-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M2ZdPAsrHT0iY6vSnR3+nObQG4yKezE98fB+4w8rxsRChPdQ70hC6CJy7cLgsiYa gn00hsilWuFEoPLScVpJFg== 0000940180-99-001083.txt : 19990915 0000940180-99-001083.hdr.sgml : 19990915 ACCESSION NUMBER: 0000940180-99-001083 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19990914 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: APPLIED DIGITAL ACCESS INC CENTRAL INDEX KEY: 0000919048 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 680132939 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-44783 FILM NUMBER: 99711093 BUSINESS ADDRESS: STREET 1: 9855 SCRANTON RD CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6196232200 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: APPLIED DIGITAL ACCESS INC CENTRAL INDEX KEY: 0000919048 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 680132939 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: SEC FILE NUMBER: 005-44783 FILM NUMBER: 99711094 BUSINESS ADDRESS: STREET 1: 9855 SCRANTON RD CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6196232200 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: DYNATECH CORP CENTRAL INDEX KEY: 0000030841 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 042258582 STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 3 NEW ENGLAND EXECUTIVE PARK CITY: BURLINGTON STATE: MA ZIP: 01803-5087 BUSINESS PHONE: 6172726100 MAIL ADDRESS: STREET 1: 3 NEW ENGLAND EXECUTIVE PARK CITY: BURLINGTON STATE: MA ZIP: 01803-5087 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: DYNATECH CORP CENTRAL INDEX KEY: 0000030841 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 042258582 STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 3 NEW ENGLAND EXECUTIVE PARK CITY: BURLINGTON STATE: MA ZIP: 01803-5087 BUSINESS PHONE: 6172726100 MAIL ADDRESS: STREET 1: 3 NEW ENGLAND EXECUTIVE PARK CITY: BURLINGTON STATE: MA ZIP: 01803-5087 SC 14D1 1 SCHEDULE 14D-1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- SCHEDULE 14D-1 Tender Offer Statement Pursuant to Section 14(d)(1) of the Securities Exchange Act of 1934 and SCHEDULE 13D under the Securities Exchange Act of 1934 ---------------- APPLIED DIGITAL ACCESS, INC. (Name of Subject Company (Issuer)) DYNATECH ACQUISITION CORPORATION an indirect wholly-owned subsidiary of DYNATECH CORPORATION (Bidders) COMMON STOCK, PAR VALUE $0.001 PER SHARE 038181103 (Title of class of Securities) (CUSIP Number of Class of Securities) ---------------- DYNATECH ACQUISITION CORPORATION MARK V.B. TREMALLO SECRETARY 3 NEW ENGLAND EXECUTIVE PARK BURLINGTON, MASSACHUSETTS 01803 (781) 272-6100 (Name, address and telephone number of person authorized to receive notices and communications on behalf of bidder) Copy to: FRANCI J. BLASSBERG, ESQ. DEBEVOISE & PLIMPTON 875 THIRD AVENUE NEW YORK, NEW YORK 10022 TELEPHONE: (212) 909-6000 ---------------- CALCULATION OF FILING FEE - ----------------------------------- - -----------------------------------
Transaction Valuation* Amount of Filing Fee** - ----------------------------------- $88,076,447 $17,615.29 - ----------------------------------- - -----------------------------------
* Based on the offer to purchase all of the outstanding shares of common stock, par value $0.001 per share (the shares of common stock hereinafter being referred to as the "Shares"), of the Subject Company at $5.37 net per share. Based on information provided by Applied Digital Access, Inc., the number of Shares outstanding as of September 7, 1999 is assumed to be 13,237,679 and the number of options to purchase Shares outstanding as of September 7, 1999 is assumed to be 3,163,894. ** 1/50 of 1% of Transaction Valuation. [_] Check box if any part of the fee is offset as provided by Rule 0- 11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: _______ Form or Registration No.: _____ Filing Party: _________________ Date Filed: ___________________ CUSIP No. Name of Reporting Person: S.S. or I.R.S. Identification No. of Above Person 1. Dynatech Corporation I.R.S. Identification No. 04-2258582 - -------------------------------------------------------------------------------- Check the Appropriate Box if a Member of a Group (See Instructions) 2. (A) [_] (B) [_] - -------------------------------------------------------------------------------- SEC Use Only 3. - -------------------------------------------------------------------------------- Sources of Funds (See Instructions) 4. BK, AF - -------------------------------------------------------------------------------- Check Box if Disclosure of Legal Proceedings is Required Pursuant to Items 2(e) or 2(f) 5. [_] - -------------------------------------------------------------------------------- Citizenship or Place of Organization 6. Delaware - -------------------------------------------------------------------------------- Aggregate Amount Beneficially Owned by Each Reporting Person 7. 0 - -------------------------------------------------------------------------------- Check Box if the Aggregate Amount in Row (7) Excludes Certain Shares (See Instructions) 8. [_] - -------------------------------------------------------------------------------- Percent of Class Represented by Amount in Row (7) 9. 0.0% - -------------------------------------------------------------------------------- Type of Reporting Person (See Instructions) 10. CO 2 CUSIP No. Name of Reporting Person: S.S. or I.R.S. Identification No. of Above Person 1. Dynatech Acquisition Corporation I.R.S. Identification No. None. - -------------------------------------------------------------------------------- Check the Appropriate Box if a Member of a Group (See Instructions) 2. (A) [_] (B) [_] - -------------------------------------------------------------------------------- SEC Use Only 3. - -------------------------------------------------------------------------------- Sources of Funds (See Instructions) 4. BK, AF - -------------------------------------------------------------------------------- Check Box if Disclosure of Legal Proceedings is Required Pursuant to Items 2(e) or 2(f) 5. [_] - -------------------------------------------------------------------------------- Citizenship or Place of Organization 6. Delaware - -------------------------------------------------------------------------------- Aggregate Amount Beneficially Owned by Each Reporting Person 7. 0 - -------------------------------------------------------------------------------- Check Box if the Aggregate Amount in Row (7) Excludes Certain Shares (See Instructions) 8. [_] - -------------------------------------------------------------------------------- Percent of Class Represented by Amount in Row (7) 9. 0.0% - -------------------------------------------------------------------------------- Type of Reporting Person (See Instructions) 10. CO 3 This Tender Offer Statement on Schedule 14D-1 relates to the offer by Dynatech Acquisition Corporation, a Delaware corporation (the "Purchaser"), an indirect wholly-owned subsidiary of Dynatech Corporation, a Delaware corporation ("Parent"), to purchase all of the issued and outstanding shares of common stock, par value $0.001 per share (all of the shares of common stock being hereinafter collectively referred to as the "Shares") of Applied Digital Access, Inc., a Delaware corporation (the "Company"), at a price of not less than $5.37 per Share net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated September 14, 1999 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with the Offer to Purchase and supplements thereto, collectively constitute the "Offer"), copies of which are attached as Exhibits (a)(1) and (a)(2), respectively. The item numbers and responses thereto below are in accordance with the requirements of Schedule 14D-1. ITEM 1. SECURITY AND SUBJECT COMPANY (a) The name of the subject company is Applied Digital Access, Inc. The principal executive offices of the Company are located at 9855 Scranton Road, San Diego, California 92121. (b) The exact title of the class of equity securities being sought in the Offer is common stock, par value $0.001 per share of the Company. Information regarding the number of Shares outstanding, the amount of Shares being sought and the consideration being offered therefor is set forth in the Introduction (the "Introduction") of the Offer to Purchase and is incorporated herein by reference. (c) Information concerning the principal market in which the Shares are traded and the high and low sales prices of the Shares for each quarterly period during the past two years is set forth in Section 6 ("Price Range of the Shares") of the Offer to Purchase and is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND (a)-(d) and (g) This Statement is filed by the Purchaser and Parent. The information concerning the name, the state of its organization, its principal business and address of the principal office of the Purchaser and Parent, and the information regarding the name, business address, present principal occupation or employment and the name, principal business and address of any corporation or other organization in which such employment or occupation is conducted, material occupations, positions, offices or employments during the last five years and the citizenship of each of the executive officers and directors of the Purchaser and Parent is set forth in Section 9 ("Certain Information Concerning the Purchaser and Parent") of the Offer to Purchase and in Schedule I thereto and is incorporated herein by reference. (e) and (f) During the last five years, neither the Purchaser nor Parent nor, to the best knowledge of the Purchaser or Parent, any of the persons listed in Schedule I to the Offer to Purchase (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY (a) The information set forth in Section 9 ("Certain Information Concerning the Purchaser and Parent") of the Offer to Purchase is incorporated herein by reference. Except as set forth in Section 9 of the Offer to Purchase, since December 31, 1995, there have been no transactions which would be required to be disclosed under this Item 3(a) between either the Purchaser or Parent or, to the best knowledge of the Purchaser and Parent, any of the persons listed in Schedule I to the Offer to Purchase and the Company or any of its executive officers, directors or affiliates. 4 (b) The information set forth in Section 9 ("Certain Information Concerning the Purchaser and Parent") and Section 11 ("Contacts and Transactions with the Company; Background of the Offer") of the Offer to Purchase is incorporated herein by reference. Except as set forth in Section 9 and Section 11 of the Offer to Purchase, since December 31, 1995, there have been no contacts, negotiations or transactions which would be required to be disclosed under this Item 3(b) between either the Purchaser or Parent or any of their respective subsidiaries or, to the best knowledge of the Purchaser and Parent, any of those persons listed in Schedule I to the Offer to Purchase and the Company or its affiliates concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors or a sale or other transfer of a material amount of assets. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION (a)-(b) The information set forth in Section 10 ("Source and Amount of Funds") of the Offer to Purchase is incorporated herein by reference. (c) Not applicable. ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER (a)-(g) The information set forth in the Introduction, Section 7 ("Purpose of the Offer; Plans for the Company; Effect of the Offer on the Market for the Shares; Stock Quotation; Exchange Act Registration; Margin Regulations"), Section 11 ("Contacts and Transactions with the Company; Background of the Offer"), Section 12 ("The Merger Agreement") and Section 13 ("Dividends and Distributions") of the Offer to Purchase is incorporated herein by reference. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY (a) The information set forth in the Introduction, Section 9 ("Certain Information Concerning the Purchaser and Parent") and Section 11 ("Contacts and Transactions with the Company; Background of the Offer") of, and Schedule I to, the Offer to Purchase is incorporated herein by reference. (b) The information set forth in the Introduction, Section 9 ("Certain Information Concerning the Purchaser and Parent") and Section 11 ("Contacts and Transactions with the Company; Background of the Offer") of, and Schedule I to, the Offer to Purchase is incorporated herein by reference. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES The information set forth in the Introduction, Section 9 ("Certain Information Concerning the Purchaser and Parent"), Section 11 ("Contacts and Transactions with the Company; Background of the Offer"), Section 10 ("Source and Amount of Funds"), Section 12 ("The Merger Agreement") and Section 16 ("Fees and Expenses") of the Offer to Purchase is incorporated herein by reference. Except as set forth in the Introduction and Sections 9, 10, 11, 12 and 16 of the Offer to Purchase, neither the Purchaser nor Parent, nor, to the best knowledge of the Purchaser or Parent, any of the persons listed in Schedule I to the Offer to Purchase, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company (including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint ventures, loans or option arrangements, puts or calls, guarantees of loans, guarantee agreements or any giving or withholding of proxies). ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED The information set forth in the Introduction and Section 16 ("Fees and Expenses") of the Offer to Purchase is incorporated herein by reference. 5 ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS The information set forth in Section 9 ("Certain Information Concerning the Purchaser and Parent") of the Offer to Purchase, including the financial statements and related notes thereto incorporated by reference in Section 9, is incorporated herein by reference. The incorporation by reference herein of the above-referenced financial information does not constitute an admission that such information is material to a decision by a shareholder of the Company whether to sell, tender or hold Shares being sought in the Offer. ITEM 10. ADDITIONAL INFORMATION (a) The information set forth in the Introduction, in Section 9 ("Certain Information Concerning the Purchaser and Parent"), in Section 11 ("Contacts and Transactions with the Company; Background of the Offer") and in Section 12 ("The Merger Agreement") of the Offer to Purchase is incorporated herein by reference. (b) and (c) The information set forth in the Introduction, Section 12 ("The Merger Agreement") and Section 15 ("Certain Legal Matters") of the Offer to Purchase is incorporated herein by reference. (d) The information set forth in Section 7 ("Purpose of the Offer; Plans for the Company; Effect of the Offer on the Market for the Shares; Stock Quotation; Exchange Act Registration; Margin Regulations") and Section 15 ("Certain Legal Matters") of the Offer to Purchase is incorporated herein by reference. (e) The information set forth in Section 11 ("Contacts and Transactions with the Company; Background of the Offer") and Section 15 ("Certain Legal Matters") of the Offer to Purchase is incorporated herein by reference. (f) The information set forth in the Offer to Purchase and the Letter of Transmittal is incorporated herein by reference. ITEM 11. MATERIAL TO BE FILED AS EXHIBITS (a)(1) Offer to Purchase dated September 14, 1999. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a)(5) Letter to clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Nominees. (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Summary Advertisement as published on September 14, 1999. (a)(8) Press Release issued by Parent on September 8, 1999. (b) Credit Agreement, dated May 21, 1998, by and among Parent, TTC Merger Co., LLC, the lenders named therein, Morgan Guaranty and Trust Company of New York, as administrative agent, Credit Suisse First Boston, as syndication agent, and The Chase Manhattan Bank, as documentation agent. (c)(1) Short Form Confidentiality Agreement, effective April 13, 1999, between Parent and the Company. (c)(2) Letter, dated August 13, from Parent to the Company. (c)(3) Agreement and Plan of Merger, dated as of September 7, 1999, among Parent, the Purchaser and the Company. (d) None. (e) Not applicable. (f) None.
6 SIGNATURE After due inquiry and to the best of our knowledge and belief, we certify that the information set forth in this Statement is true, complete and correct. Dynatech Acquisition Corporation /s/ Mark V.B. Tremallo By:__________________________________ Name: Mark V.B. Tremallo Title: Vice President and Secretary Dynatech Corporation /s/ Mark V.B. Tremallo By:__________________________________ Name: Mark V.B. Tremallo Title: Corporate Vice President-- General Counsel and Secretary Date: September 14, 1999 7 EXHIBIT INDEX
Exhibit Page No. Description No. -------- ----------- ---- 99(a)(1) Offer to Purchase dated September 14, 1999..................... 99(a)(2) Letter of Transmittal.......................................... 99(a)(3) Notice of Guaranteed Delivery.................................. 99(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Nominees................................................... 99(a)(5) Letter to clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Nominees............................ 99(a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9......................................... 99(a)(7) Summary Advertisement as published on September 14, 1999....... 99(a)(8) Press Release issued by Parent on September 8, 1999............ 99(b)(1) Credit Agreement, dated May 21, 1998, by and among Parent, TTC Merger Co., LLC, the lenders named therein, Morgan Guaranty and Trust Company of New York, as administrative agent, Credit Suisse First Boston, as syndication agent, and The Chase Manhattan Bank, as documentation agent*........................ 99(c)(1) Short Form Confidentiality Agreement, effective April 13, 1999, between Parent and the Company................................. 99(c)(2) Letter, dated August 13, from Parent to the Company............ 99(c)(3) Agreement and Plan of Merger, dated as of September 7, 1999, among Parent, the Purchaser and the Company....................
- -------- * Incorporated by reference to Parent's Registration Statement on Form S-4 (Registration No. 333-60893). 8 EX-99.(A)(1) 2 OFFER TO PURCHASE DATED 09/14/1999 Exhibit 99(a)(1) Offer to Purchase for Cash All Outstanding Shares of Common Stock of APPLIED DIGITAL ACCESS, INC. for $5.37 Net Per Share by DYNATECH ACQUISITION CORPORATION an indirect wholly-owned subsidiary of DYNATECH CORPORATION --------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, OCTOBER 12, 1999, UNLESS THE OFFER IS EXTENDED. --------------- THE BOARD OF DIRECTORS OF APPLIED DIGITAL ACCESS, INC. (THE "COMPANY") HAS UNANIMOUSLY APPROVED THE MAKING OF THE OFFER AND THE MERGER (AS DEFINED HEREIN) AND DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE ADVISABLE AND ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES (AS DEFINED HEREIN). --------------- THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THAT NUMBER OF SHARES THAT WOULD REPRESENT IN EXCESS OF 50% OF ALL OUTSTANDING SHARES ON A FULLY DILUTED BASIS (SUCH BASIS ASSUMES ALL SHARES UNDERLYING IN-THE-MONEY VESTED AND UNVESTED STOCK OPTIONS ARE OUTSTANDING) ON THE DATE OF PURCHASE AND (2) ANY WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, AND THE REGULATIONS THEREUNDER APPLICABLE TO THE PURCHASE OF SHARES PURSUANT TO THE OFFER HAVING EXPIRED OR BEEN TERMINATED. --------------- IMPORTANT Any stockholder desiring to tender all or any portion of such stockholder's shares of common stock of the Company, par value $0.001 per share (the "Shares"), should either (1) complete and sign the Letter of Transmittal or a facsimile copy thereof in accordance with the instructions in the Letter of Transmittal, have such stockholder's signature thereon guaranteed if required by Instruction 1 to the Letter of Transmittal, mail or deliver the Letter of Transmittal (or such facsimile), or, in the case of a book-entry transfer effected pursuant to the procedure set forth in Section 2, an Agent's Message (as defined herein), and any other required documents to the Depositary (as defined herein) and either deliver the certificates for such Shares to the Depositary along with the Letter of Transmittal (or facsimile) or deliver such Shares pursuant to the procedure for book-entry transfer set forth in Section 2 prior to the expiration of the Offer or (2) request such stockholder's broker, dealer, bank, trust company or other nominee to effect the transaction for such stockholder. A stockholder having Shares registered in the name of a broker, dealer, bank, trust company or other nominee must contact such broker, dealer, bank, trust company or other nominee if such stockholder desires to tender such Shares. A stockholder who desires to tender Shares and whose certificates for such Shares are not immediately available or who cannot comply in a timely manner with the procedure for book-entry transfer, or who cannot deliver all required documents to the Depositary prior to the expiration of the Offer, may tender such Shares by following the procedure for guaranteed delivery set forth in Section 2. Questions and requests for assistance or for additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Information Agent at its address and telephone numbers set forth on the back cover of this Offer to Purchase. --------------- September 14, 1999 TABLE OF CONTENTS
Page ---- INTRODUCTION.............................................................. 1 THE TENDER OFFER.......................................................... 2 1. Terms of the Offer..................................................... 2 2. Procedure for Tendering Shares......................................... 4 3. Withdrawal Rights...................................................... 6 4. Acceptance for Payment and Payment..................................... 7 5. Certain Federal Income Tax Consequences................................ 8 6. Price Range of the Shares.............................................. 9 7. Purpose of the Offer; Plans for the Company; Effect of the Offer on the Market for the Shares; Stock Quotation; Exchange Act Registration; Margin Regulations.................................................... 9 8. Certain Information Concerning the Company............................. 12 9. Certain Information Concerning the Purchaser and Parent................ 14 10. Source and Amount of Funds............................................ 15 11. Contacts and Transactions with the Company; Background of the Offer... 15 12. The Merger Agreement.................................................. 17 13. Dividends and Distributions........................................... 23 14. Certain Conditions of the Offer....................................... 23 15. Certain Legal Matters................................................. 25 16. Fees and Expenses..................................................... 28 17. Miscellaneous......................................................... 28 Schedule I--Directors and Executive Officers of Parent and the Purchaser.. S-1
i To the Holders of Common Stock of Applied Digital Access, Inc.: INTRODUCTION Dynatech Acquisition Corporation, a Delaware corporation (the "Purchaser"), which is an indirect wholly- owned subsidiary of Dynatech Corporation, a Delaware corporation ("Parent"), hereby offers to purchase all outstanding shares of common stock, par value $0.001 per share (the shares of common stock of the Company being hereinafter referred to as the "Shares"), of the Company, at a price of $5.37 per Share, net to the seller in cash, without interest thereon (the "Offer Price"), upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, together with any amendments or supplements hereto or thereto, collectively constitute the "Offer"). The Offer is being made pursuant to the Agreement and Plan of Merger, dated as of September 7, 1999 (the "Merger Agreement"), among Parent, the Purchaser and the Company. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. The Purchaser will pay all fees and expenses of ChaseMellon Shareholder Services, L.L.C., which is acting as the Depositary (the "Depositary"), and MacKenzie Partners, Inc., which is acting as Information Agent (the "Information Agent"), incurred in connection with the Offer. See Section 16. The Board of Directors of the Company has unanimously approved the making of the Offer and the Merger (as defined below) and determined that the terms of the Offer and the Merger are advisable and are fair to, and in the best interests of, the stockholders of the Company and unanimously recommends that stockholders of the Company accept the Offer and tender their Shares. The factors considered by the Board of Directors of the Company in arriving at its decision to approve the making of the Offer and the Merger and to recommend that stockholders of the Company accept the Offer and tender their Shares are described in the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"), which is being mailed to stockholders of the Company herewith. Alliant Partners, the Company's financial advisor, has delivered to the Board of Directors of the Company a written opinion to the effect that, as of the date of such opinion, and based upon and subject to certain matters stated therein, the $5.37 per Share cash consideration to be received by the holders of Shares of the Company in connection with the Offer and the Merger is fair to the stockholders of the Company from a financial point of view. Such opinion is set forth in full as an exhibit to the Schedule 14D-9. The Offer is conditioned upon, among other things, (i) there being validly tendered and not withdrawn prior to the Expiration Date (as defined in Section 1) at least that number of Shares that would represent in excess of 50% of all outstanding Shares determined on a fully diluted basis (such basis assumes all Shares underlying in-the-money vested and unvested stock options are outstanding) on the date of purchase (the "Minimum Condition") and (ii) any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations thereunder (the "HSR Act") applicable to the purchase of Shares pursuant to the Offer having expired or been terminated (the "HSR Condition"). The Purchaser reserves the right (subject to the applicable rules and regulations of the Securities and Exchange Commission (the "Commission")), which it presently has no intention of exercising (and which it may not exercise without the Company's written consent), to decrease, increase or waive the Minimum Condition and to elect to purchase, pursuant to the Offer, less than the minimum number of shares which would otherwise be required to satisfy the Minimum Condition. See Section 14, which sets forth in full the conditions to the Offer. The Offer is not conditioned on obtaining financing. The Company has informed the Purchaser that, as of September 7, 1999, there were 13,237,679 Shares issued and outstanding and 3,163,894 Shares reserved for issuance upon the exercise of outstanding options to 1 purchase Shares ("Stock Options"). Accordingly, based on the foregoing assumptions, the Minimum Condition will be satisfied if at least 7,383,897 Shares, or approximately 56% of the outstanding Shares as of September 7, 1999, are validly tendered and not withdrawn prior to the Expiration Date. If the Minimum Condition is satisfied and the Purchaser accepts for payment Shares tendered pursuant to the Offer, the Purchaser will be able to elect a majority of the members of the Company's Board of Directors and to effect the Merger without the affirmative vote of any other stockholder of the Company. The Merger Pursuant to the Merger Agreement, following the consummation of the Offer and the satisfaction or waiver of certain conditions, the Purchaser will be merged with and into the Company (the "Merger"), with the Company surviving the Merger (as such, the "Surviving Corporation") as an indirect wholly-owned subsidiary of Parent. In the Merger, each outstanding Share (other than Shares owned by Parent, the Purchaser or any other subsidiary of Parent or held in the treasury of the Company or by stockholders, if any, who are entitled to and who properly exercise appraisal rights under Delaware law) will be converted into the right to receive from the Surviving Corporation the Offer Price in cash, without interest (the "Merger Consideration"). The Merger is subject to a number of conditions, including approval by stockholders of the Company, if such approval is required by applicable law. See Section 12. Certain Federal income tax consequences of the sale of Shares pursuant to the Offer and the conversion of Shares pursuant to the Merger are described in Section 5. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION THAT SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. THE TENDER OFFER 1. Terms of the Offer Upon the terms and subject to the conditions of the Offer, the Purchaser will accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not theretofore withdrawn in accordance with Section 3. The term "Expiration Date" means 12:00 midnight, New York City time, on Tuesday, October 12, 1999, unless and until the Purchaser shall have extended the period of time during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by the Purchaser, will expire. In addition, the Purchaser has agreed in the Merger Agreement that it will not, without the written consent of the Company, reduce the price per Share or the number of Shares sought to be purchased or modify the form of consideration to be received by holders of the Shares in the Offer, decrease, increase or waive the Minimum Condition, impose additional conditions to the Offer or amend any term of the Offer in a manner materially adverse to the holders of the Shares. Subject to the terms of the Merger Agreement and the applicable rules and regulations of the Commission, the Purchaser reserves the right (but shall not be obligated), at any time and from time to time, and regardless of whether or not any of the events or facts set forth in Section 14 hereof shall have occurred, (a) to extend the period of time during which the Offer is open, and thereby delay acceptance for payment of and the payment for any Shares, by giving oral or written notice of such extension to the Depositary and (b) to amend the Offer in any other respect by giving oral or written notice of such amendment to the Depositary. Under no circumstances will interest be paid on the purchase price for tendered Shares, whether or not the Purchaser exercises its right to extend the Offer. If by 12:00 midnight, New York City time, on Tuesday, October 12, 1999 (or any date or time then set as the Expiration Date), any or all of the Offer Conditions have not been satisfied or waived, the Purchaser reserves 2 the right (but shall not be obligated), subject to the terms and conditions contained in the Merger Agreement and to the applicable rules and regulations of the Commission, (a) to terminate the Offer and not accept for payment or pay for any Shares and return all tendered Shares to tendering stockholders, (b) to waive all the unsatisfied conditions and accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not theretofore withdrawn, (c) to extend the Offer and, subject to the right of stockholders to withdraw Shares until the Expiration Date, retain the Shares that have been tendered during the period or periods for which the Offer is extended or (d) to amend the Offer. There can be no assurance that the Purchaser will exercise its right to extend the Offer. Any extension, waiver, amendment or termination will be followed as promptly as practicable by a public announcement of such event. In the case of an extension, Rule 14e-l(d) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires that the announcement be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date in accordance with the public announcement requirements of Rule 14d-4(c) under the Exchange Act. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that any material change in the information published, sent or given to stockholders in connection with the Offer be promptly disseminated to stockholders in a manner reasonably designed to inform stockholders of such change) and without limiting the manner in which the Purchaser may choose to make any public announcement, the Purchaser will not have any obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. If the Purchaser extends the Offer or if the Purchaser is delayed in its acceptance for payment of or payment (whether before or after its acceptance for payment of Shares) for Shares or it is unable to pay for Shares pursuant to the Offer for any reason, then, without prejudice to the Purchaser's rights under the Offer, the Depositary may retain tendered Shares on behalf of the Purchaser, and such Shares may not be withdrawn except to the extent tendering stockholders are entitled to withdrawal rights as described in Section 3. However, the ability of the Purchaser to delay the payment for Shares that the Purchaser has accepted for payment is limited by Rule 14e-l(c) under the Exchange Act, which requires that a bidder pay the consideration offered or return the securities deposited by or on behalf of holders of securities promptly after the termination or withdrawal of such bidder's offer, and by the terms of the Merger Agreement, which requires that the Purchaser pay for Shares accepted for payment as soon as legally permissible. If the Purchaser makes a material change in the terms of the Offer or the information concerning the Offer or waives a material condition of the Offer (including a waiver of the Minimum Condition), the Purchaser will disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(c), 14d- 6(d) and 14e-1 under the Exchange Act. The minimum period during which an offer must remain open following material changes in the terms of the offer or information concerning the offer, other than a change in price or a change in the percentage of securities sought, will depend upon the facts and circumstances then existing, including the relative materiality of the changed terms or information. With respect to a change in price or a change in the percentage of securities sought, a minimum period of 10 business days is generally required to allow for adequate dissemination to stockholders. Consummation of the Offer is conditioned upon satisfaction of the Minimum Condition, the HSR Condition and the other Offer Conditions. Subject to the terms and conditions contained in the Merger Agreement, the Purchaser reserves the right (but shall not be obligated) to waive any or all such conditions. However, if the Purchaser waives or amends the Minimum Condition during the last five business days during which the Offer is open, the Purchaser will be required to extend the Expiration Date so that the Offer will remain open for at least five business days after the announcement of such waiver or amendment is first published, sent or given to holders of Shares and may also be required to extend the Offer if other conditions are waived, depending upon the materiality of the waiver. The Company has provided the Purchaser with the Company's stockholder lists and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase, the related Letter of 3 Transmittal and other relevant materials will be mailed by the Purchaser to record holders of Shares and will be furnished to brokers, dealers, banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder lists, or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. 2. Procedure for Tendering Shares Valid Tender. For a stockholder validly to tender Shares pursuant to the Offer, either (a) a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message (as defined below), and any other required documents, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date and either certificates for tendered Shares must be received by the Depositary at one of such addresses or such Shares must be delivered pursuant to the procedures for book-entry transfer set forth below (and a Book-Entry Confirmation (as defined below) received by the Depositary), in each case prior to the Expiration Date, or (b) the tendering stockholder must comply with the guaranteed delivery procedures set forth below. The Depositary will establish accounts with respect to the Shares at The Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book-entry delivery of Shares by causing the Book- Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of Shares may be effected through book- entry transfer into the Depositary's account at the Book-Entry Transfer Facility, the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message, and any other required documents, must, in any case, be transmitted to, and received by, the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date, or the tendering stockholder must comply with the guaranteed delivery procedures described below. The confirmation of a book-entry transfer of Shares into the Depositary's account at the Book-Entry Transfer Facility as described above is referred to herein as a "Book-Entry Confirmation". Delivery of documents to the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures does not constitute delivery to the Depositary. The term "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Purchaser may enforce such agreement against the participant. The method of delivery of Shares, the Letter of Transmittal and all other required documents, including delivery through the Book-Entry Transfer Facility, is at the election and risk of the tendering stockholder. Shares will be deemed delivered only when actually received by the Depositary (including, in the case of a book-entry transfer, by Book-Entry Confirmation). If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery. Signature Guarantees. No signature guarantee is required on the Letter of Transmittal (a) if the Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this Section, includes any participant in the Book-Entry Transfer Facility's system whose name appears on a security position listing as the owner of the Shares) of Shares tendered therewith and such registered holder has not completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on the Letter of Transmittal or (b) if such Shares are tendered for the account of a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or 4 the Stock Exchange Medallion Program (such participant, an "Eligible Institution"). In all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. See Instructions 1 and 5 to the Letter of Transmittal. If the certificates for Shares are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made or certificates for Shares not tendered or not accepted for payment are to be returned to a person other than the registered holder of the certificates surrendered, the tendered certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holders or owners appear on the certificates, with the signatures on the certificates or stock powers guaranteed as aforesaid. See Instructions 1 and 5 to the Letter of Transmittal. Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to the Offer and such stockholder's certificates for Shares are not immediately available or the procedure for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary prior to the Expiration Date, such stockholder's tender may be effected if all the following conditions are met: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Purchaser, is received by the Depositary, as provided below, on or prior to the Expiration Date; and (iii) the certificates for all tendered Shares, in proper form for transfer (or a Book-Entry Confirmation with respect to all such Shares), together with a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book- entry transfer, an Agent's Message, and any other documents required by the Letters of Transmittal are received by the Depositary within three Nasdaq Stock Market trading days after the date of execution of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand to the Depositary or transmitted by telegram, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. Notwithstanding any other provision hereof, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (a) certificates for (or a timely Book-Entry Confirmation with respect to) such Shares, (b) either (i) a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, (ii) in the case of a book-entry transfer, an Agent's Message, and (c) any other documents required by the Letter of Transmittal. Accordingly, tendering stockholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. Under no circumstances will interest be paid on the purchase price of the Shares to be paid by the Purchaser, regardless of any extension of the Offer or any delay in making such payment. The valid tender of Shares pursuant to one of the procedures described above will constitute a binding agreement between the tendering stockholder and the Purchaser upon the terms and subject to the conditions of the Offer. Appointment. By executing a Letter of Transmittal as set forth above, the tendering stockholder will irrevocably appoint designees of the Purchaser as such stockholder's attorneys-in-fact and proxies in the manner set forth in the Letter of Transmittal, each with full power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by the Purchaser and with respect to any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after September 7, 1999. All such proxies will be considered coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, the Purchaser accepts for payment Shares tendered by such stockholder as provided herein. Upon such appointment, all prior powers of attorney, proxies and consents given by such stockholder with respect to such Shares or other securities or rights will, without further action, be revoked and no subsequent powers of attorney, proxies, consents or revocations may 5 be given (and, if given, will not be deemed effective). The designees of the Purchaser will thereby be empowered to exercise all voting and other rights with respect to such Shares and other securities or rights in respect of any annual, special or adjourned meeting of the Company's stockholders, actions by written consent in lieu of any such meeting or otherwise, as they in their sole discretion deem proper. The Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon the Purchaser's acceptance for payment of such Shares, the Purchaser must be able to exercise full voting, consent and other rights with respect to such Shares and other securities or rights, including voting at any meeting of stockholders. Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of any tender of Shares will be determined by the Purchaser in its sole discretion, which determination will be final and binding. The Purchaser reserves the absolute right to reject any or all tenders determined by it not to be in proper form or the acceptance for payment of or payment for which may, in the opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves the absolute right to waive any defect or irregularity in the tender of any Shares of any particular stockholder whether or not similar defects or irregularities are waived in the case of other stockholders. No tender of Shares will be deemed to have been validly made until all defects or irregularities relating thereto have been cured or waived. None of the Purchaser, Parent, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. The Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. Backup Withholding. In order to avoid "backup withholding" of Federal income tax on payments of cash pursuant to the Offer, a stockholder surrendering Shares in the Offer must, unless an exemption applies, provide the Depositary with such stockholder's correct taxpayer identification number ("TIN") on a Substitute Form W-9 and certify under penalties of perjury that such TIN is correct and that such stockholder is not subject to backup withholding. If a stockholder does not provide such stockholder's correct TIN or fails to provide the certifications described above, the Internal Revenue Service (the "IRS") may impose a penalty on such stockholder and any payment of cash to such stockholder pursuant to the Offer may be subject to backup withholding of 31%. All stockholders surrendering Shares pursuant to the Offer should complete and sign the main signature form and the Substitute Form W-9 included as part of the Letter of Transmittal to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is proved in a manner satisfactory to the Purchaser and the Depositary). Certain stockholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding. Noncorporate foreign stockholders should complete and sign the main signature form and a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See Instruction 9 to the Letter of Transmittal. 3. Withdrawal Rights Except as otherwise provided in this Section 3, tenders of Shares are irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to the procedures set forth below at any time prior to the Expiration Date and, unless theretofore accepted for payment and paid for by the Purchaser pursuant to the Offer, may also be withdrawn at any time after November 13, 1999. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of the Shares to be withdrawn, if different from the name of the person who tendered the Shares. If certificates for Shares have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and, unless such Shares have been tendered by an Eligible Institution, the signatures on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been delivered pursuant to the procedure for book-entry transfer as set forth in Section 2, any notice of withdrawal 6 must also specify the name and number of the account at the Book-Entry Transfer Facility and otherwise comply with the Book-Entry Transfer Facility's procedures. Withdrawals of tenders of Shares may not be rescinded, and any Shares properly withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by again following one of the procedures described in Section 2 at any time prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by the Purchaser in its sole discretion, which determination will be final and binding. None of the Purchaser, Parent, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. 4. Acceptance for Payment and Payment Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Purchaser will accept for payment and will pay for all Shares validly tendered prior to the Expiration Date and not properly withdrawn in accordance with Section 3 promptly after the Expiration Date. All determinations concerning the satisfaction of such terms and conditions will be within the Purchaser's discretion, which determinations will be final and binding. See Sections 1 and 14. The Purchaser expressly reserves the right to delay acceptance for payment of or payment for Shares in order to comply in whole or in part with any applicable law, including, without limitation, the HSR Act. Any such delays will be effected in compliance with Rule 14e-l(c) under the Exchange Act (relating to a bidder's obligation to pay for or return tendered securities promptly after the termination or withdrawal of such bidder's offer). Parent expects to file soon its Premerger Notification and Report Form with respect to the Offer under the HSR Act. The waiting period under the HSR Act with respect to the Offer will expire at 11:59 p.m., New York City time, on the 15th day after the date Parent's form is filed unless early termination of the waiting period is granted. However, the Antitrust Division of the Department of Justice (the "Antitrust Division") or the Federal Trade Commission (the "FTC") may extend the waiting period by requesting additional information or documentary material from Parent or the Company. If such a request is made, such waiting period will expire at 11:59 p.m., New York City time, on the 10th day after substantial compliance by Parent or the Company with such request. Thereafter, the waiting period may only be extended by court order. The waiting period under the HSR Act may be terminated prior to its expiration by the FTC and the Antitrust Division. Parent will request early termination of the waiting period, although there can be no assurance that this request will be granted. Pursuant to the Merger Agreement, Purchaser may, but need not, extend the Offer until the applicable waiting period under the HSR Act shall have expired or been terminated. See Section 15 hereof for additional information concerning the HSR Act and the applicability of the antitrust laws to the Offer. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (a) certificates for (or a timely Book-Entry Confirmation with respect to) such Shares, (b) either (i) a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, (ii) in the case of a book-entry transfer, an Agent's Message, and (c) any other documents required by the Letter of Transmittal. The per Share consideration paid to any stockholder pursuant to the Offer will be the highest per Share consideration paid to any other stockholder pursuant to the Offer. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares properly tendered to the Purchaser and not withdrawn as, if and when the Purchaser gives oral or written notice to the Depositary of the Purchaser's acceptance for payment of such Shares. Payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payment from the Purchaser and transmitting payment to tendering stockholders. Under no circumstances will interest be paid 7 on the purchase price of the Shares to be paid by the Purchaser, regardless of any extension of the Offer or any delay in making such payment. If the Purchaser is delayed in its acceptance for payment of or payment for Shares or is unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to the Purchaser's rights under the Offer (but subject to compliance with Rule 14e-l(c) under the Exchange Act, which requires that a tender offeror pay the consideration offered or return the tendered securities promptly after termination or withdrawal of a tender offer, and the terms of the Merger Agreement), the Depositary may, nevertheless, on behalf of the Purchaser, retain tendered Shares, and such Shares may not be withdrawn except to the extent tendering stockholders are entitled to exercise, and duly exercise, withdrawal rights as described in Section 3. If any tendered Shares are not purchased pursuant to the Offer for any reason, certificates for any such Shares will be returned, without expense to the tendering stockholder (or, in the case of Shares delivered by book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility pursuant to the procedure set forth in Section 2, such Shares will be credited to the account maintained at the Book-Entry Transfer Facility), as promptly as practicable after the expiration or termination of the Offer. The Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to Parent, or to one or more direct or indirect wholly- owned subsidiaries of Parent, the right to purchase Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Purchaser of its obligations under the Offer and will in no way prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. 5. Certain Federal Income Tax Consequences The receipt of cash in exchange for Shares pursuant to the Offer or the Merger (and the receipt of cash by a stockholder that exercises appraisal rights in connection with the Merger under Delaware law) will be a taxable transaction for Federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"), and may also be a taxable transaction under applicable state, local or foreign income or other tax laws. Generally, for Federal income tax purposes, a tendering stockholder will recognize gain or loss equal to the difference between the amount of cash received by the stockholder pursuant to the Offer or the Merger (other than amounts received pursuant to a stockholder's exercise of appraisal rights that are denominated as interest, which amounts would be taxable as ordinary income) and the aggregate tax basis in the Shares tendered by the stockholder and purchased pursuant to the Offer or converted in the Merger, as the case may be. Gain or loss will be calculated separately for each block of Shares tendered and purchased pursuant to the Offer or converted in the Merger, as the case may be. If Shares are held by a stockholder as capital assets, gain or loss recognized by the stockholder will be capital gain or loss. Such capital gain or loss will be long-term if such stockholder's holding period for the Shares exceeds twelve months and short-term in all other cases. A stockholder that tenders Shares may be subject to 31% backup withholding unless the stockholder provides its TIN and certifies that such number is correct or properly certifies that it is awaiting a TIN, or unless an exemption applies. Exemptions are available for stockholders that are corporations and for certain foreign individuals and entities. A stockholder that does not furnish a required TIN may be subject to a penalty imposed by the IRS. See "Backup Withholding" under Section 2. If backup withholding applies to a stockholder, the Depositary is required to withhold 31% from payments to such stockholder. Backup withholding is not an additional tax. Rather, the amount of the backup withholding can be credited against the Federal income tax liability of the person subject to the backup withholding, provided that the required information is given to the IRS. If backup withholding results in an overpayment of tax, a refund can be obtained by the stockholder upon filing an income tax return. The foregoing discussion may not be applicable with respect to Shares received pursuant to the exercise of employee stock options or otherwise as compensation or with respect to holders of Shares who 8 are subject to special tax treatment under the Code, such as non-U.S. persons, life insurance companies, tax-exempt organizations and financial institutions, and may not apply to other holders of Shares in light of their individual circumstances. Stockholders are urged to consult their own tax advisors to determine the particular tax consequences to them (including the application and effect of any state, local or foreign income and other tax laws) of the Offer and the Merger. 6. Price Range of the Shares The Shares are traded on the Nasdaq National Market under the symbol "ADAX". The following table sets forth, for each of the periods indicated, the high and low sales prices per Share as reported by the Nasdaq National Market and the Dow Jones News Retrieval Service. APPLIED DIGITAL ACCESS, INC.
