-----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, EnveIMwHubaFgApekRx3SLxmJLOobEs4+kVIu8LbS8WhNDtCfltCvJNY3eAmBkW6 BpjCODZ8XTl/kGKbLikuXg== 0000950135-98-001990.txt : 19980331 0000950135-98-001990.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950135-98-001990 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NYSE 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-K SEC ACT: SEC FILE NUMBER: 001-06462 FILM NUMBER: 98577944 BUSINESS ADDRESS: STREET 1: 321 HARRISON AVE 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-K 1 TERADYNE, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 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:
Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, par value $0.125 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. [ ] The aggregate market value of the voting stock held by nonaffiliates of the registrant as of February 20, 1998 was $3.7 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 20, 1998 was 83,968,395 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's proxy statement in connection with its 1998 annual meeting of shareholders are incorporated by reference into Part III. 2 TERADYNE, INC. FORM 10-K PART I ITEM 1: BUSINESS Teradyne, Inc. is a manufacturer of electronic test systems and backplane connection systems used in the electronics and telecommunications industries. For financial information concerning these two industry segments, see "Note N: Industry Segment and Geographic Information" in Notes to Consolidated Financial Statements. Unless the context indicates otherwise, the term "Company" as used herein includes Teradyne, Inc. and all its subsidiaries. Statements in this Annual Report on Form 10-K which are not historical facts, so called "forward looking statements," are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward looking statements involve risks and uncertainties, including those detailed in the Company's filings with the Securities and Exchange Commission. See also "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations -- Certain Factors That May Affect Future Results." ELECTRONIC TEST SYSTEMS The Company designs, manufactures, markets, and services electronic test systems and related software used by component manufacturers in the design and testing of their products and by electronic equipment manufacturers for the design and testing of circuit boards and other assemblies. Manufacturers use such systems and software to increase product performance, to improve product quality, to shorten time to market, to enhance manufacturability, to conserve labor costs, and to increase production yields. The Company's electronic systems are also used by telephone operating companies for the testing and maintenance of their subscriber telephone lines and related equipment. Electronic test systems produced by the Company include: (i) test systems for a wide variety of semiconductors, including logic, memory, and mixed signal integrated circuits ("semiconductor test systems"), (ii) test systems for circuit boards and other assemblies ("circuit-board test systems"), (iii) test systems for telephone lines and networks ("telecommunications test systems"), and (iv) software test programs for communications networks, computerized telecommunications systems, and other software products ("software test"). Semiconductor test systems accounted for 67% of consolidated net sales in 1997, 64% in 1996, and 69% in 1995. Circuit-board test systems accounted for 9% of consolidated net sales in 1997, 13% in 1996, and 11% in 1995. Telecommunications test systems accounted for 5% of consolidated net sales in 1997 and 7% in 1996 and 1995. Software test accounted for 2% of consolidated net sales in 1997 and 1% in 1996. The Company's systems are extremely complex and require extensive support both by the customer and by the Company. Prices for the Company's systems can reach $5 million or more. BACKPLANE CONNECTION SYSTEMS The Company also manufactures backplane connection systems, principally for the computer, communications, and military/aerospace industries. A backplane is an assembly into which printed circuit boards are inserted that provides for the interconnection of electrical signals between the circuit boards and the other elements of the system. The Company produces both printed circuit and metal backplanes, along with mating circuit-board connectors. Backplane connection systems accounted for 17% of consolidated net sales in 1997, 15% in 1996, and 13% in 1995. 1 3 MARKETING AND SALES MARKETS The Company sells its products across most sectors of the electronics industry and to companies in other industries that use electronic devices in high volume. No single customer accounted for 10% or more of consolidated net sales in 1997. In 1997, the Company's three largest customers accounted for 26% of consolidated net sales. Direct sales to United States government agencies accounted for less than 2% of consolidated net sales in 1997, 1996, and 1995. Sales are also made within each of the Company's segments to customers who are government contractors. Approximately 11% of backplane connection systems sales and less than 2% of electronic test systems sales fell into this category during 1997. The Company's customers outside the United States are located primarily in Europe, the Asia Pacific region, and Japan. The Company sells in these areas both directly and through non U.S. sales subsidiaries. Substantially all of the Company's manufacturing activities are conducted in the United States. Sales to customers outside the United States accounted for 51% of consolidated net sales in 1997, 54% in 1996, and 52% in 1995. Sales of products and services from locations outside the United States accounted for less than 10% of consolidated net sales in all periods presented. Identifiable assets of the Company's non U.S. locations, consisting principally of operating assets used in support of domestic export sales, were approximately $129.4 million at December 31, 1997, $130.3 million at December 31, 1996, and $125.2 million at December 31, 1995. Of these identifiable assets at December 31, 1997, $69.2 million were in Europe, $50.1 million were in Japan, and $10.1 million were in the Asia Pacific region. The Company is subject to the inherent risks involved in international trade, such as political and economic instability, restrictive trade policies, controls on funds transfer, currency fluctuations, difficulties in managing distributors, potentially adverse tax consequences, and the possibility of difficulty in accounts receivable collection. The Company attempts to reduce the effects of currency fluctuations by hedging part of its exposed position and by conducting some of its international transactions in U.S. dollars or dollar equivalents. DISTRIBUTION The Company sells its products primarily through a direct sales force. The Company has sales and service offices throughout North America, Europe, the Asia Pacific region, and Japan. COMPETITION The Company faces substantial competition throughout the world, primarily from electronic test systems manufacturers located in the United States, Europe, and Japan, as well as internal suppliers at several of the Company's customers. Some of these competitors have substantially greater financial and other resources with which to pursue engineering, manufacturing, marketing, and distribution of their products. New product introductions by the Company's competitors could cause a decline in sales or loss of market acceptance of existing products. BACKLOG On December 31, 1997, the Company's backlog of unfilled orders for electronic test systems and backplane connection systems was approximately $772.5 million and $90.0 million, respectively, compared with $433.9 million and $82.5 million, respectively, on December 31, 1996. Of the backlog at December 31, 1997, approximately 88% of the electronic test systems backlog, and approximately 86% of the backplane connection systems backlog are expected to be delivered in 1998. The electronic test systems backlog at December 31, 1997 includes $20.3 million of United States government orders for M900 VXI Digital Test subsystems for the U.S. Navy's Consolidated Automated Support System (CASS) which are unfunded. The unfunded orders are for shipments scheduled to be delivered in 1999. The Company's past experience 2 4 indicates that a portion of orders included in the backlog may be canceled. There are no seasonal factors related to the backlog. RAW MATERIALS The Company's products require a wide variety of electronic and mechanical components. The Company can experience occasional delays in obtaining timely delivery of certain items. Additionally, the Company could experience a temporary adverse impact if any of its sole source suppliers ceased to deliver products. Any prolonged inability of the Company to obtain adequate yields or deliveries, or any other circumstances that would require the Company to seek alternative sources of supply could have a material adverse effect on the Company's business, financial condition, and results of operations. PATENTS AND LICENSES The development of products by the Company, both hardware and software, is largely based on proprietary information. The Company protects its rights in proprietary information through various methods such as copyrights, trademarks, patents and patent applications, software license agreements, and employee agreements. The Company relies on certain intellectual property protections to preserve its intellectual property rights. Any invalidation of the Company's intellectual property rights could have a material adverse effect on the Company's business. EMPLOYEES As of December 31, 1997, the Company employed approximately 6,300 people. Since the inception of the Company's business, there have been no work stoppages or other labor disturbances. The Company has no collective bargaining contracts. ENGINEERING AND DEVELOPMENT ACTIVITIES The highly technical nature of the Company's products requires a large and continuing engineering and development effort. Engineering and development expenditures for new and improved products were approximately $162.5 million in 1997, $143.9 million in 1996, and $123.5 million in 1995. These expenditures amounted to approximately 13% of consolidated net sales in 1997, 12% in 1996, and 10% in 1995. ENVIRONMENTAL AFFAIRS The Company's manufacturing facilities are subject to numerous laws and regulations designed to protect the environment, particularly from manufacturing plant wastes and emissions. These include laws such as the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Superfund Amendment and Reauthorization Act of 1986, the Occupational Safety and Health Act, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act of 1976, and the Hazardous and Solid Waste Amendments of 1984. In the opinion of management, the costs associated with complying with these laws and regulations have not had and are currently not expected to have a material adverse effect upon the financial position of the Company. 3 5 EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth the names of all executive officers of the Company and certain other information relating to their positions held with the Company and other business experience. Executive officers of the Company do not have a specific term of office but rather serve at the discretion of the Board of Directors.
BUSINESS EXPERIENCE FOR THE EXECUTIVE OFFICER AGE POSITION PAST 5 YEARS ----------------- --- -------- --------------------------- Alexander V. d'Arbeloff... 70 Chairman of the Board Chairman of the Board of the Company since 1977; Chief Executive Officer from 1996 to 1997; President of the Company from 1971 to 1996; Director of the Company since 1960. George W. Chamillard...... 59 President, Chief Executive President and Chief Executive Officer, and Member of the Officer beginning in 1997; Board Director of the Company since 1996; President and Chief Operating Officer from 1996 to 1997; Executive Vice President of the Company from 1994 to 1996; Vice President of the Company from 1981 to 1993. Jeffrey R. Hotchkiss...... 50 Vice President and Chief Chief Financial Officer Financial Officer beginning in 1997; Vice President of the Company since 1990. Michael A. Bradley........ 49 Vice President Vice President of the Company since 1992. John M. Casey............. 49 Vice President Vice President of the Company since 1990. Ronald J. Dias............ 54 Vice President Vice President of the Company since 1988. Donald J. Hamman.......... 46 Controller Controller of the Company since 1994; Director of Corporate Accounting from 1986 to 1994. John P. McCabe............ 53 Vice President Vice President of the Company since 1994; Controller of the Company from 1975 to 1994. Stuart M. Osattin......... 52 Vice President and Treasurer Vice President of the Company since 1994; Treasurer of the Company since 1980. Edward Rogas, Jr.......... 57 Vice President Vice President of the Company since 1984. David L. Sulman........... 54 Vice President Vice President of the Company since 1994; Division General Manager since 1993. Jack A. VanWoerkom........ 44 Vice President and General Vice President and General Counsel Counsel of the Company beginning in 1998; Chief Legal Counsel and Vice President Development of a privately owned company from 1994 to 1997; Vice Chairman and General Counsel of a real estate investment firm from 1985 to 1993.
4 6 ITEM 2: PROPERTIES The Company's executive offices are in Boston, Massachusetts. Manufacturing and other operations are carried on in several locations. The following table provides certain information as to the Company's principal general offices and manufacturing facilities.
APPROXIMATE PROPERTY SQUARE FEET OF LOCATION INTEREST FLOOR SPACE -------- -------- -------------- ELECTRONIC TEST SYSTEMS INDUSTRY SEGMENT: Boston, Massachusetts.................................. Own 492,000 Boston, Massachusetts.................................. Lease 67,000 Agoura Hills, California............................... Own 572,000 Deerfield, Illinois.................................... Own 63,000 Walnut Creek, California............................... Lease 69,000 Kumamoto, Japan........................................ Own 28,000 San Jose, California................................... Own 120,000 BACKPLANE CONNECTION SYSTEMS INDUSTRY SEGMENT: Nashua, New Hampshire.................................. Own 430,000 Plano, Texas........................................... Lease 18,000 Dublin, Ireland........................................ Lease 46,000
Included in the Agoura Hills property above is 212,000 square feet that the Company is preparing for occupancy. In addition, 273,000 square feet of floor space is under construction in North Reading, Massachusetts. The Company expects to occupy the Agora Hills facility in 1998 and the North Reading facility in 1999. ITEM 3: LEGAL PROCEEDINGS The Company is not a party to any litigation that, in the opinion of management, could reasonably be expected to have a material adverse impact on the Company's financial position. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 5 7 PART II ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The following table shows the market range for the Company's Common Stock based on reported sales prices on the New York Stock Exchange.
PERIOD HIGH LOW ------ ---- --- 1997 First Quarter........................................ $32 7/8 $23 5/8 Second Quarter....................................... 44 3/4 27 Third Quarter........................................ 58 1/2 40 1/8 Fourth Quarter....................................... 59 3/16 27 1/4 1996 First Quarter........................................ $27 7/8 $16 3/8 Second Quarter....................................... 22 1/2 16 Third Quarter........................................ 18 1/2 11 1/8 Fourth Quarter....................................... 26 1/4 15 1/2
The number of record holders of the Company's Common Stock at February 20, 1998 was 3,118. The Company has never paid cash dividends because it has been its policy to use earnings to finance expansion and growth. Payment of future cash dividends will rest within the discretion of the Board of Directors and will depend, among other things, upon the Company's earnings, capital requirements, and financial condition. The Company presently expects to retain all of its earnings for use in the business. ITEM 6: SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31, ---------------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales........................... $1,266,274 $1,171,615 $1,191,022 777,731 $633,139 ========== ========== ========== ======== ======== Income from continuing operations... $ 127,608 $ 93,574 $ 159,284 76,390 $ 41,202 ========== ========== ========== ======== ======== Income from continuing operations per common share -- basic......... $ 1.53 $ 1.12 $ 1.95 0.98 $ 0.56 ========== ========== ========== ======== ======== Income from continuing operations per common share -- diluted....... $ 1.48 $ 1.10 $ 1.89 0.95 $ 0.54 ========== ========== ========== ======== ======== Total assets........................ $1,251,674 $1,096,816 $1,023,831 759,480 $621,607 ========== ========== ========== ======== ======== Long-term obligations............... $ 13,141 $ 15,650 $ 18,679 9,111 $ 9,942 ========== ========== ========== ======== ========
6 8 ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SELECTED RELATIONSHIPS WITHIN THE CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, ------------------------------------ 1997 1996 1995 ---- ---- ---- (DOLLARS IN THOUSANDS) Net sales................................................ $1,266,274 $1,171,615 $1,191,022 ========== ========== ========== Net income............................................... $ 127,608 $ 93,574 $ 159,284 ========== ========== ========== Increase (decrease) in net sales from preceding year: Amount.............................................. $ 94,659 (19,407) $ 413,291 ========== ========== ========== Percentage.......................................... 8% (2)% 53% ========== ========== ========== Increase (decrease) in net income from preceding year.... $ 34,034 $ (65,710) $ 82,894 ========== ========== ========== Percentage of net sales: Net sales........................................... 100% 100% 100% Expenses: Cost of sales....................................... 58 62 54 Engineering and development......................... 13 12 10 Selling and administrative.......................... 15 15 15 ---------- ---------- ---------- 86 89 79 Other income (expense): Merger expenses..................................... (1) Net interest income................................. 1 1 1 ---------- ---------- ---------- Income before income taxes.......................... 15 12 21 Provision for income taxes.......................... 5 4 8 ---------- ---------- ---------- Net income............................................... 10% 8% 13% ========== ========== ==========
RESULTS OF OPERATIONS: 1997 compared to 1996 In 1997, sales increased 8% to a record level of $1,266.3 million from $1,171.6 million in 1996. The year to year increase in sales was primarily due to a 12% increase in shipments of semiconductor test systems. Semiconductor test systems sales increased due to an increase in orders from semiconductor device manufacturers for capacity expansion following reduced demand in 1996. Sales of backplane connection systems grew 23% as a result of growth in demand from networking, data storage and other high technology customers. Sales of software test systems, while 2% of total sales, were up 180% over 1996 and included the results of two new acquisitions in 1997 -- Softbridge, Inc. and RSW, Inc. Offsetting these increases, sales of telecommunications test systems and circuit board test systems decreased 18% and 23%, respectively, in 1997. Net income increased from $93.6 million in 1996 to $127.6 million in 1997. Excluding the effect of pre-tax nonrecurring charges of $5.0 million ($3.2 million after taxes) in 1997 and $48.9 million ($32.0 million after taxes) in 1996, comparative net income increased $5.2 million from $125.6 million in 1996 to $130.8 million. Incoming orders increased 54%, from $1,045.1 million in 1996 to $1,612.4 million in 1997. The increase in incoming orders was led by a 78% increase in semiconductor test systems orders including significant orders for several new products introduced by the Company in the fourth quarter of 1996. As a result of the increase in orders, the Company's backlog grew 67% in 1997, finishing the year at $862.5 million. Cost of sales, as a percentage of sales, decreased from 62% in 1996 to 58% in 1997. Cost of sales in 1996 included a $34.1 million nonrecurring charge in connection with the consolidation of the VLSI product lines of Megatest and Teradyne. Excluding the product line consolidation charge, cost of sales, as a percentage of 1996 sales, was 59%. The remaining decrease in cost of sales percentage was the result of increased utilization of the fixed and semi-variable components of the Company's overhead structure. 7 9 Engineering and development expenses increased from 12% of sales in 1996 to 13% of sales in 1997, an increase of $18.6 million. The expense increases were primarily due to increased investment in new product development of semiconductor and software test systems. Selling and administrative expenses were 15% of sales in both 1996 and 1997. Expenses in 1996 included a one time charge of $10.8 million for salary continuation and enhanced medical and pension benefits associated with an early retirement program and other workforce reductions. Excluding this non-recurring charge selling and administration increased from 14% of sales in 1996 to 15% in 1997. The increase was primarily related to the introduction and marketing of new semiconductor test system products. The Company's effective tax rate was 34% in 1997 compared with 33% in 1996. The Company utilized export sales corporation benefits and certain research and development tax credits in 1997 and 1996 to operate below the U. S. statutory rate of 35%. 1996 compared to 1995 In 1996, sales declined 2% to $1,171. 6 million from $1,191.0 million reached after 53% sales growth in 1995. The decrease was primarily in the semiconductor test systems product lines, which fell 8% as a result of a reduction in orders from semiconductor device manufacturers. Sales of telecommunications test systems also declined by 4% with the completion of the line-test equipment installation at Deutsche Telekom in Germany. Sales increased in the other two major product lines of the Company: circuit-board test systems grew by 19% driven by fulfilling government contracts and increased sales to commercial customers; and backplane connection systems grew by 15% with strong demand from the high technology commercial customer base. Net income decreased from $159.3 million in 1995 to $93.6 million in 1996. Excluding the effect of pre-tax nonrecurring charges of $48.9 million ($32.0 million after taxes) in 1996 and $5.6 million ($5.6 million after taxes) in 1995, comparative net income decreased by $39.3 million from $164.9 million to $125.6 million. Incoming orders decreased 27%, from $1,432.1 million in 1995 to $1,045.1 million in 1996. The most significant decline was in semiconductor test systems orders which fell 37%. Circuit-board test systems orders, excluding the effect of $98.0 million in multi-year government contracts received in 1995, were down 8% while backplane connection systems and telecommunications systems increased 49% and 21%, respectively. As a result of the overall decrease in orders, the Company's backlog fell in 1996, finishing the year at $516.4 million (as adjusted for $16.4 million in cancellations). Cost of sales, as a percentage of sales, increased from 54% in 1995 to 62% in 1996. The 1996 cost of sales included $34.1 million in one time charges resulting from the Company's decision to accelerate the consolidation of the VLSI product lines of Megatest and Teradyne. Excluding the product line consolidation charge, cost of sales, as a percentage of 1996 sales, was 59%. The remaining increase in cost of sales percentage was the result of the relationship of fixed manufacturing costs and the costs associated with new product introductions to the lower level of sales. In addition, there was an unfavorable change in mix as a greater percentage of total Company sales was backplane connection systems and circuit-board test systems, whose product margins are generally lower than semiconductor test systems. Engineering and development expenses, as a percentage of sales, increased 2% from 10% in 1995 to 12% in 1996. These expenses grew $20.4 million in 1996 primarily as a result of increased investment in new product development of semiconductor test systems. During 1996, the Company announced major new products in each of the three semiconductor markets in which it participates. Selling and administrative expenses were 15% of sales in 1996 and 1995. In 1996, the Company provided $10.8 million for salary continuation payments and enhanced pension and medical benefits associated with an early retirement program and other workforce reductions. Excluding this provision selling and administrative expenses were 14% of sales in 1996. Interest income increased 36% in 1996 to $19.3 million due to an increase in the Company's average invested balances and higher interest rates. Interest expense decreased from $3.0 million in 1995 to $2.4 million in 1996 as an outstanding capital equipment note was paid. The Company's effective tax rate was 33% in 1996 compared with 36% in 1995. The Company utilized export sales corporation benefits and certain research and development tax credits in 1996 to operate below the 8 10 U. S. statutory rate of 35%. In 1995, the effective rate was above the U. S. statutory rate as certain merger expenses were nondeductible for income tax purposes. LIQUIDITY AND CAPITAL RESOURCES The Company's cash, cash equivalents and marketable securities balance decreased $181.6 million in 1997, to $249.9 million. Cash generated from operations decreased to $13.5 million in 1997 from $250.8 million in 1996, principally due to increases in accounts receivable and inventory. Accounts receivable increased $122.5 million in 1997 primarily as a result of a $150.4 million increase in sales in the fourth quarter of 1997 compared to the fourth quarter of 1996. Inventories increased $133.4 million in 1997 in order to support the Company's backlog commitment, which increased $346.1 million in 1997. Backlog at the end of 1997 includes a substantial number of the Company's new products, which require longer manufacturing and test cycle times during production ramp up. Cash was used to fund additions to property, plant and equipment of $132.1 million in 1997 and $75.2 million in 1996. Property, plant and equipment expenditures relate primarily to the expansion of production capacity. In 1996, the Company's Board of Directors authorized the repurchase of 5.0 million shares of the Company's stock on the open market. The Company purchased 2.6 million shares for $104.5 million in 1997 and 1.4 million shares for $29.8 million in 1996 under the buyback program. Cash of $44.1 million in 1997 and $13.5 million in 1996 was generated from the sale of stock to employees under the Company's stock option and stock purchase plans. The Company believes its cash, cash equivalents, and marketable securities balance of $249.9 million, together with other sources of funds, including cash flow generated from operations and the available borrowing capacity of $120.0 million under its line of credit agreement, will be sufficient to meet working capital and capital expenditure requirements in 1998. Inflation has not had a significant long-term impact on earnings. If there were inflation, the Company's efforts to cover cost increases with price increases could be frustrated in the short-term by its relatively high backlog. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." Comprehensive income is the change in equity of an entity during a period from transactions and other events from non-owner sources, such as the cumulative effects from changes in accounting principles and changes in equity due to fluctuating currency and investments. This statement requires that changes in comprehensive income be shown in a financial statement that is displayed with the same prominence as other financial statements. The statement is effective for annual periods beginning after December 15, 1997 and the Company will adopt its provisions in fiscal 1998. Reclassification for earlier periods is required for comparative purposes. Management does not expect the statement to have a material impact on its financial position or results of operations. In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," which changes the manner in which public companies report information about their operating segments. SFAS No. 131, which is based on the management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report entity-wide disclosures about products and services, major customers, and the geographic locations in which the entity holds assets and reports revenue. Management is currently evaluating the effects of this change on its reporting of segment information. The Company will adopt SFAS No. 131 for its fiscal year ending December 31, 1998. In October 1997, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 97-2, "Software Revenue Recognition," which provides guidance on applying generally accepted accounting principles in recognizing revenue on software transactions and supercedes SOP 91-1, "Software Revenue Recognition." SOP 97-2 is effective for transactions entered into beginning in 1998. Management does not expect the statement to have a material impact on its financial position or results of operations. 9 11 CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS From time to time, information provided by the Company, statements made by its employees or information included in its filings with the Securities and Exchange Commission (including this Form 10-K and the Company's Annual Report to Shareholders) may contain statements which are not historical facts, so-called "forward looking statements," which involve risks and uncertainties. In particular, statements in "Item 1: Business" relating to the Company's delivery time of unfilled orders, and in "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations" relating to the sufficiency of capital to meet working capital and planned capital expenditure, may be forward looking statements. The Company's actual future results may differ significantly from those stated in any forward looking statements. Factors that may cause such differences include, but are not limited to, the factors discussed below. Each of these factors, and others, are discussed from time to time in the Company's filings with the Securities and Exchange Commission. The Company's future results are subject to substantial risks and uncertainties. The Company's business and results of operations depend in significant part upon capital expenditures of manufacturers of semiconductors, which in turn depend upon the current and anticipated market demand for semiconductors and products incorporating semiconductors. The semiconductor industry has been highly cyclical with recurring periods of over supply, which often have had a severe effect on the semiconductor industry's demand for test equipment, including systems manufactured and marketed by the Company. The Company believes that the markets for newer generations of semiconductors will also be subject to similar fluctuations. The most recent downturn, which occurred in 1996, contributed to a 37% decline in semiconductor test system orders. There can be no assurance that any future increase in semiconductor test systems bookings for a calendar quarter will be sustained in subsequent quarters. In addition, any factor adversely affecting the semiconductor industry or particular segments within the semiconductor industry may adversely affect the Company's business, financial condition and operating results. Also, the Company relies on certain intellectual property protections to preserve its intellectual property rights. From time to time the Company is notified that it may be in violation of patents held by others. Any invalidation of the Company's intellectual property rights or assertions of patent infringement against the Company which are ultimately successful, could have a material adverse effect on the Company. Lengthy and expensive defense of the Company's rights to technology used in its products could adversely affect the Company's operating results. The development of new technologies, commercialization of those technologies into product, and market acceptance and customer demand for those products is critical to the Company's success. Successful product development and introduction depends upon a number of factors, including new product selection, development of competitive products by competitors, timely and efficient completion of product design, timely and efficient implementation of manufacturing and assembly processes and product performance at customer locations. The Company faces substantial competition throughout the world, primarily from electronic test systems manufacturers located in the United States, Europe and Japan, as well as several of the Company's customers. Some of these competitors have substantially greater financial and other resources to pursue engineering, manufacturing, marketing and distribution of their products. Certain of the Company's competitors have introduced or announced new products with certain performance characteristics which may be considered equal or superior to those currently offered by the Company. The Company expects its competitors to continue to improve the performance of their current products and to introduce new products or new technologies that provide improved cost of ownership and performance characteristics. New product introductions by competitors could cause a decline in sales or loss of market acceptance of the Company's existing products. Moreover, increased competitive pressure could lead to intensified price based competition, which could materially adversely affect the Company's business, financial condition and results of operations. The Company derives a significant portion of its total revenue from customers outside the United States. International sales are subject to significant risks, including unexpected changes in legal and regulatory requirements and policy changes affecting the Company's markets, changes in tariffs, exchange rates and other barriers, political and economic instability, difficulties in accounts receivable collection, difficulties in 10 12 managing distributors and representatives, difficulties in staffing and managing international operations, difficulties in protecting the Company's intellectual property and potentially adverse tax consequences. In the recent past there has been significant economic instability in several countries in Asia. Continued economic instability would increase the likelihood of either a direct or indirect adverse impact on the Company's future results. The Company's quarterly and annual operating results are affected by a wide variety of factors that could materially adversely affect revenues and profitability, including: competitive pressures on selling prices; the timing and cancellation of customer orders; changes in product mix; the Company's ability to introduce new products and technologies on a timely basis; introduction of products and technologies by the Company's competitors; market acceptance of the Company's and its competitors' products; 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, the Company has introduced a significant number of new, complex test systems in 1996 and 1997, and there can be no assurance that the Company will not experience delays in shipment of such products or that such products will achieve customer acceptance. As a result of the foregoing and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis which could materially and adversely affect its business, financial condition, operating results and stock price. Many computer systems experience problems handling dates beyond the year 1999. Therefore, some computer hardware and software will need to be modified prior to the year 2000 in order to remain functional. The Company is assessing both the internal readiness of its computer systems and the compliance of its computer products and software sold to customers for handling the year 2000. The Company expects to implement successfully the systems and programming changes necessary to address year 2000 issues, and does not believe that the cost of such actions will have a material effect on the Company's results of operations or financial condition. There can be no assurance, however, that there will not be a delay in, or increased costs associated with, the implementation of such changes, and the Company's inability to implement such changes could have an adverse effect on future results of operations. 11 13 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS To the Directors and Shareholders of TERADYNE, INC.: We have audited the consolidated balance sheets of Teradyne, Inc. as of December 31, 1997 and 1996, and the related consolidated statements of income, cash flows, and changes in shareholders' equity for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Teradyne, Inc. as of December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Boston, Massachusetts January 16, 1998 12 14 TERADYNE, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 ASSETS
