<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-6462
------------------------
TERADYNE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MASSACHUSETTS 04-2272148
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
321 HARRISON AVENUE, BOSTON, MASSACHUSETTS 02118
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 482-2700
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, PAR VALUE $0.125 NEW YORK STOCK EXCHANGE
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or in any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 21, 1997 was $2.5 billion based upon the composite
closing price of the registrant's Common Stock on the New York Stock Exchange on
that date.
The number of shares outstanding of the registrant's only class of Common
Stock as of February 21, 1997 was 83,469,412 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement in connection with its 1997
annual meeting of shareholders are incorporated by reference into Part III.
================================================================================
<PAGE> 2
TERADYNE, INC.
FORM 10-K
PART I
ITEM 1: BUSINESS
Teradyne, Inc. is a manufacturer of electronic test systems and backplane
connection systems used in the electronics and telecommunications industries.
For financial information concerning these two industry segments, see "Note M:
Industry Segment and Geographic Information" in Notes to Consolidated Financial
Statements. Unless the context indicates otherwise, the term "Company" as used
herein includes Teradyne, Inc. and all its subsidiaries.
Statements in this Annual Report on Form 10-K which are not historical
facts, so called "forward looking statements," are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that all forward looking statements involve risks and
uncertainties, including those detailed in the Company s filings with the
Securities and Exchange Commission. See also "Item 7: Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Certain Factors
That May Affect Future Results."
ELECTRONIC TEST SYSTEMS
The Company designs, manufactures, markets, and services electronic test
systems and related software used by component manufacturers in the design and
testing of their products and by electronic equipment manufacturers for the
design and testing of circuit boards and other assemblies. Manufacturers use
such systems and software to increase product performance, to improve product
quality, to shorten time to market, to enhance manufacturability, to conserve
labor costs, and to increase production yields. The Company's electronic systems
are also used by telephone operating companies for the testing and maintenance
of their subscriber telephone lines and related equipment.
Electronic test systems produced by the Company include: (i) test systems
for a wide variety of semiconductors, including digital, analog, and mixed
signal integrated circuits ("semiconductor test systems"), (ii) test systems for
circuit boards and other assemblies ("circuit-board test systems"), (iii) test
systems for telephone lines and networks ("telecommunications test systems"),
and (iv) software test programs for communications networks, computerized
telecommunications systems and other software products ("software test"). The
Company's test systems are all controlled by computers, and programming and
operating software is supplied both as an integral part of the product and as a
separately priced enhancement. Semiconductor test systems accounted for 64% of
consolidated net sales in 1996, 69% in 1995, and 62% in 1994. Circuit-board test
systems accounted for 13% of consolidated net sales in 1996, 11% in 1995, and
15% in 1994. Telecommunications test systems accounted for 7% of consolidated
net sales in 1996 and 1995, and 6% in 1994. Software test accounted for 1% of
consolidated net sales in 1996.
The Company's systems are extremely complex and require extensive support
both by the customer and by the Company. Prices for the Company's systems range
from less than $100,000 to $5 million or more.
BACKPLANE CONNECTION SYSTEMS
The Company also manufactures backplane connection systems, principally for
the computer, telecommunications, and military/aerospace industries. A backplane
is a panel that supports the circuit boards in an electronic assembly and
carries the wiring that connects the boards to each other and to other elements
of a system. The Company produces both printed circuit and metal backplanes,
along with mating circuit-board connectors. Backplanes are custom configured to
meet specific customer requirements and includes the manufacture of fully
integrated electronic assemblies that incorporate backplane, card cage, cabling,
and related design and production services. Backplane connection systems
accounted for 15% of consolidated net sales in 1996, 13% in 1995, and 17% in
1994.
1
<PAGE> 3
MARKETING AND SALES
MARKETS
The Company sells its products across most sectors of the electronics
industry and to companies in other industries that use electronic devices in
high volume. No single customer accounted for 10% or more of consolidated net
sales in 1996. In 1996, the Company's three largest customers accounted for less
than 25% of consolidated net sales.
Direct sales to United States government agencies accounted for less than
2% of consolidated net sales in 1996, 1995, and 1994. Sales are also made within
each of the Company's segments to customers who are government contractors.
Approximately 15% of backplane connection system sales and less than 10% of
electronic test systems sales fell into this category during 1996.
The Company's customers outside the United States are located primarily in
Europe, the Asia Pacific region, and Japan. The Company sells in these areas
both directly and through non U.S. sales subsidiaries. Substantially all of the
Company's manufacturing activities are conducted in the United States.
Sales to customers outside the United States accounted for 54% of
consolidated net sales in 1996, 52% in 1995, and 46% in 1994. Sales to such
customers from locations outside the United States accounted for less than 10%
of consolidated net sales in all periods presented. Identifiable assets of the
Company's non U.S. locations, consisting principally of operating assets used in
support of domestic export sales, approximated $130.3 million at December 31,
1996, $125.2 million at December 31, 1995, and $94.5 million at December 31,
1994. Of these identifiable assets at December 31, 1996, $82.3 million were in
Europe, $40.6 million were in Japan, and $7.4 million were in the Asia Pacific
region.
The Company is subject to the inherent risks involved in international
trade, such as political and economic instability, restrictive trade policies,
controls on funds transfer, currency fluctuations, difficulties in managing
distributors, potentially adverse tax consequences, and the possibility of
difficulty in accounts receivable collection. The Company attempts to reduce the
effects of currency fluctuations by hedging part of its exposed position and by
conducting some of its international transactions in U.S. dollars or dollar
equivalents.
DISTRIBUTION
The Company sells its products primarily through a direct sales force. The
Company has sales and service offices throughout North America, Europe, the Asia
Pacific region, and Japan.
COMPETITION
The Company faces substantial competition throughout the world, primarily
from electronic test systems manufacturers located in the United States, Europe,
and Japan, as well as several of the Company's customers. Some of these
competitors have substantially greater financial and other resources with which
to pursue engineering, manufacturing, marketing, and distribution of their
products. New product introductions by the Company's competitors could cause a
decline in sales or loss of market acceptance of existing products.
BACKLOG
On December 31, 1996, the Company's backlog of unfilled orders for
electronic test systems and backplane connection systems was approximately
$433.9 million and $82.5 million, respectively, compared with $607.1 million and
$52.2 million, respectively, on December 31, 1995. Of the backlog at December
31, 1996, approximately 82% of the electronic test systems backlog, and
approximately 91% of the backplane connection systems backlog are expected to be
delivered in 1997. The electronic test systems backlog at December 31, 1996
includes $36.1 million of United States government orders for M900 VXI Digital
Test subsystems for the U.S. Navy's Consolidated Automated Support System (CASS)
which are unfunded. The unfunded orders are for shipments scheduled to be
delivered in 1997 and beyond. The Company's past
2
<PAGE> 4
experience indicates that a portion of orders included in the backlog may be
canceled. There are no seasonal factors related to the backlog.
RAW MATERIALS
The Company's products require a wide variety of electronic and mechanical
components. In the past, the Company has experienced occasional delays in
obtaining timely delivery of certain items. Additionally, the Company could
experience a temporary adverse impact if any of its sole source suppliers ceased
to deliver products. Any prolonged inability of the Company to obtain adequate
yields or deliveries, or any other circumstances that would require the Company
to seek alternative sources of supply could have a material adverse effect on
the Company's business, financial condition, and results of operations.
PATENTS AND LICENSES
The development of products by the Company, both hardware and software, is
largely based on proprietary information. The Company protects its rights in
proprietary information through various methods such as copyrights, trademarks,
patents and patent applications, software license agreements, and employee
agreements. The Company relies on certain intellectual property protections to
preserve its intellectual property rights. Any invalidation of the Company's
intellectual property rights could have a material adverse effect on the
Company's business.
EMPLOYEES
As of December 31, 1996, the Company employed approximately 5,000 people.
Since the inception of the Company's business, there have been no work stoppages
or other labor disturbances. The Company has no collective bargaining contracts.
ENGINEERING AND DEVELOPMENT ACTIVITIES
The highly technical nature of the Company's products requires a large and
continuing engineering and development effort. Engineering and development
expenditures for new and improved products were approximately $143.9 million in
1996, $123.5 million in 1995, and $86.6 million in 1994. These expenditures
amounted to approximately 12% of consolidated net sales in 1996, 10% in 1995,
and 11% in 1994.
ENVIRONMENTAL AFFAIRS
The Company's manufacturing facilities are subject to numerous laws and
regulations designed to protect the environment, particularly from manufacturing
plant wastes and emissions. These include laws such as the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, the Superfund
Amendment and Reauthorization Act of 1986, the Occupational Safety and Health
Act, the Clean Air Act, the Clean Water Act, the Resource Conservation and
Recovery Act of 1976, and the Hazardous and Solid Waste Amendments of 1984. In
the opinion of management, the costs associated with complying with these laws
and regulations has not had and is currently not expected to have a material
adverse effect upon the financial position of the Company.
3
<PAGE> 5
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names of all executive officers of the
Company and certain other information relating to their positions held with the
Company and other business experience. Executive officers of the Company do not
have a specific term of office but rather serve at the discretion of the Board
of Directors.
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE FOR THE
EXECUTIVE OFFICER AGE POSITION PAST 5 YEARS
----------------- --- -------- ----------------------------
<S> <C> <C> <C>
Alexander V. 69 Chairman of the Board and Chairman of the Board of the Company
d'Arbeloff............. Chief Executive Officer since 1977; Chief Executive Officer
beginning in 1996; President of the
Company from 1971 to 1996; Director
of the Company since 1960.
James A. Prestridge...... 65 Vice Chairman of the Board Vice Chairman of the Board beginning
and Executive Vice in 1996; Executive Vice President of
President the Company since 1992; Vice
President of the Company from 1971
to 1992.
Owen W. Robbins.......... 67 Vice Chairman of the Board Vice Chairman of the Board beginning
and Executive Vice in 1996; Executive Vice President of
president the Company since 1992; Vice
President of the Company from 1977
to 1992.
George W. Chamillard..... 58 President, Chief Operating President, Chief Operating Officer,
Officer, and Member of the and Director of the Company
Board beginning in 1996; Executive Vice
President of the Company from 1994
to 1996; Vice President of the
Company from 1981 to 1993.
Michael A. Bradley....... 48 Vice President Vice President of the Company since
1992; TQM Manager of the Company
from 1990 to 1992.
Ronald J. Dias........... 53 Vice President Vice President of the Company since
1988.
Donald J. Hamman......... 45 Controller Controller of the Company since
1994; Director of Corporate
Accounting from 1986 to 1994.
Jeffrey R. Hotchkiss..... 49 Vice President Vice President of the Company since
1990.
John P. McCabe........... 52 Vice President Vice President of the Company since
1994; Controller of the Company from
1975 to 1994.
Stuart M. Osattin........ 51 Vice President and Vice President of the Company since
Treasurer 1994; Treasurer of the Company since
1980.
Edward Rogas, Jr......... 56 Vice President Vice President of the Company since
1984.
David L. Sulman.......... 53 Vice President Vice President of the Company since
1994; Division General Manager since
1993; Division Engineering Manager
from 1982 to 1992.
</TABLE>
4
<PAGE> 6
ITEM 2: PROPERTIES
The Company's executive offices are in Boston, Massachusetts. Manufacturing
and other operations are carried on in several locations. The following table
provides certain information as to the Company's principal general offices and
manufacturing facilities.
<TABLE>
<CAPTION>
APPROXIMATE
PROPERTY SQUARE FEET OF
LOCATION INTEREST FLOOR SPACE
- -------- -------- --------------
<S> <C> <C>
ELECTRONIC TEST SYSTEMS INDUSTRY SEGMENT:
Boston, Massachusetts................................................. Own 492,000
Boston, Massachusetts................................................. Lease 45,000
Agoura Hills, California.............................................. Own 360,000
Deerfield, Illinois................................................... Own 63,000
Walnut Creek, California.............................................. Lease 60,000
Kumamoto, Japan....................................................... Own 28,000
San Jose, California.................................................. Own 120,000
BACKPLANE CONNECTION SYSTEMS INDUSTRY SEGMENT:
Nashua, New Hampshire................................................. Own 399,000
Plano, Texas.......................................................... Lease 18,300
Dublin, Ireland....................................................... Lease 46,000
</TABLE>
ITEM 3: LEGAL PROCEEDINGS
The Company is not a party to any litigation that, in the opinion of
management, could reasonably be expected to have a material adverse impact on
the Company's financial position.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
5
<PAGE> 7
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The following table shows the market range for the Company's Common Stock
based on reported sales prices on the New York Stock Exchange.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
--------------------------------------------------------------------- ---- ---
<S> <C> <C>
1996 First Quarter.................................................. $27 7/8 $16 3/8
Second Quarter................................................. 22 1/2 16
Third Quarter.................................................. 18 1/2 11 1/8
Fourth Quarter................................................. 26 1/4 15 1/2
1995 First Quarter.................................................. 21 1/2 16
Second Quarter................................................. 33 20
Third Quarter.................................................. 42 7/8 32 1/4
Fourth Quarter................................................. 36 5/8 20 1/8
</TABLE>
The number of record holders of the Company's Common Stock at February 21,
1997 was 3,757.
The Company has never paid cash dividends because it has been its policy to
use earnings to finance expansion and growth. Payment of future cash dividends
will rest within the discretion of the Board of Directors and will depend, among
other things, upon the Company's earnings, capital requirements, and financial
condition. The Company presently expects to retain all of its earnings for use
in the business.
ITEM 6: SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales................................ $1,171,615 $1,191,022 $777,731 $633,139 $595,072
========== ========== ======== ======== ========
Income from continuing operations........ $ 93,574 $ 159,284 $ 76,390 $ 41,202 $ 26,412
========== ========== ======== ======== ========
Income from continuing operations per
common share........................... $ 1.10 $ 1.89 $ 0.95 $ 0.54 $ 0.37
========== ========== ======== ======== ========
Total assets............................. $1,096,816 $1,023,831 $759,480 $621,607 $502,212
========== ========== ======== ======== ========
Long-term obligations.................... $ 15,650 $ 18,679 $ 9,111 $ 9,942 $ 25,828
========== ========== ======== ======== ========
</TABLE>
6
<PAGE> 8
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SELECTED RELATIONSHIPS WITHIN THE CONSOLIDATED
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales............................................... $1,171,615 $1,191,022 $777,731
========== ========== ========
Net income.............................................. $ 93,574 $ 159,284 $ 76,390
========== ========== ========
Increase (decrease) in net sales from preceding year:
Amount................................................ $ (19,407) $ 413,291 $144,592
========== ========== ========
Percentage............................................ (2)% 53% 23%
========== ========== ========
Increase (decrease) in net income from preceding year... $ (65,710) $ 82,894 $ 28,317
========== ========== ========
Percentage of net sales:
Net sales............................................. 100% 100% 100%
Expenses:
Cost of sales...................................... 62 54 56
Engineering and development........................ 12 10 11
Selling and administrative......................... 15 15 19
---------- ---------- --------
89 79 86
Other income (expense):
Merger expenses.................................... (1)
Net interest income................................ 1 1 1
---------- ---------- --------
Income before income taxes......................... 12 21 15
Provision for income taxes......................... 4 8 5
---------- ---------- --------
Net income.............................................. 8% 13% 10%
========== ========== ========
</TABLE>
RESULTS OF OPERATIONS:
1996 compared to 1995
In 1996, sales declined 2% to $1,171.6 million from the record level of
$1,191.0 million reached after 53% sales growth in 1995. The decrease was
primarily in the semiconductor test systems product line, which fell 8% as a
result of a reduction in orders from semiconductor device manufacturers. Sales
of telecommunications test systems also declined by 4% with the completion of
the line-test equipment installation at Deutsche Telekom in Germany. Sales
increased in the other two major product lines of the Company: circuit-board
test systems grew by 19% driven by fulfilling government contracts and increased
sales to commercial customers and backplane connection systems grew by 15% with
strong demand from the high technology commercial customer base. Net income
decreased from $159.3 million in 1995 to $93.6 million in 1996. Excluding the
effect of pre-tax nonrecurring charges of $48.9 million ($32.0 million after
taxes) in 1996 and $5.6 million ($5.6 million after taxes) in 1995, comparative
net income decreased by $39.3 million from $164.9 million to $125.6 million.
Incoming orders decreased 27%, from $1,432.1 million in 1995 to $1,045.1
million in 1996. The most significant decline was in semiconductor test systems
orders which fell 37%. Circuit-board test systems orders, excluding the effect
of $98.0 million in multi-year government contracts received in 1995, were down
8% while backplane connection systems and telecommunications systems increased
49% and 21%, respectively. As a result of the overall decrease in orders, the
Company's backlog fell in 1996, finishing the year at $516.4 million (as
adjusted for $16.4 million in cancellations).
7
<PAGE> 9
Cost of sales, as a percentage of sales, increased from 54% in 1995 to 62%
in 1996. The 1996 cost of sales included $34.1 million in one time charges
resulting from the Company's decision to accelerate the consolidation of the
VLSI product lines of Megatest and Teradyne. Excluding the product line
consolidation charge, cost of sales, as a percentage of 1996 sales, was 59%. The
remaining increase in cost of sales percentage was the result of the
relationship of fixed manufacturing costs and the costs associated with new
product introductions to the lower level of sales. In addition, there was an
unfavorable change in mix as a greater percentage of total Company sales were
backplane connection systems and circuit-board test systems whose product
margins are generally lower than semiconductor test systems.
