<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1995
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
TECHNITROL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-1292472
(STATE OR OTHER (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
1210 NORTHBROOK DRIVE, SUITE 385
TREVOSE, PENNSYLVANIA 19053
(215) 355-2900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
ROY E. HOCK
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
TECHNITROL, INC.
1210 NORTHBROOK DRIVE, SUITE 385
TREVOSE, PENNSYLVANIA 19053
(215) 355-2900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS SHOULD BE SENT TO:
JAMES M. PAPADA, III, ESQ.
STRADLEY, RONON, STEVENS & YOUNG DAVID R. SNYDER, ESQ.
2600 ONE COMMERCE SQUARE PILLSBURY MADISON & SUTRO
PHILADELPHIA, PENNSYLVANIA 19103 101 WEST BROADWAY, SUITE 1800
(215) 564-8000 SAN DIEGO, CALIFORNIA 92101
FAX: (215) 564-8120 (619) 234-5000
FAX: (619) 236-1995
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions under the Agreement and Plan of Merger, dated May 23, 1995, by and
among Technitrol, Inc., a Pennsylvania corporation, Teco Sub, Inc., a Delaware
corporation, and Pulse Engineering, Inc., a Delaware corporation, have been
satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.125 per share ...... 2,470,707 shares $6.45 $15,936,060 $5,495.19
</TABLE>
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(1) Based upon the assumed maximum number of shares that may be issued in the
Merger described herein.
(2) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(f). Pursuant to Rule 457(f)(1), the maximum
offering price per share is the product of the estimated maximum number of
shares of Pulse Common Stock expected to be exchanged for Technitrol
Common Stock in the Merger (1,794,969 ) times the average of the high and
low prices of the Common Stock in the consolidated reporting system on
August 16, 1995 ($8.875 ) divided by the number of shares of Registrant's
common stock registered hereby. The maximum aggregate offering price is
such maximum offering price per share multiplied by the number of shares
of Registrant's common stock registered hereby. The Registrant previously
paid $5,764.17 based on the high and low prices of its Common Stock on
June 26, 1995, when the Registrant initially filed preliminary proxy
materials. The fee is reduced by such amount pursuant to Rule 457(b).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
TECHNITROL, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K, CROSS REFERENCE SHEET SHOWING
LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT-PROSPECTUS
-------------------------------- --------------------------------------
<S> <C>
1.Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus.... Facing Page; Cross Reference Sheet, Outside
Front Cover Page
2.Inside Front and Outside Back
Cover Pages of Prospectus... Inside Front Cover Page; Table of Contents
3.Risk Factors, Ratio of
Earnings to Fixed Charges
and Other Information....... Summary; Selected Historical Financial Data;
Risk Factors
4. Terms of the Transaction..... Summary; The Merger and Related Transactions
Terms of the Merger; Description of
Technitrol Common Stock; Comparison of
Rights of Holders of Technitrol Common Stock
and Holders of Pulse Common Stock
5.Pro Forma Financial
Information ................ Summary; Unaudited Pro Forma Combined
Condensed Financial Statements
6.Material Contacts with the
Company Being Acquired...... The Merger and Related Transactions--
Background--Material Contacts and Board
Deliberations
7.Additional Information
Required for Reoffering by
Persons and Parties Deemed
to be Underwriters.......... Not applicable
8.Interests of Named Experts and
Counsel..................... Legal Matters; Experts
9.Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................. Not Applicable
(INFORMATION ABOUT THE
REGISTRANT)
10.Information with respect to S-
3 Registrants............... Not Applicable
11.Incorporation of Certain
Information by Reference.... Not Applicable
12.Information with respect to S-
2 or S-3 Registrants........ Incorporation of Certain Documents by
Reference; Technitrol Management's
Discussion and Analysis of Financial
Conditions and Results of Operations;
Technitrol, Inc.; Selected Historical
Finincial Data; Technitrol and Pulse Stock
Price Information; Dividends Policy; Index
to Financial Statements
13.Incorporation of Certain
Information by Reference.... Incorporation of Certain Documents by
Reference
14.Information with respect to
Registrants other than S-2
or S-3 Registrants.......... Not Applicable
(INFORMATION ABOUT THE COMPANY BEING ACQUIRED)
15.Information with respect to S-
3 Companies................. Not Applicable
16.Information with respect to S-
2 or S-3 Companies.......... Incorporation of Certain Documents by
Reference; Pulse Management's Discussion and
Analysis of Financial Conditions and Results
of Operations; Pulse Engineering, Inc.;
Selected Historical FinancialData;
Technitrol and Pulse Stock Price
Information; Dividend Policy; Index to
Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT-PROSPECTUS
-------------------------------- --------------------------------------
<S> <C>
17.Information with respect to
Companies other than S-2 or
S-3 Companies.............. Not Applicable
(VOTING AND MANAGEMENT
INFORMATION)
18.Information if Proxies,
Consents or Authorizations
are to be Solicited........ Technitrol Special Meeting; Pulse Special
Meeting; Beneficial Ownership of Technitrol
Common Stock; Beneficial Ownership of Pulse
Common Stock
19.Information if Proxies,
Consents or Authorizations
are not to be Solicited or
in an Exchange Offer....... Not Applicable
</TABLE>
<PAGE>
TECHNITROL, INC.
1210 NORTHBROOK DRIVE, SUITE 385, TREVOSE, PENNSYLVANIA 19053
August , 1995
Dear Shareholder:
A Special Meeting of Shareholders of Technitrol, Inc. ("Technitrol"), will
be held on Wednesday, September 27, 1995 at 11:00 a.m., local time, at the
Bucks County Holiday Inn, 4700 Street Road, Trevose, Pennsylvania 19053.
At the Special Meeting, you will be asked to consider and vote upon the
approval and adoption of (i) an Agreement and Plan of Merger, dated May 23,
1995 (the "Merger Agreement"), by and among Technitrol, its wholly-owned
subsidiary Teco Sub, Inc. ("Sub") and Pulse Engineering, Inc. ("Pulse")
providing for the merger (the "Merger") of Pulse and Sub, as described in the
accompanying Proxy Statement, and (ii) a proposed amendment (the "Charter
Amendment") to Technitrol's Articles of Incorporation to increase the number
of authorized shares of Technitrol Common Stock from 10,000,000 shares to
30,000,000 shares.
Pursuant to the Merger, in which Pulse will become an indirectly wholly-
owned subsidiary of Technitrol, each share of Class A voting common stock of
Pulse ("Pulse Common Stock") will be converted into the right to receive (i)
.5812 shares (the "Exchange Ratio") of Common Stock of Technitrol ("Technitrol
Common Stock"), (ii) Eight Dollars and Fifty Cents ($8.50) in cash, without
interest, or (iii) a combination of shares of Technitrol Common Stock and cash
determined in accordance with the terms of the Merger Agreement; provided,
however, that the Exchange Ratio may be adjusted (as adjusted, the "Adjusted
Exchange Ratio") based on the average closing price of Technitrol Common Stock
for a specified two week period prior to the Merger. In addition, each then
outstanding option to purchase shares of Pulse Common Stock will be assumed by
Technitrol (the "Assumed Options"). Each Assumed Option will be converted into
an option to purchase a number of shares of Technitrol Common Stock equal to
the number of shares of Pulse Common Stock that were subject to such option
immediately prior to the Merger, multiplied by the Adjusted Exchange Ratio and
the exercise price of each Assumed Option will be adjusted by dividing the
exercise price by the Adjusted Exchange Ratio.
The Charter Amendment is being proposed so that there will be after the
issuance of the shares of Technitrol's Common Stock in conjunction with the
Merger (i) adequate shares of Technitrol Common Stock authorized for issuance
in connection with the continuation of Technitrol's Restricted Stock Plan,
(ii) an adequate number of shares of Technitrol Common Stock available for
exercise of the Assumed Options, and (iii) additional authorized shares of
Technitrol Common Stock available for issuance in the future.
After careful consideration, Technitrol's Board of Directors has unanimously
approved both the Merger Agreement and the Charter Amendment and has
determined that the Merger and the Charter Amendment are in the best interests
of Technitrol and its shareholders. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE IN FAVOR OF APPROVAL AND ADOPTION OF BOTH THE MERGER
AGREEMENT AND THE CHARTER AMENDMENT.
Accompanying this letter is a Joint Proxy Statement relating to the action
to be taken by Technitrol shareholders at the Special Meeting and action to be
taken by the Pulse stockholders at their special meeting to be held on the
same day as the Technitrol Special Meeting. The Joint Proxy Statement more
fully describes the proposed Merger and Charter Amendment and includes
information about Technitrol and Pulse.
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the accompanying proxy card and return it in the enclosed prepaid
envelope. If you attend the Special Meeting, you may vote in person even if
you have previously returned your proxy card. Your prompt cooperation will be
greatly appreciated.
Sincerely,
Roy E. Hock
Chairman and Chief Executive Officer
<PAGE>
PULSE ENGINEERING, INC.
12220 WORLD TRADE DRIVE, SAN DIEGO, CALIFORNIA 92128
August , 1995
Dear Stockholder:
A Special Meeting of Stockholders of Pulse Engineering, Inc. will be held on
Wednesday, September 27, 1995 at 8:00 a.m., Pacific Daylight Time, at the
offices of the Company, 12220 World Trade Drive, San Diego, California 92128.
At the Special Meeting, stockholders will be asked to consider and vote upon
the approval and adoption of an Agreement and Plan of Merger, dated May 23,
1995 (the "Merger Agreement"), by and among Pulse, Technitrol, Inc.
("Technitrol") and Technitrol's wholly owned subsidiary, Teco Sub, Inc.
("Sub") providing for the merger of Pulse with and into Sub (the "Merger").
Pursuant to the Merger, in which Pulse will become a wholly owned subsidiary
of Technitrol, each share of Class A Voting Common Stock of Pulse ("Pulse
Common Stock") will be converted into the right to receive (i) shares of
Common Stock of Technitrol ("Technitrol Common Stock") determined pursuant to
an exchange ratio (initially .5812), (ii) Eight Dollars and Fifty Cents
($8.50) in cash, without interest, or (iii) a combination of shares of
Technitrol Common Stock and cash determined in accordance with the terms of
the Merger Agreement. The Exchange Ratio will be adjusted (as adjusted, the
"Adjusted Exchange Ratio") if the average closing price of Technitrol Common
Stock for a specified two-week period prior to the Merger is below $13.75 or
above $16.375.
Stockholders may elect to receive all Technitrol Common Stock or all cash in
exchange for their Pulse Common Stock subject to the limitation that not less
than 50% and not more than 55% of the Pulse Common Stock may be exchanged for
Technitrol Common Stock. Each stockholder has received herewith a Form of
Election. The Form of Election should be returned to Registrar and Transfer
Company in the pre-addressed envelope provided, which is labeled Form of
Election in BLUE. Please review carefully the instructions enclosed with the
Form of Election.
In addition, each then outstanding option to purchase shares of Pulse Common
Stock will be assumed by Technitrol (the "Assumed Options"). Each Assumed
Option will be converted into an option to purchase a number of shares of
Technitrol Common Stock equal to the number of shares of Pulse Common Stock
that were subject to such option immediately prior to the Merger, multiplied
by the Adjusted Exchange Ratio. The exercise price of each Assumed Option will
be adjusted by dividing the exercise price by the Adjusted Exchange Ratio.
The Pulse Board of Directors has unanimously approved the Merger Agreement
and has determined that the Merger is in the best interests of Pulse and its
stockholders. The Board of Directors unanimously recommends a vote in favor of
approval and adoption of the Merger Agreement.
Accompanying this letter is a Prospectus and Joint Proxy Statement dated
August , 1995 relating to the action to be taken by Pulse stockholders at the
Special Meeting and at a special meeting of the shareholders of Technitrol.
The Prospectus and Joint Proxy Statement more fully describes the proposed
Merger and includes important information about Pulse and Technitrol. You are
urged to review the enclosed Prospectus and Joint Proxy Statement carefully.
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the accompanying proxy card and return it in the enclosed pre-
addressed envelope to First Interstate Bank of California. If you receive more
than one proxy card, please complete, sign, date and return all such proxy
cards so that all of your shares are represented at the Special Meeting. If
you attend the Special Meeting, you may vote in person even if you have
previously returned your proxy card. Your prompt cooperation will be greatly
appreciated.
Sincerely,
David R. Flowers
Chairman and Chief Executive Officer
<PAGE>
TECHNITROL, INC.
1210 NORTHBROOK DRIVE, SUITE 385
TREVOSE, PENNSYLVANIA 19053
(215) 355-2900
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
WEDNESDAY, SEPTEMBER 27, 1995
----------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Technitrol Special Meeting") of Technitrol, Inc., a Pennsylvania corporation
("Technitrol"), will be held on Wednesday, September 27, 1995, at 11:00 a.m.,
local time, at the Bucks County Holiday Inn, 4700 Street Road, Trevose,
Pennsylvania. The purpose of the Technitrol Special Meeting will be to
consider and vote on the following matters:
(1) Approval and adoption of the Agreement and Plan of Merger, dated as
of May 23, 1995, between Technitrol, Teco Sub, Inc., a wholly owned
subsidiary of Technitrol ("Teco Sub"), and Pulse Engineering, Inc.
("Pulse") including the merger of Pulse with and into Teco Sub and the
transactions contemplated thereby, all as more fully set forth in the
enclosed Prospectus and Joint Proxy Statement;
(2) Approval and adoption of the proposed amendment to Technitrol's
Articles of Incorporation to increase the number of authorized shares of
Technitrol's Common Stock, $.125 par value, from 10,000,000 shares to
30,000,000 shares, all as more fully set forth in the enclosed Prospectus
and Joint Proxy Statement; and
(3) Such other business as may properly come before the Technitrol
Special Meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on August 11, 1995 as
the record date for determination of those shareholders entitled to notice of
and to vote at the Technitrol Special Meeting or any adjournments or
postponements thereof. Only shareholders of record at the close of business on
that date will be entitled to vote.
By Order of the Board of Directors,
Robert J. Citrino
Secretary
Date: August , 1995
SO THAT YOUR SHARES WILL BE REPRESENTED AT THE TECHNITROL SPECIAL MEETING IN
THE EVENT YOU ARE NOT PERSONALLY PRESENT, PLEASE DATE, SIGN AND RETURN
PROMPTLY ALL ENCLOSED PROXY CARDS IN THE ENVELOPE PROVIDED. EXECUTION OF THE
PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ARE PRESENT AT THE
TECHNITROL SPECIAL MEETING.
<PAGE>
PULSE ENGINEERING, INC.
12220 WORLD TRADE DRIVE
SAN DIEGO, CALIFORNIA 92128
(619) 674-8100
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
WEDNESDAY, SEPTEMBER 27, 1995
----------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Pulse
Special Meeting") of Pulse Engineering, Inc., a Delaware corporation ("Pulse"),
will be held on Wednesday, September 27, 1995, at 8:00 a.m., Pacific Daylight
Time, at Pulse headquarters, 12220 World Trade Drive, San Diego, California.
The purpose of the Pulse Special Meeting will be to consider and vote on the
following matters:
(1) Approval and adoption of the Agreement and Plan of Merger, dated as
of May 23, 1995, between Pulse, Technitrol, Inc. ("Technitrol") and Teco
Sub, Inc., a wholly owned subsidiary of Technitrol ("Teco Sub"), including
the merger of Pulse with and into Teco Sub and the transactions
contemplated thereby, all as more fully set forth in the enclosed
Prospectus and Joint Proxy Statement; and
(2) Such other business as may properly come before the Pulse Special
Meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on August 11, 1995 as
the record date for determination of those stockholders entitled to notice of
and to vote at the Pulse Special Meeting or any adjournments or postponements
thereof. Only stockholders of record at the close of business on that date will
be entitled to vote.
By Order of the Board of Directors,
Russell A. Holman
Acting Corporate Secretary
Date: August , 1995
SO THAT YOUR SHARES WILL BE REPRESENTED AT THE PULSE SPECIAL MEETING IN THE
EVENT YOU ARE NOT PERSONALLY PRESENT, PLEASE DATE, SIGN AND RETURN PROMPTLY TO
FIRST INTERSTATE BANK OF CALIFORNIA ALL ENCLOSED PROXY CARDS IN THE ENVELOPE
PROVIDED. EXECUTION OF THE PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON
IF YOU ARE PRESENT AT THE PULSE SPECIAL MEETING.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED AUGUST 21, 1995
TECHNITROL, INC. AND PULSE ENGINEERING, INC.
JOINT PROXY STATEMENT
-----------
TECHNITROL, INC.
PROSPECTUS
This Prospectus and Joint Proxy Statement ("Proxy Statement") is being
furnished to stockholders of Pulse Engineering, Inc. ("Pulse") and to
shareholders of Technitrol, Inc. ("Technitrol") in connection with the
solicitation of proxies by the Boards of Directors of the two companies for use
at their respective special meetings of securityholders to be held on September
27, 1995 to vote upon the proposed merger (the "Merger") of Pulse with and into
a wholly owned subsidiary of Technitrol, pursuant to an Agreement and Plan of
Merger dated May 23, 1995 (the "Merger Agreement"). A copy of the Merger
Agreement is attached to this Proxy Statement as Annex A. As a result of the
Merger, Pulse will become a wholly owned subsidiary of Technitrol.
The Merger Agreement provides for each outstanding share of Class A voting
common stock, par value $.01 per share, of Pulse ("Pulse Common Stock") (except
for shares held by Pulse as treasury shares and shares as to which appraisal
rights have been perfected ("Dissenters' Shares") under the Delaware General
Corporation Law (the "DGCL")) to be converted into the right to receive (i)
.5812 shares (the "Exchange Ratio") of common stock, $.125 par value per share,
of Technitrol ("Technitrol Common Stock"), (ii) Eight Dollars and Fifty Cents
($8.50) in cash, without interest (the "Per Share Cash Amount"), or (iii) a
combination of shares of Technitrol Common Stock and cash determined in
accordance with the terms of the Merger Agreement; provided, however, that the
Exchange Ratio may be adjusted based on the average closing price (the "Average
Closing Price") of Technitrol Common Stock for a specified two-week period
prior to the Merger. If the Average Closing Price is less than $13 3/4, then
the Exchange Ratio will be increased to that ratio which yields, based upon the
Average Closing Price, $8.00 per share of Pulse Common Stock. If the Average
Closing Price is greater than $16 3/8, then the Exchange Ratio will be reduced
to that ratio which yields, based upon the Average Closing Price, $9.52 per
share of Pulse Common Stock. Such adjustments to the Exchange Ratio are
intended to increase the likelihood that shares of Technitrol Common Stock
delivered to Pulse stockholders will have a current market value of between
$8.00 and $9.52 per share of Pulse Common Stock. A detailed description of the
Merger is set forth in this Proxy Statement. See "THE MERGER AND RELATED
TRANSACTIONS." CERTAIN RISK FACTORS ARE DESCRIBED UNDER THE CAPTION "RISK
FACTORS" AT PAGE 33.
Technitrol has filed a Registration Statement on Form S-4 with the Securities
and Exchange Commission ("SEC") pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), covering the shares of Technitrol Common Stock
to be issued in connection with the Merger (the "Registration Statement"). This
Proxy Statement constitutes (i) the Prospectus of Technitrol filed as part of
the Registration Statement, (ii) the Proxy Statement of Pulse relating to a
Special Meeting of Stockholders of Pulse to consider and vote on approval and
adoption of the Merger Agreement (together with any adjournments or
postponements thereof, the "Pulse Special Meeting"), and (iii) the Proxy
Statement of Technitrol relating to a Special Meeting of Shareholders of
Technitrol to consider and vote on approval and adoption of (A) the Merger
Agreement, and (B) a proposed amendment to Technitrol's Articles of
Incorporation to increase the number of authorized shares of Technitrol Common
Stock from 10 million shares to 30 million shares (together with any
adjournments or postponements thereof, the "Technitrol Special Meeting"). All
information herein with respect to Pulse has been furnished by Pulse, and all
information herein with respect to Technitrol has been furnished by Technitrol.
This Proxy Statement may not be used for resales of securities that will be
issued to persons and parties deemed to be underwriters.
This Proxy Statement, the accompanying forms of proxy and the other enclosed
documents are first being mailed to shareholders of Technitrol and stockholders
of Pulse on or about August , 1995.
NEITHER THE MERGER NOR THE SECURITIES OF TECHNITROL, INC. TO BE ISSUED IN THE
MERGER HAVE 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. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus and Joint Proxy Statement is August , 1995.
<PAGE>
AVAILABLE INFORMATION
Technitrol and Pulse are each subject to the information reporting
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 SEC. Such reports, proxy statements and other information
may be inspected and copied at the public reference facilities maintained by
the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC
20549, and at the SEC's regional offices located at (i) 500 West Madison
Street, Suite 1400, Chicago, Illinois 60601-2511 and (ii) 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material may be
obtained by mail from the Public Reference Section of the SEC at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Technitrol Common Stock is listed on the American Stock Exchange ("ASE"), and
such reports, proxy statements and other information concerning Technitrol can
also be inspected at the offices of the ASE, 86 Trinity Place, New York, New
York 10006. Trading in Pulse Common Stock is quoted on the Nasdaq National
Market, and such reports, proxy statements and other information concerning
Pulse can also be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006.
Technitrol has filed the Registration Statement with the SEC. This Proxy
Statement does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. For further information, reference is
hereby made to the Registration Statement. Copies of the Registration
Statement and the exhibits and schedules thereto may be inspected, without
charge, at the offices of the SEC, or obtained at prescribed rates from the
Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the SEC by Technitrol are
incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1994;
2. Proxy Statement dated April 17, 1995 in connection with the Technitrol
1995 Annual Meeting of Shareholders;
3. Quarterly Report on Form 10-Q for the quarter ended March 31, 1995;
4. Quarterly Report on Form 10-Q for the quarter ended June 30, 1995;
5. Current Report on Form 8-K dated May 22, 1995; and
6. The descriptions of Technitrol Common Stock set forth in Technitrol's
Registration Statements pursuant to Section 12 of the Exchange Act, and any
amendment or report filed for the purpose of updating any such description.
The following documents previously filed with the SEC by Pulse are
incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended July 3, 1994;
2. Proxy Statement dated October 5, 1994 in connection with the Pulse
1994 Annual Meeting of Stockholders;
3. Quarterly Report on Form 10-Q for the Quarter ended October 2, 1994;
4. Quarterly Report on Form 10-Q for the Quarter ended January 1, 1995;
5. Quarterly Report on Form 10-Q for the Quarter ended April 2, 1995; and
6. Current Reports on Form 8-K dated April 24, 1995, May 23, 1995, and
August 17, 1995.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
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.
2
<PAGE>
THIS PROXY STATEMENT INCORPORATES BY REFERENCE DOCUMENTS THAT ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THERE WILL BE PROVIDED WITHOUT CHARGE
TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT
IS DELIVERED, UPON ORAL OR WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF ANY
OR ALL DOCUMENTS INCORPORATED HEREIN BY REFERENCE (EXCLUDING EXHIBITS, UNLESS
SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE). WITH RESPECT TO
DOCUMENTS OF PULSE INCORPORATED HEREIN BY REFERENCE, REQUESTS SHOULD BE
DIRECTED TO ACTING CORPORATE SECRETARY, PULSE ENGINEERING, INC., 12220 WORLD
TRADE DRIVE, SAN DIEGO, CALIFORNIA 92128 (TELEPHONE (619) 674-8100), AND WITH
RESPECT TO DOCUMENTS OF TECHNITROL INCORPORATED HEREIN BY REFERENCE, REQUESTS
SHOULD BE DIRECTED TO CORPORATE SECRETARY, TECHNITROL, INC., 1210 NORTHBROOK
DRIVE, SUITE 385, TREVOSE, PENNSYLVANIA 19053 (TELEPHONE (215) 355-2900). IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE PULSE
SPECIAL MEETING AND THE TECHNITROL SPECIAL MEETING, ANY SUCH REQUEST SHOULD BE
MADE BEFORE SEPTEMBER 15, 1995.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THESE
MATTERS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY TECHNITROL OR PULSE. NEITHER THE
DELIVERY HEREOF NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF TECHNITROL OR PULSE SINCE THE DATE HEREOF OR THAT THE INFORMATION
IN THIS PROXY STATEMENT OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATES HEREOF AND THEREOF,
RESPECTIVELY. THIS PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY (I) THE SECURITIES OFFERED BY THIS PROXY
STATEMENT WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION OR (II) ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH THIS PROXY STATEMENT RELATES.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 2
SUMMARY................................................................... 5
SELECTED HISTORICAL FINANCIAL DATA........................................ 15
TECHNITROL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 18
PULSE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 22
COMPARATIVE PER SHARE DATA................................................ 26
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............... 27
RISK FACTORS.............................................................. 33
TECHNITROL, INC. ......................................................... 34
PULSE ENGINEERING, INC. .................................................. 35
TECHNITROL SPECIAL MEETING................................................ 35
PULSE SPECIAL MEETING..................................................... 37
THE MERGER AND RELATED TRANSACTIONS....................................... 41
TERMS OF THE MERGER....................................................... 59
PROPOSAL TO INCREASE AUTHORIZED SHARES OF TECHNITROL COMMON STOCK......... 69
CERTAIN RELATED TRANSACTIONS.............................................. 72
TECHNITROL AND PULSE STOCK PRICE INFORMATION.............................. 73
DIVIDEND POLICY........................................................... 74
BENEFICIAL OWNERSHIP OF TECHNITROL COMMON STOCK........................... 75
BENEFICIAL OWNERSHIP OF PULSE COMMON STOCK................................ 76
DESCRIPTION OF TECHNITROL COMMON STOCK.................................... 77
COMPARISON OF RIGHTS OF HOLDERS OF TECHNITROL COMMON STOCK AND HOLDERS OF
PULSE COMMON STOCK....................................................... 77
PULSE STOCKHOLDER PROPOSALS............................................... 81
TECHNITROL SHAREHOLDER PROPOSALS.......................................... 81
EXPERTS................................................................... 81
LEGAL MATTERS............................................................. 81
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
ANNEX A--Agreement and Plan of Merger, dated as of May 23, 1995, by and among
Technitrol, Inc., Teco Sub, Inc. and Pulse Engineering, Inc.
ANNEX B--Opinion of Legg Mason Wood Walker, Incorporated
ANNEX C--Opinion of Oppenheimer & Co., Inc.
ANNEX D--Section 262 of the Delaware General Corporation Law
4
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Proxy Statement and in the documents
incorporated by reference herein. Shareholders of Technitrol and stockholders
of Pulse are urged to read this Proxy Statement and the Annexes hereto in their
entirety.
THE COMPANIES
Technitrol manufactures electrical contacts and assemblies, thermostatic and
clad-metal products, mechanical scales and force measurement products, material
testing systems, cash counters and dispensers, and electronic components.
Technitrol is incorporated in Pennsylvania, its principal executive offices
are located at 1210 Northbrook Drive, Suite 385, Trevose, Pennsylvania 19053
and its telephone number is (215) 355-2900. As used in this Proxy Statement,
unless the context indicates otherwise, "Technitrol" refers to Technitrol, Inc.
and its subsidiaries.
Teco Sub, Inc. ("Teco Sub") is a wholly owned subsidiary of Technitrol
recently organized for the sole purpose of effecting the Merger. It has no
material assets and has not engaged in any activities except in connection with
the Merger.
Teco Sub is incorporated in Delaware, its principal executive offices are
located at 1210 Northbrook Drive, Suite 385, Trevose, Pennsylvania 19053 and
its telephone number is (215) 355-2900.
Pulse designs, manufactures and markets electronic components and modules
primarily for original equipment manufacturers of local area networks, digital
telecommunications equipment and data processing equipment.
Pulse is incorporated in Delaware, its principal executive offices are
located at 12220 World Trade Drive, San Diego, California 92128 and its
telephone number is (619) 674-8100. As used in this Proxy Statement, unless the
context otherwise requires, "Pulse" refers to Pulse Engineering, Inc. and its
subsidiaries.
SPECIAL MEETING OF SHAREHOLDERS OF TECHNITROL
Time, Date, Place and Purpose. The Technitrol Special Meeting will be held at
the Bucks County Holiday Inn, 4700 Street Road, Trevose, Pennsylvania 19053 on
September 27, 1995 at 11:00 a.m., local time, for the following purposes:
(1) to consider and vote upon a proposal to approve and adopt the Merger
Agreement; and
(2) to consider and vote upon a proposed amendment to Technitrol's
Articles of Incorporation to increase the number of authorized shares of
Technitrol Common Stock, from 10,000,000 shares to 30,000,000 shares (the
"Charter Amendment").
Record Date and Vote Required. Technitrol shareholders of record at the close
of business on August 11, 1995 (the "Technitrol Record Date") are entitled to
notice of and to vote at the Technitrol Special Meeting and any adjournments or
postponements thereof. Approval and adoption of the Merger Agreement and the
Charter Amendment requires the affirmative vote of the holders of a majority of
the votes cast on the proposal in person or by proxy. The presence in person or
by proxy of the holders of a majority of the outstanding shares of Technitrol
Common Stock is necessary to constitute a quorum at the Technitrol Special
Meeting. As of the Technitrol Record Date, there were 6,047,742 shares of
Technitrol Common Stock outstanding.
5
<PAGE>
SPECIAL MEETING OF STOCKHOLDERS OF PULSE
Time, Date, Place and Purpose. The Pulse Special Meeting will be held at
Pulse's headquarters, 12220 World Trade Drive, San Diego, California 92128 on
September 27, 1995 at 8:00 a.m., Pacific Daylight Time, for the purpose of
considering and voting upon a proposal to approve and adopt the Merger
Agreement.
Record Date and Vote Required. Pulse stockholders of record at the close of
business on August 11, 1995 (the "Pulse Record Date") are entitled to notice of
and to vote at the Pulse Special Meeting and any adjournments or postponements
thereof. Approval and adoption of the Merger Agreement requires the affirmative
vote of the holders of a majority of the issued and outstanding shares of Pulse
Common Stock and Pulse Class B Non-Voting Common Stock, par value $.01 per
share ("Pulse Class B Stock"), exclusive of shares held in Pulse's treasury. As
of the Pulse Record Date, there were 5,615,243 shares of Pulse Common Stock
(excluding 380,894 shares held in Pulse's treasury) and no shares of Pulse
Class B Stock outstanding (collectively, "Pulse Stock"). The presence in person
or by proxy of the holders of a majority of the outstanding shares of Pulse
Stock (exclusive of shares held in Pulse's treasury) is necessary to constitute
a quorum at the Pulse Special Meeting.
THE MERGER
Effective Time of the Merger. The Merger will become effective upon the
filing of a certificate of merger with the Secretary of State of the State of
Delaware (the "Effective Time"). It is anticipated that the Effective Time will
be on or about September 29, 1995.
Conversion of Shares of Pulse Common Stock. Upon consummation of the Merger,
Pulse will merge with and into Teco Sub, and Teco Sub will be the surviving
corporation in the Merger (the "Surviving Corporation") and will change its
name to Pulse Engineering, Inc. As a result of the Merger, the Surviving
Corporation will be a wholly owned subsidiary of Technitrol, and each share of
Pulse Common Stock outstanding immediately prior to the Effective Time (other
than shares held by Pulse as treasury shares or Dissenters' Shares) will be
converted into the right to receive (i) shares of Technitrol Common Stock
determined pursuant to the Exchange Ratio (.5812 shares prior to adjustment, if
any), (ii) the Per Share Cash Amount (i.e., Eight Dollars and Fifty Cents
($8.50)), without interest, or (iii) a combination of shares of Technitrol
Common Stock and cash determined in accordance with the Merger Agreement;
provided, however, that the Exchange Ratio may be adjusted based upon the
average closing price (the "Average Closing Price") of Technitrol Common Stock
on the ASE as reported in The Wall Street Journal for the ten (10) trading days
immediately preceding the three (3) business days preceding the Effective Time
(the Exchange Ratio, as adjusted, is hereinafter referred to as the "Adjusted
Exchange Ratio"). See "TERMS OF THE MERGER--Conversion of Shares of Pulse
Common Stock; Election." Fractional shares of Technitrol Common Stock will not
be issued in connection with the Merger. A holder of Pulse Common Stock
otherwise entitled to a fractional share will be paid cash in lieu of such
fractional shares.
Election; Form of Election Procedures. Subject to the allocation procedures
set forth below, each record holder of shares of Pulse Common Stock will be
entitled (i) to elect to receive cash for all of such shares (a "Cash
Election"), (ii) to elect to receive Technitrol Common Stock for all of such
shares (a "Stock Election"), or (iii) to indicate that such holder has no
preference as to the receipt of cash or Technitrol Common Stock for such shares
(a "Non-Election"). All such elections are to be made on a form of election
(the "Form of Election"). Holders of record of shares of Pulse Common Stock who
hold such shares as nominees, trustees or in other representative capacities (a
"Representative") may submit multiple Forms of Election, provided that any such
Representative certifies that each such Form of Election covers all the shares
of Pulse Common Stock held by such Representative for a particular beneficial
owner. All elections will be revocable until 5:00 p.m. New York City time on
the last business day prior to the Effective Time. A Non-Election shall be
deemed to have been made by shares as to which a valid and timely Form of
Election is not received.
6
<PAGE>
If the aggregate number of shares of Pulse Common Stock as to which valid
elections to receive cash have been made (the "Cash Election Shares") exceeds
fifty percent (50%) of the shares of Pulse Common Stock outstanding immediately
prior to the Effective Time (the "Cash Election Number"), all shares of Pulse
Common Stock covered by Stock Elections (the "Stock Election Shares") and all
shares of Pulse Common Stock covered by Non-Elections (the "Non-Election
Shares") shall be converted into the right to receive Technitrol Common Stock,
and the Cash Election Shares shall be converted into the right to receive
Technitrol Common Stock and cash in the following manner:
each Cash Election Share shall be converted into the right to
receive (i) an amount in cash, without interest, equal to the
product of (x) the Per Share Cash Amount and (y) a fraction (the
"Cash Fraction"), the numerator of which shall be the Cash Election
Number and the denominator of which shall be the total number of
Cash Election Shares, and (ii) a number of shares of Technitrol
Common Stock equal to the product of (x) the Exchange Ratio and (y)
a fraction equal to one minus the Cash Fraction.
For example, if 75% of the outstanding shares of Pulse Common Stock
elect cash, then all holders of Stock Election Shares and Non-
Election Shares would receive Technitrol Common Stock in exchange
for their shares of Pulse Common Stock based on the Adjusted
Exchange Ratio. The Cash Election Shares would be exchanged for a
combination of Technitrol Common Stock and cash based upon a Cash
Fraction determined by dividing the Cash Election Number (50%) by
the Cash Election Shares (75%) or two-thirds ( 2/3). Accordingly, a
hypothetical Pulse stockholder holding 1,000 shares for which a Cash
Election is made would be entitled to receive the following
(assuming the Adjusted Exchange Ratio is .5812):
(1) $5,666.67 in cash (the product of (i) the Per Share Cash
Amount of $8.50, (ii) the Cash Fraction ( 2/3) and (iii) the
number of shares at issue (1,000)); and
(2) 193.73 shares of Technitrol Common Stock (the product of (i)
the Exchange Ratio of .5812, (ii) a fraction equal to one
minus the Cash Fraction ( 1/3) and (iii) the number of shares
at issue (1,000)), except that the stockholder would actually
receive 193 shares and cash in lieu of the fractional share.
If the aggregate number of Stock Election Shares exceeds fifty-five percent
(55%) of the shares of Pulse Common Stock outstanding immediately prior to the
Effective Time (the "Stock Election Number"), all Cash Election Shares and Non-
Election Shares shall be converted into the right to receive cash, and all
Stock Election Shares shall be converted into the right to receive Technitrol
Common Stock and cash in the following manner:
each Stock Election Share shall be converted into the right to
receive (i) a number of shares of Technitrol Common Stock equal to
the product of (x) the Exchange Ratio and (y) a fraction (the "Stock
Fraction"), the numerator of which shall be the Stock Election
Number and the denominator of which shall be the total number of
Stock Election Shares, and (ii) an amount in cash, without interest,
equal to the product of (x) the Per Share Cash Amount and (y) a
fraction equal to one minus the Stock Fraction.
For example, if 75% of the outstanding shares of Pulse Common Stock
elect Technitrol Common Stock, then all holders of Cash Election
Shares and Non-Election Shares would receive cash of $8.50 per share
in exchange for their shares of Pulse Common Stock. The Stock
Election Shares would be exchanged for a combination of Technitrol
Common Stock and cash based upon a Stock Fraction determined by
dividing the Stock Election Number (55%) by the Stock Election
Shares (75%) or eleven-fifteenths ( 11/15). Accordingly, a
hypothetical Pulse stockholder holding 1,000 shares for which a
Stock Election is made would be entitled to receive the following
(assuming the Adjusted Exchange Ratio is .5812):
(1) 426.21 shares of Technitrol Common Stock (the product of (i)
the Exchange Ratio of .5812, (ii) the Stock Fraction ( 11/15)
and (iii) the number of shares at issue (1,000)), except that
the stockholder would actually receive 426 shares and cash in
lieu of the fractional share; and
(2) $2,266.67 in cash (the product of (i) the Per Share Cash
Amount of $8.50, (ii) a fraction equal to one minus the Stock
Fraction ( 4/15) and (iii) the number of shares at issue
(1,000)).
7
<PAGE>
In the event that the number of Cash Election Shares does not exceed the Cash
Election Number and the number of Stock Election Shares does not exceed the
Stock Election Number, all Cash Election Shares shall be converted into the
right to receive cash, all Stock Election Shares shall be converted into the
right to receive Technitrol Common Stock, and the Non-Election Shares, if any,
shall be converted into the right to receive Technitrol Common Stock and cash
in the following manner:
each Non-Election Share shall be converted into the right to receive
(i) a number of shares of Technitrol Common Stock equal to the
product of (x) the Exchange Ratio and (y) a fraction (the "Non-
Election Fraction"), which is the lesser of one (1) or a fraction
where the numerator shall be the excess of the Stock Election Number
over the total number of Stock Election Shares and the denominator
of which shall be the aggregate of the Non-Election Shares and (ii)
an amount in cash, without interest, equal to the product of (x) the
Per Share Cash Amount and (y) a fraction equal to one minus the Non-
Election Fraction.
For example, if 20% of the outstanding shares of Pulse Common Stock elect
cash, 30% elect Technitrol Common Stock and 50% are deemed to have made Non-
Elections, then all holders of Cash Election Shares would receive cash of $8.50
per share in exchange for their shares of Pulse Common Stock, all holders of
Stock Election Shares would receive Technitrol Common Stock, and all holders of
Non-Election Shares would receive a combination of Technitrol Common Stock and
cash based upon a Non-Election Fraction calculated by dividing (i) the excess
of the Stock Election Number over the Stock Election Shares (55%-30%) by the
Non-Election Shares (50%) or one-half ( 1/2). Accordingly, a hypothetical Pulse
stockholder holding 1,000 shares for which a Non-Election was made would be
entitled to receive the following (assuming the Adjusted Exchange Ratio is
.5812):
(1) 290.6 shares of Technitrol Common Stock (the product of (i) the
Exchange Ratio of .5812, (ii) the Non-Election Fraction ( 1/2) and (iii)
the number of shares at issue (1,000), except that the stockholder would
actually receive 290 shares and cash in lieu of the fractional share; and
(2) $4,250 in cash (the product of (i) the Per Share Cash Amount of
$8.50, (ii) a fraction equal to one minus the Non-Election Fraction (
1/2) and (iii) the number of shares at issue (1,000)).
If the tax opinions of counsel to Technitrol and Pulse, respectively, receipt
of which is a condition to each party's obligation to consummate the Merger
(see "TERMS OF THE MERGER--Conditions to the Merger"), cannot be delivered as a
result of insufficient continuity of interest, then the Stock Election Number
shall be increased, and the Cash Election Number correspondingly decreased (if
necessary), to the minimum extent necessary to enable such counsel to deliver
the tax opinions.
A FORM OF ELECTION FOR USE BY PULSE STOCKHOLDERS IN THEIR ELECTION TO RECEIVE
EITHER CASH OR TECHNITROL COMMON STOCK IN EXCHANGE FOR THEIR SHARES OF PULSE
COMMON STOCK IS INCLUDED HEREWITH TO PULSE STOCKHOLDERS OF RECORD AS OF THE
RECORD DATE. To be effective, a Form of Election must be properly completed,
signed and submitted to Registrar and Transfer Company, as exchange agent (the
"Exchange Agent"), accompanied by all stock certificates representing shares of
Pulse Common Stock held by the person submitting such Form of Election (or by a
guarantee of delivery of such certificates in the form set forth in the Form of
Election by a member of any registered national securities exchange, a member
of the National Association of Securities Dealers, Inc. or a commercial bank or
trust company having an office or correspondent in the United States, provided
such certificates are in fact delivered to the Exchange Agent within four (4)
business days as set forth in such guarantee of delivery (a "Guaranteed
Delivery")) and must be received by the Exchange Agent no later than 5:00 p.m.
New York City time on the day one business day prior to the Effective Time.
Until such time, all elections will be revocable. PULSE STOCKHOLDERS WHO FAIL
TO RETURN A FORM OF ELECTION, SUBMIT AN IMPROPERLY COMPLETED FORM OF ELECTION
OR FAIL TO SUBMIT THEIR STOCK CERTIFICATES WITH THEIR FORM OF ELECTION (OR FAIL
TO PROVIDE FOR, AND COMPLY WITH THE REQUIREMENTS OF, GUARANTEED DELIVERY) WILL
BE DEEMED TO HAVE MADE A NON-ELECTION. The Merger Agreement provides that
Technitrol and Pulse will cause the Effective Time to occur as promptly as
practicable after approval and adoption by the shareholders of Technitrol and
the stockholders of
8
<PAGE>
Pulse of the Merger Agreement and the satisfaction (or waiver, if permissible)
of the other conditions to effectiveness of the Merger set forth in the Merger
Agreement. It is anticipated that the Effective Time will occur on or about
September 29, 1995 or on a date as soon as practicable thereafter. Thus,
stockholders of Pulse are urged to deliver a properly completed Form of
Election together with the applicable stock certificates (or provide for
Guaranteed Delivery) to the Exchange Agent no later than 5:00 p.m., New York
City time, on September 28, 1995, in order to assure that their Form of
Election will be received prior to the Effective Time. Persons who become
stockholders of Pulse after the Pulse Record Date or any other stockholders who
need a Form of Election may obtain copies of the Form of Election upon request
from the Exchange Agent either in writing at 10 Commerce Drive, Cranford, New
Jersey 07016 or by telephone at (800) 368-5948. Technitrol and Pulse will each
use its best efforts to mail or cause to be mailed to all persons who become
holders of Pulse Common Stock between the Pulse Record Date and the day seven
(7) days prior to the anticipated Effective Time a Form of Election and will
make available a Form of Election to all persons who become stockholders of
Pulse after that date.
Effect of Merger on Pulse Stock Options. Upon consummation of the Merger, the
obligations of Pulse with respect to outstanding options issued by Pulse to
purchase shares of Pulse Common Stock will be assumed by Technitrol (the
"Assumed Options"). Each Assumed Option will entitle the holder to purchase the
number of whole shares of Technitrol Common Stock equal to the product of the
number of shares of Pulse Common Stock covered by the Assumed Option
immediately prior to the Effective Time multiplied by the Adjusted Exchange
Ratio, rounded up to the nearest whole number. The per share exercise price of
each Assumed Option will be equal to the exercise price per share of Pulse
Common Stock divided by the Adjusted Exchange Ratio, rounded down to the
nearest whole cent. Each Assumed Option will continue to have and be subject to
all other terms and conditions set forth in the applicable stock option
agreement immediately prior to the Effective Time. See "TERMS OF THE MERGER--
Pulse Stock Options." As promptly as practicable after the Effective Time,
Technitrol will file a registration statement under the Securities Act covering
the shares of Technitrol Common Stock issuable upon exercise of the Assumed
Options.
By their approval and adoption of the Merger Agreement, the stockholders of
Pulse will be deemed to have approved amendments to certain Pulse stock option
agreements and the employee benefit plans to which such agreements relate to
prevent the event of the Merger from terminating any options which would
otherwise become Assumed Options. See "TERMS OF THE MERGER--Pulse Stock
Options."
Stock Ownership Following the Merger. Based upon the number of shares of
Pulse Common Stock outstanding as of the Pulse Record Date (before elimination
of fractional shares and assuming (1) the holders of 50% of the outstanding
shares of Pulse Common Stock will make a Stock Election, and (2) no exercise of
dissenters' rights) and based upon a Technitrol Common Stock closing price of
$16.375 on August 11, 1995, an aggregate of 1,631,790 shares of (1,794,969
shares if the holders of at least 55% of the outstanding shares of Pulse Common
Stock make a Stock Election) Technitrol Common Stock will be issued to Pulse
stockholders in the Merger. Based upon the number of shares of Technitrol
Common Stock issued and outstanding as of the Technitrol Record Date, and after
giving effect to the issuance of 1,631,790 shares of Technitrol Common Stock in
connection with the Merger, former holders of Pulse Common Stock would hold
approximately 21.25% (22.89% if 1,794,969 shares of Technitrol Common Stock are
issued in connection with the Merger) of total outstanding shares of Technitrol
Common Stock. Based on the Assumed Options outstanding as of the Pulse Record
Date, Technitrol will also assume options to purchase approximately 250,000
shares of Technitrol Common Stock.
Market Price Data. Technitrol Common Stock is traded on the ASE under the
symbol "TNL". Pulse Common Stock is quoted on the Nasdaq National Market under
the symbol "PLSE". The following table sets forth the closing prices of
Technitrol Common Stock and Pulse Common Stock on April 21, 1995, the last
trading day before the public announcement of the proposed Merger, and on
August 11, 1995, and the equivalent pro forma per share value of Pulse Common
Stock for each date (calculated by multiplying the Exchange Ratio by the
closing price of Technitrol Common Stock on such dates).
9
<PAGE>
<TABLE>
<CAPTION>
PULSE COMMON
TECHNITROL COMMON PULSE COMMON STOCK PRO FORMA
STOCK PRICE STOCK PRICE EQUIVALENT
----------------- ------------ ---------------
<S> <C> <C> <C>
April 21, 1995................... $13.375 $7.25 $7.77(1)
August 11, 1995.................. $16.375 $8.50 $9.52(2)
</TABLE>
--------
(1) If the Average Closing Price of Technitrol Common Stock was $13.375, the
Exchange Ratio would be adjusted from .5812 to .5981. Pulse stockholders
receiving 50% stock and 50% cash for their shares would receive
consideration having an aggregate value of $8.25 for each share of Pulse
Common Stock.
(2) Pulse stockholders receiving 50% stock and 50% cash for their shares would
receive consideration having an aggregate value of $9.01 for each share of
Pulse Common Stock.
Reasons for Merger. The Merger offers many potential benefits which the
respective managements and Boards of Technitrol and Pulse believe will
contribute to the success of the combined companies. Technitrol's Electronic
Products Segment (which includes the Fil-Mag Group which manufactures
electronic components and modules in plants in Taiwan and the Philippines) and
Pulse each manufacture electronic products for use in local area networks,
digital communication equipment and data processing equipment. Pulse is well
known for its engineering and research and development capabilities while the
Fil-Mag Group has stressed its manufacturing capabilities. Both companies
manufacture products in the Far East, but in different geographical locations.
Managements of Technitrol and Pulse believe that their electronics businesses
are complementary and that the Merger will enable them to provide broader
product offerings, more effective sales penetration and a pooling of
technological and manufacturing strengths. In addition, the combination of
Technitrol's Electronic Products Segment and Pulse may provide enhanced
opportunities for growth and reduction of duplicative costs.
There are also certain possible risks associated with the Merger. See "RISK
FACTORS."
Recommendation of Technitrol Board. The Board of Directors of Technitrol (the
"Technitrol Board") has unanimously approved the Merger Agreement and believes
that the Merger is fair and in the best interests of Technitrol and its
shareholders. THE TECHNITROL BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
OF TECHNITROL VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
See "THE MERGER AND RELATED TRANSACTIONS."
Recommendation of Pulse Board. The Board of Directors of Pulse (the "Pulse
Board") has unanimously approved the Merger Agreement and believes that the
Merger is fair and in the best interests of Pulse and its stockholders. THE
PULSE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF PULSE VOTE IN FAVOR
OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. See "THE MERGER AND RELATED
TRANSACTIONS."
Opinions of Financial Advisors. Legg Mason Wood Walker, Incorporated ("Legg
Mason") has acted as financial advisor to Technitrol in connection with the
Merger and has delivered to the Technitrol Board its written opinion, dated May
23, 1995 (and reaffirmed on August 18, 1995), to the effect that, as of each
such date and based upon and subject to certain matters stated therein, the
consideration to be paid in the Merger is fair from a financial point of view
to the shareholders of Technitrol. The full text of the opinion of Legg Mason
dated May 23, 1995, which sets forth assumptions made and matters considered,
is attached as Annex B to this Proxy Statement. HOLDERS OF TECHNITROL COMMON
STOCK ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY. See "THE MERGER AND
RELATED TRANSACTIONS--Opinions of Financial Advisors--Technitrol's Financial
Advisor."
Oppenheimer & Co., Inc. ("Oppenheimer") has acted as financial advisor to
Pulse in connection with the Merger and has delivered to the Pulse Board its
written opinion, dated May 22, 1995 (and reaffirmed on August 18, 1995), to the
effect that, as of each such date and based upon and subject to certain matters
stated therein, the Merger is fair from a financial point of view to the
stockholders of Pulse. The full text of the opinion of Oppenheimer dated May
22, 1995, which sets forth the assumptions made and matters considered, is
attached as Annex C to this Proxy Statement. HOLDERS OF PULSE COMMON STOCK ARE
URGED TO READ SUCH OPINION IN ITS ENTIRETY. See "THE MERGER AND RELATED
TRANSACTIONS--Opinions of Financial Advisors--Pulse's Financial Advisor."
10
<PAGE>
Exchange of Pulse Stock Certificates. Stockholders of Pulse who wish to
submit a Form of Election should deliver their stock certificates (or provide
for, and comply with the requirements of, Guaranteed Delivery) together with
such Form of Election to the Exchange Agent no later than 5:00 p.m. New York
City time on the day one business day prior to the Effective Time. Stock
certificates should not be sent to Technitrol or Pulse. If a stockholder does
not submit such holder's stock certificates with a properly completed Form of
Election (or provide for, and comply with the requirements of, Guaranteed
Delivery), then promptly after the Effective Time, a letter of transmittal and
instructions for surrendering stock certificates will be mailed to each such
holder of Pulse Common Stock for use in exchanging such holder's stock
certificates for certificates evidencing Technitrol Common Stock or cash and
for receiving cash in lieu of fractional shares and any dividends or other
distributions to which such holder is entitled as a result of the Merger
(collectively, the "Merger Consideration").
At or prior to the Effective Time, Technitrol will deposit or cause to be
deposited with the Exchange Agent appropriate amounts of Technitrol Common
Stock and cash to comprise the Merger Consideration. Because Guaranteed
Delivery permits the delivery of stock certificates up to three (3) business
days after the Effective Time, the Merger Consideration will not be distributed
until at least three (3) business days after the Effective Time. See "TERMS OF
THE MERGER--Procedures for Exchange of Certificates."
Summary of Federal Income Tax Consequences. Consummation of the Merger is
conditioned upon receipt by Technitrol and Pulse of opinions by their
respective tax counsel to the effect that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that none of Technitrol, Pulse or
Teco Sub will recognize any income, gain or loss as a result of the Merger.
Assuming the Merger constitutes such a "reorganization," the United States
Federal income tax consequences for holders of Pulse Common Stock should be
generally as follows:
(1) Holders of Pulse Common Stock exchanging their shares solely for
Technitrol Common Stock (except for cash in lieu of fractional shares) will
not recognize any gain or loss upon such exchange for Federal income tax
purposes. The tax basis of such Technitrol Common Stock will equal (except
for the basis attributable to any fractional shares) the holder's tax basis
in the Pulse Common Stock surrendered. Provided the Pulse Common Stock so
surrendered was held as a capital asset at the Effective Time, the holding
period of the Technitrol Common Stock received will include the holding
period of the Pulse Common Stock.
(2) Holders of Pulse Common Stock exchanging their shares solely for cash
should recognize a gain or loss for Federal income tax purposes equal to
the difference between the cash received and the holder's tax basis in the
Pulse Common Stock. If the holder held the Pulse Common Stock as a capital
asset at the Effective Time, such gain or loss should be capital gain or
loss and, if so treated, will be long-term capital gain or loss if the
holder's holding period at that time is more than one year; however, the
Code contains limitations on the extent to which holders may deduct capital
losses from ordinary income.
(3) Holders of Pulse Common Stock exchanging their shares for both
Technitrol Common Stock and cash could have their receipt of cash taxed as
a dividend (however, holders whose relative stock interest in Pulse is
minimal, who exercise no control over the affairs of Pulse and who
experience, pursuant to the Merger, a reduction in their proportionate
stock interest should not receive dividend treatment). Such a holder's tax
consequences will also depend on whether shares of Pulse Common Stock were
purchased at different times and prices. If so, while the holder would not
recognize gain or loss on the shares of Pulse Common Stock exchanged for
Technitrol Common Stock and the tax basis therein would carry over, the
holder could recognize gain, but could not recognize loss, on the receipt
of cash in exchange for other shares of Pulse Common Stock. Such gain might
be taxed as a dividend, while any disallowed loss would be included in the
adjusted basis of the Technitrol Common Stock.
(4) The Merger will be a taxable event for holders of Pulse Common Stock
who perfect appraisal rights under the DGCL and receive solely cash in
exchange for their shares. Such a holder should recognize capital gain or
loss, assuming that the shares are held by such holder as a capital asset
at the Effective Time, equal to the difference between the amount of cash
received and the holder's tax basis in the shares surrendered.
11
<PAGE>
For a more complete description of federal income tax consequences of the
Merger, including a discussion concerning receipt of Technitrol Common Stock
and cash in the Merger as well as applicable backup withholding requirements,
see "THE MERGER AND RELATED TRANSACTIONS--Certain Federal Income Tax
Consequences."
Because of the complexity of the tax laws and the individual nature of the
tax consequences of the Merger to each Pulse stockholder, each such stockholder
should consult a tax advisor concerning the applicable federal, state, local
and foreign tax consequences of the Merger.
Merger Consideration. Technitrol estimates its total cost of consummating the
Merger, including the Merger Consideration and all fees and expenses, to be
approximately $58.9 million.
Accounting Treatment. As required by generally accepted accounting
principles, the purchase method of accounting will be used by Technitrol to
account for the Merger. See "TERMS OF THE MERGER--Accounting Treatment."
Affiliate Agreements. Prior to the Effective Time, certain persons who may be
deemed to be "affiliates" (as that term is defined for purposes of Rule 145
("Rule 145") promulgated under the Securities Act) of Pulse will enter into
agreements restricting sales, dispositions or other transactions which could
reduce their risk of investment in respect of the shares of Pulse Common Stock
held by them prior to the Merger and the shares of Technitrol Common Stock to
be received by them in the Merger, so as to comply with the requirements of
Rule 145 and federal income tax regulations applicable to reorganizations.
Dissenters' Rights. In connection with the Merger, a holder of shares of
Pulse Common Stock will be entitled to demand appraisal rights in respect of
such shares of Pulse Common Stock under Section 262 of the DGCL ("Section 262")
subject to satisfaction by such stockholder of the conditions for appraisal
rights established by Section 262. Section 262 is set forth in full in Annex D
hereto. Technitrol shareholders will not have appraisal rights in the Merger.
See "PULSE SPECIAL MEETING--Dissenters' Appraisal Rights." The Merger Agreement
may be terminated by either Technitrol or Pulse, and the Merger thereby
abandoned, if Dissenters' Shares represent fifteen percent (15%) or more of the
shares of Pulse Common Stock outstanding on the Pulse Record Date. See "TERMS
OF THE MERGER--Termination or Amendment of Merger Agreement."
Reimbursement of Expenses; Break-Up Fee. If the Merger Agreement is
terminated for a party's material breach or under certain other circumstances,
Pulse or Technitrol may be required to reimburse the other for out-of-pocket
transaction expenses of up to $1,000,000. In addition, Pulse may be required to
pay Technitrol a "break-up fee" of $2,000,000 (with credit for any of
Technitrol's out-of-pocket transaction expenses paid by Pulse) under certain
circumstances if the Pulse Board accepts or recommends to Pulse stockholders an
acquisition proposed by another company; or if (i) the Pulse Board otherwise
changes its recommendation that Pulse stockholders approve the Merger, (ii) the
Pulse stockholders fail to approve the Merger prior to September 30, 1995 or
(iii) Dissenters' Shares equal or exceed 15% of the total Pulse shares
outstanding on the Pulse Record Date, and within nine months of the occurrence
of an event in clause (i), (ii) or (iii), Pulse or its stockholders take
certain actions with regard to another acquisition proposal.
Conditions to the Merger; Termination; Amendment. Consummation of the Merger
is subject to the satisfaction of various conditions, including, among others,
(i) those described above relating to the Federal income tax consequences of
the Merger; (ii) the effectiveness of the Registration Statement and the
absence of any stop order suspending the effectiveness thereof and no
proceeding for that purpose having been initiated by the SEC; (iii) approval of
the Merger Agreement and the Merger by the holders of the requisite number of
shares of Pulse Common Stock and Technitrol Common Stock, respectively; and
(iv) expiration or termination of the applicable waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act").
The Merger Agreement may also be terminated under certain other circumstances,
including by mutual written consent of Technitrol and Pulse and by either
Technitrol or Pulse if the other party is in material
12
<PAGE>
breach of any representation, warranty or covenant contained in the Merger
Agreement or if the Merger is not consummated on or before October 31, 1995.
The Merger Agreement may be amended by the Boards of Directors of Technitrol
and Pulse at any time before or after the approval of the Merger Agreement by
the Technitrol shareholders and Pulse stockholders, provided that after any
such approval has been obtained, no amendment of any of the agreements executed
in connection with the Merger may be made which by law requires the further
approval of the securityholders, without obtaining such further approval. See
"TERMS OF THE MERGER--Termination or Amendment of Merger Agreement."
Proposal to Increase Authorized Shares. On July 26, 1995, the Technitrol
Board approved the Charter Amendment (which would increase the number of
authorized shares of Technitrol Common Stock from 10 million shares to 30
million shares). The Charter Amendment is being proposed so that there are
after the issuance of the shares of Technitrol Common Stock in conjunction with
the Merger: (i) adequate shares of Technitrol Common Stock authorized for
issuance in connection with the continuation of Technitrol's Restricted Stock
Plan; (ii) an adequate number of shares of Technitrol Common Stock available
for issuance upon exercise of the Assumed Options; and (iii) a sufficient
number of additional authorized shares of Technitrol Common Stock which will be
available for issuance in the future. The Technitrol Board believes that the
availability of such shares would provide flexibility for Technitrol in meeting
its possible needs by enabling the Technitrol Board to raise additional capital
through the issuance of Technitrol Common Stock or securities convertible into
or exercisable for Technitrol Common Stock, to declare stock dividends payable
in Technitrol Common Stock, to make additional stock awards under Technitrol's
Restricted Stock Plan, and/or to employ Technitrol Common Stock as a form of
consideration for acquisitions. Other than for the stock portion of the Merger
Consideration and pursuant to Technitrol's Restricted Stock Plan and the
Assumed Options, Technitrol does not presently intend to issue any additional
shares for any specific purpose. There are currently issued and outstanding
6,047,742 shares of Technitrol Common Stock. There are presently 3,952,258
shares available for issuance in the future. Between 1,631,790 to 1,794,969
shares of Technitrol Common Stock are expected to be issued to holders of Pulse
Common Stock as part of the Merger Consideration. At the Effective Time,
approximately 250,000 shares of Technitrol Common Stock will be reserved for
issuance upon exercise of the Assumed Options. The Charter Amendment is being
recommended to Technitrol's shareholders at this time, rather than in
connection with each specific issuance of shares that may be proposed in the
future, in order to avoid any unnecessary expense and delay in connection with
such future specific issuances of shares because of the need for shareholder
approval of additional authorized shares. Such a delay and accompanying expense
could have consequences which may not be in the best interests of Technitrol
and its shareholders. If the Charter Amendment is adopted, the power of the
Technitrol Board to issue additional stock could enable the Technitrol Board to
delay, deter or prevent changes in control or management of Technitrol. See
"PROPOSAL TO INCREASE AUTHORIZED SHARES OF TECHNITROL COMMON STOCK."
The Technitrol Board has unanimously approved the Charter Amendment. THE
TECHNITROL BOARD RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF APPROVAL AND
ADOPTION OF THE AMENDMENT TO THE ARTICLES OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF TECHNITROL COMMON STOCK. See "PROPOSAL TO
INCREASE AUTHORIZED SHARES OF TECHNITROL COMMON STOCK."
Dividend Policy. The Technitrol Board makes dividend decisions on a quarterly
basis, based on an evaluation of Technitrol's results of operations, financial
position, business needs, capital and surplus requirements and other relevant
considerations. Through the quarter ended March 31, 1995, the Technitrol Board
has declared 77 consecutive quarterly dividends. See "DIVIDEND POLICY."
Anti-takeover Provisions of Pennsylvania Law and Technitrol's Articles of
Incorporation and Bylaws. Upon consummation of the Merger, the stockholders of
Pulse, a corporation organized under the laws of Delaware, will become
shareholders of Technitrol, a corporation organized under the laws of
Pennsylvania. Certain provisions of Pennsylvania Law and of Technitrol's
Articles of Incorporation and Bylaws may have the effect of delaying, deterring
or preventing changes in control or management of Technitrol. Technitrol is
subject to the provisions of Chapter 25, subchapter F of the Pennsylvania
Business Corporation Law, which has the
13
<PAGE>
effect of restricting changes in control of a company. Technitrol's Articles of
Incorporation and Bylaws provide (i) for a Board of Directors only one-third of
which is elected each year, (ii) a limitation on the number of Directors on the
Technitrol Board to nine, (iii) that twenty percent of the shareholders are
required to call a special meeting of the shareholders, (iv) for approval of
seventy-five percent (75%) of voting shareholders to amend bylaws concerning
the number, terms and removal of the Technitrol Board, and (v) for approval of
seventy-five percent (75%) of voting shareholders to approve a merger, a sale
of substantially all of Technitrol's assets, or an issuance or delivery of
securities in exchange for assets of another corporation under certain
circumstances. In addition, if the Charter Amendment is adopted, the power of
the Technitrol Board to issue stock could enable the Technitrol Board to delay,
deter or prevent changes in control or management of Technitrol. See
"DESCRIPTION OF TECHNITROL CAPITAL STOCK," "COMPARISON OF RIGHTS OF HOLDERS OF
TECHNITROL COMMON STOCK AND HOLDERS OF PULSE COMMON STOCK," and "PROPOSAL TO
INCREASE AUTHORIZED SHARES OF TECHNITROL COMMON STOCK."
COMPARATIVE PER SHARE DATA
The following financial information reflects comparative per share
information relating to unaudited book value per share, cash dividends declared
and net earnings (loss) per share for (i) Technitrol and Pulse on a historical
basis, (ii) on a pro forma basis assuming the Merger had been effected for the
periods indicated and (iii) on a pro forma basis equivalent to one share of
Pulse Common Stock. The information shown below should be read in conjunction
with the historical consolidated financial statements of Technitrol and Pulse,
including the respective notes thereto, and the unaudited pro forma combined
condensed financial statements, including the notes thereto, appearing
elsewhere in this Proxy Statement. See "UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS" and "INDEX TO FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
YEAR ENDED 12/31/94 SIX MONTHS ENDED 6/30/95
------------------------------------------- ---------------------------------------
PULSE PULSE
COMBINED EQUIVALENT COMBINED EQUIVALENT
TECHNITROL PULSE PRO-FORMA PRO-FORMA(1) TECHNITROL PULSE PRO-FORMA PRO-FORMA(1)
---------- ------ --------- ------------ ---------- ----- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Book value per share.... $7.60 $ 7.89 $ n/a(2) $ n/a(2) $ 8.07 $8.60 $9.90 $5.75
Cash dividends declared
per share(3)........... 0.376 none 0.376 0.219 0.195 none 0.195 0.113
Earnings (loss) per
share.................. 1.15 (0.55) 0.26 0.15 0.61 0.69 0.92 0.53
</TABLE>
--------
(1) Calculated by multiplying the Exchange Ratio by the pro forma amount of
each item for the Surviving Corporation.
(2) A pro-forma balance sheet is presented for June 30, 1995 only.
(3) Pro-forma amounts reflect dividends declared by Technitrol.
The comparative pro-forma per share data shown above assumes that 1,631,790
shares of Technitrol Common Stock will be issued to Pulse stockholders. The
actual number of shares issued may range from a minimum of 1,631,790 shares to
a maximum of 1,794,969 shares. The table below shows the comparative pro-forma
per share data assuming the maximum number of shares are issued.
Assuming 1,794,969 shares are issued:
<TABLE>
<CAPTION>
AT OR FOR THE
AT OR FOR THE SIX MONTHS ENDED
YEAR ENDED 12/31/94 6/30/95
-------------------- --------------------
PULSE PULSE
COMBINED EQUIVALENT COMBINED EQUIVALENT
PRO-FORMA PRO-FORMA PRO-FORMA PRO-FORMA
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Book value per share.................. $ n/a $ n/a $9.70 $5.64
Cash dividends declared per share..... 0.376 0.219 0.195 0.113
Earnings per share.................... 0.25 0.15 0.90 0.52
</TABLE>
14
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The tables on the following pages present selected historical financial data
of Technitrol and Pulse and should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Proxy Statement. With respect to Technitrol: (i) the consolidated balance
sheet data as of December 31, 1994 and 1993 and the consolidated statements of
operations data for each of the years in the three-year period ended December
31, 1994 have been derived from Technitrol's consolidated financial statements
included elsewhere herein and (ii) the consolidated balance sheet data as of
December 31, 1992, 1991 and 1990 and the consolidated statement of operations
data for each of the years ended December 31, 1991 and 1990 have been derived
from Technitrol's consolidated financial statements not included herein. With
respect to Pulse: (i) the consolidated balance sheet data as of July 2, 1995
and July 3, 1994 and the consolidated statements of operations data for each
of the years ended July 2, 1995, July 3, 1994 and June 27, 1993 have been
derived from Pulse's consolidated financial statements included elsewhere
herein and (ii) the consolidated balance sheet data as of June 27, 1993, June
28, 1992 and June 28, 1991 and the consolidated statement of operations data
for each of the years ended June 28, 1992 and June 28, 1991 have been derived
from Pulse's financial statements not included herein. The selected financial
information of Technitrol for the six-month periods ended June 30, 1995 and
1994 have been obtained from unaudited financial statements and, in the
opinion of the management of Technitrol, include all adjustments (consisting
only of normal recurring items) necessary for a fair presentation of the
financial position and results of operations at and for each of the interim
periods presented. Results for the years and interim periods presented here
are not necessarily indicative of results which may be expected for any other
year or interim period.
15
<PAGE>
TECHNITROL, INC.
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR SIX MONTHS ENDED
JUNE 30: FOR YEAR ENDED DECEMBER 31:
---------------------- ---------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---------- ---------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $ 79,437 $ 72,776 $146,444 $100,457 $98,554 $81,169 $83,614
Cost of sales........... 57,090 53,009 106,609 75,705 73,677 59,331 62,470
---------- ---------- -------- -------- ------- ------- -------
Gross profit.......... 22,347 19,767 39,835 24,752 24,877 21,838 21,144
Selling, general and
administrative
expenses............... 15,981 14,218 27,274 19,377 20,019 17,088 13,673
---------- ---------- -------- -------- ------- ------- -------
Operating profit........ 6,366 5,549 12,561 5,375 4,858 4,750 7,471
Other income (expense):
Interest, net......... (548) (471) (990) (281) (628) (22) 44
Other, net............ (96) 13 (182) 71 109 (24) 62
---------- ---------- -------- -------- ------- ------- -------
Earnings before income
taxes.................. 5,722 5,091 11,389 5,165 4,339 4,704 7,577
Income taxes............ 2,010 1,979 4,445 1,809 1,501 1,937 2,953
---------- ---------- -------- -------- ------- ------- -------
Net earnings............ $ 3,712 $ 3,112 $ 6,944 $ 3,356 $ 2,838 $ 2,767 $ 4,624
========== ========== ======== ======== ======= ======= =======
Earnings per share(1)... $ 0.61 $ 0.52 $ 1.15 $ 0.56 $ 0.48 $ 0.47 $ 0.78
========== ========== ======== ======== ======= ======= =======
Shares used in computing
earnings per share..... 6,042 6,015 6,015 5,989 5,961 5,920 5,932
BALANCE SHEET DATA (AT
END OF EACH PERIOD):
Total assets............ $ 91,170 $ 82,172 $ 84,755 $ 58,572 $55,708 $52,512 $51,552
Long-term debt.......... 18,113 15,134 15,124 5,146 6,867 4,965 7,303
Shareholders' equity.... 48,816 42,515 45,757 40,294 38,657 38,303 37,442
Book value per common
share.................. 8.07 7.06 7.60 6.73 6.48 6.46 6.36
Dividends paid per
common share........... 0.190 0.187 0.374 0.373 0.373 0.373 0.373
</TABLE>
--------
(1) For 1993, excludes $0.04 of earnings from the cumulative effect of a change
in accounting for income taxes. See "Note 6 to Technitrol Consolidated
Financial Statements."
16
<PAGE>
PULSE ENGINEERING, INC.
