<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 2)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
Megatest Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Teradyne, Inc. Common Stock, $.125 par value
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
6,605,249(a)
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$37.1875 per share of Teradyne, Inc. Common Stock(b)
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$245,632,697
------------------------------------------------------------------------
(5) Total fee paid:
$49,127(c)
------------------------------------------------------------------------
- ---------------
(a) Based on 7,422,462 shares of Megatest Common Stock outstanding on August
26, 1995 and assuming a conversion ratio of 0.8899.
(b) Calculated pursuant to Exchange Act Rules 0-11(c)(1) and 0-11(a)(4), based
upon the average of the high and low sale prices for Teradyne, Inc.'s
Common Stock as reported by the New York Stock Exchange on September 15,
1995.
(c) Pursuant to Exchange Act Rules 14a-6(i)(4) and 0-11, the filing fee
represents 1/50th of one percent of the value of the securities to be
received by Megatest stockholders in the proposed transaction.
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
MEGATEST CORPORATION
1321 RIDDER PARK DRIVE
SAN JOSE, CALIFORNIA 95131
November 1, 1995
Dear Megatest Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Megatest Corporation ("Megatest") to be held at The
Beverly Heritage, 1820 Barber Lane, Milpitas, California 95035, on Friday,
December 1, 1995, at 9:00 a.m., local time.
At the Special Meeting, you will be asked to consider and vote upon the
approval and adoption of the Agreement and Plan of Merger and Reorganization (as
amended, the "Merger Agreement"), dated as of September 5, 1995 among Megatest,
Teradyne, Inc. ("Teradyne") and M Merger Corp. ("Merger Sub"), and to approve
the merger (the "Merger") of Megatest with Merger Sub pursuant to the Merger
Agreement.
As a result of the Merger, Megatest will become a wholly owned subsidiary
of Teradyne and each share of common stock of Megatest, $.001 par value, will be
converted into and exchanged for 0.9091 shares of Teradyne common stock, $.125
par value ("Teradyne Common Stock"), subject to adjustment in accordance with
the formula contained in the Merger Agreement and based upon the average of the
closing prices of Teradyne Common Stock for the twenty consecutive days on which
Teradyne Common Stock is traded on The New York Stock Exchange ending on the
fifth calendar day immediately preceding the day on which the Special Meeting is
held. In no event will the Exchange Ratio be greater than 0.9091 or less than
0.8333.
The Megatest Board of Directors has received an opinion from Montgomery
Securities, the financial advisor retained by Megatest, that the consideration
to be received by Megatest stockholders in the Merger was fair to such
stockholders from a financial point of view as of September 5, 1995, the date of
such opinion.
MEGATEST'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND HAS DETERMINED THAT THE MERGER IS FAIR AND IN THE BEST INTERESTS OF MEGATEST
AND ITS STOCKHOLDERS. AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT MEGATEST STOCKHOLDERS VOTE FOR THE PROPOSAL TO
APPROVE THE MERGER.
The Notice of Special Meeting and the Proxy Statement/Prospectus describing
the Merger and related transactions in greater detail are attached. Whether or
not you plan to attend, it is important that your shares of Megatest common
stock be represented at the Special Meeting. An abstention or failure to vote
will have the same effect as a vote against the merger. Please give this
information your careful consideration and complete, date, sign and return
promptly your proxy card in the enclosed envelope. You may attend the meeting
and vote your shares in person if you wish, even though you have previously
returned your proxy.
Sincerely,
John E. Halter
President and Chief Executive Officer
------------------------------
YOUR VOTE IS IMPORTANT.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY,
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
------------------------------
<PAGE> 3
MEGATEST CORPORATION
1321 RIDDER PARK DRIVE
SAN JOSE, CALIFORNIA 95131
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held December 1, 1995
TO THE STOCKHOLDERS OF MEGATEST CORPORATION
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of MEGATEST
CORPORATION, a Delaware corporation ("Megatest"), will be held at 9:00 a.m.,
local time, on December 1, 1995, at The Beverly Heritage, 1820 Barber Lane,
Milpitas, California 95035 (the "Special Meeting"), to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger and
Reorganization (as amended, the "Merger Agreement"), dated as of September 5,
1995, by and among Megatest, Teradyne, Inc. ("Teradyne") and M Merger Corp.
("Merger Sub"), and to approve the merger (the "Merger") of Merger Sub with and
into Megatest pursuant to the Merger Agreement. As a result of the Merger,
Megatest will become a wholly owned subsidiary of Teradyne and each share of
common stock of Megatest, $.001 par value ("Megatest Common Stock"), will be
converted into and exchanged for 0.9091 shares of Teradyne common stock, $.125
par value ("Teradyne Common Stock"), subject to adjustment in accordance with
the formula contained in the Merger Agreement and based upon the average of the
closing prices of Teradyne Common Stock for the twenty consecutive days on which
Teradyne Common Stock is traded on The New York Stock Exchange (the "NYSE")
ending on the fifth calendar day immediately preceding the day on which the
Special Meeting is held. In no event will the Exchange Ratio be greater than
0.9091 or less than 0.8333. A copy of the Merger Agreement is attached as Annex
A to the Proxy Statement/Prospectus accompanying this Notice.
Megatest and Teradyne anticipate that the final Exchange Ratio will be
determined as of the close of business on November 24, 1995. Not later than the
next business day, Megatest and Teradyne will issue a joint press release to
notify Megatest stockholders of the final Exchange Ratio. In addition, Megatest
stockholders may contact Megatest Investor Relations at (408) 451-3255 for
information concerning the Exchange Ratio.
The Board of Directors has fixed the close of business on October 24, 1995
as the record date for the determination of the holders of Megatest Common
Stock, entitled to notice of, and to vote at, the Special Meeting. Accordingly,
only stockholders of record at the close of business on such date are entitled
to notice of and to vote at the Special Meeting and any adjournment or
postponement thereof. The affirmative vote of a majority of the outstanding
shares of Megatest Common Stock entitled to vote thereon is necessary for
approval and adoption of the Merger Agreement and approval of the Merger.
Details of the proposed Merger and other important information concerning
Teradyne and Megatest are more fully described in the accompanying Proxy
Statement/Prospectus. Please give this material your careful attention.
All stockholders are cordially invited to attend the Special Meeting in
person; however, to ensure your representation at the Special Meeting you are
urged to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage prepaid envelope enclosed for that purpose.
YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN VOTED AT THE SPECIAL
MEETING. ANY STOCKHOLDER ATTENDING THE SPECIAL MEETING MAY VOTE IN PERSON EVEN
IF HE OR SHE HAS RETURNED A PROXY.
Sincerely,
John E. Halter
President and Chief Executive Officer
<PAGE> 4
MEGATEST CORPORATION
PROXY STATEMENT
------------------------
TERADYNE, INC.
PROSPECTUS
------------------------
This Proxy Statement/Prospectus is being furnished to holders of common
stock, $.001 par value ("Megatest Common Stock"), of Megatest Corporation, a
Delaware corporation ("Megatest" or the "Company"), in connection with the
solicitation of proxies by the Board of Directors of Megatest for use at a
special meeting of Megatest stockholders (the "Special Meeting") to be held on
December 1, 1995 at The Beverly Heritage, 1820 Barber Lane, Milpitas, California
95035, and at any adjournment or postponement thereof for the purposes set forth
herein and in the accompanying Notice of Special Meeting of Stockholders.
This Proxy Statement/Prospectus constitutes (i) the Prospectus of Teradyne,
Inc., a Massachusetts corporation ("Teradyne"), with respect to the issuance and
delivery of shares of common stock, $.125 par value, of Teradyne ("Teradyne
Common Stock") in connection with the merger (the "Merger"), pursuant to the
Agreement and Plan of Merger and Reorganization (as amended, the "Merger
Agreement"), dated as of September 5, 1995, by and among Megatest, Teradyne and
M Merger Corp., a Delaware corporation and wholly owned subsidiary of Teradyne
("Merger Sub"); and (ii) the Proxy Statement of Megatest relating to the Special
Meeting.
SEE "RISK FACTORS" COMMENCING ON PAGE 17 FOR CERTAIN INFORMATION WHICH
SHOULD BE CONSIDERED BY MEGATEST STOCKHOLDERS IN EVALUATING THE PROPOSALS TO BE
VOTED ON AT THE SPECIAL MEETING.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS
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 PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to stockholders of Megatest on or about November 1, 1995.
The date of this Proxy Statement/Prospectus is November 1, 1995.
<PAGE> 5
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................................................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 3
TRADEMARKS............................................................................ 3
SUMMARY............................................................................... 4
The Companies....................................................................... 4
Special Meeting of Stockholders of Megatest......................................... 5
Stockholders Entitled To Vote....................................................... 5
Vote Required....................................................................... 5
Dissenters' Rights.................................................................. 5
Exchange Ratio; Assumption of Options............................................... 5
Market Price Data................................................................... 6
Recommendation; Fairness Opinion.................................................... 6
Effective Time of the Merger........................................................ 7
Conditions to the Merger............................................................ 7
Termination......................................................................... 7
Break-up Fees....................................................................... 7
Interests of Certain Persons in the Merger.......................................... 8
Employment Agreements............................................................... 8
Affiliate Agreements................................................................ 8
Surrender of Certificates........................................................... 8
Accounting Treatment................................................................ 9
Certain Federal Income Tax Consequences............................................. 9
Regulatory Matters.................................................................. 9
Operations Following the Merger..................................................... 9
Anti-takeover Considerations........................................................ 9
MARKET PRICE AND DIVIDEND INFORMATION................................................. 11
TERADYNE AND MEGATEST SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION............................................................... 13
TERADYNE AND MEGATEST COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE FINANCIAL DATA... 15
RISK FACTORS.......................................................................... 17
Risks Relating to the Merger........................................................ 17
Risks Relating to Teradyne.......................................................... 17
MEGATEST MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 20
THE SPECIAL MEETING................................................................... 25
General............................................................................. 25
Matters to Be Considered at the Special Meeting..................................... 25
Notification of Final Exchange Ratio................................................ 25
Record Date; Voting at the Special Meeting; Vote Required........................... 25
Proxies............................................................................. 25
THE MERGER............................................................................ 27
General............................................................................. 27
Background of the Merger............................................................ 27
Megatest's Reasons for the Merger; Recommendation of the Megatest Board............. 30
Opinion of Megatest's Financial Advisor............................................. 32
Teradyne's Reasons for the Merger................................................... 36
Operations Following the Merger..................................................... 37
Certain Federal Income Tax Consequences............................................. 37
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Accounting Treatment................................................................ 38
Interests of Certain Persons in the Merger.......................................... 38
Regulatory Matters.................................................................. 39
No Dissenters' Rights for Stockholders.............................................. 39
THE MERGER AGREEMENT AND RELATED AGREEMENTS........................................... 40
Effective Time of the Merger........................................................ 40
Exchange Ratio; Conversion of Shares; Adjustment to Exchange Ratio.................. 40
Treatment of Megatest Common Stock Options and Employee Stock Purchase Plan......... 41
Listing of Teradyne Common Stock.................................................... 41
Directors and Officers.............................................................. 41
Business of Megatest Pending the Merger............................................. 42
No Solicitation of an Acquisition Proposal.......................................... 43
Definition of Superior Proposal and Alternative Transaction......................... 43
Business of Teradyne Pending the Merger............................................. 44
Corporate Structure and Related Matters After the Merger............................ 44
Employee Benefit Plans.............................................................. 44
Conditions to the Merger............................................................ 45
Termination; Amendment.............................................................. 45
Fees and Expenses................................................................... 46
Agreements of Megatest Affiliates................................................... 46
Employment Agreements............................................................... 47
Confidentiality Agreement; Standstill Arrangements; Non Solicitation................ 47
TERADYNE AND MEGATEST UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS..... 48
DESCRIPTION OF CAPITAL STOCK.......................................................... 56
Description of Megatest Capital Stock............................................... 56
Description of Teradyne Capital Stock; Rights Plan.................................. 56
COMPARISON OF RIGHTS OF HOLDERS OF TERADYNE COMMON STOCK AND HOLDERS OF MEGATEST
COMMON STOCK........................................................................ 57
EXPERTS............................................................................... 62
LEGAL MATTERS......................................................................... 62
OTHER MATTERS......................................................................... 62
ANNEX A--AGREEMENT AND PLAN OF MERGER AND REORGANIZATION.............................. A-1
ANNEX B--OPINION OF MONTGOMERY SECURITIES............................................. B-1
</TABLE>
<PAGE> 7
AVAILABLE INFORMATION
Teradyne and Megatest are each subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements, and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at Seven World Trade Center, 13th Floor, New York, New York
10048 and Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates.
In addition, material filed by Teradyne can be inspected at the offices of The
New York Stock Exchange, 20 Broad Street, New York, New York 10005, and material
filed by Megatest can be inspected at the offices of The Nasdaq Stock Market,
Reports Section, 1735 K Street N.W., Washington, D.C. 20006.
Teradyne has filed with the Commission a Registration Statement on Form S-4
(together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities to be issued by Teradyne to holders of Megatest
Common Stock. This Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. Such
additional information may be obtained from the Commission's principal office in
Washington, D.C.
2
<PAGE> 8
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Teradyne with the Commission
are incorporated herein by reference:
1. Teradyne's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
2. Teradyne's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 2, 1995.
3. Teradyne's Quarterly Report on Form 10-Q for the fiscal quarter
ended July 2, 1995, as amended on October 26, 1995.
4. Teradyne's Quarterly Report on Form 10-Q for the fiscal quarter
ended October 1, 1995.
5. Teradyne's Current Reports on Form 8-K dated August 29, 1995 and
September 5, 1995.
6. Teradyne's Registration Statement on Form 8-A filed on April 10,
1979.
The following documents previously filed by Megatest with the Commission
are incorporated herein by reference:
1. Megatest's Annual Report on Form 10-K for the fiscal year ended
August 31, 1995.
2. Megatest's Current Report on Form 8-K dated September 5, 1995.
3. Megatest's Registration Statement on Form 8-B filed on April 15,
1993.
All documents filed by Teradyne and Megatest pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference in this Proxy Statement/Prospectus and to
be a part hereof from the dates of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (WITHOUT
EXHIBITS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE
AVAILABLE WITHOUT CHARGE UPON REQUEST. REQUESTS FOR TERADYNE DOCUMENTS SHOULD BE
DIRECTED TO TERADYNE, INC., 321 HARRISON AVENUE, BOSTON, MA 02118, ATTENTION:
INVESTOR RELATIONS, (TELEPHONE: (617) 482-2700). REQUESTS FOR MEGATEST DOCUMENTS
SHOULD BE DIRECTED TO MEGATEST CORPORATION, 1321 RIDDER PARK ROAD, SAN JOSE, CA
95131, ATTENTION: INVESTOR RELATIONS, (TELEPHONE: (408) 451-3255). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETING, ANY
REQUEST SHOULD BE MADE PRIOR TO NOVEMBER 24, 1995.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED IN THIS PROXY STATEMENT/PROSPECTUS
IN CONNECTION WITH THE MATTERS REFERRED TO HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN SO
AUTHORIZED BY TERADYNE OR MEGATEST. THIS PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO
WHICH IT RELATES, OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER
WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS SHALL NOT,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TRADEMARKS
"Teradyne" is a registered trademark of Teradyne. "Megatest" is a
registered trademark of Megatest. All other trademarks referred to in this Proxy
Statement/Prospectus are the properties of their respective owners.
3
<PAGE> 9
SUMMARY
The following is a summary of certain information regarding Teradyne,
Megatest, the Merger Agreement and the Merger and is qualified in its entirety
by reference to the full text of this Proxy Statement/Prospectus, the annexes
hereto and the documents incorporated by reference herein. Stockholders are
urged to read this Proxy Statement/Prospectus and the accompanying annexes in
their entirety. See "Risk Factors" for certain information that should be
considered by the stockholders of Megatest.
THE COMPANIES
Teradyne, Inc. Teradyne is a manufacturer of electronic test systems and
backplane connection systems used in the electronics and telecommunications
industries.
Teradyne designs, manufactures, markets, and services electronic test
systems and related software used by component manufacturers in the design and
testing of their products and by electronic equipment manufacturers for the
incoming inspection of components and for the design and testing of circuit
boards and other assemblies. Manufacturers use such systems and software to
increase product performance, to improve product quality, to shorten time to
market, to enhance manufacturability, to conserve labor costs, and to increase
production yields. Teradyne's electronic test systems are also used by telephone
operating companies for the testing and maintenance of their subscriber
telephone lines and related equipment.
Electronic test systems produced by Teradyne include: (i) test systems for
a wide variety of semiconductors, including digital, analog and mixed-signal
integrated circuits; (ii) test systems for circuit boards and other assemblies;
and (iii) test systems for telephone lines and networks. Teradyne's test systems
are all controlled by computers, and programming and operating software is
supplied both as an integral part of the product and as a separately priced
enhancement.
Teradyne also manufactures backplane connection systems, principally for
the computer, telecommunications, and military/aerospace industries. A backplane
is a panel that supports the circuit boards in an electronic assembly and
carries the wiring that connects the boards to each other and to other elements
of a system. Teradyne produces both printed circuit and metal backplanes, along
with mating circuit-board connectors. Backplanes are custom-configured to meet
specific customer requirements. Teradyne has begun to extend the manufacture of
backplane connection systems to include the manufacture of fully integrated
electronic assemblies that incorporate backplane, card cage, cabling, and
related design and production services. Teradyne's principal executive offices
are located at 321 Harrison Avenue, Boston, Massachusetts 02118 and its
telephone number at that address is (617) 482-2700.
M Merger Corp. Merger Sub is a corporation recently organized by Teradyne
for the purpose of effecting the Merger. It has no material assets and has not
engaged in any activities except those required to effect the proposed Merger.
Merger Sub's executive offices are located at 321 Harrison Avenue, Boston,
Massachusetts, 02118 and its telephone number at that address is (617) 482-2700.
Megatest Corporation. Megatest designs, manufactures, markets and services
automatic test equipment ("ATE") for the integrated circuit ("IC") industry.
Megatest currently offers four product lines -- one for testing memory ICs and
three for testing logic ICs. Megatest's Genesis IIex and Genesis G-III memory
test systems test a broad range of memory ICs, such as DRAMs and non-volatile
memories ("NVMs"), including FLASH memories and EPROMs. Megatest believes that
it is the leading supplier of ATE for testing FLASH memories, the fastest
growing type of standard memory IC. The Polaris and Vega Series, Megatest's
second and third generation logic testers using its Tester-Per-Pin architecture,
test a wide variety of high-performance logic ICs, including RISC and CISC
processors, digital signal processors and custom, semi-custom and application
specific ICs. The Voyager Series tests logic devices such as FPGAs, PLDs, and
microcontrollers and some memory devices. The Polaris and Vega systems support a
recently introduced option which incorporates certain analog functions to
address the growing mixed-signal requirements of some logic ICs. Megatest
markets its test equipment worldwide to IC producers, both those who manufacture
ICs for resale and those who manufacture ICs for inclusion in their own
products, as well as to IC customers such as manufacturers of computers and
electronic systems. Megatest's principal executive offices are located at 1321
Ridder Park, San Jose, California 95131, and its telephone number at that
address is (408) 437-9700.
4
<PAGE> 10
SPECIAL MEETING OF STOCKHOLDERS OF MEGATEST
The Special Meeting will be held at The Beverly Heritage, 1820 Barber Lane,
Milpitas, California 95035, on December 1, 1995. The purpose of the Special
Meeting is to consider and vote upon a proposal to approve and adopt the Merger
Agreement and to approve the Merger.
STOCKHOLDERS ENTITLED TO VOTE
The close of business on October 30, 1995 is the record date for
determination of holders of Megatest Common Stock entitled to vote at the
Special Meeting. At that date, 7,435,865 shares of Megatest Common Stock were
outstanding, held beneficially by approximately 1,900 stockholders. As of such
date, directors and executive officers of Megatest and their affiliates may be
deemed to be the beneficial owners of shares of Megatest Common Stock
representing approximately 6.5% of the outstanding voting power of Megatest. See
"The Special Meeting -- Record Date; Voting at the Special Meeting; Vote
Required."
The directors and executive officers of Megatest have indicated that they
intend to vote the shares of Megatest Common Stock held by them for approval and
adoption of the Merger Agreement and approval of the Merger.
VOTE REQUIRED
Approval and adoption of the Merger Agreement and approval of the Merger
will require the affirmative vote of the holders of a majority of the
outstanding shares of Megatest Common Stock entitled to vote thereon. See "The
Special Meeting -- Record Date; Voting at the Special Meeting; Vote Required."
DISSENTERS' RIGHTS
Stockholders of Megatest who vote against the Merger are not entitled to
dissenters' rights under Delaware law.
EXCHANGE RATIO; ASSUMPTION OF OPTIONS
At the Effective Time, each outstanding share of Megatest Common Stock will
be converted into the right to receive 0.9091 shares of Teradyne Common Stock,
subject to the following adjustment (0.9091 shares, as adjusted, the "Exchange
Ratio"): (i) if the Final Teradyne Stock Price (as defined below) is equal to or
less than $36.00 per share, no adjustment to the Exchange Ratio shall be made;
(ii) if the Final Teradyne Stock Price is greater than $36.00 per share then the
Exchange Ratio shall be adjusted pursuant to the following formula:
1
Exchange Ratio = -------------------------------------------
(Final Teradyne Stock Price x 0.02) + 0.38
but in no event will the Exchange Ratio be greater than 0.9091 or less than
0.8333. "Final Teradyne Stock Price" shall mean the average of the closing
prices of Teradyne Common Stock for the twenty consecutive days on which
Teradyne Common Stock is traded on The New York Stock Exchange (the "NYSE")
ending on the fifth calendar day immediately preceding the Special Meeting. See
"The Merger Agreement and Related Agreements -- Exchange Ratio; Conversion of
Shares; Adjustment to Exchange Ratio."
At the Effective Time (as hereinafter defined), Megatest's obligations with
respect to each outstanding option to purchase shares of Megatest Common Stock
(each, a "Company Option") under Megatest's 1990 Stock Option Plan and Director
Stock Option Plan (the "Company Stock Option Plans"), whether vested or
unvested, will be assumed by Teradyne. Each Company Option so assumed by
Teradyne shall continue to have, and be subject to, the same terms and
conditions set forth in the Company Stock Option Plans and agreements pursuant
to which such Company Option was issued as in effect immediately prior to the
Effective Time, except that (i) such Company Option will be exercisable for that
number of shares of Teradyne Common Stock equal to the product of the number of
shares of Megatest Common Stock that were purchasable under such Company Option
immediately prior to the Effective Time multiplied by the Exchange
5
<PAGE> 11
Ratio, rounded down to the nearest whole number of shares of Teradyne Common
Stock (with any resulting fractional share paid in cash), and (ii) the per share
exercise price for the shares of Teradyne Common Stock issuable upon exercise of
such assumed Company Option will be equal to the quotient determined by dividing
the exercise price per share of Megatest Common Stock immediately prior to the
Effective Time by the Exchange Ratio, and rounding the resulting exercise price
up to the nearest whole cent.
Teradyne will file a registration statement on Form S-8 under the
Securities Act, covering the shares of Teradyne Common Stock issuable upon
exercise of the Company Stock Options no later than the Effective Time. See "The
Merger Agreement and Related Agreements -- Treatment of Megatest Common Stock
Options and Employee Stock Purchase Plan."
Additionally, Megatest shall take such actions as are necessary to
establish a "new exercise date" (as such term is used in Megatest's 1992
Employee Stock Purchase Plan (the "Megatest Stock Purchase Plan")) in accordance
with the terms of the Megatest Stock Purchase Plan (the "New Exercise Date") for
the then current offering period (as such term is used in the Megatest Stock
Purchase Plan). The New Exercise Date shall be the last trading day on which
shares of Megatest Common Stock are traded on the Nasdaq National Market
immediately prior to the Effective Time provided, that the New Exercise Date
shall be conditioned upon the consummation of the Merger. On the New Exercise
Date, Megatest shall apply the funds credited as of such date under the Megatest
Stock Purchase Plan within each participant's payroll withholdings account to
the purchase of whole shares of Megatest Common Stock in accordance with the
terms of the Megatest Stock Purchase Plan.
Employees of Megatest as of the Effective Time shall be eligible to
participate in Teradyne's Employee Stock Purchase Plan commencing on the first
enrollment date following the Effective Time, subject to compliance with the
eligibility provisions of such plan (with employees receiving credit, for
purposes of such eligibility provisions, for service with Megatest).
MARKET PRICE DATA
Megatest Common Stock is traded on the Nasdaq National Market under the
symbol "MEGT." Teradyne Common Stock is traded on the NYSE under the symbol
"TER."
<TABLE>
The following table sets forth the closing prices per share of Megatest
Common Stock on the Nasdaq National Market and Teradyne Common Stock on the NYSE
on September 5, 1995, the last full trading day before the public announcement
of the execution of the Merger Agreement and on October 30, 1995, the latest
practicable trading day before printing of this Proxy Statement/Prospectus and
the equivalent pro forma per share value of Megatest Common Stock based on
Teradyne Common Stock prices.
<CAPTION>
MEGATEST
MEGATEST TERADYNE PRO FORMA
COMMON STOCK COMMON STOCK EQUIVALENT(1)
------------ ------------ --------------
<S> <C> <C> <C>
September 5, 1995............................. $24.25 $39.50 $35.91
October 30, 1995.............................. $29.94 $34.25 $31.14
<FN>
- ---------------
(1) Represents the equivalent pro forma value of one share of Megatest Common
Stock using an Exchange Ratio of 0.9091 at September 5, 1995 and at October
30, 1995.
</TABLE>
RECOMMENDATION; FAIRNESS OPINION
The Board of Directors of Megatest (the "Megatest Board") has unanimously
approved the Merger Agreement and recommends that holders of Megatest Common
Stock vote for the approval and adoption of the Merger Agreement and approval of
the Merger.
Montgomery Securities has delivered to the Megatest Board its written
opinion, dated September 5, 1995, to the effect that the consideration to be
received by Megatest stockholders in the Merger was fair to such stockholders
from a financial point of view, as of such date. The full text of the opinion
from Montgomery Securities which sets forth assumptions made and matters
considered is attached as Annex B to
6
<PAGE> 12
this Proxy Statement/Prospectus and is incorporated herein by reference. See
"The Merger -- Opinion of Megatest's Financial Advisor."
EFFECTIVE TIME OF THE MERGER
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in the Merger Agreement, the parties thereto will file a
certificate of merger with the Secretary of State of Delaware. The Merger will
become effective upon such filing (the "Effective Time"), which, assuming all
conditions are met, is anticipated to occur promptly after the Special Meeting.
See "The Merger Agreement and Related Agreements -- Effective Time of the
Merger."
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the satisfaction of a number of
conditions, including but not limited to: (i) effectiveness of the Registration
Statement on Form S-4 under the Securities Act; (ii) the approval and adoption
of the Merger Agreement by the requisite vote of the stockholders of Megatest;
(iii) the absence of any restrictive court orders or any other legal restraints
or prohibitions, preventing or making illegal the consummation of the Merger;
(iv) the continuing accuracy in all material respects of the representations and
warranties made by each of Megatest and Teradyne in the Merger Agreement on and
as of the Effective Time; (v) the receipt of agreements from certain affiliates
of Megatest; and (vi) the receipt by Teradyne and Megatest of certain opinions
regarding tax and accounting matters. See "The Merger Agreement -- Conditions to
the Merger."
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned
prior to the Effective Time notwithstanding approval by the stockholders of
Megatest under the circumstances specified in the Merger Agreement, including,
without limitation: (i) by mutual written agreement of Teradyne and Megatest;
(ii) by either party if the Merger is not consummated by January 31, 1996
(provided that the right to terminate the Merger Agreement shall not be
available to any party whose failure to fulfill any obligation under the Merger
Agreement has been the cause of or resulted in the failure of the Merger to
occur); (iii) by either party if a court of competent jurisdiction or
governmental agency shall have issued a non-appealable final order, decree or
ruling having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger; (iv) by either party if the requisite vote of the
stockholders of Megatest is not obtained; (v) by Teradyne if the Megatest Board
adversely amends, withdraws or changes its recommendation of the Merger
Agreement or the Merger or if the Megatest Board takes a "neutral" position with
respect to the Merger Agreement or the Merger after the public announcement of
an Alternative Transaction (as hereinafter defined); (vi) by either party if the
Megatest Board shall have resolved to accept, or has accepted, a Superior
Proposal (as hereinafter defined); or (vii) by either party upon a breach of any
representation, warranty or covenant set forth in the Merger Agreement by the
other party in each case that would have a Material Adverse Effect (as
hereinafter defined). See "The Merger Agreement -- Termination; Amendment."
BREAK-UP FEES
Megatest will be required to pay a fee to Teradyne of $9,000,000, plus
reasonable out-of-pocket expenses in an aggregate amount not to exceed
$1,000,000 upon any of the following events: (i) the termination of the Merger
Agreement by Teradyne in the event that the Megatest Board shall withdraw,
modify or change its recommendation of the Merger Agreement or the Merger in a
manner adverse to Teradyne or if the Megatest Board shall have taken a "neutral"
position with respect to the public announcement or commencement of an
Alternative Transaction; (ii) the termination of the Merger Agreement by
Teradyne for a breach by Megatest of any of its representations, warranties or
covenants contained in the Merger Agreement in each case that would have a
Material Adverse Effect; (iii) the termination of the Merger Agreement by
Teradyne or Megatest if the Megatest Board shall have resolved to accept or
accepted a Superior Proposal; or (iv) the termination of the Merger Agreement by
Teradyne or Megatest as a result of the failure of the Megatest stockholders to
approve the Merger if at the time of the Special Meeting there shall exist an
Alternative
7
<PAGE> 13
Transaction (provided that Megatest shall not be obligated to pay a fee in this
circumstance unless such Alternative Transaction is consummated not later than
nine months following the Special Meeting). The fee payable by Megatest
generally must be paid within ten business days with respect to 20% of the fee
and within thirty business days with respect to the balance of the fee. See "The
Merger Agreement and Related Agreements -- Fees and Expenses."
Teradyne is obligated to pay a fee in like amount if the Merger Agreement
is terminated by Megatest for a breach by Teradyne of any of its
representations, warranties or covenants contained in the Merger Agreement in
each case that would have a Material Adverse Effect. Teradyne is also obligated
to reimburse Megatest for up to $3,000,000 of its reasonable out-of-pocket
expenses incurred by Megatest in connection with matters relating to Megatest's
filings under the HSR Act if either party terminates the Merger Agreement
because the Merger has not been consummated by January 31, 1996 or because the
Merger Agreement is terminated by either party due to the existence of any
governmental action relating to the HSR Act which prevents the consummation of
the Merger. See "The Merger Agreement and Related Agreements -- Fees and
Expenses."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Megatest Board with respect to the
Merger, stockholders should be aware that certain directors and officers of
Megatest have interests in the Merger that present them with potential conflicts
of interest. See "The Merger -- Interests of Certain Persons in the Merger."
EMPLOYMENT AGREEMENTS
Teradyne has agreed to offer eight executive officers of Megatest
employment agreements (the "Employment Agreements") on or prior to the Effective
Time. The Employment Agreements will have a two-year term and will include
non-competition covenants binding on such officers. See "Terms of the Merger --
Employment Agreements."
AFFILIATE AGREEMENTS
The persons identified by Megatest as "affiliates" (as that term is defined
for purposes of Rule 145 promulgated under the Securities Act) of Megatest will,
prior to the Effective Time, enter into agreements restricting sales,
dispositions or other transactions reducing their risk of investment in respect
of the shares of Megatest Common Stock held by them prior to the Merger and the
shares of Teradyne Common Stock received by them in the Merger so as to comply
with the requirements of applicable federal securities and tax laws and to help
ensure that the Merger will be treated as a "pooling of interests" for
accounting and financial reporting purposes. See "The Merger Agreement and
Related Agreements -- Agreements of Megatest Affiliates." Teradyne has agreed to
use its best efforts to cause each affiliate of Teradyne to execute an affiliate
agreement substantially similar to the Megatest affiliate agreements.
SURRENDER OF CERTIFICATES
If the Merger becomes effective, Teradyne will mail a letter of transmittal
with instructions to all holders of record of Megatest Common Stock as of the
Effective Time for use in surrendering their stock certificates in exchange for
certificates representing Teradyne Common Stock and a cash payment in lieu of
fractional shares.
CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF TRANSMITTAL IS
RECEIVED.
8
<PAGE> 14
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Teradyne and Megatest have each received
letters from their respective independent accountants stating that, based upon
certain material facts and certain representations and warranties described in
such letters, there were no significant matters that came to their attention
that would preclude the combined companies from accounting for the Merger as a
pooling of interests. It is a condition to the closing that Teradyne and
Megatest receive further letters from their respective independent accountants
dated at the Effective Time to the effect that such accounting treatment is
appropriate.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is expected to qualify as a tax-free reorganization under
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, holders of Megatest Common Stock will not recognize gain or loss
for federal income tax purposes by reason of the conversion of Megatest Common
Stock into Teradyne Common Stock, except for cash received in lieu of fractional
shares. It is a condition to Teradyne's and Megatest's obligations to consummate
the Merger that they shall have received opinions from their tax counsel that
the Merger will qualify as a tax-free reorganization under Section 368 of the
Code. See "The Merger -- Certain Federal Income Tax Consequences."
REGULATORY MATTERS
Under the HSR Act, the Merger may not be consummated until notifications
have been given and certain information has been furnished to the United States
Federal Trade Commission (the "FTC") and the Antitrust Division of the United
States Justice Department (the "Antitrust Division"), and specified waiting
period requirements have been satisfied. The waiting period for the Merger
expired at 11:59 p.m. on October 18, 1995. At any time before or after the
Effective Time, the FTC or the Antitrust Division could take such action under
the antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the Merger or seeking the divestiture of Megatest by
Teradyne, in whole or in part, or the divestiture or compulsory licensing of
substantial assets of Teradyne or Megatest or their respective subsidiaries. See
"The Merger -- Regulatory Matters."
OPERATIONS FOLLOWING THE MERGER
Following the Effective Time, it is Teradyne's present intention to operate
Megatest as an independent division of Teradyne with the division's headquarters
remaining in Northern California. Teradyne's divisions generally operate as
independent business units. Each division at Teradyne is responsible for its own
commercial success. Megatest will be the surviving corporation following the
Merger and will be a wholly owned subsidiary of Teradyne.
The officers of the surviving corporation initially will consist of the
officers of Merger Sub prior to the Merger and will be appointed by Teradyne,
and such officers shall serve at the pleasure of the Board of Directors of the
surviving corporation. The Board of Directors of the surviving corporation
initially will consist of Megatest's five outside directors and such additional
directors as shall be appointed by Teradyne. It is intended that the directors
to be appointed by Teradyne immediately following the Effective Time will
exercise effective control of the Board of the surviving corporation. It is
Teradyne's present intention that following the Effective Time Megatest
employees shall be employees of the surviving corporation.
ANTI-TAKEOVER CONSIDERATIONS
Upon consummation of the Merger, the stockholders of Megatest, a
corporation organized under the laws of Delaware, will become shareholders of
Teradyne, a corporation organized under the laws of Massachusetts. Certain
provisions of Massachusetts law applicable to Teradyne may have the effect of
delaying, deterring, or preventing changes in control or management of Teradyne.
Teradyne is also a party to a Rights Agreement (as hereinafter defined) which
may further this effect. Teradyne is subject to Chapter 110D of the
Massachusetts General Laws under which a person who acquires voting stock of a
Massachusetts corporation which results in
9
<PAGE> 15
such person's voting power exceeding certain specified amounts would lose the
right to vote such stock unless the shareholders of the corporation so
authorize. Teradyne is also subject to the provisions of Chapter 110F of the
Massachusetts General Laws which prohibits a Massachusetts corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
becomes an interested stockholder. An "interested stockholder" is generally
defined to mean a person or entity that has acquired 5% or more of the
corporation's voting stock. Section 50A of the Massachusetts Business
Corporation Law generally requires that publicly held Massachusetts corporations
have a classified board of directors consisting of three classes as nearly equal
in size as possible. This section limits the ability of a shareholder to acquire
majority control of the Board of Directors in a single year. The Rights
Agreement, which provides for the issuance of rights upon the occurrence of
certain events, would result in significant dilution to a bidder for Teradyne,
thereby discouraging a prospective bidder from attempting to acquire Teradyne
without first negotiating with Teradyne's Board of Directors. See "Comparison of
Rights of Holders of Teradyne Common Stock and Holders of Megatest Common
Stock."
10
<PAGE> 16
<TABLE>
MARKET PRICE AND DIVIDEND INFORMATION
The following table sets forth, for the periods indicated, the range of
high and low sale prices for Teradyne Common Stock in The New York Stock
Exchange Composite Transactions Tape (as reported in published financial
sources) giving effect to a two-for-one stock split in the form of a 100% stock
dividend effective August 29, 1995. The closing price for Teradyne Common Stock
on the NYSE on September 5, 1995, the last trading day prior to the public
announcement of the Merger, was $39 1/2 and on October 30, 1995, the latest
practicable trading day before the printing of this Proxy Statement/Prospectus,
was $34 1/4.
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31 HIGH LOW
- ------------------------------ ---- ----
<S> <C> <C>
1993
First Quarter............................................................... $ 9 1/16 $ 6 5/8
Second Quarter.............................................................. 10 3/4 6 1/2
Third Quarter............................................................... 14 13/16 10 1/4
Fourth Quarter.............................................................. 14 1/8 10
1994
First Quarter............................................................... $15 9/16 $11 3/4
Second Quarter.............................................................. 13 3/8 10 3/1
Third Quarter............................................................... 16 11 3/4
Fourth Quarter.............................................................. 17 1/8 12 13/1
1995
First Quarter............................................................... $21 1/2 $16 1/16
Second Quarter.............................................................. 33 20 1/16
Third Quarter............................................................... 42 7/8 32 1/4
Fourth Quarter (through October 30, 1995)................................... 36 5/8 27 5/8
</TABLE>
11
<PAGE> 17
<TABLE>
Megatest Common Stock has been traded on The Nasdaq National Market since
Megatest's initial public offering on May 18, 1993. The following table sets
forth the range of high and low sale prices reported on The Nasdaq National
Market for Megatest Common Stock for the fiscal periods indicated. The closing
price for Megatest Common Stock on The Nasdaq National Market on September 5,
1995, the last trading day prior to the public announcement of the Merger, was
$24 1/4 and on October 30, 1995, the latest practicable trading day before the
printing of this Proxy Statement/Prospectus, was $29 15/16.
<CAPTION>
FISCAL YEARS ENDED AUGUST 31 HIGH LOW
- ---------------------------- ---- ---
<S> <C> <C>
1993
Third Quarter (commencing May 18, 1993)..................................... $16 1/4 $12 1/2
Fourth Quarter.............................................................. 23 1/4 15
1994
First Quarter............................................................... $23 1/4 $10 1/8
Second Quarter.............................................................. 20 1/2 11 1/2
Third Quarter............................................................... 23 1/2 13 1/2
Fourth Quarter.............................................................. 20 1/4 13 1/2
1995
First Quarter............................................................... $20 1/2 $ 8 1/4
Second Quarter.............................................................. 11 3/8 5 1/8
Third Quarter............................................................... 14 8 1/2
Fourth Quarter.............................................................. 24 1/8 11 7/8
1996
First Quarter (through October 30, 1995).................................... $34 $23 1/2
</TABLE>
As of October 30, 1995, Teradyne had approximately 2,606 holders of record.
As of October 30, 1995, Megatest had approximately 1,900 beneficial holders of
its common stock. Neither Teradyne nor Megatest has paid any cash dividends on
their common stock. Both Teradyne and Megatest currently intend to retain
earnings for use in their respective businesses and do not anticipate paying
cash dividends on their common stock in the foreseeable future. The Merger
Agreement prohibits the payment of any dividends by Megatest prior to the
Effective Time. In addition, Megatest is prohibited from paying cash dividends
without the approval of its banks under its existing credit facilities.
12
<PAGE> 18
TERADYNE AND MEGATEST
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
The following selected historical information of Teradyne and Megatest has
been derived from their respective historical financial statements and should be
read in conjunction with such consolidated financial statements and the notes
thereto, certain of which are incorporated by reference in this Proxy
Statement/Prospectus. The Teradyne unaudited financial information for the nine
months ended October 2, 1994 and October 1, 1995 has been prepared on the same
basis as the annual audited financial statements and, in the opinion of
management, contains all adjustments, consisting only of normal recurring
accruals necessary for the fair presentation of the results of operations for
such periods. The selected pro forma financial information of Teradyne and
Megatest is derived from the pro forma condensed combined financial statements
of Teradyne and Megatest, and should be read in conjunction with such pro forma
statements and notes thereto which are included in this Proxy Statement/
Prospectus. For the purpose of the pro forma statement of operations data,
Teradyne's financial data for the nine months ended October 2, 1994 and October
1, 1995 and the three years ended December 31, 1992, 1993 and 1994 have been
combined with Megatest's financial data for the nine month periods ended August
31, 1994 and 1995 and the twelve month periods ended November 30, 1992, 1993 and
1994, respectively. No cash dividends have been declared or paid on Teradyne
Common Stock or Megatest Common Stock. The pro forma information is presented
for illustrative purposes only and is not necessarily indicative of the
consolidated operating results or financial position that would have occurred
had the Merger been consummated at the beginning of the periods presented, nor
is it necessarily indicative of future operating results or financial position.