1997 1996 ---- ---- (IN THOUSANDS) Current assets: Cash and cash equivalents.............................. $ 74,668 $ 201,452 Marketable securities.................................. 18,693 48,266 Accounts receivable, less allowance for doubtful accounts of $1,938 in 1997 and $1,936 in 1996......... 300,933 178,430 Inventories: Parts............................................. 168,385 91,792 Assemblies in process............................. 103,972 47,162 ---------- ---------- 272,357 138,954 Deferred tax assets.................................... 40,530 32,340 Prepayments and other current assets................... 19,902 17,666 ---------- ---------- Total current assets.............................. 727,083 617,108 Property, plant, and equipment: Land................................................... 35,515 22,823 Buildings and improvements............................. 150,938 133,809 Machinery and equipment................................ 480,887 393,790 Construction in progress............................... 25,492 13,163 ---------- ---------- Total............................................. 692,832 563,585 Less: Accumulated depreciation......................... (349,707) (290,088) ---------- ---------- Net property, plant, and equipment................ 343,125 273,497 Marketable securities....................................... 156,574 181,776 Other assets................................................ 24,892 24,435 ---------- ---------- Total assets...................................... $1,251,674 $1,096,816 ========== ========== LIABILITIES Current liabilities: Notes payable -- banks................................. $ 6,632 $ 7,316 Current portion of long-term debt...................... 1,807 1,778 Accounts payable....................................... 58,685 34,482 Accrued employees' compensation and withholdings....... 77,299 58,696 Unearned service revenue and customer advances......... 49,122 62,771 Other accrued liabilities.............................. 65,642 53,537 Income taxes payable................................... 18,786 6,677 ---------- ---------- Total current liabilities......................... 277,973 225,257 Deferred tax liabilities.................................... 23,429 13,898 Long-term debt.............................................. 13,141 15,650 Commitments (Note F) ---------- ---------- Total liabilities................................. 314,543 254,805 ---------- ---------- SHAREHOLDERS' EQUITY Common stock: $0.125 par value, 250,000 shares authorized, 83,303 and 82,480 issued and outstanding in 1997 and 1996, respectively.............................................. 10,413 10,310 Additional paid-in capital.................................. 322,985 355,576 Retained earnings........................................... 603,733 476,125 ---------- ---------- Total shareholders' equity........................ 937,131 842,011 ---------- ---------- Total liabilities and shareholders' equity........ $1,251,674 $1,096,816 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 13 15 TERADYNE, INC. CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, -------------------------------------- 1997 1996 1995 ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales.............................................. $1,266,274 $1,171,615 $1,191,022 Expenses: Cost of sales..................................... 734,370 724,624 646,382 Engineering and development....................... 162,500 143,931 123,487 Selling and administrative........................ 194,103 180,265 176,797 ---------- ---------- ---------- 1,090,973 1,048,820 946,666 ---------- ---------- ---------- Income from operations................................. 175,301 122,795 244,356 Other income (expense): Merger expenses................................... (5,600) Interest income................................... 20,289 19,295 14,209 Interest expense.................................. (2,245) (2,427) (3,040) ---------- ---------- ---------- Income before income taxes............................. 193,345 139,663 249,925 Provision for income taxes............................. 65,737 46,089 90,641 ---------- ---------- ---------- Net income............................................. $ 127,608 $ 93,574 $ 159,284 ========== ========== ========== Net income per common share -- basic................... $ 1.53 $ 1.12 $ 1.95 ========== ========== ========== Net income per common share -- diluted................. $ 1.48 $ 1.10 $ 1.89 ========== ========== ========== Shares used in net income per common share -- basic.... 83,434 83,262 81,629 ========== ========== ========== Shares used in net income per common share -- diluted.............................................. 86,319 85,060 84,253 ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 14 16 TERADYNE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ----------------------------------- 1997 1996 1995 --------- --------- --------- (IN THOUSANDS) Cash flows from operating activities: Net income............................................ $ 127,608 $ 93,574 $ 159,284 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation....................................... 57,983 49,577 41,807 Amortization....................................... 1,168 1,326 1,339 Product line consolidation......................... 34,100 Workforce reduction provision...................... 10,810 Deferred income tax provision (credit)............. 1,341 (14,607) 3,920 Other non-cash items, net.......................... 1,377 (260) 4,881 Changes in operating assets and liabilities: Accounts receivable.............................. (122,503) 74,990 (114,708) Inventories...................................... (131,014) 20,584 (57,111) Other assets..................................... (3,861) (4,117) (18,567) Accounts payable and accruals.................... 41,261 (10,638) 60,361 Income taxes payable............................. 40,092 (4,515) 34,334 --------- --------- --------- Net cash provided by operating activities..... 13,452 250,824 115,540 --------- --------- --------- Cash flows from investing activities: Additions to property, plant, and equipment........... (106,436) (59,494) (79,197) Increase in equipment manufactured by the Company..... (25,695) (15,735) (14,004) Purchases of held-to-maturity marketable securities... (111,033) (250,594) (190,961) Maturities of held-to-maturity marketable securities......................................... 206,556 248,733 126,619 Purchases of available-for-sale marketable securities......................................... (192,174) (142,600) Maturities of available-for-sale marketable securities......................................... 151,426 8,081 --------- --------- --------- Net cash used in investing activities................. (77,356) (211,609) (157,543) --------- --------- --------- Cash flows from financing activities: Net payments under short-term borrowing agreements.... (4,100) Payments of long-term debt............................ (2,410) (3,550) (1,015) Additions to long-term debt........................... 12,500 Issuance of common stock under stock option and stock purchase plans..................................... 44,065 13,455 24,914 Acquisition of treasury stock......................... (104,535) (29,833) --------- --------- --------- Net cash provided (used) by financing activities.................................. (62,880) (19,928) 32,299 --------- --------- --------- Increase (decrease) in cash and cash equivalents........ (126,784) 19,287 (9,704) Adjustment to conform fiscal year of Megatest........... (10,346) Cash and cash equivalents at beginning of year.......... 201,452 182,165 202,215 --------- --------- --------- Cash and cash equivalents at end of year................ $ 74,668 $ 201,452 $ 182,165 ========= ========= ========= Supplementary disclosure of cash flow information: Cash paid during the year for: Interest........................................... $ 2,257 $ 2,426 $ 3,092 Income taxes....................................... 31,971 68,089 52,339
The accompanying notes are an integral part of the consolidated financial statements. 15 17 TERADYNE, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
SHARES COMMON ADDITIONAL ------------------- STOCK PAID-IN RETAINED ISSUED REACQUIRED PAR VALUE CAPITAL EARNINGS ------ ---------- --------- ---------- -------- (IN THOUSANDS) Balance, December 31, 1994................... 41,275 1,663 $ 4,952 $ 329,887 $238,047 Adjustment to conform fiscal year of Megatest Corporation.................. 3 9 (14,780) Issuance of stock to employees under benefit plans......................... 1,614 202 22,940 Tax benefit from stock options.......... 17,549 Two-for-one stock split effected in the form of a 100% stock dividend......... 42,892 1,664 5,154 (5,154) Issuance of stock to employees under benefit plans after the two-for-one stock split........................... 177 21 1,751 Payment for fractional shares resulting from merger........................... (12) Net income.............................. 159,284 ------ ----- ------- --------- -------- Balance, December 31, 1995................... 85,961 3,327 10,329 366,970 382,551 Issuance of stock to employees under benefit plans......................... 1,281 160 13,295 Tax benefit from stock options.......... 4,965 Repurchase of stock..................... 1,435 (179) (29,654) Net income.............................. 93,574 ------ ----- ------- --------- -------- Balance, December 31, 1996................... 87,242 4,762 10,310 355,576 476,125 Issuance of stock to employees under benefit plans......................... 3,373 422 43,643 Tax benefit from stock options.......... 27,982 Repurchase of stock..................... 2,550 (319) (104,216) Net income.............................. 127,608 ------ ----- ------- --------- -------- Balance, December 31, 1997................... 90,615 7,312 $10,413 $ 322,985 $603,733 ====== ===== ======= ========= ========
The accompanying notes are an integral part of the consolidated financial statements. 16 18 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. THE COMPANY Teradyne, Inc. (the "Company") designs, manufactures, markets, and services electronic test systems and related software used by component manufacturers in the design and testing of their products and by electronic equipment manufacturers for the design and testing of circuit boards and other assemblies. Manufacturers use such systems and software to increase product performance, to improve product quality, to shorten time to market, to enhance manufacturability, to conserve labor costs, and to increase production yields. The Company's electronic systems are also used by telephone operating companies for the testing and maintenance of their subscriber telephone lines and related equipment. The Company also manufactures backplane connection systems, principally for the computer, telecommunications, and military/aerospace industries. A backplane is an assembly into which printed circuit boards are inserted that provides for the interconnection of electrical signals between the circuit boards and the other elements of the system. B. ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions are eliminated. Certain prior years' amounts were reclassified to conform to the current year presentation. On December 1, 1995, the Company completed its acquisition of Megatest Corporation ("Megatest"), by means of a merger accounted for as a pooling of interests. As a result of the merger, Megatest became a wholly owned subsidiary of the Company. Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. Inventories Inventories are stated at the lower of cost (first-in, first-out basis) or market (net realizable value). Property, Plant, and Equipment Property, plant, and equipment are stated at cost. Leasehold improvements and major renewals are capitalized and included in property, plant, and equipment accounts while expenditures for maintenance and repairs and minor renewals are charged to expense. When assets are retired, the assets and related allowances for depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in operations. The Company provides for depreciation of its assets principally on the straight-line method with the cost of the assets being charged to expense over their useful lives as follows: buildings and improvements -- 5 to 40 years; and machinery and equipment -- 2 to 10 years. Revenue Recognition Revenue is recorded when products are shipped or, in instances where products are configured to customer requirements, upon the successful completion of final test procedures. Service revenue is recognized ratably over applicable contract periods or as services are performed. In certain situations, revenue is recorded 17 19 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) B. ACCOUNTING POLICIES -- (CONTINUED) using the percentage of completion method based upon the completion of measurable milestones, with changes to total estimated costs and anticipated losses, if any, recognized in the period in which determined. Engineering and Development Costs The Company's products are highly technical in nature and require a large and continuing engineering and development effort. All engineering and development costs are expensed as incurred. Income Taxes Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company's practice is to provide U.S. Federal taxes on undistributed earnings of the Company's non U.S. sales and service subsidiaries. Translation of Non U.S. Currencies Assets and liabilities of non U.S. subsidiaries, which are denominated in currencies other than the U.S. dollar, are remeasured into U.S. dollars at rates of exchange in effect at the end of the fiscal year except nonmonetary assets and liabilities which are remeasured using historical exchange rates. Revenue and expense amounts are remeasured using an average of exchange rates in effect during the year, except those amounts related to nonmonetary assets and liabilities, which are remeasured at historical exchange rates. Net realized and unrealized gains and losses resulting from currency remeasurement are included in operations. Net Income per Common Share In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share". Statement 128 replaced the calculation of primary and fully diluted net income per share with basic and diluted net income per share. Unlike primary net income per share, basic net income per share excludes any dilutive effect of options, warrants and convertible securities. Diluted net income per share is very similar to the previously reported fully diluted net income per share, except that the new treasury stock method used in determining the dilutive effect of options uses the average market price for the period rather than the higher of the average market price or the ending market price. All net income per common share amounts have been restated to conform to the Statement 128 requirements. C. MERGER -- POOLING OF INTERESTS On December 1, 1995, the Company acquired through a merger all of the authorized and outstanding common stock of Megatest in exchange for approximately 6.8 million shares of the Company's common stock using an exchange ratio of 0.9091 of one share of the Company's common stock for each Megatest share. In addition, all outstanding Megatest stock options were converted, at the common stock exchange ratio, into options to purchase the Company's common stock. Megatest manufactures electronic test systems for the integrated circuit industry. Prior to the merger, Megatest prepared its financial statements on an August 31 fiscal year end. Megatest's fiscal year has been changed to December 31 to conform to the Company's year end. Total net sales of $1,191.0 million for the year ended December 31, 1995 consisted of $1,059.4 million of Teradyne net sales and $131.6 million of Megatest net sales. Net income of $159.3 million for the same period consisted of Teradyne net income of $157.2 million, Megatest net income of $2.3 million and $0.2 million in debits related to conforming accounting adjustments. 18 20 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) C. MERGER -- POOLING OF INTERESTS -- (CONTINUED) The combined financial results reflect the restatement of Megatest's provision for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Due to the merger, Megatest's previously unrecognized tax benefits of deductible temporary differences and operating loss carryforwards were recognized by the combined company in the restated period. The combined financial results also include adjustments, which were immaterial to the combined financial statements, to conform accounting policies of the two companies. Adjustments made to conform the accounting policies of the two companies decreased net income by $0.2 million in 1995. All other adjustments consist of reclassifications to conform financial statement presentation. There were no intercompany transactions between the two companies for the period presented. In connection with the merger, the Company recorded a $5.6 million nonrecurring charge for transaction costs consisting primarily of professional fees. D. FINANCIAL INSTRUMENTS Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less at date of acquisition to be cash equivalents. Marketable Securities The Company classifies investments in marketable securities as trading, available-for-sale or held-to-maturity at the time of purchase and periodically re-evaluates such classification. There were no securities classified as trading or held-to-maturity as of December 31, 1997, and no securities classified as trading at December 31, 1996. Securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at cost with corresponding premiums or discounts amortized over the life of the investment to interest income. Securities classified as available-for-sale are reported at fair market value. Unrealized gains or losses on available-for-sale securities, if material, are included, net of tax, in shareholders' equity until disposition. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in interest income. The cost of securities sold is based on the specific identification method. The fair market value of cash equivalents and short-term and long-term investments in marketable securities is substantially equal to the carrying value and represents the quoted market prices at the balance sheet dates. The short-term investments mature in less than one year. Long-term investments have maturities of one to five years. At December 31, 1997 and 1996 these investments are reported as follows (in thousands):
1997 1996 ---------- --------------------- AVAILABLE- AVAILABLE- HELD-TO- FOR-SALE FOR-SALE MATURITY ---------- ---------- -------- Short-term marketable securities: U.S. Treasury and government agency securities.................................... $ 14,665 $ 8,575 $34,476 Corporate debt securities....................... 4,028 5,215 -------- -------- ------- $ 18,693 $ 13,790 $34,476 ======== ======== ======= Long-term marketable securities: U.S. Treasury and government agency securities.................................... $ 60,937 $ 74,675 $61,047 Corporate debt securities....................... 95,637 46,054 -------- -------- ------- $156,574 $120,729 $61,047 ======== ======== =======
19 21 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) D. FINANCIAL INSTRUMENTS -- (CONTINUED) Other For all other balance sheet financial instruments the carrying amount approximates fair value. Off-Balance Sheet Risk The Company regularly enters into forward contracts in European and Japanese currencies to hedge its overseas net monetary position and firm commitments. These contracts are used to reduce the Company's risk associated with exchange rate movements, as gains and losses on these contracts are intended to offset exchange losses and gains on underlying exposures. The Company does not engage in currency speculation. Contracts related to an anticipated transaction that is no longer likely to occur are terminated. Gains or losses associated with the termination of the underlying contract for which a firm commitment no longer exists are immediately included in selling, general and administrative expenses. Forward currency contracts have maturities of less than one year, unless they relate to long-term sales contracts denominated in a non U.S. currency; these maturities are from one to three years. At December 31, 1997, the Company had the following forward currency contracts to buy U.S. dollars for non U.S. currencies and sell U.S. dollars for non U.S. currencies for the following notional amounts (in millions):
BUY SELL --- ---- Japanese yen............................................ $48.2 $2.1 Belgian francs.......................................... 7.8 1.8 French francs........................................... 2.5 German deutschemarks.................................... 1.8 4.6 Italian lira............................................ 1.2 ----- ---- $61.5 $8.5 ===== ====
At December 31, 1996 the face amount of outstanding forward currency contracts to buy and sell U.S. dollars for non U.S. currencies was $48.8 million and $11.2 million, respectively. The fair value of these contracts as of December 31, 1997 and 1996, determined by applying year end currency exchange rates to the notional contract amounts, represented a net unrealized gain of $4.1 million and $0.1 million, respectively. The Company's policy is to defer gains and losses on these contracts until the corresponding losses and gains are recognized on the items being hedged. Both the contract gains and losses and the gains and losses on the items being hedged are included in selling, general and administrative expenses. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash investments, forward currency contracts, and accounts receivable. The Company maintains cash investments primarily in U.S. Treasury and government agency securities and corporate debt securities, rated A1 or higher, which have minimal credit risk. The Company places forward currency contracts with high credit-quality financial institutions in order to minimize credit risk exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of diverse and geographically dispersed customers. 20 22 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) E. DEBT Long-term debt at December 31, 1997 and 1996 consisted of the following (in thousands):
1997 1996 ---- ---- Mortgage notes payable............................... $10,122 $10,294 Capital equipment notes payable...................... 2,440 3,701 Other long-term debt................................. 2,386 3,433 ------- ------- Total........................................... 14,948 17,428 Less current maturities.............................. 1,807 1,778 ------- ------- $13,141 $15,650 ======= =======
The total maturities of long-term debt for the succeeding five years and thereafter are: 1998 - $1.8 million; 1999 -- $1.5 million; 2000 -- $4.9 million; 2001 -- $0.3 million; 2002 -- $0.3 million and $6.1 million thereafter. Revolving Credit Agreement The Company's available revolving credit line, in effect through January 31, 2000, is $120.0 million. At expiration of the revolver, any amounts outstanding are converted into a two year term note. As of December 31, 1997, no amounts were outstanding under this agreement. The terms of this line of credit include restrictive covenants regarding working capital, tangible net worth, and leverage. Interest rates on borrowings are either at the stated prime rate, based upon Eurocurrency, or certificate of deposit interest rates. Pursuant to the terms of the credit agreement, the Company may incur additional indebtedness of up to $30.0 million outside the agreement provided that the liabilities of the Company, exclusive of deferred income taxes and subordinated debt, shall not exceed 100% of the Company's tangible net worth. Mortgage Notes Payable The Company received a loan of $4.5 million from the Boston Redevelopment Authority in the form of a 3% mortgage loan maturing March 31, 2013. This loan is collateralized by a mortgage on the Company's property at 321 Harrison Avenue which may, at the Company's option, become subordinated to another mortgage up to a maximum of $5.0 million. Interest for the first 4 1/2 years of the note was capitalized up to a principal amount of $5.0 million. Since September 30, 1987, the Company has been making semi-annual interest payments. In conjunction with the purchase of operating facilities in San Jose, the Company received a $5.5 million mortgage loan which matures on August 31, 2000. The loan is collateralized by a mortgage on the San Jose facilities. The loan bears interest at 8.1% per annum and is payable in 59 consecutive monthly installments of $0.05 million with a $4.6 million balloon payment due at maturity. The terms of this mortgage note payable require compliance with certain restrictive financial covenants and principal prepayment clauses. Short-term Borrowings The weighted average interest rates on short-term borrowings outstanding as of December 31, 1997 and 1996 were 2.1% and 2.0%, respectively. F. COMMITMENTS Rental expense for the years ended December 31, 1997, 1996, and 1995 was $15.1 million, $14.6 million, and $13.1 million, respectively. Minimum annual rentals under all noncancellable leases are: 1998 -- $8.0 million; 1999 -- $5.7 million; 2000 -- $3.3 million; 2001 -- $1.9 million; 2002 -- $1.1 million; and $8.4 million thereafter, totaling $28.4 million. 21 23 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) G. NET INCOME PER COMMON SHARE The following table sets forth the computation of basic and diluted net income per common share (in thousands, except per share amounts):
1997 1996 1995 ---- ---- ---- Net income......................................... $127,608 $93,574 $159,284 ======== ======= ======== Shares used in net income per common share -- basic................................... 83,434 83,262 81,629 Effect of dilutive securities: Employee and director stock options........... 2,601 1,422 2,354 Employee stock purchase rights................ 284 376 270 -------- ------- -------- Dilutive potential common shares................. 2,885 1,798 2,624 -------- ------- -------- Shares used in net income per common share -- diluted................................. 86,319 85,060 84,253 ======== ======= ======== Net income per common share -- basic............... $ 1.53 $ 1.12 $ 1.95 ======== ======= ======== Net income per common share -- diluted............. $ 1.48 $ 1.10 $ 1.89 ======== ======= ========
Options to purchase 400,170 shares of common stock in 1997, 1,727,761 shares in 1996, and 16,410 shares in 1995 were outstanding during the years there ended, but were not included in the year to date calculation of diluted net income per share because the options' exercise price was greater than the average market price of the common shares during those periods. H. RETIREMENT BENEFITS The Company has defined benefit pension plans covering substantially all domestic employees and employees of certain non U.S. subsidiaries. Benefits under these plans are based on the employees' years of service and compensation. The Company's funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. The assets of the plans consist primarily of equity and fixed income securities. The components of net periodic pension cost were (in thousands):
1997 1996 1995 ---- ---- ---- Service cost.......................................... $ 4,837 $4,398 $3,211 Interest cost......................................... 5,578 4,894 4,012 Actual return on plan assets.......................... (12,331) (6,676) (9,514) Net amortization and deferral......................... 8,191 3,002 5,853 -------- ------ ------ $ 6,275 $5,618 $3,562 ======== ====== ======
22 24 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) H. RETIREMENT BENEFITS -- (CONTINUED) The following table sets forth the plans' funded status at December 31 (in thousands):
1997 1996 -------------------------- -------------------------- U.S. PLAN NON U.S. PLANS U.S. PLAN NON U.S. PLANS --------- -------------- --------- -------------- Actuarial present value of projected benefit obligation: Vested benefits..................... $(62,911) $ (6,316) $(50,676) $(6,627) Non-vested benefits................. (3,579) (1,561) (2,933) (952) -------- -------- -------- ------- Accumulated benefit obligation...... (66,490) (7,877) (53,609) (7,579) Effect of projected future compensation levels............... (14,278) (2,378) (10,997) (2,606) -------- -------- -------- ------- Total projected benefit obligation........................ (80,768) (10,255) (64,606) (10,185) Plan assets at fair market value......... 71,075 6,734 55,926 5,850 -------- -------- -------- ------- Projected benefit obligation in excess of plan assets............................ (9,693) (3,521) (8,680) (4,335) Unrecognized prior service cost.......... 2,318 2,697 Unrecognized net loss (gain)............. 10,065 (1,056) 8,673 (622) Unrecognized net (asset) liability at transition............................. 746 973 Minimum pension liability adjustment..... (259) (99) -------- -------- -------- ------- Net pension asset (liability)............ $ 2,690 $ (4,090) $ 2,690 $(4,083) ======== ======== ======== ======= Actuarial assumptions: Discount rate....................... 7.00% 4.50% - 6.50% 7.25% 4.50% - 7.75% Average increase in compensation levels............................ 5.00% 3.50% - 4.25% 5.00% 3.50% - 5.25% Expected long-term return on assets............................ 9.00% 4.50% - 8.50% 9.00% 4.50% - 9.25%
In addition to the above plans, the Company has an unfunded supplemental defined benefit pension plan in the United States to provide retirement benefits in excess of levels allowed by the Employee Retirement Income Security Act (ERISA). The actuarial present value of accumulated plan benefits totaled $4.4 million and $2.7 million at December 31, 1997 and 1996, respectively. Net pension expense for this plan was $1.0 million, $0.7 million, and $0.5 million in 1997, 1996, and 1995, respectively. In 1996, the Company offered a voluntary early retirement incentive program to certain employees. The special termination benefits include enhanced pension benefits to the employees and medical and dental benefits to the employees and their spouses. Pension benefits of $2.6 million to be paid from the Company's existing pension plans relating to this program were included in current liabilities at December 31, 1997 and December 31, 1996. In addition, $2.3 million and $2.5 million for postretirement medical and dental benefits were included in liabilities at December 31, 1997 and 1996, respectively. I. STOCK REPURCHASE PROGRAM During 1996, the Company's Board of Directors authorized the purchase in the open market of up to 5.0 million shares of common stock. The Company repurchased 2.6 million shares at a cost of $104.5 million in 1997, and repurchased 1.4 million shares at a cost of $29.8 million in 1996. J. STOCK BASED COMPENSATION At December 31, 1997, the Company had both stock option plans and stock purchase plans. The Company applies APB Opinion 25 and related interpretations in accounting for its plans. As such, the Company does not recognize compensation cost arising from the awarding of stock grants under those plans. The Company is required to disclose pro forma net income and net income per common share amounts had compensation cost for the Company's stock based compensation plans been determined based on the fair value at the grant dates for awards under those plans. The effects of this pro forma disclosure are not indicative of 23 25 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) J. STOCK BASED COMPENSATION -- (CONTINUED) future amounts. Additional awards in future years are anticipated. The Company's net income and net income per common share would have been reduced to the pro forma amounts indicated below (in thousands, except per share amounts):
1997 1996 1995 ---- ---- ---- Net income........................... As reported $127,608 $93,574 $159,284 Pro forma 115,371 86,421 154,433 Net income per common share -- basic.............................. As reported $ 1.53 $ 1.12 $ 1.95 Pro forma 1.38 1.04 1.89 Net income per common share -- diluted............................ As reported $ 1.48 $ 1.10 $ 1.89 Pro forma 1.34 1.02 1.83
Stock Option Plans Under its stock option plans, all of which are fixed, the Company granted options to certain directors, officers and employees entitling them to purchase common stock at 100% of market value at the date of grant. Stock options granted generally have a maximum term of five years and vest over four years. Stock option plan activity for the years 1997, 1996, and 1995 follows (in thousands):
1997 1996 1995 ---- ---- ---- Outstanding at January 1................................. 8,503 7,230 7,637 Options granted..................................... 3,176 2,401 2,717 Options exercised................................... (2,850) (795) (2,790) Options canceled.................................... (263) (333) (334) ------ ----- ------ Outstanding at December 31............................... 8,566 8,503 7,230 ====== ===== ====== Exercisable at December 31............................... 3,394 3,995 2,606 ====== ===== ====== Available for grant at December 31....................... 5,683 5,042 4,912 ====== ===== ======
Weighted average option exercise price information for the years 1997, 1996 and 1995 follows:
1997 1996 1995 ---- ---- ---- Outstanding at January 1................................ $13.53 $13.63 $ 8.92 Options granted.................................... $36.44 $12.13 $19.80 Options exercised.................................. $11.75 $ 8.11 $ 6.92 Options canceled................................... $18.80 $18.61 $11.10 Outstanding at December 31.............................. $22.48 $13.53 $13.63 Exercisable at December 31.............................. $17.50 $12.46 $11.00
24 26 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) J. STOCK BASED COMPENSATION -- (CONTINUED) Significant option groups outstanding at December 31, 1997 and related weighted average price and life information follows (options in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------ ------------------------- WEIGHTED AVERAGE REMAINING WEIGHTED- WEIGHTED- RANGE OF CONTRACTUAL AVERAGE AVERAGE EXERCISE PRICE LIFE (YEARS) SHARES EXERCISE PRICE SHARES EXERCISE PRICE -------------- ------------ ------ -------------- ------ -------------- $ 3.31 - $11.63................. 2.86 2,445 $10.88 1,167 $10.15 $11.83 - $19.63................. 1.88 1,283 $13.21 859 $13.14 $20.69 - $32.80................. 2.48 1,846 $21.36 874 $20.87 $36.50 - $46.19................. 4.37 2,992 $36.62 494 $36.50 ----- ----- Total...................... 3.16 8,566 $22.48 3,394 $17.50 ===== =====
The weighted average fair value at date of grant for options granted during 1997, 1996 and 1995 was $16.11, $4.79 and $8.69 per option, respectively. The fair value of options at date of grant was estimated using the Black-Scholes model with the following weighted average assumptions:
1997 1996 1995 ---- ---- ---- Expected life (years).................................... 4.3 3.9 4.2 Interest rate............................................ 6.5% 6.7% 7.3% Volatility............................................... 44.2% 41.8% 39.9% Dividend yield........................................... 0.0% 0.0% 0.0%
Employee Stock Purchase Plans During 1996, the Company adopted the 1996 Employee Stock Purchase Plan and authorized 700,000 shares for future issuance. Under this plan, eligible employees may purchase shares of common stock through payroll deductions of up to 10% of their compensation. The price paid for the common stock is equal to 85% of the lower of the fair market value of the Company's common stock on the first business day in January (July for new hires) or the last business day of December. In January 1998, the Company issued 561,615 shares of common stock to employees who participated in the plan during 1997 at a weighted-average price of $20.43 per share. Currently, there are 122,828 shares reserved for issuance. The weighted-average fair value of purchase rights granted in 1997, 1996 and 1995 was $7.70, $8.37 and $5.09, respectively. The fair value of the employees' purchase rights was estimated using the Black-Scholes model with the following assumptions for 1997, 1996 and 1995, respectively; dividend yield of 0.0% for all years; an expected life of 1 year for all years; expected volatility of 45.5%, 44.7% and 38.8%; and risk-free interest rates of 5.6%, 5.2% and 7.1%. K. SAVINGS PLANS The Company sponsors a Savings Plan covering substantially all U.S. employees. Under this plan, employees may contribute up to 12% of their compensation (subject to Internal Revenue Service limitations). The Company annually matches employee contributions up to 6% of such compensation at rates ranging from 50% to 100%. The Company's contributions vest after two years, although contributions for those employees with five years of service vest immediately. In 1994, the Company established a Supplemental Savings Plan to provide savings benefits in excess of those allowed by ERISA. The provisions of this plan are the same as the Savings Plan. Under the Company's savings plans, amounts charged to operations were $9.3 million in 1997, $6.3 million in 1996, and $8.3 million in 1995. 25 27 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) L. STOCKHOLDER RIGHTS PLAN The Company's Board of Directors adopted a Stockholder Rights Plan on March 14, 1990, under which a dividend of one Common Stock Purchase Right was distributed for each outstanding share of Common Stock. The Plan entitles Stock Purchase Right holders to purchase shares of the Company's common stock for $20 per share in certain events, such as a tender offer to acquire 30% or more of the Company's outstanding shares. Under some circumstances, such as a determination by continuing Directors, that an acquiring party's interests are adverse to those of the Company, the Plan entitles such holders (other than an acquiring party or adverse party) to purchase $40 worth of Common Stock (or other securities or consideration owned by the Company) for $20. The Rights will expire March 26, 2000 unless earlier redeemed by the Company. M. INCOME TAXES The components of income before income taxes and the provision for income taxes as shown in the consolidated statements of income are as follows (in thousands):
1997 1996 1995 ---- ---- ---- Income before income taxes: United States................................. $161,942 $106,708 $212,551 Non U.S....................................... 31,403 32,955 37,374 -------- -------- -------- $193,345 $139,663 $249,925 ======== ======== ======== Provision (credit) for income taxes: Current: U.S. Federal............................. $ 45,302 $ 40,033 $ 66,228 Non U.S. ................................ 13,053 14,802 12,604 State.................................... 6,041 5,861 7,889 -------- -------- -------- 64,396 60,696 86,721 -------- -------- -------- Deferred: U.S. Federal............................. 77 (13,667) (241) Non U.S. ................................ 1,140 (632) 3,654 State.................................... 124 (308) 507 -------- -------- -------- 1,341 (14,607) 3,920 -------- -------- -------- $ 65,737 $ 46,089 $ 90,641 ======== ======== ========
26 28 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) M. INCOME TAXES -- (CONTINUED) Significant components of the Company's deferred tax assets (liabilities) as of December 31, 1997 and 1996 are as follows (in thousands):
1997 1996 -------- -------- Deferred tax assets: Inventory valuations............................... $ 16,733 $ 19,148 Accruals........................................... 11,335 2,680 Vacation........................................... 6,907 4,200 In process research and development................ 2,456 2,726 Deferred revenue................................... 62 1,488 U.S. Federal operating loss carryforwards.......... 975 341 Tax credits........................................ 2,502 8,457 Other.............................................. 3,037 2,732 -------- -------- Total deferred tax assets............................... 44,007 41,772 -------- -------- Deferred tax liabilities: Excess of tax over book depreciation............... (22,828) (14,919) Amortization....................................... (818) (2,531) Pension............................................ (827) (1,349) Other.............................................. (2,433) (4,531) -------- -------- Total deferred tax liabilities.......................... (26,906) (23,330) -------- -------- Net deferred asset...................................... $ 17,101 $ 18,442 ======== ========
A reconciliation of the effective tax rate for the years 1997, 1996, and 1995 follows:
1997 1996 1995 ---- ---- ---- U.S. statutory federal tax rate..................... 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit...... 2.1 2.6 2.0 Utilization of operating loss carryforwards......... 0.3 Tax credits......................................... (1.6) (1.0) (0.6) Export sales corporation............................ (2.8) (2.9) (2.3) Non-deductible costs related to acquisitions........ 0.7 0.8 Change in valuation allowance....................... (0.8) Other, net.......................................... 0.6 (0.7) 1.9 ----- ----- ----- 34.0% 33.0% 36.3% ===== ===== =====
At December 31, 1997 the Company has U.S. Federal operating loss carryforwards of approximately $1.0 million that expire in the years 2000 through 2002. The Company has approximately $2.2 million of U.S. business tax credit carryforwards that expire in the years 1998 through 2005. All of these losses and credits are limited in their use by "change in ownership" rules as defined in the Internal Revenue Code of 1986. 27 29 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) N. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION The Company operates in two industry segments, which are the design, manufacturing and marketing of electronic test systems and backplane connection systems. Corporate assets consist of cash and cash equivalents, marketable securities, and certain other assets.
