OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED RIGHTS TO PURCHASE COMMON STOCK)
OF
IFR SYSTEMS, INC.
AT
$1.35 NET PER SHARE
BY
TESTCO ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
AEROFLEX INCORPORATED
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 NOON, NEW YORK CITY TIME,
ON MONDAY, MAY 20, 2002, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF
SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "COMMON STOCK"), OF IFR
SYSTEMS, INC. (THE "COMPANY"), INCLUDING THE ASSOCIATED RIGHTS TO PURCHASE
COMMON STOCK (THE "RIGHTS", AND TOGETHER WITH THE COMMON STOCK, THE "SHARES"),
THAT REPRESENTS AT LEAST 50.1% OF THE THEN OUTSTANDING SHARES ON A FULLY DILUTED
BASIS. THE OFFER IS ALSO SUBJECT TO OTHER CONDITIONS. SEE SECTION 15.
The Offer (as defined herein) is being made pursuant to the Agreement and
Plan of Merger, dated as of April 13, 2002 (the "Merger Agreement"), among
Aeroflex Incorporated, a Delaware corporation ("Aeroflex"), Testco Acquisition
Corp., a Delaware corporation (the "Purchaser"), and the Company.
The Board of Directors of the Company unanimously (i) determined that the
terms of the Offer and the Merger (as defined herein) are fair to, and in the
best interests of, the stockholders of the Company, (ii) approved the Merger
Agreement and the transactions contemplated thereby, including the Offer and the
Merger and (iii) recommends that the Company's stockholders accept the Offer and
tender their Shares pursuant to the Offer and approve and adopt the Merger
Agreement.
THE COMPANY IS CURRENTLY IN DEFAULT UNDER ITS CREDIT AGREEMENT, UNDER WHICH
APPROXIMATELY $84 MILLION IS OWED TO THE COMPANY'S BANK LENDERS. IN CONNECTION
WITH THE OFFER, THE LENDERS UNDER THE CREDIT AGREEMENT HAVE ENTERED INTO A
FORBEARANCE AGREEMENT IN WHICH THEY HAVE AGREED NOT TO TAKE ANY ACTION TO
FORECLOSE ON THE COMPANY'S INDEBTEDNESS UNTIL AFTER AUGUST 30, 2002, UNLESS THE
MERGER AGREEMENT IS TERMINATED EARLIER WITHOUT ANY SHARES HAVING BEEN PURCHASED
IN THE OFFER. THE LENDERS HAVE ALSO AGREED TO ACCEPT APPROXIMATELY $49 MILLION
IN FULL SATISFACTION OF ALL OBLIGATIONS UNDER THE CREDIT AGREEMENT AS LONG AS
SUCH AMOUNT IS PAID BY THE COMPANY ON OR BEFORE AUGUST 30, 2002. SIMULTANEOUSLY
WITH THE PURCHASE OF SHARES IN THE OFFER, IF IT IS CONSUMMATED, AEROFLEX HAS
AGREED TO LEND TO THE COMPANY $48.8 MILLION TO FUND SUBSTANTIALLY ALL OF THE
APPROXIMATELY $49 MILLION PAYMENT TO BE MADE BY THE COMPANY TO ITS LENDERS.
A summary of the material terms of the Offer appears on pages 1 through 5.
You should read this entire document carefully before deciding whether to tender
your Shares.
April 19, 2002
IMPORTANT
Any stockholder of the Company wishing to tender Shares in the Offer must
(1) complete and sign the Letter of Transmittal (or a facsimile thereof) in
accordance with the instructions in the Letter of Transmittal and mail or
deliver the Letter of Transmittal and all other required documents to the
Depositary (as defined herein) together with certificates representing the
Shares tendered or follow the procedure for book-entry transfer set forth in
Section 3 or (2) request such stockholder's broker, dealer, commercial bank,
trust company or other nominee to effect the transaction for the stockholder. A
stockholder whose Shares are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee must contact such person if such
stockholder wishes to tender such Shares.
The Rights associated with the Shares are presently evidenced by the
certificates for the shares of Common Stock and a tender by a stockholder of
such stockholder's Shares will also constitute a tender of the associated
Rights. Any stockholder of the Company who wishes to tender Shares and cannot
deliver certificates representing such Shares and all other required documents
to the Depositary on or prior to the Expiration Date (as defined herein) or who
cannot comply with the procedures for book-entry transfer on a timely basis may
tender such Shares pursuant to the guaranteed delivery procedure set forth in
Section 3.
Questions and requests for assistance may be directed to the Information
Agent at the address and telephone number set forth on the back cover of this
Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of
Transmittal, the Notice of Guaranteed Delivery and other related materials may
be obtained from the Information Agent. Stockholders may also contact their
broker, dealer, commercial bank, trust company or other nominee for copies of
these documents.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
SUMMARY TERM SHEET.......................................... 1
INTRODUCTION................................................ 6
THE TENDER OFFER............................................ 9
1. Terms of the Offer................................... 9
2. Acceptance for Payment and Payment for Shares........ 11
3. Procedures for Accepting the Offer and Tendering
Shares................................................. 11
4. Withdrawal Rights.................................... 14
5. Certain United States Federal Income Tax
Consequences........................................... 15
6. Price Range of Shares; Dividends..................... 15
7. Certain Information Concerning the Company........... 16
8. Certain Information Concerning Aeroflex and the
Purchaser.............................................. 20
9. Source and Amount of Funds........................... 21
10. Background of the Offer; Past Contacts or
Negotiations with the Company.......................... 21
11. The Merger Agreement................................. 24
12. Purpose of the Offer; Plans for the Company.......... 35
13. Certain Effects of the Offer......................... 36
14. Dividends and Distributions.......................... 37
15. Certain Conditions of the Offer...................... 37
16. Certain Legal Matters; Regulatory Approvals.......... 39
17. Dissenters' Rights................................... 41
18. Fees and Expenses.................................... 41
19. Miscellaneous........................................ 41
SCHEDULE I
Directors and Executive Officers of Aeroflex and the
Purchaser................................................. I-1
</Table>
i
SUMMARY TERM SHEET
Testco Acquisition Corp. is offering to purchase all of the outstanding
common stock of IFR Systems, Inc. for $1.35 per share in cash. The following are
some of the questions you, as a stockholder of IFR, may have, and answers to
those questions. We urge you to carefully read the remainder of this Offer to
Purchase and the Letter of Transmittal because the information in this summary
term sheet is not complete. Additional important information is contained in the
remainder of this Offer to Purchase and the Letter of Transmittal.
WHO IS OFFERING TO BUY MY SECURITIES?
Our name is Testco Acquisition Corp. We are a Delaware corporation formed
for the purpose of making a tender offer for all of the common stock of IFR and
have carried on no activities other than in connection with the merger agreement
among Aeroflex Incorporated, Testco Acquisition Corp. and IFR Systems, Inc. We
are a wholly owned subsidiary of Aeroflex, a leading manufacturer of
microelectronic, integrated circuit, interconnect and testing solutions.
Aeroflex's products are used in the fiber optic, broadband cable, wireless and
satellite communications markets. Aeroflex also designs and manufactures motion
control systems and shock and vibration isolation systems which are used for
commercial, industrial and defense applications. See the "Introduction" to this
Offer to Purchase and Section 8.
WHAT ARE THE CLASSES AND AMOUNTS OF SECURITIES SOUGHT IN THE OFFER?
We are seeking to purchase all of the outstanding shares of common stock of
IFR and the rights to purchase common stock associated with those shares. See
the "Introduction" to this Offer to Purchase and Section 1.
HOW MUCH ARE YOU OFFERING TO PAY? WHAT IS THE FORM OF PAYMENT? WILL I HAVE TO
PAY ANY FEES OR COMMISSIONS?
We are offering to pay $1.35 per share, net to you, in cash. If you are the
record owner of your shares and you tender your shares to us in the offer, you
will not have to pay brokerage fees or similar expenses. If you own your shares
through a broker or other nominee, and your broker or nominee tenders your
shares on your behalf, they may charge you a fee for doing so. You should
consult your broker or nominee to determine whether any charges will apply. See
the "Introduction" to this Offer to Purchase.
DO YOU HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT?
Aeroflex, our parent company, will provide us with sufficient funds to
purchase all shares validly tendered and not withdrawn in the offer and to
provide funding for the merger, which is expected to follow the successful
completion of the offer in accordance with the terms and conditions of the
merger agreement. Aeroflex will also lend to IFR $48.8 million so that IFR can
make certain agreed upon payments of approximately $49 million to the lenders
under IFR's credit agreements in full satisfaction of the approximately $84
million owed thereunder. Aeroflex has sufficient cash on hand and marketable
securities to provide the funds necessary for us to purchase the shares and make
such loan. See Section 9.
WHAT IS THE SITUATION WITH IFR'S BANK DEBT?
IFR is currently in default under its credit agreement, under which
approximately $84 million is owed to IFR's bank lenders. In connection with the
offer, the lenders have entered into a forbearance agreement in which they have
agreed not to take any action to foreclose on IFR's indebtedness until after
August 30, 2002, unless the merger agreement is terminated earlier without any
shares having been purchased in the offer. The lenders have also agreed to
accept approximately $49 million in full satisfaction of all obligations under
the credit agreement as long as such amount is paid on or before August 30,
2002. Simultaneously with the purchase of shares in the Offer, if it is
consummated, Aeroflex has agreed to lend to the Company $48.8 million to fund
substantially all of the approximately $49 million payment to be made by the
Company to its lenders. See Section 11.
1
IS YOUR FINANCIAL CONDITION RELEVANT TO MY DECISION TO TENDER IN THE OFFER?
We do not think our financial condition is relevant to your decision
whether to tender in the offer because the form of payment consists solely of
cash and all of our funding will come from cash on hand of, and marketable
securities owned by, Aeroflex. See Section 9.
WHAT IS THE PURPOSE OF THE OFFER?
The purpose of the offer is to enable Aeroflex to acquire at least a
majority of the outstanding IFR shares. Following the offer, we and Aeroflex
intend to acquire the remaining IFR shares that are not acquired in the offer in
a merger transaction. See "Introduction" and Section 12.
HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE OFFER?
You will have until 12:00 noon, New York City time, on Monday, May 20,
2002, to tender your shares in the offer, unless the offer is extended. If you
cannot deliver everything that is required in order to make a valid tender by
that time, you may be able to use a guaranteed delivery procedure, which is
described later in this Offer to Purchase. See Sections 1 and 3.
CAN THE OFFER BE EXTENDED AND UNDER WHAT CIRCUMSTANCES?
We have agreed in the merger agreement that:
- without the consent of IFR, we may extend the offer beyond the scheduled
expiration date from time to time until August 30, 2002, at the latest,
if at a scheduled expiration date any of the conditions to our obligation
to accept for payment and to pay for the shares are not satisfied or, to
the extent permitted by the merger agreement, waived;
- without the consent of IFR, we may generally extend the offer for any
period required by any rule, regulation or interpretation of the
Securities and Exchange Commission applicable to the offer;
- if all of the conditions to the offer have been satisfied except the
requirement that there be tendered and not withdrawn at least 50.1% of
the then outstanding shares on a fully diluted basis at the time of the
initial expiration date of the offer, we will extend the offer for at
least three business days; and
- if all conditions to the offer have been satisfied or waived, we will
accept for payment and pay for all shares validly tendered and not
withdrawn at the scheduled expiration date of the offer (which shares may
not thereafter be withdrawn) and we may thereafter, at our discretion,
extend the offer to provide a "subsequent offering period" of at least
three business days but not more than 20 business days, during which time
stockholders whose shares have not previously been accepted for payment
may tender, but not withdraw, their shares and receive the offer
consideration.
Any extension under the circumstances described in the first bullet point
above will not exceed the lesser of 10 days and that number of days that we
reasonably believe is necessary to cause the conditions of the offer to be
satisfied.
See Section 1 of this Offer to Purchase for more details on our ability to
extend the offer.
HOW WILL I BE NOTIFIED IF THE OFFER IS EXTENDED?
If we extend the offer, we will inform American Stock Transfer & Trust
Company (the depositary for the offer) of that fact and will make a public
announcement of the extension not later than 9:00 a.m., New York City time, on
the next business day after the day on which the offer was scheduled to expire.
See Section 1.
2
WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE OFFER?
We are not obligated to purchase any shares that are validly tendered in
the offer unless:
- the number of shares validly tendered and not withdrawn on the expiration
date of the offer represents at least 50.1% of the then outstanding
shares on a fully diluted basis (we call this condition the "minimum
condition"). For purposes of the offer, "on a fully diluted basis" means,
as of any time, on a basis that includes the number of shares of IFR
common stock that are actually issued and outstanding plus the maximum
number of such shares that IFR may be required to issue under stock
options, warrants and other rights or securities convertible into shares
of IFR common stock, whether or not currently exercisable;
- IFR is fully discharged from all obligations under its credit agreement
upon payment of approximately $49 million to the lenders under the credit
agreement in full satisfaction of the approximately $84 million owed
thereunder, such lenders do not take any action to foreclose or exercise
any other rights against the Company under the credit agreement prior to
or at the time of acceptance of shares for purchase in the offer, and the
forbearance and loan discharge agreements with the lenders are in full
force and effect at the time of acceptance of shares for purchase in the
offer;
- any required approvals from governmental authorities are received; and
- there is no material adverse change in IFR or its business.
The offer is also subject to a number of other conditions. We can waive
some of the conditions to the offer without IFR's consent; however, we cannot
waive the minimum condition without IFR's consent. See Section 15.
HOW DO I TENDER MY SHARES?
To tender shares, you must deliver the certificates representing your
shares, together with a completed letter of transmittal and any other documents
required by the letter of transmittal, to American Stock Transfer & Trust
Company, the depositary for the offer, not later than the time the tender offer
expires. If your shares are held in street name, the shares can be tendered by
your broker, bank or other nominee through The Depository Trust Company. If you
are unable to deliver any required document or instrument to the depositary by
the expiration of the tender offer, you may gain some extra time by having a
broker, a bank or other fiduciary that is an eligible institution guarantee that
the missing items will be received by the depositary within three New York Stock
Exchange trading days. For the tender to be valid, however, the depositary must
receive the missing items within that three trading day period. See Section 3.
UNTIL WHAT TIME MAY I WITHDRAW PREVIOUSLY TENDERED SHARES?
You may withdraw shares at any time until the offer has expired and, if we
have not accepted your shares for payment by Thursday, June 18, 2002, you may
withdraw them at any time after that date until we accept shares for payment.
This right to withdraw will not apply to a subsequent offering period, if any,
as discussed in Section 1. See Section 4.
HOW DO I WITHDRAW PREVIOUSLY TENDERED SHARES?
To withdraw shares, you must deliver a written notice of withdrawal, or a
facsimile of one, with the required information to the depositary while you
still have the right to withdraw the shares. See Section 4.
WHAT DOES THE IFR BOARD OF DIRECTORS RECOMMEND REGARDING THE OFFER?
We are making the offer pursuant to the merger agreement, which has been
approved by the IFR board of directors. The board of directors of IFR:
- unanimously determined that the terms of the offer and the merger are
fair to, and in the best interests of, the stockholders of IFR;
3
- unanimously approved the merger agreement and the transactions
contemplated thereby, including the offer and the merger; and
- unanimously recommends that IFR's stockholders accept the offer and
tender their shares pursuant to the offer and approve and adopt the
merger agreement.
See the "Introduction" to this Offer to Purchase.
IF A MAJORITY OF THE SHARES ARE TENDERED AND ACCEPTED FOR PAYMENT, WILL IFR
CONTINUE AS A PUBLIC COMPANY?
No. Following the purchase of shares in the offer we expect to consummate
the merger. If the merger takes place, IFR will no longer be publicly owned.
Even if for some reason the merger does not take place, if we purchase all of
the tendered shares, there may be so few remaining stockholders and publicly
held shares that IFR common stock will no longer be eligible to be traded on the
Nasdaq; there may not be a public trading market for IFR common stock; and IFR
may cease making filings with the Securities and Exchange Commission or
otherwise cease being required to comply with the SEC rules relating to publicly
held companies. See Section 13.
WILL THE TENDER OFFER BE FOLLOWED BY A MERGER IF ALL OF THE IFR SHARES ARE NOT
TENDERED IN THE OFFER?
Yes. If we accept for payment and pay for at least a majority of the shares
of IFR on a fully diluted basis and all of the conditions to the merger are
satisfied or waived, Testco Acquisition Corp. will be merged with and into IFR.
If that merger takes place, Aeroflex will own all of the shares of IFR and all
remaining stockholders of IFR (other than Aeroflex, Testco Acquisition and their
subsidiaries, the Company and stockholders properly exercising dissenters'
rights under Delaware law) will receive $1.35 per share in cash (or any higher
price per share that is paid in the offer). See the "Introduction" to this Offer
to Purchase.
WHY SHOULD I TENDER IF I WILL RECEIVE $1.35 PER SHARE IN THE MERGER ANYWAY?
We will not purchase any shares in the offer or the merger unless at least
50.1% of the outstanding shares, on a fully diluted basis, are properly tendered
and not withdrawn in the offer. In addition, if the offer is completed,
stockholders who tender their shares in the offer will be paid before
stockholders who wait until the merger is completed.
IF I DECIDE NOT TO TENDER, HOW WILL THE OFFER AFFECT MY SHARES?
If the merger described above takes place, stockholders not tendering in
the offer will receive the same amount of cash per share that they would have
received had they tendered their shares in the offer, subject to any dissenters'
rights properly exercised under Delaware law. Therefore, if the merger takes
place, the only difference to you between tendering your shares and not
tendering your shares is that you will be paid earlier if you tender your
shares. If the merger does not take place, however, the number of stockholders
and the number of shares of IFR that are still in the hands of the public may be
so small that there no longer will be an active public trading market (or,
possibly, there may not be any public trading market) for the common stock.
Also, as described above, IFR may cease making filings with the SEC or otherwise
may not be required to comply with the SEC rules relating to publicly held
companies. See the "Introduction" and Section 13 of this Offer to Purchase.
WHAT WILL HAPPEN IF YOU DON'T BUY SHARES IN THE OFFER?
If we don't receive tenders of at least 50.1% of the fully diluted IFR
shares under our tender offer (as it may be extended), we would have the right
to terminate the merger agreement. If we exercised that right, the forbearance
agreement with IFR's lenders would also terminate. IFR would then have to
negotiate with its lenders a further extension of their forbearance agreement in
order to avoid the lenders having the right to demand payment of the
approximately $84 million that IFR would then owe them. IFR would also have to
consider whether there are any alternatives that would preserve any value for
its stockholders.
4
WHAT IS THE MARKET VALUE OF MY SHARES AS OF A RECENT DATE?
On April 12, 2002, the last trading day before we announced the signing of
the merger agreement, the last sale price of IFR common stock reported on the
Nasdaq National Market was $1.316 per share. On April 18, 2002, the last trading
day before we commenced the tender offer, the closing price of IFR common stock
reported on the Nasdaq was $1.32. We encourage you to obtain a recent quotation
for shares of IFR common stock in deciding whether to tender your shares. See
Section 6.
WHAT ARE THE TAX CONSEQUENCES TO ME OF TENDERING SHARES?
The receipt of cash for shares pursuant to the tender offer or the merger
will be a taxable transaction for United States federal income tax purposes and
possibly for state, local and foreign income tax purposes as well. See Section
5.
