-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AObTYFnB+B4CtW9/elbgv+m4XDgMN/Sjse3iiF+Satxeob9BFNow8OP37XJQgrXq UcfICEwq4v1pQmYsIcN/UA== 0001047469-98-031269.txt : 19980817 0001047469-98-031269.hdr.sgml : 19980817 ACCESSION NUMBER: 0001047469-98-031269 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WAVETEK CORP CENTRAL INDEX KEY: 0001043015 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 330457664 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-32195 FILM NUMBER: 98687221 BUSINESS ADDRESS: STREET 1: 11995 EL CAMINO REAL STREET 2: STE 301 CITY: SAN DIEGO STATE: CA ZIP: 92130 BUSINESS PHONE: 6197932300 MAIL ADDRESS: STREET 1: 11995 EL CAMINO REAL STREET 2: STE 301 CITY: SAN DIEGO STATE: CA ZIP: 92130 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1998. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________. Commission file number 333-32195 WAVETEK CORPORATION (Exact Name of Registrant as Specified in Its Charter) DELAWARE 33-0457664 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 11995 EL CAMINO REAL, SUITE 301 SAN DIEGO, CALIFORNIA 92130 (Address of Principal Executive Offices) (Zip Code) (619) 793-2300 Registrant's Telephone Number, Including Area Code NOT APPLICABLE Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report. 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 such filing requirements for the past 90 days. Yes X No . --- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of August 13, 1998, Registrant had only one class of common stock, of which there were 4,884,860 shares outstanding. WAVETEK CORPORATION FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 TABLE OF CONTENTS
Page ----- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets as of June 30, 1998 and September 30, 1997.................... 3 Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 1998 and June 30, 1997................................................................ 4 Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 1998 and June 30, 1997................................................................ 5 Notes to Consolidated Financial Statements................................................ 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................................... 16 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS......................................................................... 24 ITEM 2. CHANGES IN SECURITIES..................................................................... 24 ITEM 3. DEFAULTS UPON SENIOR SECURITIES........................................................... 24 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................... 24 ITEM 5. OTHER INFORMATION......................................................................... 24 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................................................... 24
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WAVETEK CORPORATION CONSOLIDATED BALANCE SHEETS (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, SEPTEMBER 30, 1998 1997 --------------- ------------------ (unaudited) (note) ASSETS Current assets: Cash and cash equivalents........................................... $ 6,385 $ 5,695 Short-term investments, available for sale.......................... - 996 Accounts receivable (less allowance for doubtful accounts of $1,212 at June 30, 1998 (unaudited) and $851 at September 30, 1997).............................................. 27,407 25,860 Inventories......................................................... 17,085 15,937 Refundable income taxes............................................. - 616 Deferred income taxes............................................... 3,611 3,611 Other current assets................................................ 1,667 1,730 --------------- ------------------ Total current assets.................................................. 56,155 54,445 Property and equipment, net........................................... 10,821 15,110 Deferred debt issuance costs, net..................................... 3,847 4,233 Deferred merger costs................................................. 600 - Intangible assets, net................................................ 3,059 3,281 Deferred income taxes................................................. 101 101 Other assets.......................................................... 2,062 183 --------------- ------------------ Total assets.......................................................... $ 76,645 $ 77,353 --------------- ------------------ --------------- ------------------ LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Notes payable to banks.............................................. $ 8,875 $ 3,859 Trade accounts payable.............................................. 12,343 13,356 Accrued compensation................................................ 5,953 6,034 Income taxes payable................................................ 561 522 Other current liabilities........................................... 7,323 9,847 Current maturities of long-term obligations......................... 4,000 1,972 --------------- ------------------ Total current liabilities............................................. 39,055 35,590 Long-term obligations, less current maturities........................ 106,000 112,972 Deferred income and other liabilities................................. 1,704 431 Commitments and contingencies......................................... Stockholders' deficit: Common stock, par value $.01; authorized, 15,000 shares; issued and outstanding, 4,885 shares............................. 49 49 Additional paid-in capital.......................................... 43,741 43,741 Accumulated deficit................................................. (113,711) (115,048) Foreign currency translation adjustments............................ (193) (382) --------------- ------------------ Total stockholders' deficit........................................... (70,114) (71,640) --------------- ------------------ Total liabilities and stockholders' deficit........................... $ 76,645 $ 77,353 --------------- ------------------ --------------- ------------------
Note: The balance sheet at September 30, 1997 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. 3 WAVETEK CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, 1998 1997 1998 1997 ---------------- ----------------- --------------- ----------------- Net sales.............................................. $ 35,756 $ 36,484 $ 107,035 $ 118,700 Cost of goods sold..................................... 15,959 16,378 46,505 55,479 ---------------- ----------------- --------------- ----------------- Gross margin........................................... 19,797 20,106 60,530 63,221 Operating expenses: Marketing and selling................................ 9,739 9,340 27,598 27,913 Research and development............................. 4,172 3,922 12,899 11,635 General and administrative........................... 3,546 2,473 8,939 7,878 Stock option compensation related to recapitalization................................. - 7,061 - 7,061 ---------------- ----------------- --------------- ----------------- 17,457 22,796 49,436 54,487 ---------------- ----------------- --------------- ----------------- Operating income (loss)................................ 2,340 (2,690) 11,094 8,734 Non-operating income (expense): Interest income...................................... 44 118 153 254 Interest expense..................................... (2,996) (709) (8,944) (948) Other, net........................................... (55) (245) (210) (861) ---------------- ----------------- --------------- ----------------- (3,007) (836) (9,001) (1,555) ---------------- ----------------- --------------- ----------------- Income (loss) before provision (credit) for income taxes.......................................... (667) (3,526) 2,093 7,179 Provision (credit) for income taxes.................... (349) (1,137) 756 2,728 ---------------- ----------------- --------------- ----------------- Net income (loss)...................................... $ (318) $ (2,389) $ 1,337 $ 4,451 ---------------- ----------------- --------------- ----------------- ---------------- ----------------- --------------- ----------------- Net income (loss) per share - basic.................... $ (.07) $ (.25) $ .28 $ .42 ---------------- ----------------- --------------- ----------------- ---------------- ----------------- --------------- ----------------- Net income (loss) per share - diluted.................. $ (.07) $ (.25) $ .27 $ .40 ---------------- ----------------- --------------- ----------------- ---------------- ----------------- --------------- ----------------- Average common shares outstanding - basic.............. 4,885 9,633 4,885 10,526 ---------------- ----------------- --------------- ----------------- ---------------- ----------------- --------------- ----------------- Average common shares outstanding - diluted............ 4,885 9,633 5,115 11,123 ---------------- ----------------- --------------- ----------------- ---------------- ----------------- --------------- -----------------
See accompanying notes. 4 WAVETEK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW (DOLLARS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 1998 1997 --------------- ---------------- OPERATING ACTIVITIES Net income.............................................................. $ 1,337 $ 4,451 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation expense.................................................. 2,474 2,102 Amortization expense.................................................. 221 430 Amortization of debt issuance costs................................... 483 33 Provision for losses on accounts receivable........................... 435 252 Deferred income taxes................................................. - 435 Other, net............................................................ (82) (65) Changes in operating assets and liabilities: Accounts receivable.............................................. (1,913) (6,948) Inventories and other assets..................................... (2,914) (335) Accounts payable and accrued expenses............................ (2,282) 6,136 Income taxes payable, net........................................ 10 540 --------------- ---------------- Net cash provided by (used in) operating activities..................... (2,231) 7,031 INVESTING ACTIVITIES Purchase of property and equipment...................................... (2,261) (4,784) Proceeds from sale of property and equipment............................ 152 53 Purchase of short-term investments...................................... - (3,000) Proceeds from sale of short-term investments............................ 996 - Payments received on notes receivable................................... 11 169 Issuance of notes receivable............................................ (15) - --------------- ---------------- Net cash used in investing activities................................... (1,117) (7,562) FINANCING ACTIVITIES Issuance of common shares for cash...................................... - 42,856 Repurchase of common shares and stock options for cash.................. - (152,564) Proceeds from revolving lines of credit and long-term obligations....... 5,881 114,144 Principal payments on revolving lines of credit and long-term obligations............................................................ (1,726) (1,489) Debt issuance costs..................................................... (97) (4,326) --------------- ---------------- Net cash provided by (used in) financing activities..................... 4,058 (1,379) Effect of exchange rate changes on cash and cash equivalents............ (20) (157) --------------- ---------------- Increase (decrease) in cash and cash equivalents........................ 690 (2,067) Cash and cash equivalents at beginning of period........................ 5,695 6,126 --------------- ---------------- Cash and cash equivalents at end of period.............................. $ 6,385 $ 4,059 --------------- ---------------- --------------- ---------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest.................................................. $ 10,747 $ 440 --------------- ---------------- --------------- ---------------- Cash paid for income taxes.............................................. $ 143 $ 1,963 --------------- ---------------- --------------- ----------------
See accompanying notes. 5 WAVETEK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION Wavetek Corporation (the "Company") is a leading global designer, manufacturer and distributor of a broad range of electronic test instruments, with a primary focus on application-specific instruments for testing voice, video and data communications equipment and networks. The Company also designs, manufactures and distributes precision instruments to calibrate and test electronic equipment and provides repair, upgrade and calibration services for its products on a worldwide basis. The accompanying consolidated financial statements include the operations of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying financial statements and the financial information included herein are unaudited. However such information includes all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary to fairly state the results of the interim periods. Interim results are not necessarily indicative of results to be expected for the full year. It is suggested that these consolidated financial statements be read in conjunction with the Company's audited consolidated financial statements and notes thereto, included in the Company's Annual Report on Form 10-K for the year ended September 30, 1997. 2. NET INCOME (LOSS) PER SHARE Effective October 1, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE ("SFAS 128"). SFAS 128 replaced the calculation of primary and fully diluted net income (loss) per share with basic and diluted net income (loss) per share. Unlike primary net income (loss) per share previously reported by the Company, basic net income (loss) per share is based only on average common shares outstanding and excludes the dilutive effects of the Company's outstanding stock options. Diluted net income (loss) per share is very similar to the previous concept of fully diluted net income (loss) per share and includes the dilutive effect of the Company's outstanding stock options. The Company has a simple capital structure and, accordingly, the only difference in the Company's computations of basic and diluted net income (loss) per share is the dilutive effect of outstanding stock options. For the three months ended June 30, 1998 and 1997, the effect of outstanding stock options would have been anti-dilutive and, therefore, was not considered in the computation of diluted net income (loss) per share for such periods. All net income (loss) per share amounts for all periods have been presented, and where necessary, restated to conform to the requirements of SFAS 128. 3. FINANCIAL STATEMENT DETAILS Inventories consist of the following:
JUNE 30, SEPTEMBER 30, 1998 1997 ---------------- ---------------- (DOLLARS IN THOUSANDS) Finished goods......................... $ 6,815 $ 6,451 Work-in-progress....................... 4,351 3,612 Materials.............................. 5,919 5,874 ---------------- ---------------- $ 17,085 $ 15,937 ---------------- ---------------- ---------------- ----------------
6 4. SALE AND LEASEBACK FINANCING In October 1994, the Company entered into a sale and leaseback financing whereby it sold its facility in Indianapolis to a third party investor for $4.5 million, resulting in a charge to income of $1.8 million, representing the excess of the net book value of the property over the net proceeds received. The Company simultaneously entered a Master Lease Agreement with the buyer, under which the Company leased back the facility for a period of 20 years for an annual rental of $473,000, subject to annual adjustments based on the change in the consumer price index, not to exceed 3.0% per annum. In December 1994, the Company subleased a portion of this facility to a third party for five years for an annual base rental and common area expense reimbursement of $387,000. Because of the significance of the sublease in relation to the Company's master lease of the facility, generally accepted accounting principles required that the transaction be recorded as a financing transaction, whereby the building remained on the Company's balance sheet in an amount equal to the net proceeds from the sale and an offsetting long-term financing obligation was recorded. In February 1998, the sublease was no longer significant in relation to the Company's master lease of the facility. Accordingly, both the building asset and the long-term financing obligation, each in the amount of approximately $4.0 million, have been removed from the Company's balance sheet, with no impact on the Company's results of operations or its cash flows. Effective February 1, 1998, the master lease is accounted for as an operating lease, with monthly rental payments recorded as operating expenses. 5. AGREEMENT TO MERGE On June 15, 1998, Wavetek Corporation and Wandel & Goltermann Management Holding GmbH jointly announced that they have signed definitive agreements to merge the companies. The structure of the transaction and the timing of closing are currently being determined. 6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA The Company's payment obligations under its Senior Subordinated Notes issued in connection with certain Recapitalization Transactions in June 1997 are guaranteed by all of the Company's current and future domestic subsidiaries (collectively, the "Subsidiary Guarantors"). Wavetek U.S. Inc. is the only current Subsidiary Guarantor. Such guarantee is full and unconditional and future guarantees will be joint and several. Separate financial statements of the Subsidiary Guarantor are not presented because the Company's management has deemed that they would not be material to investors. The following supplemental condensed consolidating financial data sets forth, on an unconsolidated basis, balance sheets, statements of operations and statements of cash flows data for (i) the Company ("Wavetek Corporation"), (ii) the current Subsidiary Guarantor and (iii) the Company's current foreign subsidiaries (the "Foreign Subsidiaries"). The supplemental financial data reflects the investments of Wavetek Corporation in the Subsidiary Guarantor and the Foreign Subsidiaries using the equity method of accounting. 7 6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED) CONSOLIDATING BALANCE SHEETS AS OF JUNE 30, 1998 (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
WAVETEK SUBSIDIARY FOREIGN CORPORATION GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------- ------------- -------------- ------------- ------------- ASSETS Current assets: Cash and cash equivalents.............................. $ - $ 4,518 $ 1,867 $ - $ 6,385 Short-term investments, available for sale............. - - - - - Accounts receivable (less allowance for doubtful accounts of $1,212)........................ (116) 33,209 17,526 (23,212) 27,407 Inventories............................................ - 6,961 11,068 (944) 17,085 Refundable income taxes................................ - - - - - Deferred income taxes.................................. 2,301 1,310 - - 3,611 Other current assets................................... 139 242 1,286 - 1,667 ------------- ------------- -------------- ------------- ------------- Total current assets...................................... 2,324 46,240 31,747 (24,156) 56,155 Property and equipment, net............................... 1,592 4,340 4,889 - 10,821 Deferred debt issuance costs, net......................... 3,847 - - - 3,847 Deferred merger costs..................................... 600 - - - 600 Intangible assets, net.................................... 3,024 - 35 - 3,059 Deferred income taxes..................................... (4) 105 - - 101 Other assets.............................................. 217 1,947 83 (185) 2,062 Investment in subsidiaries................................ 41,735 - 25 (41,760) - ------------- ------------- -------------- ------------- ------------- Total assets.............................................. $ 53,335 $ 52,632 $ 36,779 $ (66,101) $ 76,645 ------------- ------------- -------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Notes payable to banks................................. $ 5,000 $ - $ 3,875 $ - $ 8,875 Trade accounts payable................................. 15,995 7,599 11,968 (23,219) 12,343 Accrued compensation................................... 216 1,783 3,954 - 5,953 Income taxes payable................................... (8,853) 8,490 924 - 561 Other current liabilities.............................. 1,059 2,108 4,149 7 7,323 Current maturities of long-term obligations............ 4,000 - - - 4,000 ------------- ------------- -------------- ------------- ------------- Total current liabilities................................. 17,417 19,980 24,870 (23,212) 39,055 Long-term obligations, less current maturities............ 106,000 - 185 (185) 106,000 Deferred income and other liabilities..................... 32 1,644 28 - 1,704 Commitments and contingencies Stockholders' equity (deficit): Common stock, par value $.01; authorized, 15,000 shares; issued and outstanding, 4,885 shares.......... 49 - - - 49 Additional paid-in capital............................. 43,741 2,137 15,064 (17,201) 43,741 Retained earnings (accumulated deficit)................ (113,711) 28,871 (3,175) (25,696) (113,711) Foreign currency translation adjustments............... (193) - (193) 193 (193) ------------- ------------- -------------- ------------- ------------- Total stockholders' equity (deficit)...................... (70,114) 31,008 11,696 (42,704) (70,114) ------------- ------------- -------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- Total liabilities and stockholders' equity (deficit)...... $ 53,335 $ 52,632 $ 36,779 $ (66,101) $ 76,645 ------------- ------------- -------------- ------------- ------------- ------------- ------------- -------------- ------------- -------------
8 6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED) CONSOLIDATING BALANCE SHEETS AS OF SEPTEMBER 30, 1997 (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
WAVETEK SUBSIDIARY FOREIGN CORPORATION GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------- ------------ -------------- ------------- ------------- ASSETS Current assets: Cash and cash equivalents.............................. $ - $ 4,575 $ 1,120 $ - $ 5,695 Short-term investments, available for sale............. - 996 - - 996 Accounts receivable (less allowance for doubtful accounts of $851)............................ (103) 20,202 16,230 (10,469) 25,860 Inventories............................................ - 5,758 11,084 (905) 15,937 Refundable income taxes................................ 4,134 (3,521) 3 - 616 Deferred income taxes.................................. 2,301 1,310 - - 3,611 Other current assets................................... 63 246 1,421 - 1,730 ------------- ------------ -------------- ------------- ------------- Total current assets...................................... 6,395 29,566 29,858 (11,374) 54,445 Property and equipment, net............................... 5,690 4,428 5,015 (23) 15,110 Debt issuance costs, net.................................. 4,233 - - - 4,233 Intangible assets, net.................................... 3,224 - 57 - 3,281 Deferred income taxes..................................... (4) 105 - - 101 Other assets.............................................. 226 46 96 (185) 183 Investment in subsidiaries................................ 33,059 - 25 (33,084) - ------------- ------------ -------------- ------------- ------------- Total assets.............................................. $ 52,823 $ 34,145 $ 35,051 $ (44,666) $ 77,353 ------------- ------------ -------------- ------------- ------------- ------------- ------------ -------------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Notes payable to banks................................. $ - $ - $ 3,859 $ - $ 3,859 Trade accounts payable................................. 5,215 5,795 12,817 (10,471) 13,356 Accrued compensation................................... 418 1,486 4,130 - 6,034 Income taxes payable................................... - - 522 - 522 Other current liabilities.............................. 4,727 3,042 2,077 1 9,847 Current maturities of long-term obligations............ 1,097 - 875 - 1,972 ------------- ------------ -------------- ------------- ------------- Total current liabilities................................. 11,457 10,323 24,280 (10,470) 35,590 Long-term obligations, less current maturities............ 112,971 - 186 (185) 112,972 Deferred income and other liabilities..................... 35 369 27 - 431 Commitments and contingencies............................. Stockholders' equity (deficit): Common stock, par value $.01; authorized, 15,000 shares; issued and outstanding, 4,885 shares... 49 - - - 49 Additional paid-in capital............................. 43,741 2,137 15,064 (17,201) 43,741 Retained earnings (accumulated deficit)................ (115,048) 21,316 (4,124) (17,192) (115,048) Foreign currency translation adjustments............... (382) - (382) 382 (382) ------------- ------------ -------------- ------------- ------------- Total stockholders' equity (deficit)...................... (71,640) 23,453 10,558 (34,011) (71,640) ------------- ------------ -------------- ------------- ------------- ------------- ------------ -------------- ------------- ------------- Total liabilities and stockholders' equity (deficit)...... $ 52,823 $ 34,145 $ 35,051 $ (44,666) $ 77,353 ------------- ------------ -------------- ------------- ------------- ------------- ------------ -------------- ------------- -------------
9 6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED) CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 (DOLLARS IN THOUSANDS)
WAVETEK SUBSIDIARY FOREIGN CORPORATION GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------------- ------------- -------------- -------------- ------------- Net sales............................................ $ - $ 22,811 $ 20,515 $ (7,570) $ 35,756 Cost of goods sold................................... 27 10,331 12,964 (7,363) 15,959 -------------- ------------- -------------- -------------- ------------- Gross margin......................................... (27) 12,480 7,551 (207) 19,797 Operating expenses: Marketing and selling............................. 370 5,283 4,086 - 9,739 Research and development.......................... (2) 2,267 1,907 - 4,172 General and administrative........................ 907 1,526 1,113 - 3,546 -------------- ------------- -------------- -------------- ------------- 1,275 9,076 7,106 - 17,457 -------------- ------------- -------------- -------------- ------------- Operating income (loss).............................. (1,302) 3,404 445 (207) 2,340 Non-operating income (expense): Interest income................................... - 39 5 - 44 Interest expense.................................. (2,950) - (46) - (2,996) Equity in net income (loss) of subsidiaries....... 2,012 - - (2,012) - Other, net........................................ (3) 210 (264) 2 (55) -------------- ------------- -------------- -------------- ------------- (941) 249 (305) (2,010) (3,007) -------------- ------------- -------------- -------------- ------------- Income (loss) before provision (credit) for income taxes........................................ (2,243) 3,653 140 (2,217) (667) Provision (credit) for income taxes.................. (1,925) 1,462 114 - (349) -------------- ------------- -------------- -------------- ------------- Net income (loss).................................... $ (318) $ 2,191 $ 26 $ (2,217) $ (318) -------------- ------------- -------------- -------------- ------------- -------------- ------------- -------------- -------------- -------------
10 6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED) CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 (DOLLARS IN THOUSANDS)
WAVETEK SUBSIDIARY FOREIGN CORPORATION GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------- ----------- -------------- -------------- ------------- Net sales............................................. $ - $ 21,325 $ 24,231 $ (9,072) $ 36,484 Cost of goods sold.................................... (92) 9,525 15,590 (8,645) 16,378 ------------- ----------- -------------- -------------- ------------- Gross margin.......................................... 92 11,800 8,641 (427) 20,106 Operating expenses: Marketing and selling.............................. 220 4,883 4,237 - 9,340 Research and development........................... (12) 2,378 1,556 - 3,922 General and administrative......................... 418 1,012 1,050 (7) 2,473 Stock option compensation related to recapitalization............................... 1,926 2,318 2,817 - 7,061 ------------- ----------- -------------- -------------- ------------- 2,552 10,591 9,660 (7) 22,796 ------------- ----------- -------------- -------------- ------------- Operating income (loss)............................... (2,460) 1,209 (1,019) (420) (2,690) Non-operating income (expense): Interest income.................................... - 100 18 - 118 Interest expense................................... (669) - (40) - (709) Equity in net income of subsidiaries............... (1,165) - - 1,165 - Other, net......................................... 181 32 (458) - (245) ------------- ----------- -------------- -------------- ------------- (1,653) 132 (480) 1,165 (836) ------------- ----------- -------------- -------------- ------------- Income before provision (credit) for income taxes..... (4,113) 1,341 (1,499) 745 (3,526) Provision (credit) for income taxes................... (1,724) 545 42 - (1,137) ------------- ----------- -------------- -------------- ------------- Net income (loss)..................................... $ (2,389) $ 796 $ (1,541) $ 745 $ (2,389) ------------- ----------- -------------- -------------- ------------- ------------- ----------- -------------- -------------- -------------