Engineering and development expenses, as a percentage of sales, increased
2% from 10% in 1995 to 12% in 1996. These expenses grew $20.4 million in 1996
primarily as a result of increased investment in new product development of
semiconductor test systems. During 1996, the Company announced major new
products in each of the three semiconductor markets in which it participates.
Selling and administrative expenses were 15% of sales in 1996 and 1995. In
1996, the Company provided $10.8 million for salary continuation payments and
enhanced pension and medical benefits associated with an early retirement
program and other workforce reductions. Excluding this provision selling and
administrative expenses were 14% of sales in 1996.
Interest income increased 36% in 1996 to $19.3 million due to an increase
in the Company's average invested balances and higher interest rates. Interest
expense decreased from $3.0 million in 1995 to $2.4 million in 1996 as an
outstanding capital equipment note was paid.
The Company's effective tax rate was 33% in 1996 compared with 36% in 1995.
The Company utilized domestic export sales corporation benefits and certain
research and development tax credits in 1996 to operate below the U. S.
statutory rate of 35%. In 1995, the effective rate was above the U. S. statutory
rate as certain merger expenses were nondeductible for income tax purposes.
1995 compared to 1994
Sales advanced 53% in 1995 to $1,191.0 million. Each of the major product
lines of the Company -- semiconductor test systems, circuit-board test systems,
telecommunications test systems, and backplane connection systems contributed to
the increase in sales. Sales of semiconductor test systems grew 70% as
semiconductor manufacturers continued to add capacity in response to rising
demand for their products. This capacity expansion was evidenced by a number of
new semiconductor manufacturing plants coming on line. Telecommunications test
systems sales increased 84% primarily from the growing installation of line-test
equipment at Deutsche Telekom in Germany. Sales of backplane connection systems
increased 18% as a result of greater penetration into the Company's high
technology commercial customer base. Circuit-board test systems sales increased
13%. As a result of the increase in sales, net income more than doubled in 1995,
increasing $82.9 million to $159.3 million.
Incoming orders grew faster than sales in 1995, increasing 59% to $1,432.1
million. The increase in orders, like the increase in sales, was primarily due
to increases in semiconductor test systems orders, which increased 73%.
Additionally, circuit-board test systems orders increased by 110% due in large
part to multi-year U.S. government contracts, totaling $98.0 million, to supply
electronic test equipment for the B-2 Stealth Bomber and for the Navy's CASS
program. Orders for backplane connection systems and telecommunications test
systems declined 11% and 5%, respectively. As a result of the overall increase
in orders, the Company's backlog grew 58% in 1995, finishing the year at $659.3
million.
Cost of sales, as a percentage of sales, decreased from 56% in 1994 to 54%
in 1995. The improvement was primarily the result of increased utilization of
the fixed and semi-variable components of the Company's overhead structure. In
addition, there was a favorable change in mix as sales of backplane connection
systems and circuit-board test systems, whose product margins are generally
lower than those of semiconductor test systems, were lower as a percentage of
total Company sales.
Engineering and development expenses, as a percentage of sales, declined 1%
from 11% in 1994 to 10% in 1995, as these expenses did not increase at the same
rate as sales. The dollar amount of these expenses grew
8
<PAGE> 10
$36.9 million in 1995 as a result of increased investment in new product
development of semiconductor test systems. Selling and administrative expenses
decreased to 15% of sales in 1995 compared with 19% of sales in 1994, as the
dollar volume of these expenses grew by 19% while sales increased 53%.
Interest income increased 82% in 1995 to $14.2 million due to an increase
in the Company's average invested balances and higher interest rates. Interest
expense increased from $1.8 million in 1994 to $3.0 million in 1995 as a result
of increased borrowing at Megatest prior to the merger.
The Company's effective tax rate was 36% in 1995 compared with 33% in 1994.
The Company utilized certain tax credit and operating loss carryforward amounts
in 1994 to operate below the United States statutory rate of 35%. In 1995, the
effective rate increased as the tax credit and operating loss carryforwards were
no longer available and certain merger expenses were nondeductible for income
tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities balance grew
$155.7 million in 1996, to $431.5 million following an increase of $54.6 million
in 1995. Cash flow generated from operations was $250.8 million in 1996 and
$115.5 million in 1995. Cash of $13.5 million in 1996 and $24.9 million in 1995
was generated from the sale of stock to employees under the Company's stock
option and stock purchase plans.
Cash was used to fund additions to property, plant and equipment of $75.2
million in 1996 and $93.2 million in 1995. In 1996, the Company's Board of
Directors authorized the repurchase of 5.0 million shares of the Company's stock
on the open market. Cash of $29.8 million was utilized in 1996 to purchase 1.4
million shares under the buyback program.
The Company believes its cash, cash equivalents, and marketable securities
balance of $431.5 million, together with other sources of funds, including cash
flow generated from operations and the available borrowing capacity of $120.0
million under its line of credit agreement, will be sufficient to meet working
capital and capital expenditure requirements in 1997.
Inflation has not had a significant long-term impact on earnings. If there
were inflation, the Company's efforts to cover cost increases with price
increases could be frustrated in the short-term by its relatively high backlog.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-K and the Company's Annual Report to
Shareholders) may contain statements which are not historical facts, so-called
"forward looking statements," which involve risks and uncertainties. In
particular, statements in "Item 1: Business" relating to the Company's delivery
time of unfilled orders, and in "Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations" relating to the sufficiency of
capital to meet working capital and planned capital expenditure, and stock
repurchase requirements may be forward looking statements. The Company's actual
future results may differ significantly from those stated in any forward looking
statements. Factors that may cause such differences include, but are not limited
to, the factors discussed below. Each of these factors, and others, are
discussed from time to time in the Company's filings with the Securities and
Exchange Commission.
The Company's future results are subject to substantial risks and
uncertainties. The Company's business and results of operations depend in
significant part upon capital expenditures of manufacturers of semiconductors,
which in turn depend upon the current and anticipated market demand for
semiconductors and products incorporating semiconductors. The semiconductor
industry has been highly cyclical with recurring periods of over supply, which
often have had a severe effect on the semiconductor industry's demand for test
equipment, including systems manufactured and marketed by the Company. The
Company believes that the markets for newer generations of semiconductors will
also be subject to similar fluctuations. The most recent downturn contributed to
a 37% decline in semiconductor test system orders. There can be no assurance
that any future increase in semiconductor test systems bookings for a calendar
quarter will be sustained in subsequent
9
<PAGE> 11
quarters. In addition, any factor adversely affecting the semiconductor industry
or particular segments within the semiconductor industry may adversely affect
the Company's business, financial condition and operating results.
Also, the Company relies on certain intellectual property protections to
preserve its intellectual property rights. From time to time the Company is
notified that it may be in violation of patents held by others. Any invalidation
of the Company's intellectual property rights, or assertions of patent
infringement against the Company which are ultimately successful, could have a
material adverse effect on the Company. Lengthy and expensive defense of the
Company's rights to technology used in its products could adversely affect the
Company's operating results.
The development of new technologies, commercialization of those
technologies into products, and market acceptance and customer demand for those
products is critical to the Company's success. Successful product development
and introduction depends upon a number of factors, including new product
selection, development of competitive products by competitors, timely and
efficient completion of product design, timely and efficient implementation of
manufacturing and assembly processes and product performance at customer
locations.
The Company faces substantial competition throughout the world, primarily
from electronic test systems manufacturers located in the United States, Europe
and Japan, as well as several of the Company's customers. Some of these
competitors have substantially greater financial and other resources which to
pursue engineering, manufacturing, marketing and distribution of their products.
Certain of the Company's competitors have introduced or announced new products
with certain performance characteristics which may be considered equal or
superior to those currently offered by the Company. The Company expects its
competitors to continue to improve the performance of their current products and
to introduce new products or new technologies that provide improved cost of
ownership and performance characteristics. New product introductions by
competitors could cause a decline in sales or loss of market acceptance of the
Company's existing products. Moreover, increased competitive pressure could lead
to intensified price based competition, which could materially adversely affect
the Company's business, financial condition and results of operations. The
Company derives a significant portion of its total revenues from customers
outside the United States. International sales are subject to significant risks,
including unexpected changes in legal and regulatory requirements and policy
changes affecting the Company's markets, changes in tariffs, exchange rates and
other barriers, political and economic instability, difficulties in accounts
receivable collection, difficulties in managing distributors and
representatives, difficulties in staffing and managing international operations,
difficulties in protecting the Company's intellectual property and potentially
adverse tax consequences.
The Company's quarterly and annual operating results are affected by a wide
variety of factors that could materially adversely affect revenues and
profitability, including: competitive pressures on selling prices; the timing
and cancellation of customer orders; the timing and provision of pricing
protections and returns from certain distributors; changes in product mix; the
Company's ability to introduce new products and technologies on a timely basis;
introduction of products and technologies by the Company's competitors; market
acceptance of the Company's and its competitors' products; potential retrofit
costs; the level of orders received which can be shipped in a quarter; and the
timing of investments in engineering and development. As a result of the
foregoing and other factors, the Company may experience material fluctuations in
future operating results on a quarterly or annual basis which could materially
and adversely affect its business, financial condition, operating results and
stock price.
10
<PAGE> 12
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Shareholders of
TERADYNE, INC.:
We have audited the consolidated balance sheets of Teradyne, Inc. as of
December 31, 1996 and 1995, and the related consolidated statements of income,
cash flows, and changes in shareholders' equity for each of the three years in
the period ended December 31, 1996. 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 did not audit the
consolidated financial statements of Megatest for the year ended August 31,
1994, which statements reflect consolidated net sales constituting 13% of the
related consolidated net sales for the year ended December 31, 1994. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Megatest, is
based solely on the report of the other auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Teradyne, Inc. as of December
31, 1996 and 1995, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 17, 1997
11
<PAGE> 13
TERADYNE, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 201,452 $ 182,165
Marketable securities............................................. 48,266 93,662
Accounts receivable, less allowance for doubtful accounts of
$1,936 in 1996 and $2,269 in 1995.............................. 178,430 254,820
Inventories:
Parts.......................................................... 91,792 120,011
Assemblies in process.......................................... 47,162 56,840
---------- ----------
138,954 176,851
Deferred tax assets............................................... 32,340 19,546
Prepayments and other current assets.............................. 17,666 13,101
---------- ----------
Total current assets...................................... 617,108 740,145
Property, plant, and equipment:
Land.............................................................. 22,823 22,755
Buildings and improvements........................................ 133,809 128,235
Machinery and equipment........................................... 393,790 351,950
Construction in progress.......................................... 13,163 10,046
---------- ----------
Total..................................................... 563,585 512,986
Less: Accumulated depreciation.................................... (290,088) (255,968)
---------- ----------
Net property, plant, and equipment........................ 273,497 257,018
Marketable securities............................................... 181,776
Other assets........................................................ 24,435 26,668
---------- ----------
Total assets.............................................. $1,096,816 $1,023,831
========== ==========
LIABILITIES
Current liabilities:
Notes payable -- banks............................................ $ 7,316 $ 8,141
Current portion of long-term debt................................. 1,778 2,082
Accounts payable.................................................. 34,482 42,229
Accrued employees' compensation and withholdings.................. 58,696 66,000
Unearned service revenue and customer advances.................... 62,771 53,587
Other accrued liabilities......................................... 53,537 41,395
Income taxes payable.............................................. 6,677 16,157
---------- ----------
Total current liabilities................................. 225,257 229,591
Deferred tax liabilities............................................ 13,898 15,711
Long-term debt...................................................... 15,650 18,679
Commitments (Note F)
---------- ----------
Total liabilities......................................... 254,805 263,981
---------- ----------
SHAREHOLDERS' EQUITY
Common stock $0.125 par value, authorized 250,000 shares (125,000 in
1995), issued and outstanding after deduction of reacquired
shares, 82,480 in 1996 and 82,634 in 1995......................... 10,310 10,329
Additional paid-in capital.......................................... 355,576 366,970
Retained earnings................................................... 476,125 382,551
---------- ----------
Total shareholders' equity................................ 842,011 759,850
---------- ----------
Total liabilities and shareholders' equity................ $1,096,816 $1,023,831
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
12
<PAGE> 14
TERADYNE, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net sales............................................... $1,171,615 $1,191,022 $777,731
Expenses:
Cost of sales......................................... 724,624 646,382 435,129
Engineering and development........................... 143,931 123,487 86,570
Selling and administrative............................ 180,265 176,797 148,004
---------- ---------- --------
1,048,820 946,666 669,703
---------- ---------- --------
Income from operations.................................. 122,795 244,356 108,028
Other income (expense):
Merger expenses....................................... (5,600)
Interest income....................................... 19,295 14,209 7,827
Interest expense...................................... (2,427) (3,040) (1,830)
---------- ---------- --------
Income before income taxes.............................. 139,663 249,925 114,025
Provision for income taxes.............................. 46,089 90,641 37,635
---------- ---------- --------
Net income.............................................. $ 93,574 $ 159,284 $ 76,390
========== ========== ========
Net income per common share............................. $ 1.10 $ 1.89 $ 0.95
========== ========== ========
Shares used in calculations of net income per common
share................................................. 85,060 84,253 80,729
========== ========== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
13
<PAGE> 15
TERADYNE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 93,574 $159,284 $ 76,390
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.......................................... 49,577 41,807 37,701
Amortization.......................................... 1,326 1,339 741
Product line consolidation............................ 34,100
Workforce reduction provision......................... 10,810
Deferred income tax provision (credit)................ (14,607) 3,920 3,875
Other non-cash items, net............................. (260) 4,881 1,752
Changes in operating assets and liabilities:
Accounts receivable................................. 74,990 (114,708) (32,178)
Inventories......................................... 20,584 (57,111) (18,277)
Other assets........................................ (4,117) (18,567) (12,764)
Accounts payable and accruals....................... (10,638) 60,361 34,887
Income taxes payable................................ (4,515) 34,334 14,902
-------- -------- --------
Net cash provided by operating activities........ 250,824 115,540 107,029
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant, and equipment.............. (59,494) (79,197) (32,568)
Increase in equipment manufactured by the Company........ (15,735) (14,004) (8,127)
Purchases of held-to-maturity marketable securities...... (250,594) (190,961) (55,400)
Maturities of held-to-maturity marketable securities..... 248,733 126,619 25,848
Purchases of available-for-sale marketable securities.... (142,600)
Maturities of available-for-sale marketable securities... 8,081
-------- -------- --------
Net cash used in investing activities............ (211,609) (157,543) (70,247)
-------- -------- --------
Cash flows from financing activities:
Net payments under short-term borrowing agreements....... (4,100)
Payments of long-term debt............................... (3,550) (1,015) (1,665)
Additions to long-term debt.............................. 12,500 145
Issuance of common stock under stock option and stock
purchase plans........................................ 13,455 24,914 17,119
Sale of common stock..................................... 13,575
Acquisition of treasury stock............................ (29,833) (24,597)
-------- -------- --------
Net cash provided (used) by financing
activities..................................... (19,928) 32,299 4,577
-------- -------- --------
Increase (decrease) in cash and cash equivalents........... 19,287 (9,704) 41,359
Adjustment to conform fiscal year of Megatest.............. (10,346)
Cash and cash equivalents at beginning of year............. 182,165 202,215 160,856
-------- -------- --------
Cash and cash equivalents at end of year................... $201,452 $182,165 $202,215
======== ======== ========
Supplementary disclosure of cash flow information:
Cash paid during the year for:
Interest.............................................. $ 2,426 $ 3,092 $ 1,722
Income taxes.......................................... 68,089 52,339 16,563
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
14
<PAGE> 16
TERADYNE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
SHARES COMMON ADDITIONAL
--------------------- STOCK PAID-IN RETAINED
ISSUED REACQUIRED PAR VALUE CAPITAL EARNINGS
------ ---------- --------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993............. 39,244 768 $ 4,810 $315,657 $160,189
Issuance of stock to employees under
benefit plans..................... 1,584 17 196 16,923
Tax benefit from stock options....... 8,275
Repurchase of stock.................. 878 (110) (24,487)
Secondary offering of Megatest
Corporation, net offering costs... 447 56 13,519
Net income........................... 76,390
Pension adjustment................... 1,468
------ ----- ------- -------- --------
Balance, December 31, 1994............. 41,275 1,663 4,952 329,887 238,047
Adjustment to conform fiscal year of
Megatest Corporation.............. 3 9 (14,780)
Issuance of stock to employees under
benefit plans..................... 1,614 202 22,940
Tax benefit from stock options....... 17,549
Two-for-one stock split effected in
the form of a 100% stock
dividend.......................... 42,892 1,664 5,154 (5,154)
Issuance of stock to employees under
benefit plans after the
two-for-one stock split........... 177 21 1,751
Payment for fractional shares
resulting from merger............. (12)
Net income........................... 159,284
------ ----- ------- -------- --------
Balance, December 31, 1995............. 85,961 3,327 10,329 366,970 382,551
Issuance of stock to employees under
benefit plans..................... 1,281 160 13,295
Tax benefit from stock options....... 4,965
Repurchase of stock.................. 1,435 (179) (29,654)
Net income........................... 93,574
------ ----- ------- -------- --------
Balance, December 31, 1996............. 87,242 4,762 $10,310 $355,576 $476,125
====== ===== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
15
<PAGE> 17
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. THE COMPANY
Teradyne, Inc. (the "Company") designs, manufactures, markets, and services
electronic test systems and related software used by component manufacturers in
the design and testing of their products and by electronic equipment
manufacturers for the design and testing of circuit boards and other assemblies.
