realized upon the disposition of the Note as
interest income to the extent of the market discount that accrued during the
period such holder held such Note. (For this purpose, a person disposing of a
market discount Note in a transaction other than a sale, exchange or
involuntary conversion generally is treated as realizing an amount equal to
the fair market value of the Note.) A holder may also be required to recognize
as ordinary income any principal payments with respect to a Note to the extent
such payments do not exceed the accrued market discount on the Note. For these
purposes, market discount generally equals the excess of the stated redemption
price of the Note over the tax basis of the Note in the hands of the
123
<PAGE>
holder immediately after its acquisition. However, market discount is deemed
not to exist if the market discount is less than a de minimis amount equal to
0.25% of the Note's redemption price at maturity multiplied by the number of
complete years to the Note's maturity after the holder acquired the Note (or,
in the case of a holder that acquires a New Note pursuant to the Exchange
Offer, the Existing Note exchanged for such New Note).
The market discount rules also provide that any holder of Notes that were
acquired at a market discount may be required to defer the deduction of a
portion of the interest on any indebtedness incurred or maintained to acquire
or carry the Notes, until the Notes are disposed of.
A holder of a Note acquired at a market discount may elect to include market
discount in income as the discount accrues. In such a case, the foregoing
rules with respect to the recognition of ordinary income on dispositions and
with respect to the deferral of interest deductions on indebtedness related to
such Note would not apply. The current inclusion election applies to all
market discount obligations acquired on or after the first day of the first
taxable year to which the election applies, and may not be revoked without the
consent of the IRS.
Amortizable Bond Premium. Generally, if the tax basis of an obligation held
as a capital asset exceeds the amount payable at maturity of the obligation,
such excess may constitute amortizable bond premium that the holder of such
obligation may elect to amortize under the constant interest rate method and
deduct over the period from the holder's acquisition date to the obligation's
maturity date. A holder that elects to amortize bond premium must reduce its
tax basis in the related obligation by the amount of the aggregate deductions
allowable for the amortizable bond premium. Any election to amortize bond
premium applies to all bonds (other than bonds the interest on which is
excludible from gross income) held by the holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the
holder. The election may not be revoked without the consent of the IRS.
In the case of an obligation, such as a Note, that may be called at a
premium prior to maturity, an earlier call date is treated as its maturity
date, and the amount of bond premium is determined by treating the amount
payable on such call date as the amount payable at maturity if such a
calculation produces a smaller amortizable bond premium than any other call
date or the method described in the preceding paragraph. For purposes of
amortizing bond premium, if a holder of a Note is required to amortize and
deduct bond premium by reference to a call date, the Note will be treated as
maturing on such date for the amount payable, and, if not redeemed on such
date, the Note will be treated as reissued on such date for the amount so
payable. If a Note purchased at a premium is redeemed pursuant to a call prior
to such early call date or its maturity, a purchaser who has elected to deduct
bond premium may deduct the excess of its adjusted tax basis in the Note over
the amount received on redemption (or, if greater, the amount payable on
maturity) as an ordinary loss in the taxable year of redemption.
The amortizable bond premium deduction is treated as a reduction of interest
on the bond instead of as a deduction. The offset of amortizable bond premium
against interest income on the bond occurs when income is taxable to a holder
as received or accrued, in accordance with such holder's method of accounting
for such income.
Backup Withholding and Information Reporting. In general, a U.S. Holder will
be subject to backup withholding at the rate of 31% with respect to interest,
principal and premium, if any, paid on a Note, unless the holder (a) is an
entity that is exempt from withholding (including corporations, tax-exempt
organizations and certain qualified nominees) and, when required, demonstrates
this fact, or (b) provides the Company with its taxpayer identification number
("TIN") (which for an individual would be the holder's social security
number), certifies that the TIN provided to the Company is correct and that
the holder has not been notified by the IRS that it is subject to backup
withholding due to underreporting of interest or dividends, and otherwise
complies with applicable requirements of the backup withholding rules. In
addition, such payments of principal, premium and interest to U.S. Holders
that are not exempt entities will generally be subject to information
reporting requirements. A U.S. Holder who does not provide the Company with
his correct TIN may be subject to penalties imposed by the IRS.
124
<PAGE>
The Company will report to U.S. Holders and the IRS the amount of any
"reportable payments" (including any interest paid) and any amounts withheld
with respect to the Notes during the calendar year.
The amount of any backup withholding from a payment to a U.S. Holder will be
allowed as a credit against such holder's federal income tax liability and may
entitle such holder to a refund, provided that the required information is
furnished to the IRS.
TAXATION OF NON-U.S. HOLDERS
Payment of Interest on the Notes. In general, payments of interest received
by any holder of a Note that is not a U.S. Holder (a "Non-U.S. Holder") will
not be subject to a U.S. federal income tax (or any withholding thereof,
except as described below under "--Backup Withholding and Information
Reporting"), provided that (a) under an exemption for certain portfolio
interest, (i) the Non-U.S. Holder does not actually or constructively own 10%
or more of the total combined voting power of all classes of stock of the
Company entitled to vote, (ii) the holder is not a "controlled foreign
corporation" (generally, a non-U.S. corporation controlled by U.S.
shareholders) that is related to the Company actually or constructively
through stock ownership and (iii) either (x) the beneficial owner of the Note,
under penalties of perjury, provides the Company or its agent with the
beneficial owner's name and address and certifies that it is not a U.S. person
on IRS Form W-8 (or a suitable substitute form) or (y) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business holds the Note and
certifies to the Company or its agent under penalties of perjury that such a
Form W-8 (or suitable substitute form) has been received by it from the
beneficial owner or qualifying intermediary and furnishes the payor a copy
thereof, (b) the Non-U.S. Holder is subject to U.S. federal income tax with
respect to the Note on a net basis because payments received with respect to
the Note are effectively connected with the conduct of a trade or business
within the United States by the holder (in which case the holder may also be
subject to U.S. "branch profits tax") and provides the Company with a properly
executed IRS Form 4224, or (c) the Non-U.S. Holder is entitled to the benefits
of an income tax treaty under which the interest is exempt from U.S.
withholding tax and the holder or such holder's agent provides a properly
executed IRS Form 1001 claiming the exemption. Payments of interest not exempt
from U.S. federal income tax as described above will be subject to withholding
at the rate of 30% (subject to reduction under an applicable income tax
treaty).
Recently issued Treasury Regulations (the "New Withholding Regulations")
generally will be effective with respect to payments made after December 31,
1999, regardless of the issue date of the instrument with respect to which
such payments are made. The New Withholding Regulations generally will not
affect the certification rules described in the preceding paragraph, but will
provide alternative methods for satisfying such requirements. The New
Withholding Regulations also generally will require, in the case of Notes held
by a non-U.S. partnership, that (a) the certification described in the
preceding paragraph be provided by the partners rather than the foreign
partnership and (b) the partnership provide certain information. A look-
through rule will apply in the case of tiered partnerships. In addition, the
New Withholding Regulations may require that a Non-U.S. Holder (including a
non-U.S. partnership or a partner thereof) obtain a taxpayer identification
number and make certain certifications if interest in respect of a Note is not
portfolio interest and the Non-U.S. Holder wishes to claim a reduced rate of
withholding under an income tax treaty. Each Non-U.S. Holder should consult
its own tax advisor regarding the application of the New Withholding
Regulations.
Sale, Exchange or Retirement of the Notes. A Non-U.S. Holder generally will
not be subject to U.S. federal income tax (or withholding thereof) in respect
of gain realized on the sale, exchange, redemption, retirement at maturity or
other disposition of Notes, unless (a) the gain is effectively connected with
the conduct of a trade or business within the United States by the holder, or
(b) the holder is an individual who is present in the United States for a
period or periods aggregating 183 or more days in the taxable year of the
disposition and certain other conditions are met.
125
<PAGE>
With respect to a Non-U.S. Holder subject to U.S. federal income tax as
described in the preceding paragraph, an exchange of a Note for an Exchange
Note should not be treated as a taxable exchange of the Note. As described
under "--Taxation of U.S. Holders--Payments upon Registration Default," the
Notes provide for the payment of additional interest upon a Registration
Default. Non-U.S. Holders should consult their tax advisors as to the tax
considerations relating to debt instruments providing for payments such as the
additional interest, in particular as to the availability of the exemption for
portfolio interest, and the ability of holders to claim the benefits of income
tax treaty exemptions from U.S. withholding tax on interest, in respect of
such additional interest.
Backup Withholding and Information Reporting. Under current Treasury
Regulations, backup withholding and information reporting do not apply to
payments made by the Company or a paying agent to Non-U.S. Holders if the
certification described under "--Payment of Interest on the Notes" is
received, provided that the payor does not have actual knowledge that the
holder is a U.S. person. If any payments of principal and interest are made to
the beneficial owner of a Note by or through the non-U.S. office of a non-U.S.
custodian, non-U.S. nominee or other non-U.S. agent of such beneficial owner,
or if the non-U.S. office of a non-U.S. "broker" (as defined in applicable
Treasury Regulations) pays the proceeds of the sale of a Note or a coupon to
the seller thereof, backup withholding and information reporting will not
apply. Information reporting requirements (but not backup withholding) will
apply, however, to a payment by a non-U.S. office of a broker that is a U.S.
person, that derives 50% or more of its gross income for certain periods from
the conduct of a trade or business in the United States, or that is a
"controlled foreign corporation" (generally, a non-U.S. corporation controlled
by U.S. shareholders) with respect to the United States, unless the broker has
documentary evidence in its records that the holder is a non-U.S. person and
certain other conditions are met, or the holder otherwise establishes an
exemption. Payment by a U.S. office of a broker is subject to both backup
withholding at a rate of 31% and information reporting unless the holder
certifies under penalties of perjury that it is a non-U.S. person, or
otherwise establishes an exemption. A Non-U.S. Holder may obtain a refund or a
credit against such Holder's U.S. federal income tax liability of any amounts
withheld under the backup withholding rules, provided the required information
is furnished to the IRS.
In addition, in certain circumstances, interest on a Note owned by a Non-
U.S. Holder will be required to be reported annually on IRS Form 1042S, in
which case such form will be filed with the IRS and furnished to the holder.
The New Withholding Regulations revise (substantially in certain respects)
the procedures that withholding agents and payees must follow to comply with,
or to establish an exemption, from these information reporting and backup
withholding provisions for payments after December 31, 1999. Each Non-U.S.
Holder should consult its own tax advisor regarding the application to such
holder of the New Withholding Regulations.
Estate Tax. Subject to applicable estate tax treaty provisions, Notes held
at the time of death (or theretofore transferred subject to certain retained
rights or powers) by an individual who at the time of death is a Non-U.S.
Holder will not be included in such holder's gross estate for U.S. federal
estate tax purposes, provided that (a) the individual does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote and (b) the income on the
Notes is not effectively connected with the conduct of a U.S. trade or
business by the individual.
126
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Existing Notes
where such Existing Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of up to 90 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any such broker-dealer
for use in connection with any such resale. In addition, until , all
dealers effecting transactions in the New Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer or the purchasers of any such New Notes. Any broker-
dealer that resells New Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit or any such resale of New Notes
and any commissions or concessions received by any such persons may be deemed
to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of up to 90 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any participating broker-dealer that is
entitled to use such documents and that requests such documents in the Letter
of Transmittal. The Company has agreed to pay all expenses incident to the
Exchange Offer other than commissions or concessions of any brokers-dealers
and will indemnify the Holders of the Existing Notes (including any broker-
dealers) against certain liabilities, including liabilities under the
Securities Act.
REGISTRATION RIGHTS
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration
Statement of which the Prospectus is a part and which is available as set
forth under the heading "Available Information."
Pursuant to the Registration Rights Agreement, the Company agreed, for the
benefit of the holders of the Notes, that it will, at its own expense, use its
reasonable best efforts (i) to file a registration statement (the "Exchange
Offer Registration Statement") with the Securities and Exchange Commission
(the "SEC") with respect to the Exchange Offer, within 120 days after the
Issue Date and (ii) to cause the Exchange Offer Registration Statement to be
declared effective under the Securities Act within 150 days after the Issue
Date. Upon the effectiveness of the Exchange Offer Registration Statement, the
Company will offer the New Notes in exchange for surrender of the Existing
Notes. The Company will keep the Exchange Offer open for the period required
by applicable law (including pursuant to any applicable interpretation by the
staff of the SEC), but in any event for at least 10 business days, after the
date that notice of the Exchange Offer is mailed to holders of the New Notes.
127
<PAGE>
For each Existing Note surrendered to the Company pursuant to the Exchange
Offer, the holder of such Note will receive a New Note issued in substitution
therefor having a principal amount equal to that of the surrendered Existing
Note. The New Notes will be issued as substituted evidence of indebtedness and
will not represent the incurrence of new indebtedness. Interest on each New
Note will accrue from the last interest payment date on which interest was
paid on the Existing Note surrendered in exchange therefor, or, if no interest
has been paid on such Existing Note, from the Issue Date, provided, that if an
Existing Note is surrendered for exchange on or after a record date for an
interest payment date that will occur on or after the date of such exchange
and as to which interest will be paid, interest on the New Note received in
exchange therefor will accrue from the date of such interest payment date.
Under existing SEC interpretations contained in several no action letters to
third parties, the New Notes would generally be freely transferable by holders
thereof (other than affiliates of the Company) after the Exchange Offer
without further registration under the Securities Act (subject to certain
representations required to be made by each holder of Notes participating in
the Exchange Offer, as set forth below). However, any purchaser of Existing
Notes who is an "affiliate" of the Company or who intends to participate in
the Exchange Offer for the purpose of distributing the New Notes (i) will not
be able to rely on such SEC interpretations, (ii) will not be able to tender
its Existing Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the Notes unless such sale or transfer
is made pursuant to an exemption from such requirements. In addition, in
connection with any resales of New Notes, any broker-dealer that acquired the
Existing Notes for its own account as a result of market making or other
trading activities (a "Participating Broker-Dealer") must deliver a prospectus
meeting the requirements of the Securities Act. The SEC has taken the position
that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to New Notes (other than a resale of an unsold
allotment from the original sale of Existing Notes) with the prospectus
contained in the Exchange Offer Registration Statement. Under the Registration
Rights Agreement, the Company will be required to allow any Participating
Broker-Dealer to use, for a period of 90 days after the consummation of the
Exchange Offer, the prospectus contained in the Exchange Offer Registration
Statement in connection with the resale of such New Notes.
A holder of Existing Notes who wishes to exchange such Existing Notes for
New Notes in the Exchange Offer will be required to make representations to
the effect (i) that any New Notes to be received by it will be acquired in the
ordinary course of its business, (ii) that at the time of the commencement of
the Exchange Offer it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the New Notes, (iii) that it is not an "affiliate" of the Company, as defined
in Rule 405 of the Securities Act, or if it is an affiliate, that it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (iv) if such holder is not a broker-
dealer, that it is not engaged in, and does not intend to engage in, the
distribution of New Notes, (v) if such holder is a Participating Broker-
Dealer, that it will deliver a prospectus in connection with any resale of
such New Notes, and (vi) that it is not acting on behalf of any person who
could not truthfully make the foregoing representations.
Shelf Registration. The Company will file a shelf registration statement
covering resales of Existing Notes or New Notes, as the case may be (a "Shelf
Registration Statement"), if (i) any changes in the applicable interpretations
of the staff of the SEC do not permit the Company to effect such an Exchange
Offer, (ii) the Exchange Offer is not consummated within 180 days of the Issue
Date, (iii) under certain circumstances, the Initial Purchasers so request
with respect to Existing Notes not eligible to be exchanged for New Notes in
the Exchange Offer, or (iv) if any holder of Existing Notes (other than an
Initial Purchaser) is not permitted by applicable law to participate in the
Exchange Offer or does not receive freely tradeable New Notes in the Exchange
Offer (other than, in either case, due solely to the status of such holder as
an affiliate of the Company or due to such holder's inability to make the
representations referred to above). If any of these events occur, the Company
will, at its own expense, use its reasonable best efforts (a) as promptly as
reasonably practicable, to file a Shelf Registration Statement covering
resales of Notes or Exchange Notes, as the case may be, and (b) to cause the
Shelf Registration Statement to be declared effective under the Securities Act
within 210 days after the
128
<PAGE>
Issue Date. After such Shelf Registration Statement is declared effective, the
Company will use its reasonable best efforts to keep the Shelf Registration
Statement in effect until the earlier of two years from the Issue Date (or one
year in the case of a shelf registration effected at the request of the
Initial Purchasers) or such shorter period that will terminate when all the
Existing Notes or New Notes covered by the Shelf Registration Statement (i)
have been sold pursuant thereto or (ii) are distributed to the public pursuant
to Rule 144 or become eligible for resale pursuant to Rule 144 without volume
restriction, if any. Under certain circumstances, the Company may suspend the
availability of the Shelf Registration Statement for certain periods of time.
The Company will, in the event a Shelf Registration Statement is filed,
among other things, provide to each holder for whom such Shelf Registration
Statement was filed copies of the prospectus that is a part of the Shelf
Registration Statement, notify each such holder when the Shelf Registration
Statement has become effective and take certain other actions as are required
to permit unrestricted resales of the Notes or the Exchange Notes, as the case
may be. A holder of Notes selling such Notes pursuant to the Shelf
Registration Statement generally would be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by certain
provisions of the Registration Rights Agreement (including certain
indemnification obligations). In addition, each such holder of Notes will be
required, among other things, to deliver information to be used in connection
with the Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to benefit from the provisions
regarding additional interest set forth in the following paragraph.
Additional Interest. From the date of a Registration Default (as defined
below) to the date on which such Registration Default has been cured,
additional interest will accrue on the Transfer Restricted Notes (as defined
below) at the rate of (a) prior to the 91st day of such period (for so long as
such period is continuing), 0.25% per annum and (b) thereafter (so long as
such period is continuing), 0.50% per annum. Any such additional interest
shall not exceed such respective rates for such respective periods, and shall
not in any event exceed 0.50% per annum in the aggregate, regardless of the
number of Registration Defaults that shall have occurred and be continuing.
Any such additional interest shall be paid in the same manner and on the same
dates as interest payments in respect of Transfer Restricted Notes. Following
the cure of all Registration Defaults, the accrual of such additional interest
will cease. All Registration Defaults shall be deemed cured upon consummation
of the Exchange Offer.
For purposes of the foregoing, each of the following events is a
"Registration Default": (i) neither the Exchange Offer Registration Statement
nor a Shelf Registration Statement has been filed with the SEC on or before
the 120th day after the Issue Date; (ii) the Exchange Offer is not consummated
on or before the 180th day after the Issue Date; (iii) if a Shelf Registration
Statement is required to be filed under the Registration Rights Agreement, (A)
the Shelf Registration Statement is not declared effective by the SEC on or
before the 210th day after the Issue Date (or, in the case of a Shelf
Registration Statement required to be filed in response to any change in
applicable interpretations of the staff of the SEC, if later, on or before the
90th day after publication of such change) or (B) during the time the Company
is required to use its reasonable best efforts to keep the Shelf Registration
in effect, the Company shall have suspended and be continuing to suspend the
availability of the Shelf Registration Statement for more than 30 days in the
aggregate in any consecutive twelve-month period.
For purposes of the foregoing, "Transfer Restricted Notes" means each
Existing Note until (i) the date on which such Existing Note has been
exchanged for a freely transferable New Note in the Exchange Offer, (ii) the
date on which such Existing Note has been effectively registered under the
Securities Act and disposed of in accordance with a Shelf Registration
Statement, or (iii) the date on which such Existing Note is distributed to the
public pursuant to Rule 144 of the Securities Act or is eligible for resale
pursuant to Rule 144 without volume restriction, if any.
129
<PAGE>
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Debevoise & Plimpton, New York, New York and, with respect to
certain matters of Massachusetts law, by Mark V.B. Tremallo, Corporate Vice
President--General Counsel of Dynatech Corporation. Franci J. Blassberg, Esq.,
a member of Debevoise & Plimpton, is married to Joseph L. Rice, III, who is a
shareholder of the managing general partner of the general partner of CDR Fund
V.
EXPERTS
The consolidated balance sheets as of March 31, 1998 and 1997 and the
consolidated statements of operations, shareholders' equity and cash flows for
each of the three fiscal years in the period ended March 31, 1998, included in
this Prospectus have been included herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
130
<PAGE>
DYNATECH CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS........................................ F-2
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1998 AND 1997................ F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MARCH
31, 1998, 1997 AND 1996................................................. F-4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE FISCAL YEARS
ENDED MARCH 31, 1998, 1997 AND 1996..................................... F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED MARCH
31, 1998, 1997 AND 1996................................................. F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................... F-7
REPORT OF INDEPENDENT ACCOUNTANTS ON SCHEDULE............................ F-25
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS........................... F-26
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30,
1998 AND 1997 (UNAUDITED)............................................... F-27
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1998 (UNAUDITED) AND
AS OF MARCH 31, 1998 ................................................... F-28
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)................................ F-29
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)......... F-30
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Dynatech Corporation:
We have audited the accompanying consolidated balance sheets of Dynatech
Corporation as of March 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three fiscal years in the period ended March 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Dynatech
Corporation as of March 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three fiscal years in the period
ended March 31, 1998 in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 28, 1998, except as to the information in the "Subsequent Events" Note
for which the date is May 21, 1998.