11 6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED) CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 1998 (DOLLARS IN THOUSANDS)
WAVETEK SUBSIDIARY FOREIGN CORPORATION GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------- ------------ -------------- ------------ ------------- Net sales........................................ $ - $ 65,612 $ 63,236 $ (21,813) $ 107,035 Cost of goods sold............................... (43) 28,486 39,857 (21,795) 46,505 ------------- ------------ -------------- ------------ ------------- Gross margin..................................... 43 37,126 23,379 (18) 60,530 Operating expenses: Marketing and selling......................... 1,210 14,099 12,289 - 27,598 Research and development...................... (22) 7,681 5,240 - 12,899 General and administrative.................... 1,945 3,501 3,493 - 8,939 ------------- ------------ -------------- ------------ ------------- 3,133 25,281 21,022 - 49,436 ------------- ------------ -------------- ------------ ------------- Operating income (loss).......................... (3,090) 11,845 2,357 (18) 11,094 Non-operating income (expense): Interest income............................... - 145 8 - 153 Interest expense.............................. (8,780) - (164) - (8,944) Equity in net income of subsidiaries.......... 8,491 - - (8,491) - Other, net.................................... (3) 603 (815) 5 (210) ------------- ------------ -------------- ------------ ------------- (292) 748 (971) (8,486) (9,001) ------------- ------------ -------------- ------------ ------------- Income (loss) before provision (credit) for income taxes................................ (3,382) 12,593 1,386 (8,504) 2,093 Provision (credit) for income taxes.............. (4,719) 5,038 437 - 756 ------------- ------------ -------------- ------------ ------------- Net income....................................... $ 1,337 $ 7,555 $ 949 $ (8,504) $ 1,337 ------------- ------------ -------------- ------------ ------------- ------------- ------------ -------------- ------------ -------------
12 6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED) CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 1997 (DOLLARS IN THOUSANDS)
WAVETEK SUBSIDIARY FOREIGN CORPORATION GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------- ------------ -------------- -------------- -------------- Net sales............................................. $ - $ 64,759 $ 81,844 $ (27,903) $ 118,700 Cost of goods sold.................................... (244) 29,351 53,956 (27,584) 55,479 ------------- ------------ -------------- -------------- -------------- Gross margin.......................................... 244 35,408 27,888 (319) 63,221 Operating expenses: Marketing and selling.............................. 700 13,159 14,054 - 27,913 Research and development........................... (36) 7,323 4,348 - 11,635 General and administrative......................... 1,661 2,813 3,411 (7) 7,878 Stock option compensation related to recapitalization............................... 1,926 2,318 2,817 - 7,061 ------------- ------------ -------------- -------------- -------------- 4,251 25,613 24,630 (7) 54,487 ------------- ------------ -------------- -------------- -------------- Operating income (loss)............................... (4,007) 9,795 3,258 (312) 8,734 Non-operating income (expense): Interest income.................................... 76 221 32 (75) 254 Interest expense................................... (861) - (162) 75 (948) Equity in net income of subsidiaries............... 7,259 - - (7,259) - Other, net......................................... 345 128 (1,334) - (861) ------------- ------------ -------------- -------------- -------------- 6,819 349 (1,464) (7,259) (1,555) ------------- ------------ -------------- -------------- -------------- Income before provision (credit) for income taxes..... 2,812 10,144 1,794 (7,571) 7,179 Provision (credit) for income taxes................... (1,639) 3,753 614 - 2,728 ------------- ------------ -------------- -------------- -------------- Net income............................................ $ 4,451 $ 6,391 $ 1,180 $ (7,571) $ 4,451 ------------- ------------ -------------- -------------- -------------- ------------- ------------ -------------- -------------- --------------
13 6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW FOR THE NINE MONTHS ENDED JUNE 30, 1998 (DOLLARS IN THOUSANDS)
WAVETEK SUBSIDIARY FOREIGN CORPORATION GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------ ----------- -------------- ------------- ------------- OPERATING ACTIVITIES Net cash provided by (used in) operating activities... $ (4,586) $ (134) $ 2,489 $ - $ (2,231) INVESTING ACTIVITIES Purchase of property and equipment...................... (295) (880) (1,086) - (2,261) Proceeds from sale of short-term investments............ - 996 - - 996 Other investing activities.............................. 11 (39) 176 - 148 ------------ ----------- -------------- ------------- ------------- Net cash provided by (used in) investing activities..... (284) 77 (910) - (1,117) FINANCING ACTIVITIES Proceeds from revolving lines of credit and long-term obligations.................................. 5,000 - 881 - 5,881 Principal payments on revolving lines of credit and long-term obligations.................................. (33) - (1,693) - (1,726) Debt issuance costs..................................... (97) - - - (97) ------------ ----------- -------------- ------------- ------------- Net cash provided by (used in) financing activities..... 4,870 - (812) - 4,058 Effect of exchange rate changes on cash and cash equivalents.. .................................... - - (20) - (20) ------------ ----------- -------------- ------------- ------------- Increase (decrease) in cash and cash equivalents........ - (57) 747 - 690 Cash and cash equivalents at beginning of period........ - 4,575 1,120 - 5,695 ------------ ----------- -------------- ------------- ------------- Cash and cash equivalents at end of period.............. $ - $ 4,518 $ 1,867 $ - $ 6,385 ------------ ----------- -------------- ------------- ------------- ------------ ----------- -------------- ------------- -------------
14 6. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL DATA (CONTINUED) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW FOR THE NINE MONTHS ENDED JUNE 30, 1997 (DOLLARS IN THOUSANDS)
WAVETEK SUBSIDIARY FOREIGN CORPORATION GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------- ----------- ------------ -------------- ------------- OPERATING ACTIVITIES Net cash provided by (used in) operating activities..... $ (7,307) $ 13,102 $ 1,236 $ - $ 7,031 INVESTING ACTIVITIES Purchase of short-term investments...................... - (3,000) - - (3,000) Purchase of property and equipment...................... (1,179) (1,565) (2,040) - (4,784) Other investing activities.............................. 25 160 37 - 222 ------------- ----------- ------------ -------------- ------------- Net cash used in investing activities................... (1,154) (4,405) (2,003) - (7,562) FINANCING ACTIVITIES Issuance of common shares for cash...................... 42,856 - - - 42,856 Repurchase of common shares and stock options for cash............................................... (152,564) - - - (152,564) Proceeds from revolving lines of credit and long-term obligations.................................. 110,000 - 4,144 - 114,144 Principal payments on revolving lines of credit and long-term obligations................................ (68) - (1,421) - (1,489) Debt issuance costs..................................... (4,326) - - - (4,326) Dividends from subsidiaries to Wavetek Corporation...... 11,304 (10,000) (1,304) - - Capital contributions from Wavetek Corporation to subsidiaries........................................... (2,578) - 2,578 - - Repayment of loans from Wavetek Corporation to subsidiaries........................................... 3,837 - (3,837) - - Other financing activities.............................. - ------------- ----------- ------------ -------------- ------------- Net cash provided by (used in) financing activities..... 8,461 (10,000) 160 - (1,379) Effect of exchange rate changes on cash and cash equivalents....................................... - - (157) - (157) ------------- ----------- ------------ -------------- ------------- Decrease in cash and cash equivalents................... - (1,303) (764) - (2,067) Cash and cash equivalents at beginning of period........ - 4,845 1,281 - 6,126 ------------- ----------- ------------ -------------- ------------- Cash and cash equivalents at end of period.............. $ - $ 3,542 $ 517 $ - $ 4,059 ------------- ----------- ------------ -------------- ------------- ------------- ----------- ------------ -------------- -------------
15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements contained in this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Quarterly Report on Form 10-Q which are not historical facts may be forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected, including, but not limited to, those risks and special considerations set forth in the Company's other SEC filings. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. OVERVIEW Wavetek is a leading global designer, manufacturer and distributor of a broad range of electronic test instruments, with a primary focus on application-specific instruments for testing voice, video and data communications equipment and networks. The Company also designs, manufactures and distributes precision instruments to calibrate and test electronic equipment and provides repair, upgrade and calibration services for its products on a worldwide basis. The Company derives its revenues primarily from the sale of its products to a broad international base of over 5,000 customers operating in a wide range of industries. A majority of the Company's sales come from its Communications Test product lines which serve the CATV, Wireless, Telecom, LAN and Test Tools market segments of the test instrument industry. The Company also sells Calibration Instruments and provides repair, upgrade and calibration services for its products on a worldwide basis. The Company sells products that are manufactured at its four facilities located in: (i) Indianapolis, Indiana; (ii) Norwich, England; (iii) St. Etienne, France; and (iv) Munich, Germany. In major markets such as the United States, England, France and Germany, the Company sells its products to customers in their local currencies. In the rest of the world, the Company generally sells its products to customers or local distributors in the functional currency of the location where the products are manufactured. During fiscal 1997, approximately 61% of the Company's sales were generated outside of the United States and approximately 50% of the Company's sales were made in currencies other than the United States dollar. During the nine months ended June 30, 1998, approximately 54% of the Company's sales were generated outside the United States and approximately 43% of the Company's sales were made in currencies other than the United States dollar. As a result of such foreign currency sales, the equivalent United States dollar amount of the Company's sales is impacted by changes in foreign currency exchange rates. The Company's ability to maintain and grow its sales depends on a variety of factors including its ability to maintain its competitive position in areas such as technology, performance, price, brand identity, quality, reliability, distribution and customer service and support, and its ability to continue to introduce new products that respond to technological change and market demand in a timely manner. Wavetek's cost of goods sold, and its resulting gross margin, are driven primarily by the cost of the material in its products, the cost of the labor to manufacture such products and the overhead expenses in its facilities. In recent years, the Company has focused on improving its gross margin by: (i) consolidating manufacturing operations; (ii) focusing its new product development efforts on lower-cost, easier to manufacture designs; (iii) controlling headcount and expenses in its manufacturing facilities; and (iv) gaining efficiencies and economies of scale in its material and component procurement activities. 16 The Company's operating expenses are substantially impacted by marketing and selling activities and by research and development activities. Marketing and selling expenses are primarily driven by: (i) sales volume, with respect to sales force expenses and commission expenses; (ii) the extent of market research activities for new product design efforts; (iii) advertising and trade show activities; and (iv) the number of new products introduced in the period. Research and development expenses are primarily driven by the number and complexity of new products under development. General and administrative expenses primarily include costs associated with the Company's administrative employees, facilities and functions. The Company incurs expenses in foreign countries primarily in the functional currencies of such locations. As a result of the Company's substantial international operations, the United States dollar amount of its expenses is impacted by changes in foreign currency exchange rates. RESULTS OF OPERATIONS The following table sets forth selected financial information as a percentage of sales for the periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Sales.................................................. 100.0% 100.0% 100.0% 100.0% Cost of goods sold..................................... 44.6 44.9 43.4 46.7 -------------- -------------- -------------- -------------- Gross margin........................................... 55.4 55.1 56.6 53.3 Operating expenses..................................... 48.8 62.5 46.2 45.9 -------------- -------------- -------------- -------------- Operating income (loss)................................ 6.6 (7.4) 10.4 7.4 Interest expense, net.................................. (8.3) (1.6) (8.2) (0.7) Other non-operating income (expense), net............. (0.2) (0.7) (0.2) (0.7) -------------- -------------- -------------- -------------- Income (loss) before provision for income taxes....... (1.9) (9.7) 2.0 6.0 Provision (credit) for income taxes................... (1.0) 3.1 0.8 (2.3) -------------- -------------- -------------- -------------- Net income (loss)...................................... 0.9% (6.6)% 1.2% 3.7% -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- EBITDA (1)............................................. 9.1% 14.3% 12.9% 15.4% -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
The Company's ratio of earnings to fixed charges was as follows for the periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Ratio of earnings to fixed charges (2)................ 0.8x (2.8)x 1.2x 5.4x
- ----------- (1) EBITDA is operating income plus depreciation, amortization expense and stock option compensation related to recapitalization. The Company's definition of EBITDA is consistent with the definition of Consolidated Cash Flow in the Indenture related to the Company's Senior Subordinated Notes (the "Indenture"). While EBITDA should not be construed as a substitute for income from operations, net income or cash flows from operating activities in analyzing the Company's operating performance, financial position or cash flows, the Company has included EBITDA because it may be viewed as an indicator of compliance with certain covenants in the Indenture and the Company's bank credit agreement and is commonly used by certain investors and analysts to analyze and compare companies on the basis of operating performance, leverage and liquidity and to determine a Company's ability to service debt. EBITDA as presented by the Company herein may not be comparable to similarly titled measures reported by other companies. In addition, the amount reported by the Company as EBITDA may not be fully 17 available for management's discretionary use due to the Company's needs to conserve funds for debt service, capital expenditures and other commitments. (2) For purposes of computing this ratio, earnings consist of income before provision for income taxes plus fixed charges. Fixed charges consist of interest expense, amortization of deferred debt issuance costs and one-third of the rent expense from operating leases, which management believes is a reasonable approximation of the interest factor of the rent. THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997 NET SALES. Net sales in the three months ended June 30, 1998 decreased $0.7 million, or 2%, to $35.8 million from $36.5 million in the comparable fiscal 1997 period. This decrease was due to a decrease in sales to international customers of $2.5 million, or 12.7%, partially offset by an increase of $1.8 million, or 10.7%, in sales to customers in the United States. The Company's sales to customers outside the United States decreased to 48.4% of total sales in the three months ended June 30, 1998 from 54.4% in the comparable fiscal 1997 period and the portion of the Company's sales which were made in currencies other than the United States dollar decreased to approximately 39% in the three months ended June 30, 1998 from approximately 45% in the comparable fiscal 1997 period. The decrease in sales to international customers was primarily due to (i) a reduction in sales to customers in Asia due to recent economic downturns in that region and certain large shipments to Asian customers which were made in the three months ended June 30, 1997 that did not recur in similar magnitude in the three months ended June 30, 1998, (ii) certain sales from orders backlog of newly released products which were made in the three months ended June 30, 1997 that did not recur in similar magnitude in the three months ended June 30, 1998 and (iii) a reduction in sales of a product line of the Company due to delays in the completion of a new product. Such product was completed and began shipping at volume levels in June 1998. Changes in certain foreign exchange rates also had a small favorable impact on the United States dollar equivalent of the Company's sales denominated in foreign currencies in the three months ended June 30, 1998. The increase in sales to customers in the United States was primarily due to an increase in orders in the United States for certain products of the Company, due to improved market penetration, and an increase in sales from orders backlog in the three months ended June 30, 1998, compared to the three months ended June 30, 1997, in two product lines of the Company due to the release of new products in the United States. Sales of the Company's Communications Test products in the three months ended June 30, 1998 increased $1.8 million, or 6.8%, from the comparable fiscal 1997 period primarily due to the increase in sales to customers in the United States discussed above. Sales of Calibration Instruments products in the three months ended June 30, 1998 decreased $2.3 million, or 31.4%, from the comparable fiscal 1997 period, due partially to an unfavorable geographic mix of such sales resulting in less revenue per unit sold and partially to certain sales from orders backlog of newly released products which were made in the three months ended June 30, 1997 that did not recur in similar magnitude in the three months ended June 30, 1998. Sales in the three months ended June 30, 1998 from repair, upgrade and calibration services decreased $0.2 million, or 5.6%, from the comparable fiscal 1997 period. GROSS MARGIN. The Company's gross margin in the three months ended June 30, 1998 decreased $0.3 million or 1.5%, to $19.8 million from $20.1 million in the comparable fiscal 1997 period. Gross margin as a percentage of sales increased to 55.4% in the three months ended June 30, 1998 from 55.1% in the comparable fiscal 1997 period. The increase in the gross margin percentage during the three months ended June 30, 1998 resulted primarily from increases in gross margin percentages realized from the Company's sales of Communications Test products due substantially to improvements made by the Company in recent periods to the cost structure of its manufacturing operations, including the replacement of a major manufacturing subcontractor in Europe. In addition, the Company's improved gross margin percentages were positively impacted by a favorable geographical and product mix of its sales. As a partial offset to these improved gross margin percentages, the Company experienced a reduction in gross margin percentages realized from sales 18 of its Calibration Instruments products during the three months ended June 30, 1998 due primarily to lower sales volume and an unfavorable geographic mix of its sales. Changes in foreign exchange rates had a small unfavorable impact on the United States dollar equivalent of gross margins related to international sales denominated in foreign currencies in the three months ended June 30, 1998. OPERATING EXPENSES. Operating expenses in the three months ended June 30, 1998 decreased $5.3 million, or 23.4%, to $17.5 million from $22.8 million in the comparable fiscal 1997 period. Operating expenses as a percentage of sales decreased to 48.8% in the three months ended June 30, 1998 from 62.5% in the comparable fiscal 1997 period. The decrease in operating expenses in the three months ended June 30, 1998 was due to a one-time charge of $7.1 million, or 19.4% of sales, in the three months ended June 30, 1997 for stock option compensation related to certain recapitalization transactions of the Company that occurred in June 1997. Excluding that charge, operating expenses in the three months ended June 30, 1998 increased $1.7 million, or 10.9%, from the comparable fiscal 1997 period. The increase in operating expenses in the three months ended June 30, 1998 was primarily due to an increase in spending for general and administrative activities of $1.0 million, to $3.5 million, or 9.9% of sales, in the three months ended June 30, 1998 from $2.5 million, or 6.8% of sales, in the comparable 1997 period, primarily due to expenses incurred in the three months ended June 30, 1998 in connection with certain legal claims against the Company and an increase in expense in the three months ended June 30, 1998 related to the Company's management information systems. In addition, spending for marketing and selling activities increased by $0.4 million, to $9.7 million, or 27.2% of sales, in the three months ended June 30, 1998 from $9.3 million, or 25.6% of sales, in the comparable 1997 period, primarily due to the addition of certain marketing personnel and certain recruiting and relocation costs incurred in connection with recruiting activities for new marketing and sales personnel during the three months ended June 30, 1998. Spending for research and development activities also increased by $0.3 million, to $4.2 million, or 11.7% of sales, in the three months ended June 30, 1998 from $3.9 million, or 10.7% of sales, in the comparable 1997 period, in order to accelerate the timing of new product introductions. Changes in foreign exchange rates had a small favorable impact on the United States dollar equivalent of operating expenses denominated in foreign currencies in the three months ended June 30, 1998. NON-OPERATING INCOME (EXPENSE). Non-operating expense, net, in the three months ended June 30, 1998 increased by $2.2 million over the comparable fiscal 1997 period to $3.0 million. The increase was primarily due to an increase in the Company's net interest expense to $3.0 million during the three months ended June 30, 1998 from $0.6 million in the comparable fiscal 1997 period, reflecting additional interest expense due to the Company's outstanding debt securities (the "Notes") and the New Credit Agreement. The increase in net interest expense was partially offset by a reduction of $0.2 million in other non-operating expenses. PROVISION (CREDIT) FOR INCOME TAXES. The Company's effective tax rate decreased to approximately 36% in the nine months ended June 30, 1998, from approximately 38% in the comparable fiscal 1997 period. The provisions (credits) for income taxes for the three months ended June 30, 1998 and 1997 include certain adjustments, which are not material in amount, to reflect these revised estimates of the Company's annualized effective tax rates. NET INCOME (LOSS). As a result of the above factors, net loss was $0.3 million in the three months ended June 30, 1998 as compared to $2.4 million in the comparable fiscal 1997 period. EBITDA. As a result of the above factors, EBITDA was $3.2 million in the three months ended June 30, 1998 as compared to $5.2 million in the comparable fiscal 1997 period. EBITDA as a percentage of sales decreased to 9.1% in the three months ended June 30, 1998 from 14.3% in the comparable fiscal 1997 period. 19 RATIO OF EARNINGS TO FIXED CHARGES. As a result of the above factors, the ratio of earnings to fixed charges was 0.8x in the three months ended June 30, 1998 as compared to (2.8)x in the comparable fiscal 1997 period. NINE MONTHS ENDED JUNE 30, 1998 COMPARED TO NINE MONTHS ENDED JUNE 30, 1997 NET SALES. Net sales in the nine months ended June 30, 1998 decreased $11.7 million, or 9.8%, to $107.0 million from $118.7 million in the comparable fiscal 1997 period. This decrease was due to a decrease in sales to international customers of $14.4 million, or 20.1%, partially offset by an increase of $2.7 million, or 5.7%, in sales to customers in the United States. The Company's sales to customers outside the United States decreased to 53.5% of total sales in the nine months ended June 30, 1998 from 60.3% in the comparable fiscal 1997 period and the portion of the Company's sales which were made in currencies other than the United States dollar decreased to approximately 43% in the nine months ended June 30, 1998 from approximately 51% in the comparable fiscal 1997 period. The decrease in sales to international customers was primarily due to several large shipments to international customers which were made during the nine months ended June 30, 1997 and did not recur in similar magnitude during the nine months ended June 30, 1998. The Company has also experienced a reduction in its sales to customers in Asia as a result of recent economic down turns in that region and a reduction of sales in a product line due to delays in the completion of a new product. Changes in certain foreign exchange rates also had the effect of reducing the United States dollar equivalent of the Company's foreign currency sales by $2.8 million from the United States dollar equivalent amount that would have been reported if the average exchange rates in effect during the nine months ended June 30, 1997 had remained in effect during the nine months ended June 30, 1998. Sales of the Company's Communications Test products in the nine months ended June 30, 1998 decreased $6.8 million, or 7.6%, from the comparable fiscal 1997 period primarily as a result of the large shipments mentioned above that occurred during the comparable fiscal 1997 period and the delay in the completion of the new product also mentioned above. Sales of Calibration Instruments products in the nine months ended June 30, 1998 decreased $5.2 million, or 25.6%, from the comparable fiscal 1997 period, due partially to the fact that the comparable fiscal 1997 period included higher shipments in connection with a planned reduction in the backlog of this product line during that period due to a newly released product, partially to an unfavorable geographic mix of sales and partially to a reduction in sales to customers in Asia. Sales in the nine months ended June 30, 1998 from repair, upgrade and calibration services increased $0.4 million, or 4.0%, from the comparable fiscal 1997 period. GROSS MARGIN. The Company's gross margin in the nine months ended June 30, 1998 decreased $2.7 million or 4.3%, to $60.5 million from $63.2 million in the comparable fiscal 1997 period. Gross margin as a percentage of sales increased to 56.6% in the nine months ended June 30, 1998 from 53.3% in the comparable fiscal 1997 period. The increase in the gross margin percentage during the nine months ended June 30, 1998 results primarily from increases in gross margin percentages realized from the Company's sales of Communications Test products due substantially to improvements made by the Company in recent periods to the cost structure of its manufacturing operations, including the replacement of a major manufacturing subcontractor in Europe. In addition, the Company's improved gross margin percentages were positively impacted by a favorable geographical and product mix of its sales. As a partial offset to these improved gross margin percentages, the Company experienced a reduction in gross margin percentages realized from sales of its Calibration Instruments products during the nine months ended June 30, 1998 due primarily to lower sales volume and an unfavorable geographic mix of its sales. Changes in foreign exchange rates had an unfavorable impact on the United States dollar equivalent of gross margins related to international sales denominated in foreign currencies in the nine months ended June 30, 1998. OPERATING EXPENSES. Operating expenses in the nine months ended June 30, 1998 decreased $5.1 million, or 9.3%, to $49.4 million from $54.5 million in the comparable fiscal 1997 period. Operating expenses as a percentage of sales increased to 46.2% in the nine months ended June 30, 1998 from 45.9% in the comparable fiscal 1997 period. The decrease 20 in operating expenses in the nine months ended June 30, 1998 was due to a one-time charge of $7.1 million, or 5.9% of sales, in the nine months ended June 30, 1997 for stock option compensation related to certain recapitalization transactions of the Company that occurred in June 1997. Excluding that charge, operating expenses in the nine months ended June 30, 1998 increased $2.0 million, or 4.2%, from the comparable fiscal 1997 period. The increase in operating expenses in the nine months ended June 30, 1998 was partially due to an increase in spending for research and