-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, kRqiwLam7L0MzHERrkKLpIvJgMR+I2slucrDB5Sxka5qQgo1Oxw9LRKgVs7skNpH deQPlqeFy1IRFHqSF2nwZQ== 0000950131-94-000522.txt : 19940729 0000950131-94-000522.hdr.sgml : 19940729 ACCESSION NUMBER: 0000950131-94-000522 CONFORMED SUBMISSION TYPE: S-4EF PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19940418 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCED TECHNOLOGY LABORATORIES INC/ CENTRAL INDEX KEY: 0000806086 STANDARD INDUSTRIAL CLASSIFICATION: 3845 IRS NUMBER: 911353386 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: S-4EF SEC ACT: 1933 Act SEC FILE NUMBER: 033-53161 FILM NUMBER: 94523024 BUSINESS ADDRESS: STREET 1: 22100 BOTHELL EVERETT HWY SE STREET 2: PO BOX 3003 CITY: BOTHELL STATE: WA ZIP: 98041-3003 BUSINESS PHONE: 2064877000 S-4 1 FORM S-4 As filed with the Securities and Exchange Commission on April 18, 1994 Registration No. 33- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________ FORM S-4 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 _________________________ ADVANCED TECHNOLOGY LABORATORIES, INC. (Exact name of registrant as specified in its charter)
DELAWARE 3845 91-1353386 (State of Incorporation) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) W. Brinton Yorks 22100 Bothell-Everett Highway 22100 Bothell-Everett Highway Bothell, WA 98041-3003 Bothell, WA 98041-3003 (206) 478-7000 (206) 478-7000 (Address and telephone number of registrant's principal executive offices) (Name, address and telephone number of agent for service)
_________________________
Copies to: EVELYN CRUZ SROUFE ALLEN FINKELSON KATHLEEN M. SHAY Perkins Coie Cravath, Swaine & Moore Duane, Morris & Heckscher 1201 Third Avenue, 40th Floor 825 8th Avenue, Worldwide Plaza One Liberty Place, 42d Floor Seattle, Washington 98101-3099 New York, NY 10019 Philadelphia, PA 19103-7396 (206) 583-8888 (212) 474-1000 (215) 979-1000
_________________________ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the Registration Statement becomes effective and the effective time of the Merger (the "Merger") of a subsidiary of Advanced Technology Laboratories, Inc. ("ATL") and Interspec, Inc. ("Interspec"), as described in the Amended and Restated Agreement and Plan of Merger, dated as of February 10, 1994 (the "Merger Agreement") attached as Appendix I to the Joint Proxy Statement/Prospectus forming a part of this Registration Statement. _________________________ If any of the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] _________________________
CALCULATION OF REGISTRATION FEE ======================================================================================================================== TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER SHARE AGGREGATE OFFERING PRICE REGISTRATION FEE - - - ------------------------------------------------------------------------------------------------------------------------ Common Stock, $.01 par value (including associated Preferred Share Purchase Rights)........ 2,714,058(1) N/A N/A $3,130(2)(3) ========================================================================================================================
(1) Based upon the product of (a) 6,270,937 (the number of outstanding shares of Interspec Common Stock as of April 12, 1994) plus the number of shares of Interspec Common Stock subject to purchase upon outstanding options that will be exerciseable at or before the anticipated effective time of the Merger, and (b) 0.413, the Exchange Ratio (as defined in the Merger Agreement). (2) The registration fee was computed pursuant to Rule 457(f) under the Securities Act of 1933, as amended (the "Securities Act") by multiplying (a) $5.50, the average of the high and low sales price of a share of Interspec Common Stock quoted on the National Association of Securities Dealers Automated Quotations System National Market on April 12, 1994, as reported in published financial services, and (b) the number of outstanding shares of Interspec Common Stock as of April 12, 1994 plus the number of shares of Interspec Common Stock subject to purchase upon outstanding options that will be exerciseable at or before the anticipated effective time of the Merger. The result was then multiplied by 1/29 of one percent. (3) Pursuant to Rule 457(b) under the Securities Act and Section 14(g) of the Securities Exchange Act of 1934, as amended, and Rule 0-11 thereunder, the total registration fee of $12,463 is offset by the filing fee of $9,333 previously paid by ATL in connection with the filing of the preliminary proxy materials on March 4, 1994. Accordingly, the fee payable upon the filing of this Registration Statement is $3,130. _________________________ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ ADVANCED TECHNOLOGY LABORATORIES, INC. CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K ITEMS OF FORM S-4 HEADING IN PROSPECTUS - - - ------------------------------------------------------------ ----------------------------------------------------------------- Item 1 Forepart of the Registration Statement and Outside Front Cover Page of Prospectus.................... Outside Front Cover Page Item 2 Inside Front and Outside Back Cover Pages of Prospectus........................................ Inside Front Cover Page; Outside Back Cover Page Item 3 Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges......................... Summary; Risk Factors Item 4 Terms of the Transaction.......................... The Merger; Other Agreements; Background of and Reasons for the Merger; Description of ATL Capital Stock; Comparison of Rights of ATL and Interspec Shareholders Item 5 Pro Forma Financial Information................... Unaudited Pro Forma Condensed Combined Financial Statements Item 6 Material Contacts with Company Being Acquired..... Background of and Reasons for the Merger Item 7 Additional Information Required for Reoffering by Persons and Parties Deemed to be Underwriters.. Not Applicable Item 8 Interests of Named Experts and Counsel............ Not Applicable Item 9 Disclosure of Commission Position on Indemnifications for Securities Act Liabilities... Not Applicable Item 10 Information with Respect to S-3 Registrants....... Available Information; Incorporation of Certain Documents by Reference Item 11 Incorporation of Certain Information by Reference. Available Information; Incorporation of Certain Documents by Reference Item 12 Information with Respect to S-2 or S-3 Registrants Not Applicable Item 13 Incorporation of Certain Information by Reference. Not Applicable Item 14 Information with Respect to Registrants Other Than S-3 or S-2 Registrants............................ Not Applicable Item 15 Information with Respect to S-3 Companies........ Not Applicable Item 16 Information with Respect to S-2 or S-3 Companies.. Available Information; Incorporation of Certain Documents by Reference Item 17 Information with Respect to Companies Other than S-3 or S-2 Companies.............................. Not Applicable
Item 18 Information if Proxies, Consents, or Authorizations Are to Be Solicited................................ Outside Front Cover Page of Joint Proxy Statement/Prospectus; Meetings of Shareholders; Summary; The Merger--Rights of Dissenting Interspec Shareholders; Interests of Certain Persons in The Merger; Principal ATL Shareholders; Election of ATL Directors; Executive Officers of ATL; Executive Compensation Item 19 Information if Proxies, Consents or Authorizations Are Not to Be Solicited............. Not Applicable
[LOGO] April 18, 1994 Advanced Technology Laboratories, Inc. 22100 Bothell Everett Highway Bothell, WA 98041-3003 Dear Shareholder: You are cordially invited to attend the 1994 Annual General Meeting of Shareholders (the "ATL Annual Meeting") of ATL, which will be held on Monday, May 16, 1994, at 10:30 a.m., local time, at the Four Seasons Olympic Hotel, 411 University Street, Seattle, Washington. At the ATL Annual Meeting, you will be asked to consider and vote upon a proposal to approve the issuance (the "Issuance") of shares of common stock of ATL (the "ATL Common Stock"), to the shareholders of Interspec, Inc. ("Interspec") in connection with an Amended and Restated Agreement and Plan of Merger among ATL, a subsidiary of ATL and Interspec (the "Merger Agreement"), which provides for the merger of the ATL subsidiary into Interspec (the "Merger"). In the Merger, each outstanding share of common stock of Interspec (the "Interspec Common Shares") will be converted into 0.413 share of ATL Common Stock, and Interspec will become a wholly owned subsidiary of ATL. Accordingly, an aggregate of approximately 2,588,000 shares of ATL Common Stock will be issued in exchange for outstanding Interspec Common Shares in connection with the Merger, constituting approximately 20% of the outstanding ATL Common Stock following the Merger. You will also be asked to approve a proposal to amend the ATL 1992 Option, Stock Appreciation Right, Restricted Stock, Stock Grant and Performance Unit Plan (the "ATL Option Plan"), subject to approval of the Issuance by the ATL shareholders, to increase the number of shares of ATL Common Stock authorized for issuance thereunder by 450,000 to enable the issuance of shares of ATL Common Stock upon the exercise of outstanding options to purchase Interspec Common Shares, which will be adjusted and deemed to constitute options to purchase shares of ATL Common Stock pursuant to the Merger Agreement, and to impose certain limits on option grants thereunder. Approval of the amendment to the ATL Option Plan is considered by ATL to be critical to ensuring the retention of key employees of Interspec. In addition, you will be asked to elect eight directors to ATL's Board of Directors and to ratify the appointment of KPMG Peat Marwick as ATL's independent auditors for 1994. ATL'S BOARD OF DIRECTORS HAS DETERMINED THE ISSUANCE AND THE MERGER TO BE FAIR TO AND IN THE BEST INTERESTS OF ATL AND ITS SHAREHOLDERS, HAS UNANIMOUSLY APPROVED THE ISSUANCE AND THE MERGER AGREEMENT AND RECOMMENDS A VOTE FOR APPROVAL OF THE ISSUANCE. ATL'S BOARD OF DIRECTORS ALSO RECOMMENDS THAT YOU VOTE FOR THE AMENDMENT TO THE ATL OPTION PLAN, FOR THE ELECTION OF THE EIGHT NOMINEES FOR DIRECTOR AND FOR THE RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK. You should read carefully the accompanying Notice of Annual General Meeting of Shareholders and the Joint Proxy Statement/Prospectus for details of the Merger and additional related information. Whether or not you plan to attend the ATL Annual Meeting, please complete, sign and date the enclosed proxy card and return it promptly in the enclosed postage-prepaid envelope. Your stock will be voted in accordance with the instructions you have given in your proxy. If you attend the ATL Annual Meeting, you may vote in person if you wish, even though you previously have returned your proxy card. Your prompt cooperation will be greatly appreciated. Sincerely, /s/ Dennis C. Fill ------------------------------------ Dennis C. Fill Chairman and Chief Executive Officer PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD. ADVANCED TECHNOLOGY LABORATORIES, INC. 22100 BOTHELL EVERETT HIGHWAY BOTHELL, WASHINGTON 98041-3003 NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS TO BE HELD MAY 16, 1994 TO THE SHAREHOLDERS OF ADVANCED TECHNOLOGY LABORATORIES, INC.: The Annual General Meeting of Shareholders (the "ATL Annual Meeting") of Advanced Technology Laboratories, Inc., a Delaware corporation ("ATL"), will be held on Monday, May 16, 1994, at 10:30 a.m., local time, at the Four Seasons Olympic Hotel, 411 University Street, Seattle, Washington, for the following purposes: 1. To consider and vote upon a proposal to approve the issuance (the "Issuance") of shares of common stock of ATL, par value $.01 per share, together with associated purchase rights (the "ATL Common Stock"), to the shareholders of Interspec, Inc. ("Interspec") in connection with an Amended and Restated Agreement and Plan of Merger, dated as of February 10, 1994 (the "Merger Agreement"), among Interspec, ATL and ATL Sub Acquisition Corp., a Delaware corporation and wholly owned subsidiary of ATL ("Merger Sub"), which provides for the merger of Merger Sub into Interspec (the "Merger"). Pursuant to the Merger Agreement, Interspec will become a wholly owned subsidiary of ATL, and each share of common stock, par value $.001 per share, of Interspec (the "Interspec Common Shares") issued and outstanding immediately prior to the Merger will be converted into 0.413 share of ATL Common Stock. THE MERGER IS MORE COMPLETELY DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS, AND A COPY OF THE MERGER AGREEMENT IS ATTACHED AS APPENDIX I THERETO. 2. To consider and vote upon a proposal to amend the ATL 1992 Option, Stock Appreciation Right, Restricted Stock, Stock Grant and Performance Unit Plan (the "ATL Option Plan"), subject to approval of the Issuance by the ATL shareholders, to increase the number of shares of ATL Common Stock authorized for issuance thereunder by 450,000 to enable the issuance of shares of ATL Common Stock upon the exercise of outstanding options to purchase Interspec Common Shares, which will be adjusted and deemed to constitute options to purchase shares of ATL Common Stock pursuant to the Merger Agreement, and to impose certain limits on option grants thereunder. 3. To elect eight directors to ATL's Board of Directors to hold office until the next annual meeting of shareholders and until their respective successors are elected and qualified. 4. To ratify the appointment of KPMG Peat Marwick as ATL's independent auditors for 1994. 5. To transact such other business as may properly come before the ATL Annual Meeting or any adjournments or postponements thereof. Only holders of record of shares of ATL Common Stock at the close of business on March 23, 1994, the record date for the ATL Annual Meeting, are entitled to notice of and to vote at the ATL Annual Meeting and any adjournments or postponements thereof. The affirmative vote of the holders of shares representing a majority of the shares of ATL Common Stock present, in person or by proxy, and entitled to vote thereon at the ATL Annual Meeting is required to approve the Issuance, the amendment of the ATL Option Plan and the appointment of the independent auditors. The affirmative vote of the holders of a plurality of the shares of ATL Common Stock present, in person or by proxy, at the ATL Annual Meeting is required for the election of directors. Holders of shares of ATL Common Stock will not be entitled to dissenters' rights as a result of the Merger because ATL is not a constituent corporation in the Merger. WHETHER OR NOT YOU PLAN TO ATTEND THE ATL ANNUAL MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. YOUR STOCK WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS YOU HAVE GIVEN IN YOUR PROXY. YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED BY SIGNING AND RETURNING A LATER-DATED PROXY WITH RESPECT TO THE SAME SHARES, BY FILING WITH THE SECRETARY OF ATL A WRITTEN REVOCATION BEARING A LATER DATE OR BY ATTENDING AND VOTING IN PERSON AT THE ATL ANNUAL MEETING. By Order of the Board of Directors /s/ W. Brinton Yorks, Jr. -------------------------------------- W. Brinton Yorks, Jr. Secretary Bothell, Washington April 18, 1994 2 LOGO April 18, 1994 Dear Shareholder: You are cordially invited to attend a Special Meeting of Shareholders (the "Interspec Special Meeting") of Interspec, Inc. ("Interspec"), which will be held on Monday, May 16, 1994, at 10:00 a.m., local time, at the offices of Duane, Morris & Heckscher, One Liberty Place, 42nd Floor, Philadelphia, Pennsylvania. At the Interspec Special Meeting, you will be asked to consider and vote upon a proposal to approve and adopt an Amended and Restated Agreement and Plan of Merger, dated as of February 10, 1994, among Interspec, Advanced Technology Laboratories, Inc. ("ATL") and a subsidiary of ATL (the "Merger Agreement"), pursuant to which the ATL subsidiary will be merged into Interspec (the "Merger"). In the Merger, each outstanding share of common stock of Interspec (the "Interspec Common Shares") will be converted into 0.413 share of common stock of ATL (together with associated purchase rights, the "ATL Common Stock"), and Interspec will become a wholly owned subsidiary of ATL. Interspec shareholders will receive cash in lieu of any fractional share of ATL Common Stock. You should read carefully the accompanying Notice of Special Meeting of Shareholders and the Joint Proxy Statement/Prospectus for details of the Merger and additional related information. INTERSPEC'S BOARD OF DIRECTORS HAS DETERMINED THE MERGER TO BE FAIR TO AND IN THE BEST INTERESTS OF INTERSPEC AND ITS SHAREHOLDERS, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER. The affirmative vote of a majority of votes cast by the holders of Interspec Common Shares entitled to vote thereon is required to approve and adopt the Merger Agreement and the Merger. Whether or not you plan to attend the Interspec Special Meeting, please complete, sign and date the enclosed proxy card and return it promptly in the enclosed postage-prepaid envelope. If you attend the Interspec Special Meeting, you may vote in person if you wish, even though you previously have returned your proxy card. Your prompt cooperation will be greatly appreciated. Please do not send your share certificates with your proxy card. After approval of the Merger Agreement and the Merger by Interspec shareholders and the satisfaction of all other conditions to the Merger, you will receive a transmittal form and instructions for the exchange of your shares. Sincerely, /s/ Edward Ray Edward Ray Chairman, President and Chief Executive Officer PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD. INTERSPEC, INC. 110 WEST BUTLER AVENUE AMBLER, PENNSYLVANIA 19002-5795 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD MAY 16, 1994 TO THE SHAREHOLDERS OF INTERSPEC, INC.: A Special Meeting of Shareholders (the "Interspec Special Meeting") of Interspec, Inc., a Pennsylvania corporation ("Interspec"), will be held on Monday, May 16, 1994, at 10:00 a.m., local time, at the offices of Duane, Morris & Heckscher, One Liberty Place, 42nd Floor, Philadelphia, Pennsylvania, for the following purposes: 1. To consider and vote upon a proposal to approve and adopt an Amended and Restated Agreement and Plan of Merger, dated as of February 10, 1994 (the "Merger Agreement"), among Interspec, Advanced Technology Laboratories, Inc., a Delaware corporation ("ATL"), and ATL Sub Acquisition Corp., a Delaware corporation and wholly owned subsidiary of ATL ("Merger Sub"), and the merger of Merger Sub into Interspec upon the terms and subject to the conditions of the Merger Agreement (the "Merger"). Pursuant to the Merger Agreement, Interspec will become a wholly owned subsidiary of ATL, and each share of common stock, par value $.001 per share, of Interspec (the "Interspec Common Shares") issued and outstanding immediately prior to the Merger will be converted into 0.413 share of common stock of ATL, par value $.01 per share ("ATL Common Stock"). Interspec shareholders will receive cash in lieu of any fractional share of ATL Common Stock. THE MERGER IS MORE COMPLETELY DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS, AND A COPY OF THE MERGER AGREEMENT IS ATTACHED AS APPENDIX I THERETO. 2. To transact such other business as may properly be brought before the Interspec Special Meeting or any adjournments or postponements thereof. Only holders of record of Interspec Common Shares at the close of business on March 29, 1994, the record date for the Interspec Special Meeting, are entitled to notice of and to vote at the Interspec Special Meeting and any adjournments or postponements thereof. The affirmative vote of a majority of votes cast by the holders of Interspec Common Shares entitled to vote thereon is necessary to approve and adopt the Merger Agreement and the Merger. Holders of Interspec Common Shares will have the right to dissent from the Merger and, subject to certain conditions, receive payment for their shares. These rights are described in greater detail in the accompanying Joint Proxy Statement/Prospectus under the caption "THE MERGER--Rights of Dissenting Interspec Shareholders," and are set forth in Sections 1930 and 1571 through 1580 of the Pennsylvania Business Corporation Law of 1988, a copy of which is attached as Appendix IV to the accompanying Joint Proxy Statement/Prospectus. WHETHER OR NOT YOU PLAN TO ATTEND THE INTERSPEC SPECIAL MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. YOUR STOCK WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS YOU HAVE GIVEN IN YOUR PROXY. YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED BY SIGNING AND RETURNING A LATER-DATED PROXY WITH RESPECT TO THE SAME SHARES, BY FILING WITH THE SECRETARY OF INTERSPEC A WRITTEN REVOCATION BEARING A LATER DATE OR BY ATTENDING AND VOTING AT THE INTERSPEC SPECIAL MEETING. By Order of the Board of Directors /s/ Michael J. Wassil Michael J. Wassil Secretary Ambler, Pennsylvania April 18, 1994 ADVANCED TECHNOLOGY LABORATORIES, INC. AND INTERSPEC, INC. ---------------- JOINT PROXY STATEMENT ---------------- ADVANCED TECHNOLOGY LABORATORIES, INC. PROSPECTUS This Joint Proxy Statement/Prospectus is being furnished to holders of shares of common stock, par value $.01 per share (together with associated purchase rights, the "ATL Common Stock"), of Advanced Technology Laboratories, Inc., a Delaware corporation ("ATL"), in connection with the solicitation of proxies by ATL's Board of Directors (the "ATL Board") for use at the 1994 Annual General Meeting of Shareholders to be held on Monday, May 16, 1994, at the Four Seasons Olympic Hotel, 411 University Street, Seattle, Washington, commencing at 10:30 a.m., local time, and at any adjournments or postponements thereof (the "ATL Annual Meeting"). This Joint Proxy Statement/Prospectus is also being furnished to holders of shares of common stock, par value $.001 per share (the "Interspec Common Shares"), of Interspec, Inc., a Pennsylvania corporation ("Interspec"), in connection with the solicitation of proxies by Interspec's Board of Directors (the "Interspec Board") for use at the Special Meeting of Shareholders to be held on Monday, May 16, 1994, at the offices of Duane, Morris & Heckscher, One Liberty Place, 42nd Floor, Philadelphia, Pennsylvania, commencing at 10:00 a.m., local time, and at any adjournments or postponements thereof (the "Interspec Special Meeting"). This Joint Proxy Statement/Prospectus constitutes the Prospectus of ATL filed as part of a Registration Statement on Form S-4 (the "Registration Statement") with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), relating to shares of ATL Common Stock issuable in connection with the Merger (as defined herein). All information concerning ATL contained in this Joint Proxy Statement/Prospectus has been furnished by ATL, and all information concerning Interspec prior to the Merger contained in this Joint Proxy Statement/Prospectus has been furnished by Interspec. This Joint Proxy Statement/Prospectus is first being mailed to shareholders of ATL and of Interspec on or about April 18, 1994. THE SHARES OF ATL COMMON STOCK ISSUABLE IN THE MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------------- FOR A DESCRIPTION OF RISK FACTORS RELATING TO THE MERGER AND THE RELATED TRANSACTIONS DESCRIBED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, SEE "RISK FACTORS." ---------------- THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS APRIL 18, 1994. i ATL ANNUAL MEETING At the ATL Annual Meeting, shareholders of record of ATL at the close of business on March 23, 1994, will consider and vote upon (i) a proposal to approve the issuance (the "Issuance") of shares of ATL Common Stock in exchange for Interspec Common Shares and upon the exercise of currently outstanding options to purchase Interspec Common Shares, which will be adjusted and deemed to constitute options to purchase shares of ATL Common Stock, in connection with the Amended and Restated Agreement and Plan of Merger, dated as of February 10, 1994 (the "Merger Agreement"), among Interspec, ATL and ATL Sub Acquisition Corp., a Delaware corporation and wholly owned subsidiary of ATL ("Merger Sub"), pursuant to which Merger Sub will be merged into Interspec (the "Merger"); (ii) a proposal to amend the ATL 1992 Option, Stock Appreciation Right, Restricted Stock, Stock Grant and Performance Unit Plan (the "ATL Option Plan"), subject to approval of the Issuance by the ATL shareholders, to increase the number of shares of ATL Common Stock authorized for issuance thereunder by 450,000 and to impose certain limits on option grants thereunder; (iii) the election of eight directors to the ATL Board to hold office until the next annual meeting of ATL shareholders and until their respective successors are elected and qualified; (iv) a proposal to ratify the appointment of KPMG Peat Marwick as ATL's independent auditors for 1994; and (v) such other business as may properly come before the ATL Annual Meeting or any adjournments or postponements thereof. INTERSPEC SPECIAL MEETING At the Interspec Special Meeting, shareholders of record of Interspec at the close of business on March 29, 1994, will consider and vote upon (i) a proposal to approve and adopt the Merger Agreement and the Merger and (ii) such other business as may properly come before the Interspec Special Meeting or any adjournments or postponements thereof. Holders of Interspec Common Shares will have the right to dissent from the Merger and, subject to certain conditions, receive payment for their shares. These rights are described in greater detail under the caption "THE MERGER--Rights of Dissenting Interspec Shareholders," and are set forth in Sections 1930 and 1571 through 1580 of the Pennsylvania Business Corporation Law of 1988 (the "PBCL"), a copy of which is attached as Appendix IV to this Joint Proxy Statement/Prospectus. Holders of Interspec Common Shares who are entitled to and who properly demand appraisal in accordance with Section 1571 of the PBCL and who do not fail to perfect or otherwise lose their right to appraisal are herein referred to as "Dissenting Shareholders" and such shares are referred to as "Dissenting Shares." CONSUMMATION OF THE MERGER Upon consummation of the Merger, (i) each issued and outstanding Interspec Common Share (other than shares owned by Interspec and Dissenting Shares) will be converted into the right to receive 0.413 share of ATL Common Stock (the "Exchange Ratio"), which share will be accompanied by associated purchase rights as described in "DESCRIPTION OF ATL CAPITAL STOCK--Shareholder Rights Plan," (ii) each outstanding option to purchase Interspec Common Shares will be deemed to constitute an option to purchase that number of shares of ATL Common Stock equal to the product of the Exchange Ratio and the number of Interspec Common Shares subject to such option, and (iii) all Interspec Common Shares will no longer be outstanding and will automatically be canceled, and each holder of a certificate representing Interspec Common Shares will cease to have any rights with respect thereto, except the right to receive the shares of ATL Common Stock to be issued in consideration therefor upon the surrender of such certificate, without interest. Fractional shares of ATL Common Stock will not be issued in connection with the Merger. In lieu of any such fractional shares, each holder of Interspec Common Shares who otherwise would be entitled to receive a fractional share of ATL Common Stock pursuant to the Merger will be paid an amount by check, without interest, equal to such holder's proportionate interest in the net proceeds from the sale or sales in the open market by the Exchange Agent (as defined herein), on behalf of all such holders, of the aggregate fractional shares of ATL Common Stock, if any, that would have been issued in the Merger. See "THE MERGER--Terms of the Merger." ii AVAILABLE INFORMATION ATL and Interspec are subject to the information and reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith file reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at certain regional offices of the Commission located at Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661, and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such information can be obtained at prescribed rates from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. This Joint Proxy Statement/Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. The Registration Statement and any amendments thereto, including exhibits filed as a part thereof, are available for inspection and copying as set forth above. THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE THEREIN, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL REQUEST TO, IN THE CASE OF DOCUMENTS RELATING TO ATL, THE SECRETARY, ADVANCED TECHNOLOGY LABORATORIES, INC., 22100 BOTHELL EVERETT HIGHWAY, BOTHELL, WASHINGTON 98041-3003, TELEPHONE NUMBER (206) 487-7000; AND IN THE CASE OF DOCUMENTS RELATING TO INTERSPEC, THE SECRETARY, INTERSPEC, INC., 110 WEST BUTLER AVENUE, AMBLER, PENNSYLVANIA 19002-5795, TELEPHONE NUMBER (215) 540- 9190. TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BEFORE MAY 6, 1994. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents previously filed by ATL or Interspec with the Commission pursuant to the Exchange Act are incorporated herein by this reference: A. ATL's Annual Report on Form 10-K for the year ended December 31, 1993; B. ATL's Current Report on Form 8-K dated February 15, 1994; C. ATL's Current Report on Form 8-K dated March 2, 1994; D. Interspec's Annual Report on Form 10-K for the fiscal year ended November 30, 1993, as amended; E. Interspec's Current Report on Form 8-K dated February 24, 1994; and F. Interspec's Quarterly Report on Form 10-Q for the quarter ended February 28, 1994. The information relating to ATL and Interspec contained in this Joint Proxy Statement/Prospectus does not purport to be comprehensive and should be read together with the information in the documents incorporated by reference herein. All documents filed by ATL pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the date of the ATL Annual Meeting shall be deemed to be incorporated by reference herein and to be a part hereof from the date any such document is filed. iii Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes hereof to the extent that a statement contained herein (or in any other subsequently filed document that also is incorporated by reference herein) modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed to constitute a part hereof except as so modified or superseded. All information appearing in this Joint Proxy Statement/Prospectus is qualified in its entirety by the information and consolidated financial statements (including notes thereto) appearing in the documents incorporated herein by reference, except to the extent set forth in the immediately preceding statement. NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS JOINT PROXY STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH RESPECT TO SUCH MATTERS NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ATL OR INTERSPEC. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF ATL OR INTERSPEC SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF. iv TABLE OF CONTENTS
PAGE ---- AVAILABLE INFORMATION..................................................... iii INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... iii GLOSSARY.................................................................. vi SUMMARY................................................................... 1 The Companies............................................................ 1 Meetings of Shareholders................................................. 1 The Merger............................................................... 2 Summary Historical and Unaudited Pro Forma Condensed Combined Financial Data.................................................................... 7 Comparative Per Share Data............................................... 9 RISK FACTORS.............................................................. 10 MEETINGS OF SHAREHOLDERS.................................................. 14 General.................................................................. 14 Matters to Be Considered at the Meetings................................. 15 Record Date; Shares Entitled to Vote; Vote Required...................... 16 Proxies; Proxy Solicitation.............................................. 17 BACKGROUND OF AND REASONS FOR THE MERGER.................................. 18 Background............................................................... 18 Reasons for the Merger; Recommendations of the Boards of Directors....... 22 Opinion of Financial Advisor to the ATL Board............................ 24 Opinion of Financial Advisor to the Interspec Board...................... 27 THE COMPANIES............................................................. 32 ATL...................................................................... 32 Merger Sub............................................................... 32 Interspec................................................................ 32 THE MERGER................................................................ 33 Terms of the Merger...................................................... 33 Effective Time of the Merger............................................. 34 Exchange of Interspec Common Shares...................................... 34 Effect on Interspec Employee Benefit and Stock Plans..................... 35 Trading of Shares of ATL Common Stock on the Nasdaq National Market...... 35 Representations and Warranties........................................... 35 Business of Interspec Pending the Merger................................. 36 Business of ATL Pending the Merger....................................... 37 No Solicitation.......................................................... 37 Conditions to Consummation of Merger..................................... 38 Amendment and Waiver; Termination........................................ 39 Certain Federal Income Tax Consequences.................................. 40 Regulatory Matters....................................................... 41 Resale of Shares of ATL Common Stock Issued in the Merger; Affiliates.... 41 Accounting Treatment..................................................... 41 Management and Operations of Interspec After the Merger.................. 42 Expenses and Fees........................................................ 42 Rights of Dissenting Interspec Shareholders.............................. 42 CONFLICTS OF INTEREST..................................................... 45 Employment Agreements.................................................... 45 Adjustment of Interspec Stock Options; Grant of ATL Stock Options........ 45
PAGE ---- Indemnification of Directors and Officers Pursuant to the Merger Agreement............................................................... 45 COMPARATIVE PER SHARE MARKET INFORMATION.................................. 46 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS............... 47 DESCRIPTION OF ATL CAPITAL STOCK.......................................... 52 Shareholder Rights Plan.................................................. 52 DESCRIPTION OF INTERSPEC CAPITAL STOCK.................................... 54 COMPARISON OF RIGHTS OF ATL AND OF INTERSPEC SHAREHOLDERS................. 55 General.................................................................. 55 Changes Principally Attributable to Differences Between the DGCL and the PBCL.................................................................... 55 Statutory Regulation of Corporate Takeovers.............................. 60 ELECTION OF ATL DIRECTORS................................................. 63 Director Compensation.................................................... 66 Committees of the ATL Board.............................................. 66 Compensation Committee Interlocks and Insider Participation.............. 67 AMENDMENT OF THE ATL OPTION PLAN.......................................... 67 Proposed Amendment....................................................... 67 Description of the ATL Option Plan....................................... 69 EXECUTIVE OFFICERS OF ATL................................................. 75 EXECUTIVE COMPENSATION.................................................... 76 Compensation Summary..................................................... 76 Option Grants............................................................ 77 Option Exercises and Year-End Values..................................... 77 Compensation Committee Report on Executive Compensation.................. 78 Comparison of Five-Year Cumulative Total Return.......................... 80 Retirement Plan.......................................................... 81 Change in Control Agreements............................................. 81 Certain Relationships and Related Transactions........................... 81 Section 16 Reporting..................................................... 82 PRINCIPAL ATL SHAREHOLDERS................................................ 83 LEGAL OPINION............................................................. 84 TAX OPINION............................................................... 84 EXPERTS................................................................... 84 RATIFICATION OF APPOINTMENT OF AUDITORS................................... 84 PROPOSALS BY ATL SHAREHOLDERS............................................. 84 ANNUAL REPORT AND FORM 10-K............................................... 85
Appendix I--Amended and Restated Agreement and Plan of Merger, dated as of February 10, 1994, among ATL, Merger Sub and Interspec Appendix II--Opinion of Goldman, Sachs & Co. Appendix III--Opinion of Merrill Lynch & Co. Appendix IV--Dissenters' Rights Provisions of the Pennsylvania Business Corpo- ration Law of 1988 v GLOSSARY
PAGE ---- 1992 Distribution.................... 7 Acquiring Person..................... 52 Acquisition Comparables.............. 29 Antitrust Division................... 6 ATL.................................. i ATL Annual Meeting................... i ATL Board............................ i ATL Bylaws........................... 14 ATL Certificate of Incorporation..... 14 ATL Common Stock..................... i ATL Comparable Companies............. 29 ATL Guarantee........................ 5 ATL Low Case......................... 31 ATL Mean Case........................ 31 ATL Option Plan...................... ii ATL Record Date...................... 2 ATL Series A Preferred Shares........ 52 Business Combination................. 73 Certificates......................... 34 Change of Control.................... 73 Closing.............................. 5 Code................................. 5 Commission........................... i Compensation Committee............... 69 Convertible Note Amendments.......... 5 Convertible Notes.................... 5 DCF.................................. 30 Device Companies..................... 26 DGCL................................. 3 Dissenting Shareholders.............. ii Dissenting Shares.................... ii EBIT................................. 26 EBITDA............................... 29 Effective Time....................... 3 Employment Agreements................ 45 Engagement Letter.................... 25 EPS.................................. 26 ERISA................................ 36 Excess Shares........................ 34 Exchange Act......................... iii Exchange Agent....................... 34 Exchange Ratio....................... ii Expiration Date...................... 53 FDA.................................. 11 FDC Act.............................. 11 FTC.................................. 6 Goldman Sachs........................ 3 Holding Period....................... 74 HSR Act.............................. 6 Incentive Stock Options.............. 69 Incumbent Directors.................. 73 Interspec............................ i Interspec Articles of Incorporation.. 54 Interspec Base Case.................. 30 Interspec Board...................... i Interspec Bylaws..................... 55
PAGE ---- Interspec Common Shares.............. i Interspec Comparable Companies....... 29 Interspec Conservative Case.......... 30 Interspec Record Date................ 2 Interspec Severe Competition Case.... 30 Interspec Special Meeting............ i Interspec Stock Option............... 35 Interspec Stock Plans................ 35 ISSOP 401(k)......................... 76 Issuance............................. ii LTM.................................. 25 Market Capitalization................ 29 Market Value......................... 28 Medical Imaging Companies............ 26 Merger............................... ii Merger Agreement..................... ii Merger Sub........................... ii Merrill Lynch........................ 3 MIC Plan............................. 76 NASD................................. 16 Nasdaq............................... 4 NOE Plan............................. 78 Nonemployee Director Plan............ 66 Nonqualified Stock Options........... 69 Noteholder........................... 5 OBRA................................. 68 Offer Value.......................... 30 Opinions............................. 27 Oral Opinion......................... 27 PBCL................................. ii Pennsylvania Commission.............. 63 Pro Forma Case One................... 31 Pro Forma Case Two................... 31 Proposed Regulations................. 68 Purchase Price....................... 52 Redemption Price..................... 54 Registration Statement............... i Representation Agreement............. 21 Restricted Period.................... 71 Retirement Plan...................... 81 Right Certificates................... 53 Rights............................... 52 Rights Agreement..................... 52 SARs................................. 70 Securities Act....................... i Selected Transactions................ 26 Separation Date...................... 53 SFAS 109............................. 51 Significant Shareholders............. 21 SpaceLabs............................ 7 STS.................................. 67 Superior Proposal.................... 38 Supplemental Plan.................... 81 Surviving Corporation................ 33 Takeover Disclosure Law.............. 63 Takeover Proposal.................... 5 Transaction Value.................... 30 Westmark............................. 7 Written Opinion...................... 27
vi SUMMARY Certain significant matters discussed in this Joint Proxy Statement/Prospectus are summarized below. This summary is not intended to be complete and is qualified in all respects by reference to the more detailed information appearing or incorporated by reference in this Joint Proxy Statement/Prospectus (including the Appendices hereto). THE COMPANIES Advanced Technology Laboratories, Inc. ATL is engaged in the high-technology electronic medical systems business. ATL develops, manufactures, markets and services diagnostic medical ultrasound systems worldwide. The mailing address of ATL's principal executive offices is 22100 Bothell Everett Highway, Bothell, Washington 98041-3003, and its telephone number is (206) 487-7000. See "THE COMPANIES--ATL." ATL Sub Acquisition Corp. Merger Sub, a wholly owned subsidiary of ATL, was formed by ATL solely for the purpose of effecting the Merger. The mailing address of Merger Sub's principal executive offices is c/o ATL, 22100 Bothell Everett Highway, Bothell, Washington 98041-3003, and its telephone number is (206) 487-7000. See "THE COMPANIES--Merger Sub." Interspec, Inc. Interspec develops, manufactures, markets and services diagnostic medical ultrasound imaging systems, and related supplies and accessories for physicians' offices, clinics and hospitals worldwide. The mailing address of Interspec's principal executive offices is 110 West Butler Avenue, Ambler, Pennsylvania 19002-5795, and its telephone number is (215) 540- 9190. See "THE COMPANIES--Interspec." MEETINGS OF SHAREHOLDERS Date, Time and Place of the Meetings ATL. The ATL Annual Meeting is to be held on Monday, May 16, 1994, at 10:30 a.m., local time, at the Four Seasons Olympic Hotel, 411 University Street, Seattle, Washington. Interspec. The Interspec Special Meeting is to be held on Monday, May 16, 1994, at 10:00 a.m., local time, at the offices of Duane, Morris & Heckscher, One Liberty Place, 42nd Floor, Philadelphia, Pennsylvania. Purposes of the Meetings ATL. At the ATL Annual Meeting, shareholders of ATL will consider and vote upon (i) a proposal to approve the Issuance, pursuant to the Merger Agreement, of shares of ATL Common Stock in exchange for Interspec Common Shares and upon the exercise of currently outstanding options to purchase Interspec Common Shares; (ii) a proposal to amend the ATL Option Plan, subject to approval of the Issuance by the ATL shareholders, to increase the number of shares of ATL Common Stock authorized for issuance thereunder by 450,000 to enable the adjustment of outstanding options to purchase Interspec Common Shares, which will be deemed to constitute options to purchase shares of ATL Common Stock pursuant to the Merger Agreement, and to impose certain limits on option grants thereunder; (iii) the election of eight directors to the ATL Board to hold office until the next annual meeting of ATL shareholders and until their respective successors are elected and qualified; (iv) a proposal to ratify the appointment of KPMG Peat Marwick as ATL's independent auditors for 1994; and (v) such other business as may properly come before the ATL Annual Meeting or any adjournments or postponements thereof. 1 Interspec. At the Interspec Special Meeting, shareholders of Interspec will consider and vote upon (i) a proposal to approve and adopt the Merger Agreement and the Merger and (ii) such other business as may properly come before the Interspec Special Meeting or any adjournments or postponements thereof. Record Dates ATL. Only holders of record of shares of ATL Common Stock at the close of business on March 23, 1994, are entitled to notice of and to vote at the ATL Annual Meeting or any adjournments or postponements thereof. On that date, 10,521,020 shares of ATL Common Stock were outstanding and entitled to vote. As of March 23, 1994, directors and executive officers of ATL and their affiliates may be deemed to be beneficial owners of approximately 2% of the outstanding voting shares of ATL Common Stock. Interspec. Only holders of record of Interspec Common Shares at the close of business on March 29, 1994, are entitled to notice of and to vote at the Interspec Special Meeting or any adjournments or postponements thereof. On that date, 6,265,987 Interspec Common Shares were outstanding and entitled to vote. As of March 29, 1994, directors and executive officers of Interspec and their affiliates may be deemed to be beneficial owners of approximately 7% of the outstanding voting Interspec Common Shares. Votes Required ATL. The affirmative vote of the holders of shares representing a majority of the shares of ATL Common Stock present, in person or by proxy, and entitled to vote thereon at the ATL Annual Meeting is required for approval of the Issuance, for approval of the amendment to the ATL Option Plan and for approval of the ratification of the appointment of independent auditors. See "MEETINGS OF SHAREHOLDERS--Record Date; Shares Entitled to Vote; Vote Required--ATL." The amendment of the ATL Option Plan is contingent upon approval of the Issuance by the ATL shareholders. Approval of the amendment to the ATL Option Plan by the ATL shareholders is considered by ATL to be critical to ensuring the retention of key employees of Interspec and is a condition to consummation of the Merger. The directors elected will be the eight candidates receiving the greatest number of votes cast by the holders of shares of ATL Common Stock present, in person or by proxy, at the ATL Annual Meeting. See "ELECTION OF ATL DIRECTORS." Interspec. The affirmative vote of a majority of votes cast, in person or by proxy, by the holders of Interspec Common Shares entitled to vote at the Interspec Special Meeting is required for approval and adoption of the Merger Agreement and the Merger. See "MEETINGS OF SHAREHOLDERS--Record Date; Shares Entitled to Vote; Vote Required--Interspec." THE MERGER General. Upon consummation of the Merger, Merger Sub will merge into Interspec, Interspec will become a wholly owned subsidiary of ATL and each Interspec Common Share issued and outstanding immediately prior to the Merger (other than shares owned by Interspec and Dissenting Shares) will be converted into the right to receive 0.413 share of ATL Common Stock, which share will be accompanied by associated purchase rights as described in "DESCRIPTION OF ATL CAPITAL STOCK--Shareholder Rights Plan." In addition, each outstanding option to purchase Interspec Common Shares will be adjusted in accordance with its terms to represent the option to acquire, subject to the same terms and conditions as were applicable to such option, including vesting, that number of shares of ATL Common Stock equal to the product of 0.413 and the number of Interspec Common Shares subject to such option. Based on the capitalization of ATL and Interspec as of February 10, 1994, and the Exchange Ratio, as a result of the Merger, Interspec shareholders will own approximately 20% of the outstanding shares of ATL Common Stock immediately following consummation of the Merger, assuming no dissenters' rights are perfected. 2 Fractional Shares. No fractional shares of ATL Common Stock will be issued in the Merger. In lieu of any such fractional shares, each holder of Interspec Common Shares who otherwise would be entitled to receive a fractional share of ATL Common Stock pursuant to the Merger will be paid an amount by check, without interest, equal to such holder's proportionate interest in the net proceeds from the sale or sales in the open market by the Exchange Agent, on behalf of all such holders, of the aggregate fractional shares of ATL Common Stock, if any, that would have been issued in the Merger. See "THE MERGER-- Terms of the Merger." Recommendations of the Boards of Directors ATL. The ATL Board has determined the Issuance and the Merger to be fair to and in the best interests of ATL and its shareholders and has unanimously approved the Issuance and the Merger Agreement. The ATL Board recommends that ATL shareholders approve the Issuance, the amendment of the ATL Option Plan and the ratification of the independent auditors and vote for the election of the eight nominees for director. The ATL Board's recommendations are based upon a number of factors discussed in this Joint Proxy Statement/Prospectus. See "BACKGROUND OF AND REASONS FOR THE MERGER," "AMENDMENT OF THE ATL OPTION PLAN" and "ELECTION OF ATL DIRECTORS." Interspec. The Interspec Board has determined the Merger to be fair to and in the best interests of Interspec and its shareholders and has unanimously approved the Merger Agreement. The Interspec Board recommends that Interspec shareholders approve and adopt the Merger Agreement and the Merger. The Interspec Board's recommendations are based upon a number of factors discussed in this Joint Proxy Statement/Prospectus. See "BACKGROUND OF AND REASONS FOR THE MERGER." Opinions of Financial Advisors ATL. On February 10, 1994, Goldman, Sachs & Co. ("Goldman Sachs") delivered its oral opinion to the ATL Board to the effect that, based on various considerations and assumptions, the Exchange Ratio was fair to ATL. Goldman Sachs subsequently confirmed its oral opinion by delivery of its written opinion dated the date of this Joint Proxy Statement/Prospectus. A copy of the full text of the written opinion of Goldman Sachs, which sets forth the assumptions made, procedures followed, matters considered and limits of its review, is attached to this Joint Proxy Statement/Prospectus as Appendix II, and should be read carefully in its entirety. See "BACKGROUND OF AND REASONS FOR THE MERGER--Opinion of Financial Advisor to the ATL Board." Interspec. Merrill Lynch & Co. ("Merrill Lynch") has rendered an opinion to the Interspec Board to the effect that, as of April 14, 1994, the Exchange Ratio is fair to the Interspec shareholders from a financial point of view. A copy of the opinion of Merrill Lynch, dated April 14, 1994, setting forth the assumptions made, the matters considered and the limitations on the review undertaken in rendering such opinion, is attached to this Proxy Statement/Prospectus as Appendix III, and should be read carefully in its entirety. See "BACKGROUND OF AND REASONS FOR THE MERGER--Opinion of Financial Advisor to the Interspec Board." Effective Time of the Merger. Promptly following the satisfaction or waiver (where permissible) of the conditions to the Merger, the Merger will be consummated and become effective at the time the certificate of merger to be filed pursuant to the Delaware General Corporation Law (the "DGCL") and the articles of merger pursuant to the PBCL are duly filed with the Secretary of State of the State of Delaware and of the Commonwealth of Pennsylvania, respectively, or such later date and time as may be specified in such certificate of merger and articles of merger (the "Effective Time"). See "THE MERGER--Effective Time of the Merger" and "--Conditions to the Consummation of the Merger." 3 Exchange of Certificates in the Merger. As soon as reasonably practicable after the Effective Time, the Exchange Agent will mail a transmittal form and instructions to each holder of record (other than Dissenting Shareholders) of certificates that immediately prior to the Effective Time represented outstanding Interspec Common Shares, which form and instructions are to be used in forwarding such certificates for surrender and exchange for (i) certificates representing that number of whole shares of ATL Common Stock that such holder has the right to receive pursuant to the Merger and (ii) cash for any fractional share of ATL Common Stock to which such holder otherwise would be entitled. INTERSPEC SHAREHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR CERTIFICATES FOR EXCHANGE UNTIL SUCH TRANSMITTAL FORM AND INSTRUCTIONS ARE RECEIVED. Holders of certificates formerly representing Interspec Common Shares will not be entitled to receive dividends or any other distributions from ATL until such certificates are so surrendered. Persons entitled to receive dividends or other distributions in respect of the certificates surrendered in connection with the Merger will not be entitled to receive interest on such dividends or other distributions. See "THE MERGER--Terms of the Merger" and "-- Exchange of Interspec Common Shares." Trading of Shares of ATL Common Stock on the Nasdaq National Market. The shares of ATL Common Stock to be issued in the Merger have been approved for trading on the National Association of Securities Dealers, Inc. Automated Quotations ("Nasdaq") National Market, subject to official notice of issuance. Business of ATL and Interspec Pending the Merger ATL. ATL has agreed that, prior to the Effective Time or earlier termination of the Merger Agreement, except as permitted by the Merger Agreement, ATL and its subsidiaries will carry on their respective businesses in the usual, regular and ordinary course in substantially the same manner as previously conducted and will not engage in any of a number of actions specified in the Merger Agreement. See "THE MERGER--Business of ATL Pending the Merger." Interspec. Interspec has agreed that, prior to the Effective Time or earlier termination of the Merger Agreement, except as permitted by the Merger Agreement, Interspec and its subsidiaries will carry on their respective businesses in the usual, regular and ordinary course in substantially the same manner as previously conducted and will not engage in any of a number of actions specified in the Merger Agreement. See "THE MERGER--Business of Interspec Pending the Merger." No Solicitation. The Merger Agreement provides that Interspec will not, nor will it permit any of its subsidiaries to, nor will it authorize or permit any officer, director, employee or any investment banker, attorney or other agent or representative of Interspec or any of its subsidiaries, directly or indirectly, to (i) solicit, initiate or encourage the submission of any proposal for a merger or other business combination involving Interspec or any of its subsidiaries or any proposal or offer to acquire in any manner, directly or indirectly, an equity interest in, any voting securities of, or a substantial portion of the assets of Interspec or any of its subsidiaries, other than the transactions contemplated by the Merger Agreement (each, a "Takeover Proposal"), or (ii) participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, a Takeover Proposal. Notwithstanding such restrictions, Interspec may, to the extent required by the fiduciary obligations of its directors, provide information to third parties making unsolicited requests therefor and negotiate with third parties making unsolicited Takeover Proposals. See "THE MERGER--No Solicitation." Management and Operations of Interspec After the Merger. After the Merger, Interspec will be a wholly owned subsidiary of ATL and will operate as one of ATL's business units. ATL currently intends to maintain Interspec's facilities in Ambler and Reedsville, Pennsylvania. After the Merger, Interspec will have access to resources generally available to ATL's other business units, will participate in appropriate activities with other ATL business units and will be managed by its current officers under the direction and guidance of ATL's senior management and the ATL Board. See "THE MERGER--Management and Operations of Interspec After the Merger." 4 Conditions of the Merger. The consummation of the Merger (the "Closing") is subject to the satisfaction or waiver on or prior to the Closing of certain conditions set forth in the Merger Agreement. See "THE MERGER--Conditions to the Consummation of the Merger." Termination. The Merger Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of matters presented in this Joint Proxy Statement/Prospectus by the Interspec shareholders, by mutual written consent of ATL and Interspec or by either ATL or Interspec under certain circumstances, including, (i) if any required vote of ATL shareholders or Interspec shareholders has not been obtained, (ii) if the Merger has not been consummated by August 9, 1994, subject to extension for up to 60 days in certain circumstances, (iii) if any governmental entity shall have issued an order, decree or ruling, or taken any other action, permanently enjoining, restraining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and nonappealable, or (iv) if either party materially breaches its obligations under the Merger Agreement. In the event that a Takeover Proposal is commenced, publicly proposed, publicly disclosed or communicated to Interspec (or the willingness of any person to make a Takeover Proposal is publicly disclosed or communicated to Interspec) and (A) the Interspec Board, in the exercise of its fiduciary obligations, determines that such Takeover Proposal is a superior proposal and, therefore, withdraws or modifies its approval of the Merger, approves or enters into an agreement for such Takeover Proposal or terminates the Merger Agreement, (B) the required vote of Interspec shareholders is not obtained at the Interspec Special Meeting, or (C) the Interspec Special Meeting does not occur prior to August 9, 1994 (as may be extended), then Interspec will be required to pay to ATL a termination fee of $1,000,000 and reimburse up to $500,000 of ATL's expenses relating to the proposed Merger. See "THE MERGER--Amendment and Waiver; Termination." Certain Federal Income Tax Consequences. It is expected that the Merger will constitute a reorganization for federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"), and, accordingly, that no gain or loss will be recognized by holders of Interspec Common Shares upon the conversion of Interspec Common Shares into shares of ATL Common Stock in the Merger (except with respect to any cash received in lieu of a fractional share of ATL Common Stock and with respect to any Dissenting Shares). It is further expected that no gain or loss will be recognized by Interspec or ATL as a result of the Merger. See "THE MERGER--Certain Federal Income Tax Consequences." Interspec shareholders are urged to consult their own tax advisors as to the specific tax consequences to them of the Merger. Other Agreements Amendment to Convertible Notes and the Note Purchase Agreement. As a condition subsequent to the Merger Agreement, Interspec and each holder (a "Noteholder") of Interspec's 11% Convertible Subordinated Notes (the "Convertible Notes") agreed to amend the Convertible Notes and the Note Purchase Agreement dated as of May 31, 1989, among Interspec and the Noteholders, effective as of the Closing (the "Convertible Note Amendments"). As of March 31, 1994, there was an aggregate of $6,500,000 principal amount of the Convertible Notes outstanding. Pursuant to the Convertible Note Amendments, (i) the Noteholders consent as noteholders to the Merger for all purposes under the Note Purchase Agreement and the Convertible Notes and (ii) effective upon consummation of the Merger, the Convertible Notes will be convertible into 0.413 share of ATL Common Stock for each $7.00 of outstanding principal amount of the Convertible Notes, or an aggregate of 383,500 shares of ATL Common Stock. ATL Guarantee. To induce the Noteholders to enter into the Convertible Note Amendments, ATL has agreed to enter into a guarantee, effective as of the Closing (the "ATL Guarantee"), pursuant to which ATL will guarantee (i) the prompt payment by Interspec, as and when due, of all amounts now or hereafter owing by Interspec in respect of the principal of and interest on the Convertible Notes, (ii) any and all expenses of the Noteholders pursuant to Section 4.3 of the Convertible Notes, and (iii) any and all expenses, including reasonable attorneys' fees, incurred by the Noteholders in enforcing their rights under the ATL Guarantee. 5 Regulatory Matters. In connection with the Merger, ATL and Interspec are required to file notifications with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "Antitrust Division") pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Consummation of the Merger is conditioned upon, among other things, expiration of the waiting period under the HSR Act. The parties to the Merger are not aware of any other regulatory approvals required to consummate the Merger. Accounting Treatment. It is expected that the Merger will be accounted for using the pooling-of-interests treatment under generally accepted accounting principles for accounting and financial reporting purposes. See "THE MERGER-- Accounting Treatment" and "--Conditions to the Consummation of the Merger." Conflicts of Interest. In connection with the Merger, ATL has agreed to, or to cause Interspec to, enter into employment agreements with Edward Ray, Michael J. Wassil and Patrick J. Faivre, each of whom is currently an officer or significant employee of Interspec. In addition, each outstanding option to purchase Interspec Common Shares will be adjusted in accordance with its terms to represent an option to acquire, subject to the same terms and conditions as were applicable to such option, including vesting, that number of shares of ATL Common Stock equal to the product of 0.413 and the number of Interspec Common Shares subject to such option. ATL also agreed that, for a period of six years after the Effective Time, ATL will indemnify the present and former directors and officers of Interspec from liabilities arising out of acts or omissions occurring at or prior to the Effective Time to the fullest extent permitted or required by applicable law. In connection with this indemnification, ATL will cause to be maintained, for a period of five years after the Effective Time, Interspec's current directors' and officers' liability insurance and indemnification policy so long as the annual premium paid therefor would not be in excess of 150% of the last annual premium paid therefor prior to the date of Closing. Appraisal Rights. Under the PBCL, holders of Interspec Common Shares who vote against or refrain from voting in favor of approval of the Merger and the Merger Agreement and who duly file with Interspec a written notice of intention to demand payment of the "fair value" of such shares prior to the taking of any shareholder vote on the Merger and the Merger Agreement, and who thereafter timely demand payment, will have the right to receive a cash payment equal to the "fair value" of such shares. To properly exercise such rights, a shareholder of Interspec must hold such shares on the date of mailing of such notice of intention to demand payment and continuously hold such shares through the Effective Time, and must comply with all other procedural requirements of Sections 1571 through 1580 of the PBCL. Failure to follow any of these and other applicable procedures may result in the loss of statutory appraisal rights. See "THE MERGER---Rights of Dissenting Interspec Shareholders." Comparative Rights of Shareholders. If the Merger is consummated, shareholders of Interspec, a Pennsylvania corporation, will become shareholders of ATL, a Delaware corporation. The rights of Interspec shareholders differ in certain respects from the rights of ATL shareholders, including the requirements for shareholder action without a meeting, votes required for certain amendments to the certificate of incorporation and for mergers and other fundamental transactions, and the standard for finding a breach of fiduciary duty by directors. In addition, ATL has adopted a shareholder rights plan pursuant to which shareholders have rights to purchase shares of capital stock of ATL in certain circumstances. See "DESCRIPTION OF ATL CAPITAL STOCK" and "COMPARISON OF RIGHTS OF ATL AND OF INTERSPEC SHAREHOLDERS." 6 SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA The following summary historical financial data of ATL and Interspec and the summary unaudited pro forma condensed combined financial data have been derived from the historical consolidated financial statements of ATL and Interspec. The pro forma condensed combined financial data give effect to the Merger by combining the financial statement data of ATL and of Interspec at and for each year in the three-year period ended December 31, 1993, on the pooling-of- interests basis of accounting. The pro forma condensed combined financial data are not necessarily indicative of actual or future operating results or the financial position that would have occurred or will occur upon consummation of the Merger. The summary financial data presented below should be read in conjunction with the consolidated financial statements of ATL and of Interspec and the notes thereto incorporated by reference herein. The historical financial data at and for each year in the five-year period ended December 31, 1993 with respect to ATL, and for each year in the five-year period ended November 30, 1993 with respect to Interspec, have been extracted from the audited consolidated financial statements of ATL and of Interspec filed with the Commission. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS." ATL SELECTED HISTORICAL FINANCIAL DATA(1)(2) (IN THOUSANDS, EXCEPT PER SHARE DATA)
AT OR FOR FISCAL YEARS ENDED ---------------------------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 27, DECEMBER 28, DECEMBER 29, 1993 1992 1991 1990 1989 ------------ ------------ ------------ ------------ ------------ STATEMENT OF OPERATIONS DATA: Revenues................ $304,511 $323,711 $279,716 $287,289 $265,480 Net income (loss)....... (5,106) 7,407 6,371 6,946 12,746 Net income (loss) per share.................. (0.46) 0.67 0.62 0.68 1.23 Weighted average common shares and equivalents outstanding............ 10,992 11,086 10,220 10,239 10,350 BALANCE SHEET DATA: Total assets............ $276,698 $295,611 $291,608 $254,719 $253,192 Short-term borrowings... 3,679 4,528 7,985 6,175 3,742 Shareholders' equity.... 186,370 204,136 190,346 169,706 173,549
- - - -------- (1) On June 26, 1992, ATL (previously named Westmark International Incorporated ("Westmark")) distributed to its shareholders all the common stock of SpaceLabs Medical, Inc. ("SpaceLabs"), a wholly owned subsidiary, on a one- for-one basis (the "1992 Distribution"). The 1992 Distribution had the effect of dividing Westmark into two separate, publicly traded companies, one engaged in the diagnostic ultrasound business (ATL) and the other (SpaceLabs), engaged in the patient monitoring and clinical information systems business. The historical consolidated financial statements of ATL were retroactively restated to deconsolidate the financial statements of SpaceLabs to reflect the 1992 Distribution. Accordingly, ATL's historical financial statements are presented as if there never had been an affiliation between ATL and SpaceLabs. (2) Neither ATL nor its predecessor Westmark has ever paid any cash dividends on its capital stock. 7 INTERSPEC SELECTED HISTORICAL FINANCIAL DATA(1) (IN THOUSANDS, EXCEPT PER SHARE DATA)
AT OR FOR FISCAL YEARS ENDED NOVEMBER 30, ---------------------------------------- 1993 1992 1991 1990 1989 ------- ------- ------- ------- ------- STATEMENT OF OPERATIONS DATA: Revenues............................. $61,377 $60,343 $61,547 $64,906 $55,933 Income (loss) before extraordinary item................................ 1,255 2,222 8,486 (1,539) (5,803) Net income (loss).................... 1,950 3,232 9,246 (1,202) (5,244) Net income (loss) per share: Before extraordinary item.......... $ .20 $ .35 $ 1.36 $ (.25) $ (.95) Extraordinary item................. .11 .16 .12 .05 .09 ------- ------- ------- ------- ------- $ .31 $ .51 $ 1.48 $ (.20) $ (.86) ======= ======= ======= ======= ======= Weighted average common shares and equivalents outstanding............. 6,284 6,309 6,261 6,105 6,102 BALANCE SHEET DATA: Total assets......................... $53,274 $49,146 $46,518 $53,625 $51,804 Short-term borrowings, including current installments of long-term debt................................ 2,070 457 516 10,294 10,784 Long-term debt....................... 11,600 12,077 16,047 18,404 16,946 Shareholders' equity................. 25,905 24,373 20,734 11,501 12,080
- - - -------- (1) In January, 1991 Interspec sold its wholly owned Norwegian subsidiary, Vingmed Sound. Accordingly, certain year to year financial items will not be comparable. For further information, see Note 7 of the Notes to Consolidated Financial Statements included in Item 8 of the Interspec Annual Report on Form 10-K for the fiscal year ended November 30, 1993. UNAUDITED ATL AND INTERSPEC SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
AT OR FOR FISCAL YEARS ENDED(1) -------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 27, 1993 1992 1991 ------------ ------------ ------------ STATEMENT OF OPERATIONS DATA: Revenues................................ $360,497 $380,405 $336,392 Net income (loss)....................... (3,321) 10,729 15,237 Net income (loss) per share............. (.24) .78 1.19 Weighted average common shares and equivalents outstanding................ 13,587 13,692 12,806 BALANCE SHEET DATA: Total assets............................ $329,397 Short-term borrowings, including current installments of long-term debt......... 5,749 Long-term debt.......................... 11,600 Shareholders' equity.................... 210,835
- - - -------- (1) Interspec has a November 30 fiscal year-end. Interspec financial information at and for the fiscal years ended November 30, 1993, 1992 and 1991 has been combined with ATL financial information at and for the fiscal years ended December 31, 1993 and 1992, and December 27, 1991. 8 COMPARATIVE PER SHARE DATA The following table presents comparative per share data for ATL (on a historical and pro forma basis) and for Interspec (on a historical and a pro forma equivalent basis) based upon the historical consolidated financial statements of ATL and Interspec. Neither company has paid any cash dividends. The pro forma combined information is not necessarily indicative of actual or future operating results or the financial position that would have occurred or will occur upon consummation of the Merger. The information presented below should be read in conjunction with the Unaudited Pro Forma Condensed Combined Financial Statements included elsewhere in this Joint Proxy Statement/Prospectus and the separate historical consolidated financial statements of ATL and of Interspec incorporated by reference herein.