Sales Prices ------------ Fiscal Year ending in June High Low -------------------------- ------ ----- 1997 First Quarter................................................. $ 8.50 $4.88 Second Quarter................................................ 9.38 3.63 Third Quarter................................................. 10.00 6.50 Fourth Quarter................................................ 11.88 5.00 1998 First Quarter................................................. 10.75 6.06 Second Quarter................................................ 8.75 4.31 Third Quarter................................................. 5.94 2.38 Fourth Quarter................................................ 3.69 2.00 1999 First Quarter................................................. 3.97 1.81 Second Quarter................................................ 5.44 2.13 Third Quarter (through September 7, 1999)..................... 5.19 3.47
On September 7, 1999, the last full trading day before the public announcement of the execution of the Merger Agreement, the last reported sales price of the Shares on the Nasdaq National Market was $5 1/8 per Share. On September 13, 1999, the last full trading day before commencement of the Offer, the last reported sales price of the Shares on the Nasdaq National Market was $5 1/8 per Share. Stockholders are urged to obtain current market quotations for the Shares. 7. Purpose of the Offer; Plans for the Company; Effect of the Offer on the Market for the Shares; Stock Quotation; Exchange Act Registration; Margin Regulations Purpose. The purpose of the Offer is to enable Parent to acquire control of, and the entire equity interest in, the Company. The Offer, as the first step in the acquisition of the Company, is intended to facilitate the acquisition of all the Shares and to provide the stockholders of the Company with cash consideration of $5.37 per Share for all of their shares at the earliest possible time. The purpose of the Merger is to acquire all Shares not tendered and purchased pursuant to the Offer. Plans for the Company. The Merger Agreement provides that, promptly upon the purchase by the Purchaser of more than 50% of the outstanding Shares on a fully-diluted basis pursuant to the Offer and from time to time thereafter, the Company shall use its best efforts to allow the Purchaser to designate up to the minimum number of directors of the Company necessary in order for the result (expressed as a fraction) derived by dividing the number of directors so designated by the total number of directors of the Company to be at least equal to the result (expressed as a fraction) derived by dividing the number of Shares then held by the Purchaser by the total number of Shares then outstanding, provided, however, that until the consummation of the Merger, the Board of Directors of the Company will have at least two (2) Independent Directors. The term "Independent Director" means a director who is neither designated by the Purchaser nor otherwise affiliated with the Parent or the Purchaser and is not an employee of the Company or any of its subsidiaries. 9 After the Offer has been consummated, subject to the conditions set forth in the Merger Agreement, it is anticipated that the Merger Agreement will be submitted to the stockholders of the Company for approval. In the Merger Agreement, Parent and the Purchaser have agreed to vote or cause to be voted all Shares owned by them in favor of approval and adoption of the Merger Agreement. If after consummation of the Offer the Purchaser holds 90% or more of the outstanding Shares, the Purchaser intends to effect a "short-form merger" under the Delaware General Corporation Law (the "DGCL") without a meeting of, or action by, the stockholders of the Company. The Purchaser and Parent currently have no plans or proposals that would relate to, or result in, any extraordinary corporate transaction involving the Company, such as a merger, reorganization or liquidation involving the Company or any of its subsidiaries (except of the merger of the Purchaser into the Company, as described in Section 12 below) or a sale or transfer of a material amount of assets of the Company or any of its subsidiaries to any unaffiliated third party. The Purchaser and Parent currently have no plans or proposals to close any plant or facility of the Company or of any of its subsidiaries or affiliates; change or reduce the work force of the Company or any of its subsidiaries or affiliates; or make any other change in its business, corporate structure, capitalization or dividend policy, management personnel or policies of employment. The Purchaser and Parent expect the Company to enter into retention agreements with certain employees on terms similar to those between other subsidiaries of Parent and employees of such subsidiaries. The Purchaser and Parent expect that Donald L. Strohmeyer, President and Chief Executive Officer of the Company, will remain with the Company through the consummation of the Merger. The Purchaser and Parent have been informed that, effective September 15, 1999, James L. Keefe, Chief Financial Officer, Vice President of Finance and Administration and Secretary of the Company, is resigning from the Company, but will remain as a consultant to the Company through the consummation of the Merger. Parent is currently considering how best to integrate the business of the Company with Parent's current operations in order to improve operating efficiencies, including through the consolidation of management, but Parent has no current plans or proposals in this regard. Market for the Shares. The purchase of Shares pursuant to the Offer will reduce the number of holders of Shares and the number of Shares that might otherwise trade publicly and could adversely affect the liquidity and market value of the remaining Shares held by the public. Stock Quotation. Depending upon the aggregate market value and per Share price of any Shares not purchased pursuant to the Offer, the Shares may no longer meet the standards of the National Association of Securities Dealers, Inc. (the "NASD") for continued designation for the Nasdaq National Market. The maintenance of such designation requires that an issuer substantially meet one of two maintenance standards. The issuer must have either (i) (a) at least 750,000 shares publicly held, (b) at least 400 shareholders of round lots, (c) a market value of publicly held shares of at least $5 million, (d) a minimum bid price per share of $1, (e) at least two registered and active market makers for its shares and (f) net tangible assets of at least $4 million or (ii) (a) at least 1.1 million publicly held shares, (b) at least 400 shareholders of round lots, (c) a market value of publicly held shares of at least $15 million, (d)(1) a market capitalization of at least $50 million or (2) total assets and total revenue of at least $50 million each (for the most recently completed fiscal year or two of the last three most recently completed fiscal years), (e) a minimum bid price per share of $5 and (f) at least four registered and active market makers for its shares. Shares held directly or indirectly by directors, officers or beneficial owners of more than 10% of the shares outstanding are not considered as being publicly held for this purpose. If, as a result of the purchase of Shares pursuant to the Offer or otherwise, the Shares no longer meet the requirements of the NASD for continued inclusion in the Nasdaq National Market or in any other tier of the Nasdaq Stock Market, and the Shares are no longer included in Nasdaq National Market or in any other tier of the Nasdaq Stock Market, the market for the shares could be adversely affected. In the event the Shares no longer meet the requirements of the NASD for continued inclusion in any tier of the Nasdaq Stock Market, it is possible that Shares would continue to trade in the over-the-counter market and that price quotations would be reported by other sources. The extent of the public market for the Shares and the availability of such quotations would, however, depend upon the number of holders of Shares remaining at such time, the interest in maintaining a market in Shares on the part of securities firms, the possible termination of registration of the Shares under the Exchange Act, as described below, and other factors. 10 Exchange Act Registration. The Shares are currently registered under the Exchange Act. Registration of the Shares under the Exchange Act may be terminated upon application of the Company to the Commission if the Shares are neither listed on a national securities exchange nor held by 300 or more holders of record. Termination of registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to its stockholders and to the Commission and would make certain provisions of the Exchange Act no longer applicable to the Company, such as the short-swing profit recovery provisions of Section 16(b) of the Exchange Act, the requirement of furnishing a proxy statement pursuant to Section 14(a) of the Exchange Act in connection with stockholders' meetings and the related requirement of furnishing an annual report to stockholders and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions. Furthermore, the ability of "affiliates" of the Company and persons holding "restricted securities" of the Company to dispose of such securities pursuant to Rule 144 or 144A promulgated under the Securities Act of 1933 may be impaired or eliminated. The Purchaser intends to seek to cause the Company to apply for termination of registration of the Shares under the Exchange Act as soon after the completion of the Offer as the requirements for such termination are met. If registration of the Shares is not terminated prior to the Merger, then the Shares will be delisted from all stock exchanges and the Nasdaq Stock Market and the registration of the Shares under the Exchange Act will be terminated following the consummation of the Merger. Margin Regulations. The Shares are currently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of the Shares. Depending upon factors similar to those described above regarding listing and market quotations, it is possible that, following the Offer, the Shares would no longer constitute "margin securities" for the purposes of the margin regulations of the Federal Reserve Board and therefore could no longer be used as collateral for loans made by brokers. 11 8. Certain Information Concerning the Company The Company is a Delaware corporation with its principal offices at 9855 Scranton Road, San Diego, California 92121. The Company was incorporated in 1987 and is a provider of network performance management products that include systems, software and services used to manage the quality, performance, availability and reliability of telecommunications service providers' networks. Set forth below is certain selected consolidated financial information with respect to the Company and its subsidiaries excerpted from the information contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the "Company 1998 10-K"), and the Company's Quarterly Report on Form 10-Q for the three-month period ended June 30, 1999 (the "Company June 30, 1999 10-Q"). More comprehensive financial information is included in the Company 1998 10-K, the Company June 30, 1999 10-Q and the following summary is qualified in its entirety by reference to the Company 1998 10-K, the Company June 30, 1999 10-Q and such other documents and all the financial information (including any related notes) contained therein. The Company 1998 10-K, the Company June 30, 1999 10-Q and such other documents should be available for inspection and copies thereof should be obtainable in the manner set forth below under "Available Information". APPLIED DIGITAL ACCESS, INC. SELECTED CONSOLIDATED FINANCIAL INFORMATION (In thousands, except per share data)
Six Months Ended June 30, Year Ended December 31, ---------------- -------------------------- 1999 1998 1998 1997 1996 ------- ------- -------- ------- ------- (unaudited) Consolidated Statements of Operations and Comprehensive Loss: Revenue.......................... $16,065 $13,852 $ 29,217 $34,050 $24,422 Cost of revenue.................. 6,425 7,405 13,587 15,116 12,609 ------- ------- -------- ------- ------- Gross profit................. 9,640 6,447 15,630 18,934 11,813 ------- ------- -------- ------- ------- Operating expenses: Research and development....... 5,946 7,320 14,313 9,164 7,356 In-process research and development related to acquisitions.................. -- -- -- 1,578 3,286 Restructuring charge........... 1,335 -- -- -- -- Engineering reimbursement...... (1,361) -- -- -- -- Sales and marketing............ 4,426 4,831 9,801 7,995 6,312 General and administrative..... 2,614 2,414 5,129 5,252 3,529 ------- ------- -------- ------- ------- Total operating expense...... 12,960 14,565 29,243 23,989 20,483 ------- ------- -------- ------- ------- Operating loss............... (3,320) (8,118) (13,613) (5,055) (8,670) Interest income.................. 254 342 675 904 1,673 Other expense, net............... (8) (16) -- -- -- ------- ------- -------- ------- ------- Loss before income taxes....... (3,074) (7,792) (12,938) (4,151) (6,997) ------- ------- -------- ------- ------- Provision for income taxes....... 95 73 186 132 123 ------- ------- -------- ------- ------- Net loss....................... $(3,169) $(7,865) $(13,124) $(4,283) $(7,120) ------- ------- -------- ------- ------- Other comprehensive income (loss): Foreign currency translation adjustments................... 28 (12) 91 68 (1) ------- ------- -------- ------- ------- Unrealized gains (losses) on securities.................... -- -- (12) (9) (121) ------- ------- -------- ------- ------- Other comprehensive income (loss)........................ -- -- 79 59 (122) ------- ------- -------- ------- ------- Comprehensive loss............. $(3,141) $(7,877) $(13,045) $(4,224) $(7,242) ======= ======= ======== ======= ======= Net loss per share, basic and diluted..................... $ (.24) $ (.62) $ (1.03) $ (.34) $ (.59) ======= ======= ======== ======= =======
12
December 31, June 30, --------------- 1999 1998 1997 ----------- ------- ------- (unaudited) Consolidated Balance Sheets: Assets Current Assets: Cash and cash equivalents........................ $ 9,465 $12,513 $ 4,400 Investments...................................... 4,867 -- 8,779 Trade accounts receivable, net................... 5,161 6,111 12,981 Inventory, net................................... 4,227 5,679 5,859 Deferred income taxes............................ 130 130 130 Prepaid expenses and other current assets........ 1,365 1,700 3,775 ------- ------- ------- Total current assets........................... 25,215 26,133 35,924 Property and equipment, net........................ 3,472 5,466 6,165 Intangible assets, net............................. 681 1,247 2,822 Deferred income taxes.............................. 1,510 1,426 1,372 ------- ------- ------- Total assets................................... $30,878 $34,272 $46,283 ======= ======= ======= Liabilities and Shareholder's Equity Current Liabilities: Accounts payable................................. 3,089 2,922 3,478 Accrued expenses................................. 1,491 2,333 2,846 Accrued warranty expenses........................ 1,149 1,264 1,323 Current portion of capital lease obligations..... -- 41 18 Deferred revenue................................. 3,003 2,817 1,471 ------- ------- ------- Total current liabilities...................... 8,732 9,377 9,136 Capital lease obligations, net of current position........................................ -- -- 15 ------- ------- ------- Total liabilities.............................. $ 8,732 $ 9,377 $ 9,151 ------- ------- ------- Total shareholders' equity..................... 22,146 24,895 37,132 ======= ======= ======= Total liabilities and shareholders' equity..... $30,878 $34,272 $46,283 ======= ======= =======
Certain Company Projections. During the course of discussions between Parent and the Company, the Company provided Parent with certain non-public business and financial information about the Company. The Company did not prepare the projections and forecasts in anticipation of the Offer, any prior tender offer or other public disclosure. This information was prepared in 1999 and included forecasts for the fiscal years ending December 31, 1999, 2000 and 2001. Such projections include forecasts of total sales of $40.9 million, $60.9 million and $80.6 million, gross profit of $24.9 million, $37.0 million and $50.0 million, and net income of $(1.3) million, $7.3 million and $16.7 million for fiscal 1999, 2000 and 2001, respectively. The Company does not as a matter of course make public any projections as to future performance or earnings, and the projections set forth above are included in this Offer to Purchase only because the information was provided to Parent. The projections were not prepared with a view to public disclosure or compliance with the published guidelines of the Commission or the guidelines established by the American Institute of Certified Public Accountants regarding projections or forecasts. The Company's internal operating projections are, in general, prepared solely for internal use and capital budgeting and other management decisions and are subjective in many respects and thus susceptible to various interpretations and periodic revision based on actual experience and business developments. The projections were based on a number of assumptions that are beyond the control of the Company, the Purchaser or Parent or their respective financial advisors, including economic forecasting (both general and specific to the Company's business), which is inherently uncertain and subjective and were predicated on the assumption that the Company would continue as an independent, "stand alone" enterprise 13 during the entire period covered by the projections. None of the Company, the Purchaser or Parent or their respective financial advisors assumes any responsibility for the accuracy of any of the projections. The inclusion of the foregoing projections should not be regarded as an indication that the Company, the Purchaser or Parent or any other person who received such information considers it an accurate prediction of future events. None of the Company, the Purchaser or Parent intends to update, revise or correct such projections if they become inaccurate (even in the short term). Available Information. The Company is subject to the informational requirements of the Exchange Act and, in accordance therewith, is required to file reports relating to its business, financial condition and other matters. Information as of particular dates concerning the Company's directors and officers, their remuneration, stock options and other matters, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company is disclosed in the Company's proxy statement dated April 12, 1999, and filed with the Commission. Such information should be available for inspection at the public reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at Seven World Trade Center, Suite 1300, New York, NY 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661. Copies of such information should be obtainable from the Public Reference Section of the Commission upon payment of prescribed fees. Such material should also be available for inspection at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006. The Commission also maintains a worldwide web site at http://www.sec.gov which contains reports, proxy and information statements and other information about companies, including the Company, that file electronically. Except as otherwise stated in this Offer to Purchase, the information concerning the Company contained herein has been taken from or based upon publicly available documents on file with the Commission and other publicly available information. Although the Purchaser and Parent do not have any knowledge that any such information is untrue, none of the Purchaser or Parent takes any responsibility for the accuracy or completeness of such information or for any failure by the Company to disclose events that may have occurred and may affect the significance or accuracy of any such information. 9. Certain Information Concerning the Purchaser and Parent The Purchaser, a newly incorporated Delaware corporation, which is an indirect wholly-owned subsidiary of Parent, was organized to acquire the Company and has not conducted any business activities since its organization. The principal office of the Purchaser is located c/o the principal office of Parent. All outstanding shares of capital stock of the Purchaser are indirectly owned by Parent. Parent is a publicly traded company registered with the Commission and trades in the over-the-counter market under the symbol "DYNA". Parent and its subsidiaries develop, manufacture and sell market- leading test, analysis, communications and computing equipment. The principal office of Parent is located at 3 New England Executive Park, Burlington, Massachusetts 01803. Financial information with respect to Parent and its subsidiaries is included in Parent's Annual Report on Form 10-K for the fiscal year ended March 31, 1999 and in Parent's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1999, which are incorporated herein by reference, and other documents filed by Parent with the Commission. Such reports and other documents should be available for inspection and copies thereof should be obtainable in the manner set forth below under "Available Information." Available Information. Parent is subject to the informational requirements of the Exchange Act and, in accordance therewith, is required to file reports relating to its business, financial condition and other matters. Information as of particular dates concerning Parent's directors and officers, their remuneration, stock options and other matters, the principal holders of Parent's securities and any material interest of such persons in transactions with Parent is disclosed in Parent's proxy statement dated July 26, 1999, and filed with the Commission. Such information may be inspected at the public reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, and at the regional offices of the 14 Commission located at Seven World Trade Center, New York, NY 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661. Copies of such information should be obtainable from the Public Reference Section of the Commission upon payment of the prescribed fees. Such material should also be available for inspection at the library of the NYSE, 20 Broad Street, New York, NY 10005. The Commission also maintains a worldwide web site at http://www.sec.gov which contains reports, proxy and information statements and other information about companies, including Parent, that file electronically. 10. Source and Amount of Funds The Purchaser estimates that the total amount of funds required to purchase pursuant to the Offer the Shares that are outstanding on a fully diluted basis (such basis assumes all Shares underlying in-the-money vested and unvested stock options are outstanding) and to consummate the Merger under the Merger Agreement and to pay fees and expenses related to the Offer and the Merger will be approximately $80 million. The Purchaser plans to obtain all funds needed for the Offer and the Merger from Dynatech LLC, a Delaware limited liability company and wholly owned subsidiary of Parent. Dynatech LLC intends to obtain these funds by borrowing from an existing $110 million revolving credit facility (the "Revolving Facility") created under a credit agreement by and among Parent, Dynatech LLC (successor by assumption to Parent, and successor by assumption and merger to TTC Merger Co., LLC), the several lenders from time to time parties thereto (as defined therein), Morgan Guaranty and Trust Company of New York, as administrative agent, Credit Suisse First Boston, as syndication agent, and The Chase Manhattan Bank, as documentation agent, dated as of May 21, 1998 (the "Credit Agreement"). The Revolving Facility bears interest at a rate equal to a spread over a reference rate chosen by Parent from various options and matures on May 21, 2004. The Revolving Facility is secured by a pledge of the equity interest in Dynatech LLC, by substantially all of the assets of Dynatech LLC and each active direct or indirect U.S. subsidiary of Dynatech LLC, and by a pledge of the capital stock of each such direct or indirect U.S. subsidiary, and 65% of the capital stock of each subsidiary of Dynatech LLC that acts as a holding company of TTC's foreign subsidiaries. Such borrowings may be repaid by Dynatech LLC from time to time, in whole or in part, from internally generated funds or from the proceeds of other borrowings. The Offer is not conditioned upon obtaining financing. 11. Contacts and Transactions with the Company; Background of the Offer Over the past several years the Board of Directors and management of Parent have sought to identify businesses that might be suitable to be acquired and combined with certain of Parent's businesses, and in particular, with the telecommunications test business conducted by Dynatech LLC, a Delaware limited liability company and wholly owned subsidiary of Parent. Representatives of Parent first discussed the possibility of an acquisition of the Company by Parent at an informal meeting with representatives of the Company on June 8, 1998 at the Supercomm Trade Show in Atlanta. No further discussions ensued at that time, although Parent continued to monitor the Company's development and to review internally possible synergies between the businesses of Parent and the Company. Shortly following the May 1998 recapitalization of Parent, in which Clayton, Dubilier & Rice Fund V Limited Partnership ("CD&R") acquired approximately 91.8% of the Common Stock of Parent, management of Parent advised representatives of CD&R that Parent management considered the Company to be a prime acquisition candidate. In February 1999, Parent retained Stanford Keene ("Stanford") to assist Parent in review of the Company and to help Parent identify other possible acquisition candidates. In late March 1999, Samuel W. Tishler, Corporate Vice President - Corporate Development of Parent, contacted Donald L. Strohmeyer, President and Chief Executive Officer of the Company, and requested a meeting to discuss a potential acquisition of the Company by Parent. In early April 1999, Peter P. Savage, Chairman of the Company, contacted Stanford and sought to retain Stanford to represent the Company in joint venture discussions between the Company and another party. Stanford advised Mr. Savage that it had a conflicting arrangement, although Stanford did not disclose to the Company that such arrangement was with Parent. 15 On April 13, 1999, Mr. Tishler and other representatives of Parent met with Mr. Strohmeyer. A standard confidentiality and non-disclosure agreement was executed, following which the Company began to provide Parent and its representatives information regarding the Company and its business. On May 25, 1999, Mr. Tishler and John R. Peeler, President and Chief Executive Officer of Parent's telecommunication test business, met with Mr. Strohmeyer and representatives of the Company and continued their due diligence exchanges. On June 24, 1999, Parent's management met with CD&R and determined to make a "talking offer" of approximately $70 million for the Company. This price was conveyed to Mr. Strohmeyer, who indicated that he would discuss with the Company's Board of Directors the possibility of pursuing a transaction with Parent. On June 29, 1999, Mr. Strohmeyer contacted Mr. Tishler and indicated that the Company considered the $70 million offer insufficient. However, Mr. Strohmeyer indicated he believed a more attractive offer would be given serious consideration by the Company's Board of Directors. On July 1, 1999, Mr. Tishler informed Mr. Strohmeyer that it was willing to increase its proposed offer to $80 million, subject to operational, financial and legal due diligence. On July 2, 1999, Parent delivered to the Company an outline of proposed due diligence procedures and issues and a request that due diligence review take place at certain of the Company's facilities and at the offices of the Company's legal counsel commencing July 13, 1999. Parent's due diligence review of the Company took place during the last two weeks of July 1999. During the week of August 2, 1999, Gary C. Mayerick, President of the Systems and Software Group of Parent's telecommunications test business, met with each of Mr. Strohmeyer and Messrs. Dwight Terry Allen, Kevin T. Pope and Donald J. O'Connor to discuss the possible terms of their employment if a transaction were to be consummated. On August 9, 1999, Mr. J. Thomas Bentley, Managing Partner of Alliant Partners, financial advisor to the Company, called Mr. Tishler and requested, on the Company's behalf, that the transaction price be increased to $88 million. On August 10, 1999, Mr. Tishler replied to Mr. Bentley that Parent was not willing to increase its offer above $80 million, and also pointed out that the offer remained subject to Parent's satisfaction with its due diligence investigation. On August 11, 1999, Mr. Strohmeyer and Mr. Bentley called Mr. Tishler and requested that Mr. Tishler provide a letter summarizing the terms of Parent's offer for consideration by the Company's Board of Directors. On August 13, 1999, Mr. Tishler delivered a letter to Mr. Strohmeyer in which he confirmed Parent's non-binding offer of $80 million for all of the outstanding stock of the Company, which offer was subject to the Company having net cash assets of at least $14.2 million at closing, the cancellation of all outstanding options of the Company, the satisfactory completion of Parent's due diligence, approval of Parent's Board of Directors, and the negotiation and execution of a definitive merger agreement satisfactory to Parent. The letter also stated that Parent required a break up fee of no greater than 4% of the transaction price. During the weeks of August 10 and August 16, representatives of Parent continued their due diligence review at the offices of legal counsel for the Company. On August 26, 1999, Parent's legal counsel sent an initial draft of the proposed Merger Agreement to legal counsel for the Company. On August 31, 1999, legal counsel to the Company sent comments on the Merger Agreement to legal counsel for Parent. On September 1, 1999, the Board of Directors of Parent met to consider the proposed acquisition by Parent of the Company, and approved such acquisition at a price of not more than $5.37 per Share. Over the next week, counsel for the parties continued negotiations on the Merger Agreement and related documents, and Parent continued its due diligence review of the Company. On September 7, 1999, the Board of Directors of the Company held a special meeting. At the meeting, the Company's outside legal counsel made a detailed presentation regarding the Board of Director's fiduciary duties when considering the sale of the Company and then reported on the negotiations and the terms and conditions 16 of the Merger Agreement. A representative of Alliant Partners then presented the opinion that, as of the date thereof, the consideration to be received by the Company's stockholders in the Offer and the Merger, at $5.37 per share, was fair from a financial point of view. Following discussion of the Offer and the Merger, the Board of Directors of the Company unanimously approved the Offer and the Merger and unanimously resolved to recommend that the stockholders of the Company accept the Offer and tender their shares in the Offer and that the stockholders approve and adopt the Merger Agreement. On the evening of Tuesday, September 7, 1999, the parties met and resolved all outstanding issues, and executed and delivered the Merger Agreement. On the morning or Wednesday, September 8, 1999, Parent and the Company publicly announced that they had entered into the Merger Agreement. On September 14, 1999, Parent and Purchaser commenced the Offer. Other arrangements. Except as described in this Offer to Purchase (including Schedule I hereto), none of the Purchaser or Parent nor, to the best knowledge of the Purchaser and Parent, any of the persons listed in Schedule I hereto, nor any associate or majority-owned subsidiary of the Purchaser, Parent, nor any of the persons so listed, beneficially owns any equity security of the Company, and none of the Purchaser or Parent, nor, to the best knowledge of the Purchaser and Parent, any of the other persons referred to above, or any of the respective directors, executive officers or subsidiaries of any of the foregoing, has effected any transaction in any equity security of the Company during the past 60 days. Except as described in this Offer to Purchase, as of the date hereof (a) there have not been any contacts, transactions or negotiations between the Purchaser and Parent, any of Parent's subsidiaries or, to the best knowledge of the Purchaser and Parent, any of the persons listed in Schedule I hereto, on the one hand, and the Company or any of its directors, officers or affiliates, on the other hand, that are required to be disclosed pursuant to the rules and regulations of the Commission and (b) none of the Purchaser or Parent nor, to the best knowledge of the Purchaser and Parent, any of the persons listed in Schedule I hereto has any contract, arrangement, understanding or relationship with any person with respect to any securities of the Company. 12. The Merger Agreement The following is a summary of certain provisions of the Merger Agreement, copies of which have been filed with the Commission as Exhibits to the Schedule 14D-1 relating to the Offer and are incorporated herein by reference. Such summaries are qualified in their entirety by reference to the text of such agreements. The Merger Agreement provides that following the satisfaction or waiver of the conditions described below under "Conditions to the Merger", the Purchaser will be merged with and into the Company, and each then outstanding Share (other than Shares owned by the Company, any subsidiary of the Company, Parent, the Purchaser, any other subsidiary of Parent or by stockholders, if any, who are entitled to and who properly exercise appraisal rights under Delaware law) will be converted into the right to receive an amount in cash equal to the price per Share paid pursuant to the Offer. Vote Required To Approve Merger. The DGCL requires, among other things, that the adoption of any plan of merger or consolidation of the Company must be approved by the Board of Directors and generally by the holders of the Company's outstanding voting securities. The Board of Directors of the Company has approved the making of the Offer and the Merger; consequently, the only additional action of the Company that may be necessary to effect the Merger is approval by the Company's stockholders if the "short-form" merger procedure described below is not available. Under the DGCL, the affirmative vote of holders of a majority of the voting power of the then outstanding Shares (including any Shares owned by the Purchaser) is generally required to approve the Merger. If the Purchaser acquires, through the Offer or otherwise, a majority of the voting power of the outstanding Shares (which would be the case if the Minimum Condition were satisfied and the Purchaser were to accept for payment Shares tendered pursuant to the Offer), it would have sufficient voting power to effect the Merger without the vote of any other stockholder of the Company. 17 Under the DGCL, if a corporation owns 90% or more of each outstanding class of capital stock of another corporation, it can effect a "short-form" merger with such corporation without prior notice to, or any other action by, any other stockholder of such corporation. As a result, assuming no Stock Options are exercised following September 7, 1999, if the Purchaser were to acquire ownership of 11,913,912 Shares pursuant to the Offer, the Purchaser would own more than 90% of the only class of capital stock of the Company then outstanding and would be able to effect the Merger pursuant to the "short- form" merger provisions of the DGCL. See Section 15. Conditions to the Merger. The Merger Agreement provides that the obligations of Parent, the Purchaser and the Company to consummate the Merger are subject to the satisfaction of certain conditions, including the following: (a) the Purchaser shall have purchased all Shares duly tendered and not withdrawn pursuant to the terms of the Offer and subject to the terms thereof; provided that the obligation of the Parent and the Purchaser to effect the Merger shall not be conditioned on the fulfillment of such condition if the failure of the Purchaser to purchase the Shares pursuant to the Offer shall have constituted a breach of the Offer or of the Merger Agreement; (b) the consummation of the Merger shall not be precluded by any order, decree or injunction of a court of competent jurisdiction (each party having agreed to use its best efforts to have any such order reversed or injunction lifted), and there shall not have been any action taken or any law enacted, promulgated or deemed applicable to the Merger by any court, arbitral tribunal, administrative agency or commission or other governmental or regulatory authority, foreign or domestic (each, a "Governmental Entity") that makes consummation of the Merger illegal; (c) if required by the Certificate of Incorporation and By-Laws of the Company and the DGCL, the Merger Agreement shall have been approved and adopted by the affirmative vote of the holders of the requisite number of Shares in accordance with the Certificate of Incorporation and By- Laws of the Company and the DGCL; and (d) any applicable waiting period under the HSR Act shall have expired or been terminated and, if applicable, the Director of Investigation and Research appointed under the Competition Act (Canada) shall not have advised the Purchaser, in writing, that he intends to oppose the acquisition of the Shares or that he has taken or threatened to take proceedings under the Competition Act (Canada) in respect of the purchase of Shares. Termination of the Merger Agreement. The Merger Agreement may be terminated at any time prior to the effective time of the Merger, whether prior to or after approval of the terms of the Merger Agreement by the stockholders of the Company: (1) by the mutual written consent of Parent, the Purchaser and the Company duly authorized by their respective Boards of Directors; (2) by either the Parent or the Company if, on or before December 6, 1999, the Purchaser shall not have purchased in the Offer such number of Shares which represent in excess of 50% of the outstanding Shares on a fully diluted basis, or the Merger shall not have been consummated on or before March 5, 1999, provided, however, that the right to terminate the Merger Agreement is not available to any party whose failure to fulfill any obligation under the Merger Agreement has been the cause of, or resulted in, the failure of the Offer or the Merger to have occurred on or before the aforesaid date; (3) by either the Parent or the Company if the Offer shall expire or terminate in accordance with its terms without any Shares having been purchased thereunder and, in the case of termination by the Parent, the Purchaser shall not have been required by the terms of the Offer or the Merger Agreement to purchase any Shares pursuant to the Offer; (4) by the Company if the Purchaser shall not timely commence the Offer as provided in the Merger Agreement; (5) unilaterally by the Purchaser and Parent on the one hand (treated as a single party) or the Company on the other hand (i) if the other fails to perform any material covenant in any material respect in the Merger Agreement, and does not cure the failure in all material respects within 30 business days after the terminating party delivers written notice of the alleged failure or (ii) if any condition to the obligations of that party is not satisfied (other than by reason of a breach by that party of its obligations hereunder), and it reasonably appears that the condition cannot be satisfied prior to March 5, 1999; (6) by either the Purchaser or the Company if either is prohibited by an order or injunction (other than an order or injunction on a temporary or preliminary basis) of a court of competent jurisdiction or other 18 Governmental Entity from consummating the Offer or the Merger and all means of appeal and all appeals from such order or injunction have been finally exhausted; (7) by the Purchaser if the Board of Directors of the Company shall have withdrawn or modified, or resolved to withdraw or modify, in any manner which is adverse to Parent or the Purchaser, its recommendation or approval of the Offer, the Merger or the Merger Agreement; or (8) by the Company if (i) the Board of Directors of the Company shall have determined in good faith, after consultation with outside counsel, that it is necessary, in order to comply with its fiduciary duties to the Company's stockholders under applicable law, to terminate the Merger Agreement to enter into an agreement with respect to or to consummate a transaction constituting a Superior Proposal (as defined under "Takeover Proposals"), (ii) the Company shall have given notice to the Purchaser advising the Purchaser that the Company has received a Superior Proposal from a third party, specifying the material terms and conditions (including the identity of the third party) and that the Company intends to terminate the Merger Agreement, (iii) either (A) the Purchaser shall not have revised its proposal for an Acquisition Transaction within two (2) business days from the time on which such notice is deemed to have been given to Parent, or (B) if the Purchaser within such period shall have revised its proposal for an Acquisition Transaction, the Board of Directors of the Company, after receiving advice from the Company's financial advisor, shall have determined in its good faith reasonable judgment that the third party's proposal for an Acquisition Transaction is more favorable from a financial point of view than Parent's revised proposal for an Acquisition Transaction and (iv) the Company, at the time of such termination, pays the Parent Expenses and the Termination Fee (each as defined under "Fees and Expenses" below). Takeover Proposals. The Merger Agreement provides that the Company shall not, shall not permit any of its subsidiaries to, and shall not authorize or permit any officer, director or employee or any investment banker, attorney, accountant or other advisor or representative of the Company or any of its subsidiaries to, directly or indirectly, except as otherwise described in this Section (i) initiate, solicit, negotiate, encourage, or provide confidential information to facilitate any proposal or offer to acquire all or any substantial part of the business and properties of the Company and its subsidiaries, taken as a whole, or beneficial ownership (as determined pursuant to Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the capital stock of the Company, whether by merger, purchase of assets, tender offer or otherwise, whether for cash, securities or any other consideration or combination thereof (such transactions being referred to herein as "Acquisition Transactions"), (ii) enter into any agreement with respect to any Acquisition Transaction or give any approval of the type referred to in the next paragraph below with respect to any Acquisition Transaction or (iii) participate in any discussions regarding, 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 Acquisition Transaction. Notwithstanding the immediately preceding sentence, the Company and its subsidiaries may, prior to the approval of the Merger Agreement by the Company's stockholders, in response to any unsolicited proposal for an Acquisition Transaction, furnish information concerning its business, properties or assets to the corporation, partnership, person or other entity or group (a "Potential Acquiror") making such proposal for an Acquisition Transaction and participate in negotiations with the Potential Acquiror if (x) the Company's Board of Directors after consultation with one or more of its independent financial advisors, is of the reasonable belief that such Potential Acquiror has the financial wherewithal to consummate such an Acquisition Transaction, (y) the Company's Board of Directors reasonably determines, after receiving advice from the Company's financial advisor, that such Potential Acquiror has submitted a proposal for an Acquisition Transaction that involves consideration to the Company's stockholders and other terms that taken as a whole are more favorable from a financial point of view than the Merger and (z) the Company's Board of Directors determines in good faith, after consultation with outside counsel, that it is necessary to so furnish information and negotiate in order to comply with its fiduciary duty to stockholders of the Company. The Merger Agreement provides that in the event the Company shall determine to provide any information as described above, or shall receive any offer of the type referred to in this section or shall receive or become aware of any other proposal to acquire a substantial part of the business and properties of the Company and its subsidiaries, taken as a whole, or to acquire a substantial amount of capital stock of the Company, it shall promptly inform Parent orally as to the fact that information is to be provided and shall furnish to Parent the identity of the recipient of such information and/or the proponent of such offer or 19 proposal and a description of the material