HAVE ANY STOCKHOLDERS OF IFR AGREED TO TENDER THEIR SHARES IN THE OFFER OR VOTE
IN FAVOR OF THE MERGER?
No. However, IFR has disclosed in its Solicitation/Recommendation Statement
on Schedule 14D-9 filed with the Securities and Exchange Commission that, to
IFR's knowledge, each of its executive officers, directors and affiliates intend
to tender their shares in the offer. In addition, if the offer is completed and
a special meeting is required under applicable law to complete the merger, IFR
will hold a special meeting of its stockholders to vote on the approval of the
merger. At that special meeting, we will vote the shares purchased by us in the
offer in favor of the merger and the adoption of the merger agreement. If we
purchase more than 90% of the outstanding IFR shares in the offer or otherwise,
the merger would be consummated without a stockholder meeting and without
approval of IFR stockholders, in accordance with applicable law. See Section 11.
TO WHOM MAY I SPEAK IF I HAVE QUESTIONS ABOUT THE TENDER OFFER?
You may call MacKenzie Partners, Inc., the information agent for our tender
offer, at (800)322-2885 (toll free). See the back cover of this Offer to
Purchase.
5
To the Holders of Shares of Common Stock of
IFR Systems, Inc.:
INTRODUCTION
Testco Acquisition Corp. (the "Purchaser"), a Delaware corporation and a
wholly owned subsidiary of Aeroflex Incorporated, a Delaware corporation
("Aeroflex"), hereby offers to purchase all outstanding shares of common stock,
par value $.01 per share (the "Common Stock"), of IFR Systems, Inc. (the
"Company"), and the associated rights to purchase Common Stock (the "Rights")
issued pursuant to the Rights Agreement, dated as of February 28, 1999 (as
amended, the "Rights Agreement"), between the Company and Harris Trust and
Savings Bank, as rights agent (the shares of Common Stock and the associated
Rights are referred to herein as the "Shares"), at a price of $1.35 per Share,
net to the seller in cash (the "Offer Price"), upon the terms and subject to the
conditions set forth in this Offer to Purchase and in the related Letter of
Transmittal (which, together with any amendments or supplements hereto or
thereto, collectively constitute the "Offer").
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of April 13, 2002 (the "Merger Agreement"), among Aeroflex, the Purchaser and
the Company. The Merger Agreement provides that the Purchaser will be merged
with and into the Company (the "Merger") with the Company continuing as the
surviving corporation (the "Surviving Corporation"), wholly owned by Aeroflex.
Pursuant to the Merger, at the effective time of the Merger (the "Effective
Time") each Share outstanding immediately prior to the Effective Time (other
than Shares owned by Aeroflex, the Purchaser, any of their subsidiaries, or the
Company, all of which will be cancelled, and other than Shares that are held by
stockholders, if any, who properly exercise their dissenters' rights under the
Delaware General Corporation Law (the "DGCL")), will be converted into the right
to receive $1.35 or any greater per Share price paid in the Offer in cash,
without interest (the "Merger Consideration"). The Merger Agreement is more
fully described in Section 11, which also contains a discussion of the treatment
of Company stock options.
THE COMPANY IS CURRENTLY IN DEFAULT UNDER ITS CREDIT AGREEMENT, UNDER WHICH
APPROXIMATELY $84 MILLION IS OWED TO THE COMPANY'S BANK LENDERS. IN CONNECTION
WITH THE OFFER, THE LENDERS HAVE ENTERED INTO A FORBEARANCE AGREEMENT IN WHICH
THEY HAVE AGREED NOT TO TAKE ANY ACTION TO FORECLOSE ON THE COMPANY'S
INDEBTEDNESS UNTIL AFTER AUGUST 30, 2002, UNLESS THE MERGER AGREEMENT IS
TERMINATED EARLIER WITHOUT ANY SHARES HAVING BEEN PURCHASED IN THE OFFER. THE
LENDERS HAVE ALSO AGREED TO ACCEPT APPROXIMATELY $49 MILLION IN FULL
SATISFACTION OF ALL OBLIGATIONS UNDER THE CREDIT AGREEMENT AS LONG AS SUCH
AMOUNT IS PAID BY THE COMPANY ON OR BEFORE AUGUST 30, 2002. SIMULTANEOUSLY WITH
THE PURCHASE OF SHARES IN THE OFFER, IF IT IS CONSUMMATED, AEROFLEX HAS AGREED
TO LEND TO THE COMPANY $48.8 MILLION TO FUND SUBSTANTIALLY ALL OF THE
APPROXIMATELY $49 MILLION PAYMENT TO BE MADE BY THE COMPANY TO ITS LENDERS. SEE
SECTION 11.
Tendering stockholders who are record owners of their Shares and tender
directly to the Depositary (as defined below) will not be obligated to pay
brokerage fees or commissions or, except as otherwise provided in Instruction 6
of the Letter of Transmittal, stock transfer taxes with respect to the purchase
of Shares by the Purchaser pursuant to the Offer. Stockholders who hold their
Shares through a broker or bank should consult such institution as to whether it
charges any service fees. Aeroflex or the Purchaser will pay all charges and
expenses of American Stock Transfer & Trust Company, as depositary (the
"Depositary"), and MacKenzie Partners, Inc. as information agent (the
"Information Agent"), incurred in connection with the Offer. See Section 18.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD") UNANIMOUSLY (1)
DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO AND IN THE
BEST INTERESTS OF THE STOCKHOLDERS OF THE COMPANY, (2) APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE
MERGER, AND (3) RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND
TENDER THEIR SHARES PURSUANT TO THE OFFER AND APPROVE AND ADOPT THE MERGER
AGREEMENT.
TM Capital Corp. ("TM Capital"), the Company's financial advisor, has
delivered to the Company Board its written opinion dated April 10, 2002, to the
effect that, as of such date and based on and subject to
6
the matters stated in such opinion, the consideration to be received by holders
of Shares pursuant to the Merger Agreement is fair, from a financial point of
view, to such holders. The full text of TM Capital's written opinion, which
describes the assumptions made, procedures followed, matters considered and
limitations on the review undertaken, is included as an annex to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
which is being mailed to stockholders herewith. Stockholders are urged to read
such opinion carefully in its entirety.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED IN ACCORDANCE WITH THE TERMS OF THE OFFER AND NOT WITHDRAWN PRIOR TO
THE EXPIRATION DATE OF THE OFFER THAT NUMBER OF SHARES THAT REPRESENTS AT LEAST
50.1% OF THE THEN OUTSTANDING SHARES ON A FULLY DILUTED BASIS (THE "MINIMUM
CONDITION"). THE OFFER IS ALSO SUBJECT TO THE SATISFACTION OF CERTAIN OTHER
CONDITIONS, INCLUDING (1) THE FULL DISCHARGE OF THE COMPANY FROM ALL OBLIGATIONS
UNDER THE COMPANY'S CREDIT AGREEMENT AND THE RELEASE OF ALL CLAIMS THEREUNDER
UPON PAYMENT OF APPROXIMATELY $49 MILLION TO THE LENDERS UNDER THE CREDIT
AGREEMENT IN FULL SATISFACTION OF THE APPROXIMATELY $84 MILLION OWED THEREUNDER,
(2) SUCH LENDERS NOT TAKING ANY ACTION TO FORECLOSE OR EXERCISE ANY OTHER RIGHTS
AGAINST THE COMPANY UNDER THE CREDIT AGREEMENT PRIOR TO OR AT THE TIME OF
ACCEPTANCE FOR PURCHASE OF SHARES IN THE OFFER, (3) THE FORBEARANCE AND LOAN
DISCHARGE AGREEMENTS WITH THE COMPANY'S LENDERS BEING IN FULL FORCE AND EFFECT
AT THE TIME OF ACCEPTANCE FOR PURCHASE OF SHARES IN THE OFFER, AND(4) THERE
BEING NO MATERIAL ADVERSE CHANGE IN THE COMPANY OR ITS BUSINESS. SEE SECTION 15.
For purposes of the Offer, "on a fully diluted basis" means, as of any
time, on a basis that includes the number of Shares that are actually issued and
outstanding plus the maximum number of Shares that the Company may be required
to issue pursuant to obligations under stock options, warrants and other rights
or securities convertible into shares of Common Stock, whether or not currently
exercisable.
The Company has advised Aeroflex that, on April 10, 2002, 8,282,009 Shares
were issued and outstanding and 966,868 Shares were subject to outstanding stock
options. None of Aeroflex, the Purchaser or any person listed on Schedule I
hereto beneficially owns any Shares. Accordingly, the Purchaser believes that
the Minimum Condition would be satisfied if approximately 4,633,688 Shares were
validly tendered and not withdrawn prior to the expiration of the Offer.
The Merger Agreement provides that promptly upon the purchase of, and
payment for, Shares pursuant to the Offer, the Purchaser will be entitled to
designate such number of directors, rounded up to the next whole number, on the
Company Board that equals the product of (1) the total number of directors on
the Company Board (giving effect to the directors designated by Aeroflex
pursuant to the Merger Agreement) and (2) the percentage that the number of
Shares so purchased and paid for bears to the total number of Shares then
outstanding. The Company has agreed, upon request of the Purchaser, promptly to
exercise its best efforts to secure the resignations of such number of directors
as is necessary to enable the Purchaser's designees to be so elected to the
Company Board and, subject to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder, to cause the Purchaser's designees to be so elected;
provided, however, that until the Effective Time there shall be at least three
members of the Company Board who were directors as of the date of the Merger
Agreement and are not employees of the Company. It is currently anticipated that
following a successful completion of the Offer, Aeroflex will designate four
members of the Company Board, and three of the Company's existing non-employee
directors would remain on the Company Board. See Section 11. In addition, the
consummation of the Offer is conditioned upon the receipt by the Purchaser of
letters of resignation from four current members of the Board of Directors of
the Company (including all Company employee directors). See Section 15.
The Company and the Rights Agent under the Rights Agreement have amended
the Rights Agreement to provide that, so long as the Merger Agreement has not
been terminated pursuant to the termination provisions thereof, a Distribution
Date (as defined in the Rights Agreement) will not occur or be deemed to occur,
and neither Aeroflex nor the Purchaser will become an Acquiring Person (as
defined in the Rights Agreement), as a result of the execution, delivery or
performance of the Merger Agreement, the announcement, making or consummation of
the Offer, the acquisition of Shares pursuant to the Offer or the Merger, the
consummation of the Merger or any other transaction contemplated by the Merger
Agreement. If a
7
Distribution Date under the Rights Agreement was to occur and the Rights
separate from the Common Stock, in order to validly tender its Shares a
stockholder would be required to tender any Rights distributed with respect to
such Shares (including any certificates evidencing such Rights).
The Merger is subject to the satisfaction or waiver of certain conditions,
including, if required, the approval and adoption of the Merger Agreement by the
affirmative vote of the holders of a majority of the outstanding Shares. If the
Minimum Condition is satisfied, the Purchaser would have sufficient voting power
to approve the Merger without the affirmative vote of any other stockholder of
the Company. The Company has agreed, if required, to cause a meeting of its
stockholders to be held as promptly as practicable following consummation of the
Offer for the purposes of considering and taking action upon the approval and
adoption of the Merger Agreement. Aeroflex and the Purchaser have agreed to vote
their Shares in favor of the approval and adoption of the Merger Agreement. See
Section 11.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION THAT SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
8
THE TENDER OFFER
1. TERMS OF THE OFFER
Upon the terms, and subject to the conditions, of the Offer (including, if
the Offer is extended or amended, the terms and conditions of such extension or
amendment), the Purchaser will accept for payment and pay for all Shares validly
tendered prior to the Expiration Date and not properly withdrawn as permitted
under Section 4. The term "Expiration Date" means 12:00 noon, New York City
time, on Monday, May 20, 2002 unless the Purchaser, in accordance with the
Merger Agreement, extends the period during which the Offer is open, in which
event the term "Expiration Date" means the latest time and date on which the
Offer, as so extended (other than any extension with respect to a Subsequent
Offering Period described below), expires.
The Offer is conditioned upon the satisfaction of the Minimum Condition and
the other conditions set forth in Section 15. Subject to the provisions of the
Merger Agreement, the Purchaser may waive any or all of the conditions to its
obligation to purchase Shares pursuant to the Offer. If by the initial or any
subsequent Expiration Date, any or all of the conditions to the Offer have not
been satisfied or waived, subject to the provisions of the Merger Agreement, the
Purchaser may elect to (i) terminate the Offer and return all tendered Shares to
tendering stockholders, (ii) waive all of the unsatisfied conditions and,
subject to any required extension, purchase all Shares validly tendered by the
Expiration Date and not properly withdrawn or (iii) extend the Offer and,
subject to the right of stockholders to withdraw Shares until the new Expiration
Date, retain the Shares that have been tendered until the expiration of the
Offer, as extended.
The Purchaser will not make any change without the prior written consent of
the Company that (i) decreases the price per Share payable in the Offer, (ii)
reduces the maximum number of Shares to be purchased in the Offer, (iii) changes
the form of consideration to be paid in the Offer, (iv) modifies or amends any
of the conditions to the Offer set forth in Section 15, (v) imposes conditions
to the Offer in addition to the conditions set forth in Section 15, (vi) waives
the Minimum Condition, (vii) makes any other changes in the terms and conditions
of the Offer that are in any manner adverse to the holders of Shares or require
the consent of the Company's bank lenders, or (viii) except as provided below,
extends the Offer.
Subject to the terms of the Merger Agreement, the Purchaser may, without
the consent of the Company, (i) extend the Offer beyond the scheduled expiration
date if any of the conditions to the Purchaser's obligation to accept for
payment and to pay for the Shares are not satisfied or, to the extent permitted
by the Merger Agreement, waived or (ii) extend the Offer for any period required
by any rule, regulation or interpretation of the Securities and Exchange
Commission (the "SEC") or its staff applicable to the Offer. An extension
described in clause (i) of the preceding sentence will not exceed the lesser of
(a) ten business days or (b) such smaller number of days that the Purchaser
reasonably believes is necessary to cause the conditions of the Offer to be
satisfied. In the event that all of the conditions to the Offer have been
satisfied except the Minimum Condition at the time of the initial expiration of
the Offer, the Purchaser is required to extend the Offer for at least three
business days.
Rule 14d-11 under the Exchange Act permits the Purchaser, subject to
certain conditions, to provide a subsequent offering period following the
expiration of the Offer on the Expiration Date (a "Subsequent Offering Period").
A Subsequent Offering Period is an additional period of time from three business
days to 20 business days in length, beginning after the Purchaser purchases
Shares tendered in the Offer, during which stockholders may tender, but not
withdraw, their Shares and receive the Offer Price.
The Purchaser may, in its discretion, provide a Subsequent Offering Period
of not less than three business days in the event that all of the conditions to
the Offer have been satisfied or waived, as permitted by the Merger Agreement,
as of the Expiration Date. Pursuant to Rule 14d-7 under the Exchange Act, no
withdrawal rights apply to Shares tendered during a Subsequent Offering Period
and no withdrawal rights apply during the Subsequent Offering Period with
respect to Shares tendered in the Offer prior to the Expiration Date and
accepted for payment. During a Subsequent Offering Period, the Purchaser will
promptly purchase and pay for all Shares tendered at the same price paid in the
Offer.
9
Subject to the applicable rules and regulations of the SEC and the
provisions of the Merger Agreement, the Purchaser also expressly reserves the
right, in its sole discretion, at any time or from time to time, (i) to
terminate the Offer if any of the conditions set forth in Section 15 have not
been satisfied and (ii) to waive any condition to the Offer or otherwise amend
the Offer in any respect, in each case by giving oral or written notice of such
extension, termination, waiver or amendment to the Depositary and by making a
public announcement thereof. If the Purchaser accepts for payment any Shares
pursuant to the Offer, it will accept for payment all Shares validly tendered
prior to the Expiration Date and not properly withdrawn, and will promptly pay
for all Shares so accepted for payment.
The rights reserved by the Purchaser by the preceding paragraph are in
addition to the Purchaser's rights described in Section 15. Any extension,
delay, termination, waiver or amendment will be followed as promptly as
practicable by public announcement thereof, such announcement in the case of an
extension to be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date, in accordance with
the public announcement requirements of Rule 14e-1(d) under the Exchange Act.
Subject to applicable law (including Rules 14d-4(d) and 14d-6(c) under the
Exchange Act, which require that material changes be promptly disseminated to
stockholders in a manner reasonably designed to inform them of such changes) and
without limiting the manner in which the Purchaser may choose to make any public
announcement, the Purchaser shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by issuing a press
release to the Dow Jones News Service.
If the Purchaser extends the Offer or if the Purchaser is delayed in its
acceptance for payment of or payment for Shares or it is unable to pay for
Shares pursuant to the Offer for any reason, then, without prejudice to the
Purchaser's rights under the Offer, the Depositary may retain tendered Shares on
behalf of the Purchaser, and such Shares may not be withdrawn except to the
extent tendering stockholders are entitled to withdrawal rights as described
herein under Section 4. However, the ability of the Purchaser to delay the
payment for Shares that the Purchaser has accepted for payment is limited by (i)
Rule 14e-1(c) under the Exchange Act, which requires that a bidder pay the
consideration offered or return the securities deposited by or on behalf of
stockholders promptly after the termination or withdrawal of such bidder's
offer, unless such bidder elects to offer a Subsequent Offering Period and pays
for Shares tendered during the Subsequent Offering Period in accordance with
Rule 14d-11 under the Exchange Act and (ii) the terms of the Merger Agreement,
which require that the Purchaser pay for Shares that are tendered pursuant to
the Offer as soon as permitted after the Offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, the Purchaser will disseminate additional tender offer materials and
extend the Offer to the extent required by Rules 14d-4(d), 14d-6(c) and 14e-1
under the Exchange Act. The minimum period during which an offer must remain
open following material changes in the terms of the Offer, other than a change
in price, percentage of securities sought or inclusion of or changes to a
dealer's soliciting fee, will depend upon the facts and circumstances, including
the materiality, of the changes. In the SEC's view, an offer should remain open
for a minimum of five (5) business days from the date the material change is
first published, sent or given to stockholders and, if material changes are made
with respect to information that approaches the significance of price and share
levels, a minimum of ten (10) business days may be required to allow for
adequate dissemination to stockholders. Accordingly, if, prior to the Expiration
Date, the Purchaser decreases the number of Shares being sought or increases the
consideration offered pursuant to the Offer, and if the Offer is scheduled to
expire at any time earlier than the tenth business day from the date that notice
of such increase or decrease is first published, sent or given to stockholders,
the Offer will be extended at least until the expiration of such tenth business
day.
The Company has provided the Purchaser with the Company's stockholder list
and security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase and the related Letter of Transmittal
will be mailed to record holders of Shares whose names appear on the Company's
stockholder list and will be furnished, for subsequent transmittal to beneficial
owners of Shares, to brokers, dealers, commercial banks, trust companies and
similar persons whose names, or the names of whose nominees, appear on the
stockholder list or, if applicable, who are listed as participants in a clearing
agency's security position listing.