AT OR FOR FISCAL YEARS ENDED(1) -------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 27, 1993 1992 1991 ------------ ------------ ------------ ATL: Historical: Net income (loss).................... $ (.46) $.67 $ .62 Book value........................... 17.74 Pro Forma(2): Net income (loss).................... $ (.24) $.78 $1.19 Book value........................... 16.10 INTERSPEC: Historical: Net income........................... $ .31 $.51 $1.48 Book value........................... 4.13 Pro Forma Equivalent(3): Net income (loss).................... $ (.10) $.32 $ .49 Book value........................... 6.65
- - - -------- (1) Interspec has a November 30 fiscal year-end. Interspec financial information at and for the fiscal years ended November 30, 1993, 1992 and 1991 has been combined with ATL financial information at and for the fiscal years ended, December 31, 1993 and 1992, and December 27, 1991. (2) The pro forma combined financial data give effect to the Merger by combining the financial statement data of ATL and of Interspec at and for each fiscal year in the three-year period ended December 31, 1993 on the pooling-of-interests basis of accounting. (3) The pro forma equivalent information for Interspec was calculated by multiplying the combined entity Pro Forma Combined per share amounts by the Exchange Ratio of 0.413 share of ATL Common Stock to each Interspec Common Share. 9 RISK FACTORS In considering the Issuance and the Merger, ATL shareholders and Interspec shareholders should take into account the following: NO ASSURANCES BUSINESSES CAN BE SUCCESSFULLY COMBINED. Following the Merger, integration of the operations of ATL and Interspec will require dedication of significant management resources. ATL and Interspec are currently each independent diagnostic ultrasound companies and have duplicative functions that will need to be coordinated or consolidated. The costs of such coordination and consolidation may be significant. The management of ATL and of Interspec will be faced with particular challenges in integrating the business operations of ATL and Interspec into a cohesive, coordinated operation. Following the Merger, ATL will face greater administrative and operational complexities due to the scope and volume of its business. ATL may not be successful in its efforts to integrate and streamline overlapping functions and therefore there can be no assurance that the synergies expected from combining ATL and Interspec will be realized. DIFFERING TECHNICAL FOCUS AND PRODUCT PLANS. ATL has focused its resources on the development of all digital ultrasound products. Interspec has pursued more traditional analog/digital hybrid product architectures. ATL has new product plans that were in place prior to announcement of the Merger and that ATL expects to continue to pursue. Certain of these plans may be incompatible with Interspec's products or new product plans, which may result in changes in product marketing or development plans, or both. Such conflicts and changes could have a material adverse effect on the companies. POSSIBILITY OF SALES DECLINE DURING PRODUCT DISTRIBUTION TRANSITION. There can be no assurance that the transition from Interspec's current dealers and distributors to ATL's distribution network will not be lengthy or that it will not consume a substantial amount of time and effort, during which time sales of Interspec products may decline. Although ATL will seek to preserve a number of existing Interspec dealer relationships, there can be no assurance that it will be successful. LACK OF DIVERSIFICATION. Following the Merger, ATL and Interspec will each be engaged primarily in the diagnostic medical ultrasound business. The Merger will not result in diversification of the business of ATL or Interspec outside of ultrasound clinical markets. Consequently, the combined company will still be subject to adverse developments in the medical ultrasound business as a result of competition, technological change, governmental regulation, change in third-party reimbursement policies or any other factors to a greater extent than a company with more diverse businesses. See "--Intense Competition," "-- Rapid Technological Change," "--Extensive Government Regulation," "--Dependence on Third-Party Reimbursement; Cost Containment," and "Unpredictable Effect of Healthcare Reform; Consolidation." INTERESTS OF CERTAIN PERSONS IN THE MERGER; POSSIBLE CONFLICTS OF INTEREST. The executive officers and directors of Interspec have certain interests in connection with the Merger that are in addition to those of Interspec shareholders generally. In connection with the Merger, ATL has agreed to enter into or assume existing employment agreements with Edward Ray, Michael J. Wassil and Patrick J. Faivre, each of whom is currently an officer or a significant employee of Interspec. In addition, each outstanding option to purchase Interspec Common Shares will be adjusted in accordance with its terms to represent an option to acquire, subject to the same terms and conditions as were applicable to such option, including vesting, that number of shares of ATL Common Stock equal to the product of 0.413 and the number of Interspec Common Shares subject to such option. ATL also agreed that, for a period of six years after the Effective Time, ATL will indemnify the present and former directors and officers of Interspec from liabilities arising out of acts or omissions occurring at or prior to the Effective Time to the fullest extent permitted or required by applicable law. In connection with this indemnification, ATL will cause to be maintained, for a period of five years after the Effective Time, Interspec's current directors' and officers' liability insurance and indemnification policy so long as the annual premium paid therefor would not be in excess of 150% of the last annual premium paid therefor prior to the date of Closing. See "CONFLICTS OF INTEREST." 10 POTENTIAL LOSS OF PERSONNEL. Key employees of Interspec could terminate their employment pending or following the Merger, which could adversely affect Interspec's operations for a period of time. DILUTION. Consummation of the Merger will result in immediate dilution in the book value per share of ATL Common Stock from $17.74 per share to $16.10 per share, based upon the book value of ATL at December 31, 1993. Additional dilution is likely to occur upon the exercise of options to purchase Interspec Common Shares that will be adjusted in accordance with their terms to be exercisable for shares of ATL Common Stock pursuant to the Merger Agreement and upon conversion of the Convertible Notes that will be amended to be convertible into shares of ATL Common Stock pursuant to the Convertible Note Amendments. INTENSE COMPETITION. The markets for diagnostic medical ultrasound products are intensely competitive. Both ATL and Interspec face intense competition from many domestic and foreign companies. In addition to primary competitors of ATL and Interspec, certain leaders of the medical imaging industry have signaled their intention to become more competitive in the ultrasound market. These companies and several of the other competitors of ATL and Interspec have far greater financial, marketing, servicing, technical and research and development resources than those of ATL and Interspec. There can be no assurance that actual or potential competitors will not develop and market products that are superior or perceived to be superior relative to products supplied by ATL or Interspec. Competition could adversely affect ATL's and Interspec's revenues and profitability. RAPID TECHNOLOGICAL CHANGE. The diagnostic medical ultrasound business is characterized by rapidly evolving technology, resulting in relatively short product life cycles and continuing competitive pressure to develop and market new products. There can be no assurance that either ATL or Interspec will be able to develop and market new products on a cost-effective and timely basis, that such products will compete favorably with products developed by others or that ATL's and Interspec's existing technology will not be superseded by new technology developed by competitors. EXTENSIVE GOVERNMENT REGULATION. Both ATL's and Interspec's products and manufacturing activities are subject to extensive and rigorous governmental regulation, principally by the U.S. Food and Drug Administration (the "FDA") and corresponding state and foreign agencies. The FDA administers the Federal Food, Drug and Cosmetic Act, as amended (the "FDC Act"). ATL and Interspec are subject to the standards and procedures contained in the FDC Act and the regulations promulgated thereunder, and are subject to inspection by the FDA for compliance with such standards and procedures. Failure to comply with FDA regulations could result in sanctions being imposed, including restrictions on the marketing of, or the recall of, the affected company's products. ATL and Interspec have received clearance from the FDA and foreign regulatory authorities in the past, when required, to market their products. Several features of Interspec's new products have not yet been cleared for marketing in the United States. The process of obtaining future regulatory approvals may be lengthy, expensive and uncertain. Moreover, regulatory approvals, when granted, may contain significant limitations on the uses for which a product may be marketed. Approvals may be withdrawn for failure to conform to regulatory standards or due to the occurrence of unforeseen problems. There can be no assurance that either company will be able to obtain necessary regulatory approvals in the future, and delays in the receipt of or failure to receive such approvals, the loss of existing approvals or failure to comply with regulatory requirements could have a material adverse effect on the business, financial condition and results of operations of the affected company. ATL RESTRUCTURING AND ASSOCIATED CHARGE. In August 1993, ATL restructured its operations, reducing its worldwide workforce by approximately 11%. As a result of the restructuring, ATL reported a charge of $4.3 million for costs associated with the restructuring, primarily consisting of severance payments and other personnel costs. The restructuring was undertaken in response to the continued uncertainty in the U.S. healthcare industry and to streamline ATL's operations to make it more competitive. See "--Intense Competition" and "-- Unpredictable Effect of Healthcare Reform; Consolidation." The effect of the restructuring charge on 1993 financial results is discussed under "--Recent Losses and Future Uncertainty 11 of Financial Results." There can be no assurance that the uncertainty regarding healthcare and the competitive environment will not result in the need for future restructuring. RECENT LOSSES AND FUTURE UNCERTAINTY OF FINANCIAL RESULTS. In 1993 the U.S. market for products of ATL and Interspec was adversely affected by national interest in healthcare reform, and the consequent trends toward consolidation and deferral of capital equipment acquisitions by healthcare providers. Coupled with an absence of significant growth in overseas markets, these market changes increased competition for sales in the medical diagnostic markets of ATL and Interspec. The uncertainty over pending healthcare reform legislation and increasing competition caused a deterioration in unit volumes in the medical ultrasound market, adversely affecting prices and profit margins for both ATL and Interspec. ATL responded to these market pressures by instituting a restructuring in August 1993 that reduced its worldwide labor force by approximately 11% and consequently incurred an associated $4.3 million restructuring charge. Interspec's 1993 financial results were also affected by increased expenses associated with expansion of its international distribution system for new products and a decline in its transducer business. These factors combined to result in the posting of two quarterly losses by ATL and declining revenue for Interspec as compared with earlier periods. ATL's losses in 1993, together with a repurchase of $13.4 million of its shares outstanding, contributed to a reduction in its total assets as compared to 1992. With the continuing uncertainty over the outcome of healthcare reform in the United States and the economic conditions of overseas markets, such factors may continue to adversely affect Interspec and ATL in the future. There can be no assurance that market pressures on unit volumes, product pricing, and profit margins will not result in future quarterly losses of the combined entity of ATL and Interspec and that the revenues and total assets of the combined entity will not decline correspondingly. POTENTIAL CHANGES DUE TO REGULATORY INSPECTIONS. Following a routine inspection by the FDA and the issuance of a warning letter to ATL in 1992, ATL put into place expanded programs of documentation, process control, and continuous quality improvement to enhance regulatory compliance. During the latter half of 1993, the FDA conducted a follow up of its 1992 inspection. ATL has received the investigator's observations from the follow-up inspection, which ATL believes will not lead to further regulatory action by the FDA. ATL is also awaiting the results of a routine FDA inspection of the Mahwah, New Jersey facility of Nova MicroSonics, a division of ATL. ATL's ability to obtain timely FDA export and new product approvals is dependent upon the results of such inspections. If the FDA should impose additional requirements in connection with the referenced inspections, ATL could incur substantial expense in effecting process improvements and modifications of products previously sold to customers. DEPENDENCE ON THIRD-PARTY REIMBURSEMENT; COST CONTAINMENT. ATL's and Interspec's products are used by healthcare providers for medical services for which the providers may seek reimbursement from various third-party payors such as government programs and private health insurance plans. Such reimbursement is subject to the regulations and policies of governmental agencies and other third-party payors. Reduced governmental expenditures in many countries continue to put pressure on diagnostic procedure reimbursement. ATL and Interspec cannot predict what changes may be forthcoming in these policies and procedures, nor the effect of such changes on their businesses. Third-party payors worldwide, including governmental agencies, are under increasing pressure to contain medical costs. Limits on reimbursement or other cost-containment measures imposed by third-party payors may adversely affect the financial condition and ability of hospitals and other healthcare providers to purchase products such as those of ATL and Interspec by reducing funds available for capital expenditures or otherwise. A material decrease in healthcare reimbursement levels or an adverse change in the general financial condition of hospitals and other healthcare providers could adversely affect future sales of either company's products. Governmental and other third-party payors are increasingly challenging the prices charged for medical products and services. There can be no assurance that the use of ATL's or Interspec's products will be considered cost-effective by third-party payors, that reimbursement will be available or, if available, that payors' reimbursement levels will not adversely affect each company's ability to sell its products on a profitable basis. Failure by hospitals and other healthcare providers to obtain reimbursement from third-party payors and/or changes in governmental and private third-party payors' policies toward 12 reimbursement for procedures employing either company's products could have a material adverse effect on the affected company's business, financial condition and results of operations. UNPREDICTABLE EFFECT OF HEALTHCARE REFORM; CONSOLIDATION. The United States government is currently considering healthcare-system reform. The national focus on possible healthcare legislation has caused U.S. ultrasound purchasers to become more cautious in making expenditures and investing in capital equipment. In addition, the U.S. healthcare system has undergone various consolidations in recent years, which have reduced the potential number of customers for ATL's and Interspec's products. These factors have led many hospitals and other medical service suppliers to defer or reduce their capital equipment expenditures. ATL and Interspec cannot predict what effect, if any, such change may have on their respective businesses, or when the deleterious effect of these conditions on their respective businesses will change. UNCERTAINTY OF PATENTS AND PROPRIETARY RIGHTS. ATL and Interspec each hold a number of patents and have patent applications pending. There can be no assurance that pending patent applications will be approved or that the issued patents or pending applications will not be challenged or circumvented by competitors. Each company has also sought trademark protection for the brand names of the products that it currently markets. There can be no assurance that trademark protection will be granted and maintained. Certain critical technology incorporated in each company's products is protected by copyright and trade secret laws and confidentiality and licensing agreements. There can be no assurance that such protection will prove adequate or that the affected company will have adequate remedies for violation of its intellectual property rights. Because of the substantial length of time and expense associated with bringing new products through development and regulatory approval to the marketplace, the medical device industry places considerable importance on obtaining patent, trademark, copyright and trade secret protection for new technologies, products and processes. The loss of protection for ATL's or Interspec's technology could have a material adverse effect on the affected company's business. Certain technology incorporated in each company's products is licensed under agreements with third parties, and the loss of certain of such licenses could have a material adverse effect on the affected company's business. Companies in high-technology businesses routinely review the products of others for possible conflict with their own patent rights. ATL and Interspec have from time to time received notices of claims from others alleging patent infringement. ATL is currently the defendant in a patent infringement action in which the plaintiff is seeking over $5 million in damages. While neither ATL nor Interspec believes that it infringes any valid patent of any third party, there can be no assurance that either ATL or Interspec will not be subject to future claims of patent infringement or that any claim will not require that the affected company pay substantial damages or delete certain features from its products, or both. Such claims could temporarily interrupt ATL's or Interspec's ability to ship affected products. ABSENCE OF DIVIDENDS. ATL currently does not, nor does it intend to, pay cash dividends on shares of ATL Common Stock. ATL's dividend policy will be reviewed from time to time by the ATL Board in light of ATL's earnings and financial condition and such other business considerations as the ATL Board considers relevant. Restrictions on the payment of dividends exist under ATL's current credit facilities. VOLATILITY OF TRADING PRICES OF SHARES OF ATL COMMON STOCK. The market prices for securities of medical technology companies have been volatile. Among other things, announcements of technical innovations or new commercial products by ATL, Interspec or their competitors, developments concerning proprietary rights, including patents and litigation matters, publicity regarding actual or potential medical results with products under development by ATL or Interspec and regulatory developments in both the United States and foreign countries, as well as period-to-period fluctuations in revenues and financial results, may have a significant impact on the market price of shares of ATL Common Stock following the Merger. DEPENDENCE ON SINGLE-SOURCE SUPPLIERS. ATL and Interspec depend on some single-source vendors for certain important component parts for certain products. An abrupt disruption in the supply of a single-source 13 part for a product could have a material adverse effect on the affected company's production of products incorporating such items in cases where the existing inventory of the components is not adequate to meet the affected company's demand for the component during such disruption. Vendors of highly specialized and unique parts such as custom semiconductor devices and critical scanhead materials can occasionally experience difficulty in the manufacture of products. Vendors can also experience difficulty in meeting quality standards that ATL and Interspec require of their respective vendors. In addition, these items generally have long order lead times, restricting the ability of ATL and Interspec to respond quickly to changing market conditions. POSSIBILITY OF PRODUCTS LIABILITY AND WARRANTY CLAIMS. The manufacture and sale of ATL's and Interspec's products entail inherent risk of product liability claims. Each of ATL and Interspec currently has a limited amount of products liability insurance; however, in the event of a product liability claim there can be no assurance that the coverage limits of such insurance policies will be adequate. Products liability insurance is expensive and in the future may not be available on acceptable terms, if at all. A successful claim against ATL or Interspec in excess of insurance coverage could have a material adverse effect on the affected company's business, financial condition and results of operations. In 1992 and 1993, Interspec was involved in a lawsuit filed by a competitor concerning alleged deceptive advertising of an industrial couplant product sold by Interspec's Echo Ultrasound division. A couplant is a water-based gel applied to materials which are being ultrasonically examined for flaws and defects. Numerous metallic components are tested ultrasonically, including pipes, fittings, welded joints, airplane parts, steel vessels, power plant fixtures and rotors, large crankshafts, gun bores and many other items. The allegations in the lawsuit concerned claims about the corrosion inhibition characteristics of the couplant. This lawsuit was settled after Interspec notified its customers that the product may cause corrosion and pitting of steel under certain conditions. Corrosion may lead to failure of parts in certain circumstances and such parts failures have, on occasion, been associated with accidents or incidents involving aircraft and other products. No product liability claims have been made against Interspec for damages arising from corrosion due to use of its couplant. There can be no assurance that such claims will not be asserted against Interspec and ATL in the future or, if asserted, that any such future claims will not result in material liability for Interspec and ATL. POSSIBLE ANTITAKEOVER EFFECTS. ATL has the authority to issue six million shares of preferred stock in one or more series and to fix the powers, designations, preferences and relative, participating, optional or other rights thereof without any further vote or action by ATL's shareholders. The issuance of preferred stock could dilute the voting power of holders of shares of ATL Common Stock and could have the effect of delaying, deferring or preventing a change in control of ATL. Certain provisions of ATL's Restated Certificate of Incorporation (the "ATL Certificate of Incorporation"), Restated Bylaws (the "ATL Bylaws"), Shareholder Rights Plan and employee benefit plans as well as Delaware law may operate in a manner that could discourage or render more difficult a takeover of ATL or the removal of management or may limit the price certain investors may be willing to pay in the future for shares of ATL Common Stock. See "DESCRIPTION OF ATL CAPITAL STOCK" and "COMPARISON OF RIGHTS OF ATL AND OF INTERSPEC SHAREHOLDERS." MEETINGS OF SHAREHOLDERS GENERAL This Joint Proxy Statement/Prospectus is being furnished to holders of shares of ATL Common Stock in connection with the solicitation of proxies by the ATL Board for use at the ATL Annual Meeting to be held on Monday, May 16, 1994, at the Four Seasons Olympic Hotel, 411 University Street, Seattle, Washington, commencing at 10:30 a.m., local time, and at any adjournments or postponements thereof. This Joint Proxy Statement/Prospectus is also being furnished to holders of Interspec Common Shares in connection with the solicitation of proxies by the Interspec Board for use at the Interspec Special Meeting to be held on Monday, May 16, 1994, at the offices of Duane, Morris & Heckscher, One Liberty Place, 42nd 14 Floor, Philadelphia, Pennsylvania, commencing at 10:00 a.m., local time, and at any adjournments or postponements thereof. This Joint Proxy Statement/Prospectus and the accompanying forms of proxy are first being mailed to shareholders of ATL and of Interspec on or about April 18, 1994. MATTERS TO BE CONSIDERED AT THE MEETINGS ATL. At the ATL Annual Meeting, shareholders of record of ATL as of the close of business on March 23, 1994, will consider and vote upon (i) a proposal to approve the Issuance of shares of ATL Common Stock in exchange for Interspec Common Shares and upon the exercise of currently outstanding options to purchase Interspec Common Shares, which will be adjusted and deemed to constitute options to purchase shares of ATL Common Stock, pursuant to the Merger Agreement; (ii) a proposal to amend the ATL Option Plan, subject to approval of the Issuance by the ATL shareholders, to increase the number of shares of ATL Common Stock authorized for issuance thereunder by 450,000 and to impose certain limits on option grants thereunder; (iii) the election of eight directors to the ATL Board to hold office until the next annual meeting of ATL shareholders and until their respective successors are elected and qualified; (iv) a proposal to ratify the appointment of KPMG Peat Marwick as ATL's independent auditors for 1994; and (v) such other business as may properly come before the ATL Annual Meeting or any adjournments or postponements thereof. Holders of shares of ATL Common Stock will not be entitled to dissenters' rights as a result of the Issuance. See "THE MERGER--Terms of the Merger." THE ATL BOARD HAS APPROVED THE ISSUANCE AND THE MERGER AGREEMENT AND RECOMMENDS THAT ATL SHAREHOLDERS VOTE "FOR" APPROVAL OF THE ISSUANCE, "FOR" APPROVAL OF THE AMENDMENT TO THE ATL OPTION PLAN, "FOR" ELECTION OF THE NOMINEES FOR DIRECTOR AND "FOR" RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS. See "BACKGROUND OF AND REASONS FOR THE MERGER," "AMENDMENT OF THE ATL OPTION PLAN," "ELECTION OF ATL DIRECTORS" and "RATIFICATION OF APPOINTMENT OF AUDITORS." INTERSPEC. At the Interspec Special Meeting, shareholders of record of Interspec as of the close of business on March 29, 1994, will consider and vote upon (i) a proposal to approve and adopt the Merger Agreement and the Merger and (ii) such other business as may properly come before the Interspec Special Meeting or any adjournments or postponements thereof. The Merger Agreement provides that, upon the terms and subject to the conditions thereof, Merger Sub will merge into Interspec, Interspec will become a wholly owned subsidiary of ATL, each issued and outstanding Interspec Common Share (other than shares owned by Interspec and Dissenting Shares) will be converted into the right to receive 0.413 share of ATL Common Stock and each outstanding option to purchase Interspec Common Shares will be deemed to constitute an option to purchase that number of shares of ATL Common Stock equal to the product of the Exchange Ratio and the number of Interspec Common Shares subject to such option. Fractional shares of ATL Common Stock will not be issued in connection with the Merger. In lieu of any such fractional shares, each holder of Interspec Common Shares who otherwise would be entitled to receive a fractional share of ATL Common Stock pursuant to the Merger will be paid an amount by check, without interest, equal to such holder's proportionate interest in the net proceeds from the sale or sales in the open market by the Exchange Agent, on behalf of all such holders, of the aggregate fractional shares of ATL Common Stock, if any, that would have been issued in the Merger. See "THE MERGER--Terms of the Merger." Holders of Interspec Common Shares will be entitled to dissenters' rights as a result of the Merger. See "THE MERGER--Rights of Dissenting Interspec Shareholders." THE INTERSPEC BOARD HAS APPROVED AND DECLARED ADVISABLE THE MERGER AGREEMENT AND THE MERGER AND RECOMMENDS THAT INTERSPEC SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER. See "BACKGROUND OF AND REASONS FOR THE MERGER." 15 RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED ATL. The close of business on March 23, 1994 (the "ATL Record Date") has been fixed as the record date for determining the holders of shares of ATL Common Stock who are entitled to notice of and to vote at the ATL Annual Meeting. As of the ATL Record Date, there were 10,521,020 shares of ATL Common Stock outstanding and entitled to vote. The holders of record on the ATL Record Date of shares of ATL Common Stock are entitled to one vote per share of ATL Common Stock. The presence in person or by proxy of the holders of shares representing a majority of the voting power of the shares of ATL Common Stock entitled to vote is necessary to constitute a quorum for the transaction of business at the ATL Annual Meeting. Under Section 1(c) of Part III, Section 5 of Schedule D to the Bylaws of the National Association of Securities Dealers, Inc. (the "NASD"), the affirmative vote of the holders of shares representing a majority of the shares of ATL Common Stock present, in person or by proxy, and entitled to vote on the Issuance at the ATL Annual Meeting is required for approval thereof. The affirmative vote of the holders of a majority of the shares of ATL Common Stock present, in person or by proxy, and entitled to vote thereon at the ATL Annual Meeting is required for approval of the amendment to the ATL Option Plan to increase the number of shares of ATL Common Stock authorized for issuance thereunder and to approve the ratification of the appointment of the independent auditors. The directors elected will be the eight candidates receiving the greatest number of votes cast by the holders of shares of ATL Common Stock present, in person or by proxy, at the ATL Annual Meeting. Holders of shares of ATL Common Stock are not entitled to cumulate votes in the election of directors. As of the ATL Record Date, directors and executive officers of ATL and their affiliates may be deemed to be beneficial owners of approximately 2% of the outstanding voting shares of ATL Common Stock. Each of the directors and executive officers of ATL plans to vote or direct the vote of all shares of ATL Common Stock over which he or she has voting control in favor of the Issuance, the amendment to the ATL Option Plan, the election of the eight nominees for director and the ratification of the appointment of KPMG Peat Marwick. Abstention from voting will have the practical effect of voting against the Issuance, the amendment to the ATL Option Plan and the ratification of the appointment of the independent auditors since they represent one less vote for the Issuance, such amendment or such ratification, as the case may be. Broker nonvotes will have no effect on the Issuance, the amendments to the ATL Option Plan or the ratification of the appointment of the independent auditors since they will not represent shares entitled to vote on the Issuance, such amendment or such ratification at the ATL Annual Meeting. Abstention from voting and broker nonvotes on the election of directors will have no effect since they will not represent votes cast at the ATL Annual Meeting for the purpose of electing directors. INTERSPEC. The close of business on March 29, 1994 (the "Interspec Record Date") has been fixed as the record date for determining the holders of Interspec Common Shares who are entitled to notice of and to vote at the Interspec Special Meeting. As of the Interspec Record Date, there were 6,265,987 Interspec Common Shares outstanding and entitled to vote. The holders of record on the Interspec Record Date of Interspec Common Shares are entitled to one vote per Interspec Common Share. The presence in person or by proxy of the holders of shares representing a majority of the voting power of the Interspec Common Shares entitled to vote is necessary to constitute a quorum for the transaction of business at the Interspec Special Meeting. Under the PBCL, the affirmative vote of a majority of votes cast, in person or by proxy, by the holders of Interspec Common Shares entitled to vote at the Interspec Special Meeting is required for approval and adoption of the Merger Agreement and the Merger. As of the Interspec Record Date, directors and executive officers of Interspec and their affiliates may be deemed to be beneficial owners of approximately 7% of the outstanding voting Interspec Common Shares. Each of the directors and executive officers of Interspec plans to vote or direct the vote of all Interspec Common Shares over which he or she has voting control in favor of the approval and adoption of the Merger Agreement and the Merger. Abstention from voting and broker nonvotes will not have any effect on the proposal to approve and adopt the Merger Agreement and the Merger since they are not considered votes cast at the Interspec Special Meeting for purposes of the proposal. 16 PROXIES; PROXY SOLICITATION ATL. Shares of ATL Common Stock represented by properly executed proxies received at or prior to the ATL Annual Meeting that have not been revoked will be voted at the ATL Annual Meeting in accordance with the instructions contained therein. Shares of ATL Common Stock represented by properly executed proxies for which no instruction is given will be voted "FOR" approval of the Issuance, "FOR" approval of the amendment to the ATL Option Plan, "FOR" election of the nominees for director and "FOR" ratification of the appointment of independent auditors. ATL shareholders are requested to complete, sign, date and return promptly the enclosed proxy card in the postage-prepaid envelope provided for this purpose to ensure that their shares are voted. A shareholder may revoke a proxy by submitting at any time prior to the vote on the Issuance, the approval of the amendment to the ATL Option Plan, the election of the nominees for director and the ratification of the appointment of independent auditors a later-dated proxy with respect to the same shares, by delivering written notice of revocation to the Secretary of ATL at any time prior to such vote or by attending the ATL Annual Meeting and voting in person. Mere attendance at the ATL Annual Meeting will not in and of itself revoke a proxy. If the ATL Annual Meeting is postponed or adjourned for any reason, at any subsequent reconvening of the ATL Annual Meeting all proxies will be voted in the same manner as such proxies would have been voted at the original convening of the ATL Annual Meeting (except for any proxies that have theretofore effectively been revoked or withdrawn), notwithstanding that they may have been effectively voted on the same or any other matter at a previous meeting. INTERSPEC. Interspec Common Shares represented by properly executed proxies received at or prior to the Interspec Special Meeting that have not been revoked will be voted at the Interspec Special Meeting in accordance with the instructions contained therein. Interspec Common Shares represented by properly executed proxies for which no instruction is given will be voted "FOR" approval and adoption of the Merger Agreement and the Merger. Interspec shareholders are requested to complete, sign, date and return promptly the enclosed proxy card in the postage-prepaid envelope provided for this purpose to ensure that their shares are voted. A shareholder may revoke a proxy by submitting at any time prior to the vote on the Merger a later-dated proxy with respect to the same shares, by delivering written notice of revocation to the Secretary of Interspec at any time prior to such vote or by attending the Interspec Special Meeting and voting in person. Mere attendance at the Interspec Special Meeting will not in and of itself revoke a proxy. If the Interspec Special Meeting is postponed or adjourned for any reason, at any subsequent reconvening of the Interspec Special Meeting all proxies will be voted in the same manner as such proxies would have been voted at the original convening of the Interspec Special Meeting (except for any proxies that have theretofore effectively been revoked or withdrawn), notwithstanding that they may have been effectively voted on the same or any other matter at a previous meeting. PROXY SOLICITATION. ATL and Interspec will each bear the cost of soliciting proxies from their respective shareholders. ATL will pay Georgeson & Co. a fee of $8,000 covering its services in soliciting the forwarding and return of proxy material and will reimburse Georgeson & Co. for out-of-pocket expenses incurred in connection therewith. In addition to solicitation by mail, directors, officers and employees of ATL and of Interspec may solicit proxies by telephone, telegram or otherwise. Interspec will pay Corporate Investor Communications, Inc. a fee of $4,000 covering its services in soliciting the forwarding and return of proxy material and will reimburse Corporate Investor Communications, Inc. for out-of-pocket expenses incurred in connection therewith. Such directors, officers and employees of ATL and Interspec will not be additionally compensated for such solicitation, but may be reimbursed for out-of-pocket expenses incurred in connection therewith. Brokerage firms, fiduciaries and other custodians who forward soliciting material to the beneficial owners of shares of ATL Common Stock and Interspec Common Shares held of record by them will be reimbursed for their reasonable expenses incurred in forwarding such material. 17 BACKGROUND OF AND REASONS FOR THE MERGER BACKGROUND ATL. ATL develops, manufactures, markets and services diagnostic medical ultrasound systems worldwide. Although ATL produces products that address all the principal clinical applications, ATL's products are primarily focused on the premium (over $150,000 per unit) radiology and vascular markets and the low-cost (under $40,000 per unit) obstetrics and gynecology ("ob-gyn") markets. In 1993, ATL introduced a premium product for the cardiology, shared services and internal medicine markets, but it has not comprehensively addressed the market for cardiology or mid-range ($40,000 to $150,000 per unit) products. ATL has an extensive domestic and international distribution network and a strong financial position. ATL purchases transesophaegeal echocardiography scanheads and other solid state array scanheads from Interspec's Echo Ultrasound division for inclusion in ATL's ultrasound systems pursuant to standard OEM agreements entered into periodically since 1989. Through its Nova MicroSonics division, ATL sells cardiac analysis products known as stress echo modules to Interspec for inclusion in Interspec's medical ultrasound systems pursuant to standard OEM agreements entered into periodically since February 1992. INTERSPEC. Interspec develops, manufactures, markets and services diagnostic medical ultrasound systems and accessories for physicians' offices, clinics and hospitals. Interspec has developed and marketed products specifically designed to serve the cardiology markets. During the fourth quarter of fiscal 1990, Interspec established a relationship with a third party to develop a high- performance, mid-range, multi-purpose radiology ultrasound imaging system using Interspec's proprietary technology. The third party, a multi-national company, agreed to distribute this radiology system internationally, which would have provided the financing to assist Interspec in establishing a distribution network for this radiology system in the United States. Interspec and the third party terminated the relationship in June 1992 prior to commencement of any product distribution. Upon termination, Interspec retained all rights to the product and its technology, but was faced with the need to establish an alternative distribution system for the radiology system both internationally and in the United States. During 1993, Interspec, with approval of the Interspec Board, explored several alternatives, one of which was a possible distribution arrangement with ATL. DISCUSSIONS OF A DISTRIBUTION ARRANGEMENT. On August 31, 1993, Dennis C. Fill, Chairman and Chief Executive Officer of ATL, met with Edward Ray, Chairman, President and Chief Executive Officer of Interspec, at the European Society of Cardiologists conference in Nice, France. Messrs. Fill and Ray had a general discussion of healthcare industry developments and considered the possible distribution by ATL of Interspec's multi-purpose radiology ultrasound system. To further consider this possibility, ATL and Interspec entered into a Confidential Disclosure Agreement on September 13, 1993, which was amended on October 14, 1993, to enable each company to evaluate the products of the other. On September 13 and 14, an ATL engineer and an ATL clinical manager observed a demonstration of the Interspec radiology ultrasound system at the Thomas Jefferson University clinic in Philadelphia, Pennsylvania. The favorable demonstration led to meetings on September 21 and October 14 in New York City and in Pennsylvania between Mr. Fill, Mr. Ray, Harvey N. Gillis, Senior Vice President and Chief Financial Officer of ATL, and Michael J. Wassil, Vice President, Finance, and Chief Financial Officer of Interspec, to discuss a potential strategic alliance between ATL and Interspec, whereby ATL would distribute Interspec products. At a regularly scheduled meeting of the Interspec Board on October 7, 1993, Mr. Ray informed the Interspec Board of discussions with ATL regarding product distribution. At a regularly scheduled meeting of the ATL Board on October 29, 1993, the ATL Board was informed of the preliminary discussions with Interspec regarding some form of strategic alliance. CONSIDERATION OF A BUSINESS COMBINATION. In considering the possible terms of a distribution arrangement with Interspec, ATL officers began to analyze whether a merger with Interspec might be a viable alternative. The ATL officers concluded that a merger might be desirable because it would permit ATL to market 18 Interspec's products as part of an integrated line of ultrasound products without the uncertainty associated with a distribution arrangement. Because a distribution arrangement is subject to periodic renegotiation and renewal, customers are sometimes reluctant to purchase from distributors because they may lose the manufacturer's support if the relationship should be terminated. A merger with Interspec would represent a stronger commitment by ATL to support Interspec's product lines, which in turn could facilitate ATL's ability to market Interspec's products, to the mutual benefit of ATL and Interspec. Accordingly, on November 7, 1993, Messrs. Fill and Ray met again at the American Heart Association meeting in Atlanta, Georgia and first explored the possibility of a business combination between ATL and Interspec. The parties next met at the Radiological Society of North America meeting in Chicago, Illinois on November 30 to further explore the possibility of a combination and to exchange information regarding their respective businesses and technologies. Messrs. Fill and Ray were joined by Messrs. Gillis and Wassil and Eugene A. Larson, a director of ATL and member of its Scientific Advisory Board, for these discussions. During these discussions, Mr. Fill indicated a preliminary range of values that ATL might be willing to propose for a business combination of the two companies. Such preliminary values were based solely on internal analyses of Interspec's business developed by ATL's officers, without the benefit of an in-depth due diligence investigation of Interspec and its products. Mr. Ray indicated that the proposed range of values was insufficient to interest Interspec in considering a combination with ATL because he did not believe it adequately reflected Interspec's contribution to a combined company. On December 21, 1993, Messrs. Fill and Ray met in Princeton, New Jersey, to discuss the possible synergies arising from the fit between ATL's high end and Interspec's mid-range products, ATL's strength in the radiology, vascular and ob-gyn markets and Interspec's strength in the cardiology markets and the expanded distribution system that might result from a business combination of the two companies. They also discussed the possibility of structuring the combination as a stock-for-stock merger and establishing the ratio for the exchange of ATL Common Stock for Interspec Common Shares based on a comparison of the relative market capitalizations of the two companies and of the contributions of ATL and Interspec to the operations of a combined entity. Mr. Ray indicated his willingness to resume exploratory talks, and on December 23, Mr. Ray reported to the Interspec Board that ATL had approached Interspec regarding discussion of a possible merger. Mr. Ray obtained the approval of the Interspec Board to continue such discussions with ATL and was authorized to contact and formally engage Merrill Lynch as Interspec's financial advisor in connection with a possible business combination with ATL. On January 3, 1994, Interspec retained Merrill Lynch as its financial advisor. In mid-December, ATL engaged Goldman Sachs to advise ATL in connection with discussions with Interspec. At a telephonic meeting of the ATL Board on January 7, 1994, Mr. Fill and other ATL executives reported on the discussions with Interspec, the potential synergies that might result from a business combination and the advantages of such a combination over a distribution arrangement, as discussed above, and obtained the approval of the ATL Board to continue such exploratory discussions. On January 12, 1994, Messrs. Fill and Gillis and Messrs. Ray and Wassil and their respective financial advisors met in New York City to conduct financial due diligence and discuss potential valuations of a business combination of the two companies. The discussions focused on a comparison of the relative market capitalizations of the two companies and of the contributions of ATL and Interspec to the operations of a combined entity, the weight to be accorded to each company's contributions, the relative trading prices of the ATL Common Stock and the Interspec Common Shares and the ability of ATL to account for a potential merger as a pooling of interests. The discussions continued between the financial advisors on January 13. No agreement was reached on a mutually acceptable valuation. On January 16, 1994, Mr. Fill proposed to Mr. Ray a potential merger through a stock-for-stock exchange, using an exchange ratio that would provide an amount of ATL Common Stock worth approximately $7.00 for each Interspec Common Share. The potential merger was conditioned upon the ability of ATL to use the pooling-of-interests accounting method. On January 18, the Interspec Board met with Interspec's senior management and representatives of Merrill Lynch and reviewed ATL's preliminary proposal for a stock-for-stock merger. The Interspec Board discussed the possibility of continuing to pursue a distribution arrangement, the prior history of such discussions, the market perception that a distribution arrangement might not provide customers with long-term customer support relative to a combination, the 19 synergies presented by ATL in terms of product and market fit and the potential benefits from access to its worldwide distribution system, the potential distraction of management focus and disruption of Interspec's business that could result from a broader search for another partner and the low probability that another partner would provide the unique synergies offered by ATL, and the risks involved with remaining an independent company, including the constraints on Interspec's ability to finance its continued growth. After discussions, the Interspec Board determined that a merger with ATL could provide a better opportunity for value to Interspec's shareholders than a distribution arrangement with ATL or others, and authorized management, Merrill Lynch and Interspec's counsel to pursue the proposal further in accordance with the guidance provided by the Interspec Board. Between January 18 and February 9, 1994, the parties negotiated the terms of a definitive merger agreement and related agreements, continued to evaluate the accounting treatment for the transaction, and conducted due diligence investigations of one another's businesses. Negotiations focused on: (i) the exchange ratio to be used for the exchange of shares, taking into account the due diligence investigation performed by each company and the advice of its financial advisors; (ii) the treatment of the Convertible Notes, including the willingness of the Noteholders to agree to a redemption of the Convertible Notes after consummation of the proposed merger or to an amendment of the Convertible Notes to provide for their conversion into ATL Common Stock; (iii) whether to include price protection provisions in the event of fluctuations in the price of ATL Common Stock and, if so, the need for corresponding price protection provisions for ATL in the event of fluctuations in the price of Interspec Common Shares; (iv) the ability of Interspec to terminate the merger agreement if the Interspec Board believed it had a fiduciary duty to terminate (the "fiduciary out"); (v) the termination fee and expense reimbursement requested by ATL to compensate ATL in the event Interspec should terminate the merger agreement pursuant to a fiduciary out or if the merger agreement should be terminated under certain other circumstances; and (vi) continuation of existing contracts for the employment of key Interspec executives in order to assure ATL that it would retain such executives for a reasonable transition period following the proposed merger. During the last week of January, Interspec commenced discussions with the Noteholders regarding the treatment of the Convertible Notes. On February 1, Messrs. Fill and Ray settled upon a fixed exchange ratio, conditioned upon the ability to use the pooling-of-interests accounting method for the proposed merger, of preparation of a mutually satisfactory agreement and approval of the respective Boards, of 0.413 share of ATL Common Stock for each Interspec Common Share. The Exchange Ratio, along with the other terms of the merger agreement, were determined in arm's-length negotiations between the management teams of both companies, in consultation with their respective Boards of Directors and financial advisors. The Exchange Ratio approximated the value of $7.00 per Interspec Common Share initially proposed by ATL, which ATL and Interspec management believed was supported by their financial due diligence and the advice of their respective financial advisors summarized under "--Opinion of Financial Advisor to the ATL Board;" and "--Opinion of Financial Advisor to the Interspec Board." The ratio was fixed, and did not contemplate price protection provisions in the event of fluctuations in the price of the shares of either company. ATL and Interspec ultimately concluded that the certainty of a fixed ratio was consistent with the valuation of both companies based on the historical and anticipated long-term contributions of each to the combined company on a pro forma basis, rather than on the basis of possible short-term fluctuations in the trading price of their respective shares during the interval between announcement and consummation of the proposed merger. In light of the importance to Interspec of the fiduciary out provision, Interspec was ultimately willing to agree to payment of the termination fee and expenses to ATL in the event the fiduciary out provision became operative, or if the Merger Agreement should terminate under certain other circumstances. On February 7, 1994, the ATL Board met with ATL executives and ATL's financial and legal advisors in New York City to consider the terms of the proposed merger with Interspec, and received a draft merger agreement. The ATL Board also heard reports from Mr. Fill, Mr. Larson and David M. Perozek, President and Chief Operating Officer of ATL, regarding the negotiations with Interspec and the potential benefits of the proposed merger listed under "Reasons for the Merger; Recommendations of the Boards of Directors--ATL" below. Goldman Sachs delivered the presentation described under "Opinion of Financial Advisor to the ATL Board" below. The ATL Board then reviewed the terms of the draft merger agreement with ATL 20 executives and ATL's legal and financial advisors. Because ATL had not yet determined that the pooling-of-interests method could be utilized to account for the proposed merger, the ATL Board authorized Mr. Fill to negotiate a lower alternative price to be effective in the event the merger should be accounted for using the purchase method of accounting. On February 8, 1994, the Interspec Board held a meeting at which it was provided with a written summary and a draft merger agreement. At the meeting, Interspec's senior management and Interspec's legal advisors reviewed the principal aspects of the draft merger agreement and Merrill Lynch made the presentation described under "Opinion of Financial Advisor to the Interspec Board" below. The Interspec Board reviewed the history and status of the negotiations, the uncertainty as to whether the transaction would be treated by ATL for accounting purposes as a pooling-of-interests rather than as a purchase, and the possibility of a lower exchange ratio in the event purchase accounting was used. After discussion, the Interspec Board authorized the continuation of negotiations, taking into account the alternate forms of accounting treatment for the proposed transaction. That evening, Messrs. Fill and Ray discussed an alternative exchange ratio of 0.3835 in the event ATL could not use the pooling-of-interests method. On February 9, 1994, the Interspec Board held a telephonic meeting at which it received an update with respect to the terms of the draft merger agreement from Interspec's legal counsel and received an update on the negotiations between Messrs. Fill and Ray. Mr. Ray reviewed the status of the negotiations and the proposal for ATL to acquire Interspec using an exchange ratio of 0.3835 under purchase accounting treatment, and 0.413 if pooling-of-interests treatment was used by ATL. Mr. Ray reported on ATL's efforts to resolve this issue. After discussion, the Interspec Board authorized the continuation of negotiations regarding the final terms of the Merger Agreement, and scheduled a telephonic meeting for late the following morning. On February 9, 1994, the ATL Board met telephonically with ATL executives and ATL's financial and legal advisors to consider in detail the specific price and terms of the possible merger. Mr. Fill reviewed the history of the negotiations with Interspec, including the preliminary agreement of Messrs. Fill and Ray, subject to approval of the ATL Board and the Interspec Board, to an exchange ratio of 0.3835 if ATL could not use the pooling-of-interests accounting treatment, and 0.413 if ATL were so able to account for the proposed merger. Mr. Gillis reported that the determination of whether the merger could be accounted for as a pooling-of-interests was not yet resolved. The ATL Board then reviewed the terms of the draft merger agreement with ATL executives and ATL's legal and financial advisors. Representatives of Goldman Sachs continued their presentation to the ATL Board, as described under "Opinion of Financial Advisor to the ATL Board" below, and responded to additional questions from the ATL Board regarding the financial terms of the proposed merger. The ATL Board then received the oral opinion of Goldman Sachs that, as of such date, the exchange ratio was fair to ATL. See "Opinion of Financial Advisor to the ATL Board" below. Accordingly, the ATL Board unanimously approved the Merger Agreement and the related agreements, including an agreement that would automatically increase the Exchange Ratio for the Merger from 0.3835 to 0.413 in the event it was determined prior to February 28, 1994, that ATL could use the pooling-of-interests treatment for the transaction. The ATL Board also unanimously approved the Issuance and the amendment to the ATL Option Plan and unanimously resolved to recommend that the ATL shareholders approve the Issuance and the amendment to the ATL Option Plan. ATL's obligations under the Merger Agreement were conditioned upon execution of the Convertible Note Amendments by the Noteholders and execution of an agreement relating to certain tax matters (the "Representation Agreement") by certain holders of 5% or more of the outstanding Interspec Common Shares (the "Significant Shareholders"), in each case prior to February 28, 1994. On February 10, 1994, the Interspec Board held a telephonic meeting to consider all aspects of the proposed transaction. Mr. Ray summarized the final stages of the negotiations and Merrill Lynch supplemented the presentation made by it to the Interspec Board on February 8, 1994. The Interspec Board received the oral opinion of Merrill Lynch, confirmed by its written opinion dated April 14, 1994, described under "Opinion of Financial Advisor to the Interspec Board" below that, as of such date, the Exchange Ratio was fair to the holders of Interspec Common Shares from a financial point of view. At the conclusion of that meeting, the Interspec Board unanimously approved the Merger Agreement and resolved to recommend that the Interspec shareholders vote to approve and adopt the Merger Agreement and the Merger. 21 EXECUTION OF MERGER AGREEMENT. The Merger Agreement was executed by the parties on Thursday, February 10, 1994, and press releases were issued by each company announcing the Merger. A copy of the Merger Agreement is attached to this Joint Proxy Statement/Prospectus as Appendix I. On February 24, 1994, ATL determined that the pooling-of-interests method of accounting would be appropriate for the transaction, and a press release was issued to announce that an Exchange Ratio of 0.413 would be used for the exchange of shares. As of February 25, 1994, all the Noteholders had executed the Convertible Note Amendments. REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS ATL The ATL Board has determined the Issuance and the Merger to be fair to and in the best interests of ATL and its shareholders. ACCORDINGLY, THE ATL BOARD HAS UNANIMOUSLY APPROVED AND DECLARED ADVISABLE THE ISSUANCE AND RECOMMENDS THAT THE ATL SHAREHOLDERS VOTE "FOR" APPROVAL OF THE ISSUANCE AND "FOR" APPROVAL OF THE AMENDMENT OF THE ATL OPTION PLAN TO ENABLE THE RETENTION OF KEY EMPLOYEES OF INTERSPEC SUBSEQUENT TO THE MERGER. In reaching the conclusions and recommendations described above, the ATL Board considered, without assigning relative weights to, the following factors, which include all factors the ATL Board considered to be material: (i) the terms and conditions of the Merger Agreement, including: (A) the adjustment to the Exchange Ratio in the event ATL could not account for the Merger as a pooling-of-interests, which ensured that the ATL shareholders would not experience additional dilution of earnings per share in the event the Merger were to be accounted for as a purchase with resulting amortization of goodwill; (B) the agreement of Interspec not to solicit any Takeover Proposal (subject to the fiduciary out), which minimized the risk that ATL would invest considerable management time and incur significant expenses without consummating a transaction; (C) the amount of the termination fee and expense reimbursement payable to ATL under certain conditions, which compensates ATL in the event Interspec should exercise its fiduciary out or the Merger Agreement should be terminated under certain other circumstances; and (D) the requirement that the Noteholders execute the Convertible Note Amendments on or before February 28, 1994 (extended to March 7, 1994), which fixed ATL's obligations to the Noteholders following the Merger on terms consistent with the Exchange Ratio provided for in the Merger Agreement; (ii) the historical and prospective business of ATL, including the current financial condition and future prospects of ATL, the strategic direction of ATL's business, the current conditions in, and future prospects of, the high-technology diagnostic medical systems industry and the competitive position of ATL in that industry, the historical business and future prospects of Interspec and its current financial condition, and the competitive position of Interspec in the high-technology diagnostic medical systems industry, which indicated to the ATL Board that there is a good strategic fit between the two companies and supported the conclusion of its financial advisors referred to in paragraph (iv) below; (iii) the strength of Interspec's mid-range cardiology products and distribution system in the United States, its new mid-range, multi-purpose radiology system, its capabilities to manufacture a broad range of ultrasound transducers that would complement ATL's manufacturing capabilities and Interspec's limited international distribution network; ATL's strength in premium-priced products, particularly in the radiology market, and its established United States and international distribution system; and the potential opportunities in international markets for mid- range products addressing a combined cardiology and internal medicine capability, all of which led the ATL Board to believe that there was the potential for substantial synergies from the Merger, which would permit the shareholders of ATL to benefit from the creation of a combined company with an integrated and more complete product line that can be distributed with greater efficiencies; (iv) the Merger's structure, which would not result in recognition of income or gain for federal income tax purposes by ATL or Interspec, thereby reducing the amount of federal income tax to be paid by the combined company, and could permit ATL to account for the Merger as a pooling-of- interests, 22 thereby minimizing the impact on earnings per share of the amortization of goodwill that would be required by purchase accounting treatment; (v) historical data relating to market prices and trading volumes of the shares of ATL Common Stock and the Interspec Common Shares, market prices of the shares of ATL Common Stock and the Interspec Common Shares compared to those of certain other publicly traded companies, the likely effects of the Merger on ATL's financial condition, including the potential dilutive effect of the Issuance, the likely reaction of the financial market to the Merger and the effect of such reaction on the price of shares of ATL Common Stock, which the ATL Board believed indicated that the Interspec Common Shares to be received in the Merger in consideration for the shares of ATL Common Stock represented a fair value to ATL from a financial point of view; and (vi) the presentations of Goldman Sachs delivered to the ATL Board at its meetings on February 7 and 9, 1994, including its oral opinion delivered on February 10, confirmed by its written opinion dated April 18, 1994, that on such date and based on various assumptions and considerations, the Exchange Ratio is fair to ATL. Interspec The Interspec Board has determined the Merger to be fair to and in the best interests of Interspec and its shareholders. ACCORDINGLY, THE INTERSPEC BOARD HAS UNANIMOUSLY APPROVED AND DECLARED ADVISABLE THE MERGER AGREEMENT AND THE MERGER AND RECOMMENDS THAT THE INTERSPEC SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER. In reaching the conclusions and recommendations described above, the Interspec Board considered, without assigning relative weights to, the following factors, which include all factors the Interspec Board considered to be material: (i) the terms and conditions of the Merger Agreement, including the Exchange Ratio with respect to shares of ATL Common Stock to be received in exchange for Interspec Common Shares, which provides Interspec shareholders with an opportunity to participate in the long-term prospects of ATL, and which the Interspec Board believes will be enhanced by the addition of Interspec and Interspec's product lines in cardiology and its multi-purpose radiology system; (ii) the Interspec Board's belief that the combination of Interspec and ATL will result in a diagnostic ultrasound company with a more comprehensive distribution network to market existing Interspec products and additional products as they are developed, which is expected to enhance the effective, worldwide distribution of Interspec's mid-range products in the cardiology and radiology ultrasound markets, and its belief that Interspec's new product development will benefit from ATL's extensive advanced technology; (iii) the fact that, with the addition of Interspec, ATL will have a broader range of mid-range-priced products to complement its already existing premium-priced radiology product line and allow it to reenter the cardiology ultrasound market; and that Interspec's capability to manufacture a broad range of models of ultrasonic transducers through Interspec's Echo Ultrasound division complements ATL's design engineering and manufacturing needs, and that the supplies business of Interspec's Echo Ultrasound division also complements ATL's diagnostic medical ultrasound supplies business, which would permit the shareholders of Interspec to benefit from the creation of a combined company with an integrated and more complete product line; (iv) the Interspec Board's belief that the addition of Interspec to ATL will enable Interspec and the combined company to be more competitive in the medical ultrasound industry than Interspec would be on a stand-alone basis; that Interspec's limited resources have constrained its ability to establish an effective channel of distribution for its mid-range radiology ultrasound products and to pursue new opportunities in technology and market development, and that by integrating the Interspec product line into ATL's worldwide distribution system and combining their technological resources, both companies will be able to pursue a broader range of technology and market opportunities on a more competitive basis, which would permit Interspec shareholders to benefit from an investment in a combined company that will be better able to compete in world markets; 23 (v) alternatives to the Merger, including, among other things, remaining an independent entity and entering into a strategic alliance or distribution arrangement with ATL, and possible strategic alliances or arrangements with other partners, weighed against the risks associated with such alternatives, including constraints on Interspec's ability to obtain financing to support its growth if it were to remain an independent entity, which resulted in the Interspec Board's conclusion that no other available alternative would provide significantly greater value to the Interspec shareholders than the Merger; (vi) ATL's expressed desire for Interspec to continue for the immediate future with its existing management in place, which the Interspec Board believes is important for Interspec to realize its long-term potential, together with ATL's agreement to enter into employment agreements with three of Interspec's current officers providing for their continued employment, to continue Mr. Ray as President of Interspec reporting to ATL's Chief Executive Officer and to appoint Mr. Ray to the ATL Board to ensure such continuity after the Merger; (vii) the structure of the Merger, which would constitute a tax-free reorganization under the Code and permit Interspec shareholders to continue their investment in the combined company without incurring federal income tax obligations by reason of the combination and could permit ATL to account for the Merger as a pooling-of-interests, which would avoid the impact on earnings per share of the amortization of goodwill by the combined company, with the consequences summarized under "THE MERGER-- Certain Federal Income Tax Consequences" and "--Accounting Treatment"; (viii) the presentations of Merrill Lynch at its meetings on February 8 and February 10, 1994, including Merrill Lynch's oral opinion on February 10, confirmed by its written opinion, dated April 14, 1994, described under "Opinion of Financial Advisor to the Interspec Board" below, that, as of such dates, the Exchange Ratio was fair to Interspec shareholders from a financial point of view; and (ix) ATL's technology leadership in diagnostic medical ultrasound, and particularly its pioneering efforts in all-digital ultrasound systems. In considering the Merger, Interspec shareholders should make their own assessment of the expected trading value of ATL Common Stock. In connection with such assessment, the shareholders may wish to consider the trading prices of shares of ATL Common Stock and Interspec Common Shares during the periods prior to, and following, the announcement of the Merger Agreement. The trading prices of shares of both companies are volatile and may be affected by a number of factors, including factors relating to the Merger and the Exchange Ratio. Such factors may include: expectations concerning the future trading value of shares of ATL Common Stock; the time required to consummate the Merger; and expectations concerning the likelihood that the Merger will be consummated. Therefore, the trading prices of shares of ATL Common Stock and Interspec Common Shares may reflect certain market expectations concerning the value of shares of ATL Common Stock; however, the impact of any such market expectation cannot be accurately quantified. See "COMPARATIVE PER SHARE MARKET INFORMATION." SHAREHOLDERS ARE URGED TO OBTAIN CURRENT QUOTATIONS FOR ATL COMMON STOCK AND INTERSPEC COMMON SHARES. OPINION OF FINANCIAL ADVISOR TO THE ATL BOARD The ATL Board retained Goldman Sachs as ATL's exclusive financial advisor in connection with the possible merger or other combination of ATL with Interspec. Goldman Sachs is an internationally recognized investment banking firm and is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. Goldman Sachs is familiar with ATL, having acted as ATL's financial advisor in connection with, and having participated in certain of the negotiations leading to, the Merger Agreement. The ATL Board selected Goldman Sachs to act as ATL's exclusive financial advisor based on Goldman Sachs' familiarity with ATL and Goldman Sachs' substantial experience in mergers and acquisitions and in securities valuation generally. 24 On February 10, 1994, Goldman Sachs delivered its oral opinion to the ATL Board to the effect that, based on various considerations and assumptions, the Exchange Ratio was fair to ATL. Goldman Sachs subsequently confirmed its oral opinion by delivery of its written opinion dated April 18, 1994. The full text of Goldman Sachs' written opinion, which sets forth the assumptions made, procedures followed, matters considered and limits of its review, is attached hereto as Appendix II and is incorporated by reference herein. HOLDERS OF ATL COMMON STOCK ARE URGED TO AND SHOULD READ SUCH OPINION IN ITS ENTIRETY. In connection with its written opinion dated April 18, 1994, Goldman Sachs reviewed, among other things: the Merger Agreement; Annual Reports to Shareholders of ATL and Westmark, ATL's predecessor, and ATL's and Westmark's Annual Reports on Form 10-K for the six years ended December 31, 1993; Annual Reports to Shareholders of Interspec and Interspec's Annual Reports on Form 10- K for the six fiscal years ended November 30, 1993; certain interim reports to shareholders and Quarterly Reports on Form 10-Q of ATL and Interspec; certain other communications from ATL and Interspec to their respective shareholders; and certain internal financial analyses and forecasts for ATL and Interspec regarding the past and current business operations, financial condition and future prospects of the respective companies. In addition, Goldman Sachs has reviewed the reported price and trading activity for the ATL Common Stock and the Interspec Common Shares, compared certain financial and stock market information for ATL and Interspec with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the medical device industry specifically and in other industries generally and performed such other studies and analyses as Goldman Sachs considered appropriate. Goldman Sachs relied without independent verification upon the accuracy and completeness of all the financial and other information reviewed by it for the purposes of its opinion. In addition, Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities of ATL or Interspec nor has Goldman Sachs been furnished with any such evaluation or appraisal. In connection with the rendering of its written opinion dated April 18, 1994, Goldman Sachs also assumed that the Merger will be accounted for as a pooling of interests under generally accepted accounting principles. The terms of ATL's engagement of Goldman Sachs are set forth in a letter agreement dated February 3, 1994, between Goldman Sachs and ATL (the "Engagement Letter"). Pursuant to the terms of the Engagement Letter, ATL paid Goldman Sachs a fee of $100,000 on February 28, 1994, and has agreed to pay Goldman Sachs a transaction fee payable upon consummation of the Merger of $500,000 (against which ATL is entitled to credit the $100,000 previously paid to Goldman Sachs). In addition, ATL has agreed to reimburse Goldman Sachs for its reasonable out-of-pocket expenses, including the fees and disbursements of its counsel, plus any sales, use or similar taxes arising in connection with its engagement, and to indemnify Goldman Sachs against certain liabilities relating to or arising out of its engagement, including liabilities under the federal securities laws. The following is a summary of the financial analyses utilized and considered material by Goldman Sachs in connection with providing its oral opinion to the ATL Board on February 10, 1994 and does not purport to be a complete description of such analyses. Goldman Sachs considered the results of its analyses collectively and did not consider separately the extent to which any such analysis supported its fairness determination. Goldman Sachs utilized substantially the same types of financial analyses in preparing its written opinion dated April 18, 1994 as it utilized in providing its oral opinion. Contribution Analysis. Goldman Sachs reviewed certain historical and estimated future operating and financial information (including, among other things, revenues, gross profit, operating profit, net income, book value and total assets) for ATL, Interspec and the pro forma combined entity resulting from the Merger based on ATL and Interspec managements' consensus financial forecasts for each of ATL, Interspec and the pro forma combined entity. Based on such review, Goldman Sachs analyzed the contribution of each of ATL and Interspec to the pro forma combined entity. Such analysis indicated that, for the latest twelve months ("LTM"), ATL would contribute 83.8% of combined revenues of $376,000,000 and 82.9% of combined gross profit of $170,000,000, and 67.7% of combined operating profit of $9,000,000. Goldman Sachs also considered that while ATL incurred a loss in net income for LTM, Interspec showed net income of $2,000,000 for the same period. Such analysis also showed that for the most recent quarter ATL would contribute 87.7% 25 of combined book value of $211,000,000 and 83.6% of combined total assets of $323,000,000. The analysis of Goldman Sachs also indicated that ATL's shareholders' percentage of equity ownership in the combined entity would be approximately 78%, which compares favorably to ATL's contribution to operating profit and net income. Pro Forma Analysis. Goldman Sachs reviewed certain financial information for the pro forma combined entity resulting from the Merger based on ATL and Interspec managements' consensus financial forecasts for each of ATL, Interspec and the pro forma combined entity. Such analysis indicated that earnings per share for the pro forma combined entity, calculated with synergies, would be higher as compared with actual and forecasted earnings per share for ATL as a stand-alone entity whether the Merger would be accounted for as a pooling of interests or as a purchase. Such analysis, calculated without synergies, indicated that (i) if the Merger would be accounted for as a pooling of interests, earnings per share for the pro forma combined entity would be higher as compared with forecasted earnings per share for ATL as a stand-alone entity in 1994, and lower as compared with forecasted earnings per share for ATL as a stand-alone entity in 1995 and 1996, and (ii) if the Merger would be accounted for as a purchase, earnings per share for the pro forma combined entity would be lower as compared with forecasted earnings per share for ATL as a stand- alone entity. Such analysis also indicated if the transaction would be accounted for as a pooling of interests that, with synergies, the pick- up/(dilution) to earnings of the combined entity as compared to earnings of ATL on a stand-alone basis for estimated 1994, estimated 1995 and estimated 1996 would be 63.8%, 33.9% and 14.0%, respectively, while without synergies such pick-up/(dilution) would be 14.9%, (6.1%) and (11.1%). If the transaction would be accounted for as a purchase, with synergies, the pick-up/(dilution) to earnings of the combined entity as compared to ATL on a stand-alone basis for estimated 1994, 1995 and 1996 would be 51%, 24.3% and 10.6%, respectively, while without synergies such pick-up/(dilution) would be (10.6%), (19.8%) and (17.4%). For certain assumptions made regarding synergies, see "General." Multiple Analyses. Using exchange ratios of 0.413 and 0.3835, Goldman Sachs analyzed the multiples of Interspec's projected revenues and earnings represented by the aggregate consideration to be received by Interspec shareholders pursuant to the Merger Agreement. Such aggregate consideration was analyzed using (i) reported trading prices for ATL Common Stock and Interspec Common Shares for the 20 days preceding February 4, 1994 (the last trading date preceding the ATL Board meeting), (ii) reported trading prices for ATL Common Stock and Interspec Common Shares for February 4, 1994, (iii) the low price reported for the 52 weeks preceding February 4, 1994, and (iv) the high price reported for the 52 weeks preceding February 4, 1994. Based on such analysis, Goldman Sachs determined that the aggregate consideration to be received by Interspec shareholders pursuant to the Merger Agreement as a multiple of estimated revenues for 1994 and 1995 was (i) .9x and .9x, (ii) .9x and .8x, (iii) .9x and .8x, and (iv) 1x and .9x, assuming revenues of Interspec of $64,300,000 and $69,200,000, respectively. Goldman Sachs also determined that the equity consideration per share as a multiple of estimated earnings before interest and taxes ("EBIT") for 1994 and 1995 was (i) 12.5x and 10.5x, (ii) 12x and 10.1x, (iii) 11.5x and 9.7x, and (iv) 13.5x and 11.4x, assuming estimated EBIT of Interspec of $4,800,000 and $5,700,000. Finally, Goldman Sachs determined that the aggregate consideration as a multiple of estimated earnings per share ("EPS") for 1994 and 1995 was (i) 21.8x and 20.5x, (ii) 20.7x and 19.4x, (iii) 19.7x and 18.5x and (iv) 24.2x and 22.8x, assuming estimated EPS of Interspec of $.32 and $.34. These analyses assume an Exchange Ratio of 0.413. Goldman Sachs compared such multiples to multiples of certain comparable publicly-traded companies described below under "Selected Company Analysis" and certain comparable transactions described below under "Selected Transactions Analysis" and determined that the multiples relating to the Merger were substantially within the range of such comparable multiples. Selected Company Analysis. Goldman Sachs reviewed and compared certain actual and estimated financial, operating and stock market information of ATL, Interspec and selected companies in the ultrasound industry, including Acuson Corp., ADAC Laboratories, Diasonics Inc. and Elscint, Inc. (the "Medical Imaging Companies"), as well as selected companies in the medical devices industry, including Nellcor Inc., Protocol Systems, Inc., and SpaceLabs Medical, Inc. (the "Device Companies"). Goldman Sachs considered the Device Companies to be less comparable to ATL and Interspec than the Medical Imaging Companies. 26 Such analysis indicated that the values of levered market capitalization as a multiple of the LTM revenues and LTM EBIT (i) for the Medical Imaging Companies ranged from .3x to 1.4x and 9.3x to 21.1x, respectively and (ii) for the Device Companies ranged from 1.3x and to 1.8x and 6.7x to 18.6x, respectively, as compared to corresponding values of 0.4x for ATL (LTM EBIT multiple for ATL was not meaningful because EBIT was negative) and .6x and 12.1x, respectively, for Interspec. Such multiples of LTM revenues and LTM EBIT were also compared to the aggregate consideration to be received in the Merger as a multiple of the 1994 revenues of Interspec which ranged from .9x to 1.0x (depending on the price used for ATL Common Stock) and to the aggregate consideration to be paid in the Merger as a multiple of Interspec's 1994 EBIT which ranged from 11.5x to 13.5x (depending on the price used for ATL Common Stock). Such analysis also indicated that the ratio of price per share to earnings per share for estimated 1994 ranged from 7.8x to 31.1x for the Medical Imaging Companies and 13.4x to 16.3x for the Device Companies as compared to a range of 19.7x to 24.2x for the equity consideration per share to be paid in the Merger. Selected Transactions Analysis. Goldman Sachs analyzed certain information relating to selected transactions in the medical devices industry since 1983, including Allied Corporation, Inc.'s acquisition of Instrumentation Lab, Inc., Miles, Inc.'s acquisition of Cooper Technicon, Inc., Toshiba America Medical Systems acquisition of the Magnetic Resonance Imaging Division of Diasonics, Inc., MDS Health Group Limited's acquisition of Nordion International, Inc., Thermo Electron Corp.'s acquisition of Thermo Instrument Systems, Inc. and Thermo Instrument Systems acquisition of Spectra-Physics Analytical, Inc. (the "Selected Transactions"). Such analysis indicated that for the Selected Transactions (i) levered aggregate consideration as multiples of LTM revenues ranged from 1.0x to 1.5x, as compared to a range of .9x to 1.0x (depending on the price used for ATL Common Stock) for the aggregate consideration to be received in the Merger as a multiple of the 1994 revenues of Interspec, (ii) equity consideration as multiples of LTM net income ranged from 10.5x to 58.8x, as compared to a range of 19.7x to 24.2x (depending on the price used for ATL Common Stock) for the equity consideration to be paid in the Merger as a multiple of 1994 earnings per share of Interspec, and (iii) with respect to levered aggregate consideration as a multiple of LTM EBIT, 11.2x was the only EBIT multiple available as compared to a range of 11.5x to 13.5x (depending on the price used for ATL Common Stock) for the aggregate consideration to be paid in the Merger as a multiple of Interspec's 1994 EBIT. Other Analyses. Goldman Sachs also reviewed and analyzed the historical revenue breakdown of Interspec for the years fiscal 1990-1993. General. As described above, certain of the analyses performed by Goldman Sachs relied on estimates of future financial performance provided by the managements of ATL and Interspec, including certain consensus financial forecasts for ATL, Interspec and the pro forma combined entity resulting from the Merger prepared jointly by the managements of ATL and Interspec. In performing such analyses and rendering its opinion, Goldman Sachs assumed the accuracy and completeness of the assumptions of the management of ATL regarding the amount and timing of the realization of the benefits expected to occur following completion of the Merger; including, but not limited to, increased revenues, increased market share, increased earnings performance, potential cost savings and other operating and financial synergistic benefits. In that regard, Goldman Sachs also assumed with ATL's consent that the financial forecasts prepared by the management of ATL relating to the benefits expected to occur following completion of the transaction have been reasonably prepared on a basis reflecting the best currently available judgments and estimates of ATL and that such forecasts will be realized in the amounts and at the times contemplated thereby. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analysis as a whole, could create an incomplete view of the processes underlying Goldman Sachs' opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all such analyses. In reaching its opinion as to the fairness of the Exchange Ratio to ATL, Goldman Sachs considered, in light of its experience and professional judgment, the analysis as a whole. Goldman Sachs did not rely exclusively on any single analysis nor did Goldman Sachs exclude any of the analyses summarized above in reaching its opinion that the Exchange Ratio is fair to ATL. The analyses were prepared solely for 27 the purposes of Goldman Sachs' providing its opinion to the ATL Board as to the fairness of the Exchange Ratio to ATL, and do not purport to be appraisals or necessarily reflect the prices at which Interspec or its securities actually may be sold. Analyses based on forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by such analyses. OPINION OF FINANCIAL ADVISOR TO THE INTERSPEC BOARD On February 10, 1994, Merrill Lynch delivered to the Interspec Board its oral opinion (the "Oral Opinion") that, as of that date, the Exchange Ratio in the Merger was fair to the holders of Interspec Common Shares from a financial point of view. Merrill Lynch confirmed, as of April 14, 1994, the Oral Opinion in a written opinion dated April 14, 1994 (the "Written Opinion" and, together with the Oral Opinion, the "Opinions"). The full text of the Written Opinion, which sets forth the assumptions made, matters considered and limitations of the review undertaken, is attached as Appendix III to this Joint Proxy Statement/Prospectus and is incorporated herein by reference. The summary discussion of the Opinions set forth in this Joint Proxy Statement/Prospectus is qualified in its entirety by reference to the full text of the Written Opinion. Interspec shareholders are urged to read the Written Opinion in its entirety. The Opinions are directed only to the fairness of the Exchange Ratio from a financial point of view as of the date of the Opinions, and do not constitute a recommendation to any Interspec shareholder as to how such shareholder should vote at the Interspec Special Meeting. The Exchange Ratio was determined through negotiations between Interspec and ATL and was approved by the Interspec Board. In arriving at the Opinions, Merrill Lynch, among other things: (i) reviewed certain publicly available business and financial information relating to Interspec, ATL and Westmark, ATL's predecessor; (ii) reviewed certain information, including financial forecasts, relating to the business, earnings, cash flow, assets and prospects of Interspec and ATL furnished to it by Interspec and ATL, respectively; (iii) conducted discussions with members of senior management of Interspec and of ATL concerning their respective businesses and prospects; (iv) reviewed the historical market prices and trading activity of Interspec Common Shares and ATL Common Stock and compared them with those of certain publicly traded companies that Merrill Lynch deemed to be reasonably similar to Interspec and ATL, respectively; (v) compared the results of operations of Interspec and of ATL with those of certain companies that Merrill Lynch deemed to be reasonably similar to Interspec and ATL, respectively; (vi) compared the proposed financial terms of the Merger with the financial terms of certain other mergers and acquisitions that Merrill Lynch deemed to be relevant; (vii) reviewed the Merger Agreement; and (viii) reviewed such other financial studies and analyses and performed such other investigations and took into account such other matters as was deemed necessary or appropriate for purposes of rendering the Opinions, including an assessment of general economic, market, monetary and other conditions as they existed on the respective dates of the Opinions. Merrill Lynch also assumed that the Merger would qualify for pooling-of-interests accounting treatment and as a tax-free transaction for the Interspec shareholders. In preparing the Opinions, Merrill Lynch relied upon and assumed the accuracy and completeness of all information supplied or otherwise made available to it by Interspec and ATL. Merrill Lynch did not independently verify such information and did not undertake an independent appraisal of the assets of Interspec or ATL. In addition, Merrill Lynch assumed that the financial forecasts furnished to it by Interspec and ATL, respectively, were reasonably prepared and reflect, as of the dates of the Opinions, the best currently available estimates and judgments of the management of Interspec and of ATL as to the expected future financial performance of Interspec and ATL, as the case may be. Merrill Lynch was not authorized by Interspec or the Interspec Board to solicit, nor did Merrill Lynch solicit, third-party indications of interest for an acquisition of all or part of Interspec. The Opinions are based on numerous macroeconomic, operating and financial assumptions that existed at the time of rendering each of the Opinions and involve the application of complex methodologies and educated judgment. Any estimates incorporated in the analyses performed by Merrill Lynch are not necessarily indicative of actual past or future results or values, which may be significantly more or less favorable than such estimates. Estimated values do not purport to be appraisals and do not necessarily reflect the prices at which such businesses or companies may be sold or at which their shares of capital stock may trade in the future. 28 The following is a summary of the analyses performed by Merrill Lynch in connection with the Oral Opinion, which it reviewed with the Interspec Board on February 8, 1994 and on February 10, 1994. In connection with the Written Opinion, Merrill Lynch performed certain additional procedures in order to update the assumptions underlying the Oral Opinion. In arriving at its opinion that the Exchange Ratio in the Merger is fair to the holders of Interspec Common Shares, Merrill Lynch relied upon the results of the various analyses discussed below. Merrill Lynch did not rely exclusively on any single analysis nor did Merrill Lynch exclude any analysis discussed below in making its determination of fairness. Stock Trading History. Merrill Lynch reviewed and analyzed the history of the trading prices and volumes of Interspec Common Shares and ATL Common Stock. In addition, Merrill Lynch reviewed and analyzed the relationship between movements of the prices of Interspec Common Shares and ATL Common Stock, respectively, and movements in the Standard & Poor's industrial average of 400 stocks. Analysis of Selected Comparable Publicly Traded Companies. Merrill Lynch compared certain financial information for Interspec and ATL to corresponding publicly available financial information of certain other medical ultrasound and medical monitoring equipment companies. Merrill Lynch calculated multiples for such companies of the market value of the total outstanding common equity ("Market Value") to LTM net income, 1994 projected net income and LTM book value, and multiples of the Market Value plus preferred equity at liquidation value, minority interests (if any) and total debt minus cash and cash equivalents (the "Market Capitalization") to LTM and 1994 projected earnings before interest, taxes, depreciation and amortization ("EBITDA"), LTM and 1994 projected EBIT and LTM and 1994 projected revenue. Merrill Lynch compared Interspec to 10 medical ultrasound and medical monitoring equipment companies deemed by Merrill Lynch to be comparable in certain respects to Interspec: Acuson Corporation, ATL, CNS, Inc., Criticare Systems, Inc., Diasonics Ultrasound, Inc., Elscint Limited, Marquette Electronics, Inc., Nellcor Incorporated, Protocol Systems, Inc. and SpaceLabs Medical, Inc. (collectively, the "Interspec Comparable Companies"). An analysis of the multiples for the Interspec Comparable Companies produced the following results: (a) Market Value to LTM net income yielded a mean of 16.0x; (b) Market Value to 1994 projected net income yielded a mean of 12.7x; (c) Market Value to LTM book value yielded a mean of 1.53x; (d) Market Capitalization to LTM EBITDA yielded a mean of 8.0x; (e) Market Capitalization to LTM EBIT yielded a mean of 11.4x; (f) Market Capitalization to LTM revenue yielded a mean of 1.07x; (g) Market Capitalization to 1994 projected EBITDA yielded a mean of 6.3x; (h) Market Capitalization to 1994 projected EBIT yielded a mean of 9.8x; and (i) Market Capitalization to 1994 projected revenue yielded a mean of 0.94x. Merrill Lynch then calculated aggregate and per share imputed equity values for Interspec by applying Interspec's actual and certain forecasted financial results to the multiples derived from its analysis of the Interspec Comparable Companies described above. Considering the mean multiples discussed above, Merrill Lynch calculated per share imputed equity values of Interspec ranging from a low of $2.86 (based on Market Value as a multiple of LTM net income) to a high of $8.02 (based on Market Capitalization as a multiple of 1994 projected revenue). Merrill Lynch summarized that, in its judgment, the Interspec Comparable Companies indicated a valuation ranging between $3.60 and $6.50 per Interspec Common Share. Merrill Lynch compared ATL to 10 medical ultrasound and medical monitoring equipment companies deemed by Merrill Lynch to be comparable in certain respects to ATL: Acuson Corporation, CNS, Inc., Criticare Systems, Inc., Diasonics Ultrasound, Inc., Elscint Limited, Interspec, Inc., Marquette Electronics, Inc., Nellcor Incorporated, Protocol Systems, Inc. and SpaceLabs Medical, Inc. (collectively, the "ATL Comparable Companies"). An analysis of the multiples for the ATL Comparable Companies produced the following results: (a) Market Value to LTM net income yielded a mean of 18.8x; (b) Market Value to 1994 projected net income yielded a mean of 12.5x; (c) Market Value to LTM book value yielded a mean of 1.56x; (d) Market Capitalization to LTM EBITDA yielded a mean of 7.5x; (e) Market Capitalization to LTM EBIT yielded a mean of 11.6x; (f) Market Capitalization to LTM revenue yielded a mean of 1.09x; (g) Market Capitalization to 1994 projected EBITDA yielded a mean of 6.3x; (h) Market Capitalization to 1994 projected EBIT yielded a mean of 9.0x; and (i) Market Capitalization to 1994 projected revenue yielded a mean of 0.97x. 29 Merrill Lynch then calculated aggregate and per share imputed equity values for ATL by applying ATL's actual and certain forecasted financial results to the mean multiples derived from its analysis of the ATL Comparable Companies described above. Considering the mean multiples discussed above, Merrill Lynch calculated per share imputed equity values of ATL ranging from a low of $5.95 (based on Market Value as a multiple of 1994 projected net income) to a high of $37.02 (based on Market Capitalization as a multiple of LTM revenue) (the "Publicly Traded Companies Range"). Merrill Lynch considered that, given current market conditions, the value of the ATL Common Stock to be delivered to the holders of the Interspec Common Shares at the Exchange Ratio of 0.413 is within or above the Publicly Traded Companies Range. No company utilized in the Analysis of Selected Comparable Publicly Traded Companies was identical to Interspec or ATL. Accordingly, an analysis of the results of such a comparison is not purely mathematical; rather, it involves complex considerations and judgments concerning differences in historical and projected financial and operating characteristics of the comparable companies and other factors that could affect the public trading value of the comparable companies or company to which they are being compared. Analysis of Selected Comparable Acquisition Transactions. Merrill Lynch reviewed the financial terms of eight acquisition transactions (the "Acquisition Comparables") that Merrill Lynch considered comparable to the Merger: the acquisition of Circadian by an investor group; the acquisition of Lorad Corp. by Thermotrex Corp.; the acquisition of Intertherapy, Inc. by Cardiovascular Imaging Systems, Inc.; the acquisition of Vingemed Sound by Sonotron; the acquisition of Teknar, Inc. by Mentor Corporation; the acquisition of Diasonics, Inc.'s MRI Division by Toshiba Corp.; the acquisition of Universal/Allied's Imaging Division by Gendex Corp.; and the acquisition of Cooper Lasersonics (Cavitron) by Pfizer, Inc. Merrill Lynch analyzed the consideration paid for the equity of each of these Acquisition Comparables (the "Offer Value") and the Offer Value plus the acquired business's total debt, liquidation value of preferred stock and minority interest (if any) less cash and cash equivalents (the "Transaction Value") multiples from these transactions. In particular, Merrill Lynch calculated Offer Value as a multiple of LTM net income and LTM book value and Transaction Value as a multiple of LTM EBITDA, LTM EBIT and LTM revenue. An analysis of the multiples for the Acquisition Comparables produced the following results: (a) Offer Value to LTM net income yielded a mean of 22.9x; (b) Offer Value to LTM book value yielded a mean of 2.97x; (c) Transaction Value to LTM EBITDA yielded a single multiple of 6.1x; (d) Transaction Value to LTM EBIT yielded a mean of 8.0x; and (e) Transaction Value to LTM revenue yielded a mean of 1.30x. Merrill Lynch then calculated aggregate and per share imputed equity values for Interspec by applying Interspec's actual and certain forecasted financial results to the multiples derived from its analysis of the Acquisition Comparables described above. Considering all the mean multiples discussed above, Merrill Lynch calculated per share imputed equity values of Interspec ranging from a low of $2.12 (based on Transaction Value as a multiple of LTM EBIT) to a high of $10.71 (based on Offer Value as a multiple of LTM book value). Merrill Lynch summarized that, in its judgment, the Acquisition Comparables indicated a valuation ranging between $3.50 and $10.00 per Interspec Common Share (the "Comparable Acquisition Transactions Range"). Merrill Lynch considered that, given current market conditions, the value of the ATL Common Stock to be delivered to the holders of the Interspec Common Shares at the Exchange Ratio of 0.413 is within the Comparable Acquisition Transactions Range. Merrill Lynch did not utilize Acquisition Comparables with respect to ATL. Acquisition Comparables would not provide a meaningful analytical tool in the case of ATL due to the inconsistencies in ATL's LTM financial performance compared to historical financial performance for previous 12-month periods. No acquired business utilized in the Analysis of Selected Comparable Acquisition Transactions was identical to Interspec. Accordingly, an analysis of the results of this comparison is not purely mathematical; rather it involves complex considerations and judgments concerning differences in historical and projected financial and operating characteristics of the comparable acquired businesses and other factors that could affect the acquisition value of such businesses and Interspec. 30 Discounted Cash Flow Analysis. Merrill Lynch calculated ranges of equity value for Interspec based upon the discount to present value of its five-year stream of unlevered after-tax free cash flow and its fiscal 1998 terminal values based upon a range of multiples of its projected fiscal 1998 EBITDA. Merrill Lynch ran a discounted cash flow analysis ("DCF") for three separate cases. In conducting its DCF analysis, Merrill Lynch relied upon financial projections (1) provided by the management of Interspec (the "Interspec Base Case"), (2) provided by the management of Interspec (the "Interspec Conservative Case"), and (3) developed on its own that anticipated severe industry competition and pricing pressure (the "Interspec Severe Competition Case"). In the Interspec Base Case, Merrill Lynch utilized discount rates ranging from 14% to 18% and terminal value multiples of 1998 EBITDA ranging from 4.0x to 7.0x. In the Interspec Conservative Case and the Interspec Severe Competition Case, Merrill Lynch utilized discount rates ranging from 12% to 16% and terminal value multiples of 1998 EBITDA ranging from 4.0x to 7.0x. The range of terminal value multiples used reflects different assumptions regarding the long-term growth and profitability of Interspec beyond fiscal 1998. Utilizing the Interspec Base Case, Merrill Lynch calculated equity present values of Interspec ranging from a low of $5.49 to a high of $11.11 per Interspec Common Share on a fully diluted basis. Utilizing the Interspec Conservative Case, Merrill Lynch calculated equity present values of Interspec ranging from a low of $5.00 to a high of $10.53 per Interspec Common Share on a fully diluted basis. Utilizing the Interspec Severe Competition Case, Merrill Lynch calculated equity present values of Interspec ranging from a low of $4.29 to a high of $8.54 per Interspec Common Share on a fully diluted basis. Merrill Lynch summarized that, in its judgment, the three DCF cases indicated valuation ranging between $5.00 and $8.00 per Interspec Common Share. Merrill Lynch calculated ranges of equity value for ATL based upon the discount to present value of its five-year stream of unlevered after-tax free cash flow and its fiscal 1998 terminal value based upon a range of multiples of its projected fiscal 1998 EBITDA. In conducting its analysis, Merrill Lynch relied upon the mean of the high and low financial projections provided by the management of ATL (the "ATL Mean Case") and certain financial information for 1997 through 1998 as extrapolated by Merrill Lynch from its discussions with the management of ATL and the low case provided by ATL management (the "ATL Low Case") and certain information for 1997 and 1998 as extrapolated by Merrill Lynch based on discussions with the management of ATL. In the ATL Mean Case Merrill Lynch utilized discount rates ranging from 14% to 18% and terminal value multiples of 1998 EBITDA ranging from 4.0x to 7.0x. In the ATL Low Case, Merrill Lynch utilized discount rates ranging from 12% to 16% and 1998 EBITDA terminal value multiples ranging from 4.0x to 7.0x. Utilizing the ATL Mean Case, Merrill Lynch calculated equity present values of ATL ranging from a low of $14.49 to a high of $22.94 per share of ATL Common Stock on a fully diluted basis. Utilizing the ATL Low Case, Merrill Lynch calculated equity present values of ATL ranging from a low of $13.47 to a high of $21.31 per share of ATL Common Stock on a fully diluted basis. Merrill Lynch then utilized DCF methodology to compare relative ranges of value for Interspec and ATL. The comparison of the Interspec Conservative Case to the ATL Low Case yielded a relative value of one Interspec Common Share, on a fully diluted basis, ranging between 0.371 and 0.494 share of ATL Common Stock. The comparison of the Interspec Severe Competition Case to the ATL Low Case yielded a relative value of one Interspec Common Share, on a fully diluted basis, ranging between 0.318 and 0.401 share of ATL Common Stock. Pro Forma Analysis. Merrill Lynch analyzed certain pro forma effects resulting from the Merger, including the effect of consummation of the Merger on the EPS of ATL following the Merger. In conducting its analysis, Merrill Lynch relied upon the Interspec Conservative Case and the Interspec Severe Competition Case, and the ATL Low Case. Merrill Lynch prepared two pro forma analyses: (1) combining the Interspec Conservative Case with the ATL Low Case ("Pro Forma Case One") and (2) combining the Interspec Severe Competition Case with the ATL Low Case ("Pro Forma Case Two"). In both pro forma analyses Merrill Lynch assumed that the Merger would qualify for pooling-of-interests accounting treatment and that the combined entity could achieve 50% of the combination synergies as prepared by and provided to Merrill Lynch by Interspec management. In Pro Forma Case One above, Merrill Lynch calculated that the accretion to the ATL shareholders would be 42.3% in 1994, 107.4% in 1995, 58.4% in 1996, 58.9% in 1997 and 59.7% 31 in 1998. In Pro Forma Case Two above, Merrill Lynch calculated that the accretion to the ATL shareholders would be 39.8% in 1994, 105.8% in 1995, 54.0% in 1996, 51.6% in 1997 and 49.3% in 1998. Merrill Lynch then analyzed certain estimated pro forma market values in which it compared an estimated projected market value for 100% of Interspec on a standalone basis for 1994-1996 to 19.8% of an estimated pro forma market value for the same periods of the combined company (19.8% represents Interspec's shareholders' ownership interest in the combined company, assuming ATL has 10,500,000 shares outstanding and issues to the Interspec shareholders 2,587,000 shares). In Pro Forma Case One, Merrill Lynch calculated that the accretion of economic interest (incremental increase in total market value) to Interspec's shareholders was $12.5 million in 1994, $9.1 million in 1995 and $16.3 million in 1996. In Pro Forma Case Two, Merrill Lynch calculated that the accretion of economic interest to Interspec's shareholders was $14.8 million in 1994, $11.9 million in 1995 and $30.5 million in 1996. The results of the pro forma analysis are not necessarily indicative of future operating results or financial position of the combined company. The Written Opinion should be read in its entirety. The summary of the financial and comparative analyses set forth above contains information with respect to all material analyses employed by Merrill Lynch in reaching the Opinions, but does not purport to be a complete description of Merrill Lynch's presentation to the Interspec Board or the analyses conducted by Merrill Lynch. Merrill Lynch believes that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all factors and analyses, could create an incomplete and/or misleading view of the process underlying the Opinions. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. In performing its analyses, Merrill Lynch made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Interspec or ATL. Any estimates contained in the analyses performed by Merrill Lynch are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than as set forth therein. Analyses relating to the value of the businesses do not purport to be appraisals or to reflect the prices at which businesses may actually be sold. Because such estimates are inherently subject to uncertainty, none of Interspec, ATL, Merrill Lynch or any other person assumes responsibility for their accuracy. Merrill Lynch is an internationally recognized investment banking firm engaged in the valuation of businesses and their securities in connection with mergers and acquisitions and for other purposes. The Interspec Board selected Merrill Lynch as its financial advisor because it is an internationally recognized investment banking firm and has substantial experience in transactions similar to the Merger. Pursuant to an engagement letter dated January 3, 1994 with Merrill Lynch, Interspec has paid Merrill Lynch for its financial advisory services in connection with the Merger a fee of $50,000 and has agreed to pay Merrill Lynch a fee contingent on, and payable upon the closing of, the Merger in an amount equal to 1.5% of the aggregate purchase price paid in the Merger, against which the $50,000 fee will be credited. In addition, the engagement letter provides that Interspec will reimburse Merrill Lynch for its reasonable out-of-pocket expenses (including reasonable fees and expenses of its legal counsel) and will indemnify Merrill Lynch and certain related persons against certain liabilities arising out of the Merger and Merrill Lynch's engagement. Merrill Lynch has, in the past, provided financing services to Interspec and has received fees for rendering such services. Merrill Lynch has not previously provided financial advisory services to ATL. In the ordinary course of its business, Merrill Lynch actively trades securities for its own account and for the account of its customers and, accordingly, may at any time hold a long or short position in securities of Interspec and ATL. THE COMPANIES ATL ATL is engaged in the high-technology diagnostic medical ultrasound business. ATL develops, manufactures, markets and services diagnostic medical ultrasound systems worldwide that are used in a number of medical specialties to assist the physician in monitoring and diagnosing a variety of conditions, such as tumors, inflammations, obstructions, cardiovascular diseases and fetal development. 32 Prior to June 26, 1992, ATL was named Westmark. On June 26, 1992, Westmark was divided into two separate, publicly traded companies, one engaged in the diagnostic ultrasound business (ATL) and the other (SpaceLabs), engaged in the patient monitoring and clinical information systems business, pursuant to a tax-free distribution of SpaceLabs common stock to the shareholders of Westmark. Concurrently, Westmark changed its name to Advanced Technology Laboratories, Inc., the same name as that of its major operating subsidiary. MERGER SUB Merger Sub, a Delaware corporation and wholly owned subsidiary of ATL, was formed by ATL solely for the purpose of effecting the Merger. INTERSPEC Interspec develops, manufactures, markets and services medical diagnostic ultrasound imaging systems, and related supplies and accessories for physicians' offices, clinics and hospitals worldwide. It markets these products directly in North America and through distributors in the rest of the world. Interspec offers a full line of diagnostic medical ultrasound systems, including systems designed primarily for the private practice cardiovascular market, the hospital cardiovascular market and the hospital radiology market. THE MERGER THE DESCRIPTION OF THE MERGER AGREEMENT SET FORTH BELOW DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX I TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND INCORPORATED BY REFERENCE HEREIN. TERMS OF THE MERGER THE MERGER. Subject to the terms and conditions of the Merger Agreement, Merger Sub will merge into Interspec at the Effective Time. The separate corporate existence of Merger Sub will then cease, and the internal corporate affairs of Interspec (the "Surviving Corporation") will continue to be governed by the laws of the Commonwealth of Pennsylvania. ARTICLES OF INCORPORATION AND BYLAWS. The Merger Agreement provides that the articles of incorporation of Interspec as in effect immediately prior to the Effective Time will become the articles of incorporation of the Surviving Corporation, except that Article 5 thereof will be amended to read as follows: "The total number of shares of all classes of stock which the corporation shall have authority to issue is 100 shares of Common Stock, par value $1.00 per share." The bylaws of Interspec as in effect immediately prior to the Effective Time will become the bylaws of the Surviving Corporation. DIRECTORS AND OFFICERS. The directors of Merger Sub at the Effective Time will become the directors of the Surviving Corporation until their successors have been duly elected and qualified or until their earlier resignation or removal. In addition, Mr. Ray will continue as a director of the Surviving Corporation. The officers of Interspec at the Effective Time will become the officers of the Surviving Corporation until their successors have been duly appointed and qualified or until their earlier resignation or removal. See "Management and Operations of Interspec After the Merger" below. CONVERSION OF INTERSPEC COMMON SHARES IN THE MERGER. At the Effective Time, each issued and outstanding Interspec Common Share (other than shares owned by Interspec and Dissenting Shares) will be converted (subject to the provisions with respect to fractional shares described below) into the right to receive 0.413 share of ATL Common Stock. In addition, each outstanding option to purchase Interspec Common Shares will be adjusted in accordance with its terms to represent an option to acquire, subject to the same 33 terms and conditions as were previously applicable to such option, including vesting, that number of shares of ATL Common Stock as the holder of such stock option would have been entitled to receive pursuant to the Merger had such holder exercised such stock option in full immediately prior to the Effective Time, at a price per share equal to (i) the aggregate exercise price for the Interspec Common Shares otherwise purchasable pursuant to such stock option divided by (ii) the aggregate number of full shares of ATL Common Stock deemed purchasable pursuant to such stock option. See "Effect on Interspec Employee Benefit and Stock Plans" below. Any Interspec Common Shares owned by ATL or Interspec or any of their respective subsidiaries will be canceled. The Exchange Ratio of 0.413 share of ATL Common Stock for each Interspec Common Share was determined through negotiations between ATL and Interspec, each of which was advised with respect to such negotiations by its respective financial advisor. Based on the number of Interspec Common Shares outstanding on the Interspec Record Date, assuming the exercise of all outstanding Interspec stock options (whether or not currently exercisable), the conversion of all outstanding Convertible Notes, and based on the Exchange Ratio established in the Merger Agreement, a maximum of 3,091,400 shares of ATL Common Stock may be issued in connection with the Merger. This share number includes 2,587,852 shares required for the tender of all Interspec Common Shares by Interspec shareholders of record as of March 29, 1994 (assuming no Dissenting Shares); 383,500 shares required if all Noteholders convert their Notes into Interspec Common Shares prior to the Effective Time; and 120,000 shares of ATL Common Stock required if all holders of Interspec options which are vested as of the Effective Time exercise such options to purchase Interspec Common Shares prior to the Effective Time (assuming approximately one-half of Interspec options outstanding on the Interspec Record Date become vested and are exercised prior to the Effective Time). FRACTIONAL SHARES. No fractional shares of ATL Common Stock will be issued in the Merger. In lieu of any such fractional shares, each holder of Interspec Common Shares who otherwise would be entitled to receive a fractional share of ATL Common Stock pursuant to the Merger will be paid an amount by check, without interest, equal to such holder's proportionate interest in the net proceeds from the sale or sales in the open market by the Exchange Agent, on behalf of all such holders, of the aggregate fractional shares of ATL Common Stock (the "Excess Shares"), if any, that would have been issued in the Merger. As soon as practicable following the Effective Time, the Exchange Agent will determine the number of Excess Shares, if any, and the Exchange Agent, as agent of the former holders of Interspec Common Shares, will sell any such Excess Shares at the prevailing prices on the Nasdaq National Market. The sale of Excess Shares will be executed through one or more member firms of the NASD in round lots to the extent practicable. EFFECTIVE TIME OF THE MERGER Promptly following the satisfaction or waiver (where permissible) of the conditions to the Merger, the Merger will be consummated and become effective at the time the certificate of merger is duly filed with the Secretary of State of the State of Delaware and the articles of merger are duly filed with the Secretary of State of the Commonwealth of Pennsylvania or such later date and time as may be specified in such certificate of merger and articles of merger (the "Effective Time"). The Merger Agreement may be terminated by either party if, among other reasons, the Merger has not been consummated on or before August 9, 1994 (subject to possible extension for up to 60 days under certain circumstances). See "Conditions to Consummation of the Merger" below. EXCHANGE OF INTERSPEC COMMON SHARES The Merger Agreement provides that the exchange of Interspec Common Shares in the Merger will be effected as follows: 34 (i) as of the Effective Time, ATL will deposit with First Chicago Trust Company of New York or such other bank or trust company as may be designated by ATL (the "Exchange Agent") certificates representing shares of ATL Common Stock issuable in exchange for outstanding Interspec Common Shares (other than shares owned by Interspec and Dissenting Shareholders); (ii) as soon as reasonably practicable after the Effective Time, the Exchange Agent will mail to each holder of record of a certificate or certificates that immediately prior to the Effective Time represented outstanding Interspec Common Shares (the "Certificates"), whose shares were converted into the right to receive shares of ATL Common Stock, transmittal form and instructions for use in effecting the surrender of the Certificates for payment; (iii) upon surrender of the Certificates for cancellation to the Exchange Agent, together with transmittal forms duly executed and any other required documents, holders of such Certificates will receive in exchange therefor shares of ATL Common Stock and cash in lieu of a fractional share of ATL Common Stock, and the surrendered Certificates will be canceled; and (iv) after the Effective Time, each outstanding, unsurrendered Certificate will be deemed to represent only the right to receive upon such surrender the number of shares of ATL Common Stock and the cash in lieu of a fractional share of ATL Common Stock into which such Interspec Common Shares will have been converted; however, the holders of outstanding, unsurrendered Certificates after the Effective Time will not be entitled to receive any dividends or distributions with a record date after the Effective Time theretofore paid with respect to the shares of ATL Common Stock until such Certificates are surrendered, although any such dividends or distributions will accrue and be payable to the holder, without interest, upon surrender of the Certificate. INTERSPEC SHAREHOLDERS SHOULD NOT FORWARD CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS AND INSTRUCTIONS. All shares of ATL Common Stock issued and cash in lieu of fractional shares paid upon surrender for exchange of Certificates shall be deemed to have been issued in full satisfaction of all rights pertaining to such Interspec Common Shares. EFFECT ON INTERSPEC EMPLOYEE BENEFIT AND STOCK PLANS Under the Merger Agreement, ATL has agreed to cause Interspec, as the Surviving Corporation, to maintain the employee benefit plans of Interspec and its subsidiaries as in effect on February 10, 1994 (or to provide benefits that are comparable in the aggregate), for at least two years following the Effective Time, and thereafter ATL will cause the employees of Interspec to have benefit plans that are at least comparable to those provided to the employees of ATL. ATL has agreed to cause each employee benefit plan of Interspec, as the Surviving Corporation, or of ATL covering such employees to recognize the service of such employees with Interspec and its subsidiaries prior to the Effective Time, but only for purposes of eligibility to participate in, and vesting under, any such plan. ATL intends to grant to key employees of the Surviving Corporation options to purchase shares of ATL Common Stock and restricted stock awards commensurate with those granted to key employees of ATL. See "AMENDMENT OF THE ATL OPTION PLAN." At the Effective Time, each outstanding employee stock option to purchase Interspec Common Shares (an "Interspec Stock Option") issued pursuant to Interspec's 1982 Incentive Stock Option Plan, the 1985 Incentive Stock Option Plan, the 1986 Non-Qualified Stock Option Plan, the 1988 Non-Qualified Stock Option Plan and the 1991 Non-Qualified Stock Option Plan and any other stock option plan, program or arrangement of Interspec (collectively, the "Interspec Stock Plans"), whether vested or unvested, will be assumed by ATL. Each Interspec Stock Option will be deemed to constitute an option to acquire, on the 35 same terms and conditions as were previously applicable under its respective Interspec Stock Plan, that number of shares of ATL Common Stock equal to the number of Interspec Common Shares subject to such Interspec Stock Option immediately prior to the Effective Time multiplied by 0.413 (with the result rounded up to the nearest whole share), and the per share exercise price shall be adjusted by dividing the per share exercise price under such Interspec Stock Option immediately prior to the Effective Time by 0.413; provided, however, that in the case of any option to which Section 421 of the Code applies by reason of its qualification under any of Sections 422 through 424 of the Code, the option price, the number of shares purchasable pursuant to such option and the terms and condition of exercise of such option will be determined in order to comply with Section 424 of the Code. TRADING OF SHARES OF ATL COMMON STOCK ON THE NASDAQ NATIONAL MARKET The shares of ATL Common Stock to be issued in the Merger have been approved for trading on the Nasdaq National Market, subject to official notice of issuance. REPRESENTATIONS AND WARRANTIES The Merger Agreement includes various customary representations and warranties of the parties thereto. The Merger Agreement includes representations and warranties by Interspec as to, among other things, (i) the corporate organization, standing and power of Interspec and its subsidiaries; (ii) approval by the Interspec Board of the Merger Agreement; (iii) Interspec's capitalization; (iv) the authorization, execution, delivery, performance and enforceability of the Merger Agreement and related matters; (v) the Merger Agreement's noncontravention of any agreement, law, or charter or bylaw provision and the absence of the need (except as specified) for governmental or third-party filings, consents, approvals or actions with respect to the Merger; (vi) documents filed by Interspec with the Commission and the accuracy of information contained therein; (vii) the accuracy of information supplied by Interspec in connection with this Joint Proxy Statement/Prospectus and the Registration Statement; (viii) the absence of certain material changes or events since the most recent audited financial statements filed with the Commission, including material adverse changes in the business, properties, assets, condition (financial or otherwise), results of operations or prospects of Interspec and its subsidiaries taken as a whole, any dividend, any split, reclassification or combination of capital stock, or certain changes in accounting methods, principles or practices; (ix) no material pending or threatened litigation, except as disclosed; (x) the terms, existence, operations, liabilities and compliance with applicable laws of Interspec's benefit plans and certain other matters relating to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); (xi) filing of tax returns and payment of taxes; (xii) absence of "excess parachute payments" under the Code; (xiii) the inapplicability of Subchapter F of Chapter 25 of the PBCL, relating to business combinations with interested shareholders, to the Merger Agreement and related agreements and transactions; (xiv) labor relations; (xv) brokers' fees and expenses; (xvi) receipt of an opinion of financial advisors; (xvii) compliance with applicable laws; (xviii) certain debt instruments and other material contracts; and (xix) rights to intellectual property. The Merger Agreement also includes representations and warranties by ATL and Merger Sub as to, among other things, (i) the corporate organization, standing and power of ATL and Merger Sub; (ii) approval by the ATL Board of the Merger Agreement; (iii) ATL's capitalization; (iv) the authorization, execution, delivery, performance and enforceability of the Merger Agreement and related matters, including the authorization of the shares of ATL Common Stock to be issued in the Merger; (v) the Merger Agreement's noncontravention of any agreement, law, or charter or bylaw provision and the absence of the need (except as specified) for governmental or third-party filings, consents, approvals or actions with respect to the Merger, the Issuance or the amendment to the ATL Option Plan; (vi) documents filed by ATL with the Commission and the accuracy of information contained therein; (vii) the accuracy of information supplied by ATL in connection with this Joint Proxy Statement/Prospectus and the Registration Statement; (viii) the absence of certain material changes or events since the most recent audited financial statements filed with the Commission, including material adverse changes in the business, properties, assets, condition (financial or 36 otherwise), results of operations or prospects of ATL and its subsidiaries taken as a whole, any dividend, any split, reclassification or combination of capital stock, or certain changes in accounting methods, principles or practices; (ix) no material pending or threatened litigation, except as disclosed; (x) labor relations; (xi) brokers' fees and expenses; (xii) receipt of an opinion of financial advisors; (xiii) benefit plans and other matters relating to ERISA; (xiv) filing of tax returns and payment of taxes; (xv) the absence of certain events giving rise to the exercisability of the Rights (as defined herein) under the Rights Agreement (as defined herein); (xvi) compliance with applicable laws; (xvii) certain debt instruments and other material contracts; and (xviii) rights to intellectual property. BUSINESS OF INTERSPEC PENDING THE MERGER Interspec has agreed that, prior to the Effective Time or earlier termination of the Merger Agreement, it will, and it will cause its subsidiaries to, carry on their respective businesses in the usual, regular and ordinary course substantially in the same manner as conducted prior to the execution of the Merger Agreement and, to the extent consistent therewith, preserve intact their respective current business organizations, keep available the services of their current officers and employees and preserve their relationships with customers, suppliers and others having business dealings with them. Interspec has also agreed that prior to the Effective Time, unless ATL agrees in writing or as otherwise permitted by the Merger Agreement, it will not, and it will not permit any of its subsidiaries to, among other things: (i) declare or pay any dividends or other distributions on shares of its capital stock, other than dividends by a wholly owned subsidiary to Interspec, or split, combine or reclassify any of its capital stock or purchase, redeem or otherwise acquire any shares of its capital stock; (ii) issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock, other than upon the exercise of outstanding Interspec Stock Options or upon the conversion of the Convertible Notes; (iii) amend its articles of incorporation or bylaws; (iv) make any material acquisition or enter into any merger; (v) dispose of or encumber any material assets other than sales in the ordinary course of business of inventory or of furniture, fixtures and equipment that are no longer used by or useful to Interspec or its subsidiaries; (vi) incur any indebtedness for borrowed money or guarantee any such indebtedness, except for short-term borrowings incurred in the ordinary course of business and except for intercompany indebtedness, or make any loans or capital contributions to or investments in any person, other than to Interspec or any of its wholly owned subsidiaries; (vii) make any capital expenditures that, individually, are in excess of $50,000 or, in the aggregate, are in excess of $300,000; (viii) make any material tax election or settle any tax liability; (ix) satisfy, settle or discharge any claims or obligations, other than the satisfaction in the ordinary course of business of liabilities disclosed in the most recent financial statements filed with the Commission or incurred in the ordinary course of business since the date of such financial statements; (x) modify any material contract other than in the ordinary course of business; (xi) take any action that would preclude the use of the pooling-of-interests method of accounting or disqualify the Merger as a "reorganization" for tax purposes; or (xii) authorize or agree to take any of the foregoing actions. BUSINESS OF ATL PENDING THE MERGER ATL has agreed that, prior to the Effective Time or earlier termination of the Merger Agreement, it will, and it will cause its subsidiaries to, carry on their respective businesses in the usual, regular and ordinary course substantially in the same manner as conducted prior to the execution of the Merger Agreement and, to the extent consistent therewith, preserve intact their respective current business organizations, keep available the services of their current officers and employees and preserve their relationships with customers, suppliers and others having business dealings with them. ATL has also agreed that prior to the Effective Time, unless Interspec agrees in writing or as otherwise permitted by the Merger Agreement, it will not, and it will not permit any of its subsidiaries to, among other things: (i) declare or pay any dividends or other distributions on shares of its capital stock, other than dividends by a wholly owned subsidiary to ATL, or split, combine or reclassify any of its capital stock or purchase, redeem or otherwise acquire any shares of its capital stock; (ii) take any action that would preclude the use of the pooling-of-interests method of accounting or disqualify the Merger as a "reorganization" for tax purposes; (iii) amend the Rights Agreement in any 37 manner adverse to the holders of Interspec Common Shares; (iv) issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock, if any such action could reasonably be expected to require an amendment of this Joint Proxy Statement/Prospectus; (v) make any material acquisition or enter into any merger, if any such action could reasonably be expected to require an amendment of this Joint Proxy Statement/Prospectus; or (vi) authorize or agree to take any of the foregoing actions. NO SOLICITATION The Merger Agreement provides that Interspec will not, nor will it permit any of its subsidiaries to, nor will it authorize or permit any director, officer, employee, agent or other representative of Interspec or any of its subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage the submission of any Takeover Proposal or (ii) participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, a Takeover Proposal; provided, however, that the Merger Agreement provides that prior to the Interspec Special Meeting, to the extent required by the fiduciary obligations of the Interspec Board, as determined in good faith by the Interspec Board based on the advice of outside counsel, Interspec may, (A) in response to an unsolicited request therefor, furnish information with respect to Interspec to any person pursuant to a customary confidentiality agreement (as determined by Interspec outside counsel) and discuss such information (but not the terms of any possible Takeover Proposal) with such person and (B) upon receipt by Interspec of a Takeover Proposal, following delivery to ATL of notice thereof, participate in negotiations regarding such Takeover Proposal. Interspec has agreed to notify ATL promptly (orally and in writing) of any such inquiries or proposals. The Merger Agreement provides that the Interspec Board shall not (i) withdraw or modify, or propose to withdraw or modify, in a manner adverse to ATL or Merger Sub, the approval or recommendation by the Interspec Board of the Merger Agreement or the Merger, (ii) approve or recommend, or propose to approve or recommend, any Takeover Proposal, or (iii) enter into any agreement with respect to any Takeover Proposal. Notwithstanding the foregoing, in the event the Interspec Board receives a Takeover Proposal that, in the exercise of its fiduciary obligations (as determined in good faith by the Interspec Board based on the advice of outside counsel), it determines to be a Superior Proposal (as defined below), the Interspec Board may (subject to the following sentences) withdraw or modify its approval or recommendation of the Merger Agreement and the Merger, approve or recommend any such Superior Proposal, enter into an agreement with respect to such Superior Proposal or terminate the Merger Agreement, in each case at any time after the second business day following ATL's receipt of written notice advising ATL that the Interspec Board has received a Superior Proposal and describing the terms thereof. In the event the Interspec Board takes any of the foregoing actions with respect to such Superior Proposal, Interspec shall, concurrently with the taking of any such action, pay to ATL a termination fee of $1,000,000 and reimburse up to $500,000 of ATL's expenses. The term "Superior Proposal" means a bona fide Takeover Proposal to acquire, directly or indirectly, for consideration consisting of cash and/or securities, more than 50% of the Interspec Common Shares then outstanding or all or substantially all the assets of Interspec, and otherwise on terms that the Interspec Board determines in its good faith reasonable judgment to be more favorable to Interspec shareholders than the Merger (based on the written opinion, with only customary qualifications, of Interspec's independent financial advisor that the value of the consideration provided for in such proposal is superior to the value of the consideration provided for in the Merger) and for which financing, to the extent required, is then committed or which, in the good faith reasonable judgment of the Interspec Board, is reasonably capable of being financed by such third party. CONDITIONS TO CONSUMMATION OF MERGER CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The respective obligations of Interspec, ATL and Merger Sub to effect the Merger are subject to the satisfaction or waiver of the following conditions: (i) the Merger shall have been approved by at least a majority of votes cast by the holders of Interspec Common 38 Shares entitled to vote thereon at the Interspec Special Meeting; (ii) the Issuance and the amendment to the ATL Option Plan shall have been approved by the holders of a majority of the shares of ATL Common Stock present, in person or by proxy, and entitled to vote thereon at the ATL Annual Meeting; (iii) the shares of ATL Common Stock issuable pursuant to the Merger Agreement and under the Interspec Stock Plans shall have been approved for trading on the Nasdaq National Market; (iv) the waiting period under the HSR Act applicable to the Merger shall have expired or been terminated; (v) all required authorizations in connection with the execution and delivery of the Merger Agreement and the performance of the obligations thereunder shall have been obtained; (vi) there shall not be in effect any judgment, writ, order, injunction or decree of any court or governmental body enjoining or otherwise preventing consummation of the transactions contemplated by the Merger Agreement; (vii) the Registration Statement shall have been declared effective and shall not be the subject of any stop order suspending the effectiveness thereof or any proceeding seeking such a stop order; (viii) holders in excess of 5% of the Interspec Common Shares shall not have exercised dissenters' rights under applicable law; (ix) ATL and Interspec shall have received letters from KPMG Peat Marwick stating that the Merger will qualify as a pooling of interests for accounting purposes; and (x) ATL shall have received a tax opinion of Cravath, Swaine & Moore, and Interspec shall have received a tax opinion of Duane, Morris & Heckscher, in each case to include an opinion that the Merger will constitute a "tax-free" reorganization under Section 368(a) of the Code. CONDITIONS TO THE OBLIGATIONS OF ATL AND MERGER SUB. In addition to the foregoing conditions, the obligations of ATL and Merger Sub to effect the Merger are further subject to satisfaction or waiver of the following conditions, among others: (i) the representations and warranties of Interspec that are qualified as to materiality shall be true and correct, and the representations and warranties of Interspec that are not so qualified shall be true and correct in all material respects; (ii) Interspec shall have performed in all material respects all material obligations required to be performed by it under the Merger Agreement; (iii) there shall not be pending or threatened by any governmental entity any suit, action or proceeding and there shall not be pending by any other person any suit, action or proceeding that has a reasonable likelihood of success, in each case seeking to restrain or restrict (A) the consummation of the Merger, (B) the operation of any material portion of the business of ATL, Interspec or their respective subsidiaries, (C) the ownership by ATL or Merger Sub of any Interspec Common Shares, or (D) the control of Interspec by ATL, or seeking to obtain from ATL any material damages; and (iv) Interspec shall have received the fairness opinion described in "BACKGROUND OF AND REASONS FOR THE MERGER--Opinion of Financial Advisor to the Interspec Board." CONDITIONS TO THE OBLIGATIONS OF INTERSPEC. In addition to the foregoing conditions, the obligations of Interspec to effect the Merger are further subject to satisfaction or waiver of the following conditions, among others: (i) the representations and warranties of ATL and Merger Sub that are qualified as to materiality shall be true and correct, and the representations and warranties of ATL and Merger Sub that are not so qualified shall be true in all material respects; (ii) ATL and Merger Sub shall have performed in all material respects all material obligations required to be performed by them under the Merger Agreement; (iii) there shall not be pending or threatened by any governmental entity any suit, action or proceeding and there shall not be pending by any other person any suit, action or proceeding that has a reasonable likelihood of success, in each case seeking to restrain or restrict (A) the consummation of the Merger, (B) the operation of any material portion of the business of ATL, Interspec or their respective subsidiaries, (C) the ownership by ATL or Merger Sub of any Interspec Common Shares, or (D) the control of Interspec by ATL, or seeking to obtain from ATL any material damages; and (iv) ATL shall have received the fairness opinion described in "BACKGROUND OF AND REASONS FOR THE MERGER--Opinion of Financial Advisor to the ATL Board." AMENDMENT AND WAIVER; TERMINATION The parties to the Merger Agreement may not amend, change, supplement, waive or otherwise modify the Merger Agreement, except by an instrument in writing signed by the parties thereto. Subject to the 39 foregoing, (i) the Merger Agreement may be amended at any time by action taken or authorized by the respective Boards of Directors of ATL, Merger Sub and Interspec (except that after the Merger Agreement has been approved by the holders of Interspec Common Shares, no amendment may be entered into that requires further approval by such shareholders unless such further approval is obtained) and (ii) the parties, by action taken or authorized by their respective Boards of Directors, may extend the time for performance of the obligations of the other parties to the Merger Agreement, may waive any inaccuracies in the representations and warranties contained in the Merger Agreement or in any document delivered pursuant to the Merger Agreement and may waive compliance with any agreements or conditions for their respective benefit contained in the Merger Agreement. The Merger Agreement may be terminated at any time prior to the Effective Time, whether before or after approval by Interspec shareholders or ATL shareholders, by the mutual written consent of ATL and Interspec. The Merger Agreement may also be terminated by either ATL or Interspec if, among other things, (i) the Merger has not been consummated by August 9, 1994, subject to possible extension for up to 60 days under certain circumstances (provided that such right to terminate will not be available to any party whose willful and material breach of any obligation under the Merger Agreement has been the cause of or resulted in the failure of the Merger to occur on or before such date), (ii) any court or governmental body in the United States has issued a final and nonappealable order, decree or ruling, or taken any other final and nonappealable action, permanently restraining, enjoining or otherwise prohibiting the Merger, or (iii) under certain circumstances with respect to a breach of certain representations, warranties, covenants or other agreements, the breaching party has failed to effect a cure within 30 days after notice of such breach. The Merger Agreement also may be terminated by Interspec in the event it receives a Superior Proposal as described under "No Solicitation" above. In the event that a Takeover Proposal is commenced, publicly disclosed or communicated to Interspec (or the willingness of any person to make a Takeover Proposal is publicly disclosed or communicated to Interspec) and (i) the Interspec Board withdraws or modifies its approval of the Merger, approves or enters into an agreement for such Takeover Proposal or terminates the Merger Agreement, (ii) the required vote of Interspec shareholders is not obtained at the Interspec Special Meeting, or (iii) the Interspec Special Meeting does not occur prior to August 9, 1994 (as may be extended for up to 60 days as referred to above), then Interspec will be required to pay to ATL a termination fee of $1,000,000 and reimburse up to $500,000 of ATL's expenses relating to the proposed Merger. CERTAIN FEDERAL INCOME TAX CONSEQUENCES Cravath, Swaine & Moore, counsel to ATL, and Duane, Morris & Heckscher, counsel to Interspec, have delivered opinions that for federal income tax purposes under current law, assuming that the Merger and related transactions will take place as described in the Merger Agreement and that certain factual matters represented by ATL, Interspec and certain Interspec shareholders are true and correct at the time of confirmation of the Merger, (i) the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code and (ii) each of ATL, Merger Sub and Interspec will be a party to the reorganization within the meaning of Section 368(b) of the Code. Assuming that the Merger and related transactions will take place as described in the Merger Agreement and that certain factual matters represented by ATL, Interspec and certain Interspec shareholders are true and correct at the time of consummation of the Merger, then in the respective opinions of Cravath, Swaine & Moore and Duane, Morris & Heckscher, the following would be the material federal income tax consequences of the Merger: (i) no gain or loss will be recognized by ATL, Merger Sub or Interspec in the Merger; (ii) no gain or loss will be recognized by the shareholders of Interspec upon receipt of shares of ATL Common Stock in exchange for their Interspec Common Shares, except that holders of Interspec Common Shares who receive cash upon exercise of any available dissenters' rights or cash in lieu of a 40 fractional share of ATL Common Stock will recognize gain or loss equal to the difference between such cash and the tax basis in their shares subject to dissenters' rights or the tax basis allocated to their fractional shares of ATL Common Stock, and such gain or loss will constitute capital gain or loss if their Interspec Common Shares are held or, in the case of an Interspec shareholder that receives cash in lieu of fractional shares, would have been held, as a capital asset at the Effective Time; (iii) the tax basis of the shares of ATL Common Stock (including fractional shares of ATL Common Stock) received by the shareholders of Interspec will be the same as the tax basis of their Interspec Common Shares exchanged therefor; and (iv) the holding period of the shares of ATL Common Stock in the hands of the Interspec shareholders will include the holding period of their Interspec Common Shares exchanged therefor, provided such Interspec Common Shares are held as a capital asset at the Effective Time. THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION WHETHER TO VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER OR IN FAVOR OF APPROVAL OF THE ISSUANCE. THE DISCUSSION NEITHER ADDRESSES THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO A PARTICULAR INTERSPEC SHAREHOLDER NOR THE INTERSPEC SHAREHOLDERS SUBJECT TO SPECIAL TREATMENT UNDER CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES, BANKS, INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED STATES PERSONS AND SHAREHOLDERS WHO ACQUIRED THEIR INTERSPEC COMMON SHARES PURSUANT TO THE EXERCISE OF INTERSPEC STOCK OPTIONS OR OTHERWISE AS COMPENSATION, NOR DOES IT ADDRESS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR FOREIGN JURISDICTION. MOREOVER, THE TAX CONSEQUENCES TO HOLDERS OF INTERSPEC STOCK OPTIONS ARE NOT DISCUSSED. THE DISCUSSION IS BASED UPON THE CODE, TREASURY REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF THE DATE HEREOF. ALL THE FOREGOING ARE SUBJECT TO CHANGE EITHER PROSPECTIVELY OR RETROACTIVELY AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. INTERSPEC SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO THEM. REGULATORY MATTERS The Merger is subject to the expiration or termination of the applicable waiting period under the HSR Act. Certain aspects of the Merger will require notifications to, and filings with, certain securities and other authorities in certain states, including jurisdictions where ATL and Interspec currently operate. Under the HSR Act and the rules promulgated thereunder by the FTC, the Merger may not be consummated until notifications have been given and certain information has been furnished to the FTC and the Antitrust Division and the applicable waiting period has expired or been terminated. ATL and Interspec filed notification and report forms under the HSR Act with the FTC and the Antitrust Division on March 18, 1994. Unless it is extended, the thirty day waiting period for these filings will terminate on April 17, 1994. At any time before or after consummation of the Merger, the Antitrust Division or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the Merger or seeking divestiture of substantial assets of ATL or Interspec. At any time before or after the Effective Time, and notwithstanding that the waiting period under the HSR Act has expired, any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the consummation of the Merger or seeking divestiture of substantial assets of ATL or Interspec. Private parties may also seek to take legal action under the antitrust laws under certain circumstances. 41 Based on information available to them, ATL and Interspec believe that the Merger can be effected in compliance with federal and state antitrust laws. However, there can be no assurance that a challenge to consummation of the Merger on antitrust grounds will not be made or that, if such a challenge were made, ATL and Interspec would prevail or would not be required to accept certain adverse conditions in order to consummate the Merger. RESALE OF SHARES OF ATL COMMON STOCK ISSUED IN THE MERGER; AFFILIATES The shares of ATL Common Stock to be issued in the Merger will be freely transferable, except that shares issued to any Interspec shareholder who may be deemed to be an "affiliate" (as defined under the Securities Act, and generally including, without limitation, directors, certain executive officers and beneficial owners of 10% or more of a class of capital stock) of Interspec for purposes of Rule 145 under the Securities Act or for purposes of applicable interpretations regarding the pooling-of-interests method of accounting shall not be transferable except in compliance with the Securities Act and until such time as financial results covering at least 30 days of combined operations of ATL and Interspec after the Merger have been published. This Joint Proxy Statement/Prospectus does not cover resales of shares of ATL Common Stock received by any person who may be deemed to be an affiliate of Interspec. ACCOUNTING TREATMENT It is expected that the Merger will be accounted for using the pooling-of- interests method under generally accepted accounting principles for accounting and financial reporting purposes. The Merger Agreement provides that a condition to consummation of the Merger is the receipt of a letter from KPMG Peat Marwick, the independent auditors of ATL and of Interspec, confirming that the pooling-of-interests method of accounting is appropriate for the Merger. MANAGEMENT AND OPERATIONS OF INTERSPEC AFTER THE MERGER Directors After the Merger. Edward Ray, Chairman of the Interspec Board, has been invited to join the ATL Board after the Effective Time. Pursuant to the Merger Agreement, the directors of the Surviving Corporation at the Effective Time will consist of the directors of Merger Sub, who currently include Messrs. Fill, Perozek, Gillis and Yorks, in addition to Mr. Ray who will continue as a director of the Surviving Corporation. Management After the Merger. As provided in the Merger Agreement, the officers of the Surviving Corporation at the Effective Time will consist of the officers of Interspec. Following the Effective Time, Edward Ray, Michael J. Wassil and Patrick J. Faivre will remain President of Interspec, Vice President of Finance of Interspec and Vice President of the Echo Ultrasound division of Interspec, respectively. See "CONFLICTS OF INTEREST--Employment Agreements." Operations. Following the Merger, Interspec will be a wholly owned subsidiary of ATL and will operate as one of ATL's business units, having access to resources generally available to, and participating in appropriate activities with, ATL's other business units. ATL currently intends to maintain Interspec's facilities in Ambler and Reedsville, Pennsylvania. EXPENSES AND FEES Whether or not the Merger is consummated, all fees and expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby shall be paid by the party incurring such fees or expenses, except that each of ATL and Interspec shall pay one-half of the printing and mailing costs incurred in connection with the printing and mailing of this Joint Proxy Statement/Prospectus. 42 RIGHTS OF DISSENTING INTERSPEC SHAREHOLDERS If any holders of Interspec Common Shares properly exercise dissenters' rights of appraisal in connection with the Merger under Sections 1571 through 1580 of the PBCL, any shares held by such holders will not be converted into the right to receive shares of ATL Common Stock, but instead will be converted into the right to receive the "fair value" of such shares pursuant to Sections 1571 through 1580 of the PBCL. THE FOLLOWING SUMMARY OF THE PROVISIONS OF SECTIONS 1571 THROUGH 1580 IS NOT INTENDED TO BE A COMPLETE STATEMENT OF SUCH PROVISIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SECTIONS 1571 THROUGH 1580, A COPY OF WHICH (AS WELL AS A COPY OF SECTION 1930 OF THE PBCL) IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS APPENDIX IV AND INCORPORATED HEREIN BY REFERENCE. General. Any holder of Interspec Common Shares who has duly demanded the payment of the fair value of his or her shares under Sections 1571 through 1580 will not, after the Effective Time, be a shareholder of Interspec or a shareholder of ATL for any purpose or be entitled to the payment of dividends or other distributions on any such Interspec Common Shares or shares of ATL Common Stock; moreover, the Interspec Common Shares of any Dissenting Shareholder will be converted into the right to receive either (i) the fair value of such Interspec Common Shares, determined in accordance with Sections 1571 through 1580, or (ii) shares of ATL Common Stock, if any Dissenting Shareholder effectively withdraws his or her demand for appraisal rights. INTERSPEC SHAREHOLDERS SHOULD NOTE THAT, UNLESS ALL THE REQUIRED PROCEDURES FOR CLAIMING DISSENTERS' RIGHTS ARE FOLLOWED WITH PARTICULARITY, DISSENTERS' RIGHTS WILL BE LOST. VOTING AGAINST THE MERGER, WHETHER IN PERSON OR BY PROXY, IS NOT SUFFICIENT NOTICE TO PERFECT DISSENTERS' RIGHTS. Filing Notice of Intention to Demand Fair Value. Before any shareholder vote is taken on the Merger, a Dissenting Shareholder must deliver to Interspec a written notice of his or her intention to demand fair value of the Interspec Common Shares if the Merger is effected. Such written notice may be sent to the Secretary of Interspec at Interspec's address set forth on page (iii) of this Joint Proxy Statement/Prospectus. Neither the return of a proxy by the Dissenting Shareholder with instructions to vote the Interspec Common Shares represented thereby against the Merger nor a vote against the Merger or an abstention from voting on the Merger is sufficient to satisfy the requirement of delivering a written notice to Interspec. In addition, the Dissenting Shareholder must not effect any change in the beneficial ownership of the Interspec Common Shares from the date of filing the notice with Interspec through the Effective Time, and the Dissenting Shareholder must not vote the Interspec Common Shares for which payment of fair value is sought in favor of the Merger. The submission of a signed blank proxy will serve to waive appraisal rights if not revoked, but a failure to vote, a vote against or an abstention from voting on the Merger will not waive such rights. Proper revocation of a signed blank proxy or a signed proxy instructing a vote for adoption and approval of the Merger will also preserve dissenters' rights under Pennsylvania law. Failure by a Dissenting Shareholder to comply with any of the foregoing shall result in such Dissenting Shareholder's forfeiting any right to payment of the fair value of such Dissenting Shareholder's Interspec Common Shares. Record and Beneficial Owners. A record holder of Interspec Common Shares may assert dissenters' rights as to fewer than all the Interspec Common Shares of the same class or series registered in his or her name only if the holder dissents with respect to all the Interspec Common Shares beneficially owned by any one person and discloses the name and address of the person or persons on whose behalf he or she dissents. A beneficial owner of Interspec Common Shares who is not the record holder may assert dissenters' rights with respect to Interspec Common Shares held on his or her behalf if such Dissenting Shareholder submits to Interspec the written consent of the record holder not later than the time of assertion of dissenters' rights. The beneficial owner may not dissent with respect to less than all the Interspec Common Shares of the same class or series he or she owns, whether or not such Interspec Common Shares are registered in the beneficial owner's name. 43 Notice to Demand Payment. If the Merger is approved by the requisite vote at the Interspec Special Meeting, Interspec shall mail to all Dissenting Shareholders who gave due notice of their intention to demand payment of fair value and who refrained from voting in favor of the Merger a notice stating where and when a demand for payment must be sent, and Certificates must be deposited to obtain payment. The notice shall be accompanied by a copy of Sections 1571 through 1580 of the PBCL and include a form for demanding payment, which form shall have a request for certification of the date that beneficial ownership of the Interspec Common Shares was acquired by the Dissenting Shareholder or the person on whose behalf the Dissenting Shareholder dissents. The time set for the receipt of a demand and the Dissenting Shareholder's Certificates shall not be less than 30 days from the mailing of the notice. Failure by a Dissenting Shareholder to timely demand payment and deposit Certificates pursuant to such notice will cause such Dissenting Shareholder to lose all right to receive payment of the fair value of his or her Interspec Common Shares. If the Merger has not been effected within 60 days after the date set for demanding payment and depositing Certificates, Interspec shall return any Certificates that have been deposited. Interspec, however, may at any later time send a new notice regarding demand for payment and deposit of Certificates with like effect. Payment of Fair Value of Interspec Common Shares. Promptly after the Effective Time, or upon timely receipt of demand for payment if the Merger has already been effected, Interspec shall either remit to Dissenting Shareholders who have made demand and deposited their Certificates the amount Interspec estimates to be the fair value of the Interspec Common Shares or give written notice that no remittance will be made under Section 1577 of the PBCL. Such remittance or notice shall be accompanied by (i) Interspec's closing balance sheet and statement of income for a fiscal year ending not more than 16 months prior to the date of remittance or notice, together with the latest available interim financial statements, (ii) a statement of Interspec's estimate of the fair value of the Interspec Common Shares, and (iii) a notice of the right of a Dissenting Shareholder to demand payment or supplemental payment, as the case may be, accompanied by a copy of Sections 1571 through 1580 of the PBCL. If Interspec does not remit the amount of its estimate of the fair value of the Interspec Common Shares, it shall return all Certificates that have been deposited and make a notation thereon that a demand for payment has been made. Estimate by Dissenting Shareholder of Fair Value of Interspec Common Shares. If a Dissenting Shareholder believes that the amount estimated or paid by Interspec for his or her Interspec Common Shares is less than their fair value, the Dissenting Shareholder may send to Interspec his or her own estimate of the fair value, which shall be deemed a demand for payment of the amount of the deficiency. If the Dissenting Shareholder does not file his or her own estimate of the fair value within 30 days after mailing such remittance or notice by Interspec, the Dissenting Shareholder shall be entitled to no more than the amount estimated in the notice or remitted by Interspec. Valuation Proceedings. Within 60 days after the latest of (i) the Effective Time, (ii) timely receipt of any demands for payment, or (iii) timely receipt of any Dissenting Shareholder estimates of fair value, if any demands for payment remain unsettled, Interspec may file in court an application for relief requesting that the fair value of the Interspec Common Shares be determined by the court. Each Dissenting Shareholder whose demands have not been settled shall be made a party to the proceeding and shall be entitled to recover the amount by which the fair value of such Dissenting Shareholder's Interspec Common Shares is found to exceed the amount, if any, previously remitted. Such Dissenting Shareholder shall also be entitled to interest on such amount from the Effective Time until the date of payment. If Interspec fails to file an application within the 60-day period, any Dissenting Shareholder who has not settled his or her claim may do so in Interspec's name within 30 days after the expiration of the 60-day period. If no Dissenting Shareholder files an application within such 30-day period, each Dissenting Shareholder who has not settled his or her claim shall be paid no more than Interspec's estimate of the fair value of the Interspec Common Shares and may bring an action to recover any amount not previously remitted. Costs and Expenses of Valuation Proceedings. The costs and expenses of any valuation proceeding, including the reasonable compensation and expenses of any appraiser appointed by the court, shall be determined by the court and assessed against Interspec, except that any part of such costs and expenses may be assessed as the court deems appropriate against all or some of the Dissenting Shareholders whose action in demanding supplemental payment is found by the court to be dilatory, obdurate, arbitrary, vexatious or in 44 bad faith. The court may also assess the fees and expenses of counsel and experts for any or all of the Dissenting Shareholders against Interspec if it fails to comply substantially with Sections 1571 through 1580 or acts in a dilatory, obdurate, arbitrary or vexatious manner or in bad faith. The court can also assess any such fees or expenses incurred by Interspec against any Dissenting Shareholder if such Dissenting Shareholder is found to have acted in a dilatory, obdurate, arbitrary or vexatious manner or in bad faith. If the court finds that the services of counsel for any Dissenting Shareholder were of substantial benefit to the other Dissenting Shareholders and should not be assessed against Interspec, it may award to such counsel reasonable fees to be paid out of the amounts awarded to the Dissenting Shareholders who were benefited. CONFLICTS OF INTEREST EMPLOYMENT AGREEMENTS Promptly after the Effective Time, ATL will assume or enter into employment agreements (the "Employment Agreements") with each of Edward Ray, Michael J. Wassil and Patrick J. Faivre, each of whom is currently an officer or significant employee of Interspec. Messrs. Ray, Wassil and Faivre currently have employment agreements with Interspec dated December 23, 1993. Mr. Ray currently has a three-year employment agreement, and Messrs. Wassil and Faivre each have one-year agreements. Mr. Ray has had a series of three-year agreements with Interspec since 1987. In addition, the ATL Board is expected to appoint Mr. Ray as a director of the ATL Board immediately following the Merger. The Employment Agreements provide for the employment of Mr. Ray as President of Interspec, Mr. Wassil as Vice President of Finance of Interspec and Mr. Faivre as Vice President of the Echo Ultrasound division of Interspec following the Effective Time. The term of Mr. Ray's Employment Agreement expires on April 14, 1997. Each of Messrs. Wassil's and Faivre's Employment Agreements has a one-year term, beginning on December 23, 1993, and is automatically renewable for successive one-year periods unless either party gives notice of nonrenewal at least 120 days prior to the expiration of the current term. Mr. Ray's Employment Agreement provides for an annual base salary of $300,000 for the term thereof, subject to increase from time to time by the Compensation Committee of the ATL Board. Mr. Ray will also be paid an annual bonus, determined by the Compensation Committee of the ATL Board, of not less than $140,000. In addition, Mr. Ray will be eligible to receive options to purchase shares of ATL Common Stock and to receive restricted stock awards of shares of ATL Common Stock commensurate with those granted to key employees of ATL. Mr. Wassil's Employment Agreement provides for compensation at the rate of $155,000 per year, subject to increase from time to time by the Interspec Board. Mr. Faivre's Employment Agreement provides for compensation at the rate of $127,900 per year, subject to increase from time to time by the Interspec Board. ADJUSTMENT OF INTERSPEC STOCK OPTIONS; GRANT OF ATL STOCK OPTIONS Each Interspec Stock Option, whether or not vested or exercisable, that is outstanding at the Effective Time will be adjusted in accordance with its terms to represent an option to acquire, subject to the same terms and conditions as were applicable to such Interspec Stock Option, including vesting, that number of shares of ATL Common Stock equal to the product of the Exchange Ratio and the number of Interspec Common Shares subject to such Interspec Stock Option, at a price per share equal to the aggregate exercise price for the Interspec Common Shares subject to such Interspec Stock Option divided by the number of full shares of ATL Common Stock deemed to be purchasable pursuant to such Interspec Stock Option. See "THE MERGER--Effect on Interspec Employee Benefit and Stock Plans." Following consummation of the Merger, ATL intends to grant to key employees of Interspec options to purchase shares of ATL Common Stock and restricted stock awards consistent with those granted to key employees of ATL. See "AMENDMENT OF THE ATL OPTION PLAN." 45 INDEMNIFICATION OF DIRECTORS AND OFFICERS PURSUANT TO THE MERGER AGREEMENT Pursuant to the Merger Agreement, from and after the Effective Time, ATL will indemnify, defend and hold harmless the present and former officers, directors and employees of Interspec against all losses, expenses, claims, damages or liabilities arising out of actions or omissions occurring at or prior to the Effective Time to the fullest extent permitted or required under applicable law. ATL has agreed that rights of indemnification existing in favor of such persons under Interspec's articles of incorporation and bylaws will survive the Merger and continue for a period of not less than six years. ATL has also agreed that it shall cause to be maintained for a period of not less than five years from the Effective Time Interspec's current directors' and officers' liability insurance and indemnification policy to the extent it provides coverage for events occurring prior to the Effective Time for all persons who were directors and officers of Interspec on the date of Closing for so long as the annual premium paid therefor would not be in excess of 150% of the last annual premium paid therefor prior to the date of Closing. COMPARATIVE PER SHARE MARKET INFORMATION Market prices for the shares of ATL Common Stock and Interspec Common Shares are reported on the Nasdaq National Market. The table below sets forth for the fiscal periods indicated the high and low sale prices per share of ATL Common Stock and per Interspec Common Share on the Nasdaq National Market as reported in published financial sources. For current price information, ATL shareholders and Interspec shareholders are urged to consult publicly available sources.