ELECTRONIC BACKPLANE TEST CONNECTION SYSTEMS SYSTEMS CORPORATE INDUSTRY INDUSTRY AND SEGMENT SEGMENT ELIMINATIONS CONSOLIDATED ---------- ---------- ------------ ------------ (IN THOUSANDS) 1997 Sales to unaffiliated customers............. $1,047,742 $218,532 $1,266,274 Intersegment sales.......................... 16,235 $ (16,235) ---------- -------- --------- ---------- Net sales................................... 1,047,742 234,767 (16,235) 1,266,274 Operating income............................ 160,150 37,477 (22,326) 175,301 Identifiable assets......................... 771,353 155,213 325,108 1,251,674 Property additions.......................... 96,814 31,559 3,758 132,131 Depreciation and amortization expense....... 48,136 8,981 2,034 59,151 1996 Sales to unaffiliated customers............. $ 993,721 $177,894 $1,171,615 Intersegment sales.......................... 9,065 $ (9,065) ---------- -------- --------- ---------- Net sales................................... 993,721 186,959 (9,065) 1,171,615 Operating income............................ 112,036 29,561 (18,802) 122,795 Identifiable assets......................... 490,105 113,436 493,275 1,096,816 Property additions.......................... 54,694 16,666 3,869 75,229 Depreciation and amortization expense....... 42,039 7,448 1,416 50,903 1995 Sales to unaffiliated customers............. $1,035,721 $155,301 $1,191,022 Intersegment sales.......................... 12,325 $ (12,325) ---------- -------- --------- ---------- Net sales................................... 1,035,721 167,626 (12,325) 1,191,022 Operating income............................ 237,101 22,778 (15,523) 244,356 Identifiable assets......................... 640,597 91,205 292,029 1,023,831 Property additions.......................... 77,552 12,038 3,611 93,201 Depreciation and amortization expense....... 37,274 4,670 1,202 43,146
The Company's sales, including domestic export and non U.S. jurisdictional sales (which amounted to less than 10% of total net sales in all periods presented), to unaffiliated customers for the three years ended December 31 were made in the following geographic areas:
1997 1996 1995 ---- ---- ---- (IN THOUSANDS) Sales to unaffiliated customers: United States..................................... $ 616,838 $ 536,826 $ 566,337 Asia Pacific region............................... 299,624 209,429 256,901 Europe............................................ 190,220 241,244 222,194 Japan............................................. 114,212 139,095 94,706 Other............................................. 45,380 45,021 50,884 ---------- ---------- ---------- $1,266,274 $1,171,615 $1,191,022 ========== ========== ==========
See "Item 1: Business -- Marketing and Sales" elsewhere in this report for information on the Company's export and non U.S. jurisdictional activities, identifiable assets of non U.S. subsidiaries, and major customers. 28 30 SUPPLEMENTARY INFORMATION (UNAUDITED) The following sets forth certain unaudited consolidated quarterly statements of operations data for each of the Company's last eight quarters. In management's opinion, this quarterly information reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation for the periods presented. Such quarterly results are not necessarily indicative of future results of operations and should be read in conjunction with the audited consolidated financial statements of the Company and the notes thereto included elsewhere herein.
1997 -------------------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------- ----------- ----------- ----------- Net sales.................................... $248,302 $289,541 $336,747 $391,684 Expenses: Cost of sales........................... 152,935 164,648 190,651 226,136 Engineering and development............. 33,308 42,635 41,663 44,894 Selling and administrative.............. 40,783 47,449 51,685 54,186 -------- -------- -------- -------- 227,026 254,732 283,999 325,216 -------- -------- -------- -------- Income from operations....................... 21,276 34,809 52,748 66,468 Other income (expense): Interest income......................... 5,665 5,234 5,198 4,192 Interest expense........................ (541) (565) (553) (586) -------- -------- -------- -------- Income before income taxes................... 26,400 39,478 57,393 70,074 Provision for income taxes................... 9,240 14,476 18,196 23,825 -------- -------- -------- -------- Net income................................... $ 17,160 $ 25,002 $ 39,197 $ 46,249 ======== ======== ======== ======== Net income per common share -- basic......... $ 0.21 $ 0.30 $ 0.47 $ 0.55 ======== ======== ======== ======== Net income per common share -- diluted....... $ 0.20 $ 0.29 $ 0.45 $ 0.54 ======== ======== ======== ========
1996 -------------------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------- ----------- ----------- ----------- Net sales.................................... $348,967 $319,690 $261,671 $241,287 Expenses: Cost of sales........................... 186,637 214,718 163,747 159,522 Engineering and development............. 36,740 38,426 35,022 33,743 Selling and administrative.............. 46,929 42,556 41,535 49,245 -------- -------- -------- -------- 270,306 295,700 240,304 242,510 -------- -------- -------- -------- Income (loss) from operations................ 78,661 23,990 21,367 (1,223) Other income (expense): Interest income......................... 3,759 4,162 5,089 6,285 Interest expense........................ (642) (610) (513) (662) -------- -------- -------- -------- Income before income taxes................... 81,778 27,542 25,943 4,400 Provision for income taxes................... 28,623 9,640 6,374 1,452 -------- -------- -------- -------- Net income................................... $ 53,155 $ 17,902 $ 19,569 $ 2,948 ======== ======== ======== ======== Net income per common share -- basic......... $ 0.64 $ 0.21 $ 0.23 $ 0.04 ======== ======== ======== ======== Net income per common share -- diluted....... $ 0.63 $ 0.21 $ 0.23 $ 0.03 ======== ======== ======== ========
29 31 ITEM 9: CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Certain information relating to directors and executive officers of the Company, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 21, 1998, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year. For this purpose, the Management Compensation and Development Committee Report and Performance Graph included in such proxy statement are specifically not incorporated herein. (Also see "Item 1 -- Executive Officers of the Company" elsewhere in this report.) ITEM 11: EXECUTIVE COMPENSATION Certain information relating to directors and executive officers of the Company, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 21, 1998, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year. For this purpose, the Management Compensation and Development Committee Report and Performance Graph included in such proxy statement are specifically not incorporated herein. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Certain information relating to directors and executive officers of the Company, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 21, 1998, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year. For this purpose, the Management Compensation and Development Committee Report and Performance Graph included in such proxy statement are specifically not incorporated herein. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Certain information relating to directors and executive officers of the Company, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 21, 1998, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year. For this purpose, the Management Compensation and Development Committee Report and Performance Graph included in such proxy statement are specifically not incorporated herein. 30 32 PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The following consolidated financial statements are included in Item 8: Balance Sheets as of December 31, 1997 and 1996 Statements of Income for the years ended December 31, 1997, 1996, and 1995 Statements of Cash Flows for the years ended December 31, 1997, 1996, and 1995 Statements of Changes in Shareholders' Equity for the years ended December 31, 1997, 1996, and 1995 (a) 2. FINANCIAL STATEMENT SCHEDULES Financial statement schedules have been omitted since either they are not required or the information is otherwise included. (a) 3. LISTING OF EXHIBITS The Exhibits which are filed with this report or which are incorporated by reference herein are set forth in the Exhibit Index. (b) REPORT ON FORM 8-K There have been no Form 8-K filings during the three months ended December 31, 1997. 31 33 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 Company, as amended 3.2 Amendment, dated May 23, 1996, to Exhibit 3.2 to the Company's Annual Restated Articles of Organization of Report on Form 10-K for the fiscal year the Company, as amended ended December 31, 1996. 3.3 Amended and Restated Bylaws of the Exhibit 3.3 to the Company's Annual Company Report on Form 10-K for the fiscal year ended December 31, 1996. 4.1 Rights Agreement between the Company and The First National Bank of Boston dated as of March 14, 1990 10.1 Amended and Restated Multicurrency Exhibit 10.3 to the Company's Annual Revolving Credit Agreement dated as of Report on Form 10-K for the fiscal year January 1, 1996. ended December 31, 1995. 10.2 First Amendment to Amended and Restated Multicurrency Revolving Credit Agreement dated as of January 31, 1997 10.3 Second Amendment to Amended and Restated Multicurrency Revolving Credit Agreement dated as of May 20, 1997 10.4 Teradyne, Inc. Supplemental Executive Retirement Plan 10.5 1991 Employee Stock Option Plan, as Exhibit 4.2 to the Company's amended Registration Statement on Form S-8 (Registration Statement No. 333-07177). 10.6 Megatest Corporation 1990 Stock Option Exhibit 4.1 to the Company's Plan Registration Statement on Form S-8 (Registration Statement No. 333-64683). 10.7 Megatest Corporation Director Stock Exhibit 4.2 to the Company's Option Plan Registration Statement on Form S-8 (Registration Statement No. 333-64683). 10.8 1996 Stock Purchase Plan Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Registration Statement No. 333-07177). 10.9 Master Lease Agreement between Megatest Exhibit 10.10 to the Company's Annual and General Electric Capital Report on Form 10-K for the fiscal year Corporation dated August 10, 1995 ended December 31, 1995. 10.10 Loan and Security Agreement between Exhibit 10.11 to the Company's Annual Megatest and the CIT Group/Equipment Report on Form 10-K for the fiscal year Financing, Inc. dated August 14, 1995 ended December 31, 1995. 10.11 Deed of Trust, Financing Statement, Exhibit 10.12 to the Company's Annual Security Agreement and Fixture Filing Report on Form 10-K for the fiscal year between Megatest and the Sun Life ended December 31, 1995. Assurance Company of Canada (U.S.) dated August 25, 1995
32 34
EXHIBIT NO. DESCRIPTION SEC DOCUMENT REFERENCE - ----------- ----------- ---------------------- 10.12 1997 Employee Stock Option Plan Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. 10.13 Letter Agreement dated January 24, 1997 Exhibit 10.15 to the Company's Annual between the Company and Executive Report on Form 10-K for the fiscal year Officer ended December 31, 1996. 10.14 1996 Non-Employee Director Stock Option Plan 10.15 Letter Agreement dated June 1, 1997 between the Company and Member of Board 10.16 Letter Agreement dated June 1, 1997 between the Company and Member of Board 22.1 Subsidiaries of the Company 23.1 Consent of Coopers & Lybrand L.L.P. 27.1 Financial Data Schedule 27.2 Financial Data Schedule for the Form 10-Q for the nine months ended September 28, 1997 27.3 Financial Data Schedule for the Form 10-Q for the six months ended June 29, 1997 27.4 Financial Data Schedule for the Form 10-Q for the three months ended March 30, 1997 27.5 Financial Data Schedule for the Form 10-K for the fiscal year ended December 31, 1996 27.6 Financial Data Schedule for the Form 10-Q for the nine months ended September 29, 1996 27.7 Financial Data Schedule for the Form 10-Q for the six months ended June 30, 1996 27.8 Financial Data Schedule for the Form 10-Q for the three months ended March 31, 1996 27.9 Financial Data Schedule for the Form 10-K for the fiscal year ended December 31, 1995
33 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this 26th day of March, 1998. TERADYNE, INC. BY: ---------------------------------- JEFFREY R. HOTCHKISS, 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 --------- ----- ---- Chairman of the Board March 26, 1998 - --------------------------------------------------- ALEXANDER V. D'ARBELOFF President, Chief Executive March 26, 1998 - --------------------------------------------------- Officer, and Member of the Board GEORGE W. CHAMILLARD Vice President and Chief March 26, 1998 - --------------------------------------------------- Financial Officer JEFFREY R. HOTCHKISS Controller (Principal Accounting March 26, 1998 - --------------------------------------------------- Officer) DONALD J. HAMMAN Director March 26, 1998 - --------------------------------------------------- JAMES W. BAGLEY Director March 26, 1998 - --------------------------------------------------- ALBERT CARNESALE Director March 26, 1998 - --------------------------------------------------- DANIEL S. GREGORY Director March 26, 1998 - --------------------------------------------------- DWIGHT H. HIBBARD Director March 26, 1998 - --------------------------------------------------- JOHN P. MULRONEY Director March 26, 1998 - --------------------------------------------------- VINCENT M. O'REILLY Director March 26, 1998 - --------------------------------------------------- JAMES A. PRESTRIDGE Director March 26, 1998 - --------------------------------------------------- OWEN W. ROBBINS Director March 26, 1998 - --------------------------------------------------- RICHARD J. TESTA Director March 26, 1998 - --------------------------------------------------- PATRICIA S. WOLPERT
34 EX-3.1 2 RESTATED ARTICLES OF ORGANIZATION 1 Exhibit 3.1 FEDERAL IDENTIFICATION NO. 04-2272148 -------------------- - -------- Examiner THE COMMONWEALTH OF MASSACHUSETTS WILLIAM FRANCIS GALVIN Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 ARTICLES OF AMENDMENT (GENERAL LAWS, CHAPTER 156B, SECTION 72) - -------- Name We, George W. Chamillard , *President Approved -------------------------------------------- and Donald G. Leka , *Assistant Clerk, -------------------------------------------- of Teradyne, Inc. , -------------------------------------------- (Exact name of corporation) located at 321 Harrison Avenue, Boston, Massachusetts 02118 , --------------------------------------------------------- (Street address of corporation in Massachusetts) certify that these Articles of Amendment affecting articles numbered: Article 3 -------------------------------------------------------------------- (Number those articles 1, 2, 3, 4, 5 and/or 6 being amended) of the Articles of Organization were duly adopted at a meeting held on May 23, 1996, by vote of: 63,652,370 shares of Common Stock of 71,452,818 shares outstanding, ------------- ------------------------------ ----------- (type, class & series, if any) shares of of shares outstanding, and ------------- ------------------------------ ----------- (type, class & series, if any shares of of shares outstanding, ------------- ------------------------------ ----------- (type, class & series, if any
C [ ] (1) ** being at least a majority of each type, class or series outstanding and entitled to vote thereon: P [ ] * Delete the inapplicable words. ** Delete the inapplicable clause. (1) For amendments adopted pursuant to Chapter 156B, Section 70. M [ ] (2) For amendments adopted pursuant to Chapter 156B, Section 71. NOTE: IF THE SPACE PROVIDED UNDER ANY ARTICLE OR ITEM ON THIS FORM IS INSUFFICIENT, ADDITIONS SHALL BE SET FORTH ON ONE SIDE ONLY OF R.A. [ ] SEPARATE 8 1/2 X 11 SHEETS OF PAPER WITH A LEFT MARGIN OF AT LEAST 1 INCH. ADDITIONS TO MORE THAN ONE ARTICLE MAY BE MADE ON A SINGLE SHEET SO LONG AS EACH ARTICLE REQUIRING EACH ADDITION IS CLEARLY INDICATED. - ---------- P.C. 2 To change the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following: The total presently authorized is:
- -------------------------------------------------------------------------------------- WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - -------------------------------------------------------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - -------------------------------------------------------------------------------------- Common: Common: 125,000,000 $0.125 - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Preferred: Preferred: - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Change the total authorized to: - -------------------------------------------------------------------------------------- WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - -------------------------------------------------------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - -------------------------------------------------------------------------------------- Common: Common: 250,000,000 $0.125 - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Preferred: Preferred: - -------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------
3 The foregoing amendment(s) will become effective when these Articles of Amendment are filed in accordance with General Laws, Chapter 156B, Section 6 unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. Later effective date: ___________________. SIGNED UNDER THE PENALTIES OF PERJURY, this 31 day of July, 1996, /s/ George Chamillard - -------------------------------- George Chamillard *President /s/ Donald G. Leka - -------------------------------- Donald G. Leka *Assistant Clerk * Delete the inapplicable words. 4 THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF AMENDMENT (GENERAL LAWS, CHAPTER 156B, SECTION 72) ============================================ I hereby approve the within Articles of Amendment and, the filing fee in the amount of $ 125,000 having been paid, said articles are deemed to have been filed with me this 31st day of July 1996. Effective date: ____________________________ /s/ William F. Galvin --------------------------------- WILLIAM FRANCIS GALVIN Secretary of the Commonwealth TO BE FILLED IN BY CORPORATION PHOTOCOPY OF DOCUMENT TO BE SENT TO: Kevin M. Barry, Esq. -------------------------------------------- Testa, Hurwitz & Thibeault, LLP 125 High Street -------------------------------------------- Boston, Ma 02110 -------------------------------------------- 5 FEDERAL IDENTIFICATION NO. 04-2272148 -------------------- - -------- Examiner THE COMMONWEALTH OF MASSACHUSETTS WILLIAM FRANCIS GALVIN Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 ARTICLES OF AMENDMENT (GENERAL LAWS, CHAPTER 156B, SECTION 72) - -------- Name We, Owen W. Robbins , *Vice President Approved -------------------------------------------- and Donald G. Leka , *Assistant Clerk, -------------------------------------------- of Teradyne, Inc. , -------------------------------------------- (Exact name of corporation) located at 321 Harrison Avenue, Boston, Massachusetts 02118 , --------------------------------------------------------- (Street address of corporation in Massachusetts) certify that these Articles of Amendment affecting articles numbered: Article 3 -------------------------------------------------------------------- (Number those articles 1, 2, 3, 4, 5 and/or 6 being amended) of the Articles of Organization were duly adopted at a meeting held on May 24, 1995, by vote of: 26,581,818 shares of Common Stock of 37,173,315 shares outstanding, ------------- ------------------------------ ----------- (type, class & series, if any) shares of of shares outstanding, and ------------- ------------------------------ ----------- (type, class & series, if any shares of of shares outstanding, ------------- ------------------------------ ----------- (type, class & series, if any
C [ ] (1) ** being at least a majority of each type, class or series outstanding and entitled to vote thereon:/ P [ ] * Delete the inapplicable words. ** Delete the inapplicable clause. (1) For amendments adopted pursuant to Chapter 156B, Section 70. M [ ] (2) For amendments adopted pursuant to Chapter 156B, Section 71. NOTE: IF THE SPACE PROVIDED UNDER ANY ARTICLE OR ITEM ON THIS FORM IS INSUFFICIENT, ADDITIONS SHALL BE SET FORTH ON ONE SIDE ONLY OF R.A. [ ] SEPARATE 8 1/2 X 11 SHEETS OF PAPER WITH A LEFT MARGIN OF AT LEAST 1 INCH. ADDITIONS TO MORE THAN ONE ARTICLE MAY BE MADE ON A SINGLE SHEET SO LONG AS EACH ARTICLE REQUIRING EACH ADDITION IS CLEARLY INDICATED. - ---------- P.C. 6 To change the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following: The total presently authorized is:
- -------------------------------------------------------------------------------------- WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - -------------------------------------------------------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - -------------------------------------------------------------------------------------- Common: Common: 75,000,000 $0.125 - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Preferred: Preferred: - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Change the total authorized to: - -------------------------------------------------------------------------------------- WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - -------------------------------------------------------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - -------------------------------------------------------------------------------------- Common: Common: 125,000,000 $0.125 - -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Preferred: Preferred: - -------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------
7 The foregoing amendment(s) will become effective when these Articles of Amendment are filed in accordance with General Laws, Chapter 156B, Section 6 unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. Later effective date: ___________________. SIGNED UNDER THE PENALTIES OF PERJURY, this 14th day of July, 1995, /s/ Owen W. Robbins - --------------------------------------- Owen W. Robbins *Executive Vice President /s/ Donald G. Leka - --------------------------------------- Donald G. Leka *Assistant Clerk * Delete the inapplicable words. 8 THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF AMENDMENT (GENERAL LAWS, CHAPTER 156B, SECTION 72) ============================================ I hereby approve the within Articles of Amendment and, the filing fee in the amount of $50,000.00 having been paid, said articles are deemed to have been filed with me this 17th day of July 1995. /s/ William F. Galvin --------------------------------- WILLIAM FRANCIS GALVIN Secretary of the Commonwealth TO BE FILLED IN BY CORPORATION PHOTOCOPY OF DOCUMENT TO BE SENT TO: Kevin M. Barry, Esq. -------------------------------------------- Testa, Hurwitz & Thibeault 53 State Street, Exchange Place -------------------------------------------- Boston, Ma 02109 -------------------------------------------- 9 Federal Identification No. 04-2272148 ------------- Fee: $250.00 - ----------- Examiner THE COMMONWEALTH OF MASSACHUSETTS Michael Joseph Connolly Secretary of State One Ashburton Place, Boston, Massachusetts 02108 ARTICLES OF MERGER OF PARENT AND SUBSIDIARY CORPORATIONS (General Laws Chapter 156B, Section 82) We, Owen W. Robbins AND William B. Asher, Jr. Vice President* and - ----------- -------------------------------------------- Name Approval Assistant Clerk of Teradyne, Inc. -------------------------------------------------- organized under the laws of MASSACHUSETTS and herein called the parent corporation, do hereby certify as follows: 1. That the subsidiary corporation(s) to be merged into the parent corporation are as follows: NAME STATE OF ORGANIZATION DATE OF ORGANIZATION AIDA Corporation California 6/15/84 Zehntel, Inc. Delaware 10/24/75 2. That the parent corporation owns at least ninety percent of the outstanding shares of each class of the stock of each subsidiary corporation to be merged into the parent corporation. 3. That in the case of each of the above-named corporations the laws of the state of its organization, if other than Massachusetts, permit the merger herein provided for and that all action required under the laws of each such state in connection with this merger has been duly taken. (If all the corporations are organized under the laws of Massachusetts and if General Laws, Chapter 156B is applicable to them, then Paragraph 3 may be deleted.) * Delete the inapplicable words. In case the parent corporation is organized under the laws of a state other than Massachusetts, these articles are to be signed by officers having corresponding powers and duties. C [ ] P [ ] M [ ] R.A. [ ] - ----------- P.C. 10 4. That at a meeting of the directors of the parent corporation, the following vote, pursuant to General Laws, Chapter 156B, Section 82, was duly adopted: See Continuation Sheets NOTE: Votes for which the space provided above is not sufficient should be set out on continuation sheets to be numbered 2A, 2B, etc. Continuation sheets must have a left-hand margin 1 inch wide for binding. Only one side should be used. 11 5. The effective date of the merger shall be the date approved and filed by the Secretary of the Commonwealth. If a later effective date is desired, specify such date, which shall not be more than thirty days after the date of filing: IN WITNESS WHEREOF and under the penalties of perjury we have hereto signed our names this 27th day of DECEMBER, 1989. /s/ Owen W. Robbins ----------------------------------- Owen W. Robbins Vice President /s/ William B. Asher ----------------------------------- William B. Asher Assistant Clerk * Delete the inapplicable words. In case the parent corporation is organized under the laws of a state other than Massachusetts, these articles are to be signed by officers having corresponding powers and duties. 12 Continuation Sheet MERGER OF AIDA CORPORATION VOTED: That the Agreement and Plan of Merger in the form attached hereto, providing for the merger of the Corporation's wholly-owned subsidiary, AIDA Corporation, with and into the corporation, with the Corporation constituting the surviving corporation, be, and hereby is, approved, with such changes therein or additions thereto as the officers executing the same shall approve, such approval to be evidenced conclusively by their execution and delivery thereof; and that the President or any Vice-President and Clerk or Assistant Clerk of the Corporation be, and they hereby are, authorized and empowered to execute and deliver the Agreement and Plan of Merger on behalf of the Corporation. VOTED: That the President or any Vice-President and the Clerk or Assistant Clerk of the Corporation be, and hereby are, authorized and empowered to execute, acknowledge and file on behalf of the Corporation, the Certificate of Ownership in the form attached hereto, with the office of the Secretary of State for the State of California. VOTED: At or after the effective date of the merger of AIDA Corporation with and into the Corporation, all debts, liabilities and duties of AIDA Corporation shall attach to the Corporation and may be enforced against the Corporation to the same extent as if such debts, liabilities and duties had been incurred or contracted by the Corporation. VOTED: That the president or any Vice President and the Clerk or Assistant Clerk of the Corporation be, and hereby are, authorized and empowered to execute, acknowledge and file on behalf of the Corporation, the Articles of Merger in the form attached hereto, with the office of the Secretary of State of Massachusetts. VOTED: That the effective date of such foregoing merger is and shall be January 1, 1990 VOTED: That the proper officers of the Corporation be, and each of them singly hereby is, authorized and empowered to execute and deliver such documents, instruments and certificates, make any payments and to take all actions as in his judgment may be necessary, desirable or appropriate in order to effectuate the intent and purposes of the foregoing resolutions. 13 Continuation Sheet Merger of Zehntel, Inc. VOTED: That the Agreement and Plan of Merger in the form attached hereto, providing for the merger of the Corporation's wholly-owned subsidiary, Zehntel, Inc. with and into the corporation, with the Corporation constituting the surviving corporation, be, and hereby is, approved, with such changes therein or additions thereto as the officers executing the same shall approve, such approval to be evidenced conclusively by their execution and delivery thereof; and that the President or any Vice-President and Clerk or Assistant Clerk of the Corporation be, and they hereby are, authorized and empowered to execute and deliver the Agreement and Plan of Merger on behalf of the Corporation. VOTED: That the President or any Vice-President and the clerk or Assistant clerk of the corporation be, and hereby are, authorized and empowered to execute, acknowledge and file on behalf of the Corporation, the Certificate of Ownership and Merger in the form attached hereto, with the office of the Secretary of State for the State of Delaware and a certified copy thereof in the office of the Recorder of Deeds of New Castle County in accordance with the General Corporation Law of the State of Delaware. VOTED: That the President or any Vice-President and the Clerk of Assistant Clerk of the corporation be, and hereby are, authorized and empowered to execute, acknowledge and file on behalf of the Corporation, the Articles of Merger in the form attached as hereto, with the office of the Secretary of State of Massachusetts and a certified copy thereof in the Registry of Deeds in accordance with the Business Corporation Law of Massachusetts. VOTED: That the effective date of such foregoing merger is and shall be January 1, 1990. VOTED: That the proper officers of the Corporation be, and each of them singly hereby is, authorized and empowered to execute and deliver such documents, instruments and certificates, make any payments and to take all actions as in his judgment may be necessary, desirable or appropriate in order to effectuate the intent and purposes of the foregoing resolutions. 14 THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF MERGER OF PARENT AND SUBSIDIARY CORPORATIONS (GENERAL LAWS, CHAPTER 156B, SECTION 82) ===================================== I hereby approve the within Articles of Merger of Parent and Subsidiary Corporations and, the filing fee in the amount of $250.00, having been paid, said articles are deemed to have been filed with me this 28th day of DECEMBER, 1989 Effective date:1/1/90 /s/ Michael Joseph Connolly ------------------------------------ MICHAEL JOSEPH CONNOLLY Secretary of State TO BE FILLED IN BY CORPORATION Photocopy of document to be sent to: Leslie S. White, Esq. --------------------------------- c/o Testa Hurwitz & Thibeault --------------------------------- 53 State Street, Exchange Place --------------------------------- Boston, MA 02109 --------------------------------- Telephone: (617) 367-7500 --------------------------------- 15 Federal Identification No. 04-2272148 ------------- Fee: $250.00 - ----------- Examiner THE COMMONWEALTH OF MASSACHUSETTS Michael Joseph Connolly Secretary of State One Ashburton Place, Boston, Massachusetts 02108 ARTICLES OF MERGER OF PARENT AND SUBSIDIARY CORPORATIONS (General Laws Chapter 156B, Section 82) We, Owen W. Robbins and William B. Asher, Jr. Vice President* and - ----------- -------------------------------------------- Name Approval Assistant Clerk of Teradyne, Inc. -------------------------------------------------- organized under the laws of MASSACHUSETTS and herein called the parent corporation, do hereby certify as follows: 1. That the subsidiary corporation(s) to be merged into the parent corporation are as follows: NAME STATE OF ORGANIZATION DATE OF ORGANIZATION CASE Technology, Inc. California 1/21/83 Teradyne Central, Inc. Delaware 12/15/72 Teradyne Connection Massachusetts 10/16/68 Systems, Inc. 2. That the parent corporation owns at least ninety percent of the outstanding shares of each class of the stock of each subsidiary corporation to be merged into the parent corporation. 3. That in the case of each of the above-named corporations the laws of the state of its organization, if other than Massachusetts, permit the merger herein provided for and that all action required under the laws of each such state in connection with this merger has been duly taken. (If all the corporations are organized under the C [ ] laws of Massachusetts and if General Laws, Chapter 156B is applicable to them, then Paragraph 3 may be deleted.) P [ ] * Delete the inapplicable words. In case the parent corporation is organized under the laws of a state other than Massachusetts, these M [ ] articles are to be signed by officers having corresponding powers and duties. R.A. [ ] - ----------- P.C. 16 4. That at a meeting of the directors of the parent corporation, the following vote, pursuant to General Laws, Chapter 156B, Subsection (a) was duly adopted: See Continuation Sheets 5. The effective date of the merger as specified in the vote set out under paragraph 4 is See Continuation Sheets IN WITNESS WHEREOF and under the penalties of perjury we have hereto signed our names this 27th day of December, 1989. /s/ Owen W. Robbins ---------------------------- Owen W. Robbins Vice President /s/ William B. Asher ---------------------------- William B. Asher Assistant Clerk * Delete the inapplicable words. In case the parent corporation is organized under the laws of a state other than Massachusetts, these articles are to be signed by officers having corresponding powers and duties. 17 THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF MERGER OF PARENT AND SUBSIDIARY CORPORATIONS (GENERAL LAWS, CHAPTER 156B, SECTION 82) ====================================== I hereby approve the within articles of merger of parent and subsidiary corporations and, the filing fee in the amount of $250.00, having been paid, said articles are deemed to have been filed with me this 28th day of December, 1989 Effective date: December 31, 1989 /s/ Michael Joseph Connolly --------------------------------------- MICHAEL JOSEPH CONNOLLY Secretary of State TO BE FILLED IN BY CORPORATION Photocopy of document to be sent to: Leslie S. White, Esq. c/o Testa, Hurwitz & Thibeault 53 State Street, Exchange Place Boston, MA 02109 ---------------------------------- Telephone: (617) 367-7500 18 Continuation Sheet MERGER OF TERADYNE CENTRAL, INC. VOTED: That the Agreement and Plan of Merger in the form attached hereto, providing for the merger of the corporation's wholly-owned subsidiary, Teradyne Central, Inc., with and into the corporation, with the Corporation constituting the surviving corporation, be, and hereby is, approved, with such changes therein or additions thereto as the officers executing the same shall approve, such approval to be evidenced conclusively by their execution and delivery thereof; and that the President or any Vice-President and Clerk or assistant Clerk of the Corporation be, and they hereby are, authorized and empowered to execute and deliver the Agreement and Plan of Merger on behalf of the Corporation. VOTED: That the President or any Vice-President and the clerk or Assistant clerk of the corporation be, and hereby are, authorized and empowered to execute, acknowledge and file on behalf of the Corporation, the Certificate of Ownership and Merger in the form attached hereto, with the office of the Secretary of State for the State of Delaware and a certified copy thereof in the office of the Recorder of Deeds of New Castle County in accordance with the General Corporation Law of the State of Delaware. VOTED: That the President or any Vice-President and the Clerk of Assistant Clerk of the corporation be, and hereby are, authorized and empowered to execute, acknowledge and file on behalf of the Corporation, the Articles of Merger in the form attached as hereto, with the office of the Secretary of State of Massachusetts and a certified copy thereof in the Registry Of Deeds in accordance with the Business Corporation Law of Massachusetts. VOTED: That the effective date of such foregoing merger is and shall be December 31, 1989. VOTED: That the proper officers of the Corporation be, and each of them singly hereby is, authorized and empowered to execute and deliver such documents, instruments and certificates, make any payments and to take all actions as in his judgment may be necessary, desirable or appropriate in order to effectuate the intent and purposes of the foregoing resolutions. 19 Continuation Sheet MERGER OF TERADYNE CONNECTION SYSTEMS, INC. VOTED: That the Agreement and Plan of Merger in the form attached hereto, providing for the merger of the Corporation's wholly-owned subsidiary, Teradyne Connection Systems, Inc. with and into the Corporation, with the Corporation constituting the surviving corporation, be, and hereby is, approved, with such changes therein or additions thereto as the officers executing the same shall approve, such approval to be evidenced conclusively by their execution and delivery thereof; and that the President or any Vice-President and Clerk or Assistant Clerk of the corporation be, and they hereby are, authorized and empowered to execute and deliver the Agreement and Plan of Merger on behalf of the Corporation. VOTED: That the President or any Vice-President and the Clerk or Assistant Clerk of the corporation be, and hereby are, authorized and empowered to execute, acknowledge and file on behalf of the Corporation, the Certificate of Ownership and Merger in the form attached hereto, with the office of the Secretary of State of State of Massachusetts and a certified copy thereof in the office of the Registry of Deeds of in accordance with the General Corporation Law of Massachusetts. VOTED: That the effective date of such foregoing merger is and shall be December 31, 1989. VOTED: That the proper officers of the Corporation be, and each of them singly hereby is, authorized and empowered to execute and deliver such documents, instruments and certificates, make any payments and to take all actions as in his judgment may be necessary, desirable or appropriate in order to effectuate the intent and purposes of the foregoing resolutions. 