-----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, KCVSAh26QV2vHsbzrHT8NNIBAHJTGUlM2D6n7lPAn91Ecd4c1EkLRZ7L0otNggwT OUYVbWLhQ0W3w4yila5Xbg== 0000927016-02-001784.txt : 20020415 0000927016-02-001784.hdr.sgml : 20020415 ACCESSION NUMBER: 0000927016-02-001784 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TERADYNE INC CENTRAL INDEX KEY: 0000097210 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 042272148 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-06462 FILM NUMBER: 02594882 BUSINESS ADDRESS: STREET 1: 321 HARRISON AVE STREET 2: MAIL STOP H93 CITY: BOSTON STATE: MA ZIP: 02118 BUSINESS PHONE: 6174822700 MAIL ADDRESS: STREET 1: 321 HARRISON AVENUE STREET 2: H93 CITY: BOSTON STATE: MA ZIP: 02118 10-K405 1 d10k405.txt FORM 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-6462 TERADYNE, INC. (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2272148 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 321 HARRISON AVENUE, BOSTON, MASSACHUSETTS 02118 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 482-2700 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ---------------- Common Stock, par value $0.125 per share New York Stock Exchange Common Stock Purchase Rights New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or in any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by nonaffiliates of the registrant as of February 24, 2002 was $5.4 billion based upon the composite closing price of the registrant's Common Stock on the New York Stock Exchange on that date. The number of shares outstanding of the registrant's only class of Common Stock as of February 24, 2002 was 182,358,506 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's proxy statement in connection with its 2002 annual meeting of shareholders are incorporated by reference into Part III. TERADYNE, INC. FORM 10-K PART I Item 1: Business Teradyne, Inc. is the world's largest supplier of automatic test equipment and is also a leading provider of high performance interconnection systems and electronic manufacturing services. Teradyne's automatic test equipment products include systems that: . test semiconductors ("Semiconductor Test Systems"); . test and inspect circuit-boards ("Circuit Board Test and Inspection Systems"); and . test high speed voice and data communication ("Broadband Test Systems"). Teradyne's interconnection systems products and services ("Connection Systems") include: . high bandwidth backplane assemblies and associated connectors used in electronic systems; and . electronic manufacturing services of assemblies that include Teradyne backplanes and connectors. On October 26, 2001 Teradyne completed its acquisition of GenRad, Inc. of Westford, MA, a leading manufacturer of automatic test equipment, related software and diagnostic solutions. GenRad's business has been made part of the Circuit Board Test and Inspection Systems operating segment. GenRad activity is reflected in Teradyne's results of operations since the acquisition date. See "Note F: Acquisitions and Divestitures" and "Note S: Operating Segment and Geographic Information" in Notes to Consolidated Financial Statements for further information. Broadband Test Systems, Diagnostic Solutions, and, prior to 2001, Software Test Systems have been combined into "Other Test Systems" for purposes of reporting Teradyne's operating segments. For financial information concerning Teradyne's operating segments, see "Note S: Operating Segment and Geographic Information" in Notes to Consolidated Financial Statements. Statements in this Annual Report on Form 10-K which are not historical facts, so called "forward looking statements," are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward looking statements involve risks and uncertainties, including those detailed in Teradyne's filings with the Securities and Exchange Commission. See also "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations--Certain Factors That May Affect Future Results" and "Note E: Risks and Uncertainties" in Notes to Consolidated Financial Statements. Products Semiconductor Test Solutions Semiconductor Test Systems produced by Teradyne are used by electronic component manufacturers in the design and testing of a wide variety of semiconductor devices, including logic, memory, mixed signal, and "system on a chip" integrated circuits. Semiconductor Test Systems are sold to semiconductor manufacturers, often referred to as "Integrated Device Manufacturers," and subcontractors to the semiconductor industry who may perform design and/or manufacturing functions, often referred to as "Fabless/Subcons." Customers use Teradyne's Semiconductor Test Systems to: . measure product performance; . control and improve product quality; . improve device design; . reduce time to market; . enhance manufacturability; 2 . minimize labor costs; and . increase production yields, with the overall benefit of comprehensively testing advanced performance devices while reducing total costs associated with testing. The semiconductor test market is comprised of two sub-markets. The first sub-market is memory device testing, which includes the testing of dynamic random access memory ("DRAMs") of all types (synchronous, double data rate ("DDR") and Rambus(TM)), static random access memory ("SRAMs") and flash memory. The second sub-market is non-memory device testing, which includes the testing of analog, mixed-signal and system-on-a-chip devices, high performance logic devices and logic devices produced in high volumes. Teradyne products within the Semiconductor Test Systems market include: Memory Test Solutions Reducing cost of test is especially crucial in the highly price sensitive memory device market. Wafer probing, or contacting the silicon die to test it prior to packaging, has become an increasingly popular means to increase yield and reduce test costs. Teradyne's Probe-One memory test system delivers one of the shortest possible test times per wafer and one of the lowest test costs. The Probe-One's Flex-Die(TM) architecture delivers the ability to test multiple memory arrays in parallel, further increasing test productivity and reducing test cost. The Probe-One was introduced in 2001. The testing of packaged memory devices remains an important market, as well. Teradyne's J996 memory test system provides high throughput package test solutions for next generation memory devices. The J996 has the accuracy and waveform fidelity to test 250 MegaHertz devices, and is able to test sixty-four 16 Input/Output devices in parallel with a minimal amount of floor space. Teradyne's Aires test system is designed for newest-generation memory devices such as DDR, Direct Rambus(TM) DRAMs and fast SSRAMs. Accurately delivering the high speed, complex patterns required for characterization of these emerging devices, Aires' FlexSystem architecture combines full function memory and logic pattern generators with a per-pin timing system. System-on-a-Chip / Mixed Signal / Analog Test Solutions Semiconductor devices that employ both analog and digital circuits are referred to as "mixed-signal devices." Recent mixed-signal devices called "system on chip," such as those employed in consumer electronics and wireless communication products, include significantly increased functionality compared to earlier mixed-signal devices. The introduction of Teradyne's Catalyst test systems in 1996 began the system-on-a-chip test revolution, providing a single, integrated test environment for system-on-a-chip testing. Teradyne's Catalyst Tiger test system, introduced in 2000, extends component and functional test capability to very high device operating speeds. Catalyst and Catalyst Tiger test systems reduce time to market and cost to test across the customer spectrum, from Integrated Device Manufacturers to Fabless/Subcons. With a market share nearly double its nearest competitor, a majority of people who use a personal computer, surf the Internet, or watch a DVD, are using a product whose semiconductor device was tested with the Catalyst test systems. Teradyne also estimates that 75% of the world's cell phones include devices tested on Teradyne system-on-a-chip / mixed-signal test systems. As of December 31, 2001, more than 1,000 Catalyst test systems have been shipped to customers worldwide. Teradyne's predecessor to the Catalyst test systems, the A5 test systems of advanced mixed-signal test systems has a worldwide installed base of more than 1,000 systems and covers a wide range of device applications, including automotive and telecommunications. High Performance Test Solutions High performance devices such as microprocessors require high performance automatic test equipment for both functional ("Does it function properly?") and structural ("Is it constructed properly?") testing. Very Large Scale Integration ("VLSI") test systems offer solutions for the broadest range of high performance devices used in today's electronics and Internet products, such as personal computers and video game consoles, Internet routers and switches, and network servers. Almost every type of high-end microprocessor, integrated processor, 3 and graphic device in the world today is tested on a Teradyne high performance logic test system. Teradyne's J973EP is one of the only VLSI test systems designed for the wide range of testing capability needed for structural to functional testing in a single test system. This product's flexible configuration provides the ability to switch between functional and structural test in real time, minimizing test cost by matching test performance to device test requirements only when needed. The J973EP expands the performance curve on accuracy, precision device power, and differential bus testing. High Volume Device Test Solutions Devices tested in high volume, such as microcontrollers, are at the heart of almost every consumer electronics product, from small appliances to automotive engine controllers. Produced in enormous quantities where every penny matters, delivering the lowest cost of test at very high production throughput rates is essential. Teradyne's Integra test systems combine compact packaging, high performance, and ease of use into a system designed to meet the high volume / low cost requirements of microcontroller production test. Increasing the level of integration in the system is key to reducing system cost and size. Teradyne is the first automatic test equipment vendor to combine four channels of automatic test equipment timing functionality into a single custom semiconductor device. Teradyne's design team created an innovative technique that enabled integration of a full 64 channels of test capability onto a single printed circuit board. This design approach eliminated the mainframe and interconnection cabling resulting in a complete test system housed in a compact test head-only configuration. Its "zero footprint" design reduces the total cost of ownership and allows for more efficient use of production floor space. Teradyne's Integra test systems include the J750 and J750k. Using the same compact, low cost architecture Teradyne's IP750 CCD Image Sensor test system enjoys the world's largest shipment volume and installed base in the image sensor device test market, driven by the burgeoning popularity of digital cameras and other imaging products. Connection Systems Solutions Connection Systems is a global supplier of high-performance components and electronic manufacturing services. Connection System's component technology can be found in such diverse products as Internet routers, computer servers, mass data storage and telecom switches. Connection Systems offers a total interconnect solution with a broad suite of technologically differentiated capabilities including printed circuit boards, high-speed, high-density connectors, multi-gigabit backplane assemblies and complete systems integration and test. A backplane plays the crucial roll of locating and supporting printed circuit boards within a system, enabling them to "talk" to each other and to the outside world. Connection Systems produces custom, large format backplanes, up to .400 inches thick and 24 inches x 54 inches in size with up to 64 layers. Connectors are devices that allow the backplane and other printed circuit boards (sometimes called daughter cards) to plug together. High bandwidth capability packed in a small amount of space is an important technological advantage of Teradyne's connectors. Connection System's VHDM(R) and VHDM-HSD(TM) connector families have become a standard in the industry for high-speed, high-density interconnect. The GbX(TM) connector was introduced in 2001 to achieve even higher data rates and greater interconnection density. The Connection Systems organization also provides electronic manufacturing services, including backplane assembly, electro-mechanical integration of sub-assemblies, and complete systems integration and test. An essential element of the Connection Systems business is its design and applications engineering expertise at every step in the process. This expertise helps customers balance critical cost and performance needs during system design. In addition, by providing program management services, Connection Systems becomes an extension of the customer's operation, delivering quick turn prototypes and high technology production volumes. Circuit Board Test and Inspection Solutions The central element of almost every electronic product is a printed circuit board. A circuit board includes all the components and their interconnections that cause the board to perform its intended functions. As more and more product functionality is packed into smaller packages, such as PDAs, phone handsets and laptop computers, both the circuit boards and their components are increasingly complex. The circuit board manufacturing process 4 is also complex and demands a number of inspection and test steps. Teradyne circuit board test and inspection equipment is used throughout the manufacturing process to ensure high production yields, to maintain overall product quality, to diagnose faults quickly where and when they occur, and to reduce total manufacturing cost. The Teradyne circuit board and inspection product range includes the following products: In-Circuit Test In-circuit test systems examine the assembled and soldered circuit board for proper construction under both power-off and power-on conditions. Faulty components or solder problems are identified quickly and precisely. Because of their relatively low cost, high throughput and diagnostic accuracy, in-circuit testers are used universally in every electronics production line. Teradyne in-circuit products support a full range of circuit board test applications, including prototype and ramp up, high-volume production, selective or sample test and final or system test. Accordingly, Teradyne offers a wide variety of capabilities and options with its Spectrum 8000-series, Z1800-series and GR TestStation product lines. Specialized systems such as the GR Pilot and Javelin "flying probers" round out one of the industry's broadest and most capable product families. Imaging Inspection As circuit boards become increasingly dense and complex, achieving the electrical contact required for the traditional in-circuit test method is becoming more difficult, time-consuming and expensive. "Loss of (electrical) access" is a primary driver behind the increasing popularity of imaging inspection systems, which examine the circuit board for physical qualities including correct component presence and orientation, the absence of electrical opens and solder quality. Teradyne's imaging inspection systems employ one of two technologies: automated optical inspection ("AOI"), whereby a visual image of the board is captured and analyzed; and automated x-ray inspection ("AXI"), which captures an x-ray image of the board. Each technology has particular strengths in analyzing various board defect classes. For example, AOI is the preferred technology for evaluating and diagnosing component-related defects, while AXI is the preferred technology for analyzing solder-related defects. Teradyne's Optima 7000-series AOI systems employ advanced and patented lighting, camera, software, and mechanics, resulting in highly reliable, repeatable, and accurate optical inspection at high line speeds. The AXI product line offers fast throughput with high resolution on both its two-dimensional (2D) and three-dimensional (3D) models, and is the only product line that includes a combined 2D/3D capability. Functional Test Functional test systems examine the circuit board to determine whether it will meet its performance specifications and whether it will properly perform its intended "function." Functional testing is typically employed at the conclusion of the manufacturing process, as the final check step, to ensure the product will work as designed. Teradyne's functional test product line encompasses a full range of functional test applications, including high-volume production, final or system test, and field or depot diagnosis and repair. Available products range from VXI and PXI open architecture instruments and systems, to fully configured platforms for a wide range of manufacturing and depot test applications. Teradyne functional test systems include focused solutions for the communications, computer, and automotive markets, addressing functional test requirements for products such as automotive engine control units, telecom/datacom infrastructure equipment, wireless handheld devices, and complex/mission critical military/aerospace products. All Teradyne functional test solutions are designed specifically for the production test environment, which helps ensure that the test system has been optimized for throughput, reliability, and repeatability. Design to Build Software Electronics manufacturers employ a variety of circuit board test and inspection equipment throughout their production lines. This broad range of circuit board test and inspection choices requires extensive test planning and preparation, often referred to as "design to build" or "D2B". Teradyne's Strategist software tool enables users to model, simulate, optimize and execute a cost-effective test and inspection strategy, which optimally 5 divides test and inspection tasks among the imaging inspection, in-circuit and functional systems used on the manufacturing line. Once the strategy is determined, the user then employs Teradyne's Alchemist software to generate test software and documentation for the test and inspection equipment being used in the manufacturing line. Broadband Test Solutions Broadband Test Systems test the capacity and quality of telephone and cable television lines connected to homes and businesses. These state-of-the-art testing capabilities support cable and telephone company service provider's goals to sell and deploy broadband services sooner and improve the efficiency of qualification, provisioning, and customer care. Broadband Test Systems provide voice network maintenance solutions for the communications industry. Testing more than 120 million access lines worldwide for many of the world's largest telecommunications companies, including British Telecommunications, Deutsche Telecom and Verizon, Teradyne's 4TEL access network maintenance systems reduce operating cost and increase customer satisfaction by reliably detecting and identifying line faults within a telecommunications access network. With ten years of Internet protocol testing experience, Teradyne also provides products to telecommunications companies such as local exchange carriers for Internet testing, customer care and voice network maintenance. Teradyne products within the Broadband Test Systems market include: 4TEL & 4TEL II Voice Test Systems Teradyne's 4TEL voice test system precisely identifies and isolates faults within a telecommunications network, inside or outside customer premises, without the need for customer isolation equipment. The 4TEL II voice test system accurately isolates faults to such zones as exchange hardware, exchange wiring, access cable, inside premises wiring and customer equipment. The 4TEL system quickly locates the precise geographic location of a fault, enabling service providers to dispatch craftspeople to fix a fault, rather than dispatching them to find the fault. The 4TEL voice test system also reliably identify when a dispatch is not needed, such as when the problem exists in customer-owned equipment. Teradyne's 4TEL system currently tests one seventh of the world's voice lines. NetFlare(TM) End-to-End Internet Testing Cable and telephone company service providers can reduce broadband service call handling time with Teradyne's NetFlare system. This newly developed technology allows the consumer or call center representative to emulate the consumer's network experience and determine the source of a problem. For example, NetFlare technology automatically measures throughput as the consumer experiences it, determines whether the broadband service provider commitment is met, and identifies the network source of the problem. NetFlare significantly reduces average call handling time and reduces the necessity for further technical support. Celerity(TM) Speed Provisioning and Qualification Products Service providers need to know which cable lines between the central office and the end user are qualified for digital subscriber lines ("DSL") and which are not. Existing cable records are typically insufficient. Teradyne's Celerity product qualifies millions of lines for DSL capability in hours, and develops a database immediately showing which lines are qualified, which lines require conditioning and which lines are disqualified. Celerity performs real time testing that provides detailed loop qualification information and tests in-service DSL lines, identifying the presence and dispatch location of faults that affect data transmission. Celerity customers are able to significantly reduce costs of deployment and identify new lines and high-speed lines for increased revenue. Diagnostic Solutions Diagnostic Solutions is a major supplier of automotive manufacturing test and service bay diagnostic systems supporting vehicle electronics systems throughout their lifecycle, from design through manufacturing to service. Diagnostic Solutions products are used by automotive and transportation original equipment manufacturers, as well as by independent service providers. 6 Software Test Solutions Software Test Systems, which Teradyne divested in December 2000, are used by a number of industries to test communications networks, computerized telecommunication systems, and web based applications. Summary of Net Sales by Operating Segment Teradyne's four principal operating segments accounted for the following percentage of consolidated net sales for each of last three years:
% of consolidated net sales -------------------------- 2001 2000 1999 ---- ---- ---- Semiconductor Test Systems....................... 50% 67% 68% Connection Systems............................... 38 24 21 Circuit Board Test and Inspection Systems........ 9 5 6 Other Test Systems............................... 3 4 5 --- --- --- Total............................................ 100% 100% 100%
Sales and Distribution Teradyne's systems are extremely complex and require extensive support both by the customer and by Teradyne. Prices for Teradyne's systems can reach $3 million or more. In 2001, no single customer accounted for more than 10% of Teradyne's consolidated net sales. In 2001, Teradyne's three largest customers accounted for 24% of consolidated net sales. Direct sales to United States government agencies accounted for less than 1% of consolidated net sales in 2001, 2000, and 1999. Approximately 5% of Circuit Board Test and Inspection Systems sales in 2001 were to the United States government agencies. Sales were also made within each of Teradyne's segments to customers who are government contractors. Approximately 3% of Connection Systems sales and approximately 27% of Circuit Board Test and Inspection Systems sales fell into that category in 2001. On June 22, 2001, Teradyne sold its aerospace and defense connector and backplane business to Amphenol Corporation of Wallingford, Connecticut. Teradyne has sales and service offices located throughout North America, South East Asia, Europe, Taiwan, Japan, and Korea as Teradyne's customers outside the United States are located primarily in these geographic areas. Teradyne sells in these areas predominantly through a direct sales force. Primarily all of Teradyne's manufacturing activities are conducted in the United States. Sales to customers outside the United States accounted for 49% of consolidated net sales in 2001, 54% in 2000, and 52% in 1999. Sales to customers located in Taiwan were 10% in 2001 and 2000. Sales are attributed to geographic areas based on the location of the customer site. Teradyne is subject to the inherent risks involved in international trade, such as: . political and economic instability and acts of terrorism; . restrictive trade policies; . controls on funds transfer; . currency fluctuations; . difficulties in managing distributors; . potentially adverse tax consequences; and . the possibility of difficulty in accounts receivable collection. Teradyne attempts to reduce the effects of currency fluctuations by hedging those currency exposures associated with certain assets and liabilities denominated in non-functional currencies and by conducting some of its international transactions in U.S. dollars or dollar equivalents. See also "Item 7A. Quantitative and Qualitative Disclosures About Market Risks" and "Note G: Financial Instruments" in Notes to Consolidated Financial Statements. 7 Competition Teradyne faces substantial competition, throughout the world in each of its operating segments. Some of these competitors have substantial financial and other resources to pursue engineering, manufacturing, marketing and distribution of their products. Teradyne also faces competition from internal suppliers at several of its customers. Some of Teradyne's competitors have introduced or announced new products with certain performance characteristics that may be considered equal or superior to those Teradyne currently offers. Teradyne expects its competitors to continue to improve the performance of their current products and to introduce new products or new technologies that provide improved cost of ownership and performance characteristics. New product introductions by competitors could cause a decline in sales or loss of market acceptance of Teradyne's products. Moreover, increased competitive pressure could lead to intensified price based competition, which could materially adversely affect Teradyne's business, financial condition and results of operations. Backlog At December 31, 2001 and 2000, Teradyne's backlog of unfilled orders in each of its four principal operating segments was as follows:
(in millions) --------------- 2001 2000 ------ -------- Semiconductor Test Systems............... $317.2 $ 742.1 Connection Systems....................... 357.6 534.4 Circuit Board Test and Inspection Systems 55.5 68.4 Other Test Systems....................... 32.7 37.2 ------ -------- $763.0 $1,382.1
Of the backlog at December 31, 2001, approximately 97% of the Semiconductor Test Systems backlog, 100% of the Connection Systems backlog, 92% of Circuit Board Test and Inspection Systems backlog, and 59% of the Other Test Systems backlog is expected to be delivered in 2002. Teradyne's experience indicates that a portion of orders included in the backlog may be canceled or rescheduled. During 2001, Teradyne experienced an increase in the rescheduling of delivery dates by some of its customers, and thus the timing of the delivery of a significant portion of Teradyne's backlog is uncertain. In 2001, Teradyne experienced cancellations of $285.5 million. Teradyne may experience additional cancellations in the future. There are no seasonal factors related to the backlog. Raw Materials Teradyne's products require a wide variety of electronic and mechanical components. Teradyne can experience occasional delays in obtaining timely delivery of certain items. Additionally, Teradyne could experience a temporary adverse impact if any of its sole source suppliers ceased to deliver products. Any prolonged inability to obtain adequate supplies, or any other circumstances that would require Teradyne to seek alternative sources of supply could have a material adverse effect on its business, financial condition, and results of operations. Patents and Licenses Teradyne's development of its products, both hardware and software, is largely based on proprietary information. Teradyne protects its rights in proprietary information through various methods such as: . copyrights; . trademarks; . patents and patent applications; . software license agreements; and . employee agreements. Any invalidation of Teradyne's intellectual property rights could have a material adverse effect on its business. 8 Employees As of December 31, 2001, Teradyne employed approximately 8,400 people. Since the inception of Teradyne's business, there have been no work stoppages or other labor disturbances. Teradyne has no collective bargaining contracts. Engineering and Development Activities The highly technical nature of Teradyne's products requires a large and continuing engineering and development effort. Engineering and development expenditures were approximately $288.7 million in 2001, $348.0 million in 2000, and $261.9 million in 1999. These expenditures amounted to approximately 20% of consolidated net sales in 2001, 11% in 2000, and 15% in 1999. Environmental Affairs Teradyne's manufacturing facilities are subject to numerous laws and regulations designed to protect the environment, particularly from manufacturing plant wastes and emissions. These laws include: . The Comprehensive Environmental Response, Compensation, and Liability Act; . The Superfund Amendment and Reauthorization Act of 1986; . The Occupational Safety and Health Act; . The Clean Air Act; . The Clean Water Act; . The Resource Conservation and Recovery Act of 1976; and . The Hazardous and Solid Waste Amendments of 1984. In the opinion of management, the costs associated with complying with these laws and regulations have not had and are currently not expected to have a material effect upon the financial position or results of operations of Teradyne. In 2001, Teradyne was designated as a "potentially responsible party" ("PRP") at two clean-up sites, one in California and one in Rhode Island. Teradyne does not believe that it has any liability for the cleanup of the California site, and has requested the state of California to remove Teradyne's name from the list of PRPs, however, Teradyne has not yet received a reply. In the opinion of management, the costs associated with complying with the clean-up of this site, if required, are not expected to have a material effect upon the financial position or results of operations of Teradyne. However, Teradyne cannot predict what its liability, if any, may be for the clean-up of this site and can give no assurance that it will not materially adversely affect Teradyne's financial condition or results of operations. With respect to the second site, in Rhode Island, additional information is currently being collected to better understand Teradyne's financial obligations, if any, for its portion of the clean-up of this site. 9 EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth the names of all executive officers of Teradyne and certain other information relating to their positions held with Teradyne and other business experience. Executive officers of Teradyne do not have a specific term of office but rather serve at the discretion of the Board of Directors.
Executive Officer Age Position Business Experience For The Past 5 Years ----------------- --- -------- ---------------------------------------- George W. Chamillard 63 President, Chairman of the Chairman of the Board since 2000; President Board, and Chief and Chief Executive Officer of Teradyne since Executive Officer 1997; Director of Teradyne since 1996; President and Chief Operating Officer of Teradyne from 1996 to 1997; Executive Vice President of Teradyne from 1994 to 1996. Gregory R. Beecher.. 44 Vice President and Chief Vice President and Chief Financial Officer of Financial Officer Teradyne since 2001; Partner at PricewaterhouseCoopers LLP from 1993 to 2001. Edward Rogas, Jr.... 61 Senior Vice President Senior Vice President of Teradyne since 2000; Vice President of Teradyne from 1984 to 1999. David L. Sulman*.... 58 Senior Vice President Senior Vice President of Teradyne from 2000 to 2001; Vice President of Teradyne from 1994 to 1999. Thomas S. Grilk..... 54 Vice President and General Vice President and General Counsel of Counsel Teradyne since 2000; VP of Government Affairs and Assistant General Counsel at Compaq Computer Corp and Digital Equipment Corp from 1994 to 2000. Michael A. Bradley.. 53 President of President of Semiconductor Test since 2001; Semiconductor Test Vice President of Teradyne from 1992 to 2001; Chief Financial Officer of Teradyne from 1999 to 2001. John M. Casey....... 53 President of Circuit Board President of Circuit Board Test and Inspection Test and Inspection since 2002; Vice President of Teradyne since 1990. Richard E. Schneider 44 President of Connection President of Connection Systems since 2001; Systems Vice President of Teradyne from 1998 to 2001; Connections Systems manager from 1998 to 2001; Connection Systems Business Development manager from 1997 to 1998. G. Richard MacDonald 53 Controller Controller of Teradyne since 2001; Controller of Teradyne's Industrial Consumer Division from 1989 to 2001. Stuart M. Osattin... 56 Vice President and Vice President and Treasurer of Teradyne Treasurer since 1994.
*Mr. Sulman retired from Teradyne on December 31, 2001. 10 Item 2: Properties Teradyne's executive offices are in Boston, Massachusetts. Manufacturing and other operations are carried on in several locations. The following table provides certain information as to Teradyne's principal general offices and manufacturing facilities.
Approximate Square Feet Property of Floor Location Operating Segment Interest Space -------- ------------------------------------ -------- ----------- Boston, Massachusetts........ Semiconductor Test & General Offices Own 492,000 Agoura Hills, California..... Semiconductor Test Own 572,000 Nashua, New Hampshire........ Connection Systems Own 569,000 North Reading, Massachusetts. Semiconductor Test & Circuit Board Test and Inspection Own 273,000 North Reading, Massachusetts. Unoccupied Own 425,000* Westford, Massachusetts...... Circuit Board Test and Inspection Lease 230,000 Woburn, Massachusetts........ Semiconductor Test Lease 205,000 San Diego, California........ Connection Systems Own 192,000 Hudson, New Hampshire........ Connection Systems Lease 144,000 San Jose, California......... Semiconductor Test Own 120,000 Stoughton, Massachusetts..... Unoccupied Own 120,000* Mexicali, Mexico............. Connection Systems Lease 112,000 La Verne, California......... Connection Systems Own 93,000 Shanghai, China.............. Unoccupied Lease 87,000* Manchester, England.......... Diagnostic Solutions Lease 75,000 Kumamoto, Japan.............. Semiconductor Test Own 66,000 Deerfield, Illinois.......... Broadband Test Own 63,000 Walnut Creek, California..... Circuit Board Test and Inspection Lease 60,000 Plano, Texas................. Connection Systems Lease 50,000 Dublin, Ireland.............. Connection Systems Lease 46,000 Fremont, California.......... Connection Systems Lease 46,000
*This space is unoccupied and therefore available for future expansion. Item 3: Legal Proceedings In connection with the August 2000 acquisition of each of Herco Technology Corp., a California company, and Perception Laminates, Inc., a California company, a complaint was filed by the former owners of those companies on or about September 5, 2001 naming as defendants Teradyne and two of its executive officers. The case was originally filed in the Superior Court in San Diego County, California, and was subsequently removed by the defendants to federal court. On or about November 14, 2001, Teradyne and the two individual defendants filed a motion to dismiss the amended complaint in its entirety. The federal court granted in part and denied in part that motion to dismiss. The claims that were dismissed were dismissed with prejudice. At the federal court's request, the plaintiffs filed a second amended complaint on March 4, 2002 setting forth their remaining claims. The second amended complaint alleges, among other things, that the sale of Teradyne's common stock to the former owners violated certain California securities statutes and common law, and that Teradyne breached certain contractual obligations in the agreements relating to the acquisitions. The second amended complaint seeks unspecified damages, including compensatory, consequential and punitive damages, and recovery of reasonable attorneys' fees and costs. On March 25, 2002, Teradyne and the two individual defendants filed their answer to the second amended complaint. Teradyne and two of its executive officers are named as defendants in three purported class action complaints that were filed in the United States District Court for the District of Massachusetts, Boston, Massachusetts, on or about October 16, 2001, October 19, 2001 and November 7, 2001. The complaints allege, among other things, that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, by making, during the period from July 14, 2000 until October 17, 2000, material misrepresentations and omissions to the investing public regarding Teradyne's business operations and future prospects. The complaints seek unspecified damages, including compensatory damages and recovery of reasonable attorneys' fees and costs. 11 Teradyne disputes all of the claims above and believes they are without merit, and intends to defend vigorously against the lawsuits. However, an adverse resolution of any of the lawsuits could have a material adverse effect on Teradyne's financial position or results of operations. Teradyne is not presently able to reasonably estimate potential losses, if any, related to any of the lawsuits and therefore has not accrued for any potential losses from the lawsuits. In addition, Teradyne is subject to legal proceedings and claims that arise in the ordinary course of business. Management does not believe these actions will have a material adverse effect on Teradyne's financial position or results of operations. Item 4: Submission of Matters to a Vote of Security Holders. None. PART II Item 5: Market for Registrant's Common Equity and Related Shareholder Matters The following table shows the market range for Teradyne's Common Stock based on reported sale prices on the New York Stock Exchange.
Period High Low ------ ---- --- 2001 First Quarter.............................................. $ 44.05 $29.05 Second Quarter............................................. 47.21 26.25 Third Quarter.............................................. 37.45 18.43 Fourth Quarter............................................. 33.00 18.50 2000 First Quarter.............................................. $ 94.94 $54.88 Second Quarter............................................. 115.44 65.00 Third Quarter.............................................. 81.00 34.94 Fourth Quarter............................................. 41.63 23.00
The number of record holders of Teradyne's Common Stock at February 22, 2002 was 891. Teradyne has never paid cash dividends because it has been Teradyne's policy to use earnings to finance expansion and growth. Payment of future cash dividends will rest within the discretion of the Board of Directors and will depend, among other things, upon Teradyne's earnings, capital requirements, and financial condition. Teradyne presently expects to retain all of its earnings for use in the business. Item 6: Selected Financial Data
Years Ended December 31,* ------------------------------------------------------- 2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- (Dollars in thousands, except per share amounts) Net sales................................ $1,440,581 $3,043,946 $1,790,912 $1,489,151 $1,266,274 ========== ========== ========== ========== ========== (Loss) income before cumulative effect of change in accounting principle......... $ (202,215) $ 517,754 $ 191,694 $ 102,117 $ 127,608 ========== ========== ========== ========== ========== (Loss) income before cumulative effect of change in accounting principle per common share--basic.................... $ (1.15) $ 2.99 $ 1.12 $ 0.61 $ 0.76 ========== ========== ========== ========== ========== (Loss) income before cumulative effect of change in accounting principle per common share--diluted.................. $ (1.15) $ 2.86 $ 1.07 $ 0.59 $ 0.74 ========== ========== ========== ========== ========== Total assets............................. $2,542,391 $2,355,868 $1,568,213 $1,312,814 $1,251,674 ========== ========== ========== ========== ========== Long-term obligations.................... $ 451,682 $ 8,352 $ 8,948 $ 13,200 $ 13,141 ========== ========== ========== ========== ==========
*Note: Previously published financial data prior to 2000 has not been restated to give the pro forma effect of the adoption of the provisions of SAB 101. See "Note C: Change in Accounting Principle" in Notes to Consolidated Financial Statements for further information. 12 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. In addition to the historical information contained in this document, the discussion in this Annual Report on Form 10-K contains forward-looking statements, made pursuant to the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties, such as statements of Teradyne's plans, expectations and intentions. The cautionary statements made in this Annual Report on Form 10-K should be read as being applicable to all related forward-looking statements whenever they appear in this Annual Report on Form 10-K. Teradyne's actual results could differ materially from the results contemplated by these and any other forward-looking statements. Factors that could contribute to such differences include those discussed below as well as those cautionary statements and other factors set forth in "Certain Factors That May Affect Future Results" and elsewhere herein. Critical Accounting Policies and Estimates Teradyne has identified the policies discussed below as critical to understanding its business and its results of operations. The impact and any associated risks related to these policies on its business operations is discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations where such policies affect its reported and expected financial results. The preparation of consolidated financial statements requires Teradyne to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, Teradyne evaluates its estimates, including those related to inventories, investments, intangible and other long-lived assets, bad debts, income taxes, pensions, warranties, contingencies and litigation. Teradyne bases its estimates on historical experience and on appropriate and customary assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Teradyne recognizes revenue when there is persuasive evidence of an arrangement, title and risk of loss have passed, delivery has occurred or the services have been rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably assured. It is Teradyne's policy to require an arrangement with its customers, either in the form of a written or electronic contract or purchase order containing all of the terms and conditions governing the arrangement, prior to the recognition of revenue. Title and risk of loss generally passes to the customer at the time of delivery of the product to a common carrier. At the time of the transaction, Teradyne assesses whether the sales price is fixed or determinable based upon the payment terms of the arrangement. If a significant portion of the sales price is not due with normal payment terms, the sales price may not be deemed fixed and revenue would be recognized as the amounts become due. Teradyne does not offer a right of return on its products. Teradyne assesses collectibility based on a number of factors, including past transaction and collection history with a customer and the credit-worthiness of the customer. Teradyne performs on-going credit evaluations of its customer's financial condition but generally does not require collateral from its customers. If Teradyne determines that collectibility of the sales price is not reasonably assured, revenue is deferred until such time as collection becomes reasonably assured, which is generally upon receipt of payment from the customer. Revenue is recognized upon delivery provided that customer acceptance criteria can be demonstrated prior to shipment. Where the criteria cannot be demonstrated prior to shipment, or in the case of new products, revenue is deferred until acceptance has been received. For multiple element arrangements, Teradyne defers the greater of the fair value of any undelivered elements of the contract or the portion of the sales price which is not payable until the undelivered elements are delivered. Teradyne also defers the portion of the sales price that is not due until acceptance, which represents deferred profit. Fair value is the price charged when the element is sold separately. In order to recognize revenue the functionality of the undelivered element must not be essential to the delivered element. Installation is not considered essential to the functionality of the product as these services do not alter the product capabilities, do not require specialized skills or tools and can be performed by the customers or other vendors. In addition to installation, other elements may include service arrangements and undelivered products. Teradyne's products are generally subject to warranty and related costs are provided for in cost of sales when product revenue is recognized. 13 Interconnection systems and electronic manufacturing assembly services revenue is recognized upon shipment or delivery according to the shipping terms of the arrangement as there is no installation required and there are no contractual acceptance requirements. For certain contracts eligible for contract accounting under Statement of Accounting Position No. 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts," revenue is recognized using the percentage-of-completion accounting method based upon an efforts-expended method. The software in these arrangements requires significant production, modification or customization. In all cases, changes to total estimated costs and anticipated losses, if any, are recognized in the period in which determined. To date revenue under contract accounting has not been material. Inventories which include materials, labor and manufacturing overhead are stated at the lower of cost (first-in, first-out basis) or net realizable value. On a quarterly basis, Teradyne uses consistent methodologies to evaluate all inventory for net realizable value. Teradyne records a provision for excess and obsolete inventory when such an impairment is identified through the quarterly review process. Excess and obsolete inventory, consisting of on-hand and non-cancelable on-order inventory, in excess of estimated usage over the next 12 months is written down to its estimated net realizable value, if less than cost. The excess and obsolescence evaluation is based upon assumptions about future demand, product mix and possible alternative uses. In 2001, Teradyne recorded an inventory provision for excess and obsolete inventory of $139.7 million which includes a writedown for discontinued product lines of $34.5 million. If actual demand, product mix or possible alternative uses are less favorable than those projected by management, additional inventory write-downs may be required. On a quarterly basis, Teradyne evaluates the realizability of its deferred tax assets and assesses the need for a valuation allowance. Realization of Teradyne's net deferred tax assets is dependent on its ability to generate approximately $415 million of future taxable income. Teradyne believes that it is more likely than not that its net deferred tax assets will be realized based on forecasted income, however, there can be no assurance that Teradyne will be able to meet its expectations of future income. If Teradyne continues to incur significant losses for an extended period of time, Teradyne could be required to establish a valuation allowance against all or a significant portion of its net deferred tax assets. To the extent Teradyne establishes a valuation allowance, an expense will be recorded within the provision for income taxes line in the statement of operations. Teradyne assesses the impairment of identifiable intangibles, long-lived assets and related goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors Teradyne considers important which could indicate an impairment include significant underperformance relative to expected historical or projected future operating results, significant changes in the manner of Teradyne's use of the acquired asset or the strategy for Teradyne's overall business and significant negative industry or economic trends. When Teradyne determines that the carrying value of intangibles, long-lived assets and related goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, Teradyne measures any impairment based on a projected discounted cash flow method using a discount rate determined by its management to be commensurate with the risk inherent in its current business model. During 2001, Teradyne recorded charges of $32.3 million related to the impairment of certain excess facilities and long-lived assets. Intangible assets, long-lived assets, and goodwill amounted to $1.1 billion as of December 31, 2001. The volatility of the industries that Teradyne serves can cause certain of its customers to experience shortages of cash flows, which can impact their ability to make required payments. Teradyne maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. At December 31, 2001, this allowance for doubtful accounts amounted to $6.3 million. Estimated allowances for doubtful accounts are reviewed periodically taking into account the customer's current payment history, the customer's current financial statements and other information regarding the customer's credit worthiness. If the financial condition of Teradyne's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. 14 SELECTED RELATIONSHIPS WITHIN THE CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ------------------------------------- 2001 2000 1999 ----------- ---------- ---------- (dollars in thousands) Net sales........................................................ $1,440,581 $3,043,946 $1,790,912 =========== ========== ========== (Loss) income before cumulative effect of change in accounting principle...................................................... $ (202,215) $ 517,754 $ 191,694 =========== ========== ========== (Decrease) increase in net sales from preceding year: Amount........................................................... ($1,603,365) $1,253,034 $ 301,761 =========== ========== ========== Percentage....................................................... (53)% 70 % 20% =========== ========== ========== (Decrease) increase in income (loss) from preceding year......... $ (719,969) $ 326,060 $ 89,577 =========== ========== ========== Percentage of net sales: Net sales........................................................ 100.0 % 100.0 % 100.0% Expenses: Cost of sales.................................................... 70.9 52.8 56.1 Cost of sales - inventory provision and other charges............ 11.1 -- -- Engineering and development...................................... 20.1 11.4 14.6 Selling and administrative....................................... 18.7 12.4 14.9 Restructuring and other charges.................................. 3.7 -- -- ----------- ---------- ---------- 124.5 76.6 85.6 Net interest and other income.................................... 1.9 0.9 0.9 ----------- ---------- ---------- (Loss) income before income taxes and cumulative effect of change in accounting principle........................................ (22.6) 24.3 15.3 (Benefit) provision for income taxes............................. (8.6) 7.3 4.6 ----------- ---------- ---------- (Loss) income before cumulative effect of change in accounting principle........................................... (14.0) 17.0 10.7 Cumulative effect of change in accounting principle.............. -- (2.1) -- ----------- ---------- ---------- Net (loss) income................................................ (14.0)% 14.9 % 10.7% =========== ========== ==========
On October 26, 2001, Teradyne completed its acquisition of GenRad, Inc. of Westford, MA, a leading manufacturer of electronic automatic test equipment, related software, and diagnostic solutions. GenRad's business has been made a part of the Circuit Board Test and Inspection Systems operating segment. GenRad activity is reflected in Teradyne's results of operations since the acquisition date. See "Note F: Acquisitions and Divestitures" in Notes to Consolidated Financial Statements for further information. Results of Operations: 2001 compared to 2000 Revenue Teradyne's four principal operating segments accounted for the following percentages of consolidated net sales for each of last three years:
% of consolidated net sales ---------------- 2001 2000 1999 ---- ---- ---- Semiconductor Test Systems............... 50% 67% 68% Connection Systems....................... 38 24 21 Circuit Board Test and Inspection Systems 9 5 6 Other Test Systems....................... 3 4 5 --- --- --- Total.................................... 100% 100% 100%
15 Sales decreased 53% in 2001 to $1,440.6 million from $3,043.9 million in 2000. Semiconductor Test Systems sales decreased 65%, to $717.7 million in 2001 from $2,044.0 million in 2000, Connection Systems sales to unaffiliated customers decreased 26%, to $540.8 million in 2001 from $734.6 million in 2000, and Circuit Board Test and Inspection Systems sales decreased 6%, to $132.4 million in 2001 from $141.2 million in 2000. These decreases reflect the overall economic and industry market conditions described below. Circuit Board Test and Inspection Systems sales include the two-month impact of the GenRad acquisition which contributed sales of $19.0 million. Other Test Systems sales decreased 60%, to $49.7 million in 2001 from $124.1 million in 2000, which principally reflects the divestiture of Software Test Systems at the end of 2000 as well as the overall economic and industry market conditions described below. During the fourth quarter of 2000, Teradyne implemented Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" (SAB 101) retroactive to the beginning of the year. Included in 2001 sales was $98.7 million related to shipments of customer orders in 2000 where title was retained by Teradyne until customer payment in order to perfect a security interest. Teradyne no longer retains title until customer payment. Teradyne's business has been adversely impacted by the slowdown in economies worldwide including the effects of the hostilities begun in September 2001. Teradyne has also been adversely affected by the cyclical nature of the electronics and semiconductor industries, which experience recurring periods of oversupply of products and equipment of the type Teradyne sells. These factors have resulted in a downturn in the demand for Teradyne's products. During 2001, orders declined significantly across all of Teradyne's product lines when compared with the orders Teradyne received during 2000. The reduction in net orders across Teradyne for 2001 compared with 2000 was approximately $2,512.7 million. Teradyne's experience in previous downturns has been that orders improve as Teradyne's customers' capital expenditures increase. At present, however, Teradyne cannot say how long the current downturn will last or when the situation will improve. In the absence of significant improvement, orders could remain low or decline further, and the amount of Teradyne's inventory, deferred tax assets, and certain long-lived assets considered realizable could be significantly reduced. In 2001 and 2000, no single customer accounted for more than 10% of consolidated net sales. In 2001, Teradyne's three largest customers accounted for 24% of consolidated net sales. Bookings Net orders decreased 76% to $808.2 million in 2001 from $3,320.9 million in 2000. Net orders decreased in all operating segments and were led by a 85% decrease in Semiconductor Test Systems net orders. Connection Systems net orders, Circuit Board Test and Inspection Systems net orders, and Other Test Systems net orders decreased 64%, 33%, and 78%, respectively. Teradyne experienced cancellations of $285.5 million during 2001. Teradyne's net orders for its four principal operating segments for 2001 and 2000 were as follows:
(in millions) 2001 2000 ------ -------- Semiconductor Test Systems............... $294.0 $1,960.5 Connection Systems....................... 385.0 1,082.0 Circuit Board Test and Inspection Systems 101.4 151.6 Other Test Systems....................... 27.8 126.8 ------ -------- $808.2 $3,320.9
Teradyne's backlog decreased 45% to $763.0 million in 2001 from $1,382.1 million in 2000. At December 31, 2001 and 2000, Teradyne's backlog of unfilled orders for its four principal operating segments was as follows:
(in millions) 2001 2000 ------ -------- Semiconductor Test Systems............... $317.2 $ 742.1 Connection Systems....................... 357.6 534.4 Circuit Board Test and Inspection Systems 55.5 68.4 Other Test Systems....................... 32.7 37.2 ------ -------- $763.0 $1,382.1
16 Customers may delay delivery of products or cancel orders suddenly and without significant notice, subject to possible cancellation penalties. Due to possible customer changes in delivery schedules and cancellation of orders, Teradyne's backlog at any particular date is not necessarily indicative of the actual sales for any succeeding period. Delays in delivery schedules and/or cancellations of backlog during any particular period could have a material adverse effect on Teradyne's business and results of operations. Gross Margin Certain costs in 2001 and 2000 have been reclassified from cost of sales into engineering and development and selling and administrative. These reclassified costs consist of new product development costs incurred in manufacturing engineering, test technology and applications engineering costs supporting sales. The costs reclassified from cost of sales to engineering and development represent work performed to develop and implement manufacturing and test processes focused on the introduction of new product platforms. The costs reclassified from cost of sales to selling and administrative represent the development of applications programming used to demonstrate new product capabilities. The impact of the reclassifications is detailed below:
Year Ended Year Ended December 31, December 31, Increase / (Decrease) 2001 2000 --------------------- ------------ ------------ (in thousands) Cost of sales.............. ($57,046) ($62,325) Engineering and development 39,750 47,104 Selling and administrative. 17,296 15,221
Cost of sales, excluding the charges described below, increased to 71% of sales in 2001 from 53% of sales in 2000. The percentage increase in 2001 was attributable to the decreased utilization of Teradyne's manufacturing capacity, as sales volume decreased while certain components of costs of sales remained fixed. The increase in the percentage of cost of sales was also impacted to a lesser extent by increased competitive price pressure as current semiconductor products mature and the mix of Teradyne's business changes as Connection Systems and Circuit Board Test and Inspection System sales, which have lower gross margins, become a larger percentage of Teradyne's business. Teradyne introduced a number of new products in 2001. Generally, Teradyne's new products begin their product life with lower gross margins and margins improve as volume purchases increase and cost reduction activities are implemented. There can be no assurance that significant improvements in gross margins will be achieved on current or new Teradyne products through either volume purchases or cost reduction activities. Cost of sales related to inventory provisions and other charges for asset impairments and vacated leases was $159.8 million in 2001. Inventory provision for excess and obsolete inventory was $105.2 million in 2001, which excludes the inventory writedowns for product line discontinuance, compared to $27.5 million in 2000, included in cost of sales, representing a 5% increase. The increase in the inventory provision was caused by the worldwide economic slowdown during 2001. Between 2000 and 2001, orders declined by approximately $2,512.7 million, a 76% decrease. This drop in orders combined with lead time requirements for inventory procurement and Teradyne's new product introduction plans necessitated additional charges for excess and obsolete inventory. During 2001, Teradyne recorded an inventory writedown in Semiconductor Test Systems due to the discontinuance of the Flash 750 product line of $32.3 million and related asset impairments of $4.6 million. In the third and fourth quarters of 2001, Teradyne recorded a charge of $15.4 million for certain impaired manufacturing assets and vacated space under operating leases at Connection Systems. Engineering and Development Engineering and development expenses, as a percentage of sales, increased to 20% in 2001 from 11% in 2000, with spending decreasing by $59.4 million. This spending decrease was primarily due to lower material costs and the impact of workforce reductions, salary cuts, and furloughs in Semiconductor Test Systems and Circuit Board Test and Inspection Systems, excluding the impact of the GenRad acquisition. Connection Systems engineering and development spending increased 5% from 2000 to 2001. 17 Selling and Administrative Selling and administrative expenses increased to 19% of sales in 2001 from 12% of sales in 2000, with spending decreasing by $107.7 million. The decrease in spending was principally due to certain cost containment programs such as workforce reductions, salary cuts, and furloughs. Restructuring and Other Charges Restructuring and other charges include a workforce reduction and early retirement provision of $37.3 million, a charge for a Connection Systems impaired facility of $12.0 million, a charge for impaired assets of $1.9 million relating to the discontinuance of the Flash 750 product line in Semiconductor Test Systems, and a charge for vacated space under certain operating leases of $1.7 million in Circuit Board Test and Inspection Systems. There were approximately 2,900 employees terminated in 2001 across all functional groups. These terminations will result in future cost savings in 2002 of approximately $132.0 million. Teradyne has paid $23.8 million in severance benefits during 2001. All remaining severance benefits for employees terminated in 2001 will be paid by the fourth quarter of 2002. Below is a table summarizing activity relating to restructuring and other charges:
Lease Payments Severance on and Vacated Impaired Impaired Benefits Facilities Facilities Assets Total --------- ---------- ---------- -------- -------- (in thousands) 2001 provision.............. $ 37,278 $1,676 $ 12,000 $ 1,923 $ 52,877 Cash payments............... (23,755) -- -- -- (23,755) Non-cash charges............ -- -- (12,000) (1,923) (13,923) -------- ------ -------- ------- -------- Balance at December 31, 2001 $ 13,523 $1,676 $ -- $ -- $ 15,199 ======== ====== ======== ======= ========
The accrual for severance and benefits is reflected in accrued employees' compensation and withholdings and the accrual for lease payments on vacated facilities is reflected in other accrued liabilities. Interest income and expense Interest income decreased by $2.4 million to $22.7 million in 2001 compared to $25.1 million in 2000. The decrease in 2001 was attributable to decreases in the average invested balances and lower interest rates. Interest expense increased by $2.3 million as a result of interest expense for two months associated with Teradyne's convertible notes. Other income and expense Included in other income in 2001 is a gain from the sale of Connections Systems aerospace and defense business of $14.8 million. Included in other expense for 2001 is Teradyne's proportionate share of a loss related to an equity method investment of $7.0 million. Income before taxes (Loss) income before income taxes and cumulative effect of change in accounting principle was a loss of $326.2 million in 2001 compared to income of $739.6 million in 2000. Semiconductor Test Systems, Connection Systems, Circuit Board Test and Inspection Systems, and Other Test Systems income before income taxes decreased $907.2 million, $167.5 million, $40.3 million, and $3.3 million, respectively in 2001 due to decreased sales in each group and the market conditions described above. 18 Income taxes Teradyne's effective tax rate benefit was 38% in 2001. The effective tax rate provision for the year ended 2000 was 30%. The change in the tax rate is a result of a loss in 2001. In 2000, Teradyne was able to reduce its effective tax rate with tax benefits from its foreign sales corporation and Ireland manufacturing operations. On a quarterly basis, Teradyne evaluates the realizability of its deferred tax assets and assesses the need for a valuation allowance. Realization of Teradyne's net deferred tax assets is dependent on its ability to generate approximately $415 million of future taxable income. Teradyne believes that it is more likely than not that its net deferred tax assets will be realized based on forecasted income. However, if Teradyne continues to incur significant losses for an extended period of time, it could be required to establish a valuation allowance against all or a significant portion of its net deferred tax assets. To the extent Teradyne establishes a valuation allowance, an expense will be recorded within the provision for income taxes line in the statement of operations. In response to an adverse World Trade Organization (WTO) finding that the U.S. Foreign Sales Credit (FSC) tax provisions were a prohibited export subsidy, the U.S. repealed FSC and enacted replacement legislation (Extraterritorial Income Exclusion Act of 2000). The European Union filed a WTO challenge to the new law and the WTO has upheld the European Union's challenge. The U.S. has decided to appeal and the appellate process and final resolution of this matter could extend beyond 2002. The U.S. government and industry groups are evaluating options. It is not possible to predict what impact, if any, this issue will have on future earnings pending final resolution of the challenge. During the years ended December 31, 2001, 2000, and 1999, the FSC benefited Teradyne's effective tax rate as follows:
2001 2000 1999 ---- ---- ---- Export sales corporation (0.7%) (4.8%) (4.7%)
2000 compared to 1999 Revenue Sales increased 70% in 2000 to a record $3,043.9 million from $1,790.9 million in 1999. Semiconductor Test Systems shipments increased by 69% due to increased sales to semiconductor manufacturers and subcontractors as these customers increased capacity to meet their customer's requirements. Sales of Connection Systems to unaffiliated customers grew 97% as a result of significant growth in demand from networking, data storage, and other high technology customers. Circuit Board Test and Inspection Systems sales increased by 19% from 1999. Other Test Systems sales increased 40% from 1999 with increases in Broadband Test Systems of 10% and Software Test Systems of 64%. Due to the sale of a majority interest in the software test business in December 2000, Software Test Systems revenue will not be reflected on an on-going basis. Bookings Incoming net orders increased 52% from $2,190.6 million in 1999 to a record $3,320.9 million in 2000. Net orders increased in all operating segments and were led by a 159% increase in Connection Systems net orders. Semiconductor Test Systems net orders increased 24%. Broadband Test Systems net orders increased 77% and Circuit Board Test and Inspection Systems and Software Test Systems increased 26% and 70%, respectively. Teradyne's backlog increased 41% to a record $1,382.1 million. Gross Margin Certain costs in 2000 and 1999 have been reclassified from cost of sales into engineering and development and selling and administrative. These reclassified costs consist of new product development costs incurred in manufacturing engineering, test technology and applications engineering costs supporting sales. The costs 19 reclassified from cost of sales to engineering and development represent work performed to develop and implement manufacturing and test processes focused on the introduction of new product platforms. The costs reclassified from cost of sales to selling and administrative represent the development of applications programming used to demonstrate new product capabilities. The impact of the reclassifications is detailed below:
Year Ended Year Ended December 31, December 31, Increase / (Decrease) 2000 1999 --------------------- ------------ ------------ (in thousands) Cost of sales.............. $(62,325) $(43,536) Engineering and development 47,104 33,291 Selling and administrative. 15,221 10,245