<TABLE>
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, -----------------------
---------------------------------------------------- OCTOBER 2, OCTOBER 1,
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
TERADYNE -- HISTORICAL STATEMENT OF
OPERATIONS DATA:
Net sales................................ $458,877 $508,923 $529,581 $554,734 $677,440 $487,349 $754,952
Income (loss) from continuing
operations............................. $(21,332) $ 18,253 $ 22,548 $ 35,923 $ 70,941 $ 48,475 $113,464
Income (loss) from continuing operations
per common share(1).................... $ (0.36) $ 0.29 $ 0.33 $ 0.50 $ 0.96 $ 0.66 $ 1.47
Shares used in calculation of income per
common share(1)........................ 59,854 63,108 67,700 71,664 74,190 73,976 77,253
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- OCTOBER 2, OCTOBER 1,
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
TERADYNE -- HISTORICAL BALANCE SHEET DATA:
Total assets............................. $388,931 $420,533 $461,055 $544,443 $655,942 $609,022 $848,866
Long-term debt........................... $ 25,045 $ 24,344 $ 23,647 $ 9,138 $ 8,806 $ 9,099 $ 8,482
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
------------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
MEGATEST -- HISTORICAL STATEMENT OF OPERATIONS DATA:
Net revenues.................................................... $ 59,676 $ 65,491 $ 78,405 $100,291 $ 97,459
Income (loss) from continuing operations........................ $ 2,226 $ 3,864 $ 5,279 $ 9,099 $(12,190)
Income (loss) from continuing operations per common share....... $ 0.58 $ 0.95 $ 1.11 $ 1.26 $ (1.69)
Shares used in calculation of income per common share........... 3,823 4,075 4,752 7,204 7,230
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31,
------------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
MEGATEST -- HISTORICAL BALANCE SHEET DATA:
Total assets.................................................... $ 40,412 $ 41,157 $ 67,664 $101,083 $118,858
Long-term debt.................................................. $ 2,075 $ 2,181 $ 804 $ 414 $ 11,728
</TABLE>
13
<PAGE> 19
<TABLE>
UNAUDITED SELECTED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------------
---------------------------------- OCTOBER 2, OCTOBER 1,
1992 1993 1994 1994 1995
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PRO FORMA CONDENSED COMBINED INCOME DATA(2):
Net sales............................................. $598,972 $636,465 $767,486 $565,193 $840,209
Income from continuing operations..................... $ 26,516 $ 42,475 $ 65,796 $ 55,796 $113,740
Income from continuing operations per common
share(1)............................................ $ 0.37 $ 0.55 $ 0.82 $ 0.69 $ 1.35
Shares used in calculation of income per common
share(1)............................................ 71,402 76,580 80,699 80,649 83,983
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 1,
1995
-----------
<S> <C>
PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA(2):
Total assets............................................................................................ $ 967,724
Long-term debt.......................................................................................... $ 20,210
<FN>
- ------------
(1) On July 24, 1995, Teradyne's Board of Directors approved a 2-for-1 stock
split of its $0.125 par value common stock effected in the form of a 100%
stock dividend distributed on August 29, 1995 to shareholders of record as
of August 8, 1995. All per share amounts and shares used in calculations of
income per common share as reported in the historical financial statements
incorporated by reference herein have been restated to reflect the
retroactive effect of the stock split.
(2) The combined companies expect to incur charges to operations of
approximately $5,500,000 in the quarter in which the Merger is consummated,
to reflect costs associated with combining the operations of the two
companies and transaction fees and costs incident to the Merger. The
estimated charge is not reflected in the pro forma financial data. The
amount of this charge is a preliminary estimate and therefore is subject to
change.
</TABLE>
See unaudited pro forma condensed combined financial statements and the notes
thereto included elsewhere herein.
14
<PAGE> 20
<TABLE>
TERADYNE AND MEGATEST
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE FINANCIAL DATA
The following tables set forth certain unaudited historical per share data
of Teradyne and Megatest and combined per share data on an unaudited pro forma
basis after giving effect to the Merger on a pooling of interests basis assuming
the issuance of 0.9091 shares of Teradyne Common Stock in exchange for each
share of Megatest Common Stock. The unaudited pro forma combined financial data
are not necessarily indicative of the operating results that would have been
achieved had the transaction been in effect as of the beginning of the periods
presented and should not be construed as representative of future operations.
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------------
---------------------------- OCTOBER 2, OCTOBER 1,
1992 1993(1) 1994 1994 1995
----- ------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
TERADYNE -- HISTORICAL(2):
Income from continuing operations........... $0.33 $0.50 $ 0.96 $ 0.66 $ 1.47
Book value(3)............................... $ 6.78 $ 8.53
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST
31,
--------------------------
1993 1994(1) 1995
----- ----- ------
<S> <C> <C> <C>
MEGATEST -- HISTORICAL:
Income (loss) from continuing operations......................... $1.11 $1.26 $(1.69)
Book value(3).................................................... $ 8.81
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------------
---------------------------- OCTOBER 2, OCTOBER 1,
1992 1993(1) 1994(1) 1994 1995
----- ------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED -- PER COMBINED COMPANIES
SHARE(4):
Income from continuing operations......... $0.37 $0.55 $ 0.82 $ 0.69 $ 1.35
Book value(3)............................. $ 7.06 $ 8.62
EQUIVALENT PRO FORMA COMBINED -- PER
MEGATEST SHARE(5):
Income from continuing operations......... $0.34 $0.50 $ 0.75 $ 0.63 $ 1.23
Book value................................ $ 6.42 $ 7.84
<FN>
- ------------
(1) Teradyne's and Megatest's income from continuing operations per share for
the year ended December 31, 1993 and fiscal year ended August 31, 1994, is
before extraordinary item and the cumulative effect of adopting a new
accounting principle, respectively.
(2) On July 24, 1995, Teradyne's Board of Directors approved a 2-for-1 stock
split of its $0.125 par value common stock effected in the form of a 100%
stock dividend distributed on August 29, 1995 to shareholders of record as
of August 8, 1995. All per share amounts and shares used in calculations of
income per common share as reported in the historical financial statements
incorporated by reference herein have been restated to reflect the
retroactive effect of the stock split.
(3) Historical book value per share is computed by dividing shareholders' equity
by the number of shares of common stock outstanding at the end of each
period. Pro forma combined -- per combined companies share book value is
computed by dividing pro forma shareholders' equity by the pro forma number
of shares of Teradyne Common Stock which would have been outstanding had the
Merger been consummated as of each balance sheet date.
(4) For the purposes of the pro forma, combined income from continuing
operations and book value data, Teradyne's financial data for the periods
ended October 2, 1994 and October 1, 1995 and the three years ended December
31, 1992, 1993 and 1994 have been combined with Megatest's financial data
for the nine month periods ended August 31, 1994 and 1995 and for the twelve
month periods ended November 30, 1992, 1993 and 1994.
</TABLE>
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<PAGE> 21
(5) The equivalent pro forma combined share amounts per Megatest share are
calculated by multiplying the combined pro forma per share amounts by the
Exchange Ratio of 0.9091 of a share of Teradyne Common Stock for each share
of Megatest Common Stock. The Exchange Ratio was calculated using the
average of the closing prices of Teradyne Common Stock for the twenty
consecutive days ending on October 30, 1995.
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<PAGE> 22
RISK FACTORS
The following risk factors should be considered by holders of Megatest
Common Stock in evaluating whether to approve the Merger Agreement and the
Merger and thereby become holders of Teradyne Common Stock. Certain of these
factors relate directly to the Merger while others are present in Teradyne's
general business environment independent of the Merger. These factors should be
considered in conjunction with the other information included and incorporated
by reference in this Proxy Statement/Prospectus.
RISKS RELATING TO THE MERGER
UNCERTAINTIES RELATING TO INTEGRATION OF OPERATIONS. Teradyne and Megatest
have entered into the Merger Agreement with the expectation that the proposed
Merger will result in beneficial synergies. These include the combination of the
companies' technologies to create better, more cost-effective products, the
combined business' ability to offer integrated solutions, and some anticipated
savings. Achieving these anticipated benefits will depend in part on whether the
operations of Megatest can be integrated with Teradyne's business in an
efficient and effective manner. There is no assurance that this will occur. The
combination of the companies will require, among other things, integration of
the companies' respective product offerings and coordination of the companies'
sales and marketing and research and development efforts. The success of this
process will be significantly influenced by the ability of the combined business
to retain key management, sales and research and development personnel. There is
no assurance that this integration will be accomplished smoothly or
successfully. The integration of operations following the Merger will require
the dedication of management resources, which may temporarily distract attention
from the day-to-day business of the combined business. The inability of
management to successfully integrate the operations of the companies could have
an adverse effect on the business and results of operations of the combined
companies.
DEPENDENCE ON MAJOR CUSTOMERS. There is no assurance that the present and
potential customers of Teradyne and Megatest will continue their current buying
patterns without regard to the proposed Merger, and any significant delay or
reduction in orders could have an adverse effect on the near-term business and
results of operations of the combined companies. A high percentage of Megatest's
net revenues are concentrated in five customers. Megatest believes that its
success, and the success in part of the combined companies, depends in large
part upon the success of the ICs being tested by these and other key customers.
The loss of any of Megatest's major customers or a reduction in orders by such
customers, including reductions due to market or competitive conditions in the
IC industry, would have an adverse effect on Megatest's results of operations
and may have an adverse effect on the operation of the combined companies.
RETENTION OF KEY PERSONNEL. The success of the combined business will
depend, in part, on the continued contributions of Megatest's key personnel. The
services of these key personnel could be difficult to replace. The success of
the combined companies also depends, in part, on its ability to continue to
attract and retain qualified technical, managerial, sales and marketing
personnel. The competition for such personnel is intense in the industries
served by Teradyne and Megatest.
RISKS RELATING TO TERADYNE
CYCLICALITY OF SEMICONDUCTOR INDUSTRY. Teradyne's business and results of
operations depend in significant part upon the capital expenditures of
manufacturers of semiconductors, which in turn depend upon the current and
anticipated market demand for semiconductors and products incorporating
semiconductors. Historically, the semiconductor industry has been highly
cyclical with recurring periods of oversupply, which often have had a severe
effect on the semiconductor industry's demand for test equipment, including the
systems manufactured and marketed by Teradyne. Teradyne believes that the
markets for newer generations of semiconductors will also be subject to similar
fluctuations. In recent years, the semiconductor industry has experienced
significant growth which, in turn, has caused significant growth in the capital
equipment industry. There can be no assurance that such growth can be sustained.
In addition, any factor adversely affecting the semiconductor industry or
particular segments within the semiconductor industry may adversely affect
Teradyne's business, financial condition and operating results. Therefore, there
can be no assurance that
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<PAGE> 23
Teradyne's operating results will not be materially adversely affected if
downturns or slowdowns in the semiconductor industry occur in the future.
HIGHLY COMPETITIVE INDUSTRY. Teradyne faces substantial competition
throughout the world, primarily from electronic test systems manufacturers
located in the United States, Europe and Japan, as well as several of Teradyne's
customers. Some of Teradyne's competitors have substantially greater financial
and other resources with which to pursue engineering, manufacturing, marketing
and distribution of their products. Certain of Teradyne's competitors have
introduced or announced new products with certain performance characteristics
which may be considered equal or superior to those currently offered by
Teradyne. Teradyne expects its competitors to continue to improve the
performance of their current products and to introduce new products or new
technologies that provide improved cost of ownership and performance
characteristics. New product introductions by Teradyne's competitors could cause
a decline in sales or loss of market acceptance of Teradyne's existing products.
Moreover, increased competitive pressure could lead to intensified price-based
competition, which could materially adversely affect Teradyne's business,
financial condition and results of operations. Teradyne has experienced
significant price competition in the sale of all of its test systems. In
addition, at the end of a product life cycle and as competitors introduce more
technologically advanced products, pricing pressures typically become more
intense. There can be no assurance that the combined companies will be able to
compete successfully in the future.
TECHNOLOGICAL CHANGE; IMPORTANCE OF TIMELY PRODUCT INTRODUCTION. The
electronic test systems industry is subject to rapid technological change and
new product introductions and enhancements. Teradyne's ability to remain
competitive in this market will depend in significant part upon its ability to
continue to successfully develop and introduce new products and enhancements on
a timely and cost-effective basis. The success of Teradyne in developing new and
enhanced systems depends upon a variety of factors, including new product
selection, development of competitive products by competitors, timely and
efficient completion of product design, timely and efficient implementation of
manufacturing and assembly processes and product performance at customer
locations. Because new product development commitments must be made well in
advance of sales, new product decisions must anticipate both future demand and
the availability of technology to satisfy that demand. Teradyne's failure to
have a competitive test system available when required by a customer could make
it substantially more difficult for Teradyne to sell test systems to that
customer for a number of years. There can be no assurance that Teradyne will be
successful in selecting, developing, manufacturing and marketing new products or
enhancements. The inability of Teradyne to introduce new products that
contribute significantly to net sales and gross margins could have a material
adverse effect on Teradyne's business, financial condition and results of
operations. In addition, new product or technology introductions by Teradyne's
competitors could cause a decline in sales or loss of market acceptance of
Teradyne's existing products.
LIMITATIONS ON PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS. Teradyne attempts to protect its intellectual property rights through
patents, trade secrets and other measures. There can be no assurance that others
will not independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to Teradyne's trade secrets and other
intellectual property rights or disclose such technology or that Teradyne can
meaningfully protect its trade secrets or other intellectual property rights.
There can be no assurance that any patent owned by Teradyne will not be
invalidated, circumvented or challenged, that the rights granted thereunder will
provide competitive advantages to Teradyne or that any of Teradyne's pending or
future patent applications, whether or not being currently challenged by
applicable governmental patent examiners, will be issued with the scope of the
claims sought by Teradyne, if at all. Furthermore, there can be no assurance
that others will not develop similar products, duplicate Teradyne's products or
design around the patents owned by Teradyne. There can be no assurance that
foreign intellectual property laws will protect Teradyne's intellectual property
rights.
In addition, litigation may be necessary to enforce Teradyne's patents and
other intellectual property rights, to protect Teradyne's trade secrets, to
determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. Such litigation could
result in substantial costs and diversion of resources and could have a material
adverse effect on Teradyne's business, financial condition and results of
operations.
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<PAGE> 24
INTERNATIONAL SALES. International sales accounted for approximately 46%,
41% and 42% of total net sales in fiscal years 1994, 1993 and 1992,
respectively. As a result, a significant portion of Teradyne's sales is subject
to certain risks, including tariffs and other barriers, political and economic
instability, difficulties in managing distributors, potentially adverse tax
consequences and the possibility of difficulty in accounts receivable
collection. Teradyne is also subject to the risks associated with the imposition
of legislation and regulations relating to the import or export of semiconductor
products. Teradyne cannot predict whether quotas, duties, taxes or other charges
or restrictions will be implemented by the United States or any other country
upon the importation or exportation of Teradyne's products in the future. There
can be no assurance that any of these factors or the adoption of restrictive
policies will not have a material adverse effect on Teradyne's business,
financial condition and results of operations.
POSSIBLE VOLATILITY OF STOCK PRICE. Teradyne believes that factors such as
announcements of developments related to Teradyne's, its customers' or its
competitors' business, quarterly fluctuations in Teradyne's financial results
and general conditions in the semiconductor and capital equipment industry, an
outbreak of hostilities, a shortfall in revenue or earnings from securities
analysts' expectations, the semiconductor industry or the economy could cause
the price of Teradyne's Common Stock to fluctuate, perhaps substantially. Many
companies in the electronic test equipment industry, including Teradyne, have
recently experienced historical highs in the market prices of their common
stock. There can be no assurance that the market price of Teradyne's Common
Stock will not experience significant fluctuations in the future, including
fluctuations that are unrelated to Teradyne's performance.
DEPENDENCE ON KEY EMPLOYEES. Teradyne's future success depends upon its
ability to attract and retain qualified management, technical, sales and support
personnel for its operations. Competition for such personnel is intense, and
there can be no assurance that Teradyne will be successful in attracting or
retaining such personnel. The loss of any key employees, the failure of any key
employees to perform in their current positions or Teradyne's inability to
attract and retain new skilled employees as needed could materially and
adversely affect Teradyne's performance.
FLUCTUATIONS IN OPERATING RESULTS. Teradyne's sales and operating results
have fluctuated and could in the future fluctuate significantly from period to
period, including from one quarterly period to another, due to a combination of
factors, including the cyclical demand of the semiconductor industry, the large
selling prices of Teradyne's test systems, and competitive pricing pressure.
Teradyne has also experienced fluctuations in its gross margin on product sales.
Given the relatively high selling prices of Teradyne's test systems, sales of a
limited number of test systems may account for a substantial portion of sales in
any particular quarter and a small number of transactions could therefore have a
significant impact on sales and gross margins for the quarter. The impact of
these and other factors on Teradyne's sales and operating results in any future
period cannot be forecast with accuracy. In addition, the need for continued
investments in research and development, capital equipment and worldwide
customer support capability results in significant fixed costs which would be
difficult to reduce in the event that Teradyne does not meet its sales
objectives.
DEPENDENCE UPON CERTAIN SUPPLIERS. Teradyne's products require a wide
variety of electronic and mechanical components. In the past, Teradyne has
experienced occasional delays in obtaining timely delivery of certain items.
Additionally, Teradyne could experience a temporary adverse impact if any of its
sole source suppliers ceased to deliver products. Any prolonged inability of
Teradyne to obtain adequate yields or deliveries, or any other circumstances
that would require Teradyne to seek alternative sources of supply could have a
material adverse effect on Teradyne's business, financial condition and results
of operations.
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<PAGE> 25
MEGATEST MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Megatest was founded in 1975 and introduced its first product, which tested
both memory and logic ICs, in 1976. Since then, the Company has sold
approximately 2,850 testers to manufacturers of memory and logic ICs as well as
to IC customers such as electronic systems manufacturers. The Company's strategy
has been to participate in both the memory and logic IC test markets, to help
reduce the effects of cyclicality in each of these markets. The Company's
principal product lines are its Genesis memory test systems and its Polaris,
Vega and Voyager logic test systems.
Megatest's net revenues increased in fiscal 1993 and 1994 principally due
to demand for memory ICs, particularly FLASH memories and DRAMs. Increased sales
of the Company's memory testers more than offset a decline in sales of logic
testers to IBM, which significantly reduced its purchases from the Company
during fiscal 1993, due in part to the Company's completion of development
agreements for the Polaris and declines in the market for the mainframe
computers which used the logic ICs tested by Polaris testers. In addition,
memory product sales in fiscal 1994 were enhanced by the introduction in the
second quarter of the Genesis G-III tester.
The Company believes that its sales growth in recent years has been due in
large part to strong demand by manufacturers of personal computers for ICs
tested by the Company's products, and expects to remain susceptible to the
volatility of the computer market. During the first two quarters of fiscal 1995,
the Company experienced a severe slowdown in sales of all of the Company's
products and from all of its major customers. Sales of both logic and memory
products began to rebound late in the second quarter of fiscal 1995, to
customers in all geographic areas, and the Company achieved record incoming
orders in each of the final three quarters of fiscal 1995. The Company returned
to quarterly profitability in the third quarter.
On November 22, 1994, the Company acquired the 1149 Tester product line and
follow-on in-process technology (the "Voyager") from Micro Component Technology,
Inc. ("MCT") for $13.9 million, which includes acquisition related expenses of
$1.1 million. The purchase of the product line included substantially all of the
assets and intellectual property and the assumption of certain liabilities,
approximating $2.1 million, associated with the Voyager. As a result of the
acquisition of the Voyager, the Company recorded a one-time write-off of
in-process technology of $8.8 million, which contributed to the Company's losses
in its first quarter and for the fiscal year ended August 31, 1995. Excluding
the one-time write-off of in-process technology, the results of operations for
the Voyager product line from the date of acquisition through August 31, 1995
increased Megatest's loss from operations approximately $2.4 million.
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<PAGE> 26
<TABLE>
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships of certain
items from the Company's consolidated statements of operations.
<CAPTION>
FISCAL YEAR ENDED
AUGUST 31,
-------------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Net revenues................................................ 100.0% 100.0% 100.0%
Cost of sales............................................... 56.2 56.0 61.1
----- ----- -----
Gross margin.............................................. 43.8 44.0 38.9
----- ----- -----
Engineering and product development......................... 15.6 15.8 20.7
Selling, general and administrative......................... 20.4 18.1 21.9
Write-off of acquired in-process technology................. -- -- 9.1
----- ----- -----
Total operating expenses.................................. 36.0 33.9 51.7
----- ----- -----
Income (loss) from operations............................... 7.8 10.1 (12.8)
Other income (expense), net................................. (0.2) 1.3 (0.1)
----- ----- -----
Income (loss) before income taxes and cumulative effect of
accounting change......................................... 7.6 11.4 (12.9)
(Provision) benefit for income taxes........................ (0.9) (2.3) 0.4
Cumulative effect of change in accounting for income
taxes..................................................... -- 1.7 --
----- ----- -----
Net income (loss)........................................... 6.7% 10.8% (12.5)%
===== ===== =====
</TABLE>
Net Revenues
The Company's net revenues increased from $78.4 million in fiscal 1993 to
$100.3 million in fiscal 1994 and decreased to $97.5 million in fiscal 1995. The
increase in fiscal 1994 was primarily attributable to increased sales of memory
testers, which grew 45% from fiscal 1993, while sales of logic testers increased
13%. The Company encountered a slowdown in sales in early fiscal 1995. During
the first half of fiscal 1995, sales of all of the Company's products, in all
geographic areas, were well below the comparable periods of fiscal 1994.
However, beginning in the second quarter of fiscal 1995, orders for all products
rebounded significantly, enabling the Company to achieve record net revenues for
the final two quarters of fiscal 1995. The increased demand for the Company's
products is attributable to increased demand for FLASH memories and DRAMs from
customers using the Company's memory testers and for DSP devices from customers
using the Company's logic testers. Memory testers as a percentage of systems
revenue has increased from 55% in fiscal 1993 to 61% in fiscal 1994 and 68% in
fiscal 1995. Service revenue, which includes product revenue from sales of spare
parts and service contracts, was 24% of total revenue in fiscal 1995, compared
to 18% in fiscal 1994 and 20% in fiscal 1993. Service revenue is expected to
continue to represent a significant portion of the Company's revenue as the
installed base of testers increases and as a result of the Company's continued
emphasis on the sales of spare parts, custom interfaces and service contracts.
Gross Margin
The Company's gross margin increased from 43.8% in fiscal 1993 to 44.0% in
fiscal 1994, reflecting a shift in product sales mix from Polaris logic testers
to higher margin Genesis IIex memory testers, offset by incremental
manufacturing costs incurred in bringing the Genesis G-III tester to market. The
Company's gross margin decreased to 38.9% in fiscal 1995, due to the low sales
volume during the first half of fiscal 1995. Manufacturing spending could not be
scaled back during the first half of fiscal 1995 in proportion to the decline in
revenues. Also, in the latter part of fiscal 1995, the Company encountered
delays in receiving certain critical components and sub-assemblies which caused
the Company to incur higher levels of overtime and to incur certain incremental
costs to expedite deliveries of these parts in order to meet customers' demand.
It is anticipated that such component availability issues will continue into
fiscal 1996, and thus may result in continuing costs associated with overtime,
expedite fees and other related incremental production costs. In
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<PAGE> 27
addition, the Company expects to incur certain costs associated with the
production ramp of the Vega series logic tester and the introduction of its next
generation memory tester during fiscal 1996. Accordingly, the Company expects
its gross margin in fiscal 1996 to continue to be below fiscal 1994 levels until
the fourth quarter of fiscal 1996, and for the year as a whole.
Engineering and Product Development Expense
The Company's engineering and product development expense increased from
$12.2 million in fiscal 1993 to $15.9 million in fiscal 1994 and to $20.2
million in fiscal 1995. Engineering and product development expense, net of
development revenues, increased from $11.6 million in fiscal 1993 to $15.0
million in fiscal 1994 and to $20.2 million in fiscal 1995. Such net expense,
which represents the Company's internally funded development efforts, reflects
the Company's commitment to maintaining a high level of engineering and product
development effort to enhance its competitive position. Engineering and product
development expense in fiscal 1995 includes approximately $2.2 million related
to the Voyager engineering organization in St. Paul, Minnesota. The low sales
volume achieved during the first two quarters of the year further contributed to
the percentage increase in engineering and product development from 15.8% of
revenue in fiscal 1994 to 20.7% in fiscal 1995. The Company considered the
slowdown in the first half of fiscal 1995 to be temporary and thus did not scale
back critical long-term resources in proportion with the shortfall in incoming
orders. The Company intends to continue to invest significant resources in the
development of next-generation products for both memory and logic applications,
and thus expects engineering and product development expenses in fiscal 1996 to
increase as compared to fiscal 1995.
Selling, General and Administrative Expense
Selling, general and administrative expense increased from $16.0 million in
fiscal 1993 to $18.1 million in fiscal 1994 and to $21.4 million in fiscal 1995.
The increase is attributable primarily to an increase in headcount from 148 at
August 31, 1994 to 162 at August 31, 1995. In particular, the Company expanded
its hiring efforts in the sales, marketing and service organizations in support
of its continued emphasis on expanding its customer base and in response to the
higher sales levels achieved during the second half of fiscal 1995. As a
percentage of net revenues, selling, general and administrative expenses
declined from 20.4% of revenue in fiscal 1993 to 18.1% in 1994 and increased to
21.9% in 1995. The primary cause of the percentage increase in fiscal 1995 was
the low sales volume achieved during the first two quarters of the year. The
Company considered the slowdown in the first half of fiscal 1995 to be temporary
and thus did not scale back critical long-term resources in proportion with the
shortfall in incoming orders. The Company expects selling, general and
administrative expense to decline as a percentage of net revenues in fiscal
1996.
Other Income and Expense
Net other expense consists primarily of interest expense on notes payable
and long-term obligations and the amortization of goodwill related to the
acquisition of the Voyager, offset by interest income from the investment of the
Company's cash balances. In fiscal 1993, funds from the Company's initial public
offering in May 1993 were used to repay debt. Interest income was generated from
the investment of the remaining funds and the proceeds of the Company's second
public offering in October 1993, resulting in net interest income of $1.3
million in fiscal 1994. In fiscal 1995, net other expense totaled $0.2 million
as the Company's cash balances were utilized for the MCT acquisition and to fund
operations. In addition, the Company borrowed $22.4 million during fiscal 1995,
resulting in additional interest expense.
Income Taxes
Effective September 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for
Income Taxes." FAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or income tax returns. In estimating future tax consequences, FAS 109
generally considers all expected future events other than enactments of changes
in the tax law or rates. Previously, the Company used the FAS 96 asset and
liability approach that
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<PAGE> 28
gave no recognition to future events other than the recovery of assets and
settlement of liabilities at their carrying amounts. The cumulative effect of
adopting FAS 109 resulted in a one-time credit to fiscal 1994 net income of $1.7
million or $0.24 per share.
In connection with adopting FAS 109, management fully reserved net deferred
tax assets that may be realized beyond one year after the date of adoption
because of the uncertainty regarding their realization. At August 31, 1995,
management again fully reserved deferred tax assets which may be realized beyond
the ensuing twelve-month period because of the uncertainty regarding their
realization.
The Company's effective tax rate for fiscal 1995 was 3% (benefit) compared
to 21% for fiscal 1994 and 11% for fiscal 1993. The low benefit rate in fiscal
1995 was due primarily to losses incurred early in the year. A substantial
portion of the benefit has not been recognized due to the uncertainty of its
realization. The Company's tax rate in the third and fourth quarters of fiscal
1995 was 22.5% as the Company returned to profitability. The Company expects its
tax rate to increase to approximately 25% in fiscal 1996, although the actual
effective tax rate achieved will vary depending on the level of profitability
realized. The lower rates achieved in prior years were due primarily to
unrestricted utilization of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided net cash of $5.3 million and $5.1 million in
fiscal 1993 and 1994, respectively, and used cash of $13.1 million in fiscal
1995. Cash flow from operations in fiscal 1993 was primarily attributable to net
income in that year. In fiscal 1994, cash generated by net income was partially
offset by the Company's investment in inventory for certain strategic programs
designed to bolster relationships with major customers and an increase in
accounts receivable caused by a disproportionate percentage of shipments
occurring late in the fiscal year. In fiscal 1995, net cash used for operations
was primarily attributable to the Company's net loss and to further increases in
inventories and accounts receivable, offset by a non-cash write-off of acquired
in-process technology and depreciation and amortization and by increased
accounts payable and accrued liabilities. The increase in inventory in fiscal
1995 was primarily to facilitate anticipated new product shipments, to meet
expected shipment levels, and to increase service and spares inventory to
support the Company's growing installed base of testers, while the increase in
accounts receivable was related to a disproportionate percentage of shipments
occurring late in the fiscal year.
Investing activities, other than purchases of short-term investments,
consisted of property and equipment purchases and, in fiscal 1995, the purchase
of the Voyager product line from MCT. Investing activities used net cash of
$13.3 million, $16.7 million and $18.3 million in fiscal 1993, 1994 and 1995,
respectively. The purchase of securities pledged as collateral under the
Company's San Jose facility leases used $7.7 million of cash in fiscal 1994, and
the termination in fiscal 1995 of the leases (see below) provided $7.7 million
in cash. Net purchases of short-term investments used $7.9 million and $2.1
million of cash in fiscal 1993 and 1994, respectively, and net sales of
short-term investments provided $10.1 million in fiscal 1995. During 1995, the
Company purchased its general operating facilities and land for $8.6 million and
purchased evaluation and test equipment associated with new products totalling
approximately $6.2 million.
Financing activities provided net cash of $18.4 million, $13.7 million and
$23.6 million in fiscal 1993, 1994 and 1995, respectively. The Company's initial
public offering of its common stock in May 1993 provided $23.9 million in fiscal
1993. The Company used $3.4 million from the proceeds of its initial public
offering to pay $1.6 million on its working capital lines of credit and $1.8
million of equipment notes payable during fiscal 1993. A second public offering
of common stock in October 1994 provided $13.6 million in fiscal 1994. The
Company borrowed a total of $22.4 million during fiscal 1995 under its working
capital lines of credit, a new $5.5 million real estate mortgage and $6.9
million in equipment financing.
At August 31, 1995, the Company's cash, cash equivalents and short-term
investments were $11.6 million, compared to $29.5 million at August 31, 1994.
The decrease primarily reflects the cash used to acquire the Voyager from MCT
and to fund operations during fiscal 1995. The Company maintains a $10.0 million
bank line of credit which expires in January 1996. The agreement provides for
borrowings not to exceed 80% of eligible domestic accounts receivable. The
Company also maintains an additional $5.0 million line of credit guaranteed by
the Export-Import Bank of the United States to support export sales. This
agreement provides
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<PAGE> 29
for borrowings not to exceed 90% of eligible foreign accounts receivable plus
70% of eligible inventory to support such receivables. Borrowings under these
lines bear interest at prime (8.75% at August 31, 1995) plus 1.0% and 0.5% for
the domestic and export lines of credit, respectively, and are collateralized by
a security interest in substantially all of the Company's previously
unencumbered tangible and intangible assets. The terms of the credit agreements
require, among other terms, quarterly profitability, minimum amounts of tangible
net worth, a minimum ratio of current assets to current liabilities, and a
maximum ratio of indebtedness to net worth. The credit agreements also preclude
the Company from taking certain actions without prior bank approval.
Transactions subject to such prohibition include the declaration of cash
dividends, certain significant asset acquisitions or dispositions, incurrence of
certain additional indebtedness, and changing the nature of the Company's
business. At August 31, 1995, the Company had borrowed $10.0 million under these
lines of credit.
During August, 1995, the Company entered into two agreements for additional
working capital. The Company entered into a four-year, $1.9 million loan
agreement to finance certain of the Company's testers used for customer
demonstrations. The loan bears interest at 8.4%. The Company also obtained a
four-year, $5.0 million loan secured by substantially all of the Company's
previously unencumbered fixed assets and bearing interest at approximately 9.5%
and payable in forty eight equal monthly installments. Each of these agreements
contains cross-default provisions with the Company's bank lines of credit.
On August 25, 1995, the Company purchased its general operating facilities
and land in San Jose that was previously leased for $8.6 million. As a result of
the transaction, the Company removed certain restrictions on $7.7 million of
cash which was pledged as collateral under the first-loss guarantee of the
terminated operating lease. The Company used approximately $3.3 million of the
cash and a $5.5 million mortgage, secured by the property to acquire the land
and building and to pay associated transaction fees. The mortgage loan bears
interest at a rate of 8.125% per annum and is payable in 59 monthly installments
of approximately $50,000 with a $4.6 million balloon payment in the final month.
As of August 31, 1995, the Company had net working capital of approximately
$44.9 million, including $31.4 million of accounts receivable and $38.1 million
of inventories. The Company believes that because of the relatively long
manufacturing cycle of its testers, and due to lengthening vendor lead times on
certain critical components used in the manufacture of the Company's products,
the Company's investment in inventories will continue to represent a significant
portion of working capital.
The Company's principal sources of liquidity as of August 31, 1995
consisted of approximately $11.6 million of cash and cash equivalents and $5.0
million of borrowings available under its domestic line of credit. The Company's
liquidity is affected by many factors, including internal factors associated
with normal, on-going operations, and external factors related to market
dynamics and global economies. Although the Company's cash requirements will
fluctuate based on the nature, timing, and extent of these factors, the Company
believes that its cash flow from operations together with its cash, cash
equivalents and available credit will be sufficient to meet both working capital
and capital expenditure requirements throughout fiscal 1996.
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<PAGE> 30
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of Megatest
Common Stock in connection with the solicitation of proxies by the Megatest
Board for use at the Special Meeting to be held at The Beverly Heritage, 1820
Barber Lane, Milpitas, California 95035, at 9:00 a.m., local time, on December
1, 1995, or at any adjournment or postponement thereof, for the purposes set
forth herein and in the accompanying Notice of Special Meeting of Stockholders.
MATTER TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, stockholders of record of Megatest as of the close
of business on October 24, 1995, will be asked to consider and vote upon a
proposal to approve and adopt the Merger Agreement and to approve the Merger.
THE MEGATEST BOARD HAS DETERMINED THAT THE MERGER IS FAIR AND IN THE BEST
INTERESTS OF MEGATEST AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE MERGER, AND RECOMMENDS A VOTE BY THE STOCKHOLDERS OF
MEGATEST FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE
MERGER.
NOTIFICATION OF FINAL EXCHANGE RATIO
Megatest and Teradyne anticipate that the final Exchange Ratio will be
determined as of the close of business on November 24, 1995. Not later than the
next business day, Megatest and Teradyne will issue a joint press release to
notify Megatest stockholders of the final Exchange Ratio. In addition, Megatest
stockholders may contact Megatest Investor Relations at (408) 451-3255 for
information concerning the Exchange Ratio.
RECORD DATE; VOTING AT THE SPECIAL MEETING; VOTE REQUIRED
The Megatest Board has fixed October 24, 1995 as the record date for the
determination of the stockholders of Megatest entitled to notice of and to vote
at the Special Meeting. Only holders of record of Megatest Common Stock on the
record date will be entitled to notice of and to vote at the Special Meeting. As
of October 24, 1995, there were 7,435,865 shares of Megatest Common Stock
outstanding and entitled to vote, which were beneficially held by approximately
1,900 stockholders. Each record holder of Megatest Common Stock on the record
date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
stockholders of Megatest at the Special Meeting.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Megatest Common Stock entitled to vote at
the Special Meeting is necessary to constitute a quorum at the Special Meeting.
The approval of the Merger Agreement and the Merger will require the affirmative
vote of the holders of at least a majority of the outstanding shares of Megatest
Common Stock entitled to vote thereon. Abstentions and broker non-votes will not
be counted, but will have the practical effect of a vote against the Merger
Agreement and the Merger since they represent one less vote for approval.
As of October 24, 1995, directors and executive officers of Megatest and
their affiliates may be deemed to be the beneficial owners of approximately 6.5%
of the outstanding shares of Megatest Common Stock. Each of the directors and
executive officers of Megatest plans to vote or direct the vote of all shares of
Megatest Common Stock over which such director or officer has voting control in
favor of the Merger Agreement and the Merger.
PROXIES
This Proxy Statement/Prospectus is being furnished to holders of Megatest
Common Stock in connection with the solicitation of proxies by and on behalf of
the Megatest Board for use at the Special Meeting.
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All shares of Megatest Common Stock that are entitled to vote and are
represented at the Special Meeting by properly executed proxies received prior
to or at the Special Meeting and not duly revoked in a timely manner, will be
voted at the Special Meeting in accordance with the instructions indicated on
such proxies. If no instructions are indicated, such proxies will be voted FOR
approval and adoption of the Merger Agreement and approval of the Merger.
IF ANY OTHER MATTERS ARE PROPERLY PRESENTED FOR CONSIDERATION AT THE
SPECIAL MEETING (OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF), INCLUDING, AMONG
OTHER THINGS, CONSIDERATION OF A MOTION TO ADJOURN OR POSTPONE THE SPECIAL
MEETING TO ANOTHER TIME AND/OR PLACE, THE PERSONS NAMED IN THE ENCLOSED FORMS OF
PROXY AND VOTING THEREUNDER WILL HAVE DISCRETION TO VOTE ON SUCH MATTERS IN
ACCORDANCE WITH THEIR BEST JUDGMENT.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Megatest at or before the taking of the vote at the
Special Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of Megatest before taking the vote at the Special
Meeting or (iii) attending the Special Meeting and voting in person (although
attendance at the Special Meeting will not in and of itself constitute a
revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent so as to be delivered to Megatest Corporation, at 1321 Ridder
Park Drive, San Jose, California 95131, Attention: Secretary, or hand-delivered
to the Secretary of Megatest at or before taking the vote at the Special
Meeting. Proxies or notices of revocation may also be sent by facsimile
(facsimile no: 408-451-3447) to the attention of the Secretary of Megatest.
In addition to solicitation by use of the mails, proxies may be solicited
by directors, officers and employees of Megatest in person or by telephone,
telegram or other means of communication. Such directors, officers and employees
will not be additionally compensated, but may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation. Megatest also
intends to retain a proxy solicitor to assist in the solicitation of proxies at
an estimated fee of $10,000 plus reimbursement of reasonable expenses.
Arrangements will also be made with custodians, nominees and fiduciaries for
forwarding proxy solicitation materials to beneficial owners of shares held of
record by such custodians, nominees and fiduciaries, and Megatest will reimburse
such custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
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THE MERGER
GENERAL
Under the Merger Agreement, Merger Sub will merge with and into Megatest,
which will continue as the surviving corporation. At the Effective Time of the
Merger, (i) each outstanding share of Megatest Common Stock (other than treasury
shares of Megatest Common Stock to be canceled) will be converted into the right
to receive 0.9091 shares of Teradyne Common Stock, subject to adjustment in
accordance with the formula contained in the Merger Agreement and based upon the
average of the closing prices of Teradyne Common Stock for the twenty
consecutive days on which Teradyne Common Stock is traded on the NYSE ending on
the fifth calendar day immediately preceding the day on which the Special
Meeting is held, (ii) each treasury share of Megatest and each share of Megatest
Common Stock owned by Merger Sub, Teradyne or any wholly owned subsidiary of
Teradyne or Megatest will be canceled and (iii) each outstanding share of common
stock of Merger Sub will be converted into one share of Megatest Common Stock.
No fractional shares of Teradyne Common Stock will be issued in the Merger. In
lieu thereof each holder of Megatest Common Stock who would otherwise be
entitled to a fraction of a share of Teradyne Common Stock shall receive from
Teradyne an amount of cash (rounded to the nearest whole cent), without
interest, equal to the product of (i) such fraction, multiplied by (ii) the
average of the closing prices of Teradyne Common Stock for the twenty
consecutive days on which Teradyne Common Stock is traded on the NYSE ending on
the fifth calendar day immediately preceding the day on which the Special
Meeting is held. Megatest will become a wholly owned subsidiary of Teradyne, and
the stockholders of Megatest will become shareholders of Teradyne. See "The
Merger Agreement and Related Agreements -- Exchange Ratio; Conversion of Shares;
Adjustment to Exchange Ratio."