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR YEAR ENDED:
-------------------------------------------------------------------
JULY 2, 1995 JULY 3, 1994 JUNE 27, 1993 JUNE 28, 1992 JUNE 28, 1991
------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $85,357 $65,228 $60,479 $62,214 $64,974
Cost of sales........... 64,393 48,082 39,393 38,477 39,014
------- ------- ------- ------- -------
Gross profit........... 20,964 17,146 21,086 23,737 25,960
Selling, general and ad-
ministrative expenses.. 16,363 17,900 15,959 14,740 12,802
------- ------- ------- ------- -------
Operating profit (loss). 4,601 (754) 5,127 8,997 13,158
Other income (expense):
Interest, net.......... 185 355 239 162 (1,283)
Other, net(1).......... (411) 0 0 0 (111)
------- ------- ------- ------- -------
Income (loss) before in-
come taxes............. 4,375 (399) 5,366 9,159 11,764
Income taxes............ 875 0 1,073 1,757 2,794
------- ------- ------- ------- -------
Income (loss) from con-
tinuing operations..... 3,500 (399) 4,293 7,402 8,970
Discontinued operations. 0 0 0 2,423 1,081
------- ------- ------- ------- -------
Income (loss) before ex-
traordinary item....... 3,500 (399) 4,293 4,979 7,889
Extraordinary item(2)... 0 0 0 0 (322)
------- ------- ------- ------- -------
Net income (loss)....... $ 3,500 $ (399) $ 4,293 $ 4,979 $ 7,567
======= ======= ======= ======= =======
Income per share:
Income (loss) from
continuing operations
before extraordinary
item.................. $ 0.55 $ (0.07) $ 0.65 $ 1.09 $ 1.77
Discontinued opera-
tions................. $ 0.00 $ 0.00 $ 0.00 $ (0.36) $ (0.22)
Extraordinary item..... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ (0.06)
------- ------- ------- ------- -------
Net earnings (loss).... $ 0.55 $ (0.07) $ 0.65 $ 0.73 $ 1.49
======= ======= ======= ======= =======
Shares used in computing
earnings (loss) per
share.................. 6,353 5,432 6,615 6,778 5,073
======= ======= ======= ======= =======
BALANCE SHEET DATA
(AT END OF EACH PERI-
OD):
Total assets............ $61,300 $54,338 $57,222 $54,458 $48,132
Long-term debt.......... 1,114 150 1,650 4,500 4,500
Stockholders' equity.... 48,235 44,270 44,946 42,163 35,101
Book value per common
share(3)............... 8.60 8.13 8.21 7.51 6.78
</TABLE>
--------
(1) Consists of expenses incurred in the evaluation of offers to acquire Pulse
in fiscal 1995 and expenses incurred in connection with efforts
discontinued in the first quarter of fiscal 1991 to complete an initial
public offering.
(2) Reflects after-tax effect of early extinguishment of debt.
(3) Calculation excludes the effect of outstanding options and warrants. At
July 2, 1995, Pulse had outstanding options and warrants to purchase
approximately 1.2 million shares of Pulse Common Stock.
17
<PAGE>
TECHNITROL MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTERIM PERIOD COMPARISON
The results for the first six months of 1995 have been prepared by
Technitrol's management without audit or participation by its independent
auditors. In the opinion of management, the financial statements fairly
present the results of Technitrol's operations for the period presented and
the consolidated balance sheet at June 30, 1995. To the best knowledge and
belief of Technitrol, all normal recurring accruals and adjustments have been
made to properly reflect income and expenses attributable to this period.
Liquidity and Capital Resources. Cash and cash equivalents totalled $5.0
million at June 30, 1995, compared to $8.7 million at December 31, 1994.
Working capital was $31.3 million, compared to $30.2 million at the end of
last year.
Operating activities provided $2.8 million in cash for the half year.
Contributing to the positive cash flow were net earnings of $3.7 million and
depreciation and amortization of $2.7 million. In addition, accounts payable
plus accrued expenses increased $1.6 million. Offsetting that favorable cash
impact was a $1.0 million increase in accounts receivable and a $3.4 million
increase in inventory. In general, sales increases caused the rise in payables
and receivables. The inventory increase was primarily within Technitrol's
Metallurgical Products Segment which has experienced on-going customer demand
for "Just in Time" deliveries.
Cash used in investing activities was $7.7 million. Capital expenditures
made during the half totalled $2.9 million. Common stock warrants regarding
Pulse were purchased for $4.8 million during the second quarter. (See Note 5
to Technitrol Consolidated Financial Statements on page F-6.)
Cash provided by financing activities was $1.0 million for the first six
months of 1995. Debt proceeds net of repayments were $2.2 million and were
used primarily for the purchase of the Pulse stock warrants. Separately,
dividends of $1.2 million were paid.
In connection with its financing activities relating to the cash portion of
the Merger, on June 29, 1995, Technitrol entered into a commitment with three
banks. The banks committed to provide up to $50 million of credit to
Technitrol on an unsecured basis of which $20 million would be in the form of
a five year term loan and up to $30 million would be in the form of a three
year revolving line of credit. Closing of the loan transaction pursuant to the
commitment is subject to fulfillment of various conditions which are normal
and customary in transactions of this type. The impact of the loan transaction
has been taken into account in the pro forma financial statements appearing
elsewhere herein as though the refinancing had been effected for the periods
indicated. Interest rate differences are immaterial. Proceeds of the loan will
be used to refinance existing indebtedness (approximately $16 million), pay
the cash portion of the merger consideration (approximately $24 million) and
related transaction expenses (approximately $2.3 million) with the balance
available to provide working capital and funds for future acquisitions, if
required. Technitrol believes that, when closed, the funds available under the
line of credit will be sufficient for its foreseeable cash needs.
Recent balance sheet composition has been:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1995 1994 1994
-------- ------------ --------
<S> <C> <C> <C>
Cash & cash equivalents.......................... 6% 10% 6%
Other current assets............................. 55% 53% 57%
Plant, property & equipment...................... 27% 29% 30%
Other assets..................................... 12% 8% 7%
---- ---- ----
Total.......................................... 100% 100% 100%
==== ==== ====
Current liabilities.............................. 27% 28% 30%
Long-term debt................................... 20% 18% 18%
Shareholders' equity............................. 53% 54% 52%
---- ---- ----
Total.......................................... 100% 100% 100%
==== ==== ====
</TABLE>
18
<PAGE>
Results of Operations. Sales for the first half of 1995 totaled $79.4
million, an increase of 9.2% over the $72.8 million sold in the comparable
period of 1994. All three of the Company's product segments experienced an
increase in first half sales from the comparable prior year period. The most
sizable increases occurred in the Electronics Products Segment (which includes
the Fil-Mag Group) and the End User/Finished Products Segment.
The backlog at June 30, 1995 was $29.7 million, compared to $32.2 million at
March 31, 1995 and $28.7 million at December 31, 1994. First half sales
slightly exceeded bookings for both the Electronic Products Segment and the
Metallurgical Products Segment (although in the second quarter domestic
economic activity had an adverse volume impact on a portion of the product
portfolio of Advanced Metallurgy, Inc. ("AMI") and sales exceeding bookings in
recent quarters in the Metallurgical Products Segment). Separately, End
User/Finished Products Segment bookings exceed sales for the six months.
The increased sales of the Electronic Products Segment for the six months
ended June 30, 1995 reflected an increase in Fil-Mag Group sales exceeding a
decrease in the sales of the Components Division. The latter sales decrease
reflected continued softening in the domestic market for the Division's
products. Gross profits for the total Segment increased from comparable prior
year levels, as did operating profits. After tax earnings of the Segment
benefited from the favorable offshore effective tax rates of entities within
the Fil-Mag Group relative to that of the Components Division, which both
manufactures and sells domestically.
The Metallurgical Products Segment's sales increase in the first six months
from the comparable prior year period was primarily due to increased shipments
of Chace Precision Metals, Inc. ("Chace"). While sales and gross profits
increased at Chace, gross profits of the Segment decreased slightly, due in
substantial part to certain raw material cost increases experienced by AMI.
Such raw material cost increases are not expected to continue to affect
results of operations of the Segment beyond the third quarter as cost
increases level off and higher prices are passed on to customers.
End User/Finished Products Segment sales increased primarily as a result of
Lloyd Instruments' shipments exceeding those in the comparable period of 1994.
A portion of that increase was due to Lloyd's increased sales in Germany
attributable to the November 1994 acquisition of the Erichsen product line.
Profits for this Segment increased slightly from the comparable prior year
period, reflecting the benefit of Lloyd's overall sales and profit
improvements.
Total selling, general and administrative expenses of $15.9 million
increased slightly as a percentage of sales for the half from 19.5% in 1994 to
20.1% in 1995. Increased sales resulted in increased selling and marketing
expenses, which rose by approximately $1.2 million. General and Administrative
expenses of Lloyd increased by approximately $400,000, due primarily to
expenses associated with the Erichsen product line acquired in November 1994.
Selling, general and administrative expenses at Chatillon increased by
approximately $400,000 due to increased marketing and selling efforts along
with increased product development efforts. Separately, hiring at the
Corporate level caused increases in salaries and fringes (approximately
$100,000), and related relocation costs.
Net interest expense increased to $548,000 for the half, up from $471,000
for the comparable prior year period. The increase reflected interest paid on
$5 million of incremental borrowing during the second quarter of 1995 used to
purchase stock warrants of Pulse Engineering, Inc.
The effective tax rates in the first half were 35.1% in 1995 and 38.9% in
1994. The decrease was caused by proportionately more taxable income earned by
the Company's offshore operating units, particularly Fil-Mag, which generally
incur lower tax rates than those experienced by Technitrol's domestic
operating units.
Net earnings of $3,712,000, or $.61 per share, were realized in the first
six months of 1995, as compared with $3,112,000, or $.52 per share, earned
during the same period in 1994.
FISCAL YEAR COMPARISON
Liquidity and Capital Resources. Cash and cash equivalents totalled $8.7
million at December 31, 1994, compared to $7.7 million a year earlier. Working
capital was $30.2 million, compared to $24.1 million at
19
<PAGE>
December 31, 1993. Contributing to the year-to-year increase in working
capital was the 1994 acquisition of the Fil-Mag Group as discussed below.
Cash provided by operating activities was $9.6 million. The positive cash
flow was composed mainly of net earnings of $6.9 million; depreciation and
amortization of $5.3 million; and increases in accounts payable ($1.1 million)
and accrued expenses ($3.9 million). A cash decrease due to deferred tax
benefits was offset by an increase in income taxes payable. Cash was consumed
by increases in accounts receivable ($4.6 million) and inventories ($2.5
million). Those increases were caused by the increase in sales from 1993 to
1994.
Investing activities consumed $13 million during 1994. Capital expenditures
constituted $4.4 million, excluding acquisitions. Separately, $8.8 million was
paid for the capital stock of the Fil-Mag Group, net of cash acquired.
Financing for the acquisition was provided by drawing down approximately $10
million on a temporary acquisition line of credit from CoreStates Bank, N.A.,
which was subsequently replaced by a three year revolving credit loan.
Projected 1995 capital expenditures are expected to be financed by internally
generated funds.
Cash provided by financing activities was a net $4.2 million. The
aforementioned $10 million loan was the source of funds. Cash consumed by
financing activities was due to combined debt reduction of $3.5 million, and
$2.3 million of dividend payments. It is expected that dividends will continue
to be paid on a quarterly basis during 1995.
Technitrol's foreign sales are conducted primarily through its foreign
subsidiaries, principally in the Far East and Europe. In the Far East,
Technitrol's sales are denominated primarily in U.S. dollars. In Europe, sales
are denominated primarily in local currencies (consisting mainly of English
pounds and French francs) and to a lesser extent in U.S. dollars.
Since a very significant portion of Technitrol's foreign sales are
denominated in U.S. dollars, the Company does not believe that its potential
exposure to currency fluctuations is material to its business. During 1993 and
1994, Technitrol did not purchase any currency exchange forward contracts or
similar instruments generally utilized to reduce the risk of currency
fluctuations. Technitrol will reexamine this policy if sales denominated in
currencies other than U.S. dollars become material to operations.
Balance sheet composition at December 31:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash and cash equivalents.... 10% 13%
Other current assets......... 53% 50%
Property, plant, and equip-
ment........................ 29% 32%
Other assets................. 8% 5%
---- ----
Total...................... 100% 100%
==== ====
</TABLE>
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Current liabilities..... 28% 22%
Long-term debt.......... 18% 9%
Shareholders' equity.... 54% 69%
---- ----
100% 100%
==== ====
</TABLE>
Results of Operations. In 1994, sales were $146.4 million compared to $100.5
million in 1993. The 45.7% increase was due to the $30.8 million sales of the
Fil-Mag Group, acquired in January 1994, and a combined sales increase of
$15.1 million realized by the other businesses of Technitrol. All three of
Technitrol's segments experienced increased sales in 1994 from 1993.
The December 31 backlog was $28.7 million in 1994 and $14.9 million in 1993.
Contributing to the increase was the Fil-Mag Group's backlog.
The increase in sales of the Electronic Products Segment to $41.2 million
included the sales of the Fil-Mag Group as noted above. Operating profit of
the Electronics Products Segment increased to $5.0 million in 1994, compared
to $1.7 million in the prior year. The increase reflected the fifty weeks of
profits of the Fil-Mag Group since its acquisition in January 1994. As a
percentage of sales, this segment's annual operating profits equaled
20
<PAGE>
12.2% which was the highest of Technitrol's three product segments. Year end
backlog and order volumes indicated a softening in the segment's domestic
markets, while offshore demand remained relatively strong.
The Metallurgical Products Segment produced increased sales, operating
profit and operating profit as a function of sales in 1994 as compared to
1993. AMl experienced its largest sales and profit improvements to the product
line which was acquired from Engelhard Corporation in 1991. Housing starts
continue to have an eventual impact on demand for various AMI products.
Management of Technitrol is monitoring the indirect effect that recent
interest rate increases will have on AMI backlog levels which were stable
entering the first quarter of 1995. Separately, Chace sales and operating
profits also grew year-to-year. On-going efforts aimed at cost containment and
quality improvements have contributed to the growth in sales volume and
profits. Chace's proven ability to compete in a demanding industrial market
was reflected by a strong backlog position as it began the new year.
Two of the three operating units which constitute the End User/Finished
Products Segment experienced an increase in sales and operating profits.
Chatillon sales volume and profitability improved in its primary product
families, as the improved economic climate contributed to more favorable
market conditions. Lloyd's year-to-year sales increase reflected incremental
unit sales and the absence of the unfavorable currency translation which
negatively impacted 1993 results. Lower sales and operating profit occurred at
Technitrol's Products Division. Domestic demand for currency counters and
dispensers decreased during 1994, which was also the first full year
subsequent to the Division withdrawing as a provider of engineering services
on a prime contract basis to an agency of the U.S. Government.
Technitrol's selling, general and administrative expenses increased to $27.3
million in 1994 from $19.4 million in 1993. The key reason for the increase
was the addition of the Fil-Mag Group.
Interest expense grew to $1.1 million, caused by the $10 million increase in
outstanding debt to fund the Fil-Mag Group acquisition and rising interest
rates during the year.
1994 income tax expenses increased as a function of pre-tax earnings. The
1994 effective income tax rate rose to 39% from 35% in 1993 as a result of
proportionately higher taxable income being earned by Technitrol's domestic
operations. Effective income tax rates of the domestic operations generally
exceed those of Technitrol's offshore operations.
In 1993, sales increased by 1.9% to $100.5 million. The sales increases of
the Electronic Products Segment and the Metallurgical Products Segment
exceeded the sales decrease experienced by the End User/Finished Products
Segment.
The backlog on December 31, 1993 was $14.9 million compared to $14.2 million
on December 31, 1992.
The Electronic Products Segment sales increased to $9.4 million from $8.2
million in 1992. Sales of the Metallurgical Products Segment increased to
$63.9 million in 1993 from $60.4 million. The 1993 year marked the first full
year of operation at the Export, PA, facility which includes the product line
acquired from Engelhard Corporation in August 1991 and relocated during 1992.
End User/Finished Products Segment sales decreased from $30 million to $27.1
million. This reflected a volume decrease in currency counters and dispensers
in the Products Division. Separately, that division withdrew as a provider of
engineering services on a prime contract basis to an agency of the U.S.
Government. Also causing the sales decline of the segment were unfavorable
currency translation of the sales of Lloyd, and a decrease in the sales of
electronic products of Chatillon.
Total 1993 gross profit dollars approximated those of 1992. However, as a
percentage of sales, 1993 gross profit dropped slightly to 24.6% from 25.2% in
1992. Contributing to the decrease were inventory write-offs and high
production costs incurred at the Export, PA, facility of the Metallurgical
Products Segment and the cost associated with the Petersburg, PA, plant
shutdown of the Electronic Products Segment.
Selling, general and administrative expenses decreased to $19.4 million in
1993, compared to $20 million during the previous year. The decrease reflected
the non-recurring 1992 expenses associated with AMI-DDC (see "Note 2 to
Technitrol Consolidated Financial Statements") and relocating the Engelhard
product line.
21
<PAGE>
Operating profit of $5.4 million in 1993 represented a 10.6% increase from
year-to-year. The Electronic Products Segment contributed to the increase,
with the Components Division experiencing stronger profits in 1993 as a result
of on-going cost reduction efforts. The operating profit increase of the
Metallurgical Products Segment included improved earnings of the established
operations of AMI and the first full year of contribution of AMI-DDC exceeding
a decrease in profitability on the part of the product line acquired from
Engelhard. The major markets of AMI remained cyclical and reflected general
trends in housing, automotive, appliances and capital equipment. Improved
profits were realized by Chace, as cost improvement programs yielded their
intended results. Regarding the End User/Finished Products Segment, weak
demand caused a decrease in profitability at the Products Division and flat
earnings on certain Chatillon products, which more than offset improved
profits realized by Lloyd.
Interest expense decreased to $0.4 million in 1993 due to lower interest
rates and a reduction in the amount of debt outstanding.
Income tax expenses increased proportionate to 1993 pre-tax earnings, with
the 35% effective income tax rate unchanged from the prior year. Contributing
to the flat effective rate were increased earnings of the operation in Puerto
Rico, which is exempt from U.S. Federal income taxes.
Technitrol adopted Financial Accounting Standard No. 109, "Accounting for
Income Taxes," during 1993. As a result, $261,000 of favorable cumulative
effect on prior years was added to 1993 net earnings.
PULSE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Pulse reported net income of $3.5 million, or $.55 per share, for fiscal
1995 compared to a net loss of $399,000, or $.07 per share, in fiscal 1994 and
net income of $4.3 million, or $.65 per share, in fiscal 1993. The $3.9
million improvement in fiscal 1995 compared to fiscal 1994 was due primarily
to strong demand for Pulse's products, which has resulted in greater revenues
and improved pricing, lower operating costs due in part to improvements made
in Pulse's operations since the latter part of fiscal 1994 and lower research,
development and engineering ("RD&E") expenses. The decline in fiscal 1994
compared to fiscal 1993 resulted from competitive pricing pressures, higher
production costs, manufacturing complexities and inventory valuation write-
downs associated with production of new products, and higher RD&E costs.
The following table sets forth for the years indicated certain financial
data as a percentage of net sales and the percentage compared to the prior
year.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES FOR PERCENTAGE CHANGE
YEAR ENDED FROM PRIOR YEAR
---------------------------------- -------------------
JULY 2, JULY 3, JUNE 27,
1995 1994 1993 1995 1994
--------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 30.9% 7.9%
Cost of sales........... 75.4 73.7 65.1 33.9 22.1
--------- --------- --------- -------- ---------
Gross profit.......... 24.6 26.3 34.9 22.3 (18.7)
Research, development
and engineering........ 5.5 10.2 7.2 (46.6) 52.4
Selling, general and ad-
ministrative........... 13.7 17.3 18.5 (20.4) 0.4
Plant shutdown costs.... 0.0 0.0 0.7 0.0 nm
--------- --------- --------- -------- ---------
Operating income
(loss)............... 5.4 (1.2) 8.5 nm (114.7)
Interest income......... 0.4 1.0 1.3 (44.5) (21.9)
Interest expense........ 0.2 0.4 0.9 (40.6) (51.1)
Other expense........... 0.5 0.0 0.0 nm 0.0
--------- --------- --------- -------- ---------
Income (loss) before
income taxes......... 5.1 (0.6) 8.9 nm (107.4)
Provision for income
taxes.................. 1.0 0.0 1.8 nm nm
--------- --------- --------- -------- ---------
Net income (loss)....... 4.1% (0.6)% 7.1% nm (109.3)%
========= ========= ========= ======== =========
</TABLE>
(nm designates a "not meaningful" calculation)
22
<PAGE>
Net sales grew 30.9% to $85.4 million in fiscal 1995 compared to $65.2
million in fiscal 1994 and $60.5 million in fiscal 1993. The revenue growth in
fiscal 1995 compared to fiscal 1994 was due primarily to increased shipments
of network modules, telecom products and magnetics products. The following
table sets forth the revenues received by product line during the years
indicated.
<TABLE>
<CAPTION>
FISCAL YEAR 1995 FISCAL YEAR 1994 FISCAL YEAR 1993
-------------------- -------------------- --------------------
AMOUNT OF PERCENTAGE AMOUNT OF PERCENTAGE AMOUNT OF PERCENTAGE
SALES OF SALES SALES OF SALES SALES OF SALES
--------- ---------- --------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Network modules......... $36,377 42.6% $23,125 35.4% $23,135 38.3%
Pulse transformers(1)... 27,549 32.3 25,607 39.3 21,128 34.9
Power products(2)....... 21,431 25.1 16,496 25.3 16,216 26.8
------- ------ ------- ----- ------- -----
$85,357 100.00% $65,228 100.0% $60,479 100.0%
======= ====== ======= ===== ======= =====
</TABLE>
--------
(1) Excludes sales of pulse transformers incorporated into Pulse's networking
modules.
(2) Includes revenue of $2.0 million and $4.3 million in fiscal 1994 and 1993,
respectively, received from Pulse's former Potter operations, which were
divested in January 1994.
Pulse experienced significant growth in its shipments of 10Base-T network
modules in fiscal 1995. Shipments of Token Ring network modules in fiscal 1995
increased compared to fiscal 1994 primarily due to significant increases in
the last half of fiscal 1995. Sales of telecom transformer products increased
substantially in fiscal 1995 compared to fiscal 1994, which more than offset
the effect of the decline in sales of Token Ring and 10Base-T transformers.
Sales of power products increased due to greater sales of magnetics products
and more than offset the decline due to the sale of Pulse's Potter operations
in January 1994, which contributed revenues of $2.0 million during fiscal
1994. The aggregate unit volume of sales for all products increased by 45% in
fiscal 1995 compared to fiscal 1994. The increase in sales during fiscal 1994
compared to fiscal 1993 was due to growth in sales of transformers and power
products. Although aggregate unit volume of sales for all products increased
by 38% in fiscal 1994 compared to fiscal 1993, revenue growth was tempered due
to declining prices, particularly in network module products. While demand for
Pulse's products was strong throughout fiscal 1995, demand has recently
softened somewhat. Although Pulse's backlog of unfilled orders at the end of
fiscal 1995 was substantially higher than at the end of fiscal 1994, the
backlog was reduced during the latter part of fiscal 1995 due to the combined
effects of increased shipments and reduced order input, which may impact the
level of future shipments.
Cost of sales increased to $64.4 million in fiscal 1995 compared to $48.1
million and $39.4 million in fiscal 1994 and 1993, respectively, resulting in
gross profit of $21.0 million in fiscal 1995 compared to $17.1 million and
$21.1 million in fiscal 1994 and 1993, respectively. The gross margin (gross
profit as a percentage of net sales) declined to 24.6% in fiscal 1995 compared
to 26.3% in fiscal 1994 and 34.9% in fiscal 1993. Although the gross margin
improved in each quarter during fiscal 1995 (and for the fourth quarter of
fiscal 1995 exceeded the gross margin for fiscal 1994), the decline in gross
margin that occurred in fiscal 1995 and fiscal 1994 reflected changes in
product mix, particularly an increase in the relative amounts of revenue from
lower margin network modules, lower overall prices, and manufacturing
complexities associated with certain product lines. In addition, the decline
in gross margin in fiscal 1995 resulted from inefficiencies related to plant
consolidations in the People's Republic of China (the "PRC"), and the decline
in fiscal 1994 compared to fiscal 1993 was due to increased overhead expenses.
During the 1994 fiscal year, the Company completed the transition of its
Mexican production activities to the PRC. This transition resulted in a
decrease in United States assets, and a corresponding increase in Asian
assets, due to the transfer of machinery and equipment and the relative shift
in inventories from the United States to Asia. Particularly in the last half
of fiscal 1994 and first half of fiscal 1995, Pulse's operating results
reflected its inability to reduce individual product costs to sufficiently
offset declining prices associated with the local area network ("LAN")
components business. The difficulties encountered in manufacturing these
products included higher than anticipated manufacturing costs and lower
production yields due to new product manufacturing complexities. In fiscal
1994, Pulse also provided $1.2 million for losses on inventory valuations
related to certain new products.
While the gross margin for fiscal 1995 was slightly less than the gross
margin for fiscal 1994, gross margins have improved in each quarter of fiscal
1995. During fiscal 1995, Pulse revised its pricing policies relating to the
23
<PAGE>
manner in which prices for products are developed and approval requirements.
Pulse also increased prices on certain products, including selected network
modules, and discontinued certain products that
were considered unprofitable or inconsistent with product strategy. In
addition, Pulse strengthened materials management and controls, which resulted
in a significant reduction in inventory during fiscal 1995 and cost reductions
on certain products. Pulse has also improved the designs on various products,
thereby reducing materials costs and improving the manufacturability of the
products. Pulse's plant consolidation efforts were completed late in fiscal
1995 when the last of four original PRC facilities was consolidated into
Pulse's two large new manufacturing plants in the PRC.
Research, development and engineering expenses decreased to $4.7 million, or
5.5% of sales, in fiscal 1995 compared to $6.7 million, or 10.2% of sales, in
fiscal 1994 and $4.4 million, or 7.2% of sales in fiscal 1993. The reduction
in RD&E in fiscal 1995 resulted from more focused product development efforts
as well as overall cost reduction measures. Costs have been curtailed most
significantly in connection with Pulse's development activities relating to
wireless LAN products. The increase in RD&E expense in fiscal 1994 compared to
fiscal 1993 was due primarily to new product development activities in the
wireless LAN market and advanced high speed LAN, telecom and power product
components. Certain of these development activities were relocated to Pulse's
Irish facilities in the last half of fiscal 1994, which reduced RD&E expense
thereafter due to the lower overall cost structure for research and
development at those facilities and European Economic Community ("EEC") grants
for research performed in Ireland. Pulse's RD&E expense was reduced by
$280,000 and $652,000 in fiscal 1995 and 1994, respectively, due to EEC
grants. In addition, Pulse has applied for additional grants of up to $560,000
that may be collected during fiscal 1996, although no assurance can be given
that the grants will be received. Despite the reductions in RD&E expense,
Pulse believes that it has maintained product development activities at an
appropriate level. During fiscal 1995, Pulse announced the availability of its
first radio frequency transceivers designed for integration into a variety of
consumer and industrial products. Pulse also announced a strategic technology
relationship with Advanced Micro Devices ("AMD") for the development of a
complete, low-cost wireless LAN card integrated with AMD's media access
controller integrated circuit.
Selling, general and administrative ("SG&A") expenses were $11.7 million, or
13.7% of sales, in fiscal 1995 compared to $11.2 million, or 17.3% of sales,
in fiscal 1994 and $11.2 million, or 18.5% of sales in fiscal 1993. The slight
increase in SG&A expense in fiscal 1995 was caused by a $1.2 million increase
in incentive compensation and costs of approximately $500,000 related to
various legal matters, the effects of which were partially offset by overall
expense controls and the elimination of costs related to Pulse's Potter
operations since their sale in January 1994. SG&A expenses remained constant
in fiscal 1994 compared to fiscal 1993 despite increases in wireless products
and worldwide marketing expenses primarily due to reduced incentive
compensation and the lack of any SG&A expenses relating to Pulse's former
Potter operations following its sale. One matter causing additional legal
expenses was a legal action instituted in February 1995 in which Pulse has
been named as one of several defendants. The plaintiffs allege that they have
experienced physical harm and injury and other damages caused by exposure to
contaminants historically discharged from the former Potter operation plant
site located in Brookhaven, Lincoln County, Mississippi, which Pulse acquired
in 1986 from Varian Associates. Pulse is continuing its analysis of the merits
of the case; however, under any circumstances, Pulse believes that it is
contractually indemnified against any liability or expenses relating to the
action. The entities that Pulse believes are required to indemnify it have not
to date acknowledged their obligations, and Pulse has instituted legal action
to enforce its indemnification rights. Pulse cannot predict the level of
expenses it will be required to incur to defend itself in this action or to
enforce its indemnification rights. While such expenses will continue to be
reflected in Pulse's results of operations to the extent that Pulse is not
reimbursed therefor, Pulse believes that it is entitled to be reimbursed for
all expenses it has already incurred in addition to being indemnified against
any potential liability. The entities with indemnity obligations to Pulse have
performed other obligations relating to environmental issues at the former
Potter operation plant sites.
Interest income, net of interest expense, was $185,000 in fiscal 1995
compared to $355,000 in fiscal 1994 and $239,000 in fiscal 1993. Interest
income declined in fiscal 1995 compared to fiscal 1994 due to lower levels of
investable funds. Interest expense declined due to reduced levels of senior
debt outstanding since the first
24
<PAGE>
quarter of fiscal 1994, the effect of which was offset by interest on $2.2
million of lease financing obtained during fiscal 1995.
Other expense was $411,000 in fiscal 1995. These expenses consist of costs
incurred in connection with Pulse's activities relating to offers made in
fiscal 1995 to acquire Pulse and, subsequently, the Merger. No similar
expenses were incurred in fiscal 1994 or 1993.
The provision for income taxes as a percentage of income before taxes was
20% in fiscal 1995 and fiscal 1993. There was no provision for income taxes or
income tax benefit in fiscal 1994. The relatively low income tax rates in
fiscal 1995 and fiscal 1993 were primarily the result of a greater proportion
of Pulse's earnings being generated by its foreign subsidiaries, which are
subject to lower tax rates than Pulse's domestic operations. In fiscal 1994
Pulse did not have an income tax benefit despite its loss because the loss was
primarily attributable to losses in foreign locations for which a tax benefit
could not be recognized currently.
LIQUIDITY AND CAPITAL RESOURCES
Pulse's cash and cash equivalents increased to $15.3 million at July 2, 1995
from $7.1 million at the end of fiscal 1994, while short-term investments
declined to zero at July 2, 1995 from $6.5 million at the end of fiscal 1994.
Pulse has traditionally financed its working capital needs and capital
expenditures through internally generated cash. During fiscal 1995, cash
provided by operations was $9.3 million compared to cash used by operations of
$2.7 million in fiscal 1994. Investing activities used cash of $1.6 million in
fiscal 1995 compared to providing cash of $7.9 million in fiscal 1994,
primarily as a result of reduced sales of short-term investments in fiscal
1995. Financing activities, however, provided cash of $618,000 compared to
using cash of $3.1 million during fiscal 1995 and 1994, respectively, due
primarily to lease financing arrangements entered into in fiscal 1995, which
provided cash of $2.2 million, and reduced amounts of long-term debt
repayments in fiscal 1995.
Pulse made net capital expenditures of $8.1 million, $7.3 million and $1.9
million for fiscal years 1995, 1994 and 1993, respectively. The fiscal 1995
capital expenditures included $4.1 million for expansion of Pulse's facilities
in the PRC, which was completed in the fourth quarter of fiscal 1995, and $1.8
million for automatic and semi-automatic equipment intended for high volume
production. Pulse believes that it has adequate capacity to support
significantly higher levels of sales. For fiscal 1996, Pulse estimates that it
will make capital expenditures of approximately $4 million, primarily for
additional machinery and equipment.
During fiscal 1996, Pulse anticipates that internally generated cash,
including collections on accounts receivable, which are largely generated from
computer and networking companies with a history of timely payment, will be
sufficient to fund its operations. If needed, however, Pulse also has
available a credit line with a commercial bank. The bank credit line is for up
to $5 million, bears interest at the prime rate, has a maturity of December
15, 1995, and has an annual commitment fee of 0.25%. No amounts were
outstanding under the line of credit at July 2, 1995.
Pulse conducts business in various currencies throughout the world. In order
to reduce its exposure to potential transaction losses Pulse periodically
purchases forward rate contracts. The maximum amount of such contracts
outstanding at any time in fiscal 1995 was $500,000. In addition, due to the
less developed nature of the banking system within the PRC, Pulse anticipates
its local currency needs in order to allow sufficient time for conversion from
other currencies. Pulse also faces potential economic and political risks by
operating in the PRC due to the emerging status of the country and its
developing relationship with the United States. Pulse has operated in the PRC
for more than a decade and does not anticipate that those inherent risks will
have a material adverse affect on its operations.
25
<PAGE>
COMPARATIVE PER SHARE DATA
The following financial information reflects comparative per share
information relating to unaudited book value per share, cash dividends
declared and net earnings (loss) per share for (i) Technitrol and Pulse on a
historical basis, (ii) on a pro forma basis assuming the Merger had been
effected for the periods indicated and (iii) on a pro forma basis equivalent
to one share of Pulse Common Stock. The information shown below should be read
in conjunction with the historical consolidated financial statements of
Technitrol and Pulse, including the respective notes thereto, and the
unaudited pro forma combined condensed financial statements, including the
notes thereto, appearing elsewhere in this Proxy Statement. See "UNAUDITED PRO
FORMA COMBINED CONDENSED FINANCIAL STATEMENTS" and "INDEX TO FINANCIAL
STATEMENTS."
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
YEAR ENDED 12/31/94 SIX MONTHS ENDED 6/30/95
------------------------------------------- ---------------------------------------
PULSE PULSE
COMBINED EQUIVALENT COMBINED EQUIVALENT
TECHNITROL PULSE PRO-FORMA PRO-FORMA(1) TECHNITROL PULSE PRO-FORMA PRO-FORMA(1)
---------- ------ --------- ------------ ---------- ----- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Book value per share.... $7.60 $7.89 $ n/a(2) $ n/a(2) $8.07 $8.60 $9.90 $5.75
Cash dividends declared
per share(3)........... 0.376 none 0.376 0.219 0.195 none 0.195 0.113
Earnings (loss) per
share.................. 1.15 (0.55) 0.26 0.15 0.61 0.69 0.92 0.53
</TABLE>
--------
(1) Calculated by multiplying the Exchange Ratio by the pro forma amount of
each item for the Surviving Corporation.
(2) A pro-forma balance sheet is presented for June 30, 1995 only.
(3) Pro-forma amounts reflect dividends declared by Technitrol.
The comparative pro-forma per share data shown above assumes that 1,631,790
shares of Technitrol Common Stock will be issued to Pulse stockholders. The
actual number of shares issued may range from a minimum of 1,631,790 shares to
a maximum of 1,794,969 shares. The table below shows the comparative pro-forma
per share data assuming the maximum number of shares are issued.
Assuming 1,794,969 shares are issued:
<TABLE>
<CAPTION>
AT OR FOR THE
AT OR FOR THE SIX MONTHS ENDED
YEAR ENDED 12/31/94 6/30/95
------------------- -------------------
COMBINED PULSE COMBINED PULSE
PRO- EQUIVALENT PRO- EQUIVALENT
FORMA PRO-FORMA FORMA PRO-FORMA
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Book value per share.................... $ n/a $ n/a $9.70 $5.64
Cash dividends declared per share....... 0.376 0.219 0.195 0.113
Earnings per share...................... 0.25 0.15 0.90 0.52
</TABLE>
26
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Condensed Balance Sheet at June
30, 1995, and the Unaudited Pro Forma Combined Condensed Statements of
Operations for the year ended December 31, 1994 and the six months ended June
30, 1995, combine information for Technitrol and Pulse and include unaudited
pro forma adjustments as described in the accompanying notes. The pro forma
combined condensed statements of operations give effect to the proposed Merger
as if it had occurred at January 1, 1994. The unaudited Pro Forma Combined
Condensed Balance Sheet gives effect to the proposed Merger as if it had
occurred at June 30, 1995. The Pro Forma Combined Condensed Financial
Statements are based on historical financial statements of Technitrol and
Pulse, giving effect to the Merger applying the purchase method of accounting
and the assumptions and adjustments as discussed in the accompanying notes to
the Pro Forma Combined Condensed Financial Statements. These Pro Forma
Combined Condensed Financial Statements are based upon (i) for Technitrol: the
audited consolidated financial statements as of December 31, 1994 and for the
year then ended and the unaudited consolidated financial statements as of June
30, 1995 and for the six months then ended, and (ii) for Pulse: the audited
consolidated balance sheet of July 2, 1995 and the unaudited consolidated
statement of operations for the six-month periods ended July 3, 1994 and
January 1, 1995, and the audited consolidated statement of operations for the
year ended July 2, 1995. These statements are based upon, and should be read
in conjunction with, the historical financial statements of Technitrol and
Pulse which are included elsewhere in this Proxy Statement. The unaudited pro
forma adjustments described in the accompanying notes are based upon
preliminary estimates and certain assumptions that the managements of
Technitrol and Pulse believe are reasonable in such circumstances. The pro
forma data are presented for information purposes only and are not necessarily
indicative of the operating results or financial position that would have
occurred had the Merger been consummated at the dates indicated, nor are they
necessarily indicative of future operating results or financial position.
27
<PAGE>
TECHNITROL, INC. AND PULSE ENGINEERING, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL: PRO FORMA
------------------ ADJUSTMENTS
TECHNITROL PULSE (NOTE 1) PRO FORMA
---------- ------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............. $ 5,041 $15,338 (7,900) $ 12,479
Accounts receivable, net.............. 24,186 13,435 37,621
Inventories........................... 25,186 8,985 34,171
Prepaid expenses and other current as-
sets................................. 1,151 2,112 3,263
------- ------- --------
Current assets...................... 55,564 39,870 87,534
Property, plant and equipment, net.... 24,695 20,280 44,975
Other assets.......................... 10,911 1,150 5,896 17,957
------- ------- --------
$91,170 $61,300 $150,466
======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable and current maturities
of long-term debt.................... $ 22 $ 689 $ 711
Accounts payable and accrued expenses. 24,219 11,262 1,300 36,781
------- ------- --------
Current liabilities................. 24,241 11,951 37,492
Long-term debt........................ 18,113 1,114 16,100 35,327
------- ------- --------
42,354 13,065 72,819
Shareholders' equity.................. 48,816 48,235 (19,404) 77,647
------- ------- --------
$91,170 $61,300 $150,466
======= ======= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
28
<PAGE>
TECHNITROL, INC. AND PULSE ENGINEERING, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
HISTORICAL:
------------------ PRO FORMA
TECHNITROL PULSE ADJUSTMENTS (NOTE) PRO FORMA
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales.................. $146,444 $68,547 $214,991
Cost of sales.............. 106,609 56,219 $(3,513) (5) 159,315
-------- ------- --------
Gross profit............. 39,835 12,328 55,676
Selling, general and admin-
istrative expenses........ 27,274 15,884 4,313 (2),(5) 47,471
-------- ------- --------
Operating profit (loss).... 12,561 (3,556) 8,205
Other income (expense):
Interest, net............ (990) 192 (1,693) (3) (2,491)
Other, net............... (182) (94) (276)
-------- ------- --------
Earnings (loss) before in-
come taxes................ 11,389 (3,458) 5,438
Income taxes (benefit)..... 4,445 (422) (576) (4) 3,447
-------- ------- --------
Net earnings (loss)........ $ 6,944 $(3,036) $ 1,991
======== ======= ========
Earnings (loss) per share.. $ 1.15 $ (0.55) (6) $ 0.25
======== ======= ========
Shares used in calculating
earnings per share........ 6,015 5,478(7) 7,820
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
29
<PAGE>
TECHNITROL, INC. AND PULSE ENGINEERING, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
HISTORICAL:
------------------ PRO FORMA
TECHNITROL PULSE ADJUSTMENTS (NOTE) PRO FORMA
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales.................... $79,437 $48,743 $128,180
Cost of sales................ 57,090 34,454 (1,846) (5) 89,698
------- ------- --------
Gross profit............... 22,347 14,289 38,482
Selling, general and adminis-
trative expenses............ 15,981 8,798 2,246 (2),(5) 27,025
------- ------- --------
Operating profit............. 6,366 5,491 11,457
Other income (expense):
Interest, net.............. (548) 145 (820) (3) (1,223)
Other, net................. (96) (317) (413)
------- ------- --------
Earnings before income taxes. 5,722 5,319 9,821
Income taxes................. 2,010 875 (279) (4) 2,606
------- ------- --------
Net earnings................. $ 3,712 $ 4,444 $ 7,215
======= ======= ========
Earnings per share........... $ 0.61 $ 0.69 (6) $ 0.92
======= ======= ========
Shares used in calculating
earnings per share.......... 6,042 6,442 7,858
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
30
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
(1) The cost of the acquisition of Pulse Common Stock is assumed to be to
approximately $58.9 million. The components of the total purchase price
are assumed to be as follows:
<TABLE>
<S> <C>
Fair value of Technitrol Common Stock exchanged for Pulse
Common Stock $24.1 million
Cash paid for Pulse Common Stock (a) 24.0
Pulse stock options assumed by Technitrol 2.4
Warrants to purchase Pulse Class B Stock previously purchased
by Technitrol (in May, 1995) 4.8
Anticipated costs to restructure the operations of Pulse 1.3
Professional fees and other transaction costs 2.3
-----
$58.9 million
</TABLE>
--------
(a) Funding sources include $7.9 million of cash on-hand.
For purposes of these Pro Forma Combined Condensed Financial Statements, it
is assumed that 1,650,000 shares of Technitrol Common Stock will be issued
to Pulse stockholders. The actual cash and Technitrol Common Stock exchanged
for the Pulse Common Stock will be determined in accordance with the Merger
Agreement and Forms of Election received from Pulse stockholders, but is not
expected to be materially different from the assumptions made here. See
"TERMS OF THE MERGER--Conversion of Shares of Pulse Common Stock; Election."
Pro forma adjustments to the Combined Condensed Balance Sheet include
(a) eliminating the equity accounts of Pulse, (b) recording additional
equity for the following components of the purchase consideration:
Technitrol Common Stock, stock options assumed, and transaction costs, (c)
recording of the new debt borrowed and the cash decrease resulting from
funding the cash portion of the purchase price, (d) establishing a liability
for anticipated restructuring costs, and (e) establishing a value for
intangibles and goodwill for the purchase cost in excess of the fair value
of the assets acquired.
The costs included in the restructuring liability have been estimated in
accordance with recent pronouncements under generally accepted accounting
principles and are expected to be incurred under a plan of restructuring to
be announced within one year of the Effective Time and consists primarily of
anticipated severance and related payments. The restructuring is expected to
be completed within two years of the Effective Time and all cash payments
made under the plan of restructuring will have been made within this two-
year period.
The pro forma adjustments to the Combined Condensed Balance Sheet assume
that the Merger occurred on June 30, 1995. For purposes of these Pro Forma
Combined Condensed Financial Statements, the fair value of Pulse's property,
plant and equipment is assumed to approximate its current depreciated cost.
The actual fair value will be determined by independent appraisers and may
be more or less than the current depreciated costs. Subsequent to the
Merger, Technitrol will apply the appraisal values and more fully evaluate
the assets acquired and, as a result, the allocation of purchase price to
property, plant and equipment may change.
The following pro forma adjustments to the Combined Condensed Statements
of Operations assume that the Merger occurred on January 1, 1994.
(2) Annual selling, general and administrative expenses are increased by $0.8
million to reflect the amortization of $12.6 million of goodwill and other
intangibles over a 15-year life.
(3) Interest expense on the debt incurred and reduced interest income
resulting from the use of cash that was previously on-hand and available
for investment. The rate used to calculate the interest cost of additional
borrowings is 6.75%. The rate of interest income on available cash is
assumed to be 3.4%.
(4) Adjustment was made to the provision for income taxes, providing for all
income taxes applicable to the pro forma adjustments at appropriate rates.
Pro forma results for 1994 assume that the combined entity
31
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
would not have received any additional tax benefit from Pulse's loss for
the year ended December 31, 1994 and as a result the pro forma effective
tax rate for 1994 was substantially in excess of the pro forma tax rate in
1995. The Pulse tax loss for 1994 was generated in a number of foreign tax
jurisdictions and could not have been applied to Technitrol earnings in the
United States. In addition, Technitrol did not have operations in the
foreign jurisdictions where losses were incurred by Pulse during 1994.
(5) The historical financial statements of Technitrol include research and
development expenses classified as a component of cost of goods sold,
while Pulse has classified such expenses as a component of selling,
general and administrative expenses. This adjustment reclassifies the
research and development expenses of Technitrol to selling, general and
administrative expenses.
(6) Pro forma per share data is calculated using the pro forma net earnings
divided by the pro forma primary shares outstanding (which equal fully
diluted shares outstanding). The pro forma shares outstanding include
1,650,000 shares of Technitrol Common Stock issued to the stockholders of
Pulse under the terms of the Merger (using the assumptions described in
note (1) above). Common stock equivalents result from outstanding options
to purchase Pulse Common Stock which will be assumed by Technitrol and
converted to options to purchase Technitrol Common Stock. It is also
assumed that the outstanding warrants to purchase Pulse Common Stock will
be exercised and/or terminated prior to the Effective Time and they are
therefore excluded from common stock equivalents.
(7) Common stock equivalents were not included in computing the 1994 loss per
share since the effect would have been anti-dilutive.
32
<PAGE>
RISK FACTORS
THE FOLLOWING ARE CERTAIN FACTORS WHICH SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING THE PROPOSALS TO BE VOTED ON AT THE TECHNITROL SPECIAL MEETING AND
PULSE SPECIAL MEETING AND THE ACQUISITION OF THE SECURITIES OFFERED HEREBY.
FOR PERIODS FOLLOWING THE MERGER, REFERENCE TO THE PRODUCTS, BUSINESS,
FINANCIAL RESULTS OR FINANCIAL CONDITION OF TECHNITROL SHOULD BE CONSIDERED TO
REFER TO TECHNITROL AND ITS SUBSIDIARIES, INCLUDING TECO SUB (WHICH SHALL BE
THE SURVIVOR OF THE MERGER WITH PULSE), UNLESS THE CONTEXT OTHERWISE REQUIRES.
Operations in Developing Countries. The majority of Pulse's manufacturing
capacity is located in two proximately situated facilities in the People's
Republic of China (the "PRC"). Pulse has manufactured products in the PRC for
more than the last 10 years. Although the PRC is one of the world's fastest
growing economies, its potential economic, political and labor developments
(including potential political instability, possible nationalization policies,
high inflation, currency fluctuation and uncertain legal system) provide a
number of uncertainties and risks. While the PRC appears currently committed
to an economic system which is based on semi-free enterprise, should the PRC
government adopt economic, legal, or trading policies harmful to private
industry in the future or should the PRC become a highly inflationary economy
without offsetting devaluations, Technitrol's manufacturing capabilities for
electronic components could be significantly disrupted and Technitrol's
operations and financial position could be materially and adversely affected.
Technitrol manufactures electronic components in, among other places, the
Philippines and Taiwan. The current Philippine government has been quite
receptive to foreign investment for manufacturing. There are no assurances
that these receptive policies will continue and, if they do not continue, that
they will not be replaced by economic, tax and/or labor policies which are
less favorable to a foreign manufacturing presence than are the current
policies. Any significant negative change in tax, economic or labor policies
could have a material adverse effect on the operations and financial condition
of Technitrol.
Possible Difficulty in Integration of Certain Operations. Technitrol and
Pulse have entered into the Merger Agreement with the expectation that the
Merger will result in beneficial synergies for the combined companies. See
"THE MERGER AND RELATED TRANSACTIONS." Achieving the anticipated benefits of
the Merger will depend in part upon whether the integration of the businesses
of Pulse and Technitrol's Electronic Products Segment can be accomplished in
an efficient and effective manner. There can be no assurance that this will
occur or that significant cost savings in operations will be achieved. The
successful combination of the two businesses will require, among other things,
integration of their respective product offerings and coordination of their
sales and marketing, research and development and manufacturing efforts. The
difficulties of such integration will be increased by the necessity of
coordinating geographically separated organizations each of which is worldwide
in scope. The integration of certain 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 companies. There can be
no assurance that integration will be accomplished smoothly or successfully.
Failure to accomplish effectively the integration of the operations of the two
businesses could have an adverse effect on Technitrol's results of operations,
at least in the short term.
Possible Foreign Currency Losses. Both Pulse and Technitrol conduct
significant off shore manufacturing operations which engage in selling
activities. The currency in which these foreign subsidiaries conduct sales is
primarily the United States dollar. The use of the United States dollar as the
currency for sales made by these foreign subsidiaries gives rise to the risk
of transactional gains or losses as a result of exchange rate fluctuations
between the United States dollar and the local currency of the host country in
which the foreign subsidiary engage in manufacturing activities. Examples of
foreign subsidiaries using the United States dollar as a functional currency
are, in the case of Pulse, the PRC and, in the case of Technitrol, Taiwan and
the Philippines. In order to reduce Technitrol's exposure to transactional
gains or losses resulting from currency fluctuations, Technitrol may, though
to date it has not, purchase currency exchange forward contracts. These
contracts guarantee a predetermined currency exchange rate at the time the
contract is purchased. This will allow Technitrol to shift the risk or benefit
of currency fluctuations from the date of the contract to a third party.
33
<PAGE>
Technitrol may also consider the use of currency options to reduce the impact
that exchange rate fluctuations could have on gross margin for sales made in
United States dollars but where the products sold are manufactured with labor
and materials paid for in local currencies.
Volatility of Stock Price. The market price of Technitrol Common Stock has
ranged from a high of $16.325 to a low of $13.500 in 1995. The future market
price of Technitrol Common Stock could be subject to wide fluctuations in
response to such factors as substantial variations in quarterly financial
results, announcements of technological innovations or new products by
Technitrol or its competitors, changes in prices of Technitrol's or its
competitors' products and services, changes in product mix, changes in
Technitrol's revenue and revenue growth rates for Technitrol as a whole or for
individual geographic areas, business units, products or product categories,
as well as other events or factors. Statements or changes in opinions,
ratings, revenue or earnings estimates made by brokerage firms or industry
analysts relating to the markets in which Technitrol does business or relating
to Technitrol specifically have resulted, and could in the future result, in
an immediate and adverse effect on the market price of Technitrol Common
Stock. Also, failure to achieve revenue, earnings and other operating and
financial results as anticipated could result in an immediate and adverse
effect on the market price of Technitrol Common Stock. In addition, the stock
market has from time to time experienced price and volume fluctuations which
have particularly affected the market price for the securities of many
cyclical product companies and which often have been unrelated to the
operating performance of these companies. These market fluctuations may
adversely affect the market price of Technitrol Common Stock. In addition,
should the market price of Technitrol Common Stock fall below $13.75 per share
then Technitrol will be required to issue more shares as consideration for the
shares of Pulse Common Stock than has been assumed for purposes of the
Unaudited Pro Forma Combined Condensed Financial Statements and the number of
such additional shares of Technitrol Common Stock issued may result in
significant additional dilution to existing Technitrol shareholders.
Effect of Antitakeover Provisions of Pennsylvania Law and Technitrol's
Charter Documents. Upon consummation of the Merger, certain stockholders of
Pulse will become shareholders of Technitrol, a corporation governed by the
laws of Pennsylvania. Technitrol is subject to the provisions of Chapter 25,
subchapter F of the Pennsylvania Business Corporation Law, which has the
effect of restricting changes in control of a company. Moreover, the following
provisions of Technitrol's Articles of Incorporation and Bylaws could, in some
circumstances, impede a change of control of Technitrol: (i) the
classification of the Technitrol Board into three groups serving staggered
three year terms, so that a majority of the directors is not elected at any
annual meeting; (ii) the limitation on the number of Directors serving on the
Technitrol Board to nine, with no more than three per class; (iii) a provision
that twenty percent of the shareholders are required to call a special meeting
of the shareholders and notice of purpose must be delivered; (iv) a
requirement that shareholder action to amend the bylaws concerning the number,
terms and removal of Directors must be approved by seventy-five percent of
voting shareholders; (v) a requirement that seventy-five percent of voting
shareholders approve a merger, a sale of all or substantially all of
Technitrol's assets, or an issuance or delivery of securities in exchange for
assets of another corporation under certain circumstances; and (vi) the
Charter Amendment, which if adopted, would enable the Technitrol Board to
issue stock potentially to delay, deter or prevent changes in control or
management of Technitrol. These and other provisions of Pennsylvania law
applicable to Technitrol and Technitrol's charter documents may have the
effect of delaying, deterring, or preventing changes in control or management
of Technitrol. See "DESCRIPTION OF TECHNITROL CAPITAL STOCK," "COMPARISON OF
RIGHTS OF HOLDERS OF TECHNITROL COMMON STOCK AND HOLDERS OF PULSE COMMON
STOCK," and "PROPOSAL TO INCREASE AUTHORIZED SHARES OF TECHNITROL COMMON
STOCK."
TECHNITROL, INC.
Technitrol manufactures electrical contacts and assemblies, thermostatic and
clad-metal products, mechanical scales and force measurement products,
material testing systems, cash counters and dispensers, and electronic
components.
34
<PAGE>
Technitrol's products are sold primarily to a wide range of industrial
customers in the following industry segments: (i) Electronic Products Segment
(composed of Technitrol's electronic components business), (ii) Metallurgical
Products Segment (composed of electrical contacts and assemblies and
thermostatic and clad metal products), and (iii) End User/Finished Products
Segment (composed of document counters and dispensers, mechanical force and
electronic measurement products and mechanical and electronic scales; and
materials testing systems). For further information concerning Technitrol
industry segments and foreign and domestic operations and export sales, see
"Note 13 to Technitrol Consolidated Financial Statements."
Technitrol was incorporated in Pennsylvania in 1947.
Technitrol's principal executive offices are located at 1210 Northbrook
Drive, Suite 385, Trevose, Pennsylvania 19053 (telephone (215) 355-2900).
PULSE ENGINEERING, INC.
Pulse designs, manufactures and markets electronic components and modules
primarily for original equipment manufacturers of local area networks, digital
telecommunications equipment and data processing equipment. Pulse uses its
expertise in magnetics design, circuit layout, packaging, proprietary
thickfilm technology and coilwinding equipment to produce components and
modules that often provide improved performance, increased reliability and
reduced size.
Pulse produces wire-wound magnetic components for the management,
protection, conversion and conditioning of signal and power in electronic
equipment. Magnetic components are a basic element in electronic circuits.
These devices have the capability to provide isolation and, therefore,
protection for sensitive electronic equipment. Their capacity for energy
storage often helps to remove unwanted electrical energy from circuits.
Magnetic devices are used in a wide range of applications, including high
frequency power conversion and signal line filtering.
Pulse currently has three product groupings: pulse transformers, network
modules and power products. New products have been introduced in each of these
product groupings within the last eighteen months, and Pulse is continuing
efforts to develop new products for the advanced communications market. For
information concerning Pulse foreign and domestic operations and export sales,
see "Note 8 to Pulse Consolidated Financial Statements." For information
concerning sales of Pulse products, see "PULSE MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Pulse was originally incorporated in California in 1957 and was
reincorporated in Delaware in August 1987.
Pulse's principal executive offices are located at 12220 World Trade Drive,
San Diego, California 92128 (telephone (619) 674-8100).
TECHNITROL SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE OF TECHNITROL SPECIAL MEETING
The Technitrol Special Meeting will be held at the Bucks County Holiday Inn,
4700 Street Road, Trevose, Pennsylvania 19053 on September 27, 1995 at 11:00
a.m., local time, for the following purposes: (i) to consider and vote upon a
proposal to approve and adopt the Merger Agreement; and (ii) to consider and
vote upon a proposal to approve and adopt the Charter Amendment.
35
<PAGE>
RECORD DATE AND OUTSTANDING SHARES
Shareholders of record of Technitrol Common Stock at the close of business
on the Technitrol Record Date (August 11, 1995) are entitled to notice of and
to vote at the Technitrol Special Meeting (and any adjournments or
postponements thereof). As of the close of business on the Technitrol Record
Date, there were 6,047,742 shares of Technitrol Common Stock outstanding, held
by approximately 704 holders of record.
VOTE REQUIRED
Approval of the Merger Agreement by Technitrol's shareholders is not
required under Pennsylvania law, but is required by the terms of Technitrol's
Listing Agreement with the ASE (the "ASE Listing Agreement"). The ASE Listing
Agreement requires that the transaction be approved by a majority of the total
votes cast on the proposal at the Technitrol Special Meeting (assuming the
presence of a quorum). Pennsylvania law requires that the Charter Amendment be
approved by a majority of the total votes cast on the proposal at the
Technitrol Special Meeting (assuming the presence of a quorum). Each holder of
Technitrol Common Stock on the Technitrol Record Date is entitled to cast one
vote per share, exercisable in person or by properly executed proxy. The
presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Technitrol Common Stock entitled to vote
at the Technitrol Special Meeting is necessary to constitute a quorum at the
Technitrol Special Meeting.
See "BENEFICIAL OWNERSHIP OF TECHNITROL COMMON STOCK" for information
concerning the beneficial ownership of Technitrol Common Stock by the
management of Technitrol and by persons owning more than 5% of outstanding
Technitrol Common Stock.
PROXIES
This Proxy Statement is being furnished to holders of Technitrol Common
Stock in connection with solicitation of proxies by and on behalf of the
Technitrol Board for use at the Technitrol Special Meeting.
All shares of Technitrol Common Stock that are entitled to vote and are
represented at the Technitrol Special Meeting by properly executed proxies
received prior to or at the Technitrol Special Meeting (and not duly revoked)
will be voted at the Technitrol Special Meeting (or any adjournments or
postponements thereof) in accordance with the instructions indicated on such
proxies. If no such instructions are indicated, such proxies will be voted FOR
the approval and adoption of both the Merger Agreement and the Charter
Amendment.
If any other matters are properly presented for consideration at the
Technitrol Special Meeting (or any adjournments or postponements thereof)
including, among other things, consideration of a motion to adjourn or
postpone the Technitrol Special Meeting to another time and/or place
(including, without limitation, for the purpose of soliciting additional
proxies), the persons named in the enclosed forms of proxy and voting
thereunder will have the 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 Technitrol at or before the taking of the vote at the
Technitrol 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 Technitrol before the taking
of the vote at the Technitrol Special Meeting or (iii) attending the
Technitrol Special Meeting and voting in person (although attendance at the
Technitrol Special Meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or a subsequent proxy should be
sent so as to be delivered to Technitrol at 1210 Northbrook Drive, Suite 385,
Trevose, Pennsylvania 19053-8406, Attention: Corporate Secretary, or hand
delivered to the Corporate Secretary of Technitrol, in each case before the
taking of the vote at the Technitrol Special Meeting.
Shares represented by proxies that reflect abstentions or "broker non-votes"
(i.e., shares held by a broker or nominee which are represented at the
Technitrol Special Meeting but with respect to which such broker or
36
<PAGE>
nominee is not empowered to vote) will be counted as shares that are present
and entitled to vote for purposes of determining the presence of a quorum;
however, abstentions or broker non-votes as to approval and adoption of the
Merger Agreement and the Charter Amendment will have the same effect as votes
against such proposals. Although abstentions as to any other proposal which
comes before the Technitrol Special Meeting (and any adjournments or
postponements thereof) also will have the effect of votes against the
proposal, broker non-votes will be treated as unvoted for purposes of
determining approval of such proposal and will not be counted as votes for or
against such proposal.
The cost of the solicitation of Technitrol shareholders will be borne by
Technitrol. Technitrol may retain the services of a proxy solicitation firm to
assist in the solicitation of proxies for a fee not to exceed $5,000.00, plus
reimbursement of reasonable expenses. In addition, Technitrol has agreed to
reimburse brokerage firms and other persons representing beneficial owners of
shares for their expenses in forwarding solicitation material to such
beneficial owners. Proxies also may be solicited by certain Technitrol
directors, officers and employees personally or by telephone, telegram or
other means of communication. Such persons will not receive additional
compensation, but may be reimbursed for reasonable out-of-pocket expenses
incurred in connection with such solicitation.
RECOMMENDATION OF TECHNITROL BOARD
THE TECHNITROL BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
BELIEVES THAT THE MERGER IS FAIR AND IN THE BEST INTERESTS OF TECHNITROL AND
ITS SHAREHOLDERS. THE TECHNITROL BOARD UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
THE TECHNITROL BOARD HAS UNANIMOUSLY APPROVED THE CHARTER AMENDMENT. THE
TECHNITROL BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF
APPROVAL AND ADOPTION OF THE AMENDMENT TO THE ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF TECHNITROL COMMON STOCK FROM 10
MILLION TO 30 MILLION.
PULSE SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE OF PULSE SPECIAL MEETING
The Pulse Special Meeting will be held at Pulse's headquarters, 12220 World
Trade Drive, San Diego, California 92128 on September 27, 1995 at 8:00 a.m.,
Pacific Daylight Time, for the purpose of voting upon a proposal to approve
and adopt the Merger Agreement.
RECORD DATE AND OUTSTANDING SHARES
Stockholders of record of Pulse Stock at the close of business on the Pulse
Record Date (August 11, 1995) are entitled to notice of, and to vote at, the
Pulse Special Meeting and any adjournments or postponements thereof. At the
close of business on the Pulse Record Date, Pulse had outstanding 5,615,243
shares of Pulse Common Stock, excluding 380,894 shares held in Pulse's
treasury, and no shares of Pulse Class B Stock.
VOTE REQUIRED
Pulse's Second Restated and Amended Certificate of Incorporation (the "Pulse
Certificate of Incorporation") provides that each issued and outstanding share
of Pulse Stock is entitled to one vote on matters such as approval and
adoption of the Merger Agreement; however, the 380,894 shares of Pulse Common
Stock held in Pulse's treasury will not be voted. Under Delaware law, approval
and adoption of the Merger Agreement requires the approval of a majority of
the issued and outstanding shares of Pulse Stock (exclusive of shares held in
Pulse's treasury). Under Pulse's Bylaws and Delaware law, all other proposals
which may come before the Pulse Special Meeting require the approval of a
majority of the shares of Pulse Common Stock having voting power and present
or represented at the Pulse Special Meeting; however, the presence, in person
or by properly
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executed proxy, of the holders of a majority of the outstanding shares of
Pulse Stock entitled to vote at the Pulse Special Meeting is necessary to
constitute a quorum at the Pulse Special Meeting.
See "BENEFICIAL OWNERSHIP OF PULSE COMMON STOCK" below for information
concerning the beneficial ownership of Pulse Common Stock by the management of
Pulse and by persons owning more than five percent (5%) of Pulse Common Stock.
PROXIES
This Proxy Statement is being furnished to holders of Pulse Stock in
connection with the solicitation of proxies by and on behalf of the Pulse
Board for use at the Pulse Special Meeting and any adjournments or
postponements thereof.
All valid proxies received in response to this solicitation will be voted in
accordance with the instructions indicated thereon by the stockholders giving
such proxies. If no instructions are given, such proxies will be voted FOR
approval and adoption of the Merger Agreement.
If any other matters are properly presented for consideration at the Pulse
Special Meeting, or any adjournments or postponements thereof, including,
among other things, consideration of a motion to adjourn or postpone the Pulse
Special Meeting to another time and/or place (including, without limitation,
for the purpose of soliciting additional proxies), the persons named in the
enclosed form of proxy provided by the Pulse Board and voting thereunder will
have the discretion to vote on such matters in accordance with their best
judgment.
Any Pulse stockholder has the power to revoke his or her proxy at any time
before it is voted by filing with the Secretary of Pulse either a written
notice of revocation or a duly executed proxy bearing a later date. Proxies
may also be revoked upon request by any stockholder present at the Pulse
Special Meeting who elects to vote his or her shares in person (although
attendance at the Pulse Special Meeting will not in and of itself constitute a
revocation of a proxy). Any written notice of revocation or a subsequent proxy
should be sent so as to be delivered to Pulse at 12220 World Trade Drive, San
Diego, California 92128, Attention: Acting Corporate Secretary, or hand
delivered to the Corporate Secretary of Pulse, in each case before the taking
of the vote at the Pulse Special Meeting.
Shares represented by proxies that reflect abstentions or "broker non-votes"
(i.e., shares held by a broker or nominee which are represented at the Pulse
Special Meeting but with respect to which such broker or nominee is not
empowered to vote) will be counted as shares that are present and entitled to
vote for purposes of determining the presence of a quorum; however,
abstentions or broker non-votes as to approval and adoption of the Merger
Agreement will have the same effect as votes against such proposal. Although
abstentions as to any other proposal which may come before the Pulse Special
Meeting (and any adjournments or postponements thereof) also will have the
effect of votes against the proposal, broker non-votes will be treated as
unvoted for purposes of determining approval of such proposal and will not be
counted as votes for or against such proposal.
The cost of the solicitation of Pulse stockholders will be borne by Pulse.
Pulse has retained the services of a proxy solicitation firm to assist in the
solicitation of proxies for a fee not to exceed $5,000.00, plus reimbursement
of reasonable expenses. In addition, Pulse has agreed to reimburse brokerage
firms and other persons representing beneficial owners of shares of Pulse
Common Stock for their expenses in forwarding solicitation material to such
beneficial owners. Proxies also may be solicited by certain Pulse directors,
officers and employees personally or by telephone, telegram or other means of
communication. Such persons will not receive additional compensation, but may
be reimbursed for reasonable out-of-pocket expenses incurred in connection
with such solicitation.
RECOMMENDATION OF PULSE BOARD
THE PULSE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND BELIEVES
THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF PULSE AND ITS
STOCKHOLDERS. THE PULSE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
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DISSENTERS' APPRAISAL RIGHTS
Holders of record of shares of Pulse Common Stock are entitled to certain
appraisal rights under Section 262 ("Section 262") of the DGCL in connection
with the Merger, provided that they comply with the conditions established by
Section 262. Section 262 is reprinted in its entirety as Annex D to this Proxy
Statement. Holders of Technitrol Common Stock are not entitled to appraisal
rights in connection with the Merger. The following discussion is not a
complete statement of the law relating to appraisal rights and is qualified in
its entirety by reference to Annex D. This discussion and Annex D should be
reviewed carefully by any holder who wishes to exercise statutory appraisal
rights or who wishes to preserve the right to do so, as failure to comply with
the procedures set forth herein or therein will result in the loss of
appraisal rights.
Pulse stockholders of record who desire to exercise their appraisal rights
must:
. hold shares of Pulse Common Stock on the date of making a demand for
appraisal;
. continuously hold such shares through the Effective Time;
. deliver a properly executed written demand for appraisal to Pulse prior
to the vote by the stockholders of Pulse on the Merger;
. not vote in favor of the Merger nor consent thereto in writing;
. file any necessary petition in the Delaware Court of Chancery (the
"Delaware Court"), as more fully described below, within 120 days after
the Effective Time; and
. otherwise satisfy all of the conditions described more fully below.
A record holder of shares of Pulse Common Stock who makes the demand
described below with respect to such shares, who continuously is the record
holder of such shares through the Effective Time, who otherwise complies with
the statutory requirements of Section 262 and who neither votes in favor of
the Merger nor consents thereto in writing will be entitled to an appraisal by
the Delaware Court of the "fair value" of his or her shares of Pulse Common
Stock, exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, as
determined by the Delaware Court. All references in Section 262 and in this
summary of appraisal rights to a "stockholder" or "holders of shares of Pulse
Common Stock" are to the record holder or holders of shares of Pulse Common
Stock.
Under Section 262, where appraisal rights are available to the stockholders
of a corporation and a merger is to be submitted for approval at a meeting of
such stockholders, as in the case of the Pulse Special Meeting, not less than
20 days prior to the meeting the corporation must notify each of the record
holders of its stock at the close of business on the record date for the
meeting that such appraisal rights are available and include in each such
notice a copy of Section 262. THIS PROXY STATEMENT CONSTITUTES SUCH NOTICE TO
THE HOLDERS OF PULSE COMMON STOCK.
Stockholders who desire to exercise their appraisal rights must not vote in
favor of the Merger and must deliver a separate written demand for appraisal
to Pulse prior to the vote by the stockholders of Pulse on the Merger. A
demand for appraisal must be executed by or on behalf of the stockholder of
record, fully and correctly, as such stockholder's name appears on the
certificate or certificates representing the shares of Pulse Common Stock.
Although a failure to vote against the Merger will not result in a waiver of
appraisal rights, merely voting or delivering a proxy directing a vote against
approval of the Merger will not constitute a demand for appraisal. Pulse
stockholders wishing to exercise appraisal rights should not deliver unmarked
proxies (i.e. proxies without instructions) to Pulse inasmuch as such proxies
will be voted FOR approval of the Merger. See "PULSE SPECIAL MEETING--
Proxies."
A person having a beneficial interest in shares of Pulse Common Stock that
are held of record in the name of another person, such as a broker, fiduciary
or other nominee, must act promptly to cause the record holder to follow the
steps summarized herein properly and in a timely manner to perfect whatever
appraisal rights are available. If the shares of Pulse Common Stock are owned
of record by a person other than the beneficial owner,
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including a broker, fiduciary (such as a trustee, guardian or custodian) or
other nominee, such demand must be executed by or for the record owner. If the
shares of Pulse Common Stock are owned of record by more than one person, as
in a joint tenancy or tenancy in common, such demand must be executed by or
for all joint owners. An authorized agent, including an agent for two or more
joint owners, may execute the demand for appraisal for a stockholder of
record; however, the agent must identify the record owner and expressly
disclose the fact that, in exercising the demand, such person is acting as
agent for the record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares of Pulse Common Stock as a nominee for others may exercise appraisal
rights with respect to the shares held for all or less than all beneficial
owners of shares as to which such person is the record owner. In such case,
the written demand must set forth the number of shares covered by such demand.