Manufacturers use such systems and software to increase product performance, to
improve product quality, to shorten time to market, to enhance
manufacturability, to conserve labor costs, and to increase production yields.
The Company's electronic systems are also used by telephone operating companies
for the testing and maintenance of their subscriber telephone lines and related
equipment.
The Company also manufactures backplane connection systems, principally for
the computer, telecommunications, and military/aerospace industries. A backplane
is a panel that supports the circuit boards in an electronic assembly and
carries the wiring that connects the boards to each other and to other elements
of a system.
B. ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions are
eliminated. Certain prior years' amounts were reclassified to conform to the
current year presentation. On December 1, 1995, the Company completed its
acquisition of Megatest Corporation ("Megatest"), by means of a merger accounted
for as a pooling of interests. As a result of the merger, Megatest became a
wholly owned subsidiary of the Company. The consolidated financial statements of
the Company for periods prior to the merger were restated to include the
financial position and results of operations of the combined companies.
Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or
market (net realizable value).
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Leasehold improvements
and major renewals are capitalized and included in property, plant, and
equipment accounts while expenditures for maintenance and repairs and minor
renewals are charged to expense. When assets are retired, the assets and related
allowances for depreciation and amortization are removed from the accounts and
any resulting gain or loss is reflected in operations.
The Company provides for depreciation of its assets principally on the
straight-line method with the cost of the assets being charged to expense over
their useful lives as follows: buildings and improvements - 5 to 40 years; and
machinery and equipment - 2 to 10 years.
16
<PAGE> 18
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Revenue is recorded when products are shipped or, in instances where
products are configured to customer requirements, upon the successful completion
of test procedures. Service revenue is recognized ratably over applicable
contract periods or as services are performed. In certain situations, revenue is
recorded using the percentage of completion method based upon the completion of
measurable milestones, with changes to total estimated costs and anticipated
losses, if any, recognized in the period in which determined.
Engineering and Development Costs
The Company's products are highly technical in nature and require a large
and continuing engineering and development effort. All engineering and
development costs are expensed as incurred.
Income Taxes
Deferred tax assets and liabilities are determined based on 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. The measurement of deferred tax assets is
reduced by a valuation allowance if, based upon weighted available evidence, it
is more likely than not that some or all of the deferred tax assets will not be
realized.
The Company's practice is to provide U.S. Federal taxes on undistributed
earnings of the Company's non U.S. sales and service subsidiaries.
Translation of Non U.S. Currencies
Assets and liabilities of non U.S. subsidiaries, which are denominated in
currencies other than the U.S. dollar, are remeasured into U.S. dollars at rates
of exchange in effect at the end of the fiscal year except nonmonetary assets
and liabilities which are remeasured using historical exchange rates. Revenue
and expense amounts are remeasured using an average of exchange rates in effect
during the year, except those amounts related to nonmonetary assets and
liabilities, which are remeasured at historical exchange rates. Net realized and
unrealized gains and losses resulting from currency remeasurement are included
in operations.
Net Income per Common Share
Net income per common share is based upon the weighted average number of
common and common equivalent shares outstanding (when dilutive) each year.
Common equivalent shares result from the assumed exercise of outstanding stock
options, the proceeds of which are then assumed to have been used to repurchase
outstanding common stock using the treasury stock method. Primary and fully
diluted earnings per share are equal for all periods presented.
C. MERGER -- POOLING OF INTERESTS
On December 1, 1995, the Company acquired through a merger all of the
authorized and outstanding common stock of Megatest in exchange for
approximately 6.8 million shares of the Company's common stock using an exchange
ratio of 0.9091 of one share of the Company's common stock for each Megatest
share. In addition, all outstanding Megatest stock options were converted, at
the common stock exchange ratio, into options to purchase the Company's common
stock. Megatest manufactures electronic test systems for the integrated circuit
industry. Prior to the merger, Megatest prepared its financial statements on an
August 31 fiscal year end. Megatest's fiscal year has been changed to December
31 to conform to the Company's year end. The restated financial statements for
1994 include Megatest's amounts as of and for the year ended August 31, 1994. As
a result, Megatest's corresponding results of operations and cash flows as of
and for the four month period ended December 31, 1994 are not reflected in the
Company's consolidated statements of
17
<PAGE> 19
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
income and cash flows. Megatest's loss for this period of $14.8 million has been
charged to retained earnings effective January 1, 1995. Megatest's results of
operations for the four months ended December 31, 1994 are summarized as follows
(in thousands):
<TABLE>
<S> <C>
Revenue................................................... $ 14,111
Net Loss.................................................. $(14,780)
</TABLE>
Separate results of the Company and Megatest that have been combined in the
Company's consolidated results for the years ended December 31, 1995 and 1994
are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Net sales:
Teradyne..................................................... $1,059,409 $677,440
Megatest..................................................... 131,613 100,291
---------- --------
$1,191,022 $777,731
========== ========
Net income:
Teradyne..................................................... $ 157,204 $ 70,941
Megatest..................................................... 2,297 10,799
Adjustments.................................................. (217) (5,350)
---------- --------
$ 159,284 $ 76,390
========== ========
</TABLE>
The combined financial results reflect the restatement of Megatest's
provision for income taxes in accordance with Statement of Financial Accounting
Standards No. 109 Accounting for Income Taxes. Due to the merger, Megatest's
previously unrecognized tax benefits of deductible temporary differences and
operating loss carryforwards were recognized by the combined company in the
restated periods. The restatement of the provision for income taxes decreased
net income in 1994 by $5.1 million. The combined financial results also include
adjustments, which were immaterial to the combined financial statements, to
conform accounting policies of the two companies. Adjustments made to conform
the accounting policies of the two companies decreased net income by $0.2
million in 1995 and 1994. All other adjustments consist of reclassifications to
conform financial statement presentation. There were no intercompany
transactions between the two companies for the periods presented. In connection
with the merger, the Company recorded a $5.6 million nonrecurring charge for
transaction costs consisting primarily of professional fees.
D. FINANCIAL INSTRUMENTS
Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less at date of acquisition to be cash
equivalents.
Marketable Securities
The Company classifies investments in marketable securities as trading,
available-for-sale or held-to-maturity at the time of purchase and periodically
re-evaluates such classification. There were no securities classified as trading
as of December 31, 1996 or 1995. Securities are classified as held-to-maturity
when the Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at cost with corresponding
premiums or discounts amortized over the life of the investment to interest
income. Securities not classified as held-to-maturity are classified as
available-for-sale and reported at fair market value. Unrealized gains or losses
on available-for-sale securities, if material, are included, net of tax, in
shareholders equity until disposition. Realized gains and losses and declines in
value judged to be other-than-
18
<PAGE> 20
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
temporary on available-for-sale securities are included in interest income. The
cost of securities sold is based on the specific identification method.
The fair market value of cash equivalents and short-term and long-term
investments in marketable securities is substantially equal to the carrying
value and represents the quoted market prices at the balance sheet dates. The
short-term investments mature in less than one year. Long-term investments have
maturities of one to five years. At December 31, 1996 and 1995 these investments
are reported as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------
AVAILABLE- HELD-TO- AVAILABLE- HELD-TO-
FOR-SALE MATURITY FOR-SALE MATURITY
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Short-term marketable securities:
U.S. Treasury and government agency securities...... $ 8,575 $34,476 $93,662
Corporate debt securities........................... 5,215
-------- ------- --------- -------
$ 13,790 $34,476 $93,662
======== ======= ========= =======
Long-term marketable securities:
U.S. Treasury and government agency securities...... $ 74,675 $61,047
Corporate debt securities........................... 46,054
-------- ------- --------- -------
$120,729 $61,047
======== ======= ========= =======
</TABLE>
Other
For all other balance sheet financial instruments the carrying amount
approximates fair value.
Off-Balance Sheet Risk
The Company regularly enters into forward contracts in European and
Japanese currencies to hedge its overseas net monetary position and firm
commitments. These contracts are used to reduce the Company's risk associated
with exchange rate movements, as gains and losses on these contracts are
intended to offset exchange losses and gains on underlying exposures. The
Company does not engage in currency speculation. Forward currency contracts have
maturities of less than one year, unless they relate to long term sales
contracts denominated in a non U.S. currency; these maturities are from one to
three years.
At December 31, 1996, the Company had the following forward currency
contracts to buy U.S. dollars for non U.S. currencies with notional amounts
totaling $48.8 million: $15.8 million Japanese yen, $14.0 million German
deutschemark, $8.7 million British pound sterling, and $10.3 million various
other European currencies. In addition, the Company had forward currency
contracts to sell U.S. dollars for German deutschemarks with notional amounts of
$11.2 million. At December 31, 1995 the face amount of outstanding forward
currency contracts to buy and sell U.S. dollars for non U.S. currencies was
$66.3 million and $22.9 million, respectively.
The fair value of these contracts as of December 31, 1996 and 1995,
determined by applying year end currency exchange rates to the notional contract
amounts, represented a net unrealized gain (loss) of $0.1 million and $(4.4)
million, respectively. The Company's policy is to defer gains and losses on
these contracts until the corresponding losses and gains are recognized on the
items being hedged. At December 31, 1995, a net $1.0 million loss was included
in other current assets. The entire net loss was recognized during 1996 to
offset currency transaction gains on hedged items.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash investments, forward
currency contracts, and accounts receivable. The Company maintains
19
<PAGE> 21
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cash investments primarily in U.S. Treasury and government agency securities and
corporate debt securities, rated A1 or higher, which have minimal credit risk.
The Company places forward currency contracts with high credit-quality financial
institutions, in order to minimize credit risk exposure. Concentrations of
credit risk with respect to accounts receivable are limited due to the large
number of diverse and geographically dispersed customers.
E. DEBT
Long-term debt at December 31, 1996 and 1995 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Mortgage notes payable........................................... $10,294 $10,452
Capital equipment notes payable.................................. 3,701 6,534
Other long-term debt............................................. 3,433 3,775
------- -------
Total.................................................. 17,428 20,761
Less current maturities.......................................... 1,778 2,082
------- -------
$15,650 $18,679
======= =======
</TABLE>
The total maturities of long-term debt for the succeeding five years and
thereafter are: 1997 -- $1.8 million; 1998 -- $2.4 million; 1999 -- $1.5
million; 2000 -- $0.5 million; 2001 -- $0.5 million and $10.7 million
thereafter.
Revolving Credit Agreement
On January 31, 1996, the Company increased its available revolving credit
line to $120.0 million from $80.0 million. The revolving credit agreement is in
effect through January 31, 1999. At expiration of the revolver, any amounts
outstanding are converted into a two year term note. As of December 31, 1996, no
amounts were outstanding under this agreement. The terms of this line of credit
include restrictive covenants regarding working capital, tangible net worth, and
leverage. Interest rates on borrowings are either at the stated prime rate,
based upon Eurocurrency, or certificate of deposit interest rates. Pursuant to
the terms of the credit agreement, the Company may incur additional borrowings
indebtedness of up to $30.0 million are permitted outside the agreement provided
that the liabilities of the Company, exclusive of deferred income taxes and
subordinated debt, shall not exceed 100% of the Company's tangible net worth.
Mortgage Notes Payable
The Company received a loan of $4.5 million from the Boston Redevelopment
Authority in the form of a 3% mortgage loan maturing March 31, 2013. This loan
is collateralized by a mortgage on the Company's property at 321 Harrison Avenue
which may, at the Company's option, become subordinated to another mortgage up
to a maximum of $5.0 million. Interest for the first 4 1/2 years of the note was
capitalized up to a principal amount of $5.0 million. Since September 30, 1987,
the Company has been making semi-annual interest payments.
In conjunction with the purchase of operating facilities in San Jose, the
Company received a $5.5 million mortgage loan which matures on August 31, 2000.
The loan is collateralized by a mortgage on the San Jose operating facilities.
The loan bears interest at 8.1% per annum and is payable in 59 consecutive
monthly installments of $0.05 million with a $4.6 million balloon payment due at
maturity. The terms of this mortgage note payable require compliance with
certain restrictive financial covenants and principal prepayment clauses.
20
<PAGE> 22
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Equipment Notes Payable
Prior to its merger with the Company, Megatest entered into two capital
equipment notes payable. The first note with an original amount of $5.0 million
is payable in 48 consecutive monthly installments of principal and interest at
9.5% per annum. The second note with an original amount of $1.9 million was paid
in full in 1996. The terms of the outstanding equipment note payable require
compliance with certain restrictive financial covenants and principal prepayment
clauses.
Other Long-term Debt
At December 31, 1996, other long-term debt includes a Japanese
yen-denominated note with an interest rate of 2.5% (4.8% at December 31, 1995),
secured by land in Kumamoto, Japan. Interest only payments were made through
March 31, 1995. Monthly principal and interest payments began April 28, 1995 and
continue until March 30, 2007.
Short-term Borrowings
The weighted average interest rate on short-term borrowings outstanding as
of December 31, 1996 and 1995 was 2.0% and 4.2%, respectively.
F. COMMITMENTS
Rental expense for the years ended December 31, 1996, 1995, and 1994 was
$14.6 million, $13.1 million, and $11.1 million, respectively. Minimum annual
rentals under all noncancellable leases are: 1997 -- $7.1 million; 1998 -- $5.0
million; 1999 -- $3.5 million; 2000 -- $1.8 million; 2001 -- $1.2 million; and
$10.8 million thereafter, totaling $29.4 million.
G. RETIREMENT BENEFITS
The Company has defined benefit pension plans covering substantially all
domestic employees and employees of certain non U.S. subsidiaries. Benefits
under these plans are based on the employees' years of service and compensation.
The Company's funding policy is to make contributions to the plans in accordance
with local laws and to the extent that such contributions are tax deductible.
The assets of the plans consist primarily of equity and fixed income securities.
The components of net periodic pension cost were (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Service cost.......................................... $ 4,398 $ 3,211 $ 3,627
Interest cost......................................... 4,894 4,012 3,708
Actual return on plan assets.......................... (6,676) (9,514) 1,537
Net amortization and deferral......................... 3,002 5,853 (4,371)
------- ------- -------
$ 5,618 $ 3,562 $ 4,501
======= ======= =======
</TABLE>
21
<PAGE> 23
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the plans' funded status at December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
-------------------------- --------------------------
U.S. PLAN NON U.S. PLANS U.S. PLAN NON U.S. PLANS
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Actuarial present value of projected benefit
obligation:
Vested benefits........................... $ (50,676) $ (6,627) $ (45,273) $ (5,981)
Non-vested benefits....................... (2,933) (952) (2,634) (695)
-------- -------- -------- -------
Accumulated benefit obligation............ (53,609) (7,579) (47,907) (6,676)
Effect of projected future compensation
levels................................. (10,997) (2,606) (9,306) (2,742)
-------- -------- -------- -------
Total projected benefit obligation........ (64,606) (10,185) (57,213) (9,418)
Plan assets at fair market value............ 55,926 5,850 48,773 5,081
-------- -------- -------- -------
Projected benefit obligation in excess of
plan assets............................... (8,680) (4,335) (8,440) (4,337)
Unrecognized prior service cost............. 2,697 3,076
Unrecognized net loss (gain)................ 8,673 (622) 13,587 (821)
Unrecognized net (asset) liability at
transition................................ 973 (242) 1,308
Minimum pension liability adjustment........ (99) (214)
-------- -------- -------- -------
Net pension asset (liability)............... $ 2,690 $ (4,083) $ 7,981 $ (4,064)
======== ======== ======== =======
Actuarial assumptions:
Discount rate............................. 7.25% 4.50%-7.75% 7.25% 4.50%-8.00%
Average increase in compensation levels... 5.00% 3.50%-5.25% 5.00% 3.60%-5.50%
Expected long-term return on assets....... 9.00% 4.50%-9.25% 9.00% 4.50%-9.50%
</TABLE>
In addition to the above plans, the Company has an unfunded supplemental
defined benefit pension plan in the United States to provide retirement benefits
in excess of levels allowed by the Employee Retirement Income Security Act
(ERISA). The actuarial present value of accumulated plan benefits totaled $2.7
million and $1.9 million at December 31, 1996 and 1995, respectively. Net
pension expense was $0.7 million, $0.5 million, and $0.4 million in 1996, 1995,
and 1994, respectively.
In 1996, the Company announced a voluntary early retirement incentive
program to certain employees. The special termination benefits include enhanced
pension benefits to the employees and medical and dental benefits to the
employees and their spouses. Pension benefits of $2.6 million to be paid from
the Company's existing pension plans were accrued at December 31, 1996 relating
to this program. In addition, the Company accrued $2.5 million for
postretirement medical and dental benefits.
H. STOCK REPURCHASE PROGRAM
During August 1996, the Company's Board of Directors authorized the
purchase in the open market of up to 5.0 million shares of its common stock to
offset shares issued under the Company's stock based compensation plans. During
1996, the Company repurchased 1.4 million shares at a cost of $29.8 million.
I. STOCK BASED COMPENSATION
At December 31, 1996, the Company had both stock option plans and Stock
Purchase Plans. The Company applies APB Opinion 25 and related interpretations
in accounting for its plans. Under APB Opinion 25, no compensation cost has been
recognized. Statement of Financial Accounting Standards (SFAS) No. 123 requires
companies to disclose pro forma net income and earnings per share amounts under
the new fair value method. The effects of applying SFAS No. 123 in this pro
forma disclosure are not indicative of future amounts. SFAS No. 123 does not
apply to awards made prior to 1995. Additional awards
22
<PAGE> 24
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in future years are anticipated. Had compensation cost for the Company's stock
based compensation plans been determined based on the fair value at the grant
dates for awards under those plans consistent with SFAS No. 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Net income
As reported................................................. $93,574 $159,284
Pro forma................................................... 86,421 154,433
Earnings per share
As reported................................................. $ 1.10 $ 1.89
Pro forma................................................... 1.02 1.83
</TABLE>
Stock Option Plans
Under its stock option plans, all of which are fixed, the Company granted
options to certain directors, officers and employees entitling them to purchase
common stock at 100% of market value at the date of grant. Stock options granted
generally have a maximum term of five years and vest over four years.