development activities of $1.3 million, to $12.9 million, or 12.1% of sales, in the nine months ended June 30, 1998 from $11.6 million, or 9.8% of sales, in the comparable 1997 period, in order to accelerate the timing and number of new product introductions. In addition, spending for general and administrative activities increased by $1.0 million, to $8.9 million, or 8.4% of sales, in the nine months ended June 30, 1998 from $7.9 million, or 6.6% of sales, in the comparable 1997 period, primarily due to expenses incurred in the nine months ended June 30, 1998 in connection with certain legal claims against the Company and an increase in expense in the nine months ended June 30, 1998 related to the Company's management information systems. As a partial offset to these increased expenses, spending for marketing and selling activities decreased by $0.3 million, to $27.6 million, or 25.8% of sales, in the nine months ended June 30, 1998 from $27.9 million, or 23.5% of sales, in the comparable 1997 period, primarily due to a reduction in sales commissions paid to independent sales representatives due to reduced sales volumes in the nine months ended June 30, 1998 compared to the nine months ended June 30, 1997, partially offset by the addition of certain marketing personnel and certain recruiting and relocation costs incurred in connection with recruiting activities for new marketing and sales personnel during the nine months ended June 30, 1998. Although total expenses related to marketing and selling activities decreased in the nine months ended June 30, 1998, such expenses increased as a percentage of sales due to the fixed portion of such expenses being spread over a lower sales volume. Changes in foreign exchange rates had a favorable impact on the United States dollar equivalent of operating expenses denominated in foreign currencies in the nine months ended June 30, 1998. NON-OPERATING INCOME (EXPENSE). Non-operating expense, net, in the nine months ended June 30, 1998 increased by $7.4 million over the comparable fiscal 1997 period to $9.0 million. The increase was primarily due to an increase in the Company's net interest expense to $8.8 million during the nine months ended June 30, 1998 from $0.7 million in the comparable fiscal 1997 period, reflecting additional interest expense due to the Notes and the New Credit Agreement. The increase in net interest expense was partially offset by a reduction of $0.7 million in other non-operating expenses. PROVISION FOR INCOME TAXES. The Company's effective tax rate decreased to approximately 36% in the nine months ended June 30, 1998 from approximately 38% in the comparable fiscal 1997 period. NET INCOME. As a result of the above factors, net income was $1.3 million in the nine months ended June 30, 1998 as compared to $4.5 million in the comparable fiscal 1997 period. EBITDA. As a result of the above factors, EBITDA was $13.8 million in the nine months ended June 30, 1998 as compared to $18.3 million in the comparable fiscal 1997 period. EBITDA as a percentage of sales decreased to 12.9% in the nine months ended June 30, 1998 from 15.4% in the comparable fiscal 1997 period. RATIO OF EARNINGS TO FIXED CHARGES. As a result of the above factors, the ratio of earnings to fixed charges was 1.2x in the nine months ended June 30, 1998 as compared to 5.4x in the comparable fiscal 1997 period. LIQUIDITY AND CAPITAL RESOURCES The Company's cash provided by (used in) operating activities was $(2.2 million) and $7.0 million in the nine months ended June 30, 1998 and 1997, respectively. The Company had cash, cash equivalents and short-term investments 21 at June 30, 1998 of $6.4 million. The Company invests its excess cash in money market funds and U.S. Treasury obligations. Historically the Company has funded its business through operating cash flow, has not relied on sales of equity to provide cash and has used short-term debt primarily for cash management purposes. The Company had borrowings outstanding under revolving credit agreements of $8.9 million at June 30, 1998 for funding short-term working capital requirements and had additional obligations outstanding totaling approximately $1.3 million in the form of letters of credit and bank guarantees. The Company's primary cash needs have been for the funding of working capital requirements (primarily inventory and accounts receivable) and capital expenditures. The Company's net cash used in investing activities was $1.1 million and $7.6 million in the nine months ended June 30, 1998 and 1997, respectively. The Company's recurring cash requirements for investing activities are primarily for capital expenditures. The Company made capital expenditures in the nine months ended June 30, 1998 and 1997 of approximately $2.3 million and $4.8 million, respectively. The Company's cash flows from investing activities for the nine months ended June 30, 1998 and 1997 also included net proceeds from the sale of and (purchase of) short-term investments of $1.0 million and $(3.0 million), respectively. The Company's net cash provided by (used in) financing activities was $4.1 million and ($1.4) million in the nine months ended June 30, 1998 and 1997, respectively. The net cash provided by (used in) financing activities substantially reflects the proceeds from and repayments for borrowings used to finance the Company's operating and investing activities, or as an application of the cash generated from these activities. As part of certain recapitalization transactions that occurred in June 1997, the Company entered into a new credit agreement (the "New Credit Agreement') with Fleet National Bank, DLJ Capital Funding, Inc. and various other lenders providing for a term loan facility of $25.0 million and a revolving credit facility providing for borrowings up to $20.0 million, of which the Company borrowed all $25.0 million of the term loan facility and none of the revolving credit facility to complete the recapitalization transactions. The Company borrowed $5 million under this revolving credit facility in June 1998. In connection with entering into the New Credit Agreement, the Company terminated $4.0 million of United States availability under its existing credit agreements ("Existing Credit Agreements"), leaving borrowing availability of approximately $9.2 million at its Foreign Subsidiaries. The Company believes that its cash flow from operations, combined with the remaining available borrowings under the Existing and New Credit Agreements will be sufficient to fund its debt service obligations, including its obligations under the Notes, and working capital requirements. FOREIGN OPERATIONS As discussed above, a significant portion of the Company's sales and expenses are denominated in currencies other than the United States dollar. In order to maintain access to such foreign currencies, the Company's subsidiaries in the United Kingdom, France and Germany have credit facilities providing for borrowings in British pounds, French francs and Deutsche marks, respectively. The revolving credit facility under the New Credit Agreement provides for up to an aggregate of $7.5 million of borrowings in British pounds, French francs and Deutsche marks. Adjustments made in translating the balance sheet accounts of the Foreign Subsidiaries from their respective functional currencies at appropriate exchange rates are included as a separate component of stockholders' equity. In addition, the Company periodically uses forward exchange contracts to hedge certain known foreign exchange exposures. Gains or losses from such contracts are included in the Company's statements of income to offset gains and losses from the underlying foreign currency transactions. The Indenture under which the Notes were issued and the New Credit Agreement permit the Company and its subsidiaries to make investments in, and intercompany loans to, the Foreign Subsidiaries. Payments to the Company or its 22 other subsidiaries by such Foreign Subsidiaries, including the payment of dividends, redemption of capital stock or repayment of such intercompany loans, may be restricted by the credit agreements of the Foreign Subsidiaries. All intercompany loans from the Company to the Foreign Subsidiaries are pledged to the lenders under the New Credit Agreement. On January 1, 1999, eleven of the fifteen member countries of the European Union are scheduled to establish fixed conversion rates between their existing currencies and a new common currency (the "euro"). The participating countries have agreed to adopt the euro as their common legal currency on that date. The Company is assessing the potential impact from the euro conversion in a number of areas, including the competitive impact of cross-border price transparency, which may make it more difficult for businesses to charge different prices for the same products on a country-by-country basis and the impact on currency exchange costs and currency exchange rate risk. At this stage of its assessment, the Company can not yet predict the anticipated impact of the euro conversion on the Company. PERIODIC FLUCTUATIONS The Company's sales for the twelve months ended June 30, 1998 occurred approximately 25% in each of the four fiscal quarters ended September 30, 1997, December 31, 1997, March 31, 1998 and June 30, 1998. A variety of factors may cause period-to-period fluctuations in the operating results of the Company. Such factors include, but are not limited to, product mix, European summer holidays and other seasonal influences, competitive pricing pressures, materials costs, currency fluctuations, revenues and expenses related to new products and enhancements of existing products, as well as delays in customer purchases in anticipation of the introduction of new products or product enhancements by the Company or its competitors. The majority of the Company's revenues in each quarter results from orders received in that quarter. As a result, the Company establishes its production, inventory and operating expenditure levels based on anticipated revenue levels. Thus, if sales do not occur when expected, expenditures levels could be disproportionately high and operating results for that quarter, and potentially future quarters, would be adversely affected. IMPACT OF YEAR 2000 In 1995, the Company evaluated its information systems for Year 2000 compliance. As a result of this activity, an Information Systems Strategic Plan was developed to address any deficiencies associated with dates and to significantly improve the Company's overall information capabilities. The Company has already addressed most of its Year 2000 date issues and continues on schedule to complete this project before it will have any material impact on the Company's ability to deliver products and services. A substantial portion of the costs of this project, including costs associated with the implementation of certain new core information systems, have already been incurred by the Company. Additional costs necessary to complete the Company's Information Systems Strategic Plan are not expected to have a material effect on the Company's results of operations or its financial condition. Failure to complete the Information Systems Strategic Plan as it relates to Year 2000 compliance could have a material adverse effect on the Company's business, results of operations and financial condition. In addition, the Company has initiated formal communications with all of its significant suppliers to determine the extent to which the Company's systems or business processes may be vulnerable to those third parties' failure to remediate their own year 2000 issues. There can be no assurance that any year 2000 issues present in the systems of such other companies on which the Company's systems or business processes rely will be timely remedied and will not have an adverse effect on the Company. 23 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In the ordinary course of its business, the Company from time to time is subject to legal claims. The Company does not believe that the likely outcome of any such claims or related lawsuits would have a material adverse effect on the Company or its ability to develop new products. In January 1998, the Company was sued by ComSonics, Incorporated ("ComSonics") for infringement by the Company and certain of its CATV test equipment products of ComSonics' U.S. Patent No. 4,685,065. The Company has reached an agreement to settle the action on terms that include a payment by Wavetek to ComSonics of $400,000 to settle all claims arising from Wavetek sales for all prior periods and through December 31, 1998, and a license to Wavetek under the ComSonics patent commencing January 1, 1999, fixed payments for which are to be made annually commencing January 1, 1999, in the amount of $766,667 for the next six years. The definitive settlement agreement did not have a material effect on the Company's financial position at June 30, 1998, or its results of operations for the nine months then ended, nor will it have material adverse effect on the Company or its ability to develop new products. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Exchange and Merger Agreement Dated as of June 12, 1998 By and Among Wavetek Corporation, Wandel & Goltermann Management Holding GmbH and the Stockholders listed on the Signature Pages Thereto 10.2 Stockholders Agreement Dated as of June 12, 1998 and Effective as of the Effective Time By and Among Wavetek Corporation and the Stockholders Listed on the Signature Pages Thereto 10.3 First Amendment to Credit Agreement dated of July 21, 1998 entered into by and among Wavetek Corporation, the Lenders listed on the Signature Pages Thereof, DLJ Capital Funding, Inc. and Fleet National Bank 12.1 Schedule Re: Computation of Ratio of Earnings to Fixed Charges 27.1 Financial Data Schedule for the nine months ended June 30, 1998
24 (b) Reports on Form 8-K The Company filed a Form 8-K on June 15, 1998 to report that on June 15, 1998, Wavetek Corporation and Wandel & Goltermann Management Holding GmbH jointly announced that they have signed definitive agreements to merge the companies. 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of the 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 14, 1998 WAVETEK CORPORATION (Registrant) /s/ VICKIE L. CAPPS ---------------------------------- Vickie L. Capps Chief Financial Officer 26 EX-10.1 2 EXHIBIT 10.1 EXHIBIT 10.1 Conformed Copy - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- EXCHANGE AND MERGER AGREEMENT DATED AS OF JUNE 12, 1998 BY AND AMONG WAVETEK CORPORATION, WANDEL & GOLTERMANN MANAGEMENT HOLDING GMBH AND THE STOCKHOLDERS LISTED ON THE SIGNATURE PAGES HERETO - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS Page Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I. THE EXCHANGE AND MERGER SECTION 1.1. Structure of the Exchange and Merger. . . . . . . . . . . 2 SECTION 1.2. Procedures. . . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 1.3. WG Stockholder Loans. . . . . . . . . . . . . . . . . . . 4 SECTION 1.4. Option Grants . . . . . . . . . . . . . . . . . . . . . . 4 SECTION 1.5. Dissenters' Rights. . . . . . . . . . . . . . . . . . . . 4 ARTICLE II. CONDUCT PENDING THE EXCHANGE AND MERGER SECTION 2.1. Conduct of Business Prior to the Effective Time. . . . . . . . . . . . . . . . . . . . 5 SECTION 2.2. Forbearance by Wavetek and WG . . . . . . . . . . . . . . 5 SECTION 2.3. Forbearance by WG Stockholders. . . . . . . . . . . . . . 7 SECTION 2.4. Forbearance by Wavetek Stockholders . . . . . . . . . . . 8 SECTION 2.5. Initial Public Offering . . . . . . . . . . . . . . . . . 9 SECTION 2.6 Consultation . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE III. REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties of Wavetek and WG. . . . . . . . . . . . . . . . . . . . . . 10 SECTION 3.2. Representations and Warranties of WG Stockholders . . . . . . . . . . . . . . . . . . . . . 17 SECTION 3.3. Representations and Warranties of Wavetek Stockholders. . . . . . . . . . . . . . . . . . . 19 ARTICLE IV. COVENANTS SECTION 4.1. Acquisition Proposals . . . . . . . . . . . . . . . . . . 20 SECTION 4.2. Wavetek Stock Options . . . . . . . . . . . . . . . . . . 20 SECTION 4.3. Access and Information. . . . . . . . . . . . . . . . . . 21 SECTION 4.4. Certain Filings, Consents and Arrangements. . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 4.5. Additional Agreements . . . . . . . . . . . . . . . . . . 22 -i- SECTION 4.6. Publicity . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 4.7. U.S. Tax Consequence. . . . . . . . . . . . . . . . . . . 22 SECTION 4.8. Board of Directors of Wavetek . . . . . . . . . . . . . . 22 SECTION 4.9. Switching Test Solutions AG . . . . . . . . . . . . . . . 23 SECTION 4.10. Formation of WG Holding Company . . . . . . . . . . . . . 23 SECTION 4.11. Opinion . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE V. CONDITIONS TO CONSUMMATION SECTION 5.1. Conditions to All Parties' Obligations. . . . . . . . . . 23 ARTICLE VI. TERMINATION SECTION 6.1. Termination . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 6.2. Effect of Termination . . . . . . . . . . . . . . . . . . 25 ARTICLE VII. EFFECTIVE DATE AND EFFECTIVE TIME SECTION 7.1. Effective Date and Effective Time . . . . . . . . . . . . 25 ARTICLE VIII. OTHER MATTERS SECTION 8.1. Certain Definitions; Interpretation . . . . . . . . . . . 26 SECTION 8.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 8.3. Severability. . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 8.4. Entire Agreement; Etc.. . . . . . . . . . . . . . . . . . 28 SECTION 8.5. Survival. . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 8.6. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 8.7. Amendments and Waiver . . . . . . . . . . . . . . . . . . 29 SECTION 8.8. Consent to Specific Performance . . . . . . . . . . . . . 29 SECTION 8.9. Assignment. . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 8.10. Governing Law . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 8.11. Jurisdiction; Waivers . . . . . . . . . . . . . . . . . . 30 SECTION 8.12. WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . . . . . 30 SECTION 8.13. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 8.14. Facsimile Signature; Counterparts . . . . . . . . . . . . 30 SECTION 8.15. Binding Agreement . . . . . . . . . . . . . . . . . . . . 31 -ii- LIST OF ANNEXES Annex 1 -- WG Stockholder Information (Section 1.1) Annex 2 -- Form of Notarial Deed (Section 1.2(a)) Annex 3 -- Wavetek Rights (Section 3.1(c)(1)) Annex 4 -- WG Rights (Section 3.1(c)(1)) Annex 5 -- Subsidiaries of WG (Section 3.1(c)(3)) Annex 6 -- Subsidiaries of Wavetek (Section 3.1(c)(3)) Annex 7 -- Taxes (Section 3.1(c)(7)) Annex 8 -- Wavetek Stockholder Information (Section 3.3(a)) -iii- EXCHANGE AND MERGER AGREEMENT, dated as of June 12, 1998 (this "Agreement"), by and among Wavetek Corporation, a Delaware corporation ("WAVETEK"), DLJ Merchant Banking Partners II, L.P. ("DLJMB"), DLJ Diversified Partners, L.P., DLJMB Funding II, Inc., DLJ First ESC L.L.C., DLJ EAB Partners, L.P., DLJ Millennium Partners, L.P., DLJ Offshore Partners II, C.V. and UK Investment Plan 1997 Partners (collectively, and together with DLJMB, the "DLJ INVESTORS"), Green Equity Investors II, L.P. ("GEI"), Schroder UK Venture Fund III, L.P., Schroder UK Venture Fund III, L.P.2, Schroder UK Venture Fund III Trust (collectively, "SCHRODER"), Yokogawa Electric Corporation ("YOKOGAWA", and together with the DLJ Investors, GEI and Schroder, the "INSTITUTIONAL STOCKHOLDERS"), Dr. Terence J. Gooding, Barbara A. Gooding, Terence J. Gooding GRAT 1, Terence J. Gooding GRAT 2 and Barbara A. Gooding GRAT (collectively, "GOODING"), the Wavetek management stockholders listed on the signature pages hereto (the "MANAGEMENT STOCKHOLDERS" and, together with the Institutional Stockholders and Gooding, the "WAVETEK STOCKHOLDERS"), Wandel & Goltermann Management Holding GmbH, a German limited liability company ("WG"), Albrecht Wandel, a resident of the Federal Republic of Germany, and Renate Wandel, a resident of the Federal Republic of Germany (collectively, "WANDEL STOCKHOLDERS"), Frank Goltermann, a resident of the Federal Republic of Germany, Ulrike Goltermann, a resident of the Federal Republic of Germany, and Burkhard Goltermann, a resident of the Federal Republic of Germany (collectively, "GOLTERMANN STOCKHOLDERS"), Peter Wagner, a resident of the Federal Republic of Germany ("WAGNER"), and Hannover Finanz W&G Beteiligungsgesellschaft mbH ("HF"). Wandel Stockholders, Goltermann Stockholders, Wagner and HF are collectively referred to as "WG STOCKHOLDERS". RECITALS: WHEREAS, Wavetek, the Wavetek Stockholders, WG and the WG Stockholders desire to enter into the transactions described herein whereby WG will become a wholly-owned subsidiary of Wavetek and the WG Stockholders will become stockholders of Wavetek (the "Merger"); WHEREAS, Wavetek, Wavetek Stockholders, WG and WG Stockholders are concurrently entering into a Stockholders Agreement, dated as of the date hereof and effective as of the Effective Time (the "Stockholders Agreement"), setting forth the matters relating to governance and stockholders' rights subsequent to the Effective Time (as defined in Section 7.1); WHEREAS, Wavetek and WG are entering into a side letter, dated as of the date hereof (the "Side Letter"), setting forth certain additional agreements; WHEREAS, it is the intention of the parties to this Agreement that the Merger (i) for federal income tax purposes shall qualify as an asset purchase within the meaning of Section 338 of the Internal Revenue Code of 1986, as amended (the "Code") and permit an election to step up to fair market value the U.S. tax basis of such purchase and (ii) for accounting purposes shall qualify for treatment as a "purchase"; and WHEREAS, the Board of Directors of Wavetek, the Supervisory Board of WG, the Wavetek Stockholders and the WG Stockholders have duly approved this Agreement and have duly authorized its execution and delivery. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto agree as follows: ARTICLE I. THE EXCHANGE AND MERGER SECTION 1.1. STRUCTURE OF THE EXCHANGE AND MERGER. (a) Subject to the terms and conditions hereof, (i) Immediately prior to the Effective Time, each WG Stockholder shall transfer and assign to WG Holding (defined below) (free and clear of all liabilities, liens, claims, pledges, security interests, charges or encumbrances, restrictions, title retention agreements, proxies or other voting arrangements, rights of first refusal, tag along or similar rights of any nature whatsoever (all of the foregoing collectively "Liens")) all the outstanding share capital of WG ("WG Interests"), with the right to all dividends not distributed prior to September 30, 1998, but without prejudice to Section 2.2(b), in exchange for all of the outstanding shares of common stock of a newly-formed corporation incorporated under the laws of -2- the State of Delaware ("WG Holding"), whereupon WG Holding shall become the owner of 100% of the WG Interests (the "Exchange"). (ii) At the Effective Time, WG Holding shall merge with and into Wavetek, with Wavetek as the surviving corporation. At the Effective Time, the certificate of incorporation and by-laws of Wavetek shall be amended and restated as contemplated by the Stockholders Agreement and the directors of Wavetek shall be those contemplated by the Stockholders Agreement. By virtue of the Merger, automatically and without any action on the part of the holders thereof, the shares of common stock of WG Holding (each, a "WG Holding Interest") outstanding at the Effective Time shall become and be converted into shares of Wavetek Common Stock as described herein. In the Merger, each WG Stockholder shall receive the number of shares of Wavetek Common Stock set forth opposite the name of such WG Stockholder on Annex 1 and the aggregate number of shares of Wavetek Common Stock issued will be 8,317,464. (b) Wavetek and WG may at any time prior to the Effective Time change the structure of the Exchange and Merger if and to the extent they deem such change to be necessary, appropriate or desirable; provided, however, that no such change shall (i) alter or change the amount of consideration to be issued to WG Stockholders as provided for in this Agreement, (ii) adversely affect the tax treatment to Wavetek, the Wavetek Stockholders or the WG Stockholders as a result of the transactions contemplated hereby or (iii) materially impede or delay consummation of the transactions contemplated by this Agreement. (c) Although the Exchange, the Merger and the Initial Public Offering shall occur sequentially, all such transactions shall be unwound and deemed not to have occurred unless all such transactions are consummated at or immediately prior to the Effective Time. SECTION 1.2. PROCEDURES. (a) Immediately prior to the Effective Time, WG Holding, on the one hand, and the WG Stockholders, on the -3- other hand, shall be parties to a notarial deed of a German or Swiss notary pursuant to which all outstanding WG Interests shall be transferred to WG Holding, such notarial deed to be substantially in the form of Annex 2 hereto. (b) At the Effective Time, Wavetek shall deliver to each holder of a WG Holding Interest, upon delivery of the certificates representing all the WG Holding Interests held by such holder, a certificate or certificates representing the number of whole shares of Wavetek Common Stock which such holder has the right to receive in respect of the WG Holding Interests pursuant to the provisions of Section 1.1 and this Section 1.2. (c) From and after the Effective Time, there shall be no transfers on the transfer records of WG Holding of any WG Holding Interests that were outstanding immediately prior to the Effective Time. SECTION 1.3. WG STOCKHOLDER LOANS. The WG stockholder loans (as set forth in Annex 4) shall be repaid at the Effective Time. SECTION 1.4. OPTION GRANTS. At the Effective Time, (i) Wavetek's 1992 Non-Qualified Employee Stock Option Plan, as amended, will be amended to increase the number of shares of Common Stock available for option grants thereunder from 663,160 shares to a number of shares equal to up to 10% of the number of outstanding shares immediately following the Initial Public Offering and (ii) Wavetek shall grant up to 558,055 options at the Effective Time to WG employees, directors and new hires, of which 97,161 options shall be fully vested upon their grant; provided that such vested options shall not constitute more than 50% of the options held by any grantee and shall represent acceleration of the earliest vesting dates; provided, however, that the recipients of such options shall be determined by the Compensation Committee (as defined in the Stockholders Agreement). The exercise price for such options shall be the price per share in the Initial Public Offering. SECTION 1.5. DISSENTERS' RIGHTS. The WG Stockholders hereby waive any dissenters' rights they may have in connection with the Merger pursuant to the Delaware General Corporation Law. -4- ARTICLE II. CONDUCT PENDING THE EXCHANGE AND MERGER SECTION 2.1. CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME. Except as otherwise provided for in, or contemplated by, this Agreement, during the period from the date of this Agreement to the Effective Time, each of Wavetek and WG shall, and shall cause its subsidiaries to, (i) conduct its business in the usual, regular and ordinary course, (ii) use its best efforts to maintain and preserve intact its business organization, employees and advantageous business relationships and retain the services of its officers and key employees and (iii) take no action which would materially and adversely affect or delay the ability of WG or Wavetek to obtain any necessary approvals, consents or waivers of any governmental authority required for the transactions contemplated hereby or to perform its covenants and agreements on a timely basis under this Agreement. Notwithstanding anything herein to the contrary, WG shall be permitted to consummate its acquisition of the shares of Wandel & Goltermann Technologies, Inc., a North Carolina corporation ("WGTI"), not owned by WG, on the terms set forth in the Agreement and Plan of Merger dated as of March 28, 1998 among WGTI, WG Merger Corporation and WG, and shall be entitled to borrow the funds necessary to complete such transaction, provided that the price per share paid for such WGTI shares shall not exceed $15.90 unless and except approved in advance by Wavetek (the "WGTI Transaction"). SECTION 2.2. FORBEARANCE BY WAVETEK AND WG. During the period from the date of this Agreement to the Effective Time, except as otherwise provided for in, or contemplated by, this Agreement, each of Wavetek and WG shall not, and shall not permit any of its subsidiaries, without the prior written consent of WG or Wavetek, as applicable, to: (a) in the case of Wavetek, adjust, split, combine or reclassify any capital stock (other than any stock split necessary to consummate the transactions contemplated hereby or the Initial Public Offering) or issue any additional shares of capital stock except pursuant to the exercise of stock options outstanding as of the date hereof, to consummate the transactions contemplated hereby or in the Initial Public Offering; in the case of WG, take any action to adjust, split, combine or reclassify any capital stock (other than any stock split necessary to consummate the transactions contemplated hereby) or issue any additional shares of -5- capital stock except pursuant to the exercise of stock options outstanding as of the date hereof or except as contemplated by Section 4.9 hereof; (b) make, declare or pay any dividend or make any other distribution on, or directly or indirectly redeem, purchase or otherwise acquire, any shares of its capital stock or any securities or obligations convertible into or exchangeable for any shares of its capital stock, or grant any stock appreciation rights, options or any right to acquire any shares of its capital stock, except for dividends paid by any wholly owned subsidiary to WG or Wavetek, as applicable, or any of its wholly owned subsidiaries; provided, however, that (i) WG may pay a dividend to its stockholders in an amount not to exceed DM1 million, (ii) if WG is