Where the number of shares is not expressly stated, the demand will be
presumed to cover all shares of Pulse Common Stock outstanding in the name of
such record owner.
A stockholder who elects to exercise appraisal rights should mail or deliver
his or her written demand to Pulse Engineering, Inc., 12220 World Trade Drive,
San Diego, California 92128, Attention: Acting Corporate Secretary. The
written demand for appraisal should specify the stockholder's name and mailing
address, the number of shares of Pulse Common Stock owned, and that the
stockholder is thereby demanding appraisal of his or her shares. A proxy or
vote against the Merger will not constitute such a demand.
Within ten (10) days after the Effective Time, the Surviving Corporation
must provide notice of the effectiveness of the Merger to all stockholders who
have complied with Section 262 and who are entitled to appraisal rights
thereunder. Within 120 days after the Effective Time, but not thereafter,
either the Surviving Corporation or any stockholder who has complied with the
required conditions of Section 262 may file a petition in the Delaware Court,
with a copy served on the Surviving Corporation in the case of a petition
filed by a stockholder, demanding a determination of the "fair value" of the
shares of all dissenting stockholders. The Surviving Corporation does not
presently intend to file an appraisal petition and stockholders seeking to
exercise appraisal rights should not assume that the Surviving Corporation
will file such a petition or that the Surviving Corporation will initiate any
negotiations with respect to the fair value of such shares. Accordingly, Pulse
stockholders who desire to have their shares appraised should initiate any
petitions necessary for the perfection of their appraisal rights within the
time periods and in the manner prescribed in Section 262. Within 120 days
after the Effective Time, any stockholder who has theretofore complied with
the applicable provisions of Section 262 will be entitled, upon written
request, to receive from the Surviving Corporation a statement setting forth
the aggregate number of shares of Pulse Common Stock with respect to which
demands for appraisal were received by Pulse and the number of holders of such
shares. Such statement must be mailed within ten (10) days after the written
request therefor has been received by the Surviving Corporation or within ten
(10) days after expiration of the time for delivery of demands for appraisal
under Section 262, whichever is later.
If a petition for an appraisal is timely filed, at the hearing on such
petition the Delaware Court will determine which stockholders are entitled to
appraisal rights and will thereafter appraise the shares of Pulse Common Stock
owned by such stockholders, determining the fair value of such shares
exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining fair
value, the Delaware Court is to take into account all relevant factors. In
Weinberger v. UOP Inc., the Delaware Supreme Court discussed the factors that
could be considered in determining fair value in an appraisal proceeding,
stating that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in"
court should be considered, and that "fair price obviously requires
consideration of all relevant factors involving the value of a company." The
Delaware Supreme Court stated that in making this determination of fair value
the Delaware Court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts which
could be ascertained as of the date of the merger which throw light on future
prospects of the merged corporation. In Weinberger, the Delaware Supreme Court
stated that "elements of future value, including the nature of the enterprise,
which are known or susceptible of proof as of the date of the merger and not
the product of speculation, may be considered." Section 262, however,
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provides that fair value is to be "exclusive of any element of value arising
from the accomplishment or expectation of the merger."
Stockholders considering seeking appraisal should recognize that the "fair
value" of their shares determined under Section 262 could be more than, the
same as or less then the consideration they would otherwise receive pursuant
to the Merger Agreement if they do not seek appraisal of their shares. Pulse
stockholders seeking appraisal rights generally will be responsible for filing
an appraisal petition within the appropriate time and funding the expenses of
such an appraisal proceeding. The cost of the appraisal proceeding may be
determined by the Delaware Court and taxed against the parties as the Delaware
Court deems equitable in the circumstances. Upon application of a dissenting
stockholder of Pulse, the Delaware Court may order that all or a portion of
the expenses incurred by any dissenting stockholder in connection with the
appraisal proceeding (including, without limitation, reasonable attorney's
fees and the fees and expenses of experts) be charged pro rata against the
value of all shares of stock entitled to appraisal in order to apportion the
expenses of such proceeding over all shares reaping any potential benefit
therefrom.
Any holder of shares of Pulse Common Stock who has duly demanded appraisal
in compliance with Section 262 will not, after the Effective Time, be entitled
to vote for any purpose any shares subject to such demand or to receive
payment of dividends or other distributions on such shares, except for
dividends or distributions payable to stockholders of record at a date prior
to the Effective Time.
At any time within sixty (60) days after the Effective Time, any stockholder
will have the right to withdraw such demand for appraisal and to accept the
terms offered in the Merger; after this period, the stockholder may withdraw
such demand for appraisal only with the consent of the Surviving Corporation.
If no petition for appraisal is filed with the Delaware Court within 120 days
after the Effective Time, stockholders' rights to appraisal shall cease, and
all holders of shares of Pulse Common Stock will be entitled to receive the
consideration offered pursuant to the Merger Agreement. Inasmuch as the
Surviving Corporation has no obligation to file such a petition and has no
present intention to do so, any holder of shares of Pulse Common Stock who
desires such a petition to be filed is advised to file it on a timely basis.
Any stockholder who withdraws such stockholder's demand for appraisal or who
fails to perfect such demand will be treated as having made a Non-Election
with respect to such stockholder's shares of Pulse Common Stock. See "TERMS OF
THE MERGER--Description of Election Procedures for Exchange of Certificates."
THE MERGER AND RELATED TRANSACTIONS
The following is a summary of the material terms of the Merger Agreement.
For additional information, reference is made to the Merger Agreement which is
attached to this Proxy Statement as Annex A.
BACKGROUND--MATERIAL CONTACTS AND BOARD DELIBERATIONS
Consistent with its ongoing analysis of various business options and the
creation of stockholder value, the Pulse Board and Pulse's management have for
some time considered various alternative business strategies, including
business combination opportunities. As part of that process, in September 1993
Pulse representatives first had contact with representatives of Bel Fuse, Inc.
("Bel Fuse") regarding the possibility of a transaction between the two
companies. During the period of October 1993 through February 1994,
representatives of Pulse and Bel Fuse held discussions regarding a potential
business combination transaction, including meetings of the parties in San
Diego and on the East Coast. These discussions were terminated in February
1994 with no agreement having been reached.
In January 1994, Technitrol completed the acquisition of the Fil-Mag Group,
thus giving Technitrol a significant presence in the electronic components
business for certain applications. The businesses of the Fil-Mag Group (which
became a part of Technitrol's Electronic Products Segment) and Pulse are in
certain respects complementary.
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In May 1994, representatives of Pulse and Technitrol first informally
discussed the possibility of mutual interest in a business combination
transaction between Pulse and Technitrol. Technitrol initiated this contact.
Pulse officials met with Technitrol representatives in June 1994 in
Philadelphia and again in July 1994 in San Diego, at which point a
confidentiality agreement was signed between the parties and a very limited
amount of confidential information regarding the two companies was exchanged.
A general discussion of possible transactions between the companies ensued at
the meeting in San Diego, although no offers were made. In July 1994, Pulse
management advised Technitrol that it intended to concentrate on certain
operating issues that had arisen within the Pulse organization and that Pulse
did not wish to pursue further discussions of a business combination
transaction with Technitrol. Pulse indicated to Technitrol that, if Pulse once
again considered such a possible transaction, it would contact Technitrol to
determine if Technitrol would be interested in recommencing discussions at
such point.
In August 1994, a Pulse Director received a call from a Bel Fuse advisor
inquiring whether Pulse had an interest in further discussions regarding a
transaction with Bel Fuse. The Pulse Director responded that Pulse continued
to face difficult operating issues, that the Pulse Board believed that Pulse's
stock price had been depressed as a result of recent operating losses, and
that it was not, in the Director's judgment, an appropriate time for Pulse to
consider such a transaction. The Pulse Director said he would be willing to
meet with a representative of Bel Fuse if Bel Fuse requested such a meeting.
On October 4, 1994, 370,700 shares of Pulse Common Stock were traded in a
transaction that Pulse subsequently learned involved a purchase by a Bel Fuse
affiliate. On October 14, 1994, Bel Fuse proposed to the Pulse Board an
acquisition of Pulse and publicly announced an offer (the "Bel Fuse Initial
Offer") of $6.00 for each outstanding share of Pulse Common Stock, consisting
of $3.00 in cash and $3.00 in Bel Fuse stock. In response to the Bel Fuse
Initial Offer, Pulse advised Bel Fuse that it took the offer seriously, that
the Pulse Board would evaluate the offer and would advise Bel Fuse further on
the Pulse Board's position as it developed. The Pulse Board promptly discussed
the possible engagement of a financial advisor to assist it in considering the
Bel Fuse Initial Offer as well as other strategic alternatives. The Pulse
Board subsequently constituted a special committee of Directors (comprising
Directors Clarke H. Bailey, Ronald G. Peters and William R. Stensrud and
herein referred to as the "Pulse Special Committee") to lead consideration of
the Bel Fuse Initial Offer and other strategic alternatives available to
Pulse.
In order to assist in formulating an appropriate response to the Bel Fuse
Initial Offer, the Special Committee and Oppenheimer, which had been retained
as financial advisor, began to explore other potential business combination
and/or strategic alternative transactions for Pulse. In early November 1994, a
Bel Fuse advisor met with a Pulse Director and a representative of Oppenheimer
at which time the Pulse representatives inquired about financing for the Bel
Fuse Initial Offer. The Bel Fuse advisor responded that Bel Fuse was in
discussions with several sources of financing. The Bel Fuse advisor suggested
at this meeting that Bel Fuse was interested in proceeding toward a consensual
transaction with Pulse, although Bel Fuse would not rule out taking a
transaction directly to the Pulse stockholders.
Following public announcement of the Bel Fuse Initial Offer, David R.
Flowers, Chairman and Chief Executive Officer of Pulse, contacted a Technitrol
advisor inquiring as to whether Technitrol might have an interest in reopening
the discussions which were held during the prior summer. Shortly thereafter,
Mr. Flowers had a conversation with Roy E. Hock, Chairman and Chief Executive
Officer of Technitrol, during which Mr. Hock indicated that Technitrol might
have an interest in renewing such discussions and that Mr. Hock would bring
the matter to the attention of the Technitrol Board.
Mr. Hock then convened an informal meeting of the Technitrol Board by
telephone. Mr. Hock briefly described the business of Pulse, its "fit" with
the Electronic Products Segment of Technitrol, the Bel Fuse Initial Offer and
his conversations with Mr. Flowers. After some discussion, the Technitrol
Board authorized Mr. Hock to retain Legg Mason and to proceed with his
exchange with Mr. Flowers. Thereafter, representatives of Legg Mason and
Oppenheimer had several telephone discussions following which Technitrol
agreed to begin collecting due diligence information.
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On November 6, 1994, the Technitrol Board held a special meeting, attended
by representatives of Legg Mason, at which Technitrol's management made a
presentation with respect to the possible combination of Pulse and the
Technitrol Electronic Products Segment. The business and prospects of the
Technitrol Electronic Products Segment, both alone and combined with Pulse,
were discussed at great length and in great detail. Management also summarized
its preliminary due diligence findings and representatives of Legg Mason
advised the Technitrol Board with respect to a possible transaction with
Pulse. After ample discussion, the Technitrol Board authorized management to
continue discussions with and, at its discretion, to make an offer for Pulse
at approximately $6.00 per share (the same amount as the Bel Fuse Initial
Offer), in stock, cash or a combination thereof, all subject to the completion
of additional due diligence by management and final approval by the Technitrol
Board. Mr. Hock thereafter reported the Technitrol Board's actions to Mr.
Flowers, and it was determined that Technitrol would continue its due
diligence efforts prior to making any offer to acquire Pulse.
In mid-November, Bel Fuse and Technitrol each executed a confidentiality
agreement with Pulse which provided for a 120-day standstill period during
which neither entity would acquire additional shares of Pulse Common Stock,
solicit proxies or otherwise take action with respect to Pulse without the
consent of the Pulse Board. Promptly following execution of these
confidentiality agreements, representatives of Bel Fuse and Technitrol
conducted due diligence visits at Pulse's facilities in San Diego, Ireland and
the PRC. During this same period, Pulse representatives conducted due
diligence at Bel Fuse's facilities in Hong Kong, Macau and the PRC and at
Technitrol's facilities in the Philippines and Taiwan. Technitrol also
undertook substantial additional due diligence to clarify and expand upon its
earlier findings.
Over a three-month period following Pulse's receipt of the Bel Fuse Initial
Offer, Oppenheimer contacted over 130 entities identified by Oppenheimer or
Pulse's management as having a potential for interest in a strategic business
combination transaction with Pulse. While meetings were held with a few
entities, neither these meetings nor any of the solicitations of interest by
Oppenheimer resulted in offers or other serious expressions of interest from
any party (other than Bel Fuse and Technitrol).
On January 25, 1995 the Technitrol Board met and received a report from
Technitrol's management with respect to ongoing due diligence activities. The
Technitrol Board authorized management to continue its due diligence efforts
and discussions with Pulse.
On March 9, 1995 representatives of Pulse (including Mr. Flowers) and
Oppenheimer met in Philadelphia with Thomas J. Flakoll, President and Chief
Operating Officer of Technitrol, and other representatives of Technitrol. At
that meeting, Mr. Flowers provided additional confidential information with
respect to Pulse's business and additional insights into Pulse's manufacturing
strategies in the PRC and Ireland. Due diligence by Technitrol continued on a
number of levels and fronts.
Also in early March, 1995 representatives of Pulse and Oppenheimer met with
representatives of Bel Fuse in New York and New Jersey. Bel Fuse had agreed to
extend the period covered by its confidentiality agreement with Pulse for an
additional 30 days.
In mid-March, 1995 the Pulse Special Committee determined that Pulse should
ask for best and final offers from each of Bel Fuse and Technitrol with
respect to a business combination transaction after Pulse's release of
financial results for Pulse's third fiscal quarter ending on April 2, 1995.
On March 21, 1995 the Technitrol Board met at a regularly scheduled meeting
at which Technitrol's management made another presentation with respect to
Pulse and clarified additional due diligence items. After a full discussion,
the Technitrol Board authorized Technitrol to make an offer to acquire Pulse
for $6.25 per share of Pulse Common Stock, payable $3.125 in cash and $3.125
in Technitrol Common Stock subject to final approval by the Technitrol Board.
On March 23, 1995, Technitrol conveyed this offer to Pulse and announced it
publicly.
On March 23, 1995, shortly after receipt of Technitrol's offer, the Pulse
Board met at a regularly scheduled meeting at which it was determined that
Pulse would not respond directly to Technitrol's offer. Rather, the Pulse
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Board decided that, consistent with the mid-March determination of the Pulse
Special Committee, Pulse would provide to each of Technitrol and Bel Fuse
certain additional confidential financial and operating information and ask
for best and final offers on or before the close of business on April 19, 1995
following the anticipated public announcement date of Pulse's third fiscal
quarter results. Promptly following the Pulse Board meeting, this protocol was
conveyed to each of Technitrol and Bel Fuse.
On April 17, 1995, Pulse released its third fiscal quarter results of
operations which indicated substantial improvements in operations from the
prior two quarters and fiscal 1994. Also on April 17, 1995, the Technitrol
Board convened a special meeting at which Technitrol's management made a
presentation with respect to due diligence findings and the business and
prospects, financial and otherwise, for Pulse alone, the Technitrol Electronic
Products Segment alone, and the two entities combined. Representatives of Legg
Mason attended and advised the Technitrol Board with respect to a possible
transaction with Pulse. A higher value was supported by (i) Pulse's
demonstrated improvements in financial performance and (ii) further
clarification of due diligence matters. After a full and ample discussion, the
Technitrol Board authorized management to make another offer to Pulse of up to
$8.00 per share (assuming 50% to be paid in cash and 50% in Technitrol Common
Stock), payable in a combination of cash and Technitrol stock.
On April 19, 1995, Bel Fuse presented an offer valued at $6.75 per share of
Pulse Common Stock, payable all in Bel Fuse stock, plus a contingent right
intended to provide additional consideration to Pulse's stockholders if the
value of the Bel Fuse stock received for each Pulse share was not equal to
$8.00 at some point within three years following consummation of the proposed
transaction. Further, Bel Fuse proposed that Pulse's stockholders would
receive a 75% interest in the Pulse Spectrum (wireless communication) business
through a spin-off transaction to be effected prior to an acquisition of Pulse
by Bel Fuse.
Also on April 19, 1995, Technitrol offered $7.50 per share for each
outstanding share of Pulse Common Stock, payable to Pulse stockholders in cash
or Technitrol Common Stock, depending upon their individual elections, but
subject to an overall limitation that not more than 50% and 55% of the
aggregate consideration payable would consist of cash and Technitrol Common
Stock, respectively. At the request of Technitrol, Mr. Flakoll, together with
Technitrol's legal counsel (who is also a member of the Technitrol Board) and
a representative of Legg Mason, met in San Diego on April 19, 1995 with Mr.
Flowers, a member of the Pulse Board, Pulse's inside legal counsel and a
representative of Oppenheimer. The parties discussed Pulse and its business,
markets, recent performance and prospects (both independently and together
with the Technitrol Electronic Products Segment). The representatives of
Technitrol returned to Philadelphia on April 20, 1995, although discussions
with representatives of Pulse continued, by telephone, on April 20 and April
21. In the course of its discussions with Pulse, Technitrol increased its
offer to $4.25 per share in cash and .2906 shares of Technitrol Common Stock
for each share of Pulse Common Stock, with an election and allocation
procedure such that a Pulse stockholder receiving half Technitrol stock and
half cash for shares of Pulse Common Stock would receive, by virtue of a price
protection provision, no less than $8.25 in consideration and no more than
$9.01 per share of Pulse Common Stock. Mr. Hock then polled the Technitrol
Board and received approval of this offer, subject to final Board approval of
any definitive agreement.
The Pulse Board met on Thursday, April 20, 1995, by telephone and, after
discussion, authorized Pulse's management to negotiate the terms of a
definitive agreement with Technitrol subject to clarification by Technitrol of
a few terms of its offer. On Friday, April 21, 1995, the remaining terms of
Technitrol's offer were clarified to the satisfaction of Pulse, and Pulse
executed a letter agreeing, until May 29, 1995, not to initiate, solicit or
encourage any inquiries, proposals or offers by any person, entity or group
(except Technitrol) relating to any acquisition of Pulse or Pulse Common Stock
(subject, however, to the ability of the Pulse Board to conduct those
activities which it reasonably considered to be required in order to fulfill
its fiduciary obligations to Pulse's stockholders).
A public announcement of Pulse's acceptance of the Technitrol offer as a
basis for negotiation of a definitive agreement was made prior to the opening
of trading on Monday, April 24, 1995. Subsequent to that time, the parties
conducted additional due diligence and negotiated the terms of the Merger
Agreement and related matters.
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On May 22, 1995, the Pulse Board met in New York City. Pulse's management
made a presentation to the Pulse Board with respect to the Merger Agreement.
Representatives of Oppenheimer and Pulse's legal counsel also attended the
meeting, and Oppenheimer delivered its fairness opinion (see "THE MERGER AND
RELATED TRANSACTIONS--Opinions of Financial Advisors--Pulse's Financial
Advisor"). After a full discussion, the Pulse Board, having reviewed a final
draft of the Merger Agreement, authorized Pulse's management to execute the
Merger Agreement and deliver it to Technitrol.
On May 23, 1995, at a regularly scheduled meeting of the Technitrol Board,
Technitrol's management made a presentation to the Technitrol Board with
respect to the Merger Agreement. Representatives of Legg Mason and
Technitrol's legal counsel also attended the meeting, and Legg Mason delivered
its fairness opinion (see "THE MERGER AND RELATED TRANSACTIONS--Opinions of
Financial Advisors--Technitrol's Financial Advisor"). After a full discussion,
the Technitrol Board, having reviewed a final draft of the Merger Agreement,
authorized Technitrol's management to execute the Merger Agreement and deliver
it to Pulse. Immediately following the meeting, the Merger Agreement was
mutually executed and delivered between Pulse and Technitrol and, following
the close of trading on May 23, 1995, the parties issued a joint press release
announcing the Merger Agreement.
TECHNITROL'S REASONS FOR THE MERGER
At its meeting on May 23, 1995, the Technitrol Board determined that the
Merger and the Merger Agreement are fair to, and in the best interests of,
Technitrol, its employees, and its shareholders. In reaching this
determination, the Technitrol Board consulted with the management of
Technitrol, as well as its financial and legal advisors, and considered a
number of factors, including the following:
. The size and potential growth in the markets that are served by products
manufactured by Pulse and the Electronic Products Segment of Technitrol;
. The terms of the Merger Agreement and the other documents to be executed
in connection with the Merger;
. Review by the Technitrol Board, based in part on a presentation by
Technitrol's management and legal counsel, regarding the due diligence
review of Pulse, including (i) the business, operations, earnings,
financial condition and management philosophy of Pulse on historical,
prospective and pro forma bases; (ii) product quality, efficacy and
compatibility, customer information, compatibility of corporate goals and
objectives and the respective contributions which each of Pulse and
Technitrol's Electronic Products Segment would bring to a combined
entity; and (iii) the opportunities for limited cost savings and
synergies, such as the ability to rationalize production facilities,
consolidate purchasing, marketing and selling and pool resources to
develop new products faster, that are expected to result from the Merger;
. Technitrol's strong manufacturing capabilities and Pulse's strong
engineering and product development capabilities;
. The opportunity that the Merger provides to integrate the management
teams of Pulse and Technitrol's Electronic Products Segment;
. Pulse's significant manufacturing capabilities and sales organization in
the Far East and Technitrol's manufacturing and sales organization in the
same geographic area but different host countries; and
. The ability of Pulse when combined with Technitrol's Electronic Products
Segment, by virtue of their size and significant manufacturing capacity
in the Far East, to compete more effectively and efficiently in the
highly competitive, price and quality driven electronics component
industry, particularly with respect to large international accounts.
The Technitrol Board determined that the Merger would better serve
Technitrol's basic business strategy for its Electronic Products Segment than
growth through internal means. In particular, the Board considered that a much
broader international presence would be created by the Merger in a fashion
which could probably not be accomplished through any other means.
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Thus, the Technitrol Board concluded that the Merger would best advance
Technitrol's strategic plan for its Electronic Products Segment because of the
Technitrol Board's belief that the combination of Pulse and Technitrol's
Electronic Products Segment, each with complementary businesses and business
strategies, creates a business segment with greater size, flexibility, breadth
of products, efficiencies, capital strength and profitability than either
would possess on a stand-alone basis. Each possesses distinct but
complementary business strengths which, the Technitrol Board believes, can be
successfully blended.
The Technitrol Board also considered carefully the opinion rendered by Legg
Mason that the consideration to be paid in the Merger is fair from a financial
point of view to the Technitrol shareholders. The analysis and procedures
utilized in the Legg Mason opinion are described under "THE MERGER AND RELATED
TRANSACTIONS--Opinions of Financial Advisors--Technitrol's Financial Advisor."
The Technitrol Board did not assign any specific or relative weight to the
foregoing factors in the course of its consideration.
PULSE'S REASONS FOR THE MERGER
The Pulse Board, at its meeting on May 22, 1995, determined that the Merger
and the Merger Agreement are fair to, and in the best interests of, Pulse and
its stockholders. In making this determination, the Pulse Board consulted with
Pulse's management as well as Pulse's financial and legal advisors, and
considered a number of factors, including the following:
. The respective businesses, assets, managements and prospects of Pulse and
Technitrol;
. The product compatibility, compatibility of corporate goals and
objectives and the opportunities for cost savings and synergies resulting
from consolidation of Pulse and Technitrol;
. The results of investigations comparing certain financial and stock
market information for Pulse and Technitrol with similar information for
certain other similar companies which are publicly traded;
. The conclusions drawn from a review of the financial terms of certain
recent business combination transactions which were deemed comparable, in
whole or in part, to the proposed merger;
. Information regarding historical market prices and other information with
respect to the Common Stock of each of Pulse and Technitrol;
. The observations and conclusions about the prospects for a Pulse
strategic business combination with a candidate other than Technitrol;
and
. The terms and conditions of the proposed Merger, including the tax-
favored nature of the stock-for-stock component of the Merger
Consideration and the flexibility afforded Pulse stockholders by the
election feature of the Merger.
The Pulse Board also considered carefully the opinion rendered by
Oppenheimer that the consideration to be paid to Pulse's stockholders is fair
from a financial point of view. The analysis and procedures utilized in the
Oppenheimer opinion are described under "THE MERGER AND RELATED TRANSACTIONS--
Opinions of Financial Advisors--Pulse's Financial Advisor."
The Pulse Board did not quantify or otherwise assign relative weights to the
factors considered in its deliberations concerning the Merger.
OPINIONS OF FINANCIAL ADVISORS
Technitrol's Financial Advisor. Legg Mason has delivered its written opinion
dated May 23, 1995 (the "Legg Mason Opinion") to the Technitrol Board that, as
of such date, the consideration to be paid in the Merger with Pulse is fair,
from a financial point of view, to the holders of Technitrol Common Stock. A
subsequent written opinion dated just prior to the date of this Proxy
Statement was also delivered to the Technitrol Board, which opinion is
substantially identical to the May 23, 1995 opinion. The full text of the Legg
Mason Opinion, which sets forth the assumptions made, matters considered, and
scope and limitations of the review undertaken
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and procedures followed by Legg Mason in rendering its opinion, is attached to
this Proxy Statement as Annex B. Technitrol shareholders are urged to read the
opinion carefully in its entirety. The Legg Mason Opinion to the Technitrol
Board is directed only to the fairness of the consideration from a financial
point of view to the holders of Technitrol Common Stock and does not
constitute a recommendation to any Technitrol shareholder as to how such
shareholder should vote at the Technitrol Special Meeting. No limitations were
imposed by the Technitrol Board upon Legg Mason with respect to the
investigation made or procedures followed in rendering its opinion.
In arriving at its opinion, Legg Mason, among other things: (i) reviewed the
Merger Agreement; (ii) reviewed certain publicly available audited and
unaudited financial statements of Technitrol and Pulse and certain other
publicly available information of Technitrol and Pulse; (iii) reviewed certain
internal information, primarily financial in nature, concerning Technitrol and
Pulse, prepared by their respective managements; (iv) discussed the past and
current operations and the financial conditions and prospects of Technitrol
with senior management of Technitrol; (v) discussed past and current
operations and the financial conditions and prospects of Pulse with senior
management of Pulse; (vi) reviewed forecast financial statements of Technitrol
furnished to Legg Mason by the senior management of Technitrol; (vii) reviewed
forecast financial statements of Pulse furnished to Legg Mason by the senior
management of Pulse; (viii) reviewed forecast financial statements of Pulse
prepared and furnished to Legg Mason by the senior management of Technitrol;
(ix) held meetings and discussions with certain officers and employees of
Technitrol and Pulse concerning the operations, financial condition and future
prospects of the combined company; (x) reviewed recent stock market data
relating to Technitrol and Pulse; (xi) reviewed certain publicly available
financial and stock market data relating to selected public companies that
Legg Mason considered relevant to its inquiry; (xii) analyzed certain publicly
available information concerning the terms of selected merger and acquisition
transactions that Legg Mason considered relevant to its inquiry; (xiii)
considered the pro forma financial effects of the Merger on Technitrol; and
(xiv) conducted such other financial studies, analyses and investigations and
considered such other information as Legg Mason deemed necessary or
appropriate.
In connection with its review, Legg Mason assumed and relied upon the
accuracy and completeness of all financial and other information supplied to
it by Technitrol and Pulse, or publicly available, and did not independently
verify such information. Legg Mason also relied upon the respective
managements of Technitrol and Pulse as to the reasonableness and achievability
of the financial projections (and the assumptions and bases therefor) provided
to it, and assumed that such projections were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
respective managements as to the future operating performance of Technitrol
and Pulse. Legg Mason was not requested to make, and did not make, an
independent appraisal or evaluation of the assets, properties, facilities or
liabilities of Technitrol or of Pulse and was not furnished with any such
appraisal or evaluation. The Legg Mason Opinion is necessarily based on stock
prices and economic and other conditions and circumstances as existed or in
effect on, and the information made available to it as of, the date of its
opinion. Legg Mason expressed no opinion as to what the value of Technitrol
Common Stock actually will be when issued to Pulse stockholders pursuant to
the Merger Agreement or as to the price or trading range at which shares of
Technitrol Common Stock may trade following the Merger.
In connection with rendering its opinion, Legg Mason performed a variety of
financial analyses, certain of which are summarized below. Legg Mason believes
that its analyses must be considered as a whole and that selecting portions of
the analyses and of the factors considered by it, without considering all
analyses and factors, could create a misleading view of the processes
underlying its opinion. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to a partial analysis or summary
description. In its analyses, Legg Mason made numerous assumptions about
industry and general economic conditions and other matters, many of which are
beyond the control of either Technitrol or Pulse and may not be indicative of
future results or actual values, which may be significantly more or less
favorable than the estimated values for Pulse derived from such analyses.
Estimates of values of companies or assets do not purport to be appraisals or
necessarily reflect the prices at which companies and assets may actually be
sold. Because such estimates are inherently subject to uncertainty, Legg Mason
assumes no responsibility for their accuracy. The summary set forth below does
not purport to be a complete description of the analyses performed by Legg
Mason in connection with its opinion.
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Analysis of Consideration to be Paid by Technitrol. At its meeting on May
--------------------------------------------------
23, 1995, Legg Mason analyzed the value of the consideration to be paid by
Technitrol pursuant to the Merger under the terms of the Merger Agreement.
Based on the information, discussions, meetings, analyses and reviews outlined
above; an assumed continuation of a Technitrol closing market price as existed
on May 22, 1995 of $14.25; and an assumed 50% cash and 50% stock allocation,
Legg Mason estimated that the per share purchase price for Pulse Common Stock
to be paid by Technitrol in the Merger was $8.39. Including the payment of
$4.8 million to acquire a warrant held by a third party to purchase 655,489
shares of Pulse Class B Stock, Legg Mason estimated the total consideration to
be paid to acquire Pulse to be $52.6 million.
Projections. In performing the analyses described below, Legg Mason utilized
-----------
but did not independently verify Technitrol's and Pulse's historical financial
statements and projections for both companies provided by the management of
Technitrol.
Analyses Relating to Pulse. Legg Mason employed three methodologies for
--------------------------
purposes of determining a fair valuation range for Pulse. These analyses
consisted of: (i) a discounted cash flow analysis; (ii) a comparison with
certain comparable public companies; and (iii) a comparison of certain
comparable acquisition transactions. Legg Mason also reviewed a leveraged
buyout analysis. Legg Mason advised the Technitrol Board that it relied
primarily on the discounted cash flow analysis because it reflected the
expected future operating performance of Pulse and that the comparable public
company analysis and comparable acquisition transaction analysis were of
limited use because they rely primarily on multiples of the latest twelve
months ("LTM") earnings, which had been negative for Pulse. However, Legg
Mason did consider multiples of LTM revenue, book value and projected net
income as means to confirm and support the discounted cash flow analysis. Legg
Mason also advised the Technitrol Board that its leveraged buyout analysis of
Pulse was utilized principally for analyzing a minimum value for Pulse and was
not used to establish a valuation range.
Discounted Cash Flow Analysis. Legg Mason performed a discounted cash flow
-----------------------------
analysis of Pulse premised upon the assumptions summarized below. The
discounted cash flow analysis was based upon the financial and operating
information relating to the business, operations and prospects of Pulse
supplied by both Pulse and Technitrol and covered the period from calendar
year 1996 through the end of calendar year 2000.
Using discount rates ranging from 10.0% to 16.0%, Legg Mason calculated the
present value of the projected stream of Net Unlevered Cash Flow (as defined
below) for calendar years 1996 through 2000 and the present value of the
terminal value (the "Terminal Value") of Pulse at December 31, 2000. "Net
Unlevered Cash Flow," as used in the analysis, is defined, for each period, as
projected earnings before interest and taxes ("EBIT"), less taxes at an
estimated rate of 25.0% (reflecting the impact of foreign source income), plus
projected depreciation and amortization, less projected capital expenditures,
plus or minus projected changes in non-cash working capital. The Terminal
Value was computed by multiplying Pulse's projected EBIT by terminal multiples
of 5.0x to 7.0x. Legg Mason adjusted the calculated present value of the Net
Unlevered Cash Flow and Terminal Value by subtracting the debt on Pulse's
balance sheet, subtracting the cost to Technitrol to acquire a warrant to
purchase 655,489 shares of Pulse Class B Stock, adding cash expected to be
received upon the exercise of other warrants and adding excess cash and cash
equivalents (as calculated below) to calculate a range of equity values for
Pulse. Legg Mason believed the ranges of discount rates and terminal multiples
were appropriate in light of Pulse's current performance, projections and its
weighted average cost of capital.
Based on the range of discount rates and terminal multiples referred to
above, Legg Mason calculated a range of equity values for Pulse of $39.1
million to $62.1 million, or $6.57 per share to $10.44 per share of Pulse
stock.
Comparable Public Company Analysis. Legg Mason compared the relevant
----------------------------------
historical and current projected financial and operating results of Pulse with
the operating results of selected publicly traded manufacturers of electronic
components for use in local area networks (the "LAN Technologies Comparable
Companies") and a wider universe of general electronic components
manufacturers (the "General Electronic Components Comparable Companies") that
in Legg Mason's judgment were comparable to Pulse (collectively,
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the "Pulse Comparable Companies"). The Pulse Comparable Companies were chosen
by Legg Mason based on general business, operating and financial
characteristics representative of companies in the industry in which Pulse
operates, although Legg Mason recognized that each of the Pulse Comparable
Companies is distinguishable from Pulse in certain respects. The LAN
Technologies Comparable Companies consisted of Bel Fuse, Inc.; GTI
Corporation; and Technitrol, Inc. The General Electronic Components Comparable
Companies consisted of Acme Electric Company; Corcom, Inc.; CTS Corporation;
Data Switch Corporation; ELEXSYS International, Inc.; Golden Systems, Inc.;
Kemet Corporation; Methode Electronics, Inc.; Spectrum Control, Inc.; and
Zytec Corporation.
In performing its analysis, Legg Mason examined both the aggregate market
value of the outstanding common equity (the "Market Value") and the Market
Value plus preferred equity (if any) at liquidation value, minority interests
(if any) and total debt net of excess cash and cash equivalents (the "Market
Capitalization") of the comparable companies. Excess cash and cash equivalents
was calculated as a company's latest publicly reported cash and cash
equivalents less 5% of its LTM revenue. Using each company's Market
Capitalization, Legg Mason calculated multiples of, among other things, each
company's LTM revenue (the "LTM Revenue Multiples"), LTM earnings before
interest, taxes, depreciation and amortization ("EBITDA") (the "LTM EBITDA
Multiples") and LTM EBIT (the "LTM EBIT Multiples") (collectively, the "Market
Capitalization Multiples").
Using each company's Market Value and based on published security analyst
estimates, Legg Mason also calculated multiples of, among other things, each
company's LTM net income (the "LTM Net Income Multiples"), common
stockholders' equity (the "Book Value Multiples") and projected 1996 net
income (the "Projected 1996 Net Income Multiples") (collectively, the "Market
Value Multiples").
Legg Mason advised the Technitrol Board that the comparable public company
analysis was of limited use in formulating its opinion because Pulse's LTM
EBITDA, LTM EBIT and LTM net income margins were 1.4%, -2.5% and -2.1%,
respectively, and consequently did not yield meaningful implied equity values
for Pulse. These margins were low compared to Pulse's historical operating
performance and the median margins of the Pulse Comparable Companies of 9.7%,
4.9% and 4.1% for LTM EBITDA, LTM EBIT and LTM net income, respectively. LTM
EBITDA Multiples, LTM EBIT Multiples and LTM Net Income Multiples are
typically most relevant for valuation purposes. Legg Mason did utilize LTM
Revenue Multiples, Projected 1996 Net Income Multiples and Book Value
Multiples for purposes of supporting and confirming the discounted cash flow
analysis.
Using the foregoing information, Legg Mason derived a range of implied
enterprise values (a theoretical aggregate valuation of a corporate entity
before adjustments for non-operating assets and liabilities) by applying the
aforementioned mean and median Market Capitalization Multiples of the Pulse
Comparable Companies to the appropriate financial statistics of Pulse. The
range of implied enterprise values for Pulse was then adjusted for non-
operating assets and liabilities, by subtracting all debt obligations, adding
excess cash and cash equivalents and then dividing by the number of fully
diluted Pulse shares outstanding (including the 655,489 shares represented by
the warrants). These enterprise values yielded mean and median implied equity
values for Pulse of $73.1 million and $81.6 million, respectively, or $11.24
per share and $12.56 per share, respectively, based on LTM Revenue Multiples
for the LAN Technologies Comparable Companies. Similarly, the analysis yielded
mean and median implied equity values for Pulse of $87.8 million and $65.7
million, respectively, or $13.50 per share and $10.10 per share, respectively,
based on LTM Revenue Multiples for General Electronic Components Comparable
Companies. As a result of Pulse's LTM EBITDA and EBIT margins, mean and median
implied values based on LTM EBITDA Multiples and LTM EBIT Multiples were not
meaningful. Legg Mason derived a range of implied equity values by applying
the mean and median Market Value Multiples of Pulse Comparable Companies to
the appropriate financial statistics of Pulse. The range of implied equity
values was then divided by the number of fully diluted Pulse shares
outstanding. Legg Mason calculated mean and median implied equity values for
Pulse of $51.0 million and $51.0 million respectively, or $7.85 per share and
$7.85 per share, respectively, using Projected 1996 Net Income Multiples and
$75.5 million and $81.6 million,
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respectively, or $11.62 per share and $12.67 per share, respectively, using
Book Value Multiples for the LAN Technologies Comparable Companies. Legg Mason
also calculated mean and median implied equity values of $68.8 million and
$60.3 million, respectively, or $10.58 per share and $9.28 per share,
respectively, using Projected 1996 Net Income Multiples and $79.4 million and
$58.3 million, respectively, or $12.22 per share and $8.97 per share,
respectively, using Book Value Multiples for the General Electronic Components
Comparable Companies. As a result of Pulse's LTM net income margin, mean and
median implied values based on LTM Net Income Multiples were not meaningful.
Legg Mason advised the Board that the comparable public company analysis
derived a per share value for Pulse of $7.85 to $13.50, which supported the
valuation range derived under the discounted cash flow analysis.
Comparable Transaction Analysis. Legg Mason also performed an analysis of
-------------------------------
comparable acquisition transactions in reaching its opinion. Legg Mason
compared certain financial and operating statistics of Pulse with certain
financial and operating statistics of selected electronic components
manufacturers immediately prior to their being acquired (the "Acquired
Companies"). Legg Mason reviewed 17 completed transactions. While Legg Mason
believed that the Acquired Companies were comparable to Pulse, it recognized
that each of the Acquired Companies is distinguishable from Pulse in certain
respects and was not acquired in circumstances directly comparable to the
Merger. The selected acquisition transactions occurred between 1992 and the
present and include (acquiror/acquired company): Ducommun Inc./Dynatech
Microwave Technology; Carlyle Group L.P./MagneTek Power Technology Systems
(MagneTek, Inc.); Electronic Associates, Inc./Tanon Manufacturing, Inc.;
Vishay Intertechnology, Inc./Vitramon, Inc. and Vitramon Ltd. (Thomas & Betts
Corporation); Valley Forge Scientific Corporation/Diversified Electronics
Corp.; Unitech plc/Intech/Advanced Analog (Intech L.P.); Read-Rite
Corporation/Sunward Technologies, Inc.; Jaco Electronics, Inc./Nexus Custom
Electronics, Inc.; Technitrol, Inc./Fil-Mag Group (FEE Technology S.A.);
Palomar Medical Technologies, Inc./Dynaco Corporation and Dynaco West
Corporation; Signal Technology Corporation/Microwave/Instruments Division
(Systron Donner Corp. of THORN EMI plc); Signal Technology
Corporation/Innowave, Inc.; Whittaker Corporation/Seaton-Wilson Division (BEI
Electronics Inc.); Eldec Corporation/Ferranti Venus Inc. (Ferranti
International Plc); Vishay Intertechnology, Inc./capacitor assets (North
American Philips Corporation of Philips Electronics N.V.); AMP, Inc./Elf
Atochem Sensors, Inc. (Elf Atochem North America, Inc. of Societe Nationale
Elf Aquitaine); and MagneTek Inc./INET Division (Teledyne, Inc.).
In performing its analysis, Legg Mason examined both the amount paid for
each acquired business' common stockholders' equity (the "Purchase Price of
Equity") and the Purchase Price of Equity plus the acquired business' total
debt, preferred equity and minority interest (if any) less cash and cash
equivalents (the "Transaction Value"). Using the Purchase Price of Equity of
each acquired business, Legg Mason calculated multiples of the acquired
business' LTM net income and common stockholders' equity (the "Purchase Price
of Equity Multiples"). Using the Transaction Value of each comparable
acquisition transaction, Legg Mason calculated multiples of, among other
things, the acquired business' LTM revenues, LTM EBITDA and LTM EBIT
(collectively, the "LTM Transaction Value Multiples").
Applying the mean and median Purchase Price of Equity Multiples to Pulse's
common stockholders' equity and dividing by Pulse's fully diluted shares
outstanding, Legg Mason calculated imputed values for Pulse of $113.0 million
and $62.6 million, respectively, or $17.39 per share and $9.63 per share,
respectively. Legg Mason advised the Technitrol Board that it considered
$17.39 per share to be outside a reasonable valuation range for Pulse. Legg
Mason derived a range of implied enterprise values for Pulse by applying the
aforementioned mean and median Transaction Value Multiples to the appropriate
financial statistics of Pulse. The range of implied enterprise values for
Pulse was then adjusted for non-operating assets and liabilities, by
subtracting all debt obligations, adding excess cash and cash equivalents and
then dividing by the number of fully diluted Pulse shares outstanding.
Applying the mean and median Transaction Value Multiples to Pulse's LTM
revenues, Legg Mason calculated imputed values for Pulse of $80.5 million and
$51.9 million, respectively, or $12.39 per share and $7.99 per share,
respectively. Legg Mason advised the Board that values derived by applying
Purchase Price of Equity Multiples to LTM net income and by applying
Transaction Value Multiples to LTM EBITDA and LTM EBIT were not meaningful
because of Pulse's low LTM EBITDA margin and its
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negative LTM EBIT and LTM net income margins. Legg Mason advised the Board
that the comparable acquisition transaction analysis derived a per share value
for Pulse of $7.99 to $12.39 which supported the valuation range derived under
the discounted cash flow analysis.
No company utilized in the comparable acquisition transaction analysis was
identical to Pulse. Legg Mason advised the Board that an analysis of the
results of this comparison was not mathematical; rather, it involved complex
considerations and judgments concerning differences in historical and
projected financial and operating characteristics of the comparable acquired
businesses and other factors that could affect the acquisition value of such
businesses and Pulse.
Leveraged Buyout Analysis. Legg Mason also performed a leveraged buyout
-------------------------
analysis of Pulse as a means of establishing a floor value for Pulse and did
not rely on it for purposes of establishing a full valuation range. A
leveraged buyout ("LBO") involves the acquisition or recapitalization of a
company financed primarily by incurring debt that is serviced by the post-LBO
operating cash flow of the company. Legg Mason advised the Technitrol Board
that an LBO value tends to be lower than the value derived by other valuation
analyses because the debt servicing requirements of a leveraged company limits
the price able to be paid by a financial buyer. Furthermore, Legg Mason noted
that a financial buyer typically is unable to realize strategic or synergistic
benefits from an acquisition.
Analyses Relating to Technitrol--Pro Forma Merger Analysis. Legg Mason
----------------------------------------------------------
reviewed certain financial information for the pro forma combined entity
resulting from the Merger based on the financial and operating information
provided by management of Technitrol and not independently verified by Legg
Mason relating to the business, operations and prospects for each of Pulse,
Technitrol and the pro forma combined entity. Such analysis indicated that,
based on the per share price of Technitrol Common Stock of $14.25 on May 22,
1995, the transaction would be accretive to Technitrol's earnings per share
("EPS") in calendar 1996, 1997 and 1998 with the accretion increasing over
time for the period from 1996 to 1998. Additionally, the analysis indicated
that, unless the price per share of Technitrol Common Stock used for
calculating the exchange ratio under the terms of the Merger Agreement were to
decrease significantly below its May 22, 1995 level, the transaction would not
dilute Technitrol's EPS in 1996 and would remain accretive to Technitrol's EPS
in 1997 and 1998 (with the transaction becoming more dilutive or less
accretive to Technitrol's EPS the lower the per share price of Technitrol
Common Stock). Legg Mason also reviewed the pro forma capital structure of the
combined entity and the ownership interest in the combined entity Pulse
stockholders would have assuming a $14.25 per share price of Technitrol Common
Stock.
Other Factors. In rendering its opinion, Legg Mason considered certain other
-------------
factors, including a review of the businesses and operations of and the
industries in which Pulse and Technitrol operate, a review of Pulse's and
Technitrol's historical operating results and the financial and operating
information with respect to the business, operations and prospects of Pulse, a
review of the current and historical stock price performance of Pulse and
Technitrol and other factors it deemed relevant.
Legg Mason is an investment banking firm engaged, among other things, in the
valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. Legg Mason is a nationally recognized investment banking firm which
has substantial experience in merger and acquisition transactions. In the
ordinary course of its business, Legg Mason may actively trade in the
securities of Pulse and Technitrol for its own account and the accounts of its
customers, and accordingly, may at any time hold a long or short position in
such securities. A former employee of Legg Mason serves as a director of
Technitrol.
Pursuant to the terms of an engagement letter, Technitrol agreed to pay Legg
Mason $300,000 for acting as financial advisor in connection with the Merger.
Of this amount $100,000 was paid upon the engagement of Legg Mason and
$200,000 is contingent upon the closing of the Merger. In addition, Technitrol
paid Legg Mason a fee of $75,000 for rendering the opinion. Technitrol also
has agreed to reimburse Legg Mason for its out-of-pocket expenses (including
the reasonable fees and expenses of its legal counsel), and to indemnify Legg
Mason
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and certain related parties against certain liabilities, including liabilities
under the federal securities laws, arising out of or in connection with the
services rendered by Legg Mason under the engagement letter.
Pulse's Financial Advisor. The Pulse Board retained Oppenheimer to act as
its financial advisor and to render an opinion to the Pulse Board as to the
fairness, from a financial point of view, of the consideration to be received
by the stockholders of Pulse in the Merger.
On May 22, 1995, Oppenheimer delivered to the Pulse Board its opinion that,
as of that date, the consideration to be paid in the Merger to Pulse
stockholders is fair, from a financial point of view, to the stockholders of
Pulse. A subsequent written opinion dated just prior to the date of this Proxy
Statement was also delivered to the Pulse Board, which opinion is
substantially identical to the May 22, 1995 opinion. Oppenheimer's opinion to
the Pulse Board addresses only the fairness to Pulse and its stockholders from
a financial point of view of the consideration to be received in connection
with the Merger, and does not constitute a recommendation to any stockholder
as to how such stockholder should vote at the Pulse Special Meeting.
The full text of the written opinion of Oppenheimer dated the date of this
Proxy Statement is attached hereto as Annex C. Stockholders of Pulse are urged
to read such opinion carefully and in its entirety for a description of the
procedures followed, the factors considered, the assumptions made and scope of
the review undertaken by, as well as limitations on, Oppenheimer in rendering
its opinion.
In connection with the preparation of its opinion, Oppenheimer, among other
things, (i) reviewed selected financial information relating to Pulse and
Technitrol furnished to it by both companies, including certain internal
financial analyses and forecasts prepared by Pulse's and Technitrol's
managements; (ii) reviewed selected publicly available information; (iii) held
discussions with the managements of Pulse and Technitrol concerning the
businesses, past and current business operations, financial condition and
future prospects of both companies, independently and combined, including
certain information prepared by the managements of Pulse and Technitrol
concerning potential cost savings and synergies that could result from the
Merger; (iv) reviewed the Merger Agreement; (v) reviewed the stock price and
trading histories of both companies; (vi) reviewed the valuations of selected
publicly traded companies which it deemed comparable to Pulse and Technitrol;
(vii) compared the financial terms of the Merger with other transactions which
it deemed relevant; (viii) visited certain facilities of both companies; (ix)
interviewed selected customers and suppliers of both companies; (x)
interviewed key lending sources of Technitrol to assess its ability to finance
the transaction and meet future capital requirements; and (xi) made such other
studies, analyses and inquiries and reviewed such other data as it deemed
relevant.
In arriving at its opinion, Oppenheimer did not independently verify the
foregoing information and has relied on all such information being complete
and accurate in all material respects. Furthermore, Oppenheimer did not obtain
any independent appraisal of the properties or assets and liabilities of Pulse
or Technitrol. Although Oppenheimer evaluated the financial terms of the
Merger and participated in discussions concerning the consideration to be
paid, Oppenheimer did not recommend to Pulse any specific consideration to be
paid to Pulse stockholders in the Merger. No other limitations were imposed on
Oppenheimer with respect to the investigations made or procedures followed by
Oppenheimer.
With respect to the financial and operating forecasts (and the assumptions
and bases therefor) of Pulse and Technitrol which Oppenheimer reviewed,
Oppenheimer assumed that such forecasts have been reasonably prepared and has
relied upon estimates and judgments of Pulse and Technitrol managements as to
the future financial performance of both companies, including the cost savings
and synergies resulting from the Merger, and assumed that such forecasts
reflect the best available estimates and judgments of such respective
managements. Oppenheimer also assumed that, consistent with the views
expressed by the managements of Pulse and Technitrol, the company to be formed
from the combination of Technitrol and Pulse (the "Combined Companies") might
gain several strategic advantages resulting in cost savings. Oppenheimer
further relied upon the assurances of the managements of Pulse and Technitrol
that they are unaware of any facts that would make the information provided to
Oppenheimer incomplete or misleading.
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While Oppenheimer believes that its review, as described above, provides an
adequate basis for its opinion, Oppenheimer's opinion is necessarily based
upon market, economic, and other conditions that exist and can be evaluated as
of the date of the opinion, and on information available to Oppenheimer as of
such date. In addition, in arriving at its opinion, Oppenheimer did not
consider the range of possible tax consequences facing individual Pulse
stockholders, and the valuations per share derived by Oppenheimer are prior to
any tax impact on individual Pulse stockholders. Finally, Oppenheimer assumed
that the Merger would be accounted for under the purchase method of
accounting.
The following paragraphs summarize the most significant quantitative and
qualitative analyses performed by Oppenheimer in arriving at its opinion and
reviewed by the Pulse Board and does not purport to be a complete description
of the analyses performed by Oppenheimer. The information presented below is
based on the financial condition of Pulse and Technitrol as of a date or dates
shortly before the Merger Agreement was executed on May 23, 1995 and stock
price information through the close of the market on May 15, 1995.
Comparable Companies Analysis. Oppenheimer compared certain financial data
-----------------------------
and multiples of income statement parameters accorded to other publicly traded
companies deemed by Oppenheimer to be comparable to Pulse and the Combined
Companies ("Comparable Companies"). Financial data compared in the Comparable
Companies analysis included market trading data, market valuation data,
operating performance, growth rates, capitalization ratios, ratios of common
stock share prices to historical trailing twelve month ("TTM") and 1995 and
1996 estimated earnings per share, ratios of market value ("Equity Value") to
TTM and 1995 estimated pre-tax earnings, and ratios of market value as
adjusted for debt and cash ("Aggregate Value" or "Total Deal Value") to 1995
and 1996 estimated earnings before interest expense, income taxes,
depreciation and amortization ("EBITDA") and estimated earnings before
interest expense and income taxes ("EBIT" or "Operating Income"). For the
purposes of this analysis, the Comparable Companies selected by Oppenheimer
were Bel Fuse, Inc., GTI Corporation, and as to Pulse, Technitrol, Inc. (the
"Primary Group"), and Burr-Brown Corporation, Computer Products, Inc., Level
One Communications, Inc., MRV Communications, Inc., Vishay Intertechnology,
Inc. and Zilog, Inc. (the "Secondary Group"). Oppenheimer relied upon the
medians of the Primary Group for the valuation multiples for its Comparable
Companies analysis. In cases where Oppenheimer's analysis indicated that a
multiple for a particular company was not meaningful (e.g., because of a
recent depressed level of earnings) Oppenheimer used the multiple of the other
company or companies in the Primary Group.
Pulse Engineering, Inc.--Stand-alone. In using the Comparable Companies
------------------------------------
analysis to value Pulse on a stand-alone basis, Oppenheimer analyzed financial
information which included, among other things, (i) operating performance;
(ii) growth rates; (iii) capitalization ratios; (iv) ratios of common stock
share prices to TTM and 1996 estimated earnings per share; (v) ratios of
Equity Value to estimated TTM pre-tax earnings; and (vi) ratios of Aggregate
Value to TTM and 1996 estimated EBITDA and EBIT. For Pulse, in lieu of
meaningful actual TTM data, approximate TTM ("Adjusted TTM") results were
estimated by annualizing the operating results for the six months ended April
2, 1995. Oppenheimer did not use, for the valuation of Pulse on a stand-alone
basis, multiples of calendar 1995 estimated results because Pulse's likely
stand-alone 1995 results appeared, in Oppenheimer's estimation, to be
distorted by temporary factors including short-term under capacity in the
electronic components industry and non-sustainable reductions in Pulse's
marketing, research, development and administrative expenditures.
Oppenheimer noted that the median multiple of share prices to TTM and
calendar 1996 estimated earnings were 12.0x and 10.5x. Applying these median
multiples to Pulse's Adjusted TTM results yielded implied values of Pulse
Common Stock of $3.88 and $4.53 per share. Oppenheimer noted that the median
multiple of Equity Value to TTM estimated pre-tax earnings was 7.3x producing
an implied value of $3.42 per Pulse share. Oppenheimer noted that the median
multiples of Aggregate Value to TTM and 1996 estimated EBITDA were 5.4x and
6.4x, representing Pulse per share values of $5.97 and $7.59, respectively,
and that the median multiples of Aggregate Value to TTM and estimated 1996
EBIT were 7.6x and 8.2x, representing Pulse per share implied value of $4.63
and $5.15, respectively. The foregoing implied values per Pulse share were
compared to the $8.43
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per share value of the Merger consideration based upon Technitrol's May 15,
1995 trading price per common share.
The Combined Companies. In using the Comparable Companies analysis to value
----------------------
the Combined Companies, Oppenheimer analyzed financial information which
included, among other things, (i) operating performance; (ii) growth rates;
(iii) capitalization ratios; (iv) ratios of common stock share prices to 1995
and 1996 estimated earnings per share; (v) ratios of Equity Value to 1995
estimated pre-tax earnings; and (vi) ratios of Aggregate Value to 1995 and
1996 estimated EBITDA and estimated EBIT. In valuing the Combined Companies,
Oppenheimer relied upon the average multiples for Bel Fuse, Inc. and GTI
Corporation, the two Primary Group members other than Technitrol.
Oppenheimer noted that the median multiples of share price to calendar 1995
and 1996 estimated earnings per share were 14.6x and 10.7x, respectively.
These multiples, as applied to Oppenheimer's base forecast of the Combined
Companies' results, yielded estimated equity values per Pulse share
attributable to the Merger (including the cash component of the Merger
consideration) of $11.91 and $11.67 per share, respectively. Oppenheimer noted
that the median multiple of Equity Value to 1995 estimated pre-tax earnings
was 12.2x, yielding an estimated equity value per share of Pulse Common Stock
attributable to the Merger of $13.23 per share. Oppenheimer noted that the
median multiples of Aggregate Value to 1995 and 1996 estimated EBITDA were
9.2x and 7.7x, respectively, yielding estimated equity values per Pulse share
attributable to the Merger of $13.72 and $14.77 per share, respectively.
Oppenheimer noted that the median multiples of Aggregate Value to estimated
1995 and 1996 EBIT were 13.6x and 11.9x, respectively, yielding estimated
equity values per Pulse share attributable to the Merger of $14.12 and $16.81
per share, respectively. The foregoing implied values per Pulse share
attributable to the Merger were compared to the Pulse per share values,
ranging from $3.42 per share to $7.59 per share, calculated above for Pulse on
a stand-alone basis.
Oppenheimer noted that, without taking into account any cost savings, the
Merger was projected to be accretive on an earnings per share ("EPS") basis to
Technitrol in each of the next five years.
Oppenheimer did not use, for the valuation of the Combined Companies,
multiples on a TTM basis since the inclusion of Pulse's results in the
combined historical pro forma financials created distorted results due to
Pulse's depressed results on a TTM basis, and because a sufficient number of
other, more meaningful, multiples were available.
Oppenheimer noted that the resulting multiples relied upon for this analysis
are based on statistical analyses and, therefore, are subject to
interpretation.
No company or business used in the Comparable Companies analyses as a
comparison is identical to Pulse or Technitrol. Accordingly, an analysis of
the results of the foregoing is not entirely mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics and other factors that could affect the public
trading value of the comparable companies or the business segment or company
to which they are being compared.
Analysis of Selected Comparable Merger and Acquisition Transactions.
-------------------------------------------------------------------
Oppenheimer reviewed the financial terms, to the extent publicly available, of
twenty-three recent mergers and acquisitions in the electronic components
industry. The twenty-three transactions reviewed, listed by acquiree and
acquiror in reverse chronological order of effective date, were the following:
Unisys Corp.-Defense Electronics Business by Loral Corp.; GC Thorsen by Katy
Industries, Inc.; Morgaux, Inc. by Dover Diversified, Inc.; AT&T Global
Information-NCR Microelectric by Hyundai Electronics America, Inc.; nChip, Inc.
by Flextronics International; ElectroCom Automation, Inc. by AEG AG; Sunward
Technologies, Inc. by Read-Rite Corp.; PicoPower Technology, Inc. by Cirrus
Logic, Inc.; Vitramon Ltd. by Vishay Intertechnology, Inc.; Texas Timberjack,
Inc. by Polyphase Corp.; Intech L.P.-Intech/Advanced by Unitech PLC; Brixton
Systems, Inc. by Computer Networking Technology; Prometrix Corp. by Tencor
Instruments, Inc; Advanced Digital Information by Interpoint Corp.; Nasco, Inc.
by Unidare PLC; Sundstrand Data Control by AlliedSignal, Inc.; Resistance
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Technology, Inc. by Selas Corp. of America; SubMicron Systems, Inc. by Trinity
Capital Enterprise; North American Philips-Tantal by Vishay Intertechnology,
Inc.; Hall-Mark Electronics Corp. by Avnet, Inc.; Electroglas, Inc. by an
Investor Group; Base2 Systems, Inc. by Brooktree Corp.; and Alliant
Techsystems-Metrum Sergeant by Group Technologies Corp.
Oppenheimer noted that the median multiples of Total Deal Value to TTM
Operating Income and TTM net income were 12.8x and 22.8x, respectively. The
Combined Companies' TTM Operating Income and TTM net income were estimated
despite Oppenheimer's belief that such TTM data were less meaningful than the
Combined Companies' projected data (see discussion under "Comparable Companies
Analysis"). Oppenheimer calculated these Combined Companies Operating Income
and TTM net income estimates because no multiples of projected data for
comparable transactions were available. For Pulse, in lieu of meaningful
actual TTM data, the Adjusted TTM results were used. Utilizing the median
multiples of Total Deal Value to TTM Operating Income and TTM net income in
valuing the Combined Companies yielded implied equity values per Pulse share
attributable to the Merger of $10.36 and $11.47 per share, respectively.
Utilizing the median multiples of Total Deal Value to TTM Operating Income and
TTM net income in valuing Pulse yielded implied values of $6.91 and $8.43,
respectively, per Pulse share compared to the $8.43 per share value of the
Merger Consideration based upon Technitrol's May 15, 1995 trading price per
common share.
No company, transaction or business used in the selected merger and
acquisition analysis as a comparison is identical to Pulse or Technitrol.
Accordingly, an analysis of the results of the foregoing is not entirely
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics and other
factors that could affect the acquisition value of the comparable companies or
the business segment or company to which they are being compared.
Discounted Cash Flow Analysis. Oppenheimer conducted a discounted cash flow
-----------------------------
analysis to estimate the value of a range of projected unlevered free cash
flows that each of Pulse and the Combined Companies are expected to generate
over a five year period ending December 31, 2000. Oppenheimer calculated a
range of terminal equity values (as of December 31, 2000) for Pulse and the
Combined Companies by applying a range of terminal exit multiples of 5.5x to
6.5x projected EBITDA for the calendar year 2000 and adjusting for Pulse's and
the Combined Companies' estimated net debt as of that time. Oppenheimer noted
that this range of exit multiples was in line with the current multiple for
Technitrol as discussed above under "Comparable Companies Analysis." The range
of terminal exit multiples used reflected assumptions regarding the growth and
profitability of Pulse and the Combined Companies beyond calendar year 2000.
The sum of the unlevered free cash flows for such five year period and the
range of terminal equity values were then discounted to derive net present
equity values using a range of discount rates from 15% to 25% for the Combined
Companies and from 20% to 40% for Pulse (the ranges were derived reflecting
Oppenheimer's analysis of the different levels of risk relating to the two
entities). In the case of Pulse, at the mid-point discount rate of 30%, this
implied equity value ranged from $44.0 million to $58.0 million, representing
an estimated equity value of approximately $6.80 to $8.90 per Pulse share. In
the case of the combined companies, at the mid-point discount rate of 20%,
this implied equity value ranged from $205.9 million to $379.7 million,
representing an estimated implied equity value per Pulse share attributable to
the Merger (including the cash component of the Merger consideration) of
approximately $11.23 to $17.11 per share compared to the $8.43 per share value
of the Merger Consideration based upon Technitrol's May 15, 1995 trading price
per common share.
The preparation of a fairness opinion is a complex analytic process
involving various determinations as to the most appropriate and relevant
methods of financial analyses and the application of those methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to partial analysis or summary description. Oppenheimer believes
that these analyses must be considered as a whole and that selecting portions
of the analyses or of the summary set forth above, without considering the
analyses as a whole, could create a misleading or incomplete view of the
processes underlying Oppenheimer's opinion. In arriving at its opinion,
Oppenheimer did not attribute any particular weight to any single analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. The summary of
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Oppenheimer's analyses outlined above does not purport to be a complete
description of the analyses underlying Oppenheimer's opinion. In its analyses,
Oppenheimer made numerous assumptions with respect to Pulse and Technitrol,
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Pulse
and Technitrol. The estimates contained in such analyses are not necessarily
indicative of actual values or predictive of future results or values, which
may be significantly more or less favorable than those suggested by such
analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty.
Pursuant to a letter agreement dated October 28, 1994, Pulse engaged
Oppenheimer to provide financial advisory services in connection with the Bel
Fuse Initial Offer and potential acquisition and restructuring alternatives.
Oppenheimer is entitled to a fee of $150,000 for its opinion rendered to the
Pulse Board in connection with the Merger. In addition, Oppenheimer will
receive a transaction fee upon the closing of the Merger, against which its
opinion fee will be credited, tied to a formula percentage of the total
consideration received by Pulse stockholders in the Merger. Under the formula,
Oppenheimer will be paid a fee of 1% of the total consideration received up to
$6.00 per share; 2% of the total consideration received from $6.00 to $7.00
per share; 3% of the total consideration received from $7.00 to $8.00 per
share and 4% of the total consideration received over $8.00 per share. Based
upon the market value per share of Technitrol Common Stock on August 11, 1995,
Oppenheimer's transaction fee would be approximately $800,000. Pulse has also
agreed to reimburse Oppenheimer for its reasonable out-of-pocket expenses and
to indemnify Oppenheimer for certain liabilities relating to or arising out of
services provided by Oppenheimer as financial advisor to Pulse.
Oppenheimer was retained based on its experience as financial advisor in
connection with mergers and acquisitions as well as Oppenheimer's investment
banking relationship and familiarity with Pulse. Oppenheimer has provided
financial advisory and investment banking services to Pulse since 1986, at
which time Oppenheimer, together with management of Pulse and certain other
investors, acquired Pulse from its previous owner. At that time and
subsequently, Oppenheimer affiliates acquired, and in many cases still hold,
significant amounts of Pulse Common Stock and warrants to purchase Pulse
Common Stock. In addition, Oppenheimer employees have served on the Pulse
Board from the time of the 1986 acquisition until mid-1994. Oppenheimer acted
as an underwriter for the initial public offering of Pulse in 1991 and with
respect to that transaction, Oppenheimer has been compensated for such
services in the form of customary underwriting discounts. Oppenheimer also
makes a market in Pulse Common Stock. In the course of its market making and
other activities, Oppenheimer may, from time to time, have a long or short
position in, and buy and sell, securities of Pulse.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material United States Federal
income tax consequences of the Merger and is not intended to be a complete
discussion of all potential tax effects that might be relevant to the Merger.
This discussion deals only with citizens or residents of the United States or
domestic corporations (each a "U.S. Holder"). This summary may not be
applicable to certain classes of taxpayers and may not address Federal income
tax consequences for certain Pulse stockholders including, without limitation,
(i) Pulse stockholders who, at the Effective Time, already own some Technitrol
Common Stock, (ii) insurance companies, tax-exempt organizations, financial
institutions, securities dealers and broker-dealers, (iii) foreign persons and
entities, (iv) persons who acquired Pulse Common Stock pursuant to an exercise
of employee stock options or rights or otherwise as compensation, (v) persons
or entities exercising some form of control over Pulse and (vi) persons or
entities holding shares of Pulse Common Stock as part of a straddle or
conversion transaction.
This summary is based on laws, regulations, rulings, practice and judicial
decisions in effect at the date of this Proxy Statement. However, legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conclusions set forth herein. Any
such changes or interpretations may or may not be retroactive and could affect
the tax consequences described herein to stockholders. EACH STOCKHOLDER'S
INDIVIDUAL CIRCUMSTANCES MAY AFFECT THE TAX
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CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER. IN ADDITION, NO INFORMATION IS
PROVIDED HEREIN WITH RESPECT TO THE TAX CONSEQUENCES OF THE MERGER UNDER
APPLICABLE FOREIGN, STATE OR LOCAL LAWS. CONSEQUENTLY, EACH PULSE STOCKHOLDER
IS ADVISED TO CONSULT A TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO THAT STOCKHOLDER.
General. It is intended that (i) the Merger will qualify as a reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), (ii) for Federal income tax purposes, no gain or loss will be
recognized by Pulse, Technitrol or Teco Sub and (iii) the exchange by Pulse
stockholders of their shares of Pulse Common Stock for shares of Technitrol
Common Stock or cash will have the tax treatment set forth below.
Neither Pulse nor Technitrol has requested or will request an advance ruling
from the Internal Revenue Service (the "IRS") as to the tax consequences of
the Merger. However, consummation of the Merger is conditioned upon the
receipt by Pulse of a tax opinion of Pillsbury Madison & Sutro and the receipt
by Technitrol of a tax opinion of Stradley, Ronon, Stevens & Young
(collectively, the "Tax Opinions"), each dated immediately prior to the
Effective Time and to the effect that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code, that Pulse
and Technitrol will each be a party to the reorganization pursuant to Section
368(b) of the Code, that neither Pulse nor Technitrol will recognize any
income, gain or loss as a result of the Merger. The Tax Opinions will be
based, among other things, on customary assumptions relating to certain facts
and circumstances of, and the intentions of the parties to, the Merger, which
assumptions will have been made with the consent of Pulse and Technitrol. The
opinions of Stradley, Ronon, Stevens & Young as to certain tax consequences
concerning Pulse stockholders described below are based, among other things,
on assumptions relating to certain facts and circumstances of, and the
intentions of the parties to, the Merger, which assumptions will have been
made with the consent of Pulse and Technitrol.
Exchange of Pulse Common Stock Solely for Technitrol Common Stock. In the
opinion of Stradley, Ronon, Stevens & Young, a U.S. Holder of Pulse Common
Stock who, pursuant to the Merger, exchanges such Pulse Common Stock solely
for Technitrol Common Stock (except for cash in lieu of fractional shares,
discussed below) will not recognize any gain or loss upon such exchange for
Federal income tax purposes. The tax basis of such Technitrol Common Stock
will equal (except for the basis attributable to any fractional shares of
Technitrol Common Stock, discussed below) the U.S. Holder's tax basis in the
Pulse Common Stock surrendered. Provided the Pulse Common Stock so surrendered
was held as a capital asset at the time of the exchange, the holding period of
the Technitrol Common Stock received will include the holding period of the
Pulse Common Stock. Pulse stockholders should consult their own tax advisors
as to the determination of their tax basis and holding period in any one share
of Pulse Common Stock, as several methods of determination may be available.
Exchange of Pulse Common Stock Solely for Cash. In the opinion of Stradley,
Ronon, Stevens & Young, a U.S. Holder of Pulse Common Stock who, pursuant to
the Merger, exchanges such Pulse Common Stock solely for cash should recognize
a gain or loss for Federal income tax purposes equal to the difference between
the cash received and the U.S. Holder's tax basis in the Pulse Common Stock.
Assuming such U.S. Holder of Pulse Common Stock, at the time of the exchange,
held the Pulse Common Stock as a capital asset, such gain or loss should be
capital gain or loss and, if so treated, will be long-term capital gain or
loss if the U.S. Holder's holding period at that time is more than one year.