Stock option plan activity for the years 1996, 1995, and 1994 follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----- ------ ------
<S> <C> <C> <C>
Outstanding at January 1.................................. 7,230 7,637 7,516
Options granted......................................... 2,401 2,717 2,244
Options exercised....................................... (795) (2,790) (1,888)
Options canceled........................................ (333) (334) (235)
----- ------ ------
Outstanding at December 31................................ 8,503 7,230 7,637
----- ------ ------
Exercisable at December 31................................ 3,995 2,606 3,171
----- ------ ------
Available for grant at December 31........................ 5,042 4,912 6,388
----- ------ ------
</TABLE>
Weighted average option exercise price information for the years 1996 and
1995 follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Outstanding at January 1........................................... $13.63 $ 8.92
Options granted.................................................. $12.13 $19.80
Options exercised................................................ $ 8.11 $ 6.92
Options canceled................................................. $18.61 $11.10
Outstanding at December 31......................................... $13.53 $13.63
Exercisable at December 31......................................... $12.46 $11.00
</TABLE>
23
<PAGE> 25
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant option groups outstanding at December 31, 1996 and related
weighted average price and life information follows (options in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------
WEIGHTED- OPTIONS EXERCISABLE
AVERAGE -------------------------
REMAINING WEIGHTED- WEIGHTED-
RANGE OF CONTRACTUAL AVERAGE AVERAGE
EXERCISE PRICES LIFE (YEARS) SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ---------------- ------------ ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
$ 1.10 - $11.23 1.25 2,308 $ 8.73 1,812 $ 8.71
$11.83 - $19.63 2.90 1,927 $13.27 1,032 $13.20
$20.69 - $32.80 3.43 2,128 $20.90 760 $20.80
$11.63 4.56 2,140 $11.63 391 $11.63
----- -----
Total 3.00 8,503 $13.53 3,995 $12.46
===== =====
</TABLE>
The weighted average fair value at date of grant for options granted during
1996 and 1995 was $4.79 and $8.69 per option, respectively. The fair value of
options at date of grant was estimated using the Black-Scholes model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Expected life (years).................................................. 3.9 4.2
Interest rate.......................................................... 6.7% 7.3%
Volatility............................................................. 41.8% 39.9%
Dividend yield......................................................... 0.0% 0.0%
</TABLE>
Employee Stock Purchase Plans
Under the Company's 1979 Stock Purchase Plan, employees were entitled to
purchase shares of common stock through payroll deductions of up to 10% of their
compensation. The price paid for the common stock was equal to 85% of the lower
of the fair market value of the Company's common stock on either the first or
last business day of the year. In January 1997, the Company issued 506,820
shares of common stock to employees who participated in the Plan during 1996 at
a price of $20.82 per share. No future shares will be issued under this plan.
During 1996, the Company adopted the 1996 Employee Stock Purchase Plan and
authorized 700,000 shares for future issuance. Under this plan, eligible
employees may purchase shares of common stock through payroll deductions of up
to 10% of their compensation. The price paid for the common stock is equal to
85% of the lower of the fair market value of the Company's common stock on the
first business day in January (July for new hires) or the last business day of
December. In January 1997, the Company issued 15,557 shares of common stock to
employees who participated in the plan during 1996 at a price of $15.09 per
share. Currently, there are 684,443 shares reserved for issuance.
The weighted-average fair value of purchase rights granted in 1996 and 1995
was $5.22 and $3.07, respectively. The fair value of the employees' purchase
rights was estimated using the Black-Scholes model with the following
assumptions for 1996 and 1995, respectively; dividend yield of 0.0% for both
years; an expected life of 1 year for both years; expected volatility of 44.7%
and 38.8%; and risk-free interest rates of 5.2% and 7.1%.
J. SAVINGS PLANS
The Company sponsors a Savings Plan covering substantially all U.S.
employees. Under this plan, employees may contribute up to 12% of their
compensation (subject to Internal Revenue Service limitations). The Company
annually matches employee contributions up to 6% of such compensation at rates
ranging from
24
<PAGE> 26
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
50% to 100%. The Company's contributions vest after two years, although
contributions for those employees with five years of service vest immediately.
The trustees of the Savings Plan were granted an option to purchase 0.9
million shares of the Company's common stock, exercisable at $9.50 per share
(the fair market value of the Company's common stock at the date of the grant)
in five cumulative annual installments beginning in 1990. In 1994, the trustees
exercised the remaining shares. Under the terms of the Plan, any gains realized
from the sale of option shares were first allocated to participants' accounts to
fund up to one-half of the minimum Company contribution. Any excess was applied
to additional funding.
In 1994, the Company established a Supplemental Savings Plan to provide
savings benefits in excess of those allowed by ERISA. The provisions of which
are the same as the Savings Plan.
Under these plans, the amounts charged to operations were $6.3 million in
1996, $8.3 million in 1995, and $2.0 million in 1994.
K. STOCKHOLDER RIGHTS PLAN
The Company's Board of Directors adopted a Stockholder Rights Plan on March
14, 1990, under which a dividend of one Common Stock Purchase Right was
distributed for each outstanding share of Common Stock. The Plan entitles Stock
Purchase Right holders to purchase shares of the Company's common stock for $20
per share in certain events, such as a tender offer to acquire 30% or more of
the Company's outstanding shares. Under some circumstances, such as a
determination by continuing Directors, that an acquiring party's interests are
adverse to those of the Company, the Plan entitles such holders (other than an
acquiring party or adverse party) to purchase $40 worth of Common Stock (or
other securities or consideration owned by the Company) for $20. The Rights will
expire March 26, 2000 unless earlier redeemed by the Company.
L. INCOME TAXES
The components of income before income taxes and the provision for income
taxes as shown in the consolidated statements of income are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income before income taxes:
United States........................................ $106,708 $212,551 $ 96,406
Non U.S.............................................. 32,955 37,374 17,619
-------- -------- --------
$139,663 $249,925 $114,025
======== ======== ========
Provision (credit) for income taxes:
Current:
U.S. Federal...................................... $ 40,033 $ 66,228 $ 26,395
Non U.S........................................... 14,802 12,604 2,924
State............................................. 5,861 7,889 4,441
-------- -------- --------
60,696 86,721 33,760
-------- -------- --------
Deferred:
U.S. Federal...................................... (13,667) (241) 3,834
Non U.S........................................... (632) 3,654 492
State............................................. (308) 507 (451)
-------- -------- --------
(14,607) 3,920 3,875
-------- -------- --------
$ 46,089 $ 90,641 $ 37,635
======== ======== ========
</TABLE>
25
<PAGE> 27
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax assets (liabilities)
as of December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Inventory valuations......................................... $ 19,148 $ 4,863
Accruals..................................................... 2,680 1,470
Vacation..................................................... 4,200 4,324
In process research and development.......................... 2,726 3,374
Deferred revenue............................................. 1,488 5,748
U.S. federal operating loss carryforwards.................... 341 1,050
Tax credits.................................................. 8,457 4,097
Other........................................................ 2,732 1,260
-------- --------
Total deferred tax assets...................................... 41,772 26,186
-------- --------
Deferred tax liabilities:
Excess of tax over book depreciation......................... (14,919) (14,871)
Amortization................................................. (2,531) (2,853)
Pension...................................................... (1,349) (1,332)
Other........................................................ (4,531) (3,295)
-------- --------
Total deferred tax liabilities................................. (23,330) (22,351)
-------- --------
Net deferred asset............................................. $ 18,442 $ 3,835
======== ========
</TABLE>
A reconciliation of the effective tax rate for the years 1996, 1995, and
1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. statutory federal tax rate............................ 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit............. 2.6 2.0 2.7
Utilization of operating loss carryforwards................ 0.3
Tax credits................................................ (1.0) (0.6) (2.6)
Domestic export sales corporation.......................... (2.9) (2.3) (2.6)
Non-deductible merger costs................................ 0.8
Change in valuation allowance.............................. (0.8) (1.7)
Other, net................................................. (0.7) 1.9 2.2
---- ---- ----
33.0% 36.3% 33.0%
==== ==== ====
</TABLE>
At December 31, 1996 the Company had U.S. Federal operating loss
carryforwards of approximately $1.0 million. These operating loss carryforwards
expire in the years 2000 through 2002. The Company has approximately $4.1
million of U.S. business tax credit carryforwards. Approximately $2.6 million of
these credits expire in the years 1997 through 1999, and $1.5 million expire in
the years 2003 through 2007. All of these losses and credits are limited in
their use by "change in ownership" rules as defined in the Internal Revenue Code
of 1986.
M. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in two industry segments, which are the design,
manufacturing and marketing of electronic test systems and backplane connection
systems. Corporate assets consist of cash and cash equivalents, marketable
securities, and certain other assets.
26
<PAGE> 28
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
ELECTRONIC BACKPLANE
TEST CONNECTION
SYSTEMS SYSTEMS CORPORATE
INDUSTRY INDUSTRY AND
SEGMENT SEGMENT ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1996 Sales to unaffiliated customers............ $ 993,721 $177,894 $1,171,615
Intersegment sales........................ 9,065 $ (9,065)
---------- -------- -------- ----------
Net sales................................. 993,721 186,959 (9,065) 1,171,615
Operating income.......................... 112,036 29,561 (18,802) 122,795
Identifiable assets....................... 490,105 113,436 493,275 1,096,816
Property additions........................ 54,694 16,666 3,869 75,229
Depreciation and amortization expense..... 42,039 7,448 1,416 50,903
1995 Sales to unaffiliated customers............ $1,035,721 $155,301 $1,191,022
Intersegment sales........................ 12,325 $(12,325)
---------- -------- -------- ----------
Net sales................................. 1,035,721 167,626 (12,325) 1,191,022
Operating income.......................... 237,101 22,778 (15,523) 244,356
Identifiable assets....................... 640,597 91,205 292,029 1,023,831
Property additions........................ 77,552 12,038 3,611 93,201
Depreciation and amortization expense..... 37,274 4,670 1,202 43,146
1994 Sales to unaffiliated customers............ $ 645,929 $131,802 $ 777,731
Intersegment sales........................ 5,050 $ (5,050)
---------- -------- -------- ----------
Net sales................................. 645,929 136,852 (5,050) 777,731
Operating income.......................... 102,884 18,449 (13,305) 108,028
Identifiable assets....................... 440,117 82,820 236,543 759,480
Property additions........................ 30,835 9,005 855 40,695
Depreciation and amortization expense..... 31,847 5,754 841 38,442
</TABLE>
The Company's sales, including domestic export and non U.S. jurisdictional
sales (which amounted to less than 10% of total net sales in all periods
presented) to unaffiliated customers for the three years ended December 31 were
made in the following geographic areas:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States................................. $ 536,826 $ 566,337 $416,199
Asia Pacific region........................... 209,429 256,901 138,458
Europe........................................ 241,244 222,194 133,127
Japan......................................... 139,095 94,706 68,019
Other......................................... 45,021 50,884 21,928
---------- ---------- --------
$1,171,615 $1,191,022 $777,731
========== ========== ========
</TABLE>
See "Item 1: Business -- Marketing and Sales" elsewhere in this report for
information on the Company's export and non U.S. jurisdictional activities,
identifiable assets of non U.S. subsidiaries, and major customers.
27
<PAGE> 29
SUPPLEMENTARY INFORMATION
(UNAUDITED)
The following sets forth certain unaudited consolidated quarterly
statements of operations data for each of the Company's last eight quarters. In
management's opinion, this quarterly information reflects all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation for the periods presented. Such quarterly results are not
necessarily indicative of future results of operations and should be read in
conjunction with the audited consolidated financial statements of the Company
and the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
1996
------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales.................................... $348,967 $319,690 $261,671 $241,287
Expenses:
Cost of sales.............................. 186,637 214,718 163,747 159,522
Engineering and development................ 36,740 38,426 35,022 33,743
Selling and administrative................. 46,929 42,556 41,535 49,245
-------- -------- -------- --------
270,306 295,700 240,304 242,510
-------- -------- -------- --------
Income (loss) from operations................ 78,661 23,990 21,367 (1,223)
Other income (expense):
Interest income............................ 3,759 4,162 5,089 6,285
Interest expense........................... (642) (610) (513) (662)
-------- -------- -------- --------
Income before income taxes................... 81,778 27,542 25,943 4,400
Provision for income taxes................... 28,623 9,640 6,374 1,452
-------- -------- -------- --------
Net income................................... $ 53,155 $ 17,902 $ 19,569 $ 2,948
-------- -------- -------- --------
Net income per common share.................. $ 0.63 $ 0.21 $ 0.23 $ 0.03
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1995
------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales.................................... $232,158 $284,849 $322,658 $351,357
Expenses:
Cost of sales.............................. 131,625 152,683 172,316 189,758
Engineering and development................ 24,986 30,795 32,966 34,740
Selling and administrative................. 38,919 42,715 45,353 49,810
-------- -------- -------- --------
195,530 226,193 250,635 274,308
-------- -------- -------- --------
Income from operations....................... 36,628 58,656 72,023 77,049
Other income (expense):
Merger expenses............................ (5,600)
Interest income............................ 3,085 3,547 3,670 3,907
Interest expense........................... (533) (730) (715) (1,062)
-------- -------- -------- --------
Income before income taxes................... 39,180 61,473 74,978 74,294
Provision for income taxes................... 14,706 22,666 26,756 26,513
-------- -------- -------- --------
Net income................................... $ 24,474 $ 38,807 $ 48,222 $ 47,781
-------- -------- -------- --------
Net income per common share.................. $ 0.30 $ 0.46 $ 0.57 $ 0.56
======== ======== ======== ========
</TABLE>
28
<PAGE> 30
REPORT OF INDEPENDENT ACCOUNTANTS
In our opinion, the consolidated balance sheet and related consolidated
statements of operations, of stockholders' equity and of cash flows of Megatest
Corporation (not presented separately herein) present fairly, in all material
respects, the financial position of Megatest Corporation and its subsidiaries at
August 31, 1994, and the results of their operations and their cash flows for
the year ended August 31, 1994, in conformity with generally accepted accounting
principles. 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 audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
As discussed in Note 1 to the consolidated financial statements referred to
above (and not included herein), Megatest Corporation changed its method of
accounting for income taxes effective September 1, 1993.
PRICE WATERHOUSE LLP
San Jose, California
September 20, 1995
29
<PAGE> 31
ITEM 9: CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain information relating to directors and executive officers of the
Company, executive compensation, security ownership of certain beneficial owners
and management, and certain relationships and related transactions is
incorporated by reference herein from the Company's definitive proxy statement
in connection with its Annual Meeting of Shareholders to be held on May 15,
1997, which proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year. For this
purpose, the Management Compensation and Development Committee Report and
Performance Graph included in such proxy statement are specifically not
incorporated herein. (Also see "Item 1 -- Executive Officers of the Company"
elsewhere in this report.)
ITEM 11: EXECUTIVE COMPENSATION.
Certain information relating to directors and executive officers of the
Company, executive compensation, security ownership of certain beneficial owners
and management, and certain relationships and related transactions is
incorporated by reference herein from the Company's definitive proxy statement
in connection with its Annual Meeting of Shareholders to be held on May 15,
1997, which proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year. For this
purpose, the Management Compensation and Development Committee Report and
Performance Graph included in such proxy statement are specifically not
incorporated herein.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Certain information relating to directors and executive officers of the
Company, executive compensation, security ownership of certain beneficial owners
and management, and certain relationships and related transactions is
incorporated by reference herein from the Company's definitive proxy statement
in connection with its Annual Meeting of Shareholders to be held on May 15,
1997, which proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year. For this
purpose, the Management Compensation and Development Committee Report and
Performance Graph included in such proxy statement are specifically not
incorporated herein.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Certain information relating to directors and executive officers of the
Company, executive compensation, security ownership of certain beneficial owners
and management, and certain relationships and related transactions is
incorporated by reference herein from the Company's definitive proxy statement
in connection with its Annual Meeting of Shareholders to be held on May 15,
1997, which proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year. For this
purpose, the Management Compensation and Development Committee Report and
Performance Graph included in such proxy statement are specifically not
incorporated herein.
30
<PAGE> 32
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The following consolidated financial statements are included in Item 8:
Balance Sheets as of December 31, 1996 and 1995
Statements of Income for the years ended December 31, 1996, 1995, and
1994
Statements of Cash Flows for the years ended December 31, 1996, 1995,
and 1994
Statements of Changes in Shareholders' Equity for the years ended
December 31, 1996, 1995, and 1994
(a) 2. Financial Statement Schedules
Financial statement schedules have been omitted since either they are not
required or the information is otherwise included.
(a) 3. Listing of Exhibits
The Exhibits which are filed with this report or which are incorporated by
reference herein are set forth in the Exhibit Index.
(b) Report on Form 8-K
There have been no Form 8-K filings during the three months ended December
31, 1996.
31
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized this 26th day of March,
1997.
TERADYNE, INC.