F-2
<PAGE>
DYNATECH CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
------------------
1998 1997
-------- --------
(AMOUNTS IN
THOUSANDS EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 64,904 $ 39,782
Accounts receivable (net of allowance of $1,764 and
$1,872, respectively)................................... 69,988 70,930
Inventories:
Raw materials.......................................... 24,263 19,423
Work in process........................................ 11,769 11,376
Finished goods......................................... 12,850 9,326
-------- --------
Total inventory........................................ 48,882 40,125
Other current assets..................................... 16,823 11,074
-------- --------
Total current assets................................. 200,597 161,911
Property and equipment:
Land, building and leasehold improvements................ 4,904 4,141
Machinery and equipment.................................. 51,220 47,020
Furniture and fixtures................................... 12,351 9,940
-------- --------
68,475 61,101
Less accumulated depreciation and amortization........... (42,110) (37,268)
-------- --------
26,365 23,833
Other assets:
Intangible assets, net................................... 39,595 43,813
Other.................................................... 21,573 19,453
-------- --------
$288,130 $249,010
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt...... $ 150 $ 201
Accounts payable......................................... 22,933 16,900
Accrued expenses:
Compensation and benefits.............................. 21,750 23,912
Taxes, other than income taxes......................... 2,071 1,850
Deferred revenue....................................... 13,868 8,876
Other.................................................. 16,082 19,948
Accrued income taxes..................................... 5,196 657
Net liabilities of discontinued operations............... 756 9,173
-------- --------
Total current liabilities............................ 82,806 81,517
Long-term debt............................................. 83 5,226
Deferred compensation...................................... 3,122 1,581
Commitments and contingencies..............................
Shareholders' equity:
Serial preference stock, par value $1 per share; autho-
rized 100,000 shares; none issued.......................
Common stock, par value $0.20 per share; authorized
50,000,000 shares; issued 18,605,689.................... 3,721 3,721
Additional paid-in capital............................... 7,647 9,887
Retained earnings........................................ 237,282 195,506
Cumulative translation adjustments....................... (1,600) (1,247)
Treasury stock, at cost; 1,741,265 and 1,812,287 shares,
respectively............................................ (44,931) (47,181)
-------- --------
Total shareholders' equity........................... 202,119 160,686
-------- --------
$288,130 $249,010
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
DYNATECH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------
1998 1997 1996
-------------- -------------- --------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Sales.......................... $ 472,948 $ 362,412 $ 293,042
Cost of sales.................. 205,522 137,254 111,436
-------------- -------------- --------------
Gross profit................... 267,426 225,158 181,606
Selling, general and adminis-
trative expense............... 138,310 114,479 98,487
Product development expense.... 54,995 43,267 36,456
Nonrecurring charges........... -- 27,776 16,852
Amortization of intangibles.... 5,835 6,793 5,136
-------------- -------------- --------------
Operating income........... 68,286 32,843 24,675
Interest expense............... (1,221) (828) (1,723)
Interest income................ 3,012 2,785 2,181
Other income, net.............. 730 634 975
-------------- -------------- --------------
Income from continuing opera-
tions before income taxes..... 70,807 35,434 26,108
Provision for income taxes..... 29,031 17,585 10,394
-------------- -------------- --------------
Income from continuing opera-
tions......................... 41,776 17,849 15,714
Discontinued operations:
Gain on sale of businesses
net of income tax provision
of $22,692.................. -- 12,000 --
Operating loss, net of income
tax benefit of $(1,009) in
1996... -- -- (1,471)
-------------- -------------- --------------
Net income..................... $ 41,776 $ 29,849 $ 14,243
============== ============== ==============
Income (loss) per common
share--basic:
Continuing operations........ $ 2.49 $ 1.04 $ 0.87
Discontinued operations...... -- 0.70 (0.08)
-------------- -------------- --------------
$ 2.49 $ 1.74 $ 0.79
============== ============== ==============
Income (loss) per common
share--diluted:
Continuing operations........ $ 2.40 $ 0.99 $ 0.86
Discontinued operations...... -- 0.67 (0.08)
-------------- -------------- --------------
$ 2.40 $ 1.66 $ 0.78
============== ============== ==============
Weighted average number of com-
mon shares
Basic........................ 16,795 17,200 17,969
Diluted...................... 17,434 18,028 18,315
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
DYNATECH CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------ ADDITIONAL CUMULATIVE TOTAL
COMMON TREASURY COMMON PAID-IN RETAINED TRANSLATION TREASURY SHAREHOLDERS'
STOCK STOCK STOCK CAPITAL EARNINGS ADJUSTMENTS STOCK EQUITY
-------- --------- ------ ---------- -------- ----------- -------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31,
1995................... 18,605 (1,033) $3,721 $ 7,432 $151,414 $ 2,659 $(10,906) $154,320
Net income--1996........ 14,243 14,243
Purchases of treasury
stock.................. (800) (19,367) (19,367)
Translation
adjustments............ (2,317) (2,317)
Exercise of stock
options and other
issuances.............. 812 3,688 9,170 12,858
Tax benefit from
exercise of stock
options................ 982 982
-------- -------- ------ ------- -------- ------- -------- --------
Balance, March 31,
1996................... 18,605 (1,021) 3,721 12,102 165,657 342 (21,103) 160,719
Net income--1997........ 29,849 29,849
Purchases of treasury
stock.................. (1,021) (32,695) (32,695)
Translation
adjustments............ (1,589) (1,589)
Exercise of stock
options and other
issuances.............. 230 (3,533) 6,617 3,084
Tax benefit from
exercise of stock
options................ 1,318 1,318
-------- -------- ------ ------- -------- ------- -------- --------
Balance, March 31,
1997................... 18,605 (1,812) 3,721 9,887 195,506 (1,247) (47,181) 160,686
Net income--1998........ 41,776 41,776
Purchases of treasury
stock.................. (163) (5,330) (5,330)
Translation
adjustments............ (353) (353)
Exercise of stock
options and other
issuances.............. 234 (2,919) 7,580 4,661
Tax benefit from
exercise of stock
options................ 679 679
-------- -------- ------ ------- -------- ------- -------- --------
Balance, March 31,
1998................... 18,605 (1,741) $3,721 $ 7,647 $237,282 $(1,600) $(44,931) $202,119
======== ======== ====== ======= ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
DYNATECH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------
1998 1997 1996
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income from operations...................... $ 41,776 $ 29,849 $ 15,714
Adjustment for noncash items included in net
income:
Gain on discontinued operations................. -- (12,000) --
Depreciation.................................... 12,066 9,280 8,279
Amortization of intangibles..................... 5,835 6,793 5,136
Purchased incomplete technology................. -- 20,627 16,852
Intangibles writeoff............................ -- 7,149 --
Change in net deferred income tax asset......... (5,575) (7,617) (5,173)
Other........................................... 580 797 457
Changes in operating assets and liabilities, net
of effects of purchase acquisitions and
divestitures................................... 4,380 4,926 (19,556)
-------- -------- --------
Net cash provided by continuing operations...... 59,062 59,804 21,709
Net cash provided by (used in) discontinued
operations..................................... (13,717) (52,313) 699
-------- -------- --------
Net cash flows provided by operating
activities..................................... 45,345 7,491 22,408
Investing activities:
Purchases of property and equipment............. (15,879) (10,176) (8,198)
Disposals of property and equipment............. 219 214 308
Proceeds from sales of businesses............... -- 96,682 48,901
Businesses acquired in purchase transactions,
Net of cash acquired........................... -- (68,930) (17,143)
Other........................................... 144 290 5,597
-------- -------- --------
Net cash flows provided by (used in) continuing
operations..................................... (15,516) 18,080 29,465
Net cash flows provided by (used in)
discontinued operations........................ 507 (951) (5,487)
-------- -------- --------
Net cash flows provided by (used in) investing
activities..................................... (15,009) 17,129 23,978
Financing activities:
Net borrowings (repayment) of debt.............. (5,195) 2,522 (9,400)
Proceeds from issuance of common stock.......... 4,513 1,693 952
Purchases of treasury stock..................... (5,330) (32,695) (19,367)
-------- -------- --------
Net cash flows used in financing activities..... (6,012) (28,480) (27,815)
Effect of exchange rate on cash.................. 798 (2,452) (272)
-------- -------- --------
Increase (decrease) in cash and cash
equivalents..................................... 25,122 (6,312) 18,299
Cash and cash equivalents at beginning of year... 39,782 46,094 27,795
-------- -------- --------
Cash and cash equivalents at end of year......... $ 64,904 $ 39,782 $ 46,094
======== ======== ========
Change in operating asset and liability
components:
Decrease (increase) in trade accounts
receivable..................................... $ 994 $(15,833) $(10,287)
Decrease (increase) in inventories.............. (8,739) 450 (2,007)
Increase in other current assets................ (2,431) (3,341) (297)
Increase (decrease) in accounts payable......... 6,009 2,059 (402)
Increase (decrease) in accrued expenses and
taxes.......................................... 8,547 21,591 (6,563)
-------- -------- --------
Change in operating assets and liabilities...... $ 4,380 $ 4,926 $(19,556)
======== ======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest........................................ $ 934 $ 889 $ 1,739
Income taxes.................................... 24,307 42,340 13,798
Tax benefit of disqualifying dispositions of
stock options.................................. 679 1,318 982
Noncash proceeds from sale of businesses:
Promissory notes................................ -- 7,200 --
Preferred stock................................. -- 6,300 --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Dynatech Corporation ("Dynatech" or the "Company") is a global
communications equipment company focused on network technology solutions. Its
products address communications test, industrial computing and communications,
and visual communications applications.
Subsequent Merger/Recapitalization On May 21, 1998, the Company completed
its management-led merger with Clayton, Dubilier & Rice, Inc. ("CDR") ("the
Merger"). The Merger and related transactions were treated as a
recapitalization for financial reporting purposes. Accordingly, the historical
basis of the Company's assets and liabilities were not affected by these
transactions.
Principles of Consolidation The consolidated financial statements include
the accounts of the parent company and its wholly owned domestic and
international subsidiaries. Intercompany accounts and transactions have been
eliminated. Certain prior year amounts have been reclassified to conform with
the current year.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Significant estimates in these financial
statements include allowances for accounts receivable, net realizable value of
inventories, tax valuation reserves, nonrecurring charges, and the carrying
values of discontinued operations. Actual results could differ from those
estimates.
Interest Rate Swap Agreements The Company may, from time to time, enter into
interest rate swap agreements to reduce the impact of interest rate changes on
its debt. The interest rate swap agreements involve exchanges of fixed or
floating rate interest payments without the exchange of the underlying
notional amounts. The notional amounts of such agreements are used to measure
the interest to be paid or received and do not represent the amount of
exposure to loss. The Company did not enter into any interest swap agreements
during fiscal 1998, 1997 or 1996.
Cash Equivalents Cash equivalents represent highly liquid debt instruments
with a maturity of three months or less at the time of purchase. Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist primarily of short-term deposits in Europe with major banks,
with investment levels and debt ratings set to limit exposure from any one
institution.
Inventories Inventories are carried and charged to revenue at standard
costs, which is updated regularly and which approximates the lower of cost
(first-in, first-out or average) or market.
Property and Equipment Property and equipment are carried at cost and
include expenditures for major improvements which substantially increase their
useful life. Repairs and maintenance are expensed as incurred. When assets are
retired or otherwise disposed of, the assets and related allowances for
depreciation and amortization are eliminated from the accounts and any
resulting gain or loss is recognized in the Statement of Operations.
Depreciation and Amortization For financial reporting purposes, depreciation
of machinery, equipment, and fixtures is computed on the straight-line method
over estimated useful lives of two to ten years. Leasehold improvements are
amortized over the lesser of the lives of the leases or estimated useful lives
of the improvements.
F-7
<PAGE>
DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Intangible Assets Intangible assets acquired primarily from business
acquisitions are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
AMOUNTS IN THOUSANDS
<S> <C> <C>
Product technology.................................... $ 17,042 $ 17,042
Excess of cost over net assets required............... 32,478 30,861
Other intangible assets............................... 13,307 13,307
---------- ----------
62,827 61,210
Less accumulated amortization......................... 23,232 17,397
---------- ----------
Total............................................... $ 39,595 $ 43,813
========== ==========
</TABLE>
At each balance sheet date, management evaluates whether there has been a
permanent impairment in the value of goodwill or intangible assets by
assessing the carrying value of the asset against the anticipated future cash
flows from related operating activities. Factors which management considers in
performing this assessment include current operating results, trends, product
transition, distribution channels and prospects, and, in addition, demand,
competition, and other economic factors. In March 1997, the Company recorded a
$7.1 million charge related to product and distribution transitions.
Product technology and other intangible assets are amortized on a straight-
line basis primarily over two to ten years, but in no event longer than their
expected useful lives. Amortization expense related to product technology was
$3.1 million in fiscal 1998, $3.1 million in fiscal 1997, and $1.9 million in
fiscal 1996, and was excluded from cost of sales. Excess of cost over fair
market value of net assets is being amortized on a straight-line basis
primarily over 15 years.
Foreign Currency Translation The functional currency for the majority of the
Company's foreign operations is the applicable local currency. The translation
from the applicable foreign currencies to U.S. dollars is performed for
balance sheet accounts using the exchange rates in effect at the balance sheet
date and for revenue and expense accounts using a weighted average exchange
rate during the period. The gains or losses resulting from such translation
are included in shareholders' equity. Gains or losses resulting from foreign
currency transactions are included in other income.
Treasury Stock The Company delivers treasury shares upon the exercise of
stock options and issuance of shares for the Company's Employee Stock Purchase
Plan and the difference between the cost of the treasury shares, on a last-in,
first-out basis, and the exercise price of the option is reflected in
additional paid-in capital. Repurchase of treasury stock is accounted for by
using the cost method of accounting.
Revenue Recognition Sales of products and services are recorded based on
product shipment and performance of service, respectively. Proceeds received
in advance of product shipment or performance of service are recorded as
deferred revenue in the balance sheet.
Research and Development Costs relating to research and development are
expensed as incurred. Internal software development costs that qualify for
capitalization are not material.
Warranty Costs The Company generally warrants its products for one year
after delivery. A provision for estimated warranty costs is recorded at the
time revenue is recognized.
Income Taxes The Company provides for income taxes in accordance with
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes." Under this method, deferred tax assets and
F-8
<PAGE>
DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
liabilities are determined based on the differences between the financial
reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
New Pronouncements During the quarter ended December 31, 1997, the Company
adopted Statement of Financial Accounting Standards No. 128, "Earnings per
Share," which modifies the calculation of earnings per share ("EPS"). The
Standard replaces the previous presentation of primary and fully diluted EPS
to basic and diluted EPS. Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS includes the
dilution of common stock equivalents, and is computed similarly to fully
diluted EPS pursuant to APB Opinion 15. All prior periods presented have been
restated to reflect this adoption.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Basic:
Common stock outstanding beginning of year.... 16,803 17,594 17,577
Weighted average treasury stock issued during
the period................................... 134 144 461
Weighted average treasury stock repurchased... (142) (538) (69)
------- ------- -------
Weighted average common stock outstanding end
of year...................................... 16,795 17,200 17,969
======= ======= =======
Diluted:
Common stock outstanding beginning of year.... 16,803 17,594 17,577
Weighted average treasury stock issued during
the period................................... 134 144 461
Weighted average common stock equivalents..... 639 828 346
Weighted average treasury stock repurchased... (142) (538) (69)
------- ------- -------
Weighted average common stock outstanding end
of year...................................... 17,434 18,028 18,315
======= ======= =======
</TABLE>
The Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" which establishes standards for the reporting
and display of comprehensive income in general-purpose financial statements.
This Standard is effective for fiscal periods beginning after December 15,
1997 and its adoption is not expected to have a material impact on the
Company's disclosures.
The Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the reporting of operating segments in the financial
statements. This Standard is effective for fiscal periods beginning after
December 15, 1997 and its adoption is not expected to have a material impact
on the Company's historical financial data.
In October, 1997, Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"), was issued which provides guidance on applying generally
accepted accounting principles in recognizing revenue on software
transactions. SOP 97-2 is effective for transactions entered into in fiscal
years beginning after December 15, 1997. The Company adopted the guidelines of
SOP 97-2 as of April 1, 1998 and does not expect adoption to have a material
impact on the Company's financial results.
DISCONTINUED OPERATIONS
A formal plan to discontinue noncore businesses was approved by the Board of
Directors on February 7, 1996. In fiscal 1997, the Company essentially
completed its disposition of the noncore businesses. Proceeds from these sales
in fiscal 1997 and 1996 were $96.7 million in cash, $7.2 million in long-term
promissory notes, and Class A Preferred Stock of CMSI Holdings Corporation
with an aggregate liquidation preference of $6.3 million, and $48.9 million in
cash, respectively, which resulted in an aftertax gain of $12 million or $0.67
per share on a diluted basis.
F-9
<PAGE>
DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the sale of one of its subsidiaries, the Company agreed
to guarantee the purchaser's payment obligations under a credit facility
obtained by the purchaser. The guaranteed portion of the principal amount of
this facility is $3 million for a period of seven years from the closing date
of March 1997 and is to be used to fund the purchaser's capital expenditures.
Summary operating results of noncore businesses prior to the formal plan to
discontinue operations are as follows:
<TABLE>
<CAPTION>
1996
--------------------
AMOUNTS IN THOUSANDS
<S> <C>
Sales................................................... $182,040
Gross margin............................................ 79,571
Income (loss) before taxes.............................. (3,460)
Net income (loss)....................................... $ (1,471)
</TABLE>
In connection with the disposition of these subsidiaries, the Company had
net liabilities of $756 thousand and $9.2 million at March 31, 1998 and 1997,
respectively. Included in these amounts are liabilities related to severance,
legal, lease runout, taxes and warranty accruals, most of which were paid in
fiscal 1998, offset by noncash investments.
LONG-TERM DEBT
Long-term debt is summarized below:
<TABLE>
<CAPTION>
1998 1997
--------------------
AMOUNTS IN THOUSANDS
<S> <C> <C>
Revolving credit and term bank loan.................... $ -- $ 5,000
Capital lease obligations.............................. 233 427
--------- ----------
Total debt........................................... 233 5,427
Less current portion............................... 150 201
--------- ----------
Long-term debt....................................... $ 83 $ 5,226
========= ==========
</TABLE>
In 1997, the Company had an unsecured $70 million revolving credit and term
bank loan agreement ("Old Agreement") with several commercial banks which
allowed for borrowings in various currencies and provided for interest to be
payable at the Eurocurrency rate, or base or money market rate quoted by the
lender, depending upon the currencies borrowed and the form of borrowing.
Under the terms of the Old Agreement, the principal borrowings would have
converted to a term loan payable in eight equal quarterly installments
beginning September 30, 1998.
In April 1997, the Company entered into a new $150 million revolving credit
and term loan agreement ("New Agreement") with several commercial banks. This
agreement allows for borrowings using various instruments with interest
payable at Eurodollar rate plus an applicable margin based on the Company's
leverage ratio or base rate, quoted by the lender. Under the terms of the New
Agreement, the principal borrowings may convert to a term loan payable in
eight equal quarterly installments beginning June 30, 2000.
The terms of both the Old and New Agreement require, among other things,
specific levels of current ratio, fixed-charge coverage ratio, and minimum
tangible net worth. The Company was in compliance with all covenants at March
31, 1998.
F-10
<PAGE>
DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
After the Merger. After completion of the Merger and related financings, the
Company had $575.2 million of indebtedness, primarily consisting of $275
million principal amount of the Notes, $260 million in term loan borrowings
under the Term Loan Facility referred to below under "Subsequent Events" and
$40 million in revolving credit borrowings under the new Revolving Credit
Facility referred to below under "Subsequent Events". On May 21, 1998, the
Company terminated its Old and New Agreements.
Debt Service. Principal and interest payments under the new Senior Credit
Facility and interest payments on the Notes will represent significant
liquidity requirements for the Company. It is expected that with respect to
the $260.0 million borrowed under the Term Loan Facility, in which the
facility is divided into tranches, of which each tranche has a different term
and repayment schedule, the Company will be required to make scheduled
principal payments of the $50.0 million of tranche A term loan thereunder over
its six-year term, with substantial amortization of the $70.0 million of
tranche B term loan, $70.0 million of tranche C term loan and $70.0 million
tranche D term loan thereunder occurring after six, seven and eight years,
respectively. The Notes will mature in 2008, and bear interest at 9 3/4%.
Total interest expense is expected to be $51.0 million in fiscal 1999. The
Senior Credit Facility are also subject to mandatory prepayment and reduction
in an amount equal to, subject to certain exceptions, (a) 100% of the net
proceeds of (i) certain debt offerings by the Company and any of its
subsidiaries, (ii) certain asset sales by the Company or any of its
subsidiaries, and (iii) casualty insurance, condemnation awards or other
recoveries received by the Company or any of its subsidiaries and (b) 50% of
the Company's excess cash flow (as to be defined) for each fiscal year in
which the Company exceeds a certain leverage ratio. The Notes are subject to
certain mandatory prepayments under certain circumstances. The Revolving
Credit Facility matures in 2004, with all amounts then outstanding becoming
due. The Company expects that its working capital needs will require it to
obtain new revolving credit facilities at the time that the Revolving Credit
Facility matures, whether by extending, renewing, replacing or otherwise
refinancing the Revolving Credit Facility. No assurance can be given that any
such extension, renewal, replacement or refinancing can be successfully
accomplished. The loans under the Senior Credit Facility bear interest at
floating rates based upon the interest rate option elected by the Company. As
a result of the substantial indebtedness incurred in connection with the
Merger, it is expected that the Company's interest expense will be higher and
will have a greater proportionate impact on net income in comparison to
preceding periods.
Future Financing Sources and Cash Flows. The amount under the Revolving
Credit Facility that remained undrawn following the closing of the Merger was
$70.0 million. The undrawn portion of this facility will be available to meet
future working capital and other business needs of the Company and replaces
the Company's previously outstanding credit facilities totaling $180.0
million. The Company believes that cash generated from operations, together
with amounts available under the Revolving Credit Facility and any other
available sources of liquidity, will be adequate to permit the Company to meet
its debt service obligations, capital expenditure program requirements,
ongoing operating costs and working capital needs, although no assurance can
be given in this regard. The Company's future operating performance and
ability to service or refinance the Notes and to repay, extend or refinance
the Senior Credit Facility (including the Revolving Credit Facility) will be,
among other things, subject to future economic conditions and to financial,
business and other factors, many of which are beyond the Company's control.