PRICE PER SHARE PRICE PER OF ATL COMMON INTERSPEC STOCK COMMON SHARE --------------- ------------- HIGH LOW HIGH LOW ------- ------- ------ ------ FISCAL 1992 First Quarter................................... (1) (1) $7 7/8 $5 1/4 Second Quarter.................................. (1) (1) 7 1/4 3 1/4 Third Quarter................................... $28 1/4 $14 1/2 4 3/4 3 1/2 Fourth Quarter.................................. 24 1/2 16 1/2 5 3/8 3 7/8 FISCAL 1993 First Quarter................................... 19 15 3/4 6 1/4 4 1/4 Second Quarter.................................. 18 3/4 15 1/2 4 5/8 3 1/4 Third Quarter................................... 17 3/4 15 1/4 4 5/8 2 5/8 Fourth Quarter.................................. 17 1/2 15 3/4 4 1/2 2 3/4 FISCAL 1994 First Quarter................................... 17 1/4 15 6 1/8 3 Second Quarter (through April 14, 1994)......... 15 1/4 14 1/4 5 3/4 5 3/8
- - - -------- (1) Prior to June 26, 1992, ATL was known as Westmark, and included SpaceLabs, now a separately traded public company; therefore the Westmark stock price prior to June 26, 1992 is not meaningful for comparison purposes. See "THE COMPANIES--ATL." On February 10, 1994, the last full trading day prior to announcement of the execution of the Merger Agreement, the reported Nasdaq National Market closing price per share of ATL Common Stock was $16.75 and per Interspec Common Share was $4.00. On April 14, 1994, the most recent available date prior to printing this Joint Proxy Statement/Prospectus, the reported Nasdaq National Market closing price per share of ATL Common Stock was $15.00 and per Interspec Common Share was $5.69. ATL has never paid cash dividends on shares of ATL Common Stock and Interspec has never paid cash dividends on Interspec Common Shares. The Merger Agreement prohibits ATL and Interspec from paying cash dividends prior to the Effective Time. In addition, ATL's credit facility limits the ability of ATL to pay cash dividends in certain circumstances. It is not anticipated that any cash dividends will be paid on shares of ATL Common Stock in the foreseeable future. 46 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The following Unaudited Pro Forma Condensed Combined Statements of Operations and Balance Sheet give effect to the Merger on the pooling-of-interests method of accounting. These Unaudited Pro Forma Condensed Combined Financial Statements have been prepared from the historical consolidated financial statements of ATL and of Interspec incorporated by reference herein and should be read in conjunction therewith. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." This pro forma condensed combined information is not necessarily indicative of actual or future operating results or financial position that would have occurred or will occur upon consummation of the Merger. The Unaudited Pro Forma Condensed Combined Balance Sheet gives effect to the Merger as if it had occurred on December 31, 1993, combining the balance sheet of ATL as of December 31, 1993 and the balance sheet of Interspec as of November 30, 1993. The Unaudited Pro Forma Condensed Combined Statements of Operations give effect to the Merger as if it had occurred on December 29, 1990, combining the results of ATL for each of the years in the three-year period ended December 31, 1993 and the results of Interspec for each of the years in the three-year period ended November 30, 1993. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FISCAL YEAR ENDED DECEMBER 31, 1993 (IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL PRO FORMA ------------------- ---------------------- ATL INTERSPEC ADJUSTMENTS COMBINED -------- --------- ----------- -------- Revenues....................... $304,511 $61,377 $(5,391)(a) $360,497 Cost of sales.................. 167,769 32,105 (5,226)(a) 194,648 -------- ------- ------- -------- Gross profit................... 136,742 29,272 (165) 165,849 Operating expenses: Selling, general and administrative.............. 91,952 18,000 109,952 Research and development..... 43,838 8,227 52,065 Restructuring charge......... 4,275 -- 4,275 Other expense (income), net.. 2,486 177 2,663 -------- ------- ------- -------- 142,551 26,404 168,955 -------- ------- ------- -------- Income (loss) from operations.. (5,809) 2,868 (165) (3,106) Investment income.............. 2,912 176 3,088 Interest expense............... (689) (1,028) (1,717) -------- ------- ------- -------- Income (loss) before income taxes......................... (3,586) 2,016 (165) (1,735) Income tax expense............. 1,520 761 (695)(b) 1,586 -------- ------- ------- -------- Income (loss) before extraordinary item............ (5,106) 1,255 530 (3,321) Extraordinary item: utilization of tax loss carryforward...... -- 695 (695)(b) -- -------- ------- ------- -------- Net income (loss).............. $ (5,106) $ 1,950 $ (165) $ (3,321) ======== ======= ======= ======== Weighted average common shares and equivalents outstanding... 10,992 6,284 13,587 Per share data: Income (loss) before extraordinary item.......... $ (.46) $ .20 $ (.24) Extraordinary item........... -- .11 -- -------- ------- -------- Net income (loss).......... $ (.46) $ .31 $ (.24) ======== ======= ========
See accompanying notes to unaudited pro forma condensed combined financial statements. 47 UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET DECEMBER 31, 1993 (IN THOUSANDS)
HISTORICAL PRO FORMA ------------------ ---------------------- ATL INTERSPEC ADJUSTMENTS COMBINED -------- --------- ----------- -------- ASSETS Current assets: Cash and short-term investments.... $ 54,635 $ 123 $ 54,758 Receivables........................ 86,813 16,704 $ (706)(a) 102,811 Inventories........................ 74,678 15,454 (1,440)(a) 88,692 Prepaid expenses................... 1,305 875 2,180 Deferred income taxes.............. 7,403 -- 1,571(b) 8,974 -------- ------- ------- -------- Total current assets............. 224,834 33,156 (575) 257,415 Marketable debt security............. 4,988 -- 4,988 Property, plant and equipment, net... 45,318 14,493 59,811 Other assets, net.................... 1,558 5,625 7,183 -------- ------- ------- -------- $276,698 $53,274 $ (575) $329,397 ======== ======= ======= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings.............. $ 3,679 $ 1,600 $ 5,279 Current installments of long-term debt.............................. -- 470 470 Accounts payable and accrued expenses.......................... 49,138 12,496 $ (706)(a) 60,928 Deferred revenue................... 29,691 1,020 30,711 Taxes on income.................... 4,763 183 4,946 -------- ------- ------- -------- Total current liabilities........ 87,271 15,769 (706) 102,334 Deferred income taxes................ 3,057 -- 1,571(b) 4,628 Long-term debt, less current installments........................ -- 5,100 5,100 Subordinated long-term debt.......... -- 1,588 1,588 Subordinated long-term debt--related parties............................. -- 4,912 4,912 Shareholders' equity................. 186,370 25,905 (1,440) 210,835 -------- ------- ------- -------- $276,698 $53,274 $ (575) $329,397 ======== ======= ======= ========
See accompanying notes to unaudited pro forma condensed combined financial statements. 48 UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FISCAL YEAR ENDED DECEMBER 31, 1992 (IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL PRO FORMA ------------------- ---------------------- ATL INTERSPEC ADJUSTMENTS COMBINED -------- --------- ----------- -------- Revenues........................... $323,711 $60,343 $(3,649)(a) $380,405 Cost of sales...................... 174,571 32,164 (3,739)(a) 202,996 -------- ------- ------- -------- Gross profit....................... 149,140 28,179 90 177,409 Operating expenses: Selling, general and administrative.................. 95,343 16,540 111,883 Research and development......... 38,313 7,738 46,051 Restructuring charge............. 3,764 -- 3,764 Stock distribution expenses...... 1,195 -- 1,195 Other expense (income), net...... 4,454 (376) 4,078 -------- ------- ------- -------- 143,069 23,902 166,971 -------- ------- ------- -------- Income from operations............. 6,071 4,277 90 10,438 Investment income.................. 4,224 409 4,633 Interest expense................... (790) (1,359) (2,149) -------- ------- ------- -------- Income before income taxes......... 9,505 3,327 90 12,922 Income tax expense................. 2,098 1,105 (1,010)(b) 2,193 -------- ------- ------- -------- Income before extraordinary item... 7,407 2,222 1,100 10,729 Extraordinary item: utilization of tax loss carryforward............. -- 1,010 (1,010)(b) -- -------- ------- ------- -------- Net income......................... $ 7,407 $ 3,232 $ 90 $ 10,729 ======== ======= ======= ======== Weighted average common shares and equivalents outstanding........... 11,086 6,309 13,692 Per share data: Income before extraordinary item. $ .67 $ .35 $ .78 Extraordinary item............... -- .16 -- -------- ------- ------- -------- Net income..................... $ .67 $ .51 $ .78 ======== ======= ======= ========
See accompanying notes to unaudited pro forma condensed combined financial statements. 49 UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FISCAL YEAR ENDED DECEMBER 27, 1991 (IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL PRO FORMA ------------------- ---------------------- ATL INTERSPEC ADJUSTMENTS COMBINED -------- --------- ----------- -------- Revenues........................... $279,716 $61,547 $(4,871)(a) $336,392 Cost of sales...................... 156,683 35,275 (4,491)(a) 187,467 -------- ------- ------- -------- Gross profit....................... 123,033 26,272 (380) 148,925 Operating expenses: Selling, general and administrative.................. 87,430 15,675 103,105 Research and development......... 35,206 7,197 42,403 Gain on sale of subsidiary....... -- (7,393) (7,393) Other expense (income), net...... (3,475) (69) (3,544) -------- ------- ------- -------- 119,161 15,410 134,571 -------- ------- ------- -------- Income from operations............. 3,872 10,862 (380) 14,354 Investment income.................. 4,073 283 4,356 Interest expense................... (697) (1,813) (2,510) -------- ------- ------- -------- Income before income taxes......... 7,248 9,332 (380) 16,200 Income tax expense................. 877 846 (760)(b) 963 -------- ------- ------- -------- Income before extraordinary item... 6,371 8,486 380 15,237 Extraordinary item: utilization of tax loss carryforward............. -- 760 (760)(b) -- -------- ------- ------- -------- Net income......................... $ 6,371 $ 9,246 $ (380) $ 15,237 ======== ======= ======= ======== Weighted average common shares and equivalents outstanding........... 10,220 6,261 12,806 Per share data: Income before extraordinary item. $ .62 $ 1.36 $ 1.19 Extraordinary item............... -- .12 -- -------- ------- ------- -------- Net income..................... $ .62 $ 1.48 $ 1.19 ======== ======= ======= ========
See accompanying notes to unaudited pro forma condensed combined financial statements. 50 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS NOTE 1: The pro forma condensed Balance Sheet information reflects the result of combining the balance sheet of ATL as of December 31, 1993 with the balance sheet of Interspec as of November 30, 1993, the companies' respective year ends. NOTE 2: The pro forma Statements of Operations for the fiscal years ended December 31, 1993 and 1992 and December 27, 1991 reflect the results of combining the historical results of operations of ATL and of Interspec. Interspec has a November 30 year-end and, accordingly, the Interspec statements of operations for the fiscal years ended November 30, 1993, 1992 and 1991 have been combined with the ATL statements of operations for the fiscal years ended December 31, 1993 and 1992 and December 27, 1991, respectively. NOTE 3: Pro Forma Adjustments (a) The pro forma condensed Statements of Operations include adjustments to eliminate revenues and cost of sales generated from transactions between ATL and Interspec. The pro forma condensed Balance Sheet includes adjustments to eliminate the amount of unrealized profit in inventory and trade accounts receivable and payable resulting from transactions between ATL and Interspec. (b) The pro forma condensed Balance Sheet and Statements of Operations contain adjustments that reflect Interspec's adoption of Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," retroactively to the beginning of fiscal year 1988. Adjustments were made to the pro forma condensed Balance Sheet to record deferred tax assets, deferred tax liabilities and a related valuation allowance that were not recorded prior to the adoption of SFAS 109. Further adjustments were made to the pro forma Statements of Operations to reclassify the tax benefits from net operating loss carryforwards as a component of income tax expense rather than as an extraordinary item. NOTE 4: Total costs to be incurred by ATL and Interspec in connection with the Merger are estimated to be approximately $2.3 million. These costs relate primarily to legal, accounting, investment advisory and printing services and will be charged against income in the periods subsequent to the pro forma combined financial statements. Accordingly, these costs have not been reflected in the pro forma financial statements. NOTE 5: Per share data are based on the weighted average number of common shares and dilutive common share equivalents outstanding. The pro forma ATL Common Stock include shares of ATL Common Stock assumed to be issued as if the Merger had taken place at the beginning of the respective periods. 51 DESCRIPTION OF ATL CAPITAL STOCK The following description is summarized from the provisions of the ATL Certificate of Incorporation. ATL's authorized capital includes 50,000,000 shares of ATL Common Stock. All shares of ATL Common Stock are entitled to participate equally in dividends. Each shareholder has one vote for each share registered in such shareholder's name as of the applicable record date for any matter presented to shareholders. All shares of ATL Common Stock rank equally on liquidation. Holders of shares of ATL Common Stock have no preemptive rights and are not entitled to cumulate their votes in the election of directors. ATL's authorized capital also includes 6,000,000 preferred shares, 500,000 of which have been designated Series A Preferred Shares (the "ATL Series A Preferred Shares"). There are no preferred shares issued or outstanding. The ATL Board is authorized to establish the number of shares, designations, relative rights, preferences and limitations, including voting and conversion rights, of any future series of preferred shares. SHAREHOLDER RIGHTS PLAN Pursuant to the Amended and Restated Rights Agreement dated as of June 26, 1992, between ATL and First Chicago Trust Company of New York, as Rights Agent, as amended (the "Rights Agreement"), holders of shares of ATL Common Stock currently hold rights to purchase shares of ATL Series A Preferred Shares exercisable only in certain circumstances (the "Rights"). The Rights, which are represented by certificates for ATL Common Stock, currently trade together with the ATL Common Stock. Each Right, when it becomes exercisable as described below, will entitle the registered holder to purchase one one-hundredth ( 1/100) of an ATL Series A Preferred Share at a price (the "Purchase Price") equal to four times the average of the high and low sale prices of the ATL Common Stock as reported on the Nasdaq National Market for each of the 10 trading days commencing on the sixth trading day following the Distribution Date (as defined in the Rights Agreement). The ATL Series A Preferred Shares issuable upon exercise of the Rights will not be redeemable. Each ATL Series A Preferred Share will be entitled to a minimum preferential quarterly dividend payment of $.01 per share, but will be entitled to an aggregate dividend of 100 times the dividend declared per share of ATL Common Stock, if any. In the event of dissolution, liquidation or winding up of ATL, whether voluntary or involuntary, the holders of ATL Series A Preferred Shares will be entitled to a minimum preferential payment of $.01 per share, but will be entitled to an aggregate preferential payment of 100 times the payment made per share of ATL Common Stock. Each ATL Series A Preferred Share will have 100 votes, voting together with the ATL Common Stock. Finally, in the event of any merger, business combination, consolidation or other transaction in which the ATL Common Stock is exchanged, each ATL Series A Preferred Share will be entitled to receive 100 times the amount received per share of ATL Common Stock. Because of the nature of the ATL Series A Preferred Shares' dividend, liquidation and voting rights, the value of the one one- hundredth ( 1/100) interest in an ATL Series A Preferred Share issuable upon exercise of each Right should approximate the value of one share of ATL Common Stock. Customary antidilution provisions are designed to protect that relationship in the event of certain changes in the ATL Common Stock and the ATL Series A Preferred Shares. The ATL Series A Preferred Shares are authorized to be issued in fractions that are an integral multiple of one one-hundredth ( 1/100) of an ATL Series A Preferred Share. ATL may, but is not required to, issue fractions of shares upon the exercise of Rights, and, in lieu of fractional shares, ATL may utilize a depository arrangement as provided by the terms of the ATL Series A Preferred Shares and, in the case of fractions other than one one-hundredth ( 1/100) of an ATL Series A Preferred Share or integral multiples thereof, may make a cash payment based on the market price of such shares. Until the earlier of (i) such time as ATL learns that a person or group (including any affiliate or associate of such person or group) has acquired, or has obtained the right to acquire, beneficial ownership of 15% or more of the outstanding ATL Common Stock (such person or group being an "Acquiring Person") and (ii) 52 such date, if any, as may be designated by the ATL Board following the commencement of, or first public disclosure of an intent to commence, a tender or exchange offer for outstanding ATL Common Stock that could result in the offeror becoming the beneficial owner of 15% or more of the outstanding ATL Common Stock (the earlier of such dates, subject to certain exceptions, being the "Separation Date"), the Rights will be evidenced by certificates for ATL Common Stock registered in the names of the holders thereof (which certificates for ATL Common Stock will also be deemed to be Right Certificates, as defined herein), not by separate Right Certificates. Therefore, until the Separation Date, the Rights will be transferred with and only with the ATL Common Stock. As soon as practicable following the Separation Date, separate certificates evidencing the Rights ("Right Certificates") will be mailed to holders of record of ATL Common Stock as of the close of business on the Separation Date (and to each initial record holder of certain ATL Common Stock originally issued after the Separation Date), and such separate Right Certificates alone will thereafter evidence the Rights. The Rights are not exercisable until the Separation Date and will expire on June 30, 2002 (the "Expiration Date"), unless earlier redeemed or canceled by ATL, as described below. The number of ATL Series A Preferred Shares or other securities issuable upon exercise of a Right, the Purchase Price, the Redemption Price (as defined herein) and the number of Rights associated with each outstanding share of ATL Common Stock are all subject to adjustment by the ATL Board in the event of any change in the ATL Common Stock or the ATL Series A Preferred Shares, whether by reason of stock dividends, stock splits, recapitalizations, mergers, consolidations, combinations or exchanges of securities, split-ups, split-offs, spin-offs, liquidations, other similar changes in capitalization, any distribution or issuance of cash, assets, evidences of indebtedness or subscription rights, options or warrants to holders of ATL Common Stock or ATL Series A Preferred Shares, as the case may be (other than the Rights or regular quarterly cash dividends), or otherwise. In the event a person becomes an Acquiring Person, the Rights will entitle each holder of a Right (other than those held by an Acquiring Person (or any affiliate or associate of such Acquiring Person)) to purchase, for the Purchase Price, that number of one one-hundredth ( 1/100) of an ATL Series A Preferred Share equivalent to the number of shares of ATL Common Stock that at the time of the transaction would have a market value of twice the Purchase Price. Any Rights that are at any time beneficially owned by an Acquiring Person (or any affiliate or associate of an Acquiring Person) will be null and void and nontransferable and any holder of any such Right (including any purported transferee or subsequent holder) will be unable to exercise or transfer any such Right. After there is an Acquiring Person the ATL Board may elect to exchange each Right (other than Rights that have become null and void and nontransferable as described above) for consideration per Right consisting of one-half of the securities that would be issuable at such time upon the exercise of one Right pursuant to the terms of the Rights Agreement, and without payment of the Purchase Price. In the event ATL is acquired in a merger by, or other business combination with, or 50% or more of its assets or assets representing 50% or more of its earning power are sold, leased, exchanged or otherwise transferred (in one or more transactions) to, a publicly traded corporation, each Right will entitle its holder (subject to the next paragraph) to purchase, for the Purchase Price, that number of common shares of such corporation that at the time of the transaction would have a market value of twice the Purchase Price. In the event ATL is acquired in a merger by, or other business combination with, or 50% or more of its assets or assets representing 50% or more of the earning power of ATL are sold, leased, exchanged or otherwise transferred (in one or more transactions) to, an entity that is not a publicly traded corporation, each Right will entitle its holder (subject to the next paragraph) to purchase, for the Purchase Price, at such holder's option, (i) that number of shares of the surviving corporation in the transaction with such entity (which surviving corporation could be ATL) that at the time of the transaction would have a book value of twice the Purchase Price, (ii) that number of shares of such entity that at the time of the transaction would have a 53 book value of twice the Purchase Price, or (iii) if such entity has an affiliate that has publicly traded common shares, that number of common shares of such affiliate that at the time of the transaction would have a market value of twice the Purchase Price. At any time prior to the earlier of (i) such time as a person becomes an Acquiring Person and (ii) the Expiration Date, the ATL Board may redeem the Rights in whole, but not in part, at a price (in cash or ATL Common Stock or other securities of ATL deemed by the ATL Board to be at least equivalent in value) of $.01 per Right, subject to adjustment as provided in the Rights Agreement (the "Redemption Price"); provided, however, that for the 120-day period after any date of a change (resulting from a proxy or consent solicitation) in a majority of the ATL Board in office at the commencement of such solicitation, the Rights may only be redeemed if (A) there are directors then in office who were in office at the commencement of such solicitation and (B) the ATL Board, with the concurrence of a majority of such directors then in office, determines that such redemption is, in its judgment, in the best interests of ATL and its shareholders. Immediately upon the action of the ATL Board electing to redeem the Rights, ATL will make an announcement thereof, and, upon such election, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of ATL, including, without limitation, the right to vote or to receive dividends. At any time prior to the Separation Date, ATL may, without the approval of any holder of the Rights, supplement or amend any provision of the Rights Agreement (including the date on which the Separation Date would occur, the time during which the Rights may be redeemed or the terms of the ATL Series A Preferred Shares), except that no supplement or amendment shall be made that reduces the Redemption Price (other than pursuant to certain adjustments therein), provides for an earlier Expiration Date or makes certain changes to the definition of Acquiring Person. However, for the 120-day period after any date of a change (resulting from a proxy or consent solicitation) in a majority of the ATL Board in office at the commencement of such solicitation, the Rights Agreement may be supplemented or amended only if (A) there are directors then in office who were in office at the commencement of such solicitation and (B) the ATL Board, with the concurrence of a majority of such directors then in office, determines that such supplement or amendment is, in its judgment, in the best interests of ATL and its shareholders. The Rights have certain antitakeover effects. The Rights will cause substantial dilution to a person or group that attempts to acquire ATL without conditioning the offer on substantially all the Rights being acquired. The Rights will not interfere with any merger or other business combination approved by the ATL Board since the ATL Board may, at its option, at any time prior to any person becoming an Acquiring Person, redeem all but not less than all the then outstanding Rights at the Redemption Price. DESCRIPTION OF INTERSPEC CAPITAL STOCK The following description is summarized from the provisions of the Interspec's Amended and Restated Articles of Incorporation (the "Interspec Articles of Incorporation"). Interspec's authorized capital includes 10,000,000 Interspec Common Shares. All Interspec Common Shares are entitled to participate equally in dividends. Each shareholder has one vote for each share registered in such shareholder's name as of the applicable record date for any matter presented to shareholders. All Interspec Common Shares rank equally on liquidation. Holders of Interspec Common Shares have no preemptive rights and are not entitled to cumulate their votes in the election of directors. Interspec's authorized capital also includes 400,000 preferred shares. There are no preferred shares issued or outstanding. The Interspec Board is authorized to establish the number of shares, designations, relative rights, preferences and limitations, including voting and conversion rights, of any future series of preferred shares. 54 COMPARISON OF RIGHTS OF ATL AND OF INTERSPEC SHAREHOLDERS If the Merger is consummated, holders of Interspec Common Shares will become holders of shares of ATL Common Stock and the rights of the former Interspec shareholders will be governed by the laws of the state of Delaware and by the ATL Certificate of Incorporation and the ATL Bylaws. The rights of ATL shareholders under the ATL Certificate of Incorporation and the ATL Bylaws differ in certain respects from the rights of Interspec shareholders under the Interspec Articles of Incorporation and the Restated and Amended Bylaws of Interspec (the "Interspec Bylaws"). Certain differences between the rights of ATL shareholders and Interspec shareholders are summarized below. This summary is qualified in its entirety by reference to the full text of such documents. For information as to how such documents may be obtained, see "AVAILABLE INFORMATION." GENERAL Upon consummation of the Merger, the shareholders of Interspec will become shareholders of ATL. Accordingly, the rights of Interspec shareholders following the Merger will, subject to the limitations set forth in the following paragraph, be governed by Delaware law as well as by the ATL Certificate of Incorporation and the ATL Bylaws. While it is not practical to discuss all changes in the rights of Interspec shareholders as a result of the application of Delaware law in lieu of Pennsylvania law, the following is a summary of material differences. As indicated in the following discussion, the PBCL contains certain provisions applicable only to "registered corporations," which in essence are publicly held corporations such as Interspec that have a class of voting shares registered under the Exchange Act. CHANGES PRINCIPALLY ATTRIBUTABLE TO DIFFERENCES BETWEEN THE DGCL AND THE PBCL Action by Written Shareholder Consent. Under the DGCL, unless otherwise provided by the certificate of incorporation, any action that may be taken by the shareholders may be taken without a meeting if such action is taken by written consents signed by the holders of such stock having not less than the minimum number of votes that would be necessary to take such action at a meeting at which all shares were present and voted. Under the PBCL, the shareholders may act without a meeting only by written consent by all the shareholders who would be entitled to vote at a meeting for such purpose, unless the articles of incorporation or bylaws otherwise provide. The Interspec Articles of Incorporation and the Interspec Bylaws contain no such provision. Special Meetings of Shareholders. Under the DGCL, a special meeting of shareholders may be called only by the board of directors or such persons as may be authorized by the certificate of incorporation or bylaws. The ATL Bylaws provide that special meetings of shareholders for any purpose may be called by (i) the Chairman of the ATL Board, (ii) the President, (iii) a majority of the ATL Board, or (iv) the holders of at least two-thirds of the voting power of the then-outstanding shares of stock of all classes and series of the corporation entitled to vote generally in the election of members of the ATL Board. Under the PBCL, the shareholders of a "registered corporation" are entitled to call a special meeting of shareholders only if they are authorized to do so in the articles of incorporation. Because the Interspec Articles of Incorporation do not contain such a provision, special shareholders' meetings may be called only by the Interspec Board. Voting by Ballot. Under the DGCL, election of directors must be by written ballot unless the certificate of incorporation otherwise provides (the ATL Certificate of Incorporation does not so provide). Under the PBCL, the election of directors need not be by written ballot unless required by vote of the shareholders at the election and before the voting begins. Voting by ballot is required for a Pennsylvania corporation having such requirement in its bylaws, but the Interspec Bylaws contain no such provision. Charter Amendments. The DGCL requires that amendments to a certificate of incorporation be approved by the affirmative vote of shareholders entitled to cast a majority of the votes that all shareholders are entitled to cast thereon, unless the certificate of incorporation requires approval by a greater proportion of votes. In 55 addition, an amendment must be separately approved by a majority vote of all outstanding shares of any class, whether or not otherwise entitled to vote, if the amendment would increase or decrease the aggregate number of authorized shares of such class (unless class voting with respect thereto is waived in the certificate of incorporation), increase or decrease the par value of the shares of such class, or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. Pennsylvania law is similar to the foregoing except (i) the majority vote or votes required is a majority of the votes actually cast on the amendment, (ii) shareholder approval is not required for certain nonmaterial amendments, such as a change in the corporate name, a provision for perpetual existence, or, if the corporation has only one class of shares outstanding, a change in the number and par value of authorized shares to effect a stock split, (iii) class votes are not required for any changes to par values of any class, nor are they required for any decrease in the number of authorized shares of any class, and (iv) approval of the holders of shares of a class is required for the authorization of a new class or an increase in the number of authorized shares of an existing class having a preference as to dividends or assets that is senior to the shares of the class whose voting rights are to be determined. Also, unless the articles provide otherwise, which the Interspec Articles of Incorporation do not, shareholders of a Pennsylvania "registered corporation" may not propose amendments to the articles. Mergers and Other Fundamental Transactions. The DGCL requires, in general, that a merger, consolidation, sale of assets or dissolution be approved by the affirmative vote of shareholders entitled to cast a majority of the votes that all shareholders are entitled to cast thereon, unless the certificate of incorporation requires approval by a greater proportion of votes. The ATL Certificate of Incorporation does not contain such a supermajority requirement. In the case of Pennsylvania corporations, mergers and other fundamental transactions in general would require shareholder approval by only a majority of the votes actually cast by all shareholders entitled to vote thereon, unless the articles required a higher vote. The Interspec Articles of Incorporation do not require a higher threshold of shareholder approval. Mergers Without Shareholder Approval. Unless the certificate of incorporation otherwise provides (which the ATL Certificate of Incorporation does not), the DGCL permits the board of directors of a corporation to effect a merger without shareholder approval (and no appraisal rights are available to dissenting shareholders) if the number of common shares of the corporation issued or issuable in the transaction does not exceed 20% of the number previously outstanding and certain conditions are met. Additionally, when certain conditions are met, no vote is required for the merger of a Delaware corporation into a corporation that holds at least 90% of the outstanding shares of each class of stock of such corporation. Under the PBCL, shareholder approval is not required (whether or not the corporation is the survivor) (i) for a merger if the survivor is a Pennsylvania corporation, the outstanding shares are unaffected and have majority voting power and no changes are made to the articles except those that the board would be permitted to make on its own initiative by amending the articles or (ii) for the merger of a Pennsylvania corporation with another corporation that owns at least 80% of its outstanding shares. Special Treatment. Under the PBCL, an amendment to the articles or a plan of reclassification, merger, consolidation, exchange, asset transfer, division or conversion that provides mandatory special treatment for the shares of a class held by particular shareholders or groups of shareholders that differs materially from the treatment accorded other shareholders or groups of shareholders holding shares of the same class or series must be approved by each group of holders of any outstanding shares of a class who are to receive the same special treatment under the amendment or plan, voting as a special class in respect to the plan, regardless of any limitations stated in the articles or bylaws on the voting rights of any class. At the option of the corporation's board of directors, the approval of such special treatment by any such affected group may be omitted, but in such event the holders of any outstanding shares of the special class so denied voting rights are entitled to dissenters' rights (i.e., the right to demand payment in cash by the corporation of the fair value of one's shares). Delaware statutory law has no comparable provision. Amendments of the Bylaws. Under the DGCL, unless the certificate of incorporation or bylaws otherwise provide, the shareholders may amend bylaws at any annual meeting, notwithstanding the fact that no prior notice of such purpose has been given, and without the consent of the corporation's board of directors. Under 56 the PBCL, action cannot be taken at an annual or special meeting of shareholders on an amendment of the bylaws unless a copy of the proposed amendment or a summary thereof has been included with the notice of the meeting. Under the DGCL, if the certificate of incorporation confers on the board of directors the power to amend the bylaws, as does the ATL Certificate of Incorporation, the power of the board to make changes in the bylaws is not limited. The PBCL limits the power of a board of a Pennsylvania corporation to adopt bylaws on specified subjects, absent a contrary provision in the articles (the Interspec Articles of Incorporation contain no such provision). Directors' Duties and Liabilities. Both the DGCL and the PBCL provide that the board of directors has the ultimate responsibility for managing the business and affairs of a corporation. In discharging this function, directors have fiduciary duties of care and loyalty to the corporation and its shareholders. The duty of loyalty in both states requires that directors act in good faith and place the best interests of the corporation and its shareholders above their own individual interests. In addition, the PBCL specifically authorizes directors, in considering the best interests of the corporation, to consider the effects of any action upon employees, suppliers and customers of the corporation, upon communities in which offices or other establishments of the corporation are located, and all other pertinent factors. Directors of both Delaware and Pennsylvania corporations have a duty to perform their duties with a certain degree of care and diligence. The Delaware Supreme Court has held that the duty of care requires the exercise of an informed business judgment. Under Delaware case law, an "informed business judgment" means that the directors have informed themselves of all material information reasonably available to them. Having become so informed, they then must act with requisite care in the discharge of their duties. Liability of directors of a Delaware corporation to the corporation or its shareholders for breach of the duty of care generally requires a finding by a court that the directors were grossly negligent. Directors of Pennsylvania corporations are obligated to perform their duties in good faith, in a manner they reasonably believe to be in the best interests of the corporation and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would exercise under similar circumstances. Absent breach of fiduciary duty, lack of good faith or self-dealing, actions taken as a director of a Pennsylvania corporation are presumed to be in the best interests of the corporation. In the context of takeover bids or other corporate control contests or transactions, the Delaware courts have applied an "enhanced duty" standard for many director actions. In this context, the PBCL distinguishes Pennsylvania fiduciary standards from those of Delaware. The PBCL (i) explicitly gives a board of directors authority in responding to a takeover bid to weigh (in addition to consideration of employees, suppliers, customers, communities and other pertinent factors) the long-term interests of the corporation and the possibility that they may be best served by the independence of the corporation, and the resources, intent and conduct (past, stated and potential) of the prospective acquiror, (ii) relieves the board of directors in such circumstances from any duty to regard the shareholder interest as dominant or controlling, (iii) explicitly gives a board of directors discretion in the context of a takeover bid to refuse to redeem or modify a shareholder rights plan, (iv) declares actions by directors with respect to a takeover bid to be subject to the same standard of conduct for directors that is applicable to all other conduct, and (v) establishes a presumption that actions with respect to a takeover bid by the "disinterested directors" (a term defined to include essentially all directors except certain officers and persons associated with the prospective acquiror) are lawful unless it is proved under a clear and convincing evidence standard that a director did not act in good faith after reasonable investigation. Provisions Affecting Directors' Monetary Liability. Both the DGCL and the PBCL, subject to certain limitations, permit a corporation's certificate of incorporation (or, in Pennsylvania, a bylaw adopted by a corporation's shareholders) to limit or eliminate a director's exposure to monetary liability for breach of duty. The ATL Certificate of Incorporation provides that, to the fullest extent permitted by the DGCL, no director of ATL shall be personally liable to ATL or its shareholders for monetary damages for breach of fiduciary duty as a director. The Interspec Bylaws provide that a director shall not be personally liable for monetary damages for any action taken, or any failure to take any action, unless the director has breached or failed to 57 perform the duties of his or her office and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness. Such limitation (i) does not apply to the responsibility or liability of a director pursuant to any criminal statute or the liability of a director for the payment of taxes and (ii) may, in the view of certain commentators, shield a director from liability for certain breaches of his or her duty of loyalty as well as his or her duty of care. However, the limitations on director liability provided under the DGCL and the PBCL may not be effective to protect directors from liability under federal law, including federal securities law. The ATL Certificate of Incorporation provides that no repeal or amendment of the limitation on director liability shall apply to or have any effect on the liability or alleged liability for or with respect to acts or omissions of such director occurring prior to such repeal or amendment; the Interspec Bylaws contain a comparable provision. Therefore, any repeal or modification of the limitation on director liability may not have any retroactive effect in the cases of both ATL and Interspec. While these provisions afford directors protection from awards of monetary damages for certain breaches of their duty of care, they do not eliminate the duty of care. Accordingly, such provisions have no effect on the availability of equitable remedies such as an injunction or rescission. As a practical matter, however, such remedies may not always be available or effective. Shareholders, for example, may not be aware of a transaction or an event until it is too late to prevent it. The limitation on director liability was not included in the ATL Certificate of Incorporation or the Interspec Bylaws in response to any pending or threatened litigation. The ATL Board and the Interspec Board both continue to believe that the diligence exercised by directors stems primarily from their desire to act in the best interests of their respective companies, not from a fear of monetary damage awards. Indemnification of Directors and Officers. Both the DGCL and the PBCL permit a corporation to indemnify its directors and officers against expenses, judgments, fines and amounts paid in settlement incurred by them in connection with any pending, threatened or completed action or proceeding (other than, in the case of a Delaware corporation, an action by or in the right of corporation (a "derivative action")), and permit such indemnification against expenses incurred in connection with any pending, threatened or completed derivative action, if the director or officer acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. Furthermore, both states' laws provide that expenses incurred in defending any action or proceeding may be paid by the corporation in advance of the final disposition upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined that the director or officer is not entitled to be indemnified by the corporation. In both states the statutory provisions for indemnification and advancement of expenses are nonexclusive with respect to any other rights, such as contractual rights (and, in the case of a Pennsylvania corporation, under a bylaw or vote of shareholders or disinterested directors), to which a person seeking indemnification or advancement of expenses may be entitled. Such contractual or other rights may, for example, under the PBCL, provide for indemnification against judgments, fines and amounts paid in settlement incurred by the indemnified person in connection with derivative actions. The PBCL permits such derivative action indemnification in any case except where the act or failure to act giving rise to the claim for indemnification is determined by a court to have constituted willful misconduct or recklessness. The Interspec Bylaws currently provide for mandatory indemnification of directors and officers to the fullest extent now or hereafter permitted by Pennsylvania. At the present time, insofar as Interspec is concerned, these boundaries are dictated by the PBCL and related legislation, which prohibit indemnification where the conduct is determined by a court to constitute willful misconduct or recklessness. The ATL Certificate of Incorporation similarly provides for indemnification of directors and officers to the fullest extent permitted by the DGCL. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the corporation pursuant to such provisions, the Commission has taken the position that such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. 58 Both the DGCL and the PBCL permit a corporation to purchase and maintain insurance on behalf of any director or officer of the corporation against any liability asserted against the director or officer and incurred in such capacity, whether or not the corporation would have the power to indemnify the director or officer against such liability. Both Interspec and ATL presently have directors' and officers' liability insurance. Removal of Directors. The PBCL provides that, unless otherwise provided in a bylaw adopted by the shareholders, any director or directors of a Pennsylvania corporation may be removed from office without assigning cause by the vote of the shareholders entitled to elect directors. The Interspec Bylaws provide that directors can be removed at any time, with or without cause, by the unanimous vote or consent of the shareholders entitled to elect directors. The board of directors of a Pennsylvania corporation also is empowered to remove any director who has been convicted of a felony or declared of unsound mind by court order, or for any other proper cause enumerated in the bylaws (the Interspec Bylaws do not state any such cause). Also, under the PBCL, any shareholder or director of a Pennsylvania corporation has the right to petition a court to remove one or more directors for reasons of "fraudulent or dishonest acts, or gross abuse of authority or discretion with reference to the corporation." Under the DGCL, a director may be removed with or without cause by a vote of a majority of the shares then entitled to vote at an election of directors, except that if the board of directors is classified, directors may be removed only for "cause" and except that where the holders of any class or any series are entitled to elect one or more directors, such directors may be removed without cause only by the affirmative vote of the holders of a majority of the outstanding shares of such class or series. Filling Vacancies on the Board of Directors. The DGCL provides that any vacancy or newly created directorship on a board of directors may be filled by the remaining directors, although less than a quorum, except where such director is entitled to be elected by a class of shareholders, in which event a majority of the remaining directors elected by that class may fill the vacancy. Under certain circumstances, the Delaware Court of Chancery may order a shareholders meeting to fill vacancies on the board. Under the PBCL, vacancies on the board of directors, including vacancies resulting from an increase in the number of directors, may be filled by a majority of the remaining directors, although less than a quorum, or by a sole remaining director, and such person shall be a director and serve for the balance of the unexpired term, unless otherwise restricted in the bylaws (the Interspec Bylaws contain no such restrictions). Requirements for Advance Notification of Director Nominations. The Interspec Bylaws provide that no shareholder shall be permitted to nominate a candidate for election as a director unless such shareholder provides to the Secretary of Interspec in writing (i) information about such candidate that is equivalent to the information concerning the candidates nominated by the Interspec Board that was contained in Interspec's proxy statement for the immediately preceding annual meeting of shareholders at which directors were elected, if Interspec distributed a proxy statement to its shareholders in connection with such election of directors, or (ii) if Interspec did not distribute such a proxy statement, certain information about such candidate set forth in the Interspec Bylaws. Such information must be provided not later than 120 days before the first anniversary of the preceding annual meeting of shareholders. Loans to Directors, Officers and Employees. The PBCL permits loans, guarantees of obligations or similar undertakings by a corporation to its directors, officers or employees. The DGCL permits a corporation to make loans to officers of a corporation where such loans may reasonably be expected to benefit the corporation. Officers' Duties and Liabilities. Under the PBCL, the statutory standards of care for directors and officers of Pennsylvania corporations are distinct. The standard of care for directors of Pennsylvania corporations is discussed under "Directors' Duties and Liabilities" above. As to officers, the PBCL provides that, except as otherwise provided in the articles of incorporation, an officer shall perform his or her duties as an officer in good faith, in a manner the officer reasonably believes to be in the best interests of the corporation and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would exercise under similar circumstances. The DGCL does not address the standards of care imposed on directors and officers. 59 Dividends. The DGCL generally permits dividends to be paid out of any surplus, defined as the excess of the net assets of the corporation over the amount determined to be the capital of the corporation by the board of directors (which amount cannot be less than the aggregate par value of all issued shares of capital stock). The DGCL also permits a dividend to be paid out of the net profits of the current or the preceding fiscal year, or both, unless net assets are less than the capital of any outstanding preferred shares. Under the PBCL, a corporation may make distributions of cash or property unless, after giving effect thereto, (i) the corporation would be unable to pay its debts as they become due in the usual course of its business or (ii) the corporation's total assets would be less than the sum of its total liabilities plus the amount that would be needed upon the dissolution of the corporation to satisfy the preferential rights, if any, of shareholders having superior preferential rights to those shareholders receiving the distribution. Total assets and liabilities for this purpose are to be determined by the board of directors, which may base its determination on such factors as it considers relevant, including the book values of the corporation's assets and liabilities and unrealized appreciation and depreciation of the corporation's assets. Stock Repurchases. Under the DGCL, a corporation may not purchase or redeem shares of any class when its capital is impaired or such purchase would cause impairment of capital, except that a corporation may purchase or redeem out of capital any of its preferred shares if such shares will be retired upon the acquisition thereof and the capital of the corporation will be thereby reduced. Such reduction of capital is permitted only if the assets of the corporation remaining after such reduction would be sufficient to pay any debts of the corporation for which payment has not otherwise been provided. The PBCL permits the redemption of any class of shares and treats the redemption or repurchase by a corporation of its stock the same as a dividend. Appraisal or Dissenting Shareholders' Rights. The rights of shareholders to demand payment in cash by a corporation of the fair value of their shares under certain circumstances are called "appraisal rights" under the DGCL and "dissenters' rights" under the PBCL. The DGCL does not afford appraisal rights to holders of shares listed on a national securities exchange, traded on a national market system or held of record by more than 2,000 shareholders, unless the plan of merger or consolidation converts such shares into anything other than stock of the surviving corporation or stock of another corporation that is either listed on a national securities exchange or held of record by more than 2,000 shareholders. The PBCL is substantially the same as the DGCL regarding appraisal rights, except that where shares whose rights are to be determined are listed on a national securities exchange or held of record by more than 2,000 shareholders, dissenters' rights will nevertheless be available unless the plan converts such shares solely into stock of the acquiring, surviving, new or other corporation. The concept of "fair value" in payment for shares upon exercise of appraisal or dissenters' rights is substantially identical under the DGCL and the PBCL, respectively. Any valuation techniques or methods may be employed that are generally acceptable in the financial community. STATUTORY REGULATION OF CORPORATE TAKEOVERS Business Combination Statute. Both Delaware and Pennsylvania have adopted a "business combination" type of takeover statute. Business combination statutes generally prohibit a target corporation from engaging in any "business combination" with an "interested shareholder" of the target corporation for a set period of time following the date on which the interested shareholder became such. An interested shareholder is typically defined as the direct or indirect beneficial owner of a specified percentage of the target corporation's outstanding shares. Business combination statutes are intended primarily to prevent highly leveraged takeover bids in which the target's assets are to be used as collateral for the interested shareholder's debt financing of the takeover. Such takeover bids usually depend on the prompt consummation of a merger or business combination, or the prompt sale of corporate assets, after the acquisition of control of the target corporation. The DGCL (in Section 203) provides that a person who acquires 15% or more of the outstanding voting stock of a Delaware corporation becomes an "interested shareholder," and the corporation may not effect mergers or certain other "business combinations" with the interested shareholder for a period of three years, unless (i) prior to the date the acquiror becomes an interested shareholder and the board of directors approves 60 either the business combination or the transaction that results in the shareholder's becoming an interested shareholder or (ii) the interested shareholder is able by means of the tender offer, or other transaction by which the acquiror becomes an interested shareholder, to acquire ownership of at least 85% of the outstanding voting stock of the corporation (excluding in that calculation shares owned by directors of the corporation who are also officers and shares owned by certain employee stock plans) or (iii) the interested shareholder obtains control of the board of directors, which then approves a business combination that is authorized by a vote of the holders of two-thirds of the outstanding voting stock not held by the interested shareholder. The definition of interested shareholder does not include (i) persons who owned 15% or more of the corporation's voting stock before December 23, 1987, (ii) persons who received more than 15% of the voting stock as a gift or bequest from a person who owned it before that date, or (iii) persons whose ownership of the voting stock rises over the 15% threshold as a result of action taken by the corporation unless that person thereafter acquires additional shares. A "business combination" is defined broadly in the DGCL to include any merger or consolidation with the interested shareholder, any merger or consolidation caused by the interested shareholder in which the surviving corporation will not be subject to the DGCL, and the sale, lease, exchange, mortgage, pledge, transfer or other disposition to the interested shareholder of any assets of the Corporation having a market value equal to or greater than 10% of the aggregate market value of the assets of the corporation. "Business combination" is also defined to include transfers of stock of the corporation or a subsidiary to the interested shareholder (except for transfers in a conversion, exchange or pro rata distribution that does not increase the interested shareholder's proportionate ownership of a class or series), or any receipt by the interested shareholder (except proportionately as a shareholder) of any loans, advances, guarantees, pledges or other financial benefits. The business combination provisions of the PBCL, Subchapter 25F, are similar to the foregoing, except that (i) an "interested shareholder" under Pennsylvania law is the direct or indirect beneficial owner of shares entitled to cast at least 20% of the votes entitled to be cast for the election of directors, not counting shares that have been held continuously by a natural person since January 1, 1983, or that were transferred thereafter by such a person by gift, inheritance, bequest, devise or other testamentary distribution to another natural person or a trust, estate, foundation or similar entity, and (ii) the corporation may not engage in a business combination (the definition of which is similar to that under the DGCL) with an interested shareholder for a period of five years (rather than three as in Delaware), unless (x) the business combination or the purchase of stock by means of which the interested shareholder became such is approved by the corporation's board of directors in advance of such stock purchase, (y) the business combination is approved by the affirmative vote of all the holders of all the outstanding common shares of the corporation, or (z) the interested shareholder is the beneficial owner of at least 80% of the voting stock of the corporation (including, unlike Delaware, the stock owned by management and by employee plans), and the business combination is approved at a meeting called for such purpose no earlier than three months after the interested shareholder acquires such 80% beneficial ownership by the affirmative vote of a majority of the shares other than those beneficially owned by the interested shareholder and its affiliates and associates. Thus, the incumbent management of a Pennsylvania corporation can prevent a business combination with an interested shareholder for at least five years if management controls more than 20% of the outstanding voting stock. In the case of a business combination with such an 80% shareholder, the value of the consideration to be paid by the interested shareholder in connection with the business combination must satisfy certain "fair price" formulae specified in the statute, and the interested shareholder, after becoming such, must not have acquired any additional voting shares of the corporation except as provided in the statute. After the five-year restricted period, an interested shareholder of a Pennsylvania corporation may engage in a business combination with the corporation if the business combination is approved by the affirmative vote of a majority of the shares other than those beneficially owned by the interested shareholder and its affiliates and associates, or if the business combination is approved at a shareholders meeting called for such purpose and the conditions set forth in the immediately preceding sentence are satisfied. 61 The Delaware and Pennsylvania business combination statutes provide only limited regulation of certain self-dealing transactions between a corporation and certain large shareholders. Moreover, wholly apart from the exceptions mentioned above, there are a number of additional methods whereby even an interested shareholder can benefit from a merger or sale of a corporation's assets during the first three years (Delaware) or five years (Pennsylvania) after becoming an interested shareholder. For example, the Delaware statute provides that if, after an interested shareholder becomes such, an acquisition is proposed by a third party and is approved or not opposed by a majority of the board of directors who were directors before the interested shareholder became such, the interested shareholder is no longer subject to the three-year restriction and is given at least 20 days in which to develop a competing proposal. Also, under both the Delaware and Pennsylvania statutes, a shareholder prior to becoming an interested shareholder may solicit proxies or shareholder consents to change the composition of the board of directors, and the new board that the shareholder or shareholders, as the case may be, have elected or helped to elect may approve a business combination with the shareholder without the statutory delay. Finally, an interested shareholder may simply acquire control of the corporation, remove the incumbent board and thereafter sell assets to third parties or even (in the case of Delaware) liquidate the corporation, provided that any dividends or liquidating distributions be made to all remaining shareholders pro rata, thus giving minority shareholders the opportunity to realize their fair share of the true value of the assets of the corporation. It should be noted that the Delaware and Pennsylvania business corporation statutes (i) do not prohibit tender offers or in any way regulate when, how, at what price or by whom they may be made, (ii) do not in any way delay the purchase of shares in tender offers, (iii) do not interfere with the right of a shareholder, whether "interested" or not, to mount a proxy contest to remove incumbent management, (iv) do not prevent a shareholder from buying sufficient stock to replace existing management immediately, and (v) do not eliminate or delay a shareholder's right to vote on the election of directors or on any other corporate matters, except certain defined self-dealing transactions. Control Transaction Statute. In addition to the business combination statute, the PBCL, but not the DGCL, includes a "cash-out" type of takeover statute, Subchapter 25E. Cash-out statutes require an acquiror of more than a specified percentage of a target corporation's stock (20% under Subchapter 25E), upon demand by any target shareholder, to purchase the shares of such shareholder at a price that reflects the highest premium paid by the acquiror in accumulating the target's stock. Such statutes are intended to limit the perceived coercive effect of two-tier and partial tender offers and so-called "creeping tender offers," in which large blocks of shares are purchased on the open market, and to ensure that all shareholders share in any control premium paid by the acquiror. However, the Interspec Bylaws expressly provide that Subchapter 25E shall not apply to Interspec. Control-Share Acquisition Statute. The PBCL also contains a control-share acquisition statute, Subchapter 25G. Under Subchapter 25G, before an acquiror (either a person or a group of persons acting in concert) of 20%, 33 1/3% or 50% of the voting power of a "registered" corporation may exercise voting power with respect to "control shares" (a term defined to include shares above the applicable threshold, shares acquired within 180 days of the control-share acquisition and any shares acquired with the intention of making a control- share acquisition), the shareholders of the corporation must have approved such exercise by a vote of (i) a majority of all outstanding shares having voting power and (ii) a majority of outstanding "disinterested shares." The vote may take place at the next available shareholders meeting, or the acquiror may accelerate the consideration of the issue by agreeing to pay the cost of a special meeting. If the acquiror does not seek voting rights in the prescribed manner or if such voting rights are denied or lapse, unless otherwise provided in the corporation's articles of incorporation, Subchapter 25G authorizes the corporation to redeem all the control shares from an acquiror at any time within two years after the control-share acquisition. The redemption price of control shares is the average of the high and low sale prices of shares of the same class and series on the date the corporation gives notice to the acquiror of the call for redemption. The Interspec Bylaws expressly provide that Subchapter 25G shall not be applicable. This provision was adopted pursuant to a statutory option to opt out of the proposed control-share acquisition statute by a resolution of the Interspec Board within 90 days after enactment of the new law. 62 Disgorgement Statute. The PBCL contains a provision, Subchapter 25H, that requires disgorgement of profits by a "controlling person" (a term defined generally to mean a person or group seeking 20% of the voting interest or making a bid for control). Any profit made by such person on a trade in shares of the corporation during the 18 months following acquisition of "controlling person" status would belong to and be recoverable by the corporation, unless the shares involved were purchased more than 24 months before the acquisition of such status. The profit recovery may be enforced by the corporation or by a shareholder if the corporation fails to prosecute the action seeking such recovery in the prescribed manner. Interspec has opted out of the disgorgement statute in the same manner described above with respect to the control-share acquisition statute. Other Antitakeover Provisions of the PBCL. The PBCL contains a number of other provisions not found in the DGCL that are designed to strengthen the position of incumbent management in connection with a takeover attempt. For example, the PBCL provides that a Pennsylvania corporation has the general power, exercisable by its board of directors, to accept, reject, respond to or take no action in respect of an actual or proposed acquisition, divestiture, tender offer, takeover or other fundamental change. Delaware case law, by contrast, has developed special standards for deciding whether to uphold or abrogate the actions of incumbent management in the context of takeover proposals. In addition, the PBCL expressly authorizes the issuance of securities or rights that contain such terms as may be fixed by the board of directors, which may include provisions that limit any person owning or offering to acquire a specified amount of the outstanding common shares of a corporation from exercising or receiving the securities or rights. This statutory authorization is intended to expressly validate the adoption of shareholder rights plans ("poison pills"), which are often implemented by corporations to deter undesirable takeovers or accumulations of large equity positions in the corporation. Tender Offer Statutes. Pennsylvania has adopted a takeover statute (the "Takeover Disclosure Law") requiring a tender offeror to file a registration statement with the Pennsylvania Securities Commission (the "Pennsylvania Commission"), deliver a copy to the target corporation and publicly disclose the material terms of the proposed offer. A takeover offer automatically becomes effective 20 days after the date of filing the registration statement with the Pennsylvania Commission, unless delayed by order of the Pennsylvania Commission or by a hearing. Any hearing scheduled by the Pennsylvania Commission must be held within 30 days of the date of filing the registration statement, and any determination made following the hearing must be made within 30 days after such hearing has been closed, unless extended by order of the Pennsylvania Commission. The Pennsylvania Commission may deny registration of the offer if, after a hearing, it finds that the takeover offer fails to provide full and fair disclosure to the offerees of all material information concerning the offer, or otherwise violates the Takeover Disclosure Law or the Pennsylvania Securities Act of 1972. The Takeover Disclosure Law applies to takeover offers directed at Pennsylvania-domiciled corporations, as well as to corporations having their principal places of business and substantial assets in Pennsylvania. The federal law that comprehensively regulates tender offers (known as the "Williams Act") applies both to ATL and Interspec and will continue to apply whether or not the Merger occurs. ELECTION OF ATL DIRECTORS In accordance with the ATL Bylaws, the ATL Board has fixed the number of directors constituting the ATL Board at eight, each to hold office for a term of one year and until his or her successor shall have been elected and qualified. Ralph M. Barford, Kirby L. Cramer, Harvey Feigenbaum, Dennis C. Fill, Eugene A. Larson, John R. Miller, David M. Perozek and Harry Woolf have been nominated for election to the ATL Board for 1994. It is intended that votes will be cast pursuant to the accompanying proxy for the election of these nominees, each of whom is at present a director of ATL, unless contrary instructions are received. If any nominee should become unavailable for any reason, it is intended that votes will be cast for a substitute 63 nominee designated by the ATL Board. The ATL Board has no reason to believe that the nominees named will be unable to serve if elected. The ATL Board is expected to increase the number of directors constituting the ATL Board to nine and to appoint Edward Ray as an additional director immediately following the Merger. See "CONFLICTS OF INTEREST." Biographical information regarding each of the nominees for the ATL Board is set forth below: RALPH M. BARFORD. Mr. Barford (age 64) has served as a Director and a member of the Audit and Compensation Committees of ATL since January 2, 1987. He is Chairman of the Compensation Committee and, until May 5, 1993, was Chairman of the Audit Committee. Mr. Barford has been President of Valleydene Corporation Limited, an investment company, since 1972. He is also Chairman and a director of GSW, Inc., a manufacturer of consumer products, and Camco Inc., an appliance manufacturer. Mr. Barford holds a Bachelor of Commerce degree from the University of Toronto and a Master of Business Administration degree from Harvard Business School. He is a member of the boards of directors of Bank of Montreal, Hollinger Inc., Molson Companies Ltd., Morton International, Inc., SpaceLabs, Algoma Steel Corporation and BCE Inc. KIRBY L. CRAMER. Mr. Cramer (age 57) has served as a Director since February 26, 1993, and as a member of the Compensation Committee and Chairman of the Audit Committee of ATL since May 5, 1993. He is the Chairman Emeritus of Hazleton Laboratories Corporation, a contract biological and chemical research laboratory, which was acquired by Corning Incorporated in 1987. He is Chairman of the Board of Rainier Trust Company and also President of Keystone Capital Company, an investment company. Mr. Cramer received his Bachelor of Arts degree from Northwestern University and Master of Business Administration degree from the University of Washington and is a graduate of the Harvard Business School's Advanced Management Program. In 1988, he received an honorary Doctor of Laws degree from James Madison University. Mr. Cramer is a member of the University of Washington Foundation and also the Advisory Board of the University of Washington Graduate School of Business Administration. He is the past President and Trustee Emeritus of the Darden School Foundation of the University of Virginia. Mr. Cramer is a member of the boards of directors of Rainier Trust Company, Immunex Corporation, Unilab Corporation, The Commerce Bank of Washington, N.A., Kirschner Medical Corporation, Sasquatch Publishing Company and Olympic Boat Company. HARVEY FEIGENBAUM, M.D. Dr. Feigenbaum (age 60) has served as a Director and a member of the Audit and Executive Committees of ATL since January 2, 1987. Dr. Feigenbaum has been a Distinguished Professor of Medicine at the Indiana University Medical Center since 1980 and joined its faculty in 1962. He was elected to Phi Beta Kappa and received a Bachelor's degree summa cum laude from Indiana University in 1955, an M.D. from the Indiana School of Medicine in 1958, and his Cardiovascular Subspecialty, American Board of Internal Medicine in 1969. Dr. Feigenbaum is a fellow of the American College of Physicians, the American College of Cardiology, the Council on Clinical Cardiology of the American Heart Association and the American Institute of Ultrasound in Medicine, as well as a member of the Editorial Boards of the American Heart Journal, the American Journal of Cardiology and CIRCULATION. He is the editor of the Journal of the American Society of Echocardiography. Dr. Feigenbaum is a director of Regentrief Foundation for Delivery of Healthcare and SpaceLabs. DENNIS C. FILL. Mr. Fill (age 64) has served as a Director, Chairman of the Board and Chief Executive Officer of ATL and as a member of the Executive Committee of ATL since November 11, 1986. From 1978 through mid-December 1986, he served as a member of the board of directors of Squibb Corporation (the former parent of ATL) and as its President and Chief Operating Officer. Mr. Fill was also a member of the executive committee and the finance committee of the Squibb Corporation board of directors. Mr. Fill attended Ealing College, the Institute of Export and Borough Polytechnic. He also served in the Royal Air Force. Mr. Fill is a member of the boards of directors of Beckman Instruments, Inc., Morton International, Inc., SpaceLabs Medical, Inc. and Cytran, Inc. 64 EUGENE A. LARSON. Mr. Larson (age 51) has served as a Director and a member of ATL's Scientific Advisory Board since December 22, 1992, and as a member of the Executive Committee since May 5, 1993, and previously served as a Director and President of ATL from June 1988 to January 1990. Mr. Larson has served as a consultant to ATL since January 1993. From January 1991 to December 1992, he served as Executive Vice President of ATL. He also served as a consultant to Westmark and ATL in 1987 and 1990, and as ATL's Vice President, Technology from February 1988 to June 1988. He was Professor of Entrepreneurship and Innovation, Department of Engineering, Pennsylvania State University in 1986 and 1987. At Johnson & Johnson (1982 to 1986), Mr. Larson was President of three operating companies, beginning with the 1982 acquisition of Echo Ultrasound, Inc., a manufacturer of medical ultrasound devices, of which he was also a founder (1973-1984), IREX (1984-1985) and Photomedica (1985-1986). Previously he was founder and President of Aerotech Laboratories, a manufacturer of industrial ultrasound electronics, which was acquired by Smith Kline & French in 1970. He has served as a director of Geisinger Medical Center and President and director of Lewistown Hospital. In 1988, he was awarded the Pioneer in Ultrasound Award by the American Institute of Ultrasound in Medicine. JOHN R. MILLER. Mr. Miller (age 55) has served as a Director of ATL since July 16, 1993 and a member of the Compensation Committee of ATL since February 18, 1994. He is currently a Senior Fellow of the Discovery Institute for Public Policy and Chairman of the Cascadia Project in Seattle, Washington. Mr. Miller is also a senior advisor to Chanen, Clarke, Couder & Painter, Ltd., an investment bank with offices in Seattle, San Francisco and Hong Kong. From 1985 to 1992, Mr. Miller served as a U.S. Congressman for the First District of Washington State. While a Member of Congress, he served on the Budget Committee and the Foreign Affairs Committee, including the Subcommittee on International Economic Policy and Trade; International Operations. From 1981 to 1984, Mr. Miller was a Political Commentator for KIRO (CBS ) Television and Radio. Mr. Miller was a member of Phi Beta Kappa and received his Bachelor of Arts degree from Bucknell University and a Doctor of Laws degree and Master of Economics degree from Yale University Law and Graduate Schools, respectively. DAVID M. PEROZEK. Mr. Perozek (age 51) has been President and Chief Operating Officer of ATL since April 13, 1992. He became a Director of ATL on May 18, 1992. Prior to joining ATL, Mr. Perozek spent 17 years with the Medical Products Group of the Hewlett-Packard Company. From February 1991 to March 1992, he served as a staff general manager of Hewlett-Packard's Medical Products Group. From 1989 to February 1991, he served as general manager of Hewlett-Packard's Apollo Systems division. From 1980 to 1989, Mr. Perozek served as general manager of Hewlett-Packard's ultrasound business. Mr. Perozek received his Bachelor of Science degree in Electrical Engineering from the University of Detroit and both Masters of Science and Electrical Engineering degrees from the Massachusetts Institute of Technology, and has completed the Stanford Executive Management Program at Stanford University. He has served as Chairman of the Ultrasound Section and as a member of the Diagnostic Imaging and Therapy Systems Division of the National Electrical Manufacturers Association (NEMA) and has served as chairman of NEMA's Ultrasound Section and on the board of governors of the American Institute of Ultrasound Medicine. HARRY WOOLF, PH.D. Dr. Woolf (age 70) has served as a Director and a member of the Compensation Committee of ATL since January 2, 1987. He has also served as Chairman of ATL's Scientific Advisory Board since May 1, 1987. In 1987, Dr. Woolf completed an 11-year appointment as the director of The Institute for Advanced Study, Princeton, New Jersey, and is currently a Professor at the Institute. Dr. Woolf received his Bachelor of Science and Master of Arts degrees from the University of Chicago and his Doctor of Philosophy degree from Cornell University. He has also received honorary doctorates from Whitman College, American University, Johns Hopkins University and St. Lawrence University. Dr. Woolf has been honored by election to the Academie Internationale d'Histoire des Sciences, American Philosophical Society, Sigma Xi, Phi Beta Kappa and American Academy of Arts and Sciences. He is a Trustee of the Rockefeller Foundation and Reed College. Dr. Woolf is a member of the boards of directors of Alex. Brown Mutual Funds and Merrill Lynch Open-End Investment Funds-Cluster C. He is also a director of the Johns Hopkins Program for International Education on Gynecology and Obstetrics, Inc., the International Research and Exchanges Board and Family Health International. 