The Code contains limitations on the extent to which stockholders may deduct
capital losses from ordinary income.
Exchange of Pulse Common Stock for Cash and Technitrol Common Stock. The
Merger Agreement provides that Pulse stockholders are entitled, in exchange
for their shares of Pulse Common Stock, to elect to receive either all
Technitrol Common Stock (except for cash in lieu of fractional shares,
discussed below), or all cash, or to make no election; however, in certain
circumstances, a Pulse stockholder may receive both Technitrol Common Stock
and cash (other than cash in lieu of fractional shares). In the opinion of
Stradley, Ronon, Stevens & Young, if a Pulse stockholder does receive,
pursuant to the Merger, both Technitrol Common Stock and cash,
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the receipt of the cash could be taxed as a dividend (as discussed below). If
so, while the Pulse stockholder would not recognize gain or loss on the shares
of Pulse Common Stock exchanged for Technitrol Common Stock and the tax basis
therein would carry over, the stockholder could recognize gain, but could not
recognize loss, on the receipt of cash in exchange for other shares of Pulse
Common Stock. Such gain might be taxed as a dividend (as discussed below),
while any disallowed loss would be included in the adjusted basis of the
Technitrol Common Stock. A Pulse stockholder's tax consequences will also
depend on whether shares of Pulse Common Stock were purchased at different
times and prices. Such a Pulse stockholder is strongly advised to consult his
or her own tax advisor with respect to the tax consequences of the Merger on
that stockholder.
Possible Dividend Treatment. The constructive ownership rules of Section 318
of the Code are important in determining whether a Pulse stockholder who
receives a combination of Technitrol Common Stock and cash pursuant to the
Merger will receive capital gain or ordinary dividend treatment on any gain
recognized by that stockholder. Those rules apply in certain specified
circumstances to attribute ownership of shares of a corporation from the
stockholder actually owning the shares (whether an individual, a trust, a
partnership or a corporation) to certain members of the individual's family or
to certain individuals, trusts, partnerships or corporations in which that
stockholder has an ownership or beneficial interest, or which have an
ownership or beneficial interest in that stockholder. A stockholder is also
considered under those rules to own any shares with respect to which the
stockholder holds exercisable options.
Except in the case of cash received in lieu of a fractional share (discussed
below), the determination of whether a cash payment received in the Merger has
the effect of the distribution of a dividend will be made by comparing the
proportionate interest of the stockholder after the Merger with the
proportionate interest the stockholder would have had if the stockholder had
received solely shares of Technitrol Common Stock. This comparison is made as
though Technitrol had issued in the Merger to such stockholder solely
Technitrol Common Stock and, in a hypothetical redemption under the rules of
Section 302 of the Code, Technitrol had redeemed such portion of the
Technitrol Common Stock as represented in value, at the time of the Merger,
the amount of cash the stockholder received. In making this comparison, the
constructive ownership rules of the Code apply. The amount of any such
dividend, so determined, is limited to that stockholder's ratable share of the
accumulated earnings and profits of Pulse at the Effective Time.
Under IRS guidelines, a hypothetical redemption involving a minority Pulse
stockholder whose relative stock interest in Pulse is minimal, who exercises
no control over the affairs of Pulse and who experiences, pursuant to the
Merger, a reduction in the stockholder's proportionate stock interest will not
receive dividend treatment of the cash received in these circumstances under
rules of Section 302(b)(1) of the Code. Because the determination of whether a
cash payment will be treated as having the effect of the distribution of a
dividend generally will depend in part upon the facts and circumstances of
each Pulse stockholder (e.g., whether or not such stockholder also owns any
Technitrol Common Stock), such stockholders are strongly advised to consult
their own tax advisors regarding the tax treatment of cash received in the
Merger.
Cash in Lieu of Fractional Shares. No fractional shares of Technitrol Common
Stock will be issued pursuant to the Merger. Pulse stockholders who hold Pulse
Common Stock as a capital asset and who receive in the Merger, in exchange for
such stock, solely Technitrol Common Stock and cash in lieu of a fractional
share interest in Technitrol Common Stock will be treated as having received
such fraction of a share of Technitrol Common Stock and then as having
received cash in redemption by Technitrol of the fractional share interest.
Under IRS guidelines, since the cash is being distributed in lieu of
fractional shares solely for the purpose of saving Technitrol the expense and
inconvenience of issuing and transferring fractional shares, and is not
separately bargained-for consideration, the cash received will be treated as
(i) having been received in part or full payment in exchange for the
fractional share of stock redeemed, (ii) capital gain or loss and (iii) not as
a dividend.
Exercise of Appraisal Rights. The transaction will be a taxable event for
Pulse stockholders who perfect appraisal rights under Delaware law and receive
solely cash in exchange for their shares. Such a stockholder should recognize
capital gain or loss, assuming that the shares are held by such stockholder as
a capital asset at
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the Effective Time, equal to the difference between the amount of cash
received and the stockholder's tax basis in the shares surrendered.
Backup Withholding. Unless an exemption applies, the Exchange Agent will be
required to withhold, and will withhold, 31% of any cash payments to which a
Pulse stockholder or other payee is entitled pursuant to the Merger, unless
the stockholder or other payee provides his, her or its tax identification
number (i.e., a social security number or employer identification number) and
certifies that such number is correct. Each Pulse stockholder and, if
applicable, each other payee is required to complete and sign the Substitute
Form W-9 that will be included as part of the letter of transmittal to avoid
backup withholding (or a Form W-8 if the stockholder is a nonresident alien or
foreign entity), unless an applicable exemption exists and is substantiated in
a manner satisfactory to Technitrol and the Exchange Agent.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. IT
DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER. SINCE
THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO PULSE STOCKHOLDERS
DEPEND, TO A GREAT EXTENT, ON WHETHER THEY RECEIVE TECHNITROL COMMON STOCK OR
CASH IN EXCHANGE FOR THEIR SHARES, IT IS IMPORTANT THAT EACH PULSE STOCKHOLDER
RETURN THE ELECTION FORM SO THAT IT IS RECEIVED BEFORE THE ELECTION DEADLINE.
BECAUSE EACH STOCKHOLDER'S TAX CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER IS
URGED TO CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER, INCLUDING THE APPLICABILITY
AND EFFECT OF STATE, LOCAL AND OTHER TAX LAWS AND ANY PROPOSED CHANGES IN SUCH
TAX LAWS.
ACCOUNTING TREATMENT
The Merger will be accounted for by Technitrol under the "purchase" method
of accounting in accordance with generally accepted accounting principles.
Therefore, the aggregate Merger Consideration paid by Technitrol will be
allocated to Pulse's assets based on their fair value and the results of
operations of Pulse will be included in the results of operations of
Technitrol only for the period subsequent to the Effective Time.
AFFILIATE AGREEMENTS
Prior to the Effective Time, certain persons who may be deemed to be
"affiliates" (as the term is defined for purposes of Rule 145 promulgated
under the Securities Act) of Pulse will enter into certain affiliate
agreements ("Affiliate Agreements") so as to comply with Rule 145 and federal
income tax regulations applicable to reorganizations. Specifically, each such
person will agree to make a Stock Election and further will agree not to sell,
dispose of or enter into any other transaction in order to reduce, directly or
indirectly, such person's risk of investment with respect to any shares of
Technitrol Common Stock received by such person in connection with the Merger.
Each such person will also agree not to sell, transfer or otherwise dispose of
Technitrol Common Stock issued to such person in the Merger unless such
disposition is made in conformity with Rule 145(d) of the Securities Act or
such person delivers to Technitrol a legal opinion to the effect that such
disposition is otherwise exempt from registration under the Securities Act.
TERMS OF THE MERGER
EFFECTIVE TIME
The Merger will become effective at the Effective Time (i.e., upon the
filing of a certificate with the Secretary of State of the State of Delaware
in accordance with the DGCL). It is anticipated that if the Merger Agreement
is approved at the Special Meetings of Technitrol and Pulse and all other
conditions of the Merger have been fulfilled or waived, the Effective Time
will occur on or about September 29, 1995, or on a date as soon as practicable
thereafter.
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CONVERSION OF SHARES OF PULSE COMMON STOCK; ELECTION
Each share of Pulse Common Stock issued and outstanding immediately prior to
the Effective Time (excluding any shares held by Pulse as treasury shares and
Dissenters' Shares) shall be converted into the right to receive (i) shares of
Technitrol Common Stock equal to the Exchange Ratio (initially .5812 shares),
(ii) the Per Share Cash Amount (i.e., $8.50 in cash), or (iii) a combination
of shares of Technitrol Common Stock and cash as described below. The Exchange
Ratio is subject to adjustment as follows:
(A) If the Average Closing Price (the average closing price of Technitrol
Common Stock on the ASE as reported in The Wall Street Journal for the ten
(10) trading days immediately preceding the three (3) business days
preceding the Effective Time) is less than $13 3/4, then (x) the Exchange
Ratio shall be adjusted upward to that ratio which yields, based upon the
Average Closing Price, $8.00 per share of Pulse Common Stock and (y) the
Per Share Cash Amount shall remain unchanged; or
(B) If the Average Closing Price is greater than $16 3/8, then (x) the
Exchange Ratio shall be adjusted downward to that ratio which yields, based
upon the Average Closing Price, $9.52 per share of Pulse Common Stock and
(y) the Per Share Cash Amount shall remain unchanged.
Subject to the allocation procedures set forth below, each record holder of
shares of Pulse Common Stock will be entitled (i) to make a Cash Election
(i.e., to elect to receive cash for all such shares), (ii) to make a Stock
Election (i.e., to elect to receive Technitrol Common Stock for all of such
shares), or (iii) to indicate a Non-Election (i.e., to indicate that such
holder has no preference as to the receipt of cash or Technitrol Common Stock
for such shares). All such elections are to be made on a Form of Election.
Holders of record of shares of Pulse Common Stock who hold such shares as a
Representative (e.g., as a nominee, trustee or in other representative
capacity) may submit multiple Forms of Election, provided that any such
Representative certifies that each such Form of Election covers all the shares
of Pulse Common Stock held by such Representative for a particular beneficial
owner. All elections will be revocable until 5:00 p.m. New York City time on
the last business day prior to the Effective Time. A Non-Election shall be
deemed to have been made by shares as to which a valid and timely Form of
Election is not received.
If the Cash Election Shares (the aggregate number of shares of Pulse Common
Stock as to which valid elections to receive cash have been made) exceeds the
Cash Election Number (fifty percent (50%) of the shares of Pulse Common Stock
outstanding immediately prior to the Effective Time), all the Stock Election
Shares (shares of Pulse Common Stock covered by Stock Elections) and all the
Non-Election Shares (shares of Pulse Common Stock covered by Non-Elections)
shall be converted into the right to receive Technitrol Common Stock, and the
Cash Election Shares shall be converted into the right to receive Technitrol
Common Stock and cash in the following manner:
each Cash Election Share shall be converted into the right to receive (i)
an amount in cash, without interest, equal to the product of (x) the Per
Share Cash Amount and (y) the Cash Fraction (a fraction, the numerator of
which shall be the Cash Election Number and the denominator of which shall
be the total number of Cash Election Shares), and (ii) a number of shares
of Technitrol Common Stock equal to the product of (x) the Exchange Ratio
and (y) a fraction equal to one minus the Cash Fraction.
For example, if 75% of the outstanding shares of Pulse Common Stock elect
cash, then all holders of Stock Election Shares and Non-Election Shares would
receive Technitrol Common Stock in exchange for their shares of Pulse Common
Stock based on the Adjusted Exchange Ratio. The Cash Election Shares would be
exchanged for a combination of Technitrol Common Stock and cash based upon a
Cash Fraction determined by dividing the Cash Election Number (50%) by the
Cash Election Shares (75%) or two-thirds ( 2/3). Accordingly, a hypothetical
Pulse stockholder holding 1,000 shares for which a Cash Election is made would
be entitled to receive the following (assuming the Adjusted Exchange Ratio is
.5812):
(1) $5,666.67 in cash (the product of (i) the Per Share Cash Amount of
$8.50, (ii) the Cash Fraction ( 2/3) and (iii) the number of shares at
issue (1,000)); and
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(2) 193.73 shares of Technitrol Common Stock (the product of (i) the
Exchange Ratio of .5812, (ii) a fraction equal to one minus the Cash
Fraction ( 1/3) and (iii) the number of shares at issue (1,000)), except
that the stockholder would actually receive 193 shares and cash in lieu of
the fractional share (cash equal to the product of the Average Closing
Price and .73).
If the aggregate number of Stock Election Shares exceeds fifty-five percent
(55%) of the shares of Pulse Common Stock outstanding immediately prior to the
Effective Time (the "Stock Election Number"), all Cash Election Shares and
Non-Election Shares shall be converted into the right to receive cash, and all
Stock Election Shares shall be converted into the right to receive Technitrol
Common Stock and cash in the following manner:
each Stock Election Share shall be converted into the right to receive (i)
a number of shares of Technitrol Common Stock equal to the product of (x)
the Exchange Ratio and (y) the Stock Fraction (a fraction, the numerator of
which shall be the Stock Election Number and the denominator of which shall
be the total number of Stock Election Shares), and (ii) an amount in cash,
without interest, equal to the product of (x) the Per Share Cash Amount and
(y) a fraction equal to one minus the Stock Fraction.
For example, if 75% of the outstanding shares of Pulse Common Stock elect
Technitrol Common Stock, then all Cash Election Shares and Non-Election Shares
would receive cash of $8.50 per share in exchange for their shares of Pulse
Common Stock. The Stock Election Shares would be exchanged for a combination
of Technitrol Common Stock and cash based upon a Stock Fraction determined by
dividing the Stock Election Number (55%) by the Stock Election Shares (75%) or
eleven-fifteenths ( 11/15). Accordingly, a hypothetical Pulse stockholder
holding 1,000 shares for which a Stock Election is made would be entitled to
receive the following (assuming the Adjusted Exchange Ratio is .5812):
(1) 426.21 shares of Technitrol Common Stock (the product of (i) the
Exchange Ratio of .5812, (ii) the Stock Fraction ( 11/15) and (iii) the
number of shares at issue (1,000)), except that the stockholder would
actually receive 426 shares and cash in lieu of the fractional share;
and
(2) $2,266.67 in cash (the product of (i) the Per Share Cash Amount of
$8.50, (ii) a fraction equal to one minus the Stock Fraction ( 4/15) and
(iii) the number of shares at issue (1,000)).
In the event that the number of Cash Election Shares does not exceed the
Cash Election Number and the number of Stock Election Shares does not exceed
the Stock Election Number, all Cash Election Shares shall be converted into
the right to receive cash, all Stock Election Shares shall be converted into
the right to receive Technitrol Common Stock, and the Non-Election Shares, if
any, shall be converted into the right to receive Technitrol Common Stock and
cash in the following manner:
each Non-Election Share shall be converted into the right to receive (i) a
number of shares of Technitrol Common Stock equal to the product of (x) the
Exchange Ratio and (y) the Non-Election Fraction (a fraction, which is the
lesser of one (1) or a fraction where the numerator shall be the excess of
the Stock Election Number over the total number of Stock Election Shares
and the denominator of which shall be the aggregate of the Non-Election
Shares) and (ii) an amount in cash, without interest, equal to the product
of (x) the Per Share Cash Amount and (y) a fraction equal to one minus the
Non-Election Fraction.
For example, if 20% of the outstanding shares of Pulse Common Stock elect
cash, 30% elect Technitrol Common Stock and 50% are deemed to have made Non-
Elections, then all holders of Cash Election Shares would receive cash of
$8.50 per share in exchange for their shares of Pulse Common Stock, all
holders of Stock Election Shares would receive Technitrol Common Stock, and
all holders of Non-Election Shares would receive a combination of Technitrol
Common Stock and cash based upon a Non-Election Fraction calculated by
dividing (i) the excess of the Stock Election Number over the Stock Election
Shares (55%-30%) by the Non-Election Shares (50%) or one-half ( 1/2).
Accordingly, a hypothetical Pulse stockholder holding 1,000 shares for which a
Non-Election was made would be entitled to receive the following (assuming the
Adjusted Exchange Ratio is .5812):
(1) 290.6 shares of Technitrol Common Stock (the product of (i) the
Exchange Ratio of .5812, (ii) the Non-Election Fraction ( 1/2) and (iii)
the number of shares at issue (1,000), except that the stockholder would
actually receive 290 shares and cash in lieu of the fractional share;
and
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(2) $4,250 in cash (the product of (i) the Per Share Cash Amount of
$8.50, (ii) a fraction equal to one minus the Non-Election Fraction (
1/2) and (iii) the number of shares at issue (1,000)).
If the tax opinions of counsel to Technitrol and Pulse, respectively,
receipt of which is a condition to each party's obligation to consummate the
Merger (see "TERMS OF THE MERGER--Conditions to the Merger"), cannot be
delivered as a result of insufficient continuity of interest, then the Stock
Election Number shall be increased, and the Cash Election Number
correspondingly decreased (if necessary), to the minimum extent necessary to
enable such counsel to deliver the tax opinions.
A FORM OF ELECTION FOR USE BY PULSE STOCKHOLDERS IN THEIR ELECTION TO
RECEIVE EITHER CASH OR TECHNITROL COMMON STOCK IN EXCHANGE FOR THEIR SHARES OF
PULSE COMMON STOCK IS INCLUDED HEREWITH TO STOCKHOLDERS OF RECORD AS OF THE
RECORD DATE. To be effective, a Form of Election must be properly completed,
signed and submitted to Registrar and Transfer Company, as exchange agent (the
"Exchange Agent"), accompanied by all stock certificates representing shares
of Pulse Common Stock held by the person submitting such Form of Election (or
by a guarantee of delivery of such certificates in the form set forth in the
Form of Election by a member of any registered national securities exchange, a
member of the National Association of Securities Dealers, Inc. or a commercial
bank or trust company having an office or correspondent in the United States,
provided such certificates are in fact delivered to the Exchange Agent within
four (4) business days as set forth in such guarantee of delivery (a
"Guaranteed Delivery")) and must be received by the Exchange Agent no later
than 5:00 p.m. New York City time on the day one business day prior to the
Effective Time. Until such time, all elections will be revocable. PULSE
STOCKHOLDERS WHO FAIL TO RETURN A FORM OF ELECTION, SUBMIT AN IMPROPERLY
COMPLETED FORM OF ELECTION, OR FAIL TO SUBMIT THEIR STOCK CERTIFICATES WITH
THEIR FORM OF ELECTION (OR FAIL TO PROVIDE FOR, AND COMPLY WITH THE
REQUIREMENTS OF, GUARANTEED DELIVERY), WILL BE DEEMED TO HAVE MADE A NON-
ELECTION. The Merger Agreement provides that Technitrol and Pulse will cause
the Effective Time to occur as promptly as practicable after approval and
adoption by the shareholders of Technitrol and the stockholders of Pulse of
the Merger Agreement and the satisfaction (or waiver, if permissible) of the
other conditions to the effectiveness of the Merger set forth in the Merger
Agreement. It is anticipated that the Effective Time will occur on or about
September 29, 1995, or on a date as soon as practicable thereafter. Thus,
stockholders of Pulse are urged to deliver a properly completed Form of
Election together with the applicable stock certificates (or provide for
Guaranteed Delivery) to the Exchange Agent no later than 5:00 p.m., New York
City time, on September 28, 1995, in order to assure that their Form of
Election will be received prior to the Effective Time. Persons who become
stockholders of Pulse after the Pulse Record Date or any other stockholders
who need a Form of Election may obtain copies of the Form of Election upon
request from the Exchange Agent either in writing at 10 Commerce Drive,
Cranford, New Jersey, 07016 or by telephone at (908) 272-8511. Technitrol and
Pulse will each use its best efforts to mail or cause to be mailed to all
persons who become holders of Pulse Common Stock between the Pulse Record Date
and the day seven (7) days prior to the anticipated Effective Time a Form of
Election and will make available a Form of Election to all persons who become
stockholders of Pulse after that date.
PROCEDURES FOR EXCHANGE OF CERTIFICATES
PULSE STOCKHOLDERS THAT WISH TO SUBMIT A FORM OF ELECTION SHOULD DELIVER
THEIR STOCK CERTIFICATES TOGETHER WITH SUCH FORM OF ELECTION OR PROVIDE FOR,
AND COMPLY WITH THE REQUIREMENTS OF, GUARANTEED DELIVERY.
If a Pulse stockholder does not submit such holder's stock certificates with
a properly completed Form of Election (or provide for, and comply with the
requirements of, Guaranteed Delivery) by 5:00 p.m. New York City time on the
day one business day prior to the Effective Time, as soon as reasonably
practicable after the Effective Time Technitrol will instruct the Exchange
Agent to mail to each such holder of record (other than owners of Dissenters'
Shares) of a certificate or certificates which immediately prior to the
Effective Time
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represented outstanding shares of Pulse Common Stock (such certificates,
together with certificates delivered with a Form of Election, the
"Certificates") (i) a letter of transmittal and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing Technitrol Common Stock or cash. After the Effective Time,
stockholders who have surrendered a Certificate for cancellation to the
Exchange Agent together with such letter of transmittal, duly executed, and
such other documents as may be required pursuant to such instructions, or
submitted a Certificate with a Form of Election, shall be entitled to receive
in exchange for such Certificate (i) a certificate representing that number of
whole shares of Technitrol Common Stock which such holder has the right to
receive in respect of the shares of Pulse Common Stock formerly represented by
such Certificate, (ii) cash to which such holder is entitled, (iii) cash in
lieu of fractional shares of Technitrol Common Stock and (iv) any dividends or
other distributions to which such holder is entitled as described below
(collectively, clauses (i) to (iv) are herein referred to as the "Merger
Consideration"), and the Certificate so surrendered shall forthwith be
canceled. In the event of a transfer of ownership of shares of Pulse Common
Stock which is not registered in the transfer records of Pulse, a certificate
representing the proper number of shares of Technitrol Common Stock and/or
cash may be issued and/or paid to a transferee if the Certificate representing
such shares of Pulse Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the Merger
Consideration.
At or prior to the Effective Time, Technitrol will deposit or cause to be
deposited with the Exchange Agent appropriate amounts of shares of Technitrol
Common Stock and cash to comprise the Merger Consideration. Because Guaranteed
Delivery permits the delivery of stock certificates up to three (3) business
days after the Effective Time, the Merger Consideration will not be
distributed until at least three (3) business days after the Effective Time.
No dividends or other distributions declared or made after the Effective
Time with respect to shares of Technitrol Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Technitrol Common Stock represented
thereby, and no cash payment or cash payment in lieu of fractional shares of
Technitrol Common Stock shall be paid to any such holder, until the holder of
such Certificate shall surrender such Certificate. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the holder of the certificates representing whole shares of Technitrol
Common Stock issued in exchange therefor, without interest, (i) promptly, the
amount of any cash payable with respect to a fractional share of Technitrol
Common Stock to which such holder is entitled and the amount of dividends or
other distributions with a record date after the Effective Time theretofore
paid with respect to such whole shares of Technitrol Common Stock and (ii) at
the appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to surrender and a
payment date occurring after surrender, payable with respect to such whole
shares of Technitrol Common Stock. All shares of Technitrol Common Stock
issued upon conversion of the shares of Pulse Common Stock (plus any cash paid
for fractional shares) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to such shares of Pulse Common Stock. No
interest will be paid on the Merger Consideration.
Neither Technitrol nor Teco Sub will be liable to any holder of shares of
Pulse Common Stock for any shares of Technitrol Common Stock (or dividends or
distributions with respect thereto) or cash in respect of shares of Pulse
Common Stock or in lieu of fractional shares of Technitrol Common Stock
delivered to a public official pursuant to any abandoned property, escheat or
similar law.
No certificates or scrip representing fractional shares of Technitrol Common
Stock will be issued upon surrender for exchange of Certificates, and such
fractional share interests will not entitle the owner thereof to vote or to
any rights of a stockholder of Technitrol. In lieu of any such fractional
shares, each holder of Pulse Common Stock shall be paid an amount in cash
(without interest), rounded to the nearest cent, determined by multiplying (i)
the Average Closing Price by (ii) the fractional interest to which such holder
would otherwise be
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entitled (after taking into account all shares of Pulse Common Stock then held
of record by such holder). As soon as practicable after the determination of
the amount of cash, if any, to be paid to holders of Pulse Common Stock with
respect to any fractional share interests, the Exchange Agent shall promptly
pay such amounts to such holders of Pulse Common Stock.
After the Effective Time, there will be no transfers on the stock transfer
books of Pulse of the shares of Pulse Common Stock.
PULSE STOCK OPTIONS
As of August 11, 1995, there were outstanding options to purchase 455,364
shares of Pulse Common Stock, warrants to purchase 43,567 shares of Pulse
Common Stock and warrants to purchase 655,489 shares of Pulse Class B Stock.
At the Effective Time, each then outstanding option to purchase shares of
Pulse Common Stock will be assumed by Technitrol (the "Assumed Options")
without any action on the part of a holder of any Assumed Options. All of such
Assumed Options will continue to have, and be subject to, the same terms and
conditions set forth in the applicable Pulse stock option agreements, except
that following the Effective Time, (a) each Assumed Option will be exercisable
to purchase the number of whole shares of Technitrol Common Stock determined
by multiplying the number of shares of Pulse Common Stock purchasable under
such option immediately prior to the Effective Time by the Adjusted Exchange
Ratio, rounded up to the nearest whole number, and (b) the per share exercise
price of the Assumed Option will be equal to the per share exercise price of
the specific Assumed Option, divided by the Adjusted Exchange Ratio, rounded
down to the nearest whole cent. After the Effective Time, Technitrol will
issue to each holder of an Assumed Option a document evidencing the assumption
by Technitrol of such option. OPTION AGREEMENTS NEED NOT BE SURRENDERED BY
HOLDERS OF ASSUMED OPTIONS.
As promptly as practicable after the Effective Time, Technitrol will file a
registration statement under the Securities Act covering the shares of
Technitrol Common Stock issuable upon exercise of the Assumed Options.
Certain of the applicable Pulse stock option agreements, as well as the
employee benefit plans to which such agreements relate, provide that an event
such as the Merger shall cause the underlying options to terminate upon the
effectiveness of such event (e.g., at the Effective Time); however, prior to
any such termination the exercisability of the options is accelerated (i.e.,
the options become exercisable in full, whether or not then otherwise
exercisable or "vested"). Technitrol and Pulse have agreed, subject to
approval and adoption of the Merger Agreement by the stockholders of Pulse, to
amend such Pulse stock option agreements and the employee benefit plans to
which these agreements relate to prevent the event of the Merger from
terminating any options which would otherwise become Assumed Options.
By their approval and adoption of the Merger Agreement, the stockholders of
Pulse will be deemed to have approved the foregoing amendments to the Pulse
stock option agreements at issue and the employee benefit plans to which such
agreements relate.
At the Effective Time, each then outstanding warrant to acquire Pulse Common
Stock shall remain outstanding, although such warrants shall thereafter be
exercisable for shares of Technitrol Common Stock as adjusted pursuant to the
terms of the warrants. However, the warrant to acquire 655,489 shares of Pulse
Class B Stock, which is held by Technitrol (see "CERTAIN TRANSACTIONS--
Technitrol Purchase of Outstanding Warrant") is expected to be canceled.
CONDUCT OF PULSE'S AND TECHNITROL'S BUSINESSES PRIOR TO THE MERGER
Under the Merger Agreement, Pulse has agreed that, during the period from
the date of the Merger Agreement up to the Effective Time (unless the Merger
Agreement is terminated), except to the extent that Technitrol otherwise
consents, Pulse will carry on its business in the usual and ordinary course in
substantially the same manner as previously conducted, pay its debts and taxes
when due (subject to good faith disputes over
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such debts or taxes), pay or perform other material obligations when due, and
use all reasonable efforts consistent with past practices and policies to
preserve intact Pulse's present business organization, keep available the
services of its present officers and employees and preserve its relationships
with customers, suppliers, distributors, licensors, licensees and others
having business dealings with Pulse, to the end that Pulse's goodwill and
ongoing businesses will be unimpaired at the Effective Time. Pulse has
specifically agreed that it will not, without the prior written consent of
Technitrol, which consent shall not be unreasonably withheld or delayed: (a)
enter into or amend any agreement or take any action which reasonably would be
expected to have a material adverse effect on Pulse; (b) enter into, amend or
terminate certain types of agreements, plans or arrangements; (c) transfer or
license or otherwise extend, amend or modify any rights to Pulse's
intellectual property rights; (d) grant any severance or termination pay to
any executive officer or to any other employee except payments made in
connection with the termination of employees who are not executive officers in
amounts consistent with Pulse's policies and past practices or pursuant to
existing written agreements or policies as previously disclosed to Technitrol
or pursuant to written agreements consistent with Pulse's past agreements
under similar circumstances; (e) adopt or amend any employee benefit or stock
purchase or option plan, or enter into any employment contract, pay any
special bonus or special remuneration to any director or employee, or increase
the salaries or wage rates of its employees other than in the ordinary course
of business, consistent with past practice; (f) accelerate, amend or change
the period of exercisability of options or restricted stock, or reprice
options granted under the employee stock plans or authorize cash payments in
exchange for any options granted under any of such plans; (g) commence any
litigation other than for the routine collection of bills, or where Pulse in
good faith determines that failure to commence suit would result in the
material impairment of a valuable aspect of Pulse's business (provided that
Pulse consults with Technitrol prior to the filing of such suit); (h) declare
or pay any dividends on or make any other distributions (whether in cash,
stock or property) in respect of its capital stock, or split, combine or
reclassify its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of capital
stock of Pulse; (i) repurchase or otherwise acquire, directly or indirectly,
any shares of its capital stock; (j) issue, deliver or sell or authorize the
issuance, delivery or sale of, any shares of its capital stock of any class or
securities convertible into, or subscriptions, rights, warrants or options to
acquire, or enter into other agreements or commitments of any character
obligating it to issue, any such shares or other convertible securities, other
than the issuance of shares of Pulse Common Stock pursuant to outstanding
stock options, Pulse's Employee Stock Purchase Plan, and outstanding warrants;
(k), cause, permit or propose any amendments to the Pulse Certificate of
Incorporation or Pulse's Bylaws; (l) acquire or agree to acquire by merging or
consolidating with, or by purchasing any equity interest in or a material
portion of the assets of, or by any other manner, any business or any
corporation, partnership interest, association or other business, organization
or division thereof, or otherwise acquire or agree to acquire any assets which
are material, individually or in the aggregate, to the business of Pulse,
except for inventory and supplies acquired in the ordinary course of business
consistent with past practices; (m) sell, lease, license, encumber or
otherwise dispose of any of Pulse's properties or assets which are material,
individually or in the aggregate, to the business of Pulse, except in the
ordinary course of business consistent with past practice; (n) incur any
indebtedness for borrowed money (other than pursuant to existing credit
facilities in the ordinary course of business) or guarantee any indebtedness
or issue or sell any debt securities or warrants or rights to acquire debt
securities of Pulse; (o) revalue any of Pulse's assets; or (p) take any of
certain other specific actions, or any action which would cause or would be
reasonably likely to cause any of the conditions to the Merger set forth in
the Merger Agreement not to be satisfied.
Under the Merger Agreement, Technitrol has agreed, during the period from
the date of the Merger Agreement up to the Effective Time (unless the Merger
Agreement is terminated) not to do any of the following without the prior
written consent of Pulse, which consent shall not be unreasonably withheld or
delayed: (a) enter into or amend any agreement or take any action which
reasonably would be expected to have a material adverse effect on Technitrol;
(b) except as is consistent with past practices, declare or pay any dividends
on any of its capital stock; (c) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of capital stock of
Technitrol; (d) repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock, except pursuant to existing plans under Rule 10b-
18 of the Exchange Act or Technitrol's Restricted Stock Plan; (e) issue,
deliver or sell or authorize or
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propose the issuance, delivery or sale of any shares of its capital stock of
any class or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue, any such shares or other convertible securities, other
than the issuance of shares of Technitrol Common Stock pursuant to
Technitrol's Restricted Stock Plan in accordance with the terms of such plan
and consistent with past practice; (f) cause, permit or propose any amendments
to Technitrol's Articles of Incorporation or any material amendments to
Technitrol's bylaws (except for the Charter Amendment as to which Pulse has
given its prior written consent); (g) sell or otherwise dispose of any of
Technitrol's properties or assets which are material, individually or in the
aggregate, to the business of Technitrol, except in the ordinary course of
business; or (h) take any action which would cause or would be reasonably
likely to cause any of the conditions to the Merger set forth in the Merger
Agreement not to be satisfied.
CONDUCT OF THE BUSINESS OF THE COMBINED COMPANIES FOLLOWING THE MERGER
Once the Merger is consummated, Pulse will cease to exist as a corporation,
and Teco Sub will succeed to all of the business, assets, and liabilities and
obligations of Pulse as a result of Pulse's merger with and into Teco Sub as
the Surviving Corporation. Teco Sub will change its name to Pulse Engineering,
Inc. ("New Pulse"). Technitrol's current intention is to operate New Pulse as
an independent entity. Technitrol does not presently plan layoffs of any
significant numbers of employees as a result of the Merger.
The Board of Directors of New Pulse following the Merger will consist of
three employees of Technitrol (Messrs. Thomas J. Flakoll, Albert Thorp, III
and John L. Kowalski). No employee of Pulse has entered into employment or
consulting agreements with Technitrol or New Pulse as a result of the Merger.
NO SOLICITATION
The Merger Agreement provides that Pulse and its subsidiaries will not, and
Pulse will use its reasonable best efforts to cause their respective
directors, officers, employees, representatives, investment bankers, agents
and affiliates not to, directly or indirectly, (i) initiate, solicit or
encourage submission of any inquiries, proposals or offers by any person,
entity or group (other than Technitrol, Teco Sub and their affiliates, agents
and representatives) relating to any Acquisition Proposal (as defined below),
or (ii) participate in any discussions or negotiations with, or disclose any
non-public information concerning Pulse or any of its subsidiaries to, or
afford any access to the properties, books or records of Pulse or any of its
subsidiaries to, or otherwise assist, facilitate or express a receptiveness
to, or enter into any agreement or understanding with, any person, entity or
group (other than Technitrol, Teco Sub and their affiliates, agents and
representatives) in connection with any Acquisition Proposal. Under the Merger
Agreement, an "Acquisition Proposal" means any proposal relating to the
possible acquisition of (i) Pulse (whether by way of merger or otherwise),
(ii) all or a substantial portion of the assets of Pulse or (iii) a
substantial portion of the equity securities of Pulse (except by conversion or
exercise of currently outstanding securities). Additionally, subject to
certain exceptions described below, Pulse and its subsidiaries will not, and
will cause their respective directors, officers, employees, representatives,
investment bankers, agents and affiliates not to, directly or indirectly, make
or authorize any statement, recommendation or solicitation in support of any
Acquisition Proposal made by any person, entity or group (other than
Technitrol and/or Teco Sub).
Notwithstanding the foregoing, prior to the Effective time, Pulse may, to
the extent the Pulse Board determines in good faith, after consultation with
outside legal counsel, that the Board's fiduciary duties under applicable law
require it to do so, participate in discussions or negotiations with, and,
subject to the requirements set forth below, furnish information to any
person, entity or group after such person, entity or group shall have
delivered to Pulse in writing an unsolicited bona fide Acquisition Proposal
which the Pulse Board in its good faith reasonable judgment determines, after
consultation with all of its principal advisors in connection with the Merger,
would result in a transaction more favorable to the stockholders of Pulse than
the Merger and for which financing, to the extent required, is then committed
or which, in the good faith reasonable judgment of the Pulse Board (based upon
the advice of all its principal advisors in connection with the Merger), is
reasonably capable of being financed by such person, entity or group and which
is probable to be consummated (a "Superior
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Proposal"). Pulse may furnish information with respect to a Superior Proposal
only if Pulse (i) first notifies Technitrol of the information proposed to be
disclosed, (ii) communicates to Technitrol the terms and conditions of any
Acquisition Proposal or potential Acquisition Proposal, and (iii) provides
such information pursuant to a confidentiality agreement at least as
restrictive as the confidentiality agreement entered into between Technitrol
and Pulse. In the event Pulse receives a Superior Proposal, nothing contained
in the Merger Agreement shall prevent the Pulse Board from approving such
Superior Proposal or recommending such Superior Proposal to Pulse's
stockholders if the Pulse Board determines, in good faith after consultation
with outside legal counsel, that such action is required by its fiduciary
duties under applicable law; in such case, the Board may amend or withdraw its
recommendation of the Merger.
BREAK-UP FEE; EXPENSES
If for any reason (a) the Pulse Board accepts a Superior Proposal or
recommends a Superior Proposal to Pulse's stockholders, or (b) (i) the Pulse
Board adversely amends, withholds or withdraws its recommendation that Pulse's
stockholders approve the Merger, (ii) the stockholders of Pulse fail to
approve the Merger prior to September 30, 1995, or (iii) there are Dissenters'
Shares representing 15% or more of the shares of Pulse Common Stock
outstanding on the Pulse Record Date, and within nine months following the
occurrence of an event set forth in any of clauses (i), (ii) or (iii) above,
Pulse merges with another individual, corporation, partnership, trust or other
entity, including any group of the foregoing acting in concert (in any such
event, a "Person"), issues stock representing a 40% or greater voting interest
in Pulse to another Person, transfers more than 50% of its assets to another
Person or enters into an option, agreement or letter of intent to do any of
the foregoing or any other arrangement intended to transfer Pulse or control
of Pulse to such other Person, or the stockholders of Pulse, in response to a
tender offer or exchange offer by any Person tender shares representing a 40%
or greater voting interest in Pulse or give options or rights to any Person to
acquire such shares, then, provided Technitrol shall not have materially
breached any of the representations, warranties, covenants or agreements made
on its part under the Merger Agreement, Pulse shall pay to Technitrol, within
five business days following Technitrol's written request therefor, a break-up
fee of $2 million.
In addition to the provisions regarding a break-up fee described above, the
Merger Agreement contains provisions under which Technitrol or Pulse may be
required to reimburse the other for expenses incurred in connection with the
proposed Merger. If the Merger Agreement is terminated by Technitrol as a
result of Pulse's breach of any representation, warranty, covenant or
agreement in the Merger Agreement, then Pulse will be required to pay
Technitrol for all of its reasonable out-of-pocket expenses, including but not
limited to attorneys' fees, accounting fees, financial printer expenses,
filing fees and fees and expenses of financial advisors incurred in connection
with the Merger Agreement and the Merger ("Out-of-Pocket Expenses"), not to
exceed $1,000,000. If the Merger Agreement is terminated by Pulse as a result
of Technitrol's breach of any representation, warranty, covenant or agreement
in the Merger Agreement, then Technitrol shall pay Pulse's Out-of-Pocket
Expenses not to exceed $1,000,000, incurred in connection with the Merger
Agreement and the Merger. If (i) the Pulse Board adversely amends, withholds
or withdraws its recommendation of the Merger or (ii) Pulse's stockholders do
not approve the Merger at the Pulse Special Meeting, then, provided that
Technitrol is not then in material breach of the terms of the Merger
Agreement, Pulse shall pay Technitrol's Out-of-Pocket Expenses, not to exceed
$1,000,000, upon written request therefor; provided, however, that any amounts
paid to Technitrol in the event of clause (i) or (ii) shall reduce, on a
dollar-for-dollar basis, the amount, if any, of the break-up fee described in
the preceding paragraph. If (i) the Technitrol Board adversely amends,
withholds or withdraws its recommendation of the Merger or (ii) Technitrol's
shareholders do not approve the Merger at the Technitrol Special Meeting,
then, provided that Pulse is not then in material breach of the terms of the
Merger Agreement, Technitrol shall pay Pulse's Out-of-Pocket Expenses, not to
exceed $1,000,000, upon written request therefor.
Other than the fees and expenses described above, and the fees incurred in
connection with the printing and filing of the Registration Statement which
will be shared equally by Technitrol and Pulse, each of Technitrol and Pulse
will pay their own fees and expenses incurred in connection with the Merger.
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CONDITIONS TO THE MERGER
The respective obligations of each party to the Merger Agreement to effect
the Merger are subject to the satisfaction at or prior to the Effective Time
of the following conditions: (a) the Merger Agreement and the Merger shall
have been approved and adopted by the requisite vote under applicable law of
the stockholders of Pulse and the shareholders of Technitrol; (b) the SEC
shall have declared the Registration Statement effective, and no stop order
suspending the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose, and no similar
proceeding in respect of this Proxy Statement, shall have been initiated or
threatened in writing by the SEC; (c) no temporary restraining order,
preliminary or permanent inunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect; (d) Technitrol
and Pulse shall each have received a substantially identical Tax Opinion from
their counsel, Stradley, Ronon, Stevens & Young and Pillsbury Madison & Sutro,
respectively, in form and substance reasonably satisfactory to them, to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code; (e) the waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or shall
have expired; and (f) the shares of Technitrol Common Stock issuable to
stockholders of Pulse pursuant to the Merger Agreement and such other shares
required to be reserved for issuance in connection with the Merger (e.g.,
pursuant to the Assumed Options) shall have been authorized for listing on the
ASE upon official notice of issuance.
In addition, the obligations of Pulse to consummate the Merger Agreement and
effect the transactions contemplated thereby shall be subject to the
satisfaction at or prior to the Effective Time of certain other conditions,
any of which may be waived, in writing, exclusively by Pulse, including: (a)
the truth and accuracy in all material respects of the representations and
warranties of Technitrol and Teco Sub contained in the Merger Agreement and
delivery to Pulse of a certificate to such effect signed on behalf of
Technitrol by the President and the Chief Financial Officer of Technitrol; (b)
Technitrol and Teco Sub shall have performed or complied in all material
respects with all agreements and covenants required by the Merger Agreement to
be performed or complied with by them on or prior to the Effective Time, and
Pulse shall have received a certificate to such effect signed by the President
and the Chief Financial Officer of Technitrol; (c) Pulse shall have received a
legal opinion covering certain matters from Stradley, Ronon, Stevens & Young,
legal counsel to Technitrol; (d) since the date of the Merger Agreement there
shall not have occurred any material adverse change in the business, assets,
results of operations or financial condition of Technitrol and its
subsidiaries taken as a whole; and (e) Pulse shall have received confirmation
from Oppenheimer, within five (5) days of the Effective Time, that the
Oppenheimer Opinion remains in effect.
In addition, the obligations of Technitrol and Teco Sub to consummate the
Merger Agreement and effect the transactions contemplated thereby shall be
subject to the satisfaction at or prior to the Effective Time of certain other
conditions, any of which may be waived, in writing, exclusively by Technitrol,
including: (a) the truth and accuracy in all material respects of the
representations and warranties of Pulse contained in the Merger Agreement and
delivery to Technitrol and Teco Sub of a certificate to such effect signed on
behalf of Pulse by the President and the Chief Financial Officer of Pulse; (b)
Pulse shall have performed or complied in all material respects with all
agreements and covenants required by the Merger Agreement to be performed or
complied with by it on or prior to the Effective Time, and Technitrol and Teco
Sub shall have received a certificate to such effect signed by the President
and the Chief Financial Officer of Pulse; (c) Technitrol shall have received a
legal opinion covering certain matters from Pillsbury Madison & Sutro, legal
counsel to Pulse; (d) since the date of the Merger Agreement, there shall not
have occurred any material adverse change in the business, assets, results of
operations or financial condition of Pulse and its subsidiaries taken as a
whole; (e) each of the persons identified by Pulse as being an affiliate or
deemed an affiliate of Pulse shall have delivered to Technitrol an executed
Affiliate Agreement which shall be in full force and effect; (f) Technitrol
shall have obtained financing to provide loans to Technitrol in the principal
amount of not less than Twenty-Three Million Dollars ($23,000,000.00) upon
terms and conditions which are normal and customary for transactions of the
type of the Merger; and (g) Technitrol shall have received confirmation from
Legg Mason, within five (5) days of the Effective Time, that, as of that date,
the consideration to be paid in the Merger is fair to holders of Technitrol
Common Stock from a financial point of view.
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TERMINATION OR AMENDMENT OF MERGER AGREEMENT
The Merger Agreement provides that it may be terminated and the Merger
abandoned at any time prior to the Effective Time (a) by mutual written
consent of Technitrol and Pulse; (b) by Technitrol or Pulse if it is not in
material breach of its obligations under the Merger Agreement and there has
been a material breach by the other of any representation, warranty, covenant
or agreement contained in the Merger Agreement such that the conditions to
consummation of the Merger will not be satisfied, and such breach has not been
cured within ten (10) days after notice; (c) by Technitrol if the Pulse Board
adversely amends, withholds or withdraws its recommendation of the Merger
(provided Technitrol is not in material breach of the Merger Agreement); (d)
by Pulse if the Technitrol Board adversely amends, withholds or withdraws its
recommendation of the Merger (provided Pulse is not in material breach of the
Merger Agreement); (e) by either Technitrol or Pulse if: (1) there shall be an
order of a federal or state court in effect preventing consummation of the
Merger; (2) there shall be any action taken, or any statute, rule, regulation
or order enacted, promulgated or issued or deemed applicable to the Merger by
any governmental entity which would make consummation of the Merger illegal or
which would prohibit ownership or operation of all or a material portion of
the business of Pulse, or compel Technitrol to dispose of or hold separate all
or a material portion of the business or assets of Pulse or Technitrol as a
result of the Merger; (3) Pulse's stockholders do not approve the Merger and
the Merger Agreement by September 30, 1995 (provided that Pulse may not
terminate in these circumstances if it is in material breach of the terms of
the Merger Agreement); (4) Pulse's stockholders approve the Merger and the
Merger Agreement, but Dissenters' Shares represent 15% or more of the shares
of Pulse Common Stock outstanding on the Pulse Record Date; or (5)
Technitrol's stockholders do not approve the Merger and the Merger Agreement
by September 30, 1995 (provided that Technitrol may not terminate in these
circumstances if it is in material breach of the terms of the Merger
Agreement); (f) by either Technitrol or Pulse if the Merger shall not have
been consummated by October 31, 1995, provided that the right to terminate the
Merger Agreement shall not be available to any party whose willful failure to
fulfill any material obligation under the Merger Agreement has been the cause
of or resulted in the failure of the Effective Time to occur on or before such
date; or (g) by either Technitrol or Pulse if the Pulse Board accepts,
approves or recommends to Pulse's stockholders a Superior Proposal.
PROPOSAL TO INCREASE AUTHORIZED SHARES OF TECHNITROL COMMON STOCK
PROPOSED AMENDMENT
On May 23, 1995, the Technitrol Board approved an amendment to Technitrol's
Articles of Incorporation (the "Charter"), subject to approval by Technitrol's
shareholders, that would increase the number of authorized shares of
Technitrol Common Stock from 10 million shares to 30 million shares. If
approved by Technitrol's shareholders, Article FIFTH of the Charter will be
amended and restated in its entirety to read as follows:
FIFTH: The aggregate number of shares which the corporation shall have
the authority to issue is 30 million shares of Common Stock; the par value
of said Common Stock shall be $.125 per share.
This proposal is being made so that there are after the issuance of the
shares of Technitrol Common Stock in conjunction with the Merger (i) adequate
shares of Technitrol Common Stock authorized for issuance in connection with
the continuation of Technitrol's Restricted Stock Plan; (ii) an adequate
number of shares of Technitrol Common Stock available for issuance upon
exercise of the Assumed Options; and (iii) a sufficient number of additional
authorized shares of Technitrol Common Stock available for issuance in the
future. The Technitrol Board believes that the availability of such shares
would provide flexibility for Technitrol in meeting its possible needs by
enabling the Technitrol Board to raise additional capital through the issuance
of Technitrol Common Stock or securities convertible into, or exercisable for
Technitrol Common Stock, to declare stock dividends payable in Technitrol
Common Stock, to grant additional share awards under Technitrol's Restricted
Stock Plan, or to employ Technitrol Common Stock as a form of consideration
for acquisitions. Only approximately three million of the authorized shares of
Technitrol Common Stock are presently available for issuance. Therefore, the
Technitrol Board believes that Technitrol does not presently have a sufficient
number of authorized but unissued and unreserved shares of Technitrol Common
Stock available, and that a sufficient
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number of authorized but unissued and unreserved shares may not become
available in an appropriate time frame if and when needed, to provide the
flexibility for Technitrol to meet its possible needs in the foreseeable
future through the issuance of Technitrol Common Stock. Other than for the
stock portion of the Merger Consideration and pursuant to Technitrol's
Restricted Stock Plan and the Assumed Options, Technitrol does not presently
intend to issue any additional shares for any specific purpose. There are
currently issued and outstanding 6,047,792 shares of Technitrol Common Stock.
There are presently 3,952,258 shares available for issuance in the future.
Between 1,631,790 to 1,794,969 shares of Technitrol Common Stock are expected
to be issued to holders of Pulse Common Stock as part of the Merger
Consideration. At the Effective Time, approximately 250,000 shares of
Technitrol Common Stock will be reserved for issuance upon exercise of the
Assumed Options. The Charter Amendment is being recommended to Technitrol's
shareholders at this time, rather than in connection with each specific
issuance of shares that may be proposed in the future, in order to avoid any
unnecessary delay and expense in connection with such future specific
issuances of shares because of the need for shareholder approval of additional
authorized shares. Such a delay and attendant expense could have consequences
which may not be in the best interests of Technitrol and its shareholders.
The Technitrol Common Stock is presently approved for trading on the ASE.
Pursuant to the listing standards, policies and requirements of the ASE,
Technitrol is required to obtain shareholder approval prior to the issuance of
the shares of Technitrol Common Stock when:
(a) the issuance will result in a change of control of Technitrol;
(b) in connection with the acquisition of the stock or assets of another
company,
(i) any individual director, officer or substantial shareholder of
Technitrol has a 5% or greater interest (or such persons collectively
have a 10% or greater interest), directly or indirectly, in the company
or assets to be acquired or in the consideration to be paid in the
transaction or series of related transactions and the present or
potential issuance of Technitrol Common Stock, or securities
convertible into or exercisable for Technitrol Common Stock, could
result in an increase in outstanding Technitrol Common Stock or voting
power of 5% or more; or
(ii) the Technitrol Common Stock, or securities convertible into or
exercisable for Technitrol Common Stock to be issued, could result in
an increase in Technitrol Common Stock of 20% or more; or
(c) in connection with a transaction other than a public offering,
(i) the offering involves the sale or issuance by Technitrol of
Technitrol Common Stock (or securities convertible into or exercisable
for Technitrol Common Stock) at a price less than the greater of book
or market value which together with sales by officers, directors or
substantial shareholders of Technitrol equals 20% or more of the
outstanding Technitrol Common Stock or 20% or more of the voting power
outstanding before the issuance; or
(ii) the offering involves the sale or issuance by Technitrol of
Technitrol Common Stock (or securities convertible into or exercisable
for Technitrol Common Stock) equal to 20% or more of the outstanding
Technitrol Common Stock or 20% or more of the voting power outstanding
before the issuance for less than the greater of book or market value
of the stock.
This proposal is not being recommended in response to any specific effort of
which Technitrol is aware to obtain control of Technitrol, nor is it part of
any plan by Technitrol to adopt a proposal or a series of proposals relating
to a possible takeover of Technitrol. The Technitrol Board has no present
intention of soliciting a shareholder vote on any other such proposal. If this
proposal is approved, however, the additional authorized shares of Technitrol
Common Stock could be issued to dilute the stock ownership of persons who in
the future seek control of Technitrol. Except as noted above, however, the
Technitrol Board has no present plans to issue any of the additional shares
and would comply with the ASE rules prior to any such issuance.
In addition, while the Technitrol Board presently has no intention of doing
so, the power of the Technitrol Board to issue Technitrol Common Stock could
enable the Technitrol Board (without shareholder approval) to
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put into effect a share rights purchase plan (commonly known as a "poison
pill") to deter coercive takeover tactics and preserve shareholders' equity
value.
Lastly, the Charter and Technitrol's Bylaws also contain provisions that
could have the effect of delaying, deterring or preventing changes of control
or management of Technitrol. More specifically, Technitrol's Charter and
Bylaws provide (i) for a Board of Directors only one-third of which is elected
each year, (ii) a limitation on the number of directors on the Technitrol
Board to nine (9), (iii) that twenty percent (20%) of the shareholders are
required to call a special meeting of the shareholders, (iv) for approval of
seventy-five percent (75%) of voting shareholders to amend Bylaws concerning
the number, terms and removal of the Technitrol Board, and (v) for approval of
seventy-five percent (75%) of voting shareholders to approve a merger, a sale
of substantially all of the corporation's assets, or an issuance or delivery
of securities in exchange for assets of another corporation.
Although the Technitrol Board presently has no intention of doing so, the
availability of authorized but unissued shares could permit Technitrol Common
Stock (within the limits imposed by applicable law and the rules of the ASE
and/or any other exchanges on which the Technitrol Common Stock is listed) to
be issued to a holder who might thereby obtain sufficient voting power to
ensure that any proposal to remove directors or to approve a merger or other
business combinations or to amend or repeal any of the foregoing provisions
would not receive the 75% shareholder vote required therefor. Thus, the power
of the Technitrol Board to issue stock could enable the Technitrol Board to
make it more difficult to replace incumbent directors and to effect a change
in control of Technitrol through a merger or other business combination.
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CERTAIN RELATED TRANSACTIONS
TECHNITROL PURCHASE OF OUTSTANDING PULSE WARRANT
On May 22, 1995, Technitrol acquired a warrant from an unrelated third party
to purchase 655,489 shares of Pulse Class B Stock at a warrant exercise price
of $1.00 per share (the "Warrant"). The purchase price for the Warrant was
$4,768,682.48. Technitrol acquired the Warrant in anticipation of entering
into the Merger Agreement. Shares of Pulse Class B Stock are convertible, at
the option of the holder, into shares of Pulse Common Stock. The Warrant
represents beneficial ownership of approximately 10.46% of the issued and
outstanding Pulse Stock (including shares that would be issued upon the full
exercise of the Warrant, but excluding shares held by Pulse as treasury
shares).
PULSE ARRANGEMENTS WITH CERTAIN OF ITS OFFICERS
Interests of Certain Persons in the Merger. Certain members of Pulse's
management and the Pulse Board have interests in the Merger in addition to
their interests, if any, as stockholders of Pulse generally. The Pulse Board
was aware of these factors and considered them, among other matters, in
approving the Merger and the Merger Agreement.
Executive and Key Employee Severance Arrangements. On May 22, 1995, the
Pulse Board adopted severance arrangements for certain of its key employees.
Generally, these severance arrangements (i) cover Messrs. David Flowers,
Michael Brosnan, Russell Holman, John Houston, Leonard Luner and Patrick
McCready, (ii) supersede any other Pulse severance benefits which the
identified individuals are eligible to receive and (iii) provide for
continuation of base salary and group health insurance benefits for a
specified period following an involuntary termination of employment within 12
months after the Effective Time, with such specified period subject to
extension for any months remaining in the six-month period immediately
following the Effective Time if an involuntary termination occurs within such
six-month period. In each instance, "involuntary termination" includes a
unilateral reduction in compensation or a material adverse change in working
conditions.
Under the severance arrangements for Mr. Flowers, if his employment with the
Surviving Corporation is involuntarily terminated or if employment
arrangements satisfactory to Mr. Flowers are not reached within 12 months
following the Effective Time, his salary and benefits will be continued for a
period of 15 months following the date of involuntary termination (subject to
possible extension as referenced above). In consideration for such severance
benefits, Mr. Flowers will (i) assist Technitrol management in providing a
smooth transition with respect to consolidation of Pulse operations with the
Technitrol Electronic Products Segment, (ii) undertake reasonable special
projects when so requested, (iii) be provided with certain office equipment
and furniture to maintain an office within his home, (iv) be reimbursed for
expenses associated with establishing and maintaining a private telephone and
fax line, and (v) be provided with out placement assistance through an
independent agency, subject to limitations of a maximum expenditure of $30,000
during a period of 24 months following the Effective Time. Mr. Flowers will
report directly to the President of Technitrol.
The severance arrangements for Messrs. Brosnan, Holman, Houston, Luner and
McCready will take effect in the event that their employment is involuntarily
terminated within 12 months following the Effective Time. Each person's
severance arrangement will consist of salary and benefits for six months
following the date of involuntary termination (subject to possible extension
as referenced above).
In addition to the foregoing severance arrangements, the Pulse Board on May
22, 1995 determined to pay retention bonuses to Messrs. Holman and McCready in
the amounts of $30,000 and $10,000, respectively, conditioned upon such
individuals' remaining Pulse employees through the Effective Time. The bonus
payments were authorized in order to help assure the continued assistance of
Messrs. Holman and McCready in the legal and financial aspects of the Merger.
Stock Option Agreements. Certain of Pulse's stock option agreements, as well
as the employee benefit plans to which such agreements relate, provide that an
event such as the Merger will cause the underlying options
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to terminate upon the effectiveness of such event (in the case of the Merger,
at the Effective Time); however, prior to any such termination the
exercisability of the options is accelerated (i.e., the options become
exercisable in full, whether or not then otherwise exercisable or "vested").
Technitrol and Pulse have agreed, subject to approval and adoption of the
Merger Agreement by the stockholders of Pulse, to amend all such Pulse stock
option agreements and the employee benefit plans to which these agreements
relate to prevent the Merger from terminating any options which would
otherwise become Assumed Options. These amendments will affect certain
officers and Directors of Pulse, although the amendments apply to all holders
of such options. Technitrol has further undertaken that the unvested portion
of options held by Pulse Directors will not be forfeited because such
individuals do not continue as directors of the Surviving Corporation.
Indemnification. The Merger Agreement provides that, from and after the
Effective Time the Surviving Corporation will indemnify, defend and hold
harmless the present and former officers and Directors of Pulse (collectively,
the "Indemnified Parties") against all losses, expenses, claims, damages,
liabilities or amounts that are paid in settlement of (with the approval of
Technitrol and the Surviving Corporation, which approval shall not be
unreasonably withheld) or otherwise in connection with any claim, action,
suit, proceeding or investigation (a "Claim"), based in whole or in part on
the fact that such person is or was an officer or Director of Pulse and
arising out of actions or omissions occurring at or prior to the Effective
Time (including, without limitation, the transactions contemplated by this
Agreement), in each case to the full extent permitted under the DGCL. The
Surviving Corporation will also pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to the
fullest extent permitted under the DGCL, upon receipt from the Indemnified
Party to whom expenses are advanced of an undertaking to repay such advances.
Technitrol has agreed to guarantee the obligations of the Surviving
Corporation in this regard.
In addition to the foregoing indemnification, (i) for a period of two years
after the Effective Time, Technitrol will cause to be maintained in effect the
current policies of Directors' and officers' liability insurance maintained by
Pulse (provided that Technitrol may substitute therefor policies of at least
the same coverage and amounts) and (ii) the charter documents of the Surviving
Corporation shall contain the provisions with respect to indemnification which
are set forth in the charter documents of Pulse, which provisions shall not be
modified for a period of six years after the Effective Time in any manner
which would adversely affect the rights thereunder of individuals who at any
time prior to the Effective Time were Directors or officers of Pulse in
respect of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by this
Agreement), unless such modification is required by law.
TECHNITROL AND PULSE STOCK PRICE INFORMATION
Technitrol Common Stock is quoted on the ASE under the symbol "TNL". The
following table sets forth the range of high and low closing prices for
Technitrol Common Stock for the calendar quarters indicated:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1993
First Quarter........................................... $ 9.125 $ 8.250
Second Quarter.......................................... 8.500 7.583
Third Quarter........................................... 9.250 7.750
Fourth Quarter.......................................... 10.125 8.208
1994
First Quarter........................................... 11.792 9.875
Second Quarter.......................................... 12.917 10.875
Third Quarter........................................... 14.500 11.583
Fourth Quarter.......................................... 16.000 12.000
1995
First Quarter........................................... 15.125 13.500
Second Quarter.......................................... 15.000 13.375
Third Quarter (through August 11, 1995)................. 16.375 14.000
</TABLE>
73
<PAGE>
On April 21, 1995, the last trading day prior to the public announcement of
the proposed Merger, the closing price of Technitrol Common Stock was $13.375
per share. On August 11, 1995, the closing price of Technitrol Common Stock
was $16.375. There can be no assurance as to the actual price of Technitrol
Common Stock at the Effective Time or at any time thereafter.
Pulse Common Stock is quoted on the Nasdaq National Market under the symbol
"PLSE". The following table sets forth the range of high and low closing
prices for Pulse Common Stock for the calendar quarters indicated:
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
1993
First Quarter.............................................. $10.00 $7.75
Second Quarter............................................. 8.25 6.25
Third Quarter.............................................. 9.25 6.75
Fourth Quarter............................................. 9.75 8.25
1994
First Quarter.............................................. 9.25 7.50
Second Quarter............................................. 7.75 5.25
Third Quarter.............................................. 6.00 4.00
Fourth Quarter............................................. 5.88 4.08
1995
First Quarter.............................................. 6.38 4.88
Second Quarter............................................. 7.88 6.00
Third Quarter (through August 11, 1995).................... 8.63 7.75
</TABLE>
On April 21, 1995, the last trading day prior to the public announcement of
the proposed Merger, the closing price of Pulse Common Stock was reported by
the Nasdaq National Market as $7.25 per share. On August 11, 1995, the closing
price of Pulse Common Stock reported by the Nasdaq National Market was $8.50.
DIVIDEND POLICY
Technitrol paid a quarterly dividend of $.10 per share of Technitrol Common
Stock during the fiscal quarter ended June 30, 1995. During the fiscal years
ended December 31, 1994, 1993 and 1992, Technitrol paid $0.376, $0.373 and
$0.373 respectively, per share of Technitrol Common Stock in annual dividends.
The Technitrol Board makes dividend decisions on a quarterly basis, based on
Technitrol's results of operations, financial position, business needs,
capital and surplus requirements and other relevant considerations. The
Technitrol Board has declared cash dividends for 77 consecutive quarters.
74
<PAGE>
BENEFICIAL OWNERSHIP OF TECHNITROL COMMON STOCK
The following table sets forth certain information as of August 11, 1995
except as otherwise indicated, regarding the beneficial ownership of
Technitrol Common Stock by (i) each person who is known to Technitrol to be
the beneficial owner of 5% or more of Technitrol Common Stock, (ii) each
director of Technitrol, (iii) certain executive officers of Technitrol and
(iv) all directors and executive officers as a group. To Technitrol's
knowledge, the beneficial owners named in the table have sole voting and
investment power with respect to the shares.
<TABLE>
<CAPTION>
SHARES PERCENT OF PRO FORMA
NAME BENEFICIALLY OWNED CLASS (1) EFFECT OF MERGER (1)(2)
---- ------------------ ---------- -----------------------
<S> <C> <C> <C>
Gordon Palmer, Jr. ...... 996,300(2) 16.47% 12.97%
Tinicum Investors Group.. 505,500(3) 8.36 6.58
Dimensional Fund Advi-
sors, Inc. ............. 386,100(4) 6.38 5.03
J. Barton Harrison....... 83,370 1.38 1.09
Roy E. Hock.............. 273,989 4.50 3.57
James M. Papada, III..... 3,300 * *
James J. Rafferty, Jr.... 54,540 * *
Thomas J. Flakoll........ 41,939 * *
Edward M. Mazze.......... 1,900 * *
Graham Humes............. 21,000 * *
Stanley E. Basara........ 1,500 * *
John E. Burrows, Jr. .... 600 * *
Directors and Officers as
a group (13 people)..... 494,635 8.18 6.44
</TABLE>
--------
* Less than 1% of the outstanding Technitrol Common Stock.
(1) Assumes total shares outstanding of 6,047,742.
(2) Assumes the issuance of 1,631,790 shares of Technitrol Common Stock in the
Merger.
(3) Mr. Palmer is one of the founders of the Company and served as a Director
from 1947 until July 31, 1991. He has been retired since 1977.
(4) Group consists of Tinicum Investors which owns 337,185 shares
("Investors"), James H. Kasschau, an officer and director of Investors,
who owns 30,000 shares, and RIT Capital Partners plc, which owns 138,315
shares ("RIT"). With respect to said shares, RIT shares voting and
dispositive powers with J. Rothschild Capital Management Ltd. ("Capital").
Investors and Mr. Kasschau have the same address and RIT and Capital are
located at 15 St. James's Place, London SW1A 1NW, England.
(5) Of these shares, 228,600 shares held of record by Dimensional Fund
Advisors, Inc. ("Dimensional"), a registered investment adviser, 150,300
shares by DFA Investment Dimensions Group, Inc. and 7,200 shares by The
DFA Investment Trust Company. Though Dimensional is deemed to be the
beneficial owner of all shares, it disclaims such beneficial ownership.
75
<PAGE>
BENEFICIAL OWNERSHIP OF PULSE COMMON STOCK
The following table sets forth certain information as of August 11, 1995,
except as otherwise indicated, regarding the beneficial ownership of Pulse
Common Stock by (i) each person who is known to Pulse to be the beneficial
owner of 5% or more of Pulse Common Stock, (ii) each director of Pulse, (iii)
certain executive officers of Pulse and (iv) all directors and executive
officers as a group (including those named). Except as otherwise indicated,
each individual named has sole voting and investment power with respect to the
Pulse Common Stock shown and the Pulse Common Stock beneficially owned
consists solely of Class A Stock.
<TABLE>
<CAPTION>
SHARES OF PULSE COMMON TECHNITROL COMMON
NAME STOCK BENEFICIALLY OWNED PERCENT STOCK TO BE OWNED(1) % OF CLASS(1)
---- ------------------------ ------- -------------------- -------------
<S> <C> <C> <C> <C>
Clarke H. Bailey........ 94,196(2) 1.7%(2) 54,747 *
David R. Flowers........ 218,132(2) 3.8%(2) 126,778 1.6%
Ronald G. Peters........ 91,363(2) 1.6%(2) 53,100 *
William R. Stensrud..... 6,667(2) * 3,875 *
John A. Houston......... 76,124(2) 1.3%(2) 44,243 *
Technitrol, Inc. ....... 655,489(3) 10.5%(3) NA NA
1210 Northbrook Drive,
Suite 385
Trevose, PA 19053
Bel Fuse Acquisition 531,400(4) 9.5%(4) 154,425 2.0%
Corp. .................
198 Van Vorst Street
Jersey City, NJ 07302
Ryback Management 455,260(5) 7.6%(5) 132,299 2.2%
Corporation............
Advisor to the Lindner
Funds
7711 Carondelet Ave.,
Ste. 700
(Clayton) St. Louis, MO
63105
The TCW Group, Inc. .... 333,800(6) 6.0%(6) 97,002 1.3%
865 South Figueroa
Street
Los Angeles, CA 90017
All Directors and
Executive Officers as a
Group (7 persons)...... 512,998(2) 8.7%(2) 298,106 3.8%
</TABLE>
--------
* Less than 1% of the outstanding Pulse Common Stock at August 11, 1995.
(1) Assumes the issuance of 1,631,790 shares of Technitrol Common Stock in the
Merger and an Exchange Ratio of .5812. All Directors and Executive
Officers have agreed to make a Stock Election. It is assumed, for purposes
of the percentage ownership calculation, that each of the other
stockholders (other than Technitrol, Inc.) will receive Merger
Consideration consisting of 50% Technitrol Common Stock and 50% cash. Each
Pulse stockholder can elect to receive all Technitrol Common Stock or all
cash, or may indicate that they have no preference as to receiving either.
(2) Includes with respect to Messrs. Bailey, Flowers, Peters, Stensrud,
Houston and all directors and executive officers as a group (including
those named) 23,250 shares, 149,467 shares, 37,613 shares, 6,667 shares,
64,834 shares and 307,165 shares, respectively, of Pulse Common Stock
subject to options or warrants exercisable immediately or within sixty
days, and the percentages of outstanding stock beneficially owned by each
of such persons and such group were computed based on the number of shares
(excluding shares held by Pulse as treasury shares) which would have been
outstanding if the options or warrants of each (but not of the others) had
been exercised. The options have exercise prices ranging from $1.00 per
share to $9.00 per share. Of the shares subject to options beneficially
owned by Mr. Bailey, 9,250 shares are held as a nominee of Oppenheimer.
(3) Consists of 655,489 shares of Pulse Class B Stock issuable upon the
exercise of a warrant that is immediately exercisable. See "CERTAIN
RELATED TRANSACTIONS--Technitrol Purchase of Outstanding Pulse Warrant."
Under the Pulse Certificate of Incorporation, each share of Pulse Class B
Stock is immediately convertible into one share of Pulse Common Stock. It
is anticipated that such warrant will be canceled at the Effective Time.
76
<PAGE>
(4) Based on filings on Schedule 13D made by Bel Fuse Acquisition Corp.
("BFAC") under the Exchange Act (the most recent of which received by
Pulse was dated April 28, 1995) in which BFAC states that it has sole
power to vote and dispose, or direct the disposition, of all 531,400
shares.
(5) Based on filings on Schedule 13G made by Ryback Management Corporation
("Ryback") under the Exchange Act (the most recent of which received by
Pulse was dated January 25, 1995) in which Ryback states that it has sole
power to vote and dispose, or direct the disposition, of all 455,260
shares.
(6) Based on filings on Schedule 13G made by The TCW Group, Inc. ("TCW") under
the Exchange Act (the most recent of which received by Pulse was dated
January 21, 1995) in which TCW states that it has sole power to vote and
dispose, or direct the disposition, of all 333,800 shares.