By: OWEN W. ROBBINS
------------------------------------
Owen W. Robbins,
Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------- ---------------
<C> <C> <S>
ALEXANDER V. D'ARBELOFF Chairman of the Board March 26, 1997
- ------------------------------------------ and Chief Executive Officer
Alexander V. d'Arbeloff
JAMES A. PRESTRIDGE Vice Chairman of the Board and March 26, 1997
- ------------------------------------------ Executive Vice President
James A. Prestridge
OWEN W. ROBBINS Vice Chairman of the Board and March 26, 1997
- ------------------------------------------ Executive Vice President
Owen W. Robbins (Principal Financial Officer)
GEORGE W. CHAMILLARD President, Chief Operating March 26, 1997
- ------------------------------------------ Officer, and Member of the Board
George W. Chamillard
DONALD J. HAMMAN Controller March 26, 1997
- ------------------------------------------ (Principal Accounting Officer)
Donald J. Hamman
EDWIN L. ARTZT Director March 26, 1997
- ------------------------------------------
Edwin L. Artzt
JAMES W. BAGLEY Director March 26, 1997
- ------------------------------------------
James W. Bagley
ALBERT CARNESALE Director March 26, 1997
- ------------------------------------------
Albert Carnesale
DANIEL S. GREGORY Director March 26, 1997
- ------------------------------------------
Daniel S. Gregory
DWIGHT H. HIBBARD Director March 26, 1997
- ------------------------------------------
Dwight H. Hibbard
</TABLE>
32
<PAGE> 34
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
JOHN P. MULRONEY Director March 26, 1997
- ------------------------------------------
John P. Mulroney
RICHARD J. TESTA Director March 26, 1997
- ------------------------------------------
Richard J. Testa
PATRICIA S. WOLPERT Director March 26, 1997
- ------------------------------------------
Patricia S. Wolpert
</TABLE>
33
<PAGE> 35
EXHIBIT INDEX
The following designated exhibits are, as indicated below, either filed
herewith or have heretofore been filed with the Securities and Exchange
Commission and are referred to and incorporated by reference to such filings.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION SEC DOCUMENT REFERENCE
----------- ----------- ----------------------
<S> <C> <C>
2.0 Agreement and Plan of Merger and Exhibit 2.0 to the Company's
Reorganization, as amended, dated Registration Statement on Form S-4
September 5, 1995, by and among the (Registration Statement No.
Company, M Merger Corp., and Megatest 33-63781).
Corporation
3.1 Restated Articles of Organization of Exhibit 4.1 to the Company's Form S-3
the Company, as amended Registration Statement No. 33-44347,
effective December 12, 1991.
3.2 Amendment, dated May 23, 1996, to
Restated Articles of Organization of
the Company, as amended
3.3 Amended and Restated Bylaws of the
Company
4.1 Rights Agreement between the Company Exhibit 4.1 to the Company's Current
and The First National Bank of Boston Report on Form 8-K dated March 15,
dated as of March 14, 1990 1990.
10.1 Multicurrency Revolving Credit Exhibit to the Company's Quarterly
Agreement dated April 29, 1991 Report on Form 10-Q for the quarterly
period ended March 30, 1991.
10.2 First Amendment to Multicurrency Exhibit 3.10 (ii) to the Company's
Revolving Credit Agreement dated as Annual Report on Form 10-K for the
of March 5, 1993 fiscal year ended December 31, 1992.
10.3 Second Amendment to Multicurrency Exhibit 10.3 to the Company's Annual
Revolving Credit Agreement dated as Report on Form 10-K for the fiscal
of January 31, 1996 year ended December 31, 1995.
10.4 1987 Non-Employee Director Stock Exhibit 3.10 (iii) to the Company's
Option Plan Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.
10.5 Teradyne, Inc. Supplemental Executive Exhibit 3.10 (iv) to the Company's
Retirement Plan Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.
10.6 1991 Employee Stock Option Plan, as Exhibit 4.2 to the Company's
amended Registration Statement on Form S-8
(Registration Statement No.
33-07177).
10.7 1979 Stock Purchase Plan, as amended Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the fiscal
year ended December 31, 1994.
10.8 1990 Megatest Stock Option Plan Exhibit 4.1 to the Company's
Registration Statement on Form S-8
(Registration Statement No.
33-64683).
10.9 Megatest Corporation Director Stock Exhibit 4.2 to the Company's
Option Plan Registration Statement on Form S-8
(Registration Statement No.
33-64683).
10.10 1996 Stock Purchase Plan Exhibit 4.1 to the Company's
Registration Statement on Form S-8
(Registration Statement No.
33-07177).
10.11 Master Lease Agreement between Exhibit 10.10 to the Company's Annual
Megatest and General Electric Capital Report on Form 10-K for the fiscal
Corporation dated August 10, 1995 year ended December 31, 1995.
</TABLE>
34
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION SEC DOCUMENT REFERENCE
----------- ------------------------------------- -------------------------------------
<C> <S> <C>
10.12 Loan and Security Agreement between Exhibit 10.11 to the Company's Annual
Megatest and the CIT Group/Equipment Report on Form 10-K for the fiscal
Financing, Inc. dated August 14, 1995 year ended December 31, 1995.
10.13 Deed of Trust, Financing Statement, Exhibit 10.12 to the Company's Annual
Security Agreement and Fixture Filing Report on Form 10-K for the fiscal
between Megatest and the Sun Life year ended December 31, 1995.
Assurance Company of Canada (U.S.)
dated August 25, 1995
10.14 1997 Employee Stock Option Plan
10.15 Letter Agreement dated January 24,
1997 between the Company and
Executive Officer.
22.1 Subsidiaries of the Company
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Price Waterhouse L.L.P.
27.0 Financial Data Schedule
</TABLE>
35
<PAGE> 1
EXHIBIT 3.2
THE COMMONWEALTH OF MASSACHUSETTS
William Francis Galvin
Secretary of the Commonwealth
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
We George W. Chamillard President and
Donald G. Leka Assistant Clerk of
Teradyne, Inc.
-------------------------------------
(EXACT Name of Corporation)
located at 321 Harrison Avenue, Boston, Massachusetts 02118
--------------------------------------------------------------
(MASSACHUSETTS Address of Corporation)
do hereby certify that these ARTICLES OF AMENDMENT affecting Articles
NUMBERED:
---
Article 3
- ----------------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby)
of the Articles of Organization were duly adopted at a meeting held on May 23
1996 by vote of:
63,652,370 shares of Common Stock out of 71,452,818 shares outstanding,
- ---------- ------------ ----------
type, class & series (if any)
shares of out of shares outstanding,
- ---------- ------------ ----------
type, class & series (if any)
shares of out of shares outstanding,
- ---------- ------------ ----------
type, class & series (if any)
CROSS OUT being at least a majority of each type, class or series outstanding
INAPPLI- and entitled to vote thereon:(1)
CABLE
CLAUSE
(1) For amendments adopted pursuant to Chapter 156B, Section 70.
(2) For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any Amendment or item on this form is
insufficient, additions shall be set forth on a separate 8-1/2 X 11 sheets of
paper leaving a left-hand margin of at least 1 inch for binding. Additions to
more than one Amendment may be continued on a single sheet so long as each
Amendment requiring each such addition is clearly indicated.
<PAGE> 2
TO CHANGE the number of shares and the par value (if any) of any type, class
or series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
- ---------------------------------------
WITHOUT PAR VALUE STOCKS
- ---------------------------------------
TYPE NUMBER OF SHARES
- ---------------------------------------
COMMON:
- ---------------------------------------
PREFERRED:
- ---------------------------------------
- --------------------------------------------------------
WITH PAR VALUE STOCKS
- --------------------------------------------------------
TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------
COMMON: 125,000,000 $0.125
- --------------------------------------------------------
PREFERRED:
- --------------------------------------------------------
CHANGE the total authorized to:
- ---------------------------------------
WITHOUT PAR VALUE STOCKS
- ---------------------------------------
TYPE NUMBER OF SHARES
- ---------------------------------------
COMMON:
- ---------------------------------------
PREFERRED:
- ---------------------------------------
- --------------------------------------------------------
WITH PAR VALUE STOCKS
- --------------------------------------------------------
TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------
COMMON: 250,000,000 $0.125
- --------------------------------------------------------
PREFERRED:
- --------------------------------------------------------
<PAGE> 3
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, section 72
I hereby approve the within articles of amendment and, the filing fee in
the amount of $125,000.00 having been paid, said articles are deemed to have
been filed with me this 31st day of July 1996
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT
TO: Kevin M. Barry, Esq.
Testa, Hurwitz & Thibeault
125 High Street
Boston, MA 02110
<PAGE> 4
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of the General Laws
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
LATER EFFECTIVE DATE:
---------------------------------------------------------
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed
our names this 31st day of July in the year 1996
/s/ George W. Chamillard President
-----------------------------------
/s/ Donald G. Leka Assistant Clerk
---------------------------------------------
<PAGE> 1
EXHIBIT 3.3
[ANNOTATED]
****************
AMENDED AND RESTATED
BY-LAWS
OF
TERADYNE, INC.
(Amended and Restated as of January 28, 1997)
****************
ARTICLE I
---------
Name, Location, Seal and Fiscal Year
------------------------------------
1. Name. The name of the corporation is Teradyne, Inc.
-----
2. Location. The corporation may have an office and transact business in
---------
Boston, Massachusetts, and at such other place or places as the Board of
Directors or stockholders may appoint.
3. Seal. The seal of the corporation shall bear the name of the
-----
corporation, the word Massachusetts, the year of incorporation and such other
device or inscription as the Board of Directors may determine. The form of the
seal may be changed by the Board of Directors.
4. Fiscal Year. The fiscal year of the corporation shall, unless
------------
otherwise determined by the Board of Directors, begin on January 1 and end on
December 31.
ARTICLE II
----------
Stockholders
------------
1. Annual Meeting. The annual meeting of stockholders shall be held on
---------------
such date and at such time and place (within the United States) as may be fixed
by the Board of Directors from time to time. The purposes for which the annual
<PAGE> 2
-2-
meeting is to be held, in addition to those prescribed by law, the Articles of
Organization or these By-Laws, may be specified by the Directors, the Chief
Executive Officer or the President. If no annual meeting is held in accordance
with the foregoing provisions, a special meeting may be held in lieu thereof,
and any action taken at such meeting shall have the same effect as if taken at
the annual meeting.
Except as provided in Article III, Section 2, the only business which
may be conducted at any such meeting of the stockholders shall (a) have been
specified in the written notice of meeting (or any supplement thereto) given by
or at the direction of the Directors, the Chief Executive Officer or the
President, (b) have otherwise been properly brought before the meeting by or at
the direction of the Directors, the Chief Executive Officer or the President, or
(c) have otherwise been properly brought before the meeting by or on behalf of
any stockholder who shall have been a stockholder of record on the record date
for such meeting and who shall continue to be entitled to vote thereat. In
addition to any other applicable requirements, for business to be properly
brought before a meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Clerk of the corporation. To be timely,
a stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation, not less than fifty (50) days
nor more than ninety (90) days prior to the meeting; provided, however, that in
the event that less than sixty-five (65) days' notice or prior public disclosure
of the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the fifteenth day following the day on which notice of the date of
the meeting was mailed or such public disclosure was made, whichever first
occurs. A stockholder's notice to the Clerk shall set forth as to each matter
the stockholder proposes to bring before the meeting (i) a brief description of
the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class and number of shares of
capital stock of the corporation held of record, owned beneficially and
represented by proxy by such stockholder as of the record date for the meeting
(if such date shall then have been made publicly available) and as of the date
<PAGE> 3
-3-
of such notice by the stockholder, and (iv) all other information which would be
required to be included in a proxy statement filed with the Securities and
Exchange Commission if, with respect to any such item of business, such
stockholder were a participant in a solicitation subject to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "Proxy Rules").
Notwithstanding anything in the By-Laws to the contrary, no business
shall be conducted at the meeting except in accordance with the procedures set
forth in this Article II, provided, however, that nothing in this Article II
shall be deemed to preclude discussion by any stockholder of any business
properly brought before the meeting.
The Chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Article II, and if he should so
determine, he shall so declare to the meeting and that business shall be
disregarded. [Section 1 restated March 13, 1991 and May 23, 1996.]
2. Special Meetings. Special meetings of stockholders may be called by
-----------------
the Chief Executive Officer, the President or by the Directors. A special
meeting shall be called by the Clerk, or in case of the death, absence,
incapacity or refusal of the Clerk, by any other officer, upon written
application of one or more stockholders who hold at least 66-2/3% in interest of
the capital stock entitled to vote at a meeting (or such lesser percentage in
interest as shall be the maximum percentage permitted under Massachusetts law).
The call for the meeting shall state the date, hour and place and the purposes
of the meeting. [Section 2 restated September 14, 1989 and May 23, 1996.]
3. Place of Meetings. All meetings of stockholders shall be held at the
------------------
corporation unless a different place (within the United States) is fixed by the
Directors, the Chief Executive Officer or the President and stated in the notice
of the meeting. [Section 3 restated May 23, 1996.]
4. Notice of Meetings. A written notice of every meeting of
---------------------
stockholders, stating the place, date and hour thereof, and the purpose for
which the meeting is to be held, shall be given by the Clerk or by the person
<PAGE> 4
-4-
calling the meeting at least ten days before the meeting or such longer period
as required by law to each stockholder entitled to vote thereat and to each
stockholder who by law, the Articles of Organization or these By-Laws is
entitled to such notice, by leaving such notice with him or at his residence or
usual place of business, or by mailing it postage prepaid and addressed to such
stockholder at his address as it appears upon the books of the corporation. No
notice need be given to any stockholder if a written waiver of notice, executed
before or after the meeting by the stockholder or his attorney thereunto
authorized, is filed with the records of the meeting.
5. Quorum. The holders of a majority in interest of all stock issued,
-------
outstanding and entitled to vote at a meeting shall constitute a quorum, but a
lesser number may adjourn any meeting from time to time without further notice;
except that if two or more classes of stock are outstanding and entitled to vote
as separate classes, then in the case of each such class a quorum shall consist
of the holders of a majority in interest of the stock of that class issued,
outstanding and entitled to vote.
6. Voting and Proxies. Each stockholder shall have one vote for each
-------------------
share of stock entitled to vote held by him of record according to the records
of the corporation unless otherwise provided by the Articles of Organization.
Stockholders may vote in person or by written proxy. Proxies shall be filed with
the Clerk of the meeting, or of any adjournment thereof, before being voted. No
proxy dated more than six months before the meeting named therein shall be valid
and no proxy shall be valid after the final adjournment of such meeting.
Notwithstanding the provisions of the preceding sentence, a proxy coupled with
an interest sufficient in law to support an irrevocable power, including,
without limitation, an interest in shares or in the corporation generally, may
be made irrevocable if it so provides, need not specify the meeting to which it
relates, and shall be valid and enforceable until the interest terminates, or
for such shorter period as may be specified in the proxy. A proxy with respect
to stock held in the name of two or more persons shall be valid if executed by
one of them unless at or prior to exercise of the proxy the corporation receives
a specific written notice to the contrary from any one of them. A proxy
<PAGE> 5
-5-
purporting to be executed by or on behalf of a stockholder shall be deemed valid
unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger.
7. Action at Meeting. When a quorum is present, the holders of a
-------------------
majority of the stock present or represented and voting on a matter, (or if
there are two or more classes of stock entitled to vote as separate classes,
then in the case of each such class, the holders of a majority of the stock of
that class present or represented and voting on a matter) except where a larger
vote is required by law, the Articles of Organization or these By-Laws, shall
decide any matter to be voted on by the stockholders. Any election by
stockholders shall be determined by a plurality of the votes cast by the
stockholders entitled to vote at the election. No ballot shall be required for
such election unless requested by a stockholder present or represented at the
meeting and entitled to vote in the election. The corporation shall not directly
or indirectly vote any share of its stock.
8. Procedure for Meeting. The Clerk, who may call on any officer or
-----------------------
officers of the corporation for assistance, shall make all necessary and
appropriate arrangements for the meetings of the stockholders, receive all
proxies, and ascertain and report by certificate to each meeting of the
stockholders the number of shares present in person or by proxy and entitled to
vote at such meeting. In the absence of the Clerk, an Assistant Clerk shall
perform said duties. The certificate of the Clerk or an Assistant Clerk as to
the regularity of such proxies and as to the number of shares present in person
or by proxy and entitled to vote at such meeting shall be received as prima
facie evidence of the number of shares which are present in person and by proxy
and entitled to vote, for the purpose of establishing the presence of a quorum
at such meeting, for the purpose of organizing such meeting, and for all other
purposes.
9. Inspectors. At each meeting of the stockholders, (i) the proxies
-----------
shall be received and taken in charge by three inspectors, (ii) where voting is
to be by ballot on any question, the polls shall be opened and closed and the
ballots shall be taken in charge by such inspectors, and (iii) all questions
touching the qualification of voters, the validity of proxies and the acceptance
<PAGE> 6
-6-
or rejection of votes shall be decided by such three inspectors or a majority
thereof. Such inspectors may be appointed by the Board of Directors before such
meeting, or, if no such appointment shall have been made, then by the presiding
officer at such meeting. In the event for any reason any of the inspectors
previously appointed shall fail to attend such meeting, or being present will
not or cannot act in such capacity, then an inspector or inspectors in place of
such inspector or inspectors failing to attend or not acting shall be appointed
by the presiding officer.
ARTICLE III
-----------
Directors
---------
1. Powers. The business of the corporation shall be managed by a Board
-------
of Directors who may exercise all the powers of the corporation except as
otherwise provided by law, by the Articles of Organization or by these By-Laws.