INCOME TAXES
The components of income (loss) from continuing operations before taxes are
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
AMOUNTS IN THOUSANDS
<S> <C> <C> <C>
Domestic........................................... $69,772 $38,486 $26,657
Foreign............................................ 1,035 (3,052) (549)
------- ------- -------
Total............................................ $70,807 $35,434 $26,108
======= ======= =======
</TABLE>
F-11
<PAGE>
DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the provision (benefit) for income taxes from continuing
operations are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
AMOUNTS IN THOUSANDS
<S> <C> <C> <C>
Provision for income taxes:
United States.................................. $22,810 $11,729 $ 9,092
Foreign........................................ 327 234 (428)
State.......................................... 5,894 5,622 1,730
------- ------- -------
Total........................................ $29,031 $17,585 $10,394
======= ======= =======
Components of income tax provision:
Current:
Federal........................................ $21,248 $19,297 $15,247
Foreign........................................ (978) 234 (423)
State.......................................... 6,123 5,671 3,072
------- ------- -------
Total Current................................ 26,393 25,202 17,896
======= ======= =======
Deferred:
Federal........................................ 1,562 (7,568) (6,155)
Foreign........................................ 1,305 -- (5)
State.......................................... (229) (49) (1,342)
------- ------- -------
Total deferred............................... 2,638 (7,617) (7,502)
Total........................................ $29,031 $17,585 $10,394
======= ======= =======
</TABLE>
Reconciliations between U.S. federal statutory rate and the effective tax
rate of continuing operations follow:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Tax at U.S. federal statutory rate....................... 35.0% 35.0% 35.0%
Increases (reductions) to statutory tax rate resulting
from:
Foreign income subject to tax at a rate different
than U.S. rate...................................... -- 0.6 (0.5)
State income taxes, net of federal income tax bene-
fit................................................. 5.1 3.8 4.3
Research and development tax credit.................. (1.3) (0.7) (0.7)
Nondeductible amortization........................... 1.2 1.1 1.9
Other................................................ 1.0 0.7 (0.2)
---- ---- ----
Effective tax rate before certain charges............ 41.0% 40.5% 39.8%
Nondeductible purchased research and development..... -- 8.2 --
Nondeductible writeoff of intangibles................ -- 0.9 --
---- ---- ----
Total effective tax rate on continuing operations.. 41.0% 49.6% 39.8%
---- ---- ----
</TABLE>
F-12
<PAGE>
DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The principal components of the deferred tax assets and liabilities follow:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
AMOUNTS IN THOUSANDS
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $ 4,608 $ 3,291
Vacation benefits.................................. 1,556 792
Bad debt allowance................................. -- 364
Inventory capitalization........................... 403 363
Depreciation and amortization........................ 16,343 16,767
Other deferred assets.............................. 8,976 4,434
---------- ----------
31,886 26,011
Valuation allowance.................................. (4,608) (3,291)
---------- ----------
27,278 22,720
Deferred tax liabilities:
Depreciation and amortization...................... 431 1,025
Other deferred liabilities......................... 1,068 1,491
---------- ----------
1,499 2,516
---------- ----------
Net deferred tax assets.............................. $ 25,779 $ 20,204
========== ==========
</TABLE>
Deferred income taxes are included in the following balance sheet accounts:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
AMOUNTS IN THOUSANDS
<S> <C> <C>
Other current assets................................... $ 8,695 $ 3,846
Other assets........................................... 17,084 16,358
---------- ----------
$ 25,779 $ 20,204
========== ==========
</TABLE>
The valuation allowance applies to state and foreign net operating loss
carryforwards that may not be fully utilized by the Company. The increase in
the valuation reserve relates to the increase in these net loss carryforwards.
EMPLOYEE RETIREMENT PLANS
The Company has a trusteed employee retirement profit sharing and 401(k)
savings plan for eligible U.S. employees. The Plan does not provide for stated
benefits upon retirement. Employees outside the U.S. are covered principally
by government-sponsored plans that are deferred contribution plans. The cost
of Company-provided plans is not material.
The Company has a nonqualified deferred compensation plan which permits
certain key employees to annually elect to defer a portion of their
compensation for their retirement. The amount of compensation deferred and
related investment earnings will be placed in an irrevocable rabbi trust and
presented as assets in the Company's balance sheet because they will be
available to the general creditors of the Company in the event of the
Company's insolvency. An offsetting liability will reflect amounts due
employees.
Corporate contributions to employee retirement plans were $4.5 million in
fiscal 1998, $4.0 million in fiscal 1997, and $3.3 million in 1996.
F-13
<PAGE>
DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STOCK COMPENSATION AND PURCHASE PLANS
On July 30, 1996 the shareholders adopted the 1996 Employee Stock Purchase
Plan under which eligible employees may contribute up to 10% of their salary
toward semi-annual purchases of the Company's capital stock. The plan
commenced October 1, 1996 and each plan period lasts six months beginning on
October 1 and April 1 of each year. The purchase price for each share of stock
is the lesser of 85% of the market price on the first or last day of the plan
period. A total of 600,000 shares are available for purchase under the plan.
There were 44,840 shares issued under the plan in October, 1997 and 38,692
shares were reserved for issuance at March 31, 1998. Pursuant to the Merger,
the plan has been amended to provide that there will be no new stock purchase
periods after March 31, 1998. The Employee Stock Purchase Plan terminated on
May 21, 1998.
The Company maintains two Stock Option plans in which common stock is
available for grant to key employees at prices not less than fair market value
(110% of fair market value for employees holding more than 10% of the
outstanding common stock) at the date of grant determined by the Board of
Directors. Incentive or nonqualified options may be issued under the plans and
are exercisable from one to ten years after grant.
A summary of activity in the Company's option plans is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
1998 EXERCISE 1997 EXERCISE 1996 EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares under option, be-
ginning of year........ 1,770,560 $21.87 1,684,580 $15.17 1,296,720 $12.09
Options granted (at an
exercise price of $35
to $44 in 1998, $32 to
$54 in 1997, and $15.50
to $20.25 in 1996)..... 634,800 36.25 607,550 34.51 673,700 20.01
Options exercised....... (148,941) 17.20 (255,690) 11.99 (126,500) 10.26
Options canceled........ (120,700) 24.26 (265,880) 17.82 (159,340) 14.44
--------- --------- ---------
Shares under option, end
of year................ 2,135,719 26.33 1,770,560 21.87 1,684,580 15.17
========= ========= =========
Shares exercisable...... 512,999 $18.79 300,710 $14.77 261,780 $11.52
</TABLE>
Options available for future grants under the plans were 497 thousand, 1.0
million, and 1.4 million at March 31, 1998, 1997, and 1996, respectively.
The fair market value of each option granted during 1998, 1997, and 1996 is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions: expected volatility of 40%,
risk-free interest rate of 6% in 1998, 6.59% in 1997, and 6.27% in 1996,
expected life of 7 years and a dividend yield of 0%. The Weighted Average Fair
Value of options granted, net of forfeitures, during the years 1998, 1997, and
1996 was $19.20, $18.68, and $10.68, respectively.
The following table summarizes information about currently outstanding and
exercisable stock options at March 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE WEIGHTED
OPTIONS REMAINING AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICE AT 3/31/98 LIFE PRICE
- ----------------------- ----------- ----------- --------
<S> <C> <C> <C>
$ 9.00--$15.00................................. 437,540 4.62 $11.05
$15.00--$30.00................................. 542,860 7.14 19.08
$30.00--$54.00................................. 1,155,319 8.85 35.93
---------
Total........................................ 2,135,719 7.55 $26.33
=========
</TABLE>
F-14
<PAGE>
DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company applies ABP Opinion 25 and related interpretations in accounting
for its plans. In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS123"), which is effective for transactions
entered into for fiscal years that begin after December 15, 1995. FAS123
established a fair value-based method of accounting for stock-based
compensation plans. In adopting FAS123 in 1997, the Company elected footnote
disclosure only. Accordingly, no compensation cost has been recognized for its
stock option plans and its stock purchase plan under FAS123. Had compensation
cost for the Company's stock-based compensation plans been recorded based on
the fair value of awards or grant date consistent with the method prescribed
by FAS123, the Company's net income and earnings per share would have been
changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
-------- ------- -------- ------- -------- -------
AMOUNTS IN THOUSANDS EXCEPT PER SHARE
<S> <C> <C> <C> <C> <C> <C>
Net income............... $41,776 $38,441 $29,849 $27,863 $14,243 $13,464
Net income per share:
Basic.................. $ 2.49 $ 2.29 $ 1.74 $ 1.62 $ 0.79 $ 0.75
Diluted................ $ 2.40 $ 2.20 $ 1.66 $ 1.55 $ 0.78 $ 0.74
</TABLE>
The effect of applying FAS123 in this pro forma disclosure is not indicative
of future amounts. FAS123 does not apply to awards prior to 1995; and
additional awards in future years are anticipated.
SHAREHOLDER RIGHTS PLAN
In February 1989 the Board of Directors adopted a Shareholder Rights Plan
and declared a dividend distribution of one Right for each outstanding share
of Dynatech's common stock. The Plan was amended in March 1990. Each Right,
when exercisable, entitles a qualifying shareholder to buy shares of Dynatech
junior participating cumulative preferred stock. The Rights would only become
exercisable (i) ten days after a person has become the beneficial owner of 15%
or more of Dynatech's common stock, or (ii) ten business days after the
commencement of a tender offer that would result in the ownership of 15% or
more of the common stock, or (iii) upon determination by the Board of
Directors that a person who holds 10% or more of Dynatech's common stock
intends to, or is likely to, act in certain specified manners adverse to the
interests of Dynatech and its shareholders.
In the event Dynatech is acquired and is not the surviving corporation in a
merger, or in the event of the acquisition of 50% or more of the assets or
earning power of Dynatech, each Right would then entitle the qualified holder
to purchase, at the then-current exercise price, shares of common stock of the
acquiring company having a value of twice the exercise price of the Right.
Furthermore, if any party were to acquire 15% or more of Dynatech's common
stock or were determined to be an adverse person as described above, qualified
holders of the Rights would be entitled to acquire shares of Dynatech junior
participating cumulative preferred stock having a value of twice the then-
current exercise price. At the option of the Board of Directors, all of the
Rights could be exchanged into shares of common or preferred stock.
The Board of Directors of the Company has contemporaneously with the
execution of the Merger Agreement amended the Rights Agreement so that (i)
none of CDR, Fund or MergerCo will become an "Acquiring Person" as a result of
the consummation of the transactions contemplated by this Agreement, (ii) no
"Stock Acquisition Date," "Triggering Event" or "Distribution Date" (as such
terms are defined in the Rights Agreement) will have occurred as a result of
the consummation of the transactions contemplated by this Agreement, and (iii)
all outstanding Rights issued and outstanding under the Rights Agreement and
the Rights
F-15
<PAGE>
DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Agreement will terminate immediately prior to the effective time of the Merger
and no shares of Recapitalized Common Stock issued on or after the effective
time of the Merger will have any Rights associated with them under the Rights
Agreement.
COMMITMENTS AND CONTINGENCIES
The Company has operating leases from continuing operations covering plant,
office facilities, and equipment which expire at various dates through 2006.
Future minimum annual fixed rentals required during the years ending in fiscal
1999 through 2003 under noncancelable operating leases having an original term
of more than one year are $8.9 million, $7.4 million, $5.6 million, $4.9
million, and $4.2 million, respectively. The aggregate obligation subsequent
to fiscal 2003 is $6.2 million. Rent expense from continuing operations was
approximately $8.1 million, $6.2 million, and $5.7 million in fiscal 1998,
1997, and 1996, respectively.
The Company is a party to several pending legal proceedings and claims.
Although the outcome of such proceedings and claims cannot be determined with
certainty, the Company's counsel and management are of the opinion that the
final outcome should not have a material adverse effect on the Company's
operations or financial position.
On June 27, 1996, Cincinnati Microwave, Inc. ("CMI") filed an action in the
United States District Court for the Southern District of Ohio against the
Company and Whistler Corporation of Massachusetts ("Whistler"), alleging
willful infringement of CMI's patent for a mute function in radar detectors.
In 1994, the Company sold its radar detector business to Whistler. The Company
and Whistler have asserted in response that they have not infringed, and that
the patent is invalid and unenforceable. The Company obtained an opinion of
counsel from Bromberg & Sunstein LLP in connection with the manufacture and
sale of the Company's Whistler series radar detectors and will be offering the
opinion, among other things, as evidence that any alleged infringement was not
willful. On March 24, 1998, CMI, together with its co-plaintiff and patent
assignee Escort, Inc., moved for summary judgment. The Company and Whistler
have opposed the motion for summary judgment. The Company intends to defend
the lawsuit vigorously and does not believe that the outcome of the litigation
is likely to have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
NONRECURRING CHARGES
The components of nonrecurring expenses include the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
AMOUNTS IN THOUSANDS
<S> <C> <C>
Incomplete technology.................................. $ 20,627 $ 16,852
Intangible writeoffs................................... 7,149 --
---------- ----------
Total................................................ $ 27,776 $ 16,852
========== ==========
</TABLE>
ACQUISITIONS
1997 Acquisitions In March of 1997, the Company acquired the net assets of
Advent Design, Inc. ("Advent") for $3.5 million in cash. Advent designs and
manufactures high-performance microprocessor-based systems for the computer,
medical and communications markets. This acquisition generated $3.4 million of
goodwill which is being amortized over 15 years. During fiscal 1998, the
Company incurred a $1.6 million increase in goodwill, related to a targeted
three-year earnout based on, among other things, a positive operating income.
F-16
<PAGE>
DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On December 31, 1996, the Company acquired substantially all of the assets
and assumed certain liabilities of Itronix Corporation ("Itronix") located in
Spokane, Washington, for $65.4 million in cash. Approximately $40 million of
the purchase price was borrowed pursuant to the terms of the Company's
revolving credit and term loan agreement in effect at that time. A significant
portion of the borrowed funds was repaid during the fourth quarter of 1997.
Itronix is a manufacturer of mobile computing and communications devices,
including ruggedized laptop computers, which increase the efficiency of large,
mission-critical service groups.
Incident to this acquisition was the purchase of incomplete technology
activities which resulted in a one-time pretax charge of $20.6 million or
($0.74) per share on a diluted basis. This purchased incomplete technology
that had not reached technological feasibility and which had no alternative
future use was valued using a risk adjusted cash flow model, both in 1997 and
1996, under which future cash flows associated with in-process research and
development were discounted considering risks and uncertainties related to the
viability of potential changes in future target markets and to the completion
of the products that will ultimately be marketed by the Company. Acquired
complete technology of $8.4 million is being amortized over two to seven
years, and goodwill of $17.9 million is being amortized over 15 years.
As a percentage of sales, the gross margin and selling, general and
administrative expenses of Itronix are lower than the consolidated financial
results of the Company prior to the acquisition. Therefore, the pro forma
income statements below reflect a lower gross margin and selling, general and
administrative expenses as a percent of consolidated sales. Hence, in order to
demonstrate the Company's operating performance versus the previous years, the
following unaudited pro forma information presents a summary of consolidated
results of operations of the Company as if the acquisition had occurred at the
beginning of fiscal 1996, with pro forma adjustments to give effect to
amortization of goodwill and intangibles, interest expense on acquisition
debt, and certain other adjustments, together with related income tax effects.
(In thousands except per share data).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
MARCH 31, 1997 MARCH 31, 1996
----------------- -----------------
<S> <C> <C>
Sales.................................. $426,234 $355,886
Cost of sales.......................... 183,076 158,602
-------- --------
Gross profit........................... 243,158 197,284
Selling, general & administrative ex-
pense................................. 122,232 105,383
Product development expense............ 48,515 40,913
Nonrecurring charges................... 7,149 16,852
Amortization of intangibles............ 8,853 7,886
-------- --------
Operating income....................... 56,409 26,250
Interest expense....................... (3,284) (4,998)
Interest income........................ 2,785 2,181
Other income, net...................... 633 975
-------- --------
Income from continuing operations be-
fore income taxes..................... 56,543 24,408
Provision for income taxes............. 24,974 9,799
-------- --------
Income from continuing operations...... $ 31,569 $ 14,609
======== ========
Income per share:
Basic................................ $ 1.84 $ 0.81
Diluted.............................. $ 1.74 $ 0.80
Weighted average shares:
Basic................................ 17,200 17,969
Diluted.............................. 18,028 18,315
</TABLE>
F-17
<PAGE>
DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1996 Acquisitions On February 20, 1996 Dynatech acquired the stock of
Synergistic Solutions, Inc. ("SSI"), of Atlanta, Georgia, for approximately
$5.5 million. Acquired technology and other intangible assets of approximately
$4.3 million are being amortized over four to seven years. The investment in
excess of fair market value of assets purchased of $964.0 thousand is being
amortized over 15 years.
On September 1, 1995 Dynatech acquired substantially all of the business and
assets of Tele-Path Industries, Inc. ("TPI"), of Salem, Virginia, for $23.6
million. Approximately $12.6 million was cash, including a $2.6 million
contingent adjustment for the stock price, and 688,096 shares of the Company's
common stock at $19.91 per share. Acquired complete technology and other
intangible assets of approximately $6.7 million are being amortized over five
years.
Incident to this acquisition, the Company purchased the incomplete
technology activities of TPI, resulting in a one-time pretax charge in the
second quarter of approximately $16.9 million, or ($0.56) per share on a
diluted basis. This purchased incomplete technology that had not reached
technological feasibility and which had no alternative future use was valued
using a risk adjusted cash flow model.
Acquisitions, both in fiscal 1997 and 1996, were recorded using the purchase
method of accounting.
SUBSEQUENT EVENTS
On June 19, 1998, the Company acquired the stock of Pacific Systems
Corporation of Kirkland, Washington ("Pacific") for a total purchase price of
$20 million, including an incentive earnout. Pacific designs and manufactures
customer specified avionics and integrated cabin management equipment for the
corporate and general aviation market.
On May 21, 1998, the Company completed its management-led recapitalization
with Clayton, Dubilier & Rice, Inc. In connection with the Merger, the
Company's shareholders received consideration consisting of $47.75 per share
in cash and a 0.5 share of recapitalized common stock. In connection with the
Merger, the Company entered into a credit agreement (the "Senior Credit
Facility") with certain lenders providing for the Senior Credit Facility
including a $260.0 million term loan facility (the "Term Loan Facility") and a
$110.0 million revolving credit facility (the "Revolving Credit Facility"). In
connection with the Merger, the Company also completed the offering of $275.0
million aggregate principal amount of the Notes. On May 31, 1998 the Company
had a total of $575.2 million of debt which consisted primarily of $275.0
million principal amount of the Notes, $260.0 million in term loan borrowings
under the Term Loan Facility and $40.0 million in revolving credit borrowings
under the Revolving Credit Facility.
Debt Service Principal and interest payments under the new Senior Credit
Facility and interest payments on the Notes will represent significant
liquidity requirements for the Company. It is expected that with respect to
the $260.0 million borrowed under the Term Loan Facility, in which the
facility is divided into tranches, of which each tranche has a different term
and repayment schedule, the Company will be required to make scheduled
principal payments of the $50.0 million of tranche A term loan thereunder over
its six-year term, with substantial amortization of the $70.0 million of
tranche B term loan, $70.0 million of tranche C term loan and $70.0 million
tranche D term loan thereunder occurring after six, seven and eight years,
respectively. The Notes will mature in 2008, and bear interest at 9 3/4%.
Total interest expense is expected to be $51.0 million in fiscal 1999. The
Senior Credit Facility is also subject to mandatory prepayment and reduction
in an amount equal to, subject to certain exceptions, (a) 100% of the net
proceeds of (i) certain debt offerings by the Company and any of its
subsidiaries, (ii) certain asset sales by the Company or any of its
subsidiaries, and (iii) casualty insurance, condemnation awards or other
recoveries received by the Company or any of its subsidiaries and (b) 50% of
the Company's excess cash flow (as to be defined) for each fiscal year in
which the Company exceeds a certain leverage ratio. The Notes are subject to
certain mandatory prepayments under certain circumstances. The Revolving
Credit
F-18
<PAGE>
DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Facility matures in 2004, with all amounts then outstanding becoming due. The
Company expects that its working capital needs will require it to obtain new
revolving credit facilities at the time that the Revolving Credit Facility
matures, whether by extending, renewing, replacing or otherwise refinancing
the Revolving Credit Facility. No assurance can be given that any such
extension, renewal, replacement or refinancing can be successfully
accomplished. The loans under the Senior Credit Facility bear interest at
floating rates based upon the interest rate option elected by the Company. As
a result of the substantial indebtedness incurred in connection with the
Merger, it is expected that the Company's interest expense will be higher and
will have a greater proportionate impact on net income in comparison to
preceding periods.
Future Financing Sources and Cash Flows The amount under the Revolving
Credit Facility that remained undrawn upon the closing of the Merger was $70.0
million. The undrawn portion of this facility will be available to meet future
working capital and other business needs of the Company and replaced the
Company's previously outstanding credit facilities totaling $180.0 million.
The Company believes that cash generated from operations, together with
amounts available under the Revolving Credit Facility and any other available
sources of liquidity, will be adequate to permit the Company to meet its debt
service obligations, capital expenditure program requirements, ongoing
operating costs and working capital needs, although no assurance can be given
in this regard. The Company's future operating performance and ability to
service or refinance the Notes and to repay, extend or refinance the Senior
Credit Facility (including the Revolving Credit Facility) will be, among other
things, subject to future economic conditions and to financial, business and
other factors, many of which are beyond the Company's control.