All options to purchase Megatest Common Stock then outstanding under the
Company Stock Option Plans shall be assumed by Teradyne. Immediately prior to
the Effective Time, all rights to purchase Megatest Common Stock then
outstanding under the Company Stock Purchase Plan (as defined) shall be
exercised and the shares so purchased shall be converted into Teradyne Common
Stock at the Effective Time.
BACKGROUND OF THE MERGER
The possibility of a strategic combination was first raised in general
terms by Alexander V. d'Arbeloff, Teradyne's President and Chairman of the Board
to James W. Bagley, a member of Megatest's Board of Directors, in January of
1995. Mr. d'Arbeloff and Mr. Bagley serve together on the Board of Directors of
Semi-Sematech Inc., a semiconductor equipment industry consortium associated
with Sematech, Inc.
In January and February of 1995, Megatest's President and Chief Executive
Officer, John E. Halter and Mr. Bagley, each received telephone calls from Mr.
d'Arbeloff, Teradyne's President, expressing interest in exploring a business
relationship between the two companies. Mr. Halter and Mr. d'Arbeloff
subsequently spoke with one another on several occasions during the next few
months, about the possible benefits of a business combination. Mr. Halter and
Mr. d'Arbeloff met in the evening of March 27, 1995 and again on the morning of
March 28, 1995 for further discussions. The conversations between Mr. Halter and
Mr. d'Arbeloff focused on the potential synergies of a combined company and, in
particular, discussed the need for Megatest to have substantially greater
resources to cost-effectively support its customers. The financial terms of a
combination of the two companies was not specifically discussed at these
meetings. On each of these occasions, Mr. Halter indicated that Megatest was
interested in continuing discussions with Teradyne but expressed management's
view that the current price of Megatest Common Stock did not reflect Megatest's
fair value.
In this regard, between January 1 and April 30, 1995, Megatest's common
stock traded in a range from $6.13 to $11.88. Megatest's management believed
that such trading range reflected Megatest's significant operating losses in its
fiscal quarters ended November 30, 1994 and February 28, 1995, as well as
investor uncertainty as to Megatest's future performance. Notwithstanding the
stock market's valuation of Megatest, management of Megatest continued to
believe that the decline in its orders and revenue was a temporary occurrence,
and that Megatest could return to profitability in the second half of fiscal
1995.
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In March 1995, Mr. Bagley contacted an executive officer of another
semiconductor ATE company and met to discuss, among other things, a possible
strategic combination. Representatives of such company did not express any
interest after that meeting concerning a possible combination.
At the meeting of the Megatest Board on March 30, 1995, Mr. Halter and Mr.
Bagley advised the Board of recent contacts with representatives of other
semiconductor ATE companies regarding possible business combinations, but
indicated that no serious discussions had occurred.
On May 23, 1995, George W. Chamillard, Executive Vice President of
Teradyne, and James A. Prestridge, Executive Vice President of Teradyne, met
with Mr. Halter to discuss the strengths of the two companies and the potential
commercial benefits that could be achieved through a business combination.
During May and June there were several telephone conversations between Mr.
Halter, on behalf of Megatest, and Messrs. d'Arbeloff, Prestridge and
Chamillard, on behalf of Teradyne. These discussions continued to center around
the mutual benefits of a combination to both companies, the need to carefully
merge corporate cultures, and the bases upon which a "fair" price for the
acquisition could be established, although specific financial terms were not
discussed. In addition, the need for appropriate non-disclosure agreements
before either party would disclose pertinent non-public information and the need
to limit the disclosure of such information to a limited number of individuals
from either company were also discussed. On May 24, 1995, at a regularly
scheduled meeting of Teradyne's Board of Directors, the Teradyne Board was
notified by Mr. d'Arbeloff as to recent discussions with representatives of
Megatest.
On June 22, 1995, Megatest's Board of Directors met. At that meeting, Mr.
Halter apprised the Board of recent discussions with representatives of Teradyne
as well as with representatives of other semiconductor ATE companies. Megatest's
Board of Directors authorized Mr. Halter to pursue discussions with such
companies regarding the possibility of a business combination. At a follow-up
meeting held on June 28, 1995, Mr. Halter advised the Board that he would seek
to retain Montgomery Securities ("Montgomery") to serve as Megatest's financial
advisor. He noted that Montgomery had acted as Megatest's investment banker in
other matters and reviewed with the Board Montgomery's qualifications.
In July, Mr. Halter and senior executives of Teradyne began negotiating the
terms of a non-disclosure agreement, so that limited financial information could
be passed between the companies to better help evaluate a possible combination.
Also, on July 12, 1995, an informal meeting at the Semicon trade show was held
between Mr. Halter, Mr. d'Arbeloff, Mr. Chamillard and Owen W. Robbins,
Executive Vice President of Teradyne. On July 24, 1995, Megatest retained
Montgomery to serve as its financial advisor. Mr. Halter met with Peter
Stoneberg of Montgomery to determine if any other semiconductor ATE companies
could be viewed as possible strategic partners for Megatest and therefore should
be contacted. Mr. Halter and Mr. Stoneberg determined to make only discreet
inquiries in order to avoid the possible damage to Megatest's business that
could have arisen if Megatest's customers believed that it was no longer viable
as an independent company. Mr. Halter and Mr. Stoneberg further determined not
to contact any ATE company that in recent months had declined to express an
interest in Megatest or that did not appear to offer strategic benefits to
Megatest's stockholders. Montgomery then contacted the only other semiconductor
ATE company that was viewed as a possible strategic partner, and that company
declined to respond. While no reports were prepared for the Board of Directors
by Mr. Halter or Montgomery as to other possible strategic partners, Mr. Halter
orally updated the Board at a subsequent meeting of his decision concerning
contacts with other possible strategic partners and the results of the contacts
made by Montgomery.
On July 20, 1995, Teradyne and Megatest executed a non-disclosure
agreement. Shortly thereafter on July 26, 1995, Mr. Prestridge, Mr. Chamillard
and Mr. Robbins of Teradyne met with Mr. Halter, Paul W. Emery II, Vice
President and Chief Financial Officer of Megatest, and Mr. Stoneberg of
Montgomery to discuss Megatest's commercial prospects, the benefits to each
company of a combination, and the preliminary terms of a transaction.
Representatives of Teradyne indicated that, in the absence of clear strategic
benefits, Teradyne would not consider a combination that would be dilutive to
its operating results. Mr. Stoneberg indicated that median premiums paid for
technology companies have been in the range of 45% above the market price of the
acquired company thirty days prior to the announcement of the acquisition and
that such a premium would be both fair and non-dilutive to Teradyne's 1996
operating results.
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On July 28, 1995, Mr. Halter reported to members of the Megatest Board on
the status of discussions with representatives of Teradyne. At the meeting, Mr.
Halter advised the Board of the discussions held on July 20 and 26, 1995 with
representatives of Teradyne as indicated above. He noted to the Board his
preliminary assessment of the benefits and risks to Megatest of a combination
with Teradyne, and he advised the Board that he was awaiting a response from
Teradyne as to whether it was interested in continuing to pursue discussions
with Megatest.
On August 4, 1995, Teradyne management reported to the Board of Directors
of Teradyne the results of management's preliminary conversations with Megatest
and together with S.G.Warburg & Co. Inc. ("S.G.Warburg"), Teradyne's financial
advisors, presented a review of publicly available information concerning
Megatest and financial information provided by Megatest. The Board of Directors
of Teradyne authorized Teradyne's management to pursue a business combination
with Megatest.
On August 7, 1995, Clark Gerhardt, Peter Stoneberg, John Hershey and
Katherine Marantette of Montgomery met with Gerard Eastman and Robert Heath of
S.G.Warburg to discuss the process of the transaction and valuation ranges. On
August 17 and 18, 1995, Mr. Halter of Megatest and Mr. Stoneberg of Montgomery
had numerous telephone conversations with Mr. Robbins and Mr. Prestridge of
Teradyne and Mr. Eastman of S.G.Warburg to discuss an exchange ratio. Teradyne
indicated its willingness to exchange 0.8000 shares of Teradyne common stock for
one share of Megatest common stock, and Megatest indicated that it could agree
to a 0.9091 exchange rate. No agreement was reached between the parties.
On August 9, 10, 16 and 22, 1995, the Megatest Board of Directors held
meetings by telephone conference. At these meetings, Mr. Halter updated the
Board on discussions with representatives of Teradyne. At the August 10, 1995
meeting, representatives of Montgomery presented a preliminary analysis of a
possible combination between Megatest and Teradyne and discussed alternatives
available to Megatest. In particular, the Board discussed the alternative of
remaining independent, and representatives of Montgomery reviewed current
financial market conditions and the possibility of Megatest's raising working
capital through an offering of securities. Following these meetings, the Board
authorized Megatest's management to continue discussions with Teradyne to
determine whether a favorable transaction could be structured that would benefit
Megatest's stockholders. The Board determined that, should a favorable
combination with Teradyne not be available, the possibility of raising working
capital through a public offering could be considered at a later meeting,
following completion of Megatest's fourth fiscal quarter. For the reasons
discussed above, the Board determined not to pursue discussions with other
possible strategic partners.
On August 16, 1995, a non-disclosure agreement was signed by the parties
superseding the non-disclosure agreement executed on July 20, 1995. On August
18, 1995, representatives of the companies met to exchange more detailed
information and to discuss the preliminary terms of a transaction.
Certain members of the management of both companies, their legal advisors,
accountants and financial advisors met on August 22 and 23, 1995 in Palo Alto,
California to conduct a due diligence review of sales, marketing, product
development and engineering, financial, human resources, operations and legal
matters of the respective companies. Due diligence discussions continued into
the following week.
On August 21, 1995, Mr. Halter on behalf of Megatest and Mr. Robbins on
behalf of Teradyne reached preliminary agreement on a number of the material
terms of the transaction. The principal terms agreed to by the parties included
the form of consideration (Teradyne common stock), the accounting treatment
(pooling of interests), the fact that break-up fees would be included (although
no agreement was reached on the magnitude of those fees) and a preliminary
exchange ratio (0.9091 shares of Teradyne common stock for each share of
Megatest). The exchange ratio, in particular, was contingent on final
negotiations of a definitive agreement between the parties and Megatest
achieving certain operating results for its fourth fiscal quarter, which
operating results Megatest subsequently achieved. Material terms under
consideration as to which no agreement was reached included whether any
adjustments to the exchange ratio would be made in the event of a substantial
increase or decrease in the price of Teradyne common stock after announcement of
the transaction. The parties substantially completed their due diligence review
and commenced the negotiation of definitive documentation.
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On September 1, the Board of Directors of Megatest met to discuss the
status of the ongoing negotiations with Teradyne, and considered the terms of
the definitive agreement between the parties. Representatives of Montgomery
presented an analysis of a combination with Teradyne based on the terms under
discussion. The Board noted the decline in the value of a share of Teradyne
common stock from $41.31 on August 18, 1995 to $37.37 on September 1, 1995, and
reviewed various legal and other issues relevant to a combination with Teradyne.
Following such presentation and review, the Board directed Mr. Halter to
continue negotiations with Teradyne regarding the terms of the exchange ratio
and to seek additional adjustments to the exchange ratio for Megatest
stockholders against a potential further decline in Teradyne's stock price. Mr.
Stoneberg of Montgomery contacted Mr. Eastman of S.G. Warburg to seek further
meetings between the parties. On September 2 and 3, 1995, Mr. Halter and Mr.
Bagley on behalf of Megatest and Mr. Stoneberg on behalf of Montgomery had
multiple discussions with Mr. d'Arbeloff of Teradyne and Mr. Eastman of S.G.
Warburg regarding the exchange ratio and adjustments to the exchange ratio in
the event of an increase or decrease in the price of Teradyne Common Stock. On
September 3, 1995, the parties agreed to the exchange ratio and adjustments
thereto, and on September 5, 1995, the companies agreed upon the final terms of
the Merger Agreement and related agreements, which were ratified and approved by
the Board of Directors of both companies on such date. The companies executed
the Merger Agreement late in the evening on Tuesday, September 5, 1995, and the
agreement to merge was announced early the following morning by the issuance of
a joint press release at 9:00 a.m., Eastern Time, on September 6, 1995.
MEGATEST'S REASONS FOR THE MERGER; RECOMMENDATION OF THE MEGATEST BOARD
The Megatest Board has unanimously approved the Merger Agreement and
determined that the Merger is fair and in the best interests of Megatest and its
stockholders. THE MEGATEST BOARD UNANIMOUSLY RECOMMENDS THAT MEGATEST
STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
APPROVAL OF THE MERGER. The Megatest Board based its approval of the Merger upon
its determination that the Exchange Ratio is fair to Megatest and its
stockholders and upon the following factors deemed material by the Board:
- The investment required to develop a new integrated circuit tester is
estimated to be in excess of $30 million. In addition, the time period to
recover such investment is shortening as IC manufacturers develop next
generations of products at an increasing rate. As a result, an ATE
supplier must have available the resources to make the significant
research and development investments necessary to remain a technology
leader and with a level of sales sufficient to recover their investment.
By combining with Teradyne, Megatest will have access to greater
financial resources to fund increasingly complex and costly development
programs. Furthermore, Megatest and Teradyne will be able to combine
research and development efforts and focus their resources to increase
the breadth of their product lines and reduce the overall time to market
for new products. Moreover, management believes that, in combination with
Teradyne's research and development resources, Megatest can develop
common platforms for a broad range of ATE products.
- Many of the products offered by Megatest and Teradyne are complementary
or targeted at different applications within the ATE market. In many
cases, Megatest believes that it has been successful competing against
Teradyne by targeting its products at different applications within the
ATE market, such as FLASH memory applications and low end test
applications for microprocessor controllers, FPGAs and PLDs where
Teradyne does not have a presence. The combination of the two companies
will afford each company the opportunity to sell its testers into the
other's customer base. Historically, Megatest has had a highly
concentrated customer base with its top five customers accounting for a
substantial portion of net revenues in fiscal 1995. As a result of its
concentrated customer base, Megatest has experienced significant
volatility in its revenues, most notably in the first and second quarters
of fiscal 1995. By combining with Teradyne, Megatest will have an
opportunity to diversify its customer base that may be difficult to
achieve otherwise. In particular, Megatest's ability to sell its testers
to larger IC manufacturers, who may be reluctant to purchase products
from a relatively small company such as Megatest, will be enhanced.
Access to Teradyne's broader customer base also may make available new
opportunities for other products such as Megatest's low-cost tester, the
Voyager.
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- Furthermore, following the combination, Megatest will have access to
Teradyne's substantially larger marketing, sales, support and service
personnel, both in the United States and throughout the world, to support
Megatest's products and customers. IC manufacturers are increasingly
demanding local service and support from their equipment suppliers, and
the ability to offer such worldwide service and support requires
significant investment in infrastructure, including the establishment and
maintenance of facilities throughout the world. By combining with
Teradyne, Megatest will both increase its worldwide presence and reduce
its cost to make such presence available to its customers.
- By combining with Teradyne, Megatest believes that it will gain access to
Teradyne's advanced manufacturing capabilities and attain economies of
scale in many areas, including procurement of components and
subassemblies. In particular, Megatest expects to take advantage of
Teradyne's more vertically integrated operations and circuit board
fabrication capabilities to obtain high quality output for its products.
Furthermore, Megatest believes it will be able to receive enhanced
support from component suppliers for whom the volumes required by
Megatest currently are too small to enable those suppliers to make the
significant investments required to continue to provide state-of-the-art
components used in Megatest's testers. While no assurance can be given
that the combination with Teradyne will enable Megatest to reduce the per
unit price of its systems, Megatest believes the combined companies will
realize benefits for both customers and stockholders by virtue of greater
control of the manufacturing of its testers and greater support from its
suppliers.
In the course of its deliberations during meetings held on August 9, 10, 16
and 22 and September 1 and 5, 1995, the Megatest Board reviewed the foregoing
and considered, among other matters, (i) information concerning Megatest's and
Teradyne's respective businesses, prospects, financial performance and
condition, operations, technology, management and competitive position, which
enabled the Megatest Board to conclude that Megatest could be strengthened
through a combination with Teradyne, (ii) current financial market conditions
and historical market prices, volatility and trading information with respect to
Megatest Common Stock and Teradyne Common Stock, (iii) the consideration to be
received by Megatest stockholders in the Merger, including the fact that the
market value of Teradyne Common Stock to be issued in exchange for each share of
Megatest Common Stock represented a significant premium over the highest trading
price of Megatest's Common Stock since Megatest's initial public offering in May
1993 (the Merger consideration represented a premium of approximately 40.3% over
the closing sales price of $23 5/8 per share of Megatest Common Stock on
September 1, 1995, the last trading day prior to the date of the Megatest Board
meeting at which the Merger was approved), (iv) the fact that Teradyne's Common
Stock has experienced significantly less volatility than Megatest's Common Stock
because of Teradyne's more consistent operating results, longer history and
larger, more diversified business, (v) a comparison of selected recent
acquisition and merger transactions regarding semiconductor capital equipment
companies and publicly held technology companies, which indicated that the
premium to be received by Megatest's stockholders over the recent trading price
of Megatest Common Stock compared favorably with premiums paid in similar
acquisitions, (vi) the belief that the terms of the Merger Agreement, including
the parties' representations, warranties and covenants, are reasonable and the
fact that the Merger Agreement did not contain any extraordinary closing
condition on Teradyne's obligations, which provided assurance to the Megatest
Board that, if announced, the Merger would likely be consummated unless
challenged under the antitrust laws, (vii) the ability of Megatest to consider
other acquisition proposals and to terminate the Merger Agreement for a Superior
Proposal, subject to the payment of a fee to Teradyne, (viii) the fact that the
Merger is expected to be accounted for as a pooling of interests, as a result of
which no additional goodwill will be created on the financial statements of
Teradyne, and is intended to be tax-free for federal income tax purposes, (ix) a
financial presentation by Montgomery Securities, including the opinion of
Montgomery Securities rendered at the September 5, 1995 meeting of Megatest's
Board of Directors that the consideration to be received by Megatest's
stockholders pursuant to the Merger was fair to the Megatest stockholders from a
financial point of view as of the date of such opinion, (x) the impact of the
Merger upon Megatest's customers and employees, who management believed would
likely support the Merger and whose continued support for Megatest would be
critical to assuring the success of the Merger, and (xi) reports from Megatest's
management, financial advisors and legal advisors as to the results of their due
diligence investigation of Teradyne.
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The Board of Directors of Megatest also considered a number of potentially
negative factors in its deliberations concerning the Merger, including, but not
limited to, (i) the fact that Megatest's stand-alone business prospects were
significantly more favorable at the end of fiscal 1995 than at the beginning and
the attendant concern that the market price of Megatest Common Stock continued
not to reflect management and the Board of Directors' view that such price did
not fully reflect the longer term value of the stock, (ii) the difficulties in
integrating different cultures and management styles at Megatest and Teradyne,
and the risk that the benefits sought to be achieved in the Merger will not be
achieved, (iii) the diversion of Megatest management's time to consummate the
Merger, and the possibility that Megatest's business will be damaged if a
transaction is announced but not concluded, and (iv) the other risks described
above under "Risk Factors." The Board of Directors of Megatest discussed with
management the prospects for combinations with companies other than Teradyne and
the possibility that the benefits described above could be achieved through any
such combination, as well as the risks and benefits of a stand-alone strategy.
In view of the wide variety of factors considered by the Megatest Board,
the Megatest Board did not find it practicable to qualify or otherwise assign
relative weight to the specific factors considered. However, after taking
account all of the factors set forth above, the Megatest Board determined
unanimously that the Merger was fair and in the best interests of Megatest and
its stockholders and that Megatest should proceed with the Merger and the Merger
Agreement.
OPINION OF MEGATEST'S FINANCIAL ADVISOR
On July 24, 1995, Megatest retained Montgomery as its financial advisor in
connection with the Merger. Montgomery is a nationally recognized firm and, as
part of its investment banking activities, is regularly engaged in the valuation
of businesses and their securities in connection with merger transactions and
other types of acquisitions, negotiated underwritings, secondary distributions
of listed and unlisted securities, private placements and valuations for
corporate and other purposes. Megatest retained Montgomery as its financial
advisor and to render to Megatest's Board of Directors an opinion with respect
to the fairness, from a financial point of view, of the consideration to be
received for the Megatest Common Stock pursuant to the Merger, on the basis of
its experience and expertise in transactions similar to the Merger and its
reputation in the investment banking community.
At the September 5, 1995 meeting of Megatest's Board of Directors
Montgomery delivered its oral opinion, subsequently confirmed in writing as of
that date, that the consideration to be received by Megatest's stockholders
(other than Teradyne or any direct or indirect wholly owned subsidiary of
Teradyne and Megatest) in the Merger is fair to Megatest's stockholders from a
financial point of view, as of such date. No limitations were imposed by
Megatest on Montgomery with respect to the investigations made or procedures
followed in rendering its opinion.
THE FULL TEXT OF MONTGOMERY'S WRITTEN OPINION TO THE MEGATEST BOARD IS
ATTACHED HERETO AS ANNEX B AND IS INCORPORATED HEREIN BY REFERENCE AND SHOULD BE
READ CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY
STATEMENT/PROSPECTUS. THE FOLLOWING SUMMARY OF MONTGOMERY'S OPINION IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. MONTGOMERY'S
OPINION IS ADDRESSED TO THE MEGATEST BOARD AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY MEGATEST STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE AT THE SPECIAL MEETING. IN FURNISHING ITS OPINION, MONTGOMERY DID NOT ADMIT
THAT IT IS AN EXPERT WITHIN THE MEANING OF THE TERM "EXPERT" AS USED IN THE
SECURITIES ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER OR THAT ITS
OPINION CONSTITUTES A REPORT OR VALUATION WITHIN THE MEANING OF SECTION 11 OF
THE SECURITIES ACT, AND STATEMENTS TO SUCH EFFECT ARE INCLUDED IN THE TEXT OF
MONTGOMERY'S WRITTEN OPINION.
In connection with its opinion, Montgomery, among other things: (i)
reviewed certain publicly available financial and other data with respect to
Megatest and Teradyne including the consolidated financial statements for recent
years and interim periods to May 31, 1995 and July 2, 1995, respectively, and
certain other relevant financial and operating data relating to Megatest and
Teradyne made available to Montgomery from published sources and from the
internal records of Megatest and Teradyne; (ii) reviewed the form of the Merger
Agreement provided to Montgomery by Megatest; (iii) reviewed certain historical
market prices and trading volumes of Megatest Common Stock on the Nasdaq
National Market and Teradyne Common Stock on the NYSE; (iv) compared Megatest
and Teradyne from a financial point of view with certain other
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companies in the semiconductor equipment industry that Montgomery deemed to be
relevant; (v) considered the financial terms, to the extent publicly available,
of selected recent business combinations of companies in the semiconductor
equipment industry that Montgomery deemed to be comparable, in whole or in part,
to the Merger; (vi) reviewed and discussed with representatives of the
management of Megatest and Teradyne certain information of a business and
financial nature regarding Megatest and Teradyne furnished to Montgomery by
them, including financial forecasts and related assumptions of Megatest and
Teradyne; (vii) made inquiries regarding and discussed the Merger and the Merger
Agreement and other matters related thereto with Megatest's counsel; and (viii)
performed such other analyses and examinations as Montgomery deemed appropriate.
In connection with its review, Montgomery relied upon the accuracy and
completeness of the foregoing information and did not assume any obligation
independently to verify such information. With respect to the financial
forecasts for Megatest and Teradyne provided to Montgomery by their respective
managements, Montgomery assumed with Megatest's consent for purposes of this
opinion that they were reasonably prepared on bases reflecting the best
available estimates and judgments of their respective managements at the time of
preparation as to the future financial performance of Megatest or Teradyne and
that they provided a reasonable basis upon which Montgomery could form its
opinion. Neither Megatest nor Teradyne publicly discloses internal management
forecasts of the type provided to Montgomery in connection with Montgomery's
review of the Merger. Such forecasts were not prepared with a view toward public
disclosure. In addition, such forecasts were based upon numerous variables and
assumptions that are inherently uncertain, including, without limitation,
factors related to general economic and competitive conditions. Accordingly,
actual results could vary significantly from those set forth in such forecasts.
Montgomery has assumed no liability for such forecasts. Montgomery also assumed
that there were not material changes in Megatest's or Teradyne's assets,
financial condition, results of operations, business or prospects since the date
of the last financial statements made available to Montgomery. Montgomery relied
on advice of counsel and independent accountants to Megatest as to all legal and
financial reporting matters with respect to Megatest, the Merger and the Merger
Agreement. In addition, Montgomery did not assume any responsibility for making
an independent evaluation, appraisal or physical inspection of the assets or
liabilities of Megatest or Teradyne, nor was Montgomery furnished with any such
appraisals. Further, Montgomery's opinion was based on economic, monetary and
market conditions existing on, and the information made available to it, as of
September 5, 1995.
Montgomery further assumed, with Megatest's consent, that the Merger will
be consummated in accordance with the terms described in the form of Merger
Agreement provided to it, without any further amendments thereto, and without
waiver by Megatest of any of the conditions to its obligations thereunder.
Set forth below is a brief summary of the analyses and reports presented by
Montgomery to the Megatest Board on September 1 and 5, 1995 in connection with
its opinion. Montgomery also presented a preliminary analysis to the Megatest
Board on August 10, 1995, which did not differ materially from its later
presentation.
Comparable Public Company Analysis. Using public and other available
information, Montgomery reviewed various historical and projected financial,
operating and stock market data of Megatest in comparison to certain
publicly-traded technology companies that it considered relevant for purposes of
this analysis. Included among these comparable companies are the following
"back-end" semiconductor capital equipment companies: Aseco Corp., Credence
Systems Corporation, Electroglas, Inc., GenRad, Inc., Kulicke and Soffa
Industries, Inc., LTX Corporation and Teradyne.
Montgomery compared, among other things, the valuation of the consideration
to be paid in the Merger for Megatest to the median valuation of the comparable
back-end companies using a variety of financial valuation measures. Montgomery
determined that the median multiple of the last twelve months ("LTM") net
revenues for comparable back-end companies was 2.7. Montgomery determined that,
based upon forecasts for the calendar year ending December 31, 1995, the median
multiple of net income for comparable back-end companies was 18.0. Montgomery
determined that, based upon forecasts for the calendar year ending December 31,
1996, the median multiple of net income for comparable back-end companies was
14.0. Based on the analysis of publicly traded comparable back-end companies,
Montgomery determined that Megatest's
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implied value ranged from approximately $150 million to approximately $250
million, or $19.09 to $31.67 per share of Megatest Common Stock.
Selected Comparable Merger Analysis. Montgomery also reviewed with the
Board of Directors of Megatest certain publicly available financial information
for selected mergers and acquisitions of technology companies.
Montgomery compared the acquisition prices paid in other acquisition
transactions involving semiconductor capital equipment companies, and based upon
the multiple of aggregate value (total market capitalization plus long-term debt
less cash and cash equivalents) to LTM revenue and earnings before interest and
taxes ("EBIT") and the multiple of equity value to LTM net income for the
following transactions involving semiconductor capital equipment companies (to
the extent information was available): Credence Systems/EPRO,
Hewlett-Packard/Versatest, Tencor/Prometrix, Silicon Valley Group/Perkin-Elmer
Optical Lithography, Silicon Valley Group/Thermo Systems, and acquisitions by
investor and management groups of Electroglas and Ultratech Stepper. This
analysis yielded a range of multiples including (i) aggregate value to revenue
of 0.2 to 2.1 with a mean of 0.9 and a median of 0.7; (ii) aggregate value to
EBIT of 4.9 to 10.6 with a mean of 7.7 and a median of 7.5; (iii) equity value
to net income of 4.3 to 23.2 with a mean of 13.4 and a median of 12.8. The
comparable multiples for the acquisition of Megatest by Teradyne, based on
Megatest's LTM revenues, calendar year 1995 and 1996 estimated revenues, EBIT
and net income, imply aggregate values ranging from approximately $56 million to
$262 million. Montgomery determined that comparable multiples for Megatest's LTM
EBIT and net income were not meaningful as valuation multiples given Megatest's
negative LTM EBIT and net income.
Montgomery also examined the acquisition premiums paid in a number of
acquisitions of publicly-traded technology companies. The transactions reviewed
for this analysis included approximately 50 acquisitions completed or pending
since July 1991 in which the consideration paid consisted in whole or in part of
stock of the acquiring company. Montgomery compared among other things the
percentage premiums represented by the consideration paid in the transaction
over the market price for the target company's stock at one, seven and thirty
days prior to announcement of the transaction. In the time period 30 days prior
to the date of the Megatest Board meeting at which the Merger was approved, this
analysis yielded a range of percentage premiums for transactions accounted for
as a pooling of interests of (28.5%) to 222.4% with an average of 45.9%. The
comparable premium for the acquisition of Megatest by Teradyne is 67.8%, which
is comparable to the average of other technology company transactions accounted
for as a pooling of interests. The average premiums based on the market price
one and seven days prior to the date of the Megatest Board meeting at which the
Merger was approved, were 36.0% and 39.8%, respectively, for transactions
accounted for as a pooling of interests compared to 40.3% and 52.4%,
respectively, for the acquisition of Megatest. A comparable analysis of
transactions involving the acquisitions of companies accounted for as a purchase
instead of as a pooling of interests of stock yielded lower ranges of percentage
premiums. Because of the difference in transaction structure and, in some cases,
consideration paid in these acquisitions, comparison of these premiums is not as
meaningful.
No company or transaction used in the above analyses as a comparison is
identical to Megatest, Teradyne or the Merger. Accordingly, an analysis of the
results of the foregoing is not mathematical. Rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and transactions, and other factors that could
affect the public trading value of the companies and transactions with which
Megatest, Teradyne and the Merger are being compared.
Discounted Cash Flow Analysis. In performing its analysis of Megatest,
Montgomery also relied upon a discounted cash flow analysis. In such an
analysis, Montgomery estimated a range of equity valuations for Megatest based
upon an analysis of financial forecasts through Megatest's fiscal year ending
August 31, 2000 that Montgomery developed after discussions with management of
Megatest.
To arrive at an equity valuation of Megatest, Montgomery discounted the
after-tax cash flows that resulted from the aforementioned financial forecasts.
The after-tax cash flows were discounted using discount rates ranging from 20%
to 30%, based upon a variety of factors including, among other things,
Megatest's cost of debt, its capitalization ratio and the cost of equity for
other semiconductor capital equipment companies.
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The range of discount rates also reflects the risk assumptions applied by
Montgomery to the financial forecasts. Montgomery added to the present value of
the cash flows the terminal value of Megatest as of August 31, 2000, discounted
back at the same discount rates. The terminal value was computed by multiplying
Megatest's EBIT in the year 2000 by a range of terminal multiples. This range of
terminal multiples was based upon the characteristics of comparable technology
companies.
The aggregate value for Megatest derived from Montgomery's discounted cash
flow analysis ranged from $183 million to $424 million. For purposes of its
analysis, Montgomery assumed a 25% discount rate and an EBIT multiple ranging
from 13.0x and 17.0x, which assumptions reflect an average of the cost of
unlevered equity capital and EBIT, respectively, for comparable semiconductor
equipment companies, adjusted as appropriate for factors relevant to Megatest.
Based on such assumptions, Montgomery's discounted cash flow analysis indicated
a range of aggregate values for Megatest from $223 million to $284 million. To
derive an equity value from the aggregate value, Montgomery deducted Megatest's
total outstanding debt and added back its cash balances. The resulting equity
values per share of Megatest Common Stock, based on the foregoing assumptions
and assuming the exercise of Megatest's stock options, ranged from a low of
$26.62 to a high of $34.14, as compared with the consideration proposed for
Megatest Common Stock in the Merger (which is equal to $33.15 per share assuming
a stock price of $37 3/8 per share and an exchange ratio of 0.8869 for each
share of Megatest Common Stock).
Montgomery also reported to the Board on recent trading history of Megatest
Common Stock and Teradyne Common Stock and on its analysis of the contribution
to be made by Megatest to the combined companies' estimated operating results,
as described below.
Stock Trading History Analysis. Using public and other available
information, Montgomery examined the history of trading prices and volume for
Megatest Common Stock and Teradyne Common Stock both separately and in relation
to each other, and also in relation to a composite industry index comprised of
U.S. public companies in the semiconductor capital equipment industry and to the
Nasdaq Index. The composite industry index included Applied Materials, Inc.,
Electroglas, FSI International, Gasonics International Corporation, KLA
Instruments, Kulicke and Soffa Industries, Lam Research Corporation, LTX,
Novellus Systems, Inc., SubMicron Systems Corporation, Silicon Valley Group,
Teradyne, Tencor Instruments, Inc. and Ultratech Stepper, Inc. The analysis
showed, among other things, that for the period from January 3, 1995 through
August 28, 1995, Megatest Common Stock increased approximately 228% in value,
outperforming both Teradyne Common Stock, which increased approximately 126% in
value, and the various indexes which increased 35.6% in the case of the Nasdaq
Index and 131% in the case of the composite industry index.
Based on the analysis of the volume of Megatest's stock traded at various
prices, Montgomery also advised Megatest's Board of Directors that the
consideration to be paid in the Merger to Megatest's stockholders, assuming a
Teradyne stock price of $37 3/8 per share, the closing price of Teradyne Common
Stock on September 1, 1995, represented a value substantially in excess of the
purchase price paid by all of Megatest's stockholders since Megatest's initial
public offering in May 1993.
Contribution Analysis. Megatest stockholders will receive approximately
6.8% of the total shares outstanding of the combined companies after the Merger
is completed. To compare this ownership percentage to the relative contribution
made to the combined companies, Montgomery analyzed the contribution of each of
Megatest and Teradyne to certain statement of operations items for the combined
companies on a pro forma basis. Montgomery analyzed the statement of operations
contribution of each of Megatest and Teradyne to the combined companies on a pro
forma basis for the year ending December 31, 1996, using financial forecasts of
Megatest and Teradyne provided by their respective managements. This analysis
showed, among other things, that assuming no revenue enhancement or cost savings
arising from the combination of the two companies, Megatest would contribute
12.0% of the combined companies' 1996 forecasted net revenues and 7.5% of the
combined companies' 1996 forecasted operating income. Based on such analysis,
Montgomery concluded that, notwithstanding the premium to be received by
Megatest's stockholders, the Merger would be non-dilutive to the combined
companies' 1996 forecasted operating income, which representatives of Teradyne
had indicated would be an important factor in determining whether to proceed
with the transaction.
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The summary set forth above does not purport to be a complete description
of the presentation by Montgomery to the Megatest Board or of the analyses
performed by Montgomery. The preparation of a fairness opinion is not
necessarily susceptible to partial analysis or summary description. Montgomery
believes that its analyses and the summary set forth above must be considered as
a whole and that selecting portions of its analyses and of the factors
considered, without considering all analyses and factors, would create an
incomplete view of the process underlying the analyses set forth in its
presentation to the Megatest Board. In addition, Montgomery may have given
various analyses more or less weight than other analyses, and valuations
resulting from any particular analysis described above should not be taken to be
Montgomery's view of the actual value of Megatest or the combined companies. The
fact that any specific analysis has been referred to in the summary above is not
meant to indicate that such analysis was given greater weight than any other
analysis.
In performing its analyses, Montgomery made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Megatest or Teradyne. The
analyses performed by Montgomery are not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable than
those suggested by such analyses. Such analyses were prepared solely as part of
Montgomery's analysis of the fairness of the Merger to Megatest and were
provided to the Megatest Board in connection with the delivery of Montgomery's
opinion. The analyses do not purport to be appraisals or to reflect the prices
at which a company might actually be sold or the prices at which any securities
may trade at the present time or at any time in the future. Montgomery used in
its analyses various projections of future performance prepared by the
management of Megatest and Teradyne. The projections are based on numerous
variables and assumptions, are inherently unpredictable and must be considered
not certain of occurrence as projected. Accordingly, actual results could vary
significantly from those set forth in such projections.
As described above, Montgomery's opinion and presentation to the Megatest
Board were among the many factors taken into consideration by the Megatest Board
in making its determination to approve the Merger.
Megatest has agreed to pay Montgomery a fee for its services pursuant to
the terms of the letter agreement equal to 1% of the aggregate market value of
Megatest's outstanding capital stock up to a price of $30.00, plus 2% of the
amount by which the total consideration involved in the sale exceeds such market
value. A significant portion of such fee is contingent upon the closing of the
Merger. Megatest has also agreed to reimburse Montgomery for its reasonable
out-of-pocket expenses. Pursuant to a separate letter agreement, Megatest has
agreed to indemnify Montgomery, its affiliates, and each of their respective
partners, directors, officers, agents, consultants, employees and controlling
persons against certain liabilities, including liabilities under the federal
securities laws. The amount of compensation to be paid to Montgomery in
connection with its engagement has been determined by negotiation between
Megatest and Montgomery.
In the ordinary course of its business, Montgomery actively trades equity
securities of Megatest for its own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities. Montgomery has also acted as an underwriter in connection with
offerings of securities of Megatest and performed various investment banking
services for Megatest.
TERADYNE'S REASONS FOR THE MERGER
Teradyne believes that the Merger will enhance its position as a leading
supplier of electronic test systems. Teradyne has identified several potential
benefits of the Merger that it believes will contribute to the success of the
combined company. Those benefits include principally the following:
- the opportunity to increase Teradyne's customer base through the sale of
Teradyne products to Megatest customers. Many of the products offered by
Teradyne or Megatest are complementary;
- the ability to expand Teradyne's product offering to its current customer
base by incorporating Megatest products in memory and VLSI test,
particularly FLASH memory devices;
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- the potential to expand the market presence for Teradyne products
internationally in those markets (particularly Korea) where Megatest
historically has had a stronger presence than Teradyne; and
- the ability to increase Teradyne's engineering and development effort
through the addition of Megatest's design teams and to realize the
benefits and fund the effort across a broader base of revenues.
OPERATIONS FOLLOWING THE MERGER
Following the Effective Time, it is Teradyne's present intention to operate
Megatest as an independent division of Teradyne with the division's headquarters
remaining in Northern California. Teradyne's divisions generally operate as
independent business units. Each division at Teradyne is responsible for its own
commercial success. Megatest will be the surviving corporation following the
Merger and will be a wholly owned subsidiary of Teradyne. The approach for
integrating the sales, service, manufacturing, engineering, and marketing
organizations of the combined entity has not yet been determined. Following the
Merger, transition teams consisting of Teradyne and Megatest managers will be
responsible for planning the integration of the sales, service, manufacturing,
engineering, and marketing organizations of the combined entity and the location
of worldwide facilities of the combined entity.
The officers of the surviving corporation initially will consist of the
officers of Merger Sub prior to the Merger and will be appointed by Teradyne,
and such officers shall serve at the pleasure of the Board of Directors of the
surviving corporation. The Board of Directors of the surviving corporation
initially will consist of Megatest's five outside directors and such additional
directors as shall be appointed by Teradyne. See "The Merger -- Interests of
Certain Persons in the Merger." It is intended that the directors to be
appointed by Teradyne immediately following the Effective Time will exercise
effective control of the Board of the surviving corporation. It is Teradyne's
present intention that following the Effective Time Megatest employees shall be
employees of the surviving corporation.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of the Merger to Megatest and holders of Megatest Common Stock and
reflects the opinions of tax counsel attached as Exhibits 8.1 and 8.2 to the
Registration Statement of which this Proxy Statement/Prospectus is a part. Such
tax opinions are based on certain assumptions noted in such opinions. The
discussion is based on current law. The discussion does not address aspects of
federal taxation other than income taxation, nor does it address all aspects of
federal income taxation including, without limitation, aspects of federal income
taxation that may be applicable to particular stockholders, such as stockholders
who are dealers in securities, foreign persons or persons who acquired their
Megatest Common Stock in a compensation transaction. In addition, it does not
address the state, local or foreign tax consequences of the Merger, if any.
HOLDERS OF MEGATEST COMMON STOCK ARE URGED TO CONSULT THEIR TAX ADVISORS
WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
MERGER.