terms thereof. The Company is also obligated to keep Parent fully informed of the status and material details of any proposed Acquisition Transaction or other transaction (including any material amendments or material proposed amendments of any such proposed Acquisition Transaction or other transaction). The Merger Agreement also provides that neither the Board of Directors of the Company nor any committee thereof (x) shall withdraw or modify or propose to withdraw or modify, in any manner adverse to Parent, the approval or recommendation of such Board of Directors or such committee of the Merger Agreement, the Offer or the Merger or (y) approve or recommend, or propose to approve or recommend, any proposal for an Acquisition Transaction except, in each case, in connection with a Superior Proposal. As used herein, the term "Superior Proposal" means a bona fide proposal to acquire, directly or indirectly, for consideration consisting of cash and/or securities, more than 50% of the Shares then outstanding or all or substantially all the assets of the Company, provided (i) such proposed transaction satisfies the tests set forth in clauses (x), (y) and (z) of the second sentence of the immediately preceding paragraph and (ii) the Board of Directors determines, in its good faith reasonable judgment, that such proposed transaction is reasonably likely to be consummated without undue delay. The Merger Agreement also provides that nothing contained in the preceding two paragraphs shall prohibit the Company from at any time taking and disclosing to its stockholders a position contemplated by Rule 14e-2(a) promulgated under the Exchange Act, provided that neither the Company nor its Board of Directors shall, except as permitted by the preceding two paragraphs, approve or recommend acceptance of a proposal for an Acquisition Transaction. Fees and Expenses. The Merger Agreement provides that the Company will pay, or cause to be paid, in same day funds to Parent the sum of (x) Parent Expenses (as defined below) and (y) $2,400,000 (the "Termination Fee") upon demand if (i) the Company terminates the Merger Agreement in accordance with the provision described in paragraph (8) under "Termination of Merger Agreement", (ii) the Purchaser terminates the Merger Agreement in accordance with the provisions described in paragraphs (5) or (7) under "Termination of Merger Agreement" at any time after a proposal for an Acquisition Transaction has been made or, (iii) the Company or the Purchaser terminates the Merger Agreement in accordance with the provisions described in paragraphs (2) or (3) under "Termination of Merger Agreement" at any time after a proposal for an Acquisition Transaction has been made, and, within twelve (12) months after any termination referred to in the immediately preceding clauses (ii) or (iii) of this sentence, any person that made a proposal for an Acquisition Transaction (or an affiliate thereof) completes a merger, consolidation or other business combination with the Company or a subsidiary of the Company, or the purchase from the Company or from a subsidiary of the Company of 20% or more (in voting power) of the voting securities of the Company or of 20% or more (in market value) of the assets of the Company and its subsidiaries, on a consolidated basis; provided that the Company will not have any such obligations if the Purchaser terminates the Merger Agreement in accordance with the provision described in paragraph (5)(ii) under "Termination of Merger Agreement" as a result of the failure of a condition to be satisfied unless the reason for the failure of such condition to be satisfied is reasonably related to the making of such proposal for an Acquisition Transaction. "Parent Expenses" shall mean reasonable and reasonably documented out-of-pocket fees and expenses incurred or paid by or on behalf of Parent in connection with the Offer and the Merger or the consummation of any of the transactions contemplated by the Merger Agreement (including, without limitation, fees and expenses of counsel, commercial banks, investment banking firms, accountants, experts and consultants to Parent and any of its affiliates); provided, that in no event shall Parent Expenses exceed $400,000. The Merger Agreement also provides that Parent will pay, or cause to be paid, in same day funds to the Company the Company Expenses (as defined below) upon demand if Parent or the Purchaser terminates the Merger Agreement in accordance with the provision described in paragraph (5) under "Termination of Merger Agreement". Company Expenses shall mean reasonable and reasonably documented out-of-pocket fees and expenses incurred or paid by or on behalf of the Company in connection with the Offer and the Merger or the consummation of any of the transactions contemplated by the Merger Agreement (including, without limitation, 20 fees and expenses of counsel, commercial banks, investment banking firms, accountants, experts and consultants to the Company and any of its affiliates); provided, that in no event shall Company Expenses exceed $400,000. Conduct of Business by the Company. The Merger Agreement provides that, except as otherwise expressly contemplated by the Merger Agreement (including exceptions on the disclosure schedule thereto), as specifically disclosed in certain documents filed by the Company with the SEC or to the extent that the Purchaser shall otherwise consent in writing, during the period from the date of the Merger Agreement to the effective time of the Merger the Company shall not and shall cause its subsidiaries not to: (a) declare, set aside, make or pay any dividend, distribution or any other amount; (b) issue or sell any shares of any class of its capital stock, or any securities convertible into or exchangeable for any such shares, or issue, sell, grant or enter into any subscriptions, options, warrants, conversion or other rights, agreements, commitments, arrangements or understandings of any kind, contingently or otherwise, to purchase or otherwise acquire any such shares or any securities convertible into or exchangeable for any such shares; (c) incur any indebtedness for borrowed money, issue or sell any debt securities or prepay any debt except for borrowings and repayments in the ordinary course of business; (d) assign, mortgage, pledge or otherwise subject to any lien, any of its assets, except for permitted liens in the ordinary course of business; (e) forgive, cancel, compromise, waive or release any debts, claims or rights, except for debts, claims and rights forgiven, canceled, compromised, waived or released in the ordinary course of business consistent with past practice; (f) except in the ordinary course of business, pay any bonus to any director, officer, manager, employee, sales representative, agent or consultant, or grant to any director, officer, manager, employee, sales representative, agent or consultant any other increase in compensation in any form; (g) enter into, adopt or amend any employment, consulting, retention, change-in-control, collective bargaining, bonus or other incentive compensation, profit-sharing, health or other welfare, stock option or other equity, pension, retirement, vacation, severance, deferred compensation or other employment, compensation or benefit plan, policy, agreement, trust, fund or arrangement for the benefit of any officer, director, employee, sales representative, agent, consultant or affiliate (whether or not legally binding); (h) suffer any damage, destruction or loss (whether or not covered by insurance), or any strike or other employment-related problem, or received notice of any loss of a supplier, customer or employee, that, individually or in the aggregate, could reasonably be expected to have or result in a Material Adverse Effect; (i) amend any of the organizational documents of the Company or adopt a shareholders' rights plan; (j) without the consent of the Purchaser, change in any respect its accounting practices, policies or principles; (k) incur, assume, guarantee or otherwise become directly or indirectly liable with respect to any liability or obligation (whether absolute, accrued, contingent or otherwise and whether direct or indirect, or as guarantor or otherwise with respect to any liability or obligation of any other Person) in excess of (1) $25,000 in each case, other than purchase orders and payroll obligations in the ordinary course of business, or (2) except in the ordinary course of business, $75,000 in the aggregate at any one time outstanding; (l) sell any assets with a value in excess of $25,000 in each case or $75,000 in the aggregate, other than inventory in the ordinary course of business consistent with past practice; (m) (1) enter into any contract or any amendment, modification or termination of any existing contract, other than (A) any contract entered into in the ordinary course of business and involving an expenditure of less than $25,000 in each individual case and $75,000 in the aggregate, or (B) any contract that, pursuant to its terms, is cancelable without penalty on notice of 30 days or less from the end of the first month following the effective time of the Merger, or (2) breach any material contract; (n) make any capital expenditures or capital additions or improvements in excess of $25,000 in any case or $75,000 in the aggregate, other than as previously disclosed in writing to the Purchaser; (o) institute, settle or agree to settle any litigation, action or proceeding before any court or government body, other than in the ordinary course of business consistent with past practice but not in any case involving amounts in excess of $25,000; (p) fail to use best efforts to keep in full force and effect insurance comparable in amount and scope of coverage to insurance now carried by the Company and its subsidiaries; (q) fail to comply in all material respects with all laws applicable to the business; (r) fail to use all reasonable efforts to maintain the Company and its subsidiaries in good standing in their jurisdiction of incorporation and in the jurisdictions in which they are qualified to do business as a foreign corporation and to maintain all governmental approvals and other consents necessary for, or otherwise material to, the business; (s) fail to replenish the inventories and supplies in a normal and customary manner consistent with prior practice; or make purchase commitments in excess of the normal, ordinary and usual requirements of the business or at any price or upon 21 terms and conditions more onerous than those usual for the Company based on past practice; or made any change in selling, pricing, advertising or personnel practices inconsistent with prior practice; (t) suffer any Material Adverse Effect; (u) merge or consolidate with, or agree to merge or consolidate with, or purchase substantially all of the assets of, or otherwise acquire, any business, business organization or division thereof, or any other Person; or (v) take any action or omit to take any action that would result in the occurrence of any of the foregoing. The Merger Agreement further provides that on and after the date of the Merger Agreement until the effective time of the Merger, except as expressly required by the Merger Agreement (including exceptions on the disclosure schedule thereto) or as otherwise expressly consented to by the Purchaser in writing, the Company will, and will cause each of its subsidiaries to: (a) carry on the business in the ordinary course of business in substantially the same manner as heretofore conducted, and use commercially reasonable efforts to (1) preserve intact its present business organization, (2) keep available the services of its present officers and employees and (3) preserve intact its relationships with customers, suppliers and others having business dealings with it; (b) promptly advise the Purchaser in writing of any event, occurrence, fact, condition, change, development or effect that, individually or in the aggregate, could reasonably be expected to have or result in a Material Adverse Effect or a breach of the Company's covenants in the Merger Agreement; (c) not take any action or omit to take any action within its reasonable control, which action or omission would result in a breach of any of the representations and warranties set forth in the Merger Agreement; (d) not agree or otherwise commit to take any of the actions proscribed by the foregoing paragraphs (a) through (c); and (e) conduct all tax affairs relating to it only in the ordinary course of business, and in good faith in substantially the same manner as such affairs would have been conducted if this Agreement had not been entered into. Board of Directors. The Merger Agreement provides that promptly upon the purchase by the Purchaser of more than 50% of the outstanding Shares on a fully-diluted basis pursuant to the Offer and from time to time thereafter, the Company shall use its best efforts to allow the Purchaser to designate up to the minimum number of directors of the Company necessary in order for the result (expressed as a fraction) derived by dividing the number of directors so designated by the total number of directors of the Company to be at least equal to the result (expressed as a fraction) derived by dividing the number of Shares then held by the Purchaser by the total number of Shares then outstanding, provided, however, that until the consummation of the Merger, the Board of Directors of the Company will have at least two (2) Independent Directors. Subject to applicable law, the Company has agreed to use its best efforts to effect any such election, including mailing to its stockholders the Information Statement containing the information required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, which Information Statement is attached as Schedule I to the Schedule 14D-9. The term "Independent Director" means a director who is neither designated by the Purchaser nor otherwise affiliated with the Parent or the Purchaser and is not an employee of the Company or any of its subsidiaries. Stock Options. Pursuant to the Merger Agreement, immediately prior to the effective time of the Merger, each then outstanding Stock Option, shall be canceled by the Company in exchange for a payment in cash by the Purchaser (the "Option Consideration") equal to the product of (i) the number of Shares previously subject to the Stock Option and (ii) the excess, if any, of the Offer Price over the aggregate exercise price for such Shares under such Stock Option. As of the effective time of the Merger, each holder of a Stock Option will be entitled to receive only an amount equal to the Option Consideration. All Stock Option amounts payable shall be subject to any required withholding of taxes and shall be paid without interest. Pursuant to the Merger Agreement, the Company shall thereafter cause each stock option or other equity based plan maintained with respect to any Shares (or rights in respect thereof) to be terminated. Indemnification and Insurance. In the Merger Agreement, Parent and the Purchaser have agreed for a period of six years after the effective time of the Merger, the Surviving Corporation shall indemnify, defend and hold harmless the present and former officers, directors, employees and agents of the Company and its subsidiaries in such capacities against all losses, claims, damages, expenses or liabilities arising out of actions or omissions or alleged actions or omissions occurring at or prior to the effective time of the Merger to the same extent and on the same terms and conditions (including with respect to advancement of expenses) provided for 22 in the Company's organizational documents in effect at the date of the Merger Agreement (to the extent consistent with applicable Law). For a period of six years after the effective time of the Merger, the Surviving Corporation shall maintain in effect directors' and officers' liability insurance covering the persons who are currently covered by the Company's existing directors' and officers' liability insurance with respect to claims arising from facts or events which occurred before the effective time of the Merger, on terms and conditions no less favorable to such directors and officers than those in effect on the date of the Merger Agreement; provided that in no event shall the Surviving Corporation be required to make annual premium payments for such insurance in excess of 150% of the annual premiums payable by the Company for such insurance as of the date of the Merger Agreement. Reasonable Efforts. The Merger Agreement provides that, except as otherwise contemplated therein, Parent, the Purchaser and the Company each shall use their commercially reasonable efforts to take promptly, or cause to be taken, all actions and to do promptly, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by the Merger Agreement, including using their commercially reasonable efforts (i) to obtain all necessary waivers, consents and approvals, and (ii) to effect all necessary registrations and filings including, but not limited to, the Offer Documents, Schedule 14D-9, Proxy Statement and any required filing under the Competition Laws. In case at any time after the effective time of the Merger any further action is necessary or desirable to carry out the obligations of the parties under the Merger Agreement, the proper officers and/or directors of Parent, the Purchaser and the Company, as the case may be, shall take the necessary action. Representations and Warranties. The Merger Agreement contains various customary representations and warranties. 13. Dividends and Distributions Pursuant to the terms of the Merger Agreement, prior to the effective time of the merger, unless otherwise approved in writing by the Purchaser, the Company may not (a) declare, set aside, make or pay any dividends on, or make any other distributions in respect of, any of its capital stock, or (b) issue or sell any shares of any class of its capital stock, or any securities convertible into or exchangeable for any such shares, or issue, sell, grant or enter into any subscriptions, options, warrants, conversion or other rights, agreements, commitments, arrangements or understandings of any kind, contingently or otherwise, to purchase or otherwise acquire any such shares or any securities convertible into or exchangeable for any such shares. Nothing herein shall constitute a waiver by the Purchaser or Parent of any of its rights under the Merger Agreement or a limitation of remedies available to the Purchaser or Parent for any breach of the Merger Agreement, including termination thereof. 14. Certain Conditions of the Offer Notwithstanding any other term of the Offer or the Merger Agreement, the Purchaser shall not be required to accept for payment, or, subject to any applicable rules and regulations of the Commission, including Rule 14e-1(c) under the Exchange Act (relating to the Purchaser's obligation to pay for or return tendered shares after the termination or withdrawal of the Offer), to pay for any Shares tendered pursuant to the Offer, and (subject to the terms of the Merger Agreement) may amend or terminate the Offer or postpone the acceptance for payment, the purchase of, and/or (subject to any such applicable rules and regulations of the Commission) payment for, Shares tendered, (i) unless there are validly tendered and not properly withdrawn prior to the expiration of the Offer, as extended from time to time in accordance with the terms of the Merger Agreement, at least that number of Shares which represents in excess of 50% of all outstanding Shares on a fully- diluted basis (such basis assumes all Shares underlying in-the-money vested and unvested stock options are issued and outstanding), or (ii) subject to any cure period, if applicable, as set forth in Section 8.1(e) of the Agreement, if at any time on or after the date of the Merger Agreement and at or before the time of payment for any such Shares (whether or not any Shares shall theretofore have been accepted for payment or paid pursuant to the Offer) any of the following conditions exists: (a) there shall be pending any action or proceeding brought by any governmental authority before any federal or state court, or any order or preliminary or permanent injunction entered in any action or 23 proceeding before any federal or state court or governmental, administrative or regulatory authority or agency, located or having jurisdiction within the United States or any country or economic region in which either the Company or Parent, directly or indirectly, has material assets or operations, or any other action taken, proposed or threatened, or statute, rule, regulation, legislation, interpretation, judgment or order proposed, sought, enacted, entered, promulgated, amended or issued that is applicable to Purchaser, the Company or any subsidiary or affiliate of Purchaser or the Company or the Offer or the Merger, by any legislative body, court, government or governmental, administrative or regulatory authority or agency located or having jurisdiction within the United States or any country or economic region in which either the Company or Parent, directly or indirectly, has material assets or operations, which could reasonably be expected to have the effect of: (i) making illegal, or otherwise restraining or prohibiting or making materially more costly, the making of the Offer, the acceptance for payment of, payment for, or ownership, directly or indirectly, of some of or all the Shares by Parent or Purchaser, the consummation of any of the transactions contemplated by the Merger Agreement or materially delaying the Merger; (ii) prohibiting or materially limiting the ownership or operation by the Company or any of its subsidiaries, or by Parent, Purchaser or any of Parent's subsidiaries of all or any material portion of the business or assets of the Company and its subsidiaries taken as a whole or Parent or any of its subsidiaries, or compelling Purchaser, Parent or any of Parent's subsidiaries to dispose of or hold separate all or any material portion of the business or assets of the Company and any of its subsidiaries taken as a whole or Parent or any of its subsidiaries, in each case as a result of the transactions contemplated by the Offer or the Merger Agreement; (iii) imposing or confirming material limitations on the ability of Purchaser, Parent or any of Parent's subsidiaries effectively to acquire or hold or to exercise full rights of ownership of Shares including, without limitation, the right to vote any Shares acquired or owned by Parent or Purchaser or any of Parent's subsidiaries on all matters properly presented to the stockholders of the Company, including, without limitation, the adoption and approval of the Merger Agreement and the Merger or the right to vote any shares of capital stock of any subsidiary directly or indirectly owned by the Company; (iv) requiring divestiture by Parent or Purchaser, directly or indirectly, of any Shares; or (v) which could reasonably be expected to have a Material Adverse Effect; (b) there shall have occurred, or Purchaser shall have become aware of any fact that has had, or could reasonably be expected to have, a Material Adverse Effect; (c) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market in the United States, (ii) a decline of at least 25% in the Nasdaq-100 Index, the Dow Jones Average of Industrial Stocks or the Standard & Poor's 500 index from that existing at the close of business on the date of the Merger Agreement, (iii) any material adverse change or any condition, event or development involving a prospective material adverse change in United States or other material international currency exchange rates or a suspension of, or limitation on, the markets therefor, (iv) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (v) any limitation (whether or not mandatory) by any government or governmental, administrative or regulatory authority or agency, domestic or foreign on, or any other event that materially adversely affects, the extension of credit by banks or other lending institutions, (vi) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States which would reasonably be expected to have a Material Adverse Effect on the Company or materially adversely affect (or materially delay) the consummation of the Offer or (vii) in the case of any of the foregoing existing at the time of the execution of the Merger Agreement, a material acceleration or worsening thereof which acceleration or worsening is reasonably expected to have a Material Adverse Effect on the Company or to materially adversely affect the consummation of the Offer; (d) (i) it shall have been publicly disclosed or Purchaser shall have otherwise learned that beneficial ownership (determined for the purposes of this paragraph as set forth in Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the outstanding Shares has been acquired by any corporation (including the Company or any of its subsidiaries or affiliates), partnership, person or other entity or group (as defined in Section 13(d)(3) of the Exchange Act), other than Parent or any of its affiliates, or (ii) (A) the Board of 24 Directors of the Company or any committee thereof shall have withdrawn or modified in a manner adverse to Parent or Purchaser the approval or recommendation of the Offer, the Merger or the Merger Agreement, or approved or recommended any takeover proposal or any other acquisition of Shares other than the Offer and the Merger, (B) any such corporation, partnership, person or other entity or group shall have entered into a definitive agreement or an agreement in principle with the Company with respect to a tender offer or exchange offer for any Shares or a merger, consolidation or other business combination with or involving the Company or any of its subsidiaries or (C) the Board of Directors of the Company or any committee thereof shall have resolved to do any of the foregoing; (e) any of the representations and warranties of the Company set forth in the Merger Agreement that are qualified as to materiality shall not be true and correct or any such representations and warranties that are not so qualified shall not be true and correct in any material respect, in each case as if such representations and warranties were made at the time of such determination, except with respect to representations and warranties made as of an earlier time; provided, that the representations and warranties of the Company set forth in Sections 3.32 (relating to the Nortel Warrant) and 3.33 (relating to the cash on the balance sheet) of the Merger Agreement are true and correct as of the date of such Merger Agreement and as of the date of the consummation of the Offer; (f) the Company shall have failed to perform any material obligation or to comply with any material agreement or material covenant of the Company to be performed or complied with by it under the Merger Agreement; (g) the Merger Agreement shall have been terminated in accordance with its terms or the Offer shall have been terminated with the consent of the Company; or (h) any waiting periods under the HSR Act applicable to the purchase of Shares pursuant to the Offer shall not have expired or been terminated or any material approval, permit, authorization, consent or waiting period of any domestic, foreign or supranational governmental, administrative or regulatory agency (federal, state, local, provincial or otherwise) located or having jurisdiction within the United States or any country or economic region in which either the Company or Parent, directly or indirectly, has material assets or operations, including, but not limited to, the Competition Act (Canada), shall not have been obtained and such failure to obtain could reasonably be expected to have a Material Adverse Effect on the Company or the value of the Shares or the Offer to the Purchaser; which, in the good faith sole judgment of Purchaser makes it inadvisable to proceed with the Offer or with such acceptance for payment of or payment for Shares or to proceed with the Merger. The foregoing conditions are for the sole benefit of Purchaser and may be asserted by Purchaser regardless of the circumstances giving rise to any such condition or may be waived by Purchaser in whole or in part at any time and from time to time in its sole discretion (subject to the terms of the Merger Agreement). The failure by Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. 15. Certain Legal Matters Except as described in this Section 15, based on a review of publicly available filings made by the Company with the Commission and other publicly available information concerning the Company and discussions of representatives of Parent with representatives of the Company, neither the Purchaser nor Parent is aware of any license or regulatory permit that appears to be material to the business of the Company and its subsidiaries, taken as a whole, that might be adversely affected by the Purchaser's acquisition of Shares (and the indirect acquisition of the stock of the Company's subsidiaries) as contemplated herein or of any approval or other action by any Governmental Entity that would be required or desirable for the acquisition or ownership of Shares by the Purchaser as contemplated herein. Should any such approval or other action be required or desirable, the 25 Purchaser and Parent currently contemplate that such approval or other action will be sought, except as described below under "State Takeover Laws". While, except as otherwise expressly described in this Section 15, the Purchaser does not presently intend to delay the acceptance for payment of or payment for Shares tendered pursuant to the Offer pending the outcome of any such matter, there can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that failure to obtain any such approval or other action might not result in consequences adverse to the Company's business or that certain parts of the Company's business might not have to be disposed of if such approvals were not obtained or such other actions were not taken or in order to obtain any such approval or other action. If certain types of adverse action are taken with respect to the matters discussed below, the Purchaser could decline to accept for payment or pay for any Shares tendered. See Section 14. Section 203 of the DGCL. Section 203 of the DGCL, in general, prohibits a Delaware corporation such as the Company from engaging in a "Business Combination" (defined as a variety of transactions, including mergers, as set forth below) with an "Interested Stockholder" (defined generally as a person that is the beneficial owner of 15% or more of a corporation's outstanding voting stock) for a period of three years following the date that such person became an Interested Stockholder unless, among other things, prior to the date such person became an Interested Stockholder, the board of directors of the corporation approved either the Business Combination or the transaction that resulted in the stockholder becoming an Interested Stockholder. The Company's Board of Directors has approved the Merger Agreement and the Purchaser's acquisition of Shares pursuant to the Offer. Therefore, Section 203 of the DGCL is inapplicable to the Merger. Other State Takeover Laws. A number of states throughout the United States have enacted takeover statutes that purport, in varying degrees, to be applicable to attempts to acquire securities of corporations that are incorporated or have assets, stockholders, executive offices or places of business in such states. In Edgar v. MITE Corp., the Supreme Court of the United States held that the Illinois Business Takeover Act, which involved state securities laws that made the takeover of certain corporations more difficult, imposed a substantial burden on interstate commerce and therefore was unconstitutional. In CTS Corp. v. Dynamics Corp. of America, however, the Supreme Court of the United States held that a state may, as a matter of corporate law and, in particular, those laws concerning corporate governance, constitutionally disqualify a potential acquiror from voting on the affairs of a target corporation without prior approval of the remaining stockholders, provided that such laws were applicable only under certain conditions. Subsequently, a number of Federal courts ruled that various state takeover statutes were unconstitutional insofar as they apply to corporations incorporated outside the state of enactment. Based on information supplied by the Company, the Purchaser does not believe that any other state takeover statutes purport to apply to the Offer or the Merger. Except as discussed above, neither the Purchaser nor Parent has currently complied with any state takeover statute or regulation. The Purchaser reserves the right to challenge the applicability or validity of any state law purportedly applicable to the Offer or the Merger and nothing in this Offer to Purchase or any action taken in connection with the Offer or the Merger is intended as a waiver of such right. If it is asserted that any state takeover statute is applicable to the Offer or the Merger and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer or the Merger, the Purchaser might be required to file certain information with, or to receive approvals from, the relevant state authorities, and the Purchaser might be unable to accept for payment or pay for Shares tendered pursuant to the Offer, or be delayed in consummating the Offer or the Merger. In such case, the Purchaser may not be obligated to accept payment or pay for any Shares tendered pursuant to the Offer. See Section 14. Antitrust. Under the provisions of the HSR Act applicable to the Offer, the acquisition of Shares under the Offer may be consummated following the expiration of a 15-calendar day waiting period following the filing by Parent of a Notification and Report Form with respect to the Offer, unless Parent or the Company receives a request for additional information or documentary material from the Antitrust Division or the FTC or unless early termination of the waiting period is granted. Parent and the Company expect to file Notification and Report Forms with respect to the Offer soon. If, within the initial 15-day waiting period, either the Antitrust Division or 26 the FTC requests additional information or material from Parent or the Company concerning the Offer, the waiting period will be extended and would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance by Parent or the Company with such request. Only one extension of the waiting period pursuant to a request for additional information is authorized by the HSR Act. Thereafter, such waiting period may be extended only by court order or with the consent of Parent and the Company. The waiting period under the HSR Act may be terminated prior to its expiration by the FTC and the Antitrust Division. Parent will request early termination of the waiting period, although there can be no assurance that this request will be granted. In practice, complying with a request for additional information or material can take a significant amount of time. In addition, if the Antitrust Division or the FTC raises substantive issues in connection with a proposed transaction, the parties frequently engage in negotiations with the relevant governmental agency concerning possible means of addressing those issues and may agree to delay consummation of the transaction while such negotiations continue. Expiration or termination of the applicable waiting period under the HSR Act is a condition to the Purchaser's obligation to accept for payment and pay for Shares tendered pursuant to the Offer. The Merger would not require an additional filing under the HSR Act if the Purchaser owns 50% or more of the outstanding Shares at the time of the Merger or if the Merger occurs within one year after the HSR Act waiting period applicable to the Offer expires or is terminated. The Antitrust Division and the FTC frequently scrutinize the legality under the antitrust laws of transactions such as the Purchaser's proposed acquisition of the Company. At any time before or after the Purchaser's acquisition of Shares pursuant to the Offer, 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 purchase of Shares pursuant to the Offer or the consummation of the Merger or seeking the divestiture of Shares acquired by the Purchaser or the divestiture of substantial assets of the Company or its subsidiaries or Parent or its subsidiaries. Private parties may also bring legal action under the antitrust laws under certain circumstances. There can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if such a challenge is made, of the result thereof. Other Foreign Approvals. The Company conducts business in a number of foreign countries and jurisdictions. In connection with the acquisition of the Shares pursuant to the Offer, the laws of certain of those foreign countries and jurisdictions may require the filing of information with, or the obtaining of the approval of, governmental authorities in such countries and jurisdictions. The governments in such countries and jurisdictions might attempt to impose additional conditions on the Company's operations conducted in such countries and jurisdictions as a result of the acquisition of the Shares pursuant to the Offer. There can be no assurance that Purchaser will be able to cause the Company or its subsidiaries to satisfy or comply with such laws or that compliance or non-compliance will not have adverse consequences for the Company or any subsidiary after purchase of the Shares pursuant to the Offer. Appraisal Rights Holders of Shares do not have appraisal rights as a result of the Offer. However, if the Merger is consummated, holders of Shares at the effective time of the Merger will have certain rights pursuant to the provisions of Section 262 of the DGCL ("Section 262") to dissent and demand appraisal of their Shares. Under Section 262, dissenting stockholders who comply with the applicable statutory procedures will be entitled to receive a judicial determination of the fair value of their Shares (exclusive of any element of value arising from the accomplishment or expectation of the Merger) and to receive payment of such fair value in cash, together with a fair rate of interest, if any. Any such judicial determination of the fair value of Shares could be based upon factors other than, or in addition to, the price per Share to be paid in the Merger or the market value of the Shares. The value so determined could be more or less than the price per Share to be paid in the Merger. The foregoing summary of Section 262 does not purport to be complete and is qualified in its entirety by reference to Section 262. Failure to follow the steps required by Section 262 for perfecting appraisal rights may result in the loss of such rights. 27 Going Private Transactions The Commission has adopted Rule 13e-3 under the Exchange Act, which is applicable to certain "going private" transactions. The Purchaser does not believe that Rule 13e-3 will be applicable to the Merger unless the Merger is consummated more than one year after the termination of the Offer. If applicable, Rule 13e-3 requires, among other things, that certain financial information concerning the fairness of the Merger and the consideration offered to minority stockholders in such transaction be filed with the Commission and disclosed to stockholders prior to the consummation of the Merger. 16. Fees and Expenses The Purchaser and Parent have retained MacKenzie Partners, Inc. to act as the Information Agent and ChaseMellon Shareholder Services, L.L.C. to serve as the Depositary in connection with the Offer. The Information Agent and the Depositary each will receive reasonable and customary compensation for their services, be reimbursed for certain reasonable out-of-pocket expenses and be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities and expenses under the Federal securities laws. Neither the Purchaser nor Parent will pay any fees or commissions to any broker or dealer or other person (other than the Information Agent) in connection with the solicitation of tenders of Shares pursuant to the Offer. Brokers, dealers, banks and trust companies will be reimbursed by the Purchaser upon request for customary mailing and handling expenses incurred by them in forwarding material to their customers. 17. Miscellaneous The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. Neither the Purchaser nor Parent is aware of any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. To the extent the Purchaser or Parent becomes aware of any state law that would limit the class of offerees in the Offer, the Purchaser will amend the Offer and, depending on the timing of such amendment, if any, will extend the Offer to provide adequate dissemination of such information to holders of Shares prior to the expiration of the Offer. In any jurisdiction the securities, blue sky or other laws of which require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by one or more registered brokers or dealers licensed under the laws of such jurisdiction. No person has been authorized to give any information or to make any representation on behalf of the Purchaser or Parent not contained herein or in the Letter of Transmittal and, if given or made, such information or representation must not be relied upon as having been authorized. The Purchaser and Parent have filed with the Commission the Schedule 14D-1 pursuant to Rule 14d-3 under the Exchange Act, together with exhibits, furnishing certain additional information with respect to the Offer, and may file amendments thereto. In addition, the Company has filed the Schedule 14D-9 pursuant to Rule 14d-9 under the Exchange Act, together with exhibits, setting forth its recommendation with respect to the Offer and the reasons for such recommendation and furnishing certain additional related information. Such Schedules and any amendments thereto, including exhibits, should be available for inspection and copies should be obtainable in the manner set forth in Sections 8 and 9 (except that such material will not be available at the regional offices of the Commission). Dynatech Acquisition Corporation September 14, 1999 28 DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND THE PURCHASER 1. Directors and Executive Officers of Parent. The following table sets forth the name and current principal occupation or employment of the directors and executive officers of Parent. Unless otherwise indicated, all occupations, offices or positions of employment listed opposite an individual's name were held by such individual during the last five years. The business address of each such director and executive officer is c/o Parent, 3 New England Executive Park, Burlington, MA 01803. All such directors and executive officers listed below are citizens of the United States. Directors are indicated by an asterisk.
Present Principal Occupation or Employment and Name Five-Year Employment History ---- ---------------------------------------------- Dennis E. Ferguson........ Dennis E. Ferguson serves as Corporate Vice President of Parent, a position to which he was elected on November 30, 1998, and President of Parent's Airshow, Inc. subsidiary. Mr. Ferguson joined Parent in 1994. Mr. Ferguson previously served from 1990 to 1994 as General Manager of Intercon Security, Inc., a manufacturer and provider of security systems and services. Prior to 1990 he was employed by Sundstrand Turbomach and served as Vice President and General Manager of Transcom, an in-flight entertainment division of Sundstrand. Brian D. Finn*............ Brian D. Finn is a principal and Director of CDR and, since May 21, 1998, a Director of Parent. Mr. Finn is also a Director of U.S. Office Products Company. Mr. Finn joined CDR in 1997 from Credit Suisse First Boston where he was Managing Director and Co-Head of Mergers & Acquisitions. During his 15 years at Credit Suisse First Boston he advised a large number of corporate clients in various industries in transactions totaling approximately $250 billion. Mr. Finn received his B.S. in Economics from The Wharton School of the University of Pennsylvania. Allan M. Kline*........... Allan M. Kline presently serves as Corporate Vice President, Chief Financial Officer and Treasurer and, since May 21, 1998, a Director of Parent. Mr. Kline joined Parent in June 1996. From 1995 to 1996 he served as Senior Vice President, Chief Financial Officer of CrossComm Corporation, a manufacturer of networking products. From 1994 to 1995, he was President of TAR Acquisition Corp., a private investment company. From 1989 to 1994, Mr. Kline was also a Director of CrossComm Corporation. From 1990 to 1994, Mr. Kline was Senior Vice President, Chief Financial Officer of Cabot Safety Corporation, a subsidiary of Cabot Corporation. Prior to that, he served at Leggett & Platt, Incorporated and was a partner with Arthur Young & Company. Ned C. Lautenbach*........ Ned C. Lautenbach presently serves as Chairman, President and Chief Executive Officer of Parent and a Director of Parent. He has served as Chairman, President and Chief Executive Officer since May 19, 1999 and as Director since November 30, 1998. Mr. Lautenbach joined Clayton, Dubilier & Rice, Inc. ("CDR") in 1998 from IBM Corporation where he served as Senior Vice President and Group Executive of Worldwide Sales and Services. During his career at IBM, he held a variety of other senior executive positions in several divisions, including president of the National Distribution Division of the United States, President, Asia Pacific, and Chairman, IBM World Trade Corporation. Mr. Lautenbach received his M.B.A. from Harvard University after having completed his undergraduate studies in economics at the University of Cincinnati.