10
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment) and the satisfaction or earlier waiver of all the conditions to
the Offer set forth in Section 15, the Purchaser will accept for payment and
will pay for all Shares validly tendered prior to the Expiration Date and not
properly withdrawn pursuant to the Offer as soon as it is permitted to do so
under applicable law. Subject to the Merger Agreement and compliance with Rule
14e-1(c) under the Exchange Act, the Purchaser expressly reserves the right to
delay payment for Shares in order to comply in whole or in part with any
applicable law. See Section 16.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (1) the certificates
evidencing such Shares (the "Share Certificates") or confirmation (a "Book-Entry
Confirmation") of a book-entry transfer of such Shares into the Depositary's
account at The Depository Trust & Clearing Corporation (the "Book-Entry Transfer
Facility") pursuant to the procedures set forth in Section 3, (2) the Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed, with
any required signature guarantees or, in the case of a book-entry transfer, an
Agent's Message (as defined below) in lieu of the Letter of Transmittal and (3)
any other documents required by the Letter of Transmittal.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares validly tendered and not properly
withdrawn as, if and when the Purchaser gives oral or written notice to the
Depositary of the Purchaser's acceptance for payment of such Shares pursuant to
the Offer. Upon the terms and subject to the conditions of the Offer, payment
for Shares accepted for payment pursuant to the Offer will be made by deposit of
the Offer Price therefor with the Depositary, which will act as agent for
tendering stockholders for the purpose of receiving payments from the Purchaser
and transmitting such payments to tendering stockholders whose Shares have been
accepted for payment. If, for any reason whatsoever, acceptance for payment of
any Shares tendered pursuant to the Offer is delayed, or the Purchaser is unable
to accept for payment Shares tendered pursuant to the Offer, then, without
prejudice to the Purchaser's rights under Section 1 hereof, the Depositary may,
nevertheless, on behalf of the Purchaser, retain tendered Shares, and such
Shares may not be withdrawn, except to the extent that the tendering
stockholders are entitled to withdrawal rights as described in Section 4 and as
otherwise required by Rule 14e-1(c) under the Exchange Act.
UNDER NO CIRCUMSTANCES WILL INTEREST ON THE OFFER PRICE FOR SHARES BE PAID,
REGARDLESS OF ANY DELAY IN MAKING SUCH PAYMENT.
If any tendered Shares are not accepted for payment for any reason pursuant
to the terms and conditions of the Offer, or if Share Certificates are submitted
evidencing more Shares than are tendered, Share Certificates evidencing
unpurchased Shares will be returned, without expense to the tendering
stockholder (or, in the case of Shares tendered by book-entry transfer into the
Depositary's account at the Book-Entry Transfer Facility pursuant to the
procedure set forth in Section 3, such Shares will be credited to an account
maintained at the Book-Entry Transfer Facility), as promptly as practicable
following the expiration or termination of the Offer.
The Purchaser reserves the right to transfer or assign, in whole or from
time to time in part, to one or more of its affiliates, the right to purchase
all or any portion of the Shares tendered pursuant to the Offer, but any such
transaction or assignment will not relieve the Purchaser of its obligations
under the Offer and will in no way prejudice the rights of tendering
stockholders to receive payment for Shares validly tendered and accepted for
payment pursuant to the Offer.
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES
Valid Tenders. In order for a stockholder validly to tender Shares
pursuant to the Offer, either (1) the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed, together with any required
signature guarantees (or, in the case of a book-entry transfer, an Agent's
Message in lieu of the Letter of Transmittal) and any other documents required
by the Letter of Transmittal must be received by the
11
Depositary at its address set forth on the back cover of this Offer to Purchase
and either the Share Certificates evidencing tendered Shares must be received by
the Depositary at such address or such Shares must be tendered pursuant to the
procedure for book-entry transfer described below and a Book-Entry Confirmation
must be received by the Depositary, in each case prior to the Expiration Date,
or (2) the tendering stockholder must comply with the guaranteed delivery
procedures described below.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility, to and received by the Depositary, and forming a part of a
Book-Entry Confirmation, that states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares that are the subject of such Book-Entry
Confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that the Purchaser may enforce such
agreement against such participant.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at the Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any financial
institution that is a participant in the system of the Book-Entry Transfer
Facility may make a book-entry delivery of Shares by causing the Book-Entry
Transfer Facility to transfer such Shares into the Depositary's account at the
Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's procedures for such transfer. However, although delivery of Shares
may be effected through book-entry transfer at the Book-Entry Transfer Facility,
either the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, together with any required signature guarantees, or an
Agent's Message in lieu of the Letter of Transmittal, and any other required
documents, must, in any case, be received by the Depositary at its address set
forth on the back cover of this Offer to Purchase prior to the Expiration Date,
or the tendering stockholder must comply with the guaranteed delivery procedure
described below.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE DEPOSITARY.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal (1) if the Letter of Transmittal is signed by the registered holder
of the Shares tendered therewith, unless such holder has completed either the
box entitled "Special Delivery Instructions" or the box entitled "Special
Payment Instructions" on the Letter of Transmittal or (2) if the Shares are
tendered for the account of a firm that is participating in the Security
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Guarantee Program or the Stock Exchange Medallion Program (each an
"Eligible Institution" and collectively "Eligible Institutions"). In all other
cases, all signatures on a Letter of Transmittal must be guaranteed by an
Eligible Institution. See Instruction 1 of the Letter of Transmittal. If a Share
Certificate is registered in the name of a person or persons other than the
signer of the Letter of Transmittal, or if payment is to be made or delivered
to, or a Share Certificate not accepted for payment or not tendered is to be
issued, in the name of a person other than the registered holder(s), then the
Share Certificate must be endorsed or accompanied by appropriate duly executed
stock powers, in either case signed exactly as the name(s) of the registered
holder(s) appear on the Share Certificate, with the signature(s) on such Share
Certificate or stock powers guaranteed by an Eligible Institution as provided in
the Letter of Transmittal. See Instructions 1 and 5 of the Letter of
Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and the Share Certificates evidencing such stockholder's Shares are
not immediately available or such stockholder cannot deliver the Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date, or such stockholder cannot complete the procedure for delivery
by book-entry transfer on a timely basis, such Shares may nevertheless be
tendered; provided that all of the following conditions are satisfied:
(1) such tender is made by or through an Eligible Institution;
(2) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Purchaser, is
received prior to the Expiration Date by the Depositary as provided below;
and
12
(3) the Share Certificates (or a Book-Entry Confirmation) evidencing
all tendered Shares, in proper form for transfer, in each case together
with the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, with any required signature guarantees (or, in the case
of a book-entry transfer, an Agent's Message), and any other documents
required by the Letter of Transmittal are received by the Depositary within
three New York Stock Exchange trading days after the date of execution of
such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile transmission or mailed to the Depositary and must include a
guarantee by an Eligible Institution in the form set forth in the form of Notice
of Guaranteed Delivery made available by the Purchaser.
In all cases, Shares will not be deemed validly tendered unless a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof) (or,
in the case of a book-entry transfer, an Agent's Message) is received by the
Depositary.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER
FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY
(INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, RECEIPT OF A BOOK-ENTRY
CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by the Purchaser in its sole discretion, which
determination shall be final and binding on all parties. The Purchaser reserves
the absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance for payment of which may, in the opinion of its
counsel, be unlawful. The Purchaser also reserves the absolute right to waive
any defect or irregularity in the tender of any Shares of any particular
stockholder, whether or not similar defects or irregularities are waived in the
case of other stockholders. No tender of Shares will be deemed to have been
validly made until all defects and irregularities have been cured or waived to
the satisfaction of the Purchaser. None of the Purchaser, the Depositary, the
Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification. The Purchaser's interpretation of the
terms and conditions of the Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding.
Other Requirements. By executing the Letter of Transmittal as set forth
above, a tendering stockholder irrevocably appoints designees of the Purchaser
as such stockholder's proxies, each with full power of substitution, in the
manner set forth in the Letter of Transmittal, to the full extent of such
stockholder's rights with respect to the Shares tendered by such stockholder and
accepted for payment by the Purchaser (including, with respect to any and all
other Shares or other securities issued or issuable in respect of such Shares on
or after the date of this Offer to Purchase). All such proxies shall be
considered coupled with an interest in the tendered Shares. Such appointment
will be effective when, and only to the extent that, the Purchaser accepts such
Shares for payment. Upon such acceptance for payment, all prior proxies given by
such stockholder with respect to such Shares (and such other Shares and
securities) will be revoked without further action, and no subsequent proxies
may be given nor any subsequent written consent executed by such stockholder
(and, if given or executed, will not be deemed to be effective) with respect
thereto. The designees of the Purchaser will, with respect to the Shares for
which the appointment is effective, be empowered to exercise all voting and
other rights of such stockholder as they in their sole discretion may deem
proper at any annual or special meeting of the Company's stockholders or any
adjournment or postponement thereof, by written consent in lieu of any such
meeting or otherwise. The Purchaser reserves the right to require that, in order
for Shares to be deemed validly tendered, immediately upon the Purchaser's
payment for such Shares, the Purchaser must be able to exercise full voting
rights with respect to such Shares.
The tender of Shares pursuant to any one of the procedures described above
will constitute the tendering stockholder's acceptance of the Offer, as well as
the tendering stockholder's representation and warranty that such stockholder
has the full power and authority to tender and assign the Shares tendered, as
specified in the
13
Letter of Transmittal. The Purchaser's acceptance for payment of Shares tendered
pursuant to the Offer will constitute a binding agreement between the tendering
stockholder and the Purchaser upon the terms and subject to the conditions of
the Offer.
Backup Withholding. Under the "backup withholding" provisions of United
States federal income tax law, the Depositary may be required to withhold 30% of
the amount of any payments pursuant to the Offer. In order to prevent backup
withholding with respect to payments to certain stockholders of the Offer Price
of Shares purchased pursuant to the Offer, each such stockholder must provide
the Depositary with such stockholder's correct taxpayer identification number
("TIN") and certify that such stockholder is not subject to backup withholding
by completing Substitute Form W-9 in the Letter of Transmittal. Certain
stockholders (including, among others, all corporations and certain foreign
individuals and entities) are not subject to backup withholding. If a
stockholder does not provide its correct TIN or fails to provide the
certifications described above, the Internal Revenue Service may impose a
penalty on the stockholder and the payment of cash to the stockholder pursuant
to the Offer may be subject to backup withholding. All stockholders surrendering
Shares pursuant to the Offer should complete, sign and submit to the Depositary
the Substitute Form W-9 included in the Letter of Transmittal to provide the
information necessary to avoid backup withholding. Non-corporate foreign
stockholders should complete, sign and submit to the Depositary a Form W-8BEN,
Certificate of Foreign Status of Beneficial Owner for United States Tax
Withholding, or Form W-8ECI, Certificate of Foreign Person's Claim for Exemption
From Withholding on Income Effectively Connected With the Conduct of a Trade or
Business in the United States, (copies of which may be obtained from the
Depositary) in order to avoid backup withholding. See Instruction 8 of the
Letter of Transmittal.
4. WITHDRAWAL RIGHTS
Tenders of Shares made pursuant to the Offer are irrevocable, except that
such Shares may be withdrawn at any time prior to the Expiration Date and,
unless theretofore accepted for payment by the Purchaser pursuant to the Offer,
may also be withdrawn at any time after Thursday, June 18, 2002 (or such later
date as may apply if the Offer is extended).
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover page of this Offer to Purchase.
Any such notice of withdrawal must specify the name, address and taxpayer
identification number of the person who tendered the Shares to be withdrawn, the
number of Shares to be withdrawn and the name of the registered holder of such
Shares, if different from that of the person who tendered such Shares. If Share
Certificates evidencing Shares to be withdrawn have been delivered or otherwise
identified to the Depositary, then, prior to the physical release of such Share
Certificates, the serial numbers shown on such Share Certificates must be
submitted to the Depositary and the signature(s) on the notice of withdrawal
must be guaranteed by an Eligible Institution, unless such Shares have been
tendered for the account of an Eligible Institution. If Shares have been
tendered pursuant to the procedure for book-entry transfer as set forth in
Section 3 hereof, any notice of withdrawal must also specify the name and number
of the account at the Book-Entry Transfer Facility to be credited with the
withdrawn Shares.
If the Purchaser extends the Offer, is delayed in its acceptance for
payment of Shares or is unable to accept Shares for payment pursuant to the
Offer for any reason, then, without prejudice to the Purchaser's rights under
the Offer, the Depositary may, nevertheless, on behalf of the Purchaser, retain
tendered Shares, and such Shares may not be withdrawn except to the extent that
tendering stockholders are entitled to withdrawal rights as described herein.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination will be final and binding. None of the
Purchaser, the Depositary, the Information Agent or any other person will be
under duty to give notification of any defects or irregularities in any notice
of withdrawal or incur any liability for failure to give any such notification.
14
Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn
will thereafter be deemed not to have been validly tendered for purposes of the
Offer. However, withdrawn Shares may be re-tendered at any time prior to the
Expiration Date or during the Subsequent Offering Period by following one of the
procedures described in Section 3 hereof.
No withdrawal rights will apply to Shares tendered into any Subsequent
Offering Period and no withdrawal rights apply during any Subsequent Offering
Period with respect to Shares tendered in the Offer and accepted for payment.
See Section 1.
5. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income tax
consequences of the Offer and the Merger to stockholders of the Company whose
Shares are tendered and accepted for payment pursuant to the Offer or whose
Shares are converted into the right to receive cash in the Merger. The
discussion is for general information only and does not purport to consider all
aspects of United States federal income taxation that might be relevant to
stockholders of the Company. The discussion is based on current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations
promulgated thereunder and administrative and judicial interpretations thereof,
all of which are subject to change, possibly with retroactive effect. The
discussion applies only to stockholders of the Company in whose hands Shares are
capital assets within the meaning of Section 1221 of the Code. This discussion
does not apply to Shares received pursuant to the exercise of employee stock
options or otherwise as compensation or to certain types of stockholders (such
as insurance companies, tax-exempt organizations, financial institutions and
broker-dealers) which may be subject to special rules. This discussion does not
discuss the United States federal income tax consequences to any stockholder of
the Company who, for United States federal income tax purposes, is a
non-resident alien individual, a foreign corporation, a foreign partnership or a
foreign estate or trust, nor does it consider the effect of any foreign, state
or local tax laws.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER SHOULD
CONSULT ITS TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE RULES DISCUSSED
BELOW AND THE PARTICULAR TAX EFFECTS OF THE OFFER AND THE MERGER TO SUCH
STOCKHOLDER, INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE MINIMUM
TAX, AND ANY STATE, LOCAL AND FOREIGN TAX LAWS AND OF CHANGES IN SUCH LAWS.
The exchange of Shares for cash pursuant to the Offer or the Merger will be
a taxable transaction for United States federal income tax purposes and possibly
for state, local and foreign income tax purposes as well. In general, a
stockholder who sells Shares pursuant to the Offer or receives cash in exchange
for Shares pursuant to the Merger will recognize capital gain or loss for United
States federal income tax purposes equal to the difference, if any, between the
amount of cash received and the stockholder's adjusted tax basis in the Shares
sold pursuant to the Offer or exchanged for cash pursuant to the Merger. Gain or
loss will be determined separately for each block of Shares (i.e., Shares
acquired at the same cost in a single transaction) tendered pursuant to the
Offer or exchanged for cash pursuant to the Merger. Such capital gain or loss
will be long-term capital gain or loss provided that a stockholder's holding
period for such Shares is more than one year at the time of consummation of the
Offer or the Merger, as the case may be.
6. PRICE RANGE OF SHARES; DIVIDENDS
The Shares trade on the Nasdaq National Market (the "Nasdaq") under the
symbol "IFRS." The following table sets forth the high and low sale prices per
Share for the fiscal quarters indicated. The Company
15
has not paid any dividends since December, 1997. Share prices are as reported on
the Nasdaq based on published financial sources.
<Table>
<Caption>
HIGH LOW
----- -----
Fiscal Year 2001:
First Quarter............................................. $7.88 $4.50
Second Quarter............................................ 5.81 3.88
Third Quarter............................................. 5.00 2.11
Fourth Quarter............................................ 4.00 2.44
Fiscal Year 2002:
First Quarter............................................. 3.00 1.50
Second Quarter............................................ 2.40 0.90
Third Quarter............................................. 1.50 0.50
Fourth Quarter............................................ 1.40 0.64
Fiscal Year 2003:
First Quarter (through April 18, 2002).................... 1.35 0.95
</Table>
On April 12, 2002, the last full day of trading before the public
announcement of the execution of the Merger Agreement, the closing price of the
Shares on the Nasdaq was $1.316 per Share. On April 18, 2002, the last full day
of trading before the commencement of the Offer, the closing price of the Shares
on the Nasdaq was $1.32 per Share. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT
MARKET QUOTATION FOR THE SHARES.
7. CERTAIN INFORMATION CONCERNING THE COMPANY
General. The Company is a Delaware corporation with its principal offices
located at 10200 West York Street, Wichita, Kansas 67215. The telephone number
of the Company is (316) 522-4981. According to the Company's Form 10-K for the
fiscal year ended March 31, 2001, the Company designs, manufactures, and markets
communications, test and measurement, and avionics test and measurement, and
avionics test instruments that are used to test a wide variety of radio
products, aircraft and avionics systems. While the Company makes a broad variety
of products, substantially all of the Company's products are test instruments.
The Company has one segment, the electronics test and measurement segment. There
are three classes of test instruments that are designed, manufactured, and sold
by the Company: communications test equipment, test and measurement test
equipment and avionics test equipment. In addition, the Company sells software
computer solutions to be used in connection with certain of the Company's test
equipment products.
Bank Indebtedness of the Company; Default. The Company is currently in
default under its credit agreement, under which approximately $84 million is
owed to the Company's bank lenders. In connection with the Offer, the lenders
have entered into a forbearance agreement in which they have agreed not to take
any action to foreclose on the Company's indebtedness until after August 30,
2002, unless the Merger Agreement is terminated earlier without any Shares
having been purchased in the Offer. The lenders have also agreed to accept
approximately $49 million in full satisfaction of all obligations under the
credit agreement as long as such amount is paid by the Company on or before
August 30, 2002. Simultaneously with the purchase of Shares in the Offer, if it
is consummated, Aeroflex has agreed to lend to the Company $48.8 million to fund
substantially all of the approximately $49 million payment to be made by the
Company to its lenders.
Available Information. The Shares are registered under the Exchange Act.
Accordingly, the Company is subject to the informational reporting requirements
of the Exchange Act and, in accordance therewith, is required to file periodic
reports, proxy statements and other information with the SEC relating to its
business, financial condition and other matters. Such reports, proxy statements
and other information can be inspected and copied at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the SEC's regional offices located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Information regarding the public reference facilities may be obtained from the
SEC by telephoning 1-800-SEC-0330. The Company's filings are also available to
the
16
public on the SEC's Internet site (http://www.sec.gov). Copies of such materials
may also be obtained by mail from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Summary Unaudited Financial Information. The following summary unaudited
consolidated financial data relating to the Company has been taken from the
Company's quarterly report on Form 10-Q filed with the SEC on February 14, 2002.
More comprehensive financial information is included in the Company's annual
report on Form 10-K and quarterly reports on Form 10-Q and the other documents
filed by the Company with the SEC, and the financial data set forth below is
qualified in its entirety by reference to such reports and other documents and
all of the financial statements and notes contained therein. Such reports and
other documents may be examined and copies may be obtained from the offices of
the SEC in the manner set forth above.
IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<Table>
<Caption>
NINE MONTHS ENDED
DECEMBER 31,
-----------------------
2001 2000
---------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Sales....................................................... $ 88,268 $104,920
Cost of Products Sold....................................... 55,104 59,980
-------- --------
Gross Profit................................................ 33,164 44,940
Operating Expenses.......................................... 34,397 38,565
-------- --------
Operating Income (Loss)..................................... (1,233) 6,375
-------- --------
Other Income (Expense):
Interest, net............................................. (5,574) (5,943)
Loss on interest rate swaps............................... (1,969) --
Gain on sale of machine shop assets....................... -- 493
Sublease writeoff......................................... (651) --
Other, net................................................ (1,077) 379
-------- --------
(9,271) (5,071)
-------- --------
Income (loss) before income taxes........................... (10,504) 1,304
Income tax expense (benefit)................................ (2,945) 401
-------- --------
Net Income (loss)........................................... $ (7,559) $ 903
======== ========
Earning (Loss) per share -- basic........................... $ (0.91) $ 0.11
======== ========
Earnings (Loss) per share -- diluted........................ $ (0.91) $ 0.11
======== ========
</Table>
17
IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
<Table>
<Caption>
DECEMBER 31, MARCH 31,
2001 2001
------------ -------------
(UNAUDITED) (AUDITED)(1)
(IN THOUSANDS)
ASSETS
Current Assets
Cash and cash equivalents................................. $ 5,140 $ 5,087
Accounts receivable, less allowance for doubtful
accounts............................................... 20,274 30,887
Inventories............................................... 33,800 35,910
Prepaid expenses and sundry............................... 6,850 4,163
Deferred income taxes..................................... 2,809 2,020
-------- --------
Total Current Assets........................................ 68,873 78,067
-------- --------
Property and Equipment (net of depreciation)................ 18,649 19,419
-------- --------
Capital Leases (net of depreciation)........................ 2,220 2,630
-------- --------
Other Assets
Goodwill.................................................. 25,472 19,381
Developed technology, less amortization................... 15,134 15,836
Other intangibles, less amortization...................... 2,388 11,468
Other..................................................... 2,027 2,084
-------- --------
Total Other Assets........................................ 45,021 48,769
-------- --------
Total Assets................................................ $134,763 $148,885
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term bank borrowings................................ $ 23,000 $ 23,000
Accounts payable.......................................... 7,849 12,370
Accrued compensation and payroll taxes.................... 3,257 4,040
Other liabilities and accrued expenses.................... 9,128 5,867
Federal and state income taxes and local taxes............ 413 1,213
Current maturity of capital lease obligations............. 366 326
Current maturity of long-term debt in default............. 55,135 9,250
-------- --------
Total Current Liabilities................................... 99,148 56,066
-------- --------
Capital Lease Obligations................................... 3,069 3,214
-------- --------
Long-Term Debt.............................................. -- 46,885
-------- --------
Deferred Income Taxes....................................... 8,539 11,676
-------- --------
Shareholders' Equity
Preferred stock, $.01 par value -- authorized 1,000,000
shares, none issued.................................... -- --
Common stock, $.01 par value -- authorized 50,000,000
shares, issued 9,266,250 shares........................ 93 93
Additional paid-in capital................................ 7,132 7,192
Cost of common stock in treasury -- 984,241 and 994,241
shares, respectively................................... (8,018) (8,100)
Accumulated other comprehensive income (loss)............. (6,673) (7,173)
Retained earnings......................................... 31,473 39,032
-------- --------
24,007 31,044
-------- --------
Total Liabilities and Shareholders' Equity.................. $134,763 $148,885
======== ========
</Table>
- ---------------
(1) The balance sheet at March 31, 2001 has been derived from the audited
financial statements at that date and does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
18
Except as otherwise stated in this Offer to Purchase, the information
concerning the Company contained herein has been taken from or is based upon
reports and other documents on file with the SEC or otherwise publicly
available. Although neither the Purchaser nor Aeroflex has any knowledge that
would indicate that any statements contained herein based upon such reports and
documents are untrue, neither the Purchaser nor Aeroflex takes any
responsibility for the accuracy or completeness of the information contained in
such reports and other documents or for any failure by the Company to disclose
events that may have occurred and may affect the significance or accuracy of any
such information but that are unknown to the Purchaser or Aeroflex.
Certain Projections. The Company does not, as a matter of course, make
public any forecasts as to its future financial performance. However, in
connection with Aeroflex's review of the transactions contemplated by the Merger
Agreement, the Company provided Aeroflex with certain projected financial
information concerning the Company. Such information included, among other
things, the Company's projections of revenues, gross profit and earnings before
interest, taxes, depreciation and amortization ("EBITDA") for the Company for
the years 2002 through 2006. Set forth below is a summary of such projections.
These projections should be read together with the financial statements of the
Company that can be obtained from the SEC as described above.
<Table>
<Caption>
YEAR ENDING MARCH 31,
----------------------------------------------------
2002 2003 2004 2005 2006
-------- -------- -------- -------- --------
(IN THOUSANDS)
Revenues........................ $117,908 $125,200 $141,500 $155,500 $163,000
Gross Profit.................... 44,910 50,612 60,315 68,330 72,510
EBITDA(1)....................... 3,729 12,943 17,613 22,151 23,823
</Table>
- ---------------
(1) EBITDA represents earning before interest, income taxes, depreciation, and
amortization, including other intangibles, a measure used by management to
measure operating performance. EBITDA is not a recognized term under
generally accepted accounting principles and does not purport to be an
alternative to operating income as an indicator of operating performance or
to cash flows from operating activities as a measure of liquidity. Because
not all companies calculate EBITDA identically, this presentation of EBITDA
may not be comparable to other similarly titled measures of other companies.
Additionally, EBITDA is not intended to be a measure of free cash flow for
management's discretionary use, as it does not consider certain cash
requirements such as interest payments, tax payments and debt service
requirements.
It is the understanding of Aeroflex and the Purchaser that the projections
were not prepared with a view to public disclosure or compliance with published
guidelines of the SEC or the guidelines established by the American Institute of
Certified Public Accountants regarding projections or forecasts and are included
herein only because such information was provided to Aeroflex and the Purchaser
in connection with their evaluation of a business combination transaction. The
projections do not purport to present operations in accordance with generally
accepted accounting principles, and the Company's independent auditors have not
examined or compiled the projections presented herein and accordingly assume no
responsibility for them. These forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from the projections. The Company has advised the Purchaser and Aeroflex that
its internal financial forecasts (upon which the projections provided to
Aeroflex and the Purchaser were based in part) are, in general, prepared solely
for internal use and capital budgeting and other management decisions and are
subjective in many respects and thus susceptible to interpretations and periodic
revision based on actual experience and business developments. The projections
also reflect numerous assumptions (not all of which were provided to Aeroflex
and the Purchaser), all made by management of the Company, with respect to
industry performance, general business, economic, market and financial
conditions and other matters, including effective tax rates consistent with
historical levels for the Company, all of which are difficult to predict, many
of which are beyond the Company's control, and none of which were subject to
approval by Aeroflex or the Purchaser. Accordingly, there can be no assurance
that the assumptions made in preparing the projections will prove accurate. It
is expected that there will be differences between actual and projected results,
and actual results may be materially greater or less than those contained in the
projections. The
19
inclusion of the projections herein should not be regarded as an indication that
any of Aeroflex, the Purchaser, the Company or their respective affiliates or
representatives considered or consider the projections to be a reliable
prediction of future events, and the projections should not be relied upon as
such. None of Aeroflex, the Purchaser, the Company or any of their respective
affiliates or representatives has made or makes any representation to any person
regarding the ultimate performance of the Company compared to the information
contained in the projections, and none of them intends to update or otherwise
revise the projections to reflect circumstances existing after the date when
made or to reflect the occurrence of future events even in the event that any or
all of the assumptions underlying the projections are shown to be in error.
8. CERTAIN INFORMATION CONCERNING AEROFLEX AND THE PURCHASER
General. Aeroflex is a Delaware corporation with its principal offices
located at 35 South Service Road, Plainview, New York 11803. The telephone
number of Aeroflex is (516) 694-6700. Aeroflex uses its advanced design,
engineering and manufacturing abilities to produce microelectronic, integrated
circuit, interconnect and testing solutions. Aeroflex's products are used in the
fiber optic, broadband cable, wireless and satellite communications markets.
Aeroflex also designs and manufactures motion control systems and shock and
vibration isolation systems which are used for commercial, industrial and
defense applications. Aeroflex's operations are grouped into three segments:
Microelectronic Solutions, Test Solutions and Isolator Products.
The Purchaser is a Delaware corporation with its principal offices located
at 35 South Service Road, Plainview, New York 11803. The telephone number of the
Purchaser is (516) 694-6700. The Purchaser is a wholly owned subsidiary of
Aeroflex. The Purchaser has not carried on any activities other than in
connection with the Merger Agreement.
The name, citizenship, business address, principal occupation or employment
and five-year employment history for each of the directors and executive
officers of Aeroflex and the Purchaser and certain other information are set
forth in Schedule I hereto; the business phone number for each such person is
(516) 694-6700, unless otherwise indicated in Schedule I.
Except as described in this Offer to Purchase, (1) none of Aeroflex, the
Purchaser nor, to the best knowledge of Aeroflex and the Purchaser, any of the
persons listed in Schedule I to this Offer to Purchase or any associate or
majority-owned subsidiary of Aeroflex or the Purchaser or any of the persons so
listed beneficially owns or has any right to acquire, directly or indirectly,
any Shares and (2) none of Aeroflex, the Purchaser nor, to the best knowledge of
Aeroflex and the Purchaser, any of the persons or entities referred to above nor
any director, executive officer or subsidiary of any of the foregoing has
effected any transaction in the Shares during the past 60 days.
Except as provided in the Merger Agreement or as otherwise described in
this Offer to Purchase, none of Aeroflex, the Purchaser nor, to the best
knowledge of Aeroflex and the Purchaser, any of the persons listed in Schedule I
to this Offer to Purchase, has any contract, arrangement, understanding or
relationship with any other person with respect to any securities of the
Company, including, but not limited to, any contract, arrangement, understanding
or relationship concerning the transfer or voting of such securities, finder's
fees, joint ventures, loan or option arrangements, puts or calls, guarantees of
loans, guarantees against loss, guarantees of profits, division of profits or
loss or the giving or withholding of proxies.
Except as set forth in this Offer to Purchase, none of Aeroflex, the
Purchaser nor, to the best knowledge of Aeroflex and the Purchaser, any of the
persons listed on Schedule I hereto, has had any business relationship or
transaction with the Company or any of its executive officers, directors or
affiliates that is required to be reported under the rules and regulations of
the SEC applicable to the Offer. Except as set forth in this Offer to Purchase,
there have been no contracts, negotiations or transactions between Aeroflex or
any of its subsidiaries or, to the best knowledge of Aeroflex, any of the
persons listed in Schedule I to this Offer to Purchase, on the one hand, and the
Company or its affiliates, on the other hand, concerning a merger, consolidation
or acquisition, tender offer or other acquisition of securities, an election of
directors or a sale or other transfer of a material amount of assets. None of
the persons listed in Schedule I has, during the past five years, been convicted
in a criminal proceeding (excluding traffic violations or similar misdemeanors).
None of the persons listed in Schedule I has, during the past five years, been a
party to any judicial or administrative
20
proceeding (except for matters that were dismissed without sanction or
settlement) that resulted in a judgment, decree or final order enjoining the
person from future violations of, or prohibiting activities subject to, federal
or state securities laws, or a finding of any violation of federal or state
securities laws.
9. SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by the Purchaser to purchase Shares
pursuant to the Offer and the Merger and to discharge the Company's obligations
to the lenders under the Company's credit agreement is estimated to be
approximately $60.1 million. The Purchaser will obtain the funds necessary for
the purchase of Shares in the Offer and the Merger from Aeroflex. The Company
will obtain substantially all of the funds necessary to make the required
payments to its lenders from a loan from Aeroflex. Aeroflex has sufficient cash
on hand and marketable securities to provide the required funds to Purchaser to
purchase the Shares and to make such loan to the Company.
10. BACKGROUND OF THE OFFER; PAST CONTACTS OR NEGOTIATIONS WITH THE COMPANY
In November 2001, the Company Board met and determined that, in light of
prevailing market conditions, the general outlook for the test and measurement
industry, the Company's recent stock performance and the Company's defaults
under its credit agreement with its current bank lenders, it was advisable and
in the best interests of the Company, its employees and its stockholders to
pursue strategic alternatives, including arranging new financing or a possible
sale of the Company. At a November 25, 2001 meeting, the Company Board
authorized the engagement of TM Capital to act as the Company's investment
bankers to assist and advise the Company Board regarding financial matters and
to pursue a full range of financial and strategic alternatives on behalf of the
Company. The Company formally engaged TM Capital in such capacity on November
26, 2001.
On November 30, 2001, the Company's lenders suspended availability under
its credit agreement and declared all of its obligations thereunder due and
payable. On December 4, 2001, the Company, the Company's counsel and TM Capital
met with the Company's lenders to discuss the current financial position of the
Company, its business outlook and the retention of TM Capital to pursue
strategic alternatives.
Between December 4, 2001 and January 22, 2002, TM Capital met with
executives and employees of the Company, visited its facilities, reviewed
certain confidential information on the Company and assembled a confidential
descriptive memorandum on the Company (the "Confidential Memorandum").
On January 4, 2002, the Company entered into a forbearance agreement with
its lenders pursuant to which the lenders agreed not to take action with respect
to any existing or pending defaults through March 4, 2002 and rescinded the
acceleration of the obligations, provided that the Company retained the services
of a crisis manager acceptable to the lenders, adhered to certain financial
performance and reporting requirements, and met certain other conditions.
Between early January and March 22, 2002, TM Capital contacted 110
prospective parties in connection with a refinancing or sale of the Company. Of
these parties, 63 received the Confidential Memorandum, subject to a
confidentiality agreement substantially similar to that signed by Aeroflex.
On January 22, 2002, TM Capital contacted Mr. Michael Gorin, President of
Aeroflex, to discuss Aeroflex's possible interest in a strategic combination
with the Company. The next day, the Company and Aeroflex signed a
confidentiality agreement and TM Capital provided Aeroflex with a copy of the
Confidential Memorandum.
In late January 2002, the Company determined that TM Capital should solicit
non-binding expressions of interest and indications of value from prospective
parties and set a deadline of February 15, 2002 for prospective parties to
submit such indications.
On February 8, 2002, TM Capital sent an email to Mr. Leonard Borow, Chief
Operating Officer of Aeroflex, with the Company's recently announced results for
the nine months ended December 31, 2001 and a request for Aeroflex to submit a
non-binding indication of interest if Aeroflex was interested in acquiring the
21
Company. On February 14, 2002, Mr. Jeffrey Bloomer, President and CEO of the
Company, Mr. Robert Vogel, Vice President Product Development of the Company,
Messrs. Gorin and Borow, two other employees of Aeroflex and representatives of
TM Capital participated in a conference call in which Aeroflex made inquiries of
Company management regarding the business, products and prospects of the
Company. On February 15, 2002, Aeroflex delivered a letter to TM Capital
indicating its interest in acquiring the Company on a debt-free basis for $60
million in cash.
By February 21, 2002, the Company received 11 indications of interest. Of
these 11 indications of interest, five, including Aeroflex's, were at a value
deemed by the Company to be worthy of pursuit.
On February 26 and 27, 2002, the Company and TM Capital met with four
interested parties in Chicago, including Aeroflex. Management presentations were
given by Messrs. Bloomer and Vogel and Mr. Steve Todd, Interim Chief Financial
Officer of the Company. The prospective purchasers were evaluated by TM Capital
and the Company as to their level of interest, financial strength, ability to
consummate a transaction and potential synergy with the Company. Also at this
meeting, a date was set for Aeroflex's management to visit the Company's
facilities in Wichita, Kansas.
On February 28, 2002, TM Capital and the Company met with the Company's
lenders to review the Company's current business outlook and TM Capital reviewed
in detail the status of discussions with interested parties.
On March 4, 2002, the Company entered into an amendment to the forbearance
agreement with its bank lenders, whereby the lenders agreed to continue to
forbear with respect to existing and pending defaults through March 31, 2002,
subject to certain conditions.
On March 6, 2002, the fifth interested party met with the Company at its
Wichita headquarters.
On March 7, 2002, and March 8, 2002, Aeroflex met with TM Capital and the
Company at its Wichita headquarters. Additional management presentations were
given by Messrs. Bloomer, Vogel and Todd, Mr. Mike McCreary, Vice President
European Operations and Mr. John Bickley, Vice President Global Sales. Aeroflex
management also toured the Company's manufacturing facility, reviewed
information on the Company in a data room in Wichita and requested documents to
be copied.
On March 14, 2002, Aeroflex met with TM Capital and the Company and toured
its facilities in Stevenage, England and Pin Green, England.
On March 18, 2002, Mr. Gorin called TM Capital to reconfirm Aeroflex's
interest in acquiring the Company, but indicated that, based on its due
diligence investigations, Aeroflex was only willing to acquire the Company on a
debt-free basis for $55 million. TM Capital told Mr. Gorin that they did not
believe that such a value would be acceptable to the Company Board and its
lenders.
By March 20, 2002, three parties, including Aeroflex, had met with the
Company in Wichita and Stevenage, England and had visited the Company's data
room in Wichita and continued to express an interest in acquiring the Company.
On March 20, 2002, TM Capital received from Aeroflex a non-binding
preliminary indication of interest offering to acquire the Company for $60
million in cash on a debt-free basis to be divided between the Company's
stockholders and lenders in full satisfaction of all outstanding indebtedness,
and stating that Aeroflex would be prepared to acquire the Shares through a cash
tender offer for all outstanding Shares, subject to certain conditions. The
letter indicated that Aeroflex had substantially completed its due diligence and
that it had the financial resources on hand to complete the transaction.
On March 20, 2002, at the recommendation of the Company Board, TM Capital
requested that the two remaining interested parties submit their best and final
offers in writing.
On March 22, 2002, TM Capital met with the Company Board via teleconference
after having spoken with the two remaining interested parties. TM Capital
recommended that the Company Board proceed with the Aeroflex proposal and
recommended that the Company take the proposal to its lenders to effect a
settlement of the outstanding debt obligations. TM Capital briefed the Company
Board on the position of the
22
other two interested parties which had been confirmed to TM Capital by
telephone. Each party had indicated a desire to continue due diligence and
evaluate an acquisition of the Company. Neither party was willing to specify a
value for the Company, but both parties specified that they would only be
prepared to acquire the assets of the Company through a bankruptcy proceeding.
Furthermore, both parties needed to arrange the financing needed to complete a
transaction. The Company Board directed that Company management and TM Capital
meet with the Company's lenders to discuss the Aeroflex offer and to negotiate a
settlement of the bank indebtedness.
By March 25, 2002, the two remaining parties submitted letters confirming
the positions that had been previously stated verbally.
On March 27, 2002, TM Capital, the Company's counsel and Mr. Bloomer met
with the steering committee of the Company's lenders. TM Capital presented the
status of interested parties as of March 27, 2002. By this date 110 prospective
parties had been contacted. Of these parties, 63 had been provided the
Confidential Memorandum. The Company had received 14 indications of interest. As
of such date, of the 14 parties, three, including Aeroflex, continued to be
interested. Company management expressed the Company Board's desire to move
forward with Aeroflex's proposal, subject to an acceptable allocation of the $60
million purchase price between the bank lenders and Company stockholders. After
extensive negotiations, the steering committee of the bank lenders agreed to
recommend to the lenders and the Company agreed to recommend to the Company
Board a transaction providing for a payment of $48.8 million plus certain fees
and expenses to the banks in full satisfaction of all claims against the Company
and $1.35 per Share in cash to Company stockholders for all outstanding Shares.