The material federal income tax consequences of the Merger to Megatest and
holders of Megatest Common Stock will be as follows:
(a) the Merger will qualify as a reorganization within the meaning of
Section 368 of the Code;
(b) no gain or loss will be recognized by Megatest, Merger Sub or
Teradyne solely as a result of the Merger;
(c) no gain or loss will be recognized by holders of Megatest Common
Stock upon their receipt of Teradyne Common Stock in exchange for their
Megatest Common Stock, except that holders of Megatest Common Stock who
receive cash proceeds in lieu of fractional shares of Teradyne Common Stock
will recognize gain or loss equal to the difference, if any, between such
proceeds and the tax basis of Megatest Common Stock allocated to their
fractional share interests;
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(d) such gain or loss, if any, will constitute capital gain or loss if
the fractional share interests exchanged are held as capital assets at the
time of the Merger;
(e) such capital gain or loss will be long-term capital gain or loss
if the holding period for the fractional share interests (including the
holding period of Megatest Common Stock attributed thereto) exceeds one
year at the Effective Time;
(f) the tax basis of Teradyne Common Stock received by holders of
Megatest Common Stock will be the same as the tax basis of the Megatest
Common Stock exchanged therefor less the tax basis, if any, allocated to
fractional share interests; and
(g) the holding period of Teradyne Common Stock in the hands of
holders of Megatest will include the holding period of their Megatest
Common Stock exchanged therefor, provided that such Megatest Common Stock
is held as a capital asset at the Effective Time.
Teradyne and Megatest will receive on or prior to the Effective Time
opinions (the "Tax Opinions") from Testa, Hurwitz & Thibeault and Wilson,
Sonsini, Goodrich & Rosati, Professional Corporation, respectively, to the
effect that, on the basis of certain facts, including facts derived from
officers' certificates delivered by Teradyne and Megatest, and certain
assumptions stated in the Tax Opinions, the Merger will be treated as a
reorganization within the meaning of Section 368 of the Code.
No ruling has been or will be obtained from the Internal Revenue Service
(the "Service") with respect to the Merger. The Tax Opinions are not binding on
the Service or the courts, and no assurance can be given that the Tax Opinions
would be followed if challenged by the Service.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the recorded
historical cost basis of the assets and liabilities of Teradyne and Megatest
will be carried forward to the operations of the combined companies at recorded
amounts, results of operations of the combined companies will include income of
Teradyne and Megatest for the entire fiscal period in which the combination
occurs, and the historical results of operations of the separate companies for
fiscal years prior to the Merger will be combined and reported as the results of
operations of the combined companies.
Teradyne and Megatest have each received a letter from their respective
independent accountants stating that, based upon certain material facts and
certain representations and warranties described in such letters, there were no
significant matters that came to their attention that would preclude the
combined companies from accounting for the Merger as a pooling of interests.
Consummation of the Merger is conditioned upon receipt by each of Teradyne and
Megatest of further letters from their respective independent accountants
stating that, in their respective opinions, the Merger will qualify as a pooling
of interests for accounting purposes. See "The Merger Agreement -- Conditions to
the Merger." Certain events, including certain transactions with respect to
Megatest Common Stock or Teradyne Common Stock by affiliates of Teradyne or
Megatest, respectively, may prevent the Merger from qualifying as a pooling of
interests for accounting and financial reporting purposes. For information
concerning certain restrictions to be imposed on the transferability of Teradyne
Common Stock to be received by affiliates in order, among other things, to
ensure the availability of pooling of interests accounting treatment, see "The
Merger Agreement and Related Agreements -- Agreements of Megatest Affiliates."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Megatest Board with respect to the
Merger, stockholders of Megatest should be aware that certain officers and
directors of Megatest had interests in the Merger, including those referred to
below, that presented them with potential conflicts of interests. The Megatest
Board was aware of these potential conflicts and considered them along with the
other matters described in "Megatest's Reasons for the Merger; Recommendation of
the Megatest Board." In the negotiations, discussions and finalization of the
Merger Agreement between Megatest and Teradyne, the only member of Megatest's
Board
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of Directors who participated therein with respect to any matter as to which a
potential conflict of interest existed was John E. Halter, Megatest's chief
executive officer, who was involved in negotiations, discussions and
finalization with respect to all principal terms of the Merger.
The Merger Agreement provides that after the Effective Time the surviving
corporation and Teradyne will, to the fullest extent permitted under applicable
law or under the relevant charter documents or by-laws, indemnify and hold
harmless each present and former director, officer, employee, fiduciary and
agent of Megatest or any of its subsidiaries against any costs or expenses,
judgments, fines, losses, claims, damages, liability and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to any action or omission occurring
at or prior to the Effective Time.
In addition, (i) Teradyne and the surviving corporation will honor all
indemnity agreements existing on September 5, 1995 between Megatest and its
respective officers and directors, whether or not such persons continue in their
positions with Teradyne or the surviving corporation following the Effective
Time and (ii) Teradyne and the surviving corporation will use its best efforts
to maintain in effect directors' and officers' ("D&O") liability insurance (of
at least the same coverage and amounts and containing terms that are no less
advantageous than Megatest's policies in effect immediately prior to the
Effective Time) covering those persons who were covered under Megatest's D&O
liability insurance as of September 5, 1995 until six years after the Effective
Time, provided that neither Teradyne nor the surviving corporation shall be
required to expend in excess of 150% of the annual premium paid by Megatest on
September 5, 1995.
Teradyne has agreed to cause each of Megatest's outside directors to be
elected and remain in office as directors of the surviving corporation until
such time as all of such person's Company Options outstanding at the Effective
Time have vested in full in accordance with their respective terms.
In March 1994, the Megatest Board approved an amendment to the option
agreements held by Megatest's executive officers to accelerate the vesting of
options held by such officers under certain circumstances following a
change-in-control. The amendment provides that if, within twelve months
following a change-in-control, an executive officer is terminated other than for
cause, or such officer resigns voluntarily for good reason, then any and all
options to purchase Megatest Common Stock held by such officer will become fully
vested and exercisable regardless of whether such options are then exercisable
in accordance with the terms. However, the amendment prohibits such acceleration
if it prevents Megatest from accounting for a business combination as a "pooling
of interests" when such accounting is desired. See also "The Merger Agreement
and Related Agreements -- Employment Agreements."
REGULATORY MATTERS
Under the HSR Act and the rules promulgated thereunder by the FTC, certain
acquisition transactions may not be consummated unless notice has been given and
certain information has been furnished to the Antitrust Division and the FTC and
specified waiting period requirements have been satisfied. Teradyne and Megatest
each filed with the Antitrust Division and the FTC a Notification and Report
Form (an "HSR Notice") with respect to the Merger on September 18, 1995. The
waiting period for the Merger expired at 11:59 p.m. on October 18, 1995. At any
time before or after the Effective Time, the FTC or the Antitrust Division could
take such action under the antitrust laws as it deems necessary or desirable in
the public interest, including seeking to enjoin the Merger or seeking the
divestiture of Megatest by Teradyne, in whole or in part, or the divestiture or
compulsory licensing of substantial assets of Teradyne or Megatest or their
respective subsidiaries. State attorneys general and private parties may also
bring legal actions under the federal or state antitrust laws under certain
circumstances.
NO DISSENTERS' RIGHTS FOR STOCKHOLDERS
Holders of Megatest Common Stock and holders of Teradyne Common Stock do
not have appraisal rights in connection with the Merger.
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THE MERGER AGREEMENT AND RELATED AGREEMENTS
The following paragraphs summarize, among other things, the material terms
of the Merger Agreement, which is attached hereto as Annex A and incorporated by
reference herein. Stockholders of Megatest are urged to read the Merger
Agreement in its entirety for a more complete description of the Merger.
EFFECTIVE TIME OF THE MERGER
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in the Merger Agreement, the parties thereto will file a
certificate of merger with the Secretary of State of the State of Delaware. The
Merger will become effective upon such filing.
EXCHANGE RATIO; CONVERSION OF SHARES; ADJUSTMENT TO EXCHANGE RATIO
At the Effective Time, each outstanding share of Megatest Common Stock will
be converted into the right to receive 0.9091 shares of Teradyne Common Stock,
subject to the following adjustment (0.9091 shares, as adjusted, the "Exchange
Ratio"): (i) if the Final Teradyne Stock Price (as defined below) is equal to or
less than $36.00 per share, no adjustment to the Exchange Ratio shall be made;
(ii) if the Final Teradyne Stock Price is greater than $36.00 per share then the
Exchange Ratio shall be adjusted pursuant to the following formula:
Exchange Ratio = 1
------------------------------------------
(Final Teradyne Stock Price x 0.02) + 0.38
but in no event will the Exchange Ratio be greater than 0.9091 or less than
0.8333. "Final Teradyne Stock Price" shall mean the average of the closing
prices of Teradyne Common Stock for the twenty consecutive days on which
Teradyne Common Stock is traded on the NYSE ending on the fifth calendar day
immediately preceding the Special Meeting. The Exchange Ratio shall be
calculated to four decimal places.
<TABLE>
By way of example only, the following table illustrates the calculation of
the Exchange Ratio as determined in accordance with various Final Teradyne Stock
Prices:
<CAPTION>
FINAL TERADYNE EXCHANGE
STOCK PRICE RATIO
-------------- --------
<S> <C> <C>
Less than or equal to $ 36 0.9091
37 0.8929
38 0.8772
39 0.8621
40 0.8475
Greater than or equal to 41 0.8333
</TABLE>
As promptly as practicable after the Effective Time, Teradyne will cause to
be sent to each stockholder of record of Megatest as of the Effective Time
transmittal materials for use in exchanging certificates of Megatest Common
Stock for certificates of Teradyne Common Stock. The transmittal materials will
contain information and instructions with respect to the surrender of Megatest
Common Stock certificates in exchange for new certificates representing Teradyne
Common Stock and cash in payment for any fractional shares resulting from the
exchange. CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF TRANSMITTAL
IS RECEIVED. Pending delivery to Teradyne of Megatest Common Stock certificates,
any dividends on Teradyne Common Stock to be issued as a result of the Merger
that are payable prior to the delivery of such certificates will be held by
Teradyne. Such dividends will be paid, without interest, to the persons entitled
thereto upon delivery of such Megatest Common Stock certificates to Teradyne.
Fractional shares of Teradyne Common Stock will not be issued in the
Merger. Instead, each shareholder of Megatest who would otherwise be entitled to
a fractional share will receive cash in lieu thereof, calculated on the basis of
the average of the closing prices of Teradyne Common Stock for the twenty
consecutive days
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<PAGE> 46
on which Teradyne Common Stock is traded on the NYSE ending on the fifth
calendar day immediately preceding the day on which the Special Meeting is held.
TREATMENT OF MEGATEST COMMON STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
1990 Stock Option Plan and Director Stock Option Plan. At the Effective
Time, Megatest's obligations with respect to each outstanding Company Option
under the Company Stock Option Plans, whether vested or unvested, will be
assumed by Teradyne. Each Company Option so assumed by Teradyne shall continue
to have, and be subject to, the same terms and conditions set forth in the
Company Stock Option Plans and agreements pursuant to which such Company Option
was issued as in effect immediately prior to the Effective Time, except that (i)
such Company Option will be exercisable for that number of shares of Teradyne
Common Stock equal to the product of the number of shares of Megatest Common
Stock that were purchasable under such Company Option immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounded down to the nearest
whole number of shares of Teradyne Common Stock (with any resulting fractional
share paid in cash), and (ii) the per share exercise price for the shares of
Teradyne Common Stock issuable upon exercise of such assumed Company Option will
be equal to the quotient determined by dividing the exercise price per share of
Megatest Common Stock at which such Company Option was exercisable immediately
prior to the Effective Time by the Exchange Ratio, and rounding the resulting
exercise price up to the nearest whole cent.
It is the intention of the parties that the Company Options assumed by
Teradyne qualify following the Effective Time as incentive stock options as
defined in the Code ("ISO's") to the extent Company Options qualified as ISO's
prior to the Effective Time. After the Effective Time, Teradyne will issue to
each holder of an outstanding Company Option a document evidencing the foregoing
assumption by Teradyne.
Not later than the Effective Time, Teradyne will file a registration
statement on Form S-8 with the Commission covering the Company Options assumed
by Teradyne.
Employee Stock Purchase Plan. Megatest shall take such actions as are
necessary to establish a "new exercise date" (as such term is used in Megatest's
1992 Employee Stock Purchase Plan) in accordance with the terms of the Megatest
Stock Purchase Plan for the then current offering period (as such term is used
in the Megatest Stock Purchase Plan). The New Exercise Date shall be the last
trading day on which shares of Megatest Common Stock are traded on the Nasdaq
National Market immediately prior to the Effective Time provided, that the New
Exercise Date shall be conditioned upon the consummation of the Merger. On the
New Exercise Date, Megatest shall apply the funds credited as of such date under
the Megatest Stock Purchase Plan within each participant's payroll withholdings
account to the purchase of whole shares of Megatest Common Stock in accordance
with the terms of the Megatest Stock Purchase Plan.
Employees of Megatest as of the Effective Time shall be permitted to
participate in Teradyne's Employee Stock Purchase Plan commencing on the first
enrollment date following the Effective Time, subject to compliance with the
eligibility provisions of such plan (with employees receiving credit, for
purposes of such eligibility provisions, for service with Megatest).
LISTING OF TERADYNE COMMON STOCK
Teradyne has agreed to list the shares of its common stock to be received
by Megatest stockholders in the Merger on the NYSE (or the principal exchange on
which Teradyne Common Stock is then trading) on or before the Effective Time.
DIRECTORS AND OFFICERS
The directors of Merger Sub immediately prior to the Effective Time and
each of James W. Bagley, Stephen J. Bisset, Dr. Winston H. Chen, David A. Hodges
and Steven J. Sharp (each a current outside director of Megatest) shall be the
initial directors of the surviving corporation. The officers of Megatest
immediately prior to the Effective Time shall be the initial officers of the
surviving corporation. It is intended
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<PAGE> 47
by the parties that Teradyne appointees to the Board of Directors of the
surviving corporation will exercise effective control of such board.
BUSINESS OF MEGATEST PENDING THE MERGER
Pending consummation of the Merger, and except as otherwise consented to or
approved in advance by Teradyne in writing, Megatest has agreed that Megatest
and its subsidiaries will, among other things, operate their businesses in
accordance with their ordinary course of business and in a manner consistent
with past practices, and use reasonable commercial efforts to preserve
substantially intact their respective business organizations, to keep available
the services of their present officers, employees and consultants, to take all
reasonable action to prevent the loss, cancellation, forfeiture or expiration of
any Megatest intellectual property and to preserve their present relationships
with customers and suppliers and other persons with whom they have significant
business relations.
In particular, Megatest and its subsidiaries have agreed not to take any of
the following actions without the prior written consent of Teradyne: (i) amend
or otherwise change Megatest's Certificate of Incorporation or By-Laws; (ii)
issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale,
pledge, disposition or encumbrance of, any shares of capital stock of any class,
or any options, warrants, convertible securities or other rights of any kind to
acquire any shares of capital stock, or any other ownership interest (including,
without limitation, any phantom interest) of Megatest, any of its subsidiaries
or affiliates (except for the issuance of shares of Megatest Common Stock
issuable pursuant to stock options under Company Stock Option Plans or pursuant
to rights to purchase such shares under the Megatest Stock Purchase Plan, which
options or rights, as the case may be, are outstanding on the date hereof);
provided, however, that Megatest may grant stock options under Company Stock
Option Plans to employees hired subsequent to August 26, 1995 so long as (a)
such options vest ratably over a period of not less than four years and (b) no
person hired to serve as an officer of Megatest shall receive option grants for
more than 40,000 shares of Megatest Common Stock and no other person shall
receive option grants in excess of Megatest's standard policies and practices in
effect on September 5, 1995; and provided, further, that Megatest may continue
to offer rights to purchase Megatest Common Stock pursuant to the Megatest Stock
Purchase Plan as in effect on September 5, 1995; (iii) sell, pledge, dispose of
or encumber any material assets of Megatest or any of its subsidiaries (except
for (a) sales of assets in the ordinary course of business and in a manner
consistent with past practice and (b) dispositions of obsolete or worthless
assets); (iv) accelerate, amend or change the period (or permit any
acceleration, amendment or change) of exercisability of options granted under
its employee plans (including Company Stock Option Plans) or authorize cash
payments in exchange for any options granted under any of such plans; (v) (a)
declare, set aside, make or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of any of its
capital stock, except that a wholly owned subsidiary of Megatest may declare and
pay a dividend to its parent, (b) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock or (c) amend the terms of, repurchase, redeem or otherwise
acquire, or permit any subsidiary to repurchase, redeem or otherwise acquire,
any of its securities or any securities of its subsidiaries, or propose to do
any of the foregoing; (vi) sell, transfer, license, sublicense or otherwise
dispose of any material Megatest intellectual property, or amend or modify any
existing agreements with respect to any material Megatest intellectual property,
other than nonexclusive object and source code licenses in the ordinary course
of business consistent with past practice; (vii) (a) acquire (by merger,
consolidation, or acquisition of stock or assets) any corporation, partnership
or other business organization or division thereof, (b) incur any indebtedness
for borrowed money or issue any debt securities or assume, guarantee (other than
guarantees of bank debt of Megatest's subsidiaries entered into in the ordinary
course of business) or endorse or otherwise as an accommodation become
responsible for, the obligations of any person, or make any loans or advances,
except in each case in the ordinary course of business consistent with past
practice, except that Megatest may incur short-term indebtedness for borrowed
money not to exceed in the aggregate $10,000,000 on terms that do not include
the payment of any prepayment penalty or premium, (c) enter into or amend any
material contract or agreement other than in the ordinary course of business,
(d) authorize any capital expenditures or purchase of fixed assets other than in
the ordinary course of business consistent with Megatest's present business plan
or (e) enter into or amend any contract, agreement, commitment or
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<PAGE> 48
arrangement to effect any of the matters prohibited in items (a) - (d) of this
clause (vii); (viii) increase the compensation payable or to become payable to
its officers or employees, except for increases in salary or wages of employees
of Megatest or its subsidiaries who are not officers of Megatest in accordance
with past practices, and except for any such increases in salary of officers of
Megatest approved by the Megatest Board prior to the date of this Agreement and
payment of bonuses to Megatest officers with respect to the fiscal year ended
August 26, 1995 in accordance with Megatest's incentive bonus plan previously
approved by the Board of Directors; or grant any severance or termination pay
to, or enter into any employment or severance agreement with any director,
officer (except for officers who are terminated on an involuntary basis) or
other employee of Megatest or any of its subsidiaries; or establish, adopt,
enter into or amend any Megatest employee plan; (ix) take any action, other than
as required by GAAP, to change accounting policies or procedures (including,
without limitation, procedures with respect to revenue recognition,
capitalization of software development costs, payments of accounts payable and
collection of accounts receivable); (x) make any material tax election
inconsistent with past practices or settle or compromise any material federal,
state, local or foreign tax liability or agree to an extension of a statute of
limitations for any assessment of any tax, except to the extent the amount of
any such settlement has been reserved for on Megatest's most recent filing with
the Commission; (xi) pay, discharge or satisfy any material claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of liabilities reflected or
reserved against in the financial statements of Megatest or incurred in the
ordinary course of business and consistent with past practice; (xii) except as
may be required by law, take any action to terminate or amend any of its
employee plans in any material respect other than in connection with the Merger;
(xiii) take or allow to be taken or fail to take any act or omission within the
control of Megatest which would reasonably be expected to jeopardize the
treatment of the Merger as a pooling of interests for accounting purposes under
GAAP; or (xiv) take, or agree in writing or otherwise to take, any of the
actions described in items (i) - (xiii) above, or any action which would make
any of the representations or warranties of Megatest contained in the Merger
Agreement untrue or in any material respect incorrect or prevent Megatest from
performing in any material respect or cause Megatest not to perform in any
material respect its covenants contained in the Merger Agreement or result in
any of the conditions to the Merger set forth above not being satisfied.
NO SOLICITATION OF AN ACQUISITION PROPOSAL
The Merger Agreement provides that Megatest shall not, directly or
indirectly, solicit or encourage the initiation of inquiries or proposals
regarding any merger, sale of substantial assets, sale of capital stock
representing more than 15% of the voting securities of Megatest, or similar
transaction involving Megatest or any of its subsidiaries (each an "Acquisition
Proposal"). The Merger Agreement does not prevent the Megatest Board from
considering, negotiating, approving and recommending to Megatest stockholders an
unsolicited bona fide Acquisition Proposal that the Megatest Board determines in
good faith, after consultation with its financial advisors and upon advice of
counsel that its fiduciary duties require it to do so, would result in a
transaction more favorable to the Megatest stockholders than the Merger.
Megatest must inform Teradyne of any such competing proposal or request for
nonpublic information, and Megatest may provide access to nonpublic information
to a third party (subject to the execution of a confidentiality and standstill
agreement) only after Megatest has determined that the competing proposal, if
consummated pursuant to its terms, would be a Superior Proposal (as hereinafter
defined).
DEFINITION OF SUPERIOR PROPOSAL AND ALTERNATIVE TRANSACTION
For purposes of the Merger Agreement, "Alternative Transaction" means (i) a
transaction pursuant to which any person (or group of persons) other than
Teradyne or its affiliates (a "Third Party") acquires (or publicly proposes to
acquire) more than 30 percent of the outstanding shares of Megatest Common
Stock, whether from Megatest or pursuant to a tender offer or exchange offer or
otherwise, (ii) a merger or other business combination involving Megatest
pursuant to which any Third Party acquires (or publicly proposes to acquire)
more than 30 percent of the outstanding equity securities of Megatest or the
entity surviving such merger or business combination or (iii) any other
transaction pursuant to which any Third Party acquires (or publicly proposes to
acquire) control of assets (including for this purpose the outstanding equity
securities of
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<PAGE> 49
subsidiaries of Megatest, and the entity surviving any merger or business
combination including any of them) of Megatest and its subsidiaries having a
fair market value equal to more than 30 percent of the fair market value (as
determined by the Megatest Board in good faith) of all the assets of Megatest
and its subsidiaries, taken as a whole, immediately prior to such transaction
(or proposal).
For purposes of the Merger Agreement, "Superior Proposal" means an
Acquisition Proposal which the Megatest Board determines in good faith (after
consultation with its financial advisors and after consultation with outside
counsel as to whether the Megatest Board is required to do so in order to
discharge properly its fiduciary duties to stockholders under applicable law)
would result in a transaction more favorable to Megatest's stockholders from a
financial point of view than the transaction contemplated by the Merger
Agreement.
BUSINESS OF TERADYNE PENDING THE MERGER
Pending the consummation of the Merger, and except as otherwise consented
to or approved in advance by Megatest in writing, Teradyne has agreed that
Teradyne and its subsidiaries will, among other things, operate their businesses
in accordance with their ordinary and usual course of business and in a manner
consistent with past practices.
In particular Teradyne has agreed not to take any of the following actions
without the prior written consent of Megatest: (i) amend or otherwise change
Teradyne's Articles of Organization, or amend the terms of the Teradyne Common
Stock; (ii) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets of any other person, which, in each case, would materially
delay or prevent the consummation of the transactions contemplated by the Merger
Agreement; (iii) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of any of its capital stock, except that a wholly owned subsidiary of
Teradyne may declare and pay a dividend to its parent; (iv) sell, transfer,
license, sublicense or otherwise dispose of any material assets; (v) take or
allow to be taken or fail to take any act or omission within the control of
Teradyne or Merger Sub which would reasonably be expected to jeopardize the
treatment of the Merger as a pooling of interests for accounting purposes under
GAAP; or (vi) take, or agree in writing or otherwise to take, any of the actions
described in items (i) - (v) above, or any action which would make any of the
representations or warranties of Teradyne contained in the Merger Agreement
untrue or incorrect in any material respect or prevent Teradyne from performing
in any material respect or cause Teradyne not to perform in any material respect
its covenants contained in the Merger Agreement or result in any of the
conditions of the Merger not being satisfied.
CORPORATE STRUCTURE AND RELATED MATTERS AFTER THE MERGER
At the Effective Time, Merger Sub will be merged with and into Megatest,
which will be the surviving corporation and will thereby become a wholly owned
subsidiary of Teradyne. Each share of Merger Sub common stock issued and
outstanding immediately prior to the Effective Time will be converted into and
exchanged for one validly issued, fully paid and nonassessable share of common
stock of the surviving corporation.
Unless otherwise determined by Teradyne prior to the Effective Time, at the
Effective Time the Certificate of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, will be the Certificate of
Incorporation of the surviving corporation, until thereafter amended; provided
that the name of the surviving corporation shall be Megatest Corporation. The
by-laws of Merger Sub, as in effect immediately prior to the Effective Time,
will be the by-laws of the surviving corporation, until thereafter amended.
EMPLOYEE BENEFIT PLANS
Teradyne intends to include Megatest employees in its welfare plans (within
the meaning of Section 3(1) of ERISA) and fringe benefit plans on the same basis
and terms as Teradyne employees not later than two
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<PAGE> 50
years following the Effective Time and, in any event, with respect to particular
welfare plans of Teradyne, upon the termination of the equivalent Megatest
welfare plans; and until such time of inclusion, Teradyne intends to cause the
surviving corporation to maintain in effect, on terms not materially less
favorable to employees of Megatest as were in effect at the Effective Time, all
employee plans of Megatest. In addition, Teradyne intends that Megatest
employees be eligible to participate in Teradyne's stock option and stock
purchase plans on the same basis and terms as Teradyne employees from and after
the Effective Time. Teradyne, however, may at any time terminate or modify the
terms of any such employee plans if the cost of maintaining any such employee
plan has increased by a material amount or if, in the good faith judgment of
Teradyne, continuing to maintain any such employee plan conflicts in any
material respect with Teradyne's overall compensation policies then in effect.
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the satisfaction of various
conditions, including (i) the approval and adoption of the Merger Agreement and
the Merger by the requisite vote of the stockholders of Megatest; (ii) the
effectiveness of the Registration Statement of which this Proxy
Statement/Prospectus is a part pursuant to which Teradyne Common Stock to be
issued in the Merger will be registered and the absence of any stop order or
proceedings seeking a stop order relating to such Registration Statement; (iii)
the absence of any temporary restraining order, preliminary or permanent
injunction or other legal restraints, or prohibitions, statutes, rules,
regulations or orders preventing consummation of the Merger, and of any
proceedings brought by any governmental authority making consummation of the
Merger illegal; (iv) the receipt of an officer's certificate from each of
Teradyne and Megatest from the other party to the effect that certain
representations and warranties made by the respective party are true and correct
in all material respects on and as of the Effective Time, except where the
failure to be true and correct would not have a Material Adverse Effect, and to
the effect that the respective party has performed or complied in all material
respects with all agreements and covenants required by the Merger Agreement on
or prior to the Effective Time; (v) the obtaining by Teradyne and Megatest of
all material consents, waivers, approvals, authorizations or orders required to
be obtained and filings required to be made for the authorization, execution and
delivery of the Merger Agreement and the consummation of the transactions
contemplated thereby; (vi) the receipt by Teradyne and Megatest of a letter from
each of Coopers & Lybrand LLP and Price Waterhouse LLP, respectively, as
independent public accountants, confirming their opinions to the effect that
pooling of interests accounting treatment is appropriate for the Merger; (vii)
the receipt by Teradyne and Megatest of the Tax Opinions; (xiii) the receipt by
Teradyne of the Affiliate Agreements (as defined below); and (xiv) the receipt
by Teradyne and Megatest of customary legal opinions. For purposes of the Merger
Agreement, "Material Adverse Effect" means with respect to Teradyne or any of
its subsidiaries, or Megatest or any of its subsidiaries, any change or effect
that, individually or when taken together with all other such changes or effects
that have occurred prior to the date of determination of the occurrence of the
Material Adverse Effect, is or is reasonably likely to be materially adverse to
the business, assets (including intangible assets), financial condition or
results of operations of Megatest and its subsidiaries or Teradyne and its
subsidiaries, as the case may be, in each case taken as a whole; provided,
however, that a Material Adverse Effect shall not include any change or effect
in respect of Megatest and its subsidiaries or in respect of Teradyne and its
subsidiaries, as the case may be, resulting from conditions affecting the
semiconductor automatic test equipment industry generally or general economic
conditions.
TERMINATION; AMENDMENT
The Merger Agreement may be terminated and the Merger may be abandoned
prior to the Effective Time notwithstanding approval by the stockholders of
Megatest, under the circumstances specified therein, including (i) by mutual
written agreement of Teradyne and Megatest; (ii) by either Teradyne or Megatest,
if the Merger shall not have been consummated by January 31, 1996 and if the
terminating party has not caused the failure of the Merger to be consummated by
its own failure to fulfill any of its obligations under the Merger Agreement;
(iii) by either Teradyne or Megatest if a court or a governmental agency shall
have issued a non-appealable final order, decree, ruling or any other action
permanently prohibiting the Merger; (iv) by either Teradyne or Megatest, if the
stockholders of Megatest fail to approve the Merger Agreement; (v) by
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<PAGE> 51
Teradyne if the Megatest Board has withdrawn or changed its recommendation of
the Merger or the Merger Agreement in a manner adverse to Teradyne, or has taken
a "neutral" position with respect to the public announcement or commencement of
an Alternative Transaction; (vi) by Teradyne or Megatest if the Megatest Board
has resolved to accept or has accepted a Superior Proposal; (vii) by either
Teradyne or Megatest, in the event of a breach by the other party of any
representation or warranty, or failure to perform any covenant, term or
provision of the Merger Agreement, in each case that would have a Material
Adverse Effect on such party or result in a failure to comply in any material
respect with the Merger Agreement (provided that if such breach or failure to
perform is curable prior to the expiration of 30 days from its occurrence (but
in no event later than January 31, 1996) neither Teradyne nor Megatest may
terminate the Merger Agreement on this basis as long as the other party
continues to exercise reasonable efforts to cure such breach or failure unless
such 30 day period expires without such breach having been cured).
The Merger Agreement may be amended by an agreement in writing among the
parties thereto at any time prior to the Effective Time; provided, however,
that, after approval of the Merger by the stockholders of Megatest, no amendment
may be made which by law requires further approval of such stockholders, without
such further approval.
FEES AND EXPENSES
Except as described herein, all fees and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby will be paid
by the party incurring such expenses, whether or not the Merger is consummated.
Megatest will be required to pay a fee to Teradyne of $9,000,000, plus
reasonable out-of-pocket expenses in an aggregate amount not to exceed
$1,000,000 upon any of the following events: (i) the termination of the Merger
Agreement by Teradyne in the event that the Megatest Board shall withdraw,
modify or change its recommendation of the Merger Agreement or the Merger in a
manner adverse to Teradyne or if the Megatest Board shall have taken a "neutral"
position with respect to the public announcement or commencement of an
Alternative Transaction; (ii) the termination of the Merger Agreement by
Teradyne for a breach by Megatest of any of its representations, warranties or
covenants contained in the Merger Agreement in each case that would have a
Material Adverse Effect; (iii) the termination of the Merger Agreement by
Teradyne or Megatest if the Megatest Board shall have resolved to accept or
accepted a Superior Proposal; or (iv) the termination of the Merger Agreement by
Teradyne or Megatest as a result of the failure of the Megatest stockholders to
approve the Merger if at the time of the Special Meeting there shall exist an
Alternative Transaction (provided that Megatest shall not be obligated to pay a
fee in this circumstance unless such Alternative Transaction is consummated not
later than nine months following the Special Meeting). The fee payable by
Megatest generally must be paid within ten business days with respect to 20% of
the fee and within thirty business days with respect to the balance of the fee.
Teradyne is obligated to pay a fee in like amount if the Merger Agreement
is terminated by Megatest for a breach by Teradyne of any of its
representations, warranties or covenants contained in the Merger Agreement in
each case that would have a Material Adverse Effect. Teradyne is also obligated
to reimburse Megatest for up to $3,000,000 of its reasonable out-of-pocket
expenses incurred by Megatest in connection with matters relating to Megatest's
filings under the HSR Act if either party terminates the Merger Agreement
because the Merger has not been consummated by January 31, 1996 or because the
Merger Agreement is terminated by either party due to a failure to obtain HSR
Act approval or the existence of any governmental action relating to the HSR Act
which prevents the consummation of the Merger.
AGREEMENTS OF MEGATEST AFFILIATES
Rule 145 promulgated under the Securities Act regulates the disposition of
securities received by certain stockholders of Megatest in connection with the
Merger. Megatest has delivered to Teradyne a letter (the "Affiliate Letter")
identifying all persons who are or may be deemed to be, at the time of the
Special Meeting, "affiliates" of Megatest for purposes of Rule 145 under the
Securities Act. Such Affiliate Letter may be further updated prior to the
Effective Time. Megatest has also agreed to use its best efforts to cause each
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person who is identified as an affiliate (an "Affiliate") in the Affiliate
Letter to deliver, to Teradyne, prior to the Effective Time, a written agreement
(an "Affiliate Agreement"). Under such Affiliate Agreements, every Affiliate
will represent that he or she has been advised that the Affiliate may not sell,
transfer or otherwise dispose of Teradyne Common Stock issued to the Affiliate
in the Merger unless such sale, transfer or other disposition (i) has been
registered under the Securities Act, (ii) is made in compliance with the
requirements of Rule 145 under the Securities Act, or (iii) in the opinion of
counsel reasonably acceptable to Teradyne, is otherwise exempt from registration
under the Securities Act.
In order to help ensure that the Merger will qualify as a "reorganization"
under Section 368(a) of the Code, the Affiliate Agreements to be executed by
each affiliate of Megatest contain a representation that such affiliate has no
plan or intention to sell any of the shares of Teradyne Common Stock received in
the Merger (and will have no such plan or intention at the Effective Time).
In order to help ensure that the Merger will be treated as a "pooling of
interests" for accounting and financial reporting purposes, the Affiliate
Agreements provide that such affiliate will not (i) sell, transfer or otherwise
dispose of any shares of Megatest Common Stock or any shares of Teradyne Common
Stock, or (ii) in any way reduce such affiliate's interest in or risk relating
to such shares of Megatest Common Stock or Teradyne Common Stock, during the
period from at least thirty days prior to the Effective Time until two days
after such time as results of combined sales and net income covering at least
thirty days of combined operations of Megatest and Teradyne have been published
by Teradyne in the form of quarterly earnings report, an effective registration
statement filed with the Commission, a report to the Commission on Form 10-K,
10-Q or 8-K, or any other public filing or announcement which includes such
results of combined sales and net income.
Teradyne has agreed to use its best efforts to cause each affiliate of
Teradyne to execute an affiliate agreement substantially similar to the
Affiliate Agreements.
EMPLOYMENT AGREEMENTS
Certain executive officers will be provided with employment agreements by
Teradyne on or prior to the Effective Time (the "Employment Agreements"). Each
of the Employment Agreements will provide for employment on a full-time basis
for a period of two years following the Merger. Thereafter, employment would
continue on an "at will" basis. Such Employment Agreements may be terminated by
Teradyne for cause. The Employment Agreements will also contain Teradyne's
standard confidentiality, non-solicitation and non-compete agreements.
CONFIDENTIALITY AGREEMENT; STANDSTILL ARRANGEMENTS; NON SOLICITATION
Each party to the Merger Agreement has agreed to keep confidential,
pursuant to the Confidentiality Agreement, dated August 16, 1995 (the
"Confidentiality Agreement"), information provided to the other party in
contemplation of the Merger with respect to the business, properties and
personnel of the party furnishing such information. The Confidentiality
Agreement contains terms restricting the disclosure and use of confidential
information exchanged between the parties in evaluating the Merger and
otherwise.
The Confidentiality Agreement further provides, that (i) neither party
shall hire any officer of the other nor solicit any employee of the other for a
period ending on the earlier of (x) the date the Merger is consummated or (y)
eighteen (18) months after the date either party notifies the other that it
intends not to proceed with the Merger; and (ii) in the event the Merger is not
consummated, neither party, nor its representatives or affiliates, shall (x)
acquire ownership in the other company's assets, business or voting securities,
(y) seek to enter a proxy contest with respect to the other company, or (z)
enter into discussions, negotiations, arrangements or understandings with any
third party with respect to item (x) or (y) of this clause (ii).
47
<PAGE> 53
TERADYNE AND MEGATEST
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
assume a business combination between Teradyne and Megatest accounted for on a
pooling of interests basis and are based on the respective historical financial
statements and the notes thereto, which are included or incorporated by
reference in this Proxy Statement/Prospectus. The unaudited pro forma condensed
combined balance sheet gives effect to the Merger as if it had occurred on
October 1, 1995, combining the balance sheets of Teradyne and Megatest at
October 1, 1995 and August 31, 1995, respectively. The unaudited pro forma
condensed combined statements of operations give effect to the Merger as if it
had occurred at the beginning of each of the periods presented combining
Teradyne's historical results for the nine month periods ended October 1, 1995
and October 2, 1994 and each of the three years ended December 31, 1994, 1993
and 1992 with corresponding Megatest results for the nine month periods ended
August 31, 1995 and 1994 and the twelve month periods ended November 30, 1994,
1993 and 1992, respectively.
The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the operating results or financial position
that would have occurred if the Merger had been consummated at the beginning of
the earliest period presented, nor is it necessarily indicative of future
operating results or financial position.
These unaudited pro forma condensed combined financial statements are based
on, and should be read in conjunction with, the historical consolidated
financial statements and the related notes thereto of Teradyne and Megatest,
incorporated by reference in this Proxy Statement/Prospectus.