Costs of sales as a percentage of sales decreased from 56% of sales in 1999 to 53% of sales in 2000. The decrease in cost of sales was primarily due to the increased utilization of Teradyne's manufacturing overhead as sales volume increased while certain components of cost of sales remained fixed. Engineering and Development Engineering and development expenses decreased from 15% of sales in 1999 to 11% of sales in 2000, even though spending increased $86.2 million. The increase in spending was primarily due to new product development expenses in Semiconductor Test Systems, and, to a lesser extent, increased expenses related to product development in Connection Systems, Circuit Board Test and Inspection Systems, and Software Test Systems. Selling and Administrative Selling and administrative expenses as a percentage of sales decreased from 15% in 1999 to 12% in 2000. Spending increased by $111.1 million year over year in support of increased Semiconductor Test Systems, Connection Systems, and Software Test Systems sales. Interest income and expense Interest income increased $7.8 million to $25.1 million in 2000 compared to $17.3 million in 1999. Interest income increased due to an increase in Teradyne's average invested balances and higher interest rates. Other income and expense Included in other income in 2000 is an immaterial gain relating to the divestiture of the software test business. Income before taxes Income before income taxes and cumulative effect of change in accounting principle increased $465.8 million from $273.8 million in 1999 to $739.6 million in 2000. Semiconductor Test Systems, Connection Systems, Circuit Board Test and Inspection Systems, and Other Test Systems income before income taxes increased $387.4 million, $91.8 million, $7.0 million, and $9.5 million, respectively in 2000 due to increased sales in each group. Income taxes Teradyne's effective tax rate was 30% in 2000 and 1999. Teradyne continued to utilize export sales corporation benefits and other tax benefits to operate below the U.S. statutory rate of 35%. 20 Liquidity and Capital Resources Teradyne's cash, cash equivalents and marketable securities balance increased $121.8 million in 2001, to $586.2 million. Teradyne used cash from operating activities of $79.0 million in 2001 and generated cash from operating activities in 2000 and 1999 of $470.9 million and $367.5 million, respectively. Net income (loss), adjusted to exclude the effects of non-cash items, used cash of $77.1 million in 2001, and provided cash of $501.6 million and $279.7 million in 2000 and 1999, respectively. Changes in operating assets and liabilities net of businesses sold and acquired used cash of $1.9 million in 2001 as accounts payable and accruals balances decreased as purchases slowed. The decrease in accounts payable and accruals was partially offset by reduced accounts receivable and inventory balances. Changes in operating assets and liabilities used cash of $30.7 million in 2000 and generated cash of $87.7 million in 1999. Teradyne used $247.3 million of cash for investing activities in 2001, $312.3 million in 2000, and $244.8 million in 1999. Investing activities consist of purchases, sales, and maturities of marketable securities, proceeds from the sale of businesses, cash acquired in business acquisitions, and purchases of capital assets to support long-term growth. Capital expenditures decreased by $56.8 million in 2001 compared with 2000, primarily in the Semiconductor Test Systems segment. This was due to the actions taken by Teradyne in 2001 to reduce planned capital expenditures due to current market conditions. Capital expenditures were $241.4 million in 2001, $298.2 million in 2000, and $151.2 million in 1999. Teradyne generated $401.5 million of cash from financing activities in 2001, used $97.5 million in 2000, and used $126.8 million in 1999. Financing activities include the issuance of convertible notes, mortgage borrowings, sales and repurchases of Teradyne's common stock, as well as repayments of debt. In 2001, Teradyne assumed debt of $89.7 million from the GenRad acquisition which Teradyne repaid on October 26, 2001. During 2001, 2000, and 1999 issuances of common stock under stock option and stock purchase plans generated $58.5 million, $55.3 million, and $82.3 million, respectively. Teradyne used cash for the acquisition of treasury stock of $147.5 million and $207.8 million in 2000 and 1999, respectively. Since 1996, Teradyne has used $540.8 million of cash to repurchase 20.0 million shares of its common stock on the open market though no cash was used in 2001 to repurchase shares of common stock. On October 24, 2001, Teradyne sold $400 million principal amount of 3.75% Convertible Senior Notes due 2006 (the "Notes") in a private placement and received net proceeds of $389 million. The Notes are convertible at the option of the holders at a rate which is equivalent to a conversion price of approximately $26.00 per share, which is equal to a conversion rate of approximately 38.4615 shares of common stock per $1,000 principal amount of Notes. The Notes are redeemable by Teradyne at any time after October 18, 2004 at specified prices. Teradyne will begin making annual interest payments of up to $15 million, paid semi-annually, on the Notes commencing on April 15, 2002. The Notes are senior unsecured obligations of Teradyne that rank equally with Teradyne's existing and future unsecured and unsubordinated indebtedness. In the event of a change in control by which Teradyne merges with or sells substantially all of its assets to a third party, the holders of the Notes may be able to require Teradyne to redeem some or all of the Notes either in discounted Teradyne common stock or in cash. On February 8, 2002, the Securities and Exchange Commission declared effective a Registration Statement on Form S-3 covering both the Notes and the shares of common stock into which they can be converted. On December 19, 2001, Teradyne obtained a loan of approximately $45 million in the form of a 7.5% mortgage loan maturing on January 1, 2007, (the "Mortgage"). Principal payments are made according to a twenty-year amortization schedule through December 2006, with the remaining principal due on January 1, 2007. Teradyne began making monthly principal and interest payments of $0.4 million on February 1, 2002. On October 26, 2001, Teradyne completed its acquisition of GenRad, Inc. of Westford, MA, a leading manufacturer of electronic automatic test equipment, related software and diagnostic solutions. GenRad's business has been made part of the Circuit Board Test and Inspection Systems operating segment. Under the terms of the acquisition, each outstanding share of GenRad common stock was converted into 0.1733 shares of Teradyne common stock. The total number of Teradyne shares exchanged for the shares of GenRad, based on the shares of GenRad outstanding as of the closing, was approximately 5.0 million. 21 The following table reflects Teradyne's current contractual obligations:
Non-cancelable Convertible Mortgage Lease Senior Notes Notes Other Commitments Notes Payable Payable Debt Total -------------- ----------- -------- ------- ------ -------- (in thousands) 2002......... $ 24,019 $ 1,009 $6,557 $ 254 $ 31,839 2003......... 20,417 1,088 254 21,759 2004......... 17,532 1,172 254 18,958 2005......... 14,754 1,263 254 16,271 2006......... 10,490 $400,000 1,244 254 411,988 Beyond 2006.. 34,442 44,264 1,635 80,341 -------- -------- ------- ------ ------ -------- Total........ $121,654 $400,000 $50,040 $6,557 $2,905 $581,156
Teradyne believes its cash, cash equivalents, and marketable securities balance of $586.2 million, together with a tax refund of $85.2 million received in March 2002, will be sufficient to meet working capital and expenditure needs for the foreseeable future. Depending on market conditions and funding requirements, Teradyne may seek additional external financing. Inflation has not had a significant long-term impact on earnings. Recently Issued Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interest method. In July 2001, FASB issued SFAS 142, "Goodwill and Other Intangible Assets", which is effective for Teradyne on January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization and includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, and reclassification of certain intangibles out of previously reported goodwill. In 2001, Teradyne recorded goodwill amortization of approximately $3.9 million. At December 31, 2001 Teradyne had $190.3 million of goodwill which will not be amortized. In 2002, Teradyne will record amortization of approximately $7.4 million relating to other intangibles primarily in connection with the GenRad acquisition. SFAS 142 also requires Teradyne to complete a transitional goodwill impairment test six months from the date of adoption. Teradyne has completed a preliminary evaluation of the impact of SFAS 142 and currently does not expect to record a goodwill impairment. In August 2001, FASB issued SFAS 143, "Accounting for Obligations Associated with the Retirement of Long-Lived Assets." SFAS 143 provides the accounting requirements for retirement obligations associated with tangible long-lived assets. SFAS 143 is effective for financial statements for fiscal years beginning after June 15, 2002. Teradyne has determined that SFAS 143 will not have an impact on its financial position and results of operations. In October 2001, FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 requires one method of accounting for long lived assets disposed of by sale. SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. Teradyne has adopted SFAS 144 effective January 1, 2002. SFAS 144 did not have an impact on Teradyne's financial position or results of operations. 22 Certain Factors That May Affect Future Results From time to time, information provided by Teradyne, statements made by its employees or information included in its filings with the Securities and Exchange Commission (including this Form 10-K and Teradyne's Annual Report to Shareholders) contain statements which are not purely historical facts, but are forward looking statements, made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. In particular, forward looking statements are contained in "Item 1: Business", and in "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations" relating to projections, plans, and objectives for Teradyne's business, financial condition, operating results, future economic performance or statements relating to the sufficiency of capital to meet working capital, planned capital expenditures, and expectations as to customer orders. Teradyne's actual future results may differ significantly from those stated in any forward looking statements. Factors that may cause such differences include, but are not limited to, the factors discussed below. Each of these factors, and others, are discussed from time to time in Teradyne's filings with the Securities and Exchange Commission. Teradyne's Business Is Impacted by the Slowdown in Economies Worldwide. Teradyne's business has been negatively impacted by the slowdown in the economies of the United States, Asia and elsewhere that began in the second half of 2000. The uncertainty regarding the growth rate of the worldwide economies has caused companies to reduce capital investment and may cause further reduction of such investments. These reductions have been particularly severe in the electronics and semiconductor industry which Teradyne serves and have contributed to Teradyne incurring losses in recent periods. Teradyne cannot predict if or when the growth rate of worldwide economies will rebound, whether the growth rate of its business will rebound when the worldwide economies begin to grow, or if or when Teradyne will return to profitability. While Teradyne's diverse business may allow it to perform better than some companies in periods of economic decline, the effects of the economic decline are being felt across all of Teradyne's business segments and have significantly slowed customer orders. Teradyne's Business is Dependent on the Current and Anticipated Market for Electronics. Teradyne's business and results of operations depend in significant part upon capital expenditures of manufacturers of semiconductors and other electronics, which in turn depend upon the current and anticipated market demand for those products. The current and anticipated market demand for electronics has been impacted by the economic slowdown that began in the latter portions of 2000 and the effects of the hostilities begun in September 2001. Historically, the electronic and semiconductor industry has been highly cyclical with recurring periods of over-supply, which often have had a severe negative effect on demand for test equipment, including systems manufactured and marketed by Teradyne. Teradyne believes that the markets for newer generations of electronic products such as those that Teradyne manufactures and markets will also be subject to similar fluctuations. Teradyne is dependent on the timing of customer orders and the deferral or cancellation of previous customer orders could have an adverse effect on its results of operations. Teradyne cannot assure you that the downward trend in new orders will turn around in the future or that any increase in sales or new orders for a calendar quarter will be sustained in subsequent quarters. In addition, any factor adversely affecting the electronics industry or particular segments within the electronics industry may adversely affect Teradyne's business, financial condition and operating results. Teradyne Has Taken and Expects to Continue to Take Measures to Address the Current Slowdown in the Market for Its Products Which Could Have Long-term Negative Effects on Teradyne's Business. Teradyne has taken and expects to take additional measures to address the current slowdown in the market for its products. In particular, Teradyne has reduced its workforce, frozen hiring, delayed salary increases, reduced the pay of substantially all employees, implemented furloughs, discontinued its Flash 750 memory product line, recorded asset impairment charges and reduced its planned capital expenditures and expense 23 budgets. These measures have reduced expenses in the face of decreased revenues due to decreased or cancelled customer orders. However, each measure Teradyne has taken and any additional measures taken in the future to contain expenditures could have long-term negative effects on Teradyne's business by reducing its pool of technical talent, decreasing or slowing improvements in its products, and making it more difficult for Teradyne to respond to customers or competitors. Teradyne's Business May Be Adversely Impacted by Acquisitions Which May Affect Its Ability to Manage and Maintain Its Business. Since Teradyne's inception, it has acquired a number of businesses. In the future, Teradyne may undertake additional acquisitions of businesses that complement its existing operations. Such past or future acquisitions could involve a number of risks, including: . the possibility that one or more such acquisitions may not close due to closing conditions in the acquisition agreements, the inability to obtain regulatory approval, or the inability to meet conditions imposed for government or court approvals for the transaction; . the diversion of the attention of management and other key personnel; . the inability to effectively integrate an acquired business into Teradyne's culture, product and service delivery methodology and other standards, controls, procedures and policies; . the inability to retain the management, key personnel and other employees of an acquired business; . the inability to retain the customers of an acquired business; . the possibility that Teradyne's reputation will be adversely affected by customer satisfaction problems of an acquired business; . potential known or unknown liabilities associated with an acquired business, including but not limited to regulatory, environmental and tax liabilities; . the amortization of acquired identifiable intangibles, which may adversely affect Teradyne's reported results of operations; and . litigation which has or which may arise in the future in connection with such acquisitions. For example, in connection with the August 2000 acquisition of each of Herco Technology Corp., a California company, and Perception Laminates, Inc., a California company, a complaint was filed by the former owners of those companies on or about September 5, 2001 naming as defendants Teradyne and two of its executive officers. This case is further described in "Item 3: Legal Proceedings" on this Form 10-K. Teradyne cannot predict the outcome of the lawsuit at this time, and can give no assurance that it will not materially adversely affect Teradyne's financial position or results of operations. In addition to the foregoing, any acquired business could significantly underperform relative to Teradyne's expectations. Teradyne Currently Faces, and in the Future May Be the Subject of, Securities Class Action Litigation Due to Past or Future Stock Price Volatility. When the market price of a stock has been volatile, holders of that stock sometimes institute securities class action litigation against the company that issued the stock. Currently, Teradyne and two if its executive officers are named as defendants in three purported class action complaints that were filed in the United States District Court for the District of Massachusetts, Boston, Massachusetts, on or about October 16, 2001, October 19, 2001 and November 7, 2001. The complaints allege, among other things, that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, by making, during the period from July 14, 2000 until October 17, 2000, material misrepresentations and omissions to the investing public regarding Teradyne's business operations and future prospects. The complaints seek unspecified damages, including compensatory damages and recovery of reasonable attorneys' fees and costs. Teradyne strongly believes that the purported class action complaints lack merit and it intends to defend against the claims vigorously. However, Teradyne could 24 incur substantial costs defending the lawsuits. The lawsuits could also divert the time and attention of Teradyne's management. Teradyne cannot predict the outcome of the lawsuits at this time, and can give no assurance that they will not materially adversely affect Teradyne's financial position or results of operations. Teradyne's Business May be Adversely Impacted by Divestitures of Lines of Business Which May Affect Its Ability to Manage and Maintain Its Business. Since Teradyne's inception, it has divested itself of certain lines of business. In the future, Teradyne may undertake additional such divestitures. Such past or future divestitures could involve a number of risks, including: . the diversion of the attention of management and other key personnel; . disruptions and other effects caused by the divestiture of a line of business on Teradyne's culture, product and service delivery methodology and other standards, controls, procedures and policies; . customer satisfaction problems caused by the loss of a divested line of business; and . the decreased diversification of Teradyne's product lines caused by the divestiture of a line of business which may make Teradyne's operating results subject to increased market fluctuations. If Teradyne Is Unable to Protect Its Intellectual Property, Teradyne May Lose a Valuable Asset or May Incur Costly Litigation to Protect Its Rights. Teradyne's products incorporate technology that it protects in several ways, including patents, copyrights and trade secrets. While Teradyne believes that its patents, copyrights and trade secrets have value in general, no single one is in itself essential. At times, Teradyne has been notified that it may be in violation of patents held by others. An assertion of patent infringement against Teradyne, if successful, could have a material adverse effect on its ability to sell its products, or could require a lengthy and expensive defense which could adversely affect its operating results. If Teradyne Fails to Develop New Technologies to Adapt to Its Customers' Needs and if Its Customers Fail to Accept Its New Products, Teradyne's Revenues Will Be Adversely Affected. Teradyne believes that its technological position depends primarily on the technical competence and creative ability of its engineers. Teradyne's development of new technologies, commercialization of those technologies into products, and market acceptance and customer demand for those products is critical to Teradyne's success. Successful product development and introduction depends upon a number of factors, including: . new product selection; . development of competitive products by competitors; . timely and efficient completion of product design; . timely and efficient implementation of manufacturing; and . assembly processes and product performance at customer locations. Intense Competition in Teradyne's Industry May Affect Its Revenues. Teradyne faces substantial competition throughout the world in each of its operating segments. Some of Teradyne's competitors have substantial financial and other resources to pursue engineering, manufacturing, marketing and distribution of their products. Teradyne also faces competition from internal suppliers at several of its customers. Some of Teradyne's competitors have introduced or announced new products with certain performance characteristics which may be considered equal or superior to those Teradyne currently offers. Teradyne expects its competitors to continue to improve the performance of their current products and to introduce new products or new technologies that provide improved cost of ownership and performance characteristics. New 25 product introductions by competitors could cause a decline in sales or loss of market acceptance of Teradyne's products. Moreover, increased competitive pressure could lead to intensified price based competition, which could materially adversely affect Teradyne's business, financial condition and results of operations. Teradyne Is Subject to Risks of Operating Internationally. Teradyne derives a significant portion of its total revenue from customers outside the United States. Teradyne's international sales are subject to significant risks and difficulties, including: . unexpected changes in legal and regulatory requirements and in policy changes affecting international markets; . changes in tariffs and exchange rates; . political and economic instability and acts of terrorism; . difficulties in accounts receivable collection; . difficulties in staffing and managing international operations; and . potentially adverse tax consequences, such as the World Trade Organization's dispute against the U.S. Foreign Sales Credit. Teradyne May Incur Significant Liabilities if It Fails to Comply With Environmental Regulations. Teradyne is subject to environmental regulations relating to the use, storage, discharge, site cleanup, and disposal of hazardous chemicals used in its manufacturing processes. If Teradyne fails to comply with present and future regulations, or is required to perform site remediation, Teradyne could be subject to future liabilities or the suspension of production. Present and future regulations may also: . restrict Teradyne's ability to expand its facilities; . require Teradyne to acquire costly equipment; or . require Teradyne to incur other significant costs and expenses. Teradyne Has Substantially Increased Its Indebtedness. On October 24, 2001, Teradyne completed a private placement of $400 million principal amount of 3.75% Convertible Senior Notes (the "Notes") due 2006 and received net proceeds of $389 million. On December 19, 2001, Teradyne obtained a loan of approximately $45 million in the form of a 7.5% mortgage loan maturing on January 1, 2007 (the "Mortgage"). As a result, Teradyne has incurred approximately $445 million principal amount of additional indebtedness, substantially increasing its ratio of debt to total capitalization. Teradyne may incur substantial additional indebtedness in the future. The level of Teradyne's indebtedness, among other things, could: . make it difficult for Teradyne to make payments on its debt and other obligations; . make it difficult for Teradyne to obtain any necessary future financing for working capital, capital expenditures, debt service requirements or other purposes; . require the dedication of a substantial portion of any cash flow from operations to service for indebtedness, thereby reducing the amount of cash flow available for other purposes, including capital expenditures; . limit Teradyne's flexibility in planning for, or reacting to changes in, its business and the industries in which Teradyne competes; . place Teradyne at a possible competitive disadvantage with respect to less leveraged competitors and competitors that have better access to capital resources; and . make Teradyne more vulnerable in the event of a further downturn in its business. There can be no assurance that Teradyne will be able to meet its debt service obligations, including its obligations under the Notes and the Mortgage. 26 Teradyne May Not Be Able to Satisfy a Change in Control Offer. The indenture governing the Notes contains provisions that apply to a change in control of Teradyne. If someone triggers a change in control as defined in the indenture, Teradyne may be required to offer to purchase the Notes with cash. If Teradyne has to make that offer, Teradyne cannot be sure that it will have enough funds to pay for all the Notes that the holders could tender. In the event of a change in control of Teradyne, the mortgage lender may elect to declare all amounts due under the Mortgage to be immediately due and payable, and may elect to take possession of or sell the property subject to the Mortgage. Teradyne May Not Be Able to Pay Its Debt and Other Obligations. If Teradyne's cash flow is inadequate to meet its obligations, Teradyne could face substantial liquidity problems. If Teradyne is unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on the Notes, the Mortgage, or certain of its other obligations, Teradyne would be in default under the terms thereof, which would permit the holders of those obligations to accelerate their maturity and also could cause defaults under future indebtedness Teradyne may incur. Any such default could have a material adverse effect on Teradyne's business, prospects, financial position and operating results. In addition, Teradyne cannot assure that it would be able to repay amounts due in respect of the Notes or the Mortgage if payment of those obligations were to be accelerated following the occurrence of any other event of default as defined in the instruments creating those obligations. Moreover, Teradyne cannot assure that it will have sufficient funds or will be able to arrange for financing to pay the principal amount due on the Notes or the Mortgage at their respective maturities. Teradyne May Need Additional Financing, Which Could Be Difficult to Obtain. Teradyne expects that its existing cash and marketable securities, cash generated from operations, the proceeds of the Notes offering in October 2001 and the proceeds from the Mortgage financing in December 2001, will be sufficient to meet Teradyne's cash requirements to fund operations and expected capital expenditures for the foreseeable future. In the event Teradyne may need to raise additional funds, Teradyne cannot be certain that it will be able to obtain such additional financing on favorable terms, if at all. Further, if Teradyne issues additional equity securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of common stock. Future financings may place restrictions on how Teradyne operates its business. If Teradyne cannot raise funds on acceptable terms, if and when needed, Teradyne may not be able to develop or enhance its products and services, take advantage of future opportunities, grow its business or respond to competitive pressures, which could seriously harm Teradyne's business. Provisions of Teradyne's Charter and By-Laws and Massachusetts Law Make a Takeover of Teradyne More Difficult. Teradyne's basic corporate documents, its stockholder rights plan, and Massachusetts law contain provisions that could discourage, delay or prevent a change in the control of Teradyne, even if a change of control might be regarded as beneficial to some or all of Teradyne's stockholders. Teradyne's Operating Results Are Likely to Fluctuate Significantly. Teradyne's quarterly and annual operating results are affected by a wide variety of factors that could materially adversely affect revenues and profitability, including: . competitive pressures on selling prices; . the timing of customer orders and the deferral or cancellation of orders previously received; . provisions for excess and obsolete inventory; . changes in product mix; . Teradyne's ability to introduce new products and technologies on a timely basis; . the introduction of products and technologies by Teradyne's competitors; 27 . market acceptance of Teradyne's and its competitors' products; . fulfilling backlog on a timely basis; . reliance on sole source suppliers; . potential retrofit costs; . the level of orders received which can be shipped in a quarter; and . the timing of investments in engineering and development. In particular, due to Teradyne's introduction of a number of new, complex test systems in 2001 and the planned introduction of other such systems in 2002, there can be no assurance that Teradyne will not experience delays in shipment of its products or that its products will achieve customer acceptance. As a result of the foregoing and other factors, Teradyne has and may continue to experience material fluctuations in future operating results on a quarterly or annual basis which could materially and adversely affect its business, financial condition, operating results and stock price. Item 7a: Quantitative and Qualitative Disclosures About Market Risks Concentration of Credit Risk Financial instruments which potentially subject Teradyne to concentrations of credit risk consist principally of cash investments, forward currency contracts, and accounts receivable. Teradyne maintains cash investments primarily in U.S. Treasury and government agency securities and corporate debt securities, rated AA or higher, which have minimal credit risk. Teradyne places forward currency contracts with high credit-quality financial institutions in order to minimize credit risk exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of geographically dispersed customers. Teradyne performs ongoing credit evaluations of its customers' financial condition and does not require collateral to secure accounts receivable. Exchange Rate Risk Management Teradyne regularly enters into forward contracts in European and Japanese currencies to hedge its overseas net monetary position and has in the past entered into forward contracts to hedge non-U.S. currency forecasted transactions. Forward currency contracts generally have maturities of less than one year. These contracts are used to reduce Teradyne's risk associated with exchange rate movements, as gains and losses on these contracts are intended to offset exchange losses and gains on underlying exposures. Teradyne does not engage in currency speculation. At December 31, 2001, the face amount of outstanding forward currency contracts to buy U.S. dollars to hedge those currency exposures associated with certain assets and liabilities denominated in non-functional currencies was $11.0 million. A 10% fluctuation in exchange rates for these currencies would change the fair value by approximately $1.3 million. However, since these contracts hedge non-U.S. currency assets and liabilities, any change in the fair value of the contracts would be offset by opposite changes in the underlying value of these assets and liabilities being hedged. The hypothetical movement was estimated by calculating the fair value of the forward currency contracts at December 31, 2001 and comparing that with those calculated using hypothetical forward currency exchange rates. Interest Rate Risk Management At December 31, 2001, the fair value of outstanding short and long-term marketable securities was approximately $270.0 million. A hypothetical 10% increase in interest rates for securities contained in the investment portfolio would change the fair value by approximately $2.3 million. Market risk was estimated as the potential decrease in the fair value resulting from a hypothetical increase in interest rates for issues contained in the investment portfolio. 28 REPORT OF MANAGEMENT Management is responsible for the preparation and integrity of the consolidated financial statements appearing in this Annual Report on Form 10-K. The financial statements were prepared in conformity with accounting principles generally accepted in the United States of America appropriate in the circumstances and, accordingly, include some amounts based on management's best judgments and estimates. Financial information in this Annual Report on Form 10-K is consistent with that in the financial statements. Management is responsible for maintaining a system of internal business controls and procedures to provide reasonable assurance, at an appropriate cost/benefit relationship, that assets are safeguarded and that transactions are authorized, recorded and reported properly. The internal control system is augmented by appropriate reviews by management, written policies and guidelines, careful selection and training of qualified personnel and a written code of business ethics applicable to all employees of Teradyne and its subsidiaries. Management believes that Teradyne's internal controls provide reasonable assurance that assets are safeguarded against material loss from unauthorized use or disposition and that the financial records are reliable for preparing financial statements and other data and maintaining accountability for assets. The Audit Committee of the Board of Directors, composed solely of Directors who are not employees or officers of Teradyne, meets periodically with the independent accountants, internal auditors and management to discuss internal business controls, auditing and financial reporting matters. The Audit Committee reviews with the independent accountants the scope and results of the audit. The Audit Committee also meets with the independent accountants without management present to ensure that the independent accountants have free access to the Audit Committee. The independent accountants, PricewaterhouseCoopers LLP, are engaged to audit the consolidated financial statements of Teradyne and to conduct such tests and related procedures as they deem necessary in accordance with auditing standards generally accepted in the United States of America. The opinion of the independent accountants, based upon their audits of the consolidated financial statements, is contained in this Annual Report on Form 10-K. /S/ GEORGE W. CHAMILLARD - ------------------------------------------ George W. Chamillard Chairman, President and Chief Executive Officer /S/ GREGORY R. BEECHER - ------------------------------------------ Gregory R. Beecher Vice President and Chief Financial Officer March 29, 2002 29 Item 8: Financial Statements and Supplementary Data REPORT OF INDEPENDENT ACCOUNTANTS To the Directors and Shareholders of Teradyne, Inc.: In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) present fairly, in all material respects, the financial position of Teradyne, Inc. and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note C to the consolidated financial statements, during the year ended December 31, 2000 the Company changed its method of recognizing revenue. PricewaterhouseCoopers LLP Boston, Massachusetts January 15, 2002 30 TERADYNE, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2001 AND 2000
2001 2000 ---------- ---------- (in thousands) ASSETS Current assets: Cash and cash equivalents.................................................................. $ 317,591 $ 242,421 Marketable securities...................................................................... 50,096 60,154 Accounts receivable, less allowance for doubtful accounts of $6,294 and $5,176 in 2001 and 2000, respectively........................................................................ 169,630 420,040 Income tax receivable and prepaid amounts.................................................. 97,000 11,206 Inventories................................................................................ Parts.................................................................................... 262,520 318,790 Assemblies in process.................................................................... 132,097 159,123 Finished goods........................................................................... 12,372 34,650 ---------- ---------- 406,989 512,563 Deferred tax assets........................................................................ 141,013 93,958 Prepayments and other current assets....................................................... 24,703 37,492 ---------- ---------- Total current assets.................................................................... 1,207,022 1,377,834 Property, plant, and equipment:.............................................................. Land....................................................................................... 73,141 54,774 Buildings and improvements................................................................. 348,710 293,124 Machinery and equipment.................................................................... 918,163 831,539 Construction in progress................................................................... 104,515 75,520 ---------- ---------- Total................................................................................... 1,444,529 1,254,957 ---------- ---------- Less: Accumulated depreciation............................................................. (608,963) (521,171) ---------- ---------- Net property, plant, and equipment...................................................... 835,566 733,786 Marketable securities........................................................................ 218,544 161,848 Deferred tax assets--long-term............................................................... 4,313 -- Goodwill..................................................................................... 190,276 52,673 Intangible and other assets.................................................................. 86,670 29,727 ---------- ---------- Total assets............................................................................ $2,542,391 $2,355,868 ========== ========== LIABILITIES Current liabilities: Notes payable--banks....................................................................... $ 6,557 $ 7,389 Current portion of long-term debt.......................................................... 1,263 169 Accounts payable........................................................................... 59,761 153,897 Accrued employees' compensation and withholdings........................................... 98,519 149,845 Deferred revenue and customer advances..................................................... 52,220 183,465 Other accrued liabilities.................................................................. 76,519 86,637 Accrued income taxes....................................................................... 1,292 28,914 ---------- ---------- Total current liabilities............................................................... 296,131 610,316 Long-term other accrued liabilities.......................................................... 30,194 8,972 Deferred tax liabilities..................................................................... -- 21,257 Long-term debt............................................................................... 451,682 8,352 Commitments and contingencies (Note J)....................................................... ---------- ---------- Total liabilities............................................................................ 778,007 648,897 ---------- ---------- SHAREHOLDERS' EQUITY Common stock, $0.125 par value, 1,000,000 shares authorized, 181,119 and 172,559 net shares issued and outstanding in 2001 and 2000, respectively....................................... 22,640 21,570 Additional paid-in capital................................................................... 600,541 334,241 Accumulated other comprehensive loss......................................................... (7,742) -- Retained earnings............................................................................ 1,148,945 1,351,160 ---------- ---------- Total shareholders' equity.............................................................. 1,764,384 1,706,971 ---------- ---------- Total liabilities and shareholders' equity.............................................. $2,542,391 $2,355,868 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 31 TERADYNE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, --------------------------------------- 2001 2000 1999 ---------- ---------- ---------- (in thousands, except per share amounts Net sales..................................................... $1,440,581 $3,043,946 $1,790,912 Expenses: Cost of sales................................................. 1,022,049 1,607,374 1,004,216 Cost of sales - inventory provision and other charges......... 159,759 -- -- Engineering and development................................... 288,657 348,024 261,861 Selling and administrative.................................... 270,084 377,783 266,637 Restructuring and other charges............................... 52,877 -- -- ---------- ---------- ---------- 1,793,426 2,333,181 1,532,714 ---------- ---------- ---------- (Loss) income from operations................................. (352,845) 710,765 258,198 Interest income............................................... 22,743 25,106 17,307 Interest expense.............................................. (4,091) (1,841) (1,656) Other income and expense, net................................. 8,040 5,618 -- ---------- ---------- ---------- (Loss) income before income taxes and cumulative effect of change in accounting principle.............................. (326,153) 739,648 273,849 (Benefit) provision for income taxes.......................... (123,938) 221,894 82,155 ---------- ---------- ---------- (Loss) income before cumulative effect of change in accounting principle................................................... (202,215) 517,754 191,694 Cumulative effect of change in accounting principle, net of applicable tax of $27,488 (Note C).......................... -- (64,138) -- ---------- ---------- ---------- Net (loss) income............................................. $ (202,215) $ 453,616 $ 191,694 ========== ========== ========== (Loss) income per common share before cumulative effect of change in accounting principle -- basic..................... $ (1.15) $ 2.99 $ 1.12 ========== ========== ========== Cumulative effect of change in accounting principle -- basic.. $ - $ (0.37) $ - ========== ========== ========== Net (loss) income per common share -- basic................... $ (1.15) $ 2.62 $ 1.12 ========== ========== ========== (Loss) income per common share before cumulative effect of change in accounting principle -- diluted................... $ (1.15) $ 2.86 $ 1.07 ========== ========== ========== Cumulative effect of change in accounting principle -- diluted $ - $ (0.35) $ - ========== ========== ========== Net (loss) income per common share -- diluted................. $ (1.15) $ 2.51 $ 1.07 ========== ========== ========== Shares used in net income per common share -- basic........... 175,828 173,312 170,519 ========== ========== ========== Shares used in net income per common share -- diluted......... 175,828 181,011 178,550 ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 32 TERADYNE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Common Accumulated Shares Stock Additional Other ------------------ Par Paid-in Comprehensive Retained Issued Reacquired Value Capital Loss Earnings ------- ---------- ------- ---------- ------------- ---------- (in thousands) Balance, December 31, 1998................................... 92,411 8,667 $10,468 $ 310,052 $ 0 $ 705,850 Issuance of stock to employees under benefit plans........... 3,205 401 60,730 Repurchase of stock.......................................... 1,366 (171) (86,980) Two-for-one stock split effected in the form of a 100% stock dividend.................................................... 95,616 10,033 10,698 (10,698) Issuance of stock to employees under benefit plans after two- for-one stock split......................................... 1,973 246 20,947 Tax benefit from stock options............................... 60,462 Repurchase of stock after two-for-one stock split............ 2,820 (352) (120,315) Comprehensive income: Net income................................................... 191,694 Total comprehensive income................................. ------- ------ ------- --------- -------- ---------- Balance, December 31, 1999................................... 193,205 22,886 $21,290 $ 234,198 $ 0 $ 897,544 Issuance of stock to employees under benefit plans........... 4,168 521 54,742 Tax benefit from stock options............................... 88,046 Shares issued to effect acquisition.......................... 1,841 230 104,256 Repurchase of stock.......................................... 3,769 (471) (147,001) Comprehensive income: Net income................................................... 453,616 Total comprehensive income................................. ------- ------ ------- --------- -------- ---------- Balance, December 31, 2000................................... 199,214 26,655 $21,570 $ 334,241 $ 0 $1,351,160 Issuance of stock to employees under benefit plans........... 3,609 451 58,092 Tax benefit from stock options............................... 23,319 Shares issued to effect acquisition.......................... 4,951 619 184,889 Comprehensive income: Net loss..................................................... (202,215) Unrealized gains on investments, net of tax of $2,168........ 3,546 Additional minimum pension liability, net of tax of $6,918... (11,288) Total comprehensive loss................................... ------- ------ ------- --------- -------- ---------- Balance, December 31, 2001................................... 207,774 26,655 $22,640 $ 600,541 $ (7,742) $1,148,945 ======= ====== ======= ========= ======== ==========
Total Shareholders' Comprehensive Equity Income (Loss) ------------- ------------- (in thousands) Balance, December 31, 1998................................... $1,026,370 Issuance of stock to employees under benefit plans........... 61,131 Repurchase of stock.......................................... (87,151) Two-for-one stock split effected in the form of a 100% stock dividend.................................................... 0 Issuance of stock to employees under benefit plans after two- for-one stock split......................................... 21,193 Tax benefit from stock options............................... 60,462 Repurchase of stock after two-for-one stock split............ (120,667) Comprehensive income: Net income................................................... 191,694 $ 191,694 --------- Total comprehensive income................................. $ 191,694 ---------- ========= Balance, December 31, 1999................................... $1,153,032 Issuance of stock to employees under benefit plans........... 55,263 Tax benefit from stock options............................... 88,046 Shares issued to effect acquisition.......................... 104,486 Repurchase of stock.......................................... (147,472) Comprehensive income: Net income................................................... 453,616 $ 453,616 --------- Total comprehensive income................................. $ 453,616 ---------- ========= Balance, December 31, 2000................................... $1,706,971 Issuance of stock to employees under benefit plans........... 58,543 Tax benefit from stock options............................... 23,319 Shares issued to effect acquisition.......................... 185,508 Comprehensive income: Net loss..................................................... (202,215) $(202,215) Unrealized gains on investments, net of tax of $2,168........ 3,546 3,546 Additional minimum pension liability, net of tax of $6,918... (11,288) (11,288) --------- Total comprehensive loss................................... $(209,957) ---------- ========= Balance, December 31, 2001................................... $1,764,384 ==========
The accompanying notes are an integral part of the consolidated financial statements. 33 TERADYNE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------------- 2001 2000 1999 --------- --------- --------- (in thousands) Cash flows from operating activities: Net (loss) income..................................................................... $(202,215) $ 453,616 $ 191,694 Adjustments to reconcile net (loss) income to net cash (used for) provided by operating activities: Depreciation........................................................................ 130,949 99,929 85,279 Amortization........................................................................ 7,719 1,933 1,107 Gain on sale of business............................................................ (14,779) -- -- Impairment of fixed assets.......................................................... 32,261 -- -- Provision for doubtful accounts..................................................... 1,192 1,337 1,407 Deferred income tax provision (credit).............................................. (47,091) (44,242) (4,101) Other non-cash items, net........................................................... 14,869 (10,997) 4,354 Changes in operating assets and liabilities, net of businesses sold and acquired: Accounts receivable................................................................ 285,232 (115,267) (78,263) Inventories........................................................................ 158,669 (235,319) (2,346) Other assets....................................................................... (74,688) 7,589 (24,576) Accounts payable and accruals...................................................... (364,491) 226,798 115,750 Accrued income taxes............................................................... (6,599) 85,482 77,171 --------- --------- --------- Net cash (used for) provided by operating activities.................................... (78,972) 470,859 367,476 --------- --------- --------- Cash flows from investing activities: Additions to property, plant, and equipment......................................... (198,180) (235,189) (119,780) Increase in equipment manufactured by the Company................................... (43,269) (63,053) (31,376) Proceeds from sale of business, net of expenses..................................... 26,250 -- -- Purchases of held-to-maturity marketable securities................................. (230,255) (409,180) (177,650) Maturities of held-to-maturity marketable securities................................ 156,984 394,006 118,990 Purchases of available-for-sale marketable securities............................... (1,876) (177,864) (204,824) Proceeds from sales and maturities of available-for-sale marketable securities...... 31,415 177,104 169,824 Cash acquired in acquisition........................................................ 11,593 1,885 -- --------- --------- --------- Net cash used by investing activities................................................... (247,338) (312,291) (244,816) --------- --------- --------- Cash flows from financing activities: Proceeds from convertible notes, net................................................ 389,000 -- -- Proceeds from mortgage notes payable................................................ 45,000 -- -- Payments of long-term debt.......................................................... (91,063) (5,283) (1,333) Issuance of common stock under stock option and stock purchase plans................ 58,543 55,263 82,323 Acquisition of treasury stock....................................................... -- (147,472) (207,819) --------- --------- --------- Net cash provided by (used for) financing activities.................................... 401,480 (97,492) (126,829) --------- --------- --------- Increase (decrease) in cash and cash equivalents........................................ 75,170 61,076 (4,169) Cash and cash equivalents at beginning of year.......................................... 242,421 181,345 185,514 --------- --------- --------- Cash and cash equivalents at end of year................................................ $ 317,591 $ 242,421 $ 181,345 ========= ========= ========= Supplementary disclosure of cash flow information: Cash paid (received) during the year for: Interest........................................................................... $ 1,275 $ 1,728 $ 1,615 Income taxes (received) paid....................................................... $ (16,119) $ 130,416 $ 22,747 Businesses acquired: Fair value of assets acquired...................................................... $ 357,733 $ 119,887 Liabilities assumed................................................................ $ 166,257 $ 15,401 Common stock issued................................................................ $ 185,508 $ 104,486
The accompanying notes are an integral part of the consolidated financial statements. 34 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. THE COMPANY Teradyne, Inc. is the world's largest supplier of automatic test equipment and is also a leading provider of high performance interconnection systems and electronic manufacturing services. Teradyne's automatic test equipment products include systems that: . test semiconductors ("Semiconductor Test Systems"); . test and inspect circuit-boards ("Circuit Board Test and Inspection Systems"); and . test high speed voice and data communication ("Broadband Test Systems"). Teradyne's interconnection systems products and services ("Connection Systems") include: . high bandwidth backplane assemblies and associated connectors used in electronic systems; and . electronic manufacturing services of assemblies that include Teradyne backplanes and connectors. Broadband Test Systems, Diagnostic Solutions, and, prior to 2001, Software Test Systems have been combined into "Other Test Systems" for purposes of disclosing Teradyne's reportable segments. B. ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of Teradyne and its subsidiaries. All significant intercompany balances and transactions are eliminated. Certain prior years' amounts were reclassified to conform to the current year presentation. Certain costs in 2001, 2000, and 1999 have been reclassified from cost of sales into engineering and development and selling and administrative. These reclassified costs consist of new product development costs incurred in manufacturing engineering, test technology and applications engineering costs supporting sales. The costs reclassified from cost of sales to engineering and development represent work performed to develop and implement manufacturing and test processes focused on the introduction of new product platforms. The costs reclassified from cost of sales to selling and administrative represent the development of applications programming used to demonstrate new product capabilities. On October 26, 2001 Teradyne completed its acquisition of GenRad, Inc. of Westford, MA, a leading manufacturer of electronic automatic test equipment, related software and diagnostic solutions. The GenRad business has been made part of the Circuit Board Test and Inspection Systems operating segment. GenRad activity is reflected in Teradyne's results of operations since the acquisition date. Preparation of Financial Statements and Use of Estimates The preparation of consolidated financial statements requires Teradyne to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, Teradyne evaluates its estimates, including those related to inventories, investments, intangible and other long-lived assets, bad debts, income taxes, pensions, warranties, contingencies and litigation. Teradyne bases its estimates on historical experience and on appropriate and customary assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 35 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) B. ACCOUNTING POLICIES--(Continued) Revenue Recognition In accordance with the guidance provided by the Securities and Exchange Commission's Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements", Teradyne recognizes revenue when there is persuasive evidence of an arrangement, title and risk of loss have passed, delivery has occurred or the services have been rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably assured. For equipment where there is hardware and software that is incidental to the product, revenue is recognized upon shipment provided that customer acceptance criteria can be demonstrated prior to shipment. Where the criteria cannot be demonstrated prior to shipment, or in the case of new products, revenue is deferred until acceptance has been received. For multiple element arrangements, Teradyne defers the greater of the fair value of any undelivered elements of the contract or the portion of the sales price which is not payable until the undelivered elements are delivered. Teradyne also defers the portion of the sales price that is not due until acceptance, which represents deferred profit. Fair value is the price charged when the element is sold separately. In order to recognize revenue the functionality of the undelivered element must not be essential to the delivered element. Installation is not considered essential to the functionality of the product as these services do not alter the product capabilities, do not require specialized skills or tools and can be performed by the customers or other vendors. In addition to installation, other elements may include service arrangements and undelivered products. Teradyne's products are generally subject to warranty and related costs are provided for in cost of sales when product revenue is recognized. Interconnection systems and electronic manufacturing assembly services revenue is recognized upon shipment or delivery according to the shipping terms of the arrangement as there is no installation required and there are no contractual acceptance requirements. For transactions involving the sale of software which is not incidental to the product, revenue is recognized in accordance with American Institute of Certified Public Accountants ("AICPA") Statement of Position No. 97-2 (SOP No. 97-2), "Software Revenue Recognition", as amended by SOP No. 98-9 "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions." Teradyne recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred, the sales price is fixed or determinable and collectibility is probable. Revenue is deferred in instances when vendor specific objective evidence of fair value of undelivered elements is not determinable. Vendor specific evidence of fair value is the price charged when the element is sold separately. Revenue for the separate elements is only recognized where the functionality of the undelivered element is not essential to the delivered element. For certain contracts eligible for contract accounting under SOP No. 81-1 "Accounting for Performance of Construction-type and Certain Production-Type Contracts", revenue is recognized using the percentage-of-completion accounting method based upon an efforts-expended method. The software in these arrangements requires significant production, modification or customization. In all cases, changes to total estimated costs and anticipated losses, if any, are recognized in the period in which determined. Inventories Inventories which include materials, labor and manufacturing overhead are stated at the lower of cost (first-in, first-out basis) or net realizable value. On a quarterly basis, Teradyne uses consistent methodologies to evaluate all inventory for net realizable value. Teradyne records a provision for excess and obsolete inventory when such an impairment is identified through the quarterly review process. Excess and obsolete inventory, consisting of on-hand and non-cancelable on-order inventory, in excess of estimated usage over the next 12 months is written down to its estimated net realizable value, if less than cost. The excess and obsolescence evaluation is based upon assumptions about future demand, product mix and possible alternative uses. 36 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) B. ACCOUNTING POLICIES--(Continued) Property, Plant, and Equipment Property, plant, and equipment are stated at cost and depreciated over the estimated useful lives of the assets. Leasehold improvements and major renewals are capitalized and included in property, plant, and equipment accounts while expenditures for maintenance and repairs and minor renewals are charged to expense. When assets are retired, the assets and related allowances for depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in operations. Teradyne provides for depreciation of its assets principally on the straight-line method with the cost of the assets being charged to expense over their useful lives as follows:
Buildings........................... 40 years Buildings improvements.............. 5 to 10 years Leasehold improvements.............. 5 to 10 years Furniture and fixtures.............. 10 years Test systems manufactured internally 6 years Machinery and equipment............. 3 to 5 years Software............................ 3 to 5 years Test technology..................... 2 years
Goodwill and Intangible and Other Assets Goodwill and intangible assets are amortized over their estimated useful economic life using the straight line method and are carried at cost less accumulated amortization. Goodwill resulting from the GenRad acquisition which was completed after June 30, 2001 is not being amortized in accordance with the requirements of SFAS No. 142, "Goodwill and Other Intangible Assets". Beginning January 1, 2002 all other goodwill amortization will cease in accordance with SFAS No. 142. In accordance with Statement of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", Teradyne reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the estimated undiscounted cash flows to the recorded value of the asset. If an impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis. The cash flow estimates used to determine the impairment, if any, contain management's best estimates using appropriate assumptions and projections at that time. Engineering and Development Costs Teradyne's products are highly technical in nature and require a large and continuing engineering and development effort. Software development costs incurred prior to the establishment of technological feasibility are charged to expense. Software development costs incurred subsequent to the establishment of technological feasibility are capitalized until the product is available for release to customers. To date, the period between achieving technological feasibility and general availability of the product has been short and software development costs eligible for capitalization have not been material. Engineering and development costs are expensed as incurred. 37 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) B. ACCOUNTING POLICIES--(Continued) Advertising Costs Teradyne expenses all advertising costs as incurred. Advertising costs were $10.3 million, $16.8 million, and $9.0 million in 2001, 2000, and 1999, respectively. Investments in Other Companies Teradyne holds minority interests in public and private companies having operations or technology in areas within its strategic focus. These investments are included in other long-term assets and include investments accounted for at cost and under the equity method of accounting. Under the equity method of accounting, which generally applies to investments that represent a 20 to 50 percent ownership of the equity securities of the investees, Teradyne's proportionate share of the earnings or losses of the investees is included in other income and expense. Teradyne records an impairment charge when it believes an investment has experienced a decline in value that is other-than-temporary. At December 31, 2001, these investments were $14.4 million. Income Taxes Deferred tax assets and liabilites are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. U.S. Federal taxes are provided for on the retained earnings of non-U.S. sales and service subsidiaries whose earnings are expected to be remitted to the United States. U.S. Federal taxes are not provided for on the earnings of a non-U.S. manufacturing subsidiary which are expected to be reinvested indefinitely in operations outside the U.S. Translation of Non U.S. Currencies Assets and liabilities of non U.S. subsidiaries, which are denominated in currencies other than the U.S. dollar, are remeasured into U.S. dollars at rates of exchange in effect at the end of the fiscal year except nonmonetary assets and liabilities which are remeasured using historical exchange rates. Revenue and expense amounts are remeasured using an average of exchange rates in effect during the year, except those amounts related to nonmonetary assets and liabilities, which are remeasured at historical exchange rates. Net realized gains and losses resulting from currency remeasurement are included in operations. Net Income (Loss) per Common Share Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is calculated by dividing net income (loss) by the sum of the weighted average number of common shares plus 38 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) B. ACCOUNTING POLICES--(Continued) additional common shares that would have been outstanding if potential dilutive common shares had been issued for granted stock option and stock purchase rights. Other Comprehensive Income (Loss) Teradyne reports comprehensive income (loss) in accordance with Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). Comprehensive income (loss) includes net income (loss), minimum pension liability adjustments, and unrealized gains and losses on certain investments in debt and equity securities. C. CHANGE IN ACCOUNTING PRINCIPLE In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). SAB 101 summarizes certain areas of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. During the fourth quarter of 2000, Teradyne implemented the SEC's SAB 101 guidelines, retroactive to the beginning of the year. This was reported as a cumulative effect of a change in accounting principle as of January 1, 2000. The cumulative effect of the change in accounting principle on prior years resulted in a charge to income of $64.1 million (net of income taxes of $27.5 million) or $0.35 per diluted share which has been included in income for the fiscal year ending December 31, 2000. For the fiscal year ending December 31, 2000, Teradyne recognized $126.1 million in revenue that is included in the cumulative effect adjustment as of January 1, 2000. The results for the first three quarters of fiscal year ending December 31, 2000 have been restated in accordance with SAB 101. Included in 2001 sales was $98.7 million which resulted in $48.8 million of income (net of tax of $20.9 million) related to shipments in 2000 where title was retained until payment. Title is no longer retained until payment as a normal business practice. Prior years do not reflect the change in accounting principle as the effect could not be reasonably determined. D. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interest method. In July 2001, FASB issued SFAS 142, "Goodwill and Other Intangible Assets", which is effective for Teradyne on January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization and includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, and reclassification of certain intangibles out of previously reported goodwill. In 2001, Teradyne recorded goodwill amortization of approximately $3.9 million. At December 31, 2001 Teradyne had goodwill of $190.3 million which will not be amortized. In 2002, Teradyne will record amortization of approximately $7.4 million relating to other intangibles primarily in connection with the GenRad acquisition. SFAS 142 also requires Teradyne to complete a transitional goodwill impairment test six months from the date of adoption. Teradyne has completed a preliminary evaluation of the impact of SFAS 142 and currently does not expect to record a goodwill impairment. In August 2001, FASB issued SFAS 143, "Accounting for Obligations Associated with the Retirement of Long-Lived Assets." SFAS 143 provides the accounting requirements for retirement obligations associated with tangible long-lived assets. SFAS 143 is effective for financial statements for fiscal years beginning after June 15, 2002. Teradyne has determined that SFAS 143 will not have an impact on its financial position and results of operations. 39 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) D. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS--(Continued) In October 2001, FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 requires one method of accounting for long lived assets disposed of by sale. SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. Teradyne has adopted SFAS 144 effective January 1, 2002. SFAS 144 did not have an impact on Teradyne's financial position or results of operations. E. RISKS AND UNCERTAINTIES Teradyne's future results of operations involve a number of risks and uncertainties. These factors include, but are not limited to, the slowdown in economies worldwide, the effects of the hostilities begun in September 2001, the current and anticipated market for electronics, risks associated with any measures Teradyne takes to address the current slowdown in the market, enforcement of Teradyne's intellectual property rights, failure to develop new technologies, risks associated with acquisitions and divestitures, securities class action litigation due to past or future stock activity, competition, risks of operating internationally, risks associated with obligations and potential liabilities under environmental regulations, Teradyne's debt service obligations with respect to its recent sale of convertible senior notes and a mortgage financing with respect to certain of its owned real estate assets, the difficulty in obtaining future financing if needed, provisions of Teradyne's charter and by-laws and Massachusetts law that make a takeover of Teradyne more difficult, competitive pricing pressures, changes in product mix, timing of customer orders or any deferral or cancellation of orders previously received, market acceptance of Teradyne's products, new product introductions from Teradyne's competitors, reliance on sole source suppliers, potential retrofit costs, and the timing of investments in engineering and development. At present, Teradyne cannot say how long the current business downturn will last or when the situation will improve. In the absence of significant improvement, orders could remain low or decline further, and the amount of Teradyne's inventory, deferred tax assets, and certain long-lived assets considered realizable could be significantly reduced. F. ACQUISITIONS AND DIVESTITURES On October 26, 2001 Teradyne completed its acquisition of GenRad, Inc. of Westford, MA, a leading manufacturer of electronic automatic test equipment, related software, and diagnostic solutions. GenRad's business has been made part of the Circuit Board Test and Inspection Systems operating segment. Under the terms of the acquisition, each outstanding share of GenRad common stock was converted into 0.1733 shares of Teradyne common stock. Under the terms of the acquisition, Teradyne assumed approximately $89.7 million of debt which Teradyne repaid on October 26, 2001. The results of GenRad have been included since the acquisition date. The primary reasons for Teradyne's acquisition of GenRad, and the factors that contributed to a purchase price that resulted in recognition of goodwill, are: . the combination of Teradyne's circuit board test systems with GenRad will strengthen Teradyne's product offerings; . Teradyne's global presence in Europe and Asia among large electronics manufacturing services companies and original equipment manufacturers in the circuit board test and inspection markets will be strengthened as a result of the acquisition; and . to enable Teradyne to compete more effectively in the circuit board test and inspection markets. Based on the exchange ratio of 0.1733 shares of Teradyne common stock for each GenRad share, Teradyne issued approximately 5.0 million common shares and 1.2 million vested employee stock options in the exchange, which increased common stockholders' equity by approximately $185.5 million. The common stock was valued at $34.90 per share, which was Teradyne's average common stock price over a five-day trading period, which 40 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) F. ACQUISITIONS AND DIVESTITURES--(Continued) included the public announcement date of August 2, 2001 and two days before and after the public announcement date. The employee stock options were valued using the Black-Scholes option pricing model, based on following assumptions prevalent at the August 2001 announcement date:
Expected life (years). 6.0 Interest rate..... 4.1% Volatility........ 63.2% Dividend yield.... 0.0%
This transaction was accounted for using the purchase method of accounting as required by SFAS 141, "Business Combinations," which was issued in the second quarter of 2001. The purchase price allocation is preliminary and subject to future adjustment based on the completion of facility exit and restructuring plans. Based on the purchase price allocation, the following table summarizes the fair values of the assets acquired and liabilities assumed on October 26, 2001:
(in thousands) Consideration: Common stock issued........................ $172,761 Employee stock options..................... 12,747 Transaction costs.......................... 5,968 -------- Total consideration...................... $191,476 ======== Assets and liabilities acquired: Cash and cash equivalents.................. $ 11,593 Accounts receivable........................ 40,124 Inventories................................ 57,863 Other current assets....................... 7,847 Property, plant, & equipment............... 28,445 Long-term net deferred tax asset........... 25,534 Intangible assets.......................... 44,700 -------- Total identifiable assets acquired....... 216,106 -------- Accounts payable............................ 23,956 Accrued employees' compensation and benefits 28,032 Other accrued liabilities................... 13,919 Deferred revenue............................ 10,700 Long-term debt.............................. 89,650 -------- Total liabilities acquired............... 166,257 -------- Total net identifiable assets acquired... 49,849 -------- Goodwill.................................... 141,627 -------- Total net assets acquired................ $191,476 ========
The $44.7 million of intangible assets consists of $35.6 million of completed technology, $5.3 million of service and software maintenance contracts and customer relationships, and $3.8 million of tradenames and trademarks. The intangible assets are subject to amortization with a weighted average amortization period of 7 years. 41 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) F. ACQUISITIONS AND DIVESTITURES--(Continued) Goodwill related to the GenRad acquisition is reported as part of the Circuit Board Test and Inspection Systems segment. The following unaudited pro forma data presents information as if GenRad had been acquired at the beginning of each period presented. The pro forma amounts include an adjustment for amortization of intangibles of $5.1 million in 2001 and $6.2 million in 2000. The pro forma amounts do not reflect any benefits from economies which might be achieved from combining the operations. The pro forma information does not necessarily reflect the actual results that would have occurred had the companies been combined during the periods presented, nor is it necessarily indicative of the future results of operations of the combined companies:
Year Ended ---------------------- 2001 2000 (in thousands except per share amounts) ---------- ---------- Revenue............................................................................ $1,609,374 $3,385,601 (Loss) income before cumulative effect of change in accounting principle........... (361,811) 535,079 Net (loss) income.................................................................. (361,811) 470,941 (Loss) income before cumulative effect of change in accounting principle--per share of common stock.................................................................. Basic........................................................................... $ (2.01) $ 3.00 Diluted......................................................................... $ (2.01) $ 2.88 (Loss) income--per share of common stock........................................... Basic........................................................................... $ (2.01) $ 2.64 Diluted......................................................................... $ (2.01) $ 2.53
On June 22, 2001, Teradyne sold its aerospace and defense connector and backplane business to Amphenol Corporation of Wallingford, Connecticut for cash proceeds of $26.3 million. This transaction resulted in a pre-tax gain of $14.8 million which has been recorded in other income and expense. On August 15, 2000, Teradyne acquired two California-based companies, both in the printed circuit board (PCB) industry: Herco Technology Corp. of San Diego, California, a fabricator of printed circuit boards, and Perception Laminates, Inc. of La Verne, California, which supplies PCB laminates and is a major supplier to Herco. The acquisitions are part of the Connection Systems operating segment. The cost of the acquired companies was $104.5 million with approximately 1.8 million shares of common stock issued. The acquisitions were accounted for using the purchase method of accounting and accordingly, the results have been included in our consolidated results of operations from the date of acquisition. Goodwill resulting from the acquisitions will no longer be amortized beginning in 2002. The components of the purchase price allocation are as follows:
(in thousands) -------------- Current assets............... $ 20,140 Property, plant and equipment 41,650 Acquired intangibles......... 4,736 Goodwill..................... 53,361 Less: Liabilities assumed.... 15,401 -------- Total..................... $104,486
On December 29, 2000, Teradyne sold a controlling interest in its software test business to an investor group led by Matrix Partners of Waltham, Massachusetts for approximately $28.7 million. The gain from the sale was immaterial. Teradyne has retained an ownership position of approximately 21% in the new company called Empirix. Teradyne has accounted for its investment in Empirix under the equity method of accounting. At December 31, 2001, the carrying value of Teradyne's investment in Empirix was zero. 42 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) G. FINANCIAL INSTRUMENTS Cash Equivalents Teradyne considers all highly liquid investments with original maturities of three months or less at the date of acquisition to be cash equivalents. Marketable Securities Teradyne classifies investments in marketable securities as trading, available-for-sale or held-to-maturity at the time of purchase and periodically re-evaluates such classification. There were no securities classified as trading at December 31, 2001 or 2000. Securities are classified as held-to-maturity when Teradyne has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at cost with corresponding premiums or discounts amortized over the life of the investment to interest income. Securities classified as available-for-sale are reported at fair value. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in interest income. Unrealized gains and losses are included in accumulated other comprehensive income. The cost of securities sold is based on the specific identification method. The short-term marketable securities mature in less than one year. Long-term marketable securities have maturities of one to five years. At December 31, 2001 and 2000 these investments are reported as follows (in thousands):
2001 2000 --------------------------- ------------------------------ Held-to- Held- Available-For-sale Maturity Available-For-sale to-Maturity ------------------ -------- ------------------ ----------- Short-term marketable securities: U.S. Treasury and government agency securities $ 7,282 $30,000 $ 13,918 $29,539 Corporate debt securities..................... 12,814 16,697 -------- ------- -------- ------- $ 20,096 $30,000 $ 30,615 $29,539 ======== ======= ======== ======= Long-term marketable securities: U.S. Treasury and government agency securities $133,958 $ 55,778 $30,000 Corporate debt securities..................... 84,586 76,070 -------- -------- ------- $218,544 $131,848 $30,000 ======== ======== =======
Other As of December 31, 2001, the estimated fair value of Teradyne's convertible notes was approximately $547 million compared to the carrying value of $400 million. The estimated fair value of the convertible notes is based on the quoted market price of the convertible notes on December 31, 2001. The quoted market price for the convertible notes primarily reflects the conversion value of the notes into Teradyne's common stock. Fair values for Teradyne's non-convertible debt were determined based on interest rates that are currently available to Teradyne for the issuance of debt with similar terms and remaining maturities for debt issues and approximate carrying values. 43 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) G. FINANCIAL INSTRUMENTS--(Continued) For all other balance sheet financial instruments, the carrying amount approximates fair value. Derivatives Teradyne adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS 137 and SFAS 138 in the first quarter of 2001. SFAS 133 requires Teradyne to recognize all derivatives on the balance sheet at fair value. Adoption of SFAS 133 did not have a material impact on Teradyne's financial position or results of operations. Teradyne conducts business in a number of foreign countries, with certain transactions denominated in local currencies. The purpose of Teradyne's foreign currency management is to minimize the effect of exchange rate fluctuations on certain foreign denominated net monetary assets and anticipated cash flows. The terms of currency instruments used for hedging purposes are consistent with the timing of the transactions being hedged. Teradyne does not use derivative financial instruments for trading or speculative purposes. Teradyne enters into foreign currency forward contracts to hedge currency exposures associated with monetary assets and liabilities denominated in non-functional currencies. These contracts are used to reduce Teradyne's risk associated with exchange rate movements, as gains and losses on these contracts are intended to offset exchange losses and gains on underlying exposures. Changes in the fair value of these derivatives are recorded immediately in earnings which are used to offset the changes in the underlying net monetary position being hedged. Teradyne periodically hedges certain forecasted foreign currency denominated sales, over a maximum period of twelve months. The derivatives are designated as cash-flow hedges, and changes in their fair value are carried in accumulated other comprehensive income until the underlying transaction occurs. Once the underlying forecasted transaction occurs, the appropriate gain or loss from the derivative designated as a hedge of the transaction is reclassified from accumulated other comprehensive income to net sales. During 2001 the amount of net realized gains from cash-flow hedges was immaterial. As of December 31, 2001, there were no outstanding cash-flow hedges and therefore there is no amount to be reclassified from accumulated other comprehensive income. At December 31, 2001, Teradyne had the following forward currency contracts to buy U.S. dollars for non U.S. currencies with the following notional amounts totaling $11.0 million; $2.4 million Japanese Yen, $3.6 million Euro, $4.4 million British pound sterling, and $0.6 million Swedish Krona. At December 31, 2000, the face amount of outstanding forward currency contracts to buy U.S. dollars for non U.S. currencies was $73.0 million. The fair value of the outstanding contracts at December 31, 2001 was $0.2 million. Realized gains related to forward contracts hedging net monetary position were $4.1 million, $7.0 million, and $0.1 million for 2001, 2000, and 1999, respectively. Both the contract gains and losses and the gains and losses on the items being hedged are included in selling and administrative expenses. Teradyne holds warrants to purchase 0.3 million shares of common stock of LogicVision, a public technology company, at an exercise price of $4.86 per share. In accordance with SFAS 133, Teradyne recorded a gain of $2.0 million in other income for the fair value of the warrants for the year ended December 31, 2001. The fair value of the warrant is included in other assets. Concentration of Credit Risk Financial instruments which potentially subject Teradyne to concentrations of credit risk consist principally of marketable securities, forward currency contracts, and accounts receivable. Teradyne maintains cash investments primarily in U.S. Treasury and government agency securities and corporate debt securities, rated 44 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) G. FINANCIAL INSTRUMENTS--(Continued) AA or higher, which have minimal credit risk. Teradyne places forward currency contracts with high credit-quality financial institutions in order to minimize credit risk exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of geographically dispersed customers. Teradyne performs ongoing credit evaluations of its customers' financial condition but does not require collateral to secure accounts receivable. H. DEBT Long-term debt at December 31, 2001 and 2000 consisted of the following (in thousands):
2001 2000 -------- ------ Convertible senior notes $400,000 -- Mortgage notes payable.. 50,040 $5,040 Other long-term debt.... 2,905 3,481 -------- ------ Total................... 452,945 8,521 Less current maturities. 1,263 169 -------- ------ $451,682 $8,352 ======== ======
The total maturities of long-term debt for the succeeding five years and thereafter are: 2002 -- $1.3 million; 2003 -- $1.3 million; 2004 -- $1.4 million; 2005 -- $1.5 million; 2006 -- $401.5 million; and $45.9 million thereafter. Convertible Senior Notes In 2001, Teradyne sold $400 million principal amount of 3.75% Convertible Senior Notes due 2006 (the "Notes") in a private placement and received net proceeds of $389 million. The Notes are convertible at the option of the holders at a rate which is equivalent to a conversion price of approximately $26.00 per share, which is equal to a conversion rate of approximately 38.4615 shares of common stock per $1,000 principal amount of Notes. On or after October 18, 2004, Teradyne may redeem the Notes in whole or in part at the prices set forth below. The redemption price, expressed as a percentage of principal amount, is as follows for the following periods:
Redemption Period Price ------ ---------- Beginning on October 18, 2004 and ending on October 14, 2005 101.50% Beginning on October 15, 2005 and ending on October 14, 2006 100.75%
and thereafter equal to 100% of the principal amount. Teradyne will begin making annual interest payments of up to $15 million, paid semi-annually, on the Notes commencing on April 15, 2002. The Notes are senior unsecured obligations of Teradyne that rank equally with Teradyne's existing and future unsecured and unsubordinated indebtedness. In the event of a change in control by which Teradyne merges with or sells substantially all of its assets to a third party, the holders of the Notes may be able to require Teradyne to redeem some or all of the Notes either in discounted Teradyne common stock or in cash. Mortgage Notes Payable On December 19, 2001, Teradyne obtained a loan of approximately $45 million in the form of a 7.5% mortgage loan maturing on January 1, 2007. This loan is collateralized by certain Teradyne California real estate properties. Principal payments are made according to a twenty-year amortization schedule through December 2006, with the remaining principal due on January 1, 2007. Teradyne began making monthly principal and interest payments of $0.4 million on February 1, 2002. 45 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) H. DEBT--(Continued) In 1983, Teradyne obtained a loan of $4.5 million from the Boston Redevelopment Authority in the form of a 3% mortgage loan maturing March 31, 2013. This loan is collateralized by Teradyne's property at 321 Harrison Avenue, which may, at Teradyne's option, become subordinated to another mortgage up to a maximum of $5.0 million. Interest for the first 4 1/2 years of the loan was capitalized up to a principal amount of $5.0 million. Since September 30, 1987, Teradyne has been making semi-annual interest payments. Short-term Borrowings The weighted average interest rates on short-term borrowings outstanding as of December 31, 2001 and 2000 was 1.2% for both years. I. GOODWILL AND INTANGIBLE AND OTHER ASSETS At December 31, 2001 and 2000, the goodwill and intangible and other assets were:
2001 2000 -------- ------- (In thousands) Goodwill............................................................. $197,036 $55,409 Less accumulated amortization........................................ (6,760) (2,736) -------- ------- Net goodwill......................................................... $190,276 $52,673 ======== ======= Intangibles and other assets: Completed technology................................................. $ 35,600 -- Service and software maintenance contracts and customer relationships 8,993 $ 3,693 Tradenames and trademarks............................................ 3,800 -- Other intangibles assets............................................. 1,535 1,044 -------- ------- Total intangibles.................................................... 49,928 4,737 Less accumulated amortization........................................ (3,602) (645) -------- ------- Total net intangible assets.......................................... 46,326 4,092 Other assets......................................................... 40,344 25,635 -------- ------- Net intangible and other assets...................................... $ 86,670 $29,727 ======== =======
J. COMMITMENTS AND CONTINGENCIES Rental expense for the years ended December 31, 2001, 2000, and 1999 was $26.0 million, $21.3 million, and $18.8 million, respectively. The following table reflects Teradyne's current non-cancelable operating lease commitments:
Non-cancelable Lease Commitments -------------- (in thousands) 2002.......... $ 24,019 2003.......... 20,417 2004.......... 17,532 2005.......... 14,754 2006.......... 10,490 Beyond 2006... 34,442 -------- Total......... $121,654
46 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) J. COMMITMENTS AND CONTINGENCIES--(Continued) In connection with the August 2000 acquisition of each of Herco Technology Corp., a California company, and Perception Laminates, Inc., a California company, a complaint was filed by the former owners of those companies on or about September 5, 2001 naming as defendants Teradyne and two of its executive officers. The case was originally filed in the Superior Court in San Diego County, California, and was subsequently removed by the defendants to federal court. An amended complaint was filed in the federal court on October 12, 2001. On or about November 14, 2001, Teradyne and the two individual defendants filed a motion to dismiss the amended complaint in its entirety. The federal court granted in part and denied in part that motion to dismiss. The claims that were dismissed were dismissed with prejudice. At the federal court's request, the plaintiffs filed a second amended complaint on March 4, 2002 setting forth their remaining claims. The second amended complaint alleges, among other things, that the sale of Teradyne's common stock to the former owners violated certain California securities statutes and common law, and that Teradyne breached certain contractual obligations in the agreements relating to the acquisitions. The amended complaint seeks unspecified damages, including compensatory, consequential and punitive damages, and recovery of reasonable attorneys' fees and costs. On March 25, 2002, Teradyne and the two individual defendants filed their answer to the second amended complaint. Teradyne and two of its executive officers are named as defendants in three purported class action complaints that were filed in the United States District Court for the District of Massachusetts, Boston, Massachusetts, on or about October 16, 2001, October 19, 2001 and November 7, 2001. The complaints allege, among other things, that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, by making, during the period from July 14, 2000 and October 17, 2000, material misrepresentations and omissions to the investing public regarding Teradyne's business operations and future prospects. The complaints seek unspecified damages, including compensatory damages and recovery of reasonable attorneys' fees and costs. Teradyne disputes all of the claims above and believes they are without merit, and intends to defend vigorously against the lawsuits. However, an adverse resolution of any of the lawsuits could have a material adverse effect on Teradyne's financial position or results of operations. Teradyne is not presently able to reasonably estimate potential losses, if any, related to any of the lawsuits and therefore has not accrued for any potential losses from the lawsuits. In addition, Teradyne is subject to legal proceedings and claims that arise in the ordinary course of business. Management does not believe these actions will have a material adverse effect on Teradyne's financial position or results of operations. In 2001, Teradyne was designated as a "potentially responsible party" ("PRP") at two clean-up sites, one in California and one in Rhode Island. Teradyne does not believe that it has any liability for the cleanup of the California site and has requested the state of California to remove Teradyne's name from the list of PRPs, however, Teradyne has not as yet received a reply. In the opinion of management, the costs associated with complying with the clean-up of this site, if required, are not expected to have a material effect upon the financial position or results of operations of Teradyne. With respect to the second site, in Rhode Island, additional information is currently being collected to better understand Teradyne's financial obligations, if any, for its portion of the clean-up of this site. K. NET INCOME (LOSS) PER COMMON SHARE The following table sets forth the computation of basic and diluted net income (loss) per common share (in thousands, except per share amounts): 47 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) K. NET INCOME (LOSS) PER COMMON SHARE--(Continued)
2001 2000 1999 --------- -------- -------- (Loss) income before cumulative effect of change in accounting principle................................................... $(202,215) $517,754 $191,694 Cumulative effect of change in accounting principle........... -- (64,138) -- --------- -------- -------- Net (loss) income............................................. $(202,215) $453,616 $191,694 ========= ======== ======== Shares used in (loss) income per common share--basic.......... 175,828 173,312 170,519 Effect of dilutive securities: Employee and director stock options........................... -- 7,293 7,540 Employee stock purchase rights................................ -- 406 491 --------- -------- -------- Dilutive potential common shares.............................. -- 7,699 8,031 --------- -------- -------- Shares used in (loss) income per common share--diluted........ 175,828 181,011 178,550 ========= ======== ======== (Loss) income before cumulative effect of change in accounting principle per common share--basic........................... $ (1.15) $ 2.99 $ 1.12 Cumulative effect of change in accounting principle--basic.... $ -- $ (0.37) $ -- --------- -------- -------- Net (loss) income per common share--basic..................... $ (1.15) $ 2.62 $ 1.12 ========= ======== ======== (Loss) income before cumulative effect of change in accounting principle per common share--diluted......................... $ (1.15) $ 2.86 $ 1.07 Cumulative effect of change in accounting principle--diluted.. $ -- $ (0.35) $ -- --------- -------- -------- Net (loss) income per common share--diluted................... $ (1.15) $ 2.51 $ 1.07 ========= ======== ========
All options and equivalent shares related to the convertible notes outstanding in 2001 were excluded from the calculation of diluted net loss per share because the effect would have been antidilutive. As of December 31, 2001, there were 16.4 million options outstanding. As of December 31, 2001, there were 15.4 million equivalent shares related to the convertible notes shares outstanding. For purposes of computing diluted earnings per share, weighted average common share equivalents do not include stock options with an exercise price that exceed the average fair market value of Teradyne's common stock. Accordingly, options to purchase 1.5 million shares of common stock in 2000 and 0.1 million shares of common stock in 1999 were not included in the calculation of diluted net income per share. L. INVENTORY PROVISIONS AND SPECIAL CHARGES The charges described below have been recorded as follows in the Statement of Operations during 2001:
Excess and Workforce Obsolete Asset Vacated Reduction Inventory Impairment Leases Total --------- --------- ---------- ------- -------- (In thousands) Cost of sales - inventory provision and other charges.................................... $139,683 $16,999 $3,077 $159,759 Engineering and development.................. 1,339 1,339 Restructuring and other charges.............. $37,278 13,923 1,676 52,877 ------- -------- ------- ------ -------- Total........................................ $37,278 $139,683 $32,261 $4,753 $213,975 ======= ======== ======= ====== ========
48 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) L. INVENTORY PROVISIONS AND SPECIAL CHARGES--(Continued) During 2001, Teradyne recorded charges of $37.3 million in connection with workforce reductions and an early retirement program. The provision for severance and early retirement benefits was recorded in restructuring charges and related asset impairments. There were approximately 2,900 employees terminated in 2001 across all functional groups. Teradyne has paid $23.8 million in severance benefits during 2001. All remaining severance benefits for the terminations in 2001 will be paid by the fourth quarter of 2002. During 2001, Teradyne recorded a provision of $139.7 million for excess and obsolete inventory and for discontinued product lines. The total inventory provision for excess and obsolete inventory, excluding the discontinued product lines, was $105.2 million in 2001 and was principally due to the sharp decline in incoming Semiconductor Test Systems and Connection Systems orders. During the third quarter of 2001, Teradyne recorded a charge of $40.2 million related to the discontinuance of its Flash 750 memory product. The Flash 750 memory product charge included an inventory writedown of $32.3 million and the impairment of long-lived assets directly related to the support of the Flash memory product line of $7.9 million. During the fourth quarter of 2001, Teradyne recorded a charge of $2.3 million for obsolete inventory due to overlapping product lines as a result of the consummation of the GenRad acquisition. During the third and fourth quarters of 2001, management concluded that certain Connection Systems long-lived assets held for disposal were impaired as the estimated fair value was less than the carrying value of these assets. The impaired assets charge included a $12.0 million writedown related to a partially completed manufacturing facility held for sale and a writedown of $12.4 million for certain manufacturing assets that were taken out of operations and are held for disposal. Fair value of the impaired facility was determined by a market appraisal. During the fourth quarter of 2001, Teradyne recorded charges for vacated office space under operating leases at Connection Systems and Circuit Board Test and Inspection Systems of $3.1 million and $1.7 million, respectively. The table below summarizes activity relating to restructuring and other charges:
Lease Payments Severance on and Vacated Impaired Impaired Benefits Facilities Facilities Assets Total --------- ---------- ---------- -------- -------- (in thousands) 2001 provision.............. $ 37,278 $1,676 $ 12,000 $ 1,923 $ 52,877 Cash payments............... (23,755) -- -- -- (23,755) Non-cash charges............ -- -- (12,000) (1,923) (13,923) -------- ------ -------- ------- -------- Balance at December 31, 2001 $ 13,523 $1,676 $ -- $ -- $ 15,199 ======== ====== ======== ======= ========
The accrual for severance and benefits is reflected in accrued employees' compensation and withholdings and the accrual for lease payments on vacated facilities is reflected in other accrued liabilities. M. RETIREMENT PLANS Teradyne has defined benefit pension plans covering a majority of domestic employees and employees of certain non U.S. subsidiaries. Benefits under these plans are based on employees' years of service and compensation. Teradyne's funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. The assets of these plans consist primarily of equity and fixed income securities. In addition, Teradyne has an unfunded supplemental executive defined benefit plan in the United States to provide retirement benefits in excess of levels allowed by the Employment Retirement Income Security Act (ERISA) and the Internal Revenue Code (the "IRC"). 49 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) M. RETIREMENT PLANS--(Continued) During the fourth quarter of 1999, Teradyne offered all eligible domestic employees participating in the U.S. plan a choice: to continue to have benefits accumulate in the U.S. plan and continue to be eligible for the then current Savings Plan match described in "Note P: Savings Plans" or to stop accumulating benefits in the U.S plan and be eligible for an increased match in the Savings Plan. The accrued benefit of those employees who selected the enhanced Savings Plan match was frozen on January 1, 2000 resulting in an insignificant curtailment gain. The expense of these defined benefit pension plans and the December 31 balances of plan assets and obligations are shown below (in thousands):
2001 2000 1999 -------- ------- ------- EXPENSE Service cost..................................... $ 6,369 $ 6,365 $ 7,874 Interest cost.................................... 10,210 8,972 8,247 Expected return on plan assets................... (10,029) (8,589) (7,394) Amortization of unrecognized: Net transition obligation...................... 74 89 102 Prior service cost............................. 766 843 612 Net loss....................................... 264 206 1,592 Curtailment loss (gain) / employee contributions. 2,402 (89) (87) -------- ------- ------- Total expense.................................... $ 10,056 $ 7,797 $10,946 ======== ======= ======= 2001 2000 1999 -------- ------- ------- WEIGHTED AVERAGE ASSUMPTIONS Discount rate.................................... 7.0% 7.5% 8.0% Expected return on plan assets................... 9.0 9.0 9.0 Salary progression rate.......................... 5.0 5.0 5.0
2001 2000 ASSETS AND OBLIGATIONS -------- -------- Projected benefit obligation: Beginning of year.................... $139,472 $124,546 Service cost......................... 6,369 6,365 Interest cost........................ 10,210 8,972 Actuarial (gain) loss................ 15,329 3,859 Benefits paid........................ (4,171) (3,372) Plan amendment....................... 212 623 Curtailment.......................... (947) -- GenRad acquisition................... 15,695 -- Non U.S. currency movement........... (1,120) (1,521) -------- -------- End of year.......................... 181,049 139,472 Fair value of plan assets: Beginning of year.................... 114,512 111,535 Company contributions ............... 6,050 9,445 Plan participants' contributions..... 71 79 Actual return........................ (10,964) (2,285) Benefits paid........................ (4,171) (3,372) GenRad acquisition................... 10,365 -- Non U.S. currency movement........... (646) (890) -------- -------- End of year............................ 115,217 114,512 -------- -------- Funded status.......................... (65,832) (24,960) Unrecognized prior service cost........ 5,315 7,110 Unrecognized net transition obligation. 306 470 Unrecognized net actuarial (gain) loss. 43,261 8,597 -------- -------- Net amount recognized.................. $(16,950) $ (8,783) ======== ========
50 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) M. RETIREMENT PLANS--(Continued) The impact of the GenRad acquisition and an early retirement program increased the projected benefit obligation by $15.9 million. GenRad had its own retirement plan for its employees which was merged into Teradyne's plan during 2001. In the third quarter of 2001, Teradyne provided certain employees the option to retire early. The following table provides amounts recognized in the statement of financial position as of December 31, (in thousands):
2001 2000 -------- -------- Prepaid pension cost................ $ 926 $ 3,162 Accrued benefit liability........... (17,876) (11,945) Additional minumum pension liability (22,228) -- Intangible asset.................... 4,022 -- Accumulated other comprehensive loss 18,206 -- -------- -------- Net amount recognized............... $(16,950) $ (8,783) ======== ========
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets for 2001 and 2000 were as follows:
2001 2000 ------ ----- (In millions) Projected benefit obligation....................................................... $181.0 $22.2 Accumulated benefit obligation..................................................... 154.8 14.3 Fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets............................................................ $115.2 $ 3.7
An additional minimum pension liability adjustment of $22 million was required during 2001 as the accumulated benefit obligation of $155 million exceeded the $115 million of pension plan assets at year end. The $40 million difference was reduced by an accrued benefit liability of $18 million resulting in an additional minimum pension liability of $22 million. N. COMMON STOCK REPURCHASE PROGRAM Teradyne's Board of Directors has authorized the repurchase of 30.0 million shares of Teradyne's stock on the open market. During 1999, Teradyne repurchased 5.6 million shares at a cost of $207.8 million. During 2000, Teradyne repurchased 3.8 million shares at a cost of $147.5 million, increasing the cumulative shares purchased under this program through 2000 to 20.0 million shares at an aggregate cost of $540.8 million. During 2001, Teradyne did not repurchase any stock. Teradyne records treasury stock at its acquisition cost. O. STOCK BASED COMPENSATION Teradyne has both employee and non-employee stock option plans and an employee stock purchase plan. Teradyne previously adopted the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), and as permitted by this standard, will continue to apply Accounting Principles Board (APB) Opinion 25 and related interpretations in accounting for its plans. Teradyne is required to disclose the pro forma net income and net income per common share amounts as if compensation costs for Teradyne's 51 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) O. STOCK BASED COMPENSATION--(Continued) stock based compensation plans had been determined based on the fair value at the grant dates for awards under those plans. Had compensation expense for the stock based compensation plans been accounted for at fair value according to SFAS 123, amounts reported in the Statement of Operations for 2001, 2000, and 1999, respectively would have been:
2001 2000 1999 ------- ------ ------ (Loss) income before cumulative effect of change in accounting principle. ($275.7) $458.0 $153.6 (Loss) income before cumulative effect of change in accounting principle per common share--basic................................................ ($ 1.57) $ 2.64 $ 0.90 (Loss) income before cumulative effect of change in accounting principle per common share--diluted.............................................. ($ 1.57) $ 2.53 $ 0.86
Stock Option Plans Under its stock option plans, all of which are fixed accounting plans, Teradyne granted options to directors, officers, certain employees, and other individuals entitling them to purchase common stock at 100% of the fair market value on the date of grant. Options granted to employees prior to 2001 vest in equal installments over four years and have a maximum term of five years. Beginning in September 2001 options granted to employees also vest in equal installments over four years but have a maximum term of seven years. In 2001, Teradyne had a one-time option grant for all employees that vests over two years and has a term of seven years. Stock option plan activity for the years 2001, 2000, and 1999 follows (in thousands):
2001 2000 1999 ------ ------ ------ Outstanding at January 1............. 22,745 19,225 21,548 Options granted.................. 10,289 7,905 5,631 Options exercised................ (2,766) (3,217) (7,272) Options canceled................. (518) (1,168) (682) ------ ------ ------ Outstanding at December 31........... 29,750 22,745 19,225 ====== ====== ====== Exercisable at December 31........... 13,545 8,758 6,355 ====== ====== ====== Available for grant at December 31... 29,841 7,130 13,867 ====== ====== ======
Weighted average option exercise price information for the years 2001, 2000 and 1999 follows:
2001 2000 1999 ------ ------ ------ Outstanding at January 1..... $22.79 $16.44 $ 9.73 Options granted.......... $23.33 $34.73 $32.13 Options exercised........ $10.89 $11.49 $ 9.03 Options canceled......... $32.15 $30.62 $12.68 Outstanding at December 31... $25.28 $22.79 $16.44 Exercisable at December 31... $24.94 $16.71 $12.59
52 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) O. STOCK BASED COMPENSATION--(Continued) Significant option groups outstanding at December 31, 2001 and related weighted average price and remaining contractual life information follows (options in thousands):
Options Outstanding Options Exercisable ------------------------------------ ----------------------- Weighted Average Remaining Contractual Weighted-Average Weighted-Average Range Of Exercise Prices Life (Years) Shares Exercise Price Shares Exercise Price - ------------------------ ------------ ------ ---------------- ------ ---------------- $ 3.82 - $20.94...... 1.62 7,756 $11.29 5,632 $11.24 $21.65............... 6.67 8,177 $21.65 1,722 $21.65 $23.09 - $32.13...... 3.77 11,280 $29.33 4,692 $29.84 $32.78 - $173.11..... 5.11 2,537 $61.74 1,499 $64.86 ------ ------ Total................ 4.12 29,750 $25.28 13,545 $24.94 ====== ======
The weighted average grant date fair value for options granted during 2001, 2000 and 1999 was $11.90, $15.34 and $16.21 per option, respectively. The fair value of options at date of grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
2001 2000 1999 ---- ---- ---- Expected life (years). 4.3 4.2 4.1 Interest rate......... 3.7% 5.7% 6.1% Volatility............ 67.0% 63.7% 56.7% Dividend yield........ 0.0% 0.0% 0.0%
Employee Stock Purchase Plan Under the Teradyne Employee Stock Purchase Plan, eligible employees may purchase shares of common stock through regular payroll deductions of up to 10% of their compensation. The price paid for the common stock is equal to 85% of the lower of the fair market value of Teradyne's common stock on the first business day in January (July for new hires) or the last business day of December. In January 2002, Teradyne issued 0.9 million shares of common stock to employees who participated in the plan during 2001 at a weighted-average price of $25.60 per share. Currently, there are 0.4 million shares reserved for issuance. The weighted-average fair value of employee stock purchase rights granted in 2001, 2000 and 1999 was $12.56, $17.98 and $8.18, respectively. The fair value of the employees' purchase rights was estimated using the Black-Scholes option pricing model with the following assumptions for 2001, 2000 and 1999, respectively:
2001 2000 1999 ---- ---- ---- Expected life (years). 1.0 1.0 1.0 Interest rate......... 2.2% 6.0% 4.5% Volatility............ 67.0% 81.5% 58.4% Dividend yield........ 0.0% 0.0% 0.0%
53 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) P. SAVINGS PLANS Teradyne sponsors an employee retirement Savings Plan covering substantially all U.S. employees. Under Teradyne's savings plan, employees may contribute up to 15% of their compensation (subject to Internal Revenue Service limitations). For employees that elected in 1999 to continue to accrue benefits under Teradyne's defined benefit plan, as described in "Note M: Retirement Plans," Teradyne annually matches employee contributions up to 6% of such compensation at rates ranging from 50% to 100%. Employees that elected in 1999 to stop accruing benefits under Teradyne's defined benefit plan, as described in "Note M: Retirement Plans," are eligible for an increased Teradyne match of 100% to 150% on employee contributions up to 5% of compensation. Teradyne's contributions vest after two years, although contributions for those employees with five years of service vest immediately. Teradyne has also established an unfunded Supplemental Savings Plan to provide savings benefits in excess of those allowed by ERISA and the IRC. The provisions of this plan are the same as the Savings Plan. Under Teradyne's savings plans, amounts charged to operations were $14.6 million in 2001, $16.6 million in 2000, and $9.8 million in 1999. Q. STOCKHOLDER RIGHTS PLAN Teradyne's Board of Directors adopted a Stockholder Rights Plan on November 16, 2000, under which a dividend of one Common Stock Purchase Right (each a "Right") was distributed for each outstanding share of Common Stock. The plan entitles Right holders to purchase shares of Teradyne's common stock for $540 per share subject to adjustment (the "Purchase Price") in certain events, such as a tender offer to acquire 20% or more of Teradyne's outstanding shares. Under some circumstances, such as a determination by continuing Directors that an acquiring party's interests are adverse to those of Teradyne, the Plan entitles such holders (other than an acquiring party or adverse party) to purchase Common Stock (or other securities or consideration owned by Teradyne) having a value equal to two times the Purchase Price of the Right for the Purchase Price. The Rights expire on November 27, 2010. R. INCOME TAXES The components of (loss) income before income taxes and the (benefit) provision for income taxes as shown in the consolidated statements of income are as follows (in thousands)
2001 2000 1999 --------- -------- -------- (Loss) income before income taxes and cumulative effect of change in accounting principle: United States.................................................... $(324,800) $655,103 $239,453 Non U.S.......................................................... (1,353) 84,545 34,396 --------- -------- -------- $(326,153) $739,648 $273,849 ========= ======== ======== Provision (credit) for income taxes: Current: U.S. Federal..................................................... $ (90,149) $182,202 $ 65,104 Non U.S.......................................................... (3,093) 29,393 14,296 State............................................................ 751 19,703 6,856 --------- -------- -------- (92,491) 231,298 86,256 --------- -------- -------- Deferred: U.S. Federal..................................................... (24,739) (4,529) (184) Non U.S.......................................................... 43 (3,172) (3,461) State............................................................ (6,751) (1,703) (456) --------- -------- -------- (31,447) (9,404) (4,101) --------- -------- -------- $(123,938) $221,894 $ 82,155 ========= ======== ========
54 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) R. INCOME TAXES--(Continued) Significant components of Teradyne's deferred tax assets (liabilities) as of December 31, 2001 and 2000 are as follows (in thousands):
2001 2000 -------- -------- Deferred tax assets: Net operating loss carryforwards..... $ 45,728 $ 592 Tax credits.......................... 33,922 9,686 Inventory valuations................. 31,669 13,494 Accruals............................. 24,565 23,495 Research and development............. 19,821 2,898 Vacation............................. 6,141 9,211 Deferred revenue..................... 5,391 32,088 Other................................ 14,955 2,494 -------- -------- Total deferred tax assets............... 182,192 93,958 -------- -------- Deferred tax liabilities: Excess of tax over book depreciation. (17,012) (16,509) Amortization......................... (16,218) (916) Pension.............................. (1,102) (3,572) Other................................ (2,534) (260) -------- -------- Total deferred tax liabilities.......... (36,866) (21,257) -------- -------- Net deferred asset...................... $145,326 $ 72,701 ======== ========
At December 31, 2001 Teradyne had U.S. Federal operating loss carryforwards of approximately $113.5 million primarily due to the operating loss carryforwards related to the GenRad acquisition that expire in the years 2003 through 2020, state operating loss carryforwards of $88.5 million that expire in the years 2006 through 2021, and foreign operating loss carryforwards of $9.6 million. These losses are limited in their use by "change in ownership" rules as defined in the Internal Revenue Code of 1986. Teradyne believes that it is more likely than not that its net deferred tax assets will be realized. Teradyne has approximately $33.9 million of tax credit carryforwards that expire in years 2003 through 2019. Business tax credits of approximately $24.1 million expire in the years 2003 through 2019. Foreign tax credits of approximately $7.7 million expire in the years 2005 through 2006. Alternative minimum tax credits of $2.1 million do not expire. A reconciliation of the effective tax rate for the years 2001, 2000, and 1999 follows:
2001 2000 1999 ----- ---- ---- U.S. statutory federal tax rate............... (35.0)% 35.0% 35.0% State income taxes, net of federal tax benefit (1.8) 1.6 1.5 Tax credits................................... -- (0.8) (1.3) Export sales corporation...................... (0.7) (4.8) (4.7) Other, net.................................... (0.5) (1.0) (0.5) ----- ---- ---- (38.0)% 30.0% 30.0% ===== ==== ====
U.S. federal taxes have not been provided for approximately $63.1 million, $59.0 million, and $30.0 million of cumulative undistributed earnings of a non-U.S. manufacturing subsidiary in 2001, 2000, and 1999, respectively. Teradyne intends to reinvest these earnings indefinitely in operations outside the US. 55 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) S. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION Teradyne has four principal operating segments which are the design, manufacturing and marketing of Semiconductor Test Systems, Connection Systems, Circuit Board Test and Inspection Systems, and Other Test Systems. These operating segments were determined based upon the nature of the products and services offered. The Other Test Systems segment in 2001 is comprised of Broadband Test Systems and Diagnostic Solutions. In 2000 and 1999, the Other Test Systems segment is comprised of Broadband Test Systems and Software Test Systems. Teradyne evaluates performance based on several factors, of which the primary financial measure is business segment income before taxes. The accounting policies of the business segments are the same as those described in "Note B: Accounting Policies." Intersegment sales are accounted for at fair value as if sales were to third parties. During 2001 and 2000 no individual customer accounted for more than 10% of consolidated net sales. During 1999, principally all of Teradyne's operating segments reported sales to one customer accounting for a total of 11% of consolidated net sales.
Circuit Board Test & Semiconductor Connection Inspection Other Test Corporate SAB 101 Test Systems Systems Systems Systems And Adjustments Segment Segment Segment Segment Eliminations (4) Consolidated ------------- ---------- ---------- ---------- ------------ ----------- ------------ 2001 Sales to unaffiliated customers..... $ 717,655 $540,755 $132,448 $ 49,723 -- -- $1,440,581 Intersegment sales......... -- 4,119 -- -- ($4,119) -- -- ---------- -------- -------- -------- --------- ------ ---------- Net sales....... 717,655 544,874 132,448 49,723 (4,119) -- 1,440,581 Income (loss) before taxes (1)........... (231,869) (12,477) (38,505) (2,880) (40,422) -- (326,153) Total assets (2) 643,412 417,296 353,605 56,455 1,071,623 -- 2,542,391 Property additions (3). 82,307 103,416 2,605 1,760 51,361 -- 241,449 Depreciation and amortization expense (3)... 56,014 55,588 6,881 2,314 17,871 -- 138,668 2000 Sales to unaffiliated customers..... $2,044,330 $734,642 $141,208 $124,133 -- ($367) $3,043,946 Intersegment sales......... -- 29,294 -- -- ($29,294) -- -- ---------- -------- -------- -------- --------- ------ ---------- Net sales....... 2,044,330 763,936 141,208 124,133 (29,294) (367) 3,043,946 Income (loss) before taxes (1)........... 675,315 155,040 1,761 415 (92,729) (154) 739,648 Total assets (2) 920,629 511,083 86,161 19,174 780,926 37,895 2,355,868 Property additions (3). 119,705 92,403 4,878 4,394 76,862 -- 298,242 Depreciation and amortization expense (3)... 47,497 33,118 3,357 2,906 14,984 -- 101,862
56 TERADYNE, INC NOTES TO FINANCIAL CONSOLIDATED STATEMENT--(Continued) S. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION--(Continued)
Circuit Board Test & Other Semiconductor Connection Inspection Test Corporate SAB 101 Test Systems Systems Systems Systems And Adjustments Segment Segment Segment Segment Eliminations (4) Consolidated ------------- ---------- ---------- ------- ------------ ----------- ------------ 1999 Sales to unaffiliated customers.......... $1,210,543 $373,051 $118,599 $88,719 -- -- $1,790,912 Intersegment sales.............. -- 15,069 -- -- ($15,069) -- -- ---------- -------- -------- ------- -------- ------ ---------- Net sales............ 1,210,543 388,120 118,599 88,719 (15,069) -- 1,790,912 Income (loss) before taxes (1).......... 287,960 63,249 (5,205) (9,093) (63,062) -- 273,849 Total assets (2)..... 564,536 219,763 56,481 37,615 686,656 -- 1,565,051 Property additions (3)...... 47,054 38,500 5,608 2,885 57,109 -- 151,156 Depreciation and amortization expense (3)........ 32,086 18,567 5,139 3,218 27,376 -- 86,386
(1) Income before taxes of the principal businesses exclude the effects of employee profit sharing, management incentive compensation, other unallocated expenses, and net interest and other income. (2) Total business assets are directly attributable to each business. Corporate assets consist of cash and cash equivalents, marketable securities, unallocated fixed assets of support divisions and common facilities and certain other assets. (3) Corporate property additions and depreciation and amortization expense include items attributable to the unallocated fixed assets of support divisions and common facilities. (4) Corporate adjustment reflects the impact of SAB 101 on sales, income before taxes, and total assets in 2000. During the fourth quarter of 2000 Teradyne implemented SAB 101. Segments reflect their results before the change in accounting principle. Information as to Teradyne's sales in different geographical areas is as follows (in thousands):
2001 2000 1999 ---------- ---------- ---------- Sales to unaffiliated customers (1): United States. .................. $ 735,264 $1,407,110 $ 859,638 Europe........................... 261,675 425,694 268,637 South East Asia. ................ 169,539 626,060 359,430 Taiwan........................... 150,277 306,611 147,876 Japan............................ 60,353 119,883 89,546 Korea. .......................... 14,012 88,833 12,058 Other............................ 49,461 69,755 53,727 ---------- ---------- ---------- $1,440,581 $3,043,946 $1,790,912 ========== ========== ==========
- -------- (1) Sales are attributable to geographic areas based on location of customer site. Because a substantial portion of Teradyne's sales are derived from the sales of product manufactured in the United States, long-lived assets located outside the United States are less than 10% of total assets. 57 SUPPLEMENTARY INFORMATION (Unaudited) The following sets forth certain unaudited consolidated quarterly statements of operations data for each of Teradyne's last eight quarters. In management's opinion, this quarterly information reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement for the periods presented. Such quarterly results are not necessarily indicative of future results of operations and should be read in conjunction with the audited consolidated financial statements of Teradyne and the notes thereto included elsewhere herein.
2001 ---------------------------------------- 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter -------- -------- --------- --------- Net sales................................................ $605,189 $365,823 $ 249,355 $ 220,214 Expenses: Cost of sales.......................................... 355,298 259,477 205,292 201,982 Cost of sales - inventory provision and other charges.. 13,716 37,945 53,528 54,570 Engineering and development............................ 83,570 71,029 66,006 68,052 Selling and administrative............................. 73,286 65,908 59,928 70,962 Restructuring and other charges........................ 5,705 3,356 34,475 9,341 -------- -------- --------- --------- 531,575 437,715 419,229 404,907 -------- -------- --------- --------- Income (loss) from operations............................ 73,614 (71,892) (169,874) (184,693) Interest income.......................................... 6,194 5,149 4,553 6,847 Interest expense......................................... (244) (296) (286) (3,265) Other income and expense, net............................ (2,480) 12,918 (1,914) (484) -------- -------- --------- --------- Income (loss) before income taxes........................ 77,084 (54,121) (167,521) (181,595) Provision (benefit) for income taxes..................... 23,125 (13,940) (64,117) (69,006) -------- -------- --------- --------- Net income (loss)........................................ $ 53,959 $(40,181) $(103,404) $(112,589) ======== ======== ========= ========= Net income (loss) per common share -- basic.............. $ 0.31 $ (0.23) $ (0.59) $ (0.63) ======== ======== ========= ========= Net income (loss) per common share -- diluted............ $ 0.30 $ (0.23) $ (0.59) $ (0.63) ======== ======== ========= =========
58 SUPPLEMENTARY INFORMATION--(Continued) (Unaudited)
2000 -------------------------------------- 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter -------- -------- -------- -------- Net sales..................................................... $615,358 $747,458 $859,478 $821,652 Expenses: Cost of sales............................................... 324,896 388,254 441,855 452,369 Engineering and development................................. 79,510 85,165 91,126 92,223 Selling and administrative.................................. 82,059 95,729 99,107 100,888 -------- -------- -------- -------- 486,465 569,148 632,088 645,480 -------- -------- -------- -------- Income from operations........................................ 128,893 178,310 227,390 176,172 Interest income............................................... 4,962 6,235 6,641 7,268 Interest expense.............................................. (425) (412) (570) (434) Other income and expense, net................................. -- -- -- 5,618 -------- -------- -------- -------- Income before income taxes and cumulative effect of change in accounting principle........................................ 133,430 184,133 233,461 188,624 Provision for income taxes.................................... 40,029 55,240 70,038 56,587 -------- -------- -------- -------- Income before cumulative effect of change in accounting principle................................................... 93,401 128,893 163,423 132,037 Cumulative effect of change in accounting principle........... (64,138) -- -- -- -------- -------- -------- -------- Net income.................................................... $ 29,263 $128,893 $163,423 $132,037 ======== ======== ======== ======== Income before cumulative effect of change in accounting principle per common share -- basic......................... $ 0.54 $ 0.74 $ 0.94 $ 0.76 ======== ======== ======== ======== Cumulative effect of change in accounting principle per common share -- basic.............................................. $ (0.37) $ -- $ -- $ -- ======== ======== ======== ======== Net income per common share -- basic.......................... $ 0.17 $ 0.74 $ 0.94 $ 0.76 ======== ======== ======== ======== Income before cumulative effect of change in accounting principle per common share -- diluted....................... $ 0.52 $ 0.71 $ 0.90 $ 0.74 ======== ======== ======== ======== Cumulative effect of change in accounting principle per common share -- diluted............................................ $ (0.35) $ -- $ -- $ -- ======== ======== ======== ======== Net income per common share -- diluted........................ $ 0.16 $ 0.71 $ 0.90 $ 0.74 ======== ======== ======== ========
Item 9: Changes and disagreements with accountants on accounting and financial disclosure None. 59 PART III Item 10: Directors and executive officers of the registrant. Certain information relating to directors and executive officers of Teradyne, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from Teradyne's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 23, 2002, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year. For this purpose, the Management Compensation and Development Committee Report and Performance Graph included in such proxy statement are specifically not incorporated herein. (Also see "Item 1 -- Executive Officers of the Company" elsewhere in this report.) Item 11: Executive compensation. Certain information relating to directors and executive officers of Teradyne, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from Teradyne's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 23, 2002, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year. For this purpose, the Management Compensation and Development Committee Report and Performance Graph included in such proxy statement are specifically not incorporated herein. Item 12: Security ownership of certain beneficial owners and management. Certain information relating to directors and executive officers of Teradyne, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from Teradyne's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 23, 2002, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year. For this purpose, the Management Compensation and Development Committee Report and Performance Graph included in such proxy statement are specifically not incorporated herein. Item 13: Certain relationships and related transactions. Certain information relating to directors and executive officers of Teradyne, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from Teradyne's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 23, 2002, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year. For this purpose, the Management Compensation and Development Committee Report and Performance Graph included in such proxy statement are specifically not incorporated herein. 60 PART IV Item 14: Exhibits, Financial Statement Schedules And Reports On Form 8-K. (a) 1. Financial Statements The following consolidated financial statements are included in Item 8: Report of Independent Accountants Balance Sheets as of December 31, 2001 and 2000 Statements of Operations for the years ended December 31, 2001, 2000, and 1999 Statements of Shareholders' Equity for the years ended December 31, 2001, 2000, and 1999 Statements of Cash Flows for the years ended December 31, 2001, 2000, and 1999 (a) 2. Financial Statement Schedules The following consolidated financial statement schedule is included in Item 14(d): Schedule II -- Valuation and Qualifying Accounts Schedules other than those listed above have been omitted since they are either not required or information is otherwise included. (a) 3. Listing Of Exhibits The Exhibits which are filed with this report or which are incorporated by reference herein are set forth in the Exhibit Index. (b) Reports On Form 8-K A Current Report on Form 8-K dated October 18, 2001, was filed with the Securities and Exchange Commission on October 18, 2001 relating to (i) Teradyne's third quarter financial results and its interim financial statements and (ii) two legal complaints filed against Teradyne. A Current Report on Form 8-K dated October 19, 2001, was filed with the Securities and Exchange Commission on October 19, 2001 relating to (i) Teradyne's intent to offer Convertible Senior Notes due 2006 in a private placement and (ii) the pricing terms of the offering. A Current Report on Form 8-K dated October 24, 2001, was filed with the Securities and Exchange Commission on October 24, 2001 relating to Teradyne's completion of its offering of Convertible Senior Notes due 2006 in a private placement. 61 Item 14(d) Financial Statement Schedules TERADYNE, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E -------- -------- --------------------- -------- -------- Additions --------------------- Balance at Charged to Charged to Balance Beginning Cost and Other at End of Description of Period Expenses Accounts Deductions Period ----------- ---------- ---------- ---------- ---------- --------- (thousands of dollars) Valuation reserve deducted in the balance sheet from the asset to which it applies: Accounts receivable: 2001 Allowance for doubtful accounts............... $5,176 $1,192 $ -- $ 74 $6,294 ====== ====== ==== ==== ====== 2000 Allowance for doubtful accounts............... $4,410 $1,337 $ -- $571 $5,176 ====== ====== ==== ==== ====== 1999 Allowance for doubtful accounts............... $2,395 $1,407 $804 $196 $4,410 ====== ====== ==== ==== ======
62 EXHIBIT INDEX The following designated exhibits are, as indicated below, either filed herewith or have heretofore been filed with the Securities and Exchange Commission and are referred to and incorporated by reference to such filings.
Exhibit No. Description SEC Document Reference --- ----------- ---------------------- 3.1 Restated Articles of Organization of the Exhibit 3.01 to the Company's Quarterly Report on Company, as amended Form 10-Q for the quarter ended July 2, 2000. 3.2 Amended and Restated Bylaws of the Company Exhibit 3.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. 4.1 Rights Agreement between the Company and Exhibit 4.1 to the Company's Form 8-K filed Fleet National Bank dated as of November 17, November 20, 2000. 2000 4.2 Indenture by and between the Company and State Exhibit 4.4 to the Company's Registration Street Bank and Trust Company as Trustee Statement on Form S-3 (Registration dated as of October 24, 2001, including the Statement No. 333-75632). form of Note 4.3 Form of Note Included in Exhibit 4.4 to the Company's Registration Statement on Form S-3 (Registration Statement No. 333-75632). 4.4 Registration Rights Agreement by and between Exhibit 4.6 to the Company's Registration the Company and Goldman, Sachs & Co. and Statement on Form S-3 (Registration Banc of America Securities LLC dated as of Statement No. 333-75632). October 24, 2001 10.1 Teradyne, Inc. Supplemental Executive Exhibit 10.4 to the Company's Annual Report on Retirement Plan* Form10-K for the fiscal year ended December 31, 1997. 10.2 1991 Employee Stock Option Plan, as amended* Exhibit 4.2 to the Company's Registration Statement on Form S-8 (Registration Statement No. 333-07177). 10.3 Amendment to 1991 Stock Plan dated Exhibit 10.3 to the Company's Annual Report on March 9, 2001* Form 10-K for the fiscal year ended December 31, 2000. 10.4 Megatest Corporation 1990 Stock Option Plan* Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Registration Statement No. 333-64683). 10.5 Megatest Corporation Director Stock Option Exhibit 4.2 to the Company's Registration Plan* Statement on Form S-8 (Registration Statement No. 333-64683). 10.6 1996 Employee Stock Purchase Plan, as Filed herewith. amended* 10.7 Master Lease Agreement between Megatest and Exhibit 10.10 to the Company's Annual Report General Electric Capital Corporation dated on Form 10-K for the fiscal year ended August 10, 1995 December 31, 1995. 10.8 Loan and Security Agreement between Megatest Exhibit 10.11 to the Company's Annual Report and the CIT Group/Equipment Financing, Inc. on Form 10-K for the fiscal year ended dated August 14, 1995 December 31, 1995.
63
Exhibit No. Description SEC Document Reference --- ----------- ---------------------- 10.9 Deed of Trust, Financing Statement, Security Exhibit 10.12 to the Company's Annual Report on Agreement and Fixture Filing between Megatest Form 10-K for the fiscal year ended and the Sun Life Assurance Company of Canada December 31, 1995. (U.S.) dated August 25, 1995 10.10. 1997 Employee Stock Option Plan, as amended* Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 2001. 10.11. 1996 Non-Employee Director Stock Option Plan, as Filed herewith. amended* 10.12. GenRad, Inc. 1991 Equity Incentive Plan* Exhibit 4.4 to the Company's Registration Statement on Form S-8 (Registration Statement No. 333-73700). 10.13. GenRad, Inc. 1991 Directors' Stock Option Plan* Exhibit 4.5 to the Company's Registration Statement on Form S-8 (Registration Statement No. 333-73700). 10.14. GenRad, Inc. 1997 Non-Qualified Employee Stock Exhibit 4.6 to the Company's Registration Option Plan* Statement on Form S-8 (Registration Statement No. 333-73700). 10.15. GenRad, Inc. Non-Statutory Stock Option Exhibit 4.7 to the Company's Registration Agreement by and between Robert M. Statement on Form S-8 (Registration Statement Dutkowsky and GenRad, Inc.* No. 333-73700). 10.16. Change in Control Agreement dated October 19, 2001 Filed herewith. between the Company and Executive Officer* 10.17. Change in Control Agreement dated October 19, 2001 Filed herewith. between the Company and Executive Officer* 10.18. Change in Control Agreement dated October 19, 2001 Filed herewith. between the Company and Executive Officer* 10.19. Change in Control Agreement dated March 19, 2002 Filed herewith. between the Company and Executive Officer* 10.20. Change in Control Agreement dated October 19, 2001 Filed herewith. between the Company and Executive Officer* 10.21. Change in Control Agreement dated October 2, 2001 Filed herewith. between the Company and Executive Officer* 10.22. Change in Control Agreement dated October 19, 2001 Filed herewith. between the Company and Executive Officer* 10.23. Change in Control Agreement dated October 19, 2001 Filed herewith. between the Company and Executive Officer* 10.24. Change in Control Agreement dated October 19, 2001 Filed herewith. between the Company and Executive Officer* 10.25. Promisory Note dated December 19, 2001 between the Filed herewith. Company, as borrower, and General Electric Capital Business Asset Funding Corporation, as lender 10.26. Form of Commercial Deed of Trust, Security Filed herewith. Agreement, Assignment of Leases and Rents, and Fixture Filing Agreement dated December 19, 2001 between the Company, as borrower, and General Electric Capital Business Asset Funding Corporation, as lender 10.27 Form of Assignment of Rents and Leases Filed herewith. Agreement dated December 19, 2001 between the Company, as borrower, and General Electric Capital Business Asset Funding Corporation, as lender
64
Exhibit No. Description SEC Document Reference --- ----------- ---------------------- 10.28 Form of Certificate and Indemnity Agreement Filed herewith. regarding Hazardous Substances dated December 19, 2001 between the Company, as borrower, and General Electric Capital Business Asset Funding Corporation, as lender 10.29 Lease Agreements dated July 26, 1996 between Exhibit 10 to GenRad, Inc.'s Quarterly Report on GenRad, Inc. and Michelson Farm-Westford Form 10-Q for the quarter ended June 29, 1996 Technology Park Trust (Commission File No. 1-8045). 12.1 Statement regarding Computation of Ratio of Earnings to Fixed Charges Filed herewith. 21.1 Subsidiaries of the Company Filed herewith. 23.1 Consent of PricewaterhouseCoopers LLP Filed herewith.