On March 28, 2002, the Company Board determined, with the advice of TM
Capital, that Aeroflex had made the best offer to acquire the Company and
authorized Company management and its counsel to negotiate definitive
documentation with Aeroflex on the terms specified above and the lenders
authorized their counsel to negotiate final documentation with the Company and
Aeroflex on the same terms. TM Capital called Mr. Gorin to inform him that such
authorizations had been made.
On April 4, 2002, the Board of Directors of Aeroflex convened a meeting to
discuss the terms of the proposal to acquire the Company. Also present at the
meeting was a representative from counsel to Aeroflex. At that meeting, the
Board of Directors of Aeroflex preliminarily approved the terms of the Offer and
Merger, subject to receipt of advice from Aeroflex's investment banker that the
terms of the proposed transaction, including the cost to discharge of the
Company's bank indebtedness, were fair to Aeroflex, and authorized Aeroflex
management to continue negotiations with respect to the proposed transactions.
During the first two weeks of April 2002, numerous calls and meetings took
place involving senior management of the Company and Aeroflex and
representatives of TM Capital and legal counsel to Aeroflex and the Company.
On April 10, 2002, Aeroflex convened a meeting of its Board of Directors,
at which Aeroflex's legal and financial advisors made presentations. At this
meeting, the Board of Directors unanimously approved a draft of the Merger
Agreement, the making of the Offer, the Merger and the other transactions
contemplated by the Merger Agreement, subject to satisfactory negotiation of the
final terms of the Merger Agreement.
Also on April 10, 2002, the Company Board met and approved terms of the
proposed Merger Agreement and the transactions contemplated thereby, the payment
and release agreement with the Company's lenders and the amendment to the
forbearance agreement with the Company's lenders. The Company Board further
unanimously determined that the terms of the Offer and the Merger are fair to,
and in the best interests of, the stockholders of the Company, and recommended
that the Company's stockholders accept the Offer and tender their Shares
pursuant to the Offer and approve and adopt the Merger Agreement. At that
meeting, TM Capital provided to the Company Board its fairness opinion with
respect to the Offer and the Merger.
23
Negotiation of the final terms of the Merger Agreement and other
transaction documents continued through April 13, 2002.
On April 13, 2002, the Company and Aeroflex finalized the terms of the
transaction documents and executed the Merger Agreement, the payment and release
agreement and the amendment to the forbearance agreement with the Company's
lenders.
Press releases announcing the execution of the Merger Agreement were issued
by each of Aeroflex and the Company on April 15, 2002.
On April 19, 2002, the Purchaser commenced the Offer.
The information set forth above concerning the Company, the Company Board,
Company management and TM Capital and their respective actions has been provided
to Aeroflex by the Company and Aeroflex assumes no responsibility for the
completeness or accuracy thereof.
11. THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is filed as an exhibit to the Tender Offer Statement
on Schedule TO filed by Aeroflex and the Purchaser pursuant to Rule 14d-3 of the
General Rules and Regulations under the Exchange Act with the SEC in connection
with the Offer (the "Schedule TO"). The summary is qualified in its entirety by
reference to the Merger Agreement, which is deemed to be incorporated by
reference herein. Capitalized terms used herein and not otherwise defined have
the meanings ascribed to them in the Merger Agreement.
The Offer. The Merger Agreement provides for the making of the Offer on
the terms set forth in Section 1, above. The obligation of the Purchaser to
accept for payment and pay for Shares tendered pursuant to the Offer is subject
to the satisfaction of the Minimum Condition (or waiver thereof, with the
Company's consent) and the satisfaction or waiver of the other conditions that
are described in Section 15.
Directors. The Merger Agreement provides that promptly upon the purchase
of and payment for Shares pursuant to the Offer, Aeroflex shall be entitled to
designate such number of directors, rounded up to the next whole number, on the
Company Board that equals the product of (1) the total number of directors on
the Company Board (giving effect to the directors designated by Aeroflex
pursuant to the Merger Agreement) and (2) the percentage that the number of
Shares so purchased and paid for bears to the total number of Shares then
outstanding. In furtherance thereof, the Company will, upon request of the
Purchaser, exercise its best efforts to secure the resignations of such number
of directors as is necessary to enable Aeroflex's designees to be so elected to
the Company Board and will cause Aeroflex's designees to be so elected;
provided, however, that until the Effective Time there shall be at least three
members of the Company Board who are directors as of the date of the Merger
Agreement and are not employees of the Company. It is currently anticipated that
following a successful completion of the Offer, Aeroflex will designate four
members of the Company Board, and three of the Company's existing non-employee
directors would remain on the Company Board. The consummation of the Offer is
conditioned upon the receipt by the Purchaser of executed letters of resignation
from four members of the Company Board (including all Company employee
directors). See Section 15.
Following the election of Aeroflex's designees to the Company Board (a) any
amendment or termination of the Merger Agreement by the Company, (b) any
extension or waiver by the Company of the time for the performance of any of the
obligations of Aeroflex or the Purchaser under the Merger Agreement or (c) any
waiver of any of the Company's rights under the Merger Agreement, will require
the concurrence of a majority of the directors of the Company then in office who
neither were designated by Aeroflex nor are employees of the Company.
The Merger. The Merger Agreement provides that no later than two business
days after the satisfaction or waiver of each of the conditions to the Merger
set forth therein, at the Effective Time the Purchaser will be merged with and
into the Company with the Company being the surviving corporation in the Merger
(the
24
"Surviving Corporation"). Following the Merger, the separate existence of the
Purchaser will cease, and the Company will continue as the Surviving
Corporation, wholly owned by Aeroflex.
If required by the DGCL, the Company will call and hold a meeting of its
stockholders (the "Company Stockholders' Meeting") promptly following
consummation of the Offer for the purpose of voting upon the approval of the
Merger Agreement. At any such meeting all Shares then owned by Aeroflex or the
Purchaser or any subsidiary of Aeroflex will be voted in favor of approval of
the Merger Agreement.
Pursuant to the Merger Agreement, each Share outstanding at the Effective
Time (other than Shares owned by Aeroflex, the Purchaser, any of their
subsidiaries or by the Company, all of which will be cancelled, and other than
Shares that are held by stockholders, if any, who properly exercise their
dissenters' rights under the DGCL) will be converted into the right to receive
the Merger Consideration. Stockholders who perfect their dissenters' rights
under the DGCL will be entitled to the amounts determined pursuant to such
proceedings. See Section 17.
Purchaser Option. Pursuant to the Merger Agreement, the Company granted to
the Purchaser an option to purchase from the Company such number of Shares as
will result in the Purchaser owning 90.1% of the total number of Shares, to the
extent permitted by applicable laws, rules or regulations without stockholder
approval, at a price per Share equal to the Offer Price (the "Purchaser
Option"). The Purchaser Option is exercisable only after the purchase of and
payment for Shares pursuant to the Offer as a result of which Aeroflex and its
subsidiaries (including the Purchaser) own at least a majority of the then
outstanding Shares. In the event that Aeroflex, the Purchaser and any other
subsidiaries of Aeroflex acquire in the aggregate at least 90% of the
outstanding Shares pursuant to the Offer (including any Subsequent Offering
Period), upon exercise of the Purchaser Option or otherwise, Aeroflex, the
Purchaser and the Company shall, subject to the conditions to the Merger in the
Merger Agreement, take all necessary and appropriate action to cause the Merger
to become effective as soon as practicable after such acquisition, without a
meeting of stockholders of the Company, in accordance with Section 253 of the
DGCL.
Agreements with the Company's Lenders; Loan. Simultaneously with the
execution and delivery of the Merger Agreement, the Company entered into an
agreement (the "Loan Discharge Agreement") with the Company's lenders, Bank One,
NA, Intrust Bank, N.A., The Bank of Nova Scotia, Harris Trust and Savings Bank,
The Royal Bank of Scotland PLC, Union Bank of California, N.A., Lloyds TSB Bank
PLC (collectively, the "Lenders"), Aeroflex and the Purchaser pursuant to which,
simultaneously with the consummation of the Offer, the Company will pay the
Lenders the "Payoff Amount" (as defined in the Loan Discharge Agreement) and the
Lenders will release all of the Company collateral held by the Lenders under the
Amended and Restated Credit Agreement dated March 19, 1998 among the Company and
the Lenders, as amended to date (as amended, the "Credit Agreement") and provide
a complete release and confirmation of the satisfaction of any and all
obligations of the Company and its Subsidiaries under the Credit Agreement and
all other obligations due the Lenders under any other agreements, including swap
agreements, security instruments, mortgages or any other collateral document.
Simultaneously with the acceptance for purchase by the Purchaser of the
Shares tendered in the Offer, if it is consummated, Aeroflex will make a secured
loan to the Company in the principal amount of $48.8 million, which amount plus
certain fees and expenses will be paid over to the Lenders by wire transfer
pursuant to the terms of the Loan Discharge Agreement in full satisfaction of
the approximately $84 million owed under the Credit Agreement.
Stock Options. As of the Effective Time, each holder of an option to
purchase Shares that has been granted and is outstanding under the Company's
stock option plans, whether or not then exercisable (a "Company Option"), shall
be entitled to receive a cash amount equal to the greater of (i) $10.00 or (ii)
the product of (A) the excess, if any, of the Merger Consideration over the
exercise price per Share of such Company Option and (B) the number of Shares
subject to such Company Option. All stock option, incentive or other
equity-based plans established by the Company or any Company Subsidiary shall
terminate as of the Effective Time.
25
Rights Agreement. Pursuant to the Merger Agreement, the Company and the
Rights Agent under the Company's Rights Agreement were required to amend the
Rights Agreement to provide that, so long as the Merger Agreement has not been
terminated pursuant to the termination provisions thereof, a Distribution Date
(as defined in the Rights Agreement) will not occur or be deemed to occur, and
neither Aeroflex nor the Purchaser will become an Acquiring Person (as defined
in the Rights Agreement), as a result of the execution, delivery or performance
of the Merger Agreement, the announcement, making or consummation of the Offer,
the acquisition of Shares pursuant to the Offer or the Merger, the consummation
of the Merger or any other transaction contemplated by the Merger Agreement.
Representations and Warranties. Pursuant to the Merger Agreement, the
Company has made customary representations and warranties to Aeroflex and the
Purchaser, including representations relating to corporate existence and power;
capitalization; corporate authorizations; approval of the Merger Agreement and
the transactions contemplated thereby for the purposes of Section 203 of the
DGCL and Article VII of the Company's certificate of incorporation; SEC filings;
financial statements; absence of undisclosed liabilities; compliance with laws;
environmental matters; employee matters; absence of certain changes (including
any material adverse effect on the business, results of operations, assets, or
financial condition of the Company); litigation; accuracy of certain
disclosures; intellectual property; taxes; the opinion of the Company's
financial advisor; required stockholder vote; labor matters; Rights Plan;
existing discussions and certain agreements with the Company's lenders.
Certain representations and warranties in the Merger Agreement made by the
Company and Aeroflex are qualified as to "materiality" or "Material Adverse
Effect." For purposes of the Merger Agreement and this Offer to Purchase, the
term "Material Adverse Effect" means any state of facts, event, change or effect
that has had, or would reasonably be expected to have, a material adverse effect
on the business, results of operations, prospects, assets or financial condition
of the Company and its subsidiaries, taken as a whole, or Aeroflex and its
subsidiaries, taken as a whole, as the case may be, or the ability to consummate
the transactions contemplated by the Merger Agreement, including any substantial
delay of the consummation of such transactions.
Pursuant to the Merger Agreement, Aeroflex and the Purchaser have made
customary representations and warranties to the Company, including
representations relating to their corporate existence and power; good standing;
corporate authority; corporate authorizations; SEC filings; the accuracy of
certain disclosures; their ability to finance the Offer and the Merger; receipt
of the opinion of Aeroflex's financial advisor; and Purchaser's operations.
Covenants. The Merger Agreement contains various covenants of the parties
thereto. A description of certain of these covenants follows:
Company Conduct of Business Covenants. The Merger Agreement provides that,
prior to the Effective Time and except as may be otherwise agreed in writing by
Aeroflex, or as expressly permitted by the Merger Agreement, the Company:
(1) will, and will cause each of its Subsidiaries (as defined in the
Merger Agreement) to, conduct its operations only in the usual, regular and
ordinary course of business;
(2) will use its reasonable best efforts to, and will cause each of
its Subsidiaries to use its reasonable best efforts to, (a) preserve its
business organization intact and (b) keep available the services of its
current officers and employees and maintain its existing relations with
franchisees, customers, suppliers, creditors, business partners and others
having business dealings with the Company and its Subsidiaries (provided
that Aeroflex and Purchaser acknowledge that the Company is in breach of
the Company's Credit Agreement and will in breach of the Credit Agreement
at the Effective Time), to the end that the goodwill and ongoing business
of each of them shall be unimpaired at the Effective Time;
(3) will not, and will not permit any of its Subsidiaries to, (a)
amend its certificate of incorporation or by-laws or similar organizational
documents; (b) issue, sell, transfer, pledge, dispose of or encumber any
shares of any class or series of its capital stock or securities
convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of any class or
series of
26
its capital stock, other than Shares reserved for issuance on the date of
the Merger Agreement pursuant to the exercise of Company Options
outstanding on the date thereof; (c) declare, set aside or pay any dividend
or other distribution payable in cash, stock or property with respect to
any shares of any class or series of its capital stock (other than a cash
dividend paid by a Subsidiary of the Company to the Company or another
wholly-owned subsidiary of the Company); (d) split, combine or reclassify
any shares of any class or series of its stock; (e) redeem, purchase or
otherwise acquire directly or indirectly any shares of any class or series
of its capital stock, or any instrument or security which consists of or
includes a right to acquire such shares; or (f) amend the Rights Agreement
in any respect;
(4) will not, and will not permit any of its subsidiaries to, modify,
amend or terminate any material Company Agreement (as defined in the Merger
Agreement) or waive, release or assign any material rights or claims;
(5) will not, and will not permit any of its Subsidiaries to, (a)
incur or assume any long-term or short-term indebtedness; (b) assume,
guarantee, endorse or otherwise become liable or responsible for the
obligations of any other Person; (c) make any loans, advances or capital
contributions to, or investments in, any other Person (other than to or in
wholly owned Subsidiaries of the Company); (d) enter into any material
commitment or transaction (including, but not limited to, any capital
expenditure or purchase, sale or lease of assets or real estate), except in
the ordinary course of business and set forth in the Company budget
provided to Aeroflex; or (e) incur or modify the terms of any indebtedness
or other liability (with certain exceptions), provided that the Company and
Purchaser may enter into the Loan Agreement (as defined in the Merger
Agreement) with Aeroflex, the Forbearance Agreement and the Loan Discharge
Agreement (each as defined in the Merger Agreement) with the Company's bank
lenders;
(6) will not, and will not permit any subsidiary to transfer, lease,
license, sell, mortgage, pledge, dispose of, or encumber any assets other
than in the ordinary and usual course of business and consistent with past
practice;
(7) will not, except as otherwise specifically provided in the Merger
Agreement, (A) make any change in the compensation payable or to become
payable (1) to any of its officers, directors, employees, agents or
consultants or to Persons (as defined in the Merger Agreement) providing
management services, in each case earning in excess of $50,000 per annum
except as expressly required by any agreement in effect on the date of the
Merger Agreement; or (2) other than in the ordinary course of business, to
any such persons earning $50,000 or less per annum; or (B) enter into or
amend any employment, severance, consulting, termination or other agreement
or employee benefit plan or make any loans to any of its officers,
directors, employees, affiliates, agents or consultants or make any change
in its existing borrowing or lending arrangements or programs for or on
behalf of any of such Persons pursuant to an employee benefit plan or
otherwise;
(8) will not, except as otherwise specifically contemplated by the
Merger Agreement, pay or make any accrual or arrangement for payment of any
pension, retirement allowance or other employee benefit pursuant to any
existing plan, agreement or arrangement to any officer, director, employee
or affiliate or pay or agree to pay or make any accrual or arrangement for
payment to any officer, director, employee or affiliate of the Company of
any amount relating to unused vacation days, except payments and accruals
made in the ordinary course of business consistent with past practice; or
adopt or pay, grant, issue, accelerate or accrue salary or other payments
or benefits pursuant to any pension, profit-sharing, bonus, extra
compensation, incentive, deferred compensation, stock purchase, stock
option, stock appreciation right, group insurance, severance pay,
retirement or other employee benefit plan, agreement or arrangement, or any
employment or consulting agreement with or for the benefit of any director,
officer, employee, agent or consultant, whether past or present other than
in accordance with employee benefit plans, agreements, or arrangements as
in effect on the date of the Merger Agreement, except payments made in the
ordinary course of business consistent with past practice, or amend in any
respect any such existing plan, agreement or arrangement in a manner
inconsistent with the foregoing;
27
(9) will not, and will not permit any of its Subsidiaries to, permit
any of its properties or assets to fail to be covered by insurance policies
reflecting coverage that is consistent with prudent industry practice;
(10) will not, and will not permit any of its Subsidiaries to, pay,
repurchase, discharge or satisfy any of its claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than in the ordinary course of business and other than
the payment to the Company's Lenders of amounts due under Amendment No. 2
to the Forbearance Agreement and Amendment No. 9 to the Credit Agreement
and payment of reasonable fees and expenses to Foulston Siefkin LLP and TM
Capital Corp. related to the transactions therein, and certain other listed
exceptions;
(11) will not, and will not permit any of its Subsidiaries to, adopt a
plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of
the Company or any Subsidiary (other than the Merger);
(12) will not, and will not permit any of its Subsidiaries to, (a)
change any of the accounting methods used by it unless required by
accounting principles generally accepted in the United States ("GAAP") or
(b) make any material election relating to Taxes (as defined in the Merger
Agreement), change any material election relating to Taxes already made,
adopt any material accounting method relating to Taxes, change any material
accounting method relating to taxes unless required by GAAP, enter into any
closing agreement relating to Taxes, settle any claim or assessment
relating to taxes or consent to any claim or assessment relating to taxes
or any waiver of the statute of limitations for any such claim or
assessment or file any amended Tax return or claim for refund, except,
provided that in each case the Company has afforded Aeroflex an opportunity
for review (i) the Company may settle its existing IRS examination
adjustments and, in connection therewith enter into a Closing Agreement, if
required, and (ii) the Company may file amended tax returns to carry back
its 2002 net operating loss and to further carryback other losses and
adjustments resulting from such carryback;
(13) will not, and will not permit its Subsidiaries to, agree to
commit to take any action that would or is reasonably likely to result in
(a) the representations and warranties of the Company in the Merger
Agreement being untrue or incorrect in any material respect or (b) any of
the conditions to the Offer or any of the conditions to the Merger not
being satisfied, except as otherwise provided by the non-solicitation
provision of the Merger Agreement;
(14) will not alter, amend or waive, or consent or agree to any
alteration, amendment or waiver of, any provision of the Loan Discharge
Agreement with the Company's Lenders, the Credit Agreement, the Forbearance
Agreement or any other agreement or instrument executed in connection
therewith; or
(15) will not, and will not permit its Subsidiaries to, enter into an
agreement, contract, commitment or arrangement to do any of the foregoing,
or to authorize, recommend, propose or announce an intention to do any of
the foregoing.