48
<PAGE> 54
<TABLE>
TERADYNE AND MEGATEST
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT OCTOBER 1, 1995
(AMOUNTS IN THOUSANDS)
<CAPTION>
HISTORICAL PRO FORMA
--------------------- ------------------------
TERADYNE MEGATEST ADJUSTMENTS COMBINED
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................. $234,187 $ 11,609 $245,796
Marketable securities..................... 19,920 19,920
Accounts receivable, net.................. 206,359 31,386 237,745
Inventories............................... 128,532 38,116 166,648
Deferred tax assets....................... 14,767 3,852 18,619
Prepayments and other current assets...... 10,978 1,618 12,596
-------- -------- ---- --------
Total current assets................. 614,743 86,581 701,324
Property and equipment, net.................... 216,329 28,882 245,211
Other assets................................... 17,794 3,395 21,189
-------- -------- ---- --------
Total assets......................... $848,866 $118,858 $967,724
======== ======== ==== ========
Current liabilities:
Notes payable -- banks.................... $ 8,455 $ 10,000 $ 18,455
Current portion of long term debt......... 418 1,657 2,075
Accounts payable -- trade and accrued
liabilities............................. 106,290 26,659 132,949
Unearned service revenue and customer
advances................................ 50,653 1,751 52,404
Income taxes payable...................... 13,807 1,655 15,462
-------- -------- ---- --------
Total current liabilities............ 179,623 41,722 221,345
Deferred tax liabilities....................... 14,722 14,722
Long-term debt................................. 8,482 11,728 20,210
-------- -------- ---- --------
Total liabilities.................... 202,827 53,450 256,277
Shareholders' equity:
Common stock (Note 2).......................... 9,467 7 836 10,310
Additional paid-in capital (Note 2)............ 282,895 82,007 (836) 364,066
Retained earnings (deficit).................... 353,677 (16,606) 337,071
-------- -------- ---- --------
Total shareholders' equity........... 646,039 65,408 711,447
-------- -------- ---- --------
Total liabilities and shareholders'
equity............................. $848,866 $118,858 $967,724
======== ======== ==== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
49
<PAGE> 55
<TABLE>
TERADYNE AND MEGATEST
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 1, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
HISTORICAL
--------------------- PRO FORMA
TERADYNE MEGATEST COMBINED
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $754,952 $ 85,257 $840,209
Expenses:
Cost of sales............................................. 402,482 51,424 453,906
Engineering and development............................... 72,454 15,738 88,192
Selling and administrative................................ 111,535 16,884 128,419
-------- ------- --------
586,471 84,046 670,517
-------- ------- --------
Income from operations...................................... 168,481 1,211 169,692
Other income (expense)...................................... 8,811 (501) 8,310
-------- ------- --------
Income before income taxes.................................. 177,292 710 178,002
Provision for income taxes.................................. 63,828 434 64,262
-------- ------- --------
Income from continuing operations........................... $113,464 $ 276 $113,740
======== ======= ========
Income from continuing operations per common share
(Notes 2 and 3)........................................... $ 1.47 $ 0.04 $ 1.35
======== ======= ========
Shares used in calculations of income per common share
(000's) (Notes 2 and 3)................................... 77,253 7,403 83,983
======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
50
<PAGE> 56
<TABLE>
TERADYNE AND MEGATEST
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 2, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
HISTORICAL PRO
--------------------- FORMA
TERADYNE MEGATEST COMBINED
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $487,349 $ 77,844 $565,193
Expenses:
Cost of sales............................................. 272,968 44,151 317,119
Engineering and development............................... 51,096 12,121 63,217
Selling and administrative................................ 95,783 13,661 109,444
-------- ------- --------
419,847 69,933 489,780
-------- ------- --------
Income from operations...................................... 67,502 7,911 75,413
Other income................................................ 2,751 1,181 3,932
-------- ------- --------
Income before income taxes.................................. 70,253 9,092 79,345
Provision for income taxes.................................. 21,778 1,771 23,549
-------- ------- --------
Income from continuing operations........................... $ 48,475 $ 7,321 $ 55,796
======== ======= ========
Income from continuing operations per common share (Notes 2
and 3).................................................... $ 0.66 $ 1.00 $ 0.69
======== ======= ========
Shares used in calculations of income per common share
(000's) (Notes 2 and 3)................................... 73,976 7,340 80,649
======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
51
<PAGE> 57
<TABLE>
TERADYNE AND MEGATEST
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
HISTORICAL
--------------------- PRO FORMA
TERADYNE MEGATEST COMBINED
-------- -------- ---------
<S> <C> <C> <C>
Net sales................................................... $677,440 $ 90,046 $ 767,486
Expenses:
Cost of sales............................................. 378,933 52,264 431,197
Engineering and development............................... 70,442 16,541 86,983
Selling and administrative................................ 129,935 18,141 148,076
Write-off of acquired in-process technology............... 8,837 8,837
-------- ------- --------
579,310 95,783 675,093
-------- ------- --------
Income (loss) from operations............................... 98,130 (5,737) 92,393
Other income................................................ 4,682 1,515 6,197
-------- ------- --------
Income (loss) before income taxes........................... 102,812 (4,222) 98,590
Provision for income taxes.................................. 31,871 923 32,794
-------- ------- --------
Income (loss) from continuing operations.................... $ 70,941 $ (5,145) $ 65,796
======== ======= ========
Income (loss) from continuing operations per common share
(Notes 2 and 3)........................................... $ 0.96 $ (0.72) $ 0.82
======== ======= ========
Shares used in calculations of income per common share
(000's) (Notes 2 and 3)................................... 74,190 7,160 80,699
======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
52
<PAGE> 58
<TABLE>
TERADYNE AND MEGATEST
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
HISTORICAL
--------------------- PRO FORMA
TERADYNE MEGATEST COMBINED
-------- -------- ---------
<S> <C> <C> <C>
Net sales................................................... $554,734 $ 81,731 $ 636,465
Expenses:
Cost of sales.......................................... 314,596 43,838 358,434
Engineering and development............................ 62,356 13,330 75,686
Selling and administrative............................. 126,508 16,888 143,396
-------- ------- --------
503,460 74,056 577,516
-------- ------- --------
Income from operations...................................... 51,274 7,675 58,949
Other income................................................ 45 64 109
-------- ------- --------
Income before income taxes, extraordinary item and
cumulative effect of adopting new accounting principle.... 51,319 7,739 59,058
Provision for income taxes.................................. 15,396 1,187 16,583
-------- ------- --------
Income from continuing operations........................... $ 35,923 $ 6,552 $ 42,475
======== ======= ========
Income from continuing operations per common share (Notes 2
and 3).................................................... $ 0.50 $ 1.21 $ 0.55
======== ======= ========
Shares used in calculations of income per common share
(000's) (Notes 2 and 3)................................... 71,664 5,407 76,580
======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
53
<PAGE> 59
<TABLE>
TERADYNE AND MEGATEST
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
HISTORICAL
--------------------- PRO FORMA
TERADYNE MEGATEST COMBINED
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $529,581 $ 69,391 $598,972
Expenses:
Cost of sales............................................. 312,478 39,443 351,921
Engineering and development............................... 62,023 10,874 72,897
Selling and administrative................................ 127,427 14,305 141,732
-------- ------- --------
501,928 64,622 566,550
-------- ------- --------
Income from operations...................................... 27,653 4,769 32,422
Other expense............................................... 1,585 465 2,050
-------- ------- --------
Income before income taxes.................................. 26,068 4,304 30,372
Provision for income taxes.................................. 3,520 336 3,856
-------- ------- --------
Income from continuing operations........................... $ 22,548 $ 3,968 $ 26,516
======== ======= ========
Income from continuing operations per common share (Notes 2
and 3).................................................... $ 0.33 $ 0.97 $ 0.37
======== ======= ========
Shares used in calculations of income per common share
(000's) (Notes 2 and 3)................................... 67,700 4,072 71,402
======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
54
<PAGE> 60
TERADYNE AND MEGATEST
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. The unaudited pro forma condensed combined financial statements of Teradyne
and Megatest give retroactive effect to the Merger which is being accounted
for as a pooling of interests and, as a result, such statements are presented
as if the combining companies had been combined for all periods presented.
The unaudited pro forma condensed combined financial statements reflect the
issuance of 0.9091 (Exchange Ratio) of a share of Teradyne Common Stock for
each share of Megatest Common Stock to effect the Merger. The Exchange Ratio
was calculated using the average of the closing prices of Teradyne Common
Stock for the twenty consecutive days ending on October 23, 1995. The actual
number of shares of Teradyne Common Stock to be issued will be determined at
the effective time of the Merger based on the Exchange Ratio and the number
of shares of Megatest Common Stock then outstanding.
<TABLE>
2. For purposes of the unaudited pro forma condensed combined financial
statements, the pro forma condensed combined net income per share is based on
the combined weighted average number of Common Stock and Common Stock
Equivalents of Teradyne and Megatest for each period, based upon an effective
Exchange Ratio of 0.9091 shares of Teradyne Common Stock for each share of
Megatest Common Stock. The unaudited pro forma condensed combined balance
sheet reflects the issuance of 6,747,000 shares of Teradyne Common Stock
($0.125 par value) in exchange for all of the shares of Megatest Common Stock
outstanding at August 31, 1995. The pro forma adjustments were calculated as
follows:
<S> <C>
Elimination of Megatest Common Stock.......................... $ (7)
Issuance of Teradyne Common Stock............................. 843
----
Total adjustments........................................ $836
====
</TABLE>
3. On July 24, 1995, Teradyne's Board of Directors approved a 2-for-1 stock
split of its $0.125 par value common stock effected in the form of a 100%
stock dividend distributed on August 29, 1995 to shareholders of record as of
August 8, 1995. The rights of the holders of these securities were not
otherwise modified. All per share amounts and shares used in calculations of
net income per common share have been restated to reflect the retroactive
effect of the stock split.
4. The unaudited pro forma financial data combines Teradyne's financial data for
the nine months ended October 1, 1995 and October 2, 1994 and the three years
ended December 31, 1994, 1993 and 1992 with Megatest's financial data for the
nine months ended August 31, 1995 and 1994 and the twelve month periods ended
November 30, 1994, 1993 and 1992, respectively.
5. The unaudited pro forma condensed combined financial statements do not
include adjustments to conform the accounting policies of Megatest to those
followed by Teradyne. The nature and extent of such adjustments, if any, will
be based upon further study and analysis and are not expected to be material.
6. Estimated merger expenses to be incurred by Teradyne and Megatest are
approximately $5,500,000. These expenses will be charged against net income
in the periods subsequent to the unaudited pro forma condensed combined
financial statements. Accordingly, the effects of these expenses have not
been reflected in these unaudited pro forma condensed combined financial
statements.
55
<PAGE> 61
DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF MEGATEST CAPITAL STOCK
The authorized capital stock of Megatest consists of 20,000,000 shares of
Common Stock, $0.001 par value, and 5,000,000 shares of Preferred Stock, $0.001
par value. As of October 30, 1995, there were approximately 7,435,865 shares of
Megatest Common Stock outstanding held beneficially by approximately 1,900
stockholders.
Common Stock. Holders of Megatest Common Stock are entitled to one vote
per share in all matters to be voted on by stockholders, except that, upon
giving notice as required by law, stockholders may cumulate their votes in the
election of directors. Subject to preferences that may be applicable to any
Preferred Stock outstanding at the time, holders of Megatest Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of Megatest, holders of
Megatest Common Stock are entitled to share ratably in all assets remaining
after payment of Megatest's liabilities and the liquidation preference, if any,
of any outstanding shares of Preferred Stock. Holders of Megatest Common Stock
have no preemptive rights and no rights to convert their Megatest Common Stock
into any other securities, and there are no redemption provisions with respect
to such shares. All of the outstanding shares of Megatest Common Stock are fully
paid and non-assessable. The rights, preferences and privileges of holders of
Megatest Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which Megatest
may designate and issue in the future.
Preferred Stock. The Megatest Board has the authority, without any further
vote or action by the stockholders, to provide for the issuance of up to
5,000,000 shares of Preferred Stock in series, to establish from time to time
the number of shares to be included in each such series, to fix the
designations, preferences, limitations and relative, participating, optional or
other special rights and qualifications or restrictions of the shares of each
series, and to determine the voting powers, if any, of such shares. The issuance
of Preferred Stock could adversely affect, among other things, the rights of
existing holders of Megatest Common Stock or could delay or prevent a change in
control of Megatest without further action by the stockholders. The issuance of
Preferred Stock could decrease the amount of earnings and assets available for
distribution to holders of Megatest Common Stock. In addition, any such issuance
could have the effect of delaying, deferring or preventing a change in control
of Megatest and could make the removal of the present management of Megatest
more difficult. Megatest has no current plans to issue any Preferred Stock.
The Transfer Agent and Registrar for Megatest Common Stock is Chemical
Mellon Shareholder Services, San Francisco, California.
DESCRIPTION OF TERADYNE CAPITAL STOCK; RIGHTS PLAN
The authorized capital stock of Teradyne consists of 125,000,000 shares of
Teradyne Common Stock.
As of October 30, 1995, there were approximately 75,781,658 shares of
Teradyne Common Stock outstanding held of record by approximately 2,606
shareholders. Teradyne Common Stock is listed on the NYSE under the trading
symbol "TER." Holders of Teradyne Common Stock are entitled to one vote per
share on all matters to be voted upon by the shareholders and to receive such
lawful dividends as may be declared by Teradyne's Board of Directors. In the
event of the liquidation, dissolution or winding up of Teradyne, the holders of
shares of Teradyne Common Stock will be entitled to share ratably in Teradyne's
assets. All outstanding shares of Teradyne Common Stock are fully paid and
nonassessable.
The Transfer Agent and Registrar for Teradyne Common Stock is The First
National Bank of Boston, Canton, Massachusetts.
Effective March 14, 1990, the Teradyne Board of Directors declared a
dividend of one right (a "Right") for each outstanding share of Teradyne Common
Stock, to stockholders of record as of the close of business on March 26, 1990
and for each share of Teradyne Common Stock issued thereafter pursuant to a
Rights Agreement (as amended, the "Rights Agreement"). One Right will be issued
for each share of Teradyne
56
<PAGE> 62
Common Stock issued in connection with the Merger. Each Right entitles the
registered holder to purchase from Teradyne one share of Teradyne Common Stock.
Upon the occurrence of certain events generally associated with an unsolicited
attempt to take-over Teradyne, the Rights (except for Rights held by an
Acquiring Person (as defined in the Rights Agreement)) will become exercisable
and will cease to trade with the Teradyne Common Stock. Upon the acquisition
without the consent of the Teradyne Board of 30% or more of the outstanding
shares of Teradyne Common Stock or upon the happening of certain other events
associated with a hostile take-over of Teradyne, each Right (except for Rights
held by an Acquiring Person) will be converted into a right to purchase at the
then current exercise price of the Right that number of shares of Teradyne
Common Stock having a market value of two times the exercise price of the Right
or, in the event of a merger of Teradyne into an Acquiring Person, securities of
the Acquiring Person having a market value of two times the exercise price of
the Right. Under certain conditions, the Teradyne Board of Directors may elect
to redeem the Rights for a nominal amount or to exchange the Rights not held by
an Acquiring Person for Teradyne Common Stock on a one-for-one basis.
COMPARISON OF RIGHTS OF HOLDERS OF TERADYNE COMMON STOCK
AND HOLDERS OF MEGATEST COMMON STOCK
Upon consummation of the Merger, the stockholders of Megatest, a Delaware
corporation, will become shareholders of Teradyne, a Massachusetts corporation.
The Delaware General Corporation Law (the "DGCL") and the Massachusetts Business
Corporation Law (the "MBCL") differ in many respects, and these differences will
result in changes in the rights of Megatest stockholders. The following
description summarizes certain differences between the DGCL and the MBCL that
may affect the rights of Megatest stockholders as a result of the Merger.
Action by Written Consent of Stockholders. Under Section 43 of the MBCL
and Teradyne's By-Laws any action required or permitted to be taken at any
meeting of Teradyne shareholders may be taken without a meeting if all
stockholders entitled to vote consent to the action in writing.
Section 228 of the DGCL and Megatest's By-Laws provide that any action
required or permitted to be taken at an annual or special meeting of
stockholders may be taken without such a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action to be taken is
signed by the holders of outstanding stock representing the number of shares
necessary to take such action at a meeting at which all shares entitled to vote
were present.
Class Votes of Stockholders. Neither the DGCL nor the MBCL requires
separate class votes of all voting classes in order to approve charter
amendments, mergers and sales of substantially all assets. Section 242 of the
DGCL and Section 71 of the MBCL, however, provide that all classes of stock,
even a nonvoting class of stock, vote on charter amendments that adversely
affect the rights of holders of shares of such class. In addition, Section 78 of
the MBCL provides that all classes of stock, even a non-voting class of stock,
vote on a merger agreement that would adversely affect the rights of holders of
shares of such class.
Stockholder Voting. Section 78 of the MBCL provides that a merger between
two or more Massachusetts corporations must be approved by two-thirds of the
shares of each class of stock of each constituent corporation outstanding and
entitled to vote thereon or by such lesser proportion (but not less than a
majority) thereof as a corporation's articles of organization may provide. Where
the merger is between one or more Massachusetts corporations and one or more
foreign corporations and the surviving corporation is to be a foreign
corporation, the foregoing vote is required for the domestic corporation under
Section 79 of the MBCL, but the foreign corporation is required only to comply
with the applicable provisions of its jurisdiction of incorporation.
The DGCL generally requires a majority vote of the shares of stock of each
constituent corporation outstanding and entitled to vote in order to effectuate
a merger between two Delaware corporations (Section 251) or between a Delaware
corporation and a corporation organized under the laws of another state (a
"foreign" corporation) (Section 252).
57
<PAGE> 63
Massachusetts has adopted a "control share" statute (Chapter 110D of the
Massachusetts General Laws) under which a person who acquires voting stock of a
Massachusetts corporation which results in such person's voting power exceeding
certain specified amounts (20%, 33 1/3% and 50%, respectively) would lose the
right to vote such stock unless the shareholders of the corporation so
authorize. Any person making such a control share acquisition may file a
statement with the corporation demanding that such corporation call a
shareholders' meeting to vote on whether to reinstate that person's voting
rights. Shareholders who vote not to reinstate such voting rights may demand
certain appraisal rights in the event such voting rights are reinstated. In the
absence of an affirmative election to opt out by amending its articles of
organization or by-laws, the control share statute applies to a Massachusetts
corporation which has (i) 200 stockholders of record, (ii) its principal
executive office or substantial assets within Massachusetts and (iii) either
more than 10% of its stockholders of record in Massachusetts or more than 10% of
its issued and outstanding shares held by Massachusetts residents. Teradyne's
By-Laws provide that Teradyne shall not be governed by the control share
statute. Teradyne may, however, under certain circumstances opt into the control
share statute by amending its By-Laws or Articles of Organization. Delaware does
not have a control share statute.
Stockholder Approval of Certain Business Combinations. Teradyne is subject
to the provisions of Chapter 110F of the Massachusetts General Laws, an
anti-takeover law. In general, this statute prohibits a publicly held
Massachusetts corporation with sufficient ties to Massachusetts from engaging in
a "business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person becomes an
interested stockholder, unless either (i) prior to the date on which such
stockholder becomes an interested stockholder the board of directors approves
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder; (ii) the interested stockholder
owns 90% of the corporation's outstanding voting stock upon consummation of the
transaction which made him an interested stockholder (excluding shares held by
certain affiliates of the corporation); or (iii) on or after the date such
person becomes an interested stockholder, the business combination is approved
by both the board of directors and two-thirds of the outstanding voting stock of
the corporation (excluding shares held by the interested stockholder). An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or at any time within the prior three years did own) 5% or
more of the corporation's voting stock. A "business combination" includes
merger, stock and asset sales and other transactions resulting in a financial
benefit to the stockholder. Teradyne has not elected, and does not intend to
elect, not to be governed by Chapter 110F. Teradyne, however, may at any time
amend its Restated Articles of Organization or By-Laws to elect not to be
governed by Chapter 110F by a vote of the holders of a majority of its voting
stock, but such an amendment would not be effective for twelve months and would
not apply to a business combination with any person who became an interested
stockholder prior to the date of the amendment.
Section 203 of the DGCL ("Section 203") prohibits a Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for
three years following the date that such person becomes an interested
stockholder. With certain exceptions, an interested stockholder is a person or
group who or which owns 15% or more of the corporation's outstanding voting
stock (including any rights to acquire stock pursuant to an option, warrant,
agreement, arrangement or understanding, or upon the exercise of conversion or
exchange rights, and stock with respect to which the person has voting rights
only), or is an affiliate or associate of the corporation which was the owner of
15% or more of such voting stock at any time within the previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested stockholder; sales
or other dispositions to the interested stockholder (except proportionately with
the corporation's other stockholders) of assets of the corporation or a
subsidiary equal to 10% or more of the aggregate market value of the
corporation's consolidated assets or its outstanding stock; the issuance or
transfer by the corporation or a subsidiary of stock of the corporation or such
subsidiary to the interested stockholder (except for transfers in a conversion
or exchange or a pro rata distribution or certain other transactions, none of
which increase the interested stockholder's proportionate ownership of any class
or series of the corporation's or such subsidiary's stock); and receipt by the
interested stockholder (except proportionately as a stockholder), directly or
indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary.
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The three-year moratorium imposed on business combinations by Section 203
does not apply if: (i) prior to the date on which such stockholder becomes an
interested stockholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested stockholder; (ii) the interested stockholder owns 85% of the
corporation's voting stock upon consummation of the transaction which made him
an interested stockholder (excluding shares held by certain affiliates of the
corporation); or (iii) on or after the date such person becomes an interested
stockholder, the business combination is approved by both the board of directors
and 66 2/3% of the outstanding voting stock of the corporation (excluding shares
held by the interested stockholder).
Section 203 only applies to Delaware corporations which have a class of
voting stock that is listed on a national securities exchange, is quoted on an
interdealer quotation system such as The Nasdaq Stock Market (as is Megatest) or
is held of record by more than 2,000 stockholders. A Delaware corporation may
elect in its original certificate of incorporation, or by amending its
certificate of incorporation or bylaws, that it will not be governed by Section
203. Any such amendment must be approved by the stockholders and may not be
further amended by the board of directors. Megatest has not elected, and does
not intend to elect, not to be governed by Section 203.
Section 203 has been challenged in lawsuits arising out of ongoing takeover
disputes, and it is not yet clear whether and to what extent its
constitutionality will be upheld by the courts. Although the United States
District Court for the District of Delaware has consistently upheld the
constitutionality of Section 203, the Delaware Supreme Court has not yet
considered the issue.
Appraisal Rights. Pursuant to Section 76 of the MBCL, a shareholder of a
Massachusetts corporation who complies with the statutory procedures, is
entitled to demand payment for his or her stock in the event that the
corporation has voted to sell, lease or exchange all or substantially all of its
property and assets or has adopted any amendment of its articles of organization
that adversely affects the rights of such shareholder.
Section 262 of the DGCL provides for appraisal rights only in the case of a
statutory merger or consolidation of the corporation where the petitioning
stockholder does not consent to the transaction. In addition, no appraisal
rights are available where the corporation is to be the surviving corporation
and a vote of its stockholders is not required under DGCL Section 251(f). There
are also no appraisal rights, unless otherwise provided for in a corporation's
certificate of incorporation, for shares of stock listed on a national
securities exchange or held by more than 2,000 holders of record, unless such
stockholders would be required to accept anything other than shares of stock of
the surviving corporation, shares of another corporation so listed or held by
such number of holders or record, cash in lieu of fractional shares of such
stock or any combination thereof. The Restated Certificate of Incorporation of
Megatest does not provide for such additional appraisal rights.
Amendment of Bylaws. Section 17 of the MBCL provides that the shareholders
have the power to make, amend or repeal by-laws and, if authorized in the
articles of organization of the corporation, the by-laws may provide that
directors may also make, amend or repeal by-laws, except with respect to any
provision thereof which by law, the articles of organization or the by-laws
requires action by the shareholders. Any by-law adopted by the directors of the
corporation may be amended or repealed by the shareholders. In the event the
directors make, amend or repeal any by-law, notice of such action stating the
substance of the change to the by-laws must be given to all shareholders
entitled to vote on by-law amendments not later than the time of the giving of
notice of the meeting of shareholders next following the action by the
directors. Teradyne's Restated Articles of Organization expressly authorize the
Board of Directors to amend or repeal the By-Laws.
Section 109 of the DGCL provides that the power to adopt, amend or repeal
by-laws shall be in the stockholders entitled to vote, provided that a
corporation may, in its certificate of incorporation, confer such powers on the
board of directors. Megatest's Restated Certificate of Incorporation expressly
authorizes the Board of Directors to amend or repeal the By-Laws.
Limitation on Directors' Liability; Indemnification of Officers and
Directors. Section 67 of the MBCL provides that indemnification of directors,
officers, employees and other agents of a corporation, and persons who serve at
its request as directors, officers, employees or other agents of another
organization, may be
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provided by it to whatever extent specified in or authorized by (i) the articles
of organization, (ii) a by-law adopted by the shareholders or (iii) a vote
adopted by the holders of a majority of the shares of stock entitled to vote on
the election of directors. Teradyne's By-laws provide for indemnification of its
directors, officers and employees to the full extent permitted by the MBCL.
Section 13(b)(1 1/2) of the MBCL allows a corporation to include in its Articles
of Organization a provision that limits or eliminates the personal liability of
directors to the corporation and its shareholders for monetary damages for
breach of fiduciary duty as a director. Teradyne's Restated Articles of
Organization include provisions eliminating the personal liability of Teradyne's
directors for monetary damages resulting from breaches of their fiduciary duty
except (i) for any breach of the director's duty of loyalty to Teradyne or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Sections 61
and 62 of the MBCL, or any amendatory or successor provisions thereto, or (iv)
with respect to any transaction from which the director derived an improper
personal benefit.
Section 102 of the DGCL allows a corporation to include in its certificate
of incorporation a provision that limits or eliminates the personal liability of
directors to the corporation and its shareholders for monetary damages for
breach of fiduciary duty as a director. Section 102 of the DGCL does not,
however, permit a corporation to limit or eliminate the personal liability of a
director for (i) any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) intentional or
negligent payment of unlawful dividends or unlawful stock purchases or
redemptions or (iv) any transaction from which the director derived an improper
personal benefit. Megatest's Restated Certificate of Incorporation provides for
limitations on director's liability to Megatest to the fullest extent permitted
by the DGCL.
Section 145 of the DGCL provides that a corporation may indemnify any of
its officers and directors party to any action, suit or proceeding by reason of
the fact that he or she is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another organization by, among other
things, a majority vote of a quorum consisting of directors who were not parties
to such action, suit or proceeding, provided that such officer or director acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation. Megatest has entered into
indemnification agreements with certain of its directors and officers
indemnifying them to the maximum extent permitted by the DGCL.
Classified Board of Directors. Section 50A of the MBCL generally requires
that publicly-held Massachusetts corporations have a classified board of
directors consisting of three classes as nearly equal in size as possible,
unless those corporations elect to opt out of the statute's coverage. Teradyne
has not opted out, and does not intend to opt out, of Section 50A. Teradyne,
however, may at any time elect not to be governed by Section 50A by a vote of a
majority of its Board of Directors or a vote of 2/3 of the shareholders.
Teradyne's Board of Directors is divided into three classes each of which serves
a three-year term.
Delaware law permits, but does not require, a classified board of
directors, with staggered terms under which one-half or one-third of the
directors are elected for terms of two or three years, respectively.
Cumulative Voting for Directors. While the MBCL does not expressly
prohibit cumulative voting, it is generally understood that cumulative voting is
not permitted in Massachusetts corporations.
Section 214 of the DGCL permits cumulative voting for directors to the
extent provided for in a Delaware corporation's certificate of incorporation.
Megatest's Restated Certificate of Incorporation expressly provide its
stockholders with cumulative voting rights for directors.
Removal of Directors. Under Section 51 of the MBCL, unless the articles of
organization or by-laws provide otherwise, (i) directors and officers selected
by stockholders may be removed from their respective offices with or without
cause by the vote of the holders of a majority of the shares entitled to vote in
the election of directors or such officers, as the case may be, provided that
the directors of a class elected by a particular class of stockholders and
officers elected by a particular class of stockholders may be removed only by
the vote of the holders of a majority of the shares of the particular class of
stockholders entitled to vote for
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the election of such directors or officers, as the case may be; (ii) officers
elected or appointed by the directors may be removed from their respective
offices, with or without cause, by vote of a majority of the directors then in
office; and (iii) any director and any officer elected by the stockholders, may
be removed from office for cause by vote of a majority of the directors then in
office. A director or officer may be removed for cause only after reasonable
notice and an opportunity to be heard before the body proposing to remove such
director or officer.
Under Section 141 of the DGCL, any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority of
the shares entitled to vote at an election of directors, except (i) unless the
certificate of incorporation otherwise provides, in the case of a corporation
having a classified board, stockholders may effect such removal only for cause
and (ii) in the case of a corporation having cumulative voting, if less than the
entire board is to be removed, no director may be removed without cause if the
votes cast against his removal would be sufficient to elect him if then
cumulatively voted at an election of the entire board of directors. Since
Megatest's Restated Certificate of Incorporation provides for cumulative voting,
clause (ii) of the previous sentence would apply to any attempted removal of a
Megatest director.
Newly Created Directorships and Vacancies. Section 52 of the MBCL provides
that, unless otherwise provided in a corporation's articles of organization, any
vacancy in the board of directors (including a vacancy resulting from the
enlargement of the board) may be filled in the manner prescribed in the by-laws
or in the absence of such a by-law, by the directors. Teradyne's By-laws provide
that such vacancy shall be filled solely by the affirmative vote of a majority
of the remaining Directors then in office, even though less than a quorum of the
Board of Directors.
Section 223 of the DGCL provides that vacancies and newly created
directorships may be filled by a majority of the directors then in office (even
though less than a quorum) unless (i) otherwise provided in the certificate of
incorporation or by-laws of the corporation (Megatest's Restated Certificate of
Incorporation and By-laws do not provide otherwise) or (ii) the certificate of
incorporation directs that a particular class is to elect such director, in
which case any other directors elected by such class, or a sole remaining
directors, shall fill such vacancy (Megatest's Restated Certificate of
Incorporation does not have such a provision). In addition, if, at the time of
filling any vacancy or newly created directorship, the directors then in office
constitute less than a majority of the whole board, the Delaware Court of
Chancery may, upon application of stockholders holding at least ten percent of
the shares outstanding at the time and entitled to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in office. Such elections are to be conducted in accordance with the procedures
provided by the DGCL. Unless otherwise provided in the certificate of
incorporation or bylaws, when one or more directors resign from the board, a
majority of directors then in office, including those who have so resigned, may
vote to fill the vacancy (Megatest's Restated Certificate of Incorporation and
Bylaws do not provide otherwise).
Special Meetings. Under Section 34 of the MBCL, special meetings of
shareholders of a corporation with a class of voting stock registered under the
Exchange Act may be called by the president or by the directors and, unless
otherwise provided in the articles of organization or by-laws, shall be called
by the clerk, or in case of the death, absence, incapacity or refusal of the
clerk, by any other officer, upon written application of one or more
shareholders who hold at least 40% in interest of the capital stock entitled to
vote thereat. In case none of the officers is able and willing to call a special
meeting, the supreme judicial or superior court, upon application of one or more
shareholders who hold at least 40% in interest, or such other percentage as
specified in the corporation's articles of organization or by-laws, of the
capital stock entitled to vote thereat, will have jurisdiction in equity to
authorize one or more of such shareholders to call a meeting by giving such
notice as is required by law. Teradyne's By-Laws provide that special meetings
of the shareholders entitled to vote may be called by the President or the Board
of Directors. Special meetings of the shareholders entitled to vote may also be
called by the clerk, or in the case of the death, absence, incapacity or refusal
of the clerk, by another officer, upon written application of one or more
shareholders who are entitled to vote and who hold at least 66 2/3% of the
interest of the capital stock entitled to vote at the meeting.
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Under Section 211 of the DGCL special meetings of stockholders may be
called by the board of directors and by such other person or persons authorized
to do so by the corporation's certificate of incorporation or bylaws. Under
Megatest's By-Laws, a special meeting of stockholders may be called by the Board
of Directors, by the chairman of the board, by the president or by one or more
holders holding shares representing in the aggregate the right to cast not less
than 10% of the votes at such meeting.
Inspection Rights. Section 32 of the MBCL generally provides that a
shareholder may inspect a corporation's articles of organization, its by-laws,
records of its meetings of incorporators and shareholders, a list of its
shareholders, and its other stock and transfer records for any proper purpose.
Section 220 of the DGCL provides that any stockholder, upon written demand
stating the purpose of the inspection, shall have the right to inspect for any
proper purpose the corporation's stock ledger, a list of its stockholders, and,
its other books and records.
Election of Directors. The Teradyne By-Laws provide that Teradyne's Board
of Directors will consist of not less than three directors and that the number
of directors for each year will be determined by a majority of the directors
then in office and may be enlarged at any time by vote of a majority of the
directors then in office.
Megatest's By-Laws provide that Megatest's Board of Directors will consist
of not less than five nor more than eight directors. Such provision may be
changed by a duly adopted amendment to the certificate of incorporation or by an
amendment to the By-Laws adopted by the vote or written consent of a majority of
the outstanding shares entitled to vote; provided, however, that an amendment
reducing the minimum number of directors to a number less than five cannot be
accepted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
16 2/3% of the outstanding shares entitled to vote thereon. No amendment may
change the maximum number of authorized directors to a number greater than two
times the stated minimum number of directors minus one.
EXPERTS
The consolidated financial statements of Teradyne, Inc. at December 31,
1994 and 1993, and for each of the three years in the period ended December 31,
1994, which have been incorporated by reference from the Annual Report on Form
10-K in this Proxy Statement/Prospectus, have been audited by Coopers & Lybrand
LLP, independent auditors, as set forth in their report thereon incorporated by
reference herein, and are included in reliance upon such report given upon the
authority of such firm as experts in auditing and accounting.
The consolidated financial statements of Megatest Corporation as of and for
the years ended August 31, 1995 and 1994 incorporated in this Proxy
Statement/Prospectus by reference to the Annual Report on Form 10-K of Megatest
for the year ended August 31, 1995 have been so incorporated in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The consolidated financial statements of Megatest Corporation for the year
ended August 31, 1993 incorporated in this Proxy Statement/Prospectus by
reference from Megatest Corporation's Annual Report on Form 10-K for the year
ended August 31, 1995 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Teradyne Common Stock issuable pursuant to the Merger
will be passed upon for Teradyne by Testa, Hurwitz & Thibeault, Boston,
Massachusetts. Wilson, Sonsini, Goodrich & Rosati, Professional Corporation,
Palo Alto, California is acting as counsel for Megatest in connection with
certain legal matters relating to the Merger and the transactions contemplated
thereby.
OTHER MATTERS
The Megatest Board does not intend to bring any matters before the meeting
other than those specifically set forth in the notice of meeting and does not
know of any matters to be brought before the meeting by others. If any other
matters properly come before the meeting, it is the intention of the persons
named in the accompanying proxy to vote such proxy in accordance with the
judgment of the Megatest Board.
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ANNEX A
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
TERADYNE, INC.,
M MERGER CORP.
AND
MEGATEST CORPORATION
DATED AS OF SEPTEMBER 5, 1995
<PAGE> 69
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE I THE MERGER A-1
SECTION 1.01. The Merger.......................................................... A-1
SECTION 1.02. Effective Time...................................................... A-1
SECTION 1.03. Effect of the Merger................................................ A-2
SECTION 1.04. Certificate of Incorporation; By-Laws............................... A-2
SECTION 1.05. Directors and Officers.............................................. A-2
SECTION 1.06. Effect on Capital Stock............................................. A-2
SECTION 1.07. Exchange of Certificates............................................ A-3
SECTION 1.08. Stock Transfer Books................................................ A-4
SECTION 1.09. Dissenting Shares................................................... A-4
SECTION 1.10. No Further Ownership Rights in Company Common Stock................. A-5
SECTION 1.11. Lost, Stolen or Destroyed Certificates.............................. A-5
SECTION 1.12. Tax and Accounting Consequences..................................... A-5
SECTION 1.13. Taking of Necessary Action; Further Action.......................... A-5
SECTION 1.14. Material Adverse Effect............................................. A-5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY A-6
SECTION 2.01. Organization and Qualification; Subsidiaries........................ A-6
SECTION 2.02. Certificate of Incorporation and By-Laws............................ A-6
SECTION 2.03. Capitalization...................................................... A-6
SECTION 2.04. Authority Relative to this Agreement................................ A-7
SECTION 2.05. No Conflict, Required Filings and Consents.......................... A-7
SECTION 2.06. Compliance; Permits................................................. A-8
SECTION 2.07. SEC Filings; Financial Statements................................... A-8
SECTION 2.08. Absence of Certain Changes or Events................................ A-9
SECTION 2.09. No Undisclosed Liabilities.......................................... A-9
SECTION 2.10. Absence of Litigation............................................... A-9
SECTION 2.11. Employee Benefit Plans, Employment Agreements....................... A-9
SECTION 2.12. Labor Matters....................................................... A-11
SECTION 2.13. Registration Statement, Proxy Statement............................. A-11
SECTION 2.14. Restrictions on Business Activities................................. A-11
SECTION 2.15. Title to Property................................................... A-11
SECTION 2.16. Taxes............................................................... A-12
SECTION 2.17. Environmental Matters............................................... A-13
SECTION 2.18. Brokers............................................................. A-13
SECTION 2.19. Full Disclosure..................................................... A-14
SECTION 2.20. Intellectual Property............................................... A-14
SECTION 2.21. Interested Party Transactions....................................... A-15
SECTION 2.22. Insurance........................................................... A-15
SECTION 2.23. Option Plans........................................................ A-15
SECTION 2.24. Vote Required....................................................... A-15
SECTION 2.25. Pooling Matters..................................................... A-15
SECTION 2.26. Opinion of Financial Advisor........................................ A-15
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB A-16
SECTION 3.01. Organization and Qualification...................................... A-16
SECTION 3.02. Authority Relative to this Agreement................................ A-16
SECTION 3.03. No Conflict; Required Filings and Consents.......................... A-16
SECTION 3.04. Articles of Organization and By-Laws................................ A-17
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
SECTION 3.05. Capitalization...................................................... A-17
SECTION 3.06. Compliance, Permits................................................. A-17
SECTION 3.07. SEC Filings, Financial Statements................................... A-17
SECTION 3.08. Absence of Certain Changes or Events................................ A-18
SECTION 3.09. Restrictions on Business Activities................................. A-18
SECTION 3.10. Title to Property................................................... A-18
SECTION 3.11. Full Disclosure..................................................... A-19
SECTION 3.12. No Undisclosed Liabilities.......................................... A-19
SECTION 3.13. Absence of Litigation............................................... A-19
SECTION 3.14. Insurance........................................................... A-19
SECTION 3.15. Registration Statement; Proxy Statement; Prospectus................. A-19
SECTION 3.16. Taxes............................................................... A-19
SECTION 3.17. Brokers............................................................. A-20
SECTION 3.18. Opinion of Financial Advisor........................................ A-20
SECTION 3.19. Pooling Matters..................................................... A-20
SECTION 3.20. No Stockholder Vote................................................. A-20
SECTION 3.21. Employee Benefit Plans, Employment Agreements....................... A-20
SECTION 3.22. Labor Matters....................................................... A-21
SECTION 3.23. Environmental Matters............................................... A-21
SECTION 3.24. Intellectual Property............................................... A-21
ARTICLE IV CONDUCT OF BUSINESS PENDING THE MERGER A-22
SECTION 4.01. Conduct of Business by the Company Pending the Merger............... A-22
SECTION 4.02. No Solicitation..................................................... A-24
SECTION 4.03. Conduct of Business by Parent Pending the Merger.................... A-25
ARTICLE V ADDITIONAL AGREEMENTS A-26
SECTION 5.01. Proxy Statement/Prospectus; Registration Statement.................. A-26
SECTION 5.02. Stockholders Meeting................................................ A-26
SECTION 5.03. Access to Information; Confidentiality.............................. A-26
SECTION 5.04. Consents; Approvals................................................. A-26
SECTION 5.05. Stock Options....................................................... A-27
SECTION 5.06. Company Employee Stock Purchase Plan................................ A-27
SECTION 5.07. Agreements of Affiliates............................................ A-27
SECTION 5.08. Indemnification and Insurance....................................... A-28
SECTION 5.09. Employee Benefit Plans.............................................. A-28
SECTION 5.10. Notification of Certain Matters..................................... A-29
SECTION 5.11. Further Action/Tax Treatment........................................ A-29
SECTION 5.12. Public Announcements................................................ A-29
SECTION 5.13. Listing of Parent Common Shares..................................... A-29
SECTION 5.14. Conveyance Taxes.................................................... A-29
SECTION 5.15. Accountants' Letters................................................ A-29
SECTION 5.16. Employment Agreements............................................... A-29
ARTICLE VI CONDITIONS TO THE MERGER A-30
SECTION 6.01. Conditions to Obligation of Each Party to Effect the Merger......... A-30
SECTION 6.02. Additional Conditions to Obligations of Parent and Merger Sub....... A-30
SECTION 6.03. Additional Conditions to Obligation of the Company.................. A-31
ARTICLE VII TERMINATION A-31
SECTION 7.01. Termination......................................................... A-31
SECTION 7.02. Effect of Termination............................................... A-32
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
SECTION 7.03. Fees and Expenses Payable By Company................................ A-32
SECTION 7.04. Fees and Expenses Payable By Parent................................. A-33
ARTICLE VIII GENERAL PROVISIONS A-33
SECTION 8.01. Effectiveness of Representations, Warranties and Agreements......... A-33
SECTION 8.02. Notices............................................................. A-34
SECTION 8.03. Certain Definitions................................................. A-34
SECTION 8.04. Amendment........................................................... A-35
SECTION 8.05. Waiver.............................................................. A-35
SECTION 8.06. Headings............................................................ A-35
SECTION 8.07. Severability........................................................ A-35
SECTION 8.08. Entire Agreement.................................................... A-35
SECTION 8.09. Assignment, Merger Sub.............................................. A-35
SECTION 8.10. Parties in Interest................................................. A-35
SECTION 8.11. Failure or Indulgence Not Waiver; Remedies Cumulative............... A-36
SECTION 8.12. Governing Law....................................................... A-36
SECTION 8.13. Counterparts........................................................ A-36
</TABLE>
EXHIBITS:
Exhibit A: Form of Affiliate Agreement
Exhibit B: Employment Agreement Terms
Exhibit 1.06(b): Adjustment of Conversion Ratio
iii
<PAGE> 72
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, as amended, dated as of
September 5, 1995 (this "Agreement"), among TERADYNE, INC., a Massachusetts
corporation ("Parent"), M MERGER CORP., a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), and MEGATEST CORPORATION, a Delaware
corporation (the "Company").
W I T N E S S E T H :
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is advisable and in the best interests of their
respective stockholders for Parent to enter into a business combination with the
Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of
Parent, Merger Sub and the Company have each approved the merger (the "Merger")
of Merger Sub with and into the Company in accordance with the applicable
provisions of the Delaware General Corporation Law ("Delaware Law") upon the
terms and subject to the conditions set forth herein;
WHEREAS, pursuant to the Merger, each outstanding share (a "Share") of the
Company's common stock, $0.001 par value per share (the "Company Common Stock"),
shall be converted into the right to receive the Merger Consideration (as
defined in Section 1.07(b)), upon the terms and subject to the conditions set
forth herein;
WHEREAS, Parent, Merger Sub and the Company intend, by approving
resolutions authorizing this Agreement, to adopt this Agreement as a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and the regulations thereunder, and to cause
the Merger to qualify as a reorganization under the provisions of Section 368(a)
of the Code;
WHEREAS, for accounting purposes, it is intended that the transactions
contemplated hereby shall be accounted for as a pooling of interests under
United States generally accepted accounting principles ("GAAP");
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER.
(a) Effective Time. At the Effective Time (as defined in Section
1.02), and subject to and upon the terms and conditions of this Agreement
and Delaware Law, Merger Sub shall be merged with and into the Company, the
separate corporate existence of Merger Sub shall cease, and the Company
shall continue as the surviving corporation. The Company as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation."
(b) Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to
Section 7.01 and subject to the satisfaction or waiver of the conditions
set forth in Article VI, the consummation of the Merger will take place as
promptly as practicable (and in any event within two business days) after
satisfaction or waiver of the conditions set forth in Article VI, at the
offices of Testa, Hurwitz & Thibeault, 125 High Street, Boston,
Massachusetts, unless another date, time or place is agreed to in writing
by the parties hereto.