The Senior Credit Facility imposes restrictions on the ability of the
Company to make capital expenditures and both the Senior Secured Credit
Facilities and the indenture governing the Notes limit the Company's ability
to incur additional indebtedness. Such restrictions, together with the highly
leveraged nature of the Company, could limit the Company's ability to respond
to market conditions, to meet its capital spending program, to provide for
unanticipated capital investments or to take advantage of business
opportunities. The covenants contained in the Senior Credit Facility also,
among other things, restrict the ability of the Company and its subsidiaries
to dispose of assets, incur guarantee obligations, prepay other indebtedness,
make restricted payments, create liens, make equity or debt investments, make
acquisitions, modify terms of the indenture governing the Notes, engage in
mergers or consolidations, change the business conducted by the Company and
its subsidiaries taken as a whole or engage in certain transactions with
affiliates. In addition, under the Senior Credit Facility, the Company is
required to comply with a minimum interest expense coverage ratio and a
maximum leverage ratio. These financial tests become more restrictive in
future years. The term loans under the Senior Credit Facility (other than the
$50.0 million tranche A term loan) have negative covenants which are
substantially similar to the negative covenants contained in the indenture
governing the Notes, which also impose restrictions on the operation of the
Company's businesses.
Shares of Recapitalized Common Stock trade only in the over-the-counter
market. Although prices in respect of trades may be published by the National
Association of Securities Dealers, Inc. on its electronic bulletin board,
"pink sheets," quotes for such shares may not be as readily available;
accordingly, it is anticipated that the Recapitalized Common Stock will trade
much less frequently than the Common Stock traded prior to the Merger, which
may have a material adverse effect on the market value of shares of
Recapitalized Common Stock. In addition, (depending upon certain factors) the
shares of Recapitalized Common Stock may no longer constitute "margin
securities" for the purposes of the margin regulations of the Federal Reserve
Board and therefore could no longer be used as collateral for loans made by
brokers.
The Company is obligated by the Merger Agreement to continue to be a
reporting company under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and to continue to file periodic reports (including annual and
quarterly reports) for at least five years after the Merger, unless fewer than
100 record
F-19
<PAGE>
DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
holders of shares of Recapitalized Common Stock are non-affiliates of the
Surviving Corporation or except as otherwise provided in the Merger Agreement.
After the fifth anniversary of the effective time of the Merger, the Company
may deregister the Recapitalized Common Stock under the Exchange Act if
permitted by applicable law. If the Company were to cease to be a reporting
company under the Exchange Act and to the extent not required in connection
with any other debt or equity securities of the Company registered or required
to be registered under the Exchange Act, the information now available to
stockholders of the Company in the annual, quarterly and other reports
required to be filed by the Company with the Securities and Exchange
Commission would not be available to them as a matter of right.
The following unaudited pro forma condensed consolidated balance sheet of
the Company has been prepared to give effect to the Merger and related
transactions as a recapitalization for financial reporting purposes.
F-20
<PAGE>
DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DYNATECH CORPORATION
PRO FORMA BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1998
---------
<S> <C>
Current assets:
Cash and cash equivalents.......................................... $ 43,619
Accounts receivable................................................ 69,988
Inventories:
Raw materials.................................................... 24,263
Work in process.................................................. 11,769
Finished goods................................................... 12,850
---------
Total inventory................................................ 48,882
Other current assets............................................... 16,823
---------
Total current assets........................................... 179,312
Property and equipment:
Land, building and leasehold improvements.......................... 4,904
Machinery and equipment............................................ 51,220
Furniture and fixtures............................................. 12,351
---------
68,475
Less accumulated depreciation and amortization..................... (42,110)
26,365
Other assets:
Intangible assets, net............................................. 39,595
Other.............................................................. 63,508
---------
$ 308,780
=========
Current liabilities:
Notes payable and current portion of long-term debt................ $ 150
Accounts payable................................................... 22,933
Accrued expenses:
Compensation and benefits........................................ 21,750
Taxes, other than income taxes................................... 2,071
Deferred revenue................................................. 13,868
Other............................................................ 16,082
Accrued income taxes............................................... 5,196
Net liabilities of discontinued operations......................... 756
---------
Total current liabilities...................................... 82,806
Long-term debt....................................................... 567,983
Deferred compensation................................................ 3,122
Commitments and contingencies........................................
Shareholders' equity:
Recapitalized common stock, including additional paid-in capital... 304,092
Retained earnings.................................................. (647,623)
Cumulative translation adjustments................................. (1,600)
---------
Total shareholders' equity..................................... (345,131)
---------
$ 308,780
=========
</TABLE>
F-21
<PAGE>
DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The pro forma balance sheet reflects:
(i) The issuance of 111,590,528 shares of Recapitalized Common Stock in
exchange for MergerCo Common Stock, net of related issuance costs of
$13,800; MergerCo is a nonsubstantive transitory merger vehicle (which was
merged into the Company at the effective time) and its only tangible assets
were $277,000 of cash and 40,804 shares of Common Stock from the issuance
of its common stock.
(ii) The issuance of Senior Credit Facility, the Notes and borrowings
under the Revolving Credit Facility.
(iii) Deferred issuance costs incurred in connection with the issuance of
Senior Credit Facility, the Notes and the Revolving Credit Facility of
which $2,500 was prepaid by the Company at December 31, 1997.
(iv) The net cash paid in connection with the settlement of certain stock
options in an amount equal to the excess of $49.00 over the exercise price
per share of Common Stock subject to such settled options, and the related
tax benefit.
(v) The assuming of approximately 1,100,000 Company Stock Options by the
Company held by Management Stockholders converted into equivalent options
to purchase shares of Recapitalized Common Stock (the exercise prices of
which preserve the economic value of their current Company Stock Options),
most of which will be fully vested and exercisable. Of the 1,100,000
Company Stock Options, approximately 820,618 Company Stock Options, have
revisions to the original terms, which resulted in a new measurement date
for the Company Stock Options and a non-cash charge of $10.7 million (net
of related tax benefit).
(vi) The conversion of 16,818,945 shares of Common Stock (excluding
shares held by MergerCo and held in treasury assumed to be canceled) into
the right to receive $47.75 per share in cash and the 0.5 shares of
Recapitalized Common Stock per share of Common Stock (totaling 8,409,473
shares of the Recapitalized Common Stock).
Also, see Notes Summary of Significant Accounting Policies, Stock
Compensation and Purchase Plans, and Shareholder Rights Plan for other matters
relating to the Merger.
F-22
<PAGE>
DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEGMENT INFORMATION AND GEOGRAPHIC AREAS
The Corporation operates predominantly in a single industry as a global
communications equipment manufacturer focused on network technology solutions.
Its products address communications test, industrial computing and
communications, and visual communications applications. Dynatech is a multi-
national corporation with continuing operations outside the United States
consisting of distribution and sales offices in Germany, England, France and
the Pacific Rim.
Net income in fiscal 1998, 1997, and 1996 included currency gains (losses)
of approximately $12,600, $99,300, and $(90,300), respectively.
Information by geographic areas for the years ended March 31, 1998, 1997,
and 1996 is summarized below:
<TABLE>
<CAPTION>
OUTSIDE U.S.
(PRINCIPALLY
UNITED STATES EUROPE) COMBINED
------------- ------------ --------
AMOUNTS IN THOUSANDS
<S> <C> <C> <C>
Sales to unaffiliated customers
1998................................. $451,360* $21,588 $472,948
1997................................. 340,603* 21,809 362,412
1996................................. 268,830* 24,212 293,042
Income (loss) before taxes from contin-
uing operations
1998................................. $ 69,772 $ 1,035 $ 70,807
1997................................. 38,486 (3,052) 35,434
1996................................. 26,657 (549) 26,108
Identifiable assets at
March 31, 1998....................... $250,382 $37,748 $288,130
March 31, 1997....................... 215,218 33,792 249,010
March 31, 1996....................... 186,186 19,003 205,189
</TABLE>
--------
*Includes export sales of $54,552, $48,959, and $35,844 in 1998, 1997 and
1996, respectively.
F-23
<PAGE>
DYNATECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SUMMARY OF OPERATIONS BY QUARTER
(UNAUDITED)
<TABLE>
<CAPTION>
1998
---------------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
-------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Sales................... $104,320 $115,856 $133,138 $119,634 $472,948
Gross profit............ 61,683 65,044 74,873 65,826 267,426
Net income (loss)....... 8,982 10,512 12,735 9,549 41,776
Income (loss) per common
share
Basic................. $ 0.54 $ 0.63 $ 0.76 $ 0.57 $ 2.49
Diluted............... 0.52 0.60 0.73 0.55 2.40
Market Share Price(a)--
High................... $ 41.88 $ 41.94 $ 47.31 $ 48.50
--Low.......... 29.00 34.38 34.00 46.19
<CAPTION>
1997
---------------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
-------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Sales................... $ 81,122 $ 85,725 $ 92,007 $103,558 $362,412
Gross profit............ 50,874 54,463 58,485 61,336 225,158
Income (loss) from
Continuing operations.. 8,412 9,277 (2,896)(b) 3,056(c) 17,849
Net income (loss)....... 8,412 9,277 (2,896) 15,056(d) 29,849
Income (loss) per share
continuing operations:
Basic................. $ 0.48 $ 0.54 $ (0.16) $ 0.18 $ 1.04
Diluted............... 0.46 0.52 (0.16) 0.17 0.99
Net income (loss) per
share:
Basic................. $ 0.48 $ 0.54 $ (0.16) $ 0.88 $ 1.74
Diluted............... 0.46 0.52 (0.16) 0.84 1.66
Market Share Price(a)--
High................... $ 35.00 $ 46.88 $ 58.00 $ 54.50
--Low.......... 23.00 30.75 40.50 28.00
</TABLE>
--------
(a) From January 28, 1997 to May 21, 1998, shares of Common Stock of the
Company were traded on the New York Stock Exchange. Prior to January
28, 1997, shares of Common Stock of the Company were traded on the
Nasdaq--National Market. No cash dividends were paid on shares of
Common Stock of the Company.
(b) Includes charge for purchased incomplete technology of $20.6 million or
($0.74) per share on a diluted basis in 1997.
(c) Includes a charge of $7.1 million or ($0.36) per share on a diluted
basis relating to the writeoff of certain intangible assets.
(d) Includes gain on discontinued operations of $12.0 million or $0.67 per
share on a diluted basis.
F-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Dynatech Corporation:
Our report on the consolidated financial statements of Dynatech Corporation
as of March 31, 1998 and 1997, and for each of the three fiscal years in the
period ended March 31, 1998 has been included in this registration statement.
In connection with our audits of such financial statements, we have also
audited the related financial statement schedule included on page F-26 of this
registration statement.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 28, 1998
F-25
<PAGE>
SCHEDULE II
DYNATECH CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<S> <C>
RESERVE FOR DOUBTFUL ACCOUNTS (IN THOUSANDS)
Balance, March 31, 1995.............................................. 5,077 (a)
Additions charged to income........................................ 356
Write-off of uncollectible accounts, net........................... (494)
Allowances reclassified, related to discontinued operations........ (3,982)
------
Balance, March 31, 1996.............................................. 957
Additions charged to income........................................ 646
Write-off of uncollectible accounts, net........................... (359)
Allowances reclassified............................................ 628
------
Balance, March 31, 1997.............................................. 1,872
Additions charged to income........................................ 425
Write-off of uncollectible accounts, net........................... (533)
------
Balance, March 31, 1998.............................................. 1,764
======
</TABLE>
- --------
(a)Prior year balances have not been restated to reflect elimination of
discontinued operations.
F-26
<PAGE>
DYNATECH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------
1998 1997
<S> <C> <C>
--------- ---------
Sales..................................................... $ 109,143 $ 104,320
Cost of sales............................................. 46,154 42,637
--------- ---------
Gross profit.............................................. 62,989 61,683
Selling, general & administrative expense................. 35,189 31,759
Product development expense............................... 13,501 13,695
Recapitalization related costs............................ 43,386 --
Amortization of intangibles............................... 1,440 1,443
--------- ---------
Operating income (loss)............................... (30,527) 14,786
Interest expense.......................................... (6,082) (352)
Interest income........................................... 788 492
Gain on sale of subsidiary................................ 15,900 --
Other income.............................................. 32 170
--------- ---------
Income (loss) before income taxes......................... (19,889) 15,096
Income tax provision (benefit)............................ (7,956) 6,114
--------- ---------
Net income (loss)......................................... $ (11,933) $ 8,982
========= =========
Income (loss) per common share:
Basic................................................... $ (0.19) $ 0.54
Diluted................................................. $ (0.19) $ 0.52
Weighted average number of common shares:
Basic................................................... 63,464 16,770
Diluted................................................. 63,464 17,343
</TABLE>
See notes to condensed consolidated financial statements.
F-27
<PAGE>
DYNATECH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1998 1998
----------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 51,925 $ 64,904
Accounts receivable, net............................... 58,789 69,988
Inventories:
Raw materials........................................ 26,184 24,263
Work in process...................................... 11,421 11,769
Finished goods....................................... 13,518 12,850
--------- --------
Total inventory.................................... 51,123 48,882
Other current assets................................... 14,988 16,823
--------- --------
Total current assets............................... 176,825 200,597
Property and equipment, net.............................. 25,424 26,365
Intangible assets, net................................... 56,551 39,595
Other assets............................................. 56,282 21,573
--------- --------
$ 315,082 $288,130
========= ========
LIABILITIES & EQUITY (DEFICIT)
Current Liabilities:
Current portion of long-term debt...................... $ 9,471 $ 150
Accounts payable....................................... 17,012 22,933
Accrued expenses:
Compensation and benefits............................ 14,842 21,750
Deferred revenue..................................... 13,232 13,868
Other accrued expenses............................... 27,602 24,105
--------- --------
Total current liabilities.......................... 82,159 82,806
Long-term debt........................................... 565,285 83
Deferred compensation.................................... 4,884 3,122
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock............................................. -- 3,721
Additional paid-in capital............................... 312,788 7,647
Retained earnings........................................ (648,319) 237,282
Accumulated other comprehensive loss..................... (1,715) (1,600)
Treasury stock........................................... -- (44,931)
--------- --------
Total shareholders' equity (deficit)............... (337,246) 202,119
--------- --------
$ 315,082 $288,130
========= ========
</TABLE>
See notes to condensed consolidated financial statements.
F-28
<PAGE>
DYNATECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-------------------
1998 1997
--------- --------
<S> <C> <C>
Operating activities:
Net income (loss)....................................... $ (11,933) $ 8,982
Adjustments for noncash items included in net income:
Depreciation.......................................... 3,173 2,840
Amortization of intangibles........................... 1,440 1,443
Gain on sale of subsidiary............................ (15,900) --
Recapitalization related costs........................ 14,640 --
Other................................................. 1 48
Change in deferred income tax asset..................... (5,500) --
Change in operating assets and liabilities.............. 4,320 (13,133)
--------- --------
Net cash flows provided by (used in) continuing opera-
tions.................................................. (9,759) 180
Net cash flows provided by (used in) discontinued opera-
tions.................................................. 403 (9,963)
--------- --------
Net cash flows used in operating activities............... (9,356) (9,783)
Investing activities:
Purchases of property and equipment..................... (2,416) (4,022)
Proceeds from disposals of property and equipment....... 127 18
Proceeds from sale of business.......................... 20,000 --
Business acquired in purchase transaction, net of cash
acquired............................................... (19,615) --
Other................................................... (4,149) 76
--------- --------
Net cash flows used in continuing operations............ (6,053) (3,928)
Net cash flows provided by discontinued operations...... -- 507
--------- --------
Net cash flows used in investing activities............... (6,053) (3,421)
Financing activities:
Net borrowings of debt.................................. 573,000 20,000
Repayment of notes payable.............................. (905) --
Repayment of capital lease obligations.................. (32) --
Financing fees.......................................... (41,324) --
Proceeds from issuance of stock......................... 278,568 1,054
Purchases of treasury stock and stock outstanding....... (806,508) (5,330)
--------- --------
Net cash flows provided by financing activities........... 2,799 15,724
Effect of exchange rate on cash........................... (369) (199)
--------- --------
Increase (decrease) in cash and cash equivalents.......... (12,979) 2,321
Cash and cash equivalents at beginning of year............ 64,904 39,782
--------- --------
Cash and cash equivalents at end of period................ $ 51,925 $ 42,103
========= ========
</TABLE>
See notes to condensed consolidated financial statements.
F-29
<PAGE>
DYNATECH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. MERGER/RECAPITALIZATION
On May 21, 1998 the Company completed its management-led merger with a
company formed at the direction of Clayton, Dubilier & Rice, Inc. ("CDR") (the
"Merger"). The Merger and related transactions were treated as a
recapitalization (the "Recapitalization") for financial reporting purposes.
Accordingly, the historical basis of the Company's assets and liabilities was
not affected by these transactions.
B. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the unaudited condensed consolidated balance
sheet at June 30, 1998, and the unaudited consolidated statements of income
and unaudited consolidated condensed statements of cash flows for the interim
periods ended June 30, 1998 and 1997 include all adjustments (consisting only
of normal recurring adjustments) necessary to present fairly these financial
statements.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The March 31, 1998 balance sheet
data was derived from audited financial statements, but does not include
disclosures required by generally accepted accounting principles. It is
suggested that these condensed statements be read in conjunction with the
Company's audited financial statements appearing elsewhere in this Prospectus.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Significant estimates in these financial statements include
allowances for accounts receivable, net realizable value of inventories, and
tax valuation reserves. Actual results could differ from those estimates.
C. NEW PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement No. 131 ("SFAS
131"), "Disclosures about Segments of an Enterprise and Related Information,"
which establishes standards for the reporting of operating segments in the
financial statements. The Company is required to adopt SFAS 131 in the fourth
quarter of fiscal 1999, and its adoption is not expected to have a material
impact on the Company's historical financial data.
On June 15, 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. SFAS 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether
a derivative is designated as part of a hedge transaction and, if it is, the
type of hedge transaction. The Company anticipates that, due to its limited
use of derivative instruments, the adoption of SFAS 133 will not have a
significant effect on the Company's results of operations or its financial
position.
D. COMPREHENSIVE INCOME
In the quarter ended June 30, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income." SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components. SFAS 130 requires, among other
things, foreign
F-30
<PAGE>
DYNATECH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
currency translation adjustments which, prior to adoption, were reported
separately in stockholders' equity to be included in other comprehensive
income.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
JUNE 30, JUNE 30,
1998 1997
---------- ---------
<S> <C> <C>
Net income (loss)................................... $ (11,933) $ 8,982
Other comprehensive loss............................ (115) (310)
---------- --------
Comprehensive income (loss)......................... $ (12,048) $ 8,672
========== ========
</TABLE>
E. INCOME (LOSS) PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share," which modifies the calculation of earnings per share
("EPS"). The Standard replaces the previous presentation of primary and fully
diluted EPS to basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS
includes the dilution of common stock equivalents, and is computed similarly
to fully diluted EPS pursuant to APB Opinion 15. All prior periods presented
have been restated to reflect this adoption.
<TABLE>
<CAPTION>
1998 1997
----------- ----------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net income (loss)..................................... $ (11,933) $ 8,982
=========== =========
BASIC:
Common stock outstanding, net of treasury stock, be-
ginning of period.................................... 16,871 16,803
Weighted average common stock and treasury stock is-
sued during the period............................... 54,416 42
Weighted average common stock and treasury stock pur-
chased............................................... (7,823) (75)
----------- ---------
Weighted average common stock outstanding, net of
treasury stock, end of period........................ 63,464 16,770
=========== =========
Income (loss) per common share........................ $ (0.19) $ 0.54
=========== =========
DILUTIVE:
Common stock outstanding, net of treasury stock, be-
ginning of period.................................... 16,871 16,803
Weighted average common stock and treasury stock is-
sued during the period............................... 54,416 42
Weighted average common stock equivalents (a)......... -- 573
Weighted average common stock and treasury stock pur-
chased............................................... (7,823) (75)
----------- ---------
Weighted average common stock outstanding, net of
treasury stock, end of period........................ 63,464 17,343
=========== =========
Income (loss) per common share........................ $ (0.19) $ 0.52
=========== =========
</TABLE>
- --------
(a) As of June 30, 1998, the Company had options outstanding to purchase 19.5
million shares of common stock that were excluded from the diluted
earnings per share computation as the effect of their inclusion would have
been antidilutive.
The loss per share and weighted average common shares outstanding for the
three months ended June 30, 1998 is based on the Company's recapitalized
structure. The income per share for the three months ended June 30, 1997 is
based on the Company's capital structure at that time (prior to the Merger).