In the event of a vacancy in the Board of Directors, the remaining Directors,
except as otherwise provided by law, may exercise the powers of the full Board
until the vacancy is filled.
2. Nomination and Election. The Board of Directors shall consist of not
------------------------
less than three (3) nor more than fifteen (15) persons. The number of the Board
of Directors for each year shall be fixed by vote of a majority of the Directors
then in office. The Board of Directors shall be classified with respect to the
time for which they severally hold office, as provided in Section 50A of Chapter
156B of the Massachusetts General Laws, into three classes, as nearly equal in
number as possible, the term of office of those of the first class ("Class I
Directors") to continue until the 1990 annual meeting of stockholders and until
their successors are duly elected and qualified, the term of office of those of
the second class ("Class II Directors") to continue until the 1991 annual
meeting of stockholders and until their successors are duly elected and
qualified, and the term of those of the third class ("Class III Directors") to
continue until the 1992 annual meeting of stockholders and until their
<PAGE> 7
-7-
successors are duly elected and qualified. At each annual meeting of
stockholders the successors to the class of Directors whose term expires at the
meeting shall be elected to hold office for a term continuing until the annual
meeting of stockholders held in the third year following the year of their
election and until their successors shall have been duly elected and qualified.
Only persons who are nominated in accordance with the following
procedures shall be eligible for election as Directors. Nominations of persons
for election to the Board of Directors at the annual meeting may be made at the
annual meeting of stockholders by or at the direction of the Board of Directors,
by any nominating committee or person appointed by the Board of Directors or by
any stockholder entitled to vote for the election of Directors at the meeting
who complies with the notice procedures set forth in this Article III. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Clerk of
the corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the corporation not
less than fifty (50) days nor more than ninety (90) days prior to the meeting;
provided, however, that in the event that less than sixty-five (65) days' notice
of prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the fifteenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made, whichever first occurs. Such stockholder's notice to the Clerk shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or re-election as a Director, (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the citizenship of the person, (iv) the class and number of
shares of capital stock of the corporation which are beneficially owned by the
person, and (v) any other information relating to the person that is required to
be disclosed in solicitations of proxies for election of directors pursuant to
the Proxy Rules; and (b) as to the stockholder giving the notice, (i) the name
and record address of the stockholder, (ii) the class and number of shares of
capital stock of the corporation which are beneficially owned by the stockholder
as of the record date for the meeting (if such date shall then have been made
<PAGE> 8
-8-
publicly available) and as of the date of such notice, (iii) a representation
that the stockholder intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice, (iv) a description of
all arrangements or understandings between such stockholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by such stockholder, (v) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the Proxy Rules
and (vi) the consent of each nominee to serve as a Director of the corporation
if so elected. The corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the corporation to determine
the eligibility of such proposed nominee to serve as Director. No person shall
be eligible for election as a Director unless nominated in accordance with the
procedures set forth herein. Any Director who attains 72 years of age shall
immediately retire from his or her position as a Director of the Corporation,
provided that this limitation shall not apply to any Director serving on January
28, 1997. [Section 2 restated January 28, 1997.]
3. Vacancies. Vacancies and newly created directorships, whether
----------
resulting from an increase in the size of the Board of Directors, from the
death, resignation, disqualification or removal of a Director or otherwise,
shall be filled solely by the affirmative vote of a majority of the remaining
Directors then in office, even though less than a quorum of the Board of
Directors. Any Director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of Directors in
which the vacancy occurred or the new directorship was created and until such
Director's successor shall have been elected and qualified. No decrease in the
number of Directors constituting the Board of Directors shall shorten the term
of any incumbent Director. [Section 3 restated March 13, 1991.]
4. Enlargement of the Board. The number of the Board of Directors may be
-------------------------
increased and one or more additional Directors elected by vote of a majority of
the Directors then in office. [Section 4 restated March 13, 1991.]
<PAGE> 9
-9-
5. Resignation. Any Director may resign by delivering his written
------------
resignation to the corporation at its principal office or to the Chief Executive
Officer, President, Clerk or Assistant Clerk. Such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happeningof some other event. [Section 5 restated March 13, 1991 and
May 23, 1996.]
6. Removal. Any Director may be removed from office only (a) for cause
--------
as defined in Section 50A of Chapter 156B of the Massachusetts General Laws and
by the affirmative vote of a majority of the shares of the corporation
outstanding and entitled to vote in the election of Directors or (b) for cause
by vote of a majority of the Directors then in office.
7. Meetings. Regular meetings of the Directors may be held without call
---------
or notice at such places and at such times as the Directors may from time to
time determine, provided that any Director who is absent when such determination
is made shall be given notice of the determination. A regular meeting of the
Directors may be held without a call or notice at the same place as the annual
meeting of stockholders, or the special meeting held in lieu thereof, following
such meeting of stockholders.
Special meetings of the Directors may be held at any time and place
designated in a call by the Chief Executive Officer, President, Treasurer or two
or more Directors. [Section 7 restated May 23, 1996.]
8. Notice of Meetings. Notice of all special meetings of the Directors
-------------------
shall be given to each Director by the Clerk or Assistant Clerk, or in the case
of the death, absence, incapacity or refusal of such persons, by the officer or
one of the Directors calling the meeting. Notice shall be given to each Director
in person or by telephone or by telegram sent to his business or home address at
least forty-eight hours in advance of the meeting or by written notice mailed to
his business or home address at least seventy-two hours in advance of the
meeting. Notice need not be given to any Director if a written waiver of notice,
executed by him before or after the meeting, is filed with the records of the
meeting, or to any Director who attends the meeting without protesting prior
<PAGE> 10
-10-
thereto or at its commencement the lack of notice to him. A notice or waiver of
notice of a Directors' meeting need not specify the purposes of the meeting.
9. Quorum. At any meeting of the Directors, a majority of the Directors
-------
then inoffice shall constitute a quorum. Less than a quorum may adjourn any
meeting from time to time without further notice.
10. Action at Meeting. At any meeting of the Directors at which a
-------------------
quorum is present, the vote of a majority of those present, unless a different
vote is specified by law, the Articles of Organization or these By-Laws, shall
be sufficient to decide such matter.
11. Action by Consent. Any action by the Directors may be taken
-------------------
without a meeting if a written consent thereto is signed by all of the Directors
and filed with the records of the Directors' meetings. Such consents shall be
treated as a vote of the Directors for all purposes.
12. Committees. The Directors may, by vote of a majority of the Directors
-----------
then in office, elect from their number an executive or other committees and may
by like vote delegate thereto some or all of their powers except those which by
law, the Articles of Organization or these By-Laws they are prohibited from
delegating. Except as the Directors may otherwise determine, any such committee
may make rules for the conduct of its business, but unless otherwise provided by
the Directors or in such rules, its business shall be conducted as nearly as may
be in the same manner as is provided by these By-Laws for the Directors.
ARTICLE IV
----------
Officers
--------
1. Enumeration. The officers of the corporation shall consist of a
------------
President, a Treasurer, a Clerk, and such other officers, including a Chief
Executive, one or more Vice-Presidents, Assistant Treasurers, Assistant Clerks
and Secretary as the Directors may determine. [Section 1 restated May 23, 1996.]
<PAGE> 11
-11-
2. Election. The President, Treasurer and Clerk shall be elected annually
---------
by the Directors at their first meeting following the annual meeting of
stockholders. Other officers may be chosen by the Directors at such meeting or
at any other meeting.
3. Qualification. The President ( and if so appointed by the Board of
--------------
Directors, the Chief Executive Officer) may, but need not, be a Director. No
officer need be a stockholder. Any one or more officers may be required by the
Directors to give bond for the faithful performance of his duties to the
corporation in such amount and with such sureties as the Directors may
determine. [Section 3 restated May 23, 1996.]
4. Tenure. Except as otherwise provided by law, the Articles of
-------
Organization or these By-Laws, the President, Treasurer and Clerk shall each
hold office until the first meeting of the Directors following the annual
meeting of stockholders and thereafter until a successor is chosen and
qualified; and all other officers shall hold office until the first meeting of
the Directors following the annual meeting of stockholders, unless a shorter
term is specified in the vote choosing or appointing them. Any officer may
resign by delivering his written resignation to the corporation at its principal
office or to the President, Clerk or Secretary, and such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event.
5. Removal. The Directors may remove any officer with or without cause by
--------
vote of a majority of the entire number of Directors then in office; provided,
that an officer may be removed for cause only after a reasonable notice and
opportunity to be heard by the Board of Directors prior to action thereof.
6. President, Chief Executive Officer and Vice-President. If a Chief
-------------------------------------------------------
Executive Officer has been appointed by the Board of Directors, he shall be the
chief executive officer of the corporation and shall, subject to the direction
of the Directors, have general supervision and control of its business. If the
Board of Directors has not appointed a Chief Executive Officer, the President
shall be the chief executive officer of the corporation and shall, subject to
the direction of the Directors, have general supervision and control of its
business. Unless otherwise provided by the Directors, the President ( or if at
<PAGE> 12
-12-
any time there exists a Chief Executive Officer, the Chief Executive Officer)
shall preside, when present, at all meetings of stockholders and of the
Directors. [Section 6 restated May 23, 1996.]
Any Vice-President (and the President, if at any time there is a Chief
Executive Officer) shall have such powers as the Directors may from time to time
designate.
7. Treasurer and Assistant Treasurers. The Treasurer shall, subject to
-----------------------------------
the direction of the Directors, have general charge of the financial affairs of
the corporation and shall cause to be kept accurate books of account. He shall
have custody of all funds, securities, and valuable documents of the
corporation, except as the Directors may otherwise provide.
Any Assistant Treasurer shall have such powers as the Directors may
from time to time designate.
8. Clerk and Assistant Clerks. The Clerk shall keep a record of the
---------------------------
meetings of stockholders. Unless a Transfer Agent is appointed, the Clerk shall
keep or cause to be kept in Massachusetts, at the principal office of the
corporation, the stock and transfer records of the corporation, in which are
contained the names and the record addresses of all stockholders and the amount
of stock held by each.
The Clerk shall keep a record of the meetings of the Directors.
Any Assistant Clerk shall have such powers as the Directors may from
time to time designate. In the absence of the Clerk from any meeting of
stockholders, an Assistant Clerk if one be elected, and otherwise a Temporary
Clerk designated by the person presiding at the meeting, shall perform the
duties of the Clerk.
9. Other Powers and Duties. Each officer shall, subject to these
---------------------------
By-Laws, have in addition to the duties and powers specifically set forth in
these By-Laws, such duties and powers as are customarily incident to his office,
and such duties and powers as the Directors may from time to time designate.
<PAGE> 13
-13-
ARTICLE V
---------
Capital Stock
-------------
1. Issuance of Stock. The Board of Directors shall have the power to
------------------
issue from time to time shares of the capital stock of the corporation for such
consideration, in such installments, and upon such terms as the Directors may
determine in accordance with the law, the Articles of Organization or these
By-Laws.
2. Certificates of Stock. Each stockholder shall be entitled to a
-----------------------
certificate of the capital stock of the corporation in such form as may be
prescribed from time to time by the Directors. The certificate shall be signed
by the Chief Executive Officer, the President or a Vice President, and by the
Treasurer or an Assistant Treasurer, but when a certificate is countersigned by
a Transfer Agent or a Registrar other than a Director, officer or employee of
the corporation, such signatures may be facsimiles. In case any officer who has
signed or whose facsimile signature has been placed on such certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the corporation with the same effect as if he were such officer at the
time of its issue.
Every certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Articles of Organization, these By-Laws
or any agreement to which the corporation is a party, shall have the restriction
noted conspicuously on the certificate and shall also set forth on the face or
back either the full text of the restriction or a statement of the existence of
such restriction and a statement that the corporation will furnish a copy to the
holder of such certificate upon written request and without charge. Every
certificate issued when the corporation is authorized to issue more than one
class or series of stock shall set forth on its face or back either the full
text of the preferences, voting powers, qualifications and special and relative
rights of the shares of each class and series authorized to be issued or a
statement of the existence of such preferences, powers, qualifications and
<PAGE> 14
-14-
rights, and a statement that the corporation will furnish a copy thereof to the
holder of such certificate upon written request and without charge.
3. Transfers. Subject to the restrictions, if any, stated or noted on
----------
the stock certificates, shares of stock may be transferred on the books of the
corporation by the surrender to the corporation or its Transfer Agent of the
certificate therefor properly endorsed or accompanied by a written assignment
and power of attorney properly executed, with necessary transfer stamps affixed,
and with such proof of the authenticity of signature as the corporation or its
Transfer Agent may reasonably require. Except as may be otherwise required by
law, the Articles of Organization or these By-Laws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect thereof, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the corporation in accordance with the requirements of these By-Laws.
It shall be the duty of each stockholder to notify the corporation or
its Transfer Agent of his post office address.
4. Transfer Agent and Registrar. The Directors shall have power to
-------------------------------
appoint one or more Transfer Agents and Registrars for the transfer and
registration of certificates of stock of any class, and may require that stock
certificates shall be countersigned and registered by one or more of such
Transfer Agents and Registrars. The resolutions adopted by the Board of
Directors, appointing and conferring the powers, rights, duties and obligations
of the Transfer Agent or Registrar, or both, shall allocate and delimit the
power to make original issue and transfer of the capital stock of the
corporation, shall specify whether stockholders shall give notice of changes of
their addresses to the Transfer Agent or the Registrar, and shall allocate and
impose the duty of maintaining the original stock ledgers or transfer books, or
both, of the corporation, and of disclosing the names of the stockholders, the
number of shares held by each, by kinds and classes, and the address of each
stockholder as it appears upon the records of the corporation. Stockholders
shall be responsible for notifying the Transfer Agent or Registrar, as the case
<PAGE> 15
-15-
may be, in writing, of any changes in their addresses from time to time, and
failure so to do will relieve the corporation, its stockholders, officers,
Directors, Transfer Agent and Registrar, of liability for failure to direct
notices, dividends, or other documents or property to an address other than the
one appearing upon the records of the Transfer Agent or Registrar, as the case
may be, who is the agent specified in such a resolution as the agent to receive
notices of changes of address.
5. Lost, Stolen or Destroyed Certificates. The corporation may issue a
---------------------------------------
new certificate for shares of stock in the place of any certificate theretofore
issued and alleged to have been lost, stolen or destroyed, but the Board of
Directors may require the owner of such lost, stolen or destroyed certificate,
or his legal representative, to furnish affidavit as to such loss, theft or
destruction, and to give a bond in such form and substance, and with such surety
or sureties, with fixed or open penalty, as it may direct, to indemnify the
corporation and the Transfer Agent or Registrar against any claim that may be
made on account of the alleged loss, theft or destruction of such certificate.
6. Record Date. The Directors may fix in advance a time of not more
-------------
than sixty days preceding the date of any meeting of stockholders, or the date
for the payment of any dividend or the making of any distribution to
stockholders, or the last day on which the consent or dissent of stockholders
may be effectively expressed for any purpose, as the record date for determining
the stockholders having the right to notice of and to vote at such meeting and
any adjournment thereof, or the right to receive such dividend or distribution
or the right to give such consent or dissent. In such case only stockholders of
record on such record date shall have such right, notwithstanding any transfer
of stock on the books of the corporation after the record date. Without fixing
such record date the Directors may for any of such purposes close the transfer
books for all or any part of such period.
7. Reacquisition of Stock. Shares of stock previously issued which have
-----------------------
been reacquired by the corporation, may be restored to the status of
authorized Articles of Organization. but unissued shares by vote of the Board
of Directors ,without amendment of the Articles of Organization.
<PAGE> 16
-16-
ARTICLE VI
----------
Protection of Directors and Officers
------------------------------------
1. Contracts and Transactions with Interested Directors and Officers.
--------------------------------------------------------------------
If the corporation enters into contracts or other transactions with
one or more of its Directors and officers or with any corporation, partnership,
association, trust, or other organization with which any of its Directors or
officers are directly or indirectly connected, such contracts or transactions
shall not be invalidated or in any way affected by the fact that any such
Director or officer has or may have any interest therein which is or might be
adverse to the interests of the corporation, even though the vote or votes of
the Director or Directors having such interest shall have been necessary to
obligate the corporation under or in such contract or transaction, nor shall any
such Director or officer, corporation, partnership, association, trust or other
organization be liable to account to this corporation for any profit realized by
him or such corporation, partnership, association, or trust or other
organization from or through any such transaction or contract by reason of the
fact that he or such corporation, partnership, association, trust or other
organization with which such Director or officer is directly or indirectly
connected was interested in such transaction or contract; provided, however,
that in every such case the fact of such interest and all material matters
concerning same shall be disclosed to other Directors or stockholders
authorizing such contract or transaction.
2. Indemnification. (a) Each Director, officer, employee and other
----------------
agent of the corporation, and any person who, at the request of the corporation,
serves as a director, officer, employee or other agent of another organization
in which the corporation directly or indirectly owns shares or of which it is a
creditor shall be indemnified by the corporation against any cost, expense
(including attorneys' fees), judgment, liability and/or amount paid in
settlement reasonably incurred by or imposed upon him in connection with any
action, suit or proceeding (including any proceeding before any administrative
or legislative body or agency), which he may be made a party to or otherwise
<PAGE> 17
-17-
involved with or with which he shall be threatened, by reason of his being, or
related to his status as, a Director, officer, employee or other agent of the
corporation or of any other organization in which the corporation directly or
indirectly owns shares or of which the corporation is a creditor, which other
organization he serves or has served as director, officer, employee or other
agent at the request of the corporation (whether or not he continues to be an
officer, Director, employee or other agent of the corporation or such other
organization at the time such action, suit or proceeding is brought or
threatened), unless such indemnification is prohibited by the Business
Corporation Law of the Commonwealth of Massachusetts. The foregoing right of
indemnification shall be in addition to any rights to which any such person may
otherwise be entitled and shall inure to the benefit of the executors or
administrators of each such person. The corporation may pay the expenses
incurred by any such person in defending a civil or criminal action, suit or
proceeding in advance of the final disposition of such action, suit, or
proceeding, upon receipt of an undertaking by such person to repay such payment
if it is determined that such person is not entitled to indemnification
hereunder. This section shall be subject to amendment or repeal only by action
of the stockholders.