DESCRIPTION OF TECHNITROL CAPITAL STOCK
The authorized capital stock of Technitrol consists of 10,000,000 shares of
Technitrol Common Stock. The Charter Amendment, if adopted, would increase the
authorized capital stock of Technitrol to 30,000,000 shares of Technitrol
Common Stock. See "PROPOSAL TO INCREASE AUTHORIZED SHARES OF TECHNITROL COMMON
STOCK."
As of the Technitrol Record Date, there were 6,047,742 shares of Technitrol
Common Stock outstanding held of record by approximately 704 shareholders.
Holders of Technitrol Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. In the event of a liquidation,
dissolution or winding up of Technitrol, the holders of Technitrol Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities. Technitrol Common Stock has no preemptive or other subscription
rights. All outstanding shares of Technitrol Common Stock are fully paid and
non-assessable except for shares issued pursuant to Technitrol's Restricted
Stock Plan which are subject to the terms of such Restricted Stock Plan, and
the shares of Technitrol Common Stock to be outstanding upon completion of the
Merger will be fully paid and non-assessable (except for shares issued
pursuant to Technitrol's Restricted Stock Plan).
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for Technitrol Common Stock is Registrar
and Transfer Company, 10 Commerce Drive, Cranford, New Jersey, 07016, and its
telephone number is (908) 272-8511.
COMPARISON OF RIGHTS OF HOLDERS OF TECHNITROL
COMMON STOCK AND HOLDERS OF PULSE COMMON STOCK
Upon consummation of the Merger, the stockholders of Pulse, a Delaware
corporation, will become shareholders of Technitrol, a Pennsylvania
corporation. Although the Delaware General Corporation Law, ("DGCL" or
"Delaware Law") and the Business Corporation Law of Pennsylvania ("PBCL" or
"Pennsylvania Law") are similar in many respects, there are a number of
differences between the two statutes which should be carefully considered by
Pulse stockholders in evaluating the Merger. The following summary, which sets
forth certain material differences between the two statutes, does not purport
to be a complete statement of all differences between the DGCL and PBCL, nor
does it purport to be a complete statement of the provisions of the two
statutes which it compares.
FIDUCIARY DUTIES OF DIRECTORS
Both Delaware Law and Pennsylvania Law provide that the board of directors
has the ultimate responsibility for managing the business affairs of a
corporation. In discharging this function, directors owe fiduciary duties of
care and loyalty to the corporation and to its securityholders.
Delaware courts have held that the duty of care requires the directors to
exercise an informed business judgment. An informed business judgment means
that the directors have informed themselves of all material
77
<PAGE>
information reasonably available to them. Delaware courts have, under certain
circumstances, also imposed a heightened standard of conduct upon directors in
matters involving a contest for control of the corporation.
Similar to Delaware Law, Pennsylvania Law requires that directors perform
their duties in good faith. The PBCL, however, contains a provision
specifically permitting (though not requiring) directors, in discharging their
duties, to consider the effects of any action taken by them upon any or all
affected groups (including, e.g., shareholders, members, employees, suppliers,
customers, creditors and the community in which the corporation operates) as
well as all other pertinent factors. Furthermore, unlike Delaware Law, the
PBCL makes clear that a director has no greater burden to justify any act
relating to an actual or potential acquisition of the corporation than he or
she has regarding any other act as a director.
LIMITATION OF DIRECTOR LIABILITY
Both Delaware Law and Pennsylvania Law permit a corporation's certificate
(articles) of incorporation or bylaws to limit a director's exposure to
monetary liability for breach of fiduciary duty.
Pursuant to Delaware Law, a director cannot be relieved of liability for (i)
breach of his/her duty of loyalty to the company, (ii) acts or omissions not
in good faith or constituting intentional misconduct or knowing violation of
the law, (iii) declaration of an improper dividend, stock purchase or
redemption of shares, or (iv) any transaction from which the director derived
an improper personal benefit.
Similarly, pursuant to Pennsylvania Law, a director cannot be relieved of
liability for (i) breach of his/her statutory duties of care and good faith to
the company, (ii) breach or omission constituting self-dealing, willful
misconduct or recklessness, (iii) violation of criminal statutes, or (iv) non-
payment of federal, state or local taxes.
INDEMNIFICATION
Both Delaware Law and Pennsylvania Law permit a corporation to indemnify any
person involved in a third party action by reason of his/her being an officer
or director of the corporation, against expenses, judgments, fines and
settlement amounts paid in such third party action (and against expenses
incurred in any derivative action), if such person acted in good faith and
reasonably believed that his/her actions were in, or not opposed to, the best
interests of the corporation. With respect to any criminal proceeding, both
Delaware Law and Pennsylvania Law permit indemnification when the director or
officer had no reasonable cause to believe that his/her conduct was unlawful.
Furthermore, both states' laws provide that a corporation may advance expenses
incurred in defending any action upon receipt of an undertaking by the person
to repay the amount advanced if it is ultimately determined that he/she is not
entitled to indemnification.
In general, no indemnification for expenses in derivative actions is
permitted under either the DGCL or the PBCL where the person has been adjudged
liable to the corporation, unless a court finds him entitled to such
indemnification. If, however, the person has been successful in defending a
third party or derivative action, indemnification for expenses incurred is
mandatory under both states' laws.
In both states, the statutory provisions for indemnification are
nonexclusive with respect to any other rights, such as contractual rights
under a bylaw, agreement or vote of stockholders or disinterested directors to
which a person seeking indemnification may be entitled. Unlike Delaware Law,
however, Pennsylvania Law expressly permits such contractual or other rights
to provide for indemnification in connection with a third party action,
including a derivative action, unless a court determines that the acts or
omissions giving rise to the claim for indemnification constituted willful
misconduct or recklessness.
SHAREHOLDER PROTECTIVE PROVISIONS
Both Delaware Law and Pennsylvania Law contain provisions which provide
protection to shareholders, and the corporation in which they own shares,
against abusive acquisition and takeover techniques.
78
<PAGE>
Under the DGCL, a corporation is prohibited from engaging in any business
combination with an interested stockholder (beneficial owner of 15% or more of
the corporation's voting stocks) for a period of three years from the date the
stockholder became interested, unless (i) prior to such date, the board of
directors approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) the
interested stockholder acquired 85% of the voting stocks at the time the
transaction commenced, or (iii) on or subsequent to such date the business
combination is approved by the board and 66 2/3% of the noninterested
stockholders. This provision of the DGCL does not apply to a corporation if
the certificate of incorporation or bylaws contain a provision expressly
electing not to be governed by this provision or the corporation does not have
voting stock either listed on a national securities exchange, authorized for
quotation on an inter-dealer quotation system of a registered national
securities association or held of record by more than 2,000 stockholders.
Unlike Delaware Law, under the PBCL, a corporation is permanently prohibited
from engaging in any business combination with an interested shareholder
(defined in Pennsylvania as a beneficial owner of 20% or more of the
corporation's voting shares) unless (i) the shareholder became interested
after the date the board of directors approved the business combination, (ii)
within three months after the date the shareholder became interested, and
his/her beneficial ownership amounts to 80% of the corporation's voting
shares, the business combination is approved by the noninterested shareholders
and it meets certain other conditions concerning amount of consideration,
(iii) at any time after the date the shareholder became interested, the
business combination is approved by unanimous vote of the shareholders, (iv)
within five years after the date the shareholder became interested, the
business combination is approved by a majority of the noninterested
shareholders, or (v) within five years after the date the shareholder became
interested, the business combination is approved by a majority of all
shareholders and meets certain conditions set forth in the PBCL which concern
the amount of consideration. Unless the articles of incorporation provide
otherwise, this provision of the PBCL does not apply to a corporation if the
corporation does not have voting shares either registered or traded on a
national securities exchange or registered with the SEC.
AMENDMENTS TO CERTIFICATE (ARTICLES) OF INCORPORATION
Under Delaware Law, amending the certificate of incorporation generally
requires the approval of the holders of a majority of the shares of stock
entitled to vote. Pennsylvania Law only requires the affirmative vote of a
majority of the votes cast by the holders of shares entitled to vote on a
proposed amendment, unless a specific provision of the PBCL or the articles of
incorporation requires a greater percentage.
MERGERS AND MAJOR TRANSACTIONS
Under Delaware Law, fundamental corporate transactions (such as mergers,
sales of all or substantially all of the corporation's assets, dissolutions,
etc.) require the approval of the holders of a majority of the outstanding
stock entitled to vote. Pennsylvania Law reduces the approval threshold to a
majority of the votes cast. Delaware Law and Pennsylvania Law each permit a
corporation to increase the minimum percentage vote required above the
statutory minimums described above.
DIVIDENDS
Delaware Law permits dividends to be paid out of (i) surplus (the excess of
net assets of the corporation over capital) or (ii) net profits for the
current and/or the then preceding fiscal year, unless the net assets are less
than the capital of any outstanding preferred stock. Pennsylvania Law permits
the payment of dividends, called distributions, unless after payment (i) the
corporation would be unable to pay its debts as they become due in the usual
course of its business, or (ii) the corporation's total assets would be less
than its total liabilities.
SHARE REPURCHASE
Under Delaware Law, a corporation may not purchase or redeem its own stock
by reducing the capital represented by such shares unless the assets of the
corporation remaining after such reduction shall be sufficient to pay any
debts of the corporation for which payment has not been otherwise provided.
There is no similar restriction in Pennsylvania Law.
79
<PAGE>
VOTING RIGHTS
Under Delaware Law, cumulative voting in the election of directors is only
permitted if expressly authorized in a corporation's certificate of
incorporation. Under Pennsylvania Law, however, cumulative voting is permitted
unless, (i) disallowed by the articles; or (ii) the shareholder was not
permitted to cumulate his/her votes at the date of incorporation, unless
authorized by the articles.
APPRAISAL OR DISSENTERS RIGHTS
The rights of shareholders to demand payment in cash by a corporation of the
fair value of their shares under certain circumstances are called appraisal
rights under the DGCL and dissenters rights under the PBCL. Delaware Law does
not afford appraisal rights to holders of shares which are either listed on a
national securities exchange, quoted on the Nasdaq Stock Market or held of
record by more than 2,000 stockholders, unless the plan of merger or
consolidation converts such shares into anything other than shares of the
surviving corporation or shares of stock of another corporation which, at the
effective date of the merger or consolidation, will either be listed on a
national securities exchange, quoted on Nasdaq Stock Market or held of record
by more than 2,000 stockholders.
Pennsylvania does not afford dissenters rights to shareholders of a
corporation which is a party to any plan of merger (i) with respect to shares
of a class or series which is listed on a national securities exchange or is
held on the record date by more than 2,000 shareholders or (ii) when such
shareholder holds the shares of the acquiring corporation.
AMENDMENTS TO BYLAWS
Under Delaware Law, the certificate of incorporation may confer on the board
of directors the power to amend the bylaws. Additionally, the DGCL provides
that a corporation's bylaws may be amended by the stockholders entitled to
vote, which power shall not be divested or limited where the board also has
such power. Under Pennsylvania Law, the shareholders retain the right to amend
the bylaws and the board of directors may be given the power to amend bylaws
unless the subject of such amendment is solely the province of the
shareholders.
ACTION BY WRITTEN CONSENT
Delaware Law permits a majority or higher required percentage of
stockholders entitled to vote to consent in writing to any action that could
be taken by stockholders at a meeting, unless the certificate of incorporation
prohibits such written consent. Pennsylvania Law permits, if the bylaws
provide, any corporate action to be taken by nonunanimous shareholder consent
without a meeting, where shareholders having the minimum number of votes that
would be necessary to take such action at a meeting sign written consents.
SPECIAL MEETING OF SHAREHOLDERS
Under Delaware Law, a special meeting of the stockholders may be called by
the board of directors or such other person as may be authorized by the
certificate of incorporation or bylaws. Pennsylvania Law permits a special
meeting of shareholders to be called by the board of directors, officers, an
interested shareholder for the purpose of approving a business combination, or
a group of shareholders as the articles may provide.
ANNUAL MEETING OF SHAREHOLDERS
Under Delaware Law, if the annual meeting for the election of directors is
not held on the designated date, the directors are required to cause such a
meeting to be held as soon thereafter as convenient. If they fail to do so for
a period of 30 days after the designated date, or if no date has been
designated for a period of 13 months after the organization of the corporation
or after its last annual meeting, the Court of Chancery may summarily order a
meeting to be held upon the application of any stockholder or director.
80
<PAGE>
Under Pennsylvania Law, if the annual meeting for election of directors is
not held on the designated date the directors are required to cause such a
meeting to be held as soon thereafter as may be convenient. If they fail to do
so for a period of six months after the designated date, any shareholder may
call the meeting at any time thereafter.
CASE LAW AND COURT SYSTEMS
There is a substantial body of case law in Delaware interpreting the
corporation laws of that state. A comparable body of judicial interpretation
does not yet exist in Pennsylvania. Delaware also has established a system of
Chancery Courts to adjudicate matters arising under the DGCL. Pennsylvania
does not have an equivalent court system. As a result of these factors, there
may be less certainty as to the outcome of matters governed by the PBCL, and
therefore it may be more difficult to obtain legal guidance as to such matters
than would be the case under Delaware Law.
INSPECTION OF BOOKS AND RECORDS
Both Delaware and Pennsylvania law allow a securityholder, upon written
demand, to examine the books and records of a corporation (including records
of proceedings of shareholders and directors) for any reason reasonably
related to the interest of a person as a shareholder.
PULSE STOCKHOLDER PROPOSALS
If the Merger is not consummated, proposals of stockholders of Pulse
intended to be presented at the 1996 annual meeting of Pulse must be received
no later than June 9, 1996, by the Acting Corporate Secretary of Pulse at its
principal executive office at 12220 World Trade Drive, San Diego, California
92128, in order to be eligible for consideration for inclusion in Pulse's
proxy statement for such meeting.
TECHNITROL SHAREHOLDER PROPOSALS
Proposals of shareholders of Technitrol intended to be presented at the 1996
annual meeting of Technitrol must be received no later than December 22, 1995,
by the Secretary of Technitrol at its principal executive office at 1210
Northbrook Drive, Suite 385, Trevose, Pennsylvania 19053, in order to be
eligible for consideration for inclusion in Technitrol's proxy statement for
such meeting.
EXPERTS
The consolidated financial statements as of December 31, 1994 and 1993 and
for each of the years in the three-year period ended December 31, 1994 have
been included in this Registration Statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, as set forth
herein and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP refers to a change in 1993 in
the method of accounting for income taxes.
The consolidated financial statements of Pulse appearing in this
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report also appearing elsewhere herein and are
included herein in reliance upon such report given upon authority of such firm
as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Technitrol Common Stock issuable pursuant to the Merger
and certain other legal matters relating to the Merger and the transactions
contemplated thereby will be passed upon for Technitrol by Stradley, Ronon,
Stevens & Young, Philadelphia, Pennsylvania. James M. Papada, III, Esq., a
member of the Technitrol Board, is a partner of Stradley, Ronon, Stevens &
Young. Certain legal matters relating to the Merger and the transactions
contemplated thereby will be passed upon for Pulse by Pillsbury Madison &
Sutro, San Diego, California.
81
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Technitrol, Inc. and Subsidiaries
Interim Periods:
Consolidated Balance Sheets............................................ F-2
Consolidated Statements of Earnings.................................... F-3
Consolidated Statements of Cash Flows.................................. F-4
Notes to Consolidated Financial Statements............................. F-5
Fiscal Year 1994:
Independent Auditors' Report........................................... F-7
Consolidated Balance Sheets............................................ F-8
Consolidated Statements of Earnings and Retained Earnings.............. F-9
Consolidated Statements of Cash Flows.................................. F-10
Notes to Consolidated Financial Statements............................. F-11
Pulse Engineering, Inc.
Fiscal Year 1995:
Consolidated Balance Sheets............................................ F-25
Consolidated Statements of Operations.................................. F-26
Consolidated Statements of Stockholders' Equity........................ F-27
Consolidated Statements of Cash Flows.................................. F-28
Notes to Consolidated Financial Statements............................. F-29
Report of Independent Auditors......................................... F-36
</TABLE>
F-1
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1995 and December 31, 1994
(in thousands of dollars)
<TABLE>
<CAPTION>
June 30, Dec. 31,
-------- --------
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,041 $ 8,716
Receivables:
Trade 23,762 22,614
Other 424 139
Inventories:
Finished goods 5,819 5,471
Work in process 9,227 8,420
Raw materials and supplies 10,140 7,823
--------- ----------
Total inventories 25,186 21,714
Prepaid expenses 1,151 851
--------- ----------
Total current assets 55,564 54,034
--------- ----------
Property, plant and equipment 57,696 55,180
Less accumulated depreciation 33,001 30,809
--------- ----------
Net property, plant and equipment 24,695 24,371
Investment in common stock warrants of Pulse
Engineering (see Note 5) 4,769 --
Deferred income taxes 2,523 2,409
Other assets 3,619 3,941
--------- ----------
$ 91,170 $ 84,755
========= ==========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt $ 22 $ 22
Short-term debt -- 756
Accounts payable 6,202 5,841
Income taxes payable 1,570 1,916
Dividends payable 605 572
Accrued payroll 2,704 3,118
Accrued pension expense 4,913 4,589
Other accrued expenses 8,225 7,060
--------- ----------
Total current liabilities 24,241 23,874
--------- ----------
Long-term debt, excluding current installments 18,113 15,124
Shareholders' equity:
Common stock 1,118 1,118
Additional paid-in capital 4,730 4,329
Retained earnings 48,454 45,923
--------- ----------
54,302 51,370
Less: Cost of treasury stock (4,531) (4,573)
Unearned compensation under stock award plan (834) (560)
Cumulative translation adjustment (121) (480)
--------- ----------
Net shareholders' equity 48,816 45,757
--------- ----------
$ 91,170 $ 84,755
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of dollars)
<TABLE>
<CAPTION>
Three Months Six Months
------------ ----------
Ended June 30 Ended June 30
------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
1. Net sales $ 39,394 $ 37,816 $ 79,437 $ 72,776
2. Costs and expenses
a) Cost of goods sold 27,588 27,492 57,090 53,009
b) Selling, general and
administrative expenses 8,206 7,284 15,981 14,218
----- ----- ------ ------
Total costs and expenses 35,794 34,776 73,071 67,227
------ ------ ------ ------
3. Operating profit 3,600 3,040 6,366 5,549
4. Other income (expense)
Interest (313) (201) (548) (471)
Other -- 52 (96) 13
---- -- --- --
Total other income (expense) (313) (149) (644) (458)
---- ---- ---- ----
5. Earnings before taxes 3,287 2,891 5,722 5,091
6. Income taxes 1,267 1,149 2,010 1,979
----- ----- ----- -----
7. Net earnings $ 2,020 $ 1,742 $ 3,712 $ 3,112
===== ===== ===== =====
8. Weighted average common shares
outstanding 6,042,000 6,015,000 6,042,000 6,015,000
9. Earnings per share $ .33 $ .29 $ .61 $ .52
10. Dividends declared per share $ .10 $ .093 $ .195 $ .187
</TABLE>
Dollar amounts are in thousands except for earnings per share and dividends per
share.
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1995 and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
June 30, June 30,
-------- --------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,712 $ 3,112
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 2,722 2,609
Gain on disposal of equipment 50 --
Changes in assets and liabilities net of
effect of acquisition:
(Decrease) in income taxes payable (295) (229)
Increase in accounts payable and 1,588 5,255
accrued expenses
(Increase) in accounts receivable (1,034) (4,977)
(Increase) in inventories (3,355) (4,421)
Other, net (551) (417)
---------- ----------
Net cash provided by operating activities 2,837 932
---------- ----------
Cash flows from investing activities:
Acquisition of capital stock of the Fil-Mag
Group, net of cash acquired -- (8,805)
Acquisition of common stock warrants of Pulse
Engineering (4,769) --
Capital expenditures, exclusive of acquired
businesses (2,920) (1,831)
Proceeds from sale of property, plant and
equipment 17 --
---------- ----------
Net cash used in investing activities (7,672) (10,636)
---------- ----------
Cash flows from financing activities:
Dividends paid (1,179) (1,121)
Repayment of Fil-Mag Group funded indebtedness -- (1,014)
Proceeds of long-term debt 5,000 10,000
Principal payments of long-term debt (2,011) (12)
Net repayment of short-term debt (769) (1,173)
---------- ----------
Net cash provided (used) by financing activities 1,041 6,680
---------- ----------
Net effect of exchange rate changes on cash 119 79
Net (decrease) in cash and cash equivalents (3,675) (2,945)
Cash and cash equivalents at beginning of year 8,716 7,721
---------- ----------
Cash and cash equivalents at June 30 $ 5,041 $ 4,776
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Accounting Policies
-------------------
For a complete description of the accounting policies of Technitrol, Inc. and
its consolidated subsidiaries ("the Company"), refer to Note 1 to the financial
statements included in the Company's Form 10-K filed for the year ended December
31, 1994.
Reclassifications
Certain amounts in the 1994 financial statements have been reclassified to
conform with the current year's presentation.
(2) Acquisitions
------------
On January 17, 1994, the Company, through its wholly-owned subsidiary,
Technitrol International, Inc., a Delaware corporation, acquired from FEE
Technology, S.A. all of the issued and outstanding capital stock of FEE Fil-Mag
Taiwan Corporation ("FFT"), FEE Fil-Mag Singapore Pte. Corporation ("FFS") and
Fil-Mag, Inc. ("FMI"). FFT, FFS and FMI are referred to below as the "Fil-Mag
Group". The Fil-Mag Group is a supplier of magnetic components to domestic and
international manufacturers of PCs, network interface cards, network controllers
and other devices that are connected to data communications networks such as
Token Ring and Ethernet. The Fil-Mag Group conducts manufacturing operations in
its plants in Taiwan and the Philippines, engineering activities at its San
Diego, California location and sales operations through offices in France,
Singapore and San Diego. The Company intends to continue the businesses of the
Fil-Mag Group at their current locations.
The purchase price was $9,082,000 (net of expenses). In addition, the
Company caused FMI to repay to FEE Technology, S.A. approximately $1 million of
indebtedness. FFT was indebted to local banks in the amount of approximately
$3.3 million, all of which has been retired since the acquisition. The purchase
price and the $1 million debt repayment were financed by borrowing $10 million
under a temporary acquisition line of credit and cash on-hand of approximately
$400,000.
The purchase price was arrived at pursuant to arms-length negotiations
taking into account all pertinent factors including, but not limited to, the
nature, monetary and strategic value of the assets being acquired, the
businesses and business prospects of each member of the Fil-Mag Group and the
synergies of the businesses of the Fil-Mag Group with the operations of the
Components Division of the Company. The assets acquired had a fair value of
approximately $18.0 million, including current assets of $9.0 million and
approximately $2.5 million of goodwill associated with the acquisition.
Liabilities assumed totaled $8.6 million.
Subsequent to the acquisition, eight key employees of the Fil-Mag Group
entered into a covenant against competition with the Company in exchange for
which the Fil-Mag Group paid them, in the aggregate, $1 million during the
twelve months subsequent to the acquisition. The $1 million was financed by cash
on-hand and is being amortized on a straight-line basis over the life of the
covenant.
The activity of the Fil-Mag Group for the period from January 1 to January
17, 1994, was not material to the consolidated results of the Company.
F-5
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(3) Shareholders' Equity
--------------------
On August 3, 1994, the Company's Board of Directors approved a three-for-
one split of the Company's common stock in the form of a 200% common stock
dividend for shareholders of record as of August 18, 1994. A total of 5,962,640
shares were issued in connection with the split. The stated par value of each
share was not changed from $.125. A total of $745,000 was reclassified from the
Company's retained earnings account to the Company's common stock account. All
share and per share amounts for 1994 have been restated to retroactively reflect
the stock split.
(4) Supplemental Disclosure of Non-cash Transactions
------------------------------------------------
During the six months ending June 30, 1995 and 1994, the Company issued to
employees stock pursuant to the Company's Restricted Stock Plan having a fair
value of $406,000 and $469,000, respectively.
(5) Merger Agreement with Pulse Engineering, Inc.
--------------------------------------------
On May 23, 1995, the Company and Pulse Engineering, Inc. ("Pulse")
jointly announced that their respective Boards of Directors had approved a
definitive merger agreement. Under the agreement, the Company will acquire all
the issued and outstanding Pulse shares for approximately $24.0 million in cash
and approximately 1,650,000 shares of the Company's stock and Pulse will become
a wholly-owned subsidiary of the Company. Pulse stockholders can elect to
receive all cash or all common stock of the Company, subject to the limitation
that no more than 55% and no less than 50% of the Pulse shares will be converted
to the Company's common stock. A stockholder receiving an equal allocation of
cash and the Company's common stock will receive $4.25 in cash and .2906 shares
of the Company's common stock for each Pulse share. At closing, the exchange
ratio will be adjusted upward if the average closing price for the Company's
stock is below $13-3/4 (equal to $8.00 per Pulse share) and will be adjusted
downward if the average closing price is above $16-3/8 (equal to $9.52 per Pulse
share), both calculated on the closing price of the Company's common stock
during a ten trading day period preceding closing. The purchase price, if a
Pulse stockholder receives 50% cash and 50% Technitrol common stock, will be no
less than $8.25 nor more than $9.01 per Pulse share.
The Company's and Pulse's Boards of Directors will recommend to their
respective shareholders that they approve the merger at special meetings of the
shareholders to be called in September, 1995. The merger is subject to various
conditions which are normal and customary in transactions of this type including
receipt of required regulatory approvals.
The Company also acquired a warrant from an unrelated third party to
purchase 655,489 shares of Pulse common stock at a warrant exercise price of
$1.00 per share. The purchase price for the warrant was approximately
$4,769,000. Based upon Pulse's most recent public filings, the warrant
represents beneficial ownership of approximately 9.1% of the issued and
outstanding Pulse common stock.
Pulse, headquartered in San Diego, California, with operations in Hong
Kong, the People's Republic of China and Ireland, designs, manufactures and
markets electronic components and modules primarily for manufacturers of local
area networks and telecommunications systems.
F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Technitrol, Inc.
We have audited the accompanying consolidated balance sheets of Technitrol, Inc.
and subsidiaries as of December 31, 1994 and 1993 and the related consolidated
statements of earnings and retained earnings and cash flows for each of the
years in the three-year period ended December 31, 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Technitrol, Inc. and
subsidiaries at December 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in note 6 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1993 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes.
Philadelphia, Pennsylvania
March 3, 1995
F-7
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and 1993
In thousands of dollars, except for share data
<TABLE>
<CAPTION>
Assets 1994 1993
------ ---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,716 $ 7,721
Receivables:
Trade 22,614 13,389
Other 139 88
Inventories:
Finished goods 5,471 4,281
Work in process 8,420 5,991
Raw materials and supplies 7,823 5,169
------- -------
Total inventories 21,714 15,441
Prepaid expenses 851 549
------- -------
Total current assets 54,034 37,188
Property, plant and equipment 55,180 45,729
Less accumulated depreciation 30,809 26,922
------- -------
Net property, plant and equipment 24,371 18,807
Deferred income taxes 2,409 1,605
Other assets 3,941 972
------- -------
$84,755 $58,572
======= =======
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt $ 22 $ 21
Short-term debt 756 --
Accounts payable 5,841 3,718
Income taxes payable 1,916 716
Dividends payable 572 559
Accrued payroll 3,118 1,499
Accrued pension expense 4,589 3,002
Other accrued expenses 7,060 3,617
------- -------
Total current liabilities 23,874 13,132
------- -------
Long-term debt, excluding current installments 15,124 5,146
Commitments and contingencies (Note 7)
Shareholders' equity:
Common stock, $.125 par. Authorized 10,000,000 shares;
8,943,960 shares issued in 1994 and 2,981,320 in 1993 1,118 373
Additional paid-in capital 4,329 3,926
Retained earnings 45,923 41,993
------- -------
51,370 46,292
Less: Cost of treasury stock (2,922,508 shares in 1994, and
985,831 shares in 1993) (4,573) (4,628)
Unearned compensation under stock award plan (560) (485)
Cumulative translation adjustment (480) (885)
------- -------
Total shareholders' equity 45,757 40,294
------- -------
$84,755 $58,572
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings and Retained Earnings
Years ended December 31, 1994, 1993 and 1992
In thousands of dollars, except per share data
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net sales $146,444 $100,457 $98,554
Cost of sales 106,609 75,705 73,677
-------- -------- -------
Gross profit 39,835 24,752 24,877
Selling, general and administrative expenses 27,274 19,377 20,019
-------- -------- -------
Operating profit 12,561 5,375 4,858
Other income (expense):
Interest income 140 108 89
Interest expense (1,130) (389) (717)
Other, net (182) 71 109
-------- -------- -------
(1,172) (210) (519)
-------- -------- -------
Earnings before income taxes 11,389 5,165 4,339
Income taxes 4,445 1,809 1,501
-------- -------- -------
Net earnings before cumulative effect of a change in
accounting for income taxes $ 6,944 $ 3,356 $ 2,838
Cumulative effect on prior years (to January 1, 1993) of a
change in accounting for income taxes (Note 6) -- 261 --
-------- -------- --------
Net earnings $ 6,944 $ 3,617 $ 2,838
======== ======== =======
Earnings per share:
Before cumulative effect of a change in accounting for
income taxes $ 1.15 $ .56 $ .48
Cumulative effect of a change in accounting for income $ -- $ .04 $ --
taxes -------- -------- -------
Total earnings per share $ 1.15 $ .60 $ .48
======== ======== =======
Retained earnings:
Balance at beginning of year $ 41,993 $ 40,614 $40,005
Net earnings for the year 6,944 3,617 2,838
-------- -------- -------
$ 48,937 $ 44,231 $42,843
200% Common stock dividend 745 -- --
Cash dividends declared:
($.376 per share in 1994 and $.373 per share in 1993
and 1992) 2,269 2,238 2,229
-------- -------- -------
Balance at end of year $ 45,923 $ 41,993 $40,614
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1993, and 1992
In thousands of dollars
<TABLE>
<CAPTION>
1994 1993 1992
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 6,944 $ 3,617 $ 2,838
Cumulative effect of a change in accounting for income taxes -- (261) --
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 5,271 4,991 4,968
Loss (gain) on disposal of equipment 88 (60) 40
Changes in assets and liabilities net of effect of acquisitions:
Increase in deferred tax benefits (1,019) (492) (673)
Increase (decrease) in income taxes payable 1,055 798 (376)
Increase (decrease) in accounts payable 1,082 689 (44)
Increase in accrued expenses 3,912 981 60
(Increase) decrease in accounts receivable (4,626) 142 (192)
(Increase) decrease in inventories (2,482) 1,031 (760)
Other, net (607) 108 763
-------- ------- --------
Net cash provided by operating activities 9,618 11,544 6,624
-------- ------- --------
Cash flows from investing activities:
Acquisition of capital stock of the Fil-Mag Group, net of cash
acquired (8,805) -- --
Acquisition of capital stock of Doduco Corporation, net of
cash acquired -- -- (441)
Sales or maturities of marketable securities 1 4 1
Capital expenditures, exclusive of acquisitions (4,429) (2,655) (3,674)
Proceeds from sale of property, plant and equipment 282 71 54
-------- ------- --------
Net cash used in investing activities (12,951) (2,580) (4,060)
-------- ------- --------
Cash flows from financing activities:
Repayment of Fil-Mag Group funded indebtedness (1,014) -- --
Principal payments on long-term debt (21) (8,421) (10,678)
Net repayments of short term debt (2,504) -- --
Proceeds of long-term borrowings 10,000 6,700 12,600
Repayment of Doduco Corporation funded indebtedness -- -- (6,120)
Dividends paid (2,255) (2,237) (2,224)
-------- ------- --------
Net cash provided by (used in) financing activities 4,206 (3,958) (6,422)
-------- ------- --------
Net effect of exchange rate changes on cash 122 (33) (71)
Net increase (decrease) in cash and cash equivalents 995 4,973 (3,929)
Cash and cash equivalents at beginning of year 7,721 2,748 6,677
-------- ------- --------
Cash and cash equivalents at end of year $ 8,716 $ 7,721 $ 2,748
======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
------- -- ----------- ---------- --------
Principles of Consolidation
---------- -- -------------
The consolidated financial statements include the accounts of
Technitrol, Inc. (the "Company") and all of its subsidiaries. All material
intercompany accounts and transactions are eliminated in consolidation.
Cash and Cash Equivalents
---- --- ---- -----------
Cash and cash equivalents include funds invested in a variety of
liquid short-term investments with a maturity of three months or less.
Inventories
-----------
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method. In addition to the
inventories included in the accompanying balance sheets, the Company has custody
of inventories on consignment from suppliers ($14,063,000 at December 31, 1994
and $11,092,000 at December 31, 1993).
Property, Plant and Equipment
-------- ----- --- ---------
Property, plant and equipment are stated at cost. Depreciation is
based upon the estimated useful life of the assets and has been provided for on
both the accelerated and the straight line methods. Expenditures for maintenance
and repairs are charged to operations as incurred, and major renewals and
betterments are capitalized. Upon sale or retirement, the cost of the asset and
related accumulated depreciation are removed from the balance sheet, and any
resulting gains or losses are included in earnings.
Excess of Cost over Net Assets
------ -- ---- ---- --- ------
Excess of cost over net assets acquired (which the Company believes
has continuing value) is being amortized on a straight-line basis over 15 years.
The recoverability of the carrying value of intangible assets is evaluated on a
recurring basis.
Earnings per Share
-------- --- -----
Earnings per share are calculated based on the weighted average number
of common shares outstanding. Earnings per share for prior years have been
restated to reflect a 200% stock dividend recorded on September 18, 1994.
Foreign Currency Translation
------- -------- -----------
The financial statements of the Company's foreign subsidiaries have
been translated into U.S. dollars in accordance with Financial Accounting
Standards Board Statement No. 52. All balance sheet accounts have been
translated using the year-end exchange rate and all income statement accounts
have been translated using the average exchange rate for the year. The gains and
losses resulting from the change in exchange rates from the date of acquisition
to the current balance sheet date have been reported separately as a component
of shareholders' equity. Transaction gains and losses are recorded in the
statement of earnings for the year in which they occur.
F-11
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(2) Acquisitions
------------
On January 17, 1994, the Company, through its wholly-owned subsidiary,
Technitrol International, Inc., a Delaware corporation, acquired from FEE
Technology, S.A. all of the issued and outstanding capital stock of FEE Fil-Mag
Taiwan Corporation ("FFT"), FEE Fil-Mag Singapore Pte. Corporation ("FFS") and
Fil-Mag, Inc. ("FMI"). FFT, FFS and FMI are referred to below as the "Fil-Mag
Group". The Fil-Mag Group is a supplier of magnetic components to domestic and
international manufacturers of PCs, network interface cards, network controllers
and other devices that are connected to data communications networks such as
Token Ring and Ethernet. The Fil-Mag Group conducts manufacturing operations in
its plants in Taiwan and the Philippines; engineering activities at its San
Diego, California location; and sales operations through offices in France,
Singapore and San Diego. The Company intends to continue the businesses of the
Fil-Mag Group at their current locations.
The purchase price was $9,082,000 (net of expenses). In addition, the
Company caused FMI to repay to FEE Technology, S.A. approximately $1 million of
indebtedness. FFT was indebted to local banks in the amount of approximately
$3.3 million, of which approximately $2.5 million was retired during 1994. The
purchase price and the $1 million debt repayment were financed by borrowing $10
million under a temporary acquisition line of credit and cash on-hand of
approximately $400,000.
The purchase price was arrived at pursuant to arms-length negotiations,
taking into account all pertinent factors including, but not limited to, the
nature, monetary and strategic value of the assets being acquired, the
businesses and business prospects of each member of the Fil-Mag Group and the
synergies of the businesses of the Fil-Mag Group with the operations of the
Components Division of the Company. The assets acquired had a fair value of
approximately $18.0 million, including current assets of $9.0 million and
approximately $2.5 million of goodwill associated with the acquisition.
Liabilities assumed totaled $8.6 million.
Subsequent to the acquisition, eight key employees of the Fil-Mag Group
entered into a covenant against competition with the Company in exchange for
which the Fil-Mag Group paid them, in the aggregate, $1 million during the
twelve months subsequent to the acquisition. The $1 million was financed by cash
on-hand.
The acquisition has been accounted for by the purchase method of
accounting. Had the business been acquired on January 1, 1993, unaudited
consolidated pro forma results would have been:
<TABLE>
<CAPTION>
Year ended
December 31, 1993
-----------------
<S> <C>
Sales $130.1 million
Net earnings $ 4.3 million
Net earnings per share $ .76
</TABLE>
F-12
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(2) Acquisitions, continued
------------
The activity of the Fil-Mag Group for the period from January 1 to January 17,
1994, was not material to the consolidated results of the Company.
This unaudited pro forma information is provided for comparative
purposes only. It does not purport to be indicative of the results that actually
would have occurred if the acquisition had been consummated on the date
indicated or which may be obtained in the future.
On February 12, 1992, the Company purchased all of the issued and
outstanding shares of the capital stock of Doduco Corporation. Upon acquisition,
the name of the acquired business was changed to AMI-DDC, Inc. ("AMI-DDC"). AMI-
DDC is engaged in the business of manufacturing electrical contacts. The cost of
the acquisition amounted to $728,000, consisting of $111,000 of acquisition
costs and $617,000 cash paid for all outstanding shares of common stock. Funded
indebtedness of AMI-DDC of $3.6 million was repaid during March of 1992, and an
additional $2.5 million was repaid in April of 1992. The purchase price and debt
repayments were financed by borrowing $5.9 million under a revolving credit loan
(with a maximum draw of $6 million) and cash on hand of approximately $1.1
million.
The acquisition was accounted for by the purchase method of accounting.
Had the business been acquired on January 1, 1992, pro forma results of
operations would have been:
<TABLE>
<CAPTION>
Year ended
Dec. 31, 1992
---------------
<S> <C>
Sales $ 99.4 million
Net earnings $ 2.9 million
Net earnings per share $ .48
</TABLE>
This unaudited pro forma information is provided for comparative
purposes only. It does not purport to be indicative of the results that actually
would have occurred if the acquisition had been consummated on the date
indicated or which may be attained in the future.
(3) Property, Plant and Equipment
-------- ----- --- ---------
Components of property, plant and equipment were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Land $ 1,044 $ 1,044
Buildings and improvements 15,074 12,400
Machinery and equipment 39,062 32,285
------- -------
$55,180 $45,729
======= =======
</TABLE>
F-13
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(4) Long-term Debt
--------- ----
Long-term debt was as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
Bank Loans
---- -----
<S> <C> <C>
Variable-rate (LIBOR plus 0.875%) bank loan facility with $8.3 million
maximum draw, due May 1997 (4.125% rate at December 31, 1993) $ -- $ 5,000
--------- -----
Variable-rate (LIBOR plus 0.75%) bank loan facility with $20.0 million
maximum draw, due March 1997 (6.97% rate at December 31, 1994) $ 15,000 $ --
------- ------
Total bank loans $ 15,000 $5,000
Mortgage Notes, secured by mortgages on land, buildings, and certain
-------- -----
equipment:
4.5% mortgage notes, due in monthly installments until 2000 146 167
------- ------
Total long-term debt 15,146 5,167
Less current installments 22 21
------- ------
Long-term debt excluding current installments $15,124 $5,146
======= ======
Principal payments due within the next five years are as follows (in thousands):
<CAPTION>
Principal
---------
<S> <C>
1995 $ 22
1996 23
1997 15,024
1998 25
1999 26
</TABLE>
In January 1994, the Company borrowed $10 million under a temporary
acquisition line of credit as described in Note 2. In March 1994, this amount
was refinanced along with the $5 million outstanding at December 31, 1993, into
a single variable-rate revolving bank loan facility with a maximum draw of $20
million, maturing in March 1997. On February 9, 1995, $2 million of the $15
million outstanding at December 31, 1994 was repaid and the committed facility
was reduced from $20 million to $13 million.
The Bank Loan facilities are unsecured and contain certain covenants
requiring maintenance of minimum net worth and other customary and normal
provisions. The Company is in compliance with all such covenants.
F-14
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(5) Research and Development Expense
-------- --- ----------- -------
Research and development expense is included in cost of sales and has
not exceeded 3.3% of cost of sales in 1994, 1993 and 1992.
(6) Income Taxes
------ -----
During 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). FAS 109 requires a change from the deferred method of accounting for
income taxes of Accounting Principles Board Opinion 11 to the asset and
liability method of accounting for income taxes. Under the asset and liability
method of FAS 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. The change in these deferred tax assets or liabilities,
including the effect of a change in tax rates, if any, from the beginning to the
end of the period generally is recognized as deferred tax expense or benefit.
Effective January 1, 1993, the Company adopted FAS 109 and has reported
the cumulative effect of that change in the method of accounting for income
taxes in the consolidated statement of earnings for the year ended December 31,
1993. Prior year financial statements have not been restated. However, amounts
recorded for certain prior business combinations have been adjusted from their
net of tax amounts to their pre-tax amounts. Related deferred taxes have been
recognized. The effect of these adjustments on earnings before taxes is not
material.
Income tax expense was as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $2,837 $1,394 $1,666
State and local 898 630 487
Foreign 1,390 277 21
------ ------ ------
5,125 2,301 2,174
Deferred (benefit) (680) (492) (673)
------ ------ ------
$4,445 $1,809 $1,501
====== ====== ======
</TABLE>
For the year ended December 31, 1994, approximately $25,000 was credited
to Additional Paid-In Capital to record the tax benefit of dividends paid on
restricted stock. Additional Paid-In Capital was also credited for approximately
$18,000 for the tax effect of the change in value from the award date to the
release date of restricted stock which was released during the period.
F-15
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(6) Income Taxes, continued
------ ----- ---------
A reconciliation of the statutory Federal income tax rate with the
effective income tax rate follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Statutory Federal income tax rate 34% 34% 34%
Increase (decrease) resulting from:
Tax exempt earnings of subsidiaries
in Puerto Rico (5) (14) (9)
State and local income taxes, net of
federal benefit 6 10 9
Non-deductable expenses 1 2 --
Foreign (1) 1 (1)
Other, net 4 2 2
----- ----- -----
Effective tax rate 39% 35% 35%
===== ===== =====
</TABLE>
Deferred tax assets and liabilities were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Assets:
Plant and equipment, principally due to differences in
depreciation $ -- $ 34
Inventories, principally due to additional costs valued for
tax purposes 500 229
Vacation compensation 162 141
Pension expense 1,158 771
Stock awards 637 556
Accrued liabilities 549 327
Other 131 84
----- -----
Total deferred tax assets $ 3,137 $ 2,142
===== =====
Liabilities:
Plant and equipment, principally due to differences in
depreciation $ 194 $ --
Local tax on Puerto Rico-sourced income 74 120
Other 460 417
--- ---
Total deferred tax liabilities $ 728 $ 537
--- ---
Net deferred tax asset $ 2,409 $ 1,605
===== =====
</TABLE>
No valuation allowance for deferred tax assets was deemed necessary at December
31, 1994 or 1993. Based on the Company's history of taxable income and its
projection of future earnings, management believes that it is more likely than
not that sufficient taxable income will be generated in the foreseeable future
to realize the deferred tax assets.
(7) Lease Commitments
----- -----------
The Company conducts a portion of its operations from leased premises
and also leases certain equipment under operating leases.
F-16
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(7) Lease Commitments, continued
----- -----------
Total rental expense for the years ended December 31, 1994, 1993 and
1992 was $1,483,000, $1,183,000 and $1,291,000, respectively. The aggregate
minimum rental commitments under non-cancellable leases in effect at December
31, 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending
December 31 Total
----------- -----
<S> <C>
1995 $ 1,226
1996 1,140
1997 1,051
1998 1,011
1999 964
Thereafter 2,352
-----
$ 7,744
=====
</TABLE>
(8) Shareholders' Equity
------------ ------
Changes were as follows (in thousands):
<TABLE>
<CAPTION>
Additional paid-
Common in Treasury Unearned
stock capital stock compensation
----- ------- ----- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1991 $ 373 3,472 4,720 682
----- ----- ----- ----
Stock award of 39,180 shares, net of forfeitures -- 312 (62) 374
Compensation under Restricted Stock Plan -- -- -- (424)
------ ----- ----- ----
Balance at December 31, 1992 $ 373 3,784 4,658 632
----- ----- ----- ----
Stock award of 18,630 shares, net of forfeitures -- 129 (30) 159
Compensation under Restricted Stock Plan -- -- -- (306)
Net tax benefit of dividends paid on restricted stock
and the difference in value between grant date
and date of vesting -- 13 -- --
----- ----- ----- ----
Balance at December 31, 1993 $ 373 3,926 4,628 485
----- ----- ----- ----
Stock award of 34,985 shares, net of forfeitures -- 360 (55) 414
Compensation under Restricted Stock Plan -- -- -- (339)
Net tax benefit of dividends paid on restricted stock
and the difference in value between grant date
and date of vesting -- 43 -- --
200% stock dividend recorded on September 18,
1994. 745 -- -- --
----- ----- ----- ----
Balance at December 31, 1994 $1,118 4,329 4,573 560
===== ===== ===== ====
</TABLE>
The cumulative translation adjustment was $480,000, $885,000 and $824,000 at
December 31, 1994, 1993 and 1992, respectively.
F-17
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(8) Shareholders' Equity, continued
------------ ------
On August 3, 1994, the Company's Board of Directors approved a
three-for-one split of the Company's common stock in the form of a 200% common
stock dividend for shareholders of record as of August 18, 1994. A total of
5,962,640 shares were issued in connection with the split. The stated par value
of each share was not changed from $.125. A total of $745,000 was reclassified
from the Company's retained earnings account to the Company's common stock
account. All share and per share amounts have been restated to retroactively
reflect the stock split.
(9) Employee Benefit Plans
-------- ------- -----
The Company and its subsidiaries maintain defined benefit pension plans
and make contributions to multi-employer plans covering certain union employees.
Certain non-U.S. subsidiaries have varying types of retirement plans providing
benefits for substantially all of their employees.
Pension expense was as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- ------
<S> <C> <C> <C>
Principal defined benefit plans $ 1,310 $ 932 $ 811
Contributions to multi-employer plans 201 170 180
Other non-U.S. plans 160 -- --
------- ------- -----
$ 1,671 $ 1,102 $ 991
======= ======= =====
</TABLE>
The expense for the principal defined benefit pension plans include the
following components (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -----
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 1,286 $ 963 $ 903
Interest cost on projected benefit obligation 1,206 991 888
Actual return on plan assets (124) (1,585) (586)
Net amortization and deferral (1,058) 563 (394)
------- -----
Net periodic pension cost $ 1,310 $ 932 $ 811
======= ======= =====
</TABLE>
F-18
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(9) Employee Benefit Plan, continued
---------------------
The financial status of the principal defined benefit plans at December
31, was as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Actuarial present value of obligations:
Accumulated benefit obligation (including vested benefits of
$10,863,000 in 1994 and $7,891,000 in 1993) $12,401 $ 8,100
------- -------
Projected benefit obligation for services to date 18,499 12,808
Plan assets at fair value 15,446 13,144
------- -------
Plan assets in excess of (less than) projected benefit obligation (3,053) 336
Unrecognized net (gain) from past experience different from that (1,206) (3,368)
assumed.
Prior service costs not yet recognized 612 664
Unrecognized net obligation at January 1, 1987 being recognized over
18 years 35 38
-- --
Accrued pension costs at December 31 $(3,612) $(2,330)
===== =====
</TABLE>
Benefits are based on years of service and average final compensation.
For U.S. plans, the Company funds, annually, at least the minimum amount
required by the Employee Retirement Income Security Act of 1974. Plan assets
consist principally of short-term investments and listed bonds and stocks.
Assumptions used to develop data for 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Discount rates 7.3-7.5% 9.0%
Annual compensation increases 4.8-7.0% 7.0%
Expected long-term rates of return on plan assets 7.5-9.0% 9.0%
</TABLE>
The Company provides certain post-retirement benefits (at least
temporarily) to a small number of retirees at one of its recently acquired
businesses. These amounts have been accrued and have not had a material impact
on the Company's financial statements.
The Company maintains a defined contribution 401(k) plan covering
substantially all U.S. employees not affected by certain collective bargaining
agreements. The Company contributes a matching amount equal to $.50 for each
$1.00 of the participant's contribution not in excess of 3% of the participant's
annual wages. The contribution expense under this plan was $165,000, $177,000
and $155,000 in 1994, 1993, and 1992, respectively.
(continued)
F-19
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(10) Quarterly Financial Data (Unaudited)
--------- --------- ---- ---------
Quarterly results of operations (unaudited) for 1994 and 1993 are
summarized as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Quarter ended
-----------------
Mar. 31 June 30 Sept. 30 Dec. 31
------- ------- -------- -------
<S> <C> <C> <C> <C>
1994:
Net sales $34,960 $37,816 $36,591 $37,077
Gross profit 9,443 10,324 9,985 10,083
Net earnings 1,370 1,742 1,884 1,948
Net Earnings per Share .23 .29 .31 .32
1993:
Net sales $26,116 $25,295 $25,306 $23,740
Gross profit 6,061 6,478 6,265 5,948
Net earnings:
Before cumulative effect - change
in accounting for income taxes 647 793 903 1,013
Cumulative effect - change in
accounting for income taxes 261 -- -- --
--- --- --- ---
Total 908 793 903 1,013
Net earnings per share:
Before cumulative effect - change
in accounting for income taxes .11 .13 .15 .17
Cumulative effect - change in
accounting for income taxes .04 -- -- --
--- --- --- ---
Total .15 .13 .15 .17
</TABLE>
(11) Incentive Compensation Plan
---------------------------
The Company has an Incentive Compensation Plan for key employees of the
Company and its subsidiaries. The Plan grants the recipient the right of
ownership of Technitrol, Inc. common stock, conditional on the attainment of
defined performance goals and/or continued employment with the Company.
F-20
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(11) Incentive Compensation Plan, continued
--------- ------------ ----
A summary of the shares under the Incentive Compensation Plan is as
follows (with relevant share amounts restated to reflect the 200% stock
dividend):
<TABLE>
<CAPTION>
Awarded,
Available to Not Yet
be Granted Released
---------- --------
<S> <C> <C>
Shares authorized 600,000
Awarded during years prior to 1994 (342,525) 342,525
Shares released to recipients prior to 1994 (157,680)
-------- --------
Balance at December 31, 1993 257,475 184,845
Awarded during 1994, net (34,985) 34,985
Shares released to recipients during 1994 (40,130)
-------- --------
Balance at December 31, 1994 222,490 179,700
======== ========
</TABLE>
Shares are held by the Company until the defined performance goals
and/or continued employment requirement have been attained.
During the years ended December 31, 1994, 1993 and 1992, the Company
issued to employees, net of cancellations, Incentive Compensation Shares having
an approximate fair value at date of issue of $414,000, $159,000 and $374,000,
respectively.
Amounts charged to expense as a result of the incentive compensation
plan and related expenses were $994,000 in 1994, $658,000 in 1993 and $653,000
in 1992.
(12) Supplementary Information
------------- -----------
Charged directly to costs and expenses (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Depreciation $5,016 $4,901 $4,890
Amortization of intangible assets 255 90 78
Advertising 1,159 1,117 1,009
Repairs and maintenance 1,936 1,162 1,079
Bad debt expense 114 76 80
Cash payments made (in thousands):
Income taxes $3,663 $1,320 $1,780
Interest 1,058 389 724
</TABLE>
(continued)
F-21
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(12) Supplementary Information, continued
------------- -----------
Supplemental Disclosure of Non-cash Transactions:
On February 12, 1992, the Company purchased all of the capital stock of
AMI-DDC for $728,000. In conjunction with the acquisition, liabilities were
assumed as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired $7,730
Cash paid for the capital stock (728)
------
Liabilities assumed $7,002
======
</TABLE>
(13) Segment Information
------- -----------
Industry Segment Information
---------------- -----------
As a result of the acquisition of the Fil-Mag Group in January 1994
(discussed in Note 2 of Notes to Consolidated Financial Statements), the Company
has redefined the business segments during the first quarter of 1994:
. The Fil-Mag Group has been added to the Electronic Products
Segment. The segment continues to also include the Company's Components
Division, but excludes the Products Division, Lloyd Instruments, Ltd. ("Lloyd
Instruments") and John Chatillon & Sons, Inc. ("Chatillon"). As a result, the
Electronic Products Segment is now composed of the Company's electronic
components business.
. The Electrical Products Segment has become the Metallurgical
Products Segment. This segment includes the operations of Advanced Metallurgy,
Inc. ("AMI") and Chace Precision Metals, Inc. ("Chace"). AMI manufactures
electrical contacts and assemblies for a wide range of industrial customers.
Separately, Chace produces thermostatic and clad metal products for a broad
market of industrial and consumer product manufacturers.
. The Mechanical Products Segment no longer exists. A newly
configured segment, the End User/Finished Products Segment, includes the
Products Division, Lloyd Instruments, and Chatillon. The Products Division
manufactures document counters and dispensers, and markets its products
internationally through distributors and on an OEM basis. Lloyd Instruments
manufactures a comprehensive range of material testing systems and markets its
products throughout the world. Chatillon is composed of two primary product
families: (1) mechanical force measurement products and mechanical scales, and
(2) electronic force measurement products and electronic scales. Chatillon's
markets are numerous and international in nature. It possesses multiple channels
of marketing and distribution.
Identifiable assets are those assets that are utilized in each segment
to provide the respective products. Corporate assets are principally cash and
cash equivalents.
The Company's products are sold primarily to industrial customers
through the three segments described above. All business segments' revenues are
generally recognized when products are shipped. The majority of the Company's
sales are subject to credit terms prevalent in the industries it serves.
Receivables are written off when an account is considered to be doubtful of
collection. Management believes there are no significant concentrations of
credit risk.
(continued)
F-22
<PAGE>
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(13) Segment Information, continued
------- -----------
<TABLE>
<CAPTION>
(in thousands of dollars)
Net sales 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Electronic Products................. $ 41,173 $ 9,375 $ 8,164
Metallurgical Products.............. 76,534 63,935 60,393
End User/Finished Products.......... 28,737 27,147 29,997
-------- -------- -------
Total............................ $146,444 $100,457 $98,554
======== ======== =======
Operating profit before income taxes
Electronic Products................. $ 5,023 $ 1,678 $ 1,059
Metallurgical Products.............. 4,792 2,058 1,590
End User/Finished Products.......... 2,746 1,639 2,209
-------- -------- -------
Total operating profit........... $ 12,561 $ 5,375 $ 4,858
Other income (expense), net......... (1,172) (210) (519)
-------- -------- -------
Earnings before income taxes..... $ 11,389 $ 5,165 $ 4,339
======== ======== =======
Assets at end of year
Electronic Products................. $ 25,054(a) $ 3,841 $ 3,769
Metallurgical Products.............. 37,054 34,317 35,178(b)
End User/Finished Products.......... 14,086 12,432 13,370
-------- -------- -------
Identifiable assets.............. $ 76,194 $ 50,590 $52,317
Corporate assets.................... 8,561 7,982 3,391
-------- -------- -------
Total............................ $ 84,755 $ 58,572 $55,708
======== ======== =======
Capital expenditures
Electronic Products................. $ 7,933(a) $ 238 $ 262
Metallurgical Products.............. 2,288 2,191 8,204(b)
End User/Finished Products.......... 569 226 429
-------- -------- -------
Total............................ $ 10,790 $ 2,655 $ 8,895
======== ======== =======
Depreciation and amortization
Electronic Products................. $ 1,502(a) $ 646 $ 419
Metallurgical Products.............. 3,205 3,692 3,920(b)
End User/Finished Products.......... 564 653 629
-------- -------- -------
Total............................ $ 5,271 $ 4,991 $ 4,968
======== ======== =======
</TABLE>
(a) Includes property, plant and equipment acquired as part of the acquisition
of the Fil-Mag Group. See Note 2 to Consolidated Financial Statements.
(b) Includes property, plant and equipment acquired as part of the acquisition
of Doduco Corporation. See Note 2 to Consolidated Financial Statements.
In 1994, one customer accounted for slightly more than 10% of
consolidated sales. The customer is a Fortune 150 entity principally doing
business with the Metallurgical Products Segment. The loss of that customer
could have a material adverse effect on the Company. Another customer, then a
Fortune 50 entity principally doing business with the Metallurgical Products
Segment, produced revenues slightly exceeding 10% of total sales in 1993 and
1992. Sales to the Company's ten largest customers accounted for 38% of sales in
1994, 42% in 1993 and 41% in 1992.
(continued)
TECHNITROL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(13) Segment Information, continued
------- -----------
Export sales from the United States totalled $14.0 million in 1994,
$11.5 million in 1993 and $13.2 million in 1992. There has been no concentration
of sales in any particular domestic or international geographic area. The
Company's operations are divided into three geographic areas: Domestic, Far
East, and All Other Foreign. Substantially all of the revenues, earnings and
identifiable assets in the Far East are located in Taiwan and the Philippines.
No more than 10% of consolidated revenues, pre-tax earnings or total assets are
located in any one foreign country outside of the Far East.
<TABLE>
<CAPTION>
Geographic Information (in thousands of dollars)
----------------------
Sales to unaffiliated customers, from 1994 1993 1992
--------- ---------- ----------
<S> <C> <C> <C>
United States........................ $121,051 $ 92,976 $90,201
Far East............................. 16,036 -- --
All Other Foreign.................... 9,357 7,481 8,353
-------- -------- -------
Total............................. $146,444 $100,457 $98,554
======== ======== =======
Affiliate sales or transfers, from
United States........................ $ 62 $ 122 $ 112
Far East............................. 10,141 -- --
All Other Foreign.................... 629 615 634
-------- -------- -------
Total............................. $ 10,832 $ 737 $ 746
======== ======== =======
Operating Profit
United States........................ $ 9,032 $ 4,814 $ 4,850
Far East............................. 2,473 -- --
All Other Foreign.................... 901 603 53
Eliminations......................... 155 (42) (45)
-------- -------- -------
Total............................. $ 12,561 $ 5,375 $ 4,858
======== ======== =======
Identifiable assets
United States........................ $ 60,645 $ 53,601 $51,786
Far East............................. 17,439 -- --
All Other Foreign.................... 6,671 4,971 3,922
-------- -------- -------
Total............................. $ 84,755 $ 58,572 $55,708
======== ======== =======
</TABLE>
F-23
<PAGE>
PULSE ENGINEERING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 2, July 3,
(In thousands, except share data) 1995 1994
----------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,338 $ 7,059
Short-term investments - 6,480
Trade accounts receivable (less
allowance for doubtful accounts
of $173 in 1995 and $138 in 1994) 13,435 9,245
Inventories (Note 3) 8,985 12,843
Other current assets 2,112 1,883
--------- --------
Total current assets 39,870 37,510
Property, plant and equipment, net
(Note 3) 20,280 15,109
Other assets, net 1,150 1,719
--------- --------
$ 61,300 $ 54,338
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,029 $ 3,518
Accrued payroll and related expenses 2,605 1,681
Current portion of long-term debt
(Notes 4 and 7) 689 1,500
Other current liabilities (Note 3) 6,628 3,219
--------- --------
Total current liabilities 11,951 9,918
Long-term debt (Notes 4 and 7) 1,114 150
Commitments (Note 7) - -
Stockholders' equity: (Notes 2, 4 and 6)
Preferred stock, $.01 par value;
5,000,000 shares authorized;
none issued or outstanding - -
Class A voting common stock, $.01
par value; 15,000,000
shares authorized, 5,989,137
shares issued and outstanding
(5,843,620 in 1994) 59 58
Class B nonvoting common stock, $.01
par value; 5,000,000
shares authorized; none issued or
outstanding - -
Additional paid-in capital 19,434 19,053
Retained earnings 30,083 26,583
Cumulative foreign currency
translation adjustment 1,270 1,270
--------- ------
50,846 46,964
Less: Treasury stock, at cost -
380,894 shares (398,502 shares
in 1994) (2,611) (2,694)
---------- --------
Total stockholders' equity 48,235 44,270
---------- --------
$ 61,300 $ 54,338
========= ========
</TABLE>
See accompanying notes.
F-24
<PAGE>
PULSE ENGINEERING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal years ended
-----------------------------------
July 2, July 3, June 27,
(In thousands, except per share data) 1995 1994 1993
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 85,357 $ 65,228 $ 60,479
Cost of sales 64,393 48,082 39,393
----------- -------- --------
Gross profit 20,964 17,146 21,086
Research, development and engineering 4,668 6,669 4,377
Selling, general and administrative 11,695 11,231 11,182
Plant shutdown costs - - 400
----------- --------- --------
Operating income (loss) 4,601 (754) 5,127
Interest income 353 637 816
Interest expense (168) (282) (577)
Other expense (Note 2) (411) - -
----------- --------- --------
Income (loss) before income taxes 4,375 (339) 5,366
Provision for income taxes (Note 5) 875 - 1,073
----------- --------- --------
Net income (loss) $ 3,500 $ (399) $ 4,293
=========== ========= ========
Earnings (loss) per share $ 0.55 $ (0.07) $ 0.65
=========== ========= ========
Shares used in computing earnings
(loss) per share 6,353 5,432 6,615
=========== ======== ========
</TABLE>
See accompanying notes.
F-25
<PAGE>
PULSE ENGINEERING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Cumulative
foreign
Common stock Additional currency Total
-------------------------- paid-in Retained translation Treasury stockholders'
(In thousands, except share data) Shares Amount capital earnings adjustment stock equity
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 28, 1992 5,617,682 $56 $18,148 $22,689 $1,270 $ - $42,163
Issuance of common stock
for cash through stock
plans and warrant
agreements 197,017 2 749 - - - 751
Purchase of treasury stock
(340,900 shares) less sales
to employee stock purchase
plan (2,535 shares) (338,365) - - - - (2,261) (2,261)
Net income - - - 4,293 - - 4,293
---------------------------------------------------------------------------------------------
Balance, June 27, 1993 5,476,334 58 18,897 26,982 1,270 (2,261) 44,946
Issuance of common stock
for cash through stock
plans and warrant
agreements 28,921 - 156 - - - 156
Purchase of treasury stock
(72,100 shares) less sales
to employee stock purchase
plan (11,963 shares) (60,137) - - - - (433) (433)
Net loss - - - (399) - - (399)
---------------------------------------------------------------------------------------------
Balance, July 3, 1994 5,445,118 58 19,053 26,583 1,270 (2,694) 44,270
Issuance of common stock
for cash through stock
plans and warrant
agreements 145,517 1 381 - - - 382
Sales of treasury stock to
employee stock purchase
plan (17,068 shares) 17 ,608 - - - - 83 83
Net income - - - 3,500 - - 3,500
---------------------------------------------------------------------------------------------
Balance, July 2, 1995 5,608,243 $59 $19,434 $30,083 $1,270 $(2,611) $48,235
=============================================================================================
</TABLE>
See accompanying notes.
F-26
<PAGE>
PULSE ENGINEERING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal years ended
-----------------------------------------------------------
July 2, July 3, June 27,
(In thousands) 1995 1994 1993
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 3,500 $ (399) $ 4,293
Adjustments to reconcile net
income (loss) to net cash
flows provided by (used for) operating
activities:
Depreciation and amortization 2,943 2,028 2,223
Provision to increase inventory
reserve 188 1,783 399
Exchange loss 297 250 228
---------- ---------- -------------
6,928 3,662 7,143
Changes in operating assets and liabilities:
Trade accounts receivable (4,467) (1,689) 817
Inventories 3,671 (5,198) (2,355)
Other current assets 327 (699) 826
Accounts payable (1,487) 1,662 514
Accrued liabilities 4,321 (431) (1,076)
---------- ---------- -------------
Net cash flows provided by (used for)
operating activities 9,293 (2,693) 5,869
Investment activities:
Sales (purchases) of short-term investments 6,480 12,188 (2,913)
Plant shutdown costs - - (400)
Proceeds from the sale of Potter
manufacturing division - 1,593 -
Disposition of property, plant and equipment 16 1,335 91
Purchase of property, plant and equipment (8,116) (7,330) (1,942)
Irish grant to purchase property, plant
and equipment - 116 -
------------- ---------- -----------
Net cash flows provided by (used for)
investing activities (1,620) 7,902 (5,164)
Financing activities:
Proceeds from long-term debt 2,171 - -
Repayment of long-term debt (2,018) (2,850) -
Issuance of common stock 382 156 751
Sale (purchase) of treasury stock 83 (433) (2,261)
------------- ----------- -----------
Net cash flows provided by (used for)
financing activities 618 (3,127) (1,510)
Effect of exchange rate changes on cash (12) (47) (183)
------------- ----------- -----------
Increase (decrease) in cash and cash equivalents 8,279 2,035 (988)
Cash and cash equivalents at beginning of period 7,059 5,024 6,012
------------- ----------- -----------
Cash and cash equivalents at end of period $ 15,338 $ 7,059 $ 5,024
============= =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 267 $ 453 $ 582
============= ========== ===========
Net taxes paid (refunded) $ (1,016) $ 36 $ 976
============= ========== ===========
</TABLE>
See accompanying notes.
F-27
<PAGE>
PULSE ENGINEERING, INC.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
intercompany balances and transactions are eliminated in consolidation.
Fiscal year -- The Company's fiscal year ends on the Sunday closest to June
30th. Fiscal years 1995 and 1993 consist of 52 weeks of operations while fiscal
year 1994 consists of 53 weeks.
Cash equivalents -- The Company considers all highly liquid investments
with maturities of 90 days or less at the date of purchase to be cash
equivalents. Cash equivalents are stated at cost, which approximates market
value.
Short-term investments -- Short-term investments consist primarily of
municipal and corporate bonds, Federal agency issues and auction market
preferred stock. Such investments have maturities greater than 90 days at the
date of purchase and are stated at cost, which approximates market value.
Effective July 4, 1994 the Company adopted Statement of Financial Accounting
Standard No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which requires companies to record certain debt and equity security
investments at market value. The adoption of this standard did not have a
material impact on the Company's financial position or results of operations for
the year end July 2, 1995.
Inventories -- Inventories are stated at the lower of cost (determined on a
first-in, first-out basis) or market.
Property, plant and equipment -- Property, plant and equipment is stated at
cost and depreciated over the estimated useful lives of the assets (3 - 30
years) using the straight-line method.
Concentration of credit risk -- Credit is extended based on an evaluation
of the customer's financial condition and generally collateral is not required.
Credit losses have traditionally been minimal and such losses have been within
management's expectations. The Company's accounts receivable are largely
generated from computer and networking companies with a history of timely
payment.
Revenue recognition -- Revenue is recognized upon shipment of product.
Research and development -- Research and development expense was $2,311,000
in 1995, $4,923,000 in 1994 and $2,300,000 in 1993.
Income taxes -- The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes."
Per share information -- Earnings per share for fiscal years 1995 and 1993
includes both weighted average and common share equivalents outstanding. Common
share equivalents result from outstanding options and warrants to purchase
common stock. Loss per share information for fiscal 1994 is based on the
weighted average number of common shares outstanding during the year. Common
share equivalents were not included in computing the fiscal 1994 loss per share
since the effect would have been antidilutive.
2. PENDING MERGER
The Company entered into an Agreement and Plan of Merger dated as of May
23, 1995 (the "Merger Agreement") with Technitrol, Inc. ("Technitrol"), with
principal executive offices in Trevose, Pennsylvania, and Teco Sub, Inc., a
wholly owned subsidiary of Technitrol. Under the Merger Agreement, Technitrol
will acquire all of the outstanding Class A Voting Common Stock, par value .01
per share, of the Company (the "Pulse Common Stock") in a merger transaction,
and the Company will become a wholly owned subsidiary of Technitrol.
Stockholders of the Company can elect to receive all cash or all Technitrol
common stock, $.125 par value per share ("Technitrol Common Stock"), subject to
the limitation that not less than 50% and not more than 55% of the outstanding
shares of Pulse Common Stock will be converted into Technitrol Common Stock.
Each share of Pulse Common Stock (except for shares held in the Company's
treasury and shares as to which dissenters' rights are
F-28
<PAGE>
PULSE ENGINEERING, INC.
Notes to Consolidated Financial Statements
2. PENDING MERGER (CONTINUED)
perfected) will be converted into the right to receive (i) shares of Technitrol
Common Stock determined in accordance with the exchange ratio of .5812 shares of
Technitrol Common Stock for each share of Pulse Common Stock, (ii) $8.50 or
(iii) a combination of shares of Technitrol Common Stock and cash determined in
accordance with the terms of the Merger Agreement. The exchange ratio will,
however, be adjusted downward if the average closing price of Technitrol Common
Stock during the ten trading days immediately prior to the three business days
preceding the close of the transaction exceeds $16.375 (equal to $9.52 per share
of Pulse Common Stock) or will be increased if the average closing price of
Technitrol Common Stock during such period is less than $13.75 (equal to $8.00
per share of Pulse Common Stock). Accordingly, if a stockholder of the Company
receives 50% cash and 50% Technitrol Common Stock in exchange for shares of
Pulse Common Stock, the minimum amount that would be received in the transaction
would be $8.25 per share, and the maximum amount would be $9.01 per share. The
closing price of Technitrol common stock was $16.375 on August 11, 1995.
Completion of the merger transaction is conditioned upon, among other
things, approval of the transaction by the stockholders of each company and the
receipt of a favorable opinion from the financial advisors of each company as to
the fairness, from a financial point of view, of the consideration to be
received by Pulse stockholders. Since signing the Merger Agreement, the parties
have obtained clearance under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 and have filed preliminary proxy material with the Securities and
Exchange Commission. The Company anticipates that definitive proxy material
reflecting the Board's recommendation that stockholders approve the proposed
transaction will be mailed to stockholders in mid-to-late August. The Company
expects to hold its special meeting of stockholders called to consider and vote
on the merger in late September, on the same day as the Technitrol special
meeting of shareholders. Assuming the transaction is approved by the
stockholders of both companies, the parties expect the merger to be completed
shortly after the special meetings and prior to the end of September.