required to pay a dividend for fiscal 1998 to the WG Stockholders under WG's governing documents, WG may pay such dividend in an amount up to DM3.3 million and Wavetek may pay a dividend to the Wavetek Stockholders in an amount not to exceed 66 % of the dividend so paid by WG and (iii) Wavetek may purchase shares of its capital stock and options from its employees who terminate employment with Wavetek in a manner consistent with past practice; (c) other than in the ordinary course of business, sell, transfer, mortgage, encumber or otherwise dispose of any of its material properties or assets to any person other than a direct or indirect wholly owned subsidiary; (d) other than in the ordinary course of business, make any material investment or purchase any material property or assets of any person other than a wholly owned subsidiary; (e) other than in the ordinary course of business, enter into or terminate any material contract or agreement, or make any change in any of its material leases or contracts, other than renewals of contracts and leases without material adverse changes of terms or, with respect to Wavetek, in connection with the settlement of the litigation with Comsonics, Incorporated on terms not materially different than those set forth in the Side Letter; (f) increase in any manner the compensation or fringe benefits of any of its officers or employees or -6- pay any pension or retirement allowance not required by any existing plan or agreement to any such officers or employees, or become a party to, amend or commit itself to any pension, retirement, profit-sharing or welfare benefit plan or agreement or employment agreement with or for the benefit of any officer or employee, in each case other than in the ordinary course of business, or voluntarily accelerate the vesting of any stock options or other stock-based compensation not required by an existing plan or agreement; (g) modify in any material respect the manner in which it and its subsidiaries have heretofore conducted or accounted for their business; (h) except as contemplated by this Agreement, amend its charter or by-laws or similar organizational documents; (i) take, or omit to take, any action that would (i) delay or adversely affect the ability of WG, Wavetek or any WG Stockholder to obtain any necessary approvals, consents, clearances, actions or waivers of any governmental authority required for the transactions contemplated hereby or the timing thereof or (ii) adversely affect its ability to perform its covenants and agreements on a timely basis under this Agreement; or (j) agree to, or make any commitment to, take any of the actions prohibited by this Section 2.2. SECTION 2.3. FORBEARANCE BY WG STOCKHOLDERS. During the period from the date of this Agreement to the Effective Time, except as otherwise provided for in, or contemplated by, this Agreement, each WG Stockholder shall not, without the prior written consent of Wavetek: (a) sell, transfer, mortgage, encumber or otherwise dispose of any WG Interests or WG Holding Interests owned or held by it other than in a Permitted Transfer (as defined in the Stockholders Agreement, assuming the Stockholders Agreement were binding at the time of such transfer) provided that such transferee becomes a party to and agrees to be bound by each of this Agreement and the Stockholders Agreement as a condition to such transfer, except in connection with the Merger or the -7- Exchange or take any action that would adjust, split, combine or reclassify any capital stock of WG or issue any additional shares of capital stock of WG except as contemplated by Section 4.9 hereof; (b) take, or omit to take, any action that would (i) delay or adversely affect the ability of WG, Wavetek or it to obtain any necessary approvals, consents, clearances, actions or waivers of any governmental authority required for the transactions contemplated hereby or the timing thereof or (ii) adversely affect its ability to perform its covenants and agreements on a timely basis under this Agreement; or (c) agree to, or make any commitment to, take any of the actions prohibited by this Section 2.3. SECTION 2.4. FORBEARANCE BY WAVETEK STOCKHOLDERS. During the period from the date of this Agreement to the Effective Time, except as otherwise provided for in, or contemplated by, this Agreement, each Wavetek Stockholder shall not, without the prior written consent of WG: (a) sell, transfer, mortgage, encumber or otherwise dispose of any shares of Common Stock owned or held by it other than in a Permitted Transfer (as defined in the Stockholders Agreement), assuming that the Stockholders Agreement were binding at the time of such transfer, provided that such transferee becomes a party to and agrees to be bound by this Agreement and the Stockholders Agreement as a condition to such transfer; (b) take, or omit to take, any action that would (i) delay or adversely affect the ability of WG, Wavetek or it to obtain any necessary approvals, consents, clearances, actions or waivers of any governmental authority required for the transactions contemplated hereby or the timing thereof or (ii) adversely affect its ability to perform its covenants and agreements on a timely basis under this Agreement; or (c) agree to, or make any commitment to, take any of the actions prohibited by this Section 2.4. -8- SECTION 2.5. INITIAL PUBLIC OFFERING. (a) The parties hereby agree to use their best efforts to consummate an Initial Public Offering (as defined in the Stockholders Agreement) at or immediately following the Effective Time. In connection therewith, as soon as it is reasonably practicable after the date hereof, Wavetek and WG shall commence preparation of a Registration Statement on Form S-1 (the "Registration Statement") and file the Registration Statement with the Securities and Exchange Commission. Each of Wavetek and WG shall use their best efforts to have the Registration Statement declared effective under the Securities Act of 1933 and take any action required to be taken under applicable state securities and blue sky laws in connection with the issuance of the Wavetek Common Stock in connection with the Initial Public Offering. Wavetek and WG shall promptly furnish to each other all information, and take such other actions, as may be reasonably requested in connection with this Section 2.5. Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") shall be the lead manager for the Initial Public Offering under usual and customary arrangements and fees. DLJ and the WG Stockholders will select co-managers for the offering and listing of shares of Wavetek Common Stock in Europe (with a dual listing preferably on the Frankfurt exchange) as part of the Initial Public Offering. (b) In connection with the Initial Public Offering, the Stockholders (as defined in the Stockholders Agreement) shall have the registration rights set forth in Section 5.2 of the Stockholders Agreement (as if the Stockholders Agreement were in effect prior to the Effective Time). SECTION 2.6 CONSULTATION. During the period from the date of this Agreement to the Effective Time, Dr. Terence J. Gooding and Peter Wagner shall consult on a weekly basis on all operating issues affecting Wavetek and WG following the Effective Time. Any differences of opinion or disagreements arising from such consultation shall be discussed with the Executive Committee (as defined in the Stockholders Agreement). -9- ARTICLE III. REPRESENTATIONS AND WARRANTIES SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF WAVETEK AND WG. (a) Wavetek represents and warrants to WG that: (1) CORPORATE STATUS. As of the date hereof, Wavetek has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware, with its principal executive offices located at 11995 El Camino Real, Suite 301, San Diego, California 92130, USA. As of the date hereof, Wavetek has 15,000,000 authorized shares of Wavetek Common Stock, of which 4,884,860 shares are issued and outstanding and an aggregate of 663,160 shares are reserved for issuance pursuant to outstanding employee stock option plans, of which 504,908 shares are subject to issuance pursuant to outstanding employee stock option agreements. (2) CAPITAL STOCK. All outstanding shares of capital stock of it and its subsidiaries are duly authorized, validly issued and outstanding, fully paid and non-assessable, and subject to no preemptive rights (other than such rights set forth in the Prior Agreement (as defined in the Stockholders Agreement) which have been waived by the parties thereto). (b) WG represents and warrants to Wavetek that: (1) CORPORATE STATUS. As of the date hereof, WG has been duly organized and is an existing limited liability company (GmbH) under the laws of Germany, with its principal executive offices located at Muhleweg 5, D-72800 Eningen u.A., Germany. (2) WG INTERESTS. As of the date hereof, WG has a share capital in the total amount of DM 40,000,000 which is divided into the following WG Interests: (i) HF with one share of nominal DM 10,940,000; -10- (ii) Mr. Albrecht Wandel with one share of nominal DM 5,928,400 and one share of nominal DM 899,000, total nominal DM 6,827,400; (iii) Mrs. Renate Wandel with one share of nominal DM 5,451,600 and one share of nominal DM 651,000, total nominal DM 6,102,600; (iv) Mr. Frank Goltermann with one share of nominal DM 3,115,200, one share of nominal DM 1,600,000, and one share of nominal DM 372,000 total nominal DM 5,087,200; (v) Mr. Burkhard Goltermann with one share of nominal DM 6,480,000, and one share of nominal DM 775,000, in total nominal DM 7,255,000; and (vi) Mrs. Ulrike Goltermann with one share of nominal DM 3,384,800 and one share of nominal DM 403,000, in total nominal DM 3,787,800. (c) Wavetek represents and warrants to WG, and WG represents and warrants to Wavetek, that: (1) RIGHTS. It does not have any shares of its capital stock or interests reserved for issuance, any outstanding option, call or commitment relating to shares of its capital stock or interests or any outstanding securities, obligations or agreements convertible into or exchangeable for, or giving any person any right (including, without limitation, pre-emptive rights) to subscribe for or acquire from it, or cause it to register with the Securities and Exchange Commission or any other national, state or local authority for resale any shares of its capital stock or interests (collectively, "Rights"), except as set forth on Annex 3 (as to Wavetek) and Annex 4 (as to WG). Annex 4 lists the principal amount, interest rate and maturity of all loans or other debt obligations due from WG to any WG Stockholder. -11- (2) AUTHORITY. Each of it and its subsidiaries has the power and authority, and is duly qualified in all jurisdictions (except for such qualifications the absence of which, individually or in the aggregate, would not have a Material Adverse Effect (as defined in Section 8.1)) where such qualification is required, to carry on its business as it is now being conducted and to own all its material properties and assets, and it has all federal, state, local, and foreign governmental permits, licenses and authorizations necessary for it to own or lease its properties and assets and to carry on its business as it is now being conducted, except for such powers and authorizations the absence of which, either individually or in the aggregate, would not have a Material Adverse Effect. (3) SUBSIDIARIES. In the case of WG, a list of its subsidiaries is contained in Annex 5; in the case of Wavetek, a list of its subsidiaries is contained in Annex 6; all of the shares of capital stock of each of its subsidiaries have been duly authorized and validly issued and are owned by it free and clear of all Liens, and there are no Rights with respect to such capital stock, except as listed on Annex 5 (in the case of WG) or Annex 6 (in the case of Wavetek). (4) APPROVALS. This Agreement has been authorized by all necessary corporate action of it. Subject to receipt of the required approvals, consents or waivers of governmental authorities referred to in Section 5.1(b), this Agreement is a valid and binding agreement of it enforceable against it in accordance with its terms, subject as to enforcement to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (5) NO VIOLATIONS. The execution, delivery and performance of this Agreement by it does not, and the consummation of the transactions contemplated hereby by it will not, constitute (i) a breach or violation of, or a default under, any -12- law, rule or regulation or any judgment, decree, order, governmental permit or license, or agreement, indenture or instrument of it or its subsidiaries or to which it or its subsidiaries (or any of their respective properties) is subject, which breach, violation or default would have a Material Adverse Effect on it, or enable any person to enjoin the Exchange or (ii) a breach or violation of, or a default under, the certificate or articles of incorporation or by-laws of it or any of its subsidiaries; and the consummation of the transactions contemplated hereby will not require any approval, consent or waiver under any such law, rule, regulation, judgment, decree, order, governmental permit or license or the approval, consent or waiver of any other party to any such agreement, indenture or instrument, other than (i) the required approval, consents, waivers and administrative actions referred to in Section 5.1(a), (ii) such approvals, consents or waivers as are required under the federal and state securities or "Blue Sky" laws in connection with the transactions contemplated by this Agreement and (iii) any other approvals, consents or waivers the absence of which, individually or in the aggregate, would not result in a Material Adverse Effect or enable any person to enjoin the Exchange. (6) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed pursuant to this Section 3.1, since December 31, 1997, there has not been any change in the financial condition or results of operations of it or any of its subsidiaries which, individually or in the aggregate, has had a Material Adverse Effect on it. (7) TAXES. Except as otherwise would not have a Material Adverse Effect, all federal, state, local, and foreign tax returns required to be filed by or on behalf of it or any of its subsidiaries have been timely filed or requests for extensions have been timely filed and any such extension shall have been granted and not have expired. All taxes shown on returns filed by or on behalf of it or any of its subsidiaries have been paid in full or adequate provision has been made for any such taxes on its balance sheet as of December 31, 1997 (in -13- the case of Wavetek, in accordance with United States generally accepted accounting principles ("US GAAP"), and in the case of WG, in accordance with German generally accepted accounting principles). As of the date of this Agreement, there are no assessments or notices of deficiency or proposed assessments with respect to any taxes of it or any of its subsidiaries other than as set forth in Annex 7 or that, if resolved in a manner adverse to it, would result in a determination that would have a Material Adverse Effect on it. Except as otherwise would not have a Material Adverse Effect, it has not executed an extension or waiver of any statute of limitations on the assessment or collection of any tax due that is currently in effect. (8) ABSENCE OF CLAIMS. Except as disclosed in Wavetek's filings with the Securities and Exchange Commission or in writing to WG or Wavetek, as applicable, and except for the pending WGTI stockholder litigation, no material litigation, proceeding or controversy before any court or governmental agency is pending, and there is no pending claim, action or proceeding against it or any of its subsidiaries, which is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on it or to materially hinder or delay consummation of the transactions contemplated hereby. (9) ABSENCE OF REGULATORY ACTIONS. Neither it nor any of its subsidiaries is a party to any cease and desist order, written agreement or memorandum of understanding with, or a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or is a recipient of any extraordinary supervisory letter from, or has adopted any board resolutions at the request of, any relevant federal, state or local governmental authorities. (10) TITLE TO ASSETS. Each of it and its subsidiaries has good and marketable title to its properties and assets reflected as owned by it on its September 30, 1997 balance sheet, and valid leasehold interests in all property leased by it -14- and its subsidiaries, except for such dispositions in the ordinary course of business or defects in title which would not, individually or in the aggregate, have a Material Adverse Effect. (11) KNOWLEDGE AS TO CONDITIONS. As of the date hereof, it knows of no reason why the approvals, consents and waivers of governmental authorities referred to in Section 5.1(a) will not be obtained without the imposition of any condition of the type referred to in the provisos thereto. (12) WAVETEK COMMON STOCK. In the case of Wavetek, the shares of Wavetek Common Stock to be issued pursuant to this Agreement, when issued in accordance with the terms of this Agreement, will be duly authorized, validly issued, fully paid and non-assessable and subject to no preemptive rights (other than, in the case of Wavetek, such rights set forth in the Prior Agreement which have been waived by the parties thereto). (13) FEES. Other than financial advisory services performed for Wavetek by Donaldson, Lufkin & Jenrette Securities Corporation and for WG by Broadview Associates, neither it nor any of its subsidiaries, nor any of their respective officers, directors, employees or agents has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions, or finder's fees, and no broker or finder has acted directly or indirectly for it or any of its subsidiaries, in connection with this Agreement or the transactions contemplated hereby. (14) ANTITAKEOVER PROVISIONS INAPPLICABLE. No antitakeover or similar law applies to this Agreement or the Exchange or the transactions contemplated hereby. (15) ENVIRONMENTAL MATTERS. Except for such matters that, alone or in the aggregate, would not have a Material Adverse Effect, to the best knowledge of its senior management (without inquiry), (i) it and its subsidiaries have complied with all applicable Environmental Laws; (ii) the properties presently or formerly owned or operated -15- by it or its subsidiaries (including, without limitation, soil, groundwater or surface water on, under or adjacent to the properties, and buildings thereon as well as properties held in an agency or fiduciary capacity) (the "Properties") do not contain any Hazardous Substance (as hereinafter defined) other than as permitted under applicable Environmental Law, do not contain, and have not contained, any underground storage tanks, do not have any asbestos present (and have not had any asbestos removed therefrom) and have not been used as a sanitary landfill or hazardous waste disposal site (PROVIDED, HOWEVER, that with respect to Properties owned or operated by it at any time, such representation is limited to the period after the time of acquisition of such Property by it or one of its subsidiaries and prior to the disposition of such Properties by it or one of its subsidiaries); (iii) neither it nor any of its subsidiaries has received any notices, demand letters or request for information from any governmental entity or any third party that it or any of its subsidiaries may be in violation of, or liable under, any Environmental Law and none of it, its subsidiaries or the Properties are subject to any court order, administrative order or decree arising under any Environmental Law; and (iv) no Hazardous Substance has been disposed of, transferred, released or transported from any of the Properties during the time such Property was owned or operated by it or one of its subsidiaries, other than as permitted under applicable Environmental Law. "Environmental Law" means (i) any federal, state, foreign or local law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, common law, legal doctrine, order, judgment, decree, injunction, requirement or agreement with any government entity, (x) relating to the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource), or to human health or safety, or (y) the exposure to, or the -16- use, storage, recycling, treatment, generation, transformation, processing, handling, labeling, production, release or disposal of Hazardous Substances, in each case as amended and as now in effect. "Hazardous Substance" means any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous, or otherwise regulated, under any Environmental Law, whether by type or by quantity, including any substance containing any such substance as a component. (16) FINANCIAL STATEMENTS; INFORMATION. With respect to Wavetek, the financial statements contained in its filings with the Securities and Exchange Commission (the "Commission") have been prepared in accordance with US GAAP, applied on a consistent basis for all periods presented. With respect to WG, the financial statements provided to Wavetek have been prepared in accordance with German generally accepted accounting principles, applied on a consistent basis for all periods presented. With respect to Wavetek, the filings made by it with the Commission, and with respect to WG, the information delivered by it to Wavetek, as of the respective date of such filing or information, did not contain a misstatement of, or omit to state, any material fact necessary to make the information contained therein, in the light of the circumstances under which it was made, not misleading. SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF WG STOCKHOLDERS. Each WG Stockholder represents and warrants that: (a) CAPITAL STOCK. Annex 1 accurately sets forth the name, address and WG Interests held by it; all such WG Interests are beneficially owned and held by it free and clear of all Liens, except as set forth on Annex 1. (b) APPROVALS. This Agreement is a valid and binding agreement of it enforceable against it in accordance with its terms, subject as to enforcement to bankruptcy, insolvency, fraudulent transfer, reorgani- -17- zation, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. No approval of any spouse of such WG Stockholder or any other person is required for the performance of its obligations hereunder, except for such approvals as have been obtained by such WG Stockholder. (c) NO VIOLATIONS. To its knowledge, the execution, delivery and performance of this Agreement by it does not, and the consummation of the transactions contemplated hereby by it will not, constitute a breach or violation of, or a default under, any law, rule or regulation or any judgment, decree, order, governmental permit or license, or agreement, indenture or instrument of it or to which it (or any its properties) is subject, which breach, violation or default would have a Material Adverse Effect on WG, or enable any person to enjoin the Exchange and, in the case of a WG Stockholder that is not a natural person, constitute a breach or violation of, or a default under, the charter, by-laws or other governing document of it; and the consummation of the transactions contemplated hereby will not require any approval, consent or waiver under any such law, rule, regulation, judgment, decree, order, governmental permit or license or the approval, consent or waiver of any other party to any such agreement, indenture or instrument, other than (i) the required approval, consents and waivers of third parties or governmental authorities referred to in or contemplated by Section 5.1, (ii) such approvals, consents or waivers as are required under the federal and state securities or "Blue Sky" laws in connection with the transactions contemplated by this Agreement and (iii) any other approvals, consents or waivers the absence of which, individually or in the aggregate, would not result in a Material Adverse Effect on WG or enable any person to enjoin the Exchange. (d) KNOWLEDGE AS TO CONDITIONS. As of the date hereof, it knows of no reason why the approvals, consents and waivers of third parties and governmental authorities referred to in Section 5.1 and will not be obtained without the imposition of any condition of the type referred to in the proviso thereto. -18- SECTION 3.3. REPRESENTATIONS AND WARRANTIES OF WAVETEK STOCKHOLDERS. Each Wavetek Stockholder represents and warrants that: (a) CAPITAL STOCK. Annex 8 accurately sets forth the name, address and number of shares of Common Stock held by it; all such shares of Common Stock are beneficially owned and held by it free and clear of all Liens, except as set forth on Annex 8. (b) APPROVALS. This Agreement is a valid and binding Agreement of it enforceable against it in accordance with its terms, subject as to enforcement to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. No approval of any spouse of such Wavetek Stockholder or any other person is required for the performance of its obligations hereunder, except for such approvals as have been obtained by such Wavetek Stockholder. (c) NO VIOLATIONS. The execution, delivery and performance of this Agreement by it does not, and the consummation of the transactions contemplated hereby by it will not, constitute a breach or violation of, or a default under, any law, rule or regulation or any judgment, decree, order, governmental permit or license, or agreement, indenture or instrument of it or to which it (or any its properties) is subject, which breach, violation or default would have a Material Adverse Effect on Wavetek, or enable any person to enjoin the Exchange and, in the case of a Wavetek Stockholder that is not a natural person, constitute a breach or violation of, or a default under, the charter, by-laws or other governing document of it; and the consummation of the transactions contemplated hereby will not require any approval, consent or waiver under any such law, rule, regulation, judgment, decree, order, governmental permit or license or the approval, consent or waiver of any other party to any such agreement, indenture or instrument, other than (i) the required approval, consents and waivers of third parties or governmental authorities referred to in or contemplated by Section 5.1, (ii) such approvals, consents or waivers as are required under the federal and state securities or "Blue Sky" laws in connection with the transactions contemplated by this Agreement and -19- (iii) any other approvals, consents or waivers the absence of which, individually or in the aggregate, would not result in a Material Adverse Effect or enable any person to enjoin the Exchange. (d) KNOWLEDGE AS TO CONDITIONS. As of the date hereof, it knows of no reason why the approvals, consents and waivers of third parties and governmental authorities referred to in Section 5.1 will not be obtained without the imposition of any condition of the type referred to in the proviso thereto. ARTICLE IV. COVENANTS SECTION 4.1. ACQUISITION PROPOSALS. Except for the WGTI Transaction, between the date hereof and the Effective Time, each of Wavetek and WG agrees that neither it nor any of its subsidiaries nor any of the respective officers and directors of such company or its subsidiaries shall, and each of Wavetek and WG shall direct and use its best efforts to cause its employees, agents and representatives (including, without limitation, any investment banker, attorney or accountant retained by it or any of its subsidiaries) not to, and each of the WG Stockholders agrees that it shall not, initiate, solicit or encourage, directly or indirectly, any inquiries or the making of any proposal or offer (including, without limitation, any proposal or offer to stockholders) with respect to a merger, consolidation or similar transaction involving, or any purchase of all or any significant portion of the assets or any equity securities of, Wavetek, WG or any of their respective subsidiaries (any such proposal or offer being hereinafter referred to as an "Acquisition Proposal") or, except as may be legally required for the discharge by the board of directors of its fiduciary duties after receiving the advice of counsel, engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to an Acquisition Proposal, or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal. SECTION 4.2. WAVETEK STOCK OPTIONS. Immediately prior to the Effective Time, Wavetek hereby agrees to reserve for issuance pursuant to stock options additional shares of Wavetek Common Stock for stock option compensation pursuant to its 1992 non-qualified Employee Stock Option Plan up to the amount contemplated by Section 1.4 hereof. -20- SECTION 4.3. ACCESS AND INFORMATION. Each of Wavetek and WG shall (and shall cause each of its subsidiaries to) afford to the other parties and their representatives (including, without limitation, directors, officers and employees of the parties and their affiliates, and counsel, accountants and other professionals retained) such access during normal business hours throughout the period prior to the Effective Time to the books, records (including, without limitation, tax returns and work papers of independent auditors), properties, personnel and to such other information as any party may reasonably request, including with respect to the matters set forth in the Side Letter. Each party will not, and will cause its representatives not to, use any information obtained pursuant to this Section 4.3 for any purpose unrelated to the consummation of the transactions contemplated by this Agreement. Subject to the requirements of law, each party will keep confidential, and will cause its representatives to keep confidential, all information and documents obtained pursuant to this Section 4.3 unless such information (i) was already known to such party (and not subject to a separate confidentiality agreement), (ii) becomes available to such party from other sources not known by such party to be bound by a confidentiality obligation, (iii) is disclosed with the prior written approval of the party to which such information pertains, (iv) is or becomes readily ascertainable from published information or trade sources or (v) is necessary or advisable in connection with the Initial Public Offering or in other filings of Wavetek with the Securities and Exchange Commission. In the event that this Agreement is terminated or the transactions contemplated by this Agreement shall otherwise fail to be consummated, each party shall promptly cause all copies of documents or extracts thereof containing information and data as to another party hereto to be destroyed or returned to the party which furnished the same. SECTION 4.4. CERTAIN FILINGS, CONSENTS AND ARRANGEMENTS. Wavetek, WG and each WG Stockholder shall (a) as soon as practicable make any filings and applications required to be filed in order to obtain all approvals, consents and waivers of governmental authorities necessary or appropriate for the consummation of the transactions contemplated hereby, (b) cooperate with one another (i) in promptly determining what filings are required to be made or approvals, consents or waivers are required to be obtained under any relevant federal, state or foreign law or regulation and (ii) in promptly making any such filings, furnishing information -21- required in connection therewith and seeking timely to obtain any such approvals, consents or waivers (which shall include providing the other interested parties with draft copies of such filings sufficiently in advance of filing to enable such party a reasonable opportunity to comment on them) and (c) deliver to the other interested parties copies of the publicly available portions of all such filings and applications promptly after they are filed. SECTION 4.5. ADDITIONAL AGREEMENTS. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all reasonable efforts to take promptly, or cause to be taken promptly, all actions and to do promptly, or cause to be done promptly, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as promptly as practicable, including (i) using efforts to obtain all necessary actions or non-actions, extensions, waivers, consents and approvals from all applicable governmental entities, effecting all necessary registrations, applications and filings (including, without limitation, filings under any applicable state securities laws) and (ii) obtaining any required contractual consents and regulatory approvals. SECTION 4.6. PUBLICITY. The initial press release announcing this Agreement shall be a joint press release and thereafter and prior to the Effective Time, WG and Wavetek shall consult with each other in issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and in making any filings with any governmental entity or with any national securities exchange with respect thereto. SECTION 4.7. U.S. TAX CONSEQUENCE. Neither Wavetek nor WG shall take or cause to be taken any action, whether before or after the Effective Time, which would disqualify the Exchange for a step up in the U.S. tax basis of the Exchange within the meaning of Section 338 of the Code. SECTION 4.8. BOARD OF DIRECTORS OF WAVETEK. As of the Effective Time, the composition of the Board of Directors of Wavetek, the quorum required for action by such Board, the voting requirements for such Board and the committees thereof shall be as set forth in the Stockholders Agreement. -22- SECTION 4.9. SWITCHING TEST SOLUTIONS AG. Prior to the Effective Time, the WG Stockholders (other than HF) shall deliver to Wavetek or WG the 10% of the capital stock of Switching Test Solutions AG not currently owned by WG. SECTION 4.10. FORMATION OF WG HOLDING COMPANY. Prior to the Effective Time, WG shall cause WG Holding to be incorporated and WG Holding and the WG Stockholders shall have consummated the Exchange set forth in Section 1.1(a). SECTION 4.11. OPINION. WG shall receive and be entitled to rely upon the opinion of Sullivan & Cromwell delivered to the Trustee in connection with the Merger under the Indenture, dated as of June 10, 1997, among the Company, the Subsidiary Guarantors named therein and The Bank of New York, as trustee, which opinion will include an opinion that the transactions contemplated by this Agreement do not result in a breach of or default under such Indenture. ARTICLE V. CONDITIONS TO CONSUMMATION SECTION 5.1. CONDITIONS TO ALL PARTIES' OBLIGATIONS. The respective obligations of Wavetek, WG and each WG Stockholder to effect the Exchange or any other transaction contemplated by this Agreement shall be subject to the satisfaction or waiver prior to the Effective Time of the following conditions: (a) Wavetek shall have procured the required approval, consent, waiver or other administrative action pursuant to the Wavetek Credit Agreement; WG shall have procured the required approval, consent, waiver or other administrative action required pursuant to the WG Credit Agreement; Wavetek, WG and each WG Stockholder shall have procured the required approval, consent, waiver or other administrative action with respect to the Agreement and the transactions contemplated hereby pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and all applicable statutory waiting periods shall have expired or have been terminated; and Wavetek, WG and each WG Stockholder shall have procured all other regulatory approvals, consents, waivers or administrative actions of governmental authorities or other persons that are necessary to the consummation of the transactions contemplated by this Agreement; PROVIDED, HOWEVER, that no approval, consent, waiver or administrative action -23- referred to in this Section 5.1(a) shall be deemed to have been received if it shall include any condition or requirement that would (i) result in a Material Adverse Effect on Wavetek or WG (on a combined basis giving effect to the Exchange and the other transactions contemplated by this Agreement) or (ii) so materially and adversely affect the economic or business benefits of the Exchange that Wavetek or WG would not have entered into this Agreement had such conditions or requirements been known at the date hereof. (b) All other requirements prescribed by law which are necessary to the consummation of the transactions contemplated by this Agreement shall have been satisfied. (c) No party hereto shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the Exchange or any other transaction contemplated by this Agreement. No litigation or proceeding shall be pending against the WG Stockholders, the Wavetek Stockholders, Wavetek or WG or any of their subsidiaries brought by any governmental agency seeking to prevent consummation of the transactions contemplated hereby. (d) No statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any governmental authority which prohibits, restricts or makes illegal consummation of the Exchange or any other transaction contemplated by this Agreement. (e) The Certificate of Incorporation and Bylaws of Wavetek shall have been amended as contemplated by the Stockholders Agreement. (f) The Initial Public Offering shall occur at the Effective Time. (g) WG shall have received the opinion described in Section 4.11 hereto. -24- ARTICLE VI. TERMINATION SECTION 6.1. TERMINATION. This Agreement may be terminated, and the Exchange abandoned, prior to the Effective Date: (a) by the mutual consent of Wavetek and WG, if the respective board of directors or shareholder assembly of each so determines by vote of a majority of the members of its entire board or shareholder assembly; (b) by Wavetek or WG by written notice to the other if either (i) any approval, consent, waiver or administrative action required to permit consummation of the transactions contemplated hereby shall have been denied and such denial shall no longer be subject to any possible appeal, petition or repetition or hearing or rehearing or other administrative or judicial action or (ii) any governmental authority of competent jurisdiction shall have issued a final, unappealable order enjoining or otherwise prohibiting consummation of the transactions contemplated by this Agreement; or (c) by Wavetek or WG, if its board of directors or shareholder assembly so determines, in the event that the Exchange is not consummated by December 31, 1998. SECTION 6.2. EFFECT OF TERMINATION. In the event of the termination of this Agreement by either Wavetek or WG, as provided herein, this Agreement shall thereafter become void and there shall be no liability on the part of any party hereto or their respective officers or directors, except that any such termination shall be without prejudice to the rights of any party hereto contained in this Agreement and except as set forth in Section 8.5. ARTICLE VII. EFFECTIVE DATE AND EFFECTIVE TIME SECTION 7.1. EFFECTIVE DATE AND EFFECTIVE TIME. At or immediately prior to the consummation of the Initial Public Offering, or on such earlier or later date as may be agreed by Wavetek and WG, a closing of the Exchange, the Merger and the transactions contemplated hereby shall be held simultaneously at the offices of Sullivan & Cromwell, 444 South Flower Street, Los Angeles, California 90071 and Oberlindau 54-56, 60323 Frankfurt am Main, Germany at 7:00 a.m., Los Angeles -25- time, 4:00 p.m., Frankfurt time, or such other locations as may be agreed by Wavetek and WG, whereupon the deliveries and proceedings contemplated hereby, including, without limitation, those matters described in Article I hereof, shall be effected. The date of such closing is herein called the "Effective Date". The Merger shall become effective when the Certificate of Merger with respect to the Merger is filed in accordance with the General Corporation Law of the State of Delaware, or at such later time as is specified in the Certificate of Merger (the "Effective Time"). ARTICLE VIII. OTHER MATTERS SECTION 8.1. CERTAIN DEFINITIONS; INTERPRETATION. As used in this Agreement, the following terms shall have the meanings indicated: "material" means material to Wavetek or WG (as the case may be) and its respective subsidiaries, taken as a whole. "Material Adverse Effect," with respect to a person, means any condition, event, change or occurrence that is reasonably likely to have a material adverse effect upon (A) the financial condition, business or results of operations of such person and its subsidiaries, taken as a whole (other than as a result of changes in laws or regulations or accounting rules of general applicability or interpretations thereof), or (B) the ability of such person to perform its obligations under, and to consummate the transactions contemplated by, this Agreement. "person" includes an individual, corporation, partnership, limited liability company, association, trust or unincorporated organization. "Subsidiary," with respect to a person, means any other person controlled by such person. "Wavetek Credit Agreement" means the Credit Agreement, dated as of June 11, 1997, among Wavetek, the lenders listed therein, DLJ Capital Funding, Inc., as Syndication Agent, and Fleet National Bank, as Administrative Agent. -26- "WG Credit Agreement" means the Bank Pool Agreement (Pool Vertrag), dated June 10, 1997, among the Company, WGR and Commerzbank AG (as agent), Baden-Warttenbergishe Bank AG, Deutsche Bank AG, Kreissparkasse Reutlingen, Landesgirokasse, Stuttgart and Stuttgarter Bank AG. When a reference is made in this Agreement to Sections or Annexes, such reference shall be to a Section of, or Annex to, this Agreement unless otherwise indicated. The table of contents, list of annexes and headings contained in this Agreement are for ease of reference only and shall not affect the meaning or interpretation of this Agreement. Whenever the words "include", "includes", or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the antecedent person or persons or entity or entities may require. SECTION 8.2. NOTICES. All notices, requests, acknowledgments and other communications hereunder to a party shall be in writing and shall be deemed to have been duly given when delivered by hand, telecopy, or telegram (confirmed in writing) to such party at its address set forth below or such other address as such party may specify by notice to the other party hereto. If to Wavetek, to: Wavetek Corporation 11995 El Camino Real, Suite 301 San Diego, California 92130 Telecopy No.: (619) 793-2310 Attention: Chief Executive Officer With copies to: Sullivan & Cromwell 444 South Flower Street, 12th Floor Los Angeles, California 90071 Telecopy No.: (213) 683-0457 Attention: Alison S. Ressler -27- If to WG, to: Wandel & Goltermann Muhleweg 5 D-72800 Eningen u.A. Germany Telecopy No.: (011) 49-7121-88996 Attention: Chief Executive Officer With copies to: Rogers & Hardin 2700 International Tower, Peachtree Center 229 Peachtree Street N.E. Atlanta, Georgia 30303-1601 Telecopy No.: (404) 525-2224 Attention: Alan C. Leet If to any WG Stockholders, at the address indicated on Annex 2 hereto. SECTION 8.3. SEVERABILITY. In the event any provision hereof is held or rendered void or unenforceable by any court or other legal authority, then such provisions shall be severable and shall not affect the remaining provisions hereof. SECTION 8.4. ENTIRE AGREEMENT; ETC. This Agreement, the Stockholders Agreement and the Side Letter represents the entire understanding of the parties hereto with reference to the transactions contemplated hereby and supersedes any and all other oral or written agreements heretofore made between the parties hereto with respect to the subject matter contained herein. All terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Nothing in this Agreement is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. SECTION 8.5. SURVIVAL. Only those agreements and covenants of the parties that are applicable in whole or in part after the Effective Time (specifically, Sections 1.3, 4.2, 4.3, 4.5, 4.7, 4.9, 6.2 and Article VIII hereof and the Stockholders Agreement) shall survive the Effective Time. All other agreements and covenants shall not survive the Effective Time. All representations and warranties shall not survive -28- the date of this Agreement. If this Agreement shall be terminated, the agreements of the parties in Sections 4.3 (other than the first sentence thereof) and 8.6 shall survive such termination. SECTION 8.6. EXPENSES. The fees and expenses of the German notary incurred in connection with the preparation, execution, delivery and notarization of the notarial deed pursuant to Section 1.2(a) hereof shall be borne by Wavetek. All expenses incurred by a party in connection with the negotiation, preparation, performance and enforcement of this Agreement shall be borne by such party. The filing fees associated with the filing of all pre-merger notifications of the Exchange and Merger pursuant to The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the filings with the German Cartel Office, including filings made by any Wavetek Stockholder or WG Stockholder, and all other out-of-pocket expenses incurred in connection with the consummation of the Initial Public Offering and the other transactions with respect to Wavetek and WG following the Effective Time contemplated by this Agreement, including the fees and expenses of attorneys and accountants and other persons agreed to by Wavetek and WG, shall be shared equally by Wavetek and WG. SECTION 8.7. AMENDMENTS AND WAIVER. Prior to the Effective Time, any provision of this Agreement may be (i) waived by the party benefitted by the provision or by all parties by a writing executed by an executive officer, in the case of Wavetek or WG, or such person, in the case of a WG Stockholder, or (ii) amended or modified at any time (including the structure of the transaction) by an agreement in writing among the parties hereto approved, in the case of Wavetek or WG, by their respective board of directors or supervisory board. SECTION 8.8. CONSENT TO SPECIFIC PERFORMANCE. The parties hereto declare that it is impossible to measure in money the damages which would accrue to a party by reason of failure to perform any of the obligations hereunder. Therefore, if any party shall institute any action or proceeding to enforce the provisions hereof, any party against whom such action or proceeding is brought hereby waives any claim or defense therein that the other party has an adequate remedy at law. -29- SECTION 8.9. ASSIGNMENT. This Agreement may not be assigned by any party hereto without the written consent of the other parties. SECTION 8.10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PROVISIONS THEREOF. SECTION 8.11. JURISDICTION; WAIVERS. Each of the parties hereto hereby irrevocably submits in any legal action or proceeding relating to or arising out of this Agreement or any other document relating hereto or delivered in connection with the transactions contemplated hereby, or for recognition and enforcement of any judgment in respect thereof, to the exclusive jurisdiction of the United States District Court for the District of Delaware, and appellate courts thereof. Each of the parties hereto further (a) consents that any such action or proceeding may be brought in such court and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (b) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such party at its address set forth in Section 8.2 or at such other address of which such party shall have given notice pursuant thereto; and (c) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. SECTION 8.12. WAIVERS OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN. SECTION 8.13. REMEDIES. The rights and remedies provided in this Agreement are cumulative and nonexclusive of any other rights or remedies available to any party hereunder, whether by contract, by law, in equity or otherwise. No single or partial exercise of any right or remedy shall preclude any other future exercise thereof or the exercise of any other right or remedy. SECTION 8.14. FACSIMILE SIGNATURE; COUNTERPARTS. This Agreement may be executed by facsimile signature and in -30- counterparts each of which shall be deemed to constitute an original, but all of which together shall constitute one and the same instrument. SECTION 8.15. BINDING AGREEMENT. This Agreement shall be a binding obligation of each party to this Agreement upon the signature of such party hereto, even if such party executes this Agreement prior to June 12, 1998, and shall not be binding upon any party after June 12, 1998 if all parties have not executed this Agreement by June 12, 1998. -31- IN WITNESS WHEREOF, the parties hereto have executed this Exchange Agreement as of the date first written above. WAVETEK CORPORATION By: /s/ Terence J. Gooding ------------------------------ Name: Terence J. Gooding Title: Chairman of the Board DLJ MERCHANT BANKING PARTNERS II, L.P. By: DLJ Merchant Banking II, Inc. Managing General Partner By: /s/ Ivy Dodes ------------------------------ Name: Ivy Dodes Title: Vice President DLJ MERCHANT BANKING PARTNERS II-A, L.P. By: DLJ Merchant Banking II, Inc. Managing General Partner By: /s/ Ivy Dodes ------------------------------ Name: Ivy Dodes Title: Vice President DLJ DIVERSIFIED PARTNERS, L.P. By: DLJ Diversified Partners, Inc. Managing General Partner By: /s/ Ivy Dodes ------------------------------ Name: Ivy Dodes Title: Vice President -32- DLJ DIVERSIFIED PARTNERS-A, L.P. By: DLJ Diversified Partners, Inc. Managing General Partner By: /s/ Ivy Dodes ------------------------------ Name: Ivy Dodes Title: Vice President DLJMB FUNDING II, INC. By: /s/ Ivy Dodes ------------------------------ Name: Ivy Dodes Title: Vice President DLJ FIRST ESC L.P. By: DLJ LBO Plans Management Corporation By: /s/ Ivy Dodes ------------------------------ Name: Ivy Dodes Title: Vice President DLJ EAB PARTNERS, L.P. By: DLJ LBO Plans Management Corporation General Partner By: /s/ Ivy Dodes ------------------------------ Name: Ivy Dodes Title: Vice President -33- DLJ MILLENNIUM PARTNERS, L.P. By: DLJ Merchant Banking II, Inc. Managing General Partner By: /s/ Ivy Dodes ------------------------------ Name: Ivy Dodes Title: Vice President DLJ MILLENNIUM PARTNERS-A, L.P. By: DLJ Merchant Banking II, Inc. Managing General Partner By: /s/ Ivy Dodes ------------------------------ Name: Ivy Dodes Title: Vice President DLJ OFFSHORE PARTNERS II, C.V. By: /s/ Ivy Dodes ------------------------------ Name: Ivy Dodes Title: Vice President UK INVESTMENT PLAN 1997 PARTNERS By: UK Investment Plan 1997 Partners, Inc. General Partner By: /s/ Ivy Dodes ------------------------------ Name: Ivy Dodes Title: Vice President -34- GREEN EQUITY INVESTORS II, L.P. By: Grand Avenue Capital Partners, L.P. Grand Avenue Capital Corporation, its general partner By: /s/ Peter Nolan ------------------------------ Name: Peter Nolan Title: Partner SCHRODER UK VENTURE FUND III By: Schroder Venture Managers Inc., as General Partner of Schroder UK Venture Fund III LP1 By: /s/ Peter L. Everson /s/ John W. Evans --------------------------------------- Peter L. Everson, Director & VP John W. Evans, Director & VP SCHRODER UK VENTURE FUND III By: Schroder Venture Managers Inc., as General Partner of Schroder UK Venture Fund III LP2 By: /s/ Peter L. Everson /s/ John W. Evans --------------------------------------- Peter L. Everson, Director & VP John W. Evans, Director & VP SCHRODER UK VENTURE FUND III By: Schroder International Trust Company Limited, as Trustee of Schroder UK Venture Fund III Trust By: /s/ Peter L. Everson /s/ John W. Evans --------------------------------------- Peter L. Everson, Director & VP John W. Evans, Director & VP YOKOGAWA ELECTRIC CORPORATION By: /s/ Joichi Ueba ------------------------------ Name: Joichi Ueba Title: Senior Vice President -35- DR. TERENCE J. GOODING /s/ Terence J. Gooding ------------------------------ Dr. Terence J. Gooding BARBARA A. GOODING TERENCE J. GOODING GRAT 1 TERENCE J. GOODING GRAT 2 BARBARA A. GOODING GRAT By: /s/ Terence J. Gooding ------------------------------ Terence J. Gooding, as Attorney-in-Fact WAVETEK MANAGEMENT STOCKHOLDERS: SNOW HILL TRUSTEES RICHARD J. BERRY PAUL STEVENSON By: /s/ Terence J. Gooding ------------------------------ Terence J. Gooding, as Attorney-in-Fact DEREK T. MORIKAWA /s/ Derek T. Morikawa ------------------------------ Derek T. Morikawa MORIKAWA TRUST F/B/O MEGAN K. MORIKAWA By: /s/ Criss Y. Morikawa ------------------------------ Criss Y. Morikawa, as Trustee MORIKAWA TRUST F/B/O EVAN T. MORIKAWA By: /s/ Criss Y. Morikawa ------------------------------ Criss Y. Morikawa, as Trustee -36- BEN J. CONSTANTINI /s/ Ben J. Constantini ------------------------------ Ben J. Constantini WG STOCKHOLDERS: WANDEL & GOLTERMANN MANAGEMENT HOLDING GmbH By: /s/ Peter Wagner ------------------------------ Name: Peter Wagner Title: President and CEO And: /s/ Karl Heinz-Eisemann ------------------------------ Name: Karl Heinz-Eisemann Title: Vice President Controlling and Logistics ALBRECHT WANDEL /s/ Albrecht Wandel ------------------------------ Albrecht Wandel RENATE WANDEL /s/ Renate Wandel ------------------------------ Renate Wandel -37- FRANK GOLTERMANN /s/ Frank Goltermann ------------------------------ Frank Goltermann ULRIKE GOLTERMAN /s/ Ulrike Goltermann ------------------------------ Ulrike Golterman BURKHARD GOLTERMAN /s/ Burkhard Goltermann ------------------------------ Burkhard Golterman HANNOVER FINANZ W&G BETEILIGUNGSGESELLSCHAFT mbH By: /s/ Joachim Simmross ------------------------------ Name: Joachim Simmross Title: Managing Director AND: /s/ Claus von Loeper ------------------------------ Name: Claus von Loeper Title: Managing Director -38- EX-10.2 3 EXHIBIT 10.2 EXHIBIT 10.2 Conformed Copy =============================================================================== STOCKHOLDERS AGREEMENT DATED AS OF JUNE 12, 1998 AND EFFECTIVE AS OF THE EFFECTIVE TIME BY AND AMONG WAVETEK CORPORATION AND THE STOCKHOLDERS LISTED ON THE SIGNATURE PAGES HERETO =============================================================================== TABLE OF CONTENTS ARTICLE I ARTICLE DEFINITIONS Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE II GOVERNANCE 2.1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.2 Approval of Certain Transactions. . . . . . . . . . . . . . . . . . . . .12 2.3 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 2.4 Voting Rights of Stockholders . . . . . . . . . . . . . . . . . . . . . .15 2.5 Stockholder Votes . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 2.6 Certificate and Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . .15 2.7 Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . . . . .15 2.8 Stockholder Decisions . . . . . . . . . . . . . . . . . . . . . . . . . .16 ARTICLE III TRANSFER RESTRICTIONS; CERTAIN PERMITTED TRANSFERS; INVOLUNTARY TRANSFERS 3.1 Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 3.2 Sale of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 3.3 Certain Permitted Transfers . . . . . . . . . . . . . . . . . . . . . . .16 3.4 Pledges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 3.5 Consent of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . .18 ARTICLE IV RIGHT OF FIRST OFFER: TAG-ALONG RIGHTS; CERTAIN PURCHASE RIGHTS 4.1. Right of First Offer. . . . . . . . . . . . . . . . . . . . . . . . . . .18 4.2. Tag-Along Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 4.3 Bring-Along Right . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 -i- ARTICLE V REGISTRATION RIGHTS 5.1 Registration on Request . . . . . . . . . . . . . . . . . . . . . . . . .21 5.2 Incidental Registration . . . . . . . . . . . . . . . . . . . . . . . . .23 5.3 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . .26 5.4 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30 ARTICLE VI MISCELLANEOUS 6.1 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 6.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 6.3 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 6.4 Entire Agreement; Amendments and Waivers. . . . . . . . . . . . . . . . .35 6.5 Successors, Assigns and Transferees . . . . . . . . . . . . . . . . . . .36 6.6 Consent to Specific Performance . . . . . . . . . . . . . . . . . . . . .37 6.7 Variations in Pronouns. . . . . . . . . . . . . . . . . . . . . . . . . .37 6.8 Effectiveness; Termination. . . . . . . . . . . . . . . . . . . . . . . .37 6.9 CHOICE OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37 6.10 Jurisdiction; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . .37 6.11 WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . . . . . .38 6.12 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . .38 6.13 Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . .38 6.14 Inspection and Compliance with Law. . . . . . . . . . . . . . . . . . . .38 6.15 Termination of Prior Agreement. . . . . . . . . . . . . . . . . . . . . .38 6.16 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 6.17 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 6.18 Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 LIST OF ANNEXES Annex 1 -- Chairman Roles and Responsibilities (Section 2.1(h)) Annex 2 -- Chief Executive Officer Roles and Responsibilities (Section 2.1(h)) Annex 3 -- Form of Supplemental Agreement (Section 3.1) Annex 4 -- Stockholder Address and Contact (Section 6.2) Annex 5 -- Board Approval Policy -ii- STOCKHOLDERS AGREEMENT, dated as of June 12, 1998 and effective as of the Effective Time (defined herein) (this "Agreement"), by and among Wavetek Corporation, a Delaware corporation (the "COMPANY"), DLJ Merchant Banking Partners II, L.P. ("DLJMB"), DLJ Offshore Partners II, C.V., DLJ Diversified Partners, L.P., DLJMB Funding II, Inc., UK Investment Plan 1997 Partners, DLJ First ESC L.L.C., DLJ EAB Partners, L.P., DLJ Millennium Partners, L.P., DLJ Offshore Partners II, C.V. and UK Investment Plan 1997 Partners (collectively, and together with DLJMB, the "DLJ INVESTORS"), Green Equity Investors II, L.P. ("GEI"), Schroder UK Venture Fund III, L.P., Schroder UK Venture Fund III, L.P.2, Schroder UK Venture Fund III Trust (collectively, "SCHRODER"), Yokogawa Electric Corporation ("YOKOGAWA", and together with the DLJ Investors, GEI and Schroder, the "INSTITUTIONAL STOCKHOLDERS"), Dr. Terence J. Gooding, Barbara A. Gooding, Terence J. Gooding GRAT 1, Terence J. Gooding GRAT 2 and Barbara A. Gooding GRAT (collectively, "GOODING"), the Wavetek management stockholders listed on the signature pages hereto (the "MANAGEMENT STOCKHOLDERS"), Albrecht Wandel, a resident of the Federal Republic of Germany, and Renate Wandel, a resident of the Federal Republic of Germany (the "WANDEL STOCKHOLDERS"), Frank Goltermann, a resident of the Federal Republic of Germany, Ulrike Goltermann, a resident of the Federal Republic of Germany, and Burkhard Goltermann, a resident of the Federal Republic of Germany (the "GOLTERMANN STOCKHOLDERS"), Peter Wagner, a resident of the Federal Republic of Germany ("WAGNER") and Hannover Finanz W&G Beteiligungsgesellschaft mbH ("HF"). The Institutional Stockholders, the Management Stockholders and Gooding are collectively referred to as the "WAVETEK STOCKHOLDERS" and the Wandel Stockholders, the Goltermann Stockholders , Wagner and HF and collectively referred to as the "WG STOCKHOLDERS". All parties to this Agreement, with the exception of the Company and WG, are collectively referred to as the "STOCKHOLDERS". RECITALS: WHEREAS, pursuant to the terms of the Exchange and Merger Agreement dated as of June 12, 1998 (the "EXCHANGE AND MERGER AGREEMENT") by and among the Company, Wandel & Goltermann Management Holding GmbH, a German limited liability company ("WG") and the Stockholders, WG will become a wholly owned subsidiary of the Company and the WG Stockholders will become stockholders of the Company (the "MERGER"); WHEREAS, the Company and the Stockholders desire to enter into this Agreement for the purpose of regulating governance of the Company and certain aspects of the Stockholders' relationships with regard to each other and the Company subsequent to the Effective Time (except that, to the extent that either the Exchange and Merger Agreement or the Side Letter entered into by the Company and WG in connection therewith require or contemplate action by the Board of the Company (or any committee thereof) prior to the Effective Time, the provisions of this Agreement addressing Board and committee composition, conduct and action shall be operative prior to the Effective Time); and WHEREAS, this Agreement is intended to supersede and replace the Stockholders' Agreement dated as of June 11, 1997 between the Company and certain Wavetek Stockholders and the Registration Rights Agreement dated as of June 11, 1997 between the Company and certain Wavetek Stockholders (collectively, the "PRIOR AGREEMENT"). NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties agree as follows from and after the Effective Time (except that, to the extent that either the Exchange and Merger Agreement or the Side Letter entered into by the Company and WG in connection therewith require or contemplate action by the Board of the Company (or any committee thereof) prior to the Effective Time, the provisions of this Agreement addressing Board and committee composition, conduct and action shall be operative prior to the Effective Time): ARTICLE I DEFINITIONS As used herein, the terms below shall have the following meanings. Any such term, unless the context otherwise requires, may be used in the singular or plural, depending upon reference. "AFFILIATE" shall mean, with respect to any Person, (i) any Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person, (ii) any natural person who is related by blood or marriage to such Person, (iii) any trust of which there are -2- no principal beneficiaries other than such Person or Affiliates of such Person, (iv) any charitable foundation over which such Person has discretionary authority or (v) any trust or investment fund administered or managed by such Person or by an Affiliate of such person as defined in any of clauses (i), (ii), (iii) or (iv) hereof. For purposes of this definition, ownership of 10% or more of the voting common equity of a Person shall be deemed to be control of such Person. "BANK DEBT" shall mean any indebtedness incurred pursuant to loans from any financial institution. "BENEFICIAL OWNER" shall have the meaning set forth in Rule 13d-3 under the Exchange Act. "BOARD" shall be the Board of Directors of the Company. "BOARD APPROVAL POLICY" shall mean the Board approval policy attached as Annex 5 hereto specifying the matters requiring a simple majority approval of the Board, matters delegated to the Executive Committee, the level of Capital Expenditures and capital leases requiring Supermajority approval and the matters within the authority of the Chief Executive Officer. "BRING-ALONG RIGHT" shall have the meaning set forth in Section 4.3. "BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in the City of New York are authorized or obligated by law or executive order to close. "BYLAWS" shall mean the bylaws of the Company. "CAPITAL EXPENDITURES" means all direct and indirect expenditures (including capitalized interest) which are required to be included in property, plant or equipment or similar tangible property account, including, without limitation, additions to equipment and leasehold improvements, on a consolidated balance sheet prepared in accordance with US GAAP. "CAPITAL LEASE OBLIGATION" means the obligation to pay rent or other payment amounts under a lease of (or other debt -3- arrangements conveying the right to use) real or personal property which is required to be classified and accounted for as a capital lease or a liability on the face of a balance sheet in accordance with US GAAP. "CERTIFICATE" shall mean the Restated Certificate of Incorporation of the Company. "CHIEF EXECUTIVE OFFICER" shall mean the chief executive officer of the Company. "COMMON PLAN" shall mean any explicit or tacit agreement, arrangement or understanding, whether written or otherwise, to Transfer any securities to any Person. "COMMON STOCK" shall mean the Common Stock, $.01 par value per share, of the Company. "COMPENSATION COMMITTEE" shall have the meaning set forth in Section 2.1(f). "DLJSC" shall mean Donaldson, Lufkin & Jenrette Securities Corporation. "DIRECTOR" shall mean directors of the Board of Directors of the Company. "EFFECTIVE TIME" shall have the meaning set forth in Section 7.1 of the Exchange Agreement. "EMPLOYEE BENEFIT PLAN" means any stock option or other incentive-based plan of the Company or any of its subsidiaries that is existing at the Effective Time or approved by a Supermajority. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "EXECUTIVE COMMITTEE" shall have the meaning set forth in Section 2.1(f). "GOOD REASON" shall mean (i) any event, regardless of when such event occurred, with respect to a person described in Item 401(f)(1) through (6) of Regulation S-K of the United States Securities and Exchange Commission that the Board -4- determines to be material to the ability or integrity of such person, (ii) any material affiliation with a competitor of the Company or (iii) any other reason, similar in effect and order of magnitude as items (i) and (ii) above, that is materially adverse to the interests of the Company. "INDEMNIFIED PARTY" shall have the meaning set forth in Section 5.4. "INDEPENDENT DIRECTOR" shall mean any director who is not an officer or employee of the Company or an Affiliate of any DLJ Investor, GEI, HF, Gooding, any Wandel Stockholder or any Goltermann Stockholder. "INITIAL PUBLIC OFFERING" shall mean the initial underwritten offering by the Company of securities of the Company registered with the SEC under the Securities Act after which the Common Stock is included for quotation on the Nasdaq National Market or listed on a national securities exchange in conjunction with a dual listing in Europe (preferably the Frankfurt exchange), which Initial Public Offering shall be approved by Supermajority Vote of the persons who will become members of the Board of the Company pursuant to Section 2.1 hereof at the Effective Time. "MATERIAL TRANSACTION" means a material transaction in which the Company or any of its subsidiaries proposes to engage or is engaged, including a purchase or sale of assets or securities, financing, merger, consolidation, tender offer or other material corporate development, and with respect to which the Board reasonably has determined in good faith that compliance with this Agreement may reasonably be expected to either materially interfere with the Company's or such Subsidiary's ability to consummate such transaction in a timely fashion or require the Company to disclose material, non-public information or such material corporate development prior to such time as it would otherwise be required to be disclosed. "OFFERING NOTICE" shall mean the written notice that a Selling Stockholder shall give to each Stockholder not less than 30 days prior to each Proposed Sale, setting forth: (A) the name of the Selling Stockholder and the number of Shares proposed to be sold, (B) the name and address of the proposed purchaser, (C) the proposed per share purchase price (which must be payable in cash, cash equivalents or marketable -5- securities) and the terms and conditions of payment offered by such proposed purchaser and (D), if applicable, that the proposed purchaser has been informed of the Tag-Along Right provided for in Section 4.2 and has agreed to purchase Shares subject to such Tag-Along Right. "OTHER WAVETEK STOCKHOLDERS" refers to the Stockholders listed under such heading on the signature pages hereto. "PERMITTED TRANSFER" shall have the meaning set forth in Section 3.3. "PERSON" shall be construed broadly and shall include an individual, a partnership, a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof or any group comprised of such individuals or entities. "POST-OFFERING REGISTRATION RIGHT" shall have the meaning set forth in Section 5.1. "PROPOSED SALE" shall have the meaning set forth in Section 4.1. "PROPOSING STOCKHOLDERS" shall have the meaning set forth in Section 4.3. "PURCHASE NOTICE" shall mean written notice by a Stockholder to all Stockholders and the Company electing or not electing to purchase any or all Shares of such Selling Stockholder pursuant to a Right of First Offer. "REFUSAL NOTICE" shall mean written notice by a Stockholder or the Company, as the case may be, to all Stockholders and/or the Company, as appropriate, electing not to purchase Shares from a Selling Stockholder pursuant to a Right of First Offer. "REGISTRATION EXPENSES" shall mean any and all expenses incident to performance of or compliance with Sections 5.1 and 5.2 of this Agreement, including without limitation, (i) all -6- SEC and securities exchange or National Association of Securities Dealers, Inc. registration and filing fees, (ii) all fees and expenses on complying with securities or blue sky laws (including fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the securities), (iii) all printing, messenger and delivery expenses, (iv) all fees and expenses incurred in connection with the listing of the securities on any securities exchange pursuant to Sections 5.1 and 5.2, (v) the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits and/or "comfort" letters required by or incident to such performance and compliance, (vi) the reasonable fees and disbursements of one counsel, other than the Company's counsel, selected by Stockholders holding a majority of the securities being registered by Stockholders to represent all holders of the securities being registered in connection with each such registration (it being understood that any Stockholder may, at its own expense, retain separate counsel to represent it in connection with such registration), (vii) any fees and disbursements of underwriters customarily paid by the issuers or sellers of securities, and the reasonable fees and expenses of any special experts retained in connection with the requested registration, but excluding underwriting discounts and commissions and transfer taxes, if any. "REGISTRATION STATEMENT" shall mean a registration statement filed with the Securities and Exchange Commission on which it is permissible to register securities for sale to the public under the Securities Act. "RIGHTS" shall mean any rights to acquire equity securities of the Company or securities convertible into, or in exchange for, such equity securities of the Company. "RIGHT OF FIRST OFFER" shall have the meaning set forth in Section 4.1. "SEC" shall mean the Securities and Exchange Commission. "SELLING STOCKHOLDER" shall have the meaning set forth in Section 4.1. -7- "SECURITIES ACT" shall mean the Securities Act of 1933, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "SHARES" shall mean shares of Common Stock. "SPECIAL STOCKHOLDER APPROVAL" shall have the meaning set forth in Section 2.4(b). "SUPERMAJORITY VOTE" shall mean the approval of six Directors. "TAG-ALONG NOTICE" shall have the meaning set forth in Section 4.2. "TAG-ALONG RIGHT" shall have the meaning set forth in Section 4.2. "TAG-ALONG STOCKHOLDERS" shall have the meaning set forth in Section 4.2. "TOTAL VOTING POWER" shall mean the capital stock which ordinarily has voting power for the election of Directors of the Company, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. "TRANSFER" shall mean to directly or indirectly sell, give, transfer, assign, pledge, hypothecate or otherwise dispose of, or to contract or agree to do any of the foregoing. "US GAAP" shall mean generally accepted accounting principles in the United States. "WAVETEK DIRECTORS" shall have the meaning set forth in Section 2.1. "WAVETEK HOLDER" shall have the meaning set forth in Section 4.1. "WG DIRECTORS" shall have the meaning set forth in Section 2.1. "WG HOLDER" shall have the meaning set forth in Section 4.1. -8- ARTICLE II GOVERNANCE 2.1 BOARD OF DIRECTORS. (a) The Board shall be comprised of nine Directors, who shall be designated as follows: (i) one Director shall be appointed by the Wandel Stockholders; (ii) one Director shall be appointed by the Goltermann Stockholders; (iii) one Director shall be appointed by HF; provided that if HF beneficially owns less than 4% of the outstanding shares of Common Stock and the Wandel Stockholders and the Goltermann Stockholders collectively beneficially own at least 12% of the outstanding shares of Common Stock, such Director shall be appointed jointly by the Wandel Stockholders and the Goltermann Stockholders; (iv) one Independent Director shall be appointed jointly by the Wandel Stockholders, the Goltermann Stockholders and HF so long as either the Wandel Stockholders or the Goltermann Stockholders beneficially own at least 4% of the outstanding shares of Common Stock; (v) one Director and one Independent Director shall be appointed by Gooding; (vi) one Director shall be appointed by DLJMB; (vii) one Director shall be appointed by GEI; and (viii) one Director shall be the Chief Executive Officer. Directors appointed by the Wandel Stockholders, the Goltermann Stockholders and/or HF shall be referred to as the "WG DIRECTORS" and Directors appointed by Gooding, DLJMB and/or GEI shall be referred to as the "WAVETEK DIRECTORS." As of the Effective Time, the Directors designated under the above clauses shall be as follows: clause (i) shall be Albrecht Wandel; clause (ii) shall be Frank Goltermann; clause (iii) shall be Joachim Simmroo; clause (iv) shall be Gerhard Zeidler; clause (v) shall be Terence J. Gooding and Malcolm Bates; clause (vi) shall be Susan C. Schnabel; clause (vii) shall be Peter Nolan; and clause (viii) shall be Peter Wagner. (b) The Independent Directors shall be "independent directors" (or the legal equivalent) under the rules and regulations of the New York Stock Exchange, Inc. or other principal securities exchange on which the Common Stock is listed or traded. -9- (c) If, at any time that this Agreement is in effect, a Director has been designated by a Stockholder or Stockholders and elected pursuant to this Section 2.1 and such Stockholder or Stockholders request that such Director be removed (with or without cause) by written notice thereof to the other Stockholders, then each Stockholder shall vote all Shares owned or held of record by such Stockholder to effect such removal upon such notice. (d) If a vacancy is created on the Board at any time by reason of death, disability, retirement, resignation, removal or otherwise, the Stockholder or Stockholders entitled to designate such Director shall be entitled to designate a successor Director to fill the vacancy created thereby, and each other Stockholder shall vote all Shares owned or held of record by such Stockholder and cause the Director(s) designated by such Stockholder(s) to elect such successor Director, provided that (A), if such proposed successor Director is an employee holding a management position with the Company or its principal German subsidiary (WG or its successor), such person has been approved by a Supermajority Vote or (B) such person has not been disapproved by the Board for Good Reason. (e) In the event that the Chief Executive Officer shall be removed under Section 2.2(j) or shall otherwise be unable to serve due to death, resignation, disability or otherwise, then each of the WG Directors and the Wavetek Directors shall have the right to nominate one or more successor candidate and the Stockholders shall elect one of such successor candidates designated by the Board in accordance with Section 2.2(j); provided, however, that pending appointment of the new Chief Executive Officer, the Board, by a majority vote, will appoint an interim Chief Executive Officer; provided, further, that if a Supermajority of the Board has not approved a candidate to fill such vacancy for a period of 26 weeks, then such vacancy shall be filled by a successor candidate nominated by Terence J. Gooding, Albrecht Wandel and Frank Goltermann, acting unanimously. (f) The Board shall appoint an audit committee (the "AUDIT COMMITTEE"), a compensation committee (the "COMPENSATION COMMITTEE") and an executive committee (the "EXECUTIVE COMMITTEE") at the Effective Time. -10- As of the Effective Time, the Audit Committee shall be comprised of Malcolm Bates, Albrecht Wandel and Susan C. Schnabel, and the Compensation Committee shall be comprised of Albrecht Wandel (who shall serve as Chairman), Terence J. Gooding and Peter Nolan. The Compensation Committee and the Audit Committee shall be delegated such authority as is normal and customary for a U.S. corporation and shall recommend matters to the Board of Directors for approval. (g) The Executive Committee shall be comprised of three Directors. The quorum required for action by such committee shall be three Directors and unanimous consent shall be required for all actions taken by it. The Executive Committee shall be delegated such authority as is normal and customary for a U.S. corporation and as set forth in the Board Approval Policy, but shall not be delegated authority to approve matters that require a Supermajority Vote (as defined in Section 2.2). If any WG Director serving as a member of the Executive Committee ceases to serve on such committee, the Director appointed to replace such person as a member of the Executive Committee shall be designated by the WG Directors. If any Wavetek Director serving as a member of the Executive Committee ceases to serve on such committee, the Director appointed to replace such person as a member of the Executive Committee shall be designated by the Wavetek Directors. As of the Effective Time, the Executive Committee shall be comprised of Terence J. Gooding (who shall be Chairman), Albrecht Wandel and Peter Wagner. (h) At the Effective Time, the Chairman of the Board shall be Terence J. Gooding (with the roles and responsibilities set forth on Annex 1), the Vice Chairman of the Board and the Chairman of the Compensation Committee shall be Albrecht Wandel and the Chief Executive Officer shall be Peter Wagner (with the roles and responsibilities set forth on Annex 2). The Company shall employ Peter Wagner as Chief Executive Officer pursuant to employment agreements agreed to between the Company and such individual prior to the Effective Time. Terence J. Gooding shall not be an executive officer of the Company. (i) The rights of any of the Wandel Stockholders, the Goltermann Stockholders, HF, Gooding, DLJMB and GEI to designate one or more Directors pursuant to this Agreement will terminate if such Stockholder and its Affiliates cease to -11- beneficially own at least 4% of the outstanding shares of Common Stock (whereupon such Stockholder shall be referred to as a "Disqualified Stockholder"); provided, however, that the WG Stockholders (excluding any Disqualified Stockholder), as a group, and the Wavetek Stockholders (excluding any Disqualified Stockholder), as a group, each will have the right to appoint (a) one or more replacement WG Directors or Wavetek Directors, respectively, so long as they, together with their Affiliates, beneficially own as a group in excess of 30% of the outstanding shares of Common Stock; (b) one or more replacement WG Directors or Wavetek Directors, respectively, such that the total number of Directors appointed by such group does not exceed 3 so long as they beneficially own as a group 30% or less but in excess of 20% of the outstanding shares of Common Stock; and (c) one or more replacement WG Directors or Wavetek Directors, respectively, such that the total number of Directors appointed by such group does not exceed 2 so long as they beneficially own as a group 20% or less but in excess of 10% of the outstanding shares of Common Stock. (j) HF shall be entitled to bring one non-voting observer to each meeting of the Board of Directors. During the one year period following the Effective Time and thereafter until the Board determines otherwise, the WG Directors shall be entitled to retain, at the expense of the Company for the one year period following the Effective Time and thereafter at their expense, a legal advisor to advise them with respect to matters relating to the Company, and a representative of such legal advisor shall be permitted to attend meetings of the Board unless a majority of the members of the Board determine that such representative should not participate in any particular deliberations of the Board. 2.2 APPROVAL OF CERTAIN TRANSACTIONS. In addition to any approval of the Board required by applicable law and the Board Approval Policy, the following transactions shall require a Supermajority Vote unless such action may be taken by the Board by simple majority vote, by the Executive Committee or by the Chief Executive Officer in accordance with the Board Approval Policy: (a) any merger, consolidation or liquidation of the Company or any of its subsidiaries; -12- (b) any purchase or other acquisition by the Company or any of its subsidiaries of, in one or a series of transactions, any other Person; (c) any joint venture, partnership or establishment of non-wholly owned subsidiaries; (d) any significant change in or expansion of the business of the Company or any of its subsidiaries outside of the business conducted by the Company and its subsidiaries (including WG) at the Effective Time; (e) any sale, lease, exchange or other disposition of a substantial part of the assets, including a line of business, division or subsidiary of the Company; (f) any incurrence by the Company or its subsidiaries of indebtedness, or any mortgage, pledge or grant of lien or security interest in assets of the Company or its subsidiaries, in each case in an amount in excess of $10,000,000; (g) any Capital Expenditures or Capital Leases in excess of the amounts specified in the Board Approval Policy; (h) any issuance or sale of securities by the Company or any of its subsidiaries, including any Initial Public Offering of Common Stock, any registration of securities under the Securities Act of 1933 and any grant of registration rights, PROVIDED that any issuance or sale of securities upon exercise of stock options or pursuant to any Employee Benefit Plan (and, following the Initial Public Offering, the registration of any securities in connection therewith) shall not be subject to the voting requirements of this Section 2.2; (i) any payment of dividends by the Company and any repurchase or redemption of securities or debt of the Company, PROVIDED that (i) repurchases of Common Stock and stock options from employees of the Company, (ii) payment and prepayment of Bank Debt and (iii) redemptions of other debt in accordance with its terms shall not be subject to the voting requirements of this Section 2.2; (j) the appointment or removal of the Chief Executive Officer or Chairman of the Board or any changes in the roles or responsibilities of the Chief Executive Officer or the Chairman of the Board as set forth in Annex 1 and Annex 2; -13- (k) any agreement or transaction between the Company and any Affiliates not in the ordinary course of business or involving consideration (whether cash, securities, property or otherwise) in excess of $5 million; PROVIDED, HOWEVER, that the foregoing shall not restrict (A) transactions between the Company and any of its subsidiaries, or among any of such subsidiaries, (B) payments or advances to employees of the Company or its subsidiaries in the ordinary course of business, (C) transactions pursuant to any Employee Benefit Plan, (D) transactions contemplated by this Agreement, the Exchange Agreement or agreements (including the issuance of the notes, the cancellation of loans of stockholders of WG, the entering into of employment agreements with Terence J. Gooding and Peter Wagner and the issuance of new options to purchase Common Stock) entered into in connection with the Exchange and (E) transactions pursuant to any arrangements existing on the date hereof; (l) any action to amend or repeal any provision of the Certificate or Bylaws, including any change in the size of the Board; (m) removal or appointment of the Company's independent accountants and any material change to the Company's accounting policies or practices; (n) any adoption or amendment of employment contracts or benefit plans relating to officers of the Company or its subsidiaries; (o) any approval of amendments to this Agreement; (p) any approval of the annual budget of the Company; (q) exercise of the right of first offer provided in Section 4.1; (r) approval of the Board Approval Policy or any amendment or modification thereto; -14- (s) approval or disapproval of a successor Director pursuant to Section 2.1(d); and (t) approval of anti-takeover measures. 2.3 QUORUM. At any time this Agreement is in effect, a quorum of the Board shall consist of six Directors. 2.4 VOTING RIGHTS OF STOCKHOLDERS. (a) The Common Stock shall have one vote per share and no cumulative voting. (b) Ordinary corporate actions shall require a majority vote of all Stockholders. At least 662/3% of all Stockholders shall determine whether to approve: (i) any merger, consolidation, liquidation or sale of all or substantially all of the assets of the Company and (ii) any action to amend or repeal any provision of the Certificate or Bylaws (the "SPECIAL STOCKHOLDER APPROVAL"). 2.5 STOCKHOLDER VOTES. Each of the Stockholders agrees to vote all of its shares of Common Stock (i) following any Stockholder vote pursuant to Section 2.4(b), "FOR" any such matter receiving Special Stockholder Approval pursuant to Section 2.4(b), (ii) following any Stockholder vote pursuant to Section 2.4(b), "AGAINST" any such matter failing to receive Special Stockholder Approval in accordance with Section 2.4(b) and (iii) for each of the designees appointed to the Board pursuant to this Agreement. 2.6 CERTIFICATE AND BYLAWS. (a) At the Effective Time, the Certificate and the Bylaws shall be amended and restated to give effect to the provisions set forth in this Agreement. (b) The Stockholders further agree to cause the Certificate to be amended to change the name of the Company to a name agreed to by the Executive Committee at or prior to the Effective Time. 2.7 INDEPENDENT AUDITORS. The independent auditors for the fiscal year ending September 30, 1999 shall be Ernst & Young LLP, with Arthur Andersen LLP performing approximately 50% of the work. The Audit Committee shall select and the Board shall approve the independent auditors for the Company for each year thereafter. -15- 2.8 STOCKHOLDER DECISIONS. Any decision to be made as a group by the Wavetek Stockholders under this Agreement shall be made by Wavetek Stockholders owning more than 50% of all the Common Stock owned by the Wavetek Stockholders. Any decision to be made as a group by the WG Stockholders under this Agreement shall be made by WG Stockholders owning more than 50% of all the Common Stock owned by the WG Stockholders. ARTICLE III TRANSFER RESTRICTIONS; CERTAIN PERMITTED TRANSFERS; INVOLUNTARY TRANSFERS 3.1 TRANSFERS. Any Transfer of Common Stock in violation of this Agreement shall be void AB INITIO. Any Transfer of a majority of the equity interest in an Affiliate of a Stockholder that first acquired shares of Common Stock as a result of a Permitted Transfer shall be deemed to be a Transfer of Shares by such Stockholder. 3.2 SALE OF CONTROL. Each Stockholder, acting alone or together with any other stockholder or stockholders pursuant to a Common Plan, shall not Transfer any securities of the Company to any Person if, as a result of such Transfer, such Person would become the Beneficial Owner, directly or indirectly, of securities of the Company representing 40% or more of the Total Voting Power of the Company, UNLESS such Person offers to purchase all outstanding equity securities from all Stockholders at the same price and on the same terms as the selling Stockholder. This Section 3.2 shall not apply to Transfers of any securities of the Company by and among any Stockholder pursuant to an exercise of a Right of First Offer pursuant to Section 4.1. 3.3 CERTAIN PERMITTED TRANSFERS. None of the restrictions contained in this Agreement with respect to Transfers of Shares shall apply: (i) to any gift or sale of Shares by any Stockholder to an Affiliate of such Stockholder; (ii) to any Transfer to a legal representative, conservator or guardian of a Stockholder if such Stockholder -16- becomes mentally incompetent or otherwise become incapable of taking care of his or her business affairs; (iii) to any Transfer by a Stockholder who is a natural person by will, intestacy laws or the laws of descent or survivorship; (iv) to any Transfer by a Stockholder who is a natural person by the laws of community property or otherwise pursuant to a court order upon the divorce of such Stockholder; or (v) to a Transfer from the custodian or trustee of an individual retirement account or other self-directed employee benefit plan to the beneficiary of such account or plan provided that in all events such beneficiary will at all times control the voting and transfer rights of the subject Shares and shall become a signatory hereto; PROVIDED, HOWEVER, that in the case of any Transfer described in one or more of clauses (i) through (v), inclusive, above (each a "PERMITTED TRANSFER" and collectively the "PERMITTED TRANSFERS" and the transferee being a "PERMITTED TRANSFEREE"): (A) each Permitted Transferee shall have executed and delivered to the Company, as a condition precedent to any Transfer of Shares, a written agreement in substantially the form of Annex 3 hereto confirming that such Transferee agrees to be bound by the terms of this Agreement and shall have submitted to the Company such evidence as the Company may reasonably request to demonstrate that such Transfer is a Permitted Transfer; and (B) the certificates issued to the Permitted Transferee which represent the Shares so Transferred shall bear the legends provided in Section 6.1. 3.4 PLEDGES. None of the restrictions contained in this Agreement with respect to Transfers of Shares shall apply to the Transfer of a bona fide pledge of Shares by a Stockholder to a commercial bank, savings and loan institution or any other lending institution as security for any indebtedness of such Stockholder to such lender, if prior to any such pledge, the pledgee shall deliver to the Company its written agreement (which shall expressly be stated to be for the benefit of the Company and each Stockholder), in form and substance -17- satisfactory to the Company, that upon any foreclosure or similar event, the Transfer occasioned thereby will be subject to the Right of First Offer (hereinafter defined) (but not the Tag-Along Right (hereinafter defined)), and, upon acquiring any Share pursuant to such Transfer, such pledgee shall assume and be bound by all the terms of this Agreement. 