Aeroflex Conduct of Business Covenant. The Merger Agreement provides that,
prior to the Effective Time and except as may be agreed in writing by the
Company or as may be permitted pursuant to the Merger Agreement, Aeroflex will
not, and will not permit any of its Subsidiaries to, (i) agree, in writing or
otherwise, to take any action that would result in any of the conditions to the
Offer or the Merger not being satisfied or (ii) delay the consummation of the
Offer, including by application of Rule 14e-5 under the Exchange Act.
Access; Confidentiality. The Merger Agreement provides that, except as
limited by the terms of any confidentiality agreement or provision in effect on
the date of the Merger Agreement, the Company will and will cause each of its
Subsidiaries to afford to Aeroflex's representatives reasonable access during
normal business hours upon reasonable notice, throughout the period prior to the
earlier of the Effective Time or the termination of the Merger Agreement, to its
properties, offices, facilities, employees, contracts, commitments, books and
records and any report, schedule or other document filed or received by it
pursuant to the requirements of federal or state securities laws and will and
will cause each of its Subsidiaries to furnish to Aeroflex such additional
financial and operating data and tax and other information as to its and its
Subsidiaries' respective businesses and properties as Aeroflex may from time to
time reasonably request.
28
Aeroflex and the Purchaser will use their best efforts to minimize any
disruption to the businesses of the Company and its Subsidiaries which may
result from their requests for information. The Company will use its best
efforts to obtain the waiver of any confidentiality agreements restricting
Aeroflex and Purchaser's access to information. The Merger Agreement further
provides that Aeroflex will hold any information provided that is non-public in
confidence to the extent required by, and in accordance with, the provisions of
the confidentiality agreement, dated January 22, 2002, between Aeroflex and the
Company (the "Confidentiality Agreement").
Special Meeting; Proxy Statement. The Merger Agreement provides that (a)
following the purchase of Shares pursuant to the Offer, if required by
applicable law in order to consummate the Merger, the Company, acting through
the Company Board, will, in accordance with applicable law: (i) duly call, give
notice of, convene and hold a special meeting of its stockholders (the "Special
Meeting") for the purposes of considering and taking action upon the approval
and adoption of the Merger Agreement; and (ii) prepare and file with the SEC a
preliminary proxy or information statement relating to the Merger and the Merger
Agreement and obtain and furnish the information required to be included by the
SEC in the Proxy Statement and, after consultation with Aeroflex, respond
promptly to any comments made by the SEC with respect to the preliminary proxy
or information statement and cause a definitive proxy or information statement,
including any amendments or supplements thereto (the "Proxy Statement") to be
mailed to its stockholders at the earliest practicable date, provided that no
amendments or supplements to the Proxy Statement will be made by the Company
without consultation with Aeroflex and its counsel; (b) Aeroflex will vote, or
cause to be voted, all of the Shares acquired in the Offer or otherwise then
owned by it, the Purchaser or any of Aeroflex's other Subsidiaries in favor of
the approval and adoption of the Merger Agreement; and (c) notwithstanding the
provisions of clauses (a) and (b) above, in the event that Aeroflex, the
Purchaser and any other Subsidiaries of Aeroflex shall acquire in the aggregate
at least 90% of the outstanding shares of each class of capital stock of the
Company pursuant to the Offer (including any subsequent Offering Period), the
Purchaser Option or otherwise, the parties to the Merger Agreement shall,
subject to certain conditions to the Merger (see "-- Certain Conditions to the
Merger" below), take all necessary and appropriate action to cause the Merger to
become effective as soon as practicable after such acquisition, without a
meeting of stockholders of the Company, in accordance with Section 253 of the
DGCL.
Takeover Statute. Pursuant to the Merger Agreement, the Company has agreed
that notwithstanding any other provision in the Merger Agreement, in no event
will the approval of the Offer and the Merger resulting in the inapplicability
of Section 203 of the DGCL be withdrawn, revoked or modified by the Company's
Board of Directors. If any other "fair price," "moratorium," "control share
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated by the Merger Agreement, each of the
Company, Aeroflex and the Purchaser and the members of their respective Boards
of Directors shall grant such approvals and take such actions as are reasonably
necessary so that the transactions contemplated by the Merger Agreement may be
consummated as promptly as practicable on the terms contemplated thereby and
otherwise act to eliminate or minimize the effects of such statute or regulation
on the transactions contemplated by the Merger Agreement.
Reasonable Best Efforts. The Merger Agreement provides that subject to the
terms and conditions of the Merger Agreement and applicable law, each of
Aeroflex, the Purchaser and the Company will act in good faith and use
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by the Merger Agreement as soon as
practicable. Aeroflex, the Purchaser and the Company have agreed to (and to
cause their respective Subsidiaries, and to use reasonable best efforts to cause
their respective affiliates, directors, officers, employees, agents, attorneys,
accountants and representatives, to) do the following:
(i) consult and cooperate with and provide assistance to each other in
the preparation and filing of certain documents with the SEC;
(ii) obtain all consents, approvals, waivers, licenses, permits,
authorizations, registrations, qualifications or other permissions or
actions by, and give all necessary notices to, and make all filings with
and applications and submissions to, any governmental entity or other
person necessary in connection with the
29
consummation of the transactions contemplated by the Merger Agreement as
soon as reasonably practicable; and
(iii) provide all such information concerning Aeroflex, the Company,
their respective Subsidiaries and their respective officers, directors,
employees, partners and affiliates as may be necessary or reasonably
requested in connection with any of the foregoing.
Notwithstanding the foregoing, or any other covenant contained in the
Merger Agreement, in connection with the receipt of any necessary approvals
under any applicable competition or anti-trust statute, rule or regulation,
foreign or domestic, neither the Company nor any Subsidiary will be entitled to
divest or hold separate or otherwise take or commit to take any action that
limits Aeroflex's or Purchaser's freedom of action with respect of, or their
ability to retain, the Company or any of its Subsidiaries or any material
portions thereof or any of the businesses, product lines, properties or assets
of the Company or any of its Subsidiaries, without Aeroflex's prior written
consent. Prior to making any application to or filing with a governmental entity
or other entity in connection with the Merger Agreement, each party is required
to provide the other party with drafts thereof and afford the other party a
reasonable opportunity to comment on such drafts.
Notwithstanding the foregoing, nothing in the Merger Agreement will be
deemed to require Aeroflex, Purchaser or the Company to commence any litigation
against any entity in order to facilitate the consummation of the Offer and the
Merger or to defend against any litigation brought by any governmental entity
seeking to prevent the consummation thereof.
The Merger Agreement also provides that the Company, Aeroflex and the
Purchaser will keep the other parties reasonably apprised of the status of
matters relating to completion of the transactions contemplated thereby,
including promptly furnishing the other parties with copies of notices or other
communications received by Aeroflex, the Purchaser or the Company, as the case
may be, or any of their respective Subsidiaries, from any third party and/or any
governmental entity with respect to the transactions contemplated by the Merger
Agreement.
Employee Benefits. The Merger Agreement provides that each person who is
an employee or former employee of the Company or its Subsidiaries (a "Company
Employee") immediately prior to the date of purchase of Shares in the Offer (the
"Purchase Date") will, without duplication of benefits, be given credit for all
service with the Company or any of its Subsidiaries (and service credited by the
Company or any of its Subsidiaries) prior to the Purchase Date, using the same
methodology utilized by the Company as of immediately before the Purchase Date
for crediting service and determining levels of benefits, under (a) all employee
benefit plans, programs and arrangements maintained by or contributed to by
Aeroflex and its Subsidiaries (including, without limitation, the Company and
the Surviving Corporation) in which such Company Employees become participants
for purposes of eligibility to participate, vesting and determination of level
of benefits (excluding, however, benefit accrual under any defined benefit
plans), and (b) for purposes of calculating the amount of each Company
Employee's severance benefits, if any, Aeroflex, the Company and the Surviving
Company will (x) waive all limitations as to preexisting conditions exclusions
and waiting periods with respect to participation and coverage requirements
applicable to the Company Employees under any welfare benefit plans that such
Company Employees may be eligible to participate in after the Purchase Date,
other than limitations or waiting periods that are already in effect with
respect to such employees and that have not been satisfied as of the Purchase
Date under any welfare benefit plan maintained for the Company Employees
immediately prior to the Purchase Date, and (y) provide each Company Employee
with credit for any co-payments and deductibles paid prior to the Purchase Date
in satisfying any applicable annual deductible or out-of-pocket requirements
under any welfare plans that such Company Employees are eligible to participate
in after the Purchase Date.
Pursuant to the Merger Agreement, Aeroflex and the Company will take all
such steps as may be required to cause the transactions contemplated by the
Merger Agreement and any other dispositions of the Company equity securities
(including derivative securities) or acquisitions of Aeroflex equity securities
(including derivative securities) in connection with the Merger Agreement by
each individual who (a) is a director or officer of the Company or (b) at the
Effective Time, will become an officer of Aeroflex, to be exempt under Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended, such
steps to
30
be taken in accordance with the No-Action Letter dated January 12, 1999, issued
by the SEC to Skadden, Arps, Slate, Meagher & Flom LLP.
No Solicitation. The Merger Agreement provides that none of the Company,
its Subsidiaries or any of their Representatives (as defined hereinafter) will,
directly or indirectly: (1) initiate, solicit, encourage or knowingly facilitate
(including by way of furnishing information or assistance) any inquiries or
expressions of interest or the making of any proposal or offer that constitutes,
or could reasonably be expected to lead to, (x) a proposal or offer with respect
to a merger, reorganization, share exchange, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving, or any purchase directly or indirectly (including by way of lease,
exchange, sale, mortgage, pledge, tender offer, exchange offer or otherwise, as
may be applicable) of 10% or more of the assets of or equity interests (in
economic or voting power) in the Company or any of its Subsidiaries, in each
case, other than a proposal or offer made by Aeroflex or an affiliate thereof,
(y) a breach of the Merger Agreement (including the conditions to the Offer set
forth in the Merger Agreement) or any interference with the completion of the
Offer or the Merger, or (z) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing (any of the foregoing inquiries, expressions of interest, proposals or
offers being hereinafter referred to as an "Acquisition Proposal"); (2) have any
discussions with or provide any nonpublic information or data to any person
relating to an Acquisition Proposal, or engage in any negotiations concerning an
Acquisition Proposal, or knowingly facilitate any effort or attempt to make or
implement an Acquisition Proposal; (3) approve or recommend, or propose publicly
to approve or recommend, any Acquisition Proposal; (4) approve or recommend, or
propose to approve or recommend, or execute or enter into, any letter of intent,
agreement in principle, merger agreement, asset purchase or share exchange
agreement, option agreement or other similar agreement (other than a
confidentiality agreement to the extent permitted by the Merger Agreement); or
(5) agree to do any of the foregoing related to any Acquisition Proposal.
Notwithstanding the foregoing, the Company and the Company Board are
permitted to (A) to the extent applicable, comply with Rule 14d-9 and Rule 14e-2
under the Exchange Act with regard to an Acquisition Proposal or make any
disclosures as to factual matters that are required by applicable law or which
the Company Board, after consultation with outside counsel, determines in good
faith is required in the exercise of its fiduciary duties under applicable law,
(B) effect a Change in Company Recommendation (as hereinafter defined) or (C)
engage in any discussions or negotiations with, or provide nonpublic information
or data to, any person in response to an unsolicited bona fide written
Acquisition Proposal by any such person first made after the date of the Merger
Agreement, if and only to the extent that, in any such case referred to in
clause (B) or (C): (1) the Purchaser's acquisition of Shares pursuant to the
Offer shall not have occurred; (2) the Company complies in all material respects
with the nonsolicitation provisions of the Merger Agreement; (3) the Company
Board, after consultation with outside counsel, determines in good faith that
such action is required in the exercise of its fiduciary duties under applicable
law; (4) in the case of clause (B) above, (I) if the Company has received an
unsolicited bona fide written Acquisition Proposal from a third party, the
Company Board concludes in good faith that such Acquisition Proposal constitutes
a Superior Proposal (as hereinafter defined) after giving effect to all of the
adjustments which may be offered by Aeroflex pursuant to clause (III) below,
(II) it has notified Aeroflex, at least three business days in advance, of its
intention to effect a Change in Company Recommendation, specifying the material
terms and conditions of any such Superior Proposal and furnishing to Aeroflex a
copy of the relevant proposed transaction agreements with the party making such
Superior Proposal and other material documents and (III) prior to effecting such
a Change in Company Recommendation, it has, and has caused its financial and
legal advisors to, negotiate with Aeroflex in good faith to make such
adjustments in the terms and conditions of the Merger Agreement as would enable
it to proceed with the Offer and the Merger and the other transactions
contemplated thereby without violating its fiduciary duties under applicable
law; (5) in the case of clause (C) above, the Company Board concludes in good
faith that there is a reasonable likelihood that such Acquisition Proposal
constitutes a Superior Proposal, and prior to providing any nonpublic
information or data to any person in connection with Acquisition Proposal, the
Company Board receives from such person an executed confidentiality agreement
having provisions that are no less favorable to the Company than those contained
in the Confidentiality Agreement; and (6) the Company immediately (and in any
event prior to providing any nonpublic information or data to any person or
entering into discussions or negotiations with any person) notifies
31
Aeroflex of such inquiries, proposals or offers received by, any such
information requested from, or any such discussions or negotiations sought to be
initiated or continued with, it or any of its Representatives indicating, in
connection with such notice, the identity of such person and the material terms
and conditions of any inquiries, proposals or offers (including a copy thereof
if in writing and any related documentation or correspondence). The Company
agrees that it will advise Aeroflex of any developments (including any changes
in such terms and conditions) with respect to such inquiries, proposals or
offers as promptly as practicable after the occurrence thereof.
The Merger Agreement also provides that the Company will immediately cease,
and cause its Subsidiaries and their Representatives to cease, any and all
existing activities, discussions or negotiations with any third parties
conducted prior to the execution of the Merger Agreement with respect to any
Acquisition Proposal, and shall use its reasonable best efforts to cause any
such third parties in possession of nonpublic information about it or any of its
Subsidiaries that was furnished by or on its behalf in connection with any of
the foregoing to return or destroy all such information in the possession of any
such third party or in the possession of any Representative of any such third
party, and it will not release any third party from, or waive any provisions of,
any confidentiality or standstill agreement to which it or any of its
Subsidiaries is a party with respect to any Acquisition Proposal.
Pursuant to the Merger Agreement, any disclosure (other than a "stop, look
and listen" or similar communication of the type contemplated by Rule 14d-9(f)
under the Exchange Act) made pursuant to clause (A) of the second preceding
paragraph will be deemed to be a Change in Company Recommendation unless the
board of directors expressly reaffirms the Company Recommendation in such
disclosure.
As used in the Merger Agreement, "Representative" means, with respect to
any person, any officer, director, employee, affiliate, agent, representative or
advisor, including any investment banker, attorney or accountant retained by
such person or any of its Subsidiaries.
As used in the Merger Agreement, a "Change in Company Recommendation" means
(x) any withdrawal, modification or qualification (or proposal to withdraw,
modify or qualify) in any manner adverse to Aeroflex the recommendation by the
Company Board or any committee thereof of the Offer, the Merger or the Merger
Agreement, or (y) any other action or other statement made by the Company Board
inconsistent with such recommendation.
As used in the Merger Agreement, "Superior Proposal" means an unsolicited
bona fide written Acquisition Proposal which the Company Board concludes in good
faith, after consultation with its financial advisors and legal advisors, taking
into account all legal, financial, regulatory and other aspects of the proposal
and the person making the proposal (including any break-up fees, expense
reimbursement provisions and conditions to consummation), (i) is more favorable
to the stockholders of Company, from a financial point of view, than the
transactions contemplated by the Merger Agreement, (ii) is not subject to any
financing contingencies, (iii) is from a person that a nationally recognized
investment bank advises in writing is financially capable of consummating such
proposal, and (iv) is not subject to any condition the fulfillment of which, in
the good faith judgment of the Company Board, is not highly probable; provided
that, for purposes of this definition, "Acquisition Proposal" refers only to a
transaction involving voting securities of Company and the reference to "10% or
more" in the definition of "Acquisition Proposal" shall be deemed to be a
reference to "a majority."
Public Announcements. The Merger Agreement provides that Aeroflex and the
Company agree that neither one of them will issue any press release or otherwise
make any public statement or respond to any press inquiry with respect to the
Merger Agreement or the transactions contemplated thereby without the prior
approval of the other party (which approval will not be unreasonably withheld or
delayed), except as may be required by applicable law or the rules of any stock
exchange on which such party's securities are listed.
Indemnification; D&O Insurance. The Merger Agreement provides that for a
three year period from and after the Effective Time, Aeroflex will indemnify and
hold harmless each present and former director and officer of the Company and
its Subsidiaries against any costs or expenses (including attorneys' fees),
judgments, fines, losses, claims, damages or liabilities incurred in connection
with any claim, action, suit,
32
proceeding or investigation, whether civil, criminal, administrative or
investigative, by reason of the fact that such individual is or was a director,
officer, employee or agent of the Company or any of its Subsidiaries, or is or
was serving at the request of the Company or any of its Subsidiaries as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, arising out of or pertaining to matters
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the purchase of Shares in the Offer, to the
fullest extent permitted under applicable law, and Aeroflex will also advance
fees and expenses as incurred to the fullest extent permitted under applicable
law.
The Merger Agreement further provides that the certificate of incorporation
of the Company will, from and after the Purchase Date, and the certificate of
incorporation of the Surviving Corporation will, from and after the Effective
Time, contain provisions no less favorable with respect to indemnification than
are set forth as of the date of the Merger Agreement in the certificate of
incorporation of the Company, which provisions shall not be amended, repealed or
otherwise modified for a period of three years from the Purchase Date in any
manner that would adversely affect the rights thereunder of individuals who at
the Purchase Date were directors, officers or employees of the Company; provided
that the foregoing shall not limit Aeroflex's ability to merge the Company into
Aeroflex or any of its Subsidiaries or otherwise eliminate the Company's
corporate existence.
The Merger Agreement further provides that, for three years from the
Effective Time, Aeroflex will maintain in effect the Company's and its
Subsidiaries' current directors' and officers' liability insurance policies (the
"Policies") covering those persons who are currently covered by the Policies;
provided, however, that in no event shall Aeroflex be required to expend in any
one year an amount in excess of an agreed upon amount for such insurance, and,
provided, further, that if the annual premiums of such insurance coverage exceed
such amount, Aeroflex is obligated to obtain policies with the greatest coverage
available for a cost not exceeding such amount; and provided, further, that
Aeroflex may meet these obligations by covering the above persons under
Aeroflex's insurance policy or other substitute policies on the terms described
above that expressly provide coverage for any acts that are covered by the
existing Policies of the Company and its Subsidiaries.
Conditions to the Merger. The Merger Agreement provides that the
obligations of Aeroflex, the Purchaser and the Company to consummate the Merger
are subject to the satisfaction of the following conditions at or prior to the
Effective Time:
(1) if required by the DGCL, the approval of the Merger Agreement by
the stockholders of the Company in accordance with such law;
(2) no statute, rule, regulation, executive order, decree, ruling or
permanent injunction shall have been enacted, entered, promulgated or
enforced by any governmental entity that prohibits the consummation of the
Merger substantially on the terms contemplated by the Merger Agreement or
has the effect of making Aeroflex or the Purchaser's acquisition of Shares
illegal; and
(3) Aeroflex or the Purchaser will have purchased Shares pursuant to
the Offer.