* Indicates management contracts or compensatory plans 65 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this 29th day of March, 2002. TERADYNE, INC. By: /s/ GREGORY R. BEECHER ----------------------------- Gregory R. Beecher, Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ GEORGE W. CHAMILLARD Chairman of the Board, March 29, 2002 - ----------------------------- President, George W. Chamillard and Chief Executive Officer (Principal Executive Officer) /s/ GREGORY R. BEECHER Vice President and March 29, 2002 - ----------------------------- Chief Financial Officer Gregory R. Beecher (Principal Financial Officer) /s/ G. RICHARD MACDONALD Controller, Principal March 29, 2002 - ----------------------------- Accounting Officer G. Richard MacDonald /s/ JAMES W. BAGLEY Director March 29, 2002 - ----------------------------- James W. Bagley /s/ ALBERT CARNESALE Director March 29, 2002 - ----------------------------- Albert Carnesale /s/ DANIEL S. GEGORY Director March 25, 2002 - ----------------------------- Daniel S. Gegory /s/ DWIGHT H. HIBBARD Director March 28, 2002 - ----------------------------- Dwight H. Hibbard /s/ JOHN P. MULRONEY Director March 26, 2002 - ----------------------------- John P. Mulroney /s/ VINCENT M. O'REILLY Director March 27, 2002 - ----------------------------- Vincent M. O'Reilly /s/ RICHARD J. TESTA Director March 29, 2002 - ----------------------------- Richard J. Testa /s/ ROY A. VALLEE Director March 29, 2002 - ----------------------------- Roy A. Vallee /s/ PATRICIA S. WOLPERT Director March 25, 2002 - ----------------------------- Patricia S. Wolpert 66 EX-10.6 3 dex106.txt 1996 EMPLOYEE STOCK OPTION PLAN Exhibit 10.6 TERADYNE, INC. 1996 EMPLOYEE STOCK PURCHASE PLAN Article 1 - Purpose. This 1996 Employee Stock Purchase Plan (the "Plan") is intended to encourage stock ownership by all eligible employees of Teradyne, Inc. (the "Company"), a Massachusetts corporation, and its participating subsidiaries (as defined in Article 17) so that they may share in the growth of the Company by acquiring or increasing their proprietary interest in the Company. The Plan is designed to encourage eligible employees to remain in the employ of the Company and its participating subsidiaries. The Plan is intended to constitute an "employee stock purchase plan" within the meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended (the "Code"). Article 2 - Administration of the Plan. The Plan may be administered by a committee appointed by the Board of Directors of the Company (the "Committee"). The Committee shall consist of not less than two members of the Company's Board of Directors. The Board of Directors may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, howsoever caused, shall be filled by the Board of Directors. The Committee may select one of its members as Chairman, and shall hold meetings at such times and places as it may determine. Acts by a majority of the Committee, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. The interpretation and construction by the Committee of any provisions of the Plan or of any option granted under it shall be final, unless otherwise determined by the Board of Directors. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best, provided that any such rules and regulations shall be applied on a uniform basis to all employees under the Plan. No member of the Board of Directors or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under it. In the event the Board of Directors fails to appoint or refrains from appointing a Committee, the Board of Directors shall have all power and authority to administer the Plan. In such event, the word "Committee" wherever used herein shall be deemed to mean the Board of Directors. Article 3 - Eligible Employees. No option may be granted to any person serving as a member of the Committee at the time of grant. Subject to the foregoing limitation, all employees of the Company or any of its participating subsidiaries on United States payroll who are employees of the Company or any of its participating subsidiaries (i) on or before the first day of any Payment Period (as defined in Article 5) or (ii) for employees first employed after the first day of a particular Payment Period, on or before the first day of the next succeeding July in any such Payment Period, and whose customary employment is not less than twenty hours per week and more than five months in any calendar year shall be eligible to receive options under the Plan to purchase common stock of the Company, par value $.125 per share ("Common Stock"). An employee eligible under this Plan solely by virtue of clause (ii) of the preceding sentence shall be referred to herein as a "July Employee." All eligible employees shall have the same rights and privileges hereunder. Persons who elect to enter the Plan in accordance with Article 7 and who are eligible employees on the first business day of any Payment Period (as defined in Article 5) (or on the first business day of July with respect to July Employees) shall receive their options as of such day. Persons who elect to enter the Plan in accordance with Article 7 and who become eligible employees after any date on which options are granted under the Plan shall be granted options on the first business day of the next succeeding Payment Period or the first business day of July (whichever is applicable) on which options are granted to eligible employees under the Plan. In no event, however, may an employee be granted an option if such employee, immediately after the option was granted, would be treated as owning stock possessing five percent or more of the total combined voting power or value of all classes of stock of the Company or of any parent corporation or subsidiary corporation, as the terms "parent corporation" and "subsidiary corporation" are defined in Section 424(e) and (f) of the Code. For purposes of determining stock ownership under this paragraph, the rules of Section 424(d) of the Code shall apply, and stock which the employee may purchase under outstanding options shall be treated as stock owned by the employee. Article 4 - Stock Subject to the Plan. The stock subject to the options under the Plan shall be authorized but unissued Common Stock, or shares of Common Stock reacquired by the Company, including shares purchased in the open market. The aggregate number of shares which may be issued pursuant to the Plan is 5,400,000, subject to adjustment as provided in Article 12. If any option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, the unpurchased shares subject thereto shall again be available under the Plan. Article 5 - Payment Period and Stock Options. For the duration of the Plan, the Payment Period shall be defined as the twelve-month period commencing on the first day of January and ending annually on the last day of December of each calendar year. Notwithstanding the foregoing, the first Payment Period during which payroll deductions will be accumulated under the Plan shall commence on July 1, 1996 and shall end on December 31, 1996. On the first business day of each Payment Period (or on the first business day of July of such Payment Period in the case of a July Employee), the Company will grant to each eligible employee who is then a participant in the Plan an option to purchase on the last day of such Payment Period, at the Option Price hereinafter provided for, a maximum of 6,000 shares, on condition that such employee remains eligible to participate in the Plan throughout the remainder of such Payment Period. The participant shall be entitled to exercise the option so granted only to the extent of the participant's accumulated payroll deductions on the last day of such Payment Period. If the participant's accumulated payroll deductions on the last day of the Payment Period would enable the participant to purchase more than 6,000 shares except for the 6,000 share limitation, the excess of the amount of the accumulated payroll deductions over the aggregate purchase price of the 6,000 shares shall be promptly refunded to the participant by the Company, without interest. The Option Price per share for each Payment Period shall be the lesser of (i) 85% of the fair market value of the Common Stock on the first business day of the Payment Period (or, in the case of a July Employee, on the first business day of July of such Payment Period) and (ii) 85% of the fair market value of the Common Stock on the last business day of the Payment Period, in either event rounded up to the nearest cent. The foregoing limitation on the number of shares subject to option and the Option Price shall be subject to adjustment as provided in Article 12. For purposes of the Plan, the term "fair market value" on any date means (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on The Nasdaq Stock Market, if the Common Stock is not then traded on a national securities exchange; or (iii) the average of the closing bid and asked prices last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on The Nasdaq Stock Market; or (iv) if the Common Stock is not publicly traded, the fair market value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. For purposes of the Plan, the term "business day" means a day on which there is trading on The Nasdaq Stock Market or the aforementioned national securities exchange, whichever is applicable pursuant to the preceding paragraph; and if neither is applicable, a day that is not a Saturday, Sunday or legal holiday in Massachusetts. Notwithstanding any other provision herein, no employee shall be granted an option which permits the employee's right to purchase stock under the Plan, and under all other Section 423(b) employee stock purchase plans of the Company and any parent or subsidiary corporations, to accrue at a rate which exceeds $25,000 of fair market value of such stock (determined on the date or dates that options on such stock were granted) for each calendar year in which such option is outstanding at any time. The purpose of the limitation in the preceding sentence is to comply with Section 423(b)(8) of the Code. If the participant's accumulated payroll deductions on the last day of the Payment Period would otherwise enable the participant to purchase Common Stock in excess of the Section 423(b)(8) $25,000 limitation described in this paragraph, the excess of the amount of the accumulated payroll deductions over the aggregate purchase price of the shares actually purchased shall be promptly refunded to the participant by the Company, without interest. Article 6 - Exercise of Option. Each eligible employee who continues to be a participant in the Plan on the last day of a Payment Period shall be deemed to have exercised his or her option on such date and shall be deemed to have purchased from the Company such number of full shares of Common Stock reserved for the purpose of the Plan as the participant's accumulated payroll deductions on such date will pay for at the Option Price, subject to the 6,000 share limit of the option and the Section 423(b)(8) $25,000 limitation described in Article 5. If the individual is not a participant on the last day of a Payment Period, then he or she shall not be entitled to exercise his or her option. Only full shares of Common Stock may be purchased under the Plan. Unused payroll deductions remaining in a participant's account at the end of a Payment Period solely by reason of the inability to purchase a fractional share (and for no other reason) shall be refunded. Article 7 - Authorization for Entering the Plan. An employee may elect to enter the Plan by filling out, signing and delivering to the Company an authorization: A. Stating the percentage to be deducted from the employee's pay; B. Authorizing the purchase of stock for the employee in each Payment Period in accordance with the terms of the Plan; and C. Specifying the exact name or names in which stock purchased for the employee is to be issued as provided under Article 11 hereof. Such authorization must be received by the Company on or before the first day of the next succeeding Payment Period or on or prior to the first day of July of such Payment Period in the case of a July Employee. Unless a participant files a new authorization or withdraws from the Plan, the deductions and purchases under the authorization the participant has on file under the Plan will continue from one Payment Period to succeeding Payment Periods as long as the Plan remains in effect. The Company will accumulate and hold for each participant's account the amounts deducted from his or her pay. No interest will be paid on these amounts. Article 8 - Maximum Amount of Payroll Deductions. An employee may authorize payroll deductions in an amount (expressed as a whole percentage) not less than two percent (2%) but not more than ten percent (10%) of the employee's cash compensation. Article 9 - Change in Payroll Deductions. Deductions may not be increased during a Payment Period. Deductions may be decreased during a Payment Period, provided that an employee may not decrease his deduction more often than twice during any Payment Period (and with respect to July Employees once during any Payment Period). Article 10 - Withdrawal from the Plan. A participant may withdraw from the Plan (in whole but not in part) at any time prior to the last day of a Payment Period by delivering a withdrawal notice to the Company. To re-enter the Plan, an employee who has previously withdrawn must file a new authorization on or before the first day of the next Payment Period in which he or she wishes to participate. The employee's re-entry into the Plan becomes effective at the beginning of such Payment Period, provided that he or she is an eligible employee on the first business day of the Payment Period. Article 11 - Issuance of Stock. Certificates for stock issued to participants shall be delivered as soon as practicable after each Payment Period by the Company's transfer agent. Stock purchased under the Plan shall be issued only in the name of the participant, or if the participant's authorization so specifies, in the name of the participant and another person of legal age as joint tenants with rights of survivorship. Article 12 - Adjustments. Upon the happening of any of the following described events, a participant's rights under options granted under the Plan shall be adjusted as hereinafter provided: A. In the event that the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if, upon a reorganization, split-up, liquidation, recapitalization or the like of the Company, the shares of Common Stock shall be exchanged for other securities of the Company, each participant shall be entitled, subject to the conditions herein stated, to purchase such number of shares of Common Stock or amount of other securities of the Company as were exchangeable for the number of shares of Common Stock that such participant would have been entitled to purchase except for such action, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or exchange; and B. In the event the Company shall issue any of its shares as a stock dividend upon or with respect to the shares of stock of the class which shall at the time be subject to options hereunder, each participant upon exercising such an option shall be entitled to receive (for the purchase price paid upon such exercise) the shares as to which the participant is exercising his or her option and, in addition thereto (at no additional cost), such number of shares of the class or classes in which such stock dividend or dividends were declared or paid, and such amount of cash in lieu of fractional shares, as is equal to the number of shares thereof and the amount of cash in lieu of fractional shares, respectively, which the participant would have received if the participant had been the holder of the shares as to which the participant is exercising his or her option at all times between the date of the granting of such option and the date of its exercise. Upon the happening of any of the foregoing events, the class and aggregate number of shares set forth in Article 4 hereof which are subject to options which have been or may be granted under the Plan and the limitations set forth in the second paragraph of Article 5 shall also be appropriately adjusted to reflect the events specified in paragraphs A and B above. Notwithstanding the foregoing, any adjustments made pursuant to paragraphs A or B shall be made only after the Committee, based on advice of counsel for the Company, determines whether such adjustments would constitute a "modification" (as that term is defined in Section 424 of the Code). If the Committee determines that such adjustments would constitute a modification, it may refrain from making such adjustments. If the Company is to be consolidated with or acquired by another entity in a merger, a sale of all or substantially all of the Company's assets or otherwise (an "Acquisition"), the Committee or the board of directors of any entity assuming the obligations of the Company hereunder (the "Successor Board") shall, with respect to options then outstanding under the Plan, either (i) make appropriate provision for the continuation of such options by arranging for the substitution on an equitable basis for the shares then subject to such options either (a) the consideration payable with respect to the outstanding shares of the Common Stock in connection with the Acquisition, (b) shares of stock of the successor corporation, or a parent or subsidiary of such corporation, or (c) such other securities as the Successor Board deems appropriate, the fair market value of which shall not exceed the fair market value of the shares of Common Stock subject to such options immediately preceding the Acquisition; or (ii) terminate each participant's options in exchange for a cash payment equal to the excess of the fair market value on the date of the Acquisition of the number of shares of Common Stock that the participant's accumulated payroll deductions as of the date of the Acquisition could purchase, at an option price determined with reference only to the first business day of the applicable Payment Period (or the first business day of July of such Payment Period in the case of a July Employee) and subject to the 6,000 share limit, Code Section 423(b)(8) and fractional-share limitations on the amount of stock a participant would be entitled to purchase over the aggregate option price to such participant thereof. The Committee or Successor Board shall determine the adjustments to be made under this Article 12, and its determination shall be conclusive. Article 13 - No Transfer or Assignment of Employee's Rights. An option granted under the Plan may not be transferred or assigned, otherwise than by will or by the laws of descent and distribution. Any option granted under the Plan may be exercised, during the participant's lifetime, only by the participant. Article 14 - Termination of Employee's Rights. Whenever a participant ceases to be an eligible employee because of retirement, voluntary or involuntary termination, resignation, layoff, discharge, death or for any other reason, his or her rights under the Plan shall immediately terminate, and the Company shall promptly refund, without interest, the entire balance of his or her payroll deduction account under the Plan; provided, however, that if an employee is laid off during the last three months of any Payment Period, he shall nevertheless be deemed to be a participant in the Plan on the last day of the Payment Period. Notwithstanding the foregoing, eligible employment shall be treated as continuing intact while a participant is on military leave, sick leave or other bona fide leave of absence, for up to 90 days, or, if such leave is longer than 90 days, for so long as the participant's right to re-employment is guaranteed either by statute or by written contract. Notwithstanding any other provision herein, if a participant's employment is terminated by reason of retirement, and the date of such termination occurs after the date that is 3 months prior to the last day of the Payment Period, such participant's rights under the Plan are not immediately terminated, and if the participant has not withdrawn from the Plan, such participant's options shall be deemed to have been exercised on the last day of the Payment Period in accordance with the terms of the Plan. Article 15 - Termination and Amendments to Plan. The Plan may be terminated at any time by the Company's Board of Directors but such termination shall not affect options then outstanding under the Plan. If at any time shares of stock reserved for the purpose of the Plan remain available for purchase but not in sufficient number to satisfy all then unfilled purchase requirements, the available shares shall be apportioned among participants in proportion to the amount of payroll deductions accumulated on behalf of each participant that would otherwise be used to purchase stock, and the Plan shall terminate. Upon such termination or any other termination of the Plan, all payroll deductions not used to purchase stock will be refunded, without interest. The Committee or the Board of Directors may from time to time adopt amendments to the Plan provided that, without the approval of the shareholders of the Company, no amendment may (i) increase the number of shares that may be issued under the Plan; (ii) change the class of employees eligible to receive options under the Plan, if such action would be treated as the adoption of a new plan for purposes of Code Section 423(b) and the regulations thereunder; or (iii) cause Rule 16b-3 under the Securities Exchange Act of 1934 to become inapplicable to the Plan. Article 16 - Limits on Sale of Stock Purchased under the Plan. The Plan is intended to provide shares of Common Stock for investment and not for resale. The Company does not, however, intend to restrict or influence any employee in the conduct of his or her own affairs. An employee may, therefore, sell stock purchased under the Plan at any time the employee chooses, subject to compliance with any applicable federal or state securities laws and subject to any restrictions imposed under Article 21 to ensure that tax withholding obligations are satisfied. THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF THE STOCK. Article 17 - Participating Subsidiaries. The term "participating subsidiary" shall mean any present or future subsidiary of the Company, as that term is defined in Section 424(f) of the Code, that is designated from time to time by the Board of Directors to participate in the Plan. The Board of Directors shall have the power to make such designation before or after the Plan is approved by the shareholders. Article 18 - Optionees Not Shareholders. Neither the granting of an option to an employee nor the deductions from his or her pay shall constitute such employee a stockholder of the shares covered by an option until such shares have been actually purchased by the employee. Article 19 - Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to options granted under the Plan will be used for general corporate purposes. Article 20 - Notice to Company of Disqualifying Disposition. By electing to participate in the Plan, each participant agrees to notify the Company in writing immediately after the participant transfers Common Stock acquired under the Plan, if such transfer occurs within two years after the first business day of the Payment Period in which such Common Stock was acquired. Each participant further agrees to provide any information about such a transfer as may be requested by the Company or any subsidiary corporation in order to assist it in complying with the tax laws. Such dispositions generally are treated as "disqualifying dispositions" under Sections 421 and 424 of the Code, which have certain tax consequences to participants and to the Company and its participating subsidiaries. Article 21 - Withholding of Additional Income Taxes. By electing to participate in the Plan, each participant acknowledges that the Company and its participating subsidiaries are required to withhold taxes with respect to the amounts deducted from the participant's compensation and accumulated for the benefit of the participant under the Plan, and each participant agrees that the Company and its participating subsidiaries may deduct additional amounts from the participant's compensation, when amounts are added to the participant's account, used to purchase Common Stock or refunded, in order to satisfy such withholding obligations. Each participant further acknowledges that when Common Stock is purchased under the Plan the Company and its participating subsidiaries may be required to withhold taxes with respect to all or a portion of the difference between the fair market value of the Common Stock purchased and its purchase price, and each participant agrees that such taxes may be withheld from compensation otherwise payable to such participant. It is intended that tax withholding will be accomplished in such a manner that the full amount of payroll deductions elected by the participant under Article 7 will be used to purchase Common Stock. However, if amounts sufficient to satisfy applicable tax withholding obligations have not been withheld from compensation otherwise payable to any participant, then, notwithstanding any other provision of the Plan, the Company may withhold such taxes from the participant's accumulated payroll deductions and apply the net amount to the purchase of Common Stock, unless the participant pays to the Company, prior to the exercise date, an amount sufficient to satisfy such withholding obligations. Each participant further acknowledges that the Company and its participating subsidiaries may be required to withhold taxes in connection with the disposition of stock acquired under the Plan and agrees that the Company or any participating subsidiary may take whatever action it considers appropriate to satisfy such withholding requirements, including deducting from compensation otherwise payable to such participant an amount sufficient to satisfy such withholding requirements or conditioning any disposition of Common Stock by the participant upon the payment to the Company or such subsidiary of an amount sufficient to satisfy such withholding requirements. Article 22 - Governmental Regulations. The Company's obligation to sell and deliver shares of Common Stock under the Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. Government regulations may impose reporting or other obligations on the Company with respect to the Plan. For example, the Company may be required to identify shares of Common Stock issued under the Plan on its stock ownership records and send tax information statements to employees and former employees who transfer title to such shares. Article 23 - Governing Law. The validity and construction of the Plan shall be governed by the laws of Massachusetts, without giving effect to the principles of conflicts of law thereof. Article 24 - Approval of Board of Directors and Stockholders of the Company. The Plan was adopted by the Board of Directors on March 19, 1996 and on such date the Board of Directors resolved that the Plan was to be submitted to the shareholders of the Company for approval at the next meeting of shareholders. If the Plan does not receive such approval, all payroll deductions shall be returned without interest and the Plan shall be terminated. EX-10.11 4 dex1011.txt 1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN Exhibit 10.11 TERADYNE, INC. 1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN 1. Purpose. This Non-Qualified Stock Option Plan, to be known as the 1996 Non-Employee Director Stock Option Plan (hereinafter, this "Plan") is intended to promote the interests of Teradyne, Inc. (hereinafter, the "Company") by providing an inducement to obtain and retain the services of qualified persons who are not employees or officers of the Company to serve as members of its Board of Directors (the "Board"). 2. Available Shares. The total number of shares of Common Stock, par value $.125 per share, of the Company (the "Common Stock") for which options may be granted under this Plan shall not exceed 1,600,000 shares, subject to adjustment in accordance with paragraph 10 of this Plan. Shares subject to this Plan are authorized but unissued shares or shares that were once issued and subsequently reacquired by the Company. If any options granted under this Plan are surrendered before exercise or lapse without exercise, in whole or in part, the shares reserved therefor shall continue to be available under this Plan. 3. Administration. This Plan shall be administered by the Board or by a committee appointed by the Board (the "Committee"). In the event the Board fails to appoint or refrains from appointing a Committee, the Board shall have all power and authority to administer this Plan. In such event, the word "Committee" wherever used herein shall be deemed to mean the Board. The Committee shall, subject to the provisions of the Plan, have the power to construe this Plan, to determine all questions hereunder, and to adopt and amend such rules and regulations for the administration of this Plan as it may deem desirable. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to this Plan or any option granted under it. 4. Automatic Grant of Options. Subject to the availability of shares under this Plan, (a) each person who becomes a member of the Board on or after August 26, 1999 and who is not an employee or officer of the Company (each, a "Non-Employee Director") shall be automatically granted on the date such person is first elected to the Board, without further action by the Board, an option to purchase 22,500 shares of the Common Stock, (b) each person who was a Non-Employee Director on February 7, 2000 shall be granted on February 5, 2001 an option to purchase 6,750 shares of the Common Stock, (c) each Non-Employee Director who became a new member of the Board during February 2000 shall be granted on February 5, 2001 an option to purchase 15,750 shares of the Common Stock, and (d) beginning on February 5, 2001 and throughout the term of this Plan, each person who is a Non-Employee Director on the first Monday in February in each year shall be automatically granted on each such date an option to purchase 11,250 shares of the Common Stock. The options to be granted under this paragraph 4 shall be the only options ever to be granted at any time to each such member under this Plan. The number of shares covered by options granted under this paragraph 4 shall be subject to adjustment in accordance with the provisions of paragraph 10 of this Plan. 5. Option Price. The purchase price of the stock covered by an option granted pursuant to this Plan shall be 100% of the fair market value of such shares on the day the option is granted. The option price will be subject to adjustment in accordance with the provisions of - 2 - paragraph 10 of this Plan. For purposes of this Plan, if, at the time an option is granted under the Plan, the Company's Common Stock is publicly traded, "fair market value" shall be determined as of the last business day for which the prices or quotes discussed in this sentence are available prior to the date such option is granted and shall mean (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on the Nasdaq National Market, if the Common Stock is not then traded on a national securities exchange; or (iii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on the Nasdaq National Market List. 6. Period of Option. Unless sooner terminated in accordance with the provisions of paragraph 8 of this Plan, an option granted hereunder shall expire on the date which is seven (7) years after the date of grant of the option. 7. (a) Vesting of Shares and Non-Transferability of Options. Options granted under this Plan shall not be exercisable until they become vested. Options granted under this Plan prior to February 5, 2001 shall vest in the optionee and thus become exercisable, in accordance with the following schedule, provided that the optionee has continuously served as a member of the Board through such vesting date: Percentage of Option Shares for which Option Will be Exercisable Date of Vesting 0% Less than one year from the date of grant 25% One year from the date of grant 50% Two years from the date of grant 75% Three years from the date of grant 100% Four years from the date of grant Options granted on or after February 5, 2001 shall not be subject to vesting and shall be immediately exercisable in their entirety on the date of grant. The number of shares as to which options may be exercised shall be cumulative, so that once the option shall become exercisable as to any shares it shall continue to be exercisable as to said shares, until expiration or termination of the option as provided in this Plan. (b) Non-transferability. Any option granted pursuant to this Plan shall not be assignable or transferable other than by will or the laws of descent and distribution or pursuant to a domestic relations order and shall be exercisable during the optionee's lifetime only by him or her. - 3 - 8. Termination of Option Rights. (a) If an optionee ceases to be a director of the Company other than by reason of death, no further installments of his options will become exercisable, and his options shall terminate after the passage of three months from the date of termination of his directorship (but not later than on their specified expiration dates). Notwithstanding the foregoing, in the event a director of the Company (A) resigns from the Board of Directors to enter government service or (B) retires from the Board of Directors (i) at any time on or after age 55 but prior to age 65 provided that such director has been a director of the Company continuously for at least ten years or (ii) at any time on or after age 65 provided that such director has been a director of the Company continuously for at least five years, such director may exercise any option then held by him or her, within the original term of the option, as to all or any of the shares covered thereby, at the time or times such exercise is permitted under the terms of the option. Notwithstanding the foregoing, if a director retires from the Company at any time and becomes a director of a competitor of the company, such director's options shall terminate after the passage of three months from the date that such director becomes a director of a competitor. Nothing in the Plan shall be deemed to give any optionee the right to be nominated as a director by the Company for any period of time. (b) If an optionee dies, any option of his may be exercised, to the extent of the number of shares with respect to which he could have exercised it on the date of his death, by his estate, personal representative or beneficiary who acquires the option by will or by the laws of descent and distribution, at any time prior to the earlier of the option's specified expiration date or six months from the date of the optionee's death. The option shall terminate on the earlier of such dates. 9. Exercise of Option. Subject to the terms and conditions of this Plan and the option agreements, an option granted hereunder shall, to the extent then exercisable, be exercisable in whole or in part by giving written notice to the Company by mail or in person, at its principal executive offices, stating the number of shares with respect to which the option is being exercised, accompanied by payment in full for such shares. Payment may be (a) in United States dollars in cash or by check, (b) in whole or in part in shares of the Common Stock of the Company already owned by the person or persons exercising the option or shares subject to the option being exercised (subject to such restrictions and guidelines as the Board may adopt from time to time), valued at fair market value determined in accordance with the provisions of paragraph 5 or (c) consistent with applicable law, through the delivery of an assignment to the Company of a sufficient amount of the proceeds from the sale of the Common Stock acquired upon exercise of the option and an authorization to the broker or selling agent to pay that amount to the Company, which sale shall be at the participant's direction at the time of exercise. There shall be no such exercise at any one time as to fewer than one hundred (100) shares or all of the remaining shares then purchasable by the person or persons exercising the option, if fewer than one hundred (100) shares. The Company's transfer agent shall, on behalf of the Company, prepare a certificate or certificates representing such shares acquired pursuant to exercise of the option, shall register the optionee as the owner of such shares on the books of the Company and shall cause the fully executed certificate(s) representing such shares to be delivered to the optionee as soon as practicable after payment of the option price in full. The holder of an option - 4 - shall not have any rights of a stockholder with respect to the shares covered by the option, except to the extent that one or more certificates for such shares shall be delivered to him or her upon the due exercise of the option. 10. Adjustments Upon Changes in Capitalization and Other Events. Upon the occurrence of any of the following events, an optionee's rights with respect to options granted to him or her hereunder shall be adjusted as hereinafter provided: (a) Stock Dividends and Stock Splits. If the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock deliverable upon the exercise of options shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. (b) Recapitalization Adjustments. In the event of a reorganization, recapitalization, merger, consolidation, or any other change in the corporate structure or shares of the Company, to the extent permitted by Rule 16b-3 under the Securities Exchange Act of 1934, adjustments in the number and kind of shares authorized by this Plan and in the number and kind of shares covered by, and in the option price of outstanding options under this Plan shall be made if, and in the same manner as, such adjustments are made to options issued under the Company's other stock option plans. Notwithstanding the foregoing, no such adjustment shall be made which would, within the meaning of any applicable provisions of the Internal Revenue Code of 1986, as amended, constitute a modification, extension or renewal of any Option or a grant of additional benefits to the holder of an Option. (c) Issuances of Securities. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to options. No adjustments shall be made for dividends paid in cash or in property other than securities of the Company. (d) Adjustments. Upon the happening of any of the foregoing events, the class and aggregate number of shares set forth in paragraphs 2 and 4 of this Plan that are subject to options which previously have been or subsequently may be granted under this Plan shall also be appropriately adjusted to reflect such events. The Board shall determine the specific adjustments to be made under this paragraph 10 and its determination shall be conclusive. 11. Restrictions on Issuance of Shares. Notwithstanding the provisions of paragraphs 4 and 9 of this Plan, the Company shall have no obligation to deliver any certificate or certificates upon exercise of an option until one of the following conditions shall be satisfied: (i) The issuance of shares with respect to which the option has been exercised is at the time of the issue of such shares effectively registered under applicable Federal and state securities laws as now in force or hereafter amended; or - 5 - (ii) Counsel for the Company shall have given an opinion that the issuance of such shares is exempt from registration under Federal and state securities laws as now in force or hereafter amended; and the Company has complied with all applicable laws and regulations with respect thereto, including without limitation all regulations required by any stock exchange upon which the Company's outstanding Common Stock is then listed. 12. Legend on Certificates. The certificates representing shares issued pursuant to the exercise of an option granted hereunder shall carry such appropriate legend, and such written instructions shall be given to the Company's transfer agent, as may be deemed necessary or advisable by counsel to the Company in order to comply with the requirements of the Securities Act of 1933 or any state securities laws. 13. Representation of Optionee. If requested by the Company, the optionee shall deliver to the Company written representations and warranties upon exercise of the option that are necessary to show compliance with Federal and state securities laws, including representations and warranties to the effect that a purchase of shares under the option is made for investment and not with a view to their distribution (as that term is used in the Securities Act of 1933). 14. Option Agreement. Each option granted under the provisions of this Plan shall be evidenced by an option agreement, which agreement shall be duly executed and delivered on behalf of the Company and by the optionee to whom such option is granted. The option agreement shall contain such terms, provisions and conditions not inconsistent with this Plan as may be determined by the officer executing it. 15. Termination and Amendment of Plan. Options may no longer be granted under this Plan after November 13, 2006, and this Plan shall terminate when all options granted or to be granted hereunder are no longer outstanding. The Board may at any time terminate this Plan or make such modification or amendment thereof as it deems advisable; provided, however, that the Board may not modify or amend this Plan, without approval of the stockholders, if such approval is required by the Federal securities laws or applicable regulatory authorities (at the time of any such modification or amendment). Termination or any modification or amendment of this Plan shall not, without consent of a participant, affect his or her rights under an option previously granted to him or her. 16. Withholding of Income Taxes. Upon the exercise of an option, the Company, in accordance with Section 3402(a) of the Internal Revenue Code, may require the optionee to pay withholding taxes in respect of amounts considered to be compensation includible in the optionee's gross income. - 6 - 17. Compliance with Regulations. It is the Company's intent that the Plan comply in all respects with Rule 16b-3 under the Securities Exchange Act of 1934 (or any successor or amended provision thereof) and any applicable Securities and Exchange Commission interpretations thereof. If any provision of this Plan is deemed not to be in compliance with Rule 16b-3, the provision shall be null and void. 18. Governing Law. The validity and construction of this Plan and the instruments evidencing options shall be governed by the laws of the Commonwealth of Massachusetts, without giving effect to the principles of conflicts of law thereof. EX-10.16 5 dex1016.txt CHANGE IN CONTROL AGREEMENT Exhibit 10.16 EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT entered into this 19th day of October, 2001, by and between Teradyne, Inc., a Massachusetts corporation ("Teradyne"), and the undersigned executive officer of Teradyne -------- ("Employee"). -------- WITNESSETH: WHEREAS, Teradyne and Employee desire to set forth certain terms and conditions relating to benefits to be afforded to Employee upon the occurrence of a Change in Control (as hereinafter defined) of Teradyne; NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. Option Acceleration. (a) during the Term (as hereinafter ------------------- defined), if within twenty-four (24) months following a Change in Control there is a Termination Event (as hereinafter defined), all of Employee's unvested Options granted prior to, on, or after the date hereof (but only (I) such Options as have been granted to Employee by Teradyne as of the date of the Change in Control or (II) such Options as have been assumed by an acquiring company at the time of a Change in Control or such new options that have been substituted by an acquiring company for Options existing at the time of a Change in Control, each pursuant to the terms of any Teradyne option plan) shall automatically become fully vested as of the date of such Termination Event. The parties hereto acknowledge that the terms of this Agreement are intended to modify the terms of Employee's existing Option agreements and to be a supplement to future Option agreements. (b) For purposes of this Agreement, the following terms shall have the following meanings: "Cause" shall mean conduct involving one or more of the ----- following: (i) the substantial and continuing failure of Employee, after notice thereof, to render services to Teradyne in accordance with the terms or requirements of his or her employment; (ii) Employee's disloyalty, gross negligence, willful misconduct, dishonesty, fraud or breach of fiduciary duty to Teradyne; (iii) Employee's deliberate disregard of the rules or policies of, or breach of an agreement with, Teradyne which results in direct or indirect loss, damage or injury to Teradyne; (iv) the unauthorized disclosure by Employee of any trade secret or confidential information of Teradyne; or (v) the commission by Employee of an act which constitutes unfair competition with Teradyne. A "Change in Control" shall be deemed to have occurred upon ----------------- the occurrence of any of the following events: (i) any consolidation, cash tender offer, reorganization, recapitalization, merger or plan of share exchange following which the shareholders of Teradyne immediately prior to such transaction own less than a majority of the combined voting power of -2- the then-outstanding securities of the combined corporation or person immediately after such transaction; (ii) any sale, lease, exchange or other transfer of all or substantially all of Teradyne's assets; (iii) the adoption by the Board of Directors of Teradyne of any plan or proposal for the liquidation or dissolution of Teradyne; (iv) a change in the majority of the Board of Directors of Teradyne through one or more contested elections; or (v) any person (as that term is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act of 1934, as amended) becomes beneficial owner of 30% or more of the combined voting power of Teradyne's outstanding voting securities. "Good Reason" shall mean any one or more of the following: (i) ----------- any material reduction of Employee's responsibilities (other than for Cause or as a result of death or disability); (ii) any material reduction in Employee's model compensation as in effect on the date of the consummation of the Change in Control, or as the same may be increased from time to time, or any failure by Teradyne to pay to Employee any bonus accrued, but not yet paid, upon written notice by Employee to Teradyne, within 45 days; (iii) a material reduction in the value of Employee's benefit package from the value of Employee's benefit package on the date of the consummation of the Change in Control; or (iv) any permanent assignment of Employee to a job location situated more than 50 miles away from his current job location. "Option" shall mean an option to purchase shares of Teradyne ------ Common Stock. "Termination Event" shall mean (i) any termination of Employee ----------------- by Teradyne without Cause or (ii) any voluntary termination by Employee for Good Reason. 2. (a) Parachute Payment Gross-Up. If any Payments (as -------------------------- hereinafter defined) to Employee are subject to the Excise Tax (as hereinafter defined), Teradyne shall pay to Employee a Gross-Up Payment (as hereinafter defined). The Gross-Up Payment with respect to any Payment shall be paid no later than 15 days prior to the date that the Excise Tax is due with respect to such Payment. (b) Definitions. For purposes of this Section 2, the ----------- following terms shall have the following meanings: (i) "Code" shall mean the Internal Revenue Code ---- of 1986, as amended. (ii) "Excise Tax" shall mean the tax imposed by ---------- Section 4999 of the Code. The amount of the Excise Tax (if any) imposed on any non-cash benefits or any deferred payment or benefit shall be reasonably determined by Teradyne, after consultation with its legal and tax advisors. (iii) "Gross-Up Payment" shall mean, with respect ---------------- to Payments to the Employee, the amount necessary so that the amount retained by Employee, after reduction for (1) any Excise Tax on the Gross-Up -3- Payment and (2) any federal, state, or local income and employment taxes imposed on the Gross-Up Payment, is an amount equal to the Excise Tax on the Payments to Employee, other than the Gross-Up Payment. The amount of the Gross-Up Payment shall be reasonably determined by Teradyne after consultation with its legal and tax advisors. (1) For purposes of determining the amount of the Gross-Up Payment, Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal, state and local income tax in the calendar year in which the Gross-Up Payment is made (determined by reference to Employee's residence for such calendar year), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (2) In the event that the Excise Tax with respect to the Payments is determined to exceed the amount taken into account hereunder, Teradyne shall make an additional Gross-Up Payment in respect of such excess. For purposes of calculating such Gross-Up Payment, any interest or penalties imposed in connection with such excess Excise Tax shall be treated as an Excise Tax. (3) In the event that the Excise Tax with respect to the Payments is subsequently determined to be less than the amount taken into account for purposes of calculating the Gross-Up Payment, Employee shall promptly repay to Teradyne the after-tax portion of the Gross-Up Payment that exceeds the Gross-Up Payment that otherwise would have been payable in connection with the actual Excise Tax imposed on the Payments. (iv) "Payment" shall mean, with respect to the ------- Employee, any payment in the nature of compensation to (or for the benefit of) such individual, if such payment is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) in the ownership of a substantial portion of the assets of Teradyne (in each case, as reasonably determined by Teradyne in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). Notwithstanding the foregoing, any amount payable to (or for the benefit of) the Employee shall be a Payment if an Excise Tax is imposed on the Employee with respect to such payment or benefit, and such payment or benefit is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) -4- in the ownership of a substantial portion of the assets of Teradyne (in each case, determined in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). 3. No Obligation of Employment. Employee understands that the --------------------------- employment relationship between Employee and Teradyne will be "at will" and Employee understands that, prior to any Change in Control, Teradyne may terminate Employee with or without "Cause" at any time. Following any Change in Control, Teradyne may also terminate Employee with or without "cause" at any time subject to Employee's rights and Teradyne's obligations specified in this Agreement. 4. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the internal laws of the Commonwealth of Massachusetts and this Agreement shall be deemed to be performable in Massachusetts. 5. Severability. In case any one or more of the provisions ------------ contained in this Agreement for any reason shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement and this Agreement shall be construed to the maximum extent permitted by law. 6. Waivers and Modifications. This Agreement may be modified, and ------------------------- the rights, remedies and obligations contained in any provision hereof may be waived, only in accordance with this Section 6. No waiver by either party of any breach by the other or any provision hereof shall be deemed to be a waiver of any later or other breach thereof or as a waiver of any other provision of this Agreement. This Agreement may not be waived, changed, discharged or terminated orally or by any course of dealing between the parties, but only by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought. 7. Assignment. Employee may not assign any of his rights or ---------- delegate any of his duties or obligations under this Agreement. The rights and obligations of Teradyne under this Agreement shall inure to the benefit of, and shall be binding upon, the successors and assigns of Teradyne. For purposes of this Agreement, "Teradyne" shall be deemed to include all successors and assigns of Teradyne. 8. Entire Agreement. This Agreement constitutes the entire ---------------- understanding of the parties relating to the subject matter hereof and supersedes and cancels all agreements, written or oral, made prior to the date hereof between Employee and Teradyne relating to the subject matter hereof; provided, however, that Employee's existing option agreements, as modified hereby, shall remain in effect. -5- 9. Notices. All notices hereunder shall be in writing and shall ------- be delivered in person or mailed by certified or registered mail, return receipt requested, addressed as follows: If to Teradyne, to: Teradyne, Inc. 321 Harrison Avenue Boston, MA 02118 Attention: Tom Grilk If to Employee, at Employee's address set forth on the signature page hereto. 10. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 11. Section Headings. The descriptive section headings herein have ---------------- been inserted for convenience only and shall not be deemed to define, limit, or otherwise affect the construction of any provision hereof. 12. Term. The term of this Agreement (the "Term") shall commence ---- upon the date hereof and terminate upon the earlier of (i) twenty-four (24) months following any Change in Control of Teradyne, (ii) the date prior to any Change in Control of Teradyne that employee for any reason ceases to be an employee of Teradyne and (iii) the date following any Change in Control of Teradyne that Employee is terminated for Cause or voluntary terminates his employment (other than for Good Reason). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. TERADYNE, INC. By: /s/ George W. Chamillard ------------------------------------- Name: George W. Chamillard Title: Chairman, Chief Executive Officer and President of Teradyne, Inc. EMPLOYEE /s/ Edward Rogas, Jr. ----------------------------------------- Name: Edward Rogas, Jr. Address: 909 Westbend Road Westlake Village, CA 91362 EX-10.17 6 dex1017.txt CHANGE IN CONTROL AGREEMENT Exhibit 10.17 EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT entered into this 19th day of October, 2001, by and between Teradyne, Inc., a Massachusetts corporation ("Teradyne"), and the undersigned executive officer of Teradyne -------- ("Employee"). -------- WITNESSETH: WHEREAS, Teradyne and Employee desire to set forth certain terms and conditions relating to benefits to be afforded to Employee upon the occurrence of a Change in Control (as hereinafter defined) of Teradyne; NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. Option Acceleration. (a) during the Term (as hereinafter ------------------- defined), if within twenty-four (24) months following a Change in Control there is a Termination Event (as hereinafter defined), all of Employee's unvested Options granted prior to, on, or after the date hereof (but only (I) such Options as have been granted to Employee by Teradyne as of the date of the Change in Control or (II) such Options as have been assumed by an acquiring company at the time of a Change in Control or such new options that have been substituted by an acquiring company for Options existing at the time of a Change in Control, each pursuant to the terms of any Teradyne option plan) shall automatically become fully vested as of the date of such Termination Event. The parties hereto acknowledge that the terms of this Agreement are intended to modify the terms of Employee's existing Option agreements and to be a supplement to future Option agreements. (b) For purposes of this Agreement, the following terms shall have the following meanings: "Cause" shall mean conduct involving one or more of the ----- following: (i) the substantial and continuing failure of Employee, after notice thereof, to render services to Teradyne in accordance with the terms or requirements of his or her employment; (ii) Employee's disloyalty, gross negligence, willful misconduct, dishonesty, fraud or breach of fiduciary duty to Teradyne; (iii) Employee's deliberate disregard of the rules or policies of, or breach of an agreement with, Teradyne which results in direct or indirect loss, damage or injury to Teradyne; (iv) the unauthorized disclosure by Employee of any trade secret or confidential information of Teradyne; or (v) the commission by Employee of an act which constitutes unfair competition with Teradyne. A "Change in Control" shall be deemed to have occurred upon ----------------- the occurrence of any of the following events: (i) any consolidation, cash tender offer, reorganization, recapitalization, merger or plan of share exchange following which the shareholders of Teradyne immediately prior to such transaction own less than a majority of the combined voting power of -2- the then-outstanding securities of the combined corporation or person immediately after such transaction; (ii) any sale, lease, exchange or other transfer of all or substantially all of Teradyne's assets; (iii) the adoption by the Board of Directors of Teradyne of any plan or proposal for the liquidation or dissolution of Teradyne; (iv) a change in the majority of the Board of Directors of Teradyne through one or more contested elections; or (v) any person (as that term is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act of 1934, as amended) becomes beneficial owner of 30% or more of the combined voting power of Teradyne's outstanding voting securities. "Good Reason" shall mean any one or more of the following: (i) ----------- any material reduction of Employee's responsibilities (other than for Cause or as a result of death or disability); (ii) any material reduction in Employee's model compensation as in effect on the date of the consummation of the Change in Control, or as the same may be increased from time to time, or any failure by Teradyne to pay to Employee any bonus accrued, but not yet paid, upon written notice by Employee to Teradyne, within 45 days; (iii) a material reduction in the value of Employee's benefit package from the value of Employee's benefit package on the date of the consummation of the Change in Control; or (iv) any permanent assignment of Employee to a job location situated more than 50 miles away from his current job location. "Option" shall mean an option to purchase shares of Teradyne ------ Common Stock. "Termination Event" shall mean (i) any termination of Employee ----------------- by Teradyne without Cause or (ii) any voluntary termination by Employee for Good Reason. 2. (a) Parachute Payment Gross-Up. If any Payments (as -------------------------- hereinafter defined) to Employee are subject to the Excise Tax (as hereinafter defined), Teradyne shall pay to Employee a Gross-Up Payment (as hereinafter defined). The Gross-Up Payment with respect to any Payment shall be paid no later than 15 days prior to the date that the Excise Tax is due with respect to such Payment. (b) Definitions. For purposes of this Section 2, the ----------- following terms shall have the following meanings: (i) "Code" shall mean the Internal Revenue Code ---- of 1986, as amended. (ii) "Excise Tax" shall mean the tax imposed by ---------- Section 4999 of the Code. The amount of the Excise Tax (if any) imposed on any non-cash benefits or any deferred payment or benefit shall be reasonably determined by Teradyne, after consultation with its legal and tax advisors. (iii) "Gross-Up Payment" shall mean, with respect ---------------- to Payments to the Employee, the amount necessary so that the amount retained by Employee, after reduction for (1) any Excise Tax on the Gross-Up -3- Payment and (2) any federal, state, or local income and employment taxes imposed on the Gross-Up Payment, is an amount equal to the Excise Tax on the Payments to Employee, other than the Gross-Up Payment. The amount of the Gross-Up Payment shall be reasonably determined by Teradyne after consultation with its legal and tax advisors. (1) For purposes of determining the amount of the Gross-Up Payment, Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal, state and local income tax in the calendar year in which the Gross-Up Payment is made (determined by reference to Employee's residence for such calendar year), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (2) In the event that the Excise Tax with respect to the Payments is determined to exceed the amount taken into account hereunder, Teradyne shall make an additional Gross-Up Payment in respect of such excess. For purposes of calculating such Gross-Up Payment, any interest or penalties imposed in connection with such excess Excise Tax shall be treated as an Excise Tax. (3) In the event that the Excise Tax with respect to the Payments is subsequently determined to be less than the amount taken into account for purposes of calculating the Gross-Up Payment, Employee shall promptly repay to Teradyne the after-tax portion of the Gross-Up Payment that exceeds the Gross-Up Payment that otherwise would have been payable in connection with the actual Excise Tax imposed on the Payments. (iv) "Payment" shall mean, with respect to the ------- Employee, any payment in the nature of compensation to (or for the benefit of) such individual, if such payment is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) in the ownership of a substantial portion of the assets of Teradyne (in each case, as reasonably determined by Teradyne in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). Notwithstanding the foregoing, any amount payable to (or for the benefit of) the Employee shall be a Payment if an Excise Tax is imposed on the Employee with respect to such payment or benefit, and such payment or benefit is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) -4- in the ownership of a substantial portion of the assets of Teradyne (in each case, determined in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). 3. No Obligation of Employment. Employee understands that the --------------------------- employment relationship between Employee and Teradyne will be "at will" and Employee understands that, prior to any Change in Control, Teradyne may terminate Employee with or without "Cause" at any time. Following any Change in Control, Teradyne may also terminate Employee with or without "cause" at any time subject to Employee's rights and Teradyne's obligations specified in this Agreement. 4. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the internal laws of the Commonwealth of Massachusetts and this Agreement shall be deemed to be performable in Massachusetts. 5. Severability. In case any one or more of the provisions ------------ contained in this Agreement for any reason shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement and this Agreement shall be construed to the maximum extent permitted by law. 6. Waivers and Modifications. This Agreement may be modified, and ------------------------- the rights, remedies and obligations contained in any provision hereof may be waived, only in accordance with this Section 6. No waiver by either party of any breach by the other or any provision hereof shall be deemed to be a waiver of any later or other breach thereof or as a waiver of any other provision of this Agreement. This Agreement may not be waived, changed, discharged or terminated orally or by any course of dealing between the parties, but only by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought. 7. Assignment. Employee may not assign any of his rights or ---------- delegate any of his duties or obligations under this Agreement. The rights and obligations of Teradyne under this Agreement shall inure to the benefit of, and shall be binding upon, the successors and assigns of Teradyne. For purposes of this Agreement, "Teradyne" shall be deemed to include all successors and assigns of Teradyne. 8. Entire Agreement. This Agreement constitutes the entire ---------------- understanding of the parties relating to the subject matter hereof and supersedes and cancels all agreements, written or oral, made prior to the date hereof between Employee and Teradyne relating to the subject matter hereof; provided, however, that Employee's existing option agreements, as modified hereby, shall remain in effect. -5- 9. Notices. All notices hereunder shall be in writing and shall ------- be delivered in person or mailed by certified or registered mail, return receipt requested, addressed as follows: If to Teradyne, to: Teradyne, Inc. 321 Harrison Avenue Boston, MA 02118 Attention: Tom Grilk If to Employee, at Employee's address set forth on the signature page hereto. 10. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 11. Section Headings. The descriptive section headings herein have ---------------- been inserted for convenience only and shall not be deemed to define, limit, or otherwise affect the construction of any provision hereof. 12. Term. The term of this Agreement (the "Term") shall commence ---- upon the date hereof and terminate upon the earlier of (i) twenty-four (24) months following any Change in Control of Teradyne, (ii) the date prior to any Change in Control of Teradyne that employee for any reason ceases to be an employee of Teradyne and (iii) the date following any Change in Control of Teradyne that Employee is terminated for Cause or voluntary terminates his employment (other than for Good Reason). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. TERADYNE, INC. By: /s/ George W. Chamillard ------------------------------------- Name: George W. Chamillard Title: Chairman, Chief Executive Officer and President of Teradyne, Inc. EMPLOYEE /s/ Gregory R. Beecher ----------------------------------------- Name: Gregory R. Beecher Address: 23 Yale Street Winchester, MA 01890 EX-10.18 7 dex1018.txt CHANGE IN CONTROL AGREEMENT Exhibit 10.18 EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT entered into this 19th day of October, 2001, by and between Teradyne, Inc., a Massachusetts corporation ("Teradyne"), and the undersigned executive officer of Teradyne -------- ("Employee"). -------- WITNESSETH: WHEREAS, Teradyne and Employee desire to set forth certain terms and conditions relating to benefits to be afforded to Employee upon the occurrence of a Change in Control (as hereinafter defined) of Teradyne; NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. Option Acceleration. (a) during the Term (as hereinafter ------------------- defined), if within twenty-four (24) months following a Change in Control there is a Termination Event (as hereinafter defined), all of Employee's unvested Options granted prior to, on, or after the date hereof (but only (I) such Options as have been granted to Employee by Teradyne as of the date of the Change in Control or (II) such Options as have been assumed by an acquiring company at the time of a Change in Control or such new options that have been substituted by an acquiring company for Options existing at the time of a Change in Control, each pursuant to the terms of any Teradyne option plan) shall automatically become fully vested as of the date of such Termination Event. The parties hereto acknowledge that the terms of this Agreement are intended to modify the terms of Employee's existing Option agreements and to be a supplement to future Option agreements. (b) For purposes of this Agreement, the following terms shall have the following meanings: "Cause" shall mean conduct involving one or more of the ----- following: (i) the substantial and continuing failure of Employee, after notice thereof, to render services to Teradyne in accordance with the terms or requirements of his or her employment; (ii) Employee's disloyalty, gross negligence, willful misconduct, dishonesty, fraud or breach of fiduciary duty to Teradyne; (iii) Employee's deliberate disregard of the rules or policies of, or breach of an agreement with, Teradyne which results in direct or indirect loss, damage or injury to Teradyne; (iv) the unauthorized disclosure by Employee of any trade secret or confidential information of Teradyne; or (v) the commission by Employee of an act which constitutes unfair competition with Teradyne. A "Change in Control" shall be deemed to have occurred upon ----------------- the occurrence of any of the following events: (i) any consolidation, cash tender offer, reorganization, recapitalization, merger or plan of share exchange following which the shareholders of Teradyne immediately prior to such transaction own less than a majority of the combined voting power of -2- the then-outstanding securities of the combined corporation or person immediately after such transaction; (ii) any sale, lease, exchange or other transfer of all or substantially all of Teradyne's assets; (iii) the adoption by the Board of Directors of Teradyne of any plan or proposal for the liquidation or dissolution of Teradyne; (iv) a change in the majority of the Board of Directors of Teradyne through one or more contested elections; or (v) any person (as that term is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act of 1934, as amended) becomes beneficial owner of 30% or more of the combined voting power of Teradyne's outstanding voting securities. "Good Reason" shall mean any one or more of the following: (i) ----------- any material reduction of Employee's responsibilities (other than for Cause or as a result of death or disability); (ii) any material reduction in Employee's model compensation as in effect on the date of the consummation of the Change in Control, or as the same may be increased from time to time, or any failure by Teradyne to pay to Employee any bonus accrued, but not yet paid, upon written notice by Employee to Teradyne, within 45 days; (iii) a material reduction in the value of Employee's benefit package from the value of Employee's benefit package on the date of the consummation of the Change in Control; or (iv) any permanent assignment of Employee to a job location situated more than 50 miles away from his current job location. "Option" shall mean an option to purchase shares of Teradyne ------ Common Stock. "Termination Event" shall mean (i) any termination of Employee ----------------- by Teradyne without Cause or (ii) any voluntary termination by Employee for Good Reason. 2. (a) Parachute Payment Gross-Up. If any Payments (as -------------------------- hereinafter defined) to Employee are subject to the Excise Tax (as hereinafter defined), Teradyne shall pay to Employee a Gross-Up Payment (as hereinafter defined). The Gross-Up Payment with respect to any Payment shall be paid no later than 15 days prior to the date that the Excise Tax is due with respect to such Payment. (b) Definitions. For purposes of this Section 2, the ----------- following terms shall have the following meanings: (i) "Code" shall mean the Internal Revenue Code ---- of 1986, as amended. (ii) "Excise Tax" shall mean the tax imposed by ---------- Section 4999 of the Code. The amount of the Excise Tax (if any) imposed on any non-cash benefits or any deferred payment or benefit shall be reasonably determined by Teradyne, after consultation with its legal and tax advisors. (iii) "Gross-Up Payment" shall mean, with respect ---------------- to Payments to the Employee, the amount necessary so that the amount retained by Employee, after reduction for (1) any Excise Tax on the Gross-Up -3- Payment and (2) any federal, state, or local income and employment taxes imposed on the Gross-Up Payment, is an amount equal to the Excise Tax on the Payments to Employee, other than the Gross-Up Payment. The amount of the Gross-Up Payment shall be reasonably determined by Teradyne after consultation with its legal and tax advisors. (1) For purposes of determining the amount of the Gross-Up Payment, Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal, state and local income tax in the calendar year in which the Gross-Up Payment is made (determined by reference to Employee's residence for such calendar year), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (2) In the event that the Excise Tax with respect to the Payments is determined to exceed the amount taken into account hereunder, Teradyne shall make an additional Gross-Up Payment in respect of such excess. For purposes of calculating such Gross-Up Payment, any interest or penalties imposed in connection with such excess Excise Tax shall be treated as an Excise Tax. (3) In the event that the Excise Tax with respect to the Payments is subsequently determined to be less than the amount taken into account for purposes of calculating the Gross-Up Payment, Employee shall promptly repay to Teradyne the after-tax portion of the Gross-Up Payment that exceeds the Gross-Up Payment that otherwise would have been payable in connection with the actual Excise Tax imposed on the Payments. (iv) "Payment" shall mean, with respect to the ------- Employee, any payment in the nature of compensation to (or for the benefit of) such individual, if such payment is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) in the ownership of a substantial portion of the assets of Teradyne (in each case, as reasonably determined by Teradyne in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). Notwithstanding the foregoing, any amount payable to (or for the benefit of) the Employee shall be a Payment if an Excise Tax is imposed on the Employee with respect to such payment or benefit, and such payment or benefit is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) -4- in the ownership of a substantial portion of the assets of Teradyne (in each case, determined in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). 3. No Obligation of Employment. Employee understands that the --------------------------- employment relationship between Employee and Teradyne will be "at will" and Employee understands that, prior to any Change in Control, Teradyne may terminate Employee with or without "Cause" at any time. Following any Change in Control, Teradyne may also terminate Employee with or without "cause" at any time subject to Employee's rights and Teradyne's obligations specified in this Agreement. 4. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the internal laws of the Commonwealth of Massachusetts and this Agreement shall be deemed to be performable in Massachusetts. 5. Severability. In case any one or more of the provisions ------------ contained in this Agreement for any reason shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement and this Agreement shall be construed to the maximum extent permitted by law. 6. Waivers and Modifications. This Agreement may be modified, and ------------------------- the rights, remedies and obligations contained in any provision hereof may be waived, only in accordance with this Section 6. No waiver by either party of any breach by the other or any provision hereof shall be deemed to be a waiver of any later or other breach thereof or as a waiver of any other provision of this Agreement. This Agreement may not be waived, changed, discharged or terminated orally or by any course of dealing between the parties, but only by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought. 7. Assignment. Employee may not assign any of his rights or ---------- delegate any of his duties or obligations under this Agreement. The rights and obligations of Teradyne under this Agreement shall inure to the benefit of, and shall be binding upon, the successors and assigns of Teradyne. For purposes of this Agreement, "Teradyne" shall be deemed to include all successors and assigns of Teradyne. 8. Entire Agreement. This Agreement constitutes the entire ---------------- understanding of the parties relating to the subject matter hereof and supersedes and cancels all agreements, written or oral, made prior to the date hereof between Employee and Teradyne relating to the subject matter hereof; provided, however, that Employee's existing option agreements, as modified hereby, shall remain in effect. -5- 9. Notices. All notices hereunder shall be in writing and shall ------- be delivered in person or mailed by certified or registered mail, return receipt requested, addressed as follows: If to Teradyne, to: Teradyne, Inc. 321 Harrison Avenue Boston, MA 02118 Attention: Tom Grilk If to Employee, at Employee's address set forth on the signature page hereto. 10. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 11. Section Headings. The descriptive section headings herein have ---------------- been inserted for convenience only and shall not be deemed to define, limit, or otherwise affect the construction of any provision hereof. 12. Term. The term of this Agreement (the "Term") shall commence ---- upon the date hereof and terminate upon the earlier of (i) twenty-four (24) months following any Change in Control of Teradyne, (ii) the date prior to any Change in Control of Teradyne that employee for any reason ceases to be an employee of Teradyne and (iii) the date following any Change in Control of Teradyne that Employee is terminated for Cause or voluntary terminates his employment (other than for Good Reason). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. TERADYNE, INC. By: /s/ Gregory R. Beecher ------------------------------------- Name: Gregory R. Beecher Title: Vice President and Chief Financial Officer of Teradyne, Inc. EMPLOYEE /s/ George W. Chamillard ----------------------------------------- Name: George W. Chamillard Address: 378 Jerusalem Road Cohasset, MA 02025 EX-10.19 8 dex1019.txt CHANGE IN CONTROL AGREEMENT Exhibit 10.19 EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT entered into this 19th day of March, 2002, by and between Teradyne, Inc., a Massachusetts corporation ("Teradyne"), and the undersigned executive officer of Teradyne ("Employee"). -------- -------- WITNESSETH: WHEREAS, Teradyne and Employee desire to set forth certain terms and conditions relating to benefits to be afforded to Employee upon the occurrence of a Change in Control (as hereinafter defined) of Teradyne; NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. Option Acceleration. (a) during the Term (as hereinafter ------------------- defined), if within twenty-four (24) months following a Change in Control there is a Termination Event (as hereinafter defined), all of Employee's unvested Options granted prior to, on, or after the date hereof (but only (I) such Options as have been granted to Employee by Teradyne as of the date of the Change in Control or (II) such Options as have been assumed by an acquiring company at the time of a Change in Control or such new options that have been substituted by an acquiring company for Options existing at the time of a Change in Control, each pursuant to the terms of any Teradyne option plan) shall automatically become fully vested as of the date of such Termination Event. The parties hereto acknowledge that the terms of this Agreement are intended to modify the terms of Employee's existing Option agreements and to be a supplement to future Option agreements. (b) For purposes of this Agreement, the following terms shall have the following meanings: "Cause" shall mean conduct involving one or more of the ----- following: (i) the substantial and continuing failure of Employee, after notice thereof, to render services to Teradyne in accordance with the terms or requirements of his or her employment; (ii) Employee's disloyalty, gross negligence, willful misconduct, dishonesty, fraud or breach of fiduciary duty to Teradyne; (iii) Employee's deliberate disregard of the rules or policies of, or breach of an agreement with, Teradyne which results in direct or indirect loss, damage or injury to Teradyne; (iv) the unauthorized disclosure by Employee of any trade secret or confidential information of Teradyne; or (v) the commission by Employee of an act which constitutes unfair competition with Teradyne. A "Change in Control" shall be deemed to have occurred upon ----------------- the occurrence of any of the following events: (i) any consolidation, cash tender offer, reorganization, recapitalization, merger or plan of share exchange following which the shareholders of Teradyne immediately prior to such transaction own less than a majority of the combined voting power of -2- the then-outstanding securities of the combined corporation or person immediately after such transaction; (ii) any sale, lease, exchange or other transfer of all or substantially all of Teradyne's assets; (iii) the adoption by the Board of Directors of Teradyne of any plan or proposal for the liquidation or dissolution of Teradyne; (iv) a change in the majority of the Board of Directors of Teradyne through one or more contested elections; or (v) any person (as that term is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act of 1934, as amended) becomes beneficial owner of 30% or more of the combined voting power of Teradyne's outstanding voting securities. "Good Reason" shall mean any one or more of the following: (i) ----------- any material reduction of Employee's responsibilities (other than for Cause or as a result of death or disability); (ii) any material reduction in Employee's model compensation as in effect on the date of the consummation of the Change in Control, or as the same may be increased from time to time, or any failure by Teradyne to pay to Employee any bonus accrued, but not yet paid, upon written notice by Employee to Teradyne, within 45 days; (iii) a material reduction in the value of Employee's benefit package from the value of Employee's benefit package on the date of the consummation of the Change in Control; or (iv) any permanent assignment of Employee to a job location situated more than 50 miles away from his current job location. "Option" shall mean an option to purchase shares of Teradyne ------ Common Stock. "Termination Event" shall mean (i) any termination of Employee ----------------- by Teradyne without Cause or (ii) any voluntary termination by Employee for Good Reason. 2. (a) Parachute Payment Gross-Up. If any Payments (as -------------------------- hereinafter defined) to Employee are subject to the Excise Tax (as hereinafter defined), Teradyne shall pay to Employee a Gross-Up Payment (as hereinafter defined). The Gross-Up Payment with respect to any Payment shall be paid no later than 15 days prior to the date that the Excise Tax is due with respect to such Payment. (b) Definitions. For purposes of this Section 2, the ----------- following terms shall have the following meanings: (i) "Code" shall mean the Internal Revenue Code ---- of 1986, as amended. (ii) "Excise Tax" shall mean the tax imposed by ---------- Section 4999 of the Code. The amount of the Excise Tax (if any) imposed on any non-cash benefits or any deferred payment or benefit shall be reasonably determined by Teradyne, after consultation with its legal and tax advisors. (iii) "Gross-Up Payment" shall mean, with respect ---------------- to Payments to the Employee, the amount necessary so that the amount retained by Employee, after reduction for (1) any Excise Tax on the Gross-Up -3- Payment and (2) any federal, state, or local income and employment taxes imposed on the Gross-Up Payment, is an amount equal to the Excise Tax on the Payments to Employee, other than the Gross-Up Payment. The amount of the Gross-Up Payment shall be reasonably determined by Teradyne after consultation with its legal and tax advisors. (1) For purposes of determining the amount of the Gross-Up Payment, Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal, state and local income tax in the calendar year in which the Gross-Up Payment is made (determined by reference to Employee's residence for such calendar year), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (2) In the event that the Excise Tax with respect to the Payments is determined to exceed the amount taken into account hereunder, Teradyne shall make an additional Gross-Up Payment in respect of such excess. For purposes of calculating such Gross-Up Payment, any interest or penalties imposed in connection with such excess Excise Tax shall be treated as an Excise Tax. (3) In the event that the Excise Tax with respect to the Payments is subsequently determined to be less than the amount taken into account for purposes of calculating the Gross-Up Payment, Employee shall promptly repay to Teradyne the after-tax portion of the Gross-Up Payment that exceeds the Gross-Up Payment that otherwise would have been payable in connection with the actual Excise Tax imposed on the Payments. (iv) "Payment" shall mean, with respect to the ------- Employee, any payment in the nature of compensation to (or for the benefit of) such individual, if such payment is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) in the ownership of a substantial portion of the assets of Teradyne (in each case, as reasonably determined by Teradyne in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). Notwithstanding the foregoing, any amount payable to (or for the benefit of) the Employee shall be a Payment if an Excise Tax is imposed on the Employee with respect to such payment or benefit, and such payment or benefit is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) -4- in the ownership of a substantial portion of the assets of Teradyne (in each case, determined in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). 3. No Obligation of Employment. Employee understands that the --------------------------- employment relationship between Employee and Teradyne will be "at will" and Employee understands that, prior to any Change in Control, Teradyne may terminate Employee with or without "Cause" at any time. Following any Change in Control, Teradyne may also terminate Employee with or without "cause" at any time subject to Employee's rights and Teradyne's obligations specified in this Agreement. 4. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the internal laws of the Commonwealth of Massachusetts and this Agreement shall be deemed to be performable in Massachusetts. 5. Severability. In case any one or more of the provisions ------------ contained in this Agreement for any reason shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement and this Agreement shall be construed to the maximum extent permitted by law. 6. Waivers and Modifications. This Agreement may be modified, and ------------------------- the rights, remedies and obligations contained in any provision hereof may be waived, only in accordance with this Section 6. No waiver by either party of any breach by the other or any provision hereof shall be deemed to be a waiver of any later or other breach thereof or as a waiver of any other provision of this Agreement. This Agreement may not be waived, changed, discharged or terminated orally or by any course of dealing between the parties, but only by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought. 7. Assignment. Employee may not assign any of his rights or ---------- delegate any of his duties or obligations under this Agreement. The rights and obligations of Teradyne under this Agreement shall inure to the benefit of, and shall be binding upon, the successors and assigns of Teradyne. For purposes of this Agreement, "Teradyne" shall be deemed to include all successors and assigns of Teradyne. 8. Entire Agreement. This Agreement constitutes the entire ---------------- understanding of the parties relating to the subject matter hereof and supersedes and cancels all agreements, written or oral, made prior to the date hereof between Employee and Teradyne relating to the subject matter hereof; provided, however, that Employee's existing option agreements, as modified hereby, shall remain in effect. -5- 9. Notices. All notices hereunder shall be in writing and shall ------- be delivered in person or mailed by certified or registered mail, return receipt requested, addressed as follows: If to Teradyne, to: Teradyne, Inc. 321 Harrison Avenue Boston, MA 02118 Attention: Tom Grilk If to Employee, at Employee's address set forth on the signature page hereto. 10. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 11. Section Headings. The descriptive section headings herein have ---------------- been inserted for convenience only and shall not be deemed to define, limit, or otherwise affect the construction of any provision hereof. 12. Term. The term of this Agreement (the "Term") shall commence ---- upon the date hereof and terminate upon the earlier of (i) twenty-four (24) months following any Change in Control of Teradyne, (ii) the date prior to any Change in Control of Teradyne that employee for any reason ceases to be an employee of Teradyne and (iii) the date following any Change in Control of Teradyne that Employee is terminated for Cause or voluntary terminates his employment (other than for Good Reason). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. TERADYNE, INC. By: /s/ George W. Chamillard ------------------------------------- Name: George W. Chamillard Title: Chairman, Chief Executive Officer and President of Teradyne, Inc. EMPLOYEE /s/ John M. Casey ----------------------------------------- Name: John M. Casey Address: 34 Deverell Drive North Barrington, IL 60010 EX-10.20 9 dex1020.txt CHANGE IN CONTROL AGREEMENT Exhibit 10.20 EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT entered into this 19th day of October, 2001, by and between Teradyne, Inc., a Massachusetts corporation ("Teradyne"), and the undersigned executive officer of Teradyne ("Employee"). -------- -------- WITNESSETH: WHEREAS, Teradyne and Employee desire to set forth certain terms and conditions relating to benefits to be afforded to Employee upon the occurrence of a Change in Control (as hereinafter defined) of Teradyne; NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. Option Acceleration. (a) during the Term (as hereinafter ------------------- defined), if within twenty-four (24) months following a Change in Control there is a Termination Event (as hereinafter defined), all of Employee's unvested Options granted prior to, on, or after the date hereof (but only (I) such Options as have been granted to Employee by Teradyne as of the date of the Change in Control or (II) such Options as have been assumed by an acquiring company at the time of a Change in Control or such new options that have been substituted by an acquiring company for Options existing at the time of a Change in Control, each pursuant to the terms of any Teradyne option plan) shall automatically become fully vested as of the date of such Termination Event. The parties hereto acknowledge that the terms of this Agreement are intended to modify the terms of Employee's existing Option agreements and to be a supplement to future Option agreements. (b) For purposes of this Agreement, the following terms shall have the following meanings: "Cause" shall mean conduct involving one or more of the ----- following: (i) the substantial and continuing failure of Employee, after notice thereof, to render services to Teradyne in accordance with the terms or requirements of his or her employment; (ii) Employee's disloyalty, gross negligence, willful misconduct, dishonesty, fraud or breach of fiduciary duty to Teradyne; (iii) Employee's deliberate disregard of the rules or policies of, or breach of an agreement with, Teradyne which results in direct or indirect loss, damage or injury to Teradyne; (iv) the unauthorized disclosure by Employee of any trade secret or confidential information of Teradyne; or (v) the commission by Employee of an act which constitutes unfair competition with Teradyne. A "Change in Control" shall be deemed to have occurred upon ----------------- the occurrence of any of the following events: (i) any consolidation, cash tender offer, reorganization, recapitalization, merger or plan of share exchange following which the shareholders of Teradyne immediately prior to such transaction own less than a majority of the combined voting power of -2- the then-outstanding securities of the combined corporation or person immediately after such transaction; (ii) any sale, lease, exchange or other transfer of all or substantially all of Teradyne's assets; (iii) the adoption by the Board of Directors of Teradyne of any plan or proposal for the liquidation or dissolution of Teradyne; (iv) a change in the majority of the Board of Directors of Teradyne through one or more contested elections; or (v) any person (as that term is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act of 1934, as amended) becomes beneficial owner of 30% or more of the combined voting power of Teradyne's outstanding voting securities. "Good Reason" shall mean any one or more of the following: (i) ----------- any material reduction of Employee's responsibilities (other than for Cause or as a result of death or disability); (ii) any material reduction in Employee's model compensation as in effect on the date of the consummation of the Change in Control, or as the same may be increased from time to time, or any failure by Teradyne to pay to Employee any bonus accrued, but not yet paid, upon written notice by Employee to Teradyne, within 45 days; (iii) a material reduction in the value of Employee's benefit package from the value of Employee's benefit package on the date of the consummation of the Change in Control; or (iv) any permanent assignment of Employee to a job location situated more than 50 miles away from his current job location. "Option" shall mean an option to purchase shares of Teradyne ------ Common Stock. "Termination Event" shall mean (i) any termination of Employee ----------------- by Teradyne without Cause or (ii) any voluntary termination by Employee for Good Reason. 2. (a) Parachute Payment Gross-Up. If any Payments (as -------------------------- hereinafter defined) to Employee are subject to the Excise Tax (as hereinafter defined), Teradyne shall pay to Employee a Gross-Up Payment (as hereinafter defined). The Gross-Up Payment with respect to any Payment shall be paid no later than 15 days prior to the date that the Excise Tax is due with respect to such Payment. (b) Definitions. For purposes of this Section 2, the ----------- following terms shall have the following meanings: (i) "Code" shall mean the Internal Revenue Code ---- of 1986, as amended. (ii) "Excise Tax" shall mean the tax imposed by ---------- Section 4999 of the Code. The amount of the Excise Tax (if any) imposed on any non-cash benefits or any deferred payment or benefit shall be reasonably determined by Teradyne, after consultation with its legal and tax advisors. (iii) "Gross-Up Payment" shall mean, with respect ---------------- to Payments to the Employee, the amount necessary so that the amount retained by Employee, after reduction for (1) any Excise Tax on the Gross-Up -3- Payment and (2) any federal, state, or local income and employment taxes imposed on the Gross-Up Payment, is an amount equal to the Excise Tax on the Payments to Employee, other than the Gross-Up Payment. The amount of the Gross-Up Payment shall be reasonably determined by Teradyne after consultation with its legal and tax advisors. (1) For purposes of determining the amount of the Gross-Up Payment, Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal, state and local income tax in the calendar year in which the Gross-Up Payment is made (determined by reference to Employee's residence for such calendar year), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (2) In the event that the Excise Tax with respect to the Payments is determined to exceed the amount taken into account hereunder, Teradyne shall make an additional Gross-Up Payment in respect of such excess. For purposes of calculating such Gross-Up Payment, any interest or penalties imposed in connection with such excess Excise Tax shall be treated as an Excise Tax. (3) In the event that the Excise Tax with respect to the Payments is subsequently determined to be less than the amount taken into account for purposes of calculating the Gross-Up Payment, Employee shall promptly repay to Teradyne the after-tax portion of the Gross-Up Payment that exceeds the Gross-Up Payment that otherwise would have been payable in connection with the actual Excise Tax imposed on the Payments. (iv) "Payment" shall mean, with respect to the ------- Employee, any payment in the nature of compensation to (or for the benefit of) such individual, if such payment is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) in the ownership of a substantial portion of the assets of Teradyne (in each case, as reasonably determined by Teradyne in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). Notwithstanding the foregoing, any amount payable to (or for the benefit of) the Employee shall be a Payment if an Excise Tax is imposed on the Employee with respect to such payment or benefit, and such payment or benefit is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) -4- in the ownership of a substantial portion of the assets of Teradyne (in each case, determined in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). 3. No Obligation of Employment. Employee understands that the --------------------------- employment relationship between Employee and Teradyne will be "at will" and Employee understands that, prior to any Change in Control, Teradyne may terminate Employee with or without "Cause" at any time. Following any Change in Control, Teradyne may also terminate Employee with or without "cause" at any time subject to Employee's rights and Teradyne's obligations specified in this Agreement. 4. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the internal laws of the Commonwealth of Massachusetts and this Agreement shall be deemed to be performable in Massachusetts. 5. Severability. In case any one or more of the provisions ------------ contained in this Agreement for any reason shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement and this Agreement shall be construed to the maximum extent permitted by law. 6. Waivers and Modifications. This Agreement may be modified, and ------------------------- the rights, remedies and obligations contained in any provision hereof may be waived, only in accordance with this Section 6. No waiver by either party of any breach by the other or any provision hereof shall be deemed to be a waiver of any later or other breach thereof or as a waiver of any other provision of this Agreement. This Agreement may not be waived, changed, discharged or terminated orally or by any course of dealing between the parties, but only by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought. 7. Assignment. Employee may not assign any of his rights or ---------- delegate any of his duties or obligations under this Agreement. The rights and obligations of Teradyne under this Agreement shall inure to the benefit of, and shall be binding upon, the successors and assigns of Teradyne. For purposes of this Agreement, "Teradyne" shall be deemed to include all successors and assigns of Teradyne. 8. Entire Agreement. This Agreement constitutes the entire ---------------- understanding of the parties relating to the subject matter hereof and supersedes and cancels all agreements, written or oral, made prior to the date hereof between Employee and Teradyne relating to the subject matter hereof; provided, however, that Employee's existing option agreements, as modified hereby, shall remain in effect. -5- 9. Notices. All notices hereunder shall be in writing and shall ------- be delivered in person or mailed by certified or registered mail, return receipt requested, addressed as follows: If to Teradyne, to: Teradyne, Inc. 321 Harrison Avenue Boston, MA 02118 Attention: Tom Grilk If to Employee, at Employee's address set forth on the signature page hereto. 10. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 11. Section Headings. The descriptive section headings herein have ---------------- been inserted for convenience only and shall not be deemed to define, limit, or otherwise affect the construction of any provision hereof. 12. Term. The term of this Agreement (the "Term") shall commence ---- upon the date hereof and terminate upon the earlier of (i) twenty-four (24) months following any Change in Control of Teradyne, (ii) the date prior to any Change in Control of Teradyne that employee for any reason ceases to be an employee of Teradyne and (iii) the date following any Change in Control of Teradyne that Employee is terminated for Cause or voluntary terminates his employment (other than for Good Reason). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. TERADYNE, INC. By: /s/ George W. Chamillard ------------------------------------- Name: George W. Chamillard Title: Chairman, Chief Executive Officer and President of Teradyne, Inc. EMPLOYEE /s/ Michael A. Bradley ----------------------------------------- Name: Michael A. Bradley Address: 750 Commonwealth Avenue Newton, MA 02459-1134 EX-10.21 10 dex1021.txt CHANGE IN CONTROL AGREEMENT Exhibit 10.21 EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT entered into this second day of October, 2001, by and between Teradyne, Inc., a Massachusetts corporation ("Teradyne"), and the undersigned executive officer of Teradyne ("Employee"). -------- -------- WITNESSETH: WHEREAS, Teradyne and Employee desire to set forth certain terms and conditions relating to benefits to be afforded to Employee upon the occurrence of a Change in Control (as hereinafter defined) of Teradyne; NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. Option Acceleration. (a) during the Term (as hereinafter ------------------- defined), if within twenty-four (24) months following a Change in Control there is a Termination Event (as hereinafter defined), all of Employee's unvested Options granted prior to, on, or after the date hereof (but only (I) such Options as have been granted to Employee by Teradyne as of the date of the Change in Control or (II) such Options as have been assumed by an acquiring company at the time of a Change in Control or such new options that have been substituted by an acquiring company for Options existing at the time of a Change in Control, each pursuant to the terms of any Teradyne option plan) shall automatically become fully vested as of the date of such Termination Event. The parties hereto acknowledge that the terms of this Agreement are intended to modify the terms of Employee's existing Option agreements and to be a supplement to future Option agreements. (b) For purposes of this Agreement, the following terms shall have the following meanings: "Cause" shall mean conduct involving one or more of the ----- following: (i) the substantial and continuing failure of Employee, after notice thereof, to render services to Teradyne in accordance with the terms or requirements of his or her employment; (ii) Employee's disloyalty, gross negligence, willful misconduct, dishonesty, fraud or breach of fiduciary duty to Teradyne; (iii) Employee's deliberate disregard of the rules or policies of, or breach of an agreement with, Teradyne which results in direct or indirect loss, damage or injury to Teradyne; (iv) the unauthorized disclosure by Employee of any trade secret or confidential information of Teradyne; or (v) the commission by Employee of an act which constitutes unfair competition with Teradyne. A "Change in Control" shall be deemed to have occurred upon ----------------- the occurrence of any of the following events: (i) any consolidation, cash tender offer, reorganization, recapitalization, merger or plan of share exchange following which the shareholders of Teradyne immediately prior to such transaction own less than a majority of the combined voting power of -2- the then-outstanding securities of the combined corporation or person immediately after such transaction; (ii) any sale, lease, exchange or other transfer of all or substantially all of Teradyne's assets; (iii) the adoption by the Board of Directors of Teradyne of any plan or proposal for the liquidation or dissolution of Teradyne; (iv) a change in the majority of the Board of Directors of Teradyne through one or more contested elections; or (v) any person (as that term is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act of 1934, as amended) becomes beneficial owner of 30% or more of the combined voting power of Teradyne's outstanding voting securities. "Good Reason" shall mean any one or more of the following: (i) ----------- any material reduction of Employee's responsibilities (other than for Cause or as a result of death or disability); (ii) any material reduction in Employee's model compensation as in effect on the date of the consummation of the Change in Control, or as the same may be increased from time to time, or any failure by Teradyne to pay to Employee any bonus accrued, but not yet paid, upon written notice by Employee to Teradyne, within 45 days; (iii) a material reduction in the value of Employee's benefit package from the value of Employee's benefit package on the date of the consummation of the Change in Control; or (iv) any permanent assignment of Employee to a job location situated more than 50 miles away from his current job location. "Option" shall mean an option to purchase shares of Teradyne ------ Common Stock. "Termination Event" shall mean (i) any termination of Employee ----------------- by Teradyne without Cause or (ii) any voluntary termination by Employee for Good Reason. 2. (a) Parachute Payment Gross-Up. If any Payments (as -------------------------- hereinafter defined) to Employee are subject to the Excise Tax (as hereinafter defined), Teradyne shall pay to Employee a Gross-Up Payment (as hereinafter defined). The Gross-Up Payment with respect to any Payment shall be paid no later than 15 days prior to the date that the Excise Tax is due with respect to such Payment. (b) Definitions. For purposes of this Section 2, the ----------- following terms shall have the following meanings: (i) "Code" shall mean the Internal Revenue Code ---- of 1986, as amended. (ii) "Excise Tax" shall mean the tax imposed by ---------- Section 4999 of the Code. The amount of the Excise Tax (if any) imposed on any non-cash benefits or any deferred payment or benefit shall be reasonably determined by Teradyne, after consultation with its legal and tax advisors. (iii) "Gross-Up Payment" shall mean, with respect ---------------- to Payments to the Employee, the amount necessary so that the amount retained by Employee, after reduction for (1) any Excise Tax on the Gross-Up -3- Payment and (2) any federal, state, or local income and employment taxes imposed on the Gross-Up Payment, is an amount equal to the Excise Tax on the Payments to Employee, other than the Gross-Up Payment. The amount of the Gross-Up Payment shall be reasonably determined by Teradyne after consultation with its legal and tax advisors. (1) For purposes of determining the amount of the Gross-Up Payment, Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal, state and local income tax in the calendar year in which the Gross-Up Payment is made (determined by reference to Employee's residence for such calendar year), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (2) In the event that the Excise Tax with respect to the Payments is determined to exceed the amount taken into account hereunder, Teradyne shall make an additional Gross-Up Payment in respect of such excess. For purposes of calculating such Gross-Up Payment, any interest or penalties imposed in connection with such excess Excise Tax shall be treated as an Excise Tax. (3) In the event that the Excise Tax with respect to the Payments is subsequently determined to be less than the amount taken into account for purposes of calculating the Gross-Up Payment, Employee shall promptly repay to Teradyne the after-tax portion of the Gross-Up Payment that exceeds the Gross-Up Payment that otherwise would have been payable in connection with the actual Excise Tax imposed on the Payments. (iv) "Payment" shall mean, with respect to the ------- Employee, any payment in the nature of compensation to (or for the benefit of) such individual, if such payment is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) in the ownership of a substantial portion of the assets of Teradyne (in each case, as reasonably determined by Teradyne in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). Notwithstanding the foregoing, any amount payable to (or for the benefit of) the Employee shall be a Payment if an Excise Tax is imposed on the Employee with respect to such payment or benefit, and such payment or benefit is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) -4- in the ownership of a substantial portion of the assets of Teradyne (in each case, determined in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). 3. No Obligation of Employment. Employee understands that the --------------------------- employment relationship between Employee and Teradyne will be "at will" and Employee understands that, prior to any Change in Control, Teradyne may terminate Employee with or without "Cause" at any time. Following any Change in Control, Teradyne may also terminate Employee with or without "cause" at any time subject to Employee's rights and Teradyne's obligations specified in this Agreement. 4. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the internal laws of the Commonwealth of Massachusetts and this Agreement shall be deemed to be performable in Massachusetts. 5. Severability. In case any one or more of the provisions ------------ contained in this Agreement for any reason shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement and this Agreement shall be construed to the maximum extent permitted by law. 6. Waivers and Modifications. This Agreement may be modified, and ------------------------- the rights, remedies and obligations contained in any provision hereof may be waived, only in accordance with this Section 6. No waiver by either party of any breach by the other or any provision hereof shall be deemed to be a waiver of any later or other breach thereof or as a waiver of any other provision of this Agreement. This Agreement may not be waived, changed, discharged or terminated orally or by any course of dealing between the parties, but only by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought. 7. Assignment. Employee may not assign any of his rights or ---------- delegate any of his duties or obligations under this Agreement. The rights and obligations of Teradyne under this Agreement shall inure to the benefit of, and shall be binding upon, the successors and assigns of Teradyne. For purposes of this Agreement, "Teradyne" shall be deemed to include all successors and assigns of Teradyne. 8. Entire Agreement. This Agreement constitutes the entire ---------------- understanding of the parties relating to the subject matter hereof and supersedes and cancels all agreements, written or oral, made prior to the date hereof between Employee and Teradyne relating to the subject matter hereof; provided, however, that Employee's existing option agreements, as modified hereby, shall remain in effect. -5- 9. Notices. All notices hereunder shall be in writing and shall ------- be delivered in person or mailed by certified or registered mail, return receipt requested, addressed as follows: If to Teradyne, to: Teradyne, Inc. 321 Harrison Avenue Boston, MA 02118 Attention: Tom Grilk If to Employee, at Employee's address set forth on the signature page hereto. 10. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 11. Section Headings. The descriptive section headings herein have ---------------- been inserted for convenience only and shall not be deemed to define, limit, or otherwise affect the construction of any provision hereof. 12. Term. The term of this Agreement (the "Term") shall commence ---- upon the date hereof and terminate upon the earlier of (i) twenty-four (24) months following any Change in Control of Teradyne, (ii) the date prior to any Change in Control of Teradyne that employee for any reason ceases to be an employee of Teradyne and (iii) the date following any Change in Control of Teradyne that Employee is terminated for Cause or voluntary terminates his employment (other than for Good Reason). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. TERADYNE, INC. By: /s/ George W. Chamillard ------------------------------------- Name: George W. Chamillard Title: Chairman, Chief Executive Officer and President of Teradyne, Inc. EMPLOYEE /s/ Richard E. Schneider ----------------------------------------- Name: Richard E. Schneider Address: 30 Hannah Drive Hollis, NH 03049 EX-10.22 11 dex1022.txt CHANGE IN CONTROL AGREEMENT Exhibit 10.22 EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT entered into this 19th day of October, 2001, by and between Teradyne, Inc., a Massachusetts corporation ("Teradyne"), and the undersigned executive officer of Teradyne -------- ("Employee"). -------- WITNESSETH: WHEREAS, Teradyne and Employee desire to set forth certain terms and conditions relating to benefits to be afforded to Employee upon the occurrence of a Change in Control (as hereinafter defined) of Teradyne; NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. Option Acceleration. (a) during the Term (as hereinafter ------------------- defined), if within twenty-four (24) months following a Change in Control there is a Termination Event (as hereinafter defined), all of Employee's unvested Options granted prior to, on, or after the date hereof (but only (I) such Options as have been granted to Employee by Teradyne as of the date of the Change in Control or (II) such Options as have been assumed by an acquiring company at the time of a Change in Control or such new options that have been substituted by an acquiring company for Options existing at the time of a Change in Control, each pursuant to the terms of any Teradyne option plan) shall automatically become fully vested as of the date of such Termination Event. The parties hereto acknowledge that the terms of this Agreement are intended to modify the terms of Employee's existing Option agreements and to be a supplement to future Option agreements. (b) For purposes of this Agreement, the following terms shall have the following meanings: "Cause" shall mean conduct involving one or more of the ----- following: (i) the substantial and continuing failure of Employee, after notice thereof, to render services to Teradyne in accordance with the terms or requirements of his or her employment; (ii) Employee's disloyalty, gross negligence, willful misconduct, dishonesty, fraud or breach of fiduciary duty to Teradyne; (iii) Employee's deliberate disregard of the rules or policies of, or breach of an agreement with, Teradyne which results in direct or indirect loss, damage or injury to Teradyne; (iv) the unauthorized disclosure by Employee of any trade secret or confidential information of Teradyne; or (v) the commission by Employee of an act which constitutes unfair competition with Teradyne. A "Change in Control" shall be deemed to have occurred upon ----------------- the occurrence of any of the following events: (i) any consolidation, cash tender offer, reorganization, recapitalization, merger or plan of share exchange following which the shareholders of Teradyne immediately prior to such transaction own less than a majority of the combined voting power of the then-outstanding securities of the combined corporation or person immediately after such -2- transaction; (ii) any sale, lease, exchange or other transfer of all or substantially all of Teradyne's assets; (iii) the adoption by the Board of Directors of Teradyne of any plan or proposal for the liquidation or dissolution of Teradyne; (iv) a change in the majority of the Board of Directors of Teradyne through one or more contested elections; or (v) any person (as that term is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act of 1934, as amended) becomes beneficial owner of 30% or more of the combined voting power of Teradyne's outstanding voting securities. "Good Reason" shall mean any one or more of the following: (i) ----------- any material reduction of Employee's responsibilities (other than for Cause or as a result of death or disability); (ii) any material reduction in Employee's model compensation as in effect on the date of the consummation of the Change in Control, or as the same may be increased from time to time, or any failure by Teradyne to pay to Employee any bonus accrued, but not yet paid, upon written notice by Employee to Teradyne, within 45 days; (iii) a material reduction in the value of Employee's benefit package from the value of Employee's benefit package on the date of the consummation of the Change in Control; or (iv) any permanent assignment of Employee to a job location situated more than 50 miles away from his current job location. "Option" shall mean an option to purchase shares of Teradyne ------ Common Stock. "Termination Event" shall mean (i) any termination of Employee ----------------- by Teradyne without Cause or (ii) any voluntary termination by Employee for Good Reason. 2. (a) Parachute Payment Gross-Up. If any Payments (as -------------------------- hereinafter defined) to Employee are subject to the Excise Tax (as hereinafter defined), Teradyne shall pay to Employee a Gross-Up Payment (as hereinafter defined). The Gross-Up Payment with respect to any Payment shall be paid no later than 15 days prior to the date that the Excise Tax is due with respect to such Payment. (b) Definitions. For purposes of this Section 2, the ----------- following terms shall have the following meanings: (i) "Code" shall mean the Internal Revenue Code ---- of 1986, as amended. (ii) "Excise Tax" shall mean the tax imposed by ---------- Section 4999 of the Code. The amount of the Excise Tax (if any) imposed on any non-cash benefits or any deferred payment or benefit shall be reasonably determined by Teradyne, after consultation with its legal and tax advisors. (iii) "Gross-Up Payment" shall mean, with respect ---------------- to Payments to the Employee, the amount necessary so that the amount retained by Employee, after reduction for (1) any Excise Tax on the Gross-Up Payment and (2) any federal, state, or local income and employment taxes imposed on the Gross-Up Payment, is an -3- amount equal to the Excise Tax on the Payments to Employee, other than the Gross-Up Payment. The amount of the Gross-Up Payment shall be reasonably determined by Teradyne after consultation with its legal and tax advisors. (1) For purposes of determining the amount of the Gross-Up Payment, Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal, state and local income tax in the calendar year in which the Gross-Up Payment is made (determined by reference to Employee's residence for such calendar year), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (2) In the event that the Excise Tax with respect to the Payments is determined to exceed the amount taken into account hereunder, Teradyne shall make an additional Gross-Up Payment in respect of such excess. For purposes of calculating such Gross-Up Payment, any interest or penalties imposed in connection with such excess Excise Tax shall be treated as an Excise Tax. (3) In the event that the Excise Tax with respect to the Payments is subsequently determined to be less than the amount taken into account for purposes of calculating the Gross-Up Payment, Employee shall promptly repay to Teradyne the after-tax portion of the Gross-Up Payment that exceeds the Gross-Up Payment that otherwise would have been payable in connection with the actual Excise Tax imposed on the Payments. (iv) "Payment" shall mean, with respect to the ------- Employee, any payment in the nature of compensation to (or for the benefit of) such individual, if such payment is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) in the ownership of a substantial portion of the assets of Teradyne (in each case, as reasonably determined by Teradyne in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). Notwithstanding the foregoing, any amount payable to (or for the benefit of) the Employee shall be a Payment if an Excise Tax is imposed on the Employee with respect to such payment or benefit, and such payment or benefit is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) in the ownership of a substantial portion of the assets of Teradyne -4- (in each case, determined in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). 3. No Obligation of Employment. Employee understands that the --------------------------- employment relationship between Employee and Teradyne will be "at will" and Employee understands that, prior to any Change in Control, Teradyne may terminate Employee with or without "Cause" at any time. Following any Change in Control, Teradyne may also terminate Employee with or without "cause" at any time subject to Employee's rights and Teradyne's obligations specified in this Agreement. 4. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the internal laws of the Commonwealth of Massachusetts and this Agreement shall be deemed to be performable in Massachusetts. 5. Severability. In case any one or more of the provisions ------------ contained in this Agreement for any reason shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement and this Agreement shall be construed to the maximum extent permitted by law. 6. Waivers and Modifications. This Agreement may be modified, and ------------------------- the rights, remedies and obligations contained in any provision hereof may be waived, only in accordance with this Section 6. No waiver by either party of any breach by the other or any provision hereof shall be deemed to be a waiver of any later or other breach thereof or as a waiver of any other provision of this Agreement. This Agreement may not be waived, changed, discharged or terminated orally or by any course of dealing between the parties, but only by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought. 7. Assignment. Employee may not assign any of his rights or ---------- delegate any of his duties or obligations under this Agreement. The rights and obligations of Teradyne under this Agreement shall inure to the benefit of, and shall be binding upon, the successors and assigns of Teradyne. For purposes of this Agreement, "Teradyne" shall be deemed to include all successors and assigns of Teradyne. 8. Entire Agreement. This Agreement constitutes the entire ---------------- understanding of the parties relating to the subject matter hereof and supersedes and cancels all agreements, written or oral, made prior to the date hereof between Employee and Teradyne relating to the subject matter hereof; provided, however, that Employee's existing option agreements, as modified hereby, shall remain in effect. -5- 9. Notices. All notices hereunder shall be in writing and shall ------- be delivered in person or mailed by certified or registered mail, return receipt requested, addressed as follows: If to Teradyne, to: Teradyne, Inc. 321 Harrison Avenue Boston, MA 02118 Attention: Tom Grilk If to Employee, at Employee's address set forth on the signature page hereto. 10. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 11. Section Headings. The descriptive section headings herein have ---------------- been inserted for convenience only and shall not be deemed to define, limit, or otherwise affect the construction of any provision hereof. 12. Term. The term of this Agreement (the "Term") shall commence ---- ---- upon the date hereof and terminate upon the earlier of (i) twenty-four (24) months following any Change in Control of Teradyne, (ii) the date prior to any Change in Control of Teradyne that employee for any reason ceases to be an employee of Teradyne and (iii) the date following any Change in Control of Teradyne that Employee is terminated for Cause or voluntary terminates his employment (other than for Good Reason). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. TERADYNE, INC. By: /s/ George W. Chamillard ------------------------------------- Name: George W. Chamillard Title: Chairman, Chief Executive Officer and President of Teradyne, Inc. EMPLOYEE /s/ Richard MacDonald ----------------------------------------- Name: Richard G. MacDonald Address: 283 Marsh Street Belmont, MA 02478 EX-10.23 12 dex1023.txt CHANGE IN CONTROL AGREEMENT Exhibit 10.23 EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT entered into this 19th day of October, 2001, by and between Teradyne, Inc., a Massachusetts corporation ("Teradyne"), and the undersigned executive officer of Teradyne -------- ("Employee"). -------- WITNESSETH: WHEREAS, Teradyne and Employee desire to set forth certain terms and conditions relating to benefits to be afforded to Employee upon the occurrence of a Change in Control (as hereinafter defined) of Teradyne; NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. Option Acceleration. (a) during the Term (as hereinafter ------------------- defined), if within twenty-four (24) months following a Change in Control there is a Termination Event (as hereinafter defined), all of Employee's unvested Options granted prior to, on, or after the date hereof (but only (I) such Options as have been granted to Employee by Teradyne as of the date of the Change in Control or (II) such Options as have been assumed by an acquiring company at the time of a Change in Control or such new options that have been substituted by an acquiring company for Options existing at the time of a Change in Control, each pursuant to the terms of any Teradyne option plan) shall automatically become fully vested as of the date of such Termination Event. The parties hereto acknowledge that the terms of this Agreement are intended to modify the terms of Employee's existing Option agreements and to be a supplement to future Option agreements. (b) For purposes of this Agreement, the following terms shall have the following meanings: "Cause" shall mean conduct involving one or more of the ----- following: (i) the substantial and continuing failure of Employee, after notice thereof, to render services to Teradyne in accordance with the terms or requirements of his or her employment; (ii) Employee's disloyalty, gross negligence, willful misconduct, dishonesty, fraud or breach of fiduciary duty to Teradyne; (iii) Employee's deliberate disregard of the rules or policies of, or breach of an agreement with, Teradyne which results in direct or indirect loss, damage or injury to Teradyne; (iv) the unauthorized disclosure by Employee of any trade secret or confidential information of Teradyne; or (v) the commission by Employee of an act which constitutes unfair competition with Teradyne. A "Change in Control" shall be deemed to have occurred upon ----------------- the occurrence of any of the following events: (i) any consolidation, cash tender offer, reorganization, recapitalization, merger or plan of share exchange following which the shareholders of Teradyne immediately prior to such transaction own less than a majority of the combined voting power of -2- the then-outstanding securities of the combined corporation or person immediately after such transaction; (ii) any sale, lease, exchange or other transfer of all or substantially all of Teradyne's assets; (iii) the adoption by the Board of Directors of Teradyne of any plan or proposal for the liquidation or dissolution of Teradyne; (iv) a change in the majority of the Board of Directors of Teradyne through one or more contested elections; or (v) any person (as that term is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act of 1934, as amended) becomes beneficial owner of 30% or more of the combined voting power of Teradyne's outstanding voting securities. "Good Reason" shall mean any one or more of the following: (i) ----------- any material reduction of Employee's responsibilities (other than for Cause or as a result of death or disability); (ii) any material reduction in Employee's model compensation as in effect on the date of the consummation of the Change in Control, or as the same may be increased from time to time, or any failure by Teradyne to pay to Employee any bonus accrued, but not yet paid, upon written notice by Employee to Teradyne, within 45 days; (iii) a material reduction in the value of Employee's benefit package from the value of Employee's benefit package on the date of the consummation of the Change in Control; or (iv) any permanent assignment of Employee to a job location situated more than 50 miles away from his current job location. "Option" shall mean an option to purchase shares of Teradyne ------ Common Stock. "Termination Event" shall mean (i) any termination of Employee ----------------- by Teradyne without Cause or (ii) any voluntary termination by Employee for Good Reason. 2. (a) Parachute Payment Gross-Up. If any Payments (as -------------------------- hereinafter defined) to Employee are subject to the Excise Tax (as hereinafter defined), Teradyne shall pay to Employee a Gross-Up Payment (as hereinafter defined). The Gross-Up Payment with respect to any Payment shall be paid no later than 15 days prior to the date that the Excise Tax is due with respect to such Payment. (b) Definitions. For purposes of this Section 2, the ----------- following terms shall have the following meanings: (i) "Code" shall mean the Internal Revenue Code ---- of 1986, as amended. (ii) "Excise Tax" shall mean the tax imposed by ---------- Section 4999 of the Code. The amount of the Excise Tax (if any) imposed on any non-cash benefits or any deferred payment or benefit shall be reasonably determined by Teradyne, after consultation with its legal and tax advisors. (iii) "Gross-Up Payment" shall mean, with respect ---------------- to Payments to the Employee, the amount necessary so that the amount retained by Employee, after reduction for (1) any Excise Tax on the Gross-Up -3- Payment and (2) any federal, state, or local income and employment taxes imposed on the Gross-Up Payment, is an amount equal to the Excise Tax on the Payments to Employee, other than the Gross-Up Payment. The amount of the Gross-Up Payment shall be reasonably determined by Teradyne after consultation with its legal and tax advisors. (1) For purposes of determining the amount of the Gross-Up Payment, Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal, state and local income tax in the calendar year in which the Gross-Up Payment is made (determined by reference to Employee's residence for such calendar year), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (2) In the event that the Excise Tax with respect to the Payments is determined to exceed the amount taken into account hereunder, Teradyne shall make an additional Gross-Up Payment in respect of such excess. For purposes of calculating such Gross-Up Payment, any interest or penalties imposed in connection with such excess Excise Tax shall be treated as an Excise Tax. (3) In the event that the Excise Tax with respect to the Payments is subsequently determined to be less than the amount taken into account for purposes of calculating the Gross-Up Payment, Employee shall promptly repay to Teradyne the after-tax portion of the Gross-Up Payment that exceeds the Gross-Up Payment that otherwise would have been payable in connection with the actual Excise Tax imposed on the Payments. (iv) "Payment" shall mean, with respect to the ------- Employee, any payment in the nature of compensation to (or for the benefit of) such individual, if such payment is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) in the ownership of a substantial portion of the assets of Teradyne (in each case, as reasonably determined by Teradyne in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). Notwithstanding the foregoing, any amount payable to (or for the benefit of) the Employee shall be a Payment if an Excise Tax is imposed on the Employee with respect to such payment or benefit, and such payment or benefit is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) -4- in the ownership of a substantial portion of the assets of Teradyne (in each case, determined in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). 