3. FINANCIAL STATEMENT DETAILS
<TABLE>
<CAPTION>
July 2, July 3,
(in thousands) 1995 1994
-----------------------------------------------------------------------
<S> <C> <C>
INVENTORIES
Finished goods $ 4,494 $ 5,678
Work in process 1,492 969
Raw materials 6,235 9,245
---------- ---------
12,221 15,892
Less reserves (3,236) (3,049)
---------- ---------
$ 8,985 $ 12,843
========== =========
PROPERTY, PLANT AND EQUIPMENT
Land $ 1,212 $ 1,212
Buildings and improvements 11,570 5,158
Machinery and equipment 13,742 12,350
Office furniture and fixtures 4,303 4,066
---------- ---------
30,827 22,786
Less accumulated depreciation and
amortization (10,547) (7,677)
---------- ---------
$ 20,280 $ 15,109
========== =========
OTHER CURRENT LIABILITIES
Accrued income taxes $ 2,268 $ 338
Accrued warranty expense 286 300
Other 4,074 2,581
---------- ---------
$ 6,628 $ 3,219
========== =========
</TABLE>
F-29
<PAGE>
PULSE ENGINEERING, INC.
Notes to Consolidated Financial Statements
3. FINANCIAL STATEMENT DETAILS (CONTINUED)
During fiscal 1994, the Company provided $1,218,000 for expected losses on
the ultimate sale of certain inventories of raw material and finished goods.
Other assets at July 2, 1995 included $426,000 of land and building in
Mexico held for sale.
4. FINANCIAL ARRANGEMENTS
The Company has a $5,000,000 credit facility which expires on December 15,
1995. Interest on borrowings under this arrangement is payable monthly at prime
(9% at July 2, 1995). No amounts are outstanding under this arrangement at the
end of fiscal 1995.
Long-term debt at July 2, 1995 and July 3, 1994 totals $1,114,000 and
$150,000, respectively. Long-term debt at July 2, 1995 consists of lease
obligations with interest rates of 10.1% to 12.6% which require monthly
principal and interest payments until April 1998. Additionally, the debt
agreement requires the Company to maintain certain minimum levels of current
assets, working capital and net worth and restricts the payment of dividends.
At July 2, 1995, all of the Company's retained earnings are available for the
payment of dividends.
5. INCOME TAXES
Deferred tax assets and liabilities are determined based on temporary
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
Fiscal years ended
---------------------
July 2, July 3,
(in thousands) 1995 1994
---------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Inventory reserves $ 199 $ 234
Product warranty reserves 111 117
Accrued expenses 138 204
Tax loss carryforward 415 241
Tax credit carryforward 139 149
Bad debt reserve 39 21
Other 231 319
------- -------
Gross deferred tax assets 1,272 1,285
Deferred tax assets valuation allowance (573) (475)
------- -------
699 810
Deferred tax liabilities:
Tax over book depreciation 241 345
Other 7 56
------- -------
Gross deferred tax liabilities 248 401
------- -------
Net deferred tax assets $ 451 $ 409
======= =======
</TABLE>
F-30
<PAGE>
PULSE ENGINEERING, INC.
Notes to Consolidated Financial Statements
5. INCOME TAXES (CONTINUED)
The valuation allowance for deferred tax assets of $573,000 was provided
because the realization of the benefits arising from foreign operating loss
carryforwards and other foreign temporary differences are not assured. The
Company has foreign net operating loss carryforwards of approximately $4.1
million which may be carried forward indefinitely. The Company also has
California research credit carryforwards of approximately $139,000 which may be
carried forward indefinitely.
Components of the provision (benefit) for taxes are as follows:
<TABLE>
<CAPTION>
Fiscal years ended
-------------------------------
July 2, July 3, June 27,
(in thousands) 1995 1994 1993
------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 665 $(954) $ 170
State 20 18 216
Foreign 232 176 316
----- ----- ------
917 (760) 702
Deferred:
Federal (36) 710 313
State (6) (120) 30
Foreign - 170 28
----- ----- ------
(42) 760 371
----- ----- ------
$ 875 $ - $1,073
===== ===== ======
</TABLE>
A reconciliation between the amount computed by multiplying income before
income taxes by the statutory federal rate and the amount of reported income
taxes is as follows:
<TABLE>
<CAPTION>
Fiscal years ended
----------------------------
July 2, July 3, June 27,
(in thousands) 1995 1994 1993
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxes based on statutory rate of 34% $ 1,488 $ (136) $ 1,824
State taxes, net of federal tax benefit 9 (67) 162
Research credit (237) (245) -
Effect of losses (earnings) of foreign subsidiaries
taxed at lower tax rates (535) 461 (728)
Other 150 (13) (185)
--------- --------- --------
Tax provision $ 875 $ - $ 1,073
========= ========= ========
</TABLE>
The Company plans to continue to finance foreign expansion and other operating
requirements by reinvesting the undistributed earnings of its foreign
subsidiaries; therefore, United States federal income taxes have not been
provided on undistributed foreign retained earnings of approximately $27 million
at July 2, 1995.
F-31
<PAGE>
PULSE ENGINEERING, INC.
Notes to Consolidated Financial Statements
6. STOCKHOLDERS' EQUITY
Stock option plans -- The Company has three stock option plans: the Senior
Management Stock Option Plan, the Nonqualified Stock Option Plan and the Board
of Directors Stock Option Plan. No shares are available for future grant under
these plans. The Company also has a Long-Term Incentive Plan whereby an
aggregate of 500,000 shares of common stock are authorized and reserved for
issuance to certain key executive and managerial employees, directors and other
persons providing services to the Company. Awards may consist, among other
things, of options to purchase common stock, stock appreciation rights and
restricted common stock. Awards granted to purchase common stock are exercisable
in up to four annual installments.
<TABLE>
<CAPTION>
Fiscal years ended
----------------------------------------------
July 2, July 3, June 27,
1995 1994 1993
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 703,000 642,500 761,500
Granted 16,000 129,000 38,000
Exercised (105,000) (25,500) (153,000)
Cancelled (168,500) (43,000) (4,000)
--------------- ------------- -------------
Outstanding at end of year 445,500 703,000 642,500
=============== ============= =============
Price of outstanding options $1.00 - $9.00 $1.00 - $9.00 $1.00 - $7.86
=============== ============= =============
</TABLE>
At July 2, 1995, options to purchase 312,469 common shares were
exercisable, and 363,700 common shares were available for future awards under
the Long-Term Incentive Plan.
Warrants -- In connection with a prior long-term financing with a financial
institution, the Company issued detachable warrants to purchase shares of the
Company's Class B Nonvoting Common Stock at $1 per share. Such shares of Class
B Common Stock are convertible, at the election of the holder, into the same
number of shares of Class A Voting Common Stock. The Company also sold warrants
to purchase shares of Class A Voting Common Stock at $1 per share. Warrants
totaling 40,354, 3,306 and 43,911 were exercised in fiscal years 1995, 1994 and
1993, respectively. At July 2, 1995, warrants to purchase 706,056 common shares
were exercisable and will expire on July 31, 1998. In May 1995 655,489 of the
warrants were acquired by Technitrol, Inc.
Employee stock purchase plan -- In fiscal 1993, the Company adopted an
employee stock purchase plan which allows eligible employees to acquire shares
of the Company's common stock. Shares are acquired at the end of each calendar
quarter at a price equal to the greater of the lowest closing price during the
quarter or 85% of the closing price on the last trading day in the quarter.
Treasury stock -- In fiscal 1993, the Company's Board of Directors
authorized the purchase of up to 1,000,000 shares of the Company's common stock.
During fiscal 1994 and 1993 the Company purchased 413,000 shares of common stock
for $2,798,902. Of the shares acquired, 17,608 and 14,498 were issued to the
Employee Stock Purchase Plan during fiscal 1995 and 1994, respectively, and the
remaining 380,894 are held in treasury at July 2, 1995. At July 2, 1995, the
Company has no plans to acquire additional shares.
F-32
<PAGE>
PULSE ENGINEERING, INC.
Notes to Consolidated Financial Statements
7. COMMITMENTS AND CONTINGENCY
Lease commitments -- The Company leases certain foreign plant and office
facilities under long-term operating leases which expire at various dates
beginning in fiscal 1996. Future minimum lease payments under non-cancellable
operating leases and capital leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- ---------
<S> <C> <C>
1996 $ 1,439 $ 848
1997 1,418 848
1998 1,060 353
1999 963 -
2000 966 -
Thereafter 5,963 -
-------- ---------
Total minimum lease payments $ 11,809 2,049
========
Less amounts representing interest (246)
---------
Present value of future minimum lease
payments 1,803
Less amounts due in one year (689)
---------
$ 1,114
=========
</TABLE>
Rent expense for the fiscal years 1995, 1994 and 1993 was $1,530,000,
$798,000 and $716,000, respectively. Included in equipment at July 2, 1995 is
equipment under capital leases aggregating $2,141,000. Accumulated amortization
with respect to the capital leases totaled $183,000 at July 2, 1995. No
equipment under capital leases existed at July 3, 1994.
Contingency - A legal action was instituted in February 1995 in which the
Company has been named as one of several defendants. The plaintiffs allege that
they have experienced physical harm and injury and other damages caused by
exposure to contaminants historically discharged from the former Potter
operation plant site located in Brookhaven, Lincoln County, Mississippi, which
the Company acquired in 1986 from Varian Associates. The Company is continuing
its analysis of the merits of the case; however, under any circumstances, the
Company believes that it is indemnified against any liability or expenses
relating to the action. The entities that the Company believes are required to
indemnify it have not to date acknowledged their obligations, and the Company
has instituted legal action to enforce its indemnification rights. The Company
cannot predict the level of expenses it will be required to incur to defend
itself in this action or to enforce its indemnification rights. While such
expenses will continue to be reflected in the Company's results of operations to
the extent that the Company is not reimbursed therefor, the Company believes
that it is entitled to be reimbursed for all expenses it has already incurred in
addition to being indemnified against any potential liability. The entities
with indemnity obligations to the Company have performed other obligations
relating to environmental issues at the former Potter operation plant sites.
8. BUSINESS INFORMATION BY GEOGRAPHIC AREA
The Company's operations consist of one business segment; the design,
manufacturing and marketing of electronic components and modules for leading
manufacturers of local area networks, digital telecommunications and data
processing equipment. Operations are conducted in the United States, Mexico
(through fiscal 1994), Europe and Asia. Transfers between geographic areas are
accounted for at prices that are generally above cost. The effects of such
transfers are eliminated in the consolidated financial statements.
During the fiscal years ended 1995, 1994 and 1993 sales to one customer and
its subcontractors accounted for 18%, 24% and 29%, respectively, of consolidated
net sales. An additional customer accounted for 13% of consolidated sales in
fiscal 1995.
F-33
<PAGE>
PULSE ENGINEERING, INC.
Notes to Consolidated Financial Statements
8. BUSINESS INFORMATION BY GEOGRAPHIC AREA (CONTINUED)
The operations and identifiable assets of the Company by geographic area
are as follows:
<TABLE>
<CAPTION>
United Adjustments and
(in thousands) States Mexico Europe Asia Eliminations Consolidated
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED JULY 2, 1995
Sales to unaffiliated customers $56,840 $ - $21,888 $ 6,629 $ - $85,357
Transfers between geographic regions 554 - 3,936 62,109 (66,599) -
--------------------------------------------------------------------------------
Total revenue $57,394 $ - $25,824 $68,738 $(66,599) $85,357
================================================================================
Income (loss) before income taxes $ 64 $ 12 $(1,713) $ 6,012 $ - $ 4,375
================================================================================
Identifiable Assets $20,944 $ 438 $10,933 $28,985 $ - $61,300
================================================================================
YEAR ENDED JULY 3, 1994
Sales to unaffiliated customers $46,314 $ -- $12,322 $ 6,592 $ -- $65,228
Transfers between geographic regions 1,224 638 6,331 38,343 (46,536) --
--------------------------------------------------------------------------------
Total revenue $47,538 $ 638 $18,653 $44,935 $(46,536) $65,228
================================================================================
Income (loss) before income taxes $ (774) $ 631 $ (804) $ 548 $ -- $ (399)
================================================================================
Identifiable assets $17,641 $ 456 $10,175 $26,066 $ -- $54,338
================================================================================
YEAR ENDED JUNE 27, 1993
Sales to unaffiliated customers $46,729 $ -- $ 8,188 $ 5,562 $ -- $60,479
Transfers between geographic regions 1,681 5,524 5,804 26,885 (39,894) --
--------------------------------------------------------------------------------
Total revenue $48,410 $5,524 $13,992 $32,447 $(39,894) $60,479
================================================================================
Income (loss) before income taxes $ 1,176 $ 143 $ (177) $ 4,224 $ -- $ 5,366
================================================================================
Identifiable assets $35,860 $1,698 $ 4,738 $14,926 $ -- $57,222
================================================================================
</TABLE>
The reduction in identifiable United States assets in fiscal 1994 resulted
from the transfer of property, plant and equipment to Asia and the use of short-
term investments to fund operating and investing activities in Asia. Inventories
in the United States were also reduced during fiscal 1994 due to the shift in
production to Asia.
Total export sales (sales by domestic operations to unaffiliated customers
outside the United States) from continuing operations were $7,376,000,
$2,196,000 and $4,251,000 for fiscal 1995, 1994 and 1993, respectively.
9. INCENTIVE AND RETIREMENT PLANS
The Company's Board of Directors has an approved management incentive
compensation plan for officers and other key personnel which provides for
incentive compensation based on attainment of certain financial objectives. The
expense related to this incentive plan was $940,000 in fiscal 1995 and $404,000
in fiscal 1993. No incentive expense was incurred in fiscal 1994.
The Company has adopted a deferred compensation and retirement plan which
covers certain full time employees. Under the plan, eligible employees may elect
salary reductions which are contributed to the plan and are eligible for
matching contributions by the Company of up to 2% of compensation after two
years of service and up to 4% of compensation after three years of service.
Participants are fully vested in their accounts. The aggregate contributions
made under the plan by the Company and charged to operations during fiscal 1995,
1994 and 1993 totaled $183,000, $210,000 and $205,000, respectively.
F-34
<PAGE>
PULSE ENGINEERING, INC.
Notes to Consolidated Financial Statements
10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Net income Earnings (loss)
(in thousands, except per share data) Net sales Gross profit (loss) per share
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FISCAL 1995
First Quarter $17,016 $2,694 $(1,161) $(0.21)
Second Quarter 19,598 3,980 217 0.03
Third Quarter 22,130 5,647 1,471 0.23
Fourth Quarter 26,613 8,643 2,973 0.46
FISCAL 1994
First Quarter $16,459 $5,659 $ 805 $ 0.12
Second Quarter 16,837 5,833 889 0.14
Third Quarter 14,158 4,112 124 0.02
Fourth Quarter 17,774 1,542 (2,217)* (0.41)*
</TABLE>
* Includes adjustment for expected losses totaling $941,000 on the sale of
inventories (see Note 3).
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Pulse Engineering, Inc.
We have audited the accompanying consolidated balance sheets of Pulse
Engineering, Inc. as of July 2, 1995 and July 3, 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended July 2, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pulse
Engineering, Inc. at July 2, 1995 and July 3, 1994, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended July 2, 1995 in conformity with generally accepted accounting principles.
San Diego, California
July 31, 1995
F-35
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TECHNITROL, INC.
TECO SUB, INC.
AND
PULSE ENGINEERING, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1 THE MERGER...................................................... 1
1.1 The Merger.................................................... 1
1.2 Effective Time................................................ 1
1.3 Corporate Effect of the Merger................................ 1
1.4 Effect of the Merger on Capital Stock; Conversion of Pulse
Common Stock ................................................. 2
1.5 Exchange of Certificates ..................................... 5
(a) Exchange Agent ........................................ 5
(b) Exchange Procedures ................................... 5
(c) Distributions with Respect to Unexchanged Shares of
Technitrol Common Stock ............................... 6
(d) No Further Rights in Pulse Common Stock ............... 6
(e) No Fractional Shares .................................. 6
(f) Termination of Exchange Fund .......................... 7
(g) No Liability .......................................... 7
(h) Withholding Rights .................................... 7
1.6 Stock Transfer Books ......................................... 7
1.7 Stock Options; Payment Right ................................. 7
1.8 Dissenting Shares ............................................ 8
1.9 Lost, Stolen or Destroyed Certificates ....................... 8
1.10 Tax Consequences ............................................. 8
1.11 Registration of Merger Shares ................................ 9
1.12 Taking of Necessary Action, Further Action ................... 9
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF PULSE ................... 9
2.1 Organization of Pulse ........................................ 9
2.2 Pulse Capital Structure ..................................... 10
2.3 Obligations with Respect to Subsidiary Capital Stock ......... 10
2.4 Authority .................................................... 11
2.5 SEC Filings; Pulse Financial Statements ...................... 11
2.6 Absence of Certain Changes or Events ......................... 12
2.7 Taxes ........................................................ 13
(a) Definition of Taxes ................................... 13
(b) Tax Returns and Audits ................................ 13
2.8 Absence of Restrictions on Business Activities ............... 14
2.9 Absence of Liens and Encumbrances ............................ 14
2.10 Intellectual Property ........................................ 14
2.11 Agreements, Contracts and Commitments ........................ 15
2.12 No Default ................................................... 16
2.13 Governmental Authorization ................................... 17
2.14 Litigation ................................................... 17
2.15 Environmental Matters ........................................ 17
(a) Hazardous Material .................................... 17
(b) Hazardous Material Activities ......................... 18
(c) Permits ............................................... 18
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
(d) Environmental Liabilities ............................. 18
2.16 Brokers' and Finders' Fees ................................... 18
2.17 Labor Matters ................................................ 18
2.18 Employee Benefit Plans ....................................... 18
2.19 Change of Control Payments ................................... 20
2.20 Registration Statements; Proxy Statements/Prospectus ......... 20
2.21 Board Approval ............................................... 21
2.22 Non-Public Information Provided to Technitrol ................ 21
2.23 Fairness Opinion ............................................. 21
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF TECHNITROL AND TECO SUB ...... 21
3.1 Organization of Technitrol ................................... 21
3.2 Capital Structure ............................................ 22
3.3 Authority .................................................... 22
3.4 SEC Filings; Technitrol Financial Statements ................. 23
3.5 Absence of Certain Changes or Events ......................... 23
3.6 Taxes......................................................... 24
3.7 Restrictions on Business Activities .......................... 24
3.8 Absence of Liens and Encumbrances; Condition of Equipment .... 24
3.9 Intellectual Property ........................................ 25
3.10 Litigation ................................................... 25
3.11 Environmental Matters ........................................ 25
(a) Hazardous Material .................................... 25
(b) Hazardous Materials Activities ........................ 26
(c) Permits ............................................... 26
(d) Environmental Liabilities ............................. 26
3.12 Agreements, Contracts and Commitments ........................ 26
3.13 Labor Matters ................................................ 26
3.14 Compliance with Laws ......................................... 26
3.15 Broker's and Finders' Fees ................................... 26
3.16 Registration Statement; Proxy Statement/Prospectus ........... 27
3.17 Employee Benefit Plans ....................................... 27
3.18 Board Approval ............................................... 27
3.19 Non-Public Information Provided to Pulse ..................... 28
3.20 Fairness Opinion ............................................. 28
ARTICLE 4 CONDUCT PRIOR TO THE EFFECTIVE TIME ............................ 28
4.1 Conduct of Business of Pulse ................................. 28
4.2 Conduct of Business of Technitrol ............................ 30
4.3 SEC Filings .................................................. 31
ARTICLE 5 ADDITIONAL AGREEMENTS .......................................... 31
5.1 Proxy Statement/Prospectus; Registration Statement ........... 31
5.2 Meetings of Stockholders ..................................... 32
5.3 Access to Information; Confidentiality ....................... 32
5.4 No Solicitation .............................................. 32
5.5 Expenses ..................................................... 34
</TABLE>
ii
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<S> <C>
5.6 Break-Up Fee ................................................. 34
5.7 Public Disclosure ............................................ 35
5.8 Auditors' Letters ............................................ 35
5.9 Affiliate Agreements ......................................... 35
5.10 FIRPTA ....................................................... 35
5.11 Legal Requirements ........................................... 35
5.12 Blue Sky Laws ................................................ 36
5.13 Best Efforts and Further Assurances .......................... 36
5.14 ASE Listing .................................................. 36
5.15 Indemnification of Directors and Officers .................... 36
ARTICLE 6 CONDITIONS TO THE MERGER ....................................... 37
6.1 Conditions to Obligations of Each Party to Effect the
Merger ....................................................... 37
(a) Stockholder Approval .................................. 37
(b) Registration Statement Effective ...................... 37
(c) No Injunctions or Restraints; Illegality .............. 38
(d) Tax Opinions .......................................... 38
(e) American Stock Exchange Listing ....................... 38
(f) HSR Act ............................................... 38
6.2 Additional Conditions to Obligations of Pulse ................ 38
(a) Representations and Warranties ........................ 38
(b) Agreements and Covenants .............................. 38
(c) Legal Opinion ......................................... 38
(d) Material Adverse Change ............................... 39
(e) Fairness Opinion ...................................... 39
6.3 Additional Conditions to the Obligations of Technitrol and
Teco Sub ..................................................... 39
(a) Representations and Warranties ........................ 39
(b) Agreements and Covenants .............................. 39
(c) Legal Opinion ......................................... 39
(d) Material Adverse Change ............................... 39
(e) Affiliate Agreements .................................. 39
(f) Financing ............................................. 39
(g) Fairness Opinion ...................................... 39
ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER .............................. 40
7.1 Termination .................................................. 40
7.2 Effect of Termination ........................................ 41
7.3 Notice of Termination ........................................ 41
7.4 Amendment .................................................... 41
7.5 Extension; Waiver ............................................ 41
ARTICLE 8 GENERAL PROVISIONS ............................................. 42
8.1 Non-Survival of Representations and Warranties ............... 42
8.2 Notices ...................................................... 42
8.3 Interpretation ............................................... 42
8.4 Counterparts ................................................. 43
8.5 Entire Agreement ............................................. 43
</TABLE>
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<S> <C>
8.6 Severability ................................................. 43
8.7 Other Remedies ............................................... 43
8.8 Governing Law ................................................ 43
8.9 Rules of Construction ........................................ 43
8.10 Assignment ................................................... 44
8.11 Good Faith ................................................... 44
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and
entered into as of May 23, 1995 by and among Technitrol, Inc., a Pennsylvania
corporation ("Technitrol"), Teco Sub, Inc., a Delaware corporation and a wholly-
owned subsidiary of Technitrol ("Teco Sub"), and Pulse Engineering, Inc., a
Delaware corporation ("Pulse").
In consideration of the covenants, promises and representations
set forth herein, the parties, intending to be legally bound, agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions
----------
of this Agreement, Pulse shall be merged with and into Teco Sub (the "Merger")
in accordance with the Delaware General Corporation Law (the "DGCL").
1.2 Effective Time. Subject to the provisions of this
--------------
Agreement, the parties hereto shall cause the Merger to be consummated by filing
a certificate of merger (the "Merger Agreement") with the Secretary of State of
Delaware, in accordance with the relevant provisions of the DGCL (the time of
such filing being the "Effective Time"). The closing of the Merger (the
"Closing") shall take place at the offices of Stradley, Ronon, Stevens & Young,
2600 One Commerce Square, Philadelphia, Pennsylvania (unless the parties agree
to a different location) at a time and date to be specified by the parties,
which shall be no later than the second business day after the satisfaction or
waiver of the conditions set forth in Article 6 (the "Closing Date").
1.3 Corporate Effect of the Merger. At the Effective Time, the
------------------------------
effect of the Merger shall be as provided in this Agreement and the applicable
provisions of the DGCL. Without limiting the generality of the foregoing, at the
Effective Time:
(a) The separate corporate existence of Pulse shall cease
and Teco Sub shall continue as the surviving corporation (the "Surviving
Corporation").
(b) The Certificate of Incorporation of Teco Sub as in
effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation.
(c) The Bylaws of Teco Sub as in effect immediately prior
to the Effective Time shall be the Bylaws of the Surviving Corporation.
(d) The directors and officers of Teco Sub immediately
prior to the Effective Time shall be the initial directors and officers of the
Surviving Corporation, each to hold
<PAGE>
office in accordance with the Certificate of Incorporation and By-laws of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified.
1.4 Effect of the Merger on Capital Stock; Conversion of Pulse
----------------------------------------------------------
Common Stock. At the Effective Time, by virtue of the Merger and without any
------------
action on the part of Teco Sub, Pulse or the holders of the securities of
either:
(a) Subject to the other provisions of this Section 1.4,
each share of Class A voting common stock, par value $.01 per share, of Pulse
("Pulse Common Stock") issued and outstanding immediately prior to the Effective
Time (excluding any treasury shares and Dissenting Shares (as defined in Section
1.8)) shall be converted into (i) the right to receive .5812 shares of common
stock, $.125 par value ("Technitrol Common Stock"), of Technitrol (the "Exchange
Ratio"), (ii) the right to receive Eight Dollars and Fifty Cents ($8.50) in
cash, without interest (the "Per Share Cash Amount"), or (iii) the right to
receive a combination of shares of Technitrol Common Stock and cash determined
in accordance with Section 1.4(d), Section 1.4(e) or Section 1.4(f); provided,
however, that:
(A) If the average closing price of Technitrol Common
Stock on the American Stock Exchange (the "ASE") as
reported in The Wall Street Journal for the ten (10)
trading days immediately preceding the three (3)
business days preceding the Effective Time (the
"Average Closing Price") is less than $13 3/4, then (x)
the Exchange Ratio shall be adjusted upward to that
ratio which yields, based upon the Average Closing
Price, $8.00 per share of Pulse Common Stock and (y)
the Per Share Cash Amount shall remain unchanged; or
(B) If the Average Closing Price is greater than
$163/8, then (x) the Exchange Ratio shall be adjusted
downward to that ratio which yields, based upon the
Average Closing Price, $9.52 per share of Pulse Common
Stock and (y) the Per Share Cash Amount shall remain
unchanged.
Further, if between the date of this Agreement and the Effective Time the
outstanding shares of Technitrol Common Stock or Pulse Common Stock shall have
been changed into a different number of shares or a different class, by reason
of a stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Exchange Ratio and the Per Share Cash
Amount shall be correspondingly adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares. Immediately after the Effective Time, all shares of Pulse Common
Stock shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each certificate previously evidencing any
such shares shall thereafter represent the right to receive the Merger
Consideration (as defined in Section 1.5 (b)) except for Dissenting Shares which
shall be treated in accordance with Section 1.8. The holders of such
certificates previously evidencing such shares of Pulse Common Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such shares of Pulse Common Stock except as otherwise provided herein
or by law. Such certificates previously evidencing shares of Pulse Common Stock
shall be exchanged for (i) certificates evidencing whole shares of Technitrol
Common Stock issued in consideration therefor or (ii) the Per Share Cash Amount
multiplied by the number of shares previously evidenced by the canceled
certificate, in each
2
<PAGE>
case in accordance with the allocation procedures of this Section 1.4 and upon
the surrender of such certificates in accordance with the provisions of Section
1.5, without interest. No fractional shares of Technitrol Common Stock shall be
issued, and, in lieu thereof, a cash payment shall be made pursuant to Section
1.5(e).
(b) Subject to Section 1.4(k) the maximum number of shares
of Pulse Common Stock to be converted into the right to receive cash in the
Merger (the "Cash Election Number") shall be fifty percent (50%) of the number
of shares of Pulse Common Stock outstanding immediately prior to the Effective
Time. Subject to Section 1.4(k) the maximum number of shares of Pulse Common
Stock to be converted into the right to receive Technitrol Common Stock in the
Merger (the "Stock Election Number") shall be fifty-five percent (55%) of the
number of shares of Pulse Common Stock outstanding immediately prior to the
Effective Time.
(c) Subject to the allocation and election procedures set
forth in this Section 1.4, each record holder immediately prior to the Effective
Time of shares of Pulse Common Stock will be entitled (i) to elect to receive
cash for all of such shares (a "Cash Election"), (ii) to elect to receive
Technitrol Common Stock for all of such shares (a "Stock Election"), or (iii) to
indicate that such record holder has no preference as to the receipt of cash or
Technitrol Common Stock for such shares ( a "Non-Election"). All such elections
shall be made on a form designed for that purpose (a "Form of Election").
Holders of record of shares of Pulse Common Stock who hold such shares as
nominees, trustees or in other representative capacities (a "Representative")
may submit multiple Forms of Election, provided that any such Representative
certifies that each such Form of Election covers all the shares of Pulse Common
Stock held by such Representative for a particular beneficial owner.
(d) If the aggregate number of shares covered by Cash
Elections (the "Cash Election Shares") exceeds the Cash Election Number, all
shares of Pulse Common Stock covered by Stock Elections (the "Stock Election
Share") and all shares of Pulse Common Stock covered by Non-Elections (the "Non-
Election Shares") shall be converted into the right to receive Technitrol Common
Stock, and the Cash Election Shares shall be converted into the right to receive
Technitrol Common Stock and cash in the following manner:
each Cash Election Share shall be converted into the right
to receive (i) an amount in cash, without interest, equal to
the product of (x) the Per Share Cash Amount and (y) a
fraction (the "Cash Fraction"), the numerator of which shall
be the Cash Election Number and the denominator of which
shall be the total number of Cash Election Shares, and (ii)
a number of shares of Technitrol Common Stock equal to the
product of (x) the Exchange Ratio and (y) a fraction equal
to one minus the Cash Fraction.
(e) If the aggregate number of Stock Election Shares
exceeds the Stock Election Number, all Cash Election Shares and all Non-Election
Shares shall be converted into the right to receive cash, and all Stock Election
Shares shall be converted into the right to receive Technitrol Common Stock and
cash in the following manner:
each Stock Election Share shall be converted into the right
to receive (i) a number of shares of Technitrol Common Stock
equal to the product of (x) the Exchange Ratio and (y) a
fraction (the "Stock Fraction"), the numerator
3
<PAGE>
of which shall be the Stock Election Number and the
denominator of which shall be the total number of Stock
Election Shares, and (ii) an amount in cash, without
interest, equal to the product of (x) the Per Share Cash
Amount and (y) a fraction equal to one minus the Stock
Fraction.
(f) In the event that neither Section 1.4(d) nor Section
1.4(e) above is applicable, all Cash Election Shares shall be converted into the
right to receive cash, all Stock Election Shares shall be converted into the
right to receive Technitrol Common Stock, and the Non-Election Shares, if any,
shall be converted into the right to receive Technitrol Common Stock and cash in
the following manner:
each Non-Election Share shall be converted into the right to
receive (i) a number of shares of Technical Common Stock
equal to the product of (x) the Exchange Ratio and (y) a
fraction (the "Non-Election Fraction"), which is the lesser
of one (1) or a fraction where the numerator shall be the
excess of the Stock Election Number over the total number of
Stock Election Shares and the denominator of which shall be
the aggregate of the Non-Election Shares and (ii) an amount
in cash, without interest, equal to the product of (x) the
Per Share Cash Amount and (y) a fraction equal to one minus
the Non-Election Fraction.
(g) Elections shall be made by holders of Pulse Common
Stock by mailing to the Exchange Agent (as defined below) a Form of Election. To
be effective, a Form of Election must be properly completed, signed and
submitted to the Exchange Agent and accompanied by the certificates representing
the shares of Pulse Common Stock as to which the election is being made (or by
an appropriate guarantee of delivery of such certificates by a commercial bank
or trust company in the United States or a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
(the "NASD")). Technitrol will have the discretion, which it may delegate in
whole or in part to the Exchange Agent, to determine whether Forms of Election
have been properly completed, signed and submitted or revoked and to disregard
immaterial defects in Forms of Election. The decision of Technitrol (or the
Exchange Agent) in such matters shall be conclusive and binding. Neither
Technitrol nor the Exchange Agent will be under any obligation to notify any
person of any defect in a Form of Election submitted to the Exchange Agent. The
Exchange Agent shall also make all computations contemplated by this Section 1.4
and all such computations shall be conclusive and binding on the holders of
Pulse Common Stock (absent manifest error).
(h) For the purposes hereof, a holder of Pulse Common Stock
who does not submit a Form of Election which is received by the Exchange Agent
prior to the Election Deadline (as hereinafter defined) shall be deemed to have
made a Non-Election. If Technitrol or the Exchange Agent shall determine that
any purported Cash Election or Stock Election was not properly made, such
purported Cash Election or Stock Election shall be deemed to be of no force and
effect and the shareholder making such purported Cash Election or Stock Election
shall for purposes hereof, be deemed to have made a Non-Election.
(i) Technitrol and Pulse shall each use its best efforts to
mail the Form of Election to all persons who become holders of Pulse Common
Stock during the period between the record date for the Pulse and Technitrol
Stockholders' Meeting (as defined in Section 2.20) and 10:00
4
<PAGE>
a.m. New York time, on the date seven (7) calendar days prior to the anticipated
Effective Time and to make the Form of Election available to all persons who
become holders of Pulse's Common Stock subsequent to such day and no later than
the close of business on the business day prior to the Effective Time. A Form of
Election must be received by the Exchange Agent by the close of business on the
last business day prior to the Effective Time (the "Election Deadline") in order
to be effective. All elections may be revoked until the Election Deadline. Upon
request or revocation of an election by a holder of Pulse Common Stock, the
Exchange Agent shall promptly return all share certificates to such holder.
(j) Each share of Pulse Common Stock held in the treasury
of Pulse and each share of Pulse Common Stock owned by any direct or indirect
wholly owned subsidiary of Pulse or by Technitrol or any direct or indirect
subsidiary of Technitrol (except shares owned by the Technitrol, Inc. Retirement
Plan immediately prior to the Effective Time) shall be canceled and extinguished
without any conversion thereof and no payment shall be made with respect
thereto.
(k) If the tax opinions referred to in Section 6.1(d)
cannot be rendered (as reasonably determined, respectively, by Stradley, Ronon,
Stevens & Young and by Pillsbury Madison & Sutro) as a result of the Merger
potentially failing to satisfy continuity of interest requirements under
applicable federal income tax principles relating to reorganizations under
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
then the Stock Election Number shall be increased, and the Cash Election Number
shall be decreased, to the minimum extent necessary to enable the tax opinions
to be rendered.
1.5 Exchange of Certificates.
------------------------
(a) Exchange Agent. At or prior to the Effective Time,
--------------
Technitrol shall deposit, or shall cause to be deposited, with a bank or trust
company designated by Technitrol (the "Exchange Agent"), for the benefit of
holders of shares of Pulse Common Stock, for exchange in accordance with this
Agreement, (i) certificates evidencing such number of shares of Technitrol
Common Stock equal to the Exchange Ratio multiplied by the Stock Election Number
and (ii) cash in the amount equal to the Per Share Cash Amount multiplied by the
Cash Election Number (such certificates for shares of Technitrol Common Stock,
together with any dividends or distributions with respect thereto and cash,
being hereinafter referred to as the "Exchange Fund"). The Exchange Agent shall,
pursuant to irrevocable instructions, deliver the Technitrol Common Stock and
cash contemplated to be issued pursuant to Section 1.4 out of the Exchange Fund.
Except as contemplated by Section 1.5 hereof, the Exchange Fund shall not be
used for any other purpose.
(b) Exchange Procedures. Promptly after the Effective Time,
-------------------
Technitrol will cause the Exchange Agent to mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
evidenced Non-Election Shares (other than Dissenting Shares), (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 Technitrol may reasonably specify) and (ii) instructions for use
in effecting the surrender of the certificates in exchange for the Merger
Consideration. Each holder of a certificate formerly representing Pulse Common
Stock (a "Certificate") who surrenders or has surrendered such Certificate (or
an affidavit pursuant to Section 1.9), together with duly executed transmittal
materials (such as those included in the Election Form) shall, upon acceptance
thereof (which Technitrol shall cause to occur promptly), be entitled to receive
5
<PAGE>
in exchange therefor (A) certificates evidencing that number of whole shares of
Technitrol Common Stock which such holder has the right to receive in respect of
the shares of Pulse Common Stock formerly evidenced by such Certificate in
accordance with Section 1.4, (B) cash to which such holder is entitled to
receive in accordance with Section 1.4, (C) cash in lieu of fractional shares of
Technitrol Common Stock to which such holder is entitled pursuant to Section
1.5(e), and (D) any dividends or other distributions to which such holder is
entitled pursuant to Section 1.5(c), (the shares of Technitrol Common Stock,
dividends, distributions and cash described in clauses (A), (B), (C) and (D)
being collectively, the "Merger Consideration") and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of Pulse Common Stock which is not registered in the transfer records of Pulse,
a certificate evidencing the proper number of Technitrol Common Stock and/or
cash may be issued and/or paid in accordance with this Agreement to a transferee
if the Certificate evidencing such shares of Pulse Common Stock is presented to
the Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 1.5, each Certificate
shall be deemed at any time after the Effective Time to evidence only the right
to receive upon such surrender the Merger Consideration.
(c) Distributions with Respect to Unexchanged Shares of
---------------------------------------------------
Technitrol Common Stock. No dividends or other distributions declared or made
-----------------------
after the Effective Time with respect to Technitrol Common Stock with a record
date after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Technitrol Common Stock evidenced
thereby and no other part of the Merger Consideration shall be paid to any such
holder, until the holder of such Certificate shall surrender such Certificate
(or an affidavit pursuant to Section 1.9). Subject to the effect of applicable
laws, following surrender of any such Certificate, there shall be paid to the
holder of the certificates evidencing whole shares of Technitrol Common Stock
issued in exchange therefor, without interest, (i) promptly, the amount of any
cash payable with respect to a fractional share of Technitrol Common Stock to
which such holder is entitled pursuant to Section 1.5(e) and the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Technitrol Common Stock,
and (ii) at the appropriate payment date, the amount of dividends or other
distributions, with a record date after the Effective Time but prior to
surrender and a payment date occurring after surrender, payable with respect to
such whole shares of Technitrol Common Stock. No interest shall be paid on the
Merger Consideration.
(d) No Further Rights in Pulse Common Stock. All shares of
---------------------------------------
Technitrol Common Stock issued and cash paid upon conversion of the shares of
Pulse Common Stock in accordance with the terms hereof shall be deemed to have
been issued or paid in full satisfaction of all rights pertaining to such shares
of Pulse Common Stock.
(e) No Fractional Shares. No certificates or scrip
--------------------
evidencing fractional shares of Technitrol Common Stock shall be issued upon the
surrender for exchange of Certificates, and such fractional share interests will
not entitle the owner thereof to vote or to any rights of a stockholder of
Technitrol. In lieu of any such fractional shares, each holder of Pulse Common
Stock promptly upon surrender of a Certificate for exchange pursuant to this
Section 1.5 shall be paid an amount in cash (without interest), rounded to the
nearest cent, determined by multiplying (A) the Average Closing Price by (B) the
fractional interest to which such holder would otherwise be entitled (after
taking into account all shares of Pulse Common Stock then held of record by such
holder).
6
<PAGE>
(f) Termination of Exchange Fund. Any portion of the
----------------------------
Exchange Fund which remains undistributed to the holders of Pulse Common Stock
for six (6) months after the Effective Time shall be delivered to Technitrol,
upon demand, and any holders of Pulse Common Stock who have not theretofore
complied with this Article 1 shall thereafter look only to Technitrol for the
Merger Consideration to which they are entitled.
(g) No Liability. Notwithstanding anything to the contrary
------------
in this Article 1, no party hereto shall be liable to any holder of shares of
Pulse Common Stock for any shares of Technitrol Common Stock, (or dividends or
distributions with respect thereto) or cash delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(h) Withholding Rights. Technitrol shall be entitled to
------------------
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of Pulse Common Stock such amounts as
Technitrol is required to deduct and withhold with respect to the making of such
payment under the Code, or any provision of state, local or foreign tax law. To
the extent that amounts are so withheld by Technitrol, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the shares of Pulse Common Stock in respect of which such deduction
and withholding was made by Technitrol.
1.6 Stock Transfer Books. At the Effective Time, the stock
--------------------
transfer books of Pulse shall be closed and there shall be no further
registration of transfers of shares of Pulse Common Stock thereafter on the
records of Pulse. On or after the Effective Time, any certificates presented to
the Exchange Agent or Technitrol for any reason shall be converted into the
Merger Consideration.
1.7 Stock Options; Payment Right. At the Effective Time,
----------------------------
Pulse's obligations with respect to each outstanding Stock Option (as defined in
Section 2.2) shall be assumed by Technitrol unless the parties shall agree upon
an alternative method of handling such Stock Options based upon tax, accounting
or securities law considerations. The Stock Options so assumed by Technitrol
shall continue to have, and be subject to, the same terms and conditions set
forth in the stock option plans and agreements pursuant to which such Stock
Options were issued as in effect immediately prior to the Effective Time, except
that (a) such Stock Options shall be exercisable for that number of whole shares
of Technitrol Common Stock equal to the product of the number of shares of Pulse
Common Stock covered by the Stock Option immediately prior to the Effective Time
multiplied by the Exchange Ratio rounded up to the nearest whole number of
shares of Technitrol Common Stock, and (b) the per share exercise price for the
shares of Technitrol Common Stock issuable upon the exercise of such assumed
Stock Option shall be equal to the quotient determined by dividing the exercise
price per share of Pulse Common Stock specified for such Stock Option under the
applicable Stock Option plan or agreement immediately prior to the Effective
Time by the Exchange Ratio rounding the resulting exercise price down to the
nearest whole cent. The date of grant shall be the date on which the Stock
Option was originally granted. Technitrol shall (i) reserve for issuance the
number of shares of Technitrol Common Stock that will become issuable upon the
exercise of such Stock Options pursuant to this Section 1.7 and (ii) at the
Effective Time execute a document evidencing the assumption by Technitrol of
Pulse's obligations with respect thereto under this Section 1.7. Nothing in this
Section 1.7 shall affect the schedule of vesting (or the acceleration thereof)
with respect to the Stock Options to be assumed by Technitrol as provided in
this Section 1.7. As soon as practicable after the Effective Time, Technitrol
shall file a registration statement on Form S-8 (or any successor form), or
another appropriate form with respect to the shares of Technitrol Common Stock
subject to such options and shall use its best efforts to maintain the
7
<PAGE>
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such options remain outstanding. With respect to those
individuals who subsequent to the Merger will be subject to the reporting
requirements under Section 16(a) the Securities Exchange Act of 1934, as amended
(the 'Exchange Act'), where applicable, Technitrol, to the extent legally
permissible, shall administer the Stock Option plans assumed pursuant to this
Section 1.7 in a manner that complies with Rule 16b-3 promulgated under the
Exchange Act to the extent the applicable Pulse Stock Option Plan complied with
such rule prior to the Merger.
1.8 Dissenting Shares.
-----------------
(a) Notwithstanding any other provisions of this Agreement
to the contrary, shares of Pulse Common Stock that are outstanding immediately
prior to the Effective Time and which are held by stockholders who shall have
not voted in favor of the Merger or consented thereto in writing and who shall
have demanded properly in writing appraisal for such shares in accordance with
Section 262 of the DGCL (collectively, the "Dissenting Shares") shall not be
converted into or represent the right to receive the Merger Consideration. Such
stockholders shall be entitled to receive payment of the appraised value of such
shares of Pulse Common Stock held by them in accordance with the provisions of
such Section 262, except that all Dissenting Shares held by stockholders who
shall have failed to perfect or who effectively shall have withdrawn or lost
their rights to appraisal of such shares of Pulse Common Stock under such
Section 262 shall thereupon be deemed to have been converted into and to have
become exchangeable, as of the Effective Time, for the right to receive, without
any interest thereon, the Merger Consideration, as if such shares of Pulse
Common Stock were covered by Non-Elections, upon surrender, in the manner
provided in Section 1.5, of the Certificate or Certificates that formerly
evidenced such shares of Pulse Common Stock.
(b) Pulse shall give Technitrol (i) prompt notice of any
written demands for appraisal of any shares of Pulse Common Stock, withdrawals
of such demands, and any other instruments served pursuant to the DGCL and
received by Pulse which relate to any such demand for appraisal and (ii) the
opportunity to participate in all negotiations and proceedings which take place
prior to the Effective Time with respect to demands for appraisal under Section
262. Pulse shall not, except with the prior written consent of Technitrol,
voluntarily make any payment with respect to any demands for appraisal of Pulse
Common Stock or offer to settle or settle any such demands.
1.9 Lost, Stolen or Destroyed Certificates. Notwithstanding any
--------------------------------------
provision herein to the contrary, in the event any Certificates evidencing
shares of Pulse Common Stock 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 Merger Consideration as may be required pursuant to Section 1.4;
provided, however, that Technitrol 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 and for such period as it
may reasonably direct (but no more than shall be customary in similar
circumstances) as indemnity against any claim that may be made against
Technitrol or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that
----------------
the Merger shall constitute a reorganization within the meaning of
Section 368 (a) of the Code. The obligations of
8
<PAGE>
each party to effect the Merger are subject to satisfaction of this condition as
contemplated by in Section 6.1(d) of this Agreement.
1.11 Registration of Merger Shares. As promptly as practicable
-----------------------------
after the execution of this Agreement, Technitrol and Pulse shall prepare and
Technitrol shall file with the Securities and Exchange Commission ("SEC") a
registration statement on Form S-4 (the "Registration Statement") to register
under the Securities Act of 1933, as amended (the "Securities Act") the issuance
of the shares of Technitrol Common Stock pursuant to the Merger and this
Agreement, as provided in Section 5.1.
1.12 Taking of Necessary Action, Further Action. If, at any time
------------------------------------------
after the Effective Time, any 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 Pulse and Teco Sub, the officers and directors of Pulse
and Teco Sub are fully authorized in the name of their respective corporations
or otherwise to take, and will take, all such lawful and necessary action, so
long as such action is consistent with this Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF PULSE
Pulse represents and warrants to Technitrol and Teco Sub,
subject to the exceptions specifically disclosed in writing in the disclosure
letter supplied by Pulse to Technitrol (the "Pulse Schedules") and dated as of
the date hereof, as set forth below. As used in this Article 2 and in Article 3,
the term "Material Adverse Effect" with respect to a party means a material
adverse effect on the business, assets (including intangible assets), financial
condition, or results of operations of such party and its subsidiaries, taken as
a whole.
2.1 Organization of Pulse. Pulse and each of its direct and
indirectly owned subsidiaries (a correct and complete list of which
subsidiaries, together with their states or jurisdiction of incorporation, is
set forth in the Pulse Schedules; each individually a "Subsidiary" and
collectively the "Subsidiaries") is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power to own, lease and operate its property
and to carry on its business as now being conducted and as proposed to be
conducted, and is duly qualified to do business and in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have a Material Adverse Effect on Pulse. Pulse owns, directly or
indirectly through one or more Subsidiaries, 100% of the capital stock of each
of its Subsidiaries. Except as set forth in Pulse SEC Reports (as defined below
in Section 2.5), Pulse does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable for
any interest in, any corporation, partnership, joint venture or other business
association or entity other than the securities of any publicly-traded entity
held for investment only and constituting less than 5% of the outstanding
capital stock of any such entity. Pulse has delivered or made available to
Technitrol a true and correct list of all entities in which it has less than 5%
of the outstanding capital stock. Pulse has delivered or made available to
counsel for Technitrol a true and correct copy of the Certificate of
Incorporation and Bylaws of Pulse and similar governing instruments of its
material Subsidiaries, each as amended to date.
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2.2 Pulse Capital Structure. The authorized capital stock of
-----------------------
Pulse consists of Fifteen Million (15,000,000) shares of Pulse Common Stock,
$.01 par value, of which Five Million Nine Hundred Ninety-One Thousand One
Hundred Thirty-Seven (5,991,137) shares were issued and outstanding as of May
19, 1995 (including Three Hundred Eighty-Two Thousand Three Hundred Twenty-Three
(382,323) shares held in treasury), Five Million (5,000,000) shares of Class B
non-voting Common Stock, $.01 par value, none of which are issued and
outstanding, and Five Million (5,000,000) shares of Preferred Stock, $.01 par
value, none of which are issued and outstanding. All outstanding shares of Pulse
Common Stock are duly authorized, validly issued, fully paid and non-assessable
and are not subject to preemptive rights created by statute, the Certificate of
Incorporation or Bylaws of Pulse or any agreement or document to which Pulse is
a party or by which it is bound. As of May 19, 1995, Pulse has reserved Eight
Hundred Nine Thousand Sixty-Four (809,064) shares of Common Stock for issuance
to employees and consultants pursuant to the stock option plans of Pulse
identified in the Pulse Schedules, copies of which have been provided to
Technitrol (the "Pulse Stock Option Plans"), of which Four Hundred Forty-Five
Thousand, Three Hundred Sixty-Four (445,364) shares were subject to outstanding
options (the "Stock Options"). Pulse Schedules list for each outstanding option
at May 19, 1995, the name of the holder of shares as to which such option will
have been vested at May 19, 1995 and, if the exercisability of such option will
be accelerated in any way by the transactions contemplated by this Agreement or
for any other reason, an indication of the extent of such acceleration. Pulse
Schedules also include a list of all the participants in the Employee Stock
Purchase Plan and the number of shares of Pulse Common Stock which will be
issuable to the participants therein for the offering period ending March 31,
1995. The only warrants to purchase Pulse Common Stock, or Class B Nonvoting
Common Stock of Pulse, outstanding on the date of this Agreement are described
on the Pulse Schedules (the "Warrants"), copies of the form of which have been
provided to Technitrol by Pulse. Since March 31, 1995, there have been no
changes in the capital structure of Pulse other than the issuances of Pulse
Common Stock (i) upon the exercise of options granted under Pulse Stock Option
Plans, (ii) upon exercise of the Warrants, and (iii) pursuant to Pulse's
Employer Stock Purchase Plan (which are issued from Pulse's treasury). Except as
set forth in this Section 2.2, Pulse has no capital stock of any class issued or
authorized, or any security exchangeable into or exercisable for Pulse capital
stock. Except for the Pulse stock options described in the Pulse schedules,
rights outstanding under the Employee Stock Purchase Plan and the Warrants,
there are no options, calls, rights, commitments or agreements of any character,
written or oral to which Pulse is a party or by which it is bound obligating
Pulse to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of Pulse Common Stock or
other Pulse securities, or obligating Pulse to grant, extend, accelerate the
vesting of, change the price of, otherwise amend or enter into any such option,
warrant, call, right, commitment or agreement. All shares of Pulse Common Stock
subject to issuance as described in this Section 2.2, 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.
2.3 Obligations with Respect to Subsidiary Capital Stock. Except
----------------------------------------------------
for securities Pulse owns, there are no securities of any class of any
Subsidiary of Pulse, or any security exchangeable into or exercisable for such
securities, issued, reserved for issuance or outstanding. There are no options,
warrants, securities, calls, rights, commitments or agreements of any character
to which Pulse or any of its Subsidiaries is a party or by which any of them are
bound obligating Pulse or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, securities of any of Pulse's Subsidiaries
or obligating Pulse or any of its Subsidiaries to grant, extend,
10
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accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement with respect to such securities.
2.4 Authority. Pulse has all requisite corporate power and
---------
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Pulse, subject only to the
approval of the Merger by the vote of the holders of a majority of the
outstanding shares of Pulse Common Stock on the record date for the Pulse
Stockholders Meeting (as defined in Section 2.20). This Agreement has been duly
executed and delivered by Pulse and constitutes the valid and binding obligation
of Pulse, enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy and other similar laws and general principles of
equity. The execution and delivery of this Agreement by Pulse does not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (i) any provision of
the Certificate of Incorporation, or Bylaws of Pulse or similar governing
instruments of any of its Subsidiaries or (ii) any mortgage, indenture, lease,
contract or other agreement disclosed in the Pulse Schedules or of the type
referred to in clause (i) or (ii) of Section 2.12, or any permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Pulse or its properties or assets other than such
conflicts, violations, defaults, terminations, cancellations or accelerations
which would not have a Material Adverse Effect.
No consent, approval, order or authorization of, or
registration, declaration or filing with, any federal, state, local or foreign
court, administrative agency or commission or other governmental authority or
instrumentality ("Governmental Entity") is required by or with respect to Pulse
in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) the filing
of the Registration Statement with the SEC in accordance with the Securities
Act, and the SEC's declaration of effectiveness thereof (ii) the filing of the
Merger Agreement with the Delaware Secretary of State, and acceptance thereof
for filing (iii) the filing of the Proxy Statement (as defined in Section 2.20)
with the SEC in accordance with the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (iv) the filing of Forms 8-K with the SEC, (v) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state securities laws and the laws
of any foreign country, (vi) the filing of notification pursuant to the Hart-
Scott-Rodino Antitrust Act of 1976, as amended (the "HSR ACT"), (vii) consent of
the Industrial Development Agency (Ireland) (including predecessor or related
government agencies) and (viii) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not have a
Material Adverse Effect on Pulse or Technitrol.
2.5 SEC Filings; Pulse Financial Statements.
---------------------------------------
(a) Pulse has filed all forms, reports and documents
required to be filed with the SEC, and has made available to Technitrol in the
form filed with the SEC (i) its Annual Report on Form 10-K for the fiscal year
ended July 3, 1994, (ii) its Quarterly Reports on Form 10-Q for the periods
ended October 2, 1994, January 1, 1995 and April 2, 1995, (iii) all proxy
statements relating to Pulse's meetings of stockholders (whether annual or
special) held since November 9, 1994 (iv) all other reports or registration
statements filed by Pulse with the SEC, and (v) all amendments
11
<PAGE>
and supplements to all such reports and registration statements filed by Pulse
with the SEC. All such reports and documents and any similar reports and
documents filed with the SEC after the date of this Agreement and prior to the
Effective Time (collectively referred to herein as the "Pulse SEC Reports") (i)
were and will be prepared in accordance with the requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules and regulations of
the SEC thereunder applicable to such Pulse SEC Reports, 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 subsequent filing) contain and
future Pulse SEC Reports will not 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 Pulse's Subsidiaries is required
to file any reports or other documents with the SEC.
(b) Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in Pulse SEC
Reports (the "Pulse Financials"), including any Pulse SEC Reports filed after
the date hereof until the Closing, (i) complies as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, (ii) was prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto) and (iii) fairly presented the
consolidated financial position of Pulse 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 and except that
the footnotes accompanying the unaudited interim financial statements are not
complete. The unaudited balance sheet of Pulse as at April 2, 1995 contained in
Pulse's Quarterly Report on Form 10-Q for the Quarter ended April 2, 1995 is
hereinafter referred to as the "Pulse Balance Sheet".
(c) Pulse has furnished to Technitrol 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 Pulse with the SEC pursuant
to the Securities Act or the Exchange Act.
(d) Pulse has furnished to Technitrol certain non-public
financial projections, which were prepared in good faith based on assumptions
believed by Pulse to be reasonable, as to which no additional representation or
warranty is made or to be implied.
2.6 Absence of Certain Changes or Events. Since the date of the
------------------------------------
Pulse Balance Sheet, Pulse has conducted its business only in the ordinary
course and in a manner consistent with past practice and, since such date, there
has not been (i) any material adverse change in the business, assets (including
intangible assets), financial condition or results of operations of Pulse and
its Subsidiaries taken as a whole, or to the knowledge of Pulse any development
that reasonably would be expected to cause such a material adverse change; (ii)
any material damage, destruction or loss (whether or not covered by insurance)
having a Material Adverse Effect on Pulse; (iii) any material change by Pulse in
its accounting methods, principles or practices; (iv) any material revaluation
by Pulse of its assets, including, without limitation, writing off or writing
down the value of any asset having a material value prior to such revaluation;
or (v) any other action or event that would have required the consent of
Technitrol pursuant to Section 4.1 had such action or event occurred after the
date of this Agreement.
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2.7 Taxes.
-----
(a) Definition of Taxes. For the purposes of this Agreement
-------------------
"Tax or "Taxes" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes together with all interest penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Returns and Audits.
----------------------
(i) Pulse and each of its Subsidiaries has timely
filed all federal, state, local and foreign returns, estimates, information
statements and reports ("Returns") relating to Taxes, required to be filed by
Pulse and each of its Subsidiaries, except such Returns which are not material
to Pulse, and has paid all Taxes shown to be due on such Returns or is
contesting them in good faith.
(ii) Except as is not material to Pulse, Pulse and
each of its Subsidiaries as of the Effective Time will have withheld with
respect to its employees all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld.
(iii) Except as is not material to Pulse, neither
Pulse nor any of its Subsidiaries has been delinquent in the payment of any Tax
nor is there any Tax deficiency outstanding, proposed or assessed against Pulse
or any of its Subsidiaries, nor has Pulse or any of its Subsidiaries executed
any waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(iv) Subject to disclosure in the Pulse Schedules,
except as is not material to Pulse, no audit or other examination of any Return
of Pulse or any of its Subsidiaries is presently in progress, nor has Pulse or
any of its Subsidiaries been notified of any request for such an audit or other
examination.
(v) Neither Pulse nor any of its Subsidiaries has
any liability for unpaid federal, state, local or foreign Taxes which have not
been accrued for or reserved on the Pulse Balance Sheet, whether asserted or
unasserted contingent or otherwise, which is material to Pulse.
(vi) None of Pulse's assets are treated as "tax-
exempt use property" within the meaning of Section 168(h) of the Code.
(vii) There is no contract, agreement, plan or
arrangement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of Pulse or any of its Subsidiaries
that, individually or collectively, could give rise to the payment of any amount
that would not be deductible pursuant to Sections 280G, 404 or 162(m) of the
Code.
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(viii) Neither Pulse nor any of its subsidiaries has
filed any consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as defined in Section 341(f)(4) of the Code) owned by Pulse.
(ix) Pulse is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
2.8 Absence of Restrictions on Business Activities. There is no
----------------------------------------------
agreement, judgment, injunction, order or decree binding upon Pulse which has or
could reasonably be expected to have the effect of prohibiting or materially
impairing any material current business practice of Pulse, any acquisition of
material property by Pulse or the conduct of business by Pulse as currently
conducted or as proposed to be conducted by Pulse.
2.9 Absence of Liens and Encumbrances. Pulse and each of its
---------------------------------
Subsidiaries has good and valid title to, or, in the case of leased properties
and assets, valid leasehold interests in, all of its material tangible
properties and assets, real, personal and mixed, used in its business, free and
clear of any liens or encumbrances except as reflected in Pulse Financial
Statements and except for liens for taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.
2.10 Intellectual Property . Pulse, directly or indirectly, owns,
---------------------
or is licensed or otherwise possesses legal enforceable rights to use, all
patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, maskworks, net lists, schematics, 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
material to the business of Pulse as currently conducted or as proposed to be
conducted by Pulse (the "Pulse Intellectual Property Rights"). Pulse Schedules
set forth a complete list of all patents, trademarks, registered copyrights,
trade names and service marks, and any applications therefor, included in the
Pulse Intellectual Property Rights, and specify, where applicable, the
jurisdictions in which each such Pulse 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. Pulse Schedules also
set forth a complete list of all material licenses, sublicenses and other
agreements as to which Pulse is a party and pursuant to which Pulse or any other
person is authorized to use any Pulse Intellectual Property Right or other trade
secret material to Pulse, and includes the identity of all parties thereto and a
description of the nature and subject matter thereof; the copies of such
licenses, sublicenses and other agreements provided to Technitrol contain a
description of the applicable royalty and the term thereof. Pulse is not in
violation of any license, sublicense or agreement described on such list except
such violations as do not materially impair Pulse's rights under such license,
sublicense or agreement. The execution and delivery of this Agreement by Pulse,
and the consummation of the transactions contemplated hereby, will neither cause
Pulse to be in violation or default under any such license, sublicense or
agreement, nor entitle any other party to any such license, sublicense or
agreement to terminate or modify such license, sublicense or agreement. Pulse is
the sole and exclusive owner or licensee of, with all right, title and interest
in and to (free and clear of any liens or encumbrances), Pulse Intellectual
Property Rights, and has sole and exclusive rights (and is not contractually
obligated to pay any compensation to any third party in respect thereof) to the
use thereof or the material covered thereby in connection with the services or
products in respect of which Pulse Intellectual Property Rights are being used.
No claims
14
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have been asserted or, to the knowledge of Pulse, are threatened by any person
nor are there any valid grounds, to the knowledge of Pulse, for any bona fide
claims (i) to the effect that the manufacture, sale, licensing or use of any of
the products of Pulse or any of its Subsidiaries as now manufactured, sold or
licensed or used or proposed for manufacture, use, sale or licensing by Pulse
infringes on any copyright, patent, trade mark, service mark or trade secret,
(ii) against the use by Pulse or any of its Subsidiaries of any trademarks,
service marks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in Pulse's
business as currently conducted or as proposed to be conducted by Pulse, or
(iii) challenging the ownership by Pulse, validity or effectiveness of any Pulse
Intellectual Property Rights. All material registered trademarks, service marks
and copyrights held by Pulse are valid and subsisting. To the knowledge of
Pulse, there is no material unauthorized use, infringement or misappropriation
of any Pulse Intellectual Property Rights by any third party, including any
employee or former employee of Pulse. No Pulse Intellectual Property Right or
product of Pulse or any of its Subsidiaries is subject to any outstanding
decree, order, judgment, or stipulation restricting in any manner the licensing
thereof by Pulse or any of its Subsidiaries. Neither Pulse nor any of its
Subsidiaries has entered into any agreement (other than exclusive distribution
agreements identified as such in Pulse Schedules) under which Pulse or its
Subsidiaries is restricted from selling, licensing or otherwise distributing any
of its products to any class of customers, in any geographic area, during any
period of time or in any segment of the market. Pulse has a policy requiring
each employee to execute a proprietary information and confidentiality agreement
substantially in Pulse's standard form.
2.11 Agreements, Contracts and Commitments. Except as set forth
-------------------------------------
in Pulse Schedules, neither Pulse nor any of its Subsidiaries has, nor is it a
party to nor is it bound by, any of the following:
(a) any material product distribution agreement,
(b) any material joint marketing agreement or product
development agreement,
(c) any material agreement relating to the performance of
product evaluation or testing or regulatory compliance by other parties with
respect to products of Pulse or its Subsidiaries ,
(d) any agreement with or order by any Government Entity
relating to the testing, manufacture, registration, labeling, marketing or sale
of products manufactured, marketed or sold by Pulse or its Subsidiaries,
(e) any agreement with or order by any Government Entity
relating to the providing by such government of employees related to the
manufacture of Pulse's products,
(f) any bonus, deferred compensation, incentive
compensation, pension, profit-sharing or retirement plans, or any other employee
benefit plans or arrangements,
(g) any material employment or consulting agreement, or any
other similar type of contract or commitment for an amount in excess of Fifty
Thousand Dollars ($50,000.00), which in any of such cases is not terminable by
Pulse on thirty (30) days notice without liability,
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(h) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation right plan or stock purchase plan, any
of the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement,
(i) any agreement of indemnification or guaranty not
entered into in the ordinary course of business other than such agreements or
guarantees between Pulse and any of its Subsidiaries,
(j) any agreement, contract or commitment relating to
capital expenditures and involving future obligations in excess of One Hundred
Thousand Dollars ($100,000.00) singularly or Five Hundred Thousand Dollars
($500,000.00) in the aggregate,
(k) any agreement, contract or commitment relating to the
disposition or acquisition of assets not in the ordinary course of business or
any ownership interest in any corporation, partnership, joint venture or other
business enterprise,
(l) any mortgage, indenture, loan or credit agreement,
grant agreement, security agreement or other agreement or instrument relating to
the borrowing of money, extension of credit, or receipt of money,
(m) any collective bargaining agreement,
(n) any real property or personal property lease requiring
aggregate future payments by Pulse or its Subsidiaries in excess of One Hundred
Thousand Dollars ($100,000.00),
(o) any material joint venture or partnership agreement or
arrangement,
(p) any consignment or similar agreement relating to
inventory or equipment, or
(q) any other agreement, contract or commitment which
involves payment by Pulse of One Hundred Thousand ($100,000.00) or more and is
not cancelable without penalty within thirty (30) days.
2.12 No Default. Neither Pulse nor any of its Subsidiaries has
----------
breached, or received in writing any claim or threat that it has breached, any
of the terms or conditions of any (i) agreement, contract or commitment that was
or is required to be filed as an exhibit to Pulse SEC Reports or (ii) any
agreement under which Pulse or any of its Subsidiaries licenses from a third
party any Pulse Intellectual Property Rights included in Pulse's products in
such a manner as would permit any other party to cancel or terminate the same or
would permit any other party to seek material damages from Pulse thereunder.
Each of the agreements, contracts and commitments referred to in clauses (i) and
(ii) above that has not expired or been terminated in accordance with its terms
is in full force and effect and, except as otherwise disclosed, is not subject
to any material default thereunder of which Pulse is aware by any party
obligated to Pulse pursuant thereto.
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2.13 Governmental Authorization. Pulse holds all permits,
--------------------------
licenses, variances, exemptions, orders and approvals of all Governmental
Entities which are material to the operation of Pulse's business as currently
conducted (the "Pulse Permits"). Pulse is in material compliance with the terms
of Pulse Permits. Except as disclosed in Pulse's SEC Reports filed prior to the
date of this Agreement, the business of Pulse is not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity, except
for violations or possible violations which individually or in the aggregate are
not, and insofar as reasonably can be foreseen in the future will not be,
material to Pulse. As of the date of this Agreement, no investigation or review
by any Governmental Entity with respect to Pulse is pending or, to the knowledge
of Pulse, threatened, nor has any Governmental Entity indicated an intention to
conduct the same, other than, in each case, those the outcome of which, as far
as reasonably can be foreseen, will not be material. There are no products now
being manufactured, assembled or sold by Pulse which at the date hereof would
require any approval of any governmental body, whether federal, state, local or
foreign for the purpose for which they are being manufactured, assembled or sold
by Pulse, for which such approval has not been obtained. All products now being
commercially distributed by Pulse in any jurisdiction meet the applicable legal
requirements of such jurisdiction and all requisite governmental approvals have
been duly obtained and are in full force and effect, and there is no basis known
to Pulse for any governmental body to deny or rescind any approval for any of
their commercially distributed products for the purpose for which they are being
manufactured, assembled or sold by Pulse or for any products that Pulse proposes
to commercially distribute in the future. There is no action or proceeding by
any governmental body pending or, to the knowledge of Pulse, threatened against
Pulse, and no such proceeding was brought at any time in the past and, to the
knowledge of Pulse, there is no basis for any such action or proceeding.
2.14 Litigation. There is no action, suit or proceeding, claim,
----------
arbitration or investigation pending, or as to which Pulse or any of its
Subsidiaries has received any notice of assertion nor, to Pulse's knowledge, is
there a reasonable basis to expect such notice of assertion against Pulse or any
of its Subsidiaries which, if determined adversely to Pulse or any of its
Subsidiaries reasonably would be expected to be material to Pulse, or which in
any manner challenges or seeks to prevent, enjoin, alter or delay any of the
transactions contemplated by this Agreement.
2.15 Environmental Matters.
---------------------
(a) Hazardous Material. Except as set forth on the Pulse
------------------
Schedules and except as reasonably would not be expected to result in a material
liability to Pulse, no underground storage tanks and no amount of any substance
that has been designated by any Governmental Entity or by applicable federal,
state, local or foreign law to be radioactive, toxic, hazardous or otherwise a
danger to health or the environment, including, without limitation, PCBs,
asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous
substances pursuant to Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to
the United States Resource Conservation and Recovery Act of 1976, as amended,
and the regulations promulgated pursuant to said laws (a "Hazardous Material"),
but excluding office and janitorial supplies, are present, as a result of
deliberate actions of Pulse or any of its Subsidiaries, or, to Pulse's
knowledge, as a result of any actions of any third party or otherwise, in on or
under any property, including the land and the improvements, ground water and
surface water thereof, that Pulse or any of its Subsidiaries has at any time
owned, operated, occupied or leased.
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(b) Hazardous Material Activities. Except as reasonably
-----------------------------
would not be expected to result in a material liability of Pulse, neither Pulse
nor any of its Subsidiaries, has transported, stored, used, manufactured,
disposed of, released or exposed its employees or others to Hazardous Materials
in violation of any law in effect on or before the Closing Date, nor has Pulse
or any of its Subsidiaries disposed of, transported, sold, or manufactured any
product containing a Hazardous Material (collectively "Hazardous Materials
Activities") in violation of any rule, regulation, treaty or statute promulgated
by any Governmental Entity in effect prior to or as of the date hereof to
prohibit, regulate or control Hazardous Materials or any Hazardous Material
Activity.
(c) Permits. Pulse currently holds all environmental
-------
approvals, permits, licenses, clearances and consents (the "Environmental
Permits") necessary for the conduct of Pulse's Hazardous Material Activities and
other businesses of Pulse as such activities and businesses are currently being
conducted.
(d) Environmental Liabilities. No material action,
proceeding, revocation proceeding, amendment procedure, writ, injunction or
claim is pending, or to Pulse's knowledge, threatened, concerning any
Environmental Permit, Hazardous Material or any Hazardous Materials Activity of
Pulse or any of its Subsidiaries and Pulse is not aware of any facts or
circumstances which could involve Pulse or any of its Subsidiaries in any
material environmental litigation or impose upon Pulse any material
environmental liability.