SECTION 1.02. EFFECTIVE TIME. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI, the parties
hereto shall cause the Merger to be consummated by filing a certificate of
merger as contemplated by Section 251 of Delaware Law (the "Certificate of
Merger"), together
A-1
<PAGE> 73
with any required related certificates, with the Secretary of State of the State
of Delaware, in such form as required by, and executed in accordance with the
relevant provisions of, Delaware Law (the time of such filing being the
"Effective Time").
SECTION 1.03. EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Certificate of Merger and
the applicable provisions of Delaware Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, powers and franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 1.04. CERTIFICATE OF INCORPORATION; BY-LAWS.
(a) Certificate of Incorporation. Unless otherwise determined by
Parent prior to the Effective Time, at the Effective Time the Certificate
of Incorporation of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by Delaware Law and such
Certificate of Incorporation; provided, however, that Article I of the
Certificate of Incorporation of the Surviving Corporation shall be amended
to read as follows: "FIRST: The name of the corporation is MEGATEST
Corporation."
(b) By-Laws. The By-Laws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the By-Laws of the Surviving
Corporation until thereafter amended as provided by Delaware Law, the
Certificate of Incorporation of the Surviving Corporation and such By-Laws.
SECTION 1.05. DIRECTORS AND OFFICERS. The directors of Merger Sub
immediately prior to the Effective Time and the additional persons listed on
Schedule 1.05 of the Company Disclosure Schedule shall be the initial directors
of the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and By-Laws of the Surviving Corporation, and the
officers of the Company immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
SECTION 1.06. EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger Sub, the Company
or the holders of any of the following securities:
(a) Conversion of Securities. Each Share issued and outstanding
immediately prior to the Effective Time (excluding any Shares to be
canceled pursuant to Section 1.06(b) and any Dissenting Shares (as defined
in Section 1.09)) shall be converted, subject to Section 1.06(f), into the
right to receive .9091 shares (.9091, as adjusted pursuant to Section
1.06(b), the "Exchange Ratio") of validly issued, fully paid and
nonassessable shares of common stock of Parent, $.125 par value ("Parent
Common Shares").
(b) Adjustment of Conversion Ratio. If the Final Parent Stock Price
(as defined below) is equal to or less than $36.00 per share, no adjustment
to the Exchange Ratio shall be made. If the Final Parent Stock Price is
greater than $36.00 per share, then the Exchange Ratio shall be adjusted in
accordance with the formula specified on Exhibit 1.06(b) hereto provided,
however, that the Exchange Ratio as adjusted pursuant to this Section
1.06(b) shall in no event be less than .8333. For purposes hereof, "Final
Parent Stock Price" shall mean the average of the closing prices of the
Parent Common Stock for the twenty consecutive days on which the Parent
Common Shares are traded on The New York Stock Exchange (the "NYSE") ending
on the fifth calendar day immediately preceding the Company Stockholders
Meeting (as defined in Section 2.13).
(c) Cancellation. Each Share held in the treasury of the Company and
each Share owned by Parent, Merger Sub or any direct or indirect wholly
owned subsidiary of the Company or Parent immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, cease to be outstanding, be canceled and
retired without payment of any consideration therefor and cease to exist.
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(d) Assumption of Stock Options; Stock Purchase Rights. All options
to purchase Company Common Stock then outstanding under the Company Stock
Option Plans (as defined in Section 5.05) shall be assumed by Parent in
accordance with Section 5.05. Immediately prior to the Effective Time, all
rights to purchase Company Common Stock then outstanding under the Company
Stock Purchase Plan (as defined in Section 5.06) shall be exercised in
accordance with Section 5.06 and the shares so purchased shall be converted
into Parent Common Shares at the Effective Time.
(e) Capital Stock of Merger Sub. Each share of common stock, $0.001
par value per share, of Merger Sub issued and outstanding immediately prior
to the Effective Time shall be converted into and exchanged for one validly
issued, fully paid and nonassessable share of common stock, no par value,
of the Surviving Corporation. Each stock certificate of Merger Sub
evidencing ownership of any such shares shall continue to evidence
ownership of such shares of capital stock of the Surviving Corporation.
(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities
convertible into Parent Common Shares or Company Common Stock),
reorganization, recapitalization or other like change with respect to
Parent Common Shares or Company Common Stock occurring after the date
hereof and prior to the Effective Time.
(g) Fractional Shares. No fraction of a share of Parent Common Shares
will be issued, but, except as provided in Section 5.05, in lieu thereof
each holder of Company Common Stock who would otherwise be entitled to a
fraction of a share of Parent Common Shares (after aggregating all
fractional shares of Parent Common Shares to be received by such holder)
shall receive from Parent an amount of cash (rounded to the nearest whole
cent), without interest, equal to the product of (i) such fraction,
multiplied by (ii) the average of the closing prices of Teradyne Common
Stock for the twenty consecutive days on which Teradyne Common Stock is
traded on the NYSE ending on the fifth calendar day immediately preceding
the day on which the Special Meeting is held.
SECTION 1.07. EXCHANGE OF CERTIFICATES.
(a) Exchange Agent. Immediately prior to the Effective Time, Parent
shall supply, or shall cause to be supplied, to or for the account of a
bank or trust company designated by Parent (the "Exchange Agent"), in trust
for the benefit of the holders of Company Common Stock (other than
Dissenting Shares), for exchange in accordance with this Section 1.07,
through the Exchange Agent, certificates evidencing the Parent Common
Shares issuable pursuant to Section 1.06 in exchange for outstanding Shares
plus cash in an amount sufficient for payment in lieu of fractional shares
as provided in Section 1.06(g).
(b) Exchange Procedures. Promptly after the Effective Time, Parent
shall cause the Exchange Agent to mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
evidenced outstanding Shares (other than Dissenting Shares) (the
"Certificates") (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as Parent
may reasonably specify) and (ii) instructions to effect the surrender of
the Certificates in exchange for the certificates evidencing shares of
Parent Common Shares and, in lieu of any fractional shares thereof, cash.
Upon surrender of a Certificate for cancellation to the Exchange Agent
together with such letter of transmittal, duly executed, and such other
customary documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange
therefor (A) certificates evidencing that number of whole Parent Common
Shares which such holder has the right to receive in accordance with the
Exchange Ratio in respect of the Shares formerly evidenced by such
Certificate, (B) any dividends or other distributions to which such holder
is entitled pursuant to Section 1.07(c), and (C) cash in lieu of fractional
Parent Common Shares to which such holder is entitled pursuant to Section
1.06(g) (the Parent Common Shares, dividends, distributions and cash
described in this clause (C) being, collectively,
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the "Merger Consideration"), and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of Shares
which is not registered in the transfer records of the Company as of the
Effective Time, Parent Common Shares and cash may be issued and paid in
accordance with this Article I to a transferee if the Certificate
evidencing such Shares is presented to the Exchange Agent, accompanied by
all documents required to evidence and effect such transfer pursuant to
this Section 1.07(b) and by evidence that any applicable stock transfer
taxes have been paid. Until so surrendered, each outstanding Certificate
that, prior to the Effective Time, represented shares of the Company Common
Stock will be deemed from and after the Effective Time, for all corporate
purposes, other than the payment of dividends, to evidence the ownership of
the number of full shares of Parent Common Shares into which such shares of
the Company Common Stock shall have been so converted and the right to
receive an amount in cash in lieu of the issuance of any fractional shares
in accordance with Section 1.06.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time, with respect
to Parent Common Shares with a record date after the Effective Time, shall
be paid to the holder of any unsurrendered Certificate until the holder of
such Certificate shall surrender such Certificate. Subject to applicable
law, following surrender of any such Certificate, there shall be paid to
the record holder of the certificates representing whole shares of Parent
Common Shares issued in exchange therefor, without interest, at the time of
such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such
whole shares of Parent Common Shares.
(d) Transfers of Ownership. If any certificate for shares of Parent
Common Shares is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
person requesting such exchange will have paid to Parent or any person
designated by it any transfer or other taxes required by reason of the
issuance of a certificate for shares of Parent Common Shares in any name
other than that of the registered holder of the certificate surrendered, or
established to the satisfaction of Parent or any agent designated by it
that such tax has been paid or is not payable.
(e) No Liability. Neither Parent, Merger Sub nor the Company shall be
liable to any holder of Company Common Stock for any Merger Consideration
(or dividends or distributions with respect thereto) delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
(f) Withholding Rights. Parent, the Surviving Corporation and the
Exchange Agent shall be entitled to deduct and withhold from the Merger
Consideration otherwise payable pursuant to this Agreement to any holder of
Company Common Stock such amounts as Parent, the Surviving Corporation or
the Exchange Agent is required to deduct and withhold with respect to the
making of such payment under the Code or any provision of state, local,
provincial or foreign tax law. To the extent that amounts are so withheld,
such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the holder of the Shares in respect of which such
deduction and withholding was made by Parent or the Exchange Agent.
SECTION 1.08. STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of the Company Common Stock thereafter on the records
of the Company.
SECTION 1.09. DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of capital stock of the Company held by a holder who has
exercised dissenters' rights for such shares in accordance with Delaware
Law and who, as of the Effective Time, has not effectively withdrawn or
lost such dissenters' rights ("Dissenting Shares"), shall not be converted
into or represent a right to receive Merger
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Consideration pursuant to Section 1.06, but the holder thereof shall
only be entitled to such rights as are granted by Delaware Law.
(b) Notwithstanding the provisions of subsection (a), if any holder of
Dissenting Shares shall effectively withdraw or lose (through failure to
perfect or otherwise) such holder's dissenters' rights, then, as of the
later of the Effective Time or the occurrence of such event, such holder's
shares shall automatically be converted into and represent only the right
to receive the Merger Consideration, without interest thereon, upon
surrender of the certificate or certificates representing such Dissenting
Shares.
(c) The Company shall give Parent (i) prompt notice of any written
demands received by the Company for an appraisal of shares of capital stock
of the Company pursuant to Section 262 of Delaware Law, withdrawals of such
demands, and any other related instruments served pursuant to Delaware Law
and received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. The Company
shall not, except with the prior written consent of Parent, voluntarily
make any payment with respect to any such demands or offer to settle or
settle any such demands.
SECTION 1.10. NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. The
Merger Consideration delivered upon the surrender for exchange of Shares in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
Shares which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article I.
SECTION 1.11. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such Parent Common
Shares as may be required pursuant to Section 1.06; provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Parent or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
SECTION 1.12. TAX AND ACCOUNTING CONSEQUENCES. It is intended by the
parties hereto that the Merger shall (i) constitute a reorganization within the
meaning of Section 368 of the Code and (ii) qualify for accounting treatment as
a pooling of interests under GAAP. The parties hereto hereby adopt this
Agreement as a "plan of reorganization" within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations promulgated
under the Code.
SECTION 1.13. TAKING OF NECESSARY ACTION; FURTHER ACTION. Subject to the
terms and conditions herein, each of Parent, Merger Sub and the Company in good
faith will take all such commercially reasonable and lawful action as may be
necessary or appropriate in order to effectuate the Merger in accordance with
this Agreement as promptly as possible. If, at any time after the Effective
Time, any such further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
SECTION 1.14. MATERIAL ADVERSE EFFECT. When used in this Agreement with
respect to the Company or any of its subsidiaries, or Parent or any of its
subsidiaries, as the case may be, the term "Material Adverse Effect" means any
change or effect that, individually or when taken together with all other such
changes or effects that have occurred prior to the date of determination of the
occurrence of the Material Adverse Effect, is or is reasonably likely to be
materially adverse to the business, assets (including intangible assets),
financial condition or results of operations of the Company and its subsidiaries
or Parent and its subsidiaries, as the case may be, in each case taken as a
whole; provided, however, that a Material Adverse Effect shall not include any
change or effect in respect of the Company and its subsidiaries or in respect of
Parent and its subsidiaries, as the case may be, resulting from conditions
affecting the semiconductor automatic test equipment industry generally or
general economic conditions.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that,
except as set forth in the written disclosure schedule previously delivered by
Company to Parent (the "Company Disclosure Schedule"):
SECTION 2.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of the
Company and its subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has the requisite corporate power and authority necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power and authority
would not have a Material Adverse Effect. Each of the Company and its
subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing that would not have a
Material Adverse Effect. A true and complete list of all of the Company's
subsidiaries, together with the jurisdiction of incorporation of each subsidiary
and the percentage of each subsidiary's outstanding capital stock owned by the
Company or another subsidiary, is set forth in Section 2.01 of the Company
Disclosure Schedule, except as is noted therein. Except as set forth in Section
2.01 of the Company Disclosure Schedule, the Company does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
SECTION 2.02. CERTIFICATE OF INCORPORATION AND BY-LAWS. The Company has
heretofore furnished to Parent a complete and correct copy of its Certificate of
Incorporation and By-Laws, as amended to date, and, except as is set forth in
Section 2.02 of the Company Disclosure Schedule, equivalent organizational
documents of each of its subsidiaries (the "Subsidiary Documents"). Such
Certificate of Incorporation, By-Laws and equivalent organizational documents of
each of its subsidiaries are in full force and effect. Neither the Company nor
any of its subsidiaries is in violation of any of the provisions of its
Certificate of Incorporation or By-Laws or Subsidiary Documents except, in the
case of any subsidiary of the Company, to the extent any such violation would
not have a Material Adverse Effect.
SECTION 2.03. CAPITALIZATION. The authorized capital stock of the Company
consists of 20,000,000 shares of Company Common Stock and 5,000,000 shares of
the Company's Preferred Stock $.001 par value per share (the "Company Preferred
Stock"). As of August 26, 1995, (i) 7,422,462 shares of Company Common Stock
were issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (ii) no shares of Company Common Stock were held by subsidiaries
of the Company, (iii) 1,546,119 shares of Company Common Stock were reserved for
future issuance pursuant to option grants under the Company Stock Option Plans,
(iv) 406,834 shares of Company Common Stock were reserved for future issuance
under the Company Stock Purchase Plan and (v) no shares of Company Preferred
Stock were issued and outstanding. No material change in such capitalization has
occurred between August 26, 1995 and the date hereof. For purposes hereof,
option exercises by optionholders of Company Common Stock in the ordinary course
of business and issuances of Company Common Stock under the 1992 Employee Stock
Purchase Plan pursuant to the terms of such plan shall not be deemed a material
change in the Company's capitalization. Except as set forth in this Section 2.03
or Section 2.11 hereof or in Section 2.03 or Section 2.11 of the Company
Disclosure Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or any of its subsidiaries or obligating the
Company or any of its subsidiaries to issue or sell any shares of capital stock
of, or other equity interests in, the Company or any of its subsidiaries. All
shares of Company Common Stock subject to issuance as aforesaid, upon issuance
on the terms and conditions specified in the instruments pursuant to which they
are issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. There are no obligations, contingent or otherwise, of the Company
or any of its subsidiaries to repurchase, redeem or otherwise acquire any shares
of Company capital stock or the capital stock of any subsidiary or to
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provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any such subsidiary or any other entity other than
guarantees of bank obligations of subsidiaries entered into in the ordinary
course of business. All of the outstanding shares of capital stock of each of
the Company's subsidiaries are duly authorized, validly issued, fully paid and
nonassessable, and, other than directors' qualifying shares, all such shares are
owned by the Company or another subsidiary free and clear of all security
interests, liens, claims, pledges, agreements, limitations in the Company's
voting rights, charges or other encumbrances of any nature whatsoever.
SECTION 2.04. AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated (other than the
approval and adoption of the Merger by the holders of at least a majority of the
outstanding shares of the Company Common Stock entitled to vote in accordance
with Delaware Law and the Company's Certificate of Incorporation and By-Laws).
The Board of Directors of the Company has determined that it is advisable and in
the best interest of the Company's stockholders for the Company to enter into a
business combination with Parent upon the terms and subject to the conditions of
this Agreement. This Agreement has been duly and validly executed and delivered
by the Company and, assuming the due authorization, execution and delivery by
Parent and Merger Sub, as applicable, constitutes the legal, valid and binding
obligation of the Company.
SECTION 2.05. NO CONFLICT, REQUIRED FILINGS AND CONSENTS.
(a) Section 2.05(a) of the Company Disclosure Schedule includes a list
of (i) all material contracts of the Company and its subsidiaries and (ii)
all agreements which, as of the date hereof, will be required to be filed
with the Securities and Exchange Commission (the "SEC") pursuant to the
requirements of the Securities Exchange Act of 1934, as amended, and the
SEC's rules thereunder (collectively, the "Exchange Act") as "material
contracts" ((i) and (ii) being, collectively, the "Material Contracts") of
the Company and its subsidiaries.
(b) Except as set forth in Section 2.05(b) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement by the Company will not, (i)
conflict with or violate the Certificate of Incorporation or By-Laws or
equivalent organizational documents of the Company or any of its
subsidiaries, (ii) to the Company's knowledge, conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to the Company
or any of its subsidiaries or by which its or any of their respective
properties is bound or affected, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default), or impair the Company's or any of its
subsidiaries' rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration
or cancellation of, any Material Contract, or result in the creation of a
lien or encumbrance on any of the properties or assets of the Company or
any of its subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
or obligation to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries or its or any of their
respective properties is bound or affected, except in any such case for any
such breaches, defaults or other occurrences that would not individually or
in the aggregate, have a Material Adverse Effect.
(c) Except as set forth in Section 2.05(c) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or
foreign, except (i) for applicable requirements, if any, of the Securities
Act of 1933, as amended (the "Securities Act"), the Exchange Act, state
securities laws ("Blue Sky Laws") and the pre-merger notification
requirements of the Hart-Scott-
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Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and
the filing and recordation of appropriate merger or other documents as
required by Delaware Law and (ii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of the Merger, or
otherwise prevent or delay the Company from performing its obligations
under this Agreement, or would not otherwise have a Material Adverse
Effect.
SECTION 2.06. COMPLIANCE; PERMITS.
(a) Neither the Company nor any of its subsidiaries is in conflict
with, or in default or violation of, (i) to the Company's knowledge, any
law, rule, regulation, order, judgment or decree applicable to the Company
or any of its subsidiaries or by which its or any of their respective
properties is bound or affected or (ii) any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit franchise or other
instrument or obligation to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries or its or any of
their respective properties is bound or affected, except for any such
conflicts, defaults or violations which, individually or in the aggregate,
would in either such case not have a Material Adverse Effect.
(b) To the Company's knowledge, the Company and its subsidiaries hold
all permits, licenses, easements, variances, exemptions, consents,
certificates, orders and approvals from governmental authorities which are
material to the operation of the business of the Company and its
subsidiaries taken as a whole (collectively, the "Company Permits"). The
Company and its subsidiaries are in compliance with the terms of the
Company Permits, except where the failure to so comply would not have a
Material Adverse Effect.
SECTION 2.07. SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has filed all forms, reports and documents required to
be filed with the SEC since March 1, 1993 and has made available to Parent
(i) its Quarterly Reports on Form 10-Q for the periods ended November 30,
1994, February 28, 1995 and May 31, 1995 respectively, (ii) all proxy
statements relating to the Company's meetings of stockholders (whether
annual or special) held since March 1, 1993, (iii) all other reports or
registration statements filed by the Company with the SEC (other than
Reports on Forms 3, 4 and 5 and Schedule 13G filed on behalf of affiliates
of the Company) since March 1, 1993 and (iv) all amendments and supplements
to all such reports and registration statements filed by the Company with
the SEC (collectively, the "Company SEC Reports"). The Company SEC Reports
(i) were prepared in accordance with the requirements of the Securities Act
or the Exchange Act, as the case may be, and (ii) did not at the time they
were filed (or if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
None of the Company's subsidiaries is required to file any forms, reports
or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Company SEC Reports was
prepared in accordance with GAAP applied on a consistent basis throughout
the periods involved (except as may be indicated therein or in the notes
thereto) and each fairly presented the consolidated financial position of
the Company and its subsidiaries as at the respective dates thereof and the
consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or
are subject to normal and recurring year-end adjustments which were not or
are not expected to be material in amount.
(c) The Company has heretofore furnished to Parent a complete and
correct copy of any amendments or modifications, which have not yet been
filed with the SEC but which are required to be filed, to agreements,
documents or other instruments which previously had been filed by the
Company with the SEC pursuant to the Securities Act or the Exchange Act.
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SECTION 2.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 2.08 of the Company Disclosure Schedule or in any Company SEC Report,
since August 31, 1994, the Company has conducted its business in the ordinary
course and there has not occurred: (i) any Material Adverse Effect; (ii) any
amendments or changes in the Certificate of Incorporation or By-laws of the
Company; (iii) any damage to, destruction or loss of any assets of the Company
(whether or not covered by insurance) that had or could have a Material Adverse
Effect; (iv) any change by the Company in its accounting methods, principles or
practices; (v) any revaluation by the Company of any of its material assets,
including, without limitation, writing down the value of capitalized software or
inventory, or writing off notes or accounts receivable other than in the
ordinary course of business; (vi) any sale of a material amount of property of
the Company, except for sales in the ordinary course of business; or (vii) any
other action or event that would have required the consent of Parent pursuant to
Section 4.01 had such action or event occurred after the date of this Agreement.
SECTION 2.09. NO UNDISCLOSED LIABILITIES. Except as is disclosed in
Section 2.09 of the Company Disclosure Schedule or in any Company SEC Report,
neither the Company nor any of its subsidiaries has any liabilities (absolute,
accrued, contingent or otherwise) which are, in the aggregate, material to the
business, operations or financial condition of the Company and its subsidiaries
taken as a whole, except liabilities (a) adequately provided for in the
Company's audited balance sheet (including any related notes thereto) for the
fiscal year ended August 31, 1994 included in the Company SEC Reports (the "1994
Balance Sheet"), (b) incurred in the ordinary course of business and not
required under GAAP to be reflected on the 1994 Balance Sheet or on any balance
sheet contained in an SEC Report filed for any subsequent period, or (c)
incurred since August 31, 1994 in the ordinary course of business and consistent
with past practice, and liabilities incurred in connection with this Agreement.
SECTION 2.10. ABSENCE OF LITIGATION. Except as set forth in the Company
SEC Reports, there are no claims, actions, suits, proceedings or investigations
pending or, to the knowledge of the Company, threatened against the Company or
any of its subsidiaries, or any properties or rights of the Company or any of
its subsidiaries, before any court, arbitrator or administrative, governmental
or regulatory authority or body, domestic or foreign that, individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect.
SECTION 2.11. EMPLOYEE BENEFIT PLANS, EMPLOYMENT AGREEMENTS.
(a) Section 2.11 (a) of the Company Disclosure Schedule lists all
employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), regardless
of whether ERISA is applicable thereto, all other bonus, stock option,
stock purchase, incentive, deferred compensation, supplemental retirement,
severance or termination pay, medical or life insurance, supplemental
unemployment benefits, profit-sharing, pension or retirement plans,
agreements or arrangements and other similar fringe or employee benefit
plans, programs or arrangements, and any current or former employment or
executive compensation or severance agreements, written or otherwise, for
the benefit of, or relating to, any employee of the Company, any trade or
business (whether or not incorporated) which is a member of a controlled
group including the Company or which is under common control with the
Company (an "ERISA Affiliate") within the meaning of Section 414 of the
Code, or any subsidiary of the Company, to which the Company, an ERISA
Affiliate, or any subsidiary is a party, with respect to which the Company,
an ERISA Affiliate, or any subsidiary has or could have any material
obligation, as well as each plan with respect to which the Company or an
ERISA Affiliate could incur any material liability if such plan has been or
were terminated (together, the "Employee Plans"), and a copy of each such
written Employee Plan has been made available to Parent.
(b) Except as set forth in Section 2.11 (b) of the Company Disclosure
Schedule, (i) none of the Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person and none of the
Employee Plans is a "multi-employer plan" as such term is defined in
Section 3(37) of ERISA; (ii) there has been no transaction or failure to
act with respect to any Employee Plan, which could result in any material
liability of the Company or any of its subsidiaries; (iii) all Employee
Plans are in compliance in all material respects with the requirements
prescribed by any and all statutes, orders, or governmental rules and
regulations currently in effect with respect thereto, and the Company and
each
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of its subsidiaries have performed all material obligations required to be
performed by them under, are not in any material respect in default under
or violation of, and have no knowledge of any default or violation by any
other party to, any of the Employee Plans; (iv) each Employee Plan intended
to qualify under Section 401(a) of the Code is the subject of a favorable
determination letter from the IRS, and nothing has occurred which may
reasonably be expected to impair such determination; (v) all contributions
required to be made to any Employee Plan pursuant to Section 412 of the
Code, or the terms of the Employee Plan or any collective bargaining
agreement, have been made on or before their due dates and a reasonable
amount has been accrued for contributions to each Employee Plan for the
current plan years; (vi) with respect to each Employee Plan, no "reportable
event" within the meaning of Section 4043 of ERISA (excluding any such
event for which the thirty (30) day notice requirement has been waived
under the regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 of ERISA has occurred; and (vii) neither the
Company nor any ERISA Affiliate has incurred, nor reasonably expects to
incur, any liability under Title IV of ERISA (other than liability for
premium payments to the Pension Benefit Guaranty Corporation arising in the
ordinary course).
(c) Each Employee Plan that is required or intended to be qualified
under applicable law or registered or approved by a governmental agency or
authority, has been so qualified, registered or approved by the appropriate
governmental agency or authority, and nothing has occurred since the date
of the last qualification, registration or approval to adversely affect, or
cause the appropriate governmental agency or authority to revoke, such
qualification, registration or approval.
(d) All contributions (including premiums) required by law or contract
to have been made or approved by the Company under or with respect to
Employee Plans have been paid or accrued by the Company. Except as
disclosed in Section 2.11(d) of the Company Disclosure Schedule, without
limiting the foregoing, there are no material unfunded liabilities under
any Employee Plan.
(e) There are no pending or, to the knowledge of the Company,
threatened investigations, litigation or other enforcement actions against
the Company with respect to any of the Employee Plans.
(f) There are no actions, suits or claims pending or, to the knowledge
of the Company, threatened by former or present employees of the Company
(or their beneficiaries) with respect to Employee Plans or the assets or
fiduciaries thereof (other than routine claims for benefits).
(g) To the Company's knowledge, no condition or event has occurred
with respect to the Employee Plans which has or could reasonably be
expected to result in a material liability to the Company.
(h) Section 2.11(h) of the Company Disclosure Schedule sets forth as
of August 26, 1995 a true and complete list of each current or former
employee, officer or director of the Company or any of its subsidiaries who
holds any option to purchase Company Common Stock as of the date hereof,
together with the number of shares of Company Common Stock subject to such
option, the date of grant of such option, the extent to which such option
is vested (or will become vested within six months of the date hereof, or
as a result of the Merger), the option price of such option (to the extent
determined as of the date hereof), whether such option is intended to
qualify as an incentive stock option within the meaning of Section 422(b)
of the Code (an "ISO"), and the expiration date of such option. Section
2.11(h) of the Company Disclosure Schedule also sets forth the total number
of such ISOs and such nonqualified options.
(i) The Company has made available to Parent (i) copies of all
employment agreements with officers of the Company; (ii) copies of all
agreements with consultants who are individuals obligating the Company to
make annual cash payments in an amount exceeding $100,000; (iii) a schedule
listing all officers of the Company who have executed a non-competition
agreement with the Company; (iv) copies (or descriptions) of all severance
agreements, programs and policies of the Company with or relative to its
employees, excluding programs and policies required to be maintained by
law; (v) copies of all plans, programs, agreements and other arrangements
of the Company with or relating to its employees which contain change in
control provisions; and (vi) the form of standard employment agreement, if
any, of the Company for its non-executive employees. The Company has
provided to Parent a complete list of (i) all
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salary increases for each officer of the Company for the fiscal year 1996
and (ii) all bonus amounts earned by each officer of the Company for fiscal
year 1995.
SECTION 2.12. LABOR MATTERS. There are no controversies pending or, to the
knowledge of the Company or any of its subsidiaries, threatened, between the
Company or any of its subsidiaries and any of their respective employees, which
controversies have or could reasonably be expected to have a Material Adverse
Effect; neither the Company nor any of its subsidiaries is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company or its subsidiaries nor does the Company or any
of its subsidiaries know of any activities or proceedings of any labor union to
organize any such employees; and neither the Company nor any of its subsidiaries
has any knowledge of any strikes, slowdowns, work stoppages, lockouts, or
threats thereof, by or with respect to any employees of the Company or any of
its subsidiaries.
SECTION 2.13. REGISTRATION STATEMENT, PROXY STATEMENT. None of the
information supplied or to be supplied by the Company in writing for inclusion
or incorporation by reference in (i) the Registration Statement on Form S-4 to
be filed with the SEC by Parent in connection with the issuance of Parent Common
Shares in the Merger (the "Registration Statement") or (ii) the proxy statement
relating to the meeting of the Company's stockholders (the "Company Stockholders
Meeting") to be held in connection with the Merger (the "Proxy Statement" and,
together with the Registration Statement, the "Proxy Statement/Prospectus")
will, at the respective times filed with the SEC or other regulatory agency and,
in addition, (a) in the case of the Proxy Statement/Prospectus, at the date it
or any amendment or supplement thereto is mailed to stockholders, at the time of
the Company Stockholders Meeting and at the Effective Time and (b) in the case
of the Registration Statement, when it becomes effective under the Securities
Act and at the Effective Time, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Proxy Statement will comply as to form in all
material respects with the applicable provisions of the Exchange Act and the
rules and regulations thereunder. If at any time prior to the Effective Time any
event relating to the Company or any of its respective affiliates, officers or
directors should be discovered by the Company which is required to be set forth
in an amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, the Company shall promptly inform Parent and Merger Sub.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information supplied by Parent or Merger Sub which is
contained in any of the foregoing documents.
SECTION 2.14. RESTRICTIONS ON BUSINESS ACTIVITIES. Except for this
Agreement, there is no material agreement, judgment, injunction, order or decree
binding upon the Company or any of its subsidiaries which has or could
reasonably be expected to have the effect of prohibiting or impairing any
material business practice of the Company or any of its subsidiaries,
acquisition of property by the Company or any of its subsidiaries or the conduct
of business by the Company or any of its subsidiaries as currently conducted by
the Company.
SECTION 2.15. TITLE TO PROPERTY. Section 2.15 of the Company Disclosure
Statement sets forth a true and complete list of all real property owned by the
Company and all real property leased by the Company or any of its subsidiaries
requiring annual lease payments of more than $50,000, and the aggregate monthly
rental or other fee payable under such lease. The Company and each of its
subsidiaries have good, marketable and defeasible title to all of their
properties and assets, free and clear of all liens, charges and encumbrances
except liens for taxes not yet due and payable and such liens or other
imperfections of title, if any, as do not materially detract from the value of
or interfere with the present use of the property affected thereby or which
would not, individually or in the aggregate, have a Material Adverse Effect; and
all leases pursuant to which the Company or any of its subsidiaries lease from
others material amounts of real or personal property are in good standing, valid
and effective in accordance with their respective terms, and there is not under
any of such leases, any existing material default or event of default on the
part of the Company (or event which with notice or lapse of time, or both, would
constitute a material default on the part of the Company and in respect of which
the Company or such subsidiary has not taken adequate steps to prevent such a
default from occurring) except where the lack of such good standing, validity
and effectiveness or the existence of such default or event of
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default would not have a Material Adverse Effect. All the facilities of the
Company and its subsidiaries, except such as may be under construction, are in
good operating condition and repair, except where the failure of such plants,
structures and equipment to be in such good operating condition and repair would
not, individually or in the aggregate, have a Material Adverse Effect.
SECTION 2.16. TAXES.
(a) For purposes of this Agreement, "Tax" or "Taxes" shall mean taxes,
fees, levies, duties, tariffs, imposts and governmental impositions or
charges of any kind in the nature of (or similar to) taxes, payable to any
federal, state, provincial, local or foreign taxing authority, including
(without limitation) (i) income, franchise, profits, gross receipts, ad
valorem, net worth, value added, sales, use, service, real or personal
property, special assessments, capital stock, license, payroll,
withholding, employment, social security, workers' compensation,
unemployment compensation, utility, severance, production, excise, stamp,
occupation, premiums, windfall profits, transfer and gains taxes and (ii)
interest, penalties, additional taxes and additions to tax imposed with
respect thereto; and "Tax Returns" shall mean returns, reports and
information statements with respect to Taxes required to be filed with the
United States Internal Revenue Service (the "IRS") or any other taxing
authority, domestic or foreign, including, without limitation,
consolidated, combined and unitary tax returns.
(b) Other than as disclosed on Section 2.16(b) of the Company
Disclosure Schedule, the Company and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of
which the Company or any of its subsidiaries is or has been a member, have
filed all United States federal income Tax Returns and all other material
Tax Returns required to be filed by them or any of them, and have paid and
discharged all Taxes shown therein to be due and there are no other Taxes
that would be due if asserted by a taxing authority, except such as are
being contested in good faith by appropriate proceedings (to the extent
that any such proceedings are required) or with respect to which the
Company is maintaining reserves in accordance with GAAP in its financial
statements to the extent currently required in all material respects
adequate for their payment, except, in each instance, to the extent the
failure to do so would not have a Material Adverse Effect. Neither the IRS
nor any other taxing authority or agency is now asserting or, to the best
of the Company's knowledge, threatening to assert against the Company or
any of its subsidiaries any deficiency or claim for additional Taxes other
than additional Taxes with respect to which the Company is maintaining
reserves in accordance with GAAP in its financial statements which are in
all material respects adequate for their payment, except, in each instance,
to the extent the failure to do so would not have a Material Adverse
Effect. No Tax Return of either the Company or any of its subsidiaries is
currently being audited by any taxing authority. No material tax claim has
become a lien on any assets of the Company or any subsidiary thereof and
neither the Company nor any of its subsidiaries has granted any waiver of
any statute of limitations with respect to, or any extension of a period
for the assessment of, any Tax.
(c) The Company on behalf of itself and all its subsidiaries hereby
represents that, other than as disclosed on Section 2.16(c) of the Company
Disclosure Schedule, and other than with respect to items the inaccuracy of
which would not have a Material Adverse Effect: (i) neither the Company nor
any of its subsidiaries is a party to any agreement, contract or
arrangement that may result, separately or in the aggregate, in the payment
of (a) any "excess parachute payment" within the meaning of Section 28OG of
the Code, determined without regard to Section 28OG(b)(4) of the Code or
(b) any amount that would not be deductible by the Parent or the Company
under Section 162(m) of the Code; (ii) neither the Company nor any of its
subsidiaries has been subject to any accumulated earning tax or personal
holding company tax; (iii) neither the Company nor any of its subsidiaries
is now or owns stock in a passive foreign investment company within the
meaning of Section 1296 of the Code; (iv) neither the Company nor any of
its subsidiaries is obligated under any agreement with respect to
industrial development bonds or other obligations with respect to which the
excludability from gross income of the holder for United States federal or
state income tax purposes could be affected by the transactions
contemplated hereunder; (v) neither the Company nor any of its subsidiaries
has entered into any deferred intercompany transaction within the meaning
of Section 1.1502-13(a)(2) of the United States
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Treasury Regulations promulgated under the Code as to which material items
of deferred gain or loss have not been restored; and (vi) no material
excess loss account within the meaning of Section 1.1502-32 and -19 of the
United States Treasury Regulations promulgated under the Code exists with
respect to the stock of any of the Company's subsidiaries; (vi) neither the
Company nor any of its Subsidiaries has filed a consent under Section
341(f) concerning collapsible corporations; (vii) neither the Company nor
any of its subsidiaries has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code; (viii)
neither the Company nor any of its subsidiaries has any liability for the
Taxes of another person (other than any of the Company and its
subsidiaries) under Section 1.1502-6 of the United States Treasury
Regulations promulgated under the Code (or any similar provision of state,
local or foreign law), as a transferee or successor, by contract, or
otherwise.
(d) No power of attorney has been granted by the Company or any of its
subsidiaries with respect to any matter relating to Taxes which is
currently in force.
(e) Neither the Company nor any of its subsidiaries is a party to any
agreement or arrangement (written or oral) providing for the allocation or
sharing of Taxes.
(f) The Company and each of its subsidiaries have withheld from each
payment made to any of their respective past or present employees, officers
or directors the amount of all Taxes and other deductions required to be
withheld therefrom and paid the same to the proper tax or other receiving
officers within the time required by law, except to the extent that any
failure to do so would not have a Material Adverse Effect.
(g) The Company has remitted to the appropriate Tax authority when
required by law to do so all amounts collected by it on account of all
retail sales Tax, except to the extent that any failure to do so would not
have a Material Adverse Effect.
(h) There has been no material debt to a third party of the Company or
any of its subsidiaries which has been forgiven and which has given rise to
(or is expected to give rise to) "cancellation of indebtedness income"
under the provisions of the Code.
SECTION 2.17. ENVIRONMENTAL MATTERS. Except in all cases, in the
aggregate, as have not had and could not reasonably be expected to have a
Material Adverse Effect, to the Company's knowledge, the Company and each of its
subsidiaries (i) have obtained all applicable permits, licenses and other
authorizations which are required under federal, state, provincial or local laws
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants or hazardous or toxic materials or wastes into ambient air, surface
water, ground water or land or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or hazardous or toxic materials or wastes
by the Company or its subsidiaries (or their respective agents); (ii) are in
compliance with all terms and conditions of such required permits, licenses and
authorization, and also are in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirement, obligations,
schedules and timetables contained in such laws or contained in any regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder; (iii) as of the date hereof, are not aware
of nor have received notice of any event, condition, circumstance, activity,
practice, incident, action or plan which is reasonably likely to interfere with
or prevent continued compliance with or which would give rise to any common law
or statutory liability, or otherwise form the basis of any claim, action, suit
or proceeding, based on or resulting from the Company's or any of its
subsidiary's (or any of their respective agent's) manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge or release into the environment, of any pollutant,
contaminant or hazardous or toxic material or waste; and (iv) have taken all
actions necessary under applicable requirements of federal, state or local laws,
rules or regulations to register any products or materials required to be
registered by the Company or its subsidiaries (or any of their respective
agents) thereunder.
SECTION 2.18. BROKERS. No broker, finder or investment banker (other than
Montgomery Securities is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions
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contemplated by this Agreement based upon arrangements made by or on behalf of
the Company. The Company has heretofore furnished to Parent a complete and
correct copy of all agreements between the Company and Montgomery Securities
pursuant to which such firm would be entitled to any payment relating to the
transactions contemplated hereunder.
SECTION 2.19. FULL DISCLOSURE. No statement contained in any certificate
or schedule furnished or to be furnished by the Company or its subsidiaries to
Parent or Merger Sub in, or pursuant to the provisions of, this Agreement
contains or shall contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary, in the light of the
circumstances under which it was made and based upon the facts and circumstances
existing at the time it was made, to make the statements herein or therein not
misleading.
SECTION 2.20. INTELLECTUAL PROPERTY.
(a) The Company owns, or is licensed or otherwise possesses legally
sufficient rights to use, all patents, trademarks, trade names, service
marks, copyrights and any applications therefor, technology, know-how,
computer software programs or applications (in both source code and object
code form) and tangible or intangible proprietary information or material
that are used or proposed to be used in the business of the Company as
currently conducted, except where the failure to own or to license or
possess such rights would not have a Material Adverse Effect. Section
2.20(a) of the Company Disclosure Schedule lists all current patents,
registered and material unregistered trademarks and service marks,
registered and material unregistered copyrights, trade names and any
applications therefor owned by the Company (the "Company Intellectual
Property Rights"), and specifies the jurisdictions in which each such
Company Intellectual Property Right has been issued or registered or in
which an application for such issuance and registration has been filed,
including the respective registration or application numbers and the names
of all registered owners, together with a list of all material software
products marketed by the Company on a standalone (independent of hardware)
basis and an indication as to which, if any, of such software products have
been registered for copyright protection with the United States Copyright
Office and any foreign offices and by whom such items have been registered.
Section 2.20(a) of the Company Disclosure Schedule includes and
specifically identifies all material third-party patents, trademarks or
copyrights (including software) (the "Third Party Intellectual Property
Rights"), to the knowledge of the Company, which are incorporated in, are,
or form a part of, any Company product. Section 2.20(a) of the Company
Disclosure Schedule lists (i) except for object code license agreements for
the Company's products executed in the ordinary course of business and in
accordance with the Company's past practices, all material licenses,
sublicenses and other agreements as to which the Company is a party and
pursuant to which any person is authorized to use any Company Intellectual
Property Right, or any trade secret material to the Company; and (ii)
except for all software programs available on a general commercial basis,
all material licenses, sublicenses and other agreements as to which the
Company is a party and pursuant to which the Company is authorized to use
any Third-Party Intellectual Property Rights or other trade secret of a
third party, in or as any Company product, and includes the identity of all
parties thereto, a description of the nature and subject matter thereof,
the applicable royalty and the term thereof.