20 Continuation Sheet MERGER OF CASE TECHNOLOGY INC. VOTED: That the Agreement and Plan of Merger in the form attached hereto, providing for the merger of the Corporation's wholly-owned subsidiary, CASE Technology Inc., with and into the Corporation, with the corporation constituting the surviving corporation, or additions thereto as the officers executing the same shall approve, such approval to be evidenced conclusively by their execution and delivery thereof; and that the President or any Vice-President and Clerk or Assistant Clerk of the Corporation be, and they hereby are, authorized and empowered to execute and deliver the Agreement and Plan of Merger on behalf of the Corporation. VOTED: That the President or any Vice-President and the clerk or Assistant clerk of the corporation be, and hereby are, authorized and empowered to execute, acknowledge and file on behalf of the Corporation, the Certificate of Ownership and Merger in the form attached hereto, with the office of the Secretary of State for the State of California. VOTED: At and after the effective date of the merger of CASE Technology Inc. with and into the Corporation, all debts, liabilities and duties of CASE Technology Inc. shall attach to the Corporation and may be enforced against the Corporation to the same extent as if such debts, liabilities and duties had been incurred or contracted by the Corporation. VOTED: That the President or any Vice-President and the Clerk of Assistant Clerk of the corporation be, and hereby are, authorized and empowered to execute, acknowledge and file on behalf of the Corporation, the Articles of Merger in the form attached as hereto, with the office of the Secretary of State of Massachusetts and a certified copy thereof in the Registry of Deeds in accordance with the Business Corporation Law of Massachusetts. VOTED: That the effective date of such foregoing merger is and shall be December 31, 1989. VOTED: That the proper officers of the Corporation be, and each of them singly hereby is, authorized and empowered to execute and deliver such documents, instruments and certificates, make any payments and to take all actions as in his judgment may be necessary, desirable or appropriate in order to effectuate the intent and purposes of the foregoing resolutions. 21 THE COMMONWEALTH OF MASSACHUSETTS __________ MICHAEL JOSEPH CONNOLLY FEDERAL Examiner Secretary of State IDENTIFICATION NO.: ONE ASHBURTON PLACE 04-2272148 BOSTON, MASS 02108 ARTICLES OF MERGER OF PARENT AND SUBSIDIARY CORPORATION PURSUANT TO GENERAL LAWS, CHAPTER 156B, SECTION 82 The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts. * * * * We, Owen W. Robbins and William B. Asher, Vice President* and Assistant Clerk* of Teradyne, Inc., organized under the laws of Massachusetts and herein called the parent corporation, do hereby certify as follows: 1. That the subsidiary corporation(s) to be merged into the parent corporation are/is as follows: Name State of Organization Date of Organization 1. Teradyne Digitest, Inc. Delaware April 14, 1978 2. That the parent corporation owns at least ninety per cent of the outstanding shares of each class of the stock of each subsidiary corporation to be merged into the parent corporation. 3. That in the case of each of the above-named corporations the laws of the state of its organization, if other than Massachusetts, permit the merger herein provided for and that all action required under the laws of each such state in connection with this merger has been duly taken. (If all the corporations are organized under the laws of the Massachusetts and if General Laws, Chapter 156B is applicable to them, then Paragraph 3 may be deleted). - --------- * Delete the inapplicable words. In case the parent corporation is organized under the laws of a state other than Massachusetts these articles are to be signed by officers having corresponding powers and duties. 22 4. That at a meeting of the directors of the parent corporation the following vote, pursuant to subsection (a) of General Laws. Chapter 156B, Section 82, was duly adopted: VOTED: That the Agreement and Plan of Merger in the form attached as EXHIBIT A hereto, providing for the merger of Teradyne Digitest, Inc. with and into Teradyne, Inc., with Teradyne, Inc. constituting the surviving corporation, be, and hereby is, approved, with such changes therein or additions thereto as the officers executing the same shall approve, such approval to be evidenced conclusively by their execution and delivery thereof; and that the President or any Vice-President and Clerk or Assistant Clerk of the Company be, and they hereby are, authorized and empowered to execute and deliver the Agreement and Plan of Merger on behalf of Teradyne, Inc. VOTED: That the President or any Vice-President and the Clerk or Assistant Clerk of Teradyne, Inc. be, and hereby are, authorized and empowered to execute, acknowledge and file on behalf of Teradyne, Inc., the Articles of Merger in the form attached as hereto, with the office of the Secretary of State of Massachusetts. VOTED: That the effective date of such foregoing merger is and shall be December 31, 1988. VOTED: That the proper officers of Teradyne, Inc. be, and each of them singly hereby is, authorized and empowered to execute and deliver such documents, instruments and certificates, make any payments and to take all actions as in his judgment may be necessary, desirable or appropriate in order to effectuate the intent and purposes of the foregoing resolutions. NOTE: Votes for which the space provided above is not sufficient should be set out on continuation sheets to be numbered 2A, 2B etc. Continuation sheets must have a left-hand margin 1 inch wide for binding. Only one side should be used. 23 5. The effective date of the merger as specified in the vote set out under Paragraph 4 is December 31, 1988 6. (This Paragraph 6 may be deleted if the parent corporation is organized under the laws of Massachusetts.) The parent corporation hereby agrees that it may be sued in the Commonwealth of Massachusetts for any prior obligation of any subsidiary corporation organized under the laws of Massachusetts with which it has merged, and any obligation hereafter incurred by the parent corporation, including the obligation created by subsection (e) of General Laws, Chapter 156B, Section 82, so long as any liability remains outstanding against the parent corporation in the Commonwealth of Massachusetts and it hereby irrevocably appoints the Secretary of the Commonwealth as its agent to accept service of process for the enforcement of any such obligations, including taxes, in the same manner as provided in Chapter 181. IN WITNESS WHEREOF and under the penalties of perjury we have hereto signed our names this 29th day of December, 1988. /s/ Owen W. Robbins ------------------------------------ Owen W. Robbins Vice President* /s/ William B. Asher ------------------------------------- William B. Asher Assistant Clerk* * Delete the inapplicable words. In case the parent corporation is organized under the laws of a state other than Massachusetts these articles are to be signed by officers having corresponding powers and duties. 24 COMMONWEALTH OF MASSACHUSETTS ARTICLES OF MERGER OF PARENT AND SUBSIDIARY CORPORATIONS (General Laws, Chapter 156B, Section 82) I hereby approve the within articles of merger of parent and subsidiary corporations and, the filing fee in the amount of $200.00 having been paid, said articles are deemed to have been filed with me this 29th day of December, 1988. Effective Date - -------------- December 31, 1988 - ----------------- /s/ Michael Joseph Connolly -------------------------------- MICHAEL JOSEPH CONNOLLY Secretary of State TO BE FILLED IN BY CORPORATION Photo Copy of Merger to Be Sent TO: Leslie S. White, Esq. c/o Testa, Hurwitz & Thibeault 53 State Street Boston, MA 02109 Telephone: (617) 367-7500 25 THE COMMONWEALTH OF MASSACHUSETTS - -------- FEDERAL Examiner IDENTIFICATION NO. 04-2272148 OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE MICHAEL JOSEPH CONNOLLY, Secretary ONE ASHBURTON PLACE, BOSTON, MASS. 02108 ARTICLES OF AMENDMENT General Laws, Chapter 156B, Section 72 This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the amendment. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts. --------- We, Alexander V. d'Arbeloff, President and Richard J. Testa, Clerk of TERADYNE, INC. - -------------------------------------------------------------------------------- (Name of Corporation) located at 321 Harrison Avenue, Boston, Massachusetts 02118 ________ do hereby certify that the following amendment to the articles of approved reorganization of the corporation was duly adopted at a meeting held on May 8, 1987, by vote of 17,740,199 shares of common stock out of 23,898,176 shares outstanding CROSS OUT being at least:(1) two-thirds of each class INAPPLICABLE outstanding and entitled to vote thereon and of CLAUSE each class or series of stock whose rights are adversely affected thereby:(2) C [ ] P [ ] M [ ] (1) For amendments adopted pursuant to Chapter 156B, Section 70. (2) For amendments adopted pursuant to Chapter 156B Section 71. Note: If the space provided under any amendments or item on this form is insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one Amendment may be continued on a single sheet so long as each Amendment requiring each such addition is clearly indicated. 26 TO CHANGE the number of shares and the par value, if any, of each class of stock within the corporation fill in the following: The total presently authorized is: - -------------------------------------------------------------------------------- KIND OF STOCKS NO PAR VALUE WITH PAR VALUE NUMBER OF SHARES NUMBER OF SHARES PAR VALUE - -------------------------------------------------------------------------------- COMMON - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PREFERRED: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CHANGE the total authorized to: - -------------------------------------------------------------------------------- KIND OF STOCKS NO PAR VALUE WITH PAR VALUE NUMBER OF SHARES NUMBER OF SHARES PAR VALUE - -------------------------------------------------------------------------------- COMMON - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PREFERRED: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 27 Article Six is hereby amended to add the following paragraph: "No director shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director notwithstanding any provision of law imposing such liability; provided, that, to the extent provided by applicable law, this provision shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section sixty-one or sixty-two of Chapter 156B of the Massachusetts General Laws, or (iv) for any transaction from which the director derived an improper personal benefit. This provision shall not eliminate the liability of a director for any act or omission occurring prior to the date upon which this provision becomes effective. No amendment to or repeal of this provision shall apply to or have any effect upon the liability or alleged liability of any director for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal." The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of the General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this 8th day of May, in the year 1987. /s/ Alexander V. d'Arbeloff - --------------------------------- Alexander V. d'Arbeloff President /s/ Richard J. Testa - --------------------------------- Richard J. Testa Clerk 28 THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF AMENDMENT (General Laws, Chapter 156B, Section 72) I hereby approve the within articles of amendment and, the filing fee in the amount of $75.00 having been paid, said articles are deemed to have been filed with me this 12 day of May 1987. /s/ Michael Joseph Connolly --------------------------------- MICHAEL JOSEPH CONNOLLY Secretary of State TO BE FILLED IN BY CORPORATION Photo Copy of Merger to Be Sent TO: Richard D. Sloman, Esq. c/o Testa, Hurwitz & Thibeault 53 State Street Boston, MA 02109 Telephone: (617) 367-7500 29 THE COMMONWEALTH OF MASSACHUSETTS - -------- FEDERAL Examiner IDENTIFICATION NO. 04-2272148 MICHAEL JOSEPH CONNOLLY Secretary of State ONE ASHBURTON PLACE, BOSTON, MASS. 02108 RESTATED ARTICLES OF ORGANIZATION GENERAL LAWS, CHAPTER 156B, SECTION 74 This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the restated articles of organization. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts. --------- We, Alexander V. d'Arbeloff ,President and Richard J. Testa , Clerk of TERADYNE, INC. - -------------------------------------------------------------------------------- (Name of Corporation) located at 321 Harrison Avenue, Boston Massachusetts 02118 do hereby certify that the following restatement of the articles of organization of the corporation was duly adopted at a meeting held on May 14, 1984, by vote of 15,720,764 shares of common stock out of 22,070,973 shares outstanding being at least a majority of each class of stock outstanding and entitled to vote and of each class or series of stock adversely affected thereby:- 1. The name by which the corporation shall be known is: - Teradyne, Inc. 2. The purposes for which the corporation is formed are as follows: - See Page 2A C [ ] P [ ] M [ ] RA [ ] - ---------- P.C. Note: If the space provided under any amendments or item on this form is insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one Amendment may be continued on a single sheet so long as each Amendment requiring each such addition is clearly indicated. 30 3. The total number of shares and the par value, if any, of each class of stock which the corporation is authorized to issue is as follows: CLASS OF STOCK WITHOUT PAR VALUE WITH PAR VALUE NUMBER OF SHARES NUMBER OF SHARES PAR VALUE Preferred NONE NONE -- Common NONE 75,000,000 $.125 *4. If more than one class is authorized, a description of each of the different classes of stock with, if any, the preferences, voting powers, qualifications, special or relative rights or privileges as to each class thereof and any series now established: NONE *5. The restrictions, if any, imposed by the articles of organization upon the transfer of shares of stock of any class are as follows: NONE *6. Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders: The directors may make, amend or repeal the By-Laws in whole or in part, except with respect to any provision thereof which by law or by the By-Laws requires action by the stockholders. Meetings of the stockholders may be held anywhere in the United States. The corporation may be a partner in any business enterprise. * If there are no such provisions, state "None." 31 2A To design, develop, manufacture, assemble, produce, acquire, own, buy, import, sell, export, dispose of and otherwise deal in electronic or electromechanical products or components, and personal property of every kind and description. To acquire, buy, own and sell securities (including the securities of this corporation), patents, licenses, trade marks, trade names and all rights of every kind thereunder. To acquire, buy, construct, own, lease, mortgage and sell real estate, buildings or any interests therein necessary or desirable for the purposes of the corporation. To acquire all or any part of the goodwill, rights and property, and to assume the whole or any part of the contracts or liabilities of any firm, association, corporation or person, and to pay for such acquisition in cash, stock or other securities of this corporation or otherwise. To exercise any of the foregoing purposes of powers through subsidiary or affiliated corporations, and in connection therewith and otherwise to have all the powers conferred now or in future by the Commonwealth of Massachusetts upon business corporations. 32 * We further certify that the foregoing restated articles of organization effect no amendments to the articles of organization of the corporation as heretofore amended, except amendments to the following articles Article 3. Briefly describe amendments in space below: Article 3 is amended by increasing the number of shares of Common Stock, $.125 par value, which the Corporation is authorized to issue from 30,000,000 shares to 75,000,000 shares. IN WITNESS WHERE AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this 14th day of May in the year 1984 /s/ Alexander V. d'Arbeloff - ------------------------------------ Alexander V. d'Arbeloff President /s/ Richard J. Testa - ------------------------------------ Richard J. Testa Clerk 33 THE COMMONWEALTH OF MASSACHUSETTS RESTATED ARTICLES OF ORGANIZATION (GENERAL LAWS, CHAPTER 156B, SECTION 74) I hereby approve the within restated articles of organization and, the filing fee in the amount of $22,650.00 having been paid, said articles are deemed to have been filed with me this 21st day of May, 1984 /s/ Michael Joseph Connolly --------------------------------- MICHAEL JOSEPH CONNOLLY Secretary of State TO BE FILLED IN BY CORPORATION Photo Copy of Restated Articles of Organization to Be Sent TO: Richard J. Testa, Esq. c/o Testa, Hurwitz & Thibeault Sixty State Street Boston, MA 02109 Telephone: (617) 367-7500 EX-4.1 3 RIGHTS AGREEMENT 1 EXHIBIT 4.1 EXHIBIT D --------- RIGHTS AGREEMENT RIGHTS AGREEMENT, dated as of March 14, 1990 (the "Agreement"), between TERADYNE, INC., a Massachusetts corporation (the "Company"), and THE FIRST NATIONAL BANK OF BOSTON, a national banking association, as Rights Agent (the "Rights Agent"). WITNESSETH WHEREAS, on March 14, 1990 (the "Rights Dividend Declaration Date"), the Board of Directors of the Company (the "Board") authorized and declared a dividend distribution of one Right for each share of Common Stock (as hereinafter defined) of the Company outstanding at the close of business on March 26, 1990 (the "Record Date"), and has authorized the issuance of one Right for each share of Common Stock of the Company issued (whether originally issued or sold from the Company's treasury) between the Record Date and the Distribution Date, each Right initially representing the right to purchase one share of Common Stock upon the terms and conditions hereinafter set forth (the "Rights"); NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms have the meanings indicated: (a) "Acquiring Person" shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 20% or more of the shares of Common Stock then outstanding, but shall not include the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan. (b) "Act" shall mean the Securities Act of 1933, as amended. (c) "Adjustment Shares" shall have the meaning set forth in Section 11(a)(ii) hereof. (d) "Adverse Person" shall mean any Person declared to be an Adverse Person by the Continuing Directors upon determination that the criteria set forth in Section 11(a)(ii)(D) hereof apply to such Person. 2 (e) "Adverse Person Event" shall mean the determination by the Continuing Directors, pursuant to Section 11(a)(ii)(D) hereof, that a Person is an Adverse Person. (f) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended and in effect on the date of this Agreement (the "Exchange Act"). (g) "Agreement" shall mean this Rights Agreement as originally executed or as it may from time to time be supplemented or amended pursuant to the applicable provisions hereof. (h) A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to "beneficially own", any securities: (i) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, whether or not in writing, or upon the exercise of conversion rights, exchange rights, other rights, warrants or options, or otherwise; PROVIDED, however, that a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own", (A) securities tendered pursuant to a tender offer or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange, or (B) securities issuable upon exercise of Rights at any time prior to the occurrence of a Triggering Event, or (C) securities issuable upon exercise of Rights from and after the occurrence of a Triggering Event which Rights were acquired by such Person or any of such Person's Affiliates or Associates prior to the Distribution Date or pursuant to Section 3(a) or Section 22 hereof (the "Original Rights") or pursuant to Section 11(a)(i) hereof in connection with an adjustment made with respect to any Original Rights; (ii) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act, or any comparable or successor rule), including pursuant to any agreement, arrangement or understanding, whether or not in writing; PROVIDED, however, that a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own", any security under this subparagraph (ii) as a result of an agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding: (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the General Rules and Regulations under the Exchange Act, and (B) is not also then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person's Affiliates or Associates) has any agreement, arrangement or understanding, whether or not in writing, for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in 3 the proviso to subparagraph (ii) of this paragraph (d)) or disposing of any voting securities of the Company. Notwithstanding anything in this definition of Beneficial Ownership to the contrary, the phrase "then outstanding", when used with reference to a Person's Beneficial Ownership of securities of the Company, shall mean the number of such securities then issued and outstanding together with the number of such securities not then actually issued and outstanding which such Person would be deemed to own beneficially hereunder. (i) "Board" means the Board of Directors of the Company. (j) "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the Commonwealth of Massachusetts are authorized or obligated by law or executive order to close. (k) "Close of Business" on any given date shall mean 5:00 P.M., Boston time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 P.M., Boston time, on the next succeeding Business Day. (l) "Common Stock" shall mean the common stock, $.125 par value, of the Company, except that "Common Stock" when used with reference to any Person other than the Company shall mean the capital stock of such Person with the greatest voting power, or the equity securities or other equity interest having power to control or direct the management, of such Person. (m) "Common Stock Equivalents" shall have the meaning set forth in Section 11(a)(iii) hereof. (n) "Company" shall mean the Person named as the "Company" in the first paragraph of this Agreement until a successor corporation shall have become such or until a Principal Party shall assume, and thereafter be liable for, all obligations and duties of the Company hereunder, pursuant to the applicable provisions of this Agreement, and thereafter "Company" shall mean such successor corporation or Principal Party. (o) "Continuing Director" shall mean (i) any member of the Board, while such Person is a member of the Board, who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, and was a member of the Board prior to the date of this Agreement, or (ii) any Person who becomes a member of the Board subsequent to the date of this Agreement, while such Person is a member of the Board, who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or Associate, if such Person's nomination for election or election to the Board is recommended or approved by a majority of the Continuing Directors. (p) "Current Market Price" shall have the meaning set forth in Section 11(d) hereof. 4 (q) "Current Value" shall have the meaning set forth in Section 11(a)(iii) hereof. (r) "Distribution Date" shall have the meaning set forth in Section 3(a) hereof. (s) "Equivalent Common Stock" shall have the meaning set forth in Section 11(ii)(b) hereof. (t) "Exchange Act" shall have the meaning set forth in Section 1 (f) hereof. (u) "Expiration Date" shall have the meaning set forth in Section 7(a) hereof. (v) "Final Amendment Date" shall mean the earlier of the Distribution Date or the occurrence of an Adverse Person Event. (w) "Final Expiration Date" shall mean the close of business on March 26, 2000. (x) "Independent Directors" shall mean the Continuing Directors who are not executive officers of the Company. (y) "Initial Exercise Price" shall be $40.00. (z) "NASDAQ" shall mean the National Association of Securities Dealers, Inc. Automated Quotation System. (aa) "Original Rights" shall have the meaning set forth in Section 1(h)(i) hereof. (bb) "Person" shall mean any individual, firm, association, corporation, partnership or other entity. (cc) "Principal Party" shall have the meaning set forth in Section 13(b) hereof. (dd) "Purchase Price" shall have the meaning set forth in Section 4(a) hereof. (ee) "Record Date" shall have the meaning set forth in the preamble of the Agreement. (ff) "Redemption Price" shall have the meaning set forth in Section 23(a) hereof. (gg) "Rights" shall have the meaning set forth in the preamble of the Agreement. (hh) "Rights Agent" shall mean the Person named as the "Rights Agent" in the first paragraph of this Agreement until a successor Rights Agent shall have become such pursuant to the applicable provisions hereof, and thereafter "Rights Agent" shall mean such successor Rights Agent. If at any time there is more than one Person appointed by the Company as Rights Agent 5 pursuant to the applicable provisions of this Agreement, "Rights Agent" shall mean and include each such Person. (ii) "Rights Certificates" shall have the meaning set forth in Section 3(a) hereof. (jj) "Rights Dividend Declaration Date" shall have the meaning set forth in the preamble of this Agreement. (kk) "Section 11(a)(ii) Event" shall mean any event described in Section 11(a)(ii)(A), (B), (C) or (D) hereof. (ll) "Section 11(a)(ii) Trigger Date" shall have the meaning set forth in Section 11(a)(iii) hereof. (mm) "Section 13 Event" shall mean any event described in clauses (x), (y) or (z) of Section 13(a) hereof. (nn) "Spread" shall have the meaning set forth in Section 11(a) (iii) hereof. (oo) "Stock Acquisition Date" shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has become such. (pp) "Subsidiary" shall mean, with reference to any Person, any corporation of which an amount of voting securities sufficient to elect at least a majority of the directors of such corporation is beneficially owned, directly or indirectly, by such Person, or which is otherwise controlled by such Person. (qq) "Substitute Consideration" shall have the meaning set forth in Section 11(a)(iii) hereof. (rr) "Substitution Period" shall have the meaning set forth in Section 11(a)(iii) hereof. (ss) "Trading Day" shall have the meaning set forth in Section 11 (d) hereof. (tt) "Triggering Event" shall mean any Section 11(a)(ii) Event or any Section 13 Event. Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date also be the holders of the Common Stock) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such 6 appointment. The Company may from time to time appoint such Co-Rights Agents as it may deem necessary or desirable. Section 3. ISSUE OF RIGHTS CERTIFICATES. (a) Until the earliest of (i) the Close of Business on the tenth day after the Stock Acquisition Date (or, if the tenth day after the Stock Acquisition Date occurs before the Record Date, the Close of Business on the Record Date), (ii) the Close of Business on the tenth Business Day (or, if such tenth Business Day occurs before the Record Date, the Close of Business on the Record Date), or such specified or unspecified later date on or after the Record Date as may be determined by action of a majority of the Continuing Directors, after the date that a tender offer or exchange offer by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan) is first published or sent or given within the meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act, if upon consummation thereof, such Person would be the Beneficial Owner of 30% or more of the shares of Common Stock then outstanding or (iii) the Close of Business on the tenth Business Day after an Adverse Person Event (the earliest of (i), (ii) and (iii) being herein referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of paragraph (b) of this Section 3) by the certificates for the Common Stock registered in the names of the holders of the Common Stock (which certificates for Common Stock shall be deemed also to be certificates for Rights) and not by separate certificates, and (y) the Rights will be transferable only in connection with the transfer of the underlying shares of Common Stock (including a transfer to the Company). As soon as practicable after the Distribution Date, the Rights Agent will send by first-class, postage prepaid mail, to each record holder of the Common Stock as of the Close of Business on the Distribution Date, at the address of such holder shown on the records of the Company, one or more rights certificates, in substantially the form of Exhibit A hereto (the "Rights Certificates"), evidencing one Right for each share of Common Stock so held, subject to adjustment as provided herein. As of and after the Distribution Date, the Rights will be evidenced solely by such Rights Certificates. (b) As promptly as practicable following the Record Date, the Company will send a copy of a Summary of Rights (the "Summary of Rights"), in substantially the form attached hereto as Exhibit B, by first-class, postage prepaid mail, to each record holder of the Common Stock as of the Close of Business on the Record Date, at the address of such holder shown on the records of the Company. With respect to certificates for the Common Stock outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates for the Common Stock and the registered holders of the Common Stock shall also be the registered holders of the associated Rights. Until the earlier of the Distribution Date or the Expiration Date (as such term is defined in Section 7 hereof), the transfer of any certificates representing shares of Common Stock in respect of which Rights have been issued shall also constitute the transfer of the Rights associated with such shares of Common Stock. (c) Rights shall be issued in respect of all shares of Common Stock that are issued (whether originally issued or from the Company's treasury) after the Record Date but prior to the 7 earlier of the Distribution Date or the Expiration Date. Rights shall also be issued to the extent provided in Section 22 in respect of all shares of Common Stock which are issued (whether originally issued or from the Company's treasury) after the Distribution Date and prior to the Expiration Date. Certificates representing such shares of Common Stock in respect of which Rights are issued pursuant to the first sentence of this Section 3(c) shall also be deemed to be certificates for Rights, and commencing as soon as reasonably practicable following the date hereof shall bear the following legend: This certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Rights Agreement between Teradyne, Inc. (the "Company") and The First National Bank of Boston (the "Rights Agent") dated as of March 14, 1990 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person, an Adverse Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void. The Rights shall not be exercisable, and shall be void so long as held, by a holder in any jurisdiction where the requisite qualification to the issuance to such holder, or the exercise by such holder, of the Rights in such jurisdiction shall not have been obtained or obtainable. With respect to such certificates containing the foregoing legend, until the earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone and registered holders of Common Stock shall also be the registered holders of the associated Rights, and the transfer of any of such certificates shall also constitute the transfer of the Rights associated with the Common Stock represented by such certificates. Section 4. FORM OF RIGHTS CERTIFICATES. (a) The Rights Certificates (and the forms of election to purchase, and of assignment to be printed on the reverse thereof) shall each be substantially in the form set forth in Exhibit A hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Section 11 and Section 22 hereof, the Rights Certificates, whenever distributed, shall be dated as of the Record Date and on their face shall entitle the holders thereof to purchase such number of shares of Common Stock as shall be set forth therein at the price per share set 8 forth therein (such exercise price per share hereinafter referred to as the "Purchase Price"), but the amount and type of securities purchasable upon the exercise of each Right and the Purchase Price thereof shall be subject to adjustment as provided herein. (b) Any Rights Certificate issued pursuant to Section 3(a) or Section 22 hereof that represents Rights beneficially owned by (i) an Acquiring Person, an Adverse Person or any Associate or Affiliate of an Acquiring Person or an Adverse Person, (ii) a transferee of an Acquiring Person or an Adverse Person (or of any such Associate or Affiliate) who becomes a transferee after the acquiring Person becomes such, or (iii) a transferee of an Acquiring Person or the Adverse Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person or the Adverse Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person or the Adverse Person to holders of equity interests in such Acquiring Person or Adverse Person or to any Person with whom such Acquiring Person or Adverse Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which a majority of the Continuing Directors has determined is part of a plan, arrangement or understanding that has as a primary purpose or effect avoidance of Section 7(e) hereof, and any Rights Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain (to the extent feasible) the following legend (modified to apply to an Acquiring Person or an Adverse Person, as applicable): The Rights represented by this Rights Certificate are or were beneficially owned by a Person who was or became an [Acquiring] [Adverse] Person or an Affiliate or Associate of an [Acquiring] [Adverse] Person (as such terms are defined in the Rights Agreement). Accordingly, this Rights Certificate and the Rights represented hereby may become null and void in the circumstances specified in Section 7(e) of such Agreement. Section 5. COUNTERSIGNATURE AND REGISTRATION. (a) The Rights Certificates shall be executed on behalf of the Company by its President or any Vice President and its Treasurer or any Assistant Treasurer, either manually or by facsimile signature, and shall have affixed thereto the Company's seal or a facsimile thereof. The Rights Certificates shall be countersigned, either manually or by facsimile signature, by the Rights Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Rights Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Rights Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Rights Certificates had not ceased to be such officer of the Company; and any Rights Certificates may be signed on behalf of the Company by any person who, at the actual date of the execution of such Rights Certificate, shall be a proper officer of the Company to sign such Rights Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer. 9 (b) Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its office designated as the appropriate place for surrender of Rights Certificates upon exercise or transfer, books for registration and transfer of the Rights Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Rights Certificates, the number of Rights evidenced on its face by each of the Rights Certificates, the Rights Certificate number and the date of each of the Rights Certificates. Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES. (a) Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any time after the Close of Business on the Distribution Date, and at or prior to the Close of Business on the Expiration Date, any Rights Certificate or Certificates may be transferred, split up, combined or exchanged for another Rights Certificate or Certificates, entitling the registered holder to purchase a like number of shares of Common Stock (or other securities, cash or other assets, as the case may be) as the Rights Certificate or Certificates surrendered then entitled such holder (or former holder in the case of a transfer) to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Rights Certificate or Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Rights Certificate or Certificates to be transferred, split up, combined or exchanged, with the form of assignment and certificate appropriately executed, at the office of the Rights Agent designated for such purpose. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered Rights Certificate or Certificates until the registered holder shall have completed and signed the certificate contained in the form of assignment set forth on the reverse side of such Rights Certificate and shall have provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e) and Section 14 hereof, countersign and deliver to the Person entitled thereto a Rights Certificate or Rights Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Rights Certificates. (b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Rights Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificate if mutilated, the Company will execute and deliver a new Rights Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated. Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS. 10 (a) Subject to Section 7(e) hereof, the registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein including, without limitation, the restrictions on exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a) hereof) in whole or in part at any time after the Distribution Date upon surrender of the Rights Certificate, with the form of election to purchase set forth on the reverse side thereof and the certificate contained therein completed and duly executed, to the Rights Agent at the office of the Rights Agent designated for such purpose, together with payment of the aggregate Purchase Price with respect to the total number of shares of Common Stock (or other securities, cash or other assets, as the case may be) as to which such surrendered Rights are then exercisable, at or prior to the earlier of (i) the Final Expiration Date, (ii) the time at which the Rights are redeemed as provided in Section 23 hereof or (iii) the time at which the Rights expire pursuant to Section 13(d) hereof (the earliest of (i), (ii) or (iii) being herein referred to as the "Expiration Date"). (b) The Purchase Price for each share of Common Stock pursuant to the exercise of a Right shall initially be the Initial Exercise Price, and shall be subject to adjustment from time to time as provided in Sections 11 and 13(a) hereof and shall be payable in accordance with paragraph (c) below. (c) Upon receipt of a Rights Certificate representing exercisable Rights, with the form of election to purchase set forth on the reverse side thereof and the certificate contained therein completed and duly executed, accompanied by payment, with respect to each Right so exercised, of the Purchase Price for the shares (or other securities, cash or other assets, as the case may be) to be purchased as set forth below and an amount equal to any applicable transfer tax, the Rights Agent shall, subject to Section 20(k) hereof, promptly (i) requisition from any transfer agent of the shares of Common Stock (or make available, if the Rights Agent is the transfer agent for the Common Stock) certificates for the total number of shares of Common Stock to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, (ii) requisition from the Company the amount of cash, if any, to be paid in lieu of fractional shares of Common Stock in accordance with Section 14 hereof, (iii) after receipt of such certificates for shares of Common Stock, cause the same to be delivered to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, and (iv) after receipt thereof, deliver such cash, if any, to or upon the order of the registered holder of such Rights Certificate. The payment of the Purchase Price (as such amount may be reduced pursuant to Section 11(a)(iii) hereof) shall be made in cash or by certified check, cashier's check or bank draft payable to the order of the Company. In the event that the Company is obligated to issue other securities of the Company, pay cash or distribute other property pursuant to Section 11(a) hereof, the Company will make all arrangements necessary so that such other securities, cash or other property are available for distribution by the Rights Agent, if and when appropriate. The Company reserves the right to require prior to the occurrence of a Triggering Event that, upon any exercise of Rights, such number of Rights be exercised so that only whole shares of Common Stock would be issued. (d) In case the registered holder of any Rights Certificate shall exercise less than all the Rights evidenced thereby, a new Rights Certificate evidencing the Rights equivalent to the 11 Rights remaining unexercised shall be issued by the Rights Agent and delivered to, or upon the order of, the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, subject to the provisions of Section 14 hereof. (e) Notwithstanding anything in this Agreement to the contrary, from and after the first occurrence of an event described in Section 11(a)(ii)(A) or (C) and from and after the Close of Business on the tenth day after the occurrence of an event described in Section 11(a)(ii)(B) or (D), any Rights beneficially owned by (i) an Acquiring Person, an Adverse Person or an Associate or Affiliate of an Acquiring Person or Adverse Person, which a majority of the Continuing Directors, in their sole discretion, determines is or was involved in or caused or facilitated, directly or indirectly (including through any change in the Board), such Section 11(a)(ii) Event, (ii) a transferee of an Acquiring Person or Adverse Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person or Adverse Person becomes such, or (iii) a transferee of an Acquiring Person or Adverse Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person or Adverse Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person or Adverse Person to holders of equity interests in such Acquiring Person or Adverse Person or to any Person with whom the Acquiring Person or Adverse Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which a majority of the Continuing Directors has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect the avoidance of this Section 7(e), shall become null and void without any further action and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Company shall use all reasonable efforts to ensure that the provisions of this Section 7(e) and Section 4(b) hereof are complied with, but shall have no liability to any holder of Rights Certificates or other Person as a result of its failure to make any determinations with respect to an Acquiring Person or Adverse Person or its Affiliates, Associates or transferees hereunder. (f) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section 7 unless such registered holder shall have (i) completed and signed the certificate contained in the form of election to purchase set forth on the reverse side of the Rights Certificate surrendered for such exercise, and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Section 8. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES. All Rights Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Rights Certificate purchased 12 or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Rights Certificates to the Company, or shall, at the written request of the Company, destroy such cancelled Rights Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. Section 9. RESERVATION AND AVAILABILITY OF COMMON STOCK. (a) The Company covenants and agrees that following the later of (i) the Distribution Date and (ii) the termination of any period during which the exercisability of the Rights are suspended, it will cause to be reserved and kept available out of its authorized and unissued shares of Common Stock and other securities or out of its authorized and issued shares held in its treasury, the number of shares of Common Stock or other securities that as provided in this Agreement including Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of all outstanding Rights. (b) Following the later of (i) the Distribution Date and (ii) the termination of any period during which the exercisability of the Rights are suspended, and for so long as the shares of Common Stock and other securities issuable and deliverable upon the exercise of the Rights may be listed on any national securities exchange, the Company shall use its best efforts to cause all shares reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise. (c) The Company shall use its best efforts to (i) file, as soon as practicable following the earliest date after the first occurrence of a Triggering Event in which the consideration to be delivered by the Company upon exercise of the Rights has been determined in accordance with this Agreement, a registration statement under the Act, with respect to the Common Stock or other securities purchasable upon exercise of the Rights on an appropriate form, (ii) cause such registration statement to become effective as soon as practicable after such filing, and (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities, and (B) the Expiration Date. The Company will also take such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights. The Company may temporarily suspend, for a period of time not to exceed ninety (90) days after the date set forth in clause (i) of the first sentence of this Section 9(c), the exercisability of the Rights in order to prepare and file such registration statement and permit it to become effective. In addition, if the Company shall determine that a registration statement is required following the Distribution Date, the Company may temporarily suspend the exercisability of the Rights until such time as a registration statement has been declared effective. Upon any suspension of the exercisability of the Rights referred to in this Section 9(c), the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable and shall be void so long as held by a holder in any jurisdiction where the requisite qualification to the issuance to such holder, or the exercise by such holder, of the Rights in such jurisdiction shall not have been 13 obtained or be obtainable, the exercise thereof shall not be permitted under the applicable law or a registration statement shall not have been declared effective. (d) The Company covenants and agrees that it will take all such action as may be necessary to ensure that all shares of Common Stock (or other securities) delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable. (e) The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges that may be payable in respect of the issuance or delivery of the Rights Certificates and of any certificates for shares of Common Stock (or other securities, as the case may be) upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax that may be payable in respect of any transfer or delivery of Rights Certificates to a Person other than, or the issuance or delivery of shares of Common Stock (or other securities, as the case may be) in respect of a name other than that of, the registered holder of the Rights Certificates evidencing Rights surrendered for exercise or to issue or deliver any certificates for shares of Common Stock (or other securities, as the case may be) in a name other than that of the registered holder upon the exercise of any Rights until such tax shall have been paid (any such tax being payable by the holder of such Rights Certificates at the time of surrender) or until it has been established to the Company's satisfaction that no such tax is due. Section 10. COMMON STOCK RECORD DATE. Each Person in whose name any certificate for shares of Common Stock (or other securities, as the case may be) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the shares of Common Stock (or other securities, as the case may be) represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and all applicable transfer taxes) was made; PROVIDED, however, that if the date of such surrender and payment is a date upon which the Common Stock (or other securities, as the case may be) transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Common Stock (or other securities, as the case may be) transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Rights Certificate shall not be entitled to any rights of a stockholder of the Company with respect to shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OR NUMBER OF RIGHTS. The Purchase Price, the number and kind of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a)(i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Common Stock payable in shares of Common Stock, (B) subdivide the outstanding Common Stock, (C) combine the outstanding Common Stock into a smaller 14 number of shares, or (D) issue any shares of its capital stock in a reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a) and Section 7(e) hereof, the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of Common Stock or capital stock, as the case may be, issuable on such date, shall be proportionately adjusted so that if a holder of Rights after such time were to exercise that number of Rights (or fraction thereof) which would result in the aggregate amount of the Purchase Price payable upon such exercise (at the Purchase Price then in effect) being equal to the amount of the Purchase Price payable prior to such time upon exercise of a Right, he would be entitled to receive the aggregate number and kind of shares of Common Stock or other capital stock, as the case may be, which, if a Right had been exercised immediately prior to such time and at a time when the Common Stock (or other capital stock, as the case may be) transfer books of the Company were open, he would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. If an event occurs that would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof. (ii) In the event: (A) any Acquiring Person or any Associate or Affiliate of any Acquiring Person, at any time after the date of this Agreement, directly or indirectly, (1) shall merge into the Company or otherwise combine with the Company and the Company shall be the continuing or surviving corporation of such merger or combination and the Common Stock of the Company shall remain outstanding and unchanged, (2) shall merge or otherwise combine with any Subsidiary of the Company, (3) shall, in one transaction or a series of transactions, transfer any assets to the Company or to any of its Subsidiaries in exchange (in whole or in part) for shares of Common Stock, for shares of other equity securities of the Company or any Subsidiary of the Company, or for securities exercisable for or convertible into shares of equity securities of the Company or any Subsidiary of the Company (Common Stock or otherwise) or otherwise obtain from the Company, with or without consideration, any additional shares of equity securities of the Company or securities exercisable for or convertible into shares of such equity securities of the Company (other than pursuant to a pro rata distribution to all holders of Common Stock or upon the exercise of a convertible security of the Company or any Subsidiary of the Company in accordance with its terms), (4) shall sell, purchase, lease, exchange, mortgage, pledge, transfer or otherwise acquire or dispose of, in one transaction or a series of transactions, to, from or with (as the case may be) the Company or any of its Subsidiaries, assets on terms and conditions less favorable to the Company than the Company would be able to obtain at arm's length negotiation with an unaffiliated third party, other than pursuant to a transaction set forth in Section 13(a) hereof, (5) shall sell, purchase, lease, exchange, mortgage, pledge, transfer or otherwise acquire or dispose of in one transaction or a series of transactions, to, from or with (as the case may be) the Company or any of the Company's Subsidiaries (other than incidental to the lines of business, if any, engaged in as of the date hereof between the Company and such Acquiring Person or Associate or Affiliate) assets having an aggregate fair market value of more than $4,000,000 other 15 than pursuant to a transaction set forth in Section 13(a) hereof, (6) shall receive any compensation from the Company or any of the Company's Subsidiaries other than compensation for full-time employment as a regular employee at rates in accordance with the Company's (or its Subsidiaries') past practices, or (7) shall receive the benefit, directly or indirectly (except proportionately as a stockholder and except if resulting from a requirement of law or governmental regulation), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Company or any of its Subsidiaries, or (B) any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan), alone or together with any Affiliates and Associates of such Person, shall, at any time after the Rights Dividend Declaration Date, become the Beneficial Owner of 30% or more of the shares of Common Stock then outstanding, unless the event causing the 30% threshold to be crossed is a transaction set forth in Section 13(a) hereof, or is an acquisition of shares of Common Stock pursuant to a tender offer or an exchange offer for all outstanding shares of Common Stock at a price and on terms determined by a majority of the Independent Directors, after receiving advice from one or more investment banking firms, to be (a) at a price that is fair to stockholders (taking into account all factors which such members of the Board deem relevant including, without limitation, prices which could reasonably be achieved if the Company or its assets were sold on an orderly basis designed to realize maximum value) and (b) otherwise in the best interest of the Company and its stockholders, or (C) during such time as there is an Acquiring Person, there shall be any reclassification of securities (including any reverse stock split), or recapitalization of the Company, or any merger or consolidation of the Company with any of its Subsidiaries or any other transaction or series of transactions involving the Company or any of its Subsidiaries (whether or not with or into or otherwise involving an Acquiring Person), other than a transaction or transactions to which the provisions of Section 13(a) hereof apply (whether or not with or into or otherwise involving an Acquiring Person), which has the effect, directly or indirectly, of increasing by more than 1% the proportionate share of the outstanding shares of any class of equity securities of the Company or any of its Subsidiaries which is directly or indirectly beneficially owned by any Acquiring Person or any Associate or Affiliate of any Acquiring Person, or (D) the Continuing Directors shall declare any Person to be an Adverse Person, upon a determination that such Person, alone or together with its Affiliates and Associates, has, at any time after the Rights Dividend Declaration Date, become the Beneficial Owner of an amount of Common Stock which the Continuing Directors determine to be substantial (which amount shall in no event be less than 15% of the shares of Common Stock then outstanding) and a majority of the Continuing Directors determines, after reasonable inquiry and investigation, which may include a review of the public record regarding such Person and any information such directors may request from such Person and consultation with such persons as such directors shall deem appropriate, that (1) such Beneficial Ownership by such Person is intended to cause the Company to repurchase the Common Stock beneficially owned by such Person or to cause 16 pressure on the Company to take action or enter into a transaction or series of transactions intended to provide such Person with short-term financial gain under circumstances where such directors determine that the best long-term interests of the Company and its stockholders (taking into account any impact on the national security of the United States or the impact on any constituency which Massachusetts law permits directors to consider in discharging their fiduciary duty) would not be served by taking such action or entering into such transactions or series of transactions at that time or (2) such Beneficial Ownership is causing or reasonably likely to cause a material adverse impact (including, but not limited to, impairment of relationships with customers or impairment of the Company's ability to maintain its competitive position) on the business or prospects of the Company, then, immediately upon the occurrence of any event described in Section 11(a)(ii)(A) or (C) hereof, and upon the Close of Business ten (10) days after the occurrence of any event described in Section 11(a)(ii)(B) or (D) hereof, proper provision shall be made so that each holder of a Right (except as provided below and in Section 7(e) hereof) shall thereafter have the right to receive, upon exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, such number of shares of Common Stock of the Company as shall equal the result obtained by (x) multiplying the then current Purchase Price by the then number of shares of Common Stock for which a Right was or would have been exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event, whether or not such Right was then exercisable and (y) dividing that product (which, following such first occurrence, shall thereafter be referred to as the "Purchase Price" for each Right and for all purposes of this Agreement) by 50% of the Current Market Price per share of Common Stock (determined pursuant to Section 11(d) hereof) on the date of such first occurrence (such number of shares being referred to herein as the "Adjustment Shares"). (iii) In lieu of issuing shares of Common Stock in accordance with Section 7(c) or Section 11(a)(ii) hereof, if the Board of Directors of the Company, with the consent of a majority of the Continuing Directors, determines that the action described below in this Section 11(a)(iii) is necessary or appropriate and not contrary to the interests of the holders of Rights (other than any Acquiring Person, any Adverse Person and any Affiliates or Associates of any such Person), the Company may: (A) determine (x) in the case of an exercise of a Right prior to any adjustment pursuant to Section 11(a)(ii) hereof, the Current Market Price per share of Common Stock on the date of the exercise of that Right, or (y) in the case of an exercise of a Right following any adjustment pursuant to Section 11(a)(ii) the value of the Adjustment Shares issuable upon the exercise of a Right (the result of (x) or (y), as the case may be, being referred to herein as the "Current Value"), and (B) with respect to each Right (subject to Section 7(e) hereof), make adequate provision to substitute, upon the exercise of a Right and payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Stock or other equity securities of the Company (including, without limitation, shares, or units of shares, of preferred stock which the Board of Directors of the Company has deemed to have the same value as shares of Common Stock (such shares of preferred stock being referred to herein as "Common Stock Equivalents")), (4) debt securities of the Company, (5) other assets, or (6) any combination of the foregoing, having an aggregate value equal to the Current Value, as adjusted (less the amount of any reduction in the Purchase Price), where such aggregate value has been determined by the 17 Board of Directors of the Company based upon the advice of a nationally recognized investment banking firm selected by the Board of Directors of the Company; PROVIDED, however, if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty (30) days following the later of (x) the first occurrence of a Section 11(a)(ii) Event and (y) the date on which the Company's right of redemption pursuant to Section 23(a) expires (the later of (x) and (y) being referred to herein as the "Section 11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, shares of Common Stock (to the extent available) and then, if necessary, cash, which shares or cash have an aggregate value equal to the Spread. For purposes of the preceding sentence, the term "Spread" shall mean the excess of (i) the Current Value over (ii) the Purchase Price. If the number of shares of Common Stock that are authorized by the Company's Articles of Organization, as amended, but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights are not sufficient to permit the exercise in full of any Rights and the Board of Directors of the Company with the consent of the Continuing Directors determines in good faith that it is likely that sufficient additional shares of Common Stock could be authorized for issuance upon exercise in full of the Rights, the thirty (30) day period set forth above may be extended to the extent necessary, but not more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that the Company may seek stockholder approval for the authorization of such additional shares (such thirty (30) day period, as it may be extended, shall be referred to as the "Substitution Period"). To the extent that the Company determines that some action need be taken pursuant to the first or second sentences of this Section 11(a)(iii), the Company (x) shall provide, subject to Section 7(e) hereof, that such action shall apply uniformly to all outstanding Rights, and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares or to decide the appropriate form of distribution to be made pursuant to such provisions and to determine the value thereof. In the event of such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the Common Stock shall be the Current Market Price per share of the Common Stock (as determined pursuant to Section 11(d) hereof) on the Section 11(a)(ii) Trigger Date and the per share or per unit value of any Common Stock Equivalent shall be deemed to equal the Current Market Price per share of the Common stock on such date. (b) In case the Company shall fix a record date for the issuance of rights (other than the Rights), options or warrants to all holders of Common Stock entitling them to subscribe for or purchase (for a period expiring within forty-five (45) calendar days after such record date) Common Stock, shares having the same rights, privileges and preferences as the shares of Common Stock ("Equivalent Common Stock") or securities convertible into Common Stock or Equivalent Common Stock at a price per share of Common Stock or per share of Equivalent Common Stock (or having a conversion price per share, if a security convertible into Common Stock or Equivalent Common Stock) less than the Current Market Price per share of Common Stock (as determined pursuant to Section 11(d) hereof) on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on such record date, plus the number of shares of Common 18 Stock which the aggregate offering price of the total number of shares of Common Stock or Equivalent Common Stock (or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such Current Market Price, and the denominator of which shall be the number of shares of Common Stock outstanding on such record date, plus the number of additional shares of Common Stock or Equivalent Common Stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid by delivery of consideration part or all of which may be in a form other than cash, the value of such noncash consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights. Shares of Common Stock owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed, and in the event that such rights, options or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) In case the Company shall fix a record date for a distribution to all holders of Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness, cash (other than a regular quarterly or other periodic cash dividend out of the earnings or retained earnings of the Company), assets (other than a dividend payable in Common Stock, but including any dividend payable in stock other than Common Stock) or subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the Current Market Price per share of Common Stock (as determined pursuant to Section 11(d) hereof) on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent) of the portion of the cash, assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to a share of Common Stock and the denominator of which shall be such Current Market Price per share of Common Stock (as determined pursuant to Section 11(d) hereof). Such adjustments shall be made successively whenever such a record date is fixed, and in the event that such distribution is not so made, the Purchase Price shall be adjusted to be the Purchase Price which would have been in effect if such record date had not been fixed. (d) For the purpose of any computation hereunder, other than computations made pursuant to Section 11(a)(iii) hereof, the Current Market Price per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the thirty (30) consecutive Trading Days immediately prior to such date, and for the purposes of computations made pursuant to Section 11(a)(iii) hereof, the Current Market Price per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the ten (10) consecutive Trading Days immediately following such date; PROVIDED, however, that in the event that the Current Market Price per share of the Common Stock is determined during a period following the announcement by the issuer of such Common 19 Stock of (A) any dividend or distribution on the Common Stock payable in shares of the Common Stock or securities convertible into shares of Common Stock (other than Rights), or (B) any subdivision, combination or reclassification of the Common Stock, and prior to the expiration of the requisite thirty (30) Trading Day or ten (10) Trading Day period, as set forth above, after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the Current Market Price shall be properly adjusted to take into account ex-dividend trading. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the shares of Common Stock are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the NASDAQ or such other system then in use, or, if on any such date the shares of Common Stock are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board of Directors of the Company. If on any such date no market maker is making a market in the Common Stock, the fair value of such shares on such date as determined in good faith by the Board of Directors of the Company shall be used. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading is open for the transaction of business or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, a Business Day. If the Common Stock is not publicly held or not so listed or traded, Current Market Price per share shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. (e) Anything herein to the contrary notwithstanding, no adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the Purchase Price; PROVIDED, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest ten-thousandth of a share, as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three (3) years from the date of the transaction which mandates such adjustment, or (ii) the Expiration Date. (f) If as a result of an adjustment made pursuant to Section 11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock other than Common Stock, thereafter the number of such other shares so receivable upon exercise of any Right and the Purchase Price thereof shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect 20 to the Common Stock contained in Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m) hereof, and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Common Stock shall apply on like terms to any such other shares. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of shares of Common Stock purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Sections 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of shares of Common Stock obtained by (i) multiplying (x) the number of shares covered by a Right immediately prior to this adjustment, by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price, and (ii) dividing the product so obtained by the Purchase Price in effect immediatedisafter such adjustment of the Purchase Price. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in lieu of any adjustment in the number of shares of Common Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the number of shares of Common Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest ten-thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least ten (10) days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date Rights Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Rights Certificates on the record date specified in the public announcement. 21 (j) Irrespective of any adjustment or change in the Purchase Price or the number of shares of Common Stock issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Purchase Price per share and the number of shares which were expressed in the initial Rights Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below the then par value of the shares of Common Stock issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Purchase Price. (l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the shares of Common Stock and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the shares of Common Stock and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; PROVIDED, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares or securities upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that in their good faith judgment the Board of Directors of the Company shall determine to be advisable in order that any (i) consolidation or subdivision of the Common Stock, (ii) issuance wholly for cash of any shares of Common Stock at less than the Current Market Price, (iii) issuance wholly for cash of shares of Common Stock or securities which by their terms are convertible into or exchangeable for shares of Common Stock, (iv) stock dividends, or (v) issuance of rights, options or warrants referred to in this Section 11, hereafter made by the Company to holders of its Common Stock shall not be taxable to such stockholders. (n) The Company covenants and agrees that it shall not, at any time after the Distribution Date, (i) consolidate with any other Person (other than a Subsidiary of the Company in a transaction that complies with Section 11(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one transaction, or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o) hereof), if (x) at the time of or immediately after such consolidation, merger or sale there are any rights, warrants or other instruments or securities outstanding or agreements in effect that would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights or (y) prior to, simultaneously with or immediately 22 after such consolidation, merger or sale, the stockholders of the Person who constitutes, or would constitute, the "Principal Party" for purposes of Section 13(a) hereof shall have received a distribution of Rights previously owned by such Person or any of its Affiliates and Associates. (o) The Company covenants and agrees that, after the Distribution Date, it will not, except as permitted by Section 23 or Section 26 hereof, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights. (p) The failure by the Continuing Directors to declare (or the Independent Directors to concur therewith) a Person to be an Adverse Person following such Person becoming the Beneficial Owner of 15% or more of the outstanding Common Stock shall not imply that such Person is not an Adverse Person or limit such directors' right at any time in the future to declare such Person to be an Adverse Person. Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES. Whenever an adjustment is made as provided in Section 11 and Section 13 hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent, and with each transfer agent for the Common Stock, a copy of such certificate, and (c) mail a brief summary thereof to each holder of a Rights Certificate (or, if prior to the Distribution Date, to each holder of a certificate representing shares of Common Stock) in accordance with Section 25 hereof. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained and shall not be deemed to have knowledge of any adjustment unless and until it shall have received such certificate. Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING POWER. (a) In the event that, following the Stock Acquisition Date, directly or indirectly, (x) the Company shall consolidate with, or merge with and into, any other Person (other than a Subsidiary of the Company in a transaction that complies with Section 11(o) hereof), and the Company shall not be the continuing or surviving corporation of such consolidation or merger, (y) any Person (other than a Subsidiary of the Company in a transaction that complies with Section 11(o) hereof) shall consolidate with, or merge with or into, the Company, and the Company shall be the continuing or surviving corporation of such consolidation or merger and, in connection with such consolidation or merger, all or part of the outstanding shares of Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (z) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one transaction or a series of related transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons (other than the Company or any Subsidiary of the Company in one or more transactions each of which complies with Section 11(o) hereof), then, and in each such case and except as contemplated in Section 13(d) hereof, proper provision shall be made so that: (i) each holder of a Right, except as provided in Section 7(e) hereof, shall thereafter have the right to receive, upon the exercise thereof 23 at the then current Purchase Price in accordance with the terms of this Agreement, such number of validly authorized and issued, fully paid, nonassessable and freely tradeable shares of Common Stock of the Principal Party (as such term is hereinafter defined), not subject to any liens, encumbrances, rights of first refusal or other adverse claims, as shall be equal to the result obtained by (1) multiplying the then current Purchase Price by the number of shares of Common Stock for which a Right was exercisable immediately prior to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the first occurrence of a Section 13 Event, multiplying the number of shares of Common Stock for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event by the Purchase Price in effect immediately prior to such first occurrence), and dividing that product (which, following the first occurrence of a Section 13 Event, shall be referred to as the "Purchase Price" for each Right and for all purposes of this Agreement) by (2) 50% of the Current Market Price (determined pursuant to Section 11(d) hereof) per share of the Common Stock of such Principal Party on the date of consummation of such Section 13 Event; (ii) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such Section 13 Event, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such Principal Party, it being specifically intended that the provisions of Section 11 hereof shall apply only to such Principal Party following the first occurrence of a Section 13 Event; (iv) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of shares of its Common Stock) in connection with the consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its shares of Common Stock thereafter deliverable upon the exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof shall be of no effect following the first occurrence of any Section 13 Event. (b) "Principal Party" shall mean (i) in the case of any transaction described in clause (x) or (y) of the first sentence of Section 13(a), the Person that is the issuer of any securities into which shares of Common Stock of the Company are converted in such merger or consolidation, and if no securities are so issued, the Person that is the other party to such merger or consolidation; and (ii) in the case of any transaction described in clause (z) of the first sentence of Section 13(a), the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions; PROVIDED, however, that in any such case, (1) if the Common Stock of such Person is not at such time and has not been continuously over the preceding twelve (12) month period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of another Person the Common Stock of which is and has been so registered, "Principal Party" shall refer to such other Person; and (2) in case such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Stocks of two or more of which are and have been so registered, 24 "Principal Party" shall refer to whichever of such Persons is the issuer of the Common Stock having the greatest aggregate market value. (c) The Company shall not consummate any such consolidation, merger, sale or transfer unless the Principal Party shall have a sufficient number of authorized shares of its Common Stock which have not been issued or reserved for issuance to permit the exercise in full of the Rights in accordance with this Section 13 and unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in paragraphs (a) and (b) of this Section 13 and further providing that, as soon as practicable after the date of any consolidation, merger or sale of assets mentioned in paragraph (a) of this Section 13, the Principal Party will (i) prepare and file a registration statement under the Act, with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, and will use its best efforts to cause such registration statement to (A) become effective as soon as practicable after such filing and (B) remain effective (with a prospectus at all times meeting the requirements of the Act) until the Expiration Date; and (ii) deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates that comply in all respects with the requirements for registration on Form 10 under the Exchange Act. The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. In the event that a Section 13 Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the Rights which have not theretofore been exercised shall thereafter become exercisable in the manner described in Section 13(a). (d) Notwithstanding anything in this Agreement to the contrary, Section 13 shall not be applicable to a transaction described in subparagraphs (x) and (y) of Section 13(a) if (i) such transaction is consummated with a Person or Persons who acquired shares of Common Stock pursuant to a tender offer or exchange offer for all outstanding shares of Common Stock which complies with the provisions of Section 11(a)(ii)(B), (or a wholly owned subsidiary of any such Person or Persons), (ii) the price per share of Common Stock offered in such transaction is not less than the price per share of Common Stock paid to all holders of shares of Common Stock whose shares were purchased pursuant to such tender offer or exchange offer, and (iii) the form of consideration being offered to the remaining holders of shares of Common Stock pursuant to such transaction is the same as the form of consideration paid pursuant to such tender offer or exchange offer. Upon consummation of any such transaction contemplated by this Section 13(d), all Rights hereunder shall expire. Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES. (a) The Company shall not be required to issue fractions of Rights, except prior to the Distribution Date as provided in Section 11(i) hereof, or to distribute Rights Certificates that evidence fractional Rights. If the Company determines not to issue fractional Rights, there shall 25 be paid in lieu thereof to the registered holders of the Rights Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price of the Rights for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading, or if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used. (b) The Company shall not be required to issue fractions of shares of Common Stock upon exercise of the Rights or to distribute certificates that evidence fractional shares of Common Stock. In lieu of fractional shares of Common Stock, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one share of Common Stock. For purposes of this Section 14(b), the current market value of one share of Common Stock shall be the closing price per share of Common Stock (determined pursuant to Section 11(d)(ii) hereof) on the Trading Day immediately prior to the date of such exercise. (c) The holder of a Right by the acceptance of the Rights expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right. Section 15. RIGHTS OF ACTION. All rights of action in respect of this Agreement, other than rights of action vested in the Rights Agent in Section 18 hereof, are vested in the respective registered holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock); and any registered holder of any Rights Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of the Rights Agent or of the holder of any other Rights Certificate (or, prior to the Distribution Date, of the Common Stock), may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Rights Certificate in the manner provided in such Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and shall be entitled to specific 26 performance of the obligations hereunder and injunctive relief against actual or threatened violations of the obligations hereunder of any Person subject to this Agreement. Section 16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of Common Stock; (b) after the Distribution Date, the Rights Certificates are transferable only on the registry books of the Rights Agent if surrendered at the office of the Rights Agent designated for such purposes, duly endorsed or accompanied by a proper instrument of transfer and with the appropriate forms and certificates duly completed and fully executed; (c) subject to Section 6(a) and Section 7(f) hereof, the Company and the Rights Agent may deem and treat the person in whose name a Rights Certificate (or, prior to the Distribution Date, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Rights Certificates or the associated Common Stock certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent, subject to the last sentence of Section 7(e) hereof, shall be required to be affected by any notice to the contrary; and (d) notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation; PROVIDED, however, the Company must use its best efforts to have any such order, decree or ruling lifted or otherwise overturned as soon as possible. Section 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder, as such, of any Rights Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the shares of Common Stock or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed to confer upon the holder of any Rights Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 24 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Rights Certificate shall have been exercised in accordance with the provisions hereof. 27 Section 18. CONCERNING THE RIGHTS AGENT. (a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and disbursements and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises. (b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Rights Certificate or certificate for Common Stock or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons. Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT. (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust or stock transfer business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; PROVIDED, however, that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the counter-signature of a predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor or the name of the successor Rights Agent; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name 28 or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person or Adverse Person and the determination of Current Market Price) be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the President, any Vice President, the Treasurer, any Assistant Treasurer, the Clerk or any Assistant Clerk of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Rights Certificates or be required to verify the same (except as to its countersignature on such Rights Certificates), but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate; nor shall it be responsible for any adjustment required under the provisions of Section 11 or Section 13 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Rights Certificate after receipt of a certificate describing any such adjustment furnished in accordance with Section 12); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock to be issued pursuant to this Agreement or any Rights Certificate or as to whether any shares of Common Stock will, when so issued, be validly authorized and issued, fully paid and nonassessable. 29 (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the President, any Vice President, the Clerk, any Assistant Clerk, the Treasurer or any Assistant Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer. Any application by the Rights Agent for written instructions from the Company may, at the option of the Rights Agent, set forth in writing any action proposed to be taken or omitted by the Rights Agent under this Rights Agreement and the date on or after which such action shall be taken or such omission shall be effective. The Rights Agent shall not be liable for any action by, or omission of, the Rights Agent in accordance with a proposal included in any such application on or after the date specified therein (which date shall not be less than five business days after the date any such officer actually receives such application, unless any such officer shall have consented in writing to an earlier date) unless, prior to taking any such action (or the effective date in the case of an omission), the Rights Agent shall have received written instructions in response to such application specifying the action to be taken or omitted. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct; PROVIDED, however, reasonable care was exercised in the selection and continued employment thereof. (j) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it. (k) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate contained in the form of assignment or the form of election to 30 purchase set forth on the reverse thereof, as the case may be, has either not been completed or indicates an affirmative response to clause 1 or 2 thereof, the Rights Agent shall not take any further action with respect to such requested exercise of transfer without first consulting with the Company. Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon thirty (30) days' notice in writing mailed to the Company, and to each transfer agent of the Common Stock, by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon thirty (30) days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock, by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by any registered holder of a Rights Certificate (who shall, with such notice, submit his Rights Certificate for inspection by the Company), then any registered holder of any Rights Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a corporation organized and doing business under the laws of the United States or the Commonwealth of Massachusetts or the State of New York (or of any other state of the United States so long as such corporation is authorized to do business as a banking institution in the Commonwealth of Massachusetts or the State of New York) in good standing, having a principal office in the Commonwealth of Massachusetts or the State of New York, which is authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50,000,000 or (b) an affiliate of a corporation described in clause (a) of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock, and mail a notice thereof in writing to the registered holders of the Rights Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. ISSUANCE OF NEW RIGHTS CERTIFICATES. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price and the number or kind or class of 31 shares or other securities or property purchasable under the Rights Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of shares of Common Stock following the Distribution Date and prior to the redemption or expiration of the Rights, the Company (a) shall, with respect to shares of Common Stock so issued or sold pursuant to the exercise of stock options or under any employee plan or arrangement, or upon the exercise, conversion or exchange of securities, notes or debentures issued by the Company, and (b) may, in any other case, if deemed necessary or appropriate by the Board of Directors of the Company, issue Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale; PROVIDED, however, that (i) no such Rights Certificate shall be issued if, and to the extent that, the Company shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Company or the Person to whom such Rights Certificate would be issued, and (ii) no such Rights Certificate shall be issued if, and to the extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance thereof. Section 23. REDEMPTION AND TERMINATION. (a) The Board of Directors of the Company may, at its option, at any time prior to the earlier of (i) the Close of Business on the tenth day following the Stock Acquisition Date (or, if the Stock Acquisition Date shall have occurred prior to the Record Date, the close of business on the tenth day following the Record Date), or (ii) the Expiration Date, redeem all but not less than all of the then outstanding Rights at a redemption price of $.01 per Right, as such amount may be appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"); PROVIDED, however, that the Board may not redeem any Rights following an Adverse Person Event and provided, further, that if the Board authorizes redemption of the Rights in either of the circumstances set forth in clauses (i) and (ii) below, then there must be Continuing Directors then in office and such authorization shall require the concurrence of a majority of such Continuing Directors: (i) such authorization occurs on or after the time a Person becomes an Acquiring Person, or (ii) such authorization occurs on or after the date of a change (resulting from a proxy or consent solicitation effected in compliance with applicable law and the requirements of any national securities exchange on which the Common Stock is listed) in a majority of the directors in office at the commencement of such solicitation if any Person who is a participant in such solicitation has stated (or, if upon the commencement of such solicitation, a majority of the Board has determined in good faith) that such Person (or any of its Affiliates or Associates) intends to take, or may consider taking, any action which would result in such Person becoming an Acquiring Person or which would cause the occurrence of a Triggering Event unless, concurrent with such solicitation, such Person (or one or more of its Affiliates or Associates) is making a cash tender offer pursuant to a Schedule 14D-1, (or any successor form) filed with the Securities and Exchange Commission for all outstanding shares of Common Stock not beneficially owned by such Person (or by its Affiliates or Associates). If, following the occurrence of a Stock Acquisition Date and following the expiration of the right of redemption set forth in the preceding sentence but prior to any Triggering Event, (i) a Person who was an Acquiring Person shall have transferred or otherwise disposed of a number of shares of Common Stock in one or more transactions, not directly or indirectly involving the Company or any of its 32 Subsidiaries, which did not result in the occurrence of a Triggering Event such that such Person is thereafter a Beneficial Owner of 10% or less of the outstanding shares of Common Stock, and (ii) there are no other Persons, immediately following the occurrence of the event described in clause (i), who are Acquiring Persons, and (iii) the Board (with the concurrence of a majority of the Continuing Directors) shall so approve, then the Company's right of redemption set forth in the preceding sentence shall be reinstated and thereafter be subject to the provisions of this Section 23. If following the occurrence of a Stock Acquisition Date and following the expiration of the right of redemption set forth in the first sentence hereof, but prior to any Triggering Event the Board of Directors of the Company, may, at its option, redeem all but not less than all the then outstanding Rights at the Redemption Price, provided that (i) such redemption is effected in connection with the approval by the Board of Directors of the Company of, and the execution and delivery by the Company of an agreement providing for, a merger, consolidation, sale or transfer of all or substantially all of the assets of the Company or other business combination, in each case which involves the Company but does not involve an Acquiring Person or an Affiliate or Associate of an Acquiring Person or any other Person acting directly or indirectly on behalf of or in association with any such Acquiring Person, Affiliate or Associate and (ii) such redemption is approved by a majority of the Continuing Directors. Notwithstanding anything contained in this Agreement to the contrary, the Rights shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event until such time as the Company's right of redemption set forth in the first sentence of this Section 23(a) has expired. (b) The Company may, at its option, pay the Redemption Price in cash, shares of Common Stock (based on the Current Market Price as defined in Section 11(d) hereof, of the Common Stock at the time of redemption) or any other form of consideration deemed appropriate by the Board of Directors of the Company. (c) Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights, evidence of which shall have been filed with the Rights Agent and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price for each Right so held. Promptly after the action of the Board of Directors ordering the redemption of the Rights, the Company shall give notice of such redemption to the Rights Agent and the holders of the then outstanding Rights by mailing such notice to all such holders at each holder's last address as it appears upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the Transfer Agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of the redemption will state the method by which the payment of the Redemption Price will be made. Section 24. NOTICE OF CERTAIN EVENTS. (a) In case the Company shall propose, at any time after the Distribution Date, (i) to pay any dividend payable in stock of any class to the holders of Common Stock or to make any other distribution to the holders of Common Stock (other than a regular quarterly cash dividend out of earnings or retained earnings of the Company, or (ii) to offer to the holders of 33 Common Stock rights or warrants to subscribe for or to purchase any additional shares of Common Stock or shares of stock of any class or any other securities, rights or options, or (iii) to effect any reclassification of its Common Stock (other than a reclassification involving only the subdivision of outstanding shares of Common Stock), or (iv) to effect any consolidation or merger into or with any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one transaction or a series of related transactions, of more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o) hereof), or (v) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Rights Certificate, to the extent feasible, in accordance with Section 25 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend or distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the shares of Common Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least twenty (20) days prior to the record date for determining holders of the shares of Common Stock for purposes of such action, and in the case of any such other action, at least twenty (20) days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the shares of Common Stock, whichever shall be the earlier. (b) In case any of the events set forth in Section 11(a)(ii) hereof shall occur, then, in any such case, (i) the Company shall as soon as practicable thereafter give to each holder of a Rights Certificate, to the extent feasible, and in accordance with Section 25 hereof, a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights under Section 11(a)(ii) hereof and (ii) all references in the preceding paragraph to Common Stock shall, to the extent appropriate, also be deemed thereafter to refer to other securities. Section 25. NOTICES. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Rights Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: Teradyne, Inc. 321 Harrison Avenue Boston, Massachusetts 02118 Attention: President Subject to the provisions of Section 21, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Rights Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: 34 The First National Bank of Boston Blue Hills Office Park Mail Stop 45-02-16 150 Royall Street Canton, Massachusetts 02021 Attention: Shareholder Services Division Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate (or, if prior to the Distribution Date, to the holder of certificates representing shares of Common Stock) shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 26. SUPPLEMENTS AND AMENDMENTS. At any time prior to the Final Amendment Date, and subject to the penultimate sentence of this Section 26, the Company and the Rights Agent shall, if the Company so directs, supplement or amend any provision of this Agreement without the approval of any holders of certificates representing shares of Common Stock. From and after the Final Amendment Date and subject to the penultimate sentence of this Section 26, the Company and the Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Rights Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, (iii) to shorten or lengthen any time period hereunder or (iv) to change or supplement the provisions hereunder in any manner which the Company may deem necessary or desirable and which shall not adversely affect the interests of the holders of Rights Certificates (other than an Acquiring Person, an Adverse Person or an Affiliate or Associate of such Person); PROVIDED, however, that this Agreement may not be supplemented or amended, (A) whether before or after the Final Amendment Date, to lengthen a time period relating to when the Rights may be redeemed or to modify the ability (or inability) of the Continuing Directors to redeem the Rights, in either case at such time as the Rights are not then redeemable or (B) after the Final Amendment Date, to lengthen, pursuant to clause (iii) of this sentence, any other time period unless such lengthening is for the purpose of protecting, enhancing or clarifying the rights of or the benefits to the holders of Rights (other than any Acquiring Person, an Adverse Person or an Associate or Affiliate of such Person). Upon the delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 26, the Rights Agent shall execute such supplement or amendment. Notwithstanding anything contained in this Agreement to the contrary, no supplement or amendment shall be made which changes the Redemption Price, the Final Expiration Date, the Purchase Price or the number of shares of Common Stock for which a Right is exercisable. Prior to the Distribution Date, the interests of the holders of Rights shall be deemed coincident with the interests of the holders of Common Stock. 35 Section 27. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 28. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS, ETC. For all purposes of this Agreement, any calculation of the number of shares of Common Stock outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding shares of Common Stock of which any Person is the Beneficial Owner, shall be made in accordance with the provisions of the last sentence of Rule 13d-3(d)(l)(i) of the General Rules and Regulations under the Exchange Act. The Board of Directors of the Company (with, where specifically provided for herein, the concurrence of the Continuing Directors) shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board (with, where specifically provided for herein, the concurrence of the Continuing Directors) or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement, and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination to redeem or not redeem the Rights, to declare that a Person is an Adverse Person or to amend the Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board of Directors of the Company (with, where specifically provided for herein, the concurrence of the Continuing Directors ) in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties, and (y) not subject the Board of Directors of the Company, the Continuing Directors to any liability to the holders of the Rights. Section 29. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for this sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock). Section 30. SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated, PROVIDED, however, that notwithstanding anything in this Agreement to the contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board determines in its good faith judgment that severing the invalid language from this Agreement would materially and adversely affect the purpose or effect of this Agreement, the right of redemption set forth in Section 23 hereof shall be reinstated and shall not expire until the close of business on the tenth day following the date of such determination by the Board. Without limiting the foregoing, if any provision requiring that a 36 determination made by less than the entire Board is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, such determination shall then be made by the entire Board. Section 31. GOVERNING LAW. This Agreement, each Right and each Rights Certificate issued hereunder shall be deemed to be a contract made under the laws of the Commonwealth of Massachusetts and for all purposes shall be governed by and construed in accordance with the laws of such Commonwealth applicable to contracts made and to be performed entirely within such Commonwealth. Section 32. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 33. DESCRIPTIVE HEADINGS. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 37 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. Attest: TERADYNE, INC. By: /s/ Donald G. Leka by: /s/ Alexander V. D'Arbeloff ------------------ --------------------------- Name: Donald G. Leka Name: Alexander V. d'Arbeloff Title: Assistant Clerk Title: President Attest: THE FIRST NATIONAL BANK OF BOSTON By: /s/ Riva Joseph By: /s/ Darlene M. DioDato --------------- ---------------------- Name: Riva Joseph Name: Darlene M. DioDato Title: Account Manager Title: Assistant Vice President 38 EXHIBIT A Certificate No. R- _______ Rights NOT EXERCISABLE AFTER MARCH 26, 2000 OR EARLIER IF REDEEMED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN ADVERSE PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. THE RIGHTS SHALL NOT BE EXERCISABLE, AND SHALL BE VOID SO LONG AS HELD, BY A HOLDER IN ANY JURISDICTION WHERE THE REQUISITE QUALIFICATION TO THE ISSUANCE TO SUCH HOLDER, OR THE EXERCISE BY SUCH HOLDER, OF THE RIGHTS IN SUCH JURISDICTION SHALL NOT HAVE BEEN OBTAINED OR BE OBTAINABLE. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN [ACQUIRING] [ADVERSE] PERSON OR AN AFFILIATE OR ASSOCIATE OF AN [ACQUIRING] [ADVERSE] PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCE SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.] - ------------------------------- The portion of the legend in brackets shall be inserted only if applicable, shall be modified to apply to an Acquiring Person or an Adverse Person, as applicable, and shall replace the preceding sentence. 39 Rights Certificate TERADYNE, INC. This certifies that __________________________, or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of March 14, 1990 (the "Rights Agreement"), between Teradyne, Inc., a Massachusetts corporation (the "Company"), and The First National Bank of Boston, a Boston corporation (the "Rights Agent"), to purchase from the Company at any time prior to 5:00 P.M. (Boston, Massachusetts time) on March 26, 2000 at the office or offices of the Rights Agent designated for such purpose, or its successors as Rights Agent, one fully paid and nonassessable share of common stock, par value $.125 per share (the "Common Stock"), of the Company, at a purchase price of $40.00 per share (the "Purchase Price"), upon presentation and surrender of this Rights Certificate with the Form of Election to Purchase and related Certificate duly executed. The number of Rights evidenced by this Rights Certificate (and the number of shares which may be purchased upon exercise thereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price of March 26, 1990 based on the Common Stock as constituted as such date. As more fully set forth in the Rights Agreement, following the occurrence of a Section 11(a)(ii) Event (as such term is defined in the Rights Agreement), if the Rights evidenced by this Rights Certificate are beneficially owned by (i) an Acquiring Person, an Adverse Person or an Affiliate or Associate of any such Person (as such terms are defined in the Rights Agreement), which the Company's Continuing Directors (as defined in the Rights Agreement), in their sole discretion, determine is or was involved in or caused or facilitated, directly or indirectly (including through any change in the Board), such Section 11(a)(ii) Event, (ii) a transferee of any such Acquiring Person, Adverse Person, Affiliate or Associate who becomes a transferee after such Acquiring Person, Adverse Person, Affiliate or Associate becomes such, or (iii) under certain circumstances specified in the Rights Agreement, a transferee of any such Acquiring Person, 40 Adverse Person, Affiliate or Associate who becomes a transferee prior to or concurrently with such Acquiring Person or Adverse Person becoming such, such Rights shall become null and void and no holder hereof shall have any right with respect to such Rights from and after the occurrence of such Section 11(a)(ii) Event. The Rights evidenced by this Rights Certificate shall not be exercisable, and shall be void so long as held, by a holder in any jurisdiction where the requisite qualification to the issuance to such holder, or the exercise by such holder, of the Rights in such jurisdiction shall not have been obtained or be obtainable. As provided in the Rights Agreement, the Purchase Price and the number and kind of shares of Common Stock or other securities, which may be purchased upon the exercise of the Rights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of certain events, including Triggering Events. This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates, which limitations of rights include the temporary suspension of the exercisability of such Rights under the specific circumstances set forth in the Rights Agreement. Copies of the Rights Agreement are on file at the above-mentioned office of the Rights Agent and are also available upon written request to the Company. This Rights Certificate, with or without other Rights Certificates, upon surrender at the principal office or offices of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of shares of Common Stock as the Rights evidenced by the Rights Certificate or Rights Certificates surrendered shall have entitled such holder to purchase. If this Rights Certificate shall be exercised in part, the holder shall be entitled to receive 41 upon surrender hereof another Rights Certificate or Rights Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may (unless the Continuing Directors shall have made a determination that a Person is an Adverse Person) be redeemed by the Company at its option at a redemption price of $.01 per Right at any time prior to the earlier of the close of business on (i) the tenth day following the Stock Acquisition Date (as defined in the Rights Agreement and as such time period may be extended pursuant to the Rights Agreement), and (ii) the Expiration Date (as defined in the Rights Agreement). Under certain circumstances set forth in the Rights Agreement, the decision to redeem shall require the concurrence of a majority of the Continuing Directors. After the expiration of the redemption period, the Company's right of redemption may be reinstated if either (i) an Acquiring Person reduces his beneficial ownership to less than 10% of the outstanding shares of Common Stock in a transaction or series of transactions not involving the Company or (ii) the Board approves the merger of the Company with, or acquisition of the Company by, a Person unrelated to the Acquiring Person, and such reinstatement is approved by the Company's Board of Directors (with the concurrence of a majority of the Continuing Directors). No fractional shares of Common Stock will be issued upon the exercise of any Right or Rights evidenced hereby, but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. No holder of this Rights Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of shares of Common Stock or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the 42 Right or Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement. This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officer of the Company under seal. Dated as of ___________ __, 19__ TERADYNE, INC. By___________________________ Title: By___________________________ Title: Countersigned: THE FIRST NATIONAL BANK OF BOSTON By_________________________ Authorized Signature 43 FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Rights Certificate.) FOR VALUE RECEIVED hereby sells, assigns and transfers unto - ---------------------------------------------------------------- (Please print name and address of transferee) - ---------------------------------------------------------------- this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ________________ Attorney, to transfer the within Rights Certificate on the books of the within-named Company, with full power of substitution. Dated:_________________, 19__ ------------------------------ Signature Signature Guaranteed: 44 CERTIFICATE The undersigned hereby certifies by checking the appropriate boxes that: (1) this Rights Certificate [ ] is [ ] is not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person, an Adverse Person or an Affiliate or Associate of any such Person (as such terms are defined in the Rights Agreement); (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person, an Adverse Person or an Affiliate or Associate of any such Person. Dated:____________, 19__ ______________________________ Signature Signature Guaranteed: NOTICE The signature to the foregoing Assignment and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. 45 FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise Rights represented by the Rights Certificate.) To: TERADYNE, INC. The undersigned hereby irrevocably elects to exercise ________ Rights represented by this Rights Certificate to purchase the shares of Common Stock issuable upon the exercise of the Rights (or such other securities of the Company or of any other person which may be issuable upon the exercise of the Rights) and requests that certificates for such shares be issued in the name of and delivered to: Please insert social security or other identifying number ------------------------------------------- (Please print name and address) - ---------------------------------------------------------------- - ---------------------------------------------------------------- If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to: 46 Please insert social security or other identifying number: - ------------------------------------------------------------ (Please print name and address) - ------------------------------------------------------------ - ------------------------------------------------------------ Dated:_______________, 19__ ------------------------------- Signature Signature Guaranteed: 47 CERTIFICATE The undersigned hereby certifies by checking the appropriate boxes that: (1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being exercised by or on behalf of a Person who is or was an Acquiring Person, an Adverse Person or an Affiliate or Associate of any such Person (as such terms are defined in the Rights Agreement); (2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an Acquiring Person, an Adverse Person or an Affiliate or Associate of any such Person. Dated:_______________, 19__ ______________________________ Signature Signature Guaranteed: NOTICE The signature to the foregoing Election to Purchase and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. 