(b) The Board of Directors may, without stockholder approval, authorize
the corporation to enter into agreements, including any amendments or
modifications thereto, with any of its Directors, officers or other persons
described in paragraph (a) above providing for indemnification of such persons
to the maximum extent permitted under applicable law and the corporation's
Articles of Organization and By-Laws. [Section 2(b) added May 8, 1987.]
ARTICLE VII
-----------
Miscellaneous Provisions
------------------------
1. Execution of Instruments. All deeds, leases, transactions, contracts,
-------------------------
bonds, notes and other obligations authorized to be executed by an officer of
the corporation in its behalf shall be signed by the Chief Executive Officer,
<PAGE> 18
-18-
the President or the Treasurer except as the Directors may generally or in
particular cases otherwise determine. [Section 1 restated May 23, 1996.]
2. Voting of Securities. Except as the Directors may otherwise
-----------------------
designate, the Chief Executive Officer, the President or Treasurer may waive
notice of, and appoint any person or persons to act as proxy or attorney in fact
for this corporation (with or without power of substitution) at any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
[Section 2 restated May 23, 1996.]
3. Corporate Records. The original, or attested copies, of the Articles
------------------
of Organization, By-Laws and records of all meetings of the incorporators and
stockholders, and the stock and transfer records, which shall contain the names
of all stockholders and the record address and the amount of stock held by each,
shall be kept in Massachusetts at the principal office of the corporation, or at
an office of its Transfer Agent or of the Clerk. Said copies and records need
not all be kept in the same office. They shall be available at all reasonable
times to the inspection of any stockholder for any proper purpose but not to
secure a list of stockholders for the purpose of selling said list or copies
thereof or of using the same for a purpose other than in the interest of the
applicant, as a stockholder, relative to the affairs of the corporation.
4. Articles of Organization. All references in these By-Laws to the
-------------------------
Articles of Organization shall be deemed to refer to the Articles of
Organization of the corporation, as amended and in effect from time to time.
5. Amendments. These By-Laws may be amended or repealed in whole or in
-----------
part at any annual or special meeting of the stockholders by a vote of a
majority of the stock present and entitled to vote, provided notice of the
proposed amendment or repeal shall have been given in the notice of such
meeting. In addition, the Directors may amend or repeal these By-Laws in whole
or in part, except with respect to any provision thereof which by law, the
Articles of Organization or these By-Laws requires action by the stockholders.
Any By-Law adopted by the Directors may be amended or repealed by the
stockholders in the manner hereinabove in this Article set forth. Not later than
<PAGE> 19
-19-
the time of giving notice of the meeting of stockholders next following the
amending or repealing by the Directors of any By-Law, notice thereof stating the
substance of such change shall be given to all stockholders entitled to vote on
amending these By-Laws. [Section 5 restated March 13, 1991.]
6. The provisions of Chapter 110D of the Massachusetts General Laws as in
effect from time to time shall not apply to control share acquisitions of the
corporation. [Section 6 added July 14, 1988.]
Amended and Restated November 12, 1986
Amended May 8, 1987
Amended July 14, 1988
Amended September 14, 1989
Amended and Restated March 13, 1991
Amended and Restated May 23, 1996
Amended and Restated January 28, 1997
<PAGE> 1
EXHIBIT 10.14
TERADYNE, INC.
1997 EMPLOYEE STOCK OPTION PLAN
-------------------------------
1. Purpose. The purpose of the Teradyne, Inc. 1997 Employee Stock
--------
Option Plan (the "Plan") is to encourage key employees of Teradyne, Inc. (the
"Company") and of any present or future parent or subsidiary of the Company
(collectively, "Related Corporations") and other individuals who render services
to the Company or a Related Corporation, by providing opportunities to
participate in the ownership of the Company and its future growth through (a)
the grant of options which qualify as "incentive stock options" ("ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code");
(b) the grant of options which do not qualify as ISOs ("Non-Qualified Options");
(c) awards of stock in the Company ("Awards"); and (d) opportunities to make
direct purchases of stock in the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options." Options, Awards and authorizations to make Purchases
are referred to hereafter collectively as "Stock Rights." As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of the
Code.
2. Administration of the Plan.
---------------------------
A. Board or Committee Administration. The Plan shall (be
----------------------------------
administered by the Board of Directors of the Company (the "Board")
or, subject to paragraph 2(D) (relating to compliance with Section
162(m) of the Code), by a committee appointed by the Board (the
"Committee"). Hereinafter, all references in this Plan to the
"Committee" shall mean the Board if no Committee has been appointed.
Subject to ratification of the grant or authorization of each Stock
Right by the Board (if so required by applicable state law), and
subject to the terms of the Plan, the Committee shall have the
authority to (i) determine to whom (from among the class of employees
eligible under paragraph 3 to receive ISOs) ISOs shall be granted, and
to whom (from among the class of individuals and entities eligible
under paragraph 3 to receive Non-Qualified Options and Awards and to
make Purchases) Non-Qualified Options, Awards and authorizations to
make Purchases may be granted; (ii) determine the time or times at
which Options or Awards shall be granted or Purchases made; (iii)
determine the purchase price of shares subject to each Option or
Purchase, which prices shall not be less than the minimum price
specified in paragraph 6; (iv) determine whether each Option granted
shall be an ISO or a Non-Qualified Option; (v) determine (subject to
paragraph 7) the time or times when each Option shall become
exercisable and the duration of the exercise period; (vi) extend the
period during which outstanding Options may be exercised; (vii)
determine whether restrictions such as repurchase options are to be
imposed on shares subject to Options, Awards and Purchases and the
<PAGE> 2
-2-
nature of such restrictions, if any, and (viii) interpret the Plan and
prescribe and rescind rules and regulations relating to it. If the
Committee determines to issue a Non-Qualified Option, it shall take
whatever actions it deems necessary, under Section 422 of the Code and
the regulations promulgated thereunder, to ensure that such Option is
not treated as an ISO. The interpretation and construction by the
Committee of any provisions of the Plan or of any Stock Right granted
under it shall be final unless otherwise determined by the Board. The
Committee may from time to time adopt such rules and regulations for
carrying out the Plan as it may deem advisable. No member of the Board
or the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any Stock Right granted
under it.
B. Committee Actions. The Committee may select one of its
-------------------
members as its chairman, and shall hold meetings at such time and
places as it may determine. A majority of the Committee shall
constitute a quorum and acts of a majority of the members of the
Committee at a meeting at which a quorum is present, or acts reduced
to or approved in writing by all the members of the Committee (if
consistent with applicable state law), shall be the valid acts of the
Committee. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with
or without cause) and appoint new members in substitution therefor,
fill vacancies however caused, or remove all members of the Committee
and thereafter directly administer the Plan.
C. Grant of Stock Rights to Board Members. Stock Rights may
---------------------------------------
be granted to members of the Board. All grants of Stock Rights to
members of the Board shall in all respects be made in accordance
with the provisions of this Plan applicable to other eligible persons.
Members of the Board who either (i) are eligible to receive grants
of Stock Rights pursuant to the Plan or (ii) have been granted Stock
Rights may vote on any matters affecting the administration of the
Plan or the grant of any Stock Rights pursuant to the Plan, except
that no such member shall act upon the granting to himself or
herself of Stock Rights, but any such member may be counted in
determining the existence of a quorum at any meeting of the Board
during which action is taken with respect to the granting to such
member of Stock Rights.
D. Performance-Based Compensation. The Board, in its dis-
-------------------------------
cretion, may take such action as may be necessary to ensure that Stock
Rights granted under the Plan qualify as "qualified performance-based
compensation" within the meaning of Section 162(m) of the Code and
applicable regulations promulgated thereunder ("Performance-Based
Compensation"). Such action may include, in the Board's discretion,
some or all of the following (i) if the Board determines that Stock
Rights granted under the Plan generally shall constitute
Performance-Based Compensation, the Plan shall be administered, to the
extent required for such Stock Rights to constitute Performance-Based
<PAGE> 3
-3-
Compensation, by a Committee consisting solely of two or more "outside
directors" (as defined in applicable regulations promulgated under
Section 162(m) of the Code), (ii) if any Non-Qualified Options with an
exercise price less than the fair market value per share of Common
Stock are granted under the Plan and the Board determines that such
Options should constitute Performance-Based Compensation, such options
shall be made exercisable only upon the attainment of a
pre-established, objective performance goal established by the
Committee, and such grant shall be submitted for, and shall be
contingent upon shareholder approval and (iii) Stock Rights granted
under the Plan may be subject to such other terms and conditions as
are necessary for compensation recognized in connection with the
exercise or disposition of such Stock Right or the disposition of
Common Stock acquired pursuant to such Stock Right, to constitute
Performance-Based Compensation.
3. Eligible Employees and Others. ISOs may be granted only to employees
------------------------------
of the Company or any Related Corporation. Non-Qualified Options, Awards and
authorizations to make Purchases may be granted to any employee, consultant or
director of the Company or any Related Corporation; provided, however, that no
Option may be granted hereunder to any non-employee director. The Committee may
take into consideration a recipient's individual circumstances in determining
whether to grant a Stock Right. The granting of any Stock Right to any
individual or entity shall neither entitle that individual or entity to, nor
disqualify such individual or entity from, participation in any other grant of
Stock Rights.
4. Stock. The stock subject to Stock Rights shall be authorized but
------
unissued shares of Common Stock of the Company, par value $.125 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares which may be issued pursuant to the Plan
is 3,000,000, subject to adjustment as provided in paragraph 13. If any Option
granted under the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part or shall be repurchased by the Company, the unpurchased shares of
Common Stock subject to such Option shall again be available for grants of Stock
Rights under the Plan.
No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 2,000,000 shares of Common Stock
under the Plan during any fiscal year of the Company. If any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part or shall be repurchased by the Company, the shares subject to such Option
shall be included in the determination of the aggregate number of shares of
Common Stock deemed to have been granted to such employee under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted under the Plan
-------------------------
at any time on or after January 28, 1997 and prior to January 25, 2007. The date
of grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
<PAGE> 4
-4-
grant. The Committee shall have the right, with the consent of the optionee, to
convert an ISO granted under the Plan to a Non-Qualified Option pursuant to
paragraph 16.
6. Minimum Option Price; ISO Limitations.
--------------------------------------
A. Price for Non-Qualified Options, Awards and Purchases.
--------------------------------------------------------
Subject to paragraph 2(D) (relating to compliance with Section
162(m) of the Code), the exercise price per share specified in the
agreement relating to each Non-Qualified Option granted, and the
purchase price per share of stock granted in any Award or authorized
as a Purchase, under the Plan may be less than the fair market value
of the Common Stock of the Company on the date of grant; provided
that, in no event shall such exercise price or such purchase price be
less than the minimum legal consideration required therefor under the
laws of any jurisdiction in which the Company or its successors in
interest may be organized. No more than 400,000 Non-Qualified
Options may be granted under the Plan for less than "fair market
value" (as hereinafter defined).
B. Price for ISOs. The exercise price per share specified
-----------------
in the agreement relating to each ISO granted under the Plan
shall not be less than the fair market value per share of Common Stock
on the date of such grant. In the case of an ISO to be granted to an
employee owning stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or
any Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than one hundred ten
percent (110%) of the fair market value per share of Common Stock on
the date of grant. For purposes of determining stock ownership under
this paragraph, the rules of Section 424(d) of the Code shall apply.
C. $100,000 Annual Limitation on ISO Vesting. Each eligible
-------------------------------------------
employee may be granted Options treated as ISOs only to the extent
that, in the aggregate under this Plan and all incentive stock option
plans of the Company and any Related Corporation, ISOs do not become
exercisable for the first time by such employee during any calendar
year with respect to stock having a fair market value (determined at
the time the ISOs were granted) in excess of $100,000. Any Options
granted to an employee in excess of such limitation will be granted as
Non-Qualified Options, and the Company shall issue separate
certificates to the optionee with respect to Options that are
Non-Qualified Options and Options that are ISOs.
D. Determination of Fair Market Value. If, at the time
-------------------------------------
an Option is granted under the Plan, the Company's Common Stock is
publicly traded, "fair market value" shall be determined as of the
date of grant or, if the prices or quotes discussed in this sentence
are unavailable for such date, the last business day for which such
prices or quotes are available prior to the date of grant and shall
mean (i) the average (on that date) of the high, low and closing
<PAGE> 5
-5-
prices of the Common Stock on the principal national securities
exchange on which the Common Stock is traded, if the Common Stock is
then traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Common Stock on the Nasdaq
National Market, if the Common Stock is not then traded on a national
securities exchange; or (iii) the closing bid price (or average of bid
prices) last quoted (on that date) by an established quotation service
for over-the-counter securities, if the Common Stock is not reported
on the Nasdaq National Market. If the Common Stock is not publicly
traded at the time an Option is granted under the Plan, "fair market
value" shall mean the fair value of the Common Stock as determined by
the Committee after taking into consideration all factors which it
deems appropriate, including, without limitation, recent sale and
offer prices of the Common Stock in private transactions negotiated at
arm's length.
7. Option Duration. Subject to earlier termination as provided in
-----------------
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years and one day from the date of grant in the case of Non-Qualified Options,
(ii) ten years from the date of grant in the case of ISOs and (iii) five years
from the date of grant in the case of ISOs granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Related Corporation, as determined under
paragraph 6(B). Subject to earlier termination as provided in paragraphs 9 and
10, the term of each ISO shall be the term set forth in the original instrument
granting such ISO, except with respect to any part of such ISO that is converted
into a Non-Qualified Option pursuant to paragraph 16.
8. Exercise of Option. Subject to the provisions of paragraphs 9
-------------------
through 12, each Option granted under the Plan shall be exercisable as follows:
A. Vesting. The Option shall either be fully exercisable on
--------
the date of grant or shall become exercisable thereafter in
such installments as the Committee may specify.
B. Full Vesting of Installments. Once an installment becomes
-----------------------------
exercisable, it shall remain exercisable until expiration or
termination of the Option, unless otherwise specified by the
Committee.
C. Partial Exercise. Each Option or installment may be
-----------------
exercised at any time or from time to time, in whole or in part,
for up to the total number of shares with respect to which it is
then exercisable.
D. Acceleration of Vesting. The Committee shall have the
-------------------------
right to accelerate the date that any installment of any Option
becomes exercisable; provided, that the Committee shall not,
without the consent of an optionee, accelerate the permitted
exercise date of any installment of any Option granted to any
employee as an ISO (and not previously converted into a
Non-Qualified Option pursuant to paragraph 16) if such
acceleration would violate the annual vesting limitation contained
<PAGE> 6
-6-
in Section 422(d) of th Code, as described in paragraph 6(C).
9. Termination of Employment. Unless otherwise specified in the
----------------------------
agreement relating to such ISO, if an optionee ceases to be employed by the
Company and all Related Corporations other than by reason of death or disability
as defined in paragraph 10, no further installments of his or her Options shall
become exercisable, and his or her Options shall terminate after the passage of
90 days from the date of termination of his or her employment; provided, that
the Committee may specify that Non-Qualified Options may remain exercisable for
more than 90 days from the date of termination of employment; provided, further,
that in no event shall any Option or part or installment thereof become or
remain exercisable after its specified expiration date. Employment shall be
considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute. A bona fide leave of absence with the written approval of
the Committee shall not be considered an interruption of employment under the
Plan, provided that such written approval contractually obligates the Company or
any Related Corporation to continue the employment of the optionee after the
approved period of absence. Options granted under the Plan shall not be affected
by any change of employment within or among the Company and Related
Corporations, so long as the optionee continues to be an employee of the Company
or any Related Corporation. Nothing in the Plan shall be deemed to give any
grantee of any Stock Right the right to be retained in employment or other
service by the Company or any Related Corporation for any period of time.
Notwithstanding anything to the contrary contained above, in the case
of normal retirement, Non-Qualified Options granted to an optionee shall remain
exercisable until the date which is the earlier of (i) the Non-Qualified Options
specified expiration date or (ii) 90 days from the date upon which such optionee
becomes employed by a competitor of the Company, to the extent of the number of
shares which have vested prior to and during such period. The Committee shall
have the absolute discretion to determine whether and as of what date any
optionee is employed by a competitor of the Company.
10. Death; Disability.
------------------
A. Death. If an optionee ceases to be employed by the
------
Company and all Related Corporations by reason of his or her death,
by such optionee may be exercised, to the extent of the number
of shares with respect to which such optionee has theretofore
been granted Options (whether or not such Options have vested in
accordance with their terms),by the estate, personal representative
or beneficiary who has acquired the Option by will or by the
laws of descent and distribution,(i) in the case of ISOs, at any
time prior to the earlier of the ISOs' specified expiration date or
180 days from the date of such optionee's death or (ii) in the case
of Non-Qualified Options, at any time prior to the earlier of the
Non-Qualified Options specified expiration date or one year from
the date of such optionee's death.