S-1
Present Principal Occupation or Employment and Name Five-Year Employment History ---- ---------------------------------------------- Marvin L. Mann*........... Marvin L. Mann has served since February 4, 1999, as a Director of Parent. He also has served since April 1999 as Chairman Emeritus of the Board of Directors of Lexmark International Group, Inc. He served as Chairman of the Board of Lexmark International Group, Inc. from March 1991 through April 1999, as Chief Executive Officer from March 1991 through May 1998, and as President from March 1991 through February 1997. Prior to such time, Mr. Mann held numerous positions with IBM. During his IBM career, Mr. Mann held a number of executive positions including President of the Information Products Division, President of the Service Sector Division and President and Chief Executive Officer of the Satellite Business Systems. He was elected an IBM Vice President in 1985. Mr. Mann also serves as a director of the M.A. Hanna Company and Imation Corporation and is a member of the board of trustees of Fidelity Investments. William O. McCoy*......... William O. McCoy has served since July 20, 1999, as a Director of Parent. He is currently the Acting Chancellor of The University of North Carolina at Chapel Hill. He retired in January 1999 as Vice President for Finance of the sixteen- campus University of North Carolina. He joined UNC General Administration in 1995 after a 35-year career with the BellSouth Corporation. where he served as Vice Chairman of the Board of Directors from 1984 through 1994. Mr. McCoy also serves as a director of Kenan Transport Company, Carolina Power and Light Company, Liberty Corporation of Greenville, S.C. and the Weeks Corporation in Atlanta and is a member of the board of trustees of Fidelity Investments and a partner of Franklin Street Partners. John A. Mixon............. John A. Mixon presently serves as Corporate Vice President--Human Resources of Parent. Mr. Mixon has been employed by Parent since 1989. John R. Peeler*........... John R. Peeler presently serves as Corporate Vice President--Communications Test Business and President and Chief Executive Officer of all Parent's communication test businesses and, since May 21, 1998, a Director of Parent. Mr. Peeler has been employed by Parent since 1980. Mr. Peeler beneficially owns 50 Shares of the Company. Mr. Peeler has not effected any transactions in any equity security of the Company during the past 60 days. Charles P. Pieper*........ Charles P. Pieper is a principal and Director of CDR and, since May 21, 1998, a Director of Parent. Mr. Pieper is also Chairman of North American Van Lines, Inc., Chairman and Chief Executive Officer of U.S. Office Products Company, and a Director of Alliant Foodservice, Inc. Mr. Pieper joined CDR in 1997. Prior to joining CDR, he was President and Chief Executive Officer of GE Lighting Europe. During his 16-year career at GE, Mr. Pieper was responsible for several key business units, including serving as President and Chief Executive Officer of: GE Japan, Korea, Taiwan; GE Medical Systems Asia; as well as GE Lighting Europe. He joined GE in 1981, from the Boston Consulting Group. Mr. Pieper graduated from Harvard College and holds an M.B.A. from Harvard Business School.
S-2
Present Principal Occupation or Employment and Name Five-Year Employment History ---- ---------------------------------------------- Joseph L. Rice, III*...... Joseph L. Rice, III, is a principal and Chairman of CDR and, since May 21, 1998, a Director of Parent. In addition, Mr. Rice is a Director of Uniroyal Holding, Inc., Remington Arms Company, Inc., RACI Holding, Inc. and Thyssen Schulte Bautechnik, and serves as a trustee of Williams College and The Manhattan Institute. He is a graduate of Williams College and Harvard Law School. Brian H. Rowe*............ Brian H. Rowe has served since November 30, 1998, as a Director of Parent. He is currently Chairman Emeritus of GE Aircraft Engines in Cincinnati, Ohio, where he also served as Chairman from September 1993 through January 1995, and as President and Chief Executive Officer from 1979 through 1993. Mr. Rowe also serves as a director of Atlas Air, Inc., B/E Aerospace, Inc., Fifth Third Bank, Stewart & Stevenson Services, Inc., Convergys Corporation and Textron Inc. Samuel W. Tishler......... Samuel W. Tishler presently serves as Corporate Vice President--Corporate Development of Parent. Mr. Tishler joined Parent in September 1994. From 1988 to 1994, he was Vice President of Raytheon Ventures, the venture capital portfolio of Raytheon Co. From 1986 to 1988, he was Chief Executive Officer of Kloss Video Corporation, a manufacturer of video projectors. From 1977 to 1986, he served as Vice President of ADL Enterprises, a wholly owned subsidiary of Arthur D. Little, Inc. From 1970 to 1977, Mr. Tishler was President of Harnessed Energies, Inc., a manufacturer of scientific instrumentation. Mark V.B. Tremallo........ Mark V.B. Tremallo presently serves as Corporate Vice President--General Counsel and Secretary of Parent. Mr. Tremallo joined Parent in May 1997. From 1995 to 1997 he served as Vice President, General Counsel and Secretary of Aearo Corporation (formerly Cabot Safety Corporation), a manufacturer of industrial safety products. From 1990 to 1995 he was General Counsel of Cabot Safety Corporation, a subsidiary of Cabot Corporation. Robert W. Woodbury, Jr. .. Robert W. Woodbury, Jr. presently serves as Corporate Vice President and Corporate Controller of Parent. Mr. Woodbury joined Parent in January 1996. From 1992 to January 1996, he served as Vice President and Controller for Kollmorgen Corporation, a manufacturer of motion control devices. From 1990 to 1992, he was Chief Financial Officer of Kidde Fenwal, Inc., a manufacturer of fire suppression equipment.
2. Directors and Executive Officers of the Purchaser. The following table sets forth the name and current principal occupation or employment of the directors and executive officers of the Purchaser. The business address of each such director and executive officer is Dynatech Acquisition Corporation c/o Dynatech Corporation, 3 New England Executive Park, Burlington, MA 01803. All such directors and executive officers listed below are citizens of the United States. Directors are indicated by an asterisk.
Present Principal Occupation or Employment and Five-Year Name Employment History ---- ------------------ Allan M. Kline*........................................... See page S-1. John R. Peeler*........................................... See page S-3. Mark V.B. Tremallo*....................................... See page S-4. Robert W. Woodbury, Jr.*.................................. See page S-4.
S-3 Manually signed facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal, certificates for Shares and any other required documents should be sent or delivered by each stockholder of the Company or such stockholder's broker, dealer, bank, trust company or other nominee to the Depositary at one of its addresses set forth below. The Depositary for the Offer is: ChaseMellon Shareholder Services, L.L.C. By Mail By Hand By Overnight Reorganization Reorganization Reorganization Department Department Department PO Box 3301 120 Broadway 85 Challenger Road South Hackensack, NJ 13th Floor Mail Stop--Reorg 07606 New York, NY 10271 Ridgefield Park, NJ 07660 By Facsimile Transmission (for eligible institutions only): (201) 296-4293 Confirm facsimile by telephone only: (201) 296-4860 Questions and requests for assistance or for additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Information Agent at its telephone numbers and location listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: [LOGO OF MACKENZIE PARTNERS, INC APPEARS HERE] 156 Fifth Avenue New York, New York 10010 Call Toll Free (800) 322-2885 EX-99.(A)(2) 3 LETTER OF TRANSMITTAL Exhibit 99(a)(2) STOCKHOLDERS WISHING TO TENDER THEIR SHARES SHOULD USE THIS LETTER OF TRANSMITTAL LETTER OF TRANSMITTAL To Tender Shares of Common Stock of APPLIED DIGITAL ACCESS, INC. Pursuant to the Offer to Purchase Dated September 14, 1999 by DYNATECH ACQUISITION CORPORATION an indirect wholly-owned subsidiary of DYNATECH CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, OCTOBER 12, 1999, UNLESS THE OFFER IS EXTENDED. The Depositary for the Offer is: ChaseMellon Shareholder Services, L.L.C. By Mail By Hand By Overnight Reorganization Department Reorganization Department Reorganization Department PO Box 3301 120 Broadway 85 Challenger Road South Hackensack, NJ 13th Floor Mail Stop--Reorg 07606 New York, NY 10271 Ridgefield Park, NJ 07660 By Facsimile Transmission (for eligible institutions only): (201) 296-4293 Confirm facsimile by telephone only: (201) 296-4860 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. SIGNATURES MUST BE PROVIDED ON PAGES 6 AND 10. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. DESCRIPTION OF SHARES TENDERED
Name(s) and Address(es) of Registered Holder(s) (Please fill in, if blank, exactly as name(s) appear(s) on Share Share Certificate(s) and Share(s) Tendered Certificate(s)) (Attach additional list, if necessary) - -------------------------------------------------------------------- Share Total Number of Certificate Shares Represented Number of Shares Number(s)* by Certificate(s)* Tendered** ----------------------------- ----------------------------- ----------------------------- ----------------------------- Total Shares
- ------------------------------------------------------------------------------- * Need not be completed by Book-Entry Stockholders. ** Unless otherwise indicated, it will be assumed that all Shares represented by certificates delivered to the Depositary are being tendered. See Instruction 4. This BLUE Letter of Transmittal is to be completed by holders of Shares (as defined below) either if certificates are to be forwarded herewith or, unless an Agent's Message (as defined in Section 2 of the Offer to Purchase (as defined below)) is utilized, if a tender of Shares is to be made by book-entry transfer into the account of ChaseMellon Shareholder Services, L.L.C. as Depositary (the "Depositary"), at The Depository Trust Company (the "Book- Entry Transfer Facility") pursuant to the procedures set forth in Section 2 of the Offer to Purchase (as defined below). Delivery of documents to the Book- Entry Transfer Facility does not constitute delivery to the Depositary. Holders of Shares whose certificates for such Shares (the "Share Certificates") are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase), or who cannot complete the procedure for book-entry transfer on a timely basis, must tender their Shares according to the guaranteed delivery procedure set forth in Section 2 of the Offer to Purchase. See Instruction 2. [_]CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: _____________________________________________ Account Number: ____________________________________________________________ Transaction Code Number: ___________________________________________________ [_]CHECK HERE IF SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING. PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY. Name(s) of Registered Holder(s): ___________________________________________ Window Ticket Number (if any): _____________________________________________ Date of Execution of Notice of Guaranteed Delivery: ________________________ Name of Institution which Guaranteed Delivery: _____________________________ 2 Ladies and Gentlemen: The undersigned hereby tenders to Dynatech Acquisition Corporation, a Delaware corporation ("Purchaser") and an indirect wholly-owned subsidiary of Dynatech Corporation, a Delaware corporation, the above-described shares of common stock, par value $0.001 per Share (all of the shares of common stock being hereinafter collectively referred to as the "Shares"), of Applied Digital Access, Inc., a Delaware corporation (the "Company"), at a purchase price of $5.37 per Share, net to the seller in cash without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated September 14, 1999 (the "Offer to Purchase") and in this Letter of Transmittal (which together with the Offer to Purchase, constitutes the "Offer"). The undersigned understands that Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer. Subject to, and effective upon, acceptance for payment of the Shares tendered herewith in accordance with the terms and subject to the conditions of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, Purchaser all right, title and interest in and to all of the Shares that are being tendered hereby and any and all dividends, distributions (including additional Shares) and rights declared, paid or issued with respect to the tendered Shares on or after September 7, 1999, and payable or distributable to the undersigned on a date prior to the transfer to the name of Purchaser (or nominee or transferee of Purchaser) on the Company's stock transfer records of the Shares tendered herewith (collectively, a "Distribution"), and irrevocably constitutes and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and any Distributions) with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest) to (a) deliver certificates for such Shares (and any Distributions) or transfer ownership of such Shares (and any Distributions) on the account books maintained by the Book-Entry Transfer Facility, together in either case with appropriate evidences of transfer, to the Depositary for the account of Purchaser, (b) present such Shares (and any Distributions) for transfer on the books of the Company and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and any Distributions), all in accordance with the terms and subject to the conditions of the Offer. The undersigned irrevocably appoints Purchaser or any other designees of Purchaser, and each of them, as such stockholder's attorneys-in-fact and proxies, each with full power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by Purchaser and with respect to any and all other shares or other securities issued or issuable in respect of such Shares on or after September 7, 1999. Such appointment will be effective upon the acceptance for payment of such Shares by Purchaser in accordance with the terms of the Offer. Upon such acceptance for payment, all prior powers of attorney and proxies given by such stockholder with respect to such Shares (and such other shares and securities) will be revoked without further action, and no subsequent proxies may be given nor any subsequent written consents executed (and, if given or executed, will not be deemed effective). The proxies (or other designees of Purchaser) will be empowered to exercise all voting and other rights of such stockholder as they in their sole discretion may deem proper at any annual or special meeting of the Company's stockholders or any adjournment or postponement thereof, by consent in lieu of any such meeting or otherwise. Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon Purchaser's payment for such Shares Purchaser must be able to exercise full voting rights with respect to such Shares. The undersigned hereby represents and warrants that (a) the undersigned has full power and authority to tender, sell, assign and transfer the Shares (and any Distributions) tendered hereby and (b) when the Shares are accepted for payment by Purchaser, Purchaser will acquire good, marketable and unencumbered title to the Shares (and any Distributions), free and clear of all liens, restrictions, charges and encumbrances, and the same will not be subject to any adverse claim. The undersigned, upon request, shall execute and deliver any signature guarantee or additional documents deemed by the Depositary or Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares (and any Distributions) tendered hereby. In addition, the undersigned shall promptly remit and transfer to the Depositary for the account of Purchaser any and all Distributions in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer, 3 and pending such remittance or appropriate assurance thereof, Purchaser will be, subject to applicable law, entitled to all rights and privileges as owner of any such Distribution and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by Purchaser in its sole discretion. No authority herein conferred or agreed to be conferred by this Letter of Transmittal shall be affected by, and all such authority shall survive the death or incapacity of the undersigned. All obligations of the undersigned hereunder shall be binding upon the heirs, executors, administrators, trustees in bankruptcy, personal and legal representatives, successors and assigns of the undersigned. Tenders of Shares made pursuant to the Offer are irrevocable, except that Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase) and, unless theretofore accepted for payment by Purchaser pursuant to the Offer, may also be withdrawn at any time after November 13, 1999. See Section 3 of the Offer to Purchase. The undersigned understands that tenders of Shares pursuant to any of the procedures described in Section 2 of the Offer to Purchase and in the instructions hereto will constitute a binding agreement between the undersigned and Purchaser upon the terms and subject to the conditions set forth in the Offer, including the undersigned's representation and warranty that the undersigned owns the Shares being tendered. Unless otherwise indicated herein under "Special Payment Instructions," please issue the check for the purchase price and/or return any certificate(s) for Shares not tendered or not accepted for payment in the name(s) of the registered holder(s) appearing under "Description of Shares Tendered." Similarly, unless otherwise indicated herein under "Special Delivery Instructions," please mail the check for the purchase price and/or any certificate(s) for Shares not tendered or not accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Shares Tendered." In the event that both the Special Delivery Instructions and the Special Payment Instructions are completed, please issue the check for the purchase price and/or any certificate(s) for Shares not tendered or accepted for payment in the name of, and deliver such check and/or such certificates to, the person or persons so indicated. Unless otherwise indicated herein under "Special Payment Instructions," please credit any Shares tendered herewith by book-entry transfer that are not accepted for payment by crediting the account designated above. The undersigned recognizes that Purchaser has no obligation, pursuant to the Special Payment Instructions, to transfer any Shares from the name(s) of the registered holder(s) thereof if Purchaser does not accept for payment any of the Shares so tendered. 4 [_]CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING THE SHARES THAT YOU OWN HAVE BEEN LOST OR DESTROYED AND SEE INSTRUCTION 11. Number of shares represented by the lost or destroyed certificates: Please fill in the remainder of this Letter of Transmittal. SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (See Instructions 1, 5, 6 and 7) (See Instructions 1, 5, 6 and 7) - -------------------------------------- -------------------------------------- To be completed ONLY if certifi- To be completed ONLY if certifi- cate(s) for Shares not tendered cate(s) for Shares not tendered or not accepted for payment or not accepted for payment and/or the check for the purchase and/or the check for the purchase price of Shares accepted for pay- price of Shares accepted for pay- ment are to be issued in the name ment are to be sent to someone of someone other than the under- other than the undersigned or to signed or if Shares tendered by the undersigned at an address book-entry transfer which are not other than that shown above. accepted for payment are to be returned by credit to an account maintained at the Book-Entry Transfer Facility other than the account shown above. Issue [_] Check [_] Certificates Mail [_] Check [_] Certificates to: to: Name: ____________________________ Name: ____________________________ (Please Print) (Please Print) Address: _________________________ Address __________________________ __________________________________ __________________________________ __________________________________ __________________________________ (Include Zip Code) (Include Zip Code) (Taxpayer Identification or (Taxpayer Identification or Social Security No.) Social Security No.) (See Substitute Form W-9 on Back (See Substitute Form W-9 on Back Cover) Cover) __________________________________ __________________________________ Credit Shares tendered by book- entry transfer that are not ac- cepted for payment to: __________________________________ (Account Number) 5 IMPORTANT: STOCKHOLDERS SIGN HERE (Also complete Substitute Form W-9) x _________________________________________________________________ (left arrow) Sign x _________________________________________________________________ (left arrow) Here Signature(s) of Holder(s) Date ______________________________________________________________________ (Must be signed by the registered holder(s) exactly as name(s) appear(s) on Share Certificate(s) or on a security position listing or by person(s) authorized to become registered holders(s) by certificates and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.) Name(s) ___________________________________________________________________ --------------------------------------------------------------------------- (Please Print) Capacity (Full Title): ____________________________________________________ Address: __________________________________________________________________ --------------------------------------------------------------------------- --------------------------------------------------------------------------- (Include Zip Code) Daytime Telephone Number: ( ) _________________________________________ (Area Code) Tax Identification or Social Security No.: ________________________________ (See Substitute Form W-9 on Reverse Side) GUARANTEE OF SIGNATURE(S)) (If Required--See Instructions 1 and 5) (Authorized Signature): ___________________________________________________ Name: _____________________________________________________________________ Name of Firm: _____________________________________________________________ Address: __________________________________________________________________ --------------------------------------------------------------------------- --------------------------------------------------------------------------- (Include Zip Code) Daytime Telephone Number: ( ) _________________________________________ (Area Code) Dated: ____________________________________________________________________ 6 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Guarantee of Signatures. No signature guarantee is required on this Letter of Transmittal (a) if this Letter of Transmittal is signed by the registered holder(s) of Shares (which term, for purposes of this document, shall include any participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) tendered herewith, unless such holder(s) has completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" above, or (b) if such Shares are tendered for the account of a firm which is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of a recognized Medallion Program approved by the Securities Transfer Association (each of the foregoing being referred to as an "Eligible Institution"). In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 5 of this Letter of Transmittal. 2. Requirements of Tender. This Letter of Transmittal is to be completed by stockholders either if certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if tenders are to be made pursuant to the procedure for tender by book-entry transfer set forth in Section 2 of the Offer to Purchase. Certificates for all physically tendered Shares or timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility, as well as a properly completed and duly executed Letter of Transmittal (or a facsimile hereof), with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase). Stockholders whose certificates for Shares are not immediately available or who cannot deliver their certificates for Shares and all other required documents to the Depositary prior to the Expiration Date or who cannot complete the procedure for delivery by book-entry transfer on a timely basis may tender their Shares by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth in Section 2 of the Offer to Purchase. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by the Purchaser, must be received by the Depositary on or prior to the Expiration Date; and (iii) the certificates (or a Book- Entry Confirmation) representing all tendered Shares, in proper form for transfer, in each case together with the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry delivery, an Agent's Message) and any other documents required by this Letter of Transmittal, must be received by the Depositary within three Nasdaq Stock Market trading days after the date of execution of such Notice of Guaranteed Delivery. Tendering Stockholders should use this Blue Letter of Transmittal (and, if Necessary, the Gray Notice of Guaranteed Delivery Provided with the Offer to Purchase). Stockholders will be able to tender (or withdraw) their shares pursuant to the Offer until 12:00 midnight, New York City time, October 12, 1999 (or such later date to which the Offer may be extended). The method of delivery of Stock Certificates and all other required documents, including delivery through the Book-entry Transfer Facility, is at the option and risk of the Tendering Stockholder. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. All tendering stockholders, by execution of this Letter of Transmittal (or a facsimile hereof), waive any right to receive any notice of the acceptance of their Shares for payment. 7 3. Inadequate Space. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares and any other required information should be listed on a separate signed schedule attached hereto. 4. Partial Tenders. (Not applicable to stockholders who tender by book-entry transfer) If fewer than all the Shares evidenced by any certificate submitted are to be tendered, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered." In such cases, new certificates for the Shares that were evidenced by your old certificates, but which were not tendered by you, will be sent to you, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the Expiration Date. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. Signatures on Letter of Transmittal, Stock Powers and Endorsements. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any of the tendered Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal or any certificates or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to Purchaser of their authority to so act must be submitted. When this Letter of Transmittal is signed by the registered owner(s) of the Shares listed and transmitted hereby, no endorsements of certificates or separate stock powers are required unless payment is to be made to, or certificates for Shares not tendered or not purchased are to be issued in the name of, a person other than the registered holder(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered owner(s) of the certificate(s) listed, the certificate(s) must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear on the certificate(s). Signatures on such certificates and stock powers must be guaranteed by an Eligible Institution, unless the signature is that of an Eligible Institution. 6. Stock Transfer Taxes. Except as otherwise provided in this Instruction 6, Purchaser will pay any stock transfer taxes with respect to the purchase of Shares pursuant to the Offer. If, however, payment of the purchase price is to be made to, or if certificate(s) for Shares not tendered or accepted for payment are to be registered in the name of, any person other than the registered owner(s), or if tendered certificate(s) are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered owner(s) or such person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or an exemption therefrom, is submitted. 7. Special Payment and Delivery Instructions. If a check is to be issued in the name of, and/or certificates for Shares not tendered or not accepted for payment are to be issued or returned to, a person other than the signer of this Letter of Transmittal or if a check and/or such certificates are to be returned to a person other than the person(s) signing this Letter of Transmittal or to an address other than that shown in this Letter of Transmittal, the appropriate boxes on this Letter of Transmittal must be completed. A stockholder who tenders by book-entry transfer may request that Shares not accepted for payment be credited to such account maintained 8 at the Book-Entry Transfer Facility as such stockholder may designate under "Special Payment Instructions." If no such instructions are given, such Shares not accepted for payment will be returned by crediting the account designated above. 8. Waiver of Conditions. The conditions of the Offer may be waived by Purchaser in whole or in part at any time and from time to time in its sole discretion, subject to the terms of the Agreement and Plan of Merger, dated as of September 7, 1999, among Applied Digital Access, Inc., Dynatech Acquisition Corporation and Dynatech Corporation. 9. Backup Withholding; Substitute Form W-9. Under U.S. federal income tax law, a stockholder whose tendered Shares are accepted for payment is required to provide the Depositary with such stockholder's correct taxpayer identification number ("TIN"), generally the stockholder's social security or federal employer identification number, and certain other information, on Substitute Form W-9 below. If the Depositary is not provided with the correct TIN, the Internal Revenue Service may subject the stockholder or other payee to a $50 penalty. In addition, payments that are made to such stockholder or other payee with respect to Shares purchased pursuant to the Offer may be subject to 31% backup withholding. Certain stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, the stockholder must submit a Form W-8, signed under penalties of perjury, attesting to that individual's exempt status. A Form W-8 can be obtained from the Depositary. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for more instructions. If backup withholding applies, the Depositary is required to withhold 31% of any such payments made to the stockholder or other payee. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. The box in Part 3 of the Substitute Form W-9 may be checked if the tendering stockholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the stockholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Depositary will withhold 31% of all payments made prior to the time a properly certified TIN is provided to the Depositary. The stockholder is required to give the Depositary the TIN (e.g., social security number or employer identification number) of the record owner of the Shares or of the last transferee appearing on the transfers attached to, or endorsed on, the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. 10. Requests for Assistance or Additional Copies. Questions or requests for assistance may be directed to the Information Agent at the address and telephone numbers set forth below. Additional copies of the Offer to Purchase, this Letter of Transmittal and the Notice of Guaranteed Delivery may also be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies. 11. Lost, Destroyed or Stolen Certificates. If any certificate representing Shares has been lost, destroyed or stolen, the stockholder should promptly notify the Depositary by checking the box immediately preceding special payment/special delivery instructions and indicating the number of Shares lost. The stockholder will then be instructed as to the steps that must be taken in order to replace the certificate. This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certificates have been followed. 9 IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), TOGETHER WITH STOCK CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER OR THE NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE. TO BE COMPLETED BY ALL TENDERING STOCKHOLDERS (See Instruction 9) PAYER'S NAME: CHASEMELLON SHAREHOLDER SERVICES, L.L.C., AS DEPOSITARY Part 1--PLEASE PROVIDE -------------------- YOUR TIN IN THE BOX AT Social Security RIGHT AND CERTIFY BY Number SIGNING AND DATING BELOW. or SUBSTITUTE Form W-9 -------------------- Employer Identification Number Department of the Treasury Part 2--Certification--Under penalties of perjury, Internal I certify that: Revenue Service ----------------------------------------------------- (1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me) and Payor's Request for ----------------------------------------------------- Taxpayer Identification (2) I am not subject to backup withholding Number ("TIN") because (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Certification Instructions--You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such Item (2). - ------------------------------------------------------------------------------- SIGNATURE _______________________ DATE ________________ Part 3--Awaiting TIN [_] NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9 10 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office, or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable payments made to me will be withheld but that such amounts will be refunded to me if I then provide a taxpayer identification number within sixty (60) days. ----------------------------------- ----------------------------------- Signature Date The Information Agent for the Offer is: MacKenzie Parnters, Inc. 156 Fifth Avenue New York, New York 10010 Call Toll Free (800) 322-2885 11 EX-99.(A)(3) 4 NOTICE OF GUARANTEED DELIVERY Exhibit 99(a)(3) NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK OF APPLIED DIGITAL ACCESS, INC. (NOT TO BE USED FOR SIGNATURE GUARANTEES) This Notice of Guaranteed Delivery, or one substantially in the form hereof, must be used to accept the Offer (as defined below) (i) if certificates ("Share Certificates") evidencing shares of common stock par value $0.001 per Share (the "Common Stock"; all of the shares of Common Stock being hereinafter collectively referred to as the "Shares") of Applied Digital Access, Inc. are not immediately available, (ii) if Share Certificates and all other required documents cannot be delivered to ChaseMellon Shareholder Services, L.L.C. as Depositary (the "Depositary"), prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase (as defined below)) or (iii) if the procedure for delivery by book-entry transfer cannot be completed on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand or mail or transmitted by facsimile transmission to the Depositary. See Section 2 of the Offer to Purchase. The Depositary for the Offer is: ChaseMellon Shareholder Services, L.L.C. By Mail By Hand By Overnight Reorganization Reorganization Reorganization Department Department Department PO Box 3301 120 Broadway 85 Challenger Road South Hackensack, NJ 13th Floor Mail Stop--Reorg 07606 New York, NY 10271 Ridgefield Park, NJ 07660 By Facsimile Transmission (for eligible institutions only): (201) 296-4293 Confirm facsimile by telephone only: (201) 296-4860 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tenders to Dynatech Acquisition Corporation, a Delaware corporation and an indirect wholly-owned subsidiary of Dynatech Corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated September 14, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, amended from time to time, together constitute the "Offer"), receipt of each of which is hereby acknowledged, the number of Shares specified below pursuant to the guaranteed delivery procedure described in Section 2 of the Offer to Purchase. Number of Shares: _____________________________________________________________ Certificate Nos. (If Available): ______________________________________________ [_]Check if Shares will be delivered by book-entry transfer Name of Tendering Institution: _____________________________________________ Account No.: _______________________________________________________________ Signature(s) of Holder(s): - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Dated: ______________________________ Name(s) of Holders: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Please Type or Print Address: ______________________________________________________________________ Zip Code Area Code and Telephone No.: __________________________________________________ 2 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm which is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or which is a commercial bank or trust company having an office or correspondent in the United States that is a member in good standing of the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program, guarantees to deliver to the Depositary, at one of its addresses set forth above, Share Certificates evidencing the Shares tendered hereby, in proper form for transfer, or confirmation of book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company, in each case with delivery of (a) a Letter of Transmittal (or facsimile thereof) properly completed and duly executed, with any required signature guarantees or (b) an Agent's Message (as defined in the Offer to Purchase) in the case of a book- entry delivery, and any other required documents, all within three Nasdaq Stock Market trading days of the date hereof. Please Type or Print Name of Firm: _________________________________________________________________ Address: ______________________________________________________________________ Area Code and Telephone No.: __________________________________________________ Name: _______________________________ Title: ______________________________ Authorized Signature: _________________________________________________________ Dated: ________________________________________________________________________ DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE. SHARE CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 3 EX-99.(A)(4) 5 LETTER TO BROKERS, DEALERS, COMMERCIAL BANKS Exhibit 99(a)(4) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF APPLIED DIGITAL ACCESS, INC. FOR $5.37 NET PER SHARE BY DYNATECH ACQUISITION CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, OCTOBER 12, 1999, UNLESS THE OFFER IS EXTENDED. September 14, 1999 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by Dynatech Acquisition Corporation, a Delaware corporation (the "Purchaser") and an indirect wholly-owned subsidiary of Dynatech Corporation, a Delaware corporation, to act as Information Agent in connection with Purchaser's offer to purchase all outstanding shares of common stock, par value $0.001 per share (all of the shares of common stock being hereinafter collectively referred to as the "Shares"), of Applied Digital Access, Inc., a Delaware corporation (the "Company"), at a price of $5.37 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in Purchaser's Offer to Purchase, dated September 14, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer") enclosed herewith. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares registered in your name or in the name of your nominee. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THE NUMBER OF SHARES WHICH SHALL CONSTITUTE IN EXCESS OF FIFTY PERCENT (50%) OF THE OUTSTANDING SHARES ON A FULLY-DILUTED BASIS (SUCH BASIS ASSUMES THAT ALL SHARES UNDERLYING IN-THE-MONEY VESTED AND UNVESTED STOCK OPTIONS ARE OUTSTANDING), AND (II) THE EXPIRATION OR TERMINATION OF ANY APPLICABLE ANTITRUST WAITING PERIODS. Enclosed for your information and use are copies of the following documents: 1. Offer to Purchase, dated September 14, 1999; 2. Letter of Transmittal to be used by holders of Shares in accepting the Offer and tendering Shares; 3. Notice of Guaranteed Delivery to be used to accept the Offer if the certificates evidencing Shares and all other required documents are not immediately available or cannot be delivered to ChaseMellon Shareholder Services, L.L.C. (the "Depositary") by the Expiration Date (as defined in the Offer to Purchase) or if the procedure for book-entry transfer cannot be completed by the Expiration Date; 4. A letter to stockholders of the Company from Donald L. Strohmeyer, President and Chief Executive Officer of the Company, together with a Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Securities and Exchange Commission by the Company; 5. A letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer; and 6. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, OCTOBER 12, 1999, UNLESS THE OFFER IS EXTENDED. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates evidencing such Shares (the "Share Certificates") or, timely confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book- Entry Transfer Facility (as defined in the Offer to Purchase), (ii) a Letter of Transmittal (or facsimile thereof) properly completed and duly executed or an Agent's Message (as defined in the Offer to Purchase) in connection with a book-entry transfer and (iii) any other required documents in accordance with the instructions contained in the Letter of Transmittal. If a holder of Shares wishes to tender Shares, but such Stockholders's Share Certificates are not immediately available or such Stockholder cannot deliver the Share Certificates and all other required documents, or cannot complete the procedure for book-entry transfer, prior to the expiration of the Offer, a tender of Shares may be effected by following the guaranteed delivery procedure described in Section 2 of the Offer to Purchase. Purchaser will not pay any fees or commissions to any broker, dealer or other person (other than the Depositary and the Information Agent as described in the Offer) in connection with the solicitation of tenders of Shares pursuant to the Offer. However, Purchaser will reimburse you for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. Purchaser will pay or cause to be paid any stock transfer taxes payable with respect to the transfer of Shares to it, except as otherwise provided in Instruction 6 of the Letter of Transmittal. Any inquiries you may have with respect to the Offer, or requests for additional copies of the enclosed materials, should be addressed to us at the address and telephone number set forth on the back cover page of the Offer to Purchase. Very truly yours, MacKenzie Partners, Inc. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL AUTHORIZE YOU OR ANY OTHER PERSON TO ACT ON BEHALF OF OR AS THE AGENT OF PURCHASER, THE COMPANY, THE INFORMATION AGENT OR THE DEPOSITARY, OR OF ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR TO MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. EX-99.(A)(5) 6 LETTER TO CLIENTS Exhibit 99(a)(5) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF APPLIED DIGITAL ACCESS, INC. FOR $5.37 NET PER SHARE BY DYNATECH ACQUISITION CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, OCTOBER 12, 1999, UNLESS THE OFFER IS EXTENDED. To Our Clients: Enclosed for your consideration are an Offer to Purchase, dated September 14, 1999 (the "Offer to Purchase"), and a related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer") in connection with the offer to purchase by Dynatech Acquisition Corporation, a Delaware corporation (the "Purchaser"), and an indirect wholly-owned subsidiary of Dynatech Corporation, a Delaware corporation, all outstanding shares of common stock, par value $0.001 per share (all of the shares of common stock being hereinafter collectively referred to as the "Shares"), of Applied Digital access, Inc., a Delaware corporation (the "Company"), at a price of $5.37 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer. WE ARE (OR OUR NOMINEE IS) THE HOLDER OF RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish to have us tender on your behalf any or all of the Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer. Your attention is directed to the following: 1. The tender price is $5.37 per Share, net to the seller in cash without interest thereon. 2. The Offer is being made for all of the outstanding Shares. 3. The Board of Directors of the Company has unanimously determined that the Offer is advisable and is fair to and in the best interests of the Company and its stockholders, and recommends that stockholders accept the Offer and tender their Shares pursuant to the Offer. 4. The Offer and withdrawal rights will expire at 12:00 Midnight, New York City time, on Tuesday, October 12, 1999, unless the Offer is extended. 5. The Offer is conditioned upon, among other things, (i) there being validly tendered and not withdrawn prior to the expiration of the Offer at least the number of Shares which shall constitute in excess of fifty percent (50%) of the Shares outstanding on a fully diluted basis (such basis assumes all shares underlying in-the-money vested and unvested stock options are outstanding) and (ii) the expiration or termination of any applicable antitrust waiting periods. 6. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as otherwise provided in Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to the purchase of Shares by Purchaser pursuant to the Offer. If you wish to have us tender any or all of your Shares, please so instruct us by completing, executing and returning to us the instruction form contained in this letter. An envelope in which to return your instructions to us is enclosed. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified in your instructions. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER. The Offer is made only by the Offer to Purchase and the related Letter of Transmittal and is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the Offer or the acceptance thereof would not be in compliance with the securities, blue sky or other laws of such jurisdiction. However, Purchaser may, in its discretion, take such action as it may deem necessary to make the Offer in any jurisdiction and extend the Offer to holders of Shares in such jurisdiction. In those jurisdictions where the securities laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by or one or more registered brokers or dealers licensed under the laws of such jurisdiction. INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF APPLIED DIGITAL ACCESS, INC. BY DYNATECH ACQUISITION CORPORATION The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase, dated September 14, 1999, and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"), in connection with the offer to purchase by Dynatech Acquisition Corporation, a Delaware corporation and an indirect wholly-owned subsidiary of Dynatech Corporation, a Delaware corporation all outstanding shares of common stock, par value $0.001 per share (all of the shares of common stock being hereinafter collectively referred to as the "Shares"), of Applied Digital Access, Inc., a Delaware corporation, at a price of $5.37 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer. This will instruct you to tender the number of Shares indicated below (or, if no number is indicated below, all Shares) that are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. Number of Shares to Be Tendered*: _____________________________________________ Date: _________________________________________________________________________ SIGN HERE Signature(s): _________________________________________________________________ - ------------------------------------------------------------------------------- (Print Name(s)) - ------------------------------------------------------------------------------- (Print Address(es)) - ------------------------------------------------------------------------------- (Area Code and Telephone Number(s)) - ------------------------------------------------------------------------------- (Taxpayer Identification or Social Security Number(s)) - -------- * Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. EX-99.(A)(6) 7 W-9 Exhibit 99(a)(6) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Guidelines for Determining the Proper Identification Number to Give the Payer.-- Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer. - ----------------------------------- -----------------------------------