65 During 1993, there were six meetings of the ATL Board. All incumbent directors were in attendance at over 75% of such meetings. DIRECTOR COMPENSATION Directors who are employees of ATL do not receive any fee for their services as directors. Directors who are not employees of ATL are paid an annual retainer of $20,000 and receive an additional fee of $500 for attendance at each meeting of the ATL Board plus $500 for attendance at each meeting of a committee of the ATL Board. A nonemployee director serving as a committee chairman receives an additional $1,000 per annum. As approved by the shareholders on May 5, 1993, directors who are not employees of ATL are also eligible for a grant of stock options under the Nonemployee Director Stock Option Plan (the "Nonemployee Director Plan"). Each nonemployee director will automatically receive annually, on the first day of July, an option to purchase 2,000 shares of ATL Common Stock, at an exercise price equal to the fair market value on the date of grant. The options vest upon the optionee's continued service as a director until the first anniversary of the date of grant. Each option expires on the earlier of five years from the date of grant or one year after a director's termination as a director. In 1993, Messrs. Barford, Feigenbaum, Cramer and Woolf were recipients of grants under the Nonemployee Director Plan. Dr. Feigenbaum has made arrangements for any proceeds realized from his ATL stock options to be donated to charity. All nonemployee directors currently proposed to serve as directors are eligible for grants in 1994. In addition, as a consultant to ATL in 1993, Mr. Larson received an option grant to acquire 15,000 shares of ATL Common Stock under the ATL Option Plan. These options vest in equal installments over a four-year period beginning on the first anniversary of the date of grant. See "EXECUTIVE COMPENSATION--Certain Relationships and Related Transactions" for other payments to directors. COMMITTEES OF THE ATL BOARD ATL has established standing committees of the ATL Board, including Audit, Compensation and Executive Committees. In addition, Directors serving on the Scientific Advisory Board participate in and direct the setting of ATL's technology strategy. Each of these committees is responsible to the full ATL Board, and its activities are therefore subject to approval of the ATL Board. The functions performed by these committees can be summarized as follows: Audit Committee. The Audit Committee reviews the accounting principles, internal accounting controls, audit plan and financial results of ATL in order to safeguard ATL's assets and to provide for the reliability of its financial records. The members of this Committee are Mr. Cramer (Chairman), Dr. Feigenbaum and Mr. Barford. The Audit Committee met four times during 1993. All members were in attendance at all meetings. Compensation Committee. The Compensation Committee establishes salaries, incentives and other forms of compensation for directors, officers and other executives of ATL and its subsidiaries. This Committee also administers ATL's various incentive compensation and benefit plans and recommends the establishment of policies relating to such incentive compensation and benefit plans. The members of this Committee are Mr. Barford (Chairman), Mr. Cramer, Mr. Miller and Dr. Woolf. This Committee met five times during 1993. All members were in attendance at all meetings. Executive Committee. The Executive Committee has authority, subject to limitations prescribed by the ATL Board, to exercise, during the intervals between meetings of the ATL Board, the powers of the full ATL Board, and is also available, on a standby basis, for use in an emergency or when scheduling makes it impractical to bring the full ATL Board together for a meeting. The members of this Committee are Mr. Fill, Dr. Feigenbaum, Mr. Cramer and Mr. Larson. This Committee did not meet during 1993. 66 Scientific Advisory Board. The Scientific Advisory Board meets with a group of senior scientists of ATL known as the Senior Technical Staff ("STS") and has the authority to control and direct ATL's technology strategy. Regular meetings of the STS are held weekly, and members of the Scientific Advisory Board attend these meetings as circumstances dictate. The members of the Scientific Advisory Board are Dr. Woolf and Mr. Larson. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Dr. Woolf. Dr. Harry Woolf, Director, received $60,000 in his capacity as Chairman of the Scientific Advisory Board. Dr. Feigenbaum. Dr. Harvey Feigenbaum, Director, received $48,000 for consulting services provided to Nova MicroSonics, a division of ATL located in Mahwah, New Jersey. Mr. Larson. The Company entered into a consulting agreement with Mr. Larson for a 14-month term commencing January 1, 1993. During 1993, Mr. Larson received $198,750 for consulting services, including his services as a member of the Scientific Advisory Board. Mr. Larson's compensation for services as a member of the Scientific Advisory Board is at an annual rate of $48,000, which is paid on a quarterly basis. See also "EXECUTIVE COMPENSATION--Certain Relationships and Related Transactions" for other payments. AMENDMENT OF THE ATL OPTION PLAN PROPOSED AMENDMENT The ATL Board recommends the adoption of an amendment to the ATL Option Plan to increase the number of shares authorized for issuance under the ATL Option Plan from 1,700,000 to 2,150,000 and to impose certain limits on options and stock appreciation rights granted thereunder. On February 9, 1994, the ATL Board unanimously approved the amendment subject to approval of the Issuance and the amendment by ATL's shareholders at the ATL Annual Meeting. Approximately 292,800 shares of ATL Common Stock will be available for future grants to incoming Interspec employees and others under the ATL Option Plan, based on the number of options outstanding at February 25, 1994. The amendment of the ATL Option Plan is contingent upon approval of the Issuance by the ATL shareholders, and approval of the amendment to the ATL Option Plan by the ATL shareholders is a condition to the consummation of the Merger. A copy of the amended ATL Option Plan will be furnished by ATL to any shareholder upon written request to ATL's Corporate Secretary. The ATL Option Plan provides for awards of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, stock grants and performance units. A maximum of 550,000 shares may be issued as restricted stock awards and stock grants, which maximum amount will not be affected by the amendment. The principal features of the ATL Option Plan are described below. On February 8, 1993, the ATL Board approved an ATL Common Stock repurchase program, by which ATL's management had been authorized to repurchase on the open market up to 1,000,000 shares of ATL Common Stock. As of February 25, 1994, ATL has repurchased 816,000 shares under the program. It has been ATL's practice to retain substantially all such repurchased shares as treasury stock, to be available for use with ATL's employee benefit plans. The ATL Board believes that the proposed amendment to the ATL Option Plan is necessary to enable the adjustment of the Interspec Stock Options by ATL at the Effective Time, such that they will be deemed to constitute options to purchase shares of ATL Common Stock pursuant to the Merger Agreement. See "THE MERGER-- Effect on Interspec Employee Benefit and Stock Plans." The ATL Board also believes that the increase in the number of shares authorized for issuance under the ATL Option Plan is a critical requirement in order for ATL to grant to key employees of Interspec options to purchase shares of ATL 67 Common Stock and restricted stock awards commensurate with those granted to key employees of ATL, as well as to continue to attract and retain the services of other experienced and knowledgeable employees in a competitive high-technology industry where its competitors utilize various stock option and equity participation plans to attract and retain such employees. The proposed amendment to the ATL Option Plan would also limit the maximum number of shares of ATL Common Stock with respect to which options or stock appreciation rights may be granted to any eligible recipient in any one fiscal year to ten percent of the aggregate number of shares of ATL Common Stock authorized for issuance under the ATL Option Plan. Pursuant to the amendment, a new paragraph, to read substantially as follows, will be added to Section 5 of the ATL Option Plan, entitled "Eligibility": The maximum number of shares of Common Stock with respect to which an option or options or a stock appreciation right or stock appreciation rights may be granted to any eligible employee in any one fiscal year of the Company shall not exceed ten percent of the aggregate number of shares of Common Stock authorized for issuance under the plan (the "Maximum Annual Employee Grant"). In addition, Section 15 of the ATL Option Plan, entitled "Adjustments Upon Changes in Capitalization" will be amended to provide that, subject to other provisions of the ATL Stock Option Plan, in the event of certain changes in the outstanding stock of ATL by reason of stock dividends, stock splits, recapitalizations, mergers, consolidations, combinations or exchanges of shares, split-ups, split-offs, spin-offs, liquidations or other similar changes in capitalization, or any distribution to shareholders other than cash dividends, the Compensation Committee shall make such adjustments in the Maximum Annual Employee Grant, if any, in light of the change or distribution as the Compensation Committee, in its sole discretion, determines to be appropriate, in addition to adjusting the number and class of shares or rights subject to options and stock appreciation rights and the exercise prices thereof, in their discretion. The ATL Board believes the revisions to Sections 5 and 15 of the ATL Option Plan are necessary in order to preserve the deductibility of compensation related to options or stock appreciation rights granted thereunder in accordance with amendments to the Code effected by the 1993 Omnibus Budget Reconciliation Act ("OBRA"). OBRA became law in August 1993 and added a new Section 162(m) to the Code. Under Section 162(m), publicly held companies may be unable to deduct for federal income tax purposes compensation (including compensation related to the exercise of stock options or stock appreciation rights) for the chief executive officer and the other four most highly compensated executive officers that exceeds $1 million in any one year. Section 162(m) excludes "performance-based" compensation from the aggregate compensation subject to the $1 million limit. Under Section 162(m) and the proposed regulations interpreting Section 162(m) promulgated December 20, 1993 (the "Proposed Regulations"), compensation attributable to stock options or stock appreciation rights will be deemed to be performance-based if the options or rights are granted (i) under a plan that is approved by the company's shareholders, (ii) by a committee consisting solely of two or more outside directors (as defined in the Proposed Regulations), (iii) at an exercise price (or base amount, in the case of a stock appreciation right) that is equal to the fair market value of the company's stock on the grant date, and (iv) under a plan that contains a per-employee limit on the number of shares for which options or stock appreciation rights may be granted during a specified period. Under the Proposed Regulations, compensation paid under plans that as of December 20, 1993 met the shareholder approval and disinterested administration requirements of Rule 16b-3 promulgated under the Exchange Act will be treated as having satisfied the performance-based compensation requirements of Section 162(m) until the date of the first shareholders meeting after December 31, 1996, unless the plan was materially modified or all the stock issuable under the plan was issued before that date. The ATL Option Plan met the identified Rule 16b-3 requirements on the specified date. However, the amendment of the ATL Option Plan to increase the number of shares issuable thereunder will constitute a material modification that will trigger compliance with all four of the Section 162(m) criteria in order for stock options and stock appreciation rights granted under the ATL Option Plan to be deemed "performance- 68 based." The proposed amendments to Sections 5 and 15 providing for the Maximum Annual Employee Grant are intended to preserve the ability of ATL to grant options and stock appreciation rights under the ATL Option Plan that will be deemed to be performance-based and therefore excluded from the compensation subject to the $1 million limit on deductibility under the Proposed Regulations. The proposed regulations will not constitute binding authority upon which taxpayers can rely until they are adopted as temporary or final regulations. It is possible that any such temporary or final regulations will retroactively change the Proposed Regulations in a manner that will cause options or SARs issued under the ATL plan not to qualify as performance-based compensation and to be subject to the $1 million limit on deductibility. Because no temporary or final regulations have been issued to date, ATL is relying upon the proposed regulations in its attempt to qualify the options and SARs as performance-based compensation. DESCRIPTION OF THE ATL OPTION PLAN The ATL Option Plan was approved by the shareholders of ATL on May 19, 1992 and provides for awards of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, stock grants and performance units. Eligibility to Receive Awards. Employees, consultants and independent contractors of ATL and its subsidiaries, including Interspec upon consummation of the Merger, selected by ATL's Compensation Committee are eligible to receive awards of options, stock appreciation rights, restricted stock grants and/or performance units under the ATL Option Plan. Terms and Conditions of Stock Option Grants. The Compensation Committee of the ATL Board (the "Compensation Committee") is authorized under the ATL Option Plan, in its discretion, to issue options under the ATL Option Plan as "Incentive Stock Options" (as defined in Section 422 of the Code) or as "Nonqualified Stock Options" (defined in the ATL Option Plan as being all other options granted thereunder). The option price for each option granted under the ATL Option Plan will be not less than 100% of the fair market value of the ATL Common Stock on the date of grant, except that, with respect to any Nonqualified Stock Option, the option price may equal the average daily fair market value of the shares of ATL Common Stock calculated over any continuous period of trading days beginning and ending no more than 30 business days before or after the granting date of such option. For purposes of the ATL Option Plan, "fair market value" means the average of the high and low sale prices of the Common Stock for the period in question as reported on the Nasdaq National Market. Upon exercise, the option price is to be paid in full in cash or, to the extent permitted by the Compensation Committee, in ATL Common Stock owned by the optionee for at least three months and having a market value on the date of exercise equal to the aggregate option price, or in a combination of cash and stock. The option price may also be paid by delivery of a properly executed exercise notice, together with irrevocable instructions to a broker designated by ATL to promptly deliver the exercise price to ATL. The option price under each option will remain constant during the life of such option, regardless of changes in the market value of the ATL Common Stock. No cash consideration will be paid to ATL by optionees for the granting of any option. The optionee must pay to ATL applicable withholding taxes upon exercise of the option as a condition to receiving the share certificates. The withholding tax may be paid in cash or by the withholding or delivery of ATL Common Stock. Each option will have a term of not more than 10 years from the date of grant, and may be exercisable in installments as prescribed by the Compensation Committee in the option grant, but no option can be exercisable prior to the first anniversary of the date of grant, except in the case of the death of an optionee during employment or except as the Compensation Committee otherwise determines. It has been the practice of the Compensation Committee that both Nonqualified Stock Options and Incentive Stock Options granted to employees under the ATL Option Plan are exercisable in annual installments of 25% of the number of shares initially granted, commencing on the first anniversary of the grant date, such installments to be cumulative, and will not be exercisable prior thereto, except as described below. 69 If the employment of an optionee is terminated other than by reason of death, normal or early retirement or disability, the optionee may exercise the option at any time within one year after such termination (but not after the expiration date of the option), to the extent of the number of shares purchasable at the date of termination of employment. In the event of the termination of an optionee's employment because of normal retirement or disability, the optionee may exercise such option at any time prior to expiration of the option, to the extent of the remaining shares covered by such option, whether or not such shares had become purchasable by the optionee at the date of termination of employment. In the event of the termination of an optionee's employment because of early retirement, the optionee may exercise such option at any time prior to expiration of the option, to the extent of the remaining shares covered by such option, at such time or times as such option becomes purchasable by the optionee in accordance with its terms. In the event of the death of an optionee while the optionee is employed by ATL or any of its subsidiaries or while such option is otherwise outstanding, the option may be exercised by the optionee's beneficiary or legal representative at any time within a period of one year after the optionee's death, but not after the expiration of the option, to the extent of the remaining shares covered by his or her option, whether or not such shares had become purchasable by the optionee at the date of the optionee's death. In the event of the death of an optionee during the one-year period following termination of the optionee's employment or following termination of employment by reason of normal or early retirement or disability, such option (unless such termination is for cause) may be exercised by the optionee's beneficiary or legal representative, but only to the extent of the number of shares purchasable by the optionee pursuant to the provisions of his or her option at the date of termination of the optionee's employment. Notwithstanding the foregoing provisions, but subject to the provisions of the next paragraph, the Compensation Committee may determine, in its sole discretion, in the case of any termination of employment that (i) the optionee may exercise such option to the extent of the remaining shares covered thereby whether or not such shares had become purchasable by the optionee at the date of termination of his or her employment and (ii) such option may be exercised at any time prior to the expiration of the original term of the option. In the event that an optionee does not remain in the employ of ATL or any of its subsidiaries and the termination of the optionee's service is for cause, the option will automatically terminate on the date of first notification to the optionee of such termination unless the Compensation Committee otherwise determines. The ATL Option Plan also provides that, if the option grant so states, upon notification of an intention to exercise a Nonqualified Stock Option, either in whole or in part, the Compensation Committee may require the optionee to surrender the option for cancellation, in lieu of exercising it, and receive in exchange for such surrender a payment in cash and/or shares equal to the difference between the option price of the shares covered by the option surrendered for cancellation and the fair market value of such shares on the date on which the optionee's notice of exercise is received by ATL. Stock Appreciation Rights. Under the ATL Option Plan, the Compensation Committee is authorized to grant stock appreciation rights ("SARs") to eligible employees, consultants and independent contractors of ATL and its subsidiaries. A SAR is an incentive award that permits the holder to receive (per share covered thereby) an amount equal to the amount by which the fair market value of a share of ATL Common Stock on the date of exercise exceeds the fair market value of such share on the date the SAR was granted (the "base price"). The Compensation Committee may grant a SAR separately or in tandem with a related option and may grant both "general" and "limited" SARs. A general SAR granted in tandem with a related option will generally have the same terms and provisions as the related option with respect to exercisability, and the base price of such a SAR will generally be equal to the option price under the related option. Upon the exercise of a tandem SAR, the related option will be deemed to be exercised for all purposes of the ATL Option Plan and vice versa. 70 A general SAR granted separately and not in tandem with any option will have such terms as the Compensation Committee may determine, subject to the provisions of the ATL Option Plan. Under the ATL Option Plan, the base price of a stand-alone SAR may not be less than the fair market value of the shares of ATL Common Stock determined as in the case of a Nonqualified Stock Option; the term of a stand-alone SAR may not be greater than 10 years from the date it was granted. A limited SAR may be exercised only during the 90 days immediately following a Change of Control (as defined herein). For the purpose of determining the amount payable upon exercise of a limited SAR, the fair market value of a share of ATL Common Stock will be equal to the higher of (x) the highest fair market value of the ATL Common Stock during the 90-day period ending on the date the limited SAR is exercised, determined as in the case of an option, and (y) whichever of the following is applicable: (i) the highest per share price paid in any tender or exchange offer that is in effect at any time during the 90 days preceding the exercise of the limited SAR; (ii) the fixed or formula price for the acquisition of shares of ATL Common Stock in a merger or similar agreement approved by the shareholders or the ATL Board, if such price is determinable on the date of exercise; or (iii) the highest price per share paid to any ATL shareholder in a transaction or group of transactions giving rise to the exercisability of the limited SAR. General SARs granted in tandem with a related option are payable in cash, ATL Common Stock or any combination thereof as determined in the sole discretion of the Compensation Committee. Limited SARs are payable only in cash. General stand-alone SARs are also payable only in cash, unless the Compensation Committee provides otherwise at the time of grant. Unless otherwise provided by the Compensation Committee at the time of grant, the provisions of the ATL Option Plan relating to the termination of employment of a holder of a stock option will apply equally, to the extent applicable, to the holder of an SAR. No SARs have been granted under the ATL Option Plan. Restricted Stock Awards. The Compensation Committee is authorized under the ATL Option Plan to issue shares of ATL Common Stock to eligible employees, consultants and independent contractors of ATL and its subsidiaries, such shares to be restricted, as hereinafter described. The consideration received for such shares by ATL is the payment in cash of an amount equal to the par value thereof and past services of the participant. The recipient of restricted stock will be recorded as an ATL shareholder and will have, subject to the restrictions described below, all the rights of a shareholder with respect to such shares and will receive all dividends or other distributions made or paid with respect to such shares; provided, however, that the shares themselves and any new, additional or different shares or securities that the recipient may be entitled to receive with respect to such shares by virtue of a stock split or stock dividend or any other change in the corporate or capital structure of ATL will be subject to the restrictions described below. During a period of years following the date of grant, as determined by the Compensation Committee, which will in no event be less than one year (the "Restricted Period"), the restricted stock may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of by the recipient, except in the event of death or the transfer of the restricted stock to ATL upon termination of the holder's employment. In the event of the normal retirement or death of the recipient during the Restricted Period, the restrictions on the shares will immediately lapse. In the event of the early retirement of the recipient during the Restricted Period, the restrictions on the shares will continue until they lapse in accordance with the terms of the grant. If the employment of the recipient by ATL or any of its subsidiaries terminates during the Restricted Period for any reason other than the retirement or death of the employee, the shares of restricted stock held by the employee will be forfeited to ATL and the employee must immediately transfer and return the certificates for the restricted stock to ATL. 71 Stock Grant Awards. The ATL Option Plan authorizes the Compensation Committee to issue shares of ATL Common Stock to nonofficer employees of ATL and its subsidiaries. The consideration received for such shares by ATL is the payment in cash of an amount equal to the par value thereof and past services. Each recipient of a stock grant may receive a cash award at the time of grant in an amount sufficient to offset the recipient's estimated tax liabilities arising from the grant. Performance Unit Awards. Performance units awarded under the ATL Option Plan will have a base value, expressed in dollars, determined by the Compensation Committee on the day the award is granted, which generally will be the fair market value of the ATL Common Stock on such day. This value is the "unit base value." The actual amount paid to the employee, consultant or independent contractor, as the case may be, by ATL when the award matures at the end of the award cycle will depend on the achievement of cumulative performance measures. These measures will be determined by the Compensation Committee at the time the award is made and may include, but are not limited to, cumulative targets with respect to earnings per share or pretax profits, return on shareholders' equity, asset management, cash flow or return on capital employed of ATL and/or one of its subsidiaries, divisions or departments. The Compensation Committee will also determine the length of the award cycle (which may not be less than three years), a payment schedule and whether the payment will be made in cash, ATL Common Stock or a combination of cash and ATL Common Stock. The payment schedule will provide a range of percentages of the unit base value that will be payable to the participant in the event that cumulative targets, of varying amounts, are achieved. In instances where performance measures are not achieved, no award will be payable. The Compensation Committee has discretion under the ATL Option Plan to apply performance measures on an absolute basis or relative to industry indices and conclusively determine whether the measures have been achieved, as well as to revise the payment schedules and performance measure formerly determined by it if, in its judgment, significant economic or other changes have occurred that were not foreseeable by the Compensation Committee when it set the initial measures. A performance unit award will terminate if the participant does not remain in the employ of ATL or one of its subsidiaries during the award cycle, except as the Compensation Committee otherwise determines, and except in the case of death, normal or early retirement or disability occurring after the first anniversary of the award's date of grant, in which event, if the performance measure is met, a pro rata portion of the award will be paid based on the elapsed time of the award cycle prior to death, retirement or disability. No payment of a performance unit award will be made prior to the end of an award cycle, except as the Compensation Committee otherwise determines and except in the case of death, in which event the participant's beneficiary or legal representative may elect, subject to the approval of the Compensation Committee, to have the participant's pro rata portion of the award paid at the end of the year in which death occurred. No performance units have been awarded under the ATL Option Plan. Transferability. The recipient's rights to the options, SARs, restricted stock and performance units may not be assigned or transferred except by will or the applicable laws of descent or distribution or to a designated beneficiary. Capital Adjustments. In the event of any changes in ATL's outstanding stock by reason of stock dividends, stock splits, recapitalizations, mergers, consolidations, combinations or exchanges of shares, split-ups, split-offs, spin-offs, liquidations or other similar changes in capitalization, or any distribution to shareholders other than cash dividends, the Compensation Committee in its sole discretion may make any adjustments it determines to be appropriate in the outstanding options, SARs, restricted stock or performance units granted under the ATL Option Plan and in the total number and class of shares as to which awards may be made under the ATL Option Plan. 72 Change of Control. Under the ATL Option Plan, upon a Change of Control, each outstanding option and SAR will automatically become exercisable in full for the total remaining number of shares covered thereby. In addition, during the 90-day period following a Change of Control an optionee may choose to receive cash equal to the difference between the exercise price of the option and the fair market value of a share of ATL Common Stock determined as described above for a limited SAR, in lieu of exercising the option and paying the option price. Also, all restrictions on shares of restricted stock will lapse upon a Change of Control, and performance units will be paid pro rata to the date of a Change of Control and all amounts otherwise deferred by ATL and any employee in connection with performance units will be distributed. A "Change of Control" is defined in the ATL Option Plan as (i) a change in the ATL Board such that a majority of the seats on the ATL Board are occupied by individuals who were neither nominated by a majority of the Incumbent Directors (as defined herein) of ATL then in office nor appointed by directors so nominated, (ii) the acquisition by any person (other than ATL or an ATL employee benefit plan) of, in the case of transactions not approved by a majority of the directors of ATL who were either nominated by a majority of the directors of ATL then in office or appointed by directors so nominated ("Incumbent Directors"), 20% or more of the combined general voting power of the ATL Common Stock and any other voting securities of ATL and, in the case of other transactions, 33% or more of such combined voting power, or (iii) the approval by the ATL shareholders of a complete liquidation or dissolution of ATL or a merger, consolidation or sale of substantially all the assets of ATL (collectively, a "Business Combination"), other than a Business Combination in which all or substantially all the ATL shareholders receive 60% or more of the stock of the corporation resulting from the Business Combination in substantially the same proportions as their ownership before the Business Combination, no holder has more than 20% of the combined voting power of the capital stock of the resulting corporation and at least a majority of the board of directors of the resulting corporation are Incumbent Directors. Administration. The Compensation Committee will be authorized to administer the ATL Option Plan and will consist of at least three members of the ATL Board who have not been eligible to receive awards under the ATL Option Plan or any other discretionary plans of ATL or its affiliates for one year prior to their service on the Compensation Committee. Amendment and Termination. The ATL Option Plan may be terminated, modified or amended by the ATL shareholders. The ATL Board may also terminate the ATL Option Plan, or modify or amend it in certain respects as set forth in the ATL Option Plan. No options or awards may be granted under the ATL Option Plan after June 26, 2002. Federal Income Tax Consequences--Option Plans. The federal income tax consequences under the existing applicable provisions of the Code and the regulations thereunder to ATL and to any person granted an award under the ATL Option Plan are substantially as follows. Under present law and regulations, no income will be recognized by a participant upon the grant of stock options, SARs, restricted stock (except as described below) or performance units. On the exercise of a Nonqualified Stock Option, the optionee will recognize taxable ordinary income in an amount equal to the excess of the fair market value of the shares acquired over the option price. Upon a later sale of those shares, the optionee will have short-term or long-term capital gain or loss, as the case may be, in an amount equal to the difference between the amount realized on such sale and the tax basis of the shares sold. If payment of the option price is made entirely in cash, the tax basis of the shares will be equal to their fair market value on the date of exercise (but not less than the option price), and their holding period will begin on the day after the exercise date. If the optionee uses previously owned shares to exercise an option in whole or in part, the transaction will not be considered to be a taxable disposition of the previously owned shares. The optionee's tax basis and holding period of the previously owned shares will be carried over to the equivalent number of shares 73 received on exercise. The tax basis of the additional shares received on exercise will be the fair market value of the shares on the exercise date (but not less than the amount of cash, if any, used in payment), and the holding period for such additional shares will begin on the day after the exercise date. The same rules apply to an Incentive Stock Option that is exercised more than three months after the optionee's termination of employment (or more than 12 months thereafter in the case of permanent and total disability as defined in the Code). On the exercise of an Incentive Stock Option during employment or within three months after the employee's termination of employment (12 months in the case of permanent and total disability as defined in the Code), for regular tax purposes the optionee will recognize no income at the time of exercise (although the employee will have income for alternative minimum income tax purposes at that time as if the option were a Nonqualified Stock Option) and no deduction will be allowed to ATL for federal income tax purposes in connection with the grant or exercise of the option. If the acquired shares are sold or exchanged after the later of (i) one year from the date of exercise of the option and (ii) two years from the date of grant of the option (the "Holding Period"), the difference between the amount realized by the holder on that sale or exchange and the option price will be taxed to the holder as a long-term capital gain or loss. If the shares are disposed of before the Holding Period requirements are satisfied, then the holder will recognize taxable ordinary income in the year of disposition in an amount equal to the excess, on the option's exercise date, of the fair market value of the shares received over the option price paid (or generally, if less, the excess of the amount realized on the sale of the shares over the option price), and the holder will have capital gain or loss, long-term or short-term as the case may be, in an amount equal to the difference between (x) the amount realized by the holder upon that disposition of the shares and (y) the option price paid by the holder increased by the amount of ordinary income, if any, so recognized by the holder. Upon the receipt of restricted stock, the employee will generally recognize taxable ordinary income when the shares cease to be subject to restrictions under the ATL Option Plan equal to the excess of the fair market value of the shares at that time over the amount, if any, paid for such shares. However, within 30 days after the date the shares are received, the employee may elect under Section 83(b) of the Code to recognize taxable ordinary income at the time of transfer in an amount equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for such shares. In that case no additional income will be recognized by the employee upon the lapse of restrictions on the shares, but if the stock is subsequently forfeited, the employee may not deduct the income recognized at the time of receipt of the shares and the employee will have a capital loss equal to the amount, if any, paid for such shares. The recipient's Holding Period for the shares will begin at the time taxable income is recognized under these rules, and the tax basis in the shares will be the amount of ordinary income so recognized plus the amount, if any, paid for the shares. Any dividends received on the restricted stock prior to the date the employee recognizes income as described above will be taxable compensation income when received. Upon payment to a participant in settlement of a stock option or pursuant to the exercise of SARs or pursuant to a performance unit award, the participant will recognize taxable ordinary income in an amount equal to the cash and the fair market value of the ATL Common Stock received. Upon the issuance of a stock bonus award the recipient will recognize taxable ordinary income in an amount equal to the fair market value of the ATL Common Stock received and the amount of any tax offset cash award made together with the issuance of such stock. Special rules apply to a director or officer subject to liability under Section 16(b) of the Exchange Act. In all the foregoing cases, ATL will generally be entitled to a deduction at the same time and in the same amount as the optionee recognizes ordinary income. It is possible, however, that the amount of ATL's deduction will be limited under the $1 million limitation discussed above under "Proposed Amendment." 74 EXECUTIVE OFFICERS OF ATL The following are executive officers of ATL who will serve in the capacities noted until their successors are duly appointed and qualified.
NAME AGE POSITIONS AND OFFICES WITH ATL ---- --- --------------------------------------- Dennis C. Fill................. 64 Chairman of the Board and Chief Executive Officer David M. Perozek............... 51 President and Chief Operating Officer Harvey N. Gillis............... 48 Senior Vice President, Finance and Administration, Chief Financial Officer and Treasurer Castor F. Diaz................. 55 Senior Vice President, ATL Europe Donald D. Blem................. 50 Senior Vice President, Operations Jacques Souquet................ 46 Senior Vice President, Product Generation
For biographical information for Messrs. Fill and Perozek, see "ELECTION OF ATL DIRECTORS." Mr. Gillis has served as Senior Vice President, Finance and Administration, Chief Financial Officer and Treasurer since September 1992. He served as Senior Vice President, Finance and Administration and Chief Financial Officer for NeoPath, Inc. from 1991 to 1992. He served as Chief Operating Manager of Samuel Stroum Enterprises from 1985 to 1991. Mr. Diaz has served as Senior Vice President, ATL Europe since October 1993 and as Vice President, ATL Europe since October 1988. He also held various international sales and marketing positions with ATL from May 1987 to October 1988. Mr. Blem has served as Senior Vice President, Operations since October 1993. He served as Vice President, Operations from February 1988 to October 1993. Dr. Souquet has served as Senior Vice President, Product Generation since October 1993. He served as Vice President, Product Generation from October 1992 to October 1993, as Vice President, Strategic Marketing and Product Planning from July 1990 to October 1992 and as Director of Strategic Marketing and Product Planning from March 1989 to June 1990. 75 EXECUTIVE COMPENSATION COMPENSATION SUMMARY The following table sets forth the compensation for services rendered during the fiscal years ended December 31, 1993 and 1992 and December 27, 1991, for ATL's Chief Executive Officer and its four other most highly compensated executive officers. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION ----------------------- ---------------------------- SHARES ALL OTHER RESTRICTED STOCK UNDERLYING COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) AWARDS ($)(2)(3) OPTIONS (#) ($)(4)(5) --------------------------- ---- ---------- ------------ ---------------- ----------- ------------ Dennis C. Fill 1993 370,107 236,120 328,880 75,000 3,935 Chairman and Chief Executive 1992 442,083 427,678 581,875 75,000 3,818 Officer 1991 437,500 500,000 0 15,000 -- David M. Perozek 1993 266,538 100,040 204,960 40,000 3,489 President and Chief Operating 1992 190,384 614,271(6) 581,175 115,000 0 Officer Harvey N. Gillis 1993 193,846 76,120 108,880 25,000 1,090 Sr. Vice President, Finance and 1992 48,461 82,838(7) 234,375 25,000 0 Administration, and Chief Fi- nancial Officer Castor F. Diaz 1993 155,063 52,200 12,800 17,000 32,622(8) Sr. Vice President, ATL Europe 1992 161,886 69,622 116,375 9,000 97,849(9) Donald D. Blem 1993 155,076 56,240 13,760 12,000 554 Sr. Vice President, Operations 1992 149,615 79,568 149,625 10,000 2,182
- - - -------- (1) Includes bonus awards earned during the fiscal year covered under ATL's Management Incentive Compensation Plan (the "MIC Plan"). (2) Restricted stock awards generally have a vesting period of four years with 25% of the award amount of said shares vesting each year on the anniversary date of the award. The amounts reported in this table represent the market value of the shares at the date of grant based upon the closing price of the ATL Common Stock as reported on the Nasdaq National Market on such date. At December 31, 1993, Messrs. Fill, Perozek, Gillis, Diaz and Blem held 43,750, 36,250, 16,250, 5,250 and 7,750 shares of restricted stock having a market value of $732,812, $607,187, $272,188, $87,938 and $129,813, respectively, based upon the closing price of the ATL Common Stock as reported on the Nasdaq National Market on December 31, 1993. (3) Includes bonus awards of restricted stock on February 18, 1994, which represent 20% of the cash value of an award under the MIC Plan for the fiscal year covered. Under these MIC Plan awards, Messrs. Fill, Perozek, Gillis, Diaz and Blem received 3,680, 1,560, 1,180, 800 and 860 shares having a market value of $58,880, $24,960, $18,880, $12,800 and $13,760, respectively. The restricted shares granted have a two-year vesting period with 50% of the award amount vesting each year on the anniversary date of the award. (4) Disclosure for 1991 is not required by applicable rules of the Commission. (5) Includes employer-matching contributions made to the ATL Incentive Savings and Stock Ownership Plan (the "ISSOP/401(k)"). (6) Mr. Perozek joined ATL on April 13, 1992. This amount represents a $480,000 bonus paid under his employment agreement when Mr. Perozek became President of ATL in April 1992 and $134,271 as a 1992 bonus under the MIC Plan. (7) Mr. Gillis joined ATL on September 24, 1992. This amount represents a $53,000 bonus paid upon employment and $29,838 as a 1992 bonus under the MIC Plan. Mr. Gillis was guaranteed a $50,000 bonus for his initial 12 months with ATL under its offer of employment of August 28, 1992. 76 (8) Includes $21,000 in expatriate benefits. (9) Includes $63,086 in relocation expenses and $33,356 in expatriate benefits. OPTION GRANTS The following table sets forth certain information regarding options granted during the fiscal year ended December 31, 1993, to ATL's Chief Executive Officer and its four other most highly compensated executive officers. OPTION GRANTS IN FISCAL 1993
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR OPTION INDIVIDUAL GRANTS TERM(2)(3) - - - ----------------------------------------------------------------------------- ------------------- NUMBER OF PERCENT OF SHARES TOTAL OPTIONS UNDERLYING GRANTED TO EXERCISE OPTIONS EMPLOYEES IN PRICE EXPIRATION NAME GRANTED (#)(1) FISCAL YEAR(1) ($/SHARE) DATE 5% 10% - - - ---- -------------- -------------- --------- ------------ -------- ---------- Dennis C. Fill.......... 75,000 13.9% 17.75 May 5, 2004 $837,223 $2,121,613 David M. Perozek........ 40,000 7.4% 17.75 May 5, 2004 446,519 1,131,527 Harvey N. Gillis........ 25,000 4.6% 17.75 May 5, 2004 279,074 707,204 Castor F. Diaz.......... 17,000 3.2% 16.75 June 4, 2004 179,079 453,806 Donald D. Blem.......... 12,000 2.2% 16.75 June 4, 2004 126,409 320,333
- - - -------- (1) Options are granted at the fair market value on the date of grant and generally vest over four years with 25% of each grant exercisable on the successive anniversary date of grant. Certain changes in control of ATL can trigger accelerated vesting of stock options and rights to related payments. (2) The dollar amounts under these columns are the result of calculations at assumed rates of 5% and 10% and are not intended to forecast future appreciation. No value will be realized if the stock price does not exceed the exercise price of the options. (3) The appreciation realized by all ATL shareholders on all 10,507,627 shares of ATL Common Stock outstanding on December 31, 1993, starting from a base value of $17.03 per share, which represents the average grant price for stock options granted under the ATL Option Plan during 1993, would be $112,538,440 and $285,184,468 at assumed annual rates of stock price appreciation of 5% and 10%, respectively. OPTION EXERCISES AND YEAR-END VALUES The following table sets forth certain information as of December 31, 1993, regarding options held by ATL's Chief Executive Officer and its four other most highly compensated executive officers. None of such individuals exercised any options during the fiscal year ended December 31, 1993. AGGREGATED FISCAL 1993 YEAR-END OPTION VALUES
TOTAL NUMBER OF VALUE OF UNEXERCISED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(1) ------------------------- ------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - - - ---- ----------- ------------- ----------- ------------- Dennis C. Fill.............. 91,158 158,750 $266,679 $89,156 David M. Perozek............ 28,750 126,250 2,813 8,438 Harvey N. Gillis............ 6,250 43,750 7,031 21,094 Castor F. Diaz.............. 2,250 23,750 281 844 Donald D. Blem.............. 2,500 19,500 313 938
- - - -------- (1) This amount is the aggregate number of the outstanding options multiplied by the difference between the closing price of the ATL Common Stock as reported on the Nasdaq National Market on December 31, 1993, minus the exercise price of such options. 77 COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION Compensation Policies. The Compensation Committee has developed and directs a comprehensive program of compensation policies that aligns the compensation of all employees, including senior management, in accordance with goals and objectives that are consistent with ATL's business strategies. These business strategies are designed to enhance business financial performance and customer satisfaction and are thereby aligned with the overall corporate objective of enhancing shareholder value. ATL's compensation policies are designed to attract and retain key employees, including executive officers, in competition with other high-technology companies that endeavor to attract such employees. Compensation for all management personnel is based upon corporate performance as measured by the criteria discussed below, as well as individual performance as measured by individually tailored sets of goals and objectives that are directed toward achieving ATL's business strategies for the year. To qualify compensation for deductibility under Section 162(m) of the Code, it is ATL's policy with respect to performance-based compensation to meet the requirements for exclusion from the limit imposed by Section 162(m) and, with respect to nonperformance-based compensation, to not award compensation in excess of the limit. The Compensation Committee regularly receives reports and briefings from outside compensation consultants who advise the Compensation Committee on all aspects of compensation, including base salaries, bonus awards and incentives, including restricted stock, stock options and long-term incentive awards. Incentive awards payable to those engaged in sales activities are based upon performance as measured by objective standards. Compensation Programs. The Compensation Committee and the ATL shareholders have adopted incentive programs that reach all areas of ATL. Under the ATL Option Plan and the MIC Plan, awards may be granted to any officer or manager of ATL. Under the 1992 Nonofficer Employee Stock Option Plan (the "NOE Plan"), awards may be made under prescribed circumstances to any employee who is not eligible for awards under the MIC Plan. In 1993, the ATL Board adopted a Long Term Incentive Plan pursuant to which designated employees of ATL may earn cash incentives over a period of years, which are premised on objective measures of company performance. All individual awards to executive officers under these plans must be reviewed and approved by the Compensation Committee. In addition, all employees are eligible to participate in the ISSOP/401(k) plan following the initial year of employment with ATL. Salaries. Base salaries for all employees are reviewed on an annual basis. Salary increases generally are based on a subjective evaluation of the employee's performance, and in the case of management personnel, against the individual goals and objectives established for each of them. Base salaries are also set using the results of surveys of similar positions in high technology companies and in other local companies as well as internal equity considerations. Bonuses. Traditionally, a portion of ATL's total compensation is paid in the form of bonuses. Annual bonuses for all managers, including executive officers, may be awarded by the Compensation Committee from an award pool established under the MIC Plan. The size of the award pool is based on ATL's corporate performance measured by identified factors. In 1992, those factors were company revenue and earnings. In 1993, when market conditions made achievement of the objectives based on those criteria unattainable, the Compensation Committee broadened the basis of the award pool to include the additional criteria of market share performance and ATL's response to major market changes. The MIC Plan award pool for 1993 was 16% less than the award pool in 1992. Individual awards from the award pool were made by the Compensation Committee in consideration of a recipient's managerial level, the impact of the recipient's position on the achievement of ATL's goals, and the recipient's individual performance as measured by the corporate objectives set for the recipient and the effectiveness of the recipient in achieving those objectives. Equity Awards. From time to time the Compensation Committee grants awards of restricted stock and stock options under the ATL Option Plan and the NOE Plan. The objectives of these grants are to recognize, reward and retain individuals in key positions who have exhibited high performance and have high potential 78 for advancement with ATL. Every recommendation for an award is individually brought before the Compensation Committee by management. There are at present no awards or contracts outstanding for SARs or performance unit awards under the ATL Option Plan. Compensation of Executive Officers. The total compensation program for executive officers in 1993, including the Chief Executive Officer, was balanced between base salary, an annual bonus, and restricted stock and stock option grants vesting over a four-year period. The Compensation Committee considered the reports and advice of outside consultants in the area of executive compensation in determining each element of compensation and each individual's total incentive compensation. Base Salaries. In determining the base salaries of executive officers, the Compensation Committee takes into account the results of surveys and other measures of comparable corporate compensation in general, and that of executives in high-technology companies in particular. The comparable companies include some, but not all, of the companies included in the Peer Group Index used in the stock performance graph below, along with other comparably sized public companies. Following the August 1993 restructuring of ATL's operations, the salaries of all executive officers were reduced by 10% for the last four months of the year. Only one of ATL's executive officers for whom compensation is reported in this Joint Proxy Statement/Prospectus received an increase in base salary in 1993. Bonuses. Bonuses awarded were determined in accordance with the criteria of the MIC Plan award pool described above. Only 80% of the bonuses granted to executive officers for 1993 were paid in cash; the balance will be received in restricted stock vesting over a two-year period. Long-Term Incentive Awards. The Compensation Committee made cash awards to certain executive officers under the Long Term Incentive Plan in 1993. These awards are to be earned over a three-year term as determined by predetermined objective criteria of corporate performance and will not mature until the end of fiscal 1995, at which time they may or may not have value. The long-term incentive award for each recipient is premised on a fraction of the recipient's base salary and is limited to a maximum percentage of salary. Equity Awards. Equity awards granted by the Compensation Committee to executive officers were made in consideration of advice and recommendations from outside compensation consultants as to levels of awards appropriate for companies, particularly high-technology companies, that are similarly situated to ATL. The companies considered by such compensation consultants included some, but not all, of the companies included in the Peer Group Index used in the stock performance graph below. Individual equity awards were based upon the job responsibility of a recipient, past performance and present job responsibilities, the importance of a recipient to ATL's future progress and the recipient's prior award amounts. These awards all vest in equal annual installments over a four-year period beginning one year after the grant date. The Compensation Committee does not utilize individual targets for equity awards but follows a philosophy of issuing equity grants as broadly throughout ATL as is reasonable, with consideration given to the impact of particular positions on ATL's future success. In granting individual equity awards for executive officers, the Compensation Committee takes into account the long-term incentive plan award given to each of such officers and considers the equity and long-term incentive awards in the aggregate. This aggregate view had the effect of reducing equity awards for these individuals to levels below what might have been considered in the absence of the long-term awards. Compensation of the Chief Executive Officer. In determining the compensation of the Chief Executive Officer, the Compensation Committee considered such factors as ATL's revenue and earnings, gains in market share achieved during 1993, and ATL's response to market changes. The Chief Executive Officer's base salary was decreased in 1993 by a 10% reduction at the time of the August 1993 corporate restructuring and extending through the last four months of the year. The Chief Executive Officer received a bonus for 1993, in consideration of the foregoing factors, of $295,000, of which $236,120 was received in cash and the balance in restricted stock vesting over a two-year period. This compares with a cash award of $427,678 in 1992. The 79 Chief Executive Officer received one award of restricted stock in the amount of 15,000 shares and stock options for 75,000 shares in 1993 that vest in equal annual installments over a four-year period beginning one year after the grant date. Awards in the same amounts were made to the Chief Executive Officer in 1992. This award was made together with like awards to the Chief Operating Officer and the Chief Financial Officer as incentives for continued progress toward ATL's long-range strategic financial and business objectives. COMPENSATION COMMITTEE Mr. Ralph M. Barford, Chairman Dr. Harry Woolf Mr. Kirby L. Cramer Mr. John R. Miller COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN The graph set forth below represents the five-year cumulative total return on shares of ATL Common Stock, the S&P 500 Stock Index, and a Peer Group Index resulting from an initial assumed investment of $100 in each. The Peer Group Index is a representative grouping of 86 companies from SIC Code 3845-- Electromedical Equipment--which had five years of reportable stock performance and includes the reinvestment of both cash and stock dividends. The graph has been prepared by an outside consulting firm to ATL. The ATL cumulative return is computed as required by the rules of the Commission to comprise the cumulative total return on Westmark common stock (including both SpaceLabs and ATL subsidiaries) prior to June 29, 1992, and to thereafter comprise the cumulative return of shares of ATL Common Stock with a dividend reinvestment of the 1992 Distribution. By reason of this computation, the separate value of shares of ATL Common Stock on a stand-alone basis cannot be distinguished in the graph. COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG ADVANCED TECHNOLOGY LABORATORIES, INC., S&P 500 STOCK INDEX AND PEER GROUP INDEX [GRAPH APPEARS HERE]
Measurement Period PEER GROUP S&P 500 (Fiscal Year Covered) ATL INDEX INDEX - - - ------------------- ------- ---------- ------- Measurement Pt- 12/31/88 $100 $100 $100 FYE 12/31/89 $170.37 $130.65 $131.68 FYE 12/31/90 $ 90.74 $151.30 $127.58 FYE 12/31/91 $196.30 $289.99 $166.47 FYE 12/31/92 $128.35 $259.50 $179.20 FYE 12/31/93 $122.85 $225.07 $197.26
80 RETIREMENT PLAN The following tabulation sets forth the estimated annual benefits for an employee, assuming retirement on January 1, 1994 at age 65 after selected periods of service under the ATL Retirement Plan (the "Retirement Plan"), and including amounts to be paid pursuant to the ATL Supplemental Benefit Plan (the "Supplemental Plan"), if applicable.
ANNUAL RETIREMENT BENEFIT FOR CREDITABLE SERVICE ---------------------------------------------------- AVERAGE ANNUAL EARNINGS 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS - - - ----------------------- ------- -------- -------- -------- -------- -------- $100,000................ $ 5,000 $10,000 $ 15,000 $ 20,000 $ 25,000 $ 30,000 200,000................ 10,000 20,000 30,000 40,000 50,000 60,000 300,000................ 15,000 30,000 45,000 60,000 75,000 90,000 400,000................ 20,000 40,000 60,000 80,000 100,000 120,000 500,000................ 25,000 50,000 75,000 100,000 125,000 150,000 600,000................ 30,000 60,000 90,000 120,000 150,000 180,000 700,000................ 35,000 70,000 105,000 140,000 175,000 210,000 800,000................ 40,000 80,000 120,000 160,000 200,000 240,000
Amounts shown in the above table will be reduced by the actuarial equivalent value of amounts distributed from the Discretionary Contribution Plan, which was terminated in 1989, but in no event will they be less than zero. Retirement benefits are not offset for Social Security benefits. ERISA, the Tax Equity and Fiscal Responsibility Act of 1982 and the Tax Reform Act of 1986 generally limit the amount of annual pension that may be paid from a federal income tax qualified plan to varying amounts (currently $118,800) and the annual earnings that may be taken into account for purposes of calculating benefits under a federal income tax qualified plan (currently $235,840). The actual amounts paid under the Retirement Plan will be limited to comply with such legislation. As of December 31, 1993, the number of years of credited service under the Retirement Plan for Messrs. Fill, Perozek, Gillis, Diaz and Blem were approximately 7, 1, 1, 6 and 6, respectively. The 1993 earnings for purposes of calculating benefits under the Retirement Plan for Messrs. Fill, Perozek, Gillis, Diaz and Blem are $551,161, $399,807, $223,684, $217,717 and $232,614, respectively. Subject to the limitations imposed by the Code, as stated above, 1993 annual earnings in excess of $235,840 will be disregarded. The Supplemental Plan is an unfunded plan, not qualified for federal income tax purposes, that covers any employee whose benefit under the Retirement Plan is limited by certain provisions of the Code. Based on earnings as defined in the Retirement Plan, Messrs. Fill and Perozek would be eligible for benefits under the Supplemental Plan. CHANGE IN CONTROL AGREEMENTS Messrs. Fill, Perozek and Gillis have each entered into a Change in Control Employment Agreement with ATL that provides for continued employment terms equivalent to those immediately prior to a Change of Control (as defined in "AMENDMENT OF THE ATL OPTION PLAN") for the three years following a Change of Control. A lump-sum payment equal to three years of salary and bonus is immediately triggered if, following a Change of Control, employment is terminated by (i) the employee for "good cause" or during the 30-day window period one year after the Change of Control or (ii) the employer "without cause." A Change of Control, with or without termination of employment, also triggers an acceleration of vesting of restricted stock and stock options and payment of the "spread" between the exercise price of options and the fair market value of the underlying ATL Common Stock. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In September 1992, pursuant to a relocation agreement with ATL, ATL loaned Mr. Perozek $200,000 toward the purchase of a residence in the Seattle area. The loan is secured by a first mortgage on Mr. Perozek's residence, which is held by ATL, and provides that the loan is to be repaid without interest over a 81 four-year period in annual payments of the lesser of (i) $100,000 and (ii) the cash amount of his MIC Plan bonus award. In March 1994, Mr. Perozek made a second payment on the loan that retired the loan by repaying the principal amount in its entirety. SECTION 16 REPORTING Section 16(a) of the Exchange Act requires ATL's officers and directors, and persons who own more than 10% of a registered class of ATL's equity securities, to file reports of ownership and changes in ownership with the Commission. Officers, directors and greater than 10% shareholders are required by Commission regulations to furnish ATL with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no Forms 5s were required for those persons, ATL believes that during calendar year 1993 all filing requirements applicable to its officers, directors and greater than 10% shareholders were complied with, with the exception that John R. Miller and Richard S. Totorica (Corporate Controller), in their initial Form 3 filings, omitted their disclosure of ownership of 300 shares and 103 shares, respectively, of ATL Common Stock. Amendments to both of their initial Form 3 disclosures were subsequently filed. 82 PRINCIPAL ATL SHAREHOLDERS The following table sets forth, as of February 25, 1994, certain information with respect to the beneficial ownership of shares of ATL Common Stock by (i) each person known by ATL to own beneficially more than 5% of the shares of ATL Common Stock, (ii) each director and director nominee of ATL, (iii) each of ATL's executive officers for whom compensation is reported in this Joint Proxy Statement/Prospectus, and (iv) all directors and executive officers of ATL as a group. Except as otherwise noted, ATL believes that the beneficial owners of the shares of ATL Common Stock listed below, based on information furnished by such owners, have sole voting and investment power with respect to such shares.