3. No Obligation of Employment. Employee understands that the --------------------------- employment relationship between Employee and Teradyne will be "at will" and Employee understands that, prior to any Change in Control, Teradyne may terminate Employee with or without "Cause" at any time. Following any Change in Control, Teradyne may also terminate Employee with or without "cause" at any time subject to Employee's rights and Teradyne's obligations specified in this Agreement. 4. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the internal laws of the Commonwealth of Massachusetts and this Agreement shall be deemed to be performable in Massachusetts. 5. Severability. In case any one or more of the provisions ------------ contained in this Agreement for any reason shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement and this Agreement shall be construed to the maximum extent permitted by law. 6. Waivers and Modifications. This Agreement may be modified, and ------------------------- the rights, remedies and obligations contained in any provision hereof may be waived, only in accordance with this Section 6. No waiver by either party of any breach by the other or any provision hereof shall be deemed to be a waiver of any later or other breach thereof or as a waiver of any other provision of this Agreement. This Agreement may not be waived, changed, discharged or terminated orally or by any course of dealing between the parties, but only by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought. 7. Assignment. Employee may not assign any of his rights or ---------- delegate any of his duties or obligations under this Agreement. The rights and obligations of Teradyne under this Agreement shall inure to the benefit of, and shall be binding upon, the successors and assigns of Teradyne. For purposes of this Agreement, "Teradyne" shall be deemed to include all successors and assigns of Teradyne. 8. Entire Agreement. This Agreement constitutes the entire ---------------- understanding of the parties relating to the subject matter hereof and supersedes and cancels all agreements, written or oral, made prior to the date hereof between Employee and Teradyne relating to the subject matter hereof; provided, however, that Employee's existing option agreements, as modified hereby, shall remain in effect. -5- 9. Notices. All notices hereunder shall be in writing and shall ------- be delivered in person or mailed by certified or registered mail, return receipt requested, addressed as follows: If to Teradyne, to: Teradyne, Inc. 321 Harrison Avenue Boston, MA 02118 Attention: Tom Grilk If to Employee, at Employee's address set forth on the signature page hereto. 10. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 11. Section Headings. The descriptive section headings herein have ---------------- been inserted for convenience only and shall not be deemed to define, limit, or otherwise affect the construction of any provision hereof. 12. Term. The term of this Agreement (the "Term") shall commence ---- upon the date hereof and terminate upon the earlier of (i) twenty-four (24) months following any Change in Control of Teradyne, (ii) the date prior to any Change in Control of Teradyne that employee for any reason ceases to be an employee of Teradyne and (iii) the date following any Change in Control of Teradyne that Employee is terminated for Cause or voluntary terminates his employment (other than for Good Reason). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. TERADYNE, INC. By: /s/ George W. Chamillard ------------------------------------- Name: George W. Chamillard Title: Chairman, Chief Executive Officer and President of Teradyne, Inc. EMPLOYEE /s/ Stuart M. Osattin ----------------------------------------- Name: Stuart M. Osattin Address: 44 Pinecliff Drive Marblehead, MA 01945 EX-10.24 13 dex1024.txt CHANGE IN CONTROL AGREEMENT Exhibit 10.24 EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT entered into this 19th day of October, 2001, by and between Teradyne, Inc., a Massachusetts corporation ("Teradyne"), and the undersigned executive officer of Teradyne -------- ("Employee"). -------- WITNESSETH: WHEREAS, Teradyne and Employee desire to set forth certain terms and conditions relating to benefits to be afforded to Employee upon the occurrence of a Change in Control (as hereinafter defined) of Teradyne; NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. Option Acceleration. (a) during the Term (as hereinafter ------------------- defined), if within twenty-four (24) months following a Change in Control there is a Termination Event (as hereinafter defined), all of Employee's unvested Options granted prior to, on, or after the date hereof (but only (I) such Options as have been granted to Employee by Teradyne as of the date of the Change in Control or (II) such Options as have been assumed by an acquiring company at the time of a Change in Control or such new options that have been substituted by an acquiring company for Options existing at the time of a Change in Control, each pursuant to the terms of any Teradyne option plan) shall automatically become fully vested as of the date of such Termination Event. The parties hereto acknowledge that the terms of this Agreement are intended to modify the terms of Employee's existing Option agreements and to be a supplement to future Option agreements. (b) For purposes of this Agreement, the following terms shall have the following meanings: "Cause" shall mean conduct involving one or more of the ----- following: (i) the substantial and continuing failure of Employee, after notice thereof, to render services to Teradyne in accordance with the terms or requirements of his or her employment; (ii) Employee's disloyalty, gross negligence, willful misconduct, dishonesty, fraud or breach of fiduciary duty to Teradyne; (iii) Employee's deliberate disregard of the rules or policies of, or breach of an agreement with, Teradyne which results in direct or indirect loss, damage or injury to Teradyne; (iv) the unauthorized disclosure by Employee of any trade secret or confidential information of Teradyne; or (v) the commission by Employee of an act which constitutes unfair competition with Teradyne. A "Change in Control" shall be deemed to have occurred upon ----------------- the occurrence of any of the following events: (i) any consolidation, cash tender offer, reorganization, recapitalization, merger or plan of share exchange following which the shareholders of Teradyne immediately prior to such transaction own less than a majority of the combined voting power of -2- the then-outstanding securities of the combined corporation or person immediately after such transaction; (ii) any sale, lease, exchange or other transfer of all or substantially all of Teradyne's assets; (iii) the adoption by the Board of Directors of Teradyne of any plan or proposal for the liquidation or dissolution of Teradyne; (iv) a change in the majority of the Board of Directors of Teradyne through one or more contested elections; or (v) any person (as that term is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act of 1934, as amended) becomes beneficial owner of 30% or more of the combined voting power of Teradyne's outstanding voting securities. "Good Reason" shall mean any one or more of the following: (i) ----------- any material reduction of Employee's responsibilities (other than for Cause or as a result of death or disability); (ii) any material reduction in Employee's model compensation as in effect on the date of the consummation of the Change in Control, or as the same may be increased from time to time, or any failure by Teradyne to pay to Employee any bonus accrued, but not yet paid, upon written notice by Employee to Teradyne, within 45 days; (iii) a material reduction in the value of Employee's benefit package from the value of Employee's benefit package on the date of the consummation of the Change in Control; or (iv) any permanent assignment of Employee to a job location situated more than 50 miles away from his current job location. "Option" shall mean an option to purchase shares of Teradyne ------ Common Stock. "Termination Event" shall mean (i) any termination of Employee ----------------- by Teradyne without Cause or (ii) any voluntary termination by Employee for Good Reason. 2. (a) Parachute Payment Gross-Up. If any Payments (as -------------------------- hereinafter defined) to Employee are subject to the Excise Tax (as hereinafter defined), Teradyne shall pay to Employee a Gross-Up Payment (as hereinafter defined). The Gross-Up Payment with respect to any Payment shall be paid no later than 15 days prior to the date that the Excise Tax is due with respect to such Payment. (b) Definitions. For purposes of this Section 2, the ----------- following terms shall have the following meanings: (i) "Code" shall mean the Internal Revenue Code ---- of 1986, as amended. (ii) "Excise Tax" shall mean the tax imposed by ---------- Section 4999 of the Code. The amount of the Excise Tax (if any) imposed on any non-cash benefits or any deferred payment or benefit shall be reasonably determined by Teradyne, after consultation with its legal and tax advisors. (iii) "Gross-Up Payment" shall mean, with respect ---------------- to Payments to the Employee, the amount necessary so that the amount retained by Employee, after reduction for (1) any Excise Tax on the Gross-Up -3- Payment and (2) any federal, state, or local income and employment taxes imposed on the Gross-Up Payment, is an amount equal to the Excise Tax on the Payments to Employee, other than the Gross-Up Payment. The amount of the Gross-Up Payment shall be reasonably determined by Teradyne after consultation with its legal and tax advisors. (1) For purposes of determining the amount of the Gross-Up Payment, Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal, state and local income tax in the calendar year in which the Gross-Up Payment is made (determined by reference to Employee's residence for such calendar year), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (2) In the event that the Excise Tax with respect to the Payments is determined to exceed the amount taken into account hereunder, Teradyne shall make an additional Gross-Up Payment in respect of such excess. For purposes of calculating such Gross-Up Payment, any interest or penalties imposed in connection with such excess Excise Tax shall be treated as an Excise Tax. (3) In the event that the Excise Tax with respect to the Payments is subsequently determined to be less than the amount taken into account for purposes of calculating the Gross-Up Payment, Employee shall promptly repay to Teradyne the after-tax portion of the Gross-Up Payment that exceeds the Gross-Up Payment that otherwise would have been payable in connection with the actual Excise Tax imposed on the Payments. (iv) "Payment" shall mean, with respect to the ------- Employee, any payment in the nature of compensation to (or for the benefit of) such individual, if such payment is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) in the ownership of a substantial portion of the assets of Teradyne (in each case, as reasonably determined by Teradyne in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). Notwithstanding the foregoing, any amount payable to (or for the benefit of) the Employee shall be a Payment if an Excise Tax is imposed on the Employee with respect to such payment or benefit, and such payment or benefit is contingent on a change (i) in the ownership or effective control of Teradyne or (ii) -4- in the ownership of a substantial portion of the assets of Teradyne (in each case, determined in accordance with Section 280G(b)(2) of the Code and the regulations promulgated thereunder). 3. No Obligation of Employment. Employee understands that the --------------------------- employment relationship between Employee and Teradyne will be "at will" and Employee understands that, prior to any Change in Control, Teradyne may terminate Employee with or without "Cause" at any time. Following any Change in Control, Teradyne may also terminate Employee with or without "cause" at any time subject to Employee's rights and Teradyne's obligations specified in this Agreement. 4. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the internal laws of the Commonwealth of Massachusetts and this Agreement shall be deemed to be performable in Massachusetts. 5. Severability. In case any one or more of the provisions ------------ contained in this Agreement for any reason shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement and this Agreement shall be construed to the maximum extent permitted by law. 6. Waivers and Modifications. This Agreement may be modified, and ------------------------- the rights, remedies and obligations contained in any provision hereof may be waived, only in accordance with this Section 6. No waiver by either party of any breach by the other or any provision hereof shall be deemed to be a waiver of any later or other breach thereof or as a waiver of any other provision of this Agreement. This Agreement may not be waived, changed, discharged or terminated orally or by any course of dealing between the parties, but only by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought. 7. Assignment. Employee may not assign any of his rights or ---------- delegate any of his duties or obligations under this Agreement. The rights and obligations of Teradyne under this Agreement shall inure to the benefit of, and shall be binding upon, the successors and assigns of Teradyne. For purposes of this Agreement, "Teradyne" shall be deemed to include all successors and assigns of Teradyne. 8. Entire Agreement. This Agreement constitutes the entire ---------------- understanding of the parties relating to the subject matter hereof and supersedes and cancels all agreements, written or oral, made prior to the date hereof between Employee and Teradyne relating to the subject matter hereof; provided, however, that Employee's existing option agreements, as modified hereby, shall remain in effect. -5- 9. Notices. All notices hereunder shall be in writing and shall ------- be delivered in person or mailed by certified or registered mail, return receipt requested, addressed as follows: If to Teradyne, to: Teradyne, Inc. 321 Harrison Avenue Boston, MA 02118 Attention: Tom Grilk If to Employee, at Employee's address set forth on the signature page hereto. 10. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 11. Section Headings. The descriptive section headings herein have ---------------- been inserted for convenience only and shall not be deemed to define, limit, or otherwise affect the construction of any provision hereof. 12. Term. The term of this Agreement (the "Term") shall commence ---- upon the date hereof and terminate upon the earlier of (i) twenty-four (24) months following any Change in Control of Teradyne, (ii) the date prior to any Change in Control of Teradyne that employee for any reason ceases to be an employee of Teradyne and (iii) the date following any Change in Control of Teradyne that Employee is terminated for Cause or voluntary terminates his employment (other than for Good Reason). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. TERADYNE, INC. By: /s/ George W. Chamillard ------------------------------------- Name: George W. Chamillard Title: Chairman, Chief Executive Officer and President of Teradyne, Inc. EMPLOYEE /s/ Thomas S. Grilk ----------------------------------------- Name: Thomas S. Grilk Address: 10 Underhill Road Lynnfield, MA 01940 EX-10.25 14 dex1025.txt REAL ESTATE MORTGAGE FINANCING DOCUMENTS Exhibit 10.25 Loan No. 050-8563-001 PROMISSORY NOTE --------------- $45,000,000.00 December 19, 2001 FOR VALUE RECEIVED, TERADYNE, INC., a Massachusetts corporation ("BORROWER"), promises to pay to the order of GENERAL ELECTRIC CAPITAL BUSINESS ASSET FUNDING CORPORATION ("GE CAPITAL") at GE CAPITAL's office at 10900 NE 4th Street, Suite 500, Bellevue, Washington 98004, Attention: Middle Market Risk/Operations, or at such other address as the holder hereof may from time to time designate in writing, the principal sum of FORTY-FIVE MILLION AND NO/100 DOLLARS ($45,000,000.00) together with interest from the date the proceeds of the loan (the "Loan") evidenced by this Promissory Note (this "Note") are initially disbursed until maturity on the principal balance from time to time remaining unpaid hereon at the rate of 7.5% per annum (computed on the basis of a 360-day year of twelve (12) consecutive thirty (30)-day months) in installments as follows: (i) interest only in advance at the rate of $9,375.00 per day shall be due and payable on the date the proceeds of the Loan are initially disbursed to or for the benefit of BORROWER (including, without limitation, disbursement into an escrow for the benefit of BORROWER) for the period beginning on the date of such disbursement and ending on December 31, 2001; (ii) fifty-nine (59) installments of principal and interest in the amount of $362,516.94 each shall be payable commencing on February 1, 2002, and continuing on the first day of each and every succeeding month until and including December 1, 2006, and (iii) on January 1, 2007 (the "Maturity Date"), all then unpaid principal and interest hereon shall be due and payable. If any payment shall not be paid when due (excluding the payment due on the Maturity Date or upon acceleration) and shall remain unpaid for ten (10) days, BORROWER shall pay an additional charge equal to five percent (5.00%) of the delinquent payment or the highest additional charge permitted by law, whichever is less. BORROWER recognizes that its default in making the payments as provided for in this Note, or in the Deed of Trust securing this Note or in any of the other documents executed or delivered in connection with the Loan, when due, or by otherwise causing an event of default to occur under this Note, under the Deed of Trust or under any document executed or delivered in connection with the Loan, will require GE CAPITAL to incur additional expense in servicing the Loan, in loss to GE CAPITAL of the use of the money due and in frustration to GE CAPITAL in meeting its other financial and loan commitments and that damages caused thereby would be extremely difficult and impractical to ascertain. BORROWER agrees that an amount equal to such additional charge is a reasonable estimate of the damage to GE CAPITAL in the event of late payment or any such default regardless of whether or not there has been an acceleration of the Loan. If for any reason any court of competent jurisdiction should determine that the additional charge provided for above is unenforceable, such additional charge shall be in an amount equal to the highest additional charge allowed by such court pursuant to law. Upon not less than thirty (30) days advance written notice to GE CAPITAL and upon payment of the Prepayment Premium, BORROWER shall have the right to prepay all, but not 1 less than all, of the outstanding balance of this Note on any regularly scheduled principal and interest payment date. The Prepayment Premium shall be the sum of the Base Premium and the Variable Premium. The "Base Premium" shall be determined by multiplying the principal amount to be repaid by the applicable Base Premium Factor set forth below. The "Variable Premium" determined by (i) calculating the decrease (expressed in basis points) in the current weekly average yield of Five (5)-year Treasury Constant Maturities (as published in Federal Reserve Statistical Release H.15 [519]) (the "Index") from Friday, November 16, 2001, to the Friday immediately preceding the week in which the prepayment is made, (ii) dividing the decrease by 100, (iii) multiplying the result by the following described applicable premium factor (the "Premium Factor"), and (iv) multiplying the product by the principal balance to be prepaid. If the Index is unchanged or has increased from Friday, November 16, 2001, to the Friday immediately preceding the prepayment date, no Variable Premium shall be due. The Premium Factor shall be the amount shown on the following chart for the month in which prepayment occurs: Number of Months Base Variable ---------------- ---- -------- Remaining Years Premium Factor Premium Factor --------- ----- -------------- -------------- 60 - 49 (5) .05 .044 48 - 37 (4) .04 .037 36 - 25 (3) .03 .030 24 - 13 (2) .02 .022 12 - 1 (1) .01 .014 If the Federal Reserve Board ceases to publish the Index, then the decrease in the weekly average yield of five (5)-year U.S. Treasury Constant Maturities will be determined from another comparable source designated by GE CAPITAL. If GE CAPITAL at any time accelerates this Note after an Event of Default (defined below), then BORROWER shall be obligated to pay the Prepayment Premium in accordance with the foregoing schedule. The Prepayment Premium shall not be payable with respect to condemnation awards or insurance proceeds from fire or other casualty which GE CAPITAL applies to prepayment, nor with respect to BORROWER's prepayment of the Note in full during the last three (3) months of the term of this Note unless an Event of Default has occurred and remains uncured. BORROWER expressly acknowledges that (A) the Prepayment Premium is not a penalty but is intended solely to compensate GE CAPITAL for the loss of its bargain and the reimbursement of internal expenses and administrative fees and expenses incurred by GE CAPITAL, (B) such Prepayment Premium, as such Prepayment Premium may be imposed pursuant to the terms of this Note and of the Deed of Trust, is reasonable in amount, (C) the Prepayment Premium, as such Prepayment Premium may be imposed pursuant to the terms of this Note and of the Deed of Trust, shall be paid without prejudice to the right of GE CAPITAL to collect any other amounts provided to be paid under this Note or under the Deed of Trust or any other document executed or delivered in connection with the Loan, (D) any tender of payment prior to the payment date therefor as set forth in this Note for any reason whatsoever of all or any part of the indebtedness evidenced by this Note shall include such Prepayment Premium, (E) GE CAPITAL shall be entitled to bid all or a portion of such Prepayment Premium at any foreclosure sale under the Deed of Trust, (F) if BORROWER defaults under this Note, under the Deed of Trust or under any of the documents executed or delivered in connection with the Loan, GE CAPITAL shall be entitled to actual damages for the detriment caused thereby, but 2 that it is extremely difficult and impractical to ascertain the extent of such damages and that such Prepayment Premium is a reasonable estimate of such damages, and (G) nothing contained in this Note, in the Deed of Trust, or in any of the other documents executed or delivered in connection with the Loan, shall be deemed to mean that BORROWER has any right to pay all or any part of the indebtedness evidenced by this Note prior to the payment date thereof as set forth in this Note except for the privilege expressly reserved to so prepay as set forth in this Note. BORROWER HEREBY ACKNOWLEDGES AND AGREES THAT GE CAPITAL WOULD NOT LEND TO BORROWER THE LOAN WITHOUT BORROWER'S AGREEMENT, AS SET FORTH ABOVE, TO PAY GE CAPITAL THE PREPAYMENT PREMIUM, INCLUDING WITHOUT LIMITATION UPON A DEFAULT ARISING FROM THE CONVEYANCE OF ANY RIGHT, TITLE OR INTEREST IN THE PROPERTY ENCUMBERED BY THE DEED OF TRUST, AND BORROWER HAS CAUSED THOSE PERSONS SIGNING THIS NOTE ON BORROWER'S BEHALF TO SEPARATELY SIGN THE AGREEMENT CONTAINED IN THE TWO PRECEDING PARAGRAPHS AND THIS PARAGRAPH, IN COMPLIANCE WITH SECTION 2954.10 OF THE CALIFORNIA CIVIL CODE, BY PLACING THEIR SIGNATURES BELOW: BORROWER: TERADYNE, INC., a Massachusetts corporation By: /s/ Stuart M. Osattin ----------------------------------- Print: Stuart M. Osattin ----------------------------------- Its: V.P. and Treasurer ----------------------------------- The Loan is secured, in part, by five (5) certain Commercial Deeds of Trust, Security Agreements, Assignments of Leases and Rents and Fixture Filings (collectively, the "Deed of Trust") covering the real property and other assets (the "Property") described therein, and by certain other documents executed and delivered in connection with the Loan (the Deed of Trust and such other documents are collectively called the "Loan Documents"). Each of the following shall constitute an Event of Default ("Event of Default") hereunder and under the Deed of Trust: a. Failure of BORROWER to make any payment of principal, interest, or any Prepayment Premium due under this Note when due, and such failure shall continue for a period of ten (10) days after written notice is given to BORROWER by GE CAPITAL specifying such failure (provided that no notice shall be given of any failure by BORROWER to pay all amounts which become due hereunder on the Maturity Date); or b. Failure of BORROWER within the time required by the Deed of Trust to make any payment for taxes, insurance or for reserves for such payments, or any other payment necessary to prevent the filing of any lien, and such failure shall continue for a period of ten (10) days after written notice is given to BORROWER by GE CAPITAL specifying such failure; or 3 c. Failure of BORROWER to observe or perform any obligations of BORROWER to GE CAPITAL on or with respect to any transactions, debts, undertakings or agreements other than the transaction evidenced by this Note; or d. The Property or any part or interest in the Property is transferred in any manner whatsoever without the prior written consent of GE CAPITAL; or e. If any lease agreement covering any portion of the Property is executed by Borrower without GE CAPITAL's prior written consent; or f. Filing by BORROWER of a voluntary petition in bankruptcy or filing by BORROWER of any petition or answer seeking or acquiescing in any reorganization, arrangement, composition, readjustment, liquidation, or similar relief for itself under any present or future federal, state or other statute, law or regulation relating to bankruptcy, insolvency or other relief for debtors, or the seeking or consenting to by BORROWER of the appointment of any trustee, receiver, custodian, conservator or liquidator for BORROWER, any part of the Property, or any of the income or rents of the Property, or the making by BORROWER of any general assignment for the benefit of creditors, or the inability of or failure of BORROWER to pay its debts generally as they become due, or the insolvency on a balance sheet basis of BORROWER, or the imposition of a lien upon the Property which is not discharged in the manner permitted by the Deed of Trust, or the giving of notice by BORROWER to any governmental body of insolvency or suspension of operations; or g. Filing of a petition against BORROWER seeking any reorganization, arrangement, composition, readjustment, liquidation, or similar relief under any present or future federal, state or other law or regulation relating to bankruptcy, insolvency or other relief for debts, or the appointment of any trustee, receiver, custodian, conservator or liquidator of BORROWER, of any part of the Property or of any of the income or rents of the Property, unless such petition shall be dismissed within ninety (90) days after such filing, but in any event prior to the entry of an order, judgment or decree approving such petition; or h. The commencement of any proceeding for the dissolution or termination of BORROWER voluntarily, involuntarily, or by operation of law, if the same is not dismissed within ninety (90) days after the date on which it is commenced; or i. Failure of BORROWER to observe or perform any other obligation under the Deed of Trust or any of the Loan Documents when such observance or performance is due, and such failure shall continue beyond the applicable cure period set forth in the Deed of Trust or the Loan Documents, or if the default cannot be cured within such applicable cure period, if BORROWER fails within such time to commence and pursue curative action with reasonable diligence or fails at any time after expiration of such applicable cure period to continue with reasonable diligence all necessary curative actions. No notice of default and no opportunity to cure shall be required if during the prior twelve (12) months GE CAPITAL has already sent a notice to BORROWER concerning default in performance of the same obligation. Upon the occurrence of any Event of Default, GE CAPITAL shall have the option to declare the entire amount of principal and interest due under this Note immediately due and payable without additional notice or demand, and GE CAPITAL may exercise any of its rights 4 under this Note, under the Deed of Trust and under the Loan Documents. If the entire unpaid principal balance of this Note is not paid on the Maturity Date, whether the Maturity Date occurs by acceleration as described in the immediately preceding sentence or otherwise, the outstanding principal balance of this Note shall thereafter bear interest at the rate of five percent (5.00%) per annum above the prime interest rate in effect from time to time as published by the Wall Street Journal (or any successor thereto), or fifteen percent (15.00%) per annum, whichever is higher, provided that such interest rate shall not exceed the maximum interest rate permitted by law. All payments of the principal and interest on this Note shall be made in coin or currency of the United States of America which at the time shall be the legal tender for the payment of public and private debts. If this Note is placed in the hands of an attorney for collection, BORROWER agrees to pay reasonable attorneys' fees and costs incurred by GE CAPITAL in connection therewith, and in the event suit or action is instituted to enforce or interpret this Note (including without limitation efforts to modify or vacate any automatic stay or injunction), the prevailing party shall be entitled to recover all expenses reasonably incurred at, before or after trial and on appeal, whether or not taxable as costs, or in any bankruptcy proceeding, or in connection with post-judgment collection efforts, including, without limitation, attorneys' fees, witness fees (expert and otherwise), deposition costs, copying charges and other expenses. This Note shall be governed and construed in accordance with the laws of the State of California applicable to contracts made and to be performed therein (excluding choice-of-law principles). BORROWER hereby irrevocably submits to the jurisdiction of any state or federal court sitting in California in any action or proceeding brought to enforce or otherwise arising out of or relating to this Note, and hereby waives any objection to venue in any such court and any claim that such forum is an inconvenient forum. This Note is given in a commercial transaction for business purposes. This Note may be declared due prior to the Maturity Date, all in the events, on the terms, and in the manner provided for in the Deed of Trust. BORROWER and all sureties, endorsers, guarantors and other parties now or hereafter liable for the payment of this Note, in whole or in part, hereby severally (i) waive demand, notice of demand, presentment for payment, notice of nonpayment, notice of default, protest, notice of protest, notice of intent to accelerate, notice of acceleration and all other notices, and further waive diligence in collecting this Note or in enforcing any of the security for this Note; (ii) agree to any substitution, subordination, exchange or release of any security for this Note or the release of any party primarily or secondarily liable for the payment of this Note; (iii) agree that GE CAPITAL shall not be required to first institute suit or exhaust its remedies hereon against BORROWER or others liable or to become liable for the payment of this Note or to enforce its rights against any security for the payment of this Note; and (iv) consent to any extension of time for the payment of this Note, or any installment hereof, made by agreement by GE CAPITAL with any person now or hereafter liable for the payment of this Note, even if BORROWER is not a party to such agreement. 5 All agreements between BORROWER and GE CAPITAL, whether now existing or hereafter arising and whether written or oral, are hereby limited so that in no contingency, whether by reason of demand or acceleration of the Maturity Date of this Note or otherwise, shall the interest contracted for, charged, received, paid or agreed to be paid to GE CAPITAL exceed the maximum amount permissible under the applicable law. If, from any circumstance whatsoever, interest would otherwise be payable to GE CAPITAL in excess of the maximum amount permissible under applicable law, the interest payable to GE CAPITAL shall be reduced to the maximum amount permissible under applicable law; and if from any circumstance GE CAPITAL shall ever receive anything of value deemed interest by applicable law in excess of the maximum amount permissible under applicable law, an amount equal to the excessive interest shall be applied to the reduction of the principal of this Note and not to the payment of interest, or if such excessive amount of interest exceeds the unpaid balance of principal of this Note, such excess shall be refunded to BORROWER. All interest paid or agreed to be paid to GE CAPITAL shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full period (including any renewal or extension) until payment in full of the principal so that the interest accruing under this Note for such full period shall not exceed the maximum amount permissible under applicable law. GE CAPITAL expressly disavows any intent to contract for, charge or receive interest in an amount which exceeds the maximum amount permissible under applicable law. This paragraph shall control all agreements between BORROWER and GE CAPITAL. [SIGNATURE PAGE FOLLOWS] 6 IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS NOTE SHOULD BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED IN THIS NOTE MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE TERMS OF THIS NOTE ONLY BY ANOTHER WRITTEN AGREEMENT. BORROWER: TERADYNE, INC., a Massachusetts corporation By: /s/ Stuart M. Osattin ------------------------------------- Print: Stuart M. Osattin ---------------------------------- Its: V.P. and Treasurer ------------------------------------ 7 EX-10.26 15 dex1026.txt REAL ESTATE MORTGAGE FINANCING DOCUMENTS Exhibit 10.26 - -------------------------------------------------------------------------------- AFTER RECORDING, RETURN TO: - --------------------------- General Electric Capital Business Asset Funding Corporation Middle Market Risk/Operations Department 10900 NE 4th Street, Suite 500 Bellevue, Washington 98004 Attn: Ms. Deehan Gay Loan No. 050-8563-001 THIS INSTRUMENT PREPARED BY: - ---------------------------- Jenkens & Gilchrist, a professional corporation George C. Dunlap, Esq. 1445 Ross Avenue, Suite 3200 Dallas, Texas 75202 ================================================================================ [space above for recorder's use only] COMMERCIAL DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS, AND FIXTURE FILING Borrower: Teradyne, Inc. Borrower's Entity: a Massachusetts corporation State of Organization of Borrower: Massachusetts Organizational I.D. of Borrower: 04-2272148 THIS DEED OF TRUST (herein this "Instrument") is made effective as of December 19, 2001, by the Trustor, TERADYNE INC., a Massachusetts corporation, whose address is 321 Harrison Avenue, Boston, Massachusetts 02118-2238 (herein "Borrower"), in favor of FIRST AMERICAN TITLE INSURANCE COMPANY, a California corporation, whose address is One First American Way, Santa Ana, California 92701 (herein "Trustee"), for the benefit of the Beneficiary, GENERAL ELECTRIC CAPITAL BUSINESS ASSET FUNDING CORPORATION, a Delaware corporation, whose address is Middle Market Risk/Operations Department, 10900 NE 4th Street, Suite 500, Bellevue, Washington 98004 (herein "GE CAPITAL"). Borrower, in consideration of the indebtedness herein recited and the trust herein created, irrevocably grants, conveys and assigns to Trustee, IN TRUST, WITH POWER OF SALE, all of Borrower's estate, right, title and interest, now owned or hereafter acquired, including any reversion or remainder interest, in the real property located in Los Angeles County, California, more particularly described on Exhibit A attached hereto and incorporated herein, --------- including all heretofore or hereafter vacated alleys and streets abutting the property, and all easements, rights, appurtenances, tenements, hereditaments, rents, royalties, mineral, oil and gas rights and profits, water, water rights, and water stock appurtenant to the property (collectively, the "Premises"); 1 TOGETHER with all of Borrower's estate, right, title and interest, now owned or hereafter acquired, in: a. all buildings, structures, improvements, parking areas, landscaping, and fixtures now or hereafter erected on, attached to, or used or adapted for use in the operation of the Premises; including but without being limited to the following property: all heating, air conditioning and incinerating apparatus and equipment; all boilers, piping and plumbing fixtures, water heaters, cooling, ventilating, sprinkling and vacuum cleaning systems, fire extinguishing apparatus, gas and electric fixtures, carpeting, floor coverings, underpadding, elevators, escalators, partitions, mantels, built-in mirrors, window shades, blinds, draperies, screens, storm sash, awnings, signs, and shrubbery and plants, and including also all interest of any owner of the Premises in any of such items hereafter at any time acquired under conditional sale contract, chattel mortgage or other title retaining or security instrument, all of which property mentioned in this clause (a) shall be deemed part of the realty covered by this Instrument and not severable wholly or in part without material injury to the freehold of the Premises (all of the foregoing together with replacements and additions thereto are referred to herein as "Improvements"); and b. all compensation, awards, damages, rights of action and proceeds, including interest thereon and/or the proceeds of any policies of insurance therefor, arising out of or relating to a (i) taking or damaging of the Premises or the Improvements thereon by reason of any public or private improvement, condemnation proceeding (including change of grade), sale or transfer in lieu of condemnation, or fire, earthquake or other casualty, or (ii) any injury to or decrease in the value of the Premises or the Improvements for any reason whatsoever; and c. return premiums or other payments upon any insurance any time provided for the benefit of or naming GE CAPITAL, and refunds or rebates of taxes or assessments on the Premises; and d. all the right, title and interest of Borrower in, to and under all written and oral leases and rental agreements (including extensions, renewals and subleases; all of the foregoing shall be referred to collectively herein as the "Leases") now or hereafter affecting the Premises including, without limitation, all rents, issues, profits and other revenues and income therefrom and from the renting, leasing or bailment of the Improvements and equipment, all guaranties of tenants' performance under the Leases, and all rights and claims of any kind that Borrower may have against any tenant under the Leases or in connection with the termination or rejection of the Leases in a bankruptcy or insolvency proceeding; and the leasehold estate in the event this Instrument is on a leasehold; and e. plans, specifications, contracts and agreements relating to the design or construction of the Improvements; Borrower's rights under any payment, performance, or other bond in connection with the design or construction of the Improvements; and contracts, agreements, and purchase orders with contractors, subcontractors, suppliers, and materialmen incidental to the design or construction of the Improvements; and f. all contracts, accounts, rights, claims or causes of action pertaining to or affecting the Premises or the Improvements, including, without limitation, all options or contracts to acquire other property for use in connection with operation or development of the Premises or the Improvements, management contracts, service or supply contracts, permits, 2 licenses, franchises and certificates relating to the Property, all utility and similar deposits relating to the use and occupancy of the Premises, and all general intangibles relating to the Premises (the term "general intangibles" as used in this paragraph shall have the meaning given such term in the Uniform Commercial Code-Secured Transactions of the state where the Premises is located); and g. all books, records, surveys, reports and other documents related to the Premises, the Improvements, the Leases, or other items of collateral described herein; and h. all additions, accessions, replacements, substitutions, proceeds and products of the real and personal property, tangible and intangible, described herein. All of the foregoing described collateral is exclusive of any furniture, furnishings or trade fixtures owned and supplied by tenants, if any, of the Premises. The Premises, the Improvements, the Leases and all of the rest of the foregoing property are herein referred to as the "Property." TO SECURE TO GE CAPITAL (a) the repayment of the indebtedness evidenced by Borrower's note dated of even date herewith in the principal sum of FORTY-FIVE MILLION AND NO/100 DOLLARS ($45,000,000.00), with interest thereon as set forth in the note, and all renewals, extensions and modifications thereof (herein the "Note"), and with a final maturity date of January 1, 2007 (the "Maturity Date"); (b) the repayment of any future advances, with interest thereon, made by GE CAPITAL to Borrower pursuant to Section 30 hereof (herein ---------- "Future Advances"); (c) the payment of all other sums, with interest thereon, advanced in accordance herewith to protect the security of this Instrument or to fulfill any of Borrower's obligations hereunder or under the other Loan Documents (as defined below); (d) the performance of the covenants and agreements of Borrower contained herein or in the other Loan Documents; (e) the repayment of all sums now or hereafter owing to GE CAPITAL by Borrower pursuant to any instrument which recites that it is secured hereby; and (f) the repayment of all other sums now or hereafter owing to GE CAPITAL by Borrower or any entity related to Borrower (the indebtedness described in clause (f) is collectively called "Other Loans"). The indebtedness and obligations described in clauses (a)-(f) above are collectively referred to herein as the "Indebtedness." The Note, this Instrument, the Commercial Deeds of Trust, Security Agreements, Assignments of Leases and Rents and Fixture Filings (the "Other Deeds of Trust") dated of even date herewith, executed by Borrower for the benefit of GE CAPITAL, and all other documents evidencing, securing or guarantying the Indebtedness (except any Certificate and Indemnity Agreement Regarding Hazardous Substances), as the same may be modified or amended from time to time, are referred to herein as the "Loan Documents." The terms of the Note secured hereby may provide that the interest rate or payment terms or balance due may be indexed, adjusted, renewed, or renegotiated from time to time, and this Instrument shall continue to secure the Note notwithstanding any such indexing, adjustment, renewal or renegotiation. Borrower represents and warrants that Borrower has good, marketable and insurable title to, and has the right to grant, convey and assign an indefeasible fee simple estate in, the Premises, Improvements, rents and leases (or, if this Instrument is on a leasehold, good, marketable and insurable title to, and the right to convey the leasehold estate and that the ground lease is in full force and effect without modification except as noted above and without default on the part of either lessor or lessee thereunder), and the right to convey the other Property, that 3 the Property is unencumbered except for the matters set forth on Exhibit B --------- attached to and made a part of this Instrument, and that Borrower will warrant and forever defend unto Trustee and GE CAPITAL the title to the Property against all claims and demands, subject only to the permitted exceptions set forth in Exhibit B attached hereto. - --------- Borrower represents, warrants, covenants and agrees for the benefit of GE CAPITAL as follows: a. PAYMENT OF PRINCIPAL AND INTEREST. Borrower shall --------------------------------- promptly pay when due the principal of and interest on the Indebtedness, any prepayment and other charges provided in the Loan Documents and all other sums secured by this Instrument. b. FUNDS FOR TAXES, INSURANCE AND OTHER CHARGES. Upon -------------------------------------------- the occurrence of an Event of Default (hereinafter defined), and at GE CAPITAL's sole option at any time thereafter, Borrower shall pay on or before the first day of each month, in addition to each monthly payment on the Note, one-twelfth (1/12) of the annual real estate taxes, insurance premiums, assessments, water and sewer rates, ground rents and other charges (herein "Impositions") payable with respect to the Property (as estimated by GE CAPITAL in its sole discretion), to be held by GE CAPITAL without interest to Borrower, for the payment of any Impositions. If the amount of such additional payments held by GE CAPITAL ("Funds") at the time of the annual accounting thereof shall exceed the amount deemed necessary by GE CAPITAL to provide for the payment of Impositions as they fall due, such excess shall be at Borrower's option, either repaid to Borrower or credited to Borrower on the next monthly installment or installments of Funds due. If at any time the amount of the Funds held by GE CAPITAL shall be less than the amount deemed necessary by GE CAPITAL to pay Impositions as they fall due, Borrower shall pay to GE CAPITAL any amount necessary to make up the deficiency within thirty (30) days after notice from GE CAPITAL to Borrower requesting payment thereof. Upon the occurrence of an Event of Default, GE CAPITAL may apply, in any amount and in any order as GE CAPITAL shall determine in GE CAPITAL's sole discretion, any Funds held by GE CAPITAL at the time of application (a) to pay Impositions which are now or will hereafter become due, or (b) as a credit against sums secured by this Instrument. Upon payment in full of all sums secured by this Instrument, GE CAPITAL shall refund to Borrower any Funds held by GE CAPITAL. c. APPLICATION OF PAYMENTS. Unless applicable law ----------------------- provides otherwise, each complete installment payment received by GE CAPITAL from Borrower under the Note or this Instrument shall be applied by GE CAPITAL first in payment of amounts payable to GE CAPITAL by Borrower under Section 2 --------- hereof, then to interest payable on the Note, then to principal of the Note, and then to interest and principal on any Future Advances in such order as GE CAPITAL, at GE CAPITAL's sole discretion, shall determine. Upon Borrower's breach of any covenant or agreement of Borrower in this Instrument, GE CAPITAL may apply, in any amount and in any order as GE CAPITAL shall determine in GE CAPITAL's sole discretion, any payments received by GE CAPITAL under the Note or this Instrument. Any partial payment received by GE CAPITAL shall, at GE CAPITAL's option, be held in a non- 4 interest bearing account until GE CAPITAL receives funds sufficient to equal a complete installment payment. d. CHARGES, LIENS. Subject to Section 40 below, Borrower -------------- ---------- shall pay all Impositions attributable to the Property when the same are due and in the manner provided under Section 2 hereof or, if not paid in such manner, by --------- Borrower making payment, when due, directly to the payee thereof, or in such other manner as GE CAPITAL may designate in writing. If requested by GE CAPITAL, Borrower shall promptly furnish to GE CAPITAL all notices of Impositions which become due, and in the event Borrower shall make payment directly, Borrower shall promptly furnish to GE CAPITAL receipts evidencing such payments. Borrower shall promptly discharge any lien which has, or may have, priority over or equality with, the lien of this Instrument, and Borrower shall pay, when due, the claims of all persons supplying labor or materials to or in connection with the Property. Without GE CAPITAL's prior written permission, Borrower shall not allow any lien inferior to this Instrument to be perfected against the Property. If any lien is filed against the Property without GE CAPITAL's prior written permission and without the consent of Borrower, Borrower shall, within thirty (30) days after receiving notice of the filing of such lien, either (a) cause such lien to be released of record and deliver evidence of such release to GE CAPITAL or (b) obtain and deliver to GE CAPITAL a surety bond in form, in an amount and issued by a surety approved by GE CAPITAL, which surety bond operates to release the Property from the claim evidenced by such lien. e. INSURANCE. Borrower shall obtain and maintain the --------- following types of insurance upon and relating to the Property: a. "All Risk" property and fire insurance (with extended coverage endorsement including malicious mischief and vandalism) in an amount not less than the full replacement value of the Property (with a deductible not to exceed $1,000,000.00), naming GE CAPITAL under a lender's loss payee endorsement (form 438BFU or equivalent) and including agreed amount, inflation guard, replacement cost and waiver of subrogation endorsements; b. Comprehensive general liability insurance in an amount not less than $2,000,000.00 insuring against personal injury, death and property damage and naming GE CAPITAL as additional insured; c. Business interruption insurance covering loss of income for up to ninety (90) days; and d. Such other types of insurance or endorsements to existing insurance as may reasonably be required from time to time by GE CAPITAL. Upon each request of GE CAPITAL, Borrower shall increase the coverages under any of the insurance policies required to be maintained hereunder or otherwise modify such policies in accordance with GE CAPITAL's request provided such request is made on a reasonable basis. All of the insurance policies required hereunder shall be issued by corporate insurers licensed to do business in the state in which the Property is located and rated A:X or better by A.M. Best Company, and shall be in form acceptable to GE CAPITAL. If and to the extent 5 that the Property is located within an area that has been or is hereafter designated or identified as an area having special flood hazards by the Department of Housing and Urban Development or such other official as shall from time to time be authorized by federal or state law to make such designation pursuant to any national or state program of flood insurance, Borrower shall carry flood insurance with respect to the Property in amounts not less than the maximum limit of coverage then available with respect to the Property or the amount of the Indebtedness, whichever is less. Certificates of all insurance required to be maintained hereunder shall be delivered to GE CAPITAL, along with evidence of payment in full of all premiums required thereunder, contemporaneously with Borrower's execution of this Instrument. All such certificates shall be in form acceptable to GE CAPITAL and shall require the insurance company to give to GE CAPITAL at least thirty (30) days' prior written notice before canceling the policy for any reason or materially amending it, except with respect to the insurance policy for the Property which expires in December of 2001. Certificates evidencing all renewal and substitute policies of insurance shall be delivered to GE CAPITAL, along with evidence of the payment in full of all premiums required thereunder, at least thirty (30) days before termination of the policies being renewed or substituted, except with respect to the insurance policy for the Property which expires in December of 2001. If any loss shall occur at any time when Borrower shall be in default hereunder, GE CAPITAL shall be entitled to the benefit of all insurance policies held or maintained by Borrower, to the same extent as if same had been made payable to GE CAPITAL, and upon foreclosure hereunder, GE CAPITAL shall become the owner thereof. GE CAPITAL shall have the right, but not the obligation, to make premium payments, at Borrower's expense, to prevent any cancellation, endorsement, alteration or reissuance of any policy of insurance maintained by Borrower, and such payments shall be accepted by the insurer to prevent same. If any act or occurrence of any kind or nature (including any casualty for which insurance was not obtained or obtainable) shall result in damage to or destruction of the Property (such event being called a "Loss"), Borrower will give prompt written notice thereof to GE CAPITAL. All insurance proceeds paid or payable in connection with any Loss shall be paid to GE CAPITAL. If (i) no Event of Default has occurred and is continuing hereunder, (ii) Borrower provides evidence satisfactory to GE CAPITAL of its ability to pay all amounts becoming due under the Note during the pendency of any restoration or repairs to or replacement of the Property, (iii) the available insurance proceeds, together with any funds deposited with GE CAPITAL by Borrower are, in GE CAPITAL's judgment, sufficient to fully and completely restore, repair or replace the Property, and (iv) Borrower provides evidence satisfactory to GE CAPITAL that none of the tenants of the Property will terminate their lease agreements as a result of either the Loss or the repairs to or replacement of the Property, Borrower shall have the right to apply all insurance proceeds received in connection with such Loss either (a) to restore, repair, replace and rebuild the Property as nearly as possible to its value, condition and character immediately prior to such Loss, or (b) to the payment of the Indebtedness in such order as GE CAPITAL may elect. If an Event of Default has occurred and is continuing hereunder at the time of 6 such Loss, if GE CAPITAL determines that Borrower will be unable to pay all amounts becoming due under the Note during the pendency of any restoration or repairs to or replacement of the Property, if the available insurance proceeds together with any funds deposited with GE CAPITAL by Borrower are insufficient, in GE CAPITAL's judgment, to fully and completely restore, repair or replace the Property, or if GE CAPITAL believes that one or more tenants of the Property will terminate their lease agreements as a result of either the Loss or the repairs to or replacement of the Property, then all of the insurance proceeds payable with respect to such Loss will be applied to the payment of the Indebtedness, or if so instructed by GE CAPITAL, Borrower will promptly, at Borrower's sole cost and expense and regardless of whether sufficient insurance proceeds shall be available, commence to restore, repair, replace and rebuild the Property as nearly as possible to its value, condition, character immediately prior to such Loss, provided GE CAPITAL releases such proceeds to Borrower for repairs or replacements to the Property. Borrower shall diligently prosecute any restoration, repairs or replacement of the Property undertaken by or on behalf of Borrower pursuant to this Section 5. All such work shall be --------- conducted pursuant to written contracts approved by GE CAPITAL in writing. Notwithstanding anything contained herein to the contrary, in the event the insurance proceeds received by GE CAPITAL following any Loss are insufficient in GE CAPITAL's judgment to fully and completely restore, repair or replace the Property, and if Borrower has complied with all of the other conditions described in this Section 5, Borrower may --------- elect to restore, repair or replace the Property if it first deposits with GE CAPITAL such additional sums as GE CAPITAL determines are necessary in order to fully and completely restore, repair or replace the Property. In the event any insurance proceeds remain following the restoration, repair or replacement of the Property, such proceeds shall be applied to the Indebtedness in such order as GE CAPITAL may elect. f. PRESERVATION AND MAINTENANCE OF THE ----------------------------------- PROPERTY; LEASEHOLDS. Borrower (a) shall not commit waste or -------------------- permit impairment or deterioration of the Property, (b) shall not abandon the Property, (c) shall restore or repair promptly and in a good and workmanlike manner all or any part of the Property to the equivalent of its original condition, or such other condition as GE CAPITAL may approve in writing, in the event of any damage, injury or loss thereto, whether or not insurance proceeds are available to cover, in whole or in part, the costs of such restoration or repair (but GE CAPITAL shall make the net insurance proceeds received by GE CAPITAL available to Borrower for the restoration or repair of the Property as a condition to the enforcement by GE CAPITAL of the covenant set forth in this subpart (c)), (d) shall keep the Property, including all improvements, fixtures, equipment, machinery and appliances thereon, in good repair and shall replace fixtures, equipment, machinery and appliances on the Property when necessary to keep such items in good repair, normal wear and tear excepted (e) shall comply with all laws, ordinances, regulations and requirements of any governmental body applicable to the Property, (f) if all or part of the Property is for rent or lease, then GE CAPITAL, at its option after the occurrence of an Event of Default, may require Borrower to provide for professional management of the Property by a property 7 manager satisfactory to GE CAPITAL pursuant to a contract approved by GE CAPITAL in writing, unless such requirement shall be waived by GE CAPITAL in writing, (g) shall comply with the terms of any restrictive covenants or other similar documents applicable to the Property and generally operate and maintain the Property in a manner to ensure maximum rentals, and (h) shall give notice in writing to GE CAPITAL of and, unless otherwise directed in writing by GE CAPITAL, appear in and defend any action or proceeding purporting to affect the Property, the security of this Instrument or the rights or powers of GE CAPITAL hereunder. Except as provided in the following sentence, neither Borrower nor any tenant or other person, without the written approval of GE CAPITAL, shall remove, demolish or alter any Improvement now existing or hereafter erected on the Property or any fixture, equipment, machinery or appliance in or on the Property except when incident to the replacement of fixtures, equipment, machinery and appliances with items of like kind. Borrower shall have the right to make nonstructural alterations and improvements to the interior of the Property without the prior written approval of GE CAPITAL. Borrower represents, warrants and covenants that to the best of Borrower's knowledge, the Property is and shall remain in compliance with the Americans with Disabilities Act of 1990 and all of the regulations promulgated thereunder, as the same may be amended from time to time. g. USE OF PROPERTY. Unless required by --------------- applicable law or unless GE CAPITAL has otherwise agreed in writing, Borrower shall not allow changes in the use for which all or any part of the Property was intended at the time this Instrument was executed. Borrower shall not, without GE CAPITAL's prior written consent, (a) initiate or acquiesce in a change in the zoning classification (including any variance under any existing zoning ordinance applicable to the Property), (b) permit the use of the Property to become a non-conforming use under applicable zoning ordinances, unless grandfathered by applicable law and only if following any damage to the Property, the rebuilding of the Property for its use as of the date of this Instrument and to its same size as of the date of this Instrument would be permitted under such applicable law, (c) file any subdivision or parcel map affecting the Property, or (d) amend, modify or consent to any easement or covenants, conditions or restrictions pertaining to the Property. h. PROTECTION OF GE CAPITAL'S -------------------------- SECURITY. If Borrower fails to perform any of the covenants -------- and agreements contained in this Instrument, or if any action or proceeding is commenced which affects the Property or title thereto or the interest of GE CAPITAL therein, including, but not limited to, eminent domain, insolvency, code enforcement, or arrangements or proceedings involving a bankrupt or decedent, then GE CAPITAL, at GE CAPITAL's, option may make such appearances, disburse such sums and take such action as GE CAPITAL deems necessary, in its sole discretion, to protect GE CAPITAL's interest, including, but not limited to, (a) disbursement of attorneys' fees, (b) entry upon the Property to make repairs, and/or (c) procurement of satisfactory insurance as provided in Section 5 hereof. --------- 8 Any amounts disbursed by GE CAPITAL pursuant to this Section 8, with interest thereon, shall become additional --------- Indebtedness of Borrower secured by this Instrument. Unless Borrower and GE CAPITAL agree to other terms of payment, such amounts shall be immediately due and payable and shall bear interest from the date of disbursement at the post maturity rate stated in the Note. Borrower hereby covenants and agrees that GE CAPITAL shall be subrogated to the lien of any mortgage or other lien discharged, in whole or in part, by the Indebtedness. Nothing contained in this Section 8 shall --------- require GE CAPITAL to incur any expense or take any action hereunder. i. INSPECTION. Upon reasonable advance ---------- notice, GE CAPITAL may make or cause to be made reasonable entries upon the Property to inspect the interior and exterior thereof. j. FINANCIAL DATA. Borrower will -------------- furnish to GE CAPITAL, and will cause each guarantor of the Indebtedness to furnish to GE CAPITAL upon request, within ninety (90) days after the close of each calendar year, (i) balance sheet and profit and loss statements for the immediately preceding calendar year prepared in accordance with generally accepted accounting principles and practices consistently applied and, if GE CAPITAL so requires, accompanied by the annual audit report of an independent certified public accountant reasonably acceptable to GE CAPITAL, all as submitted by Borrower to the Securities and Exchange Commission (the "SEC"), and (ii) if Borrower is no longer required to submit financial reports to the SEC, all other financial information and reports that GE CAPITAL may, from time to time, reasonably request, including, if GE CAPITAL so requires, income tax returns of Borrower and any guarantor of the Indebtedness, and financial statements of any tenant of the Property designated by GE CAPITAL. k. CONDEMNATION. If the Property, or ------------ any part thereof, shall be condemned for any reason, including, without limitation, fire or earthquake damage, or otherwise taken for public or quasi-public use under the power of eminent domain, or be transferred in lieu thereof, all damages or other amounts awarded for the taking of, or injury to, the Property shall be paid to GE CAPITAL, and GE CAPITAL shall have the right, in its sole and absolute discretion, to apply the amounts so received against (a) the costs and expenses of GE CAPITAL or Trustee, including reasonable attorneys' fees incurred in connection with collection of such amounts, and (b) the balance against the Indebtedness; provided, however, that if (i) no Event of Default shall have occurred and be continuing hereunder, (ii) Borrower provides evidence satisfactory to GE CAPITAL of its ability to pay all amounts becoming due under the Note during the pendency of any restoration or repairs to or replacement of the Property, (iii) GE CAPITAL determines, in its sole discretion, that the proceeds of such award are sufficient to restore, repair, replace and rebuild the Property as nearly as possible to its value, condition and character immediately prior to such taking (or, if the proceeds of such award are insufficient for such purpose, if Borrower provides additional sums to GE CAPITAL's satisfaction so that the 9 aggregate of such sums and the proceeds of such award will be sufficient for such purpose), and (iv) Borrower provides evidence satisfactory to GE CAPITAL that, as a result of either the condemnation or taking or the repairs to or replacement of the Property, none of the tenants of the Property will terminate their lease agreements, then the proceeds of such award, together with additional sums provided by Borrower, shall be placed in a separate account for the benefit of GE CAPITAL and Borrower to be used to restore, repair, replace and rebuild the Property as nearly as possible to its value, condition and character immediately prior to such taking. All work to be performed in connection therewith shall be pursuant to a written contract therefor, which contract shall be subject to the prior reasonable approval of GE CAPITAL. To the extent that any funds remain after the Property has been so restored and repaired, the same shall be applied against the Indebtedness in such order as GE CAPITAL may elect. To enforce its rights hereunder, GE CAPITAL shall be entitled to participate in and control (after the occurrence of an Event of Default), any condemnation proceedings and to be represented therein by counsel of its own choice, and Borrower will deliver, or cause to be delivered to GE CAPITAL such instruments as may be requested by GE CAPITAL from time to time to permit such participation. In the event GE CAPITAL, as a result of any such judgment, decree or award, reasonably believes that the payment or performance of any of the Indebtedness is or shall be impaired, GE CAPITAL may declare all of the Indebtedness immediately due and payable, in which event no prepayment premium shall be due. l. BORROWER AND LIEN NOT RELEASED. ------------------------------ From time to time, GE CAPITAL may, at GE CAPITAL's option, without giving notice to or obtaining the consent of Borrower, Borrower's successors or assigns or of any junior lienholder or guarantors, without liability on GE CAPITAL's part and notwithstanding Borrower's breach of any covenant or agreement of Borrower in this Instrument, extend the time for payment of the Indebtedness or any part thereof, reduce the payments thereon, release anyone liable on any of the Indebtedness, accept an extension or modification or renewal note or notes therefor, release from the lien of this Instrument any part of the Property, take or release other or additional security, reconvey any part of the Property, consent to any map or plan of the Property, consent to the granting of any easement, join in any extension or subordination agreement, and agree in writing with Borrower to modify the rate of interest or period of amortization of the Note or decrease the amount of the monthly installments payable thereunder. Any actions taken by GE CAPITAL pursuant to the terms of this Section 12 shall not ---------- affect the obligation of Borrower or Borrower's successors or assigns to pay the sums secured by this Instrument and to observe the covenants of Borrower contained herein, shall not affect the guaranty of any person, corporation, partnership or other entity for payment of the Indebtedness, and shall not affect the lien or priority of the lien hereof on the Property. Borrower shall pay GE CAPITAL a reasonable service charge, together with such title insurance premiums and attorneys' fees as may be incurred at GE CAPITAL's option, for any such action if taken at Borrower's request. 