Give the Taxpayer Identification For this type of account: number of-- - --------------------------------------------- 1. An individual's account The individual 2. Two or more individuals The actual owner (joint account) of the account or, if combined funds, any one of the individuals(1) 3. Husband and wife (joint The actual owner account) of the account or, if joint funds, either person(1) 4. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult, or if account) the minor is the only contributor, the minor(1) 6. Account in the name of The ward, minor, guardian or committee or incompetent for a designated ward, person(3) minor, or incompetent person 7.a The usual revocable The grantor- savings trust account trustee(1) (grantor is also trustee) b So-called trust account The actual that is not a legal or owner(1) valid trust under State law 8. Sole proprietorship The owner(4) account - ---------------------------------------------
Give the Taxpayer Identification For this type of account: number of-- --- 9. A valid trust, estate, The legal entity or pension trust (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable, The organization or educational organization account 12. Partnership account The partnership held in the name of the business 13. Association, club, or The organization other tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the The public Department of entity Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments ---
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Page 2 Obtaining a Number If you don't have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. Payees Exempt from Backup Withholding Payees specifically exempted from backup withholding on ALL payments include the following: . A corporation. . A financial institution. . An organization exempt from tax under section 501(a), or an individual retirement plan. . The United States or any agency or instrumentality thereof. . A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. . A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. . An international organization or any agency or instrumentality thereof. . A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. . A real estate investment trust. . A common trust fund operated by a bank under section 584(a). . An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). . An entity registered at all times under the Investment Company Act of 1940. . A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: . Payments to nonresident aliens subject to withholding under section 1441. . Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. . Payments of patronage dividends where the amount received is not paid in money. . Payments made by certain foreign organizations. Payments of interest not generally subject to backup withholding include the following: . Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. . Payments of tax-exempt interest (including exempt-interest dividends under section 852). . Payments described in section 6049(b)(5) to nonresident aliens. . Payments on tax-free covenant bonds under section 1451. . Payments made by certain foreign organizations. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050A. Privacy Act Notice.--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. Penalties (1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) Failure to Report Certain Dividend and Interest Payments.--If you fail to include any portion of an includible payment for interest, dividends, or patronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 20% on any portion of an underpayment attributable to that failure unless there is clear and convincing evidence to the contrary. (3) Civil Penalty for False Information With Respect To Withholding.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) Criminal Penalty for Falsifying Information.--Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.(A)(7) 8 SUMMARY ADVERTISEMENT AS PUBLISHED 09/14/1999 Exhibit 99(a)(7) This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares. The Offer is made solely by the Offer to Purchase dated September 14, 1999 and the related Letter of Transmittal and is not being made to, nor will tenders be accepted from, or on behalf of, holders of Shares in any jurisdiction in which the Offer or the acceptance thereof would not be in compliance with the securities, blue sky or other laws of such jurisdiction. However, Purchaser may, in its discretion, take such action as it may deem necessary to make the Offer in any jurisdiction and extend the Offer to holders of Shares in any such jurisdiction. In those jurisdictions where securities laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by one or more registered brokers or dealers licensed under the laws of such jurisdictions. Notice of Offer to Purchase for Cash All Outstanding Shares of Common Stock of Applied Digital Access, Inc. at $5.37 Net Per Share by Dynatech Acquisition Corporation an indirect wholly-owned subsidiary of Dynatech Corporation Dynatech Acquisition Corporation, a Delaware corporation ("Purchaser") and an indirect wholly-owned subsidiary of Dynatech Corporation, a Delaware corporation ("Parent"), is offering to purchase for cash all the outstanding shares of common stock, par value $0.001 per share (all of the shares of common stock being hereinafter collectively referred to as the "Shares"), of Applied Digital Access, Inc., a Delaware corporation (the "Company"), at a purchase price of $5.37 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated September 14, 1999 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). Holders of Shares whose certificates for such Shares ("Share Certificates") are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary (as defined below) prior to the Expiration Date (as defined below), or who cannot complete the procedure for book-entry transfer on a timely basis, may nevertheless tender their Shares by following the procedure for guaranteed delivery set forth in Section 2 of the Offer to Purchase. The holders of the Shares are sometimes referred to herein as "stockholders". The purpose of the Offer is for Purchaser to acquire control of the Company and to purchase as many Shares as are tendered in the Offer. - -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, OCTOBER 12, 1999, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- The Offer is conditioned upon, among other things, (i) there being validly tendered and not withdrawn prior to the expiration of the Offer at least the number of Shares that constitute in excess of fifty percent (50%) of the Shares outstanding on a fully diluted basis, and (ii) the expiration or termination of any applicable antitrust waiting periods. The Offer is also subject to other terms and conditions. For purposes of the Offer, Purchaser shall be deemed to have accepted for payment, and thereby purchased Shares validly tendered and not withdrawn as, if and when Purchaser gives oral or written notice to ChaseMellon Shareholder Services, L.L.C. (the "Depositary") of Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payments from Purchaser and transmitting such payments to tendering stockholders whose Shares have been accepted for payment. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the Share Certificates evidencing such Shares or timely confirmation of a book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 2 of the Offer to Purchase, (ii) a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) with any required signature guarantees, or an Agent's Message (as defined in Section 2 of the Offer to Purchase) in connection with a book-entry transfer and (iii) any other documents required by the Letter of Transmittal. Purchaser expressly reserves the right, in its sole discretion (but subject to the terms and conditions of the Agreement and Plan of Merger among Parent, the Purchaser and the Company, dated as of September 7, 1999), to extend the period of time during which the Offer is open by giving oral or written notice of such extension to the Depositary. Any such extension will be followed as promptly as practicable by public announcement thereof to be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Except as otherwise provided below, tenders of Shares made pursuant to the Offer are irrevocable except that such Shares may be withdrawn by the tendering stockholder at any time prior to the Expiration Date and, unless theretofore accepted for payment and paid for by Purchaser pursuant to the Offer, may also be withdrawn by such Stockholder at any time after November 13, 1999. The term "Expiration Date" means 12:00 Midnight, New York City time, on Tuesday, October 12, 1999 unless and until Purchaser shall have extended the period of time during which the Offer is open, in which event the term "Expiration Date" shall refer to the latest time and date at which the Offer, as so extended by Purchaser, shall expire. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase. Any such notice of withdrawal must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of such Shares, if different from that of the person who tendered such Shares. If Share Certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such Share Certificates, the serial numbers shown on such Share Certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution (as defined in Section 2 of the Offer to Purchase), unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in Section 2 of the Offer to Purchase, any notice of withdrawal must also specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. The Board of Directors of the Company has unanimously determined that the Offer is advisable and is fair to and in the best interests of the Company and the stockholders, and recommends that the stockholders accept the Offer and tender their Shares pursuant to the Offer. The information required to be disclosed by Rule 14d-6 (e) (1) (vii) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. Purchaser is requesting stockholder lists and security position listings from the Company, and the Offer to Purchase and the related Letter of Transmittal and other tender offer materials will be mailed to record stockholders and will be furnished to brokers, banks, and similar persons whose names, or the names of whose nominees, appear on the Company's list of stockholders or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. The Offer to Purchase and the related Letter of Transmittal contain important information which should be read before any decision is made with respect to the Offer. Requests for copies of the Offer to Purchase and the related Letter of Transmittal and all other tender offer materials may be directed to the Information Agent as set forth below, and copies will be furnished promptly at Purchaser's expense. No fees or commissions will be payable to brokers, dealers or other persons, other than the Information Agent and the Depositary for soliciting tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: MacKenzie Partners, Inc. 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (call collect) or Call Toll Free (800) 322-2885 September 14, 1999 EX-99.(A)(8) 9 PRESS RELEASE ISSUED BY PARENT ON 09/09/1999 Exhibit 99(a)(8) FOR IMMEDIATE RELEASE Contact: Alice Ducq (301) 353-1560 x 3153 (ducqa@ttc.com), TTC Jim Keefe, (858) 623-2200, Applied Digital Access Steve Cantor (781) 272-6100 (scantor@dynatech.com), Dynatech Corporation TTC, A DIVISION OF DYNATECH, TO ACQUIRE APPLIED DIGITAL ACCESS Dynatech to Purchase All Outstanding Shares of ADA for $80 Million GERMANTOWN, MD and SAN DIEGO, CA September 8, 1999 -- TTC, a unit of Dynatech Corporation (OTC-BB:DYNA), and Applied Digital Access, Inc. (NASDAQ:ADAX), today jointly announced that Dynatech Corporation will acquire, in a cash offer, all outstanding shares of San Diego-based Applied Digital Access (ADA) for an aggregate of approximately $80 million, or $5.37 per share. "This acquisition reflects our long-term growth strategy to become the leading provider of network optimization solutions," said John Peeler, president and chief executive officer of TTC which had sales of $239 million in fiscal 1999. "ADA is known as a leading provider of innovative service fulfillment and service assurance solutions to a segment of our addressed market. By leveraging ADA systems and software products, as well as the quality of its people, TTC will be positioned to offer telecommunications service providers worldwide a complete solution for service management." Upon completion of the merger, ADA products will be integrated under the TTC brand. "By combining with TTC, ADA's portfolio of systems and software products will find new markets including CLECs and wireless carriers," said Don Strohmeyer, ADA chief executive officer, "We view this agreement as a win for all of the parties involved, and for the service provider market as a whole." According to Ned Lautenbach, chairman, president and chief executive officer of Dynatech, "The purchase of ADA is representative of Dynatech's strategy of maximizing the value of its businesses through a combination of strong internal investment and, where prudent, selective strategic acquisitions." The tender offer is subject to, among other things, the tender of at least the majority of all the shares outstanding, as well as other customary conditions including clearance under the Hart-Scott-Rodino Act. Pursuant to the merger agreement, any shares not purchased in the offer (other than shares as to which dissenters' rights have been perfected) will be acquired for the same price in cash, in a second-step merger. Dynatech Corporation (OTC-BB:DYNA) is a global communications equipment company focused on network technology solutions. Its products address communications test, industrial computing and communications, and visual communications applications. Headquartered in Burlington, Massachusetts, Dynatech sells its products worldwide through subsidiaries located throughout the Americas, Europe and Asia. Applied Digital Access, Inc. (NASDAQ: ADAX) is a leading provider of innovative telecommunications service fulfillment and service assurance solutions. These solutions enable telecommunications service providers to improve network operations performance, proactively manage the quality of service, increase productivity, and lower operating expenses. The company is headquartered in San Diego, California. TTC, a unit of Dynatech Corporation, designs and markets network analyzers, systems and software, and provides consulting services and technical training that enable optimized network performance. Known for its T-BERD and FIREBERD analyzers, TPI handheld instruments, CENTEST centralized test systems and the NetAnalyst Test Operations Support System, TTC customers include telecommunications service providers, enterprises and governments worldwide. TTC is based in Germantown, Md. TTC, T-BERD, FIREBERD and CENTEST are registered trademarks of TTC. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOTE: This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the Company's current judgment on certain issues. Because such statements apply to future events, they are subject to risks and uncertainties that could cause the actual results to differ materially. Important factors that could cause actual results to differ materially are described in the company's reports on Form 10-K and 10-Q on file with the Securities and Exchange Commission. EX-99.(C)(1) 10 CONFIDENTIALITY AGREEMENT EFFECTIVE 04/13/1999 Exhibit 99(c)(1) SHORT FORM CONFIDENTIALITY AGREEMENT Effective Date: April 13, 1999 -------------- This Agreement is made by and between and APPLIED DIGITAL ACCESS, INC., a Delaware corporation, with its principal place of business as 9855 Scranton Road, San Diego, California 92121 ("ADA"), and DYNATECH CORPORATION, a Massachusetts corporation, having a principal place of business at 3 New England Executive Park, Burlington, Massachusetts, 01803 (the "Company"). 1. Confidentiality. The Company and ADA are engaged in discussions --------------- for the purpose of evaluating the possibility of a business relationship between their companies. As such, ADA will be disclosing among other things confidential and proprietary information regarding current and new product lines ("the product lines") to Company, including without limitation the features, functionalities and capabilities of these product lines. a. Company agrees (i) to maintain in confidence and to not disclose, disseminate or use any Confidential Information, whether or not disclosed to Company in written form, and (ii) to disclose the Confidential Information only to those few people within the Company with a need to know for the purpose of evaluating the potential business relationship. As used in this Agreement, "Confidential Information" refers to any confidential information of ADA which has commercial value and is either (i) technical information, including patent, copyright, trade secret, and other proprietary information, techniques, sketches, drawings, models, inventions, know-how, processes, apparatus, equipment, algorithms, software programs, software source documents, and formulae related to the product lines of ADA, or (ii) non-technical information relating to the product lines of ADA, including without limitation pricing, margins, merchandizing plans and strategies, finances, financial and accounting data and information, joint development and other business relationships, suppliers, customers, customer lists, purchasing data, sales and marketing plans, future business plans and any other information which is proprietary and confidential to ADA. b. Company further agrees that it will not use the Confidential Information, including without limitation the Confidential Information with respect to the features, functionality and capabilities of the product lines, to initiate development of a competing product or product line, directly or indirectly, by Company. Notwithstanding the foregoing, ADA acknowledges that Company is in the business of developing systems for the telecommunications market and therefore may develop a similar product independently of ADA's Confidential Information, without violating this confidentiality agreement. c. The obligations contained in this section 1 shall not apply to any information which becomes generally known in the trade or industry not as a result of a breach of this Agreement. 2. Term. This Agreement shall govern all communications between the parties that are made in connection with the discussions between Company and ADA for the purpose of determining whether the two companies wish to enter into a business relationship with one another. The discussions are anticipated to commence on April 13, 1999 and terminate on July 31, 1999, and this Agreement will terminate upon the completion of these discussions. Company's obligations of confidentiality under Section 1 will survive the termination of this Agreement. Upon termination of this Agreement, Company will promptly return to ADA, without retaining any copies, any documents and other materials furnished to Company by ADA. 3. Governing Law. This Agreement shall be governed in all respects by ------------- the laws of the United States of America and by the laws of the State of California, as such laws are applied to agreements entered into and to be performed entirely within California between California residents. 4. Entire Agreement. This Agreement constitutes the entire agreement ---------------- with respect to the Confidential Information disclosed herein and supersedes all prior or contemporaneous oral or written agreements concerning such Confidential Information. This Agreement may only be changed by mutual agreement of authorized representatives of the parties in writing. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. ADA: COMPANY: APPLIED DIGITAL ACCESS, INC. DYNATECH CORPORATION By: /s/ Donald L. Strohmeyer By: /s/ Gary Mayerick 4/13/99 -------------------------- --------------------------- Name: Donald L. Strohmeyer By: /s/ Samuel W. Tishler --------------------------- Title: Chief Executive Officer Name: Samuel W. Tishler Title: Vice President Name: Gary Mayerick Title: President, SSG 2 EX-99.(C)(2) 11 LETTER DATED 08/13/1999 FROM PARENT TO THE COMPANY EXHIBIT 99(c)(2) Dynatech Corporation 3 New England Executive Park Burlington, Massachusetts 01803 PRIVILEGED AND CONFIDENTIAL --------------------------- August 13, 1999 VIA FACSIMILE - ------------- Mr. Donald L. Strohmeyer President and Chief Executive Officer Applied Digital Access, Inc. 9855 Scranton Road San Diego, California 92121 Dear Don: This letter is to confirm our mutual understanding with respect to the ongoing negotiations between Dynatech Corporation ("Dynatech") and Applied Digital Access, Inc. ("ADA") concerning the possibility of a business relationship between the companies, pursuant to the Short Form Confidentiality Agreement (the "Confidentiality Agreement"), between Dynatech and ADA, dated effective April 13, 1999. As you are aware Dynatech initially considered a purchase price of approximately $70 million for the stock of ADA. As a result of discussions with ADA's management and further consideration of the value of ADA, Dynatech has suggested a non-binding purchase price of approximately $80 million (assuming cash on hand of at least $14.2 million) for all of the outstanding stock and the cancellation of all options of ADA, subject to the satisfactory completion of Dynatech's due diligence efforts, approval by the Dynatech Board of Directors and approval of a merger agreement and recommendation of the offer to the stockholders of ADA by the Board of Directors of ADA. I would like to sum up some of the other points we have touched upon during our discussions. We anticipate a break up fee of no greater than 4%. Although due diligence findings could alter our thinking, the discussions I had with Tom Bentley regarding the ongoing staffing remains our current plan. We will keep you up to date on a frequent basis. As you know, we consider stock options and other incentive programs for key personnel to be very important. Gary looks forward to discussing those programs with you in more detail during our visit next week. By receipt of this letter and execution below, ADA hereby agrees to treat the contents of this letter in the same manner as Dynatech is obligated to treat confidential information of ADA pursuant to the Confidentiality Agreement. We look forward to the speedy completion of our due diligence efforts and the negotiation of a definitive agreement. Should you have questions, concerning this matter, please do not hesitate to contact me at (781) 221-2057. Very truly yours, /s/ Samual W. Tishler Samuel W. Tishler Vice President Accepted and Agreed: Applied Digital Access, Inc. By: ---------------------------- Name: Title: 2 EX-99.(C)(3) 12 AGREEMENT & PLAN OF MERGER DATED AS OF 09/07/1999 EXHIBIT 99(c)(3) AGREEMENT AND PLAN OF MERGER among APPLIED DIGITAL ACCESS, INC., DYNATECH CORPORATION and DYNATECH ACQUISITION CORPORATION Dated as of September 7, 1999 TABLE OF CONTENTS ----------------- Page ---- ARTICLE I THE OFFER 1.1. The Offer............................................................... 1 1.2. Company Action.......................................................... 3 1.3. Board of Directors...................................................... 3 ARTICLE II THE MERGER 2.1. Merger.................................................................. 4 2.2. Conversion of Shares; Merger Consideration.............................. 4 2.3. Stock Options........................................................... 5 2.4. Consummation of the Merger.............................................. 5 2.5. Dissenters' Rights...................................................... 6 2.6. Payment for Shares and Options.......................................... 6 2.7. Closing of the Company's Transfer Books................................. 7 2.8. Articles of Incorporation; By-Laws...................................... 8 2.9. Directors and Officers of the Surviving Corporation..................... 8 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY 3.1. Corporate Status, etc................................................... 8 3.2. Capitalization.......................................................... 9 3.3. Authority............................................................... 10 3.4. No Conflicts; Consents.................................................. 10 i 3.5. Investments............................................................. 11 3.6. Financial Statements.................................................... 11 3.7. Undisclosed Liabilities, etc............................................ 11 3.8. Absence of Changes...................................................... 11 3.9. Tax Matters............................................................. 14 3.10. Assets................................................................. 15 3.11. Real Property.......................................................... 15 3.12. Contracts.............................................................. 17 3.13. Intellectual Property.................................................. 17 3.14. Insurance.............................................................. 19 3.15. Litigation............................................................. 19 3.16. Compliance with Laws and Instruments................................... 20 3.17. Environmental Matters.................................................. 20 3.18. Employees, Labor Matters, etc.......................................... 21 3.19. Employee Benefit Plans and Related Matters; ERISA...................... 22 3.20. Accounts Receivable.................................................... 24 3.21. Inventories............................................................ 24 3.22. Customers.............................................................. 24 3.23. Suppliers; Raw Materials............................................... 24 3.24. Products............................................................... 25 3.25. Bank Accounts.......................................................... 25 3.26. Brokers, Finders, etc.................................................. 26 3.27. SEC Reports and Financial Statements................................... 26 3.28. Offer Documents; Schedule 14D-9........................................ 26 3.29. Fairness Opinion....................................................... 27 3.30. Disclosure............................................................. 27 3.31. Takeover Statutes...................................................... 27 3.32. Nortel Warrant......................................................... 28 3.33. Cash on the Balance Sheet.............................................. 28 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER 4.1. Status; Authorization, etc. ............................................ 28 4.2. No Conflicts, Consents, etc. ........................................... 28 4.3. Litigation.............................................................. 29 4.4. Brokers, Finders, etc. ................................................. 29 4.5. No Prior Business....................................................... 29 ii 4.6. Offer Documents; Schedule 14D-9......................................... 29 4.7. Financing............................................................... 30 4.8. Beneficial Ownership.................................................... 30 ARTICLE V COVENANTS OF THE COMPANY 5.1. Conduct of the Business................................................. 30 5.2. No Solicitation......................................................... 31 5.3. Access and Information.................................................. 32 5.4. Further Assurances...................................................... 33 ARTICLE VI COVENANTS OF PARENT, THE PURCHASER AND THE COMPANY 6.1. Public Announcements.................................................... 33 6.2. Reasonable Best Efforts................................................. 33 6.3. Stockholder Approval.................................................... 34 6.4. Directors' and Officers' Insurance and Indemnification.................. 35 6.5. Stockholder Litigation.................................................. 35 6.6. Parent Obligations...................................................... 36 ARTICLE VII CONDITIONS PRECEDENT 7.1. Condition to Obligations of Each Party.................................. 36 iii ARTICLE VIII TERMINATION 8.1. Termination............................................................. 37 8.2. Non-Survival of Representations and Warranties.......................... 38 8.3. Fees and Expenses....................................................... 38 ARTICLE IX DEFINITIONS 9.1. Definition of Certain Terms............................................. 40 ARTICLE X MISCELLANEOUS 10.1. Severability........................................................... 49 10.2. Notices................................................................ 49 10.3. Entire Agreement....................................................... 50 10.4. Counterparts; Headings................................................. 50 10.5. Governing Law, etc..................................................... 50 10.6. Binding Effect......................................................... 51 10.7. Assignment............................................................. 51 10.8. Amendment and Waiver................................................... 52 Annex A Certain Conditions of the Offer Exhibit A Form of Amended and Restated Certificate of Incorporation of the Company SCHEDULES iv 3.1(b) Jurisdiction 3.2(i) Company Common Stock 3.2(ii) Options 3.2(iii) Subscription, Options, Warrants 3.2(iv) Voting Trusts 3.4(a) Conflicts 3.4(b) Consents 3.5 Investments 3.7 Undisclosed Liabilities 3.8 Absence of Changes 3.9(a) Taxes 3.9(b) Taxes - Extension of Statute of Limitations, etc. 3.9(c) Taxes - Audit and Deficiencies 3.9(d) Tax Arrangements and Groups 3.10 Assets 3.11(a) Owned Real Property 3.11(b) Leases 3.11(c) Contracts 3.12(b) Contract - Violation, Change of Control 3.13(a)(i) Owned Intellectual Property 3.13(b)(i) Intellectual Property not Owned by the Company 3.13(b)(ii) Intellectual Property Liens 3.13(b)(iii) Intellectual Property Licenses 3.13(b)(iv) Intellectual Property Liens (after Effective Time) 3.13(d) Intellectual Property Litigation 3.13(f) Software Calendar Function 3.14 Insurance Policies 3.15 Litigation 3.16(a) Compliance 3.16(b) Governmental Approvals 3.17(a) Environmental Matters 3.17(b) Other Environmental Matters 3.18 Employees 3.19(a) Employee Benefit Plans 3.19(c) Acceleration of Employee Benefits 3.20 Accounts Receivable 3.21 Inventories 3.22 Customers 3.23 Suppliers 3.24(a) Warranties 3.24(b) Product Liability 3.24(c) Rebates 3.25 Bank Accounts v 4.2(b) Consents 4.4 Broker 4.8 Beneficial Ownership 5.1 Conduct of the Business vi AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER dated as of September 7, 1999 by and among DYNATECH CORPORATION, a Massachusetts corporation ("Parent"), DYNATECH ------ ACQUISITION CORPORATION, a Delaware corporation and an indirect wholly-owned subsidiary of Parent (the "Purchaser"), and APPLIED DIGITAL ACCESS, INC., a --------- Delaware corporation (the "Company"). Capitalized terms used herein have the ------- meanings ascribed in Section 9.1. WHEREAS, the respective Boards of Directors of Parent, the Purchaser and the Company each has determined that it is fair to, and in the best interests of, their respective stockholders for Parent to acquire the Company pursuant to a merger (the "Merger") in which the Purchaser shall be merged with and into the ------ Company pursuant to this Agreement; WHEREAS, in furtherance thereof, Parent proposes that the Purchaser make an offer to purchase for cash all of the issued and outstanding shares of the Company's Common Stock, par value $0.001 per share (the "Company Common Stock") -------------------- , at a price of $5.37 per share net to the seller; and WHEREAS, the Boards of Directors of Parent, the Purchaser and the Company have approved the Merger following the expiration of such offer, upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the mutual promises, covenants, representations and warranties made herein and of the mutual benefits to be derived therefrom, the parties hereto agree as follows: ARTICLE I THE OFFER 1.1. The Offer. (a) Provided that nothing shall have occurred that would --------- result in a failure to satisfy any of the conditions set forth in Annex A hereto, the Purchaser shall, and Parent shall cause the Purchaser to, as promptly as practicable after the date hereof, but in no event later than five business days following the public announcement of the terms of this Agreement, commence a tender offer (the "Offer") to purchase for cash all of the issued and ----- outstanding shares of Company Common Stock (the shares of Company Common Stock hereinafter referred to as the "Shares") at a price of not less than $5.37 per ------ Share net to the seller in cash. The Offer shall be subject to the condition that there shall be validly tendered (and not withdrawn) in accordance with the terms of the Offer, prior to the expiration date of the Offer, that number of Shares which represents at least a majority of the outstanding Shares (the "Minimum Condition") and to the other conditions set forth in Annex A hereto. - ------------------ Notwithstanding the foregoing, the Purchaser expressly reserves the right to waive any of the conditions to the Offer and to make any change in the terms or conditions of the Offer, provided that without the prior written consent of the -------- Company, the Purchaser shall not waive the Minimum Condition and shall not make any change in the Offer which changes the form of consideration to be paid or decreases the price per Share, or the number of Shares sought in the Offer or which imposes conditions to the Offer in addition to those set forth in Annex A. The Purchaser shall have the right to extend the Offer (for not more than an aggregate of five business days (as defined in Rule 14d-1 under the Exchange Act)) from time to time without the consent of the Company. In addition to the rights set forth in the two preceding sentences, if on any scheduled expiration date of the Offer all conditions to the Offer shall not have been satisfied or waived, the Purchaser shall extend the Offer from time to time until such conditions have been satisfied or waived; provided that the Purchaser shall have -------- no obligation to extend the Offer beyond the date 60 days after commencement of the Offer unless the waiting period applicable to the transactions contemplated by this Agreement under the HSR Act has not terminated or expired in which case not past the date set forth in Section 8.1(b) hereto. If on any scheduled expiration date of the Offer all conditions to the Offer (including the Minimum Condition) shall have been satisfied but the number of Shares tendered (and not withdrawn) pursuant to the Offer represent less than 90% of the outstanding Shares, on a fully-diluted basis (including for this purpose only options and warrants that are in-the-money and excluding for this purpose any right to acquire Shares that may not be exercised within 60 days from the applicable date), the Purchaser shall also have the right to extend the Offer from time to time without the consent of the Company (for not more than an aggregate of 10 business days) in order to permit the Purchaser to solicit the tender of additional Shares pursuant to the Offer. Subject to the foregoing and to the terms and conditions of the Offer, the Purchaser agrees to pay, as promptly as reasonably practicable after the expiration of the Offer, for all Shares properly tendered and not withdrawn pursuant to the Offer that the Purchaser is obligated to purchase. (b) As soon as practicable on the date the Offer is commenced, Parent and the Purchaser will file with the SEC a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") with respect to the Offer. The Schedule 14D-1, -------------- together with the related offer to purchase and the form of the related letter of transmittal, are hereinafter collectively referred to as the "Offer ----- Documents". Parent and the Purchaser shall give the Company and its counsel a - --------- reasonable opportunity to review the Offer Documents prior to the filing of the Offer Documents with the SEC or to the dissemination of the Offer Documents to the stockholders of the Company. Parent and the Purchaser will furnish the Company and its counsel in writing with any comments that Parent, the Purchaser or their counsel may receive from the SEC or its staff with respect to the Offer Documents, promptly after receipt of such comments. 2 1.2. Company Action. (a) In connection with the Offer, the Company shall -------------- cause its transfer agent to furnish the Purchaser with mailing labels, security position listings and any available listings or computer files containing the names and addresses of record holders of the Shares as of a recent date, and shall furnish to the Purchaser such information and assistance as Parent or the Purchaser may reasonably request in communicating the Offer to the Company's stockholders. Except for such steps as are necessary to disseminate the Offer Documents, Parent and the Purchaser shall hold in confidence the information contained in such labels, listings and filings, will use such information only in connection with the Offer and, if this Agreement is terminated, will, upon the request of the Company deliver or cause to be delivered to the Company all copies of such information then in its possession or in the possession of its agents or representatives. (b) The Company hereby consents to the Offer and represents that the Board of Directors of the Company (at a meeting duly called and held at which a quorum was present) as part of its approval of this Agreement has unanimously (i) approved the Offer, the Merger and the transactions contemplated by this - Agreement, (ii) determined that each of the Offer and the Merger is advisable -- and is fair to and in the best interests of the stockholders of the Company and (iii) resolved to recommend acceptance of the Offer and approval and adoption of --- this Agreement by the stockholders of the Company (to the extent such approval and adoption is required by applicable law). As soon as practicable on the day that the Offer is commenced the Company will file with the SEC the Schedule 14D- 9 (together with any amendments or supplements thereto, and including all exhibits, the "Schedule 14D-9") which, subject to Section 5.2, shall reflect the -------------- recommendations of the Company's Board of Directors referred to above. The Company and Parent each agree promptly to correct any information provided by it for use in the Schedule 14D-9 if and to the extent that it shall have become false or misleading in any material respect. The Company agrees to take all steps necessary to cause the Schedule 14D-9, as so corrected, to be filed with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. Parent and its counsel shall be given an opportunity to review and comment on the Schedule 14D-9 prior to its being filed with the SEC. 1.3. Board of Directors. (a) Promptly upon the purchase by the Purchaser ------------------ of more than 50% of the outstanding Shares on a fully-diluted basis pursuant to the Offer and from time to time thereafter, the Company shall use its best efforts to allow the Purchaser to designate up to the minimum number of directors necessary in order for the result (expressed as a fraction) derived by dividing the number of directors so designated by the total number of directors to be at least equal to the result (expressed as a fraction) derived by dividing the Shares then held by the Purchaser by the total number of Shares then outstanding; provided, however, that until the Effective Time (as defined in -------- ------- Section 2.4 hereof) the Board of Directors will have at least two (2) Independent Directors (as defined in Section 1.3(c) hereof). Upon request by the Purchaser, the 3 Company shall use its best efforts promptly, at the Company's election, either to increase the size of the Board of Directors or to secure the resignation of such number of directors as is necessary to enable the Purchaser's designees to be elected to the Board of Directors, and to cause the Purchaser's designees to be so elected. (b) The Company's obligations with respect to the election of the Purchaser's designees to the Board of Directors of the Company shall be subject to Section 14(f) of the Exchange Act, and Rule 14f-1 promulgated thereunder. The Company shall promptly take all actions required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 1.3 and shall include in the Schedule 14D-9 such information with respect to the Company and its officers and directors as is required under Section 14(f) and Rule 14f- 1. Parent and the Purchaser will supply to the Company in writing and shall be solely responsible for any information with respect to any of them and their nominees, officers, directors and Affiliates required by Section 14(f) and Rule 14f-1. (c) Following the election or appointment of the Purchaser's designees pursuant to this Section 1.3 and prior to the Effective Time, any amendment to this Agreement or of the Certificate of Incorporation or By-Laws of the Company, any termination of this Agreement by the Company, any extension by the Company of the time for the performance of any of the obligations or other acts of Parent or the Purchaser and any waiver of any of the Company's rights under this Agreement will require the concurrence of a majority of the directors of the Company then in office who are neither designated by the Purchaser nor otherwise affiliated with Parent or the Purchaser nor employees of the Company or any of its subsidiaries (the "Independent Directors"). --------------------- ARTICLE II THE MERGER 2.1. Merger. Upon the terms and subject to the conditions of this ------ Agreement, and in accordance with the applicable provisions of the Delaware General Corporation Law ("DGCL"), as promptly as practicable following the consummation of the Offer, the Purchaser shall be merged with and into the Company. The Company shall be the surviving corporation in the Merger (sometimes referred to as the "Surviving Corporation") and shall continue its existence ---------------------- under the laws of the State of Delaware. At the Effective Time (as defined in Section 2.4), the separate existence of the Purchaser shall cease. The name of the Surviving Corporation shall be "Applied Digital Access, Inc." 2.2. Conversion of Shares; Merger Consideration. At the Effective Time, ------------------------------------------ by virtue of the Merger and without any action on the part of any holder thereof: (a) each - 4 Share issued and outstanding immediately prior to the Effective Time (other than Shares to be canceled pursuant to clause (b) below and any Dissenting Shares (as defined in Section 2.5)) shall be converted into the right to receive in cash an amount per Share equal to the Merger Consideration (as defined below), subject to any required withholding of taxes and without interest; (b) each Share owned - by Parent, the Purchaser or any other direct or indirect subsidiary of Parent, or held in the treasury of the Company, immediately prior to the Effective Time, shall be canceled and extinguished, and no payment will be made with respect to those Shares; and (c) all shares of common stock of the Purchaser, par value - $.01 per share, then issued and outstanding shall be converted into an equal number of shares of common stock of the Surviving Corporation. "Merger ------ Consideration" means $5.37 per Share or, if a greater price shall have been paid - ------------- in the Offer, such greater price. 2.3. Stock Options. Immediately prior to the Effective Time, each then ------------- outstanding option to purchase Shares (collectively, the "Options"), whether or ------- not then exercisable, shall be canceled by the Company in exchange for a right to receive a payment in cash in accordance with Section 2.6(b) (the "Option ------ Consideration") equal to the product of (i) the number of Shares previously - ------------- - subject to the Option and (ii) the excess, if any, of the Merger Consideration -- over the exercise price for each Share under such Option. As of the Effective Time, each holder of an Option will be entitled to receive only an amount equal to the Option Consideration. All amounts payable under this Section 2.3 shall be subject to any required withholding of taxes and shall be paid without interest. Effective as of the Effective Time and subject to payment of the Option Consideration, the Company shall cause each stock option or other equity based plan maintained with respect to any Shares (or rights in respect thereof) to be terminated. 2.4. Consummation of the Merger. Upon the terms and subject to the -------------------------- conditions of this Agreement, the Company shall execute in the manner required by the DGCL, and deliver to the Secretary of State of the State of Delaware, a duly executed certificate of merger (the "Certificate of Merger") as required by --------------------- the DGCL, and the parties shall take all such other and further actions as may be required by law to make the Merger effective. Prior to the filing referred to in this Section 2.4, a closing (the "Closing") will be held at the offices of ------- Debevoise & Plimpton, 875 Third Avenue, New York, New York, or at another location mutually agreed upon by the parties hereto, on the third business day following the satisfaction of the condition set forth in Section 7.1(c) hereof (or, in the event the Purchaser shall acquire at least 90% of the outstanding Shares in the Offer, on the tenth business day following the completion of the Offer) (or such other time as the Purchaser and the Company may agree, immediately after the conditions set forth in Article VII have been satisfied or waived) for the purpose of 5 confirming all of the foregoing. The time the Merger becomes effective in accordance with applicable law is referred to as the "Effective Time". -------------- 2.5. Dissenters' Rights. Notwithstanding any provision of this Agreement ------------------ to the contrary, any shares of capital stock of the Company outstanding immediately prior to the Effective Time held by a holder who has demanded and perfected the right, if any, for appraisal of those shares in accordance with the provisions of Section 262 of the DGCL and as of the Effective Time has not withdrawn or lost such right to such appraisal ("Dissenting Shares") shall not ----------------- be converted into or represent a right to receive the consideration set forth in Section 2.2, but the holder shall only be entitled to such rights as are granted by the DGCL. If a holder of shares of capital stock of the Company who demands appraisal of those shares under the DGCL shall effectively withdraw or lose (through failure to perfect or otherwise) the right to appraisal, then, as of the Effective Time or the occurrence of such event, whichever last occurs, those shares shall be converted into and represent only the right to receive the consideration as provided in Section 2.2, without interest, upon the surrender of the certificate or certificates representing those shares. The Company shall give Parent (i) prompt notice of any written demands for appraisal of any shares - of capital stock of the Company, attempted withdrawals of such demands, and any other instruments served pursuant to the DGCL received by the Company relating to stockholders' rights of appraisal and (ii) the opportunity to direct all -- negotiations and proceedings with respect to demands for appraisal under the DGCL. The Company shall not, except with the prior written consent of Parent, voluntarily make any payment with respect to any demands for appraisals of capital stock of the Company, offer to settle or settle any such demands or approve any withdrawal of any such demands. 