48 SUMMARY OF RIGHTS TO PURCHASE COMMON STOCK On March 14, 1990, the Board of Directors of Teradyne, Inc. (the "Company") declared a dividend distribution of one Right for each outstanding share of Common Stock of the Company to stockholders of record at the close of business on March 26, 1990. Each Right entitles the registered holder to purchase from the Company one share of Common Stock at a purchase price of $40.00, subject to adjustment (the "Purchase Price"). The description and terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement") between the Company and The First National Bank of Boston, as Rights Agent. Initially, the Rights will be attached to all Common Stock certificates representing shares then outstanding, and no separate Rights Certificates will be distributed. The Rights will separate from the Common Stock and a Distribution Date will occur upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding shares of Common Stock (the "Stock Acquisition Date"), (ii) 10 business days following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 30% or more of such outstanding shares of Common Stock or (iii) 10 business days after the Continuing Directors of the Company shall declare any Person to be an Adverse Person, upon a determination that such person, alone or together with its affiliates and associates, has become the Beneficial Owner of an amount of Common Stock which the Continuing Directors determine to be substantial (which amount shall in no event be less than 15% of the shares of Common Stock then outstanding) and a majority of the Continuing Directors (with the concurrence of a majority of the Independent Directors) determines, after reasonable inquiry and investigation, including consultation with such persons as such directors shall deem appropriate, that (a) such beneficial ownership by such person is intended to cause the Company to repurchase the Common Stock beneficially owned by such person or to cause pressure on the Company to take action or enter into a transaction or series of transactions intended to provide such person with short-term financial gain under circumstances where such directors determine that the best long-term interests of the Company and its stockholders (taking into account any impact on the national security of the United States or the impact on any constituency which Massachusetts law permits directors to consider in discharging their fiduciary duty) would not be served by taking such action or entering into such transaction or series of transactions at that time or (b) such beneficial ownership is causing or reasonably likely to cause a material adverse impact (including, but not limited to, impairment of relationships with customers or impairment of the Company's ability to maintain its competitive position) on the business or prospects of the Company. Until the Distribution Date, (i) the Rights will be evidenced by the Common Stock certificates and will be transferred with an only with such Common Stock certificates, (ii) new Common Stock certificates issued after March 26, 1990 will contain a notation incorporating the 49 Rights Agreement by reference and (iii) the surrender for transfer of any certificates for Common Stock outstanding will also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. The Rights are not exercisable until the Distribution Date and will expire at the close of business on March 26, 2000, unless earlier redeemed by the Company as described below. As soon as practicable after the Distribution Date, Rights Certificates will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date and, thereafter, the separate Rights Certificates alone will represent the Rights. Except as otherwise determined by the Board of Directors, only shares of Common Stock issued prior to the Distribution Date will be issued with Rights. In the event that the Continuing Directors determine that a person is an Adverse Person or, at any time following the Distribution Date, (i) the Company is the surviving corporation in a merger with an Acquiring Person and its Common Stock is not changed or exchanged, (ii) a Person becomes the beneficial owner of 30% or more of the then outstanding shares of Common Stock (except pursuant to an offer for all outstanding shares of Common Stock which the Independent Directors determine to be fair to and otherwise in the best interests of the Company and its stockholders), (iii) an Acquiring Person engages in one or more "self-dealing" transactions as set forth in the Rights Agreement, or (iv) during such time as there is an Acquiring Person, an event occurs which results in such Acquiring Person's ownership interest being increased by more than 1% (E.G., a reverse stock split), each holder of a Right will thereafter have the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the exercise price of the Right. However, Rights are not exercisable following the occurrence of either of the events set forth above until such time as the Rights are no longer redeemable by the Company as set forth below. Notwithstanding any of the foregoing, following the occurrence of any of the events set forth in this paragraph, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by an Acquiring Person or an Adverse Person will be null and void. For example, at an exercise price of $40.00 per Right, each Right not owned by an Acquiring Person or an Adverse Person (or by certain related parties) following an event set forth in the preceding paragraph would entitle its holder to purchase $80.00 worth of Common Stock (or other consideration, as noted above) for $40.00. Assuming that the Common Stock had a per share value of $10.00 at such time, the holder of each valid Right would be entitled to purchase eight shares of Common Stock for $40.00. In the event that, at any time following the Stock Acquisition Date, (i) the Company is acquired in a merger or other business combination transaction in which the Company is not the surviving corporation (other than a merger described in the second preceding paragraph or a merger which follows an offer described in the second preceding paragraph), or (ii) more than 50% of the Company's assets or earning power is sold or transferred, each holder of a Right (except Rights which previously have been voided as set forth above) shall thereafter have the 50 right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the Right. The Purchase Price payable, and the number of shares of Common Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Common Stock, (ii) if holders of the Common Stock are granted certain rights or warrants to subscribe for Common Stock or convertible securities at less than the current market price of the Common Stock, or (iii) upon the distribution to holders of the Common Stock of evidences of indebtedness or assets (excluding regular quarterly or other periodic cash dividends) or of subscription rights or warrants (other than those referred to above). With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments amount to at least 1% of the Purchase Price. No fractional shares of Common Stock will be issued and, in lieu thereof, an adjustment in cash will be made based on the market price of the Common Stock on the last trading date prior to the date of exercise. In general, the Company may redeem the Rights in whole, but not in part, at any time until ten days following the Stock Acquisition Date, at a price of $.01 per Right (payable in cash, Common Stock or other consideration deemed appropriate by the Board of Directors). Under certain circumstances set forth in the Rights Agreement, the decision to redeem shall require the concurrence of a majority of the Continuing Directors. The Company may not redeem the Rights if the Continuing Directors have previously declared a person to be an Adverse Person. After the redemption period has expired, the Company's right of redemption may be reinstated if either (i) an Acquiring Person reduces its beneficial ownership to less than 10% of the outstanding shares of Common Stock in a transaction or a series of transactions not involving the Company or (ii) the Board approves the merger of the Company with, or acquisition of the Company by, a Person unrelated to the Acquiring Person. Immediately upon the action of the Board of Directors ordering redemption of the Rights, with, where required, the concurrence of the Continuing Directors, the Rights will terminate and the only right of the holders of Rights will be to receive the $.01 per Right redemption price. The term "Continuing Directors" means any member of the Board of Directors of the Company who was a member of the Board prior to the date of the Rights Agreement, and any person who is subsequently elected to the Board if such person is recommended or approved by a majority of the Continuing Directors, but shall not include an Acquiring Person, an Adverse Person or an affiliate or associate of an Acquiring Person or an Adverse Person, or any representative of the foregoing entities. The term "Independent Directors" means Continuing Directors who are not officers of the Company. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to stockholders or to the Company, stockholders may, depending upon the circumstances, recognize taxable income in the event that the Rights 51 become exercisable for Common Stock (or other consideration) of the Company or for common stock of the acquiring company as set forth above. Other than those provisions relating to the principal economic terms of the Rights, any of the provisions of the Rights Agreement may be amended by the Board of Directors of the Company prior to the earlier to occur of the determination that a person is an Adverse Person or the Distribution Date. After the earlier of such events, the provisions of the Rights Agreement may be amended by the Board (in certain circumstances, with the concurrence of the Continuing Directors) in order to cure any ambiguity, to make changes which do not adversely affect the interests of holders of Rights (excluding the interests of any Acquiring Person or any Adverse Person), or to shorten or lengthen any time period under the Rights Agreement; PROVIDED, however, that no amendment to adjust the time period governing redemption shall be made at such time as the Rights are not redeemable. A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated March 15, 1990. A copy of the Rights Agreement is available free of charge from the Company. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, which is incorporated herein by reference. EX-10.2 4 FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT 1 EXHIBIT 10.2 - ------------------------------------------------------------------------------ FIRST AMENDMENT TO AMENDED AND RESTATED MULTICURRENCY REVOLVING CREDIT AND TERM LOAN AGREEMENT - ------------------------------------------------------------------------------ First Amendment dated as of January 31, 1997 to Amended and Restated Multicurrency Revolving Credit and Term Loan Agreement (the "First Amendment"), by and among (a) TERADYNE, INC. a Massachusetts corporation (the "Company"), (b) THE FIRST NATIONAL BANK OF BOSTON, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, STATE STREET BANK AND TRUST COMPANY, FLEET NATIONAL BANK and the other lending institutions listed on SCHEDULE 1 to the Credit Agreement (as hereinafter defined) (collectively, the "Banks") and (c) THE FIRST NATIONAL BANK OF BOSTON in its capacity as agent for the Banks (the "Agent"), amending certain provisions of the Amended and Restated Multicurrency Revolving Credit and Term Loan Agreement dated as of January 31, 1996 (as amended and in effect from time to time, the "Credit Agreement") by and among the Company, the Banks and the Agent. Terms not otherwise defined herein which are defined in the Credit Agreement shall have the same respective meanings herein as therein. WHEREAS, the Company, the Banks and the Agent have agreed to modify certain terms and conditions of the Credit Agreement as specifically set forth in this First Amendment; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SS 1. AMENDMENT TO SS .2 OF THE CREDIT AGREEMENT. Section 2 of the Credit Agreement is hereby amended as follows: (a) Section 2.2 of the Credit Agreement is hereby amended by deleting the date "January 31, 1999" which appears in ss.2.2 and substituting in place thereof the date "January 31, 2000"; (b) Section 2.5 of the Credit Agreement is hereby amended by deleting the date "January 31, 1998" which appears in ss.2.5(b) and substituting in place thereof the date "January 31, 1999"; (c) Section 2.10 of the Credit Agreement is hereby amended by (i) deleting the words "commencing on April 30, 1999, and ending on January 31, 2001" which appear in ss.2.10(a) and substituting in place thereof the words "commencing on April 30, 2000, and ending on January 31, 2002" and (ii) deleting the words "on January 31, 2001 (the "Final Repayment Date")" which appear in ss.2.10(a) and substituting in place thereof the words "on January 31, 2002 (the "Final Repayment Date"). 2 -2- SS 2. CONDITIONS TO EFFECTIVENESS. This First Amendment shall not become effective until the Agent receives the following: (a) a counterpart of this First Amendment, executed by the Company, the Banks and the Agent; and (b) certified copies of corporate certificates and resolutions evidencing all necessary action on the part of the Company with respect to the authorization of this First Amendment and the authorization of certain officer(s) to execute, deliver and take all other actions required under this First Amendment, and providing specimen signature of such officers. SS 3. REPRESENTATIONS AND WARRANTIES. The Company hereby repeats, on and as of the date hereof, each of the representations and warranties made by it in ss.4 of the Credit Agreement (except to the extent of changes resulting from matters contemplated or permitted by the Credit Agreement and the other Loan Documents, changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date), PROVIDED, that all references therein to the Credit Agreement shall refer to such Credit Agreement as amended hereby. In addition, the Company hereby represents and warrants that the execution and delivery by the Company of this First Amendment and the performance by the Company of all of its agreements and obligations under the Credit Agreement as amended hereby are within the corporate authority of the Company and have been duly authorized by all necessary corporate action on the part of the Company, and further represents and warrants that the execution and deliver by the Company of this First Amendment and the performance by the Company of the transactions contemplated hereby will not contravene any term or condition set forth in any agreement to which the Company is a party or by which the Company is bound. SS 4. RATIFICATION, ETC. Except as expressly amended hereby, the Credit Agreement and all documents, instruments and agreements related thereto are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Credit Agreement and this First Amendment shall be read and construed as a single agreement. All references in the Credit Agreement, the Loan Documents or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended hereby. SS 5. NO WAIVER. Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations, any other obligation of the Company or any rights of the Agent or any of the Banks consequent thereon. SS 6. COUNTERPARTS. This First Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. SS 7. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS). 3 -3- IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as a document under seal as of the date first above written. TERADYNE, INC. By:____________________________________ Name: Title: THE FIRST NATIONAL BANK OF BOSTON, INDIVIDUALLY AND AS AGENT By:____________________________________ Name: Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By:____________________________________ Name: Title: STATE STREET BANK AND TRUST COMPANY, N.A. By:____________________________________ Name: Title: FLEET NATIONAL BANK By:____________________________________ Name: Title: EX-10.3 5 SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT 1 EXHIBIT 10.3 - ------------------------------------------------------------------------------- SECOND AMENDMENT TO AMENDED AND RESTATED MULTICURRENCY REVOLVING CREDIT AND TERM LOAN AGREEMENT - ------------------------------------------------------------------------------- Second Amendment dated as of May 20, 1997 to Amended and Restated Multicurrency Revolving Credit and Term Loan Agreement (the "Second Amendment"), by and among (a) TERADYNE, INC. a Massachusetts corporation (the "Company"), (b) BANKBOSTON, N.A. (FORMERLY KNOWN AS THE FIRST NATIONAL BANK OF BOSTON), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, STATE STREET BANK AND TRUST COMPANY, FLEET NATIONAL BANK and the other lending institutions listed on SCHEDULE 1 to the Credit Agreement (as hereinafter defined) (collectively, the "Banks") and (c) BANKBOSTON, N.A. in its capacity as agent for the Banks (the "Agent"), amending certain provisions of the Amended and Restated Multicurrency Revolving Credit and Term Loan Agreement dated as of January 31, 1996 (as amended and in effect from time to time, the "Credit Agreement") by and among the Company, the Banks and the Agent. Terms not otherwise defined herein which are defined in the Credit Agreement shall have the same respective meanings herein as therein. WHEREAS, the Company, the Banks and the Agent have agreed to modify certain terms and conditions of the Credit Agreement as specifically set forth in this Second Amendment; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SS.1. AMENDMENT TO SS.6 OF THE CREDIT AGREEMENT. Section 6.6 of the Credit Agreement is hereby amended by deleting ss.6.6 in its entirety and restating it as follows: 6.6. LIMITATION ON STOCK REPURCHASES. Make any payments on account of the purchase or other acquisition, redemption or retirement of any shares in the Company's capital of any class or any warrants or options to purchase any such shares; PROVIDED, HOWEVER, notwithstanding the foregoing, the Company shall be permitted to make such payments on account of the purchase or other acquisition, redemption or retirement of any shares in the Company's capital of any class or any warrants or options to purchase any such shares so long as no Default or Event of Default has occurred and is continuing or would exist as a result thereof. SS.2. CONDITIONS TO EFFECTIVENESS. This Second Amendment shall not become effective until the Agent receives a counterpart of this Second Amendment, executed by the Company, the Majority Banks and the Agent. 2 -2- SS.3. REPRESENTATIONS AND WARRANTIES. The Company hereby repeats, on and as of the date hereof, each of the representations and warranties made by it in ss.4 of the Credit Agreement (except to the extent of changes resulting from matters contemplated or permitted by the Credit Agreement and the other Loan Documents, changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date), PROVIDED, that all references therein to the Credit Agreement shall refer to such Credit Agreement as amended hereby. In addition, the Company hereby represents and warrants that the execution and delivery by the Company of this Second Amendment and the performance by the Company of all of its agreements and obligations under the Credit Agreement as amended hereby are within the corporate authority of the Company and have been duly authorized by all necessary corporate action on the part of the Company, and further represents and warrants that the execution and deliver by the Company of this Second Amendment and the performance by the Company of the transactions contemplated hereby will not contravene any term or condition set forth in any agreement to which the Company is a party or by which the Company is bound. SS.4. RATIFICATION, ETC. Except as expressly amended hereby, the Credit Agreement and all documents, instruments and agreements related thereto are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Credit Agreement and this First Amendment shall be read and construed as a single agreement. All references in the Credit Agreement, the Loan Documents or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended hereby. SS.5. NO WAIVER. Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations, any other obligation of the Company or any rights of the Agent or any of the Banks consequent thereon. SS.6. COUNTERPARTS. This Second Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. SS.7. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS). 3 -3- IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as a document under seal as of the date first above written. TERADYNE, INC. By:____________________________________ Name: Title: BANKBOSTON, N.A., INDIVIDUALLY AND AS AGENT By:_____________________________________ Name: Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By:_____________________________________ Name: Title: STATE STREET BANK AND TRUST COMPANY, N.A. By:_____________________________________ Name: Title: FLEET NATIONAL BANK By:_____________________________________ Name: Title: EX-10.4 6 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 1 Exhibit 10.4 TERADYNE, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (Effective as of January 1, 1993) 2 TERADYNE, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (Effective as of January 1, 1993) TABLE OF CONTENTS Article I- Establishment and Purpose.........................................1 1.1 Establishment.........................................................1 1.2 Applicability.........................................................1 1.3 Purpose...............................................................1 1.4 Illegality of Particular Provision....................................1 Article II. Definitions.....................................................2 2.1 Definitions...........................................................2 2.2 Gender and Number.....................................................5 Article III. Eligibility and Participation..................................6 3.1 Eligibility...........................................................6 3.2 Date of Participation.................................................6 Article IV. Retirement Benefits.............................................7 4.1 Retirement Benefits...................................................7 4.2 Commencement of Benefits..............................................7 4.3 Preretirement Death Benefit...........................................8 4.4 Form of Payment.......................................................9 4.5 Payment of Small Amounts..............................................9 4.6 Termination of Employment Prior to Retirement or Death................9 4.7 Non-Competition......................................................10 Article V. Rights of Members...............................................11 5.1 Vesting..............................................................11 5.2 Unsecured Interest...................................................11 5.3 Employment...........................................................11 5.4 Member's Rights......................................................11 Article VI. Administration and Financing...................................12 6.1 Administration.......................................................12 Finality of Determination................................................12 6.3 Indemnification......................................................12 6.4 Expenses.............................................................12 6.5 Financing............................................................12 Article VII. Claims Procedure..............................................14 7.1 Claims Procedure.....................................................14 Article VIII. Amendment and Termination....................................16 8.1 Amendment and Termination............................................16 Article IX. Miscellaneous..................................................17 9.1 Nontransferability...................................................17 9.2 Tax Withholding......................................................17 9.3 Applicable Law.......................................................17 -i- 3 TERADYNE, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (Effective as of January 1, 1993) ARTICLE I- ESTABLISHMENT AND PURPOSE 1.1 ESTABLISHMENT. Teradyne, Inc. and certain Affiliates (the "Employer") hereby establish a supplemental retirement plan which shall be known as the "TERADYNE, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN" (the "Plan") as set forth in this document. 1.2 APPLICABILITY. The provisions of this Plan are applicable only to certain employees who, an or after January 1, 1993, are active employees of the Employer. 1.3 PURPOSE. The purpose of this Plan is to provide Eligible Employees with retirement benefits lost due to restrictions on the Retirement Plan imposed by Code sections 401(a)(17) and 415 and to supplement the benefits payable to such Employees from the Retirement Plan. The Plan is unfunded and is maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees as described in sections 201(2), 301(a)(3), and 40-1(a)(1) of the Employee Retirement Income Security Act of 1974, as amended. 1.4 ILLEGALITY OF PARTICULAR PROVISION. The illegality of any particular provision of this document shall not affect the other provisions, and the document shall be construed in all respects as it such in-valid provision were omitted. -1- 4 ARTICLE II. DEFINITIONS 2.1 DEFINITIONS. Whenever used herein, the following terms shall have the respective meanings set forth below. (a) ACCRUED BENEFIT has the same meaning such term has under the Retirement Plan. (b) ACTUARIAL EQUIVALENT has the same meaning such term has under the Retirement Plan. (c) AFFILIATE shall mean-- (1) any corporation other than the Company which together with the Company is a member of a "controlled group" of corporations (as defined in Code section 414(b)); (2) any organization which together with the Company is under "common control" (as defined in Code section 414 (c) ) ; (3) any organization which together with the Company is an "affiliated service group" (as defined in Code section 414(m)); or (4) any other entity required to be aggregated with the Company pursuant to regulations under Code section 414(o). (d) ANNUAL COMPENSATION has the same meaning such term would have under the Retirement Plan if the limitations imposed by Code section 401 (a) (17) were not imposed. (e) BOARD shall mean the Board of Directors of the Company. (f) BREAKPOINT has the same meaning such term has under the Retirement Plan. (g) CODE shall mean the Internal Revenue Code of 1986, as the same shall from time to time be amended. (h) COMPANY shall mean Teradyne, Inc. (i) COMPENSATION shall mean an amount equal to (1) minus (2) plus (3) where-- (1) is Annual Compensation, (2) is the actual payments made under the Variable compensation Plan, and -2- 5 (3) is the variable portion of the Employee's Model Compensation as determined under the Variable Compensation Plan for the applicable Plan Year. (j) COVERED COMPENSATION shall mean for each Plan Year after 1988 shall be the average, without indexing, of the taxable wage bases under the Social Security Act in effect for each calendar year during the 35-year period ending with the last day of the calendar year in which the Member attains Social security Retirement Age; provided that-- (1) in the case of a Member or Beneficiary who is receiving benefits under the Plan, or (2) in the case of a Member who has terminated employment with the Company and has nonforfeitable rights to benefits, such benefits are not decreased by reason of any increase in the wage base under such Title II, if such increase takes place after the earlier of the date of the first receipt of such benefits or the date of such termination of employment, as the case may be. In the case of a Member who continues employment with the Company in a Plan Year commencing after the calendar- year in which he attains Social Security Retirement Age, the Member's Breakpoint for such Plan Year shall be equal to the Member's Breakpoint for the Plan Year in which the Member attained Social Security Retirement Age. (k) CREDITED SERVICE has the same meaning such term has under the Retirement Plan, (1) DISABILITY has the same meaning such term has under the Retirement Plan. (m) EARLIEST RETIREMENT DATE has the same meaning such term has under the Retirement Plan. (n) EMPLOYEE shall mean an individual who is employed by the Employer. (o) EMPLOYER shall mean the Company and any Affiliate which, by vote of the Board, is included in the Plan with respect to all or any portion of its eligible employees. (p) ELIGIBLE EMPLOYEE shall mean an Employee who is-- -3- 6 (1) an "eligible employee" as defined in the Retirement Plan, and (2) either-- , (A) an officer of the Employer, or (B) a Member in the Variable Compensation Plan with a factor of 40 percent or more. (q) FINAL AVERAGE COMPENSATION shall mean the sum of the Employee's Compensation during the five consecutive Plan Years during which the Employee's Compensation was the highest, divided by five; or if the Employee has fewer than five consecutive Plan Years of employment with the Employer, the Employee's average compensation during all the Plan Years of his or her employment with the Employer. (r) MEMBER shall mean an Employee who has satisfied the requirements of section 3.2 of the Plan. (s) NORMAL RETIREMENT Date has the same meaning such term has under the Retirement Plan. (t) PLAN ADMINISTRATOR shall mean the Retirement Plan committee, as described in the Retirement Plan. (u) PLAN YEAR shall mean the calendar year. (v) RETIREMENT BENEFITS shall mean the benefits provided under section 4.1 of this Plan. (w) RETIREMENT PLAN shall mean the Retirement Plan for Employees of Teradyne, Inc. (x) SOCIAL SECURITY RETIREMENT AGE has the same meaning such term has under the Retirement Plan. (y) TERMINATION OF EMPLOYMENT shall mean the death, retirement, or Disability of a Member which terminates such Member's employment relationship with the company or any Affiliate. (z) VARIABLE COMPENSATION PLAN shall mean the Teradyne, Inc. Variable compensation Plan. (aa) YEAR OF VESTING SERVICE has the same meaning such term has under the Retirement Plan. -4- 7 2.2 GENDER AND NUMBER. Except where otherwise indicated by the context, any masculine terminology used herein shall also include the feminine gender, the definition of any term herein in the singular shall also include the plural, and the definition of any term herein in the plural shall also include the singular. -5- 8 ARTICLE III. ELIGIBILITY AND PARTICIPATION 3.1 ELIGIBILITY. Any Eligible Employee shall be eligible to participate in this Plan. 3.2 DATE OF PARTICIPATION. Each Eligible Employee shall become a Member on the later of (a) January 1, 1993, or (b) the first day of the first Plan Year during which the Employee first becomes an Eligible Employee. -6- 9 ARTICLE IV. RETIREMENT BENEFITS 4.1 RETIREMENT BENEFITS. (a) ELIGIBILITY. Except as provided in section 4.7, a Member who has a Termination of Employment when eligible for an early, normal, deferred, or Disability retirement benefit under the Retirement Plan, as then in effect, shall be eligible for Retirement Benefits under this Plan, calculated as of the Member's Termination of Employment. (b) AMOUNT. A Member shall be entitled to a monthly Retirement Benefit equal to one-twelfth of the result of (1) minus (2) where-- (1) is an amount payable in a straight life annuity form equal to the product of (i) the Member's Credited Service and (ii) the sum of (A) and (B) as follows: (A) 0.75 percent of the Member's Final Average Compensation up to the Covered Compensation, (B) 1.50 percent of the Member's Final Average Compensation above the Covered Compensation, (2) is the Member's Accrued Benefit payable in a straight life annuity form from the Retirement Plan; subject to the actuarial reductions for early commencement under section 4.2, if applicable. 4.2 COMMENCEMENT OF BENEFITS. A Member's benefit under this Article TV shall commence on the first day of the month coincident with or next following the later of-- (a) the Member's Termination of Employment, or (b) the date on which such Member attains his or her Social Security Retirement Age; provided, however, that the Board, in its sole discretion, may instruct the Plan Administrator to commence payments on an earlier date if the commencement of payments is either on account of the Member's financial hardship or is in the best interests of the Employer. If payments commence before the Member's Social Security Retirement Age, the Member shall be entitled to a monthly Retirement Benefit which shall be the Actuarial Equivalent of the benefit determined -7- 10 under section 4.1(b), determined by applying the early retirement factors under the Retirement Plan. 4.3 PRERETIREMENT DEATH BENEFIT. Benefits under this section are only payable if the member is married on the date of such Member's death and if such Member dies before benefit payments commence under this Plan- (a) ON OR AFTER ELIGIBILITY FOR RETIREMENT. (1) TIMING. If a Member dies in active service at any time on or after such Member's Earliest Retirement Date or Normal Retirement Date under the Retirement Plan, and such Member is married on the date of death, then the surviving spouse shall be entitled to receive as a death benefit a monthly payment beginning on the first day of the month following the Member's death and ending on the first day of the month in which the death of the spouse occurs. (2) AMOUNT. The monthly benefit under this subsection (a) shall be equal to 50 percent of the Retirement Benefit which would have been payable under section 4.1(b) or (c), whichever is applicable, to the Member if the Member had retired the day before death and benefit payments had commenced on that date in the form of a joint and 50 percent survivor annuity with the surviving spouse as the contingent annuitant. (b) PRIOR TO ELIGIBILITY FOR RETIREMENT. (1) TIMING. If a Member dies prior to such Member's Earliest Retirement Date under the Retirement Plan, and such Member is married on the date of death, then the surviving spouse shall be entitled to receive as a death benefit a monthly payment beginning an the earlier of-(A) the date that would have been the Member's Earliest Retirement Date, or (B) the date the Member would have attained age 65, and ending on the first day of the month in which the death of the spouse occurs. (2) AMOUNT. The monthly benefit under this subsection (b) shall be determined as if the Member: -8- 11 (A) terminated employment with the Employer on the day before the date of death, (B) began receiving Retirement Benefits in the form of a joint and 50 percent survivor annuity on the date of the Member's Termination of Employment, and (C) died the day thereafter. (c) SPECIAL PAYMENT FORM. Notwithstanding anything in this section 4.3 to the contrary, the Plan Administrator, in its sole discretion, may elect to pay any benefit under this section 4.3 to the surviving spouse in one lump sum payment. 4.4 FORM OF PAYMENT. Benefit payments (other than as described in section 4.3) shall be paid in the straight life annuity form described in Article VII of the Retirement Plan; provided, however, that if the Member is legally married on the date of Termination of Employment, benefit payments shall be paid in the form of a joint and 50 percent survivor annuity with the Member's spouse as the contingent annuitant. The joint and 50 percent survivor annuity shall be the Actuarial Equivalent of the straight life annuity form. 4.5 PAYMENT OF SMALL AMOUNTS. If the present value of the benefit under section 4.1 or 4.3 is $3,500 or less and benefit payments have not yet commenced, the Plan Administrator shall direct that the Actuarial Equivalent of the monthly benefit be paid in a single sum to the Member or, if applicable, his or her surviving spouse. Should a Member who receives a benefit under this section be reemployed by the Company, any Retirement Benefits payable under this Plan after his or her reemployment shall be reduced by the Actuarial Equivalent of the benefits such Member received under this section. 4.6 TERMINATION OF EMPLOYMENT PRIOR TO RETIREMENT OR DEATH. Notwithstanding any provision herein to the contrary, a Member who terminates from employment with the Employer prior to his or her Earliest Retirement Date or Normal Retirement Date under the Retirement -9- 12 Plan for a reason other than Disability or death shall not be entitled to any Retirement Benefits under the Plan. 4.7 NON-COMPETITION The Plan Administrator shall have discretion to deny payment of any Retirement Benefits that would otherwise be payable under this Plan to a Member who, for any reason whatsoever, directly or indirectly, accepts employment or renders services, within a country in which the Member had been actively employed by the Employer at any time during the ten-year period immediately prior to such Member's Termination of Employment, with or without compensation, by or for any person,, firm, or organization engaged in the sale, servicing, developing, manufacturing, or merchandising of products or services in competition with any product or service of the Company-- (a) in the event of voluntary termination of employment, for a period of three years immediately, following such termination, or (b) in the event of involuntary termination of employment, for a period of one year immediately following such termination. -10- 13 ARTICLE V. RIGHTS OF MEMBERS 5.1 VESTING. A Member shall have a nonforfeitable right to Retirement Benefits payable pursuant to Article IV upon the earliest to occur of the following: (a) the Member's Normal Retirement Date under the Retirement Plan, (b) the Member's Earliest Retirement Date under the Retirement Plan, (c) the date the Member retires on account of Disability under the Retirement Plan, and (d) the Member's death. 5.2 UNSECURED INTEREST. No Member or surviving spouse shall have any interest whatsoever in any specific asset of the Employer. To the extent any person acquires a right to receive payments under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Employer. 5.3 EMPLOYMENT. Nothing in this Plan shall interfere with or limit in any way the right of the Employer to terminate any Member's employment at any time, nor confer upon any Member any right to continue in the employ of the Employer. 