10 m. FORBEARANCE BY GE CAPITAL NOT A ------------------------------- WAIVER. Any forbearance by GE CAPITAL in exercising any right ------ or remedy hereunder, or otherwise afforded by applicable law, shall not be a waiver of or preclude the exercise of any other right or remedy. The acceptance by GE CAPITAL of payment of any sum secured by this Instrument after the due date of such payment shall not be a waiver of GE CAPITAL's right to either require prompt payment when due of all other sums so secured or to declare a default for failure to make prompt payment. The procurement of insurance or the payment of taxes or other liens or charges by GE CAPITAL shall not be a waiver of GE CAPITAL's right to accelerate the maturity of the Indebtedness secured by this Instrument, nor shall GE CAPITAL's receipt of any awards, proceeds or damages under Sections 5 or 11 hereof ---------------- operate to cure or waive Borrower's default in payment of sums secured by this Instrument. n. UNIFORM COMMERCIAL CODE SECURITY -------------------------------- AGREEMENT. This Instrument is intended to be a security and a --------- fixture filing agreement pursuant to the Uniform Commercial Code for any and all of the items specified above as part of the Property which, under applicable law, may be subject to a security interest pursuant to the Uniform Commercial Code, and Borrower hereby grants and conveys to GE CAPITAL a first and prior security interest in all of the Property that constitutes personalty, whether now owned or hereafter acquired. Borrower is the debtor and GE CAPITAL is the secured party. The respective addresses of Borrower and of GE CAPITAL are as provided on page 1 of this Instrument. Borrower hereby authorizes GE CAPITAL to file this Instrument, or a reproduction thereof, and any other financing statements describing the Property which are deemed necessary by GE CAPITAL, in the real estate records and other appropriate indexes as determined by GE CAPITAL, as a financing statement for any of the items specified above as part of the Property. Any reproduction of this Instrument or of any other security agreement or financing statement shall be sufficient as a financing statement. In addition, Borrower agrees to execute and deliver to GE CAPITAL, upon GE CAPITAL's request, any additional financing statements, as well as extensions, renewals and amendments thereof, and reproductions of this Instrument in such form as GE CAPITAL may require to perfect a security interest with respect to the foregoing items. Borrower shall pay all costs of filing such financing statements and any extensions, renewals, amendments and releases thereof, and shall pay all costs and expenses of any record searches for financing statements GE CAPITAL may require. Without the prior written consent of GE CAPITAL, Borrower shall not create or suffer to be created pursuant to the Code any other security interest in said items, including replacements and additions thereto. Upon Borrower's breach of any covenant or agreement of Borrower contained in this Instrument, including the covenants to pay when due all sums secured by this Instrument, GE CAPITAL shall have the remedies of a secured party under the Code, and GE CAPITAL also may invoke the remedies provided in Section 26 of this Instrument ---------- as to such items. In exercising any of said remedies, GE CAPITAL may proceed against the items of real property and any items of personal property specified above, separately or together, and in any order whatsoever, without in any way affecting the availability of GE CAPITAL's 11 remedies under the Code or of the remedies provided in Section ------- 26 of this Instrument. Within ten (10) days following any -- request therefor by GE CAPITAL, Borrower shall prepare and deliver to GE CAPITAL a written inventory specifically listing all of the personal property covered by the security interest herein granted, which inventory shall be certified by Borrower as being true, correct and complete. o. LEASES OF THE PROPERTY. As used in ---------------------- this Section 15, the word "Lease" shall include subleases if ---------- this Instrument is on a leasehold. Borrower shall comply with and observe Borrower's obligations as landlord under all Leases, if any, of the Property or any part thereof. All Leases now or hereafter entered into will be in form and substance subject to the reasonable approval of GE CAPITAL. All Leases of the Property shall specifically provide that such Leases are subordinate to this Instrument; that the tenant attorns to GE CAPITAL, such attornment to be effective upon GE CAPITAL's acquisition of title to the Property; that the tenant agrees to execute such further evidences of attornment as GE CAPITAL may, from time to time, request; that the attornment of the tenant shall not be terminated by foreclosure; and that GE CAPITAL may, at GE CAPITAL's option, accept or reject such attornments. Borrower shall not, without GE CAPITAL's written consent, request or consent to the subordination of any Lease of all or any part of the Property to any lien subordinate to this Instrument. If Borrower becomes aware that any tenant proposes to do, or is doing, any act or thing which may give rise to any right of set-off against rent, Borrower shall (a) take such steps as shall be reasonably calculated to prevent the accrual of any right to a set-off against rent, (b) immediately notify GE CAPITAL thereof in writing and of the amount of said set-offs, and (c) within ten (10) days after such accrual, reimburse the tenant who shall have acquired such right to set-off or take such other steps as shall effectively discharge such setoff and as shall assure that rents thereafter due shall continue to be payable without set-off or deduction. Upon GE CAPITAL's receipt of notice of the occurrence of any default or violation by Borrower of any of its obligations under the Leases, GE CAPITAL shall have the immediate right, but not the duty or obligation, without prior written notice to Borrower or to any third party, to enter upon the Property and to take such actions as GE CAPITAL may deem necessary to cure any default or violation by Borrower under the Leases. The costs incurred by GE CAPITAL in taking any such actions pursuant to this Section 15 shall become part of the Indebtedness, shall ---------- bear interest at the rate provided in the Note, and shall be payable by Borrower to GE CAPITAL on demand. GE CAPITAL shall have no liability to Borrower or to any third party for any actions taken by GE CAPITAL or not taken pursuant to this Section 15. ---------- p. REMEDIES CUMULATIVE. Each remedy ------------------- provided in this Instrument is distinct and cumulative to all other rights or remedies under this Instrument or afforded by law or equity, and may be exercised concurrently, independently or successively, in any order whatsoever. q. TRANSFERS OF THE PROPERTY OR ---------------------------- BENEFICIAL INTERESTS IN BORROWER; ASSUMPTION. GE CAPITAL may, -------------------------------------------- at its 12 option, declare all sums secured by this Instrument to be immediately due and payable, and GE CAPITAL may invoke any remedies permitted by Section 26 of this Instrument, if (a) ---------- title to the Property is changed without the prior written consent of GE CAPITAL, (b) if all or any portion of the Property is leased to any third party without the prior written consent of GE CAPITAL, (c) if any deed of trust, security agreement or other similar document or encumbrance is executed or granted by Borrower with respect to all or any portion of the Property, or (d) if a controlling interest in Borrower's voting stock is sold or transferred to any person or entity in either a single transaction or in one (1) or more related transactions. GE CAPITAL's consent to any transaction described in the immediately preceding sentence may be given or withheld in GE CAPITAL's sole discretion. GE CAPITAL shall have the right to condition its consent to any proposed sale or transfer of the Property which is described in subpart (a) above upon, among other things, GE CAPITAL's approval of the transferee's creditworthiness and management ability, and the transferee's execution, prior to the sale or transfer, of a written assumption agreement containing such terms as GE CAPITAL may require, including, if required by GE CAPITAL, the imposition of a transfer fee of one percent (1%) of the then outstanding balance of the Indebtedness. Consent by GE CAPITAL to one transfer of the Property shall not constitute consent to subsequent transfers or waiver of the provisions of this Section 17. No transfer by Borrower shall relieve Borrower of ---------- liability for payment of the Indebtedness. r. NOTICE. Except for any notice ------ required under applicable law to be given in another manner, any and all notices, elections, demands, or requests permitted or required to be made under this Instrument or under the Note shall be in writing, signed by the party giving such notice, election, demand or request, and shall be delivered personally, or sent by registered, certified, or Express United States mail, postage prepaid, or by Federal Express or similar service requiring a receipt, to the other party at the address stated above, or to such other party and at such other address within the United States of America as any party may designate in writing as provided herein. The date of receipt of such notice, election, demand or request shall be the earliest of (a) the date of actual receipt, (b) three (3) days after the date of mailing by registered or certified mail, (c) one (1) day after the date of mailing by Express Mail or the delivery (for redelivery) to Federal Express or another similar service requiring a receipt, or (d) the date of personal delivery (or refusal upon presentation for delivery). GE CAPITAL shall endeavor to deliver a copy of any written notice given to Borrower pursuant to the Loan Documents to Borrower's counsel, Brown, Rudnick, Freed & Gesmer, One Financial Center, Boston, Massachusetts 02111, Attn: Joel M. Reck, but any failure by GE CAPITAL to deliver any such notice to Borrower's counsel shall neither invalidate any notice given to Borrower nor impose any liability on GE CAPITAL. s. SUCCESSORS AND ASSIGNS BOUND; JOINT ----------------------------------- AND SEVERAL LIABILITY; AGENTS; CAPTIONS. The covenants and --------------------------------------- agreements herein contained shall bind, and the rights hereunder shall inure to, the respective heirs, successors and assigns of GE CAPITAL and Borrower, subject to the provisions of Section 17 hereof. In exercising any rights hereunder or ---------- taking any 13 actions provided for herein, GE CAPITAL may act through its employees, agents or independent contractors as authorized by GE CAPITAL. The captions and headings of the sections of this Instrument are for convenience only and are not to be used to interpret or define the provisions hereof. t. WAIVER OF STATUTE OF LIMITATIONS. -------------------------------- Borrower hereby waives the right to assert any statute of limitations as a bar to the enforcement of the lien of this Instrument or to any action brought to enforce the Note or any other obligation secured by this Instrument. u. WAIVER OF MARSHALLING. --------------------- Notwithstanding the existence of any other security interests in the Property held by GE CAPITAL or by any other party, GE CAPITAL shall have the right to determine the order in which any or all of the Property shall be subjected to the remedies provided herein. GE CAPITAL shall have the right to determine the order in which any or all portions of the Indebtedness secured hereby are satisfied from the proceeds realized upon the exercise of the remedies provided herein. Borrower, any party who consents to this Instrument and any party who now or hereafter acquires a security interest in the Property and who has actual or constructive notice hereof hereby waives any and all right to require the marshalling of assets in connection with the exercise of any of the remedies permitted by applicable law or provided herein. v. HAZARDOUS WASTE. Borrower has --------------- furnished to GE CAPITAL a Phase I Environmental Site Assessment dated November, 2001, prepared by CDM Dresser & McKee and an Environmental Questionnaire executed by Borrower and dated November 29, 2001 (collectively, the "Report"). Except as disclosed to GE CAPITAL in the Report, Borrower has received no notification of any kind suggesting that the Property or any adjacent property is or may be contaminated with any hazardous waste or materials or is or may be required to be cleaned up in accordance with any applicable law or regulation; and Borrower further represents and warrants that, except as previously disclosed to GE CAPITAL in writing, to the best of its knowledge as of the date hereof, after due and diligent inquiry, there are no hazardous waste or materials located in, on or under the Property or any adjacent property, or incorporated in any Improvements, nor has the Property or any adjacent property ever been used as a landfill or a waste disposal site, or a manufacturing, handling, storage, distribution or disposal facility for hazardous waste or materials. As used herein, the term "hazardous waste or materials" includes any substance or material defined in or designated as hazardous or toxic wastes, hazardous or toxic material, a hazardous, toxic or radioactive substance, or other similar term, by any federal, state or local statute, regulation or ordinance now or hereafter in effect. Borrower shall promptly comply with all statutes, regulations and ordinances, and with all orders, decrees or judgments of governmental authorities or courts having jurisdiction, relating to the use, collection, treatment, disposal, storage, control, removal or cleanup of hazardous waste or materials in, on or under the Property or any adjacent property, or incorporated in any Improvements, at Borrower's expense. In the event that GE CAPITAL at any time has a reasonable belief that the 14 Property is not free of all hazardous waste or materials or that Borrower has violated any applicable environmental law with respect to the Property, then within thirty (30) days after GE CAPITAL delivers written notice to Borrower thereof, Borrower shall obtain and furnish to GE CAPITAL, at Borrower's sole cost and expense, an environmental audit and inspection of the Property from an expert satisfactory to GE CAPITAL. In the event that Borrower fails to immediately obtain such audit or inspection, GE CAPITAL or its agents may perform or obtain such audit or inspection at Borrower's sole cost and expense. GE CAPITAL may, but is not obligated to, enter upon the Property and take such actions and incur such costs and expenses to effect such compliance (if Borrower fails to comply with the obligations provided in this Section 22) as it ---------- deems advisable to protect its interest in the Property; and whether or not Borrower has actual knowledge of the existence of hazardous waste or materials on the Property or any adjacent property as of the date hereof, Borrower shall reimburse GE CAPITAL as provided in Section 23 below for the ---------- full amount of all costs and expenses incurred by GE CAPITAL prior to GE CAPITAL acquiring title to the Property through foreclosure or acceptance of a deed in lieu of foreclosure, in connection with such compliance activities. Neither this provision nor any of the other Loan Documents shall operate to put GE CAPITAL in the position of an owner of the Property prior to any acquisition of the Property by GE CAPITAL. The rights granted to GE CAPITAL herein and in the other Loan Documents are granted solely for the protection of GE CAPITAL's lien and security interest covering the Property and do not grant to GE CAPITAL the right to control Borrower's actions, decisions or policies regarding hazardous waste or materials. w. ADVANCES, COSTS AND EXPENSES. ---------------------------- Borrower shall pay, within ten (10) days after written demand from GE CAPITAL, all sums advanced by GE CAPITAL and all costs and expenses incurred by GE CAPITAL in taking any actions pursuant to the Loan Documents, including reasonable attorneys' fees and disbursements, accountants' fees, appraisal and inspection fees, and the costs for title reports and guaranties, together with interest thereon at the rate applicable under the Note after an Event of Default from the date Borrower receives written notice from GE CAPITAL of such expenses incurred by GE CAPITAL. All such costs and expenses incurred by GE CAPITAL and advances made shall constitute advances under this Instrument to protect the Property and shall be secured by and have the same priority as the lien of this Instrument. If Borrower fails to pay any such advances, costs and/or expenses and interest thereon, GE CAPITAL may apply any undisbursed loan proceeds to pay the same and, without foreclosing the lien of this Instrument, may, at its option, commence an independent action against Borrower for the recovery of the costs, expenses and/or advances, with interest, together with costs of suit, costs of title reports and guaranty of title, disbursements of counsel and reasonable attorneys' fees incurred therein or in any appeal therefrom. x. ASSIGNMENT OF LEASES AND RENTS. ------------------------------ Borrower, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, to secure the Indebtedness, does hereby absolutely and unconditionally grant, bargain, sell, transfer, assign, convey, set over and deliver 15 unto GE CAPITAL all right, title and interest of Borrower in, to and under the Leases, if any, of the Property, whether now in existence or hereafter entered into, and all guaranties, amendments, extensions and renewals of said Leases and any of them, and all rents, income and profits which may now or hereafter be or become due or owing under the Leases, and any of them, or on account of the use of the Property. Borrower represents, warrants, covenants and agrees with GE CAPITAL as follows: a. The sole ownership of the entire lessor's interest in the Leases is vested in Borrower, and Borrower has not, and shall not, perform any acts or execute any other instruments which might prevent GE CAPITAL from fully exercising its rights with respect to the Leases under any of the terms, covenants and/or conditions of this Instrument. b. The Leases are and shall be valid and enforceable in accordance with their terms and have not been and shall not be altered, modified, amended, terminated, canceled, renewed or surrendered, except as approved in writing by GE CAPITAL. The terms and conditions of the Leases have not been and shall not be waived in any manner whatsoever, except as approved in writing by GE CAPITAL. c. Borrower shall not alter the term or the amount of rent payable under any Lease without prior written notice to GE CAPITAL and GE CAPITAL's prior written consent. d. To the best of Borrower's knowledge, there are no defaults now existing under any of the Leases and there exists no state of facts which, with the giving of notice or lapse of time or both, would constitute a default under any of the Leases. e. Borrower shall give prompt written notice to GE CAPITAL of any notice received by Borrower claiming that a default has occurred under any of the Leases on the part of Borrower, together with a complete copy of any such notice. f. Each of the Leases shall remain in full force and effect irrespective of any merger of the interest of lessor and any lessee under any of the Leases. g. Borrower will not permit any Lease to become subordinate to any lien other than the lien of this Instrument. h. Borrower shall not permit or consent to the assignment by any tenant of its rights under its Lease without the prior written consent of GE CAPITAL. Without limitation of the foregoing, Borrower shall not permit or consent to the filing of any encumbrance against the tenant's interest under any Lease including, without limitation, any leasehold mortgage. 16 This assignment is absolute, is effective immediately, and is irrevocable by Borrower so long as the Indebtedness remains outstanding. Notwithstanding the foregoing, until a Notice is sent to Borrower in writing that an Event of Default has occurred (which notice is hereafter called a "Notice"), Borrower may receive, collect and enjoy the rents, income and profits accruing from the Property. Upon the occurrence of an Event of Default hereunder, GE CAPITAL may, at its option, after service of a Notice, receive and collect all such rents, income and profits from the Property as they become due. GE CAPITAL shall thereafter continue to receive and collect all such rents, income and profits, as long as such default or defaults shall exist, and during the pendency of any foreclosure proceedings. Borrower hereby irrevocably appoints GE CAPITAL its true and lawful attorney with power of substitution and with full power for GE CAPITAL in its own name and capacity or in the name and capacity of Borrower, from and after service of a Notice, to demand, collect, receive and give complete acquittances for any and all rents, income and profits accruing from the Property, either in its own name or in the name of Borrower or otherwise, which GE CAPITAL may deem necessary or desirable in order to collect and enforce the payment of the rents, income and profits of and from the Property. Lessees of the Property are hereby expressly authorized and directed, following receipt of a Notice from GE CAPITAL, to pay any and all amounts due Borrower pursuant to the Leases to GE CAPITAL or such nominee as GE CAPITAL may designate in a writing delivered to and received by such lessees, and the lessees of the Property are expressly relieved of any and all duty, liability or obligation to Borrower in respect of all payments so made. Upon the occurrence of any Event of Default, from and after service of a Notice, GE CAPITAL is hereby vested with full power to use all measures, legal and equitable, deemed by it to be necessary or proper to enforce this Section 24 and to ---------- collect the rents, income and profits assigned hereunder, including the right of GE CAPITAL or its designee, to enter upon the Property, or any part thereof, and take possession of all or any part of the Property together with all personal property, fixtures, documents, books, records, papers and accounts of Borrower relating thereto, and GE CAPITAL may exclude Borrower, its agents and servants, wholly therefrom. Borrower hereby grants full power and authority to GE CAPITAL to exercise all rights, privileges and powers herein granted at any and all times after service of a Notice, with full power to use and apply all of the rents and other income herein assigned to the payment of the costs of managing and operating the Property and of any indebtedness or liability of Borrower to GE CAPITAL, including, but not limited, to the payment of taxes, special assessments, insurance premiums, damage claims, the reasonable costs of maintaining, repairing, rebuilding and restoring the Improvements on the Property or of making the same rentable, reasonable attorneys' fees incurred in connection with the enforcement of this Instrument, and of principal and interest payments due from Borrower to GE CAPITAL on the Note and this Instrument, all in such 17 order as GE CAPITAL may determine. GE CAPITAL shall be under no obligation to exercise or prosecute any of the rights or claims assigned to it hereunder or to perform or carry out any of the obligations of the lessor under any of the Leases and does not assume any of the liabilities in connection with or arising or growing out of the covenants and agreements of Borrower in the Leases. It is further understood that the assignment set forth in this Section 24 shall not operate to ---------- place responsibility for the control, care, management or repair of the Property, or parts thereof, upon GE CAPITAL, nor shall it operate to make GE CAPITAL liable for the performance of any of the terms and conditions of any of the Leases, or for any waste of the Property by any lessee under any of the Leases, or any other person, or for any dangerous or defective condition of the Property or for any negligence in the management, upkeep, repair or control of the Property resulting in loss or injury or death to any lessee, licensee, employee or stranger. y. DEFAULT. The following shall each ------- constitute an event of default ("Event of Default"): a. Failure of Borrower to make any payment of principal, interest, or any Prepayment Premium due under this Note when due, and such failure shall continue for a period of ten (10) days after written notice is given to Borrower by GE CAPITAL specifying such failure (provided that no notice shall be given of any failure by Borrower to pay all amounts which become due hereunder on the Maturity Date); or b. Failure of Borrower within the time required by this Instrument to make any payment for taxes, insurance or for reserves for such payments, or any other payment necessary to prevent filing of or discharge of any lien (subject to Section 4 hereof), and such failure shall --------- continue for a period of ten (10) days after written notice is given to Borrower by GE CAPITAL specifying such failure; or c. The Property or any part of or interest in the Property is transferred in any manner whatsoever without the prior written consent of GE CAPITAL; or d. If any lease agreement covering all or any portion of the Property is executed by Borrower without GE CAPITAL's prior written consent; or e. Filing by Borrower of a voluntary petition in bankruptcy or filing by Borrower of any petition or answer seeking or acquiescing in any reorganization, arrangement, composition, readjustment, liquidation, or similar relief for itself under any present or future federal, state or other statute, law or regulation relating to bankruptcy, insolvency or other relief for debtors, or the seeking or consenting to by Borrower of the appointment of any trustee, receiver, custodian, conservator or liquidator for Borrower, any part of the Property, or any of the income or rents of the Property, or the making by 18 Borrower of any general assignment for the benefit of creditors, or the inability of or failure by Borrower to pay its debts generally as they become due, or the insolvency on a balance sheet basis or business failure of Borrower, or the imposition of a lien upon any of the Property which is not discharged in the manner permitted by Section 4 of this --------- Instrument, or the giving of notice by Borrower to any governmental body of insolvency or suspension of operations; or f. Filing of a petition against Borrower seeking any reorganization, arrangement, composition, readjustment, liquidation, or similar relief under any present or future federal, state or other law or regulation relating to bankruptcy, insolvency or other relief for debts, or the appointment of any trustee, receiver, custodian, conservator or liquidator of Borrower, of any part of the Property or of any of the income or rents of the Property, unless such petition shall be dismissed within ninety (90) days after such filing, but in any event prior to the entry of an order, judgment or decree approving such petition; or g. The commencement of any proceeding for the dissolution or termination of Borrower voluntarily, involuntarily, or by operation of law, if the same is not dismissed within ninety (90) days after the date on which it is commenced; or h. Any warranty, representation or statement furnished to GE CAPITAL by or on behalf of Borrower under the Note, this Instrument, any of the other Loan Documents or the Certificate and Indemnity Agreement Regarding Hazardous Substances, shall prove to have been false or misleading in any material respect; or i. Failure of Borrower to observe or perform any other obligation under this Instrument, any other Loan Document or the Certificate and Indemnity Regarding Hazardous Substances when such observance or performance is due, and such failure shall continue beyond the applicable cure period set forth in such Loan Document, or if the default cannot be cured within such applicable notice and cure period, Borrower fails within such time to commence and pursue curative action with reasonable diligence or fails at any time after expiration of such applicable cure period to continue with reasonable diligence all necessary curative actions. No notice of default and no opportunity to cure shall be required if during the prior twelve (12) months GE CAPITAL has already sent a notice to Borrower concerning default in performance of the same obligation. GE CAPITAL shall deliver written notice to Borrower of the occurrence of any Event of Default pursuant to Section ------- 25(h) above. ----- z. RIGHTS AND REMEDIES ON DEFAULT. ------------------------------- Upon the occurrence of any Event of Default and at any time thereafter, Trustee or GE CAPITAL may exercise any one or more of the following rights and remedies: 19 a. GE CAPITAL may declare the entire Indebtedness, including the then unpaid principal balance on the Note, the accrued but unpaid interest thereon, court costs and attorneys' fees hereunder immediately due and payable, without notice, presentment, protest, demand or action of any nature whatsoever (each of which hereby is expressly waived by Borrower), whereupon the same shall become immediately due and payable. Additionally, GE CAPITAL shall not be required to make any further advances on the Note or other Loan Documents upon the occurrence of an Event of Default or an event which, with the giving of notice or passing of time or both, would constitute an Event of Default. b. GE CAPITAL may enter upon the Property and take exclusive possession thereof and of all books, records and accounts relating thereto without notice and without being guilty of trespass, and hold, lease, manage, operate or otherwise use or permit the use of the Property, either itself or by other persons, firms or entities, in such manner, for such time and upon such other terms as GE CAPITAL may deem to be prudent and reasonable under the circumstances (making such repairs, alterations, additions and improvements thereto and taking any and all other action with reference thereto, from time to time, as GE CAPITAL shall deem necessary or desirable), and apply all rents and other amounts collected by GE CAPITAL in connection therewith in accordance with the provisions of subsection (h) of this Section 26. Borrower ---------- hereby irrevocably appoints GE CAPITAL as the agent and attorney-in-fact of Borrower, with full power of substitution, and in the name of Borrower, if GE CAPITAL elects to do so, to (i) endorse the name of Borrower on any checks or drafts representing proceeds of the insurance policies, or other checks or instruments payable to Borrower with respect to the Property, (ii) prosecute or defend any action or proceeding incident to the Property, and (iii) take any action with respect to the Property that GE CAPITAL may at any time and from time to time deem necessary or appropriate. GE CAPITAL shall have no obligation to undertake any of the foregoing actions, and if GE CAPITAL should do so, it shall have no liability to Borrower for the sufficiency or adequacy of any such actions taken by GE CAPITAL. c. (i) GE CAPITAL may, by and through Trustee, or otherwise, sell or offer for sale the Property in such portions, order and parcels as GE CAPITAL may determine, with or without having first taken possession of same, in accordance with the laws of the State of California. (ii) GE CAPITAL, may, at its option, accomplish all or any of the aforesaid in such manner as permitted or required by the laws of the State of California relating to the sale of real estate or by Chapter 9 of the Code relating to the sale of collateral after default by a debtor (as said section and chapter now exist or may be hereafter amended or succeeded), or by any other present or subsequent articles or enactments relating to same. Nothing contained in this paragraph shall be construed to limit in any way Trustee's right to sell the Property by private sale, if, and to the extent that such private sale is permitted 20 under the laws of the state where the Property (or that portion thereof to be sold) is located or by public or private sale after entry of a judgment by any court of competent jurisdiction ordering same. At any such sale: a. whether made under the power of sale herein contained, the laws of the State of California, the Code, any other legal requirement or by virtue of any judicial proceedings or any other legal right, remedy or recourse, it shall not be necessary for Trustee to have physically present, or to have constructive possession of, the Property (Borrower shall deliver to Trustee any portion of the Property not actually or constructively possessed by Trustee immediately upon demand by Trustee), and the title to and right of possession of any such property shall pass to the purchaser thereof as completely as if the same had been actually present and delivered to purchaser at such sale; b. each instrument of conveyance executed by Trustee shall contain a general warranty of title, binding upon Borrower; c. each and every recital contained in any instrument of conveyance made by Trustee shall conclusively establish the truth and accuracy of the matters recited therein, including, without limitation, nonpayment of the Indebtedness, advertisement and conduct of such sale in the manner provided herein and otherwise by law and appointment of any successor Trustee hereunder; d. any and all prerequisites to the validity thereof shall be conclusively presumed to have been performed; e. the receipt by Trustee or of such other party or officer making the sale of the full amount of the purchase money shall be sufficient to discharge the purchaser or purchasers from any further obligation for the payment thereof, and no such purchaser or purchasers, or his or their assigns or personal representatives, shall thereafter be obligated to see to the application of such purchase money or be in any way answerable for any loss, misapplication or nonapplication thereof; f. to the fullest extent permitted by law, Borrower shall be completely and irrevocably divested of all of its right, title, interest, claim and demand whatsoever, either at law or in equity, in and to the property sold, and such sale shall be a perpetual bar, both at law and in equity, against Borrower and against all other persons claiming or to claim the property sold or any part thereof by, through or under Borrower; and g. to the extent and under such circumstances as are permitted by law, GE CAPITAL may be a purchaser at any such sale. d. After sale of the Property, or any portion thereof, Borrower will be divested of any and all interest and claim thereto, including any interest or claim to all insurance policies, bonds, loan commitments and other intangible property covered hereby. Additionally, Borrower will be considered a tenant at sufferance of the purchaser of the Property, and said purchaser shall be entitled to immediate possession thereof, and 21 if Borrower shall fail to vacate the Property immediately, the purchaser may and shall have the right, without further notice to Borrower, to go into any justice court in any precinct or county in which the Property is located and file an action in forcible entry and detainer, which action shall lie against Borrower or its assigns or legal representatives, as a tenant at sufferance. This remedy is cumulative of any and all remedies the purchaser may have hereunder or otherwise. e. (i) Upon, or at any time after, commencement of foreclosure of the lien and security interest provided for herein or any legal proceedings hereunder, GE CAPITAL may make application to a court of competent jurisdiction, as a matter of strict right and without notice to Borrower or regard to the adequacy of the Property, for the repayment of the Indebtedness, for appointment of a receiver of the Property, and Borrower does hereby irrevocably consent to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Property upon such terms as may be approved by the court, and shall apply such rents in accordance with the provisions of subsection (h) of this Section 26. ---------- (ii) GE CAPITAL may exercise any and all other rights, remedies and recourses granted under the Loan Documents or now or hereafter existing in equity, at law, by virtue of statute or otherwise. f. Trustee and GE CAPITAL shall have all rights, remedies and recourses granted in the Loan Documents and available at law or equity (including specifically those granted by the Code in effect and applicable to the Property or any portion thereof) and the same (i) shall be cumulative and concurrent; (ii) may be pursued separately, successively or concurrently against Borrower, any guarantor of the Indebtedness or others obligated under the Note, or against the Property, or against any one or more of them at the sole discretion of GE CAPITAL; (iii) may be exercised as often as occasion therefor shall arise, it being agreed by Borrower that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy or recourse; and (iv) are intended to be, and shall be, nonexclusive. g. To the fullest extent permitted by law, Borrower hereby irrevocably and unconditionally waives and releases (i) all benefits that might accrue to Borrower by any present or future laws exempting the Property from attachment, levy or sale on execution or providing for any appraisement, valuation, stay of execution, exemption from civil process, redemption or extension of time for payment; (ii) all notices of any Event of Default (except as may be specifically provided for under the terms hereof), presentment, demand, notice of intent to accelerate, notice of acceleration and any other notice of GE CAPITAL's or Trustee's election to exercise or the actual exercise of any right, remedy or recourse provided for under the Loan Documents; (iii) any right to appraisal or marshalling of assets or a sale in inverse order of alienation; (iv) the exemption of homestead; and (v) the administration of estates of decedents, or other matter to defeat, reduce or affect the right of GE CAPITAL under 22 the terms of this Instrument to sell the Property for the collection of the Indebtedness secured hereby (without any prior or different resort for collection) or the right of GE CAPITAL, under the terms of this Instrument, to receive the payment of the Indebtedness out of the proceeds of sale of the Property in preference to every other person and claimant whatever (only reasonable expenses of such sale being first deducted). Borrower expressly waives and relinquishes any right or remedy which it may have or be able to assert by reason of any statute pertaining to the rights and remedies of sureties. h. The proceeds of any sale of, and the rents, profits and other income generated by the holding, leasing, operating or other use of the Property, shall be applied by GE CAPITAL (or the receiver, if one is appointed) to the extent that funds are so available therefrom in the following orders of priority: (i) first, to the payment of the costs and expenses of taking possession of the Property and of holding, using, leasing, maintaining, repairing, improving and selling the same, including, without limitation, (A) receiver's fees; (B) costs of advertisement; (C) attorneys' and accountants' fees; and (D) court costs, if any; (ii) second, to the payment of all amounts, other than the principal amount and accrued but unpaid interest on the Note which may be due to GE CAPITAL under the Loan Documents, including all Indebtedness, together with interest thereon as provided therein, in such order and manner as GE CAPITAL may determine; (iii) third, to the payment of the principal amount outstanding on the Note in such order and manner as GE CAPITAL may determine and all other Indebtedness; (iv) fourth, to the payment of all accrued but unpaid interest due on the Note in such order and manner as GE CAPITAL may determine; and (v) fifth, to Borrower. Borrower, any guarantor of the Indebtedness and any other party liable on the Indebtedness shall be liable for any deficiency remaining in the Indebtedness subsequent to any sale referenced in this subsection (h). i. GE CAPITAL shall have the right to become the purchaser at any sale of the Property hereunder and shall have the right to be credited on the amount of its bid therefor all of the Indebtedness due and owing as of the date of such sale. j. If GE CAPITAL shall accelerate the Indebtedness following the occurrence of an Event of Default, any payments received by GE CAPITAL following such acceleration, whether as the result of voluntary payments made by Borrower or as a result of the sale of the Property by Trustee, shall be deemed voluntary prepayments of the Note and accordingly, the prepayment fee required under the Note shall also be payable, subject to the terms of the Note. k. The purchaser at any trustee's or foreclosure sale hereunder may disaffirm any easement granted, or rental, lease or other contract made in violation of any provisions of this Instrument and may take immediate possession of the Property free from, and despite the terms of, any such grant of easement, rental, lease or other contract. l. Any forbearance by GE CAPITAL in exercising any right or remedy hereunder, or otherwise afforded by applicable law, shall not be a waiver of or preclude the exercise of any other right or remedy. The acceptance by GE CAPITAL of payment of any sum secured by this Instrument after the due date of such payment shall not be a waiver of GE CAPITAL's right to either require prompt payment when due of all other sums so secured or to declare a default for failure to make prompt payment. The 23 procurement of insurance or the payment of taxes or other liens or charges by GE CAPITAL shall not be a waiver of GE CAPITAL's right to accelerate the maturity of the Indebtedness secured by this Instrument, nor shall GE CAPITAL's receipt of any awards, proceeds or damages under Sections 5 and 11 hereof operate to cure or waive Borrower's default in ----------------- payment of sums secured by this Instrument. m. Each remedy provided in this Instrument is distinct and cumulative of all other rights or remedies under this Instrument or provided by law or equity, and may be exercised concurrently, independently, or successively, in any order whatsoever. n. Notwithstanding the existence of any other security interests in the Property held by GE CAPITAL or by any other party, GE CAPITAL shall have the right to determine the order in which any or all of the Property shall be subjected to the remedies provided herein. GE CAPITAL shall have the right to determine the order in which any or all portions of the Indebtedness secured hereby are satisfied from the proceeds realized upon the exercise of the remedies provided herein. Borrower, any party who consents to this Instrument and any party who now or hereafter acquires a security interest in the Property and who has actual or constructive notice hereof hereby waives any and all right to require the marshalling of assets in connection with the exercise of any of the remedies permitted by applicable law or provided herein. aa. RECONVEYANCE. Upon payment of all sums ------------ secured by this Instrument, GE CAPITAL shall request Trustee to reconvey the Property and shall surrender this Instrument and all notes evidencing the Indebtedness secured by this Instrument to Trustee. Trustee shall reconvey the Property without warranty to the person or persons legally entitled thereto. Such person or persons shall pay Trustee's reasonable costs incurred in so reconveying the Property. All charges and expenses relating to such reconveyance shall be paid by Borrower at Borrower's sole cost and expense. bb. SUBSTITUTE TRUSTEE. Trustee shall not be ------------------ liable for any error of judgment or act done by Trustee, or be otherwise responsible or accountable under any circumstances whatsoever. Trustee shall not be personally liable in case of entry by it or anyone acting by virtue of the powers herein granted it upon the Property for debts contracted or liability or damages incurred in the management or operation of the Property. All monies received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other monies (except to the extent required by law) and Trustee shall be under no liability for interest on any monies received by it hereunder. Trustee may resign by giving of notice of such resignation in writing to GE CAPITAL. If Trustee shall die, resign or become disqualified from acting, or shall fail or refuse to exercise its powers hereunder when requested by GE CAPITAL so to do, or if for any reason and without cause GE CAPITAL shall prefer to appoint a substitute trustee to act instead of the original Trustee named herein, or any prior successor or substitute trustee, GE CAPITAL shall have full power to appoint a substitute trustee and, if 24 preferred, several substitute trustees in succession who shall succeed to all the estate, rights, powers and duties of the aforenamed Trustee. Upon appointment by GE CAPITAL, any new Trustee appointed pursuant to any of the provisions hereof shall, without any further act, deed or conveyance, become vested with all the estates, properties, rights, powers and trusts of its predecessor in the rights hereunder with the same effect as if originally named as Trustee herein. cc. USE OF PROPERTY. The Property is not --------------- currently used for agricultural, farming, timber or grazing purposes. Borrower warrants that this Instrument is and will at all times constitute a commercial trust deed, as defined under appropriate state law. dd. FUTURE ADVANCES. Upon request of Borrower, --------------- GE CAPITAL, at GE CAPITAL's option so long as this Instrument secures Indebtedness held by GE CAPITAL, may make Future Advances to Borrower. Such Future Advances, with interest thereon, shall be secured by this Instrument when evidenced by promissory notes stating that said notes are secured hereby. ee. IMPOSITION OF TAX BY STATE. --------------------------- a. State Taxes Covered. The following ------------------- constitute state taxes to which this Section 31 applies: ---------- a. A specific tax upon trust deeds or upon all or any part of the indebtedness secured by a trust deed. b. A specific tax on a grantor which the taxpayer is authorized or required to deduct from payments on the indebtedness secured by a trust deed. c. A tax on a trust deed chargeable against the beneficiary or the holder of the note secured. d. A specific tax on all or any portion of the indebtedness or on payments of principal and interest made by a grantor. b. Remedies. If any state tax to which -------- this Section 31 applies is enacted subsequent to the date of this ---------- Instrument, this shall have the same effect as an Event of Default, and GE CAPITAL may exercise any or all of the remedies available to it unless the following conditions are satisfied: a. Borrower may lawfully pay the tax or charge imposed by state tax, and b. Borrower pays the tax or charge within thirty (30) days after notice from GE CAPITAL that the tax law has been enacted. 25 In the event Borrower prepays the Indebtedness as a result of the imposition of any state tax pursuant to this Section 31, the ---------- prepayment premium provided under the Note shall not be payable in connection with such prepayment. ff. ATTORNEYS' FEES. In the event suit or action --------------- is instituted to enforce or interpret any of the terms of this Instrument (including, without limitation, efforts to modify or vacate any automatic stay or injunction), the prevailing party shall be entitled to recover all expenses reasonably incurred at, before and after trial and on appeal whether or not taxable as costs, or in any bankruptcy proceeding including, without limitation, attorneys' fees, witness fees (expert and otherwise), deposition costs, copying charges and other expenses. Whether or not any court action is involved, all reasonable expenses, including but not limited to the costs of searching records, obtaining title reports, surveyor reports, title insurance, trustee fees, and other attorneys' fees, incurred by GE CAPITAL that are necessary at any time in GE CAPITAL's opinion for the protection of its interest or enforcement of its rights shall become a part of the Indebtedness payable on demand and shall bear interest from the date of written notice by GE CAPITAL to Borrower of such expenditure until repaid at the interest rate as provided in the Note. The term "attorneys' fees" as used in the Loan Documents shall be deemed to mean such fees as are reasonable and are actually incurred. gg. GOVERNING LAW; SEVERABILITY. THIS INSTRUMENT --------------------------- SHALL BE GOVERNED BY THE LAW OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED THEREIN (EXCLUDING CHOICE-OF-LAW PRINCIPLES). In the event that any provision or clause of this Instrument or the Note conflicts with applicable law, such conflict shall not affect other provisions of this Instrument or the Note which can be given effect without the conflicting provision, and to this end the provisions of this Instrument and the Note are declared to be severable. hh. WAIVER OF JURY TRIAL. BORROWER HEREBY -------------------- KNOWINGLY AND VOLUNTARILY WAIVES ANY AND ALL RIGHTS THAT BORROWER MAY NOW OR HEREAFTER HAVE UNDER THE LAWS OF THE UNITED STATES OF AMERICA OR THE LAWS OF THE STATE OF CALIFORNIA TO A TRIAL BY JURY OF ANY AND ALL ISSUES ARISING DIRECTLY OR INDIRECTLY IN ANY ACTION OR PROCEEDING RELATING TO THIS INSTRUMENT, THE LOAN DOCUMENTS OR ANY TRANSACTIONS CONTEMPLATED THEREBY OR RELATED THERETO INCLUDING SPECIFICALLY, WITHOUT LIMITATION, INCLUDING ANY RIGHT TO A JURY TRIAL WITH RESPECT TO ANY AND ALL DEFENSES, RIGHTS, CLAIMS AND/OR COUNTERCLAIMS IN ANY SUCH ACTION OR PROCEEDING. ii. TIME OF ESSENCE. Time is of the essence to --------------- this Instrument. jj. CHANGES IN WRITING. This Instrument and any ------------------ of its terms may only be changed, waived, discharged or terminated by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. Any agreement subsequently made by Borrower or GE CAPITAL 26 relating to this Instrument shall be superior to the rights of the holder of any intervening lien or encumbrance. kk. NO OFFSET. Borrower's obligation to make --------- payments and perform all obligations, covenants and warranties under this Instrument and under the Note shall be absolute and unconditional and shall not be affected by any circumstance, including without limitation any setoff, counterclaim, abatement, suspension, recoupment, deduction, defense or other right that Borrower or any guarantor may have or claim against GE CAPITAL or any entity participating in making the loan secured hereby. The foregoing provisions of this Section 37, ---------- however, do not constitute a waiver of any claim or demand which Borrower or any guarantor may have in damages or otherwise against GE CAPITAL or any other person, or preclude Borrower from maintaining a separate action thereon; provided, however, that Borrower waives any right it may have at law or in equity to consolidate such separate action with any action or proceeding brought by GE CAPITAL. ll. USURY. All agreements in this Deed of Trust, ----- the Note and in the other documents executed or delivered in connection herewith are expressly limited so that in no contingency or event whatsoever, whether by reason of advancement or acceleration of maturity of the Indebtedness, or otherwise, shall the amount paid or agreed to be paid hereunder for the use, forbearance or detention of money exceed the highest lawful rate permitted under applicable usury laws, if any. If, from any circumstance whatsoever, fulfillment of any provision of this Deed of Trust, the Note or any of the other documents executed or delivered in connection herewith, at the time performance of such provision shall be due, shall be prohibited by law, the obligation to be fulfilled shall be reduced to the maximum not so prohibited and if, from any circumstance whatsoever, GE CAPITAL shall ever receive as interest under the Note, this Deed of Trust or any of the documents executed or delivered in connection herewith an amount which would exceed the highest lawful rate, the receipt of such excess shall be deemed a mistake and shall be credited against the principal amount of the Indebtedness to which the same may lawfully be credited, and any portion of such excess not capable of being so credited shall be rebated to Borrower. mm. SUBSTITUTION OF COLLATERAL. Borrower shall -------------------------- have the one-time right, subject to GE CAPITAL's prior written approval, which approval shall not be unreasonably withheld, to obtain a release of the lien of this Deed of Trust from either (a) the Property and one(1) of the properties encumbered by the Other Deeds of Trust or (b)one (1) or more of such tracts which together comprise twenty-five percent (25%) of the then-current fair market value of all of the real property which is encumbered by this Deed of Trust and the Other Deeds of Trust, provided that concurrently with such release, Borrower must grant to GE CAPITAL first and prior liens covering other real property owned by Borrower and which is acceptable to GE CAPITAL in its sole but reasonable discretion (such other real property being called the "Substitute Assets"). The Substitute Assets must be acceptable to GE CAPITAL in its sole but reasonable discretion, and in the event of a substitution as described in subpart (b) of the immediately preceding sentence, GE CAPITAL must receive an appraisal covering the Substitute Assets acceptable to GE CAPITAL in it's sole, but reasonable discretion. Borrower shall deliver to GE CAPITAL all due diligence materials with 27 respect to the Substitute Assets which Borrower delivered to GE CAPITAL in connection with the Property including, without limitation, environmental site assessments covering each of the Substitute Assets. Borrower shall execute any and all documents required by GE CAPITAL to evidence the transaction described herein and shall pay all costs and expenses of GE CAPITAL in connection therewith including, without limitation, reasonable attorneys' fees, title charges, survey costs and recording fees. nn. TAX CONTEST. Borrower shall have the right ----------- to contest at its sole cost and expense, after prior written notice to GE CAPITAL, by appropriate legal proceedings conducted in good faith and with diligence, the amount or validity of any ad valorem taxes assessed against the Property, so long as such proceedings operate to prevent to collection or other realization of such taxes from the sale or forfeiture of the Property or any part thereof. In addition, at any time GE CAPITAL determines that the payment of any such taxes being contested by Borrower shall become necessary to prevent either the sale or forfeiture of the Property or any part thereof to satisfy such taxes, then Borrower shall immediately pay the amount of the taxes to the applicable governmental authority. oo. FURTHER ASSURANCES. Borrower hereby agrees ------------------ from time to time upon the request of GE CAPITAL to execute and deliver such additional documents and/or modifications to this Instrument as GE CAPITAL may request in connection with any sale or assignment by GE CAPITAL of interests in the Loan; provided, however, that no such additional or modified documents shall (a) change any of the economic terms of the Loan Documents or (b) require Borrower to pledge any additional collateral as security for the replacement of the Indebtedness. IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED IN THIS INSTRUMENT MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE TERMS OF THIS INSTRUMENT ONLY BY ANOTHER WRITTEN AGREEMENT. 28 IN WITNESS WHEREOF, Borrower has executed this Instrument or has caused the same to be executed by its representatives thereunto duly authorized. BORROWER: TERADYNE, INC., a Massachusetts corporation By: /s/ Stuart M. Osattin -------------------------------------- Print: Stuart M. Osattin ----------------------------------- Its: Vice President and Treasurer ------------------------------------- 29 COMMONWEALTH OF MASSACHUSETTS Suffolk County December 14, 2001 Then, before me personally appeared Stuart M. Osattin, to me personally known, who, being duly sworn, did depose and say that he is the Vice President and Treasurer of Teradyne, Inc., and acknowledged the foregoing instrument to be his free act and deed and the free act and deed of Teradyne, Inc. /s/ Unknown ----------------------------------------- Notary Public My Commission expires: 10/20/06 30 EXHIBIT A --------- DESCRIPTION OF PROPERTY ----------------------- See Attached Schedule 31 EXHIBIT B --------- PERMITTED EXCEPTIONS -------------------- See Attached Schedule 32 Schedule Pursuant to Instruction 2 to Rule 601 of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934 Teradyne, Inc. entered into five of the foregoing Commercial Deed of Trust, Security Agreement, Assignment of Leases and Rents, and Fixture Filing agreements. The agreements are substantially identical but for the Exhibits A and B attached thereto. Such Exhibits A and B are attached to and follow this schedule. EXHIBIT "A" ----------- Legal Description THE LAND REFERRED TO IN THIS COMMITMENT IS IN THE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES, AND IS DESCRIBED AS FOLLOWS: LOT 3, OF TRACT NO. 43597, IN THE CITY OF AGOURA HILLS, AS PER MAP RECORDED IN BOOK 1078 PAGES 72 TO 80 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT FROM A PORTION THEREOF AN UNDIVIDED ONE-HALF OF ALL OIL, GAS, PETROLEUM AND OTHER MINERAL OR HYDROCARBON SUBSTANCES IN AND TO THAT PORTION OF SAID LAND LYING BELOW THE DEPTH OF 500 FEET FROM THE SURFACE, WITHOUT THE RIGHT OF SURFACE ENTRY, AS RESERVED IN THE DEED FROM MAX H. GOLDSMITH AND SHIRLEY H. GOLDSMITH, HUSBAND AND WIFE AS JOINT TENANTS, IN DEED RECORDED AS INSTRUMENT NO. 1450 ON DECEMBER 29, 1960 IN BOOK D1076 PAGE 565 OF OFFICIAL RECORDS. ALSO EXCEPTING TO THE COUNTY OF LOS ANGELES ALL OIL, GAS HYDROCARBONS, OR OTHER MINERALS IN AND UNDER THE ABOVE DESCRIBED PARCEL OF LAND WITHOUT THE RIGHT OF SURFACE ENTRY FOR DEVELOPMENT THEREOF. EXHIBIT "B" ----------- Permitted Exceptions 1. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS PROVIDED IN A DOCUMENT FOR: CONDUITS, PIPE LINES, VAULTS, MANHOLES, LATERALS AND METERS. AFFECTS: A 4 FOOT STRIP OF LAND IN THE NORTHERLY PORTION OF SAID LAND. RECORDED: DECEMBER 20, 1963 AS INSTRUMENT NO. 4348, IN BOOK D2297, PAGE 290 AND DECEMBER 20, 1963 AS INSTRUMENT NO. 4349, IN BOOK D2297, PAGE 293, BOTH OF OFFICIAL RECORDS. 2. THE FACT THAT THE OWNERSHIP OF SAID LAND DOES NOT INCLUDE ANY RIGHT OF INGRESS AND EGRESS TO OR FROM THE FREEWAY ADJACENT SAID LAND, SAID RIGHTS HAVING BEEN RELINQUISHED BY DEED FROM EDWARD TORRES, A SINGLE MAN, CARL COHEN AND FRANCES RAE COHEN, HUSBAND AND WIFE, GEORGE ROSENBERG AND META ROSENBERG, HUSBAND AND WIFE TO THE STATE OF CALIFORNIA, RECORDED SEPTEMBER 18, 1964 AS INSTRUMENT NO. 1531 AND BY DEED FROM FIRST WESTERN BANK AND TRUST COMPANY, A CALIFORNIA CORPORATION TRUSTEE UNDER TRUST NO. 6495-85268, RECORDED MARCH 12, 1974 AS INSTRUMENT NO. 2348. 3. EASEMENTS AND RIGHTS AS SET FORTH IN SECTION 959.1 OF THE STREETS AND HIGHWAYS CODE OF THE STATE OF CALIFORNIA, AS RESERVED AND EXCEPTED BY THE COUNTY OF LOS ANGELES PURSUANT TO VACATION ROADSIDE DRIVE NO. R-53090-68-7, RECORDED SEPTEMBER 20, 1974 AS INSTRUMENT NO. 4431. 4. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS PROVIDED IN A DOCUMENT FOR: PUBLIC UTILITY PURPOSES. AFFECTS: A 4 FOOT STRIP OF LAND SHOWN AND DELINEATED ON SAID MAP. RECORDED: JANUARY 27, 1964 IN BOOK D 2337 PAGE 304, OF OFFICIAL RECORDS, AS INSTRUMENT NO. 4665. 5. PROVISIONS OF THE DEDICATION STATEMENT ON THE MAP OF TRACT: 43597. WHICH RECITE: WHILE ALL OF AGOURA ROAD AND REYES ADOBE ROAD WITHIN OR ADJACENT TO THIS SUBDIVISION REMAINS A PUBLIC STREET, WE HEREBY ABANDON ALL RIGHTS, EXCEPT FOR 9 DRIVEWAY OPENINGS FOR LOTS 1 THROUGH 7, DIRECT VEHICULAR INGRESS AND EGRESS TO SAID STREETS. 6. AN EASEMENT FOR PURPOSES HEREIN STATED, AS SHOWN ON OR DEDICATED BY THE MAP AND AS SHOWN ON SURVEY, JOB NO. 21-223, PREPARED BY DAVID T. ROSELL, RPLS NO. 6281 OF ROSELL SURVEYING & MAPPING DATED NOVEMBER 16, 2001. OF: TRACT 43597. FOR: DRIVEWAY AND FIRE LANE. AFFECTS: A 30 FOOT STRIP ON THE LOT LINE BETWEEN LOTS 3 AND 4, AND A 50 FOOT STRIP BETWEEN LOTS 3 AND 2 FOR: STORM DRAIN AFFECTS: A 10 FOOT STRIP OF LAND IN LOT 3, AND A 10 FOOT STRIP OF LAND AND A 16 FOOT STRIP OF LAND FOR: SANITARY SEWER AFFECTS: A 10 FOOT STRIP OF LAND WITHIN LOT 3. 7. THE TERMS AND PROVISIONS SET OUT IN THAT CERTAIN DOCUMENT ENTITLED "AGREEMENT", RECORDED MAY 29,1986 AS INSTRUMENT NO. 86-666139 AND AS SHOWN ON SURVEY, JOB NO. 21-223, PREPARED BY DAVID T. ROSELL, RPLS NO. 6281 OF ROSELL SURVEYING & MAPPING DATED NOVEMBER 16, 2001. 8. THE TERMS AND PROVISIONS SET OUT IN THAT CERTAIN DOCUMENT ENTITLED "AGREEMENT", RECORDED AUGUST 13,1986 AS INSTRUMENT NO. 86-1042685. THIS AGREEMENT SHALL RUN WITH THE LAND AND SHALL BE BINDING UPON THE UNDERSIGNED AND ITS HEIRS, SUCCESSORS AND ASSIGNS. THIS AGREEMENT SHALL NOT BE AMENDED OR TERMINATED EXCEPT UPON THE EXPRESS WRITTEN AGREEMENT OF THE UNDERSIGNED AND THE CITY OF AGOURA HILLS. 9. THE TERMS AND PROVISIONS SET OUT IN THAT CERTAIN DOCUMENT ENTITLED "AGREEMENT", RECORDED AUGUST 13,1986 AS INSTRUMENT NO. 86-1042686. THIS AGREEMENT SHALL RUN WITH THE LAND AND SHALL BE BINDING UPON THE UNDERSIGNED AND ITS HEIRS, SUCCESSORS AND ASSIGNS. THIS AGREEMENT SHALL NOT BE AMENDED OR TERMINATED EXCEPT UPON THE EXPRESS WRITTEN AGREEMENT OF THE UNDERSIGNED AND THE CITY OF AGOURA HILLS. 10. THE TERMS AND PROVISIONS SET OUT IN THAT CERTAIN DOCUMENT ENTITLED "AGREEMENT", RECORDED OCTOBER 9, 1986 AS INSTRUMENT NO. 86-1364924. 11. COVENANTS, CONDITIONS AND RESTRICTIONS BUT DELETING ANY COVENANT, CONDITION, OR RESTRICTION INDICATING A PREFERENCE, LIMITATION OR DISCRIMINATION BASED ON RACE, COLOR, RELIGION, SEX, MARITAL STATUS, ANCESTRY, DISABILITY, HANDICAP, FAMILIAL STATUS, OR NATIONAL ORIGIN, TO THE EXTENT SUCH COVENANTS, CONDITIONS OR RESTRICTIONS VIOLATE 42 U.S.C. ss. 3604(c) OR CALIFORNIA GOVERNMENT CODE ss. 12955. LAWFUL RESTRICTIONS UNDER STATE AND FEDERAL LAW ON THE AGE OF OCCUPANTS IN SENIOR HOUSING OR HOUSING FOR OLDER PERSONS SHALL NOT BE CONSTRUED AS RESTRICTIONS BASED ON FAMILIAL STATUS AS PROVIDED IN A DOCUMENT, RECORDED: NOVEMBER 26, 1986 AS INSTRUMENT NO. 86-1642957. SAID COVENANTS, CONDITIONS AND RESTRICTIONS WERE MODIFIED BY A DOCUMENT, RECORDED: FEBRUARY 12, 1987 AS INSTRUMENT NO. 87-210391. AMONG OTHER THINGS, SAID DOCUMENT PROVIDES: EASEMENTS. 12. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS PROVIDED IN A DOCUMENT AND AS SHOWN ON SURVEY, JOB NO. 21-223, PREPARED BY DAVID T. ROSELL, RPLS NO. 6281 OF ROSELL SURVEYING & MAPPING DATED NOVEMBER 16, 2001. FOR: WATERLINES. AFFECTS: REFERENCE IS MADE TO SAID DOCUMENT FOR FULL PARTICULARS. RECORDED: DECEMBER 5, 1986 AS INSTRUMENT NO. 86-1686664. 13. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS PROVIDED IN A DOCUMENT AND AS SHOWN ON SURVEY, JOB NO. 21-223, PREPARED BY DAVID T. ROSELL, RPLS NO. 6281 OF ROSELL SURVEYING & MAPPING DATED NOVEMBER 16, 2001. FOR: PUBLIC UTILITIES. AFFECTS: AS DESCRIBED IN SAID DOCUMENT RECORDED: MARCH 12, 1987 AS INSTRUMENT NO. 87-372455. 14. THE TERMS AND PROVISIONS SET OUT IN THAT CERTAIN DOCUMENT ENTITLED "DEDICATION OF PROPERTY TO LAS VIRGENES MUNICIPAL WATER DISTRICT FOR PUBLIC USE", RECORDED APRIL 2, 1987 AS INSTRUMENT NO. 87-507897. 15. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS PROVIDED IN A DOCUMENT FOR: PUBLIC USE. AFFECTS: SAID TRACT. RECORDED: APRIL 2, 1987 AS INSTRUMENT NO. 87-507897. 16. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS PROVIDED IN A DOCUMENT AS SHOWN ON SURVEY, JOB NO. 21-223, PREPARED BY DAVID T. ROSELL, RPLS NO. 6281 OF ROSELL SURVEYING & MAPPING DATED NOVEMBER 16, 2001. FOR: VEHICULAR AND PEDESTRIAN ACCESS. AFFECTS: LOTS 3 AND 4 RECORDED: MAY 22, 1987 AS INSTRUMENT NO. 87-813532. 17. COVENANTS, CONDITIONS AND RESTRICTIONS AS SET FORTH IN THE DOCUMENT ABOVE MENTIONED BUT DELETING ANY COVENANT, CONDITION, OR RESTRICTION INDICATING A PREFERENCE, LIMITATION OR DISCRIMINATION BASED ON RACE, COLOR, RELIGION, SEX, MARITAL STATUS, ANCESTRY, DISABILITY, HANDICAP, FAMILIAL STATUS, OR NATIONAL ORIGIN, TO THE EXTENT SUCH COVENANTS, CONDITIONS OR RESTRICTIONS VIOLATE 42 U.S.C. ss. 3604(c) OR CALIFORNIA GOVERNMENT CODE ss. 12955. LAWFUL RESTRICTIONS UNDER STATE AND FEDERAL LAW ON THE AGE OF OCCUPANTS IN SENIOR HOUSING OR HOUSING FOR OLDER PERSONS SHALL NOT BE CONSTRUED AS RESTRICTIONS BASED ON FAMILIAL STATUS. EXHIBIT "A" ----------- Legal Description THE LAND REFERRED TO IN THIS COMMITMENT IS IN THE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES, AND IS DESCRIBED AS FOLLOWS: LOT 2, OF TRACT NO. 43597, IN THE CITY OF AGOURA HILLS, AS PER MAP RECORDED IN BOOK 1078 PAGES 72 TO 80 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT FROM A PORTION THEREOF AN UNDIVIDED ONE-HALF OF ALL OIL, GAS, PETROLEUM AND OTHER MINERAL OR HYDROCARBON SUBSTANCES IN AND TO THAT PORTION OF SAID LAND LYING BELOW THE DEPTH OF 500 FEET FROM THE SURFACE, WITHOUT THE RIGHT OF SURFACE ENTRY, AS RESERVED IN THE DEED FROM MAX H. GOLDSMITH AND SHIRLEY H. GOLDSMITH, HUSBAND AND WIFE AS JOINT TENANTS, IN DEED RECORDED AS INSTRUMENT NO. 1450 ON DECEMBER 29,1960 IN BOOK D1076 PAGE 565 OF OFFICIAL RECORDS. ALSO EXCEPTING TO THE COUNTY OF LOS ANGELES ALL OIL, GAS, HYDROCARBONS, OR OTHER MINERALS IN AND UNDER THE ABOVE DESCRIBED PARCEL OF LAND WITHOUT THE RIGHT OF SURFACE ENTRY FOR DEVELOPMENT THEREOF. EXHIBIT "B" ----------- Permitted Exceptions 1. A WAIVER OF ANY CLAIMS FOR ANY AND ALL DAMAGES TO SAID LAND BY REASON OF LOCATION, CONSTRUCTION, LANDSCAPING OR MAINTENANCE OF THE FREEWAY LYING NORTHERLY OF SAID LAND, AS PROVIDED IN THE DEED TO STATE OF CALIFORNIA, RECORDED JULY 27, 1950, AS INSTRUMENT NO. 2809, IN BOOK 33808, PAGE 268, OF OFFICIAL RECORDS. 2. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS PROVIDED IN A DOCUMENT FOR: CONDUITS, PIPE LINES, VAULTS, MANHOLES, LATERALS AND METERS. AFFECTS: A 4 FOOT STRIP OF LAND IN THE NORTHERLY PORTION OF SAID LAND. RECORDED: DECEMBER 20, 1963 AS INSTRUMENT NO. 4348, IN BOOK D2297, PAGE 290 AND DECEMBER 20, 1963 AS INSTRUMENT NO. 4349, IN BOOK D2297, PAGE 293, BOTH OF OFFICIAL RECORDS. 3. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS PROVIDED IN A DOCUMENT AND SHOWN ON THE SURVEY, JOB NO. 21-222, PREPARED DAVID T. ROSELL, RPLS NO. 6281 OF ROSELL SURVEYING & MAPPING DATED NOVEMBER 16, 2001. FOR: STORM DRAINS. AFFECTS: A 20 FOOT BY 15 FOOT STRIP WITHIN LOT 2 AS THEREIN DESCRIBED. RECORDED: JANUARY 16, 1973 AS INSTRUMENT NO. 3474. 4. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS PROVIDED IN A DOCUMENT FOR: STORM DRAIN. AFFECTS: A 20 FOOT BY 25 FOOT STRIP OF LAND WITHIN LOT 2 AS THEREIN DESCRIBED. RECORDED: JANUARY 16, 1973 AS INSTRUMENT NO. 3475 AND 3476. 5. THE FACT THAT THE OWNERSHIP OF SAID LAND DOES NOT INCLUDE ANY RIGHTS OF ACCESS, SAID RIGHTS HAVING BEEN RELINQUISHED, CONDEMNED OR RESERVED IN A DOCUMENT RECORDED: SEPTEMBER 18, 1964 AS INSTRUMENT NO. 1531 AND MARCH 12, 1974 AS INSTRUMENT NO. 2348. FROM: EDWARD TORRES, A SINGLE MAN, CARL COHEN AND FRANCES RAE COHEN, HUSBAND AND WIFE, GEORGE ROSENBERG AND META ROSENBERG, HUSBAND AND WIFE AND FROM FIRST WESTERN BANK AND TRUST COMPANY, A CALIFORNIA CORPORATION TRUSTEE UNDER TRUST NO. 6495-85268. 6. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS PROVIDED IN A DOCUMENT AND SHOWN ON THE SURVEY, JOB NO. 21-222, PREPARED DAVID T. ROSELL, RPLS NO. 6281 OF ROSELL SURVEYING & MAPPING DATED NOVEMBER 16, 2001. FOR: PUBLIC UTILITIES. AFFECTS: A PORTION OF LOT 2 AS THEREIN DESCRIBED. RECORDED: OCTOBER 11, 1979 AS INSTRUMENT NO. 79-1137891. 7. A MEMORANDUM OF AGREEMENT AND GRANT OF EASEMENT, DATED DECEMBER 17, 1980, EXECUTED BY AND BETWEEN CURREY-RIACH COMPANY, AND TIFFANY DEVELOPMENT COMPANY, A CALIFORNIA CORPORATION, AND RECORDED JANUARY 16, 1981 AS INSTRUMENT NO. 81-54573 AND SHOWN ON THE SURVEY, JOB NO. 21-222, PREPARED DAVID T. ROSELL, RPLS NO. 6281 OF ROSELL SURVEYING & MAPPING DATED NOVEMBER 16, 2001. FOR: SEWER LINES AFFECTS: A 10 FOOT STRIP OF LAND AS SHOWN AND DELINEATED ON SAID MAP 8. EASEMENTS AND RIGHTS AS SET FORTH IN SECTION 959.1 OF THE STREETS AND HIGHWAYS CODE OF THE STATE OF CALIFORNIA, AS RESERVED AND EXCEPTED BY THE COUNTY OF LOS ANGELES PURSUANT TO VACATION ROADSIDE DRIVE NO. R-53090-68-7, RECORDED SEPTEMBER 20, 1974 AS INSTRUMENT NO. 4431. 9. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS PROVIDED IN A DOCUMENT FOR: PUBLIC UTILITY PURPOSES. AFFECTS: A 4 FOOT STRIP OF LAND SHOWN AND DELINEATED ON SAID MAP. RECORDED: JANUARY 27, 1964 IN BOOK D-2337 PAGE 304, OF OFFICIAL RECORDS, AS INSTRUMENT NO. 4665. 10. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS PROVIDED IN A DOCUMENT AND SHOWN ON THE SURVEY, JOB NO. 21-222, PREPARED DAVID T. ROSELL, RPLS NO. 6281 OF ROSELL SURVEYING & MAPPING DATED NOVEMBER 16, 2001. FOR: UNDERGROUND CONDUITS AND WIRES. AFFECTS: A 20 FOOT STRIP OF LAND AS SHOWN AND DELINEATED ON THE MAP OF SAID TRACT. RECORDED: FEBRUARY 20, 1986 AS INSTRUMENT NO. 86-223618, AND RE-RECORDED MARCH 21, 1986 AS INSTRUMENT NO. 86-355248. 11. PROVISIONS OF THE DEDICATION STATEMENT ON THE MAP OF TRACT: 43597. WHICH RECITE: WHILE ALL OF AGOURA ROAD AND REYES ADOVE ROAD WITHIN OR ADJACENT TO THIS SUBDIVISION REMAINS A PUBLIC STREET, WE HEREBY ABANDON ALL RIGHTS, EXCEPT FOR 9 DRIVEWAY OPENINGS FOR LOTS 1 THROUGH 7, DIRECT VEHICULAR INGRESS AND EGRESS TO SAID STREETS. 12. AN EASEMENT FOR PURPOSES HEREIN STATED, AS SHOWN ON OR DEDICATED BY THE MAP AND SHOWN ON THE SURVEY, JOB NO. 21-222, PREPARED DAVID T. ROSELL, RPLS NO. 6281 OF ROSELL SURVEYING & MAPPING DATED NOVEMBER 16, 2001. OF: TRACT 43597. FOR: DRIVEWAY AND FIRE LANE. AFFECTS: A 50 FOOT STRIP OF LAND IN LOT 2. FOR: A VARIABLE WIDTH EASEMENT FOR STORM DRAIN TO THE CITY OF AGOURA HILLS AFFECTS: ALONG THE NORTHERLY LINE OF LOT 2 FOR: STORM DRAIN AFFECTS: A 10 FOOT STRIP OF LAND AND A 14 FOOT STRIP OF LAND IN LOT 1 FOR: SANITARY SEWER AFFECTS: A 10 FOOT STRIP OF LAND WITHIN LOT 2 13. AN AGREEMENT DATED DECEMBER 12, 1985 BY AND BETWEEN KATELL/AHMANSON PARTNERSHIP, A CALIFORNIA LIMITED PARTNERSHIP AND PACIFIC BELL, A CALIFORNIA CORPORATION, SUBJECT TO THE TERMS, COVENANTS, CONDITIONS AND PROVISIONS CONTAINING THEREIN RECORDED MAY 29, 1986 AS INSTRUMENT NO. 86-666139 AND SHOWN ON THE SURVEY, JOB NO. 21-222, PREPARED DAVID T. ROSELL, RPLS NO. 6281 OF ROSELL SURVEYING & MAPPING DATED NOVEMBER 16, 2001. 14. AN ASSESSMENT DISTRICT PARTICIPATION AGREEMENT DATED AUGUST 6, 1986, EXECUTED BY KATELL/AHMANSON PARTNERSHIP, RECORDED AUGUST 13, 1986 AS INSTRUMENT NO. 86-1042685, SAID AGREEMENT IS IN FAVOR OF THE CITY OF AGOURA HILLS AND PERTAINS TO THE RELOCATION OF ELECTRIC OR COMMUNICATIONS FACILITIES, SAID AGREEMENT ALSO STATES IN PART: THIS AGREEMENT SHALL RUN WITH THE LAND AND SHALL BE BINDING UPON THE UNDERSIGNED AND ITS HEIRS, SUCCESSORS AND ASSIGNS. THIS AGREEMENT SHALL NOT BE AMENDED OR TERMINATED EXCEPT UPON THE EXPRESS WRITTEN AGREEMENT OF THE UNDERSIGNED AND THE CITY OF AGOURA HILLS. 15. AN ASSESSMENT-DISTRICT PARTICIPATION AGREEMENT DATED AUGUST 6, 1986, EXECUTED BY KATELL/AHMANSON PARTNERSHIP, RECORDED AUGUST 13, 1986 AS INSTRUMENT NO. 86-1042686. SAID AGREEMENT IS IN FAVOR OF THE CITY OF AGOURA HILLS AND PERTAINS TO THE INSTALLATION AND CONSTRUCTION OF IMPROVEMENTS AND APPURTENANT WORK RELATED TO THE VENTURA FREEWAY REYES ADOBE ROAD INTERCHANGE. SAID AGREEMENT ALSO STATES IN PART: THIS AGREEMENT SHALL RUN WITH THE LAND AND SHALL BE BINDING UPON THE UNDERSIGNED AND ITS HEIRS, SUCCESSORS AND ASSIGNS. THIS AGREEMENT SHALL NOT BE AMENDED OR TERMINATED EXCEPT UPON THE EXPRESS WRITTEN AGREEMENT OF THE UNDERSIGNED AND THE CITY OF AGOURA HILLS. 16. AN UNRECORDED EXCHANGE AGREEMENT DATED OCTOBER 2, 1986 EXECUTED BY TERADYNE, INC., A MASSACHUSETTS CORPORATION AND KATELL/AHMANSON PARTNERSHIP, A CALIFORNIA LIMITED PARTNERSHIP DISCLOSED BY A MEMORANDUM OF EXCHANGE AGREEMENT RECORDED OCTOBER 9, 1986 AS INSTRUMENT NO. 86-1364924, SUBJECT TO THE TERMS, COVENANTS AND PROVISIONS CONTAINED IN SAID AGREEMENT AND SAID MEMORANDUM. 17. COVENANTS, CONDITIONS AND RESTRICTIONS BUT DELETING ANY COVENANT, CONDITION, OR RESTRICTION INDICATING A PREFERENCE, LIMITATION OR DISCRIMINATION BASED ON RACE, COLOR, RELIGION, SEX, MARITAL STATUS, ANCESTRY, DISABILITY, HANDICAP, FAMILIAL STATUS, OR NATIONAL ORIGIN, TO THE EXTENT SUCH COVENANTS, CONDITIONS OR RESTRICTIONS VIOLATE 42 U.S.C. ss. 3604(c) OR CALIFORNIA GOVERNMENT CODE ss. 12955. LAWFUL RESTRICTIONS UNDER STATE AND FEDERAL LAW ON THE AGE OF OCCUPANTS IN SENIOR HOUSING OR HOUSING FOR OLDER PERSONS SHALL NOT BE CONSTRUED AS RESTRICTIONS BASED ON FAMILIAL STATUS AS PROVIDED IN A DOCUMENT, RECORDED: NOVEMBER 26, 1986 AS INSTRUMENT NO. 86-1642957. SAID COVENANTS, CONDITIONS AND RESTRICTIONS PROVIDE THAT A VIOLATION THEREOF SHALL NOT DEFEAT NOR RENDER INVALID THE LIEN OF ANY MORTGAGE OR DEED OF TRUST MADE IN GOOD FAITH AND FOR VALUE. AMONG OTHER THINGS, SAID DOCUMENT PROVIDES: EASEMENTS. SAID COVENANTS, CONDITIONS AND RESTRICTIONS WERE MODIFIED BY A DOCUMENT, RECORDED: FEBRUARY 12, 1987 AS INSTRUMENT NO. 210391. 18. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS PROVIDED IN A DOCUMENT FOR: WATER LINES. AFFECTS: REFERENCE IS MADE TO SAID DOCUMENT FOR FULL PARTICULARS. RECORDED: DECEMBER 5, 1986 AS INSTRUMENT NO. 86-1686664. 19. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS PROVIDED IN A DOCUMENT FOR: PUBLIC UTILITIES. AFFECTS: EIGHT (8) STRIPS OF LAND LYING WITHIN LOTS 1, 2, 3, AND 4 OF TRACT NO. 43597, AS PER MAP RECORDED IN BOOK 1078, PAGES 72 THROUGH 80 INCLUSIVE OF MISCELLANEOUS RECORDS (MAPS) IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, DESCRIBED THEREIN. RECORDED: MARCH 12, 1987 AS INSTRUMENT NO. 87-372455. EXHIBIT "A" ----------- Legal Description THE LAND REFERRED TO IN THIS COMMITMENT IS IN THE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES, AND IS DESCRIBED AS FOLLOWS: LOT 1 OF TRACT 43597, IN THE CITY OF AGOURA HILLS, AS PER MAP RECORDED IN BOOK 1078 PAGE 72 TO 80 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT FROM A PORTION THEREOF AN UNDIVIDED ONE-HALF OF ALL OIL, GAS, PETROLEUM AND OTHER MINERAL OR HYDROCARBON SUBSTANCES IN AND TO THAT PORTION OF SAID LAND LYING BELOW THE DEPTH OF 500 FEET FROM THE SURFACE, WITHOUT THE RIGHT OF SURFACE ENTRY, AS RESERVED IN THE DEED FROM MAX H. GOLDSMITH AND SHIRLEY H. GOLDSMITH, HUSBAND AND WIFE AS JOINT TENANTS, IN DEED RECORDED AS INSTRUMENT NO. 1450 ON DECEMBER 29,1960 IN BOOK D1076 PAGE 565 OF OFFICIAL RECORDS. ALSO EXCEPT TO THE COUNTY OF LOS ANGELES ALL OIL, GAS, HYDROCARBONS, OR OTHER MINERALS IN AND UNDER THE ABOVE DESCRIBED PARCEL OF LAND WITHOUT THE RIGHT OF SURFACE ENTRY FOR DEVELOPMENT THEREOF. EXHIBIT "B" ----------- Permitted Exceptions 1. A WAIVER OF ANY CLAIMS FOR ANY AND ALL DAMAGES TO SAID LAND BY REASON OF LOCATION, CONSTRUCTION, LANDSCAPING OR MAINTENANCE OF THE FREEWAY LYING NORTHERLY OF SAID LAND, AS PROVIDED IN THE DEED TO STATE OF CALIFORNIA, RECORDED JULY 27,1950 AS INSTRUMENT NO. 2809, IN BOOK 33808, PAGE 268, OFFICIAL RECORDS. 2. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS PROVIDED IN A DOCUMENT FOR: CONDUITS, PIPE LINES, VAULTS, MANHOLES, LATERALS AND METERS. AFFECTS: A 4 FOOT STRIP OF LAND IN THE NORTHERLY PORTION OF SAID LAND. RECORDED: DECEMBER 20,1963 AS INSTRUMENT NO. 4348, IN BOOK D2297 PAGE 290 AND DECEMBER 20, 1963 AS INSTRUMENT NO. 4349, IN BOOK D2297 PAGE 293, BOTH OF OFFICIAL RECORDS. 3. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS PROVIDED IN A DOCUMENT AND SHOWN ON THE SURVEY, JOB NO. 21-221, PREPARED DAVID T. ROSELL, RPLS NO. 6281 OF ROSELL SURVEYING & MAPPING DATED NOVEMBER 16, 2001. FOR: STORM DRAINS. AFFECTS: A 10 FOOT BY 25 FOOT STRIP OF LAND. RECORDED: JANUARY 16, 1973 AS INSTRUMENT NO. 3474. 4. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS PROVIDED IN A DOCUMENT AND SHOWN ON THE SURVEY, JOB NO. 21-221, PREPARED DAVID T. ROSELL, RPLS NO. 6281 OF ROSELL SURVEYING & MAPPING DATED NOVEMBER 16, 2001. FOR: PUBLIC UTILITIES. AFFECTS: A 10 FOOT STRIP OF LAND. RECORDED: OCTOBER 11, 1979 AS INSTRUMENT NO. 79-1137891 5. A MEMORANDUM OF AGREEMENT AND GRANT OF EASEMENT, DECEMBER 17, 1980, EXECUTED BY AND BETWEEN CURREY-RIACH COMPANY, AND TIFFANY DEVELOPMENT COMPANY, A CALIFORNIA CORPORATION, AND RECORDED JANUARY 16, 1981 AS INSTRUMENT NO. 81-54573 AND SHOWN ON THE SURVEY, JOB NO. 21-221, PREPARED DAVID T. ROSELL, RPLS NO. 6281 OF ROSELL SURVEYING & MAPPING DATED NOVEMBER 16, 2001. PURPOSE: SEWER LINES AFFECTS: A 10 FOOT STRIP OF LAND AS SHOWN AND DELINEATED ON SAID MAP. 6. AN EASEMENT FOR PUBLIC STREET, ROAD OR HIGHWAY PURPOSES AS PROVIDED IN A DOCUMENT, AFFECTS: SAID LAND. RECORDED: SEPTEMBER 20, 1974 AS INSTRUMENT NO. 4431. 7. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS PROVIDED IN A DOCUMENT AND SHOWN ON THE SURVEY, JOB NO. 21-221, PREPARED DAVID T. ROSELL, RPLS NO. 6281 OF ROSELL SURVEYING & MAPPING DATED NOVEMBER 16, 2001. FOR: UNDERGROUND CONDUITS AND WIRES. AFFECTS: A 20 FOOT STRIP OF LAND AS SHOWN AND DELINEATED ON THE MAP OF SAID TRACT RECORDED: FEBRUARY 20, 1986 AS INSTRUMENT NO. 86-223618 AND RE-RECORDED MARCH 21, 1986 AS INSTRUMENT NO. 86-355248. 8. PROVISIONS OF THE DEDICATION STATEMENT ON THE MAP OF TRACT: 43597. WHICH RECITE: WHILE ALL OF AGOURA ROAD AND REYES ADOBE ROAD WITHIN OR ADJACENT TO THIS SUBDIVISIONS REMAINS A PUBLIC STREET, WE HEREBY ABANDON ALL RIGHTS, EXCEPT FOR 9 DRIVEWAY OPENING FOR LOTS 1 THROUGH 7, DIRECT VEHICULAR INGRESS AND EGRESS TO SAID STREETS. 9. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS PROVIDED IN A DOCUMENT AND SHOWN ON THE SURVEY, JOB NO. 21-221, PREPARED DAVID T. ROSELL, RPLS NO. 6281 OF ROSELL SURVEYING & MAPPING DATED NOVEMBER 16, 2001. FOR: DRIVEWAY AND FIRELANE. AFFECTS: A 60 FOOT STRIP OF LAND. RECORDED: IN BOOK 1078 PAGES 72 TO 80 OF MAPS. FOR: A VARIABLE WIDTH EASEMENT FOR STORM DRAIN TO THE CITY OF AGOURA HILLS AFFECTS: ALONG THE NORTHERLY LINE OF SAID LOT 1. FOR: STORM DRAIN AFFECTS: A 10 FOOT STRIP OF LAND AND A 14 FOOT STRIP OF LAND FOR: SANITARY SEWER AFFECTS: A 10 FOOT STRIP OF LAND 10. THE TERMS AND PROVISIONS SET OUT IN THAT CERTAIN DOCUMENT ENTITLED "AGREEMENT", RECORDED MAY 29,1986 AS INSTRUMENT NO. 86-666139 AND SHOWN ON THE SURVEY, JOB NO. 21-221, PREPARED DAVID T. ROSELL, RPLS NO. 6281 OF ROSELL SURVEYING & MAPPING DATED NOVEMBER 16, 2001. 11. THE TERMS AND PROVISIONS SET OUT IN THAT CERTAIN DOCUMENT ENTITLED "ASSESSMENT DISTRICT PARTICIPATION AGREEMENT", RECORDED AUGUST 13, 1986 AS INSTRUMENT NO. 86-1042685. THIS AGREEMENT SHALL RUN WITH THE LAND AND SHALL BE BINDING UPON THE UNDERSIGNED AND ITS HEIRS, SUCCESSORS AND ASSIGNS. THIS AGREEMENT SHALL NOT BE AMENDED OR TERMINATED EXCEPT UPON THE EXPRESS WRITTEN AGREEMENT OF THE UNDERSIGNED AND THE CITY OF AGOURA HILLS. 12. THE TERMS AND PROVISIONS SET OUT IN THAT CERTAIN DOCUMENT ENTITLED "ASSESSMENT-DISTRICT PARTICIPATION AGREEMENT", RECORDED AUGUST 13, 1986 AS INSTRUMENT NO. 86-1042686. SAID AGREEMENT ALSO STATES IN PART: THIS AGREEMENT SHALL RUN WITH THE LAND AND SHALL BE BINDING UPON THE UNDERSIGNED AND ITS HEIRS, SUCCESSORS AND ASSIGNS. THIS AGREEMENT SHALL NOT BE AMENDED OR TERMINATED EXCEPT UPON THE EXPRESS WRITTEN AGREEMENT OF THE UNDERSIGNED AND THE CITY OF AGOURA HILLS. 13. THE TERMS AND PROVISIONS SET OUT IN THAT CERTAIN DOCUMENT ENTITLED "DISCLOSED BY A MEMORANDUM OF EXCHANGE AGREEMENT", RECORDED OCTOBER 9, 1986 AS INSTRUMENT NO. 86-1364924. 14. COVENANTS, CONDITIONS AND RESTRICTIONS BUT DELETING ANY COVENANT, CONDITION, OR RESTRICTION INDICATING A PREFERENCE, LIMITATION OR DISCRIMINATION BASED ON RACE, COLOR, RELIGION, SEX, MARITAL STATUS, ANCESTRY, DISABILITY, HANDICAP, FAMILIAL STATUS, OR NATIONAL ORIGIN, TO THE EXTENT SUCH COVENANTS, CONDITIONS OR RESTRICTIONS VIOLATE 42 U.S.C. ss. 3604(c) OR CALIFORNIA GOVERNMENT CODE ss. 12955. LAWFUL RESTRICTIONS UNDER STATE AND FEDERAL LAW ON THE AGE OF OCCUPANTS IN SENIOR HOUSING OR HOUSING FOR OLDER PERSONS SHALL NOT BE CONSTRUED AS RESTRICTIONS BASED ON FAMILIAL STATUS AS PROVIDED IN A DOCUMENT, RECORDED: NOVEMBER 26,1986 AS INSTRUMENT NO. 86-1642957. AMONG OTHER THINGS, SAID DOCUMENT PROVIDES: EASEMENTS SAID COVENANTS, CONDITIONS AND RESTRICTIONS WERE MODIFIED BY A DOCUMENT, RECORDED: FEBRUARY 12,1987 AS INSTRUMENT NO. 87-210391. 15. AN EASEMENT FOR PURPOSES HEREIN STATED, AND RIGHTS INCIDENTAL THERETO AS PROVIDED IN A DOCUMENT AND SHOWN ON THE SURVEY, JOB NO. 21-221, PREPARED DAVID T. ROSELL, RPLS NO. 6281 OF ROSELL SURVEYING & MAPPING DATED NOVEMBER 16, 2001. FOR: WATERLINES. AFFECTS: REFERENCE IS MADE TO SAID DOCUMENT FOR FULL PARTICULARS. RECORDED: DECEMBER 5, 1986 AS INSTRUMENT NO. 86-1686664. EXHIBIT "A" ----------- Legal Description REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: LOT 2, so designated and delineated on the Map of Tract No. 7422 recorded April 25, 1983 in Book 511 of Maps, pages 20, 21, 22 and 23, Santa Clara County Records. TOGETHER WITH an appurtenant easement for the purposes of mutual ingress and egress, as granted by Cad N. Swenson, Co., Inc. and CA. Swenson, Inc. to Fox Lane Investment Company recorded June 1, 1983 in Book H597, page 745, Official Records. TOGETHER WITH mutual access easement established by Map of Tract No. 7422 recorded April 25, 1983 in Book 511 of Maps, pages 20, 21, 22 and 23, Santa Clara County Records. EXHIBIT "B" ----------- Permitted Exceptions 1. Matters set forth in a document entitled "Declaration of Covenants, Conditions and Restrictions for Swenson Business Park", executed by Carl N. Swenson Co., Inc., recorded April 16, 1982 in Book G728, page 394, Official Records, including but not limited to covenants, conditions, restrictions, easements, assessments, liens and charges. First Amendment thereto was recorded November 24, 1982 in Book H164, page 591, Official Records. Second Amendment thereto was recorded November 24,1982 in Book H164, page 582, Official Records. Third Amendment thereto was recorded January 20, 1984 in Book 1243, page 489, Official Records. Fourth Amendment thereto was recorded February 25, 1988 in Book K454, page 1077, Official Records. 2. The effect, if any, of the fact that the Map of Tract No. 7422 recorded April 25, 1983 in Book 511 of Maps, pages 20, 21, 22 and 23, Santa Clara County Records, indicates that "We hereby establish a non-revocable ingress-egress easement over portions of Lots 1 and 2 for their mutual benefit, over portions of Lots 1 and 3 for their mutual benefit . . ." and as shown on the survey dated November 9, 2001, prepared Mitchell Duryea, Licensed Land Surveyor No. 5660 of Duryea & Associates. Reference is hereby made to the record for further particulars. 3. An easement for mutual ingress and egress, reserved as appurtenant to and for the benefit of Lot 3 of said Tract No. 7422, and incidental purposes, recorded June 1, 1983 in Book H597, page 745 of Official Records and as shown on the survey dated November 9, 2001, prepared Mitchell Duryea, Licensed Land Surveyor No. 5660 of Duryea & Associates. Reference is hereby made to the record for further particulars. 4. An easement for underground electrical facilities and incidental purposes, recorded March 1, 1984 in Book 1344, page 506, Official Records and as shown on the survey dated November 9, 2001, prepared Mitchell Duryea, Licensed Land Surveyor No. 5660 of Duryea & Associates. In Favor of : Pacific Gas and Electric Company and The Pacific Telephone and Telegraph Company Reference is hereby made to the record for further particulars. 5. An easement for underground electrical facilities and incidental purposes, recorded March 1, 1984 in Book 1344, page 510, Official Records and as shown on the survey dated November 9, 2001, prepared Mitchell Duryea, Licensed Land Surveyor No. 5660 of Duryea & Associates. In Favor of : Pacific Gas and Electric Company and The Pacific Telephone and Telegraph Company Reference is hereby made to the record for further particulars. 6. An easement for underground electrical facilities and incidental purposes, recorded May 14, 1984 in Book 1540, page 111, Official Records and as shown on the survey dated November 9, 2001, prepared Mitchell Duryea, Licensed Land Surveyor No. 5660 of Duryea & Associates. In Favor of : Pacific Gas and Electric Company, a California corporation Said matter affects Strips of land of the uniform width of 10 feet, the center lines of which are delineated by the heavy dashed line shown upon the print of second party's Drawing No. SJB 1732. 7. Terms and conditions of that certain Site Development Permit File No. : HA93-01-061 Disclosed By : Certificate Recorded : January 21, 1994 in Book N263, page 0261, Official Records Reference is hereby made to the record for particulars. 8. Terms and conditions of that certain Site Development Permit File No. : H93-09-061 Disclosed By : Certificate Recorded : January 21, 1994 in Book N263, page 0263, Official Records Reference is hereby made to the record for particulars. EXHIBIT "A" ----------- Legal Description REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: LOT 1, so designated and delineated on the Map of Tract No. 7422 recorded April 25, 1983 in Book 511 of Maps, pages 20, 21, 22 and 23, Santa Clara County Records. TOGETHER WITH an appurtenant easement for the purposes of mutual ingress and egress, as granted by Cad N. Swenson, Co., Inc. and CA. Swenson, Inc. to Fox Lane Investment Company recorded June 1, 1983 in Book H597, page 745, Official Records. TOGETHER WITH mutual access easement established by Map of Tract No. 7422 recorded April 25, 1983 in Book 511 of Maps, pages 20, 21, 22 and 23, Santa Clara County Records. EXHIBIT "B" ----------- Permitted Exceptions 1. Matters set forth in a document entitled "Declaration of Covenants, Conditions and Restrictions for Swenson Business Park", executed by Carl N. Swenson Co., Inc., recorded April 16, 1982 in Book G728, page 394, Official Records, including but not limited to covenants, conditions, restrictions, easements, assessments, liens and charges. First Amendment thereto was recorded November 24, 1982 in Book H164, page 591, Official Records. Second Amendment thereto was recorded November 24,1982 in Book H164, page 582, Official Records. Third Amendment thereto was recorded January 20, 1984 in Book 1243, page 489, Official Records. Fourth Amendment thereto was recorded February 25, 1988 in Book K454, page 1077, Official Records. 2. The effect, if any, of the fact that the Map of Tract No. 7422 recorded April 25, 1983 in Book 511 of Maps, pages 20, 21, 22 and 23, Santa Clara County Records, indicates that "We hereby establish a non-revocable ingress-egress easement over portions of Lots 1 and 2 for their mutual benefit, over portions of Lots 1 and 3 for their mutual benefit . . ." and as shown on the survey dated November 9, 2001, prepared Mitchell Duryea, Licensed Land Surveyor No. 5660 of Duryea & Associates. Reference is hereby made to the record for further particulars. 3. An easement for mutual ingress and egress, reserved as appurtenant to and for the benefit of Lot 3 of said Tract No. 7422, and incidental purposes, recorded June 1, 1983 in Book H597, page 745 of Official Records and as shown on the survey dated November 9, 2001, prepared Mitchell Duryea, Licensed Land Surveyor No. 5660 of Duryea & Associates. Reference is hereby made to the record for further particulars. 4. An easement for underground electrical facilities and incidental purposes, recorded March 1, 1984 in Book 1344, page 506, Official Records and as shown on the survey dated November 9, 2001, prepared Mitchell Duryea, Licensed Land Surveyor No. 5660 of Duryea & Associates. In Favor of : Pacific Gas and Electric Company and The Pacific Telephone and Telegraph Company Reference is hereby made to the record for further particulars. 5. An easement for underground electrical facilities and incidental purposes, recorded March 1, 1984 in Book 1344, page 510, Official Records and as shown on the survey dated November 9, 2001, prepared Mitchell Duryea, Licensed Land Surveyor No. 5660 of Duryea & Associates. In Favor of : Pacific Gas and Electric Company and The Pacific Telephone and Telegraph Company Reference is hereby made to the record for further particulars. 6. An easement for underground electrical facilities and incidental purposes, recorded May 14, 1984 in Book 1540, page 111, Official Records and as shown on the survey dated November 9, 2001, prepared Mitchell Duryea, Licensed Land Surveyor No. 5660 of Duryea & Associates. In Favor of : Pacific Gas and Electric Company, a California corporation Said matter affects Strips of land of the uniform width of 10 feet, the center lines of which are delineated by the heavy dashed line shown upon the print of second party's Drawing No. SJB 1732. 7. Terms and conditions of that certain Site Development Permit File No. : HA93-01-061 Disclosed By : Certificate Recorded : January 21, 1994 in Book N263, page 0261, Official Records Reference is hereby made to the record for particulars. 8. Terms and conditions of that certain Site Development Permit File No. : H93-09-061 Disclosed By : Certificate Recorded : January 21, 1994 in Book N263, page 0263, Official Records Reference is hereby made to the record for particulars. EX-10.27 16 dex1027.txt REAL ESTATE MORTGAGE FINANCING DOCUMENTS Exhibit 10.27 - -------------------------------------------------------------------------------- AFTER RECORDING, RETURN TO: - -------------------------- General Electric Capital Business Asset Funding Corporation Middle Market Risk/Operations Department 10900 NE 4th Street, Suite 500 Bellevue, Washington 98004 Attn: Ms. Deehan Gay Loan No. 050-8563-001 THIS INSTRUMENT PREPARED BY: - --------------------------- Jenkens & Gilchrist, a professional corporation George C. Dunlap, Esq. 1445 Ross Avenue, Suite 3200 Dallas, Texas 75202 [Space above reserved for recorder's use only] ================================================================================ ASSIGNMENT OF RENTS AND LEASES ------------------------------ THIS ASSIGNMENT is made effective as of December 19, 2001, by TERADYNE INC., a Massachusetts corporation, with a mailing address of 321 Harrison Avenue, Boston, Massachusetts 02118-2238 (hereinafter called "Assignor"), in favor of GENERAL ELECTRIC CAPITAL BUSINESS ASSET FUNDING CORPORATION, a Delaware corporation, with a mailing address of 10900 NE 4th Street, Suite 500, Bellevue, Washington 98004, Attention: Middle Market Risk/Operations Department (hereinafter called "GE CAPITAL"). WITNESSETH ---------- Assignor, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, does hereby absolutely, irrevocably and unconditionally grant, bargain, sell, transfer, assign, convey, set over and deliver unto GE CAPITAL all right, title and interest of Assignor in, to and under all written and oral leases and rental agreements of the real estate described in Exhibit A attached hereto and incorporated herein (the "Property"), whether now in existence or hereafter entered into, and all guaranties, amendments, extensions, renewals and subleases of said leases and any of them, all of which are hereinafter called the "Leases," all rents, income and profits which may now or hereafter be or become due or owing under the Leases, and any of them, or on account of the use of the Property, any award hereafter made in any bankruptcy, insolvency or reorganization proceeding in any state or federal court involving any of the tenants of the Leases, and any and all payments made by such tenants in lieu of rent. This Assignment is made for the purpose of securing: A. The payment of the indebtedness (including any extensions or renewals thereof) evidenced by a certain Promissory Note (the "Note") of Assignor dated of even date herewith in the principal sum of $45,000,000.00 and secured by five (5) certain Commercial Deeds of Trust, Security Agreements, Assignments of Leases and Rents and Fixture Filings (collectively, the "Deed of Trust") of even date herewith encumbering the Property; 1 B. The payment of all other sums with interest thereon becoming due and payable to GE CAPITAL under the provisions of the Deed of Trust and any other instrument constituting security for the Note; and C. The performance and discharge of each and every term, covenant and condition contained in the Note, Deed of Trust and any other instrument constituting security for the Note. Assignor represents, warrants, covenants and agrees with GE CAPITAL as follows: A. The sole ownership of the entire lessor's interest in the Leases is or shall be vested in Assignor, and Assignor has not, and shall not, perform any acts or execute any other instruments which might prevent GE CAPITAL from fully exercising its rights under any of the terms, covenants and conditions of this Assignment. B. The Leases are and shall be valid and enforceable in accordance with their terms, have not been altered, modified, amended, terminated, canceled, renewed or surrendered nor have any of the terms and conditions thereof been waived in any manner whatsoever except as approved in writing by GE CAPITAL. C. Assignor shall not alter the term of any Lease or the amount of rent payable under any Lease without GE CAPITAL's prior written consent. In addition, Assignor shall not materially alter any of the other terms of the Leases without GE CAPITAL'S prior written consent, which consent shall not be unreasonably withheld. D. To the best of Assignor's knowledge, there are no defaults now existing under any of the Leases, and there exists no state of facts which, with the giving of notice or passing of time or both, would constitute a default under any of the Leases. E. Assignor shall give prompt notice to GE CAPITAL of any notice received by Assignor claiming that a default has occurred under any of the Leases on the part of Assignor, together with a complete copy of any such notice. F. Each of the Leases shall remain in full force and effect irrespective of any merger of the interest of lessor and any lessee under any of the Leases. G. Assignor will not permit any Lease to become subordinate to any lien other than the lien of the Deed of Trust. H. Assignor shall not permit or consent to the assignment by any tenant of its rights under its Lease without the prior written consent of GE CAPITAL. Without limitation of the foregoing, Assignor shall not permit or consent to the filing of any encumbrance against the tenant's interest under any Lease including, without limitation, any leasehold mortgage. 2 I. All existing Leases are described on Exhibit B attached hereto --------- and incorporated herein. Assignor has delivered to Assignee true, correct and complete copies of all existing Leases and all amendments and modifications thereto. The parties further agree as follows: This Assignment is an absolute, present assignment from Assignor to GE CAPITAL, effective immediately, and shall be irrevocable by Assignor so long as Assignor remains indebted to GE CAPITAL. Possession of the Property by GE CAPITAL shall not be a prerequisite to GE CAPITAL'S right to collect the rents, income and profits of and from the Property. Notwithstanding the foregoing, until written notice is sent to Assignor that an Event of Default (as defined in the Note and/or in the Deed of Trust) has occurred (which notice is hereafter called a "Notice"), Assignor shall be entitled to receive, collect and enjoy the rents, income and profits accruing from the Property. All rents, income and profits collected or received by Assignor with respect to periods falling after Assignor's receipt of a Notice shall be held by Assignor in trust for Assignee and shall be paid by -------- Assignor to Assignee on demand. GE CAPITAL may, at its option, after delivery of a Notice to Assignor, receive and collect all such rents, income and profits, from the Property. GE CAPITAL shall thereafter continue to receive and collect all such rents, income and profits as they become due as long as such Event of Default shall exist and during the pendency of any foreclosure proceedings, and if there is a deficiency, during any redemption period. All sums received by Assignor after service of a Notice shall be deemed received in trust and shall be turned over to GE CAPITAL within one (1) business day after Assignor's receipt thereof. Assignor hereby irrevocably appoints GE CAPITAL its true and lawful attorney with power of substitution and with full power for GE CAPITAL in its own name and capacity or in the name and capacity of Assignor, from and after delivery of a Notice, to demand, collect, receive and give complete acquittances for any and all rents, income and profits accruing from the Property, either in its own name or in the name of Assignor or otherwise, which GE CAPITAL may deem necessary or desirable in order to collect and enforce the payment of the rents, income and profits. Such appointment is coupled with an interest and is irrevocable. Assignor also hereby irrevocably appoints GE CAPITAL as its true and lawful attorney, from and after delivery of a Notice, to appear in any state or federal bankruptcy, insolvency, or reorganization proceeding in any state or federal court involving any of the tenants of the Leases. Tenants of the Property are hereby expressly authorized and directed to pay any and all amounts due Assignor pursuant to the Leases to GE CAPITAL or such nominee as GE CAPITAL may designate in writing delivered to and received by such tenants, each of whom are expressly relieved of any and all duty, liability or obligation to Assignor in respect of all payments so made. From and after delivery of a Notice, GE CAPITAL is hereby vested with full power to use all measures, legal and equitable, deemed by it to be necessary 3 or proper to enforce this Assignment and to collect the rents, income and profits assigned hereunder, including the right of GE CAPITAL or its designee to enter upon the Property, or any part thereof, and take possession of all or any part of the Property together with all personal property, fixtures, documents, books, records, papers and accounts of Assignor relating thereto, and GE CAPITAL may exclude Assignor, its agents and employees, wholly therefrom. Assignor hereby grants full power and authority to GE CAPITAL to exercise all rights, privileges and powers herein granted at any and all times after delivery of a Notice, with full power to use and apply all of the rents and other income and profits herein assigned to the payment of the costs of managing and operating the Property and to any indebtedness or liabilities of Assignor to GE CAPITAL, including, but not limited to, the payment of taxes, special assessments, insurance premiums, damage claims, the reasonable costs of maintaining, repairing, rebuilding and restoring the improvements on the Property or of making the same rentable, reasonable attorneys' fees incurred in connection with the enforcement of this Assignment, and to the payment of principal and interest due from Assignor to GE CAPITAL on the Note and the Deed of Trust, all in such order as GE CAPITAL may determine. GE CAPITAL shall be under no obligation to exercise or prosecute any of the rights or claims assigned to it hereunder or to perform or carry out any of the obligations of the lessor under any of the Leases and does not assume any of the liabilities in connection with or arising or growing out of the covenants and agreements of Assignor in the Leases. It is further understood that this Assignment shall not operate to place responsibility for the control, care, management or repair of the Property, or parts thereof, upon GE CAPITAL, nor shall it operate to make GE CAPITAL liable for the performance of any of the terms and conditions of any of the Leases, or for any waste of the Property, or for any dangerous or defective condition of the Property or for any negligence in the management, upkeep, repair or control of the Property resulting in loss or injury or death to any lessee, licensee, employee or stranger. Waiver of or acquiescence by GE CAPITAL in any default by Assignor, or failure of GE CAPITAL to insist upon strict performance by Assignor of any covenants, conditions or agreements in this Assignment, shall not constitute a waiver of any subsequent or other default or failure, whether similar or dissimilar. The rights and remedies of GE CAPITAL under this Assignment are cumulative and are not in lieu of, but are in addition to any other rights or remedies which GE CAPITAL shall have under the Deed of Trust or any other instrument constituting security for the Note, or at law or in equity. If any term of this Assignment, or the application thereof to any person or circumstances, shall, to any extent, be invalid or unenforceable, the remainder of this Assignment, or the application of such term to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term of this Assignment shall be valid and enforceable to the fullest extent permitted by law. 4 Any and all notices, elections, demands, or requests permitted or required to be made under this Assignment, including without limitation a Notice, shall be in writing and shall be given in accordance with Section 18 of the Deed of ---------- Trust. Assignor hereby authorizes GE CAPITAL to give written notice of this Assignment, which may include a copy hereof, at any time to any tenant under any of the Leases. The terms "Assignor" and "GE CAPITAL" shall be construed to include the legal representatives, heirs successors and assigns thereof. The gender and number used in this Assignment are used as a reference term only and shall apply with the same effect whether the parties are of the masculine or feminine gender, corporate or other form, and the singular shall likewise include the plural. This Assignment may not be amended, modified or changed nor shall any waiver of any provision hereof be effective, except and only by an instrument in writing and signed by the party against whom enforcement of any waiver, amendment, change, modification or discharge is sought. Notwithstanding anything contained herein to the contrary, in no event shall this Assignment be deemed to reduce the indebtedness evidenced by the Note by an amount in excess of the actual amount of cash received by GE CAPITAL under the Leases, whether before, during or after the occurrence of an Event of Default, and Assignor acknowledges that in no event shall the indebtedness secured hereby be reduced by the value from time to time of the rents, income and profits of or from the Property, unless rents and income are actually received by GE CAPITAL and applied against the indebtedness secured hereby. In addition, GE CAPITAL reserves the right, at any time, whether before or after the occurrence of an Event of Default, to recharacterize this Assignment as merely constituting security for the indebtedness of Assignor to GE CAPITAL, which recharacterization shall be made by written notice delivered to Assignor. GE CAPITAL's receipt of any rents, issues and profits pursuant to this Assignment after the institution of foreclosure proceedings, either by court action or by the private power of sale contained in any deed of trust now or hereafter securing the Note, shall not cure an Event of Default, as defined in the Note, or affect such proceedings or sale. This Assignment shall be governed by and construed in accordance with the laws of the State of California. [SIGNATURE PAGE FOLLOWS] 5 IN WITNESS WHEREOF, Assignor has caused this instrument to be executed and delivered as of the date first above written. ASSIGNOR: -------- TERADYNE, INC., a Massachusetts corporation By: /s/ Stuart M. Osattin -------------------------------------- Print: Stuart M. Osattin ----------------------------------- Its: Vice President and Treasurer ------------------------------------- 6 COMMONWEALTH OF MASSACHUSETTS Suffolk County December 14, 2001 Then, before me personally appeared Stuart M. Osattin, to me personally known, who, being duly sworn, did depose and say that he is the Vice President and Treasurer of Teradyne, Inc., and acknowledged the foregoing instrument to be his free act and deed and the free act and deed of Teradyne, Inc. /s/ Unknown ----------------------------------------- Notary Public My Commission expires: 10/20/06 7 EXHIBIT A --------- LEGAL DESCRIPTION ----------------- See Attached Schedule 8 EXHIBIT B --------- LIST OF LEASES -------------- None. 9 Schedule Pursuant to Instruction 2 to Rule 601 of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934 Teradyne, Inc. entered into five of the foregoing Assignment of Rents and Leases agreements. The agreements are substantially identical but for the Exhibits A attached thereto. Such Exhibits A are attached to and follow this schedule. EXHIBIT "A" ----------- Legal Description THE LAND REFERRED TO IN THIS COMMITMENT IS IN THE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES, AND IS DESCRIBED AS FOLLOWS: LOT 3, OF TRACT NO. 43597, IN THE CITY OF AGOURA HILLS, AS PER MAP RECORDED IN BOOK 1078 PAGES 72 TO 80 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT FROM A PORTION THEREOF AN UNDIVIDED ONE-HALF OF ALL OIL, GAS, PETROLEUM AND OTHER MINERAL OR HYDROCARBON SUBSTANCES IN AND TO THAT PORTION OF SAID LAND LYING BELOW THE DEPTH OF 500 FEET FROM THE SURFACE, WITHOUT THE RIGHT OF SURFACE ENTRY, AS RESERVED IN THE DEED FROM MAX H. GOLDSMITH AND SHIRLEY H. GOLDSMITH, HUSBAND AND WIFE AS JOINT TENANTS, IN DEED RECORDED AS INSTRUMENT NO. 1450 ON DECEMBER 29, 1960 IN BOOK D1076 PAGE 565 OF OFFICIAL RECORDS. ALSO EXCEPTING TO THE COUNTY OF LOS ANGELES ALL OIL, GAS HYDROCARBONS, OR OTHER MINERALS IN AND UNDER THE ABOVE DESCRIBED PARCEL OF LAND WITHOUT THE RIGHT OF SURFACE ENTRY FOR DEVELOPMENT THEREOF. EXHIBIT "A" ----------- Legal Description THE LAND REFERRED TO IN THIS COMMITMENT IS IN THE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES, AND IS DESCRIBED AS FOLLOWS: LOT 2, OF TRACT NO. 43597, IN THE CITY OF AGOURA HILLS, AS PER MAP RECORDED IN BOOK 1078 PAGES 72 TO 80 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT FROM A PORTION THEREOF AN UNDIVIDED ONE-HALF OF ALL OIL, GAS, PETROLEUM AND OTHER MINERAL OR HYDROCARBON SUBSTANCES IN AND TO THAT PORTION OF SAID LAND LYING BELOW THE DEPTH OF 500 FEET FROM THE SURFACE, WITHOUT THE RIGHT OF SURFACE ENTRY, AS RESERVED IN THE DEED FROM MAX H. GOLDSMITH AND SHIRLEY H. GOLDSMITH, HUSBAND AND WIFE AS JOINT TENANTS, IN DEED RECORDED AS INSTRUMENT NO. 1450 ON DECEMBER 29,1960 IN BOOK D1076 PAGE 565 OF OFFICIAL RECORDS. ALSO EXCEPTING TO THE COUNTY OF LOS ANGELES ALL OIL, GAS, HYDROCARBONS, OR OTHER MINERALS IN AND UNDER THE ABOVE DESCRIBED PARCEL OF LAND WITHOUT THE RIGHT OF SURFACE ENTRY FOR DEVELOPMENT THEREOF. EXHIBIT "A" ----------- Legal Description THE LAND REFERRED TO IN THIS COMMITMENT IS IN THE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES, AND IS DESCRIBED AS FOLLOWS: LOT 1 OF TRACT 43597, IN THE CITY OF AGOURA HILLS, AS PER MAP RECORDED IN BOOK 1078 PAGE 72 TO 80 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT FROM A PORTION THEREOF AN UNDIVIDED ONE-HALF OF ALL OIL, GAS, PETROLEUM AND OTHER MINERAL OR HYDROCARBON SUBSTANCES IN AND TO THAT PORTION OF SAID LAND LYING BELOW THE DEPTH OF 500 FEET FROM THE SURFACE, WITHOUT THE RIGHT OF SURFACE ENTRY, AS RESERVED IN THE DEED FROM MAX H. GOLDSMITH AND SHIRLEY H. GOLDSMITH, HUSBAND AND WIFE AS JOINT TENANTS, IN DEED RECORDED AS INSTRUMENT NO. 1450 ON DECEMBER 29,1960 IN BOOK D1076 PAGE 565 OF OFFICIAL RECORDS. ALSO EXCEPT TO THE COUNTY OF LOS ANGELES ALL OIL, GAS, HYDROCARBONS, OR OTHER MINERALS IN AND UNDER THE ABOVE DESCRIBED PARCEL OF LAND WITHOUT THE RIGHT OF SURFACE ENTRY FOR DEVELOPMENT THEREOF. EXHIBIT "A" ----------- Legal Description REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: LOT 2, so designated and delineated on the Map of Tract No. 7422 recorded April 25, 1983 in Book 511 of Maps, pages 20, 21, 22 and 23, Santa Clara County Records. TOGETHER WITH an appurtenant easement for the purposes of mutual ingress and egress, as granted by Cad N. Swenson, Co., Inc. and CA. Swenson, Inc. to Fox Lane Investment Company recorded June 1, 1983 in Book H597, page 745, Official Records. TOGETHER WITH mutual access easement established by Map of Tract No. 7422 recorded April 25, 1983 in Book 511 of Maps, pages 20, 21, 22 and 23, Santa Clara County Records. EXHIBIT "A" ----------- Legal Description REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: LOT 1, so designated and delineated on the Map of Tract No. 7422 recorded April 25, 1983 in Book 511 of Maps, pages 20, 21, 22 and 23, Santa Clara County Records. TOGETHER WITH an appurtenant easement for the purposes of mutual ingress and egress, as granted by Cad N. Swenson, Co., Inc. and CA. Swenson, Inc. to Fox Lane Investment Company recorded June 1, 1983 in Book H597, page 745, Official Records. TOGETHER WITH mutual access easement established by Map of Tract No. 7422 recorded April 25, 1983 in Book 511 of Maps, pages 20, 21, 22 and 23, Santa Clara County Records. EX-10.28 17 dex1028.txt REAL ESTATE MORTGAGE FINANCING DOCUMENTS Exhibit 10.28 Loan No. 050-8563-001 CERTIFICATE AND INDEMNITY AGREEMENT REGARDING HAZARDOUS SUBSTANCES In connection with and as partial consideration for the making of a loan in the amount of FORTY-FIVE MILLION AND NO/100 DOLLARS ($45,000,000.00) (the "Loan"), by GENERAL ELECTRIC CAPITAL BUSINESS ASSET FUNDING CORPORATION, a Delaware corporation ("GE CAPITAL"), to TERADYNE INC. ("Borrower"), Borrower certifies, represents, warrants, covenants and agrees to and with GE CAPITAL as follows as of December 19, 2001: A. Borrower has furnished to GE CAPITAL a Phase I Environmental Site Assessment dated November, 2001, prepared by CDM Dresser & McKee and an Environmental Questionnaire executed by Borrower and dated November 29, 2001 (collectively, the "Report"). Except as disclosed to GE CAPITAL in the Report, Borrower has no knowledge of (a) the presence of any Hazardous Substances (as defined below) on that certain real property and improvements thereon situated in Los Angeles County, California, which real property is more particularly described in Exhibit A attached hereto (including the improvements --------- thereon, the "Property"), or (b) any spills, releases, discharges or disposal of Hazardous Substances that have occurred or are presently occurring on or onto the Property or any Other Property (as defined below). B. Borrower represents that, as of the date of this Agreement, Borrower has no knowledge of any failure to comply with all applicable local, state and federal environmental laws, regulations, ordinances and administrative and judicial orders relating to the generation, recycling, reuse, sale, storage, handling, transport, disposal, discharge, release or presence of any Hazardous Substances on or with respect to the Property, including, without limitation, the Applicable Laws (as defined below). C. Borrower has duly investigated the present and past uses of the Property and has made due inquiry of the appropriate governmental agencies and offices having jurisdiction over the Property and has examined, or been advised of the Applicable Laws, to determine whether the Property is or has been the site of storage of or contamination by any Hazardous Substances. Borrower has provided GE CAPITAL with a written summary of its investigations. D. Borrower has not released and will not release or waive the liability of any previous owner, lessee, or operator of the Property or any party who may be potentially responsible for the presence, release, discharge, disposal or removal of Hazardous Substances on or from the Property. Borrower has made no promises of indemnification regarding Hazardous Substances with respect to the Property to any person or entity other than GE CAPITAL. E. Borrower agrees to notify GE CAPITAL immediately if Borrower becomes aware of (a) any Hazardous Substances or other environmental problem or liability with respect to the Property or any Other Property, or (b) any lien, action or notice resulting from violation of any of the Applicable Laws. If GE CAPITAL reasonably determines that a release 1 of Hazardous Substances has occurred on the Property or that a violation of the Applicable Laws has occurred, Borrower shall, at Borrower's sole cost and expense, (i) obtain and furnish to GE CAPITAL an environmental audit or survey from an expert satisfactory to GE CAPITAL with respect to the Property and (ii) proceed in a timely manner, and in accordance with all Applicable Laws to take all actions which are necessary to clean up any Hazardous Substances affecting the Property and to comply with the Applicable Laws. Following the completion of any such actions, Borrower shall proceed in a timely manner to restore the Property to its former state of productive use. F. Borrower shall indemnify and hold GE CAPITAL harmless from and against any and all claims, demands, damages, losses, liens, liabilities, penalties, fines, lawsuits and other proceedings and costs and expenses (including attorneys' fees and disbursements), which accrue to or are made against or are incurred by GE CAPITAL at any time (whether prior to or on or after transfer of the Property pursuant to foreclosure or by deed in lieu thereof), and which arise directly or indirectly from or out of, or are in any way connected with (a) the inaccuracy of the certifications, representations or warranties contained herein, (b) any activities on the Property during Borrower's ownership, possession or control of the Property which directly or indirectly result in the Property or any Other Property becoming contaminated with Hazardous Substances, (c) any clean up or removal of Hazardous Substances from the Property or any Other Property, or (d) any violation of any of the Applicable Laws with respect to the Property. Borrower acknowledges that except as provided in the following sentence, Borrower will be solely responsible for all costs and expenses relating to the clean up of Hazardous Substances from the Property or from any Other Property as between Borrower and GE CAPITAL, and that the indemnity in this Paragraph 6 shall cover all such costs and expenses. ----------- Notwithstanding the foregoing, Borrower shall not be responsible for costs or expenses relating to the clean up of Hazardous Substances from the Property or from any Other Property to the extent such Hazardous Substances are first placed on the Property after GE CAPITAL acquires title to the Property pursuant to a foreclosure of the Deed of Trust (as such term is defined below) or pursuant to a deed given by Borrower (and accepted by GE CAPITAL) in lieu of foreclosure. G. Borrower's obligations under this Agreement are unconditional and irrevocable and shall not be limited by any nonrecourse or other limitations of liability provided for in any other document relating to the Loan ("Loan Documents"). The representations, warranties and covenants of Borrower set forth in this Agreement (including without limitation the indemnity provided for in Paragraph 6 above) (a) are separate and distinct obligations ----------- from and in addition to Borrower's obligations under the Loan Documents, (b) are not secured by the Deed of Trust (the "Deed of Trust") or other security documents securing the Loan and shall not be discharged or satisfied by foreclosure of the liens created by the Deed of Trust or other security documents and (c) shall continue in effect after any transfer of the Property, including without limitation transfers pursuant to foreclosure proceedings (whether judicial or nonjudicial), or by deed in lieu of foreclosure. H. As used in this Agreement, "Hazardous Substances" shall mean the following: asbestos, polychlorinated biphenyls and petroleum products and any chemical, substance or material defined, classified or designated as hazardous, toxic or radioactive, or any other similar term, by any of the Applicable Laws. It is the intent of Borrower that the term "Hazardous Substances" be construed in the broadest sense possible under this Agreement. As 2 used in this Agreement, "Other Property" means any property which becomes contaminated with Hazardous Substances as a result of construction, operations or other activities on, or the contamination of, the Property. The term "Applicable Laws" as used in this Agreement shall include, without limitation, (a) The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by The Superfund Amendments and Reauthorization Act, (b) The Resource Conservation and Recovery Act, as amended by The Hazardous and Solid Waste Amendments of 1985, (c) any local, state or federal laws, rules, regulations or ordinances (whether in existence on the date of this Agreement or executed or promulgated after the date hereof) concerning the management, control, discharge, treatment, containment, removal or remediation of substances or materials that are or may become a threat to public health or the environment, or (d) any common law theory involving materials or substances which are (or are alleged to be) hazardous to human health or the environment. I. Borrower acknowledges and agrees that neither this Agreement nor any of the Loan Documents shall put GE CAPITAL in the position of an owner of the Property prior to any acquisition of the Property by GE CAPITAL. The rights granted GE CAPITAL herein and in the Loan Documents are granted solely for the protection of GE CAPITAL's liens and security interests covering the Property, and do not grant to GE CAPITAL the right to control Borrower's actions, decisions or policies regarding Hazardous Substances. J. This Agreement shall be binding upon its heirs, representatives, successors and assigns. This Agreement shall inure to the benefit of GE CAPITAL, any subsequent holder, in whole or in part, of the documents evidencing and/or securing the Loan, any assignees or participants of GE CAPITAL, and any person or entity who acquires the Property in connection with a foreclosure of the Deed of Trust or pursuant to a deed given in lieu of foreclosure. This Agreement shall be governed under the laws of the State of California. In any suit, action or appeal therefrom to enforce or interpret this Agreement, the prevailing party shall be entitled to recover its costs incurred therein including attorneys' fees and disbursements at trial and on appeal. K. If Borrower includes more than one person or entity, each shall be jointly and severally liable hereunder. [SIGNATURE PAGE FOLLOWS] 3 IN WITNESS WHEREOF, Borrower has executed this Instrument or has caused the same to be executed by its representatives thereunto duly authorized. BORROWER: TERADYNE, INC., a Massachusetts corporation By: /s/ Stuart M. Osattin -------------------------------------- Print: Stuart M. Osattin ----------------------------------- Its: Vice President and Treasurer ------------------------------------- 4 EXHIBIT A --------- LEGAL DESCRIPTION See Attached Schedule 5 Schedule Pursuant to Instruction 2 to Rule 601 of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934 Teradyne, Inc. entered into five of the foregoing Certificate and Indemnity Agreement Regarding Hazardous Substances agreements. The agreements are substantially identical but for the Exhibits A attached thereto. Such Exhibits A are attached to and follow this schedule. EXHIBIT "A" ----------- Legal Description THE LAND REFERRED TO IN THIS COMMITMENT IS IN THE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES, AND IS DESCRIBED AS FOLLOWS: LOT 3, OF TRACT NO. 43597, IN THE CITY OF AGOURA HILLS, AS PER MAP RECORDED IN BOOK 1078 PAGES 72 TO 80 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT FROM A PORTION THEREOF AN UNDIVIDED ONE-HALF OF ALL OIL, GAS, PETROLEUM AND OTHER MINERAL OR HYDROCARBON SUBSTANCES IN AND TO THAT PORTION OF SAID LAND LYING BELOW THE DEPTH OF 500 FEET FROM THE SURFACE, WITHOUT THE RIGHT OF SURFACE ENTRY, AS RESERVED IN THE DEED FROM MAX H. GOLDSMITH AND SHIRLEY H. GOLDSMITH, HUSBAND AND WIFE AS JOINT TENANTS, IN DEED RECORDED AS INSTRUMENT NO. 1450 ON DECEMBER 29, 1960 IN BOOK D1076 PAGE 565 OF OFFICIAL RECORDS. ALSO EXCEPTING TO THE COUNTY OF LOS ANGELES ALL OIL, GAS HYDROCARBONS, OR OTHER MINERALS IN AND UNDER THE ABOVE DESCRIBED PARCEL OF LAND WITHOUT THE RIGHT OF SURFACE ENTRY FOR DEVELOPMENT THEREOF. EXHIBIT "A" ----------- Legal Description THE LAND REFERRED TO IN THIS COMMITMENT IS IN THE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES, AND IS DESCRIBED AS FOLLOWS: LOT 2, OF TRACT NO. 43597, IN THE CITY OF AGOURA HILLS, AS PER MAP RECORDED IN BOOK 1078 PAGES 72 TO 80 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT FROM A PORTION THEREOF AN UNDIVIDED ONE-HALF OF ALL OIL, GAS, PETROLEUM AND OTHER MINERAL OR HYDROCARBON SUBSTANCES IN AND TO THAT PORTION OF SAID LAND LYING BELOW THE DEPTH OF 500 FEET FROM THE SURFACE, WITHOUT THE RIGHT OF SURFACE ENTRY, AS RESERVED IN THE DEED FROM MAX H. GOLDSMITH AND SHIRLEY H. GOLDSMITH, HUSBAND AND WIFE AS JOINT TENANTS, IN DEED RECORDED AS INSTRUMENT NO. 1450 ON DECEMBER 29,1960 IN BOOK D1076 PAGE 565 OF OFFICIAL RECORDS. ALSO EXCEPTING TO THE COUNTY OF LOS ANGELES ALL OIL, GAS, HYDROCARBONS, OR OTHER MINERALS IN AND UNDER THE ABOVE DESCRIBED PARCEL OF LAND WITHOUT THE RIGHT OF SURFACE ENTRY FOR DEVELOPMENT THEREOF. EXHIBIT "A" ----------- Legal Description THE LAND REFERRED TO IN THIS COMMITMENT IS IN THE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES, AND IS DESCRIBED AS FOLLOWS: LOT 1 OF TRACT 43597, IN THE CITY OF AGOURA HILLS, AS PER MAP RECORDED IN BOOK 1078 PAGE 72 TO 80 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT FROM A PORTION THEREOF AN UNDIVIDED ONE-HALF OF ALL OIL, GAS, PETROLEUM AND OTHER MINERAL OR HYDROCARBON SUBSTANCES IN AND TO THAT PORTION OF SAID LAND LYING BELOW THE DEPTH OF 500 FEET FROM THE SURFACE, WITHOUT THE RIGHT OF SURFACE ENTRY, AS RESERVED IN THE DEED FROM MAX H. GOLDSMITH AND SHIRLEY H. GOLDSMITH, HUSBAND AND WIFE AS JOINT TENANTS, IN DEED RECORDED AS INSTRUMENT NO. 1450 ON DECEMBER 29,1960 IN BOOK D1076 PAGE 565 OF OFFICIAL RECORDS. ALSO EXCEPT TO THE COUNTY OF LOS ANGELES ALL OIL, GAS, HYDROCARBONS, OR OTHER MINERALS IN AND UNDER THE ABOVE DESCRIBED PARCEL OF LAND WITHOUT THE RIGHT OF SURFACE ENTRY FOR DEVELOPMENT THEREOF. EXHIBIT "A" ----------- Legal Description REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: LOT 2, so designated and delineated on the Map of Tract No. 7422 recorded April 25, 1983 in Book 511 of Maps, pages 20, 21, 22 and 23, Santa Clara County Records. TOGETHER WITH an appurtenant easement for the purposes of mutual ingress and egress, as granted by Cad N. Swenson, Co., Inc. and CA. Swenson, Inc. to Fox Lane Investment Company recorded June 1, 1983 in Book H597, page 745, Official Records. TOGETHER WITH mutual access easement established by Map of Tract No. 7422 recorded April 25, 1983 in Book 511 of Maps, pages 20, 21, 22 and 23, Santa Clara County Records. EXHIBIT "A" ----------- Legal Description REAL PROPERTY in the City of San Jose, County of Santa Clara, State of California, described as follows: LOT 1, so designated and delineated on the Map of Tract No. 7422 recorded April 25, 1983 in Book 511 of Maps, pages 20, 21, 22 and 23, Santa Clara County Records. TOGETHER WITH an appurtenant easement for the purposes of mutual ingress and egress, as granted by Cad N. Swenson, Co., Inc. and CA. Swenson, Inc. to Fox Lane Investment Company recorded June 1, 1983 in Book H597, page 745, Official Records. TOGETHER WITH mutual access easement established by Map of Tract No. 7422 recorded April 25, 1983 in Book 511 of Maps, pages 20, 21, 22 and 23, Santa Clara County Records. EX-12.1 18 dex121.txt COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12.1 RATIO OF EARNINGS TO FIXED CHARGES The following summary represents our computation of the ratio of earnings to fixed charges (unaudited) for the respective periods:
Year Ended December 31, ---------------------------- 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- Ratio of earnings to fixed charges(A) 20.1 27.6 20.5 35.6 83.7 (B)
- -------- (A) The ratio of earnings to fixed charges is calculated by dividing (a) earnings before income taxes and cumulative effect of change in accounting principle adjusted for fixed charges by (b) fixed charges. Fixed charges include interest expense under operating leases Teradyne deems a reasonable approximation of the interest factor. (B) Due to Teradyne's loss for the year ended December 31, 2001, the ratio coverage was less than 1:1. Income before income taxes and cumulative effect of change in accounting principle was insufficient to cover fixed charges by $326.2 million. EX-21.1 19 dex211.txt LIST OF SUBSIDIARIES EXHIBIT 21.1 SUBSIDIARIES PRESENT SUBSIDIARIES
State or Jurisdiction Percentage of Voting Entity Name Incorporation Securities Owned ----------- ------------------------- -------------------- Teradyne Assembly Holdings Ltd..................... United Kingdom 100% Teradyne Assembly Limited.......................... United Kingdom 100% Teradyne ATE (Wuxi) Co., Ltd....................... Peoples Republic of China 100% Teradyne Benelux, Inc. (Ltd.)...................... Delaware 100% Teradyne Canada Limited............................ Canada 100% Teradyne Connection Systems de Mexico, S.A. de C.V. Mexico 100% Teradyne Connection Systems SDN BHD................ Malaysia 100% Teradyne de Costa Rica S.A......................... Costa Rica 100% Teradyne EMS Inc................................... Delaware 100% Teradyne GmbH...................................... Germany 100% Teradyne Holdings Limited.......................... United Kingdom 100% Teradyne Limited................................ United Kingdom 100% Teradyne Hong Kong, Ltd............................ Delaware 100% Teradyne International, Ltd........................ Barbados 100% Teradyne Ireland Limited........................... Ireland 100% Teradyne Italia S.r.L.............................. Italy 100% Teradyne Japan, Ltd................................ Delaware 100% Teradyne K.K.................................... Japan 100% Teradyne Korea, Ltd................................ Delaware 100% Teradyne Leasing, Inc.............................. Massachusetts 100% Teradyne Malaysia, Ltd............................. Delaware 100% Teradyne de Mexico, S.A. de C.V.................... Mexico 100% Teradyne Netherlands B.V........................... Netherlands 100% Teradyne Netherlands, Ltd.......................... Delaware 100% Teradyne Performance Systems Limited............... United Kingdom 100% Teradyne Philippines Limited....................... Delaware 100% Teradyne Realty, Inc............................... Massachusetts 100% Teradyne S.A.S..................................... France 100% Teradyne Scandinavia, Inc.......................... Delaware 100% Teradyne Singapore, Ltd............................ Delaware 100% Teradyne Software and Systems Test, Inc............ Delaware 100% Teradyne Spain, Inc................................ Delaware 100% Teradyne Taiwan, Ltd............................... Delaware 100% Teradyne Thailand Inc.............................. Delaware 100% Alternative Delivery Systems Support, Inc.......... North Carolina 100% Control Automation, Inc............................ Delaware 100% GenRad, Inc........................................ Massachusetts 100% Autodiagnos, Inc................................ Delaware 100% Autodiagnos AB.................................. Sweden 100% Autodiagnos BV.................................. Netherlands 100% Autodiagnos GmbH................................ Germany 100%
State or Jurisdiction Percentage of Voting Entity Name Incorporation Securities Owned ----------- ------------------------- -------------------- Autodiagnos LTD........... United Kingdom 100% GenRad AB................. Sweden 100% GenRad GmbH............... Germany 100% GenRad Limited............ United Kingdom 100% GenRad SA................. France 100% GenRad Asia PTE Limited... Singapore 100% GenRad Benelux B.V........ Netherlands 100% GenRad Canada Limited..... Canada 100% GenRad China Limited...... Peoples Republic of China 100% GenRad Europe Limited..... United Kingdom 100% GenRad Holdings Limited... United Kingdom 100% GenRad Ireland LTD........ Ireland 100% GenRad Mexico, Inc........ Delaware 100% Mastertech Automotive Ltd. United Kingdom 100% Mitron Europe Limited..... United Kingdom 100% Herco Technology Corp........ California 100% Kinetrix, Inc................ Delaware 100% Megatest H.K. Ltd............ Hong Kong 100% Teradyne Philippines Ltd..... California 100% Perception Laminates, Inc.... California 100% Softbridge, Inc.............. Delaware 100% Zehntel Holdings, Inc........ California 100% 1000 Washington, Inc......... Massachusetts 100%
2 EX-23.1 20 dex231.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-32547; 333-26045; 33-16077; 33-42352; 33-55123; 33-64683; 333-07177; 333-56373; 333-68074; and 333-73700) and Form S-3 (Nos. 333-75632 and 333-47564) of Teradyne, Inc. of our report dated January 15, 2002 relating to the financial statements and financial statement schedule, which appears in this Form 10-K. PricewaterhouseCoopers LLP Boston, Massachusetts March 27, 2002 -----END PRIVACY-ENHANCED MESSAGE-----