2.6. Payment for Shares and Options. (a) Shares. Prior to the Effective ------------------------------ ------ Time, the Purchaser shall designate ChaseMellon Shareholder Services, L.L.C. to -------------------------------- ------ act as Paying Agent with respect to the Merger (the "Paying Agent"). Each holder ------------ (other than Parent, the Purchaser or any subsidiary of Parent) of a certificate or certificates (the "Certificates") which immediately prior to the Effective ------------ Time represented outstanding Shares will be entitled to receive, upon surrender to the Paying Agent of the Certificates for cancellation, cash in an amount equal to the product of the number of Shares previously represented by the Certificates multiplied by the Merger Consideration, subject to any required withholding of taxes. At or prior to the Effective Time, the Purchaser and Parent shall make available to the Paying Agent sufficient funds to make all payments pursuant to the preceding sentence. No interest shall accrue or be paid on the cash payable upon the surrender of the Certificates. If payment is to be made to a person other than the person in whose name the Certificates surrendered are registered, it shall be a condition of payment that the Certificates so surrendered shall be properly endorsed or otherwise in proper form for transfer and that the person requesting the payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of the Certificates surrendered or establish to the 6 satisfaction of the Surviving Corporation that the tax has been paid or is not applicable. Following the Effective Time, until surrendered to the Paying Agent in accordance with the provisions of this Section 2.6(a), each Certificate shall represent for all purposes only the right to receive upon surrender thereof the Merger Consideration multiplied by the number of Shares evidenced by the Certificate, without any interest, subject to any required withholding taxes. Any funds delivered or made available to the Paying Agent pursuant to this Section 2.6(a) and not exchanged for Certificates within six (6) months after the Effective Time will be returned by the Paying Agent to the Surviving Corporation, which thereafter will act as Paying Agent, subject to the rights of holders of unsurrendered Certificates under this Section 2.6(a), and any former stockholders of the Company who have not previously exchanged their Certificates will thereafter be entitled to look only to the Surviving Corporation for payment of their claim for the consideration set forth in Section 2.2, without any interest, but will have no greater rights against the Surviving Corporation than may be accorded to general creditors thereof under applicable law. Notwithstanding the foregoing, neither the Paying Agent nor any party hereto shall be liable to a holder of Shares for any cash or interest delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. If any Certificates shall not have been surrendered prior to three (3) years after the Effective Time (or immediately prior to such earlier date on which any payment in respect hereof would otherwise escheat to or become the property of any governmental unit or agency), the payment in respect of such Certificates shall, to the extent permitted by applicable laws, become the property of the Surviving Corporation, free and clear of all claims of interest of any person previously entitled thereto. As soon as practicable after the Effective Time (but not later than five (5) business days after the Effective Time), the Surviving Corporation will cause the Paying Agent to mail to each record holder of Certificates a form of letter of transmittal (which will specify that delivery will be effected, and risk of loss and title to the Certificates will pass, only upon proper delivery of the Certificates to the Paying Agent) and instructions for use in effecting the surrender of the Certificates for payment. (b) Options. Each holder of an Option, whether or not then exercisable, ------- will be entitled to receive cash in an amount equal to the Option Consideration in respect of such Options (determined in accordance with Section 2.3 hereof), subject to any required withholding taxes and without interest. As soon as practicable after the Effective Time, and in any event no more than fifteen (15) calendar days following the Effective Time, the Surviving Corporation shall pay, or cause to be paid, all amounts due as Option Consideration to holders of Options as required by this Agreement. 2.7. Closing of the Company's Transfer Books. At the Effective Time, --------------------------------------- the stock transfer books of the Company shall be closed and no transfer of Shares converted into the right to receive the Merger Consideration pursuant to the terms hereof, Dissenting Shares or Shares to be canceled pursuant to Section 2.2 hereof shall thereafter be made. If, after the Effective Time, Certificates for such Shares are presented to the Surviving 7 Corporation, they shall be canceled and exchanged for cash or merely canceled, as the case may be, pursuant to and in accordance with Sections 2.2, 2.5 and 2.6 hereof, subject to applicable law in the case of Dissenting Shares. 2.8. Articles of Incorporation; By-Laws. (a) The certificate of ---------------------------------- incorporation of the Company as in effect immediately prior to the Effective Time shall, in accordance with the terms thereof and the DGCL, be amended and restated as set forth in Exhibit A and, as so amended, shall be the certificate of incorporation of the Surviving Corporation until duly amended in accordance with the terms thereof and the DGCL. (b) By-laws. The by-laws of the Purchaser, as in effect immediately prior to the Effective Time shall be the by-laws of the Surviving Corporation until thereafter amended as provided by applicable law, the certificate of incorporation of the Surviving Corporation and such by-laws. 2.9. Directors and Officers of the Surviving Corporation. (a) The --------------------------------------------------- directors of the Purchaser immediately prior to the Effective Time shall, from and after the Effective Time, be the directors of the Surviving Corporation until their successors shall have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Surviving Corporation's certificate of incorporation and by-laws. (b) The officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth in the Disclosure Letter (as defined below), the Company represents and warrants to Parent and the Purchaser as follows: 3.1. Corporate Status, etc. (a) Organization. Each of the Company and --------------------- ------------ 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 full corporate power and authority to conduct the Business as it is presently conducted and to own or lease and to operate its properties as and in the places where such properties are owned, leased or operated. (b) Qualification. Each of the Company and its Subsidiaries is duly ------------- qualified to do business and in good standing as a foreign corporation in all jurisdictions in which the 8 nature of its business or the properties owned or leased by it makes such qualification necessary, except for such failures to be so qualified and in good standing as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Schedule 3.1(b) of the disclosure letter delivered by the Company to Parent and the Purchaser on or prior to the date hereof (the "Disclosure Letter") lists all jurisdictions in which such ----------------- qualification is necessary. (c) Organizational Documents. The Purchaser has been furnished complete ------------------------ and correct copies of the certificate of incorporation and by-laws or other organizational documents of the Company and each of its Subsidiaries, as amended, modified or waived through and in effect on the date hereof (the "Organizational Documents"). Each of the Organizational Documents is in full - ------------------------- force and effect. Neither the Company nor any of its Subsidiaries is in violation of any of the provisions of its Organizational Documents. The minute books of the Company and each of its Subsidiaries, which have heretofore been made available to the Purchaser, correctly reflect for each (i) all corporate - actions taken by the stockholders that such stockholders were required by applicable Law to take, (ii) all corporate actions taken by the directors that -- such board of directors was required by applicable Law to take and (iii) all --- other corporate actions taken by the stockholders and directors (including by any committee of the board of directors). 3.2. Capitalization. The authorized capital stock of the Company -------------- consists of 30,000,000 shares of Company Common Stock, par value $0.001 per share, and 7,500,000 shares of Preferred Stock, (the "Preferred Shares"). As of ---------------- the date hereof, (i) 13,227,777 Shares are issued and outstanding (other than - Shares held in the treasury of the Company as treasury stock), all of which are validly issued, fully paid and nonassessable and not subject to preemptive rights except as described on Schedule 3.2(i) the Disclosure Letter delivered by the Company to Parent on or prior to the date hereof; (ii) there are no Shares -- held in the treasury of the Company as treasury stock; (iii) there are --- outstanding Options to purchase an aggregate of 3,180,795 Shares; (iv) there are -- no outstanding Preferred Shares; and (v) there are no Shares or Preferred Shares - owned by any subsidiary of the Company. There are no stock appreciation rights outstanding. Schedule 3.2(ii) of the Disclosure Letter sets forth a list, complete and correct as of the date hereof, of the holders of all Options and the number of Shares issuable upon the exercise of each such Option and the exercise prices thereof. There are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or 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 in this Section 3.2 and on Schedule 3.2(iii) of the Disclosure Letter, no shares of capital stock or other voting securities are issued, reserved for issuance or outstanding, nor are there any outstanding subscriptions, options, warrants, rights, convertible securities or other agreements or commitments of any character relating to the issued or unissued capital stock or other securities of the Company or any of its subsidiaries obligating the Company or any of its subsidiaries to issue, deliver, sell or 9 purchase, or cause to be issued, delivered, sold or purchased, any securities of the Company or any of its subsidiaries. Except as set forth on Schedule 3.2(iv) of the Disclosure Letter, there are no voting trusts or other agreements or understandings to which the Company or any of its subsidiaries is a party with respect to the voting of capital stock of the Company or any of its subsidiaries. 3.3. Authority. The Company has the requisite corporate power and --------- authority to execute and deliver this Agreement and to carry out its obligations pursuant hereto. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, including, but not limited to, the Offer and the Merger, have been duly authorized by all necessary corporate action on the part of the Company, subject only, to the extent required by law, to approval by the stockholders of the Company as provided in Section 6.3. This Agreement has been duly executed and delivered by, and, assuming due authorization, execution and delivery by Parent and the Purchaser, constitutes a valid and binding obligation of, the Company. Except for the approval by the stockholders of the Company as provided in Section 6.3, no other corporate actions or proceedings on the part of the Company or its stockholders are necessary to authorize this Agreement, the Offer, the Merger or the consummation of the transactions contemplated hereby or its discharge of its obligations pursuant hereto. 3.4. No Conflicts; Consents. (a) Except as set forth on Schedule 3.4(a) ---------------------- of the Disclosure Letter, the execution, delivery and performance of this Agreement by the Company, and the consummation of the transactions contemplated hereby, including, but not limited to, the Offer and the Merger, do not and will not conflict with, contravene, result in a material violation or breach of or default under (with or without the giving of notice or the lapse of time or both), give rise to a right or claim of termination, amendment, modification, vesting, acceleration or cancellation of any material right or obligation or loss of any material benefit under, result in the creation of any Lien (or any obligation to create any Lien) upon, or give rise to the creation of a material right or claim by any Person other than the Company to, any of the Assets (including, without limitation, the Company Intellectual Property) under, (a) - any Law applicable to the Company or its Subsidiaries, or any of their respective properties or assets, (b) any provision of any of the Organizational - Documents of the Company or its Subsidiaries or (c) any Contract, or any other - agreement or instrument to which the Company or its Subsidiaries is a party or by which any of their respective properties or assets may be bound. (b) Except as set forth on Schedule 3.4(b) of the Disclosure Letter, no Consent of or with any court, arbitral tribunal, administrative agency or commission or other governmental or regulatory authority or administrative agency or commission, whether domestic or foreign (a "Governmental Authority"), ---------------------- or other Person is required to be obtained by the Company or its Subsidiaries in connection with the execution, delivery and performance by the Company of this Agreement or the consummation of the 10 transactions contemplated hereby, including, but not limited to, the Offer and the Merger, except for (i) applicable requirements under the Competition Laws, - (ii) applicable requirements under the Exchange Act, (iii) applicable -- --- requirements under the Securities Act, (iv) the filing of the Certificate of -- Merger with the Delaware Secretary of State, (v) applicable requirements under - "blue sky" laws of various states and (vi) such other consents, approvals, -- orders, authorizations, notifications, registrations, declarations and filings the failure of which to be obtained or made in the aggregate would not reasonably be expected to have or result in a Material Adverse Effect or materially impair or delay the consummation of the transactions contemplated hereby, including, but not limited to, the Offer and the Merger. 3.5. Investments. Except as set forth on Schedule 3.5 of the Disclosure ----------- Letter, neither the Company nor any of its Subsidiaries owns any shares of capital stock or other securities, including, without limitation, any options, warrants, conversion or other rights, of, or interest in, any other Person (other than, as to the Company, its Subsidiaries). 3.6. Financial Statements. (a) The Audited Financial Statements are -------------------- complete and correct, have been delivered to the Purchaser and have been derived from the accounting books and records of the Company. The balance sheets included in the Financial Statements present fairly the financial position of the Company as at the respective dates thereof, and the statements of income, cash flows and stockholders equity included in such Financial Statements present fairly the results of operations, cash flows and stockholders equity of the Company for the respective periods indicated, in each case in conformity with GAAP applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto.) (b) The Interim Financial Statements have been prepared in all material respects on a basis consistent with the Audited Financial Statements, except that the Interim Financial Statements do not contain notes and may be subject to normal audit adjustments. 3.7. Undisclosed Liabilities, etc. Neither the Company nor any of its ---------------------------- Subsidiaries has any material liabilities or obligations of any nature, whether known, unknown, absolute, accrued, contingent or otherwise and whether due or to become due, except (a) as set forth on Schedule 3.7 of the Disclosure Letter, - (b) as and to the extent disclosed on and adequately reserved against in the - Balance Sheet, or (c) for liabilities and obligations that (i) were incurred - - after December 31, 1998 in the ordinary course of business and are not prohibited by this Agreement and (ii) individually and in the aggregate have not -- had a Material Adverse Effect and could not reasonably be expected to have or result in a Material Adverse Effect. Since December 31, 1998, there has not occurred or come to exist any Material Adverse Effect or any event, occurrence, fact, condition, change, development or effect that, individually or in the aggregate, could reasonably be expected to become or result in a Material Adverse Effect. 11 3.8. Absence of Changes. Since December 31, 1998, except (a) as set forth ------------------ - on Schedule 3.8 of the Disclosure Letter , (b) as disclosed in the Company SEC - Documents or (c) as specifically permitted after the date hereof pursuant to - Section 5.1, neither the Company nor any of its Subsidiaries has: (i) declared, set aside, made or paid any dividend, distribution or any other amount; (ii) issued or sold any shares of any class of its capital stock, or any securities convertible into or exchangeable for any such shares, or issued, sold, granted or entered into any subscriptions, options, warrants, conversion or other rights, agreements, commitments, arrangements or understandings of any kind, contingently or otherwise, to purchase or otherwise acquire any such shares or any securities convertible into or exchangeable for any such shares; (iii) incurred any indebtedness for borrowed money, issued or sold any debt securities or prepaid any debt except for borrowings and repayments in the ordinary course of business; (iv) assigned, mortgaged, pledged or otherwise subjected to any Lien, any of its Assets, except for Permitted Liens in the ordinary course of business; (v) forgiven, canceled, compromised, waived or released any debts, claims or rights, except for debts, claims and rights forgiven, canceled, compromised, waived or released in the ordinary course of business consistent with past practice; (vi) except in the ordinary course of business, paid any bonus to any director, officer, manager, employee, sales representative, agent or consultant, or granted to any director, officer, manager, employee, sales representative, agent or consultant any other increase in compensation in any form; (vii) entered into, adopted or amended any employment, consulting, retention, change-in-control, collective bargaining, bonus or other incentive compensation, profit-sharing, health or other welfare, stock option or other equity, pension, retirement, vacation, severance, deferred compensation or other employment, compensation or benefit plan, policy, agreement, trust, fund or arrangement for the benefit of any officer, director, employee, sales representative, agent, consultant or Affiliate (whether or not legally binding); (viii) suffered any damage, destruction or loss (whether or not covered by insurance), or any strike or other employment-related problem, or received notice of any loss of a supplier, customer or employee, that, individually or in 12 the aggregate, could reasonably be expected to have or result in a Material Adverse Effect; (ix) amended any of its Organizational Documents or adopted a shareholders' rights plan; (x) without the consent of the Purchaser, changed in any respect its accounting practices, policies or principles; (xi) incurred, assumed, guaranteed or otherwise become directly or indirectly liable with respect to any liability or obligation (whether absolute, accrued, contingent or otherwise and whether direct or indirect, or as guarantor or otherwise with respect to any liability or obligation of any other Person) in excess of (A) $25,000 in each case, other than - purchase orders and payroll obligations in the ordinary course of business, or (B) except in the ordinary course of business, $75,000 in the - aggregate at any one time outstanding; (xii) sold any assets with a value in excess of $25,000 in each case or $50,000 in the aggregate, other than inventory in the ordinary course of business consistent with past practice; (xiii) (a) entered into any Contract or any amendment, modification - or termination of any existing Contract, other than (i) any Contract - entered into in the ordinary course of business and involving an expenditure of less than $25,000 in each individual case and $75,000 in the aggregate, or (ii) any Contract that, pursuant to its terms, is -- cancelable without penalty on notice of 30 days or less from the end of the first month following the Effective Time, or (b) breached any material Contract; (xiv) made any capital expenditures or capital additions or improvements in excess of $25,000 in any case or $75,000 in the aggregate, other than as previously disclosed in writing to the Purchaser; (xv) instituted, settled or agreed to settle any litigation, action or proceeding before any court or government body, other than in the ordinary course of business consistent with past practice but not in any case involving amounts in excess of $25,000; (xvi) failed to use best efforts to keep in full force and effect insurance comparable in amount and scope of coverage to insurance now carried by the Company and its Subsidiaries; 13 (xvii) failed to comply in all material respects with all Laws applicable to the Business; (xviii) failed to use all reasonable efforts to maintain the Company and its Subsidiaries in good standing in their jurisdiction of incorporation and in the jurisdictions in which they are qualified to do business as a foreign corporation and to maintain all governmental approvals and other consents necessary for, or otherwise material to, the Business; (xix) failed to replenish the inventories and supplies in a normal and customary manner consistent with prior practice; or made purchase commitments in excess of the normal, ordinary and usual requirements of the Business or at any price or upon terms and conditions more onerous than those usual for the Company based on past practice; or made any change in selling, pricing, advertising or personnel practices inconsistent with prior practice; (xx) suffered any Material Adverse Effect; (xxi) merged or consolidated with, or agreed to merge or consolidate with, or purchased substantially all of the assets of, or otherwise acquired, any business, business organization or division thereof, or any other Person; or (xxii) taken any action or omitted to take any action that would result in the occurrence of any of the foregoing. 3.9. Tax Matters. (a) Except as set forth on Schedule 3.9(a) of the ----------- Disclosure Letter, (i) all income and other material returns and forms required - to be filed by the Company or its Subsidiaries with respect to Taxes have been filed, (ii) all such returns and forms are true, correct and complete in all -- material respects, (iii) all Taxes due by the Company or its Subsidiaries, --- chargeable as a Lien upon the assets of the Company or its Subsidiaries, claimed to be due by any Governmental Authority, or that may become due by the Company or its Subsidiaries with respect to any period (or portion thereof) ending on or before the Effective Time have been paid or have been adequately reserved for in the Financial Statements and will be paid when due if due on or before the Closing, (iv) each of the Company and its Subsidiaries has duly and timely -- withheld all Taxes required to be withheld and such withheld Taxes have been either duly and timely paid to the proper Governmental Authority or properly set aside in accounts for such purpose and will be duly and timely paid to the proper Governmental Authority if due on or before the Closing. (b) Except as set forth on Schedule 3.9(b) of the Disclosure Letter, (i) - no agreement or other document waiving, extending, or having the effect of waiving or extending, the statute of limitations, the period of assessment or collection of any Taxes 14 on or in respect of the Company or its Subsidiaries, and no power of attorney with respect to any such Taxes has been filed with any Governmental Authority which waiver, extension or power of attorney is currently in effect and (ii) -- neither the Company nor its Subsidiaries has requested or been granted an extension of time for filing any tax return or form to a date later than the date of this Agreement. (c) Except as set forth on Schedule 3.9(c) of the Disclosure Letter, the Company has not received any notification that any Taxes on or in respect of the Company or its Subsidiaries are currently under audit, examination or investigation by any Governmental Authority. Except as set forth on Schedule 3.9(c) of the Disclosure Letter, no Governmental Authority is now asserting or threatening to assert against the Company or its Subsidiaries any deficiency or claim for Taxes or any adjustment to Taxes. (d) Except as set forth on Schedule 3.9(d) of the Disclosure Schedule, none of the Company or its Subsidiaries (i) is a party to or has any obligation under any written Tax separation, sharing or similar arrangement or (ii) is or has been a member of any consolidated, combined or unitary group for purposes of filing Tax returns. (e) No amount will be required to be withheld under section 1445 of the Code in connection with any of the transactions contemplated by this Agreement. (f) Neither the Company nor its Subsidiaries, will, as a result of the transactions contemplated by this Agreement, make or become obligated to make any "parachute payment" as defined in Section 280G of the Code. 3.10. Assets. Except as set forth on Schedule 3.10 of the Disclosure ------ Letter, the Company and its Subsidiaries own, or otherwise have full, exclusive, sufficient and legally enforceable rights to use, all of the properties, assets and rights (real, personal or mixed, tangible or intangible), used or held for use in connection with, necessary for the conduct of, or otherwise material to, the Business (the "Assets"). The Company or its Subsidiaries have good, valid ------ and marketable title to, or in the case of leased property have good and valid leasehold interests in, all Assets that are material to the Business, including but not limited to all such Assets reflected in the Balance Sheet or acquired since the date thereof (except as disposed of in the ordinary course of business after the date thereof and in accordance with this Agreement), in each case free and clear of any Lien, except Permitted Liens. The Assets constitute all of the assets used by the Company and its Subsidiaries to produce the revenue set forth on the statements of income included in the Financial Statements and any subsequently produced revenue. There are no Assets used in the operation of the Business that will not, following the Closing, be owned by the Company or its Subsidiaries, or leased or licensed to the Company or its Subsidiaries under valid current leases or license arrangements. All tangible Assets currently being used in the business are in good working order, except for normal wear and tear. Schedule 3.10 of the Disclosure Letter identifies the location of all 15 tangible Assets that are owned by the Company or its Subsidiaries that are material to the Business, including but not limited to buildings, machinery, equipment, vehicles, inventory and real property. 3.11. Real Property. (a) Owned Real Property. Except as set forth on ------------- ------------------- Schedule 3.11(a) of the Disclosure Letter, neither the Company nor its Subsidiaries owns any real property. The Company or its Subsidiaries has good, valid and marketable fee simple title to the Owned Real Property, free and clear of any Liens other than Permitted Liens. (b) Leases. Schedule 3.11(b) of the Disclosure Letter contains a ------ complete and correct list of all Leases setting forth the address and landlord for each Lease. The Purchaser has been furnished with correct and complete copies of the Leases. Each Lease between the Company and any of its Affiliates is legal, valid, binding, in full force and effect and enforceable against each party thereto and each other Lease is legal, valid, binding, in full force and effect and enforceable against the Company and, to the knowledge of the Company, each other party thereto. None of the Company, its Subsidiaries nor any Affiliate thereof is, and, to the knowledge of the Company, no other party is, in default, violation or breach in any material respect under any Lease, and no event has occurred and is continuing that constitutes or, with notice or the passage of time or both, would constitute a default, violation or breach by the Company, its Subsidiaries, any Affiliate thereof or, to the knowledge of the Company, any other party in any material respect under any Lease. Each Lease grants the tenant under the Lease the exclusive right to use and occupy the premises and rights demised thereunder. The Company and its Subsidiaries enjoy peaceful and undisturbed possession under their respective Leases for the Leased Real Property. (c) No Proceedings. There are no proceedings in eminent domain or other -------------- similar proceedings pending or, to the knowledge of the Company, threatened, affecting any portion of the Real Property. There exists no writ, injunction, decree, order or judgment outstanding, nor any Litigation, pending or, to the knowledge of the Company, threatened, relating to the ownership, lease, use, occupancy or operation by any Person of any Real Property. (d) Current Use. The use and operation of the Real Property in the ----------- conduct of the Business does not violate any material instrument of record or agreement affecting the Real Property. There is no material violation by the Company or its Subsidiaries, or to the knowledge of the Company, any other Person, of any covenant, condition, restriction, easement or agreement or order of any Governmental Authority that affects the Real Property or the ownership, operation, use or occupancy thereof. No material damage or destruction has occurred with respect to any of the Real Property that has not been repaired so as to restore such Real Property to its state prior to any such damage or destruction. 16 (e) Richardson Lease. The Company's lease for the premises in ---------------- Richardson, Texas has been sublet by the Company to Grocery Link for a term of three years with a renewal option for two additional terms of one year each. Such sublease is legal, valid, binding, in full force and effect and enforceable against the Company and, to the knowledge of the Company, each other party thereto. 3.12. Contracts. (a) Disclosure. Schedule 3.12(a) of the Disclosure --------- ---------- Letter contains a complete and correct list, as of the date hereof, of all Contracts. The Company and its Subsidiaries have made available to the Purchaser complete and correct copies of all written Contracts, and accurate descriptions of all material terms of all oral Contracts, set forth or required to be set forth on Schedule 3.12(a) of the Disclosure Letter. (b) Enforceability. All Contracts are legal, valid, binding, in full -------------- force and effect and, enforceable against the Company and, to the knowledge of the Company, enforceable against each other party thereto. Except as set forth on Schedule 3.12(b) of the Disclosure Letter, there does not exist under any Contract any violation, breach or event of default, or event or condition that, after notice or lapse of time or both, would constitute a violation, breach or event of default thereunder, on the part of the Company, its Subsidiaries or any Affiliate of either, or, to the knowledge of the Company, any other Person, other than such violations, breaches, events of default, or events or conditions that, individually and in the aggregate, could not reasonably be expected to have or result in a Material Adverse Effect. Except as set forth on Schedule 3.12(b) of the Disclosure Letter, the enforceability of all Contracts will not be affected in any manner by the execution, delivery or performance of this Agreement, and no Contract contains any change in control or other terms or conditions that will, with or without obtaining consent or waiver, become applicable or inapplicable as a result of the consummation of the transactions contemplated by this Agreement. 3.13. Intellectual Property. (a) Disclosure. Schedule 3.13(a)(i) of the --------------------- ---------- Disclosure Letter sets forth a complete and correct list of all Intellectual Property that is owned by either the Company or its Subsidiaries (the "Owned ----- Intellectual Property"), except for any Owned Intellectual Property that - --------------------- consists of (i) inventions, trade secrets, processes, formulae, compositions, designs and confidential business and technical information, and (ii) that is not registered or subject to application for registration and that is not material to the Business. (b) Title. All of the Intellectual Property used or held for use in ----- connection with, necessary for the conduct of, or otherwise material to, the Business (the "Company Intellectual Property"), is owned by either the Company ----------------------------- or its Subsidiaries, except as set forth on Schedule 3.13(b)(i) of the Disclosure Letter. The Company and its Subsidiaries have valid and legally sufficient rights to use the Company Intellectual Property free from any Liens (except for Permitted Liens incurred in the ordinary course of business) 17 and free from any requirement of any past, present or future royalty payments, license fees, charges or other payments, or conditions or restrictions, whatsoever, except as set forth on Schedule 3.13(b)(ii) of the Disclosure Letter. Schedule 3.13(b)(iii) of the Disclosure Letter sets forth a list of all licenses, licensing arrangements and other contracts providing in whole or in part for the use of, or limiting the use of, any Intellectual Property, including license arrangements and other contracts providing for the use of or limiting the use of any Intellectual Property upon the lapse of time, the giving of notice or the occurrence of a contingency (the "Intellectual Property --------------------- Licenses"). The representations contained in Section 3.12 shall apply to the - -------- Intellectual Property Licenses. Immediately after the Effective Time, the Company and its Subsidiaries shall own or have licensed to them all the Company Intellectual Property, in each case free from Liens (except for Permitted Liens incurred in the ordinary course of business) and on the same terms and conditions as in effect prior to the Effective Time, except as otherwise disclosed on Schedule 3.13(b)(iv) of the Disclosure Letter. (c) No Infringement, etc. Except as set forth on Schedule 3.13(c) of -------------------- the Disclosure Letter, (i) the conduct of the Business does not infringe or - otherwise conflict with any rights of any Person in respect of any Intellectual Property and (ii) none of the Company Intellectual Property is being infringed -- or otherwise used or available for use by any Person without a license or permission from the Company or its Subsidiaries. The Company and its Subsidiaries have taken all necessary actions to ensure full protection of the Company Intellectual Property (including maintaining the secrecy of all confidential Intellectual Property) under any applicable Law. (d) No Intellectual Property Litigation. No claim or demand of any ----------------------------------- Person has been made or, to the knowledge of the Company, threatened, nor is there any Litigation that is pending or, to the knowledge of the Company, threatened, that (i) challenges the rights of the Company or its Subsidiaries in - respect of any Company Intellectual Property, (ii) asserts that the Company or -- its Subsidiaries is infringing or otherwise in conflict with, or is (except as set forth on Schedule 3.13(d) of the Disclosure Letter), required to pay any royalty, license fee, charge or other amount with regard to, any Intellectual Property, or (iii) claims that any default exists under any agreement or --- arrangement set forth or required to be set forth on Schedule 3.13(b)(ii) of the Disclosure Letter. None of the Company Intellectual Property is subject to any outstanding order, ruling, decree, judgment or stipulation by or with any court, tribunal, arbitrator or other Governmental Authority, or has been the subject of any Litigation within the last ten years, whether or not resolved in favor of the Company or its Subsidiaries. (e) Software. The Company and its Subsidiaries own all right, title and -------- interest in and to all Owned Software used or held for use in connection with, necessary for the conduct of or otherwise material to the Business. There are no Viruses in the Owned Software. There are no defects in the Owned Software that would prevent it from performing in all material respects the tasks and functions that it was intended to perform. 18 (f) Calendar Function. Except as set forth on Schedule 3.13(f) of the ----------------- Disclosure Letter, all Software, hardware and embedded microcontrollers in non- computer equipment used in the Business that contain or call on a calendar function, including but not limited to any function that is indexed to a computer processing unit clock, provides specific days, dates or times, or calculates spans of dates or times, is, or prior to September 30, 1999 will be able to record, store, process, calculate, compare, sequence and provide true and accurate day, date and time data from, into and between the twentieth and twenty-first centuries, including but not limited to with respect to the years 1999, 2000 and 2001 and leap year calculations (such ability referred to herein as, "Year 2000 Ready" or "Year 2000 Readiness"). The Company has conducted a reasonable investigation into the Year 2000 Readiness of the operations of any third party with which the Company or any Subsidiary has a material relationship including, but not limited to, raw materials providers, service providers, utilities, financial institutions and transporters. The Company and its Subsidiaries have delivered a complete and correct list of all such third parties to the Purchaser. The Company and its Subsidiaries have a reasonable basis to believe, and do believe, that all such third parties will timely be Year 2000 Ready and will be able to continue to conduct business with the Company and its Subsidiaries without material disruption. The Company and its Subsidiaries have also formulated reasonable contingency plans to minimize the effect of the Company's, any Subsidiary's or any third party failure to timely achieve Year 2000 Readiness, which plans include, but are not limited to, alternative sources for products and services. The Company and its Subsidiaries have delivered to the Purchaser copies of the Company's and Subsidiaries' plans to achieve Year 2000 Readiness, a current status report and other documents related to the Year 2000 Readiness status of the Company and its Subsidiaries including, but not limited to, the contingency plans as well as copies of any certifications, correspondence and other documents received from third parties including, but not limited to, business partners, service providers, software vendors and equipment manufacturers addressing their Year 2000 Readiness status. 3.14. Insurance. Schedule 3.14 of the Disclosure Letter contains a --------- complete and correct list and summary description of all insurance policies maintained by or on behalf of the Company or its Subsidiaries (the "Policies"). -------- The Purchaser has been furnished with complete and correct copies of all Policies together with all riders and amendments thereto. The Policies are in full force and effect, and all premiums due thereon have been paid. The Company and its Subsidiaries have complied in all material respects with the terms and provisions of the Policies. 3.15. Litigation. Except as set forth on Schedule 3.15 of the Disclosure ---------- Letter, there is no Litigation pending or, to the knowledge of the Company, threatened, against the Company or its Subsidiaries that could reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 3.15 of the Disclosure Letter, there are no claims pending, and no grounds for any Person to bring a claim (with or without the lapse of time, the giving of notice or the occurrence of a contingency), against the 19 Company or the Surviving Corporation that could interfere with the Company's ability to sell its products, that could reasonably be expected to impair the goodwill of the Company or its Subsidiaries, or that could materially impair the reputation or marketing of Company or its Subsidiaries products, either currently or after giving effect to the Merger. 3.16. Compliance with Laws and Instruments. (a) Compliance. Except as set ------------------------------------ ---------- forth on Schedule 3.16(a) of the Disclosure Letter, (i) none of the Company and - its Subsidiaries is, nor upon consummation of transactions contemplated hereby, including, but not limited to, the Offer and the Merger, will be, in conflict with or in violation or breach of or default under (and there exists no event that, with notice or passage of time or both, would constitute a conflict, violation, breach or default with, of or under) (x) any Law (including escheat - and unclaimed property Laws) applicable to it or any of its properties, assets, operations or business, (y) any provision of the Organizational Documents of the - Company or its Subsidiaries, or (z) any Contract, or any other agreement or - instrument to which the Company or its Subsidiaries is party or by which it or any of its properties or assets is bound or affected, except in the case of the foregoing clauses (x) and (z) for any such conflicts, breaches, violations and defaults that, individually or in the aggregate, could not reasonably be expected to have or result in a Material Adverse Effect, and (ii) none of the -- Company and its Subsidiaries have received any notice or has knowledge of any claim alleging any such conflict, violation, breach or default. (b) Governmental Approvals, etc. Schedule 3.16(b) of the Disclosure --------------------------- Letter contains a complete and correct list of all Governmental Approvals and other Consents necessary for, or otherwise material to, the conduct of the Business. Except as set forth on Schedule 3.16(b) of the Disclosure Letter, all such Governmental Approvals and other Consents have been duly obtained and are held by the Company and are in full force and effect. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including, but not limited to, the Offer and the Merger, do not and will not violate any such Governmental Approval or Consent, or result in any revocation, cancellation, suspension, modification or nonrenewal thereof. 3.17. Environmental Matters. (a) Compliance with Environmental Law. Except --------------------- --------------------------------- as set forth on Schedule 3.17(a) of the Disclosure Letter, each of the Company and its Subsidiaries has complied and is in compliance in all material respects with all applicable Environmental Laws pertaining to their respective properties and Assets (including the Real Property) and the use and ownership thereof, and to the operation of the Business. No violation by the Company or its Subsidiaries of any applicable Environmental Law relating to any of the properties and assets of the Company or its Subsidiaries or the use or ownership thereof, or to the operation of the Business is being or has been alleged. Except as set forth on Schedule 3.17(a) of the Disclosure Letter, the 20 Company and its Subsidiaries are in possession of, and in material compliance with, all permits, authorizations and consents required under applicable Environmental Laws. (b) Other Environmental Matters. Except as set forth on Schedule --------------------------- 3.17(b): (i) None of the Company, its Subsidiaries or, to the knowledge of the Company or its Subsidiaries, any other Person, has caused or taken any action that will result in, and neither the Company nor its Subsidiaries is subject to, any liability or obligation relating to (x) the environmental conditions on, - under, or about the Real Property or other properties or assets currently or formerly owned, leased, operated or used by the Company, its Subsidiaries or any predecessor thereto, including without limitation, the air, soil and groundwater conditions at such properties or (y) the past or present use, management, - handling, transport, treatment, generation, storage, disposal or Release of any Hazardous Materials. (ii) No Environmental Claims have been asserted against the Company, its Subsidiaries, or, to the knowledge of the Company, any predecessor in interest, nor does the Company have knowledge or notice of any threatened or pending Environmental Claim against the Company, its Subsidiaries or any predecessor in interest. (iii) The Purchaser has been furnished with all information, including, without limitation, all studies, analyses, reports and investigations, in the possession, custody or control of the Company or its agents relating to (x) the - environmental conditions on, under or about the Real Property or other properties or assets currently or formerly owned, leased, operated or used by the Company, its Subsidiaries or any predecessor in interest thereto, and (y) - any Hazardous Materials used, managed, handled, transported, treated, generated, stored or Released by the Company, its Subsidiaries or any other Person, in a manner subject to regulation under any Environmental Law, on, under, about or from any of the Real Property, or otherwise in connection with the use or operation of any of the properties and assets of the Company or its Subsidiaries or the Business. 