NAME AND AMOUNT AND ADDRESS OF NATURE OF PERCENT OF CLASS BENEFICIAL BENEFICIAL FOLLOWING OWNER OWNERSHIP PERCENT OF CLASS MERGER(1) ---------- ---------- ---------------- ---------------- 5% OWNERS: The State of Wisconsin........... 965,000(2) 9.2% 7.4% Investment Board P.O. Box 7842 Madison, WI 53707 Wellington Mangement Company..... 818,250(3) 7.8% 6.2% 75 State Street Boston, MA 02109 Trimark Investment Management, 620,000(4) 5.9% 4.7% Inc............................. One First Canadian Place Suite 5600, P.O. Box 487 Toronto, ON M5X 1E5 DIRECTORS AND EXECUTIVE OFFICERS: Dennis C. Fill................... 81,802(5) * * David M. Perozek................. 46,744(5) * * Harvey N. Gillis................. 21,243(5) * * Eugene A. Larson................. 20,600 * * Kirby L. Cramer.................. 10,000 * * Donald D. Blem................... 9,023(5) * * Castor F. Diaz................... 8,399(5) * * Harry Woolf...................... 5,500 * * Ralph M. Barford................. 5,000 * * Harvey Feigenbaum................ 463(6) * * John R. Miller................... 300 * * All directors and executive officers as a group (12 persons)........................ 216,844(5) 2.1% 1.7%
- - - -------- *Under one percent. (1) Based upon the Exchange Ratio of 0.413 and the number of Interspec Common Shares outstanding as of March 29, 1994. (2) Sole power to vote and sole power to dispose of 965,000 shares, based upon publicly available information reported as of December 31, 1993. (3) Shared power to vote 134,250 shares and sole power to dispose of 818,250 shares, based upon publicly available information reported as of December 31, 1993. 661,200 shares held through Wellington Management Company are beneficially owned by Vanguard Specialized Portfolios, Inc.--Health Care Portfolios ("Vanguard"), P.O. Box 2600, Valley Forge, PA 19482. Vanguard has sole power to vote and shared power to dispose of 661,200 shares, based upon publicly available information reported as of December 31, 1993. (4) Sole power to vote and to dispose of 620,000 shares, based upon notification of beneficial ownership by Trimark Investment Management Inc. on March 23, 1994. 83 (5) Includes shares held by the Trustee of the ISSOP/401(k) for each such officer who is a participant in the ISSOP/401(k). Does not include shares purchased by the Trustee of the ISSOP/401(k) after December 31, 1993, which shares have not yet been allocated by the Trustee to the beneficiaries. (6) Includes 163 shares owned by Dr. Feigenbaum's wife. Dr. Feigenbaum disclaims beneficial ownership of such shares. LEGAL OPINION The legality of the shares of ATL Common Stock to be issued in connection with the Merger is being passed upon for ATL by Perkins Coie. TAX OPINION Certain of the tax consequences of the Merger to Interspec shareholders will be passed upon at the Effective Time, as a condition to the Merger, by Cravath, Swaine & Moore, counsel to ATL, and by Duane, Morris & Heckscher, counsel to Interspec. See "THE MERGER--Certain Federal Income Tax Consequences." EXPERTS The consolidated financial statements and schedules of ATL and its subsidiaries included in ATL's Annual Report on Form 10-K as of December 31, 1993 and 1992 and for each of the fiscal years in the three-year period ended December 31, 1993 and incorporated by reference in this Joint Proxy Statement/Prospectus are incorporated by reference herein in reliance upon the report of KPMG Peat Marwick, independent auditors, and upon the authority of said firm as experts in accounting and auditing. The consolidated financial statements and schedules of Interspec and its subsidiaries included in Interspec's Annual Report on Form 10-K as of November 30, 1993 and 1992 and for each of the fiscal years in the three-year period ended November 30, 1993 and incorporated by reference in this Joint Proxy Statement/Prospectus are incorporated by reference herein in reliance upon the report of KPMG Peat Marwick, independent auditors, and upon the authority of said firm as experts in accounting and auditing. RATIFICATION OF APPOINTMENT OF AUDITORS Unless instructed to the contrary, it is intended that votes be cast pursuant to the accompanying proxy for the ratification of the appointment of KPMG Peat Marwick as independent auditors of ATL for the year 1994. KMPG Peat Marwick has audited the accounts of ATL and Westmark and its major subsidiaries from 1987 through 1993, and for the units of Squibb Corporation that now comprise ATL since 1982. Representatives of KPMG Peat Marwick are expected to attend the ATL Annual Meeting and will have an opportunity to make a statement and/or to respond to appropriate questions from shareholders. In the event the ratification of the appointment of auditors is not made by a majority of the shares present in person or by proxy and entitled to vote thereon, the selection of other auditors will be considered and determined by the ATL Board. The ATL Board has unanimously approved the appointment of KPMG Peat Marwick as auditors for ATL for 1994 and recommends a vote "FOR" ratification of the appointment of KPMG Peat Marwick. PROPOSALS BY ATL SHAREHOLDERS Shareholder proposals intended to be presented at ATL's 1995 Annual General Meeting of Shareholders must be received by ATL not later than December 19, 1994 for inclusion in the proxy materials for such meeting. 84 ANNUAL REPORT AND FORM 10-K A copy of ATL's 1993 Annual Report is being mailed with this Proxy Statement to each shareholder of record. ATL shareholders not receiving a copy of such Annual Report may obtain one without charge by writing or calling Investor Relations, Advanced Technology Laboratories, Inc., 22100 Bothell Everett Highway, P.O. Box 3003, Bothell, WA 98041-3003, (206) 487-7000. A copy of ATL's Annual Report on Form 10-K for the year ended December 31, 1993, as filed with the Commission, will be provided without charge to each shareholder of record who submits a written request therefor addressed to Investor Relations, Advanced Technology Laboratories, Inc., 22100 Bothell Everett Highway, P.O. Box 3003, Bothell, WA 98041-3003, (206) 487-7000. 85 APPENDIX I - - - -------------------------------------------------------------------------------- - - - -------------------------------------------------------------------------------- AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER DATED AS OF FEBRUARY 10, 1994, AMONG ADVANCED TECHNOLOGY LABORATORIES, INC. ATL SUB ACQUISITION CORP. AND INTERSPEC, INC. - - - -------------------------------------------------------------------------------- - - - -------------------------------------------------------------------------------- CONTENTS ARTICLE I The Merger.......................... 1 Section 1.01 The Merger.................. 1 Section 1.02 Closing..................... 1 Section 1.03 Effective Time.............. 2 Section 1.04 Effects of the Merger....... 2 Section 1.05 Articles of Incorporation and By-laws................. 2 Section 1.06 Directors................... 2 Section 1.07 Officers.................... 2 ARTICLE II Effect of the Merger on the Capital Stock of the Constituent Corporations; Exchange of Certificates........... 2 Section 2.01 Effect on Capital Stock..... 2 Section 2.02 Exchange of Certificates.... 3 ARTICLE III Representations and Warranties........................ 6 Section 3.01 Representations and Warranties of the Company... 6 Section 3.02 Representations and Warranties of Parent and Sub......................... 15 ARTICLE IV Covenants Relating to Conduct of Business........................ 20 Section 4.01 Conduct of Business......... 20 Section 4.02 No Solicitation............. 22 ARTICLE V Additional Agreements............... 23 Section 5.01 Preparation of Form S-4 and the Joint Proxy Statement; Stockholders Meetings....... 23 Section 5.02 Letter of the Company's Accountants................. 24 Section 5.03 Letter of Parent's Accountants................. 24 Section 5.04 Access to Information; Confidentiality............. 24 Section 5.05 Best Efforts; Notification.. 25 Section 5.06 Stock Options............... 26 Section 5.07 Benefit Plans............... 26 Section 5.08 Indemnification and Insurance................... 27 Section 5.09 Fees and Expenses........... 27 Section 5.10 Public Announcements........ 28 Section 5.11 Affiliates and Certain Stockholders................ 28 Section 5.12 National Market System Trading..................... 29 Section 5.13 Stockholder Litigation...... 29 Section 5.14 Tax Representation Letters of the Company and Parent... 29 Section 5.15 Directorship................ 29 Section 5.16 Employment Agreements....... 29 ARTICLE VI Conditions Precedent............... 29 Section 6.01 Conditions to Each Party's Obligation to Effect the Merger...................... 29 Section 6.02 Conditions to Obligations of Parent and Sub........... 30 Section 6.03 Conditions to Obligation of the Company................. 31 Section 6.04 Frustration of Closing Conditions.................. 32 ARTICLE VII Termination, Amendment and Waiver........................ 32 Section 7.01 Termination................. 32 Section 7.02 Effect of Termination....... 33 Section 7.03 Amendment................... 33 Section 7.04 Extension; Waiver........... 33 Section 7.05 Procedure for Termination, Amendment, Extension or Waiver...................... 34 ARTICLE VIII General Provisions............... 34 Section 8.01 Nonsurvival of Representations and Warranties.................. 34 Section 8.02 Notices..................... 34 Section 8.03 Definitions................. 35 Section 8.04 Interpretation.............. 35 Section 8.05 Counterparts................ 35 Section 8.06 Entire Agreement; No Third- Party Beneficiaries......... 36 Section 8.07 Governing Law............... 36 Section 8.08 Assignment.................. 36 Section 8.09 Enforcement................. 36
I-i AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated as of February 10, 1994, among ADVANCED TECHNOLOGY LABORATORIES, INC., a Delaware corporation ("Parent"), ATL SUB ACQUISITION CORP., a Delaware corporation ("Sub"), and a wholly owned subsidiary of Parent, and INTERSPEC, INC., a Pennsylvania corporation (the "Company"). WHEREAS the respective Boards of Directors of Parent, Sub and the Company have approved the merger of Sub into the Company (the "Merger"), upon the terms and subject to the conditions set forth in this Agreement, whereby each issued and outstanding share of common stock, par value $.001 per share, of the Company ("Company Common Stock"), other than shares owned directly or indirectly by Parent or the Company and Dissenting Shares (as defined in Section 2.01(d)), will be converted into the right to receive common stock, par value $.01 per share, of Parent ("Parent Common Stock"); WHEREAS the Merger requires the approval of a majority of votes cast by the holders of shares of the Company Common Stock entitled to vote thereon at the meeting of holders of Company Common Stock to be called therefor (the "Company Stockholder Approval"); WHEREAS each of (x) the issuance of shares of Parent Common Stock in the Merger and (y) the Stock Plan Amendment (as defined in Section 5.01(b)) requires the approval by an affirmative vote of the holders of a majority of the shares of the Parent Common Stock present, or represented, and entitled to vote thereon at the meeting of holders of Parent Common Stock to be called therefor (the "Parent Stockholder Approval"); WHEREAS Parent, Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger; WHEREAS, for Federal income tax purposes, it is intended that the Merger shall qualify as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); WHEREAS, for accounting purposes, it is intended that the Merger shall be accounted for as a "pooling of interests"; and WHEREAS, the parties desire to amend and restate the Agreement pursuant to Agreement dated as of February 10, 1994, among Parent, Sub and the Company. NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Agreement and intending to be legally bound hereby, the parties agree as follows: ARTICLE I THE MERGER SECTION 1.01 THE MERGER Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the Pennsylvania Business Corporation Law of 1988 (the "PBCL") and the Delaware General Corporation Law (the "DGCL"), Sub shall be merged with and into the Company at the Effective Time of the Merger (as defined in Section 1.03). Following the Effective Time of the Merger, the separate corporate existence of Sub shall cease and the Company shall continue as the surviving corporation (the "Surviving Corporation") and shall succeed to and assume all the rights and obligations of Sub in accordance with the PBCL and the DGCL. SECTION 1.02 CLOSING The closing of the Merger (the "Closing") will take place at 10:00 a.m. on a date to be specified by the parties (the "Closing Date"), which (subject to satisfaction or waiver of the conditions set forth in Sections 6.02 and 6.03) shall be no earlier than May 3, 1994, and no later than the second business day after satisfaction I-1 of the conditions set forth in Section 6.01, at the offices of Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019, unless another date or place is agreed to in writing by the parties hereto. SECTION 1.03 EFFECTIVE TIME Subject to the provisions of this Agreement, as soon as practicable following the satisfaction or waiver of the conditions set forth in Article VI, the parties shall file a certificate of merger, articles of merger or other appropriate documents (in any such case, the "Certificate of Merger") executed in accordance with the relevant provisions of the PBCL and the DGCL and shall make all other filings or recordings required under the PBCL and the DGCL. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Secretary of State of the Commonwealth of Pennsylvania and the State of Delaware, or at such other time as Sub and the Company shall agree should be specified in the Certificate of Merger (the time the Merger becomes effective being hereinafter referred to as the "Effective Time of the Merger"). SECTION 1.04 EFFECTS OF THE MERGER The Merger shall have the effects set forth in Section 1929 of the PBCL and Section 259 of the DGCL. SECTION 1.05 ARTICLES OF INCORPORATION AND BY-LAWS (a) The articles of incorporation of the Company, as in effect immediately prior to the Effective Time of the Merger, shall be amended as of the Effective Time of the Merger so that Article 5 of such articles of incorporation reads in its entirety as follows: "The total number of shares of all classes of stock which the corporation shall have authority to issue is 100 shares of Common Stock, par value $1.00 per share." and, as so amended, such articles of incorporation shall be the articles of incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. (b) The by-laws of the Company as in effect at the Effective Time of the Merger shall be the by-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. SECTION 1.06 DIRECTORS The directors of Sub at the Effective Time of the Merger shall be the directors of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. SECTION 1.07 OFFICERS The officers of the Company at the Effective Time of the Merger shall be the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES SECTION 2.01 EFFECT ON CAPITAL STOCK As of the Effective Time of the Merger, by virtue of the Merger and without any action on the part of the holder of any shares of Company Common Stock or any shares of capital stock of Sub: (a) Capital Stock of Sub. Each issued and outstanding share of capital stock of Sub shall be converted into and become one fully paid and nonassessable share of Common Stock, par value $1.00 per share, of the Surviving Corporation. I-2 (b) Cancellation of Treasury Stock and Parent-Owned Stock. Each share of Company Common Stock that is owned by the Company or by any subsidiary (as defined in Section 8.03) of the Company and each share of Company Common Stock that is owned by Parent, Sub or any other subsidiary of Parent shall automatically be cancelled and retired and shall cease to exist, and no Parent Common Stock or other consideration shall be delivered in exchange therefor. (c) Conversion of Company Common Stock. Subject to Section 2.02(e), each issued and outstanding share of Company Common Stock (other than shares to be cancelled in accordance with Section 2.01(b)) shall be converted into the right to receive 0.413 of a fully paid and nonassessable share of Parent Common Stock (the "Exchange Ratio"). Pursuant to the Rights Agreement (as defined in Section 3.02(b)), one Right (as defined in the Rights Agreement) will be attached to each share of Parent Common Stock issued in connection with the Merger upon conversion of Company Common Stock. As of the Effective Time of the Merger, all such shares of Company Common Stock shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Company Common Stock shall cease to have any rights with respect thereto, except the right to receive the shares of Parent Common Stock and any cash in lieu of fractional shares of Parent Common Stock to be issued or paid in consideration therefor upon surrender of such certificate in accordance with Section 2.02, without interest. (d) Dissenting Shares. Notwithstanding anything in this Agreement to the contrary, shares of Company Common Stock outstanding immediately prior to the Effective Time of the Merger held by a holder (if any) who is entitled to demand, and who properly demands, appraisal for such shares in accordance with Section 1571 of the PBCL ("Dissenting Shares") shall not be converted into a right to receive Parent Common Stock and any cash in lieu of fractional shares of Parent Common Stock unless such holder fails to perfect or otherwise loses such holder's right to appraisal, if any. If, after the Effective Time of the Merger, such holder fails to perfect or loses any such right to appraisal, such shares shall be treated as if they had been converted as of the Effective Time of the Merger into the right to receive Parent Common Stock pursuant to Section 2.01(c) and the cash in lieu of fractional shares of Parent Common Stock specified in Section 2.02(e). The Company shall give prompt notice to Parent of any demands received by the Company for appraisal of shares of Company Common Stock, and Parent shall have the right to participate in and direct all negotiations and proceedings with respect to such demands. The Company shall not, except with the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands. SECTION 2.02 EXCHANGE OF CERTIFICATES (a) Exchange Agent. As of the Effective Time of the Merger, Parent shall deposit with First Chicago Trust Company of New York or such other bank or trust company as may be designated by Parent (the "Exchange Agent"), for the benefit of the holders of shares of Company Common Stock, for exchange in accordance with this Article II, through the Exchange Agent, certificates representing the shares of Parent Common Stock (such shares of Parent Common Stock, together with any dividends or distributions with respect thereto, being hereinafter referred to as the "Exchange Fund") issuable pursuant to Section 2.01 in exchange for outstanding shares of Company Common Stock. (b) Exchange Procedures. As soon as reasonably practicable after the Effective Time of the Merger, the Exchange Agent shall mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time of the Merger represented outstanding shares of Company Common Stock (the "Certificates") whose shares were converted into the right to receive shares of Parent Common Stock pursuant to Section 2.01, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing shares of Parent Common Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly executed, I-3 and such other documents as may reasonably be required by the Exchange Agent, the holder of such Certificate shall be entitled to receive in exchange therefor a certificate representing that number of whole shares of Parent Common Stock which such holder has the right to receive pursuant to the provisions of this Article II and cash in lieu of fractional shares of Parent Common Stock as contemplated by this Section 2.02, and the Certificate so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of Company Common Stock which is not registered in the transfer records of the Company, a certificate representing the proper number of shares of Parent Common Stock may be issued to a person other than the person in whose name the Certificate so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment shall pay any transfer or other taxes required by reason of the issuance of shares of Parent Common Stock to a person other than the registered holder of such Certificate or establish to the satisfaction of Parent that such tax has been paid or is not applicable. Until surrendered as contemplated by this Section 2.02, each Certificate shall be deemed at any time after the Effective Time of the Merger to represent only the right to receive upon such surrender the certificate representing shares of Parent Common Stock and cash in lieu of any fractional shares of Parent Common Stock as contemplated by this Section 2.02. No interest will be paid or will accrue on any cash payable in lieu of any fractional shares of Parent Common Stock. (c) Distributions with Respect to Unexchanged Shares. No dividends or other distributions with respect to Parent Common Stock with a record date after the Effective Time of the Merger shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Parent Common Stock represented thereby, and no cash payment in lieu of fractional shares shall be paid to any such holder pursuant to Section 2.02(e), in each case until the surrender of such Certificate in accordance with this Article II. Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to the holder of the certificate representing whole shares of Parent Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of any cash payable in lieu of a fractional share of Parent Common Stock to which such holder is entitled pursuant to Section 2.02(e) and the amount of dividends or other distributions with a record date after the Effective Time of the Merger theretofore paid with respect to such whole shares of Parent Common Stock, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time of the Merger but prior to such surrender and with a payment date subsequent to such surrender payable with respect to such whole shares of Parent Common Stock. (d) No Further Ownership Rights in Company Common Stock. All shares of Parent Common Stock issued upon the surrender for exchange of Certificates in accordance with the terms of this Article II (including any cash paid pursuant to Section 2.02(c) or 2.02(e)) shall be deemed to have been issued (and paid) in full satisfaction of all rights pertaining to the shares of Company Common Stock theretofore represented by such Certificates, subject, however, to the Surviving Corporation's obligation to pay any dividends or make any other distributions with a record date prior to the Effective Time of the Merger which may have been declared or made by the Company on such shares of Company Common Stock in accordance with the terms of this Agreement or prior to the date of this Agreement and which remain unpaid at the Effective Time of the Merger, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of Company Common Stock which were outstanding immediately prior to the Effective Time of the Merger. If, after the Effective Time of the Merger, Certificates are presented to the Surviving Corporation or the Exchange Agent for any reason, they shall be cancelled and exchanged as provided in this Article II, except as otherwise provided by law. (e) No Fractional Shares. (i) No certificates or scrip representing fractional shares of Parent Common Stock shall be issued upon the surrender for exchange of Certificates, and such fractional share interests will not entitle the owner thereof to vote or to any rights of a stockholder of Parent. (ii) As promptly as practicable following the Effective Time of the Merger, the Exchange Agent shall determine the excess of (x) the number of shares of Parent Common Stock delivered to the I-4 Exchange Agent by Parent pursuant to Section 2.02(a) over (y) the aggregate number of whole shares of Parent Common Stock to be distributed to holders of the Certificates pursuant to Section 2.02(b) (such excess being hereinafter referred to as the "Excess Shares"). As soon after the Effective Time of the Merger as practicable, the Exchange Agent, as agent for the holders of the Certificates, shall sell the Excess Shares at then prevailing prices on the National Association of Securities Dealers, Inc. Automated Quotations National Market System ("NASDAQ/NMS"), all in the manner provided in paragraph (iii) of this Section 2.02(e). (iii) The sale of the Excess Shares by the Exchange Agent shall be executed on the NASDAQ/NMS through one or more member firms of the National Association of Securities Dealers, Inc. and shall be executed in round lots to the extent practicable. Until the net proceeds of such sale or sales have been distributed to the holders of the Certificates, the Exchange Agent will hold such proceeds in trust for the holders of the Certificates (the "Common Shares Trust"). Parent shall pay all commissions, transfer taxes and other out-of-pocket transaction costs, including the expenses and compensation of the Exchange Agent, incurred in connection with such sale of the Excess Shares. The Exchange Agent shall determine the portion of the Common Shares Trust to which each holder of a Certificate shall be entitled, if any, by multiplying the amount of the aggregate net proceeds comprising the Common Shares Trust by a fraction, the numerator of which is the amount of the fractional share interest to which such holder of a Certificate is entitled and the denominator of which is the aggregate amount of fractional share interests to which all holders of the Certificates are entitled. (iv) As soon as practicable after the determination of the amount of cash, if any, to be paid to holders of the Certificates in lieu of any fractional share interests, the Exchange Agent shall make available such amounts, without interest, to such holders of the Certificates. (f) Termination of Exchange Fund and Common Shares Trust. Any portion of the Exchange Fund and Common Shares Trust which remains undistributed to the holders of the Certificates for six months after the Effective Time of the Merger shall be delivered to Parent, upon demand, and any holders of the Certificates who have not theretofore complied with this Article II shall thereafter look only to Parent for payment of their claim for Parent Common Stock, any cash in lieu of fractional shares of Parent Common Stock and any dividends or distributions with respect to Parent Common Stock. (g) No Liability. None of Parent, Sub, the Company or the Exchange Agent shall be liable to any person in respect of any shares of Parent Common Stock (or dividends or distributions with respect thereto) or cash from the Exchange Fund or the Common Shares Trust delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificates shall not have been surrendered prior to seven years after the Effective Time of the Merger (or immediately prior to such earlier date on which any shares of Parent Common Stock, any cash in lieu of fractional shares of Parent Common Stock or any dividends or distributions with respect to Parent Common Stock in respect of such Certificate would otherwise escheat to or become the property of any Governmental Entity (as defined in Section 3.01(d)), any such shares, cash, dividends or distributions in respect of such Certificate shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto. (h) Investment of Exchange Fund and Common Shares Trust. The Exchange Agent shall invest any cash included in the Exchange Fund and the Common Shares Trust, as directed by Parent, on a daily basis. Any interest and other income resulting from such investments shall be paid to Parent. I-5 ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.01 REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth on the Disclosure Schedule delivered by the Company to Parent prior to the execution of this Agreement (the "Company Disclosure Schedule"), the Company represents and warrants to Parent and Sub as follows: (a) Organization, Standing and Corporate Power. Each of the Company and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated and has the requisite corporate power and authority to carry on its business as now being conducted. Each of the Company and each of its subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed individually or in the aggregate would not have a material adverse effect on the Company. The Company has delivered to Parent complete and correct copies of its articles of incorporation and by-laws and the certificates of incorporation and by-laws of its subsidiaries, in each case as amended to the date hereof. (b) Subsidiaries. Exhibit 22 to the Company's Form 10-K for the fiscal year ended November 30, 1992, lists each subsidiary of the Company. All the outstanding shares of capital stock of each such subsidiary have been validly issued and are fully paid and nonassessable and are owned by the Company, free and clear of all pledges, claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever (collectively, "Liens"). Except for the capital stock of its subsidiaries, the Company does not own, directly or indirectly, any capital stock or other ownership interest in any corporation, partnership, joint venture or other entity. (c) Capital Structure. The authorized capital stock of the Company consists of 10,000,000 shares of Company Common Stock and 400,000 shares of preferred stock, par value $.01 per share. At the close of business on February 8, 1994, (i) 6,274,877 shares of Company Common Stock and no shares of preferred stock were issued and outstanding, (ii) 10,390 shares of Company Common Stock were held by the Company in its treasury, (iii) 580,168 shares of Company Common Stock were reserved for issuance pursuant to the Stock Plans (as defined in Section 5.06) and (iv) 928,571 shares of Company Common Stock were reserved for issuance upon conversion of the Company's 11% Convertible Subordinated Notes (the "Convertible Notes"). At the close of business on February 8, 1994, there was $6,500,000 aggregate principal amount outstanding of the Convertible Notes, which are convertible into shares of Company Common Stock at the option of the holder thereof at an exchange price of $7 per share of Company Common Stock. Except as set forth above, at the close of business on February 8, 1994, no shares of capital stock or other voting securities of the Company were issued, reserved for issuance or outstanding. All outstanding shares of capital stock of the Company are, and all shares which may be issued pursuant to the Stock Plans will be, when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. There are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or, except for the Convertible Notes, convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company may vote. Except as set forth above, as of the date hereof, there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company or any of its subsidiaries is a party or by which any of them is bound obligating the Company or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of the Company or of any of its subsidiaries or obligating the Company or any of its subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. As of the date of this Agreement, there are not any outstanding contractual obligations of the Company or any of its I-6 subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its subsidiaries. There are not any outstanding contractual obligations of the Company to vote or to dispose of any shares of the capital stock of any of its subsidiaries. (d) Authority; Noncontravention. The Company has the requisite corporate power and authority to enter into this Agreement and, subject to the Company Stockholder Approval with respect to the Merger, to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of the Company, subject, in the case of the Merger, to the Company Stockholder Approval. This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its subsidiaries under, (i) the articles of incorporation or by-laws of the Company or the comparable charter or organizational documents of any of its subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to the Company or any of its subsidiaries or their respective properties or assets or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any of its subsidiaries or their respective properties or assets, other than, in the case of clause (ii), any such conflicts, violations, defaults, rights or Liens that individually or in the aggregate would not (x) have a material adverse effect on the Company, (y) impair the ability of the Company to perform its obligations under this Agreement or (z) prevent the consummation of any of the transactions contemplated by this Agreement. No consent, approval, order or authorization of, or registration, declaration or filing with, any Federal, state, local or foreign government or any court, administrative agency or commission or other governmental authority or agency, domestic or foreign (a "Governmental Entity"), is required by or with respect to the Company or any of its subsidiaries in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated by this Agreement, except for (1) the filing of a premerger notification and report form by the Company under the Hart-Scott- Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), (2) the filing with the Securities and Exchange Commission (the "SEC") of (A) a proxy statement relating to the Company Stockholder Approval (such proxy statement, together with the proxy statement relating to the Parent Stockholder Approval, in each case as amended or supplemented from time to time, the "Joint Proxy Statement"), and (B) such reports under Section 13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be required in connection with this Agreement and the transactions contemplated by this Agreement, (3) the filing of the Certificate of Merger with the Secretary of State of the Commonwealth of Pennsylvania and the State of Delaware and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, (4) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under the laws of any foreign country in which the Company, Parent or any of their respective subsidiaries conducts any business or owns any property or assets or (5) such other consents, approvals, orders, authorizations, registrations, declarations and filings as would not individually or in the aggregate (A) have a material adverse effect on the Company, (B) impair the ability of the Company to perform its obligations under this Agreement or (C) prevent the consummation of any of the transactions contemplated by this Agreement. (e) SEC Documents; Undisclosed Liabilities. The Company has filed all required reports, schedules, forms, statements and other documents with the SEC since December 1, 1992 (the "SEC Documents"). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case may be, and the I-7 rules and regulations of the SEC promulgated thereunder applicable to such SEC Documents, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Except to the extent that information contained in any SEC Document has been revised or superseded by a later Filed SEC Document (as defined in Section 3.01(g)), none of the SEC Documents contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows (or changes in financial position prior to the approval of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 95) for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Other than with respect to ERISA (as defined in Section 3.01(j) below) and tax matters, which are addressed by Sections 3.01(j) and 3.01(k), respectively, except as set forth in the Filed SEC Documents, neither the Company nor any of its subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise and whether or not required by generally accepted accounting principles to be recognized or disclosed on a consolidated balance sheet of the Company and its consolidated subsidiaries or in the notes thereto) which individually or in the aggregate could reasonably be expected to have a material adverse effect on the Company. (f) Information Supplied. None of the information supplied or to be supplied by the Company specifically for inclusion or incorporation by reference in (i) the registration statement on Form S-4 to be filed with the SEC by Parent in connection with the issuance of Parent Common Stock in the Merger (the "Form S- 4") will, at the time the Form S-4 is filed with the SEC, at any time it is amended or supplemented or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) the Joint Proxy Statement will, at the date it is first mailed to the Company's stockholders or at the time of the Stockholders Meeting (as defined in Section 5.01(b)), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Joint Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, except that no representation or warranty is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by Parent or Sub specifically for inclusion or incorporation by reference in the Joint Proxy Statement. (g) Absence of Certain Changes or Events. Except as disclosed on the Company Disclosure Schedule or in the SEC Documents filed and publicly available prior to the date of this Agreement (the "Filed SEC Documents"), since the date of the most recent audited financial statements included in the Filed SEC Documents, the Company has conducted its business only in the ordinary course, and there has not been (i) any material adverse change in the Company, (ii) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any of the Company's capital stock, (iii) any split, combination or reclassification of any of its capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, (iv) (x) any granting by the Company or any of its subsidiaries to any executive officer or other employee of the Company or any of its subsidiaries of any increase in compensation, except in the ordinary course of business consistent with prior practice or as was required under employment agreements in effect as of the date of the most recent audited financial statements included in the Filed SEC Documents, (y) any granting by the Company or any of its subsidiaries to any such executive officer of any increase in severance or I-8 termination pay, except as was required under any employment, severance or termination agreements in effect as of the date of the most recent audited financial statements included in the Filed SEC Documents or (z) any entry by the Company or any of its subsidiaries into any employment, severance or termination agreement with any such executive officer, (v) any damage, destruction or loss, whether or not covered by insurance, that has or could reasonably be expected to have a material adverse effect on the Company or (vi) any change in accounting methods, principles or practices by the Company materially affecting its assets, liabilities or business, except insofar as may have been required by a change in generally accepted accounting principles. (h) Litigation. Except as disclosed in the Filed SEC Documents, there is no suit, action or proceeding pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its subsidiaries (and the Company is not aware of any basis for any such suit, action or proceeding) that individually or in the aggregate could reasonably be expected to (i) have a material adverse effect on the Company, (ii) impair the ability of the Company to perform its obligations under this Agreement or (iii) prevent the consummation of any of the transactions contemplated by this Agreement, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against the Company or any of its subsidiaries having, or which is reasonably likely to have, any effect referred to in clause (i), (ii) or (iii) above. (i) Absence of Changes in Benefit Plans. Except as disclosed in the Filed SEC Documents, since the date of the most recent audited financial statements included in the Filed SEC Documents, there has not been any adoption or amendment in any material respect by the Company or any of its subsidiaries of any collective bargaining agreement or any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, retirement, vacation, severance, disability, death benefit, hospitalization, medical or other plan, arrangement or understanding (whether or not legally binding) providing benefits to any current or former employee, officer or director of the Company or any of its subsidiaries. Except as disclosed in the Filed SEC Documents, there exist no employment, consulting, severance, termination or indemnification agreements, arrangements or understandings between the Company or any of its subsidiaries and any current or former employee, officer or director of the Company or any of its subsidiaries. (j) ERISA Compliance. (i) The Company Disclosure Schedule contains a list and brief description of each "employee pension benefit plan" (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), each "employee welfare benefit plan" (as defined in Section 3(1) of ERISA) (sometimes referred to herein as a "Welfare Plan"), each stock option, stock purchase, deferred compensation plan or arrangement and each other employee fringe benefit plan or arrangement maintained, contributed to or required to be maintained or contributed to by the Company, any of its subsidiaries or any other person or entity that, together with the Company, is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code (each, a "Commonly Controlled Entity") for the benefit of any current or former employees, officers, directors or independent contractors of the Company or any of its subsidiaries (collectively, "Benefit Plans"). The Company has delivered to Parent true, complete and correct copies of (w) each Benefit Plan (or, in the case of any unwritten Benefit Plans, descriptions thereof), (x) the most recent annual report on Form 5500 filed with the Internal Revenue Service with respect to each Benefit Plan (if any such report was required), (y) the most recent summary plan description for each Benefit Plan for which such summary plan description is required and (z) each currently effective trust agreement and insurance or group annuity contract relating to any Benefit Plan. (ii) Each Benefit Plan has been administered in all material respects in accordance with its terms. The Company, its subsidiaries and all the Benefit Plans are in compliance in all material respects with the applicable provisions of ERISA and the Code. All reports, returns and similar documents with respect to the Benefit Plans required to be filed with any governmental agency or distributed to any Benefit Plan participant have been duly and timely filed or distributed. To the knowledge of the I-9 Company, there are no investigations by any governmental agency, termination proceedings or other claims (except claims for benefits payable in the normal operation of the Benefit Plans), suits or proceedings against or involving any Benefit Plan or asserting any rights or claims to benefits under any Benefit Plan that could give rise to any material liability, and, to the knowledge of the Company, there are not any facts that could give rise to any material liability in the event of any such investigation, claim, suit or proceeding. (iii) (1) All contributions to, and payments from, the Benefit Plans that may have been required to be made in accordance with the terms of the Benefit Plans, any applicable collective bargaining agreement and, when applicable, Section 302 of ERISA or Section 412 of the Code, have been timely made, (2) there has been no application for or waiver of the minimum funding standards imposed by Section 412 of the Code with respect to any Benefit Plan that is an "employee pension benefit plan" (as defined in Section 3(2) of ERISA) (sometimes referred to herein as a "Pension Plan") and (3) no Pension Plan had an "accumulated funding deficiency" within the meaning of Section 412(a) of the Code as of the end of the most recently completed plan year. (iv) Each Pension Plan has been the subject of a determination letter from the Internal Revenue Service to the effect that such Pension Plan is qualified and exempt from Federal income taxes under Sections 401(a) and 501(a), respectively, of the Code; no such determination letter has been revoked, and, to the knowledge of the Company, revocation has not been threatened; and such Pension Plan has not been amended since the effective date of its most recent determination letter in any respect that would adversely affect its qualification, materially increase its costs or require security under Section 307 of ERISA. The Company has delivered to Parent a copy of the most recent determination letter received with respect to each Pension Plan for which such a letter has been issued, as well as a copy of any pending application for a determination letter. The Company has also provided to Parent a list of all Pension Plan amendments as to which a favorable determination letter has not yet been received. To the knowledge of the Company, no event has occurred that could subject any Pension Plan to tax under Section 511 of the Code. (v) To the knowledge of the Company, (1) no "prohibited transaction" (as defined in Section 4975 of the Code or Section 406 of ERISA) has occurred that involves the assets of any Benefit Plan; (2) no prohibited transaction has occurred that could subject the Company, any of its subsidiaries, any employee of the Company or its subsidiaries or, to the knowledge of the Company, a trustee, administrator or other fiduciary of any trust created under any Benefit Plan to the tax or penalty on prohibited transactions imposed by Section 4975 of the Code or the sanctions imposed under Title I of ERISA; (3) no Pension Plan has been terminated or has been the subject of a "reportable event" (as defined in Section 4043 of ERISA and the regulations thereunder); and (4) none of the Company or any trustee, administrator or other fiduciary of any Benefit Plan or any agent of any of the foregoing has engaged in any transaction or acted in a manner that could, or failed to act so as to, subject the Company or any trustee, administrator or other fiduciary to any liability for breach of fiduciary duty under ERISA or any other applicable law. (vi) As of the most recent valuation date for each Pension Plan that is a "defined benefit pension plan" (as defined in Section 3(35) of ERISA) (a "Defined Benefit Plan"), there was not any amount of "unfunded benefit liabilities" (as defined in Section 4001(a)(18) of ERISA) under such Defined Benefit Plan, and the Company is not aware of any facts or circumstances that would materially change the funded status of any such Defined Benefit Plan. The Company has furnished to Parent the most recent actuarial report or valuation with respect to each Defined Benefit Plan. The information supplied to the actuary by the Company and any of its subsidiaries for use in preparing those reports or valuations was complete and accurate in all material respects and the Company has no reason to believe that the conclusions expressed in those reports or valuations are incorrect. (vii) No Commonly Controlled Entity has incurred any liability to an "employee pension benefit plan" (as defined in Section 3(2) of ERISA) (other than for contributions not yet due) or to the Pension I-10 Benefit Guaranty Corporation (other than for the payment of premiums not yet due), which liability has not been fully paid as of the date hereof. (viii) No Commonly Controlled Entity has (a) engaged in a transaction described in Section 4069 of ERISA that could subject the Company to liability at any time after the date hereof or (b) acted in a manner that could, or failed to act so as to, result in fines, penalties, taxes or related charges under (x) Section 502(c)(i) or (l) of ERISA, (y) Section 4071 of ERISA or (z) Chapter 43 of the Code. (ix) No Commonly Controlled Entity is required to contribute to any "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) or has withdrawn from any multiemployer plan where such withdrawal has resulted or would result in any "withdrawal liability" (as defined in Section 4201 of ERISA) that has not been fully paid. (x) The list of Welfare Plans on the Company Disclosure Schedule discloses whether each Welfare Plan is (i) unfunded, (ii) funded through a "welfare benefit fund", as such term is defined in Section 419(e) of the Code, or other funding mechanism or (iii) insured. Each such Welfare Plan may be amended or terminated without material liability to the Company at any time after the Effective Time of the Merger. The Company and its subsidiaries comply in all material respects with the applicable requirements of Section 4980B(f) of the Code with respect to each Benefit Plan that is a group health plan, as such term is defined in Section 5000(b)(1) of the Code. (xi) Except as disclosed on the Company Disclosure Schedule, no employee of the Company will be entitled to any additional benefits or any acceleration of the time of payment or vesting of any benefits under any Benefit Plan as a result of the transactions contemplated by this Agreement. (k) Taxes. (i) Each of the Company and its subsidiaries has filed all tax returns and reports required to be filed by it or requests for extensions to file such returns or reports have been timely filed, granted and have not expired, except to the extent that such failures to file or to have extensions granted that remain in effect individually and in the aggregate would not have a material adverse effect on the Company. All returns filed by the Company and each of its subsidiaries are complete and accurate in all material respects to the knowledge of the Company. The Company and each of its subsidiaries has paid (or the Company has paid on its behalf) all taxes shown as due on such returns, and the most recent financial statements contained in the Filed SEC Documents reflect an adequate reserve for all taxes payable by the Company and its subsidiaries for all taxable periods and portions thereof accrued through the date of such financial statements. (ii) No deficiencies for any taxes have been proposed, asserted or assessed against the Company or any of its subsidiaries that are not adequately reserved for, except for deficiencies that individually or in the aggregate would not have a material adverse effect on the Company, and no requests for waivers of the time to assess any such taxes have been granted or are pending. None of the Federal income tax returns of the Company and each of its subsidiaries consolidated in such returns have been examined by and settled with the United States Internal Revenue Service. The statute of limitations on assessment or collection of any taxes due from the Company or any of its subsidiaries has expired for all taxable years of the Company or any of its subsidiaries through November 30, 1989. (iii) Neither the Company nor any of its subsidiaries has taken any action or has any knowledge of any fact or circumstance that is reasonably likely to prevent the transactions contemplated hereby, including the Merger, from qualifying as a reorganization within the meaning of Section 368(a) of the Code. (iv) No real estate transfer tax or real estate gains tax will be imposed by the Commonwealth of Pennsylvania or any political subdivision thereof as a consequence of the Merger or any other transaction contemplated by this Agreement. I-11 (v) As used in this Agreement, "taxes" shall include all Federal, state, local and foreign income, property, sales, excise and other taxes, tariffs or governmental charges of any nature whatsoever. (l) No Excess Parachute Payments; Section 162(m) of the Code. (i) Any amount that could be received (whether in cash or property or the vesting of property) as a result of any of the transactions contemplated by this Agreement by any employee, officer or director of the Company or any of its affiliates who is a "disqualified individual" (as such term is defined in proposed Treasury Regulation Section 1.280G-1) under any employment, severance or termination agreement, other compensation arrangement or Benefit Plan currently in effect would not be characterized as an "excess parachute payment" (as such term is defined in Section 280G(b)(1) of the Code). (ii) The disallowance of a deduction under Section 162(m) of the Code for employee renumeration will not apply to any amount paid or payable by the Company or any subsidiary of the Company under any contract, plan, program, arrangement or understanding. (m) Voting Requirements. The affirmative vote of a majority of the votes cast by the holders of the shares of Company Common Stock entitled to vote thereon at the Stockholders Meeting with respect to the approval of the Merger is the only vote of the holders of any class or series of the Company's capital stock necessary to approve this Agreement and the transactions contemplated by this Agreement. (n) State Takeover Statutes. The Board of Directors of the Company has approved the execution and delivery of this Agreement and the consummation of the Merger and the other transactions contemplated by this Agreement, and such approval is sufficient to render inapplicable to this Agreement, the Merger and the other transactions contemplated by this Agreement the provisions of Subchapter 25F of the PBCL. To the best of the Company's knowledge, no other state takeover statute or similar statute or regulation applies or purports to apply to the Merger, this Agreement or any of the transactions contemplated by this Agreement and no provision of the articles of incorporation, by-laws or other governing instruments of the Company or any of its subsidiaries would, directly or indirectly, restrict or impair the ability of Parent to vote, or otherwise to exercise the rights of a stockholder with respect to, shares of the Company and its subsidiaries that may be acquired or controlled by Parent. (o) Labor Matters. There are no collective bargaining or other labor union agreements to which the Company or any of its subsidiaries is a party or by which any of them is bound. To the best knowledge of the Company, since December 1, 1992, neither the Company nor any of its subsidiaries has encountered any labor union organizing activity, or had any actual or threatened employee strikes, work stoppages, slowdowns or lockouts. (p) Brokers; Schedule of Fees and Expenses. No broker, investment banker, financial advisor or other person, other than Merrill Lynch & Co. ("Merrill Lynch"), the fees and expenses of which will be paid by the Company, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. The estimated fees and expenses incurred and to be incurred by the Company in connection with this Agreement and the transactions contemplated by this Agreement (including the fees of the Company's legal counsel) are set forth on the Company Disclosure Schedule. (q) Opinion of Financial Advisor. The Company has received the oral opinion of Merrill Lynch to the effect that, based upon and subject to assumptions made by Merrill Lynch in rendering such opinion and based upon such other matters as they consider relevant, as of the date of this Agreement, the Exchange Ratio is fair to the Company's stockholders from a financial point of view. (r) Accounting Matters. Neither the Company nor, to its best knowledge, any of its affiliates has taken or agreed to take any action that (without giving effect to any action taken or agreed to be taken by Parent or any of its affiliates) would prevent Parent from accounting for the business combination to be effected by the Merger as a pooling of interests. I-12 (s) Compliance with Applicable Laws. (i) Each of the Company and its subsidiaries has in effect all Federal, state, local and foreign governmental approvals, authorizations, certificates, filings, franchises, licenses, notices, permits and rights ("Permits") necessary for it to own, lease or operate its properties and assets and to carry on its business as now conducted, and there has occurred no default under any such Permit, except for the lack of Permits and for defaults under Permits which lack or default individually or in the aggregate would not have a material adverse effect on the Company. Except as disclosed in the Filed SEC Documents, the Company and its subsidiaries are in compliance with all applicable statutes, laws, ordinances, rules, orders and regulations of any Governmental Entity, except for possible noncompliance which individually or in the aggregate would not have a material adverse effect on the Company. (ii) To the best of the Company's knowledge, each of the Company and its subsidiaries is, and has been, and each of the Company's former subsidiaries, while subsidiaries of the Company, was in compliance with all applicable Environmental Laws, except for possible noncompliance which individually or in the aggregate would not have a material adverse effect on the Company. The term "Environmental Laws" means any Federal, state, local or foreign statute, code, ordinance, rule, regulation, policy, guideline, permit, consent, approval, license, judgment, order, writ, decree, directive, injunction or other authorization, including the requirement to register underground storage tanks, relating to: (A) emissions, discharges, Releases (as defined below) or threatened Releases of Hazardous Material (as defined below) into the environment, including into ambient air, soil, sediments, land surface or subsurface, buildings or facilities, surface water, groundwater, publicly-owned treatment works, septic systems or land; (B) the generation, treatment, storage, disposal, use, handling, manufacturing, transportation or shipment of Hazardous Material; or (C) pollution of the environment or the protection of human health or safety. (iii) During the period of ownership or operation by the Company and its subsidiaries of any of their respective current or previously-owned properties, there have been no Releases of Hazardous Material in, on, under or affecting such properties or, to the knowledge of the Company, any surrounding site, except in each case for those which individually or in the aggregate would not have a material adverse effect on the Company. Prior to the period of ownership or operation by the Company and its subsidiaries of any of their respective current or previously-owned properties, to the knowledge of the Company, no Hazardous Material was generated, treated, stored, disposed of, used, handled or manufactured at, or transported, shipped or disposed of from, such current or previously- owned properties, and there were no Releases of Hazardous Material in, on, under or affecting any such property or any surrounding site, except in each case for those which individually or in the aggregate would not have a material adverse effect on the Company. The term "Release" has the meaning set forth in 42 U.S.C. (S) 9601(22). The term "Hazardous Material" means (1) hazardous materials, pollutants, contaminants, constituents, medical wastes, hazardous or infectious wastes and hazardous substances as those terms are defined in the following statutes and their implementing regulations: the Hazardous Materials Transportation Act, 49 U.S.C. (S) 1801 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq., the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C. (S) 9601 et seq., the Occupational Safety and Health Act, 29 U.S.C. (S) 651 et seq., the Clean Water Act, 33 U.S.C. (S) 1251 et seq., the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq. and the Clean Air Act, 42 U.S.C. (S) 7401 et seq., (2) petroleum, including crude oil and any fractions thereof, (3) natural gas, synthetic gas and any mixtures thereof, (4) asbestos and/or asbestos-containing material and (5) PCBs, or materials or fluids containing PCBs. (t) Contracts; Debt Instruments. (i) Except as disclosed in the Filed SEC Documents or on the Company Disclosure Schedule, there are no contracts or agreements that are material to the business, properties, assets, condition (financial or otherwise), results of operations or prospects of the Company and its subsidiaries taken as a whole. I-13 Neither the Company nor any of its subsidiaries is in violation of or in default under (nor does there exist any condition which upon the passage of time or the giving of notice would cause such a violation of or default under) any loan or credit agreement, note, bond, mortgage, indenture, lease, permit, concession, franchise, license or any other contract, agreement, arrangement or understanding to which it is a party or by which it or any of its properties or assets is bound, except for violations or defaults that individually or in the aggregate would not have a material adverse effect on the Company. (ii) Set forth on the Company Disclosure Schedule is (x) a list of all loan or credit agreements, notes, bonds, mortgages, indentures and other agreements and instruments pursuant to which any indebtedness of the Company or any of its subsidiaries in an aggregate principal amount in excess of $25,000 is outstanding or may be incurred and (y) the respective principal amounts currently outstanding thereunder. For purposes of this Agreement, "indebtedness" shall mean, with respect to any person, without duplication, (A) all obligations of such person for borrowed money, or with respect to deposits or advances of any kind to such person, (B) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (C) all obligations of such person upon which interest charges are customarily paid, (D) all obligations of such person under conditional sale or other title retention agreements relating to property purchased by such person, (E) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding obligations of such person to creditors for raw materials, inventory, services and supplies incurred in the ordinary course of such person's business), (F) all capitalized lease obligations of such person, (G) all obligations of others secured by any lien on property or assets owned or acquired by such person, whether or not the obligations secured thereby have been assumed, (H) all obligations of such person under interest rate or currency hedging transactions (valued at the termination value thereof), (I) all letters of credit issued for the account of such person and (J) all guarantees and arrangements having the economic effect of a guarantee of such person of any indebtedness of any other person. (u) Title to Properties. (i) Each of the Company and each of its subsidiaries has good and marketable title to, or valid leasehold interests in, all its material properties and assets except for such as are no longer used or useful in the conduct of its businesses or as have been disposed of in the ordinary course of business and except for defects in title, easements, restrictive covenants and similar encumbrances or impediments that individually or in the aggregate would not materially interfere with its ability to conduct its business as currently conducted. All such material assets and properties, other than assets and properties in which the Company or any of its subsidiaries has leasehold interests, are free and clear of all Liens, except for Liens that individually or in the aggregate would not materially interfere with the ability of the Company and its subsidiaries to conduct business as currently conducted. (ii) Each of the Company and each of its subsidiaries has complied in all material respects with the terms of all material leases to which it is a party and under which it is in occupancy, and all such leases are in full force and effect. Each of the Company and each of its subsidiaries enjoys peaceful and undisturbed possession under all such material leases. (v) Intellectual Property. To the best of the Company's knowledge, the Company and its subsidiaries own, or are validly licensed or otherwise have the right to use, all patents, patent rights, trademarks, trademark rights, trade names, trade name rights, service marks, service mark rights, copyrights and other proprietary intellectual property rights and computer programs (collectively, "Intellectual Property Rights") which are material to the conduct of the business of the Company and its subsidiaries taken as a whole. The Company Disclosure Schedule sets forth a description of all Intellectual Property Rights which are material to the conduct of the business of the Company and its subsidiaries taken as a whole. Except as set forth on the Company Disclosure Schedule, no claims are pending or, to the knowledge of the Company, threatened that the Company or any of its subsidiaries is infringing or otherwise adversely affecting the rights of any person with regard to any Intellectual Property Right. To the knowledge of the Company, except as set forth on the Company Disclosure Schedule, no person is infringing the rights of the Company or any of its subsidiaries with respect to any Intellectual Property Right. I-14 SECTION 3.02 REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB Except as set forth on the Disclosure Schedule delivered by Parent to the Company prior to the execution of this Agreement (the "Parent Disclosure Schedule"), Parent and Sub represent and warrant to the Company as follows: (a) Organization, Standing and Corporate Power. Each of Parent and Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated and has the requisite corporate power and authority to carry on its business as now being conducted. Each of Parent and Sub is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed individually or in the aggregate would not have a material adverse effect on Parent. Parent has delivered to the Company complete and correct copies of its certificate of incorporation and by-laws and the certificate of incorporation and by-laws of Sub, in each case as amended to the date hereof. (b) Capital Structure. The authorized capital stock of Parent consists of 50,000,000 shares of Parent Common Stock and 6,000,000 shares of preferred stock, par value $1 per share. At the close of business on February 8, 1994, (i) 10,491,489 shares of Parent Common Stock and no shares of preferred stock, par value $1 per share, were issued and outstanding, (ii) 760,457 shares of Parent Common Stock were held by Parent in its treasury, (iii) 1,601,983 shares of Parent Common Stock were reserved for issuance pursuant to the Company's 1986 Amended and Restated Option, Restricted Stock, Stock Appreciation Right and Performance Unit Plan, the Amended Westmark International Incorporated Incentive Savings and Stock Ownership Plan and Trust, the Amended and Restated Retirement Plan, the Management Incentive Compensation Plan, the 1992 Option, Stock Appreciation Right, Restricted Stock, Stock Grant and Performance Unit Plan (the "1992 Option Plan"), the Amended and Restated Nonofficer Employee Option, Restricted Stock and Stock Grant Plan, the 1992 Nonofficer Employee Stock Option Plan and the Stock Option Plan for Nonemployee Directors (the "Parent Stock Plans") and (iv) 500,000 shares of Series A Participating Cumulative Preferred Stock ("Parent Preferred Stock") (subject to increase and adjustment as set forth in the Rights Agreement and the Certificate of Designations attached as an exhibit thereto) were reserved for issuance in connection with the rights (the "Rights") to purchase shares of Parent Preferred Stock pursuant to the Amended and Restated Rights Agreement dated as of June 26, 1992, between Parent and First Chicago Trust Company of New York, as Rights Agent (the "Rights Agreement"). Except as set forth above, at the close of business on February 8, 1994, no shares of capital stock or other voting securities of Parent were issued, reserved for issuance or outstanding. All outstanding shares of capital stock of Parent are, and all shares which may be issued pursuant to this Agreement will be, when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. There are no bonds, debentures, notes or other indebtedness of Parent having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of Parent may vote. Except as set forth above or as otherwise contemplated by this Agreement, as of the date of this Agreement, there are no securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which Parent or any of its subsidiaries is a party or by which any of them is bound obligating Parent or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of Parent or obligating Parent or any of its subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. As of the date of this Agreement, there are no outstanding contractual obligations of Parent or any of its subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of Parent or any of its subsidiaries. As of the date of this Agreement, the authorized capital stock of Sub consists of 100 shares of common stock, par value $1.00 per share, all of which have been validly issued, are fully paid and nonassessable and are owned by Parent free and clear of any Lien. (c) Authority; Noncontravention. Parent and Sub have all requisite corporate power and authority to enter into this Agreement and, subject to the Parent Stockholder Approval with respect to the issuance I-15 of Parent Common Stock in the Merger and the Stock Plan Amendment, to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Parent and Sub and the consummation by Parent and Sub of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Parent and Sub, subject, in the case of the issuance of Parent Common Stock in the Merger and the Stock Plan Amendment, to the Parent Stockholder Approval. This Agreement has been duly executed and delivered by Parent and Sub and constitutes a valid and binding obligation of each such party, enforceable against such party in accordance with its terms. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of Parent or any of its subsidiaries under, (i) the certificate of incorporation or by-laws of Parent or Sub or the comparable charter or organizational documents of any other subsidiary of Parent, (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to Parent, Sub or any other subsidiary of Parent or their respective properties or assets or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent, Sub or any other subsidiary of Parent or their respective properties or assets, other than, in the case of clause (ii), any such conflicts, violations, defaults, rights or Liens that individually or in the aggregate would not (x) have a material adverse effect on Parent, (y) impair the ability of Parent and Sub to perform their respective obligations under this Agreement or (z) prevent the consummation of any of the transactions contemplated by this Agreement. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to Parent, Sub or any other subsidiary of Parent in connection with the execution and delivery of this Agreement or the consummation by Parent or Sub, as the case may be, of any of the transactions contemplated by this Agreement, except for (1) the filing of a premerger notification and report form under the HSR Act, (2) the filing with the SEC of the Form S-4, the Joint Proxy Statement relating to the Parent Stockholder Approval and such reports under Section 13(a) of the Exchange Act as may be required in connection with this Agreement and the transactions contemplated by this Agreement, (3) the filing of the Certificate of Merger with the Secretary of State of the Commonwealth of Pennsylvania and the State of Delaware and appropriate documents with the relevant authorities of other states in which Parent is qualified to do business, (4) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under the "takeover" or "blue sky" laws of various states or the laws of any foreign country in which the Company, Parent or any of their respective subsidiaries conducts any business or owns any property or assets and (5) such other consents, approvals, orders, authorizations, registrations, declarations and filings as would not individually or in the aggregate (A) have a material adverse effect on Parent, (B) impair the ability of Parent and Sub to perform their respective obligations under this Agreement or (C) prevent the consummation of any of the transactions contemplated by this Agreement. (d) SEC Documents; Undisclosed Liabilities. Parent has filed all required reports, schedules, forms, statements and other documents with the SEC since January 1, 1993 (the "Parent SEC Documents"). As of their respective dates, the Parent SEC Documents complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Parent SEC Documents, and none of the Parent SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Except to the extent that information contained in any Parent SEC Document has been revised or superseded by a later Filed Parent SEC Document (as defined in Section 3.02(f)), none of the Parent SEC Documents contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary I-16 in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of Parent included in the Parent SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of Parent and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows (or changes in financial position prior to the approval of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 95) for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Other than with respect to ERISA and tax matters, which are addressed by Sections 3.02(n) and 3.02(o), respectively, except as set forth in the Filed Parent SEC Documents, neither Parent nor any of its subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise and whether or not required by generally accepted accounting principles to be recognized or disclosed on a consolidated balance sheet of Parent and its consolidated subsidiaries or in the notes thereto) which individually or in the aggregate could reasonably be expected to have a material adverse effect on Parent. (e) Information Supplied. None of the information supplied or to be supplied by Parent or Sub specifically for inclusion or incorporation by reference in (i) the Form S-4 will, at the time the Form S-4 is filed with the SEC, at any time it is amended or supplemented or at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) the Joint Proxy Statement will, at the date the Joint Proxy Statement is first mailed to Parent's stockholders or at the time of the Parent Stockholders Meeting (as defined in Section 5.01(b)), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Form S-4 will comply as to form in all material respects with the requirements of the Securities Act and the rules and regulations promulgated thereunder and the Joint Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder, except that no representation or warranty is made by Parent or Sub with respect to statements made or incorporated by reference in either the Form S-4 or the Joint Proxy Statement based on information supplied by the Company specifically for inclusion or incorporation by reference therein. (f) Absence of Certain Changes or Events. Except as disclosed in the Parent SEC Documents filed and publicly available prior to the date of this Agreement (the "Filed Parent SEC Documents"), since the date of the most recent audited financial statements included in the Filed Parent SEC Documents, Parent has conducted its business only in the ordinary course, and there has not been (i) any material adverse change in Parent, (ii) any declaration, setting aside or payment of any dividend or distribution (whether in cash, stock or property) with respect to any of Parent's capital stock, (iii) any split, combination or reclassification of any of its capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, (iv) any damage, destruction or loss, whether or not covered by insurance that has or could reasonably be expected to have a material adverse effect on Parent or (v) any change in accounting methods, principles or practices by Parent materially affecting its assets, liabilities or business, except insofar as may have been disclosed in the Filed Parent SEC Documents or required by a change in generally accepted accounting principles. (g) Litigation. Except as disclosed in the Filed Parent SEC Documents, there is no suit, action or proceeding pending or, to the knowledge of Parent, threatened against or affecting Parent or any of its subsidiaries (and Parent is not aware of any basis for any such suit, action or proceeding) that individually or in the aggregate could reasonably be expected to (i) have a material adverse effect on I-17 Parent, (ii) impair the ability of Parent and Sub to perform their obligations under this Agreement or (iii) prevent the consummation of any of the transactions contemplated by this Agreement, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against Parent or any of its subsidiaries having, or which is reasonably likely to have, any effect referred to in clause (i), (ii) or (iii) above. (h) Voting Requirements. The affirmative vote of the holders of a majority of the shares of Parent Common Stock present, or represented, and entitled to vote thereon at the Parent Stockholders Meeting with respect to each of (i) the issuance of shares of Parent Common Stock in the Merger and (ii) the Stock Plan Amendment are the only votes of the holders of any class or series of Parent's capital stock necessary to approve this Agreement and the transactions contemplated by this Agreement. (i) Labor Matters. There are no collective bargaining or other labor union agreements to which Parent or any of its subsidiaries is a party or by which any of them is bound. To the best knowledge of Parent, since January 1, 1993, neither Parent nor any of its subsidiaries has encountered any labor union organizing activity, or had any actual or threatened employee strikes, work stoppages, slowdowns or lockouts. (j) Brokers. No broker, investment banker, financial advisor or other person, other than Goldman, Sachs & Co., the fees and expenses of which will be paid by Parent, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent or Sub. (k) Opinion of Financial Advisor. Parent has received the oral opinion of Goldman, Sachs & Co. to the effect that, based upon and subject to assumptions made by Goldman, Sachs & Co. in rendering such opinion and based upon such other matters as they consider relevant, as of the date of this Agreement, the Exchange Ratio is fair to Parent. (l) Accounting Matters. Neither Parent nor, to its best knowledge, any of its affiliates has taken or agreed to take any action that (without giving effect to any action taken or agreed to be taken by the Company or any of its affiliates) would prevent Parent from accounting for the business combination to be effected by the Merger as a pooling of interests. (m) Interim Operations of Sub. Sub was formed solely for the purpose of engaging in the transactions contemplated hereby, has engaged in no other business activities and has conducted its operations only as contemplated hereby. (n) Benefit Plans. Parent and its subsidiaries are in compliance in all material respects with the applicable provisions of ERISA and the Code with respect to each material "employee benefit plan" (as defined in Section 3(3) of ERISA) maintained, contributed to or required to be maintained or contributed to by Parent or its subsidiaries for the benefit of any present officers, employees or directors of Parent or any of its subsidiaries in the United States. (o) Taxes. (i) Each of Parent and its subsidiaries has filed all tax returns and reports required to be filed by it or requests for extensions to file such returns or reports have been timely filed, granted and have not expired, except to the extent that such failures to file or to have extensions granted that remain in effect individually or in the aggregate would not have a material adverse effect on Parent. All returns filed by Parent and each of its subsidiaries are complete and accurate in all material respects to the knowledge of Parent. Parent and each of its subsidiaries has paid (or Parent has paid on its behalf) all taxes shown as due on such returns, and the most recent financial statements contained in the Filed Parent SEC Documents reflect an adequate reserve for all taxes payable by Parent and its subsidiaries for all taxable periods and portions thereof accrued through the date of such financial statements. (ii) No deficiencies for any taxes have been proposed, asserted or assessed against Parent or any of its subsidiaries that are not adequately reserved for, except for deficiencies that individually I-18 or in the aggregate would not have a material adverse effect on Parent, and no requests for waivers of the time to assess any such taxes have been granted or are pending. The Federal income tax returns of Parent and each of its subsidiaries consolidated in such returns have been examined by and settled with the United States Internal Revenue Service for all years through 1990. The statute of limitations on assessment or collection of any taxes due from Parent or any of its subsidiaries has expired for all taxable years of Parent or such subsidiaries through 1990. (iii) Neither Parent nor any of its subsidiaries has taken any action or has any knowledge of any fact or circumstance that is reasonably likely to prevent the transactions contemplated hereby, including the Merger, from qualifying as a reorganization within the meaning of Section 368(a) of the Code. (p) Rights Agreement. The execution and delivery of this Agreement by Parent and Sub and consummation of the Merger and other transactions contemplated hereby will not result in the grant or distribution of any Rights to any person under the Rights Agreement (except for the Rights attached to the Parent Common Stock issuable in the Merger or pursuant to this Agreement) or enable or require any Rights to be exercised or triggered. (q) Compliance with Applicable Laws. (i) Each of Parent and its subsidiaries has in effect all Permits necessary for it to own, lease or operate its properties and assets and to carry on its business as now conducted, and there has occurred no default under any such Permit, except for the lack of Permits and for defaults under Permits which lack or default individually or in the aggregate would not have a material adverse effect on Parent. Except as disclosed in the Filed Parent SEC Documents, Parent and its subsidiaries are in compliance with all applicable statutes, laws, ordinances, rules, orders and regulations of any Governmental Entity, except for possible noncompliance which individually or in the aggregate would not have a material adverse effect on Parent. (ii) Each of Parent and its subsidiaries is, and has been, in compliance with all applicable Environmental Laws, except for possible noncompliance which individually or in the aggregate would not have a material adverse effect on Parent. (r) Contracts; Debt Instruments. Except as disclosed in the Filed Parent SEC Documents or on the Parent Disclosure Schedule, there are no contracts or agreements that are material to the business, properties, assets, condition (financial or otherwise), results of operations or prospects of Parent and its subsidiaries taken as a whole. Neither Parent nor any of its subsidiaries is in violation of or in default under (nor does there exist any condition which upon the passage of time or the giving of notice would cause such a violation of or default under) any loan or credit agreement, note, bond, mortgage, indenture, lease, permit, concession, franchise, license or any other contract, agreement, arrangement or understanding to which it is a party or by which it or any of its properties or assets is bound, except for violations or defaults that individually or in the aggregate would not have a material adverse effect on Parent. (s) Title to Properties. (i) Each of Parent and each of its subsidiaries has good and marketable title to, or valid leasehold interests in, all its material properties and assets except for such as are no longer used or useful in the conduct of its businesses or as have been disposed of in the ordinary course of business and except for defects in title, easements, restrictive covenants and similar encumbrances or impediments that individually or in the aggregate would not materially interfere with its ability to conduct its business as currently conducted. All such material properties and assets, other than properties and assets in which Parent or any of its subsidiaries has leasehold interests, are free and clear of all Liens, except for Liens that individually or in the aggregate would not materially interfere with the ability of Parent and its subsidiaries to conduct business as current conducted. (ii) Each of Parent and each of its subsidiaries has complied in all material respects with the terms of all material leases to which it is a party and under which it is in occupancy, and all such I-19 leases are in full force and effect. Each of Parent and each of its subsidiaries enjoys peaceful and undisturbed possession under all such material leases. (t) Intellectual Property. Parent and its subsidiaries own, or are validly licensed or otherwise have the right to use, all Intellectual Property Rights which are material to the conduct of the business of Parent and its subsidiaries taken as a whole. The Parent Disclosure Schedule sets forth a description of all Intellectual Property Rights which are material to the conduct of the business of Parent and its subsidiaries taken as a whole. Except as set forth on the Parent Disclosure Schedule, no claims are pending or, to the knowledge of Parent, threatened that Parent or any of its subsidiaries is infringing or otherwise adversely affecting the rights of any person with regard to any Intellectual Property Right. To the knowledge of Parent, except as set forth on the Parent Disclosure Schedule, no person is infringing the rights of Parent or any of its subsidiaries with respect to any Intellectual Property Right. ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS SECTION 4.01 CONDUCT OF BUSINESS (a) Conduct of Business by the Company. During the period from the date of this Agreement to the Effective Time of the Merger, the Company shall, and shall cause its subsidiaries to, carry on their respective businesses in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and, to the extent consistent therewith, use all reasonable efforts to preserve intact their current business organizations, keep available the services of their current officers and employees and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them to the end that their goodwill and ongoing businesses shall be unimpaired at the Effective Time of the Merger. Without limiting the generality of the foregoing, during the period from the date of this Agreement to the Effective Time of the Merger, the Company shall not, and shall not permit any of its subsidiaries to: (i) (x) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than dividends and distributions by a direct or indirect wholly owned subsidiary of the Company to its parent, (y) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (z) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; (ii) issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities (other than (x) the issuance of Company Common Stock upon the exercise of Employee Stock Options (as defined in Section 5.06) outstanding on the date of this Agreement and in accordance with their present terms and (y) the issuance of Company Common Stock upon conversion of the Convertible Notes by the holders thereof in accordance with their present terms); (iii) amend its articles of incorporation, by-laws or other comparable charter or organizational documents; (iv) acquire or agree to acquire (x) by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, joint venture, association or other business organization or division thereof or (y) any assets that individually or in the aggregate are material to the Company and its subsidiaries taken as a whole, except purchases of inventory in the ordinary course of business consistent with past practice; (v) sell, lease, license, mortgage or otherwise encumber or subject to any Lien or otherwise dispose of any of its properties or assets, except sales in the ordinary course of business consistent with past practice of inventory or of furniture, fixtures and equipment that are no longer used by or useful to the Company or its subsidiaries; I-20 (vi) (x) incur any indebtedness, except for short-term borrowings incurred in the ordinary course of business consistent with past practice and except for intercompany indebtedness between the Company and any of its subsidiaries or between such subsidiaries, or (y) make any loans, advances or capital contributions to, or investments in, any other person, other than to the Company or any direct or indirect wholly owned subsidiary of the Company; (vii) make or agree to make any new capital expenditure or capital expenditures which individually is in excess of $50,000 or in the aggregate are in excess of $300,000; (viii) make any tax election that could reasonably be expected to have a material adverse effect on the Company or settle or compromise any income tax liability; (ix) pay, discharge, settle or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of the Company included in the Filed SEC Documents or incurred since the date of such financial statements in the ordinary course of business consistent with past practice; (x) except in the ordinary course of business, modify, amend or terminate any material contract or agreement to which the Company or any subsidiary is a party or waive, release or assign any material rights or claims thereunder; (xi) take any action that (without giving effect to any action taken or agreed to be taken by Parent or any of its affiliates) would prevent Parent from accounting for the business combination to be effected by the Merger as a pooling of interests or from treating the Merger as a "reorganization" under Section 368(a) of the Code; or (xii) authorize any of, or commit or agree to take any of, the foregoing actions. (b) Conduct of Business by Parent. During the period from the date of this Agreement to the Effective Time of the Merger, Parent shall, and shall cause its subsidiaries to, carry on their respective businesses in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and, to the extent consistent therewith, use all reasonable efforts to preserve intact their current business organizations, keep available the services of their current officers and employees and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them to the end that their goodwill and ongoing businesses shall be unimpaired at the Effective Time of the Merger; provided that the foregoing shall not prevent Parent or any of its subsidiaries from discontinuing or disposing of any part of its assets or business if such action is, in the judgment of Parent, desirable in the conduct of the business of Parent and its subsidiaries or if such action would not result in either of the effects referred to in clause (ii) below. Without limiting the generality of the foregoing, during the period from the date of this Agreement to the Effective Time of the Merger, Parent shall not, and shall not permit any of its subsidiaries to: (i) (x) declare, set aside or pay any dividends on, or make any other distributions in respect of, any capital stock of Parent or (y) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of Parent's capital stock (other than exchanges in the ordinary course under Parent's employee stock plans); (ii) take any action that (without giving effect to any action taken or agreed to be taken by the Company or any of its affiliates) would prevent Parent from accounting for the business combination to be effected by the Merger as a pooling of interests or from treating the Merger as a "reorganization" under Section 368(a) of the Code; (iii) amend the Rights Agreement in any manner adverse to the holders of Company Common Stock; I-21 (iv) issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities, in each case if any such action could reasonably be expected to (A) delay materially the date of mailing of the Joint Proxy Statement or, (B) if it were to occur after such date of mailing, require an amendment of the Joint Proxy Statement; (v) acquire or agree to acquire (x) by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, joint venture, association or other business organization or division thereof or (y) any assets that individually or in the aggregate are material to the Company and its subsidiaries taken as a whole, except purchases of inventory in the ordinary course of business consistent with past practice, in each case if any such action could reasonably be expected to (A) delay materially the date of mailing of the Joint Proxy Statement or, (B) if it were to occur after such date of mailing, require an amendment of the Joint Proxy Statement; or (vi) authorize any of, or commit or agree to take any of, the foregoing actions. (c) Other Actions. The Company and Parent shall not, and shall not permit any of their respective subsidiaries to, take any action that would, or that could reasonably be expected to, result in (i) any of the representations and warranties of such party set forth in this Agreement that are qualified as to materiality becoming untrue, (ii) any of such representations and warranties that are not so qualified becoming untrue in any material respect or (iii) except as otherwise permitted by Section 4.02, any of the conditions to the Merger set forth in Article VI not being satisfied. (d) Advice of Changes. The Company and Parent shall promptly advise the other party orally and in writing of any change or event having, or which, insofar as can reasonably be foreseen, would have, a material adverse effect on such party or on the truth of their respective representations and warranties. SECTION 4.02 NO SOLICITATION (a) The Company shall not, nor shall it permit any of its subsidiaries to, nor shall it authorize or permit any officer, director or employee of or any investment banker, attorney or other advisor or representative of, the Company or any of its subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage the submission of, any takeover proposal or (ii) participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any takeover proposal; provided, however, that prior to the Stockholders Meeting, to the extent required by the fiduciary obligations of the Board of Directors of the Company, as determined in good faith by the Board of Directors based on the advice of outside counsel, the Company may, (A) in response to an unsolicited request therefor, furnish information with respect to the Company to any person pursuant to a customary confidentiality agreement (as determined by the Company's outside counsel) and discuss such information (but not the terms of any possible takeover proposal) with such person and (B) upon receipt by the Company of a takeover proposal, following delivery to Parent of the notice required pursuant to Section 4.02(c), participate in negotiations regarding such takeover proposal. Without limiting the foregoing, it is understood that any violation of the restrictions set forth in the preceding sentence by any officer, director or employee of the Company or any of its subsidiaries or any investment banker, attorney or other advisor or representative of the Company or any of its subsidiaries, whether or not such person is purporting to act on behalf of the Company or any of its subsidiaries or otherwise, shall be deemed to be a breach of this Section 4.02(a) by the Company. For purposes of this Agreement, "takeover proposal" means any proposal for a merger or other business combination involving the Company or any of its subsidiaries or any proposal or offer to acquire in any manner, directly or indirectly, an equity interest in, any voting securities of, or a substantial portion of the assets of the Company or any of its subsidiaries, other than the transactions contemplated by this Agreement. (b) Neither the Board of Directors of the Company nor any committee thereof shall (i) withdraw or modify, or propose to withdraw or modify, in a manner adverse to Parent or Sub, the approval or I-22 recommendation by such Board of Directors or any such committee of this Agreement or the Merger, (ii) approve or recommend, or propose to approve or recommend, any takeover proposal or (iii) enter into any agreement with respect to any takeover proposal. Notwithstanding the foregoing, in the event the Board of Directors of the Company receives a takeover proposal that, in the exercise of its fiduciary obligations (as determined in good faith by the Board of Directors based on the advice of outside counsel), it determines to be a superior proposal, the Board of Directors may (subject to the following sentences) withdraw or modify its approval or recommendation of this Agreement and the Merger, approve or recommend any such superior proposal, enter into an agreement with respect to such superior proposal or terminate this Agreement, in each case at any time after the second business day following Parent's receipt of written notice (a "Notice of Superior Proposal") advising Parent that the Board of Directors has received a superior proposal, specifying the material terms and conditions of such superior proposal and identifying the person making such superior proposal. In the event the Board of Directors of the Company takes any of the foregoing actions with respect to such superior proposal, the Company shall, concurrently with the taking of any such action, pay to Parent the Termination Fee plus all Expenses pursuant to Section 5.09(b). For purposes of this Agreement, "superior proposal" means a bona fide takeover proposal to acquire, directly or indirectly, for consideration consisting of cash and/or securities, more than 50% of the shares of Company Common Stock then outstanding or all or substantially all the assets of the Company, and otherwise on terms which the Board of Directors of the Company determines in its good faith reasonable judgment to be more favorable to the Company's stockholders than the Merger (based on the written opinion, with only customary qualifications, of the Company's independent financial advisor that the value of the consideration provided for in such proposal is superior to the value of the consideration provided for in the Merger) and for which financing, to the extent required, is then committed or which, in the good faith reasonable judgment of the Board of Directors, is reasonably capable of being financed by such third party. (c) In addition to the obligations of the Company set forth in paragraph (b) above, the Company promptly shall advise Parent orally and in writing of any request for information or of any takeover proposal or any inquiry with respect to or which could lead to any takeover proposal, the identity of the person making any such takeover proposal or inquiry and the material terms and conditions thereof. The Company will keep Parent generally informed of the status and details of any such request, takeover proposal or inquiry. ARTICLE V ADDITIONAL AGREEMENTS SECTION 5.01 PREPARATION OF FORM S-4 AND THE JOINT PROXY STATEMENT; STOCKHOLDERS MEETINGS (a) As soon as practicable following the date of this Agreement, the Company and Parent shall prepare and file with the SEC the Joint Proxy Statement and Parent shall prepare and file with the SEC the Form S-4, in which the Joint Proxy Statement will be included as a prospectus. Each of the Company and Parent shall use its best efforts to have the Form S-4 declared effective under the Securities Act as promptly as practicable after such filing. The Company will use its best efforts to cause the Joint Proxy Statement to be mailed to the Company's stockholders, and Parent will use its best efforts to cause the Joint Proxy Statement to be mailed to Parent's stockholders, in each case as promptly as practicable after the Form S-4 is declared effective under the Securities Act. Parent shall also take any action (other than qualifying to do business in any jurisdiction in which it is not now so qualified) required to be taken under any applicable state securities laws in connection with the issuance of Parent Common Stock in the Merger and under the Stock Plans and the Company shall furnish all information concerning the Company and the holders of the Company Common Stock and rights to acquire Company Common Stock pursuant to the Stock Plans as may be reasonably requested in connection with any such action. (b) The Company will, as soon as practicable following the date of this Agreement, duly call, give notice of, convene and hold a meeting of its stockholders (the "Stockholders Meeting") for the purpose of approving the Merger. Parent will, as promptly as practicable following the date of this Agreement, duly call, give notice I-23 of, convene and hold a meeting of its stockholders (the "Parent Stockholders Meeting") for the purpose of approving (i) the issuance of Parent Common Stock in the Merger and (ii) the amendment of the 1992 Option Plan to increase the number of shares of Parent Common Stock that are authorized for issuance thereunder by 450,000 shares (the "Stock Plan Amendment"). The Company and Parent will, through their respective Boards of Directors, recommend to their respective stockholders approval of the foregoing matters, except to the extent that the Board of Directors of the Company shall have withdrawn or modified its approval or recommendation of this Agreement or the Merger as permitted by Section 4.02(b). Without limiting the generality of the foregoing, the Company agrees that its obligations pursuant to the first sentence of this Section 5.01(b) shall not be affected by (i) the commencement, public proposal, public disclosure or communication to the Company of any takeover proposal or (ii) the withdrawal or modification by the Board of Directors of the Company of its approval or recommendation of this Agreement or the Merger. Parent and the Company will use reasonable efforts to hold the Stockholders Meeting and the Parent Stockholders Meeting on the same day and use their best efforts to hold such Meetings as soon as practicable after the date hereof. (c) The Company shall use its best efforts to obtain the opinion of Merrill Lynch, dated on or about the date that is two business days prior to the mailing of the Joint Proxy Statement, to the effect that, as of such date, the Exchange Ratio is fair to the Company's stockholders from a financial point of view, and shall cause a signed copy of such opinion to be delivered to Parent. (d) Parent shall use its best efforts to obtain the opinion of Goldman, Sachs & Co., dated on or about the date that is two business days prior to the mailing of the Joint Proxy Statement, to the effect that, as of such date, the Exchange Ratio is fair to Parent, and shall cause a signed copy of such opinion to be delivered to the Company. SECTION 5.02 LETTER OF THE COMPANY'S ACCOUNTANTS The Company shall use its best efforts to cause to be delivered to Parent a letter of KPMG Peat Marwick, the Company's independent public accountants, dated a date within two business days before the date on which the Form S-4 shall become effective and a letter of KPMG Peat Marwick, dated a date within two business days before the Closing Date, each addressed to Parent, in form and substance reasonably satisfactory to Parent and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the Form S-4. SECTION 5.03 LETTER OF PARENT'S ACCOUNTANTS Parent shall use its best efforts to cause to be delivered to the Company a letter of KPMG Peat Marwick, Parent's independent public accountants, dated a date within two business days before the date on which the Form S-4 shall become effective and a letter of KPMG Peat Marwick, dated a date within two business days before the Closing Date, each addressed to the Company, in form and substance reasonably satisfactory to the Company and customary in scope and substance for letters delivered by independent public accountants in connection with registration statements similar to the Form S-4. SECTION 5.04 ACCESS TO INFORMATION; CONFIDENTIALITY (a) Each of the Company and Parent shall, and shall cause each of its respective subsidiaries to, afford to the other party and to the officers, employees, accountants, counsel, financial advisors and other representatives of such other party, reasonable access during normal business hours during the period prior to the Effective Time of the Merger to all their respective properties, books, contracts, commitments, personnel and records and, during such period, each of the Company and Parent shall, and shall cause each of its respective subsidiaries to, furnish promptly to the other party (i) a copy of each report, schedule, I-24 registration statement and other document filed by it during such period pursuant to the requirements of Federal or state securities laws and (ii) all other information concerning its business, properties and personnel as such other party may reasonably request. Except as required by law, each of the Company and Parent will hold, and will cause its respective officers, employees, accountants, counsel, financial advisors and other representatives and affiliates to hold, any nonpublic information in confidence until such time as such information becomes publicly available (otherwise than through the wrongful act of any such person) and shall use its best efforts to ensure that such persons do not disclose such information to others without the prior written consent of the Company or Parent, as the case may be. In the event of the termination of this Agreement for any reason, the Company and Parent shall promptly return or destroy all documents containing nonpublic information so obtained from the other party or any of its subsidiaries and any copies made of such documents. In addition, Parent and the Company shall not, and shall cause their respective advisors and agents not to, use any such nonpublic information for any purpose except in furtherance of the transactions contemplated by this Agreement. (b) Neither Parent nor any of its subsidiaries will solicit or employ any employees of the Company or any of its subsidiaries as long as they are employed by the Company or such subsidiary during the period prior to the Effective Time of the Merger (except as contemplated by this Agreement) and, in the event of termination of this Agreement for any reason, for a period of two years after the date of termination. SECTION 5.05 BEST EFFORTS; NOTIFICATION (a) Upon the terms and subject to the conditions set forth in this Agreement, unless, to the extent permitted by Section 4.02(b), the Board of Directors of the Company approves or recommends a superior proposal, each of the parties agrees to use its best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and the other transactions contemplated by this Agreement, including (i) the obtaining of all necessary actions or nonactions, waivers, consents and approvals from Governmental Entities and the making of all necessary registrations and filings (including filings with Governmental Entities, if any) and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any Governmental Entity, (ii) the obtaining of all necessary consents, approvals or waivers from third parties and (iii) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement. In connection with and without limiting the foregoing, the Company and its Board of Directors shall (A) take all action necessary to ensure that no state takeover statute or similar statute or regulation is or becomes applicable to the Merger, this Agreement or any of the other transactions contemplated by this Agreement and (B) if any state takeover statute or similar statute or regulation becomes applicable to the Merger, this Agreement or any other transaction contemplated by this Agreement, take all action necessary to ensure that the Merger and the other transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on the Merger and the other transactions contemplated by this Agreement. Notwithstanding the foregoing, the Board of Directors of the Company shall not be prohibited from taking any action permitted by Section 4.02(b). (b) The Company shall give prompt notice to Parent, and Parent or Sub shall give prompt notice to the Company, of (i) any representation or warranty made by it contained in this Agreement that is qualified as to materiality becoming untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becoming untrue or inaccurate in any material respect or (ii) the failure by it to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement. I-25 SECTION 5.06 STOCK OPTIONS (a) As soon as practicable following the date of this Agreement, the Board of Directors of the Company (or, if appropriate, any committee administering the Stock Plans) shall adopt such resolutions or take such other actions as may be required to effect the following: (i) adjust the terms of all outstanding employee stock options to purchase shares of Company Common Stock ("Employee Stock Options") granted under the Company's 1982 Incentive Stock Option Plan, the 1985 Incentive Stock Option Plan, the 1986 Non-Qualified Stock Option Plan, the 1988 Non- Qualified Stock Option Plan and the 1991 Non-Qualified Stock Option Plan and any other stock option plan, program or arrangement of the Company (collectively, the "Stock Plans"), whether vested or unvested, as necessary to provide that, at the Effective Time of the Merger, each Employee Stock Option outstanding immediately prior to the Effective Time of the Merger shall be deemed to constitute an option to acquire, on the same terms and conditions as were applicable under such Employee Stock Option, including vesting, the same number of shares of Parent Common Stock as the holder of such Employee Stock Option would have been entitled to receive pursuant to the Merger had such holder exercised such Employee Stock Option in full immediately prior to the Effective Time of the Merger, at a price per share equal to (A) the aggregate exercise price for the shares of Company Common Stock otherwise purchasable pursuant to such Employee Stock Option divided by (B) the aggregate number of shares of Parent Common Stock deemed purchasable pursuant to such Employee Stock Option (each, as so adjusted, an "Adjusted Option"); provided, however, that in the case of any option to which Section 421 of the Code applies by reason of its qualification under any of Sections 422 through 424 of the Code ("qualified stock options"), the option price, the number of shares purchasable pursuant to such option and the terms and conditions of exercise of such option shall be determined in order to comply with Section 424 of the Code; and (ii) make such other changes to the Stock Plans as it deems appropriate to give effect to the Merger (subject to the approval of Parent, which shall not be unreasonably withheld). (b) As soon as practicable after the Effective Time of the Merger, Parent shall deliver to the holders of Employee Stock Options appropriate notices setting forth such holders' rights pursuant to the respective Stock Plans and the agreements evidencing the grants of such Employee Stock Options shall continue in effect on the same terms and conditions (subject to the adjustments required by this Section 5.06 after giving effect to the Merger). Parent shall comply with the terms of the Stock Plans and ensure, to the extent required by, and subject to the provisions of, such Stock Plans, that the Employee Stock Options which qualified as qualified stock options prior to the Effective Time of the Merger continue to qualify as qualified stock options after the Effective Time of the Merger. (c) Parent agrees to use reasonable efforts to take such actions as are necessary for the conversion of the Employee Stock Options of the Company pursuant to Section 5.06(a), including the reservation, issuance and listing of Common Stock of Parent as is necessary to effectuate the transactions contemplated by Section 5.06(a). (d) A holder of an Adjusted Option may exercise such Adjusted Option in whole or in part in accordance with its terms by delivering a properly executed notice of exercise to Parent, together with the consideration therefor and the Federal withholding tax information, if any, required in accordance with the related Stock Plan. SECTION 5.07 BENEFIT PLANS (a) Except as provided in Section 5.06 and subject to the provisions of ERISA and the Code, Parent agrees to cause the Surviving Corporation to maintain for a period of at least two years after the Effective Time of the Merger the Benefit Plans of the Company and its subsidiaries in effect on the date of this Agreement or to provide benefits to employees of the Company and its subsidiaries that are comparable in I-26 the aggregate to those in effect on the date of this Agreement, and thereafter Parent will cause the employees of the Surviving Corporation to have benefit plans that are at least comparable to those provided to the employees of Parent. Parent will cause each employee benefit plan of the Surviving Corporation or Parent covering such employees of the Company and its subsidiaries to recognize the service of such employees with the Company and its subsidiaries prior to the Closing Date, but only for purposes of eligibility to participate and vesting under any such plan. (b) After the Effective Time of the Merger, Parent intends to grant to key employees of the Surviving Corporation options to purchase Parent Common Stock and restricted stock awards commensurate with those granted to key employees of Parent. SECTION 5.08 INDEMNIFICATION AND INSURANCE (a) Parent and Sub agree that all rights to indemnification for acts or omissions occurring at or prior to the Effective Time of the Merger now existing in favor of the current or former directors or officers of the Company and its subsidiaries as provided in their respective certificates of incorporation or by-laws shall survive the Merger and shall continue in full force and effect in accordance with their terms for a period of not less than six years from the Effective Time of the Merger. Parent will cause to be maintained for a period of not less than five years from the Effective Time of the Merger the Company's current directors' and officers' insurance and indemnification policy to the extent that it provides coverage for events occurring prior to the Effective Time of the Merger (the "D&O Insurance") for all persons who are directors and officers of the Company on the date of this Agreement, so long as the annual premium therefor would not be in excess of 150% of the last annual premium paid prior to the date of this Agreement (the "Maximum Premium"); provided, however, that Parent may, in lieu of maintaining such existing D&O Insurance as provided above, cause comparable coverage to be provided under any policy maintained for the benefit of Parent or any of its subsidiaries, so long as the material terms thereof are no less advantageous that the existing D&O Insurance. If the existing D&O Insurance expires, is terminated or cancelled during such five-year period, Parent will use all reasonable efforts to cause to be obtained as much D&O Insurance as can be obtained for the remainder of such period for an annualized premium not in excess of the Maximum Premium, on terms and conditions no less advantageous than the existing D&O Insurance. The Company represents to Parent that the Maximum Premium is $72,500. (b) In the event Parent, the Surviving Corporation or any of their successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any person, then and in each such case, proper provisions shall be made so that the successors and assigns of Parent or the Surviving Corporation, as the case may be, shall assume the obligations set forth in this Section 5.08. (c) This Section 5.08 shall survive the consummation of the Merger at the Effective Time of the Merger, is intended to benefit the Company, Parent, the Surviving Corporation and the persons indemnified pursuant to Section 5.08(a), and shall be binding on all successors and assigns of Parent and the Surviving Corporation. SECTION 5.09 FEES AND EXPENSES (a) Except as provided below in this Section 5.09, all fees and expenses incurred in connection with the Merger, this Agreement and the transactions contemplated by this Agreement shall be paid by the party incurring such fees or expenses, whether or not the Merger is consummated, except that expenses incurred in connection with printing and mailing the Joint Proxy Statement and the Form S-4 shall be shared equally by Parent and the Company. (b) The Company shall pay to Parent upon demand a fee of $1,000,000 (the "Termination Fee"), payable in same day funds, plus all Expenses not exceeding $500,000 (as defined below), if a takeover proposal is commenced, publicly proposed, publicly disclosed or communicated to the Company (or the willingness of I-27 any person to make a takeover proposal is publicly disclosed or communicated to the Company) and (i) the Board of Directors of the Company withdraws or modifies its approval or recommendation of this Agreement or the Merger, approves or recommends such other takeover proposal, enters into an agreement with respect to such other takeover proposal or terminates this Agreement (other than as a result of a willful and material breach of this Agreement by Parent or Sub (which breach shall not have been cured within five business days following Parent's receipt of written notice of such breach from the Company)), (ii) the requisite approval of the Company's stockholders for the Merger is not obtained at the Stockholders Meeting or (iii) the Stockholders Meeting does not occur prior to the termination of this Agreement pursuant to Section 7.01(b)(ii). For purposes of this paragraph, "Expenses" shall mean all out-of- pocket fees and expenses incurred or paid by or on behalf of Parent in connection with the Merger or the consummation of any of the transactions contemplated by this Agreement, including all fees and expenses of counsel, investment banking firms, accountants, experts and consultants to Parent. SECTION 5.10 PUBLIC ANNOUNCEMENTS Parent and Sub, on the one hand, and the Company, on the other hand, will consult with each other before issuing, and provide each other the opportunity to review, comment upon and concur with, any press release or other public statements with respect to the transactions contemplated by this Agreement, including the Merger, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law, court process or by obligations pursuant to any listing agreement with any national market system. The parties agree that the initial press release to be issued with respect to the transactions contemplated by this Agreement is set forth in Exhibit A to this Agreement. SECTION 5.11 AFFILIATES AND CERTAIN STOCKHOLDERS (a) Prior to the Closing Date, the Company shall deliver to Parent a letter identifying all persons who are, at the time the Merger is submitted for approval to the stockholders of the Company, "affiliates" of the Company for purposes of Rule 145 under the Securities Act and for purposes of applicable interpretations regarding the pooling-of-interests method of accounting. The Company shall use its best efforts to cause each such person to deliver to Parent on or prior to the Closing Date a written agreement substantially in the form attached as Exhibit B hereto. If the Merger would otherwise qualify for pooling-of-interests accounting treatment, shares of Parent Common Stock issued to such affiliates of the Company in exchange for shares of Company Common Stock shall not be transferable until such time as financial results covering at least 30 days of combined operations of Parent and the Company have been published within the meaning of Section 201.01 of the SEC's Codification of Financial Reporting Policies, regardless of whether each such affiliate has provided the written agreement referred to in this Section 5.11, except to the extent permitted by, and in accordance with, Accounting Series Release 135 and Staff Accounting Bulletins 65 and 76. Any shares of Company Common Stock held by such affiliates shall not be transferable, regardless of whether each such affiliate has provided the written agreement referred to in this Section 5.11, if such transfer, either alone or in the aggregate with other transfers by affiliates, would preclude Parent's ability to account for the business combination to be effected by the Merger as a pooling of interests. The Company shall not register the transfer of any certificate representing Company Common Stock, unless such transfer is made in compliance with the foregoing. Parent shall not be required to maintain the effectiveness of the Form S-4 or any other registration statement under the Securities Act for the purposes of resale of Parent Common Stock by such affiliates and the certificates representing Parent Common Stock received by such affiliates in the Merger shall bear a customary legend regarding applicable Securities Act restrictions and the provisions of this Section 5.11. (b) The Company shall deliver to Parent on the date of the Joint Proxy Statement and on the Closing Date letters, in each case dated as of such respective dates and identifying all persons who are, as of such respective dates, beneficial owners of five percent or more of the Company Common Stock. The Company shall use its best efforts to cause each such person to deliver to counsel to Parent and to the Company on the date of the Joint Proxy Statement and on the Closing Date written agreements, in each case dated as of such respective dates and substantially in the form attached as Exhibit C hereto. I-28 SECTION 5.12 NATIONAL MARKET SYSTEM TRADING Parent shall use its best efforts to cause the shares of Parent Common Stock to be issued in the Merger and under the Stock Plans to be approved for trading on the NASDAQ/NMS, subject to official notice of issuance, prior to the Closing Date. SECTION 5.13 STOCKHOLDER LITIGATION The Company shall give Parent the opportunity to participate in the defense or settlement of any stockholder litigation against the Company and its directors relating to the transactions contemplated by this Agreement; provided, however, that no such settlement shall be agreed to without Parent's consent, which consent shall not be unreasonably withheld. SECTION 5.14 TAX REPRESENTATION LETTERS OF THE COMPANY AND PARENT (i) The Company will sign and deliver to Duane, Morris & Heckscher, counsel to the Company, and to Cravath, Swaine & Moore, counsel to Parent, on the date of the Joint Proxy Statement and on the Closing Date representation letters, in each case dated as of such respective dates and substantially in the form of Exhibit D hereto, for the purpose of the reliance of such counsel in delivering the opinions described in Section 6.01(g). (ii) Parent will sign and deliver to Duane, Morris & Heckscher, counsel to the Company, and to Cravath, Swaine & Moore, counsel to Parent, on the date of the Joint Proxy Statement and on the Closing Date representation letters, in each case dated as of such respective dates and substantially in the form of Exhibit E hereto, for the purpose of the reliance of such counsel delivering the opinions described in Section 6.01(g). SECTION 5.15 DIRECTORSHIP Promptly following the Effective Time of the Merger, Parent's Board of Directors will elect Edward Ray to be a director of Parent. SECTION 5.16 EMPLOYMENT AGREEMENTS Promptly following the Effective Time of the Merger, Parent shall, or shall cause the Surviving Corporation to, enter into an employment contract with Edward Ray, Michael J. Wassil and Patrick J. Faivre on substantially the terms set forth in Exhibits F-1, F-2 and F-3, respectively. ARTICLE VI CONDITIONS PRECEDENT SECTION 6.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER The respective obligation of each party to effect the Merger is subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions: (a) Stockholder Approval. Each of the Company Stockholder Approval and the Parent Stockholder Approval (with respect to both the issuance of Parent Common Stock in the Merger and the Stock Plan Amendment) shall have been obtained. (b) National Market System Trading. The shares of Parent Company Stock issuable to the Company's stockholders pursuant to this Agreement and under the Stock Plans shall have been approved for trading on the NASDAQ/NMS, subject to official notice of issuance. (c) HSR Act. The waiting period (and any extension thereof) applicable to the Merger under the HSR Act shall have been terminated or shall have expired. I-29 (d) No Injunctions or Restraints. No statute, rule, regulation, executive order, decree, temporary restraining order, preliminary or permanent injunction or other order enacted, entered, promulgated, enforced or issued by any court of competent jurisdiction or other Governmental Entity or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect. (e) Form S-4. The Form S-4 shall have become effective under the Securities Act and shall not be the subject of any stop order or proceedings seeking a stop order. (f) Pooling. Parent and the Company shall have received from KPMG Peat Marwick, as independent auditors of both Parent and the Company, on the date of the Joint Proxy Statement and on the Closing Date letters, in each case dated as of such respective dates, addressed to Parent and the Company, in form and substance reasonably acceptable to Parent and the Company and stating that the business combination to be effected by the Merger may be accounted for as a pooling of interests by Parent for purposes of its consolidated financial statements under generally accepted accounting principles and applicable SEC rules and regulations. No action shall have been taken by any Governmental Entity or any statute, rule, regulation or order enacted, promulgated or issued by any Governmental Entity, or any proposal made for any such action by any Governmental Entity which is reasonably likely to be put into effect, that would prevent Parent from accounting for the business combination to be effected by the Merger as a pooling of interests. (g) Tax Opinions. Parent shall have received from Cravath, Swaine & Moore, counsel to Parent, and the Company shall have received from Duane, Morris & Heckscher, counsel to the Company, on the date of the Joint Proxy Statement and on the Closing Date opinions, in each case based on the representations of Parent and the Company provided to such counsel pursuant to Section 5.14, dated as of such respective dates and stating that the Merger will be treated for Federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code and that Parent, Sub and the Company will each be a party to that reorganization within the meaning of Section 368(b) of the Code. (h) Dissenters. No more than 5% of the outstanding shares of Company Common Stock immediately prior to the Merger shall constitute Dissenting Shares in accordance with Section 2.01(d). SECTION 6.02 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB The obligations of Parent and Sub to effect the Merger are further subject to satisfaction or waiver of the following conditions: (a) Representations and Warranties. The representations and warranties of the Company set forth in this Agreement that are qualified as to materiality shall be true and correct, and the representations and warranties of the Company set forth in this Agreement that are not so qualified shall be true and correct in all material respects, in each case as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except to the extent such representations and warranties speak as of an earlier date, and Parent shall have received a certificate signed on behalf of the Company by the chief executive officer and the chief financial officer of the Company to such effect. (b) Performance of Obligations of the Company. The Company shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and Parent shall have received a certificate signed on behalf of the Company by the chief executive officer and the chief financial officer of the Company to such effect. (c) Certificates; Letters from Company Affiliates. The Company shall have delivered to Parent certified copies of resolutions duly adopted by the Company's Board of Directors and stockholders evidencing the taking of all corporate action necessary to authorize the execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, all in such reasonable detail as Parent and its counsel shall reasonably request prior to the date of the Stockholders Meeting. In addition, Parent shall have received from each affiliate named in the letter referred to in Section 5.11(a) an executed copy of an agreement substantially in the form of Exhibit B hereto. I-30 (d) No Litigation. There shall not be pending or threatened by any Governmental Entity any suit, action or proceeding and there shall not be pending by any other person any suit, action or proceeding which has a reasonable likelihood of success, in each case (i) challenging the acquisition by Parent or Sub of any shares of Company Common Stock, seeking to restrain or prohibit the consummation of the Merger or any of the other transactions contemplated by this Agreement or seeking to obtain from the Company, Parent or Sub any damages that are material in relation to the Company and its subsidiaries taken as a whole or Parent and its subsidiaries taken as a whole, as applicable, (ii) seeking to prohibit or limit the ownership or operation by the Company, Parent or any of their respective subsidiaries of any material portion of the business or assets of the Company, Parent or any of their respective subsidiaries, or to compel the Company, Parent or any of their respective subsidiaries to dispose of or hold separate any material portion of the business or assets of the Company, Parent or any of their respective subsidiaries, as a result of the Merger or any of the other transactions contemplated by this Agreement, (iii) seeking to impose limitations on the ability of Parent to acquire or hold, or exercise full rights of ownership of, any shares of Company Common Stock or common stock of the Surviving Corporation, including the right to vote the Company Common Stock, or Common Stock of the Surviving Corporation, on all matters properly presented to the stockholders of the Company or the Surviving Corporation, respectively, (iv) seeking to prohibit Parent or any of its subsidiaries from effectively controlling in any material respect the business or operations of the Company or its subsidiaries or (v) which otherwise could reasonably be expected to have a material adverse effect on the Company or Parent. In addition, there shall not be any statute, rule, regulation, judgment or order enacted, entered, enforced or promulgated that is reasonably likely to result, directly or indirectly, in any of the consequences referred to in clauses (ii) through (iv) above. (e) Approval of Company Board of Directors. The Board of Directors of the Company or any committee thereof shall not have withdrawn or modified in a manner adverse to Parent or Sub its approval or recommendation of the Merger or this Agreement, or approved or recommended any takeover proposal, (ii) the Company shall not have entered into any agreement with respect to any superior proposal in accordance with Section 4.02(b) of this Agreement, (iii) Parent shall not have received a Notice of Superior Proposal from the Company or two business days shall not have elapsed from the date of such receipt or (iv) the Board of Directors of the Company or any committee thereof shall not have resolved to take any of the foregoing actions referred to in clause (i) or (ii) above. (f) Fairness Opinion. The Company shall have received the opinion of Merrill Lynch, dated on or about the date that is two business days prior to the mailing of the Joint Proxy Statement, to the effect that, as of such date, the Exchange Ratio is fair to the Company's stockholders from a financial point of view, a signed copy of which opinion shall have been delivered to Parent. SECTION 6.03 CONDITIONS TO OBLIGATION OF THE COMPANY The obligation of the Company to effect the Merger is further subject to satisfaction or waiver of the following conditions: (a) Representations and Warranties. The representations and warranties of Parent and Sub set forth in this Agreement that are qualified as to materiality shall be true and correct, and the representations and warranties of Parent and Sub set forth in this Agreement that are not so qualified shall be true and correct in all material respects, in each case as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except to the extent such representations speak as of an earlier date, and the Company shall have received a certificate signed on behalf of Parent by the chief executive officer and the chief financial officer of Parent to such effect. (b) Performance of Obligations of Parent and Sub. Parent and Sub shall have performed in all material respects all obligations required to be performed by them under this Agreement at or prior to the Closing Date, and the Company shall have received a certificate signed on behalf of Parent by the chief executive officer and the chief financial officer of Parent to such effect. I-31 (c) Certificates. Parent shall have delivered to the Company certified copies of resolutions duly adopted by Parent's and Sub's respective Board of Directors and stockholders of Parent evidencing the taking of all corporate action necessary to authorize the execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, all in such reasonable detail as the Company and its counsel shall reasonably request prior to the date of the Parent Stockholders Meeting. (d) No Litigation. There shall not be pending or threatened by any Governmental Entity any suit, action or proceeding and there shall not be pending by any other person any suit, action or proceeding which has a reasonable likelihood of success, in each case (i) challenging the acquisition by Parent or Sub of any shares of Company Common Stock, seeking to restrain or prohibit the consummation of the Merger or any of the other transactions contemplated by this Agreement or seeking to obtain from the Company, Parent or Sub any damages that are material in relation to the Company and its subsidiaries taken as a whole or Parent and its subsidiaries taken as a whole, as applicable, (ii) seeking to prohibit or limit the ownership or operation by the Company, Parent or any of their respective subsidiaries of any material portion of the business or assets of the Company, Parent or any of their respective subsidiaries, or to compel the Company, Parent or any of their respective subsidiaries to dispose of or hold separate any material portion of the business or assets of the Company, Parent or any of their respective subsidiaries, as a result of the Merger or any of the other transactions contemplated by this Agreement, (iii) seeking to impose limitations on the ability of Parent to acquire or hold, or exercise full rights of ownership of, any shares of Company Common Stock or common stock of the Surviving Corporation, including the right to vote the Company Common Stock, or Common Stock of the Surviving Corporation, on all matters properly presented to the stockholders of the Company or the Surviving Corporation, respectively, (iv) seeking to prohibit Parent or any of its subsidiaries from effectively controlling in any material respect the business or operations of the Company or its subsidiaries or (v) which otherwise could reasonably be expected to have a material adverse effect on the Company or Parent. In addition, there shall not be any statute, rule, regulation, judgment or order enacted, entered, enforced or promulgated that is reasonably likely to result, directly or indirectly, in any of the consequences referred to in clauses (ii) through (iv) above. (e) Fairness Opinion. Parent shall have received the opinion of Goldman, Sachs & Co., dated on or about the date that is two business days prior to the mailing of the Joint Proxy Statement, to the effect that, as of such date, the Exchange Ratio is fair to Parent, a signed copy of which opinion shall have been delivered to the Company. SECTION 6.04 FRUSTRATION OF CLOSING CONDITIONS None of the Company, Parent and Sub may rely on the failure of any condition set forth in Section 6.01, 6.02 or 6.03, as the case may be, to be satisfied if such failure was caused by such party's failure to act in good faith or to use its best efforts to consummate the Merger and the other transactions contemplated by this Agreement, as required by Section 5.05. ARTICLE VII TERMINATION, AMENDMENT AND WAIVER SECTION 7.01 TERMINATION This Agreement may be terminated at any time prior to the Effective Time of the Merger, whether before or after approval of matters presented in connection with the Merger by the stockholders of the Company: (a) by mutual written consent of Parent, Sub and the Company; (b) by either Parent or the Company: (i) if, upon a vote at a duly held Stockholders Meeting or Parent Stockholders Meeting or any adjournment thereof, any required approval of the stockholders of the Company or Parent, as the case may be, shall not have been obtained; I-32 (ii) if the Merger shall not have been consummated on or before the date 180 calendar days following the date of this Agreement, unless the failure to consummate the Merger is the result of a willful and material breach of this Agreement by the party seeking to terminate this Agreement; provided, however, that the passage of such period shall be tolled for any part thereof (but not exceeding 60 calendar days in the aggregate) during which any party shall be subject to a nonfinal order, decree, ruling or action restraining, enjoining or otherwise prohibiting the consummation of the Merger or the calling or holding of the Stockholders Meeting or the Parent Stockholders Meeting; (iii) if any Governmental Entity shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and nonappealable; or (iv) in the event of a breach by the other party of any representation, warranty, covenant or other agreement contained in this Agreement which (A) would give rise to the failure of a condition set forth in Section 6.02(a) or (b) or Section 6.03(a) or (b), as applicable, and (B) cannot be or has not been cured within 30 days after the giving of written notice to the breaching party of such breach (a "Material Breach") (provided that the terminating party is not then in Material Breach of any representation, warranty, covenant or other agreement contained in this Agreement); (c) by the Company in accordance with the provisions of Section 4.02(b); or (d) by Parent on February 28, 1994, if on or prior to such date (i) the Company shall not have caused a representation agreement in the form of Exhibit G hereto to be executed and delivered by the Company and each of the persons named in Schedule I thereto or (ii) the Company shall not have caused an amendment to the Convertible Notes and the Note Purchase Agreement dated as of May 31, 1989, among the Company and the holders of the Convertible Notes, in generally the form of Exhibit H hereto to be executed and delivered by the Company and those holders of the Convertible Notes necessary for such amendment to be effective against all holders (other than as a result of the failure by Parent to execute and deliver a guarantee in substantially the form of an exhibit to the form of amendment attached as Exhibit H hereto). SECTION 7.02 EFFECT OF TERMINATION In the event of termination of this Agreement by either the Company or Parent as provided in Section 7.01, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of Parent, Sub or the Company, other than the provisions of Section 3.01(p), Section 3.02(j), the last two sentences of Section 5.04, Section 5.09, this Section 7.02 and Article VIII and except to the extent that such termination results from the willful and material breach by a party of any of its representations, warranties, covenants or agreements set forth in this Agreement. SECTION 7.03 AMENDMENT This Agreement may be amended by the parties at any time before or after any required approval of matters presented in connection with the Merger by the stockholders of the Company and at any time before or after any required approval of matters presented in connection with the issuance of shares of Parent Common Stock in the Merger and the Stock Plan Amendment by the stockholders of Parent; provided, however, that after any such approval, there shall be made no amendment that by law requires further approval by such stockholders without the further approval of such stockholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties. SECTION 7.04 EXTENSION; WAIVER At any time prior to the Effective Time of the Merger, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties of the other parties contained in this Agreement or in any document delivered I-33 pursuant to this Agreement or (c) subject to the proviso of Section 7.03, waive compliance by the other parties with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. SECTION 7.05 PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER A termination of this Agreement pursuant to Section 7.01, an amendment of this Agreement pursuant to Section 7.03 or an extension or waiver pursuant to Section 7.04 shall, in order to be effective, require in the case of Parent, Sub or the Company, action by its Board of Directors or the duly authorized designee of its Board of Directors. ARTICLE VIII GENERAL PROVISIONS SECTION 8.01 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time of the Merger. This Section 8.01 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time of the Merger. SECTION 8.02 NOTICES All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Parent or Sub, to Advanced Technology Laboratories, Inc. 22100 Bothell Everett Highway P.O. Box 3003 Bothell, WA 98041-3003 Telecopy No. (206) 485-3680 Attention: Harvey N. Gillis, Senior Vice President, Chief Financial Officer and Treasurer with a copy to: Cravath, Swaine & Moore 825 Eighth Avenue New York, NY 10019 Telecopy No. (212) 474-3700 Attention: Allen Finkelson, Esq.; and (b) if to the Company, to Interspec, Inc. 110 West Butler Avenue Ambler, PA 19002-5795 Telecopy No. (215) 540-9707 Attention: Edward Ray, Chairman, President and Chief Executive Officer I-34 with a copy to: Duane, Morris & Heckscher One Liberty Place (37th Floor) Philadelphia, PA 19103-7396 Telecopy No. (215) 979-1020 Attention: Kathleen Shay, Esq. SECTION 8.03 DEFINITIONS For purposes of this Agreement: (a) an "affiliate" of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person; (b) "indebtedness" has the meaning assigned thereto in Section 3.01(t)(ii); (c) "material adverse change" or "material adverse effect" means, when used in connection with the Company or Parent, any change or effect that is materially adverse to the business, properties, assets, condition (financial or otherwise), results of operations or prospects of such party and its subsidiaries taken as a whole; (d) "person" means an individual, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity; (e) a "subsidiary" of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first person; (f) "superior proposal" has the meaning assigned thereto in Section 4.02; (g) "takeover proposal" has the meaning assigned thereto in Section 4.02; and (h) "taxes" has the meaning assigned thereto in Section 3.01(k). SECTION 8.04 INTERPRETATION When a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference shall be to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined herein. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. References to a person are also to its permitted successors and assigns. SECTION 8.05 COUNTERPARTS This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. I-35 SECTION 8.06 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES This Agreement (including the documents and instruments referred to herein) (a) constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement and (b) except for the provisions of Article II, Section 5.06, Section 5.07 and Section 5.08, are not intended to confer upon any person other than the parties any rights or remedies. SECTION 8.07 GOVERNING LAW This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. SECTION 8.08 ASSIGNMENT Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties, except that Sub may assign, in its sole discretion, any of or all its rights, interests and obligations under this Agreement to Parent or to any direct or indirect wholly owned subsidiary of Parent, but no such assignment shall relieve Sub of any of its obligations under this Agreement. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. SECTION 8.09 ENFORCEMENT The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States located in the Commonwealth of Pennsylvania or the State of Delaware or in Delaware state court, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (a) consents to submit itself to the personal jurisdiction of any Federal court located in the Commonwealth of Pennsylvania or the State of Delaware or any Delaware state court in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court and (c) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than a Federal court sitting in the Commonwealth of Pennsylvania or the State of Delaware or a Delaware state court. I-36 IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above. Advanced Technology Laboratories, Inc., /s/ Dennis C. Fill by __________________________________ Name:Dennis C. Fill Title: Chairman of the Board and Chief Executive Officer Attest: /s/ W. Brinton Yorks, Jr. - - - ------------------------------------- Name:W. Brinton Yorks, Jr. Title:Secretary ATL Sub Acquisition Corp., /s/ Dennis C. Fill by _____________________________ Name:Dennis C. Fill Title: Chairman of the Board and Chief Executive Officer Attest: /s/ W. Brinton Yorks, Jr. - - - ------------------------------------- Name:W. Brinton Yorks, Jr. Title:Secretary Interspec, Inc., /s/ Edward Ray by _____________________________ Name:Edward Ray Title: President and Chief Executive Officer Attest: /s/ Michael J. Wassil - - - ------------------------------------- Name:Michael J. Wassil Title:Vice President I-37 [Letterhead of Goldman, Sachs & Co.] APPENDIX II April 18, 1994 Board of Directors Advanced Technology Laboratories, Inc. 22100 Bothell-Everett Highway Bothell, WA 98041-3003 Gentlemen: You have requested our opinion as to the fairness to Advanced Technology Laboratories, Inc. (the "Company") of the exchange ratio (the "Exchange Ratio") of 0.413 shares of Common Stock, par value $0.01 per share ("Common Stock"), of the Company to be paid by the Company for each share of Common Stock, par value $0.001 per share ("Interspec Common Stock"), of Interspec, Inc. ("Interspec") pursuant to the Agreement and Plan of Merger dated as of February 10, 1994 (the "Agreement"), among the Company and Interspec. Goldman, Sachs & Co., as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. We are familiar with the Company having acted as its financial advisor in connection with, and having participated in certain of the negotiations leading to, the Agreement. In connection with this opinion, we have reviewed, among other things, the Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the Company (including its predecessor Westmark International Incorporated) for the six years ended December 31, 1993; Annual Reports to Stockholders and Annual Reports on Form 10-K of Interspec for the six fiscal years ended November 30, 1993; certain interim reports to stockholders and Quarterly Reports on Form 10-Q of the Company and Interspec; certain other communications from the Company and Interspec to their respective stockholders; and certain internal analyses and forecasts for the Company and Interspec prepared by their respective managements. We also have held discussions with members of the senior management of the Company and Interspec regarding the past and current business operations, financial condition and future prospects of their respective companies. In addition, we have reviewed the reported price and trading activity for the Company's Common Stock and Interspec Common Stock, compared certain financial and stock market information for the Company and for Interspec with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the medical device industry specifically and in other industries generally and performed such other studies and analyses as we considered appropriate. We have relied without independent verification upon the accuracy and completeness of all of the financial and other information reviewed by us for purposes of this opinion. In addition, we have not made an independent evaluation or appraisal of the assets and liabilities of the Company or Interspec and we have not been furnished with any such evaluation or appraisal. We have also relied without independent II-1 verification upon the accuracy and completeness of the assumptions of the management of the Company, regarding the amount and timing of realization of the benefits expected to occur following completion of the transaction including, but not limited to, increased revenues, increased market share, increased earnings performance, potential cost savings and other operating and financial synergistic benefits. In that regard, we have assumed, with your consent, that the financial forecasts prepared by the management of the Company relating to the benefits expected to occur following completion of the transaction contemplated by the Agreement, have been reasonably prepared on a basis reflecting the best currently available judgments and estimates of the Company and that such forecasts will be realized in the amounts and at the times contemplated thereby. In reaching our opinion as to the fairness of the Exchange Ratio described in the first paragraph of this letter we have also assumed with your consent that the merger pursuant to the Agreement will be accounted for as a pooling of interests under generally accepted accounting principles. Based upon and subject to the foregoing and based upon such other matters as we consider relevant, it is our opinion that as of the date hereof the Exchange Ratio pursuant to the Agreement is fair to the Company. Very truly yours, Goldman, Sachs & Co. II-2 APPENDIX III [LETTERHEAD OF MERRILL LYNCH & CO.] April 6, 1994 Board of Directors Interspec, Inc. 110 West Butler Avenue Ambler, PA 19002-5795 Gentlemen: Interspec, Inc. (the "Company"), Advanced Technology Laboratories, Inc. (the "Acquiror") and ATL Sub Acquisition Corp., a wholly owned subsidiary of the Acquiror (the "Acquisition Sub"), proposed to enter into an agreement dated as of February 10, 1994 (the "Agreement") pursuant to which the Acquisition Sub will be merged with and into the Company in a transaction (the "Merger") in which each outstanding share of the Company's common stock, par value $.001 per share (the "Shares"), will be converted into the right to receive 0.413 shares of common stock, par value $.01 per share, of the Acquiror (the "Acquiror Shares") You have asked us whether, in our opinion, the proposed exchange ratio in the Merger is fair to the holders of the Shares from a financial point of view. In arriving at the opinion set forth below, we have, among other things: (1) Reviewed the Company's Annual Reports, Forms 10-K and related financial information for the six fiscal years ended November 30, 1993 and the Company's Forms 10-Q and related unaudited financial information for the quarterly periods ended February 28, 1993, May 31, 1993 and August 31, 1993; (2) Reviewed the Acquiror's Annual Reports, Forms 10-K and related financial information for the two fiscal years ended December 31, 1993 and the Acquiror's Forms 10-Q and related unaudited financial information for the quarterly periods ended April 2, 1993, July 2, 1993 and October 1, 1993; (3) Reviewed the Annual Reports, Forms 10-K and related financial information of the Acquiror's predecessor for the three fiscal years ended December 29, 1991; (4) Reviewed the proxy statement dated April 16, 1992 relating to the distribution of SpaceLabs Medical, Inc. to Westmark International Incorporated's shareholders; (5) Reviewed certain information, including financial forecasts, relating to the business, earnings, cash flow, assets and prospects of the Company and the Acquiror, furnished to us by the Company and the Acquiror; (6) Conducted discussions with members of senior management of the Company and the Acquiror concerning their respective businesses and prospects; (7) Reviewed the historical market prices and trading activity for the Shares and the Acquiror Shares and compared them with that of certain publicly traded companies which we deemed to be reasonably similar to the Company and the Acquiror, respectively; (8) Compared the results of operations of the Company and the Acquiror with that of certain companies which we deemed to be reasonably similar to the Company and the Acquiror, respectively; (9) Compared the proposed financial terms of the Merger with the financial terms of certain other mergers and acquisitions which we deemed to be relevant; III-1 (10) Reviewed the Agreement; and (11) Reviewed such other financial studies and analyses and performed such other investigations and took into account such other matters as we deemed necessary, including our assessment of general economic, market and monetary conditions. In preparing our opinion, we have relied on the accuracy and completeness of all information supplied or otherwise made available to us by the Company and the Acquiror, and we have not independently verified such information or undertaken an independent appraisal of the assets of the Company or the Acquiror. With respect to the financial forecasts furnished by the Company and the Acquiror, we have assumed that they have been reasonably prepared and reflect the best currently available estimates and judgment of the managements of the Company and the Acquiror as to the expected future financial performance of the Company and the Acquiror, as the case may be. We have also assumed that the Merger will qualify for pooling-of-interests accounting treatment and as a tax free transaction for the shareholders of the Company. In connection with the preparation of this opinion, we have not been authorized by the Company or the Board of Directors to solicit, nor have we solicited, third-party indications of interest for the acquisition of all or any part of the Company. We have, in the past, provided financing services to the Company and have received fees for the rendering of such services. In addition, as of February 9, 1994 we owned 3,521 Shares and 4,071 Acquiror Shares. In the ordinary course of our business, we actively trade securities for our own account and for the account of our customers and, accordingly, may at any time hold a long or short position in securities of the Company and the Acquiror. On the basis of, and subject to the foregoing, we are of the opinion that the proposed exchange ratio in the Merger is fair to the holders of the Shares from a financial point of view. Very truly yours, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED /s/ Jeffrey D. Pribor By __________________________________ Director Investment Banking Group III-2 APPENDIX IV DISSENTERS RIGHTS PROVISIONS OF THE PENNSYLVANIA BUSINESS CORPORATION LAW (S) 1930. DISSENTERS RIGHTS. (a) General rule. If any shareholder of a domestic business corporation that is to be a party to a merger or consolation pursuant to a plan of merger or consolidation objects to the plan of merger or consolidation and complies with the provisions of Subchapter D of Chapter 15 (relating to dissenters rights), the shareholder shall be entitled to the rights and remedies of dissenting shareholders therein provided, if any. See also section 1906(c) (relating to dissenters rights upon special treatment). (b) Plans adopted by directors only. Except as otherwise provided pursuant to section 1571(c) (relating to grant of optional dissenters rights), Subchapter D of Chapter 15 shall not apply to any of the shares of a corporation that is a party to a merger or consolidation pursuant to section 1924(1)(i) (relating to adoption by board of directors). (c) Cross references. See sections 1571(b) (relating to exceptions) and 1904 (relating to de facto transaction doctrine abolished). SUBCHAPTER D DISSENTERS RIGHTS (S) 1571. APPLICATION AND EFFECT OF SUBCHAPTER. (a) General rule. Except as otherwise provided in subsection (b), any shareholder of a business corporation shall have the right to dissent from, and to obtain payment of the fair value of his shares in the event of, any corporate action, or to otherwise obtain fair value for his shares, where this part expressly provides that a shareholder shall have the rights and remedies provided in this subchapter. See: Section 1906(c) (relating to dissenters rights upon special treatment). Section 1930 (relating to dissenters rights). Section 1931(d) (relating to dissenters rights in share exchanges). Section 1932(c) (relating to dissenters rights in asset transfers). Section 1952(d) (relating to dissenters rights in division). Section 1962(c) (relating to dissenters rights in conversion). Section 2104(b) (relating to procedure). Section 2324(relating to corporation option where a restriction on transfer of a security is held invalid). Section 2325(b) (relating to minimum vote requirement). Section 2704(c) (relating to dissenters rights upon election). Section 2705(d) (relating to dissenters rights upon renewal of election). Section 2907(a) (relating to proceedings to terminate breach of qualifying conditions). Section 7104(b)(3) (relating to procedure). (b) Exceptions. (1) Except as otherwise provided in paragraph (2), the holders of the shares of any class or series of shares that, at the record date fixed to determine the shareholders entitled to notice of and to vote at the meeting at which a plan specified in any of section 1930, 1931(d), 1932(c) or 1952(d) is to be voted on, are either: (i) listed on a national securities exchange; or (ii) held of record by more than 2,000 shareholders; IV-1 shall not have the right to obtain payment of the fair value of any such shares under this subchapter. (2) Paragraph (1) shall not apply to and dissenters rights shall be available without regard to the exception provided in that paragraph in the case of: (i) Shares converted by a plan if the shares are not converted solely into shares of the acquiring, surviving, new or other corporation or solely into such shares and money in lieu of fractional shares. (ii) Shares of any preferred or special class unless the articles, the plan or the terms of the transaction entitle all shareholders of the class to vote thereon and require for the adoption of the plan or the effectuation of the transaction the affirmative vote of a majority of the votes cast by all shareholders of the class. (iii) Shares entitled to dissenters rights under section 1906(c) (relating to dissenters rights upon special treatment). (3) The shareholders of a corporation that acquires by purchase, lease, exchange or other disposition all or substantially all of the shares, property or assets of another corporation by the issuance of shares, obligations or otherwise, with or without assuming the liabilities of the other corporation and with or without the intervention of another corporation or other person, shall not be entitled to the rights and remedies of dissenting shareholders provided in this subchapter regardless of the fact, if it be the case, that the acquisition was accomplished by the issuance of voting shares of the corporation to be outstanding immediately after the acquisition sufficient to elect a majority or more of the directors of the corporation. (c) Grant of optional dissenters rights. The bylaws or a resolution of the board of directors may direct that all or a part of the shareholders shall have dissenters rights in connection with any corporate action or other transaction that would otherwise not entitle such shareholders to dissenters rights. (d) Notice of dissenters rights. Unless otherwise provided by statute, if a proposed corporate action that would give rise to dissenters rights under this subpart is submitted to a vote at a meeting of shareholders, there shall be included in or enclosed with the notice of meeting: (1) A statement of the proposed action and a statement that the shareholders have a right to dissent and obtain payment of the fair value of their shares by complying with the terms of this subchapter; and (2) A copy of this subchapter. (e) Other statutes. The procedures of this subchapter shall also be applicable to any transaction described in any statute other than this part that makes reference to this subchapter for the purpose of granting dissenters rights. (f) Certain provisions of articles ineffective. This subchapter may not be relaxed by any provision of the articles. (g) Cross references. See sections 1105 (relating to restriction on equitable relief), 1904 (relating to de facto transaction doctrine abolished) and 2512 (relating to dissenters rights procedure). (S) 1572. DEFINITIONS. The following words and phrases when used in this subchapter shall have the meanings given to them in this section unless the context clearly indicates otherwise: "Corporation." The issuer of the shares held or owned by the dissenter before the corporate action or the successor by merger, consolidation, division, conversion or otherwise of that issuer. A plan of division may designate which of the resulting corporations is the successor corporation for the purposes of this subchapter. The successor corporation in a division shall have the sole responsibility for payments to dissenters and other liabilities under this subchapter except as otherwise provided in the plan of division. IV-2 "Dissenter." A shareholder or beneficial owner who is entitled to and does assert dissenters rights under this subchapter and who has performed every act required up to the time involved for the assertion of those rights. "Fair value." The fair value of shares immediately before the effectuation of the corporate action to which the dissenter objects taking into account all relevant factors, but excluding any appreciation or depreciation in anticipation of the corporate action. "Interest." Interest from the effective date of the corporate action until the date of payment at such rate as is fair and equitable under all the circumstances, taking into account all relevant factors including the average rate currently paid by the corporation on its principal bank loans. (S) 1573. RECORD AND BENEFICIAL HOLDERS AND OWNERS. (a) Record holders of shares. A record holder of shares of a business corporation may assert dissenters rights as to fewer than all of the shares registered in his name only if he dissents with respect to all the shares of the same class or series beneficially owned by any one person and discloses the name and address of the person or persons on whose behalf he dissents. In that event, his rights shall be determined as if the shares as to which he has dissented and his other shares were registered in the names of different shareholders. (b) Beneficial owners of shares. A beneficial owner of shares of a business corporation who is not the record holder may assert dissenters rights with respect to shares held on his behalf and shall be treated as a dissenting shareholder under the terms of this subchapter if he submits to the corporation not later than the time of the assertion of dissenters rights a written consent of the record holder. A beneficial owner may not dissent with respect to some but less than all shares of the same class or series owned by the owner, whether or not the shares so owned by him are registered in his name. (S) 1574. NOTICE OF INTENTION TO DISSENT. If the proposed corporate action is submitted to a vote at a meeting of shareholders of a business corporation, any person who wishes to dissent and obtain payment of the fair value of his shares must file with the corporation, prior to the vote, a written notice of intention to demand that he be paid the fair value for his shares if the proposed action is effectuated, must effect no change in the beneficial ownership of his shares from the date of such filing continuously through the effective date of the proposed action and must refrain from voting his shares in approval of such action. A dissenter who fails in any respect shall not acquire any right to payment of the fair value of his shares under this subchapter. Neither a proxy nor a vote against the proposed corporate action shall constitute the written notice required by this section. (S) 1575. NOTICE TO DEMAND PAYMENT. (a) General rule. If the proposed corporate action is approved by the required vote at a meeting of shareholders of a business corporation, the corporation shall mail a further notice to all dissenters who gave due notice of intention to demand payment of the fair value of their shares and who refrained from voting in favor of the proposed action. If the proposed corporate action is to be taken without a vote of shareholders, the corporation shall send to all shareholders who are entitled to dissent and demand payment of the fair value of their shares a notice of the adoption of the plan or other corporate action. In either case, the notice shall: (1) State where and when a demand for payment must be sent and certificates for certificated shares must be deposited in order to obtain payment. (2) Inform holders of uncertificated shares to what extent transfer of shares will be restricted from the time that demand for payment is received. (3) Supply a form for demanding payment that includes a request for certification of the date on which the shareholder, or the person on whose behalf the shareholder dissents, acquired beneficial ownership of the shares. (4) Be accompanied by a copy of this subchapter. IV-3 (b) Time for receipt of demand for payment. The time set for receipt of the demand and deposit of certificated shares shall be not less than 30 days from the mailing of the notice. (S) 1576. FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC. (a) Effect of failure of shareholder to act. A shareholder who fails to timely demand payment, or fails (in the case of certificated shares) to timely deposit certificates, as required by a notice pursuant to section 1575 (relating to notice to demand payment) shall not have any right under this subchapter to receive payment of the fair value of his shares. (b) Restriction on uncertificated shares. If the shares are not represented by certificates, the business corporation may restrict their transfer from the time of receipt of demand for payment until effectuation of the proposed corporate action or the release of restrictions under the terms of section 1577(a) (relating to failure to effectuate corporate action). (c) Rights retained by shareholder. The dissenter shall retain all other rights of a shareholder until those rights are modified by effectuation of the proposed corporate action. (S) 1577. RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES. (a) Failure to effectuate corporate action. Within 60 days after the date set for demanding payment and depositing certificates, if the business corporation has not effectuated the proposed corporate action, it shall return any certificates that have been deposited and release uncertificated shares from any transfer restrictions imposed by reason of the demand for payment. (b) Renewal of notice to demand payment. When uncertificated shares have been released from transfer restrictions and deposited certificates have been returned, the corporation may at any later time send a new notice conforming to the requirements of section 1575 (relating to notice to demand payment), with like effect. (c) Payment of fair value of shares. Promptly after effectuation of the proposed corporate action, or upon timely receipt of demand for payment if the corporate action has already been effectuated, the corporation shall either remit to dissenters who have made demand and (if their shares are certificated) have deposited their certificates the amount that the corporation estimates to be the fair value of the shares, or give written notice that no remittance under this section will be made. The remittance or notice shall be accompanied by: (1) The closing balance sheet and statement of income of the issuer of the shares held or owned by the dissenter for a fiscal year ending not more than 16 months before the date of remittance or notice together with the latest available interim financial statements. (2) A statement of the corporation's estimate of the fair market value of the shares. (3) A notice of the right of the dissenter to demand payment or supplemental payment, as the case may be, accompanied by a copy of this subchapter. (d) Failure to make payment. If the corporation does not remit the amount of its estimate of the fair value of the shares as provided by subsection (c), it shall return any certificates that have been deposited and release uncertificated shares from any transfer restrictions imposed by reason of the demand for payment. The corporation may make a notation on any such certificate or on the records of the corporation relating to any such uncertificated shares that such demand has been made. If shares with respect to which notation has been so made shall be transferred, each new certificate issued therefor or the records relating to any transferred uncertificated shares shall bear a similar notation, together with the name of the original dissenting holder or owner of such shares. A transferee of such shares shall not acquire by such transfer any rights in the corporation other than those that the original dissenter had after making demand for payment of their fair value. IV-4 (S) 1578. ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES. (a) General rule. If the business corporation gives notice of its estimate of the fair value of the shares, without remitting such amount, or remits payment of its estimate of the fair value of a dissenter's shares as permitted by section 1577(c) (relating to payment of fair value of shares) and the dissenter believes that the amount stated or remitted is less than the fair value of his shares, he may send to the corporation his own estimate of the fair value of the shares, which shall be deemed a demand for payment of the amount or the deficiency. (b) Effect of failure to file estimate. Where the dissenter does not file his own estimate under subsection (a) within 30 days after the mailing by the corporation of its remittance or notice, the dissenter shall be entitled to no more than the amount stated in the notice or remitted to him by the corporation. (S) 1579. VALUATION PROCEEDINGS GENERALLY. (a) General rule. Within 60 days after the latest of: (1) Effectuation of the proposed corporate action; (2) Timely receipt of any demand for payment under section 1575 (relating to notice to demand payment); or (3) Timely receipt of any estimates pursuant to section 1578 (relating to estimate by dissenter of fair value of shares); if any demands for payment remain unsettled, the business corporation may file in court an application for relief requesting that the fair value of the shares be determined by the court. (b) Mandatory joinder of dissenters. All dissenters, wherever residing, whose demands have not been settled shall be made parties to the proceeding as in an action against their shares. A copy of the application shall be served on each such dissenter. If a dissenter is a nonresident, the copy may be served on him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53 (relating to bases of jurisdiction and interstate and international procedure). (c) Jurisdiction of the court. The jurisdiction of the court shall be plenary and exclusive. The court may appoint an appraiser to receive evidence and recommend a decision on the issue of fair value. The appraiser shall have such power and authority as may be specified in the order of appointment or in any amendment thereof. (d) Measure of recovery. Each dissenter who is made a party shall be entitled to recover the amount by which the fair value of his shares is found to exceed the amount, if any, previously remitted, plus interest. (e) Effect of corporation's failure to file application. If the corporation fails to file an application as provided in subsection (a), any dissenter who made a demand and who has not already settled his claim against the corporation may do so in the name of the corporation at any time within 30 days after the expiration of the 60-day period. If a dissenter does not file an application within the 30-day period, each dissenter entitled to file an application shall be paid the corporation's estimate of the fair value of the shares and no more, and may bring an action to recover any amount not previously remitted. (S) 1580. COSTS AND EXPENSES OF VALUATION PROCEEDINGS. (a) General rule. The costs and expenses of any proceeding under section 1579 (relating to valuation proceedings generally), including the reasonable compensation and expenses of the appraiser appointed by the court, shall be determined by the court and assessed against the business corporation except that any part of the costs and expenses may be apportioned and assessed as the court deems appropriate against all or some IV-5 of the dissenters who are parties and whose action in demanding supplemental payment under section 1578 (relating to estimate by dissenter of fair value of shares) the court finds to be dilatory, obdurate, arbitrary, vexatious or in bad faith. (b) Assessment of counsel fees and expert fees where lack of good faith appears. Fees and expenses of counsel and of experts for the respective parties may be assessed as the court deems appropriate against the corporation and in favor of any or all dissenters if the corporation failed to comply substantially with the requirements of this subchapter and may be assessed against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted in bad faith or in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights provided by this subchapter. (c) Award of fees for benefits to other dissenters. If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated and should not be assessed against the corporation, it may award to those counsel reasonable fees to be paid out of the amounts awarded to the dissenters who were benefited. IV-6 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Article Sixth of the registrant's Restated Certificate of Incorporation (the "Certificate") provides that directors of the registrant shall not be liable to the registrant or its stockholders for monetary damages for their conduct as directors to the full extent permitted by the General Corporation Law of Delaware ("Delaware Law") as it existed at the time the Certificate was adopted, and as it may thereafter be amended. Article Sixth may be amended or repealed only on the affirmative vote of the holders of not less than two-thirds of the voting stock, and any such amendment or repeal shall apply only to acts or omissions of directors occurring after such amendment or repeal. The registrant's Amended and Restated By-Laws (the "By-Laws") provide that the registrant shall indemnify and hold harmless its directors and officers to the fullest extent permitted under Delaware Law or by any other applicable law against all litigation expenses, judgments, fines and settlement amounts incurred in connection with their service or status as directors and officers. Such indemnification also extends to liabilities arising from actions taken by directors or officers when serving at the request of the registrant as a director or an officer of another corporation, or as its representative in a partnership, joint venture, trust or other enterprise. The By-Laws provide that expenses incurred by a director or an officer in defending a civil or criminal lawsuit or proceeding arising out of actions taken in his or her official capacity, or in certain other capacities, will be paid by the registrant in advance of the final disposition of the matter upon receipt of an undertaking from the director or officer to repay the sum advanced if it is ultimately determined by final judicial decision that he or she is not entitled to be indemnified by the registrant, if such an undertaking is required by law at the time of such advance. Section 145 of Delaware Law, as currently in effect, sets forth the indemnification rights of directors and officers of Delaware corporations. Under such provision, a director or an officer of a corporation (i)` shall be indemnified by the corporation for all expenses of litigation or other legal proceedings when he or she is successful on the merits or otherwise, (ii) may be indemnified by the corporation for the expenses, judgments, fines and amounts paid in settlement of such litigation (other than a derivative suit), even if he or she is not successful on the merits, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation (and, in the case of a criminal proceeding, had no reason to believe his or her conduct was unlawful), and (iii) may be indemnified by the corporation for expenses of a derivative suit (a suit by a stockholder alleging a breach by a director or an officer of a duty owed to the corporation), even if he or she is not successful on the merits, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, provided that no such indemnification may be made in accordance with this clause (iii) if the director or officer is adjudged liable to the corporation, unless a court determines that, despite such adjudication but in view of all the circumstances, he or she is fairly and reasonably entitled to indemnification of such expenses. The indemnification described in clauses (ii) and (iii) above shall be made only upon a determination by (A) a majority of a quorum of disinterested directors, (B) independent legal counsel in a written opinion, or (C) the stockholders, that indemnification is proper because the applicable standard of conduct has been met. The effect of the indemnification provisions contained in the By-Laws is to require the registrant to indemnify its directors and officers under circumstances where such indemnification would otherwise be discretionary and to extend to the registrant's directors and officers the benefits of Delaware Law dealing with director and officer indemnification, as well as any future changes which might occur under Delaware Law in this area. 2-1 The By-Laws state that the indemnification rights granted thereunder are not exclusive of any other indemnification rights to which the director or officer may otherwise be entitled. As permitted by Section 145(g) of Delaware Law, the By-Laws also authorize the registrant to purchase directors and officers insurance for the benefit of its directors and officers, irrespective of whether the registrant has the power to indemnify such persons under Delaware Law. The registrant currently maintains such insurance as allowed by these provisions. Pursuant to the Merger Agreement, the provisions of the Certificate and By-Laws relating to indemnification of directors and officers shall survive the Merger and shall continue in full force and effect for a period of not less than six years from the effective time of the merger (the "Effective Time"). In addition, the registrant had agreed to cause to be maintained in effect for a period of not less than five years from the Effective Time the current directors and officers liability insurance policies maintained by Interspec with respect to matters occurring prior to the Effective Time, provided that the registrant will not be required to expend more than an amount per year equal to 150% of current annual premiums paid by Interspec for such insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits -------- 2.1 Amended and Restated Agreement and Plan of Merger, dated as of February 10, 1994 (included as Appendix I to the Joint Proxy Statement/Prospectus) 4.1 Amended and Restated Rights Agreement between Advanced Technology Laboratories, Inc. and First Chicago Trust Company of New York dated as of June 26, 1992. (A) 5.1 Opinion of Perkins Coie as to the legality of the securities being registered. 8.1 Opinion of Cravath, Swaine & Moore as to certain federal income tax consequences 8.2 Opinion of Duane, Morris & Heckscher as to certain federal income tax consequences 10.1 Form of Employment Agreement with Edward Ray 10.2 Form of Employment Agreement (Michael J. Wassil and Patrick J. Faivre) (B) 23.1 Consent of KPMG Peat Marwick regarding ATL 23.2 Consent of KPMG Peat Marwick regarding Interspec 23.3 Consent of Perkins Coie (contained in the opinion filed as Exhibit 5.1 hereto) 23.4 Consent of Goldman, Sachs & Co. 23.5 Consent of Merrill Lynch & Co. 23.6 Consent of Cravath, Swaine & Moore (contained in the opinion filed as Exhibit 8.1 hereto) 23.7 Consent of Duane, Morris & Heckscher (contained in the opinion filed as Exhibit 8.2 hereto) 24.1 Power of Attorney (contained on signature page) 99.1 Form of Proxy for annual meeting to be mailed to ATL stockholders 99.2 Form of Proxy for special meeting to be mailed to Interspec shareholders -------------
2-2 (A) Incorporated by reference to exhibit filed with Westmark's Amendment to Application on Form 8, filed on June 25, 1992. (B) Incorporated by reference to exhibit filed with Advanced Technology Laboratories, Inc.'s Current Report on Form 8-K, filed on February 17, 1994. ITEM 22. UNDERTAKINGS. A. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. B. (1) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this Registration Statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), ATL undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. (2) The undersigned registrant hereby undertakes that every prospectus (i) that is filed pursuant to the paragraph immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415 of the Securities Act of 1933, will be filed as a part of an amendment to the Registration Statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post- effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. C. The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form S-4, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. D. The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. E. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 2-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Bothell, State of Washington, on April 14, 1994. ADVANCED TECHNOLOGY LABORATORIES, INC. By /s/ DENNIS C. FILL ---------------------------------- Dennis C. Fill Chairman of the Board POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Dennis C. Fill, Harvey N. Gillis and W. Brinton Yorks, Jr., and each of them, as true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, to sign in the name and on behalf of such person, individually and in each capacity stated below, any or all amendments (including pre- effective and post-effective amendments) to this Registration Statement, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the following capacities on April 14, 1994.