3.5 CONSENT OF DIRECTORS. Notwithstanding anything to the contrary contained in this Agreement, a Stockholder may Transfer Shares (and the Company shall reflect on its books such Transfer) if the specific terms of such Transfer and the Transferee thereof shall, prior to the effectiveness of such Transfer, have been approved by a unanimous vote of all or Directors at a meeting of all Directors duly called and held or acting by written consent. ARTICLE IV RIGHT OF FIRST OFFER: TAG-ALONG RIGHTS; CERTAIN PURCHASE RIGHTS 4.1. RIGHT OF FIRST OFFER. (a) GENERAL. If a Stockholder ("SELLING STOCKHOLDER") proposes to sell or Transfer Shares of such Stockholder to a third party (a "PROPOSED SALE"), the Selling Stockholder must first offer such Shares to other Stockholders and the Company (the "RIGHT OF FIRST OFFER") at the same price and on the same terms and conditions as the Proposed Sale (except that any Stockholder exercising its Right of First Offer shall be entitled to pay cash for the purchase price) in accordance with Sections 4.1, 4.2 and 4.3: (i) the consideration for the Proposed Sale shall consist solely of cash, cash equivalents or marketable securities; (ii) the Selling Stockholder shall deliver an Offering Notice to the Company and each of the Stockholders; (iii) if such Selling Stockholder is any of the Wandel Stockholders, the Goltermann Stockholders, Wagner or HF, or any party acquiring such Shares from such Selling Stockholders pursuant to a Permitted Transfer (each such -18- Stockholder who, together with its Affiliates, beneficially owns 4% or more of the outstanding shares of Common Stock, a "WG HOLDER," and collectively, the "WG HOLDERS"), the other WG Holders shall have a pro rata Right of First Offer on such Shares; (iv) if such Selling Stockholder is any of Gooding, DLJMB, GEI or an Other Wavetek Stockholder, or any party acquiring such Shares from such Selling Stockholder pursuant to a Permitted Transfer (each such Stockholder who, together with its Affiliates, beneficially owns 4% or more of the outstanding shares of Common Stock, a "WAVETEK HOLDER", and collectively the "WAVETEK HOLDERS"), the other Wavetek Holders shall have a pro rata Right of First Offer on such Shares; (v) each WG Holder or Wavetek Holder, as the case may be, shall give a Purchase Notice or a Refusal Notice to the Company and each of the Stockholders within 10 days of receipt of the Offering Notice; and (vi) if the WG Holders pursuant to Section 4.1(a)(iii) or the Wavetek Holders pursuant to Section 4.1(a)(iv), as the case may be, decline to purchase all of the Shares in the Proposed Sale, the Company shall have a Right of First Offer on such remaining Shares. The Company shall give a Purchase Notice or a Refusal Notice to all Stockholders within 10 days after receipt of the WG Holders' or Wavetek Holders' Refusal Notice; PROVIDED, HOWEVER, that in the event the Company declines to purchase all of the remaining Shares, any other Stockholder (excluding any WG Holder or Wavetek Holder that was offered the prior right to acquire all or a portion of such Shares pursuant to a Right of First Offer pursuant to Section 4.1(a)(iii) or (iv)), may elect to purchase such remaining Shares by giving a Purchase Notice within 10 days after receipt of the Company's Refusal Notice. Such other Stockholder or Stockholders electing to purchase any Shares in the Proposed Sale shall participate on a pro rata basis. Any failure by a party hereto to give a Purchase Notice or a Refusal Notice in a timely manner as contemplated herein shall have the same effect as the giving of a Refusal Notice by such party. (b) In the event that all of the Shares are not sold pursuant to the Right of First Offer set forth in Section 4.1(a), and the Selling Stockholder has complied with Section 4.2 below (to the extent Section 4.2 is operative), -19- the Selling Stockholder may sell, at any time within 90 days from the date of the last Refusal Notice, the Shares in the Proposed Sale in cash, cash equivalents or marketable securities at a price per share equal to or greater than and on other terms and conditions no more favorable to the purchaser than those of the Proposed Sale. (c) Section 4.1(a) shall not apply to Transfers (i) pursuant to the Initial Public Offering or any subsequent registered offering, (ii) pursuant to a sale of securities of the Company pursuant to Rule 144 under the Securities Act of 1933, (iii) that constitute Permitted Transfers or (iv) by any WG Holder to any other WG Holder or by any Wavetek Holder to any other Wavetek Holder. 4.2. TAG-ALONG RIGHT. Except in the case of a proposed transfer by HF of all of its shares, which shares constitute in excess of 10% of the outstanding shares of Common Stock, in which case this Section 4.2 shall not be operative, in the event that the Right of First Offer set forth in Section 4.1 is not exercised, each of the Stockholders not a Selling Stockholder (the "TAG-ALONG STOCKHOLDERS") shall have the right (the "TAG-ALONG RIGHT") to include up to the following number of its Shares in the Proposed Sale: the total number of Shares proposed to be sold by the Selling Stockholder in the Proposed Sale MULTIPLIED BY a fraction the numerator of which is the number of Shares owned by such Tag-Along Stockholder and the denominator of which is the aggregate number of Shares owned by such Selling Stockholder and by all Tag-Along Stockholders exercising their Tag-Along Rights hereunder. Any shares of Tag-Along Stockholders so included will reduce the number of shares to be sold by the Selling Stockholder. Any Shares purchased from such Stockholders pursuant to this Section 4.2 shall be at the same price per Share and upon the same terms and conditions as such Proposed Sale. Prior to making any Transfer pursuant to Section 4.1(b) hereof, the Selling Stockholder shall give written notice to the Company and all other Stockholders of such Stockholders' right to exercise their Tag-Along Right in accordance herewith (the "Tag-Along Announcement"). The Tag-Along Announcement shall indicate, in a schedule attached thereto, the maximum number of shares of Common Stock that each such other Stockholder may sell pursuant to its exercise of its Tag-Along Right pursuant to this Section 4.2. Any -20- Stockholder delivering a written notice to the Selling Stockholder (the "TAG-ALONG NOTICE") within 10 days following its receipt of the Tag-Along Announcement shall be entitled to exercise the Tag-Along Right. The Tag-Along Notice shall state the number of Shares that such Stockholder proposes to include in such Transfer to the proposed purchaser determined as aforesaid. The Company agrees not to effect any transfer of Shares by any Stockholder until it has received evidence reasonably satisfactory to it that the Tag-Along Right, if applicable to such transfer, has been complied with. 4.3 BRING-ALONG RIGHT. Prior to and after the Initial Public Offering, subject to Section 4.1, if Stockholders owning or holding beneficial ownership of at least 75% of all issued and outstanding Shares held by Stockholders if the Stockholders collectively own more than 40% of the issued and outstanding Shares (the "PROPOSING STOCKHOLDERS") elect to sell all of such Stockholders' Shares to any Person not a party to this Agreement for consideration consisting solely of cash or cash equivalent, such Proposing Stockholders shall have the right to require the Transfer of all other Stockholders' Shares to such Person at the same price and on the same terms and conditions as such Proposing Stockholders (the "Bring-Along Right"). Such Proposing Stockholders shall give written notice to such other Stockholders stating their exercise of the Bring-Along Right and the terms and conditions of the requested Transfer. Upon receipt of such notice, such other Stockholders shall transfer such other Stockholders' Shares in accordance with such notice. ARTICLE V REGISTRATION RIGHTS 5.1 REGISTRATION ON REQUEST. (a) One or more Stockholders owning or holding of record greater than 10% of the issued and outstanding Common Stock shall have a right ("Post-Offering Registration Right") to require the Company, as expeditiously as possible, to use its best efforts to effect the registration of the Shares that such Stockholders shall request, pursuant to a Registration Statement, subject to the following limitations: -21- (i) such Post-Offering Registration Right may be exercised by any Stockholder only on one occasion, by written notice given to the Company; (ii) the shares to be registered (if other than by HF) shall have an aggregate offering price of at least $10 million; and (iii) the Company shall not be required to effect a registration pursuant to Section 5.1(a) within 9 months of an effective Registration Statement (as defined in Section 5.1(c)) pursuant to this Section 5.1 or as to which the registration rights afforded by Section 5.2 apply. (b) EXPENSES. The Company shall pay all (and will promptly reimburse to the Stockholders to the extent they have borne any) Registration Expenses in connection with each registration of Shares pursuant to this Section 5.1 regardless of whether such Registration Statement becomes effective. Each of the Stockholders requesting the registration of Shares and the Company, if the Company included securities not owned or held of record by such requesting Stockholders, shall pay all underwriting discounts and commissions and transfer taxes, if any, on the basis of the relative number of Shares registered then owned or held of record by such Stockholders and the Company, if applicable. (c) EFFECTIVE REGISTRATION STATEMENT. A registration requested pursuant to this Section 5.1 and Section 5.2 will not be deemed to have been effected unless it has become effective; PROVIDED, that if, within the period ending on the earlier to occur of (i) 90 days after the applicable Registration Statement has become effective or (ii) the date on which the distribution of the securities covered thereby has been completed, the offering of securities pursuant to such Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court, such Registration Statement will be deemed not to have been effected; provided, however, if any Stockholder exercising its right to request a registration pursuant to this Section 5.1 shall withdraw from a registration so requested after the filing thereof, such registration will be deemed to have been effective with respect to such Stockholder in accordance with this Section 5.1. -22- (d) MATERIAL TRANSACTION. The Company may delay the filing or effectiveness of any Registration Statement for a period of up to 180 days after the request for registration pursuant to this Section 5.1 if a Material Transaction exists or is pending at such time. (e) PRIORITY IN REGISTRATIONS ON REQUEST. If a registration pursuant to this Section 5.1 involves an underwritten offering and the managing underwriter with respect to such offering advises the Stockholders participating in such registration in writing that, in its opinion, the number of Shares which the Stockholders and any other persons intended to be included in such registration exceeds the largest number of Shares which can be sold in such offering without having an adverse effect on the offering of Shares as contemplated by such Stockholders, then the Company will include in such registration (i) first, in the case of any registration following the Initial Public Offering in which HF shall be entitled to register Shares pursuant to Section 5.1 or 5.2 hereof, such shares requested by HF, if any, (ii) second, all the shares the Company proposes to sell for its own account and (iii) third, the Shares which the Stockholders (excluding HF in the event clause (i) shall be applicable with respect to such registration) have requested to be included in such registration pursuant to Section 5.1 and which, in the opinion of such managing underwriter, can be sold without having the adverse effect referred to above, such reduced number of Shares shall be allocated pro rata among all requesting Stockholders on the basis of the relative number of Shares then owned or held of record by each such Stockholder (provided that (A) any shares thereby allocated to any Wavetek Stockholder that exceed such Wavetek Stockholder's request will be first reallocated among the remaining requesting Wavetek Stockholders in like manner and (B) any shares thereby allocated to any WG Stockholder that exceed such WG Stockholders' request will first be reallocated among the remaining requesting WG Stockholders in like manner). 5.2 INCIDENTAL REGISTRATION. (a) RIGHT TO INCLUDE SECURITIES. In connection with the Initial Public Offering and during the two-year period from the effective date of the Registration Statement filed pursuant to an Initial Public Offering, each time the Company proposes to register Shares under the Securities Act -23- (other than a registration on Form S-4 or S-8, or any successor or other forms promulgated for similar purposes), whether or not for sale for its own account, pursuant to a Registration Statement, the Stockholders shall have the right to require the Company to register the Shares of such Stockholder, subject to the limitations set forth in Section 5.2(c). The Company shall give prompt written notice to all Stockholders of its intention to register Shares and of the Stockholders' rights under this Section 5.2(a). Upon the written request of any Stockholder made within 30 days after the receipt of any such notice (which request shall specify the Shares intended to be disposed of by such Stockholder and such Stockholder's proposed manner of disposition of such Shares), the Company shall use its best efforts to effect the registration of such Shares under the Securities Act; PROVIDED that (i) if, at any time after giving written notice of its intention to register any Shares and prior to the effective date of the Registration Statement filed in connection with such registration, the Company shall determine for any reason not to proceed with the proposed registration, the Company may, at its election, give written notice of such determination to the Stockholders that had given notice to participate in such registration and thereupon shall be relieved of its obligation to register any securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith), and (ii) if such registration involves an underwritten offering by the Company, all Stockholders requesting to have Shares included in the Company's registration must Transfer such Shares to such underwriters who shall have been selected by the Company on the same terms and conditions as are applicable to the Company (except for the Company's obligation to pay all Registration Expenses), with such differences, including any with respect to indemnification and contribution, as may be customary or appropriate in combined primary and secondary offerings. If a proposed registration pursuant to this Section 5.2(a) involves such an underwritten public offering, any Stockholder making a request under this Section 5.2(a) in connection with such registration may elect in writing, prior to the effective date of the registration statement filed in connection with such registration, to withdraw such request and not to have such securities registered in connection with such registration; provided, however, such withdrawing Stockholder shall be responsible for reimbursing the Company for expenses it incurred directly as a consequence of such -24- incidental registration (including any filing fees paid in connection therewith). (b) EXPENSES. The Company shall pay all (and shall promptly reimburse to the Stockholders to the extent they have borne any) Registration Expenses in connection with each registration of the Shares requested pursuant to this Section 5.2, regardless of whether the Registration Statement filed in connection with such registration becomes effective. Each of the Stockholders requesting the registration of Shares and the Company shall pay all underwriting discounts and commissions and transfer taxes, if any, on the basis of the number of Shares registered by such Stockholders and the Company. (c) PRIORITY IN INCIDENTAL REGISTRATIONS. If a registration pursuant to this Section 5.2 involves an underwritten offering by the Company and the managing underwriter with respect to such offering advises the Company in writing that, in its opinion, the number of Shares which the Company, the Stockholders and any other persons intended to be included in such registration exceeds the largest number of Shares which can be sold in such offering without having an adverse effect on the offering of Shares as contemplated by the Company (including the price at which the Company proposes to sell the Shares), then the Company will include in such registration (i) first, in the case of the Initial Public Offering only, such Shares requested by HF, if any, to enable it to reduce its ownership of shares in the Company immediately following consummation of the Initial Public Offering to not less than 10% of the outstanding shares (provided that any shares thereby allocated to HF will reduce the shares available to other WG Stockholders pursuant to clause (iv) and (v)), (ii) second, in the case of any registration other than the Initial Public Offering in which HF shall be entitled to register Shares either pursuant to Section 5.1 or 5.2 hereof, such shares requested by HF, if any, (iii) third, all the shares the Company proposes to sell for its own account, (iv) fourth, the Shares which the Stockholders have requested to be included in such registration pursuant to Section 5.1 hereof (with any necessary proration thereof to be effected in accordance with Section 5.1(e)) and (v) fifth, the Shares which the Stockholders (excluding HF in the event either clause (i) or (ii) shall be applicable with respect to such registration) have requested to be included in such registration pursuant to Section 5.2 hereof and which, in the opinion of such managing -25- underwriter, can be sold without having the adverse effect referred to above, such reduced number of Shares shall be allocated pro rata among all requesting Stockholders on the basis of the relative number of Shares then owned or held of record by each such Stockholder (provided that (A) any shares thereby allocated to any Wavetek Stockholder that exceed such Wavetek Stockholder's request will be first reallocated among the remaining requesting Wavetek Stockholders in like manner and (B) any shares thereby allocated to any WG Stockholder that exceed such WG Stockholders' request will be first reallocated among the remaining requesting WG Stockholders in like manner). 5.3 REGISTRATION PROCEDURES. If and whenever the Company is required to use its best efforts to effect or cause the registration of Shares under the Securities Act as provided in this Agreement, the Company shall, as expeditiously as possible: (a) prepare and, if the registration is pursuant to notice given under Section 5.1, in any event within 60 days after the giving of notice pursuant to Section 5.1, file with the SEC a Registration Statement with respect to such Shares on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate and which form shall be available for the sale of the such Shares in accordance with the intended methods of distribution thereof, and use its best efforts to cause such Registration Statement to become and remain effective; PROVIDED, HOWEVER, that the Company may discontinue any registration of Shares for its own account which is being effected pursuant to Section 5.2 at any time prior to the effective date of the Registration Statement relating thereto; (b) prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for a period of 180 days or such lesser period of time as the Company or any Stockholder may be required under the Securities Act to deliver a prospectus in connection with any sale of Shares, and to comply with the provisions of the Securities Act with respect to the disposition of all Shares covered by such Registration Statement during such period in accordance with the intended methods of disposition by the Stockholder or Stockholders thereof set forth in such Registration Statement; -26- provided, that before filing a Registration Statement or prospectus, or any amendments or supplements thereto, the Company will furnish to the Stockholders and their counsel copies of all documents proposed to be filed, which documents will be subject to the prompt review of such counsel and will not be filed if such counsel reasonably objects; (c) furnish to each Stockholder of such Shares such number of copies of such Registration Statement and of each amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such Registration Statement (including each preliminary prospectus and summary prospectus and prospectus supplement, as applicable), each in conformity with the requirements of the Securities Act, and such other documents as such Stockholder may reasonably request in order to facilitate the disposition of Shares by such Stockholder; (d) use its best efforts to register or qualify such Shares covered by such Registration Statement under such other securities or blue sky laws of such jurisdictions as each Stockholder shall reasonably request, and do any and all other acts and things which may be reasonably necessary or advisable to enable such Stockholder to consummate the disposition in such jurisdictions of the Shares owned by such Stockholder, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction where, but for the requirements of this Section 5.3(d), it would not be obligated to be so qualified, to subject itself to taxation in any such jurisdiction or to consent to general service of process in any such jurisdiction; (e) use its best efforts to cause such Shares covered by such Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the Stockholder or Stockholders thereof to consummate the disposition of such Shares; (f) notify each Stockholder of any such Shares covered by such Registration Statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act within the appropriate period mentioned in Section 5.3(b), of the Company's becoming aware that the prospectus included in such Registration Statement, as then in effect, includes or may include an untrue statement of a -27- material fact or omits or may omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the request of any such Stockholder, prepare and furnish to such Stockholder a reasonable number of copies of an amended or supplemental prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company may delay the preparation of such amended or supplemental prospectus for a period of up to 180 days if a Material Transaction exists or is pending at such time; (g) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to the Stockholders, as soon as reasonably practicable (but not more than eighteen months) after the effective date of the Registration Statement, an earning statement which shall satisfy the provisions of Section 11(a) of the Securities Act and the rules and regulations promulgated thereunder; (h) cause all such Shares to be listed on any securities exchange on which the Common Stock is then listed, if such Shares are not already so listed and if such listing is then permitted under the rules of such exchange, or to be quoted on the Nasdaq National Market System if the Common Stock is quoted thereon, and to provide a transfer agent and registrar and a CUSIP number for such Shares covered by such Registration Statement, in each case no later than the effective date of such Registration Statement; (i) enter into such customary agreements (including an underwriting agreement in customary form) and take such other actions as sellers of a majority of Shares or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Shares; (j) obtain a "comfort" letter or letters from the Company's independent public accountants in customary form and covering matters of the type customarily covered by "comfort" letters as the Stockholder or Stockholders of a majority of -28- the Shares covered by such Registration Statement shall reasonably request; (k) make available for inspection by representatives of the Stockholders of Shares covered by such Registration Statement, by any underwriter participating in any disposition to be effected pursuant to such Registration Statement and by any attorney, accountant or other agent retained by such Stockholders or any such underwriter, all pertinent financial and other records, pertinent corporate documents and properties of the Company, and cause all of the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such Registration Statement; and (l) permit any Stockholder to participate in the preparation of such Registration Statement and to require the insertion therein of material regarding such Stockholder, furnished to the Company in writing, which in the reasonable judgment of such Stockholder and its counsel should be included. The Company may require each Stockholder of the Shares for which a registration is being effected to furnish the Company with such information regarding such Stockholder (pertinent to the disclosure requirements relating to the registration and the distribution of such Shares) as the Company may from time to time reasonably request in writing. Each Stockholder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5.3(f), such Stockholder will forthwith discontinue disposition of such Shares pursuant to the Registration Statement covering such Shares until such Stockholder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 5.3(f) and, if so directed by the Company, such Stockholder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Stockholder's possession, of the prospectus covering such Shares current at the time of receipt of such notice. In the event the Company shall give any such notice, the period mentioned in Section 5.3(b) shall be extended by the number of days in the period from the date of the giving of such notice pursuant to Section 5.3(f) through the date when each seller of Shares covered by such -29- registration statement shall have received the copies of the supplemented or amended prospectus contemplated by Section 5.3(f). 5.4 INDEMNIFICATION. (a) INDEMNIFICATION BY THE COMPANY. In the event of any registration of any Shares under the Securities Act pursuant to Section 5.1 or 5.2, the Company hereby indemnifies and agrees to hold harmless each Stockholder of Shares covered by such Registration Statement, each Affiliate of such Stockholder and their respective directors, officers, employees, agents, and general and limited partners (and the directors, officers, affiliates and controlling Persons thereof), each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such Stockholder or any such underwriter within the meaning of the Securities Act (collectively, the "Indemnified Parties"), against any and all losses, claims, damages or liabilities, joint or several, and expenses to which such Indemnified Party may become subject to under the Securities Act, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof, whether or not such Indemnified Party is a party thereto) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Shares were registered under the Securities Act, any preliminary, final or summary prospectus contained therein, or any amendment or supplement thereto, or (ii) any omission or alleged omission to state therein a material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading, and the Company will reimburse such Indemnified Party for any legal or other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, liability, action or proceeding; PROVIDED, that the Company shall not be liable to any Indemnified Party in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such Registration Statement, in any such preliminary, final or summary prospectus, or any amendment or supplement thereto in reliance upon and in conformity with written information with respect to such Indemnified Party furnished to the -30- Company by such Indemnified Party expressly for use in the preparation thereof. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Stockholder or any Indemnified Party and shall survive the transfer of such securities by such Stockholder. (b) INDEMNIFICATION BY THE STOCKHOLDERS AND UNDERWRITERS. The Company may require, as a condition to including any Shares in any Registration Statement filed in accordance with Sections 5.1 or 5.2 herein, that the Company shall have received an undertaking reasonably satisfactory to it from the Stockholder of such Shares or any underwriter to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 5.4(a)) the Company, all other Stockholders including Shares in such Registration Statement or any underwriter, as the case may be, and any of their respective affiliates, directors, officers, employees, agents, general and limited partners and controlling Persons, with respect to any statement or alleged statement in or omission or alleged omission from such Registration Statement, any preliminary, final or summary prospectus contained therein, or any amendment or supplement, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information with respect to such Stockholder or underwriter furnished to the Company by such Stockholder or underwriter expressly for use in the preparation of such Registration Statement, preliminary, final or summary prospectus or amendment or supplement, or a document incorporated by reference into any of the foregoing; provided that no Stockholder shall be liable pursuant to this clause (b) for any amount in excess of the net proceeds received by such Stockholder from the sale of Shares covered by the Registration Statement giving rise to the claim for indemnification. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any of the Stockholders, or any of their respective affiliates, directors, officers or controlling Persons and shall survive the transfer of such Shares by such Stockholder. (c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an Indemnified Party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Section 5.4, such Indemnified Party will, if a claim in respect thereof is to be made against an Indemnifying Party, -31- give written notice to the latter of the commencement of such action; provided, that the failure of the Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under Sections 5.4(a) or 5.4(b), except to the extent that the Indemnifying Party is actually prejudiced by such failure to give notice. In case any such action is brought against an Indemnified Party, unless in such Indemnified Party's reasonable judgment a conflict of interest between the Indemnified Parties and the applicable Indemnifying Party may exist in respect of such claim, the Indemnifying Party will be entitled to participate in and to assume the defense thereof, jointly with any other Indemnifying Party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such Indemnified Party, and after notice from the Indemnifying Party to such Indemnified Party of its election so to assume the defense thereof, the Indemnifying Party will not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. If the Indemnified Party has been advised by counsel that having common counsel would result in a conflict of interest between the interests of such indemnified and indemnifying parties, then such Indemnified Party may employ separate counsel reasonably acceptable to the Indemnifying Party to represent or defend such Indemnified Party in such action, it being understood, however, that the Indemnifying Party shall not be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all such Indemnified Parties (and not more than one separate firm of local counsel at any time for all such Indemnified Parties) in such action. No Indemnifying Party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation. (d) OTHER INDEMNIFICATION. Indemnification similar to that specified in this Section 5.4 (with appropriate modifications) shall be given by the Company and each Stockholder with respect to any required registration or other qualification of Shares under any federal or state law or regulation or governmental authority other than the Securities Act. -32- (e) CONTRIBUTION. If recovery is not available under the foregoing indemnification provisions of this Section 5.4 for any reason, the parties entitled to indemnification by the terms thereof shall be entitled to contribution for liabilities and expenses except to the extent that contribution is not permitted under Section 11(f) of the Securities Act. In determining the amount of contribution to which the respective parties are entitled, there shall be considered the relative benefits received by each party from the offering of the Shares (taking into account the portion of the proceeds realized by each), the parties' relative knowledge and access to information concerning the matter with respect to which the claim was fasserted, the opportunity to correct and prevent any misstatement or omission and any other equitable considerations appropriate under the circumstances. The Company and the Stockholders agree that it would not be just and equitable if contribution pursuant to this paragraph (e) were determined by pro rata allocation (even if the sellers of Shares were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the liabilities and expenses referred to in the immediately preceding paragraph shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 5.4, no seller of such Shares shall be required to contribute any amount in excess of the net proceeds received by such seller from the sale of such Shares covered by the Registration Statement giving rise to the claim for contribution. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (f) NON-EXCLUSIVITY. The obligations of the parties under this Section 5.4 shall be in addition to any liability which any party may otherwise have to any other party. -33- ARTICLE VI MISCELLANEOUS 6.1 LEGENDS. The certificates representing the Shares to be purchased by or are owned or held of record by each of the Stockholders, as the case may be, shall bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF (A "TRANSFER") EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF A STOCKHOLDERS AGREEMENT DATED AS OF JUNE 12, 1998. ANY TRANSFEREE OF THESE SECURITIES TAKES SUBJECT TO THE TERMS OP SUCH AGREEMENTS, COPIES OF WHICH ARE ON FILE WITH THE COMPANY." "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR UNDER ANY STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EXEMPTION THEREFROM UNDER THE ACT OR LAW OR THE RULES AND REGULATIONS PROMULGATED THEREUNDER." Each of the parties hereto agrees that it will not Transfer any Shares without complying with each of the restrictions set forth herein and agrees that in connection with any such Transfer it will, if requested by the Company, deliver at its expense to the Company an opinion of counsel (including in-house or special counsel), in form and substance reasonably satisfactory to the Company and counsel for the Company, that such Transfer is not in violation of the securities laws of the United States of America or any state thereof; PROVIDED, HOWEVER, that in case of any sale or other Transfer of Shares to any person or entity who is an "accredited investor" (as such term is defined and used in Rule 501 of Regulation D under the Act), no opinion of counsel shall be required if the transferor obtains a representation from such person or entity that it is an accredited investor and is acquiring such Shares for its own account and with no intention of distributing or reselling said Shares or any -34- part thereof, or interest therein, in any transaction that would violate the securities laws of the United States of America or any state thereof, without prejudice, however, to such person's or entity's right at all times to Transfer all or any part of said Shares pursuant to an effective Registration Statement under the Act or any exemption from such registration available under the Act, and subject, nevertheless, to such person's or entity's disposition of its property being at all times within its control. 6.2 NOTICES. All notices, requests, demands and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted if transmitted by telecopy, electronic or digital transmission method; the day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (E.G., Federal Express); and upon receipt, if sent by certified or registered mail, return receipt requested. In each case notice shall be sent to: If to the Company addressed to: Wavetek Corporation 1030 Swabia Court P.O. Box 13585 Research Triangle Park, NC 27709-3585 Telecopier No.: Attention: Chief Executive Officer With a copy to: Sullivan & Cromwell 444 South Flower Street Los Angeles, CA 90071 Telecopier No.: (213) 683-0457 Attention: Alison S. Ressler If to any Stockholder to such Stockholder at the address indicated on Annex 4 hereto. 6.3 SEVERABILITY. In the event that any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement. -35- 6.4 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. (a) This Agreement constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties, including, without limitation, the Prior Agreement and other agreements among the stockholders of Wavetek and/or WG prior to the Effective Time. This Agreement may not be terminated or amended except by an instrument in writing signed on behalf of the Stockholders holding at least 70% of the outstanding Shares held by Stockholders; provided that any amendment that expressly alters the rights of any Stockholder differently from other Stockholders shall require the consent of such affected Stockholder. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. (b) It being the intent of the Stockholders that this Agreement shall be the sole and exclusive agreement with respect to the matters set forth herein, during the term of this Agreement, each Stockholder agrees (i) not to enter into any other agreements or arrangements that are in conflict with or are expressly governed by the terms of this Agreement, (ii) not to grant a proxy to any party with respect to the voting of its Common Stock (other than routine proxies granted to approve matters recommended by the Board of Directors) or (iii) not to enter into any agreement with any other holder of Common Stock of the Company (including Stockholders) with respect to the voting of shares of Common Stock except, in the case of clauses (i), (ii) or (iii) above, for agreements or arrangements (a) approved or consented to by the holders of at least 70% of the outstanding Common Stock held by Stockholders, (b) agreements or arrangements between any Stockholder and its Affiliates and (c) agreements or arrangements pursuant to the Company's Employee Benefit Plans. (c) The representations, warranties, covenants and indemnification obligations contained in the Stock and Recapitalization Agreement, dated as of May 23, 1997, among Wavetek and the other parties thereto, shall terminate at the Effective Time. 6.5 SUCCESSORS, ASSIGNS AND TRANSFEREES. This Agreement shall be binding upon and inure to the benefit of the parties -36- hereto and their respective legal representatives, heirs, legatees, successors and assigns including any party to which any Stockholder has transferred or sold his or its Shares. Except as provided herein, each transferee of Shares from a party hereto or a Permitted Transferee thereof shall take such Shares subject to the same restrictions as existed in the hands of the transferor. 6.6 CONSENT TO SPECIFIC PERFORMANCE. The parties hereto declare that it is impossible to measure in money the damages which would accrue to a party by reason of failure to perform any of the obligations hereunder. Therefore, if any party shall institute any action or proceeding to enforce the provisions hereof, any party against whom such action or proceeding is brought hereby waives any claim or defense therein that the other party has an adequate remedy at law. 6.7 VARIATIONS IN PRONOUNS. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the antecedent person or persons or entity or entities may require. 6.8 EFFECTIVENESS; TERMINATION. This Agreement shall only be effective as of the Effective Time. Unless earlier terminated by mutual agreement among the parties hereto, this Agreement shall in any event terminate when the Stockholders collectively own or hold of record less than 35% of the outstanding Shares. 6.9 CHOICE OF LAW. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND THE RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PROVISIONS THEREOF. 6.10 JURISDICTION; WAIVERS. Each of the parties hereto hereby irrevocably submits in any legal action or proceeding relating to or arising out of this Agreement or any other document relating hereto or delivered in connection with the transactions contemplated hereby, or for recognition and enforcement of any judgment in respect thereof, to the exclusive jurisdiction of the United States District Court for the District of Delaware, and appellate courts thereof. Each of the parties hereto further (a) consents that any such action or proceeding may be brought in such court and waives any objection that it may now or hereafter have to the venue -37- of any such action or proceeding in such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (b) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such party at its address set forth in Section 6.2 or at such other address of which such party shall have given notice pursuant thereto; and (c) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law. 6.11 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN. 6.12 FURTHER ASSURANCES. Each of the parties shall execute and deliver such further instruments and documents and take such further actions as may be reasonably required or desirable to carry out the provisions hereof and the transactions contemplated hereby. 6.13 CUMULATIVE REMEDIES. All rights and remedies of either party hereto are cumulative of each other and of every other right or remedy such party may otherwise have at law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies. 6.14 INSPECTION AND COMPLIANCE WITH LAW. Copies of this Agreement will be available for inspection or copying by any Stockholder at the offices of the Company through the Secretary of the Company. 6.15 TERMINATION OF PRIOR AGREEMENT. This Agreement supersedes and replaces the Prior Agreement, which as of the Effective Time shall be deemed null and void and without further effect. 6.16 HEADINGS. The titles, captions or headings of the Articles and Sections herein are for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. -38- 6.17 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6.18 BINDING AGREEMENT. This Agreement shall be a binding obligation of each party to this Agreement upon the signature of such party hereto, even if such party executes this Agreement prior to June 12, 1998, and shall not be binding upon any party after June 12, 1998 if all parties have not executed this Agreement by June 12, 1998. -39- IN WITNESS WHEREOF, the parties hereto have executed this Stockholders Agreement as of the date first written above. WAVETEK CORPORATION By: /s/ Terence J. Gooding ----------------------------------- Name: Terence J. Gooding Title: Chairman of the Board DLJ MERCHANT BANKING PARTNERS II, L.P. By: DLJ Merchant Banking II, Inc. Managing General Partner By: /s/ Ivy Dodes ----------------------------------- Name: Ivy Dodes Title: Vice President DLJ MERCHANT BANKING PARTNERS II-A, L.P. By: DLJ Merchant Banking II, Inc. Managing General Partner By: /s/ Ivy Dodes ----------------------------------- Name: Ivy Dodes Title: Vice President DLJ DIVERSIFIED PARTNERS, L.P. By: DLJ Diversified Partners, Inc. Managing General Partner By: /s/ Ivy Dodes ----------------------------------- Name: Ivy Dodes Title: Vice President -40- DLJ DIVERSIFIED PARTNERS-A, L.P. By: DLJ Diversified Partners, Inc. Managing General Partner By: /s/ Ivy Dodes ----------------------------------- Name: Ivy Dodes Title: Vice President DLJMB FUNDING II, INC. By: /s/ Ivy Dodes ----------------------------------- Name: Ivy Dodes Title: Vice President DLJ FIRST ESC L.P. By: DLJ LBO Plans Management Corporation By: /s/ Ivy Dodes ----------------------------------- Name: Ivy Dodes Title: Vice President DLJ EAB PARTNERS, L.P. By: DLJ LBO Plans Management Corporation General Partner By: /s/ Ivy Dodes ----------------------------------- Name: Ivy Dodes Title: Vice President -41- DLJ MILLENNIUM PARTNERS, L.P. By: DLJ Merchant Banking II, Inc. Managing General Partner By: /s/ Ivy Dodes ------------------------------------ Name: Ivy Dodes Title: Vice President DLJ MILLENNIUM PARTNERS-A, L.P. By: DLJ Merchant Banking II, Inc. Managing General Partner By: /s/ Ivy Dodes ----------------------------------- Name: Ivy Dodes Title: Vice President DLJ OFFSHORE PARTNERS II, C.V. By: /s/ Ivy Dodes ----------------------------------- Name: Ivy Dodes Title: Vice President UK INVESTMENT PLAN 1997 PARTNERS By: UK Investment Plan 1997 Partners, Inc. General Partner By: /s/ Ivy Dodes ----------------------------------- Name: Ivy Dodes Title: Vice President -42- GREEN EQUITY INVESTORS II, L.P. By: Grand Avenue Capital Partners, L.P. Grand Avenue Capital Corporation, its general partner By: /s/ Peter Nolan ----------------------------------- Name: Peter Nolan Title: Partner SCHRODER UK VENTURE FUND III By: Schroder Venture Managers Inc., as General Partner of Schroder UK Venture Fund III LP1 By: /s/ Peter L. Everson /s/ John W. Evans --------------------------------------- Peter L. Everson, Director & VP John W. Evans, Director & VP SCHRODER UK VENTURE FUND III By: Schroder Venture Managers Inc., as General Partner of Schroder UK Venture Fund III LP2 By: /s/ Peter L. Everson /s/ John W. Evans --------------------------------------- Peter L. Everson, Director & VP John W. Evans, Director & VP SCHRODER UK VENTURE FUND III By: Schroder International Trust Company Limited, as Trustee of Schroder UK Venture Fund III Trust By: /s/ Peter L. Everson /s/ John W. Evans --------------------------------------- Peter L. Everson, Director & VP John W. Evans, Director & VP YOKOGAWA ELECTRIC CORPORATION By: /s/ Joichi Ueba ------------------------------------- Name: Joichi Ueba Title: Senior Vice President -43- DR. TERENCE J. GOODING /s/ Terence J. Gooding ---------------------------------------- Dr. Terence J. Gooding BARBARA A. GOODING TERENCE J. GOODING GRAT 1 TERENCE J. GOODING GRAT 2 BARBARA A. GOODING GRAT By: /s/ Terence J. Gooding ------------------------------------ Terence J. Gooding, as Attorney-in-Fact WAVETEK MANAGEMENT STOCKHOLDERS: SNOW HILL TRUSTEES RICHARD J. BERRY PAUL STEVENSON By: /s/ Terence J. Gooding ----------------------------------- Terence J. Gooding, as Attorney-in-Fact DEREK T. MORIKAWA /s/ Derek T. Morikawa --------------------------------------- Derek T. Morikawa MORIKAWA TRUST F/B/O MEGAN K. MORIKAWA By: /s/ Criss Y. Morikawa ------------------------------------ Criss Y. Morikawa, as Trustee MORIKAWA TRUST F/B/O EVAN T. MORIKAWA By: /s/ Criss Y. Morikawa ------------------------------------ Criss Y. Morikawa, as Trustee -44- BEN J. CONSTANTINI /s/ Ben J. Constantini ---------------------------------------- Ben J. Constantini WG STOCKHOLDERS: WANDEL & GOLTERMANN MANAGEMENT HOLDING GmbH By: /s/ Peter Wagner ----------------------------------- Name: Peter Wagner Title: President and CEO And: /s/ Karl Heinz-Eisemann ---------------------------------- Name: Karl Heinz-Eisemann Title: Vice President Controlling and Logistics ALBRECHT WANDEL /s/ Albrecht Wandel --------------------------------------- Albrecht Wandel RENATE WANDEL /s/ Renate Wandel --------------------------------------- Renate Wandel -45- FRANK GOLTERMANN /s/ Frank Goltermann ---------------------------------------- Frank Goltermann ULRIKE GOLTERMAN /s/ Ulrike Goltermann --------------------------------------- Ulrike Golterman BURKHARD GOLTERMAN /s/ Burkhard Goltermann --------------------------------------- Burkhard Golterman HANNOVER FINANZ W&G BETEILIGUNGSGESELLSCHAFT mbH By: /s/ Joachim Simmross ----------------------------------- Name: Joachim Simmross Title: Managing Director AND: /s/ Claus von Loeper ---------------------------------- Name: Claus von Loeper Title: Managing Director -46- EX-10.3 4 EXHIBIT 10.3 EXHIBIT 10.3 WAVETEK CORPORATION FIRST AMENDMENT TO CREDIT AGREEMENT This FIRST AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is dated as of July 21, 1998 and entered into by and among WAVETEK CORPORATION, a Delaware corporation ("COMPANY"), THE LENDERS LISTED ON THE SIGNATURE PAGES HEREOF ("Lenders"), DLJ CAPITAL FUNDING, INC. ("DLJ"), as syndication agent for Lenders (in such capacity, "SYNDICATION AGENT"), and FLEET NATIONAL BANK, as administrative agent for Lenders (in such capacity "ADMINISTRATIVE AGENT"), and, for purposes of Section 4 hereof, the Subsidiary Guarantors listed on the signature pages hereof, and is made with reference to that certain Credit Agreement dated as of June 11, 1997 (the "CREDIT AGREEMENT"), by and among Company, Lenders, Syndication Agent and Administrative Agent. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, Company and Lenders desire to amend the Credit Agreement to (i) adjust the financial covenants as set forth herein, and (ii) make certain other amendments as set forth below; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT 1.1 AMENDMENTS TO SECTION 7: COMPANY'S NEGATIVE COVENANTS A. INDEBTEDNESS. Subsection 7.1 of the Credit Agreement is hereby amended by re-numbering clause (viii) thereof as clause (ix) and by inserting in numerical order a new clause (viii) as follows: "(viii) Company may become and remain liable with respect to an unsecured promissory note in the principal amount of up to $4.6 million for the benefit of ComSonics, Incorporated, as payee, which promissory note evidences Company's obligations to make royalty payments to such payee pursuant to a licensing agreement entered into between Company and such payee." B. MINIMUM FIXED CHARGE COVERAGE RATIO. Subsection 7.6A of the Credit Agreement is hereby amended by deleting the seventh line in the table set forth therein in its entirety and substituting the following therefor: 1
Minimum Fixed Charge "Period Coverage Ratio ------- -------------- 12/31/1998 1.20 : 1.00"
C. MAXIMUM LEVERAGE RATIO. Subsection 7.6B of the Credit Agreement is hereby amended by deleting the fifth, sixth and seventh lines in the table set forth therein in their entirety and substituting the following therefor:
"Period Maximum Leverage Ratio ------- ----------------------- 6/30/1998 6.30 : 1.00 9/30/1998 6.80 : 1.00 12/31/1998 7.10 : 1.00"
D. MINIMUM CONSOLIDATED EBITDA. Subsection 7.6C of the Credit Agreement is hereby amended by deleting the fifth, sixth and seventh lines in the table set forth therein in their entirety and substituting the following therefor:
"Period Minimum Consolidated EBITDA ------- --------------------------- (in millions) 6/30/1998 $ 19.0 9/30/1998 $ 17.9 12/31/1998 $ 17.0"
E. MINIMUM CONSOLIDATED NET WORTH. Subsection 7.6D of the Credit Agreement is hereby amended by deleting the fifth, sixth and seventh lines in the table set forth therein in their entirety and substituting the following therefor:
"Period Minimum Consolidated Net Worth ------- ------------------------------ (in millions) 9/30/1998 $ (71.9) 12/31/1998 $ (72.2)"
F. AMENDMENT FEES. Section 7 of the Credit Agreement is hereby amended by adding at the end thereof a new subsection 7.16 as follows: 2 "7.16 PAYMENT OF AMENDMENT FEES. Company shall not fail to pay on January 1, 1999, to Administrative Agent, for payment to each Lender in accordance with its Pro Rata Share, a fee equal to 0.25% of the sum of (i) the Term Loan Exposure of all Lenders plus (ii) the Revolving Loan Commitments of all Lenders; PROVIDED HOWEVER that if all Revolving Loan Commitments have been terminated in full and all Obligations paid in full prior to such date, no such amendment fee shall be payable pursuant to this subsection 7.16." SECTION 2. CONDITIONS TO EFFECTIVENESS Section 1 of this Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of such conditions being referred to herein as the "FIRST AMENDMENT EFFECTIVE DATE"): A. On or before the First Amendment Effective Date, Company shall deliver to Lenders (or to Administrative Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender and its counsel) the following, each, unless otherwise noted, dated the First Amendment Effective Date: 1. Signature and incumbency certificates of its officers executing this Amendment; and 2. Executed copies of this Amendment. B. Requisite Lenders shall have executed this Amendment. C. On or before the First Amendment Effective Date, all corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Administrative Agent and Syndication Agent, acting on behalf of Lenders, and their counsel shall be satisfactory in form and substance to Administrative Agent and Syndication Agent and such counsel, and Administrative Agent and Syndication Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Administrative Agent and Syndication Agent may reasonably request. SECTION 3. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Company represents and warrants to each Lender that the following statements are true, correct and complete: A. CORPORATE POWER AND AUTHORITY. Company has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "AMENDED AGREEMENT"). 3 B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of Company. C. NO CONFLICT. The execution and delivery by Company of this Amendment and the performance by Company of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Company or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of Company or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of its Subsidiaries, or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Company or any of its Subsidiaries. D. GOVERNMENTAL CONSENTS. The execution and delivery by Company of this Amendment and the performance by Company of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. E. BINDING OBLIGATION. This Amendment and the Amended Agreement have been duly executed and delivered by Company and are the legally valid and binding obligations of Company, enforceable against Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT. The representations and warranties contained in Section 5 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the First Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. G. ABSENCE OF DEFAULT. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default. 4 SECTION 4. ACKNOWLEDGEMENT AND CONSENT Company is a party to certain of the Collateral Documents, in each case as amended through the First Amendment Effective Date, pursuant to which Company has created Liens in favor of Agent on certain Collateral to secure the Obligations. Each Subsidiary Guarantor is a party to the Guaranties and certain of the Collateral Documents, in each case as amended through the First Amendment Effective Date, pursuant to which each such Subsidiary Guarantor has (i) guarantied the Obligations and (ii) created Liens in favor of Administrative Agent on certain Collateral to secure the obligations of such Subsidiary Guarantor under the applicable Guaranty of such Subsidiary Guarantor. Company and each such Subsidiary Guarantor are collectively referred to herein as the "CREDIT SUPPORT PARTIES", and the Guaranties and Collateral Documents referred to above are collectively referred to herein as the "CREDIT SUPPORT DOCUMENTs". Each Credit Support Party hereby acknowledges that it has reviewed the terms and provisions of the Credit Agreement and this Amendment and consents to the amendment of the Credit Agreement effected pursuant to this Amendment. Each Credit Support Party hereby confirms that each Credit Support Document to which it is a party or otherwise bound and all Collateral encumbered thereby will continue to guaranty or secure, as the case may be, to the fullest extent possible the payment and performance of all "Obligations," "Guarantied Obligations" and "Secured Obligations," as the case may be (in each case as such terms are defined in the applicable Credit Support Document), including without limitation the payment and performance of all such "Obligations," "Guarantied Obligations" or "Secured Obligations," as the case may be, in respect of the Obligations of Company now or hereafter existing under or in respect of the Amended Agreement. Each Credit Support Party acknowledges and agrees that any of the Credit Support Documents to which it is a party or otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this Amendment. Each Credit Support Party represents and warrants that all representations and warranties contained in the Amended Agreement and the Credit Support Documents to which it is a party or otherwise bound are true, correct and complete in all material respects on and as of the First Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. Each Credit Support Party (other than Company) acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Credit Support Party is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment and (ii) nothing in the Credit Agreement, this Amendment or any other Loan Document shall be deemed to require the consent of such Credit Support Party to any future amendments to the Credit Agreement. 5 SECTION 5. MISCELLANEOUS A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS. (i) On and after the First Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. (ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Administrative Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. B. FEES AND EXPENSES. Company acknowledges that all costs, fees and expenses as described in subsection 10.2 of the Credit Agreement incurred by Syndication Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Company. C. HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. WAVETEK CORPORATION By: /s/ Vickie L. Capps --------------------------------- Title: CHIEF FINANCIAL OFFICER --------------------------------- WAVETEK U.S. INC., (for purposes of Section 4 only) as a Credit Support Party By: /s/ Vickie L. Capps --------------------------------- Title: CHIEF FINANCIAL OFFICER --------------------------------- DLJ CAPITAL FUNDING, INC., INDIVIDUALLY AND AS SYNDICATION AGENT By: /s/ Harold J. Philipps --------------------------------- Title: HAROLD J. PHILLIPS MANAGING DIRECTOR --------------------------------- FLEET NATIONAL BANK, INDIVIDUALLY AND AS ADMINISTRATIVE AGENT By: Glenn Kewley --------------------------------- Title: ASSISTANT VICE PRESIDENT --------------------------------- S-1 IMPERIAL BANK, AS A LENDER By: /s/ R. Vadalma --------------------------------- Title: RAY VADALMA SENIOR VICE PRESIDENT --------------------------------- UNION BANK OF CALIFORNIA, AS A LENDER By: /s/ Kent McBeth --------------------------------- Title: VICE PRESIDENT --------------------------------- CREDITANSTALT BANKVEREIN, AS A LENDER By: /s/ Patrick Rounds --------------------------------- Title: VICE PRESIDENT --------------------------------- By: /s/ Jack Bertges --------------------------------- Title: S.V.P. --------------------------------- S-2 EX-12.1 5 EXHIBIT 12.1 EXHIBIT 12.1 SCHEDULE RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, 1998 1997 1998 1997 ------------ ------------ ----------- ------------ Income (loss) before provision for income taxes........................ $ (667) $ (3,526) $ 2,093 $ 7,179 Interest expense, including amortization of debt issuance costs........ 2,996 709 8,944 948 Interest portion of rental expense..................................... 277 221 747 678 ------------ ------------ ----------- ------------ Earnings............................................................... $ 2,606 $ (2,596) $ 11,784 $ 8,805 ------------ ------------ ----------- ------------ ------------ ------------ ----------- ------------ Interest expense, including amortization of debt issuance costs........ $ 2,996 $ 709 $ 8,944 $ 948 Interest portion of rental expense..................................... 277 221 747 678 ------------ ------------ ----------- ------------ Fixed charges.......................................................... $ 3,273 $ 930 $ 9,691 $ 1,626 ------------ ------------ ----------- ------------ ------------ ------------ ----------- ------------ Ratio of earnings to fixed charges..................................... 0.8 (2.8) 1.2 5.4
27 EX-27.1 6 EX-27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS SEP-30-1998 JUN-30-1998 6,385 0 28,619 1,212 17,085 56,154 22,606 11,785 76,646 39,055 106,000 0 0 49 43,741 76,646 107,035 107,035 46,505 95,941 210 435 8,944 2,093 756 1,337 0 0 0 1,337 0.28 0.27
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