F-31
<PAGE>
DYNATECH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
F. DEBT
Long-term debt is summarized below:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1998 1998
-------- ---------
<S> <C> <C>
Notes payable........................................... $ 1,355 $ --
Senior Secured Credit Facilities........................ 298,000 --
Senior subordinated notes............................... 275,000 --
Capitalized leases...................................... 401 233
-------- ----
Total debt.............................................. $574,756 $233
Less current portion.................................... 9,471 150
-------- ----
Long-term debt.......................................... $565,285 $ 83
======== ====
</TABLE>
In connection with the Merger, the Company entered into a senior secured
credit agreement (the "Senior Secured Credit Agreement") consisting of its
$260 million Term Loan Facility and its $110 million Revolving Credit
Facility. In addition, the Company incurred $275 million of debt through the
sale of the Existing Notes (the "Senior Subordinated Notes"). Principal and
interest payments under the new Senior Secured Credit Agreement and interest
payments on the Senior Subordinated Notes represent significant liquidity
requirements for the Company. With respect to the $260 million borrowed under
the Term Loan Facility, which is divided into four tranches, the Company will
be required to make scheduled principal payments of $50 million of tranche A
term loan thereunder of its six year term, with substantial amortization of
the $70 million of tranche B term loan, $70 million of tranche C term loan and
$70 million tranche D term loan thereunder occurring after six, seven and
eight years, respectively. The $275 million of Senior Subordinated Notes will
mature in 2008, and bear interest at 9 3/4%. Total interest expense is
expected to be approximately $51 million in fiscal 1999. The Senior Secured
Credit Facility is also subject to mandatory prepayment and reduction in an
amount equal to, subject to certain exceptions, (a) 100% of the net proceeds
of (i) certain debt offerings by the Company and any of its subsidiaries, (ii)
certain asset sales by the Company or any of its subsidiaries, and (iii)
casualty insurance, condemnation awards or other recoveries received by the
Company or any of its subsidiaries, and (b) 50% of the Company's excess cash
flow (as defined) for each fiscal year in which the Company exceeds a certain
leverage ratio. The Senior Subordinated Notes are subject to certain mandatory
prepayments under certain circumstances. The Revolving Credit Facility matures
in 2004, with all amounts then outstanding becoming due. The Company expects
that its working capital needs will require it to obtain new revolving credit
facilities at the time that the Revolving Credit Facility matures, whether by
extending, renewing, replacing or otherwise refinancing the Revolving Credit
Facility. No assurance can be given that any such extension, renewal,
replacement or refinancing can be successfully accomplished. The loans under
the Senior Secured Credit Agreement bear interest at floating rates based upon
the interest rate option elected by the Company. The weighted-average interest
rate on the Senior Credit Facility loans was 9.2% for the period commencing
May 21, 1998 and ending June 30, 1998 and is expected to be 9.01% for the
period commencing July 1, 1998 and ending September 30, 1998. However, the
Company has entered into interest rate swaps which will be effective for three
years beginning September 30, 1998 to fix the interest rate charged on a
portion of the total debt outstanding under the Term Loan Facility. After
giving effect to these arrangements, approximately $195 million of the debt
outstanding will be subject to an effective average annual fixed interest rate
of 5.84% plus applicable margin's specified in the Senior Credit Facility. As
a result of the substantial indebtedness incurred in connection with the
Merger, it is expected that the Company's interest expense will be higher and
will have a greater proportionate impact on net income in comparison to
preceding periods.
Future financing Sources and Cash Flows. The amount under the Revolving
Credit Facility that remained undrawn at June 30, 1998 was $70 million. The
undrawn portion of this facility will be available to meet future working
capital and other business needs of the Company. At July 31, 1998, the undrawn
portion of this facility
F-32
<PAGE>
DYNATECH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
was $87 million. The Company believes that cash generated from operations,
together with amounts available under the Revolving Credit Facility and any
other available sources of liquidity, will be adequate to permit the Company
to meet its debt service obligations, capital expenditure program
requirements, ongoing operating costs and working capital needs, although no
assurance can be given in this regard. The Company's future operating
performance and ability to service or refinance the Senior Subordinated Notes
and to repay, extend or refinance the Senior Secured Credit Facilities
(including the Revolving Credit Facility) will be, among other things, subject
to future economic conditions and to financial, business and other factors,
many of which are beyond the Company's control.
Covenant Restrictions. The Senior Secured Credit Agreement imposes
restrictions on the ability of the Company to make capital expenditures and
both the Senior Secured Credit Facility and the indenture governing the Senior
Subordinated Notes limit the Company's ability to incur additional
indebtedness. Such restrictions, together with the highly leveraged nature of
the Company, could limit the Company's ability to respond to market
conditions, to meet its capital-spending program, to provide for unanticipated
capital investments, or to take advantage of business opportunities. The
covenants contained in the Senior Secured Credit Agreement also, among other
things, restrict the ability of the Company and its subsidiaries to dispose of
assets, incur guarantee obligations, prepay other indebtedness, make
restricted payments, create liens, make equity or debt investments, make
acquisitions, modify terms of the indenture governing the Senior Subordinated
Notes, engage in mergers or consolidations, change the business conducted by
the Company and its subsidiaries taken as a whole or engage in certain
transactions with affiliates. In addition, under the Senior Secured Credit
Agreement, the Company is required to comply with a minimum interest expense
coverage ratio and a maximum leverage ratio. These financial tests become more
restrictive in future years. The term loans under the Senior Secured Credit
Facility (other than the $50 million tranche A term loan) have negative
covenants which are substantially similar to the negative covenants contained
in the indenture governing the Senior Subordinated Notes, which also impose
restrictions on the operation of the Company's business.
G. OTHER ASSETS
In connection with the Merger, the Company incurred financing fees which
will be amortized over the life of the Senior Secured Credit Facilities and
Senior Subordinated Notes. In addition, a deferred tax asset of $5.5 million
was generated as a result of modifications to stock options in the
recapitalization.
The detail of Other Assets is as follows:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1998 1998
-------- ---------
<S> <C> <C>
Deferred financing fees................................. $27,307 $ --
Deferred tax asset...................................... 22,552 17,084
Other assets............................................ 6,423 4,489
------- -------
Total Other Assets...................................... $56,282 $21,573
======= =======
</TABLE>
F-33
<PAGE>
DYNATECH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
H. STOCKHOLDERS' (DEFICIT) EQUITY
The following is a summary of changes in shareholders' equity (deficit) for
the period ended June 30, 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------- ADDITIONAL CUMULATIVE TOTAL
COMMON TREASURY COMMON PAID-IN RETAINED TRANSLATION TREASURY SHAREHOLDERS'
STOCK STOCK STOCK CAPITAL EARNINGS ADJUSTMENTS STOCK EQUITY
------- -------- ------ ---------- --------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at 3/31/98...... 18,605 (1,741) $3,721 $ 7,647 $ 237,282 $(1,600) $(44,931) $ 202,119
Net loss................ (11,933) (11,933)
Translation adjust-
ments.................. (115) (115)
Exercise of stock op-
tions and other issu-
ances.................. 59 (378) 1,946 1,568
Recapitalizations:
Common stock
repurchased............ (18,605) 1,682 (3,721) (7,269) (873,668) 42,985 (841,673)
Issuance of new stock,
net of fees............ 120,251 298,148 298,148
Stock options........... 14,640 14,640
------- ------ ------ -------- --------- ------- -------- ---------
Balance at 6/30/98...... 120,251 0 $ 0 $312,788 $(648,319) $(1,715) $ 0 $(337,246)
======= ====== ====== ======== ========= ======= ======== =========
</TABLE>
I. RELATED PARTY
During the quarter ended June 30, 1998, the Company paid a one-time
transaction fee of $9.2 million and will pay an annual management fee of $500
thousand to CDR. In exchange for the transaction fee, CDR provided services to
arrange the Recapitalization/Merger and the financing for the Merger. In
return for the annual management fee, CDR will provide management and
financial consulting services to the Company and its subsidiaries.
J. LITIGATION
The Company is a party to several pending legal proceedings and claims.
Although the outcome of such proceedings and claims cannot be determined with
certainty, the Company's counsel and management are of the opinion that the
final outcome should not have a material adverse effect on the Company's
operations or financial position.
On June 27, 1996, Cincinnati Microwave, Inc. ("CMI") filed an action in the
United States District Court for the Southern District of Ohio against the
Company and Whistler Corporation of Massachusetts ("Whistler"), alleging
willful infringement of CMI's patent for a mute function in radar detectors.
In 1994, the Company sold its radar detector business to Whistler. The Company
and Whistler have asserted in response that they have not infringed, and that
the patent is invalid and unenforceable. The Company obtained an opinion of
counsel from Bromberg & Sunstein LLP in connection with the manufacture and
sale of the Company's Whistler series radar detectors and will be offering the
opinion, among other things, as evidence that any alleged infringement was not
willful. On March 24, 1998, CMI, together with its co-plaintiff and patent
assignee Escort, Inc., moved for summary judgment. The Company and Whistler
have opposed the motion for summary judgment. The Company intends to defend
the lawsuit vigorously and does not believe that the outcome of the litigation
is likely to have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
F-34
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE
ACCOMPANYING LETTER OF TRANSMITTAL IN CONNECTION WITH THE OFFER MADE BY THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF
TRANSMITTAL, OR BOTH TOGETHER, CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE NEW NOTES TO WHICH IT RELATES
OR AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY THE NEW NOTES, IN
ANY CIRCUMSTANCES IN WHICH SUCH OFFER IS UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER,
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information....................................................... ii
Summary..................................................................... 1
Risk Factors................................................................ 15
Use of Proceeds............................................................. 25
Capitalization.............................................................. 25
Unaudited Pro Forma Condensed Consolidated Financial Data................... 26
Selected Historical and Pro Forma Consolidated Financial Data............... 30
Management's Discussion and Analysis........................................ 32
The Exchange Offer.......................................................... 47
Business.................................................................... 55
Management.................................................................. 67
Executive Compensation...................................................... 69
Ownership of Capital Stock.................................................. 73
The Recapitalization........................................................ 74
Certain Relationships and Related Transactions.............................. 75
Description of Senior Credit Facility....................................... 76
Description of Notes........................................................ 78
Book-entry; Delivery and Form............................................... 120
United States Federal Tax Considerations.................................... 122
Plan of Distribution........................................................ 127
Registration Rights......................................................... 127
Legal Matters............................................................... 130
Experts..................................................................... 130
Dynatech Corporation
Index to Consolidated Financial Statements................................ F-1
</TABLE>
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS
TECHNIQUES CO., LLC
(TO BE RENAMED DYNATECH LLC)
PAYMENT OF PRINCIPAL AND INTEREST GUARANTEED BY
DYNATECH CORPORATION
OFFER TO EXCHANGE
$275,000,000
9 3/4% SENIOR SUBORDINATED
NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, FOR ANY AND ALL
$275,000,000 9 3/4% SENIOR SUBORDINATED NOTES DUE 2008
---------------
PROSPECTUS
---------------
SEPTEMBER , 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Capitalized terms used but not defined in Part II have the meanings ascribed
to them in the Prospectus contained in this Registration Statement.
ITEM 20. INDEMNIFICATION OF MEMBERS, DIRECTORS AND OFFICERS
TELECOMMUNICATIONS TECHNIQUES CO., LLC
Telecommunications Techniques Co., LLC ("TTC") is a limited liability
company organized under the laws of the State of Delaware. Section 18-108 of
the Delaware Limited Liability Company Act provides that, subject to such
standards and restrictions , if any, as are set forth in its limited liability
company agreement, a limited liability company may, and shall have the power
to, indemnify and hold harmless any member or manager or other person from and
against any and all claims and demands whatsoever.
Article 18 of TTC's Limited Liability Agreement (the "LLC Agreement")
provides that the Member or any of its respective affiliates, directors,
advisory directors, members, officers or employees (each a "Covered Person")
shall be entitled to indemnification from TTC for any costs and expenses
(including attorneys' fees and disbursements), loss, liability, damage or
claim incurred by such person by reason of any act or omission performed or
omitted by such person in good faith on behalf of TTC. The LLC Agreement
further provides that, to the fullest extent permitted by applicable law,
expenses (including attorneys' fees and disbursements) incurred by a Covered
Person in defending any claim, demand, action, suit or proceeding shall, from
time to time, be advanced by TTC prior to the final disposition of such claim,
demand, action, suit or proceeding, subject to recapture by TTC following a
later determination that such Covered Person was not entitled to be
indemnified thereunder.
DYNATECH CORPORATION
Dynatech Corporation is a company organized under the laws of the
Commonwealth of Massachusetts. Section 67 of the Massachusetts Business
Corporation Law (the "MBCL") provides that a corporation may indemnify its
directors, officers, employees or other agents to the extent specified in the
articles of organization, by-laws, or by a majority vote of the Stockholders.
Except as the articles of organization or bylaws otherwise require and except
as relating to the directors themselves, the corporation may provide
indemnification to the extent authorized by the directors. Such
indemnification may include payment by the corporation of expenses incurred in
defending a civil or criminal action or proceeding in advance of the final
disposition of such action or proceeding, upon receipt of an undertaking by
the person indemnified to repay such payment if he shall be adjudicated to be
not entitled to indemnification. The MBCL bars indemnification for any person
with respect to any matter as to which he or she has been adjudicated in any
proceeding not to have acted in good faith and in the reasonable belief that
his or her action was in the best interest of the corporation. Section 67
grants to corporations the power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or other agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or other agent of another organization against
any liability incurred by him or her in any such capacity, or arising out of
his or her status as such, whether or not the corporation would have the power
to indemnify him or her against such liability.
Article 6(b) of Dynatech's Restated Articles of Organization provides
indemnification for Dynatech's directors and officers against all expenses
incurred by them in connection with any proceeding resulting from their
service in such capacities, except that no indemnification shall be provided
regarding any matter in which a director or officer has been adjudicated not
to have acted in good faith and in the reasonable belief that his or her
II-1
<PAGE>
action was in the best interests of Dynatech. The Restated Articles of
Organization direct Dynatech to pay the expenses of a director or officer in
advance of a final determination of a proceeding, unless it is determined by
(i) a majority vote of a quorum consisting of the directors who were not
parties to such proceedings or (ii) by legal counsel in a written opinion,
that the director or officer in question did not act in good faith and in the
reasonable belief that his or her action was in the best interests of
Dynatech.
Article 6(e) of Dynatech's Restated Articles of Organization eliminates the
personal liability of the directors to Dynatech or its Stockholders for
monetary damages for breach of fiduciary duty as directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 Certificate of Formation of Telecommunications Techniques Co.,
LLC, filed with the Secretary of State of Delaware on May 14,
1998.+
3.2 Limited Liability Company Agreement of Telecommunications
Techniques Co., LLC, dated as of May 14, 1998.+
3.3 Amended and Restated Articles of Organization of Dynatech
Corporation.*
3.4 By-Laws of Dynatech Corporation.*
4.1 Indenture, dated May 21, 1998, among Dynatech Corporation, TTC
Merger Co. LLC and State Street Bank and Trust Company, as
Trustee.+
4.2 Form of 9 3/4% Senior Subordinated Note Due 2008.+
4.3 First Supplemental Indenture, dated May 21, 1998, between
Telecommunications Techniques Co., LLC and State Street Bank and
Trust Company, as Trustee.+
4.4 Registration Rights Agreement, dated May 21, 1998, by and among
Dynatech Corporation, Telecommunications Techniques Co., LLC,
Credit Suisse First Boston Corporation and J.P. Morgan Securities
Inc.+
5.1 Opinion of Debevoise & Plimpton regarding the legality of the New
Notes being registered.
5.2 Opinion of Mark V.B. Tremallo, General Counsel of Dynatech
Corporation.
10.1 Agreement and Plan of Merger, dated as of December 20, 1997 by and
between CDRD Merger Corporation and Dynatech Corporation.**
10.2 Agreement and Plan of Merger, dated May 18, 1998, between TTC
Reorg Corp. and Telecommunications Techniques Co., LLC.+
10.3 Agreement and Plan of Merger, dated May 21, 1998, between TTC
Merger Co. LLC and Telecommunications Techniques Co., LLC.+
10.4 Credit Agreement, dated May 21, 1998, among Dynatech Corporation,
TTC Merger Co. LLC, the lenders named therein, Morgan Guaranty and
Trust Company of New York, as administrative agent, Credit Suisse
First Boston, as syndication agent, and The Chase Manhattan Bank,
as documentation agent.+
10.5 Guarantee and Collateral Agreement, dated as of May 21, 1998,
among Dynatech Corporation, Telecommunications Techniques Co., LLC
and certain of its subsidiaries and Morgan Guaranty and Trust
Company of New York.+
10.6 Form of Amended and Restated Employment Agreement with John F.
Reno.*
10.7 Form of Amended and Restated Employment Agreement with Allan M.
Kline.*
10.8 Form of Amended and Restated Employment Agreement with John R.
Peeler.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.9 Form of Letter Agreement with John A. Mixon and Certain Other
Officers.*
10.10 Form of Management Equity Agreement with Mr. Reno.*
10.11 Form of Management Equity Agreement with Messrs. Kline and
Peeler.*
10.12 Form of Management Equity Agreement with Mr. Mixon and Certain
Other Officers.*
10.13 Form of Nondisclosure, Noncompetition and Nonsolicitation
Agreement.*
10.14 Indemnification Agreement, dated May 21, 1998, among Dynatech
Corporation, Telecommunications Techniques Co., LLC, Clayton,
Dubilier & Rice, Inc. and Clayton, Dubilier & Rice Fund V Limited
Partnership.+
10.15 Consulting Agreement, dated May 21, 1998, by and among Dynatech
Corporation, Telecommunications Techniques Co., LLC and Clayton,
Dubilier & Rice, Inc.+
10.16 Tax Sharing Agreement, dated May 21, 1998 between Dynatech
Corporation and Telecommunications Techniques Co., LLC.+
10.17 Registration Rights Agreement, dated May 21, 1998, by and among
Dynatech Corporation, Clayton, Dubilier and Rice Fund V Limited
Partnership, Mr. Reno, the Suzanne D. Reno Trust and the John F.
Reno Trust.+
10.18 Assignment and Assumption Agreement, dated May 21, 1998, between
Dynatech Corporation and Telecommunications Techniques Co., LLC.+
10.19 Purchase Agreement, dated May 14, 1998, among Dynatech
Corporation, TTC Merger Co. LLC, Credit Suisse First Boston
Corporation and J.P. Morgan Securities Inc.+
10.20 Purchase Agreement Supplement, dated May 21, 1998, between
Dynatech Corporation, Telecommunications Techniques Co., LLC.,
Credit Suisse First Boston Corporation and J.P. Morgan Securities
Inc.+
10.21 Amendment No. 1, dated as of December 20, 1997, to the Shareholder
Rights Agreement, dated as of February 16, 1989, as amended and
restated as of March 12, 1990, between Dynatech Corporation and
BankBoston, N.A., as Rights Agent.+
10.22 Assumption Agreement, dated May 21, 1998, among Dynatech
Corporation, TTC Merger Co. LLC, and Telecommunications Techniques
Co., LLC and consented to by Morgan Guaranty Trust Company of New
York, as administrative agent.+
10.23 Dynatech Corporation 1992 Stock Option Plan.
10.24 Dynatech Corporation 1994 Stock Option Plan.***
12 Statement re computations of ratios.
21 Schedule of Subsidiaries of Telecommunications Techniques Co.,
LLC.+
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Debevoise & Plimpton (included in Exhibit 5.1).
23.3 Consent of Mark V.B. Tremallo (included in Exhibit 5.2).
24.1 Power of Attorney from John F. Reno.+
24.2 Power of Attorney from Allan M. Kline.+
24.3 Power of Attorney from John R. Peeler.+
24.4 Power of Attorney from Joseph L. Rice, III.+
24.5 Power of Attorney from Brian D. Finn.+
24.6 Power of Attorney from Charles P. Pieper.+
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
25 Statement of Eligibility of State Street Bank and Trust Company.+
27.1 Financial Data Schedule for Fiscal Year Ended March 31, 1998.*
27.2 Financial Data Schedule for Quarter Ended December 31, 1997 Restated.*
27.3 Financial Data Schedule for Quarter Ended September 30, 1997 Restated.*
27.4 Financial Data Schedule for Quarter Ended June 30, 1997 Restated.*
27.5 Financial Data Schedule for Fiscal Year Ended March 31, 1997 Restated.*
27.6 Financial Data Schedule for Quarter Ended December 31, 1996 Restated.*
27.7 Financial Data Schedule for Quarter Ended September 30, 1996 Restated.*
27.8 Financial Data Schedule for Quarter Ended June 30, 1996 Restated.*
27.9 Financial Data Schedule for Fiscal Year Ended March 31, 1996 Restated.*
27.10 Financial Data Schedule for Quarter Ended December 31, 1995 Restated.*
27.11 Financial Data Schedule for Quarter Ended September 30, 1995 Restated.*
27.12 Financial Data Schedule for Quarter Ended June 30, 1995 Restated.*
99.1 Form of Letter of Transmittal for Tender of 9 3/4% Senior Subordinated Notes Due 2008 in exchange
for registered 9 3/4% Senior Subordinated Notes Due 2008.
99.2 Form of Notice of Guaranteed Delivery for Tender of 9 3/4% Senior Subordinated Notes Due 2008 in
exchange for registered 9 3/4% Senior Subordinated Notes Due 2008.
99.3 Instruction to Registered Holder and/or Book Entry Transfer Participant from Beneficial Owner for
Tender of 9 3/4% Senior Subordinated Notes Due 2008 in exchange for registered 9 3/4% Senior
Subordinated Notes Due 2008.
</TABLE>
- --------
* Incorporated by reference to Dynatech Annual Report on Form 10-K for the
fiscal year ended March 31, 1998 (File No. 333-1-12657).
** Incorporated by reference to Dynatech's Registration Statement on Form S-4
(File No. 333-44933).
*** Incorporated by reference to Appendix B of Dynatech's Proxy Statement on
Schedule 14A filed as of September 16, 1998 (File No. 001-12657).
+ Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES:
Schedule II. Valuation and Qualifying Accounts. See page F-26.
Schedules other than those listed above have been omitted because they are
either not required or not applicable or because the required information has
been included elsewhere in the financial statements or notes thereto.
ITEM 22. UNDERTAKINGS
The undersigned registrants hereby undertake:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers
and controlling persons of the registrants pursuant to the provisions
described under item 20 or otherwise, the registrants have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrants of expenses incurred or paid by a director, officer or
controlling person of the registrants in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrants will, unless in the opinion of their counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by them is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF BURLINGTON, COMMONWEALTH OF MASSACHUSETTS, ON OCTOBER 5, 1998.