(b) Except as set forth in Section 2.20(b) of the Company Disclosure
Schedule, the Company is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any license, sublicense or agreement described
in Section 2.20(a) of the Company Disclosure Schedule, which violation
would have a Material Adverse Effect. No claims with respect to the Company
Intellectual Property Rights, any trade secret material to the Company, or
Third Party Intellectual Property Rights to the extent arising out of any
use, reproduction or distribution of such Third Party Intellectual Property
Rights by or through the Company, are currently pending or, to the
knowledge of the Company, are threatened by any person; nor does the
Company know of any valid grounds for any bona fide claims (i) to the
effect that the manufacture, sale, licensing or use of any product as so
used, sold or licensed or proposed for use, sale or license by the Company
infringes on any copyright, patent, trademark, service mark or trade secret
of any other person; (ii) against the use by the Company of any trademarks,
trade names, trade secrets, copyrights, patents, technology, know-how or
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computer software programs and applications used in the Company's business
as currently conducted by the Company; (iii) challenging the ownership,
validity or effectiveness of any of the Company Intellectual Property
Rights or other trade secret material to the Company; or (iv) challenging
the Company's license or legally enforceable right to use of the Third
Party Intellectual Rights. To the Company's knowledge, all patents,
registered trademarks, registered maskworks and registered copyrights held
by the Company are valid and subsisting. Except as set forth in Section
2.20(b) of the Company Disclosure Schedule, to the Company's knowledge,
there is no unauthorized use, infringement or misappropriation of any of
the Company Intellectual Property Rights by any third party, including any
employee or former employee of the Company or any of its subsidiaries,
which use, infringement or misappropriation would have a Material Adverse
Effect. Neither the Company nor any of its subsidiaries (i) has been sued
or charged in writing as a defendant in any claim, suit, action or
proceeding which involves a claim or infringement of trade secrets, any
patents, trademarks, service marks, maskworks or copyrights and which has
not been finally terminated prior to the date hereof, (ii) has been
informed or notified by any third party in writing that the Company may be
engaged in such infringement or (iii) has knowledge of any infringement
liability with respect to, or infringement by, the Company or any of its
subsidiaries of any trade secret, patent, trademark, service mark, maskwork
or copyright of another, which infringement would have a Material Adverse
Effect.
(c) Each employee of the Company with access to confidential
information concerning the Company has executed a confidentiality and
invention agreement in the forms previously delivered to Parent.
SECTION 2.21. INTERESTED PARTY TRANSACTIONS. Except as set forth in
Section 2.21 of the Company Disclosure Schedule or in the Company SEC Reports
since December 9, 1994, no event has occurred that would be required to be
reported as a Certain Relationship or Related Transaction, pursuant to Item 404
of Regulation S-K promulgated by the SEC.
SECTION 2.22. INSURANCE. Section 2.22 of the Company Disclosure Schedule
lists all material insurance policies and fidelity bonds covering the assets,
business, equipment, properties, operations, employees, officers and directors
of the Company and its subsidiaries. There is no material claim by the Company
or any of its subsidiaries pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums payable under all such policies and bonds
have been paid and the Company and its subsidiaries are otherwise in full
compliance with the terms of such policies and bonds (or other policies and
bonds providing substantially similar insurance coverage in all material
respects). The Company does not know of any threatened termination of, or
material premium increase with respect to, any of such policies.
SECTION 2.23. OPTION PLANS. Except as set forth in Section 2.23 of the
Company Disclosure Schedule, the Board of Directors of the Company has taken all
necessary action (or refrained from taking action, where appropriate) under the
Company Stock Option Plans (as defined in Section 5.05) so that no Stock Options
(or any portion thereof) will be accelerated or entitled to receive cash or
other property as a result of the consummation of the transactions contemplated
hereby, but instead shall be assumed as provided in Section 1.06(c) hereof.
SECTION 2.24. VOTE REQUIRED. The affirmative vote of the holders of at
least a majority of the outstanding shares of the Company Common Stock is the
only vote of the holders of any class or series of the Company's capital stock
necessary to approve the Merger.
SECTION 2.25. POOLING MATTERS. To the Company's knowledge and based upon
consultation with its independent accountants, neither the Company nor any of
its affiliates has taken or agreed to take any action that would affect the
ability of Parent to account for the business combination to be effected by the
Merger as a pooling of interests. The Company has received from Price Waterhouse
LLP a written opinion addressed to it and Parent to the effect that the Merger
qualifies for a pooling of interests accounting treatment if consummated in
accordance with this Agreement.
SECTION 2.26. OPINION OF FINANCIAL ADVISOR. The Company has been advised
by its financial advisor, Montgomery Securities, that in its opinion, as of the
date hereof, the terms of the Merger are fair to the
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stockholders of the Company from a financial point of view, and the Company has
delivered a written copy of such opinion to Parent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and warrant
to the Company that, except as set forth in the written disclosure schedule
previously delivered by Parent to the Company (the "Parent Disclosure
Schedule"):
SECTION 3.01. ORGANIZATION AND QUALIFICATION. Parent and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority and is in possession of all Approvals
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power, authority and Approvals would not have a Material Adverse Effect. Parent
and each of its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would not
have a Material Adverse Effect.
SECTION 3.02. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and Merger Sub and the consummation by Parent and
Merger Sub of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Parent and Merger
Sub, and no other corporate proceedings on the part of Parent or Merger Sub are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. The Board of Directors of Parent has determined that it is
advisable and in the best interest of Parent's stockholders for Parent to enter
into a business combination with the Company upon the terms and subject to the
conditions of this Agreement. This Agreement has been duly and validly executed
and delivered by Parent and Merger Sub and, assuming the due authorization,
execution and delivery by the Company, constitutes a legal, valid and binding
obligation of Parent and Merger Sub.
SECTION 3.03. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The
execution and delivery of this Agreement by Parent and Merger Sub do not,
and the performance of this Agreement by Parent and Merger Sub shall not,
(i) conflict with or violate the Articles of Organization or By-Laws of
Parent or the Certificate of Incorporation or By-Laws of Merger Sub; (ii)
conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Parent or any of it subsidiaries or by which its or
their respective properties are bound or affected; or (iii) result in any
breach of or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or impair Parent's rights or
alter the rights or obligations of any third party under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
Material Contract or result in the creation of a lien or encumbrance on any
of the properties or assets of Parent or any of its subsidiaries pursuant
to, any material note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to
which Parent or any of its subsidiaries is a party or by which Parent or
any of its subsidiaries or its or any of their respective properties are
bound or affected, except in any such case for any such breaches, defaults
or other occurrences that would not have a Material Adverse Effect.
(b) The execution and delivery of this Agreement by Parent and Merger
Sub will not require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority,
domestic or foreign, except (i) for applicable requirements, if any, of the
Securities Act, the Exchange Act, the NYSE, the Blue Sky Laws and the
pre-merger notification requirements of the HSR Act and (ii) where the
failure to obtain such consents, approvals, authorizations or permits, or
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to make such filings or notifications, would not prevent or delay
consummation of the Merger, or otherwise prevent Parent or Merger Sub from
performing their respective obligations under this Agreement, and would not
have a Material Adverse Effect.
SECTION 3.04. ARTICLES OF ORGANIZATION AND BY-LAWS. Parent has heretofore
furnished to the Company a complete and correct copy of its Articles of
Organization and the By-Laws, as amended to date. Such Articles of Organization
and By-Laws are in full force and effect. Neither Parent nor Merger Sub is in
violation of any of the provisions of its Certificate of Incorporation or
By-Laws.
SECTION 3.05. CAPITALIZATION. As of June 30, 1995, the authorized capital
stock of Parent consisted of 75,000,000 Parent Common Shares of which:
37,610,648 shares were issued and outstanding, 1,575,008 shares were held in
treasury, 5,677,973 shares were reserved for issuance pursuant to outstanding
options under Parent's stock option plans, and 560,640 shares were reserved for
future issuance under Parent's employee purchase plan. No material change in
such capitalization has occurred between June 30, 1995 and the date hereof
except that (A) on July 24, 1995, Parent declared a two-for-one stock split in
the form of a stock dividend on its issued and outstanding Parent Common Shares
payable to holders of record on August 8, 1995 and (B) on July 17, 1995, Parent
amended its Articles of Organization to increase its authorized capital stock
from 75,000,000 Parent Common Shares to 125,000,000 Parent Common Shares. Except
as set forth in this Section 3.05, there are no options, warrants or other
rights, agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of Parent or any of its subsidiaries or
obligating Parent or any of its subsidiaries to issue or sell any shares of
capital stock of, or other equity interests in, Parent or any of its
subsidiaries. The authorized capital stock of Merger Sub consists of 1,000
shares of common stock, par value $0.001 per share, 100 shares of which, as of
the date hereof, are issued and outstanding. All of the outstanding shares of
Parent's and Merger Sub's respective capital stock have been duly authorized and
validly existing and are fully paid and nonassessable. Parent owns all of the
capital stock of Merger Sub. The Parent is party to a Rights Agreement (the
"Rights Agreement") dated as of March 14, 1990, a copy of which has been
provided to the Company. Parent represents and warrants that since March 14,
1990 there has not occurred an event which has caused the rights issuable under
the Rights Agreement to separate from the Parent Common Shares.
SECTION 3.06. COMPLIANCE, PERMITS. (a) Neither Parent nor any of its
subsidiaries is in conflict with, in default with respect to or in
violation of (i) any law, rule, regulation, order, judgment or decree
applicable to Parent or any of its subsidiaries or by which its or any of
their respective properties is bound or affected or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which Parent or any of its
subsidiaries is a party or by which Parent or any of its subsidiaries is or
any of their respective properties is bound or affected, except for any
such conflicts, defaults or violations which would not have a Material
Adverse Effect.
(b) Parent and its subsidiaries hold all permits, licenses, easements,
variances, exemptions, consents, certificates, orders and approvals from
governmental authorities which are material to the operation of the
business of the Company and its subsidiaries taken as a whole as it is now
being conducted (collectively, the "Parent Permits"). Parent and its
subsidiaries are in compliance with the terms of the Parent Permits, except
where the failure to so comply would not have a Material Adverse Effect.
SECTION 3.07. SEC FILINGS, FINANCIAL STATEMENTS. (a) Parent has filed
all forms, reports and documents required to be filed with the SEC since
December 31, 1992, and has heretofore delivered to the Company, in the form
filed with the SEC, (i) its Annual Reports on Form 10-K for the fiscal
years ended December 31, 1993 and 1994 and its quarterly report on Form
10-Q for the fiscal quarters ended March 31, 1995 and June 30, 1995 (ii)
all proxy statements relating to Parent's meetings of stockholders (whether
annual or special) held since December 31, 1994, (iii) all other reports or
registration statements (other than Reports on Form 3, 4 or 5 filed on
behalf of affiliates of the Parent) filed by Parent with the SEC since
December 31, 1994 and (iv) all amendments and supplements to all such
reports and registration statements filed by Parent with the SEC
(collectively, the "Parent SEC Reports"). The Parent SEC Reports (i) were
prepared in accordance with the requirements of the
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Securities Act or the Exchange Act, as the case may be, and (ii) did not at
the time they were filed (or if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of Parent's subsidiaries is required to file any forms,
reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Parent SEC Reports has
been prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto) and each fairly presents the consolidated financial position of
Parent and its subsidiaries as at the respective dates thereof and the
consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or
are subject to normal and recurring year-end adjustments which were not or
are not expected to be material in amount.
(c) Parent has heretofore furnished to the Company a complete and
correct copy of any amendments or modifications, which have not yet been
filed with the SEC but which are required to be filed, to agreements,
documents or other instruments which previously had been filed by Parent
with the SEC pursuant to the Securities Act or the Exchange Act.
(d) The Parent has provided to the Company copies of (x) all of its
material contracts and (y) all agreements which, as of the date hereof, are
required to be filed with the SEC pursuant to the requirements of the
Exchange Act and the SEC's rules thereunder as "material contracts" of the
Parent and its subsidiaries.
SECTION 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 3.08 of the Parent Disclosure Schedule, since December 31, 1994, Parent
has conducted its business in the ordinary course and there has not occurred:
(i) any Material Adverse Effect; (ii) any amendments or changes in the Articles
of Organization or By-Laws of Parent; (iii) any damage to, destruction or loss
of any assets of the Parent (whether or not covered by insurance) that could
have a Material Adverse Effect; (iv) any revaluation by Parent of any of its
assets, including, without limitation, writing down the value of capitalized
software or inventory or writing off notes or accounts receivable other than in
the ordinary course of business; or (v) except as disclosed in Section 3.08 of
the Parent Disclosure Schedule, any other action or event that would have
required the consent of the Company pursuant to Section 4.03 had such action or
event occurred after the date of this Agreement.
SECTION 3.09. RESTRICTIONS ON BUSINESS ACTIVITIES. Except for this
Agreement, there is no material agreement, judgment, injunction, order or decree
binding upon Parent or any of its subsidiaries which has or could reasonably be
expected to have the effect of prohibiting or materially impairing any business
practice of Parent or any of its subsidiaries, any acquisition of property by
Parent or any of its subsidiaries or the conduct of business by Parent or any of
its subsidiaries as currently conducted or as proposed to be conducted by
Parent.
SECTION 3.10. TITLE TO PROPERTY. Parent and each of its subsidiaries have
good, marketable and defensible title to all of their properties and assets,
free and clear of all liens, charges and encumbrances except liens for taxes not
yet due and payable and such liens or other imperfections of title, if any, as
do not materially detract from the value of or interfere with the present use of
the property affected thereby or which would not have a Material Adverse Effect;
and, to Parent's knowledge, all leases pursuant to which Parent or any of its
subsidiaries lease from others material amounts of real or personal property are
in good standing, valid and effective in accordance with their respective terms,
and there is not, to the knowledge of Parent, under any of such leases, any
existing material default or event of default (or event which, with notice or
lapse of time, or both, would constitute a material default and in respect of
which Parent or such subsidiary has not taken adequate steps to prevent such a
default from occurring) except where the lack of such good standing, validity
and effectiveness, or the existence of such default or event of default would
not have a Material Adverse Effect.
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SECTION 3.11. FULL DISCLOSURE. No statement contained in any certificate
or schedule furnished, or to be furnished, by Parent or Merger Sub to the
Company in, or pursuant to the provisions of, this Agreement contains or will
contain any untrue statement of a material fact or omits or shall omit to state
any material fact necessary, in the light of the circumstances under which it
was made and based upon the facts and circumstances existing at the time it was
made, to make the statements herein or therein not misleading.
SECTION 3.12. NO UNDISCLOSED LIABILITIES.
(a) Except as is disclosed in the Parent SEC Reports, neither Parent
nor any of its subsidiaries has any liabilities (absolute, accrued,
contingent or otherwise) which are, in the aggregate, material to the
business, operations or financial condition of Parent and its subsidiaries
taken as a whole, except liabilities (i) adequately provided for in
Parent's balance sheet (including any related notes thereto) as of December
31, 1994 included in the Parent SEC Reports (the "December 31 Balance
Sheet"), (ii) incurred in the ordinary course of business and not required
under GAAP to be reflected on the December 31 Balance Sheet, or (iii)
incurred since December 31, 1994 in the ordinary course of business and
consistent with past practice, and liabilities incurred in connection with
this Agreement.
(b) As of the date hereof and the Effective Time, except for
obligations or liabilities incurred in connection with its incorporation or
organization and the transactions contemplated by this Agreement and except
for this Agreement and any other agreements or arrangements contemplated by
this Agreement, Merger Sub has not and will not have incurred, directly or
indirectly, through any subsidiary or affiliate, any obligations or
liabilities or engaged in any business activities of any type or kind
whatsoever or entered into any agreements or arrangements with any person.
SECTION 3.13. ABSENCE OF LITIGATION. Except as set forth in Section 3.13
of the Parent Disclosure Schedule or as reflected in the Parent SEC Reports,
there are no claims, actions, suits, proceedings or investigations pending or,
to the knowledge of Parent, threatened against Parent or any of its
subsidiaries, or any properties or rights of Parent or any of its subsidiaries,
before any court, arbitrator or administrative, governmental or regulatory
authority or body, domestic or foreign, that could have a Material Adverse
Effect.
SECTION 3.14. INSURANCE. Parent and its subsidiaries maintain fire and
casualty, general liability, business interruption, product liability and
sprinkler and water damage insurance that Parent believes to be reasonably
prudent for its business.
SECTION 3.15. REGISTRATION STATEMENT; PROXY STATEMENT; PROSPECTUS. Subject
to the accuracy of the representations of the Company in Section 2.13, the
Registration Statement pursuant to which the Parent Common Shares to be issued
in the Merger will be registered with the SEC shall not, at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC, contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
included therein, in light of the circumstances under which they were made, not
misleading. Subject to the accuracy of the representations of the Company in
Section 2.13, the information supplied by Parent for inclusion in the Proxy
Statement/Prospectus will not, on the date the Proxy Statement/Prospectus is
first mailed to stockholders, at the time of the Company Stockholders Meeting
and at the Effective Time, contain any statement which, at such time and in
light of the circumstances under which it shall be made, is false or misleading
with respect to any material fact, or will omit to state any material fact
necessary in order to make the statements therein not false or misleading. The
Registration Statement will comply as to form in all material respects with the
applicable provisions of the Securities Act and the rules and regulations
promulgated thereunder. If at any time prior to the Effective Time any event
relating to Parent, Merger Sub or any of their respective affiliates, officers
or directors should be discovered by Parent or Merger Sub which should be set
forth in an amendment to the Registration Statement or a supplement to the Proxy
Statement/ Prospectus, Parent or Merger Sub will promptly inform the Company.
Notwithstanding the foregoing, Parent makes no representation or warranty with
respect to any information supplied, by the Company which is contained in, or
furnished in connection with the preparation of, any of the foregoing.
SECTION 3.16. TAXES. Parent and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of which
Parent or any of its subsidiaries is or has been a member, have filed
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all United States federal income Tax Returns and all other material Tax Returns
required to be filed by them or any of them, and have paid and discharged all
Taxes shown therein to be due and there are no other Taxes that would be due if
asserted by a taxing authority, except such as are being contested in good faith
by appropriate proceedings (to the extent that any such proceedings are
required) or with respect to which Parent is maintaining reserves in accordance
with GAAP in its financial statements to the extent currently required in all
material respects adequate for their payment, except, in each instance, to the
extent the failure to do so would not have a Material Adverse Effect. Neither
the IRS nor any other taxing authority or agency is now asserting or, to the
best of Parent's knowledge, threatening to assert against Parent or any of its
subsidiaries any deficiency or claim for additional Taxes other than additional
Taxes with respect to which Parent is maintaining reserves in accordance with
GAAP in its financial statements which are in all material respects adequate for
their payment, except, in each instance, to the extent that the failure to do so
would not have a Material Adverse Effect. No Tax Return of either Parent or any
of its subsidiaries is currently being audited by any taxing authority except as
would not have a Material Adverse Effect. No material tax claim has become a
lien on any assets of Parent or any subsidiary thereof and neither Parent nor
any of its subsidiaries has, except as would not have a Material Adverse Effect,
granted any waiver of any statute of limitations with respect to, or any
extension of a period for the assessment of, any Tax.
SECTION 3.17. BROKERS. No broker, finder or investment banker (other than
S.G. Warburg & Co., Inc.) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent or Merger Sub.
SECTION 3.18. OPINION OF FINANCIAL ADVISOR. Parent has been advised by its
financial advisor, S.G. Warburg & Co., Inc., that in its opinion, as of the date
hereof, the Exchange Ratio is fair from a financial point of view to Parent, and
Parent has delivered a copy of such opinion to the Company.
SECTION 3.19. POOLING MATTERS. Neither Parent nor any of its affiliates,
to its knowledge and based upon consultation with its independent accountants,
is aware of any fact or has taken or agreed to take any action that (without
giving effect to any action taken or agreed to be taken by the Company or any of
its affiliates) would affect the ability of Parent to account for the business
combination to be effected by the Mergers as a pooling of interests. Parent has
received from Coopers & Lybrand LLP an opinion addressed to it and the Company
to the effect that the Merger qualifies for a pooling of interests accounting
treatment consummated in accordance with this agreement.
SECTION 3.20. NO STOCKHOLDER VOTE. No vote of the stockholders of Parent
is necessary to approve the Merger or the issuance of Parent Common Shares
therein.
SECTION 3.21. EMPLOYEE BENEFIT PLANS, EMPLOYMENT AGREEMENTS.
(a) Each employee benefit plan (as defined in Section 3(d) of ERISA),
regardless of whether ERISA is applicable thereto, all other bonus, stock
option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance or termination pay, medical or life insurance,
supplemental unemployment benefits, profit-sharing, pension or retirement
plans, agreements or arrangements and other similar fringe or employee
benefit plans, programs or arrangements, and any current or former
employment or executive compensation or severance agreements, written or
otherwise, for the benefit of, or relating to, any employee of the Parent,
any trade or business (whether or not incorporated) which is a member of a
controlled group including the Parent or which is under common control with
the Parent (a "Parent ERISA Affiliate") within the meaning of Section 414
of the Code, or any subsidiary of the Parent, to which the Parent, a Parent
ERISA Affiliate, or any subsidiary is a party, with respect to which the
Parent, a Parent ERISA Affiliate, or any subsidiary has or could have any
obligation, as well as each plan with respect to which the Parent or a
Parent ERISA Affiliate could incur liability if such plan has been or were
terminated (together, the "Parent Employee Plans") that is required or
intended to be qualified under applicable law or registered or approved by
a governmental agency or authority, has been so qualified, registered or
approved by the appropriate governmental agency or authority, and nothing
has occurred since the date of the last qualification, registration or
approval to adversely affect, or cause the appropriate governmental agency
or authority to revoke, such qualification, registration or approval.
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(b) All contributions (including premiums) required by law or contract
to have been made or approved by the Parent under or with respect to the
Parent Employee Plans have been paid or accrued by the Parent.
(c) There are no pending or, to the knowledge of the Parent,
threatened material investigations, litigation or other enforcement actions
against the Parent with respect to any of the Parent Employee Plans.
(d) There are no material actions, suits or claims pending or, to the
knowledge of the Parent, threatened by former or present employees of the
Parent (or their beneficiaries) with respect to the Parent Employee Plans
or the assets or fiduciaries thereof (other than routine claims for
benefits).
(e) To the Parent's knowledge, no condition or event has occurred with
respect to the Parent Employee Plans which has or could reasonably be
expected to result in a Material Adverse Effect to the Parent.
SECTION 3.22. LABOR MATTERS. There are no controversies pending or, to the
knowledge of the Parent or any of its subsidiaries, threatened, between the
Parent or any of its subsidiaries and any of their respective employees, which
controversies have or could reasonably be expected to have a Material Adverse
Effect; neither the Parent nor any of its subsidiaries is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Parent or its subsidiaries nor does the Parent or any of
its subsidiaries know of any activities or proceedings of any labor union to
organize any such employees; and neither the Parent nor any of its subsidiaries
has any knowledge of any strikes, slowdowns, work stoppages, lockouts, or
threats thereof, by or with respect to any employees of the Parent or any of its
subsidiaries.
SECTION 3.23. ENVIRONMENTAL MATTERS. Except in all cases, in the
aggregate, as have not had and could not reasonably be expected to have a
Material Adverse Effect, to the Parent's knowledge the Parent and each of its
subsidiaries (i) have obtained all applicable permits, licenses and other
authorizations which are required under federal, state, provincial or local laws
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants or hazardous or toxic materials or wastes into ambient air, surface
water, ground water or land or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or hazardous or toxic materials or wastes
by the Parent or its subsidiaries (or their respective agents); (ii) are in
compliance with all terms and conditions of such required permits, licenses and
authorization, and also are in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirement, obligations,
schedules and timetables contained in such laws or contained in any regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder; (iii) as of the date hereof, are not aware
of nor have received notice of any event, condition, circumstance, activity,
practice, incident, action or plan which is reasonably likely to interfere with
or prevent continued compliance with or which would give rise to any common law
or statutory liability, or otherwise form the basis of any claim, action, suit
or proceeding, based on or resulting from the Parent's or any of its
subsidiary's (or any of their respective agent's) manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge or release into the environment, of any pollutant,
contaminant or hazardous or toxic material or waste; and (iv) have taken all
actions necessary under applicable requirements of federal, state or local laws,
rules or regulations to register any products or materials required to be
registered by the Parent or its subsidiaries (or any of their respective agents)
thereunder.
SECTION 3.24. INTELLECTUAL PROPERTY.
(a) The Parent owns, or is licensed or otherwise possesses legally
sufficient rights to use, all patents, trademarks, trade names, service
marks, copyrights and any applications therefor, technology, know-how,
computer software programs or applications (in both source code and object
code form) and tangible or intangible proprietary information or material
that are used or proposed to be used in the business of the Parent as
currently conducted (the "Parent Intellectual Property Rights"), except
where the failure to own or to license or posses such rights would not have
a Material Adverse Affect. No claims with respect to the Parent
Intellectual Property Rights, any trade secret material to the Parent, or
third party patents,
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trademarks, or copyrights (including software) (the "Parent Third Party
Intellectual Property Rights") to the extent arising out of any use,
reproduction or distribution of such Parent Third Party Intellectual
Property Rights by or through the Parent, are currently pending or, to the
knowledge of the Parent, are threatened by any person which claims would,
if resolved adversely to Parent, have a Material Adverse Affect, nor does
the Parent know of any valid grounds for any bona fide claims (i) to the
effect that the manufacture, sale, licensing or use of any product as so
used, sold or licensed or proposed for use, sale or license by the Parent
infringes on any copyright, patent, trademark, service mark or trade secret
of any other person; (ii) against the use by the Parent of any trademarks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in the Parent's business
as currently conducted by the Parent; (iii) challenging the ownership,
validity or effectiveness of any of the Parent Intellectual Property Rights
or other trade secret material to the Parent; or (iv) challenging the
Parent's license or legally enforceable right to use of the Parent Third
Party Intellectual Rights. To the Parent's knowledge, all patents,
registered trademarks, registered maskworks and registered copyrights held
by the Parent are valid and subsisting. Neither the Parent nor any of its
subsidiaries (i) has been sued or charged in writing as a defendant in any
claim, suit, action or proceeding which involves a claim or infringement of
trade secrets, any patents, trademarks, service marks, maskworks or
copyrights and which has not been finally terminated prior to the date
hereof; (ii) has been informed or notified by any third party in writing
that the Parent may be engaged in such infringement; or (iii) has knowledge
of any infringement liability with respect to, or infringement by, the
Parent or any of its subsidiaries of any trade secret, patent, trademark,
service mark, maskwork or copyright of another, which infringement would
have a Material Adverse Effect.
(b) Each employee of the Parent with access to confidential
information concerning the Parent has executed a confidentiality and
invention agreement in the forms previously delivered to the Company.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.01. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE
MERGER. During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, the
Company covenants and agrees that, unless Parent shall otherwise agree in
writing, the Company shall conduct its business and shall cause the businesses
of its subsidiaries to be conducted only in, and the Company and its
subsidiaries shall not take any action except in, the ordinary course of
business and in a manner consistent with past practice; and the Company shall
use reasonable commercial efforts to preserve substantially intact the business
organization of the Company and its subsidiaries, to keep available the services
of the present officers, employees and consultants of the Company and its
subsidiaries, to prevent the loss, cancellation, abandonment, forfeiture or
expiration of any Company Intellectual Property, and to preserve the present
relationships of the Company and its subsidiaries with customers, suppliers and
other persons with which the Company or any of its subsidiaries has significant
business relations. By way of amplification and not limitation, except as
expressly contemplated by this Agreement, neither the Company nor any of its
subsidiaries shall, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time, directly or indirectly do, or propose to do, any of the
following without the prior written consent of Parent:
(a) amend or otherwise change the Company's Certificate of
Incorporation or By-Laws;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of
capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital
stock, or any other ownership interest (including, without limitation, any
phantom interest) of the Company, any of its subsidiaries or affiliates
(except for the issuance of shares of the Company Common Stock issuable
pursuant to stock options under the Company Stock Option Plans (as defined
in Section 5.05) or pursuant to rights to purchase such shares under the
Company Stock Purchase Plan (as defined in Section 5.06), which options or
rights, as the case may be, are outstanding on the date hereof); provided,
however, that the Company may grant stock
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options under the Company Stock Option Plans to employees hired subsequent
to August 26, 1995 so long as (i) such options vest ratably over a period
of not less than four years and (ii) no person hired to serve as an officer
of the Company shall receive option grants for more than 40,000 shares of
Company Common Stock and no other person shall receive option grants in
excess of the Company's standard policies and practices in effect at the
date of this Agreement, copies of which have been provided to Parent; and
provided, further, that the Company may continue to offer rights to
purchase Company Common Stock pursuant to the Company Stock Purchase Plan
as in effect on the date of this Agreement;
(c) sell, pledge, dispose of or encumber any material assets of the
Company or any of its subsidiaries (except for (i) sales of assets in the
ordinary course of business and in a manner consistent with past practice
and (ii) dispositions of obsolete or worthless assets);
(d) accelerate, amend or change the period (or permit any
acceleration, amendment or change) of exercisability of options granted
under the Employee Plans (including the Company Stock Option Plans or
authorize cash payments in exchange for any options granted under any of
such plans;
(e) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of any of its capital stock, except that a wholly owned
subsidiary of the Company may declare and pay a dividend to its parent;
(ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock; or (iii) amend
the terms of, repurchase, redeem or otherwise acquire, or permit any
subsidiary to repurchase, redeem or otherwise acquire, any of its
securities or any securities of its subsidiaries, or propose to do any of
the foregoing;
(f) sell, transfer, license, sublicense or otherwise dispose of any
material Company Intellectual Property, or amend or modify any existing
agreements with respect to any material Company Intellectual Property or
Third Party Intellectual Property Rights, other than nonexclusive object
and source code licenses in the ordinary course of business consistent with
past practice;
(g) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof; (ii) incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee (other than guarantees of bank
debt of the Company's subsidiaries entered into in the ordinary course of
business) or endorse or otherwise as an accommodation become responsible
for, the obligations of any person, or make any loans or advances, except
in each case in the ordinary course of business consistent with past
practice, except that the Company may incur short-term indebtedness for
borrowed money not to exceed in the aggregate $10,000,000 on terms that do
not include the payment of any prepayment penalty or premium; (iii) enter
into or amend any material contract or agreement other than in the ordinary
course of business; (iv) authorize any capital expenditures or purchase of
fixed assets other than in the ordinary course of business consistent with
the Company's present business plan or (v) enter into or amend any
contract, agreement, commitment or arrangement to effect any of the matters
prohibited by this Section 4.01(g);
(h) increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages of employees
of the Company or its subsidiaries who are not officers of the Company in
accordance with past practices, and except for any such increases in salary
of officers of the Company approved by the Board of Directors prior to the
date of this Agreement and payment of bonuses to Company officers with
respect to the fiscal year ended August 26, 1995 in accordance with the
Company's incentive bonus plan previously approved by the Board of
Directors; or grant any severance or termination pay to, or enter into any
employment or severance agreement with any director, officer (except for
officers who are terminated on an involuntary basis) or other employee of
the Company or any of its subsidiaries; or establish, adopt, enter into or
amend any Employee Plan;
(i) take any action, other than as required by GAAP, to change
accounting policies or procedures (including, without limitation,
procedures with respect to revenue recognition, capitalization of software
development costs, payments of accounts payable and collection of accounts
receivable);
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(j) make any material Tax election inconsistent with past practices or
settle or compromise any material federal, state, local or foreign tax
liability or agree to an extension of a statute of limitations for any
assessment of any Tax, except to the extent the amount of any such
settlement has been reserved for on the Company's most recent SEC Report;
(k) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of
liabilities reflected or reserved against in the financial statements of
the Company or incurred in the ordinary course of business and consistent
with past practice;
(l) except as may be required by law, take any action to terminate or
amend any of its Employee Plans in any material respect other than in
connection with the Merger;
(m) take or allow to be taken or fail to take any act or omission
within the control of the Company which would reasonably be expected to
jeopardize the treatment of the Merger as a pooling of interests for
accounting purposes under GAAP; or
(n) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.01(a) through (m) above, or any action which would
make any of the representations or warranties of the Company contained in
this Agreement untrue or in any material respect incorrect or prevent the
Company from performing in any material respect or cause the Company not to
perform in any material respect its covenants hereunder or result in any of
the conditions to the Merger set forth herein not being satisfied.
SECTION 4.02. NO SOLICITATION. (a) The Company shall not, directly or
indirectly, through any officer, director, employee, representative or
agent of the Company or any of its subsidiaries, solicit or encourage
(including by way of furnishing information) the initiation or submission
of any inquiries, proposals or offers regarding any acquisition, merger,
take-over bid, sale of all or substantially all of its assets, sale of
shares of capital stock (including without limitation by way of a tender
offer) representing more than 15% of the voting securities of the Company
or similar transactions involving the Company or any subsidiaries of the
Company (any of the foregoing inquiries or proposals being referred to
herein as an "Acquisition Proposal"); provided, however, that nothing
contained in this Agreement shall prevent the Board of Directors of the
Company from referring any third party to this Section 4.02(a) or providing
a copy of this Agreement to any third party. Nothing contained in this
Section 4.02(a) or any other provision of this Agreement shall prevent the
Board of Directors of the Company from considering, negotiating, approving
and recommending to the stockholders of the Company an unsolicited bona
fide written Acquisition Proposal which the Board of Directors of the
Company determines in good faith (after consultation with its financial
advisors and after consultation with outside counsel as to whether the
Board of Directors is required to do so in order to discharge properly its
fiduciary duties to stockholders under applicable law) would result in a
transaction more favorable to the Company's stockholders from a financial
point of view than the transaction contemplated by this Agreement (any such
Acquisition Proposal being referred to herein as a "Superior Proposal").
(b) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal or any request for nonpublic information relating to
the Company or any of its subsidiaries in connection with an Acquisition
Proposal or for access to the properties, books or records of the Company
or any subsidiary by any person or entity that informs the Board of
Directors of the Company or such subsidiary that it is considering making,
or has made, an Acquisition Proposal. Such notice to Parent shall be made
orally and in writing and shall indicate in reasonable detail the identity
of the offeror and the terms and conditions of such proposal, inquiry or
contact.
(c) If the Board of Directors of the Company receives a request for
material nonpublic information by a party who makes, or who states in
writing that it intends, subject to satisfactory review of such nonpublic
information, to make, a bona fide Acquisition Proposal and the Board of
Directors of the Company determines that such proposal, if consummated
pursuant to its terms, would be a Superior
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Proposal, then, and only in such case, the Company may, subject to the
execution of a confidentiality and standstill agreement substantially
similar to that then in effect between the Company and Parent, provide such
party with access to information regarding the Company.
(d) Subject to the second sentence of Section 4.02(a), the Company
shall immediately cease and cause to be terminated any existing discussions
or negotiations with any parties (other than Parent and Merger Sub)
conducted heretofore with respect to any of the foregoing. The Company
agrees not to release any third party from any confidentiality or
standstill agreement to which the Company is a party.
(e) The Company shall ensure that the officers, directors and
employees of the Company and its subsidiaries and any investment banker or
other advisor or representative retained by the Company are aware of the
restrictions described in this Section, and shall be responsible for any
breach of this Section 4.02 by such bankers, advisors and representatives.
(f) Nothing contained in this Section 4.02 shall prevent the Company
from complying with Rule 14e-2(a) or Rule 14d-9 promulgated under the
Exchange Act with regard to an Acquisition Proposal.
SECTION 4.03. CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Parent covenants and agrees
that, unless the Company shall otherwise agree in writing, Parent shall conduct
its business, and cause the businesses of its subsidiaries to be conducted, in
the ordinary course of business and consistent with past practice, other than
actions taken by Parent or its subsidiaries in contemplation of the Merger, and
shall not directly or indirectly do, or propose to do, any of the following
without the prior written consent of the Company:
(a) amend or otherwise change Parent's Articles of Organization, or
amend the terms of the Parent Common Shares;
(b) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets of any other person, which, in each case, would
materially delay or prevent the consummation of the transactions
contemplated by this Agreement;
(c) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of any of its capital stock, except that a wholly owned subsidiary of
Parent may declare and pay a dividend to its parent;
(d) sell, transfer, license, sublicense or otherwise dispose of any
material assets;
(e) take or allow to be taken or fail to take any act or omission
within the control of Parent or Merger Sub which would reasonably be
expected to jeopardize the treatment of the Merger as a pooling of
interests for accounting purposes under GAAP; or
(f) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.03(a) through (e) above, or any action which would
make any of the representations or warranties of Parent contained in this
Agreement untrue or incorrect in any material respect or prevent Parent
from performing in any material respect or cause Parent not to perform in
any material respect its covenants hereunder or result in any of the
conditions of the Merger not being satisfied.
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ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT. As
promptly as practicable after the execution of this Agreement, the Company and
Parent shall prepare and file with the SEC preliminary proxy materials which
shall constitute the Proxy Statement of the Company and the Registration
Statement of Parent with respect to the Parent Common Shares to be issued in
connection with the Merger. As promptly as practicable after comments are
received from the SEC thereon and after the furnishing by the Company and Parent
of all information required to be contained therein, the Company and Parent
shall file with the SEC a combined proxy and registration statement on Form S-4
(or on such other form as shall be appropriate) relating to the approval of the
Merger and the transactions contemplated hereby by the stockholders of the
Company and shall use all reasonable efforts to cause the Registration Statement
to become effective as soon thereafter as practicable. The Proxy Statement shall
include the recommendation of the Board of Directors of the Company in favor of
the Merger, subject to the second sentence of Section 4.02.
SECTION 5.02. STOCKHOLDERS MEETING. The Company shall in accordance with
Delaware Law and the Company's Certificate of Incorporation and Bylaws call and
hold the Company Stockholders Meeting as promptly as practicable for the purpose
of voting upon the approval of the Merger. Subject to the second sentence of
Section 4.02, the Company shall use its reasonable best efforts to hold the
Company Stockholders Meeting as soon as practicable after the date on which the
Registration Statement becomes effective. Subject to the second sentence of
Section 4.02, the Company shall use its reasonable best efforts to solicit from
its respective stockholders proxies in favor of the approval of the Merger, and
shall take all other action necessary or advisable to secure the vote or consent
of stockholders required by Delaware Law to obtain such approvals.
SECTION 5.03. ACCESS TO INFORMATION; CONFIDENTIALITY. Upon reasonable
notice and subject to restrictions contained in confidentiality agreements to
which such party is subject, the Company and Parent shall each (and shall cause
each of their subsidiaries to) afford to the officers, employees, accountants,
counsel and other representatives of the other, reasonable access, during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, the Company and Parent each
shall (and shall cause each of their subsidiaries to) furnish promptly to the
other all information concerning its business, properties and personnel as such
other party may reasonably request, and each shall make available to the other
the appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the other's business, properties and personnel
as either party may reasonably request. Each party shall keep such information
confidential in accordance with the terms of the currently effective
confidentiality agreement dated August 16, 1995 (the "Confidentiality
Agreement") between Parent and the Company.
SECTION 5.04. CONSENTS; APPROVALS. The Company and Parent shall each use
their best efforts to obtain all consents, waivers, approvals, authorizations or
orders (including, without limitation, all United States and foreign
governmental and regulatory rulings and approvals), and the Company and Parent
shall make all filings (including, without limitation, all filings with United
States and foreign governmental or regulatory agencies) required in connection
with the authorization, execution and delivery of this Agreement by the Company
and Parent and the consummation by them of the transactions contemplated hereby.
The Company and Parent shall furnish all information required to be included in
the Proxy Statement and the Registration Statement, or for any application or
other filing to be made pursuant to the rules and regulations of any United
States, or foreign governmental body in connection with the transactions
contemplated by this Agreement. If either party receives a request for
additional information or documentary material from any governmental authority
with respect to the transactions contemplated hereby, then such party shall take
all reasonable efforts to make, or cause to be made, as soon as reasonably
practicable and after consultation with the other party, an appropriate response
in compliance with such request. The parties will cooperate in connection with
reaching any understandings, undertakings or agreements (oral or written)
involving the Federal Trade Commission, the Department of Justice or any other
governmental authority in connection with the transactions contemplated hereby.
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SECTION 5.05. STOCK OPTIONS.