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time:
(1) by the mutual written consent of the Company (including, from and
after the Purchase Date, only with the concurrence of a majority of the
directors of the Company then in office who neither were designated by
Aeroflex nor are employees of the Company), Aeroflex and the Purchaser;
(2) by either Aeroflex or the Company if (a) (i) the Offer shall have
expired without any Shares being purchased pursuant thereto, or (ii) the
Offer has not been consummated on or before August 30, 2002, so long as the
terminating party is not the cause of the failure to purchase shares
pursuant to the Offer; (b) applicable law prohibits the consummation of the
Offer or the Merger substantially on the terms contemplated by the Merger
Agreement; or (c) a final and non-appealable order, decree, ruling or
injunction has been entered permanently restraining, enjoining or otherwise
prohibiting the consummation of the Offer or the Merger substantially on
the terms contemplated by the Merger Agreement, so
33
long as the terminating party shall have used its reasonable best efforts
to remove such order, decree, ruling or injunction;
(3) by Aeroflex if due to an occurrence or circumstance, other than as
a result of a breach by Aeroflex or the Purchaser of their obligations
under the Merger Agreement or under the Offer, resulting in a failure to
satisfy any condition to the Offer, the Purchaser shall have (a) failed to
commence the Offer within 30 days following the date of the Merger
Agreement or (b) terminated the Offer without having accepted any Shares
for payment thereunder;
(4) by the Company if (i) the Purchaser shall have failed to commence
the Offer within 15 days following the date of the Merger Agreement,
provided that no event constituting a failure of the conditions to the
Offer shall have occurred; (ii) the Purchaser shall have terminated the
Offer without having accepted any Shares for payment, other than as a
result of a breach by the Company of its obligations under the Merger
Agreement, that would result in a failure to satisfy any of the conditions
to the Offer; or (iii) if the representations and warranties of Purchaser
and Aeroflex regarding (x) their authority to consummate the transactions
contemplated by the Merger Agreement, (y) the availability of sufficient
funds to purchase the Shares in the Offer and Merger and to make the loan
of $48.8 million to the Company to pay the Lenders, or (z) the accuracy in
all material respects of the information of Aeroflex and Purchaser in this
Offer to Purchase and related documents and the Schedule 14D-9 shall not be
true and correct in all material respects; provided, that in the event of a
breach of the representations and warranties with respect to the accuracy
of the information of Aeroflex and Purchaser, Aeroflex and Purchaser will
have ten business days to remedy any such breach; or
(5) by the Company, in accordance with the Merger Agreement, to accept
a Superior Proposal, provided that such termination shall not be effective
unless and until the Company shall have paid to Aeroflex the Termination
Fee described below.
If the Merger Agreement is terminated, there shall be no other liability
(other than with respect to Termination Fees and confidentiality) on the part of
Aeroflex, the Purchaser or the Company or their respective officers or directors
except liability arising out of a willful breach of the Merger Agreement. In the
event of termination of the Merger Agreement prior to the expiration of the
Offer, Aeroflex and the Purchaser will promptly terminate the Offer without the
purchase of Shares thereunder.
Fees and Expenses. Except as otherwise specified below, all fees and
expenses incurred in connection with the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such expenses, whether
or not the Offer or the Merger is consummated.
In the event that the Merger Agreement shall have been terminated (i)
pursuant to paragraph (3) under "-- Termination" above as a result of the
failure of the condition set forth in paragraph (e) of Section 15 below, (ii)
pursuant to paragraph (5) under "-- Termination" above, (iii) as a result of the
failure to satisfy the Minimum Condition to the Offer and prior to such
termination, an Acquisition Proposal has been publicly announced, or (iv)
pursuant to paragraph (2)(a)(i) or (ii) under "-- Termination" above and, prior
to such termination, an Acquisition Proposal has been publicly announced, the
Company will immediately pay Aeroflex a fee equal to $2.5 million plus all
reasonable and documented expenses of Aeroflex and the Purchaser incurred in
connection with the transactions contemplated by the Merger Agreement in an
amount not to exceed $500,000 (collectively, the "Termination Fee"), payable by
wire transfer of immediately available funds, the receipt of which by Aeroflex
in the case of termination pursuant to paragraph (5) under "-- Termination"
above shall be a condition to the effectiveness of such termination.
Notwithstanding the foregoing, no such payment pursuant to clauses (iii) or (iv)
of the preceding sentence will be required if, within five business days after
the public announcement of such Acquisition Proposal or communication of the
Acquisition Proposal to the Company Board, the Company Board (A) determines that
such Acquisition Proposal does not constitute a Superior Proposal, (B) so
notifies Aeroflex and the person or persons that made the Acquisition Proposal
in writing, and (C) in the case of any Acquisition Proposal that has been
publicly disclosed, within three business days thereafter files with the SEC,
and mails to Company's stockholders, a supplement to the Company's Schedule
14D-9 describing such determination and reaffirming the Company Board's
recommendation of the Offer and the Merger; provided, however, if, at any time
prior to the first
34
anniversary of such termination, the Company or any of its Subsidiaries enters
into a definitive agreement in respect of, or approves or recommends, an
Acquisition Proposal, or agrees or resolves to do any of the foregoing, the
Company must pay to Aeroflex the Termination Fee not later than the date of
consummation of the transaction relating to an Acquisition Proposal.
Amendment. At any time prior to the Effective Time, the Merger Agreement
may be amended by written agreement of the parties thereto; provided, however,
that after adoption of the Merger Agreement by stockholders of the Company,
there shall be no amendment or change to the Merger Agreement that would reduce
the amount or change the type of consideration into which each Share shall be
converted upon consummation of the Merger or other change requiring stockholder
approval without further approval by the stockholders of the Company.
12. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY
Purpose of the Offer. The purpose of the Offer is to acquire control of,
and the entire equity interest in, the Company. The purpose of the Merger is to
acquire all outstanding Shares not tendered and purchased pursuant to the Offer.
If the Offer is successful, the Purchaser intends to consummate the Merger as
promptly as practicable.
The Company Board has approved the Merger and the Merger Agreement.
Depending upon the number of Shares purchased by the Purchaser pursuant to the
Offer, the Company Board may be required to submit the Merger Agreement to the
Company's stockholders for approval at a stockholder's meeting convened for that
purpose in accordance with the DGCL. If stockholder approval is required, the
Merger Agreement must be approved by a majority of all votes entitled to be cast
at such meeting.
If the Minimum Condition is satisfied, the Purchaser will have sufficient
voting power to approve the Merger Agreement at the stockholders' meeting
without the affirmative vote of any other stockholder. If the Purchaser acquires
at least 90% of the then outstanding Shares pursuant to the Offer (including any
Subsequent Offering Period), the Purchaser Option or otherwise, the Merger may
be consummated without a stockholder meeting and without the approval of the
Company's stockholders. See Sections 1 and 11. The Merger Agreement provides
that the Purchaser will be merged into the Company and that the certificate of
incorporation and bylaws of the Purchaser will be the certificate of
incorporation and bylaws of the Surviving Corporation following the Merger,
until amended.
Under the DGCL, holders of Shares do not have dissenters' rights as a
result of the Offer. In connection with the Merger, however, stockholders of the
Company may have the right to dissent and demand appraisal of their Shares under
the DGCL. Dissenting stockholders who comply with the applicable statutory
procedures under the DGCL will be entitled to receive a judicial determination
of the fair value of their Shares (exclusive of any element of value arising
from the accomplishment or expectation of the Merger) and to receive payment of
such fair value in cash. Any such judicial determination of the fair value of
the Shares could be based upon considerations other than or in addition to the
price per Share paid in the Merger and the market value of the Shares. In
Weinberger v. UOP, Inc., the Delaware Supreme Court stated, among other things,
that "proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court" should
be considered in an appraisal proceeding. Stockholders should recognize that the
value so determined could be higher or lower than the price per Share paid
pursuant to the Offer or the consideration per Share to be paid in the Merger.
Moreover, Aeroflex may argue in an appraisal proceeding that, for purposes of
such a proceeding, the fair value of the Shares is less than the price paid in
the Offer or the Merger.
Plans for the Company. Pursuant to the terms of the Merger Agreement,
promptly upon the purchase of and payment for any Shares by the Purchaser
pursuant to the Offer, the Purchaser currently intends to seek maximum
representation on the Company Board, subject to the requirement in the Merger
Agreement that if Shares are purchased pursuant to the Offer, there shall be
until the Effective Time at least three members of the Company Board who were
directors as of the date of the Merger Agreement and who are not employees of
the Company. The Purchaser currently intends, as soon as practicable after
consummation of the Offer, to consummate the Merger.
35
The Purchaser and Aeroflex will continue to evaluate the business and
operations of the Company during the pendency of the Offer and after the
consummation of the Offer and the Merger in order to determine what actions, if
any, they will take to consolidate the business of the Company with those of
Aeroflex, and will take such actions as they deem appropriate. Aeroflex intends
to seek additional information about the Company during this period. Aeroflex
intends to review such information as part of a comprehensive review of the
Company's business, operations, capitalization and management with a view to
optimizing development of the Company's potential in conjunction with Aeroflex's
business.
Except as described above or elsewhere in this Offer to Purchase, the
Purchaser has no present plans or proposals that would relate to or result in
(i) any extraordinary corporate transaction involving the Company or any of its
Subsidiaries (such as a merger, reorganization, liquidation, relocation of any
operations or sale or other transfer of a material amount of assets), (ii) any
sale or transfer of a material amount of assets of the Company or any of its
Subsidiaries, (iii) any change in the Company Board or management of the
Company, (iv) any material change in the Company's capitalization or dividend
policy, (v) any other material change in the Company's corporate structure or
business, (vi) a class of securities of the Company being delisted from a
national securities exchange or ceasing to be authorized to be quoted in an
inter-dealer quotation system of a registered national securities association or
(vii) a class of equity securities of the Company being eligible for termination
of registration pursuant to Section 12(g) of the Exchange Act.
13. CERTAIN EFFECTS OF THE OFFER
Market for the Shares. The purchase of Shares pursuant to the Offer will
reduce the number of holders of Shares and the number of Shares that might
otherwise trade publicly, which could adversely affect the liquidity and market
value of the remaining Shares held by stockholders other than the Purchaser. The
Purchaser cannot predict whether the reduction in the number of Shares that
might otherwise trade publicly would have an adverse or beneficial effect on the
market price for, or marketability of, the Shares or whether such reduction
would cause future market prices to be greater or less than the Offer Price.
Stock Quotation. Depending upon the number of Shares purchased pursuant to
the Offer, the Shares may no longer meet the standards for continued inclusion
on Nasdaq. According to its published guidelines, Nasdaq would give
consideration to delisting Shares if, among other things, the Shares did not
substantially meet its standards for continued listing. Under the first
standard, Nasdaq would give consideration to delisting the Shares if (i) the
number of publicly held Shares falls below 750,000, (ii) the number of holders
of round lots of shares of Common Stock falls below 400, (iii) the Company's
market value of publicly held Shares falls below $5 million, (iv) the minimum
bid price per Share falls below $1, (v) the Company's stockholders' equity falls
below $10 million (or, until November 1, 2002, net tangible assets fall below $4
million), and (vi) there fails to be at least two market makers in the Shares.
Under the second standard, Nasdaq would give consideration to delisting the
Shares if (i) the number of publicly held Shares falls below 1,100,000, (ii) the
number of holders of round lots of Shares falls below 400, (iii) the Company's
market value of publicly held Shares falls below $15 million, (iv) the minimum
bid price per Share falls below $3 and (v) either (a) the Company's market
capitalization falls below $50 million or (b) the Company's total assets and
total revenue fall below $50 million for each of the two most recently completed
fiscal years or two of the last three most recently completed fiscal years, and
(vi) there fails to be at least four market makers in the Shares. Shares held by
directors or officers of the Company, or their immediate families, or by any
beneficial owner of more than ten percent or more of the Shares ordinarily will
not be considered as being publicly held for this purpose.
If Nasdaq were to delist the Shares, it is possible that the Shares would
continue to trade on other securities exchanges or in the over-the-counter
market and that price quotations would be reported by such exchanges or other
sources. However, the extent of the public market for the Shares and the
availability of such quotations would depend upon such factors as the number of
stockholders and/or the aggregate market value of the Shares remaining at such
time, the interest in maintaining a market in the Shares on the part of
securities firms, the possible termination of registration under the Exchange
Act and other factors. Neither Aeroflex nor the Purchaser can predict whether
the reduction in the number of the Shares that might otherwise trade publicly
would have an adverse or beneficial effect on the market price for or
marketability of the Shares or whether it would cause future market prices to be
greater or less than the Offer Price.
36
Margin Regulations. The Shares are currently "margin securities" under the
Regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which has the effect, among other things, of allowing
brokers to extend credit on the collateral of the Shares. Depending upon factors
similar to those described above regarding the market for the Shares and stock
quotations, it is possible that, following the Offer, the Shares would no longer
constitute "margin securities" for the purposes of the margin regulations of the
Federal Reserve Board and therefore could no longer be used as collateral for
loans made by brokers.
Exchange Act Registration. The Shares are currently registered under the
Exchange Act. Such registration may be terminated upon application of the
Company to the SEC if the Shares are neither listed on a national securities
exchange nor held by 300 or more holders of record. Termination of registration
of the Shares under the Exchange Act would substantially reduce the information
required to be furnished by the Company to its stockholders and to the SEC and
would make certain provisions of the Exchange Act no longer applicable to the
Company, such as the short-swing profit recovery provisions of Section 16(b) of
the Exchange Act, the requirement of furnishing a proxy statement pursuant to
Section 14(a) of the Exchange Act in connection with stockholders' meetings and
the related requirement of furnishing an annual report to stockholders and the
requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions. Furthermore, the ability of "affiliates" of the Company
and persons holding "restricted securities" of the Company to dispose of such
securities pursuant to Rule 144 promulgated under the Securities Act of 1933, as
amended, may be impaired or eliminated. If registration of the Shares under the
Exchange Act were terminated, the Shares would no longer be "margin securities"
or be eligible for trading on Nasdaq. Aeroflex and the Purchaser currently
intend to seek to cause the Company to terminate the registration of the Shares
under the Exchange Act as soon after consummation of the Offer as the
requirements for termination of registration are met.
14. DIVIDENDS AND DISTRIBUTIONS
As discussed in Section 11, the Merger Agreement provides that from the
date of the Merger Agreement to the Effective Time, without the prior written
approval of Aeroflex, the Company will not and will not permit any of its
Subsidiaries to authorize or pay any dividends on or make any distribution with
respect to its outstanding shares of capital stock (except for dividends paid by
a Subsidiary of the Company to the Company or another wholly owned Subsidiary of
the Company). In addition, the Company's Credit Agreement restricts the payment
of dividends; due to the existing defaults under the Credit Agreement, no
dividends are permitted to be paid to stockholders at this time.
15. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, the Purchaser shall not
be required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) promulgated under the Exchange
Act (relating to the Purchaser's obligation to pay for or return Shares promptly
after termination or withdrawal of the Offer), pay for, and may postpone the
acceptance for payment of and payment for Shares tendered, and, except as set
forth in the Merger Agreement, terminate the Offer as to any Shares not then
paid for if (i) the Minimum Condition shall not have been satisfied at the
Expiration Date, (ii) the notification and approval of the European Commission
or any other Governmental Entity (as defined in the Merger Agreement), in each
case if required, shall not have been received, or (iii) immediately prior to
the expiration of the Offer, any of the following conditions shall exist:
(a) there will have been entered, enforced or issued by any
Governmental Entity any judgment, order, injunction or decree (i) which
makes illegal, restrains or prohibits or makes materially more costly the
making of the Offer, the acceptance for payment of, or payment for, any
Shares by Aeroflex, the Purchaser or any other affiliate of Aeroflex, or
the consummation of the Merger, (ii) which prohibits or limits materially
the ownership or operation by the Company, Aeroflex or any of their
Subsidiaries of all or any material portion of the business or assets of
the Company, Aeroflex or any of their Subsidiaries, or compels the Company,
Aeroflex or any of their Subsidiaries to dispose of or hold separate all or
any portion of the business or assets of the Company, Aeroflex or any of
their Subsidiaries, (iii) which
37
imposes or confirms limitations on the ability of Aeroflex, the Purchaser
or any other affiliate of Aeroflex to exercise full rights of ownership of
any Shares, including, without limitation, the right to vote any Shares
acquired by the Purchaser pursuant to the Offer or otherwise on all matters
properly presented to the Company's stockholders, including, without
limitation, the approval and adoption of the Merger Agreement and the
transactions contemplated by the Merger Agreement, (iv) which requires
divestiture by Aeroflex, the Purchaser or any other affiliate of Aeroflex
of any Shares or (v) which otherwise would have a Material Adverse Effect
on the Company to the extent that it relates to or arises out of the
transactions contemplated by the Merger Agreement or Aeroflex;
(b) there shall have been any statute, rule, regulation, legislation
or interpretation enacted, enforced, promulgated, amended or issued by any
Governmental Entity or deemed by any Governmental Entity applicable to (i)
Aeroflex, the Company or any Subsidiary or affiliate of Aeroflex or the
Company or (ii) any transaction contemplated by the Merger Agreement which
is reasonably likely to result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (v) of paragraph (a) above;
(c) there shall have occurred any changes, conditions, events or
developments that would have, or be reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on the Company;
(d) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the NYSE other than a
shortening of trading hours or any coordinated trading halt triggered
solely as a result of a specified increase or decrease in a market index,
(ii) a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (iii) any limitation (whether or not
mandatory) on the extension of credit by banks or other lending
institutions in the United States, (iv) the commencement of a war, material
armed hostilities or any other material international or national calamity
involving the United States or (v) in the case of any of the foregoing
existing at the time of the commencement of the Offer, a material
acceleration or worsening thereof;
(e) (i) it shall have been publicly disclosed or the Purchaser shall
have otherwise learned that any individual, corporation, partnership,
association, trust or any other entity or organization, other than Aeroflex
or any of its affiliates, shall have acquired or entered into a definitive
agreement or agreement in principle to acquire beneficial ownership
(determined for the purposes of this paragraph as set forth in Rule 13d-3
promulgated under the Exchange Act) of 20% or more of the then outstanding
Shares, or shall have been granted any option, right or warrant,
conditional or otherwise, to acquire beneficial ownership of 20% or more of
the then outstanding Shares, or (ii) the Company Board or any committee
thereof shall have (A) withdrawn, modified or changed, in a manner adverse
to Aeroflex or the Purchaser, the recommendation by such Company Board or
such committee of the Offer, the Merger or the Merger Agreement, (B)
approved or recommended, or proposed publicly to approve or recommend an
Acquisition Proposal, (C) caused the Company to enter into any agreement
relating to any Acquisition Proposal, or (D) resolved to do any of the
foregoing;
(f) the representations or warranties of the Company set forth in the
Merger Agreement that are qualified by materiality or Material Adverse
Effect shall not be true and correct, or the representations and warranties
of the Company set forth in the Merger Agreement that are not so qualified
shall not be true and correct in all material respects, in each case, as if
such representations or warranties were made as of the date of the Merger
Agreement (except to the extent such representations and warranties speak
as of a specific date or as of the date of the Merger Agreement, in which
case such representations and warranties shall not be so true and correct
or true and correct in all material respects, as the case may be, as of
such specific date or as of the date of the Merger Agreement, respectively)
and as of the date of the expiration of the Offer;
(g) the Company shall have failed to perform in any material respect
any material obligation or to comply in any material respect with any
material agreement or covenant of the Company to be performed or complied
with by it under the Merger Agreement;
38
(h) the Loan Discharge Agreement or the Forbearance Agreement between
the Company and its Lenders shall cease to be in full force and effect or
such Lenders shall have asserted any claims or exercised any rights or
taken any action under the Credit Agreement which such Lenders would have
been precluded from taking under the terms of the Forebearance Agreement;
(i) the Merger Agreement shall have been terminated in accordance with
its terms;
(j) the Purchaser and the Company shall have agreed that the Purchaser
shall terminate the Offer or postpone the acceptance for payment of or
payment for Shares thereunder; or
(k) the Purchaser shall not have received executed letters of
resignation from four members of the Board of Directors of the Company
(including all Company employee directors);
which, in the reasonable good faith judgment of the Purchaser in any such case,
and regardless of the circumstances (including any action or inaction by
Aeroflex or any of its affiliates) giving rise to any such condition, makes it
inadvisable to proceed with such acceptance for payment or payment.