Telecommunications Techniques Co.,
LLC
By: Dynatech Corporation, as sole
member
By: /s/ John F. Reno
-----------------------------
Name: John F. Reno
Title: Chairman, President & CEO
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
NAME TITLE DATE
/s/ John F. Reno Director of Dynatech
_________________________________ Corporation, sole member October 5, 1998
JOHN F. RENO of the Registrant
/s/ Allan M. Kline Director of Dynatech
_________________________________ Corporation, sole member October 5, 1998
ALLAN M. KLINE of the Registrant
Director of Dynatech
* Corporation, sole member October 5, 1998
_________________________________ of the Registrant
JOHN R. PEELER
Director of Dynatech
* Corporation, sole member October 5, 1998
_________________________________ of the Registrant
JOSEPH L. RICE, III
Director of Dynatech
* Corporation, sole member October 5, 1998
_________________________________ of the Registrant
BRIAN D. FINN
Director of Dynatech
* Corporation, sole member October 5, 1998
_________________________________ of the Registrant
CHARLES P. PIEPER
*By: /s/ Allan M. Kline
---------------------
ALLAN M. KLINE
ATTORNEY-IN-FACT
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF BURLINGTON, COMMONWEALTH OF MASSACHUSETTS, ON OCTOBER 5, 1998.
Dynatech Corporation
By: /s/ John F. Reno
----------------------------
Name: John F. Reno
Title: Chairman, President & CEO
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
NAME TITLE DATE
/s/ John F. Reno Chairman, President and
_________________________________ Chief Executive Officer October 5, 1998
JOHN F. RENO (Principal Executive
Officer), Director
/s/ Allan M. Kline Corporate Vice President,
_________________________________ Chief Financial Officer October 5, 1998
ALLAN M. KLINE and Treasurer (Principal
Financial Officer),
Director
/s/ Robert W. Woodbury, Jr. Corporate Vice President,
_________________________________ Controller (Principal October 5, 1998
ROBERT W. WOODBURY, JR. Accounting Officer)
Director
* October 5, 1998
_________________________________
JOHN R. PEELER
Director
* October 5, 1998
_________________________________
JOSEPH L. RICE, III
Director
* October 5, 1998
_________________________________
BRIAN D. FINN
Director
* October 5, 1998
_________________________________
CHARLES P. PIEPER
*By: /s/ Allan M. Kline
-----------------------------
ALLAN M. KLINE
ATTORNEY-IN-FACT
II-6
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 Certificate of Formation of Telecommunications Techniques Co., LLC,
filed with the Secretary of State of Delaware on May 14, 1998.+
3.2 Limited Liability Company Agreement of Telecommunications Techniques
Co., LLC, dated as of May 14, 1998.+
3.3 Amended and Restated Articles of Organization of Dynatech
Corporation.*
3.4 By-Laws of Dynatech Corporation.*
4.1 Indenture, dated May 21, 1998, among Dynatech Corporation, TTC
Merger Co. LLC and State Street Bank and Trust Company, as Trustee.+
4.2 Form of 9 3/4% Senior Subordinated Note Due 2008.+
4.3 First Supplemental Indenture, dated May 21, 1998, between
Telecommunications Techniques Co., LLC and State Street Bank and
Trust Company, as Trustee.+
4.4 Registration Rights Agreement, dated May 21, 1998, by and among
Dynatech Corporation, Telecommunications Techniques Co., LLC, Credit
Suisse First Boston Corporation and J.P. Morgan Securities Inc.+
5.1 Opinion of Debevoise & Plimpton regarding the legality of the New
Notes being registered.
5.2 Opinion of Mark V.B. Tremallo, General Counsel of Dynatech
Corporation.
10.1 Agreement and Plan of Merger, dated as of December 20, 1997 by and
between CDRD Merger Corporation and Dynatech Corporation.**
10.2 Agreement and Plan of Merger, dated May 18, 1998, between TTC Reorg
Corp. and Telecommunications Techniques Co., LLC.+
10.3 Agreement and Plan of Merger, dated May 21, 1998, between TTC Merger
Co. LLC and Telecommunications Techniques Co., LLC.+
10.4 Credit Agreement, dated May 21, 1998, among Dynatech Corporation,
TTC Merger Co. LLC, the lenders named therein, Morgan Guaranty and
Trust Company of New York, as administrative agent, Credit Suisse
First Boston, as syndication agent, and The Chase Manhattan Bank, as
documentation agent.+
10.5 Guarantee and Collateral Agreement, dated as of May 21, 1998, among
Dynatech Corporation, Telecommunications Techniques Co., LLC and
certain of its subsidiaries and Morgan Guaranty and Trust Company of
New York.+
10.6 Form of Amended and Restated Employment Agreement with John F.
Reno.*
10.7 Form of Amended and Restated Employment Agreement with Allan M.
Kline.*
10.8 Form of Amended and Restated Employment Agreement with John R.
Peeler.*
10.9 Form of Letter Agreement with John A. Mixon and Certain Other
Officers.*
10.10 Form of Management Equity Agreement with Mr. Reno.*
10.11 Form of Management Equity Agreement with Messrs. Kline and Peeler.*
10.12 Form of Management Equity Agreement with Mr. Mixon and Certain Other
Officers.*
10.13 Form of Nondisclosure, Noncompetition and Nonsolicitation
Agreement.*
10.14 Indemnification Agreement, dated May 21, 1998, among Dynatech
Corporation, Telecommunications Techniques Co., LLC, Clayton,
Dubilier & Rice, Inc. and Clayton, Dubilier & Rice Fund V Limited
Partnership.+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.15 Consulting Agreement, dated May 21, 1998, by and among Dynatech
Corporation, Telecommunications Techniques Co., LLC and Clayton,
Dubilier & Rice, Inc.+
10.16 Tax Sharing Agreement, dated May 21, 1998 between Dynatech
Corporation and Telecommunications Techniques Co., LLC.+
10.17 Registration Rights Agreement, dated May 21, 1998, by and among
Dynatech Corporation, Clayton, Dubilier and Rice Fund V Limited
Partnership, Mr. Reno, the Suzanne D. Reno Trust and the John F.
Reno Trust.+
10.18 Assignment and Assumption Agreement, dated May 21, 1998, between
Dynatech Corporation and Telecommunications Techniques Co., LLC.+
10.19 Purchase Agreement, dated May 14, 1998, among Dynatech
Corporation, TTC Merger Co. LLC, Credit Suisse First Boston
Corporation and J.P. Morgan Securities Inc.+
10.20 Purchase Agreement Supplement, dated May 21, 1998, between
Dynatech Corporation, Telecommunications Techniques Co., LLC.,
Credit Suisse First Boston Corporation and J.P. Morgan Securities
Inc.+
10.21 Amendment No. 1, dated as of December 20, 1997, to the Shareholder
Rights Agreement, dated as of February 16, 1989, as amended and
restated as of March 12, 1990, between Dynatech Corporation and
BankBoston, N.A., as Rights Agent.+
10.22 Assumption Agreement, dated May 21, 1998, among Dynatech
Corporation, TTC Merger Co. LLC, and Telecommunications Techniques
Co., LLC and consented to by Morgan Guaranty Trust Company of New
York, as administrative agent.+
10.23 Dynatech Corporation 1992 Stock Option Plan.
10.24 Dynatech Corporation 1994 Stock Option Plan.***
12 Statement re computations of ratios.
21 Schedule of Subsidiaries of Telecommunications Techniques Co.,
LLC.+
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Debevoise & Plimpton (included in Exhibit 5.1).
23.3 Consent of Mark V.B. Tremallo (included in Exhibit 5.2).
24.1 Power of Attorney from John F. Reno.+
24.2 Power of Attorney from Allan M. Kline.+
24.3 Power of Attorney from John R. Peeler.+
24.4 Power of Attorney from Joseph L. Rice, III.+
24.5 Power of Attorney from Brian D. Finn.+
24.6 Power of Attorney from Charles P. Pieper.+
25 Statement of Eligibility of State Street Bank and Trust Company.+
27.1 Financial Data Schedule for Fiscal Year Ended March 31, 1998.*
27.2 Financial Data Schedule for Quarter Ended December 31, 1997
Restated.*
27.3 Financial Data Schedule for Quarter Ended September 30, 1997
Restated.*
27.4 Financial Data Schedule for Quarter Ended June 30, 1997 Restated.*
27.5 Financial Data Schedule for Fiscal Year Ended March 31, 1997
Restated.*
27.6 Financial Data Schedule for Quarter Ended December 31, 1996
Restated.*
27.7 Financial Data Schedule for Quarter Ended September 30, 1996
Restated.*
27.8 Financial Data Schedule for Quarter Ended June 30, 1996 Restated.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
27.9 Financial Data Schedule for Fiscal Year Ended March 31, 1996 Restated.*
27.10 Financial Data Schedule for Quarter Ended December 31, 1995 Restated.*
27.11 Financial Data Schedule for Quarter Ended September 30, 1995 Restated.*
27.12 Financial Data Schedule for Quarter Ended June 30, 1995 Restated.*
99.1 Form of Letter of Transmittal for Tender of 9 3/4% Senior Subordinated Notes Due 2008 in exchange
for registered 9 3/4% Senior Subordinated Notes Due 2008.
99.2 Form of Notice of Guaranteed Delivery for Tender of 9 3/4% Senior Subordinated Notes Due 2008 in
exchange for registered 9 3/4% Senior Subordinated Notes Due 2008.
99.3 Instruction to Registered Holder and/or Book Entry Transfer Participant from Beneficial Owner for
Tender of 9 3/4% Senior Subordinated Notes Due 2008 in exchange for registered 9 3/4% Senior
Subordinated Notes Due 2008.
</TABLE>
- --------
* Incorporated by reference to Dynatech Annual Report on Form 10-K for the
fiscal year ended March 31, 1998 (File No. 333-1-12657).
** Incorporated by reference to Dynatech's Registration Statement on Form S-4
(File No. 333-44933).
*** Incorporated by reference to Appendix B of Dynatech's Proxy Statement on
Schedule 14A filed as of September 16, 1998 (File No. 001-12657).
+ Previously filed.
<PAGE>
DEBEVOISE & PLIMPTON
875 Third Avenue
New York, NY 10022
telephone: (212) 909-6000
facsimile: (212) 909-6836
September 22, 1998
Telecommunications Techniques Co., LLC
20400 Observation Drive
Germantown, MD 20876-4023
Dynatech Corporation
3 New England Executive Park
Burlington, MA 01803-5087
Registration Statement on Form S-4
of Telecommunications Techniques Co., LLC and
Dynatech Corporation
(Registration No. 333-60893)
---------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Telecommunications Techniques Co., LLC,
a Delaware limited liability company ("TTC"), and Dynatech Corporation, a
Massachusetts corporation ("Dynatech"), in connection with the preparation and
filing with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), of a Registration Statement on
Form S-4 (as amended to the date hereof, the "Registration Statement"), which
includes a form of Prospectus (the "Prospectus") relating to the proposed
offering of $275,000,000 aggregate principal amount of TTC's 9-3/4% Senior
Subordinated Notes Due 2008 (the "New Notes"), which are to be registered under
the Act pursuant to the Registration Statement, in exchange for an equal
principal amount of its outstanding 9-3/4% Senior Subordinated Notes Due 2008
(the "Existing Notes"). The New Notes are to be issued pursuant to the
Indenture dated as of May 21, 1998, as supplemented by the First Supplemental
Indenture dated as of May 21, 1998 (as so supplemented, the "Indenture"), among
TTC, Dynatech and State Street Bank and Trust Company (the "Trustee"). The
<PAGE>
obligations of TTC pursuant to the New Notes are to be guaranteed by Dynatech
pursuant to and as set forth in the Indenture (the "Parent Guarantee").
In so acting as special counsel to TTC and Dynatech, we have examined and
relied upon the originals, or copies certified or otherwise identified to our
satisfaction, of such corporate and limited liability company records,
documents, certificates and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinion expressed below. In all such
examinations, we have assumed the legal capacity of all natural persons
executing documents, the genuineness of all signatures on original or certified
copies, the authenticity of all original or certified copies and the conformity
to original or certified documents of all copies submitted to us as conformed or
reproduction copies. We have relied as to factual matters upon, and have
assumed the accuracy of, representations, statements and certificates of or from
public officials and of or from officers and representatives of TTC, Dynatech
and others. With your permission, for purposes of the opinion expressed herein,
we have assumed (i) that the Trustee is and has been duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, (ii) that the Trustee had and has the power and authority to enter
into and perform, and has duly authorized, executed and delivered, the
Indenture, (iii) that the Indenture is valid, binding and enforceable with
respect to the Trustee, and (iv) as being correct the opinions expressed in the
opinion letter of Mark V.B. Tremallo, Esq., Corporate Vice President--General
Counsel of Dynatech, of even date herewith, addressed to each of you and filed
as an exhibit to the Registration Statement.
Based on the foregoing, and subject to the further qualifications set forth
below, we are of the opinion that:
Upon the execution and issuance of the New Notes by TTC and
authentication of the New Notes by the Trustee in accordance with the
Indenture and delivery of the New Notes against exchange therefor of the
Existing Notes pursuant to the exchange offer described in the Registration
Statement, (1) the New Notes will be valid and binding obligations of TTC,
enforceable against TTC in accordance with their terms, and (2) the Parent
Guarantee will constitute a valid and binding obligation of Dynatech,
enforceable against Dynatech in accordance with its terms.
The foregoing opinion is limited by and subject to the effects of (i)
bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer,
reorganization or moratorium laws or other similar laws relating to or affecting
enforcement of creditors' rights or remedies generally and (ii) general
principles of equity (whether such principles are considered in a proceeding at
law or equity), including the discretion of the court before which any
proceeding may be brought, concepts of good faith, reasonableness and fair
dealing, and standards of materiality.
We express no opinion as to the effect of any Federal or state laws
regarding fraudulent transfers or conveyances. We express no opinion as to the
laws of any jurisdiction other than the Federal laws of the United States, the
laws of the State of New York and the Limited Liability Company Act of the State
of Delaware.
2
<PAGE>
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Prospectus. In giving such consent, we do not hereby concede
that we are within the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ DEBEVOISE & PLIMPTON
3
<PAGE>
Exhibit 5.2
DYNATECH CORPORATION
3 New England Executive Park
Burlington, MA 01803-5087
(781) 272-6100
September 22, 1998
Telecommunications Techniques Co., LLC
20400 Observation Drive
Germantown, MD 20876-4023
Dynatech Corporation
3 New England Executive Park
Burlington, MA 01803-5087
Registration Statement on Form S-4
of Telecommunications Techniques Co., LLC and
Dynatech Corporation
(Registration No. 333-60893)
-------------------------------------------------------------
Ladies and Gentlemen:
I am Corporate Vice President--General Counsel of Dynatech
Corporation, a Massachusetts corporation ("Dynatech"), the parent company of
Telecommunications Techniques Co., LLC, a Delaware limited liability company
("TTC"). This opinion is rendered in connection with the preparation and filing
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), of a Registration Statement on
Form S-4 (as amended to the date hereof, the "Registration Statement"), which
includes a form of prospectus (the
<PAGE>
"Prospectus") relating to the proposed offering of $275,000,000 aggregate
principal amount of TTC's 9-3/4% Senior Subordinated Notes Due 2008 (the "New
Notes"), which are to be registered under the Act pursuant to the Registration
Statement, in exchange for an equal principal amount of its outstanding 9-3/4%
Senior Subordinated Notes Due 2008 (the "Existing Notes"). The New Notes are to
be issued pursuant to the Indenture dated as of May 21, 1998, as supplemented by
the First Supplemental Indenture dated as of May 21, 1998 (as so supplemented,
the "Indenture"), among TTC, Dynatech and State Street Bank and Trust Company
(the "Trustee"). The obligations of TTC pursuant to the New Notes are to be
guaranteed by Dynatech pursuant to and as set forth in the Indenture (the
"Parent Guarantee").
In connection with this opinion, I have examined originals or
certified, conformed or reproduction copies of such agreements, instruments,
documents and records of Dynatech and TTC, such certificates of public
officials, and such other documents, and have made such investigations of law,
as I have deemed necessary or appropriate for the purposes of this opinion. In
all such examinations, I have assumed without investigation the legal capacity
of all natural persons executing documents, the genuineness of all signatures on
original or certified copies, the authenticity of all original or certified
copies and the conformity to original or certified documents of all copies
submitted to me as conformed or reproduction copies. I have relied as to
factual matters upon, and have assumed the accuracy of, representations,
statements and certificates of or from public officials and of or from officers
and representatives of TTC, Dynatech and others. I have also assumed that (i)
the Trustee is and has been duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, (ii) the Trustee
has the power and authority to enter into and perform, and has duly authorized,
executed and delivered, the Indenture, and (iii) the Indenture is valid, binding
and enforceable with respect to the Trustee.
My opinion in paragraph 1 below, insofar as it relates to the due
organization, valid existence and good standing of Dynatech as a corporation
organized in the Commonwealth of Massachusetts is based solely on a certificate,
dated as of a recent date, of the Secretary of State of the Commonwealth of
Massachusetts certifying to the legal existence and the good standing of
Dynatech in the Commonwealth of Massachusetts, and is rendered as of the date of
such certificate and is limited accordingly. I express no opinion as to the tax
good standing of Dynatech.
<PAGE>
I have not made any investigation of the laws of any jurisdiction
other than the state laws of the Commonwealth of Massachusetts, the Federal laws
of the United States and the Limited Liability Company Act of the State of
Delaware, and I am opining herein solely with respect to the state laws of the
Commonwealth of Massachusetts, the Federal laws of the United States and the
Limited Liability Company Act of the State of Delaware.
Based upon the foregoing, and subject to the limitations,
qualifications and assumptions set forth herein, I am of the opinion that:
1. Dynatech has been duly organized and is validly existing as a
corporation in good standing under the laws of the Commonwealth of
Massachusetts.
2. Dynatech had and has the corporate power and authority to execute,
deliver and perform its obligations under the Indenture, including but not
limited to its obligations under the Parent Guarantee.
3. Dynatech has taken all necessary corporate action to duly
authorize its execution and delivery of, and performance of its obligations
under, the Indenture, including but not limited to its obligations under the
Parent Guarantee.
4. Dynatech, as the sole member of TTC, has taken all necessary
corporate action (i) to duly authorize the execution, issuance and delivery by
TTC of the New Notes pursuant to the exchange offer described in the
Registration Statement and (ii) to duly authorize the execution, delivery and
performance by TTC of the Indenture and its obligations thereunder.
5. Dynatech has duly executed and delivered the Indenture.
<PAGE>
I consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name under the heading "Legal
Matters" in the Prospectus. In giving such consent, I do not hereby concede
that I am within the category of persons whose consent is required under Section
7 of the Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ MARK V.B. TREMALLO
-----------------------------
Mark V.B. Tremallo
Corporate Vice President--General Counsel
<PAGE>
EXHIBIT 10.23
THE DYNATECH CORPORATION
1992 STOCK OPTION PLAN
The purpose of this Plan is to encourage and enable certain employees of
Dynatech Corporation (the "Company") and of any subsidiary of the Company, (as
defined in Section 424(f) of the Internal Revenue Code of 1986, as amended (the
"Code")), to acquire an interest in the Company through the granting of
options, as herein provided, to acquire its Common Stock, $.20 par value (the
"Common Stock"). The Company intends that this purpose will be effected by the
granting of options designated and qualified as "incentive stock options"
("Incentive Options") as defined in Section 422(b) of the Code, and by the
granting of non-qualified stock options ("Non-qualified Options"), under the
Plan.
1. Shares of Stock Subject to the Plan
The stock that may be issued and sold pursuant to options granted under
the Plan shall not exceed, in the aggregate, 391,073 shares of Common Stock of
the Company, which may be (i) authorized but unissued shares, (ii) treasury
shares, or (iii) shares previously reserved for issue upon exercise of options
under the Plan, which options have expired or have been terminated; provided,
however, that the number of shares subject to the Plan shall be subject to
adjustment as provided in Section 6.
2. Eligibility
Options granted under the Plan may be either Incentive Options or
Non-qualified Options. Options will be granted only to persons who are key
employees of the Company or a subsidiary (as defined in the Code). Incentive
Options will be granted only to persons who are eligible to receive an incentive
stock option under the Code. For the purposes of this Plan, "key employees"
shall be those full-time employees of the Company who are selected by the Board
of Directors because of their responsibility in respect of the affairs of the
Company and its subsidiaries. Directors of the Company or a subsidiary who are
not employees thereof are not eligible to receive options under the Plan. The
Board of Directors of the Company (the "Board") acting by a majority of its
disinterested Directors, shall determine the employees to be granted options
("Optionees"), the number of shares subject to each option, and the terms of the
options, consistent with the provisions of the Plan. The Board may appoint from
its disinterested Directors a committee of three or more persons who may
exercise the powers of the Board in granting options under the Plan. As used
herein, a "disinterested" Director shall mean one who is not, during the one
year prior to service as an administrator of the Plan, or during such service,
granted or awarded equity securities pursuant to the Plan or any other plan of
the Company or its affiliates.
3. Price and Limitation on Grant and Options
The purchase price of shares which may be purchased under each option
shall be at least equal to the fair market value per share of the outstanding
Common Stock of the Company at the time the option is granted as determined by
the Board acting in good faith, and the Board in its discretion may set a higher
price. Notwithstanding the foregoing, if an Incentive Option is granted to an
employee, who at the time of such grant owns or is deemed to own (by reason of
the attribution rules applicable under Section 424(d) of the Code) stock
possessing more than 10% of the combined voting power of all classes of stock of
the Company or of a parent or subsidiary of the Company (such employees are
referred to hereinafter as "Ten Percent Shareholders"), the purchase price of
shares which may be purchased under each such Incentive Option shall be at least
equal to one hundred ten percent (110%) of the fair market value per share of
the outstanding
1
<PAGE>
Common Stock of the Company at the time such Incentive Option is granted as
determined by the Board acting in good faith, and the Board in its discretion
may set a higher price. The aggregate fair market value (determined at the time
the option is granted) of the stock with respect to which Incentive Options are
exercisable for the first time by any individual during any calendar year (under
all plans of the Company and its parent and subsidiary corporations as defined
in Section 424 of the Code) shall not exceed $100,000.