(a) At the Effective Time, the Company's obligations with respect to
each outstanding option to purchase shares of Company Common Stock (each, a
"Company Option") under the Company's 1990 Stock Option Plan and Director
Stock Option Plan (the "Company Stock Option Plans"), whether vested or
unvested, will be assumed by Parent. Each Company Option so assumed by
Parent under this Agreement shall continue to have, and be subject to, the
same terms and conditions set forth in the Company Stock Option Plans and
agreement pursuant to which such Company Option was issued as in effect
immediately prior to the Effective Time, except that (i) such Company
Option will be exercisable for that number of Parent Common Shares equal to
the product of the number of shares of Company Common Stock that were
purchasable under such Company Option immediately prior to the Effective
Time multiplied by the Exchange Ratio, rounded down to the nearest whole
number of shares of Parent Common Shares (with any resulting fractional
share paid in cash), and (ii) the per share exercise price for the shares
of Parent Common Shares issuable upon exercise of such assumed Company
Option will be equal to the quotient determined by dividing the exercise
price per share of Company Common Stock at which such Company Option was
exercisable immediately prior to the Effective Time by the Exchange Ratio,
and rounding the resulting exercise price up to the nearest whole cent.
(b) It is the intention of the parties that the Company Options
assumed by Parent qualify following the Effective Time as incentive stock
options as defined in the Code ("ISO's") to the extent the Company Options
qualified as ISO's prior to the Effective Time.
(c) After the Effective Time, Parent will issue to each holder of an
outstanding Company Option a document evidencing the foregoing assumption
by Parent.
(d) Parent will file a registration statement on Form S-8 with the SEC
covering the Company Options assumed by Parent under this Section 5.05 not
later than the Effective Time.
SECTION 5.06. COMPANY EMPLOYEE STOCK PURCHASE PLAN.
(a) The Company shall take such actions as are necessary to establish
a "new exercise date" (as such term is used in the Company's 1992 Employee
Stock Purchase Plan (the "Company Stock Purchase Plan")) in accordance with
the terms of the Company Stock Purchase Plan (the "New Exercise Date") for
the then current offering period (as such term is used in the Company Stock
Purchase Plan). The New Exercise Date shall be the last trading day on
which the Parent Common Shares are traded on the Nasdaq National Market
immediately prior to the Effective Time provided, that the New Exercise
Date shall be conditioned upon the consummation of the Merger. On the New
Exercise Date , the Company shall apply the funds credited as of such date
under the Company Stock Purchase Plan within each participant's payroll
withholdings account to the purchase of whole shares of Company Common
Stock in accordance with the terms of the Company Stock Purchase Plan.
(b) Employees of the Company as of the Effective Time shall be
permitted to participate in Parent's Employee Stock Purchase Plan
commencing on the first enrollment date following the Effective Time,
subject to compliance with the eligibility provisions of such plan (with
employees receiving credit, for purposes of such eligibility provisions,
for service with the Company).
SECTION 5.07. AGREEMENTS OF AFFILIATES. The Company shall deliver to
Parent, prior to the date the Registration Statement becomes effective under the
Securities Act, a letter (the "Affiliate Letter") identifying all persons who
are, or may deemed to be, at the time of the Company Stockholders' Meetings,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act.
The Company shall use its best efforts to cause each person who is identified as
an "affiliate" in the Affiliate Letter to deliver to Parent, prior to the
Effective Time, a written agreement (an "Affiliate Agreement") in substantially
the form of Exhibit A hereto. Parent shall use its best efforts to cause each
person who is an affiliate of Parent for purposes of Rule 145 under the
Securities Act to deliver to Parent, prior to the Effective Time, an Affiliate
Agreement.
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SECTION 5.08. INDEMNIFICATION AND INSURANCE.
(a) The Certificate of Incorporation of the Surviving Corporation
shall contain the provisions with respect to indemnification set forth in
the By-Laws of the Company, which provisions shall not be amended, repealed
or otherwise modified after the Effective Time in any manner that would
adversely affect the rights thereunder existing at the Effective Time of
individuals who at the Effective Time were directors, officers, employees
or agents of the Company, unless such modification is required by law.
(b) After the Effective Time, the Surviving Corporation and Parent
shall, to the fullest extent permitted under applicable law or under the
Surviving Corporation's and Parent's, as the case may be, Certificate of
Incorporation or By-Laws, indemnify and hold harmless, each present and
former director, officer, employee, fiduciary and agent of the Company or
any of its subsidiaries (collectively, the "Indemnified Parties") against
any costs or expenses (including attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative, arising out of or
pertaining to any action or omission occurring at or prior to the Effective
Time (including, without limitation, the transactions contemplated by this
Agreement). In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) any
counsel retained by the Indemnified Parties for any period after the
Effective Time shall be reasonably satisfactory to the Surviving
Corporation and Parent, (ii) after the Effective Time, the Surviving
Corporation and Parent shall pay the reasonable fees and expenses of such
counsel in a timely manner after statements therefor are received, and
(iii) the Surviving Corporation and Parent will cooperate in the defense of
any such matter; provided, however, that neither the Surviving Corporation
nor Parent shall be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld). The Indemnified
Parties as a group may retain only one law firm to represent them with
respect to any single action unless there is, under applicable standards of
professional conduct, a conflict on any significant issue between the
positions of any two or more Indemnified Parties.
(c) From and after the Effective Time, Parent and the Surviving
Corporation shall honor all of the indemnity agreements entered into prior
to the date hereof by Company with its respective officers and directors,
whether or not such persons continue in their positions with Parent or the
Surviving Corporation following the Effective Time.
(d) From and after the Effective Time until at least six years after
the Effective Time, Parent shall, or shall cause the Surviving Corporation
to use its best efforts to maintain in effect directors' and officers'
liability insurance covering those persons who are currently covered by the
Company's directors' and officers' liability insurance policy (a copy of
which has been heretofore delivered to Parent) of at least the same
coverage and amounts, containing terms that are no less advantageous with
respect to claims arising at or before the Effective Time than the
Company's policies in effect immediately prior to the Effective Time
provided, however, that in no event shall Parent or the Surviving
Corporation, be required to expend in excess of 150% of the annual premium
currently paid by Company for such coverage in which event the Parent shall
purchase such coverage as is available for such 150% of such annual
premium.
SECTION 5.09. EMPLOYEE BENEFIT PLANS. (a) Parent intends to include
Company employees in Parent's welfare plans (within the meaning of Section
3(1) of ERISA) and fringe benefit plans on the same basis and terms as
Parent employees not later than two years following the Effective Time and,
in any event, with respect to particular welfare plans of Parent, upon the
termination of the equivalent Company welfare plans; and until such time of
inclusion, Parent intends to cause the Surviving Corporation to maintain in
effect, on terms not materially less favorable to employees of the Company
as were in effect at the Effective Time, all Employee Plans of the Company.
In addition, Parent intends that Company employees be eligible to
participate in Parent's stock option and stock purchase plans on the same
basis and terms as Parent employees from and after the Effective Time.
Notwithstanding the foregoing, Parent may at any time terminate or modify
the terms of any such Employee Plans if the cost of maintaining any such
Employee Plan has increased by a material amount or if, in the good faith
judgment of Parent, continuing to maintain any such Employee Plan conflicts
in any material respect with Parent's overall compensation policies then in
effect.
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(b) Parent shall cause each of the persons listed on Section 1.05 of
the Company Disclosure Schedule to be elected and remain in office as
directors of the Surviving Corporation until such time as all of such
person's Company Options outstanding at the Effective Time have vested in
full in accordance with their respective terms.
SECTION 5.10. NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) any event known to the Company the occurrence, or non-occurrence, of which
would be likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect, and (ii) any
failure of the Company, Parent or Merger Sub, as the case may be, materially to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder provided, however, that the delivery of any notice
pursuant to this Section shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice; and provided, further,
that failure to give such notice shall not be treated as a breach of covenant
for the purposes of Sections 6.02(a) and 6.03(a) unless the failure to give such
notice is willful by the party required to give notice and results in material
prejudice to the other party.
SECTION 5.11. FURTHER ACTION/TAX TREATMENT. Upon the terms and subject to
the conditions hereof, each of the parties hereto in good faith shall use all
commercially reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all other things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement, to obtain in a timely manner all necessary
waivers, consents and approvals and to effect all necessary registrations and
filings, and to otherwise satisfy or cause to be satisfied all conditions
precedent to its obligations under this Agreement. Each of Parent, Merger Sub
and the Company shall use its best efforts to cause the Merger to qualify, and
will not (both before and after consummation of the Merger) take any actions
which could prevent the Merger from qualifying, as a reorganization under the
provisions of Section 368 of the Code.
SECTION 5.12. PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to the Merger or this Agreement and shall not issue any
such press release or make any such public statement without the prior consent
of the other party, which shall not be unreasonably withheld; provided, however,
that a party may, without the prior consent of the other party, issue such press
release or make such public statement as may upon the advice of counsel be
required by law, the National Association of Securities Dealers or the NYSE if
it has used all reasonable efforts to consult with the other party.
SECTION 5.13. LISTING OF PARENT COMMON SHARES. Parent shall cause the
shares of Parent Common Shares to be issued in the Merger to be approved for
listing on the NYSE (or the principal exchange on which Parent's Common Shares
are then trading) on or before the Effective Time.
SECTION 5.14. CONVEYANCE TAXES. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes which become
payable in connection with the transactions contemplated hereby that are
required or permitted to be filed on or before the Effective Time.
SECTION 5.15. ACCOUNTANTS' LETTERS. Each party, upon reasonable notice
from the other party, shall use its best efforts to cause its independent public
accountants (Price Waterhouse LLP in the case of the Company, and Coopers &
Lybrand LLP in the case of Parent) to deliver to the other party a letter
covering such matters as are customarily addressed in accountant's "comfort"
letters in transactions similar to those contemplated by this Agreement.
SECTION 5.16. EMPLOYMENT AGREEMENTS. Prior to the Effective Time, Parent
shall offer to each of the persons listed on Exhibit B hereto a form of
employment agreement substantially upon the terms and conditions specified on
Exhibit B hereto.
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ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.01. CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective by the SEC under the
Securities Act. No stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceedings
for that purpose and no similar proceeding in respect of the Proxy
Statement shall have been initiated or, to the knowledge of Parent or the
Company, threatened by the SEC;
(b) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of the
Company;
(c) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated;
(d) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint or
prohibition (an "Injunction") preventing the consummation of the Merger
shall be in effect, nor shall any proceeding brought by any administrative
agency or commission or other governmental authority or instrumentality,
domestic or foreign, seeking any of the foregoing be pending; and there
shall not be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Merger, which makes
the consummation of the Merger illegal;
(e) Tax Opinions. Parent and the Company shall have received
substantially identical written opinions of Testa, Hurwitz & Thibeault and
Wilson, Sonsini, Goodrich & Rosati respectively, in form and substance
reasonably satisfactory to them to the effect that the Mergers will
constitute a reorganization within the meaning of Section 368 of the Code;
and
(f) Accountants' Pooling Letters. The Company and Parent shall have
received a letter from each of Price Waterhouse LLP and Coopers & Lybrand
LLP confirming their respective opinions dated at the Effective Time, to
the effect that the Merger qualifies for a pooling of interests accounting
treatment if consummated in accordance with this Agreement.
SECTION 6.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER
SUB. The obligations of Parent and Merger Sub to effect the Merger are also
subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement (together with the
Company Disclosure Schedule) shall be true and correct in all material
respects on and as of the Effective Time, with the same force and effect as
if made on and as of the Effective Time, except for (i) changes
contemplated by this Agreement, (ii) those representations and warranties
which address matters only as of a particular date (which shall remain true
and correct as of such date) and (iii) where the failure to be true and
correct would not have a Material Adverse Effect on the Company; and Parent
and Merger Sub shall have received a certificate to such effect signed by
the President and Chief Financial Officer of the Company;
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Effective Time, and Parent and Merger Sub shall have received
a certificate to such effect signed by the President and Chief Financial
Officer of the Company;
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by the Company for the authorization, execution and delivery of
this Agreement and the consummation by it of the transactions contemplated
hereby shall have been obtained and made by the Company;
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(d) Governmental Actions. There shall not have been instituted or
threatened any action or proceeding (or any investigation or other inquiry
that could reasonably be expected to result in such an action or
proceeding) by any governmental authority or administrative agency before
any governmental authority, administrative agency or court of competent
jurisdiction, nor shall there be in effect any judgment, decree or order of
any governmental authority, administrative agency or court of competent
jurisdiction, in either case, seeking to prohibit or limit Parent from
exercising all rights and privileges pertaining to its ownership of the
Surviving Corporation or the ownership or operation by Parent or any of its
subsidiaries of all or a portion of the business or assets of Parent or any
of its subsidiaries, or seeking to compel Parent or any of its subsidiaries
to dispose of or hold separate all or any material portion of the business
or assets of Parent or any of its subsidiaries, as a result of the Merger
or the transactions contemplated by this Agreement if any of the foregoing
shall have a Material Adverse Effect on Parent;
(e) Affiliate Agreements. Parent shall have received from each person
who is identified in the Affiliate Letter as an "affiliate" of the Company
an Affiliate Agreement, and each such Affiliate Agreement shall be in full
force and effect; and
(f) Opinion of Counsel. Parent shall have received an opinion of
Wilson, Sonsini, Goodrich & Rosati, counsel to the Company, as to matters
that are customary for transactions of this type.
SECTION 6.03. ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement (together
with the Parent Disclosure Schedule) shall be true and correct in all
material respects on and as of the Effective Time, with the same force and
effect as if made on and as of the Effective Time, except for (i) changes
contemplated by this Agreement, (ii) those representations and warranties
which address matters only as of a particular date (which shall remain true
and correct as of such date) and (iii) failures to be true and correct that
would not have a Material Adverse Effect on Parent and Merger Sub, and the
Company shall have received a certificate to such effect signed by the
President and Chief Financial Officer of Parent;
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Effective Time, and the Company shall have received
a certificate to such effect signed by the President and Chief Financial
Officer of Parent;
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by Parent and Merger Sub for the authorization, execution and
delivery of this Agreement and the consummation by them of the transactions
contemplated hereby shall have been obtained and made by Parent and Merger
Sub; and
(d) Opinion of Counsel. The Company shall have received an opinion of
Testa, Hurwitz & Thibeault, counsel to the Parent and the Merger Sub, as to
matters that are customary for transactions of this type.
ARTICLE VII
TERMINATION
SECTION 7.01. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the
stockholders of the Company:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and the Company; or
(b) by either Parent or the Company if the Merger shall not have been
consummated by January 31, 1996 (provided that the right to terminate this
Agreement under this Section 7.01(b) shall
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<PAGE> 103
not be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of or resulted in the failure of the
Merger to occur on or before such date); or
(c) by either Parent or the Company if a court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued a non-appealable final order, decree or ruling
or taken any other action, in each case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger; or
(d) by Parent or the Company, if, at the Company Stockholders' Meeting
(including any adjournment or postponement thereof), the requisite vote of
the stockholders of the Company shall not have been obtained; or
(e) by Parent, if (i) the Board of Directors of the Company shall
withdraw, modify or change its recommendation of this Agreement or the
Merger in a manner adverse to Parent or shall have resolved to do so; or
(ii) the Board of Directors of the Company shall have taken a "neutral"
position with respect to (or shall have failed to reject as inadequate or
failed to have reaffirmed its recommendation of this Agreement and the
Merger within 10 business days after the public announcement or
commencement of an Alternative Transaction (as defined in Section 7.03(c));
or
(f) by Parent or the Company, upon a breach of any representation,
warranty, covenant or agreement on the part of the Company or Parent and
Merger Sub, respectively, set forth in this Agreement or if any
representation or warranty of the Company or Parent and Merger Sub,
respectively, shall have become untrue, in either case, such that the
conditions set forth in Section 6.02(a) or 6.02(b), or Section 6.03(a) or
6.03(b), would not be satisfied (a "Terminating Breach"), provided that, if
such Terminating Breach is curable prior to the expiration of 30 days from
its occurrence (but in no event later than January 31, 1996) by Parent or
the Company, as the case may be, through the exercise of its reasonable
best efforts and for so long as Parent or the Company, as the case may be,
continues to exercise such reasonable best efforts, neither the Company nor
Parent, respectively, may terminate this Agreement under this Section
7.01(f) unless such 30-day period expires without such Terminating Breach
having been cured; or
(g) by the Company or Parent, if the Board of Directors of the Company
shall have resolved to accept, or accepted, a Superior Proposal.
SECTION 7.02. EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to Section 7.01, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto or any of
its affiliates, directors, officers or stockholders except (i) as set forth in
Section 7.03 and Section 7.04 and Section 8.01 hereof, and (ii) nothing herein
shall relieve any party from liability for any willful breach hereof.
SECTION 7.03. FEES AND EXPENSES PAYABLE BY COMPANY.
(a) Except as set forth in this Section 7.03, all fees and expenses
incurred by the Company in connection with this Agreement and the
transactions contemplated hereby shall be paid by the Company, whether or
not the Merger is consummated.
(b) The Company shall pay Parent a fee of $9,000,000, plus actual,
documented and reasonable out-of-pocket expenses of Parent relative to the
transactions contemplated by this Agreement (including but not limited to,
fees and expenses of Parent's counsel, accountants and financial advisors)
in an aggregate amount not to exceed $1.0 million upon the earliest to
occur of the following events:
(i) the termination of this Agreement by Parent pursuant to Section
7.01(e) or 7.01(f); or
(ii) the termination of this Agreement by Parent or the Company
pursuant to Section 7.01(g); or
(iii) the termination of this Agreement by the Company or Parent
pursuant to Section 7.01(d) as a result of the failure to receive the
requisite vote for approval and adoption by the stockholders of
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the Company at the Company Stockholders Meeting if at the time of the
Company Stockholders Meeting there shall exist an Alternative
Transaction; provided, however, that the Company shall not be obligated
to pay a fee pursuant to this Section 7.03(b)(iii) unless such
Alternative Transaction is consummated not later than nine months
following the Company Stockholders Meeting.
(c) As used herein, "Alternative Transaction" means (i) a transaction
pursuant to which any person (or group of persons) other than Parent or its
affiliates (a "Third Party") acquires (or publicly proposes to acquire)
more than 30 percent of the outstanding Shares, whether from the Company or
pursuant to a tender offer or exchange offer or otherwise, (ii) a merger or
other business combination involving the Company pursuant to which any
Third Party acquires (or publicly proposes to acquire) more than 30 percent
of the outstanding equity securities of the Company or the entity surviving
such merger or business combination or (iii) any other transaction pursuant
to which any Third Party acquires (or publicly proposes to acquire) control
of assets (including for this purpose the outstanding equity securities of
subsidiaries of the Company, and the entity surviving any merger or
business combination including any of them) of the Company and its
subsidiaries having a fair market value equal to more than 30 percent of
the fair market value (as determined by the Board of Directors in good
faith) of all the assets of the Company and its subsidiaries, taken as a
whole, immediately prior to such transaction (or proposal).
(d) The fee payable pursuant to Section 7.03(b) shall be paid within
ten days following consummation of an Alternative Transaction in the case
of 7.03(b)(iii) and with respect to the first to occur of the events
described in Section 7.03(b)(i) and (b)(ii) following written notice from
Parent to the Company (A) with respect to 20% of the fee, within ten
business days and (B) with respect to the balance of the fee (including all
expenses owing to Parent pursuant to this Section 7.03), within thirty
business days.
SECTION 7.04. FEES AND EXPENSES PAYABLE BY PARENT.
(a) Except as set forth in this Section 7.04, all fees and expenses
incurred by Parent or Merger Sub in connection with this Agreement and the
transactions contemplated hereby shall be paid by Parent, whether or not
the Merger is consummated.
(b) Parent shall pay the Company a fee of $9,000,000, plus actual,
documented and reasonable out-of-pocket expenses of the Company relative to
the transactions contemplated by this Agreement (including but not limited
to, fees and expenses of the Company's counsel, accountants and financial
advisors) in an aggregate amount not to exceed $1.0 million upon the
termination of this Agreement by the Company pursuant to Section 7.01(f).
(c) Parent shall reimburse the Company for up to $1,000,000 of its
actual, documented and reasonable out-of-pocket expenses (the "Reimbursable
Expenses") incurred by the Company (including but not limited to, fees and
expenses of the Company's counsel, accountants and financial advisors) in
connection with matters relating to the Company's filings under the HSR Act
if either party terminates this Agreement pursuant to Section 7.01(b) or
(c) because the conditions specified in Section 6.01(c), 6.01(d) or 6.02(d)
(in each case as a result of an order, decree or ruling arising in
connection with matters relating specifically to the HSR Act) have not been
satisfied; provided however, that Parent shall reimburse the Company for up
to an additional $2.0 million of Reimbursable Expenses if such Reimbursable
Expenses were reviewed by Parent in advance of their being incurred.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. Except as otherwise provided in this Section 8.01, the
representations, warranties and agreements of each party hereto shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other party hereto, any person controlling any such party or
any of their officers or directors, whether prior to or after the execution of
this Agreement. Any disclosure made with reference to one or more sections of
the Company
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<PAGE> 105
Disclosure Schedule or the Parent Disclosure Schedule shall be deemed disclosed
with respect to each other section therein as to which such disclosure is
relevant provided such relevance is reasonably apparent. The representations,
warranties and agreements in this Agreement shall terminate at the Effective
Time or upon the termination of this Agreement pursuant to Section 7.01, as the
case may be, except that the agreements set forth in Sections 5.05, 5.06, 5.08
and 5.09 shall survive the Effective Time indefinitely and those set forth in
Sections 5.03 and 7.03 shall survive termination indefinitely. The
Confidentiality Agreement shall survive termination of this Agreement as
provided therein.
SECTION 8.02. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered if delivered personally, three days after being
sent by registered or certified mail (postage prepaid, return receipt
requested), one day after dispatch by recognized overnight courier (provided
delivery is confirmed by the carrier) and upon transmission by telecopy,
confirmed received, to the parties at the following addresses (or at such other
address for a party as shall be specified by like changes of address):
(a) If to Parent or Merger Sub:
TERADYNE, INC.
321 Harrison Avenue
Boston, MA 02118
Attn: Owen W. Robbins
Executive Vice President
Tel: (617) 422-2233
Fax: (617) 422-2910
With a copy to:
Testa, Hurwitz & Thibeault
High Street Tower
125 High Street
Boston, MA 02110
Attn: William B. Asher, Jr., Esq.
Tel: (617) 248-7518
Fax: (617) 248-7100
(b) If to the Company:
MEGATEST CORPORATION
1321 Ridder Park Drive
San Jose, CA 95131
Attn: Jack Halter
Chairman and CEO
Tel: (408) 441-3185
Fax: (408) 451-3202
With a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attn: Harry Plant, Esq.
Tel: (415) 493-9300
Fax: (415) 493-6811
SECTION 8.03. CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
(a) "affiliates" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person, including, without
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<PAGE> 106
limitation, any partnership or joint venture in which the Company (either
alone, or through or together with any other subsidiary) has, directly or
indirectly, an interest of 10 percent or more;
(b) "business day" means any day other than a day on which banks in
Boston, Massachusetts, or San Francisco, California, are required or
authorized to be closed;
(e) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act); and
(d) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent or any other person means any corporation, partnership,
joint venture or other legal entity of which the Company, the Surviving
Corporation, Parent or such other person, as the case may be (either alone
or through or together with any other subsidiary), owns, directly or
indirectly, more than 50% of the stock or other equity interests the
holders of which are generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other
legal entity.
SECTION 8.04. AMENDMENT. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after approval
of the Merger by the stockholders of the Company, no amendment may be made which
by law requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
SECTION 8.05. WAIVER. At any time prior to the Effective Time, any party
hereto may, with respect to any other party hereto, (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
SECTION 8.06. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.07. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
SECTION 8.08. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Agreement), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof and, except as otherwise
expressly provided herein, are not intended to confer upon any other person any
rights or remedies hereunder.
SECTION 8.09. ASSIGNMENT, MERGER SUB. This Agreement shall not be assigned
by operation of law or otherwise, except that Parent and Merger Sub may assign
all or any of their rights hereunder to any affiliate provided that no such
assignment shall relieve the assigning party of its obligations hereunder.
Parent guarantees the full and punctual performance by Merger Sub and the
Surviving Corporation of all of their respective obligations hereunder.
SECTION 8.10. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, expressed or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 5.08 (which is intended to be for the
benefit of the Indemnified Parties and may be enforced by such Indemnified
Parties).
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<PAGE> 107
SECTION 8.11. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 8.12. GOVERNING LAW. This agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware
applicable to contracts executed and fully performed within the State of
Delaware.
SECTION 8.13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
TERADYNE, INC.
By: /s/ ALEXANDER V. d.'ARBELOFF
------------------------------------
Name: Alexander V. d'Arbeloff
Title: President
M MERGER CORP.
By: /s/ OWEN W. ROBBINS
------------------------------------
Name: Owen W. Robbins
Title: Vice President
MEGATEST CORPORATION
By: /s/ JOHN E. HALTER
------------------------------------
Name: John E. Halter
Title: President and Chief Executive
Officer
A-36
<PAGE> 108
EXHIBIT A
FORM OF AFFILIATE AGREEMENT
, 1995
TERADYNE, INC.
321 Harrison Avenue
Boston, MA 02118
Ladies and Gentlemen:
Pursuant to the terms of the Agreement and Plan of Merger dated as of
September 5, 1995 (the "Agreement"), among TERADYNE, INC., a Massachusetts
corporation ("Parent"), M Merger Corp., a Delaware corporation and wholly-owned
subsidiary of Parent ("Merger Sub"), and MEGATEST CORPORATION, a Delaware
corporation (the "Company"), Parent will acquire the Company through the merger
of Merger Sub with and into the Company (the "Merger"). Subject to the terms and
conditions of the Agreement, at the Effective Time (as defined in the
Agreement), outstanding shares of the common stock, $.001 value per share, of
the Company (the "Company Common Stock") will be converted into the right to
receive shares of the common stock, $.125 par value per share, of Parent (the
"Parent Common Stock"), on the basis described in the Agreement.
The undersigned has been advised that as of the date hereof it may be
deemed to be an "affiliate" of the Company, as the term "affiliate" is (i)
defined for purposes of paragraphs (c) and (d) of Rule 145 of the Rules and
Regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"), and/or (ii) used in and for purposes of Accounting Series Releases 130
and 135, as amended, and Staff Accounting Bulletins 65 and 76 of the Commission.
The undersigned understands that the representations, warranties and
covenants set forth herein will be relied upon by Parent, stockholders of
Parent, the Company, other shareholders of the Company and their respective
counsel and accountants.
The undersigned represents and warrants to and agrees with Parent that:
1. The undersigned has full power to execute and deliver this Affiliate
Agreement and to make the representations and warranties herein and to perform
its obligations hereunder;
2. The undersigned has carefully read this letter and the Agreement and
discussed its requirements and other applicable limitations upon its ability to
sell, transfer or otherwise dispose of Parent Common Stock to the extent the
undersigned felt necessary, with its counsel or counsel for the Company.
3. The undersigned shall not make any sale, transfer or other disposition
of Parent Common Stock in violation of the Act or the Rules and Regulations.
4. The undersigned has been advised that the issuance of shares of Parent
Common Stock to the undersigned in connection with the Merger has been or will
be registered with the Commission under the Act on a Registration Statement on
Form S-4. However, the undersigned has also been advised that, since at the time
the Merger was submitted for a vote of the shareholders of the Company the
undersigned may be deemed to have been an affiliate of the Company and the
distribution by the undersigned of any Parent Common Stock has not been
registered, and is not exempt, under the Act, the undersigned may not sell,
transfer or otherwise dispose of Parent Common Stock issued to the undersigned
in the Merger unless (i) such sale, transfer or other disposition has been
registered under the Act, (ii) such sale, transfer or other disposition is made
in conformity with the requirements of Rule 145 promulgated by the Commission
under the Act, or (iii) in the opinion of counsel reasonably acceptable to
Parent, such sale, transfer or other disposition is otherwise exempt from
registration under the Act.
5. Parent is under no obligation to register the sale, transfer or other
disposition of Parent Common Stock by the undersigned or on its behalf under the
Act or to take any other action necessary in order to make
<PAGE> 109
compliance with an exemption from such registration available, provided,
however, that Parent shall use best efforts to file on a timely basis with the
SEC all reports required to be filed by it pursuant to Section 13 or 15(d) of
the Exchange Act.
6. Stop transfer instructions will be given to Parent's transfer agent
with respect to the Parent Common Stock and Parent may cause there to be placed
on the certificates for the Parent Common Stock issued to the undersigned, or
any substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED
IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE
SECURITIES ACT OF 1933 APPLIES. THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE
TERMS OF AN AGREEMENT DATED [ ] 1995 BETWEEN
THE REGISTERED HOLDER HEREOF AND PARENT, A COPY OF WHICH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF PARENT".
7. Unless the transfer by the undersigned of its Parent Common Stock has
been registered under the Act or is a sale made in conformity with the
provisions of Rule 145, Parent reserves the right to put the following legend on
the certificates issued any transferee of the undersigned:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A
PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145
PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE
BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933."
8. The legends set forth in paragraphs 6 and 7 above shall be removed by
delivery of substitute certificates without such legend if the undersigned shall
have delivered to Parent a copy of a letter from the staff of the Commission, or
an opinion of counsel in form and substance reasonably satisfactory to Parent,
to the effect that such legend is not required for purposes of the Act.
9. The undersigned is the beneficial owner of (i.e. has sole or shared
voting or investment power with respect to) all the shares of Company Common
Stock and options to purchase Company Common Stock indicated on the last page
hereof (the "Company Securities"). Except for the Company Securities, the
undersigned does not beneficially own any shares of Company Common Stock or any
other equity securities of the Company or any options, warrants or other rights
to acquire any equity securities of the Company.
10. Notwithstanding any other provision hereof to the contrary, the
undersigned has not at any time since August 21, 1995 or in contemplation of the
Merger engaged, and will not, after the Effective Time (as defined in the
Agreement) and until such time as results covering at least 30 days of combined
operations of the Company and Parent have been published by Parent, in the form
of a quarterly or annual earnings report, an effective registration statement
filed with the Commission, a report to the Commission on Form 10-K, I0-Q or 8-K,
or any other public filing or announcement which includes the combined results
of operations, engage, in any sale, exchange, transfer, pledge, disposition of
or grant of any option, the establishment of any "short" or put-equivalent
position with respect to or the entry into any similar transaction intended to
reduce the risk of the undersigned's risk of ownership of or investment in, any
of the following:
(a) any shares of Parent Common Stock which the undersigned may
acquire in connection with the Merger, or any securities which may be paid
as a dividend or otherwise distributed thereon or with respect thereto or
issued or delivered in exchange or substitution therefor (all such shares
and other securities
<PAGE> 110
being referred to herein, collectively, as "Restricted Securities"), or any
option, right or other interest with respect to any Restricted Securities;
(b) any Company Securities; or
(c) any shares of Company Common Stock or other Company equity
securities which the undersigned purchases or otherwise acquires after the
execution of this Affiliate Agreement.
11. As promptly as practicable following the Merger, Parent shall publish
results covering at least 30 days of combined operations of the Company and
Parent in the form of a quarterly or annual earnings report, an effective
registration statement filed with the Commission, a report to the Commission on
Form 10-K, 10-Q or 8-K, or any other public filing or announcement which
includes the combined results of operations; provided, however, that Parent
shall be under no obligation to publish any such financial information other
than with respect to a fiscal quarter of Parent.
12. The undersigned is not aware of, or participating in, any plan on the
part of the stockholders of the Company to engage in a sale, exchange, transfer,
distribution, (including a distribution by a partnership to its partners or by a
corporation to its stockholders), redemption or reduction in any way of the
undersigned's risk of ownership by short sale or otherwise, or other
disposition, directly or indirectly (such actions being collectively referred to
herein as a "Sale") or Sales of the Parent Common Stock to be received in the
Merger such that the aggregate fair market value, as of the Effective Date of
the Merger, of the shares subject to such Sales would exceed 50% of the
aggregate fair market value of all shares of outstanding Company Common Stock
immediately prior to the Merger. Except to the extent written notification to
the contrary is received by Parent from the undersigned prior to the Merger, the
representations and warranties contained herein shall be true and correct at all
times from the date hereof through the date on which the Merger occurs.
13. The undersigned intends to vote all Company Common Stock held by him in
favor of the Merger.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK.]
<PAGE> 111
14. The undersigned will not exercise dissenters' rights in connection with
the Merger.
NUMBER OF SHARES OF COMPANY COMMON STOCK
BENEFICIALLY OWNED BY THE UNDERSIGNED:
------------------------
NUMBER OF SHARES OF COMPANY COMMON STOCK
SUBJECT TO OPTIONS
BENEFICIALLY OWNED BY THE UNDERSIGNED:
------------------------
Very truly yours,
---------------------------------
(print name of shareholder above)
By:
------------------------------
Name:
Title:
(if applicable)
Accepted this day of
, 1995, by
TERADYNE, INC.
By:
-----------------------------
Name:
Title:
<PAGE> 112
EXHIBIT B
PERSONS COVERED BY EMPLOYMENT AGREEMENTS:
John Halter
Fred Azad
Richard Carmichael
Vicki Eckert
Craig Foster
Tim Moriarty
Mark Siegel
Paul Emery
MATERIAL TERMS TO BE PROVIDED:
-- Two year term
-- Salary to be not less than amount in existence at time of execution of
Agreement at least through August 31, 1997
-- Bonus for fiscal years 1996 and 1997 to be structured substantially in
accordance with terms of bonus plan in effect at time of execution of Agreement
to be approved by the Board of Directors of the Surviving Corporation
-- Severance to be provided if terminated other than for cause; severance
to be provided upon voluntary termination for good reason; base salary to be
provided through August 31, 1997 (no bonus payments as part of severance
package)
-- Teradyne standard confidentiality, non-solicitation and non-compete
agreements to be part of employment agreements
<PAGE> 113
EXHIBIT 1.06(b)
ADJUSTMENT TO CONVERSION RATIO
The Exchange Ratio shall be adjusted by applying the following formula:
1
Exchange Ratio = ---------------------------------------
(Final Parent Stock Price x .02) + .38
In no event will the Exchange Ratio be greater than .9091 or less than
.8333.
By way of example only, Attachment 1.06(b) illustrates the calculation of
the Exchange Ratio as determined in accordance with various Final Parent Stock
Prices.
<TABLE>
ATTACHMENT 1.06(b)
EXCHANGE RATIO CALCULATOR
<CAPTION>
FINAL
PARENT
STOCK EXCHANGE
PRICE RATIO NOTES
---- -------- -----
<S> <C> <C> <C>
Less than or equal to $ 36 0.9091 - Exchange Ratio calculated as:
36 1/8 0.9070
36 1/4 0.9050 1
36 3/8 0.9029 -------------------------------------
36 1/2 0.9009 (Final Parent Stock Price X .02) +.38
36 5/8 0.8989
36 3/4 0.8969
36 7/8 0.8949
37 0.8929 - Max Exchange Ratio = .9091
37 1/8 0.8909
37 1/4 0.8889 - Min Exchange Ratio = 0.8333
37 3/8 0.8869
37 1/2 0.8850 - Table is illustrative. Actual Final
37 5/8 0.8830 Parent Stock Price shall be rounded to four
37 3/4 0.8811 decimal places as shall the Exchange Ratio.
37 7/8 0.8791
38 0.8772
38 1/8 0.8753
38 1/4 0.8734
38 3/8 0.8715
38 1/2 0.8696
38 5/8 0.8677
38 3/4 0.8658
38 7/8 0.8639
39 0.8621
39 1/8 0.8602
39 1/4 0.8584
39 3/8 0.8565
39 1/2 0.8547
39 5/8 0.8529
39 3/4 0.8511
39 7/8 0.8493
40 0.8475
40 1/8 0.8457
40 1/4 0.8439
40 3/8 0.8421
40 1/2 0.8403
40 5/8 0.8386
40 3/4 0.8368
40 7/8 0.8351
Greater than or equal to 41 0.8333
</TABLE>
<PAGE> 114
ANNEX B
[On Montgomery Securities Letterhead]
September 5, 1995
Members of the Board of Directors
Megatest Corporation
1321 Ridder Park Drive
San Jose, CA 95131
Gentlemen:
We understand that Megatest Corporation, a Delaware corporation (the
"Company"), Teradyne, Inc., a Massachusetts corporation ("Acquiror"), and M
Merger Corp., a Delaware Corporation and wholly owned subsidiary of Acquiror
plan to enter into an Agreement and Plan of Merger and Reorganization to be
dated September 5, 1995 (the "Merger Agreement"), pursuant to which the Company
will be merged with and into Acquiror, which will be the surviving entity (the
"Merger"). Pursuant to the Merger, as more fully described in the Merger
Agreement provided to us by the Company, we understand that each issued and
outstanding share of the common stock, $0.001 par value per share, of the
Company (the "Company Common Stock"), except shares held by the parties or their
subsidiaries, will be converted into and exchangeable for (depending on the
Acquiror's average closing stock price during a 20 trading day period ending on
the fifth calendar day immediately preceding the stockholders' meeting at which
the Merger will be considered) a range from .9091 to .8333 shares of the common
stock, $.125 par value per share, of Acquiror, post-split and subject to certain
adjustments (the "Consideration").
You have asked for our opinion as investment bankers as to whether the
Consideration to be received by the stockholders of the Company pursuant to the
Merger is fair to the stockholders of the Company from a financial point of
view, as of the date hereof.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to the Company
and Acquiror, including the consolidated financial statements for recent years
and interim periods to May 31, 1995 and July 2, 1995, respectively, and certain
other relevant financial and operating data relating to the Company and Acquiror
made available to us from published sources and from the internal records of the
Company and Acquiror; (ii) reviewed the form of Merger Agreement provided to us
by the Company; (iii) reviewed certain historical market prices and trading
volumes of the Common Stock on the Nasdaq National Market and of the Acquiror
Common Stock on the New York Stock Exchange; (iv) compared the Company and
Acquiror from a financial point of view with certain other companies in the
semiconductor equipment industry which we deemed to be relevant; (v) considered
the financial terms, to the extent publicly available, of selected recent
business combinations of companies in the semiconductor equipment industry which
we deemed to be comparable, in whole or in part, to the Merger; (vi) reviewed
and discussed with representatives of the management of the Company and Acquiror
certain information of a business and financial nature regarding the Company and
Acquiror, furnished to us by them, including financial forecasts and related
assumptions of the Company and Acquiror; (vii) made inquiries regarding and
discussed the Merger and the Merger Agreement and other matters related thereto
with the Company's counsel; and (viii) performed such other analyses and
examinations as we have deemed appropriate.
In connection with our review, we have relied on the accuracy and
completeness of the foregoing information and have not assumed any obligation
independently to verify such information. With respect to the financial
forecasts for the Company and Acquiror provided to us by their respective
managements, with your consent we have assumed for purposes of our opinion that
the forecasts have been reasonably prepared on
B-1
<PAGE> 115
bases reflecting the best available estimates and judgments of their respective
managements at the time of preparation as to the future financial performance of
the Company and Acquiror and that they provide a reasonable basis upon which we
can form our opinion. We have also assumed that there have been no material
changes in the Company's or Acquiror's assets, financial condition, results of
operations, business or prospects since the respective dates of their last
financial statements made available to us. We have relied on advice of counsel
and independent accountants to the Company as to all legal and financial
reporting matters with respect to the Company, the Merger and the Merger
Agreement. In addition, we have not assumed responsibility for making an
independent evaluation, appraisal or physical inspection of any of the assets or
liabilities (contingent or otherwise) of the Company or Acquiror, nor have we
been furnished with any such appraisals. Finally, our opinion is based on
economic, monetary and market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
We have further assumed, with your consent, that the Merger will be
consummated in accordance with the terms described in the form of Merger
Agreement provided to us, without any further amendments thereto, and without
waiver by the Company of any of the conditions to its obligations thereunder.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, including rendering this
opinion, a significant portion of which is contingent upon the consummation of
the Merger. In the ordinary course of our business, we actively trade the equity
securities of the Company for our own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities. We have also acted as an underwriter in connection with offerings of
securities of the Company and performed various investment banking services for
the Company.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be received by the stockholders of
the Company pursuant to the Merger is fair to such stockholders from a financial
point of view, as of the date hereof.
This opinion is furnished pursuant to our engagement letter, dated October
10, 1994, as amended on July 24, 1995. This opinion is addressed to the Board of
Directors of the Company only and is not intended to be and shall not be deemed
to be a recommendation to any stockholder as to how such stockholder should vote
with respect to the Merger. Except as provided in such engagement letter, this
opinion may not be used or referred to by the Company, or quoted or disclosed to
any person in any manner, without our prior written consent. In furnishing this
opinion, we do not admit that we are experts within the meaning of the term
"experts" as used in the Securities Act of 1933 and the rules and regulations
promulgated thereunder, nor do we admit that this opinion constitutes a report
or valuation within the meaning of Section 11 of the Securities Act of 1933.
Very truly yours,
/s/ Montgomery Securities
--------------------------------------
MONTGOMERY SECURITIES
B-2