2.16 Brokers' and Finders' Fees. Except for fees payable to
--------------------------
Oppenheimer & Co., Inc. pursuant to the engagement letter dated October 28,
1994, a copy of which has been provided to Technitrol, Pulse has not incurred,
nor will it incur, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Agreement or any transaction contemplated hereby.
2.16 Labor Matters. There are no pending material claims
-------------
against Pulse or any of its Subsidiaries under any workers compensation plan or
policy (or similar foreign statute or law) or for long term disability. Pulse
and each of its United States Subsidiaries, has complied in all material
respects with all applicable provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and has no material obligations with
respect to any former employees or qualifying beneficiaries thereunder. Except
as is not material to Pulse's business and operations, neither Pulse nor any of
its Subsidiaries has given to or received from any current employee of Pulse or
any of its Subsidiaries notice of termination of employment.
2.17 Employee Benefit Plans.
-----------------------
(a) Pulse Schedules set forth all presently effective
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option,
stock purchase, incentive, deferred compensation, supplemental retirement,
severance and other similar employee benefit plans, programs or arrangements,
and any presently effective employment or executive compensation or severance
agreements, written or otherwise, for the benefit of, or relating to, any
current or former employee of Pulse or any trade or business (whether or not
incorporated) which is a member or which is under common control with Pulse (an
"ERISA Affiliate") within the meaning of Section 414 of the Code, or any
Subsidiary of Pulse (together, the "Employee Plans").
18
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(b) Pulse Schedules set forth a complete and correct list
of each plan, policy or arrangement (written or oral) providing for insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental employment benefits, vacation benefits, fringe
benefits or other forms of compensation or benefits which (i) is not an Employee
Plan, (ii) is maintained, established or contributed to by Pulse or any related
person, and (iii) covers any employee or former employee of Pulse or any related
person, including without limitation any employee or former employee of a
Related Person that does business outside of the Untied States. Such plans and
arrangements as are described above are hereinafter referred to collectively as
the "Benefit Arrangements".
(c) (i) None of the Employee Plans or Benefit Arrangements
promises or provides retiree medical or other retiree welfare benefits to any
person except as required by applicable law, including but not limited to COBRA;
(ii) Pulse has maintained all Employee Plans and Benefit Arrangements in
compliance in all material respects with the requirements prescribed by any and
all applicable statutes (including ERISA and the Code), orders, or governmental
rules and regulations currently in effect with respect thereto (including all
applicable requirements for notification to participants or beneficiaries or the
Department of Labor, Internal Revenue Service (the "IRS") or Secretary of the
Treasury), and Pulse has performed all material obligations required to be
performed by it under, is not in default under or violation of, and has no
knowledge of any default or violation by any other party to, any of the Employee
Plans or Benefit Arrangements; (iii) each Employee Plan intended to qualify
under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code either are currently subject to a favorable
determination letter from the IRS or Pulse still has a remaining period of time
under applicable Treasury Regulations or IRS pronouncements in which to apply
for such a determination letter and to make any amendments necessary to obtain a
favorable determination; and (iv) no current or former Employee Plan or Benefit
Arrangement is or within the prior six (6) years has been subject to, and Pulse
has not incurred and does not expect to incur any liability under, Title IV of
ERISA or Section 412 of the Code and (v) nothing in any Employee Plan or Benefit
Arrangements precludes or interferes with Technitrol's ability to cause Pulse to
terminate (or consolidate, at Technitrol's option) any Employee Plan or Benefit
Arrangement after the Closing; provided that (i) the Employee Plans and Benefit
Arrangements may be terminated prospectively only, subject to rights accrued by
Pulse's employees at the time of such termination and (ii) not more than sixty
(60) days notice may be required to terminate certain Employee Plans and Benefit
Arrangements.
(d) None of the following now exists or has existed within
the six (6) year period ending on the date hereof with respect to any Employee
Plan: (i) any act or omission by Pulse constituting a violation of Section 402,
403, 404 or 405 of ERISA; (ii) any act or omission by Pulse which constitutes a
violation of Sections 406 and 407 of ERISA and is not exempted by Section 408 of
ERISA or which constitutes a violation of Section 4975(c) of the Code and is not
exempted by Section 4975(d) of the Code; (iii) any act or omission by Pulse
constituting a violation of Section 503, 510 or 511 of ERISA; (iv) any act or
omission by Pulse which could give rise to liability under Section 502 of ERISA
or under Sections 4972 or 4975 through 4980 of the Code; or (v) any act or
omission by Pulse which could give rise to liability under Section 6652 of the
Code.
(e) Neither Pulse nor any of its Subsidiaries has
contributed, or been obligated to contribute, to any multi-employer plan, as
defined in Section 4001(a)(3) of ERISA.
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(f) Each Employee Plan and Benefit Arrangement has been
maintained in substantial compliance with its terms, and all contributions,
premiums or other payments due from Pulse or any of its Subsidiaries to (or
under) any such Employee Plan or Benefit Arrangement have been fully paid or
adequately provided for on the audited Pulse Financials for the most recently-
ended fiscal year. All accruals thereon (including, where appropriate,
proportional accruals for partial periods) have been made in accordance with
generally accepted accounting principles consistently applied on a reasonable
basis. There has been no amendment, written interpretation or announcement
(whether or not written) by Pulse with respect to, or change in employee
participation or coverage under, any Employee Plan or Benefit Arrangement that
would increase materially the expense of maintaining such plans or arrangements,
individually or in the aggregate, above the level of expense incurred with
respect thereto for the most recently-ended fiscal year.
(g) Pulse has made available to Technitrol complete,
accurate and current copies of all Employee Plans and Benefit Arrangements and
all amendments, documents, correspondence and filings relating thereto,
including but not limited to any statements, filings, reports or returns filed
with any governmental agency with respect to the Employee Plans and Benefit
Arrangements at any time within the three (3) year period ending on the date
hereof.
(h) The Pulse Schedules set forth a true and correct list
of all plans and policies maintained or administered by Pulse or any of it
Subsidiaries relating to benefits provided to employees in foreign countries
pursuant to the laws of such countries or other jurisdiction. Pulse has
maintained or administered each such plan or policy in substantial compliance
with their terms and applicable legal requirements, and all contributions,
premiums or other payments due from Pulse or any of its Subsidiaries to (or
under) any such plan have been fully paid or adequately provided for on the
audited Pulse Financials for the most recently-ended fiscal year. All accruals
thereon (including, where appropriate, proportional accruals for partial
periods) have been made in accordance with generally accepted accounting
principles consistently applied on a reasonable basis.
2.19 Change of Control Payments. Pulse Schedules set forth
--------------------------
the terms of all agreements, commitments, employment policies, plans or
arrangements pursuant to which all amounts may become payable (whether currently
or in the future) to current or former officers, directors or employees of Pulse
or others as a result of or in connection with the Merger, including any
termination of employment relating to or within one year following the Merger.
2.20 Registration Statements; Proxy Statements/Prospectus.
----------------------------------------------------
The information to be supplied by Pulse for inclusion in the Registration
Statement shall not at the time the Registration Statement is filed with the SEC
and at the time it becomes effective under the Securities Act, 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 not
misleading. The information to be supplied by Pulse for inclusion in the joint
proxy statement/prospectus to be sent to the stockholders of Pulse and
stockholders of Technitrol in connection with the meeting of Pulse's
stockholders to consider the Merger (the "Pulse Stockholders' Meeting") and the
meeting of Technitrol's stockholders to consider the Merger (the "Technitrol
Stockholders' Meeting") (such joint proxy statement/prospectus as amended or
supplemented is referred to herein as the "Proxy Statement") shall not, on the
date the Proxy Statement is first mailed to Pulse's stockholders and
Technitrol's stockholders, at the time of Pulse's Stockholders' Meeting or
Technitrol Stockholders' Meeting 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
20
<PAGE>
are made, not false or misleading; or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for Pulse Stockholders' Meetings or Technitrol
Stockholders' meeting which has become false or misleading. To Pulse's best
knowledge at the time the Proxy Statement is mailed to the stockholders of Pulse
and Technitrol, the Proxy Statement will comply as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder. If at any time prior to the Effective Time any information relating
to Pulse or any of its affiliates, officers or directors should be discovered by
Pulse which should be set forth in an amendment to the Registration Statement or
a supplement to the Proxy Statement, Pulse shall promptly inform Technitrol.
Notwithstanding any of the foregoing, Pulse makes no representation or warranty
with respect to any information supplied by Technitrol or Teco Sub which is
contained in any of the foregoing documents.
2.21 Board Approval. The Board of Directors of Pulse has, on or
--------------
prior to the date hereof, unanimously approved this Agreement and the Merger and
has heretofore adopted the resolutions contained in the Pulse Schedules.
2.22 Non-Public Information Provided to Technitrol. The non-
---------------------------------------------
public written information provided to Technitrol by Pulse since November 16,
1994 regarding the business of Pulse, including product and historical financial
information, did not, to the actual knowledge of Pulse's executive officers,
contain any material misrepresentation of a material fact or omit any
information necessary to make the information provided not materially
misleading. The written projections of Pulse's future financial performance
provided by Pulse to Technitrol were prepared in good faith based on assumptions
believed by Pulse to be reasonable; however no other representation is made or
to be implied concerning such projections.
2.23 Fairness Opinion. Pulse has received a written opinion
----------------
from Oppenheimer & Co., Inc. ("Oppenheimer"), dated as of the date hereof, to
the effect that the Merger Consideration to be received by the holders of Pulse
Common Stock is fair from a financial point of view and has delivered to
Technitrol a copy of such opinion.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF TECHNITROL AND TECO SUB
Technitrol and Teco Sub represent and warrant to Pulse as follows:
3.1 Organization of Technitrol. Each of Technitrol and its
--------------------------
material subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, has the
corporate power to own, lease and operate its property and to carry on business
as now being conducted and as proposed to be conducted, and is duly qualified to
do business and in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified would have a Material Adverse Effect on
Technitrol. Except as set forth in the Technitrol SEC Reports (as defined in
Section 3.4) or on a written list delivered to Pulse, Technitrol does not
directly or indirectly own any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for any interest in, any
corporation, partnership, joint venture or other business association or entity.
Technitrol has delivered or made available to counsel for the Company, a true
and correct copy of the Certificate of Incorporation and Bylaws or other charter
documents of Technitrol, each as amended to date.
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<PAGE>
3.2 Capital Structure.
-----------------
(a) The authorized stock of Technitrol consists of Ten
Million (10,000,000) shares of Technitrol Common Stock, $.125 par value, of
which 6,048,417 shares were issued and outstanding as of March 31, 1995. All
such shares have been duly authorized and all such issued and outstanding shares
have been validly issued, are fully paid and nonassessable and are free of any
liens or encumbrances other than any liens or encumbrances created by or imposed
upon the holders thereof except for shares issued pursuant to the Technitrol
Restricted Stock Plan ("RSP") which are subject to the terms of the RSP. There
are no other equity securities, options, warrants, calls, rights, commitments or
agreements of any character to which Technitrol is a party or by which it is
bound or obligating Technitrol to issue, deliver, sell, repurchase or redeem or
cause to be issued, delivered, sold, repurchased or redeemed any shares of the
capital stock of Technitrol or obligating Technitrol to grant, extend or enter
into any such equity security, option warrant, call, right, commitment or
agreement.
(b) The shares of Technitrol Common Stock to be issued
pursuant to the Merger will, upon issuance, be (i) duly authorized, validly
issued, fully paid and non-assessable, (ii) registered pursuant to the
Securities Act and, except for affiliates of Pulse as to whom the provisions of
Rule 145 of the Securities Act shall apply, be freely tradeable and (iii) be
eligible for trading on the American Stock Exchange.
3.3 Authority. Technitrol and Teco Sub have all requisite
---------
corporate power and authority to enter into and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Technitrol and Teco Sub subject
only to the approval of the Merger by Technitrol's stockholders as contemplated
by Section 6.1(a). This Agreement has been duly executed and delivered by
Technitrol and Teco Sub and constitutes the valid and binding obligations of
Technitrol and Teco Sub, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar laws and general
principles of equity. The execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligations or loss of a benefit under (i) any provision of
the Certificate of Incorporation or Bylaws of Technitrol or Teco Sub or (ii) any
material mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Technitrol or its properties or
assets other than any such conflicts, violations, defaults, terminations,
cancellations or accelerations which would not have a material adverse effect on
either Technitrol or the ability of Technitrol to consummate the transactions
contemplated hereby.
No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to Technitrol and Teco Sub in connection with the execution
and delivery of this Agreement by Technitrol and Teco Sub or the consummation by
Technitrol and Teco Sub of the transactions contemplated hereby, except for (i)
the filing of the Registration Statement with the SEC and the SEC's declaration
of effectiveness thereof, (ii) the filing of the certificate of Merger with the
Delaware Secretary of State, and acceptance thereof for filing (iii) the filing
of Forms 8-K with the SEC within fifteen (15) days and ten (10) days,
respectively, after the Closing Date, (iv) listing of Technitrol Common Stock on
the American Stock
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Exchange, (v) the filing of notification pursuant to the HSR Act, (vi) any
filings as may be required under applicable state securities laws and the laws
of any foreign country, and (vii) such other consents, authorizations, filings,
approvals and registrations which if not obtained or made would not have a
Material Adverse Effect on Technitrol.
3.4 SEC Filings; Technitrol Financial Statements.
--------------------------------------------
(a) Technitrol and each of its subsidiaries has filed all
forms, reports and documents required to be filed with the SEC and has made
available to Pulse, in the form filed with the SEC, (i) its Annual Reports on
Form 10-K for the fiscal year ended December 31, 1994, (ii) its Quarterly Report
on Form 10-Q for the period ended March 31, 1995, (iii) all proxy statements
relating to Technitrol's meetings of stockholders (whether annual or special)
held since December 31, 1992, (iv) all other reports or registration statements
filed by Technitrol with the SEC since December 31, 1992 and (v) all amendments
and supplements to all such reports and registration statements filed by
Technitrol with the SEC. All such required forms, reports and documents
(including those enumerated in clauses (i) through (v) of the preceding
sentence) are referred to herein as the "Technitrol SEC Reports". As of their
respective dates, the Technitrol SEC Reports (i) were prepared in accordance
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the SEC thereunder applicable to such
Technitrol SEC Reports 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 Technitrol'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 Technitrol
SEC Reports, including any Technitrol SEC Reports filed after the date hereof
until the Closing, (i) complies as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, (ii) was
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes thereto) and (iii) fairly presented the consolidated financial
position of Technitrol 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 and except that the footnotes accompanying the
unaudited interim financial statements are incomplete. The unaudited balance
sheet of Technitrol as at March 31, 1995 as contained in Technitrol's Quarterly
Report on Form 10-Q for the Quarter ended March 31, 1995 is hereinafter referred
to as the "Technitrol Balance Sheet".
(c) Technitrol has heretofore furnished or made available
to Pulse 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
Technitrol with the SEC pursuant to the Securities act or the Exchange Act.
3.5 Absence of Certain Changes or Events . Since the date of the
Technitrol Balance Sheet, except with respect to the actions contemplated by
this Agreement, Technitrol and its
23
<PAGE>
subsidiaries have conducted their businesses only in the ordinary course and in
a manner consistent with past practice and, since such date, there has not been
(i) any Material Adverse Change in Technitrol, or to the knowledge of Technitrol
any development that reasonably would be expected to cause a Material Adverse
Change in Technitrol; (ii) any damage, destruction or loss (whether or not
covered by insurance) having a Material Adverse Effect on Technitrol; (iii) any
material change by Technitrol in its accounting methods, principles or
practices; (iv) any material revaluation by Technitrol of assets including,
without limitation, writing off or writing down the value of any material asset;
or (v) any other action or event that would have required the consent of Pulse
pursuant to Section 4.2 had such action or event occurred after the date of this
Agreement.
3.6 Taxes.
-----
(a) Technitrol and each of its subsidiaries has timely
filed all Returns relating to Taxes required to be filed by Technitrol and each
of its subsidiaries, except such Returns which are not material to Technitrol
and has paid all Taxes shown to be due on such Returns, or is contesting them in
good faith.
(b) Except as is not material to Technitrol, Technitrol
and each of its subsidiaries as of the Effective Time will have withheld with
respect to its employees all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld.
(c) Except as is not material to Technitrol, neither
Technitrol nor any of its subsidiaries has been delinquent in the payment of any
Tax nor is there any Tax deficiency outstanding, proposed or assessed against
Technitrol or any of its subsidiaries nor has Technitrol or any of its
subsidiaries executed any waiver of any statute of limitations on or extending
the period for the assessment or collection of any Tax.
(d) Except as is not material to Technitrol, no audit or
other examination of any Return of Technitrol or any of its subsidiaries is
presently in progress, nor has Technitrol or any of its subsidiaries been
notified of any request for such an audit or other examination.
(e) Technitrol does not have any liability for unpaid
federal, state, local or foreign Taxes which have not been accrued or reserved
against on the Technitrol Balance Sheet, whether asserted or unasserted,
contingent or otherwise, which is material to Technitrol.
3.7 Restrictions on Business Activities. There is no material
-----------------------------------
agreement, judgment, injunction, order or decree binding upon Technitrol which
has or reasonably would be expected to have the effect of prohibiting or
materially impairing any material current business practice of Technitrol, any
acquisition of material property by Technitrol or the conduct of business by
Technitrol as currently conducted or as proposed to be conducted by Technitrol.
3.8 Absence of Liens and Encumbrances; Condition of Equipment.
---------------------------------------------------------
Technitrol has good and valid title to, or in the case of leased properties and
assets, valid leasehold interests in, all of its material tangible properties
and assets, real, personal and mixed, used in its business, free and clear of
any liens or encumbrances except as reflected in the Technitrol Financial
Statements and except for liens for taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which are not material in
character amount or extent, and which do not materially detract from
24
<PAGE>
the value, or materially interfere with the present use, of the property subject
thereto or affected thereby.
3.9 Intellectual Property. Technitrol, directly or indirectly,
---------------------
owns, or is licensed or otherwise possesses legally enforceable rights to use,
all patents, trademarks, trade names, service marks, copyrights and any
applications therefor, maskworks, net lists, schematics, technology, know-how,
computer software programs or applications (in both source code and object code
form), and tangible or intangible proprietary information or material (excluding
Commercial Software) that are material to the business of Technitrol as
currently conducted or as proposed to be conducted by Technitrol (the
"Technitrol Intellectual Property Rights"). Technitrol 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 agreement to which Technitrol is
a party and pursuant to which Technitrol or any other person is authorized to
use any Technitrol Intellectual Property Rights except such violations as do
materially impair Technitrol's rights under any such agreement. Technitrol is
the sole and exclusive owner or licensee of, with all right, title and interest
in and to (free and clear of any liens or encumbrances), Technitrol Intellectual
Property Rights, and has sole and exclusive rights (and is not contractually
obligated to pay any compensation to any third party in respect thereof) to the
use thereof or the material covered thereby in connection with the services or
products in respect of which Technitrol Intellectual Property Rights are being
used. No claims have been asserted or, to the knowledge of Technitrol, are
threatened by any person that reasonably would be expected to have a Material
Adverse Effect on Technitrol, nor is there any valid grounds for any bona fide
claims that reasonably would be expected to have a Material Adverse Effect on
Technitrol, (i) to the effect that the manufacture, sale, licensing or use of
any product as now used, sold or licensed or proposed for use, sale or license
by Technitrol infringes on any copyrights, patent, trade mark, service mark or
trade secret, (ii) against the use by Technitrol of any trademarks, trade names,
trade secrets, copyrights, patents, technology, know-how or computer software
programs and applications used in Technitrol's business as currently conducted
or as proposed to be conducted, or (iii) challenging the ownership, validity or
effectiveness of any copyrights held by Technitrol are valid and subsisting. To
the knowledge of Technitrol, there is no material unauthorized use, infringement
or misappropriation of any Technitrol Intellectual Property Rights by any third
party, including any employee or former employee of Technitrol. Technitrol has
not entered into any agreement (other than exclusive distribution agreements)
under which Technitrol is restricted from selling, licensing or otherwise
distributing any of its products to any class of customers, in any geographic
area, during any period of time or in any segment of the market. There is no
outstanding order, judgment, decree or stipulation on Technitrol restricting in
any manner the licensing of Technitrol's products by Technitrol.
3.10 Litigation. There is no action, suit, proceeding, claim,
----------
arbitration or investigation pending, or as to which Technitrol has received any
notice of assertion nor, to Technitrol's knowledge, is there a reasonable basis
to expect such notice of assertion against Technitrol which in any case set
forth above reasonably would be expected to be material to Technitrol, or which
in any manner challenges or seeks to prevent, enjoin, alter or materially delay
any of the transactions contemplated by this Agreement.
3.11 Environmental Matters.
---------------------
(a) Hazardous Material. Except as reasonably would not be
------------------
expected to result in a material liability to Technitrol, no underground
storage tanks and no Hazardous Material,
25
<PAGE>
but excluding office and janitorial supplies, is present, as a result of the
deliberate actions of Technitrol, or, to Technitrol's knowledge, as a result of
any actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that Pulse has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. Except as reasonably
------------------------------
would not be expected to result in a material liability of Technitrol,
Technitrol has not transported, stored, used, manufactured, disposed of,
released or exposed its employees or others to Hazardous Materials in violation
of any law in effect on or before the Closing Date, nor has Technitrol conducted
Hazardous Material Activities in violation of any rule, regulation, treaty or
statute promulgated by any Governmental Entity prior to or as of the date hereof
to prohibit, regulate or control Hazardous Materials or any Hazardous Material
Activity.
(c) Permits. Technitrol currently holds all
-------
Environmental Permits necessary for the conduct of Technitrol's Hazardous
Material Activities and other businesses of Technitrol as such activities and
businesses are currently being conducted.
(d) Environmental Liabilities. No material action,
-------------------------
proceeding, revocation proceeding, amendment procedure, writ, injunction or
claim is pending or, to Technitrol's knowledge, threatened, concerning or
relating to any Environmental Permit, Hazardous Materials or any Hazardous
Materials Activity of Technitrol. Technitrol is not aware of any fact or
circumstance which reasonably would be expected to involve in any material
environmental litigation or impose upon Technitrol any material environmental
liability.
3.12 Agreements, Contracts and Commitments. Technitrol has not
-------------------------------------
breached, or received in writing any claim or threat that it has breached, any
of the material terms or conditions of any material agreement, contract or
commitment that is required to be filed as an exhibit to the Technitrol SEC
Reports filed in 1994 in such a manner as would permit another party to cancel
or terminate the same or would permit any other party to seek material damages
from Technitrol thereunder. Each of the agreements, contracts and commitments
referred to in the first sentence of this Section 3.12 is in full force and
effect and, except as otherwise disclosed, is not subject to any material
default thereunder of which Technitrol is aware by any party obligated to
Technitrol pursuant thereto.
3.13 Labor Matters. There are no pending material claims
-------------
against Technitrol under any workers compensation plan or policy or for long
term disability.
3.14 Compliance with Laws. Technitrol has complied in all
--------------------
material respects with, is not in material violation of, and has not received
any notices of violation with respect to, any federal, state or local statute,
law or regulation with respect to the conduct of its business, or the ownership
or operation of its business, except in any such case as reasonably would not be
expected to be material to Technitrol.
3.15 Broker's and Finders' Fees. Except for fees payable to
--------------------------
Legg Mason Wood Walker, Incorporated ("Legg Mason") pursuant to the engagement
letter dated October 28, 1995, a copy of which has been provided to Pulse, and
except for fees due to Pret-Partez, Inc., Technitrol has not incurred, and will
not incur, directly or indirectly, any liability for brokerage or finders' fees
or
26
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agents' commissions or any similar charges in connection with this Agreement,
the Merger or any transaction contemplated hereby.
3.16 Registration Statement; Proxy Statement/Prospectus. Subject
--------------------------------------------------
to the accuracy of the representations of Pulse made in Section 2.20, the
Registration Statement shall not, at the time the Registration Statement is
filed with the SEC and at the time it becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements included therein not
misleading. The information to be supplied by Technitrol for inclusion in the
Proxy Statement shall not, on the date the Proxy Statement is first mailed to
stockholders of Pulse and of Technitrol, at the time of Pulse Stockholders'
Meeting, at the time of the Technitrol Stockholders' meeting 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 false or misleading; or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for Pulse Stockholders' Meeting or Technitrol Stockholders' Meeting
which has become false or misleading. To Technitrol's best knowledge at the time
the Proxy Statement is mailed to the stockholders of Technitrol and Pulse, the
Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder. If at
any time prior to the Effective time any information relating to Technitrol,
Teco Sub or any of their respective affiliates, officers or directors should be
discovered by Technitrol or Teco Sub which should be set forth in an amendment
to the Registration Statement or a supplement to the Proxy Statement, Technitrol
or Teco Sub will promptly inform Pulse. Notwithstanding any of the foregoing,
Technitrol and Teco Sub make no representation or warranty with respect to any
information supplied by Pulse which is contained in any of the foregoing
documents.
3.17 Employee Benefit Plans. (a) Except with respect to
----------------------
amounts which are not material to Technitrol, none of Technitrol's employee
benefit plans or arrangements promises or provides retiree medical or other
retiree welfare benefits to any person except as required by applicable law,
including but not limited to COBRA; (b) all material employee benefit plans and
arrangements of Technitrol are in compliance in all material respects with the
requirements prescribed by any and all applicable statutes (including ERISA and
the Code), orders or governmental rules and regulations currently in effect with
respect thereto (including all applicable requirements for notification to
participants or beneficiaries or the Department of Labor, IRS or Secretary of
the Treasury), and Technitrol has performed all material obligations required to
be performed by it under, is not in default under or violation of, and has no
knowledge of any default or violation by any other party to, any of its employee
benefit plans or arrangements; (c) each employee benefit plan intended to
qualify under Section 401(a) of the Code and each trust intended to qualify
under Section 501(a) of the Code either has received a favorable determination
letter with respect to each such employee benefit plan from the IRS or still has
a remaining period of time under applicable Treasury Regulations or IRS
pronouncements in which to apply for such a determination letter and to make any
amendments necessary to obtain a favorable determination; and (d) except for the
Technitrol, Inc. Retirement Plan, no employee benefit plan or arrangement is or
within the prior five (5) years has been subject to Title IV of ERISA or Section
412 of the Code.
3.18 Board Approval. The Board of Directors of each of
--------------
Technitrol and Teco Sub have, and the sole shareholder of Teco Sub has, as of
the date hereof, approved this Agreement and the Merger.
27
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3.19 Non-Public Information Provided to Pulse. The non-public
----------------------------------------
written information provided to Pulse by Technitrol since November 16, 1994
regarding the business of Technitrol, including product and historical
financial, did not, to the actual knowledge of Technitrol's executive officers,
contain any material misrepresentation of a material fact or omit any
information necessary to make the information provided not materially
misleading.
3.20 Fairness Opinion. Technitrol has received a written
----------------
opinion from Legg Mason, dated as of the date of this Agreement, to the effect
that the Merger is fair from a financial point of view to the holders of
Technitrol's Common Stock, and has delivered to Pulse a copy of such opinion.
ARTICLE 4
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of Pulse. During the period from the
----------------------------
date of this Agreement and continuing until the earlier of the termination of
this Agreement pursuant to its terms and the Effective Time, Pulse (which for
the purposes of this Section 4.1 shall include Pulse and each of its
Subsidiaries), agrees, except to the extent that Technitrol shall otherwise
consent in writing, to carry on its business in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, to pay its
debts and taxes when due (subject to good faith disputes over such debts or
taxes), to pay or perform other material obligations when due, and to use all
reasonable efforts consistent with past practices and policies to preserve
intact Pulse's present business organizations, keep available the services of
its present officers and employees and preserve its relationships with
customers, suppliers, distributors, licensors, licensees and others having
business dealings with Pulse, to the end that Pulse's goodwill and ongoing
business will be unimpaired at the Effective Time. Pulse shall promptly notify
Technitrol of any material event or occurrence not in the ordinary course of
business of Pulse. Pulse shall not, without the prior written consent of
Technitrol which consent shall not be unreasonably withheld or delayed:
(a) Enter into or amend any agreement or take any action
which reasonably would be expected to have a Material Adverse Effect on Pulse;
(b) Enter into, amend or terminate any agreement, plan or
arrangement of the types described in Section 2.11 of this Agreement;
(c) Transfer or license to any person or entity or
otherwise extend, amend or modify any rights to Pulse's Intellectual Property
Rights or enter into grants to future patent rights, other than licenses in
connection with the sale of goods or services entered into in the ordinary
course of business consistent with past practices ;
(d) Grant any severance or termination (i) to any
executive officer or (ii) to any other employee except payments made in
connection with the termination of employees who are not executive officers in
amounts consistent with Pulse's policies and past practices or pursuant to
written agreements outstanding, or policies existing, on the date hereof and as
previously disclosed to Technitrol in the Pulse Schedules;
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(e) Adopt or amend any employee benefit or stock purchase
or option plan, or enter into any employment contract, pay any special bonus or
special remuneration to any director or employee, or increase the salaries or
wage rates of its employees other than in the ordinary course of business,
consistent with past practice;
(f) Take action to accelerate, amend or change the period
of exercisability of options or restricted stock, or reprice options granted
under the employee stock plans of Pulse or authorize cash payments in exchange
for any options granted under any of such plans;
(g) Commence any litigation other than (i) for the
routine collection of bills, or (ii) where Pulse in good faith determines that
failure to commence suit would result in the material impairment of a valuable
aspect of Pulse's business, provided that Pulse consults with Technitrol prior
to the filing of such a suit;
(h) Declare or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of Pulse;
(i) Repurchase or otherwise acquire, directly or
indirectly, any shares of its capital stock;
(j) Issue, deliver or sell or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any class or
securities convertible into, or subscriptions, rights, warrants or options to
acquire, or enter into other agreements or commitments of any character
obligating it to issue, any such shares or other convertible securities, other
than the issuance of shares of Pulse Common Stock (i) pursuant to the exercise
of stock options outstanding under the Pulse Stock Option Plans on the date of
this Agreement, (ii) issuable to participants in Pulse's Employee Stock Purchase
Plan consistent with the terms of that plan, and (iii) issuable upon exercise of
the Warrants;
(k) Cause, permit or propose any amendments to Pulse's
Certificate of Incorporation or Bylaws;
(l) Except as set forth on the Pulse Schedules, acquire
or agree to acquire by merging or consolidating with, or by purchasing any
equity interest in or a material portion of the assets of, or by any other
manner, any business or any corporation, partnership interest, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any assets which are material, individually or in the aggregate, to
the business of Pulse, except for inventory and supplies acquired in the
ordinary course of business consistent with past practice;
(m) Sell, lease, license, encumber or otherwise dispose
of any of Pulse's properties or assets which are material, individually or in
the aggregate, to the business of Pulse, except in the ordinary course of
business consistent with past practice;
(n) Incur any indebtedness for borrowed money (other than
pursuant to existing credit facilities in the ordinary course of business) or
guarantee any indebtedness or issue or sell any debt securities or warrants or
rights to acquire debt securities of Pulse;
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(o) Revalue any of Pulse's assets, including without
limitation, writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business consistent with past
practice;
(p) Pay, discharge or satisfy in an amount in excess of
Fifty Thousand Dollars ($50,000.00) (in any one case) or Two Hundred and Fifty
Thousand Dollars ($250,000.00) (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business of a liability of the type reflected or reserved against the Pulse
Financials (including the notes thereto);
(q) Make or change any material election in respect of
Taxes, adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes (except
settlements effected solely through payment of immaterial sums of money), or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes; or
(r) Take, or agree (in writing or otherwise) to take, any
of the actions described in clauses (a) through (q) of this Section 4.1, or any
action which would cause or would reasonably likely to cause any of the
conditions set forth in Sections 6.1 or 6.3 not to be satisfied.
4.2 Conduct of Business of Technitrol. Except as contemplated
---------------------------------
by this Agreement, Technitrol (which for purposes of this Section 4.2 shall
include Technitrol and each of its subsidiaries) shall not prior to the
Effective Time or earlier termination of this Agreement pursuant to its terms,
without the prior written consent of Pulse which consent shall not be
unreasonably withheld or delayed:
(a) Enter into or amend any agreement or take any action
which reasonably would be expected to have a Material Adverse Effect on
Technitrol;
(b) Split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of Technitrol;
(c) Repurchase or otherwise acquire, directly or
indirectly, any shares of its capital stock, except pursuant to (i) existing
plans under Rule 10b-18 of the Exchange Act or (ii) the RSP;
(d) Issue, deliver or sell or authorize or propose the
issuance, delivery or sale of any shares of its capital stock of any class or
securities convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue, any such shares or other convertible securities, other than the issuance
of shares of Technitrol Common Stock pursuant to the RSP in accordance with the
terms of such plan and consistent with past practice;
(e) Cause, permit or propose any amendments to
Technitrol's Certificate of Incorporation or any material amendments to the
Technitrol Bylaws;
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(f) Sell, lease, license or encumber, or otherwise
dispose of, any of Technitrol's properties or assets which are material,
individually or in the aggregate, to the business of Technitrol, except in the
ordinary course of business;
(g) Except as is consistent with past practices, declare
or pay any dividends on any of its capital stock; or
(h) Take or agree (in writing or otherwise) to take, any
of the actions described in clauses (a) through (g) of this Section 4.2, or any
action which would cause or would be reasonably likely to cause any of the
conditions set forth in Sections 6.1 or 6.2 not to be satisfied.
4.3 SEC Filings. At all times prior to the Closing, each of
-----------
Technitrol and Pulse shall:
(a) Make all filings with the SEC required to be made by
each of them, in a timely manner and in accordance with the applicable rules and
regulations of the SEC;
(b) Promptly notify the other of any communications
received from the SEC with respect to any such filings, or with respect to any
similar filings made prior to the date of this Agreement, or with respect to the
Registration Statement or Proxy Statement; and
(c) Promptly provide to the other copies of all such SEC
filings, and SEC written communications, as well as copies of all written
communications with stockholders generally.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement. As
--------------------------------------------------
promptly as practicable after the execution of this Agreement, Technitrol and
Pulse shall prepare and file with the SEC, the Proxy Statement and Technitrol
shall prepare and file with the SEC the Registration Statement in which the
Proxy Statement will be included as a prospectus. Each of Technitrol and Pulse
shall use its best efforts to have the Registration Statement declared effective
as soon thereafter as practicable. The Proxy Statement shall include the
fairness opinions of Oppenheimer & Co., Inc. and Legg Mason referred to in
Sections 2.23 and 3.20, respectively, each (i) updated to within five (5)
business days prior to the effective date of the Registration Statement (it
being understood that the failure of Oppenheimer & Co., Inc. or Legg Mason to
deliver to Pulse or Technitrol, as the case may be, such an opinion for
inclusion in the Proxy Statement shall not be considered, in and of itself, a
breach of this Agreement) and (ii) confirmed within five (5) days prior to the
Effective Time. The Proxy Statement shall also include the recommendations of
(i)the Board of Directors of Pulse in favor of the Merger, which shall not be
withdrawn, modified or withheld except in compliance with the fiduciary duties
of Pulse's Board under applicable law and (ii) the Board of Directors of
Technitrol in favor of the Merger, which shall not be withdrawn, modified or
withheld except in compliance with the fiduciary duties of Technitrol's Board
under applicable law.
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5.2 Meetings of Stockholders.
------------------------
(a) Promptly after the date hereof, Pulse shall take all
action necessary in accordance with the DGCL and its Certificate of
Incorporation and Bylaws to cause Pulse Stockholders' Meeting to be held as
promptly as practicable after the effectiveness of the Registration Statement
for the purpose of voting upon this Agreement and the Merger. Pulse shall
consult with Technitrol and use all reasonable efforts to hold the Pulse
Stockholders' Meeting on the same day as the Technitrol Stockholders' Meeting.
(b) Promptly after the date hereof, Technitrol shall take
all action necessary in accordance with the Pennsylvania Business Corporation
Law and its Articles of Incorporation and Bylaws to cause the Technitrol
Stockholders' Meeting to be held as promptly as practicable after the
effectiveness of the Registration Statement for the purpose of voting upon this
Agreement and the Merger. Technitrol shall consult with Pulse and shall use all
reasonable efforts to hold the Technitrol Stockholders' Meeting on the same day
as Pulse's Stockholders' Meeting.
5.3 Access to Information; Confidentiality.
--------------------------------------
(a) Each party shall afford the other party and its
accountants, counsel and other representatives reasonable access during normal
business hours during the period prior to the Effective Time to all information
concerning the business, including the status of product development efforts,
properties and personnel of such party as the other party may reasonably
request. No information or knowledge obtained in any investigation pursuant to
this Section 5.3 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Merger.
(b) The parties acknowledge that Technitrol and Pulse
have previously executed a confidentiality agreement dated November 16, 1994
(the "Confidentiality Agreement"), which Confidentiality Agreement shall
continue in full force and effect in accordance with its terms.
5.4 No Solicitation.
---------------
(a) From and after the date of this Agreement until the
Effective Time, Pulse and its subsidiaries will not, and will use its reasonable
best efforts to cause their respective directors, officers, employees,
representatives, investment bankers, agents and affiliates not to, directly or
indirectly, (i) initiate, solicit or encourage submission of any inquiries,
proposals or offers by any person, entity or group (other than Technitrol, Teco
Sub and their affiliates, agents and representatives) relating to any
Acquisition Proposal, or (ii) participate in any discussions or negotiations
with, or disclose any non-public information concerning Pulse or any of its
subsidiaries to, or afford any access to the properties, books or records of
Pulse or any of its subsidiaries to, or otherwise assist, facilitate or
encourage, or enter into any agreement or understanding with, any person, entity
or group (other than Technitrol, Teco Sub and their affiliates, agents and
representatives) in connection with any Acquisition Proposal. For the purposes
of this Agreement, an "Acquisition Proposal" shall mean any proposal relating to
the possible acquisition of (i) Pulse (whether by way of merger or otherwise),
(ii) all or a substantial portion of the assets of Pulse or (iii) a substantial
portion of the equity securities of Pulse (except by conversion or exercise of
currently outstanding securities). In addition, subject to the other provisions
of this Section 5.4, from and after the date of this Agreement until the
Effective Time, Pulse and its subsidiaries will not, and will cause
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their respective directors, officers, employees, representatives, investment
bankers, agents and affiliates not to, directly or indirectly, make or authorize
any statement, recommendation or solicitation in support of any Acquisition
Proposal made by any person, entity or group (other than Technitrol and/or Teco
Sub).
(b) Notwithstanding the provisions of Paragraph (a)
above, prior to the Effective Time, Pulse may, to the extent the Board of
Directors of Pulse determines in good faith, after consultation with outside
legal counsel, that the Board's fiduciary duties under applicable law require it
to do so, participate in discussions or negotiations with, and, subject to the
requirements of paragraph (c) below, furnish information to any person, entity
or group after such person, entity or group shall have delivered to Pulse in
writing, an unsolicited bona fide Acquisition Proposal which the Board of
Directors of Pulse in its good faith reasonable judgment determines, after
consultation with its independent advisors, would result in a transaction more
favorable to the stockholders of Pulse than the Merger and for which financing,
to the extent required, is then committed or which, in the good faith reasonable
judgment of the Board of Directors of Pulse (based upon the advice of
independent advisors), is reasonably capable of being financed by such person,
entity or group and which is probable to be consummated in accordance with its
terms (a "Superior Proposal"). In addition, notwithstanding the provisions of
paragraph (a) above, in connection with a possible Acquisition Proposal, Pulse
may refer any third party to this Section 5.4 or make a copy of this Section 5.4
available to a third party.
(c) Pulse may furnish information with respect to a
Superior Proposal only if Pulse (i) first notifies Technitrol of the Information
proposed to be disclosed, (ii) first complies with the provisions of paragraph
(e), below and (iii) provides such information pursuant to a confidentiality
agreement at least as restrictive as the Confidentiality Agreement entered into
by Technitrol.
(d) In the event Pulse receives a Superior Proposal,
nothing contained in this Agreement shall prevent the Board of Directors of
Pulse from approving such Superior Proposal or recommending such Superior
Proposal to Pulse's stockholders, if the Board determines in good faith, after
consultation with outside legal counsel, that such action is required by its
fiduciary duties under applicable law; in such case, the Board may amend or
withdraw its recommendation of the Merger. Subject to the right of termination
set forth in Section 7.1, except to the extent expressly set forth in this
Section 5.4, nothing shall relieve Pulse from complying with all other terms of
this Agreement.
(e) Pulse will (i) notify Technitrol if any inquiry or
proposal is made or any information or access is requested in connection with an
Acquisition Proposal or potential Acquisition Proposal and (ii) promptly
communicate to Technitrol the terms and conditions of any such Acquisition
Proposal or potential Acquisition Proposal or inquiry and the identity of the
offeror or potential offeror.
(f) Nothing contained in this Section 5.4 shall prevent
Pulse or its Board of Directors from complying with the provisions of Rule 14e-
2(a) and 14d-9 promulgated under the Exchange Act.
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5.5 Expenses.
--------
(a) Except as set forth in this Section 5.5, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby, shall be paid by the party incurring such expenses, whether
or not the Merger is consummated; provided, however, that Technitrol and Pulse
shall share equally all fees and expenses, other than attorneys, accountants and
financial advisor's fees, incurred in connection with the printing and filing of
the Registration Statement (including financial statements and exhibits) and any
amendments or supplements thereto.
(b) If this Agreement is terminated by Technitrol
pursuant to Section 7.1(b)(i), then Pulse shall pay Technitrol for all of its
reasonable out-of-pocket expenses, including but not limited to attorney's fees,
accounting fees, financial printer expenses, filing fees and fees and expenses
of financial advisors incurred in connection with this Agreement and the Merger
("Out of Pocket Expenses"), not to exceed One Million Dollars ($1,000,000.00).
If this Agreement is terminated (i) pursuant to Section 7.1(c)(i), or (ii)
pursuant to Section 7.1(c)(iii) and Technitrol shall not have delivered to Pulse
on or before June 30, 1995 a commitment letter from a reputable lending
institution for the financing described in Section 6.3(f), then Technitrol shall
pay Pulse's Out Of Pocket Expenses, not to exceed One Million Dollars
($1,000,000.00), incurred in connection with this Agreement and the Merger. If
(1) Pulse's Board of Directors adversely amends, withholds or withdraws its
recommendation of the Merger or (2) Pulse's stockholders do not approve the
Merger at Pulse's Stockholders' Meeting, then, provided that Technitrol is not
then in material breach of the terms of this Agreement, Pulse shall pay
Technitrol's Out of Pocket Expenses, not to exceed One Million Dollars
($1,000,000.00) upon written request therefor; provided, however, that any
amounts paid to Technitrol in the event of clause (1) or (2) shall reduce, on a
dollar-for-dollar basis, the amount, if any, payable by Pulse to Technitrol
pursuant to Section 5.6 hereof. If (A) Technitrol's Board of Directors adversely
amends, withholds or withdraws its recommendation of the Merger or (B)
Technitrol's stockholders do not approve the Merger at the Technitrol
Stockholder's Meeting, then, provided that Pulse is not then in material breach
of the terms of this Agreement, Technitrol shall pay Pulse's Out Of Pocket
Expenses, not to exceed One Million Dollars ($1,000,000.00) upon written request
therefor. Notwithstanding the foregoing, nothing contained herein shall relieve
any party from liability for any breach of this Agreement.
5.6 Break-Up Fee. If for any reason:
------------
(a) the Board of Directors accepts a Superior Proposal or
recommends a Superior Proposal for Pulse's stockholders, or
(b) (i) the Board of Directors of Pulse adversely amends,
withholds or withdraws its recommendation that Pulse's stockholders approve the
Merger, (ii) the stockholders of Pulse fail to approve the Merger prior to
September 30, 1995, or (iii) there are Dissenting Shareholders representing
fifteen percent (15%) or more of the Pulse shares outstanding on the record date
for the Pulse Stockholders' Meeting and, within nine months following the
occurrence of an event set forth in any of clauses (i), (ii) or (iii), Pulse
merges with another Person, issues stock representing a 40% or greater voting
interest in Pulse to another Person, transfers more than 50% of its assets to
another Person or enters into an option, agreement or letter of intent to do any
of the foregoing or to do any other arrangement intended to transfer Pulse or
control of Pulse to such other Person, or to the stockholders of Pulse, in
response to a tender offer or exchange offer by any person tender shares
representing a 40% or greater voting interest in Pulse or give options or rights
to any
34
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Person to acquire such shares, then, provided that Technitrol shall not have
materially breached any of the representations, warranties, covenants or
agreements made on its part such that either of the conditions set forth in
Sections 6.2(a) or 6.2(b) will not be satisfied, Pulse shall pay to Technitrol,
within five (5) business days following Technitrol's written request therefor,
the sum of Two Million Dollars ($2,000,000.00) by wire transfer of immediately
available funds to an account designated by Technitrol. "Person" means any
individual, corporation, partnership, trust or other entity, and includes any
group of such persons acting in concert.
5.7 Public Disclosure. Technitrol and Pulse shall consult with
-----------------
each other before issuing any press release or otherwise making any public
statement with respect to the Merger or this Agreement and shall not issue any
such press release or make any such public statement prior to such consultation,
except as may be required by law or any listing agreement with the American
Stock Exchange or the Nasdaq National Market, and in any event in accordance
with the terms of the Confidentiality Agreement.
5.8 Auditors' Letters. Pulse shall use its best efforts to
-----------------
cause to be delivered to Technitrol a letter of Ernst & Young, LLP, independent
auditors to Pulse, dated a date within two (2) business days before the date on
which the Registration Statement becomes effective, and addressed to Technitrol,
in form and substance reasonably satisfactory to Technitrol and customary in
scope and substance for letters delivered by independent public accounts in
connection with registration statements similar to the Registration Statement.
Technitrol shall use its best efforts to cause to be delivered to Pulse a letter
of KPMG Peat Marwick, LLP, independent auditors to Technitrol, dated a date
within two (2) business days before the date on which the Registration Statement
becomes effective, and addressed to Pulse, in form and substance reasonably
satisfactory to Pulse and customary in scope and substance for letters delivered
by independent public accounts in connection with registration statements
similar to the Registration Statement.
5.9 Affiliate Agreements. Set forth in Pulse's Schedules is a
--------------------
list of those persons who may be deemed to be, in Pulse's reasonable judgment,
"affiliates" of Pulse within the meaning of Rule 145 promulgated under the
Securities Act ("Rule 145"). Each such person who may be deemed to be an
"affiliate" of Pulse within the meaning of Rule 145 is referred to as an
"Affiliate". Pulse shall provide Technitrol such information and documents as
Technitrol shall reasonably request for purposes of reviewing such list. Pulse
shall use its best efforts to deliver or cause to be delivered to Technitrol
prior to the Closing Date from each of the Affiliates of Pulse, an executed
Affiliate Letter in the form attached hereto as Exhibit A (each, a "Pulse
Affiliate Agreement"; collectively, the "Pulse Affiliate Agreements").
Technitrol and Teco Sub shall be entitled to place appropriate legends on the
certificates evidencing any Technitrol Common Stock to be received by such
Affiliates of Pulse pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for Technitrol
Common Stock, consistent with the terms of the Pulse Affiliate Agreements.
5.10 FIRPTA. Pulse shall deliver to the Internal Revenue
------
Service a notice that Pulse Common Stock is not a "U.S. Real Property Interest"
as defined in and in accordance with the requirements of Treasury Regulation
Section 1.897-2(h)(2).
5.11 Legal Requirements. Each of Technitrol, Teco Sub and
------------------
Pulsewill take all reasonable actions necessary or desirable to comply promptly
with all legal requirements which may be imposed on them with respect to the
consummation of the transactions contemplated by this
35
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Agreement by any Government Entity and will promptly cooperate with and furnish
information to any party hereto necessary in connection with any such
requirements imposed upon any of them or their respective subsidiaries in
connection with the consummation of the transactions contemplated by this
Agreement, and will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent, approval,
order or authorization of, or any registration, declaration or filing with, any
Governmental Entity or other public or private third party required to be
obtained or made in connection with the Merger or taking of any action
contemplated by this Agreement.
5.12 Blue Sky Laws. Technitrol shall take such steps as may be
-------------
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of Technitrol Common Stock pursuant hereto.
Pulse shall use its best efforts to assist Technitrol as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of Technitrol Common Stock pursuant
hereto.
5.13 Best Efforts and Further Assurances. Each of the parties
-----------------------------------
to this Agreement shall use its best reasonable efforts to effectuate the
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to closing under this Agreement (including resolution of any
litigation prompted hereby). Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of the transactions contemplated hereby.
5.14 ASE Listing. Technitrol agrees to apply for listing on the
-----------
American Stock Exchange the shares of Technitrol Common Stock issuable, and
those required to be reserved for issuance, in connection with the Merger, upon
official notice of issuance.
5.15 Indemnification of Directors and Officers.
-----------------------------------------
(a) The Articles of Incorporation and By-Laws of Teco Sub
shall contain the provisions with respect to indemnification set forth in the
Articles of Incorporation and By-Laws of Pulse on the date of this Agreement,
which provisions shall not be amended, repealed, or otherwise modified for a
period of six years after the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who at any time prior to the
Effective Time were directors or officers of Pulse in respect of actions or
omissions occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement), unless such
modification is required by law.
(b) From and after the Effective Time, the Surviving
Corporation shall indemnify, defend and hold harmless the present and former
officers and directors of Pulse (collectively, the "Indemnified Parties")
against all losses, expenses, claims, damages, liabilities or amounts that are
paid in settlement of, with the approval of Technitrol and the Surviving
Corporation (which approval shall not unreasonably be withheld), or otherwise in
connection with any claim, action, suit, proceeding or investigation (a
"Claim"), based in whole or in part on the fact that such person is or was a
director or officer of Pulse and arising out of actions or omissions occurring
at or prior to the Effective Time (including, without limitation, the
transactions contemplated by this Agreement), in each case to the full extent
permitted under the DGCL (and shall pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to the
36
<PAGE>
fullest extent permitted under the DGCL, upon receipt from the Indemnified
Party to whom expenses are advanced of the undertaking to repay such advances
contemplated by Section 145 of the DGCL). Technitrol shall guarantee the
Surviving Corporation's obligations pursuant to this Section 5.15(b).
(c) Without limiting the foregoing, in the event any
Claim is brought against any Indemnified Party (whether arising before or after
the Effective Time) after the Effective Time (i) the Indemnified Parties may
retain Pulse's regularly engaged independent legal counsel, or other independent
legal counsel satisfactory to them provided that such other counsel shall be
reasonably acceptable to Technitrol and the Surviving Corporation, (ii) the
Surviving Corporation shall pay all reasonable fees and expenses of such counsel
for the Indemnified Parties promptly as statements therefor are received and
(iii) the Surviving Corporation will use its reasonable best efforts to assist
in the vigorous defense of any such matter, provided that the Surviving
Corporation shall not be liable for any settlement of any Claim effected without
its written consent, which consent shall not be unreasonably withheld. Any
Indemnified Party wishing to claim indemnification under this Section 5.15, upon
learning of any such Claim, shall notify the Surviving Corporation (although the
failure so to notify the Surviving Corporation shall not relieve the Surviving
Corporation from any liability which the Surviving Corporation may have under
this Section 5.15 except to the extent such failure prejudices the Surviving
Corporation), and shall deliver to the Surviving Corporation the undertaking
contemplated by Section 145 of the DGCL. The Indemnified Parties as a group may
retain one law firm (in addition to local counsel) to represent them with
respect to each such matter unless there is, under applicable standards of
professional conduct (as determined by counsel to the Indemnified Parties), a
conflict on any significant issue between the positions of any two or more
Indemnified Parties, in which event, such additional counsel as may be required
may be retained by the Indemnified Parties.
(d) For a period of two years after the Effective Time,
Technitrol shall cause to be maintained in effect the current policies of
directors and officers' liability insurance maintained by Pulse (provided that
Technitrol may substitute therefor policies of at least the same coverage and
amounts).
(e) This Section 5.15 is intended to be for the benefit
of, and shall be enforceable by, the Indemnified Parties, their heirs and
personal representatives and shall be binding on Technitrol and the Surviving
Corporation and their respective successors and assigns.
ARTICLE 6
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the
-----------------------------------------------------
Merger. The respective obligations of each party to this Agreement to effect
------
the Merger shall be subject to the satisfaction at or prior to the Effective
Time of the following conditions:
(a) Stockholder Approval. This Agreement and the Merger
--------------------
shall have been approved and adopted by the requisite vote under applicable law
of the stockholders of each of Pulse and Technitrol.
(b) Registration Statement Effective. The SEC shall have
--------------------------------
declared the Registration Statement effective. No stop order suspending the
effectiveness of the Registration
37
<PAGE>
Statement or any part thereof shall have been issued and no proceeding for that
purpose, and no similar proceeding in respect of the Proxy Statement, shall have
been initiated or threatened in writing by the SEC.
(c) 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 or regulatory
restraint or prohibition preventing the consummation of the Merger shall be in
effect.
(d) Tax Opinions. Technitrol and Pulse shall each have
------------
received substantially identical written opinions from their counsel, Stradley,
Ronon, Stevens & Young and Pillsbury, Madison & Sutro, respectively, in form and
substance reasonably satisfactory to them, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code.
The parties to this Agreement agree to make reasonable representations as
requested by such counsel for the purpose of rendering such opinions.
(e) American Stock Exchange Listing. The shares of
-------------------------------
Technitrol Common Stock issuable to stockholders of Pulse pursuant to this
Agreement and such other shares required to be reserved for issuance in
connection with the Merger shall have been authorized for listing on the
American Stock Exchange upon official notice of issuance.
(f) HSR Act. The waiting period (and any extension
-------
thereof) applicable to the Merger under the HSR Act shall have been terminated
or shall have expired.
6.2 Additional Conditions to Obligations of Pulse. The
---------------------------------------------
obligations of Pulse to consummate this Agreement and effect the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by Pulse:
(a) Representations and Warranties. The representations
------------------------------
and warranties of Technitrol and Teco Sub contained in this Agreement shall be
true and correct in all material respects on and as of the Effective Time,
except for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), with the same force
and effect as if made on and as of the Effective Time, except, in all such
cases, for such breaches, inaccuracies or omissions of such representations and
warranties which have neither had nor reasonably would be expected to have a
Material Adverse Effect on Technitrol; and Pulse shall have received a
certificate to such effect signed on behalf of Technitrol by the President and
Chief Financial Officer of Technitrol.
(b) Agreements and Covenants. Technitrol and Teco 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 Pulse shall have received a
certificate to such effect signed by the President and Chief Financial Officer
of Technitrol.
(c) Legal Opinion. Pulse shall have received a legal
-------------
opinion from Stradley, Ronon, Stevens & Young, counsel to Technitrol, addressing
the matters set forth in Exhibit B to Pulse's reasonable satisfaction.
38
<PAGE>
(d) Material Adverse Change. Since the date of this
-----------------------
Agreement, there shall not have occurred any material adverse change in the
business, assets, results of operations or financial condition of Technitrol and
its subsidiaries taken as a whole.
(e) Fairness Opinion. Pulse shall have received
----------------
confirmation from Oppenheimer, within five (5) days of the Effective Time, that
the opinion set forth in Section 2.23 of this Agreement remains in effect.
6.3 Additional Conditions to the Obligations of Technitrol and
----------------------------------------------------------
Teco Sub. The obligations of Technitrol and Teco Sub to consummate and effect
--------
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by Technitrol.
(a) Representations and Warranties. The representations
------------------------------
and warranties of Pulse contained in this Agreement shall be true and correct in
all material respects on and as of the Effective Time, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Effective Time, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a Material Adverse
Effect on Pulse or Technitrol; and Technitrol and Teco Sub shall have received a
certificate to such effect signed on behalf of Pulse by the President and Chief
Financial Officer of Pulse;
(b) Agreements and Covenants. Pulse 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 the Technitrol and Teco Sub shall have received a
certificate to such effect signed by the President and Chief Financial Officer
of Pulse;
(c) Legal Opinion. Technitrol shall have received a
-------------
legal opinion from Pillsbury Madison & Sutro, legal counsel to Pulse, addressing
the matters set forth in Exhibit C to Technitrol's reasonable satisfaction.
(d) Material Adverse Change. Since the date of this
-----------------------
Agreement there shall not have occurred any material adverse change in the
business, assets, results of operations or financial condition of Pulse and its
subsidiaries taken as a whole.
(e) Affiliate Agreements. Each of the parties identified
--------------------
by Pulse pursuant to Section 5.9 hereof as being an Affiliate of Pulse shall
have delivered to Technitrol an executed Pulse Affiliate Agreement which shall
be in full force and effect.
(f) Financing. Technitrol shall have obtained financing
---------
to provide loans to Technitrol in the principal amount of not less than $23
million upon terms and conditions which are normal and customary for
transactions of the type of the Merger.
(g) Fairness Opinion. Technitrol shall have received
----------------
confirmation from Legg Mason, within five (5) days of the Effective Time, that
the opinion set forth in Section 3.20 of this Agreement remains in effect.
39
<PAGE>
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated and the
-----------
Merger abandoned at any time prior to the Effective Time:
(a) by mutual written consent of Pulse and Technitrol;
(b) by Technitrol if:
(i) there has been a material breach of any
representation, warranty, covenant or agreement, contained in this Agreement on
the part of Pulse and such breach has not been cured within ten (10) business
days after written notice to Pulse (provided, that Technitrol is not in material
--------
breach of the terms of this Agreement; and provided further, that no cure period
----------------
shall be required for a breach which by its nature cannot be cured) such that
the conditions set forth in Section 6.3(a) or Section 6.3(b), as the case may
be, will not be satisfied, or
(ii) the Board of Directors of Pulse adversely
amends, withholds or withdraws its recommendation of the Merger (provided that
Technitrol is not in material breach of the terms of this Agreement);
(c) by Pulse if:
(i) there has been a material breach of any
representation, warranty, covenant or agreement, contained in this Agreement on
the part of Technitrol or Teco Sub and such breach has not been cured within ten
(10) business days after written notice to Technitrol (provided, that Pulse is
--------
not in material breach of the terms of this agreement; and provided further,
----------------
that no cure period shall be required for a breach which by its nature cannot be
cured) such that the conditions set forth in Section 6.2(a) or Section 6.2(b),
as the case may be, will not be satisfied, or
(ii) the Board of Directors of Technitrol adversely
amends, withholds or withdraws its recommendation of the Merger (provided Pulse
is not in material breach of the terms of this Agreement);
(iii) on June 30, 1995, Technitrol shall not have
waived the condition contained in Section 6.3(f); provided, however, that
Pulse's right to terminate pursuant to this subsection 7.1(c)(iii) shall expire
on July 7, 1995;
(d) by any party hereto if:
(i) (1) there shall be an order of a federal or
state court in effect preventing consummation of the Merger; (2) there shall be
any action taken, or any statute, rule, regulation or order enacted, promulgated
or issued or deemed applicable to the Merger by any Governmental Entity which
would make consummation of the Merger illegal or which would prohibit
Technitrol's ownership or operation of all or a material portion of the business
of Pulse, or compel Technitrol to dispose of or hold separate all or a material
portion of the business or assets of Pulse or Technitrol as a result of the
Merger; (3) Pulse's stockholders do not approve the Merger and this Agreement by
September 30, 1995 (provided that Pulse may not terminate in these circumstances
if it
40
<PAGE>
is in material breach of the terms of this Agreement); (4) Pulse's stockholders
approve the Merger and this Agreement, but there are Dissenting Shares
representing fifteen percent (15%) or more of the Pulse shares outstanding on
the record date for the Pulse stockholders' Meeting; or (5) Technitrol's
stockholders do not approve the Merger and this Agreement by September 30, 1995
(provided that Technitrol may not terminate in these circumstances if it is in
material breach of the terms of this Agreement);
(ii) the Merger shall not have been consummated by
October 31, 1995 provided, that the right to terminate this Agreement under this
Section 7.1(d)(ii) shall not be available to any party whose willful failure to
fulfill any material obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date;
(iii) the Board of Directors of Pulse accepts or
approves a Superior Proposal, or recommends a Superior Proposal to the
stockholders of Pulse.
Where action is taken to terminate this Agreement pursuant
to this Section 7.1, it shall be sufficient for such action to be authorized by
the Board of Directors (as applicable) of the party taking such action.
7.2 Effect of Termination.
---------------------
(a) In the event of termination of this Agreement as
provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Technitrol, Teco Sub, Pulse
or their respective officers, directors, stockholders or affiliates, except to
the extent that such termination results from the breach by a party hereto of
any of its representations, warranties, covenants or agreements set forth in
this Agreement, and, provided that the provisions of Sections 5.3 (b), 5.5, and
5.6 and Article 8 of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
(b) Any termination of this Agreement by Pulse pursuant
to Section 7.1(d)(iii) hereof shall be of no force or effect unless prior to
such termination Pulse shall have paid to Technitrol the sum of Two Million
Dollars ($2,000,000.00) as prescribed by Section 5.6.
7.3 Notice of Termination. Subject to Section 7.2(b), any
---------------------
termination of this Agreement under Section 7.1 above will be effective
immediately upon the delivery of written notice of the terminating party to the
other parties hereto.
7.4 Amendment. This Agreement may be amended by the parties
---------
hereto at any time by execution of an instrument in writing signed on behalf of
each of the parties hereto.
7.5 Extension; Waiver. At any time prior to the Effective Time
-----------------
any party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
41
<PAGE>
ARTICLE 8
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The
----------------------------------------------
representations and warranties of Pulse, Technitrol and Teco Sub contained in
this Agreement shall terminate at the Effective Time, and only the covenants
that by their terms survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or mailed by registered or certified mail (return
receipt requested) or sent via telecopy (receipt confirmed) to the parties at
the following addresses or telecopy numbers (or at such other address or
telecopy numbers for a party as shall be specified by like notice):
(a) If to Technitrol or Teco Sub, to:
Technitrol, Inc.
1210 Northbrook Drive, Suite 385
Trevose, Pennsylvania 19053
Attention: Thomas J. Flakoll, President
Telecopy No.: (215) 355-7397
with a copy to:
Stradley, Ronon, Stevens & Young
2600 One Commerce Square
Philadelphia, Pennsylvania 19103
Attention: James M. Papada, III, Esquire
Telecopy No. (215) 564-8120
(b) if to Pulse, to:
Pulse Engineering, Inc.
12220 World Trade Drive
San Diego, California 92128
Attention: David R. Flowers, President
Telecopy No. (619) 674-8263
with a copy to:
Pillsbury Madison & Sutro
101 West Broadway, Suite 1800
San Diego, California 92101
Attention: David R. Snyder, Esquire
Telecopy No. (619) 236-1995
8.3 Interpretation. When a reference is made in this Agreement
--------------
to Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include",
42
<PAGE>
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limiting the generality of the foregoing." The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. When reference is made herein to "the business of" an entity,
such reference shall be deemed to include the business of all direct and
indirect subsidiaries of such entity. Reference to the subsidiaries of an entity
shall be deemed to include all direct and indirect subsidiaries of such entity.
8.4 Counterparts. This Agreement may be executed in one or
------------
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other party, it being understood that
all parties need not sign the same counterpart.
8.5 Entire Agreement. This Agreement and the documents and
----------------
instruments and other agreements among the parties hereto as contemplated by or
referred to herein, including Pulse Schedules (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, it being understood that
the Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as specifically set forth in Section 5.15.
8.6 Severability. In the event that any provision of this
------------
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
8.7 Other Remedies. Except as otherwise provided herein, any
--------------
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
8.8 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law thereof. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction of any state or federal court within the State of Delaware, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in any
manner authorized by the laws of the State of Delaware for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
8.9 Rules of Construction. The parties agree that they have
---------------------
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
43
<PAGE>
8.10 Assignment. No party may assign either this Agreement or
----------
any of its rights, interests, or obligations hereunder without the prior written
approval of the parties.
8.11 Good Faith. Each of the parties hereto covenants to
----------
perform each of its obligations hereunder in good faith.
IN WITNESS WHEREOF, TECHNITROL, TECO SUB AND PULSE have caused
this Agreement to be signed by themselves or their duly authorized respective
officers, all as of the date first written above.
PULSE ENGINEERING, INC. TECHNITROL, INC.
By: /S/David R. Flowers By: /S/Roy E. Hock
-------------------------- ----------------------------
Name: David R. Flowers Name: Roy E. Hock
Title: President Title: Chief Executive Officer
TECO SUB, INC.
By: /S/Thomas J. Flakoll
----------------------------
Name: Thomas J. Flakoll
Title: President
44
<PAGE>
EXHIBIT A
FORM OF PULSE AFFILIATE LETTER
May __, 1995
Technitrol, Inc.
1210 Northbrook Drive, Suite 385
Trevose, Pennsylvania 19053
Gentlemen:
I have been advised that as of the date of this letter I may be deemed
to be an "affiliate" of Pulse Engineering, Inc., a Delaware corporation (the
"Company"), as the term "affiliate" is 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"). Pursuant to the terms of the
Agreement and Plan of Merger dated as of May 23, 1995 (the "Agreement"), by and
among Technitrol, Inc., a Pennsylvania corporation ("Technitrol"), Teco Sub,
Inc., a Delaware corporation ("Teco Sub"), and the Company, the Company will be
merged with and into Teco Sub (the "Merger"). Capitalized terms used herein and
not otherwise defined herein shall have the respective meanings ascribed to them
in the Agreement.
As a result of the Merger, I may receive shares of common stock, par
value $0.125 per share, of Technitrol ("Technitrol Common Stock"). I would
receive such shares in exchange for shares owned by me of common stock, par
value $0.01 per share, of the Company.
I represent, warrant and covenant to Technitrol that, in connection
with the Merger, I will elect a Stock Election for each share of Pulse Common
Stock for which I am the record holder immediately prior to the Effective Time.
I represent, warrant and covenant to Technitrol that in the event I
receive any Technitrol Common Stock as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of
Technitrol Common Stock in violation of the Act or the Rules and
Regulations.
<PAGE>
B. I have carefully read this letter and the Agreement and discussed
the requirements of such documents and other applicable limitations
upon my ability to sell, transfer or otherwise dispose of Technitrol
Common Stock to the extent I felt necessary with my counsel or counsel
for the Company.
C. I have been advised that the issuance of Technitrol Common Stock
to me pursuant to the Merger will be registered with the Commission
under the Act on a Registration Statement on Form S-4. However, I have
also been advised that, since at the time the Merger is to be
submitted for a vote of the stockholders of the Company, I may be
deemed to have been an affiliate of the Company and the distribution
by me of Technitrol Common Stock has not been registered under the
Act, I may not sell, transfer or otherwise dispose of Technitrol
Common Stock issued to me in the Merger unless (i) such sale, transfer
or other disposition is registered under the Act, (ii) such sale,
transfer or other disposition is made in conformity with the volume
and other limitations of Rule 145 promulgated by the Commission under
the Act, or (iii) in the opinion of counsel reasonably acceptable to
Technitrol, such sale, transfer or other disposition is otherwise
exempt from registration under the Act.
D. I understand that Technitrol is under no obligation to register
the sale, transfer or other disposition of Technitrol Common Stock by
me or on my behalf under the Act or to take any other action necessary
in order to make compliance with an exemption from such registration
available except as provided herein.
E. I also understand that stop transfer instructions will be given to
Technitrol's transfer agents with respect to Technitrol Common Stock
issued to me pursuant to the Merger and that there will be placed on
the certificates for such Technitrol Common Stock issued to me, 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
-2-
<PAGE>
WITH THE TERMS OF AN AGREEMENT DATED MAY __, 1995 BETWEEN THE
REGISTERED HOLDER HEREOF AN TECHNITROL, INC., A COPY OF WHICH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF TECHNITROL,
INC."
F. I also understand that unless the transfer by me of Technitrol
Common Stock issued to me pursuant to the Merger has been registered
under the Act or is made in conformity with the provisions of Rule
145, Technitrol reserves the right to put the following legend on the
certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND WERE
ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE ACT 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 ACT AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRANT
REQUIREMENTS OF THE ACT."
G. I have no present plan or intention to sell, exchange or otherwise
dispose of any Technitrol Common Stock. I further agree to provide
notice to both the Company and Technitrol if my plans represented in
this paragraph G in any way change.
H. Technitrol agrees to use its reasonable best efforts to file all
reports and data with the Commission necessary to permit the
undersigned to sell Technitrol Common Stock issued pursuant to the
Merger in conformity with Rule 145 promulgated by the Commission under
the Act.
It is understood and agreed that the legends set forth in paragraphs E
and F above shall be removed by delivery of substitute certificates without such
legend if the undersigned shall have delivered to Technitrol a copy of a letter
from the staff of the Commission, or an opinion of counsel reasonably acceptable
to Technitrol and in form and substance reasonably satisfactory to Technitrol,
to the effect that such legend is not required for purposes of the Act.
Execution of this letter should not be considered an admission on my
part that I am an "affiliate" of the Company as described in the first
paragraph of this letter, or as a waiver
-3-
<PAGE>
of any rights I may have to object to any claim that I am such an affiliate on
or after the date of this letter.
Very truly yours,
-------------------------------------------
Name:
--------------------------------------
Accepted this ___ day
of May, 1995 by
TECHNITROL, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
-4-
<PAGE>
EXHIBIT B
Subject to certain qualifications, opinions in substantially the form
of the following shall be delivered:
1. Technitrol is a corporation validly existing and in good standing
under the laws of the Commonwealth of Pennsylvania.
2. Teco Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
3. The shares of capital stock of Technitrol to be issued in
connection with the Merger are duly authorized, and when issued pursuant to the
Merger Agreement, will be validly issued, fully paid and nonassessable.