Except as expressly set forth in the Merger Agreement, the foregoing
conditions are for the benefit of the Purchaser and Aeroflex and may be asserted
by the Purchaser or Aeroflex regardless of the circumstances giving rise to any
such condition or may be waived by the Purchaser or Aeroflex in whole or in part
at any time and from time to time in their reasonable discretion. The failure by
Aeroflex or the Purchaser at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right; the waiver of any such right
with respect to particular facts and other circumstances shall not be deemed a
waiver with respect to any other facts and circumstances; and each such right
shall be deemed an ongoing right that may be asserted at any time and from time
to time.
16. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS
General. The Purchaser is not aware of any pending legal proceeding
relating to the Offer. Except as described in this Section 16, based on its
examination of publicly available information filed by the Company with the SEC
and other publicly available information concerning the Company, the Purchaser
is not aware of any governmental license or regulatory permit that appears to be
material to the Company's business that might be adversely affected by the
Purchaser's acquisition of Shares as contemplated herein or of any approval or
other action by any governmental, administrative or regulatory authority or
agency, domestic or foreign, that would be required for the acquisition or
ownership of Shares by the Purchaser as contemplated herein. Should any such
approval or other action be required, the Purchaser currently contemplates that,
except as described below under "State Takeover Statutes," such approval or
other action will be sought. While the Purchaser does not currently intend to
delay acceptance for payment of Shares tendered pursuant to the Offer pending
the outcome of any such matter, there can be no assurance that any such approval
or other action, if needed, would be obtained or would be obtained without
substantial conditions or that if such approvals were not obtained or such other
actions were not taken, adverse consequences might not result to the Company's
business, or certain parts of the Company's business might not have to be
disposed of, any of which could cause the Purchaser to elect to terminate the
Offer without the purchase of Shares thereunder under certain conditions. See
Section 15.
State Takeover Statutes. A number of states have adopted laws that
purport, to varying degrees, to apply to attempts to acquire corporations that
are incorporated in, or that have substantial assets, stockholders, principal
executive offices or principal places of business or whose business operations
otherwise have substantial economic effects in, such states. The Company,
directly or through Subsidiaries, conducts business in a number of states
throughout the United States, some of which have enacted such laws.
In Edgar v. MITE Corp., the Supreme Court of the United States invalidated
on constitutional grounds the Illinois Business Takeover Statute which, as a
matter of state securities law, made takeovers of corporations meeting certain
requirements more difficult. However, in 1987 in CTS Corp. v. Dynamics Corp. of
America, the Supreme Court held that the State of Indiana could, as a matter of
corporate law, constitutionally disqualify a potential acquiror from voting
shares of a target corporation without the prior approval of the remaining
stockholders where, among other things, the corporation is incorporated in, and
has
39
a substantial number of stockholders in, the state. Subsequently, in TLX
Acquisition Corp. v. Telex Corp., a Federal District Court in Oklahoma ruled
that the Oklahoma statutes were unconstitutional insofar as they apply to
corporations incorporated outside Oklahoma in that they would subject such
corporations to inconsistent regulations. Similarly, in Tyson Foods, Inc. v.
McReynolds, a Federal District Court in Tennessee ruled that four Tennessee
takeover statutes were unconstitutional as applied to corporations incorporated
outside Tennessee. This decision was affirmed by the United States Court of
Appeals for the Sixth Circuit.
The Company is incorporated under the laws of the State of Delaware. In
general, Section 203 of the DGCL ("Section 203") prevents an "interested
stockholder" (including a person who has the right to acquire 15% or more of the
corporation's outstanding voting stock) from engaging in a "business
combination" (defined to include mergers and certain other actions) with a
Delaware corporation for a period of three years following the date such person
became an interested stockholder. The Company Board approved for purposes of
Section 203 the entering into by Aeroflex, the Purchaser and the Company of the
Merger Agreement and the consummation of the transactions contemplated thereby
and has taken all appropriate action so that Section 203, with respect to the
Company, will not be applicable to Aeroflex and the Purchaser by virtue of such
actions.
If any government official or third party should seek to apply any state
takeover law to the Offer or the Merger or other business combination between
the Purchaser or any of its affiliates and the Company, the Purchaser will take
such action as then appears desirable, which action may include challenging the
applicability or validity of such statute in appropriate court proceedings. In
the event it is asserted that one or more state takeover statutes is applicable
to the Offer or the Merger and an appropriate court does not determine that it
is inapplicable or invalid as applied to the Offer or the Merger, the Purchaser
might be required to file certain information with, or to receive approvals
from, the relevant state authorities or holders of Shares, and the Purchaser
might be unable to accept for payment or pay for Shares tendered pursuant to the
Offer, or be delayed in continuing or consummating the Offer or the Merger. In
such case, the Purchaser may not be obligated to accept for payment or pay for
any tendered Shares. See Section 15.
United States Antitrust Compliance. Under the Hart Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations that have
been promulgated thereunder by the Federal Trade Commission (the "FTC"), certain
acquisition transactions may not be consummated unless certain information has
been furnished to the Antitrust Division of the Department of Justice and the
FTC and certain waiting period requirements have been satisfied. The purchase of
Shares pursuant to the Offer and the Merger is not subject to such requirements.
The Antitrust Division and the FTC scrutinize the legality under the
antitrust laws of transactions such as the acquisition of Shares by the
Purchaser pursuant to the Offer. At any time before or after the consummation of
any such transactions, the Antitrust Division or the FTC could take such action
under the antitrust laws of the United States as it deems necessary or desirable
in the public interest, including seeking to enjoin the purchase of Shares
pursuant to the Offer or seeking divestiture of the Shares so acquired or
divestiture of substantial assets of the Purchaser or the Company. Private
parties (including individual States) may also bring legal actions under the
antitrust laws of the United States. The Purchaser does not believe that the
consummation of the Offer will result in a violation of any applicable antitrust
laws. However, there can be no assurance that a challenge to the Offer on
antitrust grounds will not be made, or if such a challenge is made, what the
result will be. See Section 15, including conditions with respect to litigation
and certain governmental actions and Section 11 for certain termination rights.
Foreign Antitrust Compliance. Aeroflex and the Company each conduct
operations in a number of foreign countries, and certain filings will have to be
made with foreign governments under their pre-merger notification statutes. The
filing requirements of various nations are being analyzed by the parties and,
where necessary, such filings have been or will be made. Under the antitrust and
competition laws of certain foreign countries, certain acquisitions, including
the Offer and the Merger, may not be completed unless certain information has
been furnished to the relevant regulatory authority and such authority has
granted its approval or such approval has been deemed to have been granted. The
Purchaser and Aeroflex believe that efforts sufficient to satisfy these
requirements can be completed and that the required approvals can be obtained by
40
the time of the initial Expiration Date of the Offer. However, there is no
assurance that such requirements can be satisfied or, if satisfied, the date by
which they will be satisfied.
17. DISSENTERS' RIGHTS
If the Merger is consummated, stockholders of the Company may have the
right to dissent and demand appraisal of their Shares under the DGCL. See
Section 12. Under the DGCL, dissenting stockholders who comply with the
applicable statutory procedures will be entitled to receive a judicial
determination of the fair value of their Shares (exclusive of any element of
value arising from the accomplishment or expectation of the Merger) and to
receive payment of such fair value in cash, together with a fair rate of
interest, if any. Any such judicial determination of the fair value of the
Shares could be based upon considerations other than or in addition to the Offer
Price, the consideration per Share to be paid in the Merger and the market value
of the Shares, including asset values and the investment value of the Shares.
Stockholders should recognize that the value so determined could be higher or
lower than the price per Share paid pursuant to the Offer or the consideration
per Share to be paid in the Merger. Additional information with regard to
dissenters' rights will be provided to stockholders in connection with the
Merger.
18. FEES AND EXPENSES
Aeroflex and the Purchaser have retained MacKenzie Partners, Inc. to be the
Information Agent and American Stock Transfer & Trust Company to be the
Depositary in connection with the Offer. The Information Agent may contact
holders of Shares by mail, telephone, telecopy, telegraph and personal interview
and may request banks, brokers, dealers and other nominees to forward materials
relating to the Offer to beneficial owners of Shares. In addition, Aeroflex
retained C.E. Unterberg, Towbin to provide certain financial advisory services
in connection with the transactions contemplated by the Merger Agreement.
The Information Agent, the Depositary and C.E. Unterberg, Towbin each will
receive reasonable and customary compensation for their respective services,
will be reimbursed for reasonable out-of-pocket expenses and will be indemnified
against certain liabilities and expenses in connection therewith, including
certain liabilities under federal securities laws.
Neither Aeroflex nor the Purchaser will pay any fees or commissions to any
broker or dealer or to any other person (other than to the Depositary and the
Information Agent) in connection with the solicitation of tenders of Shares
pursuant to the Offer. Brokers, dealers, commercial banks and trust companies
will, upon request, be reimbursed by the Purchaser for customary mailing and
handling expenses incurred by them in forwarding offering materials to their
customers.
19. MISCELLANEOUS
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, the Purchaser may, in its discretion, take such action as
it may deem necessary to make the Offer in any such jurisdiction and extend the
Offer to holders of Shares in such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER NOT CONTAINED HEREIN OR IN THE LETTER
OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
The Purchaser has filed with the SEC a Tender Offer Statement on Schedule
TO pursuant to Rule 14d-3 of the General Rules and Regulations under the
Exchange Act, together with exhibits furnishing certain additional information
with respect to the Offer, and may file amendments thereto. In addition, the
Company has filed with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9, together with exhibits, pursuant to Rule 14d-9 under the
Exchange Act, setting forth the recommendation of the Company Board with respect
to the Offer and the reasons for such recommendation and furnishing certain
additional related
41
information. A copy of such documents, and any amendments thereto, may be
examined at, and copies may be obtained from, the SEC (but not the regional
offices of the SEC) in the manner set forth under Section 7 above.
TESTCO ACQUISITION CORP.
April 19, 2002
42
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF AEROFLEX AND THE PURCHASER
1. DIRECTORS AND EXECUTIVE OFFICERS OF AEROFLEX
The following table sets forth the name, present principal occupation or
employment and material occupations, positions, offices or employments for the
past five years of each director and executive officer of Aeroflex. Unless
otherwise indicated, the current business address of each person is 35 South
Service Road, Plainview, NY 11803. Unless otherwise indicated, each such person
is a citizen of the United States of America and each occupation set forth
opposite an individual's name refers to employment with Aeroflex, except as
otherwise set forth below.
<Table>
<Caption>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, AGE AND BUSINESS ADDRESS MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- ------------------------------ --------------------------------------------------------
Harvey R. Blau, 66........................ Mr. Blau was appointed as Chairman of the Board and
Chief Executive Officer of Aeroflex in October 1991. Mr.
Blau had previously served as Vice Chairman from
November 1983 until October 1991 and has been a director
since 1980. Mr. Blau is also Chairman of the Board and
Chief Executive Officer of Griffon Corporation, a
diversified industrial company that produces garage
doors, specialty plastic films and electronic and
information communications systems and is a director of
Reckson Associates Realty Corp. and Nu Horizons
Electronics Corp. Mr. Blau has been a practicing
attorney in the State of New York since 1961, and is a
member of the law firm of Blau, Kramer, Wactlar &
Lieberman, P.C.
Michael Gorin, 60......................... Mr. Gorin has been an employee of Aeroflex in various
executive positions since July 1985 and has been
President since October 1988, a director since August
1990 and Chief Financial Officer since 1991. From 1986
to October 1988, Mr. Gorin was the Vice
President-Finance of Aeroflex. From May 1980 until July
1985, Mr. Gorin was Senior Vice President of Republic
National Bank of New York. For more than ten years prior
to that, he was employed by Arthur Andersen & Co.,
becoming a partner in April 1973. Mr. Gorin is licensed
as a Certified Public Accountant in the State of New
York.
Leonard Borow, 54......................... Mr. Borow has been an employee of Aeroflex in various
executive positions since November 1989 and has been
Executive Vice President and Chief Operating Officer
since October 1991, a director since November 1992 and
Secretary since November 1993. Prior to joining
Aeroflex, Mr. Borow was President of Comstron
Corporation, a manufacturer of fast switching frequency
synthesizers and components, which was acquired by
Aeroflex in November 1989.
Paul Abecassis, 51........................ Mr. Abecassis has been a director of Aeroflex since
August 1998. Mr. Abecassis has been an investment banker
for more than the past 20 years. He joined Bear Stearns
International Limited, an investment banking firm, as a
Managing Director in May 1990 and became a Senior
Managing Director in September 1992.
Milton Brenner, 74........................ Mr. Brenner has been a director of Aeroflex since August
1988. Until his retirement in September 1988, Mr.
Brenner was President of Aeroflex Laboratories
Incorporated, one of Aeroflex's Subsidiaries, for more
than 15 years. Mr. Brenner was previously a director of
Aeroflex from 1973 to 1986.
</Table>
I-1
<Table>
<Caption>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, AGE AND BUSINESS ADDRESS MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- ------------------------------ --------------------------------------------------------
Ernest E. Courchene, Jr., 70.............. Mr. Courchene has been a director of Aeroflex since
April 1980. Mr. Courchene served from May 1987 to May
1992 as Vice Chairman and a director of Digitech
Industries, Inc., a manufacturer of data communications
diagnostic equipment. From May 1983 to May 1987, Mr.
Courchene was President of Southport Capital Group Ltd.,
an investment banking firm, and from March 1980 to
November 1985, he was Chairman of the Board of Harbor
Electronics Inc., a manufacturer of cable assemblies for
the electronics industry.
Vice Admiral Donald S. Jones (USN Ret.),
73...................................... Vice Admiral Jones has been a director of Aeroflex since
November 1993. Admiral Jones retired from the United
States government in 1987 after more than 37 years of
service. From March 1988 to March 1990, Vice Admiral
Jones was Vice President for Government and
International Affairs for Tracor Inc., a manufacturer of
electronic products and a provider of aircraft service
and repair. Since retirement, Admiral Jones also has
acted as an independent consultant.
Eugene Novikoff, 78....................... Mr. Novikoff has been a director of Aeroflex since June
1979. Mr. Novikoff is a professional engineer and during
the period from 1972 to 1978 was a director and Vice
President (in charge of development and engineering) for
Knogo Corporation, a manufacturing and service
organization engaged in providing equipment and devices
to libraries and retail businesses to reduce losses from
pilferage. Since January 1979, Mr. Novikoff has been a
self-employed consulting engineer.
Major General John S. Patton, PH.D. (USAF
Ret.), 84............................... General Patton has been a director of Aeroflex since
August 1985. General Patton retired from the United
States government in 1978 after more than 36 years of
service. Since retirement, he has acted as an
independent analytical technical consultant.
Charles Badlato, 43....................... Mr. Badlato has been employed by Aeroflex in various
financial positions since December 1987 and has been
Treasurer since February 1994. From May 1981 until
December 1987, Mr. Badlato was employed by various
certified public accounting firms, most recently as an
audit manager with Touche Ross & Co. Mr. Badlato is
licensed as a certified public accountant in the State
of New York.
Carl Caruso, 58........................... Mr. Caruso has been employed as Vice President of
Aeroflex Laboratories Incorporated since November 1989
and has been Vice President -- Manufacturing of Aeroflex
since February 1997. Prior to joining Aeroflex, Mr.
Caruso was Vice President of Comstron Corporation which
was acquired by Aeroflex in November 1989.
</Table>
2. DIRECTORS AND OFFICERS OF THE PURCHASER
The following table sets forth the name, present principal occupation or
employment and material occupations, positions, offices or employments for the
past five years of each director and executive officer of the Purchaser, and of
Mr. Frank Carretta, who is expected to be appointed to the Company Board
following the purchase of Shares in the Offer. Unless otherwise indicated, the
current business address of each person is 35 South Service Road, Plainview, NY
11803. Unless otherwise indicated, each such person is a citizen of the
I-2
United States of America and each occupation set forth opposite an individual's
name refers to employment with Aeroflex.
<Table>
<Caption>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, AGE AND BUSINESS ADDRESS MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- ------------------------------ --------------------------------------------------------
Directors and Executive Officers of
Purchaser:
Harvey R. Blau, 66........................ See Part 1 of this Schedule I. Mr. Blau is a director of
Purchaser.
Michael Gorin, 60......................... See Part 1 of this Schedule I. Mr. Gorin is a director
and the President of Purchaser.
Leonard Borow, 54......................... See Part 1 of this Schedule I. Mr. Borow is a director
and Vice President and Secretary of Purchaser.
Charles Badlato, 43....................... See Part 1 of this Schedule I. Mr. Badlato is Treasurer
and Assistant Secretary of Purchaser.
Designee to the Company Board:
Frank Carretta, 57........................ Mr. Carretta has been employed by Aeroflex Test
Solutions, a division of Aeroflex, since October 2001
and has been President of Aeroflex Test Solutions since
January 2002. Prior to joining Aeroflex, Mr. Carretta
was Senior Vice President of Sales and Marketing for DMC
Stratex Networks and Area Sales Manager for M/A-Com. He
also spent 17 years with Hewlett-Packard, now Agilent.
</Table>
I-3
Manually signed facsimile copies of the Letter of Transmittal, properly
completed and duly executed, will be accepted. The Letter of Transmittal,
certificates for Shares and any other required documents should be sent or
delivered by each stockholder of the Company or such stockholder's broker,
dealer, commercial bank, trust company or other nominee to the Depositary at the
address set forth below:
THE DEPOSITARY FOR THE OFFER IS:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By Mail, Hand or Overnight Courier:
59 Maiden Lane, Plaza Level
New York, New York 10038
By Facsimile Transmission:
(For Eligible Institutions Only)
(718) 234-5001
Confirm Facsimile by Telephone:
(800) 937-5449
(For Confirmation Only)
Questions or requests for assistance may be directed to the Information
Agent at the address and telephone number set forth below. Additional copies of
this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed
Delivery and related materials may be obtained from the Information Agent as set
forth below and will be furnished promptly at the Purchaser's expense.
Stockholders may also contact their broker, dealer, commercial bank, trust
company or other nominee for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
[MACKENZIE PARTNERS, INC. LOGO]
105 Madison Avenue
New York, New York 10016
(212) 929-5500 (Call Collect)
or
CALL TOLL-FREE (800) 322-2855
Email: proxy@mackenziepartners.com