5.4 MEMBER'S RIGHTS Nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall create or be construed to create a fiduciary relationship between the Employer or the Plan Administrator and any Member or surviving spouse. Members and surviving spouses have the status of general unsecured creditors of the Employer. The Plan constitutes a mere promise by the Employer to make benefit payments in the future. Neither Members nor surviving spouses shall have any claim to any specific assets of the Employer, including any assets transferred to any trust described in section 6.5 and all such assets shall remain owned by the Employer at all times. -11- 14 ARTICLE VI. ADMINISTRATION AND FINANCING 6.1 ADMINISTRATION. The Plan will be administered by the Plan Administrator, which shall have the exclusive right and full discretion-- (a) to interpret the Plan, (b) to decide any and all matters arising hereunder (including the right to remedy possible ambiguities, inconsistencies, or admissions), (c) to make, amend, and rescind such rules as it deems necessary for the proper administration of the Plan, and (d) to make all other determinations necessary or advisable for the administration of the Plan, including determinations regarding eligibility for benefits under the Plan and the amount of benefits payable under the Plan. All interpretations of the Plan Administrator with respect to any matter hereunder shall be final, conclusive, and binding on all persons affected thereby. 6.2 FINALITY OF DETERMINATION. The determination of the Plan Administrator as to any disputed questions arising under this Plan, including questions of construction and interpretation, shall be final, binding, and conclusive upon all persons. 6.3 INDEMNIFICATION. To the extent permitted by law, the Plan Administrator, and all agents and representatives of the Plan Administrator, shall be indemnified by the Employer against any claims, and the expenses of defending against such claims, resulting from any action or conduct relating to the administration of the Plan except claims arising from gross negligence, willful neglect, or willful misconduct. 6.4 EXPENSES. The cost of payment from this Plan and the expenses of administering the Plan shall be borne by the Employer. 6.5 FINANCING. The Employer may pay benefits under this Plan from its general assets or it may establish a trust and transfer to such trust assets sufficient to pay benefits under -12- 15 this Plan. To the extent the amount in the trust is not sufficient to make any benefit payment, such payment shall be 'made by the Employer. Any trust created by the Employer and any assets held by the trust to assist it in meeting its obligations under the Plan will conform to the terms of the model trust described in Revenue Procedure 92-64. It is the intention of the Employer and all other parties that the arrangements established under the Plan be unfunded for tax purposes and for purposes of Title I of the Employee Retirement income Security Act of 1974, as amended. -13- 16 ARTICLE VII. CLAIMS PROCEDURE 7.1 CLAIMS PROCEDURE. (a) SUBMISSION OF CLAIMS. Claims for benefits under the Plan shall be submitted in writing to the Plan Administrator or to an individual designated by the Plan Administrator for this purpose. (b) DENIAL OF CLAIM. If any claim for benefits is wholly or partially denied, the claimant shall be given written notice within 90 days following the date on which the claim is filed, which notice shall set forth-- (1) the specific reason or reasons for the denial, (2) specific references to pertinent Plan provisions on which the denial is based, (3) a description of any additional ma-material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary, and (4) an explanation of the Plan's claim review procedure. If special circumstances require an extension of time for processing the claim, written notice of an extension shall be furnished to the claimant prior to the end of the initial period of 90 days following the date on which the claim is filed. Such an extension may not exceed a period of 90 days beyond the end of said initial period. If the claim has not been granted, and if written notice of the denial of the claim is not furnished within 90 days following the date on which the claim is filed, the claim shall be deemed denied for the purpose of proceeding to the claim review procedure. (c) CLAIM REVIEW PROCEDURE. The claimant or his or her authorized representative shall have 60 days after receipt of written notification of denial of a claim to request a review of the denial by making written request to the Plan -14- 17 Administrator, and may review pertinent documents and submit issues and comments in writing within such 60-day period. Not later than 60 days after receipt of the request for review, the Plan Administrator shall render and furnish to the claimant a written decision which shall include specific reasons for the decision, and shall make specific references to pertinent Plan provisions on which it is based- If special circumstances require an extension of time for processing, the decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review, provided that written notice and explanation of the delay are given to the claimant prior to commencement of the extension. Such decision by the Plan Administrator shall not be subject to further review. If a decision on review is not furnished to a claimant within the specified time period, the claim shall be deemed to have been denied on review. -15- 18 ARTICLE VIII. AMENDMENT AND TERMINATION 8.1 AMENDMENT AND TERMINATION. The Employer expects the Plan to be permanent but since future conditions affecting the Employer cannot be anticipated or foreseen, the Employer necessarily must and does hereby reserve the right to amend, modify, or terminate the Plan at any time by action of the Board. Any such amendment, modification, or termination shall not reduce or diminish such persons right to receive any benefit accrued hereunder prior to the date of such amendment, modification, or termination. Notice of such amendment or termination shall be given in writing to each Member and beneficiary of a deceased Member having an interest in the Plan. -16- 19 ARTICLE IX. MISCELLANEOUS 9.1 NONTRANSFERABILITY. In no event shall the Employer make any payment under this Plan to any assignee or creditor of a Member or a surviving spouse. Prior to the time of payment hereunder, a Member or a surviving spouse shall have no rights by way of anticipation or alienation nor shall such rights be assigned or transferred by operation of law. 9.2 TAX WITHHOLDING. The Employer shall have the right to deduct from all payments made from the Plan any federal, state, or local taxes required by law to be withheld with respect to such payments. 9.3 APPLICABLE LAW. This Plan shall be governed and construed in accordance with the laws of the Commonwealth of Massachusetts and the United States of America. IN WITNESS WHEREOF, TERADYNE, INC. has caused this instrument to be executed, effective January 1, 1993, on this ______ day of ________________________, 1993. TERADYNE, INC. By:_________________________________ ATTEST By:_____________________________ -17- EX-10.14 7 1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN 1 EXHIBIT 10.14 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 800,000 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 January 1, 1997 and who is not an employee or officer of the Company (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 15,000 shares of the Common Stock, and (b) each person who is a Non-Employee Director on the first Monday of February in each year beginning on February 3, 1997 during the term of this Plan shall be automatically granted on each such date an option to purchase 7,500 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 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 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 2 -2- 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 five (5) 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 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 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. 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 3 -3- 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 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. 4 -4- 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 -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 -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. Date Approved by Board of Directors of the Company: November 13, 1996 EX-10.15 8 LETTER AGREEMENT DATED JUNE 1, 1997 1 EXHIBIT 10.15 CONSULTING AGREEMENT This CONSULTING AGREEMENT is made as of June 1, 1997 by and between Teradyne, Inc., a Massachusetts corporation (the "Company"), and Owen W. Robbins (the "Consultant"). WITNESSETH: WHEREAS, the Consultant has been employed by the Company since 1970 and is an Executive Vice President, the Chief Financial Officer and a Vice Chairman of the Board of Directors of the Company; WHEREAS, the Consultant has previously submitted his resignation as an Executive Vice President, the Chief Financial Officer and a Vice Chairman of the Board of Directors of the Company, and the Board of Directors of the Company has authorized the acceptance of such resignation; WHEREAS, the Consultant shall remain as a non-employee member of the Board of Directors of the Company; WHEREAS, the Company desires to continue to receive the benefits of the Consultant's experience and knowledge of the Company's business by consulting with and receiving advice from the Consultant, and the Consultant has agreed to provide such consulting services to the Company, subject to and upon the terms and conditions set forth in this Agreement; and WHEREAS, in consideration for the Consultant providing consulting services to the Company, the Consultant has been granted options to purchase up to 90,000 shares of Common Stock of the Company under the Company's 1991 Employee Stock Option Plan, as amended, which options shall continue to vest over the period of this Agreement, unless terminated earlier by either party pursuant to Section 5 hereof. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. CONSULTING AGREEMENT. Subject to the terms of this Agreement, for a period from the date hereof until the earlier of (a) the third anniversary of the date hereof and (b) the effective date of any termination of this Agreement pursuant to Section 5 hereof (the "Consulting Period"), the Consultant shall serve as a consultant to the Company. During the Consulting Period, the Consultant shall render such services of an advisory or consulting nature as the Chairman of the Board of Directors or President of the Company, and/or their respective designees, may, from time to time, reasonably request, in order that the Company may continue to have the benefit of the Consultant's experience and knowledge of the Company's business and industry including, without limitation, advising and consulting with the Company with respect to the initiation, negotiation and consummation of acquisitions of businesses in and the 2 -2- development of the software testing business (the "Consulting Services"). The Consultant shall at all times perform and discharge his duties and responsibilities under this Agreement faithfully, diligently and to the best of his ability. 2. CONFIDENTIALITY. The Consultant agrees that, for the benefit of the Company and each of its Affiliates (as defined below), during the Consulting Period, he shall not (nor shall the Consultant assist any other person to) directly or indirectly furnish, divulge, reveal, report, publish or disclose (other than as may be required under applicable law) any Confidential Information (as hereinafter defined) to any person, firm, corporation or other entity, or hereafter use (or assist any person to use) such Confidential Information; PROVIDED, HOWEVER, that the Consultant may use or disclose Confidential Information as directed by the Company in connection with the provision of the Consulting Services under this Agreement. For purposes of this Agreement, the term "Confidential Information" means all information or material not generally known to the public, which gives the Company and any of its Affiliates some competitive business advantage or the opportunity of obtaining such advantage or the disclosure of which could be detrimental to the interests of the Company and any of its Affiliates, including, without limitation, trade secrets, inventions, technical and other proprietary information, research and development and test results, marketing techniques and materials, marketing and development plans, price lists, pricing policies, business plans, information relating to customers and/or suppliers' identities, characteristics and agreements, financial information and projections, and employee files. "Confidential Information" also includes any information described above which the Company or any of its Affiliates obtains from another party and which the Company or such Affiliate treats as proprietary or designates as Confidential Information, whether or not owned or developed by the Company or such Affiliate. For purposes of this Agreement, the term "Affiliate" shall mean, with respect to any person or entity (herein the "first party"), any other person or entity that directly or indirectly controls, or is controlled by, or is under common control with, such first party. The parties hereto acknowledge that the obligations of the Consultant pursuant to this Section 2 shall be interpreted in a manner which is consistent with the standards applicable generally to the Company's executive officers. 3. PAYMENT/BENEFITS. (a) During the Consulting Period, as compensation in full for providing the Consulting Services under this Agreement, the Company shall pay the Consultant $22,353.00 per month, or such other amount as is determined by the Compensation Committee of the Board of Directors of the Company upon agreement with the Consultant. (b) The Consultant acknowledges and agrees that as a consultant to the Company he will no longer be eligible to participate in the Company's Variable Compensation Plan, Cash Profit Sharing Plan or Supplemental Savings Plan or to otherwise receive any cash compensation from the Company other than pursuant to clause (a) of this Section 3 (or otherwise in connection with serving on the Company's Board of Directors); provided, however, that the Consultant will be eligible to receive his pro rata portion for fiscal 1997 of the benefits afforded under such plans to the Consultant while he was an employee of the Company. (c) The Consultant acknowledges and agrees that as a consultant to the Company he (i) will no longer be eligible to receive health, disability or life benefits from the 3 -3- Company but (ii) will be eligible, as of June 1, 1997, to begin receiving payments under each of the Company's Retirement Plan and Supplemental Executive Retirement Plan pursuant to the terms and conditions of such plans. 4. EXPENSE REIMBURSEMENT. The Company shall, in addition to the payments contemplated by Section 3 hereof, reimburse the Consultant for all reasonable out-of-pocket, costs and expenses incurred by the Consultant in connection with the performance of the Consulting Services hereunder. Such reimbursement shall be made in accordance with Company policies and procedures applicable to all employees. 5. TERMINATION. Either party may terminate this Agreement upon 60 days' prior written notice to the other party. Upon the effective date of any such termination, the Consultant shall no longer be eligible to receive the compensation provided for in clause (a) of Section 3 hereof. 6. STATUS. The Company and the Consultant agree that the Consultant shall be an independent contractor of the Company and that nothing in this Agreement shall be construed or deemed to create any other relationship. Without limiting the foregoing, the relationship between the Company and the Consultant shall not be that of any employer-employee. The Company shall not make any deductions or withholdings from the Consultant's compensation as might otherwise be required by federal or state laws. The Consultant expressly understands and agrees that he shall be solely responsible for all withholding and income taxes in connection with the payment of all consulting fees, and that he will not be covered by FICA, SDI or Workmen's Compensation laws during the Consulting Period. The Consultant agrees to provide the Company with written evidence of compliance with federal and state withholding requirements upon request. 7. OFFICER INDEMNIFICATION. The Company agrees that the Consultant shall continue to be entitled to indemnification by the Company against liabilities arising out of claims based upon action taken or omitted by the Consultant in his capacity as an officer or director of the Company or while serving as such or by reason of the fact that he was an officer of the Company or continues to be a member of the Board of Directors, to the fullest extent permitted under the Massachusetts Business Corporation Law, under the Articles of Organization or By-Laws of the Company, any indemnification agreement between the Consultant and the Company or votes adopted by its Board of Directors. The Company also agrees that the Consultant shall be entitled to indemnification by the Company against liabilities arising out of claims based upon action taken or omitted by the Consultant while acting as a consultant to the Company to the same extent as if the Consultant were an executive officer of the Company. 8. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to the conflicts or choice of law provisions thereof. 9. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of, and be binding upon, the successors of the Company by way of merger, consolidation or transfer of all or substantially all of the assets of the Company, and may not be assigned by the Consultant. 4 -4- 10. NO CONFLICTING OBLIGATIONS. The Consultant hereby represents and warrants to the Company that he is not now under, or bound to be under in the future, any obligation to or agreement with any person, firm or corporation which is or would be inconsistent or in conflict with this Agreement or would prevent, limit or impair in any way the full and absolute performance by the Consultant of his obligations hereunder. In addition, the Consultant covenants that he will not enter into any such agreement during the Consulting Period without the prior written agreement of the Company. 11. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement (together with the Stock Option Agreement dated May 15, 1997 and any other option agreements entered into by the Consultant and the Company) constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, representations, negotiations and understandings of the parties, whether oral or written. No supplement, modification or amendment to this Agreement shall be binding unless executed in writing by all the parties hereto. 12. WAIVERS. The failure of any party to require the performance or satisfaction of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent failure or breach. 13. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. 14. 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 the Company, to: Teradyne, Inc. 321 Harrison Avenue Boston, MA 02118 Attention: Donald G. Leka, Esq. If to the Consultant, at the Consultant's address set forth on the signature page hereto. 15. RETIREMENT BENEFITS. Nothing contained herein shall be deemed to modify, diminish or affect any rights or benefits that the Consultant may have as a retiree from the Company under the Company's compensation and benefit plans and policies applicable to all Company employees or directors. 5 IN WITNESS WHEREOF, the parties have duly executed this Consulting Agreement as of the date and year first written above. TERADYNE, INC. --------------------------------- Name: Title: CONSULTANT: --------------------------------- Owen W. Robbins 199 Country Drive Weston, MA 02193 EX-10.16 9 LETTER AGREEMENT 1 EXHIBIT 10.16 CONSULTING AGREEMENT This CONSULTING AGREEMENT is made as of June 1, 1997 by and between Teradyne, Inc., a Massachusetts corporation (the "Company"), and James A. Prestridge (the "Consultant"). WITNESSETH: WHEREAS, the Consultant has been employed by the Company since 1969 and is an Executive Vice President and a Vice Chairman of the Board of Directors of the Company; WHEREAS, the Consultant has previously submitted his resignation as an Executive Vice President and a Vice Chairman of the Board of Directors of the Company, and the Board of Directors of the Company has authorized the acceptance of such resignation; WHEREAS, the Consultant shall remain as a non-employee member of the Board of Directors of the Company; WHEREAS, the Company desires to continue to receive the benefits of the Consultant's experience and knowledge of the Company's business by consulting with and receiving advice from the Consultant, and the Consultant has agreed to provide such consulting services to the Company, subject to and upon the terms and conditions set forth in this Agreement; and WHEREAS, in consideration for the Consultant providing consulting services to the Company, the Consultant has been granted options to purchase up to 90,000 shares of Common Stock of the Company under the Company's 1991 Employee Stock Option Plan, as amended, which options shall continue to vest over the period of this Agreement, unless terminated earlier by either party pursuant to Section 5 hereof. NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. CONSULTING AGREEMENT. Subject to the terms of this Agreement, for a period from the date hereof until the earlier of (a) the third anniversary of the date hereof and (b) the effective date of any termination of this Agreement pursuant to Section 5 hereof (the "Consulting Period"), the Consultant shall serve as a consultant to the Company. During the Consulting Period, the Consultant shall render such services of an advisory or consulting nature as the Chairman of the Board of Directors or President of the Company, and/or their respective designees, may, from time to time, reasonably request, in order that the Company may continue to have the benefit of the Consultant's experience and knowledge of the Company's business and industry including, without limitation, advising and consulting with the Company with respect to the initiation, negotiation and consummation of acquisitions of businesses in and the development of the software testing business (the "Consulting Services"). The Consultant shall 2 -2- at all times perform and discharge his duties and responsibilities under this Agreement faithfully, diligently and to the best of his ability. 2. CONFIDENTIALITY. The Consultant agrees that, for the benefit of the Company and each of its Affiliates (as defined below), during the Consulting Period, he shall not (nor shall the Consultant assist any other person to) directly or indirectly furnish, divulge, reveal, report, publish or disclose (other than as may be required under applicable law) any Confidential Information (as hereinafter defined) to any person, firm, corporation or other entity, or hereafter use (or assist any person to use) such Confidential Information; PROVIDED, HOWEVER, that the Consultant may use or disclose Confidential Information as directed by the Company in connection with the provision of the Consulting Services under this Agreement. For purposes of this Agreement, the term "Confidential Information" means all information or material not generally known to the public, which gives the Company and any of its Affiliates some competitive business advantage or the opportunity of obtaining such advantage or the disclosure of which could be detrimental to the interests of the Company and any of its Affiliates, including, without limitation, trade secrets, inventions, technical and other proprietary information, research and development and test results, marketing techniques and materials, marketing and development plans, price lists, pricing policies, business plans, information relating to customers and/or suppliers' identities, characteristics and agreements, financial information and projections, and employee files. "Confidential Information" also includes any information described above which the Company or any of its Affiliates obtains from another party and which the Company or such Affiliate treats as proprietary or designates as Confidential Information, whether or not owned or developed by the Company or such Affiliate. For purposes of this Agreement, the term "Affiliate" shall mean, with respect to any person or entity (herein the "first party"), any other person or entity that directly or indirectly controls, or is controlled by, or is under common control with, such first party. The parties hereto acknowledge that the obligations of the Consultant pursuant to this Section 2 shall be interpreted in a manner which is consistent with the standards applicable generally to the Company's executive officers. 3. PAYMENT/BENEFITS. (a) During the Consulting Period, as compensation in full for providing the Consulting Services under this Agreement, the Company shall pay the Consultant $22,353.00 per month, or such other amount as is determined by the Compensation Committee of the Board of Directors of the Company upon agreement with the Consultant. (b) The Consultant acknowledges and agrees that as a consultant to the Company he will no longer be eligible to participate in the Company's Variable Compensation Plan, Cash Profit Sharing Plan or Supplemental Savings Plan or to otherwise receive any cash compensation from the Company other than pursuant to clause (a) of this Section 3 (or otherwise in connection with serving on the Company's Board of Directors); provided, however, that the Consultant will be eligible to receive his pro rata portion for fiscal 1997 of the benefits afforded under such plans to the Consultant while he was an employee of the Company. (c) The Consultant acknowledges and agrees that as a consultant to the Company he (i) will no longer be eligible to receive health, disability or life benefits from the Company but (ii) will be eligible, as of June 1, 1997, to begin receiving payments under each of 3 -3- the Company's Retirement Plan and Supplemental Executive Retirement Plan pursuant to the terms and conditions of such plans. 4. EXPENSE REIMBURSEMENT. The Company shall, in addition to the payments contemplated by Section 3 hereof, reimburse the Consultant for all reasonable out-of-pocket, costs and expenses incurred by the Consultant in connection with the performance of the Consulting Services hereunder. Such reimbursement shall be made in accordance with Company policies and procedures applicable to all employees. 5. TERMINATION. Either party may terminate this Agreement upon 60 days' prior written notice to the other party. Upon the effective date of any such termination, the Consultant shall no longer be eligible to receive the compensation provided for in clause (a) of Section 3 hereof. 6. STATUS. The Company and the Consultant agree that the Consultant shall be an independent contractor of the Company and that nothing in this Agreement shall be construed or deemed to create any other relationship. Without limiting the foregoing, the relationship between the Company and the Consultant shall not be that of any employer-employee. The Company shall not make any deductions or withholdings from the Consultant's compensation as might otherwise be required by federal or state laws. The Consultant expressly understands and agrees that he shall be solely responsible for all withholding and income taxes in connection with the payment of all consulting fees, and that he will not be covered by FICA, SDI or Workmen's Compensation laws during the Consulting Period. The Consultant agrees to provide the Company with written evidence of compliance with federal and state withholding requirements upon request. 7. OFFICER INDEMNIFICATION. The Company agrees that the Consultant shall continue to be entitled to indemnification by the Company against liabilities arising out of claims based upon action taken or omitted by the Consultant in his capacity as an officer or director of the Company or while serving as such or by reason of the fact that he was an officer of the Company and continues to be a member of the Board of Directors of the Company, to the fullest extent permitted under the Massachusetts Business Corporation Law, under the Articles of Organization or By-Laws of the Company, any indemnification agreement between the Consultant and the Company or votes adopted by its Board of Directors. The Company also agrees that the Consultant shall be entitled to indemnification by the Company against liabilities arising out of claims based upon action taken or omitted by the Consultant while acting as a consultant to the Company to the same extent as if the Consultant were an executive officer of the Company. 8. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to the conflicts or choice of law provisions thereof. 9. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of, and be binding upon, the successors of the Company by way of merger, consolidation or transfer of all or substantially all of the assets of the Company, and may not be assigned by the Consultant. 4 -4- 10. NO CONFLICTING OBLIGATIONS. The Consultant hereby represents and warrants to the Company that he is not now under, or bound to be under in the future, any obligation to or agreement with any person, firm or corporation which is or would be inconsistent or in conflict with this Agreement or would prevent, limit or impair in any way the full and absolute performance by the Consultant of his obligations hereunder. In addition, the Consultant covenants that he will not enter into any such agreement during the Consulting Period without the prior written agreement of the Company. 11. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement (together with the Stock Option Agreement dated May 15, 1997 and any other option agreements entered into by the Consultant and the Company) constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, representations, negotiations and understandings of the parties, whether oral or written. No supplement, modification or amendment to this Agreement shall be binding unless executed in writing by all the parties hereto. 12. WAIVERS. The failure of any party to require the performance or satisfaction of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent failure or breach. 13. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. 14. 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 the Company, to: Teradyne, Inc. 321 Harrison Avenue Boston, MA 02118 Attention: Donald G. Leka, Esq. If to the Consultant, at the Consultant's address set forth on the signature page hereto. 15. RETIREMENT BENEFITS. Nothing contained herein shall be deemed to modify, diminish or affect any rights or benefits that the Consultant may have as a retiree from the Company under the Company's compensation and benefit plans and policies applicable to all Company employees or directors. 5 IN WITNESS WHEREOF, the parties have duly executed this Consulting Agreement as of the date and year first written above. TERADYNE, INC. ----------------------------- Name: Title: CONSULTANT: ----------------------------- James A. Prestridge 22034 N. Golf Club Drive Sun City West, Arizona 85375 EX-22.1 10 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 22.1 PRESENT SUBSIDIARIES
PERCENTAGE STATE OR OF VOTING JURISDICTION OF SECURITIES INCORPORATION OWNED --------------- ---------- Teradyne Assembly GmbH Ltd................................. Germany 100% Teradyne Benelux, Inc. (Ltd.).............................. Delaware 100% Teradyne Canada Limited.................................... Canada 100% Teradyne Control Automation, Inc........................... Delaware 100% Teradyne GmbH.............................................. Germany 100% Teradyne Holdings, Inc..................................... New Hampshire 100% Teradyne Holdings Limited.................................. United Kingdom 100% Teradyne Limited...................................... United Kingdom 100% Teradyne Hong Kong, Ltd.................................... Delaware 100% Teradyne International, Ltd................................ 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 Midnight Networks Inc............................. Delaware 100% Teradyne Netherlands B.V................................... Netherlands 100% Teradyne Netherlands, Ltd.................................. Delaware 100% Teradyne Realty, Inc....................................... Massachusetts 100% Teradyne RSW Software, Inc................................. Delaware 100% RSW Software, Inc..................................... Massachusetts 100% Teradyne S.A............................................... France 100% Teradyne Scandinavia, Inc.................................. Delaware 100% Teradyne Singapore, Ltd.................................... Delaware 100% Teradyne Software and Systems Test, Inc.................... Delaware 100% Teradyne Taiwan, Ltd....................................... Delaware 100% Kinetrix, Inc.............................................. Delaware 83% Hammer Technologies, Inc................................... Massachusetts 100% Megatest Corporation....................................... Delaware 100% Megatest Limited...................................... United Kingdom 100% Megatest SARL......................................... France 100% Megatest GmbH......................................... Germany 100% Megatest H.K. Ltd..................................... Hong Kong 100% Teradyne Philippines Ltd.............................. California 100% Megatest International Sales Corporation.............. Barbados 100% Megatest Asia Pte. Ltd................................ Singapore 100% Softbridge, Inc............................................ Delaware 100% Zehntel Holdings, Inc...................................... California 100% 1000 Washington, Inc....................................... Massachusetts 100%
EX-23.1 11 CONSENT OF COOPERS & LYBRAND L.L.P. 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Teradyne, Inc. on Form S-8 (File Nos. 333-32547; 333-26045; 33-16077; 33-42352; 33-55123; 333-64683; and 333-07177) and Form S-3 (File No. 33-44347) of our report dated January 16, 1998, on our audits of the consolidated financial statements of Teradyne, Inc. as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Boston, Massachusetts March 26, 1998 EX-27.1 12 FINANCIAL DATA SCHEDULE YEAR ENDED 12/31/97
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000097210 TERADYNE, INC. 1,000 U.S. DOLLARS 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 1.00 74,668 18,693 302,871 1,938 272,357 727,083 692,832 349,707 1,251,674 277,973 13,141 0 0 10,413 926,718 1,251,674 1,266,274 1,266,274 734,370 1,090,973 0 0 2,245 193,345 65,737 127,608 0 0 0 127,608 1.53 1.48
EX-27.2 13 FINANCIAL DATA SCHEDULE NINE MONTHS 9/28/97
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 28, 1997 AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000097210 TERADYNE, INC. 1,000 U.S. DOLLARS 9-MOS DEC-31-1997 JAN-01-1997 SEP-28-1997 1 85,981 82,459 259,160 1,938 223,415 696,867 637,280 336,231 1,174,378 231,027 13,784 0 0 10,473 905,251 1,174,378 874,590 874,590 508,234 765,757 0 0 1,659 123,271 41,912 81,359 0 0 0 81,359 0.98 0.94
EX-27.3 14 FINANCIAL DATA SCHEDULE SIX MONTHS 6/29/97
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 29, 1997 AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000097210 TERADYNE, INC. 1,000 U.S. DOLLARS 6-MOS DEC-31-1997 JAN-01-1997 JUN-29-1997 1 46,479 140,050 252,825 1,938 185,076 673,218 607,176 323,524 1,132,137 221,113 14,502 0 0 10,435 872,244 1,132,137 537,843 537,843 317,583 481,758 0 0 1,106 65,878 23,716 42,162 0 0 0 42,162 0.51 0.49
EX-27.4 15 FINANCIAL DATA SCHEDULE THREE MONTHS 3/30/97
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 30, 1997 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000097210 TERADYNE, INC. 1,000 U.S. DOLLARS 3-MOS DEC-31-1997 JAN-01-1997 MAR-30-1997 1 91,689 106,567 194,704 1,936 151,662 594,211 577,559 308,392 1,096,814 196,413 15,053 0 0 10,438 861,012 1,096,814 248,302 248,302 152,935 227,026 0 0 541 26,400 9,240 17,160 0 0 0 17,160 0.21 0.20
EX-27.5 16 FINANCIAL DATA SCHEDULE YEAR ENDED 12/31/96
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1996 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000097210 TERADYNE, INC. 1,000 U.S. DOLLARS YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1 201,452 48,266 180,366 1,936 138,954 617,108 563,585 290,088 1,096,816 225,257 15,650 0 0 10,310 831,701 1,096,816 1,171,615 1,171,615 724,624 1,048,820 0 0 2,427 139,663 46,089 93,574 0 0 0 93,574 1.12 1.10
EX-27.6 17 FINANCIAL DATA SCHEDULE NINE MONTHS 9/29/96
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 29, 1996 AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000097210 TERADYNE, INC. 1,000 U.S. DOLLARS 9-MOS DEC-31-1996 JAN-01-1996 SEP-29-1996 1 291,559 59,352 193,478 3,335 155,852 731,704 554,758 281,634 1,088,572 208,862 15,807 0 0 10,364 841,925 1,088,572 930,328 930,328 565,102 806,310 0 0 1,765 135,263 44,637 90,626 0 0 0 90,626 1.08 1.07
EX-27.7 18 FINANCIAL DATA SCHEDULE SIX MONTHS 6/30/96
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996 AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30,1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000097210 TERADYNE, INC. 1,000 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 204,354 98,739 225,984 3,390 168,752 729,804 548,436 270,264 1,092,451 223,216 17,538 0 0 10,433 831,086 1,092,451 668,657 668,657 401,355 566,006 0 0 1,252 109,320 38,263 71,057 0 0 0 71,057 0.85 0.84
EX-27.8 19 FINANCIAL DATA SCHEDULE THREE MONTHS 3/31/96
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996 AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000097210 TERADYNE, INC. 1,000 U.S. DOLLARS 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1 171,593 137,323 270,598 2,032 204,547 821,558 524,237 260,246 1,110,642 254,179 18,158 0 0 10,422 812,172 1,110,642 348,967 348,967 186,637 270,306 0 0 642 81,778 28,623 53,155 0 0 0 53,155 0.64 0.63
EX-27.9 20 FINANCIAL DATA SCHEDULE YEAR ENDED 12/31/95
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1995 AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT. 0000097210 TERADYNE, INC. 1,000 U.S. DOLLARS YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1 182,165 93,662 257,089 2,269 176,851 740,145 512,986 255,968 1,023,831 229,591 18,679 0 0 10,329 749,521 1,023,831 1,191,022 1,191,022 646,382 946,666 5,600 0 3,040 249,925 90,641 159,284 0 0 0 159,284 1.95 1.89
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