4. Period of Option and Certain Limitations on Right to Exercise
Each option shall be exercisable at such time or times as the Board shall
from time to time determine, but in no event (i) prior to the expiration of six
months from the date such option is granted, or (ii) after the expiration of ten
years from the date such option is granted. In determining when options granted
under the Plan shall be exercisable, the Board may establish such terms,
conditions, or incentives as it, in its sole discretion, deems appropriate. An
Incentive Option granted to a Ten Percent Shareholder shall in no event be
exercisable after the expiration of five years from the date such option is
granted. The delivery of certificates representing shares under any option will
be contingent upon receipt from the Optionee (or, in the event of the Optionee's
death, his personal representative acting in his stead in accordance with the
provisions of the option) by the Company of the full purchase price for such
shares and the fulfillment of any other requirements contained in the option or
applicable provisions of law. Payment for shares of Common Stock shall be made
either in (i) cash, or (ii) if expressly permitted by the terms of the
applicable option agreement, shares of Common Stock of the Company valued at
their fair market value on the date of exercise, as determined in good faith by
the Board.
5. Non-transferability of Option
Each option granted under the Plan shall provide that it is personal to the
Optionee, is not transferable by the Optionee in any manner otherwise than by
will or the laws of descent and distribution and is exercisable, during the
Optionee's lifetime, only by him. However, the rights and obligations of the
Company under the Plan and any option may be assigned by the Company to a
successor to the whole or any substantial part of its business provided that
such successor assumes in writing all of such rights and obligations.
6. Dilution or Other Adjustments
The terms of the options and the number of shares subject to this Plan shall
be equitably adjusted in such manner as to prevent dilution or enlargement of
option rights in the following instances:
(a) the declaration of a dividend payable to the holders of Common Stock
in stock of the same class;
(b) a split-up of the Common Stock or a reverse split thereof; or
(c) a recapitalization of the Company under which shares of one or more
different classes of stock are distributed in exchange for or upon the
Common Stock without payment of any valuable consideration by the holders
thereof.
The terms of any such adjustment shall be conclusively determined by the
Board.
7. Change in Control
In the event of a "Change in Control," unless the agreement evidencing the
option otherwise provides, any stock option that is not previously exercisable
and vested shall become fully exercisable and vested.
"Change in Control" means any one of the following events: (i) when, without
the prior approval of the Prior Directors of the Company, any Person is or
becomes the beneficial owner (as defined in Section 13(d) of
2
<PAGE>
the Securities Exchange Act of 1934 (the "Exchange Act") and the Rules and
Regulations thereunder), together with all Affiliates and Associates (as such
terms are used in Rule 12b-2 of the General Rules and Regulations of the
Exchange Act) of such Person, directly or indirectly, of 25% or more of the
outstanding Common Stock, (ii) the failure of the Prior Directors to constitute
a majority of the Board at any time within two years following any Electoral
Event, or (iii) any other event that the Prior Directors shall determine
constitutes an effective change in the control of the Company. As used in the
preceding sentence, the following capitalized terms shall have the respective
meanings set forth below:
(a) "Person" shall include any natural person, any entity, any
"affiliate" of any such natural person or entity as such term is defined in
Rule 405 under the Securities Act of 1933 and any "group" (within the
meaning of such term in Rule 13d-5 under the Exchange Act);
(b) "Prior Directors" shall mean the persons sitting on the Board
immediately prior to any Electoral Event (or, if there has been no
Electoral Event, those persons sitting on the Board on the date of this
Agreement) and any future director of the Company who has been nominated or
elected by a majority of the Prior Directors who are then members of the
Board; and
(c) "Electoral Event" shall mean any contested election of Directors,
or any tender or exchange offer for the Common Stock, not approved by the
Prior Directors, by any Person other than the Company or a subsidiary of the
Company.
8. Tax Withholding
(a) Payment by Optionee. Each Optionee shall, no later than the date as of
which the value of Common Stock received pursuant to an option granted under the
Plan first becomes includable in his/her gross income for Federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the Board
regarding payment of any Federal, state, or local taxes of any kind required by
law to be withheld with respect to such income. The Company and its
subsidiaries shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the Optionee.
(b) Payment in Shares. An Optionee may elect to have any such tax
withholding obligation satisfied, in whole or in part, by (i) authorizing the
Company to withhold from shares of Common Stock to be issued pursuant to the
exercise of any option to a number of shares with an aggregate fair market value
(as of the date the withholding is effected) that would satisfy the withholding
amount due, or (ii) transferring to the Company shares of Common Stock owned by
the Optionee with an aggregate fair market value (as of the date the withholding
is effected) that would satisfy the withholding amount due. With respect to any
participant who is subject to Section 16 of the Exchange Act, the following
additional restrictions shall apply:
(A) The election to satisfy tax withholding obligations relating to an
Option in the manner permitted by this Section 8(b) shall be made either (1)
during the period beginning on the third business day following the date of
release of quarterly or annual summary statements of sales and earnings of
the Company and ending on the twelfth business day following such date, or
(2) at least six months prior to the date as of which the exercise such an
Option first becomes a taxable event for Federal income tax purposes;
(B) such election shall be irrevocable;
(C) such election shall be subject to the consent or disapproval of the
Board; and
(D) the Common Stock withheld to satisfy tax withholding, if granted at
the discretion of the Board, must pertain to an Option which has been held
by the participant for at least six months from the date of grant of the
Option.
3
<PAGE>
9. Shareholder Approval
The Plan is subject to the approval of the shareholders of the Company,
and although options may be granted prior to such approval, none may be
exercised until shareholder approval has been obtained. If such approval is not
given within twelve months after the date hereof, the Plan and all outstanding
options shall terminate and be null and void.
10. Administration and Amendment of the Plan
The Plan shall be administered by the Board, or a committee thereof as
provided in Section 2, which shall effect the grant of options under the Plan,
determine the form of options to be granted in each case, and make any other
determination under or interpretation of any provision of the Plan and any
option. Any of the foregoing actions taken by the Board or such committee shall
be final and conclusive. The Board may amend and make such changes in and
additions to the Plan as it may deem proper and in the best interest of the
Company, provided, however, that no such action shall adversely affect or impair
any options theretofore granted under the Plan without the consent of the
Optionee; and provided, further, that no amendment (i) increasing the maximum
number of shares which may be issued under the Plan, except as provided in
Section 6, (ii) extending the term of the Plan or any option, (iii) changing the
minimum exercise price of options to be granted under the Plan, or (iv) changing
the requirements as to eligibility for participation in the Plan, shall be
adopted without the approval of shareholders.
11. Expiration and Termination of the Plan
Options may be granted under the Plan at any time, or from time to time,
within ten years from the date the Plan is adopted or the date on which it is
approved by the shareholders of the Company, whichever is earlier, as long as
the total number of shares purchased under the Plan and subject to outstanding
options under the Plan does not exceed 391,073 shares of the Common Stock of the
Company, subject to adjustment as provided in Section 6. The Plan may be
abandoned or terminated at any time by the Board, except with respect to any
options then outstanding under the Plan.
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12
STATEMENT RE COMPUTATION OF RATIOS
(IN THOUSANDS)
YEAR ENDED MARCH 31, PRO FORMA PRO FORMA
-------------------------------------- --------- ---------
UNAUDITED UNAUDITED UNAUDITED
THREE MONTHS YEAR THREE MONTHS
CONSOLIDATED STATEMENT OF ENDED ENDED ENDED
OPERATIONS DATA 1994 1995 1996 1997 1998 JUNE 30, 1998 MARCH 31, 1998 JUNE 30, 1998
------ ------ ------ ------ ------ --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes
and extraordinary credit....... 23,847 28,095 26,108 35,434 70,807 (19,889) 15,587 15,815
Add:
Portion of rents representative
of the interest factor......... 1,533 1,467 1,900 2,067 2,700 675 2,700 675
Interest on indebtedness........ 3,794 3,919 1,723 828 1,221 5,813 52,191 12,873
Amortization of debt expense and
premium........................ 269 2,996 808
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) as adjusted....... 29,174 33,481 29,731 38,329 74,728 (13,132) 73,474 30,171
------ ------ ------ ------ ------ ------ ------ ------
Fixed charges:
Portion of rents representative
of interest factor............. 1,533 1,467 1,900 2,067 2,700 675 2,700 675
Interest on indebtedness........ 3,794 3,919 1,723 828 1,221 5,813 52,191 12,873
Amortization of debt expense and
premium........................ 269 2,996 808
------ ------ ------ ------ ------ ------ ------ ------
Fixed charges................... 5,327 5,386 3,623 2,895 3,921 6,757 57,887 14,356
------ ------ ------ ------ ------ ------ ------ ------
Ratio of earnings to fixed charges 5.5 6.2 8.2 13.2 19.1 (a) 1.3 2.1
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
(a) The ratio of earnings to fixed charges for this period is negative due to
earnings for the period being inadequate to cover fixed charges. The
coverage deficiency is $19,890 and is a result of the non-recurring charges
for the cancellation and conversion of certain stock options as a result of
the Merger.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report dated April 28, 1998, except as to the information in the "Subsequent
Events" Note for which the date is May 21, 1998, on our audits of the
consolidated financial statements of Dynatech Corporation, and of our report
dated April 28, 1998, on our audits of the related financial statement schedule
of valuation and qualifying accounts of Dynatech Corporation. We also consent to
the reference to our firm under the caption "Experts."
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 5, 1998
<PAGE>
99.1
LETTER OF TRANSMITTAL
TELECOMMUNICATIONS TECHNIQUES CO., LLC, AS ISSUER
AND
DYNATECH CORPORATION, AS PARENT GUARANTOR
Offer for all Outstanding
9 3/4% Senior Subordinated Notes Due 2008 of the Issuer
in Exchange for
9 3/4% Senior Subordinated Notes Due 2008 of the Issuer,
which Have Been Registered Under
the Securities Act of 1933, As Amended,
Pursuant to the Prospectus, dated September , 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
OCTOBER , 1998 UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR
TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
Delivery To: State Street Bank and Trust Company, Exchange Agent
<TABLE>
<S> <C>
By Mail: By Overnight Courier:
State Street Bank and Trust Company State Street Bank and Trust Company
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: Corporate Trust Department Attention: Corporate Trust Department
Kellie Mullen Kellie Mullen
---------------- ----------------
By Hand: in New York (as Drop Agent) By Hand: in Boston
State Street Bank and Trust Company, N.A. State Street Bank and Trust Company
61 Broadway, 15th Floor Two International Place
Corporate Trust Window Fourth Floor, Corporate Trust
New York, New York 10006 Boston, Massachusetts 02110
</TABLE>
For Information Call:
(617) 664-5587
By Facsimile Transmission
(for Eligible Institutions only):
(617) 664-5314
Attention: Corporate Trust Department
Confirm by Telephone:
(617) 664-5314
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX BELOW
<PAGE>
The undersigned acknowledges that he, she or it has received and reviewed
the Prospectus, dated September , 1998 (the "Prospectus"), of
Telecommunications Techniques Co., LLC, a Delaware limited liability company
(the "Issuer" or the "Company"), and Dynatech Corporation, a corporation
organized under the laws of the Commonwealth of Massachusetts (the "Parent
Guarantor"), and this Letter of Transmittal (the "Letter"), which together
constitute the Company's offer (the "Exchange Offer") to exchange an aggregate
principal amount of up to $275,000,000 of its 9 3/4% Senior Subordinated Notes
Due 2008 (the "New Notes"), which have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), for a like principal amount of
the Issuer's issued and outstanding 9 3/4% Senior Subordinated Notes Due 2008
(the "Existing Notes") from the registered holders thereof (the "Holders").
For each Existing Note accepted for exchange, the Holder of such Existing
Note will receive a New Note having a principal amount equal to that of the
surrendered Existing Note. The New Notes will bear interest from the most
recent date to which interest has been paid on the Existing Notes or, if no
interest has been paid on the Existing Notes, from May 21, 1998. Accordingly,
registered Holders of New Notes on the relevant record date for the first
interest payment date following the consummation of the Exchange Offer will
receive interest accruing from the most recent date to which interest has been
paid or, if no interest has been paid, from May 21, 1998. Existing Notes
accepted for exchange will cease to accrue interest from and after the date of
consummation of the Exchange Offer. Holders of Existing Notes whose Existing
Notes are accepted for exchange will not receive any payment in respect of
accrued interest on such Existing Notes otherwise payable on any interest
payment date the record date for which occurs on or after consummation of the
Exchange Offer.
This Letter is to be completed by a Holder of Existing Notes either if
certificates are to be forwarded herewith or if a tender of certificates for
Existing Notes, if available, is to be made by book-entry transfer to the
account maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer--Book-Entry Transfer" section of the Prospectus. Holders of
Existing Notes whose certificates are not immediately available, or who are
unable to deliver their certificates or confirmation of the book-entry tender
of their Existing Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility (a "Book-Entry Confirmation") and all other documents
required by this Letter to the Exchange Agent on or prior to the Expiration
Date, must tender their Existing Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures"
section of the Prospectus. See Instruction 1. Delivery of documents to the
Book-Entry Transfer Facility does not constitute delivery to the Exchange
Agent.
List below the Existing Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
Existing Notes should be listed on a separate signed schedule affixed hereto.
2
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF EXISTING NOTES 1 2 3
- --------------------------------------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL
AMOUNT OF PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE EXISTING AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S)* NOTE(S) TENDERED**
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL
- -------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Existing Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to
have tendered ALL of the Existing Notes represented by the Existing
Notes indicated in column 2. See Instruction 2. Existing Notes tendered
hereby must be in denominations of principal amount of $1,000 and any
integral multiple thereof. See Instruction 1.
- -------------------------------------------------------------------------------
[_] CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution _____________ [_] The Depository Trust Company
Account Number _____________________ Transaction Code Number _______________
[_] CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s) ____________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution Which Guaranteed Delivery ______________________________
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number _____________________ Transaction Code Number _______________
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO WITHIN 90 DAYS AFTER THE EXPIRATION DATE.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
----------------------------------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Existing Notes that were acquired as a result
of market-making activities or other trading activities, it acknowledges that
it will deliver a prospectus meeting the requirements of the Securities Act of
1933, as amended, in connection with any resale of such New Notes; however, by
so acknowledging and by delivering such a prospectus the undersigned will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended. If the undersigned is a broker-dealer that
will receive New Notes, it represents that the Existing Notes to be exchanged
for the New Notes were acquired as a result of market-making activities or
other trading activities.
3
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of
Existing Notes indicated above. Subject to, and effective upon, the acceptance
for exchange of the Existing Notes tendered hereby, the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to such Existing Notes as are being tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the undersigned's true and lawful agent and attorney-in-fact with
respect to such tendered Existing Notes, with full power of substitution,
among other things, to cause the Existing Notes to be assigned, transferred
and exchanged. The undersigned hereby represents and warrants that the
undersigned has full power and authority to tender, sell, assign and transfer
the Existing Notes, and to acquire New Notes issuable upon the exchange of
such tendered Existing Notes, and that, when the same are accepted for
exchange, the Company will acquire good and unencumbered title thereto, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents and warrants that any New Notes acquired
in exchange for Existing Notes tendered hereby will have been acquired in the
ordinary course of business of the person receiving such New Notes, whether or
not such person is the undersigned, that neither the Holder of such Existing
Notes nor any such other person is participating in, intends to participate in
or has an arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act of 1933, as amended
(the "Securities Act")) of such New Notes, that neither the Holder of such
Existing Notes nor any such other person is an "affiliate," as defined in Rule
405 under the Securities Act, of the Company, and that neither the Holder of
such Existing Notes nor such other person is acting on behalf of any person
who could not truthfully make the foregoing representations and warranties.
The undersigned acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued pursuant to the Exchange Offer in exchange
for the Existing Notes may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any such Holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such Holder's business and such Holder has no
arrangement with any person to participate in the distribution of such New
Notes. However, the SEC has not considered the Exchange Offer in the context
of a no-action letter and there can be no assurance that the staff of the SEC
would make a similar determination with respect to the Exchange Offer as in
other circumstances. If the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to
engage in, a distribution of New Notes and has no arrangement or understanding
to participate in a distribution of New Notes. If any Holder is an affiliate
of the Company, is engaged in or intends to engage in or has any arrangement
or understanding with respect to the distribution of the New Notes to be
acquired pursuant to the Exchange Offer, such Holder (i) could not rely on the
applicable interpretations of the staff of the SEC and (ii) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. If the undersigned is a broker-dealer
that will receive New Notes for its own account in exchange for Existing
Notes, it represents that the Existing Notes to be exchanged for the New Notes
were acquired by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes; however, by so acknowledging and by delivering a prospectus meeting the
requirements of the Securities Act, the undersigned will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
The SEC has taken the position that such broker-dealers may fulfill their
prospectus delivery requirements with respect to the New Notes (other than a
resale of New Notes received in exchange for an unsold allotment from the
original sale of the Existing Notes) with the Prospectus. The Prospectus, as
it may be amended or
4
<PAGE>
supplemented from time to time, may be used by such broker-dealers for a
period of time, starting on the Expiration Date and ending on the close of
business 90 days after the Expiration Date in connection with the sale or
transfer of such New Notes. The Company has agreed that, for such period of
time, it will make the Prospectus (as it may be amended or supplemented)
available to a broker-dealer which elects to exchange Existing Notes, acquired
for its own account as a result of market making or other trading activities,
for New Notes pursuant to the Exchange Offer (each a "Participating Broker-
Dealer") for use in connection with any resale of such New Notes. By accepting
the Exchange Offer, each broker-dealer that receives New Notes pursuant to the
Exchange Offer acknowledges and agrees to notify the Company prior to using
the Prospectus in connection with the sale or transfer of New Notes and that,
upon receipt of notice from the Company of the happening of any event which
makes any statement in the Prospectus untrue in any material respect or which
requires the making of any changes in the Prospectus in order to make the
statements therein not misleading, such broker-dealer will suspend use of the
Prospectus until (i) the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and (ii) either the Company has
furnished copies of the amended or supplemented Prospectus to such broker-
dealer or, if the Company has not otherwise agreed to furnish such copies and
declines to do so after such broker-dealer so requests, such broker-dealer has
obtained a copy of such amended or supplemented Prospectus as filed with the
SEC. The Company agrees, if requested, to deliver such notice and such amended
or supplemented Prospectus promptly to any Participating Broker-Dealer from
whom the Company has received prior written notice that it will be a
Participating Broker-Dealer in the Exchange Offer. Except as described above,
the Prospectus may not be used for or in connection with an offer to resell, a
resale or any other retransfer of New Notes. A broker-dealer that acquired
Existing Notes in a transaction other than as part of its market-making
activities or other trading activities will not be able to participate in the
Exchange Offer.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Existing Notes tendered hereby. All
authority conferred or agreed to be conferred in this Letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer--Withdrawal of Tenders" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Existing Notes for any Existing Notes not
exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Existing Notes, please credit the account indicated above
maintained at the Book-Entry Transfer Facility. Similarly, unless otherwise
indicated under the box entitled "Special Delivery Instructions" below, please
send the New Notes (and, if applicable, substitute certificates representing
Existing Notes for any Existing Notes not exchanged) to the undersigned at the
address shown above in the box entitled "Description of Existing Notes."
5
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF EXISTING
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE
EXISTING NOTES AS SET FORTH IN SUCH BOX ABOVE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
x ___________________________________ _____________________________, 1998
x ___________________________________ _____________________________, 1998
Signature(s) of Owner Date
Area Code and Telephone Number ____________________________________________
If a Holder is tendering an Existing Note, this Letter must be signed by
the registered Holder(s) as the name(s) appear(s) on the certificate(s)
for the Existing Note or by any person(s) authorized to become registered
Holder(s) by endorsements and documents transmitted herewith. If signature
is by a trustee, executor, administrator, guardian, officer or other
person acting in a fiduciary or representative capacity, please set forth
full title. See Instruction 3.
Name(s) ___________________________________________________________________
___________________________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity: _________________________________________________________________
Address: __________________________________________________________________
___________________________________________________________________________
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
SIGNATURE(S) GUARANTEED BY
AN ELIGIBLE INSTITUTION: __________________________________________________
(AUTHORIZED SIGNATURE)
___________________________________________________________________________
(TITLE)
___________________________________________________________________________
(NAME AND FIRM)
DATED: ______________________________________________________________, 1998
(PLEASE COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 HEREIN)
6
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4 AND 6) (SEE INSTRUCTIONS 3, 4 AND 6)
- -------------------------------------- --------------------------------------
To be completed ONLY if certifi- To be completed ONLY if certifi-
cates for Existing Notes not ex- cates for Existing Notes not ex-
changed and/or New Notes are to changed and/or New Notes are to
be issued in the name of and sent be sent to someone other than the
to someone other than the person person or persons whose signa-
or persons whose signature(s) ap- ture(s) appear(s) on this Letter
pear(s) on this Letter above, or above or to such person or per-
if Existing Notes delivered by sons at an address other than
book-entry transfer which are not shown in the box entitled "De-
accepted for exchange are to be scription of Existing Notes" on
returned by credit to an account this Letter above.
maintained at the Book-Entry
Transfer Facility other than the
account indicated above.
Issue: New Notes and/or Existing Mail: New Notes and/or Existing
Notes to: Notes to:
Name(s) __________________________ Name(s) __________________________
(PLEASE TYPE OR PRINT) (PLEASE TYPE OR PRINT)
__________________________________
(PLEASE TYPE OR PRINT)
__________________________________
Address __________________________ (PLEASE TYPE OR PRINT)
__________________________________
(ZIP CODE)
Address __________________________
(COMPLETE SUBSTITUTE FORM W-9)
[_]Credit unexchanged Existing
Notes delivered by book-entry
transfer to the Book-Entry
Transfer Facility account set
forth below.