<PAGE> 7
-7-
B. Disability. If an optionee ceases to be employed
-----------
by the Company and all Related Corporations by reason of his
or her disability, any Option theretofore granted to such
optionee shall remain exercisable until the date which is (i)
in the case of ISOs, the earlier of such ISOs' specified
expiration date or 180 days from the date of the termination
of such optionee's employment or (ii) in the case of
Non-Qualified Options, the earlier of the Non-Qualified
Options specified expiration date or 33 months from the date
of the termination of the optionee's employment, to the extent
of the number of shares (a) which, in the case of ISOs, have
vested prior to and during the period specified in clause (i)
and (b) which, in the case of Non-Qualified Options, have
vested prior to and during the period which is 30 months from
the date the optionee ceases to be employed by the Company.
For the purposes of the Plan, the term "disability" shall mean
"permanent and total disability" as defined in Section
22(e)(3) of the Code or any successor statute.
11. Assignability. No Option shall be assignable or transferable by the
--------------
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee shall be exercisable only by such optionee.
12. Terms and Conditions of Options. Options shall be evidenced by
----------------------------------
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any
Non-Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or more officers
of the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following events, an
------------
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
A. Stock Dividends and Stock Splits. If the shares of Common
---------------------------------
Stock shall be subdivided into a greater or smaller number of
shares or if the Company shall issue any shares of Common Stock as
a stock dividend on its outstanding Common Stock, the number
of shares of Common Stock deliverable upon the exercise of Options
shall be appropriately increased or decreased proportionately,
and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock
dividend.
<PAGE> 8
-8-
B. Consolidations or Mergers. If the Company is to be
----------------------------
consolidated with or acquired by another entity in a merger, sale
of all or substantially all of the Company's assets or otherwise
(each, an "Acquisition"), the Committee or the board of directors
of any entity assuming the obligations of the Company hereunder
(the "Successor Board"), shall, as to outstanding Options, either
(i) make appropriate provision for the continuation of such Options
by substituting on an equitable basis for the shares then subject
to such Options the consideration payable with respect to the
outstanding shares of Common Stock in connection with the
Acquisition; or (ii) to the extent not inconsistent with tax and
accounting principles applicable to the subject Options, (A) upon
written notice to the optionees, provide that all Options must be
exercised, to the extent then exercisable within a specified number
of days of the date of such notice, at the end of which period the
Options shall terminate; or (B) terminate all Options in exchange
for a cash payment equal to the excess of the fair market value of
the shares subject to such Options (to the extent then exercisable
or to be exercisable as a result of the Acquisition) over the
exercise price thereof.
C. Recapitalization or Reorganization. In the event of a
-------------------------------------
recapitalization or reorganization of the Company pursuant to which
securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, an optionee upon
exercising an Option shall be entitled to receive for the purchase
price paid upon such exercise the securities he or she would have
received if he or she had exercised such Option prior to such
recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any
---------------------
adjustments made pursuant to subparagraphs A, B or C with respect
to ISOs shall be made only after the Committee, after consulting
with counsel for the Company, determines whether such adjustments
would constitute a "modification" of such ISOs (as that term is
defined in Section 424 of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would
constitute a modification of such ISOs or would cause adverse tax
consequences to the holders, it may refrain from making such
adjustments.
E. Dissolution or Liquidation. In the event of the proposed
---------------------------
dissolution or liquidation of the Company, each Option will
terminate immediately prior to the consummation of such proposed
action or at such other time and subject to such other conditions
as shall be determined by the Committee.
F. Issuances of Securities. Except as expressly provided
-------------------------
herein, no issuance by the Company of shares of stock of any class,
or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No
<PAGE> 9
-9-
adjustments shall be made for dividends paid in cash or in property
other than securities of the Company.
G. Fractional Shares. No fractional shares shall be issued
-------------------
under the Plan and the optionee shall receive from the Company cash
in lieu of such fractional shares.
H. Adjustments. Upon the happening of any of the events
------------
described in subparagraphs A, B or C above, the class and aggregate
number of shares set forth in paragraph 4 hereof that are subject
to Stock Rights which previously have been or subsequently may be
granted under the Plan shall also be appropriately adjusted to
reflect the events described in such subparagraphs. The Committee
or the Successor Board shall determine the specific adjustments to
be made under this paragraph 13 and, subject to paragraph 2, its
determination shall be conclusive.
If any person or entity owning restricted Common Stock obtained by
exercise of an Option receives shares or securities or cash in connection with a
corporate transaction described in subparagraphs A, B or C above as a result of
owning such restricted Common Stock, such shares or securities or cash shall be
subject to all of the conditions and restrictions applicable to the restricted
Common Stock with respect to which such shares or securities or cash were
issued, unless otherwise determined by the Committee or the Successor Board.
14. Means of Exercising Options. An Option (or any part or installment
-----------------------------
thereof) shall be exercised by giving written notice to the Company at its
principal office address. Such notice shall identify the Option being exercised
and specify the number of shares as to which such Option is being exercised,
accompanied by full payment of the purchase price therefor either (a) in United
States dollars in cash or by check, (b) at the discretion of the Committee,
through delivery of shares of Common Stock having a fair market value equal as
of the date of the exercise to the cash exercise price of the Option, (c) at the
discretion of the Committee in exceptional cases, by delivery of the grantee's
personal recourse note bearing interest payable not less than annually at no
less than 100% of the lowest applicable Federal rate, as defined in Section
1274(d) of the Code, or (d) at the discretion of the Committee, by any
combination of (a), (b) and (c) above. If the Committee exercises its discretion
to permit payment of the exercise price of an ISO by means of the methods set
forth in clauses (b), (c) or (d) of the preceding sentence, such discretion
shall be exercised in writing at the time of the grant of the ISO in question.
Alternatively, payment may be made in whole or in part in shares of the Common
Stock of the Company already owned by the person or persons exercising the
Option or shares subject to the Option being exercised (subject to such
restrictions and guidelines as the Board may adopt from time to time), or
consistent with applicable law, through the delivery of an assignment to the
Company of a sufficient amount of the proceeds from the sale of the Common Stock
acquired upon exercise of the Option and an authorization to the broker or
selling agent to pay that amount to the Company, which sale shall be at the
participant's direction at the time of exercise, provided that the Committee
shall allow for such payment at the time of grant of the ISO. The holder of an
Option shall not have the rights of a shareholder with respect to the shares
<PAGE> 10
-10-
covered by such Option until the date of issuance of a stock certificate to such
holder for such shares. Except as expressly provided above in paragraph 13 with
respect to changes in capitalization and stock dividends, no adjustment shall be
made for dividends or similar rights for which the record date is before the
date such stock certificate is issued.
15. Term and Amendment of Plan. This Plan was adopted by the Board on
----------------------------
January 28, 1997, and shall expire at the end of the day on January 25, 2007
(except as to Options outstanding on that date). The Board may at any time
terminate this Plan or make such modification or amendment thereof as it deems
advisable; provided, however, that the Board may not modify or amend this Plan,
--------- --------
without approval by the affirmative vote of the holders of a majority of the
securities of the Company present, or represented, and entitled to vote at a
meeting duly held in accordance with the applicable laws of the state in which
the Company is incorporated, if (i) such approval would be necessary for Option
grants under the Plan to qualify for favorable treatment under Sections 162(m)
or 422 of the Code, or any successor provisions; or (ii) such approval is
otherwise required by law or the rules of any national securities exchange or
inter-dealer quotation system on which the Common Stock is then listed (in each
case, at the time of any such modification or amendment). Termination or any
modification or amendment of this Plan shall not, without consent of a
participant, affect his or her rights under an option previously granted to him
or her.
16. Conversion of ISOs into Non-Qualified Options. The Committee, at
-----------------------------------------------
the written request or with the written consent of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-Qualified Options at any time prior
to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company or a Related Corporation at the time of such conversion.
Such actions may include, but shall not be limited to, extending the exercise
period or reducing the exercise price of the appropriate installments of such
ISOs. At the time of such conversion, the Committee (with the consent of the
optionee) may impose such conditions on the exercise of the resulting
Non-Qualified Options as the Committee in its discretion may determine, provided
that such conditions shall not be inconsistent with this Plan. Nothing in the
Plan shall be deemed to give any optionee the right to have such optionee's ISOs
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the Committee takes appropriate action. Upon the taking of such
action, the Company shall issue separate certificates to the optionee with
respect to Options that are Non-Qualified Options and Options that are ISOs. The
Committee, with the consent of the optionee, may also terminate any portion of
any ISO that has not been exercised at the time of such termination.
17. Application Of Funds. The proceeds received by the Company from
---------------------
the sale of shares pursuant to Options granted and Purchases authorized under
the Plan shall be used for general corporate purposes.
18. Notice to Company of Disqualifying Disposition. Each employee who
------------------------------------------------
receives an ISO shall agree to notify the Company in writing immediately after
such optionee makes a Disqualifying Disposition (as described in Sections 421,
<PAGE> 11
-11-
422 and 424 of the Code and regulations thereunder) of any stock acquired
pursuant to the exercise of ISOs granted under the Plan. A Disqualifying
Disposition is generally any disposition occurring on or before the later of (a)
the date two years following the date the ISO was granted or (b) the date one
year following the date the ISO was exercised.
19. Withholding of Additional Income Taxes. Upon the exercise of a
------------------------------------------
Non-Qualified Option, the transfer of a Non-Qualified Stock Option pursuant to
an arm's-length transaction, the grant of an Award, the making of a Purchase of
Common Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the vesting or transfer of restricted
stock or securities acquired on the exercise of an Option hereunder, or the
making of a distribution or other payment with respect to such stock or
securities, the Company may withhold taxes in respect of amounts that constitute
compensation includible in such Optionee's gross income. The Committee in its
discretion may condition (i) the exercise of an Option, (ii) the transfer of a
Non-Qualified Stock Option, (iii) the grant of an Award, (iv) the making of a
Purchase of Common Stock for less than its fair market value, or (v) the vesting
or transferability of restricted stock or securities acquired by exercising an
Option, on the grantee's making satisfactory arrangement for such withholding.
Such arrangement may include payment by the grantee in cash or by check of the
amount of the withholding taxes or, at the discretion of the Committee, by the
grantee's delivery of previously held shares of Common Stock or the withholding
from the shares of Common Stock otherwise deliverable upon exercise of a Option
shares having an aggregate fair market value equal to the amount of such
withholding taxes.
20. Governmental Regulation. The Company's obligation to sell and
------------------------
deliver shares of Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
send tax information statements to employees and former employees that exercise
ISOs under the Plan, and the Company may be required to file tax information
returns reporting the income received by grantees of Options in connection with
the Plan.
21. Governing Law. The validity and construction of the Plan and the
---------------
instruments evidencing Stock Rights shall be governed by the laws of The
Commonwealth of Massachusetts, or the laws of any jurisdiction in which the
Company or its successors in interest may be organized.
<PAGE> 1
EXHIBIT 10.15
[Teradyne, Inc. Letterhead]
Mr. John E. Halter
576 E. Crescent Drive
Palo Alto, CA 94301
January 24, 1997
Dear Jack:
The purpose of this letter is to confirm our agreement regarding your employment
status.
As we discussed, effective with the date of this letter, you resign from any and
all offices and directorships which you hold at Teradyne, Inc. and any of
Teradyne's subsidiaries or their subsidiaries and branches. However, you shall
remain an employee of Teradyne in accordance with the terms described in your
Employment Agreement dated December 1, 1995, as modified in this letter.
You will remain an employee through November 30, 1997, at which time your
employment will cease, unless earlier terminated for cause in accordance with
the December 1, 1995 Employment agreement. During this period your monthly
compensation will be $22,917.00 per month, and we expect you may be asked to
devote as much as 50% of your time to Teradyne, as requested by us. However,
should you find another job, which we agree is not competitive with Teradyne,
before December 1, 1997, your salary will be reduced to $1,000.00 per month.
During your remaining term of employment you will not participate in Teradyne
benefit plans or compensation programs (including Variable Compensation and
Profit Sharing), except that while you are employed solely by Teradyne, you may
continue participation in the following: health, dental, and vision plans, with
Teradyne paying its normal (approx. 75%) share; life insurance and supplemental
life insurance (to the extent you presently participate); and our 401k plan
(however, you will not be eligible for any company match). Upon termination of
employment, in accordance with COBRA, you may continue to participate in the
health, dental and vision plans, at your sole expense for up to 18 months (or
until age 65, which ever comes first).
While you are employed by Teradyne your options will continue to vest 1/16th per
quarter at the end of each of the following quarters: February 28, 1997, May 31,
1997, August 31, 1997 and November 30, 1997. Upon your termination of
employment, vesting will cease, and you shall have 90 days to exercise any
vested and unexercised options (but only 30 days for the 350 share ISO grant).
Any unused flex amounts due you will be paid within 30 days of termination of
employment. Also, while you are employed, you will continue to have a voice mail
and e-mail account, although you will vacate your office no later than March 1,
1997.
Assuming you agree to the above, please sign the enclosed copy of this letter
and return it to me.
Sincerely,
Teradyne, Inc.
/s/ James A. Prestridge
-----------------------
James A. Prestridge
Vice Chairman
Above Agreed to:
By:/s/ John E. Halter Date: 1/24/97
- --------------------- -------------
John E. Halter
<PAGE> 1
EXHIBIT 22.1
PRESENT SUBSIDIARIES
<TABLE>
<CAPTION>
PERCENTAGE
STATE OR OF VOTING
JURISDICTION SECURITIES
INCORPORATION OWNED
------------------- ----------
<S> <C> <C>
Teradyne Benelux, Inc. (Ltd.)................................. Delaware 100%
Teradyne Canada Limited....................................... Canada 100%
Teradyne GmbH................................................. Germany 100%
Teradyne Holdings, Inc........................................ New Hampshire 100%
Teradyne Holdings Limited..................................... United Kingdom 100%
Teradyne Limited............................................ United Kingdom 100%
Teradyne Hong Kong, Ltd. ..................................... Delaware 100%
Teradyne International, Ltd. ................................. U.S. Virgin Islands 100%
Teradyne Ireland Limited...................................... Ireland 100%
Teradyne Italia S.r.L. ....................................... Italy 100%
Teradyne Japan, Ltd. ......................................... Delaware 100%
Teradyne K.K. .............................................. Japan 100%
Teradyne Korea, Ltd. ......................................... Delaware 100%
Teradyne Leasing, Inc. ....................................... Massachusetts 100%
Teradyne Malaysia, Ltd. ...................................... Delaware 100%
Teradyne Midnight Networks Inc................................ Delaware 100%
Teradyne Netherlands B.V. .................................... Netherlands 100%
Teradyne Netherlands, Ltd. ................................... Delaware 100%
Teradyne Realty, Inc. ........................................ Massachusetts 100%
Teradyne S.A. ................................................ France 100%
Teradyne Scandinavia, Inc. ................................... Delaware 100%
Teradyne Singapore, Ltd. ..................................... Delaware 100%
Teradyne Software and Systems Test, Inc. ..................... Delaware 100%
Teradyne Taiwan, Ltd. ........................................ Delaware 100%
Control Automation, Inc....................................... Delaware 100%
Hammer Technologies, Inc. .................................... Massachusetts 100%
Kinetrix, Inc................................................. Delaware 84%
Megatest Corporation.......................................... Delaware 100%
Megatest Limited............................................ United Kingdom 100%
Megatest SARL............................................... France 100%
Megatest GmbH............................................... Germany 100%
Megatest H.K. Ltd. ......................................... Hong Kong 100%
Teradyne Philippines Ltd.................................... California 100%
Megatest International Sales Corporation.................... Barbados 100%
Megatest Asia Pte. Ltd. .................................... Singapore 100%
Zehntel Holdings, Inc. ....................................... California 100%
1000 Washington, Inc. ........................................ Massachusetts 100%
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Teradyne, Inc. on Form S-8 (File Nos. 33-25868; 33-16077; 33-42352; 33-38251;
33-55123; 33-64683; and 333-07177) and Form S-3 (File No. 33-44347) of our
report dated January 17, 1997, on our audits of the consolidated financial
statements of Teradyne, Inc. as of December 31, 1996 and 1995, and for each of
the three years in the period ended December 31, 1996, which report is included
in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 26, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-64683; 33-25868; 33-16077; 33-42352; 33-38251;
33-55123; and 333-07177) and Form S-3 (File No. 33-44347) of Teradyne, Inc. of
our report dated September 20, 1995 relating to the consolidated financial
statements of Megatest Corporation and its subsidiaries as of and for the year
ended August 31, 1994, which report is included in this Annual Report on Form
10-K.
PRICE WATERHOUSE LLP
San Jose, California
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1996 AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 201,452
<SECURITIES> 48,266
<RECEIVABLES> 180,366
<ALLOWANCES> 1,936
<INVENTORY> 138,954
<CURRENT-ASSETS> 617,108
<PP&E> 563,585
<DEPRECIATION> 290,088
<TOTAL-ASSETS> 1,096,816
<CURRENT-LIABILITIES> 225,257
<BONDS> 15,650
0
0
<COMMON> 10,310
<OTHER-SE> 831,701
<TOTAL-LIABILITY-AND-EQUITY> 1,096,816
<SALES> 1,171,615
<TOTAL-REVENUES> 1,171,615
<CGS> 724,624
<TOTAL-COSTS> 1,048,820
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,427
<INCOME-PRETAX> 139,663
<INCOME-TAX> 46,089
<INCOME-CONTINUING> 93,574
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,574
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
</TABLE>