3.18. Employees, Labor Matters, etc. Except as set forth on Schedule 3.18 ----------------------------- of the Disclosure Letter, neither the Company nor any of its Subsidiaries is a party to or bound by any collective bargaining agreement, and there are no labor unions or other organizations representing, purporting to represent or attempting to represent any employees employed by the Company or its Subsidiaries. Since January 1, 1998, there has not occurred or been threatened any strike, slowdown, picketing, work stoppage, concerted refusal to work overtime or other similar labor activity with respect to any employees of the Company or its Subsidiaries. Except as set forth on Schedule 3.18 of the Disclosure Letter, there are no labor disputes currently subject to any grievance procedure, arbitration or litigation and there is no representation petition pending or threatened with respect to any employee of the Company or its Subsidiaries. Except as set forth on Schedule 3.18 of the Disclosure Letter, the Company and its Subsidiaries 21 have complied with all applicable Laws pertaining to the employment or termination of employment of their respective employees, including, without limitation, all such Laws relating to labor relations, equal employment opportunities, fair employment practices, prohibited discrimination or distinction and other similar employment activities. 3.19. Employee Benefit Plans and Related Matters; ERISA. (a) Employee ------------------------------------------------- -------- Benefit Plans. Schedule 3.19(a) of the Disclosure Letter sets forth a complete - ------------- and correct list of each "employee benefit plan", as such term is defined in Section 3(3) of ERISA, and each bonus, incentive or deferred compensation, severance, termination, retention, change of control, stock option, stock appreciation, stock purchase, phantom stock or other equity-based, performance or other employee or retiree benefit or compensation plan, program, arrangement, agreement, policy or understanding, whether written or unwritten, that provides or may provide benefits or compensation in respect of any employee or former employee of the Company or its Subsidiaries or the beneficiaries or dependents of any such employee or former employee (collectively, the "Employees") or under --------- which any Employee is or may become eligible to participate or derive a benefit and that is or has been maintained or established by the Company or its Subsidiaries or any other trade or business, whether or not incorporated, which, together with the Company or its Subsidiaries, is or would have been at any date of determination occurring within the preceding six years, treated as a single employer under Section 414 of the Code (such other trades and businesses hereinafter referred to as the "Related Persons"), or to which the Company or --------------- its Subsidiaries or any Related Person contributes or is or has been obligated or required to contribute (collectively, the "Plans"). With respect to each such ----- Plan, the Company has made available or furnished to the Purchaser complete and correct copies of: (i) such Plan, if written, or a description of such Plan if - not written, and (ii) to the extent applicable to such Plan, all trust -- agreements, insurance contracts or other funding arrangements, the two most recent actuarial and trust reports, the two most recent Forms 5500 required to have been filed with the IRS and all schedules thereto, the most recent IRS determination letter, all current summary plan descriptions, all material communications received from or sent to the IRS, the Pension Benefit Guaranty Corporation or the Department of Labor (including a written description of any oral communication), any actuarial study of any post-employment life or medical benefits provided under any such Plan, if any, statements or other communications regarding withdrawal or other multi employer plan liabilities, if any, and all amendments and modifications to any such document. None of the Company or any of its Subsidiaries has communicated to any Employee any intention or commitment to modify any Plan (except to the extent such modifications are required by law) or to establish or implement any other employee or retiree benefit or compensation plan or arrangement. (b) Qualification. Each Plan intended to be qualified under Section ------------- 401(a) of the Code, and the trust (if any) forming a part thereof, has received a favorable determination letter from the IRS as to its qualification under the Code and to the effect 22 that each such trust is exempt from taxation under Section 501(a) of the Code, and nothing has occurred since the date of such determination letter that could reasonably be expected to adversely affect such qualification or tax-exempt status; or the time period for submitting a determination letter request and adopting retroactive amendments under the Code Section 401(b) and corresponding Treasury Regulations is open as of the date of this Agreement. (c) Compliance; Liability. --------------------- (i) None of the Company, any of its Subsidiaries, or any Related Person has been involved in any transaction that could cause the Company, its Subsidiaries, any such Related Person or, following the Closing, the Purchaser, to be subject to liability under Section 4069 or 4212 of ERISA. None of the Company, its Subsidiaries, or any Related Person has incurred (either directly or indirectly, including as a result of an indemnification obligation) any material liability under or pursuant to Title I or IV of ERISA or the penalty, excise Tax or joint and several liability provisions of the Code relating to employee benefit plans and, to the knowledge of the Company, no event, transaction or condition has occurred or exists that could result in any such liability to the Company, its Subsidiaries, any such Related Person or, following the Closing, the Purchaser or any of its Affiliates. All contributions and premiums required to have been paid by the Company, its Subsidiaries, and each Related Person to any employee benefit plan (within the meaning of Section 3(3) of ERISA) (including each plan) under the terms of any such plan or its related trust, insurance contract or other funding arrangement, or pursuant to any applicable Law or collective bargaining agreement (including ERISA and the Code) have been paid within the time prescribed by any such plan, agreement or applicable Law. (ii) Each of the Plans has been operated and administered in all material respects in compliance with its terms, all applicable Laws and all applicable collective bargaining agreements. There are no material pending or, to the knowledge of the Company, threatened claims by or on behalf of any of the Plans, by any Employee or otherwise involving any such Plan or the assets of any Plan (other than routine claims for benefits, all of which have been fully reserved for on the regularly prepared balance sheets of the Company or its Subsidiaries). (iii) No Plan is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA or a "multiple employer plan" within the meaning of Section 4063 or 4064 of ERISA. (iv) No Plan is subject to Section 412 of the Code or Section 302 or Title IV of ERISA. 23 (v) No Employee is or will become entitled to post-employment benefits of any kind by reason of employment with the Company or its Subsidiaries, including, without limitation, death or medical benefits (whether or not insured), other than (x) coverage mandated by Section 4980B of the Code or - applicable state law, (y) retirement benefits payable under any Plan qualified - under Section 401(a) of the Code or (z) deferred compensation accrued as a - liability on the Balance Sheet and additional deferred compensation accrued after the date thereof under the same deferred compensation arrangements. Except as set forth on Schedule 3.19(c) of the Disclosure Letter or as otherwise required by law, the consummation of the transactions contemplated by this Agreement will not result in an increase in the amount of compensation or benefits or the acceleration of the vesting or timing of payment of any compensation or benefits payable to or in respect of any Employee. 3.20. Accounts Receivable. The Purchaser has been furnished with a ------------------- complete and accurate aging of all accounts receivable of the Company and its Subsidiaries as of the end of each monthly period since January 1, 1998. Except as set forth on Schedule 3.20 of the Disclosure Letter, to the knowledge of the Company, no account receivable of the Company or its Subsidiaries reflected on the Balance Sheet and no account receivable arising after the date of the Balance Sheet and reflected on the books of the Company or its Subsidiaries is uncollectible or subject to counterclaim or offset, except to the extent reserved against thereon. 3.21. Inventories. All inventories of raw materials, supplies, work in ----------- progress and finished goods of the Company and its Subsidiaries are of good, usable and merchantable quality in all material respects, and, except as set forth on Schedule 3.21 of the Disclosure Letter, do not include obsolete or discontinued items. Except as set forth on Schedule 3.21 of the Disclosure Letter, (a) all such inventories are of such quality as to meet the quality - control standards of the Company and its Subsidiaries and any applicable governmental quality control standards, (b) all such finished goods are suitable - for sale as current inventories at the current prices of the Company and its Subsidiaries in the ordinary course of business, (c) all such inventories are - recorded on the books at the lower of cost or market value determined in accordance with GAAP and (d) no write-down in inventory has been made or should have been made pursuant to GAAP during the past two years. 3.22. Customers. Except as set forth on Schedule 3.22 of the Disclosure --------- Letter, none of the Company or its Subsidiaries has (a) received any notice or - has any reason to believe that any material customer of the Company or its Subsidiaries (i) has ceased, or will cease, to purchase the products, goods or - services of the Company or its Subsidiaries or (ii) has materially reduced or -- will materially reduce, the purchase of products, goods or services of the Company or its Subsidiaries or (b) adopted any plan or policy or agreed or - otherwise made any commitment (regardless of whether such agreement or commitment would constitute an enforceable obligation or contract under applicable Law) to permit or 24 suffer any material customer of the Company or its Subsidiaries to materially reduce the price it will pay for products, goods or services of the Company or its Subsidiaries. 3.23. Suppliers; Raw Materials. Schedule 3.23 of the Disclosure Letter ------------------------ sets forth, for the year ended December 31, 1998, (a) the names and addresses of - the ten largest suppliers of each of the Company and its Subsidiaries based on the aggregate value of raw materials, supplies, merchandise and other goods and services ordered by the Company and its Subsidiaries from such suppliers during such period and (b) the amount for which each such supplier invoiced the Company - or its Subsidiaries during such period. None of the Company or its Subsidiaries has received any notice or has any reason to believe that there has been any material adverse change in the price of such raw materials, supplies, merchandise or other goods or services, or that any such supplier will not sell raw materials, supplies, merchandise and other goods to the Company and its Subsidiaries at any time after the Effective Time on terms and conditions substantially the same as those used in its current sales to the Company and its Subsidiaries, subject to general and customary price increases. 3.24. Products. (a) Warranties. The Purchaser has been furnished with -------- ---------- complete and correct copies of the standard terms and conditions of sale for each of the products or services of the Company and its Subsidiaries (containing applicable guaranty, warranty and indemnity provisions). Except as required by law or as set forth on Schedule 3.24(a) of the Disclosure Letter, no product manufactured, sold, or delivered by, or service rendered by or on behalf of, the Company or its Subsidiaries is subject to any guaranty, warranty or other indemnity, express or implied, beyond such standard terms and conditions. (b) Product Liability. Except as set forth on Schedule 3.24(b) of the ----------------- Disclosure Letter, neither the Company nor its Subsidiaries has any material liability or obligation of any nature (whether known or unknown, accrued, absolute, contingent or otherwise, and whether due or to become due), whether based on strict liability, negligence, breach of warranty (express or implied), breach of contract or otherwise, in respect of any product, component or other item manufactured, sold, designed or produced prior to the Closing by, or service rendered prior to the Closing by or on behalf of, the Company or its Subsidiaries or any predecessor thereto, that (i) is not fully and adequately - covered by policies of insurance or by indemnity, contribution, cost sharing or similar agreements or arrangements by or with other Persons and (ii) is not -- otherwise fully and adequately reserved against as reflected in the Financial Statements. (c) Rebates. Except as set forth on Schedule 3.24(c) of the Disclosure ------- Letter, none of the Company or its Subsidiaries has entered into, or offered to enter into, any agreement, contract commitment or other arrangement (whether written or oral) pursuant to which the Company or its Subsidiaries is or will be obligated to make any rebates, discounts, promotional allowances or similar payments or arrangements to any customer 25 ("Rebate Obligations"). All Rebate Obligations are reflected on the Financial ------------------ Statements or have been incurred after the date thereof in the ordinary course of business. 3.25. Bank Accounts. Schedule 3.25 of the Disclosure Letter sets forth a ------------- complete and correct list containing the names of each bank in which the Company or any of its Subsidiaries has an account or safe deposit or lock box, the account or box number, as the case may be, and the name of every person authorized to draw thereon or having access thereto. 3.26. Brokers, Finders, etc. Except for Alliant Partners (the "Financial --------------------- --------- Advisor"),whose fees shall be paid by the Company, none of the Company or any of - ------- its Subsidiaries has retained any broker, finder or investment banker or other intermediary in connection with the transactions contemplated herein so as to give rise to any claim against the Purchaser, the Company or its Subsidiaries for any brokerage, finder's or investment banker's commission, fee or similar compensation. 3.27. SEC Reports and Financial Statements. The Company has timely filed ------------------------------------ with the SEC, any applicable state securities authorities and any other Governmental Authority all forms and documents required to be filed by it since January 1, 1994 (collectively, the "Company Reports") and has heretofore made --------------- available to Parent and the Purchaser (i) its Annual Reports on Form 10-K for - the last five fiscal years, (ii) its Quarterly Reports on Form 10-Q for the -- periods ended March 31, 1999 and June 30, 1999, (iii) all proxy statements --- relating to meetings of stockholders of the Company since January 1, 1994 (in the form mailed to stockholders) and (iv) all other forms, reports and -- registration statements filed by the Company with the SEC since January 1, 1994 (other than registration statements on Form S-8 or Form 8-A, filings on Form T-1 or preliminary materials and registration statements in forms not declared effective). The documents described in clauses (i)-(iv) above (whether filed before, on or after the date hereof) are referred to in this Agreement collectively as the "Company SEC Documents". As of their respective dates, the --------------------- Company Reports (a) did not contain any untrue statement of a material fact or - omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (b) complied in all material respects with - the applicable requirements of Law, including in the case of SEC filings, the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder. The consolidated financial statements included in the Company SEC Documents have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as otherwise noted therein and except that the quarterly financial statements are subject to year end adjustment and do not contain all footnote disclosures required by GAAP) and fairly present in all material respects the consolidated financial position and the consolidated results of operations and cash flows of the Company and its consolidated Subsidiaries as at the dates thereof or for the periods presented therein. 26 3.28. Offer Documents; Schedule 14D-9. None of the information supplied in ------------------------------- writing by the Company specifically for inclusion in the Offer Documents will, at the respective times the Offer Documents or any amendments or supplements thereto are filed with the SEC, 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 were made, not misleading. The Schedule 14D-9 on the date filed with the SEC will not 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 were made, not misleading; provided, however, that the foregoing shall not apply to -------- ------- the extent that any such untrue statement of a material fact or omission to state a material fact was made by the Company in reliance upon and in conformity with written information furnished to the Company by Parent or the Purchaser specifically for use in the Schedule 14D-9. The Schedule 14D-9 will comply in all material respects, both as to form and otherwise, with the requirements of the Exchange Act and the rules and regulations thereunder. The Proxy Statement, if required, on the date filed with the SEC will not 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 were made, not misleading; provided, however, -------- ------- that the foregoing shall not apply to the extent that any such untrue statement of a material fact or omission to state a material fact was made by the Company in reliance upon and in conformity with written information furnished to the Company by Parent or the Purchaser specifically for use in the Proxy Statement. The Proxy Statement will comply in all material respects, both as to form and otherwise, with the requirements of the Exchange Act and the rules and regulations thereunder. 3.29. Fairness Opinion. The Board of Directors of the Company has ---------------- received a written opinion from the Financial Advisor to the effect that, as of the date of this Agreement, the consideration to be received in the Offer and the Merger by the holders of Shares (other than Parent and its Affiliates) is fair, from a financial point of view, to such holders of Shares. 3.30. Disclosure. To the knowledge of the Company, this Agreement and each ---------- certificate or other instrument or document furnished by or on behalf of the Company to Parent and the Purchaser pursuant hereto do not contain any untrue statement of a material fact or omit to state a material fact required to be stated herein or therein or necessary to make the statements contained herein or therein, in light of circumstances under which they were made, not misleading. 3.31. Takeover Statutes. The Board of Directors of the Company has ----------------- approved this Agreement, including, but not limited to, the consummation of the Offer and the Merger, and such approval constitutes approval of the Offer and Merger and the other transactions contemplated hereby by the Board of Directors of the Company under the 27 provisions of Section 203 of the DGCL such that Section 203 of the DGCL does not apply to the Offer and Merger or the other transactions contemplated by this Agreement. To the knowledge of the Company, no other state takeover statute is applicable to the Offer and Merger or the other transactions contemplated by this Agreement. 3.32. Nortel Warrant. Purchaser will not be adversely effected by the -------------- exercise of the warrant, dated June 27, 1997, held by Northern Telecom Limited, to purchase from the Company 150,000 shares of Company Common Stock and which has an exercise price of $12.00 (such exercise price not having been adjusted since the issuance of such warrant). 3.33. Cash on the Balance Sheet. The Company has cash and investments such ------------------------- that if a balance sheet were prepared in accordance with GAAP as of the date of this Agreement and the date of the consummation of the Offer such cash and investments would be in an amount of at least $13 million. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER Parent and the Purchaser represent and warrant to the Company as follows: 4.1. Status; Authorization, etc. The Purchaser is a corporation duly -------------------------- organized, validly existing and in good standing under the laws of the State of Delaware. Parent is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts. Each of the Purchaser and Parent has all requisite power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby, including, but not limited to, the Offer and the Merger. The execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, including, but not limited to, the Offer and the Merger, have been, and will, by the Effective Time, have been, duly authorized by all requisite action of the Purchaser and Parent. Each of the Purchaser and Parent has duly executed and delivered this Agreement. This Agreement is valid and legally binding obligations of the Purchaser and Parent, enforceable against the Purchaser and Parent in accordance with its terms. 28 4.2. No Conflicts, Consents, etc. (a) The execution, delivery and --------------------------- performance by each of the Purchaser and Parent of this Agreement, and the consummation of the transactions contemplated hereby, including, but not limited to, the Offer and the Merger, do not and will not conflict with, contravene, result in a violation or breach of or default under (with or without the giving of notice or the lapse of time, or both), give rise to a right or claim of termination, amendment, modification, vesting, acceleration or cancellation of any right or obligation or loss of any material benefit under, or result in the creation of any Lien (or any obligation to create any Lien) upon any of the properties or assets of the Purchaser or Parent under, (i) any provision of any - organizational document of the Purchaser or Parent, (ii) any Law applicable to -- the Purchaser or Parent, or any of their properties or assets or (iii) any --- contract, or any other agreement or instrument to which either the Purchaser or Parent is a party or by which any of its properties or assets may be bound. (b) Except as set forth on Schedule 4.2(b) of the Parent Disclosure Letter, no Consent of or with any Governmental Authority or other Person is required or advisable to be obtained by the Purchaser or Parent in connection with the execution and delivery by the Purchaser and Parent of this Agreement or consummation of the transactions contemplated hereby, including, but not limited to, the Offer and the Merger, except for (i) applicable requirements under - Competition Laws, (ii) applicable requirements under the Exchange Act, (iii) -- --- applicable requirements under the Securities Act, (iv) the filing of the -- Certificate of Merger with the Delaware Secretary of State, (v) applicable - requirements under "blue sky" laws of various states, and (vi) such other -- consents, approvals, orders, authorizations, notifications, registrations, declarations and filings (x) required to be obtained or made by the Company or - any of its Subsidiaries or (y) the failure of which to be obtained or made would - not have a material adverse effect on the business, results of operations or financial condition of the Purchaser, taken as a whole, or materially impair or delay the consummation of the transactions contemplated by this Agreement. 4.3. Litigation. There is no litigation pending or, to the knowledge of ---------- the Purchaser or Parent, threatened, against the Purchaser or Parent that could reasonably be expected to have or result in a material adverse effect on the ability of the Purchaser or Parent to consummate the transactions contemplated by this Agreement. 4.4. Brokers, Finders, etc. Except as set forth on Schedule 4.4 of the --------------------- Disclosure Letter, neither the Purchaser nor Parent has employed any broker, finder or investment banker in connection with the transactions contemplated herein so as to give rise to any claim for any brokerage, finder's or investment banker's commission, fee or similar compensation. 4.5. No Prior Business. The Purchaser has not engaged in any business or ----------------- activity of any kind, or entered into any agreement or arrangement with any person or any 29 entity or incurred, directly or indirectly, any material liabilities or obligations, other than in connection with the transactions contemplated hereby. 4.6. Offer Documents; Schedule 14D-9. None of the Offer Documents will, on the date filed with the SEC or on the date first published, sent or given to the Company's stockholders, 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 were made, not misleading; provided, however, that the foregoing shall not apply -------- ------- to the extent that any such untrue statement of a material fact or omission to state a material fact was made by Parent or the Purchaser in reliance upon and in conformity with written information furnished to Parent or the Purchaser by the Company specifically for use in the Offer Documents. The Offer Documents will comply in all material respects, both as to form and otherwise, with the requirements of the Exchange Act and the rules and regulations thereunder. None of the information supplied or to be supplied in writing by Parent or the Purchaser specifically for inclusion in the Schedule 14D-9 will, at the time the Schedule 14D-9 is filed with the SEC 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 were made, not misleading. None of the information supplied or to be supplied in writing by Parent or the Purchaser specifically for inclusion in the Proxy Statement, if required, will, at the time the Proxy Statement is filed with the SEC 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 were made, not misleading. 4.7. Financing. Parent and the Purchaser, collectively, have and at the --------- expiration of the Offer and the Effective Time will have sufficient funds available to pay the aggregate Merger Consideration and Option Consideration contemplated by this Agreement and to pay all of its fees and expenses related to the transactions contemplated hereby. 4.8. Beneficial Ownership. Except as set forth on Schedule 4.8, none of -------------------- Parent, the Purchaser, or any of their Affiliates "beneficially own" (as defined in Rule 13d-3 under the Exchange Act) any equity securities of the Company. ARTICLE V COVENANTS OF THE COMPANY 5.1. Conduct of the Business. On and after the date hereof until the Effective Time, except as expressly required by this Agreement, as disclosed on Schedule 5.1 of 30 the Disclosure Letter or as otherwise expressly consented to by the Purchaser in writing, the Company will, and will cause each of its Subsidiaries to: (i) carry on the Business in the ordinary course of business in substantially the same manner as heretofore conducted, and use commercially reasonable efforts to (x) preserve intact its present - business organization, (y) keep available the services of its present - officers and employees, and (z) preserve intact its relationships with - customers, suppliers and others having business dealings with it; (ii) promptly advise the Purchaser in writing of any event, occurrence, fact, condition, change, development or effect that, individually or in the aggregate, could reasonably be expected to have or result in a Material Adverse Effect or a breach of this Section 5.1; (iii) not take any action or omit to take any action within its reasonable control, which action or omission would result in a breach of any of the representations and warranties set forth in Article III; (iv) not agree or otherwise commit to take any of the actions proscribed by the foregoing paragraphs (i) through (iii);and (v) conduct all Tax affairs relating to it only in the ordinary course of business, and in good faith in substantially the same manner as such affairs would have been conducted if this Agreement had not been entered into. 5.2. No Solicitation. (a) After the date hereof and prior to the Effective --------------- Time or earlier termination of this Agreement (including, but not limited to, termination pursuant to Section 8.1(h)), unless Parent shall otherwise agree in writing, the Company shall not, shall not permit any of its Subsidiaries to, and shall not authorize or permit any officer, director or employee or any investment banker, attorney, accountant or other advisor or representative of the Company or any of its Subsidiaries to, directly or indirectly, except as otherwise expressly permitted in this Section 5.2(a) or in Section 5.2(b), (i) - initiate, solicit, negotiate, encourage, or provide confidential information to facilitate any proposal or offer to acquire all or any substantial part of the business and properties of the Company and its Subsidiaries, taken as a whole, or beneficial ownership (as determined pursuant to Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the capital stock of the Company, whether by merger, purchase of assets, tender offer or otherwise, whether for cash, securities or any other consideration or combination thereof (such transactions being referred to herein as "Acquisition Transactions"), (ii) enter into any ----------- ------------ -- agreement with respect to any Acquisition Transaction or give any approval of the type referred to in Section 5.2(b) with respect to any Acquisition Transaction or (iii) participate in any discussions regarding, or take any other --- action to 31 facilitate any inquiries or the making of any proposal that constitutes or may reasonably be expected to lead to any Acquisition Transaction. Notwithstanding the immediately preceding sentence, the Company and its Subsidiaries may, prior to the Company Stockholder Approval (as defined in Section 6.3), in response to any unsolicited proposal for an Acquisition Transaction, furnish information concerning its business, properties or assets to the corporation, partnership, person or other entity or group (a "Potential Acquiror") making such proposal --------- -------- for an Acquisition Transaction and participate in negotiations with the Potential Acquiror if (x) the Company's Board of Directors, after consultation with one or more of its independent financial advisors, is of the reasonable belief that such Potential Acquiror has the financial wherewithal to consummate such an Acquisition Transaction, (y) the Company's Board of Directors reasonably - determines, after receiving advice from the Company's financial advisor, that such Potential Acquiror has submitted a proposal for an Acquisition Transaction that involves consideration to the Company's stockholders and other terms that taken as a whole are more favorable from a financial point of view than the Merger and (z) the Company's Board of Directors determines in good faith, after - consultation with outside counsel, that it is necessary to so furnish information and negotiate in order to comply with its fiduciary duty to stockholders of the Company. In the event the Company shall determine to provide any information as described above or shall receive any offer of the type referred to in this Section 5.2 or shall receive or become aware of any other proposal to acquire a substantial part of the business and properties of the Company and its Subsidiaries, taken as a whole, or to acquire a substantial amount of capital stock of the Company, it shall promptly inform Parent orally as to the fact that information is to be provided and shall furnish to Parent the identity of the recipient of such information and/or the proponent of any such offer or proposal and a description of the material terms thereof. The Company will keep Parent fully informed of the status and material details of any proposed Acquisition Transaction or other transaction (including any material amendments or material proposed amendments of any such proposed Acquisition Transaction or other transaction). (b) After the date hereof and prior to the Effective Time or earlier termination of this Agreement, neither the Board of Directors of the Company nor any committee thereof (x) shall withdraw or modify or propose to withdraw or modify, in any manner adverse to Parent, the approval or recommendation of such Board of Directors or such committee of this Agreement, the Offer or the Merger or (y) approve or recommend, or propose to approve or recommend, any proposal for an Acquisition Transaction except, in each case, in connection with a Superior Proposal. As used herein, the term "Superior Proposal" means a bona ----------------- fide proposal to acquire, directly or indirectly, for consideration consisting of cash and/or securities, more than 50% of the Shares then outstanding or all or substantially all of the assets of the Company, provided (i) such proposed -------- - transaction satisfies the tests set forth in clauses (x), (y) and (z) of the second sentence of Section 5.2(a) and (ii) the Board of Directors determines, in -- its good faith reasonable judgment, 32 that such proposed transaction is reasonably likely to be consummated without undue delay. (c) Nothing contained in this Section 5.2 shall prohibit the Company from at any time taking and disclosing to its stockholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act, provided that -------- neither the Company nor its Board of Directors shall, except at permitted by this Section 5.2, approve or recommend acceptance of a proposal for an Acquisition Transaction. 5.3. Access and Information. From the date hereof to the Effective Time or ---------------------- earlier termination of this Agreement, the Company and its Subsidiaries shall give the Purchaser and its accountants, counsel, consultants, employees and agents, full, complete and timely access during normal business hours to, and furnish them with all documents, records, work papers, tax returns and information with respect to, all of the Company's and its Subsidiaries' properties, Assets, books, Contracts, reports, records and senior management personnel, as the Purchaser shall from time to time reasonably request. The Company and its Subsidiaries shall keep the Purchaser and its representatives informed as to the affairs of the Business and shall consult with the representatives of the Purchaser on important matters pertaining to the Business. 5.4. Further Assurances. (a) Following the Closing, the Company shall ------------------ execute and deliver such additional instruments, documents, conveyances or assurances and take such other actions as shall be necessary, or otherwise reasonably requested by the Purchaser, to confirm and assure the rights and obligations provided for in this Agreement, and render effective the consummation of the transactions contemplated hereby, including, but not limited to, the Offer and the Merger. ARTICLE VI COVENANTS OF PARENT, THE PURCHASER AND THE COMPANY 6.1. Public Announcements. Prior to the Effective Time, except as required -------------------- by applicable Law (and after notice to and consultation with the other parties), no party shall, nor shall permit its Affiliates to, make any public announcement in respect of this Agreement or the transactions contemplated hereby, including, but not limited to, the Offer and the Merger, without the prior written consent of the other parties. 6.2. Reasonable Best Efforts. (a) Subject to the terms and conditions provided in this Agreement, each of the parties agrees to use its commercially reasonable efforts to take promptly, or cause to be taken, all actions and to do promptly, or cause to be done, all things necessary, proper or advisable to consummate and make effective the 33 transactions contemplated by this Agreement, including using its commercially reasonable efforts (i) to obtain all necessary waivers, consents and approvals, - and (ii) to effect all necessary registrations and filings including, but not -- limited to, the Offer Documents, Schedule 14D-9, Proxy Statement and any required filing under the Competition Laws. In case at any time after the Effective Time any further action is necessary or desirable to carry out the obligations of the parties under this Agreement, the proper officers and/or directors of Parent, the Purchaser and the Company, as the case may be, shall take the necessary action. (b) In connection with and without limiting the foregoing, the Company and its Board of Directors shall (i) take all action necessary to ensure that no - state takeover statute or similar statute or regulation, in each case as the same is in effect on the date hereof, is or becomes applicable to the Offer, the Merger, this Agreement or any of the other transactions contemplated by this Agreement and (ii) if any such state takeover statute or similar statute or -- regulation becomes applicable to the Offer, 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. 6.3. Stockholder Approval. (a) If required by applicable law in order to -------------------- consummate the Merger, as soon as practicable following the purchase of the Shares pursuant to the Offer, the Company shall duly call, give notice of, convene and hold a meeting of its stockholders (the "Company Stockholders -------------------- Meeting") for the purpose of adopting and approving this Agreement and the - ------- transactions contemplated hereby, including the Merger (the "Company Stockholder ------------------- Approval"). Without limiting the generality of the foregoing, the Company agrees - -------- that its obligations pursuant to the first sentence of this Section 6.3(a) shall not be affected by the commencement, public proposal, public disclosure or communication to the Company of any proposed Acquisition Transaction. The Company will, through its Board of Directors, recommend to its stockholders the approval and adoption of this Agreement and the transactions contemplated hereby, including, but not limited to, the Offer and the Merger, 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 in accordance with Section 5.2. At such meeting, Parent and the Purchaser will each vote, or cause to be voted, all Shares acquired in the Offer or otherwise beneficially owned by it or any of its subsidiaries on the record date for such meeting, in favor of the approval and adoption of this Agreement and the transactions contemplated hereby, including the Merger. (b) The Company shall, if required by law, prepare and file a proxy statement (the "Proxy Statement") with the SEC in connection with obtaining the --------------- Company Stockholder Approval. Parent and the Purchaser shall cooperate with the Company in the 34 preparation of the Proxy Statement including, without limitation, promptly providing information requested by the Company or required by the SEC to be included in the Proxy Statement and responding promptly to any inquiries from the Company made in connection with comments on the Proxy Statement received from the SEC. The Company will use its reasonable best efforts to cause the Proxy Statement to be mailed to the Company's stockholders as promptly as practicable after the SEC completes its review of the Proxy Statement. (c) The Company agrees that none of the information included or incorporated by reference in the Proxy Statement or otherwise supplied by the Company to its stockholders, including any amendments to any of the foregoing, will be false or misleading with respect to any material fact or will 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; provided, that the foregoing shall not apply to -------- information supplied by or on behalf of Parent or the Purchaser specifically for inclusion or incorporation by reference in any such document. Parent agrees that none of the information supplied by or on behalf of Parent or the Purchaser specifically for inclusion or incorporation by reference in any such document will be false or misleading with respect to any material fact or will omit to state any material fact required to be stated therein or necessary in order to make the statements in such information, in light of the circumstances under which they are made, not misleading. (d) Notwithstanding the foregoing, in the event that the Purchaser shall acquire at least 90 percent of the outstanding Shares, the parties hereto agree, at the request of Parent or the Purchaser, to take all necessary and appropriate action to cause the Merger to become effective, as soon as practicable after the expiration of the Offer, without a meeting of stockholders of the Company in accordance with Section 253 of the DGCL. 6.4. Directors' and Officers' Insurance and Indemnification. (a) For a ------------------------------------------------------ period of six years after the Effective Time, the Surviving Corporation shall indemnify, defend and hold harmless the present and former officers, directors, employees and agents of the Company and its Subsidiaries in such capacities against all losses, claims, damages, expenses or liabilities arising out of actions or omissions or alleged actions or omissions occurring at or prior to the Effective Time to the same extent and on the same terms and conditions (including with respect to advancement of expenses) provided for in the Company's Organizational Documents in effect at the date hereof (to the extent consistent with applicable Law). (b) For a period of six years after the Effective Time, the Surviving Corporation shall maintain in effect directors' and officers' liability insurance covering the persons who are currently covered by the Company's existing directors' and officers' liability insurance with respect to claims arising from facts or events which occurred before the 35 Effective Time, on terms and conditions no less favorable to such directors and officers than those in effect on the date hereof; provided that in no event -------- shall the Surviving Corporation be required to make annual premium payments for such insurance in excess of 150% of the annual premiums payable by the Company for such insurance as of the date hereof. 6.5. Stockholder Litigation. Each of the Company and the Purchaser shall ---------------------- give the other the reasonable opportunity to participate in the defense of any stockholder litigation against the Company or the Purchaser, as applicable, and its directors relating the transactions contemplated hereby, including, but not limited to, the Offer and the Merger. 6.6. Parent Obligations. Parent agrees to take all steps necessary to ------------------ cause Purchaser to fulfill its obligations under this Agreement, both before and after the Effective Time. ARTICLE VII CONDITIONS PRECEDENT 7.1. Condition to Obligations of Each Party. The obligations of Parent, -------------------------------------- the Purchaser and the Company to consummate the Merger are subject to the satisfaction, at or before the Effective Time, of each of the following conditions: (a) Tender of Shares. The Purchaser shall have purchased all Shares duly ---------------- tendered and not withdrawn pursuant to the terms of the Offer and subject to the terms thereof; provided that the obligation of Parent and the Purchaser to -------- effect the Merger shall not be conditioned on the fulfillment of the condition set forth in this Section 7.1(a) if the failure of the Purchaser to purchase the Shares pursuant to the Offer shall have constituted a breach of the Offer or of this Agreement. (b) No Injunction, etc. The consummation of the Merger shall not be ------------------ precluded by any threatened or bona fide order, decree or injunction of a court of competent jurisdiction (each party agreeing to use its best efforts to have any such order reversed or injunction lifted), and there shall not have been any action threatened or taken or any Law enacted, promulgated or deemed applicable to the Merger by any Governmental Authority that makes consummation of the Merger illegal. (c) Stockholder Approval. If required by the Certificate of -------------------- Incorporation and By-Laws of the Company and the DGCL, this Agreement shall have been approved and adopted by the affirmative vote of the holders of the requisite number of shares of Common Stock in accordance with the Certificate of Incorporation and By-Laws of the Company and the DGCL. 36 (d) HSR Act and Competition Act. (1) Any applicable waiting period --------------------------- under the HSR Act shall have expired or been terminated. (2) If applicable, the Director of Investigation and Research appointed under the Competition Act (Canada) shall not have advised the Purchaser, in writing, that he intends to oppose the acquisition of the Shares or that he has taken or threatened to take proceedings under the Competition Act (Canada) in respect of the purchase of Shares. ARTICLE VIII TERMINATION 8.1. Termination. This Agreement may be terminated and the Merger ----------- contemplated herein may be abandoned at any time prior to the Effective Time, whether prior to or after approval by the stockholders of the Company: (a) by the mutual written consent of Parent, the Purchaser and the Company duly authorized by their respective Boards of Directors; (b) by either Parent or the Company if, on or before December 6, 1999, the Purchaser shall not have purchased in the Offer such number of the Shares which represent in excess of 50% of the outstanding Shares on a fully diluted basis, or the Merger shall not have been consummated on or before March 5, 2000, provided, however, that the right to terminate this Agreement shall not be - -------- ------- available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Offer or the Merger to have occurred on or before the aforesaid date; (c) by either Parent or the Company if the Offer shall expire or terminate in accordance with its terms without any Shares having been purchased thereunder and, in the case of termination by Parent, the Purchaser shall not have been required by the terms of the Offer or this Agreement to purchase any Shares pursuant to the Offer; (d) by the Company if the Purchaser shall not timely commence the Offer as provided in Section 1.1(a); (e) unilaterally by the Purchaser and Parent on the one hand (treated as a single party) or the Company on the other hand (i) if the other fails to - perform any material covenant or agreement in any material respect in this Agreement, and does not cure the failure in all material respects within 30 business days after the terminating party delivers written notice of the alleged failure or (ii) if any condition to the obligations of that party is not -- satisfied (other than by reason of a breach by that party of its obligations 37 hereunder), and it reasonably appears that the condition cannot be satisfied prior to March 5, 2000; (f) by either the Purchaser or the Company if either is prohibited by an order or injunction (other than an order or injunction on a temporary or preliminary basis) of a court of competent jurisdiction or other Governmental Authority from consummating the Offer or the Merger and all means of appeal and all appeals from such order or injunction have been finally exhausted; (g) by the Purchaser if the Board of Directors of the Company shall have withdrawn or modified, or resolved to withdraw or modify, in any manner which is adverse to Parent or the Purchaser, its recommendation or approval of the Offer, the Merger or this Agreement; or (h) by the Company if (i) the Board of Directors of the Company shall - have determined in good faith, after consultation with outside counsel, that it is necessary, in order to comply with its fiduciary duties to the Company's stockholders under applicable law, to terminate this Agreement to enter into an agreement with respect to or to consummate a transaction constituting a Superior Proposal, (ii) the Company shall have given notice to the Purchaser advising the -- Purchaser that the Company has received a Superior Proposal from a third party, specifying the material terms and conditions (including the identity of the third party), and that the Company intends to terminate this Agreement in accordance with this Section 8.1(h), (iii) either (A) the Purchaser shall not --- - have revised its proposal for an Acquisition Transaction within two (2) business days from the time on which such notice is deemed to have been given to Parent or (B) if the Purchaser within such period shall have revised its proposal for - an Acquisition Transaction, the Board of Directors of the Company, after receiving advice from the Company's financial advisor, shall have determined in its good faith reasonable judgment that the third party's proposal for an Acquisition Transaction is more favorable from a financial point of view than Parent's revised proposal for an Acquisition Transaction, and (iv) the Company, -- at the time of such termination, pays the Parent Expenses and the Termination Fee in accordance with Section 8.3. In the event of a termination of this Agreement and an abandonment of the Merger, no party hereto (or any of its directors, officers, representatives or agents) shall have any further liability or further obligation to any other party to this Agreement, except with respect to the provisions of this Article VIII and the other provisions that survive the Merger pursuant to Section 8.2 and except that nothing herein will relieve any party from liability for any willful breach of its representations, warranties, covenants and agreements set forth in this Agreement. 