__________________________________ __________________________________
(BOOK-ENTRY TRANSFER FACILITY) (ZIP CODE)
ACCOUNT NUMBER, IF APPLICABLE)
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS
LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR EXISTING
NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS) MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR THE 9 3/4%
SENIOR SUBORDINATED NOTES DUE 2008 OF TELECOMMUNICATIONS TECHNIQUES CO., LLC
IN EXCHANGE FOR THE 9 3/4% SENIOR SUBORDINATED NOTES DUE 2008 OF
TELECOMMUNICATIONS TECHNIQUES CO., LLC, WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES.
This Letter is to be completed by Holders of Existing Notes either if
certificates are to be forwarded herewith or if tenders are to be made
pursuant to the procedures for delivery by book-entry transfer set forth in
"The Exchange Offer--Book-Entry Transfer," section of the Prospectus.
Certificates for all physically tendered Existing Notes, or Book-Entry
Confirmation, as the case may be, as well as a properly completed and duly
executed Letter (or manually signed facsimile hereof) and any other documents
required by this Letter, must be received by the Exchange Agent at the address
set forth herein on or prior to the Expiration Date, or the tendering Holder
must comply with the guaranteed delivery procedures set forth below. Existing
Notes tendered hereby must be in denominations of principal amount of $1,000
and any integral multiple thereof.
Holders whose certificates for Existing Notes are not immediately available
or who cannot deliver their certificates and all other required documents to
the Exchange Agent on or prior to the Expiration Date, or who cannot complete
the procedure for book entry transfer on a timely basis, may tender their
Existing Notes pursuant to the guaranteed delivery procedures set forth in
"The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through
an Eligible Institution, (ii) prior to 5:00 P.M., New York City time, on the
Expiration Date, the Exchange Agent must receive from such Eligible
Institution a properly completed and duly executed Letter (or a facsimile
thereof) and Notice of Guaranteed Delivery, substantially in the form provided
by the Company (by facsimile transmission, mail or hand delivery), setting
forth the name and address of the Holder of Existing Notes and the amount of
Existing Notes tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange ("NYSE') trading days
after the Expiration Date, the certificates for all physically tendered
Existing Notes, in proper form for transfer, or a Book-Entry Confirmation, as
the case may be, and any other documents required by this Letter will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically tendered Existing Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and all other
documents required by this Letter, are received by the Exchange Agent within
three NYSE trading days after the Expiration Date.
The method of delivery of this Letter, the Existing Notes and all other
required documents is at the election and risk of the tendering Holders, but
the delivery will be deemed made only when actually received or confirmed by
the Exchange Agent. If Existing Notes are sent by mail, it is suggested that
the mailing be registered mail, properly insured, with return receipt
requested, made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent prior to 5:00 P.M., New York City time, on the
Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER).
If less than all of the Existing Notes evidenced by a submitted certificate
are to be tendered, the tendering Holder(s) should fill in the aggregate
principal amount of Existing Notes to be tendered in the box above entitled
"Description of Existing Notes--Principal Amount Tendered." A reissued
certificate representing the balance of nontendered Existing Notes will be
sent to such tendering Holder, unless otherwise provided in the appropriate
box on this Letter, promptly after the Expiration Date. ALL OF THE EXISTING
NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED
UNLESS OTHERWISE INDICATED.
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered Holder of the Existing Notes
tendered hereby, the signature must correspond exactly with the name as
written on the face of the certificates without any change whatsoever.
8
<PAGE>
If any tendered Existing Notes are owned of record by two or more joint
owners, all of such owners must sign this Letter.
If any tendered Existing Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
When this Letter is signed by the registered Holder or Holders of the
Existing Notes specified herein and tendered hereby, no endorsements of
certificates or separate bond powers are required. If, however, the New Notes
are to be issued, or any untendered Existing Notes are to be reissued, to a
person other than the registered Holder, then endorsements of any certificates
transmitted hereby or separate bond powers are required. Signatures on such
certificate(s) must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered Holder or
Holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered Holder or Holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must
be submitted.
ENDORSEMENTS ON CERTIFICATES FOR EXISTING NOTES OR SIGNATURES ON BOND POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A
FINANCIAL INSTITUTION (INCLUDING MOST BANKS, SAVINGS AND LOAN ASSOCIATIONS AND
BROKERAGE HOUSES) THAT IS A PARTICIPANT IN THE SECURITIES TRANSFER AGENTS
MEDALLION PROGRAM, THE NEW YORK STOCK EXCHANGE MEDALLION SIGNATURE PROGRAM OR
THE STOCK EXCHANGES MEDALLION PROGRAM (EACH AN "ELIGIBLE INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE INSTITUTION,
PROVIDED THE EXISTING NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF
EXISTING NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY
PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A
SECURITY POSITION LISTING AS THE HOLDER OF SUCH EXISTING NOTES) WHO HAS NOT
COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL
DELIVERY INSTRUCTIONS" THIS LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE
INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering Holders of Existing Notes should indicate in the applicable box
the name and address to which New Notes issued pursuant to the Exchange Offer
and or substitute certificates evidencing Existing Notes not exchanged are to
be issued or sent, if different from the name or address of the person signing
this Letter. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. Holders tendering Existing Notes by book-entry transfer may request
that Existing Notes not exchanged be credited to such account maintained at
the Book-Entry Transfer Facility as such Holder may designate hereon. If no
such instructions are given, such Existing Notes not exchanged will be
returned to the name and address of the person signing this Letter.
5. TAXPAYER IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering Holder whose
Existing Notes are accepted for exchange must provide the Company (as payor),
or the Paying Agent designated by the Company to act on its behalf, with such
Holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below, which in the case of a tendering Holder who is an individual, is his or
her social security number. If the Company is not provided with the current
TIN or an adequate basis for an exemption from backup withholding, such
tendering Holder may be subject to a $50 penalty imposed by the Internal
Revenue Service. In addition, the Exchange Agent may be required to withhold
31% of the amount of any reportable payments made after the exchange of such
tendering Holder of New Notes. If withholding results in an overpayment of
taxes, a refund may be obtained.
9
<PAGE>
Exempt Holders of Existing Notes (including, among others, all corporations
and certain foreign individual) are not subject to these backup withholding
and reporting requirements. See the enclosed Guidelines of Certification of
Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines")
for additional instructions.
To prevent backup withholding, each tendering Holder of Existing Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying, under penalties of perjury, that the TIN provided is correct (or
that such Holder is awaiting a TIN) and that (i) the Holder is exempt from
backup withholding, or (ii) the Holder has not been notified by the Internal
Revenue Service that such Holder is subject to backup withholding as a result
of a failure to report all interest or dividends or (iii) the Internal Revenue
Service has notified the Holder that such Holder is no longer subject to
backup withholding. If the tendering Holder of Existing Notes is a nonresident
alien or foreign entity not subject to backup withholding, such Holder must
give the Exchange Agent a completed Form W-8, Certificate of Foreign Status.
This form may be obtained from the Exchange Agent. If the Existing Notes are
in more than one name or are not in the name of the actual owner, such Holder
should consult the W-9 Guidelines for information on which TIN to report. If
such Holder does not have a TIN, such Holder should consult the W-9 Guidelines
for instructions on applying for a TIN, check the box in Part 2 of the
Substitute Form W-9 and write "applied for" in lieu of its TIN. Note: Checking
this box and writing "applied for" on the form means that such Holder has
already applied for a TIN or that such Holder intends to apply for one in the
near future. If the box in Part 2 of the Substitute Form W-9 is checked, the
Exchange Agent will retain 31% of reportable payments made to a Holder during
the sixty (60) day period following the date of the Substitute Form W-9. If
the Holder furnishes the Exchange Agent with his or her TIN within sixty (60)
days of the date of the Substitute Form W-9, the Exchange Agent will remit
such amounts retained during such sixty (60) day period to such Holder and no
further amounts will be retained or withheld from payments made to the Holder
thereafter. If, however, such holder does not provide its TIN to the Exchange
Agent within such sixty (60) day period, the Exchange Agent will remit such
previously withheld amounts to the Internal Revenue Service as backup
withholding and will withhold 31% of all reportable payments to the Holder
thereafter until such Holder furnishes its TIN to the Exchange Agent.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Existing Notes to it or its order pursuant to the Exchange Offer. If,
however, New Notes and/or substitute Existing Notes not exchanged are to be
delivered to, or are to be registered or issued in the name of, any person
other than the registered Holder of the Existing Notes tendered hereby, or if
tendered Existing Notes are registered in the name of any person other than
the person signing this Letter, or if a transfer tax is imposed for any reason
other than the transfer of Existing Notes to the Company or its order pursuant
to the Exchange Offer, the amount of any such transfer taxes (whether imposed
on the registered Holder or any other persons) will be payable by the
tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted herewith, the amount of such transfer
taxes will be billed directly to such tendering Holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE EXISTING NOTES SPECIFIED IN THIS
LETTER.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders of Existing Notes, by execution of this
Letter, shall waive any right to receive notice of the acceptance of their
Existing Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of
Existing Notes nor shall any of them incur any liability for failure to give
any such notice.
10
<PAGE>
9. MUTILATED, LOST, STOLEN OR DESTROYED EXISTING NOTES.
Any Holder whose Existing Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
10. WITHDRAWAL RIGHTS.
Tenders of Existing Notes may be withdrawn at any time prior to 5:00 P.M.,
New York City time, on the Expiration Date.
For a withdrawal of a tender of Existing Notes to be effective, a written
notice of withdrawal must be received by the Exchange Agent at the address set
forth above prior to 5:00 P.M., New York City time, on the Expiration Date.
Any such notice of withdrawal must (i) specify the name of the person having
tendered the Existing Notes to be withdrawn (the "Depositor"), (ii) identify
the Existing Notes to be withdrawn (including certificate number or numbers
and the principal amount of such Existing Notes), (iii) contain a statement
that such Holder is withdrawing his election to have such Existing Notes
exchanged, (iv) be signed by the Holder in the same manner as the original
signature on the Letter by which such Existing Notes were tendered (including
any required signature guarantees) or be accompanied by documents of transfer
to have the Trustee with respect to the Existing Notes register the transfer
of such Existing Notes in the name of the person withdrawing the tender and
(v) specify the name in which such Existing Notes are registered, if different
from that of the Depositor. If Existing Notes have been tendered pursuant to
the procedure for book-entry transfer set forth in "The Exchange Offer--Book-
Entry Transfer" section of the Prospectus, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Existing Notes and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties.
Any Existing Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer and no New Notes will
be issued with respect thereto unless the Existing Notes so withdrawn are
validly retendered. Any Existing Notes that have been tendered for exchange
but which are not exchanged for any reason will be returned to the Holder
thereof without cost to such Holder (or, in the case of Existing Notes
tendered by book-entry transfer into the Exchange Agent's account at the Book-
Entry Transfer Facility pursuant to the book-entry transfer procedures set
forth in "The Exchange Offer--Book-Entry Transfer" section of the Prospectus,
such Existing Notes will be credited to an account maintained with the Book-
Entry Transfer Facility for the Existing Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Existing Notes may be retendered by following the procedures
described above at any time on or prior to 5:00 P.M., New York City time, on
the Expiration Date.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, and requests for Notices
of Guaranteed Delivery and other related documents may be directed to the
Exchange Agent, at the address and telephone number indicated above.
11
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: STATE STREET BANK AND TRUST COMPANY, AS PAYING AGENT
-------------------------------------------------------------------------------
PART 1--PLEASE PROVIDE YOUR TIN:-------------------
TIN IN THE BOX AT RIGHT AND Social Security Number
CERTIFY BY SIGNING AND or Employer
DATING BELOW. Identification Number
--------------------------------------------------------
SUBSTITUTE PART 2--TIN Applied for [_]
FORM W-9 --------------------------------------------------------
DEPARTMENT OF CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I
THE TREASURY CERTIFY THAT:
INTERNAL
REVENUE (1) the number shown on this form is my correct
SERVICE Taxpayer Identification Number (or I am
waiting for a number to be issued to me).
(2) I am not subject to backup withholding either
PAYOR'S REQUEST FOR because: (a) I am exempt from backup
TAXPAYER withholding, or (b) I have not been notified
IDENTIFICATION NUMBER by the Internal Revenue Service (the "IRS")
("TIN") that I am subject to backup withholding as a
AND CERTIFICATION result of a failure to report all interest or
dividends, or (c) the IRS has notified me that
I am no longer subject to backup withholding,
and
(3) any other information provided on this form is
true and correct.
SIGNATURE ____________________________ DATE _______
- -------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been no-
tified by the IRS that you are subject to backup withholding because of
underreporting of interest or dividends on your tax return and you have not
been notified by the IRS that you are no longer subject to backup withhold-
ing.
- -------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of the exchange, 31 percent of all reportable payments made to me
thereafter will be withheld until I provide a number.
------------------------------------ ------------------------------------
SIGNATURE DATE
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31%
OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE TENDER OFFER AND/OR THE
SOLICITATION. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
12
<PAGE>
99.2
NOTICE OF GUARANTEED DELIVERY
FOR
TELECOMMUNICATIONS TECHNIQUES CO., LLC, AS ISSUER
DYNATECH CORPORATION, AS PARENT GUARANTOR
9 3/4% SENIOR SUBORDINATED NOTES DUE 2008
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Telecommunications Techniques Co., LLC (the "Issuer" or the
"Company") and Dynatech Corporation, (the "Parent Guarantor") made pursuant to
the Prospectus, dated September , 1998 (the "Prospectus"), if certificates
for the outstanding 9 3/4% Senior Subordinated Notes Due 2008 of the Issuer
(the "Existing Notes") are not immediately available or if the procedure for
book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach State Street Bank and Trust Company, as
exchange agent (the "Exchange Agent") prior to 5:00 P.M., New York City time,
on the Expiration Date of the Exchange Offer. Such form may be delivered or
transmitted by facsimile transmission, mail or hand delivery to the Exchange
Agent as set forth below. In addition, in order to utilize the guaranteed
delivery procedure to tender Existing Notes pursuant to the Exchange Offer, a
completed, signed and dated Letter of Transmittal (or facsimile thereof) must
also be received by the Exchange Agent prior to 5:00 P.M., New York City time,
on the Expiration Date. Capitalized terms not defined herein are defined in
the Prospectus or the Letter of Transmittal.
Delivery To: State Street Bank and Trust Company, Exchange Agent
<TABLE>
<S> <C>
By Mail: By Overnight Courier:
State Street Bank and Trust Company State Street Bank and Trust Company
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: Corporate Trust Department Attention: Corporate Trust Department
Kellie Mullen Kellie Mullen
-------- --------
By Hand: in New York (as Drop Agent) By Hand: in Boston
State Street Bank and Trust Company, N.A. State Street Bank and Trust Company
61 Broadway, 15th Floor Two International Place
Corporate Trust Window Fourth Floor, Corporate Trust
New York, New York 10006 Boston, Massachusetts 02110
</TABLE>
For Information Call:
(617) 664-5587
By Facsimile Transmission
(for Eligible Institutions only):
(617) 664-5314
Attention: Corporate Trust Department
Confirm by Telephone:
(617) 664-5314
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AT SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE>
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Existing Notes set forth below pursuant to the
guaranteed delivery procedure described in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus.
<TABLE>
<S> <C> <C>
Certificate Number(s)
(if known) of Existing
Notes or Account Aggregate Principal
Number at the Book- Aggregate Principal Amount Tendered
Entry Facility Amount Represented (if less than all)*
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE
DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE UNDERSIGNED
HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES,
SUCCESSORS AND ASSIGNS OF THE UNDERSIGNED.
- -------------------------------------------------------------------------------
PLEASE SIGN HERE
X _______________________________________ ________________________________
X _______________________________________ ________________________________
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number: _________
Must be signed by the Holder(s) of Existing notes as their name(s) appear(s)
on certificates for Existing Notes or on a security position listing, or by
person(s) authorized to become registered Holder(s) by endorsement and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person
must set forth his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): _____________________________________________________________________
Capacity: ____________________________________________________________________
Address(es): _________________________________________________________________
- --------
* Unless otherwise indicated, the Holder will be deemed to have tendered the
full aggregate principal amount represented by such existing notes.
2
<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a financial institution (including most banks, savings and
loan associations and brokerage houses) that is a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchanges Medallion Program, hereby
guarantees that the certificates representing the principal amount of Existing
Notes tendered hereby in proper form for transfer, or timely confirmation of
the book-entry transfer of such Existing Notes into the Exchange Agent's
account at The Depository Trust Company pursuant to the procedures set forth
in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus, together with any required signature guarantee and any other
documents required by the Letter of Transmittal, will be received by the
Exchange Agent at the address set forth above, no later, than three New York
Stock Exchange trading days after the Expiration Date.
____________________________________ ____________________________________
Name of Firm Authorized Signature
____________________________________ ____________________________________
Address Title
____________________________________ Name: ______________________________
Zip Code (Please Type or Print)
Area Code and Tel. No. _____________ Dated: _____________________________
NOTE: DO NOT SEND CERTIFICATE FOR EXISTING NOTES WITH THIS FORM. CERTIFICATES
FOR EXISTING NOTES SHOULD BE SENT ONLY WITH A COPY OF YOUR PREVIOUSLY
EXECUTED LETTER OF TRANSMITTAL.
3
<PAGE>
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by
the Exchange Agent at its address set forth herein prior to 5:00 p.m., New
York City time, on the Expiration Date. The method of delivery of this Notice
of Guaranteed Delivery and any other required documents to the Exchange Agent
is at the election and risk of the Holder and the delivery will be deemed made
only when actually received by the Exchange Agent. If delivery is by mail,
registered or certified mail properly insured, with return receipt requested,
is recommended. In all cases sufficient time should be allowed to assure
timely delivery. For a description of the guaranteed delivery procedure, see
Instruction 1 of the Letter of Transmittal.
2. Signatures of this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered Holder(s) of the Existing
Notes referred to herein, the signature must correspond with the name(s)
written on the face of the Existing Notes without alteration, enlargement, or
any change whatsoever. If this Notice of Guaranteed Delivery is signed by a
participant of the book-entry transfer facility whose name appears on a
security position listing as the owner of Existing Notes, the signature must
correspond with the name shown on the security position listing as the owner
of the Existing Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered Holder(s) of any Existing Notes listed or a participant of the
book-entry transfer facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name of the registered
Holder(s) appears on the Existing Notes or signed as the name of the
participant shown on the book-entry transfer facility's security position
listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing.
3. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
4
<PAGE>
INSTRUCTION TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM OWNER
OF
TELECOMMUNICATIONS TECHNIQUES CO., LLC
9 3/4% SENIOR SUBORDINATED NOTES DUE 2008
TO REGISTERED HOLDER AND/OR PARTICIPANT OF BOOK-ENTRY TRANSFER FACILITY:
The undersigned hereby acknowledges receipt of the Prospectus dated
September , 1998 (the "Prospectus") of Telecommunications Techniques Co.,
LLC, a Delaware limited liability company (the "Issuer" or the "Company"), and
Dynatech Corporation, a corporation organized under the laws of the
Commonwealth of Massachusetts, as Parent Guarantor, and the accompanying
Letter of Transmittal (the "Letter of Transmittal"), that together constitute
the Company's offer to exchange up to $275,000,000 aggregate principal amount
of its 9 3/4% Senior Subordinated Notes Due 2008 (the "New Notes"), which have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), for a like principal amount of its outstanding 9 3/4% Senior
Subordinated Notes Due 2008 (the "Existing Notes"). Capitalized terms used but
not defined herein have the meanings ascribed to them in the Prospectus.
This will instruct you, the registered Holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Existing Notes held by you for the account
of the undersigned.
The aggregate face amount of the Existing Notes held by you for the account
of the undersigned is (fill in amount):
$ of the 9 3/4% Senior Subordinated Notes Due 2008.
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[_]To TENDER the following Existing Notes held by you for the account of
the undersigned (insert principal amount of Existing Notes to be
tendered, if any):
$ of the 9 3/4% Senior Subordinated Notes Due 2008.
[_]NOT to TENDER any Existing Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Existing Notes held by you
for the account of the undersigned, it is understood that you are authorized
(a) to make, on behalf of the undersigned (and the undersigned, by its
signature below, hereby makes to you), the representation and warranties
contained in the Letter of Transmittal that are to be made with respect to the
undersigned as a beneficial owner, including but not limited to the
representations that (i) the undersigned's principal residence is the state of
(fill in state) , (ii) the undersigned is neither an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act of 1933, as
amended (the "Securities Act"), nor a broker-dealer tendering Existing Notes
acquired directly from the Company for its own account, (iii) the undersigned
is acquiring the New Notes in the ordinary course of business of the
undersigned, (iv) the undersigned is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in a distribution of the New Notes, and (v) the undersigned
acknowledges that any person participating in the Exchange Offer for the
purpose of distributing the New Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the New Notes acquired by such person and
cannot rely on the interpretations of the staff of the Securities and Exchange
Commission set forth in no-action letters issued to third parties; (b) to
agree, on behalf of the undersigned, as set forth in the Letter of
Transmittal; and (c) to take such other actions as necessary under the
Prospectus or the Letter of Transmittal to effect the valid tender of such
Existing Notes.
<PAGE>
SIGN HERE
Name of beneficial owner(s): ______________________________________________
Signature(s): _____________________________________________________________
Name(s) (please print): ___________________________________________________
Address: __________________________________________________________________
Telephone Number: _________________________________________________________
Taxpayer identification or Social Security Number: ________________________
Date: _____________________________________________________________________
2