SIGNATURE TITLE --------- ----- /s/ DENNIS C. FILL Chairman of the Board, Chief Executive - - - --------------------------- Officer and Director Dennis C. Fill /s/ HARVEY N. GILLIS Senior Vice President, Chief Financial - - - --------------------------- Officer and Treasurer Harvey N. Gillis /s/ DAVID M. PEROZEK President, Chief Operating Officer and - - - --------------------------- Director David M. Perozek /s/ RALPH M. BARFORD Director - - - --------------------------- Ralph M. Barford /s/ KIRBY L. CRAMER Director - - - --------------------------- Kirby L. Cramer /s/ HARVEY FEIGENBAUM, M.D. Director - - - --------------------------- Harvey Feigenbaum, M.D. /s/ EUGENE A. LARSON Director - - - --------------------------- Eugene A. Larson
2-4
/s/ JOHN R. MILLER Director - - - --------------------------- John R. Miller /s/ HARRY WOOLF, PH.D. Director - - - --------------------------- Harry Woolf, Ph.D. /s/ RICHARD S. TOTORICA Corporate Controller - - - --------------------------- (Chief Accounting Officer) Richard S. Totorica
2-5 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors Advanced Technology Laboratories, Inc. We consent to the use of our report regarding Advanced Technology Laboratories, Inc. incorporated by reference herein and to the reference to our firm under the heading "Experts" in the Joint Proxy Statement/Prospectus. KPMG PEAT MARWICK Seattle, Washington April 14, 1994 2-6 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Interspec, Inc. We consent to the use of our report regarding Interspec, Inc. incorporated by reference herein and to the reference to our firm under the heading "Experts" in the Joint Proxy Statement/Prospectus. KPMG PEAT MARWICK Philadelphia, Pennsylvania April 14, 1994 2-7
EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 2.1 Amended and Restated Agreement and Plan of Merger, dated as of February 10, 1994 (included as Appendix I to the Joint Proxy Statement/Prospectus) 4.1 Amended and Restated Rights Agreement between Advanced Technology Laboratories, Inc. and First Chicago Trust Company of New York dated as of June 26, 1992. (A) 5.1 Opinion of Perkins Coie as to the legality of the securities being registered. 8.1 Opinion of Cravath, Swaine & Moore as to certain federal income tax consequences 8.2 Opinion of Duane, Morris & Heckscher as to certain federal income tax consequences 10.1 Form of Employment Agreement with Edward Ray 10.2 Form of Employment Agreement (Michael J. Wassil and Patrick J. Faivre) (B) 23.1 Consent of KPMG Peat Marwick regarding ATL (included in Part II, page 2-6) 23.2 Consent of KPMG Peat Marwick regarding Interspec (included in Part II, page 2-7) 23.3 Consent of Perkins Coie (contained in the opinion filed as Exhibit 5.1 hereto) 23.4 Consent of Goldman, Sachs & Co. 23.5 Consent of Merrill Lynch & Co. 23.6 Consent of Cravath, Swaine & Moore (contained in the opinion filed as Exhibit 8.1 hereto) 23.7 Consent of Duane, Morris & Heckscher (contained in the opinion filed as Exhibit 8.2 hereto) 24.1 Power of Attorney (contained on signature page) 99.1 Form of Proxy for annual meeting to be mailed to ATL stockholders 99.2 Form of Proxy for special meeting to be mailed to Interspec shareholders
- - - --------------- (A) Incorporated by reference to exhibit filed with Westmark International Incorporated's Amendment to Application Form 8, filed on June 25, 1992. (B) Incorporated by reference to exhibit with Advanced Technology Laboratories, Inc.'s Current Report on Form 8-K, filed on February 17, 1994. EX-5.1 2 OPINION OF PERKINS COIE EXHIBIT 5.1 [LETTERHEAD OF PERKINS COIE] April 14, 1994 Advanced Technology Laboratories, Inc. 22100 Bothell-Everett Highway Bothell, WA 98041-3003 Ladies and Gentlemen: We have acted as counsel to you in connection with the proceedings for (i) the authorization and issuance by Advanced Technology Laboratories, Inc. (the "Company") of up to 2,714,058 shares of the Company's Common Stock, par value $.01 per share (the "Shares"), in connection with the merger of a wholly owned subsidiary of the Company with and into Interspec, Inc., and (ii) the preparation of a registration statement on Form S-4 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), which you are filing with the Securities and Exchange Commission with respect to the Shares. We have examined the Registration Statement and such documents and records of the Company and other documents as we have deemed necessary for the purpose of this opinion. Based upon the foregoing, we are of the opinion that upon the happening of the following events: (a) the filing of the Registration Statement and any amendments thereto and the becoming effective of the Registration Statement; and (b) due execution by the Company and registration by its registrar of the Shares and the issuance and sale of the Shares as contemplated by the Registration Statement and in accordance with the aforesaid corporate and governmental authorizations; the Shares will be duly authorized, validly issued, fully paid and nonassessable. We consent to the filing of this opinion as an Exhibit to the Registration Statement and to the reference to us under the heading "Legal Opinion." In giving such consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act Very truly yours, PERKINS COIE EX-8.1 3 OPINION OF CRAVATH ET AL Exhibit 8.1 [Letterhead of] CRAVATH, SWAINE & MOORE (212) 474-1110 April 18, 1994 Amended and Restated Agreement and Plan of Merger Dated as of February 10, 1994, Among Advanced Technology Laboratories, Inc., ATL Sub Acquisition Corp. and Interspec, Inc. Dear Sirs: We have acted as counsel for Advanced Technology Laboratories, Inc., a Delaware corporation ("ATL") in connection with the proposed merger (the "Merger") of ATL Sub Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of ATL ("Sub"), into Interspec, Inc., a Pennsylvania corporation ("Interspec"), pursuant to an Amended and Restated Agreement and Plan of Merger dated as of February 10, 1994 (as so amended and restated, the "Merger Agreement"), among ATL, Sub and Interspec under which each issued and outstanding share of common stock, par value $0.001 per share, of Interspec ("Interspec Common Stock") (other than shares owned by Interspec and Dissenting Shares (as defined in the Merger Agreement)) will be exchanged for 0.413 of a share of common stock, par value $0.01 per share, of ATL ("ATL Common Stock") as provided in the Merger Agreement. In that connection, you have requested our opinion regarding the material Federal income tax consequences of the Merger. In providing our opinion, we have examined the Merger Agreement, the Joint Proxy Statement/Prospectus of ATL and Interspec dated as of April 18, 1994 (the "Proxy Statement"), and such other documents and corporate records as we have deemed necessary or appropriate for purposes of our opinion. In addition, we have assumed (i) the Merger will be consummated in the manner contemplated by the Proxy Statement and in accordance with the provisions of the Merger Agreement, (ii) the statements concerning the Merger set forth in the Proxy Statement (including the purpose of the parties for consummating the Merger) are accurate and complete and (iii) the representations made to us by ATL, Sub, Interspec and certain Interspec shareholders in their respective letters to us dated April , 1994, and delivered to us for purposes of this opinion are accurate and complete. Based upon the foregoing, in our opinion, for Federal income tax purposes: (i) the Merger will constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and ATL, Sub and Interspec will each be a party to such reorganization within the meaning of Section 368(b) of the Code: (ii) no gain or loss will be recognized by ATL, Sub or Interspec in the Merger; (iii) no gain or loss will be recognized by the shareholders of Interspec upon their receipt of ATL Common Stock in exchange for their Interspec Common Stock, except that holders of Interspec Common Stock who receive cash upon exercise of any available dissenters; rights or cash in lieu of fractional shares of ATL Common Stock will recognize gain or loss equal to the difference between such cash and tax basis in their shares subject to dissenters' rights or the tax basis allocated to their fractional shares of ATL Common Stock, and such gain or loss will constitute capital gain or loss if their shares of Interspec Common Stock are held, or, in the case of an Interspec shareholder that receives cash in lieu of fractional shares of ATL Common Stock, if such fractional shares would have been held, as a capital asset at the effective time of the Merger; (iv) the tax basis of the shares of ATL Common Stock (including fractional shares of ATL Common Stock) received by the shareholders of Interspec will be the same as the tax basis of their Interspec Common Stock exchanged thereafter; and 3 (v) the holding period of the ATL Common Stock in the hands of the Interspec shareholders will include the holding period of their Interspec Common Stock exchanged therefor, provided such Interspec Common Stock is held as a capital asset at the effective time of the Merger. The opinions expressed herein are based upon existing statutory, regulatory and judicial authority, any of which may be changed at any time with retroactive effect. In addition, our opinions are based solely on the documents that we have examined, the additional information that we have obtained, and the statements contained in the letters from ATL, Sub, Interspec and certain Interspec shareholders referred to above, which we have assumed are true on the date hereof and will be true on the date on which the Merger is consummated. Our opinions cannot be relied upon if any of the facts pertinent to the Federal income tax treatment of the Merger stated in such documents or in such additional information is, or later becomes, inaccurate, or if any of the statements contained in the letters from ATL, Sub, Interspec and certain Interspec shareholders referred to above are, or later become, inaccurate. Our opinions are limited to the tax matters specifically covered hereby, and we have not been asked to address, nor have we addressed, any other tax consequences of the Merger. This opinion is being provided solely for the benefit of ATL, Sub and ATL shareholders. No other person or party shall be entitled to rely on this opinion. We hereby consent to the filing of this opinion as Exhibit 8.1 to the Registration Statement on Form S-4 of which the Proxy Statement is a part and to the use of our 4 name in the sections entitled "The Merger--Certain Federal Income Tax Consequences" and "Tax Opinion" in the Proxy Statement. Very truly yours, CRAVATH, SWAINE & MOORE Advanced Technology Laboratories, Inc. 22100 Bothell Everett Highway P.O. Box 3003 Bothell, WA 98041-3003 EX-8.2 4 OPINION OF DUANE ET AL EXHIBIT 8.2 [Letterhead of] DUANE, MORRIS & HECKSCHER (215) 979-1000 April 18, 1994 Amended and Restated Agreement and Plan of Merger Dated as of February 10, 1994, Among Advanced Technology Laboratories, Inc., ATL Sub Acquisition Corp. and Interspec, Inc. Dear Sirs: We have acted as counsel for Interspec, Inc., a Pennsylvania corporation ("Interspec") in connection with the proposed merger (the "Merger") of ATL Sub Acquisition Corp., a Delaware corporation ("Sub") and a wholly owned subsidiary of Advanced Technology Laboratories, Inc., a Delaware corporation ("ATL"), into Interspec, pursuant to an Amended and Restated Agreement and Plan of Merger dated as of February 10, 1994 (as so amended and restated, the "Merger Agreement"), among ATL, Sub and Interspec under which each issued and outstanding share of common stock, par value $0.001 per share, of Interspec ("Interspec Common Stock") (other than shares owned by Interspec and Dissenting Shares (as defined in the Merger Agreement)) will be exchanged for 0.413 of a share of common stock, par value $0.01 per share, of ATL ("ATL Common Stock") as provided in the Merger Agreement. In that connection, you have requested our opinion regarding the material Federal income tax consequences of the Merger. In providing our opinion, we have examined the Merger Agreement, the Joint Proxy Statement/Prospectus of ATL and Interspec dated as of April , 1994 (the "Proxy Statement"), and such other documents and corporate records as we have deemed necessary or appropriate for purposes of our opinion. In addition, we have assumed (i) the Merger will be consummated in the manner contemplated by the Proxy Statement and in accordance with the provisions of the Merger Agreement, (ii) the statements concerning the Merger set forth in the Proxy Statement (including the purposes of the parties for consummating the Merger) are April 18, 1994 Page 2 accurate and complete and (iii) the representations made to us by ATL, Sub, Interspec and certain Interspec shareholders in their respective letters to us dated April , 1994, and delivered to us for purposes of this opinion are accurate and complete. Based upon the foregoing, in our opinion, for Federal income tax purposes: (i) the Merger will constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and ATL, Sub and Interspec will each be a party to such reorganization within the meaning of Section 368(b) of the Code; (ii) no gain or loss will be recognized by ATL, Sub or Interspec in the Merger; (iii) no gain or loss will be recognized by the shareholders of Interspec upon their receipt of ATL Common Stock in exchange for their Interspec Common Stock, except that holders of Interspec Common Stock who receive cash upon exercise of any available dissenters' rights or cash in lieu of fractional shares of ATL Common Stock will recognize gain or loss equal to the difference between such cash and the tax basis in their shares subject to dissenters' rights or the tax basis allocated to their fractional shares of ATL Common Stock,and such gain or loss will constitute capital gain or loss if their shares of Interspec Common Stock are held, or, in the case of an Interspec shareholder that receives cash in lieu of fractional shares of ATL Common Stock, if such fractional shares would have been held, as a capital asset at the effective time of the Merger; (iv) the tax basis of the shares of ATL Common Stock (including fractional shares of ATL Common Stock) received by the shareholders of Interspec will be the same as the tax basis of their Interspec Common Stock exchanged therefor; and (v) the holding period of the ATL Common Stock in the hands of the Interspec shareholders will include the holding period of their Interspec Common Stock exchanged therefor, provided such Interspec Common April 18, 1994 Page 3 Stock is held as a capital asset at the effective time of the Merger. The opinions expressed herein are based upon existing statutory, regulatory and judicial authority, any of which may be changed at any time with retroactive effect. In addition, our opinions are based solely on the documents that we have examined, the additional information that we have obtained, and the statements contained in the letters from ATL, Sub, Interspec and certain Interspec shareholders referred to above, which we have assumed are true on the date hereof and will be true on the date on which the Merger is consummated. Our opinions cannot be relied upon if any of the facts pertinent to the Federal income tax treatment of the Merger stated in such documents or in such additional information is, or later becomes, inaccurate, or if any of the statements contained in the letters from ATL, Sub, Interspec and certain Interspec shareholders referred to above are, or later become, inaccurate. Our opinions are limited to the tax matters specifically covered hereby, and we have not been asked to address, nor have we addressed, any other tax consequences of the Merger. This opinion is being provided solely for the benefit of Interspec and the shareholders of Interspec. No other person or party shall be entitled to rely on this opinion. We hereby consent to the filing of this opinion as Exhibit 8.2 to the Registration Statement on Forms S-4 of which the Proxy Statement is a part and to the use of our name in the sections entitled "The Merger--Certain Federal Income Tax Consequences" and "Tax Opinion" in the Proxy Statement. Very truly yours, DUANE MORRIS & HECKSCHER Interspec, Inc. 110 West Butler Avenue Ambler, PA 19002-5795 EX-10.1 5 EMPLOYMENT AGMT W/E. RAY Exhibit 10.1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made as of the _____ day of ______________, 1994, and is by and between Advanced Technology Laboratories, Inc., a corporation of the State of Washington (hereinafter, "ATL"), and Edward Ray, an individual residing in Villanova, Pennsylvania (hereinafter, "Employee"). RECITAL: ------- WHEREAS, the Employee is presently an employee of Interspec, Inc. ("Interspec") and holds the position of President and Chief Executive Officer and as such has been and is expected to be a significant factor in the future growth and success of Interspec; and WHEREAS, ATL desires to induce the Employee to become employed by ATL in an executive capacity for a term certain commencing on the day of the "Effective Time of the Merger" as defined in the Agreement and Plan of Merger, dated February 10, 1994, among Advanced Technology Laboratories, Inc., ATL Sub Acquisition Corp., and Interspec (hereinafter referred to as the "Merger Agreement"), and based on the inducements hereinafter provided by ATL, the Employee desires to be employed by ATL on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and covenants set forth herein, and intending to be legally bound, the parties have agreed as follows: 1. Duties. ATL agrees to employ Employee, and Employee agrees to enter the employment of ATL. During the term of this agreement, Employee shall be employed by ATL in the capacity as the President and Chief Operating Officer of Interspec, reporting to the Chairman and Chief Executive Officer of ATL, and responsible for, among other things, the business affairs of Interspec and such other duties and responsibilities as are not inconsistent with the terms and conditions in this Agreement. Employee shall devote reasonable attention and time during normal business hours to the business and affairs of Interspec, and, to the extent necessary, to use reasonable best efforts to perform faithfully and efficiently those responsibilities. 2. Term. Subject to Sections 4 and 5 hereof, the employment of Employee by ATL shall commence on the day of the "Effective Time of the Merger" as defined in the Merger Agreement (hereinafter referred to as the "Effective Date"), -2- and shall continue through April 14, 1997 unless terminated earlier in accordance with the provisions of this Agreement. 3. Compensation. ------------ (a) Base Salary. During the period of his employment during the term of this agreement, Employee shall receive an annual base salary of not less than Three Hundred Thousand Dollars ($300,000) (the "Base Salary") which shall be paid in equal installments in accordance with ATL's regular payroll practices. The Base Salary may be increased from time to time by the Compensation Committee of ATL's Board of Directors (the "Compensation Committee"). The Compensation Committee shall review the Base Salary at least annually. Any increase in Base Salary shall not serve to limit or reduce any other obligation to Employee under this Agreement. Base Salary shall not be reduced after any such increase and the term Base Salary as utilized in this Agreement shall refer to Base Salary as so increased. (b) Bonuses. Employee shall receive an annual bonus of not less than $140,000 for each fiscal year at the time bonuses to other officers of ATL are paid or payable for such fiscal year as determined by the Compensation Committee of the Board of Directors of ATL; provided however, that each annual bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless Employee shall elect to defer the receipt of such Annual Bonus, and provided further that such Annual Bonus shall be pro rated for the fiscal year in which this Agreement expires or otherwise terminates. For purposes of this Agreement, the portion of the Employee's annual bonus equal to $140,000 shall hereinafter be referred to as the "Annual Bonus" and the portion, if any, of the Employee's annual bonus in excess of $140,000 shall hereinafter be referred to as the "Additional Bonus". (c) Fringe Benefits. The Employee shall be entitled to participate in the same insurance, vacation and other fringe benefit programs of ATL as are provided to ATL's other executive officers. Nothing in this Agreement shall be construed to prevent ATL from amending its benefit programs from time to time, including an amendment to eliminate all or any portion of its programs. The Employee shall also be entitled to continue to participate in Interspec's Supplemental Executive Retirement Plan (the "SERP") which is incorporated into the Merger Agreement; however, the portion, if any, of the benefit accrued by the Employee under the SERP at his termination of employment which is in excess of his benefit accrued on the Effective Date shall be reduced (but not below zero) by the benefits -3- accrued by the Employee after the Effective Date as a beneficiary under ATL's retirement plans. In addition, ATL shall provide to Employee a term life insurance policy in the face amount of $1,000,000 payable to such beneficiary or beneficiaries as shall be designated by Employee, and a long-term disability insurance policy providing annual benefits to the Employee equal to 60% of the Employee's Base Salary in the event of the long-term disability of the Employee. ATL shall also provide to Employee the full-time use of an automobile of a type satisfactory to Employee and substantially similar to the automobile provided to Employee under his December 23, 1993 employment agreement with Interspec. (d) Equity Compensation. The Employee shall be eligible to receive options to purchase ATL common stock and to receive restricted stock awards of ATL common stock commensurate with those granted to the key employees of ATL. (e) Reimbursement of Expenses. Employee shall be entitled to incur reasonable business expenses in the performance of services for ATL. ATL will reimburse Employee for such expenses provided Employee shall complete an itemized expense report on forms provided by ATL, and furnish the report together with related receipts to ATL. If at any time ATL makes advances to Employee for any purpose, including advances for business expenses or for personal purposes, Employee hereby authorizes ATL to deduct, withhold, or divert from his compensation an amount equal to such advances outstanding on his last day of employment. If any outstanding advances relate to business expenses incurred in accordance with this Section of this Agreement, upon submission of a properly completed and substantiated expense report, ATL will release any amounts so deducted to Employee. (f) Entire Compensation. The compensation provided for in this Agreement is in full payment of the services to be rendered by the Employee to ATL hereunder. 4. Death or Total Disability of the Employee. ----------------------------------------- (a) Death. In the event of the death of the Employee, this Agreement shall terminate effective as of the date of the Employee's death, ATL shall not have any further obligation or liability under this Agreement except that ATL shall pay to the Employee's estate: (i) the portion of the Base Salary earned by Employee but unpaid for the current or any prior year, prior to the date of death; and (ii) the pro rata portion of any Annual Bonus and Additional Bonus which Employee had earned for the current or any prior year, but not received prior to the date of death; and (iii) any other -4- payments or benefits that the Employee is eligible to receive under any benefit or retirement plans or other arrangements that would, by their terms, apply. (b) Total Disability. In the event of the Total Disability (as that term is hereinafter defined) of the Employee for a period of 90 consecutive days, ATL shall have the right to terminate the Employee's employment hereunder by giving the Employee 20 days' written notice thereof, and upon expiration of such 20-day period, ATL shall not have any further obligation or liability under this agreement, except that ATL shall pay to the Employee: (i) the portion of the Base Salary earned by Employee but unpaid prior to the date of termination; and (ii) the pro rata portion of any Annual Bonus and Additional Bonus which Employee had earned for the current or any prior year, but not received prior to the date of termination; and (iii) any other payments or benefits that the Employee is eligible to receive under any benefit or retirement plans or other arrangements that would, by their terms, apply. Notwithstanding anything to the contrary set forth in this Section 4(b), the Employee shall continue to be paid his Base Salary until he becomes eligible to receive benefits under the long- term disability insurance policy referred to in Section 3(c) hereof. The term "Total Disability," when used herein, shall mean a mental or physical condition which in the reasonable opinion of the Compensation Committee renders the Employee unable or incompetent to carry out the job responsibilities held or tasks assigned at the time the condition was incurred, and which entitles Employee to receive payments under the long-term disability insurance policy referred to in Section 3(c) hereof. 5. Discharge by ATL. ---------------- (a) Discharge for Cause. ATL may discharge the Employee and thereby terminate his employment hereunder for the following reasons (hereinafter referred to as a "discharge for cause"): (i) the demonstrably willful and deliberate failure by Employee substantially to perform his material duties and obligations to ATL under this Agreement (other than a failure resulting from any illness, sickness, or physical or mental incapacity) which failure continues after ATL has given notice of the failure to Employee; or, (ii) the demonstrably willful and deliberate engaging by Employee in misconduct which materially is injurious to ATL. In the event that ATL shall discharge the Employee pursuant to this Section 5(a), ATL shall not have any further obligation or liability under this agreement, except that ATL shall pay to the Employee: (i) the portion of the Base Salary earned by Employee but unpaid prior to the date of termination; and (ii) the pro rata portion of any Annual -5- Bonus and Additional Bonus which Employee had earned for the current or any prior year, but not received prior to the date of termination; and (iii) any other payments or benefits that the Employee is eligible to receive under any benefit or retirement plans or other arrangements that would, by their terms, apply. Notwithstanding the foregoing, the Employee shall have the notice period provided for in Section 5(e) hereof within which to cure the stated reason for the discharge for cause to the reasonable satisfaction of ATL. (b) Other Discharge by ATL. If ATL shall discharge the Employee for any reason other than one specified in Section 5(a) above (hereinafter referred to as a "discharge without cause"), the Employee shall be entitled to receive: (i) the portion of the Base Salary earned by Employee but unpaid prior to the date of termination; and (ii) the pro rata portion of any Annual Bonus and Additional Bonus which Employee had earned for the current or any prior year, but not received prior to the date of termination; and (iii) any other payments or benefits that the Employee is eligible to receive under any benefit or retirement plans or other arrangements that would, by their terms, apply; and (iv) a termination payment equal to the Base Salary and Annual and Additional Bonuses that Employee would have been entitled to receive hereunder after the date of termination had this Agreement remained in effect through the end of the term specified in Section 2 above. At the election of Employee, such amount shall be payable either in a lump sum or in substantially equal monthly installments through April 14, 1997. During the balance of the period ending April 14, 1997 Employee shall also be entitled to continue to receive fringe and welfare benefits, described in Section 3(c) above, which are at least comparable to those to which he was entitled immediately prior to the termination of his employment, and shall continue to receive service credit for purposes of the SERP. If the terms of any welfare benefit plan of ATL does not permit continued participation by the Employee, then ATL shall arrange to provide to the Employee a benefit substantially similar to and materially no less favorable than the benefit he was entitled to receive under such plan at the end of the period of coverage. Finally, ATL will permit the Employee during a period of three months following his termination, upon written request, to execute a cashless exercise of all outstanding stock options previously granted to the Employee under any stock option plan maintained by ATL, whether or not such options are then exercisable, and to have all restricted stock grants and other forms of equity compensation, whether or not vested, vest immediately. -6- (c) Termination for Good Reason. The Employee may terminate his employment hereunder for Good Reason (as defined below). Upon any such termination, the Employee shall receive from ATL the same salary, bonus and other payments and employee fringe and welfare benefits that would be payable to the Employee pursuant to Section 5(b) hereof upon a discharge of the Employee without cause. For purposes of this Agreement, the term "Good Reason" shall mean the occurrence of any of the following events without the Employee's express written consent: (i) any failure by ATL to comply with any of the provisions of Section 3, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by ATL promptly after receipt of notice thereof given by Employee; or (ii) ATL's requiring the Employee to be based at any office or location other than the location where Employee was employed immediately preceding the Effective Date or any office which is less than 30 miles from such location; or (iii) the assignment to the Employee of any duties materially inconsistent in any respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 1 or any other action by ATL which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee; or (iv) any purported termination by ATL of Employee's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by ATL to comply with and satisfy Section 9; provided that such successor has received at least ten days prior written notice from ATL or Employee of the requirements of Section 9. For purposes of this Section 5(c), any good faith determination of "Good Reason" made by Employee shall be conclusive. (d) No Mitigation Required. Upon a termination of the Employee's employment by ATL without cause or by Employee for Good Reason, the Employee shall have no obligation to seek other employment but shall not be prohibited from doing so, and no compensation paid to the Employee as the result of any other employment shall reduce any payment required to be made by ATL hereunder. (e) Notice of Termination. Any termination of the Employee's employment by ATL or by the Employee shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 10 hereof. A "Notice of Termination" shall mean a notice which indicates the specific termination provision in this Agreement relied upon and sets forth in reasonable detail the facts and -7- circumstances claimed to provide a basis for termination of the Employee's employment. The Notice of Termination shall also specify a date of termination which shall be no earlier than 30 days after the Notice of Termination is given. (f) No Set-Off. ATL's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which ATL may have against Employee or others. 6. Expense Reimbursement; Payment of Disputed Amounts. -------------------------------------------------- (a) Expense Reimbursement. In the event that any person asserts the invalidity of all or any part of this agreement and the Employee incurs legal fees or expenses in connection with defending the validity of all or a portion of this Agreement, ATL shall reimburse the Employee for all legal fees and costs the Employee so incurs. (b) Payment of Disputed Amounts. If there shall be any dispute between ATL and Employee (i) in the event of any termination of Employee's employment by ATL, whether such termination was for Cause, or (ii) in the event of any termination of employment by Employee, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by Employee of the existence of Good Reason was not made in good faith, ATL shall pay all amounts, and provide all benefits, to Employee and/or Employee's family or other beneficiaries, as the case may be, that ATL would be required to pay or provide pursuant to Section 3 as though such termination were by ATL without Cause or by Employee with Good Reason; provided however, that ATL shall not be required to pay any disputed amounts pursuant to this paragraph except upon receipt of an undertaking by or on behalf of Employee to repay all such amounts to which Employee is ultimately adjudged by such court not to be entitled. 7. Assignment Prohibited. This Agreement is personal to Employee and may not be assigned by Employee either directly or indirectly or by operation of law without the prior written consent of ATL. 8. Binding Effect. This Agreement inures to the benefit of the parties and is binding upon the parties, their heirs, personal representatives, successors and assigns. If the Employee should die while any amount would still be payable to the Employee hereunder if the Employee -8- had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this agreement to the Employee's devisee, legatee or other designee or, if there is no such designee, to the Employee's estate. 9. Successors. ATL will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of ATL to expressly assume and agree to perform this agreement in the same manner and to the same extent that ATL would be required to perform it if no such succession had taken place. Failure of ATL to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this agreement and shall entitle the Employee to compensation from ATL in the same amount and on the same terms as the Employee would be entitled hereunder if the Employee terminated his employment for Good Reason. 10. Notices. Any notices required or permitted under this Agreement may be delivered in person or may be sent to the parties at the addresses set forth below by certified or registered U.S. mail, postage prepaid, or by personal delivery to the party. If to the Employee: Edward Ray c/o Interspec, Inc. 110 West Butler Avenue Ambler, PA 19002-5795 If to ATL: Advanced Technology Laboratories, Inc. 22100 Bothell Everett Highway P.O. Box 3003 Bothell, Washington 98041-3003 Attn: General Counsel Any party may from time to time change its address for the purpose of notices to that party by a similar notice specifying a new address, but no such change shall be deemed to have been given until it is actually received by the party sought to be charged with its contents. 11. Enforceability. If any provision of this Agreement shall be invalid or unenforceable, in whole or in part, then such provision shall be deemed to be modified or restricted to the extent and in the manner necessary to render the same valid and enforceable, or shall be deemed -9- excised from this agreement, as the case may require, and this agreement shall be construed and enforced to the maximum extent permitted by law, as if such provision had been originally incorporated herein as so modified or restricted, or as if such provision had not been originally incorporated herein, as the case may be. 12. Entire Agreement. This agreement together with ATL's Employment Agreement Relating to Inventions, Patents, and Confidential Information constitutes the entire understanding and agreement by and between the parties with respect to Employee's employment, and supersedes any other agreements or understandings between the parties either written or oral. 13. Amendments. Any amendment to this Agreement, including any extension or renewal of the term of employment of the Employee, shall be made in writing and signed by the parties hereto. 14. Construction. This Agreement shall be construed and enforced in accordance with the laws of the State of Washington, and shall be enforced in the State of Washington. 15. Waiver. No claim or right arising out of a breach or default under this agreement shall be discharged in whole or in part by a waiver of that claim or right unless the waiver is in writing and executed by the aggrieved party hereto or his or its duly authorized agent. A waiver by any party hereto of a breach or default by the other party hereto of any provision of this agreement shall not be deemed a waiver of future compliance therewith, and such provisions shall remain in full force and effect. -10- 16. Counterparts. This agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. Executed by the parties as of the day and year first above written. Advanced Technology ____________________________ Laboratories, Inc. Edward Ray By: ________________________ Title: _____________________ EX-23.4 6 CONSENT OF GOLDMAN, SACHS & CO. EXHIBIT 23.4 (Goldman Sachs Letterhead) April 15, 1994 Board of Directors Advanced Technology Laboratories, Inc. 22100 Bothell Everett Highway Bothell, Washington 98041-3003 Re: Registration Statement on Form S-4 of Advanced Technology Laboratories, Inc. Gentlemen: Reference is made to our opinion letter, dated April 18, 1994, with respect of the fairness to Advanced Technology Laboratories, Inc. (the "Company") of the exchange ratio of .413 shares of Common Stock, par value $0.01 per share ("Common Stock"), of the Company to be paid by the Company for each share of Common Stock, par value $0.001 per share ("Interspec Common Stock"), of Interspec, Inc. ("Interspec") pursuant to the Agreement and Plan of Merger dated as of February 10, 1994 (the "Agreement"), among the Company and Interspec. The foregoing opinion letter is solely for the information and assistance of the Board of Directors of the Company in connection with its consideration of the transaction contemplated therein and is not to be used, circulated, quoted or otherwise referred to for any other purpose, nor is it to be filed with, included in or referred to in whole or in part in any registration statement, proxy statement or any other document, except in accordance with our prior written consent. In that regard, we hereby consent to the reference to the opinion of our Firm under the captions "SUMMARY--The Merger--Opinions of Financial Advisors", "BACKGROUND OF THE MERGER--Background--Consideration of a Business Combination", "BACKGROUND OF THE MERGER--Reasons for the Merger; Recommendations of the Boards of Directors--ATL", and "BACKGROUND OF AND REASONS FOR THE MERGER--Opinion of Financial Advisor to the ATL Board" and to the inclusion of the foregoing opinion in the Proxy Statement/Prospectus included in the above-mentioned Registration Statement. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1993 or the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, GOLDMAN, SACHS & CO. EX-23.5 7 CONSENT OF MERRILL LYNCH & CO. Exhibit 23.5 Investment Banking Group World Financial Center North Tower New York, New York 10281-1324 212 449 1000 [LOGO OF MERRILL LYNCH] We hereby consent to the use of our opinion letter dated April 14, 1994 to the Board of Directors of Interspec, Inc., included as Appendix III to the Proxy Statement/Prospectus which forms a part of the Registration Statement on Form S-4 relating to the proposed merger of ATL Sub Acquisition Corp., a wholly owned subsidiary of Advanced Technology Laboratories, Inc., with and into Interspec, Inc., and to the references to such opinion in such Proxy Statement/Prospectus under the captions "SUMMARY -- The Merger -- Opinions of Financial Advisors", "BACKGROUND OF AND REASONS FOR THE MERGER -- Background -- Consideration of a Business Combination", "BACKGROUND OF AND REASONS FOR THE MERGER -- Reasons for the Merger; Recommendations of the Boards of Directors -- Interspec", and "BACKGROUND OF AND REASONS FOR THE MERGER -- Opinion of Financial Advisor to the Interspec Board." In giving such consent, we do not admit and we hereby disclaim that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder, nor do we thereby admit that we are experts with respect to any part of such Registration Statement within the meaning of the term "experts" as used in the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: /s/ K.E. Coffey --------------------------------- Vice President Investment Banking Group April 15, 1994 EX-99.1 8 PROXY FOR ANNUAL MEETING EXHIBIT 99.1 P R O X Y ADVANCED TECHNOLOGY LABORATORIES, INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned appoints DENNIS C. FILL, RALPH M. BARFORD and HARRY WOOLF, Ph.D., or any one of them, Proxies with full power of substitution, to vote the shares of Advanced Technology Laboratories, Inc. which the undersigned is enti- tled to vote at the Annual General Meeting of Stockholders of Advanced Technol- ogy Laboratories, Inc., to be held on Monday, May 16, 1994, at 10:30 a.m. at the Four Seasons Olympic Hotel, 411 University Street, Seattle, Washington, and at any adjournment thereof, on the matters set forth on the reverse side. THE MATTERS TO BE VOTED UPON, THE INSTRUCTIONS AND A SPACE FOR YOUR VOTE AND SIGNATURE ARE SET FORTH ON THE REVERSE SIDE. YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES (SEE REVERSE SIDE), BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD. ----------- SEE REVERSE SIDE ----------- - - - -------------------------------------------------------------------------------- [X] Please mark your votes as in this example. |9868 ----- THIS PROXY WILL BE VOTED AS DIRECTED BY THE SHAREHOLDER(S); IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" PROPOSALS 1, 2, 3 AND 4, AND IN THE DISCRETION OF THE PROXIES UPON ANY OTHER MATTER WHICH MAY PROPERLY COME BEFORE THE MEETING. - - - -------------------------------------------------------------------------------- THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2, 3 AND 4: - - - -------------------------------------------------------------------------------- 1. MERGER PROPOSAL. Approve the issuance of shares of common stock to the shareholders of Interspec, Inc. in connection with an Agreement and Plan of Merger among Interspec, ATL, and a subsidiary of ATL. FOR [_] AGAINST [_] ABSTAIN [_] 2. AMENDMENT OF ATL OPTION PLAN. Approve an amendment to the 1992 Stock Option Plan to increase the number of shares available for issuance, and to impose an annual limit on individual option grants thereunder. Approval is considered by the Company to be a critical requirement to ensure the retention of key employees of Interspec. FOR [_] AGAINST [_] ABSTAIN [_] 3. ELECTION OF DIRECTORS. Nominees: Ralph M. Barford, Kirby L. Cramer, Harvey Feigenbaum, Dennis C. Fill, Eugene A. Larson, John R. Miller, David M. Perozek and Harry Woolf. FOR [_] WITHHELD [_] For, except vote withheld from the following nominee(s): - - - -------------------------------------------------------------------------------- 4. RATIFICATION OF AUDITORS. Ratification of KPMG Peat Marwick as auditors for the year ending December 31, 1994. FOR [_] AGAINST [_] ABSTAIN [_] SIGNATURE(S) _______________________________________DATE ______________________ Please date and sign your name(s) exactly as it appears hereon. When signing as attorney, executor, administrator, trustee or guardian, please give full title as it appears hereon. *Second signature if stock jointly held. 1 P R O X Y INSTRUCTIONS FOR ANNUAL GENERAL MEETING OF STOCKHOLDERS, MAY 16, 1994 Shares of Advanced Technology Laboratories, Inc. ("ATL") Common Stock in which you have an interest as a member of the ATL Incentive Savings and Stock Ownership Plan are held by First Interstate Bank of Washington, N.A., as Trustee of the Plan, and will be voted by the Trustee at the Annual General Meeting of Stockholders on May 16, 1994, pursuant to instructions received from Plan participants. You may participate in the voting, in proportion to your interest in such shares, by using this form to instruct the Trustee how to vote the shares allocated to your account. IN ORDER FOR YOUR INSTRUCTIONS TO BE VOTED BY THE TRUSTEE, THIS FORM MUST BE RECEIVED BY FIRST CHICAGO TRUST COMPANY OF NEW YORK NO LATER THAN THE CLOSE OF BUSINESS DAY ON MAY 9, 1994. If you do not indicate otherwise, these instructions will authorize the Trustee to vote for the issuance of common stock in conjunction with the Agreement and Plan of Merger, for the election of directors, for the Amendment of the 1992 Stock Option Plan, and for the ratification of auditors for 1994, as described in the April, 1994 ATL Proxy Statement. These instructions will also authorize the Trustee to vote at its discretion on such matters as may come before the meeting. First Interstate Bank of Washington, N.A. Trust Division, P. O. Box 21927 Seattle, WA 98111 INSTRUCTIONS TO TRUSTEE THESE INSTRUCTIONS ARE BEING GIVEN IN CONJUNCTION WITH THE BOARD OF DIRECTORS' SOLICITATION OF PROXIES FROM THE TRUSTEE You are hereby authorized and instructed to vote at the Annual General Meeting of Stockholders of ATL on May 16, 1994, and at any adjournment thereof, either in person or by proxy, all of the shares of Common Stock of ATL allocated to my account under the ATL Incentive Savings and Stock Ownership Plan. THESE INSTRUCTIONS ARE CONTINUED ON THE REVERSE SIDE PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY ----------- SEE REVERSE SIDE ----------- - - - -------------------------------------------------------------------------------- [X] Please mark your votes as in this example. |9943 ----- THE INTEREST IN SHARES SUBJECT TO THESE INSTRUCTIONS WILL BE VOTED AS DIRECTED BY THE PLAN PARTICIPANT. IF NO DIRECTION IS GIVEN WHEN THE DULY EXECUTED INSTRUCTIONS ARE RETURNED, SUCH INTEREST WILL BE VOTED "FOR" AUTHORITY ON ITEMS 1, 2, 3 AND 4. - - - -------------------------------------------------------------------------------- THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" AUTHORITY ON ITEMS 1, 2, 3 AND 4: - - - -------------------------------------------------------------------------------- 1. MERGER PROPOSAL. Authority to vote "FOR" the proposed issuance of shares of common stock to the shareholders of Interspec, Inc. in connection with an Agreement and Plan of Merger among Interspec, ATL, and a subsidiary of ATL. FOR [_] AGAINST [_] ABSTAIN [_] 2. AMENDMENT OF ATL OPTION PLAN. Authority to vote "FOR" the proposed amendment to the 1992 Stock Option Plan to increase the number of shares available for issuance, and to impose an annual limit on individual option grants thereun- der. Approval is considered by the Company to be a critical requirement to ensure the retention of key employees of Interspec. FOR [_] AGAINST [_] ABSTAIN [_] 3. ELECTION OF DIRECTORS. Authority to vote "FOR" the following nominees: Ralph M. Barford, Kirby L. Cramer, Harvey Feigenbaum, Dennis C. Fill, Eugene A. Larson, John R. Miller, David M. Perozek and Harry Woolf. FOR [_] WITHHELD [_] For, except vote withheld from the following nominee(s): - - - -------------------------------------------------------------------------------- 4. RATIFICATION OF AUDITORS. Authority to vote "FOR" the ratification of KPMG Peat Marwick as auditors for the year ending December 31, 1994. FOR [_] AGAINST [_] ABSTAIN [_] PARTICIPANT _______________________________________ DATE ______________________ Please date and sign your name exactly as it appears above, and return in the enclosed envelope to First Chicago Trust Company of New York, which will tabu- late and report your instructions to the Plan's Trustee for voting. 2 P R O X Y INSTRUCTIONS FOR ANNUAL GENERAL MEETING OF STOCKHOLDERS, MAY 16, 1994 Shares of Advanced Technology Laboratories, Inc. ("ATL") Common Stock in which you have an interest as a member of the SpaceLabs Medical, Inc. Incentive Savings and Stock Ownership Plan are held by First Interstate Bank of Washington, N.A., as Trustee of the Plan, and will be voted by the Trustee at the Annual General Meeting of Shareholders on May 16, 1994, pursuant to instructions received from Plan participants. You may participate in the voting, in proportion to your interest in such shares, by using this form to instruct the Trustee how to vote the shares allocated to your account. IN ORDER FOR YOUR INSTRUCTIONS TO BE VOTED BY THE TRUSTEE, THIS FORM MUST BE RECEIVED BY FIRST CHICAGO TRUST COMPANY OF NEW YORK NO LATER THAN THE CLOSE OF BUSINESS DAY ON MAY 9, 1994. If you do not indicate otherwise, these instructions will authorize the Trustee to vote for the issuance of common stock in conjunction with the Agreement and Plan of Merger, for the election of directors, for the Amendment of the 1992 Stock Option Plan, and for the ratification of auditors for 1994, as described in the April, 1994 ATL Proxy Statement. These instructions will also authorize the Trustee to vote at its discretion on such matters as may come before the meeting. First Interstate Bank of Washington, N.A. Trust Division, P. O. Box 21927 Seattle, WA 98111 INSTRUCTIONS TO TRUSTEE THESE INSTRUCTIONS ARE BEING GIVEN IN CONJUNCTION WITH THE BOARD OF DIRECTORS' SOLICITATION OF PROXIES FROM THE TRUSTEE You are hereby authorized and instructed to vote at the Annual General Meeting of Stockholders of ATL on May 16, 1994, and at any adjournment thereof, either in person or by proxy, all of the shares of Common Stock of ATL allocated to my account under the ATL Incentive Savings and Stock Ownership Plan. THESE INSTRUCTIONS ARE CONTINUED ON THE REVERSE SIDE PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY ------------ SEE REVERSE SIDE ------------ - - - ---------------------------------------------------------------------------- [X] Please mark your votes as in this example. | 6363 ---- THE INTEREST IN SHARES SUBJECT TO THESE INSTRUCTIONS WILL BE VOTED AS DIRECTED BY THE PLAN PARTICIPANT. IF NO DIRECTION IS GIVEN WHEN THE DULY EXECUTED INSTRUCTIONS ARE RETURNED, SUCH INTEREST WILL BE VOTED "FOR" AUTHORITY ON ITEMS 1, 2, 3 AND 4. - - - -------------------------------------------------------------------------------- THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" AUTHORITY ON ITEMS 1, 2, 3 AND 4: - - - -------------------------------------------------------------------------------- 1. MERGER PROPOSAL. Authority to vote "FOR" the proposed issuance of shares of common stock to the shareholders of Interspec, Inc. in connection with an Agreement and Plan of Merger among Interspec, ATL, and a subsidiary of ATL. FOR [_] AGAINST [_] ABSTAIN [_] 2. AMENDMENT OF ATL OPTION PLAN. Authority to vote "FOR" the proposed amendment to the 1992 Stock Option Plan to increase the number of shares available for issuance, and to impose an annual limit on individual option grants thereunder. Approval is considered by the Company to be a critical requirement to ensure the retention of key employees of Interspec. FOR [_] AGAINST [_] ABSTAIN [_] 3. ELECTION OF DIRECTORS. Authority to vote "FOR" the following nominees: Ralph M. Barford, Kirby L. Cramer, Harvey Feigenbaum, Dennis C. Fill, Eugene A. Larson, John R. Miller, David M. Perozek and Harry Woolf. FOR [_] WITHHELD [_] For, except vote withheld from the following nominee(s): - - - -------------------------------------------------------------------------------- 4. RATIFICATION OF AUDITORS. Authority to vote "FOR" the ratification of KPMG Peat Marwick as auditors for the year ending December 31, 1994. FOR [_] AGAINST [_] ABSTAIN [_] PARTICIPANT ________________________________________DATE ______________________ Please date and sign your name exactly as it appears above, and return in the enclosed envelope to First Chicago Trust Company of New York, which will tabu- late and report your instructions to the Plan's Trustee for voting. 3 EX-99.2 9 PROXY FOR SPECIAL MEETING EXHIBIT 99.2 INTERSPEC, INC. PROXY SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 16, 1994 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. The undersigned hereby constitutes and appoints Edward Ray and Michael J. Wassil, and each or either of them, proxies of the undersigned, with full power of substitution, to vote all of the shares of Interspec, Inc. (the "Company") which the undersigned may be entitled to vote at the Special Meeting of Shareholders of the Company, to be held at the offices of Duane, Morris & Heckscher, One Liberty Place, 42nd Floor, Philadelphia, Pennsylvania 19103 on Monday, May 16, 1994, at 10 a.m., local time, and at any adjournment thereof, as follows: (continued on other side) THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1. 1. PROPOSAL TO APPROVE AND ADOPT THE AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER DATED AS OF FEBRUARY 10, 1994 (THE "MERGER AGREEMENT"), AMONG THE COMPANY, ADVANCED TECHNOLOGY LABORATORIES, INC. AND ATL SUB ACQUISITION CORP. ("ATL SUB") AND THE MERGER OF ATL SUB INTO THE COMPANY UPON THE TERMS AND CONDITIONS OF THE MERGER AGREEMENT. The Board of Directors recommends a vote FOR this proposal. [_] FOR [_] AGAINST [_] ABSTAIN 2. In their discretion the proxies are authorized to vote upon such business as may properly come before the meeting and any adjournment thereof. If shares are listed in a joint account, both signatures are required. When signing as attorney, administrator, trustee or corporate officer, please so indicate. This Proxy should then be dated and returned promptly to Mellon Securities Trust Company, c/o Mellon Securities Transfer Services, 85 Challenger Road, Overpeck Centre, Ridgefield Park, NJ 07660. Dated: __________________, 1994 - - - ------------------------------------------ - - - ------------------------------------------ Signature(s) ------------------------------------------- PLEASE MARK INSIDE BLUE BOXES SO THAT DATA PROCESSING EQUIPMENT WILL RECORD YOUR VOTES ------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----