8.2. Non-Survival of Representations and Warranties. Except as otherwise ---------------------------------------------- provided in this Section 8.2, none of the representations or warranties in this Agreement 38 or in any instrument delivered pursuant to this Agreement shall survive the Effective Time or, in the case of the Company, shall survive the acceptance for payment of, and payment for, any Shares by the Purchaser pursuant to the Offer. 8.3. Fees and Expenses. (a) Except as provided below in this Section 8.3, ----------------- all fees and expenses incurred in connection with the Offer, 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. (b) The Company shall pay, or cause to be paid, in same day funds to Parent the sum of (x) Parent Expenses (as defined below) and (y) $2.4 million - - (the "Termination Fee") upon demand if the Company terminates this Agreement --------------- pursuant to Section 8.1(h). In addition, the Company shall pay or cause to be paid, in same day funds to Parent the sum of Parent Expenses and the Termination Fee if (i) the Purchaser terminates this Agreement pursuant to Section 8.1(e) or - 8.1(g) at any time after a proposal for an Acquisition Transaction has been made or (ii) the Company or Parent terminates this Agreement pursuant to Section -- 8.1(b) or 8.1(c) at any time after a proposal for an Acquisition Transaction has been made and, within twelve (12) months after any termination referred to in the immediately preceding clauses (i) or (ii) of this sentence, any Person that made a proposal for an Acquisition Transaction (or an Affiliate thereof) completes a merger, consolidation or other business combination with the Company or a subsidiary of the Company, or the purchase from the Company or from a subsidiary of the Company of 20% or more (in voting power) of the voting securities of the Company or of 20% or more (in market value) of the assets of the Company and its subsidiaries, on a consolidated basis; provided that the -------- Company will not have any obligations under this Section 8.3(b) if the Purchaser terminates this Agreement pursuant to Section 8.1(e)(ii) as a result of the failure of a condition to be satisfied unless the reason for the failure of such condition to be satisfied is reasonably related to the making of such proposal for an Acquisition Transaction. "Parent Expenses" shall mean reasonable and --------------- reasonably documented out-of-pocket fees and expenses incurred or paid by or on behalf of Parent in connection with the Offer and Merger or the consummation of any of the transactions contemplated by this Agreement (including, without limitation, fees and expenses of counsel, commercial banks, investment banking firms, accountants, experts and consultants to Parent and any of its Affiliates); provided, however, that in no event shall Parent Expenses paid pursuant to this Section exceed $400,000. (c) Parent shall pay, or cause to be paid, in same day funds to the Company the Company Expenses upon demand if Parent or the Purchaser terminates this Agreement pursuant to Section 8.1(e). "Company Expenses" shall mean ---------------- reasonable and reasonably documented out-of-pocket fees and expenses incurred or paid by or on behalf of the Company in connection with the Offer and the Merger or the consummation of any of the transactions contemplated by this Agreement (including, without limitation, fees and 39 expenses of counsel, commercial banks, investment banking firms, accountants, experts and consultants to the Company and any of its Affiliates); provided, however, that in no event shall Company Expenses paid pursuant to this Section 8.3(c) exceed $400,000. (d) The Company acknowledges that the agreements contained in this Section 8.3 are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, Parent would not enter into this Agreement; accordingly, if the Company fails promptly to pay the amount due pursuant to this Section 8.3, and, in order to obtain such payment, Parent commences a suit which results in a judgment against the Company for any of the Termination Fees or Parent Expenses set forth in this Section 8.3, the Company shall pay to Parent its costs and expenses (including attorneys' fees and expenses) in connection with such suit, together with interest on the amount of such Termination Fees and Parent Expenses at the Prime Rate. (e) Parent acknowledges that the agreements contained in this Section 8.3 are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, the Company would not enter into this Agreement; accordingly, if Parent fails promptly to pay the amount due pursuant to this Section 8.3, and, in order to obtain such payment, the Company commences a suit which results in a judgment against the Company for any of the expenses set forth in Section 8.3(c), Parent shall pay to the Company its costs and Company Expenses (including attorneys' fees and expenses) in connection with such suit, together with interest on the amount of such expenses at the Prime Rate. (f) This Section 8.3 shall survive any termination of this Agreement. ARTICLE IX DEFINITIONS 9.1. Definition of Certain Terms. The terms defined in this Section 9.1, --------------------------- whenever used in this Agreement (including in the Schedules), shall have the respective meanings indicated below for all purposes of this Agreement (each such meaning to be equally applicable to the singular and the plural forms of the respective terms so defined). All references herein to a Section, Article or Schedule are to a Section, Article or Schedule of or to this Agreement, unless otherwise indicated. Acquisition Transactions. As defined in Section 5.2(a). ------------------------ Affiliate: of a Person means a Person that directly or indirectly through --------- one or more intermediaries, controls, is controlled by, or is under common control with, the first Person. 40 Agreement: this Agreement and Plan of Merger, as the same may be amended --------- from time to time. Assets: as defined in Section 3.10. ------ Audited Financial Statements: the audited financial statements of the ---------------------------- Company as at and for the years ended December 31, 1998, 1997 and 1996, including (i) balance sheets and statements of income, cash flows and - stockholders equity and (ii) a report thereon from PricewaterhouseCoopers LLP, -- the Company's independent auditors. Balance Sheet: the balance sheet of the Company as of December 31, 1998 ------------- included in the Financial Statements. Business: any business in which the Company or its Subsidiaries is -------- engaged as of the Effective Time. business day: shall mean a day other than a Saturday, Sunday or other day ------------ on which commercial banks in The City of New York are authorized or required to close. CERCLA: the Comprehensive Environmental Response, Compensation and ------ Liability Act, as amended, 42 U.S.C. (S) 9601 et seq. Certificate of Merger: as defined in Section 2.4. --------------------- Certificates: as defined in Section 2.6. ------------ Closing: as defined in Section 2.4. ------- Code: the Internal Revenue Code of 1986, as amended. ---- Company: as defined in the recitals to this Agreement. ------- Company Common Stock: as defined in the recitals to this Agreement. -------------------- Company Expenses: as defined in Section 8.3(c). ---------------- Company Intellectual Property: as defined in Section 3.13(b). ----------------------------- Company Reports: as defined in Section 3.27. --------------- Company SEC Documents: as defined in Section 3.27. --------------------- Company Stockholder Approval: as defined in Section 6.3(a). ---------------------------- Company Stockholders Meeting: as defined in Section 6.3(a). ---------------------------- 41 Competition Laws: statutes, rules, regulations, orders, decrees, ---------------- administrative and judicial doctrines, and other laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization, lessening of competition or restraint of trade, including the HSR Act and, to the extent applicable, equivalent laws of other countries, including, but not limited to the Competition Act (Canada). Consent: any consent, approval, waiver, agreement, license, or report or ------- notice to, any Person. Contract: all loan agreements, indentures, letters of credit (including -------- related letter of credit applications and reimbursement obligations), mortgages, security agreements, pledge agreements, deeds of trust, bonds, notes, guarantees, surety obligations, warranties, licenses, franchises, permits, powers of attorney, purchase orders, leases, endorsement agreements, and other agreements, contracts, instruments, obligations, offers, commitments, plans, arrangements and understandings, written or oral, to which the Company or its Subsidiaries is a party or by which it or any of its properties or assets may be bound or affected, in each case as amended, supplemented, waived or otherwise modified, that are of the types listed in clauses (i) through (xiv) below: (i) leases, subleases, licenses, occupancy agreements, permits, franchises, insurance policies, agreements, Governmental Approvals and other Contracts concerning or relating to the Real Property; (ii) employment, consulting, severance, agency, bonus, compensation, or other trusts, funds and other Contracts (other than the Plans) relating to or for the benefit of current, future or former employees, officers, directors, sales representatives, distributors, dealers, agents, independent contractors or consultants (whether or not legally binding) of the Company or its Subsidiaries, including sales agency, copacking or distributorship agreements or arrangements for the sale of any of the products or services of the Company or its Subsidiaries; (iii) licenses, licensing arrangements and other contracts providing in whole or in part for the use of, or limiting the use of, any Intellectual Property; (iv) brokers' or finder's contracts; (v) joint venture, partnership and similar contracts, agreements, arrangements and understandings involving a sharing of profits or expenses; (vi) stock purchase agreements, asset purchase agreements and other acquisition or divestiture agreements, including but not limited to any agreements relating to the acquisition, lease or disposition of the Company or its Subsidiaries any material assets or properties (other than sales of inventory made in the ordinary course of 42 business), any business, or any capital stock of or other interest in any Person by the Company or its Subsidiaries, within the last five years, or involving continuing indemnity or other obligations; (vii) contracts prohibiting or restricting the ability of the Company, its Subsidiaries or the Business to engage in any business or operate in any geographical area or to compete with any Person; (viii) orders and other contracts for the purchase or sale of materials, supplies, products or services, involving aggregate payments in excess of $25,000 in each case or $75,000 in the aggregate; (ix) contracts providing for future payments that are conditioned, in whole or in part, on a change in control of any of the Company or its Subsidiaries; (x) powers of attorney, except routine powers of attorney relating to representation before governmental agencies or given in connection with qualification to conduct business in another jurisdiction; (xi) contracts not entered into in the ordinary course of business; (xii) contract or series of related contracts with respect to which the aggregate amount that could reasonably expected to be paid or received thereunder in the future exceeds $75,000 per annum or an aggregate of $75,000 under the term of the contract; (xiii) contracts that are or will be material to the business, operations, results of operations, condition (financial or otherwise), assets or properties of the Company or its Subsidiaries; and (xiv) contracts providing for future payments that are conditioned, in whole or in part, on the future performance of the Company or its Subsidiaries. Control (including the terms "controlled by" and "under common control ------- ------------- -------------------- with"): the possession, directly or indirectly, of the power to direct or cause - ---- the direction of the management policies of a Person, whether through the ownership of voting securities, by contract or credit arrangement, as trustee or executor, or otherwise. DGCL: as defined in Section 2.1. ---- Disclosure Letter: as defined in Section 3.1(b). ----------------- Dissenting Shares: as defined in Section 2.5. ----------------- 43 Effective Time: as defined in Section 2.4. -------------- Employees: as defined in Section 3.19(a). --------- Environmental Claims: any complaint, notice, directive, order, claim, -------------------- litigation, investigation, judicial or administrative proceeding, judgment, letter or other communication from any governmental agency, office or other authority, or any third party, involving violations of Environmental Laws or Releases of Hazardous Materials from (i) any assets, properties or businesses of - the Company, its Subsidiaries or any predecessor in interest; (ii) from -- adjoining properties or businesses; or (iii) from or onto any facilities which --- received Hazardous Materials generated by the Company, its Subsidiaries or any predecessor in interest. Environmental Laws: all applicable Laws relating to the protection of the ------------------ environment, to human health and safety, to natural resources or to any use, sale, manufacture, treatment, generation, processing, storage, disposal, abatement, existence, Release, threatened Release, transportation or handling of any Hazardous Material, including, without limitation, (i) CERCLA, the Resource - Conservation and Recovery Act, and the Occupational Safety and Health Act, (ii) -- all other requirements pertaining to reporting, licensing, permitting, investigation or remediation of Releases or threatened Releases of Hazardous Substances into the air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use, sale, treatment, receipt, storage, disposal, transport or handling of Hazardous Material, and (iii) all other --- requirements pertaining to the protection of the health and safety of employees or the public. ERISA: the Employee Retirement Income Security Act of 1974, as amended. ----- Exchange Act: the Securities Exchange Act of 1934, as amended. ------------ Financial Advisor: as defined in Section 3.26. ----------------- Financial Statements: the Audited Financial Statements and the Interim -------------------- Financial Statements. GAAP: United States generally accepted accounting principles. ---- Governmental Approval: any consent, approval, authorization, waiver, --------------------- permit, concession, franchise, agreement, license, exemption or order of, declaration or filing with, or report or notice to, any Governmental Authority. Governmental Authority: as defined in Section 3.4(b). ---------------------- Hazardous Materials: any substance that: (i) is or contains asbestos, ------------------- - urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum or petroleum- 44 derived substances or wastes, radon gas or related materials, (ii) requires -- investigation, removal or remediation under any Environmental Law, or is defined, listed or identified as a "hazardous waste" or "hazardous substance" --------------- ------------------- thereunder, or (iii) is toxic, explosive, corrosive, flammable, infectious, --- radioactive, carcinogenic, mutagenic, or otherwise hazardous and is regulated as such by any Governmental Authority under any Environmental Law. HSR Act: Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. ------- Independent Directors: as defined in Section 1.3(c). --------------------- Intellectual Property: any and all United States and foreign: patents and --------------------- applications, including all reissues, continuations, divisions, continuations- in-part, renewals or extensions thereof; trademarks, service marks, trade names, trade dress, domain names, logos, business and product names, slogans, and registrations and applications for registration or renewal thereof; copyrights and registrations or renewals thereof; Software; Internet Websites; inventions, processes, designs, formulae, trade secrets, know-how, confidential business and technical information; all other intellectual property and proprietary rights; copies and tangible embodiments thereof (in whatever form or medium, including electronic media); and licenses of any of the foregoing. Intellectual Property Licenses: as defined in Section 3.13(b). ------------------------------ Interim Financial Statements: the unaudited financial statements of the ---------------------------- Company for the periods ended March 31, 1999 and June 30, 1999, including a balance sheet and statements of income, cash flows and stockholders equity. IRS: the Internal Revenue Service. --- knowledge of the Company: actual knowledge, after due inquiry, of any ------------------------ executive officer of the Company. - --------- Law: all applicable provisions of all (a) constitutions, treaties, --- - statutes, laws (including the common law), codes, rules, regulations, ordinances or orders of any Governmental Authority, (b) Governmental Approvals and (c) - - orders, decisions, injunctions, judgments, awards and decrees of or agreements with any Governmental Authority. Leased Real Property: all interests leased pursuant to Leases. -------------------- Leases: the real property leases, subleases, licenses and occupancy ------ agreements pursuant to which the Company or its Subsidiaries is lessee, sublessee, licensee or occupant. 45 Lien: any mortgage, pledge, hypothecation, right of others, claim, ---- security interest, encumbrance, lease, sublease, license, occupancy agreement, adverse claim or interest, easement, covenant, encroachment, burden, title defect, title retention agreement, voting trust agreement, interest, equity, option, lien, right of first refusal, charge or other restrictions or limitations of any nature whatsoever, including but not limited to such as may arise under any Contracts. Litigation: any action, cause of action, claim, demand, suit, proceeding, ---------- citation, summons, subpoena, inquiry or investigation of any nature, civil, criminal, regulatory or otherwise, in law or in equity, pending or threatened, by or before any court, tribunal, arbitrator or other Governmental Authority. Material Adverse Effect: (i) any event, occurrence, fact, condition, ----------------------- - change or effect that is, or would reasonably be expected to be, materially adverse to the Business, Assets, results of operations or financial or other condition of the Company or its Subsidiaries, taken as a whole, or (ii) a -- material impairment of the ability of the Company to perform its respective --- obligations hereunder and to consummate the transactions contemplated hereby, including, but not limited to, the Offer and the Merger. Merger: as defined in the recitals to this Agreement. ------ Merger Consideration: as defined in Section 2.2. -------------------- Minimum Condition: as defined in Section 1.1(a). ----------------- Occupied Property: any real property used or held by the Company or its ----------------- Subsidiaries that is not Owned Real Property or Leased Real Property. Offer: as defined in Section 1.1(a). ----- Offer Documents: as defined in Section 1.1(b). --------------- Option Consideration: as defined in Section 2.3. -------------------- Options: as defined in Section 2.3. ------- Organizational Documents: as defined in Section 3.1(c). ------------------------ Owned Intellectual Property: as defined in Section 3.13(a). --------------------------- Owned Real Property: the real property owned by the Company or its ------------------- Subsidiaries, together with all structures, facilities, improvements, fixtures, systems, equipment and items of property presently or hereafter located thereon, attached or 46 appurtenant thereto or owned by the Company or its Subsidiaries and all easements, licenses and rights relating to the foregoing. Owned Software: all Software developed by or for the Company or its -------------- Subsidiaries or in connection with the Business by any employee of the Company or its Subsidiaries or by an independent contractor. Parent: as defined in the recitals to this Agreement. ------ Parent Expenses: as defined in Section 8.3(b). --------------- Paying Agent: as defined in Section 2.6. ------------ Permitted Liens: (i) Liens securing liabilities for which adequate --------------- - reserves are included in the Balance Sheet, to the extent so reserved, that do not materially interfere with the use of the property subject thereto or extend to or cover any assets of any other Affiliate of Purchaser upon consummation of the transactions contemplated by this Agreement, (ii) Liens for Taxes not yet -- due and payable, or that are being contested in good faith by appropriate proceedings, (iii) mechanic's Liens, landlord's Liens and warehouseman's Liens --- securing obligations arising in the ordinary course of business that are not more than 30 days past due or are being contested in good faith by appropriate proceedings or (iv) Liens that, individually and in the aggregate, do not and -- would not materially detract from the value of any of the property or Assets or materially interfere with the use thereof as currently used or proposed to be used. Person: any natural person, firm, partnership, association, corporation, ------ company, trust, business trust, Governmental Authority or other entity. Plans: as defined in Section 3.19(a). ----- Policies: as defined in Section 3.14. -------- Potential Acquiror: as defined in Section 5.2. ------------------ Preferred Shares: as defined in Section 3.2 ---------------- Prime Rate: the rate of interest per annum publicly announced from time ---------- to time by Citibank N.A. as its prime rate in effect at its principal office in New York City. Proxy Statement: as defined in Section 6.3(b). --------------- Purchaser: as defined in the recitals to this Agreement. --------- 47 Real Property: the Owned Real Property, the Leased Real Property and the ------------- other Occupied Property. Rebate Obligations: as defined in Section 3.24(c). ------------------ Related Persons: as defined in Section 3.19(a). --------------- Release: any releasing, disposing, discharging, injecting, spilling, ------- leaking, leaching, pumping, dumping, emitting, escaping, emptying, seeping, dispersal, migration, transporting, placing and the like, including without limitation, the moving of any materials through, into or upon, any land, soil, surface water, ground water or air, or otherwise entering into the environment. Schedule 14D-1: as defined in Section 1.1(b). -------------- Schedule 14D-9: as defined in Section 1.2(b). -------------- SEC: the Securities and Exchange Commission. --- Securities Act: the Securities Act of 1933, as amended. -------------- Shares: as defined in Section 1.1(a). ------ Software: all computer software, including but not limited to, application -------- software and system software, including all source code and object code versions thereof, in any and all forms and media, whether recorded on paper, magnetic media or other electronic or non-electronic media (including data and related documentation, user manuals, training materials, flow charts, diagrams, descriptive tests and programs, computer print-outs, underlying tapes, computer databases and similar items), integrated circuits, embedded systems, and other electro-mechanical or processor based systems. Subsidiaries: each corporation or other Person in which a Person owns or ------------ controls, directly or indirectly, capital stock or other equity interests representing at least 50% of the outstanding voting stock or other equity interests. Superior Proposal: as defined in Section 5.2(b). ----------------- Surviving Corporation: as defined in Section 2.1. --------------------- Tax: any federal, state, provincial, local, foreign or other income, --- alternative, minimum, accumulated earnings, personal holding company, franchise, capital stock, net worth, capital, profits, windfall profits, gross receipts, value added, sales (including, without limitation, bulk sales), use, goods and services, excise, customs duties, transfer, conveyance, mortgage, registration, stamp, documentary, recording, premium, severance, 48 environmental (including, without limitation, taxes under Section 59A of the Code), real property, personal property, ad valorem, intangibles, rent, occupancy, license, occupational, employment, unemployment insurance, social security, disability, workers' compensation, payroll, health care, withholding, estimated or other similar tax, levy, impost, fee, duty or other governmental charge or assessment or deficiencies thereof (including all interest and penalties thereon and additions thereto, whether disputed or not) imposed by any Governmental Authority or other taxing authority. Termination Fee: as defined in Section 8.3(b). --------------- Virus: a computer program that replicates itself on a computer or network ----- of computers and thereby damages other computer programs or data located on such computer or network or otherwise causes a defect in the operation of such computer or network. Any reference in this Agreement to a statute shall be to such statute, as amended from time to time, and to the rules and regulations promulgated thereunder. The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation." ARTICLE X MISCELLANEOUS 10.1. Severability. If any provision of this Agreement is inoperative or ------------ unenforceable for any reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative, or unenforceable to any extent whatsoever. The invalidity of any one or more phrases, sentences, clauses, Sections or subsections of this Agreement shall not affect the remaining portions of this Agreement. 10.2. Notices. All notices and other communications made in connection ------- with this Agreement shall be in writing and shall be deemed to have been duly given if (a) mailed by first-class, registered or certified mail, return receipt - requested, postage prepaid, (b) transmitted by hand delivery, (c) sent by next- - - day or overnight mail or delivery or (d) sent by fax or telecopy, addressed as - follows: (i) if to Parent or the Purchaser to: 3 New England Executive Park Burlington, MA 01803 49 Telecopy: (781) 272-2304 Telephone: (781) 272-6100 Attention: Ned C. Lautenbach with a copy to: Debevoise & Plimpton 875 Third Avenue New York, New York 10022 Telecopy: (212) 909-6836 Telephone: (212) 909-6000 Attention: Franci J. Blassberg, Esq. (ii) if to the Company, to: Applied Digital Access, Inc. 9855 Scranton Road San Diego, CA 92121 Telecopy: (619) 623-2208 Telephone: (619) 623-2200 Attention: Donald L. Strohmeyer with a copy to: Gray Cary Ware & Freidenrich LLP 400 Hamilton Avenue Palo Alto, California 94301 Telecopy: (650) 327-3699 Telephone: (650) 833-2020 Attention: Gregory M. Gallo, Esq. 50 or, in each case, at such other address as may be specified in writing to the other party hereto. 10.3. Entire Agreement. This Agreement (including the Disclosure Letter) ---------------- constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. 10.4. Counterparts; Headings. This Agreement may be executed in several ---------------------- counterparts, each of which shall be deemed an original and all of which shall together constitute one and the same instrument. The headings contained in this Agreement are for purposes of convenience only and shall not affect the meaning or interpretation of this Agreement. 10.5. Governing Law, etc. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OR ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE BREACH, TERMINATION OR VALIDITY OF THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, THE OFFER AND THE MERGER. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, - AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE -- IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH PARTY MAKES THIS WAIVER --- VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS -- AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.5(b). (c) EACH PARTY (i) AGREES THAT ANY LEGAL OR EQUITABLE ACTION, SUIT OR - PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, THE OFFER AND THE 51 MERGER, OR THE SUBJECT MATTER OF ANY OF THE FOREGOING MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT IN THE STATE OF DELAWARE, (ii) WAIVES ANY OBJECTION WHICH -- IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION, SUIT OR PROCEEDING, (iii) IRREVOCABLY SUBMITS ITSELF TO THE NONEXCLUSIVE JURISDICTION OF --- ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF DELAWARE FOR PURPOSES OF ANY SUCH ACTION, SUIT OR PROCEEDING, AND (iv) IRREVOCABLY WAIVES -- ANY IMMUNITY FROM JURISDICTION TO WHICH IT MIGHT OTHERWISE BE ENTITLED IN ANY SUCH ACTION, SUIT OR PROCEEDING WHICH MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT IN THE STATE OF DELAWARE, AND IRREVOCABLY WAIVES ANY IMMUNITY FROM THE MAINTAINING OF AN ACTION AGAINST IT TO ENFORCE ANY JUDGMENT FOR MONEY OBTAINED IN ANY SUCH ACTION, SUIT OR PROCEEDING AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY IMMUNITY FROM EXECUTION. 10.6. Binding Effect. This Agreement shall be binding upon and inure to -------------- the benefit of the parties hereto and their respective heirs, successors and permitted assigns. 10.7. Assignment. This Agreement shall not be assignable by any of the ---------- parties hereto without the prior written consent of the other parties; provided, -------- that, the Purchaser may assign this Agreement to any of its Affiliates, or to any lender to the Purchaser as security for obligations to such lender; provided, further, that no assignment by the Purchaser shall in any way affect - -------- ------- the Purchaser's obligations or liabilities under this Agreement; and provided, -------- further, that Parent may assign this Agreement to a successor in interest, the - ------- purpose of such successor in interest being to reincorporate Parent in the State of Delaware. 10.8. Amendment and Waiver. This Agreement may not be amended except by -------------------- an instrument in writing signed on behalf of each of the parties hereto and in compliance with applicable law. At any time prior to the Effective Time, the parties hereto may (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant thereto and (c) waive compliance with any of the agreements or conditions contained herein; provided, however, that no such -------- ------- waiver may materially adversely affect the rights of the stockholders of the Company. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. Section 6.4 and the obligations of the parties following consummation of the Offer are intended for the benefit of the Company's stockholders, officers and directors and may not be amended or waived. 52 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. DYNATECH CORPORATION By: /s/ Allan M. Kline --------------------------------- Allan M. Kline Corporate Vice President, Chief Financial Officer and Treasurer DYNATECH ACQUISITION CORPORATION By: /s/ Allan M. Kline --------------------------------- Allan M. Kline Treasurer APPLIED DIGITAL ACCESS, INC. By: /s/ Donald L. Strohmeyer --------------------------------- Donald L. Strohmeyer President and Chief Executive Officer 53 ANNEX A ------- Certain Conditions of the Offer. Notwithstanding any other provision of ------------------------------- the Offer, the Purchaser shall not be required to accept for payment, or, subject to any applicable rules and regulations of the SEC, including Rule 14e- 1(c) under the Exchange Act (relating to the Purchaser's obligation to pay for or return tendered shares after the termination or withdrawal of the Offer), to pay for any Shares tendered pursuant to the Offer, and (subject to the terms of the Agreement) may amend or terminate the Offer or postpone the acceptance for payment, the purchase of, and/or (subject to any such applicable rules and regulations of the SEC) payment for, Shares tendered, (i) unless there are - validly tendered and not properly withdrawn prior to the expiration of the Offer, as extended from time to time in accordance with the terms of the Agreement, that number of Shares which represents in excess of 50% of the outstanding Shares on a fully-diluted basis (such basis assumes all shares underlying in-the-money vested and unvested stock options are issued and outstanding), or (ii) subject to any cure period, if applicable, as set forth -- ------------------------------------------------------- in Section 8.1(e) of the Agreement, if at any time on or after the date of the - -------------------------------------- Agreement and at or before the time of payment for any such Shares (whether or not any Shares shall theretofore have been accepted for payment or paid pursuant to the Offer) any of the following conditions exists: (a) there shall be pending any action or proceeding brought by any governmental authority before any federal or state court, or any order or preliminary or permanent injunction entered in any action or proceeding before any federal or state court or governmental, administrative or regulatory authority or agency, located or having jurisdiction within the United States or any country or economic region in which either the Company or Parent, directly or indirectly, has material assets or operations, or any other action taken, proposed or threatened, or statute, rule, regulation, legislation, interpretation, judgment or order proposed, sought, enacted, entered, promulgated, amended or issued that is applicable to Purchaser, the Company or any subsidiary or Affiliate of Purchaser or the Company or the Offer or the Merger, by any legislative body, court, government or governmental, administrative or regulatory authority or agency located or having jurisdiction within the United States or any country or economic region in which either the Company or Parent, directly or indirectly, has material assets or operations, which could reasonably be expected to have the effect of: (i) making illegal, or otherwise restraining or prohibiting or - making materially more costly, the making of the Offer, the acceptance for payment of, payment for, or ownership, directly or indirectly, of some of or all the Shares by Parent or Purchaser, the consummation of any of the transactions contemplated by the Agreement or materially delaying the Merger; (ii) prohibiting or materially limiting the ownership or operation by the -- Company or any of its subsidiaries, or by Parent, Purchaser or any of Parent's subsidiaries of all or any material portion of the business or assets of the Company and its subsidiaries taken as a whole or Parent or any of its subsidiaries, or compelling Purchaser, Parent or any of Parent's subsidiaries to dispose of or hold separate all or any material portion of the business or assets of the Company and any of its subsidiaries A-1 taken as a whole or Parent or any of its subsidiaries, in each case as a result of the transactions contemplated by the Offer or the Merger or the Agreement;(iii)imposing or confirming material limitations on the ability of --- Purchaser,Parent or any of Parent's subsidiaries effectively to acquire or hold or to exercise full rights of ownership of Shares including, without limitation,the right to vote any Shares acquired or owned by Parent or Purchaser or any of Parent's subsidiaries on all matters properly presented to the shareholders of the Company, including, without limitation, the adoption an approval of the Agreement and the Merger or the right to vote any shares of capital stock of any subsidiary directly or indirectly owned by the Company;(iv) requiring divestiture by Parent or Purchaser, directly -- or indirectly, of any Shares; or (v) which could reasonably be expected to - have a Material Adverse Effect; (b) there shall have occurred, or Purchaser shall have become aware of any fact that has had, or could reasonably be expected to have, a Material Adverse Effect; (c) there shall have occurred (i) any general suspension of trading in - or limitation on prices for, securities on any national securities exchange or in the over-the-counter market in the United States,(ii)a decline of at -- least 25% in the Nasdaq-100 Index, the Dow Jones Average of Industrial Stocks or the Standard & Poor's 500 index from that existing at the close of business on the date hereof, (iii) any material adverse change or any --- condition, event or development involving a prospective material adverse change in United States or other material international currency exchange rates or a suspension of, or limitation on, the markets therefor,(iv)a -- declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (v) any limitation (whether or not mandatory) - by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, on, or any other event that materially adversely affects, the extension of credit by banks or other lending institutions,(vi) -- a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States which would reasonably be expected to have a Material Adverse Effect on the Company or materially adversely affect (or materially delay) the consummation of the Offer or (vii) in the case of any of the foregoing existing at the --- time of the execution of the Agreement, a material acceleration or worsening thereof which acceleration or worsening is reasonably expected to have a Material Adverse Effect on the Company or to materially adversely affect the consummation of the Offer; (d) (i) it shall have been publicly disclosed or Purchaser shall have - otherwise learned that beneficial ownership (determined for the purposes of this paragraph as A-2 set forth in Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the outstanding Shares has been acquired by any corporation (including the Company or any of its subsidiaries or Affiliates), partnership, person or other entity or group (as defined in Section 13(d)(3) of the Exchange Act), other than Parent or any of its Affiliates, or (ii) (A) --- --- the Board of Directors of the Company or any committee thereof shall have withdrawn or modified in a manner adverse to Parent or Purchaser the approval or recommendation of the Offer, the Merger or the Agreement and, within ten business days of taking and disclosing to its stockholders the aforementioned position, shall not have publicly reconfirmed its recommendation of the Offer, the Merger or the Agreement, or approved or recommended any takeover proposal or any other acquisition of Shares other than the Offer and the Merger, (B) any corporation, partnership, person or other entity or group --- shall have entered into a definitive agreement or an agreement in principle with the Company with respect to a tender offer or exchange offer for any Shares or a merger, consolidation or other business combination with or involving the Company or any of its subsidiaries or (C) the Board of --- Directors of the Company or any committee thereof shall have resolved to do any of the foregoing; (e) any of the representations and warranties of the Company set forth in the Agreement that are qualified as to materiality shall not be true and correct or any such representations and warranties that are not so qualified shall not be true and correct in any material respect, in each case as if such representations and warranties were made at the time of such determination, except with respect to representations and warranties made as of an earlier time; provided, that the representations and warranties of the -------- Company set forth in Sections 3.32 and 3.33 of the Agreement are true and correct as of the date of such Agreement and as of the date of the consummation of the Offer; (f) the Company shall have failed to perform any material obligation or to comply with any material agreement or material covenant of the Company to be performed or complied with by it under the Agreement; (g) the Agreement shall have been terminated in accordance with its terms or the Offer shall have been terminated with the consent of the Company; or (h) any waiting periods under the HSR Act applicable to the purchase of Shares pursuant to the Offer shall not have expired or been terminated or any material approval, permit, authorization, consent or waiting period of any domestic, foreign or supranational governmental, administrative or regulatory agency (federal, state, local, provincial or otherwise) located or having jurisdiction within the United States or any country or economic region in which either the Company or Parent, directly or indirectly, has material assets or operations, including, but not limited to, the Competition Act (Canada), shall not have been obtained and such failure to obtain A-3 could reasonably be expected to have a Material Adverse Effect on the Company or the value of the Shares or the Offer to the Purchaser; which, in the good faith sole judgment of Purchaser makes it inadvisable to proceed with the Offer or with such acceptance for payment of or payment for Shares or to proceed with the Merger. The foregoing conditions are for the sole benefit of Purchaser and may be asserted by Purchaser regardless of the circumstances giving rise to any such condition or may be waived by Purchaser in whole or in part at any time and from time to time in its sole discretion (subject to the terms of the Agreement). The failure by Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. A-4 EXHIBIT A AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF APPLIED DIGITAL ACCESS, INC. Pursuant to the General Corporation Law of the State of Delaware Applied Digital Access, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The Corporation was originally incorporated under the name "Applied Digital Access, Inc." and the date of filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware was June 9, 1997. 2. This Amended and Restated Certificate of Incorporation, having been duly adopted in accordance with the General Corporation Law of the State of Delaware, amends, restates and integrates the provisions of the Certificate of Incorporation of the Corporation filed with the Secretary of State of the State of Delaware, as amended. 3. Accordingly, the Certificate of Incorporation of the Corporation as filed with the Secretary of State of the State of Delaware is hereby further amended and restated to read in its entirety as set forth below: FIRST: The name of the corporation is Applied Digital Access, Inc. ----- (hereinafter called the "Corporation"). SECOND: The Corporation's registered office in the State of Delaware is c/o ------ Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The nature of the business of the Corporation and its purpose is to ----- engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of stock which the Corporation shall have ------ authority to issue is 100 shares of Common Stock, par value $.01 per share. FIFTH: The name and mailing address of the incorporator is as follows: ----- E-1 Andrew S. Borodach c/o Debevoise & Plimpton 875 Third Avenue New York, New York 10022 SIXTH: The following provisions are inserted for the management of the ----- business and for the conduct of the affairs of the Corporation and for the purpose of creating, defining, limiting and regulating the powers of the Corporation and its directors and stockholders: (a) The number of directors of the Corporation shall be fixed and may be altered from time to time in the manner provided in the By-Laws, and vacancies in the Board of Directors and newly created directorships resulting from any increase in the authorized number of directors may be filled, and directors may be removed, as provided in the By-Laws. (b) The election of directors may be conducted in any manner approved by the stockholders at the time when the election is held and need not be by ballot. (c) All corporate powers and authority of the Corporation (except as at the time otherwise provided by law, by this Certificate of Incorporation or by the By-Laws) shall be vested in and exercised by the Board of Directors. (d) The Board of Directors shall have the power without the assent or vote of the stockholders to adopt, amend, alter or repeal the By-Laws of the Corporation, except to the extent that the By-Laws or this Certificate of Incorporation otherwise provide. (e) No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of his or her fiduciary duty as a director, provided that nothing contained in this Certificate of -------- Incorporation shall eliminate or limit the liability of a director (i) for - any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve -- intentional misconduct or a knowing violation of the law, (iii) under Section --- 174 of the General Corporation Law of the State of Delaware or (iv) for any -- transaction from which the director derived an improper personal benefit. SEVENTH: The Corporation reserves the right to amend or repeal any provision ------- contained in this Certificate of Incorporation in the manner now or hereafter prescribed by the laws of the State of Delaware, and all rights herein conferred upon stockholders or directors are granted subject to this reservation. E-2 IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation, having been duly adopted by the Board of Directors and the stockholders of the Corporation, has been executed this ____ day of ___________, 1999. APPLIED DIGITAL ACCESS, INC. By:_________________________ Name: Title: E-3 -----END PRIVACY-ENHANCED MESSAGE-----