4. Each of Technitrol and Teco Sub has the requisite corporate power
and authority to execute and deliver the Merger Agreement, to perform its
obligations thereunder and to consummate the transactions contemplated thereby.
The execution and delivery of the Merger Agreement by Technitrol and Teco Sub
and the consummation by Technitrol and Teco Sub of the transactions contemplated
thereby have been duly and validly authorized by all necessary corporate action
on the part of Technitrol and Teco Sub and no other corporate proceedings on the
part of Technitrol or Teco Sub are necessary to authorize the Merger Agreement
or to consummate the transactions so contemplated.
5. The Registration Statement has been declared effective and no stop
order with respect to the Registration Statement is in effect nor, to the actual
knowledge of counsel, are there any proceedings by or before any governmental
entity seeking such stop order.
6. Assuming that all necessary corporate action in respect of the
Merger has been duly and validly taken by Pulse, upon the consummation of the
transactions contemplated by the Merger Agreement and the filing by Teco Sub and
Pulse with the Secretary of the State of Delaware of a Certificate of Merger in
accordance with the Delaware General Corporation Law, the Merger will have been
validly effected in accordance with the Delaware General Corporation Law.
<PAGE>
EXHIBIT C
Subject to certain qualifications, opinions in substantially the form of
the following shall be delivered:
1. Pulse is a corporation validly existing and in good standing under the
laws of the State of Delaware.
2. Each Subsidiary of Pulse is a corporation duly organized, validly
existing and in good standing under the laws of their respective jurisdictions.
[Pillsbury Madison & Sutro may rely on, or deliver, opinions of outside counsel
with respect to this opinion.]
3. All of the outstanding shares of Pulse's capital stock are duly
authorized, validly issued, fully paid and nonassessable.
4. Pulse has the requisite corporate power and authority to execute and
deliver the Merger Agreement, to perform its obligations thereunder and to
consummate the transactions contemplated thereby. The execution and delivery of
the Merger Agreement by Pulse and the consummation by Pulse of the transactions
contemplated thereby have been duly and validly authorized by all necessary
corporate action on the part of Pulse and no other corporate proceedings on the
part of Pulse are necessary to authorize the Merger Agreement or to consummate
the transactions so contemplated.
5. Assuming that all necessary corporate action in respect of the Merger
has been duly and validly taken by Technitrol and Teco Sub, upon the
consummation of the transactions contemplated by the Merger Agreement and the
filing by Teco Sub and Pulse with the Secretary of the State of Delaware of a
Certificate of Merger in accordance with the Delaware General Corporation Law,
the Merger will have been validly effected in accordance with the Delaware
General Corporation Law.
<PAGE>
ANNEX B
August 18, 1995
The Board of Directors
Technitrol, Inc.
1210 Northbrook Drive
Suite 385
Trevose, PA 19053
Members of the Board:
Technitrol, Inc. ("Technitrol") and Pulse Engineering, Inc. ("Pulse") have
entered into an Agreement and Plan of Merger (the "Agreement") dated May 23,
1995, which provides, among other things, for the merger (the "Merger") of Pulse
with and into Teco Sub Corp. ("Teco Sub"), a wholly-owned subsidiary of
Technitrol. Pursuant to the Agreement and as a result of the Merger, each
outstanding share of common stock, par value $.01 per share, of Pulse, shall be
converted into: (i) the right to receive .5812 shares of common stock, par
value $.125 per share, of Technitrol (the "Exchange Ratio"), subject to
adjustment if the average closing price of Technitrol common stock for the ten
trading days immediately preceding the three days preceding the filing of a
merger agreement (the "Average Closing Price") is less than $13 3/4 or greater
than $16 3/8, (ii) the right to receive $8.50 in cash, or (iii) the right to
receive a combination of Technitrol common stock and cash. The terms and
conditions of the Merger are more fully set forth in the Agreement.
We have acted as financial advisor to the Board of Directors of Technitrol
in connection with the Merger and will receive a fee for our services, a portion
of which is contingent upon our delivery of a written opinion to the Board of
Directors.
In arriving at our opinion set forth below we have, among other things:
(i) reviewed the Agreement;
(ii) reviewed certain publicly available audited and unaudited financial
statements of Technitrol and Pulse and certain other publicly
available information of Technitrol and Pulse;
(iii) reviewed certain internal information, primarily financial in nature,
concerning Technitrol and Pulse prepared by their respective
managements;
<PAGE>
The Board of Directors August 18, 1995
Technitrol, Inc. Page 2
(iv) discussed the past and current operations and financial condition and
prospects of Technitrol with senior management of Technitrol;
(v) discussed past and current operations and financial condition and
prospects of Pulse with senior management of Pulse;
(vi) reviewed forecast financial statements of Technitrol furnished to us
by the senior management of Technitrol;
(vii) reviewed forecast financial statements of Pulse furnished to us by
the senior management of Pulse;
(viii) reviewed forecast financial statements of Pulse prepared and
furnished to us by the senior management of Technitrol;
(ix) held meetings and discussions with certain officers and employees of
Technitrol and Pulse concerning the operations, financial condition
and future prospects of the combined company;
(x) reviewed recent stock market data relating to Technitrol and Pulse;
(xi) reviewed certain publicly available financial and stock market data
relating to selected public companies that we considered relevant to
our inquiry;
(xii) analyzed certain publicly available information concerning the terms
of selected merger and acquisition transactions that we considered
relevant to our inquiry;
(xiii) considered the pro forma financial effects of the Merger on
Technitrol; and
(xiv) conducted such other financial studies, analyses and investigations
and considered such other information as we deemed necessary or
appropriate.
We are not expressing any opinion as to what the value of Technitrol common
stock actually will be when issued to Pulse shareholders pursuant to the
Agreement.
In connection with our review, we have assumed and relied upon the accuracy
and completeness of all financial and other information supplied to us by
Technitrol and Pulse, or publicly available, and we have not independently
verified such information. We also have relied upon the managements of
Technitrol and Pulse as to the reasonableness and achievability of the financial
projections (and the assumptions and bases therefore) provided to us and we have
assumed that such projections have been reasonably prepared on bases reflecting
the best currently available estimates and judgments of management as to the
future operating performance of Technitrol and Pulse. We have not been
requested to make, and we
<PAGE>
The Board of Directors August 18, 1995
Technitrol, Inc. Page 3
have not made, an independent appraisal or evaluation of the assets, properties,
facilities or liabilities of Technitrol or of Pulse and we have not been
furnished with any such appraisal or evaluation. Our opinion is necessarily
based on stock prices and economic and other conditions and circumstances as in
effect on, and the information made available to us as of, the date hereof.
It is understood that this letter is directed to Technitrol's Board of
Directors and does not constitute a recommendation to any stockholder of
Technitrol as to how such stockholder should vote on the Merger. This letter is
not to be quoted or referred to, in whole or in part, in any registration
statement, prospectus or proxy statement, or in any other document used in
connection with the offering or sale of securities, nor shall this letter be
used for any other purposes, without the prior written consent of Legg Mason
Wood Walker, Incorporated, provided that this opinion may be included in its
entirety in any filing made by Technitrol with the Securities and Exchange
Commission with respect to the Merger and the transactions related thereto.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the consideration to be paid for the Pulse common stock
pursuant to the Agreement is fair to the shareholders of Technitrol, from a
financial point of view.
Very truly yours,
LEGG MASON WOOD WALKER, INCORPORATED
<PAGE>
ANNEX C
May 22, 1995
The Board of Directors
Pulse Engineering, Inc.
12220 World Trade Drive
San Diego, CA 92128
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the outstanding shares of Class A Voting Common Stock,
par value $0.01 per share, (the "Pulse Shares") of Pulse Engineering, Inc. (the
"Company") of the offer of 0.5812 shares of Technitrol, Inc. ("Technitrol")
Common Stock, $0.125 par value, (the "Technitrol Shares") per Pulse Share, or,
at the election of the individual holders of Pulse Shares and subject to the
limitation set forth below, $8.50 cash per Pulse Share (collectively, the
"Consideration") being offered to such holders pursuant to the terms and
conditions set forth in the Agreement and Plan of Merger By and Among
Technitrol, Inc., Technitrol Sub Corp. and Pulse Engineering, Inc. dated as of
May 23, 1995 (the "Agreement"). The Agreement, among other limitations, permits
an election by holders of Pulse Shares to receive either cash or Technitrol
Shares subject to the requirement that, of the total Pulse Shares, no less than
50%, and no more than 55%, be exchanged for Technitrol Shares, with pro rata
adjustment effected as necessary.
In arriving at our opinion, we reviewed the Agreement and held discussions with
certain senior officers, directors and other representatives and advisors of the
Company and of Technitrol concerning the business, operations and prospects of
the Company and of Technitrol. We visited certain facilities operated by the
Company and certain facilities operated by Technitrol. We examined certain
publicly available business and financial information relating to the Company
and Technitrol as well as certain financial forecasts and other data which were
provided to us by the senior managements of the Company and of Technitrol. We
reviewed the financial terms set forth in the Agreement in relation to, among
other things: current and historical market prices and trading volumes of the
Pulse Shares and the Technitrol Shares; the Company's and Technitrol's
historical and projected earnings; and the capitalization and financial
condition of the Company and of Technitrol. We also considered, to the extent
publicly available, the financial terms of certain other similar transactions
recently effected which we considered comparable to the transaction set forth in
the Agreement and analyzed certain financial, stock
<PAGE>
market and other publicly available information relating to the businesses of
other companies whose operations we considered comparable to those of the
Company and Technitrol. In addition to the foregoing, we conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as we deemed necessary to arrive at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available, including such information furnished to us or
otherwise discussed with us by management of the Company and Technitrol. With
respect to financial forecasts and other information so provided or otherwise
discussed with us, we assumed at the direction of the Board that such forecasts
and other information were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of the Company and
of Technitrol as to the expected future financial performance of the Company and
of Technitrol. We have not made or been provided with an independent evaluation
or appraisal of the assets or liabilities (contingent or otherwise) of the
Company or of Technitrol nor have we made physical inspection of all of the
properties or assets of the Company or of Technitrol. Our opinion is necessarily
based upon financial, stock market and other conditions and circumstances
existing and disclosed to us as of the date hereof.
Oppenheimer & Co., Inc. has been engaged to render financial advisory services
to the Company in connection with the Agreement and activities leading up to the
receipt of the offer set forth in the Agreement. Oppenheimer & Co., Inc. will
receive a fee for its services which include the delivery of this opinion. In
the ordinary course of our business, we and our affiliates may actively trade
the securities of the Company for our own account or for the account of our
customers and, accordingly, may at any time hold a long or short position in
such securities. In 1986, Oppenheimer, together with management of the Company
and certain other investors, acquired the Company from its previous owner. At
that time and subsequently, Oppenheimer employees, including members of
Oppenheimer's senior management, have acquired, and in many cases still hold,
significant amounts of common stock, and warrants to purchase common stock, of
the Company. In addition, Oppenheimer employees have served on the Board from
the time of the 1986 acquisition until mid-1994. Oppenheimer co-managed the
Company's initial public offering in June 1991.
Our advisory services and the opinion expressed herein are provided solely for
the use of the Board of Directors of the Company in its evaluation of the
proposed Agreement, and our opinion may not be published or otherwise used or
referred to, in whole or in part, nor shall any public reference to Oppenheimer
& Co., Inc. be made without our prior written consent; provided that this
opinion may be included in its entirety in any filing made by the Company or
Technitrol
<PAGE>
with the Securities and Exchange Commission with respect to the merger
contemplated by the Agreement and the transactions related thereto.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Consideration to be paid to the holders
of the Pulse Shares, other than Technitrol, pursuant to the Agreement is fair,
from a financial point of view, to the holders of the Pulse Shares.
Very truly yours,
OPPENHEIMER & CO., INC.
<PAGE>
ANNEX D
Delaware General Corporation Law
Section 262
APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to (S)228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock,
which stock, or depository receipts in respect thereof, at the record
date fixed to determine the stockholders entitled to receive notice of
and to vote at the meeting of stockholders to act upon the agreement
of merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall be
available for any share of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the holders of the surviving corporation as provided in
subsection (f) of (S)251 of this title.
<PAGE>
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders
thereof are required by the terms of an agreement of merger or
consolidation pursuant to (S)251, 252, 254, 257, 258, 263 and 264 of
this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under (S)253 of this title is
not owned by the parent or corporation immediately prior to the
merger, appraisal rights shall be available for the shares of the
subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
<PAGE>
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior
to the meeting, shall notify each of its stockholders who was such on
the record date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsection (b) or (c)
hereof that appraisal rights are available for any or all of the
shares of the constituent corporations, and shall include in such
notice a copy of this section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before the
taking of the vote on the merger or consolidation, a written demand
for appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of
his shares. A proxy or vote against the merger or consolidation shall
not constitute such a demand. A stockholder electing to take such
action must do so by a separate written demand as herein provided.
Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with
this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation
has become effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
253 of this title, the surviving or resulting corporation, either
before the effective date of the merger or consolidation or within 10
days thereafter, shall notify each of the stockholders entitled to
appraisal rights of the effective date of the merger or consolidation
and that appraisal rights are available for any or all of the shares
of the constituent corporation, and shall include in such notice a
copy of this section. The notice shall be sent by certified or
registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the
corporation. Any stockholder entitled to appraisal rights may, within
20 days after the date of mailing of the notice, demand in writing
from the surviving or resulting corporation the appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
<PAGE>
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after the expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit
<PAGE>
their certificates of stock to the Register in Chancery for notation thereon of
the pendency of the appraisal proceedings; and if any stockholder fails to
comply with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceedings may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who had demanded his appraisal
<PAGE>
rights as provided in subsection (d) of this section shall be entitled to vote
such stock for any purpose or to receive payment of dividends or other
distributions on the stock (except dividends or other distributions payable to
stockholders of record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition for an
appraisal shall be filed within the time provided in subsection (e) of this
section, or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of his demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e) of
this section or thereafter with the written approval of the corporation, then
the right of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such approval may
be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VII of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the corporation if
such person acted in good faith and in a manner reasonably believed to be in
and not opposed to the best interest of the corporation, and, with respect to
any criminal action or proceeding the indemnified party had no reason to
believe his conduct was unlawful.
Section 518 of the Pennsylvania Business Corporation Law permits a
corporation to include in its bylaws, and in agreements between the
corporation and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES
(a) Exhibits
2.1 Agreement and Plan of Merger by and among the Registrant, TecoSub,
Inc. and Pulse Engineering, Inc. (included as Annex A to the
Prospectus/Joint Proxy Statement)
5.1 Opinion of Stradley, Ronon, Stevens & Young as to the legality of the
shares of Common Stock being registered
8.1 Form of Opinion of Stradley, Ronon, Stevens & Young as to certain tax
matters
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Stradley, Ronon, Stevens & Young (included in Exhibit 5.1)
23.4 Consent of Pillsbury, Madison & Sutro
23.5 Consent of Stradley, Ronon, Stevens & Young as to certain tax matters
24.1 Power of Attorney (see page II-3)
99.1 Form of Proxy for Special Meeting of Shareholders of the Registrant
99.2 Form of Proxy for Special Meeting of Stockholders of Pulse
Engineering, Inc.
99.3 Form of Election for Stockholders of Pulse Engineering, Inc.
(b) Financial Statement Schedules
Not applicable.
ITEM 22. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the undersigned Registrant undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition
to the information called for by the other Items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-1
<PAGE>
(3) Insofar as the indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(4) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
(5) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PHILADELPHIA,
COMMONWEALTH OF PENNSYLVANIA, ON THE 21ST DAY OF AUGUST, 1995.
TECHNITROL, INC.
By: /s/ Roy E. Hock
---------------------------------
ROY E. HOCK
CHAIRMAN, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Roy E. Hock, Thomas J. Flakoll and Albert
Thorp, III, as his or her true and lawful attorneys-in-fact and agents, each
acting alone, with full powers of substitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign any or all
amendments or post-effective amendments to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his or her substitute may lawfully do or
cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Roy E. Hock Chairman, Chief July 26, 1995
------------------------------------- Executive Officer
ROY E. HOCK and Director
(Principal
Executive Officer)
/s/ Thomas J. Flakoll President, Chief July 26, 1995
------------------------------------- Operating Officer
THOMAS J. FLAKOLL and Director
/s/ Albert Thorp, III Vice President of July 26, 1995
------------------------------------- Finance and Chief
ALBERT THORP, III Financial Officer
(Principal
Financial Officer)
/s/ Drew A. Moyer Controller July 26, 1995
------------------------------------- (Principal
DREW A. MOYER Accounting Officer)
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Stanley E. Basara Director July 26, 1995
-------------------------------------
STANLEY E. BASARA
/s/ John E. Burrows, Jr. Director July 26, 1995
-------------------------------------
JOHN E. BURROWS, JR.
/s/ J. Barton Harrison Director July 26, 1995
-------------------------------------
J. BARTON HARRISON
/s/ Graham Humes Director July 26, 1995
-------------------------------------
GRAHAM HUMES
/s/ Edward M. Mazze Director July 26, 1995
-------------------------------------
EDWARD M. MAZZE
/s/ James M. Papada, III Director July 26, 1995
-------------------------------------
JAMES M. PAPADA, III
/s/ James J. Rafferty, Jr. Director July 26, 1995
-------------------------------------
JAMES J. RAFFERTY, JR.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF STRADLEY RONON STEVENS & YOUNG APPEARS HERE]
August 21, 1995
Technitrol, Inc.
1210 Northbrook Drive, Suite 385
Trevose, Pennsylvania 19053
Re: REGISTRATION STATEMENT ON FORM S-4
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to Technitrol, Inc. (the "Company") in
the preparation and filing with the Securities and Exchange Commission of a
registration statement on Form S-4 (the "Registration Statement"), for the
purpose of registering under the Securities Act of 1933, as amended, up to
1,809,077 shares of the Company's Common Stock, par value $.125 per share (the
"Common Stock"). Each capitalized term used but not defined in this opinion
letter has the meaning ascribed to it in the Registration Statement.
For the purpose of rendering the opinions contained herein, we
have examined such matters of law as we deem necessary or appropriate and have
examined and relied (without independent investigation) on only the following
documents, records and certificates:
(1) a subsistence certificate with respect to the Company issued
by the Secretary of State of the Commonwealth of
Pennsylvania on August 10, 1995;
(2) the Articles of Incorporation, as amended, of the Company,
certified by the Secretary of the Company;
(3) the By-laws of the Company, certified by the Secretary of
the Company;
(4) certain minutes of proceedings of the Company's Board of
Directors, certified by the Secretary of the Company,
relating to the offer and sale
<PAGE>
Technitrol, Inc.
August 21, 1995
Page 2
by the Company of the Common Stock offered pursuant to the
Prospectus; and
(5) the Registration Statement.
In rendering this opinion, we have assumed and relied upon,
without independent investigation, other than the inquiry referred to above, (i)
the authenticity, completeness, truth and due authorization, execution and
delivery of all documents submitted to us as originals, (ii) the genuineness of
all signatures on all documents submitted to us as originals, and (iii) the
conformity to the originals of all documents submitted to us as certified or
photostatic copies.
The laws covered by the opinions expressed herein are limited to
the Federal statutes, judicial decisions and rules and regulations of the
governmental agencies of the United States and the statutes, judicial and
administrative decisions and rules and regulations of the governmental agencies
of the Commonwealth of Pennsylvania.
This opinion letter is given only with respect to laws and
regulations presently in effect. We assume no obligation to advise you of any
changes in law or regulation which may hereafter occur, whether the same are
retroactively or prospectively applied, or to update or supplement this letter
in any fashion to reflect any facts or circumstances which hereafter come to our
attention.
Based upon the foregoing, it is our opinion that, upon completion
of the merger proceedings being taken or contemplated by us as your counsel
prior to the issuance of the Common Stock, and upon completion of the
proceedings being taken in order to permit such transactions to be carried out
in accordance with the securities laws of the various states where required, the
Common Stock, when issued in the manner described in the Registration Statement,
will be legally and validly issued, fully paid and non-assessable.
We hereby consent to (i) the filing of this opinion letter as an
exhibit to the Registration Statement and (ii) the use of our name wherever
appearing in the Registration Statement, including the Prospectus/Joint Proxy
Statement constituting a part thereof, and any amendment thereto.
Very Truly Yours,
STRADLEY, RONON, STEVENS & YOUNG
By: /s/ James M. Papada, III
______________________________
James M. Papada, III, Esq.
a Partner
<PAGE>
Exhibit 8.1
August 15, 1995
Board of Directors
Technitrol, Inc.
1210 Northbrook Drive,
Suite 385
Trevose, Pennsylvania 19053
Re: AGREEMENT AND PLAN OF MERGER DATED AS OF MAY 23, 1995 (THE
"AGREEMENT"), BY AND AMONG TECHNITROL, INC. ("TECHNITROL"), TECO
SUB, INC. ("TECO SUB") AND PULSE ENGINEERING, INC. ("PULSE")
------------------------------------------
Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the merger, pursuant to the Agreement, of Pulse into Teco Sub in
which each share of Pulse Common Stock will be converted into and become the
right to receive shares of Technitrol Common Stock and/or cash (the "Merger").
All terms used herein unless otherwise defined are used as defined in the
Agreement.
In rendering our opinion with respect to the Merger, we reviewed and
relied upon (a) the Agreement, (b) the Joint Proxy Statement and Prospectus of
Technitrol and Pulse, dated August ___, 1995; (c) certain representations
concerning the Merger made to us by Technitrol and Pulse in a letter August ___,
1995, (the "Representation Letter"); and (d) all other documents, financial and
other reports and corporate minutes which we deemed relevant or appropriate.
<PAGE>
Technitrol, Inc.
August 15, 1995
Page 2
Our review of items (a) through (d) of the preceding paragraph has
been without independent investigation. We have also relied upon the truth,
authenticity, accuracy and completeness of all documents, certifications and
instruments examined and the statements, covenants, representations and
warranties contained therein, the genuineness of all documents submitted to us
as originals, the conformity of the originals of all documents submitted to us
as certified or photostatic copies and the due execution and delivery of all
documents where execution and delivery are pre-requisites to the effectiveness
thereof.
Based on the foregoing and provided the Merger is carried out in
accordance with the applicable laws of the Commonwealth of Pennsylvania, the
Agreement and the Representation Letter, it is our opinion that:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
2. Technitrol, Teco Sub and Pulse will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
3. No gain or loss will be recognized by Pulse upon the transfer of
its assets to Teco Sub in exchange for the distribution to holders of Pulse
Common Stock of Technitrol Common Stock (including fractional share interests)
and/or cash, and the assumption by Teco Sub of the liabilities of Pulse, as
provided in Sections 361 and 357(a) of the Code.
4. No gain or loss will be recognized by either Technitrol or Teco
Sub upon the receipt by Teco Sub of the assets of Pulse in exchange for
Technitrol Common Stock (including fractional share interests), cash, and the
assumption of Pulse's liabilities by Teco Sub. See Rev. Rul. 57-278, 1957-1
Cum. Bull. 124.
5. The basis of the Pulse assets in the hands of Teco Sub will be
the same as the basis of such assets in the hands of Pulse immediately prior to
the Merger, as provided in Section 362(b) of the Code.
6. The holding period for the assets of Pulse to be received by Teco
Sub will include the period during which the assets were held by Pulse as
provided in Section 1223(2) of the Code.
<PAGE>
Technitrol, Inc.
August 15, 1995
Page 3
7. No gain or loss will be recognized by Pulse shareholders who
receive solely Technitrol Common Stock in exchange for their Pulse Common Stock
(except those shareholders who receive cash for fractional shares), as provided
in Section 354(a)(1) of the Code.
8. The basis of Technitrol Common Stock received by Pulse
shareholders who received solely Technitrol Common Stock (including a fractional
share interest) will be the same as the basis of the Pulse Common Stock
surrendered in exchange therefor as provided in Section 358(a)(1) of the Code.
9. The holding period of Technitrol Common Stock received by Pulse
shareholders (including a fractional share interest) will include the holding
period of the Pulse Common Stock surrendered in exchange therefor, provided that
the Pulse Common Stock is held as a capital asset on the date of the exchange,
as provided in Section 1223(1) of the Code.
10. The payment of cash in lieu of fractional share interests will be
treated as if the fractional share interests were distributed as a part of the
Merger and then redeemed by Technitrol. Such cash payments will be treated as
having been received as distributions in full payment in exchange for the
fractional share interests redeemed and gain or loss will be recognized as
provided in Section 302(a) of the Code.
11. Holders of Pulse Common Stock who receive both Technitrol Common
Stock and cash in exchange for their Pulse Common Stock and who realize a gain
on the exchange will recognize such gain, to the extent of the cash received,
pursuant to Section 356(a)(1) of the Code. Such recognized gain may be treated
as a dividend pursuant to Section 356(a)(2) of the Code. The determination of
whether a recognized gain is treated as a dividend will be determined under the
principles of COMMISSIONER V. CLARK, 489 U.S. 726 (1989). No loss will be
recognized by a holder of Pulse Common Stock pursuant to Section 356(a) of the
Code. Holders of Pulse Common Stock who receive both Technitrol Common Stock
and cash will adjust their bases in the Technitrol Common Stock to account for
the cash received, any amount recognized as a gain or a dividend, and any loss
realized, pursuant to Section 358.
12. Holders of Pulse Common Stock who receive solely cash in exchange
for their Pulse Common Stock will recognize gain or loss measured by the amount
of cash received therefor and the basis of their Pulse Common Stock. If such
transaction results in an exchange under Section 302(a) of the Code, such gain
will be long or short term capital gain depending on whether their
<PAGE>
Technitrol, Inc.
August 15, 1995
Page 4
holding period for their Pulse Common Stock was more than one year or one year
or less, provided the Pulse Common Stock is held as a capital asset on the date
of the exchange, as provided in Sections 302(a) and 1222 of the Code.
13. Pursuant to Section 381(a) of the Code and Treasury Regulations
Section 1.381(a)-1, Teco Sub will succeed to and take into account the items
(i.e., tax attributes) of Pulse described in Section 381(c) of the Code. These
items will be taken into account by Teco Sub subject to the conditions and
limitations specified in Sections 381, 382, 383 and 384 of the Code and the
Treasury Regulations thereunder.
14. As provided in Section 381(c)(2) of the Code and Treasury
Regulations Section 1.381(c)(2)-1, Teco Sub will succeed and take into account
the earnings and profits, or deficit in earnings and profits, of Constitution as
of the date of the transfer. Any deficit in earnings and profits of Pulse or
Teco Sub may be used only to offset earnings and profits accumulated after the
date of the transfer. Any earnings and profits of Pulse or Teco Sub accumulated
before the date of the transfer will be used to offset any deficit in earnings
and profits incurred after the transfer.
Our opinions are based upon the Code, as amended, the applicable
Treasury Regulations promulgated thereunder, the present positions of the
Internal Revenue Service as set forth in published revenue rulings and revenue
procedures and existing judicial decisions, all of which are subject to change
either prospectively or retroactively in such a fashion as to have a Material
Adverse Effect upon the conclusions reached in our opinions as aforesaid. In
rendering our opinion based on the foregoing, you should be aware that our
opinion is not binding upon the Internal Revenue Service or any court and there
is no assurance that the Internal Revenue Service would not successfully assert
a contrary opinion upon an audit of the relevant tax return of any party to the
Merger or shareholder thereof, or otherwise.
Our opinions are conditioned upon the performance by Technitrol, Teco
Sub and Pulse of their undertakings in the
<PAGE>
Technitrol, Inc.
Ausgust 15, 1995
Page 5
Representation Letter. These opinions are being rendered to you and may be
relied upon only by you and Teco Sub shareholders.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG
By:__________________________________
William S. Pilling, III, a Partner
<PAGE>
EXHIBIT 23.1
The Board of Directors
Technitrol, Inc.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus. Our report refers to a
change in 1993 in the method of accounting for income taxes.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
August 18, 1995
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the inclusion and incorporation by reference in the
Registration Statement (Form S-4) of Technitrol, Inc. and the related
Prospectus of our report dated July 31, 1995 with respect to the consolidated
financial statements of Pulse Engineering, Inc. included in the Current Report
on Form 8-K of Pulse Engineering, Inc.
San Diego, California
August 16, 1995
<PAGE>
EXHIBIT 23.4
CONSENT OF PILLSBURY MADISON & SUTRO
We consent to the references to our firm in the Joint Proxy Statement of
Pulse Engineering, Inc. and Technitrol, Inc. which is made a part of the
Registration Statement on Form S-4 of Technitrol, Inc. for registration of
shares of its common stock.
Pillsbury Madison & Sutro
San Diego, California
August 18, 1995
<PAGE>
EXHIBIT 23.5
August 18, 1995
Board of Directors
Technitrol, Inc.
We hereby consent to the reference to this firm and its opinion as to
certain tax matters which is contained in the "Certain Federal Income Tax
Consequences" section of the Registration Statement on Form S-4 and to the
filing of the enclosed form of such opinion as Exhibit 8.1.
Stradley, Ronon, Stevens & Young
<PAGE>
EXHIBIT 99.1
PROXY
TECHNITROL, INC.
[x] PLEASE MARK VOTES
AS IN THIS EXAMPLE
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF THE STOCKHOLDERS
WEDNESDAY, SEPTEMBER 27, 1995, 12:00 NOON
The undersigned hereby appoints Roy E. Hock, Thomas J. Flakoll and Robert
J. Citrino, or any of them,each with full power of substitution, as the lawful
proxies and agents of the undersigned with full power to vote, as designated
hereon, all of the shares of Common Stock of Technitrol, Inc. ("Technitrol")
that the undersigned would if personally present, be entitled to vote at the
Special Meeting of Shareholders of Technitrol to be held at 11:00 a.m., local
time on Wednesday, September 27, 1995, and at any adjournments or postponements
thereof.
----------------------------
Please be sure to sign and date Date
this Proxy in the box below.
----------------------------------------------------------------------
---- Stockholder sign above_________ Co-holder (if any) sign above ---
1. Approval and adoption of the Agreement and Plan Merger dated as of May 23,
1995 between Technitrol, Teco Sub, Inc., a wholly owned subsidiary of
Technitrol ("Teco Sub"), and Pulse Engineering, Inc. ("Pulse") including the
merger of Pulse with and into Teco Sub and the transactions contemplated
thereby
For Against Abstain
[_] [_] [_]
2. Approval and adoption of the proposed amendment to Technitrols Articles of
Incorporation to increase the number of authorized shares of Technitrol
Common Stock, $.125 par value, from 10,000,000 shares to 30,000,000 shares.
For Against Abstain
[_] [_] [_]
3. The undersigned confers upon the proxies discretion to act upon all other
matters that may properly be brought before the Special Meeting or any
adjournments or postponements thereof.
CHECK HERE IF YOU PLAN TO
ATTEND THE MEETING [_]
The shares represented by this proxy, if propertly executed, will be voted
in the manner directed. If no direction is given, the shares will be voted FOR
Proposals 1 and 2.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders and the Prospectus and Joint Proxy Statement relating to
the meeting. Please sign your name or names exactly as the name or names appear
hereon. All joint owners should sign. Trustees, executors, administrators and
others acting in representative capacity should indicate the capacity in which
they are signing. If a corporation, sign in full corporate name by authorized
officer. If a partnership, sign in partnership name by authorized person.
Please date and sign your proxy and return it promptly whether or not you
plan to attend the Special Meeting. If you do attend, you may still vote in
person if you desire.
--------------------------------------------------------------------------------
Detach above card, sign, date and mail in postage paid envelope provided.
TECHNITROL, INC.
--------------------------------------------------------------------------------
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
--------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.2
PULSE ENGINEERING, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
WEDNESDAY, SEPTEMBER 27, 1995, 8:00 A.M.
The undersigned hereby appoints David R. Flowers and Russell A.
Holman, or either of them, each with full power of substitution, as the lawful
proxies and agents of the undersigned with full power to vote, as designated
below, all of the shares of Class A Voting Common Stock of Pulse Engineering,
Inc. ("Pulse") that the undersigned would, if personally present, be entitled to
vote at the Special Meeting of Stockholders of Pulse to be held at 8:00 a.m.
Pacific Daylight Time on Wednesday, September 27, 1995, and at any adjournments
or postponements thereof.
1. Approval and adoption of the Agreement and Plan of Merger dated
as of May 23, 1995, between Pulse, Technitrol, Inc.
("Technitrol") and Teco Sub, Inc., a wholly owned subsidiary of
Technitrol ("Teco Sub"), including the merger of Pulse with and
into Teco Sub and the transactions contemplated thereby.
[_] FOR [_] AGAINST [_] ABSTAIN
2. The undersigned confers upon the proxies discretion to act upon
all other matters that may properly be brought before the Special
Meeting or any adjournments or postponements thereof.
The shares represented by this proxy, if properly executed, will be voted in the
manner directed. If no direction is given, the shares will be voted FOR
Proposal 1.
PLEASE SIGN AND DATE THIS PROXY ON THE REVERSE SIDE AND
PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE
The undersigned hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and the Prospectus and Joint Proxy Statement relating to the
meeting. Please sign your name or names exactly as the name or names appear
hereon. All joint owners should sign. Trustees, executors, administrators and
others acting in representative capacities should indicate the capacity in which
they are signing. If a corporation, sign in full corporate name by authorized
offer. If a partnership, sign in partnership name by authorized person.
Dated:_______________________, 1995
__________________________________________________
SIGNATURE OF STOCKHOLDER
__________________________________________________
SIGNATURE OF STOCKHOLDER
(if held jointly)
Please date and sign your proxy and return it
promptly whether or not you plan to attend the
Special Meeting. If you do attend, you may still
vote in person if you desire.
Check here if you plan to attend the meeting [_]
<PAGE>
EXHIBIT 99.3
FORM OF ELECTION
TO ACCOMPANY CERTIFICATES REPRESENTING SHARES OF COMMON STOCK OF
PULSE ENGINEERING, INC.
Please read and follow carefully the Instructions set forth below, which set
forth the requirements that need to be complied with in order to make an
effective election. Nominees, trustees or other persons who hold shares of
Pulse Engineering, Inc. ("Pulse") Common Stock, par value $0.01 per share
("Pulse Common Stock"), in a representative capacity are directed to
Instruction F(5).
TO BE EFFECTIVE, THIS FORM OF ELECTION, PROPERLY COMPLETED AND SIGNED IN
ACCORDANCE WITH THE ACCOMPANYING INSTRUCTIONS, TOGETHER WITH CERTIFICATES FOR
THE PULSE COMMON STOCK COVERED HEREBY (UNLESS DELIVERY IS GUARANTEED IN BOX E
BELOW IN ACCORDANCE WITH INSTRUCTION A), MUST BE RECEIVED BY REGISTRAR AND
TRANSFER COMPANY (THE "EXCHANGE AGENT"), AT THE APPROPRIATE ADDRESS SET FORTH
BELOW, NO LATER THAN THE ELECTION DEADLINE (AS DEFINED IN INSTRUCTION A).
DELIVERIES MADE TO ADDRESSES OTHER THAN THE ADDRESSES FOR THE EXCHANGE AGENT
SET FORTH BELOW DO NOT CONSTITUTE VALID DELIVERIES AND THE EXCHANGE AGENT WILL
NOT BE RESPONSIBLE THEREFOR.
Delivery by Mail: Delivery by Hand:
Registrar and Transfer Company Registrar and Transfer Company
10 Commerce Drive c/o Midwest Clearing
Cranford, New Jersey 07016 40 Broadway, 22nd Floor
New York, New York
If you require additional information, please call:
Registrar and Transfer Company
at its Investor Services number, (800) 368-5948
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS.
To: Registrar and Transfer Company
This Form of Election is being delivered in connection with the merger (the
"Merger") of Pulse with and into Teco Sub, Inc., a subsidiary of Technitrol,
Inc. ("Technitrol"), pursuant to the Agreement and Plan of Merger, dated May
23, 1995 (the "Merger Agreement") and described in the Joint Proxy Statement--
Prospectus dated August , 1995 (the "Proxy Statement--Prospectus").
The undersigned, subject to the Election and Allocation Procedures (as
defined below) and the other terms and conditions set forth in this Form of
Election, including the documents incorporated herein by reference, hereby (a)
surrenders the certificate(s) (the "Certificates") representing the shares of
Pulse Common Stock listed in Box A below and (b) elects (an "Election"), as
indicated below, upon consummation of the Merger to have each of the shares of
Pulse Common Stock represented by the Certificates converted into the right:
(CHECK ONLY ONE)
[_] to receive $8.50 in cash, without interest (a "Cash Election"); or
[_] to receive 0.5812 shares (subject to adjustment based on the average
closing price of Technitrol Common Stock for a specified two-week period
prior to the Merger as set forth in the Merger Agreement and as more
fully described in the Proxy Statement--Prospectus) of Common Stock, par
value $0.125 per share ("Technitrol Shares"), of Technitrol (a "Stock
Election"); or
[_] to indicate no preference with regard to a Cash Election or a Stock
Election (a "Non-Election").
A HOLDER OF SHARES OF PULSE COMMON STOCK THAT DOES NOT SUBMIT AN EFFECTIVE
FORM OF ELECTION PRIOR TO THE ELECTION DEADLINE (AS DEFINED IN INSTRUCTION A)
WILL BE DEEMED TO HAVE MADE A NON-ELECTION.
<PAGE>
IN MAKING A STOCK ELECTION OR A CASH ELECTION, PULSE STOCKHOLDERS SHOULD
CONSIDER THAT BECAUSE THE STOCK CONSIDERATION HAS BEEN FIXED AT 0.5812
TECHNITROL SHARES (SUBJECT TO ADJUSTMENT) FOR EACH SHARE OF PULSE COMMON
STOCK, AND BECAUSE THE MARKET PRICE OF TECHNITROL SHARES IS SUBJECT TO
FLUCTUATION, THE MARKET VALUE OF THE TECHNITROL SHARES THAT HOLDERS OF PULSE
COMMON STOCK MAY RECEIVE IN THE MERGER FOR EACH SHARE OF PULSE COMMON STOCK
MAY BE LESS THAN, EQUAL TO, OR GREATER THAN THE CASH CONSIDERATION OF $8.50.
IN ADDITION, BECAUSE OF SUCH FLUCTUATIONS IN THE MARKET VALUE OF TECHNITROL
SHARES, THE MARKET VALUE OF THE TECHNITROL SHARES THAT HOLDERS OF PULSE COMMON
STOCK MAY RECEIVE IN THE MERGER MAY INCREASE OR DECREASE FOLLOWING THE
EFFECTIVE TIME (AS DEFINED IN INSTRUCTION A).
If the Exchange Agent has not received your properly completed Form of
Election, accompanied by your stock certificates, by the Election Deadline
(unless Box E (Guaranty of Delivery) has been properly completed and such
certificates are received by the Exchange Agent by the Guaranteed Delivery
Deadline), you will be deemed to have made a Non-Election.
The undersigned hereby certifies: that this Election covers all of the
shares of Pulse Common Stock registered in the name of the undersigned and
either (i) beneficially owned by the undersigned, or (ii) owned by the
undersigned in a representative or fiduciary capacity for a particular
beneficial owner or for one or more beneficial owners.
BOX A
CERTIFICATE INFORMATION
LIST BELOW THE CERTIFICATES TO WHICH THIS FORM OF ELECTION RELATES.
(ATTACH ADDITIONAL SHEETS IF NECESSARY.)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME AND ADDRESS OF REGISTERED HOLDER(S) CERTIFICATE NUMBER OF SHARES
AS SHOWN ON THE SHARE RECORDS NUMBER REPRESENTED BY
(PLEASE FILL IN, IF BLANK) EACH CERTIFICATE
--------------------------------------------------------------------------------
<S> <C> <C>
TOTAL SHARES:
</TABLE>
This Election is subject to the terms and conditions set forth in the Merger
Agreement and the Proxy Statement-Prospectus, furnished to stockholders of
Pulse in connection with the Merger, all of which are incorporated herein by
reference. Receipt of the Proxy Statement-Prospectus, including the Merger
Agreement attached as Annex A thereto, is hereby acknowledged. Copies of the
Proxy Statement-Prospectus are available from the Exchange Agent upon request
(see Instruction G(10)).
It is understood that because pursuant to the Merger Agreement the number of
shares of Pulse Common Stock to be converted into the right to receive
Technitrol Shares in the Merger and the number of shares of Pulse Common Stock
to be converted into the right to receive cash in the Merger are subject to
limitations, no assurance can be given that an Election by any given
stockholder, including this Election by the undersigned, can be accommodated.
Rather, the Election by each holder of Pulse Common Stock, including this
Election by the undersigned, will be subject to the results of the election
and allocation procedures set forth in the Merger Agreement and described in
the Proxy Statement-Prospectus under the caption "TERMS OF THE MERGER--
Conversion of Shares of Pulse Common Stock; Election" (the "Election and
Allocation Procedures").
2
<PAGE>
CERTIFICATE HOLDER(S) SIGN HERE
The undersigned hereby represents and warrants that the undersigned has full
power and authority to complete and deliver this Form of Election and to
deliver for surrender and cancellation the above-described Certificate(s)
delivered herewith and that the rights represented by the Certificate(s) are
free and clear of all liens, restrictions, charges and encumbrances and are
not subject to any adverse claim. The undersigned will, upon request, execute
any additional documents necessary or desirable to complete the surrender of
the Certificate(s) surrendered herewith. All authority herein conferred shall
survive the death or incapacity of the undersigned and all obligations of the
undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned. Delivery of the
Certificate(s) for surrender and cancellation may be revoked only in
accordance with Instruction F(2).
BOX B
SIGN HERE
(TO BE COMPLETED BY ALL PERSON(S) SURRENDERING
CERTIFICATES AND EXECUTING THIS FORM OF ELECTION)
___________________________________________________________________________
___________________________________________________________________________
(SIGNATURE(S) OF HOLDER(S))
Dated: ___________________________________________________________________
Name(s):___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
Address:___________________________________________________________________
___________________________________________________________________
(INCLUDING ZIP CODE)
[_] Check box if change of address
Phone:_____________________________________________________________________
(SO THE EXCHANGE AGENT CAN CONTACT YOU IN CASE OF QUESTIONS, ALTHOUGH THE
EXCHANGE AGENT IS UNDER NO OBLIGATION TO DO SO.)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
stock certificate(s) or by person(s) authorized to become registered
holders by documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a
corporation or in any other fiduciary or representative capacity, please
set forth full title. (See Instruction G(6)).
Title:_____________________________________________________________________
(OTHER THAN SIGNATURE(S), PLEASE PRINT OR TYPE)
BOX C
COMPLETE ONLY IF REQUIRED BY INSTRUCTION G(5).
SIGNATURE GUARANTEE
YOUR SIGNATURE MUST BE MEDALLION GUARANTEED
BY AN ELIGIBLE FINANCIAL INSTITUTION.
NOTE: A NOTARIZATION BY A NOTARY PUBLIC IS NOT ACCEPTABLE.
FOR USE BY FINANCIAL INSTITUTION ONLY.
PLACE MEDALLION GUARANTEE IN SPACE BELOW.
3
<PAGE>
IMPORTANT TAX INFORMATION
PLEASE PROVIDE YOUR SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER
ON THIS SUBSTITUTE FORM W-9 AND CERTIFY THEREIN THAT YOU ARE NOT SUBJECT TO
BACKUP WITHHOLDING. FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN
BACKUP WITHHOLDING OF 31 PERCENT OF ANY CASH PAYMENTS MADE TO YOU PURSUANT TO
THE MERGER.
BOX D
PART I--PLEASE PROVIDE YOUR ----------------------
TIN IN THE BOX AT RIGHT AND Social Security Number
SUBSTITUTE CERTIFY BY SIGNING AND
FORM W-9 DATING BELOW. See OR
DEPARTMENT OF Instruction G(9) ----------------------
THE TREASURY Employer Identification
INTERNAL REVENUE Number
SERVICE
PART II--Awaiting TIN [_]
For Payees exempt from backup withholding, complete
as directed in Instruction G(9).
--------------------------------------------------------
--------------------------------------------------------
PAYER'S REQUEST FOR
TAXPAYER IDENTIFICATION
NUMBER (TIN)
CERTIFICATION. Under penalties of perjury, I certify
that:
(1) The number shown on this form is my correct Tax-
payer Identification Number (or I am waiting for a
number to be issued to me), and
(2) I am not subject to backup withholding either be-
cause I have not been notified by the Internal Rev-
enue Service ("IRS") that I am subject to backup
withholding as a result of a failure to report all
interest or dividends, or the IRS has notified me
that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS. You must cross out item
(2) above if you have been notified by the IRS that
you are subject to backup withholding because of
underreporting interest or dividends on your tax re-
turn. However, if after being notified by the IRS
that you were subject to backup withholding you re-
ceived another notification from the IRS that you are
no longer subject to backup withholding, do not cross
out item (2).
SIGNATURE: _____________________________ DATE: ______
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART II
OF
SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered
an application to receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social Security
Administration Office or (b) I intend to mail or deliver an application in
the near future. I understand that, notwithstanding that I have checked the
box in Part II (and have completed this Certificate of Awaiting Taxpayer
Identification Number), 31 percent of all reportable payments made to me
will be withheld until I provide a properly certified taxpayer
identification number to the Exchange Agent.
___________________________________________________ ______________________
SIGNATURE DATE
4
<PAGE>
BOX E
GUARANTY OF DELIVERY
(TO BE USED ONLY IF CERTIFICATES ARE NOT SURRENDERED HEREWITH)
(SEE INSTRUCTION A)
The undersigned (check appropriate boxes below) guarantees to deliver to
the Exchange Agent at the appropriate address set forth above the
certificates for shares of Pulse Common Stock submitted with this Form of
Election no later than 5:00 p.m., Eastern Daylight Time, on the Guaranteed
Delivery Deadline (as defined in Instruction A).
[_] a member of a registered national ____________________________________
securities exchange (FIRM--PLEASE PRINT)
____________________________________
[_] a member of the National (AUTHORIZED SIGNATURE)
Association of Securities ____________________________________
Dealers, Inc. ____________________________________
(ADDRESS)
[_[ a commercial bank or trust ____________________________________
company in the United States (AREA CODE AND TELEPHONE)
(PLEASE READ CAREFULLY THE GENERAL INSTRUCTIONS CONTAINED ELSEWHERE HEREIN)
SPECIAL ISSUANCE AND MAILING INSTRUCTIONS
The undersigned understands that the Technitrol Shares to be issued, the
check issued as payment in cash, or the cash in lieu of fractional shares
check (such checks being referred to herein as "Payment Checks") with respect
to the Pulse Common Stock surrendered will be issued in the same name(s) as
the certificate(s) surrendered and will be mailed to the address of the
registered holder(s) indicated above, unless otherwise indicated in Box F or
Box G below. If Box F is completed, the signature of the undersigned must be
guaranteed as set forth in Instruction G(5).
BOX F BOX G
SPECIAL PAYMENT INSTRUCTIONS (SEE SPECIAL MAILING INSTRUCTIONS (SEE
INSTRUCTION G(5)) INSTRUCTION G(7))
TO BE COMPLETED ONLY if the cer- TO BE COMPLETED ONLY if the cer-
tificate or Payment Check(s) is tificate or Payment Check(s) is
(are) to be issued in the name(s) (are) to be delivered to the reg-
of someone other than the regis- istered holder(s) or someone
tered holder(s) set forth above. other than the registered hold-
er(s) at an address other than
shown above.
ISSUE TO:
Name: ____________________________ MAIL TO:
Address: _________________________ Name: ____________________________
(STREET AND NUMBER) Address: _________________________
__________________________________ (STREET AND NUMBER)
(CITY, STATE AND ZIP CODE) __________________________________
__________________________________ (CITY, STATE AND ZIP CODE)
TAXPAYER IDENTIFICATION OR SOCIAL (PLEASE PRINT OR TYPE)
SECURITY NUMBER (PLEASE PRINT OR
TYPE)
5
<PAGE>
INSTRUCTIONS
This Form of Election (or a facsimile thereof) should be properly filled in,
dated and signed, and should be delivered, together with all stock
certificates representing Pulse Common Stock currently held by you (unless
delivery is guaranteed in Box E in accordance with Instruction A), to the
Exchange Agent at the appropriate address set forth on the front of this Form
of Election. Please read and follow carefully the instructions regarding
completion of this Form of Election set forth below. If you have any questions
concerning this Form of Election or require any information or assistance, see
Instruction G(10).
A. TIME IN WHICH TO ELECT
In order for an Election to be effective, the Exchange Agent must receive a
properly completed Form of Election, accompanied by all stock certificates
representing Pulse Common Stock currently held by you, NO LATER THAN 5:00
P.M., EASTERN DAYLIGHT TIME, ON THE BUSINESS DAY WHICH IS ONE TRADING DAY
PRIOR TO THE EFFECTIVE TIME OF THE MERGER (the "Election Deadline"). The
Merger will become effective upon the filing of a Certificate of Merger with
the Secretary of State of Delaware (such time of filing referred to herein as
the "Effective Time"). It is presently anticipated that the Effective Time
will occur on or about September 29, 1995, or on a date as soon as practicable
thereafter. THUS, STOCKHOLDERS ARE URGED TO DELIVER A PROPERLY COMPLETED FORM
OF ELECTION, ACCOMPANIED BY STOCK CERTIFICATES (OR A PROPER GUARANTY OF
DELIVERY, AS DESCRIBED BELOW), NO LATER THAN 5:00 P.M., EASTERN DAYLIGHT TIME,
ON SEPTEMBER 28, 1995, IN ORDER TO ASSURE THAT THEIR FORM OF ELECTION WILL BE
RECEIVED BY THE ELECTION DEADLINE. Persons whose stock certificates are not
immediately available may also make an Election by completing this Form of
Election (or a facsimile thereof) and having Box E (Guaranty of Delivery)
properly completed and duly executed by a member of a registered national
securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company in the United States
(subject to the condition that the certificates, the delivery of which is
thereby guaranteed, are in fact delivered to the Exchange Agent no later than
5:00 p.m., Eastern Daylight Time, on the fourth business day after the date of
execution of such Guaranty of Delivery (the "Guaranteed Delivery Deadline")).
IF THE EXCHANGE AGENT HAS NOT RECEIVED YOUR PROPERLY COMPLETED FORM OF
ELECTION, ACCOMPANIED BY YOUR STOCK CERTIFICATES, BY THE ELECTION DEADLINE
(UNLESS BOX E (GUARANTY OF DELIVERY) HAS BEEN PROPERLY COMPLETED AND SUCH
CERTIFICATES ARE RECEIVED BY THE EXCHANGE AGENT BY THE GUARANTEED DELIVERY
DEADLINE), YOU WILL BE DEEMED TO HAVE MADE A NON-ELECTION.
For instructions regarding changes or revocations of Elections and the time
in which such changes or revocations can be made, see Instructions F(1) and
F(2) below.
B. ELECTIONS
This Form of Election provides for your Election, subject to the Election
and Allocation Procedures and the other items and conditions set forth
hereunder and in the documents incorporated herein by reference, upon
consummation of the Merger to have each of the shares of Pulse Common Stock
covered by this Form of Election converted into the right:
--to receive $8.50 in cash without interest (a "Cash Election"); or
--to receive 0.5812 Technitrol Shares (subject to adjustment based on the
average closing price of Technitrol Common Stock for a specified two-week
period prior to the Merger as set forth in the Merger Agreement and as
more fully described in the Proxy Statement--Prospectus) (a "Stock
Election"); or
--to indicate no preference with regard to a Cash Election or Stock
Election (a "Non-Election").
6
<PAGE>
A HOLDER OF SHARES OF PULSE COMMON STOCK THAT DOES NOT SUBMIT AN EFFECTIVE
FORM OF ELECTION PRIOR TO THE ELECTION DEADLINE WILL BE DEEMED TO HAVE MADE A
NON-ELECTION.
IN MAKING A STOCK ELECTION OR A CASH ELECTION, PULSE STOCKHOLDERS SHOULD
CONSIDER THAT BECAUSE THE STOCK CONSIDERATION HAS BEEN FIXED AT 0.5812
TECHNITROL SHARES (SUBJECT TO ADJUSTMENT) FOR EACH SHARE OF PULSE COMMON
STOCK, AND BECAUSE THE MARKET PRICE OF TECHNITROL SHARES IS SUBJECT TO
FLUCTUATION, THE MARKET VALUE OF THE TECHNITROL SHARES THAT HOLDERS OF PULSE
COMMON STOCK MAY RECEIVE IN THE MERGER FOR EACH SHARE OF PULSE COMMON STOCK
MAY BE LESS THAN, EQUAL TO, OR GREATER THAN THE CASH CONSIDERATION OF $8.50.
IN ADDITION, BECAUSE OF SUCH FLUCTUATIONS IN THE MARKET VALUE OF THE
TECHNITROL SHARES, THE MARKET VALUE OF THE TECHNITROL SHARES THAT HOLDERS OF
PULSE COMMON STOCK MAY RECEIVE IN THE MERGER MAY INCREASE OR DECREASE
FOLLOWING THE EFFECTIVE TIME.
You should understand that your Election is subject to certain terms and
conditions that are set forth in the Merger Agreement and described in the
Proxy Statement-Prospectus. The Merger Agreement is included as Annex A to the
Proxy Statement-Prospectus. Copies of the Proxy Statement-Prospectus may be
requested from the Exchange Agent at the address or phone number set forth in
Instruction G(10). The delivery of this Form of Election to the Exchange Agent
constitutes acknowledgement of the receipt of the Proxy Statement-Prospectus.
EACH HOLDER OF PULSE COMMON STOCK IS STRONGLY ENCOURAGED TO READ THE PROXY
STATEMENT-PROSPECTUS IN ITS ENTIRETY AND TO DISCUSS THE CONTENTS THEREOF, THE
MERGER AND THIS FORM OF ELECTION WITH HIS OR HER PERSONAL FINANCIAL AND TAX
ADVISORS PRIOR TO DECIDING WHAT ELECTION TO MAKE. THE TAX CONSEQUENCES TO A
HOLDER OF PULSE COMMON STOCK WILL VARY DEPENDING UPON A NUMBER OF FACTORS,
INCLUDING WHETHER SUCH HOLDER RECEIVES TECHNITROL SHARES, CASH OR A
COMBINATION THEREOF. FOR CERTAIN INFORMATION REGARDING THE FEDERAL INCOME TAX
CONSEQUENCES OF AN ELECTION, SEE "THE MERGER AND RELATED TRANSACTIONS--CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS" IN THE PROXY STATEMENT-PROSPECTUS.
C. CASH ELECTION
If you elect, subject to the Election and Allocation Procedures and the
other terms and conditions set forth in this Form of Election, including the
documents incorporated herein by reference, to receive cash for all of the
shares of Pulse Common Stock covered by this Form of Election, you should
check the "Cash Election" box on the first page of this Form of Election.
D. STOCK ELECTION
If you elect, subject to the Election and Allocation Procedures and the
other terms and conditions set forth in this Form of Election, including the
documents incorporated herein by reference, to receive Technitrol Shares for
all of the shares of Pulse Common Stock covered by this Form of Election, you
should check the "Stock Election" box on the first page of this Form of
Election.
Technitrol will not issue any fractional Technitrol Shares in connection
with the Merger; a holder of Pulse Common Stock will instead receive cash in
an amount equal to (i) the average closing price of Technitrol Common Stock on
the American Stock Exchange as reported in The Wall Street Journal for the ten
trading days immediately preceding the three business days preceding the
Effective Time multiplied by (ii) the fractional share amount such
stockholders would otherwise be entitled (after taking into account all shares
of Pulse Common Stock held by such holder), without interest, rounded to the
nearest cent.
E. NON-ELECTION
If you have no preference for either cash or Technitrol Shares, you should
check the "Non-Election" box on the first page of this Form of Election.
7
<PAGE>
If you have failed to make an effective Cash Election, Stock Election, or
Non-Election for all of the shares of Pulse Common Stock required to be
covered by this Form of Election, or if your Election is deemed by the
Exchange Agent or Technitrol to be defective in any way, or if your Form of
Election is not accompanied by your certificates (unless Box E (Guaranty of
Delivery) has been properly completed and such certificates are received by
the Exchange Agent by the Guaranteed Delivery Deadline), you will be deemed to
have made a Non-Election for all of such shares.
F. SPECIAL CONDITIONS
(1) Change of Election. An effective Election may be changed by the person
or persons making such Election by a written notice signed and dated by such
person or persons received by the Exchange Agent prior to the Election
Deadline, identifying the name of the registered holder of the Pulse Common
Stock subject to such Election and the serial numbers shown on the
certificates representing such Pulse Common Stock, accompanied by a properly
completed, revised Form of Election.
(2) Revocation of Election. An election may be revoked by the person or
persons making such election by a written notice signed and dated by such
person or persons and received by the Exchange Agent prior to the Election
Deadline, identifying the name of the registered holder of the Pulse Common
Stock subject to such Election and the serial numbers shown on the
certificates representing such Pulse Common Stock. Any person or persons who
have effectively revoked an Election may, by a signed and dated written notice
to the Exchange Agent, request the return of the stock certificates submitted
to the Exchange Agent and such certificates will be returned to such person or
persons (at the stockholder's risk) within five business days of receipt of
such request.
(3) Nullification of Election. All Forms of Election will be void and of no
effect if the Merger is not consummated, and certificates submitted therewith
shall be promptly returned to the persons submitting the same.
(4) Elections Subject to Allocation. All Elections are subject to the
Election and Allocation Procedures set forth in the Merger Agreement and
described in the Proxy Statement-Prospectus under the caption "TERMS OF THE
MERGER--Conversion of Shares of Pulse Common Stock; Election" and to the other
terms and conditions set forth thereunder and hereunder, including the
documents incorporated herein by reference.
(5) Shares Held by Nominees, Trustees or other Representatives. Holders of
record of shares of Pulse Common Stock who hold such shares as nominees,
trustees or in other representative or fiduciary capacities (a
"Representative") may submit one or more Forms of Election covering the
aggregate number of shares of Pulse Common Stock held by such Representative
for the beneficial owners for whom the Representative is making an Election or
a Non-Election; provided, that such Representative certifies that each such
Form of Election covers all the shares of Pulse Common Stock held by such
Representative for a particular beneficial owner. Any Representative who makes
an Election or a Non-Election may be required to provide the Exchange Agent
with such documents and/or additional certifications, if requested, in order
to satisfy the Exchange Agent that such Representative holds such shares of
Pulse Common Stock for a particular beneficial owner of such shares. If any
shares held by a Representative are not covered by an effective Form of
Election, they will be deemed to be covered by a Non-Election.
G. GENERAL
(1) Execution and Delivery. In order to make an effective Election, you must
correctly fill out this Form of Election, or a facsimile thereof. After dating
and signing it, you are responsible for its delivery, accompanied by all stock
certificates representing Pulse Common Stock currently held by you or a proper
Guaranty of Delivery of such stock certificates pursuant to Instruction A, to
the Exchange Agent at the address set forth on the front of this Form of
Election by the Election Deadline. YOU MAY CHOOSE ANY METHOD TO DELIVER THIS
FORM OF ELECTION; HOWEVER, YOU ASSUME ALL RISK OF NON-DELIVERY. IF YOU CHOOSE
TO USE THE MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL, RETURN RECEIPT
REQUESTED, AND THAT YOU PROPERLY INSURE ALL STOCK CERTIFICATES. DELIVERY OF
8
<PAGE>
STOCK CERTIFICATES WILL BE DEEMED EFFECTIVE AND RISK OF LOSS WITH RESPECT TO
SUCH CERTIFICATES SHALL PASS ONLY WHEN SUCH CERTIFICATES ARE ACTUALLY RECEIVED
BY THE EXCHANGE AGENT.
(2) Signatures. Except as otherwise permitted below, you must sign this Form
of Election exactly the way your name appears on the face of your
certificates. If the shares are owned by two or more persons, each must sign
exactly as his or her name appears on the face of the certificates. If shares
of Pulse Common Stock have been assigned by the registered owner, this Form of
Election should be signed in exactly the same way as the name of the assignee
appearing on the certificates or transfer documents. See Instructions G(5)(a)
and G(5)(b).
(3) Notice of Defects; Resolution of Disputes. None of Pulse, Technitrol and
the Exchange Agent will be under any obligation to notify you or anyone else
that the Exchange Agent has not received a properly completed Form of Election
or that any Form of Election submitted is defective in any way.
Any and all disputes with respect to Forms of Election or to Elections made
in respect of Technitrol Common Stock (including but not limited to matters
relating to the Election Deadline, time limits, defects or irregularities in
the surrender of any stock certificate, effectiveness of any Elections and
computations of allocations) will be resolved by Technitrol and its decision
will be conclusive and binding on all concerned. Technitrol may delegate this
function to the Exchange Agent in whole or in part. Technitrol or the Exchange
Agent shall have the absolute right in its sole discretion to reject any and
all Forms of Election and surrenders of stock certificates which are deemed by
either of them to be not in proper form or to waive any immaterial
irregularities in any Form of Election or in the surrender of any stock
certificate. Surrenders of stock certificates will not be deemed to have been
made until all defects or irregularities that have not been waived have been
cured.
(4) Issuance of Payment Check(s) and New Certificate in Same Name. If the
certificate representing Technitrol Shares and/or the Payment Check(s) are to
be issued in the name of the registered holder(s) as inscribed on the
surrendered certificate(s), the surrendered certificate(s) need not be
endorsed and no guarantee of the signature on the Form of Election is
required. For corrections in name and change in name not involving changes in
ownership, see Instruction G(5)(c).
(5) Issuance of Payment Check(s) and New Certificate in Different Name. If
the certificate representing Technitrol Shares and/or the Payment Check(s) are
to be issued in the name of someone other than the registered holder(s) of the
surrendered certificate(s), you must follow the guidelines below. Note that in
each circumstance listed below, stockholder(s) must have signature(s)
guaranteed in Box C and complete Box F.
(a) Endorsement and Guarantee. The certificate(s) surrendered must be
properly endorsed (or accompanied by appropriate stock powers properly
executed) by the registered holder(s) of such certificate(s) to the person
who is to receive the Technitrol Shares and/or the Payment Check(s). The
signature(s) of the registered holder(s) on the endorsement or stock powers
must correspond with the name(s) written upon the face of the
certificate(s) in every particular and must be medallion guaranteed by an
eligible guarantor institution as defined below.
DEFINITION OF ELIGIBLE SIGNATURE GUARANTOR INSTITUTION
An eligible guarantor institution for purposes of signature guarantee
in Box C means a member/participant in a medallion program approved by
the Securities Transfer Association, Inc.
(b) Transferee's Signature. The Form of Election must be signed by the
transferee or assignee or his or her agent, and should not be signed by the
transferor or assignor. See Box B entitled "Sign Here." The signature of
such transferee or assignee must be medallion guaranteed by an eligible
guarantor institution as provided in Instruction G(5)(a).
(c) Correction of or Change in Name. For a correction of name or for a
change in name which does not involve a change in ownership, proceed as
follows: For a change in name by marriage, etc., the Form of
9
<PAGE>
Election should be signed, e.g., "Mary Doe, now by marriage Mary Jones."
For a correction in name, the Form of Election should be signed, e.g.,
"James E. Brown, incorrectly inscribed as J.E. Brown." The signature in
each case should be guaranteed in the manner described in Instruction
G(5)(a) above and Box F should be completed.
You should consult your own tax advisor as to any possible tax
consequences resulting from the issuance of the Technitrol Shares
certificate and/or Payment Check(s) in a name different from that of the
registered holder(s) of the surrendered certificate(s).
(6) Supporting Evidence. In case any Form of Election, certificate
endorsement or stock power is executed by an agent, attorney, administrator,
executor, guardian, trustee or any person in any other fiduciary or
representative capacity, or by an officer of a corporation on behalf of the
corporation, there must be submitted (with the Form of Election, surrendered
certificate(s), and/or stock powers) documentary evidence of appointment and
authority to act in such capacity (including court orders and corporate
resolutions when necessary), as well as evidence of the authority of the
person making such execution to assign, sell or transfer the certificate(s).
Such documentary evidence of authority must be in form satisfactory to the
Exchange Agent.
(7) Special Instructions for Delivery by the Exchange Agent. The certificate
representing Technitrol Shares and/or the Payment Check(s) will be mailed to
the address of the registered holder(s) as indicated under Box A entitled
"Certificate Information," unless instructions to the contrary are given in
Box G entitled "Special Mailing Instructions."
(8) Lost Certificates. If you are not able to locate your certificates
representing Pulse Common Stock, you should contact First Interstate Bank of
California, Pulse's transfer agent, at Corporate Trust Department, 707
Wilshire Boulevard, W11-2, Los Angeles, California 90017 or at (213) 614-2362.
In such event, First Interstate Bank will forward additional documentation
which the shareholder must complete in order to effectively surrender such
lost or destroyed certificate(s). There may be a fee to replace lost
certificates.
(9) Federal Income Tax Withholding. Under Federal income tax law, the
Exchange Agent is required to file a report with the Internal Revenue Service
disclosing any payments of cash being made to each holder of certificates
formerly representing shares of Pulse Common Stock pursuant to the Merger
Agreement. In order to avoid "backup withholding" of Federal income tax on any
cash received upon the surrender of certificate(s), a holder thereof must,
unless an exemption applies, provide the Exchange Agent with his or her
correct taxpayer identification number ("TIN") on Substitute Form W-9, which
is part of this Form of Election (Box D), and certify, under penalties of
perjury, that such number is correct and that such holder is not otherwise
subject to backup withholding. If the correct TIN and certifications are not
provided, a $50 penalty may be imposed by the Internal Revenue Service and
payments made for surrender of certificate(s) may be subject to backup
withholding of 31 percent. In addition, if a holder makes a false statement
that results in no imposition of backup withholding, and there was no
reasonable basis for making such a statement, a $500 penalty may also be
imposed by the Internal Revenue Service.
Backup withholding is not an additional Federal income tax. Rather, the
Federal income tax liability of a person subject to backup withholding will be
reduced by the amount of such tax withheld. If backup withholding results in
an overpayment of income taxes, a refund may be obtained from the Internal
Revenue Service.
The TIN that must be provided on the Substitute Form W-9 is that of the
registered holder(s) of the certificate(s) at the Effective Time. The TIN for
an individual is his or her social security number. The box in Part II of the
Substitute Form W-9 may be checked if the person surrendering the certificates
has not been issued a TIN and has applied for a TIN or intends to apply for a
TIN in the near future. If the box in Part II has been checked, the person
surrendering the certificate(s) must also complete the Certificate of Awaiting
Taxpayer Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part II is checked (and the Certificate of
Awaiting Taxpayer Identification Number is completed), the Exchange Agent will
withhold 31 percent on all cash payments with respect to surrendered
certificate(s) made prior to the time it is provided with a properly certified
TIN.
10
<PAGE>
Exempt persons (including, among others, corporations) are not subject to
backup withholding. A foreign individual may qualify as an exempt person by
submitting Form W-8 or a substitute Form W-8, signed under penalties of
perjury, certifying to such person's exempt status. A form of such statement
can be obtained from the Exchange Agent. A certificate holder should consult
his or her tax advisor as to such holder's qualification for an exemption from
backup withholding and the procedure for obtaining such exemption.
The signature and date provided on the Substitute Form W-9 will serve to
certify that the TIN and withholding information provided in this Form of
Election are true, correct, and complete. Please consult your tax advisor for
further guidance in completing the Substitute Form W-9.
(10) Questions and Requests for Information or Assistance. If you have any
questions or need assistance to complete this Form of Election, or would like
to obtain additional copies of this Form of Election or the Proxy Statement-
Prospectus, please contact the Exchange Agent at its Investor Services Number,
(800) 368-5948. You may also obtain additional copies of the Form of Election
or the Proxy Statement--Prospectus from the Exchange Agent at 10 Commerce
Drive, Cranford, New Jersey 07016.
H. DELIVERY OF TECHNITROL SHARES AND PAYMENT CHECKS
As soon as practicable after the Merger becomes effective, the Exchange
Agent will make the allocations of cash and Technitrol Shares to be received
by holders of Pulse Common Stock or their designees in accordance with the
Election and Allocation Procedures. The Exchange Agent will thereafter issue
and mail to you a check for any cash and/or any certificate or certificates
for the Technitrol Shares to which you are entitled (and, if applicable, a
check in lieu of a fractional share), provided you have delivered the required
certificates for your Pulse Common Stock in accordance with the terms and
conditions hereof, including the documents incorporated herein by reference.
If you do not submit an effective Form of Election, the Exchange Agent will
forward to you, as soon as practicable after the Merger becomes effective, a
Letter of Transmittal for you to use to send in your stock certificates for
shares of Pulse Common Stock, containing appropriate instructions for
surrendering such certificates at that time. After the Exchange Agent receives
your stock certificates with a properly completed Letter of Transmittal, it
will issue and mail to you a check for any cash and/or any certificate or
certificates for Technitrol Shares to which you are entitled (and, if
applicable, a check in lieu of a fractional share), provided you have
delivered the required certificates for your Pulse Common Stock in accordance
with the terms and conditions of the Letter of Transmittal, including the
documents incorporated therein by reference.
DO NOT ENCLOSE YOUR PROXY CARD RELATING TO THE SPECIAL MEETING WITH THIS
FORM OF ELECTION. YOUR PROXY CARD SHOULD BE RETURNED TO FIRST INTERSTATE BANK
OF CALIFORNIA, THE PULSE TRANSFER AGENT, IN THE PRE-ADDRESSED POSTAGE-PAID
ENVELOPE ENCLOSED WITH THE PROXY STATEMENT-PROSPECTUS FOR THAT PURPOSE.
11
